DELSON, QUEBEC--(Marketwired - Nov. 24, 2016) - Goodfellow Inc. (TSX:GDL) ("Goodfellow" or the "Corporation") announces today that it has completed the review of its accounts undertaken in connection with the discovery of certain discrepancies which led to the announcement on October 13, 2016 of the delay in the filing of its interim financial report, interim management discussion and analysis and interim certificates for the quarter ended August 31, 2016 (the "Third Quarter Financial Information").
Results of the Review
The review was conducted under the direction of the audit committee and the board of directors who also retained the services of its auditors, KPMG LLP, to perform selected procedures over the results of the nine month period ended August 31, 2016, including inventory and cost of sales testing. Pursuant to the review, issues with the recording of inventory value and its impact on the cost of goods sold were confirmed and additional steps were taken to verify the integrity of the new integrated financial information system (the "ERP System") and the accuracy of its results. Further to this review, the Corporation concluded that a material weakness existed in the design of the Corporation's internal control over financial reporting in the area of inventory controls, principally due to the implementation of the new ERP system on December 1, 2015. This material weakness was caused primarily by the absence of certain preventive and detective controls over inventory management.
Management has undertaken an extensive and thorough review of the transactions processed in the new ERP software with the objective of resolving all design deficiencies and implementing compensating controls to mitigate the risk of a material misstatement. The Corporation is in the process of implementing a plan for the remediation of this design weakness. The Corporation has retained the services of Deloitte LLP to assist it in the design and implementation of such remediation plan. In the short term, the number of inventory counts increased to a level at which the Corporation can be confident of the statistical validity of the results of those counts.
Restatement of Financial Statements for the Second Quarter
The foregoing control deficiency resulted in the Corporation determining that its interim financial statements for the second quarter ended May 31, 2016 must be restated. More specifically, a number of corrections need to be made which are expected to reduce net income for the second quarter from $3.4 million to approximately $2.4 million after tax, or 28 cents per share.
Results for the Third Quarter
Further to completion of its review, the Corporation is now in a position to finalize its Third Quarter Financial Information. Third quarter sales expected to be reported continued to be favorable at approximately $159 million, an increase of 4.9% compared to the same period last year. The Corporation has also identified a significant deterioration of the business conditions for two of its large product lines. This has significantly impacted the overall margin in the third quarter. The combined effect of reduced margin with higher costs incurred for the implementation of the ERP System is expected to result in the reporting of a net loss for the quarter of approximately $2.7 million after tax, or 32 cents per share, which would represent a loss of approximately $1.2 million after tax, or 14 cents per share for the nine-month period ended August 31, 2016.
Goodfellow expects to publish its Third Quarter Financial Information and revised interim financial report, interim management discussion and analysis and interim certificates for the second quarter ended May 31, 2016 (the "Second Quarter Financial Information") on November 29, 2016 after markets close. As a result of such restatement, historical Second Quarter Financial Information should not be relied upon.
Management Cease Trade Order
The management cease trade order resulting from the delayed publication of the Corporation's third quarter results remains in effect. The Corporation plans to apply for the lifting of the management cease trade order following the filing of its Third Quarter Financial Information and the restated Second Quarter Financial Information.
There is no failure by the Corporation in fulfilling its stated intentions with respect to satisfying the provisions of the alternative information guidelines, and there is no actual or anticipated default subsequent to the default announced in its press release of October 13, 2016 as updated by the contents of this press release. There is no other material information concerning the affairs of the Corporation that has not been generally disclosed.
Goodfellow Inc. is one of eastern Canada's largest independent re-manufacturers and distributors of lumber and hardwood flooring products. Goodfellow shares trade on the Toronto Stock Exchange under the symbol GDL.
For more details, please go to www.goodfellowinc.com
This document contains implicit and/or explicit forward looking statements and information, including expectations with respect to the reporting of Third Quarter Financial Information, the restatement of Second Quarter Financial Information, the confidence in the restated and upcoming financial results, the implementation of a plan for the remediation of the design weakness in the area of inventory controls, and plans to have the management cease trade order lifted. These forward looking statements are based on various expectations, assessments and assumptions, including: the nature and magnitude of design deficiencies; the effectiveness of measures taken in the interim to provide confidence in the validity of inventory counts and the restated and upcoming financial results; the appropriateness of the compensating controls over inventory management to mitigate the risk of a material misstatement to be implemented under the remediation plan; and the ability of the Corporation to have the management cease trade order lifted.
Although the Corporation believes that the expectations reflected in the forward-looking statements contained in this document, and the assumptions on which such forward-looking statements are made, are reasonable, there can be no assurance that such expectations and assumptions will prove to be correct. Readers are cautioned not to place undue reliance on forward-looking statements included in this document, as there can be no assurance that the plans, intentions or expectations upon which the forward-looking statements are based will occur. By their nature, forward-looking statements involve numerous assumptions, known and unknown risks and uncertainties that contribute to the possibility that the predictions, forecasts, projections and other forward-looking statements will not occur, which may cause the actual performance and financial results in future periods to differ materially from any estimates or projections of future performance or results expressed or implied by such forward-looking statements. These risks and uncertainties include, among other things: the possibility that the design deficiencies and impact thereof identified in the Corporation's review is significantly different than assessed and anticipated; the potential ineffectiveness of the compensating controls over inventory management proposed to be implemented under the remediation plan; and other factors described in the Corporation's public filings available in Canada at www.sedar.com.