New book by Larry Connors Click here Improve your trading - See how
Included in the results for the second quarter was an expense of $0.8 million or $0.02 per share related to the start-up of the Company's new Adams Lake sawmill, which commenced operations on April 20th.
The loss for the second quarter of 2009 reflects a continuation of weak markets for the Company's products and the strong C$, which averaged US$0.855 in the quarter versus US$0.804 in the first quarter of 2009, peaking in early June at US$0.925.
New home construction in the United States continues to be severely impacted by the economic downturn. Housing starts came in at a seasonally adjusted rate of 541,000 units in the second quarter, up 2% from the first quarter, but 47% below the second quarter of 2008 and one-quarter the peak level recorded in early 2006. In Japan, housing starts through May were 31% lower than the same period in 2008.
The trend in pricing levels was mixed in the quarter. North American commodity prices firmed in the latter half of the quarter as seasonal buying activity and production curtailments impacted demand/supply balances. SPF 2X4 gained US$20 per thousand or 13% quarter-over-quarter. Pine industrials were up as well as mill closures impacted supply and low-grade firmed as demand from China and other offshore markets more than offset weakness in North America.
Cedar, on the other hand continued to adjust downwards, with some items off as much as 10-15%, while key Japanese grades were off 8-10%.
In the face of weak markets, Interfor continued to actively curtail production in the second quarter. All-in, production totalled 115 million board feet compared to 121 million board feet in the first quarter and 128 million board feet in the second quarter of 2008.
Log production at the Company's Canadian operations was 312,000 m3, up from 72,000 m3 in the first quarter, but still well below the 679,000 m3 produced in the second quarter of 2008. In the U.S., log procurement was matched against mill consumption.
Lumber sales, including wholesale volumes, totalled 131 million board feet compared to 122 million board feet in the first quarter and 125 million board feet in the same quarter last year. The average selling price of lumber sold in the quarter was $477 per thousand board feet, up $15 or 3% versus the first quarter, but down $181 or 28% versus the same period in 2008.
EBITDA was negative $7.3 million in the second quarter compared to negative $7.7 million in the first quarter.
Cash from operations after working capital changes was negative $1.3 million; capital spending amounted to $7.2 million, including $5.8 million at Adams Lake. Net debt ended the quarter at $162.8 million versus $160.1 million at the end of the first quarter.
As mentioned above, the new Adams Lake sawmill commenced operations in the second quarter on a one shift basis. By its seventeenth shift, the mill was operating in excess of its pro forma target on a production per hour basis. In June, the mill averaged 106% of pro forma on a production per hour basis.
"We are delighted with the performance of Adams Lake," said Duncan Davies, Interfor's President and Chief Executive Officer. "Tremendous credit goes to the project and operating groups at Adams Lake who have delivered the project on-time and on-budget and have achieved a world-class start-up."
"Adams Lake reflects the standard of our operations," Davies said. "The design and performance characteristics of the mill are similar to the new line installed at our Port Angeles mill in 2007. We believe Adams Lake, like Port Angeles, is very well positioned to take advantage of the market recovery, when it comes, and will generate very attractive returns in the years ahead."
Although housing starts have improved in recent months, there is little reason to believe that product demand will improve in any material way through the balance of the year. Economic conditions remain uncertain, the inventory of unsold homes remains high and the prospect of additional foreclosures continues to overhang the market. The price of dimension and other structural products has tailed off in recent weeks, with SPF 2X4 currently in the US$175-$180 range. The C$ continues to strengthen and currently sits at US$0.921. More positively, prices for most cedar grades have stabilized and in some cases increases have been realized. Japan grades are expected to remain flat over the balance of the year.
In the face of weak demand and volatile currency rates, Interfor will continue to operate on a reduced scale, with a clear priority on managing for cash and ensuring the Company is positioned to take advantage of the market turn-around when it occurs. All discretionary capital spending remains curtailed.
The sale of the Company's Queensboro property, which was announced in March, is on-track to close in the third quarter.
At June 30, the Company had unused credit available of $70 million under its various syndicated credit facilities. These facilities, along with the proceeds of the Queensboro sale, are expected to provide sufficient resources to meet the Company's foreseeable requirements.
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 2008 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 one of the Pacific Northwest's largest producers of quality wood products. 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, July 24, 2009 at 8:00 AM (Pacific Time) hosted by INTERNATIONAL FOREST PRODUCTS LIMITED for the purpose of reviewing the Company's release of its Second Quarter, 2009 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 August 8, 2009. The number to call is 1-866-245-6755 Passcode 610378.
International Forest Products Limited
Second Quarter Report
For the three and six months ended June 30, 2009
Management's Discussion and Analysis
Dated as of July 23, 2009
This Management's Discussion and Analysis ("MD&A") provides a review of Interfor's financial performance for the three and six months ended June 30, 2009 relative to 2008, the Company's financial condition and future prospects. The MD&A should be read in conjunction with the interim Consolidated Financial Statements for the three and six months ended June 30, 2009 and 2008, and Interfor's Annual Information Form, Consolidated Financial Statements and Annual MD&A for the years ended December 31, 2008 and 2007 filed on SEDAR at www.sedar.com. The financial information contained in this MD&A has been prepared in accordance with Canadian generally accepted accounting principles ("GAAP"). In this MD&A, reference is made to EBITDA and Adjusted EBITDA. EBITDA represents earnings before interest, taxes, depletion, amortization, restructuring costs, other foreign exchange gains and losses, and write-downs of property, plant, equipment and timber ("asset write-downs"). Adjusted EBITDA represents EBITDA adjusted for other income. 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 a non-GAAP measure, 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 reports contains information and statements that are forward-looking in nature, including, but not limited to, statements containing the words "believe", "may", "will", "expects", "estimates", "projects", "continue", "anticipates", "intends", 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 2008 Annual Report 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.
Review of Operating Results
Overview
Interfor reported a net loss for the second quarter of 2009 of $15.0 million, or $0.32 per share, and a net loss for the six months ended June 30, 2009 of $28.6 million, or $0.61 per share. This compares to a net loss of $27.7 million, or $0.59 per share, for the second quarter of 2008, and a net loss of $28.6 million, or $0.61 per share, for the first six months of 2008.
EBITDA for the second quarter of 2009 and the first half of 2009 was negative $7.3 million and $15.1 million, respectively, compared to positive $2.5 million and $11.0 million for the corresponding periods in 2008. Adjusted EBITDA for the second quarter and first half of 2009 was negative $7.3 million and negative $15.7 million, respectively, compared to positive $1.9 million and $10.4 million for the same periods in 2008.
Before restructuring costs, foreign exchange gains (losses) and other one-time items, the Company's net loss for the second quarter of 2009 amounted to $15.1 million or $0.32 per share as compared to a net loss of $7.0 million, or $0.15 per share for the second quarter of 2008, and a net loss of $28.4 million, or $0.60 per share for the first half of 2009 as compared to a net loss of $6.1 million, or $0.13 per share in the corresponding period in 2008. Included in the second quarter results of 2008 were restructuring costs totalling $21.3 million, after tax, related primarily to the permanent closure of the Queensboro sawmill, located in New Westminster, B.C.
The forest sector downturn, led by a collapse in the U.S. housing sector, has seen housing starts dropped to one quarter of their peak in 2005. The impacts of the U.S. housing downturn have been exacerbated by a global recession, a volatile Canadian dollar, and the impact of Canadian export taxes on U.S. shipments.
U.S. home buyers continued to be reluctant to re-enter the housing market. Activity amongst builders and lumber retailers remained slow due to the significant inventory of homes on the market, with inventories of unsold new homes in the U.S. exceeding 10 months' supply for the fifteenth straight month. Extensive industry curtailments in all regions and seasonal consumption generated some increased demand among buyers, but price gains were fragile and dependent upon the extent of curtailments. A number of customers operated a just-in-time buying policy to control inventories and limit their downside exposure.
Sales realizations and closing inventory valuations were significantly impacted by low product demand and weak product pricing for the second quarter of 2009, and the first half of 2009, resulting in sizeable operating losses for both periods.
The Company continued to proactively curtail production in all operations in the second quarter in response to decreased product demand.
Sales
Additional sales volumes from the sawmills acquired in mid and late 2008 and new wholesale programs in 2009 more than offset lower operating rates as compared to 2008. Compared to the same periods in 2008, lumber shipments were up 5.7 million board feet, or 4.6%, for the second quarter of 2009, and up 14.3 million board feet, or 6.0%, for the first half of 2009. A sizeable shift in sales mix away from higher-value cedar products and significantly weaker lumber prices for all products overshadowed any positive impact of the weakened Canadian dollar, down on average relative to its U.S. counterpart by 15.8% for the quarter, and 19.8% for the first half, when compared to corresponding periods in 2008. Unit lumber sales values were lower by $181 per mfbm, or 27.5%, for the quarter and $195 per mfbm, or 29.3%, for the first six months, relative to the same periods in 2008.
In comparison to the same periods of 2008, log sales were down $12.6 million, or 49.2%, for the second quarter, and $30.7 million, or 54.3%, in the first half of 2009, as the demand for logs fell in conjunction with the downturn in lumber demand and logging activity was dramatically reduced. The average log sales value declined to $56 per cubic metre in the second quarter of 2009, as compared to $79 per cubic metre in the same quarter of 2008, and to $55 per cubic metre in the first half of 2009, as compared to $77 per cubic metre for the first half of 2008, reflecting a change in sales mix to lower grade and pulp logs, and lower cedar sales values.
Pulp chip and other by-product revenues for the second quarter of 2009 were down $1.4 million, or 19.6%, compared to the second quarter of 2008, but up $0.4 million, or 3.2% for the first half of 2009 as compared to the first half of 2008. The 2009 impact of reduced sawmill operating rates on sales volumes was partially mitigated by the additional volumes generated by the additional sawmills acquired in 2008. Average chip prices were down $7 per mfbm, or 14.7%, for the second quarter, 2009 and $1 per mfbm, or 2.3%, for the first half, 2009, as compared to same periods of 2008, reflecting reduced demand resulting from a global decline in pulp and newsprint markets offset slightly by the weakened Canadian dollar.
Operating Costs
Production costs for the second quarter of 2009 were down $27.8 million, or 25.1%, and $47.9 million, or 22.6%, for the first half of 2009, compared to the same periods in 2008, primarily as a result of significant market related curtailments in manufacturing and logging, partially offset by an increase in lumber production for the first half of 2009 resulting from the sawmills acquired in 2008. Lumber production decreased by 12.5 million board feet, or 9.8%, for the second quarter, 2009 compared to the second quarter, 2008, but increased slightly by 4 million board feet, or 1.7%, for the first half, 2009, compared to the same period in 2008.
Compared to the same periods in 2008, B.C. log production was reduced by 367,100 cubic meters, or 54.1%, for the second quarter of 2009, and 706,500 cubic metres, or 64.8%, for the first six months of 2009, with a substantial volume of logs in 2008 harvested through heli-logging, resulting in significantly higher costs for the comparative period. In order to lower inventory levels and match production to consumption, log production has been dramatically curtailed in 2009 to date. Poor demand continued to reduce log prices in the U.S. Pacific Northwest into the second quarter of 2009, but the positive impact on production costs was eclipsed by the weakened Canadian dollar.
The Canada/U.S. lumber export tax remained at 15% through the first half of 2009. Export taxes totalled $0.9 million for the second quarter, 2009, compared to $1.2 million for the second quarter, 2008, and $1.4 million for the first half of 2009, compared to $2.1 million for the first half of 2008. These declines correspond to a drop of 6 million board feet in shipments to the U.S. for the second quarter, 2009, and 12 million board feet for the first half, 2009 compared to the same periods of the previous year. Export taxes were also impacted by the weakened Canadian dollar and lower prices.
The change in selling and administrative costs for the second quarter and the first half of 2009 was negligible, as compared to the corresponding periods of 2008, despite the addition of three sawmills in mid and late 2008.
The 38.2% increase in the Company's share price for the first half of 2009 was reflected in long term incentive compensation ("LTIC") expense of $1.0 million, as compared to a LTIC recovery of $0.4 million for the first half of 2008.
Amortization and depletion expense for the second quarter of 2009 was down $3.5 million, or 27.0%, compared to the same quarter of 2008 and down $6.1 million, or 27.9%, for the first half of 2009, compared to the same half of 2008, primarily as a result of lower operating rates for coastal logging operations.
Successful defence of a legal dispute resulted in a $0.3 million recovery of costs previously accrued as restructuring expenses in the second quarter of 2009, partially offset by severance costs of $0.2 million. The downsizing of the Company's workforce in response to reduced operating rates in the first half of 2009 resulted in restructuring costs for the first half of 2009 of $1.3 million, partially offset by the recoveries recorded in the second quarter, 2009.
Restructuring costs in the second quarter of 2008 totalled $30.6 million, and for the first half of 2008, $32.8 million, arising primarily from the permanent closure of its Queensboro sawmill and comprised of severance, site remediation and impairment charges.
Interest, Other Foreign Exchange Gain (Loss), Other Income (Expense)
For the second quarter and first half of 2009, interest expense increased by $1.2 million and $2.4 million respectively as compared to the corresponding periods of 2008. The acquisition of several sawmills and related assets in mid and late 2008 and the construction of the Adams Lake sawmill increased the Company's debt level. This, coupled with higher borrowing rates all contributed to the increased interest expense in 2009.
Other foreign exchange gains (losses) were negligible for the second quarter of 2009 and 2008 and the first half of 2009 and 2008 as was Other income (expense) for the second quarter 2009. For the first half of 2009, the Company reported Other income (expense) of $0.6 million, as it disposed of surplus capital assets, and its property and buildings in Maple Ridge, B.C. previously classified as held for sale. This compares to $0.6 million reported in Other income (expense) from net compensation received under the Forest Revitalization Act and gains on disposal of surplus equipment for the second quarter and first half of 2008.
Foreign exchange losses and reduced shipment volumes caused a loss of $0.3 million in equity income in the second quarter, 2009, for total equity income of $0.2 million for the first half of 2009.
Income Tax
The Company has recorded a provision for recovery of income taxes in the second quarter and first half of 2009 of $3.6 million and $6.7 million, respectively, compared to $13.9 million and $16.3 million for the corresponding periods in 2008.
The effective tax rates of 19.4% for the second quarter of 2009 and 19.0% for the first half of 2009 are lower than the statutory Canadian tax rate of 30.0% primarily due to valuation allowances related to the future tax benefit of net operating losses.
Cash Flow and Financial Position
Cash used by the Company from operations, after changes in working capital, was $1.3 million for the second quarter of 2009, compared to cash generated of $6.2 million for the second quarter of 2008, as the dismal lumber markets significantly diminished cash earnings in 2009. For the six months ended June 30, 2009 the Company generated $18.0 million cash from operations, after changes in working capital, compared to cash generated of $30.2 million in the first six months of 2008. Significant production curtailments caused a drawdown of inventories by $24.3 million and the carry back of 2008 tax losses resulted in the receipt of $16.2 million in cash tax refunds in the first half of 2009.
Capital expenditures for the second quarter of 2009 were $4.7 million, excluding changes in amounts accrued, and $17.4 million year-to-date (Quarter 2, 2008 - $21.0 million; first half, 2008 - $34.7 million). Spending in the current quarter was predominantly the completion of the new Adams Lake sawmill which totalled $3.3 million, and $0.9 million on roads. For the first half of 2009, spending related to the construction of the new Adams Lake sawmill totalled $14.8 million. Construction of the new sawmill at Adams Lake is substantially complete and the mill had a successful start-up which commenced on April 20, 2009 on a one-shift basis.
In the first half of 2009, the disposals of surplus property and buildings in Maple Ridge, B.C. combined with other minor sales of surplus equipment, generated proceeds of $4.6 million and a gain of $0.6 million.
On January 2, 2009, the Seaboard Limited Partnership declared an income distribution to its partners. Interfor's share was $3.7 million and was paid to the Company by way of setoff against the promissory note payable to the Seaboard Limited Partnership in the first quarter of 2009.
The Company drew $10.1 million against its bank indebtedness and Revolving Term Line during the second quarter of 2009, to fund the remaining construction costs of the new Adams Lake sawmill. Utilizing proceeds from asset sales, cash tax refunds, and the release of cash from working capital allowed the Company to make cash payments of $10.0 million against its bank indebtedness and Revolving Term Line during the first quarter, 2009.
On April 21, 2009, the Company amended and extended its existing syndicated credit facilities. The existing Canadian Operating Line decreased from $100.0 million to $65.0 million and the maturity date was extended to April 23, 2010. As part of the amendment, margining availability was extended to include inventory domiciled in the United States. The Company's Revolving Term Line was increased from $115.0 million to $150.0 million, with no change to its maturity date of April 24, 2011. Except for an increase in pricing and the margining amendment, all other terms and conditions of the lines remained substantially unchanged. The net impact of this amendment is effectively to increase available liquidity by $35.0 million. The Company expects to be able to extend all existing credit facilities as they become due.
As a result of the extension of margining coverage, all U.S. working capital is included in the Company's syndicated operating facility and the US$10.0 million U.S. Operating Line was not extended when it matured on April 24, 2009.
All discretionary capital expenditures will remain curtailed until global market indicators show significant and sustained improvement. Based on current pricing projections, expected proceeds from surplus assets held for sale and existing credit lines, the Company believes it has sufficient resources to fund any shortfall from operations, interest payments, and essential capital expenditures.
At June 30, 2009, the Company had cash of $1.8 million. After deducting the Company's bank indebtedness and drawings under its Revolving Term Line and Non-Revolving Term, the Company ended the quarter with net debt of $162.8 million or 30.6% of invested capital.
Selected Quarterly Financial Information
Quarterly Earnings 2009 2008 2007
Summary ------------------------------------------------------
Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3
------------------------------------------------------
(millions of dollars except share and per share amounts)
Sales - Lumber 62.3 56.5 65.6 73.4 82.2 76.2 70.7 93.2
- Logs 13.0 12.8 18.3 28.8 25.7 30.9 35.6 30.3
- Wood chips
and other
by-products 5.9 7.4 8.8 8.9 7.4 5.5 7.2 10.0
- Other 0.6 0.6 0.8 0.9 2.1 1.8 1.9 2.0
------------------------------------------------------
Total Sales 81.8 77.3 93.5 112.0 117.4 114.4 115.4 135.5
------------------------------------------------------
Operating loss
before
restructuring costs
and asset
write-downs (16.4) (15.2) (8.1) (12.8) (11.7) (1.0) (15.1) (4.3)
Operating loss (16.3) (16.3) (8.9) (14.1) (42.2) (3.2) (15.4) (4.3)
Net loss (15.0) (13.6) (18.7) (8.1) (27.7) (0.9) (8.8) (1.4)
Net loss per share -
basic and diluted (0.32) (0.29) (0.40) (0.17) (0.59) (0.02) (0.19) (0.03)
EBITDA(3) (7.3) (7.7) 2.0 0.7 2.5 8.5 (4.6) 8.9
Cash flow from
operations per
share(1) (0.23) (0.22) 0.12 0.06 (0.06) 0.22 (0.05) 0.10
Shares outstanding
- end of period
(millions)(2) 47.1 47.1 47.1 47.1 47.1 47.1 47.1 47.1
- weighted average
(millions) 47.1 47.1 47.1 47.1 47.1 47.1 47.1 47.4
Adjusted EBITDA(3) (7.3) (8.4) 1.7 0.1 1.9 8.5 (4.7) 7.2
1 Cash generated from operations before taking account of changes in
operating working capital.
2 As at July 23, 2009, the number of shares outstanding by class are: Class
A Subordinate Voting shares - 46,101,476 Class B Common shares -
1,015,779, Total - 47,117,255.
3 EBITDA represents earnings before interest, taxes, 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 to evaluate the Company's performance. As EBITDA
is a non-GAAP measure, 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.
EBITDA and Adjusted EBITDA can be calculated from the Statements of
Operations as follows:
2009 2008 2007
------------------------------------------------------
Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3
------------------------------------------------------
(millions of dollars)
Net loss (15.0) (13.6) (18.7) (8.1) (27.7) (0.9) (8.8) (1.4)
Add: Income taxes
(recovery) (3.6) (3.1) 10.4 (5.2) (13.9) (2.4) (7.0) (1.7)
Interest expense
(income) 2.0 1.6 2.5 1.5 0.8 0.4 0.2 (0.1)
Depletion and
amortization 9.5 6.3 7.8 11.3 13.0 8.8 10.5 11.4
Other foreign
exchange (gains)
losses (0.1) - (0.9) - (0.4) 0.4 0.2 0.7
Restructuring costs,
asset write-downs
and other (0.1) 1.1 0.8 1.3 30.6 2.2 0.3 -
------------------------------------------------------
EBITDA (7.3) (7.7) 2.0 0.7 2.5 8.5 (4.6) 8.9
Deduct:
Other income
(expense) - (0.6) (0.3) 0.6 0.6 - 0.2 1.7
------------------------------------------------------
Adjusted EBITDA (7.3) (8.4) 1.7 0.1 1.9 8.5 (4.7) 7.2
------------------------------------------------------
Volume and Price 2009 2008 2007
Statistics ------------------------------------------------------
Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3
------------------------------------------------------
Lumber (million
sales fbm) 131 122 133 132 125 113 161 196
Lumber (million
production fbm) 115 121 118 148 128 104 150 187
Log (thousand
sales(1) cubic
metres) 216 200 236 372 312 399 382 315
Log (thousand
production cubic
(1) metres) 312 72 290 501 679 411 373 401
Average
selling
price - ($/thousand
lumber(2) fbm) $477 $462 $494 $555 $658 $672 $441 $476
Average
selling
price - ($/cubic
logs(1) metre) $ 56 $ 54 $ 69 $ 70 $ 79 $ 75 $ 91 $ 95
Average
selling
price - ($/thousand
pulp chips fbm) $ 40 $ 46 $ 58 $ 48 $ 47 $ 41 $ 37 $ 43
1 B.C. operations
2 Gross sales before export taxes
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 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. Sawmill operations are less seasonal than logging operations but do depend on the availability of logs from the logging operations. In addition, the market demand for lumber and related products is generally lower in the first quarter due to reduced construction activity, which increases during the spring, summer and fall.
The impact of the global recession on overall demand, lower lumber prices and a weakening Canadian dollar increased the operating losses in the fourth quarter of 2008 and the first two quarters of 2009. The decrease in operating earnings for the quarters in 2007 and the first three quarters in 2008 related primarily to weak U.S. structural lumber markets, and the stronger Canadian dollar. For the fourth quarter of 2007, strike action also contributed to lower reported operating earnings. All of these factors contributed to lower operating rates and lumber sales realizations in the applicable periods.
Agreement to Purchase Timber Assets from Weyerhaeuser
On July 3, 2009, the Company finalized a revised agreement to acquire a timber tenure and related reforestation liabilities in the Kamloops region from Weyerhaeuser Company Limited. The transfer of the tenure requires regulatory approval. Subject to receiving the required approval, the Company expects to conclude this transaction before the end of 2009. This agreement replaces the agreement dated February 18, 2008 which was previously disclosed.
Agreement to Sell Former Queensboro Sawmill Site
On March 30, 2009, the Company announced it entered into an agreement with Port Metro Vancouver ("the Port") for the sale of its former Queensboro mill site for $30.1 million. The agreement remains subject to the Port obtaining final approval from the Minister of Transport, Canada, anticipated in late July, 2009, with the transaction expected to close in the third quarter, 2009. The site continues to be classified as held for sale.
Accounting Policy Changes
Effective January 1, 2009, the Company adopted the new Canadian Institute of Chartered Accountants ("CICA") Handbook Section 3064, Goodwill and Intangible Assets on a retrospective basis. This section replaces CICA Handbook Section 3062, Goodwill and Intangible Assets, and establishes revised standards for the recognition, measurement, presentation and disclosure of goodwill and intangible assets. The new standard also provides guidance for the treatment of various preproduction and start-up costs and requires that these costs be expensed as incurred, with the concurrent withdrawal of CICA Emerging Issues Committee Abstract 27 ("EIC 27").
The Company previously deferred start-up costs on major plant construction to the extent these costs met the criteria under EIC 27 and the site met sustainable production levels defined as the earlier of:
(a) Seventy percent of production capacity for two consecutive months; or
(b) Six months
and to a maximum of twenty percent of the total project.
Start-up costs were amortized over five years on a straight-line basis.
The Financial Statements have been restated on a retrospective basis to reflect the requirements of the new standard.
Future Accounting Policy Changes
In February 2008, the Canadian Accounting Standards Board confirmed that Canadian generally accepted accounting principles ("Canadian GAAP") will be converged with International Financial Reporting Standards ("IFRS") for fiscal years commencing January 1, 2011. The transition from Canadian GAAP to IFRS will be applicable for the Company for the first quarter of 2011 when the Company will prepare both the current and comparative financial information using IFRS.
While IFRS uses a conceptual framework similar to Canadian GAAP, there are significant differences on recognition, measurement, and disclosures. The Company commenced its IFRS conversion project in 2008 with the provision of training to key employees. In the first quarter of 2009, the Company assembled a cross functional team, providing additional training to team members and commencing a high level review of its financial statement elements to identify major differences between Canadian GAAP and IFRS as applicable to the Company. Additional team members were engaged in the second quarter, with further technical training provided, and subject matter specialists were identified.
In the second quarter, the Company made significant progress in identifying and documenting areas of difference between Canadian GAAP and IFRS, identifying alternative policies, and determining high level impacts. As subject areas reach completion, recommendations will be brought forward to the Company Executive for approval prior to implementation.
The Company will consult with outside experts, as required. Progress is on schedule.
Changes in accounting policies are likely. These changes may materially impact the Company's consolidated financial statements.
Controls and Procedures
There were no changes in the Company's internal controls over financial reporting ("ICFR") during the quarter ended June 30, 2009 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 June 30, 2009. For a full discussion of critical accounting estimates, please refer to the Company's discussion in its MD&A for the year ended December 31, 2008 as filed on SEDAR at www.sedar.com.
Outlook
Conditions in a number of financial markets have improved in recent weeks, reflecting, in part, the somewhat more encouraging economic data. However financial markets and financial institutions remain under considerable stress, and cumulative declines in asset prices, tight credit conditions and high levels of risk aversion continue to weigh on the economy.
Housing affordability in the U.S. is better than it has been in nearly 40 years and mortgage rates hit record lows in April, 2009. Lower financing costs, buyer incentives and low prices in the U.S. are beginning to stabilize the downturn in existing home sales. However, rising unemployment and poor consumer confidence are limiting any prospects for a meaningful economic recovery in the short-term. As a result, activity in the housing market remains well below normal with little prospect of any sustained or meaningful improvement in lumber demand in the near-term.
Consequently, the Company will continue to maintain its disciplined approach to production, focus on managing the business for cash generation, ensuring adequate liquidity is maintained and curtailing all discretionary capital spending.
Additional Information
Additional information relating to the Company and its operations can be found on its website at www.interfor.com, in the 2008 Annual Report and on SEDAR at www.sedar.com. Interfor's trading symbol on the Toronto Stock Exchange is IFP.A.
E. Lawrence Sauder Duncan K. Davies
Chairman President and Chief Executive Officer
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three and six months ended June 30, 2009 and 2008 (unaudited)
--------------------------------------------------------------------------
(thousands of Canadian 3 Months 3 Months 6 Months 6 Months
dollars except earnings June 30, June 30, June 30, June 30,
per share) 2009 2008 2009 2008
--------------------------------------------------------------------------
(restated- (restated-
note 2) note 2)
Sales $ 81,825 $ 117,404 $ 159,102 $ 231,778
Costs and expenses:
Production 82,712 110,484 163,960 211,851
Selling and administration 4,604 4,513 8,699 9,004
Long term incentive
compensation expense
(recovery) 590 (102) 991 (361)
Export taxes 870 1,180 1,371 2,116
Amortization of plant
and equipment 6,186 5,643 11,161 11,033
Depletion and amortization
of timber, roads and other 3,297 7,339 4,574 10,788
--------------------------------------------------------------------------
98,259 129,057 190,756 244,431
--------------------------------------------------------------------------
Operating loss before
restructuring costs (16,434) (11,653) (31,654) (12,653)
Restructuring (costs)
recovery (note 10) 86 (30,592) (987) (32,832)
--------------------------------------------------------------------------
Operating loss (16,348) (42,245) (32,641) (45,485)
Interest expense on
long-term debt (1,650) (700) (2,864) (1,218)
Other interest income
(expense) (332) (120) (738) 31
Other foreign exchange
gain (loss) 119 379 103 (6)
Other income (expense)
(note 9) (18) 552 629 559
Equity in earnings
(losses) of investee company (343) 608 238 1,275
--------------------------------------------------------------------------
(2,224) 719 (2,632) 641
--------------------------------------------------------------------------
Loss before income taxes (18,572) (41,526) (35,273) (44,844)
Income taxes (recovery):
Current 1 (3,090) - (7,440)
Future (3,600) (10,777) (6,700) (8,827)
--------------------------------------------------------------------------
(3,599) (13,867) (6,700) (16,267)
--------------------------------------------------------------------------
Net loss $ (14,973) $ (27,659) $ (28,573) $ (28,577)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Net loss per share, basic
and diluted (note 11) $ (0.32) $ (0.59) $ (0.61) $ (0.61)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
For the three and six months ended June 30, 2009 and 2008 (unaudited)
--------------------------------------------------------------------------
3 Months 3 Months 6 Months 6 Months
(thousands of Canadian June 30, June 30, June 30, June 30,
dollars) 2009 2008 2009 2008
--------------------------------------------------------------------------
(restated- (restated-
note 2) note 2)
Retained earnings, beginning
of period $ 99,148 $ 167,221 $ 112,748 $ 168,139
Net loss (14,973) (27,659) (28,573) (28,577)
--------------------------------------------------------------------------
Retained earnings, end
of period $ 84,175 $ 139,562 $ 84,175 $ 139,562
--------------------------------------------------------------------------
--------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three and six months ended June 30, 2009 and 2008 (unaudited)
--------------------------------------------------------------------------
3 Months 3 Months 6 Months 6 Months
(thousands of Canadian June 30, June 30, June 30, June 30,
dollars) 2009 2008 2009 2008
--------------------------------------------------------------------------
(restated- (restated-
note 2) note 2)
Cash provided by (used in):
Operating activities:
Net loss $ (14,973) $ (27,659) $ (28,573) $ (28,577)
Items not involving cash:
Amortization of plant
and equipment 6,186 5,643 11,161 11,033
Depletion and amortization
of timber, roads and other 3,297 7,339 4,574 10,788
Future income taxes (recovery) (3,600) (10,777) (6,700) (8,827)
Other assets (541) (268) (521) (297)
Reforestation liability (1,042) (2,981) 411 (2,591)
Other long-term liabilities 1,152 (71) 664 (116)
Share of earnings (losses)
net (in excess) of cash
distributions of investee
company 343 (608) (238) (1,275)
Write-down of plant and
equipment (note 10) - 27,333 - 27,333
Foreign exchange loss (gain)
on translation of long
term debt (1,571) (382) (1,120) 675
Other (note 9) 17 (594) (634) (622)
--------------------------------------------------------------------------
(10,732) (3,025) (20,976) 7,524
Cash generated from (used in)
operating working capital:
Accounts receivable (2,736) (3,209) 3,723 1,193
Inventories 11,060 (10,343) 24,345 3,250
Prepaid expenses 762 (1,378) 2,081 (1,168)
Accounts payable and
accrued liabilities 282 15,130 (7,390) 14,764
Income taxes 101 9,013 16,183 4,627
--------------------------------------------------------------------------
(1,263) 6,188 17,966 30,190
Investing activities:
Additions to property,
plant and equipment (6,321) (15,965) (19,194) (25,611)
Additions to logging
roads and timber (858) (5,257) (1,113) (7,897)
Proceeds on disposal of
property, plant and
equipment 200 837 4,584 865
Acquisition of Pope and
Talbot sawmills and related
timber assets - (49,418) - (49,418)
Deposit held in escrow for
acquisition - 9,007 - 8,943
Investments and other assets (745) 435 (740) 63
--------------------------------------------------------------------------
(7,724) (60,361) (16,463) (73,055)
Financing activities:
Increase (decrease) in bank
indebtedness, net 143 682 (1,812) 682
Additions to long-term debt
(note 7(b)) 10,000 66,925 10,000 66,925
Repayments of long-term
debt (note 7(b)) - (38,925) (8,000) (38,925)
--------------------------------------------------------------------------
10,143 28,682 188 28,682
Foreign exchange gain (loss)
on cash and cash equivalents
held in a foreign currency (69) 591 (47) (62)
--------------------------------------------------------------------------
Increase (decrease) in cash
and cash equivalents 1,087 (24,900) 1,644 (14,245)
Cash and cash equivalents,
beginning of period 741 28,450 184 17,795
--------------------------------------------------------------------------
Cash and cash equivalents,
end of period $ 1,828 $ 3,550 $ 1,828 $ 3,550
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Supplementary disclosures
Cash interest paid $ 1,982 $ 820 $ 3,602 $ 1,187
Cash income tax refunds
received 97 13,336 16,179 13,336
--------------------------------------------------------------------------
--------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
CONSOLIDATED BALANCE SHEETS
June 30, 2009 (unaudited) and December 31, 2008 (audited)
------------------------------------------------------------------------
June 30, Dec. 31,
(thousands of Canadian dollars) 2009 2008
------------------------------------------------------------------------
(restated-
Assets note 2)
Current assets:
Cash and cash equivalents $ 1,828 $ 184
Accounts receivable 21,042 25,441
Income taxes recoverable 42 16,225
Inventories (note 6) 54,109 78,991
Prepaid expenses 5,564 7,779
Future income taxes 3,359 2,890
-----------------------------------------------------------------------
85,944 131,510
Investments and other assets (note 5) 16,957 19,372
Property, plant and equipment, net of
accumulated amortization 391,122 395,727
Timber tenures, net of accumulated depletion 68,836 69,827
Logging roads and bridges, net of accumulated
amortization 18,382 20,598
Goodwill and other intangible assets 13,078 13,078
Long-lived assets held for sale 12,316 15,138
------------------------------------------------------------------------
$ 606,635 $ 665,250
------------------------------------------------------------------------
------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities:
Bank indebtedness (note 7(a)) $ 28,777 $ 30,589
Accounts payable and accrued liabilities 35,322 45,163
Payable to investee company (note 5) - 3,651
-----------------------------------------------------------------------
64,099 79,403
Reforestation liability, net of current
portion 16,096 15,685
Long-term debt (note 7(b)) 135,828 137,414
Other long-term liabilities 13,071 12,407
Future income taxes 8,169 14,159
Shareholders' equity:
Share capital (note 8)
Class A subordinate voting shares 284,500 284,500
Class B common shares 4,080 4,080
Contributed surplus 5,408 5,408
Accumulated other comprehensive income (loss) (8,791) (554)
Retained earnings (note 2) 84,175 112,748
-----------------------------------------------------------------------
369,372 406,182
------------------------------------------------------------------------
$ 606,635 $ 665,250
------------------------------------------------------------------------
------------------------------------------------------------------------
Commitments (note 15)
Subsequent event (note 16)
See accompanying notes to consolidated financial statements
On behalf of the Board:
E.L. Sauder G.H. MacDougall
Director Director
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the three and six months ended June 30, 2009 and 2008 (unaudited)
--------------------------------------------------------------------------
3 Months 3 Months 6 Months 6 Months
(thousands of Canadian June 30, June 30, June 30, June 30,
dollars) 2009 2008 2009 2008
--------------------------------------------------------------------------
(restated- (restated-
note 2) note 2)
Net loss $ (14,973) $ (27,659) $ (28,573) $ (28,577)
Other comprehensive income
(loss):
Net change in unrealized
foreign currency
translation gains (losses)
on translation of self-
sustaining foreign
subsidiaries (14,581) (1,592) (8,237) 4,229
--------------------------------------------------------------------------
Other comprehensive income
(loss) (14,581) (1,592) (8,237) 4,229
--------------------------------------------------------------------------
Comprehensive loss $ (29,554) $ (29,251) $ (36,810) $ (24,348)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
For the three and six months ended June 30, 2009 and 2008 (unaudited)
--------------------------------------------------------------------------
3 Months 3 Months 6 Months 6 Months
(thousands of Canadian June 30, June 30, June 30, June 30,
dollars) 2009 2008 2009 2008
--------------------------------------------------------------------------
(restated- (restated-
note 2) note 2)
Accumulated other
comprehensive income
(loss) beginning of period $ 5,790 $ (27,951) $ (554) $ (33,772)
Other comprehensive income
(loss) (14,581) (1,592) (8,237) 4,229
--------------------------------------------------------------------------
Accumulated other
comprehensive loss, end of
period $ (8,791) $ (29,543) $ (8,791) $(29,543)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
INTERNATIONAL FOREST PRODUCTS LIMITED
Notes to Unaudited Interim Consolidated Financial Statements
(Tabular amounts expressed in thousands except per share amounts)
Three and six months ended June 30, 2009 and 2008 (unaudited)
1. Significant accounting policies:
These unaudited interim consolidated financial statements include the accounts of International Forest Products Limited and its subsidiaries (collectively referred to as "Interfor" or the "Company"). These interim consolidated financial statements do not include all disclosures required by Canadian generally accepted accounting principles for annual financial statements, and accordingly, these interim consolidated financial statements should be read in conjunction with Interfor's most recent annual consolidated financial statements. These interim consolidated financial statements follow the same accounting policies and methods of application used in the Company's audited annual consolidated financial statements as at and for the year ended December 31, 2008, except for the new accounting policy adopted subsequent to that date, as discussed in Note 2.
2. Adoption of change in accounting policy:
Effective January 1, 2009, the Company adopted the new Canadian Institute of Chartered Accountants ("CICA") Handbook Section 3064, Goodwill and Intangible Assets on a retrospective basis. This section replaces CICA Handbook Section 3062, Goodwill and Intangible Assets, and establishes revised standards for the recognition, measurement, presentation and disclosure of goodwill and intangible assets. The new standard also provides guidance for the treatment of various preproduction and start-up costs and requires that these costs be expensed as incurred, with the concurrent withdrawal of CICA Emerging Issues Committee Abstract 27 ("EIC 27").
The Company previously deferred start-up costs on major plant construction to the extent these costs met the criteria under EIC 27 and the site met sustainable production levels defined as the earlier of:
(a) Seventy percent of production capacity for two consecutive months; or
(b) Six months
and to a maximum of twenty percent of the total project.
Start-up costs were amortized over five years on a straight-line basis.
The following changes to historical financial statements have been made to reflect the new policy:
---------------------------------------------------------------------------
As
previously As
reported Adjustment adjusted
---------------------------------------------------------------------------
Consolidated Statement of Operations for
the three months ended June 30, 2008:
Amortization of plant and equipment $ 5,768 $ (125) $ 5,643
Restructuring costs 33,009 (2,417) 30,592
Future income tax recovery 11,555 (778) 10,777
Net loss 29,423 (1,764) 27,659
Net loss per share, basic and diluted (0.62) 0.03 (0.59)
Consolidated Statement of Operations for
the six months ended June 30, 2008:
Amortization of plant and equipment $ 11,452 $ (419) $ 11,033
Restructuring costs 35,249 (2,417) 32,832
Future income tax recovery 9,725 (898) 8,827
Net loss 30,515 (1,938) 28,577
Net loss per share, basic and diluted (0.65) 0.04 (0.61)
Consolidated Statement of Retained
Earnings for the three months ended
June 30, 2008:
Retained earnings, beginning 169,492 (2,271) 167,221
Retained earnings, ending 140,069 (507) 139,562
Consolidated Statement of Retained
Earnings for the six months ended
June 30, 2008:
Retained earnings, beginning 170,584 (2,445) 168,139
Retained earnings, ending 140,069 (507) 139,562
Consolidated Balance Sheet as at
December 31, 2008:
Property, plant and equipment, net of
accumulated amortization 396,387 (660) 395,727
Accumulated other comprehensive loss 539 15 554
Retained earnings, ending 113,393 (645) 112,748
Consolidated Statement of Comprehensive
Income for the three months ended
June 30, 2008:
Net loss 29,423 (1,764) 27,659
Other comprehensive loss 1,596 (4) 1,592
Comprehensive loss 31,019 (1,768) 29,251
Consolidated Statement of Comprehensive
Income for the six months ended
June 30, 2008:
Net loss 30,515 (1,938) 28,577
Other comprehensive income 4,238 (9) 4,229
Comprehensive loss 26,277 (1,929) 24,348
Consolidated Statement of Accumulated
Other Comprehensive Income for the
three months ended June 30, 2008:
Accumulated other comprehensive loss,
beginning 28,058 (107) 27,951
Accumulated other comprehensive loss,
ending 29,654 (111) 29,543
Consolidated Statement of Accumulated
Other Comprehensive Income for the six
months ended June 30, 2008:
Accumulated other comprehensive loss,
beginning 33,892 (120) 33,772
Accumulated other comprehensive loss,
ending 29,654 (111) 29,543
---------------------------------------------------------------------------
3. Comparative figures:
Certain of the prior period's figures have been reclassified to conform to the presentation adopted in the current year.
4. Seasonality of operating results:
The Company operates in the solid wood business which includes logging and manufacturing operations. Logging activities vary throughout the year due to a number of factors including weather, ground and fire season conditions. Generally, the Company operates the bulk of its logging divisions in the latter half of the first quarter, throughout the second and third quarters and in the first half of the fourth quarter. Manufacturing operations are less seasonal than logging operations but do depend on the availability of logs from the logging operations and from third party suppliers. In addition, the market demand for lumber and related products is generally lower in the first quarter due to reduced construction activity which increases during the spring, summer and fall.
5. Payable to investee company:
On December 29, 2008, the Seaboard Limited Partnership ("the Seaboard Partnership"), made an advance to its partners, with the Company's share of the advance being $3,651,000. The Company signed an unsecured promissory note which was payable on demand on or before January 2, 2009 and was non-interest bearing until January 2, 2009.
On January 2, 2009, the Seaboard Partnership declared an income distribution to its partners, of which the Company's share of $3,651,000 was received by way of setoff against the promissory note payable to the Seaboard Partnership. In accordance with equity accounting, the income distribution was recorded as a reduction of the investment in Seaboard.
6. Inventories:
-----------------------------------------------------------------------
June 30, 2009 Dec. 31, 2008
-----------------------------------------------------------------------
Logs $ 27,938 $ 49,941
Lumber For full details for IFSPA click here.
More News:
Market Updates |
Stock Alerts |
All Trading News |
Stock Index
Email
Print
Archives
Feedback
Email Article Link
Close X
About TradingMarkets | Contact | Advertise | Careers | Link to Us | Site Map | Help | Terms & Conditions | Privacy Policy | Return Policy | Testimonials | Feedback
The Connors Group, Inc. ("Company") is not an investment advisory service, nor a registered investment advisor or broker-dealer and does not purport to tell or suggest which securities or currencies customers should buy or sell for themselves. The analysts and employees or affiliates of Company may hold positions in the stocks, currencies or industries discussed here. You understand and acknowledge that there is a very high degree of risk involved in trading securities and/or currencies. The Company, the authors, the publisher, and all affiliates of Company assume no responsibility or liability for your trading and investment results. Factual statements on the Company's website, or in its publications, are made as of the date stated and are subject to change without notice.
It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results of any individual trader or trading system published by Company are not indicative of future returns by that trader or system, and are not indicative of future returns which be realized by you. In addition, the indicators, strategies, columns, articles and all other features of Company's products (collectively, the "Information") are provided for informational and educational purposes only and should not be construed as investment advice. Examples presented on Company's website are for educational purposes only. Such set-ups are not solicitations of any order to buy or sell. Accordingly, you should not rely solely on the Information in making any investment. Rather, you should use the Information only as a starting point for doing additional independent research in order to allow you to form your own opinion regarding investments. You should always check with your licensed financial advisor and tax advisor to determine the suitability of any investment.
HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING AND MAY NOT BE IMPACTED BY BROKERAGE AND OTHER SLIPPAGE FEES. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.
The Connors Group, Inc.
10 Exchange Place, Suite 1800
Jersey City, NJ 07302
© Copyright 2009 The Connors Group, Inc.