Hardwoods Distribution Income Fund Completes Internal Reorganization and Announces Anticipated Benefits



    TRADING SYMBOL: Toronto Stock Exchange - HWD.UN

    LANGLEY, BC, March 31 /CNW/ - Hardwoods Distribution Income Fund (the
"Fund") today completed an internal reorganization giving rise to a number of
benefits for the Fund. The internal reorganization was undertaken in response
to the Canadian government's move to tax existing income trusts, and involved
the refinancing of inter-corporate debt in the form of notes issued and held
by subsidiaries of the Fund. The reorganization does not have any effect upon
the management or business activities of the Fund's operating subsidiaries.

    
    Highlights

    -   As a result of the reorganization, it is expected that the
        approximately two-thirds of the Fund's earnings generated in the US,
        which are already subject to tax in the US, will not be subject to
        additional Canadian taxes under the Canadian government's new tax
        regime.

    -   The approximately one-third of the Fund's earnings generated in
        Canada will be subject to the new tax regime commencing in 2011, but
        tax pools have been identified which are expected to result in the
        Fund paying no additional taxes under the new tax regime until at
        least 2013.

    -   The estimated impact of the reorganization on the Fund's first
        quarter 2008 financial results is:

        -  $0.8 million of current tax recovery, and $6.6 million of future
           tax recovery, for a total tax benefit to the Fund of $7.4 million
           or $0.514 per unit;
        -  One-time professional fees associated with the reorganization of
           $0.6 million, or $0.042 per unit, to be included in selling and
           administrative expenses;
        -  Overall, a $6.8 million, or $0.472 per unit, positive impact to
           first quarter 2008 net earnings.

    -   Timing of the identified tax recoveries in the Fund's cash flow from
        operating activities will depend in part on future performance of the
        business, but is anticipated to occur between 2008 and 2013.

    -   The reorganization broadens the Fund's options for financing its US
        business and provides greater flexibility to pursue long-term growth
        opportunities.
    

    "The reorganization has accomplished two key objectives for us," said
Maurice Paquette, President and CEO of Hardwoods.
    "First, we have adjusted the Fund's internal structure in response to the
federal government's decision to tax income trusts. Since the trust tax was
first proposed in late 2006, we have indicated we anticipate the new tax would
have substantially less impact on us than on other trusts that operate
principally or exclusively in Canada. That's because approximately two-thirds
of our business is conducted in the US and is already subject to US taxation.
As reported previously, we believed we would be able to re-organize our legal
structure prior to 2011 such that we would not expose our US-sourced income to
additional taxes associated with the new Canadian trust tax. The moves made
today execute that earlier announced strategy."
    "Secondly, the reorganization gives our US operating subsidiary
additional flexibility to access debt that was not available previously. As a
result, we are now better positioned to take advantage of opportunities to
grow our business, either organically or through acquisitions, as we work to
provide long-term value to unitholders," said Paquette.
    The Fund expects to realize tax benefits on both sides of the border as a
consequence of the completed reorganization. In the US, a foreign exchange
loss associated with refinancing of the internal notes is expected to create a
tax pool available to shelter approximately $10.3 million of US taxable
income. 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
the Fund. This $3.6 million benefit is comprised of an estimated $0.8 million
current income tax recovery and $2.8 million future income tax benefit. These
tax recoveries are expected to be realized in the Fund's cash flows from
operating activities between 2008 and 2010.
    In Canada, tax pools of approximately $14.0 million have been identified.
Based on tax rates under the newly enacted Canadian income trust tax, this
amounts to an additional $3.8 million anticipated tax benefit available to the
Fund. This $3.8 million is a future income tax benefit expected to be realized
in the Fund's cash flows from operating activities between 2011 and 2013.
    "We are pleased to have completed this reorganization as planned," added
Paquette. "We have identified $7.4 million in income tax recoveries available
to the Fund, and have incurred $0.6 million in professional fees to effect the
desired transactions. Taken together, we estimate a positive impact on net
earnings of $6.8 million, or $0.472 per unit, in our first quarter 2008
results."

    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 35 distribution centres comprising 1.3 million square feet of
warehouse and distribution space 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, our expectation that: as a result of the reorganization, it is
expected that the approximately two-thirds of the Fund's earnings generated in
the US, which are already subject to tax in the US, will not be subject to
additional Canadian taxes under the Canadian government's new tax regime; the
approximately one-third of the Fund's earnings generated in Canada will be
subject to the new tax regime commencing in 2011, but tax pools have been
identified which are expected to result in the Fund paying no additional taxes
under the new tax regime until at least 2013; the estimated impact of the
reorganization on the Fund's first quarter 2008 financial results is
$0.8 million of current tax recovery and $6.6 million of future tax recovery,
for a total $7.4 million, or $0.514 per unit, of tax benefits recorded by the
Fund, and one-time professional fees associated with the reorganization of
$0.6 million, or $0.042 per unit, to be included in selling and administrative
expenses; timing of the identified tax recoveries in the Fund's cash flow from
operating activities will depend in part on future performance of the
business, but is anticipated to occur between 2008 and 2013; and, the
reorganization broadens the Fund's options for financing its US business and
provides greater flexibility to pursue long-term growth opportunities.
    The purpose of the financial oriented forward looking information is to
allow readers to understand the anticipated financial effect of the
reorganization undertaking by us and such information may not be appropriate
for other purposes.
    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 we have available to distribute to our
unitholders in Canadian dollars; we do 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 our business; we do not incur material losses related
to credit provided to our customers; our products are not subjected to
negative trade outcomes; we are able to sustain our level of sales and EBITDA
margins; we are able to grow our business and to manage our growth; there is
no new competition in our markets that leads to reduced revenues and
profitability; we do 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 our
results; our management information systems upon which we are dependent are
not impaired; our insurance is sufficient to cover losses that may occur as a
result of our operations; the financial condition and results of operations of
our business upon which we are dependent is not impaired; and, there are no
changes in tax laws or the interpretation thereof.
    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 we have available to
distribute to our unitholders in Canadian dollars; we depend on key personnel,
the loss of which could harm our business; decreases in the supply of, demand
for, or market values of hardwood lumber or sheet goods could harm our
business; we may incur losses related to credit provided to our customers; our
products may be subject to negative trade outcomes; we may not be able to
sustain our level of sales or EBITDA margins; we may be unable to grow our
business or to manage any growth; competition in our markets may lead to
reduced revenues and profitability; we 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;
our results are dependent upon the general state of the economy; we are
dependent upon our management information systems; our insurance may be
insufficient to cover losses that may occur as a result of our operations; our
credit facilities contain restrictions on our ability to borrow funds and
restrictions on distributions that can be made; there are tax risks associated
with an investment in our units including changes in tax laws and the
interpretation thereof; our future growth may be restricted by the payout of
substantially all of our operating cash flow; and, other risks described in
our Annual Information Form and our 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,
we undertake no obligation to revise or update any forward-looking information
as a result of new information, future events or otherwise after the date
hereof.

    %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

Organization Profile

HARDWOODS DISTRIBUTION INCOME FUND

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