2018 annual report · 2019. 6. 26. · 2 brick brewing co. limited · annual report 2018 we brew...
TRANSCRIPT
2018 ANNUAL REPORT
for Brick Brewing Co. Limited
OURBUSINESS IS YOUR RETURN ONREFRESHMENT
YEARS ENDED JANUARY 31, 2018 & 2017
TABLE OF CONTENTS
SHAREHOLDER LETTER.........................................................................................................................................MANAGEMENT’S DISCUSSION & ANALYSIS......................................................................................................AUDITED FINANCIAL STATEMENTS..................................................................................................................INDEPENDENT AUDITORS’ REPORT.................................................................................................................STATEMENTS OF COMPREHENSIVE INCOME................................................................................................STATEMENTS OF FINANCIAL POSITION..........................................................................................................STATEMENTS OF CHANGES IN EQUITY............................................................................................................STATEMENTS OF CASH FLOWS.........................................................................................................................NOTES TO FINANCIAL STATEMENTS................................................................................................................
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WEBREWSUCCESSAtWaterlooBrewing,wearedriventowin;andthereisnobetterplacetocompetethantheOntariobeermarket.Therearenowover250breweriesoperatinginOntario,plus76virtualbreweriesandanother92breweriesintheplanningstages—nottomentiontwomassiveglobalbrewers.Succeedinginthishyper-competitivemarketisadauntingchallenge,yetwearedoingpreciselythat.Wefinishedouryearwith$49.8millioninrevenue(+10.2%versusthepreviousyear)andEBITDAexcluding1Xcostsof$9.0million,continuingafive-yeartrendofstrongfinancialperformance.Theseoutstandingresultsmadeitpossibleforustoofferanincreasingdividend—theonlyCanadiancraftbeerstocktodoso.Ourrecordofgrowthandoutperformingtheindustryisbasedonastronganddiverseportfolioofcompellingbrandsandthewinningspiritofourbrewery.OurWaterloofamilyofcraftbeersgrewby10%withthesupportofredesignedpackagingandamoreattractivebrandidentity.EffectiveandtimelyresponsesinpricingandpackformatspropelledourflagshipLakerfamilyofbeerstogrowby7%,despitetremendouscompetitiveactivityinvaluebeer.LandsharkandMargaritaville,thenewestadditionstoourbrandportfolio,achievedgrowthof45%.WealsohavetwohardciderofferingsinSeagramCiderandChudleigh’sOrchardCider,allofwhichcombinetomakeWaterlooBrewingaformidablecompetitorinallmajorsegmentsofbeveragealcoholasidefromwineandspirits.Andwe’renotdoneyetbyanystretch.AttheheartofthewinningspiritofWaterlooBrewingistoseekoutnewwaystomattermoretoourdrinkersandearntheirbusinesseveryday.Thatmotivation,thatcompulsiontoinnovate,willensurethatourbreweryremainsattheforefrontofwherethecategoryisgoing.AsOntario’sFirstCraftBrewer,wearecommittedtoinnovationandleadershipandwillpursuerelevantnewmarketswithequalzealandfiscalresponsibility.Theseambitionsaremadepossibleonafoundationofaggressivecostmanagement.Wearenowasingle-sourcefacilityafterfiveyearsofnecessaryconsolidationandalltheeffortisprovingtohavebeenworthit.Ourco-packbusinesshasgrownby28%—ontopof20%growththepreviousyear—whichfurthercontributestoscaleandefficiency.Theadditionthisyearofournew,high-capacitycanninglinewillyieldfurtherproductivityandcostsavings.Wecouldnotpossiblysucceedwithoutthereliablesupportofourshareholders,andhopeweareconstantlygivingyoureasonstobelieveinourambitionsforthisbusinessandevidenceofourprogress.Truly,GeorgeCroftPresidentandCEO
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MANAGEMENT’SDISCUSSION&ANALYSIS
YearsEndedJanuary31,2018and2017
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MANAGEMENT’SDISCUSSIONANDANALYSIS
Thefollowingmanagement’sdiscussionandanalysis (“MD&A”)providesareviewof theactivities, resultsofoperationsandfinancialconditionofBrickBrewingCo.Limited(“Brick”orthe“Company”)forthetwelvemonthsendedJanuary31,2018 (“fiscal 2018”) in comparisonwith the twelvemonths ended January 31, 2017 (“fiscal 2017”). These commentsshould be read in conjunctionwith the audited financial statements for fiscal 2018 and fiscal 2017 and accompanyingnotes included therein, which have been prepared in accordance with International Financial Reporting Standards(“IFRS”).ThisMD&AhasbeenpreparedasofApril11,2018.AdditionalinformationrelatingtotheCompany,includingitsannualinformationform,isavailableatwww.sedar.comorintheinvestorrelationssectionoftheCompany’swebsiteatwww.brickbeer.com.FORWARD-LOOKINGSTATEMENTS
Except for the historical information contained herein, the discussion in this MD&A contains certain forward-lookingstatements that involve risks and uncertainties, such as statements of the Company’s plans, objectives, strategies,expectations and intentions and include, for example, the statements concerning expected volumes, earnings beforeinterest, taxes,depreciationandamortizationandsharebasedpayments (“EBITDA*”),operatingefficiencies,andcosts.Forward-lookingstatementsgenerallycanbeidentifiedbytheuseofforward-lookingterminologysuchas“may”,“will”,“expect”,“intend”,“anticipate”,“seek”,“plan”,“believe”or“continue”orthenegativesofthesetermsorvariationsofthemorsimilar terminology. AlthoughtheCompanybelievesthat theexpectationsandassumptionsreflected intheseforward-looking statementsare reasonable,undue reliance shouldnotbeplacedon these forward-looking statements.Theseforward-lookingstatementsarenotguaranteesandreflecttheCompany’sviewsasofApril11,2018withrespecttofuture events. Future events are subject to certain risks, uncertainties and assumptions, which may cause actualperformance and financial results to differ materially from such forward-looking statements. The forward-lookingstatements,includingthestatementsregardingexpectedvolumes,EBITDA*,operatingefficienciesandcostsarebasedon,amongotherthings,thefollowingmaterial factorsandassumptions:salesvolumes inthefiscalyearendingJanuary31,2019 (“fiscal 2019”) will increase; no material changes in consumer preferences; brewing, blending, and packagingefficiencies will improve; the cost of input materials for brewing and blending will increase; competitive activity fromothermanufacturerswillcontinue;nomaterialchangetotheregulatoryenvironmentinwhichtheCompanyoperatesandnomaterialsupply,costorqualitycontrolissueswithvendors.Readersareurgedtoconsidertheforegoingfactorsandassumptionswhen reading the forward-looking statements and formore information regarding the risks, uncertaintiesandassumptionsthatcouldcausetheCompany’sactualfinancialresultstodifferfromtheforward-lookingstatements,toalso refer to the remainderof thediscussion in thisMD&A, theCompany’sannual information formandvariousotherpublic filingsasandwhenreleasedbytheCompany. Theforward-lookingstatements included inthisMD&AaremadeonlyasofApril11,2018and,exceptasrequiredbyapplicablesecuritieslaws,theCompanydoesnotundertaketopubliclyupdatesuchforward-lookingstatementstoreflectnewinformation,futureeventsorotherwise.
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DESCRIPTIONOFTHEBUSINESS
ProductsTheCompanyproduces,sells,marketsanddistributespackagedanddraftpremiumbeerundertheWaterloobrandname,and value beer under the Laker and Red Cap brand names (collectively, the “Brick Beer Brands”). The Company alsoproduces,sells,marketsanddistributesSeagramcoolersandcidersacrossCanada. Pursuant toanexclusive long-termlicensing agreement, the Company produces, sells, markets and distributes products under the LandShark® andMargaritaville®trademarksinCanada.
Pursuant to a co-packaging agreement with Loblaws Inc. (“Loblaws”), the Company produces, sells, markets anddistributes variousbeerproductsonbehalfof Loblawsunder the licensedPresident’sChoice® (“PC®”) trademark. TheCompanyproducesvariousproductsunderacontractwithCanadaDryMott’s,Inc.(“CDMI”)andalsoactsastheexclusivesalesagentinOntarioforCDMI.TheCompanyalsohasbrewingandco-packagingagreementswithothermanufacturers.Thesecustomersarenotseparatelyidentified,asperthetermsofthoseagreements.
GeographicDistribution
TheCompany’sproductsare soldprimarily inOntario. TheCompany’sWaterloopackagedbeer is also sold inAtlanticCanada,WesternCanada,andtheUSA.Seagram,LandShark®andMargaritaville®productsaresoldinCanada.SeagramCoolersaremanufacturedanddistributedinQuebecpursuanttoalicensingagreementwithBlueSpikeBeverages.
DistributionChannels
InOntario,distributionofpackagedbeeroccursthroughTheBeerStore(“TBS”),LiquorControlBoardofOntario(“LCBO”),andlicensedgrocerystores.ConsumerscanpurchasetheCompany’sproductsthroughthesechannelsaswellasthroughlicensedestablishments(barsandrestaurants)inOntario.SeagramCoolersaresoldthroughtheprovincialliquorboards.There are currently over 280 licensed grocery stores inOntario,with additional store licenses expected to be grantedduring the balance of 2018. The Company currently distributes Laker, LandShark®, and Waterloo beers, as well asSeagramcider,incertaingrocerystoresinOntario.
OperatingFacilities
TheCompany’sproductionfacilityislocatedinKitchener,Ontario.Infiscal2017,theCompanyannounceditsintentiontosellitsbrewing,blendingandpackagingfacilitylocatedinFormosa,OntarioandconsolidateoperationswithinitsprimaryKitchenerfacility.OnSeptember1,2017,theCompanyannouncedthatitreachedadefinitiveagreementforthesaleoftheFormosafacilityandthesalewascompletedinthethirdquarteroffiscal2018.TheCompany’sheadandregisteredofficeisinKitchener,Ontario.
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SELECTEDANNUALINFORMATION
ThefollowingtablesummarizescertainfinancialinformationoftheCompanyforthefiscalyearsindicatedbelow:
(inthousandsofdollars,exceptpershareamounts)
January31,2018 January31,2017 January31,2016
IncomeStatementData
GrossRevenue 98,180$ 87,909$ 73,621$
NetRevenue(afterproductiontaxesanddistributionfees) 49,790$ 45,176$ 37,609$
Earningsbeforeinterest,taxes,depreciationandamortization,andshare-basedpayments 8,167$ 8,843$ 5,633$
Netincome 2,602$ 3,997$ 1,594$
EarningspershareBasic 0.07$ 0.11$ 0.05$Diluted 0.07$ 0.11$ 0.05$
BalanceSheetData
TotalAssets 58,329$ 55,751$ 48,840$
TotalTermDebtandObligationUnderFinanceLease 11,133$ 7,766$ 8,018$
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RESULTSOFOPERATIONS
(inthousandsofdollarsexceptpershareamounts)January31,2018 January31,2017
Grossrevenue 98,180$ 87,909$Less:Productiontaxesanddistributionfees 48,390 42,733Netrevenue 49,790 45,176
Costofsales 35,510 29,465Grossprofit 14,280 15,711
28.7% 34.8%
Selling,marketingandadministration 9,143 9,248
Incomebeforetheundernoted 5,137 6,463
Otherexpenses 814 643
Financecosts 546 478
Lossondisposalofproperty,plantandequipmentandintangibles 131 -
Incomebeforetax 3,646 5,342
Incometaxexpense 1,044 1,345Netincome 2,602 3,997
EarningspershareBasic 0.07$ 0.11$Diluted 0.07$ 0.11$
Netrevenueincrease 10.2% 20.1%
Consistingof:Increaseinownerbrandnetrevenue 6.3% 20.2%Increaseinco-packnetrevenue 28.1% 19.6%
Fiscalyearended
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(inthousandsofdollars) January31,2018 January31,2017
Netincome 2,602$ 3,997$
Add(deduct):Incometaxexpense 1,044 1,345Depreciationandamortization 3,528 2,876Lossondisposalofproperty,plantandequipmentandintangibles 131 -Share-basedpayments 316 147Financecosts 546 478
Subtotal 5,565 4,846
EBITDA* 8,167 8,843
Fiscalyearended
*EBITDAisanon-IFRSearningsmeasure,thereforeitdoesnothaveanystandardizedmeaningprescribedbyInternationalFinancialReportingStandardsand may not be similar to measures presented by other companies. EBITDA represents earnings before interest, income taxes, depreciation andamortization, loss on disposal of property, plant, and equipment, and share-based payments. Management uses this measurement to evaluate theoperatingresultsoftheCompany.ThismeasureisalsoimportanttomanagementsinceitisusedbytheCompany’slenderstoevaluatetheongoingcashgeneratingcapabilityoftheCompanyandthereforetheamountsthoselendersarewillingtolendtotheCompany.InvestorsfindEBITDAtobeusefulinformationbecauseitprovidesameasureoftheCompany’soperatingperformance.
NETREVENUE
Grossrevenueswere$98.2millionand$87.9millionforthefiscalyearsendedJanuary31,2018and2017,respectively.Net revenues for fiscal2018were$49.8million (fiscal2017 -$45.2million). Net revenuesarecalculatedbydeductingfromgrossrevenuesthecostsofdistributionfeespaidtoTBSandprovincialliquorboardsandproductiontaxes.
Grossandnetrevenuewereimpactedbytheincreaseinbrandedsalesvolumes,favourablepricepointsincomparisontocompetitors,andbysignificantgrowthinco-packrevenue.
Infiscal2018,theCompany’soverallbrandedsalesvolumewasapproximately238,100hectolitres.
(inhectolitresroundedtonearest100)January31,2018 January31,2017 January31,2018 January31,2017
Laker 45,100 44,200 176,900 166,800Waterloo 4,000 3,800 21,500 19,600Landshark&Margaritaville 3,100 3,200 23,700 16,300OtherBeerBrands1 300 1,100 3,500 5,100SeagramCoolers2 2,400 2,500 12,500 12,200TotalBrandedVolume 54,900 54,800 238,100 220,000
1 Formosa Springs and Red Baron, reported within other beer brands, were sold until September 2017.2 Includes volume sold under the licensed Seagram Trademark by Blue Spike Beverages in Quebec.
Fiscalyear-to-dateendedQuarterended
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BRANDEDVOLUMESBrandedsalesvolumesincreasedinfiscal2018by8.2%fromfiscal2017’ssalesvolumes,largelydrivenbyvolumegrowthoftheLakerandWaterloobrands,andthecontinuedsuccessofLandShark®andMargaritaville®productsforwhichtheCompanysecuredtheexclusiveCanadianrights.
During theyearended January31,2018, the Laker familybrand sales volumes increasedby6.1%over theyearendedJanuary31,2017, supportedby thebrand’s consistent valuepricingandpromotionsalongwithadditionaldistribution.Theindustrybeervolumesdecreasedbyapproximately5.1%(basedoncountersalesthroughTBS)infiscal2018.Waterloobrandsalesvolumeshaveincreasedby9.7%infiscal2018comparedtofiscal2017.TheCompanycontinuestosupport theWaterloobrandsthroughadditionalmarketingtoraiseawarenessof theCompany’scraftbrewingdivision,WaterlooBrewing.Duringfiscal2018,theCompanyunveiledanewlook,identity,andwebsiteforitsWaterloobrandtodrivebrandawarenessandvolumegrowth.TheCompanylaunchedLandShark®andMargaritaville®productsduringfiscal2017,availableatTBS,LCBO,andgrocerystores inOntario. Theseproductscontinuetoperformverywellandgeneratedsalesvolumesofapproximately23,700hectolitersduringfiscal2018,anincreaseof45.4%overfiscal2017.IntheyearendedJanuary31,2018,thebeervolumeincludedinthetableaboveconsistedof20.0%inthepremiumbeercategory which represents an increase of 16.0% from fiscal 2017 due to a continued focus on craft beers and theintroductionofLandShark®Lager. TheCompanycontinuestoholdlessthan5%ofthetotalmarketsharebyvolumeofTBSretailsalesinOntario.
DuringtheyearendedJanuary31,2018,salesvolumesoftheSeagramcoolersincreasedby2.5%comparedtotheyearendedJanuary31,2017.TheincreaseisprimarilyduetogrowthinSeagramciderwithintheLCBOandlicensedgrocerystores,andincreasedvolumeofproductsoldunderthelicensedSeagramTrademarkbyBlueSpikeBeveragesinQuebec.PRODUCTIONTAXES&DISTRIBUTIONFEES
Duringfiscal2018,theCompany’sproductiontaxincreasedby10.8%comparedtofiscal2017duetotheincreaseinsalesvolumeof theCompany’s beerbrands andby annual increases to the rateof beer andexcise taxes. Distribution feesduringfiscal2018representedapproximately14.8%ofgrossrevenuescomparedto13.8%infiscal2017.
COSTOFSALES
Cost of saleswas $35.5million for fiscal 2018, an increaseof $6.0million from fiscal 2017. Cost of sales represented71.3%of net revenue in fiscal 2018 compared to 65.2% in fiscal 2017; an increase of 9.3%. The increase is driven byvolumegrowth,bothbrandedand copack, andone time costsof approximately$0.9million in fiscal 2018 (nil in fiscal2017)associatedwith theconsolidationof theCompany’sbrewing,blendingandpackaging facility inFormosa,OntariointoitsKitchenerfacility.
The commissioningof newequipment related to the consolidation and the transitionof production from the Formosafacilityoccurredduringfiscal2018,whichincreasedthecostofsales.AsoflateOctober2017,theCompanybegantoseeimprovementstooperatingperformanceandexpectstoreturntomorenormalcostperformancegoingforward.
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SELLING,MARKETINGANDADMINISTRATION
Infiscal2018,selling,marketingandadministration(“SM&A”)expensestotalled$9.1millionwhichrepresentsadecreaseof$0.1million fromfiscal2017. TheCompanycontinues tosupport itscorebrands:Laker,Waterloo,andSeagram;aswellasLandShark®andMargaritaville®.Asapercentageofnetrevenue,SM&Aexpenseswere18.4%infiscal2018comparedto20.5%infiscal2017.
DEPRECIATIONANDAMORTIZATION
Totaldepreciationandamortizationexpensewas$3.5millioninfiscal2018comparedto$2.9millioninfiscal2017.FINANCECOSTS
Infiscal2018,financecostswere$0.5million,unchangedfromfiscal2017.
LOSSONDISPOSALOFPROPERTY,PLANTANDEQUIPMENTANDINTANGIBLES
In fiscal2018, losses fromthedisposalofproperty,plantandequipmentwere$0.1millioncomparedtoa lossofnil infiscal2017. The lossondisposalwasgeneratedon thesaleof theCompany’sFormosa facilityanddisposalof theRedBaronandFormosalistingsatTheBeerStore.
INCOMETAXEXPENSE
Infiscal2018,theCompanyrecordedanincometaxexpenseof$1.0millioncomparedto$1.3millioninfiscal2017.
NETEARNINGS
TheCompanyhadnetincomeof$2.6millioninfiscal2018,comparedto$4.0millioninfiscal2017.ThebasicanddilutedearningspersharefortheyearendedJanuary31,2018wereboth$0.07pershare.ThebasicanddilutedearningspersharefortheyearendedJanuary31,2017wereboth$0.11pershare.
LIQUIDITYANDCAPITALRESOURCES
FINANCIALPOSITIONTheCompanyhadanoperatinglineofcreditavailableandtermdebtoutstandingatJanuary31,2018.AsatJanuary31,2018,theCompanywasincompliancewithallcovenantstoitslenders.
The Company has an operating line of credit which provides for a maximum of $8.0 million credit (margined againstaccountsreceivableandinventoryoftheCompany)andbearsinterestatarateofprimeplus0.20%.AtJanuary31,2018,theCompanyhadbankindebtednessof$0.8million,comparedtonilasatJanuary31,2017.
TheCompanyhasapositiveworkingcapitalpositionof$6.1millionasofJanuary31,2018comparedtoapositiveworkingcapitalpositionof$4.9millionasofJanuary31,2017.
Current assetsof theCompanywere$15.5millionasof January31, 2018 compared to$16.1millionasof January31,2017.
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AsofJanuary31,2018,theCompanyhadnilcashonhandcomparedtoabalanceof$2.8millionasofJanuary31,2017duetothebuildingof inventory inanticipationof thecan lineexpansionplannedfor fiscal2019whichwasannouncedduringthefourthquarteroffiscal2018.
AsofJanuary31,2018,theCompany’sbalanceofaccountsreceivablewasconsistentwiththebalanceasofJanuary31,2017. Inventoryasof January31,2018 increasedby$2.3millioncomparedtothebalanceasof January31,2017.Thechangeininventoryisafunctionofhighersalesandco-packvolumesinfiscal2018andthebuildingofinventoryforthecanlineexpansiondiscussedabove.
Property, plant and equipment increased by $5.4million at January 31, 2018 from January 31, 2017. The increase inproperty,plantandequipmentincludedpurchasesof$10.7million,ofwhich$2.5millionwereconstructiondepositspaidinfiscal2017.Theadditionswereoffsetbydepreciationof$3.3millionandproceedsfromdisposalof$2.0million.
Intangibleassetsdecreasedby$0.1millionatJanuary31,2018fromJanuary31,2017duetopurchasesoflistingsfor$0.3millionoffsetbyamortizationoflistingsof$0.2millionandadisposaloflistingsassociatedwiththesaleoftheRedBaronandFormosaSpringsbrandsincludedinthesaleoftheFormosa,Ontariobrewery.
TheCompany’scurrentliabilitieswere$9.4millionatJanuary31,2018comparedto$11.1millionatJanuary31,2017;adecrease of $1.7 million. The decrease is attributable to the payment of amounts payable in connection with theconsolidationoftheCompany’sFormosaoperationswithitsKitchenerfacility.
DeferredincometaxliabilitiesatJanuary31,2018were$1.1million,anincreaseof$1.0millionfromJanuary31,2017.
AtJanuary31,2018,theCompanyhadanobligationunderafinancelease(includingthecurrentportion)of$3.8million,adecreaseof$0.7millionduetoprincipalrepayments.Infiscal2016,theCompanyenteredintoafinanceleaseagreementwithHSBCBankCanada(“HSBC”)fortheinstallationofanewstate-of-the-artbrewhouseatitsKitchener,Ontariofacility.
Long-termdebt(includingthecurrentportion)atJanuary31,2018increasedby$4.1millionfromthebalanceatJanuary31, 2017.During the year ended January31, 2018, theCompany received$5.1million in term loans from lenders andrepaid$1.0millionthroughprincipalrepayments.
AsatJanuary31,2018,theCompanyhad35,285,126commonsharesand1,338,664stockoptionsissuedandoutstanding.Eachstockoptionisexercisableforonecommonshare.Duringfiscal2018,851,000optionsweregrantedpursuanttotheCompany’sstockoptionplan,489,829optionswereexercised,and20,000optionswere forfeited.Under theemployeeshare purchase program, 18,233 common shares were issued in fiscal 2018. During fiscal 2018, 115,200 shares werepurchasedandcancelledbytheCompanyunderanormalcourseissuerbidwhichexpiredonApril23,2017,ataweightedaveragepurchasepriceof$2.80pershare.CASHFLOWDuringfiscal2018,theCompanygenerated$2.3millionofcashfromoperationscomparedtogenerating$9.8millioninfiscal2017. Thedecreaseisattributabletothebuildingof inventory inanticipationofthecanlineexpansion,timingofpayment of HST and other payables at year-end, and one time costs incurred as a result of the consolidation of theCompany’sfacilities.
Theamountofcashusedininvestingactivitiesinfiscal2018was$6.7millioncomparedto$5.2millioninfiscal2017.Thespending on property, plant and equipment in fiscal 2018 amounts to approximately $8.5 million and includesconstructiondepositspaidinconnectionwiththeexpansionoftheCompany’scanline.
Theamountofcashgeneratedfromfinancingactivities infiscal2018was$1.6millioncomparedto$2.1millionusedinfiscal2017.DuringtheyearendedJanuary31,2018,theCompanypaidprincipalrepaymentsonoutstandinglong-termdebtandobligationunder finance leasetotalling$1.8million. TheCompanyreceivednewtermloanswhichgeneratedproceedsof$5.1million.TheCompanyalsoreceivedproceedsof$0.1millionfromtheexerciseofstockoptions.Infiscal
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2018,theCompanypurchasedandcancelled115,200sharesunderanormalcourseissuerbidforacostof$0.3million,includinglegalfees.Dividendsof$2.4millionweredeclaredandpaidinfiscal2018.
TheCompanyhasanoperatinglineofcreditwithHSBCof$8.0millionwhichbearsinterestatarateofprimeplus0.20%.As at January31, 2018, theCompanywas in compliancewith the financial covenants requiredunder the termsof theoperating lineofcredit. AtJanuary31,2018,theamountdrawnontheoperating lineofcreditwas$1.0million. Bankindebtednessonthestatementoffinancialpositionincludesoutstandingcheques.
COMMITMENTSTheCompanyutilizesseveraloperatingleasestofinanceofficeequipment,warehouseandmanufacturingequipment,andvehicles. The Company also leases the building in Kitchener where it has its manufacturing, warehousing, and retailoperations.Byenteringintooperatingleases,theCompanyisabletoupdateitsequipmentmorefrequently,notutilizeitscashtoinvest intheseassetsandinsodoingloweritsoverallaveragecostcomparedwithpurchasingtheassets.Allleasesareevaluatedatinceptionforappropriateaccountingtreatment.ThetotaloftheCompany’sfutureleasepaymentscanbefoundinnote25totheCompany’sannualfinancialstatementsfortheyearendedJanuary31,2018.
The Company has other purchase commitments which include amounts for natural gas, syrup, malt, and packagingmaterials.AsummaryoftheCompany’scontractualobligationsforfutureperiodsisasfollows:
(inthousandsofdollars) Long-termdebtObligationunder
financelease OperatingleasesOtherpurchasecommitments Total
Duewithinoneyear 1,332$ 770$ 1,761$ 4,255$ 8,118$Dueinonetofiveyears 4,821 3,012 6,677 - 14,510Dueinoverfiveyears 1,198 - 3,189 - 4,387
7,351 3,782 11,627 4,255 27,015
OnApril11,2018,theboardofdirectorsoftheCompanyapprovedaquarterlydividendof$0.02pershare,payableonMay22,2018toshareholdersofrecordasofMay8,2018.
RISKFACTORS,STRATEGIESANDOUTLOOK
RiskFactors
Licensing
TheCompanyrequiresvariouspermits,licenses,andapprovalsfromseveralgovernmentagenciesinordertooperateinitsmarketareas.TheAlcoholandGamingCommissionofOntario(“AGCO”)andtheCanadaRevenueAgencyprovidethenecessary licensing approvals. Managementbelieves that theCompany is in compliancewith all licenses, permits andapprovals.
Consumerpreference/trends
Thebeerindustryishighlycompetitiveandhasexperiencedanoveralldeclineinbeersalesoverthepastseveralyears.InOntario,trendscontinuetobetowardscannedbeerproductsinpreferencetobottlebeerproducts.TheinstallationandupgradeoftheCompany’scanninglineinfiscal2010andfiscal2014,respectively,hasprovidedtheCompanywithcontroloverproductionanddistributionandtheresulthasbeenconsiderablegrowthincannedvolume.Inthefourthquarteroffiscal2018, theCompanyannounced its intention to furtherupgrade to its canning lineduring fiscal2019 tomeet thegrowingdemandforcannedbeerproducts.ConsumerpreferencehasalsoshiftedtowardscraftbeerwhichhasbenefitedtheWaterloobrands.
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Pricingenvironment
Annual increases in theminimum retail price (“MRP”) have seen theprice gapbetween value andmainstreambrandsreduced, creating increased competitive pressure. The MRP for beer was increased effective March 1, 2018. TheCompany’skeycompetitorshaveincreasedthepriceforvaluebeertoalevelabovethelegalminimum.TheCompanyhashistoricallypositioneditsbrandsatthesamepricepointtoachieveadditionalprofitmarginperunit.The Company expects future legislated price increases to erode the price gap between value brands and mainstreambrands. Management believes that the Company will stay relevant and profitable by delivering a product that isconsistently superior in look and taste to other domestic brandswith comparable price. An example of the requiredinnovationanddifferentiationistheCompany’slaunchofselectLaker24-bottlepackswithafreetallcanineverycase.TheCompanywillcontinuetomitigateongoingpressureonbeervolumesbyactivelypursuingco-packingcontractsthatprovide incremental volume and gross margin. As required, profits from co-pack arrangements will be reinvested insellingandmarketinginitiativestomaintainbrandloyalty.Quality
With thebackdropof intenseprice competitiondrivenbyMRPchanges, thequalityof theCompany’sproduct ismoreimportantthanever.TheCompanyinvestssignificantlytocontinuallyimproveoverallproductquality.TheCompany continues to receive recognition for its brewing quality andbrands throughboth local and internationalbrewing communities and expert panels. In April 2017, the Company announced that its Waterloo brands receivedinternationalrecognitionattheMondeSelectioninBelgium.WaterlooGrapefruitRadlerreceivedspecialrecognitionwiththe InternationalHighQualityTrophyAwardfor2017,havingachievedsuperiorgoldproductquality ineachofthe lastthree years. WaterlooGrapefruit Radler, Dark, Amber, and IPA alsowonGold for outstanding product quality. LakerLager and Landshark® Lager each received a Silver medal, as did the seasonal craft brews of Waterloo BlueberryWeizenbierandSourWeisse.The Company is currently certified under the internationally recognized Global Food Safety Standard and successfullycompleteditsannualre-certificationauditinthethirdquarteroffiscal2018.Qualityimprovementresonateswithexistingandpotentialco-packcustomersandwillbeakeyfactorinmaintainingandgrowingco-packbusinesstoutilizeavailablecapacity.TheBeerStore/LCBO
TBSandLCBOareunionizedorganizationsandastrikecouldhaveasignificantnegativeimpactontheCompany.TherecanbenoassurancethataTBSorLCBOstrikewillnotoccurinthefuture.
The retail beer channel inOntario is undergoing changes as a result of theworkby thePremier’sAdvisoryCouncil onGovernmentAssets.ThePremier’sAdvisoryCouncil,chairedbyEdClark,releasedthefinalframeworkagreementduringthefourthquarteroffiscal2016.Thefinalagreementsetsoutnumerouschanges,includingmodificationstotheoperatingpracticesatTBSandtheintroductionofbeersalesthroughthegrocerychannel.Theimplementationofthesechangestothebeerretailenvironmentbeganinthefourthquarteroffiscal2016andisexpectedtocontinuethroughoutfiscal2019.While management expects these changes to be a net positive for Brick, the manner in which the changes areimplementedcould impacttheCompanyeitherpositivelyornegatively. Companymanagement isworkingtomaximizethebenefitstoBrickasaresultoftheretailchanges.
Availabilityoffinancing
TheCompany requires continued support from its lenders tomaintain its financial condition. The loss of this supportcould limit expansion opportunities and put a strain on the Company’s continuing operations. The ability tomaintain
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12BRICKBREWINGCO.LIMITED FISCAL2018
currentarrangementsandsecurefuturefinancingwilldepend, inpart,upontheprevailingcapitalmarketconditionsaswellastheCompany’sbusinessperformance.TherecanbenoassurancethattheCompanywillbesuccessfulinitseffortstoarrangeadditionalfinancingonsatisfactoryterms.Duringthethirdquarteroffiscal2017,theCompanysignedanewagreementwithHSBCBankCanadawhichincludedreducedinterestrates,anincreaseintheborrowingcapacityavailable,andmorefavourablecovenants.
Commoditypricerisk
TheCompanyisexposedtocommoditypriceriskwithrespecttoagriculturalandotherrawmaterialsusedtoproducetheCompany’s products, including malted barley, hops, corn syrup, water, and packaging materials (including glass,aluminum, cardboard and other paper products), where fluctuations in themarket price or availability of these itemscould impact the Company’s cash flow and production. The supply and price can be affected by a number of factorsbeyondmanagement’scontrol, includingmarketdemand,globalevents, frosts,droughtsandotherweatherconditions,economicfactorsaffectinggrowthdecisions,plantdiseases,andtheft.Totheextentanyoftheforegoingfactorsaffectthepricesof ingredientsorpackaging,theCompany’sresultsofoperationscouldbemateriallyandadversely impacted.Tominimizetheimpactofthisrisk,theCompanyentersintocontractswhichsecuresupplyandsetpricingtomanagetheexposuretoavailabilityandpricing.
Exchangeraterisk
Purchases of some key inputs are denominated inU.S. dollars. Anyweakening of the Canadian dollar versus theU.S.dollarwouldresultinhighermaterialcosts.TherecanbenoassurancethatthestrengthoftheCanadiandollarwillnotmaterially change in the future. During fiscal 2018, the Company entered into forward contracts to manage foreignexchangeratefluctuations.
Strategy&Outlook
TheCompanywillcontinuetofocusongrowingtheWaterlooandSeagramtrademarks,bothofwhichcontributeahigheramount of profit per unit sold. In December 2015, the Company secured the exclusive Canadian rights to both theLandShark®andMargaritaville®brands forbeer, cider, and coolers. TheCompanywill be focusingon thesebrands toposition themwell for futuregrowth. LandShark®productscontinue toperformwellandmanagementexpects this tocontinue in fiscal 2019. The Laker familywill require a sustainedmarketing investment to ensure retention of existingcustomers.Inthesecondquarteroffiscal2018,theCompanyannouncedcompletionofabrandlicensingagreementtosecureCanadianrightstotheChudleigh’sbrandforcider.Theagreementisforaninitialten-yearterm,withprovisionforfurtherextensions.Chudleigh’sbrandedciderisexpectedtobesoldthroughtheLCBOandlicensedgrocerystoresinthespringof2018.Additionally, the Companywill focus on utilizing its leading edgemanufacturing capability by filling available capacity,loweringcost,andimprovingefficiency.TheCompanycontinuestoofferafreecanwithinselect24-packbottlesandexpectstocontinuethispromotionalactivityduringfiscal2019.InJanuary2017,theCompanyannounceditsplanstoconsolidatealloperationstoitsKitchener,Ontariolocationwitha$4.0millionexpansion.TheCompanycompletedthisexpansionattheendofAugust2017.TheCompanyhasnowexitedtheFormosa,OntariofacilityandoperatesasingleintegratedfacilityinKitchener.In conjunctionwith itsplannedEnterpriseResourcePlanning system implementation, theCompany’s largest customer,TBS,hasindicatedtheintenttomovefromabuy-sellrelationshiptooneofconsignment.Thisisexpectedtotakeplaceduringthefirstquarteroffiscal2019.Onimplementation,theCompanyexpectsaone-timereversalofmargintoreflectinventoryonhandintheTBSchannel.Managementestimatestheimpactoftheone-timeadjustmenttodecreasenetrevenuebetween$3.6and$4.0million,decreasecostofsalesbetween$1.3and$1.7million,decreaseEBITDAbetween
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BRICKBREWINGCO.LIMITED FISCAL201813
$2.2 and $2.6million and decrease net incomebetween $1.6 and $1.9million. The actual impactwill be determinedbasedonactualinventoryatthetimeofimplementation,andtherefore,actualresultscouldbemateriallydifferentfromtheseestimates.Infiscal2019,theCompanywillbefocusedonthefollowingpriorities:OrganicgrowthManagement is targeting organic growth. The Company is positioned well within its core Ontario beer business.Managementcontinuestofocusongrowthofitspremiumbrands,Waterloo,Seagram,andLandShark®,drivenbybrandsupportandthelaunchofnewproducts.TheCompanyexpectstocontinuetoofferseasonalbrandsduringfiscal2019,suchasthelaunchofthenewWaterlooRaspberryRadleravailableinaradlersamplerpacksoldthroughtheLCBO,TheBeer Store, and select licensed grocery stores. In fiscal 2019, the Companywill focus onmaintaining themomentumachievedbythesuccessfullaunchofLandShark®andMargaritaville®productsduringthefirstquarteroffiscal2017.TheCompanywillcontinuetoseeknewandexpandedco-packingrelationshipsinfiscal2019.Thecompletionofthenewbrewhouse, the expansion of its Kitchener location in fiscal 2018, and expansion of its can line in fiscal 2019 presentfurtheropportunitiesfortheCompanytoexpanditsco-packbusiness.ImprovinggrossmarginperunitThe Laker brandmargin hasperformedwell despite thepresenceofmanybeer brands at the sameor similar pricing.Laker’s fit and finish is comparable with mainstream brands. Management believes that this share performance in ahighly competitive pricing environment is the result of brand support, a compelling value proposition, and significantqualityimprovementsatBrickinrecentyears.SalesofSeagramandWaterlooproducts,alongwiththeLandShark®andMargaritaville®,willalsocontributetomarginimprovementduetohigherrevenueperunit. TheCompanywillcontinuetomaximizemarginandminimizecomplexitywithintheorganizationbydelistingunderperformingbrands.CostreductionManagementbelievesthatcostreductionisanongoing initiativeandformspartofthecultureatBrick. Costreductionwillbeacontinuedfocusthroughoutfiscal2019.
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14BRICKBREWINGCO.LIMITED FISCAL2018
SUMMARYOFQUARTERLYRESULTS
Thefollowingtablepresentsselectedunauditedquarterly financial information foreachof theeightquarters indicatedpreparedinaccordancewithIFRS:
Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q12018 2018 2018 2018 2017 2017 2017 2017
NetRevenue $10,735 $11,671 $15,904 $11,480 $10,539 $11,106 $14,011 $9,520
2,095 2,239 2,691 2,118 2,309 2,350 2,708 1,881
EBITDA* 1,806 1,682 2,626 2,053 1,769 2,045 3,091 1,938
NetIncome 308 387 1,120 787 720 854 1,635 788
EPS(Basic) $0.01 $0.01 $0.03 $0.02 $0.02 $0.02 $0.05 $0.02
EPS(Diluted) $0.01 $0.01 $0.03 $0.02 $0.02 $0.02 $0.05 $0.02
$000’sexceptpershareamounts
Selling,marketing&administration
SIGNIFICANTFOURTHQUARTEREVENTS
TheCompany’srevenuestreamsare influencedbyseasonality. Thesecondquarter,whichcoversthesummermonths,has historically been the strongest quarter for the Company, representing approximately 32%of total net revenues infiscal2018,followedbythethirdquarter(approximately23%oftotalnetrevenuesinfiscal2018)whichcoversthelatesummerandfall.Thefirstandfourthquartersusuallyseeareductioninrevenuesasbeer,cooler,andciderconsumptionislowerinthecolderwintermonths.
Duringthefourthquarteroffiscal2018grossrevenueswere$22.2millioncomparedto$20.7millioninthesameperiodlastyear,anincreaseof7.2%,whichwasprimarilydrivenbyhighersalesvolumes.ThesalesvolumesoftheCompany’sbeerbrands,inthefourthquarteroffiscal2018,increasedby1.1%comparedtothesalesvolumesinthefourthquarteroffiscal 2017. The Laker family’s sales volumes increased by 2.2% in the same periods. The Seagram Coolers volumedecreasedby3.4% in the fourthquarterof fiscal2018compared to the samequarter in fiscal2017. During the sameperiod,co-packrevenuesincreasedby28%.
Netrevenuesforthefourthquarteroffiscal2018were$10.7million,comparedto$10.5millioninthesamequarteroffiscal2017.NetrevenuesarecalculatedbydeductingfromgrossrevenuesthecostsofdistributionfeespaidtoTBSandtheLCBOandproductiontaxes.
Selling,marketingandadministrationexpenseswere$2.1million in the fourthquarterof fiscal2018comparedto$2.3millioninthefourthquarteroffiscal2017.Inthefourthquarteroffiscal2018,bonuscompensationof$0.4millionwasprovidedfor,adecreaseof$0.2millionfromthefourthquarteroffiscal2017.
Financingcostsandotherexpenseswere$0.2millioninthefourthquarteroffiscal2018comparedto$0.1millioninthefourthquarteroffiscal2017.
Inthefourthquarteroffiscal2018therewasanincometaxexpenseof$0.2millioncomparedto$0.3millioninthesamequarteroffiscal2017.
EBITDA*was$1.8millioninthefourthquarteroffiscal2018,consistentwiththefourthquarteroffiscal2017.
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IMPACTOFNEWACCOUNTINGPRONOUNCEMENTS
TheCompany'saccountingpolicies,andfutureaccountingpronouncements,arediscussedindetailwithinnote5and6,respectively,totheCompany’sannualauditedfinancialstatementsfortheyearendedJanuary31,2018.
RELATEDPARTYTRANSACTIONS
TheCompany’srelatedpartytransactionsarediscussedinnote27totheCompany’sauditedfinancialstatementsfortheyearendedJanuary31,2018.
CRITICALACCOUNTINGESTIMATES
TheCompanypreparesitsfinancialstatementsinaccordancewithIFRS,whichrequiresmanagementtomakeestimates,judgments, and assumptions that it believes are reasonable, based upon the information available. These estimates,judgmentsandassumptionsaffectthereportedamountsofassetsandliabilitiesatthedateofthefinancialstatements,and the reportedamountsof revenueandexpensesduring the reportingperiod. Managementbases its estimatesonhistoricalexperienceandotherassumptions,whichitbelievestobereasonableunderthecircumstances. Managementalsoevaluatesitsestimatesonanongoingbasis.Actualresultscoulddifferfromthoseestimates.
Property,plantandequipmentThe accounting for property, plant and equipment requires thatmanagementmake estimates involving the life of theassets,theselectionofanappropriatemethodofdepreciationanddeterminingwhetheranimpairmentofassetsexists.TheCompanyreviewstheresidualvalues,usefullivesofdepreciableassetsanddepreciationmethodonanannualbasisandwhererevisionsaremadetheCompanyappliessuchchangesinestimatesonaprospectivebasis.Thenetcarryingamountsofproperty,plantandequipmentarereviewedforimpairmenteitherindividuallyoratthecash-generating unit level at the end of each reporting period. If there are indicators of impairment, an evaluation isundertaken to determine whether the carrying amounts are in excess of their recoverable amounts. An asset’srecoverableamountisdeterminedasthehigherofitsfairvaluelesscosttosellanditsvalue-in-use.Totheextentthatanasset’s carrying amount exceeds its recoverable amount, the excess is fully provided for in the period in which it isdetermined to be impaired. Where an impairment loss subsequently reverses, the carrying amount of the asset isincreasedtotherevisedestimateofitsrecoverableamount,butsothattheincreasedcarryingamountdoesnotexceedthe carrying amount thatwouldhavebeendeterminedhadno impairment loss been recognized for the asset in priorperiods.Thereisuncertaintyintheseestimatesastherelatedrecoverableamountsareprojectedforfutureyearsbasedon underlying assumptions such as volume growth, inflation factors and industry trends which may not materialize.Managementusesitsbestestimatestoforecasttheseamounts,buttheactualamountsmayvaryfromestimates.Shouldfutureresultsdifferfrommanagement’sestimates,animpairmentoftheseassetsandarelatedwrite-downmayresult.Asatthedateofthisreport,theCompanybelievesthatitsestimatesaremateriallycorrect.
ReturnablecontainersReturnablecontainersarerecordedatcostnetofdepositliabilitiesandareamortizedovertheirusefullives.Toestimateusefullife,managementuseshistoricaltrendsandinternalstudiestoobtainareasonableestimateoftheratesofreturnandusage.Actualresultsmayvaryfromtheseestimates.Asatthedateofthisreport,theCompanyisnotawareofanyfactsorcircumstancesthatwouldcauseittobelievethattheestimatesusedaremateriallyincorrect.
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16BRICKBREWINGCO.LIMITED FISCAL2018
IntangibleassetsIntangibleassetsconsistoftrademarksandlistings.Trademarksarerecordedatcostandarenotamortizedbutinsteadarereviewedforimpairmentattheendofeachreportingperiod.Ifthereareindicatorsofimpairment,anevaluationisundertaken to determine whether the carrying amounts are in excess of their recoverable amounts. An asset’srecoverableamountisdeterminedasthehigherofitsfairvaluelesscosttosellanditsvalue-in-use.Thereisuncertaintyin theseestimatesas the related recoverableamountsareprojected for futureyearsbasedonunderlyingassumptionssuch as volume growth, inflation factors and industry trends which may not materialize. Management uses its bestestimatestoforecasttheseamounts,buttheactualamountsmayvaryfromestimates.Shouldfutureresultsdifferfrommanagement’s estimates, an impairment of these assets and a relatedwrite-downmay result. As at the date of thisreport,theCompanybelievesthatitsestimatesaremateriallycorrect.
Listingshavehistoricallybeenmeasuredatacquisitioncostlessanyimpairmentinvalue.IAS38IntangibleAssets(IAS38)requiresthattheusefullifeofanintangibleassetbereviewedatleastateachfinancialyear-end.AsatJanuary31,2017,theCompanyreviseditsestimateoftheusefullifeoftheseassetsfromanindefinitetoafiniteusefullife.Areviewoftheuseful lives of past listing purchases indicates that a portion of the listings purchased will fall short of the volumeperformance thresholdsandbedelisted,and therefore,havea finite life. EffectiveFebruary1,2017, theCompany, inordertoreflectthataportionofthelistingswillbefinitelife,begantoamortizeitslistings,prospectively,overa20-yearperiod,whichrepresentsmanagement’sbestestimateoftheexpectedaverageusefullifeoftheseassets.Asatthedateofthisreport,theCompanybelievesthatitsestimatesaremateriallycorrect.
IncomeTaxesThe determination of the Company’s provision for income tax as well as deferred tax assets and liabilities involvessignificant judgements and estimates on certain matters and transactions, for which the ultimate outcome may beuncertain. If the final outcome differs from management's estimates, such differences will impact the current anddeferredincometaxassetsandliabilitiesintheperiodinwhichsuchdeterminationismade.Asatthedateofthisreport,theCompanybelievesthatitsestimatesaremateriallycorrect.Share-basedreserves:share-basedpaymentsTheCompanyrecognizescompensationexpensewhenoptionswithnocashsettlementfeaturearegrantedtoemployeesand directors under the option plan. Assumptions regarding expected stock volatility and risk free interest rates arerequiredtocalculatethefairvalueoftheconsiderationreceived.
Provisions
ProvisionsarerecognizedwhentheCompanyhasapresentobligation(legalorconstructive)asaresultofapastevent,itis probable that an outflowof resources embodying economic benefitswill be required to settle the obligation, and areliable estimate can bemade of the amount of the obligation. Given the uncertainty surrounding the nature of theunderlyingprovision,actualresultsmayvaryfromtheestimatesmadebymanagement.Asatthedateofthisreport,theCompanybelievesthatitsestimatesaremateriallycorrect.DISCLOSURECONTROLSANDPROCEDURES
The Company’s management, with the participation of the Chief Executive Officer, Chief Operating Officer and ChiefFinancialOfficer(collectively,the“ExecutiveTeam”)areresponsibleforestablishingandmaintainingdisclosurecontrolsand procedures as defined under National Instrument 52-109 for the Company. Management has designed suchdisclosure controls and procedures, or caused them to be designed under their supervision, to provide reasonableassurance that material information relating to the Company is made known to management by others within theCompany. Management has evaluated the effectiveness of the Company’s disclosure controls and procedures as of
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BRICKBREWINGCO.LIMITED FISCAL201817
January31,2018andhasconcludedthatsuchprocedureswereeffective,subjecttothemattersidentifiedbelowunder“InternalControlOverFinancialReporting”,inprovidingsuchreasonableassuranceasofsuchdateandfortheyearthenended.
INTERNALCONTROLOVERFINANCIALREPORTING
Managementisresponsibleforestablishingandmaintainingadequateinternalcontroloverfinancialreporting(“ICFR”)toprovide reasonable assurance regarding the reliability of the Company’s financial reporting and the preparation of itsfinancialstatementsinaccordancewithIFRS.
TheCompany’sinternalcontroloverfinancialreportingincludesthosepoliciesandproceduresthat:
• pertain tomaintenanceof records that, in reasonabledetail, accurately and fairly reflect the transactions anddispositionsoftheassetsoftheCompany;
• provide reasonable assurance that transactions are recorded as necessary to permit preparation of financialstatementsinaccordancewithIFRSandthatreceiptsandexpendituresoftheCompanyarebeingmadeonlyinaccordancewithauthorizationsofmanagementanddirectorsoftheCompany;and
• provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use ordispositionoftheCompany’sassetsthatcouldhaveamaterialeffectonthefinancialstatements.
Internal controls over financial reporting, no matter how well designed have inherent limitations. Therefore, internalcontroloverfinancialreportingdeterminedtobeeffectivecanprovideonlyreasonableassurancewithrespecttofinancialstatement preparation and may not prevent or detect all misstatements. Moreover, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes inconditions,orthatthedegreeofcompliancewiththepoliciesorproceduresmaydeteriorate.
ManagementperformedanassessmentoftheeffectivenessoftheCompany’sinternalcontroloverfinancialreportingasof January 31, 2018, based on the criteria set forth in the “Internal Control – Integrated Framework” issued by theCommitteeofSponsoringOrganizationoftheTreadwayCommission(“COSO”). Basedonthisassessment,managementhasconcludedthatinternalcontroloverfinancialreportingwaseffectiveasofJanuary31,2018.
In thecourseofevaluating its ICFRasat January31,2018, theExecutiveTeam identifiedadisclosableweakness in theareaofsegregationofduties,causedbylimitedstaffingresources. Specifically,giventhesizeoftheCompany’sstaffinglevels,certaindutieswithintheaccountingandfinancedepartmentcannotbeproperlysegregated.Asaresultthereareidentifiableinstanceswherepersonnelhadtheabilitytoinitiatetransactionsoraccountingentrieswithincertainfinancialreporting applications that may not be compatible with their other roles and responsibilities. However, none of thesegregationofdutyoraccesscontroldeficienciesresultedinamisstatementtothefinancialstatementsastheCompanyreliesoncertaincompensatingcontrols,includingperiodicreviewofthefinancialstatementsbytheExecutiveTeam.ThisweaknessisreportedinaccordancewithNationalInstrument52-109andisconsideredtobeacommonareaofdeficiencyformanysmallerlistedcompaniesinCanada.
FINANCIALINSTRUMENTS
Themain risks arising from theCompany’s financial instruments are credit risk, liquidity risk, foreign currency risk andinterest raterisk. Theserisksare fromexposures thatoccur in thenormalcourseofbusinessandaremanagedbytheExecutiveTeam.TheresponsibilitiesoftheExecutiveTeamincludetherecommendationsofpoliciestomanagefinancialinstrumentrisk.
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18BRICKBREWINGCO.LIMITED FISCAL2018
Theoverall objectiveof theExecutiveTeam is to effectivelymanage credit risk, liquidity risk andothermarket risks inaccordance with the Company’s strategy. Other responsibilities of the Executive Team include management of theCompany’scashresourcesanddebtfundingprograms,approvalofcounter-partiesandrelevanttransactionlimitsandthemonitoringofallsignificanttreasuryactivitiesundertakenbytheCompany.TheCompany’s significant financial instruments comprise cash,bank indebtedness, finance leases, and long-term-debt.The main purpose of these financial instruments is to finance the Company’s growth and ongoing operations. TheCompanyhasvariousotherfinancialassetsandliabilitiessuchasaccountsreceivablesandaccountspayables,whicharisedirectlyfromitsoperations.TheCompanyentersintocontractsinvolvingnon-financialitemsforthepurchaseofrawmaterialsandpackagingsupplies.These contracts are held for the purposes of the receipt or delivery of a non-financial item in accordance with theCompany’sexpectedusagerequirements.
AportionoftheCompany’spurchasesareinU.S.dollars.TheCompanysellslessthan1%ofitsproductsinU.S.dollars.
TheCompanyusessignificantquantitiesofmaltandhops.TheCompanyusesfixedpricecontractsoflessthanoneyeartoreducetheexposuretopricefluctuationsonthesecommodities.TheCompanyhassecureditsrequiredsupplyofmaltandhopsforfiscal2019andhasenteredintofixedpricecontacts,thebalanceofwhicharedisclosedinthecommitmentsscheduleincludedinthisMD&A.
SHARECAPITAL
The authorized share capital of the Company consists of an unlimited number of common shares and an unlimitednumberofpreferredshares,issuableinseries.AsofJanuary31,2018andApril11,2018,nopreferredshareswereissuedandoutstanding.
TheCompanyhasgrantedstockoptionstocertainofficersandkeyemployeespursuant totheCompany’sstockoptionplan.Optionsgrantedundertheplanareexercisableforaperiodofuptofiveyearsfromthedateofgrant,atanexerciseprice equal to the weighted average price at which the Company’s shares have traded during the five trading daysimmediatelyprecedingthedateofgrant,subjecttoathreeyearvestingperiod.
Eachstockoptionoutstandingisexercisableforonecommonshareatpricesrangingfrom$1.18to$3.60.
ThetotalnumberofcommonsharesandstockoptionsoutstandingasofApril11,2018isasfollows:
Numberofshares Numberofoptions
35,285,126 1,481,998
BRICK BREWING CO. LIMITED · ANNUAL REPORT 2018 21
AUDITEDFINANCIALSTATEMENTS
YearsEndedJanuary31,2018and2017
BRICK BREWING CO. LIMITED · ANNUAL REPORT 201822
INDEPENDENTAUDITORS’REPORT
TotheShareholdersofBrickBrewingCo.LimitedWe have audited the accompanying financial statements of Brick Brewing Co. Limited (“the Company”), which comprise thestatementsoffinancialpositionasatJanuary31,2018andJanuary31,2017,thestatementsofcomprehensiveincome,changesinequityandcashflowsfortheyearsthenended,andnotes,comprisingasummaryofsignificantaccountingpoliciesandotherexplanatoryinformation.
Management'sResponsibilityfortheFinancialStatements
Management is responsible for the preparation and fair presentation of these financial statements in accordance withInternationalFinancialReportingStandards,andforsuchinternalcontrolasmanagementdeterminesisnecessarytoenablethepreparationoffinancialstatementsthatarefreefrommaterialmisstatement,whetherduetofraudorerror.
Auditors’Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits inaccordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethicalrequirementsandplanandperformtheaudittoobtainreasonableassuranceaboutwhetherthefinancialstatementsarefreefrommaterialmisstatement.
Anauditinvolvesperformingprocedurestoobtainauditevidenceabouttheamountsanddisclosuresinthefinancialstatements.Theproceduresselecteddependonourjudgment,includingtheassessmentoftherisksofmaterialmisstatementofthefinancialstatements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to theCompany'spreparationandfairpresentationofthefinancialstatementsinordertodesignauditproceduresthatareappropriateinthecircumstances,butnotforthepurposeofexpressinganopinionontheeffectivenessoftheCompany'sinternalcontrol.Anauditalso includesevaluatingtheappropriatenessofaccountingpoliciesusedandthereasonablenessofaccountingestimatesmadebymanagement,aswellasevaluatingtheoverallpresentationofthefinancialstatements.
Webelievethattheauditevidencewehaveobtainedinourauditsissufficientandappropriatetoprovideabasisforourauditopinion.
Opinion
Inouropinion,thefinancialstatementspresentfairly,inallmaterialrespects,thefinancialpositionofBrickBrewingCo.Limitedas at January 31, 2018 and January 31, 2017, and its financial performance and its cash flows for the years then ended inaccordancewithInternationalFinancialReportingStandards.
CharteredProfessionalAccountants,LicensedPublicAccountants
Waterloo,CanadaApril11,2018KPMG 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.
KPMG LLP 115 King Street South 2nd Floor Waterloo ON N2J 5A3 Canada Tel 519-747-8800 Fax 519-747-8830
INDEPENDENT AUDITORS’ REPORT
To the Shareholders of Brick Brewing Co. Limited We have audited the accompanying financial statements of Brick Brewing Co. Limited (“the Company”), which comprise the statements of financial position as at January 31, 2018 and January 31, 2017, the statements of comprehensive income, changes in equity and cash flows for the years then ended, and notes, comprising a summary of significant accounting policies and other explanatory information.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
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.
KPMG LLP115 King Street South
2nd FloorWaterloo ON N2J 5A3 Canada
Tel 519-747-8800Fax 519-747-8830
BRICK BREWING CO. LIMITED · ANNUAL REPORT 2018 234BRICKBREWINGCO.LIMITED YEARSENDEDJANUARY31,2018AND2017
STATEMENTSOFCOMPREHENSIVEINCOMEYearsendedJanuary31,2018and2017
Theaccompanyingnotesareanintegralpartofthesefinancialstatements.
Notes January31,2018 January31,2017
Revenue 7 49,790,034$ 45,176,380$Costofsales 8 35,509,607 29,464,917Grossprofit 14,280,427 15,711,463
Sell ing,marketingandadministrationexpenses 8 9,142,571 9,248,039Otherexpenses 8,9 814,256 643,273Financecosts 10 545,990 478,181Lossondisposalofproperty,plantandequipmentandintangibles 131,068 -Incomebeforetax 3,646,542 5,341,970
Incometaxexpense 11 1,044,075 1,345,158Netincomeandcomprehensiveincomefortheyear 2,602,467$ 3,996,812$
Basicearningspershare 18 0.07$ 0.11$Dilutedearningspershare 18 0.07$ 0.11$
BRICK BREWING CO. LIMITED · ANNUAL REPORT 201824 BRICKBREWINGCO.LIMITED YEARSENDEDJANUARY31,2018AND20175
STATEMENTSOFFINANCIALPOSITIONAsatJanuary31,2018andJanuary31,2017
Theaccompanyingnotesareanintegralpartofthesefinancialstatements.
OnbehalfoftheBoard:
“PeterJ.Schwartz”Director“JohnH.Bowey”Director
Notes January31,2018 January31,2017
ASSETSNon-currentassets
Property,plantandequipment 12 27,119,488$ 21,709,425$Intangibleassets 13 15,381,578 15,499,186Constructiondeposits 323,255 2,462,328
42,824,321 39,670,939Currentassets
Cash - 2,831,959Accountsreceivable 14 6,999,212 7,035,714Inventories 15 7,891,364 5,619,329Prepaidexpenses 613,710 593,180
15,504,286 16,080,182
TOTALASSETS 58,328,607 55,751,121$
LIABILITIESANDEQUITY
EquitySharecapital 16 39,747,525 39,651,096Share-basedpaymentsreserves 17 1,026,667 943,565Deficit (2,547,746) (2,758,560)
TOTALEQUITY 38,226,446 37,836,101
Non-currentliabilitiesProvisions 19 538,376 411,599Obligationunderfinancelease 20 3,011,893 3,781,855Long-termdebt 21 6,019,245 2,498,580Deferredincometaxl iabil ities 11 1,126,464 82,389
10,695,978 6,774,423
CurrentliabilitiesBankIndebtedness 22 787,843 -Accountspayableandaccruedliabil ities 23 6,516,382 9,655,405Currentportionofobligationunderfinancelease 20 769,962 741,297Currentportionoflong-termdebt 21 1,331,996 743,895
9,406,183 11,140,597
TOTALLIABILITIES 20,102,161 17,915,020
COMMITMENTS 25,26
TOTALLIABILITIESANDEQUITY 58,328,607$ 55,751,121$
BRICK BREWING CO. LIMITED · ANNUAL REPORT 2018 25
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6BRICKBREWINGCO.LIMITED YEARSENDEDJANUARY31,2018AND2017
BRICK BREWING CO. LIMITED · ANNUAL REPORT 201826BRICKBREWINGCO.LIMITED YEARSENDEDJANUARY31,2018AND20177
STATEMENTSOFCASHFLOWSYearsendedJanuary31,2018and2017
Theaccompanyingnotesareanintegralpartofthesefinancialstatements.
Notes January31,2018 January31,2017
OperatingactivitiesNetincome 2,602,467$ 3,996,812$Adjustmentsfor:
Incometaxexpense 11 1,044,075 1,345,158Financecosts 10 545,990 478,181Depreciationandamortizationofproperty,plantandequipmentandintangibles 8,9,12,13 3,527,762 2,875,958Lossondisposalofproperty,plantandequipmentandintangibles 131,068 -Share-basedpayments 17 316,209 147,292Changeinnon-cashworkingcapitalrelatedtooperations (5,422,741) 1,320,659
Less:Interestpaid (463,782) (395,851)
Cashprovidedbyoperatingactivities 2,281,048 9,768,209
InvestingactivitiesPurchaseofproperty,plantandequipment 12 (8,160,391) (2,578,913)Constructiondepositpaid (323,255) (2,462,328)Proceedsfromsaleofproperty,plantandequipment,net 2,032,266 -Purchaseofintangibleassets 13 (281,417) (144,194)
Cashusedininvestingactivities (6,732,797) (5,185,435)
FinancingactivitiesIncreaseinbankindebtedness 787,843 -Issuanceoflong-termdebt,netoffees 21 5,126,215 2,000,000Repaymentoflong-termdebt 21 (1,024,640) (1,597,179)Repaymentofobligationunderfinancelease 20 (741,297) (713,699)Dividendspaid 16 (2,391,653) (1,822,177)Issuanceofshares,netoffees 17 60,050 45,867Sharesrepurchasedandcancelled,includingfees 16 (322,629) (266,856)Proceedsfromstockoptionexercise 17 125,901 209,584
Cashgeneratedfrom(usedin)financingactivities 1,619,790 (2,144,460)
Netincrease/(decrease)incash (2,831,959) 2,438,314
Cash,beginningofyear 2,831,959 393,645
Cash,endofyear -$ 2,831,959$
BRICK BREWING CO. LIMITED · ANNUAL REPORT 2018 278BRICKBREWINGCO.LIMITED YEARSENDEDJANUARY31,2018AND2017
NOTESTOFINANCIALSTATEMENTS
1.CORPORATEINFORMATION2.DATEOFAUTHORIZATIONFORUSE3.BASISOFPRESENTATION4.USEOFESTIMATESANDJUDGMENT5.SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES6.FUTUREACCOUNTINGPRONOUNCEMENTS7.REVENUE8.EXPENSESBYNATURE9.OTHEREXPENSES10.FINANCECOSTS11.INCOMETAXES12.PROPERTY,PLANT&EQUIPMENT13.INTANGIBLEASSETS14.ACCOUNTSRECEIVABLE15.INVENTORIES16.SHARECAPITAL17.SHARE-BASEDPAYMENTS18.EARNINGSPERSHARE19.PROVISIONS20.OBLIGATIONUNDERFINANCELEASE21.LONG-TERMDEBT22.BANKINDEBTEDNESS23.ACCOUNTSPAYABLEANDACCRUEDLIABILITIES24.FINANCIALINSTRUMENTS25.OPERATINGLEASES26.COMMITMENTS27.RELATEDPARTYTRANSACTIONS
BRICK BREWING CO. LIMITED · ANNUAL REPORT 201828 BRICKBREWINGCO.LIMITED YEARSENDEDJANUARY31,2018AND20179
1. CORPORATEINFORMATIONBrick Brewing Co. Limited (“Brick” or the “Company”) is a Canadian-owned and Canadian-based publicly held breweryincorporatedinCanada.Brick’ssharesarelistedontheTorontoStockExchange(“TSX”)underthesymbol“BRB”.Brick’sheadofficeislocatedinKitchener,Ontarioat400BingemansCentreDrive,N2B3X9.TheCompany’sprimarybusiness relates to theproductionanddistributionof alcohol-basedproducts. To thisend, theCompanyoperatesanOntario-basedfacilityandservesprimarilytheOntariomarket.Brick’sproductsaredistributedtoendconsumersthroughTheBeerStore,LCBO,andgrocerystoresinOntarioandProvincialLiquorBoardsacrossCanada.2. DATEOFAUTHORIZATIONFORISSUEThe financial statements of the Company were authorized for issue on April 11, 2018 by the Company’s Board ofDirectors.3. BASISOFPRESENTATION
3.1. STATEMENTOFCOMPLIANCE
These financial statements have been prepared in accordance with International Financial Reporting Standards(“IFRS”)asissuedbytheInternationalAccountingStandardsBoard(“IASB”).
3.2. BASISOFMEASUREMENT
Dependingon theapplicable IFRS requirements, themeasurementbasisused in thepreparationof these financialstatementsiscost,netrealizablevalue,fairvalueorrecoverableamount.Thesefinancialstatements,exceptforthestatementsofcashflows,arepreparedontheaccrualbasis.
3.3. FUNCTIONALANDPRESENTATIONCURRENCY
These financial statements are presented in Canadiandollars,which is theCompany’s functional andpresentationcurrency.AllvaluesarepresentedinactualCanadiandollarsunlessotherwisestated.
4. USEOFESTIMATESANDJUDGMENTThepreparationoffinancialstatementsinconformitywithIFRSrequiresmanagementtomakejudgments,estimatesandassumptionsthataffecttheapplicationofpoliciesandthereportedamountsofrevenue,expenses,assets,liabilitiesanddisclosure of contingent liabilities. The estimates and associated assumptions are based on historical experience andvariousotherfactorsthatarebelievedtobereasonableunderthecircumstances,theresultsofwhichformthebasisofmaking judgments about the carrying values of assets and liabilities that are not readily apparent fromother sources.Actualresultsmaydifferfromtheseestimatesandmayresultinamaterialadjustmenttotherelatedassetorliability.The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates arerecognized intheperiod inwhichtheestimate is revised if therevisionaffectsonlythatperiod,or intheperiodof therevisionandfutureperiodsiftherevisionaffectsbothcurrentandfutureperiods.Critical judgments and estimates in applying accounting policies have the most significant effect on the accountingbalances below. The sensitivity analyses below should be usedwith caution as the changes are hypothetical and theimpactofchangesineachkeyassumptionmaynotbelinear.
BRICK BREWING CO. LIMITED · ANNUAL REPORT 2018 2910BRICKBREWINGCO.LIMITED YEARSENDEDJANUARY31,2018AND2017
4.1. Significantjudgments
ImpairmentAssessmentImpairmentindicatorsincludeasignificantdeclineinanasset’smarketvalue,significantchangesinthetechnological,market, economic or legal environment in which the assets are operated, evidence of obsolescence or physicaldamageofanasset, significantchanges in theplanneduseofanasset,orongoingunder-performanceofanasset.Application of these factors to the facts and circumstances of a particular asset requires a significant amount ofjudgment.DeferredincometaxesDeferredincometaxassetsrequiremanagementjudgmentinordertodeterminetheamountstoberecognized.Thisincludesassessingthetimingofthereversaloftemporarydifferencestowhichdeferredincometaxratesareapplied.
4.2. Assumptionsandcriticalestimates
Property,plantandequipmentCalculationofthenetbookvalueofproperty,plantandequipmentrequiresManagementtomakeestimatesoftheuseful economic life of the assets, residual value at the end of the asset’s useful economic life, method ofdepreciationandwhetherimpairmentinvaluehasoccurred.Residualvaluesoftheassets,estimatedusefullivesanddepreciationmethodologyarereviewedannuallywithprospectiveapplicationofanychanges,ifdeemedappropriate.Changestoestimatescouldbecausedbyavarietyof factors, includingchangestothephysical lifeoftheassets.Achangeinanyoftheestimateswouldresultinachangeintheamountofdepreciationand,asaresult,achargetonetincomerecordedintheperiodinwhichthechangeoccurs,withasimilarchangeinthecarryingvalueoftheassetonthebalancesheet.SensitivityanalysisA10%decreaseinusefullivesoftheCompany’sproperty,plantandequipmentwouldresultinanadditionalchargetonetincomeofapproximately$350,000.IntangibleassetsCalculationofthenetbookvalueofintangibleassetsrequiresManagementtomakeestimatesoftheusefuleconomiclifeoftheassets,residualvalueattheendoftheasset’susefuleconomiclife,methodofdepreciationandwhetherimpairmentinvaluehasoccurred.Residualvaluesoftheassets,estimatedusefullivesanddepreciationmethodologyare reviewed annually with prospective application of any changes, if deemed appropriate. Changes to estimatescouldbecausedbyavarietyoffactors,includingchangestothephysicallifeoftheintangibleassets.Achangeinanyof the estimateswould result in a change in the amount of depreciation and, as a result, a charge to net incomerecorded in theperiod inwhich thechangeoccurs,witha similar change in thecarryingvalueof theasseton thebalancesheet.SensitivityanalysisA10%decreaseinusefullivesoftheCompany’sfinitelifeintangibleassetswouldnothaveasignificantimpactonnetincome.ProvisionsTheprovisionrelatingtoassetdecommissioningcostsrequiresManagementtomakeestimatesoftheexpectedcashflows, annual inflation rate, and discount rate for calculating the future legal obligations associated with theretirementoftheCompany’sleasedfacility.Changestoestimatescouldbecausedbyavarietyoffactors,includingchangesduetothepassageoftime,extensionofthelease,ormodificationstotheleasedfacility.Achangeinanyoftheestimatescouldresultinachangeintheamountofdepreciationandaccretionexpense.SensitivityanalysisA10%decreaseintheprovisionwouldnothaveasignificantimpactonnetincome.
BRICK BREWING CO. LIMITED · ANNUAL REPORT 201830 BRICKBREWINGCO.LIMITED YEARSENDEDJANUARY31,2018AND201711
5. SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES
5.1. REVENUERECOGNITION
RevenueisrecognizedwhenitisprobablethattheeconomicbenefitsassociatedwiththetransactionwillflowtotheCompanyandtheincomecanbemeasuredreliably.Revenue from the sale of goods is recognized when the significant risks and rewards of ownership have beentransferred to the buyer, and no significant uncertainties remain regarding recovery of the consideration due orassociatedcosts,andthereisnocontinuingmanagementinvolvementwiththegoods.Revenue from the sale of goods ismeasured at the fair value of the consideration received or receivable, net ofreturns, allowances, discounts, applicable federal and provincial production, environmental and excises taxes anddistribution service charges levied by applicable provincial liquor boards and government approved distributionagents.Interestincomeisrecognizedasearnedonanaccrualbasisusingtheeffectiveinterestmethod.Co-pack revenue, arising from the use by others of the Company’s resources, is recognized on an accrual basis inaccordancewiththerelevantagreement.
5.2. GOVERNMENTGRANTS
Governmentgrantsare recognizedwhere there is reasonableassurance that thegrantwillbe receivedandall theattachingconditionsarecompliedwith.Governmentgrantsinrespectofcapitalexpendituresarecreditedtothecarryingamountoftherelatedassetandarereleasedtoincomeovertheexpectedusefullivesoftherelevantassets.Governmentgrantswhicharenotassociatedwithanassetarecreditedtoincomesoastonetthemagainsttheexpensetowhichtheyrelate.
5.3. FINANCECOSTS
Financecostsconsistofthefollowing:
(a) interestpaidorpayableonborrowings;(b) interestonfinanceleaseobligations;(c) accretionondecommissioningobligations;and(d) fairvalueadjustmentsonfinancialinstruments.
5.4. OPERATINGSEGMENTS
Operating segments are reported in a manner consistent with the internal reporting provided to the executiveofficers of the Company (“Executive Team”), who are considered to be the Company’s “chief-operating decisionmaker”.TheExecutiveTeamhasdeterminedthattheCompanyoperatesinasingleindustrysegmentwhichinvolvesthe production, distribution and sale of alcohol-based products. Virtually all of the Company’s sales are withinCanada,withasmallvolumesoldintheUnitedStates.
5.5. FOREIGNCURRENCIESForeign currency transactions are accounted for at exchange rates prevailing at the date of the transactions.Monetaryassetsandliabilitiesdenominatedinforeigncurrenciesaretranslatedattheperiodenddaterate. Gainsandlossesresultingfromthesettlementofforeigncurrencytransactionsandfromthetranslationofmonetaryassetsand liabilitiesdenominated in foreigncurrenciesarerecognized inthestatementsofcomprehensive income. Non-
BRICK BREWING CO. LIMITED · ANNUAL REPORT 2018 3112BRICKBREWINGCO.LIMITED YEARSENDEDJANUARY31,2018AND2017
monetaryassetsandliabilitiesmeasuredathistoricalcostanddenominatedinforeigncurrenciesaretranslatedattheforeignexchangerateprevailingatthedateofthetransaction.Non-monetaryassetsandliabilitiesmeasuredatfairvalueanddenominatedinforeigncurrenciesaretranslatedattheforeignexchangerateprevailingatthedatethefairvaluewasdetermined.
5.6. PROPERTY,PLANTANDEQUIPMENT
Property,plantandequipmentismeasuredatcost,ordeemedcost,lessaccumulateddepreciationandimpairmentlosses.Costincludesthepurchasepriceandanycostsdirectlyattributabletobringingtheassettothelocationandconditionnecessaryfor ittobecapableofoperatinginamannerintendedbymanagement(i.e.transportationandthe costs of dismantling and removing the items and restoring the site on which they are located, if applicable).Expenditures which extend the useful life or increase the service capacity of an asset are capitalized, whileexpendituresthatrelatetoday-to-dayservicingtorepairormaintainanassetareexpensedasincurred.Majorsparepartsarerecognizedasitemsofproperty,plantandequipmentwhentheCompanyexpectstousethemduringmorethanoneperiod.Depreciation is provided so as towrite off the cost of the asset, less its estimated residual value (if any) over itsestimatedusefullifeonthefollowingbasis:
AssetClass Basis UsefulLife(years)Buildingsandleaseholdimprovements Straight-line 5–30Returnablecontainers Straight-line 4–7Machineryandequipment Straight-line 3–30Computerequipment Straight-line 2–5Furnitureandfixtures Straight-line 5Vehicles Straight-line 3Majorspareparts Straight-line 4
Where componentsof assetshavedifferentuseful lives,depreciation is calculated foreach significant component.Theestimateduseful lifeofeachasset componenthasdue regard toboth itsownphysical life limitationsand thefutureeconomicbenefitsexpectedtobeconsumedbytheCompanythroughuseoftheasset.TheCompanyreviewstheresidualvalueandusefullivesofdepreciableassetsonanannualbasisandwhererevisionsaremadetoeithertheresidualvalueorusefullife,theCompanyappliessuchchangesinestimatesonaprospectivebasis.The Company reviews its depreciation method on an annual basis and where revisions are made to reflect theexpectedpatternofconsumptionofthefutureeconomicbenefitsembodiedintheasset,theCompanyappliessuchchangesinestimatesonaprospectivebasis.Thenetcarryingamountsofproperty,plantandequipmentassetsarereviewedforimpairmenteitherindividuallyoratthecash-generatingunit levelwheneventsandchanges incircumstances indicatethatthecarryingamountmaynotberecoverable.Totheextentthatthesevaluesexceedtheirrecoverableamounts,theexcessisfullyprovidedforinthefinancialyearinwhichitisdetermined(refertoimpairmentpolicy).WheretheCompanyreceivescompensationfromthirdpartiesforitemsofproperty,plantandequipmentthatwereimpaired, lostorgivenup, theseamountsarepresentedasagainondisposal in thestatementsofcomprehensiveincomewhentheybecomereceivable.
BRICK BREWING CO. LIMITED · ANNUAL REPORT 201832 BRICKBREWINGCO.LIMITED YEARSENDEDJANUARY31,2018AND201713
Where an item of property, plant and equipment is disposed of by sale, it is de-recognized and the differencebetween its carrying valueandnet salesproceeds is disclosedas an incomeorexpense item in the statementsofcomprehensiveincome.Anyitemsofproperty,plantandequipmentthatceasetohavefutureeconomicbenefitsexpectedtoarisefromtheircontinuedusearede-recognizedwiththeassociatedlossincludedasdepreciationexpense.
5.7. BORROWINGCOSTS
Borrowingcostsofqualifyingassetsarecapitalizedforperiodsprecedingthedatesthattheassetsareavailableforuse.Allotherborrowingcostsarerecognizedasexpenseinthefinancialperiodwhenincurred.5.8. INTANGIBLEASSETS
ListingsListingsrelatetocostsincurredbytheCompanytolistitsproductswithinTheBeerStore.TheCompany’sproductswillcontinuetobelistedprovidedthattheproductsmeetsalesthresholdsspecifiedbyTheBeerStore.Listingshaveafiniteusefullifeandaremeasuredatacquisitioncostlessaccumulateddepreciationandimpairmentlosses(refertoimpairment policy). In order to reflect that a portion of the listingswill be finite life, the Company amortizes itslistingsovera20-yearperiod,whichrepresentsmanagement’sbestestimateoftheexpectedaverageuseful lifeoftheseassets.TrademarksTrademarksareindefinitelifeintangiblesthatrelatetobrands,tradenames,formulas,rights,licensesorrecipesthathavebeenacquiredbytheCompany.Trademarksaremeasuredatacquisitioncostlessanyimpairmentinvalue(refertoimpairmentpolicy).
ComputersoftwareandlicensesPurchasedsoftwareandlicenseshavefiniteusefullivesandarecarriedatcostandamortizedonastraight-linebasisoverthreeyears.Costsassociatedwithmaintainingpurchasedcomputersoftwareprogrammesarerecognizedasanexpenseasincurred.Expendituresoninternallydevelopedsoftwarearecapitalizedwhentheexpendituresqualifyasdevelopmentactivities;otherwise,theyareexpensedasincurred.Whereanintangibleassetisdisposedof,itisde-recognizedandthedifferencebetweenitscarryingvalueandthenetsalesproceedsisreportedasagainorlossondisposalinthestatementsofcomprehensiveincomeintheperiodthedisposaloccurs.
5.9. IMPAIRMENTOFNON-FINANCIALASSETS
Thecarryingamountsofitemsinproperty,plantandequipment,andintangibleassetswithafinitelifearereviewedforimpairmentattheendofeachreportingperiod.Ifthereareindicatorsofimpairment,anevaluationisundertakento determinewhether the carrying amounts are in excess of their recoverable amounts. Intangible assetswith anindefinitelifearetestedforimpairmentannuallyonJanuary31.Anasset’srecoverableamountisdeterminedasthehigherofitsfairvaluelesscoststosellanditsvalue-in-use.Suchreviewsareundertakenonanasset-by-assetbasis,exceptwhereassetsdonotgeneratecashflows independentofotherassets, inwhichcasetheassetsaregroupedtogetherintothesmallestgroupofassetsthatgenerateindependentcashinflowsandthenareviewisundertakenatthecash-generatingunitlevel.Where a cash-generating unit includes intangible assets which are either not available for use or which have anindefiniteusefullife(andwhichcanonlybetestedaspartofacash-generatingunit),animpairmenttestisperformedatleastannuallyorwheneverthereisanindicationthatthecarryingamountsofsuchassetsmaybeimpaired.
BRICK BREWING CO. LIMITED · ANNUAL REPORT 2018 3314BRICKBREWINGCO.LIMITED YEARSENDEDJANUARY31,2018AND2017
Ifthecarryingamountofanindividualassetorcash-generatingunitexceedsitsrecoverableamount,animpairmentlossisrecordedinthestatementsofcomprehensiveincometoreflecttheassetattheloweramount.Inassessingthevalue-in-use,therelevantfuturecashflowsexpectedtoarisefromthecontinuinguseofsuchassetsandfromtheirdisposal are discounted to their present value using a pre-tax discount rate which reflects the current market’sassessments of the time value ofmoney and asset-specific risks forwhich the cash flow estimates have not beenadjusted.Fairvaluelesscoststosellisdeterminedastheamountthatwouldbeobtainedfromthesaleoftheassetinanarm’s-lengthtransactionbetweenknowledgeableandwillingparties.Areversalofapreviouslyrecognizedimpairmentlossisrecordedinthestatementsofcomprehensiveincomewheneventsorcircumstancesdictate that theestimatesused todetermine the recoverableamounthavechangedsincethe prior impairment loss was recognized. The carrying amount is increased to the recoverable amount but notbeyondthecarryingamountnetofamortizationwhichwouldhavearisenifthepriorimpairmentlosshadnotbeenrecognized.Aftersuchareversal,theamortizationchargeisadjustedinfutureperiodstoallocatetheasset’srevisedcarryingamount,lessanyresidualvalue,onasystematicbasisoveritsremainingusefullife.5.10. INVENTORIES
Inventories are recorded at the lower of cost and net realizable value. Cost includes expenditures incurred inacquiring the inventories and bringing them to their existing location and condition. Net realizable value is theestimatedsellingpriceintheordinarycourseofbusiness,lesstheestimatedcoststocompleteandselltheproduct.The costof rawmaterials and supplies aredeterminedona first-in, first-outbasis. The costof finishedgoodsandwork-in-processaredeterminedonanaveragecostbasisandincluderawmaterials,directlabour,andanallocationoffixedandvariableoverheadbasedonnormalcapacity.Inventoriesarewrittendowntonetrealizablevalueifthatnetrealizablevalueislessthanthecarryingamountoftheinventoryitematthereportingdate.Ifthenetrealizablevaluesubsequentlyincreases,areversalofthelossinitiallyrecognizedisappliedtocostofsales.5.11. CASHANDCASHEQUIVALENTS
Cashandcashequivalentsincludeallcashbalancesandshort-termhighlyliquidinvestmentswithmaturitiesofthreemonthsor less from thedateof acquisition, that are readily convertible into cash. Cashand cashequivalents arestatedatfacevalue,whichapproximatetheirfairvalue.
5.12. PROVISIONS
GeneralProvisions are recognizedwhen the Company has a present obligation (legal or constructive) as a result of a pastevent, it is probable that an outflow of resources embodying economic benefits will be required to settle theobligation,andareliableestimatecanbemadeoftheamountoftheobligation.WheretheCompanyexpectssomeoralloftheprovisiontobereimbursed,thereimbursementisrecognizedasaseparateassetwhenreimbursementisvirtuallycertain.Theexpenserelatingtoanyprovisionispresentedinprofitorlossnetofanyreimbursement.Iftheeffect of the time value ofmoney ismaterial, provisions are discounted using current pre-tax discount rates thatreflect,whereappropriate,therisksspecifictotheliability.Wherediscountingisused,theincreaseintheprovisionduetothepassageoftimeisrecognizedasafinancecost.DecommissioningliabilitiesThe Company recognizes a provision for the restoration costs associated with its leased facilities in the financialperiodwhentherelatedfacilitymodificationoccurs,basedonestimatedfuturecosts,usinginformationavailableattheperiodenddate.Theprovisionisdiscountedusingacurrentmarket-basedpre-taxdiscountrate.Anincreasein
BRICK BREWING CO. LIMITED · ANNUAL REPORT 201834 BRICKBREWINGCO.LIMITED YEARSENDEDJANUARY31,2018AND201715
the provision due to the passage of time is reflected as a finance cost and the provision is reduced by actualrestoration costs incurred. At the timeofestablishing theprovision, a correspondingasset is capitalized,where itgivesrisetoafuturebenefit,anddepreciatedovertheusefullifeoftheleasedfacility.Theprovision is reviewedonanannualbasis forchangesto the futureobligation.Changes in theestimated futurecostsinvolvedorinthediscountrateareaddedtoordeductedfromthecostoftherelatedassettotheextentofthecarryingamountoftheassetandarerecognizedthroughprofitorlossthereafter.
5.13. LEASES
FinanceleasesLeases of property, plant and equipment where the Company assumes substantially all the risks and rewards ofownership are classified as finance leases. Finance leases are recognized as assets and liabilities (interest-bearingloansandborrowings)atamountsequaltothelowerofthefairvalueoftheleasedpropertyandthepresentvalueoftheminimumleasepaymentsattheinceptionofthelease.Leasepaymentsareapportionedbetweentheoutstanding liabilityand financechargessoas toachieveaconstantperiodicrateofinterestontheremainingbalanceoftheliability.Theproperty,plantandequipmentacquiredunderfinanceleasesaredepreciatedovertheshorteroftheusefullifeoftheassetandthetermofthelease.OperatingleasesLeases inwhich substantially all of the risks and rewards of ownership are retained by the lessor are classified asoperatingleases.Paymentsmadeunderoperatingleases(netofanyincentivesreceivedfromthelessor)arechargedtoincomeonastraight-linebasisoverthetermofthelease.
5.14. INCOMETAXES
Incometaxassets/liabilitiesarecomprisedofcurrentanddeferredtax:CurrenttaxCurrentincometaxiscalculatedonthebasisoftaxlawsenactedorsubstantiallyenactedattheperiodenddateinthecountrywheretheCompanyoperatesandgenerates taxable income. Current tax includesadjustments to taxpayableorrecoverableinrespectofpreviousperiods.DeferredtaxDeferredtaxisrecognizedusingthebalancesheetmethodinrespectofalltemporarydifferencesexcept:• wherethedeferredincometaxliabilityarisesfromtheinitialrecognitionofgoodwill,ortheinitialrecognitionof
anassetorliabilityinatransactionthatisnotabusinesscombinationand,atthetimeofthetransaction,affectsneithertheaccountingprofitnortaxableprofitorloss;and
• in respect of taxable temporary differences associated with investments in subsidiaries, associates or jointventures,wherethetimingofthereversaloftemporarydifferencescanbecontrolledanditisprobablethatthetemporarydifferenceswillnotreverseintheforeseeablefuture.
Deferred income tax assets are recognized for all deductible temporary differences, carry-forward of unused taxassetsandunusedtaxlosses,totheextentthat it isprobablethattaxableprofitwillbeavailableagainstwhichthedeductibletemporarydifferences,andthecarry-forwardofunusedtaxassetsandunusedtax lossescanbeutilizedexcept:• where the deferred income tax asset relating to the deductible temporary difference arises from the initial
recognition of an asset or liability in a transaction that is not a business combination and, at the time of thetransaction,affectsneithertheaccountingprofitnortaxableprofitorloss;and
BRICK BREWING CO. LIMITED · ANNUAL REPORT 2018 35
16BRICKBREWINGCO.LIMITED YEARSENDEDJANUARY31,2018AND2017
• in respect of deductible temporary differences associated with investments in subsidiaries, associates andinterestsinjointventures,wheredeferredtaxassetsarerecognizedonlytotheextentthatitisprobablethatthetemporarydifferenceswillreverseintheforeseeablefutureandtaxableprofitwillbeavailableagainstwhichthetemporarydifferencescanbeutilized.
Thecarryingamountofdeferred incometaxassets is reviewedateachperiodenddateandreducedtotheextentthatitisnolongerprobablethatsufficienttaxableprofitwillbeavailabletoallowallorpartofthedeferredincometax asset to be utilized. To the extent that an asset not previously recognized fulfils the criteria for recognition, adeferredincometaxassetisrecorded.Deferredtaxismeasuredonanundiscountedbasisatthetaxratesthatareexpectedtoapplyintheperiodsinwhichtheassetisrealizedortheliabilityissettled,basedontaxratesandtaxlawsenactedorsubstantivelyenactedattheperiodenddate.Current and deferred taxes relating to items recognized directly in equity are recognized in equity and not in thestatementsofcomprehensiveincome.Deferredincometaxassetsanddeferredincometaxliabilitiesareoffsetifalegallyenforceablerightexiststosetoffcurrenttaxassetsagainstcurrenttaxliabilitiesandthedeferredincometaxesrelatetothesametaxableentityandthesametaxableauthority.SalestaxRevenues,expenses,assetsandliabilitiesarerecognizednetoftheamountofsalestaxexcept:• wherethesalestaxincurredonapurchaseofassetsorservicesisnotrecoverablefromthetaxationauthority,in
whichcasethesalestaxisrecognizedaspartofthecostofacquisitionoftheassetoraspartoftheexpenseitemasapplicable;and
• receivablesandpayablesthatarestatedwiththeamountofsalestaxincluded.Thenetamountofsalestaxrecoverablefrom,orpayableto,thetaxationauthorityisincludedaspartofreceivablesorpayablesinthestatementsoffinancialposition.
5.15. SHARECAPITAL
CommonsharecapitalIssued and paid up capital is recognized at the consideration received by the Company. Incremental costs directlyattributabletotheissuanceofsharesoroptionsareshowninequityasadeduction,netoftax,fromtheproceeds.DividendsAprovisionisnotmadefordividendsunlessthedividendshavebeendeclaredbytheBoardofDirectorsonorbeforetheendoftheperiodandhavenotbeendistributedatthereportingdate.
5.16. SHARE-BASEDPAYMENTS
TheCompanyaccounts forall share-basedpayments toemployeesandnon-employees,consistingofstockoptionsandtheemployeesharepurchaseplan,usingthefairvaluebasedmethod.Underthefairvaluebasedmethod,thefair value of the share options are estimated at the grant date, using an option pricing model. Based upon theexpectednumberofoptionsthatwillvest,thefairvalueoftheoptionsgrantedisexpensedoverthevestingperiodwithacredittoshare-basedpaymentsreserve. Whenoptionsareexercised,sharecapital inequity is increasedbytheamountoftheproceedsreceivedandtherelatedamountpreviouslyinshare-basedpaymentsreserve.
BRICK BREWING CO. LIMITED · ANNUAL REPORT 201836 BRICKBREWINGCO.LIMITED YEARSENDEDJANUARY31,2018AND201717
5.17. EARNINGSPERSHARE
Basicearningspersharearedeterminedbydividingnetearningsbytheweightedaveragenumberofcommonsharesoutstanding during the period. Diluted earnings per share adjusts the figures used in the determination of basicearnings per share to take into account the additional shares from the assumed exercise of stock options. Thenumberofadditional shares iscalculatedbyassuming thatoutstandingstockoptionsandwarrantswereexercisedandthattheproceedsfromsuchexerciseswereusedtoacquirecommonsharesattheaveragemarketpriceduringtheperiod.5.18. FINANCIALINSTRUMENTS
Allfinancialinstrumentsarerecordedatfairvalueoninitialrecognition.
FinancialassetsFinancialassetsaredesignatedatinceptionintooneofthefollowingcategories:held-to-maturity,available-for-sale,loans-and-receivablesoratfairvaluethroughprofitandloss(“FVTPL”).Transaction costs associatedwith financial assets other than those designated at FVTPL are included in the initialcarryingamountoftheasset.Subsequenttoinitialrecognition:• theunrealizedgainsorlossesassociatedwithfinancialassetsdesignatedasFVTPLarerecognizedateachperiod
enddateinincome;• financialassetsclassifiedasloans-and-receivablesandheld-to-maturityaremeasuredatamortizedcostusingthe
effectiveinterestratemethodlessanyimpairmentlosses;and• financial assets classified as available-for-sale are measured at fair value with unrealized gains or losses
recognized in other comprehensive income or loss, except for losses in value that are considered other thantemporarywhicharerecognizedinincome.
FinancialliabilitiesFinancialliabilitiesaredesignatedatinceptionasotherfinancialliabilitiesoratFVTPL.Transaction costs that are directly attributable to financial liabilities, other than those designated at FVTPL, aredeductedfromthefairvalueoftherelatedliability.Subsequenttoinitialrecognition:• otherfinancialliabilitiesaremeasuredatamortizedcostusingtheeffectiveinterestratemethod.Theeffective
interest ratemethod is amethod of calculating the amortization cost of a financial liability and of allocatinginterestexpenseovertherelevantperiod.Theeffectiveinterestrateistheratethatexactlydiscountsestimatedfuturecashpaymentsthroughtheexpectedlifeofthefinancialliability;and
• fairvaluechangesonfinancialliabilitiesclassifiedasFVTPLarerecognizedinincome.Financial liabilities classified as FVTPL include financial liabilities held for trading and financial liabilities designateduponinitialrecognitionasFVTPL.DerivativesandcontractswithembeddedderivativesDerivatives,includingseparatedembeddedderivatives,areclassifiedasheldfortradingunlesstheyaredesignatedaseffectivehedginginstruments.
BRICK BREWING CO. LIMITED · ANNUAL REPORT 2018 3718BRICKBREWINGCO.LIMITED YEARSENDEDJANUARY31,2018AND2017
TheCompanyconsiderswhetheracontractcontainsanembeddedderivativewhentheCompanybecomesapartytothecontract.Embeddedderivativesareseparatedfromthehostcontract if it isnotmeasuredatfairvaluethroughprofitandlossandwhentheeconomiccharacteristicsandrisksarenotcloselyrelatedtothehostcontract.Contractsinvolvingnon-financialitemsThe Company enters into contracts involving non-financial items for the purchase of rawmaterials and packagingsupplies.Thesecontractsareenteredintoandheldforthepurposesofthereceiptordeliveryofanon-financialiteminaccordancewiththeCompany’sexpectedpurchase,saleorusagerequirements.FairvaluesFinancial instruments recorded on the statements of financial position are categorized based on the fair valuehierarchyofinputs.Thethreelevelsofthefairvaluehierarchyaredescribedasfollows:
• Level1–unadjustedquotedpricesinactivemarketsforidenticalassetsorliabilities.TheCompanydoesnotuseLevel1inputsforitsfairvaluemeasurements.
• Level2– inputs,otherthanquotedprices inactivemarkets,thatareobservablefortheassetor liabilityeitherdirectlyorindirectly.TheCompany’sLevel2inputsincludequotedmarketpricesforinterestratesandcreditriskpremiums.TheCompanyobtainsinformationfromsourcesincludingtheBankofCanadaandmarketexchanges.TheCompanyusesLevel2inputsforallofitsfinancialinstrumentfairvaluemeasurements.
• Level3–inputsthatarenotbasedonobservablemarketdata.TheCompanydoesnotuseLevel3inputsforanyofitsfairvaluemeasurements.
De-recognitionoffinancialassetsandliabilitiesFinancialassetsAfinancialassetisde-recognizedwhen:
• therightstoreceivecashflowsfromtheassethaveexpired;• theCompanyretains the right to receivecash flows fromtheasset,buthasassumedanobligation topay
theminfullwithoutmaterialdelaytoathirdpartyundera‘pass-through’arrangement;or• the Company has transferred its rights to receive cash flows from the asset and either has transferred
substantiallyall therisksandrewardsof theasset,orhasneithertransferrednorretainedsubstantiallyalltherisksandrewardsoftheasset,buthastransferredcontroloftheasset.
Where the Company has transferred its right to receive cash flows from an asset and has neither transferred norretained substantially all the risks and rewards of the asset nor transferred control of the asset, it continues torecognisethefinancialassettotheextentofitscontinuinginvolvementintheasset.FinancialliabilitiesAfinancialliabilityisde-recognizedwhentheobligationundertheliabilityisdischargedorcancelledorexpires.Gainsandlossesonde-recognitionarerecognizedinincomewhenincurred.Whereanexistingfinancialliabilityisreplacedbyanotherfromthesamelenderonsubstantiallydifferentterms,orthetermsofanexistingliabilityaresubstantiallymodified,suchanexchangeormodificationistreatedasade-recognitionoftheoriginalliabilityandtherecognitionof a new liability, and the difference in the respective carrying amounts is recognized in the statements ofcomprehensiveincome.ImpairmentoffinancialassetsTheCompanyassessesattheendofeachreportingperiodwhetherafinancialassetisimpaired.
5.19. RELATEDPARTYTRANSACTIONSThe Company views related parties as those persons or entities that are able to directly or indirectly control orexercise significant influence over the Company in making financial and operational decisions. A transaction is
BRICK BREWING CO. LIMITED · ANNUAL REPORT 201838 BRICKBREWINGCO.LIMITED YEARSENDEDJANUARY31,2018AND201719
consideredtobearelatedpartytransactionwherethereistransferofresources,servicesorobligationsbetweentheCompanyandtherelatedparty.All related party transactions entered into by the Company that are in the normal course of business and havecommercialsubstancearemeasuredattheexchangeamount.
6. FUTUREACCOUNTINGPRONOUNCEMENTS
The following new Standards and Interpretations are not yet effective and have not been applied in preparing thesefinancialstatements:
6.1. RevenueRecognition
InMay 2014, the IASB issued IFRS 15 Revenue from Contracts with Customers (“IFRS 15”) which will replace thedetailed guidance on revenue recognition requirements that currently exists under IFRS. IFRS 15 provides acomprehensiveframeworkforrecognition,measurementanddisclosureofrevenuesfromcontractswithcustomers,excluding contracts that are within the scope of the standards on leases, insurance contracts and financialinstruments.ThestandardiseffectiveforannualperiodsbeginningonorafterJanuary1,2018,withearlieradoptionpermitted.TheCompanyintendstoadoptIFRS15initsfinancialstatementsfortheannualperiodbeginningFebruary1,2018.TheCompany’scurrentco-packingcustomerscontrolaccesstothebenefitsoftheliquidmanufacturedforpackaging,aswell as the finishedproduct. As such, theCompanyhasdetermined that contractswith itsexistingco-packingcustomers meet the criteria to recognize revenue over a period of time. The impact of attributing revenue toproductioninprocessisnotexpectedtohaveamaterialimpactonrevenue,costofsales,andnetincome.TheCompany’sother customers (suchas TheBeer Store, and the LiquorControlBoardofOntario) donot controlaccesstothebenefitsoftheCompany’sproductsuntiltheyhavebeenshippedtothem.Assuch,theCompanyhasdeterminedthatrevenuegeneratedfromthesecustomersisrequiredtoberecognizedatapointintime.TheimpactisnotexpectedtohaveamaterialeffectontheCompany’srevenue,costofsales,andnetincome.ThestandardwillbeappliedretrospectivelywithdisclosureofthecumulativeimpactasofFebruary1,2018,thedateofapplication.6.2. FinancialInstrumentsIFRS 9 Financial Instruments (“IFRS 9”) was issued by the IASB in July 2014 and will replace IAS 39 FinancialInstruments:RecognitionandMeasurement(“IAS39”).IFRS9usesasingleapproachtodeterminewhetherafinancialassetismeasuredatamortizedcostorfairvalueandanewmixedmeasurementmodelfordebtinstrumentshavingonly two categories: amortized cost and fair value. The approach in IFRS9 is basedonhowanentitymanages itsfinancialinstrumentsinthecontextofitsbusinessmodelandthecontractualcashflowcharacteristicsofthefinancialassets. Final amendments released in July2014also introduceanewexpected loss impairmentmodel and limitedchangestotheclassificationandmeasurementrequirementsforfinancialassets.IFRS 9 is effective for annual periodsbeginningonor after January 1, 2018,with earlier adoptionpermitted. TheCompanyintendstoadoptIFRS9initsfinancialstatementsfortheannualperiodbeginningonFebruary1,2018.TheCompanydoesnotexpecttheamendmentstohaveamaterialimpactonthefinancialstatements.
BRICK BREWING CO. LIMITED · ANNUAL REPORT 2018 3920BRICKBREWINGCO.LIMITED YEARSENDEDJANUARY31,2018AND2017
6.3. Leases
In January 2016, the IASB issued IFRS 16 Leases (“IFRS 16”), which supersedes IAS 17 Leases, as well as severalinterpretationson leases. IFRS16eliminates theclassificationof leasesbya lesseebetweenoperatingand financeleases. Instead, all leaseswill be classified as finance leases and recognized in the statement of financial positionunderleaseassetsandfinancialliabilities,withcertainexceptions.IFRS16 iseffectiveforfiscalyearsbeginningonorafterJanuary1,2019,withearlieradoptionpermitted,providedthat IFRS15,RevenuefromContractswithCustomers, isalsoapplied. TheCompanyintendstoadopt IFRS16 in itsfinancialstatementsfortheannualperiodbeginningonFebruary1,2019.EffectiveFebruary1,2019,theCompanyanticipatesthatitwillclassifytheleaseofitsmanufacturingfacilityandtheleasesofCompanyvehicle,asfinanceleases.Theseleasesarecurrentlypresentedasoperatingleasesandrepresentapproximately$1.3millionofoperatingexpenses in fiscal2018. As such, theCompanyexpects theseexpenses todecrease,anddepreciationandinterestexpensetoincreaseinfiscal2019.Theextentoftheimpactofadoptionofthestandardhasnotyetbeendetermined.6.4. ClassificationandMeasurementofShare-basedPaymentTransactions(AmendmentstoIFRS2)
InJune2016,the IASB issuedamendmentsto IFRS2Share-basedPayment (“IFRS2”),clarifyinghowtoaccountforcertain typesof share-basedpayment transactions. Theamendmentsprovide requirementson theaccounting fortheeffectsofvestingandnon-vestingconditionsonthemeasurementofcash-settledshare-basedpayments;share-basedpaymenttransactionswithanetsettlementfeatureforwithholdingtaxobligations;andamodificationtothetermsandconditionsofashare-basedpaymentthatchangestheclassificationofthetransactionfromcash-settledtoequity-settled.TheamendmentsapplyforannualperiodsbeginningonorafterJanuary1,2018.TheCompanyintendstoadopttheamendmentstoIFRS2initsfinancialstatementsfortheannualperiodbeginningonFebruary1,2018.TheCompanydoesnotexpecttheamendmentstohaveamaterialimpactonthefinancialstatements.
7. REVENUETheCompany’srevenueconsistsofthefollowingstreams:
Servicesrevenueiscomprisedofrevenuegeneratedfromcontractmanufacturing.Brickutilizesavailableequipmentandresourcestoperformcontractmanufacturingservicesforcustomersinordertogenerateincrementalreturns.
YearEnded YearEndedJanuary31,2018 January31,2017
Revenuefromthesaleofgoods:Grossrevenue 87,714,638$ 79,741,608$Less:Productiontaxesanddistributionfees 48,389,548 42,732,663Revenue(net) 39,325,090$ 37,008,945
Revenuefromtherenderingofservices:Grossrevenue 10,464,944 8,167,435
Totalrevenue 49,790,034$ 45,176,380$
BRICK BREWING CO. LIMITED · ANNUAL REPORT 201840 BRICKBREWINGCO.LIMITED YEARSENDEDJANUARY31,2018AND201721
8. EXPENSESBYNATURE
Expenses relating to depreciation, amortization, impairment and personnel expenses are includedwithin the followinglineitemsonthestatementsofcomprehensiveincome:
9. OTHEREXPENSESTheCompany’sotherexpensesconsistofthefollowingamounts:
10. FINANCECOSTSTheCompany’sfinancecostsconsistofthefollowingamounts:
YearEnded YearEndedJanuary31,2018 January31,2017
Depreciationofproperty,plant&equipmentCostofsales 2,765,391$ 2,368,344$Otherexpenses 535,793 487,214
AmortizationofintangibleassetsOtherexpenses 226,578 20,400
Salaries,benefitsandotherpersonnel-relatedexpensesCostofsales 8,106,190 6,386,669Sell ing,marketingandadministrativeexpenses 4,185,092 3,934,754Otherexpenses 54,537 120,214
YearEnded YearEndedJanuary31,2018 January31,2017
Depreciationofproperty,plant&equipment 535,793$ 487,214$Amortizationofintangibleassets 226,578 20,400Otherpersonnel-relatedexpenses 54,537 120,214Foreignexchange(gains)losses (2,652) 15,445
814,256$ 643,273$
YearEnded YearEndedJanuary31,2018 January31,2017
Interestonlong-termdebt 246,446$ 228,379$Interestonfinanceleases 158,357 186,155Interestonbankindebtedness 69,732 35,930Otherinterestexpense 3,738 4,666Unwindingofdiscountonprovisions 38,248 23,051Fairvalueadjustmentsonfinancialinstruments 29,469 -
545,990$ 478,181$
BRICK BREWING CO. LIMITED · ANNUAL REPORT 2018 4122BRICKBREWINGCO.LIMITED YEARSENDEDJANUARY31,2018AND2017
11. INCOMETAXESSignificantcomponentsofincometaxexpenseconsistof:
TheprovisionforincometaxesdiffersfromtheresultthatwouldbeobtainedbyapplyingcombinedCanadianfederalandprovincial(Ontario)statutoryincometaxratestoincomebeforeincometaxes.Thisdifferenceresultsfromthefollowing:
The above reconciling items are disclosed at the tax rates that apply in the jurisdiction where they have arisen. ThestatutoryincometaxrateisthestandardincometaxrateapplicableintheprovinceinwhichtheCompanyoperates.
YearEnded YearEndedJanuary31,2018 January31,2017
Statementofcomprehensiveincome:Deferredtax:Originationandreversaloftemporarydifferences 1,051,829$ 1,401,571$Adjustmentsinrespectofprioryears (7,754) (56,413)Totaldeferredtaxchargefortheyear 1,044,075 1,345,158Incometaxexpense 1,044,075$ 1,345,158$
YearEnded YearEndedJanuary31,2018 January31,2017
Incomebeforetax 3,646,542$ 5,341,970$Statutoryincometaxrate 26.50% 26.50%Expectedtaxexpense 966,334 1,415,622Effectofincometaxon:Manufacturingandprocessingdeduction (47,290) (61,533)Non-deductiblestock-basedcompensationexpense 83,795 39,032Othernon-deductibleexpenses 32,276 15,607Otherpermanentdifferences 2,041 1,352Tax-exemptportionofcapitalgain 42,629 -Changeinopeningdeferredincometaxbalances (7,754) (56,413)Other (27,956) (8,509)
77,741 (70,464)Incometaxexpense 1,044,075$ 1,345,158$
BRICK BREWING CO. LIMITED · ANNUAL REPORT 201842 BRICKBREWINGCO.LIMITED YEARSENDEDJANUARY31,2018AND201723
The Company has accumulated the following net deductible temporary differences, unused tax losses and unused taxcredits:
Deferredtaxliabilitiesincludedonthestatementsoffinancialpositionareasfollows:
The operations of the Company and related tax interpretations, regulations and legislation are subject to change. TheCompanybelievesthattheamountreportedasdeferredincometaxliabilitiesadequatelyreflectsmanagement’scurrentbestestimateofitsincometaxexposures.Movementsintemporarydifferencesduringtheyearsareasfollows:
Netdeductible/(taxable) Unused UnusedDateofexpirytemporarydifferences taxlosses taxcreditsWithinoneyear -$ -$ -$Onetofiveyears - - -Afterfiveyears - 14,027,007 444,047Noexpiry (17,991,596) - -AsatJanuary31,2018(17,991,596)$ 14,027,007$ 444,047$Withinoneyear -$ -$ -$Onetofiveyears - - -Afterfiveyears - 15,166,915 442,047Noexpiry (15,165,127) - -AsatJanuary31,2017(15,165,127)$ 15,166,915$ 442,047$
YearEnded YearEndedJanuary31,2018 January31,2017
Non-capitalandcapitallossescarriedforward 3,561,732$ 3,851,178$Netbookvalueofproperty,plantandequipmentlessthanthetaxbasis (3,728,490) (3,067,340)Netbookvalueofintangibleassetsinexcessoftaxbasis (1,301,621) (1,189,690)Othertemporarydifferences 341,915 323,463Totaldeferredincometaxasset(liability),net (1,126,464) (82,389)
Classifiedas:Non-currentdeferredincomeasset(l iability) (1,126,464) (82,389)
Changeindeferredtaxexpense,recognizedinincomefortheyear 1,044,075$ 1,345,158$
BalanceatJanuary31,2016
Recognizedinprofitorloss
BalanceatJanuary31,2017
Recognizedinprofitorloss
BalanceatJanuary31,2018
Property,plant&equipment 6,799,392$ (19,008,073)$ (12,208,681)$ (2,475,057)$ (14,683,738)$Intangibleassets (3,854,896) (830,405) (4,685,301) (440,813) (5,126,114)Financingcosts (20,052) 58,878 38,826 (66,845) (28,019)AssetRetirementObligationasset&liability 388,548 23,051 411,599 126,777 538,376SR&EDexpenditurepoolcarryforwards,netoffutureSR&EDinvestmenttaxcreditincomeinclusions 836,383 - 836,383 (2,000) 834,383Taxlosscarryforwards 695,013 14,471,902 15,166,915 (1,139,908) 14,027,007Otheritems - - - 29,469 29,469Total 4,844,388$ (5,284,647)$ (440,259)$ (3,968,377)$ (4,408,636)$
BRICK BREWING CO. LIMITED · ANNUAL REPORT 2018 43 12
. PR
OPE
RTY,PLA
NT&EQUIPMEN
T
Lan
d
Buildings
and
leas
ehold
impr
ovem
ents
Ret
urna
ble
cont
aine
rs
Mac
hine
ryand
eq
uipm
ent
Com
pute
req
uipm
ent
Fur
nitu
reand
fix
ture
sV
ehicl
es
Major
spar
epa
rts
Equ
ipm
ent
Costord
eem
edco
stBa
lanceatFebruary1,201
642
1,48
8$
5,04
9,87
8$
6,55
8,37
9$
23,064
,180
$
1,55
0,90
9$
264,24
2$
235,77
5$
212,61
4$
5,81
9,37
8$
43,176
,843
$
Additio
ns-
277,44
6
250,12
2
1,61
3,11
8
165,66
3
145,98
7
111,95
0
14,627
-
2,57
8,91
3
Disposals
-
-
-
(117
,345
)
-
-
-
-
(336
,301
)
(453
,646
)
Balanc
eat
Janu
ary31
,201
742
1,48
8
5,32
7,32
4
6,80
8,50
1
24,559
,953
1,71
6,57
2
410,22
9
347,72
5
227,24
1
5,48
3,07
7
45,302
,110
Cum
ulat
ivede
prec
iatio
nan
dim
pairm
ent
BalanceatFebruary1,201
6-
(1,487
,808
)
(6,322
,655
)
(11,17
7,50
2)
(1,228
,329
)
(168
,941
)
(235
,775
)
(181
,099
)
(388
,664
)
(21,19
0,77
3)
Depreciatio
nchargefo
rtheyear
-
(393
,174
)
(125
,406
)
(1,977
,083
)
(43,30
4)
(50,73
6)
(16,79
5)
(19,65
6)
(229
,404
)
(2,855
,558
)
Depreciatio
non
:Disposals
-
-
-
117,34
5
-
-
-
-
336,30
1
453,64
6
Balanc
eat
Janu
ary31
,201
7-
(1,880
,982
)
(6,448
,061
)
(13,03
7,24
0)
(1,271
,633
)
(219
,677
)
(252
,570
)
(200
,755
)
(281
,767
)
(23,59
2,68
5)
Net
boo
kva
lueas
atJ
anua
ry31,201
742
1,48
8$
3,44
6,34
2$
360,44
0$
11,522
,713
$
444,93
9$
190,55
2$
95,155
$
26,486
$
5,20
1,31
0$
21,709
,425
$
Costord
eem
edco
stBa
lanceatFebruary1,201
742
1,48
8$
5,32
7,32
4$
6,80
8,50
1$
24,559
,953
$
1,71
6,57
2$
410,22
9$
347,72
5$
227,24
1$
5,48
3,07
7$
45,302
,110
$
Additio
ns-
(12,74
0)
1,11
1,66
5
9,24
5,33
0
357,17
7
9,81
6
-
-
-
10,711
,248
Disposals
(421
,488
)
(894
,594
)
-
(4,608
,143
)
-
-
-
(87,17
0)
-
(6,011
,395
)
Balanc
eat
Janu
ary31
,201
8-
4,41
9,99
0
7,92
0,16
6
29,197
,140
2,07
3,74
9
420,04
5
347,72
5
140,07
1
5,48
3,07
7
50,001
,963
Cum
ulat
ivede
prec
iatio
nan
dim
pairm
ent
BalanceatFebruary1,201
7-
(1,880
,982
)
(6,448
,061
)
(13,03
7,24
0)
(1,271
,633
)
(219
,677
)
(252
,570
)
(200
,755
)
(281
,767
)
(23,59
2,68
5)
Depreciatio
nchargefo
rtheyear
-
(301
,036
)
(236
,063
)
(2,251
,410
)
(179
,644
)
(55,11
3)
(38,06
2)
(12,98
7)
(226
,869
)
(3,301
,184
)
Depreciatio
non
dispo
sals
-
381,16
7
-
3,54
3,05
7
-
-
-
87,170
-
4,01
1,39
4
Balanc
eat
Janu
ary31
,201
8-
(1,800
,851
)
(6,684
,124
)
(11,74
5,59
3)
(1,451
,277
)
(274
,790
)
(290
,632
)
(126
,572
)
(508
,636
)
(22,88
2,47
5)
Net
boo
kva
lueas
atJ
anua
ry31,201
8-
$
2,61
9,13
9$
1,23
6,04
2$
17,451
,547
$
622,47
2$
145,25
5$
57,093
$
13,499
$
4,97
4,44
1$
27,119
,488
$
Asse
tsowne
dby
theCo
mpa
nyA
sset
sheldun
der
fina
nceleas
es
Tot
alpro
perty,
plan
tand
equ
ipm
ent
BRICK BREWING CO. LIMITED · ANNUAL REPORT 201844 BRICKBREWINGCO.LIMITED YEARSENDEDJANUARY31,2018AND201725
Refertonote21and22fordetailsontheCompany’sproperty,plantandequipmentthathavebeenpledgedassecurityforliabilities.Refertonote20forproperty,plantandequipmentheldunderfinancelease.
13. INTANGIBLEASSETSTheCompany’sintangibleassetsconsistofthefollowing:
For the year ended January 31, 2018, there were no indicators of impairment in the carrying value of the Company’sintangibleassets.Refertonote22fordetailsontheCompany’sintangibleassetsthathavebeenpledgedassecurityforliabilities.14. ACCOUNTSRECEIVABLETheaccountsreceivablebalanceconsistsofthefollowing:
Listings Trademarks Other
Computersoftwareand
licenses Total
CostBalanceatFebruary1,2016 3,670,434$ 11,642,014$ 11,744$ 99,200$ 15,423,392$Acquiredseparately 144,194 - - - 144,194BalanceatJanuary31,2017 3,814,628 11,642,014 11,744 99,200 15,567,586
CumulativeamortizationandimpairmentBalanceatFebruary1,2016 - - - (48,000) (48,000)Amortizationchargefortheyear - - - (20,400) (20,400)BalanceatJanuary31,2017 - - - (68,400) (68,400)
NetbookvalueasatJanuary31,2017 3,814,628$ 11,642,014$ 11,744$ 30,800$ 15,499,186$
CostBalanceatFebruary1,2017 3,814,628$ 11,642,014$ 11,744$ 99,200$ 15,567,586$Acquiredseparately 281,417 - - - 281,417Disposals (179,140) - - - (179,140)BalanceatJanuary31,2018 3,916,905 11,642,014 11,744 99,200 15,669,863
CumulativeamortizationandimpairmentBalanceatFebruary1,2017 - - - (68,400) (68,400)Amortizationchargefortheyear (195,778) - - (30,800) (226,578)Amortizationondisposals 6,693 - - - 6,693
BalanceatJanuary31,2018 (189,085) - - (99,200) (288,285)
NetbookvalueasatJanuary31,2018 3,727,820$ 11,642,014$ 11,744$ -$ 15,381,578$
January31,2018 January31,2017
TradeCustomers 6,233,859$ 6,248,018$Other 765,353 809,904
6,999,212 7,057,922Allowance - (22,208)Net,accountsreceivable 6,999,212$ 7,035,714$
BRICK BREWING CO. LIMITED · ANNUAL REPORT 2018 45
26BRICKBREWINGCO.LIMITED YEARSENDEDJANUARY31,2018AND2017
Movementintheallowanceforaccountsreceivableconsistsofthefollowing:
Thesolvencyofcustomersandtheirabilitytorepayreceivableswereconsideredinassessingtheimpairmentofaccountsreceivable.Nocollateralisheldinrespectofimpairedreceivablesorreceivablesthatarepastduebutnotimpaired.BelowisanagedanalysisoftheCompany’saccountsreceivable:
15. INVENTORIESTheinventoriesbalanceconsistsofthefollowing:
AsatJanuary31,2018,aprovisionof$30,664(January31,2017-$121,170)hasbeennettedagainstinventorytoaccountforobsoletematerials.ThecostofinventoriesrecognizedascostofsalesduringtheyearendedJanuary31,2018are$30,370,846(January31,2017-$25,126,291).Includedinthisamountarechargesrelatedtoimpairmentcausedbyobsolescence.DuringtheyearendedJanuary31,2018,thesechargesamountedto$33,224(January31,2017-$97,780). Refertonote22fordetailsontheCompany’sinventoriesthathavebeenpledgedassecurityagainstliabilities.
January31,2018 January31,2017
Allowance,beginningofyear 22,208$ -$Additionalamountsprovidedduringtheyear - 22,208Amountswrittenoffduringtheyear (22,208) -
Allowance,endofyear -$ 22,208$
January31,2018 January31,2017
Notyetdue,orlessthan31dayspastdue 6,944,932$ 6,907,844$
Pasttheduedatebutnotimpaired:31-60days 19,083 81,95161-90days 35,197 32,086Over90days - 13,833
6,999,212$ 7,035,714$
January31,2018 January31,2017
Rawmaterials,suppliesandother $1,812,220 $1,991,068Workinprogressandfinishedgoods 6,079,144 3,628,261
$7,891,364 $5,619,329
BRICK BREWING CO. LIMITED · ANNUAL REPORT 201846 BRICKBREWINGCO.LIMITED YEARSENDEDJANUARY31,2018AND201727
16. SHARECAPITALPreferredsharesTheCompanyisauthorizedtoissueanunlimitednumberofpreferredshareswithnoparvalue.AsatJanuary31,2018,nopreferredshareswereissuedandoutstanding.CommonsharesTheCompanyisauthorizedtoissueanunlimitednumberofcommonshareswithnoparvalue.AsatJanuary31,2018,35,285,126(January31,2017–35,082,468)commonshareswereissuedandoutstanding.OnApril 21, 2016, the Company announced that itwould be renewing its normal course issuer bid (“NCIB”) for up to1,700,000of itscommonshares,representing4.8%ofthe34,962,088commonsharesoutstandingasofApril13,2016.The NCIB commenced on April 25, 2016 and terminated on April 24, 2017. As of April 24, 2017, the Company hadpurchasedandcancelledanaggregateof210,200commonsharesunderitsNCIBovertheprevious12monthsatavolumeweighted average price of $2.79 per common share. During fiscal 2018 the Company repurchased and cancelled anaggregateof115,200commonsharesunderitsNCIBatavolumeweightedaveragepriceof$2.79percommonshare.OnApril11,2018,theBoardofDirectorsoftheCompanyapprovedaquarterlydividendof$0.02pershare,payableonMay 22, 2018 to shareholders of record as of May 8, 2018. During the year ended January 31, 2018, $2,391,653 ofdividendswerepaid(January31,2017-$1,822,177).17. SHARE-BASEDPAYMENTSStockoptionandsharepurchaseplansTheCompanyhasgrantedstockoptionstocertainexecutiveofficersandkeyemployees,pursuanttotheCompany’sstockoptionplan. OptionsgrantedundertheplanareexercisableforaperiodoffiveyearsfromthedateofgrantatapriceequaltotheweightedaverageclosingmarketpriceatwhichtheCompany’sshareshavetradedontheTSXduringthefivedaysimmediatelyprecedingthedategranted,subjecttoathree-yearvestingperiod.Thestockoptionplanprovidesthatthemaximumnumberof common sharesof the Company issuableupon theexerciseofoptions shall notexceed suchnumberwhichrepresents10%oftheissuedandoutstandingcommonsharesoftheCompanyfromtimetotime.AsummaryofthestatusoftheoptionsoutstandingundertheCompany'sstockoptionplanasatJanuary31,2018andJanuary31,2017ispresentedbelow:
NumberofshareoptionsWeightedaverageexercise
priceNumberofshare
optionsWeightedaverageexercise
price
Balanceoutstandingatbeginningofyear 997,493 1.88$ 882,401 1.51$Granted 851,000 3.35 455,000 2.28Forfeited (20,000) 2.88 (49,334) 1.55Exercised1 (489,829) 1.76 (290,574) 1.43Balanceoutstandingatendofyear 1,338,664 2.85$ 997,493 1.88$
YearendedJanuary31,2018
YearendedJanuary31,2017
1DuringthefiscalyearendedJanuary31,2018,410,827stockoptionswereexercisedonacashlessbasis(January31,2017-145,400).Thisresultedintheissuanceof220,623commonshares(January31,2017-60,105).
BRICK BREWING CO. LIMITED · ANNUAL REPORT 2018 47
28BRICKBREWINGCO.LIMITED YEARSENDEDJANUARY31,2018AND2017
Asummaryofoptionsoutstandingundertheplanispresentedbelow:
Alloutstandingoptionshaveatermoffiveyearsfromthedateofgrantandvestoverathreeyearperiodfromthedateofgrantatarateofone-thirdperannumofthetotalnumberofoptionsgranted.Theweightedaveragesharepriceofoptionsexercisedduring theyearended January31,2018was$1.76 (January31,2017-$1.43).Foroptionsgranted,thefairvaluehasbeendeterminedusingtheBlack-Scholesfairvalueoptionpricingmodelandthefollowingassumptions:
The resulting fair value is charged to personnel expense over the vesting period of the options with a correspondingincreaseintheshare-basedpaymentreserves.Asoptionsareexercised,thecorrespondingvaluespreviouslychargedtoshare-basedpaymentsreservearereclassifiedtosharecapital.Cashproceedsreceivedupontheexerciseofoptionsarecreditedtosharecapital.Employeesharepurchaseplan:Pursuant to the Company’s employee share purchase plan, employees are eligible to purchase an allotted number ofcommonsharesat adiscountof10% from theaverage closingmarketpriceduring the fivebusinessdays immediatelyprecedingJanuary15thofanygivenyear.DuringtheyearendedJanuary31,2018,18,233shareswereissuedundertheplan(January31,2017–27,631)fornetproceedsof$60,050(January31,2017-$45,867).
ExercisepriceNumberoutstandingatJanuary31,2018
Weightedaverageremainingcontractual
lifeNumberexercisableat
January31,2018
1.18 3,332 2.38 -1.29 7,667 1.50 7,6671.50 80,997 2.53 25,5521.54 90,666 2.51 23,9992.24 143,335 3.58 47,7782.29 146,667 3.49 -2.52 30,000 3.74 10,0003.18 465,000 4.45 -3.48 31,000 4.97 -3.55 5,000 4.95 -3.59 330,000 4.87 -3.60 5,000 4.85 -1.18to3.60 1,338,664 4.09 114,996
YearendedJanuary31,2018
YearendedJanuary31,2017
Weightedaveragefairvalueperoption 0.72$ 0.45$Weightedaverageshareprice 3.36$ 2.28$Weightedaverageexerciseprice 3.35$ 2.28$Expectedvolatil ity 29% 28%Dividendyield 2% 2%Riskfreeinterestrate 1% 1%Weightedaverageexpectedlifeinyears 5 5
BRICK BREWING CO. LIMITED · ANNUAL REPORT 201848 BRICKBREWINGCO.LIMITED YEARSENDEDJANUARY31,2018AND201729
18. EARNINGSPERSHARE
Thecomputationsforbasicanddilutedearningspershareareasfollows:
19. PROVISIONS
AssetdecommissioningcostsrelatetothefuturelegalobligationsassociatedwiththeretirementoftheCompany'sleasedfacility.Theobligationisbeingaccretedtoincomeovertheremainderoftheleaseterm.DuringtheyearendedJanuary31,2018,theCompanyexpandedtheleasedfacility.ThetotalundiscountedamountofestimatedcashflowsrequiredtorestoretheleasedfacilityasatJanuary31,2018was$704,904(January31,2017-$588,363).Thekeyassumptionsusedbymanagementincomputingthefairvalueofthefutureobligationareasfollows:inflationat2%anddiscountrateat4%.Theamountandtimingofcashflowsarebaseduponmanagement'sbestestimateofthisfutureobligation.
January31,2018 January31,2017
Netincomefortheyear 2,602,467$ 3,996,812$
Averagenumberofcommonsharesoutstanding 35,154,516 35,022,667Effectofoptions 276,139 271,879Averagenumberofdilutedcommonsharesoutstanding 35,430,655 35,294,546
Basicearningspershare 0.07$ 0.11$Dilutedearningspershare 0.07$ 0.11$
Assetdecommissioning
obligations
BalanceatFebruary1,2016 388,548$Changesduetothepassageoftime 23,051
BalanceatJanuary31,2017 411,599$
Current -$Non-current 411,599$
BalanceatFebruary1,2017 411,599$Changeduetothepassageoftime 38,248Changeduetoexpansionofleasedfacil ity 88,529
BalanceatJanuary31,2018 538,376$
Current -$Non-current 538,376$
BRICK BREWING CO. LIMITED · ANNUAL REPORT 2018 49
30BRICKBREWINGCO.LIMITED YEARSENDEDJANUARY31,2018AND2017
20. OBLIGATIONUNDERFINANCELEASEThe Company has a finance lease with HSBC Bank Canada (“HSBC”) for various items of equipment, secured by theequipmentunderlease.OnSeptember16,2015$5,543,826wasformalizedintoalease,subjecttointerestat3.80%perannum,withmonthlyblendedpaymentsofapproximately$75,030untilAugust16,2022.TheCompanyhasthefollowingcommitmentsrelatingtoitsobligationsunderfinancelease:
Movementintheobligationunderfinanceleaseconsistsofthefollowing:
21. LONG-TERMDEBTLong-termdebtconsistsofthefollowing:
January31,2018 January31,2017
Duewithinoneyear 900,354$ 900,354$Duewithinonetofiveyears 3,226,370 4,126,725Dueinoverfiveyears - -TotalMinimumLeasePayments 4,126,724 5,027,079
Lessamountrepresentinginterestat3.80% (344,869) (503,927)
Presentvalueoffinanceleasepayments 3,781,855 4,523,152
Lesscurrentportionunderfinancelease (769,962) (741,297)
3,011,893$ 3,781,855$
January31,2018 January31,2017
$4,523,152 $5,236,851Repaymentofobligationunderfinancelease (741,297) (713,699)Obligationunderfinancelease(includingcurrentportion),endofyear 3,781,855$ 4,523,152$
Obligationunderfinancelease(includingcurrentportion),beginningofyear
January31,2018 January31,2017
TermdebtloanpayabletoHSBC,bearinginterestrateof3.85%withmonthlyprincipalpaymentsof$23,809until April 19,2023.
$1,520,419 $1,806,133
TermdebtloanpayabletoHSBC,bearinginterestrateof3.44%withmonthlyprincipalpaymentsof$26,825until April 19,2024.
1,808,206 -
TermdebtloanpayabletoHSBC,bearinginterestrateof3.92%withmonthlyprincipalpaymentsof$40,907until July14,2024.
2,811,827 -
LoanpayabletoWellsFargo(statednetoftransactioncostsof$35,411),bearinginterestat4.006%,andmonthlyblendedpaymentsof$30,450until June9,2021.
1,129,559 1,271,529
LoanpayabletoWellsFargo,bearinginterestat6.12%,andmonthlyblendedpaymentsof$7,612until December17,2018.
81,230 164,813
Totallong-termdebt $7,351,241 $3,242,475Current $1,331,996 $743,895Non-current $6,019,245 $2,498,580
BRICK BREWING CO. LIMITED · ANNUAL REPORT 201850 BRICKBREWINGCO.LIMITED YEARSENDEDJANUARY31,2018AND201731
ThetermdebtloanspayabletoHSBCaresecuredbyageneralsecurityagreementoverallassets,acollateralmortgageinthe amount of $1,500,000over real property, and a first position security interest in processing plant and equipment,accountsreceivableandinventories.TheloanspayabletoWellsFargoaresecuredbyspecificitemsofequipment.TheCompanyis incompliancewiththefinancialcovenantsrequiredunderthetermsofthetermdebtloanspayabletoHSBC.Theaggregatematuritiesoflong-termdebtobligationsaresummarizedasfollows:
Movementinthelong-termdebtconsistsofthefollowing:
22. BANKINDEBTEDNESSTheCompanyholdsanoperatinglineofcreditfromHSBCBankCanadaof$8,000,000withinterestatprimeplus0.20%perthemostrecentbankingagreement.ThenetbalancedrawnontheoperatinglineofcreditasofJanuary31,2018is$1,009,074(January31,2017-nil).Bankindebtednessincludesoutstandingcheques.InterestexpensefortheyearendedJanuary31,2018was$69,732(January31,2017-$35,930).Thesechargeshavebeenincludedaspartoffinancecostsinthestatementofcomprehensiveincome.
The operating line is secured by a general security agreement over all assets other than real property, and a generalassignmentofbookdebtscreatingafirstpriorityassignment.TheCompanyisincompliancewiththefinancialcovenantsrequiredunderthetermsofthebankoperatinglineofcredit.
January31,2018
Duewithinoneyear 1,331,996$Dueinonetofiveyears 4,820,863$Dueinoverfiveyears 1,198,382$
7,351,241$
January31,2018 January31,2017
Long-termdebt(includingcurrentportion),beginningofyear $3,242,475 $2,780,776Issuanceoflong-termdebt 5,163,067 2,000,000Repaymentoflong-termdebt (1,024,640) (1,597,179)FinancingFeespaidduringtheyear (36,852) -Amortizationoffinancingfees 7,191 58,878Long-termdebt(includingcurrentportion),endofyear 7,351,241$ 3,242,475$
BRICK BREWING CO. LIMITED · ANNUAL REPORT 2018 51
32BRICKBREWINGCO.LIMITED YEARSENDEDJANUARY31,2018AND2017
23. ACCOUNTSPAYABLEANDACCRUEDLIABILITIESAccountspayableandaccruedliabilitiesconsistofthefollowingcategories:
TheCompany’stradepayablesrelatetoamountsoutstandingfortradepurchasesrelatingtotheproductionofalcohol-basedproductsandforgeneraladministrativeactivities.TheCompany’sotherpayables category includesamounts relating to federal andprovincial sales taxesandproductiontaxes associatedwith themanufacturing and distribution of alcohol based products. The Company’s accrued liabilitiesmainlyrelatetosalaries,benefitsandotherpersonnelrelatedexpensesaswellasaccrualsrelatingtoaccountingandlegalexpenses.Accountspayablesandaccruedliabilitiesareexpectedtobesettledwithinthenext12months.24. FINANCIALINSTRUMENTSThis note presents information relating to the Company’s exposure to financial instruments and summarizes theCompany’spoliciesandprocessesthatareinplaceformeasuringandmanagingrisk.Furtherqualitativedisclosuresareincludedthroughoutthesefinancialstatements.PrinciplesofriskmanagementThemain risks arising from the Company’s financial instruments are credit and sales concentration risk, liquidity risk,foreigncurrencyriskandinterestraterisk.TheserisksarefromexposuresthatoccurinthenormalcourseofbusinessandaremanagedbytheexecutiveofficersoftheCompany(the“ExecutiveTeam”).TheresponsibilitiesoftheExecutiveTeamincludetherecommendationsofpoliciestomanagefinancialinstrumentrisk.Theoverall objectiveof theExecutive Team is to effectivelymanage credit risk, liquidity risk andothermarket risks inaccordance with the Company’s strategy. Other responsibilities of the Executive Team include management of theCompany’scashresourcesanddebtfundingprograms,approvalofcounter-partiesandrelevanttransactionlimitsandthemonitoringofallsignificanttreasuryactivitiesundertakenbytheCompany.TheCompany’s FinanceGrouppreparesperiodic reportswhichmonitorall significant financial activitiesundertakenbytheCompany.Thesereportsalsomonitorloancovenantstoensurecontinuedcompliance.TheExecutiveTeamreviewsthese reports to monitor the financial instrument risks of the Company and to ensure compliance with establishedCompanypoliciesandprocedures.CategoriesoffinancialinstrumentsTheCompany’ssignificantfinancial instrumentscomprisecashandcashequivalents,bank indebtedness, finance leases,and long-termdebt. Themainpurposeof these financial instruments is to finance theCompany’s growthandongoingoperations. The Company has various other financial assets and liabilities such as accounts receivables and accountspayables,whicharisedirectlyfromitsoperations.
January31,2018 January31,2017
Tradepayables $2,892,340 $2,604,953Otherpayablesandaccruedliabilities 3,624,042 7,050,452
$6,516,382 $9,655,405
BRICK BREWING CO. LIMITED · ANNUAL REPORT 201852 BRICKBREWINGCO.LIMITED YEARSENDEDJANUARY31,2018AND201733
TheCompany’sfinancialinstrumentsandtheirdesignationsare:
Designatedas:Cashandcashequivalents Held-for-tradingAccountsreceivable LoansandreceivablesAccountspayableandaccruedliabilities OtherfinancialliabilitiesObligationsunderfinancelease OtherfinancialliabilitiesLong-termdebt Otherfinancialliabilities
Allfinancialassetsandfinancialliabilitiesarerecordedatamountswhichapproximatetheirfairmarketvalue.
Accounts receivable, accounts payable, and accrued liabilities approximate their fair values on a discounted cash flowbasisbecauseoftheshort-termnatureoftheseinstruments.Ingeneral,investmentswithoriginalmaturitiesoflessthanthreemonthsareclassifiedascashandcashequivalents.Thecarryingamountoflong-termdebt,andobligationsunderfinanceleaseapproximatetheirfairvalueonadiscountedcashbasisbecausetheseobligationsbearinterestatmarketrates.
CreditandsalesconcentrationriskExposuretocreditriskarisesasaresultoftransactionsintheCompany’sordinarycourseofbusinessandisapplicabletoallfinancialassets.Investmentsincash,short-termdepositsandsimilarassetsarewithapprovedcounterpartybanksandotherfinancialinstitutions.Counter-partiesareassessedbothpriorto,during,andaftertheconclusionoftransactionstoensureexposuretocreditriskislimitedtoanacceptablelevel.TheCompany’smajorexposuretocreditriskisinrespectoftradereceivables.TheBeerStoreistheCompany’slargestcustomerwithaccountsreceivabletotalling$5,036,405atJanuary31,2018(January31,2017-$5,199,360).ThemaximumexposureofcreditriskislimitedtothetotalcarryingvalueofaccountsreceivableasatJanuary31,2018,beinganamountof$6,999,212(January31,2017-$7,035,714).ThecreditqualityoftheCompany’ssignificantcustomersismonitoredonanon-goingbasisandallowancesareprovidedforpotentiallossesthathavebeenincurredattheperiodenddate.Receivablesthatareneitherpastduenorimpairedare considered credit of high quality. Where concentrations of credit risk exist, management closely monitors thereceivableandensuresappropriatecontrolsareinplacetoensurerecovery.DuringtheperiodendedJanuary31,2018,approximately73percent(January31,2017–76percent)oftheCompany’snetrevenueisattributabletosalestransactionswithasinglecustomer.LiquidityriskLiquidity risk is the risk that theCompanymaynotbeable to settleormeet itsobligationson timeorata reasonableprice. The Company’s Executive Team is responsible for management of liquidity risk, including funding, settlements,relatedprocessesandpolicies.Theoperational,tax,capitalandregulatoryrequirementsandobligationsoftheCompanyareconsideredinthemanagementofliquidityrisk.
TheCompanymanagesitsliquidityriskutilizingvarioussourcesoffinancingtomaintainflexibilitywhileensuringaccesstocost-effective fundswhen required. The Company alsomanages liquidity risk through the use of its operating line ofcredit. In addition, the Executive Team utilizes both short and long-term cash flow forecasts and other financialinformation tomanage liquidity risk. Other than the scheduled repayments of long-term debt, and obligations underfinanceleaseinfiscal2018andbeyond,allotherfinancialliabilitiesareduewithinoneyear.
BRICK BREWING CO. LIMITED · ANNUAL REPORT 2018 53
34BRICKBREWINGCO.LIMITED YEARSENDEDJANUARY31,2018AND2017
ThetablebelowpresentsamaturityanalysisoftheCompany’sfinancialliabilitiesbasedontheexpectedcashflowsfromthereportingdatetothecontractualmaturitydate.
CurrencyriskTheCompanycurrently reliesononlya fewforeignsuppliersprovidingcertaingoodsandservicesandthushas limitedexposuretoriskduetofluctuationsinforeignexchangerates.TheCompanyperiodicallyentersintoforwardcontractstomanageforeignexchangerate fluctuationsandtheExecutiveTeammonitors foreignexchangeexposureonanongoingbasis.TheCompanydoesnothaveanysignificantforeigncurrencydenominatedmonetaryliabilities.InterestrateriskTheCompanyisexposedtointerestraterisktotheextentthatitsbankindebtednessandlong-termdebtarebaseduponvariableratesofinterest.For theyearendedJanuary31,2018, if interest rateschangedby1%assumingallothervariablesremainconstant, thechangeintheCompany’snetincomeandcomprehensiveincomewouldnotbesignificantlyimpacted.MarketriskTheCompanyisexposedtocommoditypriceriskwithrespecttocertainrawmaterialswherefluctuationsinthemarketpriceoravailabilityoftheseitemscouldimpacttheCompany’scashflowandproduction.Tominimizetheimpactofthisrisk, theCompanyenters intocontractswhichsecuresupplyandsetpricingtomanagetheexposuretoavailabilityandpricingofcertainrawmaterials.TheCompany’sprofitabilitydependsonthesellingpriceof itsproducts toTheBeerStoreandprovincial liquorboards.WhilethesepricesarecontrolledbytheCompany,theyaresubjecttovariouslegislation,regionalsupplyanddemandandgeneraleconomicconditions.CapitalmanagementForcapitalmanagementpurposes,theCompanydefinescapitalastheaggregateofitsequityandtotaldebtlesscashandcash equivalents. Debt includes bank indebtedness, the current and non-current portions of obligations under financeleasesandthecurrentandnon-currentportionsoflong-termdebt.TheCompany’sprincipalobjectivesinmanagingcapitalare:
§ toensurethatitwillcontinuetooperateasagoingconcern;§ tomaintainastrongcapitalbasesoastomaintainclient,investor,creditorandmarketconfidence;and§ tocomplywithfinancialcovenantsrequiredunderitsvariousborrowingfacilities.
CarryingAmount
ContractualCashFlows
Duewithinoneyear
Dueinonetofiveyears
Dueinoverfiveyears
Accountspayableandaccruedliabilities $6,516,382 $6,516,382 $6,516,382 $- $-Long-termdebt 7,351,241 7,386,652 1,343,025 5,721,731 321,896Obligationunderfinancelease 3,781,855 3,781,855 769,962 3,011,893Totalcontractualrepayments $17,649,478 $17,684,889 $8,629,369 $8,733,624 $321,896
BRICK BREWING CO. LIMITED · ANNUAL REPORT 201854 BRICKBREWINGCO.LIMITED YEARSENDEDJANUARY31,2018AND201735
TheCompany’scapitalstructureconsistsofthefollowing:
TheCompanymanagesitscapitalstructureandadjusts it inthelightofchangesineconomicconditionsandinordertocomplywithexternallyimposedfinancialdebtcovenants.FinancingdecisionsaregenerallymadeonaspecifictransactionbasisanddependontheCompany’sneeds,capitalmarketsandeconomicconditionsatthetimeofthetransaction.AtJanuary31,2018,theCompanywasincompliancewithallofitsfinancialdebtcovenants.25. OPERATINGLEASESAtJanuary31,2018,theCompany’scommitmentsundernon-cancellableoperatingleasesareasfollows:
Operating lease expense recognized within cost of sales for the fiscal year ended January 31, 2018 was $1,656,085(January31,2017-$1,635,534).26. COMMITMENTSAsatJanuary31,2018,theCompanyhadthefollowingnon-cancellablepurchasecommitmentsrelatingtorawmaterialsandsupplies:
Allothercommitmentshavebeenotherwisenotedwithinthesefinancialstatements.
January31,2018 January31,2017
BankIndebtedness(Cash) $787,843 $(2,831,959)Totaldebt 11,133,096 7,765,627Netdebt 11,920,939 4,933,668Equity:
Sharecapital 39,747,525 39,651,096Share-basedpaymentsreserves 1,026,667 943,565Deficit (2,547,746) (2,758,560)
TotalEquity 38,226,446 37,836,101Totalcapitalization(netdebtplustotalequity) $50,147,385 $42,769,769
Vehicles Buildings
Officeequipment,furniture
andfixtures TotalFutureminimumleasepayments:Duewithinoneyear $643,154 $1,110,036 $7,813 $1,761,003Dueinonetofiveyears 2,050,827 4,615,758 10,538 6,677,123Dueinoverfiveyears - 3,188,691 - 3,188,691
$2,693,981 $8,914,485 $18,351 $11,626,817
January31,2018 January31,2017
Duewithinoneyear $4,254,997 $4,002,343Dueinonetofiveyears - 456,000Dueinoverfiveyears - 120,000
$4,254,997 $4,578,343
BRICK BREWING CO. LIMITED · ANNUAL REPORT 2018 55
36BRICKBREWINGCO.LIMITED YEARSENDEDJANUARY31,2018AND2017
27. RELATEDPARTYTRANSACTIONSKeymanagementpersonnelconsistoftheofficersoftheCompanyandtheCompany’sBoardofDirectors.Theaggregatecompensationofkeymanagementpersonnelissetoutbelow:
TheCompanysponsorstheBootsandHeartsMusicFestival,amulti-daycountrymusicfestivalproducedbyRepublicLiveInc.,acompanythatisownedbyoneoftheCompany’sdirectors.AsponsorshipfeewaspaidtoRepublicLiveInc.duringthesecondquarteroffiscal2018intheamountofapproximately$0.1million.Thisexpensehasbeenrecognizedinthethirdquarteroffiscal2018whentheeventtookplace.AsatJanuary31,2018,theCompanydidnothaveanyamountspayabletothisvendor.
YearEnded YearEndedJanuary31,2018 January31,2017
Short-termemployeebenefits 1,778,312$ 1,354,940$Post-employmentbenefits 57,986 57,297Share-basedpayments 139,100 85,622
1,975,398$ 1,497,859$
BRICK BREWING CO. LIMITED · ANNUAL REPORT 2017 3BRICKBREWINGCO.LIMITED YEARSENDEDJANUARY31,2017AND20165
STATEMENTSOFFINANCIALPOSITIONAsatJanuary31,2017andJanuary31,2016
Theaccompanyingnotesareanintegralpartofthesefinancialstatements.
OnbehalfoftheBoard:
“PeterJ.Schwartz”Director“GeorgeH.Croft”Director
Notes January31,2017 January31,2016
ASSETSNon-currentassetsProperty,plantandequipment 12 21,709,425$ 21,986,070$Intangibleassets 13 15,499,186 15,375,392Constructiondeposits 2,462,328 -Deferredincometaxassets 11 - 1,262,769
39,670,939 38,624,231CurrentassetsCash 2,831,959 393,645Accountsreceivable 14 7,035,714 6,176,421Inventories 15 5,619,329 3,291,529Prepaidexpenses 593,180 354,650
16,080,182 10,216,245
TOTALASSETS 55,751,121$ 48,840,476$
LIABILITIESANDEQUITY
EquitySharecapital 16 39,651,096$ 39,526,573$Share-basedpaymentsreserves 17 943,565 932,201Deficit (2,758,560) (4,933,195)
TOTALEQUITY 37,836,101 35,525,579
Non-currentliabilitiesProvisions 19 411,599 388,548Obligationunderfinancelease 20 3,781,855 4,523,152Long-termdebt 21 2,498,580 1,548,584Deferredincometaxliabilities 11 82,389 -
6,774,423 6,460,284
CurrentliabilitiesAccountspayableandaccruedliabilities 23 9,655,405 4,908,722Currentportionofobligationunderfinancelease 20 741,297 713,699Currentportionoflong-termdebt 21 743,895 1,232,192
11,140,597 6,854,613
TOTALLIABILITIES 17,915,020 13,314,897
COMMITMENTS 25,26
TOTALLIABILITIESANDEQUITY 55,751,121$ 48,840,476$
INVESTOR & CONTACT INFORMATION
STOCK EXCHANGE AND LISTED SECURITIESBrick Brewing Co. Limited is listed on the
Toronto Stock Exchange (TSX) under the
ticker symbol BRB.
INVESTOR AND ANALYST INQUIRIESDavid Birch, Chief Financial O� cer
Brick Brewing Co. Limited
T: 519-742-2732
F: 519-742-9874
SHARE REGISTRAR AND TRANSFER AGENTComputershare Investor Services Inc.100 University Avenue, 8th Floor
Toronto, Ontario, M5J 2Y1
EXTERNAL AUDITORKPMG LLP
115 King Street South, 2nd Floor
Waterloo, Ontario, N2J 5A3
CORPORATE COUNSELWildeboer Dellelce LLPSuite 800, Wildeboer Dellelce Place
365 Bay Street,
Toronto, Ontario, M5H 2V1
LOCATIONSCorporate O� ce & Kitchener Manufacturing Facility400 Bingemans Centre Drive,
Kitchener, Ontario, N2B 3X9
T: 519-742-2732
F: 519-742-9874
www.brickbeer.com
BOARD OF DIRECTORSPeter J. Schwartz, Chairman David R. ShawEdward H. KernaghanGeorge H. Croft John H. BoweyStan G. Dunford
OFFICERSGeorge Croft, President and Chief Executive O� cer
Russell Tabata, Chief Operating O� cer
David Birch, Chief Financial O� cer