INTERNATIONAL FOREST PRODUCTS LIMITED ("Interfor" or the "Company") (TSX:IFP.A)
reported a net loss of $3.4 million or $0.07 per share in the first quarter of
2010. The first quarter loss includes a tax valuation allowance of $1.1 million
or $0.02 per share, which results from the Company no longer recognizing the tax
benefit of loss carry-forwards. Excluding the tax valuation allowance and other
one-time items, the loss for the first quarter was $2.2 million or $0.05 per
share compared to a loss of $4.4 million or $0.09 per share in the fourth
quarter of 2009. On the same basis, the Company reported a net loss of $10.6
million or $0.23 per share in the first quarter of 2009.
Included in the results for the first quarter was a provision of $0.4 million
($0.4 million or $0.01 per share after tax) relating to long-term incentive
compensation. Similar costs expensed in the fourth quarter amounted to $1.5
million ($1.1 million or $0.02 per share after tax); in the first quarter last
year the Company recorded an expense of $0.4 million ($0.3 million or $0.01 per
share after tax).
EBITDA for the quarter (adjusted to exclude "other income") was $9.7 million
compared to $5.7 million in the fourth quarter and negative $8.4 million in the
first quarter of 2009.
"Higher commodity prices in North America had a positive impact on our results
in the quarter," said Duncan Davies President and CEO, "as did the new Adams
Lake sawmill which operated at 12% above pro forma in the quarter."
SPF 2X4 in the North American cash market gained US$63 or 31%
quarter-over-quarter as low in-market inventories and shipments to offshore
markets continued to limit available supply. Hem-Fir studs were up $US49 or 22%
quarter-over-quarter. Prices in offshore markets - which tend to be sold forward
on longer terms than North America - increased as well, but not to the same
extent.
Offsetting the positive impact of higher lumber prices in part were higher log
costs in the B.C. Interior and U.S. Pacific Northwest, continued weakness in the
cedar market and the rising value of the C$, which averaged US$0.961 in the
first quarter versus US$0.946 in the fourth quarter and US$0.803 in the first
quarter last year.
Lumber production increased 5% quarter-over-quarter to 258 million board feet,
representing approximately 65% of rated capacity, with Adams Lake and Grand
Forks accounting for most of the increase. In the first quarter of 2009,
production amounted to 121 million board feet.
Log production at the Company's Canadian operations was 648,000 m3 in the first
quarter compared to 533,000 m3 in the fourth quarter and 72,000 m3 in the first
quarter last year. In the U.S. log procurement was matched against mill
consumption.
Lumber sales, including wholesale volumes, totalled 264 million board feet, an
increase of 30 million board feet or 13% compared to the previous quarter, and
142 million board feet more than the first quarter of 2009. On a volume basis,
excluding wholesale programs, sales to North America accounted for 74% of
shipments in the first quarter while Pacific Rim markets including Japan and
China, accounted for 23%. Comparable figures for the fourth quarter were 73%
North American and 24% Pacific Rim. In the first quarter of 2009, North America
represented 83% of shipments, Pacific Rim was 14%.
In the quarter Interfor generated $9.1 million in cash from operations after
changes in working capital were considered.
Net debt ended the quarter at $152.0 million or 30% of invested capital versus
$140.7 million or 28% of invested capital at the end of the fourth quarter and
$160.1 million or 29% of invested capital at the end of the first quarter of
2009.
Business conditions have improved considerably in the last year. Consumer
confidence is showing signs of improvement and conditions in the U.S. housing
market appear to have stabilized. In-market inventories are well below the
levels of one year ago and prices continue to firm, with SPF 2X4 currently
trading above US$300 and the Random Lengths ("RL") composite above US$350.
Export Duty rates on shipments from Canada to the U.S. are scheduled to drop
from 15% to 10% on May 1st as price levels in March, as measured by the RL
Composite, exceeded the threshold rate of US$315 for the first time since the
Softwood Lumber Agreement ("SLA") between Canada and the U.S. came into effect
in October 2006. The SLA provides for duty rates to drop to 5% and 0% if the RL
Composite exceeds US$335 and US$355 respectively for a sufficient period of
time.
In spite of the positive news on product pricing and duty rates Interfor remains
of the view that considerable uncertainty remains. The number of homes in the
foreclosure process in the U.S. represents a significant overhang of potential
inventory and a negative influence on new construction activity. And, with the
U.S. government's housing assistance package scheduled to end and the spectre of
higher interest rates, there is concern that activity levels could drop in the
second half of the year. Adding to the challenge is the possibility the C$ will
continue to rise in value relative to the US$ and other major international
currencies.
In the face of this uncertainty, Interfor will continue to balance operating
rates against sales activity, with a clear priority on managing for cash and
realizing on the benefits of recent strategic activities and investments. In
that regard, good progress has been made on the issues impacting the Castlegar
sawmill (which was acquired from Pope & Talbot, Inc. in 2008). As a result,
steps are now being taken for a potential July start-up of the mill on a reduced
operating basis, with the full expectation the mill will make a positive
contribution to the Company's results once it resumes operations. Operating
rates in the second quarter will likely be similar to those achieved in the
first quarter of 2010. Discretionary capital will be restricted to small,
high-return projects for the foreseeable future.
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 2009 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, April 23, 2010 at 8:00 AM (Pacific
Time) hosted by INTERNATIONAL FOREST PRODUCTS LIMITED for the purpose of
reviewing the Company's release of its First Quarter, 2010 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
May 7, 2010. The number to call is 1-866-245-6755 Passcode 318617.
International Forest Products Limited
First Quarter Report
For the three months ended March 31, 2010
Management's Discussion and Analysis
Dated as of April 22, 2010
This Management's Discussion and Analysis ("MD&A") provides a review of
Interfor's financial performance for the three months ended March 31, 2010
relative to 2009, 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 months ended March 31, 2010 and 2009, and Interfor's
Annual Information Form, Consolidated Financial Statements and Annual MD&A for
the years ended December 31, 2009 and 2008 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 current Annual Information Form available on
www.sedar.com. 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
The Company recorded a net loss of $3.4 million, or $0.07 per share for the
first quarter of 2010 as compared to a net loss of $13.6 million, or $0.29 per
share for the first quarter of 2009. EBITDA and Adjusted EBITDA for the first
quarter of 2010 were positive $9.7 million and $9.7 million, respectively,
compared to negative $7.7 million and $8.4 million for the same quarter of 2009.
Before restructuring costs, foreign exchange gains (losses), other one-time
items and a tax valuation allowance, the Company's net loss for the first
quarter of 2010 amounted to $2.2 million or $0.05 per share as compared to a net
loss of $10.6 million, or $0.23 per share for the first quarter of 2009.
U.S. housing starts, still near historic lows, continue to impact overall demand
levels and product pricing. However, reduced in-market inventories and improved
demand/supply balances resulted in significant price increases in the first
quarter, 2010 as the price reported by Random Lengths for Western SPF 2x4 #2&Btr
peaked at US$287 per million board feet ("mfbm") in February 2010, the highest
price in 43 months. The positive impact of the rising price was partially offset
by the strengthened Canadian dollar which, relative to its U.S. counterpart,
closed the first quarter, 2010 at CAD$1.0158 compared to the first quarter, 2009
close at CAD$1.2613, an increase of almost twenty percent.
The new Adams Lake sawmill continued to ramp up in the first quarter, 2010
averaging more than 12% above pro forma production operating on a full two shift
basis. On March 15, 2010, the Company completed the acquisition of a timber
tenure in the Kamloops region from Weyerhaeuser Company Limited, adding
approximately 275,000 cubic metres of allowable annual cut to its interior fibre
supply. Acquisition of this tenure strengthens the Company's long term timber
supply for the new Adams Lake sawmill and will help to offset anticipated
declines in future supply as a result of the Mountain Pine Beetle infestation.
Sales
Lumber shipments totalled 264 mfbm for the first quarter, 2010. Compared to the
same quarter of 2009, lumber shipments were up more than double, reflecting the
addition of production from Adams Lake, the recommenced operations at Grand
Forks and higher operating rates at the Company's U.S. mills. Excluding
wholesale programs, sales to North America accounted for 74% of shipments in the
first quarter, 2010, while Pacific Rim markets including Japan and China,
accounted for 23%. In the first quarter of 2009, North America represented 83%
of shipments and the Pacific Rim was 14%.
The North American cash market for structural products improved significantly
quarter over quarter with the average price reported by Random Lengths for
Western SPF 2x4 #2&Btr at US$269 per mfbm or 73.5% higher than in the first
quarter, 2009 and for Hemlock-Fir studs 2x4 9' lengths at US$273 per mfbm,
higher by 64.5%. Prices in the first quarter, 2010 improved as low in-market
inventories and shipments to offshore markets continued to limit available
supply. Prices in offshore markets, which tend to be sold forward on longer
terms than North America, increased as well but not to the same extent.
Interfor's unit lumber sales values declined $55 per mfbm, reflecting the
significant relative increase in North American structural lumber sales volumes,
with cedar and Japan sales volumes having increased to a much lesser extent.
Sales values were also impacted by the stronger Canadian dollar which
appreciated by 16.4% on average relative to its U.S. counterpart over the same
quarter of 2009.
Pulp chip and other by-product revenues for the first quarter of 2010 were up
$5.8 million, or 78.5%, compared to the first quarter of 2009, with an increase
in sales volumes reflecting higher sawmill operating rates. Average chip prices
were down by 13.0%, as chip prices in the U.S. fell by 10% and magnified by the
negative impact of the stronger Canadian dollar on sales realizations.
Log sales improved by $4.6 million, or 36.0%, corresponding to an increase of
19.3% in log sales volume for Canadian operations, with a change in sales mix
compared to the same quarter in 2009. This is reflected in the average sales
price for log sales in Canada which improved to $64 per cubic metre in the first
quarter of 2010, as compared to $54 per cubic metre for the same period of 2009.
Operating Costs
Production costs for the first quarter of 2010 increased $43.9 million, or 54.1%
compared to the same period in 2009. Production costs in the first quarter of
2009 reflected significant market related curtailments in manufacturing and
logging, and the curtailment of the Adams Lake sawmill as the construction
project was finalized. Production levels increased in the second half of 2009 as
the new Adams Lake sawmill ramped up and Grand Forks resumed operations. This
trend continued into the first quarter of 2010 as lumber production increased by
137.5 million board feet, or more than double that of the same period in 2009.
B.C. log production increased to 648,000 cubic metres compared to 71,900 cubic
metres in the first quarter, 2009 in response to increased demand for fibre
supply.
The increased production volumes drove the Company's per unit cost of conversion
down with the additional volume available to absorb fixed costs. Unit costs were
further improved by a stronger Canadian dollar on average for the first quarter,
2010 as compared to the same quarter in 2009.
Export taxes increased by $1.3 million, or almost three times that of the first
quarter, 2009. As prices in both years were low enough to attract the maximum
rate of 15% tax, the increase in the dollar amount of export taxes is mainly
related to a fivefold increase in shipment volumes to the U.S. and to the
increase in product prices.
There was little change in selling and administrative costs for the first
quarter of 2010 compared to the first quarter of 2009. Long-term incentive
compensation ("LTIC") expense, which is impacted by the Company's share price,
showed an expense of $0.4 million for the first quarter of 2010 (Quarter 1, 2009
- $0.4 million), reflecting a 13.0% rise in the Company's share price from
December 31, 2009.
First quarter, 2010, amortization of plant and equipment at $6.5 million was
30.4% higher than the corresponding quarter in 2009, due to the impact of higher
operating rates primarily at the Adams Lake sawmill which did not operate in
early 2009.
Road amortization and depletion expense for the first quarter of 2010 increased
$3.6 million vis-a-vis the same quarter of 2009, as a result of significantly
higher logging activity on the B.C. Coast, which had been virtually shut-down in
the first quarter of 2009 to reduce inventory levels.
Restructuring costs were negligible in the first quarter of 2010, compared to
$1.1 million in severance costs arising from downsizing its workforce in
response to reduced operating rates in the first quarter of 2009.
Interest, Other Foreign Exchange Gain (loss), Other Income (Expense)
First quarter, 2010, interest expense increased by $0.4 million compared to the
first quarter of 2009, arising from an increase in the Company's overall lending
rates in 2010 compared to 2009, partially offset by a stronger Canadian dollar.
Other foreign exchange gains (losses) were negligible for both quarters. The
Company reported a minor loss in Other income (expense) for some disposals of
surplus equipment in the first quarter of 2010, in contrast to a gain of $0.6
million for the first quarter of 2009 which resulted primarily from the disposal
of a property and buildings in Maple Ridge, B.C.
Equity income at $1.4 million for the first quarter, 2010, increased by $0.8
million over the same period in the previous year. This increase was
attributable to increased equity participation in the earnings with greater
shipment volumes by the Company relative to the other participants.
Income Taxes
In the first quarter of 2010, the Company recorded an income tax recovery of
$0.4 million (Quarter 1, 2009 - $3.1 million) and took a valuation allowance
against certain future income tax assets arising from loss carry-forwards
available to reduce future taxable income, decreasing its income tax recovery by
$1.1 million (Quarter 1, 2009 - $2.7 million). Although the Company expects to
realize the full benefit of the loss carry-forwards, due to the cyclical nature
of the wood products industry and the economic conditions over the last several
years, the Company has provided a valuation allowance in respect of its
operating loss carry-forwards, net of temporary differences.
Cash Flow and Financial Position
Cash generated by the Company from operations, after changes in working capital,
was $9.1 million for the first quarter of 2010, compared to cash generated of
$19.2 million for the first quarter of 2009. Significant increases in operating
rates, particularly at Adams Lake and Grand Forks, resulted in an inventory
build-up of $7.1 million as log inventory volumes in the interior of B.C. more
than doubled. Substantial production curtailments in the comparative period of
2009 caused a drawdown of inventories by $13.3 million. In addition, $16.1
million in cash tax refunds were received in the first quarter of 2009.
Cash expenditures on capital assets for the first quarter of 2010 totalled $19.7
million (Quarter 1, 2009 - $13.1 million) including the acquisition of a timber
tenure in the Kamloops region from Weyerhaeuser Company Limited and road
construction.
Some minor sales of surplus equipment in the first quarter of 2010 generated
negligible proceeds as compared to the disposals of surplus property and
buildings in Maple Ridge, B.C. combined with disposals of surplus equipment,
which generated proceeds of $4.4 million in the first quarter of 2009.
On January 4, 2010, the Seaboard Limited Partnership declared an income
distribution to its partners. Interfor's share was $3.1 million and was paid to
the Company by way of setoff against the promissory note payable to the Seaboard
Limited Partnership.
On January 15, 2010 the Company amended and extended its existing syndicated
credit facilities. The Company's Revolving Term Line increased from $150 million
to $200 million, and its maturity date was extended to February 28, 2012. All
other terms and conditions of the line remain substantially unchanged.
In conjunction with the amendments to its credit facilities on January 15, 2010
the Company drew US$35.0 million ($35.8 million) on its Revolving Term Line and
repaid and cancelled its U.S. dollar non-revolving term line (the "Non-Revolving
Term Line").
To fund road construction and the acquisition of the timber tenure from
Weyerhaeuser and to convert the U.S. drawings used to repay the Non-Revolving
Term Line into Canadian dollars, the Company subsequently drew a further $55.0
million in the first quarter, 2010, and repaid drawings of US$35.0 million
($36.7 million).
As at March 31, 2010, the Revolving Term Line was drawn by US$30.2 million
revalued at the quarter-end exchange rate to $30.7 million and $131.0 million
for total drawings of $161.7 million, leaving an unused available line of $38.3
million.
Despite some signs of improvement in global market conditions, Interfor
continues to monitor discretionary capital expenditures carefully. Based on
current pricing and cash flow projections and existing credit lines the Company
believes it has sufficient resources to meet operating and interest payment
requirements and any essential capital expenditures.
At March 31, 2010, the Company had cash of $9.6 million. After deducting the
Company's drawings under its Revolving Term Line, the Company ended the quarter
with net debt of $152.0 million or 30.3% of invested capital.
Selected Quarterly Financial Information(1)
Quarterly Earnings Summary
2010 2009 2008
-----------------------------------------------------------
Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2
-----------------------------------------------------------
(millions of dollars except share and per share amounts)
Sales
- Lumber 107.6 93.1 76.8 62.3 56.5 65.6 73.4 82.2
- Logs 17.4 17.3 17.3 13.0 12.8 18.3 28.8 25.7
- Wood chips
and other
by-products 13.2 12.2 8.9 5.9 7.4 8.8 8.9 7.4
- Other 1.7 2.9 2.2 0.6 0.6 0.8 0.9 2.1
-----------------------------------------------------------
Total Sales 139.9 125.5 105.2 81.8 77.3 93.5 112.0 117.4
-----------------------------------------------------------
Operating loss
before
restructuring
costs
and asset
write-downs (3.1) (7.8) (7.0) (16.4) (15.2) (8.1) (12.8) (11.7)
Operating loss (3.1) (7.8) (10.4) (16.3) (16.3) (8.9) (14.1) (42.2)
Net earnings
(loss) (3.4) (5.0) 9.7 (15.0) (13.6) (18.7) (8.1) (27.7)
Net earnings
(loss) per
share - basic
and diluted (0.07) (0.11) 0.21 (0.32) (0.29) (0.40) (0.17) (0.59)
EBITDA(3) 9.7 6.3 25.3 (7.3) (7.7) 2.0 0.7 2.5
Cash flow from
operations per
share(2) 0.17 0.06 (0.07) (0.23) (0.22) 0.12 0.06 (0.06)
Shares
outstanding
- end of
period
(millions)(3) 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 47.1
Adjusted
EBITDA(3) 9.7 5.7 3.6 (7.3) (8.4) 1.7 0.1 1.9
1 Tables may not add due to rounding.
2 Cash generated from operations before taking account of changes in
operating working capital.
3 As at April 22, 2010, 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.
4 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:
2010 2009 2008
----------------------------------------------------
Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2
----------------------------------------------------
(millions of dollars)
Net earnings (loss) (3.4) (5.0) 9.7 (15.0) (13.6) (18.7) (8.1) (27.7)
Add: Income taxes
(recovery) (0.4) (3.3) 0.1 (3.6) (3.1) 10.4 (5.2) (13.9)
Interest expense 2.0 2.0 2.2 2.0 1.6 2.5 1.5 0.8
Depletion and
amortization 11.4 12.5 9.9 9.5 6.3 7.8 11.3 13.0
Other foreign
exchange (gains)
losses - 0.1 - (0.1) - (0.9) - (0.4)
Restructuring
costs, asset
write-downs and
other - 0.1 3.3 (0.1) 1.1 0.8 1.3 30.6
----------------------------------------------------
EBITDA 9.7 6.3 25.3 (7.3) (7.7) 2.0 0.7 2.5
Deduct:
Other income
(expense) - 0.6 21.7 - 0.6 0.3 0.6 0.6
----------------------------------------------------
Adjusted EBITDA 9.7 5.7 3.6 (7.3) (8.4) 1.7 0.1 1.9
----------------------------------------------------
Volume and Price Statistics
2010 2009 2008
-----------------------------------------------------
Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2
-----------------------------------------------------
Lumber (million
sales fbm) 264 234 181 131 122 133 132 125
Lumber (million
production fbm) 258 245 180 115 121 118 148 128
Log (thousand
sales(1) cubic
metres) 239 261 242 216 200 236 372 312
Log (thousand
production cubic
(1) metres) 648 533 378 312 72 290 501 679
Average ($/
selling thousand
price - fbm)
lumber(2) $408 $ 398 $ 424 $ 477 $ 462 $ 494 $555 $ 658
Average ($/cubic
selling metre)
price -
logs(1) $64 $62 $69 $56 $54 $69 $70 $79
Average ($/
selling thousand
price - fbm)
pulp chips $40 $39 $38 $40 $46 $58 $48 $47
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
coastal logging divisions experience higher production levels in the latter half
of the first quarter, throughout the second and third quarters and in the first
half of the fourth quarter. 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 and poor lumber sales
realizations increased the operating losses in the first three quarters of 2009.
Operating rates increased in the fourth quarter of 2009, as lumber prices rose
slightly, carrying through to the first quarter, 2010. The volatility of the
Canadian dollar also impacted results, given that historically over 75% of the
Canadian operation's sales are to export markets and priced in $US. A strong
Canadian dollar reduces the lumber sales realizations in Canada, but lessens the
impact of any losses in U.S. operations. The second quarter 2008 loss reflects a
restructuring charge of $30.6 million primarily for the Queensboro sawmill
closure. The fourth quarter of 2008 net loss includes the effect of a valuation
charge of $15.2 million against future tax assets, and additional valuation
charges continued through all quarters of 2009 and into 2010. The third quarter
of 2009 includes an after-tax gain of $19.0 million from the sale of the former
Queensboro sawmill site.
Accounting Policy Changes
Effective January 1, 2010, the Company adopted three new CICA accounting standards:
(a) Handbook Section 1582, Business Combinations which replaces CICA Handbook
Section 1581, Business Combinations, and establishes revised standards for the
recognition, measurement, presentation and disclosure of business acquisitions
and aligns Canadian GAAP with IFRS standards.
(b) Handbook Section 1601, Consolidated Financial Statements and Handbook
Section 1602, Non-Controlling Interests, which replace Handbook Section 1600,
Consolidated Financial Statements, and establish revised standards for the
preparation of consolidated financial statements.
Adoption of these standards had no retrospective impact on the consolidated
financial statements.
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. Early in 2009, the Company developed an
implementation plan, assembled a cross functional team, provided additional
technical training to team members and commenced a high level review of its
financial statement elements to identify major differences between Canadian GAAP
and IFRS. Additional team members were engaged and subject matter specialists
were identified.
A detailed review of the impact of IFRS on Interfor's consolidated financial
statements is substantially complete. As required, the Company has engaged
outside consultants to provide expertise and assistance. As key subject areas
have been completed, recommendations have been brought forward to the Company
Executive for discussion and approval prior to implementation.
Changes required to systems and controls, including information technology
systems, are being identified and modified as the project progresses. Currently,
no significant changes to computer systems have been required.
An opening balance sheet prepared under IFRS at the date of transition, January
1, 2010, is currently planned for substantial completion in the first half of
2010 and is underway. Adjustments will be finalized during 2010 as details of
some adjustments, as in the case of pensions, will not be available until the
latter half of 2010. Financial statements and notes are in process of being
prepared for each quarter of 2010 to be used for comparative purposes in 2011.
Amendments will be made as adjustments become final.
While the effects of IFRS have not yet been finalized, the Company has
identified a number of key areas which are likely to be impacted by changes in
accounting policy, including: property, plant, and equipment; impairment of
assets; provisions, including reforestation liabilities and asset retirement
obligations; and employee future benefits.
Progress is on schedule.
Controls and Procedures
There were no changes in the Company's internal controls over financial
reporting ("ICFR") during the quarter ended March 31, 2010 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 March 31, 2010. 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, 2009 as filed on SEDAR at www.sedar.com.
Outlook
Glimmers of recovery continue to emerge in global economies laying a foundation
for better market conditions in 2010. Economic activity in Canada, in
particular, appears to be gaining traction as evidenced by a number of
indicators including a trend of improved housing starts and gross domestic
product and lower unemployment rates. The results of a recent Bank of Canada
survey of senior loan officers of the country's major banks pointed to an
overall easing of business lending conditions, both in terms of pricing and
availability.
As a result, there is a general expectation that the Bank of Canada will raise
its prime lending rate mid-year with three major banks having already raised
mortgage rates. In addition, the Canadian dollar has moved toward parity with
the U.S. dollar in recent weeks.
Activity in the U.S. housing market remains close to historic lows, with no
appreciable movement in U.S. housing starts since the fourth quarter, 2008
despite the impact of government incentives. Continued high unemployment and
tight credit in the U.S., as well as the prospect of further sub-prime mortgage
resets due in the next year leads to an expectation that North American market
conditions will remain challenging through 2010.
Commodity lumber prices have continued to firm since the end of the first
quarter, with Western SPF 2x4 #2&Btr currently selling above US$300 per mfbm and
the Random Lengths' Composite Index above US$350 per mfbm. As a result the
export tax paid under the Softwood Lumber Agreement will decline by a third
effective May 1, 2010, from 15% to 10%, the first time since the implementation
of the agreement in October 2006.
While still relatively small in terms of volumes, there is optimism about the
growth of exports to China as it provides a new market to help offset reduced
demand in the U.S. and a strong market for lower grade products.
With the prospect of another challenging year ahead, the Company will maintain
its disciplined approach to production and strict controls on 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 Annual Information Form and on SEDAR
at www.sedar.com. Interfor's trading symbol on the Toronto Stock Exchange is
IFP.A.
E. Lawrence Sauder, Chairman
Duncan K. Davies, President and Chief Executive Officer
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended March 31, 2010 and 2009 (unaudited)
---------------------------------------------------------------------------
(thousands of Canadian dollars except 3 Months 3 Months
earnings per share) Mar. 31, 2010 Mar. 31, 2009
---------------------------------------------------------------------------
Sales $ 139,939 $ 77,277
Costs and expenses:
Production 125,187 81,248
Selling and administration 4,169 4,095
Long term incentive compensation expense 415 401
Export taxes 1,829 501
Amortization of plant and equipment 6,489 4,975
Depletion and amortization of timber, roads
and other 4,915 1,277
--------------------------------------------------------------------------
143,004 92,497
---------------------------------------------------------------------------
Operating loss before restructuring costs (3,065) (15,220)
Restructuring costs (note 9) (33) (1,073)
---------------------------------------------------------------------------
Operating loss (3,098) (16,293)
Interest expense on long-term debt (1,905) (1,214)
Other interest expense (138) (406)
Other foreign exchange gain (loss) 7 (16)
Other income (expense) (note 8) (25) 647
Equity in earnings of investee companies 1,365 581
---------------------------------------------------------------------------
(696) (408)
---------------------------------------------------------------------------
Loss before income taxes (3,794) (16,701)
Income taxes (recovery):
Current 40 (1)
Future (445) (3,100)
---------------------------------------------------------------------------
(405) (3,101)
---------------------------------------------------------------------------
Net loss $ (3,389) $ (13,600)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Net loss per share, basic and diluted (note 10) $ (0.07) $ (0.29)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
For the three months ended March 31, 2010 and 2009 (unaudited)
---------------------------------------------------------------------------
3 Months 3 Months
(thousands of Canadian dollars) Mar. 31, 2010 Mar. 31, 2009
---------------------------------------------------------------------------
Retained earnings, beginning of year $ 88,861 $ 112,748
Net loss (3,389) (13,600)
---------------------------------------------------------------------------
Retained earnings, end of period $ 85,472 $ 99,148
---------------------------------------------------------------------------
---------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended March 31, 2010 and 2009 (unaudited)
---------------------------------------------------------------------------
3 Months 3 Months
(thousands of Canadian dollars) Mar. 31, 2010 Mar. 31, 2009
---------------------------------------------------------------------------
Cash provided by (used in):
Operating activities:
Net loss $ (3,389) $ (13,600)
Items not involving cash:
Amortization of plant and equipment 6,489 4,975
Depletion and amortization of timber, roads
and other 4,915 1,277
Future income tax recovery (445) (3,100)
Other assets - 20
Reforestation liability 1,867 1,453
Other long-term liabilities 76 (488)
Equity in earnings of investee company (1,365) (581)
Unrealized foreign exchange losses (gains) (255) 451
Other (note 8) 8 (651)
-------------------------------------------------------------------------
7,901 (10,244)
Cash generated from (used in) operating
working capital:
Accounts receivable 1,419 6,459
Inventories (7,070) 13,285
Prepaid expenses 1,374 1,319
Accounts payable and accrued liabilities 5,237 (7,672)
Income taxes 267 16,082
-------------------------------------------------------------------------
9,128 19,229
Investing activities:
Additions to property, plant and equipment (588) (12,873)
Additions to logging roads and timber (19,074) (255)
Proceeds on disposal of property, plant, and
equipment 14 4,384
Investments and other assets (1,897) 5
--------------------------------------------------------------------------
(21,545) (8,739)
Financing activities:
Additions to long-term debt (note 7(b)) 90,819 -
Repayments of long-term debt (note 7(b)) (72,534) (8,000)
Decrease in bank indebtedness - (1,955)
--------------------------------------------------------------------------
18,285 (9,955)
Foreign exchange gain (loss) on cash and cash
equivalents held in a foreign currency (42) 22
---------------------------------------------------------------------------
Increase in cash 5,826 557
Cash and cash equivalents, beginning of year 3,802 184
---------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 9,628 $ 741
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Supplementary disclosures
Cash interest paid $ 2,043 $ 1,620
Cash income taxes received 267 16,082
---------------------------------------------------------------------------
---------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
CONSOLIDATED BALANCE SHEETS
March 31, 2010 (unaudited) and December 31, 2009 (audited)
---------------------------------------------------------------------------
(thousands of Canadian dollars) Mar. 31, 2010 Dec. 31, 2009
---------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 9,628 $ 3,802
Accounts receivable 31,386 32,951
Income taxes recoverable - 230
Inventories (note 6) 66,715 60,159
Prepaid expenses 6,288 7,777
Future income taxes 2,825 2,974
--------------------------------------------------------------------------
116,842 107,893
Investments and other assets (note 5) 16,872 17,060
Property, plant and equipment, net of
accumulated amortization 346,400 357,501
Timber tenures, net of accumulated depletion 82,154 67,010
Logging roads and bridges, net of accumulated
amortization 16,302 16,485
Goodwill 13,078 13,078
Long-lived assets held for sale 3,424 3,424
---------------------------------------------------------------------------
$ 595,072 $ 582,451
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 48,469 $ 43,510
Income taxes payable 43 -
Payable to investee company (note 5) - 3,096
--------------------------------------------------------------------------
48,512 46,606
Reforestation liability, net of current portion 17,078 14,724
Long-term debt (note 7(b)) 161,677 144,525
Other long-term liabilities 15,380 15,316
Future income taxes 2,825 3,286
Shareholders' equity:
Share capital
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) (29,860) (24,855)
Retained earnings 85,472 88,861
--------------------------------------------------------------------------
349,600 357,994
---------------------------------------------------------------------------
$ 595,072 $ 582,451
---------------------------------------------------------------------------
---------------------------------------------------------------------------
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 months ended March 31, 2010 and 2009 (unaudited)
---------------------------------------------------------------------------
3 Months 3 Months
(thousands of Canadian dollars) Mar. 31, 2010 Mar. 31, 2009
---------------------------------------------------------------------------
Net loss $ (3,389) $ (13,600)
Other comprehensive income:
Net change in unrealized foreign currency
translation gains (losses) on translation
of self-sustaining foreign subsidiaries (5,005) 6,344
---------------------------------------------------------------------------
Other comprehensive income (loss) (5,005) 6,344
---------------------------------------------------------------------------
Comprehensive loss $ (8,394) $ (7,256)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
For the three months ended March 31, 2010 and 2009 (unaudited)
---------------------------------------------------------------------------
3 Months 3 Months
(thousands of Canadian dollars) Mar. 31, 2010 Mar. 31, 2009
---------------------------------------------------------------------------
Accumulated other comprehensive loss, beginning
of year $ (24,855) $ (554)
Other comprehensive income (loss) (5,005) 6,344
---------------------------------------------------------------------------
Accumulated other comprehensive income (loss),
end of period $ (29,860) $ 5,790
---------------------------------------------------------------------------
---------------------------------------------------------------------------
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 ended March 31, 2010 and 2009 (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 ("GAAP") 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, 2009, except for the new accounting policies adopted subsequent to
that date, as discussed in Note 2.
2. Adoption of change in accounting policies:
Effective January 1, 2010, the Company adopted three new Canadian Institute of
Chartered Accountants ("CICA") accounting standards:
(a) CICA Handbook Section 1582, Business Combinations which replaces CICA
Handbook Section 1581, Business Combinations, and establishes revised standards
for the recognition, measurement, presentation and disclosure of business
acquisitions and aligns Canadian GAAP with International Financial Reporting
Standards ("IFRS").
(b) CICA Handbook Section 1601, Consolidated Financial Statements and CICA
Handbook Section 1602, Non-Controlling Interests, which replace CICA Handbook
Section 1600, Consolidated Financial Statements, and establish revised standards
for the preparation of consolidated financial statements.
Adoption of these standards has no retrospective impact on the consolidated
financial statements.
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, 2009, the Seaboard Limited Partnership ("the Seaboard
Partnership"), made an advance to its partners, with the Company's share of the
advance being $3,096,000. The Company signed an unsecured promissory note which
was payable on demand on or before January 4, 2010 and was non-interest bearing
until January 4, 2010.
On January 4, 2010, the Seaboard Partnership declared an income distribution to
its partners, of which the Company's share of $3,096,000 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:
--------------------------------------------------------------------------
Mar. 31, 2010 Dec. 31, 2009
--------------------------------------------------------------------------
Logs $ 36,104 $ 31,011
Lumber 25,601 24,301
Other 5,010 4,847
--------------------------------------------------------------------------
$ 66,715 $ 60,159
--------------------------------------------------------------------------
--------------------------------------------------------------------------
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 March 31, 2010 was $8,112,000 (December 31, 2009 -
$9,578,000).
7. Cash, bank indebtedness and long-term debt:
(a) Bank indebtedness:
--------------------------------------------------------------------------
March 31, 2010 Total
--------------------------------------------------------------------------
Available line of credit $ 65,000
Maximum borrowing available 64,788
Operating Line drawings -
Outstanding letters of credit included in line utilization 5,148
Unused portion of line 59,640
--------------------------------------------------------------------------
--------------------------------------------------------------------------
December 31, 2009
--------------------------------------------------------------------------
Available line of credit $ 65,000
Maximum borrowing available 61,926
Operating Line drawings -
Outstanding letters of credit included in line utilization 4,997
Unused portion of line 56,929
--------------------------------------------------------------------------
--------------------------------------------------------------------------
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. Borrowing 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. As at March 31, 2010, there were no drawings
under the Operating Line (December 31, 2009 - $nil).
On January 15, 2010 the Company amended and extended its existing syndicated
credit facilities. The maturity date of the existing Canadian operating line of
credit ("Operating Line") was extended to February 28, 2011. All other terms and
conditions of the line remain substantially unchanged.
(b) Long-term debt:
On January 15, 2010 the Company amended and extended its existing syndicated
credit facilities. The Company's Revolving Term Line increased from $150,000,000
to $200,000,000, and its maturity date was extended to February 28, 2012. All
other terms and conditions of the line remain substantially unchanged.
The Revolving Term Line may be drawn in either CAD$ 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.
As at March 31, 2010, the Revolving Term Line was drawn by US$30,200,000
(December 31, 2009 - US$30,200,000) revalued at the quarter-end exchange rate to
$30,677,000 (December 31, 2009 - $31,740,000), and $131,000,000 (December 31,
2009 - $76,000,000) for total drawings of $161,677,000 (December 31, 2009 -
$107,740,000), leaving an unused available line of $38,323,000.
In conjunction with the amendments to its credit facilities on January 15, 2010,
the Company drew US$35,000,000 ($35,819,000) on its Revolving Term Line and
repaid and cancelled its U.S. dollar non-revolving term line (the "Non-Revolving
Term Line"). At December 31, 2009 the Non-Revolving Term Line was fully drawn at
US$35,000,000 and was revalued at the year-end exchange rate to $36,785,000. The
foreign exchange gain of $966,000 realized on repayment of the Non-Revolving
Term Line (March 31, 2009 - $1,516,000 unrealized foreign exchange loss on
revaluation of loan) was recognized in Other foreign exchange gain (loss) on the
Statement of Operations.
The Company subsequently drew a further $55,000,000 in the first quarter, 2010,
and repaid the drawings of US$35,000,000 ($36,715,000) used to repay the
Non-Revolving Term Line, realizing a foreign exchange loss of $896,000 which was
recognized in Other foreign exchange gain (loss) on the Statement of Operations.
The US$30,200,000 drawing under the line has been designated as a hedge against
the Company's investment in its self-sustaining U.S. operations and unrealized
foreign exchange gains of $1,063,000 (March 31, 2009 - $1,308,000 loss) arising
on revaluation of the Non-Revolving Term Line for the quarter ending March 31,
2010 were recognized in Other comprehensive income.
The term 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 term 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.
Minimum principal amounts due on long-term debt within the next five years are
follows:
--------------------------------------------------------------------------
Twelve months ending
March 31, 2011 $ -
March 31, 2012 161,677
March 31, 2013 -
March 31, 2014 -
March 31, 2015 -
--------------------------------------------------------------------------
$161,677
--------------------------------------------------------------------------
--------------------------------------------------------------------------
8. Other income (expense):
--------------------------------------------------------------------------
3 Months 3 Months
Mar. 31, 2010 Mar. 31, 2009
--------------------------------------------------------------------------
Gain (loss) on disposal of surplus
property, plant and equipment $ (8) $ 651
Other (expense) (17) (4)
--------------------------------------------------------------------------
$ (25) $ 647
--------------------------------------------------------------------------
--------------------------------------------------------------------------
In the first quarter of 2010, minor disposals of surplus equipment resulted in
proceeds of $14,000 and a loss of $8,000.
In the first quarter of 2009, the Company disposed of surplus property and
buildings in Maple Ridge, B.C., previously classified as held for sale. This
disposition, combined with other sales of surplus equipment, generated proceeds
of $4,384,000 and a gain of $651,000.
9. Restructuring costs:
During the first quarter of 2010, the Company revised its estimated severance
costs and recorded $33,000 in additional restructuring costs. During the first
quarter of 2009, the Company recorded severance costs of $1,073,000 as it
downsized its workforce in response to reduced operating rates.
10. Net earnings (loss) per share:
--------------------------------------------------------------------------
3 Months Mar. 31, 2010 3 Months Mar. 31, 2009
---------------------------- ----------------------------
Net loss Shares Per share Net loss Shares Per share
--------------------------------------------------------------------------
Basic loss
per share $ (3,389) 47,117 $ (0.07) $(13,600) 47,117 $ (0.29)
Share options - 57(i) - - - -
--------------------------------------------------------------------------
Diluted loss
per share $ (3,389) 47,117 $ (0.07) $(13,600) 47,117 $ (0.29)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
(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.
11. Segmented information:
The Company manages its business as a single operating segment, solid wood. The
Company purchases and harvests logs which are then manufactured into lumber
products at the Company's sawmills, or sold. Substantially all of the Company's
operations are located in British Columbia, Canada and the U.S. Pacific
Northwest, U.S.A.
The Company sales to both foreign and domestic markets are as follows:
--------------------------------------------------------------------------
3 Months 3 Months
Mar. 31, 2010 Mar. 31, 2009
--------------------------------------------------------------------------
Canada $ 41,781 $ 20,467
United States 60,502 34,622
Japan 13,641 11,383
Other export 24,015 10,805
--------------------------------------------------------------------------
$ 139,939 $ 77,277
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Sales by product line are as follows:
--------------------------------------------------------------------------
3 Months 3 Months
Mar. 31, 2010 Mar. 31, 2009
--------------------------------------------------------------------------
Lumber $ 107,618 $ 56,443
Logs 17,435 12,823
Wood chips and other by products 13,151 7,367
Other 1,735 644
--------------------------------------------------------------------------
$ 139,939 $ 77,277
--------------------------------------------------------------------------
--------------------------------------------------------------------------
The Company has capital assets, goodwill and other intangible assets
located in:
--------------------------------------------------------------------------
Mar. 31, 2010 Dec. 31, 2009
--------------------------------------------------------------------------
Canada $ 311,152 $ 299,365
United States 150,206 158,133
--------------------------------------------------------------------------
$ 461,358 $ 457,498
--------------------------------------------------------------------------
--------------------------------------------------------------------------
12. Employee future benefits:
The total benefits cost under its various pension, retirement savings and other
post-retirement benefit plans (described in the Company's audited annual
consolidated financial statements) are as follows:
--------------------------------------------------------------------------
3 Months 3 Months
Mar. 31, 2010 Mar. 31, 2009
--------------------------------------------------------------------------
Canadian employees' deferred profit
sharing plan $ 291 $ 317
Defined benefit plan 53 112
Unionized employees' pension plan 452 282
Post-retirement benefits plan 21 18
U.S. employees' 401(k) plan 152 159
Senior management supplementary pension plan 246 124
--------------------------------------------------------------------------
Total pension expense $ 1,215 $ 1,012
--------------------------------------------------------------------------
--------------------------------------------------------------------------
13. Financial instruments:
The Company employs financial instruments such as foreign currency forward and
option contracts to manage exposure to fluctuations in foreign exchange rates.
The Company does not expect any credit losses in the event of non-performance by
counterparties as the counterparties are the Company's Canadian bankers, which
are all highly rated.
As at March 31, 2010, the Company has outstanding obligations to sell a maximum
of US$18,400,000 at an average rate of CAD$1.0441 to the USD$1.00 and sell
Japanese yens 210,498,114 at an average rate of yens 88.95 to the US$1.00 during
2010. All foreign currency gains or losses to March 31, 2010 have been
recognized in the Statement of Operations and the fair value of these foreign
currency contracts being an asset of $657,000 (measured based on Level 1 of the
fair value hierarchy) has been recorded in accounts receivable (December 31,
2009 - $403,000 asset fair value measured based on Level 1 and recorded in
accounts receivable).
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