2018
ANNUAL REPORT
Our mission is to be the world’s most reliable producer
and supplier of bioenergy products
PROFILE
Pinnacle Renewable Energy is a rapidly growing industrial wood pellet manufacturer and distributor and the third largest producer
in the world. We produce sustainable fuel for renewable electricity generation in the form of industrial wood pellets. This fuel is used
by large-scale thermal power generators as a greener alternative to produce reliable baseload renewable power. We are a trusted
supplier to our customers, who require reliable, high-quality fuel supply to maximize utilization of their facilities. We take pride in our
industry leading safety practices. We operate eight industrial wood pellet production facilities in western Canada and one in Alabama,
and own a port terminal in Prince Rupert, B.C. We have entered into long-term take-or-pay contracts with utilities in the U.K., Europe
and Asia that represent 109% of our production capacity through 2021 and 102% of our production capacity through 2026.
Western Canada
Westview Terminal
Prince Rupert
Annual Throughput
Capacity:
2,500,000 MT
Smithers Facility ¹
Commissioning Phase
Target Annual
Production Capacity:
125,000 MT
Burns Lake Facility
Burns Lake Facility
Burns Lake Facility
Annual Production
Annual Production
Annual Production
Capacity: 380,000 MT
Capacity: 380,000 MT
Capacity: 380,000 MT
Prince George Offi ce
8545 Willow Cale
Road, Prince George
Entwistle Facility
Commissioning Phase
Target Annual
Production Capacity:
400,000 MT
Houston Facility²
Annual Production
Annual Production
Capacity: 230,000 MT
Capacity: 230,000 MT
Meadowbank Facility
Annual Production
Capacity: 230,000 MT
Williams Lake Facility
Williams Lake Facility
Annual Production
Annual Production
Capacity: 210,000 MT
Capacity: 210,000 MT
Southeastern US
Southeastern US
4
Aliceville Facility
Annual Production
Capacity: 270,000 MT
Armstrong Facility
Annual Production
Capacity: 72,000 MT
Port of Mobile
Mobile, AL
5
5
FibreCo Terminal
North Vancouver, BC
Annual Throughput
Capacity:
1,500,000 MT
Vancouver
Vancouver
Corporate Offi ce
350-3600 Lysander
Lane, Richmond
Production Facilities
Production Facilities
Shipping Terminals
Offi ces
Lavington Facility³
Annual Production
Capacity: 300,000 MT
CN Rail Lines
Inland Waterway
1. 70% owned by Pinnacle
2. 30% owned by Pinnacle
3. 75% owned by Pinnacle
4. 70% owned by Pinnacle
5. Third Party Facility
PERFORMANCE HIGHLIGHTS
PRODUCTION
(millions of MT per annum)
REVENUE
(C$ millions)
ADJUSTED GROSS MARGIN1
(C$ millions)
ADJUSTED EBITDA1
(C$ millions)
1,320
1,357
1,540
1,137
995
$347
$293
$266
$53.1
$44.8
19.9%
19.9%
$66.9 $67.6
22.9%
19.5%
$26.9
13.4%
$226
$201
$56.1
$55.1
19.2%
15.9%
$43.9
16.5%
$34.1
$18.0
15.1%
9.0%
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
Adjusted Gross Margin Percentage
Adjusted EBITDA Percentage
1Adjusted Gross Margin and Adjusted EBITDA are non-IFRS measures. Please refer to our Management Discussion & Analysis for further information.
"#!#$%!&'(%)'#*+)%&,!
!"# $%"# &'"$(")# *+# &%"(",*# +-%# $,,-$'# %"&+%*# .+%# ./(0$'# 12345# +-%# ./%(*# 6"$%# $(# $# &-7'/0# 0+8&$,69# !"
0+8&'"*")#+-%#/,/*/$'#&-7'/0#+.."%/,:#;<=>?@A#+,#*B"#C+%+,*+#D*+0E#FG0B$,:"#/,#H"7%-$%6 12345#%$/(/,:#:%+((#
&%+0"")(#+.#$&&%+G/8$*"'6#IJ2#8/''/+,5#KB/'"#$#0+,0-%%",*#("0+,)$%6#+.."%/,:#+.#$&&%+G/8$*"'6#I3219L#
8/''/+,#",B$,0")#*B"#'/M-/)/*6#+.#+-%#(B$%"(9#>/,,$0'"#/(#,+K#+,"#+.#*K+#&-7'/0'6N*%$)")#0+8&$,/"(#*B$*#
&%+)-0"#$,)#)/(*%/7-*"#/,)-(*%/$'#K++)#&"''"*(#.+%#:'+7$'#8$%E"*(9###
=,#$))/*/+,#*+#*B"#(-00"((.-'#0+8&'"*/+,#+.#*B"#=>?5#K"#8$)"#(*%+,:#&%+:%"((#/,#$)O$,0/,:#+-%#E"6#:%+K*B#
+7P"0*/O"(#)-%/,:#*B"#6"$%5#/,0'-)/,:Q#*B"#"G&$,(/+,#+.#+-%#&'$*.+%8#/,*+#$#,"K#(*%$*":/0#./7%"#7$(E"*#/,#
R+%*B#S8"%/0$T#/,0%"$(/,:#&%+)-0*/+,#$*#+-%#"G/(*/,:#.$0/'/*/"(T#*B"#0+,(*%-0*/+,#$,)#0+88/((/+,/,:#+.#,"K#
&%+)-0*/+,#.$0/'/*/"(T#$,)#("0-%/,:#,"K#'+,:N*"%8#+..N*$E"#0+,*%$0*(#/,#%$&/)'6#:%+K/,:#8$%E"*(#/,#U$&$,#
$,)#D+-*B#V+%"$9##
=,#?0*+7"%#12345#K"#0+8&'"*")#*B"#$0M-/(/*/+,#+.#$#J2#&"%0",*#/,*"%"(*#/,#$,#+&"%$*/,:#&%+)-0*/+,#.$0/'/*6#
/,#S'/0"O/''"5#S'$7$8$#.%+8#CB"#!"(*"%O"'*#W+8&$,6#;X!"(*"%O"'*XA5#$#'"$)/,:#.+%"(*%6#$,)#'$,)#%"(+-%0"#
0+8&$,6# /,# *B"# %":/+,9# !"# "G&"0*# *B/(# .$0/'/*6# *+# B$O"# %-,N%$*"# &%+)-0*/+,# 0$&$0/*6# +.# $&&%+G/8$*"'6#
1J25222# 8"*%/0#*+,(#&"%#$,,-8#;S@A# +.#/,)-(*%/$'#K++)#&"''"*(9# !"(*"%O"'*Z(#,"$%76#($K8/''# K/''#
%"8$/,#$,#$,0B+%#(-&&'/"%#+.#./7%"5#",(-%/,:#(*%+,:#$'/:,8",*#7"*K"",#-(9#CB"#/,*":%$*/+,#+.#S'/0"O/''"#
/,*+#+-%#&'$*.+%8#0+,*/,-"(#*+#&%+:%"((#K"''#$,)#0-%%",*#&%+)-0*/+,#O+'-8"(#$%"#8""*/,:#"G&"0*$*/+,(9#
!"#"G&"0*#S'/0"O/''"#*+#8$E"#$#0+,*%/7-*/+,#*+#+-%#S)P-(*")#F[=C\S#*B/(#6"$%9#
CB"#S'/0"O/''"#*%$,($0*/+,#,+*#+,'6#/,0%"$("(#+-%#&%+)-0*/+,#0$&$0/*65#7-*#/*#$'(+#&%+O/)"(#-(#K/*B#",B$,0")#
.'"G/7/'/*6#*+#0+(*N".."0*/O"'6#$''+0$*"#(-&&'6#*+#+-%#0-(*+8"%(#/,#F-%+&"#$,)#S(/$5#$(#K"#B$O"#*B"#-,/M-"#
$7/'/*6#*+#(B/&#&"''"*(#.%+8#&+%*(#/,#7+*B#*B"#S*'$,*/0#$,)#>$0/./0#%":/+,(9#S'/0"O/''"#"(*$7'/(B"(#$,#",*%6#
&+/,*#.+%#+-%#.-*-%"#:%+K*B#/,#*B"#]9D9#D+-*B"$(*9#
CB"#($."*6#+.#+-%#"8&'+6""(#/(#$*#*B"#0+%"#+.#>/,,$0'"^(#0-'*-%"9#?-%#S5 ",*"%")#/,*+#0+88"%0/$'#&%+)-0*/+, $*#*B"#",)#+.#*B"
("0+,)# M-$%*"%# +.# 12349# !"# K"%"#:%$)-$''6# %$8&/,:#-&#&%+)-0*/+,#$*#F,*K/(*'"# $,)# K"%"# /,# *B"# ./,$'#
(*$:"(# +.# 0+88/((/+,/,:# *B"# .$0/'/*6# /,# H"7%-$%6# 123a5# KB",# $# ./%"# "O",*# +00-%%")5 0$-(/,:# "G*",(/O"#
)$8$:"#*+#*B"#)%6"%#$%"$5#%"(-'*/,:#/,#*B"#*"8&+%$%6#(-(&",(/+,#+.#+&"%$*/+,(9#=,#*B"#0+8/,:#K""E(5#K"#
"G&"0*#*+#)"*"%8/,"#*B"#$8+-,*#+.#/,(-%$,0"#%"0+O"%/"(#*+#KB/0B#K"#$%"#",*/*'")#$,)#K/''#&%+O/)"#$,#
-&)$*"#$*#*B$*#*/8"9#!"#%"(-8")#&%+)-0*/+,#$*#F,*K/(*'"5#-(/,:#)%6#./7%"#$*#*B"#",)#+.#Y$%0B#123a5#$,)#
K"#$%"#.+0-(")#+,#",(-%/,:#*B"#B/:B"(*#'"O"'(#+.#($."*6#$(#K"#8+O"#*+K$%)(#%"(*$%*/,:#.-''#+&"%$*/+,(9#!"#
$%"#0+88/**")#*+#"(*$7'/(B/,:#F,*K/(*'"#$(#$#K+%')#0'$((#&%+)-0*/+,#.$0/'/*69###
?-%#,"K#&%+)-0*/+,#.$0/'/*6#/,#D8/*B"%(5#[9W95#KB/0B#/(#+K,")#J2#&"%0",*#76#>/,,$0'"#$,)#b2#&"%0",*#76#
!"(*#H%$("%#C/87"%#W+9#_*)9#;X!"(*#H%$("%XA5#0+88",0")#0+88"%0/$'#&%+)-0*/+,#+,#*B"#./%(*#)$6#+.#+-%#
123a#./(0$'#6"$%5#$,)#/(#K"''#&+(/*/+,")#*+#0+,*%/7-*"#*+#S)P-(*")#F[=C\S#/,#123a9##!"#"G&"0*#D8/*B"%(#*+#
%"$0B#.-''#%-,N%$*"#&%+)-0*/+,#+.#31L5222#YC>S#/,#*B"#*B/%)#M-$%*"%#+.#./(0$'#123a9###
!B",#+-%#,"K#F,*K/(*'"5#S'/0"O/''"#$,)#D8/*B"%(#&%+)-0*/+,#.$0/'/*/"(#%"$0B#.-''#%-,N%$*"#&%+)-0*/+,5#K"
K/''# B$O"# $))")# $&&%+G/8$*"'6# JaL5222# YC>S# +.# &%+)-0*/+,# 0$&$0/*6# *B%+-:B# :%+K*B# /,/*/$*/O"(# K"#
0+88",0")# /,# 12345# %"&%"(",*/,:#$,#/,0%"$("#+.#8+%"#*B$,#L2#&"%0",*9#H-%*B"%5# +-%# ,"K# &%+)-0*/+,#
.$0/'/*/"(#/,#S'7"%*$#$,)#S'$7$8$#",B$,0"#*B"#)/O"%(/./0$*/+,#+.#+-%#./7%"#(-&&'69##
CB"#"G&$,(/+,#+.#+-%#&%+)-0*/+,#0$&$0/*6#(-&&+%*(#+-%#'$%:"#$,)#:%+K/,:#0+,*$0*")#7$0E'+:9#\-%/,:#12345#
K"#("0-%")#(/G#,"K5#'+,:N*"%8#0+,*%$0*(#K/*B#("O"%$'#'"$)/,:#U$&$,"("#0+%&+%$*/+,(#*+*$'/,:#I39a#7/''/+,5
$,)#K"#("0-%")#*K+#,"K#'+,:N*"%8#0+,*%$0*(#K/*B#\$"($,#>+K"%#/,#D+-*B#V+%"$#*+*$'/,:#I3#7/''/+,9#CB"("#
,"K#0+,*%$0*(#(/:,/./0$,*'6#)/O"%(/.6#+-%#0-(*+8"%#7$("5#$,)#./%8'6#"(*$7'/(B#>/,,$0'"#$(#$#'"$)/,:#(-&&'/"%#
/,#*B"#E"6#S(/$,#$,)#F-%+&"$,#8$%E"*(9###
?-%#0+,*%$0*")#7$0E'+:#K$(#IL9a#7/''/+,#$*#6"$%N",)5#$#aJ#&"%0",*#/,0%"$("#0+8&$%")#*+#*B"#",)#+.#123J5#
$,)# *B"# K"/:B*")# $O"%$:"# %"8$/,/,:# '/."# +.# +-%# +..N*$E"# 0+,*%$0*(# B$(# 7"",# "G*",)")# *+# ,/,"# 6"$%(5#
(-&&+%*/,:#*B"#'+,:N*"%8#O/(/7/'/*6#+.#+-%#0$(B#.'+K(9##
\-%/,:#12345#K"#(*%",:*B",")#+-%# &%+P"0*#)"O"'+&8",*#$,)#./7%"#8$,$:"8",*#*"$8(#*+# (-&&+%*# +-%#
+,:+/,:#:%+K*B9#!/*B#,/,"#&%+)-0*/+,#.$0/'/*/"(5#$#&%"(",0"#/,#*K+#8$P+%#./7%"#7$(E"*(5#$,)#$#:%+K/,:#
0+,*%$0*")#7$0E'+:5#+-%#(*%",:*B",")#8$,$:"8",*#*"$8#K/''#&+(/*/+,#>/,,$0'"#*+#+&*/8/c"#,"K#:%+K*B#
&%+P"0*(#$,)#*B"#&"%.+%8$,0"#+.#+-%#"G/(*/,:#+&"%$*/+,(5 $(#K"#0+,*/,-"#*+#(0$'"#+-%#&'$*.+%8#*+#8""*#
:%+K/,:#8$%E"*#)"8$,)9##
_++E/,:#$B"$)5#+-%#.-*-%"#:%+K*B#K/''#7"#)%/O",#76#(*"$)6#F-%+&"$,#0-(*+8"%#)"8$,)#$,)#.$(*N:%+K/,:#
8$%E"*(#/,#S(/$#d#U$&$,#/,#&$%*/0-'$%9##CB%+-:B#/,0%"$(/,:#0$&$0/*6#$*#+-%#"G/(*/,:#&%+)-0*/+,#.$0/'/*/"(5#*B"#
$))/*/+,# +.# +*B"%# :%"",./"')# $,)# 7%+K,./"')# &%+P"0*(5# $,)# *B"# 0+,*/,-")# "O$'-$*/+,# +.# $0M-/(/*/+,#
+&&+%*-,/*/"(#/,#(*%$*":/0#R+%*B#S8"%/0$,#./7%"#%":/+,(5#K"#"G&"0*#*+#0+,*/,-"#:%+K/,:#+-%#&%+)-0*/+,#
0$&$0/*6#&%+&+%*/+,$*"'6#K/*B#/,0%"$(/,:#:'+7$'#)"8$,)9##
=,#123a5#+-%#.+0-(#/(#+,#F,*K/(*'"#$,)#0+,*/,-/,:#*+#7-/')#+-%#&'$*.+%8#/,#(-&&+%*#+.#+-%#'+,:N*"%8#:%+K*B9#
?,#7"B$'.#+.#+-%#[+$%)#$,)#$''#*B"#>/,,$0'"#*"$8#8"87"%(5#K"#$&&%"0/$*"#6+-%#(-&&+%*#$(#K"#0+,*/,-"#
*+#$)O$,0"#+-%#:%+K*B#(*%$*":6#$,)#7-/')#'+,:N*"%8#O$'-"#.+%#(*$E"B+')"%(9
D/,0"%"'65##
e+7"%*#Y0W-%)6#
WB/".#FG"0-*/O"#?../0"%#
f%":+%6#[$6'/,#
WB$/%#+.#*B"#[+$%)#
Fiscal 2018
For the 52-week periods ended
December 28, 2018 and
December 29, 2017
February 21, 2019
Management’s Discussion & Analysis
RENEWABLE ENERGY INC.
(formerly Pinnacle Renewable Holdings Inc.)
0
GENERAL INFORMATION AND CAUTIONARY STATEMENTS
Introduction
The following management’s discussion and analysis (“MD&A”) dated February 21, 2019 provides information concerning
the financial condition and results of operations of Pinnacle Renewable Energy Inc. (formerly Pinnacle Renewable Holdings Inc.
and, collectively with its consolidated subsidiaries, the “Company”, “Pinnacle”, “we”, “us” or “our”). This MD&A provides the
reader with a view and analysis, from the perspective of management, of the Company’s financial and operating results for the 13-
week period ended December 28, 2018 (“Q4 2018”) and the 52-week period ended December 28, 2018 (“Fiscal 2018”). This
MD&A should be read in conjunction with our audited consolidated financial statements and accompanying notes for Fiscal 2018
(the “Consolidated Financial Statements”), available on the System for Electronic Document Analysis and Retrieval (“SEDAR”)
at www.sedar.com, or the Company’s website at www.pinnaclepellet.com.
Basis of Presentation
Our audited annual consolidated financial statements and accompanying notes have been prepared in accordance with
International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”), using
the accounting policies described therein. We manage our business on the basis of one operating and reportable segment.
All references in this MD&A to “Fiscal 2016” are to our 53-week period ended December 30, 2016, references to “Fiscal
2017” are to our 52-week period ended December 29, 2017, all references to “Fiscal 2019” are to our 52-week period ending
December 27, 2019, all references to “Fiscal 2020” are to our 53-week period ending December 25, 2020, and all references to
“Fiscal 2021” are to our 52-week period ending December 31, 2021. All references in this MD&A to “Q3 2018” are to our 13-
week period ended September 28, 2018, and all references to “Q4 2017” are to our 13-week period ended December 29, 2017. Our
fiscal year is the 52 or 53-week period ending the last Friday of the calendar year. The last 53-week fiscal year occurred in Fiscal
2016.
Forward-Looking Information
This MD&A contains “forward-looking information” within the meaning of applicable securities laws in Canada. Forward-
looking information may relate to our future financial outlook and anticipated events or results and may include information
regarding our financial position, business strategy, growth strategies, budgets, operations, financial results, taxes, dividend policy,
plans and objectives. Particularly, information regarding our expectations of future results, performance, achievements, prospects
or opportunities or the markets in which we operate is forward-looking information. Some of the specific forward-looking
information contained herein include, but are not limited to, statements with respect to: our expectations regarding growth in
biomass-based fuel sources within the European and Asian power generating portfolio; growth in global demand for wood pellets;
our expectations regarding accretive free cash flow per share on an annualized basis as a result of our purchase of a 70% stake in
the Aliceville Facility (as defined herein); our expectations regarding operational efficiency at the Smithers Facility (as defined
herein); anticipated supply delivery times under our off-take contracts; anticipated capital cost and maintenance capital
expenditures required by our facilities; and anticipated production from our facilities.
In some cases, forward-looking information can be identified by the use of forward-looking terminology such as “plans”,
“targets”, “expects” or “does not expect”, “is expected”, “an opportunity exists”, “budget”, “scheduled”, “estimates”, “outlook”,
“forecasts”, “projection”, “prospects”, “strategy”, “intends”, “anticipates”, “does not anticipate”, “believes”, or variations of such
words and phrases or state that certain actions, events or results “may”, “could”, “would”, “might”, “will”, “will be taken”, “occur”
or “be achieved”. In addition, any statements that refer to expectations, intentions, projections or other characterizations of future
events or circumstances contain forward-looking information. Statements containing forward-looking information are not historical
facts but instead represent management’s expectations, estimates and projections regarding future events or circumstances. There
can be no assurance that such information will prove to be accurate, as actual results and future events could differ materially from
those anticipated in such information.
Many factors could cause our actual results, level of activity, performance or achievements or future events or developments
to differ materially from those expressed or implied by the forward-looking statements, including, without limitation, the factors
discussed in the “Financial Risk Factors” section of this MD&A and in the “Risk Factors” section of our Annual Information Form
(“AIF”) dated March 21, 2018, which can be accessed under the Company’s profile on SEDAR at www.sedar.com. The Company
1
cautions that the list of risk factors and uncertainties described herein and in the AIF are not intended to represent a complete list
of the factors that could affect us. Readers are urged to consider the risks, uncertainties and assumptions carefully in evaluating the
forward-looking information and are cautioned to not place undue reliance on such information.
The forward-looking information contained in this MD&A represents our expectations as of the date of this MD&A (or as of
the date they are otherwise stated to be made), and are subject to change after such date. However, we disclaim any intention or
obligation or undertaking to update or revise any forward-looking information whether as a result of new information, future events
or otherwise, except as required under applicable securities laws in Canada.
In addition, this MD&A contains future-oriented financial information and financial outlook information (collectively,
“FOFI”) about Pinnacle’s Adjusted EBITDA estimates for Fiscal 2019, which estimates are subject to the same assumptions, risk
factors, limitations, and qualifications as set forth above. FOFI contained in this document was made as of the date hereof and was
provided for the purpose of providing shareholders with information on Pinnacle’s financial outlook. Pinnacle disclaims any
intention or obligation to update or revise any FOFI contained in this document, whether as a result of new information, future
events or otherwise, unless required pursuant to applicable securities laws in Canada. Readers are cautioned that the FOFI contained
in this document should not be used for purposes other than for which it is disclosed herein.
Non-IFRS Financial Measures
This MD&A makes reference to certain non-IFRS measures. These measures are not recognized measures under IFRS, and
do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented
by other companies. Rather, these measures are provided as additional information to complement those IFRS measures by
providing further understanding of our results of operations from management’s perspective. Accordingly, these measures should
not be considered in isolation nor as a substitute for analysis of our financial information reported under IFRS. We use non-IFRS
measures including “EBITDA”, “Adjusted EBITDA”, “Adjusted EBITDA per MT”, “Adjusted Gross Margin”, “Adjusted Gross
Margin per MT”, “Adjusted Gross Margin Percentage”, and “Free Cash Flow”. These non-IFRS measures are used to provide
investors with supplemental measures of our operating performance and thus highlight trends in our core business that may not
otherwise be apparent when relying solely on IFRS measures. We also believe that securities analysts, investors and other interested
parties frequently use non-IFRS measures in the evaluation of issuers. Our management also uses non-IFRS measures in order to
facilitate operating performance comparisons from period to period, to prepare annual operating budgets and forecasts and to
determine components of management compensation. As required by Canadian securities laws, we reconcile these non-IFRS
measures to the most comparable IFRS measure in this MD&A. For definitions and reconciliations of these non-IFRS measures to
the relevant reported measures, see “Key Performance Indicators” and “Results of Operations”.
COMPANY OVERVIEW, STRATEGY AND OBJECTIVES
Company Overview
Pinnacle is the third largest wood pellet producer in the world. We produce renewable fuel for electricity generation in the
form of industrial wood pellets, which are used by global utilities and large-scale power generators to produce renewable and
reliable baseload power. We are a trusted supplier to our customers, who require reliable, high quality fuel supply to maximize
utilization of their facilities.
As one of only three large global suppliers, we currently operate nine production facilities with a combined run-rate production
capacity in excess of 2.2 million metric tons per annum (“MTPA”). We are well-positioned to support growing global demand
through the construction of new production capacity and the strategic acquisition of existing production facilities. Early in Fiscal
2019, we commenced commercial production at the Smithers Facility (125,000 MTPA) in partnership with West Fraser Timber
Co. Ltd. (“West Fraser”). On October 15, 2018, we acquired a 70% interest in the Aliceville Facility (270,000 MTPA). On June
29, 2018, we commenced commercial production at our wholly-owned Entwistle Facility (as defined herein) (400,000 MTPA) and
continue to ramp up production. For additional information regarding these facilities, see “Operational Update – New Production
Facilities”.
We have entered into long-term take-or-pay contracts with our customers, whereby the buyer has a firm obligation to purchase
a fixed quantity of product at specific prices that represent 109% of our production capacity through 2021 and 102% of our
2
production capacity through 2026, on an aggregated basis, including new production capacity from the Aliceville, Entwistle and
Smithers Facilities. As at December 28, 2018 our total Contracted Backlog (as defined herein) was $5.9 billion.
Strategy and Objectives
Through increasing capacity at our existing production facilities, including the recently acquired U.S.-based Aliceville Facility
and the recently constructed Smithers Facility, as well as the addition of other greenfield and brownfield projects, we believe we
have an opportunity to continue growing our industrial wood pellet production proportionately with increasing global demand.
In addition to organic growth opportunities, we will continue to evaluate and pursue acquisition opportunities or other strategic
initiatives in Western Canada, in the U.S. Southeast, or in other jurisdictions, such as the U.S. Pacific Northwest and Eastern
Canada, to further diversify our asset base, leverage our strong development and operational expertise and capture increased market
share.
RECENT DEVELOPMENTS
Initial Public Offering
On February 6, 2018, we completed an initial public offering (the “IPO”) of our common shares (the “Common Shares”). The
IPO included a treasury offering by the Company and a secondary offering of Common Shares by certain of our shareholders at a
price of $11.25 per Common Share. Pursuant to the IPO, we sold 6,223,889 Common Shares for total gross proceeds of
approximately $70 million and the selling shareholders sold 7,111,111 Common Shares for total gross proceeds of approximately
$80 million. The Common Shares are listed for trading on the Toronto Stock Exchange (“TSX”) under the symbol “PL”.
The underwriters were granted an over-allotment option (the “Over-Allotment Option”) to purchase up to an additional
2,000,250 Common Shares from the selling shareholders at a price of $11.25 per Common Share. On February 27, 2018, the
underwriters exercised the Over-Allotment Option in full.
Secondary Offering
On June 26, 2018, certain shareholders of the Company completed a secondary offering (the “Secondary Offering”) of
4,186,000 Common Shares at a price of $13.75 per Common Share, for total gross proceeds of approximately $58 million. Pinnacle
did not issue any Common Shares or receive any proceeds from the Secondary Offering. Pursuant to a registration rights agreement
made with the selling shareholders at the time of the IPO, the Company was responsible for certain costs and expenses incurred by
the selling shareholders.
Immediately prior to the closing of the Secondary Offering, ONCAP II L.P., ONCAP (US) II L.P., ONCAP (US) II-A L.P.,
Onex Parallel Investment (ONCAP) L.P., and Biomass EI Ltd. (collectively, the “ONCAP Entities”), collectively, owned or
controlled (directly or indirectly) an aggregate of 14,112,787 common shares, representing approximately 42.8% of Pinnacle's
issued and outstanding Common Shares. Following the sale of Common Shares in the Secondary Offering, the ONCAP Entities,
collectively, own or control (directly or indirectly) approximately 31.6% of the issued and outstanding Common Shares. As
required by early warning reporting requirements, the ONCAP Entities have disclosed that the Common Shares sold pursuant to
the Secondary Offering were disposed of as a result of investment considerations, including price, market conditions, availability
of funds, evaluation of alternative investments and other factors.
Acquisition in U.S. Southeast
On October 15, 2018, we closed the acquisition of a 70% interest in an operating industrial wood pellet production facility
located in Aliceville, Alabama (the “Aliceville Facility”) from The Westervelt Company (“Westervelt”), a diversified land
resources company, at a purchase price of approximately US$36.8 million. Westervelt retained a 30% interest in the Aliceville
Facility. We funded the purchase of our 70% stake in the Aliceville Facility through a draw on our credit facility and cash on hand.
Pinnacle and Westervelt are in the process of implementing a US$10 million capital spending program to improve safety, product
quality and plant efficiencies, with 70% of such costs being attributable to the Company. Capital spending is expected to commence
in the second quarter of Fiscal 2019.
3
Run-rate EBITDA per metric ton (“MT”) of the Aliceville Facility is expected to be in line with our other production facilities
and capital costs, inclusive of the capital spending program, will be within our target range of 4.0x to 5.5x run-rate EBITDA. It is
expected that the purchase will provide accretive free cash flow per share on an annualized basis.
To support our expansion into the United States, we have recruited dedicated senior business development resources in the
United States.
New Off-take Agreements
During Q4 2018, we entered into two new long-term, take-or-pay contracts with customers in Asia:
On December 14, 2018, we entered into a new long-term, take-or-pay contract with Daesan (as defined herein), our second
contract with this customer. Under the terms of the contract, we will supply 75,000 MTPA of industrial wood pellets to
Daesan beginning in 2022.
On December 28, 2018, we entered into a long-term, take-or-pay contract with Sumitomo (as defined herein), our second
contract with this customer. Under the terms of the contract, we will supply 50,000 MTPA of industrial wood pellets
starting in the second half of 2020 for a one-year term. Following the initial one-year term, we will supply a total of
150,000 MTPA for the duration of the contract.
During Fiscal 2018, we entered into a record number of long-term, take-or-pay off-take contracts with existing and new
customers in South Korea and Japan. With the inclusion of new contracts entered into during Fiscal 2018, which have longer terms
than our existing contracts and extend past 2030, we have 109% of our production capacity contracted through 2021, and 102% of
our production capacity contracted through 2026, on an aggregated basis, including production capacity of the Aliceville, Entwistle
and Smithers Facilities. As a result of new contracts totaling $3.3 billion entered into during Fiscal 2018, including one contract
through our acquisition of interest in the Aliceville Facility, the weighted average remaining life of our portfolio of off-take
contracts with customers has been extended from less than seven years as at the end of Fiscal 2017 to nine years as at the end of
Fiscal 2018. As at December 28, 2018, our Contracted Backlog was $5.9 billion, a 97% increase over our Contracted Backlog of
$3.0 billion as at December 29, 2017.
Smithers Facility Commencement of Production
In November 2018, we commenced initial pellet production at the Smithers Facility. The production processes at the Smithers
Facility are smaller and simpler than many of our other facilities. In addition, the majority of fibre is supplied by West Fraser
locally. Commissioning of the Smithers Facility is proceeding in line with our expectations. In early Fiscal 2019, we commenced
commercial production at the Smithers Facility. Full run-rate production of 125,000 MTPA is expected in the third quarter of Fiscal
2019.
Amalgamation
On December 29, 2018, Pinnacle Renewable Holdings Inc. completed a vertical short-form amalgamation under the Business
Corporations Act (British Columbia) with its wholly-owned subsidiary, Pinnacle Renewable Energy Inc. Shortly following the
amalgamation, the Company changed its name from "Pinnacle Renewable Holdings Inc." to "Pinnacle Renewable Energy Inc."
The Company's stock trading symbol on the TSX remains as PL and the Common Shares commenced trading under its new name
at the opening of trading on January 4, 2019. There were no changes in the share capital of the Company.
Entwistle Facility Fire Event
On February 11, 2019, Pinnacle temporarily suspended operations at our Entwistle Facility due to a fire and explosion that
occurred at the dryer area of the facility. The Company is currently investigating the cause of the incident and developing action
plans to restart the facility. Pinnacle’s priority is to manage the impacts of the incident on its employees, contractors, customers,
suppliers, and the neighboring community. Management, Alberta Labour Occupational Health & Safety Alberta (“OH&S”), local
fire authorities, Pinnacle’s insurance adjusters and equipment suppliers, as well as third-party experts are engaged in an investigation
into the accident. OH&S released control of the site back to the Company on February 20, 2019.
Pinnacle is now working with its insurers, suppliers, and contractors to evaluate the damage and develop a plan to restart the
dryer area. The rest of the Facility sustained little damage and Pinnacle will resume production of wood pellets in March 2019 from
4
dry fibre. The Company is working with its customers to mitigate the impact of the temporary suspension of operations at the
Facility.
Prior to the incident, the Company was successfully ramping-up the Facility. The storage silo is now fully operational and unit
train delivery service commenced in Q4 2018. Fibre processing was improving and daily production rates were meeting the
Company’s previously established ramp-up curve. Management expects consistent performance improvement once the Facility
resumes production.
MARKET AND OFF-TAKE AGREEMENTS UPDATE
Market Update
The growing global potential demand for industrial wood pellets is being driven by a shift toward renewable power generation,
largely motivated by the introduction of regulatory frameworks that set targets and create incentives for the reduction of greenhouse
gas (“GHG”) emissions. Several global, regional and local regulatory frameworks and policies have been put in place to facilitate
this shift to a cleaner energy mix, such as the Paris Agreement (Global), the Climate Change Act (U.K.), the Renewable Energy
Directive (E.U.), the Best Energy Mix (Japan) and the Renewable Portfolio Standard (South Korea).
In Japan, demand continues to grow as independent power producer (“IPP”) dedicated projects continue to develop their
construction and financing plans. FutureMetrics Q3 2018 edition shows further Japanese market growth from Japanese coal plant
co-firing. Many coal plants are in the process of obtaining certification under the feed-in-tariff, with several having obtained
approval as of October 2018. In Q4 2018, Toyota Tsusho Corporation (“Toyota Tsusho”) commenced construction of a biomass
power plant in Fukuoka, Japan. We will supply industrial wood pellets to this plant through our contract with Toyota Tsusho signed
in June 2018, beginning in 2021 (see below under New and Extended Off-take Agreements).
In Q3 2018, the South Korean government clarified its program for biomass-fired IPP projects with defined start and
completion dates. This has generated increased demand in South Korea for long-term, secure fuel contracts.
The conversion of existing power generating units in the Netherlands to utilize wood pellets by Uniper SE and RWE AG, two
of Europe’s largest power generators and energy traders, was completed during Q4 2018 and early 2019. We made our first
shipment to Uniper SE in Q3 2018. The ramp up of these power plants, along with other plants expected to begin co-firing in 2019
and 2020, are expected to increase demand for wood pellets.
Drax Group plc, one of the United Kingdom’s largest power utilities, received subsidy support for its fourth generating unit
at the Drax Power Station in the United Kingdom. The effect of the subsidy support is expected to impact this generating unit in
2018 and 2019, allowing Drax to utilize wood pellets more continuously and at a slightly elevated overall level. In August 2018,
Drax completed the conversion from coal to biomass at this generating unit.
New and Extended Off-take Agreements
The following is a summary of long-term sales contracts that we entered into with customers in Fiscal 2018.
On April 19, 2018, we announced that we entered into a long-term, take-or-pay off-take contract with Ube Industries Ltd.
(“Ube”), a diversified Japanese conglomerate. Under the terms of the contract, we will supply 70,000 MTPA of industrial
wood pellets to Ube beginning in late 2019.
On May 2, 2018, we announced that we entered into a long-term, take-or-pay contract with Toyota Tsusho, a large trading
and investment company in Japan and a group member of TOYOTA. Under the terms of the contract, we will supply
30,000 MTPA of industrial wood pellets to Toyota Tsusho beginning in late 2021.
On May 2, 2018, we also announced that we entered into a long-term, take-or-pay contract with Sumitomo Corporation
(“Sumitomo”), a large, diversified trading company in Japan. Under the terms of the contract, we will supply 75,000
MTPA of industrial wood pellets to Sumitomo beginning in late 2022.
On May 22, 2018, we announced that we entered into a new long-term, take-or-pay contract with Hanwa Co., Ltd.
(“Hanwa”), a large, diversified trading company in Japan. Under the terms of the contract, we will supply 75,000 MTPA
of industrial wood pellets to Hanwa beginning in early 2022.
5
On June 27, 2018, we announced that we entered into a new long-term, take-or-pay contract with CGN Daesan Power
Co., Ltd. (“Daesan”), a subsidiary of CGN New Energy Holdings Co., Ltd, a diversified independent power producer in
Asia. Under the terms of the contract, we will supply 315,000 MTPA of industrial wood pellets to Daesan beginning in
2021.
On June 27, 2018, we announced that we entered into a long-term, take-or-pay contract with Toyota Tsusho, our second
contract with this customer. Under the terms of the contract, we will supply 170,000 MTPA of industrial wood pellets to
Toyota Tsusho beginning in 2021.
On December 14, 2018, we entered into a new long-term, take-or-pay contract with Daesan, our second contract with this
customer. Under the terms of the contract, we will supply 75,000 MTPA of industrial wood pellets to Daesan beginning
in 2022.
On December 28, 2018, we entered into a long-term, take-or-pay contract with Sumitomo, our second contract with this
customer. Under the terms of the contract, we will supply 50,000 MTPA of industrial wood pellets starting in the second
half of 2020 for a one-year term. Following the initial one-year term, we will supply a total of 150,000 MTPA for the
duration of the contract.
During Fiscal 2018, we signed six long-term off-take contracts totaling $1.9 billion with customers in Japan. These contracts
continue to advance our strategy for sales growth into Japan and build on the overall sales momentum that we had in Fiscal 2017
wherein we signed four long-term contracts totalling $421 million, a third of which were with customers in Japan. Our growing
contract backlog in Japan underlines both the increasing adoption of biomass and the strength of our competitive position in this
market.
During the second quarter of Fiscal 2018 (“Q2 2018”), we signed our first long-term contract in South Korea with Daesan,
which is an important milestone for us as it represents our largest contract to date in Asia. As the first long-term industrial wood
pellet contract to ever be signed in South Korea, this new agreement attests to the country's growing commitment to
decarbonization. During Q4 2018, we signed a second long-term contract with Daesan. The two long-term contracts signed with
Daesan in Fiscal 2018 totaled $1.0 billion, thereby further establishing our strategic position in the Pacific Rim.
With the inclusion of new contracts entered into during Fiscal 2018, which have longer terms than our existing contracts and
extend past 2030, we have 109% of our production capacity contracted through 2021, and 102% of our production capacity
contracted through 2026, on an aggregated basis, including production capacity of the Aliceville, Entwistle and Smithers Facilities.
As a result of new contracts totaling $3.3 billion entered into during Fiscal 2018, including one contract through our acquisition of
interest in the Aliceville Facility, the weighted average remaining life of our portfolio of off-take contracts with customers has been
extended from less than seven years as at end of Fiscal 2017 to nine years as at end of Fiscal 2018. As at December 28, 2018, our
Contracted Backlog was $5.9 billion, a 97% increase over our Contracted Backlog of $3.0 billion as at December 29, 2017.
We have also improved our customer diversification. During Fiscal 2018, our three largest customers represented 75% of total
revenue. During Fiscal 2017, our three largest customers represented 86% of our total revenue. We have gone from shipping to
five major customers in Fiscal 2017 to eight during Fiscal 2018.
We continue our negotiations with various counterparties to secure long-term take-or-pay contracts in Asia and Europe to
meet growing demand.
OPERATIONAL UPDATE
Existing Production Facilities and Port Operations
We are focused on operational excellence throughout our plant and logistics networks, specifically targeting improvements in
safety, production and costs. We have developed capabilities to utilize a broad range of residual biomass in our industrial wood
pellet making process. Through our investment in log chippers, destoners and other specialized biomass processing equipment,
combined with the extensive operational knowledge we have developed in handling a diverse range of biomass feedstocks, we can
process a broad spectrum of underutilized biomass residuals including whole logs, bush grind, and other harvest waste residuals,
in addition to more traditional biomass residuals such as shavings and sawdust. We have access to a well-established rail
infrastructure network in British Columbia and Alberta, with all of our Canadian production facilities accessible along Canadian
6
National Railway (“CN”) rail lines. Our port infrastructure is a critical element of our supply chain and is comprised of our wholly-
owned Westview Terminal in Prince Rupert, B.C. and our access to the Fibreco Export Inc. terminal at the Port of Vancouver via
a long-term throughput contract.
Our 3% same-facility production volume increase in Fiscal 2018 compared to the same period last year, reflects record
performance at our Burns Lake and Lavington Facilities. This strong operational performance was achieved despite a challenging
environment including significant CN rail disruptions in the first two quarters of Fiscal 2018 resulting in lost production and
extensive forest fires in British Columbia in Q3 2018. Active management of fibre supply and rail logistics were required to mitigate
these factors. We continue to manage our network of facilities to adjust for potential temporary operational disruptions, while
achieving production growth from continuous improvement programs.
In response to British Columbia forestry companies’ current lumber market related sawmill curtailment programs, we have
implemented fibre procurement mitigation strategies. We have long-term, supply contracts for fibre with major forestry companies
wherein the percentage of fibre that is acquired from the processing of sawlogs into lumber (sawmill residuals) versus the fibre that
is acquired as a by-product of the harvesting of timberlands to produce sawlogs (harvest residuals) shifts depending on the operating
level of the sawmills. Accordingly, we now expect to receive a decreased supply of sawmill residuals (bark, sawdust and shavings)
that can be acquired at a lower cost, and a higher proportion of more expensive harvest residuals (biologs and bush grind). We
expect the impact to be mainly limited to some of our fibre sourcing at our Burns Lake and Meadowbank Facilities.
We continue to collaborate with the Government of British Columbia, local communities and the First Nations, to expand
fibre availability and reduce cost with programs that enhance community fire protection and forest stewardship. Unlike many
primary manufacturers, we can consume fire-damaged fibre without impacting the quality of our product. We are working with
government agencies, First Nations, licensees and organizations like the Forest Enhancement Society of BC (“FES”), the Forests
for Tomorrow Program and others to access this fibre and then regenerate these fire-damaged woodlands to support local
communities, wildlife and the future forest sector. We are working with First Nations to develop opportunities for logging and
chipping and increase the value they receive from their tenures in areas impacted by wildfires and mountain pine beetle infestations
and create more jobs for their communities. The FES has funded projects that allow us to consume low-quality timber that would
otherwise be burned because it is too far away from manufacturing centres. We also work closely with the forestry industry partners
with whom we jointly own wood pellet production facilities, namely Canfor Corporation (“Canfor”), West Fraser, Tolko Industries
Ltd. (“Tolko”), and Westervelt, to optimize both the cost and quality of our fibre supply. We have installed specialized processing
equipment, such as log chippers and de-stoners, within our network of production facilities that provide us with an industry-leading
ability to process a wide range of wood fibre.
Current fibre conditions in British Columbia further underline the importance of our recent expansion and diversification in
Alberta and the U.S. Southeast, which has strengthened our platform for future growth. We remain well-positioned to continue
growing our platform in support of long-term cash flow growth.
New Production Facilities
Entwistle
The Entwistle production facility (the “Entwistle Facility”) is owned 100% by Pinnacle. The Entwistle Facility is located in
Entwistle, Alberta, 95 kilometres west of Edmonton, in close proximity to abundant wood fibre sources, including several major
sawmills. The Entwistle Facility commenced commercial production on June 29, 2018 at capitalised costs of $95.0 million (which
include costs incurred to bring the Entwistle Facility to operate in a manner as intended by management, capitalised pre-operating
commissioning costs, and capitalised borrowing costs).
Subsequent to the end of Fiscal 2018, on February 11, 2019, Pinnacle temporarily suspended operations at its Entwistle Facility
due to an incident that occurred at the dryer area of the facility. At present, the cause of the incident is under investigation. Pinnacle’s
priority is to manage the impacts of the incident on its employees, contractors, customers, suppliers, and the neighboring
community.
Prior to the incident, we were successfully ramping-up the Entwistle Facility. The storage silo is now fully operational and
unit train delivery service commenced in Q4 2018. We have made progress addressing the initial fibre quality issues with our
suppliers but were still incurring higher production costs than expected during the ramp-up of the facility. Achievement of run-rate
capacity at the Entwistle Facility will be delayed due to the incident. We are currently cooperating with authorities in evaluating
the damage to the dryer area in order to quantify the financial impact and prepare insurance claims. After we understand the program
7
for repair and replacement of damaged equipment, we will prepare a revised production ramp-up curve and determine the financial
impact of this event. We will provide more disclosure when we have further information.
Smithers
The Smithers production facility (the “Smithers Facility”) is owned 70% by Pinnacle and 30% by West Fraser through a
partnership, Smithers Pellet Limited Partnership (“SPLP”), and is located in Smithers, B.C. The Smithers Facility commenced
commercial production on December 29, 2018 at capitalised costs of $29.8 million to date (70% of which were attributable to us).
Additional capital costs will be incurred at a later date. The budget for the facility is $33.0 million. Total capitalised costs include
costs incurred to bring the Smithers Facility to operate in a manner as intended by management, capitalised pre-operating
commissioning costs, capitalised borrowing costs, and the 2017 acquisition of the land and operating infrastructure for $8.4 million.
Excluding capitalised pre-operating commissioning costs and capitalised borrowing costs, the total capitalised costs of the Smithers
Facility was $28.4 million.
Commissioning of the Smithers Facility is proceeding in line with our expectations. In November 2018, we commenced initial
pellet production. The production processes at the Smithers Facility are smaller and simpler than many of our other facilities. In
addition, the majority of fibre is supplied by West Fraser locally. Full run-rate production of 125,000 MTPA is expected in the
third quarter of Fiscal 2019.
Aliceville
The Aliceville Facility is located in Aliceville, Alabama, U.S. and operated by Westervelt Pellets I, LLC (“WPILLC”), a
wholly-owned subsidiary of Pinnacle Westervelt Renewable Holdings, LLC (“PWRHLLC”). PWRHLLC is owned 70% by
Pinnacle and 30% by Westervelt. The Aliceville Facility has a run-rate production capacity of approximately 270,000 MTPA, of
which approximately 210,000 MTPA is committed under a long-term off-take contract to a major European utility. The remaining
production volume from the Aliceville Facility will be sold through our contracted backlog of long-term, take-or-pay off-take
contracts. The Aliceville Facility has been ramping up production capacity in 2018. As part of the acquisition, and consistent with
our operating strategy, the Aliceville Facility has entered into long-term wood fibre supply contracts for residuals with several large
local sawmills. Westervelt's sawmill, located in Moundville, Alabama, will remain an anchor supplier, ensuring strong alignment
between Pinnacle and Westervelt.
Our experienced operations team is working closely with the Aliceville Facility team for safety and operations process training,
systems implementation, and asset configuration optimization to continue the production ramp up. Safety and operational
performance improvements continue to progress and production volumes have improved consistently. The Aliceville Facility is
well-positioned to contribute to Adjusted EBITDA growth in Fiscal 2019. We will commence significant planned capital
improvements in the second quarter of Fiscal 2019.
Production Capacity to Meet New and Extended Off-take Agreements
With the new long-term supply agreements contracted in Fiscal 2018, we will require additional industrial wood pellet
production capacity to meet our growing customer backlog. Through our continuous improvement programs, we expect to continue
to increase production capacity at our existing facilities. Additionally, under our Development Blueprint (as defined herein), once
we have new, committed large-volume sales contracts, we initiate the expansion of our production capacity by advancing
development of greenfield or brownfield production facilities in our funnel of new growth projects. We may also fulfill new
contracted volumes through the acquisition of existing industrial wood pellet production facilities.
Once the Entwistle, Smithers and Aliceville facilities reach full run-rate production, our annual production capacity will have
grown by 795,000 MTPA, an increase of 56%, from our annual run-rate production capacity at the beginning of Fiscal 2018.
FINANCIAL HIGHLIGHTS
We refer the reader to the section entitled “Key Performance Indicators” of this MD&A for the definition of the items discussed
below and, when applicable, to the section entitled “Results of Operations” for reconciliations of non-IFRS measures with the most
directly comparable IFRS measure.
8
Select financial highlights include the following:
(In millions)
Revenue
Production costs
Distribution costs
Selling, general and administration
expenses
Net profit (loss) and comprehensive
income (loss)
Adjusted Gross Margin*
Adjusted Gross Margin Percentage*
Adjusted EBITDA*
Free Cash Flow*
$
$
$
$
$
$
$
$
Q4 2018
13 weeks
Q4 2017
13 weeks
Fiscal 2018
52 weeks
Fiscal 2017
52 weeks
103.7
73.5
13.4
3.9
7.5
16.7
16.1%
13.8
8.2
$
$
$
$
$
$
$
$
73.0
47.4
9.9
4.3
0.1
15.9
21.8%
12.8
4.6
$
$
$
$
$
$
$
$
347.4
233.1
46.9
22.8
2.7
67.6
19.5%
55.1
32.2
$
$
$
$
$
$
$
$
292.7
188.4
38.4
15.3
(4.9)
66.9
22.9%
56.1
38.1
(In billions)
Contracted Backlog
* See “Non-IFRS Measures”.
December 28,
December 29,
2018
2017
$
5.9
$
3.0
SUMMARY OF FACTORS AFFECTING PERFORMANCE
We believe that our performance and future success depends on a number of factors that present significant opportunities.
These factors are also subject to a number of inherent risks and challenges, some of which are discussed below. See also the
“Financial Risk Factors” section of this MD&A and the risk factors identified in our AIF.
Growing Global End Market
Our growth is supported by the increasing global demand for industrial wood pellets resulting from the shift toward renewable,
cleaner power generation. This demand is largely driven by the introduction of regulatory frameworks that set targets and create
financial incentives for the reduction of global greenhouse gas emissions. The increasing number of power generation plants
compatible with industrial wood pellets in jurisdictions with favourable regulatory frameworks could provide stronger revenue
growth if we are able to expand our industrial wood pellet production capacity accordingly. Adoption by additional markets of
regulatory frameworks and incentive structures in countries that burn significant amounts of coal, such as the United States and
China, could also significantly increase our revenue growth potential.
We have long-term sales contracts with utilities and large power generators in the United Kingdom, continental Europe and
Asia. The United Kingdom uses a number of regulatory reforms, including a carbon tax, to encourage development of low-carbon
alternatives, which includes biomass, and is currently the largest global market for wood pellets. However, we expect significant
future revenue growth and geographic and customer diversification from the developing Japanese market. Japan supports
investment in renewables through a feed-in-tariff system which offers twenty-year support for renewable energy power facilities.
We are well-positioned geographically to participate in the growth of this developing market from our location in Western Canada.
Changes in governments may result in modifications to these laws and regulatory environments that support the growth of our
business. To address this risk, we continue to develop relationships with new customers in different regions.
Revenues and Costs for Deliveries to Customers
We enter into long-term take-or-pay off-take contracts with reliable counterparties, matching shipping requirements with new
production availability. We have 109% of our production capacity contracted through 2021, and 102% of our production capacity
contracted through 2026, on an aggregated basis, including production capacity of the Aliceville, Entwistle and Smithers Facilities.
9
Strong demand for industrial wood pellets enables us to obtain price escalation in contracts that should mitigate any increased cost
of production and distribution. Revenues and costs for deliveries to customers can vary significantly between periods depending
upon the type of contract and timing of shipments. Depending on the specific off-take contract, shipping terms are either Free on
Board (“FOB”), whereby the buyer assumes responsibility for the goods as soon as they are shipped, or Cost, Insurance, Freight
(“CIF”), whereby the seller assumes responsibility for the goods until the goods are received by the buyer (typically at the receiving
port). Under an FOB contract, the customer is responsible for paying all shipping costs directly, so our revenue is not impacted by
shipping costs. Under a CIF contract, we procure and pay for shipping costs which include insurance and all other charges up to
the port of destination for the customer. These costs are included in the price charged to the customer and as such, are included in
revenue and cost of distribution. As well, revenue is impacted by the timing of shipments which can result in material fluctuations
in our revenue between periods.
New Development Projects
We have established a well-defined development blueprint for developing, constructing and operating new production
facilities and expanding/converting existing production facilities (the “Development Blueprint”), which has led to a strong track
record of successful project development. We have been one of the most active developers of industrial wood pellet production
capacity and associated infrastructure in recent years, which has helped to establish us as one of the leading global suppliers of
industrial wood pellets.
Following our Development Blueprint, we construct and commission new production facilities to support new sales contracts.
We are currently gradually ramping up production at the recently constructed Smithers Facility in accordance with our
Development Blueprint and will restart the ramp-up of the Entwistle Facility following the repairs required as a result of the fire
event on February 11, 2019. In 2018 we have added 795,000 MT of run-rate production capacity including our Aliceville Facility.
We are actively exploring sites for new production facilities.
Production
Our efficient, well-integrated network of production facilities and advanced production management practices allow us to
ensure reliable production. We continue to increase our efficiencies. The following factors influence our production:
• Fibre Availability: Our operating flexibility across our network of production facilities to process a broad range of forest
residuals from logs, bush grind, bark, sawdust, shavings, and chips, enables us to optimize wood fibre supply among
multiple locations for efficient processing and to meet wood pellet specifications required by our customers;
• Seasonality: Extreme cold weather can impact equipment performance at our production facilities. Extremely wet weather
and high moisture content in wood fibre can slow production and increase wood fibre drying costs. Extreme, prolonged dry
weather conditions can lead to fire risk and the potential disruption of wood fibre supply when loggers cannot enter the
forests to supply the production facilities. Our extensive long-term contractual relationships with some of the major forest
companies in Canada and the U.S. allow us to offset wood fibre shortfalls in these situations. We also manage our inventory
levels of logs to mitigate potential production disruptions;
• Downtime: Our “Owning Safety” culture established by management and shared amongst our partners at jointly-owned
facilities provides high engagement and reduces downtime related to medical incidents and labour challenges; and
• Capacity Utilization: We utilize real-time information gathering to monitor equipment performance and utilize
preventative maintenance programs with regularly scheduled production shutdowns to optimize equipment uptime and
production throughput. We operate to stringent environmental standards and use specialized equipment and processes to
remove particles from production emissions. Real time monitoring of production facility information affords us the
opportunity to respond quickly to production disruptions for any reason.
Wood Fibre and Forest Residuals
Our production facilities are located in regions with a high volume of available, competitively priced and sustainably managed
wood fibre ideal for the production of high calorific value industrial wood pellets. We have been successful in extending the terms
of wood fibre agreements to support our existing and new production for up to 10 to 15-year terms. We have also expanded the
types of wood fibre used in our production facilities and partnered with four of our largest wood fibre suppliers in the ownership
of existing and in-development production facilities. These partnerships help ensure that our wood fibre suppliers have a vested
interest in the economic success of our production facilities. Our wood fibre demand is symbiotic with, rather than in competition
10
with, demand for high-grade wood for use by other forest product industries, such as lumber production. The use of un-
merchantable logs, bark and other by-product for industrial wood pellet production indirectly supports other forest-related
industries as well as the sustainable management of commercial forests.
Our ability to produce industrial wood pellets is dependent on the availability and cost of wood fibre available within an
economic radius of our plants. In addition, the cost of our fibre can be impacted by the production and fibre-sourcing activities of
our key suppliers. Currently, the announced sawmill curtailment programs of the British Columbia forest industry will have an
impact on the cost of sourcing fibre as we move to a higher proportion of more expensive harvest residuals (biologs and bush
grind).
Trucking, Rail and Port Logistics
Our production facilities in Western Canada are strategically located in highly concentrated sawmill regions, adjacent to rail
lines and on back-haul routes in key wood fibre regions, enabling efficient, cost-effective transportation of industrial wood pellets
and providing access to wood fibre supply. If there are rail line or trucking disruptions, mitigating strategies can be deployed. Our
rail provider has been experiencing substantial growth and resourcing challenges as well as environmental factors such as the harsh
winter conditions in the first quarter of Fiscal 2018 and forest fires in Q3 2018, which have impacted our Fiscal 2018 results.
Industrial wood pellets from our Canadian production facilities are transported via rail to the Westview Terminal at the Port of
Prince Rupert in Northern B.C. or the Fibreco Export Inc. terminal at the Port of Vancouver. The availability of alternative ports
for shipping helps mitigate our risk. The weather sensitivity of our cargo and occasional port congestion of ships and rail cars can
delay our shipment and increase demurrage costs. Conservative shipping scheduling provides the opportunity for pulling shipments
forward and reducing costs when the weather is favourable. Due to the issues experienced in Fiscal 2018 with CN’s service
performance, we have entered into agreements with our rail service provider on joint capital projects to enhance rail infrastructure
and improve rail service standards. In addition, CN has initiated staffing and capital investment improvement programs in western
Canada that resulted in improved service reliability for our operations during Q4 2018.
Industrial wood pellets from our recently acquired Aliceville Facility are transported by barge to the Port of Mobile, Alabama,
where they are loaded directly from the barge onto ships. The weather sensitivity of barge loading operations can delay our shipment
and increase demurrage costs. During the most recent hurricane season in the U.S. Southeast, the shipping schedules of certain
wood pellet producers were affected. The shipping schedules of the Aliceville Facility were not affected.
Sustainability
In order to be eligible for financial incentives and meet regulatory requirements that encourage the use of renewable energy,
our customers, major utilities and power generators must comply with sustainability requirements which require that industrial
wood pellets be sourced from forest lands that are managed in a manner which is demonstrably sustainable. To meet these
sustainability requirements, we must ensure that the procurement of fibre, conversion to wood pellets and delivery to the point of
consumption comply with certain carbon intensity targets. Forest practices in our areas of operation, our logistics network, our
proximity to Asian markets, and our efficient use of large vessels for longer haul shipping to Europe allow us to meet sustainability
requirements and obtain the required certifications.
KEY PERFORMANCE INDICATORS
The measures below are used by management as key performance indicators for our business. Certain measures used by
management are not recognized under IFRS. See “Non-IFRS Measures”.
IFRS Measures
Revenue
We primarily earn revenue by supplying industrial wood pellets to our customers under long-term off-take contracts. We refer
to the structure of our contracts as “take-or-pay” because they include a firm obligation to take a fixed quantity of product at a
stated price and contain provisions that ensure we will be compensated in the case of a customer’s failure to accept all or a part of
the contracted volumes or for termination by a customer. Each contract defines the annual volume of industrial wood pellets that a
customer is required to purchase and we are required to sell, the fixed price per MT for product satisfying a base net calorific value
and other technical specifications. These prices increase over time based on annual inflation-based adjustments or price escalators.
11
In addition to our sales of industrial wood pellets under these long-term, take-or-pay contracts, we occasionally sell small
quantities of industrial wood pellets under short-term contracts which range in volume and tenor and, in some cases, may be limited
to only one shipment. Because each of our contracts is a bilaterally negotiated agreement, the pricing is fixed and does not follow
short-term contract market pricing trends. As a result, our revenue is predetermined over the duration of these contracts which
ensures a high level of visibility for future revenue. Revenue from the sale of industrial wood pellets is recognized when the risks
and rewards of ownership are transferred, there is no continuing managerial involvement to the degree associated with ownership,
the amount of revenue can be measured reliably, it is probable the economic benefits will flow to the entity and costs incurred or
to be incurred can be measured reliably.
The timing and size of shipments during a month or quarter can result in material fluctuations in our revenue recognition and
related profitability between periods.
The vast majority of the industrial wood pellets we supply to our customers are produced at our production facilities. We also
fulfill our contractual commitments and take advantage of dislocations in market supply and demand by purchasing from and
selling to third-party market participants. In these back-to-back transactions where the risks and rewards of ownership are not
immediately transferred to the ultimate purchaser, revenue is recorded only when the industrial wood pellets are delivered to the
final customer.
Contracted Backlog
Contracted Backlog represents the revenue to be recognized under existing contracts, assuming deliveries occur as specified
in the contracts.
Costs of Production and Distribution
The principal expenses to produce and deliver our industrial wood pellets consist of production and distribution costs.
We have strategically located our Canadian production facilities in British Columbia and Alberta in regions with high-quality
wood fibre sources. Our Aliceville Facility is located in the U.S. Southeast, one of North America’s key fibre baskets. We supply
the majority of wood fibre in our production facilities primarily through long-term contracts. Delivered wood fibre costs include
the cost of both procuring the fibre and trucking the fibre from the source to our production facilities.
Production costs at our production facilities consist of not only the costs of wood fibre but all the costs of production and
maintenance labour and benefits, repairs and maintenance, utilities, plant overhead (property taxes, insurance, facility
management), rail transportation, barge transportation and other direct costs. In addition to the industrial wood pellets that we
produce at our owned and operated production facilities, we selectively purchase additional quantities of industrial wood pellets
from third-party wood pellet producers, most significantly from the Houston production facility (the “Houston Facility”), our
minority-owned business held in a partnership, Houston Pellet Limited Partnership (“HPLP”), with Canfor and the Moricetown
Band Development Corporation.
Distribution costs include costs incurred at our wholly-owned Westview Terminal, costs paid to Fibreco Export Inc., a third-
party terminal operator in Vancouver, Canada, and costs paid to CMT Terminals Inc., a third-party terminal operator in Mobile,
Alabama, U.S. These costs include storage or handling costs while the product remains at port and shipping costs related to the
delivery of our product from the ports to our customers. Both the strategic location of our production facilities and our ownership
of the Westview Terminal has allowed for the efficient and cost-effective transportation of our industrial wood pellets.
Production costs associated with delivering our industrial wood pellets to our ports, third-party industrial wood pellet purchase
costs and depreciation related to assets and intangibles related to the production process are included as a component of inventory.
These costs are expensed when inventory is sold. Distribution costs are expensed as incurred.
Gross Margin
Gross Margin is our Revenue less Costs of Production and Distribution.
Selling, General and Administration
We incur selling, general and administrative (“SG&A”) expenses related to our executive, central operations, finance, business
and growth development and sales and marketing departments. These costs include salaries and benefits, professional fees and
other administrative expenses not directly related to any one particular production facility or the Westview Terminal, including the
costs of our internal development team.
12
Equity Earnings in HPLP
With the exception of a small portion of sales made directly to Kansai Electric Power Co., Inc., industrial wood pellets
produced at the Houston Facility are sold to our customers. Our investment in the Houston Facility is accounted for on an equity
basis as we own 30% of HPLP.
Non-controlling interests
The Lavington Facility is operated through Lavington Pellet Limited Partnership (“LPLP”), 75% owned by Pinnacle with the
remaining 25% interest held by Tolko. Our consolidated results include 100% of the results of the Lavington Facility with the 25%
interest owned by Tolko disclosed as non-controlling interests. We have an agreement to purchase pellets from LPLP and sell to
end customers through Pinnacle until October 2022.
The Smithers Facility is operated through SPLP, 70% owned by Pinnacle with the remaining 30% interest held by West Fraser.
Our consolidated results include 100% of the results of the Smithers Facility with the 30% interest owned by West Fraser disclosed
as non-controlling interests.
The Aliceville Facility is operated through WPILLC, a wholly-owned subsidiary of PWRHLLC which is 70% owned by
Pinnacle with the remaining 30% interest held by Westervelt. Our consolidated results include 100% of the results of the Aliceville
Facility with the 30% interest owned by Westervelt disclosed as non-controlling interests.
Non-IFRS Measures
Adjusted Gross Margin Percentage
“Adjusted Gross Margin” is defined as gross margin excluding gains and losses on asset disposals and amortization of
equipment and intangible assets included in cost of goods sold.
“Adjusted Gross Margin Percentage” is defined as Adjusted Gross Margin as a percentage of revenue.
We use Adjusted Gross Margin Percentage to measure our financial performance. We believe Adjusted Gross Margin
Percentage is a meaningful measure because it compares our revenue generating activities to our operating costs for a view of
profitability and performance. By calculating Adjusted Gross Margin Percentage we can show the performance trends over time
as our sales mix changes. Adjusted Gross Margin Percentage will primarily be affected by our ability to meet targeted production
volumes and to control direct and indirect costs associated with procurement and delivery of wood fibre to our production facilities
and the production and distribution of industrial wood pellets. Adjusted Gross Margin Percentage as we calculate it may not be
comparable to metrics provided by other businesses.
Adjusted EBITDA
“EBITDA” is defined as consolidated net income (loss) before depreciation and amortization, finance expense and provision
for income taxes.
“Adjusted EBITDA” is defined as EBITDA excluding non-cash stock compensation expense, asset impairments and disposals,
and certain items of income or loss that we characterize as unrepresentative of our ongoing operations. Adjusted EBITDA includes
an amount representing our 30% share of HPLP and excludes the non-controlling interests share of LPLP, SPLP and PWRHLLC.
We use Adjusted EBITDA to measure our financial performance. Adjusted EBITDA is a supplemental measure used by
management and other users of our financial statements including shareholders and lenders, to assess the financial performance of
our business without regard to financing methods or capital structure.
We believe Adjusted EBITDA is a useful measure of operating performance as it provides a more relevant picture of operating
results by excluding the effects of financing and investing activities which removes the effects of interest, depreciation and
amortization costs, expenses that are not reflective of our underlying business performance, and other one-time or non-recurring
expenses. We use Adjusted EBITDA to facilitate a comparison of our operating performance on a consistent basis and to provide
for a more complete understanding of factors and trends affecting our business.
13
Free Cash Flow
“Free Cash Flow” is defined as Adjusted EBITDA less maintenance capital expenditures, finance costs, principal repayments,
and cash taxes paid.
We use Free Cash Flow as a performance metric to compare the cash generating performance of the business from period to
period and to compare the cash generating performance for specific periods to the cash distributions, if any, that are expected to be
paid to our shareholders. We do not rely on Free Cash Flow as a liquidity measure.
As we intend to distribute dividends on an ongoing basis, and since Adjusted EBITDA is a metric used by many investors and
financial analysts to compare issuers on the basis of the ability to generate cash from operations, we believe that, in addition to net
cash provided by operations, Adjusted EBITDA is a useful non-IFRS supplemental measure from which to make adjustments to
determine Free Cash Flow. We believe Adjusted EBITDA provides a more relevant picture of operating results in that it excludes
the effects of financing and investing activities by removing the effects of interest, depreciation and amortization costs, expenses
that are not reflective of underlying business performance, and other one-time or non-recurring income or expenses. However,
there are no standard definitions of Adjusted EBITDA or Free Cash Flow prescribed by IFRS and other issuers may calculate
similarly described measures differently.
CONTRACTED BACKLOG
We enter into long-term, take-or-pay off-take contracts with large and well capitalized counterparties or their affiliates.
“Contracted Backlog” represents the revenue to be recognized under existing contracts assuming deliveries occur as specified
in the contracts. As a result of customer preferences or logistics management, there can be movement in the timing of deliveries
that may result in revenue being recognized in either a preceding or following interim fiscal period. Our expected future industrial
wood pellet sales under our Contracted Backlog as of December 28, 2018 is as follows ($ billions):
Fiscal 2019 .................................................................................................................................................................
Fiscal 2020 .................................................................................................................................................................
Fiscal 2021 and thereafter ..........................................................................................................................................
Total product sales under Contracted Backlog .....................................................................................................
$ 0.5
0.5
4.9
$ 5.9
14
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(In thousands except per share
amounts)
Q4 2018
Q4 2017
Fiscal
2018
Fiscal
2017
Fiscal
2016
13 weeks
13 weeks
52 weeks
52 weeks
53 weeks
Consolidated Statements of Profit (Loss) Data
Revenue
Costs and expenses:
Production
Distribution
Selling, general and
administration
Amortization of equipment and
intangible assets
Profit (loss) before finance costs
and other (income) expense
Finance cost
Other (income) expense
Net profit (loss) before income
taxes
Income tax expense (recovery):
Current
Deferred
Net profit (loss)
Net profit (loss) per share
attributable to owners
Basic and diluted
Consolidated Statements of Cash
Flows
Cash provided by (used in)
Operating activities before net
change in non-cash operating working
capital
Net change in non-cash
operating working capital
Financing activities
Investing activities
$
103,728
$
72,958
$
347,440
$
292,727
$
266,338
73,472
13,371
3,933
7,220
47,377
9,925
4,347
233,107
46,899
188,414
38,421
22,789
15,268
173,693
39,474
12,331
5,280
24,678
21,819
21,211
$
5,732
$
6,029
$
19,967
$
28,805
$
19,629
(1,740)
(1,626)
6,120
(358)
3,042
15,638
24,251
8,912
1,000
7,796
$
9,098
$
267
$
1,287
$
(4,358) $
10,833
-
1,643
7,455
$
-
163
104
-
(1,415)
-
526
$
2,702
$
(4,884) $
(2)
(5,569)
5,262
0.22 $
(0.04) $
0.05 $
(0.22) $
0.11
14,565
$
11,305
$
50,756
$
51,128
$
44,742
3,998
61,110
$
$
(15,302) $
7,017
41,165
$
59,930
$
$
(20,183) $
(14,126)
48,812
$
(20,958)
(68,809) $
(29,786) $
(118,797) $
(72,682) $
(13,250)
$
$
$
$
$
$
15
(In thousands except per MT amounts)
Other Financial Data
Adjusted EBITDA(1)
Adjusted EBITDA per MT(1)
Adjusted Gross Margin per MT(1)
Adjusted Gross Margin
Percentage(1)
Maintenance capital expenditures
Growth capital expenditures
Operating Data
MT of industrial wood pellets
sold
(In thousands)
Selected Consolidated Statements of
Financial Position Data
Cash
Property, plant and equipment
Total assets
Term debt and shareholders’
debentures (including current portion)
Total non-current liabilities
Total equity
$
$
$
$
$
$
$
$
$
$
$
Q4 2018
13 weeks
Q4 2017
13 weeks
Fiscal
2018
Fiscal
2017
Fiscal
2016
52 weeks
52 weeks
53 weeks
13,830 $
12,775 $
55,102 $
56,121 $
43,922
29.24 $
35.23 $
38.25 $
47.70 $
34.61 $
42.49 $
40.87 $
48.74 $
16.1%
21.8%
19.5%
22.9%
2,610 $
20,358 $
4,549 $
24,586 $
8,059 $
65,072 $
9,040 $
63,016 $
33.68
40.72
19.9%
4,434
8,916
473
334
1,607
1,373
1,304
December
28,
2018
December
29,
2017
Decemb
er 30,
2016
18,028 $
330,899 $
627,294 $
18,908 $
238,196 $
433,645 $
12,112
175,849
353,511
241,925 $
285,694 $
234,142
321,637 $
229,013 $
318,811 $
35,204 $
263,600
37,951
16
RESULTS OF OPERATIONS
Analysis of Results for Q4 2018 to Q4 2017
The following section provides an overview of our financial performance in Q4 2018 compared to Q4 2017.
(In thousands)
MT of industrial wood pellets sold
Revenue
Costs and expenses
Production
Distribution
Selling, general and administration
Amortization
Profit before finance costs and other (income)
expenses
Finance (income) cost
Other (income) expense
Net profit (loss) before income taxes
Income tax expense (recovery)
Current
Deferred
Income Taxes
Net profit (loss) and comprehensive income (loss)
$
Revenue
Q4 2018
13 weeks
473
Q4 2017
13 weeks
334
Q4 2018
vs. Q4 2017
139
$
103,728
$
72,958
$
30,770
73,472
13,371
3,933
7,220
97,996
5,732
(1,741)
(1,626)
(3,367)
9,099
-
1,643
1,643
7,456
47,377
9,925
4,347
5,280
66,929
6,029
6,120
(358)
5,762
267
-
163
163
104
$
$
26,095
3,446
(414)
1,940
31,067
(297)
(7,861)
(1,268)
(9,129)
8,832
-
1,480
1,480
7,352
Revenue for Q4 2018 totaled $103.7 million, an increase of $30.8 million, or 42.2%, compared to $73.0 million for Q4 2017.
This increase was primarily attributable to higher sales volume.
Production cost
Production costs were $73.5 million for Q4 2018, an increase of $26.1 million compared to $47.4 million for Q4 2017,
primarily due to an increase in sales volume, higher fibre costs and higher cash conversion costs. We experienced higher than
expected repair and maintenance expenditures at the Entwistle Facility related to fibre quality issues and lower than projected
production levels due to shortage of rail car engines prior to the storage silo commissioning.
Distribution cost
Distribution costs were $13.4 million for Q4 2018, an increase of $3.4 million compared to $9.9 million for Q4 2017, reflecting
higher volumes shipped.
Selling, general and administration expense
SG&A expenses were $3.9 million for Q4 2018, a decrease of $0.4 million compared to $4.3 million for Q4 2017, primarily
due to a $0.7 million decrease in professional fees incurred in connection with the IPO and a $0.3 million decrease in legal fees
incurred on a damage claim we were pursuing against one of our equipment suppliers, partially offset by a $0.7 million increase in
professional fees and travel expenses primarily related to exploration of new business opportunities.
17
Amortization expense
Amortization expense was $7.2 million for Q4 2018, an increase of $1.9 million compared to $5.3 million for Q4 2017,
reflecting the commencement of amortization for property, plant and equipment related to the commencement of commercial
production at the Entwistle Facility at the end of Q2 2018. In addition, amortization expense for Q4 2018 included those related to
the recently acquired Aliceville Facility. Construction in progress for the Smithers Facility was not subject to amortization until
the assets were available for use at the beginning of Fiscal 2019.
Finance (income) cost
Finance income was $1.7 million for Q4 2018, compared to finance cost of $6.1 million for Q4 2017. This change was
primarily due to a $3.3 million increase in fair value gain on foreign exchange derivative contracts, a $3.2 million reduction in
interest on shareholders’ debentures, which were converted into Common Shares upon the closing of the IPO, a $1.2 million
increase in unrealized gain on foreign exchange, and a $0.5 million decrease in amortization of deferred financing fees, partially
offset by a $1.0 million increase in interest on our credit facilities.
Other income
Other income was $1.6 million for Q4 2018, an increase of $1.3 million compared to $0.3 million for Q4 2017, primarily due
to a $0.6 million net gain from the disposal of capital assets, including that of our Quesnel facility, during Q4 2018.
Income taxes
Income tax expense was $1.6 million for Q4 2018, an increase of $1.4 million compared to $0.2 million for Q4 2017. The
increase in income tax expense was primarily attributable to an increase in net profit before taxes in Q4 2018.
Net profit
Net profit and comprehensive income was $7.5 million in Q4 2018, an increase of $7.4 million compared to $0.1 million in
Q4 2017. This variance was primarily attributable to a $7.9 million decrease in finance cost, partially offset by a $1.5 million
increase in income tax expense as discussed above.
18
Adjusted Gross Margin Percentage*
(In thousands except per MT amounts)
Profit before finance costs and other income
(expenses)
Selling, general and administration
Amortization
Equity earnings in HPLP
Non-controlling interests
Adjusted Gross Margin
Adjusted Gross Margin per MT
Adjusted Gross Margin Percentage
* See “Non-IFRS Measures”.
Q4 2018
13 weeks
Q4 2017
13 weeks
Q4 2018
vs. Q4 2017
$
$
$
5,732
3,933
7,220
152
(375)
16,662
35.23
16.1%
$
$
$
6,029
4,347
5,280
255
20
15,931
47.70
21.8%
$
$
$
(297)
(414)
1,940
(103)
(395)
731
(11.32)
(5.7%)
Adjusted Gross Margin Percentage was 16.1% for Q4 2018 ($35.23/MT), a decrease from 21.8% in Q4 2017 ($47.70/MT).
The decrease was primarily due to higher production costs associated with start-up at the Entwistle Facility, offset by higher revenue
from higher sales volume as discussed above.
19
Adjusted EBITDA*
(In thousands except per MT amounts)
MT of industrial wood pellets sold
Net profit (loss)
Income tax expense
Finance costs excluding shareholder debentures (1)
Finance costs on shareholder debentures
Amortization of equipment and intangible assets (2)
$
Q4 2018
13 weeks
Q4 2017
13 weeks
$
473
7,456
1,643
(1,885)
-
7,054
$
334
104
163
2,667
3,241
5,089
EBITDA
EBITDA Adjustments
Stock-based compensation expense (recovery)
Loss (gain) on disposal of PP&E (3)
Plant curtailment costs
Loss on conversion of shareholder debentures
Revaluation of Class B and Class D common
shares
Other items (4)
Total Adjustments
Adjusted EBITDA
Adjusted EBITDA per MT
* See “Non-IFRS Measures”.
$
14,268
$
11,264
$
(833)
(535)
80
-
-
850
$
$
(438)
13,830
29.24
$
$
172
478
53
-
(424)
1,232
1,511
12,775
38.25
$
$
Q4 2018
vs. Q4 2017
139
7,352
1,480
(4,552)
(3,241)
1,965
3,004
(1,005)
(1,013)
27
-
424
(382)
(1,949)
1,055
(8.05)
Notes:
(1)
(2)
(3)
(4)
Finance cost excluding shareholder debentures excludes realized (gain) loss on derivatives and foreign exchange.
Amortization of PP&E includes our share of HPLP and excludes the non-controlling interest’s share of LPLP and PWRHLLC.
Loss on disposal of PP&E includes our share of HPLP and excludes the non-controlling interest’s share of LPLP and SPLP.
Other items include legal fees related to pursuing a damage claim and deduction for the non-controlling interest’s share of LPLP, SPLP, and PWRHLLC.
Adjusted EBITDA for Q4 2018 was $1.1 million higher than Q4 2017. Increased revenue was partially offset by higher
production costs associated with start-up at the Entwistle Facility as discussed above. In addition, constant heavy precipitation
during Q4 2018 impacted loading volumes at port terminals in British Columbia.
20
Free Cash Flow*
(In thousands)
Net profit (loss)
Income tax expense
Finance costs excluding shareholder debentures (1)
Finance costs (income) on shareholder debentures
Amortization of equipment and intangible assets (2)
EBITDA
Stock-based compensation expense
Loss (gain) on disposal of PP&E (3)
Plant curtailment costs
Loss on conversion of shareholder debentures
Revaluation of Class B and Class D shares
Other items (4)
Adjusted EBITDA (5)
Maintenance capital expenditures (6)
Interest and finance costs, net (7)
Cash taxes paid (8)
Mandatory amortization (9)
Free Cash Flow
* See “Non-IFRS Measures”.
$
$
$
Q4 2018
13 weeks
Q4 2017
13 weeks
$
$
$
7,456
1,643
(1,885)
-
7,054
14,268
(833)
(535)
80
-
-
850
13,830
(2,610)
(3,006)
-
-
$
$
$
104
163
2,667
3,241
5,089
11,264
172
478
53
-
(424)
1,232
12,775
(4,549)
(2,025)
-
(1,600)
$
8,214
$
4,601
$
Q4 2018
vs. Q4 2017
7,352
1,480
(4,552)
(3,241)
1,965
3,004
(1,005)
(1,013)
27
-
424
(382)
1,055
1,939
(981)
-
1,600
3,613
Notes:
(1) Finance cost excluding shareholder debentures excludes realized (gain) loss on derivatives and foreign exchange.
(2) Amortization of PP&E includes our share of HPLP and excludes the non-controlling interest’s share of LPLP and PWRHLLC.
(3) Loss (gain) on disposal of PP&E includes our share of HPLP and excludes the non-controlling interest’s share of LPLP and SPLP.
(4) Other items include professional fees incurred in connection with the Secondary Offering in Q2 2018, legal fees related to pursuing a damage claim, and
deduction for the non-controlling interest’s share of LPLP, SPLP, and PWRHLLC.
(5) See definition of Adjusted EBITDA in the section entitled “Key Performance Indicators” and reconciliation of Adjusted EBITDA to net income in “Results
(6)
of Operations”.
“Maintenance capital expenditures” refers to cash expenditures to maintain long-term operating capacity or net income. Annual maintenance capital
expenditure allows for the maintenance of long-term operating capacity or net income. We anticipate the recently commissioned Entwistle Facility and the
Smithers Facility to require $3.6 million in annual maintenance capital expenditures.
(7) Reflect post-IPO capital structure, and therefore exclude interest and financing costs on historical credit facilities. We repaid certain of our credit facilities in
(8)
connection with the IPO.
In recent years, we have accumulated significant net operating losses that will shield future earnings from taxes. As at December 29, 2017, we had unused
non-capital loss carryforwards of $96.4 million. We do not anticipate a requirement to pay income tax before 2020.
(9) There was no mandatory amortization for Q4 2018. Refer to the section entitled “Material Contracts – Credit Agreement” in the AIF for details of our credit
facilities.
Free cash flow increased $3.6 million from $4.6 million in Q4 2017 to $8.2 million in Q4 2018. The increase is primarily due
to a decrease in maintenance capital expenditures of $1.9 million, a decrease in mandatory amortization of term debt of $1.6 million,
and an increase in Adjusted EBITDA of $1.1 million, partially offset by an increase of $1.0 million in net interest and finance costs.
21
Analysis of Results for Fiscal 2018 to Fiscal 2017
The following section provides an overview of our financial performance in Fiscal 2018 compared to Fiscal 2017.
(In thousands)
MT of industrial wood pellets sold
Revenue
Costs and expenses
Production
Distribution
Selling, general and administration
Amortization
Profit before finance costs and other expenses
Finance cost
Other (income) expense
Net income (loss) before income taxes
Income tax expense (recovery)
Current
Deferred
Income Taxes
Net profit (loss)
Revenue
Fiscal 2018
52 weeks
Fiscal 2017
52 weeks
1,607
347,440
$
$
1,373
292,727
$
Fiscal 2018
vs. Fiscal 2017
234
54,713
233,107
46,899
22,789
24,678
327,473
19,967
3,042
15,638
18,680
1,287
-
(1,415)
(1,415)
2,702
$
$
188,414
38,421
15,268
21,819
263,922
28,805
24,251
8,912
33,163
(4,358)
-
526
526
(4,884)
$
44,693
8,478
7,521
2,859
63,551
(8,838)
(21,208)
6,726
(14,483)
5,645
-
(1,941)
(1,941)
7,586
Revenue for Fiscal 2018 totaled $347.4 million, an increase of $54.7 million, or 18.7%, compared to $292.7 million for Fiscal
2017. This increase was attributable to higher sales volume and an increase in the average sales price per MT.
Production cost
Production costs were $233.1 million for Fiscal 2018, an increase of $44.7 million from $188.4 million for Fiscal 2017,
primarily due to an increase in sales volume and higher fibre and cash conversion costs. High repairs and maintenance expenditures
at the Entwistle Facility related to initial delivery fibre quality issues and lower than projected production levels due to CN unit
train service failures and delays in construction of the storage silo (which was completed in Q4 2018) increased rail and cash
conversion costs. In addition, the aforementioned higher fibre and cash conversion costs were incurred as we managed facilities
impacted by forest fires and related rail disruptions in Q3 2018.
Distribution cost
Distribution costs were $46.9 million for Fiscal 2018, an increase of $8.5 million compared to $38.4 million for Fiscal 2017,
primarily due to an increase in volume sold.
Selling, general and administration expense
SG&A expenses increased $7.5 million from $15.3 million for Fiscal 2017 to $22.8 million for Fiscal 2018. SG&A expenses
in Fiscal 2018 include certain professional fees incurred in connection with the IPO and the Secondary Offering of $1.2 million
and $0.3 million, respectively, and $1.2 million of legal fees related to a damage claim we are pursuing against one of our equipment
suppliers. In Fiscal 2017, legal fees related to this claim were $1.0 million. In addition, in Fiscal 2017, $0.4 million of professional
fees related to the Entwistle Facility previously incurred were capitalised upon board approval of the project. Excluding the above
items, SG&A expenses increased $5.4 million from Fiscal 2017 to Fiscal 2018. Of this $5.4 million increase, $4.3 million relates
22
to incremental stock-based compensation expense in Fiscal 2018, and $1.1 million relates to legal fees, professional fees, and travel
expenses related to the acquisition of the Aliceville Facility.
Amortization expense
Amortization expense increased by $2.9 million from $21.8 million in Fiscal 2017 to $24.7 million in Fiscal 2018. During
Fiscal 2018, the majority of additions to property, plant and equipment related to construction in progress for the Entwistle and
Smithers Facilities. Construction in progress is not subject to amortization until the assets are available for use. The increase in
amortization is primarily due to the commencement of amortization for property, plant and equipment related to the commencement
of commercial production for the Entwistle Facility at the end of Q2 2018. In addition, amortization expense for Fiscal 2018
included those related to the Aliceville Facility acquired during Q4 2018.
Finance cost
Finance cost was $3.0 million in Fiscal 2018, a decrease of $21.2 million from $24.2 million in Fiscal 2017. This decrease
was primarily due to a $12.4 million reduction in interest on shareholders’ debentures, which were converted into Common Shares
upon the closing of the IPO, a $7.6 million fluctuation in the fair value of foreign exchange derivative contracts, a $1.5 million
increase in unrealized gain on foreign exchange, and a $0.4 million decrease in amortization of deferred financing fees, partially
offset by an $1.4 million increase in interest on credit facilities.
Other expense
Other expense was $15.6 million in Fiscal 2018, an increase of $6.7 million from $8.9 million in Fiscal 2017. This increase
was primarily due to a $21.9 million loss on conversion of shareholders’ debentures in Fiscal 2018, partially offset by a $9.2 million
fluctuation related to revaluation of Class B and Class D common shares, which were converted upon pre-closing capital changes
completed in connection with the IPO, a $4.4 million decrease in curtailment losses recognised on our Quesnel facility, and a $1.4
million fluctuation in gains and losses on disposal of property, plant and equipment.
Income taxes
Income tax recovery was $1.4 million in Fiscal 2018. In Fiscal 2017, income tax expense was $0.5 million. The change was
primarily attributable to deferred income tax recovery on the loss on conversion of shareholders’ debentures into Common Shares
upon closing of the IPO.
Net profit (loss)
Net profit was $2.7 million in Fiscal 2018, compared to a net loss of $4.9 million in Fiscal 2017. The change was primarily
attributable to a $21.2 million decrease in finance costs and an $1.9 million net increase in income tax recovery, partially offset by
$8.8 million decrease in profit before finance costs and other expenses and a $6.7 million increase in other expenses as discussed
above.
23
Adjusted Gross Margin Percentage*
(In thousands except per MT amounts)
Profit before finance costs and other income
(expenses)
Selling, general and administration
Amortization
Equity earnings in HPLP
Non-controlling interests
Adjusted Gross Margin
Adjusted Gross Margin per MT**
Adjusted Gross Margin Percentage
* See “Non-IFRS Measures”.
Fiscal 2018
52 weeks
Fiscal 2017
52 weeks
Fiscal 2018
vs. Fiscal 2017
$
$
$
19,967
22,789
24,678
1,058
(852)
67,640
42.49
19.5%
$
$
$
28,805
15,268
21,819
1,381
(353)
66,920
48.74
22.9%
$
$
$
(8,838)
7,521
2,859
(323)
(499)
720
(6.25)
(3.4%)
** 14,900 MT of initial production from the Entwistle Facility included in finished goods inventory at the end of Q2 2018 were sold at no margin during Q3 2018,
and are excluded in the determination of Adjusted Gross Margin per MT accordingly.
Adjusted Gross Margin Percentage was 19.5% for Fiscal 2018 ($42.49/MT), down from 22.9% in Fiscal 2017 ($48.74/MT),
primarily due to higher production costs associated with start-up at the Entwistle Facility, higher fibre costs, higher fibre costs for
incremental production volume from our legacy production facilities as they increased production to offset the shortfall at the
Entwistle Facility during the ramp-up stage, partially offset by higher revenue from an increase in the average sales price per MT
as discussed above.
24
Adjusted EBITDA*
(In thousands except per MT amounts)
MT of industrial wood pellets sold
Net profit (loss)
Income tax expense (recovery)
Finance costs excluding shareholder debentures (1)
Finance costs on shareholder debentures
Amortization of equipment and intangible assets (2)
EBITDA
EBITDA Adjustments
Stock-based compensation expense
Loss (gain) on disposal of PP&E (3)
Plant curtailment costs
Loss on conversion of shareholder debentures
Revaluation of Class B and Class D common
shares
Other items (4)
Total Adjustments
Adjusted EBITDA
Adjusted EBITDA per MT**
* See “Non-IFRS Measures”.
$
$
$
$
Fiscal 2018
52 weeks
Fiscal 2017
52 weeks
1,607
2,702
(1,415)
3,279
-
24,244
28,810
4,266
(362)
235
21,881
(3,563)
3,835
26,292
55,102
34.61
$
$
$
$
$
Fiscal 2018
vs. Fiscal 2017
234
7,586
(1,941)
(8,313)
(12,359)
2,849
$
(12,178)
4,029
(1,411)
(4,391)
21,881
(9,164)
215
17,182
(1,019)
(6.26)
1,373
(4,884)
526
11,592
12,359
21,395
40,988
237
1,049
4,626
-
5,601
3,620
9,110
56,121
40.87
$
$
** 14,900 MT of initial production from the Entwistle Facility included in finished goods inventory at the end of Q2 2018 were sold at no margin during Q3 2018,
and are excluded in the determination of Adjusted EBITDA per MT accordingly.
Notes:
(1)
(2)
(3)
(4)
Finance cost excluding shareholder debentures excludes realized (gain) loss on derivatives and foreign exchange.
Amortization of PP&E includes our share of HPLP and excludes the non-controlling interest’s share of LPLP and PWRHLLC.
Loss (gain) on disposal of PP&E includes our share of HPLP and excludes the non-controlling interest’s share of LPLP and SPLP.
Other items include professional fees incurred in connection with the IPO and Secondary Offering in Fiscal 2018 of $1.2 million and $0.3 million,
respectively, legal fees related to pursuing a damage claim, and deduction for the non-controlling interest’s share of LPLP, SPLP, and PWRHLLC.
Adjusted EBITDA was $55.1 million in Fiscal 2018, a decrease of $1.0 million from $56.1 million in Fiscal 2017. Increased
revenue was partially offset by higher production costs associated with start-up at the Entwistle Facility as discussed above.
25
Free Cash Flow*
(In thousands)
Net profit (loss)
Income tax expense (recovery)
Finance costs excluding shareholder debentures (1)
Finance costs (income) on shareholder debentures
Amortization of equipment and intangible assets (2)
EBITDA
Stock-based compensation expense
Loss on disposal of PP&E (3)
Plant curtailment costs
Loss on conversion of shareholder debentures
Revaluation of Class B and Class D shares
Other items (4)
Adjusted EBITDA (5)
Maintenance capital expenditures (6)
Interest and finance costs, net (7)
Cash taxes paid (8)
Mandatory amortization (9)
Free Cash Flow
$
$
$
$
* See “Non-IFRS Measures”.
Fiscal 2018
52 weeks
Fiscal 2017
52 weeks
2,702
(1,415)
3,279
-
24,244
28,810
4,266
(362)
235
21,881
(3,563)
3,835
55,102
(8,059)
(8,851)
-
(6,000)
32,192
$
$
$
$
(4,884)
526
11,592
12,359
21,395
40,988
237
1,049
4,626
-
5,601
3,620
56,121
(9,040)
(7,425)
-
(1,600)
38,056
Fiscal 2018
vs. Fiscal 2017
7,586
(1,941)
(8,313)
(12,359)
2,849
(12,178)
4,029
(1,411)
(4,391)
21,881
(9,164)
215
(1,019)
981
(1,426)
-
(4,400)
(5,864)
$
$
$
$
Notes:
(1) Finance cost excluding shareholder debentures excludes realized (gain) loss on derivatives and foreign exchange.
(2) Amortization of PP&E includes our share of HPLP and excludes the non-controlling interest’s share of LPLP and PRWHLLC.
(3) Loss on disposal of PP&E includes our share of HPLP and excludes the non-controlling interest’s share of LPLP and SPLP.
(4) Other items include professional fees incurred in connection with the IPO and Secondary Offering in Fiscal 2018 of $1.2 million and $0.3 million, respectively,
legal fees related to pursuing a damage claim, and deduction for the non-controlling interest’s share of LPLP, SPLP, and PWRHLLC.
(5) See definition of Adjusted EBITDA in the section entitled “Key Performance Indicators” and reconciliation of Adjusted EBITDA to net income in “Results
(6)
of Operations”.
“Maintenance capital expenditures” refers to cash expenditures to maintain long-term operating capacity or net income. Annual maintenance capital
expenditure allows for the maintenance of long-term operating capacity or net income. We anticipate the recently commissioned Entwistle Facility and the
Smithers Facility to require $3.6 million in annual maintenance capital expenditures.
(7) Reflect post-IPO capital structure, and therefore exclude interest and financing costs on historical credit facilities. We repaid certain of our credit facilities in
(8)
connection with the IPO.
In recent years, we have accumulated significant net operating losses that will shield future earnings from taxes. As at December 29, 2017, we had unused
non-capital loss carryforwards of $96.4 million. We do not anticipate a requirement to pay income tax before 2020.
(9) There was no mandatory amortization for the first three quarters of Fiscal 2017. Refer to the section entitled “Material Contracts – Credit Agreement” in the
AIF for details of our credit facilities.
Free cash flow was $32.2 million in Fiscal 2018, a decrease of $5.9 million from $38.1 million in Fiscal 2017. This decrease
was primarily due to an increase in mandatory amortization of our term debt of $4.4 million, a decrease in Adjusted EBITDA of
$1.0 million, and an increase in net interest and finance costs of $1.4 million, partially offset by a decrease in maintenance capital
expenditures of $1.0 million.
26
SUMMARY OF CONSOLIDATED RESULTS AND CERTAIN PERFORMANCE MEASURES
The following table summarizes the results of our operations for the last eight quarters. This unaudited quarterly information has
been prepared in accordance with IFRS. (1)
(In thousands except per
share amounts)
MT of industrial wood
pellets sold
Revenue
Costs and expenses
Production
Distribution
Selling, general and
administration
Amortization
Profit (loss) before
finance costs and other
(income) expenses
Finance cost (income) (2)
Other (income) expense
(3)(4)
Net profit (loss) before
income taxes
Income tax expense
(recovery)
Current
Deferred (5)
Income Taxes
2018
2017
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
13 Weeks
13 Weeks
13 Weeks
13 Weeks
13 Weeks
13 Weeks
13 Weeks
13 Weeks
473
421
385
328
334
387
332
320
$
103,728
$
87,606
$
85,084
$
71,022
$
72,958
$
82,366
$
69,556
$
67,847
73,472
13,371
3,933
7,220
97,996
5,732
(1,741)
(1,626)
(3,367)
9,099
-
1,643
1,643
57,222
12,360
5,374
6,719
81,675
5,931
4,360
(399)
3,961
1,970
-
454
454
48,520
47,377
8,030
9,217
5,358
9,925
4,347
5,280
71,125
66,929
53,893
13,138
4,265
5,381
76,677
8,407
41
(320)
(279)
(103)
382
17,983
18,365
8,686
(18,468)
-
(2,182)
(2,182)
-
5,694
5,694
6,029
6,120
(358)
5,762
267
-
(163)
(163)
51,628
11,568
4,222
5,365
72,783
9,583
6,469
9,146
15,615
(6,032)
-
2
2
44,863
44,546
7,868
3,493
5,570
9,060
3,206
5,604
61,794
62,416
7,762
5,835
131
5,966
1,796
-
(469)
(469)
5,431
5,827
(7)
5,820
(389)
-
104
104
Net profit (loss)
$
7,456
$
1,516
$
6,504
$
(12,774)
$
104
$
(6,030)
$
1,327
$
(285)
Net profit (loss)
attributable to:
Owners of the Company
Non-controlling
interests
7,081
375
1,184
332
6,218
286
(12,633)
(141)
124
(20)
(6,371)
341
1,234
93
Net profit (loss)
$
7,456
$
1,516
$
6,504
$
(12,774)
$
104
$
(6,030)
$
1,327
$
Net profit (loss)
attributable to owners
Net income (loss)
attributable to owners
Cumulative preferred
dividends
Net profit (loss) per
share attributable to
owners
7,081
-
1,184
-
6,218
(12,633)
-
(104)
124
(409)
(6,371)
(309)
1,234
(309)
$
7,081
$
1,184
$
6,218
$
(12,737)
$
(285)
$
(6,680)
$
925
$
(224)
(61)
(285)
(224)
(310)
(534)
Basic and diluted
$
0.22
$
0.04
$
0.19
$
(0.58)
$
(0.04)
$
(0.97)
$
0.13
$
(0.08)
Notes:
(1)
(2)
(3)
(4)
Factors that impact the comparability of the quarters include the following: (a) the cost of producing industrial wood pellets during the winter is typically greater than
that during the summer due to the higher moisture content of raw materials which results in higher drying costs and the increased costs of maintaining operating
equipment due to lower ambient temperatures; and (b) net profit (loss) is also impacted by fluctuations in Canadian dollar exchange rates from the revaluation of the
Company’s outstanding US dollar forward exchange contracts and the translation of our US operations.
In Q4 2016, a $21.3 million (before-tax) gain was recognised on the modification of terms of shareholders’ debentures.
Class B and Class D common shares, which are classified as liabilities are subject to fair value adjustments. Revaluation gains and losses were recognised as follows:
in the third quarter of Fiscal 2017, a loss of $6.0 million (before-tax), and in the fourth quarter of Fiscal 2016, a loss of $10.3 million (before-tax). Upon closing of the
IPO in the first quarter of Fiscal 2018, a gain of $3.6 million (before-tax) was recognised on conversion of Class B and Class D common shares.
In the first quarter of Fiscal 2018, a $21.9 million (before-tax) loss and an associated $5.8 million deferred income tax recovery were recognised on conversion of
shareholders’ debentures upon closing of the IPO.
27
LIQUIDITY AND CAPITAL RESOURCES
Overview
Our principal uses of funds are for operating expenses, capital expenditures, debt service requirements and dividends. We
believe that cash generated from operations, together with amounts available under our credit agreement, will be sufficient to meet
our operating expenses, capital expenditures, debt service and dividend requirements. In addition, we believe that our capital
structure provides us with financial flexibility to pursue our future growth strategies.
However, our ability to fund operating expenses, capital expenditures, and future debt service and dividend requirements will
depend on, among other things, our future operating performance, which will be affected by general economic, financial and other
factors, including factors beyond our control. See “Summary of Factors Affecting Performance” and “Risk Factors” in this MD&A
for additional information. We review investment opportunities in the normal course of our business and may make select
investments to implement our business strategy when suitable opportunities arise.
Historically, the funding for any such investments has come from cash flow from operating activities and/or our credit
facilities. We believe our delayed draw facility under our credit agreement, together with the proceeds from the IPO, will be
sufficient to finance the Entwistle Facility, Smithers Facility, Aliceville Facility and our anticipated capital expenditures associated
therewith.
Non-cash Working Capital
“Non-cash working capital” is defined as the sum of accounts receivable, inventories, and other current assets, less accounts
payable and accrued liabilities, and other current liabilities. Non-cash working capital excludes cash, the current portion of our
long-term debt including the revolving credit facility and therefore provides our management and investors with a clear
understanding of the efficiency of our operational working capital needs. Our need for non-cash working capital is highly dependent
on the timing of shipments, particularly at the end of a period as a total shipment can be valued at over $10 million. Shipment
timing impacts accounts receivable and finished industrial wood pellet inventories. Payment terms differ for each contract, but we
typically receive an initial payment equal to 90% of the total value of a shipment 12 to 15 days after the shipment leaves the port,
with the balance received after the vessel fully discharges its cargo to the customer. Less significantly, non-cash working capital is
impacted by wood fibre inventory changes due to the accumulation of wood fibre in winter months and increases in whole log
volumes and values as we diversify our wood fibre sources and create supply stock piles.
Senior Credit Facilities
As at December 28, 2018, our credit facilities consisted of $200 million of term debt, $130 million of committed delayed
draw, and $50 million of committed revolver. All facilities mature on December 13, 2022.
Advances under the facilities are available as Canadian dollar Prime-Based Loans, Banker’s Acceptances (“BA”) from the
BA Lenders in Canadian dollars, BA Equivalent Loans from the Non-BA Lenders in Canadian dollars, US dollar Base Rate Loans,
and LIBOR Loans in US dollars. Interest accrues daily and is payable monthly at the applicable Bank Prime, BA, US Base or
LIBOR rates plus a margin. The margin varies based on the ratio of Senior Debt to Adjusted EBITDA with a minimum margin of
1.50% and 2.50% for Prime/US Base and BA/LIBOR loans, respectively and a maximum margin of 3.00% and 4.00%, respectively.
During the 13-week and 52-week periods ended December 28, 2018 we made scheduled repayments of nil and $6 million,
respectively, on our term loan (13-week and 52-week periods ended December 29, 2017 – $1.6 million). At December 28, 2018,
the $194 million term loan was in a Canadian dollar BA loan at 5.03% and the $18.5 million revolver was in a Canadian dollar BA
loan at 5.70% and $50.5 million delayed draw was in in a USD BA loan at 8.00%. At December 29, 2017, the $180 million term
loan and the revolver loan were in Canadian dollar Prime loans at 5.70% and the $22 million delayed draw term loan was in a
Canadian dollar BA loan at 4.86%. At December 28, 2018, we had issued letters of credit totaling $1.4 million (December 29, 2017
- $0.5 million). The delayed draw has been designated as a hedge against the investment in our U.S. operations and unrealized
foreign exchange losses of $1.5 million (2017 - nil) arising on its revaluation were recognized in foreign currency translation
differences in other comprehensive income for the 52-week period ended December 28, 2018.
EBITDA and Adjusted EBITDA are defined in our credit agreement and used in the calculation of debt covenants and interest
rate margins. Adjusted EBITDA as defined in our credit agreement is different than Adjusted EBITDA as presented in our MD&A
as it includes adjustments to reflect run-rate EBITDA at facilities in the commissioning phase, among other adjustments. The
28
primary debt covenants are the Total Funded Debt to Adjusted EBITDA and Fixed Charge Coverage Ratio. The NMTC Debt is
not included in the calculation of Total Funded Debt (as defined in the credit agreement) as it is indemnified by Westervelt and the
we carry a NMTC Receivable from Westervelt of an equal amount. As at December 28, 2018 and December 29, 2017, the Company
was in compliance with all debt covenants.
The debt is secured by a first-ranking security interest on all present and after-acquired assets of the Company.
All the credit facilities require mandatory loan prepayments by us of principal and interest if certain events occur.
Refer to the “Credit Agreement” sub-section under the “Material Contracts” section in the AIF for details of our credit
facilities.
CASH FLOWS
Analysis of cash flows for Q4 2018 compared to Q4 2017
(In thousands)
Cash flow from operations before net change in
non-cash working capital
Net change in non-cash operating working capital
Financing activities
Investing activities
Other
Change in cash
Cash at beginning of period
Cash at end of period
$
$
Q4 2018
13 weeks
Q4 2017
13 weeks
Q4 2018
vs. Q4 2017
13,064
5,498
61,110
(68,808)
(112)
10,752
7,276
18,028
$
$
11,305
(15,302)
41,165
(29,786)
(69)
7,313
11,595
18,908
$
$
1,759
20,800
19,945
(39,022)
(43)
3,439
(4,319)
(880)
Cash flow from operations before net change in non-cash working capital
Cash flow from operations before net change in non-cash working capital increased by $1.8 million to $13.1 million for Q4
2018 from $11.3 million for Q4 2017, primarily due to higher revenue in Q4 2018 compared to Q4 2017.
Net change in non-cash working capital
The $5.5 million increase in non-cash working capital in Q4 2018 was primarily comprised of an $8.3 million increase in
accounts payable and accrued liabilities, a $1.9 million decrease in inventory, and a $0.6 million decrease in other current assets,
offset by a $3.4 million increase in accounts receivable and a $1.9 million decrease in other current liabilities. The $15.3 million
decrease in non-cash working capital in Q4 2017 reflected an increase in accounts receivable related to the timing of certain
shipments at period-end.
Financing activities
In Q4 2018, financing activities provided $61.1 million of cash, primarily from $65.4 million in net credit facilities drawn and
$1.5 million net investment from non-controlling interest, partially offset by $5.0 million in dividends paid, and $0.3 million in
finance costs paid. In Q4 2017, financing activities provided $41.2 million, primarily from the amendment of our credit facilities
to fund the construction of the Entwistle and Smithers Facilities.
Investing activities
Cash used for investing activities relates primarily to the acquisition and construction of property, plant and equipment. In Q4
2018, cash used for the acquisition of the Aliceville Facility was $47.6 million and cash used for property, plant and equipment
excluding the acquisition of the Aliceville Facility was $23.0 million. In Q4 2017, cash used for property, plant and equipment was
$29.8 million.
29
Analysis of cash flows for Fiscal 2018 compared to Fiscal 2017
(In thousands)
Cash flow from operations before net change in
non-cash working capital
Net change in non-cash operating working capital
Financing activities
Investing activities
Other
Change in cash
Cash at beginning of year
Cash at end of year
Fiscal 2018
52 weeks
Fiscal 2017
52 weeks
Fiscal 2018
vs. Fiscal 2017
$
$
50,756
7,017
59,930
(118,797)
214
(880)
18,908
$
51,128
(20,183)
48,812
(72,682)
(279)
6,796
12,112
$
18,028
$
18,908
$
(372)
27,200
11,118
(46,115)
493
(7,676)
6,796
(880)
Cash flow from operations before net change in non-cash working capital
Cash flow from operations before net change in non-cash working capital decreased by $0.3 million to $50.8 million for Fiscal
2018 from $51.1 million for Fiscal 2017, reflecting the higher cash costs in production in Fiscal 2018 compared to Fiscal 2017.
Net change in non-cash working capital
The $7.0 million increase in non-cash working capital in Fiscal 2018 was primarily comprised of a $13.0 million increase in
accounts payable and accrued liabilities and a $7.1 million decrease in accounts receivable, partially offset by a $14.0 million
decrease in other current liabilities. The $20.2 million decrease in non-cash working capital in Fiscal 2017 was primarily comprised
of a $20.7 million decrease in accounts payable and accrued liabilities and an $16.5 million increase in accounts receivable, partially
offset by a $14.2 million increase in other current liabilities, and an $2.7 million decrease in inventory.
Financing activities
In Fiscal 2018, financing activities provided $59.9 million of cash, primarily from net proceeds of the IPO of $64.6 million, a
net draw of credit facilities of $40.9 million, and investment from non-controlling interests of $5.9 million, offset by repayment of
shareholders’ debentures of $28.6 million, dividends paid of $12.9 million, and finance costs paid of $8.9 million. In Fiscal 2017,
financing activities provided $48.8 million primarily from $54.9 million in net draw of credit facilities and investment from non-
controlling interests of $2.4 million, partially offset by $8.3 million in finance costs paid.
Investing activities
Cash used for investing activities relates primarily to the acquisition and construction of property, plant and equipment. In
Fiscal 2018, cash used for property, plant and equipment excluding the acquisition of the Aliceville Facility was $73.1 million, an
$1.0 million increase from $72.1 million in Fiscal 2017. In Fiscal 2018, cash used for the acquisition of the Aliceville Facility was
$47.6 million.
30
OUTLOOK
We believe that we have an opportunity to continue growing our revenue and profitability over the next several years as a
result of our current production facility development projects as well as contracted price increases in most of our off-take
agreements. In addition, we believe that as the potential demand for industrial wood pellets continues to grow globally, we are well
positioned to meet this demand growth through a combination of expansion projects at existing production facilities and new
greenfield and brownfield growth projects. Moreover, we will continue to evaluate potential acquisitions to grow our production
platform.
Our strategies to realize on these opportunities are summarized as follows:
continue to realize production and operating efficiencies in our existing production facilities to increase EBITDA per MT;
grow our business through the commissioning and operational execution of the Entwistle Facility and Smithers Facility,
and other greenfield project opportunities throughout North America;
expand production capacity at existing production facilities, including that of the recently acquired Aliceville Facility;
make potential accretive acquisitions of industrial wood pellet producers in Canada or the U.S.;
capture our share of opportunities in the growing Asian marketplace as a result of our proximity to this market, which
results in shipping cost advantages, and our longstanding relationships with customers in this region; and
continue to improve gross margins through further efficiencies in our sourcing and production processes.
We expect to see continued strong execution in the strategic growth plan of the business in 2019. The Aliceville and Smithers
Facilities added in Q4 2018 will contribute to 2019 growth as they ramp-up production.
Sawmill curtailments that have been announced by some British Columbia forest products companies will result in a reduction
in the availability of lower cost sawmill residuals (sawdust and shavings). As a result, we will procure a greater proportion of higher
cost harvest residuals (pulp logs and bush grind). We expect the impact to be mainly limited to some of our fibre sourcing at the
Burns Lake and Meadowbank Facilities.
The financial impact of the recent temporary suspension of operations at the Entwistle Facility is difficult to estimate at this
early date. We will resume reduced production of wood pellets from the Entwistle Facility in March 2019 through the use of dry
fibre. As we obtain further information regarding the timeline for recommencement of the dryer area of the facility, we will be in a
better position to provide an update on our outlook for 2019.
CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS
The following table summarizes the contractual obligations and off-balance sheet arrangements as at December 28, 2018 for
each of the next five fiscal years and thereafter:
(In millions)
2019
2020
2021
2022
2023
Thereafter
Total
Revolver loan
Term loan
Delayed draw
Finance lease
Operating lease
Total
contractual
obligations
$
18.5 $
- $
9.5
-
1.0
10.7
14.5
3.0
0.8
9.2
-
19.0
4.8
0.2
7.4
$
- $
151.0
42.7
-
5.0
- $
-
-
-
4.6
$
-
-
-
-
28.8
18.5
194.0
50.5
2.0
65.7
$
39.7 $
27.5 $
31.4
$
198.7 $
4.6 $
28.8
$
330.7
The obligations under the senior credit facilities are discussed in the “Liquidity and Capital Resources” section of this MD&A.
31
FINANCIAL RISK FACTORS
We are exposed to a number of risks as a result of holding financial instruments including credit risk, liquidity risk and market
risk. Our Risk Management Committee manages risk related to counterparty credit risk and market risk such as foreign exchange.
Credit risk
Credit risk is the risk of financial loss to us if a counterparty to a financial instrument fails to meet its contractual obligations.
Financial instruments that are subject to credit risk include cash and accounts receivable. We manage our credit risk on cash by
using major Canadian chartered banks for all cash deposits. The cash balance at December 28, 2018 was $18.0 million (December
29, 2017 - $18.9 million).
We manage our credit risk on accounts receivable by reviewing individual sales contracts considering the length of the contract
and assessing the credit quality of the counterparty. Board approval is required for contracts over $5.0 million. The significant
majority of our sales are contracted with large utility customers. The accounts receivable balance at December 28, 2018 was $43.0
million (December 29, 2017 - $41.3 million).
Liquidity risk
Liquidity risk is the risk that we will not be able to meet our respective obligations as they come due. We manage liquidity
requirements through frequent monitoring of cash inflows and outflows, preparation of regular cash flow forecasting and our
available credit facilities.
At December 28, 2018, we had available liquidity of $49.1 million (December 29, 2017 - $44.3 million) from our debt facilities
(excluding delayed draw) and cash balances and forecast sufficient liquidity throughout Fiscal 2019. We expect to finance our
operations and cash flows from our current available resources without further support from our shareholders and lenders. However,
to the extent that additional cash resources are required due to unforeseen circumstances, we anticipate support from our
shareholders and lenders, although there can be no guarantees. At December 28, 2018, our ratio of net debt to last twelve month
Adjusted EBITDA was 4.51 times. This ratio was higher than our target of 3.25 times because of the investment in the Aliceville
Facility in Q4 2018 and in significant new capacity at the Entwistle and Smithers Facilities in advance of achieving run-rate
Adjusted EBITDA.
Market risk
Market risk is that the change in market prices such as foreign exchange rates will affect our net profit (loss) and that the future
cash flows of a financial instrument will fluctuate due to changes in market prices.
With respect to costs of distribution, we mitigate the market risk of fluctuations in shipping costs by entering into long-term,
fixed-price shipping contracts with reputable shippers matching the terms and volumes of our CIF off-take contracts for which we
are responsible for managing shipping. We enter into these long-term shipping contracts at the same time as we enter long-term
sales contracts, ensuring matching the terms and tenure between both contracts. Certain of our off-take contracts include pricing
adjustments for volatility in fuel prices, which allows us to pass the majority of the fuel price risk associated with shipping through
to our customers.
Foreign currency
For our Canadian entities, the functional and reporting currency is the Canadian dollar. Our sales, operating and capital
expenditures are primarily denominated and settled in Canadian dollars. We have exposure to the US dollar on our shipping costs,
rail car leases and some capital purchases. We mitigate our exposure to the US dollar on our shipping costs by invoicing the
shipping portion in US dollars and with a contract with our major shipping provider with a fixed US dollar to Canadian dollar
exchange rate. We mitigate the remaining exposure by entering into a series of US dollar forward contracts matching the amount
and timing of the estimated US dollar expenditures.
32
These contracts are simultaneously settled on a gross tax basis as the Company exchanges US dollars into Canadian dollars at
predetermined rates. We do not apply hedge accounting to our US dollar forward contracts. Refer to Note 25 to the Consolidated
Financial Statements for outstanding notional amounts of the US dollar forward contracts and their contractual maturities.
For our U.S. entities, the functional currency is the US dollar. Our sales, operating and capital expenditures are primarily
denominated and settled in US dollars.
Interest rate
We are exposed to interest rate risk through our credit facility including our revolver, term loan and delayed draw term loan
which are subject to variable lending rates. As at December 28, 2018, we do not use financial instruments to manage interest rate
risk.
Our objective when managing our capital structure is to maintain a strong financial position and to provide returns with
sufficient liquidity to undertake further growth for the benefit of our shareholders.
There were no changes to our approach to capital management during the year.
We are subject to certain financial covenants in our debt obligations. Refer to Note 9 to the Consolidated Financial Statements
for details. Our strategy is to ensure we remain in compliance with all of our existing covenants so as to ensure continuous access
to required debt to fund growth. We review results and forecasts to monitor our compliance.
Disclosure Controls & Procedures and Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining a system of disclosure controls and procedures to provide
reasonable assurance that all material information relating to the Company is gathered and reported to senior management on a
timely basis so that appropriate decisions can be made regarding public disclosure.
Management is also responsible for establishing and maintaining adequate internal controls over financial reporting to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial reports for external purposes
in accordance with IFRS. In designing such controls, it should be recognized that due to inherent limitations, any controls, no
matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and may
not prevent or detect misstatements. Additionally, management is required to use judgment in evaluating controls and procedures.
Procedures performed in 2018 to test the design and operating effectiveness of internal controls over financial reporting
confirmed that controls are adequate and provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial reports for external purposes in accordance with IFRS.
Changes in Internal Control Over Financial Reporting
There were no changes to our disclosure controls and procedures and internal control over financial reporting during Q4 2018.
CRITICAL ACCOUNTING ESTIMATES AND ACCOUNTING STANDARDS ADOPTED AND ISSUED
BUT NOT EFFECTIVE
Critical Accounting Estimates and Judgments
The preparation of consolidated financial statements in accordance with IFRS requires management to make judgments,
estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income
and expenses. Estimates and assumptions are continuously evaluated and are based on management’s best judgments and
experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
Actual results may differ from these estimates.
33
The most significant accounting judgments and estimates that we have made in the preparation of the Consolidated Financial
Statements are consistent with that as described in the Consolidated Financial Statements.
Significant Accounting Standards Adopted and Issued But Not Effective
Accounting standards adopted in the first quarter of Fiscal 2018
IFRS 15 — Revenue from Contracts with Customers
We have adopted IFRS 15 Revenue from Contracts with Customers, which establishes a comprehensive framework for
determining whether, how much and when revenue is recognised. It replaced IAS 18 Revenue, IAS 11 Construction Contracts and
related interpretations effective for annual periods beginning on or after January 1, 2018. The Standard establishes a single,
principles based five step model to be applied to all contracts with customers and provide useful information to users of financial
statements about the nature, timing, and uncertainty of revenue and cash flows arising from a contract with a customer. The adoption
of IFRS 15 did not have a material impact on the Consolidated Financial Statements, other than in the form of additional disclosures
in the notes therein.
IFRS 9 — Financial Instruments
IFRS 9 Financial Instruments replaces IAS 39 Financial Instruments: Recognition and Measurement for annual periods
beginning on or after January 1, 2018. This standard introduces a new model for the classification and measurement of financial
assets and liabilities, a single expected credit loss model for the measurement of the impairment of financial assets, and a new model
for hedge accounting that is aligned with an entity’s risk management activities. The adoption of IFRS 9 did not have a material
impact on the Consolidated Financial Statements.
Accounting standards adopted in the first quarter of Fiscal 2019
IFRS 16 — Leases
IFRS 16 Leases was issued in January 2016 by the IASB as a replacement for IAS 17 Leases and is effective for annual periods
beginning on or after January 2019. IFRS 16 introduces a single, on-balance sheet accounting model for lessees. A lessee recognizes
a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease
payments. Right-to-use assets will be initially measured at cost, which includes the initial measurement of the lease liabilities and
other costs, less lease incentives. Lease liabilities will initially be measured at the present value of future lease payments, and will
subsequently be measured at amortized cost using the effective interest rate method.
IFRS 16 may be applied retrospectively to each prior period presented (full retrospective approach), or with the cumulative
effect of adoption recognized at initial application (modified retrospective approach). The modified retrospective method offers
the option, on a lease by lease basis, to either measure the right of use asset retrospectively using the discount rate as at the date of
initial application, or to measure the right of use asset at an amount equal to the lease liability. We have elected to apply the
modified retrospective approach upon adoption at January 1, 2019, measuring the right of use asset at an amount equal to the lease
liability. The short-term and low-value recognition exemptions available under the standard will be utilized, along with certain
practical expedients.
Based on lease data as at December 28, 2018, IFRS 16 is expected to result in an increase to right-to-use assets and lease
liabilities of approximately $48 million. We are finalizing our analysis and calculations in the first quarter of Fiscal 2019 and will
provide all the required disclosures and amounts when filing our condensed consolidated interim financial statements in the first
quarter of Fiscal 2019.
RELATED PARTY TRANSACTIONS
HPLP transactions
HPLP is owned 30% by us and 70% by non-related third parties. We purchase industrial wood products from HPLP and earn
revenue from sales of fibre and distribution fees. We manage and administer the business affairs of HPLP and charge a management
fee. These transactions are at negotiated amounts with the non-related third parties.
34
The amounts receivable and payable to us are unsecured and non-interest bearing.
LPLP transactions
LPLP is owned 75% by us and 25% by a non-related third party. We purchase industrial wood products from LPLP and earn
revenue from sales of fibre at negotiated prices with the non-related third party. We manage and administer the business affairs of
LPLP.
The amounts receivable and payable to us are unsecured and non-interest bearing.
SPLP transactions
SPLP is owned 70% by us and 30% by a non-related third party. We and the non-related third party make contributions
proportionate to our ownership interest to fund the construction of the Smithers Facility. We manage and administer the business
affairs of SPLP.
The amounts receivable and payable to us are unsecured and non-interest bearing.
PWRHLLC transactions
PWRHLLC is owned 70% by us and 30% by a non-related third party. We and the non-related third party make contributions
proportionate to our ownership interest to fund the capital spending program at the Aliceville Facility through WPILLC. We
manage and administer the business affairs of PWRHLLC.
The amounts receivable and payable to us are unsecured and non-interest bearing.
Controlling entity
Prior to the IPO, we were controlled by the ONCAP Entities who owned approximately 60% of the Company. The ONCAP
Entities are ultimately controlled by Onex Corporation. Our remaining shareholders were former owners or current employees.
Immediately following the closing of the IPO, the ONCAP Entities owned 42.9% of the Company.
Immediately following the closing of the Secondary Offering, the ONCAP Entities owned 31.6% of the Company.
35
Minority shareholder in the Company
During the first quarter of Fiscal 2018 and during Fiscal 2017, we paid market rent for the Williams Lake facility to a
corporation controlled by the controlling shareholder of one of our minority shareholders, Beckman Holdings Inc., resulting from
a lease agreement entered into in the normal course of business on an arm’s-length basis. Upon completion of the IPO, Beckman
Holdings Inc. ceased to be a shareholder of the Company.
During Q4 2018, we sold the assets of our Quesnel facility to the controlling shareholder of one of our minority shareholders,
Swaan Holdings Inc., and a related person of such minority shareholder, at negotiated amounts.
See Note 23 to the Consolidated Financial Statements for additional details on related party transactions.
SHARE CAPITAL
Our authorized share capital consisted of unlimited common participating, voting shares, without par value, and unlimited
preferred participating, non-voting shares, without par value.
Current Share Information
As of February 21, 2019, we had 33,003,713 Common Shares issued and outstanding and no preferred shares issued and
outstanding. As of February 21, 2019, an aggregate of 1,744,491 options to acquire Common Shares and 271,921 restricted share
units representing the right to Common Shares are outstanding.
SUBSEQUENT EVENT
On December 29, 2018, we commenced commercial production at the Smithers Facility. Additional capital costs will be
incurred at a later date.
On January 18, 2019, we reached a settlement on a damage claim we were pursuing against one of our equipment suppliers
for gross proceeds of approximately $7.5 million in our favour. The payment is expected to be received in the first quarter of Fiscal
2019.
On February 11, 2019, Pinnacle temporarily suspended operations at the Entwistle Facility due to a fire and explosion that
occurred at the dryer area of the facility. The Company is currently investigating the cause of the incident and developing action
plans to restart the facility. The rest of the Entwistle Facility sustained little damage. We are working with our customers to mitigate
the impact to the extent possible under the circumstances. OH&S released control of the site back to the Company on February 20,
2019.
On February 21, 2019, we declared a cash dividend of $0.15 per Common Share to shareholders of record as at March 5, 2019,
to be paid on March 14, 2019.
Additional Information
Additional information relating to the Company is available on SEDAR at www.sedar.com.
36
As at and for the years ended
December 28, 2018 and December 29,
2017
Consolidated Financial Statements
RENEWABLE ENERGY INC.
(Formerly Pinnacle Renewable Holdings Inc.)
0
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
KPMG LLP
PO Box 10426 777 Dunsmuir Street
Vancouver BC V7Y 1K3
Canada
Telephone (604) 691-3000
Fax (604) 691-3031
(cid:44)(cid:49)(cid:39)(cid:40)(cid:51)(cid:40)(cid:49)(cid:39)(cid:40)(cid:49)(cid:55)(cid:3)(cid:36)(cid:56)(cid:39)(cid:44)(cid:55)(cid:50)(cid:53)(cid:54)(cid:182)(cid:3)(cid:53)(cid:40)(cid:51)(cid:50)(cid:53)(cid:55)(cid:3)
(cid:3)
(cid:55)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:51)(cid:76)(cid:81)(cid:81)(cid:68)(cid:70)(cid:79)(cid:72)(cid:3)(cid:53)(cid:72)(cid:81)(cid:72)(cid:90)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:40)(cid:81)(cid:72)(cid:85)(cid:74)(cid:92)(cid:3)(cid:44)(cid:81)(cid:70)(cid:17)(cid:3)(cid:11)(cid:73)(cid:82)(cid:85)(cid:80)(cid:72)(cid:85)(cid:79)(cid:92)(cid:3)(cid:51)(cid:76)(cid:81)(cid:81)(cid:68)(cid:70)(cid:79)(cid:72)(cid:3)(cid:53)(cid:72)(cid:81)(cid:72)(cid:90)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:43)(cid:82)(cid:79)(cid:71)(cid:76)(cid:81)(cid:74)(cid:86)(cid:3)(cid:44)(cid:81)(cid:70)(cid:17)(cid:12)(cid:3)(cid:3)
Opinion(cid:3)
(cid:58)(cid:72)(cid:3) (cid:75)(cid:68)(cid:89)(cid:72)(cid:3) (cid:68)(cid:88)(cid:71)(cid:76)(cid:87)(cid:72)(cid:71)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:70)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3) (cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3) (cid:82)(cid:73)(cid:3) (cid:51)(cid:76)(cid:81)(cid:81)(cid:68)(cid:70)(cid:79)(cid:72)(cid:3) (cid:53)(cid:72)(cid:81)(cid:72)(cid:90)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3) (cid:40)(cid:81)(cid:72)(cid:85)(cid:74)(cid:92)(cid:3) (cid:44)(cid:81)(cid:70)(cid:17)(cid:3) (cid:11)(cid:87)(cid:75)(cid:72)(cid:3)
(cid:179)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:180)(cid:12)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:85)(cid:76)(cid:86)(cid:72)(cid:29)(cid:3)
−(cid:3)
−(cid:3)
−(cid:3)
−(cid:3)
−(cid:3)
(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:86)(cid:3)(cid:68)(cid:87)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:21)(cid:27)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:27)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:21)(cid:28)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:26)(cid:30)(cid:3)
(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:83)(cid:85)(cid:82)(cid:73)(cid:76)(cid:87)(cid:3)(cid:11)(cid:79)(cid:82)(cid:86)(cid:86)(cid:12)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:81)(cid:3)(cid:72)(cid:81)(cid:71)(cid:72)(cid:71)(cid:30)(cid:3)
(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:85)(cid:72)(cid:75)(cid:72)(cid:81)(cid:86)(cid:76)(cid:89)(cid:72)(cid:3)(cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3)(cid:11)(cid:79)(cid:82)(cid:86)(cid:86)(cid:12)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:81)(cid:3)(cid:72)(cid:81)(cid:71)(cid:72)(cid:71)(cid:30)(cid:3)
(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:81)(cid:3)(cid:72)(cid:81)(cid:71)(cid:72)(cid:71)(cid:30)(cid:3)
(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:73)(cid:79)(cid:82)(cid:90)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:81)(cid:3)(cid:72)(cid:81)(cid:71)(cid:72)(cid:71)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)
−(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:81)(cid:82)(cid:87)(cid:72)(cid:86)(cid:3) (cid:87)(cid:82)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:70)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3) (cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:15)(cid:3) (cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3) (cid:68)(cid:3) (cid:86)(cid:88)(cid:80)(cid:80)(cid:68)(cid:85)(cid:92)(cid:3) (cid:82)(cid:73)(cid:3) (cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:73)(cid:76)(cid:70)(cid:68)(cid:81)(cid:87)(cid:3) (cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)
(cid:83)(cid:82)(cid:79)(cid:76)(cid:70)(cid:76)(cid:72)(cid:86)(cid:17)(cid:3)
(cid:11)(cid:43)(cid:72)(cid:85)(cid:72)(cid:76)(cid:81)(cid:68)(cid:73)(cid:87)(cid:72)(cid:85)(cid:3)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:68)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:179)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:180)(cid:12)(cid:17)(cid:3)
(cid:44)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:82)(cid:83)(cid:76)(cid:81)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:76)(cid:81)(cid:74)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:83)(cid:85)(cid:72)(cid:86)(cid:72)(cid:81)(cid:87)(cid:3)(cid:73)(cid:68)(cid:76)(cid:85)(cid:79)(cid:92)(cid:15)(cid:3)(cid:76)(cid:81)(cid:3)(cid:68)(cid:79)(cid:79)(cid:3)(cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:72)(cid:70)(cid:87)(cid:86)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)
(cid:70)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3)(cid:68)(cid:86)(cid:3)(cid:68)(cid:87)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:21)(cid:27)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:27)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:72)(cid:81)(cid:71)(cid:3)(cid:82)(cid:73)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:21)(cid:28)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:26)(cid:15)(cid:3)
(cid:68)(cid:81)(cid:71)(cid:3)(cid:76)(cid:87)(cid:86)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:83)(cid:72)(cid:85)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:76)(cid:87)(cid:86)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:73)(cid:79)(cid:82)(cid:90)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:81)(cid:3)(cid:72)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)
(cid:68)(cid:70)(cid:70)(cid:82)(cid:85)(cid:71)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:54)(cid:87)(cid:68)(cid:81)(cid:71)(cid:68)(cid:85)(cid:71)(cid:86)(cid:17)(cid:3)(cid:3)
Basis for Opinion(cid:3)
(cid:58)(cid:72)(cid:3) (cid:70)(cid:82)(cid:81)(cid:71)(cid:88)(cid:70)(cid:87)(cid:72)(cid:71)(cid:3) (cid:82)(cid:88)(cid:85)(cid:3) (cid:68)(cid:88)(cid:71)(cid:76)(cid:87)(cid:3) (cid:76)(cid:81)(cid:3) (cid:68)(cid:70)(cid:70)(cid:82)(cid:85)(cid:71)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3) (cid:90)(cid:76)(cid:87)(cid:75)(cid:3) (cid:38)(cid:68)(cid:81)(cid:68)(cid:71)(cid:76)(cid:68)(cid:81)(cid:3) (cid:74)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3) (cid:68)(cid:70)(cid:70)(cid:72)(cid:83)(cid:87)(cid:72)(cid:71)(cid:3) (cid:68)(cid:88)(cid:71)(cid:76)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3) (cid:86)(cid:87)(cid:68)(cid:81)(cid:71)(cid:68)(cid:85)(cid:71)(cid:86)(cid:17)(cid:3) (cid:50)(cid:88)(cid:85)(cid:3)
(cid:85)(cid:72)(cid:86)(cid:83)(cid:82)(cid:81)(cid:86)(cid:76)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3) (cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3) (cid:87)(cid:75)(cid:82)(cid:86)(cid:72)(cid:3) (cid:86)(cid:87)(cid:68)(cid:81)(cid:71)(cid:68)(cid:85)(cid:71)(cid:86)(cid:3) (cid:68)(cid:85)(cid:72)(cid:3) (cid:73)(cid:88)(cid:85)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3) (cid:71)(cid:72)(cid:86)(cid:70)(cid:85)(cid:76)(cid:69)(cid:72)(cid:71)(cid:3) (cid:76)(cid:81)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3)(cid:179) Auditors’ Responsibilities for the
Audit of the Financial Statements(cid:180)(cid:3)(cid:86)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:68)(cid:88)(cid:71)(cid:76)(cid:87)(cid:82)(cid:85)(cid:86)(cid:182) (cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:17)(cid:3)(cid:3)(cid:3)
(cid:58)(cid:72)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:76)(cid:81)(cid:71)(cid:72)(cid:83)(cid:72)(cid:81)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3)(cid:76)(cid:81)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:85)(cid:71)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:72)(cid:87)(cid:75)(cid:76)(cid:70)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:85)(cid:72)(cid:79)(cid:72)(cid:89)(cid:68)(cid:81)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:82)(cid:85)(cid:3)
(cid:68)(cid:88)(cid:71)(cid:76)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:38)(cid:68)(cid:81)(cid:68)(cid:71)(cid:68)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:90)(cid:72)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:73)(cid:88)(cid:79)(cid:73)(cid:76)(cid:79)(cid:79)(cid:72)(cid:71)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:82)(cid:81)(cid:86)(cid:76)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:85)(cid:71)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)
(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:86)(cid:72)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:17)(cid:3)
(cid:58)(cid:72)(cid:3)(cid:69)(cid:72)(cid:79)(cid:76)(cid:72)(cid:89)(cid:72)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:88)(cid:71)(cid:76)(cid:87)(cid:3)(cid:72)(cid:89)(cid:76)(cid:71)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:90)(cid:72)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:82)(cid:69)(cid:87)(cid:68)(cid:76)(cid:81)(cid:72)(cid:71)(cid:3)(cid:76)(cid:86)(cid:3)(cid:86)(cid:88)(cid:73)(cid:73)(cid:76)(cid:70)(cid:76)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:83)(cid:83)(cid:85)(cid:82)(cid:83)(cid:85)(cid:76)(cid:68)(cid:87)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:3)(cid:68)(cid:3)(cid:69)(cid:68)(cid:86)(cid:76)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)
(cid:82)(cid:83)(cid:76)(cid:81)(cid:76)(cid:82)(cid:81)(cid:17)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)
KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of
independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a
Swiss entity. KPMG Canada provides services to KPMG LLP.
(cid:3)
(cid:3)
(cid:3)
Other Information
(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3) (cid:76)(cid:86)(cid:3) (cid:85)(cid:72)(cid:86)(cid:83)(cid:82)(cid:81)(cid:86)(cid:76)(cid:69)(cid:79)(cid:72)(cid:3) (cid:73)(cid:82)(cid:85)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3) (cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:17)(cid:3) (cid:50)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3) (cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:70)(cid:82)(cid:80)(cid:83)(cid:85)(cid:76)(cid:86)(cid:72)(cid:86)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:76)(cid:81)(cid:3)
(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3)(cid:39)(cid:76)(cid:86)(cid:70)(cid:88)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:36)(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)(cid:76)(cid:86)(cid:3)(cid:73)(cid:76)(cid:79)(cid:72)(cid:71)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:85)(cid:72)(cid:79)(cid:72)(cid:89)(cid:68)(cid:81)(cid:87)(cid:3)(cid:38)(cid:68)(cid:81)(cid:68)(cid:71)(cid:76)(cid:68)(cid:81)(cid:3)(cid:54)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:76)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:86)(cid:17)(cid:3)
(cid:50)(cid:88)(cid:85)(cid:3)(cid:82)(cid:83)(cid:76)(cid:81)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:71)(cid:82)(cid:72)(cid:86)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)(cid:70)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:90)(cid:72)(cid:3)(cid:71)(cid:82)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)
(cid:72)(cid:91)(cid:83)(cid:85)(cid:72)(cid:86)(cid:86)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:73)(cid:82)(cid:85)(cid:80)(cid:3)(cid:82)(cid:73)(cid:3)(cid:68)(cid:86)(cid:86)(cid:88)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:70)(cid:79)(cid:88)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:85)(cid:72)(cid:82)(cid:81)(cid:17)(cid:3)(cid:3)
(cid:44)(cid:81)(cid:3)(cid:70)(cid:82)(cid:81)(cid:81)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:68)(cid:88)(cid:71)(cid:76)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:15)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:82)(cid:81)(cid:86)(cid:76)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:76)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:85)(cid:72)(cid:68)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)
(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:76)(cid:73)(cid:76)(cid:72)(cid:71)(cid:3)(cid:68)(cid:69)(cid:82)(cid:89)(cid:72)(cid:3)(cid:68)(cid:81)(cid:71)(cid:15)(cid:3)(cid:76)(cid:81)(cid:3)(cid:71)(cid:82)(cid:76)(cid:81)(cid:74)(cid:3)(cid:86)(cid:82)(cid:15)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:76)(cid:71)(cid:72)(cid:85)(cid:3)(cid:90)(cid:75)(cid:72)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:76)(cid:86)(cid:3)(cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3)(cid:76)(cid:81)(cid:70)(cid:82)(cid:81)(cid:86)(cid:76)(cid:86)(cid:87)(cid:72)(cid:81)(cid:87)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)
(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3) (cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3) (cid:82)(cid:85)(cid:3) (cid:82)(cid:88)(cid:85)(cid:3) (cid:78)(cid:81)(cid:82)(cid:90)(cid:79)(cid:72)(cid:71)(cid:74)(cid:72)(cid:3) (cid:82)(cid:69)(cid:87)(cid:68)(cid:76)(cid:81)(cid:72)(cid:71)(cid:3) (cid:76)(cid:81)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:68)(cid:88)(cid:71)(cid:76)(cid:87)(cid:15)(cid:3) (cid:82)(cid:85)(cid:3) (cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:90)(cid:76)(cid:86)(cid:72)(cid:3) (cid:68)(cid:83)(cid:83)(cid:72)(cid:68)(cid:85)(cid:86)(cid:3) (cid:87)(cid:82)(cid:3) (cid:69)(cid:72)(cid:3) (cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3)
(cid:80)(cid:76)(cid:86)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:71)(cid:17)(cid:3)(cid:3)(cid:3)
(cid:58)(cid:72)(cid:3) (cid:82)(cid:69)(cid:87)(cid:68)(cid:76)(cid:81)(cid:72)(cid:71)(cid:3) (cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:182)(cid:86)(cid:3) (cid:39)(cid:76)(cid:86)(cid:70)(cid:88)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:36)(cid:81)(cid:68)(cid:79)(cid:92)(cid:86)(cid:76)(cid:86)(cid:3) (cid:73)(cid:76)(cid:79)(cid:72)(cid:71)(cid:3) (cid:90)(cid:76)(cid:87)(cid:75)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:85)(cid:72)(cid:79)(cid:72)(cid:89)(cid:68)(cid:81)(cid:87)(cid:3) (cid:38)(cid:68)(cid:81)(cid:68)(cid:71)(cid:76)(cid:68)(cid:81)(cid:3) (cid:54)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)
(cid:38)(cid:82)(cid:80)(cid:80)(cid:76)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:68)(cid:86)(cid:3)(cid:68)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:71)(cid:68)(cid:87)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:76)(cid:86)(cid:3)(cid:68)(cid:88)(cid:71)(cid:76)(cid:87)(cid:82)(cid:85)(cid:86)(cid:182)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:17)(cid:3)(cid:44)(cid:73)(cid:15)(cid:3)(cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:3)(cid:90)(cid:72)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:83)(cid:72)(cid:85)(cid:73)(cid:82)(cid:85)(cid:80)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:76)(cid:86)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)
(cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:85)(cid:72)(cid:3)(cid:76)(cid:86)(cid:3)(cid:68)(cid:3)(cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:3)(cid:80)(cid:76)(cid:86)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:76)(cid:86)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)
(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:73)(cid:68)(cid:70)(cid:87)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:88)(cid:71)(cid:76)(cid:87)(cid:82)(cid:85)(cid:86)(cid:182)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:17)(cid:3)
(cid:58)(cid:72)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:81)(cid:82)(cid:87)(cid:75)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:82)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:76)(cid:86)(cid:3)(cid:85)(cid:72)(cid:74)(cid:68)(cid:85)(cid:71)(cid:17)(cid:3)
Responsibilities of Management and Those Charged with Governance for the
Financial Statements
(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3) (cid:76)(cid:86)(cid:3) (cid:85)(cid:72)(cid:86)(cid:83)(cid:82)(cid:81)(cid:86)(cid:76)(cid:69)(cid:79)(cid:72)(cid:3) (cid:73)(cid:82)(cid:85)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:83)(cid:85)(cid:72)(cid:83)(cid:68)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:73)(cid:68)(cid:76)(cid:85)(cid:3) (cid:83)(cid:85)(cid:72)(cid:86)(cid:72)(cid:81)(cid:87)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3) (cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3) (cid:76)(cid:81)(cid:3)
(cid:68)(cid:70)(cid:70)(cid:82)(cid:85)(cid:71)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:54)(cid:87)(cid:68)(cid:81)(cid:71)(cid:68)(cid:85)(cid:71)(cid:86)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:86)(cid:88)(cid:70)(cid:75)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:3)(cid:68)(cid:86)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)
(cid:71)(cid:72)(cid:87)(cid:72)(cid:85)(cid:80)(cid:76)(cid:81)(cid:72)(cid:86)(cid:3) (cid:76)(cid:86)(cid:3) (cid:81)(cid:72)(cid:70)(cid:72)(cid:86)(cid:86)(cid:68)(cid:85)(cid:92)(cid:3) (cid:87)(cid:82)(cid:3) (cid:72)(cid:81)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:83)(cid:85)(cid:72)(cid:83)(cid:68)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:82)(cid:73)(cid:3) (cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3) (cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3) (cid:87)(cid:75)(cid:68)(cid:87)(cid:3) (cid:68)(cid:85)(cid:72)(cid:3) (cid:73)(cid:85)(cid:72)(cid:72)(cid:3) (cid:73)(cid:85)(cid:82)(cid:80)(cid:3) (cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:3)
(cid:80)(cid:76)(cid:86)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3)(cid:90)(cid:75)(cid:72)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:71)(cid:88)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:73)(cid:85)(cid:68)(cid:88)(cid:71)(cid:3)(cid:82)(cid:85)(cid:3)(cid:72)(cid:85)(cid:85)(cid:82)(cid:85)(cid:17)(cid:3)
(cid:44)(cid:81)(cid:3)(cid:83)(cid:85)(cid:72)(cid:83)(cid:68)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:15)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:76)(cid:86)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:82)(cid:81)(cid:86)(cid:76)(cid:69)(cid:79)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:86)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:87)(cid:82)(cid:3)
(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:3)(cid:68)(cid:86)(cid:3)(cid:68)(cid:3)(cid:74)(cid:82)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:82)(cid:81)(cid:70)(cid:72)(cid:85)(cid:81)(cid:15)(cid:3)(cid:71)(cid:76)(cid:86)(cid:70)(cid:79)(cid:82)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:86)(cid:3)(cid:68)(cid:83)(cid:83)(cid:79)(cid:76)(cid:70)(cid:68)(cid:69)(cid:79)(cid:72)(cid:15)(cid:3)(cid:80)(cid:68)(cid:87)(cid:87)(cid:72)(cid:85)(cid:86)(cid:3)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:74)(cid:82)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:82)(cid:81)(cid:70)(cid:72)(cid:85)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:88)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:74)(cid:82)(cid:76)(cid:81)(cid:74)(cid:3)
(cid:70)(cid:82)(cid:81)(cid:70)(cid:72)(cid:85)(cid:81)(cid:3) (cid:69)(cid:68)(cid:86)(cid:76)(cid:86)(cid:3) (cid:82)(cid:73)(cid:3) (cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3) (cid:88)(cid:81)(cid:79)(cid:72)(cid:86)(cid:86)(cid:3) (cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3) (cid:72)(cid:76)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3) (cid:76)(cid:81)(cid:87)(cid:72)(cid:81)(cid:71)(cid:86)(cid:3) (cid:87)(cid:82)(cid:3) (cid:79)(cid:76)(cid:84)(cid:88)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3) (cid:82)(cid:85)(cid:3) (cid:87)(cid:82)(cid:3) (cid:70)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)
(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:15)(cid:3)(cid:82)(cid:85)(cid:3)(cid:75)(cid:68)(cid:86)(cid:3)(cid:81)(cid:82)(cid:3)(cid:85)(cid:72)(cid:68)(cid:79)(cid:76)(cid:86)(cid:87)(cid:76)(cid:70)(cid:3)(cid:68)(cid:79)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:69)(cid:88)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:71)(cid:82)(cid:3)(cid:86)(cid:82)(cid:17)(cid:3)
(cid:55)(cid:75)(cid:82)(cid:86)(cid:72)(cid:3)(cid:70)(cid:75)(cid:68)(cid:85)(cid:74)(cid:72)(cid:71)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:74)(cid:82)(cid:89)(cid:72)(cid:85)(cid:81)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:82)(cid:81)(cid:86)(cid:76)(cid:69)(cid:79)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:86)(cid:72)(cid:72)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:83)(cid:85)(cid:82)(cid:70)(cid:72)(cid:86)(cid:86)(cid:17)(cid:3)
Auditors’ Responsibilities for the Audit of the Financial Statements
(cid:50)(cid:88)(cid:85)(cid:3)(cid:82)(cid:69)(cid:77)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:82)(cid:69)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3)(cid:85)(cid:72)(cid:68)(cid:86)(cid:82)(cid:81)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:68)(cid:86)(cid:86)(cid:88)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:68)(cid:69)(cid:82)(cid:88)(cid:87)(cid:3)(cid:90)(cid:75)(cid:72)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:68)(cid:86)(cid:3)(cid:68)(cid:3)(cid:90)(cid:75)(cid:82)(cid:79)(cid:72)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)
(cid:73)(cid:85)(cid:72)(cid:72)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:3)(cid:80)(cid:76)(cid:86)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3)(cid:90)(cid:75)(cid:72)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:71)(cid:88)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:73)(cid:85)(cid:68)(cid:88)(cid:71)(cid:3)(cid:82)(cid:85)(cid:3)(cid:72)(cid:85)(cid:85)(cid:82)(cid:85)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:76)(cid:86)(cid:86)(cid:88)(cid:72)(cid:3)(cid:68)(cid:81)(cid:3)(cid:68)(cid:88)(cid:71)(cid:76)(cid:87)(cid:82)(cid:85)(cid:86)(cid:182) (cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:86)(cid:3)
(cid:82)(cid:88)(cid:85)(cid:3)(cid:82)(cid:83)(cid:76)(cid:81)(cid:76)(cid:82)(cid:81)(cid:17)(cid:3)(cid:3)
(cid:53)(cid:72)(cid:68)(cid:86)(cid:82)(cid:81)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3) (cid:68)(cid:86)(cid:86)(cid:88)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3) (cid:76)(cid:86)(cid:3) (cid:68)(cid:3) (cid:75)(cid:76)(cid:74)(cid:75)(cid:3) (cid:79)(cid:72)(cid:89)(cid:72)(cid:79)(cid:3) (cid:82)(cid:73)(cid:3) (cid:68)(cid:86)(cid:86)(cid:88)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:15)(cid:3) (cid:69)(cid:88)(cid:87)(cid:3) (cid:76)(cid:86)(cid:3) (cid:81)(cid:82)(cid:87)(cid:3) (cid:68)(cid:3) (cid:74)(cid:88)(cid:68)(cid:85)(cid:68)(cid:81)(cid:87)(cid:72)(cid:72)(cid:3) (cid:87)(cid:75)(cid:68)(cid:87)(cid:3) (cid:68)(cid:81)(cid:3) (cid:68)(cid:88)(cid:71)(cid:76)(cid:87)(cid:3) (cid:70)(cid:82)(cid:81)(cid:71)(cid:88)(cid:70)(cid:87)(cid:72)(cid:71)(cid:3) (cid:76)(cid:81)(cid:3)
(cid:68)(cid:70)(cid:70)(cid:82)(cid:85)(cid:71)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3) (cid:90)(cid:76)(cid:87)(cid:75)(cid:3) (cid:38)(cid:68)(cid:81)(cid:68)(cid:71)(cid:76)(cid:68)(cid:81)(cid:3) (cid:74)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3) (cid:68)(cid:70)(cid:70)(cid:72)(cid:83)(cid:87)(cid:72)(cid:71)(cid:3) (cid:68)(cid:88)(cid:71)(cid:76)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3) (cid:86)(cid:87)(cid:68)(cid:81)(cid:71)(cid:68)(cid:85)(cid:71)(cid:86)(cid:3) (cid:90)(cid:76)(cid:79)(cid:79)(cid:3) (cid:68)(cid:79)(cid:90)(cid:68)(cid:92)(cid:86)(cid:3) (cid:71)(cid:72)(cid:87)(cid:72)(cid:70)(cid:87)(cid:3) (cid:68)(cid:3) (cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:3)
(cid:80)(cid:76)(cid:86)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:90)(cid:75)(cid:72)(cid:81)(cid:3)(cid:76)(cid:87)(cid:3)(cid:72)(cid:91)(cid:76)(cid:86)(cid:87)(cid:86)(cid:17)(cid:3)(cid:3)
(cid:48)(cid:76)(cid:86)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:70)(cid:68)(cid:81)(cid:3)(cid:68)(cid:85)(cid:76)(cid:86)(cid:72)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:73)(cid:85)(cid:68)(cid:88)(cid:71)(cid:3)(cid:82)(cid:85)(cid:3)(cid:72)(cid:85)(cid:85)(cid:82)(cid:85)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:76)(cid:71)(cid:72)(cid:85)(cid:72)(cid:71)(cid:3)(cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:3)(cid:76)(cid:73)(cid:15)(cid:3)(cid:76)(cid:81)(cid:71)(cid:76)(cid:89)(cid:76)(cid:71)(cid:88)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3)(cid:82)(cid:85)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:74)(cid:74)(cid:85)(cid:72)(cid:74)(cid:68)(cid:87)(cid:72)(cid:15)(cid:3)
(cid:87)(cid:75)(cid:72)(cid:92)(cid:3)(cid:70)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:85)(cid:72)(cid:68)(cid:86)(cid:82)(cid:81)(cid:68)(cid:69)(cid:79)(cid:92)(cid:3)(cid:69)(cid:72)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:70)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:76)(cid:81)(cid:73)(cid:79)(cid:88)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:72)(cid:70)(cid:82)(cid:81)(cid:82)(cid:80)(cid:76)(cid:70)(cid:3)(cid:71)(cid:72)(cid:70)(cid:76)(cid:86)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:88)(cid:86)(cid:72)(cid:85)(cid:86)(cid:3)(cid:87)(cid:68)(cid:78)(cid:72)(cid:81)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:69)(cid:68)(cid:86)(cid:76)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)
(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:17)(cid:3)
(cid:36)(cid:86)(cid:3) (cid:83)(cid:68)(cid:85)(cid:87)(cid:3) (cid:82)(cid:73)(cid:3) (cid:68)(cid:81) (cid:68)(cid:88)(cid:71)(cid:76)(cid:87)(cid:3) (cid:76)(cid:81)(cid:3) (cid:68)(cid:70)(cid:70)(cid:82)(cid:85)(cid:71)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3) (cid:90)(cid:76)(cid:87)(cid:75)(cid:3) (cid:38)(cid:68)(cid:81)(cid:68)(cid:71)(cid:76)(cid:68)(cid:81)(cid:3) (cid:74)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3) (cid:68)(cid:70)(cid:70)(cid:72)(cid:83)(cid:87)(cid:72)(cid:71)(cid:3) (cid:68)(cid:88)(cid:71)(cid:76)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3) (cid:86)(cid:87)(cid:68)(cid:81)(cid:71)(cid:68)(cid:85)(cid:71)(cid:86)(cid:15)(cid:3) (cid:90)(cid:72)(cid:3) (cid:72)(cid:91)(cid:72)(cid:85)(cid:70)(cid:76)(cid:86)(cid:72)(cid:3)
(cid:83)(cid:85)(cid:82)(cid:73)(cid:72)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:77)(cid:88)(cid:71)(cid:74)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:80)(cid:68)(cid:76)(cid:81)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3)(cid:83)(cid:85)(cid:82)(cid:73)(cid:72)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:86)(cid:78)(cid:72)(cid:83)(cid:87)(cid:76)(cid:70)(cid:76)(cid:86)(cid:80)(cid:3)(cid:87)(cid:75)(cid:85)(cid:82)(cid:88)(cid:74)(cid:75)(cid:82)(cid:88)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:88)(cid:71)(cid:76)(cid:87)(cid:17)(cid:3)(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:58)(cid:72)(cid:3)(cid:68)(cid:79)(cid:86)(cid:82)(cid:29)(cid:3)
−(cid:3)
(cid:44)(cid:71)(cid:72)(cid:81)(cid:87)(cid:76)(cid:73)(cid:92)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:86)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:85)(cid:76)(cid:86)(cid:78)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:3)(cid:80)(cid:76)(cid:86)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:15)(cid:3)(cid:90)(cid:75)(cid:72)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:71)(cid:88)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:73)(cid:85)(cid:68)(cid:88)(cid:71)(cid:3)
(cid:82)(cid:85)(cid:3)(cid:72)(cid:85)(cid:85)(cid:82)(cid:85)(cid:15)(cid:3)(cid:71)(cid:72)(cid:86)(cid:76)(cid:74)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:83)(cid:72)(cid:85)(cid:73)(cid:82)(cid:85)(cid:80)(cid:3)(cid:68)(cid:88)(cid:71)(cid:76)(cid:87)(cid:3)(cid:83)(cid:85)(cid:82)(cid:70)(cid:72)(cid:71)(cid:88)(cid:85)(cid:72)(cid:86)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:82)(cid:81)(cid:86)(cid:76)(cid:89)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:82)(cid:86)(cid:72)(cid:3)(cid:85)(cid:76)(cid:86)(cid:78)(cid:86)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:69)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3)(cid:68)(cid:88)(cid:71)(cid:76)(cid:87)(cid:3)(cid:72)(cid:89)(cid:76)(cid:71)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)
(cid:76)(cid:86)(cid:3)(cid:86)(cid:88)(cid:73)(cid:73)(cid:76)(cid:70)(cid:76)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:83)(cid:83)(cid:85)(cid:82)(cid:83)(cid:85)(cid:76)(cid:68)(cid:87)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:3)(cid:68)(cid:3)(cid:69)(cid:68)(cid:86)(cid:76)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:82)(cid:83)(cid:76)(cid:81)(cid:76)(cid:82)(cid:81)(cid:17)(cid:3)(cid:3)
(cid:55)(cid:75)(cid:72)(cid:3)(cid:85)(cid:76)(cid:86)(cid:78)(cid:3)(cid:82)(cid:73)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)(cid:71)(cid:72)(cid:87)(cid:72)(cid:70)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:3)(cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:3)(cid:80)(cid:76)(cid:86)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:73)(cid:85)(cid:68)(cid:88)(cid:71)(cid:3)(cid:76)(cid:86)(cid:3)(cid:75)(cid:76)(cid:74)(cid:75)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:68)(cid:81)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:82)(cid:81)(cid:72)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)
(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:72)(cid:85)(cid:85)(cid:82)(cid:85)(cid:15)(cid:3)(cid:68)(cid:86)(cid:3)(cid:73)(cid:85)(cid:68)(cid:88)(cid:71)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:76)(cid:81)(cid:89)(cid:82)(cid:79)(cid:89)(cid:72)(cid:3)(cid:70)(cid:82)(cid:79)(cid:79)(cid:88)(cid:86)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:73)(cid:82)(cid:85)(cid:74)(cid:72)(cid:85)(cid:92)(cid:15)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:81)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:82)(cid:80)(cid:76)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:86)(cid:15)(cid:3)(cid:80)(cid:76)(cid:86)(cid:85)(cid:72)(cid:83)(cid:85)(cid:72)(cid:86)(cid:72)(cid:81)(cid:87)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:15)(cid:3)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)
(cid:82)(cid:89)(cid:72)(cid:85)(cid:85)(cid:76)(cid:71)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:17)(cid:3)
−(cid:3) (cid:50)(cid:69)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3)(cid:68)(cid:81)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:86)(cid:87)(cid:68)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:73)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:3)(cid:85)(cid:72)(cid:79)(cid:72)(cid:89)(cid:68)(cid:81)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:88)(cid:71)(cid:76)(cid:87)(cid:3)(cid:76)(cid:81)(cid:3)(cid:82)(cid:85)(cid:71)(cid:72)(cid:85)(cid:3)(cid:87)(cid:82)(cid:3)(cid:71)(cid:72)(cid:86)(cid:76)(cid:74)(cid:81)(cid:3)(cid:68)(cid:88)(cid:71)(cid:76)(cid:87)(cid:3)(cid:83)(cid:85)(cid:82)(cid:70)(cid:72)(cid:71)(cid:88)(cid:85)(cid:72)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)
(cid:68)(cid:85)(cid:72)(cid:3) (cid:68)(cid:83)(cid:83)(cid:85)(cid:82)(cid:83)(cid:85)(cid:76)(cid:68)(cid:87)(cid:72)(cid:3) (cid:76)(cid:81)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:70)(cid:76)(cid:85)(cid:70)(cid:88)(cid:80)(cid:86)(cid:87)(cid:68)(cid:81)(cid:70)(cid:72)(cid:86)(cid:15)(cid:3) (cid:69)(cid:88)(cid:87)(cid:3) (cid:81)(cid:82)(cid:87)(cid:3) (cid:73)(cid:82)(cid:85)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:83)(cid:88)(cid:85)(cid:83)(cid:82)(cid:86)(cid:72)(cid:3) (cid:82)(cid:73)(cid:3) (cid:72)(cid:91)(cid:83)(cid:85)(cid:72)(cid:86)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3) (cid:68)(cid:81)(cid:3) (cid:82)(cid:83)(cid:76)(cid:81)(cid:76)(cid:82)(cid:81)(cid:3) (cid:82)(cid:81)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3)
(cid:72)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:10)(cid:86)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:17)(cid:3)(cid:3)
−(cid:3) (cid:40)(cid:89)(cid:68)(cid:79)(cid:88)(cid:68)(cid:87)(cid:72)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:68)(cid:83)(cid:83)(cid:85)(cid:82)(cid:83)(cid:85)(cid:76)(cid:68)(cid:87)(cid:72)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3) (cid:82)(cid:73)(cid:3) (cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3) (cid:83)(cid:82)(cid:79)(cid:76)(cid:70)(cid:76)(cid:72)(cid:86)(cid:3) (cid:88)(cid:86)(cid:72)(cid:71)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:85)(cid:72)(cid:68)(cid:86)(cid:82)(cid:81)(cid:68)(cid:69)(cid:79)(cid:72)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3) (cid:82)(cid:73)(cid:3) (cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)
(cid:72)(cid:86)(cid:87)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:71)(cid:76)(cid:86)(cid:70)(cid:79)(cid:82)(cid:86)(cid:88)(cid:85)(cid:72)(cid:86)(cid:3)(cid:80)(cid:68)(cid:71)(cid:72)(cid:3)(cid:69)(cid:92)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:17)(cid:3)
−(cid:3) (cid:38)(cid:82)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:83)(cid:83)(cid:85)(cid:82)(cid:83)(cid:85)(cid:76)(cid:68)(cid:87)(cid:72)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:10)(cid:86)(cid:3)(cid:88)(cid:86)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:74)(cid:82)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:82)(cid:81)(cid:70)(cid:72)(cid:85)(cid:81)(cid:3)(cid:69)(cid:68)(cid:86)(cid:76)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:81)(cid:71)(cid:15)(cid:3)
(cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3) (cid:82)(cid:81)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:68)(cid:88)(cid:71)(cid:76)(cid:87)(cid:3) (cid:72)(cid:89)(cid:76)(cid:71)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3) (cid:82)(cid:69)(cid:87)(cid:68)(cid:76)(cid:81)(cid:72)(cid:71)(cid:15)(cid:3) (cid:90)(cid:75)(cid:72)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3) (cid:68)(cid:3) (cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:3) (cid:88)(cid:81)(cid:70)(cid:72)(cid:85)(cid:87)(cid:68)(cid:76)(cid:81)(cid:87)(cid:92)(cid:3) (cid:72)(cid:91)(cid:76)(cid:86)(cid:87)(cid:86)(cid:3) (cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3) (cid:87)(cid:82)(cid:3) (cid:72)(cid:89)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3) (cid:82)(cid:85)(cid:3)
(cid:70)(cid:82)(cid:81)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:70)(cid:68)(cid:86)(cid:87)(cid:3)(cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:73)(cid:76)(cid:70)(cid:68)(cid:81)(cid:87)(cid:3)(cid:71)(cid:82)(cid:88)(cid:69)(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:10)(cid:86)(cid:3)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:87)(cid:82)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:3)(cid:68)(cid:86)(cid:3)(cid:68)(cid:3)(cid:74)(cid:82)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:82)(cid:81)(cid:70)(cid:72)(cid:85)(cid:81)(cid:17)(cid:3)(cid:44)(cid:73)(cid:3)
(cid:90)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:68)(cid:3)(cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:3)(cid:88)(cid:81)(cid:70)(cid:72)(cid:85)(cid:87)(cid:68)(cid:76)(cid:81)(cid:87)(cid:92)(cid:3)(cid:72)(cid:91)(cid:76)(cid:86)(cid:87)(cid:86)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:71)(cid:85)(cid:68)(cid:90)(cid:3)(cid:68)(cid:87)(cid:87)(cid:72)(cid:81)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:76)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:68)(cid:88)(cid:71)(cid:76)(cid:87)(cid:82)(cid:85)(cid:86)(cid:182) (cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)
(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:71)(cid:76)(cid:86)(cid:70)(cid:79)(cid:82)(cid:86)(cid:88)(cid:85)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:82)(cid:85)(cid:15)(cid:3)(cid:76)(cid:73)(cid:3)(cid:86)(cid:88)(cid:70)(cid:75)(cid:3)(cid:71)(cid:76)(cid:86)(cid:70)(cid:79)(cid:82)(cid:86)(cid:88)(cid:85)(cid:72)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:76)(cid:81)(cid:68)(cid:71)(cid:72)(cid:84)(cid:88)(cid:68)(cid:87)(cid:72)(cid:15)(cid:3)(cid:87)(cid:82)(cid:3)(cid:80)(cid:82)(cid:71)(cid:76)(cid:73)(cid:92)(cid:3)
(cid:82)(cid:88)(cid:85)(cid:3)(cid:82)(cid:83)(cid:76)(cid:81)(cid:76)(cid:82)(cid:81)(cid:17)(cid:3)(cid:50)(cid:88)(cid:85)(cid:3)(cid:70)(cid:82)(cid:81)(cid:70)(cid:79)(cid:88)(cid:86)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:88)(cid:71)(cid:76)(cid:87)(cid:3)(cid:72)(cid:89)(cid:76)(cid:71)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:82)(cid:69)(cid:87)(cid:68)(cid:76)(cid:81)(cid:72)(cid:71)(cid:3)(cid:88)(cid:83)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:71)(cid:68)(cid:87)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:68)(cid:88)(cid:71)(cid:76)(cid:87)(cid:82)(cid:85)(cid:86)(cid:182)
(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:17)(cid:3)(cid:43)(cid:82)(cid:90)(cid:72)(cid:89)(cid:72)(cid:85)(cid:15)(cid:3)(cid:73)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3)(cid:72)(cid:89)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:82)(cid:85)(cid:3)(cid:70)(cid:82)(cid:81)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:70)(cid:68)(cid:88)(cid:86)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3)(cid:87)(cid:82)(cid:3)(cid:70)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:3)(cid:68)(cid:86)(cid:3)(cid:68)(cid:3)(cid:74)(cid:82)(cid:76)(cid:81)(cid:74)(cid:3)
(cid:70)(cid:82)(cid:81)(cid:70)(cid:72)(cid:85)(cid:81)(cid:17)(cid:3)
−(cid:3) (cid:40)(cid:89)(cid:68)(cid:79)(cid:88)(cid:68)(cid:87)(cid:72)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:82)(cid:89)(cid:72)(cid:85)(cid:68)(cid:79)(cid:79)(cid:3) (cid:83)(cid:85)(cid:72)(cid:86)(cid:72)(cid:81)(cid:87)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3) (cid:86)(cid:87)(cid:85)(cid:88)(cid:70)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:70)(cid:82)(cid:81)(cid:87)(cid:72)(cid:81)(cid:87)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3) (cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:15)(cid:3) (cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3)
(cid:71)(cid:76)(cid:86)(cid:70)(cid:79)(cid:82)(cid:86)(cid:88)(cid:85)(cid:72)(cid:86)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:90)(cid:75)(cid:72)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:85)(cid:72)(cid:83)(cid:85)(cid:72)(cid:86)(cid:72)(cid:81)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:79)(cid:92)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:85)(cid:68)(cid:81)(cid:86)(cid:68)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:72)(cid:89)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)
(cid:68)(cid:3)(cid:80)(cid:68)(cid:81)(cid:81)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:68)(cid:70)(cid:75)(cid:76)(cid:72)(cid:89)(cid:72)(cid:86)(cid:3)(cid:73)(cid:68)(cid:76)(cid:85)(cid:3)(cid:83)(cid:85)(cid:72)(cid:86)(cid:72)(cid:81)(cid:87)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:17)(cid:3)
−(cid:3) (cid:38)(cid:82)(cid:80)(cid:80)(cid:88)(cid:81)(cid:76)(cid:70)(cid:68)(cid:87)(cid:72)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:82)(cid:86)(cid:72)(cid:3)(cid:70)(cid:75)(cid:68)(cid:85)(cid:74)(cid:72)(cid:71)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:74)(cid:82)(cid:89)(cid:72)(cid:85)(cid:81)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:85)(cid:72)(cid:74)(cid:68)(cid:85)(cid:71)(cid:76)(cid:81)(cid:74)(cid:15)(cid:3)(cid:68)(cid:80)(cid:82)(cid:81)(cid:74)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:80)(cid:68)(cid:87)(cid:87)(cid:72)(cid:85)(cid:86)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:79)(cid:68)(cid:81)(cid:81)(cid:72)(cid:71)(cid:3)(cid:86)(cid:70)(cid:82)(cid:83)(cid:72)(cid:3)
(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:76)(cid:80)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:88)(cid:71)(cid:76)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:73)(cid:76)(cid:70)(cid:68)(cid:81)(cid:87)(cid:3)(cid:68)(cid:88)(cid:71)(cid:76)(cid:87)(cid:3)(cid:73)(cid:76)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:86)(cid:15)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:73)(cid:76)(cid:70)(cid:68)(cid:81)(cid:87)(cid:3)(cid:71)(cid:72)(cid:73)(cid:76)(cid:70)(cid:76)(cid:72)(cid:81)(cid:70)(cid:76)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:3)
(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:90)(cid:72)(cid:3)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:76)(cid:73)(cid:92)(cid:3)(cid:71)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:88)(cid:85) (cid:68)(cid:88)(cid:71)(cid:76)(cid:87)(cid:17)(cid:3)(cid:3)
−(cid:3) (cid:51)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:3)(cid:87)(cid:75)(cid:82)(cid:86)(cid:72)(cid:3)(cid:70)(cid:75)(cid:68)(cid:85)(cid:74)(cid:72)(cid:71)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:74)(cid:82)(cid:89)(cid:72)(cid:85)(cid:81)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:68)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:90)(cid:72)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:79)(cid:76)(cid:72)(cid:71)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:85)(cid:72)(cid:79)(cid:72)(cid:89)(cid:68)(cid:81)(cid:87)(cid:3)(cid:72)(cid:87)(cid:75)(cid:76)(cid:70)(cid:68)(cid:79)(cid:3)
(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:85)(cid:72)(cid:74)(cid:68)(cid:85)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:76)(cid:81)(cid:71)(cid:72)(cid:83)(cid:72)(cid:81)(cid:71)(cid:72)(cid:81)(cid:70)(cid:72)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:88)(cid:81)(cid:76)(cid:70)(cid:68)(cid:87)(cid:72)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:80)(cid:3)(cid:68)(cid:79)(cid:79)(cid:3)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:75)(cid:76)(cid:83)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:80)(cid:68)(cid:87)(cid:87)(cid:72)(cid:85)(cid:86)(cid:3)
(cid:87)(cid:75)(cid:68)(cid:87)(cid:3) (cid:80)(cid:68)(cid:92)(cid:3) (cid:85)(cid:72)(cid:68)(cid:86)(cid:82)(cid:81)(cid:68)(cid:69)(cid:79)(cid:92)(cid:3) (cid:69)(cid:72)(cid:3) (cid:87)(cid:75)(cid:82)(cid:88)(cid:74)(cid:75)(cid:87)(cid:3) (cid:87)(cid:82)(cid:3) (cid:69)(cid:72)(cid:68)(cid:85)(cid:3) (cid:82)(cid:81)(cid:3) (cid:82)(cid:88)(cid:85)(cid:3) (cid:76)(cid:81)(cid:71)(cid:72)(cid:83)(cid:72)(cid:81)(cid:71)(cid:72)(cid:81)(cid:70)(cid:72)(cid:15)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:90)(cid:75)(cid:72)(cid:85)(cid:72)(cid:3) (cid:68)(cid:83)(cid:83)(cid:79)(cid:76)(cid:70)(cid:68)(cid:69)(cid:79)(cid:72)(cid:15)(cid:3) (cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)
(cid:86)(cid:68)(cid:73)(cid:72)(cid:74)(cid:88)(cid:68)(cid:85)(cid:71)(cid:86)(cid:17)(cid:3)
−(cid:3) (cid:50)(cid:69)(cid:87)(cid:68)(cid:76)(cid:81)(cid:3) (cid:86)(cid:88)(cid:73)(cid:73)(cid:76)(cid:70)(cid:76)(cid:72)(cid:81)(cid:87)(cid:3) (cid:68)(cid:83)(cid:83)(cid:85)(cid:82)(cid:83)(cid:85)(cid:76)(cid:68)(cid:87)(cid:72)(cid:3) (cid:68)(cid:88)(cid:71)(cid:76)(cid:87)(cid:3) (cid:72)(cid:89)(cid:76)(cid:71)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3) (cid:85)(cid:72)(cid:74)(cid:68)(cid:85)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3) (cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:72)(cid:81)(cid:87)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3) (cid:82)(cid:85)(cid:3)
(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:68)(cid:70)(cid:87)(cid:76)(cid:89)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:74)(cid:85)(cid:82)(cid:88)(cid:83)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3)(cid:87)(cid:82)(cid:3)(cid:72)(cid:91)(cid:83)(cid:85)(cid:72)(cid:86)(cid:86)(cid:3)(cid:68)(cid:81)(cid:3)(cid:82)(cid:83)(cid:76)(cid:81)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:17)(cid:3)(cid:58)(cid:72)(cid:3)
(cid:68)(cid:85)(cid:72)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:82)(cid:81)(cid:86)(cid:76)(cid:69)(cid:79)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:71)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:86)(cid:88)(cid:83)(cid:72)(cid:85)(cid:89)(cid:76)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:83)(cid:72)(cid:85)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:74)(cid:85)(cid:82)(cid:88)(cid:83)(cid:3)(cid:68)(cid:88)(cid:71)(cid:76)(cid:87)(cid:17)(cid:3)(cid:58)(cid:72)(cid:3)(cid:85)(cid:72)(cid:80)(cid:68)(cid:76)(cid:81)(cid:3)(cid:86)(cid:82)(cid:79)(cid:72)(cid:79)(cid:92)(cid:3)
(cid:85)(cid:72)(cid:86)(cid:83)(cid:82)(cid:81)(cid:86)(cid:76)(cid:69)(cid:79)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:68)(cid:88)(cid:71)(cid:76)(cid:87)(cid:3)(cid:82)(cid:83)(cid:76)(cid:81)(cid:76)(cid:82)(cid:81)(cid:17)(cid:3)
(cid:3)
(cid:3)
(cid:38)(cid:75)(cid:68)(cid:85)(cid:87)(cid:72)(cid:85)(cid:72)(cid:71)(cid:3)(cid:51)(cid:85)(cid:82)(cid:73)(cid:72)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:36)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:68)(cid:81)(cid:87)(cid:86)(cid:3)
(cid:3)
(cid:55)(cid:75)(cid:72)(cid:3)(cid:72)(cid:81)(cid:74)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:81)(cid:72)(cid:85)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:88)(cid:71)(cid:76)(cid:87)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:76)(cid:86)(cid:3)(cid:68)(cid:88)(cid:71)(cid:76)(cid:87)(cid:82)(cid:85)(cid:86)(cid:182)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:76)(cid:86)(cid:3)(cid:45)(cid:82)(cid:75)(cid:81)(cid:3)(cid:39)(cid:72)(cid:86)(cid:77)(cid:68)(cid:85)(cid:71)(cid:76)(cid:81)(cid:86)(cid:17)(cid:3)
(cid:57)(cid:68)(cid:81)(cid:70)(cid:82)(cid:88)(cid:89)(cid:72)(cid:85)(cid:15)(cid:3)(cid:38)(cid:68)(cid:81)(cid:68)(cid:71)(cid:68)(cid:3)
(cid:41)(cid:72)(cid:69)(cid:85)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3)(cid:21)(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:28)(cid:3)
(cid:3)
(cid:3)
PINNACLE RENEWABLE ENERGY INC. (Formerly Pinnacle Renewable Holdings Inc.)
Consolidated Statements of Financial Position
(Expressed in thousands of Canadian dollars unless otherwise stated)
As at
Assets
Current assets
Cash and cash equivalents
Accounts receivable
Inventory
Other current assets
Property, plant and equipment
Investment in Houston Pellet Limited Partnership
Receivable against NMTC debt
Other long-term assets
Deferred income taxes
Goodwill and intangible assets
Total assets
Liabilities and Shareholders’ Equity
Current liabilities
Revolver loan
Accounts payable and accrued liabilities
Current portion of long-term debt
Current portion of NMTC debt
Other current liabilities
Long-term debt
NMTC debt
Shareholders’ debentures payable
Common and preferred shares classified as liabilities
Other long-term liabilities
Deferred income taxes
Shareholders’ Equity
Common shares
Preferred shares
Contributed surplus
Equity component of convertible debentures
Accumulated Other Comprehensive Income
Deficit
Total equity attributable to owners of the Company
Non-controlling interest
Total equity
Total liabilities and shareholders’ equity
Contingencies (note 28)
Subsequent events (note 31)
See accompanying notes to the consolidated financial statements
APPROVED BY THE BOARD
s/Gregory Baylin
Director, Gregory Baylin
s/Hugh MacDiarmid
Director, Hugh MacDiarmid
Note
December 28, 2018
December 29, 2017
4
5
6
7
10
19
8
9
9
10
9
10
11
12
13
19
14
15
$
$
$
$
18,028
43,017
24,531
5,846
91,422
330,899
9,374
84,877
2,500
149
108,073
627,294
18,450
43,537
9,500
1,515
3,642
76,644
232,425
84,877
-
-
4,335
-
398,281
273,966
-
3,556
-
-
(86,437)
191,085
37,928
229,013
627,294
$
$
$
$
18,908
41,253
17,709
3,392
81,262
238,196
8,916
-
51
-
105,220
433,645
22,000
35,653
6,000
-
15,977
79,630
190,813
-
88,881
25,992
3,457
9,668
398,441
29,500
28,005
4,332
35,213
-
(75,419)
21,631
13,573
35,204
433,645
1
PINNACLE RENEWABLE ENERGY INC. (Formerly Pinnacle Renewable Holdings Inc.)
Consolidated Statements of Profit (Loss)
(Expressed in thousands of Canadian dollars unless otherwise stated)
Note
December 28, 2018
December 29, 2017
29
$
347,440
$
292,727
Fiscal year ended
Revenue
Costs and expenses
Production
Distribution
Selling, general and administration
Amortization of equipment and intangible assets
Profit before undernoted items
Equity earnings in Houston Pellet Limited Partnership
(Gain) loss on disposal of property, plant and equipment
(Gain) loss on class B&D common shares
Loss on conversion of debentures into shares
Finance costs excluding shareholder debentures
Finance costs on shareholder debentures
Other income
Plant impairment loss and curtailment costs
Net profit (loss) before income taxes
Income tax (recovery) expense
Deferred
Net profit (loss)
Net profit (loss) attributable to:
Owners of the Company
Non-controlling interests
Net profit (loss) per share attributable to owners (Basic and diluted):
20
Weighted average of number of shares outstanding (thousands):
See accompanying notes to the consolidated financial statements
7
12
11
18
18
19
15
233,107
46,899
22,789
24,678
327,473
19,967
(1,058)
(382)
(3,563)
21,881
3,042
-
(1,474)
234
18,680
1,287
(1,415)
(1,415)
2,702
1,850
852
2,702
0.05
32,974
$
$
$
$
$
$
$
$
188,414
38,421
15,268
21,819
263,922
28,805
(1,381)
1,049
5,601
-
11,892
12,359
(983)
4,626
33,163
(4,358)
526
526
(4,884)
(5,237)
353
(4,884)
(0.22)
29,318
2
PINNACLE RENEWABLE ENERGY INC. (Formerly Pinnacle Renewable Holdings Inc.)
Consolidated Statements of Comprehensive Income (Loss)
(Expressed in thousands of Canadian dollars unless otherwise stated)
Fiscal year ended
Net profit (loss)
Note
December 28, 2018
$
2,702
December 29, 2017
(4,884)
$
Other comprehensive income (loss) net of taxes:
Items that may be recycled through net income:
Foreign exchange translation of foreign operations, net of tax
9
Comprehensive income (loss) for the year
Comprehensive income (loss) attributable to:
Owners of the Company
Non-controlling interests
$
$
$
-
2,702
1,850
852
2,702
$
$
$
-
(4,884)
(5,237)
353
(4,884)
3
PINNACLE RENEWABLE ENERGY INC. (Formerly Pinnacle Renewable Holdings Inc.)
Consolidated Statements of Changes in Equity
(Expressed in thousands of Canadian dollars unless otherwise stated)
Balance, December 30, 2016
Net profit (loss) and comprehensive income (loss) for the year
Stock-based compensation (note 17)
Distribution to non-controlling interest
Investment by non-controlling interest
Balance, December 29, 2017
Balance, December 29, 2017
Net profit (loss) for the year
Share exchange at Initial Public Offering
Exchange of liability-classified shares at Initial Public Offering
Stock options exercised and exchanged at Initial Public Offering
Conversion of debentures at Initial Public Offering
Share issuance at Initial Public Offering
Share issuance costs
Stock options exercised during the year
Stock-based compensation (note 17)
Dividends declared during the year
Foreign exchange translation of foreign operations, net of tax
Distribution to non-controlling interests
Investment by non-controlling interests
Balance, December 28, 2018
Common
Shares
$
$
$
-
-
-
-
-
-
-
$
$
$
57,505
22,448
1,597
125,269
70,019
(3,987)
1,115
-
-
-
-
-
$
273,966
$
$
$
$
Class A
& B
Common
Shares
29,500
-
-
-
-
29,500
29,500
-
(29,500)
-
-
-
-
-
-
-
-
-
-
-
-
$
Class E, F
& G
Preferred
Shares
28,005
-
-
-
-
28,005
28,005
-
(28,005)
-
-
-
-
-
-
-
-
-
-
-
-
$
$
$
$
$
$
Contributed
Surplus
4,095
-
237
-
-
4,332
4,332
-
-
-
(1,597)
-
-
-
(464)
1,285
-
-
-
-
$
3,556
$
See accompanying notes to the consolidated financial statements
Convertible
Debentures
- Equity
Component
35,213
-
-
-
-
35,213
$
$
Deficit
(70,182)
(5,237)
-
-
-
$
(75,419)
$
Non-
controlling
Interest
11,320
353
-
(500)
2,400
13,573
$
Accumulated
Other
Comprehensive
Income
-
-
-
-
-
-
$
35,213
-
-
-
-
(35,213)
-
-
-
-
-
-
-
-
-
$
(75,419)
1,850
$
13,573
852
$
-
-
-
-
-
-
-
-
(12,868)
-
-
-
$
(86,437)
$
-
-
-
-
-
-
-
-
-
-
(1,075)
24,578
37,928
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
$
$
Total
Equity
37,951
(4,884)
237
(500)
2,400
35,204
35,204
2,702
-
22,448
-
90,056
70,019
(3,987)
651
1,285
(12,868)
-
(1,075)
24,578
$
229,013
4
PINNACLE RENEWABLE ENERGY INC. (Formerly Pinnacle Renewable Holdings Inc.)
Consolidated Statements of Cash Flows
(Expressed in thousands of Canadian dollars unless otherwise stated)
Fiscal year ended
Cash provided by (used in)
Operating activities
Net profit (loss)
Financing costs, net
Items not involving cash:
Loss on conversion of debentures into shares
Amortization of property, plant and equipment
Amortization of intangible assets
Equity earnings in Houston Pellet Limited Partnership
(Gain) loss on disposal of equipment
Stock-based compensation
Inventory write (up) down
Impairment loss on Quesnel Facility
(Gain) loss on Class B and D common shares
Deferred income tax (recovery) expense
Realized (gain) loss on derivatives
Distributions from Houston Pellet Limited Partnership
Net change in non-cash operating working capital
Financing activities
Drawings on revolver loan
Repayment of revolver loan
Payment of finance leases
Drawings on term debt
Repayment of term debt
Drawings on delayed draw loan
Repayment of delayed draw loan
Issuance of Class D common shares
Repayment of $15M debentures
Share issuance costs
Proceeds from Initial Public Offering
Proceeds from exercise of stock options
Dividends paid during the year
Investment from non-controlling interest
Distributions to non-controlling interest
Finance costs paid
Investing activities
Purchase of intangible assets
Acquisition of the Aliceville Facility
Purchase of property, plant and equipment
Proceeds from sale of property, plant and equipment
Foreign exchange gain (loss) on cash position held in foreign currency
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Note
December 28, 2018
December 29, 2017
$
18
11
6
8
7
17
12
19
21
9
9
9
9
9
9
11
14
14
15
15
22
21
$
2,702
3,042
21,881
21,717
2,961
(1,058)
(382)
4,266
(319)
-
(3,563)
(1,399)
308
600
50,756
7,017
57,773
24,450
(28,000)
(707)
20,000
(6,000)
50,491
(20,000)
-
(28,577)
(5,435)
70,019
651
(12,868)
5,863
(1,075)
(8,882)
59,930
-
(47,569)
(73,131)
1,903
(118,797)
214
(880)
18,908
(4,884)
24,251
-
18,904
2,915
(1,381)
1,049
237
-
3,245
5,601
526
(10)
675
51,128
(20,183)
30,945
14,900
-
(198)
180,000
(160,000)
20,000
-
550
-
-
-
-
-
2,400
(500)
(8,340)
48,812
(651)
-
(72,056)
25
(72,682)
(279)
6,796
12,112
Cash and cash equivalents, end of year
$
18,028
$
18,908
See accompanying notes to the consolidated financial statements
5
PINNACLE RENEWABLE ENERGY INC. (Formerly Pinnacle Renewable Holdings Inc.)
Notes to the Consolidated Financial Statements
For the years ended December 28, 2018 and December 29, 2017
(Expressed in thousands of Canadian dollars unless otherwise stated)
1.
Reporting entity
Pinnacle Renewable Energy Inc. (formerly Pinnacle Renewable Holdings Inc.) (the “Company” or “Pinnacle”) was
incorporated on December 6, 2010 under the laws of the Province of British Columbia and maintains its head office at
350-3600 Lysander Lane, Richmond, British Columbia. Pursuant to an initial public offering (“IPO”) on February 6, 2018,
the Company’s shares became publicly traded on the Toronto Stock Exchange under the symbol “PL”.
On December 29, 2018, Pinnacle Renewable Holdings Inc. completed a vertical short-form amalgamation under the
Business Corporations Act (British Columbia) with its wholly-owned subsidiary, Pinnacle Renewable Energy Inc., pursuant
to a director's resolution. Shortly following the amalgamation, the Company changed its name from "Pinnacle Renewable
Holdings Inc." to "Pinnacle Renewable Energy Inc."
The Company is primarily involved in the manufacture and sale of wood pellets for both industrial electrical power
generation and home heating consumption in North America, Asia and Europe. The Company operates facilities at various
locations including in the Province of British Columbia and Alberta and in the United States (currently in the state of
Alabama). The Company’s new facility in Entwistle, Alberta started commercial operations on June, 29, 2018. During 2018,
the Company entered into the US market by acquiring a 70% interest in Pinnacle Westervelt Renewable Holdings, LLC
(“PWRH LLC”) which holds 100% equity in operating company Westervelt Pellet I, LLC (“WPI LLC”) with a facility located
in Alabama. The Company also owns and operates the Westview port facility at Prince Rupert for the storage, handling
and loading of the Company's and third party wood pellets. During the year, the Company also entered into pre-
commercial production for its new facility in Smithers, British Columbia.
Pinnacle’s costs of production are impacted by seasonal weather variation. Costs of fuel for fibre drying in preparation for
pelletization are higher in the winter months and can decrease production volumes. In summer, when less drying is
required, costs reduce and volumes are generally higher.
2.
a)
Basis of preparation
Statement of compliance and basis of measurement
These consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards (“IFRS”) and its interpretations as issued by the International Accounting Standards Board (“IASB”). The
consolidated financial statements were authorized for issue by the Board of Directors on February 21, 2019.
These consolidated financial statements have been prepared on the historical cost basis except for certain financial
liabilities and derivative instruments which are stated at fair value with change in fair value recognized in net profit (loss).
The fiscal year or year referred to in the consolidated financial statements are the 52-week periods ended December 28,
2018 and December 29, 2017.
Accounting standards adopted in 2018
Effective January 1, 2018, the Company adopted IFRS 15, Revenue from contracts with customers and IFRS 9, Financial
Instruments.
6
PINNACLE RENEWABLE ENERGY INC. (Formerly Pinnacle Renewable Holdings Inc.)
Notes to the Consolidated Financial Statements
For the years ended December 28, 2018 and December 29, 2017
(Expressed in thousands of Canadian dollars unless otherwise stated)
2.
a)
Basis of preparation (continued)
Statement of compliance and basis of measurement (continued)
Accounting Standards issued but not yet effective
IFRS 16 Leases, was issued in January 2016 by the IASB as a replacement for IAS 17 Leases and is effective for annual
periods beginning on or after January 2019. IFRS 16 introduces a single, on-balance sheet accounting model for lessees.
A lessee recognizes a right-of-use asset representing its right to use the underlying asset and a lease liability representing
its obligation to make lease payments. Right-to-use assets will be initially measured at cost, which includes the initial
measurement of the lease liabilities and other costs, less lease incentives. Lease liabilities will initially be measured at the
present value of future lease payments, and will subsequently be measured at amortized cost using the effective interest
rate method.
IFRS 16 may be applied retrospectively to each prior period presented (full retrospective approach), or with the cumulative
effect of adoption recognized at initial application (modified retrospective approach). The modified retrospective method
offers the option, on a lease by lease basis, to either measure the right of use asset retrospectively using the discount rate
as at the date of initial application, or to measure the right of use asset at an amount equal to the lease liability. The
Company has elected to apply the modified retrospective approach upon adoption at January 1, 2019, measuring the right
of use asset at an amount equal to the lease liability. The short-term and low-value recognition exemptions available
under the standard will be utilized, along with certain practical expedients.
Based on lease data as at December 28, 2018, IFRS 16 is expected to result in an increase to right-to-use assets and lease
liabilities of approximately $48,000. The Company is finalizing its analysis and calculations in the first quarter and will
provide all the required disclosures and amounts when filing its condensed consolidated interim financial statements in
the first quarter of 2019.
b)
Basis of consolidation
The consolidated financial statements include the accounts of the Company’s wholly-owned subsidiaries, its majority-
owned subsidiaries and its ownerships in its equity investments as follows:
Country of
residence
Economic
ownership Voting %
Houston Pellet Inc. ("HPI")
Houston Pellet Limited Partnership ("HPLP")
Lavington Pellet Inc. ("LPI")
Lavington Pellet Limited Partnership ("LPLP")
Smithers Pellet Inc. ("SPI")
Smithers Pellet Limited Partnership ("SPLP")
Pinnacle Renewable Holdings (USA) Inc. ("PRHUSA")
Pinnacle Westervelt Renewable Holdings, LLC ("PWRH LLC")
Westervelt Pellets I, LLC ("WPI LLC")
Canada
Canada
Canada
Canada
Canada
Canada
USA
USA
USA
33%
30%
75%
75%
70%
70%
100%
70%
70%
33%
30%
75%
75%
70%
70%
100%
70%
70%
Method of
accounting
Equity
Equity
Consolidated
Consolidated
Consolidated
Consolidated
Consolidated
Consolidated
Consolidated
To simplify the structure and to eliminate non-operating entities, Pinnacle Pellet Houston Inc. has been wound up during
the year ended December 28, 2018. During the year, the Company expanded its operations into the United States (“US”)
by entering into a partnership with The Westervelt Company (“TWC”). PWRH LLC was created, with Pinnacle holding a
70% interest in the partnership through PRHUSA, and TWC holding the remaining 30%. PWRH LLC owns 100% of the
operating entity WPI LLC.
7
PINNACLE RENEWABLE ENERGY INC. (Formerly Pinnacle Renewable Holdings Inc.)
Notes to the Consolidated Financial Statements
For the years ended December 28, 2018 and December 29, 2017
(Expressed in thousands of Canadian dollars unless otherwise stated)
2.
c)
Basis of preparation (continued)
Functional currency
These consolidated financial statements are presented in Canadian dollars (“CAD”), which is the Company’s functional
currency as it is the primary economic environment in which the Company operates. Certain of the Company’s subsidiaries
have a function currency of the U.S. dollar (“USD”) and are translated into CAD at the end of each period for consolidation
purposes.
d)
Use of estimates and judgments
The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and
assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, earnings
and expenses. Actual results could differ from those estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognised
prospectively.
Judgments
Information about judgments made in applying accounting policies that have the most significant effects on the amounts
recognised in the consolidated financial statements is included in the following notes:
Note 8 – Goodwill: determination of appropriate cash generating units; and,
Note 27 – Commitments, Leases: whether an arrangement contains a lease.
Assumptions about estimation uncertainties
Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material
adjustment to the carrying amounts of assets and liabilities within the year ending December 28, 2018 is included in the
following notes:
Note 5 – measurement of net realizable value of inventory: key fibre volume measurement assumptions;
Note 8 – impairment test of goodwill: key assumptions underlying recoverable amounts;
Note 11 – determination of the fair value of debt and equity components of convertible debentures on the basis of
significant unobservable inputs up until the convertible debentures were converted into common shares;
Note 12 – determination of the fair value of common shares classified as liabilities on the basis of significant unobservable
inputs up until the common shares were either repurchased or converted into the Company's common shares at the IPO
date;
Note 13 – recognition and measurement of provisions: key assumptions about the likelihood and magnitude of an outflow
of resources; and,
Note 19 – recognition of deferred tax assets: availability of future taxable profit against which tax losses carried forward
can be used.
8
PINNACLE RENEWABLE ENERGY INC. (Formerly Pinnacle Renewable Holdings Inc.)
Notes to the Consolidated Financial Statements
For the years ended December 28, 2018 and December 29, 2017
(Expressed in thousands of Canadian dollars unless otherwise stated)
3.
Significant accounting policies
The accounting policies set out below have been applied consistently to all periods presented in these consolidated
financial statements. All accounting policies have been applied consistently by the Company, its subsidiaries and
associates.
Certain comparative amounts in the consolidated statements of profit (loss) have been reclassified to conform with the
current year’s presentation.
a)
Subsidiaries
The Company's determination of its subsidiaries is based on its control of entities that are subject to consolidation and
reflects its continuing power to determine their strategic operating, investing and financing policies without the
co-operation of others, in a manner that would earn the Company the right and ability to obtain future economic benefits
from these entities and exposes the Company to the related risks. The financial statements of subsidiaries are included in
the consolidated financial statements from the date that control commences until the date that control ceases.
b)
Non-controlling interests
For non wholly owned controlled subsidiaries, the net assets attributable to the outside equity shareholders are presented
as non-controlling interests in the equity section of the consolidated statement of financial position. Profit or loss for the
period that is attributable to non-controlling interests is calculated based on the ownership of the minority shareholders
in the subsidiary.
c)
Investment in associates (equity accounted investees)
Associates are those entities in which the Company has significant influence, but does not control the strategic financing,
investing and operating policies. Significant influence is presumed to exist when the Company holds between 20 and 50
percent of the voting power of another entity. Investments in associates are accounted for initially at cost and
subsequently using the equity method, whereby the investment is adjusted for post-acquisition earnings and equity
transactions, from the date that significant influence commences until the date that significant influence ceases. When
the Company’s share of losses exceeds its interest in an equity accounted investee, the carrying amount of that interest,
including any long-term investments, is reduced to nil, and the recognition of further losses is discontinued except to the
extent that the Company has an obligation to fund the investee’s operations or has made payments on behalf of the
investee.
d)
Transactions eliminated on consolidation
Inter-company balances and transactions as well as any unrealized income and expenses arising from inter-company
transactions are eliminated in the consolidated financial statements. Unrealized gains arising from transactions with
equity accounted investees are eliminated against the investment to the extent of the Company’s interest in the investee.
Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of
impairment.
9
PINNACLE RENEWABLE ENERGY INC. (Formerly Pinnacle Renewable Holdings Inc.)
Notes to the Consolidated Financial Statements
For the years ended December 28, 2018 and December 29, 2017
(Expressed in thousands of Canadian dollars unless otherwise stated)
3.
e)
Significant accounting policies (continued)
Foreign currency translation
Foreign currency transactions:
Transactions in foreign currencies are translated to the functional currency at exchange rates on the dates of
transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are
translated to the functional currency at the exchange rate on that date. Non-monetary assets and liabilities
denominated in foreign currencies are translated at historic rates. Foreign currency differences arising on
translation are recognized in net profit (loss).
Foreign operations:
Certain of the Company’s subsidiaries have a functional currency of the USD. Revenues and expenses of such
foreign operations are translated to Canadian dollars at the average rates for the period which approximate
the transaction date. Assets and liabilities are translated into CAD at exchange rates in effect at the reporting
date. Related foreign currency translation differences are recognized in other comprehensive income, and
included in accumulated other comprehensive income in equity.
Foreign currency translation differences residing in accumulated other comprehensive income will be released
to net profit (loss) upon the reduction of the net investment in foreign operations through the sale or
substantial liquidation of an investment position. In the case of a partial disposal not resulting in a loss of
control, foreign currency translation differences are reclassified from the accumulated other comprehensive
income to the non-controlling interest in the foreign subsidiary.
Monetary inter-company receivables from a foreign operation, the settlement of which are neither planned
nor likely in the foreseeable future, are considered to form part of the net investment in the foreign operation.
Related foreign exchange translation differences are recognized in other comprehensive income and
presented in the accumulated other comprehensive income in equity.
Hedge of net investment in a foreign operation:
Financial liabilities denominated in foreign currencies are from time to time designated as a hedge of the
Company’s net investments in foreign operations. Foreign currency differences arising on the revaluation of a
financial liability designated as a hedge of a net investment in a foreign operation are recognized in foreign
currency translation differences in other comprehensive income to the extent that the hedge is effective, and
presented in the accumulated other comprehensive income in equity. To the extent that the hedge is
ineffective, such differences are recognized in finance cost in net profit (loss). When the Company terminates
the designation of the hedging relationship and discontinues its use of hedge accounting, any accumulated
unrealized foreign exchange differences remaining in the accumulated other comprehensive income and
subsequent unrealized foreign exchange differences are recorded in finance cost in net profit (loss). When the
hedged net investment is disposed of, the relevant amount in the accumulated other comprehensive income
is reclassified to net profit (loss).
f)
Cash and cash equivalents
Cash and cash equivalents include cash in bank accounts and deposits with original maturities of three months or less
from the date of acquisition.
10
PINNACLE RENEWABLE ENERGY INC. (Formerly Pinnacle Renewable Holdings Inc.)
Notes to the Consolidated Financial Statements
For the years ended December 28, 2018 and December 29, 2017
(Expressed in thousands of Canadian dollars unless otherwise stated)
3.
g)
Significant accounting policies (continued)
Inventory
Inventories of fibre, finished wood pellets, supplies and spare parts are measured at the lower of cost and net realizable
value. The cost of inventories is based on the weighted average cost principle, and includes all direct costs incurred in
production and conversion including raw materials, labour and direct overhead and other costs incurred in bringing the
inventories to their existing condition and location. The cost of manufactured inventories includes production overhead
based on normal operating capacity. Costs that do not contribute to bringing inventories to their present condition and
location, such as storage and administration overhead, are excluded from the cost of inventories and expensed as
incurred.
The Company estimates net realizable value as the amount inventories are expected to be sold for, less estimated costs
for completion and costs necessary to make the sale. In determining net realizable value, factors such as obsolescence
and damage, aging of, and future demand for, the inventory, selling prices, and contractual arrangements with customers
are considered. A change to these assumptions could impact the inventory valuation and resulting impact on gross
margins. Inventories are written down to net realizable value when their cost is not deemed to be recoverable. When
circumstances that previously caused inventories to be written down below cost no longer exist, including when there is
clear evidence of an increase in selling price, the amount of the write-down previously recorded is reversed.
h)
Property, plant and equipment
Property, plant and equipment are measured at cost less accumulated amortization and any impairment losses. Cost
consists of expenditures directly attributable to the acquisition of the asset. The cost of self-constructed assets includes
the cost of materials and direct labour, any other costs directly attributable to bringing the assets to working condition
for their intended use, the costs of dismantling and removing the items and restoring the site on which they are located
and borrowing costs on qualifying assets. Costs are capitalized when economic benefits associated with that asset are
probable and cost can be measured reliably. Borrowing costs that are directly attributable to the acquisition, construction
or production of a qualifying asset are capitalized. All other repairs and maintenance costs are expensed as incurred.
Amortization is recognised over the estimated useful lives on a straight-line basis starting when the asset is available for
use. Construction in progress is not subject to amortization until the assets are put into use. Leased assets are amortized
over the shorter of their lease term and their useful lives, unless it is reasonably certain the Company will obtain ownership
by the end of the lease term. Land is not amortized. Amortization is recorded over the following terms:
Asset
Buildings and related assets
Production machinery and other equipment
Mobile equipment
Leasehold improvements
Term
20 years
3-20 years
5 years
Shorter of the lease term and the useful life
When components of an asset have significantly different useful lives than the primary asset, the components are
amortized separately. Residual values, useful lives and methods of amortization are reviewed annually and adjusted
prospectively. Gains and losses on the disposal or retirement of property, plant and equipment are determined by
comparing net proceeds from disposal with the carrying amount of the asset and are recognized in profit (loss).
11
PINNACLE RENEWABLE ENERGY INC. (Formerly Pinnacle Renewable Holdings Inc.)
Notes to the Consolidated Financial Statements
For the years ended December 28, 2018 and December 29, 2017
(Expressed in thousands of Canadian dollars unless otherwise stated)
3.
i)
Significant accounting policies (continued)
Leases
Leases where the Company has assumed substantially all the risks and rewards of ownership are classified as finance
leases. Finance leases are capitalized at the lease commencement date at the lower of fair value of the leased asset and
present value of the minimum lease payments. Subsequent to initial recognition, the leased asset is accounted for in
accordance with the accounting policy applicable to its underlying nature.
Leases in which a significant portion of the risks and rewards are retained by the lessor are classified as operating leases.
Payments under operating leases are recognized in the Company’s net profit (loss).
j)
Goodwill
Goodwill represents the excess of the cost of a business acquisition over the fair value of the acquired identifiable net
assets at the date of acquisition. Goodwill is tested annually for impairment and carried at cost less any impairment loss.
k)
Intangible assets
Intangible assets are recorded at their fair values at the date of acquisition. For all limited life intangible assets,
amortization is provided for on a straight-line basis over their estimated useful lives as follows:
Asset
Customer relationships
Supply agreements
Other
Estimated useful life
9 years
9 years
5 years
Residual values, useful lives and methods of amortization are reviewed periodically and adjusted prospectively.
l)
Impairment of non-financial assets
At each reporting date, the Company reviews the carrying amounts of its non-financial assets (other than inventories and
deferred tax assets) to determine whether there is any indication of impairment. If any such indication exists, then the
asset’s recoverable amount is estimated.
For impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from
continuing use that are largely independent of the cash inflows of other assets or cash generating units (“CGU”). Goodwill
arising from a business combination is allocated to CGUs or groups of CGUs that are expected to benefit from the synergies
of the combination.
The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. Value in
use is based on the estimated future cash flows, discounted to their present value using a pre-tax discount rate that
reflects current market assessments of the time value of money and the risks specific to the asset or CGU.
An impairment loss is recognized if the carrying amount of an asset or CGU exceeds its recoverable amount. Impairment
losses are recognised in net profit (loss). They are allocated first to reduce the carrying amount of any goodwill allocated
to the CGU, and then to reduce the carrying amounts of the other assets in the CGU on a pro rata basis.
An impairment loss in respect of goodwill is not reversed. For other assets, an impairment loss is reversed only to the
extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of
depreciation or amortisation, if no impairment loss had been recognized.
12
PINNACLE RENEWABLE ENERGY INC. (Formerly Pinnacle Renewable Holdings Inc.)
Notes to the Consolidated Financial Statements
For the years ended December 28, 2018 and December 29, 2017
(Expressed in thousands of Canadian dollars unless otherwise stated)
3.
Significant accounting policies (continued)
m)
Income taxes
Income tax expense comprises current and deferred income taxes. Tax is recognized in the consolidated statement of
profit (loss), except to the extent that it relates to a business combination or items recognized directly in equity, in which
case the tax effect is also recognized in equity.
Current income tax expense or recovery is based on the expected tax payable or receivable on the taxable income or loss
using the enacted or substantively enacted tax rate applicable to that profit or loss.
Deferred income taxes are recorded using the asset and liability method of income tax allocation. Under this method,
deferred income tax is recognized on the temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for taxation purposes. Deferred income tax is measured at tax rates
expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or
substantively enacted by the reporting date. The effect of a change in the income tax rates is included in net profit (loss)
in the period in which the rate change occurs.
Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available
to utilize the tax losses, tax credit carry-forwards and deductible temporary differences.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets
and they relate to taxes levied by the same tax authority on the same taxable entity or on different tax entities, if there is
intention to settle current tax liabilities and assets on a net basis, otherwise tax assets and liabilities will be realized
simultaneously.
n)
Provisions
A provision is a liability of uncertain timing or amount and is generally recognized when the Company has a present legal
or constructive obligation as a result of a past significant event, it is probable that payment will be made to settle the
obligation and the payment can be estimated reliably. Provisions are determined by discounting the expected future cash
flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the
liability. The unwinding of the discount is recognized as a finance cost.
13
PINNACLE RENEWABLE ENERGY INC. (Formerly Pinnacle Renewable Holdings Inc.)
Notes to the Consolidated Financial Statements
For the years ended December 28, 2018 and December 29, 2017
(Expressed in thousands of Canadian dollars unless otherwise stated)
3.
o)
Significant accounting policies (continued)
Decommissioning liabilities
Legal or contractual obligations to retire tangible long-lived assets are recorded in the period in which they are incurred
with a corresponding increase in asset value. These include assets leased under operating leases. The liability is accreted
over the life of the asset to fair value and the increase in asset value is depreciated over the remaining useful life of the
asset. Decommissioning liabilities are discounted at the risk-free rate in effect at the reporting date.
p)
Revenue recognition
IFRS 15 Revenue from Contracts with Customers, establishes a comprehensive framework for determining whether, how
much and when revenue is recognised. It replaced IAS 18 Revenue, IAS 11 Construction Contracts and related
interpretations. Under IFRS 15, revenue is recognised when a customer obtains control of the goods or services, whether
at a point in time or over time. The adoption of IFRS 15 does not have a significant impact on the revenue recognized by
the Company, and had no financial impact on Pinnacle’s consolidated financial statements.
Revenue from the sale of goods is measured based on the consideration specified in a contract with a customer, and is
recognised when a customer obtains control of the goods or services. The timing of transfer of control varies depending
on the individual terms of the contract of sale. Amounts charged to customers for shipping and handling are recognised
as revenue as services are provided, and are recorded in costs and expenses.
Finished wood pellets
Revenue is recognised when control over the pellets is transferred to the customer. The timing of transfer of control is
generally when the product is loaded on the shipping vessel.
Port services
Revenue is recognised for port storage and handling services as those services are provided.
q)
Financial instruments
Non-derivative financial instruments
Non-derivative financial instruments consist of cash and cash equivalents, trade and other receivables, certain
investments and advances, loans and borrowings, trade and other payables, debentures payable, and common and
preferred shares classified as liabilities. Non-derivative financial instruments are recognized initially at fair value plus, for
instruments not at fair value through profit (loss), any directly attributable transaction costs.
Subsequent to initial recognition, non-derivative financial instruments are measured as described below:
Cash and cash equivalents, trade and other receivables, and interest-bearing marketable securities expected to be
held to maturity are categorized as amortized cost and are subsequently measured at amortized cost using the effective
interest rate method, less any impairment losses.
Trade payables and provisions, and loans and borrowings including long term debt are categorized as other financial
liabilities and are subsequently measured at amortized cost using the effective interest rate method.
14
PINNACLE RENEWABLE ENERGY INC. (Formerly Pinnacle Renewable Holdings Inc.)
Notes to the Consolidated Financial Statements
For the years ended December 28, 2018 and December 29, 2017
(Expressed in thousands of Canadian dollars unless otherwise stated)
3.
r)
Significant accounting policies (continued)
Financial instruments (continued)
Derivative financial instruments
The Company uses derivative financial instruments in the normal course of its operations as a means to manage its foreign
exchange and interest rate risk. Foreign currency forward contracts may be used to limit exposure on USD sales. Interest
rate swaps may be used to fix a portion of the floating rate debt. The Company’s policy is not to utilize derivative financial
instruments for trading or speculative purposes.
The Company’s derivative financial instruments are not designated as hedges for accounting purposes. Consequently,
such derivatives for which hedge accounting is not applied are carried on the consolidated statement of financial position
at fair value, with changes in fair value (realized and unrealized) being recognized in net profit (loss). The fair value of the
derivatives is determined with reference to period-end market trading prices for derivatives with comparable
characteristics.
Embedded derivatives are separated from the host contract and accounted for separately if the economic characteristics
and risks of the host contract and the embedded derivative are not closely related, a separate instrument with the same
terms as the embedded derivative would meet the definition of a derivative, and the combined instrument is not
measured through net profit (loss). Separable embedded derivatives are measured at fair value with changes recognized
immediately through net profit (loss).
Compound financial instruments
Compound financial instruments include convertible debentures that are convertible to Class C common shares at the
option of the holder. The liability of the compound financial instrument is initially recognized at the fair value of a similar
liability that does not have an equity conversion option. The equity component is initially recognized at its estimated fair
value using an option valuation model. Any directly attributable transaction costs are allocated to the liability and equity
components in proportion to their initial carrying amounts.
Subsequent to initial recognition, the liability component is measured at amortized cost using the effective interest rate
method. The interest is recognized in the Company’s profit (loss).
As at December 28, 2018, the Company does not have any outstanding compound financial instruments.
s)
Finance costs
Finance costs consist of borrowing costs, unwinding of discounts on non-financial assets and liabilities, changes in the fair
value of financial assets and liabilities at fair value through net profit (loss), impairment losses recognized on financial
assets, foreign exchange gains (losses), and gains (losses) on derivatives. Borrowing costs that are not directly attributable
to the acquisition, construction or production of a qualifying asset are recognized in net profit (loss) using the effective
interest method. Qualifying assets are those that take a substantial period of time to be made ready for their intended
use and generally those that are related to major developments or construction projects. Foreign exchange gains and
losses are reported on a net basis.
15
PINNACLE RENEWABLE ENERGY INC. (Formerly Pinnacle Renewable Holdings Inc.)
Notes to the Consolidated Financial Statements
For the years ended December 28, 2018 and December 29, 2017
(Expressed in thousands of Canadian dollars unless otherwise stated)
3.
t)
Significant accounting policies (continued)
Business combinations
The Company uses the acquisition method to account for business combinations. All identifiable assets, liabilities and
contingent liabilities acquired are recorded at the date of acquisition at their respective fair values. One of the most
significant estimates relates to the determination of the fair value of these assets and liabilities. Longer term assets, which
may include land, buildings and equipment, are independently appraised or estimated based on similar appraisals. When
intangible assets are identified, depending on the type of intangible asset and the complexity of determining its fair value,
an independent external valuation expert develops the fair value, using appropriate valuation techniques which are
generally based on a forecast of the total expected future net cash flows. These evaluations are linked closely to the
assumptions made by management regarding the future performance of the assets concerned and any changes in the
discount rate applied. Acquisition-related costs are expensed as incurred through net profit (loss).
u)
Share capital
Common shares are classified as equity. If there are features within the common shares that create a liability upon
triggering events outside of the Company’s control, the common shares are presented as a liability.
Preferred shares are classified as equity if they are non-redeemable, or redeemable only at the Company’s option, and
any dividends are discretionary. Dividends thereon are recognized as distributions within equity. Otherwise, preferred
shares are classified as liabilities and dividends recorded as interest expense.
Incremental costs directly attributable to the issue of share capital classified as equity and stock-based payments are
recognized as a deduction from equity, net of any tax effects for those shares presented as equity, and as a finance cost
for those shares presented as liabilities.
v)
Stock-based compensation
The Company has a stock option plan as described in note 17. Compensation expense is recognized based on the fair value
at the grant date over the vesting period. The expense is adjusted to reflect the number of awards for which the related
service and non-market vesting conditions are expected to be met, such that the amount ultimately recognized as an
expense is based on the number of awards that do meet the related service and non-market performance conditions at
the vesting date.
w)
Earnings per share
The Company calculates basic net profit (loss) per share by dividing net profit (loss) attributable to owners by the weighted
average number of common shares outstanding and calculates diluted net profit (loss) per share under the treasury stock
method. Under the treasury stock share method, diluted net profit (loss) is calculated by considering the dilution that
would occur if stock options or other convertible instruments were converted into shares.
16
PINNACLE RENEWABLE ENERGY INC. (Formerly Pinnacle Renewable Holdings Inc.)
Notes to the Consolidated Financial Statements
For the years ended December 28, 2018 and December 29, 2017
(Expressed in thousands of Canadian dollars unless otherwise stated)
4.
Accounts Receivable
As at
Trade accounts receivable
Current portion of receivable against NMTC debt (note 10)
Other receivables
Amounts receivable from related parties (note 23)
December 28, 2018
11,274
1,515
29,538
690
43,017
$
$
December 29, 2017
14,503
-
25,965
785
41,253
$
$
Included in other receivables is $ 23,085 (2017 ‐ $14,590) of accrued sales for partially loaded vessels which were invoiced
in the month subsequent to year end.
5.
Inventory
As at
Wood pellets
Fibre
Supplies and spare parts
December 28, 2018
8,896
7,575
8,060
24,531
$
$
December 29, 2017
6,479
6,764
4,466
17,709
$
$
The above inventory balances include adjustments to measurement estimates and to net realizable values which resulted
in write‐ups and write‐downs. For the year ended December 28, 2018, fibre inventory reflects a write-up of $424
(December 29, 2017 - write-up of $594). The provision related to wood pellets as at December 28, 2018 was $105
(December 29, 2017 - $nil). These adjustments are included in production costs in net profit (loss).
6.
Property, plant and equipment (“PP&E”)
Land, buildings
and leasehold
improvements
Machinery and
other equipment
Construction-in-
progress
Balance, beginning of fiscal year
Additions
Amortization
Disposals and retirements
Acquisition of Aliceville Facility
Exchange rate movement
Transfer from construction-in-
progress
Balance, December 28, 2018
Cost
Accumulated amortization
Balance, December 28, 2018
$
$
$
$
43,541
-
(3,973)
(153)
7,953
360
25,974
73,702
95,609
(21,907)
73,702
$
$
$
$
119,384
961
(17,744)
(1,370)
41,494
1,878
81,802
226,405
332,065
(105,660)
226,405
$
$
$
$
73,852
64,716
-
-
-
-
(107,776)
30,792
30,792
-
30,792
Total
236,777
65,677
(21,717)
(1,523)
49,447
2,238
-
330,899
458,466
(127,567)
330,899
$
$
$
$
17
PINNACLE RENEWABLE ENERGY INC. (Formerly Pinnacle Renewable Holdings Inc.)
Notes to the Consolidated Financial Statements
For the years ended December 28, 2018 and December 29, 2017
(Expressed in thousands of Canadian dollars unless otherwise stated)
6.
Property, plant and equipment (“PP&E”) (continued)
Land, buildings
and leasehold
improvements
Machinery and
other
equipment
Construction-in-
progress
Balance, beginning of fiscal year
Additions
Amortization
Disposals and retirements
Impairment loss
Transfer from construction-in-
progress
Balance, December 29, 2017
Cost
Accumulated amortization
Balance, December 29, 2017
$
$
$
$
40,112
6,632
(2,928)
-
(1,000)
725
43,541
66,095
(22,554)
43,541
$
$
$
$
124,845
3,004
(14,787)
(1,058)
(2,245)
9,625
119,384
199,778
(80,394)
119,384
$
$
$
$
8,639
75,934
-
-
-
(10,721)
73,852
73,852
-
73,852
Total
173,596
85,570
(17,715)
(1,058)
(3,245)
(371)
236,777
339,725
(102,948)
236,777
$
$
$
$
Additions includes assets acquired through acquisition of Aliceville facility (note 22). At December 28, 2018, PP&E includes
$29,826 (December 29, 2017 - $8,767) for construction-in-progress of our new plant in Smithers, BC. On June 29, 2018,
Entwistle was commissioned and operating as intended by management and thus construction in progress has been
transferred into other PP&E asset categories.
7.
Investment in Houston Pellet Limited Partnership (“HPLP”)
HPLP manufactures wood pellets for sale to an external customer and to the Company. The investment in HPLP has been
accounted for under the equity basis. The following table summarizes the financial information of HPLP and reconciles
the Company’s carrying value and its share of net loss:
Investment in HPLP
As at
Current assets
Non-current assets
Current liabilities
Net assets
Company's share of net assets
Goodwill
Investment in HPLP
Revenue
Expense
Amortization
Loss on disposal of property and equipment
Net profit
Company's share of net profit
30%
December 28, 2018
19,943
7,660
(2,432)
25,171
7,551
1,823
9,374
December 28, 2018
32,858
(27,845)
(1,423)
(63)
3,527
1,058
$
$
$
$
$
$
30%
December 29, 2017
17,616
8,544
(2,516)
23,644
7,093
1,823
8,916
December 29, 2017
30,750
(24,503)
(1,337)
(308)
4,602
1,381
$
$
$
$
$
$
18
PINNACLE RENEWABLE ENERGY INC. (Formerly Pinnacle Renewable Holdings Inc.)
Notes to the Consolidated Financial Statements
For the years ended December 28, 2018 and December 29, 2017
(Expressed in thousands of Canadian dollars unless otherwise stated)
8.
Goodwill and intangible assets
Balance, December 30, 2016
Additions
Amortization
Balance, December 29, 2017
Additions
Exchange rate movement
Amortization
Balance, December 28, 2018
At December 29, 2017
Cost
Accumulated amortization
Net book value at December 29, 2017
At December 28, 2018
Cost
Accumulated amortization
Net book value at December 28, 2018
Goodwill
Customer
relationships
Supply
agreements
Other
Total
$ 97,482 $ 5,565
-
-
-
(1,663)
$ 97,482 $ 3,902
-
-
(1,663)
$ 101,876 $ 2,239
4,204
190
-
$ 4,043 $ 1,814 $ 108,904
651
-
651
(1,209)
(2,915)
(43)
$ 3,485 $ 1,771 $ 106,640
4,204
-
190
-
(2,961)
(90)
$ 2,277 $ 1,681 $ 108,073
-
-
(1,208)
$ 97,482 $ 15,000 $ 11,551 $ 2,199 $ 126,232
(19,592)
$ 3,485 $ 1,771 $ 106,640
(11,098)
$ 97,482 $ 3,902
-
(8,066)
(428)
$ 101,876 $ 15,000 $ 11,551 $ 2,199 $ 130,626
(22,553)
$ 2,277 $ 1,681 $ 108,073
(12,761)
$ 101,876 $ 2,239
-
(9,274)
(518)
On October 15, 2018, the Company acquired 70% interest in the US partnership PWRH LLC. Additions to goodwill include
the consideration paid in excess of the net assets acquired in the partnership (note 22).
The Company conducted its annual impairment testing in the fourth quarter. The recoverable amount of goodwill is
determined based on the greater of the value in use and the fair value less costs to sell of each of the Company’s cash
generating units. Given the recent acquisition of Aliceville and the goodwill associated with that acquisition, the Company
did not complete a separate impairment test for the goodwill associated with this acquisition. The remaining goodwill
relates to the Company’s Canadian operations. The Company utilized the fair value less costs to sell approach and
determined based on the fair value of the Company, as evidenced by the Company’s share price over the net book value
of its equity at December 28, 2018, that there was sufficient head room to not perform any further analysis of fair value
less costs to sell or a value in use determination for 2018.
19
PINNACLE RENEWABLE ENERGY INC. (Formerly Pinnacle Renewable Holdings Inc.)
Notes to the Consolidated Financial Statements
For the years ended December 28, 2018 and December 29, 2017
(Expressed in thousands of Canadian dollars unless otherwise stated)
9.
Long-term debt
As at
Revolver loan
Term loan
Delayed draw
Less:
Revolver loan - current portion
Term loan - current portion
Deferred financing costs
December 28, 2018
18,450
194,000
50,491
262,941
(18,450)
(9,500)
(2,566)
232,425
$
$
$
December 29, 2017
22,000
180,000
20,000
222,000
(22,000)
(6,000)
(3,187)
190,813
$
$
$
Aggregate minimum payments for each of the next five fiscal years for the long term debt are as follows:
2019
2020
2021
2022
2023
Total
Revolver loan
Term loan
Delayed draw
$
$
18,450 $
-
-
-
-
18,450 $
9,500 $
14,500
19,000
151,000
-
194,000 $
- $
3,029
4,797
42,665
-
50,491 $
Total
27,950
17,529
23,797
193,665
-
262,941
As at December 28, 2018 and December 29, 2017, the Company has a credit facility from nine lenders through a syndicated
loan agreement which provides up to a $50,000 revolving operating line, a $200,000 term loan, and a $130,000 delayed
draw term loan (the “Facility”). The Facility has a maturity date of December 16, 2022.
Advances under the Facility are available as CAD Prime-Based Loans, Banker’s Acceptances (“BA”) from the BA Lenders in
CAD, BA Equivalent Loans from the Non-BA Lenders in CAD, USD Base Rate Loans, and LIBOR Loans in USD. Interest accrues
daily and is payable monthly at the applicable Bank Prime BA, US Base or LIBOR rates plus a margin. The margin varies
based on the ratio of Senior Debt to Adjusted EBITDA with a minimum margin of 1.50% and 2.50% for Prime/US Base and
BA/LIBOR loans, respectively and a maximum margin of 3.00% and 4.00%, respectively.
During the year ending December 28, 2018, the Company made scheduled repayments of the term loan of $6,000 (2017
- $1,600). As at December 28, 2018, the $194,000 term loan was in a CAD BA loan at 5.03%, the $18,450 revolver loan was
in a CAD BA loan at 5.70% and the $50,491 (USD $37,100) delayed draw was in in a USD BA loan at 8.00%. At December
29, 2017, the $180,000 term loan and the $22,000 revolver loan were in CAD Prime loans at 5.70% and the $20,000
delayed draw term loan was in a CAD BA loan at 4.86%. At December 28, 2018, the Company had issued letters of credit
totaling $1,438 (December 29, 2017 - $530). The delayed draw has been designated as a hedge against the Company’s
investment in its U.S. operations and unrealized foreign exchange losses of $1,500 (2017 - nil) arising on its revaluation
were recognized in foreign currency translation differences in other comprehensive income for the year ended December
28, 2018.
EBITDA and Adjusted EBITDA are defined in the Facility agreement and used in the calculation of debt covenants and
interest rate margins. The primary debt covenants are the Total Funded Debt to Adjusted EBITDA and Fixed Charge
Coverage Ratio. As at December 28, 2018, the Company was in compliance with all debt covenants.
The debt is secured by a first-ranking security interest on all present and after-acquired assets of the Company.
20
PINNACLE RENEWABLE ENERGY INC. (Formerly Pinnacle Renewable Holdings Inc.)
Notes to the Consolidated Financial Statements
For the years ended December 28, 2018 and December 29, 2017
(Expressed in thousands of Canadian dollars unless otherwise stated)
10. New Market Tax Credit Debt
As at
NMTC loan
Less:
current portion
December 28, 2018
December 29, 2017
$
$
$
86,392
86,392
(1,515)
84,877
$
$
$
-
-
-
Aggregate minimum payments for each of the next five fiscal years for the long term debt are as follows:
2019
2020
2021
2022
2023
Total
$
$
NMTC loan
1,515
84,877
-
-
-
86,392
In 2012 and 2013, WPI received approximately USD $53,000 in net proceeds from financing agreements related to capital
expenditures for the Aliceville Facility. This financing arrangement was designed to qualify under the U.S. federal New
Markets Tax Credit (“NMTC”) program, and was structured with third party financial institutions associated with a U.S.
Bank, an investment fund, community development entities majority owned by the investment fund, and a U.S. municipal
agency (the “NMTC Investors”). Through this transaction, WPI secured low interest financing from the investment fund.
This transaction also includes the potential for future debt forgiveness, as it contains a put/call feature whereby, at the
end of a seven-year compliance period, WPI and its beneficial owners are entitled to repurchase the NMTC Investors’
interest in the investment fund. The value attributable to the put price is nominal. Consequently, if exercised, the put
could result in the forgiveness of the NMTC Investors’ interest in the investment fund.
As at December 28, 2018, WPI LLC has outstanding NMTC debt of approximately USD $63,000.
The NMTC Investors are subject to 100% recapture of the credits they receive under the NMTC program for a period of
seven years as provided in the U.S. Internal Revenue Code and applicable U.S. Treasury regulations. WPI is required to be
in compliance with various regulations and contractual provisions that apply to the NMTC arrangement. Noncompliance
with applicable requirements could result in the NMTC Investors’ projected tax benefits not being realised and, therefore,
require WPI to indemnify the NMTC Investor for any loss or recapture of credit under the NMTC program related to the
financing until such time as the recapture provisions have expired under the applicable statute of limitations. The
Company does not anticipate any credit recapture will be required in connection with this financing arrangement.
Pursuant to an indemnity agreement entered into as part of the Company’s acquisition of interest in the Aliceville Facility,
Westervelt has guaranteed WPI LLC’s NMTC debt by providing a capital contribution to PWRH of an equal and offsetting
amount to the NMTC debt and associated interest payments. The NMTC Debt is not included in calculation of Total Funded
Debt for bank covenant calculations as it is indemnified by TWC and the Company carries the NMTC Receivable from TWC
of an equal amount.
Pursuant to the put/call feature of the NMTC arrangement, WPI LLC intends to purchase the NMTC Investors’ interest in
the investment fund at the end of the seven-year compliance period, resulting in the forgiveness of the NMTC debt. This
unwinding of NMTC debt is anticipated to occur on our about January 31, 2020.
21
PINNACLE RENEWABLE ENERGY INC. (Formerly Pinnacle Renewable Holdings Inc.)
Notes to the Consolidated Financial Statements
For the years ended December 28, 2018 and December 29, 2017
(Expressed in thousands of Canadian dollars unless otherwise stated)
11.
Shareholders’ debentures payable
As at
Convertible debentures at face value
Accrued interest debentures at face value
Effective interest rate adjustment on convertible debentures
$
December 28, 2018
-
-
-
Subordinated debentures at face value
Accrued interest on subordinated debentures
Less: current interest payable in other current liabilities
$
-
-
-
-
-
-
-
December 29, 2017
$
$
60,000
49,570
(48,364)
61,206
15,000
13,571
28,571
89,777
(896)
88,881
As at December 29, 2017, the ONCAP entities (“ONCAP”) collectively owned 60% of the Company and was the Company’s
controlling parent. ONCAP held convertible debentures totaling $60,000 at face value and $49,570 representing accrued
interest. The Company carried the combined fair value of these instruments of $61,206 as liability and $35,213 as equity
on the consolidated statements of financial position. ONCAP and other minority shareholders also held subordinated
debentures totaling $15,000 at face value.
Upon the closing of the IPO on February 6, 2018, the convertible debentures were exchanged for common shares. The
$60,000 convertible debentures were converted at their conversion value along with an associated deferred income tax
recovery of $6,971 with no gain or loss on conversion. The $49,570 debentures were exchanged for new common shares
at their face value, resulting in a $21,881 loss on exchange, representing the difference between the carrying value and
the face value, netted against an associated deferred income tax recovery of $5,759. The carrying value of the
subordinated debentures and accrued interest of $28,577 were repaid from proceeds of treasury shares issued at the IPO.
12.
Common and preferred share classified as liabilities
As at
Class B common shares 5,500,000 shares; cost of $5,500
Class D common shares 1,172,414 shares; cost of $1,550
Class H common shares 5,004,000 shares; cost of $5,055
December 28, 2018
- $
-
-
- $
$
$
December 29, 2017
17,215
3,646
5,131
25,992
At December 29, 2017, the Company’s management held Class B and Class D common shares. These shares contained
features that could require future settlement in cash and Class D shares had a put right enabling shareholders to put their
Class D shares to the Company on death or disability at the greater of cost or fair value. The fair value measurements for
these classes of shares were presented as liabilities. Class H preferred shares accrued dividends at 4.5% and 3.0% was paid
quarterly. The difference of 1.5% was added to their carrying value.
Upon the closing of the IPO on February 6, 2018, Class B and Class D common shares and Class H preferred shares
presented as liabilities were exchanged for new common shares at their fair value, resulting in a $3,563 gain on conversion.
22
PINNACLE RENEWABLE ENERGY INC. (Formerly Pinnacle Renewable Holdings Inc.)
Notes to the Consolidated Financial Statements
For the years ended December 28, 2018 and December 29, 2017
(Expressed in thousands of Canadian dollars unless otherwise stated)
13.
Other long-term liabilities
Derivative contracts - long-term
Decommissioning liabilities
Other
December 28, 2018
December 29, 2017
$
$
-
2,101
2,234
4,335
$
$
218
2,192
1,047
3,457
The Company has certain decommissioning liabilities related to the operations of the Westview Port, the plants at
Lavington, Armstrong, and Williams Lake and the use of rail cars.
As at
December 29, 2017
Change in discounted
amount
December 28, 2018
Plants
Port Facility
Rail cars
Total decommissioning liabilities
$
$
745
1,170
277
2,192
(44)
(52)
5
(91)
$
$
701
1,118
282
2,101
Plants
The construction and operation of the Lavington plant requires a provision to be set up for the eventual demolition and
removal of the plant to restore the operating site to its original condition in accordance with the land lease agreement.
The initial term of the land lease expires on December 31, 2019 and renews automatically for an indefinite number of
five-year periods until terminated. Due to the long-term nature of the liability, there is significant uncertainty regarding
eventual costs required to restore the site to its original condition and a $700 decommissioning cost was provided as
management’s best estimate. The decommissioning cost was discounted at 2.18% (2017 – 2.26%) which is the
Government of Canada long-term bond yield risk-free rate. In addition, provisions have been provided for personal
property and fixtures removal for the plants at Armstrong and Williams Lake at the end of their lease terms in accordance
with the Company’s lease agreements.
Port facility
In accordance with the associated lease agreement with the Prince Rupert Port Authority, the Company has an obligation
to dismantle certain aspects of the Westview port facility at the end of the lease term. The lease term is 21 years ending
September 30, 2033, with an option to extend for 10 years. The Company included a provision for the dismantling costs
of $1,200 which is management’s best estimate. The discount rate of 2.18% (2017 – 2.26%) was used for decommissioning
cost, which is the Government of Canada long-term bond yield risk-free rate.
Rail cars
Rail cars are leased under various agreements which require the rail cars to be restored to their original condition at the
end of the lease term and prior to their return to the lessor.
23
PINNACLE RENEWABLE ENERGY INC. (Formerly Pinnacle Renewable Holdings Inc.)
Notes to the Consolidated Financial Statements
For the years ended December 28, 2018 and December 29, 2017
(Expressed in thousands of Canadian dollars unless otherwise stated)
14.
Shareholders’ equity
Prior to the IPO, the Company's authorized share capital was as described in the December 29, 2017 annual consolidated
financial statements.
In connection with the IPO, the Company amended its share structure (“Pre-Closing Capital Changes”) and issued new
common shares as follows:
Share structure
Class A common shares
Class B common shares
Class B common shares (liability)
Class D common shares (liability)
Class E preferred shares
Class F preferred shares
Class G preferred shares
Class H preferred shares (liability)
Convertible debentures
Stock options exercised
Share issuance
Share issuance cost
Pre-closing share structure
Number of shares
25,000,000 $
4,500,000
5,500,000
1,172,474
500,000
19,000,000
8,600,000
5,004,000
-
-
-
-
69,276,474 $
Amount
25,000
4,500
17,215
3,646
500
19,000
8,505
5,150
-
-
-
-
83,516
New common shares
Number of shares
5,831,730 $
1,049,711
1,282,980
254,592
36,719
2,274,553
982,341
457,785
14,076,068
432,853
6,223,889
-
32,903,221 $
Amount
25,000
4,500
14,275
3,023
500
19,000
8,505
5,150
125,269
1,597
70,019
(3,987)
272,851
As at December 28, 2018, the Company's authorized share capital consisted of the following:
Unlimited common participating, voting shares, without par value; and,
Unlimited preferred participating, voting shares, without par value.
As at December 28, 2018, there were 33,003,713 common shares issued and outstanding and no preferred shares issued
and outstanding. 1,120,885 common shares were issued on the exercise of stock options during the fiscal year ended
December 28, 2018 (note 17) which added $1,115 to common shares at December 28, 2018 resulting in $273,966 for
common shares after deducting cumulative share issuance cost of $3,987.
24
PINNACLE RENEWABLE ENERGY INC. (Formerly Pinnacle Renewable Holdings Inc.)
Notes to the Consolidated Financial Statements
For the years ended December 28, 2018 and December 29, 2017
(Expressed in thousands of Canadian dollars unless otherwise stated)
15.
Non-controlling Interests
The following table summarizes the non-controlling financial information relating to Lavington Pellet Limited Partnership
(“LPLP”), Smithers Pellet Limited Partnership (“SPLP”) and Pinnacle Westervelt Renewable Holdings, LLC (“PWRH LLC”)
before inter-company eliminations:
LPLP
As at
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets
Net assets attributable to NCI
SPLP
As at
Current assets
Non-current assets
Current liabilities
Net assets
Net assets attributable to NCI
PWRH LLC
As at
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets
Net assets attributable to NCI
Unrealized gain (loss) on foreign exchange
Net assets attributable to NCI
Net assets attributable to NCI (USD)
Total net assets attributable to NCI
$
$
$
$
$
$
$
$
$
$
25%
25%
December 28, 2018
December 29, 2017
9,652
38,176
(3,631)
(852)
43,345
10,836
$
$
$
8,703
40,610
(3,650)
(970)
44,693
11,173
30%
December 28, 2018
4,868
29,418
(6,857)
27,429
8,229
30%
December 28, 2018
22,849
135,963
(8,237)
(84,877)
65,698
19,709
(846)
18,863
14,482
37,928
30%
December 29, 2017
1,828
$
9,417
(3,245)
8,000
2,400
$
$
30%
December 29, 2017
-
$
$
$
$
-
-
-
-
-
-
-
-
13,573
25
PINNACLE RENEWABLE ENERGY INC. (Formerly Pinnacle Renewable Holdings Inc.)
Notes to the Consolidated Financial Statements
For the years ended December 28, 2018 and December 29, 2017
(Expressed in thousands of Canadian dollars unless otherwise stated)
15.
Non-controlling Interests (continued)
LPLP
Revenue
Net profit
Net profit allocated to NCI
SPLP
Revenue
Net loss
Net loss allocated to NCI
PWRH LLC
Revenue
Net profit
Net profit allocated to NCI
Net profit allocated to NCI (USD)
December 28, 2018
48,536
2,951
738
$
$
December 29, 2017
42,015
1,412
353
$
$
December 28, 2018
-
$
(114)
(34)
$
December 29, 2017
-
$
-
-
$
December 28, 2018
13,251
$
492
148
108
$
December 29, 2017
-
$
-
-
-
$
Total net profit (loss) allocated to NCI
$
852
$
353
16.
Expenses by nature and function
Included in production, distribution and selling, general and administrative costs are the following employee benefit
expenses (1):
Fiscal year ended
Production
Distribution
Selling, general and administration
(1) Employee benefit expense for the year ended December 28, 2018 includes stock-based compensation of $4,266 (2017 - $237) (note 17).
December 28, 2018
20,920
4,075
13,065
$
$
December 29, 2017
16,527
2,972
7,964
Amortization of equipment and intangibles allocated by function are as follows:
Fiscal year ended
Production
Distribution
Selling, general and administration
$
December 28, 2018
17,365
3,844
3,469
$
December 29, 2017
14,145
3,824
3,850
26
PINNACLE RENEWABLE ENERGY INC. (Formerly Pinnacle Renewable Holdings Inc.)
Notes to the Consolidated Financial Statements
For the years ended December 28, 2018 and December 29, 2017
(Expressed in thousands of Canadian dollars unless otherwise stated)
17.
Stock-based compensation
The Company has a legacy stock option plan (the “Legacy Plan”) pursuant to which it has granted stock options to directors
and employees of the Company. Concurrent with the Company’s reorganization of its share capital and the closing of the
IPO, the Company amended and restated the Legacy Plan in its entirety to comply with public company provisions as
required by the Toronto Stock Exchange. In addition, in connection with the IPO, the Company adopted an Omnibus Long-
term Incentive Plan (the “LTIP”) to facilitate the granting of options and restricted share units (“RSUs”) to certain of the
Company’s directors, executive officers, employees and consultants.
a)
Legacy Plan
Prior to the IPO, the Company had granted options to acquire Class D common shares at a price not less than the market
value of the shares on the day of the grant and for a term not exceeding 10 years. Options granted vest at a rate of 20%
per year from the date of grant.
Concurrent with the IPO and as a result of the amendment of the Legacy Plan, options to acquire Class D common shares
were exchanged on an approximately one-to-0.3404 basis for options exercisable to acquire common shares at a post-
amendment exercise price such that the in-the-money value of such options remain unchanged (the “Amended Options”).
The Amended Options are designated as replacement awards. As a result of the amendment, the Company recognised
$498 in stock-based compensation expense for the fiscal year ended December 28, 2018 (2017 - Nil), which represents
the incremental fair value of the vested portion of the replacement awards.
Following completion of the IPO, no additional awards are granted under the Legacy Plan. The outstanding options under
the Legacy Plan have a term of 10 years and are exercisable for common shares of the Company. 1,594,491 common
shares, representing approximately 4.83% of the Company’s common shares upon the completion of the IPO, are reserved
and available for issuance upon exercise of options previously granted under the Legacy Plan.
Details of options granted under the Legacy Plan and outstanding are as follows:
Outstanding, beginning of year
Granted
Exercised
Forfeited / cancelled / expired
Outstanding, end of year
December 28, 2018(1)
December 29, 2017(1)
Number of options
2,715,376
-
(1,120,885)
-
1,594,491
Weighted average
exercise price
6.63
-
6.48
-
8.13
$
$
$
Number of
options
6,778,000
1,200,000
-
-
7,978,000
Weighted average
exercise price
1.00
3.00
-
-
1.33
$
$
$
(1)
This table reflects the options and exercise prices after the option amendment which took effect immediately prior to the closing of the IPO.
For the fiscal year ended December 28, 2018, a total of $1,216 in stock-based compensation expense was recognised in
relation to the Legacy Plan (2017 - $237) including the amounts for the amended options as discussed above. Contributed
surplus on the consolidated statement of financial position relates to accrued stock-based compensation.
27
PINNACLE RENEWABLE ENERGY INC. (Formerly Pinnacle Renewable Holdings Inc.)
Notes to the Consolidated Financial Statements
For the years ended December 28, 2018 and December 29, 2017
(Expressed in thousands of Canadian dollars unless otherwise stated)
17.
b)
Stock-based compensation (continued)
Long-term Incentive Plan (“LTIP”)
In connection with the IPO, the Company adopted the LTIP pursuant to which it can grant awards to directors, executive
officers, employees and consultants. Awards are granted in the form of options, which represent the right to acquire
common shares at certain exercise prices, and RSUs, which represent the right to receive common shares or cash.
i.
Options
For the fiscal year ended December 28, 2018, the Company has granted 150,000 options vesting over a period of three to
five years.
The fair value of the options on grant date is estimated using a Black-Scholes option pricing model with the following
assumptions:
Dividend yield
Expected volatility
Risk-free interest rate
Expected life
Exercise price
5.33%
33.11%
1.96% to 2.43%
10 years
$ 11.91 to $ 16.21
Details of options granted under the LTIP and outstanding are as follows:
Outstanding, beginning of year
Granted
Exercised
Forfeited / cancelled / expired
Outstanding, end of year
December 28, 2018(1)
December 29, 2017(1)
Number of options
-
150,000
-
-
150,000
Weighted average
exercise price
-
14.53
-
-
14.53
$
$
$
Number of
options
-
-
-
-
-
Weighted average
exercise price
-
-
-
-
-
$
$
$
(1)
This table reflects the options and exercise prices after the option amendment which took effect immediately prior to the closing of the IPO.
For the fiscal year ended December 28, 2018, a total of $107 of stock-based compensation expense (2017 - $nil) in relation
to options granted under the LTIP was included in selling, general and administration expenses.
28
PINNACLE RENEWABLE ENERGY INC. (Formerly Pinnacle Renewable Holdings Inc.)
Notes to the Consolidated Financial Statements
For the years ended December 28, 2018 and December 29, 2017
(Expressed in thousands of Canadian dollars unless otherwise stated)
17.
Stock-based compensation (continued)
b)
Long-term Incentive Plan (“LTIP”) (continued)
ii.
Restricted share units
For the fiscal year ended December 28, 2018, the Company granted 271,921 RSUs (2017 - Nil) out of which 259,356 RSUs
were vested immediately upon grant.
As the RSUs can be settled in either common shares or cash at the option of the RSU holder, the RSUs represent a
compound award with liability and equity components. The fair value of the liability component was determined to
approximate the fair value of the whole RSU, with no residual value to be assigned to the equity component.
For the vested portion of RSUs, the fair value of the liability component at period-end is estimated based on the market
price of the Company’s common shares. For the unvested portion of RSUs, the fair value of the liability component at
period-end is estimated using a Black-Scholes option pricing model with the following assumptions:
Dividend yield
Expected volatility
Risk-free interest rate
Expected life
Exercise price
5.33%
33.11%
1.88% to 1.92%
4.01 to 6.01 years
$nil
For the fiscal year ended December 28, 2018, stock-based compensation expense in relation to RSUs granted under the
LTIP was $4,266 (2017 - $nil) and was included in selling, general and administration expenses.
18.
Finance costs
a) Finance costs excluding shareholders’ debentures
Interest on revolver loan, term debt and delayed draw loan
Fair value (gain)/loss on derivatives
Realized (gain)/loss on derivatives
Unrealized (gain)/loss on foreign exchange
Realized gain on foreign exchange
Amortization of deferred financing fees
Other
b) Finance costs on shareholders’ debentures
Interest on debentures (note 11)
December 28, 2018
8,851
(5,613)
(597)
(1,748)
360
652
1,137
3,042
December 28, 2018
-
-
$
$
$
$
December 29, 2017
7,425
1,566
(135)
(268)
436
1,094
1,774
11,892
December 29, 2017
12,359
12,359
$
$
$
$
29
PINNACLE RENEWABLE ENERGY INC. (Formerly Pinnacle Renewable Holdings Inc.)
Notes to the Consolidated Financial Statements
For the years ended December 28, 2018 and December 29, 2017
(Expressed in thousands of Canadian dollars unless otherwise stated)
19.
Income taxes
The reconciliation of statutory income tax rates to the Company’s effective tax rate is as follows:
Fiscal year ended
Income tax recovery (expense) at statutory rate of 27.00%
(2017 – 26.00%)
(Increase) decrease related to
Permanent differences and other
Entities with different tax rates and foreign rate adjustments
Change in tax rates
Classified as
Current
Deferred
December 28, 2018
December 29, 2017
$ 348
$ 1,133
1,055
12
-
1,415
-
1,415
(1,298)
-
(361)
(526)
-
(526)
Income tax recovery (expense)
$ 1,415 $ (526)
The Company’s deferred income tax assets and liabilities are comprised of the following:
Deferred tax assets
Balance, December 29, 2017
Increase (decrease) to earnings
Balance, December 28, 2018
Non-capital
losses
Provisions
Transaction
costs
Other
Total
$ 26,035
(2,177)
$ 23,858
$ 851
305
$ 1,156
$ 1,413
705
$ 2,118
$ 157
1,107
$ 1,264
$ 28,456
(60)
$ 28,396
Deferred tax liabilities
Property,
plant and
equipment
Convertible
debentures
Intangible
assets
Deferred
financing
costs
Other
Total
Balance, December 29, 2017
$ (22,194)
$ (12,730)
$ (1,914)
$ (1,188)
$ (98)
$ (38,124)
Increase (decrease)
Balance, December 28, 2018
(2,296)
$ (24,490)
12,730
$ -
402
$ (1,512)
495
$ (693)
(1,454)
$ (1,552)
Net deferred tax liability at December 29, 2017
Net deferred tax liability at December 28, 2018
9,877
$ (28,247)
$ (9,668)
$ 149
At December 28, 2018, the Company has $87,713 (2017 - $96,425) of unused Canadian non-capital loss carry forwards
expiring between 2032 and 2038 to reduce future Canadian taxable income, and $182 (2017 – nil) of unused U.S. federal net
operating loss carryforwards to reduce future U.S. taxable income.
30
PINNACLE RENEWABLE ENERGY INC. (Formerly Pinnacle Renewable Holdings Inc.)
Notes to the Consolidated Financial Statements
For the years ended December 28, 2018 and December 29, 2017
(Expressed in thousands of Canadian dollars unless otherwise stated)
20.
Earnings per share
Net profit (loss) per share has been calculated as follows:
Net profit (loss) for the year attributable to owners
Cumulative preferred dividends
Net profit (loss) per share (basic and diluted)
December 28, 2018
1,850
(104)
1,746
$
$
December 29, 2017
(5,237)
(1,242)
(6,479)
0.05
$
(0.22)
$
$
$
Weighted average of number of shares outstanding (thousands)
32,974
29,318
For the fiscal years December 29, 2017, the Company incurred a net loss attributable to owners, such that the potential
impacts of dilutive instruments were anti-dilutive. The weighted average number of shares for the fiscal year ended
December 28, 2018 and December 29, 2017 have been adjusted for Pre-Closing Capital Changes (note 14).
21.
Supplemental cash flow information
Accounts receivable
Inventory
Other current assets
Accounts payable and accrued liabilities
Other current liabilities
Net change in non-cash operating working capital
PP&E additions during the year
PP&E additions from prior year paid during the year
PP&E additions in accounts payable & other liabilities
Purchase of PP&E
December 28, 2018
7,098
447
443
13,033
(14,004)
7,017
December 28, 2018
65,677
9,250
(1,796)
73,131
$
$
$
$
December 29, 2017
(16,526)
2,713
181
(20,733)
14,182
(20,183)
December 29, 2017
85,570
1,792
(15,306)
72,056
$
$
$
$
31
PINNACLE RENEWABLE ENERGY INC. (Formerly Pinnacle Renewable Holdings Inc.)
Notes to the Consolidated Financial Statements
For the years ended December 28, 2018 and December 29, 2017
(Expressed in thousands of Canadian dollars unless otherwise stated)
22. Acquisition of the Aliceville Facility
On October 15, 2018, the Company closed the acquisition of interest in the Aliceville Facility from The Westervelt
Company (“Westervelt”), a diversified land resources company, at a purchase price of approximately US$36.8 million.
The Company entered into US market with this acquisition. The Aliceville Facility is wholly owned by Westervelt Pellets I,
LLC (“WPI LLC”), a wholly owned subsidiary of Pinnacle Westervelt Renewable Holdings, LLC (“PWRH LLC”). PWRH LLC is
owned 70% by Pinnacle through Pinnacle Renewable Holdings (USA) Inc. (“PRHUSA”) and 30% by Westervelt.
At the acquisition date, the Company paid US$37.3 million, and a working capital true-up refund of US$0.5 million was
received in December 2018. The Company funded the acquisition through a draw on its Facility and cash on hand.
The acquisition was accounted for in accordance with IFRS 3, Business Combinations. The following summarizes the
consideration paid and recognized amounts of assets acquired and liabilities assumed at the acquisition date, based on
the preliminary purchase price allocation:
Cash
Non-cash working capital, net
Property, plant & equipment and intangible assets
Total net identifiable assets
Non-controlling interest
Goodwill
Total Consideration
Amount in USD
234
9,703
37,977
47,914
(14,374)
3,229
36,769
$
$
Amount in CAD
305
12,634
49,446
62,385
(18,716)
4,204
47,874
$
$
If the acquisition of interest in the Aliceville facility had occurred at the beginning of the fiscal year 2018, management
estimates that the acquired assets would have increased total sales by $29,458 and reduced net profit by $1,201 for the
year ended December 28, 2018. Acquisition-related costs of $731 principally related to external legal fee and due diligence
costs have been included in the selling and administration costs when incurred.
32
PINNACLE RENEWABLE ENERGY INC. (Formerly Pinnacle Renewable Holdings Inc.)
Notes to the Consolidated Financial Statements
For the years ended December 28, 2018 and December 29, 2017
(Expressed in thousands of Canadian dollars unless otherwise stated)
23. Related parties
Parent and ultimate controlling entity
Prior to the IPO, the Company was controlled by ONCAP, who effectively owned 60% of the Company. ONCAP is ultimately
controlled by Onex Corporation. During the year ended December 28, 2018, the Company paid a monitoring fee to ONCAP
of $50 (2017 - $500). The monitoring fee was discontinued upon the closing of the IPO.
Minority shareholder
During the fiscal year, the Company paid rent on a plant facility to a minority shareholder in the amount of $240 (2017 -
$240). This amount is set-out in a lease agreement entered into in the normal course of business and on the same terms
accorded to unrelated third parties.
Key management personnel compensation
The Company’s key management consists of the Board members, Chief Executive Officer, Chief Financial Officer, President
and Chief Operating Officer, Senior Vice President of Operations, and Senior Vice President of Sales and Logistics.
Aggregate compensation of the Company’s key management was as follows:
Fiscal year ended
Base compensation and benefits
Board member fee
Annual bonus
Stock-based compensation
HPLP
December 28, 2018
1,552
181
255
4,011
5,999
$
$
December 29, 2017
1,344
-
429
218
1,991
$
$
HPLP is owned 30% by the Company and 70% by non-related third parties. The Company purchases industrial wood pellets
from HPLP and earns revenue from sales of fibre and distribution fees. The Company manages and administers the
business affairs of HPLP and charges a management fee. These transactions are at negotiated amounts between the
Company and the non-related third parties.
Purchases
Revenue
Management fee
As at
Amounts receivable
Amounts payable
$
$
December 28, 2018
30,172
5,564
650
December 28, 2018
690
2,144
$
December 29, 2017
24,030
3,560
639
December 29, 2017
785
$
2,715
The amounts receivable and payable to the Company are unsecured and non-interest bearing.
33
PINNACLE RENEWABLE ENERGY INC. (Formerly Pinnacle Renewable Holdings Inc.)
Notes to the Consolidated Financial Statements
For the years ended December 28, 2018 and December 29, 2017
(Expressed in thousands of Canadian dollars unless otherwise stated)
23. Related parties (continued)
LPLP
LPLP is owned 75% by the Company and 25% by a non-related third party. The Company purchases industrial wood pellets
from LPLP and earns revenue from sales of fibre at negotiated prices between the Company and the non-related third
party. The Company manages and administers the business affairs of LPLP.
Purchases
Revenue
As at
Amounts receivable
Amounts payable
$
$
December 28, 2018
48,536
223
December 28, 2018
779
5,830
$
December 29, 2017
38,378
354
December 29, 2017
282
$
2,760
The amounts receivable and payable to the Company are unsecured and non-interest bearing.
SPLP
On October 4, 2017, the Company entered into a limited partnership with a non-related third party for the acquisition
and development of a wood pellet facility. SPLP is owned 70% by the Company and 30% by a non-related third party.
Purchases
Revenue
As at
Amounts receivable
Amounts payable
$
$
December 28, 2018
-
-
December 28, 2018
624
740
$
December 29, 2017
-
-
December 29, 2017
-
$
-
The amounts receivable and payable to the Company are unsecured and non-interest bearing.
WPI LLC
On October 15, 2018, the Company entered into a partnership with a non-related third party for the operation of a wood
pellet facility. WPI LLC is wholly owned by PWRH LLC which is owned 70% by the Company and 30% by a non-related third
party.
Amounts in USD
Purchases
Revenue
As at (amounts in USD)
Amounts receivable
Amounts payable
$
December 28, 2018
-
399
December 28, 2018
662
$
-
$
$
December 29, 2017
-
-
December 29, 2017
-
-
The amounts receivable and payable to the Company are unsecured and non-interest bearing.
34
PINNACLE RENEWABLE ENERGY INC. (Formerly Pinnacle Renewable Holdings Inc.)
Notes to the Consolidated Financial Statements
For the years ended December 28, 2018 and December 29, 2017
(Expressed in thousands of Canadian dollars unless otherwise stated)
24.
Financial instruments
IFRS 9 Financial Instruments replaces IAS 39 Financial Instruments: Recognition and Measurement, and introduces a new
model for the classification and measurement of financial assets and liabilities, a single expected credit loss model for the
measurement of the impairment of financial assets and a new model for hedge accounting that is aligned with an entity’s
risk management activities.
Classification and measurement:
IFRS 9 replaces the various categories for the classification of financial assets and initially measures them at fair value
unless they meet the certain conditions that permit classification as amortised cost. Under IFRS 9 and IAS 39, non-trading
financial liabilities are classified and measured at amortized cost except for those designated at fair value through profit
and loss. There was no significant change in the Company’s measurement of its financial assets and liabilities under IFRS
9.
Under IFRS 9, cash and accounts receivables are classified as amortised cost. Under IFRS 9, the amortized cost category is
restricted to those financial assets that meet the following conditions: the entity holds the assets to collect the contractual
cash flows and those cash flows are solely payments of principal and interest. The Company holds it accounts receivable
to collect the contractual cash flows which represents repayment of the invoiced amount within the short-term credit
period. As there is no financing component, accounts receivables are initially measured at their transaction price.
Under IFRS 9, accounts payable, the revolver loan, term loan and delayed draw term loan, shareholders’ debentures and
Class H preferred shares are classified and measured at amortized cost. Class B and Class D common shares held by
management continued to be designated as fair value through profit and loss until were settled.
Under IFRS 9 and IAS 39, the Company’s derivative instruments are always classified and measured at fair value with
changes in fair value recognised in the consolidated net profit (loss).
Impairment of financial assets:
IFRS 9 replaces the incurred loss model with the expected credit loss model for the recognition and measurement of
impairment losses on financial assets. IFRS 9 allows an entity to use a simplified approach for trade accounts receivable.
Under this approach, the Company measures its expected credit losses as the amount from all possible default events
over the expected life of its trade accounts receivable. The Company monitors individual customer accounts receivable
on a frequent basis and recognizes a credit loss on specific accounts when a default is identified. There was no adjustment
to impairment losses resulting from the adoption of use of the expected credit loss model.
The convertible shareholder debentures and Class F preferred shares were classified as amortized cost and on February
6, 2018 these instruments were converted to common shares. Also, on February 6, 2018, the subordinated shareholders’
debentures were repaid at their amortized cost (note 11).
The Class B common shares and Class D common shares classified as liabilities were carried at fair value based on the
underlying fair value of the enterprise based on management’s estimates. Accordingly, these financial instruments are
classified as Level 3 in the fair value hierarchy. These Class B and D shares were converted to common shares on February
6, 2018. Prior to the conversion, these shares were revalued to their fair value based on the Company’s enterprise value
calculated with the IPO price of $11.25 per common share. This change in valuation resulted in reduction in the fair value
of these financial instruments and a gain recognised in the Company’s net loss (note 12).
35
PINNACLE RENEWABLE ENERGY INC. (Formerly Pinnacle Renewable Holdings Inc.)
Notes to the Consolidated Financial Statements
For the years ended December 28, 2018 and December 29, 2017
(Expressed in thousands of Canadian dollars unless otherwise stated)
24.
Financial instruments (continued)
The following table shows reconciliation from the opening balances to the closing balances for Level 3 fair values:
For fiscal year ended
Balance at December 30, 2016
Issuance of class D common shares
Net change in fair value
Balance at December 29, 2017
Net change in fair value
Conversion to common shares
Balance at December 28, 2018
$
$
$
14,710
550
5,601
20,861
(3,563)
(17,298)
-
The following table summarizes the fair value of the derivative financial instruments included in the statements of financial
position:
As at
Other current assets
Other long-term assets
Other current liabilities
Other long-term liabilities
$
December 28, 2018
2,690
2,449
-
-
December 29, 2017
$
-
-
256
218
$
5,139
$
474
For the fiscal year ended December 28, 2018, the Company recognised a gain of $6,210 (2017 loss - $1,431) on its
derivative financial instruments in its net profit (loss).
25.
Financial Risk and Capital Management
The Company is exposed to a number of risks as a result of holding financial instruments including credit risk, liquidity risk
and market risk. The Company’s Risk Management Committee manages risk related to counterparty credit risk and
market risk such as foreign exchange.
Credit risk
Credit risk is the risk of financial loss to the Company if a counterparty to a financial instrument fails to meet its contractual
obligations. Financial instruments that are subject to credit risk include cash and accounts receivable. The Company
managers its credit risk on cash by using major Canadian chartered banks for all cash deposits. The cash balance at
December 28, 2018 is $18,028 (2017 - $18,908).
The Company manages its credit risk on accounts receivable by reviewing individual sales contracts considering the length
of the contract and assessing the credit quality of the counterparty. Board approval is required for contracts over $5,000.
The significant majority of the Company’s sales are contracted with large utility customers on which no impairment loss
has been recognized during the fiscal years ended 2018 and 2017. The receivable balance at December 28, 2018 is $43,017
(2017 - $41,253).
Included in accounts receivable is $1,515 (2017 – Nil) of unsecured receivables from TWC. The receivables against NMTC
debt (note 10) $84,877 is also an unsecured receivable from TWC. However, the Company has received indemnification
against all payments, liabilities and economic loss arising from the NMTC debt from TWC.
36
PINNACLE RENEWABLE ENERGY INC. (Formerly Pinnacle Renewable Holdings Inc.)
Notes to the Consolidated Financial Statements
For the years ended December 28, 2018 and December 29, 2017
(Expressed in thousands of Canadian dollars unless otherwise stated)
25.
Financial Risk and Capital Management (continued)
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its respective obligations as they come due. The
Company manages liquidity requirements through frequent monitoring of cash inflows and outflows, preparation of
regular cash flow forecasting and its available credit facilities.
The contractual maturities of financial liabilities excluding future interest and shareholders’ debentures and common and
preferred shares at December 28, 2018 were as follows:
Non derivative financial liabilities
Revolver loan (i)
Accounts payable and accrued liabilities
Term loan
Delayed draw loan
$
Carrying
amount
Contractual
cash flows
3 months
or less
3-12
months
More than
1 year
18,450 $
43,537
194,000
50,491
18,450 $
43,537
194,000
50,491
18,450 $
43,537
2,000
-
- $
-
7,500
3,029
-
-
184,500
47,462
(i) Classified as 3 months or less as due on demand; however, maturity of the Revolver loan is December 13, 2022.
Management expects to finance its operations and cash flows from its current available resources and without further
support from its shareholders and lenders. However, to the extent that additional cash resources are required due to
unforeseen circumstances, management anticipates support from its shareholders and lenders, although there can be no
guarantees.
Market risk
Market risk is that the change in market prices such as foreign exchange rates will affect the Company’s net profit (loss)
and that the future cash flows of a financial instrument will fluctuate due to changes in market prices.
37
PINNACLE RENEWABLE ENERGY INC. (Formerly Pinnacle Renewable Holdings Inc.)
Notes to the Consolidated Financial Statements
For the years ended December 28, 2018 and December 29, 2017
(Expressed in thousands of Canadian dollars unless otherwise stated)
25.
Financial Risk and Capital Management (continued)
Foreign currency
The Company’s functional and reporting currency is the CAD. The Company’s sales, operating and capital expenditures
are primarily denominated and settled in CAD. The Company has exposure to the USD on its shipping costs, rail car
leases, some capital purchases, and through operation of the Aliceville Facility in the United States which uses USD as its
functional currency. The Company mitigates its exposure to the USD on its shipping costs by invoicing the shipping
portion in USD and with a contract with its major shipping provider with a fixed USD to CAD exchange rate. The
remaining exposure is mitigated by entering into a series of USD forward contracts matching the amount and timing of
the estimated USD expenditures.
These contracts are simultaneously settled on a gross tax basis as the Company exchanges USD into CAD at predetermined
rates. The Company does not apply hedge accounting to its USD forward contracts. The outstanding notional amounts of
the USD forward contracts and their contractual maturities are as follows:
Particulars
As at December 28, 2018
USD Forward Contracts
As at December 29, 2017
USD Forward Contracts
Interest rate
$
$
Notional
amount
Average
forward rate
Less than
1 year
Greater
than 1 year
Fair value
asset
(liability)
51,775 $
1.2556 $
25,800 $
25,975 $
5,139
73,564 $
1.2590 $
9,064 $
64,500 $
(474)
The Company is exposed on interest rate risk through its debt facility including its revolver, term loan and delayed draw
term loan which are subject to variable lending rates. Currently, the Company does not use financial instruments to
manage this risk. A 1% change in interest rates would increase or decrease interest expense by $2,300 (2017 - $1,794).
26. Capital management
The Company’s objective when managing its capital structure is to maintain a strong financial position and to provide
returns with sufficient liquidity to undertake further growth for the benefit of its shareholders.
The Company’s capital is comprised of long-term obligations and equity as outlined below:
As at
External party debt (including revolver loan)
Shareholders’ debentures payable
Common and preferred shares classified as liabilities
Less: cash
Net long-term obligations
Total equity
Total capitalization
December 28, 2018
262,941
-
-
(18,028)
244,913
229,013
473,926
$
$
December 29, 2017
222,000
88,881
25,992
(18,908)
317,965
35,204
353,169
$
$
There were no changes to the Company’s approach to capital management during the year.
The Company is subject to certain financial covenants in its debt obligations. The Company’s strategy is to ensure it
remains in compliance with all of its existing covenants so as to ensure continuous access to required debt to fund growth.
Management reviews results and forecasts to monitor the Company’s compliance.
38
PINNACLE RENEWABLE ENERGY INC. (Formerly Pinnacle Renewable Holdings Inc.)
Notes to the Consolidated Financial Statements
For the years ended December 28, 2018 and December 29, 2017
(Expressed in thousands of Canadian dollars unless otherwise stated)
27. Commitments
Leases
The Company has lease commitments on certain vehicles, rail cars, land, office space and equipment. The total annual
minimum lease payments are as follows:
Year
2019
2020
2021
2022
2023
Thereafter
Financing Lease
1,031
841
185
-
-
-
2,057
$
$
Operating Lease
10,674
9,228
7,403
4,999
4,607
28,837
65,748
$
$
Customer and supplier commitments
The Company has made commitments to customers and suppliers with respect to minimum volumes for sales, shipping,
storage and loading and fibre purchases. These contracts are in the normal course of business and cover periods of up to
fifteen years in the future. Failure to meet contractual terms other than as a result of a force majeure event as defined
under the various agreements could result in various payments required by the Company. The Company expects to meet
its commitments in the normal course of operations.
Capital commitments
The Company has capital commitments of $20,596 at December 28, 2018 (2017 - $22,514).
28. Contingencies
The Company is involved in various claims associated with its operations. While the outcomes of the proceedings are not
determinable, management is of the opinion that the resulting settlements, if any, would not materially affect the financial
position of the Company. Should a material loss occur, it would be accounted for when it became likely and reasonably
estimable. Otherwise, any losses would be accounted for as a charge to earnings in the period in which the settlement
occurred.
39
PINNACLE RENEWABLE ENERGY INC. (Formerly Pinnacle Renewable Holdings Inc.)
Notes to the Consolidated Financial Statements
For the years ended December 28, 2018 and December 29, 2017
(Expressed in thousands of Canadian dollars unless otherwise stated)
29. Revenue from contracts with customers
The Company’s revenue derived from the sale of finished wood pellets and the provision of port services was as follows:
Finished wood pellets
Port Services
December 28, 2018
339,782
7,658
347,440
$
$
Revenue attributed to geographic regions based on the location of the customers was as follows:
Europe
Asia
North America
30.
Economic dependence
December 28, 2018
262,875
68,084
16,481
347,440
$
$
December 29, 2017
286,414
6,313
292,727
December 29, 2017
259,070
18,325
15,332
292,727
$
$
$
$
The Company has certain European customers whose individual revenue represents 10% or greater of the Company’s
total revenue. For the fiscal year ended December 28, 2018, three of these customers represented 75% of the Company’s
total revenue. For the fiscal year ended December 29, 2017, three of these customers represented 86% of the Company’s
total revenues.
The Company's inbound fibre and outbound bulk pellet exports are transported using an integrated logistics supply chain
which includes trucking, rail, terminal, and shipping service providers. If alternative sources for these services were
required, the Company's ability to service existing bulk off-take contracts and/or the Company’s costs could be impacted.
31.
Subsequent events
On December 29, 2018, we commenced commercial production at the Smithers Facility. Additional capital cost will be
incurred at a later date.
On January 18, 2019, the Company reached a settlement on a damage claim it was pursuing against one of its equipment
suppliers for approximately $7,483 in the Company’s favour. The payment is expected to be received in the first quarter
of 2019.
On February 11, 2019, Pinnacle temporarily suspended operations at the Entwistle Facility due to a fire and explosion that
occurred at the dryer area of the facility. The Company is currently investigating the cause of the incident and developing
action plans to restart the facility. The rest of the Entwistle Facility sustained little damage. The Company is working with
its customers to mitigate the impact to the extent possible under the circumstances. Alberta Labour Occupational Health
& Safety released control of the site back to the Company on February 20, 2019.
40
DIRECTORS & OFFICERS
Gregory Baylin
Chair 1,2*,4
Pat Bell
Vice Chair 1*,2,3, 4
Michael Lay
Director 2, 4
Hugh MacDiarmid
Director 3*,4
Jane O’Hagan 1,3,4
Director
Robert McCurdy
Director, Chief Executive Officer
Leroy Reitsma
Director, President & Chief Operating Officer
Andrea Johnston
Chief Financial Officer
EXECUTIVE TEAM
Robert McCurdy, Chief Executive Officer
Leroy Reitsma, President & Chief Operating Officer
Andrea Johnston, Chief Financial Officer
Vaughan Bassett, Senior Vice President, Sales & Logistics
Scott Bax, Senior Vice President, Operations
Ranj Sangra, General Counsel & Corporate Secretary
Erin Strong, Director, Human Resources
SHAREHOLDER INFORMATION
Corporate Head Office
350 - 3600 Lysander Lane
Richmond, British Columbia V7B 1C3, Canada
Tel: 604.270.9613
Registrar and Transfer Agent
TSX Trust
Auditors
KPMG LLP
Legal Counsel
McCarthy Tetrault LLP
Stock Exchange Listing
Pinnacle Renewable Energy is listed on the Toronto
Stock Exchange under the symbol PL. As at February
21, 2019, Pinnacle had 33,003,713 common shares
issued and outstanding.
Investor Contact
Tel: 1.877.737.4344
Email: investors@pinnaclepellet.com
Annual General Meeting
Tuesday, May 21, 2019 at 8:30 am
McCarthy Tetrault LLP
745 Thurlow Street, Suite 2400
Vancouver, BC
1Member of Risk Committee 2Member of Governance, Nominating and Compensation Committee 3Member of Audit Committee 4Independent Director *Denotes Committee Chair
www.pinnaclepellet.com
Continue reading text version or see original annual report in PDF
format above