CanWel Building Materials Group Ltd.

Transcription

1 Unaudited Interim Condensed Consolidated Financial Statements March 31, (in thousands of Canadian dollars)

2 Notice of No Auditor Review of Interim Financial Statements Under National Instrument Continuous Disclosure Obligations, Part 4, Subsection 4.3(3a), if an auditor has not performed a review of the interim financial statements, they must be accompanied by a notice indicating that the financial statements have not been reviewed by an auditor. The accompanying unaudited Interim Condensed Consolidated Financial Statements of the Company have been prepared by and are the responsibility of the Company s management. The Company s independent auditor, Ernst & Young LLP, has not performed a review of these Interim Condensed Consolidated Financial Statements in accordance with standards established by the Chartered Professional Accountants of Canada for a review of interim financial statements by an entity s auditor. May 16, 2

3 Interim CONDENSED Consolidated Statements of Financial Position (Unaudited) The accompanying notes are an integral part of these consolidated financial statements. (in thousands of Canadian dollars) Notes As at March 31, As at December 31, Assets Current assets Restricted cash Trade and other receivables Inventories Prepaid expenses Income taxes receivable Noncurrent assets Property, plant and equipment Deferred income tax assets Intangible assets Goodwill 4, , , ,506 2, ,225 77, ,178 4, , ,243 1,682 21, , , ,179 29,689 1,682 23, , , ,097 10,608 57,717 5,942 1, , ,503 6,223 49,677 5,938 3,009 1, , ,678 2,280 43,359 4, ,696 2,556 5, , , ,981 2,992 43,281 4,498 1,062 1, , , , ,769 10,769 2,285 (161,351) 158, , ,663 10,769 6,210 (154,716) 168, , Total assets Liabilities Current liabilities Bank indebtedness Trade and other payables Dividends payable Income taxes payable Current portion of promissory note Current portion of finance lease liabilities Subscription receipts held in trust Noncurrent liabilities Revolving loan facility Deferred income tax liabilities Convertible debentures Promissory note Finance lease liabilities Leasehold inducements Pension benefits Postretirement benefits Equity Common shares Contributed surplus Foreign currency translation Deficit Total liabilities and equity Commitments and contingencies Events after the financial statement date

4 Interim Condensed Consolidated StatementS of Earnings (Loss) and Comprehensive Loss (Unaudited) The accompanying notes are an integral part of these consolidated financial statements. Three months ended March 31, (in thousands of Canadian dollars except per share amounts) Notes Revenue 24,25 197, , , ,103 24,643 16,270 19,122 1, ,487 14,659 1, ,044 3, (1,753) (128) (1,713) (95) 1,275 (1,582) 406 (43) 363 (93) (318) (411) 912 (1,171) (3,925) (1,605) (5,530) (4,618) (971) 0.02 (0.04) 42,429,362 28,726,006 Cost of sales Gross margin from operations Expenses Distribution, selling and administration Depreciation of property, plant and equipment Amortization of intangible assets 17 7 Operating earnings Finance costs Other loss 18 Earnings (loss) before income taxes Provision for (recovery of) income taxes Current income tax Deferred income tax Net earnings (loss) Other comprehensive (loss) income Exchange differences on translation of foreign operations (1) Net actuarial (loss) gain from pension and other benefit plans (2) Comprehensive loss Net earnings (loss) per share Basic and diluted Weighted average number of shares Basic and diluted 1. Item may be reclassified to earnings in subsequent periods. 2. Item will not be reclassified to earnings. 4

5 Interim Condensed Consolidated StatementS of Changes in Equity (Unaudited) The accompanying notes are an integral part of these consolidated financial statements. (in thousands of Canadian dollars except share amounts) Foreign Contributed currency surplus translation Common shares # As at December 31, Shares issued pursuant to: Employee Common Share Purchase Plan Dividends Comprehensive loss for the period 42,414, ,663 10, As at March 31, As at December 31, 2014 Shares issued pursuant to: Employee Common Share Purchase Plan Dividends Comprehensive loss for the period 42,440, ,769 28,718, ,712 10,769 10, As at March 31, 28,730, ,772 10,769 26,343 11,758 5 Deficit Total 6,210 (154,716) 168,926 (3,925) (5,942) (693) 2,285 (161,351) (147,095) (4,022) (971) (152,088) 106 (5,942) (4,618) 158, , (4,022) (971) 96,453

6 Interim Condensed Consolidated StatementS of Cash Flows (Unaudited) The accompanying notes are an integral part of these consolidated financial statements. (in thousands of Canadian dollars) Notes Operating activities Net earnings (loss) for the period Items not affecting cash Depreciation of property, plant and equipment Recovery of deferred income taxes Net change in pensions and other postretirement benefits Amortization of: Intangible assets Leasehold inducements Finance costs Cash flows from operating activities before changes in noncash working capital, income taxes paid and interest paid Changes in noncash working capital Income taxes paid Interest paid on revolving loan facility, bank indebtedness and other 912 (1,171) 7 1,603 (43) (69) 1,094 (318) (87) (17) 1, , Net cash flows used in operating activities Financing activities Shares issued Payment of finance lease liabilities Dividends paid Interest paid on convertible debentures Increase in revolving loan facility Net cash flows provided by financing activities Investing activities Purchase of property, plant and equipment 7 Net cash flows used in investing activities Increase in bank indebtedness Foreign exchange difference Bank indebtedness Beginning of period Bank indebtedness End of period 6 Three months ended March 31, 4,901 (66,716) (4,269) (878) 1,529 (60,983) (2,290) (843) (66,962) (62,587) 106 (85) (5,938) (639) 69, (4,021) (639) 66,740 62,871 62,140 (517) (705) (517) (705) (4,608) 223 (6,223) (1,152) (6,274) (10,608) (7,426)

7 Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) for the three months ended March 31, and 1. NATURE OF OPERATIONS (the Company ) was incorporated in 2009 under the Business Corporations Act (British Columbia). On May 11, 2010, the Company was continued under the laws of Canada pursuant to section 187 of the Canada Business Corporations Act with its current name. The Company has limited liability, with its shares publicly listed on the Toronto Stock Exchange ( TSX ). The Company s head office is located at Suite West Georgia Street, Vancouver, BC. The Company operates through its wholly owned subsidiaries as a distributor of building materials and home renovation products and a provider of wood pressure treating services in Canada nationally and regionally in the Western United States. 2. BASIS OF PRESENTATION AND STATEMENT OF COMPLIANCE a) Statement of compliance These unaudited Interim Condensed Consolidated Financial Statements have been prepared in accordance with International Accounting Standard ( IAS ) 34, Interim Financial Reporting as issued by the International Accounting Standards Board ( IASB ) and, except for as described in Note 3, on a basis consistent with the accounting policies disclosed in the Company s audited annual consolidated financial statements for the year ended December 31,. These unaudited Interim Condensed Consolidated Financial Statements were authorized for issuance on May 16, by the Board of Directors of the Company. b) Basis of presentation These unaudited Interim Condensed Consolidated Financial Statements include the accounts of the Company and its subsidiaries. The notes presented in these unaudited Interim Condensed Consolidated Financial Statements include in general only significant changes and transactions occurring since the Company s last yearend, and are not fully inclusive of all disclosures required by International Financial Reporting Standards ( IFRS ) for annual financial statements. These unaudited Interim Condensed Consolidated Financial Statements should be read in conjunction with the Company s audited annual consolidated financial statements, including the notes thereto, for the year ended December 31,. c) Functional and presentation currency These unaudited Interim Condensed Consolidated Financial Statements are presented in Canadian dollars, which is the Company s functional currency. All financial information presented in Canadian dollars has been rounded to the nearest thousand, except per share amounts. 7

8 Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) for the three months ended March 31, and 3. SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies as disclosed in the Company s audited annual consolidated financial statements for the year ended December 31, have been applied consistently in the preparation of these unaudited Interim Condensed Consolidated Financial Statements, except for amendments to IAS 16, Property, Plant and Equipment, and IAS 38, Intangible Assets. IAS 16 and IAS 38 amendments clarify acceptable methods of depreciation and amortization, prohibiting the use of revenue based depreciation. The Company has adopted these amendments effective January 1,. The adoption of these amendments did not result in any adjustments. 4. RESTRICTED CASH Restricted cash is restricted as to withdrawal or use under the terms of certain contractual agreements. As at March 31,, the Company s restricted cash balance of 25,013 ( nil) includes subscription receipts from the Company s private placement (Note 28). 5. TRADE AND OTHER RECEIVABLES The Company s trade and other receivables arise primarily from sales of building materials to customers. These are broken down as follows: Trade receivables Allowance for doubtful accounts Net trade receivables Other receivables March 31, December 31, 127,137 (447) 126,690 3,763 70,852 (439) 70,413 6, ,453 77,180 The ageing analysis of trade and other receivables is as follows: March 31, Neither past due nor impaired Past due but not impaired: Less than 1 month 1 to 3 months 3 to 6 months Total trade and other receivables 8 December 31, 124,210 68,112 4,677 1, ,255 2, ,453 77,180

9 Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) for the three months ended March 31, and Activity in the Company s provision for doubtful accounts is as follows: Balance at December 31, Accruals during the period Foreign exchange difference (17) Balance at March 31, 447 The Company holds no collateral for any receivable amounts outstanding as at March 31,. 6. INVENTORIES Inventories held for resale Inventories held for processing 7. March 31, 135,352 27,154 December 31, 116,110 24, , ,178 PROPERTY, PLANT AND EQUIPMENT Buildings and leasehold Land improvements Machinery, automotive and other equipment Computer Equipment equipment under finance and systems development leases Total Cost Cost at December 31, Additions Foreign exchange difference 894 8, , (297) 4, ,740 (97) 51, (394) Cost at March 31, 894 8,236 36,833 4,427 1,643 52,033 Accumulated depreciation Accumulated depreciation at December 31, Depreciation Foreign exchange difference 2, ,786 1,170 (21) 1, (13) 22,221 1,603 (34) Accumulated depreciation at March 31, 2,237 19,935 1, ,790 Net book value at December 31, 894 6,118 17,878 3,376 1,423 29,689 Net book value at March 31, 894 5,999 16,898 3,180 1,272 28,243 9

10 Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) for the three months ended March 31, and 8. INTANGIBLE ASSETS Core business US operations Valueadded services Total 10,000 18,972 (1,169) 1,633 30,605 (1,169) 10,000 17,803 1,633 29,436 Accumulated amortization Accumulated amortization at December 31, Amortization Foreign exchange difference 5, (84) , (84) Accumulated amortization at March 31, 6,167 1, ,950 Net intangible assets at December 31, 4,083 18,024 1,226 23,333 Net intangible assets at March 31, 3,833 16,468 1,185 21,486 Core business US operations Valueadded services Total Balance at December 31, Foreign exchange difference 62,624 29,440 (1,806) 31, ,349 (1,806) Balance at March 31, 62,624 27,634 31, ,543 Cost Cost at December 31, Foreign exchange difference Cost at March 31, 9. GOODWILL 10. REVOLVING LOAN FACILITY Revolving loan facility Financing costs, net of amortization March 31, December 31, 174,857 (1,179) 106,252 (1,271) 173, ,981 The Company s revolving loan facility with Wells Fargo Capital Finance Corporation Canada matures on July 10, The terms and conditions of the revolving loan facility are consistent with those disclosed in Note 14 to the audited annual consolidated financial statements. 10

11 Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) for the three months ended March 31, and 11. CONVERTIBLE DEBENTURES Convertible debentures Financing costs, net of amortization March 31, December 31, 43,689 (330) 43,689 (408) 43,359 43,281 The terms and conditions of the convertible debentures are consistent with those disclosed in Note 15 to the audited annual consolidated financial statements. 12. PROMISSORY NOTE Promissory note Accrued interest Less: current portion March 31, December 31, 5, (1,900) 5, (1,900) 4,548 4,498 The terms and conditions of the promissory note are consistent with those disclosed in Note 16 to the audited annual consolidated financial statements. 13. FINANCE LEASE LIABILITIES Finance lease liabilities Less: current portion March 31, December 31, 1,239 (323) 1,405 (343) 916 1,062 The Company leases certain transportation equipment, which has been classified as finance leases. Future minimum lease payments with respect to these leases are disclosed in Note

12 Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) for the three months ended March 31, and 14. PENSIONS AND OTHER POSTRETIREMENT BENEFITS Total net benefit expense of the Company s pension and postretirement benefit plans in the first quarter was 383 ( 349). Further information about these plans is disclosed in Note 18 to the audited annual consolidated financial statements. 15. SHARE CAPITAL The authorized capital of the Company consists of an unlimited number of common and preferred shares with no par value. Employee Common Share Purchase Plan ( ECSPP ) For the quarter ended March 31,, the Company issued 26,343 ( 11,758) common shares from treasury for gross proceeds of 106 ( 60), pursuant to the ECSPP. Dividend On March 15,, the Company declared a dividend of 0.14 per share, totaling 5,942 to shareholders of record on March 31,, which was paid on April 15,. On December 15,, the Company declared a dividend of 0.14 per share, totaling 5,938 to shareholders of record on December 31,, which was paid on January 15,. 16. COST OF SALES Cost of sales includes the following costs: Three months ended March 31, Costs relating to purchased and treated goods sold Salaries and benefits Inventory provisions Other ,934 1, ,656 1, , ,103

13 Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) for the three months ended March 31, and 17. DISTRIBUTION, SELLING AND ADMINISTRATION COSTS Distribution, selling and administration costs include the following: Three months ended March 31, Salaries and benefits Building rent and occupancy costs Travel, promotion and entertainment Office and miscellaneous Professional and management fees 10,747 4,878 1,484 1, ,112 4, ,122 14, FINANCE COSTS Finance costs for the Company are broken down as follows: Three months ended March 31, Revolving loan facility Convertible debentures Promissory note Bank indebtedness and other Net cash interest Amortization of financing costs Interest expense on net defined benefit liability (10) (27) 1,567 1, ,753 1,713

14 Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) for the three months ended March 31, and 19. RELATED PARTY TRANSACTIONS Transactions The Company has transactions with related parties in the normal course of operations at amounts as agreed between the related parties as follows: Three months ended March 31, Land and building lease payments for distribution facilities paid to a company in which members of the key management personnel who are directors and/or officers of the Company have an interest and lease payments for certain treatment plant facilities to a company solely controlled by a director and officer of the Company Purchase of product from a public company that a member of the key management personnel who is a director and officer of the Company has an ownership interest in 1,092 1,122 Fees for management services and other charges paid to a company controlled by one of the key management personnel who is also a director and officer of the Company Fees for professional services and other charges paid to a company controlled by an officer of the Company Commitments with related parties The minimum payments under the terms of the leases with companies, in which a member of the key management personnel who is also a director and officer of the Company has an interest in, are as follows: Year ending December 31 Remainder of Thereafter 2,418 3,224 3,224 2,938 1,517 1,875 15,196 14

15 Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) for the three months ended March 31, and Subscription receipts issued to related parties As at March 31,, subscription receipts held in trust include subscriptions received from certain insiders of the Company for proceeds of 14,600 ( nil) (Note 28), including the following: March 31, December 31, A company controlled by one of the key management personnel who is also a director and officer of the Company 6,000 A company in which members of the key management personnel who are directors and/or officers of the Company have an interest in 1,902 Several members of key management personnel, directors and officers of the Company 467 Payable to related parties As at March 31,, trade and other payables include amounts due to related parties as follows: March 31, December 31, A public company in which a member of the key management personnel who is a director and officer of the Company has an ownership interest in A company controlled by one of the key management personnel who is also a director and officer of the Company A company controlled by an officer of the Company 20. COMMITMENTS AND CONTINGENCIES Lease commitments The Company has lease commitments as follows: a. real estate operating leases with third parties and related parties covering the head office, as well as many of the distribution centre properties and treatment plant properties; b. operating leases covering certain vehicles, computer equipment and warehouse equipment; and c. finance leases covering certain transportation equipment. 15

16 Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) for the three months ended March 31, and Future minimum payments due under the terms of these leases, including those amounts disclosed in Note 19, are as follows: Year ending December 31 Remainder of Thereafter 10,558 13,577 11,915 10,511 7,670 18,613 72,844 As at March 31, the present value of minimum lease payments relating to the finance leases was 1,065 ( 1,221). Claims During the normal course of business, certain product liability and other claims have been brought against the Company and, where applicable, its suppliers. While there is inherent difficulty in predicting the outcome of such matters, management has vigorously contested the validity of these claims, where applicable, and, based on current knowledge, believes that they are without merit and does not expect that the outcome of any of these matters, in consideration of insurance coverage maintained, or the nature of the claims, individually or in the aggregate, would have a material adverse effect on the consolidated financial position, results of operations or future earnings of the Company. 21. FINANCIAL INSTRUMENTS Nonderivative financial instruments The carrying amounts and fair values of financial instruments were as follows: March 31, December 31, Carrying amount Fair value Carrying amount Fair value Restricted cash Trade and other receivables 25, ,453 25, ,453 77,180 77,180 Bank indebtedness Trade and other payables Dividends payable Revolving loan facility Convertible debentures Promissory note Finance lease liabilities 10,608 57,717 5, ,678 43,359 6,448 1,239 10,608 57,717 5, ,857 43,471 6,448 1,239 6,223 49,677 5, ,981 43,281 6,398 1,405 6,223 49,677 5, ,252 42,815 6,398 1,405 16

17 Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) for the three months ended March 31, and The following methods and assumptions were used to determine the estimated fair value of each class of financial instrument: The fair value of restricted cash, trade and other receivables, bank indebtedness, trade and other payables, and dividends payable is comparable to their carrying amount, given the short maturity periods. The fair value of the Company s revolving loan facility approximates its carrying value as it bears interest at variable rates based on current market rates. The fair value has been estimated as the carrying value excluding unamortized financing costs. The fair value of the Company s convertible debentures is based on the quoted active market price at the end of the period. Management believes the fair value of the conversion feature to be insignificant. The fair values of the Company s promissory note and finance lease liabilities approximate their carrying values as they bear interest that approximates current market rates. The revenues and expenses resulting from financial assets and liabilities recorded in net earnings were as disclosed in Note 18. Derivative financial instruments The Company uses derivative financial instruments for economic hedging purposes in managing lumber price risk and foreign exchange risk through the use of futures contracts and options. Derivative instruments were designated as held for trading with changes in fair value recorded in Other income (loss). As at March 31, the Company held an outstanding foreign exchange contract to purchase 128 United States dollars at an exchange rate of ( nil), and no outstanding lumber futures contracts and no lumber options ( nil). When held by the Company, these derivative financial instruments are traded through a wellestablished financial services firm with a long history of providing trading, exchange and clearing services for commodities and currencies. As trading activities are closely monitored and restricted by senior management, including limits for a maximum number of outstanding contracts at any point in time, the risk of credit loss on these financial instruments is considered low. Financial risk management The Company s activities result in exposure to a variety of financial risks, including risks related to credit, interest rates, currency and liquidity. Financial assets include restricted cash, trade and other receivables. Restricted cash is measured at fair value, trade and other receivables are measured at amortized cost. Financial liabilities include bank indebtedness, trade and other payables, dividends payable, revolving loan facility, convertible debentures, promissory note and finance lease liabilities. All financial liabilities are measured at amortized cost. 17

18 Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) for the three months ended March 31, and The Board of Directors has overall responsibility for establishment and oversight of the Company s risk management, which seeks to minimize any potential adverse effects on the Company s financial performance. Credit risk Credit risk is the risk of financial loss to the Company if a customer fails to meet its contractual obligations, and arises primarily from the Company s trade and other receivables. The Company grants credit to its customers in the normal course of operations. To limit its exposure to credit risk, the Company performs ongoing evaluations of the credit quality of its customers and follows diligent credit granting and collection procedures. Purchase limits are established for each customer and are reviewed regularly. The Company regularly reviews the collectability of its trade accounts receivable and establishes an allowance for doubtful accounts based on its best estimate of any potentially uncollectible accounts. As at March 31,, trade accounts receivable were as follows: Current Past due over 60 days 126, Trade accounts receivable Less: Allowance for doubtful accounts 127,137 (447) 126,690 As at March 31,, the maximum exposure to credit risk is 130,453 (December 31, 77,180), which represents the carrying value amount of financial instruments classified as trade and other receivables. Interest rate risk The Company is exposed to interest rate risk through its variable rate revolving loan facility (Note 10). Based on the Company s average revolving loan facility balance during, the sensitivity of a 1% increase in interest rates would result in an approximate decrease of 256 in net quarterly earnings. Currency risk Currency risk is the risk that changes in market prices of foreign exchange rates will affect the Company s earnings or the value of its holdings of financial instruments. The Company is exposed to currency risk on the United States dollar component of its revolving loan facility, as well as sales and purchase transactions that are denominated in United States dollars. As at March 31,, a 0.05 increase in the United States dollar versus the Canadian dollar would have an insignificant impact on net quarterly earnings and other comprehensive income. 18

19 Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) for the three months ended March 31, and Liquidity risk Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due or at a reasonable cost. The Company manages liquidity risk by having appropriate credit facilities available at all times. In addition, the Company continuously monitors and reviews both actual and forecasted cash flows. The Company is exposed to refinancing risks as there can be no assurance that the Company will be able to secure credit on the same terms or amount when the facility expires. 22. FAIR VALUE MEASUREMENT IFRS 13, Fair Value Measurement requires classification of financial instruments within a hierarchy that prioritizes the inputs to fair value measurement. The three levels of the fair value hierarchy are: Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities; Level 2 Inputs other than quoted prices that are observable for the asset and liability, either directly or indirectly; Level 3 Inputs that are not based on observable market data. The following table summarizes the fair value measurement hierarchy of the Company s assets and liabilities at March 31,. Total Level 1 Level 2 Level 3 25,013 25,013 Financial assets for which fair values are disclosed Trade and other receivables 130, ,453 Financial liabilities for which fair values are disclosed Trade and other payables Dividends payable Revolving loan facility Convertible debentures Promissory note Finance lease liabilities 57,717 5, ,857 43,471 6,448 1,239 43,471 5,942 57, ,857 6,448 1,239 Financial assets measured at fair value Restricted cash For assets and liabilities that are recognized in the financial statements on a recurring basis, the Company determines whether transfers have occurred between Levels in the hierarchy by reassessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. 19

20 Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) for the three months ended March 31, and 23. CHANGES IN NONCASH WORKING CAPITAL Three months ended March 31, Trade and other receivables Inventories Prepaid expenses Trade and other payables Income taxes payable (53,273) (22,328) 2,257 6, (48,044) (16,511) 477 3,188 (93) (66,716) (60,983) 24. FOREIGN SALES AND SIGNIFICANT CUSTOMERS During the quarter ended March 31,, the Company had sales outside of Canada of 30,067 ( 1,153). The Company has sold products to certain customers who comprise greater than 10% of its sales. During the quarter ended March 31,, three customers individually accounted for sales in excess of 10%, purchasing an aggregate of 78,416 ( 64,537, representing three customers). 25. SEGMENTED INFORMATION The Company operates in one reportable business segment and two geographic areas. The percentage of total revenue from external customers and longterm assets by geographic area are as follows: Revenue Longterm assets Canada % US % Three months ended March 31, Canada US % % The percentage of total revenue from external customers from product groups is as follows: Three months ended March 31, % % Construction materials Specialty and allied

21 Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) for the three months ended March 31, and 26. CAPITAL DISCLOSURES The Company s objectives when managing capital are to safeguard its ability to continue as a going concern, so that it can continue to provide dividends to shareholders and benefits for other stakeholders. The Company includes debt and equity, comprising shareholders capital, contributed surplus, deficit and cumulative dividends on shares, in the definition of capital. The Company seeks to maintain a balance between the higher returns that might be possible with the leverage afforded by higher borrowing levels and the security afforded by a sound capital structure. It does this by maintaining appropriate debt levels in relation to its working capital and other assets in order to provide the maximum dividends to shareholders commensurate with the level of risk. Also, the Company utilizes its debt capabilities to buy back shares, where appropriate, in order to maximize cash distribution rates for remaining shareholders. The Company manages the capital structure and makes adjustments to it in light of changes in economic conditions. In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to shareholders, repurchase shares or debentures in the market, issue new shares, or sell assets to reduce debt. The Company s policy is to dividend all available cash from operations to shareholders after provision for cash required for maintenance of capital expenditures and other reserves considered advisable by the Company s directors. The Company has eliminated the impact of seasonal fluctuations by equalizing quarterly dividends. There are no externally imposed capital requirements and the Company s loan agreements do not contain any capital maintenance covenants. There were no changes to the Company s approach to capital management during this period. 27. SEASONALITY The Company s sales are subject to seasonal variances that fluctuate in accordance with the normal home building season. The Company generally experiences higher sales in the second and third quarters compared to the first and fourth quarters. This creates a timing difference between free cash flow earned and dividends paid. While the Company has leveled dividends to provide a regular income stream to shareholders over the course of a year, the second and third quarters have historically been the Company s most profitable. 21

22 Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) for the three months ended March 31, and 28. EVENTS AFTER THE FINANCIAL STATEMENT DATE Business acquisition On May 13,, the Company completed the acquisition of all the shares of Jemi Fibre Corp. ( Jemi ) (the Acquisition ), a verticallyintegrated forest products company that operates primarily in British Columbia and Saskatchewan. Total purchase consideration comprised of the issuance of 2,529,405 common shares of the Company in exchange for all issued and outstanding common shares of Jemi, with the Acquisition date fair value of 13,205. The fair value of the common shares issued as consideration was determined with reference to the quoted price of shares of the Company as at the date of the Acquisition. The Company is in the process of determining the fair values of assets acquired and liabilities assumed, and the provisional purchase price allocation as at the Acquisition date. Private placement Concurrent with the Acquisition, the Company completed a private placement of 6,100,750 subscription receipts at a price of 4.10 each, resulting in gross proceeds of 25,013 (the Private Placement ), including subscription receipts to certain insiders for proceeds of 14,600. The Private Placement is pursuant to a bought deal underwritten by a syndicate of underwriters led by GMP Securities L.P., and including Raymond James Ltd., Canaccord Genuity Corp., Cormark Securities Inc., Haywood Securities Inc., and Paradigm Capital Inc. Cash proceeds raised from the Private Placement, net of issuance costs, were used for reducing Jemi s senior loans, the Company s revolving loan facility, and for general corporate purposes. Cash proceeds were held in escrow at March 31, by the escrow agent (Note 4), and released to the Company concurrently with the Acquisition. Upon the closing of the Acquisition, the subscription receipts issued were converted into a total of 6,100,750 common shares. Nonrevolving term loan On May 13,, Wells Fargo Capital Finance Corporation Canada provided 26,000 in additional financing under the existing credit facility with the Company. The additional financing is a nonrevolving term loan, secured by a first charge against Jemi s timberlands, and requires that certain covenants be met by the Company. 22

23 Corporate Information Directors Ian M. Baskerville Toronto, Ontario Amar S. Doman West Vancouver, British Columbia Tom Donaldson Saint John, New Brunswick Kelvin Dushnisky Toronto, Ontario Sam Fleiser Toronto, Ontario Jacob Kotzubei Los Angeles, California Stephen W. Marshall Vancouver, British Columbia Martin R. Melone Los Angeles, California Marc Seguin Vancouver, British Columbia Siegfried J. Thoma Portland, Oregon Auditors Ernst & Young LLP Vancouver, British Columbia Solicitors Goodmans LLP Toronto, Ontario Officers Amar S. Doman Chairman and CEO James Code Chief Financial Officer R.S. (Rob) Doman Corporate Secretary CanWel Building Materials National Office Suite West Georgia Street Vancouver, British Columbia Canada V6E 3P3 Contact Phone: (604) Internet: Transfer Agent CST Trust Company Vancouver, British Columbia Toronto, Ontario Investor Relations Contact Ali Mahdavi Phone: (416) Stock Exchange Toronto Stock Exchange Trading Symbols: CWX; CWX.DB DLA Piper (Canada) LLP. Vancouver, British Columbia