International Forest Products Limited

International Forest Products Limited

February 17, 2012 21:01 ET

Interfor's Q4 Results Decline on Lower Volumes and Market Prices

Grand Forks and Castlegar Projects Ahead of Schedule

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Feb. 17, 2012) - INTERNATIONAL FOREST PRODUCTS LIMITED ("Interfor" or the "Company") (TSX:IFP.A) reported a net loss of $6.5 million or $0.12 per share in the fourth quarter of 2011. Included in the Company's accounts in the quarter was the effect of unrecognized tax assets of $3.9 million or $0.07 per share.

Excluding the tax allowance and other one-time items, Interfor recorded a net loss of $2.5 million or $0.04 per share compared to a net loss of $0.5 million or $0.01 per share in the immediately preceding quarter and net earnings of $0.5 million or $0.01 per share in the fourth quarter of 2010.

Also included in the Company's accounts in the fourth quarter was a provision for share-based compensation of $0.9 million or $0.02 per share compared to a recovery of $0.9 million or $0.02 per share in the third quarter.

Sales revenue in the fourth quarter was $190.0 million, down $10.2 million or 5% versus the third quarter, reflecting lower sales volumes and market prices.

EBITDA for the quarter (adjusted to exclude one-time items and "other income") was $8.0 million, down $6.3 million versus the third quarter and $6.5 million compared to the fourth quarter of 2010.

Lumber production in the fourth quarter was 294 million board feet, down 20 million board feet or 6 percent versus the third quarter as production rates were adjusted downwards in the face of log supply issues in the Pacific Northwest and for maintenance at the Hammond and Acorn mills on the BC Coast. Sales volumes, including wholesale activities, fell by 18 million board feet to 318 million board feet versus 336 million board feet in the third quarter.

In the quarter, SPF 2x4 in the North American market was US$238, down US$8 versus the third quarter, and Hem-Fir studs were down $US14 to US$260. Prices and volumes to China weakened quarter-on-quarter as high in-market inventories and tight credit conditions negatively impacted activity levels in the early part of the quarter. Prices in the Japanese market for traditional products were flat while the cedar market was firm as unseasonably mild weather and low inventories throughout the distribution channel helped to support demand.

Currency rates remained volatile during the quarter with the C$ averaging US$0.978, down US$0.042 or 4.1% versus the third quarter.

In the quarter, Interfor generated $4.6 million in cash from operations before changes in working capital and $3.9 million in cash after working capital changes were considered. Capital spending in the quarter amounted to $9.0 million, including $5.4 million on roads and $2.2 million on discretionary projects including the projects announced in November to upgrade the Grand Forks and Castlegar sawmills.

Net debt closed the quarter at $100.3 million or 20 percent of invested capital.

Business conditions have improved in recent weeks with a more positive tone in the US and higher activity levels in China. That said, the global economic environment remains uncertain. Interfor expects to maintain operating rates at current levels or above for the next few quarters but will remain alert to changes in market activity in order to keep inventories in balance. Considerable attention is being devoted to the Grand Forks and Castlegar capital projects with a goal of completing construction by the end of the first quarter of 2013 rather than the original schedule of the end of the third quarter of 2013.


This release contains information and statements that are forward-looking in nature, including, but not limited to, statements containing the words "will" and "is expected" and similar expressions. Such statements involve known and unknown risks and uncertainties that may cause Interfor's actual results to be materially different from those expressed or implied by those forward-looking statements. Such risks and uncertainties include, among others: general economic and business conditions, product selling prices, raw material and operating costs, changes in foreign-currency exchange rates, and other factors referenced herein and in Interfor's Annual Report and Management Information Circular available on 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.


Interfor is a leading global supplier, with one of the most diverse lines of lumber products in the world. The Company has operations in British Columbia, Washington and Oregon, including two sawmills in the Coastal region of British Columbia, three in the B.C. Interior, two in Washington and two in Oregon. For more information about Interfor, visit our website at

There will be a conference call on Tuesday, February 21, 2012 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, 2011 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 March 3, 2012. The number to call is 1-866-245-6755 Passcode 283399.


Quarterly Earnings Summary 2011 2010
Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1
(millions of dollars except share, per share and foreign exchange rate amounts)
- Lumber 134.9 136.7 134.0 132.5 137.5 113.1 123.7 107.6
- Logs 22.9 36.0 28.6 20.8 20.6 21.9 19.8 17.4
- Wood chips and other residual products 17.5 17.6 16.8 16.4 15.7 14.0 13.3 13.2
- Other 14.6 9.9 8.7 10.0 2.4 2.4 1.0 1.7
Total Sales 190.0 200.2 188.2 179.7 176.3 151.5 157.9 139.9
Operating earnings (loss) before restructuring costs and asset impairments (5.0 ) 1.0 (2.0 ) 1.0 1.5 (2.0 ) (0.9 ) (2.4 )
Operating earnings (loss) (4.9 ) 1.3 (2.1 ) 0.2 1.5 (2.5 ) (2.0 ) (2.5 )
Net earnings (loss) (6.5 ) 0.0 (5.3 ) (1.7 ) 0.8 1.4 (3.5 ) (3.8 )
Net earnings (loss) per share - basic and diluted (0.12 ) 0.00 (0.10 ) (0.04 ) 0.02 0.03 (0.07 ) (0.08 )
Net earnings (loss), adjusted for certain one-time and other items4 (2.5 ) (0.5 ) (2.9 ) (0.5 ) 0.5 (1.1 ) (0.6 ) (2.2 )
Net earnings (loss), adjusted for certain one-time and other items - per share4 (0.04 ) (0.01 ) (0.05 ) (0.01 ) 0.01 (0.02 ) (0.01 ) (0.05 )
EBITDA5 7.9 14.7 11.6 12.8 14.6 15.3 13.7 10.0
Adjusted EBITDA5 8.0 14.3 11.6 12.7 14.5 10.6 13.3 10.0
Cash flow from operations per share2 0.08 0.26 0.22 0.27 0.22 0.18 0.25 0.21
Shares outstanding (millions)3
- end of period 55.9 55.9 55.9 47.5 47.4 47.1 47.1 47.1
- weighted average (millions) 55.9 55.9 55.2 47.4 47.2 47.1 47.1 47.1
Average foreign exchange rate per US$1.00 1.0230 0.9808 0.9680 0.9856 1.0131 1.0395 1.0283 1.0401
Closing foreign exchange rate per US$1.00 1.0170 1.0482 0.9645 0.9696 0.9946 1.0290 1.0646 1.0158
  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 February 17, 2012, the numbers of shares outstanding by class are: Class A Subordinate Voting shares - 54,847,176 Class B Common shares - 1,015,779, Total - 55,862,955.
  4. Net earnings (loss), adjusted for certain one-time and other items represents net earnings (loss) before restructuring costs, foreign exchange gains and losses, other income (expense), certain one-time items and the effect of unrecognized tax assets.
  5. 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. Adjusted EBITDA represents EBITDA adjusted for other income and other income of the investee company. EBITDA and Adjusted EBITDA can be calculated from the statements of operations as follows:
2011 2010
Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1
(millions of dollars)
Net earnings (loss) (6.5 ) 0.0 (5.3 ) (1.7 ) 0.8 1.4 (3.5 ) (3.8 )
Add: Income taxes (recovery) 0.2 0.5 1.2 (0.4 ) (0.5 ) (0.2 ) 1.0 0.2
Finance costs 1.3 1.7 1.9 2.3 2.5 2.6 2.8 2.6
Depreciation, depletion and amortization 13.0 13.3 13.6 11.7 11.7 11.0 12.3 11.1
Other foreign exchange (gains) losses 0.1 (0.5 ) 0.1 0.1 0.2 0.1 0.1 -
Restructuring costs, asset impairments and other costs(recoveries) (0.1 ) (0.3 ) 0.1 0.8 - 0.5 1.1 -
EBITDA 7.9 14.7 11.6 12.8 14.6 15.3 13.7 10.0
Other income (expense) - 0.4 - - (0.3 ) (0.1 ) 0.4 -
Other income of associate company - - - - 0.4 4.8 - -
Adjusted EBITDA 8.0 14.3 11.6 12.7 14.5 10.6 13.3 10.0
Volume and Price Statistics
2011 2010
Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1
Lumber sales (million fbm) 318 336 334 313 321 277 270 264
Lumber production (million fbm) 294 313 325 332 303 272 277 258
Log sales1 (thousand cubic metres) 310 430 314 301 292 289 262 239
Log production1 (thousand cubic metres) 795 1,002 796 816 794 595 624 648
Average selling price - lumber2 ($/thousand fbm) $424 $407 $401 $423 $428 $408 $459 $408
Average selling price - logs1 ($/cubic metre) $69 $74 $82 $61 $64 $73 $68 $64
Average selling price - pulp chips ($/thousand fbm) $51 $48 $44 $40 $42 $40 $37 $40
  1. B.C. operations
  2. Gross sales before duties and 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 closures. Generally, the Company's B.C. Coastal logging divisions experience higher production levels in the latter half of the first quarter, throughout the second and third quarters and in the first half of the fourth quarter. Logging activity in the B.C. Interior is generally higher in the first half of the first quarter, slows during spring thaw and increases in the third and fourth quarters. Sawmill operations are less seasonal than logging operations but are dependent on the availability of logs from logging operations, including those from suppliers. In addition, the market demand for lumber and related products is generally lower in the winter due to reduced construction activity, which increases during the spring, summer and fall.

Operating rates increased in the first quarter, 2010, as lumber prices rose in response to increased North American demand and a temporary supply/demand imbalance. During the same period off-shore demand increased, particularly from China, with rapid export market growth through the remaining quarters of 2010 and the first half, 2011 and leveling off for the balance of 2011.

The volatility of the Canadian dollar also impacted results, given that historically over 75% of the Canadian operation's lumber sales are to export markets and priced in U.S. dollars. A strong Canadian dollar reduces the lumber sales realizations in Canada, but reduces the impact of losses in U.S. operations when converted to Canadian dollars. No deferred tax assets arising from loss carry-forwards were recognized during 2010 or 2011.

In the first quarter, 2011 the Company acquired complete control of SGP. It was wound up in early January, 2011 but continued operations as Seaboard and its accounts were consolidated from the date of change in control on January 5, 2011. Other sales revenues include the ocean freight revenues of Seaboard.

Quarter 4, 2011 Compared to Quarter 4, 2010


The Company recorded a net loss of $6.5 million, or $0.12 per share, for the fourth quarter of 2011 compared to net earnings of $0.8 million, or $0.02 per share in the fourth quarter of 2010. Before restructuring costs, foreign exchange gains (losses), other one-time items and a tax valuation allowance, the Company's net loss for the fourth quarter, 2011 was $2.5 million after-tax or $0.04 per share, as compared to a net income of $0.5 million after-tax, or $0.01 per share for the fourth quarter, 2010.

EBITDA and Adjusted EBITDA for the fourth quarter of 2011 were $7.9 million and $8.0 million, respectively, compared to $14.6 million and $14.5 million, for the comparable quarter in 2010.

During the fourth quarter of 2011, lumber prices in the North American market decreased significantly compared to 2010. The average price reported by Random Lengths for SPF 2x4 #2&Btr was US$238 per mfbm for the fourth quarter, 2011 compared to US$269 per mfbm for the same quarter in 2010 and compared to US$246 per mfbm in the third quarter, 2011. The Canadian dollar was weaker this quarter, which had a positive effect on revenues priced in U.S. dollars, as compared to the same quarter in 2010.

The Company focused on reducing lumber inventories through to the end of the fourth quarter, 2011; however inventories ended the year higher than in 2010. Generally, mill productivity rates were up during the quarter, however curtailments were taken at some the mills.


For the fourth quarter of 2011, total sales revenues were $190.0 million which represented an 8% increase over the same quarter in 2010.

For the fourth quarter, 2011, lumber sales volumes were 318 million fbm and revenues were $134.9 million. This is a 1% decrease in volume and a 2% decrease in revenues compared to the same period in 2010. Interfor increased shipments to the U.S. and Japan in the fourth quarter of 2011, offset by reductions of shipments to China and Canada when compared to the same quarter in 2010. In the fourth quarter, 2011 Interfor's lumber sales values decreased by $4 per mfbm or 1% compared to 2010. In the fourth quarter, 2011 the Canadian dollar depreciated by 1 cent relative to its U.S. counterpart, when compared to the average of the same quarter in 2010.

Log sales were up $2.4 million, or 11%, for the fourth quarter, 2011 as sales volumes increased by 18,000 m3 or 6% over the same period in 2010. On the B.C. Coast, where the majority of log sales are transacted, the price per cubic meter improved by 10% in the fourth quarter of 2011, compared to the same period in 2010 reflecting higher export volumes and improved log markets.

Compared to the same periods of 2010, pulp chip and other residuals revenues for the fourth quarter of 2011 were up $1.8 million, resulting from higher overall chip prices. Average chip prices for the fourth quarter, 2011 increased by 20% even though pulp prices were lower over the same quarter, 2010. Chip price increases in the U.S. were enhanced by the weaker Canadian dollar in the fourth quarter, 2011 versus same period in 2010.

Other revenues for the fourth quarter, 2011 are mainly from Seaboard at $10.8 million; in 2010, Seaboard results were reported as equity income.


For the fourth quarter of 2011, production volumes decreased by 9 million fbm or 3% compared to the same quarter, 2010. Production costs for the fourth quarter of 2011 increased $19.6 million or 13%, which includes $11.5 million of costs related to Seaboard, compared to the same period in 2010. Lumber production, in general, decreased mainly due to curtailments and/or reduced operating rates at many of our mills due to high log costs during the quarter. In the fourth quarter 2011, the Peninsula mills were curtailed due to log supply issues. Although there were lower total operating hours, higher productivity rates and lumber recoveries minimized the decrease in overall production volume when compared to the same quarter in 2010.

Overall unit manufacturing costs per mfbm were higher in the fourth quarter of 2011, when compared to 2010 due to higher log costs. Log costs per mfbm during the fourth quarter, 2011 versus the same quarter last year were driven up on the B.C. Coast due to higher depletion and road amortization costs, and at the U.S. mills due to higher market price of purchased logs and the weaker Canadian dollar. Fibre supply for the Peninsula mills remains tight and prices high due to local demands and competition from the export log market. In the B.C. Interior, log consumption unit costs were lower due to overall lower delivered log cost and higher lumber recoveries compared to previous year's quarter. The B.C. Coast conversion unit costs this quarter, 2011 were higher compared to same quarter, 2010 due to lower production volumes and operating hours mainly due to log mix and maintenance at our Hammond mill. In the U.S., the unit conversion costs at the Washington mills were slightly higher due to lower production volumes and at the Oregon mills were lower due to higher production volumes. At the B.C. Interior mills, unit conversion costs were down due to higher productivity rates and production volumes.

Compared to the same quarter in 2010, B.C. log production remained flat overall with Coastal woodlands harvesting slightly less volume and the Interior harvesting slightly more volume, due mainly to the Castlegar mill operating more hours and at increased productivity rates offset in part, by the reduction of Grand Fork's head rig capacity.

Corporate and Other

Selling and administrative costs for the fourth quarter, 2011 increased by $1.0 million compared to the same quarter, 2010 primarily as a result of increased sales and export market administrative staff to support sales and marketing initiatives. LTIC expense is impacted by the change in the Company's share price and showed an expense of $0.9 million for the fourth quarter, 2011.

Compared to the same period, 2010, Canadian shipments to the U.S. for the fourth quarter, 2011 decreased by 4.2 million fbm, or 7%, which resulted in a decrease in export taxes of $0.2 million as the tax rate for both periods remained at 15%.

Amortization of plant and equipment for the fourth quarter in 2011 decreased by $0.6 million in comparison to the same period in 2010 due to the lower total operating hours at our manufacturing facilities.

Road amortization and depletion expense for the fourth quarter of 2011 increased by $1.9 million or 42% compared to the same quarter, 2010 as a result of changes in areas being logged and a significant reduction in heli-logging activity on the B.C. Coast, and increased harvesting in the Interior.

Finance Costs, Other Foreign Exchange Gain (loss), Other Income

Fourth quarter, 2011, interest expense was reduced by $1.0 million compared to same period in 2010, due to the lower rates of the renegotiated Revolving Term Line and the lower average balance outstanding in the quarter; this was partially offset by a weaker Canadian dollar in fourth quarter 2011. Other foreign exchange gains (losses) were negligible for both years.

Other income was negligible in the fourth quarter, 2011 compared to an expense of $0.3 million for the fourth quarter, 2010 from the disposal of surplus equipment and roads. In the fourth quarter, 2010, the Company reported equity participation in the earnings of Seaboard of $1.7 million. Seaboard's results are consolidated in 2011.

Income Taxes

The Company recorded an income tax expense of $0.2 million in the fourth quarter of 2011 as compared to a $0.5 million recovery in the comparative period of 2010. The unrecognized deferred tax assets in relation to unused tax losses that are available to carry forward against future taxable income were increased by $3.9 million (fourth quarter, 2010 - decreased by $0.3 million). Although the Company expects to realize the full benefit of the loss carry-forwards and other deferred tax assets, due the cyclical nature of the forest products industry and the economic conditions over the last several years, the Company has not recognized the benefit of its deferred tax assets in excess of its deferred tax liabilities.

Cash Flow

Cash generated by the Company from operations, after changes in working capital, was $3.9 million for the fourth quarter of 2011, compared to cash generated of $5.4 million for the fourth quarter of 2010. Net earnings for the fourth quarter 2011 was $7.2 million lower than the same period in 2010, which resulted in quarterly cash from operations of $4.6 million in 2011 compared to $10.6 million in 2010.

In the fourth quarter of 2011, funds were drawn from the Revolving Term Line for operating and capital requirements, which were partially repaid during the quarter. In the fourth quarter, 2010 the Company received an $8.8 million advance from Seaboard which it used to pay down a portion of its Revolving Term Line.

Capital expenditures on plant and equipment for the fourth quarter, 2011 were $3.5 million, of which $2.2 million was on high return discretionary projects and $1.3 million on maintenance of operating capacity. Spending on road construction totaled $5.4 million. Comparable spending for the fourth quarter, 2010 of $8.9 million was divided evenly between high return discretionary and maintenance projects, and road construction.

The Company had cash of $10.4 million at December 31, 2011 and ended the quarter with net debt of $100.3 million or 20.4% of invested capital.

Softwood Lumber Agreement Arbitration

On October 8, 2010, the U.S. Trade Representative's office filed a request for consultations with Canada under the terms of the SLA over its concern that the province of British Columbia is charging too low a price for certain grades of timber harvested on public lands in the B.C. Interior.

Under the terms of the SLA, consultations between the two governments were held but the matter was not resolved and on January 18, 2011 the U.S. Trade Representative filed for arbitration by the London Court of International Arbitration ("LCIA"). Decisions by the LCIA are final and binding on both parties.

In August, 2011, the U.S. Trade Representative filed a detailed statement of claim with the LCIA. In November, 2011, B.C. lumber producers filed their statement of defense against the U.S. allegations that Canada is exporting mountain pine beetle lumber at unfairly low prices. Oral arguments are to be heard February 2012. The Company believes that B.C. and Canada are complying with their obligations under the SLA.

As the U.S. arbitration request is still in preliminary stages the existence of any potential claim has not been determined and no provision has been recorded in the financial statements as at December 31, 2011.

While the arbitration process is ongoing, export tax will continue to apply on all shipments of B.C. lumber to the U.S.

Significant Customer enters into Creditor Protection

On January 31, 2012, Catalyst Paper Corporation ("Catalyst") announced that the company and certain of its subsidiaries had obtained an Initial Order from the Supreme Court of British Columbia under the Companies' Creditors Arrangement Act. Catalyst is the primary buyer of Interfor's chips on the B.C. Coast, under long-term purchase contracts. Catalyst is also a purchaser of Interfor's pulp logs and other residuals.

Catalyst has indicated that the operations of Catalyst and its subsidiaries are intended to continue as usual, and obligations to employees and suppliers during the restructuring process are expected to be met in the ordinary course.

All trade accounts receivable outstanding as at December 31, 2011 have been collected in 2012 and therefore no allowance was provided.

As at February 17, 2012 the trade accounts receivable at risk for non-payment totals approximately $0.4 million.

The outcome of Catalyst's restructuring and any potential impact to the Company cannot be determined at this point. The court has granted Interfor a security interest as a critical supplier, on all current and future products purchased from Interfor.


Convergence with International Financial Reporting Standards

Effective January 1, 2011 Canadian publicly listed entities were required to prepare their financial statements in accordance with IFRS. Due to the requirement to present comparative financial information, the effective transition date was January 1, 2010.

While IFRS uses a conceptual framework similar to Canadian Generally Accepted Accounting Principles ("GAAP"), there are significant differences on recognition, measurement, and disclosures. The Company identified a number of key areas impacted by changes in accounting policies, including: property, plant, and equipment; impairment of assets; provisions, including reforestation liabilities and other decommissioning obligations; share-based payments; employee future benefits; and deferred income taxes.

Note 28 to the consolidated financial statements provides more detail on key Canadian GAAP to IFRS differences, accounting policy decisions and IFRS 1, First-Time Adoption of International Financial Reporting Standards optional exemptions for significant or potentially significant areas that have had an impact on Interfor's financial statements on transition to IFRS or may have an impact in future periods.

IFRS Transitional Impact on Equity

As a result of the policy choices selected and changes required under IFRS, Interfor has recorded an increase in equity of $3.4 million as at the date of transition, January 1, 2010. The table below outlines adjustments to equity on adoption of IFRS on January 1, 2010 and December 31, 2010 for comparative purposes1:

January 1 December 31
2010 2010
(millions of dollars)
Equity under Canadian GAAP $ 358.0 $ 347.3
Transition election to fair value property 15.7 15.7
Employee future benefits (6.9 ) (9.0 )
Decommissioning liabilities (2.8 ) (3.3 )
Share based compensation (2.1 ) (2.2 )
Equity participation in associate's income (0.9 ) (1.1 )
Deferred income taxes 0.3 -
Total IFRS adjustments to equity 3.4 0.2
Equity under IFRS $ 361.4 $ 347.5
  1. Table may not add due to rounding

IFRS Impact on Comprehensive Income

The following is a summary of the adjustments to Comprehensive Income for the year ended December 31, 2010 under IFRS:1

Year ended
December 31, 2010
(millions of dollars )
Comprehensive loss under Canadian GAAP $ (11.6 )
Profit adjustments
Employee future benefits 0.4
Decommissioning liabilities (0.5 )
Share based compensation (0.1 )
Equity participation in associate's income2 -
Plant and equipment2 -
Deferred income taxes (0.9 )
Total IFRS adjustments to net earnings (1.3 )
Other comprehensive income adjustments
Employee future benefits - actuarial gains (losses) (2.5 )
Equity participation in associate's employee future benefits (0.1 )
Deferred income taxes 0.6
Total other comprehensive income adjustments (2.0 )
Comprehensive income (loss) under IFRS $ (14.8 )
  1. Table may not add due to rounding
  2. Due to rounding, amount appears to have no impact

IFRS Impact on Cash Flow Statement

The only impact of IFRS on the Statement of Cash Flows is in the presentation of cash interest paid as a financing activity. Under previous Canadian GAAP, cash interest paid was included as an operating activity.

As a result, this presentation change will increase the cash flows from operating activities and reduce cash flows from financing activities in future periods by the equivalent amount. For the year ended December 31, 2010 operating cash flows increased by $8.9 million compared to Canadian GAAP, with cash flow from financing activities reduced by the same amount. There is no impact on cash and cash equivalents as a result of this presentation change.

IFRS Impact on Financial Statement Presentation

The transition to IFRS has resulted in numerous presentation changes in the financial statements. The significant changes are summarized as follows:

  • Other intangible assets include software licences. These licences were previously included in Property, plant and equipment;
  • The Statement of Financial Position presents additional disclosure of balances separately including employee future benefits assets and provisions and the investment in associate company;
  • Finance costs include interest on debt, accretion expense for decommissioning provisions, and amortization of prepaid financing costs. Accretion was previously included in Production costs. Amortization of prepaid financing costs was previously included in Depletion and amortization of timber, roads and other; and
  • Interest paid is presented as a financing activity in the Statement of Cash Flows, as previously described.

The above changes are reclassifications within the financial statements and have no impact on net earnings or equity.

IFRS Impact on Key Performance Measures

The transition to IFRS did not significantly impact the Company's financial covenants and key ratios that have an equity component.

IFRS Impact on Controls and Information Systems

A review of the Company's information systems and the day-to-day accounting processes and controls was carried out during the IFRS conversion project and no significant impacts were identified. No significant changes to computer systems were required and no changes which materially affect, or are reasonably likely to materially affect, the Company's controls are required. To ensure the effectiveness of the key monitoring controls under IFRS, additional training has been performed in relation to the specific impacts of IFRS on the Company's financial policies and statements.

New Accounting Policy - Derivative Financial Instruments, Interest Rate Swaps

On August 25, 2011, the Company entered into two interest rate swaps and designated these financial instruments as cash flow hedges. The intent of these swaps is to convert floating-rate interest expense to fixed-rate interest expense based on BA CDOR. As these derivatives are designated as the hedging instrument in a cash flow hedge of fluctuations in market interest rates associated with specific drawings under the Revolving Term Line, the effective portion of changes in the fair value of the derivative is recognized in Other comprehensive income (loss) and presented in the Hedging reserve in Equity. Any ineffective portion of the changes in the fair value of the derivative is recognized immediately in Net earnings (loss).

Future Accounting Policy Changes

IFRS 9, Financial Instruments, replaces the multiple classification and measurement models in IAS 39, Financial Instruments: Recognition and Measurement, with a single model that has only two classification categories: amortized cost and fair value. This standard is in effect for accounting periods beginning on or after January 1, 2015, with earlier adoption permitted.

IAS 19, Employee Benefits, was revised to eliminate the option to defer recognition of gains and losses, known as the "corridor method", and to enhance disclosure requirements for defined benefit plans. As the Company did not choose the corridor method in accounting for its defined benefit plans, there is no impact on its financial statements as a result of the elimination of this option. This standard is in effect for accounting periods beginning on or after January 1, 2013, with earlier adoption permitted.

As at the reporting date, no assessment has been made of the impact of the standard on the Company's financial statements other than the effect of the elimination of the corridor method.

The standard-setting bodies that set IFRS have significant ongoing projects that could impact the IFRS accounting policies selected. Specifically, it is anticipated that there will be additional new or revised IFRS or IFRIC standards in relation to financial instruments and leases currently on the International Accounting Standards Board agenda.

For the three months and years ended December 31, 2011 and 2010 (unaudited)
(thousands of Canadian dollars except earnings (loss) per share)
3 Months 3 Months Year Year
Dec. 31, 2011 Dec. 31, 2010 Dec. 31, 2011 Dec. 31, 2010
(notes 2, 19 ) (notes 2, 19 )
Sales $ 189,952 $ 176,303 $ 758,016 $ 625,618
Costs and expenses:
Production 173,412 153,770 681,363 556,551
Selling and administration 5,300 4,328 20,548 17,508
Long term incentive compensation expense 934 2,446 449 1,966
Export taxes 2,313 2,524 9,029 7,427
Depreciation of plant and equipment (note 10) 6,751 7,344 27,291 27,475
Depletion and amortization of timber, roads and other (note 10) 6,208 4,357 24,263 18,521
194,918 174,769 762,943 629,448
Operating earnings (loss) before restructuring costs (4,966 ) 1,534 (4,927 ) (3,830 )
Restructuring (costs) recovery (note 11) 104 9 (580 ) (1,578 )
Operating earnings (loss) (4,862 ) 1,543 (5,507 ) (5,408 )
Finance costs (note 12) (1,268 ) (2,509 ) (7,094 ) (10,441 )
Other foreign exchange gain (loss) (127 ) (169 ) 204 (280 )
Other income (expense) (note 13) (45 ) (284 ) 371 (25 )
Equity in earnings of associate company - 1,652 - 11,431
(1,440 ) (1,310 ) (6,519 ) 685
Earnings (loss) before income taxes (6,302 ) 233 (12,026 ) (4,723 )
Income tax expense (recovery):
Current 282 18 817 60
Deferred (117 ) (541 ) 610 410
165 (523 ) 1,427 470
Net earnings (loss) (6,467 ) 756 (13,453 ) (5,193 )
Other comprehensive income (loss):
Foreign currency translation differences (4,024 ) (4,730 ) 2,632 (7,433 )
Defined benefit plan actuarial losses 1,030 1,644 (4,541 ) (2,490 )
Equity share of associate company's defined benefit plan actuarial losses - 372 - (115 )
Loss in fair value of interest rate swaps (3 ) - (503 ) -
Income tax recovery (expense) on other comprehensive income (loss) - (281 ) 250 410
(2,997 ) (2,995 ) (2,162 ) (9,628 )
Total comprehensive loss for the period $ (9,464 ) $ (2,239 ) $ (15,615 ) $ (14,821 )
Net earnings (loss) per share, basic and diluted (note 14) $ (0.12 ) $ 0.02 $ (0.25 ) $ (0.11 )
See accompanying notes to consolidated financial statements
For the years ended December 31, 2011 and 2010 (unaudited)
(thousands of Canadian dollars)
Year Year
Dec. 31, 2011 Dec. 31, 2010
Cash provided by (used in):
Operating activities:
Net loss $ (13,453 ) $ (5,193 )
Items not involving cash