1000 Cathedral Place | Reply Attention of: |
October 27, 2014
VIA EDGAR
SECURITIES AND EXCHANGE COMMISSION
Division of Corporation Finance
100 F Street, N.E.
Washington, D.C. 20549
Attention: Linda Cvrkel, Branch Chief
Dear Sirs/Mesdames:
| Re: | MFC Industrial Ltd. (the "Company") Form 20-F for the year ended December 31, 2013 (the "2013 20-F") Filed March 31, 2014 File No. 001-04192 |
We act as counsel for the Company and write in connection our telephone conversation with Heather Clark of the United States Securities and Exchange Commission (the "Commission") on October 27, 2014 regarding our letter dated August 29, 2014 (the "Initial Response Letter") in response to the initial letter dated August 7, 2014 from the Commission commenting on the 2013 20-F. Further to such conversation, on behalf of the Company, please find enclosed herewith a copy of the exhibit referenced in the Initial Response Letter.
We trust the foregoing to be in order, but should you have any questions or concerns, please do not hesitate to contact the undersigned at (604) 692-3023.
Yours truly,
SANGRA MOLLER LLP
| Per: | /s/ Rod Talaifar |
| Rod Talaifar |
| cc. | MFC Industrial Ltd. Attention: Samuel Morrow |
MFC INDUSTRIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013
Note 41. RecastRestatement of Consolidated Statements during the Measurement Period and Correction of an Error (continued)
Reconciliation of net income for the year ended December 31, 2012:
| Error | ||||||||||||||||||||
| Historical | adjustments* | adjustments** | correction | |||||||||||||||||
| Net sales | $ | 479,507 | $ | – | $ | – | $ | – | $ | 479,507 | ||||||||||
| Equity income | 6,152 | – | – | – | 6,152 | |||||||||||||||
| Gross revenues | 485,659 | – | – | – | 485,659 | |||||||||||||||
| Costs and Expenses: | ||||||||||||||||||||
| Costs of sales | 407,626 | – | (918 | )(i) | – | 406,708 | ||||||||||||||
| Impairment of available-for-sale securities | 4,265 | – | – | – | 4,265 | |||||||||||||||
| Impairment of interest in resource properties | 42,631 | – | – | _ | 42,631 | |||||||||||||||
| Selling, general and administrative | 47,737 | – | – | – | 47,737 | |||||||||||||||
| Share-based compensation — selling, general | ||||||||||||||||||||
| and administrative | 9 | – | – | – | 9 | |||||||||||||||
| Finance costs | 12,431 | – | (797 | )(ii) | – | 11,634 | ||||||||||||||
| 514,699 | – | (1,715 | ) | – | 512,984 | |||||||||||||||
| Loss from operations | (29,040 | ) | – | 1,715 | – | (27,325 | ) | |||||||||||||
| Other items: | ||||||||||||||||||||
| Exchange differences on foreign currency | ||||||||||||||||||||
| transactions | 7,108 | – | – | – | 7,108 | |||||||||||||||
| Change in fair value of puttable instrument | ||||||||||||||||||||
| financial liabilities | (77 | ) | – | – | – | (77 | ) | |||||||||||||
| Bargain purchase | 247,004 | (21,821 | ) | – | (6,504 | ) | 218,679 | |||||||||||||
| Income before income taxes | 224,995 | (21,821 | ) | 1,715 | (iii) | (6,504 | ) | 198,385 | ||||||||||||
| Income tax (expense) recovery: | ||||||||||||||||||||
| Income taxes | 8,528 | – | – | – | 8,528 | |||||||||||||||
| Resource property revenue taxes | (5,902 | ) | – | – | – | (5,902 | ) | |||||||||||||
| 2,626 | – | – | – | 2,626 | ||||||||||||||||
| Net income for the year | 227,621 | (21,821 | ) | 1,715 | (6,504 | ) | 201,011 | |||||||||||||
| Less: Net (income) loss attributable to non- | ||||||||||||||||||||
| controlling interests | (867 | ) | – | – | – | (867 | ) | |||||||||||||
| Net income attributable to owners of the parent | ||||||||||||||||||||
| company | $ | 226,754 | $ | (21,821 | ) | $ | 1,715 | $ | (6,504 | ) | $ | 200,144 | ||||||||
| Basic and diluted earnings per share | $ | 3.62 | $ | (0.35 | ) | $ | 0.03 | $ | (0.10 | ) | $ | 3.20 | ||||||||
| * | Adjustments reflecting new information obtained during the measurement period about facts and circumstances that existed as of the acquisition date, which consisted of: |
| Overstatement of land values; assets held for sale | $ | (4,465 | ) | |
| Overstatement of land values; hydrocarbon unproved lands | (17,945 | ) | ||
| Under-accrual of gas cost allowance | (1,737 | ) | ||
| Understatement of facility term financing | (4,804 | ) | ||
| (28,951 | ) | |||
| Income tax effect thereon | 7,130 | |||
| Net restated adjustments | $ | (21,821 | ) |
| ** | Adjustments representing effects on the post-combination earnings as a result of the revision of assets and liabilities at the acquisition date, which consisted of: (i) reversal of expiry of hydrocarbon unproved lands; (ii) reduction of interest accretion on facility term financing; and (iii) the total of (i) and (ii) above. |
The net income, total comprehensive income and comprehensive income attributable to owners of the parent company for the year ended December 31, 2012 were reduced by 26,610 (representing the sum of the recastrestated adjustments and error correction).
MFC INDUSTRIAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013
Note 41. RecastRestatement of Consolidated Statements during the Measurement Period and Correction of an Error (continued)
Reconciliation of financial position as at December 31, 2012:
| ASSETS | Error | |||||||||||||||||||
| Historical | adjustments* | adjustments* | Correction | |||||||||||||||||
| Current Assets | ||||||||||||||||||||
| Assets held for sale | $ | 128,657 | $ | (4,465 | )(i) | $ | – | $ | – | $ | 124,192 | |||||||||
| Other current assets | 555,621 | – | – | – | 555,621 | |||||||||||||||
| Total current assets | 684,278 | (4,465 | ) | – | – | 679,813 | ||||||||||||||
| Non-current Assets | ||||||||||||||||||||
| Hydrocarbon unproved lands | 48,728 | (17,945 | )(ii) | 918 | (i) | – | 31,701 | |||||||||||||
| Deferred income tax assets | 18,510 | 7,130 | (v) | – | (6,504 | ) | 19,136 | |||||||||||||
| Other non-current assets | 629,973 | – | – | – | 629,973 | |||||||||||||||
| Total non-current assets | 697,211 | (10,815 | ) | 918 | (6,504 | ) | 680,810 | |||||||||||||
| $ | 1,381,489 | $ | (15,280 | ) | $ | 918 | $ | (6,504 | ) | $ | 1,360,623 | |||||||||
| LIABILITIES AND EQUITY | ||||||||||||||||||||
| Current Liabilities | ||||||||||||||||||||
| Account payables and accrued expenses | $ | 77,586 | $ | 1,737 | (iii) | $ | 80 | *** | $ | – | $ | 79,403 | ||||||||
| Facility term financing | 7,390 | 3,869 | (iv) | (797 | )(ii) | – | 10,462 | |||||||||||||
| Other current liabilities | 253,954 | – | (80 | )*** | – | 253,874 | ||||||||||||||
| Total current liabilities | 338,930 | 5,606 | (797 | ) | – | 343,739 | ||||||||||||||
| Long-term liabilities | ||||||||||||||||||||
| Facility term financing | 11,328 | 935 | (iv) | – | – | 12,263 | ||||||||||||||
| Other long-term liabilities | 267,846 | – | – | – | 267,846 | |||||||||||||||
| Total long-term liabilities | 279,174 | 935 | – | – | 280,109 | |||||||||||||||
| Total liabilities | 618,104 | 6,541 | (797 | ) | – | 623,848 | ||||||||||||||
| Equity | ||||||||||||||||||||
| Capital stock, fully paid | 382,746 | – | – | – | 382,746 | |||||||||||||||
| Treasury stock | (68,610 | ) | – | – | – | (68,610 | ) | |||||||||||||
| Contributed surplus | 13,037 | – | – | – | 13,037 | |||||||||||||||
| Retained earnings | 426,184 | (21,821 | )(vi) | 1,715 | (iii) | (6,504 | ) | 399,574 | ||||||||||||
| Accumulated other comprehensive income | 3,840 | – | – | – | 3,840 | |||||||||||||||
| Shareholders' equity | 757,197 | (21,821 | ) | 1,715 | (6,504 | ) | 730,587 | |||||||||||||
| Non-controlling interests | 6,188 | – | – | – | 6,188 | |||||||||||||||
| Total equity | 763,385 | (21,821 | ) | 1,715 | – | 736,775 | ||||||||||||||
| $ | 1,381,489 | $ | (15,280 | ) | $ | 918 | $ | (6,504 | ) | $ | 1,360,623 | |||||||||
| * | Adjustments reflecting new information obtained during the measurement period about facts and circumstances that existed as of the acquisition date, which consisted of: |
| (i) | Overstatement of land values; assets held for sale | $ | (4,465 | ) | ||
| (ii) | Overstatement of land values; hydrocarbon unproved lands | (17,945 | ) | |||
| (iii) | Under-accrual of gas cost allowance | (1,737 | ) | |||
| (iv) | Understatement of facility term financing | (4,804 | ) | |||
| (28,951 | ) | |||||
| (v) | Income tax effect thereon | 7,130 | ||||
| (vi) | Net restated adjustments | $ | (21,821 | ) |
| ** | Adjustments representing effects on the post-combination earnings as a result of the revision of assets and liabilities at the acquisition date, which consisted of: (i) reversal of expiry of hydrocarbon unproved lands; (ii) reduction of interest accretion on facility term financing; and (iii) the total of (i) and (ii) above. | |
| *** | Reclassificationof provisions for warranty into accounts payables and accrued expenses. | |