CanWel Building Materials Group Ltd.

Transcription

1 CanWel Building Materials Group Ltd. Unaudited Interim Condensed Consolidated Financial Statements 2013 (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 Canadian Institute of Chartered Accountants for a review of interim financial statements by an entity s auditor. November 5,

3 The accompanying notes are an integral part of these consolidated financial statements. CANWEL BUILDING MATERIALS GROUP LTD. Interim Condensed Consolidated Statement of Financial Position (Unaudited) As at 2013 As at December 31, 2012 (Note 3) (in thousands of Canadian dollars) Notes Assets Current assets Trade and other receivables 5 82,530 53,268 Inventories 6 82,211 83,048 Prepaid expenses 1,610 5, , ,156 Non-current assets Property, plant and equipment 7 24,532 8,299 Deferred income tax assets - 7,551 Intangible assets 8 8,029 7,083 Goodwill 9 93,909 91, , ,539 Total assets 292, ,695 Liabilities Current liabilities Bank indebtedness 4,424 11,336 Trade and other payables 51,748 36,516 Dividends payable 14 4,016 - Current portion of promissory note 12 1,900-62,088 47,852 Non-current liabilities Revolving loan facility 10 64,304 43,450 Deferred income tax liabilities Convertible debentures 11 42,588 43,590 Promissory note 12 7,600 - Leasehold inducements 1,648 1,628 Pension benefits - 7,345 Post-retirement benefits 4,088 4, , ,716 Total liabilities 182, ,568 Equity Common shares , ,381 Contributed surplus 14 10,896 10,916 Deficit (138,143) (140,170) 110, ,127 Total liabilities and equity 292, ,695 Commitments and contingencies 19 3

4 The accompanying notes are an integral part of these consolidated financial statements. CANWEL BUILDING MATERIALS GROUP LTD. Interim Condensed Consolidated Statement of Earnings and Comprehensive Earnings (Unaudited) Three months ended Nine months ended (in thousands of Canadian dollars except per share amounts) Notes (Note 3) (Note 3) Revenue 22,23 205, , , ,175 Cost of sales , , , ,502 Gross margin from operations 23,812 21,874 62,687 61,673 Expenses Distribution, selling and administration 16 14,699 14,027 42,569 41,753 Share-based compensation Depreciation of property, plant and equipment ,587 1,797 Amortization of intangible assets ,630 14,690 45,012 44,403 Operating earnings 8,182 7,184 17,675 17,270 Finance costs 17 (1,753) (1,613) (5,000) (4,818) Earnings before income taxes 6,429 5,571 12,675 12,452 Provision for income taxes 1,710 1,503 3,254 3,291 Net earnings 4,719 4,068 9,421 9,161 Other comprehensive income (loss) Net actuarial gain (loss) from pension and other benefit plans (1) 701 (1,252) 4,649 (1,012) Comprehensive earnings 5,420 2,816 14,070 8,149 Net earnings per share Basic and diluted - net earnings Weighted average number of shares Basic 57,354,141 58,415,155 57,334,308 58,973,374 Diluted 57,386,534 58,456,180 57,364,552 59,003, Item that will not be reclassified to earnings. 4

5 The accompanying notes are an integral part of these consolidated financial statements. CANWEL BUILDING MATERIALS GROUP LTD. Interim Condensed Consolidated Statement of Changes in Equity (Unaudited) (in thousands of Canadian dollars except share amounts) Common Shares Contributed Number Amount Surplus Deficit Total As at December 31, ,298, ,381 10,916 (140,170) 108,127 Shares issued pursuant to: Restricted Equity Common Share Plan 33, (83) - - Employee Common Share Purchase Plan 36, Share-based compensation charged to operations Dividends - - (12,043) (12,043) Comprehensive earnings for the period ,070 14,070 As at ,368, ,542 10,896 (138,143) 110,295 As at December 31, ,395, ,166 7,491 (130,136) 123,521 Shares issued pursuant to: Restricted Equity Common Share Plan 50, (170) - - Employee Common Share Purchase Plan 29, Share-based compensation charged to operations Additional shares to be issued pursuant to RECSP - 4 (4) - Repurchase of common shares (1,869,100) (7,739) 2,988 - (4,751) Dividends - - (12,311) (12,311) Comprehensive earnings for the period - - 8,149 8,149 As at ,605, ,650 10,416 (134,302) 114,764 5

6 The accompanying notes are an integral part of these consolidated financial statements. CANWEL BUILDING MATERIALS GROUP LTD. Interim Condensed Consolidated Statement of Cash Flows (Unaudited) Three months ended Nine months ended (Note 3) (Note 3) (in thousands of Canadian dollars) Notes Operating activities Net earnings for the period 4,719 4,068 9,421 9,161 Items not effecting cash Depreciation of property, plant and equipment ,587 1,797 Provision for income taxes Net change in pensions and other postretirement 1,710 1,503 3,254 3,291 benefits (494) (482) (1,754) (1,408) Amortization of: Intangible assets Leasehold inducements 48 (56) 24 (63) Share-based compensation Finance costs 17 1,753 1,613 5,000 4,818 Cash flows from operating activities before changes in non-cash working capital and interest paid 8,667 7,309 18,388 18,449 Changes in non-cash working capital items 21 56,690 27, (20,896) Income taxes paid - - (52) - Interest paid on revolving loan facility and bank indebtedness 17 (812) (578) (2,321) (1,705) Net cash flows provided by (used in) operating activities 64,545 34,057 16,397 (4,152) Financing activities Shares issued Repurchase of common shares 14 - (3,172) - (4,751) Repurchase of convertible debentures (1,216) - Dividends paid 14 (4,015) (4,118) (8,027) (14,216) Receipt of leasehold inducements Interest on convertible debentures 17 (639) (658) (1,915) (1,974) Interest on promissory note 17 (83) - (83) - Financing costs on borrowings - - (662) - (Decrease) increase in revolving loan facility 10 (44,664) (29,103) 21,368 29,067 Net cash flows (used in) provided by financing activities (49,367) (37,026) 9,543 8,871 Investing activities Purchase of property, plant and equipment 7 (244) (94) (407) (7,467) Business acquisitions 4 (10,740) - (18,621) - Net cash flows used in investing activities (10,984) (94) (19,028) (7,467) Decrease (Increase) in bank indebtedness 4,194 (3,063) 6,912 (2,748) Bank indebtedness - Beginning of period (8,618) (7,091) (11,336) (7,406) Bank indebtedness - End of period (4,424) (10,154) (4,424) (10,154) 6

7 Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) for the three and nine months ended 2013 and NATURE OF OPERATIONS CanWel Building Materials Group Ltd. (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 Granville Street, Vancouver, BC. The Company operates through its wholly owned subsidiaries in Canada as a national distributor of building materials and home renovation products and a provider of wood pressure treating services. 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 34, Interim Financial Reporting ( IAS 34 ) 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 consolidated annual financial statements for the year ended December 31, These unaudited Interim Condensed Consolidated Financial Statements were authorized for issuance on November 5, 2013 by the Board of Directors of the Company. b) Basis of presentation These unaudited Interim Condensed Consolidated Financial Statements include the accounts of CanWel Building Materials Group Ltd. 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 year-end, and are not fully inclusive of all disclosures required by IFRS for annual financial statements. These unaudited Interim Condensed Consolidated Financial Statements should be read in conjunction with the Company s annual audited 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. 3. SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies as disclosed in the Company s audited annual financial statements for the year ended December 31, 2012 have been applied consistently in the preparation of these unaudited interim condensed consolidated financial statements, except for International Accounting Standard 19 Employee Benefits ( IAS 19 ). On January 1, 2013 the Company retrospectively adopted the amendments for IAS 19. 7

8 Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) for the three and nine months ended 2013 and 2012 The amendments to IAS 19 make significant changes to the recognition and measurement of defined benefit pension expense and termination benefits, and enhance the disclosures for all employee benefits. Actuarial gains and losses were renamed remeasurements and have been recognized immediately in other comprehensive earnings ( OCI ). Remeasurements recognized in OCI will not be recycled through profit or loss in subsequent periods. The amendments also accelerate the recognition of past service costs whereby they are recognized in the period of a plan amendment. The annual expense for a funded benefit plan will be computed based on the application of the discount rate to the net defined benefit asset or liability. The amendments to IAS 19 will also impact the presentation of pension expense as benefit cost will be split between (i) the cost of benefits accrued in the current period (service cost) and benefit changes (past-service cost, settlement and curtailments); and (ii) finance expense or income. A number of other amendments have been made to recognition, measurement and classification including those redefining short-term and other long-term benefits guidance on the treatment of taxes related to benefit plans, guidance on risk/cost sharing factors and expanded disclosures. The Company s previous accounting policy for employee benefits for the presentation of pension expense and the immediate recognition of actuarial gains and losses in OCI is consistent with the requirements of the new standard; however, the computation of the net benefit expense has been revised based on applying the discount rate to the net defined benefit asset or liability to calculate the net interest expense on the net defined benefit liability. Upon retrospective application of the new standard on January 1, 2012, the restated net earnings for the third quarter of 2012 were 108 lower than originally reported under the previous accounting standard, and for the nine month period to date were 324 lower than originally reported. The decrease arises from higher net interest relating to the pension benefit liability. As the discount rate was lower than the expected rate of return on plan assets, net interest expense increased as the interest income attributable to plan assets declined. The difference between the actual rate of return on plan assets and the discount rate has been included in OCI as a remeasurement. Upon retrospective application there was no impact on the consolidated statements of financial position as at January 1, 2012 or December 31, As permitted by IAS 19, the Company has elected to present the net interest on the net defined benefit liability within Finance costs (Note 17). 8

9 Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) for the three and nine months ended 2013 and 2012 The effect of the restatement is as follows: Three months ended 2012 As previously stated Restatement As restated Distribution, selling and administration 13, ,027 Finance costs 1, ,613 Earnings before income taxes 5,718 (147) 5,571 Provision for deferred income taxes 1,542 (39) 1,503 Net earnings 4,176 (108) 4,068 Net actuarial loss from pension and other benefit plans (1,360) 108 (1,252) Comprehensive earnings 2,816-2,816 Nine months ended 2012 As previously stated Restatement As restated Distribution, selling and administration 41, ,753 Finance costs 4, ,818 Earnings before income taxes 12,893 (441) 12,452 Provision for deferred income taxes 3,408 (117) 3,291 Net earnings 9,485 (324) 9,161 Net actuarial loss from pension and other benefit plans (1,336) 324 (1,012) Comprehensive earnings 8,149-8, BUSINESS ACQUISITIONS On April 9, 2013, the Company acquired certain assets and the business of North American Wood Treaters (now doing business as North American Wood Preservers NAWP ) for cash consideration. Based in Abbotsford, British Columbia, NAWP provides wood treating services for customers predominantly based in British Columbia and Alberta. On July 2, 2013, the Company acquired all the shares and business of Pastway Planing Limited ( Pastway ) for cash consideration and a promissory note. Pastway performs wood treating and lumber dressing for a variety of customers at its owned 110 acre site located in Combermere, Ontario. These business acquisitions were accounted for by applying the acquisition method. 9

10 Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) for the three and nine months ended 2013 and 2012 Details of the aggregate consideration transferred and the fair value of the identifiable assets and liabilities acquired at the date of the above noted acquisitions are as follows: Nine months ended Notes 2013 Cash consideration 18,621 Promissory note 12 9,500 Consideration 28,121 Assets and liabilities acquired (1) Non-cash working capital 9,358 Property, plant and equipment 7 17,413 Intangible assets 8 1,739 Deferred income taxes (2,692) Total identifiable net assets at fair value 25,818 Goodwill arising on acquisitions 9 2,303 Consideration 28, The purchase price allocation is preliminary and is subject to change up to a period of one year upon finalization of fair value determinations. The goodwill recognized is primarily attributed to the expected synergies arising from the acquisitions and the expertise and reputation of the assembled workforce. The Company estimates that gross revenue earned in 2013 since these acquired entities' acquisition dates is 13,629, and the net earnings are 1,154. It is impracticable for the Company to disclose the acquirees gross revenues and net earnings as though these acquisitions had taken place at the beginning of In 2013, directly attributable acquisition-related costs of 289 have been expensed to date and are included in distribution, selling and administration expenses on the consolidated statement of income. 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: December 31, Trade receivables 80,635 50,184 Allowance for doubtful accounts (230) (154) Net trade receivables 80,405 50,030 Other receivables 2,125 3,238 82,530 53,268 10

11 Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) for the three and nine months ended 2013 and 2012 December 31, Past due by: Less than 1 month 80,986 51,032 1 to 3 months 1,544 2,130 3 to 6 months Total trade and other receivables 82,530 53,268 Activity in the Company s allowance for doubtful accounts is as follows: Balance at December 31, Provisions during the period 125 Accounts written off (49) Balance at The Company does not hold any collateral for receivable amounts outstanding as at INVENTORIES 2013 December 31, 2012 Inventories held for resale 71,174 73,047 Inventories held for processing 11,037 10,001 82,211 83,048 11

12 Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) for the three and nine months ended 2013 and PROPERTY, PLANT AND EQUIPMENT Land Buildings and leasehold improvements Machinery and equipment Automotive equipment Computer equipment and systems development Total Cost Balance at December 31, ,543 14, ,070 Additions Additions arising on acquisitions (Note 4) 700 3,117 13, ,413 Balance at ,554 6,819 27, ,890 Accumulated depreciation Balance at December 31, , ,771 Depreciation , ,587 Balance at , ,358 Net book value at December 31, ,872 4, ,299 Net book value at ,554 5,861 16, ,532 12

13 Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) for the three and nine months ended 2013 and INTANGIBLE ASSETS December 31, Cost 11,739 10,000 Accumulated amortization (3,710) (2,917) Net intangible assets 8,029 7,083 Cost Cost at December 31, ,000 Additions arising on acquisitions (Note 4) 1,739 Cost at ,739 Accumulated amortization Accumulated amortization at December 31,2012 (2,917) Amortization during the period (793) Accumulated amortization at 2013 (3,710) 9. GOODWILL Activity in the Company s goodwill is as follows: Balance at December 31, ,606 Additions arising on acquisitions (Note 4) 2,303 Balance at , REVOLVING LOAN FACILITY December 31, Revolving loan facility 64,878 43,510 Financing costs, net of amortization (574) (60) 64,304 43,450 On December 12, 2012, the Company and its lender, Wells Fargo, agreed to amend the terms of the revolving loan facility effective February 1, Pursuant to such amendment, the maturity date was extended to January 31, The terms and conditions of the revolving loan facility are consistent with those disclosed in Note 12 to the 2012 annual consolidated financial statements. 13

14 Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) for the three and nine months ended 2013 and CONVERTIBLE DEBENTURES December 31, Convertible debentures 43, ,971 Financing costs, net of amortization (1,101) (1,381) 42, ,590 The terms and conditions of the convertible debentures are consistent with those disclosed in Note 13 to the 2012 annual consolidated financial statements. Normal Course Issuer Bid ( NCIB ) On November 19, 2012, the Company commenced a NCIB with respect to its convertible debentures. Under the terms of the NCIB, the Company may purchase for cancellation up to 4,500 of its convertible debentures at market prices. For the quarter ended 2013, the Company repurchased and cancelled nil ( nil) of its convertible debentures and for the nine month period to date the Company repurchased and cancelled 1,282 ( nil) of its convertible debentures for cash proceeds of 1,216 resulting in a gain of 66 (Note 15) on repurchase. In total the Company has repurchased and cancelled 1,311 of its convertible debentures pursuant to the NCIB. At 2013 there were 3,189 remaining convertible debentures authorized for repurchase pursuant to the NCIB. 12. PROMISSORY NOTE December 31, Promissory note 9,500 - Less: current portion (1,900) - 7,600 - On July 2, 2013, the Company issued a 9,500 promissory note in connection with the current year acquisitions. The principal amount of the promissory note is payable annually in five equal installments of 1,900 commencing on July 2, 2014 and matures on July 2, The promissory note bears simple interest and is payable as a lump sum on the maturity date. 13. PENSIONS AND OTHER POST-RETIREMENT BENEFITS Total net benefit expense of the Company s pension and post-retirement benefit plans in the third quarter was 418 ( ) and for the nine month period to date was 1,289 (2012-1,342). 14. SHARE CAPITAL The authorized capital of the Company consists of an unlimited number of common and preferred shares with no par value. 14

15 Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) for the three and nine months ended 2013 and 2012 Normal Course Issuer Bid For the quarter ended 2013, the Company repurchased and cancelled nil (2012-1,231,100) common shares and for the nine month period to date the Company repurchased and cancelled nil (2012 1,869,100) common shares. In total the Company has repurchased and cancelled 294,573 common shares pursuant to the NCIB commenced on November 19, 2012 (the 2012 NCIB ). At 2013 there were 2,705,427 remaining shares authorized for repurchase pursuant to the 2012 NCIB. Share option plan The following is an analysis of the outstanding share options: Exercise Number Weighted average Weighted Number of price outstanding remaining average exercisable contractual life exercise price options (years) # ,138, ,138,415 Compensation expense in respect of outstanding options for the quarter and the nine month period ended 2013 was nil ( nil). Employee Common Share Purchase Plan ( ECSPP ) For the quarter ended 2013, the Company has issued 15,929 ( ,382) common shares from treasury for gross proceeds of 34 ( ) and for the nine month period to date the Company has issued 36,366 ( ,283) common shares from treasury for gross proceeds of 78 ( ) from employees, pursuant to the ECSPP. 15

16 Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) for the three and nine months ended 2013 and 2012 Restricted Equity Common Share Plan ( RECSP ) Outstanding Restricted Stock Units ( RSUs ) pursuant to the RECSP are as follows: Nine months ended Beginning of period 10,771 46,196 Granted 21,966 11,062 Additional RSUs earned as notional dividends 301 3,196 Vested and converted to common shares during the period (33,038) (50,253) End of period - 10,201 Compensation expense in respect of RSUs for the quarter ended 2013 was nil ( ) and for the nine month period to date was 63 ( ). Dividend The amounts and record dates of dividends declared were as follows: Record date Amount /share March 28, , June 28, , , , On September 16, 2013, the Company declared a dividend of 0.07 per share, totaling 4,016 to shareholders of record on 2013, which was accrued at 2013 and paid on October 15, On December 11, 2012, the Company declared a dividend of 0.07 per share, totaling 4,010 to shareholders of record on December 20, 2012, which was paid on December 31, On December 15, 2011, the Company declared a dividend of 0.10 per share, totaling 5,939 to shareholders of record on December 30, 2011, which was accrued at December 31, 2011 and paid on January 15,

17 Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) for the three and nine months ended 2013 and COST OF SALES Cost of sales includes the following costs: Three months ended Nine months ended Costs relating to purchased and treated goods sold in the quarter 179, , , ,913 Salaries and benefits 1,186 1,089 3,543 3,340 Inventory provisions Other DISTRIBUTION, SELLING AND ADMINISTRATION COSTS The distribution, selling and administration costs include the following: 181, , , ,502 Three months ended Nine months ended (Note 3) (Note 3) Wages and benefits 8,363 7,863 24,575 23,940 Building rent and occupancy costs 4,044 3,719 11,373 11,015 Travel, promotion and entertainment ,597 2,584 Office and miscellaneous 819 1,005 2,458 2,655 Professional and management fees ,566 1,559 14,699 14,027 42,569 41,753 17

18 Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) for the three and nine months ended 2013 and FINANCE COSTS The finance costs for the Company are broken down as follows: Three months ended Nine months ended (Note 3) (Note 3) Revolving loan facility ,335 1,708 Convertible debentures ,915 1,974 Promissory note Cash and bank indebtedness 8 (5) (14) (2) Net cash interest 1,534 1,236 4,319 3,680 Interest expense on the net defined benefit liability Gain on repurchase of debentures - - (66) - Amortization of financing costs ,753 1,613 5,000 4,818 18

19 Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) for the three and nine months ended 2013 and 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 Nine months ended Land and building lease payments for distribution facilities paid to a company in which a member of the key management personnel who is a director of the Company has an interest and lease payments for certain treatment plant facilities to a company solely controlled by a director of the Company ,100 2,285 Tenant improvement allowance received from a company in which a member of the key management personnel who is a director of the Company has an interest (1) 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 ,564 3,853 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 The gross consideration received from the landlord of 765 was to support certain improvements made by the Company. The Company received net cash of 692, as the balance was applied against certain aspects due under the lease obligations. 19

20 Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) for the three and nine months ended 2013 and 2012 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 of the Company has an interest in, are as follows: Year ending December 31 Remainder of , , , ,688 Thereafter 6,783 Advances to related parties 18,577 As at 2013, other accounts receivable include an amount due from a member of the key management personnel who is also a director and officer of 37 ( ). Payable to related parties As at 2013, trade and other accounts payable include an amount due to a public company in which a member of the key management personnel who is also a director and officer of the Company has an interest in, of 78 ( ). 19. COMMITMENTS AND CONTINGENCIES Lease commitments The Company has operating 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 that it operates across Canada. b. operating leases covering certain vehicles, computer equipment and warehouse equipment. Future minimum payments due under the terms of these leases are as follows: Year ending December 31 Remainder of , , , , ,212 Thereafter 28,191 66,754 20

21 Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) for the three and nine months ended 2013 and 2012 Claims During the normal course of business, certain product liability and other claims have been brought against the Company and or its suppliers. Management has contested the validity of these claims and believes that they are without merit and that any possible settlement will have no material effect on the financial position or future earnings of the Company. 20. FINANCIAL INSTRUMENTS The carrying amounts and fair values of financial instruments were as follows: 2013 December 31, 2012 Carrying amount Fair value Carrying amount Fair value Trade and other receivables 82,530 82,530 53,268 53,268 Financial liabilities Bank indebtedness 4,424 4,424 11,336 11,336 Trade and other payables 51,749 51,749 36,516 36,516 Dividends payable 4,016 4, Revolving loan facility 64,304 64,878 43,450 43,510 Convertible debentures 42,588 36,371 43,590 42,718 Promissory note 9,500 9, The following methods and assumptions were used to determine the estimated fair value of each class of financial instrument: The fair value of 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 quoted active market price at the end of period. The revenues and expenses resulting from financial assets and liabilities recorded in net earnings were as disclosed in Note

22 Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) for the three and nine months ended 2013 and 2012 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 trade and other receivables. 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 and promissory note. All financial liabilities are measured at amortized cost. 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 accounts receivable. 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 accounts receivable and establishes an allowance for doubtful accounts based on its best estimate of any potentially uncollectible accounts. As at 2013, trade accounts receivable were as follows: Current 80,573 Past due over 60 days 62 Trade accounts receivable 80,635 Less: Allowance for doubtful accounts (230) 80,405 As at 2013, the maximum exposure to credit risk is 82,530 (December 31, ,268), 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 2013, the sensitivity of a 1% increase in interest rates would result in an approximate decrease of 173 in net quarterly earnings. 22

23 Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) for the three and nine months ended 2013 and 2012 Currency risk Currency risk is the risk that changes in market prices of foreign exchanges 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 2013, a 0.01 increase in the United States dollar versus the Canadian dollar would have an insignificant impact on net quarterly earnings. 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 revolving loan facility expires. 21. CHANGES IN NON-CASH WORKING CAPITAL Three months ended Nine months ended Trade and other receivables 56, ,947 (13,364) (33,723) Inventories 14,222. 6,201 15, Prepaid expenses 11,441. (288) 4,346 2,693 Trade and other payables (25,321) (17,534) (6,345) 9, FOREIGN SALES AND SIGNIFICANT CUSTOMERS 56, , (20,896) During the quarter ended 2013, the Company had sales outside of Canada of 536 ( ) and for the nine month period to date of 2,024 (2012-1,757). The Company has sold products to certain customers who comprise greater than 10% of its sales. During the quarter ended 2013, three customers individually accounted for sales in excess of 10%, purchasing an aggregate of 88,733 ( ,731, representing three customers) and for the nine month period to date three customers individually accounted for sales in excess of 10%, purchasing an aggregate of 255,363 ( ,267, representing three customers). 23

24 Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) for the three and nine months ended 2013 and SEGMENTED INFORMATION The Company has one reportable segment. The percentage of total revenue from external customers from product groups and geographic regions is as follows: Revenue by product group Three months ended Nine months ended % % % % Construction materials Specialty and allied Revenue by geographic region Three months ended Nine months ended % % % % B.C Prairies Ontario Quebec Atlantic Other 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, purchase shares in the market, issue new shares, or sell assets to reduce debt. 24

25 Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) for the three and nine months ended 2013 and 2012 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. 25. SEASONALITY The Company s sales are subject to seasonal variances due to the seasonality of its customers selling cycles. This creates a timing difference between free cash flow and dividends paid. While the Company has equalized its quarterly dividends to provide a regular income stream for shareholders over the course of the year, the second and third quarters have historically been the most profitable. 26. COMPARATIVE FIGURES Certain comparative figures have been reclassified to conform to the financial statement presentation adopted in the current year. 25

26 Corporate Information Officers Directors Amar S. Doman Chairman and CEO Ian M. Baskerville Toronto, Ontario James Code Chief Financial Officer Amar S. Doman West Vancouver, British Columbia R.S. (Rob) Doman Corporate Secretary Tom Donaldson Saint John, New Brunswick CanWel Building Materials Kelvin Dushnisky Toronto, Ontario Sam Fleiser Toronto, Ontario Jacob Kotzubei Los Angeles, California National Office Suite Granville Street Vancouver, British Columbia Canada V7Y 1G6 Contact Phone: (604) Internet: Stephen W. Marshall Vancouver, British Columbia Transfer Agent Martin R. Melone Los Angeles, California Canadian Stock Transfer Company Inc. Vancouver, British Columbia Marc Seguin Vancouver, British Columbia Investor Relations Siegfried J. Thoma Portland, Oregon Contact Ali Mahdavi Phone: (416) Auditors Stock Exchange Ernst & Young LLP Vancouver, British Columbia Toronto Stock Exchange Trading Symbols: Solicitors Goodmans LLP Toronto, Ontario Davis LLP Vancouver, British Columbia CWX; CWX.DB