Annual Report 2011 - Canlan Ice Sports

Management Discussion & Analysis
Gain on sale of assets
During the year, we sold two ice rink properties, Ice Sports Regina, Saskatchewan
and Les Deux Glaces in Candiac, Quebec.
Ice Sports Regina was sold for $3.6 million in September 2011. Due to
over capacity in the Regina marketplace, management decided to exit the
market. Proceeds from the sale were redeployed towards a combination of
debt reduction and equity contribution towards Ice Sports Romeoville. An
accounting gain of $2.3 million was recorded from the sale.
Les Deux Glaces was sold for $4.6 million in December 2011. This facility
had been leased to the City of Candiac since 2008 and pursuant to the
lease agreement, the lessee had an option to purchase the facility by the
end of the lease term which was to be December 31, 2012. The City of Candiac
exercised its option in December 2011 and the proceeds of disposition
were partially used to reduce debt and the remainder will be maintained
for future expansion opportunities in strategic markets. An accounting
gain of $0.3 million was recorded from the sale.
Valuation Adjustment on Investment Property
The Company owns a one-half interest in a plot of vacant land in Fort
Worth, Texas. Due to current real estate market conditions in the area, the
carrying amount of the property was written down by $0.2 million. The
carrying amount of this property at December 31, 2011 was $0.3 million.
Finance Income and Costs
Finance income and costs consist of interest income earned on cash on
hand, unrealized gains related to the fair value adjustment of an interest
rate swap contract, interest expense on mortgage debt and finance leases,
and amortization of deferred financing costs. The interest rate swap contract
is a derivative instrument used to fix the interest rate on $8.9 million
of mortgage debt that would otherwise be accruing interest at variable
rates. The financial instrument has not been designated as a hedge for accounting
purposes; therefore, the resulting gain or loss from the change in
fair value of the instrument is recognized in the statement of earnings and
comprehensive income.
Net finance costs of $2.9 million decreased by $0.1 million or 4.9% from
2010 as a result of debt reduction and lower interest rates.
A breakdown of our net finance cost is as follows:
in thousands 2011 2010
Mortgage interest, net of interest
income
$2,775 $3,156
Equipment lease interest 102 105
Unrealized gain on financial
instrument
(113) (342)
Amortization of deferred financing
costs and other
103 96
$2,867 3,015
At year end, the Company had interest bearing, mortgage secured debt
totaling $41.2 million (2010 – $44.4 million).
The Company has fixed the interest rate on 83% of its mortgage debt, or
$34.4 million at a weighted average rate of 6.11%. Debt with variable interest
rates consists of $4.3 million at the Prime rate plus 1.25% and $2.5
million at the LIBOR plus 2.5%.
Costs related to debt financing are amortized using the effective interest
rate method in accordance with IFRS and classified as interest expense. In
2011 this amounted to $0.1 million, same as 2010.
Net Earnings before Income Taxes
Net earnings before income taxes were $4.1 million in 2011 compared to
$1.8 million in 2010; an increase of $2.3 million.
Taxes
Each year, management reviews assumptions regarding deferred income tax
assets and liabilities to ensure that the reported balances appropriately
reflect tax benefits available to offset future income taxes and future
reversal of those benefits. As a result of utilizing tax benefits related to
tax loss carry forwards, capital cost allowance, cumulative eligible capital
and deferred revenue deductions, there is no current income tax payable
for the 2011 fiscal year.
After fiscal 2011, the Company will have utilized virtually all tax benefits
associated with non-capital losses carried forward related to Canadian operations.
However, we anticipate that capital cost allowance and deferred
revenue deductions will still be available to offset taxable income in 2012.
Canlan Ice Sports Corp. 2011 Annual Report
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