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Teknion Corporation Announces 2007 Fourth Quarter and Year-End Results
(Market Wire Via Thomson Dialog NewsEdge) TORONTO, ONTARIO, February 13 / MARKET WIRE/ --
Teknion Corporation (TSX: TKN) announced today its results for the three months and year ended November 30, 2007.
Financial Highlights (complete financial statements and MD&A to follow)
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Three Months Twelve Months
ended November 30 ended November 30
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(in $000 except per share
amounts) 2007 2006 2007 2006
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Sales $151,359 $176,571 $627,424 $631,254
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---------- ---------- ---------- -----------
Earnings (loss) from
operations $(1,677) $6,304 $1,690 $10,327
Loss on disposal of
property, plant & equipment (191) (96) (1,910) (345)
Depreciation and amortization 4,731 5,033 17,740 18,941
EBITDA (1) $2,863 $11,241 $17,520 $28,923
Net loss $(33,633) $(716) $(35,501) $(269)
Earnings (loss) per share
before loss on asset held
for sale and goodwill
impairment $(0.04) $0.08 $(0.07) $0.09
EPS diluted $(0.52) $(0.01) $(0.55) $0.00
Shareholders' equity $177,661 $210,954 $177,661 $210,954
Common shares outstanding 64,116,131 64,116,131 64,116,131 64,116,131
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(1) The terms "EBITDA" and "EPS before loss on asset held for sale and
goodwill impairment" are non-GAAP financial measures and do not
necessarily have a standardized meaning amongst issuers. EBITDA is
defined as earnings (loss) from operations after loss on disposal of
property, plant and equipment and before depreciation and amortization.
"EPS before loss on asset held for sale and goodwill impairment" is
defined as "EPS diluted" before the impact on net earnings from the
loss on asset held for sale and goodwill impairment. The Company
believes that this adjustment to EPS diluted is useful because it
removes non-cash accounting losses, therefore providing a better
measure of the Company's operating performance.
Commenting on the results, David Feldberg, President and CEO, noted "Fourth quarter revenues were the weakest of any fourth quarter in the past three years - and were disappointing. However, for the fiscal 2007 year, we increased our revenues (in source currency) in all our markets, the U.S., Canada and International - the third consecutive year that we have achieved this broad growth. Our sales have increased on a year-over-year basis in 11 of the last 13 quarters. We believe that we will continue to grow our business in 2008 and beyond."
Cautionary Statement
Certain of the above statements are forward-looking statements with respect to the Company's future prospects. These statements involve risks and uncertainties that could cause the Company's financial results to differ materially from stated expectations as a consequence of a number of factors, including but not limited to: fluctuations in the Company's operating results due to product demand arising from competitive and general economic and business conditions in the Company's North American and international markets and operations; significant fluctuations in exchange rates for currencies in which the Company does business; changes in the cost of raw materials; the ability to maintain the proprietary nature of the Company's intellectual property in the design and manufacturing of its products; changes in the Company's markets, including technology change, changes in customer requirements, frequent new product introductions by competitors and emerging standards; the Company's dependence on key personnel; the Company's dependence on key commitments from significant dealers and distributors; availability of financing for the Company; potential liabilities arising from product defects; environmental matters and other factors set forth in the Company's reports and filings with Canadian securities regulators. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Teknion Corporation (TSX: TKN) is a leading international designer, manufacturer and marketer of office systems and related office furniture products. Teknion's headquarters are located in Toronto, Ontario. The company has offices and facilities in Canada, the United States, the United Kingdom and the Pacific Rim, and serves clients through a network of authorized dealers worldwide. Visit Teknion at www.teknion.com.
TEKNION CORPORATION
Consolidated Balance Sheets
(Unaudited)
(in thousands of dollars)
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As at As at
November 30, November 30,
2007 2006
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Assets
Current assets:
Cash $ 7,321 $ 5,862
Accounts receivable 121,632 128,197
Inventory 49,093 51,913
Prepaid expenses and other deposits 4,368 4,620
Income taxes receivable - 427
Future income taxes 2,705 2,724
Derivative instruments asset 3,861 -
Asset held for sale - 21,079
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188,980 214,822
Property, plant and equipment 145,938 136,900
Prepaid rent 9,981 11,089
Goodwill - 30,874
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$ 344,899 $ 393,685
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Liabilities and Shareholders' Equity
Current liabilities:
Operating loans $ 49,640 $ 53,091
Accounts payable and accrued
liabilities 90,113 94,830
Income taxes payable 135 -
Due to affiliated companies 105 824
Current portion of long-term debt and
capital lease obligations 3,687 1,830
Liability held for sale - 13,853
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143,680 164,428
Long-term debt and capital lease
obligations 20,853 15,579
Future income taxes 2,705 2,724
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167,238 182,731
Shareholders' equity:
Share capital 107,005 107,005
Retained earnings 78,424 113,925
Contributed surplus 1,479 376
Accumulated other comprehensive loss (9,247) (10,352)
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177,661 210,954
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$ 344,899 $ 393,685
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TEKNION CORPORATION
Consolidated Statements of Changes in Shareholders' Equity
(Unaudited)
Periods ended November 30, 2007 and 2006
(in thousands of dollars, except per share Twelve months ended
amounts) November 30
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2007 2006
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Share Capital
Issued
39,919,846 multiple voting shares 5,051 5,051
24,196,285 subordinate voting shares 101,954 101,954
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Share capital, end of year $ 107,005 $ 107,005
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Retained earnings, beginning of year $ 113,925 $ 114,194
Loss for the year (35,501) (269)
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Retained earnings, end of year $ 78,424 $ 113,925
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Contributed surplus
Contributed Surplus, beginning of year 376 94
Stock-based compensation plan 1,103 282
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Contributed surplus, end of year $ 1,479 $ 376
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Accumulated other comprehensive gain on cash flow
hedges:
Balance, beginning of year - -
Impact of new cash flow hedge accounting rules on
December 1, 2006 (569) -
Unrealized gains on derivatives designated as
cash flow hedges 3,861 -
Reclassification of unrealized losses to earnings 569 -
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Balance, end of year 3,861 -
Accumulated other comprehensive loss on
translation of net foreign operations
Balance, beginning of year (10,352) (10,143)
Unrealized loss on translation of net foreign
operations (2,756) (209)
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Balance, end of year (13,108) (10,352)
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Accumulated other comprehensive loss, end of year $ (9,247) $ (10,352)
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Total Shareholders' equity, end of year $ 177,661 $ 210,954
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TEKNION CORPORATION
Consolidated Statements of Earnings
(Unaudited)
Periods ended November 30, 2007 and 2006
(in thousands of dollars, Three months ended Twelve months ended
except per share amounts) November 30 November 30
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2007 2006 2007 2006
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Sales $ 151,359 $ 176,571 $ 627,424 $ 631,254
Cost of sales 110,591 128,569 455,723 459,913
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Gross margin 40,768 48,002 171,701 171,341
Expenses:
Selling, general and
administrative 37,714 36,665 152,271 142,073
Depreciation and
amortization 4,731 5,033 17,740 18,941
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42,445 41,698 170,011 161,014
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Earnings (loss) from
operations (1,677) 6,304 1,690 10,327
Interest expense, net 929 1,015 4,222 4,453
Loss on asset held for
sale - 5,827 - 5,827
Loss on disposal of
property, plant and
equipment 191 96 1,910 345
Goodwill impairment
charge 30,874 - 30,874 -
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Loss before income taxes (33,671) (634) (35,316) (298)
Income taxes:
Current expense
(recovery) (38) 82 185 (29)
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Net loss $ (33,633) $ (716) $ (35,501) $ (269)
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Loss per share:
Basic and diluted $ (0.52) $ (0.01) $ (0.55) $ (0.00)
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Consolidated Statements of Other Comprehensive Income
(Unaudited)
Periods ended November 30, 2007 and 2006
(in thousands of
dollars, except
per share Three months ended Twelve months ended
amounts) November 30 November 30
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2007 2006 2007 2006
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Net loss $ (33,633) $ (716) $ (35,501) $ (269)
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Other comprehensive
income (loss), net of
tax:
Unrealized gains
(losses) on translation
of self-sustaining
operations (1,628) 1,074 (2,756) (209)
Earnings (losses) on
derivatives designated
as cash flow hedges (1,825) - 3,861 -
Reclassification of
unrealized losses to
earnings - - 569 -
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Other comprehensive
income (loss) (3,453) 1,074 1,674 (209)
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Comprehensive income
(loss) $ (37,086) $ 358 $ (33,827) $ (478)
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TEKNION CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
Periods ended November 30, 2007 and 2006
(in thousands of Three months ended Twelve months ended
dollars) November 30 November 30
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2007 2006 2007 2006
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Cash provided by (used in):
Operations:
Net loss $ (33,633) $ (716) $ (35,501) $ (269)
Items not affecting
cash:
Depreciation and
amortization 4,731 5,033 17,740 18,941
Loss on asset held for
sale - 5,827 - 5,827
Loss on disposal of
property, plant and
equipment 191 96 1,910 345
Goodwill impairment
charge 30,874 - 30,874 -
Amortization of
stock-based compensation 143 89 563 282
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2,306 10,329 15,586 25,126
Change in non-cash
operating working capital 4,583 (4,380) 2,647 (9,657)
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6,889 5,949 18,233 15,469
Financing:
Operating loans (4,300) (14,047) (3,451) (9,965)
Proceeds from financing 2,454 - 6,975 -
Repayment of liability
held for sale - - (14,189) -
Repayment of long-term
debt and capital lease
obligations (641) (586) (2,290) (2,018)
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(2,487) (14,633) (12,955) (11,983)
Investing:
Purchase of property,
plant and equipment (7,006) (5,130) (26,879) (21,673)
Proceeds on disposition
of equipment under
sale-leaseback 2,085 10,500 2,533 13,381
Proceeds on disposal of
property, plant and
equipment 357 23 21,374 191
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(4,564) 5,393 (2,972) (8,101)
Effect of foreign
exchange changes on cash (312) 201 (847) 42
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Increase (decrease) in cash (474) (3,090) 1,459 (4,573)
Cash, beginning of period 7,795 8,952 5,862 10,435
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Cash, end of period $ 7,321 $ 5,862 $ 7,321 $ 5,862
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Supplemental cash flow
information:
Interest paid $ 915 $ 1,245 $ 4,452 $ 5,085
Interest received (15) 100 230 356
Income taxes paid 34 299 613 1,600
Income taxes recovered - 150 618 851
Supplemental disclosure
relating to non-cash
investing and financing
activities:
Acquisition of
property,
plant and equipment
through:
Capital leases $ - $ 338 $ - $ 2,466
Tenant inducements 342 - 2,548 -
Consolidated Financial Statements of
TEKNION CORPORATION
Years ended November 30, 2007 and 2006
KPMG LLP Telephone (416) 228-7000
Chartered Accountants Fax (416) 228-7123
Yonge Corporate Centre Internet www.kpmg.ca
4100 Yonge Street Suite 200
Toronto ON M2P 2H3
Canada
AUDITORS' REPORT TO THE SHAREHOLDERS
We have audited the consolidated balance sheets of Teknion Corporation as at November 30, 2007 and 2006 and the consolidated statements of changes in shareholders' equity, earnings, comprehensive income and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at November 30, 2007 and 2006 and the results of its operations and its cash flows for the years then ended in accordance with Canadian generally accepted accounting principles.
Chartered Accountants, Licensed Public Accountants
Toronto, Canada
February 13, 2008
KPMG LLP, is a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. KPMG Canada provides services to KPMG LLP.
TEKNION CORPORATION
Consolidated Balance Sheets (In thousands of dollars)
November 30, 2007 and 2006
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2007 2006
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Assets
Current assets:
Cash $ 7,321 $ 5,862
Accounts receivable (note 5(a)) 121,632 128,197
Inventory 49,093 51,913
Prepaid expenses and other deposits 4,368 4,620
Income taxes receivable - 427
Future income taxes (note 6) 2,705 2,724
Derivative instruments asset (note 17) 3,861 -
Asset held for sale (note 4) - 21,079
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188,980 214,822
Property, plant and equipment (note 7) 145,938 136,900
Prepaid rent (note 8) 9,981 11,089
Goodwill (note 3) - 30,874
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$ 344,899 $ 393,685
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Liabilities and Shareholders' Equity
Current liabilities:
Operating loans (note 9) $ 49,640 $ 53,091
Accounts payable and accrued liabilities (note 5(a)) 90,113 94,830
Due to affiliated companies (note 5(b)) 105 824
Income taxes payable 135 -
Current portion of long-term debt and capital lease
obligations (notes 10 and 11) 3,687 1,830
Liability held for sale (note 4) - 13,853
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143,680 164,428
Long-term debt and capital lease obligations (notes
10 and 11) 20,853 15,579
Future income taxes (note 6) 2,705 2,724
Shareholders' equity:
Share capital (note 12) 107,005 107,005
Retained earnings 78,424 113,925
Contributed surplus (note 12) 1,479 376
Accumulated other comprehensive loss (9,247) (10,352)
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177,661 210,954
Commitments (note 15)
Subsequent event (note 2)
$ 344,899 $ 393,685
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See accompanying notes to consolidated financial statements.
On behalf of the Board:
"David Feldberg" Director
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"David Sanchez" Director
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TEKNION CORPORATION
Consolidated Statements of Changes in Shareholders' Equity
(In thousands of dollars)
Years ended November 30, 2007 and 2006
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2007 2006
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Share capital (note 12):
Issued:
39,919,846 multiple voting shares $ 5,051 $ 5,051
24,196,285 subordinate voting shares 101,954 101,954
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Share capital, end of year $ 107,005 $ 107,005
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Retained earnings, beginning of year $ 113,925 $ 114,194
Loss for the year (35,501) (269)
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Retained earnings, end of year $ 78,424 $ 113,925
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Contributed surplus, beginning of year $ 376 $ 94
Stock-based compensation plan 1,103 282
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Contributed surplus, end of year $ 1,479 $ 376
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Accumulated other comprehensive loss on cash flow
hedges:
Balance, beginning of year $ - $ -
Impact of new cash flow hedge accounting rules on
December 1, 2006 (note 1(p)(i)) (569) -
Unrealized gains on derivatives designated as
cash flow hedges 3,861 -
Reclassification of unrealized losses to earnings 569 -
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Balance, end of year 3,861 -
Accumulated other comprehensive loss on translation
of net foreign operations:
Balance, beginning of year (10,352) (10,143)
Unrealized loss on translation of net foreign
operations (2,756) (209)
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Balance, end of year (13,108) (10,352)
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Accumulated other comprehensive loss, end of year $ (9,247) $ (10,352)
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Total shareholders' equity, end of year $ 177,661 $ 210,954
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See accompanying notes to consolidated financial statements.
TEKNION CORPORATION
Consolidated Statements of Earnings
(In thousands of dollars, except per share amounts)
Years ended November 30, 2007 and 2006
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2007 2006
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Sales $ 627,424 $ 631,254
Cost of sales 455,723 459,913
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Gross margin 171,701 171,341
Expenses:
Selling, general and administrative (note 1(g)) 152,271 142,073
Depreciation and amortization 17,740 18,941
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170,011 161,014
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Earnings from operations 1,690 10,327
Interest expense, net (notes 10 and 11) 4,222 4,453
Goodwill impairment charge (note 3) 30,874 -
Loss on asset held for sale (note 4) - 5,827
Loss on disposal of property, plant and equipment 1,910 345
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Loss before income taxes (35,316) (298)
Income taxes (recovery) (note 6) 185 (29)
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Loss for the year $ (35,501) $ (269)
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Loss per share (note 13):
Basic and diluted $ (0.55) $ (0.00)
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Consolidated Statements of Comprehensive Income
(In thousands of dollars)
Years ended November 30, 2007 and 2006
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2007 2006
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Loss for the year $ (35,501) $ (269)
Other comprehensive income (loss), net of income taxes:
Unrealized losses on translation of
self-sustaining operations (2,756) (209)
Earnings on derivatives designated
as cash flow hedges 3,861 -
Reclassification of unrealized losses to earnings 569 -
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Other comprehensive income (loss) 1,674 (209)
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Comprehensive loss $ (33,827) $ (478)
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See accompanying notes to consolidated financial statements.
TEKNION CORPORATION
Consolidated Statements of Cash Flows
(In thousands of dollars)
Years ended November 30, 2007 and 2006
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2007 2006
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Cash provided by (used in):
Operations:
Loss for the year $ (35,501) $ (269)
Items not affecting cash:
Depreciation and amortization 17,740 18,941
Loss on asset held for sale - 5,827
Loss on disposal of property, plant and equipment 1,910 345
Amortization of stock-based compensation 563 282
Goodwill impairment charge 30,874 -
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15,586 25,126
Change in non-cash operating working capital 2,647 (9,657)
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18,233 15,469
Financing:
Operating loans (3,451) (9,965)
Proceeds from financing 6,975 -
Repayment of liability held for sale (14,189) -
Repayment of long-term debt and capital lease
obligations (2,290) (2,018)
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(12,955) (11,983)
Investments:
Purchase of property, plant and equipment (26,879) (21,673)
Proceeds on disposal of equipment under
sale-leaseback 2,533 13,381
Proceeds on disposal of property, plant and
equipment 21,374 191
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(2,972) (8,101)
Foreign exchange gain (loss) on cash held in foreign
currencies (847) 42
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Increase (decrease) in cash 1,459 (4,573)
Cash, beginning of year 5,862 10,435
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Cash, end of year $ 7,321 $ 5,862
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Supplemental cash flow information:
Interest paid $ 4,452 $ 5,085
Interest received 230 356
Income taxes paid 613 1,600
Income taxes recovered 618 851
Supplemental disclosure relating to non-cash
financing and investing activities:
Acquisition of property, plant and equipment
through:
Capital leases - 2,466
Tenant inducements 2,548 -
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See accompanying notes to consolidated financial statements.
TEKNION CORPORATION
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of dollars, except per share amounts)
Years ended November 30, 2007 and 2006
Teknion Corporation is incorporated under the Ontario Business Corporations Act, and its primary business activity is the design, manufacture and sale of office furniture.
1. Significant accounting policies:
(a) Basis of presentation:
The consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP").
The consolidated financial statements include the accounts of Teknion Corporation and all of its subsidiaries ("Teknion" or the "Company"). All significant intercompany transactions have been eliminated on consolidation.
(b) Revenue recognition:
The Company recognizes revenue when products are shipped and the customer takes ownership and assumes risk of loss, persuasive evidence of an arrangement exists and the sales price is fixed or determinable. Credit notes to be issued to correct errors in pricing are estimated based on historical trends and are recorded as an adjustment to sales.
Defective goods are replaced or repaired. The cost associated with replacement or repair is recorded in cost of sales. If the Company notes a pattern of defects related to a certain product then it will establish a specific warranty reserve for that product. The warranty reserve is then evaluated on an ongoing basis to ensure that the amount recorded is appropriate based on actual replacement and repair experience.
Amounts billed to clients for shipping and handling of products are recognized as sales in the consolidated statements of earnings. Costs incurred by the Company for shipping and handling are included in cost of sales.
(c) Inventory:
Inventory is valued at the lower of cost and net realizable value. Cost is determined on a first-in, first-out basis.
(d) Property, plant and equipment:
Property, plant and equipment are recorded at cost and depreciated on a declining-balance basis at the following annual rates:
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Buildings 5%
Computer hardware 20%
Computer software 20%
Manufacturing equipment 10%
Office equipment 20%
Tools and dies 10%
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Showrooms are depreciated on a straight-line basis over four years.
Leasehold improvements are amortized on a straight-line basis over the term of the lease.
Patents and trademarks are amortized on a straight-line basis over 10 years.
(e) Prepaid rent:
Prepaid rent is the difference between the net book value and the ascribed value of the manufacturing equipment financed in a sale-leaseback transaction. The prepaid rent is amortized on the same basis as the leased assets and recorded in depreciation and amortization.
(f) Goodwill:
Goodwill represents the difference between the purchase price and the related underlying net asset values resulting from business acquisitions. The Company reviews the carrying value of goodwill to an estimate of its fair value annually. Due to the integrated nature of the Company's operations and lack of differing economic characteristics among the Company's subsidiaries, the entire Company was determined to be one single reporting unit. The quoted market price of the Company's stock on the impairment testing date is the basis for determining the fair value of the Company's reporting unit. If the fair value of the Company's one reporting unit exceeds its carrying amount, further evaluation is not necessary. However, if the fair value of the reporting unit is less than its carrying amount, further evaluation is required to compare the implied fair value of the reporting unit's goodwill to its carrying amount to determine whether a write-down of goodwill is required. Intangible assets with determinable lives continue to be amortized over their estimated useful lives and are tested for impairment at least annually or whenever events or changes in circumstances indicate the carrying amount of the asset may not be recoverable by comparing their book values with the undiscounted cash flow expected to be received from their use. Note 3 describes the results of the impairment test for November 30, 2007.
(g) Translation of foreign currency:
Foreign operations are classified as self-sustaining or integrated.
(i) Self-sustaining foreign operations:
All assets and liabilities are translated into Canadian dollars at exchange rates in effect at year end. Revenue and expenses are translated at the average rates of exchange for the year. The resulting net gains or losses are recorded as an unrealized gain or loss in the consolidated statement of comprehensive income. Cash flows are translated at the rate in effect at the time of the cash flows.
(ii) Integrated foreign operations and accounts in foreign currencies:
Integrated foreign operations and accounts in foreign currencies have been translated into Canadian dollars using the temporal method. Under this method, consolidated balance sheet monetary items are translated at the rates of exchange in effect at year end and non-monetary items are translated at historical exchange rates. Revenue and expenses (other than depreciation and amortization, which are translated at the same rates as the related property, plant and equipment) are translated at the rates in effect on the transaction dates or at the average rates of exchange for the year. The resulting gains or losses are included in the consolidated statements of earnings.
Included in selling, general and administrative expenses are foreign exchange losses of $1,543,000 (2006 - gains of $32,000).
(h) Income taxes:
The Company uses the asset and liability method of accounting for the tax effect of temporary differences between the carrying amount and the tax basis of the Company's assets and liabilities. Temporary differences arise when the realization of an asset or the settlement of a liability would give rise to either an increase or decrease in the Company's income taxes payable for the year or a later period.
Future income taxes are recorded at the income tax rates which are expected to apply when the future tax liability is settled or the future income tax asset is realized. Future tax assets are recognized to the extent that realization of these assets is more likely than not. Income tax expense consists of the income taxes payable for the year and the change during the year in future income tax assets and liabilities.
(i) Loss per share:
Basic loss per share is computed by dividing loss for the year by the weighted average shares outstanding during the year. Diluted loss per share is computed similarly to basic loss per share except that the weighted average shares outstanding are increased to include additional shares from the assumed exercise of stock options, if dilutive. The number of additional shares is calculated by assuming that outstanding stock options were exercised and that the proceeds from such exercises were used to acquire shares of common stock at the average market price during the year.
(j) Stock-based compensation plans:
The Company has stock-based compensation plans, which are described in note 12. The Company accounts for all stock-based payments to non-employees, and employee awards that are direct awards of stock granted on or after December 1, 2003 under the fair value-based method, and accounts for all stock-based employee awards that call for settlement in cash or other assets, or are stock appreciation rights that call for settlement by the issuance of equity instruments, under that method.
Effective December 1, 2003, the Company elected early adoption, on a prospective basis, of the new recommendations issued by The Canadian Institute of Chartered Accountants ("CICA") related to physically settled stock options. Stock options that were granted before fiscal 2004 have been accounted for as a capital transaction when exercised and no compensation cost has been recognized.
Under the fair value-based method, compensation cost for physically settled stock options and direct awards of stock is measured at fair value at the grant date, while compensation cost for awards that call for settlement in cash or other assets, or are stock appreciation rights that call for settlement by the issuance of equity instruments, is measured at the ultimate settlement amount. Compensation cost is recognized in earnings on a straight-line basis over the relevant vesting period. The counterpart is recognized in contributed surplus or as a liability, as appropriate. Upon exercise of a stock option, share capital is recorded as the sum of the proceeds received and the related amount of contributed surplus.
(k) Guarantees:
The Company is required to disclose significant information on guarantees it has provided, without regard to whether it will have to make any payments under the guarantees and in addition to the accounting required by CICA Handbook Section 3290, Contingencies. As at November 30, 2007 and 2006, the Company has guarantees of $5.0 million outstanding that relate to bank overdraft facilities and a foreign exchange trading indemnity.
In certain situations, the Company provides performance bonds to ensure installations are carried out in accordance with the agreement. If either the contractor or the Company do not comply with the terms of the agreement, the Company would be liable for payments under the terms of the performance bond. The Company has not experienced a loss to date and future losses are not anticipated; therefore, no liability has been recorded in the consolidated financial statements. The amount of performance bonds outstanding at year end is not significant.
(l) Impairment of long-lived assets:
Long-lived assets, including property, plant and equipment subject to depreciation, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of would be separately presented in the consolidated balance sheets and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated or amortized. The assets and liabilities classified as held for sale would be presented separately in the appropriate asset and liability sections of the consolidated balance sheets.
(m) Use of estimates:
The preparation of financial statements 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 years. Significant items subject to such estimates and assumptions include the carrying amount of property, plant and equipment, goodwill, valuation allowances for receivables, inventory and future income taxes, and valuation of derivative financial instruments. Actual results could differ from those estimates.
(n) Asset retirement obligations:
The Company recognizes the fair value of a future asset retirement obligation as a liability in the year in which it incurs a legal obligation associated with the retirement of tangible long-lived assets that results from the acquisition, construction, development and/or normal use of the assets. The Company concurrently recognizes a corresponding increase in the carrying amount of the related long-lived asset that is depreciated over the life of the asset. The fair value of the asset retirement obligation is estimated using the expected cash flow approach that reflects a range of possible outcomes discounted at a credit-adjusted risk-free interest rate. Subsequent to the initial measurement, the asset retirement obligation is adjusted at the end of each year to reflect the passage of time and changes in the estimated future cash flows underlying the obligation. Changes in the obligation due to the passage of time are recognized in earnings as an operating expense using the interest method. Changes in the obligation due to changes in estimated cash flows are recognized as an adjustment of the carrying amount of the related long-lived asset that is depreciated over the remaining life of the asset. During the years ended November 30, 2007 and 2006, the Company determined there were no significant future asset retirement obligations.
(o) Variable interest entities:
The Company has established criteria to identify variable interest entities ("VIEs") and the primary beneficiary of such entities. Entities that qualify as VIEs must be consolidated by their primary beneficiary. During the years ended November 30, 2007 and 2006, the Company had no VIEs to be consolidated.
(p) Changes in accounting policies:
CICA Handbook Section 1506, Accounting Changes, prescribes expanded disclosure for changes in accounting policies, accounting estimates and accounting for errors. Under the new standard, accounting changes should be applied retrospectively unless otherwise permitted or where it is deemed impractical. The new standard also requires that the Company disclose new primary sources of GAAP that have been issued, but are not yet effective and have not been adopted by the Company.
(i) Accounting policies that have been changed in 2007:
(a) Comprehensive income:
On December 1, 2006, the Company adopted CICA Handbook Section 1530, Comprehensive Income. The section establishes standards for reporting and presenting comprehensive income, which is defined as the change in equity from transactions and other events from non-owner sources. Other comprehensive income refers to items recognized in comprehensive income that are excluded from net income calculated in accordance with GAAP.
(b) Financial instruments:
On December 1, 2006, the Company adopted CICA Handbook Section 3251, Equity, Section 3855, Financial Instruments - Recognition and Measurement, Section 3861, Financial Instruments - Disclosure and Presentation, and Section 3865, Hedges.
Section 3861 establishes standards for presentation of financial instruments and non-financial derivatives, and identifies the information that should be | | |
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