canwel building materials income fund 08- financials -final.pdf5 canwel building materials income...

CanWel Building Materials Income Fund

Consolidated Financial Statements

(Unaudited) Three months ended September 30, 2008 and 2007

(in thousands of Canadian dollars)

2

CanWel Building Materials Income Fund Third Quarter Report 2008


Notice of No Auditor Review of Interim Financial Statements

Under National Instrument 51-102 “Continuous Disclosure Obligations”, Part 4, Subsection 4.3(3a), if an auditor has not performed a review of the interim financial statements, they must be accompanied by a notice indicating that the financial statements have not been reviewed by an auditor.

The accompanying unaudited interim consolidated financial statements of the Fund have been prepared by and are the responsibility of the Fund’s management.

The Fund’s independent auditor, PricewaterhouseCoopers, has not performed a review of these financial statements in accordance with standards established by the Canadian Institute of Chartered Accountants for a review of interim financial statements by an entity’s auditor.

November 3, 2008

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CanWel Building Materials Income Fund Consolidated Balance Sheets (Unaudited)

September 30, 2008 December 31, 2007 (in thousands of Canadian dollars) $ $ Assets Current assets Accounts receivable Trade 93,823 59,929 Other 2,526 1,404 Inventories 94,587 99,522 Prepaid expenses 3,213 3,154 Future income taxes 1,245 1,027 195,394 165,036 Property, plant and equipment 34,974 40,005 Future income taxes 5,079 5,266 Intangible assets 7,897 8,899 Goodwill 28,982 28,982 Pension benefits 11,338 9,787 Other assets 1,966 1,756 285,630 259,731 Liabilities Current liabilities Bank indebtedness 5,094 1,906 Accounts payable and accrued liabilities 66,598 49,594 Distributions payable (note 7) 2,038 2,061 Current portion of long-term debt (note 6) 291 1,194 74,021 54,755 Deferred gain 541 596 Long-term debt (note 6) 114,170 99,920 Post retirement benefits 5,299 5,335 194,031 160,606 Unitholders’ Equity Unitholders’ capital (note 7) 148,414 149,928 Contributed surplus (note 7) 4,061 4,025 Retained Earnings (Deficit) 31,141 16,847 Cumulative distributions (note 7) (92,017) (71,675) 91,599 99,125 285,630 259,731 Contingencies and commitments (note 10)

The accompanying notes are an integral part of these consolidated financial statements.

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CanWel Building Materials Income Fund Consolidated Statements of Earnings and Retained Earnings For the nine months ended September 30, 2008 and 2007 (Unaudited)

2008 2007 (in thousands of Canadian dollars) $ $ Deficit — Beginning of period 16,847 (347) Net earnings for the period 14,429 16,237 Accrued distributions on unvested Restricted Equity Units (135) (92) Retained earnings — End of period 31,141 15,798


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CanWel Building Materials Income Fund Consolidated Statements of Earnings and Comprehensive Earnings (Unaudited)

Three months ended September 30,

Nine months ended September 30,

2008 2007 2008 2007 (in thousands of Canadian dollars, except per unit amounts) $ $ $ $

Sales 227,278 235,214 638,429 673,156 Cost of sales 198,720 205,850 557,767 589,587 Gross Margin 28,558 29,364 80,662 83,569 Expenses Distribution, selling and administration 17,671 17,315 53,052 54,509 Unit-based compensation (note 7) 260 202 972 1,506 Depreciation of property, plant and equipment 1,672 1,723 5,082 5,197 Amortization of intangible, other assets and deferred gain 384 380 1,150 1,140 Loss (gain) on disposal and write down of property, plant and equipment (note 4)

936

—

936

(6)

20,923 19,620 61,192 62,346 Operating earnings before interest and income taxes 7,635 9,744 19,470 21,223 Interest (note 8) 1,422 1,920 5,072 6,282 Earnings before income taxes 6,213 7,824 14,398 14,941 Provision for (recovery of) income taxes (note 9) Current — 41 — 116 Future 653 298 (31) (1,412) 653 339 (31) (1,296)

Net earnings and comprehensive earnings for the period 5,560 7,485 14,429 16,237 Net earnings per unit Basic and diluted 0.16 0.21 0.41 0.44 Weighted average number of units outstanding (note 7) Basic 35,245,012 36,426,915 35,387,575 36,785,238 Diluted 35,328,385 36,549,506 35,478,478 36,871,698


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CanWel Building Materials Income Fund

Consolidated Statements of Cash Flows (Unaudited) Three months ended

September 30, Nine months ended

September 30, 2008 2007 2008 2007 (in thousands of Canadian dollars) $ $ $ $

Cash flows from operating activities Net earnings for the period 5,560 7,485 14,429 16,237 Items not affecting cash Depreciation of property plant and equipment 1,672 1,723 5,082 5,197 Future income taxes 653 298 (31) (1,412) Net change in pensions and other post retirement benefits (483) (660) (1,587) (2,112) Amortization of intangible assets 334 333 1,002 1,001 Amortization of other assets 68 65 203 194 Amortization of financing costs 64 88 192 184 Amortization of deferred gain (18) (19) (55) (56) Accretion of promissory notes 32 33 96 86 Loss (gain) on disposal and write down of property, plant and equipment (note 4)

936

—

936

(6)

Unit-based compensation 260 202 972 1,506 9,078 9,548 21,239 20,819 Changes in non-cash working capital items (note 12) 30,751 36,193 (13,136) 15,319 39,829 45,741 8,103 36,138 Cash flows from financing activities Units issued 53 65 225 394 Repurchase of units (note 7) (2,810) (1,727) (2,810) (3,085) Distributions paid (6,190) (6,403) (20,365) (19,107) Payment of vendor take-back commitment (note 3) — — — (2,000) Increase (decrease) in long-term debt (31,102) (31,026) 13,059 10,494 (40,049) (40,091) (9,891) (13,349)

Cash flows from investing activities Business acquisition (note 3) — — — (18,976) Net (increase) decrease in other assets 709 59 (413) 111 Purchase of property, plant and equipment (270) (123) (987) (443) Proceeds on disposition of property, plant and equipment — — — 30 439 (64) (1,400) (19,278) Increase (decrease) in cash 219 5,586 (3,188) 3,511 Bank indebtedness — Beginning of period (5,313) (9,653) (1,906) (7,578) Bank indebtedness — End of period (5,094) (4,067) (5,094) (4,067) Supplemental cash flow information Cash paid for income taxes — — — — Cash paid for interest 1,326 1,799 4,784 6,012 Non-cash investing and financing activities Exchangeable partnership units and other non-cash consideration for business acquisition (note 3)

—

—

—

19,010


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Notes to Consolidated Financial Statements

CanWel Building Materials Income Fund Notes to Consolidated Financial Statements For the three months ended September 30, 2008 and 2007 (Unaudited)

(in thousands of Canadian dollars)

1. Basis of presentation These interim consolidated financial statements do not include all of the financial statement disclosures required by Canadian generally accepted accounting principles for annual financial statements and, accordingly, should be read in conjunction with the Fund’s annual audited consolidated financial statements and notes for the year ended December 31, 2007. The unaudited interim consolidated financial statements follow the same accounting policies and methods of computation as used in the 2007 annual financial statements except as disclosed in note 2.

Certain comparative figures have been reclassified to conform to the current period’s presentation.

2. Adoption of changes in accounting policies Effective January 1, 2008, the Fund adopted new accounting standards issued by the Canadian Institute of Chartered Accounts (‘CICA”) as follows:

Section 1535 - Capital disclosures This section specifies the disclosure of the Fund’s objectives, policies and processes for managing capital. Section 3031 - Inventories This section prescribes the accounting treatment for inventories and provides guidance on the determination of cost and subsequent recognition as an expense, including any write-down to net realizable value.

Inventories are stated at the lower of average cost and net realizable value. Cost is determined by the first-in, first-out method, net of vendor rebates and includes materials, freight and, where applicable, treatment costs.

The adoptions of this new standard had no financial effect on the consolidated financial statements of the Fund.

Section 3862 – Financial instrument disclosures This section enhances the disclosure requirements on the nature and extent of risks arising from financial instruments and how the Fund manages those risks.

Section 3863 – Financial instrument presentations This section establishes standards for presentation of financial instruments and non-financial derivatives.

New accounting pronouncements not yet adopted Section 3064 – Goodwill and Intangible Assets

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Effective January 1, 2009, the Fund will adopt the new CICA standard 3064 “Goodwill and Intangible Assets”. This section replaces CICA 3062 “Goodwill and Intangible Assets”, and establishes revised standards for the recognition, measurement, presentation and disclosure of goodwill and intangible assets. Concurrent with the effective date of this standard, EIC-27 “Revenues and expenditures in the pre-operating period” will be withdrawn. Accordingly pre-production and start-up costs will be expensed as incurred. The Fund is considering the effect this standard may have on its consolidated financial statements. International Financial Reporting Standards On February 13, 2008, The Canadian Accounting Standards Board confirmed that Canadian generally accepted accounting principles (“Canadian GAAP”) will cease to exist for all publicly accountable enterprises targeted for fiscal years commencing January 1, 2011. From that date onward, publicly traded companies and certain other publicly accountable enterprises will be required to report under International Financial Accounting Standards (“IFRS”). The impact of the transition to IFRS on the Fund’s consolidated financial statements has not been determined.

3. Business acquisition On January 2, 2007, CanWel Holding Partnership (the “Partnership”) purchased from Western Pacific Wood Preservers Ltd., Western Cleanwood Preservers Ltd., Alberta Wood Preservers Ltd., Quebec Wood Preservers Ltd. and Eastern Wood Preservers Ltd. (collectively, the “Vendors”), all of the limited partnership interest (the “LP units”) in five limited partnerships (Western Pacific Wood Preservers Limited Partnership, Western Cleanwood Preservers Limited Partnership, Alberta Wood Preservers Limited Partnership, Quebec Wood Preservers Limited Partnership and Eastern Wood Preservers Limited Partnership) (the “LPs”), and all of the outstanding shares (the “GP shares”) in the capital of their respective general partners (collectively, the “GPs”) (the “Acquisition”). At the time of the completion of the Acquisition, the LPs (together with their GPs) leased the land and buildings, owned the equipment and operated five lumber pressure treating plants, two of which are located in British Columbia and one of which is located in each of Alberta, Ontario and Quebec. The purchase price for the LP units and GP shares was satisfied through:

(a) the issuance to the Vendors of 3,111,111 Exchangeable Partnership Units and 3,111,111 special voting units;

(b) the payment to the Vendors of $21,285 in cash;

(c) a vendor take back commitment in the aggregate amount of $2,000, which was repaid from cash on hand in the LPs immediately after closing; and

(d) five unsecured non-interest bearing promissory notes of the Partnership in the aggregate principal amount of $3,800.

The Vendors are controlled by a Trustee of the Fund and the Acquisition constituted a related party transaction.

The Acquisition was accounted for using the purchase method of accounting whereby the purchase price paid is allocated to the estimated fair value of the assets acquired and liabilities assumed. The allocation was determined by the Fund’s management based on information supplied by the management of the Vendors and independent valuations of equipment conducted prior to the Acquisition.

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The purchase price was allocated as follows:

$

Current assets 4,041 Current liabilities (1,550) Machinery and equipment 7,600 Goodwill 28,982

39,073

Total purchase price 41,382 Cash acquired (2,309) Purchase price paid net of cash acquired 39,073

The purchase price includes the following:

Cash 22,372 Vendor take-back commitment 2,000 Promissory notes - at fair value 3,414 Exchangeable Partnership Units 13,596

41,382 The 3,111,111 Exchangeable Partnership Units issued to the Vendors were valued at $4.37 per unit, based on the average closing market price of the Fund’s unit price for the period of five days both before and after October 2, 2006, the date when the transaction was announced.

The allocation above included costs of $1,087.

Immediately following the purchase, the cash acquired at time of purchase was used to settle the vendor take-back commitment and repay $295 of the promissory notes.

4. Write down of property, plant and equipment In the quarter ended September 30, 2008, the Fund recorded a write down of $865 on certain production equipment as a result of curtailing operations at one of the treatment plants and consolidating its operations with another of the Fund's treatment plants located nearby in order to obtain reduced overall production and others costs.

5. Pensions and other post-retirement benefits Total net benefit expense of the Fund’s pension and post-retirement benefit plans in the third quarter ended September 30, 2008 was $287 (2007 - $385) and for the nine months ended September 30, 2008 was $1,017 (2007 - $1,281).

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6. Long-term debt September 30, December 31, 2008 2007 $ $

Revolving loan facility (see below) 113,837 99,869Financing costs (770) (962) 113,067 98,907Promissory notes payable to a company controlled by a Trustee,

non-interest bearing, repayable by monthly instalments of $97, maturing on January 1, 2010 (note 3) 1,385 2,162

Obligation under capital leases, bearing interest at varying rates up to 7.4% and maturing on various dates up to 2010 9 45

114,461 101,114

Less: Current portion 291 1,194 114,170 99,920

Revolving loan facility

The Fund’s revolving loan facilities outstanding at September 30, 2008 with Wachovia Capital Financial Corporation (Canada) were renewed on September 30, 2007 for a four-year period ending September 30, 2011. Under the facility up to $275 million may be borrowed for operating requirements in Canadian and U.S. currency. Interest is floating based on the Canadian prime rate or U.S. prime rate. The amount advanced under the facility at any time is limited to a defined percentage of inventories and accounts receivable, less certain reserves. The facility is secured by a first charge over the Fund’s assets and an assignment of accounts receivable and requires that certain covenants be met by the Fund.

7. Unit capital and contributed surplus The authorized capital of the Fund consists of an unlimited number of Fund units. The following is a summary of changes of unitholder’s capital and contributed surplus of the Fund:

Exchangeable Fund units Partnership Units Contributed Number Amount Number Amount surplus $ $ $ Balance at December 31, 2007 24,183,456 113,442 11,144,279 36,486 4,025 Units issued pursuant to: Employee Unit Ownership Plan — for cash 26,828 108 — — — Restricted Unit Equity Plan 217,515 902 — — (902) Unit Option Plan 54,999 286 — — (169) Units repurchased (699,900) (2,810) — — — Unit-based compensation — — — — 972 Accrued distributions on unvested Restricted Equity Units — — — — 135 Balance at September 30, 2008 23,782,898 111,928 11,144,279 36,486 4,061

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As at September 30, 2008, the outstanding unitholders’ capital is as follows:

Number Amount $ Fund units 23,782,898 111,928 Exchangeable Partnership Units 11,144,279 36,486 34,927,177 148,414

Unit option plan The following is an analysis of the outstanding unit options:

Unit options Weighted average exercise price $ Fund unit options outstanding at December 31, 2007 1,355,415 3.81 Unit options exercised (54,999) 2.13 Fund unit options outstanding at September 30, 2008 1,300,416 3.89 Exercisable at September 30, 2008 1,300,416 3.89

The following table summarizes the unit options outstanding at September 30, 2008:

Weighted average Weighted Number of Exercise Number remaining contractual average exercise exercisable price outstanding life (years) price options $ $ 2.125 - 4.25 1,300,416 5.25 3.89 1,300,416 Compensation expense in respect of outstanding options for the three months ended September 30, 2008 was $110 (2007 - $1) and for the nine months ended September 30, 2008 was $270 (2007 - $699).

Employee unit ownership plan (EUOP) Effective January 1, 2008, the Fund issued 13,337 units from treasury at a price of $4.12 per unit for gross proceeds of $55 from employees, pursuant to the EUOP.

Effective July 1, 2008, the Fund issued 13,491 units from treasury at a price of $3.93 per unit for gross proceeds of $53 from employees, pursuant to the EUOP.

Restricted Equity Unit Plan On May 11, 2006, unitholders approved the CanWel Restricted Equity Unit Plan (the “Plan”). The Plan provides for an allotment of Restricted Equity Units (“REUs”) to designated trustees of the Fund and designated directors, officers and employees of CanWel (each a “Member”) at the discretion of the compensation committee of the Fund. The value of the REUs will appreciate or depreciate with increases or decreases in the market price of the Fund’s units.

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REUs vest one third on the date of grant and one third on each of the first and second anniversary of the date of the grant. However, vesting may be accelerated at the discretion of the compensation committee. REUs shall, within 30 days of vesting and, in any event, by no later than December 31 following the vesting date, be satisfied by the Fund issuing to the Member that number of units equal to the number of vested REUs then credited to the Member. The REUs earn additional REUs for the distributions that would otherwise have been paid on the REUs as if they had been issued as of the date of the grant. The number of additional REUs is calculated using the average market price of the Fund units in the five days immediately preceding each distribution.

REUs granted are considered to be in respect of future services and are recognized in unit based compensation costs over the vesting period. Compensation cost is measured based on the market price of the Fund’s units on the date of grant of the REUs.

The Fund has granted REUs at various dates. One third of these vested at time of grant and this has been recognized as unit based compensation at that time. The balance of the REUs is unvested and is recognized in compensation costs on a straight line basis over the 24 month vesting period. Compensation expense in respect of REUs for the three month period ended September 30, 2008 amounted to $150 (2007 – $201) and for the nine month period ended September 30, 2008 was $626 (2007 - $707).

In the quarter ended September 30, 2008, the Fund issued 19,430 REUs (2007 – 16,665) for REUs granted and vested in the quarter and for the nine months ended September 30, 2008, the Fund issued 200,789 REUs (2007 – 138,806) For the nine months ended September 30, 2008, the Fund granted and issued 16,726 REUs on May 12, 2008 at a grant date value of $76 and this was recognized as unit based compensation at that time. For the nine months ended September 30, 2007, the Fund granted and issued 24,550 REUs at grant date values which totalled $100.

The Fund’s obligation to issue units on the vesting of REUs is an unfunded and unsecured obligation of the Fund.

Outstanding Vested REUs granted and vested on May 29, 2006 — 77,500 REUs granted and vested on June 13, 2006 (1) — 1,666 REUs granted and vested on January 5, 2007 — 12,730 REUs granted and vested on March 27, 2007 (2) 90,170 181,580 REUs granted and vested on May 29, 2007 — 11,820 REUs granted and vested on August 13, 2007 16,670 33,330 REUs granted and vested on March 11, 2008 (3) 75,001 40,332 REUs granted and vested on May 12, 2008 — 16,726 Fund units issued — (408,367) Additional REUs earned on unvested REUs 34,453 32,683 Balance at September 30, 2008 216,294 — (1) Subsequent to being granted, 3,334 of these REUs were forfeited. (2) Subsequent to being granted, 2,500 of these REUs were forfeited. (3) Subsequent to being granted, 5,667 of these REUs were canceled.

Earnings per unit Earnings per unit is a calculation using the weighted average number of Fund units and Exchangeable Partnership Units outstanding for the period. Diluted earnings per unit assume the exercise of unit options using the treasury stock method.

13



Distributions During the nine months ended September 30, 2008, the Fund declared distributions to unitholders of $13,935 and the Partnership declared total distributions to Exchangeable Partnership Unitholders of $6,407, resulting in aggregate distributions of $20,342.

The amounts and record dates of distributions declared were as follows:

Exchangeable Fund units Partnership Units Amounts Amounts 2008 per unit 2008 per unit $ $ $ $ January 31, 2008 1,411 0.05833 650 0.05833 February 29, 2008 1,412 0.05833 650 0.05833 March 31, 2008 2,638 0.10833 1,207 0.10833 April 30, 2008 1,420 0.05833 650 0.05833 May 31, 2008 1,426 0.05833 650 0.05833 June 30, 2008 1,426 0.05833 650 0.05833 July 31, 2008 1,427 0.05833 650 0.05833 August 29, 2008 1,387 0.05833 650 0.05833 September 30, 2008 1,388 0.05833 650 0.05833 13,935 0.57497 6,407 0.57497 The distributions with a record date of September 30, 2008 totaling $2,038 were accrued at September 30, 2008 and paid in October 2008.

Normal Course Issuer Bid (NCIB) On June 5, 2008, The Toronto Stock Exchange (the “TSX”) accepted the Fund’s notice of intention to renew its NICB through the TSX. The Fund intends to purchase for cancellation up to 1,914,954 of its issued and outstanding fund units by way of a NICB. The purchase period commenced on June 11, 2008 and will terminate on June 10, 2009, or on such earlier date as the Fund may complete its purchases pursuant to the notice of intention filed with the TSX or provides notice of termination of the NICB to the TSX. In the quarter ended September 30, 2008, the Fund repurchased and cancelled 699,900 fund units, representing approximately 37% of the total fund units targeted for repurchase, for a total cash outlay of $2,810. As at September 30, 2008, the Fund had 23,782,898 fund units issued and outstanding.

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8. Interest The Fund incurred interest expense and interest income as follows: Three months ended


September 30, 2008 2007 2008 2007 $ $ $ $ Long-term debt (other than capital lease obligations) 1,458 1,923 5,009 6,236 Capital lease obligations — — — 11 Interest income (132) (124) (225) (235) Net cash interest expense 1,326 1,799 4,784 6,012 Amortization of financing costs 64 88 192 184 Accretion of promissory notes 32 33 96 86 1,422 1,920 5,072 6,282

9. Income taxes The Fund is a unit trust for income tax purposes and, accordingly, the Fund is taxable only on any taxable income not allocated to the unitholders. Subsidiaries of the Fund are subject to tax at statutory rates. During the nine months ended September 30, 2008, all taxable income of the Fund has been distributed to unitholders. Any income tax obligations relating to the distributions are the obligations of the unitholders.

The Fund’s effective income tax rate differs from the statutory income tax rate. The difference arises from the following items:

Three Months Ended Nine Months Ended September 30, September 30, 2008 2007 2008 2007 $ $ $ $ Earnings before income taxes 6,213 7,824 14,398 14,941 Income tax at statutory rates 1,984 2,645 4,596 5,101 Fund distributions deductible for tax purposes (1,302) (1,703) (3,913) (5,008) Partnership income allocated to partners (611) (743) (1,808) (2,185) Unit-based compensation 83 68 310 509 Amounts not deductible for tax and other 499 72 784 287 Provision for (recovery of) income taxes 653 339 (31) (1,296)

10. Contingencies and commitments Lease commitments The Fund has operating lease commitments as follows:

a. real estate operating leases with third parties and related parties covering many of the distribution centre properties and treatment plant properties that it operates across Canada.

b. operating leases covering certain vehicles and warehouse equipment , a computer hosting contract and the leasing of computer equipment and network communication lines.

15



Future minimum payments due under the terms of these leases are as follows:

$ Year ending December 31 2008 1,535 2009 6,274 2010 5,836 2011 5,171 2012 4,220 Thereafter 12,610 35,646

Claims During the normal course of business, certain product liability claims have been brought against the Fund and its suppliers. Management has contested the validity of these claims and believes that they are without merit and that any possible settlement will have no material effect on the financial position or future earnings of the Fund.

11. Financial instruments

Financial risk management

The Fund’s activities result in exposure to a variety of financial risks, including risks related to credit, interest rates, currency and liquidity.

Financial instrument assets include accounts receivable. Accounts receivable are measured at amortized cost. Financial instrument liabilities include accounts payable and accrued liabilities, distributions payable and long-term debt. All financial liabilities are measured at amortized cost. There are no financial instruments classified as available-for-sale or held-to-maturity.

The Board of Trustees has overall responsibility for establishment and oversight of the Fund’s risk management which seeks to minimize any potential adverse effects on the Fund’s financial performance.

Credit risk

Credit risk is the risk of financial loss to the Fund if a customer who fails to meet its contractual obligations, and arises primarily from the Fund’s receivables from customers. The Fund grants credit to its customers in the normal course of operations. To limit its exposure to credit risk, the Fund performs ongoing evaluations of the credit quality of its customers and follows diligent credit collection procedures. Purchase limits are established for each customer and are reviewed regularly.

The Fund regularly reviews the collectibility of its accounts receivable and establishes an allowance for doubtful accounts based on its best estimate of any potentially uncollectible accounts. At September 30, 2008, the maximum exposure to credit risk is the carrying value of receivables.

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Interest rate risk The Fund is exposed to interest rate risk through its variable rate long-term debt (see note 5). Based on the Funds average debt level during 2007, the sensitivity of a 1% increase in interest rates would result in an approximate decrease of $820 in net annual earnings.

Currency risk Currency risk is the risk that changes in market prices of foreign exchanges rates will affect the Fund’s earnings or the value of its holdings of financial instruments. The Fund is exposed to currency risk on sales and purchase transactions that are denominated in United States dollars.

The Fund utilizes forward foreign exchange contracts to reduce exposure to fluctuations in foreign currency exchange rates. The Fund does not purchase or hold forward foreign exchange contracts for speculative purposes.

As at September 30, 2008, a $0.01 increase in the United States dollar versus the Canadian dollar would have an insignificant impact on net earnings.

Liquidity risk Liquidity risk is the risk that the Fund will not be able to meet its financial obligations as they fall due. The Fund manages liquidity by having appropriate credit facilities available at all times. In addition, the Fund continuously monitors and reviews both actual and forecasted cash flows. The Fund is exposed to refinancing risks as the current credit facilities are available for a specific term (see note 6).

At September 30, 2008, the fair value of the Fund’s long-term debt approximated its carrying value of $114 (September 30, 2007 - $101) as the long-term debt bore interest at current market rates. The fair value of other financial liabilities approximates their carrying values due to their short-term nature.

12. Changes in non-cash working capital items Three months ended


September 30, 2008 2007 2008 2007 (in thousands of Canadian dollars) $ $ $ $

Accounts receivable 30,776 33,507 (35,016) (20,211) Inventories 8,352 15,618 4,935 29,669 Prepaid expenses 178 813 (59) (1,301) Accounts payable and accrued liabilities (8,555) (13,745) 17,004 7,162 30,751 36,193 (13,136) 15,319

13. Seasonality

The Fund’s sales are subject to seasonal variances due to the seasonality of its customers’ selling cycles. This creates a timing difference between distributable cash earned and distributions paid. While the Fund has leveled distributions to provide a regular income stream to unitholders over the course of the year, the second and third quarters have historically been the Fund’s most profitable.

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14. Foreign sales and significant customer During the quarter ended September 30, 2008, the Fund has sales to the United States of $303 (2007 - $768) and for the nine months ended September 30, 2008 of $1,227 (2007 - $1,476).

The Fund has sold products to certain customers that comprise greater than 10% of its sales. During the quarter ended September 30, 2008, three customers purchased $87,143 (2007 - $89,590 representing three customers) which is in excess of 10% of the Fund’s sales and for the nine months ended September 30, 2008 three customers purchased $240,622 (2007 - $234,795, representing three customers).

15. Capital disclosures The Fund’s objectives when managing capital are to safeguard its ability to continue as a going concern, so that it can continue to provide distributions to unitholders, exchangeable partnership unit holders and benefits for other stakeholders. The Fund includes debt and equity, comprising unitholders’ capital, contributed surplus retained earnings and cumulative distributions on units, in the definition of capital.

The Fund seeks to maintain a balance between the higher returns that might be possible with the leverage afforded by higher borrowing levels and the security afforded by a sound capital structure. It does this by maintaining appropriate debt levels in relation to its working capital and other assets in order to provide the maximum distributions to unitholders commensurately with the level of risk. Also, the Fund utilizes its debt capabilities to buy back units, where appropriate, in order to maximize cash distribution rates for remaining unitholders.

The Fund manages the capital structure and makes adjustments to it in the light of changes in economic conditions. In order to maintain or adjust the capital structure, the Fund may adjust the amount of distributions paid to unitholders, purchase units in the market, issue new units, or sell assets to reduce debt.

The Fund’s policy is to distribute all available cash from operations to the Fund for distribution to unit holders after provision for cash required for maintenance capital expenditures and other reserves considered advisable by the Fund’s trustees. The Fund has eliminated the impact of seasonal fluctuations by equalizing monthly distributions.

There are no externally imposed capital requirements and the Fund’s loan agreements do not contain any capital maintenance covenants.

There were no changes to the Fund’s approach to capital management during this period.

TrusteesIan M. BaskervilleToronto, Ontario

Peter DhillonRichmond, British Columbia

Amar S. DomanWest Vancouver, British Columbia

Tom DonaldsonVancouver, British Columbia

Kelvin DushniskyToronto, Ontario

Todd GrenichSeattle, Washington

Stephen W. MarshallVancouver, British Columbia

Siegfried J. ThomaPortland, Oregon

Transfer AgentCIBC Mellon Trust CompanyVancouver, British Columbia

AuditorsPricewaterhouseCoopers LLPVancouver, British Columbia

SolicitorsGoodmans LLPToronto, Ontario

Davis LLPVancouver, British Columbia

OfficersAmar S. DomanChairman of the Board

Tom DonaldsonPresident & CEO

Martin HopeChief Financial Officer

R.S. (Rob) DomanCorporate Secretary

CanWel Building MaterialsNational OfficeSuite 1510, 700 West Georgia St.Vancouver, British ColumbiaCanada

Mailing AddressP.O. Box 10034, Pacific CentreVancouver, British ColumbiaCanada V7Y 1A1

ContactPhone: (604) 432-1400Internet: www.canwel.com

Stock ExchangeToronto Stock Exchange

Trading Symbol: CWX.UN

Corporate Information

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