Winnipeg, Manitoba, April 29th, 2009 � Empire Industries Ltd. (�EIL� or �the Company�) today announced it has restated its consolidated financial results for the fiscal year ended December 31, 2007 (Appendix A) as well as the unaudited quarters ended March 31, 2008 (Appendix B), June 30, 2008 (Appendix C) and September 30, 2008 (Appendix D), as set out below. In addition, EIL restated its consolidated statement of changes in cash flows (Appendix E) for fiscal 2007 for changes in the definition of cash and cash equivalents and the effect of acquisitions undertaken during fiscal 2007. With the exception of one adjustment which increased net earnings in fiscal 2007 by $232,021, the adjustments do not impact on EIL�s consolidated shareholders� equity for each of the respective periods.
In general, the restatements of the consolidated statement of operations and consolidated balance sheets comprise four categories:
� An overstatement of the future tax liability at December 31, 2007, associated with two acquisitions during fiscal 2007, resulted in a reduction in the future tax liability and an offsetting reduction in property, plant and equipment of $466,084 without any impact on net earnings, comprehensive income or shareholders� equity for the fiscal year then ended;
� An understatement of net earnings, comprehensive income, retained earnings and shareholders� equity of $232,021 for the year ended December 31, 2007 as a result of an understatement of a non-cash unrealized foreign exchange gain for the fiscal year ended December 31, 2007 of $232,021 (net of future income tax provision of 104,241); and
� A reallocation of a loss of $511,906 in the first three quarters of fiscal 2008 and income of $574,106 in fiscal 2007 from other comprehensive income (�OCI�) to net earnings, with no net impact on comprehensive income and shareholders� equity, based on:
o A determination that certain foreign exchange hedge contracts previously designated as cash flow hedges, with changes in the value of the contracts recorded in OCI, should have been classified as fair value hedges under generally accepted accounting principles (�GAAP�), with the change in the value of the contracts recorded in net earnings as a non-cash unrealized foreign exchange contract gain or loss. As a result, a $569,105 loss (net of future income tax recoveries of $261,706) for the first three quarters of fiscal 2008 and a gain of $573,825 (net of future income taxes of $263,876) was restated from OCI to net earnings.
o A determination that a subsidiary previously designated as a self-sustaining foreign operation, with a $57,199 gain (2007 – $281 gain) from a change in value on currency translation recorded in OCI, should have been designated as a foreign integrated operation under GAAP, with the change in value on currency translation recorded in net earnings; and
� A determination that the value of stock options cancelled or forfeited of $20,554 during the nine months ended September 30, 2008 and recorded as a direct increase in retained earnings, should have first been reflected as a non-cash reduction in operating, general and administrative expenses and a corresponding increase in net earnings, without any resulting impact on retained earnings and shareholders� equity.
Accordingly, basic and fully diluted earnings per share for the year ended December 31, 2007 increased from $0.05 per share, as previously reported, to $0.06 per share on a restated basis. Basic and fully diluted earnings per share for the three and nine months ended September 30, 2008 decreased from $0.01 per share, as previously reported, to $nil per share on a restated basis.
The Company will release the complete restated financial statements for the fiscal year ended December 31, 2007, on a comparative basis, at the time it releases its results for the year ended December 31, 2008, expected to be April 30, 2009.
The Company will release the restated financial statements for the quarters ended March 31, 2008, June 30, 2008 and September 30, 2008, on a comparative basis with its results for the quarter ended March 31, 2009, and the quarters ending June 30, 2009 and September 30, 2009, respectively.
Appendix A � December 31, 2007
December 31, 2007
As previously
Reported December 31, 2007
As restated Ref.
Property, plant & equipment $ 29,642,296 $ 29,512,474 (iii) (iv)
Future income tax liabilities, net 3,249,157 2,887,314 (iii) (iv)
Retained earnings 4,009,894 4,816,021 (i) (ii) (iv)
Accumulated other comprehensive income 574,106 – (i) (ii)
Shareholders� equity 40,400,355 40,632,376 (iv)
Sales 117,747,987 117,748,268 (ii)
Gross profit 21,131,064 21,131,345 (ii)
Unrealized foreign exchange hedge contract gain – 1,173,962 (i) (iv)
Net earnings before income taxes 4,844,132 6,018,375 (i) (ii) (iv)
Future income tax provision (555,694) (923,810) (i) (iv)
Net earnings 3,148,397 3,954,524 (i) (ii) (iv)
Other comprehensive income 574,106 – (i) (ii)
Comprehensive income 3,722,503 3,954,524 (iv)
Earnings per share � basic and diluted $ 0.05 $ 0.06
(i) Commencing April 17, 2007, the Company had been recording unrealized gains or losses on foreign exchange derivatives, determined to be cash flow hedges for reporting purposes, in OCI. It has been determined that at the date of inception of the hedges, the Company did not have sufficient evidence to support the treatment of these foreign exchange hedge contracts as being effective (as defined by GAAP) and accordingly, the transactions should have been reported as fair value hedges for financial reporting purposes. As a result, the 2007 figures have been re-stated such that the unrealized gains of $573,825 (net of future taxes of $263,875) previously included in OCI have now been included in net earnings.
(ii) Commencing with the acquisition of Tornado Technologies Inc. (�Tornado Canada�) on November 30, 2007, the Company had been treating Tornado Canada�s wholly owned U.S. subsidiary, Tornado Technologies, Inc. (�Tornado USA�) as a self-sustaining foreign operation with changes in values on currency translation being reported in OCI. On the basis that management and financing of Tornado USA are handled principally by Tornado Canada, it has been determined that Tornado USA is in fact an integrated foreign operation for financial reporting purposes. As a result, the 2007 figures have been re-stated such that the foreign currency translation gains of $281 previously included in OCI have now been included in net earnings.
(iii) It has been determined that the value ascribed to future income tax liabilities in the original purchase price allocation for two acquisitions undertaken during the year ended December 31, 2007 was overstated by $466,084 with a consequential overstatement of the value ascribed to non-current assets. As a result, the 2007 figures have been re-stated to reflect a reduction in the future income tax liability at December 31, 2007 with a corresponding reduction in the value of property, plant and equipment.
(iv) It has been determined that the value of a foreign exchange contract acquired during the year ended December 31, 2007 was inadvertently netted with the value of property, plant and equipment acquired with the result that the unrealized gain on foreign exchange hedge contracts for the year ended December 31, 2007 reported in OCI was understated. As a result, the 2007 figures have been re-stated such that the unrealized gain on foreign exchange hedge contracts noted in (i) above was further increased by $232,021 (net of income taxes of $104,241) with corresponding increases in the value of property, plant and equipment of $336,262 and future income tax liabilities of $104,241 at December 31, 2007.
Appendix B � March 31, 2008
Quarter ended
March 31, 2008
(As previously Reported) Quarter ended
March 31, 2008
(As restated) Ref.
Property, plant & equipment $ 29,535,254 $ 29,405,432 (i)
Future income tax liabilities, net 2,782,814 2,420,971 (i)
Retained earnings 4,358,564 4,832,340 (i) (ii) (iii)
Accumulated other comprehensive income 241,755 – (i) (ii) (iii)
Shareholders� equity 40,562,551 40,794,572 (i)
Sales 38,683,299 38,693,436 (iii)
Gross profit 6,283,641 6,293,778 (iii)
Operating, general and administrative expenses (4,245,396) (4,240,879) (iv)
Unrealized foreign exchange hedge contract loss – (499,983) (ii)
Net earnings before income taxes 540,738 55,409 (ii) (iii) (iv)
Future income tax recovery 308,849 466,344 (ii)
Net earnings 344,153 16,319 (ii) (iii) (iv)
Other comprehensive income (332,351) – (ii) (iii)
Comprehensive income 11,802 16,319 (iv)
Earnings per share � basic and diluted $ – $ –
(i) The cumulative impact of the restated results for the year ended December 31, 2007 included a reduction in Property, Plant and Equipment of $129,822, a reduction in net future income tax liabilities of $361,843, a $806,127 increase in retained earnings and a $574,106 reduction in accumulated other comprehensive income, resulting in a net increase in shareholders� equity of $232,021.
(ii) Commencing April 17, 2007, the Company had been recording unrealized gains or losses on foreign exchange derivatives, determined to be cash flow hedges for reporting purposes, in OCI. It has been determined that at the date of inception of the hedges, the Company did not have sufficient evidence to support the treatment of these foreign exchange hedge contracts as being effective (as defined by GAAP) and accordingly, the transactions should have been reported as fair value hedges for financial reporting purposes. As a result, the 2008 figures for the first quarter ended March 31, 2008 have been re-stated such that the unrealized losses of $342,488 (net of future income tax recovery of $157,495) previously included in OCI have now been included in net earnings.
(iii) Commencing with the acquisition of Tornado Technologies Inc. (�Tornado Canada�) on November 30, 2007, the Company had been treating Tornado Canada�s wholly owned U.S. subsidiary, Tornado Technologies, Inc. (�Tornado USA�) as a self-sustaining foreign operation with changes in values on currency translation being reported in OCI. On the basis that management and financing of Tornado USA are handled principally by Tornado Canada, it has been determined that Tornado USA is in fact an integrated foreign operation for financial reporting purposes. As a result, the 2008 figures for the first quarter ended March 31, 2008 have been re-stated such that the foreign currency translation gains of $10,137 previously included in OCI have now been included in net earnings.
(iv) The Company had been treating the forfeiture and cancellation of outstanding stock options as a direct increase to retained earnings. It has been subsequently determined that the company should have been recording this recovery as a reduction in stock compensation expense included in operating, general and administrative expenses. As a result, the 2008 figures have been re-stated such that the recovery of stock options forfeited of $4,517 during the quarter is first applied to reduce operating, general and administrative expenses with no resulting change in retained earnings and shareholders� equity.
Appendix C � June 30, 2008
Quarter ended
June 30, 2008
(As previously Reported) Quarter ended
June 30, 2008
(As restated) Ref.
Property, plant & equipment $ 29,612,694 $ 29,482,872 (i)
Future income tax liabilities, net 3,242,630 2,880,787 (i)
Retained earnings 3,974,577 4,519,468 (i) (ii) (iii)
Accumulated other comprehensive income 312,870 – (i) (ii) (iii)
Shareholders� equity 40,355,036 40,587,057 (i)
Sales 43,650,087 43,715,384 (iii)
Gross profit 7,001,611 7,066,908 (iii)
Operating, general and administrative expenses (6,208,721) (6,208,721)
Unrealized foreign exchange hedge contract gain – 8,493 (ii)
Net loss before income taxes (603,568) (529,778) (ii) (iii)
Future income tax recovery (provision) 2,057 (618) (ii)
Net earnings (383,987) (312,872) (ii) (iii)
Other comprehensive income 71,115 – (ii) (iii)
Comprehensive income (312,872) (312,872)
Earnings per share � basic and diluted $ – $ –
(i) The cumulative impact of the restated results for the year ended December 31, 2007 and the three months ended March 31, 2008 included a reduction in Property, Plant and Equipment of $129,822, a reduction in net future income tax liabilities of $361,843, a $473,776 increase in retained earnings and a $241,755 reduction in accumulated other comprehensive income, resulting in a net increase in shareholders� equity of $232,021.
(ii) Commencing April 17, 2007, the Company had been recording unrealized gains or losses on foreign exchange derivatives, determined to be cash flow hedges for reporting purposes, in OCI. It has been determined that at the date of inception of the hedges, the Company did not have sufficient evidence to support the treatment of these foreign exchange hedge contracts as being effective (as defined by GAAP) and accordingly, the transactions should have been reported as fair value hedges for financial reporting purposes. As a result, the 2008 figures for the second quarter ended June 30, 2008 have been re-stated such that the unrealized gains of $5,818 (net of future tax provision of $2,675) previously included in OCI have now been included in net earnings.
(iii) Commencing with the acquisition of Tornado Technologies Inc. (�Tornado Canada�) on November 30, 2007, the Company had been treating Tornado Canada�s wholly owned U.S. subsidiary, Tornado Technologies, Inc. (�Tornado USA�) as a self-sustaining foreign operation with changes in values on currency translation being reported in OCI. On the basis that management and financing of Tornado USA are handled principally by Tornado Canada, it has been determined that Tornado USA is in fact an integrated foreign operation for financial reporting purposes. As a result, the 2008 figures for the second quarter ended June 30, 2008 have been re-stated such that the foreign currency translation gains of $65,297 previously included in OCI have now been included in net earnings.
Appendix D � September 30, 2008
Quarter ended
September 30, 2008
(As previously Reported) Quarter ended
September 30, 2008
(As restated) Ref.
Property, plant & equipment $ 29,454,860 $ 29,325,038 (i)
Future income tax liabilities, net 4,873,532 4,511,689 (i)
Retained earnings 4,515,682 4,809,903 (i) (ii) (iii)
Accumulated other comprehensive income 62,200 – (i) (ii) (iii)
Shareholders� equity 40,715,143 40,947,164 (i)
Sales 57,409,168 57,390,933 (iii)
Gross profit 8,101,812 8,083,577 (iii)
Operating, general and administrative expenses (5,874,891) (5,858,854) (iv)
Unrealized foreign exchange hedge contract loss – (339,321) (ii)
Net earnings before income taxes 713,064 371,545 (ii) (iii) (iv)
Future income tax provision (150,906) (44,020) (ii)
Net earnings 525,068 290,435 (ii) (iii) (iv)
Other comprehensive income (loss) (250,670) – (ii) (iii)
Comprehensive income 274,398 290,435 (iv)
Earnings per share � basic and diluted $ 0.01 $ –
(i) The cumulative impact of the restated results for the year ended December 31, 2007 and the six months ended June 30, 2008 included a reduction in Property, Plant and Equipment of $129,822, a reduction in net future income tax liabilities of $361,843, a $544,891 increase in retained earnings and a $312,870 reduction in accumulated other comprehensive income, resulting in a net increase in shareholders� equity of $232,021.
(ii) Commencing April 17, 2007, the Company had been recording unrealized gains or losses on foreign exchange derivatives, determined to be cash flow hedges for reporting purposes, in OCI. It has been determined that at the date of inception of the hedges, the Company did not have sufficient evidence to support the treatment of these foreign exchange hedge contracts as being effective (as defined by GAAP) and accordingly, the transactions should have been reported as fair value hedges for financial reporting purposes. As a result, the 2008 figures for the third quarter ended September 30, 2008 have been re-stated such that the unrealized losses of $232,435 (net of future income tax recovery of $106,886) previously included in OCI have now been included in net earnings.
(iii) Commencing with the acquisition of Tornado Technologies Inc. (�Tornado Canada�) on November 30, 2007, the Company had been treating Tornado Canada�s wholly owned U.S. subsidiary, Tornado Technologies, Inc. (�Tornado USA�) as a self-sustaining foreign operation with changes in values on currency translation being reported in OCI. On the basis that management and financing of Tornado USA are handled principally by Tornado Canada, it has been determined that Tornado USA is in fact an integrated foreign operation for financial reporting purposes. As a result, the 2008 for the third quarter ended September 30, 2008 figures have been re-stated such that the foreign currency translation losses of $18,235 previously included in OCI have now been included in net earnings.
(iv) The Company had been treating the forfeiture and cancellation of outstanding stock options as a direct increase to retained earnings. It has been subsequently determined that the company should have been recording this recovery as a reduction in stock compensation expense included in operating, general and administrative expenses. As a result, the 2008 figures have been re-stated such that the recovery of stock options forfeited of $16,037 during the quarter is first applied to reduce operating, general and administrative expenses with no resulting change in retained earnings and shareholders� equity.
Appendix E � December 31, 2007 Statement of Changes in Cash Flows
December 31, 2007
(As previously reported) December 31, 2007
(As restated)
Cash flow provided by (used in):
Operating activities
Cash flow provided by operations $ 6,007,432 $ 5,831,449
Changes in non-cash working capital (16,511,258) (5,841,730)
Investing activities (38,870,821) (14,165,044)
Financing activities � excluding bank operating lines 35,580,019 380,697
(13,794,628) (13,794,628)
Financing activities � bank operating lines assumed – 8,330,430
Financing activities � change in bank operating lines – 4,536,248
Change in cash $ (13,794,628) $ (927,950)
(i) The Company had previously disclosed its business acquisitions in the statement of cash flows as investing activities rather properly reflecting changes in non-cash working capital items, actual proceeds from common shares issued and the use of cash related to business acquisitions. As a result, the 2007 figures have been re-stated to reflect the re-allocation of these items on the statement of changes in cash flows.
(ii) The Company had previously included its bank operating loans as a component of cash and cash equivalents on the statement of cash flows. The Company has subsequently determined that its bank operating loans would be more appropriately included on the statement of cash flows as a financing activity. As a result, the 2007 figures have been re-stated to reflect this change.