Advanced Fiber Technologies 'AFT' Income Fund Reports Fourth Quarter and Year End 2005 Results.LENNOXVILLE, Quebec Lennoxville, population 4,963 (2001), is a borough (Fr. arrondissement) of the City of Sherbrooke, Quebec, Canada. It was originally a town, but was amalgamated into the larger city of Sherbrooke in 2002. -- Advanced Fiber Technologies (AFT) Income Fund (TSX TSX Toronto Stock Exchange (TSE before April, 2002) TSX Transfer from Stack Pointer to Index TSX True Space Extension :AFT.UN) announces its results for the fourth quarter and year ended December December: see month. 31, 2005. For the fourth quarter ended December 31, 2005 sales amounted to $17.8 million, a 17.6% decrease from $21.5 million in the corresponding quarter of last year, exclusively due to a reduction of sales to Original Equipment Manufacturers ("OEMs"). Comparative quarterly figures of 2004 were restated to reflect the forward exchange contracts in 2004 that were determined not to meet the documentation requirements for hedge accounting Why is hedge accounting necessary? Many financial institutions and corporate businesses (entities) use derivative financial instruments to hedge their exposure to different risks (eg interest rate risk, foreign exchange risk, commodity risk, etc). (See Note 2 of the unaudited interim consolidated financial statements Consolidated Financial Statements The combined financial statements of a parent company and its subsidiaries. Notes: Because consolidated financial statements present an aggregated look at the financial position of a parent and its subsidiaries, they enable you to gauge ).Earnings before interest, income taxes, depreciation and amortization or EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become (see reconciliation with net earnings (loss) below) were $1.0 million versus $3.6 million in the same quarter of last year.The decrease of $2.6 million in the fourth quarter of 2005 is due to lower volume in the core business, unfavourable U.S. dollar exchange rate in the Americas A·mer·i·cas , the See America. , higher material costs, and higher selling, general and administrative ("SG&A") costs.The SG&A costs included non-recurring costs of $1.6 million for the expenses related to the corporate strategic initiatives and to the Noteholder negotiations, as well as year-end year-end also year·end n. The end of a year. adj. Occurring or done at the end of the year: a year-end audit. Noun 1. adjustments.Excluding those non-recurring expenses, EBITDA was 14.4% of sales compared with 16.6% last year and 4.8% in the third quarter of 2005. Cash available for distribution was $3.2 million ($0.23 per unit) compared with $2.9 million ($0.21 per unit) in the fourth quarter a year ago, mostly due to the cash gain from the early termination of all forward exchange contracts.The net loss in the fourth quarter of 2005, after the goodwill impairment Impairment 1. A reduction in a company's stated capital. 2. The total capital that is less than the par value of the company's capital stock. Notes: 1. This is usually reduced because of poorly estimated losses or gains. 2. of $10.7 million and the impairment of intangible assets Intangible Asset An asset that is not physical in nature. Notes: Examples are things like copyrights, patents, intellectual property, and goodwill. These are the opposite of tangible assets. of $1.3 million, was $14.3 million compared with net earnings of $0.2 million in the same quarter of 2004. At the end of the fourth quarter, the Fund did not comply with the financial covenants related to its Senior Secured Notes.On February February: see month. 7, 2006, the Noteholders agreed to forbear for·bear 1 v. for·bore , for·borne , for·bear·ing, for·bears v.tr. 1. To refrain from; resist: forbear replying. See Synonyms at refrain1. from exercising rights and recourse The right of an individual who is holding a Commercial Paper, such as a check or promissory note, to receive payment on it from anyone who has signed it if the individual who originally made it is unable, or refuses, to tender payment. under the Trust Indenture An agreement declaring the benefits and obligations of two or more parties, often applicable in the context of Bankruptcy and bond trading. The term indenture primarily describes secured contracts and has several applications in U.S. law. until June June: see month. 30, 2006, subject to certain conditions listed in Note 7 of the accompanying ac·com·pa·ny v. ac·com·pa·nied, ac·com·pa·ny·ing, ac·com·pa·nies v.tr. 1. To be or go with as a companion. 2. financial statements.As required by the Canadian Institute of Chartered Accountants The Canadian Institute of Chartered Accountants (CICA) is the umbrella body for the Chartered Accountant profession in Canada and Bermuda. Membership of the CICA totals 70,000 Chartered Accountants and 8,500 students. Emerging Issues Committee EIC-59, the Fund has reclassified as a current liability the entire $45 million balance of its Senior Secured Notes, even though no accelerated repayment Repayment The act of paying back a debt. Notes: Everyone has to repay their debts eventually. See also: Debt, Defeasance, Loan has been demanded by the lenders.The Fund also recorded a $10.7 million goodwill impairment and a $1.3 million impairment of intangible assets during the quarter, reflecting the overall difficulty of market conditions.These charges do not impact cash flow but affect the book value of the unit.The goodwill impairment calculation showed an impairment of the Canadian Canadian (kənā`dēən), river, 906 mi (1,458 km) long, rising in NE New Mexico. and flowing E across N Texas and central Oklahoma into the Arkansas River in E Oklahoma. and Finnish components, which was recorded, while, in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting , an appreciation of approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $3.0 million for the South Korean Korean, language of uncertain ancestry. It is thought by some scholars to be akin to Japanese, by others to be a member of the Altaic subfamily of the Ural-Altaic family of languages (see Uralic and Altaic languages), and by still others to be unrelated to any known component was not recorded. For the twelve-month period ended December 31, 2005 sales amounted to $71.4 million, a 10.3% decrease from sales of $79.6 million reported for the comparable period in 2004.For the twelve-month period ended December 31, 2005 the Fund generated EBITDA of $7.0 million (see reconciliation with net earnings (loss) below). For the comparable period of 2004, the Fund generated EBITDA of $17.2 million.The decrease of $10.2 million in 2005 is due to lower volume in the core business, unfavourable U.S. dollar exchange rate in the Americas, higher material costs and higher SG&A costs.The SG&A costs included non-recurring costs of $2.1 million related to the corporate strategic initiatives and to the Noteholder negotiations as well as year-end adjustments, permanent lay-offs and union negotiations.Excluding those non-recurring adjustment, EBITDA was 11.9% of sales for the twelve-month period ended December 31, 2005, compared with 21.6% for the corresponding period in 2004.The net loss for the twelve-month period ended December 31, 2005 was $63.4 million, including impairment charges of $58.3 million, compared to net earnings of $1.5 million in 2004.
Distribution Highlights
(in thousands of dollars except per-unit amounts)
Three-month periods ended Twelve-month periods ended
December 31 December 31 December 31 December 31
2005 2004 2005 2004
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(Restated -
Note 2 to
accompanying
financial
statements)
Earnings (loss)
before income
taxes $(14,114) $424 $(64,498) $1,889
Plus
Depreciation
and amortization 2,156 2,352 9,651 10,298
Impairment of
intangible
assets 1,344 - 15,557 -
Goodwill
impairment 10,679 - 42,694 -
Restructuring
charges - (58) - 1,442
Less
Income taxes
current (197) (124) (234) (208)
Maintenance
capital
expenditures
(net of disposal) (204) (68) (1,125) (688)
Net variation
of fair market
value of forward
exchange
contracts and
deferred foreign
exchange gains 3,553 372 4,362 (1,317)
--------------------------------------------------------------------
Distributable cash $3,217 $2,898 $6,407 $11,416
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Distributable cash
per unit $0.23 $0.21 $0.46 $0.84
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Distributions
declared per unit $0.00 $0.15 $0.20 $1.00
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Average number
of units
(in thousands) 13,860 13,860 13,860 13,668
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Cash Distributions The Fund declared de·clare v. de·clared, de·clar·ing, de·clares v.tr. 1. To make known formally or officially. See Synonyms at announce. 2. To state emphatically or authoritatively; affirm. 3. no distributions to its Unitholders during the fourth quarter ended December 31, 2005 versus $2.1 million ($0.15 per unit) for the same quarter in 2004.The Fund had suspended sus·pend v. sus·pend·ed, sus·pend·ing, sus·pends v.tr. 1. To bar for a period from a privilege, office, or position, usually as a punishment: suspend a student from school. its monthly cash distributions in the second quarter of 2005. Use of non GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). measurements Distributable cash is not a defined term under Canadian generally accepted accounting principles (GAAP), but is determined by the Fund as earnings before income taxes adjusted for non-cash expenses Noun 1. non-cash expense - an expense (such as depreciation) that is not paid for in cash disbursal, disbursement, expense - amounts paid for goods and services that may be currently tax deductible (as opposed to capital expenditures) and restructuring charges restructuring charge The expense of reorganizing a company's operations. A restructuring charge is an infrequent expense that generally results from asset writedowns or facility closings. , including depreciation, amortization, asset impairments and write-downs, and reduced by maintenance capital expenditures, net of disposals, current income taxes, changes in forward exchange contracts and deferred foreign exchange gains. EBITDA, or earnings before interest, income taxes, depreciation and amortization, is not a recognized measure under GAAP.Management believes that, in addition to net earnings, EBITDA is a useful supplemental measure that provides investors with an indication of cash available for distribution prior to debt service, capital expenditures and income taxes.EBITDA, as defined by the Fund, also excludes restructuring charges and unusual items such as goodwill impairment and impairment of intangible assets.Investors are cautioned, however, that EBITDA should not be construed as an alternative to net earnings determined in accordance with GAAP as an indicator of the Fund's performance, or to cash flows from operating, investing and financing activities as a measure of liquidity and cash flows.The Fund's method of calculating EBITDA may differ from other issuers and, accordingly, EBITDA may not be comparable to measures used by other issuers.
EBITDA Reconciliation with Net earnings (loss)
Three-month periods ended Twelve-month periods ended
December 31 December 31 December 31 December 31
2005 2004 2005 2004
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(Restated -
Note 2 to
accompanying
financial
statements)
Net earnings
(loss) $(14,296) $234 $(63,412) $1,528
Plus
Depreciation
and amortization 2,156 2,352 9,651 10,298
Impairment
of intangible
assets 1,344 - 15,557 -
Goodwill
impairment 10,679 - 42,694 -
Restructuring
charges - (58) - 1,442
Provision for
income taxes 182 190 (1,086) 361
Interest expense 897 850 3,622 3,550
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EBITDA $962 $3,568 $7,026 $17,179
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EBITDA (% of sales) 5.4% 16.6% 9.8% 21.6%
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Operating results Sales for the three-month period ended December 31, 2005 were $17.8 million compared with $21.5 million last year.The difference of $3.8 million reflects a decrease of $4.6 million from screening components and an increase of $0.8 million from the Finebar(R) and Optimum complementary product lines.Direct sales to End-users were $14.3 million (80.5% of total sales) and sales to Original Equipment Manufacturers (OEMs) were $3.5 million (19.5% of total sales).For the comparable period of 2004, sales to End-users represented $13.7 million (63.6% of total sales) and sales to OEMs represented $7.8 million (36.4% of total sales).Sales to OEMs decreased by $4.3 million mostly due to loss of two OEM (Original Equipment Manufacturer) The rebranding of equipment and selling it. The term initially referred to the company that made the products (the "original" manufacturer), but eventually became widely used to refer to the organization that buys the products and customers in Europe Europe (y  r`əp), 6th largest continent, c.4,000,000 sq mi (10,360,000 sq km) including adjacent islands (1992 est. pop. 512,000,000). , which integrated the
manufacturing of screen cylinders into their own operations.Sales to End-users increased by $0.6 million due to volume and mix of product sold. The gross margin for the three-month period ended December 31, 2005 was 31.2% compared with 35.3% last year.The reduction of 4.1 percentage points in gross margin on total sales for the quarter represents $0.7 million and is explained by higher material costs of $0.5 million, a lower exchange rate impact for the US$sales of $0.3 million, and non-recurring inventory obsolescence ob·so·les·cent adj. 1. Being in the process of passing out of use or usefulness; becoming obsolete. 2. Biology Gradually disappearing; imperfectly or only slightly developed. costs of $0.4 million, partially offset by productivity gains of $0.5 million during the quarter. Selling, general and administrative ("SG&A") expenses for the three-month period ended December 31, 2005 were $4.9 million versus $3.9 million last year.Incremental Additional or increased growth, bulk, quantity, number, or value; enlarged. Incremental cost is additional or increased cost of an item or service apart from its actual cost. expenses are related to the legal fees incurred for the due diligence Research; analysis; your homework. This term has caught on in all industries, because it sounds so "wired." Who would want to do analysis or research when they can do due diligence. See wired. process with Aikawa Aikawa is a Japanese surname Alternate writings
a. 1. See under Iron, a. os> Co., Ltd., ("Aikawa") who later launched a takeover To assume control or management of a corporation without necessarily obtaining actual title to it. A takeover bid or tender offer is a proposal made by one company to purchase shares of stock of another company, in order to acquire control thereof. offer of AFT, and for the Noteholders negotiations, as well as to year-end adjustments. The realized and unrealized gain Unrealized Gain A profit that results from holding on to an asset rather than cashing it in and using the funds. Notes: Let's say you own a stock that has doubled, but you haven't sold it yet. This is said to be an unrealized gain. on foreign exchange represented $0.3 million for the three-month period ended December 31, 2005 compared with a loss of $0.2 million in 2004, essentially due to the restatement Restatement A revision in a company's earlier financial statements. Notes: The need for restating financial figures can result from fraud, misrepresentation, or a simple clerical error. of 2004 figures. EBITDA for the three-month period ended December 31, 2005 amounted to $1.0 million, or 5.4% of sales, versus $3.6 million, or 16.6% of sales, last year. Sales for the twelve-month period ended December 31, 2005 were $71.4 million compared with $79.6 million last year.Direct sales to End-users were $54.6 million (76.5% of total sales) and sales to OEMs were $16.8 million (23.5% of total sales).For the comparable period of 2004, sales to End-users represented $53.2 million (66.8% of total sales) and sales to OEMs represented $26.4 million (33.2% of total sales). The difference of $8.2 million in sales for the twelve-month period of 2005 included a decrease of $11.4 million from screening components and an increase of $3.2 million from the Finebar(R) and Optimum complementary product lines.For the year, the decrease in sales to OEMs was $9.6 million, while the increase in sales to End-users was $1.4 million.Sales to OEMs are decreasing rapidly because several OEMs are now manufacturing their screen cylinders internally. The gross margin for the twelve-month period ended December 31, 2005 was 30.1% compared with 36.3% last year.The reduction of 6.2 percentage points in gross margin on total sales for the period represents $4.4 million and is explained by higher material costs of $2.0 million, a lower exchange rate impact for the US$sales of $2.3 million and additional costs of $0.8 million due to permanent lay-offs, union negotiations and inventory obsolescence adjustments, offset by a gain of $0.7 million from the productivity and cost reduction initiatives. SG&A expenses for the twelve-month period ended December 31, 2005 were $15.3 million versus $13.7 million last year.Incremental expenses are related to the legal fees incurred for the due diligence process with Aikawa and for the Noteholders negotiations, to the increased infrastructure costs required to service a greater proportion of End-users and new complementary products and to the increase in administrative compliance costs. EBITDA for the twelve-month period ended December 31, 2005 amounted to $7.0 million, or 9.8% of sales, versus $17.2 million, or 21.6% of sales, last year.Excluding the non-recurring expenses of Q4 and Q3, EBITDA for 2005 was 12.8% of sales. Liquidity and Capital Resources At the end of the fourth quarter of 2005, the Fund had cash on hand of $5.3 million.At December 31, 2005, the Fund had no Canadian short-term Short-term Any investments with a maturity of one year or less. short-term 1. Of or relating to a gain or loss on the value of an asset that has been held less than a specified period of time. credit facility.On November November: see month. 14, 2005 at the request of its short-term lender LENDER, contracts. He from whom a thing is borrowed. 2. The contract of loan confers rights, and imposes duties on the lender. 1. The lender has the right to revoke the loan at his mere pleasure; 9 Cowen, R. 687; 8 Johns. Rep. 432; 1 T. R. 480; 2 Campb. Rep. , the Fund repaid in full the $2.8 million drawn down under its $4.0 million ($10.0 million in 2004) Canadian short-term credit facility, which was then cancelled can·cel v. can·celed also can·celled, can·cel·ing also can·cel·ling, can·cels also can·cels v.tr. 1. To cross out with lines or other markings. See Synonyms at erase. 2. by the bank. The repayment was done by using cash on hand, including a cash gain from early terminations of all forward exchange contracts on hand that generated net proceeds Net Proceeds The amount received after all costs are deducted from the sale of a piece of property or security. Notes: In the case of an investor selling a security, net proceeds represent the proceeds from the sale minus any trading costs (i.e. commissions). of $3.6 million. The Senior Secured Notes contain financial covenants with which the Fund was not in compliance starting at the end of the third quarter 2005.On February 7, 2006 the Noteholders agreed to forbear from exercising rights and recourse under the Trust Indenture until June 30, 2006, subject to: - a quarterly repayment of principal equivalent to 50% of distributable cash; - a new minimum EBITDA covenant calculated on the cumulative EBITDA since January 1, 2006. The minimum EBITDA covenant is effective from March 31, 2006 and is $1.5 million at the end of March 2006, $2.1 million at the end of April 2006, $2.8 million at the end of May 2006 and $3.7 million at the end of June 2006; - a minimum current ratio of 1.5 after deducting the Senior Secured Notes; - an injection of capital of up to $800,000 and the establishment of a new operating line of credit of $1.2 million, if required by the Noteholders; - a forbearance fee of $135,000. Finebar(R) As of December 31, 2005 the cumulative sales of Finebar(R) products for the prior twelve months had exceeded the minimum required for the exercise of the purchase option of the Finebar(R) business by AFT. While AFT is currently in a position to exercise its purchase option on the Finebar(R) assets, management does not foresee fore·see tr.v. fore·saw , fore·seen , fore·see·ing, fore·sees To see or know beforehand: foresaw the rapid increase in unemployment. doing so until AFT is in a more favourable liquidity position. The option term expires at the end of July July: see month. 2006. The original put option held by Norwalk Norwalk (nôr`wôk'). 1 City (1990 pop. 94,279), Los Angeles co., S Calif.; settled in the 1850s, inc. 1957. With the arrival (1875) of the Southern Pacific RR, it became a center for the dairy and logging industries, but Industrial Components, LLC (Logical Link Control) See "LANs" under data link protocol. LLC - Logical Link Control has been eliminated and thus, can no longer be exercised. Aikawa Takeover Offer On February 14, 2006, AFT reached an agreement pursuant to which Aikawa, a privately held manufacturer and distributor of paper mill stock preparation and pulp-handling machinery, would, through a wholly owned subsidiary Wholly Owned Subsidiary A subsidiary whose parent company owns 100% of its common stock. Notes: In other words, the parent company owns the company outright and there are no minority owners. , make a takeover offer to purchase all of the outstanding units of the Fund at a price of $3.00 in cash.Clarke Clarke , Arthur Charles Born 1917. British writer, scientist, and underwater explorer noted for his stories of space exploration. His works include 2001: A Space Odyssey (1968). Inc., Geosam Investments Limited and Black Ice Capital Corp., which in the aggregate hold approximately 25% of the outstanding units, have signed an irrevocable Unable to cancel or recall; that which is unalterable or irreversible. IRREVOCABLE. That which cannot be revoked. 2. A will may at all times be revoked by the same person who made it, he having a disposing mind; but the moment the testator is lock-up agreement Lock-Up Agreement A legally binding contract between the underwriters and insiders of a company prohibiting these individuals from selling any shares of stock for a specified period of time. , in which they agree to deposit the units they hold to Aikawa's offer, subject to usual conditions.The takeover offer was made on February 17, 2006. The Fund's Board of Trustees board of trustees Politics The posse of thugs who oversee an institution's administration. See Board of directors. has consulted with its financial and outside legal advisors.The Board has determined that the price is fair and that Aikawa's offer is in the best interests of the Fund and its Unitholders.Aikawa and the Fund have signed an agreement in which the Fund's Board of Trustees unanimously agrees to recommend to Unitholders that they accept Aikawa's offer.The Fund has undertaken to pay $2.75 million to Aikawa if the agreement is terminated ter·mi·nate v. ter·mi·nat·ed, ter·mi·nat·ing, ter·mi·nates v.tr. 1. To bring to an end or halt: upon the Fund withdrawing withdrawing Child psychiatry Behavior characterized by ↓ interest in or contact with other people; WBs include ↓ speech, regression to babyhood, exhibition of many fears, depression, refusing contact with other people its recommendation to its Unitholders or accepting a superior proposal.The Fund has also agreed to waive To intentionally or voluntarily relinquish a known right or engage in conduct warranting an inference that a right has been surrendered. For example, an individual is said to waive the right to bring a tort action when he or she renounces the remedy provided by law for such the application of its Unitholder rights plan in connection with Aikawa's offer. Outlook "Despite the challenges we encountered and the soft market conditions still prevailing in the pulp and paper industry The global pulp and paper industry is dominated by North American (United States, Canada), northern European (Finland, Sweden) and East Asian countries (such as Japan). Australasia and Latin America also have significant pulp and paper industries. , our fourth quarter operating results improved sequentially se·quen·tial adj. 1. Forming or characterized by a sequence, as of units or musical notes. 2. Sequent. se·quen as a result of our several cost reduction and margin improvement initiatives that are now taking effect," commented Roch Saint Roch (Latin: Rochus; Italian: Rocco; French: Roch; Spanish and Portuguese: Roque; c. 1295 – traditionally 16 August 1327[1]) was a Christian saint, a confessor whose death is commemorated on 16 August; he is specially invoked against the plague. Leblanc Leblanc is a French surname. It can refer to: Companies
v. a·mend·ed, a·mend·ing, a·mends v.tr. 1. To change for the better; improve: amended the earlier proposal so as to make it more comprehensive. 2. our existing contractual arrangements for the Finebar(R) business so that AFT retains the benefits of its call option up to July 31, 2006." "Finally, an agreement has been reached with Aikawa Iron Works Co., Ltd. pursuant to which Aikawa made a takeover offer to the Unitholders of AFT offering to purchase all of the outstanding units at a price of $3.00 in cash per unit," added Mr. Leblanc."This offer represents a win-win win-win adj. Of or being a situation in which the outcome benefits each of two often opposing groups: a win-win proposition for the buyer and the seller. scenario for all AFT stakeholders Stakeholders All parties that have an interest, financial or otherwise, in a firm-stockholders, creditors, bondholders, employees, customers, management, the community, and the government. .It allows AFT to not only return to a sound financial footing but also to focus on operations and on growing its global customer base. Unitholders benefit as they will receive a substantial premium of approximately 130% over the unit price prior to the announcement." About AFT Advanced Fiber Technologies (AFT) Income Fund is a limited purpose trust established to hold the securities of Advanced Fiber Technologies (AFT) Trust.AFT, which celebrated its 100th year of operations in March 2003, is one of the oldest and largest producers of pulp screening components. AFT's product portfolio is composed of three distinct but complementary technologies: pulp screening, pulp refining refining, any of various processes for separating impurities from crude or semifinished materials. It includes the finer processes of metallurgy, the fractional distillation of petroleum into its commercial products, and the purifying of cane, beet, and maple sugar and pulp dewatering Dewatering (dē′wöd·ər·iŋ) is the removal of water from solid material or soil by wet classification, centrifugation, filtration, or similar solid-liquid separation processes. .Pulp screening components are used to separate contaminants from pulp, a process that is critical to ensuring the quality of the pulp and the quality of the resulting paper products.Pulp refining is adjacent to the pulp screening process and is mostly used to enhance pulp properties.Dewatering is a process used to thicken thick·en tr. & intr.v. thick·ened, thick·en·ing, thick·ens 1. To make or become thick or thicker: Thicken the sauce with cornstarch. The crowd thickened near the doorway. 2. pulp or to increase the consistency of sludge sludge (sluj) a suspension of solid or semisolid particles in a fluid which itself may or may not be a truly viscous fluid. sludge a suspension of solid or semisolid particles in a fluid. before disposal. Forward-looking for·ward-look·ing adj. Concerned with or making provision for the future: forward-looking educators; a forward-looking corporate plan. Adj. 1. Information Forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. contained herein, are based on current expectations and are subject to a number of uncertainties and risks, and actual results may differ materially.These uncertainties and risks include, but are not limited to the dependence on certain key suppliers, competitive pressures and changes in market activity, risks associated with international operations Internal Operations (I.O., IO or I/O) is a fictional American Intelligence Agency in Wildstorm comics. It was originally called International Operations. I.O. first appeared in WildC.A.T.S. volume 1 #1 (August, 1992) and was created by Brandon Choi and Jim Lee. and foreign exchange, legal proceedings All actions that are authorized or sanctioned by law and instituted in a court or a tribunal for the acquisition of rights or the enforcement of remedies. , environmental, health and safety and other regulatory requirements Regulatory requirements are part of the process of drug discovery and drug development. Regulatory requirements describe what is necessary for a new drug to be approved for marketing in any particular country. . Further information can be found in the disclosure documents filed by Advanced Fiber Technologies (AFT) Income Fund with the securities regulatory authorities Noun 1. regulatory authority - a governmental agency that regulates businesses in the public interest regulatory agency administrative body, administrative unit - a unit with administrative responsibilities , available at www.sedar.com. Webcast Advanced Fiber Technologies (AFT) Income Fund invites interested investors and financial media to access a live webcast of the conference call covering its fourth quarter results at www.aft-global.com on Monday Monday: see week. , March 13, 2006 at 10:00 a.m.
Advanced Fiber Technologies (AFT) Income Fund
Audited Consolidated Balance Sheets
As at As at
December 31, December 31,
2005 2004
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(in thousands of dollars) (unaudited) (audited)
Assets
Current assets
Cash and cash equivalents $5,254 $210
Accounts receivable 11,300 15,453
Inventories 10,746 11,243
Prepaid expenses 984 997
Forward exchange contracts
maturing within twelve months - 1,232
--------------------------------------------------------------------
28,284 29,135
Property, plant and equipment 25,051 28,261
Deferred financing fees 670 1,033
Intangible assets (Note 5) 23,756 44,715
Forward exchange contracts - 560
Goodwill (Note 4) 22,809 65,503
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$100,570 $169,207
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Liabilities and Unitholders' equity
Current liabilities
Bank loans (Note 6) $2,191 $1,444
Accounts payable and accrued liabilities 9,950 11,724
Cash distributions payable - 693
Income taxes payable 121 204
Current portion of deferred
foreign exchange gains 1,290 -
Current portion of long-term
obligations (Note 7) 45,209 222
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58,761 14,287
Long-term obligations (Note 7) 1,748 46,393
Deferred foreign exchange gains 1,280 -
Future income taxes 191 1,511
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61,980 62,191
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Unitholders' equity (Note 8)
Units (Note 8) 129,482 129,482
Cumulative foreign currency
translation adjustment (981) 1,261
Cumulative earnings (loss) (45,857) 17,555
Cumulative distributions (44,054) (41,282)
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38,590 107,016
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$100,570 $169,207
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Advanced Fiber Technologies (AFT) Income Fund
Consolidated Statements of Earnings
Three-month periods ended Twelve-month periods ended
December 31 December 31 December 31 December 31
2005 2004 2005 2004
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(in thousands (unaudited) (unaudited) (audited) (audited)
of dollars (Restated
except units - Note 2)
and per unit
amounts)
Sales $17,759 $21,541 $71,424 $79,598
Cost of sales 12,218 13,933 49,949 50,672
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Gross margin 5,541 7,608 21,475 28,926
Selling, general
and administrative
expenses 4,896 3,857 15,269 13,698
Realized and
unrealized loss
(gain) on foreign
exchange (317) 183 (820) (1,951)
Restructuring charges - (58) - 1,442
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Earnings before
the undernoted 962 3,626 7,026 15,737
Interest expense
- long term
obligations 775 767 3,154 3,069
Interest expense
- other 122 83 468 481
Amortization of
deferred
financing fees 143 74 363 267
Depreciation of
property, plant
and equipment 906 1,327 4,239 4,796
Amortization of
intangible assets 1,107 951 5,049 5,235
--------------------------------------------------------------------
(2,091) 424 (6,247) 1,889
--------------------------------------------------------------------
Impairment of
intangible assets
(Note 5) 1,344 - 15,557 -
Goodwill impairment
(Note 4) 10,679 - 42,694 -
--------------------------------------------------------------------
Earnings (loss)
before income
taxes (14,114) 424 (64,498) 1,889
Provision for
income taxes
Current 197 124 234 208
Future (15) 66 (1,320) 153
--------------------------------------------------------------------
182 190 (1,086) 361
--------------------------------------------------------------------
Net earnings
(loss) $(14,296) $234 $(63,412) $1,528
--------------------------------------------------------------------
--------------------------------------------------------------------
Basic weighted
average number
of units
(in thousand
of units) 13,860 13,860 13,860 13,668
Diluted weighted
average number
of units
(in thousand
of units) 13,860 14,272 13,860 14,037
Basic earnings
(loss) per unit $(1.04) $0.01 $(4.58) $0.11
--------------------------------------------------------------------
--------------------------------------------------------------------
Diluted earnings
(loss) per unit $(1.04) $0.01 $(4.58) $0.11
--------------------------------------------------------------------
--------------------------------------------------------------------
Advanced Fiber Technologies (AFT) Income Fund
Consolidated Statements of Unitholders' Equity
Three-month periods ended Twelve-month periods ended
December 31 December 31 December 31 December 31
2005 2004 2005 2004
--------------------------------------------------------------------
--------------------------------------------------------------------
(in thousands (unaudited) (unaudited) (audited) (audited)
of dollars) (Restated
- Note 2)
Balance -
beginning
of period $52,895 $108,155 $107,016 $110,227
Issuance of units - - - 9,636
Net earnings (loss) (14,296) 234 (63,412) 1,528
Change in
cumulative
foreign
translation
adjustment (9) 706 (2,242) (744)
Distributions
declared - (2,079) (2,772) (13,631)
--------------------------------------------------------------------
Balance,
end of period $38,590 $107,016 $38,590 $107,016
--------------------------------------------------------------------
--------------------------------------------------------------------
Advanced Fiber Technologies (AFT) Income Fund
Consolidated Statements of Cash Flows
Three-month periods ended Twelve-month periods ended
December 31 December 31 December 31 December 31
2005 2004 2005 2004
--------------------------------------------------------------------
--------------------------------------------------------------------
(in thousands (unaudited) (unaudited) (audited) (audited)
of dollars) (Restated
- Note 2)
Operating
activities
Net earnings
(loss) $(14,296) $234 $(63,412) $1,528
Items not
affecting cash
Depreciation of
property, plant
and equipment 906 1,327 4,239 4,796
Amortization
of intangible
assets and
deferred
financing fees 1,250 1,025 5,412 5,502
Increase (decrease)
in accrued pension
liabilities (18) 490 (18) 490
Impairment of
intangible
assets (Note 5) 1,344 - 15,557 -
Goodwill
impairment
(Note 4) 10,679 - 42,694 -
Translation
adjustment - (851) 134 (851)
Loss (gain)
on disposition
of property,
plant and
equipment - (125) 36 (125)
Decrease (increase)
in forward exchange
contracts 1,390 (103) 1,792 (1,792)
Deferred foreign
exchange gains 2,163 - 2,570 -
Future income taxes (15) 66 (1,320) 153
Changes in non-cash
working capital
items 1,916 1,568 1,585 (2,286)
--------------------------------------------------------------------
5,319 3,631 9,269 7,415
--------------------------------------------------------------------
Investing activities
Maintenance capital
expenditures (204) (243) (1,125) (863)
Expansion/productivity
capital expenditures (62) (298) (980) (1,042)
Addition to
intangible assets - (17) - (17)
Proceeds on
disposition of
property, plant
and equipment - 300 21 300
Acquisition of
Optimum Filtration - 200 - (5,775)
--------------------------------------------------------------------
(266) (58) (2,084) (7,397)
--------------------------------------------------------------------
Financing activities
Distributions paid
to Unitholders - (2,079) (3,465) (14,248)
Repayment of
long-term
obligations - (91) (193) (185)
Increase in
long-term
obligations - - 584 -
Change in bank loans (883) (1,760) 748 (75)
Issuance of trust units - - - 10,186
Cost related to
issuing units - - - (550)
Deferred financing fees - - - (150)
--------------------------------------------------------------------
(883) (3,930) (2,326) (5,022)
--------------------------------------------------------------------
Increase (decrease)
in cash and cash
equivalents
for the period 4,170 (357) 4,859 (5,004)
Translation adjustment
on cash and cash
equivalents 185 - 185 -
Cash and cash
equivalents -
beginning of
period 899 567 210 5,214
--------------------------------------------------------------------
Cash and cash
equivalents
- end of period $5,254 $210 $5,254 $210
--------------------------------------------------------------------
--------------------------------------------------------------------
Advanced Fiber Technologies (AFT) Income Fund
Notes to the Consolidated Financial Statements (Unaudited)
For the period from January 1, 2005 to December 31, 2005
1. Status and nature of business In the opinion of management, the accompanying unaudited interim consolidated financial statements, prepared in accordance with Canadian generally accepted accounting principles, contain all adjustments necessary to present fairly the financial position of Advanced Fiber Technologies (AFT) Income Fund as at December 31, 2005 and 2004 as well as its results of operations and its cash flows for the twelve-month periods then ended. While management believes that the disclosures presented are adequate, these unaudited interim consolidated financial statements and notes should be read in conjunction with Advanced Fiber Technologies (AFT) Income Fund's 2004 annual consolidated con·sol·i·date v. con·sol·i·dat·ed, con·sol·i·dat·ing, con·sol·i·dates v.tr. 1. To unite into one system or whole; combine: audited financial statements and notes.These unaudited interim consolidated financial statements follow the same accounting policies as the most recent annual consolidated audited financial statements, except as noted below. These interim consolidated financial statements have not been subject to a review by the Fund's external auditors The examples and perspective in this article or section may not represent a worldwide view of the subject. Please [ improve this article] or discuss the issue on the talk page. . These consolidated financial statements include the accounts of the Fund and its directly and indirectly wholly owned subsidiaries from their dates of acquisition.The wholly owned subsidiaries are: Advanced Fiber Technologies (AFT) Trust, Advanced Fiber Technologies (AFT) Inc., Advanced Fiber Technologies (AFT) Oy, Advanced Fiber Technologies (AFT) Co., Ltd. (formerly Poong Nam Nam Vietnam. NAM (US) n abbr (= National Association of Manufacturers) → nationaler Verband der verarbeitenden Industrie (AFT) Ltd.), Varkauden Metallikiinteistot Oy and Advanced Fiber Technologies (AFT) Ltd. The accompanying unaudited interim consolidated financial statements have been prepared on a going concern basis.The going concern basis of presentation assumes that the Fund will continue in operation for the foreseeable fore·see tr.v. fore·saw , fore·seen , fore·see·ing, fore·sees To see or know beforehand: foresaw the rapid increase in unemployment. future and will be able to realize its assets and discharge To liberate or free; to terminate or extinguish. A discharge is the act or instrument by which a contract or agreement is ended. A mortgage is discharged if it has been carried out to the full extent originally contemplated or terminated prior to total execution. its liabilities and commitments in the normal course of business.While non compliance with the financial covenants under the Trust Indenture continues, the Fund entered into a standstill agreement Standstill agreement Contract by which the bidding firm in a takeover attempt agrees to limit its holdings of another firm. standstill agreement , in January January: see month. 2006, with the holders of the Senior Secured Notes by which the Noteholders forbear from exercising right and recourse under the Trust Indenture until June 30, 2006. There is uncertainty as to whether or not the lenders will decide to accelerate the repayment of the long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. obligations of the Fund at the end of the forbearance Refraining from doing something that one has a legal right to do. Giving of further time for repayment of an obligation or agreement; not to enforce claim at its due date. A delay in enforcing a legal right. period.As such, the realization (specification) realization - A UML semantic relationship between a classifier that specifies a contract and another classifier that guarantees to carry it out. [Handout by Mr. David Gillibrand]. of assets and the discharge of liabilities in the ordinary course of business are subject to uncertainty. As required by the Canadian Institute of Chartered Accountants Emerging Issues Committee EIC-59, the Fund has reclassified as a current liability the entire $45 million balance of its Senior Secured Notes, and this despite the fact that no accelerated repayment has been demanded by the lenders. The unaudited interim consolidated financial statements do not reflect any other adjustments that would be necessary if the going concern basis was not appropriate and assume that lenders do not accelerate the repayment of the long-term obligations.If the going concern basis was not appropriate for these unaudited interim consolidated financial statements, significant adjustments would be necessary in the carrying value Carrying Value Also know as "book value," it is a company's total assets minus intangible assets and liabilities, such as debt. Notes: This is different than market value, as it can be higher or lower depending on the circumstances. of assets and liabilities, the reported revenues and expenses, and the balance sheet classifications used.Management's on-going Adj. 1. on-going - currently happening; "an ongoing economic crisis" ongoing current - occurring in or belonging to the present time; "current events"; "the current topic"; "current negotiations"; "current psychoanalytic theories"; "the ship's current position" plans with respect to the uncertainties described above are as follows: - Continuing discussions with its lenders in respect of its non- compliance with its debt covenants, repayment terms, waivers and/or modifications thereto; - Continuing the restructuring of the operations to reduce costs; - Recommendation to Unitholders by the Board of Trustees of the Fund to accept the outstanding purchase offer described in Note 10. 2. Restatement of prior period consolidated financial statements related to the application of hedge accounting As at January 1, 2004 the Fund adopted Canadian Institute of Chartered Accountants ("CICA CICA Competition In Contracting Act of 1984 (USA) CICA Canadian Institute of Chartered Accountants CICA Competition In Contracting Act CICA Criminal Injuries Compensation Authority (UK) ") Accounting Guideline guideline Medtalk A series of recommendations by a body of experts in a particular discipline. See Cancer screening guidelines, Cardiac profile guidelines, Gatekeeper guidelines, Harvard guidelines, Transfusion guidelines. No. 13 ("AcG-13"), Hedging hedging, in commerce, method by which traders use two counterbalancing investment strategies so as to minimize any losses caused by price fluctuations. It is generally used by traders on the commodities market. Relationships, on a prospective basis.AcG-13 applies to all existing and new hedging relationships, provides additional documentation and designation DESIGNATION, wills. The expression used by a testator, instead of the name of the person or the thing he is desirous to name; for example, a legacy to. the eldest son of such a person, would be a designation of the legatee. Vide 1 Rop. Leg. ch. 2. 2. requirements for hedge accounting and requires regular, periodic assessment of hedge effectiveness.Derivatives derivatives In finance, contracts whose value is derived from another asset, which can include stocks, bonds, currencies, interest rates, commodities, and related indexes. Purchasers of derivatives are essentially wagering on the future performance of that asset. that are economic hedges, but do not qualify for hedge accounting, are recognized at fair value on the balance sheet, with changes in fair value recorded in earnings in accordance with Emerging Issues Committee of the CICA, Abstract No. 128, Accounting for Trading, Speculative Speculative Securities that involve a high level of risk. speculative Of or relating to an asset or a group of assets with uncertain returns. The greater the degree of uncertainty the more speculative the asset. or Non-Hedging Derivative derivative: see calculus. derivative In mathematics, a fundamental concept of differential calculus representing the instantaneous rate of change of a function. Financial Instruments.Consequently, each of the unaudited interim consolidated financial statements for 2004 was prepared using hedge accounting. During the 2004 external audit, it was determined that the forward exchange contracts on hand as at December 31, 2004 as well as the forward exchange contracts which matured during 2004 did not qualify for hedge accounting because of deficient de·fi·cient adj. 1. Lacking an essential quality or element. 2. Inadequate in amount or degree; insufficient. deficient a state of being in deficit. documentation and designation.Therefore, all forward exchange contracts on hand as at December 31, 2004 were marked-to-market Marked-to-market An arrangement whereby the profits or losses on a futures contract are settled each day. with changes in fair value recognized in the statement of earnings.Also, all forward exchange contracts that matured during 2004 were accounted for as if they had not qualified for hedge accounting.All these changes were recognized during the fourth quarter of 2004. The Fund previously restated the financial information presented for the quarter and nine-month period ended October October: see month. 1, 2004.The Fund is now restating the financial information presented for the quarter ended December 31, 2004.The financial information presented for the twelve-month period ended December 31, 2004 does not need to be restated since this information was correct as initially presented.The financial information previously presented for the first and second quarters and the three- and six-month periods ended on April 2 and July 2, 2004, respectively, was not restated since the impact was not significant. The table below reflects the effect of this restatement on net earnings as presented previously for the quarter ended December 31, 2004.
Quarter ended December 31, 2004
(in thousands of dollars,
except per unit amounts) Increase /
(Decrease)
Revenues
Sales 161
Realized and unrealized gain on foreign exchange (1,850)
--------------------------------------------------------------------
Net earnings (1,689)
--------------------------------------------------------------------
--------------------------------------------------------------------
Basic earnings per unit (0.13)
--------------------------------------------------------------------
--------------------------------------------------------------------
Diluted earnings per unit (0.13)
--------------------------------------------------------------------
--------------------------------------------------------------------
Beginning on March 30, 2005 the Fund's documentation is adequate to qualify its forward exchange contracts for hedge accounting and therefore 2005 consolidated financial statements were prepared accordingly. 3. Significant accounting policies Hedging relationships The Fund uses forward exchange contracts to manage its foreign exchange risk exposures on foreign currency denominated sales.The Fund's policy is to not utilize derivative financial instruments for trading or speculative purposes.Beginning on March 30, 2005 the Fund formally documents all relationships between hedging instruments and hedged hedge n. 1. A row of closely planted shrubs or low-growing trees forming a fence or boundary. 2. A line of people or objects forming a barrier: a hedge of spectators along the sidewalk. items.The Fund also formally assesses, both at the hedge's inception INCEPTION. The commencement; the beginning. In making a will, for example, the writing is its inception. 3 Co. 31 b; Plowd. 343. Vide Consummation; Progression. and on an ongoing basis, whether the forward exchange contracts that are used in hedging transactions are effective in offsetting changes in cash flows of hedged items. All forward exchange contracts that qualified for hedge accounting were recorded in the consolidated balance sheet consolidated balance sheet A balance sheet in which assets and liabilities of a parent company and its controlled subsidiaries are combined, thereby presenting balance sheet items for the parent and its subsidiaries as if they were a single firm. , and changes in fair value were deferred and recognized over the term of the hedging relationship.All forward exchange contracts that did not qualify for hedge accounting, or were not designated as a hedge, were recorded in the consolidated balance sheet as either an asset or liability with changes in fair value recognized in earnings.When forward exchange contracts mature or become ineffective before their maturity and are not replaced within the Fund's documented hedging strategy, deferred gains or losses on such instruments continue to be deferred and are charged to earnings in the same period as the corresponding gains or losses on the hedged items.Gains and losses that are realized subsequent to the maturity of the forward exchange contracts or subsequent to the forward exchange contracts becoming ineffective are charged directly to earnings.If the hedge item ceases to exist due to its maturity, expiration EXPIRATION. Cessation; end. As, the expiration of, a lease, of a contract, or statute. 2. In general, the expiration of a contract puts an end to all the engagements of the parties, except to those which arise from the non- fulfillment of obligations created , cancellation cancellation (See: cancel) CANCELLATION. Its general acceptation, is the act of crossing a writing; it is used sometimes to signify the manual operation of tearing or destroying the instrument itself. Hyde v. Hyde, 1 Eq. Cas. Abr. 409; Rob. or exercise before the forward exchange contracts expires, deferred gains or losses are charged to earnings. Beginning on March 30, 2005 the Fund's forward exchange contracts qualify for hedge accounting.Accordingly, as of that date, the Fund recorded a marked-to-market gain of $597,000 that was excluded from distributable cash.From that date, changes in the fair market value of forward exchange contracts will be deferred until their realization. During the third quarter, the Fund settled early foreign exchange contracts with a total nominal value Nominal Value The stated value of an issued security that remains fixed, as opposed to its market value, which fluctuates. Notes: When referring to fixed-income securities, the nominal value is also the face value. of euro 3.15 million.These contracts had expiry dates expiry date expire n → date f d'expiration; (on label) → à utiliser avant ... expiry date expire n → Ablauftermin m ranging between October 2005 and January 2007 and were settled early to meet cash flow needs of the Fund which could not be fulfilled ful·fill also ful·fil tr.v. ful·filled, ful·fill·ing, ful·fills also ful·fils 1. To bring into actuality; effect: fulfilled their promises. 2. by the modified mod·i·fy v. mod·i·fied, mod·i·fy·ing, mod·i·fies v.tr. 1. To change in form or character; alter. 2. Credit Facility.The total gain realized on the early settlement of these contracts was $0.6 million.This gain was deferred since these contracts had been designated as part of a hedging relationship and the hedged items are still probable PROBABLE. That which has the appearance of truth; that which appears to be founded in reason. .This gain will be included in earnings as the hedged items are realized.This gain was included in distributable cash. During the fourth quarter, the Fund settled early foreign exchange contracts with total nominal values of US$15.1 million and euro 12.25 million.These contracts had expiry dates ranging between November 2005 and April 2008 and were settled early at the request of the Fund's short-term lender.The total gain realized on the early settlement of these contracts was $3.6 million.This gain was deferred since these contracts had been designated as part of a hedging relationship and the hedged items are still probable.This gain will be included in earnings as the hedged items are realized. This gain was included in distributable cash. At December 31, 2005 the total deferred foreign exchange gain is $2,570,000. Intangible assets As of January 1, 2005 the Fund has reviewed its estimate of the useful life of certain customer relationships from 20 years to 13 years.This change, which was applied on a prospective basis, resulted in additional amortization expense for the quarter of $180,000 and for the year to date of $720,000. 4. Goodwill
2005 2004
--------------------------------------------------------------------
Goodwill $65,503 $65,503
Less: impairments (42,694) -
--------------------------------------------------------------------
$22,809 $65,503
--------------------------------------------------------------------
--------------------------------------------------------------------
During the fourth and second quarters of 2005, the Fund conducted
impairment tests of goodwill and recorded decreases in value of
$10,679,000 and $32,015,000 respectively, since the carrying amount
of goodwill for the Fund's Canadian and Finnish components was
estimated to be higher than its fair value, resulting from difficult
overall market conditions. Based on the overall conditions under
which the impairments were recorded, the only future income tax asset
recorded in relation to these impairments was that which was
sufficient to eliminate any future tax liability which had been
previously recorded in relation to these assets.
5. Intangible assets
2005
--------------------------------------------------------------------
Cost Accumulated Net Book Value
Amortization
--------------------------------------------------------------------
Patents and licenses,
unpatented technology
and know-how $16,088 $5,752 10,336
Customer relationships 18,676 5,377 13,299
Non-compete agreement 452 331 121
--------------------------------------------------------------------
$35,216 $11,460 $23,756
--------------------------------------------------------------------
--------------------------------------------------------------------
2004
--------------------------------------------------------------------
Cost Accumulated Net Book Value
Amortization
--------------------------------------------------------------------
Patents and licenses,
unpatented technology
and know-how $30,360 $7,473 $22,887
Customer relationships 27,640 6,113 21,527
Non-compete agreement 452 151 301
--------------------------------------------------------------------
$58,452 $13,737 $44,715
--------------------------------------------------------------------
--------------------------------------------------------------------
Following the impairment test mentioned in Note 4, the Fund recorded impairments of intangible assets amounting to $1,344,000 and $14,213,000 respectively in the fourth and second quarters of 2005, for a total of $15,557,000.No future income tax asset was recorded in relation to these impairments given the overall conditions under which they were made. 6. Bank loans At December 31, 2005 the Fund has no Canadian short-term credit facility.On November 14, 2005 at the request of its short-term lender, the Fund repaid in full the $2.8 million drawn down under its $4.0 million ($10.0 million in 2004) Canadian short-term credit facility, which was then cancelled by the bank.The repayment was done by using cash on hand, including a cash gain from early terminations of all forward exchange contracts on hand that generated net proceeds of $3.6 million. 7. Long-term obligations The Senior Secured Notes contain financial covenants with which the Fund was not in compliance starting at the end of the third quarter 2005.On February 7, 2006, the Noteholders agreed to forbear from exercising rights and recourse under the Trust Indenture until June 30, 2006 subject to: - a quarterly repayment of principal equivalent to 50% of distributable cash; - a new minimum EBITDA covenant calculated on the cumulative EBITDA since January 1, 2006. The minimum EBITDA covenant is effective from March 31, 2006 and is $1.5 million at the end of March 2006, $2.1 million at the end of April 2006, $2.8 million at the end of May 2006 and $3.7 million at the end of June 2006; - a minimum current ratio of 1.5 after deducting the Senior Secured Notes; - an injection of capital of up to $800,000 and the establishment of a new operating line of credit of $1.2 million, if required by the Noteholders; - a forbearance fee of $135,000. As required by CICA Emerging Issues Committee EIC-59, the Fund has reclassified as a current liability the entire $45 million balance of its Senior Secured Notes, even though no accelerated repayment has been demanded by the lenders. In 2005, Incheon Incheon or Inchon (ĭn`chän, Korean ēnchən), city (1995 pop. 2,307,618), Gyeonggi (Kyonggi) prov., NW South Korea, on the Yellow Sea. borrowed under its working capital loan facility an amount of 500 million won ($584,000), maturing in 2008 and bearing interest at 5.39% for the first year with no capital repayment until maturity. 8. Unitholders' equity During the first quarter of 2005, 60,000 options were granted to two officers with an exercise price of $6.38 per option.The fair value of the options granted amounted to $0.68 per option.Options are granted for a period of ten years and vest 20% per year over a period of five years.The fair value of these options was calculated using the Black-Scholes valuation model and the following assumptions: Dividend yield 10.36% Expected volatility 37.5% Risk-free interest rate 4.6% Expected life (years) 10 The fair value of these options will be recognized as an expense over the vesting Vesting The process by which employees accrue non-forfeitable rights over employer contributions that are made to the employee's qualified retirement plan account. Notes: period of the options.The total expense recorded for these options in the fourth quarter of 2005 was $2,000.The cumulative total expense recorded for these options since they were granted to the end of the fourth quarter of 2005 is $7,000. At December 31, 2005 there were 471,626 options outstanding. These options were not taken into account in calculating diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. loss per unit for either the three-month or the twelve-month periods ended December 31, 2005 since the exercise price of these options was above the market price of the units. 9. Employee future benefits The Fund measures its accrued ac·crue v. ac·crued, ac·cru·ing, ac·crues v.intr. 1. To come to one as a gain, addition, or increment: interest accruing in my savings account. 2. pension obligation and the fair value of plan assets for accounting purposes as at December 31 of each year.The method used for the amortization of past service costs is linear over the average remaining service life of active employees.Total cash payments for employee future benefits, consisting of cash contributed by the Fund to its funded pension plan Funded pension plan A pension plan in which all liabilities, including payments to be made to pensioners in the immediate future, are completely funded. and its defined contribution plan Defined contribution plan A pension plan whose sponsor is responsible only for making specified contributions into the plan on behalf of qualifying participants. Related: Defined benefit plan , are as follows:
Three-month periods ended Twelve-month periods ended
December 31 December 31 December 31 December 31
2005 2004 2005 2004
--------------------------------------------------------------------
--------------------------------------------------------------------
Current
contributions
made 39,910 38,023 163,551 163,715
--------------------------------------------------------------------
--------------------------------------------------------------------
In 2004, the plan was amended in order to open an early retirement window for defined benefit members who attained at·tain v. at·tained, at·tain·ing, at·tains v.tr. 1. To gain as an objective; achieve: attain a diploma by hard work. 2. age 55 as of January 1, 2004 and retired on July 1, 2004.The cost for this amendment was estimated at $456,000 which was recorded entirely in 2004 and is funded over a period of five years. 10. Subsequent events As of February 7, 2006, AFT signed a forbearance agreement with its Noteholders.The essential terms of this agreement are described in Note 7. On February 14, 2006, AFT reached an agreement pursuant to which Aikawa Iron Works Co., Ltd. ("Aikawa"), a privately held manufacturer and distributor of paper mill stock preparation and pulp-handling machinery, would, through a wholly owned subsidiary, make a takeover offer to purchase all of the outstanding units of the Fund at a price of $3.00 in cash.Clarke Inc., Geosam Investments Limited and Black Ice Capital Corp., which in the aggregate hold approximately 25% of the outstanding units, have signed an irrevocable lock-up agreement, in which they agree to deposit the units they hold to Aikawa's offer, subject to usual conditions.The takeover offer was made on February 17, 2006. The Fund's Board of Trustees has consulted with its financial and outside legal advisors.The Board has determined that the price is fair and that Aikawa's offer is in the best interests of the Fund and its Unitholders.Aikawa and the Fund have signed an agreement in which the Fund's Board of Trustees unanimously agrees to recommend to Unitholders that they accept Aikawa's offer.The Fund has undertaken to pay $2.75 million to Aikawa if the agreement is terminated upon the Fund withdrawing its recommendation to its Unitholders or accepting a superior proposal.The Fund has also agreed to waive the application of its Unitholder rights plan in connection with Aikawa's offer. 11. Comparative figures Certain comparative figures have been reclassified to conform to Verb 1. conform to - satisfy a condition or restriction; "Does this paper meet the requirements for the degree?" fit, meet coordinate - be co-ordinated; "These activities coordinate well" the current year presentation. Advanced Fiber Technologies (AFT) Income Fund (TSX:AFT.UN) |
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