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| Share Name | Share Symbol | Market | Type |
|---|---|---|---|
| Peruvian Precious Metals Corporation | TSXV:SGP | TSX Venture | Common Stock |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 0 | - |
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International Forest Products Limited ("Interfor" or the "Company") (TSX:IFP.A)
reported net earnings of $1.1 million or $0.02 per share in the third quarter of
2012.
Excluding restructuring costs and other one-time items, the Company's net
earnings in the third quarter were $0.6 million or $0.01 per share compared with
net earnings of $0.9 million or $0.02 per share in the second quarter of 2012
and net earnings of $2.4 million or $0.04 per share in the third quarter of
2011.
Included in the Company's results in the current quarter was a share-based
compensation expense of $2.3 million or $0.04 per share compared to an expense
of $0.2 million or $0.00 per share in the second quarter and a recovery of $0.9
million or $0.02 per share in the third quarter of 2011.
EBITDA for the quarter (adjusted to exclude one-time items and other income but
including provisions for share-based compensation) was $14.9 million compared
with $16.5 million in the second quarter and $17.2 million in the third quarter
last year.
Lumber production in the third quarter was the highest in Interfor's history at
350 million board feet, up 17 million board feet quarter-over-quarter, in spite
of a two week curtailment at Grand Forks associated with the capital project
underway at that facility. Sales volume, including wholesale activities, was 366
million board feet, compared with 363 million board feet in the second quarter.
During the quarter, the Company's B.C. Interior operations benefitted from
higher product prices and lower export tax rates on shipments to the U.S. These
gains were offset in part by higher log costs and the curtailment at Grand
Forks.
Sales values at the Company's operations in the U.S. Pacific Northwest were flat
quarter-over-quarter while chip prices in that region were off 12% relative to
the second quarter.
Results for the Company's B.C. Coast operations benefitted from the drop in
export tax rates but were negatively affected by a 42% drop in log production
quarter-over-quarter resulting from an extended fire season.
In the quarter, SPF 2x4 in the U.S. market averaged US$300 per mfbm, up US$5 per
mfbm versus the second quarter, and Hem-Fir studs were US$350 per mfbm, up US$13
per mfbm. MSR continued to show strength in the third quarter with SPF 1650f up
US$18 per mfbm. The market in China remained firm during the quarter although
prices continued to lag those in North America. In Japan, green hemlock squares
were flat while J Grade dimension was up US$12. Cedar prices improved slightly
quarter-over-quarter on limited supply.
Export taxes on shipments to the U.S. were 5% in July and 10% in August and
September.
In the quarter, Interfor generated $22.0 million in cash from operations after
working capital changes were considered. Capital spending amounted to $20.2
million, including $9.9 million on the Grand Forks and Castlegar projects.
Net debt closed the quarter at $117.8 million or 24 percent of invested capital.
In spite of recent positive news, the outlook for the U.S. housing sector
remains uncertain and concerns over sustainability continue. Export taxes have
dropped to 5% for October but will increase to 10% in November. Canadian housing
starts are expected to weaken through the balance of 2012.
Activity levels in China and Japan have improved in recent weeks.
The Canadian dollar is expected to trade near par relative to its U.S.
counterpart through the balance of 2012.
Interfor continues to devote considerable attention to the capital project at
Grand Forks and Castlegar. The Grand Forks project is well ahead of schedule,
with the new line now scheduled to commence start-up procedures in mid-December.
The final stage of the Castlegar project is scheduled for completion in January.
As always, Interfor will maintain a disciplined approach to managing its
business by focusing on items that will position the Company to deliver above
average returns on capital invested as markets recover.
FORWARD-LOOKING STATEMENTS
This release contains information and statements that are forward-looking in
nature, including, but not limited to, statements containing the words "will"
and "is expected" and similar expressions. Such statements involve known and
unknown risks and uncertainties that may cause Interfor's actual results to be
materially different from those expressed or implied by those forward-looking
statements. Such risks and uncertainties include, among others: general economic
and business conditions, product selling prices, raw material and operating
costs, changes in foreign-currency exchange rates, and other factors referenced
herein and in Interfor's Annual Report and Management Information Circular
available on www.sedar.com. The forward-looking information and statements
contained in this report are based on Interfor's current expectations and
beliefs. Readers are cautioned not to place undue reliance on forward-looking
information or statements. Interfor undertakes no obligation to update such
forward-looking information or statements, except where required by law.
ABOUT INTERFOR
Interfor is a leading global supplier, with one of the most diverse lines of
lumber products in the world. The Company has operations in British Columbia,
Washington and Oregon, including two sawmills in the Coastal region of British
Columbia, three in the B.C. Interior, two in Washington and two in Oregon. For
more information about Interfor, visit our website at www.interfor.com.
There will be a conference call on Friday, November 2, 2012 at 8:00 AM (Pacific
Time) hosted by INTERNATIONAL FOREST PRODUCTS LIMITED for the purpose of
reviewing the Company's release of its Third Quarter, 2012 Financial Results.
The dial-in number is 1-866-323-8540. The conference call will also be recorded
for those unable to join in for the live discussion, and will be available until
November 16, 2012. The number to call is 1-888-203-1112, Passcode 8551264.
International Forest Products Limited
Third Quarter Report
For the three and nine months ended September 30, 2012
Management's Discussion and Analysis
Dated as of November 1, 2012
This Management's Discussion and Analysis ("MD&A") provides a review of
Interfor's financial performance for the three and nine months ended September
30, 2012 relative to 2011, the Company's financial condition and future
prospects. The MD&A should be read in conjunction with the Interim Condensed
Consolidated Financial Statements for the three and nine months ended September
30, 2012 and 2011, and Interfor's Annual Information Form, Consolidated
Financial Statements and Annual MD&A for the years ended December 31, 2011 and
2010 filed on SEDAR at www.sedar.com. The financial information contained in
this MD&A has been prepared in accordance with IAS 34 Interim Financial
Reporting and International Financial Reporting Standards ("IFRS") except as
noted herein. In this MD&A, reference is made to EBITDA and Adjusted EBITDA.
EBITDA represents earnings before finance costs, taxes, depreciation, depletion,
amortization, restructuring costs, other foreign exchange gains and losses, and
write-downs of property, plant, equipment ("asset write-downs"). Adjusted EBITDA
represents EBITDA adjusted for other income (expense) and other income of an
associate company. The Company discloses EBITDA as it is a measure used by
analysts and Interfor's management to evaluate the Company's performance. As
EBITDA is not a defined term under IFRS, it may not be comparable to EBITDA
calculated by others. In addition, as EBITDA is not a substitute for net
earnings, readers should consider net earnings in evaluating the Company's
performance.
Unless otherwise noted, all financial references in this MD&A are in Canadian
dollars.
References in this MD&A to "Interfor" and the "Company" mean International
Forest Products Limited, together with its subsidiaries.
Forward-Looking Statements
This report contains forward-looking statements. Forward-looking statements are
statements that address or discuss activities, events or developments that the
Company expects or anticipates may occur in the future. Forward-looking
statements are included in the description of areas which are likely to be
impacted by the description of future cash flows and liquidity under the
headings "Overview", "Income Taxes" and "Cash Flow and Financial Position";
changes in accounting policy under the heading "Accounting Policy Changes"; in
the description of economic conditions under the headings "Sales" and "Outlook";
and in the description of risks and uncertainties under the heading "Outlook".
These forward-looking statements reflect management's current expectations and
beliefs and are based on certain assumptions including assumptions as to general
business and economic conditions in the U.S. and Canada, as well as other
factors management believes are appropriate in the circumstances including,
among others: product selling prices, raw material and operating costs, changes
in foreign currency exchange rates, and other factors referenced herein. Such
forward-looking statements are subject to risks and uncertainties and no
assurance can be given that any of the events anticipated by such statements
will occur or, if they do occur, what benefit the Company will derive from them.
A number of factors could cause actual results, performance or developments to
differ materially from those expressed or implied by such forward-looking
statements, including those matters described herein and in Interfor's current
Annual Information Form available on www.sedar.com. Accordingly, readers should
exercise caution in relying upon forward-looking statements and the Company
undertakes no obligation to publicly revise them to reflect subsequent events or
circumstance, except as required by law.
Review of Operating Results
Overview
The Company recorded net earnings of $1.1 million, or $0.02 per share for the
third quarter of 2012 as compared to net earnings of $6,000, or $0.00 per share
for the third quarter of 2011. For the first nine months, 2012, the Company
recorded a net loss of $5.1 million, or $0.09 per share as compared to a net
loss of $7.0 million, or $0.13 per share for the first nine months, 2011.
EBITDA and Adjusted EBITDA for the third quarter of 2012 were $15.2 million and
$14.9 million respectively, compared to $17.6 million and $17.2 million for the
third quarter, 2011. EBITDA and Adjusted EBITDA for the first nine months of
2012 were $37.6 million and $37.3 million, respectively, compared to $40.5
million and $40.1 million for the same period in 2011.
Before restructuring costs, certain foreign exchange gains (losses), certain
other one-time items and the effect of unrecognized tax assets the Company's net
earnings were $0.6 million, or $0.01 per share for the third quarter, 2012 as
compared to $2.4 million, or $0.04 per share for the third quarter, 2011. The
Company recorded share-based incentive compensation expense of $2.3 million, or
$0.04 per share in the third quarter, 2012 as compared to a recovery of $0.9
million, or $0.02 per share for the same period, 2011.
For the first nine months, 2012 the Company's net loss before restructuring
costs, certain foreign exchange gains (losses), certain other one-time items and
the effect of unrecognized tax assets was $3.8 million, or $0.07 per share as
compared to a net loss of $2.5 million, or $0.05 per share for the first nine
months, 2011. The Company recorded share-based incentive compensation expense of
$3.8 million, or $0.07 per share for the first nine months, 2012 as compared to
a recovery of $0.5 million, or $0.01 per share for the same period, 2011.
Housing starts in the U.S. in September, 2012 climbed to a seasonally adjusted
annual rate of 872,000 units, the highest level since July 2008 and an increase
of 25% over the December 31, 2011 rate. This surge has driven higher North
American sales prices as reported by Random Lengths for Western SPF 2x4 #2&Btr
in September 2012 which averaged US$296 per mfbm, up by US$48 per mfbm or 19%
over December, 2011 average prices.
Sustained growth in the home improvement sector in the third quarter, 2012
generated slightly higher cedar sales volumes. Log availability has been tight,
limiting the cedar lumber supply and enabling slight price increases.
Results have also been marginally impacted by a weakened Canadian dollar
relative to its U.S. counterpart for the third quarter, 2012 and for the first
nine months, 2012, as compared to the same periods of 2011.
Sales
The Company achieved record volumes of quarterly lumber shipments in the third
quarter, 2012 and surpassed third quarter, 2011 shipments by 9%. Compared to the
same period, 2011, lumber shipments improved by 7% for the first nine months,
2012. Increases reflect the impact of stronger domestic demand driven by
improved U.S. housing starts.
Shipments to North America grew rapidly in the third quarter, 2012, relative to
the previous two quarters, 2012, and exceeded shipments in the same quarter,
2011 by almost a third as the Company redirected sales to North American markets
to benefit from higher realizations. For the first nine months, 2012 North
American shipments grew by 29% compared to the same period, 2011.
Improvements in average unit lumber sales values of $27 per mfbm, or 6% in the
third quarter, 2012, and $25 per mfbm, or 6% year-to-date, over the respective
periods of 2011 reflect higher North American prices. A slightly weaker average
Canadian dollar quarter-over-quarter and for the first nine months of 2012 had a
positive impact on sales returns as compared to the same periods of 2011.
Compared to the same period, 2011, log sales revenues declined by 26% for the
third quarter, 2012, driven primarily by a reduction in log sales volume from
B.C. operations of 20%. For the first nine months, 2012 log sales revenues
increased by 5% in tandem with Canadian log sales volume increase of 4%
vis-a-vis the same period, 2011. Curtailments in logging due to the extended
fire season in the third quarter, 2012 impacted the volume of logs available for
sale. Average Canadian log sales prices remained relatively constant for the
third quarter and first nine months, 2012 as compared to 2011.
Pulp chip and other by-product revenues remained flat for the third quarter,
2012, but improved by 5% or $2.7 million for the first nine months, 2012,
compared to the respective periods in 2011, largely driven by the effect of
lower chip prices offset by higher sawmill operating rates.
Operating Costs
Production costs for the third quarter of 2012 increased by $11.1 million or 6%,
and $54.9 million, or 11%, for the first nine months of 2012, compared to the
same periods in 2011.
The Company achieved record quarterly lumber production in the third quarter,
2012 at 350 million board feet, an improvement of 12% over the same quarter,
2011. For the first nine months, 2012, lumber production increased by 35 million
board feet, or 4% vis-a-vis the same period, 2011. Market driven increases in
operating rates supported by available economic fibre supply for the U.S.
Pacific Northwest sawmills for the third quarter more than offset reduced
operating hours for the first half of 2012 compared to the third quarter and
first nine months of 2011.
Unit cash conversion costs for the third quarter and first nine months, 2012
remained constant as compared to the same periods of 2011.
Unit costs of logs consumed increased 13% quarter-over-quarter and 10%
year-over-year for 2012 as compared to the same periods, 2011 resulting from
overall higher log prices, higher logging and hauling costs and a weaker
Canadian dollar.
Compared to the same period in 2011, B.C. log production fell by 186,000 cubic
metres or 19% in the third quarter, 2012 and by 65,000 cubic metres or 3% for
the first nine months, 2012. An extended summer fire season limited logging in
B.C. operations, and coupled with harsh spring weather on the B.C. Coast
contributed to declines in Coastal log production of 33% in the third quarter,
2012 and 15% for the first nine months, 2012 as compared to the same periods in
2011 which saw increased activity to make up lost production due to storms and
to meet strong export demand.
For the third quarter, 2012, logging activity in the B.C. Interior was
essentially unchanged from the third quarter, 2011, but improved by 12% for the
first nine months, 2012 vis-a-vis the same period, 2011 as cold weather extended
spring break up enabling increased production.
In the first quarter, 2012, the Company commenced demolition of the remaining
structures of the former Adams Lake sawmill. In addition, in the second and
third quarters, 2012, an environmental consultant undertook groundwater and
other testing at a landfill at its Castlegar sawmill site to reassess potential
remediation costs. Based on the results of the testing the Company reduced its
estimate of the environmental provision recorded on acquisition of the site in
2008. The resultant net impact on production costs was an expense of $0.2
million for the third quarter, 2012 and a negligible recovery for the first nine
months, 2012.
In June, 2011 the Company finalized an insurance claim resulting from storm
damage on the B.C. Coast which occurred in the late fall, 2010 and recorded $2.7
million of business interruption recoveries for the first nine months, 2011
which were netted against production costs.
As a result of the lift in commodity lumber prices in the second and third
quarters, 2012, the export tax paid under the Softwood Lumber Agreement ("SLA")
declined from 15% and fluctuated between 5% and 10% for the period from June 1,
2012 to September 30, 2012. Export taxes for the third quarter, 2012 declined by
$0.4 million, or 14% over the same quarter, 2011, the net result of the reduced
tax rates partially offset by more than doubling the Canadian shipment volume to
the U.S. For the first nine months, 2012, export taxes increased $0.6 million,
or 8% as compared to the same period, 2011, resulting from a 25% increase in
Canadian shipment volumes to the U.S. offset by reduced tax rates for four
months of 2012.
Selling and administrative costs remained constant relative to the same periods
in 2011.
Long-term incentive compensation ("LTIC") expense of $2.3 million for the third
quarter, 2012 (Quarter 3, 2011 - recovery of $0.9 million), and an expense of
$3.8 million for the first nine months, 2012 (first nine months, 2011 - $0.5
million recovery) reflect changes in the estimated fair value of the share-based
compensation plans. Fair value is estimated based on a number of components
including current market price of the underlying shares, strike price, expected
volatility, vesting periods and the expected life of the awards. Though not a
direct correlation, the movement in the Company's share price has the greatest
impact on expense, as reflected by increases in the closing share price of 16%
and 37% in the third quarter and first nine months, 2012 respectively (decreases
of 23% and 29% in the third quarter and first nine months, 2011, respectively).
Third quarter and first nine months, 2012 depreciation of plant and equipment
was higher by $0.8 million and $0.6 million respectively, over the corresponding
periods in 2011. The increase was largely driven by increased operating rates
and a weaker Canadian dollar, on average, in 2012 partially offset, in part, by
accelerated depreciation on a number of assets with shortened useful lives in
early 2011.
Road amortization and depletion expense decreased by 26% and 11% for the third
quarter and first nine months, 2012 as compared to the same periods in 2011,
corresponding to reduced logging activity on the B.C. Coast combined with a
shift from conventional logging to heli-logging.
Third quarter, 2012 restructuring costs of $0.1 million arose as the Company
undertook a reorganization of its Coastal operations. This, together with the
cancellation of a cutting permit offset by the related impairment of road
infrastructure and severance costs resulted in restructuring costs of $0.3
million for the first nine months, 2012.
During the third quarter, 2011 the Company reversed an amount of $0.4 million
for a write-down of an asset previously considered impaired and was partially
offset with severance costs to recognize a $0.3 million recovery of
restructuring costs. For the first nine months, 2011 payments for the buyout of
logging contractor's Bill 13 entitlements together with severance costs were
partially offset by the impairment reversal resulted in the recognition of $0.7
million expense.
Finance Costs, Other Foreign Exchange Gain (loss), Other Income (Expense)
Finance costs decreased by $0.1 million for the third quarter and $1.0 million
for the first nine months, compared to the same periods, 2011, resulting from an
overall decrease in average debt levels compared to the same period in the prior
year. Debt was reduced in the second quarter, 2011 when net proceeds of $54.9
million received from a public offering of Class A Subordinate Voting shares on
April 8, 2011 were used to repay debt.
Other foreign exchange gain at $0.1 million for the third quarter and $0.0
million for the first nine months, 2012 compared to losses of $2.5 million and
$1.2 million for the respective periods, 2011 as volatility of the Canadian
dollar and the timing and amount of forward foreign exchange contracts impact
these gains and losses. In the last two weeks of the third quarter, 2011 the
Canadian dollar depreciated by 7% and resulted in significant losses for the
comparative periods in 2011.
Other income for the third quarter and first nine months of 2012 and 2011 was
negligible, consisting primarily of minor surplus equipment and scrap sales.
Income Taxes
The Company recorded a negligible income tax expense in the third quarter of
2012 (Quarter 3, 2011 - $0.5 million) which excludes an expense of $0.4 million
related to the reduction of certain unrecognized deferred income tax assets
arising from loss carry-forwards available to reduce future taxable income
(Quarter 3, 2011 - $0.6 million benefit). For the first nine months, 2012, the
income tax expense of $0.4 million (Quarter 3, 2011 - $1.3 million) excluded the
benefit of $1.4 million of deferred tax assets (first nine months, 2011 - $3.1
million). Although the Company expects to realize the full benefit of the loss
carry-forwards and other deferred tax assets, due to the cyclical nature of the
wood products industry and the economic conditions over the last several years,
the Company has not recognized the benefit of its deferred tax assets in excess
of its deferred tax liabilities.
Cash Flow and Financial Position
The Company generated $33.2 million from operations, before changes in working
capital during the first nine months, 2012 as compared to $39.0 million for the
first nine months, 2011. Cash flows from operations declined slightly
year-over-year, as higher costs offset the rise in North American sales prices
and increased domestic shipments in the first nine months, 2012; higher export
shipments partially offset by lower overall sales realizations and a stronger
average Canadian dollar drove cash earnings in the same period, 2011.
Cash generated from operations, after changes in working capital, improved $6.3
million for the nine months ended September 30, 2012 compared to the first nine
months, 2011.
Improvements in overall lumber shipments and shift to higher North American
sales values were reflected in a cash utilization of $7.2 million for accounts
receivable offset by an $11.0 million increase in accounts payable as a result
of higher operating rates in the first nine months, 2012.
In the first nine months, 2011, significant increases in lumber production to
meet export demand resulted in an inventory build-up of $17.8 million. The
increase in accounts receivable of $4.7 million, offset by a $10.9 million rise
in accounts payable was the result of the higher operating rates and export
shipments in the first nine months, 2011.
Cash capital expenditures for the first nine months of 2012 totalled $45.5
million (first nine months, 2011 - $27.3 million) with $21.0 million spent on
the capital upgrades for the Grand Forks and Castlegar mills, $3.2 million on
other high-return discretionary projects, $6.4 million on business maintenance
expenditures, $16.0 million on road construction and $0.2 million on timber
rights. These expenditures were funded by net drawings of $25.0 million on the
Company's Revolving Term Line and through cash generated by operations during
the first nine months, 2012.
On January 5, 2011 by virtue of the withdrawal of all other partners in Seaboard
General Partnership ("SGP"), Interfor acquired control of its net assets. Cash
generated from investments includes cash received on acquisition of SGP of $4.8
million.
In the second quarter, 2011 the Company also settled an insurance claim in
respect of severe storm damage to logging roads and bridges in the fall, 2010.
Net cash proceeds of $4.8 million were received in June 2011.
In the second quarter, 2011, the Company closed a public offering of 8,222,500
Class A Subordinate Voting shares at a price of $7.00 per share for net proceeds
of $54.9 million. In addition, in the first half, 2011 several stock option
holders exercised their options generating $1.4 million in cash.
As at September 30, 2012, the Revolving Term Line was drawn by US$30.2 million
(revalued at the quarter-end exchange rate to $29.7 million) and $105.0 million
for total drawings of $134.7 million, leaving an unused available line of $65.3
million. The Company's Operating Line of $65.0 million had no borrowings other
than outstanding letters of credit of $5.1 million, leaving an unused available
line of $59.9 million. Including unrestricted cash of $16.6 million, the Company
had available resources of $141.8 million as at September 30, 2012.
These resources, together with cash generated from operations, will be used to
support Interfor's working capital requirements, capital expenditures including
the Kootenay optimization projects, and debt servicing commitments. Based on
current pricing and cash flow projections and existing credit lines the Company
believes it has sufficient liquidity to meet all of its financial obligations.
The Company continues to monitor discretionary capital spending.
At September 30, 2012, the Company ended the first nine months, 2012, with net
debt of $117.8 million or 24% of invested capital as compared to 20% at December
31, 2011, primarily as a result of the sawmill rebuild at Grand Forks.
Selected Quarterly Financial Information(1)
Quarterly Earnings
Summary 2012 2011 2010
--------------------------------------------------------
Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4
--------------------------------------------------------
(millions of dollars except share and per share amounts)
Sales - Lumber(2) 161.9 162.4 133.6 133.6 139.6 133.7 131.4 136.3
- Logs 26.8 35.6 27.0 22.9 36.0 28.6 20.8 20.6
- Wood chips and
other residual
products 17.5 17.8 18.2 17.5 17.6 16.8 16.4 15.7
- Other 8.5 9.6 7.9 14.6 9.9 8.7 10.0 2.4
--------------------------------------------------------
Total Sales 214.7 225.4 186.7 188.7 203.1 187.9 178.6 175.0
--------------------------------------------------------
Operating earnings
(loss) before
restructuring
costs(2) 2.5 2.9 (5.5) (6.2) 3.9 (2.3) (0.1) 0.3
Operating earnings
(loss) (2) 2.4 2.8 (5.5) (6.1) 4.2 (2.4) (1.0) 0.3
Net earnings (loss) 1.1 0.3 (6.5) (6.5) 0.0 (5.3) (1.7) 0.8
Net earnings (loss)
per share - basic
and diluted 0.02 0.01 (0.12) (0.12) 0.00 (0.10) (0.04) 0.02
Net earnings (loss),
adjusted for
certain one-time
and other items
(2,4,6) 0.6 0.9 (5.2) (3.7) 2.4 (3.2) (1.7) (0.8)
Net earnings (loss),
adjusted for
certain one-time
and other items -
per share (2,4) 0.01 0.02 (0.09) (0.07) 0.04 (0.06) (0.03) (0.02)
EBITDA(7) 15.2 16.5 6.0 6.7 17.6 11.3 11.6 13.3
Adjusted EBITDA(7) 14.9 16.5 5.8 6.7 17.3 11.3 11.6 13.2
Cash flow from
operations per
share(5) 0.20 0.24 0.15 0.08 0.26 0.22 0.27 0.22
Shares outstanding -
end of period
(millions)(3) 55.9 55.9 55.9 55.9 55.9 55.9 47.5 47.4
- weighted average
(millions) 55.9 55.9 55.9 55.9 55.9 55.2 47.4 47.2
Average foreign
exchange rate per
US$1.00 0.9954 1.0104 1.0010 1.0230 0.9808 0.9680 0.9856 1.0131
Closing foreign
exchange rate per
US$1.00 0.9832 1.0181 0.9975 1.0170 1.0482 0.9645 0.9696 0.9946
1. Tables may not add due to rounding.
2. The Company uses forward foreign exchange contracts which are designated
as held for trading and are carried on the Statement of Financial
Position at fair value. Previously changes in fair value were recorded as
an adjustment to Sales in Net earnings. Effective January 1, 2012 the
Company changed its accounting policy to align with the presentation
adopted by companies in its peer group and changes in fair value are now
recorded in Other foreign exchange gain (loss) in Net earnings.
The policy has been applied on a retrospective basis and comparative
information has been restated.There is no change to Net earnings as a
result of the adoption of this new policy.
3. As at November 1, 2012, the numbers of shares outstanding by class
are:Class A Subordinate Voting shares - 54,847,176, Class B Common shares
- 1,015,779, Total - 55,862,955.
4. Net earnings (loss), adjusted for certain one-time and other items
represents net earnings (loss) before restructuring costs, certain
foreign exchange gains and losses, other income (expense), certain one-
time items and the effect of unrecognized tax assets.
5. Cash generated from operations before taking account of changes in
operating working capital.
6. Net earnings (loss), adjusted for certain one-time and other items is not
a defined term under IFRS, and may not be comparable to adjusted earnings
(loss) calculated by others.Net earnings (loss), adjusted for certain
one-time and other items may be calculated as follows(3):
2012 2011 2010
------------------------------------------------
Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4
------------------------------------------------
(millions of dollars)
Net earnings (loss) 1.1 0.3 (6.5) (6.5) 0.0 (5.3) (1.7) 0.8
Add (deduct):
Other (income) expense (0.2) (0.0) (0.1) - (0.4) (0.0) - 0.3
Other (income) expense of
associate company - - - - - - - (0.4)
Other foreign exchange
(gains) losses (0.1) 0.5 (0.4) (1.1) 2.5 (0.2) (1.1) (1.1)
Restructuring costs
(recovery) 0.1 0.1 - (0.1) (0.3) 0.1 0.8 -
Deferred tax assets not
recognized (recognized) (0.4) 0.0 1.8 3.9 0.6 2.2 0.3 (0.3)
------------------------------------------------
Net earnings (loss) adjusted
for certain one-time and
other items(3) 0.6 0.9 (5.2) (3.7) 2.4 (3.2) (1.7) (0.8)
------------------------------------------------
7. EBITDA represents earnings before finance costs, taxes, depreciation,
depletion, amortization, restructuring costs, other foreign exchange
gains and losses, and asset write-downs. The Company discloses EBITDA as
it is a measure used by analysts and Interfor's management to evaluate
the Company's performance. As EBITDA is not a defined term under IFRS, it
may not be comparable to EBITDA calculated by others. In addition, as
EBITDA is not a substitute for net earnings, readers should consider net
earnings in evaluating the Company's performance. Adjusted EBITDA
represents EBITDA adjusted for other income and other income of the
associate company.
EBITDA and Adjusted EBITDA may be calculated from the Statements of
Operations as follows(3):
2012 2011 2010
------------------------------------------------
Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4
------------------------------------------------
(millions of dollars)
Net earnings (loss) 1.1 0.3 (6.5) (6.5) 0.0 (5.3) (1.7) 0.8
Add: Income taxes (recovery) 0.0 0.3 - 0.2 0.5 1.2 (0.4) (0.5)
Finance costs 1.6 1.7 1.5 1.3 1.7 1.9 2.3 2.5
Depreciation, depletion and
amortization 12.4 13.6 11.3 13.0 13.3 13.6 11.7 11.7
Other foreign exchange
(gains) losses (0.1) 0.5 (0.4) (1.1) 2.5 (0.2) (1.1) (1.1)
Restructuring costs
(recovery) 0.1 0.1 - (0.1) (0.3) 0.1 0.8 -
------------------------------------------------
EBITDA 15.2 16.5 6.0 6.7 17.6 11.3 11.6 13.3
Deduct:
Other income (expense) 0.2 0.0 0.1 - 0.4 0.0 - (0.3)
Other income of associate
company - - - - - - - 0.4
------------------------------------------------
Adjusted EBITDA(3) 14.9 16.5 5.8 6.7 17.3 11.3 11.6 13.2
------------------------------------------------
Volume and Price Statistics 2012 2011 2010
------------------------------------------------
Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4
------------------------------------------------
Lumber sales (million fbm) 366 363 320 318 336 334 313 321
Lumber (million fbm) 350 333 323 294 313 325 332 303
production
Log sales(1) (thousand 345 379 361 310 430 314 301 292
cubic metres)
Log (thousand 817 840 892 795 1,002 796 816 794
production(1) cubic metres)
Average ($/thousand $442 $448 $418 $420 $415 $400 $419 $424
selling price fbm)
- lumber(2)
Average ($/cubic $75 $75 $64 $69 $74 $82 $61 $64
selling price metre)
- logs(1)
Average ($/thousand $43 $46 $48 $51 $48 $44 $40 $42
selling price fbm)
- pulp chips
chips
1. B.C. operations
2. Gross sales before export taxes
3. Tables may not add due to rounding
Quarterly trends normally reflect the seasonality of the Company's operations.
Logging operations are seasonal due to a number of factors including weather,
ground conditions and fire season closures. Generally, the Company's B.C.
Coastal logging divisions experience higher production levels in the latter half
of the first quarter, throughout the second and third quarters and in the first
half of the fourth quarter. Logging activity in the B.C. Interior is generally
higher in the first half of the first quarter, slows during spring thaw and
increases in the third and fourth quarters. Sawmill operations are less seasonal
than logging operations but are dependent on the availability of economical logs
from logging operations, including those from suppliers. In addition, the market
demand for lumber and related products is generally lower in the winter due to
reduced construction activity, which increases during the spring, summer and
fall.
Offshore demand, particularly from China, grew rapidly through the last half of
2010 and the first half, 2011, levelling off in the latter half, 2011. Export
markets slowed in the first two quarters, 2012, but were more than offset by
strong North American demand resulting in higher sales prices and a reduction in
export tax rates in the second and third quarters, 2012.
The volatility of the Canadian dollar also impacted results, given that
historically over 75% of the Canadian operations' lumber sales are to export
markets and priced in U.S. dollars. A strong Canadian dollar reduces the lumber
sales realizations in Canada, but reduces the impact of losses in U.S.
operations when converted to Canadian dollars. No deferred tax assets arising
from loss carry-forwards have been recognized since the third quarter of 2008.
In the first quarter, 2011 the Company acquired 100% control of SGP. It was
wound up in early January, 2011 but continued operations as Seaboard and its
accounts were consolidated from the date of change in control on January 5,
2011. Other sales revenues include the ocean freight revenues of Seaboard.
Accounting Policy Changes
The Company uses forward foreign exchange contracts which are designated as held
for trading and are carried on the Statement of Financial Position at fair
value. Previously, changes in fair value were recorded as an adjustment to Sales
in Net earnings. Effective January 1, 2012 the Company changed its accounting
policy to align with the presentation adopted by companies in its peer group and
changes in fair value are now recorded in Other foreign exchange gain (loss) in
Net earnings. There is no effect on Net earnings or on the Statement of
financial position.
The policy has been applied on a retrospective basis and comparative information
has been restated.
IFRS Future Changes
IFRS 9, Financial Instruments, replaces the multiple classification and
measurement models in IAS 39, Financial Instruments: Recognition and
Measurement, with a single model that has only two classification categories:
amortized cost and fair value. This standard is in effect for accounting periods
beginning on or after January 1, 2015, with earlier adoption permitted.
IAS 19, Employee Benefits, was revised to eliminate the option to defer
recognition of gains and losses, known as the "corridor method", and to enhance
disclosure requirements for defined benefit plans. As the Company did not choose
the corridor method in accounting for its defined benefit plans, there is no
impact on its financial statements as a result of the elimination of this
option. This standard is in effect for accounting periods beginning on or after
January 1, 2013, with earlier adoption permitted.
As at the reporting date, no assessment has been made of the impact of the
standard on the Company's financial statements other than the effect of the
elimination of the corridor method.
The standard-setting bodies that set IFRS have significant ongoing projects that
could impact the IFRS accounting policies selected. Specifically, it is
anticipated that there will be additional new or revised IFRS or IFRIC standards
in relation to financial instruments and leases currently on the International
Accounting Standards Board agenda.
Controls and Procedures
There were no changes in the Company's internal controls over financial
reporting ("ICFR") during the quarter ended September 30, 2012 that have
materially affected, or are reasonably likely to materially affect, the
Company's ICFR.
Critical Accounting Estimates
There were no material changes to the Company's critical accounting estimates
during the quarter ended September 30, 2012. For a full discussion of critical
accounting estimates, refer to the Company's discussion in its MD&A for the year
ended December 31, 2011 as filed on SEDAR at www.sedar.com.
Outlook
In spite of recent positive news, the outlook for the U.S. housing sector
remains uncertain and concerns over sustainability continue. Export taxes
declined to 5% for October but will increase to 10% in November due to recent
decreases in the relevant benchmark prices. Canadian housing starts are expected
to moderate in late 2012 and through 2013, but are expected to top 200,000 units
this year for the first time since 2008.
Compared to recent years, the Chinese economy has cooled and the growth in
demand for lumber has levelled off. This, together with the prospect of more log
supply available to China from Russia may temper near-term sales. China is
expected to remain an important player in global lumber markets, and we will
continue to focus on this market.
Rebuilding activity in Japan's Tohoku region impacted by the March 2011
earthquake is progressing slowly, but is expected to show gradual improvement.
In addition, a scheduled increase in the consumption tax in Japan in April 2014
is expected to spur an increase in construction in the year preceding the
increase.
The Canadian dollar is forecast to continue trading near parity relative to its
U.S. counterpart through the balance of 2012.
The Company continues to devote considerable attention to the capital projects
at Grand Forks and Castlegar. The Grand Forks project is well ahead of schedule,
with the new line scheduled to commence start-up procedures the first week of
December. The final stage of the Castlegar project is scheduled for completion
in mid-November.
As always, Interfor continues its disciplined approach to production, inventory
management and capital spending to help position the Company to deliver above
average returns on capital invested as markets improve.
Additional Information
Additional information relating to the Company and its operations can be found
on its website at www.interfor.com, in the Annual Information Form and on SEDAR
at www.sedar.com. Interfor's trading symbol on the Toronto Stock Exchange is
IFP.A.
Lawrence Sauder, Chairman
Duncan K. Davies, President and Chief Executive Officer
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
For the three and nine months ended September 30, 2012 and 2011 (unaudited)
----------------------------------------------------------------------------
(thousands of Canadian dollars 3 Months 3 Months 9 Months 9 Months
except loss per share) Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2012 2011 2012 2011
----------------------------------------------------------------------------
Sales (note 3(a)) $ 214,712 $ 203,087 $ 626,796 $ 569,555
Costs and expenses:
Production 190,293 179,166 562,856 507,951
Selling and administration 4,925 5,008 15,557 15,248
Long term incentive compensation
expense (recovery) 2,298 (945) 3,820 (485)
Export taxes 2,252 2,610 7,276 6,716
Depreciation of plant and equipment
(note 9) 7,465 6,629 21,180 20,540
Depletion and amortization of
timber, roads and other (note 9) 4,932 6,698 16,120 18,055
---------------------------------------------------------------------------
212,165 199,166 626,809 568,025
----------------------------------------------------------------------------
Operating earnings (loss) before
restructuring costs 2,547 3,921 (13) 1,530
Restructuring (costs) recovery (note
10) (100) 305 (246) (684)
----------------------------------------------------------------------------
Operating earnings (loss) 2,447 4,226 (259) 846
Finance costs (note 11) (1,587) (1,657) (4,797) (5,826)
Other foreign exchange gain (loss) 76 (2,461) 15 (1,160)
Other income (note 12) 211 359 339 416
----------------------------------------------------------------------------
(1,300) (3,759) (4,443) (6,570)
----------------------------------------------------------------------------
Earnings (loss) before income taxes 1,147 467 (4,702) (5,724)
Income tax expense (recovery):
Current 146 145 503 535
Deferred (132) 316 (128) 727
---------------------------------------------------------------------------
14 461 375 1,262
----------------------------------------------------------------------------
Net earnings (loss) $ 1,133 $ 6 $ (5,077) $ (6,986)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net earnings (loss) per share, basic
and diluted (note 13) $ 0.02 $ 0.00 $ (0.09) $ (0.13)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the three and nine months ended September 30, 2012 and 2011 (unaudited)
----------------------------------------------------------------------------
3 Months 3 Months 9 Months 9 Months
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2012 2011 2012 2011
----------------------------------------------------------------------------
Net earnings (loss) $ 1,133 $ 6 $ (5,077) $ (6,986)
Other comprehensive income (loss):
Foreign currency translation
differences - foreign operations (4,402) 10,397 (4,297) 6,539
Defined benefit plan actuarial
losses (588) (4,913) (4,007) (5,571)
Gain (loss) in fair value of
interest rate swaps (note 15) 68 (500) 281 (500)
Income tax on other comprehensive
income (132) 316 (128) 367
---------------------------------------------------------------------------
(5,054) 5,300 (8,151) 835
----------------------------------------------------------------------------
Total comprehensive earnings (loss)
for the period $ (3,921) $ 5,306 $(13,228) $ (6,151)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 2012 and 2011 (unaudited)
----------------------------------------------------------------------------
(thousands of Canadian dollars) 9 Months 9 Months
Sept. 30, 2012 Sept. 30, 2011
----------------------------------------------------------------------------
Cash provided by (used in):
Operating activities:
Net loss $ (5,077) $ (6,986)
Items not involving cash:
Depreciation of plant and equipment 21,180 20,540
Depletion and amortization of timber,
roads and other 16,120 18,055
Deferred income tax expense (recovery) (128) 727
Current income tax expense 503 535
Finance costs 4,797 5,826
Other assets (1,986) 76
Reforestation liability 888 580
Other liabilities and provisions (3,011) (2,296)
Write-down (recovery) of plant and
equipment 128 (423)
Unrealized foreign exchange losses and
other 124 2,551
Other (note 12) (314) (228)
----------------------------------------------------------------------------
33,224 38,957
Cash generated from (used in) operating
working capital:
Trade accounts receivable and other (7,153) (4,715)
Inventories (3,490) (17,792)
Prepayments (1,773) (2,465)
Trade accounts payable and accrued
liabilities 11,014 10,936
Income taxes paid (1,055) (410)
----------------------------------------------------------------------------
30,767 24,511
Investing activities:
Additions to property, plant and equipment (29,316) (12,603)
Additions to logging roads (15,960) (14,597)
Additions to timber and other intangible
assets (180) (59)
Proceeds on disposal of property, plant,
and equipment 392 257
Cash received on acquisition of subsidiary - 4,846
Investments and other assets (206) (736)
----------------------------------------------------------------------------
(45,270) (22,892)
Financing activities:
Issuance of capital stock, net of share
issue expenses - 56,256
Interest payments (3,978) (4,624)
Additions to long-term debt (note 6(b)) 65,000 70,000
Repayments of long-term debt (note 6(b)) (40,000) (121,000)
----------------------------------------------------------------------------
21,022 632
Foreign exchange gain (loss) on cash and
cash equivalents held in a foreign currency (107) 179
----------------------------------------------------------------------------
Increase in cash 6,412 2,430
Cash and cash equivalents, beginning of
year 10,435 9,301
----------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 16,847 $ 11,731
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
September 30, 2012 and December 31, 2011 (unaudited)
----------------------------------------------------------------------------
(thousands of Canadian dollars) Sept. 30, Dec. 31,
2012 2011
----------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents (note 6(c)) $ 16,847 $ 10,435
Trade accounts receivable and other 50,652 44,000
Inventories (note 5) 100,421 97,645
Prepayments 12,382 10,757
----------------------------------------------------------------------------
180,302 162,837
Employee future benefits 547 1,256
Other investments and assets 4,326 2,836
Property, plant and equipment 345,079 340,034
Logging roads and bridges 19,384 16,753
Timber licences 74,489 76,792
Other intangible assets 792 1,250
Goodwill 13,078 13,078
----------------------------------------------------------------------------
$ 637,997 $ 614,836
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Liabilities and Equity
Current liabilities:
Trade accounts payable and accrued
liabilities $ 75,221 $ 60,692
Reforestation liability 11,258 14,121
Income taxes payable 495 1,058
----------------------------------------------------------------------------
86,974 75,871
Reforestation liability 18,942 17,777
Long-term debt (note 6(b)) 134,693 110,713
Employee future benefits 9,817 8,186
Other liabilities and provisions (note 7) 9,977 11,467
Equity:
Share capital (note 8)
Class A subordinate voting shares 342,285 342,285
Class B common shares 4,080 4,080
Contributed surplus 7,476 7,476
Reserves (9,576) (5,432)
Retained earnings 33,329 42,413
----------------------------------------------------------------------------
377,594 390,822
----------------------------------------------------------------------------
$ 637,997 $ 614,836
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Contingencies (note 16)
See accompanying notes to consolidated financial statements
On behalf of the Board:
L. Sauder D. Whitehead
Director Director
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the nine months ended September 30, 2012 and 2011 (unaudited)
----------------------------------------------------------------------------
(thousands of Canadian Class A Class B
dollars) Share Share Contributed Translation
Capital Capital Surplus Reserve
----------------------------------------------------------------------------
Balance at December 31, 2011 $ 342,285 $ 4,080 $ 7,476 $ (4,929)
Net loss for the period: - - - -
Other comprehensive loss:
Foreign currency translation
differences, net of tax - - - (4,425)
Defined benefit plan
actuarial losses, net of
tax - - - -
Gain in fair value of
interest rate swaps - - - -
----------------------------------------------------------------------------
Balance at September 30,
2012 $ 342,285 $ 4,080 $ 7,476 $ (9,354)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance at December 31, 2010 $ 285,362 $ 4,080 $ 5,408 $ (7,646)
Net loss for the period: - - - -
Other comprehensive earnings
(loss):
Foreign currency translation
differences, net of tax - - - 6,741
Defined benefit plan
actuarial losses, net of
tax - - - -
Loss in fair value of
interest rate swaps - - - -
Contributions:
Share options exercised 1,370 - - -
Share issuance, net of share
issue expenses 55,554 - - -
Changes in ownership
interests in investee:
Acquisition of subsidiary - - 2,068 -
----------------------------------------------------------------------------
Balance at September 30,
2011 $ 342,286 $ 4,080 $ 7,476 $ (905)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------
(thousands of Canadian
dollars) Hedging Retained
Reserve Earnings Total
----------------------------------------------------------------
Balance at December 31, 2011 $ (503) $ 42,413 $ 390,822
Net loss for the period: - (5,077) (5,077)
Other comprehensive loss:
Foreign currency translation
differences, net of tax - - (4,425)
Defined benefit plan
actuarial losses, net of
tax - (4,007) (4,007)
Gain in fair value of
interest rate swaps 281 - 281
----------------------------------------------------------------
Balance at September 30,
2012 $ (222) $ 33,329 $ 377,594
----------------------------------------------------------------
----------------------------------------------------------------
Balance at December 31, 2010 $ - $ 60,246 $ 347,450
Net loss for the period: - (6,986) (6,986)
Other comprehensive earnings
(loss):
Foreign currency translation
differences, net of tax - - 6,741
Defined benefit plan
actuarial losses, net of
tax - (5,406) (5,406)
Loss in fair value of
interest rate swaps (500) - (500)
Contributions:
Share options exercised - - 1,370
Share issuance, net of share
issue expenses - - 55,554
Changes in ownership
interests in investee:
Acquisition of subsidiary - (4) 2,064
----------------------------------------------------------------
Balance at September 30,
2011 $ (500) $ 47,850 $ 400,287
----------------------------------------------------------------
----------------------------------------------------------------
See accompanying notes to consolidated financial statements.
INTERNATIONAL FOREST PRODUCTS LIMITED
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(Tabular amounts expressed in thousands except number of shares and per share
amounts)
Three and nine months ended September 30, 2012 and 2011 (unaudited)
1. Nature of operations:
International Forest Products Limited and its subsidiaries (the "Company" or
"Interfor") is a producer of wood products in British Columbia and the U.S.
Pacific Northwest for sale to markets around the world.
The Company is a publicly listed company incorporated under the Business
Corporations Act (British Columbia) with shares listed on the Toronto Stock
Exchange. Its head office, principal address and records office is located at
Suite 3500, 1055 Dunsmuir Street, Vancouver, British Columbia, V7X 1H7.
The condensed consolidated interim financial statements of the Company as at and
for the three and nine months ended September 30, 2012 comprise the Company and
its subsidiaries. The consolidated financial statements of the Company as at and
for the year ended December 31, 2011 are available on www.sedar.com.
2. Statement of Compliance:
(a) Statement of compliance:
These condensed consolidated interim financial statements, including
comparatives, have been prepared in accordance with IAS 34 Interim Financial
Reporting using accounting policies consistent with the International Financial
Reporting Standards ("IFRS") issued by the International Accounting Standards
Board ("IASB") and Interpretations of the International Financial Reporting
Interpretations Committee ("IFRIC"). These condensed consolidated interim
financial statements were approved by the Board of Directors on November 1,
2012.
(b) Basis of measurement:
The condensed consolidated interim financial statements have been prepared on
the historical cost basis except for the following material items in the
Statement of Financial Position:
i. Derivative financial instruments are measured at fair value;
ii. Long-term debt is measured at fair value at inception and at amortized
cost thereafter;
iii.Liabilities for cash-settled share-based payment arrangements are
measured at fair value; and
iv. The employee benefit assets and liabilities are recognized as the net of
the fair value of the plan assets and the present value of the benefit
obligations on a plan by plan basis.
The functional and presentation currency of the parent company is Canadian dollars.
3. Significant accounting policies:
These condensed consolidated interim financial statements have been prepared
using the significant accounting policies and methods of computation consistent
with those applied in the Company's December 31, 2011 annual consolidated
financial statements, except for the accounting policy adopted subsequent to
that date, as discussed below.
(a) Change in accounting policy:
The Company uses derivative forward foreign exchange contracts which are
designated as at fair value through profit or loss and are carried on the
Statement of Financial Position at fair value. Previously, changes in fair value
were recorded as an adjustment to Sales in Net earnings. Effective January 1,
2012, the Company changed its accounting policy to align with the presentation
adopted by companies in its peer group and changes in fair value are now
recorded in Other foreign exchange gain (loss) in Net earnings.
The policy has been applied on a retrospective basis and comparative information
has been restated. The following changes to historical financial statements have
been made to reflect the new policy:
----------------------------------------------------------------------------
As
previously
reported Adjustment Restated
----------------------------------------------------------------------------
For the three months ended September 30, 2011
Sales $ 200,165 $ 2,922 $ 203,087
Other foreign exchange gain (loss) 461 (2,922) (2,461)
For the nine months ended September 30, 2011
Sales $ 568,064 $ 1,491 $ 569,555
Other foreign exchange gain (loss) 331 (1,491) (1,160)
----------------------------------------------------------------------------
There are no changes to previously issued Statements of Financial Position as a
result of this change in accounting policy.
(b) New standards and interpretations not yet adopted:
The IASB periodically issues new standards and amendments or interpretations to
existing standards. The following new pronouncements are those that the Company
considers most significant and are not intended to be a complete list of new
pronouncements that may affect the financial statements.
IFRS 9, Financial Instruments, replaces the multiple classification and
measurement models in IAS 39, Financial Instruments: Recognition and
Measurement, with a single model that has only two classification categories:
amortized cost and fair value. This standard is in effect for accounting periods
beginning on or after January 1, 2015, with earlier adoption permitted. The
Company does not expect this standard to have a significant effect on its
financial statements.
IAS 19, Employee Benefits, was revised to eliminate the option to defer
recognition of gains and losses, known as the "corridor method", and to enhance
disclosure requirements for defined benefit plans. As the Company did not choose
the corridor method in accounting for its defined benefit plans, there is no
impact on its financial statements as a result of the elimination of this
option. This standard is in effect for accounting periods beginning on or after
January 1, 2013, with earlier adoption permitted.
As at the reporting date, no assessment has been made of the impact of the
standard on the Company's financial statements other than the effect of the
elimination of the corridor method.
4. Seasonality of operating results:
Quarterly trends normally reflect the seasonality of the Company's operations.
Logging operations are seasonal due to a number of factors including weather,
ground conditions and fire season woods closures. Generally, the Company's B.C.
Coastal logging divisions experience higher production levels in the latter half
of the first quarter, throughout the second and third quarters and in the first
half of the fourth quarter. Logging activity in the B.C. Interior is generally
higher in the first half of the first quarter, slows during spring thaw and
increases in the third and fourth quarters. Sawmill operations are less seasonal
than logging operations but are dependent on the availability of logs from
logging operations, including those from suppliers. In addition, the market
demand for lumber and related products is generally lower in the winter due to
reduced construction activity, which increases during the spring, summer and
fall.
5. Inventories:
----------------------------------------------------------------------------
Sept. 30, 2012 Dec. 31, 2011
----------------------------------------------------------------------------
Logs $ 54,976 $ 59,412
Lumber 37,433 31,729
Other 8,012 6,504
----------------------------------------------------------------------------
$ 100,421 $ 97,645
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Inventory expensed in the period includes production costs, amortization of
plant and equipment, and depletion and amortization of timber and roads. The
inventory writedown in order to record inventory at the lower of cost and net
realizable value at September 30, 2012 was $9,466,000 (December 31, 2011 -
$10,006,000).
6. Cash and borrowings:
----------------------------------------------------------------------------
Revolving
Operating Term
September 30, 2012 Line Line Total
----------------------------------------------------------------------------
Available line of credit $ 65,000 $ 200,000 $ 265,000
Maximum borrowing available 65,000 200,000 265,000
Drawings - 134,693 134,693
Outstanding letters of credit included in
line utilization 5,132 - 5,132
Unused portion of line 59,868 65,307 125,175
----------------------------------------------------------------------------
----------------------------------------------------------------------------
December 31, 2011
----------------------------------------------------------------------------
Available line of credit $ 65,000 $ 200,000 $ 265,000
Maximum borrowing available 65,000 200,000 265,000
Drawings - 110,713 110,713
Outstanding letters of credit included in
line utilization 5,062 - 5,062
Unused portion of line 59,938 89,287 149,225
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(a) Operating Line:
The Canadian operating line of credit ("Operating Line") may be drawn in either
CAD$ or US$ advances, and bears interest at bank prime plus a margin or, at the
Company's option, at rates for Bankers' Acceptances or LIBOR based loans plus a
margin, and in all cases dependent upon a financial ratio of total debt divided
by twelve months' trailing EBITDA(1). Borrowing levels under the Operating Line
are subject to a borrowing base calculation dependent on certain accounts
receivable and inventories.
The Operating Line is secured by a general security agreement which includes a
security interest in all accounts receivable and inventories, charges against
timber tenures, and mortgage security on sawmills. The Operating Line is subject
to certain financial covenants including a minimum working capital requirement,
a maximum ratio of total debt to total capitalization and a minimum net worth
calculation. As at September 30, 2012 other than outstanding letters of credit
included in the line utilization the Operating Line was undrawn (December 31,
2011 - $nil).
The maturity date of the Operating Line is July 28, 2015.
(1) EBITDA represents earnings before interest, taxes, depreciation, depletion
and amortization.
(b) Long-term debt:
The Revolving Term Line may be drawn in either CAD$ or US$ advances, and bears
interest at bank prime plus a margin or, at the Company's option, at rates for
Bankers' Acceptances or LIBOR based loans plus a margin, and in all cases
dependent upon a financial ratio of total debt divided by twelve months'
trailing EBITDA(1).
The Revolving Term Line is available to a maximum of $200,000,000 and is secured
by a general security agreement which includes a security interest in all
accounts receivable and inventories, charges against timber tenures, and
mortgage security on sawmills. The line is subject to certain financial
covenants including a minimum working capital requirement and a maximum ratio of
total debt to total capitalization and a minimum net worth calculation. The
maturity date of the Revolving Term Line is July 28, 2015.
As at September 30, 2012, the Revolving Term Line was drawn by US$30,200,000
(December 31, 2011 - US$30,200,000) revalued at the quarter-end exchange rate to
$29,693,000 (December 31, 2011 - $30,713,000), and $105,000,000 (December 31,
2011 - $80,000,000) for total drawings of $134,693,000 (December 31, 2011 -
$110,713,000).
The US$30,200,000 drawing under the Revolving Term Line has been designated as a
hedge against the Company's investment in its U.S. operations and unrealized
foreign exchange gain of $1,021,000 for the nine months ended September 30, 2012
(September 30, 2011 - $1,619,000 loss) arising on revaluation of the
Non-Revolving Term Line were recognized in Foreign exchange translation
differences in Other comprehensive income. For the third quarter, 2012 the
unrealized foreign exchange gain of $1,054,000 (Quarter 3, 2011 - $2,528,000
loss) was recognized in Other comprehensive income.
Minimum principal amounts due on long-term debt within the next five years are
follows:
----------------------------------------------------------------------------
Twelve months ending
Sept. 30, 2013 $ -
Sept. 30, 2014 -
Sept. 30, 2015 134,693
Sept. 30, 2016 -
Sept. 30, 2017 -
----------------------------------------------------------------------------
$ 134,693
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) EBITDA represents earnings before interest, taxes, depreciation, depletion
and amortization.
(c) Cash and cash equivalents
At September 30, 2012 Company's cash balances are restricted by $276,000
(December 31, 2011 - $nil) for contractor holdback payments.
7. Other liabilities and provisions:
In the second quarter, 2012, the Company engaged an environmental consultant to
undertake groundwater and other testing at a landfill at its Castlegar sawmill
site in the B.C. Interior to update its assessment of potential remediation
costs. Based on the results of the testing undertaken the Company revised its
estimate of the environmental provision recorded on acquisition of the site from
Pope and Talbot, Inc. in 2008 and recorded a recovery of $1,000,000 in
Production costs, increasing Net earnings. Further testing and monitoring of the
site and a final assessment was undertaken in the third quarter, 2012, resulting
in a further recovery of $321,000.
8. Share capital:
The transactions in share capital are described below:
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Number
---------------------------------
Class A Class B Total Amount
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Balance, December 31, 2010 46,337,676 1,015,779 47,353,455 $ 289,442
Shares issued on exercise of
options 287,000 - 287,000 1,370
Share issuance, net of share issue
costs and income tax benefit 8,222,500 - 8,222,500 55,553
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Balance, December 31, 2011 and
September 30, 2012 54,847,176 1,015,779 55,862,955 $ 346,365
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On April 8, 2011 the Company closed a public offering of 8,222,500 Class A
Subordinate Voting shares at a price of $7.00 per share for net cash proceeds of
$54,886,000.
9. Depreciation, depletion and amortization:
Depreciation, depletion and amortization can be allocated by function as follows:
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3 Months 3 Months 9 Months 9 Months
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2012 2011 2012 2011
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Production $ 12,155 $ 13,108 $ 36,623 $ 37,922
Selling and administration 242 219 677 673
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$ 12,397 $ 13,327 $ 37,300 $ 38,595
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10. Restructuring costs:
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3 Months 3 Months 9 Months 9 Months
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2012 2011 2012 2011
----------------------------------------------------------------------------
Severance costs $ 100 $ 118 $ 385 $ 369
Plant, equipment and road
impairments (reversal) - (423) 128 (423)
Contractor buyout - - - 840
Other recovery - - (267) (102)
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$ 100 $ (305) $ 246 $ 684
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Restructuring costs of $100,000 for severance were recorded as the Company
undertook a reorganization of its Coastal operations in the third quarter, 2012.
Further severance costs of $285,000 in the second quarter, 2012 resulted from
severance costs related to early retirement of hourly workers. In addition, the
cancellation of a cutting permit gave rise to a recovery of previously accrued
restructuring of $267,000, partially offsetting a $128,000 impairment of related
road infrastructure.
Restructuring costs of $850,000 in the first quarter, 2011 resulted from the
buyout of a logging contractor's Bill 13 entitlements and severance costs
related to early retirement of hourly workers.
Additional payments in the second quarter, 2011 resulted in the recognition of
further restructuring costs of $175,000 for the buyout of Bill 13 entitlements.
Further hourly worker early retirements were slightly offset by revisions to
previously accrued severances resulted in a recovery of $102,000 in the second
quarter, and an expense of $118,000 in the third quarter, 2011.
During the third quarter, 2011, the Company also reversed an amount of $423,000
for a write-down for an asset previously considered impaired.
11. Finance costs:
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3 Months 3 Months 9 Months 9 Months
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2012 2011 2012 2011
----------------------------------------------------------------------------
Interest on borrowing $ 1,290 $ 1,173 $ 3,943 $ 4,488
Accretion expense 103 194 354 575
Amortization of prepaid
finance costs 194 290 500 763
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$ 1,587 $ 1,657 $ 4,797 $ 5,826
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12. Other income:
The trading of lumber futures together with minor disposals of surplus equipment
and scrap resulted in proceeds of $392,000 and a gain of $339,000 in the first
nine months of 2012.
In the first nine months of 2011, the Company disposed of surplus equipment and
traded lumber futures and generated $257,000 in proceeds and a gain of $416,000.
13. Net earnings (loss) per share:
----------------------------------------------------------------------------
3 Months Sept. 30, 2012 3 Months Sept. 30, 2011
------------------------- ---------------------------
Weighted Weighted
Net Average Net Average
earnings Number Per earnings Number Per
(loss) of Shares share (loss) of Shares share
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Basic and diluted
earnings (loss)
per share $ 1,133 55,863 $ 0.02 $ 6 55,863 $ 0.00
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9 Months Sept. 30, 2012 9 Months Sept. 30, 2011
-------------------------- --------------------------
Weighted Weighted
Net Average Net Average
earnings Number Per earnings Number Per
(loss) of Shares share (loss) of Shares share
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Basic and diluted
earnings (loss)
per share $ (5,077) 55,863 $(0.09) $ (6,986) 52,852 $(0.13)
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14. Segmented information:
The Company manages its business as a single operating segment, solid wood. The
Company purchases and harvests logs which are then manufactured into lumber
products at the Company's sawmills, or sold. Substantially all of the Company's
operations are located in British Columbia, Canada and the U.S. Pacific
Northwest, U.S.A.
The Company's sales to both foreign and domestic markets are as follows:
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3 Months 3 Months 9 Months 9 Months
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2012 2011 2012 2011
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Canada $ 58,288 $ 57,089 $ 183,254 $ 157,185
United States 102,264 74,820 264,585 195,934
China/Taiwan 20,443 33,057 72,270 110,391
Japan 24,428 27,000 77,492 71,110
Other export 9,289 11,121 29,195 34,935
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$ 214,712 $ 203,087 $ 626,796 $ 569,555
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Sales by product line are as follows:
----------------------------------------------------------------------------
3 Months 3 Months 9 Months 9 Months
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2012 2011 2012 2011
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Lumber $ 161,903 $ 139,617 $ 457,894 $ 404,732
Logs 26,787 35,979 89,387 85,473
Wood chips and other by
products 17,519 17,624 53,527 50,817
Ocean freight and other 8,503 9,867 25,988 28,533
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$ 214,712 $ 203,087 $ 626,796 $ 569,555
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15. Financial instruments:
The Company employs financial instruments such as foreign currency forward and
option contracts to manage exposure to fluctuations in foreign exchange rates
and interest rate swaps to manage exposure to changes in interest rates. The
Company does not expect any credit losses in the event of non-performance by
counterparties as the counterparties are the Company's Canadian bankers, which
are all highly rated.
As at September 30, 2012, the Company has outstanding obligations to sell a
maximum of US$11,400,000 at an average rate of CAD$0.98397 to the US$1.00 and
purchase a maximum of EUR40,000 at an average rate of CAD$1.2695 to the EUR1.00
during 2012. All foreign currency gains or losses to September 30, 2012 have
been recognized in Other foreign exchange gain (loss) in Net earnings and the
fair value of these foreign currency contracts, being an asset of $5,000
(measured based on Level 2 of the fair value hierarchy), has been recorded in
Trade accounts receivable and other (December 31, 2011 - $283,000 asset recorded
in Trade accounts receivable and other measured based on Level 2 of the fair
value hierarchy).
On August 25, 2011, the Company entered into two interest rate swaps, each with
a notional value of $25,000,000 and maturing July 28, 2015. Under the terms of
the swaps the Company pays an amount based on a fixed annual interest rate of
1.56% and receives a 90 day BA CDOR which is recalculated at set interval dates.
The intent of these swaps is to convert floating-rate interest expense to
fixed-rate interest expense. As these interest rate swaps have been designated
as cash flow hedges the fair value of these interest rate swaps at September 30,
2012, being a liability of $222,000 (measured based on Level 2 of the fair value
hierarchy), has been recorded in Trade accounts payable and accrued liabilities
(December 31, 2011 - $503,000 liability recorded in Trade accounts payable and
accrued liabilities measured based on Level 2 of the fair value hierarchy) and a
gain of $281,000 (September 30, 2011 - $500,000 loss) has been recognized in
Other comprehensive income for the nine months ending September 30, 2012. For
the third quarter, 2012 a gain of $68,000 (Quarter 3, 2011 - $500,000 loss) was
recognized in Other comprehensive income.
The Company also traded lumber futures to manage price risk and which were
designated as held for trading with changes in fair value recorded in Other
income (expense) in net earnings. At September 30, 2012 there were no
outstanding lumber futures contracts and a gain of $26,000 was recognized in
Other income (expense) on completed contracts for the nine months ended
September 30, 2012 (September 30, 2011 - $188,000 gain). There were no lumber
futures traded in the third quarter, 2012 (Quarter 3, 2011 - $188,000 gain).
16. Contingencies:
(a) Softwood Lumber Agreement:
In April, 2012 the U.S. Lumber Coalition approached the U.S. Trade
Representative's office that the B.C. government is undercharging B.C. Coastal
forest companies for timber harvested on Crown lands. As this complaint is in
the very preliminary stages of investigation, the existence of any potential
claim has not been determined and no provision has been recorded in the
financial statements as at September 30, 2012.
(b) Significant customer in creditor protection:
On January 31, 2012, Catalyst Paper Corporation ("Catalyst") announced that the
company and certain of its subsidiaries had obtained an Initial Order from the
Supreme Court of British Columbia under the Companies' Creditors Arrangement Act
("CCAA"). Catalyst is the primary buyer of Interfor's chips on the B.C. Coast,
under long-term purchase contracts. Catalyst is also a purchaser of Interfor's
pulp logs and other residuals.
The Court granted Interfor a security interest as a critical supplier on all
current and future products purchased from Interfor and Catalyst met its
obligations to Interfor during the restructuring process.
A restructuring plan was approved by Catalyst's creditors in June, 2012 and
approved by the B.C. Supreme Court in July, 2012. Catalyst emerged from creditor
protection in September, 2012. Any potential long term impact to the Company
cannot be determined at this point.
FOR FURTHER INFORMATION PLEASE CONTACT:
International Forest Products Limited
John Horning
Senior Vice-President and Chief Financial Officer
(604) 689-6829 or (604) 689-6800
(604) 688-0313 (FAX)
www.interfor.com
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