2019 Annual Report
PFB Corporation
Letter to shareholders
Operationally, the year 2019 was successful for PFB Corporation with record revenues, record earnings and record adjusted
EBITDA. A complete review of operations is available in the Management’s Discussion and Analysis and the Audited
Consolidated Financial Statements. The board of directors recognizes the solid performance of management and employees in
executing the successful operations during the year.
During the year the management team led by Robert Graham, CEO continued its evolution with the addition of David Carr who
was assigned initial responsibility for the Plasti-Fab Division. Additionally, Kim Ball joined the Plasti-Fab Division and was
assigned initial responsibility for oversight of all Plasti-Fab manufacturing operations.
Frank Baker did not stand for reelection as a director at the last annual meeting of shareholders leaving a vacancy for an
independent director to be filled at the AGM to be held on May 7, 2020. We thank him for his contributions to the success of
the Corporation since 2004 and wish him well in his retirement. Matthew Joss CFA has been nominated to become an
independent director at the AGM and will join the Audit Committee.
Adherence to the principles of sustainable development and compliance with the Global Reporting Initiative since 2007 reflect
our commitment, at the highest level of governance, to conduct our business operations in accordance with the ESG
expectations of a modern world. Our core business focus is to manufacture products that reduce greenhouse gas emissions to
the environment because our building insulation and insulating building products reduce energy consumption in buildings
which account for 40% of energy consumption. We strive for industry leadership with our products and our 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.
In 2019, quarterly dividends were increased to $0.09 per share and in the fourth quarter a special dividend of $1.00 per share
was paid.
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, our employees and our investors for their past and continuing support.
C. Alan Smith
Executive Chairman
1 PFB Corporation Annual Report 2019
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 2019 PFB maintained focus on our Health and Safety performance of our operations by continuing with
our 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. In 2019 PFB launched an updated
sustainability website with new interactive charts and a user friendly interface. 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. Over the past 3 years significant effort was made to implement safety initiatives in line with our
Goal:Zero objectives targeting a reduction of our injury rates and severity. In 2019 our lost time rate remained the same as 2018 but
our severity decreased for the 3 year in a row. 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 2019 2
PFB Corporation
Management’s discussion and analysis for 2019
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 12, 2020, 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. A more detailed assessment of the risks that could
cause actual results to materially differ from current expectations can be found 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, 2019 and 2018 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, 2019 and 2018, 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 12, 2020. 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 Nevada,
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
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
3 PFB Corporation Annual Report 2019
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, 2019 and 2018
$ thousands, except per share amounts
Sales
Gross profit
Gross profit margin % 1
Operating income (loss)
Net income (loss)
Earnings (loss) per share:
Basic
Diluted
Adjusted EBITDA 1
Adjusted EBITDA per share 1
2019
Q4
2019
Q3
2019
Q2
Applying IFRS 16
2018
2019
Q4
Q1
2018
Q3
2018
Q2
2018
Q1
$ 36,824 $ 36,874
$ 35,421
$ 24,113 $ 35,283 $ 39,374 $ 32,640
$ 21,048
10,461
10,202
28.4
5,237
3,695
0.55
0.54
6,363
$ 0.95
27.7
4,940
3,442
0.51
0.50
6,080
$ 0.90
9,436
26.6
4,255
3,061
0.45
0.44
5,410
$ 0.80
4,729
19.6
(952)
(1,172)
(0.17)
(0.17)
185
$ 0.03
8,148
23.1
3,109
2,077
0.31
0.31
4,289
$ 0.64
9,752
24.8
4,789
3,263
0.48
0.48
7,520
23.0
2,481
1,536
0.23
0.23
5,965
3,666
3,751
17.8
(682)
(706)
(0.10)
(0.10)
522
$ 0.89
$ 0.55
$ 0.08
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 2019 4
4.2 Selected annual financial information for years ended December 31, 2019, 2018, and 2017
$ thousands except where indicated
Operating results
Consolidated results:
Sales
Gross profit
Operating income
Net income
Adjusted EBITDA 1
Sales by operating segment:
Canada
USA
Operating income by segment:
Canada
USA
Per common share data
Earnings per share:
Basic
Diluted
Dividend paid per share – Regular
Dividend paid per share – Special
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)
Right-of-use assets (net)
Intangible assets (net)
Goodwill
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
Applying IFRS 16
2018
2019
Excluding
IFRS 16
2017
$ 133,232 $ 128,345
29,171
9,697
6,170
14,441
34,828
13,480
9,026
18,038
$ 105,557
21,328
3,518
2,281
7,693
78,152
55,080
78,346
49,999
7,831
5,973
5,009
4,105
1.34
1.31
0.35
1.00
2.68
8.32
92,703
44,353
19,264
7,033
35,030
7,391
1,540
2,275
9,846
8,217
1,260
55,644
26.1%
10.1%
6.8%
2.30x
16.1%
0.92
0.92
0.32
-
2.16
8.34
94,622
44,053
19,511
8,211
36,694
8,305
1,447
2,360
10,609
8,568
1,397
56,009
22.7%
7.6%
4.8%
2.26x
12.3%
68,970
36,587
1,746
1,319
0.34
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%
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 2019
5. Consolidated results of operations
The results of the Corporation’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 2019 increased by 3.8% or $4,887 to $133,232 as compared to sales of $128,345 in 2018. This was a
record high of consolidated sales for the Corporation. Sales in the first and second quarters exhibited growth on a quarter-
by-quarter comparative basis, declined slightly in the third quarter, before finishing with a record fourth quarter. Sales
growth was driven by increased business activity in the USA operating segment across a broad range of product and
service offerings. The Canadian segment sales remained similar to those reported in 2018, recording a very slight year over
year decline.
Gross profit
Consolidated gross profit in 2019 was $34,828, an increase of 19.4% or $5,657 as compared to gross profit of $29,171
reported in 2019. The gross profit margin of 26.1% of sales in 2019 was higher than a gross profit margin of 22.7% of sales
reported in 2018. The increase in gross profit margin in the current year was predominantly influenced by two factors;
higher sales and lower material costs throughout the year. The increase in sales of $4,887 contributed to higher gross profit.
The cost of inventories recognized as an expense in cost of sales during the year was $77,842, and contrasted with $79,805
in the prior year, primarily due to decreased input costs of our principal raw material, styrene monomer, throughout the
year. The combined effect of higher sales and lower cost of sales in the year resulted in strong margin performance.
Selling expenses
Consolidated selling expenses increased to $12,514 in 2019 from $11,974 in 2018, an increase of $540. The increases were
mainly related to additional sales staff, commissions, and marketing initiatives intended to drive top line growth. Overall,
selling expenses when expressed as a percentage of sales, were 9.4% in 2019 when compared to 9.3% in 2018 and remain
in proportion to sales.
Administrative expenses
Consolidated administrative expenses increased to $7,742 in 2019 from expenses of $7,348 reported in 2018, an increase of
$394. The increases were primarily a result of additional administrative staff, increased employee profit sharing and higher
corporate office operating costs. Overall, administrative expenses when expressed as a percentage of sales, were 5.8% in
2019 when compared to 5.7% in 2018 and remain in proportion to overall sales.
Other losses
Other losses in 2019 of $1,092 versus losses of $152 in 2018 were related to share-based compensation expenses of $990
in 2019 versus $44 in 2018. The recognition and measurement of an RSU award on January 1, 2019 in the amount of $950
resulted in one-time share based compensation expense. Realized foreign currency losses of $79 accounted for the
majority of the remaining other losses, as over the last twelve months the value of the Canadian dollar versus the U.S.
dollar has weakened overall.
A loss of $11 was realized on the disposals of property, plant and equipment in the current year as compared to a small
gain on disposals of $58 in 2018.
Investment income
Investment income reported in 2019 was $119 versus $67 in 2018. Investment income primarily consisted of $96 (2018 -
$25) for interest earned on bank balances, and $23 (2018 - $23) of interest collected from customers on past due trade
receivables.
Finance costs
Finance costs decreased by $118 from $1,281 in the prior year to $1,163 in the current year and are primarily related to a
reduction of draws on the revolving credit facility and a reduction of interest expenses, whereas draws and repayments
occurred more frequently in the prior year.
During 2019, operating line usage incurred $1 in finance costs (2018 - $77).
Income before taxes
Income before taxes in 2019 was $12,436 as compared to income before taxes of $8,483 in 2018, an increase of $3,953,
and primarily attributable to higher gross margin from record sales and lower material costs during the year.
PFB Corporation Annual Report 2019 6
Income taxes
Income tax expense in the current year was $3,410 as compared to income tax expense of $2,313 in 2018. The effective
tax rate in 2019 was 27.4% (2018 – 27.3%) and is comparable to prior year. The current tax expense increased from
$2,027 in 2018 to $3,661 in 2019 as a result of record sales and higher taxable income in Canada and the USA.
In 2019, the Government of Alberta enacted a reduction in the provincial corporate tax rate from 12 percent to eight
percent over four years and as a result the deferred tax expense decreased by $537 from an expense of $286 in 2018 to a
recovery of $251 in 2019.
The current year effective tax rate approximates the full effect of the tax reductions, tax rates of subsidiaries operating in
other jurisdictions and other adjustments that are reflected in the current and deferred income taxes.
Net income and earnings per share
Consolidated net income in 2019 was $9,026 as compared to consolidated net income of $6,170 in 2018. Basic earnings
per share of $1.34 and diluted earnings per share of $1.31 in 2019 compared to basic and diluted earnings per share of
$0.92 in 2018. Increased sales from higher volumes and lower raw material input costs contributed to higher net income
and earnings per share in the current year.
The weighted average number of basic and diluted common shares outstanding in the current year was 6,720,859 (2018 –
6,716,003) and 6,907,535 (2018 – 6,732,470).
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, 2019 and 2018) 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
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.
7 PFB Corporation Annual Report 2019
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 represents the income reported by each segment excluding any allocations of corporate
income or expenses, and foreign exchange gains or losses arising on inter-segment settlements.
Prior year segment information has been restated for the application of IFRS 16 – Leases, see Note 4 of the audited
consolidated financial statements.
Information regarding each reportable operating segment for years ended December 31, 2019 and 2018 is set out
below:
Canada
USA
Sales revenues
2019
$ 78,152
2018
$ 78,346
55,080
49,999
Operating income
2019
$ 7,831
5,973
2018
$ 5,009
4,105
Total for segments
$ 133,232
$ 128,345
13,804
Corporate – (loss) income
Foreign exchange gain (loss) on inter-segment settlements
(330)
6
9,114
585
(2)
Consolidated operating income
$ 13,480
$ 9,697
Canada
Sales
Sales reported by the Canadian operating segment decreased to $78,152 in 2019 from $78,346 in 2018, a slight
decrease of $194 or 0.2%. Canadian segment sales were softer in the second half of the year on a comparative basis.
Sales growth of our core EPS insulating and building products were robust across most regions, with the exception of
the oil-producing regions in Canada and were offset by lower sales of our structural insulated panel systems due to
reduced residential construction sector activity.
In the fourth quarter of 2019, the Canadian segment sales decreased to $18,140 compared to $19,312 in the
comparative quarter, a decrease of 6.1%. Canadian sales were weakest in the oil producing markets, reflective of
challenging economic conditions. Sales of building systems’ products decreased in the fourth quarter as compared to
the fourth quarter of 2018.
Operating income
Operating income generated by the Canadian segment in the current year was $7,831, an increase of $2,822 or 56%
from operating income of $5,009 in 2018. Margins remained strong throughout the year as a result of significantly
lower raw material input costs. Higher labour, overhead and freight costs throughout the year had a slightly
unfavourable impact on margins.
USA
Sales
Operations in the USA were strong throughout all operations for the year. Sales growth was largely driven by our
Custom Homes Group project based business and supported by our core EPS insulation and building products. As
reported in Canadian dollars, sales in the current year were $55,080 versus sales of $49,999 in 2018, an increase of
$5,081 over prior year or 10.2%. These figures are stated in Canadian dollars and a weaker Canadian dollar in 2019
created a favourable currency effect when USA segment sales transacted in U.S. dollars are converted into the
reporting currency.
Eliminating the marginal effect of foreign exchange fluctuations, sales, expressed in USA dollars, were $41,534 for
the 2019 year or 8.3% higher than sales of $38,366 in the comparative 2018 year.
PFB Corporation Annual Report 2019 8
In the fourth quarter of 2019, the USA segment sales showed strong growth with sales of $18,684 compared with
$15,971 in the three month period of 2018, an increase of approximately 17.0%. These figures are stated in Canadian
dollars and during the fourth quarter of 2019 and 2018, currency movements were comparable at $1.32 per US $1.00
in both periods. Sales, expressed in USA dollars, were $14,154 in the fourth quarter or 17.2% higher than sales of
$12,080 in the comparative quarter. The primary sales growth in the fourth quarter was related to the sale and
delivery of bundled products within the Custom Homes Group.
Operating income
The USA segment generated operating income in the current year of $5,973, compared to operating income of $4,105
in 2018, an increase of $1,868 on a year-over-year basis. Operating income increased due to lower raw material input
costs and improvements in labour, overhead and freight expenses when expressed as a percent of sales.
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
Restricted marketable securities
Freehold land and buildings
Corporate taxes 1
Total assets
Segment liabilities
Liabilities not allocated to segments:
Lease obligations
Long-term debt
Total liabilities
Net segment assets
1 Deferred taxes.
Canada
USA
As at
Dec 31, 2019
$ 49,198
As at
Dec 31, 2018
$ 53,156
20,129
1,483
21,567
326
16,944
1,483
22,750
289
$ 92,703
$ 94,622
$ 18,996
$ 19,436
9,846
8,217
10,609
8,568
$ 37,059
$ 38,613
$ 22,889
7,313
$ 25,341
8,379
9 PFB Corporation Annual Report 2019
6.3 Other segment information
Additions to non-current assets:
Canada
USA
Corporate
Total
Additions to right-of-use assets:
Canada
USA
Total
Depreciation and amortization:
Canada
USA
Corporate
Total
Inter-segment sales
7. Results of operations - fourth quarters ended December 31, 2019 and 2018
$ thousands except where indicated
Consolidated results:
Sales
Gross profit
Operating income
Net income
Earnings per share:
Basic
Diluted
Weighted average number of shares outstanding
Basic
Diluted
Sales by operating segment:
Canada
USA
Operating income by segment:
Canada
USA
2019
2018
$ 1,172
917
113
$ 795
1,007
31
$ 2,202
$ 1,833
$ 351
126
$ 477
$ 269
28
$ 297
$ 2,526
$ 2,752
973
1,059
919
1,073
$ 4,558
$ 4,744
$ 8,202
$ 7,052
2019
2018
$ 36,824
10,461
5,237
3,695
$ 35,283
8,148
3,109
2,077
0.55
0.54
0.31
0.31
6,720,859
6,907,535
6,716,003
6,732,470
18,140
18,684
19,312
15,971
1,339
3,763
954
2,025
Sales
Consolidated sales in the fourth quarter of 2019 were $36,824, an increase of $1,541 or 4.4% as compared to sales of
$35,283 reported in the fourth quarter of 2018. All of the growth in fourth quarter sales came from the USA segment,
which reported a 17.0% increase, compared with sales in Q4/18.
PFB Corporation Annual Report 2019 10
Gross profit
Gross profit, expressed as a percentage of sales was 28.4% in the current year quarter, an increase from 23.1% in the
fourth quarter of 2018. The higher gross profit in the fourth quarter of 2019 is reflective of the trend experienced
throughout the year of significantly lower material costs. Improvements in labour, overhead and freight expenses also
contributed to higher gross profit, when expressed as a percent of sales, compared to the prior year period.
Operating income
Increased sales and better-quality margins factored into much improved operating income results in the current quarter
versus Q4/18. Operating income was $5,237 in the current quarter as compared to $3,109 in Q4/18, a favourable variance
of $2,128, with the USA segment operating income contributing to the majority of the increase.
Net income and earnings per share
Net income in the current quarter was $3,695 as compared to a net income of $2,077 in the comparative quarter of 2018, a
favourable variance of $1,618.
Basic and diluted earnings per share in the current quarter were $0.54 and $0.55, respectively as compared to $0.31 and
$0.31, respectively, reported for the fourth quarter of 2018.
8. Liquidity and capital resources
Sources of liquidity
PFB maintained a strong liquidity position, which increased from the beginning of the current year reflecting strong sales
and an efficient cash conversion cycle from both operating segments. PFB ended 2019 with cash and cash equivalents of
$20,129, or a $3,185 increase from the prior year. The net cash from operating activities increased by $5,839 compared to
the prior year. Future liquidity depends on PFB being able to sustain cash flows from operating activities in conjunction
with the 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, 2019 and 2018. 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’s revolving credit facility in Canada and the USA were unused as at December 31, 2019.
Cash and cash equivalents
Cash and cash equivalent balances as at December 31, 2019 and 2018 were as follows:
Cash held with banks
Short-term investments
December 31, 2019 December 31, 2018
$ 18,629
1,500
$ 20,129
$ 13,744
3,200
$ 16,944
As at December 31, 2019, PFB held net cash balances of $20,129, an increase from the cash position as at December 31,
2018, which was $16,944. A significant proportion of the cash on hand, resides in the USA segment.
Cash - restricted
Restricted cash amounted to $924, a decrease of $423 from $1,347 in 2018 as cash was applied towards contractual
performance obligations. 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 2019, 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.
11 PFB Corporation Annual Report 2019
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, 2019 and 2018 exceeded the minimum
requirement of 1.25:1.
Total balance of current and non-current portions of long-term debt was $8,217 as at December 31, 2019, which has
decreased by $351 for principal repayments.
Bank credit facilities
Canada
In January 2019, the Corporation increased its credit facility arrangements from $10,000 to $17,000. The revolving
facility continues to be 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 $17,000.
The interest rate applicable on draws made against the facility is the Canadian bank’s prime rate and the facility carries a
nominal maintenance fee. The credit facility was not drawn as at December 31, 2019 and 2018.
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, 2019 and 2018.
Change in non-cash working capital
The balance sheet changes in the principal components of non-cash working capital in 2019 and 2018 are highlighted in
the following table.
Trade receivables
Inventories
Prepaid expenses
Contract cost
Trade and other payables
Contract liabilities
2019
$ 10,746
11,598
469
487
(10,324)
(5,943)
$ 7,033
2018
$ 13,082
11,638
374
475
(10,894)
(6,464)
$ 8,211
Change
$ (2,336)
(40)
95
12
570
521
$ (1,178)
In 2019, non-cash working capital decreased by an amount of $1,178 to $7,033 at the end of the current year from $8,211
in 2018.
Trade receivables decreased on the balance sheet by $2,336 in 2019 and reflective of decreased sales in the final month of
the fourth quarter compared to Q4/18. The value of actual trade receivables written-off in the current year increased to
$46 from $13 in 2018.
Inventory carrying costs at the end of 2019 decreased slightly from the prior year. The overall carrying cost of inventories
at the end of 2019 was $11,598 as compared to $11,638 at the end of 2018, an increase of $40. Raw materials and finished
goods were at higher levels, while work-in-process decreased slightly, however are in line with seasonal activity.
Trade and other payables were $570 lower at the end 2019 as compared to at the end of 2018, consistent with a general
decrease in trading activities in the latter part of the fourth quarter.
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 decreased by $521 in 2019 as a result of strong performance by the Custom Homes Group delivering on
performance obligations in the fourth quarter.
PFB Corporation Annual Report 2019 12
Summary of cash flows
A summary of cash flows for the years ended December 31, 2019 and 2018 are included in the following table:
Net cash flows from (used in):
Cash from operating activities, before income taxes
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, and restricted cash held
in foreign currencies
Net increase in cash and cash equivalents
Cash and cash equivalents – beginning of the year
Cash and cash equivalents – end of the year
(a) Operating activities
2019
2018
$ 20,190
(2,653)
17,537
(1,613)
(12,038)
(701)
3,185
16,944
$ 13,010
(1,312)
11,698
(2,943)
(4,794)
803
4,764
12,180
$ 20,129
$ 16,944
In 2019, cash from operating activities before income taxes paid, was $20,190 as compared to $13,010 in the
comparative year, an increase of $7,180. The year-over-year increase was primarily due to higher net income in the
current year from record sales. Income taxes paid of $2,653 in the current compared to $1,312 in the prior year as a
result of higher taxable income in the USA segment, resulting in net cash from operating activities of $17,537 in 2019
compared to $11,698 in 2018.
(b) Investing activities
Net cash used in investing activities in 2019 was $1,613 as compared to cash used in investing activities of $2,943 in
2018, a decrease of $1,330. Investing activities decreased primarily due to decreases in restricted cash resulting on
the delivery of performance obligations in the Custom Homes Group.
In the current year, purchases of property plant and equipment (PP&E) were $1,885 and purchases of intangible
assets were $317 compared to PP&E purchases of $1,769 and intangible purchases of $64 in 2018, an overall net
change of $369. PP&E expenditures were mainly directed at maintenance of business operations, while intangible
expenditures were mainly directed at future optimization and efficiency of operations.
(c) Financing activities
Cash used in financing activities in 2019 was $12,038 as compared to $4,794 in 2018, an increase of $7,244.
Repayment of lease obligations in 2019, reflect the adoption of the lease accounting standard, for leased property of
vehicles, trucks and trailers, office equipment, machinery and equipment, which amounted to $1,157 as compared to
lease repayments of $1,025 in 2018. Comparative amounts for 2018 have been restated for the application of the new
lease accounting standard. Finance costs reflect the adoption of the new lease standard, and prior comparative
amounts have been restated. A decrease in finance costs from $1,281 in 2018 to $1,163 in 2019 reflect lower lease
obligations related to property.
During 2019, the Corporation paid a regular quarterly dividend of $0.08 per common share in February. The
Corporation increased the dividend in the second quarter of 2019 and paid an increased regular quarterly dividend of
$0.09 per common share in May, August and November. Additionally, in the fourth quarter of 2019, PFB paid a one-
time, special dividend of $1.00 per common share which increased total dividends paid in 2019 to an aggregate
amount of $9,044 as compared to dividends paid in 2018 of $2,150.
In 2019, PFB purchased shares for cancellation under a Normal Course Issuer Bid. In 2019, the purchased shares cost
$525 with respect to 50,000 common shares cancelled (see the normal course issuer bid section below for more
details).
13 PFB Corporation Annual Report 2019
Outstanding share data
The issued and outstanding number of common shares as at March 12, 2020 was 6,691,003.
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, accumulated comprehensive income, 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, 2019 and 2018, is as outlined in the following
table:
Long-term debt (excluding lease obligations)
Less: cash and cash equivalents
Net debt (surplus cash)
Shareholders’ equity
As at
December 31, 2019
As at
December 31, 2018
$ 8,217
20,129
$ (11,912)
$ 8,568
16,944
$ (8,376)
$ 55,656
$ 56,009
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.
Share-based options
PFB granted 100,000 share options in the year ended December 31, 2019. In the year ended December 31, 2018, PFB
granted 400,000 share options, of which 25,000 were exercised in Q2/19.
Restricted share units
PFB granted 100,000 restricted share units on January 1, 2019. Each restricted share unit is entitled to dividend equivalent
payments to be paid at the time regular and special dividends are paid. Dividend equivalent payments paid in 2019
amounted to $135.
Share capital
The Corporation has one class of publicly traded voting common shares. A summary of the Corporation’s share capital
position as at December 31, 2019 and 2018, is set forth in the following table:
Balance, beginning of the year
Exercise of stock options
Repurchased pursuant to normal course issuer bid
December 31, 2019
December 31, 2018
No. of Shares
6,716,003
Amount
$ 20,947
No. of Shares
6,716,003
Amount
$ 20,947
25,000
(50,000)
222
(157)
-
-
-
-
Balance, end of the year
6,691,003
$ 21,012
6,716,003
$ 20,947
PFB Corporation Annual Report 2019 14
Dividends
During 2019, The Board of Directors increased the quarterly dividend per common share to $0.09. The Board of Directors
declared a regular quarterly dividend of $0.08 per common share in February, and $0.09 per common share in May,
August and November of 2019.
PFB declared a one-time, special dividend of $1.00 per common share which was paid in November of 2019. Aggregate
dividends paid in the year ended December 31, 2019, amounted to $9,044 (2018 - $2,150).
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 August 2019, the Corporation obtained approval from the Toronto Stock Exchange to renew its Normal Course Issuer
Bid (the “Bid”) program for a twelve month period, which commenced on September 3, 2019 and ends no later than
September 2, 2020. The renewal allows the Corporation to purchase up to a maximum of 50,000 of its common shares,
representing 0.74% of the Corporation’s 6,741,003 issued and outstanding common shares as at August 29, 2019, subject
to daily maximum purchases of 1,000 common shares and other normal terms and limitations of such bids. The
Corporation will purchase from time-to-time its common shares at market prices by means of open market transactions on
the Toronto Stock Exchange.
During 2019, the Corporation purchased for cancellation 50,000 of its common shares for an aggregate price of $525, of
which $368 was charged to retained earnings as a premium on redemption of the common shares. In the comparative year
2018, the Corporation did not purchase any of its common shares.
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.
On January 1, 2018, the Corporation adopted IFRS 9 and adopted an irrevocable election to account for changes in the fair
value of the marketable securities – restricted, through other comprehensive income, until derecognition through the
completion of the plan of arrangement or the release of the trust units held in escrow.
A summary of comprehensive income for the three and twelve month periods ended December 31, 2019 and 2018 is as
follows:
Net income for the period
Other comprehensive (loss) income
Three month periods
ended December 31
2018
2019
$ 3,695
(339)
$ 2,077
989
Twelve month periods
ended December 31
2018
2019
$ 9,026
(1,014)
$ 6,170
1,704
Comprehensive income for the period
$ 3,356
$ 3,066
$ 8,012
$ 7,874
In the fourth quarter of 2019, comprehensive income was $3,356 as compared to a comprehensive income of $3,066 in the
comparative quarter of 2018. Other comprehensive loss of $339 (Q4/18 – income of $989) in the current quarter consisted
of losses of $505 (Q4/18 – income of $1,127) attributed to foreign currency translation when consolidating PFB’s USA
operations and a gain of $166 (Q4/18 – loss of $138) from pension plan valuation changes.
Included in accumulated comprehensive income at December 31, 2019, were foreign currency translation adjustments
totalling $1,180, and $166 of defined benefit valuation changes, net of tax, for total accumulated other comprehensive loss
of $1,014. The foreign currency translation adjustments throughout 2019, reflect a slightly weakened Canadian dollar
throughout 2019 when retranslating USA segment from US dollars into Canadian dollars, resulting in the currency
translation adjustment of $1,180. The $166 gain in pension plan valuation changes in December 31, 2019 from a loss of
$138 at December 31, 2018, reflects re-measurements of the net defined benefit liability through accumulated other
comprehensive income, effected for tax.
15 PFB Corporation Annual Report 2019
9. Contractual obligations and commitments
In the normal course of business, PFB is obligated to make future contractual payments. As at December 31, 2019, PFB’s
contractual obligations and commitments are as outlined in the following table:
Contractual obligations 1
(Payment due periods)
Long-term debt (principal & interest)
Lease obligations
Commitments for PP&E
and intangible assets
Other long-term obligations
Fixed-price utility contracts
Total
$ 10,746
16,672
1,086
999
1,505
$ 623
2,024
1,086
218
355
Within
1 year
2-3
years
4–5
years
Over
5 years
$ 1,246
$ 1,246
$ 7,631
3,599
3,084
7,965
-
436
710
-
345
440
-
-
-
$ 15,596
Total contractual obligations
1 Long-term debt and lease obligations in the above table represent the aggregate outstanding principal amounts and related finance costs.
$ 31,008
$ 5,115
$ 5,991
$ 4,306
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. Lease obligations have increased as a result of new lease accounting standards with respect
to finance obligations for property (land, office space, manufacturing and storage facilities), vehicles, truck and trailers
office equipment, machinery and 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, 2019, the
USA, performance bonds in the amount of $620 (2018 - $651) 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, 2019 and 2018, 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
Trade and other payables
Long-term debt
Assets at amortized cost Amortized cost N/A
Financial liabilities at
amortized cost
Financial liabilities at
amortized cost
Amortized cost N/A
Amortized cost
Level 2
2019
Fair Value
$ 20,129
924
1,483
10,746
2018
Fair Value
$ 16,944
1,347
1,483
13,082
(10,324)
(10,894)
(8,217)
(8,568)
PFB Corporation Annual Report 2019 16
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, 2019.
17 PFB Corporation Annual Report 2019
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
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. 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, 2019, the Corporation’s Canadian subsidiary had access to a revolving credit facility with a Canadian
bank. The revolving credit facility has a limit of $17,000 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, 2019.
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.
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 2019 and 2018, 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
2019
$ 2,168
350
2018
$ 2,163
350
$ 2,518
$ 2,513
2019
2018
$ 75
$ 81
PFB Corporation Annual Report 2019 18
Aeonian Capital Corporation (“Aeonian”), and its affiliates, owned 2,972,168 (2018 - 2,991,168) common shares of the
Corporation representing 44.4% (2018 – 44.5%) of the 6,691,003 issued and outstanding shares as at December 31, 2019.
Aeonian is controlled by C. Alan Smith, President and 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.
13. Subsequent events
Declaration of regular quarterly dividend
On February 3, 2020, the Board of Directors declared a regular quarterly dividend of $0.09 per common share, which was
paid on February 28, 2020, to shareholders of record at the close of business on February 14, 2020.
14. Outlook
Strong performance in the fourth quarter of 2019 by the Corporation generated record Q4/19 sales, strong margin
performance and record adjusted EBITDA. USA segment sales were aligned with our strategic initiatives intended to
increase USA segment sales as a proportion of total consolidated sales. Canadian segments sales were softer than expected,
however margin performance significantly improved on a year-over-year basis.
As a result, the Corporation experienced record consolidated sales of $133,232 in 2019 as compared to $128,345 in 2018,
recording year over year sales growth in three out of four quarters during the year. In 2019, overall sales were led by the
USA segment while the Canadian segment maintained similar sales levels to those experienced in 2018. Sales growth and
activity were very strong in our Custom Homes Group and in our core EPS insulation and building product sales. Sales in
our Structural Insulated Panel systems were softer due to residential construction sector headwinds in Canada.
Management is focused on sustaining current performance and continuing to grow the business into 2020, in line with our
strategic initiatives intended to drive top line growth.
The Corporation set a record adjusted EBITDA of $6,363 in Q4/19 and a record adjusted EBITDA of $18,038 in 2019 as
compared to 2018 adjusted EBITDA of $14,441, a 24.9% year over year increase. Favourably consistent raw material input
costs along with stable product pricing and stable operating efficiencies resulted in gross margins of 26.1% for 2019 as
compared to 22.7% for 2018, an increase of 3.4% of sales. Uncertainty related to styrene monomer, our principal raw
material input, as a result of continued trade and tariff disputes between the United States and China persist, however the
impact has contributed to lower and more stable pricing.
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 USA segment sales 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 an increase in the cost of sales.
Continued volatility of the Canadian dollar is possible based on geo-political environments and ongoing global trade and
tariff disputes.
The influence of lower world crude oil prices on the economies of North America continues to be a positive macro driver
of the outlook for the Corporation. In general, although the oil effect can impact regions within North America differently,
the Corporation continues to perform well in both Canada and the USA.
The Corporation continues to experience sustained demand for EPS product lines in both Canada and the USA operating
segments. Infrastructure activity in Canada and the USA continue to present good opportunities for growth, however can
distort quarter comparative sales based on project timing. Generally speaking, the Canadian economy remains stable and
there continues to be sustained demand for our nationally branded insulation and building products across the country. The
United States expansion continues to be a strategic objective and we remain optimistic as increased interest in our branded
products that are manufactured in the USA continue to gain traction with customers. The Corporation continues to search
for suitable acquisitions to expand our strategic footprint with focus on USA initiatives.
Although the USA and Canadian residential construction sectors slowed in 2019, the commercial construction sectors
remained active which had an offsetting effect. Residential construction is showing signs of improving into 2020. The
Corporation remains cautiously optimistic for the first quarter of 2020 as order books are building toward spring and
summer construction seasons, with the caveat that the potential effects of the unfolding coronavirus are unknown.
19 PFB Corporation Annual Report 2019
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, 2019, 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, 2019, 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, 2019, 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.
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, refining capacity, petrochemical manufacturing capacity, reliability of transportation infrastructure and
other global events, and changing dynamics affecting other industries, are difficult to predict. Such changes may
PFB Corporation Annual Report 2019 20
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 fluctuating economic conditions, consumer confidence and spending, and both the
demand for and prices of its EPS products and insulating building systems in those geographical areas in which it
operates. Volatile economic conditions generally including but not limited to factors affecting the construction
industry (residential and commercial) such as; the impact of changing mortgage rates and other interest rates 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 Canada and the USA and imports some of its raw materials
so that some inputs are affected by global commodity prices. PFB’s operations are subject to inherent risks,
including: changes 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, the United States and foreign jurisdictions
could change with unpredictable results and foreign jurisdictions could impose tariffs, quotas, trade barriers, and
other similar restrictions on the PFB’s international sales. Seemingly unrelated events such as pandemics or
regional health concerns can interrupt the supply of goods and materials or reduce demand for goods. All of these
risks could result in increased costs, decreased revenues, increased competition, reduced demand or supply chain
disruptions any 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, PFB 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 competitive products. Competition can affect PFB’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
PFB 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 PFB’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 PFB’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
PFB’s growth strategy includes making strategic acquisitions when possible. There is no assurance that PFB will
find suitable businesses or assets 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
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. PFB 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 PFB’s business through internal expansion or by acquisitions may
21 PFB Corporation Annual Report 2019
depend on access to external financing. PFB’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 PFB’s
operations will be available on acceptable terms, if required.
17.8 Reputation
Negative publicity regarding PFB’s business practices and products, regardless of whether true or false, could
adversely affect PFB’s reputation which 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. PFB’s board of directors and its board
committees have been formed to competently perform the role of overseeing the appropriate management of PFB’s
affairs with the objective of maximizing the long-term value of PFB. A detailed summary outlining PFB’s corporate
governance practices can be found in the most recent Management Information Circular.
17.9 Trade credit
PFB’s subsidiaries provide trade credit to their customers in the normal course of business. PFB’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 PFB’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 globally including PFB’s stakeholders and customers. PFB is
committed to responsibly managing the direct and indirect impact it has on the environment, including in its
manufacturing processes, disposal and reuse of waste, transportation of products and raw materials. The insulating
properties of PFB’s products contribute to reducing energy use and reduce greenhouse gas emissions. PFB believes
that it is in substantial compliance with applicable environmental laws in jurisdictions where it has operations. PFB
takes custody of hazardous materials when the goods physically arrive at its facilities.
17.11 Information technology
PFB relies on information technology in conducting its businesses. This involves web-based connections, access to
secure, centrally located servers and databases, and maintaining existing applications and implementing new
applications. The security and safeguarding of information technology assets and protocols will continue to be
increasingly important to PFB. PFB manages 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 offsite 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 PFB’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 PFB’s operations and financial
results.
17.12 Cyber Security
PFB relies on information technology and information systems in all area 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 incursion or cyber-attack may result in a
breach of sensitive information or systems being disrupted, possibly negatively affecting PFB’s financial position,
brand and/or its ability to achieve strategic objectives.
17.13 Seasonality and climatic factors affecting the construction industry
Due to the seasonal nature of the construction industry, PFB’s sales exhibit variations when viewed on a quarter-by-
quarter basis. Typically, sales are weakest in the first and fourth quarters of the year and strongest in the second or
third quarters. Sales in any quarter can be significantly influenced by weather patterns, particularly the timing of
when winter begins and ends and its severity.
17.14 Plant and facilities
PFB 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
PFB Corporation Annual Report 2019 22
man-made causes such as fire, flood, labour disputes, interferences with access or egress, or other events, could have
a material impact on PFB 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, 2019, and it identified that the Plan had a net asset arising from a defined benefit asset of $304
when compared to defined benefit asset of $10 at the end of the 2018 comparative year. Throughout 2019 and 2018,
PFB 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 PFB’s funding requirements for the Plan.
The Plan assets are not immune to market fluctuations and, as a result, PFB may be required to make additional cash
contributions in future.
PFB operates group 401K plans for all qualifying employees located in Minnesota, Michigan, Nevada, Ohio and
Idaho, USA, in which qualifying employees may elect to defer current wages for retirement. PFB has the option to
match employee contributions to the plans. The assets of the plan are held separately from those of PFB by a trust
company that is governed by a custodial agreement (ERISA). PFB also utilizes the services of registered investment
brokers and third party administrators in the fulfilment of its actuarial and fiduciary responsibilities with respect to
the plans.
17.16 Human resources
PFB’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. PFB attempts to mitigate these risks by offering competitive compensation and benefits packages,
training, succession planning, and providing a positive and diverse cultural environment.
17.17 Off-Balance Sheet Arrangements and Operating Leases
PFB 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.
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, PFB 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. PFB’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 PFB’s financial
results.
17.19 Volatility of Market Share Price
The market price of PFB’s common shares may be volatile and could be subject to fluctuations in response to
quarterly variations in financial results, general market conditions and other unpredictable events or factors.
Consequently, broad market fluctuations or the failure of PFB’s financial results to meet expectations in a particular
reporting period may adversely affect the market price of its common shares.
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, 2019 and 2018, 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.
23 PFB Corporation Annual Report 2019
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 17 of the audited consolidated financial statements for the year
ended December 31, 2019.
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, 2019 and 2018, 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.
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, 2019 and 2018, 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.
PFB Corporation Annual Report 2019 24
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 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 as closely aligned.
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
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 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.
18.13 Leases
IFRS 16 - Leases, requires management to make judgements and estimates in order to determine the value of the
right-of-use assets and the lease liabilities. Judgements may relate to the identification of a lease in a contract and
the determination of the lease term and whether an extension or termination option in a lease will be exercised.
25 PFB Corporation Annual Report 2019
Estimates may relate to the lease term, separation of lease and non-lease components and the determination of the
appropriate discount rates.
19. Application of new and revised International Financial Reporting Standards (IFRSs)
Effective January 1, 2019 the Corporation adopted new IFRS standard – IFRS 16 - Leases, using the retrospective
approach by restatement of each prior reporting period presented in accordance with IAS 8 - Accounting Policies, Changes
in Accounting Estimates and Errors. The effect of adoption of the new standard is outlined in more detail in Note 4 of the
audited consolidated financial statements as at December 31, 2019, which also discloses the restated comparative financial
statements for the impacts of adopting new accounting standard as at January 1, 2018 and for the year ended December 31,
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 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.
PFB Corporation Annual Report 2019 26
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
Applying IFRS 16
2019
2018
Excluding
IFRS 16
2017
$ 9,026
$ 6,170
$ 2,281
3,410
1,163
(119)
4,400
158
2,313
1,281
(67)
4,612
132
794
832
(114)
3,768
132
$ 18,038
$ 14,441
$ 7,693
$ 2.68
$ 2.15
$ 1.14
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 2019 and 2018:
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
2019
Q4
2019
Q3
2019
Q2
2019
Q1
2018
Q4
2018
Q3
2018
Q2
2018
Q1
$ 3,695 $ 3,442
$ 3,061
$ (1,172) $ 2,077
$ 3,263
$ 1,536
$ (706)
1,302
287
(47)
1,080
46
6,363
1,254
288
(44)
1,095
45
6,080
906
293
(5)
1,119
36
5,410
(52)
295
(23)
1,106
31
185
751
300
(18)
1,149
30
4,289
1,211
319
(4)
1,145
31
5,965
604
354
(13)
1,150
35
3,666
(254)
310
(32)
1,168
36
522
$ 0.95
$ 0.90
$ 0.80
$ 0.03
$ 0.64
$ 0.89
$ 0.55
$ 0.08
The results of adjusted EBITDA reflect the adoption of new accounting standards, leases on January 1, 2019. Adjusted
EBITDA was $6,363 in the three month period ended December 31, 2019, an increase of $2,074 from $4,289 in the
comparative three-month period of 2018. Adjusted EBITDA for the twelve month period of $18,038 compared to the
restated adjusted EBITDA of $14,441 in the 2018 comparative year, or an increase of $3,597. As reported in Q1/19, the
adoption of new lease accounting standard had the impact of slightly decreasing comparative net income and significantly
increasing deprecation and finance cost, resulting in a favourable impact to the comparative adjusted EBITDA.
For the year ended December 31, 2019, adjusted EBITDA was $18,038, an increase of $3,597 from $14,441 in 2018. The
increased adjusted EBITDA is reflective of higher net income from record sales during 2019 from higher volumes and
lower raw material input costs.
Robert Graham Mirko Papuga
Chief Executive Officer Chief Financial Officer
March 12, 2020 March 12, 2020
27 PFB Corporation Annual Report 2019
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, 2019 and 2018, 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 12, 2020 March 12, 2020
Calgary, Alberta Calgary, Alberta
PFB Corporation Annual Report 2019 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, 2019 and 2018 and January 1, 2018, and the consolidated statements of income,
comprehensive income, changes in equity and cash flows for the years ended December 31, 2019 and 2018, 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, 2019 and 2018 and January 1, 2018, and its financial performance and its cash flows for the
years ended December 31, 2019 and 2018 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 2019
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 Brian Ralofsky.
Chartered Professional Accountants
March 12, 2020
Calgary, Alberta
PFB Corporation Annual Report 2019 30
Consolidated Balance Sheets
As at December 31, 2019 and 2018 and January 1 2018
Thousands of Canadian dollars
Note
December 31, 2019 December 31, 2018
January 1, 2018
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
Right-of-use assets
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
Lease obligations
Total current liabilities
Non-current liabilities
Long-term debt
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
Commitments and contingencies (Note 26).
9
9
10
11
7
12
21, 24
14
15
16
17
18
7
24
19
7
20
21
20
21
7
23
$ 20,129
924
10,746
11,598
-
469
487
44,353
1,483
35,030
7,391
1,540
2,275
304
327
48,350
$ 92,703
$ 10,324
5,943
1,469
361
1,167
19,264
7,856
8,679
1,260
17,795
37,059
21,012
1,014
3,138
30,480
55,644
$ 92,703
$ 16,944
1,347
13,082
11,638
193
374
475
44,053
1,483
36,694
8,305
1,447
2,360
10
270
50,569
$ 94,622
$ 10,894
6,464
681
350
1,122
19,511
8,218
9,487
1,397
19,102
38,613
20,947
44
4,152
30,866
56,009
$ 94,622
$ 12,180
88
9,809
9,998
287
474
527
33,363
1,239
37,427
9,328
1,405
2,217
91
451
52,158
$ 85,521
$ 8,737
5,158
39
339
1,011
15,284
8,567
10,180
1,249
19,996
35,280
20,947
-
2,448
26,846
50,241
$ 85,521
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 2019
Consolidated Statements of Income
For the years ended December 31, 2019 and 2018
Thousands of Canadian dollars, except per share amounts
Sales
Cost of sales
Gross profit
Selling expenses
Administrative expenses
Other losses
Operating income
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
2019
2018
$ 133,232
(98,404)
$ 128,345
(99,174)
34,828
(12,514)
(7,742)
(1,092)
13,480
119
(1,163)
12,436
(3,410)
29,171
(11,974)
(7,348)
(152)
9,697
67
(1,281)
8,483
(2,313)
$ 9,026
$ 6,170
$ 1.34
$ 1.31
$ 0.92
$ 0.92
6,720,859
6,907,535
6,716,003
6,732,470
6
7
8
8
8
8
The accompanying notes are an integral part of these consolidated financial statements.
PFB Corporation Annual Report 2019 32
Consolidated Statements of Comprehensive Income
For the years ended December 31, 2019 and 2018
Thousands of Canadian dollars
Net income for the year
$ 9,026
$ 6,170
Note
2019
2018
Other comprehensive (loss) income:
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, 24
Items that will not be subsequently reclassified to income:
Defined benefit pension plan valuation change
Unrealized gain (loss) on valuation change, net of tax
(1,180)
1,665
-
(1,180)
166
166
177
1,842
(138)
(138)
Other comprehensive (loss) income for the year
Comprehensive income for the year
(1,014)
1,704
$ 8,012
$ 7,874
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 2019
Consolidated Statements of Changes in Equity
As at December 31, 2019 and 2018 and January 1, 2018
Thousands of Canadian dollars, except number of shares
Common shares
Accumulated other comprehensive income
Balances at January 1, 2018
IFRS 16, impact of change in accounting policy
Restated balance at January 1, 2018
Restated net income for the year
Restated other comprehensive income for the year, net of tax
Restated total comprehensive income for the year
Payment of dividends
Share-based payment
Number
of shares
6,716,003
-
Note
4
Share
capital
$ 20,947
-
6,716,003
20,947
-
-
-
-
-
-
-
-
-
-
23
Restated balance at December 31, 2018
6,716,003
20,947
Net income for the year
Other comprehensive loss for the year, net of tax
Total comprehensive income for the year
Payment of dividends
Share-based payment
Shares repurchased pursuant to normal course issuer bid
Shares issued on exercise of stock options
-
-
-
-
-
-
-
-
-
-
(50,000)
25,000
(157)
222
23
23
23
Equity-
settled
employee
benefits
reserve
Foreign
currency
translation
adjustments,
net of taxes
Unrealized
gain on
financial
assets,
net of taxes
Defined benefit
pension plan
valuation
change,
net of taxes
Retained
earnings
Total
$ -
-
$ 2,151
-
$ 229
-
-
-
-
-
-
44
44
-
-
-
-
990
-
(20)
2,151
-
1,665
1,665
-
-
3,816
-
(1,180)
(1,180)
-
-
-
-
229
-
177
177
-
-
406
-
-
-
-
-
-
-
$ 68
-
$ 27,430
(584)
$ 50,825
(584)
68
26,846
50,241
-
(138)
(138)
-
-
6,170
-
6,170
6,170
1,704
7,874
(2,150)
(2,150)
-
44
(70)
30,866
56,009
-
166
166
-
-
-
-
9,026
9,026
-
(1,014)
9,026
8,012
(9,044)
(9,044)
-
(368)
-
990
(525)
202
Balance at December 31, 2019
6,691,003
$ 21,012 $ 1,014
$ 2,636
$ 406
$ 96 $ 30,480 $ 55,644
The accompanying notes are an integral part of these consolidated financial statements.
PFB Corporation Annual Report 2019 34
Consolidated Statements of Cash Flows
For the years ended December 31, 2019 and 2018
Thousands of Canadian dollars
CASH FLOWS FROM OPERATING ACTIVITIES
Net income for the year
Adjustments for:
Depreciation expense
Amortization expense
Loss (gain) on disposal of property, plant and equipment
Defined benefit pension plan
Finance costs
Investment income
Income tax expense
Share-based payment expense
Unrealized foreign exchange losses (gains)
Changes in non-cash working capital
Unrealized foreign exchange relating to non-cash working capital
Cash from operating activities, before income taxes
Income taxes paid, net
Net cash from operating activities
CASH FLOWS USED IN INVESTING ACTIVITIES
Decrease (increase) in restricted cash balance
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 lease obligations
Changes in long-term debt
Finance costs
Proceeds from exercise of stock options
Payment for buy-back of common shares
Dividends paid to shareholders
Net cash used in financing activities
Effects of exchange rate changes on cash and cash equivalents, and
restricted cash held in foreign currencies
Net increase 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
2019
2018
$ 9,026
$ 6,170
14, 15
16
6, 14
7
6
27
14
16
21
20, 22
23
9
4,400
158
11
(50)
1,163
(119)
3,410
990
12
1,178
11
20,190
(2,653)
17,537
423
(1,885)
(317)
47
119
-
(1,613)
(1,157)
(351)
(1,163)
202
(525)
(9,044)
(12,038)
4,612
132
(58)
(79)
1,281
(67)
2,312
44
(56)
(1,298)
17
13,010
(1,312)
11,698
(1,259)
(1,769)
(64)
82
48
19
(2,943)
(1,025)
(338)
(1,281)
-
-
(2,150)
(4,794)
(701)
3,185
16,944
$ 20,129
803
4,764
12,180
$ 16,944
The accompanying notes are an integral part of these consolidated financial statements.
35 PFB Corporation Annual Report 2019
Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
Thousands of Canadian dollars
1. General information
P 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 Nevada, 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 29).
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 2019 36
Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
Thousands of Canadian dollars
A portion of the Corporation’s sales take place on a consignment basis, where the Corporation will deliver
inventory to customer locations that has not yet been purchased. The revenue from these sales is recognized
when the customer purchases the inventory.
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 19 – Contract liabilities and Note 13 – Remaining performance
obligations, for further information.
37 PFB Corporation Annual Report 2019
Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
Thousands of Canadian dollars
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).
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 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.
PFB Corporation Annual Report 2019 38
Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
Thousands of Canadian dollars
Asset class:
Freehold land
Buildings
Plant and equipment
Assets under construction
Useful life:
Unlimited useful life, not depreciated
15 to 40 years
3 to 20 years
Depreciation commences when the asset is constructed and placed in use
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 Leases and right-of-use assets
The Corporation recognizes a right-of-use asset and the corresponding lease obligation at the lease commencement
date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability
adjusted for any lease prepayments less any lease incentives received. The right-of-use asset is subsequently
depreciated using the straight-line method from the commencement date to the end of the lease term.
The lease obligation is initially measured at the present value of the minimum lease payments discounted using the
rate implicit in the lease when readily available, otherwise Corporation’s incremental borrowing rate. Interest
expense is recognized on the lease obligation using the effective interest rate method and payments are applied
against the lease obligation.
The Corporation expenses the lease payments associated with short-term leases of duration of less than twelve months and
leases of low-value assets.
Right-of-use asset 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 the right-of-use asset is measured as
the difference between the net sales proceeds and the carrying amount of the right-of-use asset and is recognized in
profit or loss.
Right-of-use assets are 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.
2.9 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
39 PFB Corporation Annual Report 2019
Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
Thousands of Canadian dollars
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.
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.
PFB Corporation Annual Report 2019 40
Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
Thousands of Canadian dollars
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.
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 24).
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.
41 PFB Corporation Annual Report 2019
Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
Thousands of Canadian dollars
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.
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.
PFB Corporation Annual Report 2019 42
Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
Thousands of Canadian dollars
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.
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.
43 PFB Corporation Annual Report 2019
Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
Thousands of Canadian dollars
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.
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 17.
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
PFB Corporation Annual Report 2019 44
Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
Thousands of Canadian dollars
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
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 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 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.
3.13 Leases
IFRS 16 - Leases, requires management to make judgements and estimates in order to determine the value of the
right-of-use assets and the lease liabilities. Judgements may relate to the identification of a lease in a contract and the
determination of the lease term and whether an extension or termination option in a lease will be exercised.
Estimates may relate to the lease term, separation of lease and non-lease components and the determination of the
appropriate discount rates.
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, 2019:
IFRS 16 - Leases
The Corporation applied IFRS 16 - Leases, using the retrospective approach by restatement of each prior reporting
period presented in accordance with IAS 8 - Accounting Policies, Changes in Accounting Estimates and Errors.
45 PFB Corporation Annual Report 2019
Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
Thousands of Canadian dollars
Under IFRS 16 - Leases, at inception of a contract, the Corporation assesses whether a contract is a lease or
contains a lease. A contract is a lease or contains a lease if the contract conveys the right to control the use of an
identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to
control the use of an identified asset, the Corporation considers the following:
• The Corporation has the right to obtain substantially all of the economic benefits; and
• The Corporation has the right to direct the use of the identified asset.
The Corporation recognizes a right-of-use asset and the corresponding lease obligation at the lease commencement
date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability
adjusted for any lease prepayments less any lease incentives received. The right-of-use asset is subsequently
depreciated using the straight-line method from the commencement date to the end of the lease term.
The finance lease obligation is initially measured at the date of the transition as the present value of the remaining
lease payments discounted using the rate implicit in the lease when readily available, otherwise Corporation’s
incremental borrowing rate.
The Corporation recorded a right-of-use asset for certain property and other leases, and a corresponding lease
obligation. The previously recorded rent and operating lease expense will now be included in the Statement of
Income (Loss) as depreciation and finance costs. As at January 1, 2019, the Corporation recognized right-of-use
assets in the amount of $6,656, net of accumulated depreciation, and an additional lease liability of $7,958 upon
initial adoption using the retrospective approach.
On transition to IFRS 16 - Leases, the Corporation elected not to separate non-lease components from lease
components for vehicles, truck and trailers and office equipment, and instead account for each lease component and
any associated non-lease component as a single lease component. The Corporation has also elected not to recognize
right-of-use assets and lease liabilities for short-term leases with duration of less than twelve months and leases of low-
value assets. The Corporation expenses the lease payments associated with these leases over the lease term.
PFB Corporation Annual Report 2019 46
Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
Thousands of Canadian dollars
Impacts to previously reported results
Select adjusted financial statement information, which reflects the adoption of IFRS 16 - Leases, is presented below.
Line items that were not affected have not been included. As a result, the sub-totals and totals disclosed cannot be
recalculated from the numbers provided. The following tables present the impact of adoption to IFRS 16 - Leases,
on the Corporation’s consolidated financial statements.
Balance Sheets
ASSETS
Non-current assets
Property, plant and equipment
Right-of-use assets
Deferred income tax assets
LIABILITIES
Current Liabilities
Lease obligations
Non-current liabilities
As at January 1, 2018
Effect of
As
IFRS 16 Adjusted
reported
As at December 31, 2018
Effect of
IFRS 16 Adjusted
As
reported
$ 40,099
-
357
$ 40,456
$ (2,672) $ 37,427
9,328
451
$ 6,750 $ 47,206
9,328
94
$ 39,209
-
270
$ 39,479
$ (2,515) $ 36,694
8,305
270
$ 5,790 $ 45,269
8,305
-
$ 249
$ 762
$ 1,011
$ 255
$ 867
$ 1,122
Lease obligations
Deferred operating lease obligations
Deferred income tax liabilities
2,983
506
1,368
4,857
7,197
(506)
(119)
6,572
10,180
-
1,249
11,429
2,984
719
1,631
5,334
6,503
(719)
(234)
5,550
9,487
-
1,397
10,884
SHAREHOLDERS’ EQUITY
Accumulated other comprehensive
income
Retained earnings
2,448
27,430
29,878
$ 34,984
-
(584)
(584)
2,448
26,846
29,294
$ 6,750 $ 41,734
4,176
31,469
35,645
$ 41,234
(24)
(603)
(627)
4,152
30,866
35,018
$ 5,790 $ 47,024
Income Statement
Sales
Cost of sales
Gross profit
Selling expenses
Administrative expenses
Other losses
Operating income
Investment income
Finance costs
Income before taxes
Income taxes expense
Income for the year
47 PFB Corporation Annual Report 2019
For the year ended December 31, 2018
As reported
$ 128,345
(99,544)
28,801
(11,985)
(7,452)
(152)
9,212
67
(766)
8,513
(2,324)
$ 6,189
Effect of
IFRS 16
$ -
370
370
11
104
-
485
-
(515)
(30)
11
$ (19)
Adjusted
$ 128,345
(99,174)
29,171
(11,974)
(7,348)
(152)
9,697
67
(1,281)
8,483
(2,313)
$ 6,170
Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
Thousands of Canadian dollars
Statement of Comprehensive Income
Net income for the year
Other comprehensive income:
Items that may subsequently be reclassified to income:
Exchange differences on translating foreign operations, net
Unrealized gain on restricted financial assets, net
Items that will not be subsequently reclassified to income:
Unrealized loss on valuation change, net
Other comprehensive income for the year
Comprehensive income for the year
Earnings per share - $ per share
Basic
Diluted
Statement of Cash Flows
CASH FLOWS FROM OPERATING ACTIVITIES
Net income for the year
Adjustments for:
Depreciation expense
Amortization expense
Gain on disposal of assets
Defined benefit pension plan
Finance costs
Investment income
Income tax expense
Share-based payment expense
Unrealized foreign exchange gain
Changes in non-cash working capital
Changes in deferred operating lease obligations
Unrealized foreign exchange loss relating to non-cash working
capital
Cash from operating activities, before income taxes
Income taxes paid, net
Net cash from operating activities
CASH FLOWS USED IN FINANCING ACTIVITIES
Repayment of lease obligations
Changes in long-term debt
Changes in bank indebtedness, net
Finance costs
Dividends paid to shareholders
Net cash used in financing activities
For the year ended December 31, 2018
As reported
Effect of
IFRS 16
Adjusted
$ 6,189
$ (19)
$ 6,170
1,689
177
(24)
-
1,665
177
(138)
1,728
$ 7,917
-
(24)
$ (43)
(138)
1,704
$ 7,874
$ 0.92
$ 0.92
$ -
$ -
$ 0.92
$ 0.92
For the year ended December 31, 2018
As reported
Effect of
IFRS 16
Adjusted
$ 6,189
$ (19)
$ 6,170
3,634
132
(58)
(79)
766
(67)
2,324
44
(69)
(1,298)
214
214
17
11,749
(1,312)
10,437
978
-
-
-
515
-
(12)
-
13
-
(214)
(214)
-
1,261
-
1,261
4,612
132
(58)
(79)
1,281
(67)
2,312
44
(56)
(1,298)
-
-
17
13,010
(1,312)
11,698
(279)
(338)
-
(766)
(2,150)
$ (3,533)
(746)
-
-
(515)
-
$ (1,261)
(1,025)
(338)
-
(1,281)
(2,150)
$ (4,794)
PFB Corporation Annual Report 2019 48
Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
Thousands of Canadian dollars
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.
Prior year segment information has been restated for the application of IFRS 16 – Leases; see Note 4.
Information regarding each reportable operating segment for years ended December 31, 2019 and 2018 are set out
below:
Canada
USA
Total for segments
Sales revenues
2019
2018
Operating income
2019
2018
$ 78,152
55,080
$ 78,346
49,999
$ 7,831
5,973
$ 5,009
4,105
$ 133,232
$ 128,345
13,804
9,114
Corporate – (loss) income
Foreign exchange gain (loss) on inter-segment settlements
Consolidated operating income
5.2 Segment assets and liabilities
(330)
6
585
(2)
$ 13,480
$ 9,697
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:
49 PFB Corporation Annual Report 2019
Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
Thousands of Canadian dollars
Assets
Segment assets
Assets not allocated to segments:
Cash and cash equivalents
Restricted marketable securities
Freehold land and buildings
Corporate taxes1
Total assets
Liabilities
Segment liabilities
Liabilities not allocated to segments:
Lease obligations
Long-term debt
Total liabilities
Net segment assets
Canada
USA
1 Deferred taxes.
5.3 Other segment information
Additions to non-current assets:
Canada
USA
Corporate
Total
Additions to right-of-use assets:
Canada
USA
Total
Depreciation and amortization:
Canada
USA
Corporate
Total
Inter-segment sales
2019
2018
$ 49,198
$ 53,156
20,129
1,483
21,567
326
16,944
1,483
22,750
289
$ 92,703
$ 94,622
$ 18,996
$ 19,436
9,846
8,217
10,609
8,568
$ 37,059
$ 38,613
$ 22,889
7,313
$ 25,341
8,379
2019
2018
$ 1,172
917
113
$ 795
1,007
31
$ 2,202
$ 1,833
$ 351
126
$ 477
$ 269
28
$ 297
$ 2,526
$ 2,752
973
1,059
919
1,073
$ 4,558
$ 4,744
$ 8,202
$ 7,052
PFB Corporation Annual Report 2019 50
Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
Thousands of Canadian dollars
6 Other losses
Unrealized foreign exchange (losses) gains
Realized foreign exchange losses
(Loss) 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 (recovery) expense
Income tax expense
2019
$ (12)
(79)
(11)
(990)
2018
$ 69
(235)
58
(44)
$ (1,092)
$ (152)
2019
2018
$ 3,661
(251)
$ 2,027
286
$ 3,410
$ 2,313
In the year ended December 31, 2019, deferred income tax expense of $78 (2018 - $44) was recognized directly in
other comprehensive income.
The income tax expense can be reconciled to the accounting income as follows:
Income before taxes
2019
$ 12,436
2018
$ 8,483
Income tax expense calculated at 26.9% (2018 – 27.4%)
$ 3,345
$ 2,322
Effect of different tax rates of subsidiaries operating in other jurisdictions
Enacted rate changes
Expenses not deductible in determining taxable income
Prior period adjustments and reassessments
Other
Income tax expense
(102)
(88)
306
(63)
12
(90)
-
57
19
5
$ 3,410
$ 2,313
The statutory tax rate in the table above is the combined USA and Canadian federal and blended provincial and state
corporate income tax rate of approximately 26.9% (2018 – 27.4%).
7.2 Current tax assets and liabilities
Current tax assets
Income taxes recoverable
Current tax liabilities
Income taxes payable
51 PFB Corporation Annual Report 2019
As at
Dec 31, 2019
As at
Dec 31, 2018
$ -
$ 193
1,469
681
Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
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:
Deferred tax assets
Property, plant and equipment
Land
Other
Deferred tax liabilities
Property, plant and equipment
Intangible assets
Other
Reserves
Lease items
Non-capital tax losses carried forward
8 Earnings per share
The following table sets forth the reconciliation of basic and diluted earnings per share:
Net income for the year
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
9 Cash and cash equivalents
Cash held with banks
Short-term investments
As at
Dec 31, 2019
As at
Dec 31, 2018
$ 588
(97)
(164)
$ 327
$ 570
(112)
(188)
$ 270
$ (1,826)
$ (2,099)
(140)
(46)
164
588
-
(141)
29
183
623
8
$ (1,260)
$ (1,397)
2019
2018
$ 9,026
$ 6,170
6,720,859
6,716,003
186,676
16,467
6,907,535
6,732,470
$ 1.34
$ 1.31
$ 0.92
$ 0.92
As at
Dec 31, 2019
As at
Dec 31, 2018
$ 18,629
$ 13,744
1,500
3,200
$ 20,129
$ 16,944
Interest income earned on bank balances and short-term investments is reported as investment income in the
consolidated statements of income.
PFB Corporation Annual Report 2019 52
Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
Thousands of Canadian dollars
Cash - restricted
As at
Dec 31, 2019
As at
Dec 31, 2018
$ 924
$ 1,347
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, 2019.
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, 2019
As at
Dec 31, 2018
$ 10,019
$ 11,800
1,127
327
11,473
(727)
1,343
487
13,630
(548)
$ 10,746
$ 13,082
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, 2019 and 2018, 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.
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
2019
$ (548)
(225)
46
2018
$ (413)
(148)
13
$ (727)
$ (548)
53 PFB Corporation Annual Report 2019
Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
Thousands of Canadian dollars
11. Inventories
Raw materials
Work in progress
Finished goods
As at
Dec 31, 2019
As at
Dec 31, 2018
$ 6,046
$ 5,907
2,156
3,396
2,404
3,327
$ 11,598
$ 11,638
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, 2019.
The cost of inventories recognized as an expense in cost of sales in the year ended December 31, 2019, was $77,842 (2018
- $79,805). Included in the cost of inventories recognized as an expense were write-downs from full cost to net realizable
value in the amount of $633 (2018 - $799). There were no reversals of any write-downs in either 2019 or 2018.
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
$515 (2018- $377). 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 $487 (2018 - $475).
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 $18,440 (2018 - $17,077). The Corporation estimates it will recognize approximately $14,579 of revenue from the
unsatisfied performance obligations upon completion of those performance obligations over the next twelve months and
$3,861 after twelve months.
PFB Corporation Annual Report 2019 54
Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
Thousands of Canadian dollars
14. Property, plant and equipment
Cost
Freehold land
Buildings
Plant and
equipment
Assets under
construction
Total
Balance at January 1, 2018
$ 8,457
$ 25,702
$ 42,197
$ 698
$ 77,054
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
Balance at December 31, 2018
8,612
26,491
44,547
Additions
Disposal of PP&E assets
Transfers between asset classes
Effect of foreign currency changes
-
-
-
(92)
-
-
153
(347)
107
(1,269)
1,053
(425)
1,761
-
-
(2,032)
21
448
1,778
-
(1,206)
(11)
1,769
(350)
217
-
1,408
80,098
1,885
(1,269)
-
(875)
Balance at December 31, 2019
$ 8,520
$ 26,297
$ 44,013
$ 1,009
$ 79,839
Accumulated Depreciation
Balance at January 1, 2018
Depreciation expense
Disposal of PP&E assets
Transfer of leased assets
Effect of foreign currency changes
Balance at December 31, 2018
Depreciation expense
Disposal of PP&E assets
Effect of foreign currency changes
$ -
$ 9,837
$ 29,790
$ -
$ 39,627
-
-
-
-
-
-
-
-
1,201
-
-
313
2,006
(350)
201
406
11,351
32,053
1,191
-
(198)
1,883
(1,211)
(260)
-
-
-
-
-
-
-
-
3,207
(350)
201
719
43,404
3,074
(1,211)
(458)
Balance at December 31, 2019
$ -
$ 12,344
$ 32,465
$ -
$ 44,809
Net book values
2018
2019
$ 8,612
$ 15,140
$ 12,494
8,520
13,953
11,548
$ 448
1,009
$ 36,694
35,030
Depreciation commences when assets are available for use. Depreciation expense for the year ended December 31, 2019 in
the amount of $2,818 (2018 - $2,907) is included in cost of sales, with an amount of $123 (2018 - $147) included in selling
expenses, and an amount of $133 (2018 - $153) included in administrative expenses.
Assets under construction as at December 31, 2019 are expected to be available for use in 2020.
55 PFB Corporation Annual Report 2019
Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
Thousands of Canadian dollars
15. Right-of-use assets
Cost
Balance at January 1, 2018
Additions
Disposal of right-of-use assets
Transfers of PP&E assets
Effect of foreign currency changes
Balance at December 31, 2018
Additions
Disposal of right-of-use assets
Effect of foreign currency changes
Property
$ 13,750
-
(1,713)
-
229
12,266
212
-
(139)
Vehicles
$ 819
168
(209)
-
20
798
229
(125)
(14)
Truck and
trailers
$ 220
129
(109)
-
9
Office
equipment
$ 372
-
(34)
-
24
Machinery
and
equipment
$ 268
-
(39)
(217)
13
249
-
-
(6)
362
36
(14)
(13)
25
-
-
(1)
Total
$ 15,429
297
(2,104)
(217)
295
13,700
477
(139)
(173)
Balance at December 31, 2019
$ 12,339
$ 888
$ 243
$ 371
$ 24
$ 13,865
Accumulated Depreciation
Balance at January 1, 2018
Depreciation expense
Disposal of right-of-use assets
Transfers of PP&E assets
Effect of foreign currency changes
Balance at December 31, 2018
Depreciation expense
Disposal of right-of-use assets
Effect of foreign currency changes
$ 5,185
1,007
(1,716)
-
140
4,616
1,002
-
(91)
$ 457
231
(185)
-
9
512
182
(127)
(7)
$ 137
28
(109)
-
5
61
43
-
(3)
$ 101
105
(31)
-
10
185
96
(12)
(7)
$ 221
34
(39)
(201)
6
21
3
-
-
$ 6,101
1,405
(2,080)
(201)
170
5,395
1,326
(139)
(108)
Balance at December 31, 2019
$ 5,527
$ 560
$ 101
$ 262
$ 24
$ 6,474
Net book values
2018
2019
$ 7,650
6,812
$ 286
328
$ 188
142
$ 177
109
$ 4
-
$ 8,305
7,391
Depreciation expense for December 31, 2019 in the amounts of $889 (2018 - $893) is included in cost of sales, with
amounts of $279 (2018 - $341) included in selling expenses, and amounts of $158 (2018 - $171) included in
administrative expenses, respectively.
PFB Corporation Annual Report 2019 56
Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
Thousands of Canadian dollars
16. Intangible assets
Cost
Product
development
costs
Patents
Software
Registered
trade names
Order
backlog
Non-
compete
agreement
Total
Balance at January 1, 2018
$ 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
Additions
Disposal of intangible assets
Effect of foreign currency changes
-
-
-
-
-
(15)
317
(433)
(23)
-
-
-
-
(66)
(10)
-
-
(2)
317
(433)
(116)
Balance at December 31, 2019
$ 70
$ 961
$ 2,678
$ 1,302
$ 192
$ 37
$ 5,240
Accumulated Amortization
Balance at January 1, 2018
$ 58
$ 951 $ 2,579
$ -
$ 186
$ 36 $ 3,810
Amortization expense
Effect of foreign currency changes
5
-
-
25
127
39
Balance at December 31, 2018
63
976
2,745
Amortization expense
Disposal of intangible assets
Effect of foreign currency changes
5
-
-
-
-
(15)
153
(433)
(23)
-
-
-
-
-
-
-
16
-
3
132
83
202
39
4,025
-
-
(10)
-
-
(2)
158
(433)
(50)
Balance at December 31, 2019
$ 68
$ 961
$ 2,442
$ -
$ 192
$ 37
$ 3,700
Net book values
2018
2019
$ 7
2
$ -
-
$ 72
$ 1,368
236
1,302
$ -
-
$ -
$ 1,447
-
1,540
Amortization expense for the year ended December 31, 2019 in the amount of $8 (2018 - $10) is included in cost of goods
sold, an amount of $7 (2018 - $10) is included in selling expenses, and an amount of $143 (2018 - $112) is included in
administrative expenses.
17. Goodwill
17.1 Cost
Balance at beginning of year
Effect of foreign currency exchange differences
Balance at end of year
2019
2018
$ 2,360
$ 2,217
(85)
143
$ 2,275
$ 2,360
For the purpose of impairment testing, goodwill is allocated to CGUs (Note 17.2). 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
57 PFB Corporation Annual Report 2019
Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
Thousands of Canadian dollars
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 2019 was determined the same way as in 2018.
17.2 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, 2019
As at
Dec 31, 2018
$ 580
1,695
$ 580
1,780
$ 2,275
$ 2,360
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 2018). 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 2019 and 2018 were as follows:
Year
2019
2018
Cash generating unit
Compound annual
growth rate (5 Years)
Canada
USA
Canada
USA
3.0 %
6.0 %
2.9 %
6.9 %
Long-term
growth rate
2.0 %
2.0 %
2.0 %
2.0 %
Discount rate
12.0 %
12.0 %
12.0 %
12.0 %
18. Retirement benefits plans
18.1 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.
18.2 Group 401K plan
The Corporation operates group 401K plans for all qualifying employees located in Nevada, 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.
PFB Corporation Annual Report 2019 58
Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
Thousands of Canadian dollars
18.3 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
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, 2019 and the accounting valuations were subsequently updated to December 31, 2019, by the
independent actuary. The next valuation report is required as at December 31, 2022.
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, 2019
$ (1,945)
2,249
As at
Dec 31, 2018
$ (1,898)
1,908
$ 304
$ 10
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
2019
3.25 %
3.25 %
2018
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
2019
$ 46
2018
$ 46
12
72
(72)
$ 58
10
69
(74)
$ 51
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
2019
2018
$ 1,898
46
72
(61)
(10)
$ 1,837
46
69
(54)
-
$ 1,945
$ 1,898
59 PFB Corporation Annual Report 2019
Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
Thousands of Canadian dollars
Movements in the present value of the plan assets were as follows:
Opening fair value of plan assets
Actual return (loss) on plan assets
Employer contributions
Administration costs
Benefit payments
2019
2018
$ 1,908
$ 1,928
306
108
(12)
(61)
(87)
131
(10)
(54)
Closing fair value of plan assets
$ 2,249
$ 1,908
The major categories of plan assets are as follows:
Equity instruments
Fixed income securities
Total
Distribution of plan assets
As at
Dec 31, 2018
As at
Dec 31, 2019
73 %
27 %
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 $nil to the defined benefit plan in the 2020 financial year.
19. 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
Revenue related to
Current
period
deposits 3
Beginning
of period
deposits 4
Rebates,
net 5
Foreign
exchange
Balance,
end of
period
2019
Jan 1- Mar 31
$ 6,464
$ 5,540
$ (2,502)
$ (2,503)
$ (1,166)
$ (23)
$ 5,810
Apr 1- Jun 30
Jul 1- Sep 30
Oct 1- Dec 31
5,810
8,654
10,072
8,657
9,495
8,670
(3,226)
(4,115)
(5,899)
(3,075)
(4,522)
(6,909)
569
412
169
(81)
148
(160)
8,654
10,072
5,943
2018
Jan 1- Mar 31
$ 5,158
$ 4,070
$ (736)
$ (1,857)
$ (772)
$ 39
$ 5,902
Apr 1- Jun 30
5,902
6,402
(1,607)
(3,357)
452
102
7,894
Jul 1- Sep 30
7,894
8,486
(4,107)
(4,699)
598
(144)
8,028
Oct 1- Dec 31
8,028
8,830
(5,581)
(5,041)
(34)
262
6,464
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.
PFB Corporation Annual Report 2019 60
Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
Thousands of Canadian dollars
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.
20. Borrowings
20.1 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, without any additional financial covenants.
The Corporation continues to provide a guarantee and postponement of claim to the bank in the amount of $17,000.
The interest rate applicable on draws made against the facility is the Canadian bank’s prime rate and the facility
carries a nominal maintenance fee. The credit facility was not used as at December 31, 2019.
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, 2019.
The Corporation continues to follow a policy of carrying US dollar balances and borrowing in Canadian dollars,
when required, rather than executing multiple cross-border foreign exchange transactions.
20.2 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, 2019 Dec 31, 2018
$ 8,568
-
(351)
$ 8,906
-
(338)
$ 8,217
$ 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, 2019.
61 PFB Corporation Annual Report 2019
Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
Thousands of Canadian dollars
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
21. Lease obligations
Dec 31, 2019
$ 361
373
385
398
411
6,289
$ 8,217
The Corporation has lease obligations for contracts related to property (land, office space, manufacturing and storage
facilities), vehicles, truck and trailers, office equipment and machinery and equipment. Lease obligations for automobiles
and equipment are secured by the lessors’ title to the automobiles and equipment.
Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. Discount
rates during the year ended December 31, 2019 were between 1.2% and 18.1%, depending on the duration of the lease.
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 (2018 - $1,483) (Note 24). 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.
21.1 The Corporation’s lease obligations as at December 31, 2019 and 2018 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
Lease obligations are included in the consolidated balance sheets as follows:
Current
Long-term
Total
Minimum lease payments
Dec 31, 2019
Dec 31, 2018
$ 2,024
$ 2,013
6,683
7,965
16,672
6,826
6,910
9,371
18,294
7,685
$ 9,846
$ 10,609
Dec 31, 2019
Dec 31, 2018
$ 1,167
8,679
$ 1,122
9,487
$ 9,846
$ 10,609
PFB Corporation Annual Report 2019 62
Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
Thousands of Canadian dollars
21.2 Lease obligations
Balance at January 1, 2018
Additions
Repayments
Disposal
Effect of foreign currency changes
Balance at December 31, 2018
Additions
Repayments
Disposal
Effect of foreign currency changes
Property
$ 10,454
-
(652)
-
127
9,929
211
(825)
-
(64)
Vehicles
$ 372
168
(235)
(18)
17
Truck and
trailers
$ 84
129
(29)
-
7
Office
equipment
$ 272
-
(103)
(2)
15
Machinery
and
equipment
$ 9
-
(6)
-
-
304
230
(190)
-
(8)
191
-
(41)
-
(3)
182
36
(98)
(2)
(6)
3
-
(3)
-
-
Total
$ 11,191
297
(1,025)
(20)
166
10,609
477
(1,157)
(2)
(81)
Balance at December 31, 2019
$ 9,251
$ 336
$ 147
$ 112
$ -
$ 9,846
Current
Long-term
Total
$ 885
8,366
$ 179
157
$ 42
105
$ 61
51
$ 9,251
$ 336
$ 147
$ 112
$ -
-
$ -
$ 1,167
8,679
$ 9,846
Expense related to short-term leases during the year ended December 31, 2019 was $37 (2018 - $33). Expense
related to low value leases during the year ended December 31, 2019 was $2 (2018 - $1).
Total cash outflows for lease payments during the year ended December 31, 2019 was $2,046 (2018 - $1,944).
Finance costs paid relating to lease obligations during the year ended December 31, 2019 was $889 (2018 - $919).
22. 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
Long-term debt
Lease obligations
Total
Dec 31, 2018 Borrowings Repayments
$ (351)
$ 8,568
$ -
Foreign
Additions Disposal
$ -
$ -
exchange Dec 31, 2019
$ 8,217
$ -
10,609
$ 19,177
-
$ -
(1,157)
477
(2)
(81)
$ (1,508)
$ 477
$ (2)
$ (81)
9,846
$ 18,063
63 PFB Corporation Annual Report 2019
Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
Thousands of Canadian dollars
23. Issued capital
23.1 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.
23.2 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, 500,000 stock options were granted to certain directors and senior management with
an exercise price ranging from $8.05 to $11.75 per share. Options granted to directors vest immediately and expire
on May 10, 2023. Options granted to senior management commence to vest on a graduated schedule and expire ten
years subsequent to the grant date. 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, 2019:
Number of
options
outstanding
Number
of options
exercised
Weighted
average
exercise
price
Weighted
average
remaining
life (years)
375,000
100,000
-
475,000
-
-
25,000
25,000
$ 8.50
$ 11.75
$ 8.05
$ 9.13
8.25
9.25
-
8.46
Grant date
Weighted
average
risk-free
interest
rate (%)
Weighted
average
expected
life (years)
Estimated
volatility
(%)
Expected
annual
dividend
yield (%)
Weighted
average
fair value
per option
2.11
1.76
2.11
9.69
10.00
4.92
18.04
16.91
18.04
3.98
2.72
3.98
$ 0.76
$ 1.56
$ 0.81
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 $442 or $0.93 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 other losses on the income statement with the off-set to equity-settled employee
benefits reserves on the balance sheet.
23.3 Restricted Share Units
On January 1, 2019, 100,000 Restricted Share Units (“RSU”) were awarded to the Corporation’s former Chief
Operating Officer and current Director. Each restricted share unit gives the holder the right to receive one common
PFB Corporation Annual Report 2019 64
Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
Thousands of Canadian dollars
share of the Corporation. The rights to acquire 100,000 common shares of the Corporation, at the election of the
Director, vested immediately on the date of grant and will be payable, at the holder’s option, in common shares. The
share-based remuneration expense of the RSU is based on the fair value of the common shares on the date of grant
using the closing market share price on the date prior to the grant, and the expected vesting conditions. The
Corporation recorded a share-based remuneration expense for an amount of $950 as a compensation expense in other
losses in the income statement, with an offset to equity-settled employee benefits reserves, until the award becomes
exercised, and will subsequently be reclassified as an increase in common shares. The RSU award is not remeasured
subsequent to the initial grant date. The RSUs expire at the end of a three-year period, or on December 31, 2021.
During the year ended December 31, 2019, there were no units exercised.
23.4 Normal Course Issuer Bid
In August 2019, 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 September 3, 2019 and ends no later
than September 2, 2020. The renewal allows the Corporation to purchase up to a maximum of 50,000 of its common
shares, representing 0.74% of the Corporation’s 6,741,003 issued and outstanding common shares as at August 29,
2019, subject to daily maximum purchases of 1,000 common shares and other listed-issuer regulations. The
Corporation will purchase from time-to-time its common shares at market prices by means of open market
transactions on the Toronto Stock Exchange.
In the year ended December 31, 2019, the Corporation purchased for cancellation 50,000 of its common shares,
under the current Bid, for an aggregate price of $525, of which $368 was charged to retained earnings as a premium
on redemption of the common shares. For the year ended December 31, 2018, the Corporation did not purchase any
of its common shares.
23.5 Dividends
In the first quarter of 2019, the Corporation’s board of directors declared a regular quarterly dividend of $0.08 (2018
- $0.08) per common share which was paid in February of each year, respectively. The dividend payment in February
2019 amounted to $538 (2018 - $538).
In the second quarter of 2019, the Corporation’s board of directors declared a regular quarterly dividend of $0.09
(2018 - $0.08) per common share which was paid in May of each year, respectively. The dividend payment in May
2019 amounted to $607 (2018 - $537).
In the third quarter of 2019, the Corporation’s board of directors declared a regular quarterly dividend of $0.09 (2018
- $0.08) per common share which was paid in August of each year, respectively. The dividend payment in August
2019 amounted to $606 (2018 - $538).
In the fourth quarter of 2019, the Corporation’s board of directors declared a regular quarterly dividend of $0.09
(2018 - $0.08) per common share which was paid in November of each year, respectively. The dividend payment in
November 2019 amounted to $607 (2018 - $537).
In the year ended December 31, 2019, the Corporation’s Board of Directors declared a one-time, special dividend of
$1.00 per common share which was paid on November 29, 2019 (2018 - $nil).
Aggregate dividends paid in the year ended December 31, 2019, amounted to $9,044 (2018 - $2,150).
Dividends paid by PFB, in 2019, qualify as eligible dividends and satisfy the enhanced gross-up and dividend tax
credit change enacted under Canadian tax law.
24. Financial instruments
24.1 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.
65 PFB Corporation Annual Report 2019
Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
Thousands of Canadian dollars
The capital structure of the Corporation consists of net debt (long-term debt as detailed in Note 20 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, 2019 and 2018, is as
outlined in the following table:
Borrowings
Less: cash and cash equivalents
Surplus cash
Shareholders’ equity
As at
December 31, 2019
As at
December 31, 2018
$ 8,217
20,129
$ (11,912)
$ 8,568
16,944
$ (8,376)
$ 55,656
$ 56,009
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.
24.2 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, 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.
PFB Corporation Annual Report 2019 66
Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
Thousands of Canadian dollars
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:
Category
Financial
instrument
Cash and cash
equivalents
Cash - restricted Assets at
Assets at
amortized cost
Measurement
Hierarchy
December 31, 2019
December 31, 2018
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
Amortized cost
Level 1
$ 20,129
$ 20,129
$ 16,944
$ 16,944
Restricted
marketable
securities
Trade
receivables
Trade and other
payables
Long-term debt
amortized cost Amortized cost Level 1
924
924
1,347
1,347
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
1,483
1,483
N/A
10,746
10,746
13,082
13,082
N/A
(10,324)
(10,324)
(10,894)
(10,894)
Level 2
(8,217)
(8,217)
(8,568)
(8,568)
During the year ending December 31, 2019, there were no transfers between Level 1 and Level 2 fair value
measurements.
During the year ending December 31, 2018, restricted marketable securities were transferred from Level 1 to Level 2
fair value measurements.
24.3 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:
67 PFB Corporation Annual Report 2019
Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
Thousands of Canadian dollars
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.
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.
24.4 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, 2019.
The following tables detail the Corporation’s exposure to foreign currency risk as at December 31, 2019 and 2018,
including a sensitivity analysis to changes in foreign exchange rates:
December 31, 2019
December 31, 2018
USD
Change in
currency
Effect on
after tax
income (loss)
Change in
currency
USD
Effect on
after tax
income (loss)
Net monetary assets
Net monetary liabilities
$ 15,978
(4,286)
5.0 %
5.0 %
$ 607
$ 12,567
$ (163)
(3,981)
5.0 %
5.0 %
$ 478
$ (152)
24.5 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 $17,000, based on marginable trade receivables and inventories. The revolving credit
facility was repaid and unused at December 31, 2019 (December 31, 2018 - $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, 2019
(December 31, 2018 - $1,250, unused).
24.6 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.
PFB Corporation Annual Report 2019 68
Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
Thousands of Canadian dollars
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.
The Corporation has financial liabilities with the following maturities:
As at December 31, 2019
Trade and other payables
Long-term debt
Lease obligations
Total
As at December 31, 2018
Trade and other payables
Long-term debt
Lease obligations
Total
Current
less than 12
months
$ 10,324
Due within
12 to 24
months
$ -
Due within
25 to 36
months
$ -
Due within
37 to 48
months
$ -
Due after
48 months
$ -
623
2,024
623
1,894
623
1,705
623
1,679
8,254
9,370
Total
$ 10,324
10,746
16,672
$ 37,742 $ 12,971
$ 2,517
$ 2,328
$ 2,302
$ 17,624
$ 10,894 $ 10,894
11,369
623
$ -
623
$ -
623
$ -
623
$ -
8,877
18,294
$ 40,557
2,013
$ 13,530
1,837
$ 2,460
1,728
$ 2,351
1,650
$ 2,273
11,066
$ 19,943
25. 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.
25.1 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, 2019 and 2018, 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
2019
2018
$ 2,168
$ 2,163
350
350
$ 2,518
$ 2,513
2019
2018
$ 75 $ 81
69 PFB Corporation Annual Report 2019
Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
Thousands of Canadian dollars
Aeonian Capital Corporation (“Aeonian”), and its affiliates, owned 2,972,168 (2018 - 2,991,168) common shares of
the Corporation representing 44.4% (2018 – 44.5%) of the 6,691,003 issued and outstanding shares as at December
31, 2019. 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.
25.2 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
2019
2018
$ 2,017
-
-
990
-
$ 1,477
-
-
44
-
$ 3,007
$ 1,521
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.
26. Commitments and contingencies
26.1 Performance bonds
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, 2019, the Canadian segment did not have any performance bonds outstanding (December 31,
2018 - $nil). In the USA, performance bonds in the amount of $620 (December 31, 2018 - $651) were pledged to
various government agencies as at December 31, 2019.
26.2 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, 2019, no definitive schedule of major repairs
has been determined.
The Corporation had the following commitments for property, plant and equipment and intangible assets as at
December 31, 2019 and 2018:
Property, plant and equipment
Intangible assets
As at
Dec 31, 2019
As at
Dec 31, 2018
$ 1,086
-
$ 1,086
$ 494
58
$ 552
PFB Corporation Annual Report 2019 70
Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
Thousands of Canadian dollars
26.3 Contingent liabilities
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.
26.4 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.
26.5 Utility contracts
The Corporation has entered into physical supply, fixed-price utility contracts with a third party supplier for its own
usage as follows:
Utility
contract Region
Usage
coverage Cost
Annual minimum
purchase
Term
Electricity Alberta
100 %
$ 0.06/Kilowatt-hour
3,746,000 Kilowatt-hour
July 1, 2019 - June 30, 2024
Gas
Alberta
100 %
$ 1.69/Gigajoule
80,100 Gigajoule
July 1, 2019 - June 30, 2022
27. Supplementary cash flow information
27.1 Changes in non-cash working capital
Increase (decrease)
Trade receivables
Inventories
Prepaid expenses
Contract cost
Trade and other payables
Contract liabilities
27.2 Non-cash transactions excluded from the consolidated statement of cash flows
Property, plant and equipment acquired with
lease obligations
28. Subsequent events
Declaration of regular quarterly dividend
2019
2018
$ 2,336
$ (3,273)
40
(95)
(12)
(570)
(521)
(1,640)
100
52
2,157
1,306
$ 1,178
$ (1,298)
2019
2018
$ 477
$ 297
On February 3, 2020, the Board of Directors declared a regular quarterly dividend of $0.09 per common share payable on
February 28, 2020, to shareholders of record at the close of business on February 14, 2020.
71 PFB Corporation Annual Report 2019
Notes to the Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
Thousands of Canadian dollars
29. Subsidiaries
Subsidiary
Principal activities
Place of
incorporation and
operation
Proportion of ownership interest
and voting power held
by the Corporation
Dec 31, 2018
Dec 31, 2019
Canada
Plasti-Fab Ltd.
Manufacturing
Alberta, Canada
100%
100%
USA
PFB America Corporation
Holding company
PFB Custom Homes Group, LLC Design and
construction services
Delaware, USA
Delaware, USA
PFB Manufacturing, LLC
Manufacturing
Delaware, USA
PFB America Real Estate, LLC
Real estate holdings
Delaware, USA
100%
100%
100%
100%
100%
100%
100%
100%
30. Approval of financial statements
The financial statements were approved by the Board of Directors and authorized for issue on March 12, 2020.
PFB Corporation Annual Report 2019 72
DIRECTORS
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
Red Ortega
Chief Information Officer
William H. Smith, Q.C.
Corporate Secretary
73 PFB Corporation Annual Report 2019
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
Carson City, Nevada
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
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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