Hardwoods Distribution Income Fund Announces 2009 First Quarter Results



    
    TRADING SYMBOL: Toronto Stock Exchange - HWD.UN

    Hardwoods Distribution Income Fund will hold a conference call to discuss
    first quarter financial results on April 30, 2009 at 8:00 a.m. Pacific
    Time (11:00 am Eastern). The call can be accessed by dialing: 1-800-733-
    7571 or 416-644-3417. A replay will be available until May 14, 2009 at:1-
    877-289-8525 or 416-640-1917 (Passcode 21304599 followed by the number
    sign)
    

    LANGLEY, BC, April 29 /CNW/ - Hardwoods Distribution Income Fund (the
"Fund") today reported financial results for the three months ended March 31,
2009. The Fund's results are based on the performance of Hardwoods Specialty
Products LP and Hardwoods Specialty Products USLP (collectively "Hardwoods") -
one of North America's largest wholesale distributors of hardwood lumber and
related sheet good products. Hardwoods serves over 2,000 industrial customers
through a network of 29 distribution centres in the US and Canada.

    
    First Quarter Overview

    (For the three months ended March 31, 2009)

    -   First quarter revenue declined 24.8% to $53.4 million year-over-year
    -   Gross profit percentage of 18.0% declined from 19.2% in Q1 2008, but
        increased from 16.7% in Q4 2008
    -   Selling and administrative expenses decreased by 23.1% to $8.7
        million, from $11.3 million in Q1 2008
    -   First quarter EBITDA, net earnings and distributable cash were lower
        year-over-year, but improved compared to Q4 2008
    -   The Fund reduced its bank indebtedness, net of cash, by $5.1 million
    -   The Fund announced the closure of two additional satellite branches
        to take effect in the second quarter
    

    "Although first quarter results were generally weaker than a year ago,
our bottom-line results improved compared to the fourth quarter as our
cost-control efforts began to gain traction," said Maurice Paquette,
Hardwoods' President and CEO.
    "A key achievement was reducing our Selling and Administrative expenses
by 23.1% compared to Q1 2008 and by 20.3% compared to Q4 2008. We also posted
a gross margin of 18.0% in the first quarter, back within our target range of
18% to 19%. Although lower than a year ago, this was an improvement over the
16.7% gross margin we recorded in the fourth quarter of 2008. Our net income
and distributable cash results also showed improvement in relation to the
fourth quarter, but were still lower than a year ago.
    "While we were encouraged by the progress on our bottom-line compared to
the fourth quarter, first quarter economic conditions remained extremely
challenging, particularly in the US residential construction market," added
Mr. Paquette. "Our sales declined both year-over-year and on a sequential
quarterly basis as a result of the reduced demand, lower pricing for hardwood
lumber and our own price discounting as we worked to reduce inventories."
    "In light of the continuing decline in sales activity, we initiated
additional cost-cutting initiatives during the first quarter, including a
further 13% reduction to our workforce. We also recently made the difficult
decision to close two additional satellite branches located in Sacramento,
California and Portland, Oregon."
    "We also continued to focus upon strengthening our balance sheet, with
our emphasis on cash conservation and inventory reduction helping to reduce
our debt by over $5 million. This leaves us with just $12.4 million of bank
indebtedness (net of cash) financing $59.9 million in operating working
capital, and we expect to continue to position our balance sheet in the coming
quarters to withstand a prolonged economic downturn," said Mr. Paquette.
    "Overall, while we anticipate that market conditions will remain
extremely challenging through 2009 and into 2010, we believe we are taking the
right steps to align our business with the new economic realities."

    
    Summary of Results

    Selected Unaudited Consolidated Financial Information
    (in thousands of Canadian dollars)

                                                       For the       For the
                                                  three months  three months
                                                         Ended         Ended
                                                      March 31,     March 31,
                                                          2009          2008
    -------------------------------------------------------------------------
    Total sales                                    $    53,422   $    71,048
      Sales in the US (US$)                             26,503        46,192
      Sales in Canada                                   20,437        24,639
    Gross profit                                         9,616        13,636
      Gross profit %                                     18.0%         19.2%
    Selling and administrative expenses                 (8,700)      (11,318)
    Realized gain on foreign currency contracts              -           595
    -------------------------------------------------------------------------
    Earnings before interest, taxes, depreciation
     and amortization and non-controlling
     interest ("EBITDA")                           $       916   $     2,913
      Add (deduct):
        Amortization                                      (225)         (425)
        Interest                                          (152)         (388)
        Non-cash foreign currency gains (losses)           332        (1,201)
        Non-controlling interest                           474           408
        Income tax recovery                                522         8,222
    -------------------------------------------------------------------------
    Net earnings (loss) for the period             $     1,867   $     9,529
    -------------------------------------------------------------------------
    Basic and fully diluted earnings
     per Class A Unit                              $     0.130   $     0.661
    Average Canadian dollar exchange
     rate for one US dollar                             1.2446        1.0047
    -------------------------------------------------------------------------



    Distributable Cash and Cash Distributions

    Selected Unaudited Consolidated Financial Information
    (in thousands of dollars except per unit amounts)

                                                      3 months      3 months
                                                         ended         ended
                                                      March 31,     March 31,
                                                          2009          2008
                                                          ----          ----

    Net cash provided by operating activities      $     5,414   $     2,597
    Increase (decrease) in non-cash
     operating working capital                          (4,704)          747
                                                  ------------- -------------
    Cash flow from operations before changes
     in non-cash operating working capital                 710         3,344
    Capital expenditures                                    (5)          (73)
                                                  ------------- -------------
    Distributable Cash                             $       705   $   3,271(1)
                                                  ------------- -------------
                                                  ------------- -------------

    Distributions relating to the period:
      Class A Units                                $         -   $     3,242
      Class B Units(2)                                       -             -
                                                  ------------- -------------
      Total Units                                  $         -   $     3,242
                                                  ------------- -------------
                                                  ------------- -------------

    -------------------------------------------------------------------------

    Outstanding units and per unit amounts:
      Class A Units outstanding                     14,410,000    14,410,000
      Class B Units outstanding                      3,602,500     3,602,500
                                                  ------------- -------------
      Total Units outstanding                       18,012,500    18,012,500
                                                  ------------- -------------
                                                  ------------- -------------

    Distributable Cash per Total Units             $     0.039   $     0.182

    Distributions relating to the period:
      Class A Units                                $         -   $   0.225(1)
      Class B Units(2)                             $         -   $         -
      Total Units                                  $         -   $     0.180

    Payout ratio(3)                                       0.0%         99.1%
    -------------------------------------------------------------------------

    Cumulative since inception:
      Distributable Cash                                76,322
      Distributions relating to the period              66,754
      Payout ratio(3)                                    87.5%
    -------------------------------------------------------------------------
    (1) Includes the cash distributions of $0.075 per Class A Unit per month
        which relate to the operations of the Fund for January, February, and
        March 2008.
    (2) On January 10, 2006, Hardwoods Specialty Products LP and Hardwoods
        Specialty Products US LP, limited partnerships in each of which the
        Fund owns an 80% interest, announced that quarterly distributions
        were suspended on the Class B LP and Class B US LP units. The Class B
        LP units and Class B US LP units represent a 20% interest in
        Hardwoods Specialty Products LP and Hardwoods Specialty Products US
        LP, respectively. No distributions are to be paid on the Class B LP
        units and Class B US LP units unless distributions in stipulated
        minimum amounts are paid on the units in the limited partnerships
        held by the Fund, and in certain other circumstances. Accordingly, no
        distributions have been declared since the third quarter of 2005 to
        the non-controlling interests. No liability for distributions payable
        to the non-controlling interests is reflected in the March 31, 2009
        balance sheet.
    (3) Payout ratio measures the ratio of distributions by the Fund relating
        to the period to Distributable Cash for the period.
    

    Results from Operations - Three Months Ended March 31, 2009

    For the three months ended March 31, 2009, the Fund and its subsidiaries
generated total Distributable Cash available to Class A and Class B
Unitholders of $0.7 million, or $0.039 per unit. No distributions were paid to
either the public unitholders (Class A Units) or to the Class B Units,
resulting in a payout ratio of 0% for the first quarter. By comparison, the
Fund generated total Distributable Cash of $3.3 million or $0.182 per unit in
the same period of 2008. Distributions of $3.2 million, or $0.225 per unit
were declared to the Class A Units and no distributions were paid to the Class
B Units, for a payout ratio of 99.1% in the first quarter of 2008.
    First quarter 2009 sales were $53.4 million, down 24.8% from $71.0
million in 2008. The change in sales reflects a 33.8% decrease in underlying
sales activity, partially offset by a 9.0% increase in sales due to the
positive effect of a weaker Canadian dollar. Sales in the United States, as
measured in US dollars, decreased 42.6% to $26.5 million, compared to $46.2
million during the first quarter of 2008. This decline reflects the continuing
impacts of the depressed housing market and recession in the general US
economy, as well as the impact of lower prices for hardwood lumber products.
Sales were down in all five of Hardwoods' US geographic regions. Sales in
Canada, as measured in Canadian dollars, decreased by 17.1%, with sales down
in all regions of the country as a result of weaker economic conditions.
    First quarter gross profit was $9.6 million, compared to $13.6 million in
Q1 2008. The change in gross profit reflects lower sales, as well as a
decrease in gross profit percentage to 18.0%, from 19.2% a year ago. The lower
gross margin reflects increased competition due to reduced market demand, as
well as the discounting of some inventory in order to balance inventory levels
to the reduced sales pace.
    Selling and administrative expenses decreased by $2.6 million, or 23.1%,
to $8.7 million, from $11.3 million in Q1 2008. This improvement primarily
reflects lower employee costs, lower bonus expense, reduced premises and sales
costs and absence of one-time fees related to the Fund's internal
restructuring in Q1 2008. These savings were partially offset by the negative
impact of a weaker Canadian dollar on the conversion of S&A expenses at
Hardwoods' US operations.
    First quarter EBITDA was $0.9 million, compared to $2.9 million in 2008.
The decrease in EBITDA primarily reflects lower gross profit and reduced gains
on foreign currency contracts, partially offset by lower S&A expenses.
    Net earnings for the first three months of 2009 were $1.9 million,
compared to $9.5 million during the same period in 2008. The decrease in net
earnings primarily reflects a $7.7 million decrease in income tax recovery,
and the $2.0 million decrease in EBITDA, partially offset by an increase in
unrealized foreign currency gain, reduced interest expense and lower
amortization expense.

    Outlook

    Hardwoods anticipates that business conditions will remain extremely
challenging through 2009, and into 2010. Demand for furniture, cabinets,
recreational vehicles and other products that utilize hardwood lumber and
sheet goods are currently at very low levels, and are expected to remain weak
in the near-term as a result of the depressed US housing market and the global
recession. Prices for hardwood lumber are also expected to remain at low
levels, despite production curtailments by many lumber mills.
    In this environment, Hardwoods continues to believe that its business
risk is higher than normal, particularly in the following areas:

    
    1. Financing risk related to the ability of Hardwoods to debt-finance
    its operations has increased in the current tight credit environment.
    Hardwoods obtained an amendment to its US banking agreement in order to
    relax its financial covenant for the first quarter of 2009, but it is
    uncertain if Hardwoods US results will prove strong enough to remain in
    compliance with its bank agreement throughout 2009;

    2. The risk of bad debts has increased as Hardwoods' customers face
    reduced demand and pressure on credit availability in their own
    businesses;

    3. The possibility that key suppliers could fail has increased, which
    could potentially disrupt Hardwoods' supply chain; and,

    4. Demand for Hardwoods' products could weaken still further, given that
    US housing starts fell near historic lows in the first quarter of 2008
    and the impact on Hardwoods sales often lags changes in the residential
    construction cycle by six-to-twelve months. The lag exists because
    kitchen cabinets and furniture, which are a key end-use for hardwood
    products, are purchased late in the building process.
    

    With the expectation of a prolonged economic downturn and an enhanced
level of risk, Hardwoods' focus will remain on continued cost reduction as it
works to align expenditures as closely as possible to sales levels. Inventory
levels and working capital will also be tightly managed and management will
continue to work to minimize customer credit risk. These initiatives, together
with a continued focus on debt reduction, will help provide support to
Hardwoods' balance sheet as it works through this downturn.
    Simultaneously, Hardwoods will continue to aggressively pursue market
opportunities for its growing lines of "green" building products, while also
continuing to support its successful import program. The Fund's goal is to
maintain a strong market position through the downturn and to emerge
positioned to participate fully in the eventual recovery.

    Non-GAAP Measures - EBITDA and Distributable Cash

    References to "EBITDA" are to earnings before interest, income taxes,
depreciation and amortization, mark-to-market adjustments on foreign currency
contracts, goodwill and other intangible assets impairments, and the
non-controlling interest in earnings. In addition to net income or loss,
EBITDA is a useful supplemental measure of performance and cash available for
distribution prior to debt service, changes in working capital, capital
expenditures and income taxes.
    References to "Distributable Cash" is to net cash provided by operating
activities, before changes in non-cash operating working capital, less capital
expenditures and contributions to any reserves that the Boards of Directors of
our operating entities determine to be reasonable and necessary for the
operation of the businesses owned by these entities.
    We believe that, in addition to net income or loss, EBITDA and
Distributable Cash are each a useful supplemental measures of operating
performance that may assist investors in assessing their investment in units
of the Fund. Neither EBITDA nor Distributable Cash are earnings measure
recognized by GAAP and they do not have a standardized meaning prescribed by
GAAP. Investors are cautioned that EBITDA should not replace net income or
loss (as determined in accordance with GAAP) as an indicator of our
performance, nor should Distributable Cash replace cash flows from operating,
investing and financing activities or as a measure of liquidity and cash
flows. The Fund's method of calculating EBITDA and Distributable Cash may
differ from the methods used by other issuers. Therefore, the Fund's EBITDA
and Distributable Cash may not be comparable to similar measures presented by
other issuers. For reconciliation between EBITDA and net income or loss as
determined in accordance with GAAP, and for reconciliation between
Distributable Cash and net cash provided by operating activities as determined
in accordance with GAAP, please refer to the Management Discussion and
Analysis ("MD&A") included in the Fund's 2009 First Quarter Report to
Unitholders, which will be filed at www.sedar.com.
    Additional guidance regarding disclosure of distributable cash and cash
distributions was issued in 2007 in an interpretative release by the Canadian
Institute of Chartered Accountants (the "CICA") in respect of "Standardized
Distributable Cash in Income Trusts and other Flow Through Entities" and
National Policy 41-201 of the Canadian Securities Administrators "Income
Trusts and other Indirect Offerings" (collectively, the "Interpretative
Guidance"). For disclosure and discussion of the Fund's Standardized
Distributable Cash in accordance with the Interpretive Guidance, please refer
to the MD&A included in the Fund's 2009 First Quarter Report to Unitholders,
which will be filed at www.sedar.com.

    About the Fund

    Hardwoods Distribution Income Fund is an unincorporated, open-ended,
limited purpose trust established to hold, indirectly, the securities of
Hardwoods Specialty Products LP and Hardwoods Specialty Products USLP
(collectively, "Hardwoods"). The Fund was launched on March 23, 2004, with the
completion of an initial public offering of 14,410,000 shares.

    About Hardwoods

    Hardwoods is one of North America's largest distributors of high-grade
hardwood lumber and sheet goods to the cabinet, moulding, millwork, furniture
and specialty wood products industries. The company currently operates a
network of 29 distribution centres in the U.S. and Canada.

    Forward-Looking Information

    Certain statements in this press release contain forward-looking
information within the meaning of applicable securities laws in Canada
("forward-looking information"). The words "anticipates", "believes",
"budgets", "could", "estimates", "expects", "forecasts", "intends", "may",
"might", "plans", "projects", "schedule", "should", "will", "would" and
similar expressions are often intended to identify forward-looking
information, although not all forward-looking information contains these
identifying words.
    The forward-looking information in this press release includes, but is
not limited to: we will close two additional satellite branches located in
Sacramento, California and Portland, Oregon; we expect to continue to position
our balance sheet in the coming quarters to withstand a prolonged economic
downturn; while we anticipate that market conditions will remain extremely
challenging through 2009 and into 2010, we believe we are taking the right
steps to align our business with the new economic realities; Hardwoods
anticipates that business conditions will remain extremely challenging through
2009, and into 2010; demand for furniture, cabinets, recreational vehicles and
other products that utilize hardwood lumber and sheet goods are currently at
very low levels, and are expected to remain weak in the near-term as a result
of the depressed US housing market and the global recession; prices for
hardwood lumber are also expected to remain at low levels, despite production
curtailments by many lumber mills; in this environment, Hardwoods continues to
believe that its business risk is higher than normal, particularly in the
following areas: (1) financing risk related to the ability of Hardwoods to
debt-finance its operations has increased in the current tight credit
environment and it is uncertain if Hardwoods US results will prove strong
enough to remain in compliance with its bank agreement throughout 2009, (2)
the risk of bad debts has increased as Hardwoods' customers face reduced
demand and pressure on credit availability in their own businesses, (3) the
possibility that key suppliers could fail has increased, which could
potentially disrupt Hardwoods' supply chain, (4) demand for Hardwoods'
products could weaken still further, given that US housing starts fell to
historic lows in the first quarter of 2008 and the impact on Hardwoods sales
often lags changes in the residential construction cycle by six-to-twelve
months; with the expectation of a prolonged economic downturn and an enhanced
level of risk, Hardwoods' focus will remain on continued cost reduction as it
works to align expenditures as closely as possible to sales levels; inventory
levels and working capital will also be tightly managed and management will
continue to work to minimize customer credit risk; these initiatives, together
with a continued focus on debt reduction, will help provide support to
Hardwoods' balance sheet as it works through this downturn; simultaneously,
Hardwoods will continue to aggressively pursue market opportunities for its
growing lines of "green" building products, while also continuing to support
its successful import program; and the Fund's goal is to maintain a strong
market position through the downturn and to emerge positioned to participate
fully in the eventual recovery.
    The forecasts and projections that make up the forward-looking
information are based on assumptions which include, but are not limited to:
there are no material exchange rate fluctuations between the Canadian and US
dollar that affect the amount of cash the Fund is able to generate in Canadian
dollars; the Fund does not lose any key personnel; there are no decreases in
the supply of, demand for, or market values of hardwood lumber or sheet goods
that harm the business; the Fund does not incur material losses related to
credit provided to customers; Hardwoods' products are not subjected to
negative trade outcomes; the company is able to sustain its level of sales and
EBITDA margins; Hardwoods' is able to grow its business and to manage its
growth; there is no new competition in Hardwoods' markets that leads to
reduced revenues and profitability; the Fund does not become subject to more
stringent regulations; importation of products manufactured with hardwood
lumber or sheet goods does not increase and replace products manufactured in
North America; the downturn in the general state of the economy does not
worsen and impact upon the Fund's results; Hardwoods' management information
systems upon which it depends, are not impaired; Hardwoods' insurance is
sufficient to cover losses that may occur as a result of operations; and, the
financial condition and results of operations of the business upon which the
Fund is dependent are not impaired.
    The forward-looking information is subject to risks, uncertainties and
other factors that could cause actual results to differ materially from
historical results or results anticipated by the forward-looking information.
The factors which could cause results to differ from current expectations
include, but are not limited to: exchange rate fluctuations between the
Canadian and US dollar could affect the amount of cash the Fund has available
to distribute to unitholders in Canadian dollars; Hardwoods' depends on key
personnel, the loss of which could harm its business; decreases in the supply
of, demand for, or market values of hardwood lumber or sheet goods could harm
the business; Hardwoods' may incur losses related to credit provided to
customers; Hardwoods' products may be subject to negative trade outcomes; the
company may not be able to sustain its level of sales or EBITDA margins;
Hardwoods may be unable to grow its business or to manage any growth;
competition in the company's markets may lead to reduced revenues and
profitability; the Fund may become subject to more stringent regulations;
importation of products manufactured with hardwood lumber or sheet goods may
increase, and replace products manufactured in North America; the Fund's
results are dependent upon the general state of the economy; Hardwoods' is
dependent upon its management information systems; the Fund's insurance may be
insufficient to cover losses that may occur as a result of operations; the
Fund's credit facilities contain restrictions on its ability to borrow funds
and restrictions on distributions that can be made; there are tax risks
associated with an investment in the Fund's units; the Fund's future growth
may be restricted by the payout of substantially all of its operating cash
flow; and, other risks described in the Fund's Annual Information Form and
other continuous disclosure documents.
    All forward-looking information in this press release is qualified in its
entirety by this cautionary statement and, except as may be required by law,
the Fund undertakes no obligation to revise or update any forward-looking
information as a result of new information, future events or otherwise after
the date hereof.

    
    HARDWOODS DISTRIBUTION INCOME FUND
    Consolidated Balance Sheets
    (Expressed in thousands of Canadian dollars)

    -------------------------------------------------------------------------
                                                      March 31,  December 31,
                                                          2009          2008
    -------------------------------------------------------------------------
                                                    (unaudited)
    Assets

    Current assets:
      Cash and cash equivalents                    $       587   $        85
      Accounts receivable (note 6)                      35,495        32,218
      Income tax recoverable                               615         2,316
      Inventory (note 5)                                28,232        30,868
      Prepaid expenses                                     861         1,039
      -----------------------------------------------------------------------
                                                        65,790        66,526

    Long-term receivables (note 6)                       3,553         3,639

    Property, plant and equipment                        1,997         2,168

    Deferred financing costs                               218           235

    Future income taxes                                 32,103        30,782
    -------------------------------------------------------------------------
                                                   $   103,661   $   103,350
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Liabilities and Unitholders' Equity

    Current liabilities:
      Bank indebtedness (note 7)                   $    13,002   $    17,561
      Accounts payable and accrued liabilities           5,260         3,365
      -----------------------------------------------------------------------
                                                        18,262        20,926
    Deferred gain on sale-leaseback
     of land and building                                  569           572

    Non-controlling interests (note 8)                  13,141        13,080

    Unitholders' equity:
      Fund units                                       133,454       133,454
      Deficit                                          (48,091)      (49,958)
      Accumulated other comprehensive loss             (13,674)      (14,724)
      -----------------------------------------------------------------------
                                                        71,689        68,772
    Continuance of operations (note 1)
    Contingencies (note 15)
    -------------------------------------------------------------------------
                                                   $   103,661   $   103,350
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to consolidated financial statements.



    HARDWOODS DISTRIBUTION INCOME FUND
    Consolidated Statement of Earnings and Retained Earnings (Deficit)
    (Unaudited)
    (Expressed in thousands of Canadian dollars)

    -------------------------------------------------------------------------
                                                  Three months  Three months
                                                         ended         ended
                                                      March 31,     March 31,
                                                          2009          2008
    -------------------------------------------------------------------------

    Sales                                          $    53,422   $    71,048
    Cost of sales                                       43,806        57,412
    -------------------------------------------------------------------------
    Gross profit                                         9,616        13,636

    Expenses:
      Selling and administrative                         8,700        11,318
      Amortization:
        Plant and equipment                                224           239
        Deferred financing costs                            24             3
        Other intangible assets                              -           202
        Deferred gain on sale - leaseback
         of land and building                              (23)          (19)
      Interest                                             152           388
      Unrealized foreign exchange losses (gains)          (332)          606
      -----------------------------------------------------------------------
                                                         8,745        12,737
    -------------------------------------------------------------------------

    Earnings before non-controlling
     interests and income taxes                            871           899

    Non-controlling interests (note 8)                    (474)         (408)
    -------------------------------------------------------------------------

    Earnings before income taxes                         1,345         1,307

    Income expense (recovery) (note 13):
      Current                                                5          (791)
      Future                                              (527)       (7,431)
      -----------------------------------------------------------------------
                                                          (522)       (8,222)
    -------------------------------------------------------------------------

    Net earnings for the period                          1,867         9,529

    Deficit, beginning of period                       (49,958)       (6,150)

    Distributions declared to Unitholders                    -        (3,242)

    -------------------------------------------------------------------------
    Retained earnings (deficit), end of period     $   (48,091)  $       137
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Basic and diluted earnings per Unit            $      0.13   $      0.66
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Weighted average number of Units outstanding    14,410,000    14,410,000
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to consolidated financial statements.



    HARDWOODS DISTRIBUTION INCOME FUND
    Consolidated Statement of Comprehensive Income
    (Unaudited)
    (Expressed in thousands of Canadian dollars)

    -------------------------------------------------------------------------
                                                  Three months  Three months
                                                         ended         ended
                                                      March 31,     March 31,
                                                          2009          2008
    -------------------------------------------------------------------------

    Net earnings for the period                    $     1,867   $     9,529

    Other comprehensive income:
      Unrealized gain on translation of
       self-sustaining foreign operations                1,050         2,069
      -----------------------------------------------------------------------
      Other comprehensive income                         1,050         2,069

    -------------------------------------------------------------------------
    Comprehensive income                           $     2,917   $    11,598
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Consolidated Statement of Accumulated Other Comprehensive Loss
    (Unaudited)
    (Expressed in thousands of Canadian dollars)

    -------------------------------------------------------------------------
                                                  Three months  Three months
                                                         ended         ended
                                                      March 31,     March 31,
                                                          2009          2008
    -------------------------------------------------------------------------

    Accumulated other comprehensive
     loss, beginning of period                     $   (14,724)  $   (21,565)

    Other comprehensive income                           1,050         2,069

    -------------------------------------------------------------------------

    Accumulated other comprehensive
     loss, end of period                           $   (13,674)  $   (19,496)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    HARDWOODS DISTRIBUTION INCOME FUND
    Consolidated Statements of Cash Flows
    (Unaudited)
    (Expressed in thousands of Canadian dollars)

    -------------------------------------------------------------------------
                                                  Three months  Three months
                                                         ended         ended
                                                      March 31,     March 31,
                                                          2009          2008
    -------------------------------------------------------------------------

    Cash flows provided by (used in)
     operating activities:
      Net earnings for the period                  $     1,867   $     9,529
      Items not involving cash:
        Amortization                                       225           425
        Imputed interest income in employee loans          (39)          (14)
        Gain on sale of property, plant and equipment      (10)            -
        Unrealized foreign exchange losses (gains)        (332)        1,201
        Non-controlling interests                         (474)         (408)
        Future income taxes                               (527)       (7,389)
      -----------------------------------------------------------------------
                                                           710         3,344
      Change in non-cash operating
       working capital (note 9)                          4,704          (747)
      -----------------------------------------------------------------------
      Net cash provided by operating activities          5,414         2,597

    Cash flows provided by (used in)
     investing activities:
      Additions to property, plant and equipment            (5)          (73)
      Proceeds on disposal of property,
       plant and equipment                                  10             -
      Decrease in long-term receivables, net               186           187
      -----------------------------------------------------------------------
      Net cash provided by investing activities            191           114

    Cash flows provided by (used in)
     financing activities:
      Increase (decrease) in bank indebtedness          (5,103)          589
      Distributions paid to Unitholders                      -        (3,242)
      -----------------------------------------------------------------------
      Net cash provided by (used in)
       financing activities                             (5,103)       (2,653)
    -------------------------------------------------------------------------

    Increase in cash                                       502            58

    Cash, beginning of period                               85           295

    -------------------------------------------------------------------------
    Cash, end of period                             $      587   $       353
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplementary information (cash amounts):
      Interest paid                                 $      152   $       388
      Income taxes paid                                      -            11
      Income taxes received                              1,800             -
      Transfer of accounts receivable to
       long-term customer notes receivable,
       net of write offs, being a
       non-cash transaction                                  -         2,235
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to consolidated financial statements.



    HARDWOODS DISTRIBUTION INCOME FUND
    Notes to Consolidated Financial Statements
    (Unaudited)
    (Tabular amounts expressed in thousands of Canadian dollars)

    For the periods ended March 31, 2009 and 2008

    -------------------------------------------------------------------------

    1.  Nature and continuance of operations:

        Hardwoods Distribution Income Fund (the "Fund") is an unincorporated,
        open ended, limited purpose trust established under the laws of the
        Province of British Columbia on January 30, 2004 by a Declaration of
        Trust. The Fund commenced operations on March 23, 2004 when it
        completed an initial public offering of Units and acquired an 80%
        interest in a hardwood lumber and sheet goods distribution business
        in North America (the "Business") from affiliates of Sauder
        Industries Limited ("SIL"). The Fund holds, indirectly, 80% of the
        outstanding limited partnership units of Hardwoods Specialty Products
        LP ("Hardwoods LP") and Hardwoods Specialty Products US LP
        ("Hardwoods USLP"), limited partnerships established under the laws
        of the Province of Manitoba and the state of Delaware, respectively.

        In accordance with the Canadian Institute of Chartered Accountants
        ("CICA") Handbook Section 1400, General Standards of Financial
        Statement Presentation, the Fund is required to assess and disclose
        its ability to continue as a going concern. The Fund has forecast its
        financial results and cash flows for 2009. The forecasts are based on
        management's best estimates of operating conditions in the context of
        the current economic climate, today's capital market conditions and
        the depressed state of the housing and renovation markets in both
        Canada and the United States.

        At December 31, 2008, preliminary financial results for a U.S.
        subsidiary of the Fund indicated that it would breach its fixed
        charge coverage ratio, the only financial covenant which it is
        subject to under its U.S. credit agreement. In the first quarter of
        2009, the Fund's U.S. subsidiary and its lender amended their credit
        agreement with changes to be retroactively effective to the December
        31, 2008 reporting period. Under the amendment, the Fund's U.S.
        subsidiary was compliant with its financial covenant at December 31,
        2008 and March 31, 2009. However, due to the difficulty in predicting
        the continued severity and duration of the current economic and
        financial crisis, management is uncertain whether its U.S. subsidiary
        will remain in compliance with its financial covenant during the
        remainder of 2009. Further weakening of the housing and renovation
        market, or incurring significant customer or credit losses, could
        cause the U.S. subsidiary to violate its fixed charge coverage ratio
        in 2009. This could cause the Fund's U.S. subsidiary bank
        indebtedness to become immediately due and payable, and the Fund and
        its U.S. subsidiary may not be able to access funds under its
        revolving credit facility. In the event of such as circumstance, the
        Fund anticipates it would need to raise additional capital in the
        form of equity or debt to supplement or replace its existing credit
        facilities in order to have sufficient liquidity to meet its
        obligations in 2009.

        The accompanying consolidated financial statements have been prepared
        assuming the Fund will continue as a going concern which contemplates
        the realization of assets and the satisfaction of liabilities in the
        normal course of business. The consolidated financial statements do
        not include any adjustments relating to the recoverability and
        classification of recorded asset amounts should the Fund be unable to
        continue as a going concern.

    2.  Basis of presentation:

        The Fund prepares its consolidated interim financial statements in
        accordance with Canadian generally accepted accounting principles on
        a basis consistent with those used and described in the annual
        consolidated financial statements for the year ended December 31,
        2008. The disclosures contained in these consolidated interim
        financial statements do not include all the requirements of Canadian
        generally accepted accounting principles for annual financial
        statements, and accordingly, these consolidated interim financial
        statements should be read in conjunction with the annual consolidated
        financial statements for the period ended December 31, 2008. Certain
        comparative figures have been restated to conform to the current
        period's financial statement presentation.

    3.  Adoption of changes in accounting standards:

        Effective January 1, 2009, the Fund adopted new CICA Handbook Section
        3064, Goodwill and Intangible Assets. This section replaces CICA
        Handbook Section 3062, Goodwill and Intangible Assets, and
        establishes revised standards for the recognition, measurement,
        presentation and disclosure of goodwill and intangible assets. As the
        Fund did not have any goodwill or intangible assets at December 31,
        2008, the adoption of this new standard did not impact the amounts
        presented in the financial statements.

    4.  Capital Disclosures:

        The Fund's policy is to maintain a strong capital base so as to
        maintain investor, creditor and market confidence and to sustain
        future development of the business. The Fund considers its capital to
        be bank indebtedness (net of cash) plus Unitholders' equity. The
        Fund's capitalization is as follows:

        ---------------------------------------------------------------------
                                                      March 31,  December 31,
                                                          2009          2008
        ---------------------------------------------------------------------

        Cash and cash equivalents                  $      (587)  $       (85)
        Bank indebtedness                               13,002        17,561
        ---------------------------------------------------------------------
        Net debt                                        12,415        17,476


        Unitholders' equity                             71,689        68,772

        ---------------------------------------------------------------------
        Total capitalization                       $    84,104   $    86,248
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        The Fund monitors on a monthly basis the ratio of net debt to
        earnings before interest, income taxes, depreciation and amortization
        ("EBITDA"). Net debt to EBITDA serves as an indicator of the Fund's
        financial leverage. The maximum ratio of net debt to EBITDA allowed
        under the Canadian credit facility is 2.50 times, and the minimum
        ratio of EBITDA to interest is 3.0 times. Under the U.S. credit
        facility a Fixed Charge Coverage Ratio ((EBITDA less capital
        expenditures less cash taxes)/(interest plus distributions)) is not
        permitted to be less than 0.50 for the quarter ended March 31, 2009,
        not less than 0.75 for the quarter ended June 30, 2009, and not less
        than 1.0 thereafter.

        The terms of the agreements with the Fund's lenders provide that
        distributions cannot be made to its unitholders in the event that its
        subsidiaries did not meet the foregoing leverage as well as certain
        additional credit ratios. The Fund's operating subsidiaries were
        compliant with all required credit ratios under the US and Canadian
        credit facilities as at March 31, 2009, and accordingly there were no
        restrictions on distributions arising from compliance with financial
        covenants.

        Distributions are one of the ways the Fund manages its capital.
        Distributions of the Fund's available cash are made to the maximum
        extent possible, subject to reasonable reserves established by the
        Trustees of the Fund. Distributions are made by the Fund having given
        consideration to a variety of factors including the outlook for the
        business, financial leverage, and the ratio of distributions to
        available cash of the Fund. There were no changes in the Fund's
        approach to capital management during the period ended March 31,
        2009. On November 3, 2008 the Trustees of the Fund suspended further
        monthly distributions until such time as market conditions and the
        Fund's generation of cash has improved.

    5.  Inventory:

        ---------------------------------------------------------------------
                                                      March 31,  December 31,
                                                          2009          2008
        ---------------------------------------------------------------------

        Lumber                                     $    11,230   $    12,077
        Sheet Goods                                     12,987        14,990
        Specialty                                        2,580         2,356
        Goods in-transit                                 1,435         1,445

        ---------------------------------------------------------------------
                                                   $    28,232   $    30,868
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        During the three months ended March 31, 2009 inventory write-downs
        totaling $0.5 million (2008 - $0.6 million) were recorded to reduce
        certain inventory items to their net realizable value.

        Cost of sales for the three months ended March 31, 2009 were $43.8
        million, which included $42.6 million of costs associated with
        inventory (2008 - $57.4 million and $56.0 million respectively). The
        other $1.2 million (2008 - $1.4 million) related principally to
        freight and other related selling expenses.

    6.  Receivables:

        The following is a breakdown of the Fund's current and long-term
        receivables and represents the Fund's exposure to credit risk related
        to its financial assets:

        ---------------------------------------------------------------------
                                                      March 31,  December 31,
        Accounts receivable                               2009          2008
        ---------------------------------------------------------------------

        Trade accounts receivable - Canada         $    10,770   $     8,404
        Trade accounts receivable - United States       24,261        23,423
        Sundry receivable                                  169           495
        Current portion of long-term receivables         2,377         2,243
        ---------------------------------------------------------------------
                                                        37,577        34,565

        Less: allowance for doubtful accounts            2,082         2,347

        ---------------------------------------------------------------------
                                                   $    35,495   $    32,218
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


        ---------------------------------------------------------------------
                                                      March 31,  December 31,
        Long-term receivables                             2009          2008
        ---------------------------------------------------------------------

        Employee housing loans                     $     1,511   $     1,507
        Customer notes                                   3,797         3,772
        Security deposits                                  622           603
        ---------------------------------------------------------------------
                                                         5,930         5,882

        Less: current portion, included in
         accounts receivable                             2,377         2,243

        ---------------------------------------------------------------------
                                                   $     3,553   $     3,639
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


        The aging of trade receivables was:
        ---------------------------------------------------------------------
                                                      March 31,  December 31,
                                                          2009          2008
        ---------------------------------------------------------------------

        Current                                    $    21,088   $    17,037
        Past due 31-60 days                              6,146         6,696
        Past due 61-90 days                              2,609         3,706
        Past due 90+ days                                5,188         4,388

        ---------------------------------------------------------------------
                                                   $    35,031   $    31,827
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        The Fund determines its allowance for doubtful accounts based on its
        best estimate of the net recoverable amount by customer account.
        Accounts that are considered uncollectable are written off. The total
        allowance at March 31, 2009 was $2.1 million (December 31, 2008 -
        $2.3 million). The amount of the allowance is considered sufficient
        based on the past experience of the business, the security the Fund
        has in place for past due accounts and management's regular review
        and assessment of customer accounts and credit risk.

        Bad debt expense for the three months ended March 31, 2009 was $0.6
        million which equates to 1.2% of sales (three month period ended
        March 31, 2008 - $0.5 million, being 0.7% of sales). Historically bad
        debt as a percentage of sales has averaged approximately 0.7%.

    7.  Bank indebtedness:

        ---------------------------------------------------------------------
                                                      March 31,  December 31,
                                                          2009          2008
        ---------------------------------------------------------------------

        Checks issued in excess
         of funds on deposit                       $       245   $     1,087
        Credit facility, Hardwoods LP                      767           265
        Credit facility, Hardwoods USLP
         (March 31, 2009 - US$9,506;
         December 31, 2008 - US$13,308)                 11,990        16,209

        ---------------------------------------------------------------------
                                                   $    13,002   $    17,561
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        In Canada, a subsidiary of the Fund has a revolving credit facility
        of up to $12.0 million. In the US, a subsidiary of the Fund has a
        revolving credit facility of up to $37.8 million (US$30.0 million).
        These credit facilities can be drawn down to meet short-term
        financing requirements, including fluctuations in non-cash working
        capital. The amount made available under these credit facilities is
        limited to the extent of the value of certain accounts receivable and
        inventories held by subsidiaries of the Fund in Canada and the US
        respectively. At March 31, 2009 the Canadian and US credit facilities
        have $11.2 million and $8.8 million (US$7.0 million), respectively of
        additional borrowing capacity, subject to the subsidiaries being able
        to continue to meet their respective financial covenants as described
        in note 4.

    8.  Non-controlling interests:

        ---------------------------------------------------------------------

        Balance, January 1, 2009                                 $    13,080

        Interest in earnings:
          Interest in earnings before taxes                              174
          Adjustment to non-controlling interest
           from subordination of Class B Unit Holders                   (648)
          -------------------------------------------------------------------
                                                                        (474)

        Foreign currency translation adjustment of
         non-controlling interest in Hardwoods USLP                      535

        ---------------------------------------------------------------------
        Balance, end of period                                   $    13,141
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        The previous owners of the Business (note 1) have retained a 20%
        interest in Hardwoods LP and Hardwoods USLP through ownership of
        Class B Hardwoods LP units ("Class B LP Units") and Class B Hardwoods
        USLP units ("Class B USLP Units"), respectively. The Fund owns an
        indirect 80% interest in Hardwoods LP and Hardwoods USLP through
        ownership of all Class A Hardwoods LP units ("Class A LP Units") and
        Class A Hardwoods USLP units ("Class A USLP Units"), respectively.

        The Class A LP Units and Class B LP Units and the Class A USLP Units
        and Class B USLP Units, respectively, have economic and voting rights
        that are equivalent in all material respects except distributions on
        the Class B LP Units and Class B USLP Units are subject to the
        subordination arrangements described below until the date (the
        "Subordination End Date") on which:

        -  the consolidated Adjusted EBITDA, as defined in the Subordination
           Agreement dated March 23, 2004, of the Fund for the 12 month
           period ending on the last day of the month immediately preceding
           such date is at least $21,300,000; and

        -  cash distributions of at least $29,540,000 ($2.05 per Unit) have
           been paid on the Units and a combined amount of cash advances or
           distributions of at least $7,385,000 has been paid on the Class B
           LP Units and Class B USLP Units, being $2.05 per combined Class B
           LP and Class B USLP Units (as adjusted for issuances, redemptions
           and repurchases of Units, LP Units and USLP Units subsequently and
           by converting the cash distributions or advances by Hardwoods USLP
           on the USLP Units at the rate of exchange used by the Fund to
           convert funds received by it in US dollars into Canadian dollars)
           for the 24 month period ending on the last day of the month
           immediately preceding such date.

        The Subordinated End Date had not occurred at March 31, 2009.

        Prior to the Subordination End Date, advances and distributions on
        the LP Units and the USLP Units will be made in the following order
        of priority:

        -  At the end of each month, cash advances or distributions will be
           made to the holders of Class A LP Units and Class A USLP Units in
           a combined amount that is sufficient to provide available cash to
           the Fund to enable the Fund to make cash distributions upon the
           Units for such month at least equal to $0.08542 per Unit or, if
           there is insufficient available cash to make distributions or
           advances in such amount, such lesser amount as is available as
           determined by the board of directors of the general partners;

        -  At the end of each fiscal quarter of Hardwoods LP and Hardwoods
           USLP, including the fiscal quarter ending on the fiscal year end,
           available cash of Hardwoods LP and Hardwoods USLP will be advanced
           or distributed in the following order of priority:

           -  First, in payment of the monthly cash advance or distribution
              to the holders of Class A LP Units and Class A USLP Units as
              described above, for the month then ended;

           -  Second, to the holders of Class A LP Units and Class A USLP
              Units, to the extent that the combined monthly cash advances or
              distributions in respect of the 12 month period then ended (and
              not, for greater certainty, in any previous 12 month period) on
              Class A LP Units and Class A USLP Units were not made or were
              made in amounts less than a combined amount at least equal to
              $1.025 per Unit, the amount of any such deficiency. As of March
              31, 2009, the amount of such deficiency was $10.5 million;

           -  Third, to the holders of Class B LP Units and Class B USLP
              Units in a combined amount for one Class B LP Unit and one
              Class B USLP Unit equal, on a pro-rated basis, to the combined
              amount advanced or distributed on one Class A LP Unit and one
              Class A USLP Unit during such fiscal quarter or, if there is
              insufficient available cash to make advances or distributions
              in such amount, such lesser amount as is available;

           -  Fourth, to the holders of Class B LP Units and Class B USLP
              Units, to the extent only that combined advances or
              distributions in respect of any fiscal quarter(s) during the 12
              month period then ended (and not, for greater certainty, in any
              previous 12 month period) on one Class B LP Unit and one Class
              B USLP Unit were not made, or were made in amounts less, on a
              pro-rated basis, that the combined amount advanced or
              distributed on one Class A LP Unit and one Class A USLP Unit
              during such 12 month period, the amount of such deficiency. As
              of March 31, 2009, the amount of such deficiency was $1.1
              million.

           -  Fifth, to the extent of any excess, to the holders of the Class
              A LP Units and Class B LP Units and Class A USLP Units and
              Class B USLP Units, respectively, so that the combined advances
              or distributions on one Class A LP Unit and one Class A USLP
              Unit are the same as the combined advances or distribution on
              one Class B LP Unit and one Class B USLP Unit in respect of the
              12 month period then ended (and not, for greater certainty, any
              previous 12 month period).

        After the Subordination End Date, the holders of the Class B LP Units
        and Class B USLP Units will generally be entitled to effectively
        exchange all or a portion of their Class B LP Units and Class B USLP
        Units together for up to 3,602,500 Units of the Fund, representing
        20% of the issued and outstanding Units of the Fund on a fully
        diluted basis. In the event the Fund enters into an agreement in
        respect of an acquisition or a take-over bid of the Fund, the holders
        of the Class B LP Units and Class B USLP Units will be entitled to
        exchange such units for Units of the Fund.

        The cumulative deficiency prior to March 31, 2008, which is no longer
        recoverable by the Class B LP Unitholders and the Class B USLP
        Unitholders, has been recorded as an adjustment to the non-
        controlling interest's share of earnings in the amount of $0.6
        million for the three-month period ended March 31, 2009.

    9.  Changes in non-cash operating working capital and additional cash
        flow disclosures:

        ---------------------------------------------------------------------
                                                  Three months  Three months
                                                         ended         ended
                                                      March 31,     March 31,
                                                          2009          2008
        ---------------------------------------------------------------------

        Accounts receivable                        $    (3,910)  $    (3,504)
        Income taxes recoverable/payable                 1,731          (857)
        Inventory                                        3,362         3,243
        Prepaid expenses                                   199           258
        Accounts payable and accrued liabilities         3,322           113

        ---------------------------------------------------------------------
                                                   $     4,704   $      (747)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        CICA 1540, Cash Flow Statements, require entities to disclose total
        cash distributions on financial instruments classified as equity in
        accordance with a contractual agreement and the extent to which total
        cash distributions are non-discretionary. The Fund has no contractual
        requirement to pay cash distributions to Unitholders' of the Fund.
        During the three month period ended March 31, 2009 no discretionary
        cash distributions (three month period ended March 31, 2008 - $3.2
        million) were paid to Unitholders.

    10. Segment disclosure:

        Information about geographic areas is as follows:

        ---------------------------------------------------------------------
                                                  Three months  Three months
                                                         ended         ended
                                                      March 31,     March 31,
                                                          2009          2008
        ---------------------------------------------------------------------
        Revenue from external customers:
          Canada                                   $    20,437   $    24,639
          United States                                 32,985        46,409

        ---------------------------------------------------------------------
                                                   $    53,422   $    71,048
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        ---------------------------------------------------------------------
                                                      March 31,  December 31,
                                                          2009          2008
        ---------------------------------------------------------------------

        Property, plant and equipment:
          Canada                                   $       662   $       752
          United States                                  1,335         1,416

        ---------------------------------------------------------------------
                                                   $     1,997   $     2,168
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    11. Pensions:

        Hardwoods USLP maintains a defined contribution 401 (k) retirement
        savings plan (the "USLP Plan"). The assets of the USLP Plan are held
        and related investment transactions are executed by the Plan's
        Trustee, ING National Trust, and, accordingly, are not reflected in
        these consolidated financial statements. During the three months
        ended March 31, 2009, Hardwoods USLP contributed and expensed $68,837
        (US$55,309) (three months ended March 31, 2008 - $143,992 (US
        $143,318)) in relation to the USLP Plan.

        Hardwoods LP does not maintain a pension plan. Hardwoods LP does,
        however, administer a group registered retirement savings plan ("LP
        Plan") that has a matching component whereby Hardwoods LP makes
        contributions to the LP Plan which match contributions made by
        employees up to a certain level. The assets of the LP Plan are held
        and related investment transactions are executed by LP Plan's
        Trustee, Sun Life Financial Trust Inc., and, accordingly, are not
        reflected in these consolidated financial statements. During the
        three months ended March 31, 2009, Hardwoods LP contributed and
        expensed $49,852 (three months ended March 31, 2008 - $116,194) in
        relation to the LP Plan.

    12. Related party transactions:

        For the three months ended March 31, 2009, sales of $125,734 (three
        months ended March 31, 2008 - $126,569) were made to affiliates of
        SIL, and the Fund made purchases of $7,111 (three months ended March
        31, 2008 - $16,485) from affiliates of SIL. All these sales and
        purchases took place at prevailing market prices.

    13. Income taxes:

        Effective, March 31, 2008 the Fund completed an internal
        reorganization that involved the refinancing of inter-corporate debt
        in the form of notes issued and held by subsidiaries of the Fund. The
        reorganization did not have any effect upon the management or
        business activities of the Fund's operating subsidiaries. As a
        result of the internal re-organization, income tax losses which are
        available to reduce US taxable income of approximately US$10.3
        million arose. Based on statutory income tax rates in effect for the
        Fund's US subsidiary, this amounts to an estimated $3.6 million tax
        benefit available to subsidiaries of the Fund. Based on statutory
        income tax rates in effect for the Fund's US subsidiary, this amounts
        to an estimated $3.6 million tax benefit available to subsidiaries of
        the Fund. This $3.6 million benefit was recorded at March 31, 2008
        and is comprised of an estimated $0.8 million current income tax
        recovery and $2.8 million future income tax recovery.

        In addition, during the quarter ended March 31, 2008, tax pools
        consisting principally of Canadian tax losses carried forward, of
        approximately $16.0 million were recorded by a subsidiary of the Fund
        as a result of the Fund's re-organization plan. The tax losses
        carried forward will result in a reduction of tax otherwise payable
        under the Canadian federal government's tax on publicly traded income
        trusts. Based on tax rates expected to apply at the date such tax
        pools will be utilized, an additional $4.2 million of future income
        tax benefit was recorded by the Fund at March 31, 2008.

    14. Seasonality:

        The Fund is subject to seasonal influences. Historically the first
        and fourth quarters are seasonally slower periods for construction
        activity and therefore demand for hardwood products.

    15. Contingencies:

        The Fund and its subsidiaries are subject to legal proceedings that
        arise in the ordinary course of its business. Management is of the
        opinion, based upon information presently available, that it is
        unlikely that any liability, to the extent not provided for through
        insurance or otherwise, would be material in relation to the Fund's
        consolidated financial statements.
    

    %SEDAR: 00020372E




For further information:

For further information: Rob Brown, Chief Financial Officer, Phone:
(604) 881-1990, Fax: (604) 881-1995, Email: robbrown@hardwoods-inc.com,
www.hardwoods-inc.com

Organization Profile

HARDWOODS DISTRIBUTION INCOME FUND

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