INTERNATIONAL FOREST PRODUCTS LIMITED ("Interfor" or the "Company") (TSX:IFP.A)
reported a net loss of $3.4 million ($0.07 per share) for the fourth quarter of
2008, before a non-cash valuation allowance of $15.1 million ($0.32 per share)
relating to future income tax assets. This compares to a net loss of $8.9
million ($0.19 per share) in the fourth quarter of 2007. Including the valuation
allowance, Interfor's net loss in the fourth quarter of 2008 was $18.5 million
($0.39 per share).
The loss for the quarter includes a one-time recovery of export taxes pursuant
to the Softwood Lumber Agreement ($0.4 million after-tax, or $0.01 per share)
and a recovery of previously expensed costs associated with a timber takeback by
the Province of British Columbia ($1.6 million after-tax, or $0.03 per share).
Interfor's results for the fourth quarter reflect the sharp decline in business
conditions and product prices which began in mid-September.
In the face of reduced demand, operations were actively curtailed in the quarter
to limit inventory exposure. Lumber production totalled 118 million board feet
compared to 150 million board feet in the fourth quarter of 2007 and 148 million
board feet in the immediately preceding quarter. At the indicated rate, the
Company's mills operated at less than 40% of available capacity in the fourth
quarter.
Lumber sales totalled 133 million board feet compared to 161 million board feet
in the fourth quarter of 2007 and 132 million board feet in the third quarter of
2008.
In spite of the difficult business environment and lower production level,
EBITDA was positive in the fourth quarter at $2.0 million, compared to negative
$4.6 million in the same quarter last year.
Cash generated from operations in the fourth quarter was $5.8 million before
changes in working capital and negative $2.6 million after changes in working
capital were taken into account.
Capital spending amounted to $31.0 million including $25.7 million on the new
Adams Lake sawmill.
After taking account of capital spending, the Company ended the quarter with net
debt of $167.8 million, or 29.2%, of invested capital.
Subsequent to the end of the quarter, the Company obtained a commitment from its
lending syndicate to modify its credit facilities, effective April 24, 2009.
Under the terms of the commitment, $35 million will be added to the Company's
Revolving Term Line, bringing the amount available under that facility to $150
million. The maturity date of the line remains unchanged at April 24, 2011. In
addition, the maturity date of the Company's Operating Line of Credit will be
extended from April 24, 2009 to April 23, 2010. The amounts available under the
Operating Line will be reduced from a maximum of $100 million to $65 million.
The Company's Non-Revolving Term Line of US$35 million remains unchanged,
maturing September 1, 2010. The modifications will enable the Company to fully
utilize its credit lines during periods of reduced operating activity and is
expected to be sufficient to meet the Company's foreseeable requirements.
The financial crisis impacting the global economy has had a material effect on
lumber consumption worldwide, particularly in the United States. Product prices
fell sharply in January, but have recovered somewhat in recent weeks as
curtailments throughout the industry reduce available supply. In light of the
uncertain economic environment, Interfor will maintain its disciplined approach
to production and strict controls on capital spending.
Construction at Adams Lake, is on-time and on-budget, with approximately $16
million left to spend on the project as at year-end. The first line of the new
mill was commissioned in 2008 with very encouraging results; a full start-up of
the mill is scheduled for the second quarter of 2009.
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 current 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, February 13, 2009 at 8:00 AM (Pacific
Time) hosted by INTERNATIONAL FOREST PRODUCTS LIMITED for the purpose of
reviewing the Company's release of its Fourth Quarter, 2008 Financial Results.
The dial-in number is 1-866-400-3310. The conference call will also be recorded
for those unable to join in for the live discussion, and will be available until
February 27, 2009. The number to call is 1-866-245-6755 Passcode 191906.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months and years ended December 31, 2008 and 2007 (unaudited)
--------------------------------------------------------------------------
(thousands of Canadian 3 Months 3 Months Year Year
dollars except Dec. 31, Dec. 31, Dec. 31, Dec. 31,
earnings per share) 2008 2007 2008 2007,
--------------------------------------------------------------------------
Sales $ 93,490 $ 115,390 $ 437,221 $ 611,008
Costs and expenses:
Production 90,746 116,528 411,479 560,348
Selling and administration 3,554 3,637 16,867 16,776
Long term incentive
compensation
expense (recovery) (909) (998) (1,990) (476)
Export taxes 319 808 3,433 8,755
Amortization of plant and
equipment 4,484 6,774 21,846 30,129
Depletion and amortization of
timber, roads and other 3,412 3,969 19,619 20,726
-------------------------------------------------------------------------
101,606 130,718 471,254 636,258
--------------------------------------------------------------------------
Operating loss before
restructuring costs (8,116) (15,328) (34,033) (25,250)
Restructuring costs (note 12) (787) (335) (37,305) (1,975)
--------------------------------------------------------------------------
Operating loss (8,903) (15,663) (71,338) (27,225)
Interest expense on long-term
debt (2,001) (617) (4,543) (2,835)
Other interest income (expense) (463) 400 (588) 4,163
Other foreign exchange gain
(loss) 884 (193) 912 (7,308)
Other income (note 11) 255 172 1,418 5,983
Equity in earnings of investee
companies 1,925 (159) 4,825 218
--------------------------------------------------------------------------
600 (397) 2,024 221
--------------------------------------------------------------------------
Loss before income taxes (8,303) (16,060) (69,314) (27,004)
Income taxes (recovery):
Current (5,677) (5,965) (18,533) (9,570)
Future 15,904 (1,158) 6,410 (4,113)
--------------------------------------------------------------------------
10,227 (7,123) (12,123) (13,683)
--------------------------------------------------------------------------
Net loss $ (18,530) $ (8,937) $ (57,191) $ (13,321)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Net loss per share, basic
and diluted (note 13) $ (0.39) $ (0.19) $ (1.21) $ (0.28)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
For the years ended December 31, 2008 and 2007 (unaudited)
--------------------------------------------------------------------------
(thousands of Canadian dollars) Year Year
Dec. 31, Dec. 31,
2008 2007
--------------------------------------------------------------------------
Retained earnings, beginning of year, as restated
(note 2(d)) $ 170,584 $ 183,905
Net loss (57,191) (13,321)
--------------------------------------------------------------------------
Retained earnings, end of period $ 113,393 $ 170,584
--------------------------------------------------------------------------
--------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months and years ended December 31, 2008 and 2007 (unaudited)
--------------------------------------------------------------------------
(thousands of 3 Months 3 Months Year Year
Canadian dollars) Dec. 31, Dec. 31, Dec. 31, Dec. 31,
2008 2007 2008 2007
--------------------------------------------------------------------------
Cash provided by (used in):
Operating activities:
Net loss $ (18,530) $ (8,937) $ (57,191) $ (13,321)
Items not involving cash:
Amortization of plant and
equipment 4,484 6,774 21,846 30,129
Depletion and amortization of
timber, roads and other 3,412 3,969 19,619 20,726
Future income taxes (recovery) 15,904 (1,158) 6,410 (4,113)
Other assets (586) (300) (544) 1,030
Reforestation liability (669) (2,256) (4,421) (1,336)
Other long-term liabilities (986) (570) (1,678) 257
Share of earnings net (in excess)
of cash distributions of
investee company (1,925) 159 (4,825) 4,151
Write-down of plant, equipment
and timber (note 12) 434 - 31,427 -
Unrealized foreign exchange
losses (gains) 4,556 (123) 3,941 (6,094)
Other (292) (108) (1,541) (6,117)
-------------------------------------------------------------------------
5,802 (2,550) 13,043 25,312
Cash generated from (used in)
operating working capital:
Accounts receivable 7,752 (2,504) 13,335 12,438
Inventories 12,306 12,447 12,025 2,791
Prepaid expenses 1,191 961 (117) (2,289)
Accounts payable and accrued
liabilities (22,312) (14,411) (16,358) (46,839)
Income taxes (7,333) (3,700) (8,187) (36,399)
-------------------------------------------------------------------------
(2,594) (9,757) 13,741 (44,986)
Investing activities:
Additions to property, plant
and equipment (27,554) (11,433) (73,364) (44,726)
Additions to deferred start-up
costs - - - (959)
Additions to logging roads and
timber (3,448) (4,200) (17,512) (28,340)
Proceeds on disposal of
property, plant, equipment,
timber and roads 3,121 272 5,096 8,256
Acquisitions (note 5) 7,010 - (76,919) -
Deposit held in escrow for
acquisition (note 5) - (8,761) 8,943 (8,761)
Investments and other assets (384) (1,135) (2,116) (2,010)
-------------------------------------------------------------------------
(21,255) (25,257) (155,872) (76,540)
Financing activities:
Repurchase of share capital
(note 10) - - - (9,846)
Issuance of share capital
(note 10) - - 56 892
Increase (decrease) in bank
indebtedness 25,191 - 30,589 (582)
Proceeds from loan from
Seaboard (note 9) 3,651 - 3,651 -
Additions to long-term debt
(note 8(b)) 5,000 - 139,064 -
Repayments of long-term debt
(note 8(b)) (10,000) - (48,925) -
-------------------------------------------------------------------------
23,842 - 124,435 (9,536)
Foreign exchange gain (loss) on
cash and cash equivalents held
in a foreign currency 191 (697) 85 (314)
--------------------------------------------------------------------------
Decrease in cash and cash
equivalents 184 (35,711) (17,611) (131,376)
Cash and cash equivalents,
beginning of period - 53,506 17,795 149,171
--------------------------------------------------------------------------
Cash and cash equivalents,
end of period $ 184 $ 17,795 $ 184 $ 17,795
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Supplementary disclosures
Cash interest paid
(received) $ 2,464 $ 217 $ 5,131 $ (1,328)
Cash income taxes paid
(received) (123) (1,757) (12,330) 26,977
--------------------------------------------------------------------------
--------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
CONSOLIDATED BALANCE SHEETS
December 31, 2008 and December 31, 2007 (unaudited)
--------------------------------------------------------------------------
(thousands of Canadian dollars) Dec. 31, Dec. 31,
2008 2007
--------------------------------------------------------------------------
restated- restated-
Assets note 2(d) note 2(d)
Current assets:
Cash and cash equivalents $ 184 $ 17,795
Deposit (note 5) - 8,761
Accounts receivable 25,441 37,172
Income taxes recoverable 16,225 8,838
Inventories (note 7) 78,991 76,429
Prepaid expenses 7,779 6,267
Future income taxes 2,890 3,083
-------------------------------------------------------------------------
131,510 158,345
Investments and other assets (note 2(d)) 19,372 12,270
Property, plant and equipment, net of accumulated
amortization 396,387 300,150
Timber and logging roads, net of accumulated
depletion and amortization 90,425 55,050
Goodwill and other intangible assets 13,078 13,078
Future income taxes - 7,000
Long-lived assets held for sale (note 6) 15,138 3,239
--------------------------------------------------------------------------
$ 665,910 $ 549,132
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities:
Bank indebtedness (note 8(a)) $ 30,589 $ -
Accounts payable and accrued liabilities 45,163 49,999
Payable to investee company (notes 9 and 19(a)) 3,651 -
-------------------------------------------------------------------------
79,403 49,999
Reforestation liability, net of current portion 15,685 11,874
Long-term debt (note 8(b)) 137,414 34,696
Other long-term liabilities 12,407 8,859
Future income taxes 14,159 13,080
Shareholders' equity:
Share capital (note 10)
Class A subordinate voting shares 284,500 284,444
Class B common shares 4,080 4,080
Contributed surplus 5,408 5,408
Accumulated other comprehensive income (loss) (539) (33,892)
Retained earnings (note 2(d)) 113,393 170,584
-------------------------------------------------------------------------
406,842 430,624
--------------------------------------------------------------------------
$ 665,910 $ 549,132
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Commitment and Contingencies (note 18)
Subsequent events (note 19)
See accompanying notes to consolidated financial statements.
On behalf of the Board:
E.L. Sauder H.C. Kalke
Chairman Director
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the three months and years ended December 31, 2008 and 2007
(unaudited)
-----------------------------------------------------------------------
(thousands of Canadian 3 Months 3 Months Year Year
dollars) Dec. 31, Dec. 31, Dec. 31, Dec. 31,
2008 2007 2008 2007
-----------------------------------------------------------------------
Net loss $ (18,530) $ (8,937) $ (57,191) $ (13,321)
Other comprehensive
income (loss), net of
income taxes (recovery):
Net change in unrealized
foreign currency
translation gains (losses) 20,845 (1,172) 33,353 (27,531)
-----------------------------------------------------------------------
Other comprehensive
income (loss) 20,845 (1,172) 33,353 (27,531)
-----------------------------------------------------------------------
Comprehensive income
(loss) $ 2,315 $ (10,109) $ (23,838) $ (40,852)
-----------------------------------------------------------------------
-----------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
For the years ended December 31, 2008 and December 31, 2007 (unaudited)
-----------------------------------------------------------------------
(thousands of Canadian dollars) Year Year
Ended Ended
Dec. 31, Dec. 31,
2008 2007
-----------------------------------------------------------------------
Accumulated other comprehensive loss, beginning
of year $ (33,892) $ (6,361)
Other comprehensive income (loss) 33,353 (27,531)
-----------------------------------------------------------------------
Accumulated other comprehensive loss, end of
period $ (539) $ (33,892)
-----------------------------------------------------------------------
-----------------------------------------------------------------------
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 months and years ended December 31, 2008 and 2007 (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 audited 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.
2. Adoption of changes in accounting policies:
Commencing January 1, 2008, the Company adopted five new Canadian Institute of
Chartered Accountants ("CICA") accounting standards, together with a change in
accounting policy of an investee company. The main requirements of these new
standards and the change in accounting policy and the resulting financial
statement impact are described below.
(a) Capital disclosures:
CICA Handbook Section 1535, Capital Disclosures, specifies the disclosure of the
Company's objectives, policies and processes for managing capital, including: a
description of what components of liabilities and shareholders' equity the
Company defines as capital, and their balances; and the nature of any externally
imposed capital restrictions, how those are managed, and the consequence of any
non-compliance, if any. Refer to Note 16 for additional disclosures.
(b) Inventories:
CICA Handbook Section 3031, Inventories, provides significantly more guidance on
the measurement of inventories, with an expanded definition of cost, and the
requirement that inventory must be measured at the lower of cost and net
realizable value. In addition, the section has additional disclosure
requirements for accounting policies, carrying values, and the amount of any
inventory write downs.
Lumber inventories are valued at the lower of cost and net realizable value on a
specific product basis. Cost is determined as the weighted average of cost of
production on a three month rolling average, lagged by one month and adjusted
for exceptional costs, as in the case of a curtailment.
Log inventories are valued at the lower of cost and net realizable value on a
specific boom basis where logs are in boom form, or in aggregate on a species
and sort basis where the logs do not exist in boom form. Cost for internally
produced log inventories is determined as the weighted average of cost of
logging on a twelve month rolling average, lagged by one month and adjusted for
exceptional costs, as in the case of a curtailment. Log inventories purchased
from external sources are costed at acquisition cost. Net realizable value of
logs is based on either replacement cost or, for logs for which have been
committed to processing into lumber, on estimated net realizable value after
taking into consideration costs of completion and sale.
The adoption of this new standard had no financial effect on the comparative
consolidated financial statements of the Company. Refer to Note 7 for additional
disclosures.
(c) Financial instruments - Disclosure and Presentation:
CICA Handbook Section 3862, Financial Instruments - Disclosures, and Section
3863, Financial Instruments - Presentation, replace Handbook Section 3861,
Financial Instruments - Disclosure and Presentation, revising and enhancing
disclosure requirements to provide additional information on the nature and
extent of risks arising from financial instruments to which the Company is
exposed and how it manages those risks. Refer to note 17 for additional
disclosures.
(d) Equity investment:
Seaboard Shipping Company Limited ("Seaboard"), an equity investment of the
Company, recently adopted the deferral method of accounting for dry-dock
activities whereby actual costs incurred are deferred and amortized on a
straight-line basis over the period until the next scheduled dry-dock activity.
Previously, dry-dock activities were accounted for using the accrue-in-advance
method. In accordance with CICA Handbook Section 1506, Accounting Changes,
Seaboard adopted this policy retrospectively, resulting in the restatement of
prior years' results. As the investment in Seaboard is accounted for using the
equity method, the Company has recorded its share of the impact of the
restatement as follows:
--------------------------------------------------------------------------
As
previously As
reported Adjustment adjusted
--------------------------------------------------------------------------
Consolidated Statement of Retained
Earnings for the year ended
December 31, 2007:
Retained earnings, beginning $ 181,477 $ 2,428 $ 183,905
Consolidated Balance Sheet as at
December 31, 2007:
Investments and other assets 9,842 2,428 12,270
Retained earnings, ending 168,156 2,428 170,584
--------------------------------------------------------------------------
--------------------------------------------------------------------------
The restatement has not affected net earnings (loss) previously reported for any
of the periods presented in the Statement of Operations.
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. Acquisitions:
During 2008, the Company completed two acquisitions, the details of which are
more fully described below.
The purchase price of each of these acquisitions has been allocated to the fair
value of assets acquired and related liabilities arising from the transactions,
based on management's best estimates.
These acquisitions have been accounted for using the purchase method and the
purchase price is allocated as follows:
--------------------------------------------------------------------------
Beaver
Kootenay and Forks
acquisition acquisition Total
--------------------------------------------------------------------------
(note 5(a)) (note 5(b))
Net assets acquired:
Current assets $ 9,245 $ 3,560 $ 12,805
Property, plant and equipment 22,226 30,659 52,885
Timber and logging roads 40,092 56 40,148
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71,563 34,275 105,838
Liabilities assumed:
Current liabilities 13,711 19 13,730
Reforestation, post-retirement
benefits and other long-term
obligations 13,458 - 13,458
Future income taxes 1,731 - 1,731
--------------------------------------------------------------------------
$ 42,663 $ 34,256 $ 76,919
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Cash consideration funded by:
Cash on hand $ 15,947 $ 2,117 $ 18,064
Deposit held in escrow 9,007 - 9,007
Revolving Term Line 17,709 32,139 49,848
--------------------------------------------------------------------------
$ 42,663 $ 34,256 $ 76,919
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--------------------------------------------------------------------------
(a) Kootenay operations acquisition from Pope and Talbot, Inc.:
On November 19, 2007, the Company and Pope and Talbot, Inc. ("P&T") entered into
an Asset Purchase Agreement ("P&T APA"), as subsequently amended, for the
acquisition of two southern B.C. interior sawmills and their related timber
tenures and one sawmill in Spearfish, South Dakota. Subsequently, the Company
assigned the right to purchase the Spearfish, South Dakota sawmill to Neiman
Enterprises, Inc. ("Neiman"), a company based in Wyoming. The Company paid a
US$8,800,000 interest-bearing deposit held in escrow in respect of the
transaction.
On April 30, 2008, the Company concluded the acquisition of the Castlegar, B.C.
and Grand Forks, B.C. ("Kootenay operations") sawmills, related timber
harvesting rights and other related assets and assumption of liabilities and
Neiman concluded its acquisition of the Spearfish sawmill and related assets.
To acquire these assets, the Company paid $49,689,000, of which $9,007,000 was
funded through the deposit held in escrow, $17,709,000 was financed through its
Canadian revolving term line of credit ("Revolving Term Line"), and the balance
of $22,973,000 through cash on hand. Amounts paid in US$ were translated to CAD$
at the April 29, 2008 rate of CAD$1.0119: US$1.00.
At completion, a portion of the consideration paid was placed in escrow, pending
final determination of the purchase price adjustments and obtaining of certain
authorizations in accordance with the P&T APA. Because the amount to be released
to the Company from escrow funds could not be determined until the Company had
reached an agreement with P&T, no amounts were recorded as recoverable at
acquisition.
On October 20, 2008, the Company reached an agreement with
PricewaterhouseCoopers Inc., in its capacity as the Receiver of P&T, to settle
all outstanding claims. Upon receipt of Court approval on December 1, 2008, the
Company received US$7,675,000 ($9,494,000) from escrowed funds and after
settlement with Neiman for its portion and finalization of transaction costs,
the purchase price was reduced to $42,663,000.
The assets acquired include manufacturing facilities, timber harvesting rights
and working capital. The Company assumed certain liabilities of P&T including
pension and other employee related obligations. P&T compensated the Company for
the future management of certain of these liabilities, including forestry
related obligations, resulting in the transfer of portions of these liabilities
to the Company at closing. Results of the operations of the acquired assets have
been included in the Statement of Operations of the Company commencing May 1,
2008.
(b) Beaver and Forks operations acquisition from Portac, Inc.:
On September 30, 2008, the Company completed the acquisition of a sawmill,
planer mill and inventories from Portac, Inc. ("Portac"), a subsidiary of Mitsui
U.S., Inc. To acquire these assets, the Company paid US$32,181,000
($34,256,000), of which US$30,200,000 ($32,139,000) was financed through its
Revolving Term Line and the balance of US$1,981,000 ($2,117,000) through cash on
hand.
Amounts paid in US$ were translated to CAD$ at the September 30, 2008 rate of
CAD$1.0642: US$1.00.
The assets, which are located on the Olympic Peninsula in Washington State, have
been renamed "Beaver Division". Results of the operations of the acquired
facilities have been included in the Statement of Operations of the Company
commencing October 1, 2008.
6. Long-lived assets held for sale:
The Company has developed formal plans to dispose of certain surplus properties
and has classified these assets as assets held for sale (see also Subsequent
events, note 19(b)). These assets include the properties and improvements of the
former Queensboro sawmill site located in New Westminster, B.C. and the former
Field sawmill site located in Courtenay, B.C. as well as surplus property and
buildings located in Maple Ridge, B.C.
7. Inventories:
--------------------------------------------------------------------------
Dec. 31, 2008 Dec. 31, 2007
--------------------------------------------------------------------------
Logs $ 49,941 $ 53,631
Lumber 22,484 18,588
Other 6,566 4,210
--------------------------------------------------------------------------
$ 78,991 $ 76,429
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Inventory expensed in the period includes production costs, amortization of
plant and equipment, and depletion and amortization of timber, roads and other.
The inventory writedown in order to record inventory at the lower of cost and
net realizable value at December 31, 2008 was $20,270,000 (December 31, 2007 -
$16,019,000).
8. Cash, bank indebtedness and long-term debt:
(a) Bank indebtedness:
--------------------------------------------------------------------------
Canadian U.S.
Operating Operating
2008 Facility Facility Total
--------------------------------------------------------------------------
Available line of credit $ 100,000 $ 12,180 $ 112,180
Maximum borrowing available 54,234 7,836 62,070
Operating Line borrowings 25,747 6,090 31,837
Outstanding letters of credit included
in line utilization 5,105 146 5,251
Unused portion of line 23,382 1,600 24,982
--------------------------------------------------------------------------
--------------------------------------------------------------------------
2007
--------------------------------------------------------------------------
Available line of credit $ 40,000 $ 9,913 $ 49,913
Maximum borrowing available 40,000 9,913 49,913
Operating Line borrowings - - -
Outstanding letters of credit included
in line utilization 4,818 119 4,937
Unused portion of line 35,182 9,794 44,976
--------------------------------------------------------------------------
--------------------------------------------------------------------------
In the second quarter of 2008, the Company renewed its existing Canadian
operating line of credit ("Operating Line"), increasing the maximum available
operating credit to $100,000,000 (2007 - $40,000,000). The Operating Line may be
drawn in either CAD$ 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.
Borrowings levels under the 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 and a
maximum ratio of total debt to total capitalization and a minimum net worth
calculation. The line matures on April 24, 2009. As at December 31, 2008, the
Operating Line was drawn by $25,747,000 (2007 - $nil).
On February 5, 2009, the Company received a financing commitment with respect to
its Operating Line from its lenders, details of which are described in note
19(c).
In the second quarter of 2008, there was an increase to the interest rate
margins in the U.S. operating line of credit ("U.S. Line") and in the third
quarter, 2008, the maturity date was extended to April 24, 2009 and the Company
provided a parent guarantee on the line. The U.S. Line is subject to a borrowing
base calculation dependent upon certain accounts receivable and inventories of
the Company's subsidiary, Interfor Pacific, Inc. ("IPI") and is secured by a
security interest in the accounts receivable and inventories of the U.S.
operating subsidiary.
Offsetting drawings under the operating lines at December 31, 2008 are cash
balances less outstanding cheques of $1,249,000 (2007 - $nil).
(b) Long-term debt:
On April 25, 2008, the Company renewed its existing Revolving Term Line in 2008
increasing it from $10,000,000 to $115,000,000. The terms and conditions of the
line remained unchanged, except for an increase to the interest rate margins and
an extension of the maturity date to April 24, 2011. The Revolving Term Line may
be drawn in either CAD$ 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.
To fund the Kootenay and Beaver acquisitions and the Adams Lake sawmill capital
project, the Company utilized the Revolving Term Line and as at December 31,
2008, the Line was drawn by US$30,200,000 revalued at the December 31, 2008
exchange rate to $36,784,000, and $58,000,000 for total drawings of $94,784,000
(December 31, 2007 - $nil) leaving an unused available line of $20,216,000.
On February 5, 2009, the Company received a financing commitment with respect to
its Non-Revolving Term Line from its lenders, details of which are described in
note 19(c).
The U.S. dollar non-revolving term line (the "Non-Revolving Term Line") remains
fully drawn at US$35,000,000 (December 31, 2007 - US$35,000,000) and was
revalued at the quarter-end exchange rate to $42,630,000 (December 31, 2007 -
$34,696,000). Effective September 1, 2008, the maturity date of the
Non-Revolving Term Line was extended to September 1, 2010. The Non-Revolving
Term Line bears interest at rates based on bank prime plus a premium depending
upon a financial ratio or, at the Company's option, at rates for LIBOR based
loans plus a margin. The foreign exchange loss of $7,934,000 (December 31, 2007
- $5,716,000 gain) arising on revaluation of the Non-Revolving Term Line was
recognized in Other foreign exchange gain (loss) on the Statement of Operations.
Both of the term lines are 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 term lines are
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.
Minimum principal amounts due on long-term debt within the next five years are
follows:
-------------------------------------------------------
2009 $ -
2010 42,630
2011 94,784
2012 -
2013 -
-------------------------------------------------------
$ 137,414
-------------------------------------------------------
-------------------------------------------------------
9. Payable to investee company:
On December 29, 2008, the Seaboard Limited Partnership ("the Seaboard
Partnership"), made an advance to its partners, with Interfor'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 and bears interest at the rate of 4% per annum thereafter.
This advance was subsequently repaid (see note 19(a)).
10. Share capital:
On November 9, 2006, the Company commenced a normal course issuer bid ("NCIB
05") to acquire up to 2,366,000 Class A Subordinate Voting shares ("Class A
Shares"). NCIB 05 terminated on November 8, 2007. Purchases are made at market
prices with a maximum of two percent of the outstanding shares being purchased
in any 30-day period. As the Company acquired Class A shares, the shares were
cancelled and the excess of the cost of the shares over the assigned value was
charged to contributed surplus.
On January 3, 2008, the Company commenced a normal course issuer bid ("NCIB 06")
to acquire up to 1,300,000 Class A shares (representing approximately 2.8% of
the outstanding Class A shares) through the facilities of the Toronto Stock
Exchange. The Company did not repurchase any Class A shares through the normal
course issuer bid in 2008. NCIB 06 terminated on January 7, 2009.
The Company also issued Class A shares as previously granted share options were
exercised. There were no changes to the Class B shares.
The transactions in share capital are described below:
--------------------------------------------------------------------------
3 Months 3 Months Year Year
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
2008 2007 2008 2007
--------------------------------------------------------------------------
Acquisitions under normal
course issuer bid
Number of shares purchased
and cancelled - - - 1,220,100
Cost $ - $ - $ - $ 9,846
Excess of cost of shares over
assigned value charged to
contributed surplus - - - 2,312
Shares issued on exercise of
options
Number of shares - - 12,400 189,280
Proceeds $ - $ - $ 56 $ 892
--------------------------------------------------------------------------
--------------------------------------------------------------------------
11. Other income:
--------------------------------------------------------------------------
3 Months 3 Months Year Year
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
2008 2007 2008 2007
--------------------------------------------------------------------------
Gain on disposal of surplus
plant and equipment, timber,
and other $ 131 $ 117 $ 794 $ 4,767
Gain on settlement of timber
takeback 216 - 747 1,350
Other (expense) (92) 55 (123) (134)
--------------------------------------------------------------------------
$ 255 $ 172 $ 1,418 $ 5,983
--------------------------------------------------------------------------
--------------------------------------------------------------------------
In the first quarter of 2008, the Company disposed of surplus equipment,
generating a gain of $28,000. In the second quarter of 2008, the Company
received compensation through the Forest Revitalization Act for obsolete
infrastructure due to the timber takeback. This, coupled with additional sales
of surplus equipment generated a gain of $595,000 and sales proceeds of
$837,000.
Additional surplus equipment and a timber licence were sold in the third quarter
of 2008, for sales proceeds of $1,110,000 and a gain of $627,000. In the fourth
quarter of 2008, the Company received further compensation from the Province of
British Columbia for a timber takeback in the Central Coast which combined with
further disposals of surplus equipment to generate additional proceeds of
$3,121,000 and a gain of $292,000.
In the addition to the sale of its interest in Tree Farm Licence 54 in the first
quarter of 2007, the Company disposed of surplus property, plant and equipment
throughout 2007. These dispositions combined to generate sales proceeds of
$6,906,000 and a gain of $4,767,000. Under the terms of the Forest
Revitalization Act, the Company received $1,350,000 in additional compensation
for lost infrastructure and road construction costs resulting from the 2003
legislated takeback of certain logging rights on the B.C. Coast. This was
recorded as proceeds on the disposal of roads in the third quarter of 2007.
12. Restructuring costs and write-downs of plant and equipment:
--------------------------------------------------------------------------
3 Months 3 Months Year Year
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
2008 2007 2008 2007
--------------------------------------------------------------------------
Plant, equipment and
timber write-downs $ 434 $ - $ 31,427 $ -
Severance and other
restructuring costs,
net of recoveries 353 335 4,852 1,975
Other - - 1,026 -
--------------------------------------------------------------------------
$ 787 $ 335 $ 37,305 $ 1,975
--------------------------------------------------------------------------
--------------------------------------------------------------------------
During the first quarter of 2008, the Company recorded severance costs of
$2,240,000, as it permanently closed its Albion remanufacturing operation
located in Maple Ridge, B.C., and also offered voluntary severance to hourly
workers at its idled Queensboro sawmill located in New Westminster, B.C. In the
second quarter of 2008, the Queensboro sawmill was permanently closed following
more than one year of curtailment, and further voluntary and permanent shutdown
severance and remediation costs totalling $3,259,000 were recorded, together
with an impairment charge of $29,750,000 on the plant and equipment.
In the third quarter, 2008, due to deteriorating market conditions, the Company
indefinitely curtailed the old Adams Lake sawmill and recorded an impairment
charge of $1,243,000 on the plant and equipment and severance costs of $26,000.
The Company took an impairment charge on timber of $434,000 as well as
additional severance costs of $353,000 in the fourth quarter, 2008.
During the first quarter of 2007, the Company recorded severance costs of
$250,000, net of recoveries from the B.C. Forestry Revitalization Trust set up
by the Government of British Columbia, as reimbursement for severance costs of
workers who were displaced by the reductions in harvesting rights taken under
the Forestry Revitalization Act. In the second quarter, 2007, the Company
recorded additional severance costs of $1,013,000, and $377,000 for logging
phase contractor buyouts and other restructuring.
The Company recorded net severance costs of $335,000 in the fourth quarter,
2007, after recoveries of $252,000 for restructuring costs previously expensed.
13. Net earnings (loss) per share:
--------------------------------------------------------------------------
3 Months Dec. 31, 2008 3 Months Dec. 31, 2007
------------------------------- ---------------------------------
Net loss Shares Per share Net loss Shares Per share
--------------------------------------------------------------------------
Basic
earnings
(loss)
per
share $ (18,530) 47,117 $ (0.39) $ (8,937) 47,105 $ (0.19)
Share
options - - - - 332(i) -
--------------------------------------------------------------------------
Diluted
earnings
(loss)
per
share $ (18,530) 47,117 $ (0.39) $ (8,937) 47,105(i) $ (0.19)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Year Dec. 31, 2008 Year Dec. 31, 2007
------------------------------- ---------------------------------
Net loss Shares Per share Net loss Shares Per share
--------------------------------------------------------------------------
Basic
earnings
(loss)
per
share $ (57,191) 47,109 $ (1.21) $ (13,321) 47,575 $ (0.28)
Share
options - 45(i) - - 556(i) -
--------------------------------------------------------------------------
Diluted
earnings
(loss)
per
share $ (57,191) 47,109 $ (1.21) $ (13,321) 47,575(i) $ (0.28)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
(i) Where the addition of share options to the total shares outstanding
has an anti-dilutive impact on the diluted earnings (loss) per share
calculation, those share options have not been included in the total
shares outstanding for purposes of the calculation of diluted earnings
(loss) per share.
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.
The Company sells to both foreign and domestic markets as follows:
--------------------------------------------------------------------------
3 Months 3 Months Year Year
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
2008 2007 2008 2007
--------------------------------------------------------------------------
Canada $ 26,341 $ 52,953 $ 162,825 $ 222,276
United States 40,408 47,013 162,352 272,571
Japan 12,625 3,845 40,823 51,402
Other export 14,116 11,579 71,221 64,759
--------------------------------------------------------------------------
$ 93,490 $ 115,390 $ 437,221 $ 611,008
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Sales by product line are as follows:
--------------------------------------------------------------------------
3 Months 3 Months Year Year
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
2008 2007 2008 2007
--------------------------------------------------------------------------
Lumber $ 65,559 $ 70,754 $ 297,434 $ 434,468
Logs 18,311 35,617 103,620 118,571
Wood chips and
other by products 8,869 7,169 30,610 50,260
Other 751 1,850 5,557 7,709
--------------------------------------------------------------------------
$ 93,490 $ 115,390 $ 437,221 $ 611,008
--------------------------------------------------------------------------
--------------------------------------------------------------------------
The Company has capital assets, goodwill and other intangible assets located in:
--------------------------------------------------------------------------
Dec. 31, Dec. 31,
2008 2007
--------------------------------------------------------------------------
Canada $ 317,141 $ 232,988
United States 197,887 138,529
--------------------------------------------------------------------------
$ 515,028 $ 371,517
--------------------------------------------------------------------------
--------------------------------------------------------------------------
15. Employee future benefits:
The total benefits cost under its various pension, retirement savings and other
post-retirement benefit plans, including those acquired through the P&T asset
acquisition, are as follows:
--------------------------------------------------------------------------
3 Months 3 Months Year Year
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
2008 2007 2008 2007
--------------------------------------------------------------------------
Canadian employees
deferred profit
sharing plan $ 286 $ 512 $ 1,273 $ 1,688
Defined benefit plan 62 (183) 156 177
Unionized employees'
pension plan 249 160 1,492 1,476
Post-retirement
benefits plan 53 - 53 -
U.S. employees
401(k) plan 138 121 495 582
Senior management
supplementary
pension plan 92 (121) 467 192
--------------------------------------------------------------------------
Total pension expense $ 880 $ 489 $ 3,936 $ 4,115
--------------------------------------------------------------------------
--------------------------------------------------------------------------
16. Capital management:
The Company's policy is to maintain a strong capital base so as to maintain
investor, creditor and market confidence and to sustain future development of
the business. The Company monitors the return on average invested capital, which
it defines as net earnings (loss) plus after tax interest cost divided by the
average of opening and closing invested capital comprised of the total of bank
indebtedness, long-term debt and shareholders' equity.
The Company seeks to maintain a balance between the higher returns that might be
possible with the leverage afforded by higher borrowing levels and the security
afforded by a sound capital position. The Company's target is to create value
for its shareholders over the long-term through increases in share value.
In January 2008, the Company filed a normal course issuer bid, as described in
note 10. As all purchases are made at market prices, the timing of any purchases
are managed based on the share price and available cash flow. The Company
considers its shares to be undervalued, and a buy-back program is consistent
with the Company's goal of creating long-term value for its shareholders. No
shares were acquired under the program in 2008 despite extremely low market
prices as the Company's cash resources were utilized to fund its acquisitions
(note 2) and the global economy downturn resulted in a focus on cash
conservation.
There were no changes in the Company's approach to capital management during the
period. Under its debt financing agreements, the Company cannot exceed a total
debt to total capitalization ratio of 45%, with total debt defined as the total
of bank indebtedness, including letters of credit, and long-term debt, net of
cash and cash equivalents and total capitalization defined as total debt plus
Shareholders' Equity.
17. Financial instruments:
(a) Fair value of financial instruments:
At December 31, 2008, the fair value of the Company's long-term debt and bank
indebtedness approximated its carrying value of $168,003,000 (December 31, 2007
- $34,696,000). The fair values of other financial instruments approximate their
carrying values due to their short-term nature.
(b) Derivative financial instruments:
The Company employs financial instruments, such as interest rate swaps and
foreign currency forward and option contracts, to manage exposure to
fluctuations in interest rates and foreign exchange rates. The Company does not
expect any credit losses in the event of non-performance by counter parties as
the counterparties are the Company's Canadian bankers, which are highly rated.
As at December 31, 2008, the Company has outstanding obligations to sell a
maximum of US$4,500,000 at an average rate of US$1.2339 to the CAD$1.00, sell
Japanese yens 51,000,000 at an average rate of yens 83.11 to the CAD$1.00, and
Japanese yens 65,000,000 at an average rate of yens 92.85 to the USD$1.00, and
sell Euros EUR 90,000 at an average rate of $1.5908 to the CAD$1.00 during 2009.
All foreign currency gains or losses to December 31, 2008 have been recognized
in the Statement of Operations and the fair value of these foreign currency
contracts of $113,000 has been recorded in accounts payable and accrued
liabilities. In 2008, the Company had entered into a forward contract to
purchase US$15,000,000 which was unwound at December 31, 2008, and the Company
recorded $3,657,000 in realized foreign exchange gains.
During September 2005, the Company entered into a cross currency interest rate
swap. The Company has agreed to receive US$20,000,000 at maturity on September
1, 2009 in exchange for payment of CAD$23,530,000 (an exchange rate of 1.1765).
In addition, during the term of the swap the Company will pay an amount based on
annual interest of 5.84% on the CAD$23,530,000 and will receive 90 day LIBOR
plus a spread of 200 basis points on the US$20,000,000. LIBOR will be
recalculated at set interval dates. The swap will mature on September 1, 2009
and has been marked to market with all gains or losses on the swap recognized in
the Statement of Operations and total foreign exchange gains of $4,179,000
recognized in 2008 (2007 - $3,584,000 loss). The fair value of this cross
currency interest rate swap is $409,000 at December 31, 2008 and has been
recorded in accounts receivable (2007 - $3,584,000 fair value recorded in
accounts payable and accrued liabilities).
(c) Hedge of investment in self-sustaining foreign operation:
On October 1, 2008, the Company designated the US$30,200,000 funds drawn under
its Revolving Term Line for the acquisition of its Beaver operations as a hedge
against its investment in its self-sustaining U.S. operations. Unrealized
foreign exchange losses of $4,645,000 have been recorded in Other comprehensive
Income.
The Company had previously designated its US$35,000,000 dollar Non-Revolving
Term Line as a hedge against its investment in its self-sustaining U.S.
operations. Effective April 1, 2007, the Company terminated the designation of
the hedging relationship and discontinued its hedge accounting. Previously
recognized unrealized foreign exchange gains of $5,544,000 as a result of
applying hedge accounting continue to be recorded in Accumulated Other
Comprehensive Income. Unrealized foreign exchange losses of $7,934,000 (2007 -
$5,716,000 gain) were recorded in Other foreign exchange gain (loss) in the
Statement of Operations.
(d) Financial risk management:
Financial instrument assets include cash resources, deposits and accounts
receivable. Cash resources and deposits are designated as held-for-trading and
measured at fair value, while accounts receivable are designated as loans and
receivables and measured at amortized cost.
Financial instrument liabilities include bank indebtedness, accounts payable and
accrued liabilities, long-term debt, and certain other long-term liabilities.
All financial liabilities are designated as other liabilities and are measured
at amortized cost.
There are no financial instruments classified as available-for-sale or
held-to-maturity.
The use of financial instruments exposes the Company to credit, liquidity and
market risk.
The Board of Directors has overall responsibility for the establishment and
oversight of the Company's risk management framework. The Company's risk
management policies are established to identify and analyze the risks faced by
the Company, to set appropriate risk limits and controls, and to monitor risks
and adherence to limits. Risk management policies and systems are reviewed
regularly to reflect changes in market conditions and the Company's activities.
Through its standards and procedures, management has developed a control
environment in which employees are clear on roles and obligations and management
regularly monitors compliance with its risk management policies and procedures.
(i) Credit risk:
Credit risk is the risk of financial loss to the Company if a customer or
counterparty to a financial instrument fails to meet its contractual
obligations, and arises primarily from the Company's receivables from customers
and from short-term investments.
Accounts receivable
The Company's exposure to credit risk is dependent upon individual
characteristics of each customer. Each new customer is assessed for
creditworthiness before standard payment and delivery terms and conditions are
offered, with such review encompassing any external ratings, and bank and other
references. Purchase limits are established for each customer, and are regularly
reviewed. In some cases, where customers fail to meet the Company's benchmark
creditworthiness, the Company may choose to transact with the customer on a
prepayment basis.
All North American sales are conducted under standard industry terms. All lumber
sales outside of the North American markets are either insured by the Export
Development Corporation or are secured by irrevocable letters of credit.
The Company regularly reviews the collectibility of its accounts receivable and
establishes an allowance for doubtful accounts based on its best estimate of any
potentially uncollectible accounts. Historically, the Company has experienced
minimal bad debts and based on this past experience, the Company believes that
no impairment allowance is necessary in respect of trade accounts receivable
past due. As at December 31, 2008, there were no trade accounts receivable past
due which were considered uncollectible (December 31, 2007 - $nil), and no
reserve in respect of doubtful accounts was set up (December 31, 2007 - $nil).
Deposits
The Company limits it exposure to credit risk by only investing in liquid
securities and only with counterparties that have a high credit rating. As such,
management does not expect any counterparty to fail to meet its obligations.
Guarantees
In 2008, the Company provided a parent guarantee on the U.S. Line utilized by
its U.S. operating subsidiary. This is in compliance with the Company's policy
to provide financial guarantees only with respect to wholly-owned subsidiary
companies.
Exposure to credit risk
The carrying amount of financial assets represents the maximum credit exposure
for receivables in North America. As lumber sales outside of the North American
markets are insured by the Export Development Corporation to 90% or secured by
irrevocable letters of credit, credit exposure for these sales is limited.
Accounts receivable carrying value at the reporting date by geographic region was:
--------------------------------------------------------------------------
Dec. 31, 2008
--------------------------------------------------------------------------
Canada $ 7,644
United States 8,728
Japan 3,976
Other 5,093
--------------------------------------------------------------------------
$ 25,441
--------------------------------------------------------------------------
--------------------------------------------------------------------------
(ii) Liquidity risk:
Liquidity risk is the risk that the Company will not be able to meet its
financial obligations as they fall due. The Company ensures, as far as possible,
that it will always have sufficient liquidity to meet obligations when due and
monitors cash flow requirements daily and projections weekly. Weekly debt graphs
are reviewed by senior management to monitor cash balances and debt line
utilizations.
The Company also maintains a revolving Canadian Operating Line and a U.S.
Operating Line of credit that can be drawn down to meet short-term financing
needs.
The payments due in respect of contractual and legal obligations are summarized
as follows:
--------------------------------------------------------------------------
Payments due by period
Up to 2-3 4-5 After 5
Total 1 year years years years
--------------------------------------------------------------------------
Operating Line
(see note 19(c)) $ 31,837 $ 31,837 $ - $ - $ -
Long-term debt
(see note 19(c)) 137,413 - 137,413 - -
Reforestation
liability 24,346 8,660 7,154 4,652 3,880
Other long-term
liabilities 17,698 5,292 5,003 1,393 6,010
Operating leases and
contractual
commitments 25,380 11,330 7,360 4,380 2,310
--------------------------------------------------------------------------
Total contractual
obligations $ 236,674 $ 57,119 $ 156,930 $ 10,425 $ 12,200
--------------------------------------------------------------------------
--------------------------------------------------------------------------
On February 5, 2009, the Company received a financing commitment with respect to
its Operating Line and Revolving Term Line from its lenders, details of which
are described in note 19(c). The maturity date of the Operating Line will be
extended 364 days to April 23, 2010.
(iii) Market risk:
Market risk is the risk that changes in market prices, such as foreign exchange
rates, interest rates and equity prices, will affect the Company's income or the
value of its holdings of financial instruments. The objective of market risk
management is to manage and control market risk exposures within acceptable
parameters, while optimizing the return on risk.
Currency risk
The Company is exposed to currency risk on cash and deposits, sales, purchases
and loans that are denominated in a currency other than the respective
functional currencies of the Company's domestic and foreign operations,
primarily Canadian (CAD) and U.S. dollars (USD), but also the Euro, Sterling and
Yen. The Company uses forward exchange contracts and cross currency interest
rate swaps to hedge its currency risk, as described in Note 17(b), Derivative
financial instruments. Daily, the Company assesses its foreign exchange exposure
by reviewing outstanding contracts, pending order files and working capital
denominated in foreign currencies.
At December 31, 2008, the Company has US$ drawings under its Revolving Term Line
of US$30,200,000 (December 31, 2007 - $USnil). The US$ drawings under this Line
have been designated as a hedge against the investment in the Company's
self-sustaining U.S. operations.
At December 31, 2008, the Non-Revolving Term Line remains fully drawn at
US$35,000,000 (December 31, 2007 - US$35,000,000). To March 31, 2007, the
Company designated the Non-Revolving Term Line as a hedge against its investment
in its self-sustaining U.S. operations. On April 1, 2007, the Company terminated
the designation of the hedging relationship and discontinued its use of hedge
accounting.
As at December 31, 2008, the Company's accounts receivable were denominated in
the following currencies:
--------------------------------------------------------------------------
CAD USD Japanese yens
--------------------------------------------------------------------------
Accounts receivable 11,936 6,176 6,623
Accounts receivable held by
self-sustaining foreign subsidiaries - 4,855 -
--------------------------------------------------------------------------
11,936 11,031 6,623
--------------------------------------------------------------------------
--------------------------------------------------------------------------
As at December 31, 2008, the domestic operations of the Company held cash and
cash equivalents of US$179,000 and bank indebtedness of $26,786,000. Bank
indebtedness of self-sustaining and other foreign U.S. subsidiaries totalled
US$3,913,000.
Based on the Company's net exposure to foreign currencies as at December 31,
2008, including USD denominated cash held in deposits and cash equivalents and
USD denominated debt and other USD denominated financial instruments, the
sensitivity of the USD balances to the Company's net annual earnings is as
follows:
U.S. Dollar $0.01 increase vs CAD$ $500,000 increase in net income
Japanese Yen 1 yens increase vs CAD$ $50,000 increase in net income
Interest rate risk
The Company reduces its exposure to changes in interest rates on borrowings by
entering into cross currency interest rate swaps, as described in Note 17(b)
Derivative financial instruments.
Based on the Company's average debt level during 2008, the sensitivity of a 100
basis point increase in interest rates would result in an approximate decrease
of $500,000 in net annual earnings.
Other market price risk
The Company does not enter into commodity contracts other than to meet the
Company's expected usage and sale requirements and such contracts are not
settled net.
18. Commitments and contingencies:
(a) Contractual obligations for Adams Lake sawmill construction:
The Company has undertaken commitments under various contracts totalling
$4,827,000 as at December 31, 2008, relating to construction of a new sawmill at
its Adams Lake operation in the southern B.C. Interior. These amounts are
expected to be paid over the next year.
(b) Softwood Lumber Agreement:
The Softwood Lumber Agreement ("SLA") includes a surge mechanism that increases
the export tax by 50% (the "Surge Tax") when the monthly volume of exports
exceeds a certain trigger volume, as defined in the SLA. This calculation is
based on estimated trailing U.S. lumber consumption. In 2007, the U.S. Coalition
for Fair Lumber Imports (the "Coalition") asserted that the consumption volumes
used in calculation of the applicability of a surge tax should be based on a 12
month rolling average actual volume. Under current market conditions, the use of
actual consumption rather than expected consumption would decrease the surge
trigger volume, and could cause the exporters to be liable for additional Surge
Tax. This issue was brought before the London Court of International Arbitration
("LCIA").
On March 4, 2008, the LCIA ruled in favour of the Canadian provinces utilizing
the export charge only option ("Option A") under the SLA, including the Province
of B.C., supporting the Canadian position that Surge Tax was not applicable to
shipments to the U.S. over the period under review for Option A provinces.
(c) Contingency
The P&T assets acquired may have pipe insulation and board in the kiln decks
that contain asbestos. There are no plans to disturb or remove this material and
the Company is unable to determine the amount of asbestos that may be present.
As such, there is insufficient information to apply expected present value
techniques to these conditional asset retirement obligations and no liability
has been recorded.
(d) Commitment
In early 2008, the Company entered into an agreement, subject to certain
approvals, to acquire a timber tenure in the Kamloops region currently owned by
Weyerhaeuser Company Limited. The Company expects to conclude this agreement
during 2009.
19. Subsequent events:
(a) Seaboard Partnership income distribution:
On January 2, 2009, the Seaboard Partnership declared an income distribution to
its partners. Interfor's share was $3,651,000 and was paid to the Company by way
of setoff against the promissory note payable to the Seaboard Partnership.
(b) Property sale:
On December 31, 2008, the Company received a non-refundable deposit in respect
of the sale of one of its properties classified as held for sale. This sale is
expected to close in early 2009 for net proceeds of $4,150,000.
(c) Bank financing:
On February 4, 2009, the Company obtained a written financing commitment from
its lenders in respect of its syndicated credit facilities. The Operating Line
will decrease from $100,000,000 to $65,000,000 and the maturity date will be
extended 364 days to April 23, 2010. In addition, the Revolving Term Line will
increase from $115,000,000 to $150,000,000, with no change to its maturity date.
Except for an increase in pricing, all other terms and conditions of the lines
remain substantially unchanged.
20. Future Accounting Changes:
(a) International Financial Reporting Standards
The CICA has announced that it will transition Canadian generally accepted
accounting principles ("GAAP") for publicly accountable entities to
International Financial Reporting Standards ("IFRS"). The Company's consolidated
financial statements are to be prepared in accordance with IFRS for the fiscal
year commencing January 1, 2011. The impact of the transition to IFRS on the
Company's consolidated financial statements has not been determined.
(b) Goodwill and Intangible Assets
Effective January 1, 2009, the Company will adopt new CICA Handbook Section
3064, Goodwill and Intangible Assets. 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. The Company is still evaluating the full impact of this
standard on its consolidated financial statements.
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Powerstar Intl (TSXV:SLA)
과거 데이터 주식 차트
부터 6월(6) 2023 으로 6월(6) 2024
