EXHIBIT 99.1
Unaudited Interim Consolidated Financial Statements
(Expressed in U.S. dollars)
MASONITE INTERNATIONAL INC.
For the Three Month Periods Ended March 31, 2007 and March 31, 2006
MASONITE INTERNATIONAL INC.
Unaudited Consolidated Statements of Operations
(In thousands of U.S. dollars)
For the Three Month Periods Ended March 31, 2007 and March 31, 2006
|
| January 1, 2007 |
| January 1, 2006 |
| ||
|
|
|
|
|
| ||
|
|
|
|
|
| ||
Sales |
| $ | 569,371 |
| $ | 599,571 |
|
Cost of sales |
| 442,414 |
| 481,860 |
| ||
|
| 126,957 |
| 117,711 |
| ||
|
|
|
|
|
| ||
Selling, general and administration expenses (note 17) |
| 53,413 |
| 55,669 |
| ||
Depreciation |
| 22,656 |
| 21,337 |
| ||
Amortization of intangible assets |
| 8,895 |
| 8,868 |
| ||
Interest |
| 44,820 |
| 44,783 |
| ||
Other expense, net (note 13) |
| 1,843 |
| 2,065 |
| ||
|
|
|
|
|
| ||
Loss before income taxes and non-controlling interest |
| (4,670 | ) | (15,011 | ) | ||
|
|
|
|
|
| ||
Income taxes (note 14) |
| (2,767 | ) | (6,108 | ) | ||
Non-controlling interest |
| 1,125 |
| 1,829 |
| ||
|
|
|
|
|
| ||
Net loss |
| $ | (3,028 | ) | $ | (10,732 | ) |
Basis of presentation (note 1)
See accompanying notes to unaudited consolidated financial statements.
2
MASONITE INTERNATIONAL INC.
Unaudited Consolidated Balance Sheets
(In thousands of U.S. dollars)
As at March 31, 2007 and December 31, 2006
|
| March 31, 2007 |
| December 31, 2006 |
| ||
|
|
|
|
|
| ||
Assets |
|
|
|
|
| ||
|
|
|
|
|
| ||
Current assets: |
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 43,182 |
| $ | 47,423 |
|
Accounts receivable (note 3) |
| 276,573 |
| 247,670 |
| ||
Inventories (note 4) |
| 335,760 |
| 351,538 |
| ||
Prepaid expenses |
| 22,892 |
| 19,131 |
| ||
Current future income taxes |
| 45,686 |
| 38,885 |
| ||
|
| 724,093 |
| 704,647 |
| ||
|
|
|
|
|
| ||
Property, plant and equipment |
| 860,878 |
| 873,576 |
| ||
Goodwill |
| 969,540 |
| 969,480 |
| ||
Intangible assets |
| 500,096 |
| 508,968 |
| ||
Other assets (note 5) |
| 33,430 |
| 89,334 |
| ||
Long-term future income taxes |
| 18,139 |
| 18,507 |
| ||
|
| $ | 3,106,176 |
| $ | 3,164,512 |
|
Liabilities and Shareholder's Equity |
|
|
|
|
| ||
|
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
| ||
Bank indebtedness (note 6) |
| $ | 37,895 |
| $ | 60,393 |
|
Accounts payable and accrued expenses (note 8) |
| 366,704 |
| 343,682 |
| ||
Income taxes payable |
| 28,026 |
| 26,909 |
| ||
Current future income taxes |
| 1,473 |
| 1,629 |
| ||
Current portion of long-term debt (note 7) |
| 31,064 |
| 32,221 |
| ||
|
| 465,162 |
| 464,834 |
| ||
|
|
|
|
|
| ||
Long-term debt (note 7) |
| 1,851,724 |
| 1,923,558 |
| ||
Long-term future income taxes |
| 217,805 |
| 214,185 |
| ||
Other long-term liabilities (note 9) |
| 40,819 |
| 41,081 |
| ||
|
| 2,575,510 |
| 2,643,658 |
| ||
|
|
|
|
|
| ||
Non-controlling interest |
| 38,081 |
| 36,841 |
| ||
|
|
|
|
|
| ||
Shareholder's equity (note 10): |
|
|
|
|
| ||
Share capital |
| 567,177 |
| 567,177 |
| ||
Common shares, unlimited shares authorized, 113,435,362 shares issued and outstanding at March 31, 2007 and December 31, 2006 |
|
|
|
|
| ||
Contributed surplus |
| 5,768 |
| 4,987 |
| ||
Deficit |
| (107,162 | ) | (104,134 | ) | ||
Accumulated other comprehensive income |
| 26,802 |
| 15,983 |
| ||
|
| 492,585 |
| 484,013 |
| ||
|
|
|
|
|
| ||
|
| $ | 3,106,176 |
| $ | 3,164,512 |
|
Commitments and contingencies (note 12)
Related party transactions (notes 5 and 17)
Basis of presentation (note 1)
See accompanying notes to unaudited consolidated financial statements.
3
MASONITE INTERNATIONAL INC.
Unaudited Consolidated Statements of Changes in Shareholder’s Equity
(In thousands of U.S. dollars)
For the Three Month Periods Ended March 31, 2007 and March 31, 2006
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
| |||||
|
|
|
|
|
|
|
|
|
| Other |
|
|
| |||||
|
|
|
|
|
| Contributed |
|
|
| Comprehensive |
|
|
| |||||
|
| Common Shares |
| Surplus |
| Deficit |
| Income |
| Total |
| |||||||
|
| Number |
| Value |
|
|
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Balance, January 1, 2007 |
| 113,435,362 |
| $ | 567,177 |
| $ | 4,987 |
| $ | (104,134 | ) | $ | 15,983 |
| $ | 484,013 |
|
New accounting standard (note 1) |
| — |
| — |
| — |
| — |
| 13,315 |
| 13,315 |
| |||||
|
| 113,435,362 |
| 567,177 |
| 4,987 |
| (104,134 | ) | 29,298 |
| 497,328 |
| |||||
Net loss |
| — |
| — |
| — |
| (3,028 | ) | — |
| (3,028 | ) | |||||
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Foreign exchange gain on self-sustaining operations |
| — |
| — |
| — |
| — |
| 1,006 |
| 1,006 |
| |||||
Change in fair value of cash flow hedges |
| — |
| — |
| — |
| — |
| (3,502 | ) | (3,502 | ) | |||||
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
| (5,524 | ) | |||||
Share based awards |
| — |
| — |
| 781 |
| — |
| — |
| 781 |
| |||||
Balance, March 31, 2007 |
| 113,435,362 |
| $ | 567,177 |
| $ | 5,768 |
| $ | (107,162 | ) | $ | 26,802 |
| $ | 492,585 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Balance, January 1, 2006 (Restated—notes 1 and 2) |
| 113,435,362 |
| $ | 567,177 |
| $ | 2,956 |
| $ | (69,800 | ) | $ | (7,984 | ) | $ | 492,349 |
|
Net loss |
| — |
| — |
| — |
| (10,732 | ) | — |
| (10,732 | ) | |||||
Other comprehensive loss, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Foreign exchange loss on self-sustaining operations |
| — |
| — |
| — |
| — |
| (245 | ) | (245 | ) | |||||
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
| (10,977 | ) | |||||
Share based awards |
| — |
| — |
| 968 |
| — |
| — |
| 968 |
| |||||
Balance, March 31, 2006 |
| 113,435,362 |
| $ | 567,177 |
| $ | 3,924 |
| $ | (80,532 | ) | $ | (8,229 | ) | $ | 482,340 |
|
Basis of presentation (note 1)
See accompanying notes to unaudited consolidated financial statements.
4
MASONITE INTERNATIONAL INC.
Consolidated Statements of Cash Flows
(In thousands of U.S. dollars)
For the Three Month Periods Ended March 31, 2007 and March 31, 2006
|
| January 1, 2007 |
| January 1, 2006 |
| ||
Cash provided by (used in): |
|
|
|
|
| ||
Operating activities: |
|
|
|
|
| ||
Net loss |
| $ | (3,028 | ) | $ | (10,732 | ) |
Items not involving cash: |
|
|
|
|
| ||
Depreciation |
| 22,656 |
| 21,337 |
| ||
Amortization of intangible assets |
| 8,895 |
| 8,868 |
| ||
Non-cash interest expense |
| 2,514 |
| 2,004 |
| ||
Loss on sale of property, plant and equipment |
| 722 |
| 313 |
| ||
Share based awards |
| 784 |
| 968 |
| ||
Future income taxes |
| (5,530 | ) | (6,968 | ) | ||
Pension and post-retirement expense and funding, net |
| 275 |
| 157 |
| ||
Unrealized foreign exchange on long-term liabilities |
| 191 |
| — |
| ||
Non-controlling interest |
| 1,125 |
| 1,829 |
| ||
Change in non-cash operating working capital: |
|
|
|
|
| ||
Accounts receivable |
| (28,903 | ) | (29,417 | ) | ||
Inventories |
| 15,778 |
| 7,645 |
| ||
Income taxes payable |
| 1,243 |
| (1,170 | ) | ||
Prepaid expenses |
| (3,761 | ) | (1,274 | ) | ||
Accounts payable and accrued expenses |
| 22,249 |
| 5,610 |
| ||
|
| 35,210 |
| (830 | ) | ||
Financing activities |
|
|
|
|
| ||
Change in bank indebtedness |
| (22,498 | ) | 12,991 |
| ||
Proceeds from issuance of long-term debt |
| — |
| 473 |
| ||
Repayment of long-term debt |
| (4,235 | ) | (8,176 | ) | ||
Change in other long-term liabilities |
| — |
| 359 |
| ||
|
| (26,733 | ) | 5,647 |
| ||
Investing activities |
|
|
|
|
| ||
Proceeds from sale of property, plant and equipment |
| 85 |
| 4,070 |
| ||
Additions to property, plant and equipment |
| (8,899 | ) | (11,309 | ) | ||
Other investing activities |
| (3,047 | ) | (3,030 | ) | ||
|
| (11,861 | ) | (10,269 | ) | ||
Net foreign currency translation adjustment |
| (857 | ) | (3,349 | ) | ||
|
|
|
|
|
| ||
Decrease in cash and cash equivalents |
| (4,241 | ) | (8,801 | ) | ||
Cash and cash equivalents, beginning of period |
| 47,423 |
| 47,459 |
| ||
Cash and cash equivalents, end of period |
| $ | 43,182 |
| $ | 38,658 |
|
Basis of presentation (note 1)
Supplemental cash flow information (note 15)
See accompanying notes to unaudited consolidated financial statements.
5
NOTE 1: SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
These unaudited interim consolidated financial statements are prepared in accordance with Canadian generally accepted accounting principles (“GAAP”). These unaudited interim consolidated financial statements include the accounts of Masonite International Inc. (the “Company” or “Masonite”) for the three month periods ended March 31, 2007 and March 31, 2006.
On April 6, 2005, pursuant to a combination agreement (the “Transaction”), Stile Acquisition Corp. (“Stile”), a 100% owned subsidiary of Masonite and an affiliate of Kohlberg Kravis Roberts & Co. L.P. (“KKR”), acquired all of the outstanding common shares of Masonite International Corporation (the “Predecessor”). Immediately thereafter, Stile U.S. Acquisition Corp. (“Stile U.S.”), a 100% owned subsidiary of Masonite, purchased the shares of Masonite Holdings Inc., the holding company of the U.S. operations of the Predecessor, from Stile.
These unaudited interim consolidated financial statements do not include all of the disclosures required by Canadian GAAP for annual financial statements and should be read in conjunction with the annual audited consolidated financial statements, including the notes thereto, for the year ended December 31, 2006. In the opinion of management, these unaudited interim consolidated financial statements reflect all adjustments which are necessary for a fair presentation of the operating results and financial condition of the Company for such periods and as of such dates. These unaudited interim consolidated financial statements are prepared using the same accounting policies and methods of application as the annual audited consolidated financial statements except as described below in Recently Adopted Accounting Standards. Operating results for the interim periods included herein are not necessarily indicative of the results that may be expected for the year ending December 31, 2007.
The Company’s fiscal year is the 52 or 53-week period ending on the Sunday closest to December 31. In a 52 week year, each fiscal quarter consists of 13 weeks. The three month periods ended March 31, 2007 and March 31, 2006 consist of 13 weeks. For presentation purposes, the financial statements and notes refer to March 31 as the Company’s quarter-end.
Principles of Consolidation
The unaudited interim financial statements include the accounts of the Company and its subsidiaries, the accounts of any variable interest entities for which the Company is the primary beneficiary and its proportionate share of assets, liabilities, revenues and expenses from joint ventures. Intercompany accounts and transactions have been eliminated on consolidation. The results of subsidiaries acquired during the periods presented are consolidated from their respective dates of acquisition using the purchase method. Joint ventures are proportionately consolidated from the date of formation.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant areas requiring the use of management estimates include the valuation of the allowance for doubtful accounts, the net realizable value of inventories, the determination of the fair value of derivative instruments, the determination of
6
obligations under employee future benefit plans, the determination of share based awards, the valuation of acquired assets, the determination of the fair value of financial instruments, the fair value of goodwill and the useful lives of long-lived assets, as well as determination of impairment thereon, and the recoverability of future income tax assets. Actual results could differ from those estimates.
Recently Adopted Accounting Standards:
On January 1, 2007, the Company adopted the recommendations of the Canadian Institute of Chartered Accountants Handbook (CICA Handbook) Section 1530, “Comprehensive Income” (“CICA 1530”); Section 3855, “Financial Instruments — Recognition and Measurement” (“CICA 3855”); Section 3861, “Financial Instruments — Disclosure and Presentation” (“CICA 3861”); Section 3865, “Hedges” (“CICA 3865”); and Section 3251, “Equity” (“CICA 3251”). These sections became effective on January 1, 2007, and provide standards for recognition, measurement, disclosure and presentation of financial assets, financial liabilities and non-financial derivatives, and describe when and how hedge accounting may be applied. These standards were adopted retroactively without restating prior periods, except for the presentation of translation gains or losses on self-sustaining operations.
CICA 1530 provides standards for the reporting and presentation of comprehensive income, which represents the change in equity, from transactions and other events and circumstances from non-owner sources. Other comprehensive income is defined by revenues, expenses, gains and losses that are recognized in comprehensive income, but excluded from net income, in conformity with the generally accepted accounting principles. As a result of adopting CICA 1530 as of January 1, 2007, the Company reclassified the balance in the cumulative translation adjustment presented on the consolidated balance sheet of $15,983 at December 31, 2006 to accumulated other comprehensive income, which is presented as a new category of shareholder’s equity on the consolidated balance sheet.
CICA 3855 requires that all financial assets be classified as held for trading, held-to-maturity investments, loans and receivables or available-for-sale categories. Also, all financial liabilities must be classified as held for trading or other financial liabilities upon initial recognition. All financial instruments, other than those that are held-to-maturity, are recorded on the consolidated balance sheet at fair value. After initial recognition, the financial instruments should be measured at their fair values, except for held-to-maturity investments, loans and receivables and other financial liabilities, which should be measured at amortized cost using the effective interest rate method. The effective interest related to financial assets and liabilities and the gain or loss arising from a change in the fair value of a financial asset or financial liability classified as held for trading is included in net income as a component of interest expense for the period in which it arises. If a financial asset is classified as available-for-sale, the gain or loss should be recognized in other comprehensive income until the financial asset is derecognized and all cumulative gain or loss is then recognized in net income as a component of interest expense. In addition, it is the Company’s policy that transaction costs with respect to instruments not classified as held-for-trading are recognized as an adjustment to the cost of the underlying instrument, and amortized using the effective interest method as a component of interest expense. As a result of adopting CICA 3855 at January 1, 2007, the Company reclassified $71,282 of unamortized financing costs, which were previously recorded in other assets, to long-term debt. All financial instruments held by the Company are classified as held-to-maturity.
CICA 3865 replaces Accounting Guideline 13, “Hedging Relationships” (“AcG-13”), and provides new standards for the accounting treatment of qualifying hedging relationships and the related disclosures. The Company’s derivative financial instruments, which consist of interest rate swap agreements that have been designated as cash flow hedges, have been reported at fair value as a result of the implementation of CICA 3855 and 3865. The unrealized gains and losses that arise as a result of re-
7
measuring the swap agreements at their fair value at the end of each period are recognized, net of income taxes, in other comprehensive income in the period. As a result of adopting CICA 3855 and 3865 at January 1, 2007, the Company recognized an asset of $13,315, net of taxes of $3,339 related to its interest rate swap in accumulated other comprehensive income. For the three month period ending March 31, 2007, the interest rate swaps designated as cash flow hedges were determined to be effective.
An embedded derivative is a component of a hybrid instrument that also includes a non-derivative host contract, with the effect that some of the cash flows of the combined instrument vary in a way similar to a stand-alone derivative. If certain conditions are met, an embedded derivative is separated from the host contract and accounted for as a derivative in the balance sheet, at its fair value. The Company recognizes embedded derivatives on its consolidated balance sheet, if applicable. As a result of adopting CICA 3855, the Company conducted a search for embedded derivatives in all contractual agreements dated subsequent to January 1, 2003 and did not identify any embedded features that required separate presentation from the related host contract.
The adoption of CICA 3251 did not have an impact on the Company’s unaudited interim consolidated financial statements.
The following table shows the impact on the December 31, 2006 balances of adopting CICA 1530, 3855, 3865 and 3251 on January 1, 2007:
|
| Balance— |
| Adoption of |
| Balance— |
| |||
Other assets |
| $ | 89,334 |
| $ | (54,628 | ) | $ | 31,367 |
|
Long-term debt |
| 1,955,779 |
| (71,282 | ) | 1,884,497 |
| |||
Long-term future income taxes |
| 214,185 |
| 3,339 |
| 217,524 |
| |||
Cumulative translation adjustment |
| 15,983 |
| (15,983 | ) | — |
| |||
Accumulated other comprehensive income |
| — |
| 29,298 |
| 29,298 |
| |||
8
NOTE 2: RESTATEMENTS
The Company determined that it had incorrectly recorded a full valuation allowance against certain non-capital loss carryforwards at March 31, 2006 when there were existing future reversals of taxable temporary differences related to unrealized foreign exchange gains and certain intangible assets. In order to correct this error, the Company reduced each of the long-term future income tax liability and future income tax expense as at and for the three month period ended March 31, 2006 by $7,800.
The Company also reclassified the charges incurred in the three month period ended March 31, 2006 of $1,964 relating to the sale of trade receivables from interest expense to selling, general and administration expenses.
As a result of these restatements, the following balances changed:
|
| As Previously |
| Restatement |
| As Restated |
| |||
Unaudited Consolidated Statement of Operations |
|
|
|
|
|
|
| |||
Selling, general and administration expense |
| $ | 53,705 |
| $ | 1,964 |
| $ | 55,669 |
|
Interest |
| 46,747 |
| (1,964 | ) | 44,783 |
| |||
Income taxes |
| 1,692 |
| (7,800 | ) | (6,108 | ) | |||
Net loss |
| (18,532 | ) | 7,800 |
| (10,732 | ) | |||
|
|
|
|
|
|
|
| |||
Unaudited Consolidated Statement of Cash Flows |
|
|
|
|
|
|
| |||
January 1, 2006 —March 31, 2006 |
|
|
|
|
|
|
| |||
Net loss |
| (18,532 | ) | 7,800 |
| (10,732 | ) | |||
Future income taxes |
| 832 |
| (7,800 | ) | (6,968 | ) | |||
NOTE 3: ACCOUNTS RECEIVABLE
The Company has an agreement (the “Facilities Agreement”) to sell up to $135,000 of non-interest bearing trade accounts receivable. The charges incurred under the Facilities Agreement are calculated based on the receivables sold and the prevailing LIBOR interest rate plus a spread of 1.25% at March 31, 2007 (December 31, 2006 – 1.25%). Information regarding balances sold and charges incurred on the Facilities Agreement is included in the table below.
The Company also has an additional agreement (the “Acquired Facilities Agreement”) to sell receivables of a specific customer. The charges incurred under the Acquired Facilities Agreement are calculated based on the receivables sold and the prevailing LIBOR interest rate plus a spread of 1.75% at March 31, 2006 (December 31, 2006 – 1.75%). In March of 2007, further sales under the Acquired Facilities Agreement were terminated and were transitioned to the Facilities Agreement. Information regarding the balances sold and charges incurred on the Acquired Facilities Agreement is included in the following table:
9
|
| March 31, 2007 |
| December 31, 2006 |
| ||
Receivables sold at period end: |
|
|
|
|
| ||
Facilities Agreement |
| $ | 93,458 |
| $ | 88,063 |
|
Acquired Facilities Agreement |
| 15,494 |
| 24,841 |
| ||
|
| $ | 108,952 |
| $ | 112,904 |
|
|
| January 1, 2007 |
| January 1, 2006 |
| ||
Charges incurred in the period |
|
|
|
|
| ||
Facilities Agreement |
| $ | 1,370 |
| $ | 1,607 |
|
Acquired Facilities Agreement |
| 278 |
| 357 |
| ||
|
| $ | 1,648 |
| $ | 1,964 |
|
NOTE 4: INVENTORIES
|
| March 31, 2007 |
| December 31, 2006 |
| ||
Raw materials |
| $ | 212,793 |
| $ | 222,364 |
|
Finished goods |
| 122,967 |
| 129,174 |
| ||
|
| $ | 335,760 |
| $ | 351,538 |
|
NOTE 5: OTHER ASSETS
|
| March 31, 2007 |
| December 31, 2006 |
| ||
Deferred financing fees, less accumulated amortization of nil (December 31, 2006 - $25,043) |
| $ | — |
| $ | 71,282 |
|
Interest rate swaps |
| 12,265 |
| — |
| ||
Receivable from parent |
| 16,498 |
| 13,408 |
| ||
Long-term receivables and other |
| 4,667 |
| 4,644 |
| ||
|
| $ | 33,430 |
| $ | 89,334 |
|
The interest rate swap of $12,265 is measured at its fair value, based on a mark-to-market valuation received from the counterparty at period end.
Included in long-term receivables and other at March 31, 2007 is $3,894 (December 31, 2006 - $3,894) in receivables due over the next five years pursuant to a royalty agreement. The $16,498 (December 31, 2006 - $13,408) due from Masonite Holding Corporation (“Holdings”), the Company’s parent, represents share purchase and redemption transactions of the Parent’s shares that were funded by a subsidiary of the Company. The amount receivable from Holdings is non-interest bearing, unsecured, and has no set terms of repayment.
10
NOTE 6: BANK INDEBTEDNESS
|
| March 31, 2007 |
| December 31, 2006 |
| ||
Revolving credit facility |
| $ | 24,000 |
| $ | 43,000 |
|
Other borrowings and overdrafts |
| 13,895 |
| 17,393 |
| ||
|
| $ | 37,895 |
| $ | 60,393 |
|
The Company has a $350,000 revolving credit facility as part of its banking arrangements. Interest on the revolving credit facility is subject to a pricing grid ranging from LIBOR plus 1.75% to LIBOR plus 2.50%, and is secured by fixed and floating charges over substantially all of Masonite’s assets. As of March 31, 2007, the revolving credit facility interest rate was LIBOR plus 2.50% (December 31, 2006 — LIBOR plus 2.50%).
The revolving credit facility also provides for payment to the lenders of a commitment fee on the average daily undrawn commitments at a rate ranging from 0.375% to 0.5% per annum, a fronting fee of 0.125%, and a letter of credit fee ranging from 1.75% to 2.5% (less the 0.125% fronting fee).
Interest on the revolving credit facility for the period ended March 31, 2007 was $900 (period ended March 31, 2006 - $2,091).
NOTE 7: LONG-TERM DEBT
|
| March 31, 2007 |
| December 31, 2006 |
| ||
Senior Secured Credit Facilities, bearing interest at LIBOR plus 2.00% due April 6, 2013, net of deferred financing fees of $33,608 (2006 — nil) |
| $ | 1,117,892 |
| $ | 1,154,438 |
|
Senior Subordinated Notes, bearing interest at 11%, due October 6, 2015, net of deferred financing fees of $34,672 (2006 — nil) |
| 714,684 |
| 747,231 |
| ||
Senior Subordinated Term Loan, bearing interest at 11%, due October 6, 2015, net of deferred financing fees of $476 (2006 — nil) |
| 20,024 |
| 22,625 |
| ||
Bank term loan bearing interest at LIBOR plus 1.50%, due November 27, 2009 |
| 9,760 |
| 10,700 |
| ||
Bank term loan bearing interest at LIBOR plus 0.49% (2005 — 1.40%) due July 16, 2007 |
| 7,500 |
| 7,500 |
| ||
Bank term loan bearing interest at LIBOR plus 0.49% (2005 —0.49%) due January 4, 2008 |
| 7,500 |
| 7,500 |
| ||
Other loans, at various interest dates and maturities |
| 5,428 |
| 5,785 |
| ||
|
| 1,882,788 |
| 1,955,779 |
| ||
Less current portion |
| 31,064 |
| 32,221 |
| ||
|
| $ | 1,851,724 |
| $ | 1,923,558 |
|
11
The aggregate amount of principal repayments in the twelve month periods ending March 31 in each of the next five years and thereafter, net of deferred financing fees, is as follows:
2008 |
| $ | 31,064 |
|
2009 |
| 16,910 |
| |
2010 |
| 16,246 |
| |
2011 |
| 12,631 |
| |
2012 |
| 11,836 |
| |
Thereafter |
| 1,862,857 |
| |
|
| $ | 1,951,544 |
|
The Company’s senior secured credit facilities include an eight year $1,175,000 term loan that bears interest at LIBOR plus 2.00% and amortizes at 1% per year. This facility requires the Company to meet a minimum interest coverage ratio starting at 1.5 times and increasing over time to 2.2 times adjusted earnings before interest, taxes, depreciation and amortization, as defined in the credit agreement (“Adjusted EBITDA”), and a maximum leverage ratio, which is defined generally as total indebtedness including outstanding letters of credit less cash on hand, starting at 7.9 times, and decreasing over time to 4.75 times, Adjusted EBITDA.
At March 31, 2007, the Company was required to have met a minimum interest coverage ratio of 1.6 times Adjusted EBITDA, and a maximum leverage ratio of 7.4 times Adjusted EBITDA. In addition, the senior secured credit facilities limit, among other things, the incurrence of additional indebtedness, investments, dividends, transactions with affiliates, asset sales, acquisitions, mergers and consolidations, prepayments of other indebtedness, liens and other encumbrances, additional payments based on excess cash flows, and other matters customarily restricted in such agreements. This facility also contains certain customary events of default, subject to grace periods, as appropriate. The senior secured credit facilities are secured by a fixed and floating charge over the assets of the Company and the guarantor subsidiaries, as defined in the credit agreement. At March 31, 2007 and 2006, the Company was in compliance with both of these ratios.
The Company also had a senior subordinated bridge loan agreement for a $770,000 senior subordinated loan. The senior subordinated loan initially carried an interest rate of LIBOR plus 6.00% and increased over time to a maximum interest rate of 11% per annum, which was reached during the second quarter of 2006. At the option of the lenders, all or a portion of the senior subordinated loan can be converted on or after October 6, 2006 to senior subordinated notes due 2015, which will bear interest at the rate applicable to the senior subordinated loan immediately prior to conversion and will be subject to registration rights. On October 6, 2006, the $770,000 senior subordinated bridge loan automatically converted into a $770,000 senior subordinated term loan, bearing interest at 11%. Upon notice of conversion by the holders of the senior subordinated term loan, $749,356 of the senior subordinated term loan converted to senior subordinated notes due 2015, which bear interest at 11% and are subject to registration rights. On May 18, 2007, the Company’s Registration Statement was declared effective by the Securities and Exchange Commission (“SEC”). Subsequent to March 31, 2007, the remaining senior subordinated term loan holders elected to convert their holdings into senior subordinated notes.
The Company did not consummate a registered exchange offer for the notes by April 4, 2007 and thus pursuant to the Exchange and Registration Rights Agreement relating to the senior subordinated notes due 2015, additional interest began to accrue as of April 5, 2007 in an amount equal to $0.05 per week per $1,000 principal amount of outstanding notes for a period of 90 days. The amount of additional interest shall increase by an additional $0.05 per week per $1,000 principal amount of outstanding notes with respect to each 90-day period for which the exchange
12
offer is not consummated, provided that the additional interest in the aggregate shall not exceed $0.20 per week per $1,000 principal amount of outstanding notes. The Company may elect to pay such additional interest through the issuance of additional notes, as provided in the indentures relating to the notes. Additional interest will continue to accrue at $0.20 per week per $1,000 principal amount without a maximum until the exchange offer is consummated.
At March 31, 2007, the Company recorded a liability of $346 in respect of the anticipated additional interest until the exchange offer is consummated in June 2007.
The Company’s weighted average interest rate at March 31, 2007 was 8.1% (December 31, 2006 — 8.1%).
Interest on long-term debt for the period ended March 31, 2007 was $40,336 (period ended March 31, 2006 — $39,247).
On April 26, 2005, Masonite entered into interest rate swap agreements to convert $1,150,000 of floating rate debt into fixed rate debt. At March 31, 2007, a total of $1,050,000 of floating rate debt has been converted into fixed rate debt, after $100,000 amortized in April 2006, at an interest rate of 4.22% plus a credit spread of 2.00%. These swaps amortize over a five year period and mature in 2010. At March 31, 2007, the fair value of these agreements represented an asset of $12,265, and is included in other assets (note 5). Pursuant to CICA 3865, the Company has established a hedging relationship with formal documentation between the interest rate swap and the long-term debt.
NOTE 8: ACCOUNTS PAYABLE AND ACCRUED EXPENSES
|
| March 31, 2007 |
| December 31, 2006 |
| ||
Trade payables |
| $ | 166,811 |
| $ | 153,045 |
|
Interest |
| 56,053 |
| 35,887 |
| ||
Payroll and related remittances |
| 46,348 |
| 42,487 |
| ||
Customer incentives |
| 27,432 |
| 40,516 |
| ||
Restructuring and severance |
| 7,306 |
| 7,783 |
| ||
Other |
| 62,754 |
| 63,964 |
| ||
|
| $ | 366,704 |
| $ | 343,682 |
|
NOTE 9: OTHER LONG-TERM LIABILITIES
|
| March 31, 2007 |
| December 31, 2006 |
| ||
U.S. defined benefit plan |
| $ | 12,461 |
| $ | 12,224 |
|
Advances from minority interest shareholders |
| 11,622 |
| 11,443 |
| ||
United Kingdom defined benefit plan |
| 8,704 |
| 8,670 |
| ||
Severances payable |
| 3,148 |
| 3,925 |
| ||
Notes payable issued in a business combination |
| 1,276 |
| 1,273 |
| ||
Other post employment benefits |
| 3,608 |
| 3,546 |
| ||
|
| $ | 40,819 |
| $ | 41,081 |
|
13
NOTE 10: SHAREHOLDER’S EQUITY
(a) Share capital:
Masonite is authorized to issue an unlimited number of common shares.
|
| March 31, 2007 |
| December 31, 2006 |
| ||
Number of common shares outstanding |
| 113,435,362 |
| 113,435,362 |
| ||
Share capital |
| $ | 567,177 |
| $ | 567,177 |
|
Masonite is a wholly owned subsidiary of Holdings. As at March 31, 2007, management owns a 5.0% interest in Holdings (December 31, 2006 — 5.8%). Holdings provides a stock option plan to allow management and key employees of Masonite to purchase shares of Holdings.
Information with respect to Masonite’s participation in Holdings’ stock option plan is included below.
Options to acquire shares of Holdings have a 10 year term and an exercise price of $5.00. The vesting period of the options varies with the type of option granted.
Of the total options granted in 2006 (the “2006 Options”), 1,275,000 vest equally over a 5 year period with the passage of time, and 1,275,000 options vest based on pre-established performance criteria set for each period in a 5 year period. If the performance criteria for a fiscal period are met, those options will vest accordingly. Also included as part of the performance based options criteria are cumulative targets. If the cumulative targets at the end of a subsequent fiscal period are met, options in that period, as well as previously unvested options in periods where the performance criteria were not met, become vested. In addition to the options granted above, 300,000 additional options vested immediately. None of the 2006 Options have been exercised or cancelled.
Of the total options granted in 2005 (the “2005 Options”), 11,745,390 vest equally over a 5 year period with the passage of time, and 11,745,389 options vest based on pre-established performance criteria set for each period in a 5 year period. If the performance criteria for a fiscal period are met, those options will vest accordingly. Also included as part of the performance based options criteria are cumulative targets. If the cumulative targets at the end of a subsequent fiscal period are met, options in that period, as well as previously unvested options in periods where the performance criteria were not met, become vested. In addition, 1,015,000 options were granted that will vest only if specific cumulative performance targets are met at the end of a 5 year period. Since the grant date of the 2005 Options, 6,354,765 time based, 6,354,766 performance based and 615,000 cumulative performance based options have been cancelled.
January 1, 2007 — |
| Time Based |
| Performance |
| Cumulative |
| Immediate |
|
Number of options outstanding, beginning of period |
| 7,200,625 |
| 7,856,625 |
| 400,000 |
| 300,000 |
|
Number of options granted |
| — |
| — |
| — |
| — |
|
Number of options exercised |
| — |
| — |
| — |
| — |
|
Number of options cancelled |
| (535,000 | ) | (1,191,000 | ) | — |
| — |
|
Number of options outstanding, end of period |
| 6,665,625 |
| 6,665,625 |
| 400,000 |
| 300,000 |
|
14
January 1, 2006 — |
| Time Based |
| Performance |
| Cumulative |
| Immediate |
|
Number of options outstanding, beginning of period |
| 9,114,140 |
| 9,114,139 |
| 640,000 |
| — |
|
Number of options granted |
| — |
| — |
| — |
| — |
|
Number of options exercised |
| — |
| — |
| — |
| — |
|
Number of options cancelled |
| (689,141 | ) | (689,141 | ) | — |
| — |
|
Number of options outstanding, end of period |
| 8,424,999 |
| 8,424,998 |
| 640,000 |
| — |
|
January 1, 2007 — |
| Total Number of |
| Weighted Average |
| |
Options outstanding, beginning of period |
| 15,757,250 |
| $ | 5.00 |
|
Options granted |
| — |
| — |
| |
Options exercised |
| — |
| — |
| |
Options cancelled |
| (1,726,000 | ) | 5.00 |
| |
Options outstanding, end of period |
| 14,031,250 |
| $ | 5.00 |
|
January 1, 2006 — |
| Total Number of |
| Weighted Average |
| |
Options outstanding, beginning of period |
| 18,868,279 |
| $ | 5.00 |
|
Options granted |
| — |
| — |
| |
Options exercised |
| — |
| — |
| |
Options cancelled |
| (1,378,282 | ) | 5.00 |
| |
Options outstanding, end of period |
| 17,489,997 |
| $ | 5.00 |
|
The weighted average fair value at the grant date for the time based, performance based and immediate vesting 2006 Options issued by Holdings was $2.03. The weighted average fair value at the grant date for the 2005 Options issued by Holdings was $1.09.
Information regarding the number of options outstanding by type, the average remaining contractual life, and the number of options exercisable is as follows:
March 31, 2007 |
| Options Outstanding |
| Options Exercisable |
| ||
|
| Number |
| Average Remaining |
| Number Exercisable |
|
Time based |
| 6,665,625 |
| 8.33 |
| 1,138,125 |
|
Performance based |
| 6,665,625 |
| 8.33 |
| — |
|
Cumulative performance |
| 400,000 |
| 8.02 |
| — |
|
Immediate vesting |
| 300,000 |
| 9.61 |
| 300,000 |
|
|
| 14,031,250 |
|
|
| 1,438,125 |
|
15
Although 1,138,125 time-based and 300,000 immediate vesting options have vested and are exercisable, the Option Agreement restricts option holders from exercising, selling or transferring their options until December 31, 2009 unless certain conditions occur.
The Company has determined that the total stock-based awards expense for awards granted to employees, using the minimum value method for the 2005 Options and the Black-Scholes method for the 2006 Options, was $784 in the three month period ended March 31, 2007 (March 31, 2006 - $968). The determination of total stock-based awards was adjusted for options that have been cancelled and or are not expected to vest. The assumptions used in the determination of the fair value of stock options are as follows:
|
| 2006 Options |
| 2005 Options |
|
Risk-free rate |
| 4.7 | % | 4.1 | % |
Expected dividend yield |
| 0 | % | 0 | % |
Expected volatility of the market price of the Company’s shares |
| 32 | % | 0 | % |
Expected option life (in years) |
| 6 |
| 6 |
|
16
(b) Accumulated other comprehensive income
As a result of adopting CICA 1530, the statement of accumulated other comprehensive income is as follows:
|
| March 31, 2007 |
| December 31, 2006 |
| ||
Opening balance of cumulative translation adjustment account |
| $ | 15,983 |
| $ | — |
|
Adoption of CICA 1530 |
| — |
| 15,983 |
| ||
|
|
|
|
|
| ||
Foreign exchange gain on self-sustaining operations |
| 1,006 |
| — |
| ||
Closing balance |
| 16,989 |
| 15,983 |
| ||
|
|
|
|
|
| ||
Opening balance of net gain (loss) on cash flow hedges |
| — |
| — |
| ||
|
|
|
|
|
| ||
Adoption of new accounting standards (note 1), net of tax of $3,339 |
| 13,315 |
| — |
| ||
Change in fair value of cash flow hedges, net of tax of $887 |
| (3,502 | ) | — |
| ||
Closing balance |
| 9,813 |
| — |
| ||
|
|
|
|
|
| ||
Accumulated other comprehensive income |
| $ | 26,802 |
| $ | 15,983 |
|
NOTE 11: EMPLOYEE FUTURE BENEFITS
(a) U.S. defined benefit plan:
The Predecessor had a defined benefit plan covering approximately 2,000 employees in the United States. Benefits under the plan were largely curtailed in 2003, and are a function of compensation levels, benefit formulas and years of service. The Company accrues the expected costs of providing plan benefits during the periods in which the employees render service. The measurement date used for the accounting valuation for the defined benefit plan was December 31, 2006, while the most recent actuarial valuation was updated to January 1, 2006. Information about the defined benefit plan for the three month periods ended March 31, 2007 and March 31, 2006 is as follows:
|
| January 1, 2007 |
| January 1, 2006 |
| ||
Pension expense |
|
|
|
|
| ||
Current service cost |
| $ | 288 |
| $ | 277 |
|
Interest cost |
| 1,111 |
| 1,057 |
| ||
Expected return on plan assets |
| (1,162 | ) | (1,135 | ) | ||
Net pension expense |
| $ | 237 |
| $ | 199 |
|
(b) United Kingdom defined benefit plan:
The Company also has a defined benefit plan in the United Kingdom, which has been curtailed in prior years. Total pension expense in the three month period ended March 31, 2007 was $43 (March 31, 2006 - $43).
17
(c) U.S. post-retirement benefit plan:
The Predecessor maintained a contributory retiree medical plan and a limited non-contributory life insurance benefit covering approximately 350 employees in the United States. Total post-retirement expense in the three month period ended March 31, 2007 was $40 (March 31, 2006 - $53).
NOTE 12: COMMITMENTS AND CONTINGENCIES
Masonite has entered into forward foreign currency contracts to hedge foreign currency risk. At March 31, 2007, unrealized gains totalled $393 (December 31, 2006 - $14) and unrealized losses totalled nil (December 31, 2006 - $56). The Company had the following outstanding foreign exchange forward contracts representing commitments to buy and sell foreign currencies at March 31, 2007:
Year of Maturity |
| Currency Sold |
| Amount Sold |
| Currency Purchased |
| Weighted Average |
|
2007 |
| GBP |
| 6,000 |
| EUR |
| 1.5101 |
|
2007 |
| USD |
| 2,770 |
| ZAR |
| 7.4441 |
|
2007 |
| USD |
| 2,392 |
| CAD |
| 1.1708 |
|
2007 |
| ZAR |
| 8,084 |
| EUR |
| 0.1041 |
|
2007 |
| USD |
| 700 |
| EUR |
| 0.7711 |
|
2007 |
| GBP |
| 1,000 |
| USD |
| 1.9660 |
|
For lease agreements that provide for escalating rent payments or rent-free occupancy periods, the Company recognizes rent expense on a straight line basis over the non-cancellable lease term and any option renewal period where failure to exercise such option would result in an economic penalty in such amount that renewal appears, at the inception of the lease, to be reasonably assured. The lease term commences on the date when all conditions precedent to the Company’s obligation to pay rent are satisfied. The leases generally contain provisions for 1 to 3 renewal options of 5 years each. Future minimum payments, in the twelve month periods ending March 31, under non-cancellable operating leases with initial or remaining terms of one year or more consisted of the following:
2008 |
| $ | 23,509 |
|
2009 |
| 17,132 |
| |
2010 |
| 13,120 |
| |
2011 |
| 11,022 |
| |
2012 |
| 8,861 |
| |
Thereafter |
| 25,233 |
| |
|
| $ | 98,877 |
|
Masonite has provided standard indemnifications to its landlords under certain property lease agreements for claims by third parties in connection with its use of the premises. The maximum amount of these indemnifications cannot be reasonably estimated due to their nature. Historically, neither the Company nor the Predecessor made any significant payments relating to such indemnifications.
In addition to the above indemnifications, Masonite has also provided routine indemnifications, whose terms range in duration and often are not explicitly defined. These may include indemnifications against adverse effects to changes in tax laws and patent infringements by third parties. The maximum amounts from these indemnifications cannot be reasonably estimated. In some cases, Masonite has recourse against other parties to mitigate its risk of
18
loss from these indemnifications. Historically, the Predecessor did not make significant payments relating to these types of indemnifications.
The Company is involved in various claims and legal actions. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s consolidated financial position or liquidity.
NOTE 13: OTHER EXPENSE, NET
|
| January 1, 2007 |
| January 1, 2006 |
| ||
|
|
|
|
|
| ||
Restructuring and severance (a) |
| $ | 930 |
| $ | 1,581 |
|
Loss on disposal of property, plant and equipment (b) |
| 722 |
| 313 |
| ||
Other (c) |
| 191 |
| 171 |
| ||
|
| $ | 1,843 |
| $ | 2,065 |
|
(a) Restructuring and severance expenses:
The restructuring and severance expense for the three month period ended March 31, 2007 relates to the closure of three manufacturing facilities in the United States as a result of a customer transferring sales from the Company to a competitor. The shutdown of these facilities is expected to be completed in the third quarter of 2007. These closures were announced in the first quarter. Also included are severance benefits for certain former senior executives of the Company.
The following table details the activity in the accrued restructuring liability for the three month period ended March 31, 2007:
|
| Provision |
| Provision |
| Payments |
| Provision |
| ||||
Reduction in staff levels |
| $ | 4,899 |
| $ | 71 |
| $ | 1,323 |
| $ | 3,647 |
|
Executive and management compensation |
| 6,679 |
| 556 |
| 994 |
| 6,241 |
| ||||
Frederick, Maryland; Toledo, Ohio and Logan Township, New Jersey plant closures |
| — |
| 489 |
| 24 |
| 465 |
| ||||
Woodbridge, Ontario plant closure |
| 130 |
| — |
| 29 |
| 101 |
| ||||
|
| $ | 11,708 |
| $ | 1,116 |
| $ | 2,370 |
| $ | 10,454 |
|
Included in the provision column in the table above is $186 in charges related to the accretion of previously discounted severance liability. The current portion of the accrued restructuring liability
19
is included in accounts payable and accrued expenses on the balance sheet, with the long-term portion recorded in other long-term liabilities.
(b) Loss on disposal of property, plant and equipment:
For the three month period ended March 31, 2007, the Company disposed of idle property, plant and equipment, as well as other machinery and equipment for cash consideration of $85. The disposal of these assets resulted in a net loss of $722, which is included in other expense, net.
For the three month period ended March 31, 2006, the Company disposed of idle property, plant and equipment, as well as other machinery and equipment for cash consideration of $4,070. The disposal of these assets resulted in a net loss of $313, which is included in other expense, net.
(c) Other:
These costs are primarily related to the translation gains or losses on long-term debt denominated in currencies other than the United States dollar.
NOTE 14: INCOME TAXES
|
| January 1, 2007 |
| January 1, 2006 |
| ||
Current |
| $ | 2,763 |
| $ | 860 |
|
Future |
| (5,530 | ) | (6,968 | ) | ||
|
| $ | (2,767 | ) | $ | (6,108 | ) |
The Company currently has future tax assets in certain jurisdictions resulting from net operating losses and other deductible temporary differences, which will reduce taxable income in these jurisdictions in future periods. The Company has determined that a valuation allowance of $41,536 is required in respect of its future income tax assets as at March 31, 2007 (December 31, 2006 - $37,113). The Company has provided valuation allowances for future tax benefits resulting from net operating loss carry forwards and other carry forward attributes arising in Canada, the U.S., and certain countries in South America, Eastern Europe and Asia. The Company expects to record valuation allowances on future tax assets arising in these jurisdictions until a sustained level of taxable income is reached.
NOTE 15: SUPPLEMENTAL CASH FLOW INFORMATION
|
| January 1, 2007 |
| January 1, 2006 |
| ||
Transactions involving cash: |
|
|
|
|
| ||
Interest paid, net of interest received |
| $ | 22,141 |
| $ | 43,139 |
|
Income taxes paid |
| 1,772 |
| 2,088 |
| ||
Income tax refunds |
| 961 |
| 830 |
| ||
20
NOTE 16: SEGMENTED INFORMATION
The Company manages its operations on a geographic basis and determines its operating segments accordingly. The Company’s debt facilities contain certain covenants which are calculated using an adjusted earnings measure defined as earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) as defined in the credit agreement. The performance measurement of each of the geographic segment is evaluated and monitored on the basis of sales and Adjusted EBITDA. Defined adjustments (as defined in the Senior Secured Credit Facilities Agreement), as shown on the following table, include (but are not limited to) items such as extraordinary gains or losses and unusual or non-recurring charges, non-cash charges related to stock-based awards, gains or losses on asset sales, disposals or abandonments, restructuring charges, management fees paid to KKR, impairment charges on intangible assets, and all taxes upon capital and/or assets that are not in the nature of income taxes.
Intersegment transfers are negotiated as if the transactions were to third parties, at market prices. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. Certain information with respect to geographic segments is as follows:
21
|
| January 1, 2007 |
| January 1, 2006 |
| ||
Geographic segment data |
|
|
|
|
| ||
Sales: |
|
|
|
|
| ||
North America |
| $ | 411,840 |
| $ | 467,411 |
|
Europe and Other |
| 170,570 |
| 151,506 |
| ||
Intersegment |
| (13,039 | ) | (19,346 | ) | ||
|
| 569,371 |
| 599,571 |
| ||
Adjusted EBITDA: |
|
|
|
|
| ||
North America |
| 54,324 |
| 45,927 |
| ||
Europe and Other |
| 23,101 |
| 22,404 |
| ||
|
| 77,425 |
| 68,331 |
| ||
Defined adjustments: |
|
|
|
|
| ||
Receivables transaction charges |
| 1,648 |
| 1,964 |
| ||
Stock based awards |
| 784 |
| 968 |
| ||
Franchise and capital taxes |
| 653 |
| 706 |
| ||
Foreign exchange gains |
| (679 | ) | (547 | ) | ||
Sponsor fees |
| 1,200 |
| 1,152 |
| ||
Facility closures and realignments |
|
|
| 1,889 |
| ||
Pension and post-retirement expense and funding, net |
| 275 |
| 157 |
| ||
|
| 3,881 |
| 6,289 |
| ||
Depreciation |
| 22,656 |
| 21,337 |
| ||
Amortization of intangible assets |
| 8,895 |
| 8,868 |
| ||
Interest |
| 44,820 |
| 44,783 |
| ||
Other expense, net |
| 1,843 |
| 2,065 |
| ||
Income taxes |
| (2,767 | ) | (6,108 | ) | ||
Non-controlling interest |
| 1,125 |
| 1,829 |
| ||
|
| 80,453 |
| 79,063 |
| ||
Net loss |
| $ | (3,028 | ) | $ | (10,732 | ) |
|
| March 31, 2007 |
| December 31, 2006 |
| ||
Identifiable assets: |
|
|
|
|
| ||
North America |
| $ | 2,412,199 |
| $ | 2,428,236 |
|
Europe and Other |
| 583,906 |
| 571,850 |
| ||
Corporate assets, including cash |
| 110,071 |
| 164,426 |
| ||
|
| $ | 3,106,176 |
| $ | 3,164,512 |
|
22
The Company derives revenue from two major product lines, interior and exterior products as follows:
|
| January 1, 2007 |
| January 1, 2006 |
| ||
Sales: |
|
|
|
|
| ||
Interior products |
| $ | 400,783 |
| $ | 403,661 |
|
Exterior products |
| 168,588 |
| 195,910 |
| ||
|
| $ | 569,371 |
| $ | 599,571 |
|
The Company does not review or analyze its two major product lines below net sales.
Information about geographic areas, exceeding 5% of consolidated net sales, is as follows:
|
| January 1, 2007 |
| January 1, 2006 |
| ||
Sales to all external customers from facilities in: |
|
|
|
|
| ||
Canada |
| $ | 76,987 |
| $ | 88,964 |
|
United States |
| 312,753 |
| 363,452 |
| ||
United Kingdom |
| 55,665 |
| 43,161 |
| ||
France |
| 45,297 |
| 39,510 |
| ||
Additional segmented information regarding long-lived assets, exceeding 5% of consolidated property, plant and equipment, and goodwill, is as follows:
|
| March 31, 2007 |
| December 31, 2006 |
| ||
Property, plant and equipment: |
|
|
|
|
| ||
Canada |
| $ | 106,445 |
| $ | 108,045 |
|
United States |
| 382,699 |
| 387,683 |
| ||
Other |
| 10,932 |
| 12,467 |
| ||
North America |
| $ | 500,076 |
| $ | 508,195 |
|
|
|
|
|
|
| ||
Ireland |
| $ | 129,415 |
| $ | 130,310 |
|
United Kingdom |
| 61,844 |
| 62,307 |
| ||
Chile |
| 54,010 |
| 54,709 |
| ||
Malaysia |
| 44,880 |
| 44,736 |
| ||
France |
| 41,925 |
| 42,816 |
| ||
Other |
| 28,728 |
| 30,503 |
| ||
Europe and Other |
| 360,802 |
| 365,381 |
| ||
|
| $ | 860,878 |
| $ | 873,576 |
|
|
|
|
|
|
| ||
Goodwill: |
|
|
|
|
| ||
Canada |
| $ | 185,201 |
| $ | 185,178 |
|
United States |
| 730,612 |
| 730,612 |
| ||
North America |
| 915,813 |
| 915,790 |
| ||
Europe and Other |
| 53,727 |
| 53,690 |
| ||
|
| $ | 969,540 |
| $ | 969,480 |
|
23
Total sales to one customer within the North American segment for the three month period ending March 31, 2007 was $140,033 (March 31, 2006 - $148,000). Included in accounts receivable are balances owing from one customer of $17,953 at March 31, 2007 (December 31, 2006 - $12,576).
NOTE 17: RELATED PARTY TRANSACTIONS
The Company has entered into an agreement to pay KKR annual management fees of $2,000 for services provided, which are payable quarterly in advance and subject to a 5% increase each year. For the three month period ended March 31, 2007, the Company paid KKR fees of $634 (March 31, 2006 - $513) in accordance with the management fee agreement.
In addition, the Company incurred costs of $566 for the three month period ended March 31, 2007 (March 31, 2006 - $639) for fees paid to Capstone Consulting (“Capstone”) for services provided during the Successor Periods, and have engaged Capstone on a per-diem basis for management consulting services. Although neither KKR nor any entity affiliated with KKR owns any of the equity of Capstone, KKR has provided financing to Capstone.
These costs are reflected as part of selling, general and administration expense on the unaudited interim consolidated financial statements.
NOTE 18: FINANCIAL INSTRUMENTS
(i) Fair value
The Company utilizes certain financial instruments, principally interest rate swap contracts and forward currency exchange contracts to manage the risk associated with fluctuations in interest rates and currency exchange rates. Interest rate swap contracts are used to reduce the impact of fluctuating interest rates on the Company’s long-term debt, and forward currency exchange contracts are used to reduce the impact of fluctuating exchange rates on the Company’s purchases of materials and sale of goods in foreign currencies.
Financial instruments with carrying value different from their fair values include the following:
March 31, 2007 |
|
|
| Carrying Value |
| Fair Value |
| ||
Long-term debt |
| $ | (1,882,788 | ) | $ | (1,871,170 | ) | ||
December 31, 2006 |
|
|
| Carrying Value |
| Fair Value |
| ||
Long-term debt |
| $ | (1,955,779 | ) | $ | (1,870,139 | ) | ||
Interest rate swaps |
| 2,258 |
| 18,912 |
| ||||
Forward foreign currency contracts |
| — |
| (42 | ) | ||||
|
| $ | (1,953,521 | ) | $ | (1,851,269 | ) |
The fair value of a financial instrument on initial recognition is normally the transaction price, which is usually the fair value of the consideration given or received. The fair value of the long-term debt was based on the trading rate at the period end closing date. The fair value of interest rate swap at December 31, 2006 was based on the mark-to-market price provided by the counterparty. The fair value of the forward foreign currency contracts were based on the difference between the exchange rate in the contracts entered into, and the forward exchange rate at the valuation date which would be available for a forward contract maturing at the same time.
As at March 31, 2007, the carrying values of cash and cash equivalents, accounts receivable, short-term debt, accounts payable and accrued liabilities approximate fair values due to their immediate or short-terms to maturity.
24
Due to the use of judgment and uncertainties in the determination of estimated fair values, these values should not be interpreted as being realizable in the immediate term.
(ii) Credit risk
Credit risk arises from the potential default of a customer in meeting its financial obligations to the Company. The Company had credit evaluation, approval and monitoring processes, including credit insurance, intended to mitigate potential credit risk. The Company evaluates the collectibility of accounts receivable and records an allowance for doubtful accounts, which reduces the receivables to the amount management believes will be collected. The allowance for doubtful accounts as at March 31, 2007 was $4,003 (December 31, 2006 - $3,999).
There is also credit risk related to the interest rate swap asset of $12,265 recorded in other assets. There is a risk that the counterparty to the swaps will not be able to fulfill its side of the agreement. The Company monitors the creditworthiness of the counterparty on a quarterly basis to determine whether or not they will be able to fulfill its obligation. At March 31, 2007, the Company reviewed the creditworthiness of the counterparty, and determined that there was no credit risk on the counterparty fulfilling its obligation under the interest rate swap agreement.
NOTE 19: CONSOLIDATING FINANCIAL INFORMATION
As part of the acquisition of Masonite International Corporation, Masonite (formerly known as Stile Consolidated, “Parent”) through its subsidiaries, Masonite International Corporation (formerly known as Stile Acquisition, “Canadian Issuer”) and Masonite Corporation (formerly known as Masonite US Corporation, formerly known as Stile US Acquisition, “US Issuer”), entered into a Senior Secured Credit Facility agreement and a Senior Subordinated Loan agreement. The Senior Secured Credit Facility and the Senior Subordinated Loan, which was replaced with the Senior Subordinated Term Loan and subsequently the Senior Subordinated Notes (the “Guaranteed Debt”) are fully and unconditionally guaranteed on a joint and several basis by Masonite and certain of its 100% owned subsidiaries (“Guarantor Subsidiaries”). The Guaranteed Debt is not guaranteed by the Company’s less than 100% owned subsidiaries and certain other subsidiaries of the Company (collectively the “Non-Guarantor Subsidiaries”).
The consolidating financial information below for the three month periods ended March 31, 2007 and March 31, 2006 is presented consistent with Article 3-10(d) of Regulation S-X. This consolidating information has been revised to give effect to the items disclosed in Note 2.
The consolidating financial information reflects the investments of the Parent Company in the Issuers, and of the Issuer in their respective Guarantor and Non-Guarantor subsidiaries using the equity method.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the Three Month Periods Ended March 31, 2007 and March 31, 2006
(In thousands of U.S. dollars)
Consolidating Statement of Operations
For the three month period ended March 31, 2007
|
|
|
| Canadian |
|
|
| Guarantor |
| Guarantor |
|
|
| Non- |
|
|
|
|
| |||||||||
|
| Parent |
| Issuer |
| US Issuer |
| Subsidiaries |
| Adjustments |
| Combined |
| Subsidiaries |
| Adjustments |
| Consolidated |
| |||||||||
Sales |
| $ | — |
| $ | 109,967 |
| $ | 322,403 |
| $ | 119,278 |
| $ | (66,780 | ) | $ | 484,868 |
| $ | 107,839 |
| $ | (23,336 | ) | $ | 569,371 |
|
Cost of sales |
| — |
| 93,745 |
| 256,627 |
| 99,299 |
| (66,780 | ) | 382,891 |
| 82,859 |
| (23,336 | ) | 442,414 |
| |||||||||
|
| — |
| 16,222 |
| 65,776 |
| 19,979 |
| — |
| 101,977 |
| 24,980 |
| — |
| 126,957 |
| |||||||||
Selling, general and administration expenses |
| — |
| 6,256 |
| 31,746 |
| 4,831 |
| — |
| 42,833 |
| 10,580 |
| — |
| 53,413 |
| |||||||||
Depreciation and amortization |
| — |
| 3,550 |
| 17,110 |
| 4,737 |
| — |
| 25,397 |
| 5,997 |
| 157 |
| 31,551 |
| |||||||||
Interest |
| — |
| 21,873 |
| 29,498 |
| (196 | ) | — |
| 51,175 |
| (6,355 | ) | — |
| 44,820 |
| |||||||||
Loss (income) from equity investments |
| 3,028 |
| (17,381 | ) | (2,431 | ) | — |
| 5,057 |
| (11,727 | ) | — |
| 11,727 |
| — |
| |||||||||
Other expense |
| — |
| 108 |
| 1,530 |
| 32 |
| — |
| 1,670 |
| 173 |
| — |
| 1,843 |
| |||||||||
(Loss) income before income taxes and non- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
controlling interest |
| (3,028 | ) | 1,816 |
| (11,677 | ) | 10,575 |
| (5,057 | ) | (7,371 | ) | 14,585 |
| (11,884 | ) | (4,670 | ) | |||||||||
Income taxes |
| — |
| (2,541 | ) | (4,299 | ) | 2,497 |
| — |
| (4,343 | ) | 1,767 |
| (191 | ) | (2,767 | ) | |||||||||
Non controlling interest Net (loss) income |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 1,125 |
| 1,125 |
| |||||||||
|
| $ | (3,028 | ) | $ | 4,357 |
| $ | (7,378 | ) | $ | 8,078 |
| $ | (5,057 | ) | $ | (3,028 | ) | $ | 12,818 |
| $ | (12,818 | ) | $ | (3,028 | ) |
25
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the Three Month Periods Ended March 31, 2007 and March 31, 2006
(In thousands of U.S. dollars)
Consolidating Statement of Operations
For the three month period ended March 31, 2006
|
| Parent |
| Canadian |
| US Issuer |
| Guarantor |
| Guarantor |
| Combined |
| Non- |
| Adjustments |
| Consolidated |
| |||||||||
| $ | — |
| $ | 130,160 |
| $ | 358,629 |
| $ | 114,114 |
| $ | (79,325 | ) | $ | 523,578 |
| $ | 104,326 |
| $ | (28,333 | ) | $ | 599,571 |
| |
Cost of sales |
| — |
| 115,442 |
| 298,364 |
| 95,128 |
| (79,325 | ) | 429,609 |
| 80,584 |
| (28,333 | ) | 481,860 |
| |||||||||
|
| — |
| 14,718 |
| 60,265 |
| 18,986 |
| — |
| 93,969 |
| 23,742 |
| — |
| 117,711 |
| |||||||||
Selling, general and administration expenses |
| — |
| 10,360 |
| 29,885 |
| 4,605 |
| — |
| 44,850 |
| 10,819 |
| — |
| 55,669 |
| |||||||||
Depreciation and amortization |
| — |
| 3,898 |
| 16,879 |
| 4,266 |
| — |
| 25,043 |
| 5,101 |
| 61 |
| 30,205 |
| |||||||||
Interest |
| — |
| 21,581 |
| 30,031 |
| (215 | ) | — |
| 51,397 |
| (6,614 | ) | — |
| 44,783 |
| |||||||||
Loss (income) from equity investments |
| 10,732 |
| (17,935 | ) | (2,099 | ) | — |
| (2,161 | ) | (11,463 | ) | — |
| 11,463 |
| — |
| |||||||||
Other expenses |
| — |
| 1,831 |
| 159 |
| 137 |
| — |
| 2,127 |
| (62 | ) | — |
| 2,065 |
| |||||||||
(Loss) income before income taxes and non-controlling interest |
| (10,732 | ) | (5,017 | ) | (14,590 | ) | 10,193 |
| 2,161 |
| (17,985 | ) | 14,498 |
| (11,524 | ) | (15,011 | ) | |||||||||
Income taxes |
| — |
| (6,996 | ) | (1,879 | ) | 1,622 |
| — |
| (7,253 | ) | 1,160 |
| (15 | ) | (6,108 | ) | |||||||||
Non controlling interest |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 1,829 |
| 1,829 |
| |||||||||
Net (loss) income |
| $ | (10,732 | ) | $ | 1,979 |
| $ | (12,711 | ) | $ | 8,571 |
| $ | 2,161 |
| $ | (10,732 | ) | $ | 13,338 |
| $ | (13,338 | ) | $ | (10,732 | ) |
26
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the Three Month Periods Ended March 31, 2007 and March 31, 2006
(In thousands of U.S. dollars)
Consolidating Balance Sheet
March 31, 2007
| Parent |
| Canadian |
| US |
| Guarantor |
| Guarantor |
| Combined |
| Non- |
| Adjust- |
| Consol- |
| ||||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Cash and cash equivalents |
| $ | — |
| $ | 12,324 |
| $ | 839 |
| $ | 11,684 |
| $ | — |
| $ | 24,847 |
| $ | 18,335 |
| $ | — |
| $ | 43,182 |
|
Accounts receivable |
| — |
| 50,960 |
| 65,060 |
| 73,137 |
| — |
| 189,157 |
| 87,416 |
| — |
| 276,573 |
| |||||||||
Intercompany receivable |
| — |
| 61,417 |
| 23,690 |
| 18,387 |
| (92,129 | ) | 11,365 |
| 23,878 |
| (35,243 | ) | — |
| |||||||||
Inventories |
| — |
| 60,952 |
| 146,069 |
| 64,092 |
| — |
| 271,113 |
| 64,647 |
| — |
| 335,760 |
| |||||||||
Prepaid expenses |
| — |
| 3,278 |
| 8,066 |
| 6,699 |
| — |
| 18,043 |
| 4,849 |
| — |
| 22,892 |
| |||||||||
Current future income taxes |
| — |
| 7,669 |
| 29,204 |
| 2,179 |
| — |
| 39,052 |
| 6,634 |
| — |
| 45,686 |
| |||||||||
|
| — |
| 196,600 |
| 272,928 |
| 176,178 |
| (92,129 | ) | 553,577 |
| 205,759 |
| (35,243 | ) | 724,093 |
| |||||||||
Property, plant and equipment |
| — |
| 69,630 |
| 366,395 |
| 211,922 |
| — |
| 647,947 |
| 212,931 |
| — |
| 860,878 |
| |||||||||
Goodwill |
| — |
| 175,507 |
| 730,979 |
| 24,723 |
| — |
| 931,209 |
| 18,606 |
| 19,725 |
| 969,540 |
| |||||||||
Intangible assets |
| — |
| 227,203 |
| 247,008 |
| 10,861 |
| — |
| 485,072 |
| 9,986 |
| 5,038 |
| 500,096 |
| |||||||||
Investments and advances |
| 474,699 |
| 735,038 |
| 146,320 |
| 181,353 |
| (855,695 | ) | 681,715 |
| 266,848 |
| (948,563 | ) | — |
| |||||||||
Other assets |
| — |
| 22,076 |
| 10,493 |
| 268 |
| — |
| 32,837 |
| 593 |
| — |
| 33,430 |
| |||||||||
Long-term future income taxes |
| — |
| — |
| — |
| — |
| — |
| — |
| 18,139 |
| — |
| 18,139 |
| |||||||||
|
| $ | 474,699 |
| $ | 1,426,054 |
| $ | 1,774,123 |
| $ | 605,305 |
| $ | (947,824 | ) | $ | 3,332,357 |
| $ | 732,862 |
| $ | (959,043 | ) | $ | 3,106,176 |
|
Liabilities and Shareholder’s Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Bank indebtedness |
| $ | — |
| $ | — |
| $ | 24,000 |
| $ | — |
| $ | — |
| $ | 24,000 |
| $ | 13,895 |
| $ | — |
| $ | 37,895 |
|
Trade payables and accrued expenses |
| 1,347 |
| 79,749 |
| 159,614 |
| 53,721 |
| — |
| 294,431 |
| 69,842 |
| 2,431 |
| 366,704 |
| |||||||||
Intercompany payable |
| — |
| 24,420 |
| 77,815 |
| 14,982 |
| (92,129 | ) | 25,088 |
| 10,155 |
| (35,243 | ) | — |
| |||||||||
Income taxes payable |
| — |
| 9,838 |
| 10,044 |
| 2,829 |
| — |
| 22,711 |
| 5,315 |
| — |
| 28,026 |
| |||||||||
Current future income taxes |
| — |
| — |
| — |
| 209 |
| — |
| 209 |
| 1,264 |
| — |
| 1,473 |
| |||||||||
Current portion of long-term debt |
| — |
| 6,234 |
| 5,956 |
| 57 |
| — |
| 12,247 |
| 18,817 |
| — |
| 31,064 |
| |||||||||
|
| 1,347 |
| 120,241 |
| 277,429 |
| 71,798 |
| (92,129 | ) | 378,686 |
| 119,288 |
| (32,812 | ) | 465,162 |
| |||||||||
Long-term debt |
| — |
| 895,606 |
| 1,183,561 |
| 64,480 |
| — |
| 2,143,647 |
| 88,939 |
| (380,862 | ) | 1,851,724 |
| |||||||||
Long-term future income taxes |
| — |
| 52,422 |
| 126,001 |
| 15,837 |
| — |
| 194,260 |
| 22,436 |
| 1,109 |
| 217,805 |
| |||||||||
Long-term liabilities |
| — |
| 3,638 |
| 15,339 |
| 8,704 |
| — |
| 27,681 |
| 13,138 |
| — |
| 40,819 |
| |||||||||
|
| 1,347 |
| 1,071,907 |
| 1,602,330 |
| 160,819 |
| (92,129 | ) | 2,744,274 |
| 243,801 |
| (412,565 | ) | 2,575,510 |
| |||||||||
Non-controlling interest |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 38,081 |
| 38,081 |
| |||||||||
Shareholder’s equity |
| 473,352 |
| 354,147 |
| 171,793 |
| 444,486 |
| (855,695 | ) | 588,083 |
| 489,061 |
| (584,559 | ) | 492,585 |
| |||||||||
|
| $ | 474,699 |
| $ | 1,426,054 |
| $ | 1,774,123 |
| $ | 605,305 |
| $ | (947,824 | ) | $ | 3,332,357 |
| $ | 732,862 |
| $ | (959,043 | ) | $ | 3,106,176 |
|
27
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the Three Month Periods Ended March 31, 2007 and March 31, 2006
(In thousands of U.S. dollars)
Consolidating Balance Sheet
December 31, 2006
|
| Parent |
| Canadian |
| US |
| Guarantor |
| Guarantor |
| Combined |
| Non- |
| Adjust- |
| Consoli- |
| |||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Cash and cash equivalents |
| $ | — |
| $ | 18,196 |
| $ | 2,971 |
| $ | 5,361 |
| $ | — |
| $ | 26,528 |
| $ | 20,895 |
| $ | — |
| $ | 47,423 |
|
Accounts receivable |
| — |
| 47,522 |
| 57,504 |
| 64,898 |
| — |
| 169,924 |
| 77,746 |
| — |
| 247,670 |
| |||||||||
Intercompany receivable |
| — |
| 69,958 |
| 23,528 |
| 15,204 |
| (98,911 | ) | 9,779 |
| 12,880 |
| (22,659 | ) | — |
| |||||||||
Inventories |
| — |
| 62,429 |
| 157,908 |
| 68,387 |
| — |
| 288,724 |
| 62,814 |
| — |
| 351,538 |
| |||||||||
Prepaid expenses |
| — |
| 1,219 |
| 8,640 |
| 4,488 |
| — |
| 14,347 |
| 4,784 |
| — |
| 19,131 |
| |||||||||
Current future income taxes |
| — |
| 8,110 |
| 25,099 |
| 261 |
| — |
| 33,470 |
| 5,415 |
| — |
| 38,885 |
| |||||||||
|
| — |
| 207,434 |
| 275,650 |
| 158,599 |
| (98,911 | ) | 542,772 |
| 184,534 |
| (22,659 | ) | 704,647 |
| |||||||||
Property, plant and equipment |
| — |
| 70,880 |
| 373,118 |
| 212,885 |
| — |
| 656,883 |
| 216,693 |
| — |
| 873,576 |
| |||||||||
Goodwill |
| — |
| 175,484 |
| 730,979 |
| 24,701 |
| — |
| 931,164 |
| 18,591 |
| 19,725 |
| 969,480 |
| |||||||||
Intangible assets |
| — |
| 228,777 |
| 253,569 |
| 11,197 |
| — |
| 493,543 |
| 10,230 |
| 5,195 |
| 508,968 |
| |||||||||
Investments and advances |
| 485,365 |
| 712,219 |
| 154,156 |
| 179,023 |
| (858,753 | ) | 672,010 |
| 269,187 |
| (941,197 | ) | — |
| |||||||||
Other assets |
| — |
| 46,797 |
| 41,683 |
| 274 |
| — |
| 88,754 |
| 580 |
| — |
| 89,334 |
| |||||||||
Long-term future income taxes |
| — |
| — |
| — |
| — |
| — |
| — |
| 18,507 |
| — |
| 18,507 |
| |||||||||
|
| $ | 485,365 |
| $ | 1,441,591 |
| $ | 1,829,155 |
| $ | 586,679 |
| $ | (957,664 | ) | $ | 3,385,126 |
| $ | 718,322 |
| $ | (938,936 | ) | $ | 3,164,512 |
|
Liabilities and Shareholder's Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Bank indebtedness |
| $ | — |
| $ | — |
| $ | 43,000 |
| $ | — |
| $ | — |
| $ | 43,000 |
| $ | 17,393 |
| $ | — |
| $ | 60,393 |
|
Trade payable and accrued expenses |
| 1,352 |
| 71,908 |
| 157,477 |
| 48,890 |
| — |
| 279,627 |
| 64,055 |
| — |
| 343,682 |
| |||||||||
Intercompany payable |
| — |
| 22,118 |
| 76,155 |
| 14,616 |
| (98,911 | ) | 13,978 |
| 8,681 |
| (22,659 | ) | — |
| |||||||||
Income taxes payable |
| — |
| 10,351 |
| 8,927 |
| 2,632 |
| — |
| 21,910 |
| 4,999 |
| — |
| 26,909 |
| |||||||||
Current future income taxes |
| — |
| — |
| — |
| 405 |
| — |
| 405 |
| 1,224 |
| — |
| 1,629 |
| |||||||||
Current portion of long-term debt |
| — |
| 6,234 |
| 5,956 |
| 57 |
| — |
| 12,247 |
| 19,974 |
| — |
| 32,221 |
| |||||||||
|
| 1,352 |
| 110,611 |
| 291,515 |
| 66,600 |
| (98,911 | ) | 371,167 |
| 116,326 |
| (22,659 | ) | 464,834 |
| |||||||||
Long-term debt |
| — |
| 929,888 |
| 1,221,086 |
| 64,493 |
| — |
| 2,215,467 |
| 89,690 |
| (381,599 | ) | 1,923,558 |
| |||||||||
Long-term future income taxes |
| — |
| 55,486 |
| 122,980 |
| 13,155 |
| — |
| 191,621 |
| 21,265 |
| 1,299 |
| 214,185 |
| |||||||||
Long-term liabilities |
| — |
| 4,635 |
| 14,841 |
| 8,670 |
| — |
| 28,146 |
| 12,935 |
| — |
| 41,081 |
| |||||||||
|
| 1,352 |
| 1,100,620 |
| 1,650,422 |
| 152,918 |
| (98,911 | ) | 2,806,401 |
| 240,216 |
| (402,959 | ) | 2,643,658 |
| |||||||||
Non-controlling interest |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 36,841 |
| 36,841 |
| |||||||||
Shareholder’s equity |
| 484,013 |
| 340,971 |
| 178,733 |
| 433,761 |
| (858,753 | ) | 578,725 |
| 478,106 |
| (572,818 | ) | 484,013 |
| |||||||||
|
| $ | 485,365 |
| $ | 1,441,591 |
| $ | 1,829,155 |
| $ | 586,679 |
| $ | (957,664 | ) | $ | 3,385,126 |
| $ | 718,322 |
| $ | (938,936 | ) | $ | 3,164,512 |
|
28
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the Three Month Periods Ended March 31, 2007 and March 31, 2006
(In thousands of U.S. dollars)
Consolidating Statement of Cash Flows
For the three month period ended March 31, 2007
|
| Parent |
| Canadian |
| US |
| Guarantor |
| Guarantor |
| Combined |
| Non- |
| Adjust- |
| Consoli- |
| |||||||||
Cash provided by (used in): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Net (loss) income |
| $ | (3,028) |
| $ | 4,357 |
| $ | (7,378) |
| $ | 8,078 |
| $ | (5,057 | ) | $ | (3,028) |
| $ | 12,818 |
| $ | (12,818 | ) | $ | (3,028 | ) |
Items not involving cash: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Depreciation and amortization |
| — |
| 3,550 |
| 17,110 |
| 4,737 |
| — |
| 25,397 |
| 5,997 |
| 157 |
| 31,551 |
| |||||||||
Non-cash interest expense |
| — |
| 1,220 |
| 1,294 |
| — |
| — |
| 2,514 |
| — |
| — |
| 2,514 |
| |||||||||
Loss on sale of property, plant and equipment |
| — |
| 108 |
| 599 |
| 12 |
| — |
| 719 |
| 3 |
| — |
| 722 |
| |||||||||
Loss (income) from equity investments |
| 3,028 |
| (17,381 | ) | (2,431 | ) | — |
| 5,057 |
| (11,727 | ) | — |
| 11,727 |
| — |
| |||||||||
Share based awards |
| — |
| 26 |
| 692 |
| 27 |
| — |
| 745 |
| 39 |
| — |
| 784 |
| |||||||||
Future income taxes |
| — |
| (2,541 | ) | (3,537 | ) | 902 |
| — |
| (5,176 | ) | (163 | ) | (191 | ) | (5,530 | ) | |||||||||
Pension and post retirement expense (income) and funding, net |
| — |
| — |
| 277 |
| (2 | ) | — |
| 275 |
| — |
| — |
| 275 |
| |||||||||
Unrealized foreign exchange on long-term liabilities |
| — |
| — |
| — |
| (20 | ) | — |
| (20 | ) | 211 |
| — |
| 191 |
| |||||||||
Non-controlling interest |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 1,125 |
| 1,125 |
| |||||||||
Change in non-cash operating working capital: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Accounts receivable |
| — |
| (3,439 | ) | (7,556 | ) | (8,239 | ) | — |
| (19,234 | ) | (9,669 | ) | — |
| (28,903 | ) | |||||||||
Inventories |
| — |
| 1,477 |
| 11,839 |
| 4,295 |
| — |
| 17,611 |
| (1,833 | ) | — |
| 15,778 |
| |||||||||
Income taxes payable |
| — |
| (678 | ) | 1,119 |
| (37 | ) | — |
| 404 |
| 839 |
| — |
| 1,243 |
| |||||||||
Prepaid expenses |
| — |
| (2,060 | ) | 574 |
| (2,211 | ) | — |
| (3,697 | ) | (63 | ) | — |
| (3,760 | ) | |||||||||
Accounts payable and accrued liabilities |
| (5 | ) | 9,130 |
| 2,357 |
| 4,834 |
| — |
| 16,316 |
| 5,932 |
| — |
| 22,248 |
| |||||||||
Intercompany receivable |
| — |
| 4,702 |
| (162 | ) | (3,183 | ) | (2,758 | ) | (1,401 | ) | (10,998 | ) | 12,399 |
| — |
| |||||||||
Intercompany payable |
| — |
| 6,142 |
| 1,660 |
| 365 |
| 2,758 |
| 10,925 |
| 1,474 |
| (12,399 | ) | — |
| |||||||||
|
| (5 | ) | 4,613 |
| 16,457 |
| 9,558 |
| — |
| 30,623 |
| 4,587 |
| — |
| 35,210 |
| |||||||||
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Change in bank and other indebtedness |
| — |
| — |
| (18,998 | ) | — |
| — |
| (18,998 | ) | (3,500 | ) | — |
| (22,498 | ) | |||||||||
Repayment of long-term debt |
| — |
| (1,555 | ) | (1,495 | ) | (14 | ) | — |
| (3,064 | ) | (1,908 | ) | 737 |
| (4,235 | ) | |||||||||
|
| — |
| (1,555 | ) | (20,493 | ) | (14 | ) | — |
| (22,062 | ) | (5,408 | ) | 737 |
| (26,733 | ) | |||||||||
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Proceeds from sale of property, plant and equipment |
| — |
| — |
| 85 |
| — |
| — |
| 85 |
| — |
| — |
| 85 |
| |||||||||
Additions to property, plant and equipment |
| — |
| (597 | ) | (4,510 | ) | (1,935 | ) | — |
| (7,042 | ) | (1,857 | ) | — |
| (8,899 | ) | |||||||||
Investments and advances |
| 3,432 |
| (3,215 | ) | 6,329 |
| (2,663 | ) | (3,803 | ) | 80 |
| 657 |
| (737 | ) | — |
| |||||||||
Other investing activities |
| — |
| (3,091 | ) | — |
| 2 |
| — |
| (3,089 | ) | 42 |
| — |
| (3,047 | ) | |||||||||
|
| 3,432 |
| (6,903 | ) | 1,904 |
| (4,596 | ) | (3,803 | ) | (9,966 | ) | (1,158 | ) | (737 | ) | (11,861 | ) | |||||||||
Net foreign currency translation adjustment |
| (3,427 | ) | (2,028 | ) | — |
| 1,375 |
| 3,803 |
| (277 | ) | (580 | ) | — |
| (857 | ) | |||||||||
(Decrease) increase in cash and cash equivalents |
| — |
| (5,873 | ) | (2,132 | ) | 6,323 |
| — |
| (1,682 | ) | (2,559 | ) | — |
| (4,241 | ) | |||||||||
Cash and cash equivalents, beginning of period |
| — |
| 18,197 |
| 2,971 |
| 5,361 |
| — |
| 26,529 |
| 20,894 |
| — |
| 47,423 |
| |||||||||
Cash and cash equivalents, end of period |
| $ | — |
| $ | 12,324 |
| $ | 839 |
| $ | 11,684 |
| $ | — |
| $ | 24,847 |
| $ | 18,335 |
| $ | — |
| $ | 43,182 |
|
29
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the Three Month Periods Ended March 31, 2007 and March 31, 2006
(In thousands of U.S. dollars)
Consolidating Statement of Cash Flows
For the three month period ended March 31, 2006
|
| Parent |
| Canadian |
| US |
| Guarantor |
| Guarantor |
| Combined |
| Non- |
| Adjust- |
| Consoli- |
| |||||||||
Cash provided by (used in): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Net (loss) income |
| $ | (10,732) |
| $ | 1,979 |
| $ | (12,711 | ) | $ | 8,571 |
| $ | 2,161 |
| $ | (10,732 | ) | $ | 13,338 |
| $ | (13,338 | ) | $ | (10,732 | ) |
Items not involving cash: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Depreciation and amortization |
| — |
| 3,898 |
| 16,879 |
| 4,266 |
| — |
| 25,043 |
| 5,101 |
| 61 |
| 30,205 |
| |||||||||
Amortization of financing fees |
| — |
| 999 |
| 1,005 |
| — |
| — |
| 2,004 |
| — |
| — |
| 2,004 |
| |||||||||
Loss on sale of property, plant and equipment |
| — |
| — |
| 159 |
| 137 |
| — |
| 296 |
| 17 |
| — |
| 313 |
| |||||||||
Loss (income) from equity investments |
| 10,732 |
| (17,935 | ) | (2,099 | ) | — |
| (2,161 | ) | (11,463 | ) | — |
| 11,463 |
| — |
| |||||||||
Share based awards |
| — |
| 181 |
| 691 |
| 39 |
| — |
| 911 |
| 57 |
| — |
| 968 |
| |||||||||
Future income taxes |
| — |
| (6,726 | ) | (707 | ) | 153 |
| — |
| (7,280 | ) | 327 |
| (15 | ) | (6,968 | ) | |||||||||
Pension and post-retirement expense and funding, net |
| — |
| — |
| 192 |
| (44 | ) | — |
| 148 |
| 9 |
| — |
| 157 |
| |||||||||
Non-controlling interest |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 1,829 |
| 1,829 |
| |||||||||
Change in non-cash operating working capital: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Accounts receivable |
| — |
| (526 | ) | (15,184 | ) | (8,152 | ) | — |
| (23,862 | ) | (5,555 | ) | — |
| (29,417 | ) | |||||||||
Inventories |
| — |
| 3,876 |
| 4,341 |
| 2,517 |
| — |
| 10,734 |
| (3,089 | ) | — |
| 7,645 |
| |||||||||
Income taxes payable |
| — |
| (491 | ) | 2,988 |
| (3,213 | ) | — |
| (716 | ) | (454 | ) | — |
| (1,170 | ) | |||||||||
Prepaid expenses |
| — |
| (1,857 | ) | 1,381 |
| (2,445 | ) | — |
| (2,921 | ) | 1,647 |
| — |
| (1,274 | ) | |||||||||
Accounts payable and accrued liabilities |
| — |
| 10,873 |
| (10,529 | ) | 502 |
| — |
| 846 |
| 4,764 |
| — |
| 5,610 |
| |||||||||
Intercompany receivable |
| — |
| 3,733 |
| 8,211 |
| (3,752 | ) | (6,261 | ) | 1,931 |
| (722 | ) | (1,209 | ) | — |
| |||||||||
Intercompany payable |
| — |
| (5,302 | ) | 11,497 |
| (11,725 | ) | 6,261 |
| 731 |
| (1,940 | ) | 1,209 |
| — |
| |||||||||
|
| — |
| (7,298 | ) | 6,114 |
| (13,146 | ) | — |
| (14,330 | ) | 13,500 |
| — |
| (830 | ) | |||||||||
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Change in bank and other indebtedness |
| — |
| 1,999 |
| 9,000 |
| — |
| — |
| 10,999 |
| 1,992 |
| — |
| 12,991 |
| |||||||||
Proceeds from issuance of long-term debt |
| — |
| — |
| — |
| — |
| — |
| — |
| 473 |
| — |
| 473 |
| |||||||||
Repayment of long-term debt |
| — |
| (1,557 | ) | (1,484 | ) | — |
| — |
| (3,041 | ) | (5,135 | ) | — |
| (8,176 | ) | |||||||||
Change in other long-term liabilities |
| — |
| 359 |
| — |
| — |
| — |
| 359 |
| — |
| — |
| 359 |
| |||||||||
|
| — |
| 801 |
| 7,516 |
| — |
| — |
| 8,317 |
| (2,670 | ) | — |
| 5,647 |
| |||||||||
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Proceeds from sale of property, plant and equipment |
| — |
| — |
| 211 |
| 3,849 |
| — |
| 4,060 |
| 10 |
| — |
| 4,070 |
| |||||||||
Additions to property, plant and equipment |
| — |
| (1,293 | ) | (5,525 | ) | (1,338 | ) | — |
| (8,156 | ) | (3,153 | ) | — |
| (11,309 | ) | |||||||||
Investments and advances |
| — |
| 1,676 |
| (763 | ) | 4,057 |
| — |
| 4,970 |
| (4,970 | ) | — |
| — |
| |||||||||
Other investing activities |
| — |
| (2,896 | ) | (2,419 | ) | 3,051 |
| — |
| (2,264 | ) | (766 | ) | — |
| (3,030 | ) | |||||||||
|
| — |
| (2,513 | ) | (8,496 | ) | 9,619 |
| — |
| (1,390 | ) | (8,879 | ) | — |
| (10,269 | ) | |||||||||
Net foreign currency translation adjustment |
| — |
| (1,940 | ) | (901 | ) | 892 |
| — |
| (1,949 | ) | (1,400 | ) | — |
| (3,349 | ) | |||||||||
(Decrease) increase in cash and cash equivalents |
| — |
| (10,950 | ) | 4,233 |
| (2,635 | ) | — |
| (9,352 | ) | 551 |
| — |
| (8,801 | ) | |||||||||
Cash and cash equivalents, beginning of period |
| — |
| 11,495 |
| 4,188 |
| 8,724 |
| — |
| 24,407 |
| 23,052 |
| — |
| 47,459 |
| |||||||||
Cash and cash equivalents, end of period |
| $ | — |
| $ | 545 |
| $ | 8,421 |
| $ | 6,089 |
| $ | — |
| $ | 15,055 |
| $ | 23,603 |
| $ | — |
| $ | 38,658 |
|
30