Canfor Corporation Announces Third Quarter Earnings.VANCOUVER Vancouver, city, Canada Vancouver, city (1991 pop. 471,844), SW British Columbia, Canada, on Burrard Inlet of the Strait of Georgia, opposite Vancouver Island and just N of the Wash. border. , British Columbia British Columbia, province (2001 pop. 3,907,738), 366,255 sq mi (948,600 sq km), including 6,976 sq mi (18,068 sq km) of water surface, W Canada. Geography -- Canfor Canfor Corporation (TSX: CFP) is an Canadian integrated forest products company based in Vancouver, British Columbia. The company traces its roots to the late 1930s, when brothers-in-law John G. Prentice and L.L.G. Corporation (TSX TSX Toronto Stock Exchange (TSE before April, 2002) TSX Transfer from Stack Pointer to Index TSX True Space Extension :CFP 1. CFP - Constraint Functional Programming. 2. CFP - Communicating Functional Processes. 3. CFP - Call For Papers (for a conference). ) today reported net income of $17.4 million for the third quarter, or $0.12 per share on a diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. basis, and $108.3 million for the year to date, or $0.75 per share. This compares to income of $25.3 million in the previous quarter and $200.0 million in the third quarter of 2004. The current period's operating results were negatively impacted by lower product prices and the strengthening of the Canadian dollar Noun 1. Canadian dollar - the basic unit of money in Canada; "the Canadian dollar has the image of loon on one side of the coin" loonie dollar - the basic monetary unit in many countries; equal to 100 cents . Compared to the second quarter, US dollar lumber lumber, term for timber that has been cut into boards for use as a building material. The major steps in producing lumber involve logging (the felling and preparation of timber for shipment to sawmills), sawing the logs into boards, grading the boards according to prices were 10% lower, OSB OSB abbr. Order of Saint Benedict 5% lower and pulp 4% lower. The decline compared to the third quarter of 2004 was even more significant, with lumber prices decreasing by 26%, OSB 18%, plywood plywood, manufactured board composed of an odd number of thin sheets of wood glued together under pressure with grains of the successive layers at right angles. Laminated wood differs from plywood in that the grains of its sheets are parallel. 34% and pulp 8%. The impact of these lower prices was exacerbated by the strengthening of the Canadian dollar by nearly 4% in the quarter and by nearly 9% compared to the same period in 2004. Several one-time one-time adj. 1. or one·time a. Occurring or undertaken only once: a one-time winner in 1995. b. adjustments are included in the quarter's results, impacting comparability with prior periods. These include a $24.7 million after-tax af·ter-tax also af·ter·tax adj. Relating to or being that which remains after payment, especially of income taxes: after-tax profits. gain on the translation of US dollar long-term debt Long-Term Debt Loans and financial obligations lasting over one year. Notes: For example debts obligations such as bonds and notes which have maturities greater than one year would be considered long-term debt. , $13.3 million of favourable tax adjustments, an $8.9 million after-tax write-down Write-Down Reducing the book value of an asset because it is overvalued compared to the market value. Notes: This is usually reflected in the company's income statement as an expense, thereby reducing net income. of timber timber: see lumber; wood. licenses and a $2.5 million after-tax provision for mill closure costs. These items had a net favourable impact on earnings per share of $0.19 in the quarter. The container (1) Software that acts as a parent program to hold and execute a set of commands or to run other software routines. (2) A data structure that holds one or more different types of data. See metafile and OLE. truckers' strike at the Port of Vancouver The Port of Vancouver is the largest port in Canada, the largest in the Pacific Northwest, and the largest port on the West Coast of North America by metric tons's of total cargo with 76.5 million metric tons. hampered offshore shipments of lumber and pulp in the first half of the third quarter. As a result, lumber shipments were 5% lower than in the previous quarter. Pulp shipments recovered in the latter part of the quarter and were up by 4% over the previous quarter. Panel shipments increased by 14% over the second quarter and by 18% over the same quarter last year, as a result of strong demand associated with the hurricanes in the US Gulf area. Activity on major capital projects continues, with the OSB joint venture plant anticipated to start up in early November November: see month. and the Plateau plateau, elevated, level or nearly level portion of the earth's surface, larger in summit area than a mountain and bounded on at least one side by steep slopes, occurring on land or in oceans. mill re-build scheduled for completion in January January: see month. 2006. "As a result of challenging commodity prices and the strengthening Canadian dollar, this was a difficult quarter financially," said Canfor President and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. Jim Shepherd Shepherd Corin the faithful shepherdess; called “the Virgin of the Grove.” [Br. Lit.: “The Faithful Shepherdess” in Brewer Handbook, 234] Daphnis guards sheep; creator of bucolic poetry. [Gk. Myth. , "However we'll we'll Contraction of we will. we'll we will or we shall we'll will ~shall weather difficult markets through continued operational improvements, benefits from recent investments in our mills and the Company's strong financial condition. I am looking forward to our Peace Valley OSB joint venture starting up next month and to a stronger operational performance from our panel business. Results at our pulp mills A pulp mill is a manufacturing facility that converts wood chips or other plant fiber source into a thick fiber board which can be shipped to a paper mill for further processing. are expected to improve, with lower fibre and energy costs combined with relatively stronger pulp prices anticipated in the fourth quarter," said Shepherd. Canfor has entered into an agreement with the Province of British Columbia with respect to the timber take-back resulting from the government's Forestry forestry, the management of forest lands for wood, water, wildlife, forage, and recreation. Because the major economic importance of the forest lies in wood and wood products, forestry has been chiefly concerned with timber management, especially reforestation, Revitalization re·vi·tal·ize tr.v. re·vi·tal·ized, re·vi·tal·iz·ing, re·vi·tal·iz·es To impart new life or vigor to: plans to revitalize inner-city neighborhoods; tried to revitalize a flagging economy. Plan. Canfor will receive $62.0 million from the Province in compensation for the loss of approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. 2.4 million cubic metres Noun 1. cubic metre - a metric unit of volume or capacity equal to 1000 liters cubic meter, kiloliter, kilolitre metric capacity unit - a capacity unit defined in metric terms of its replaceable forest tenures, including a $5.0 million advance payment against lost infrastructure and road construction costs. Canfor is continuing discussions with the Province for further compensation for infrastructure, but the amount and timing of additional compensation is not yet determinable Liable to come to an end upon the happening of a certain contingency. Susceptible of being determined, found out, definitely decided upon, or settled. determinable adj. . In anticipation The performance of an act or obligation before it is legally due. In patent law, the publication of the existence of an invention that has already been patented or has a patent pending, of the agreement being finalized See finalization. in October October: see month. , Canfor recorded an $8.9 million write-down of its timber licenses in the third quarter, as referred to above. During the third quarter, the Company purchased one million of its common shares for cancellation cancellation (See: cancel) CANCELLATION. Its general acceptation, is the act of crossing a writing; it is used sometimes to signify the manual operation of tearing or destroying the instrument itself. Hyde v. Hyde, 1 Eq. Cas. Abr. 409; Rob. under a normal course issuer bid, at an average price of $13.84 per share. The normal course issuer bid expired ex·pire v. ex·pired, ex·pir·ing, ex·pires v.intr. 1. To come to an end; terminate: My membership in the club has expired. 2. on October 14, 2005. Subject to regulatory reg·u·late tr.v. reg·u·lat·ed, reg·u·lat·ing, reg·u·lates 1. To control or direct according to rule, principle, or law. 2. approval, Canfor intends to make another normal course issuer bid to purchase for cancellation up to 7,125,519 Common Shares, or 5% of the 142,510,396 Shares outstanding on October 28, 2005, at prevailing market prices in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with the rules of the Toronto Stock Exchange Toronto Stock Exchange (TSE) Canada's largest stock exchange, trading approximately 1,200 company stocks and 33 options. . The normal course issuer bid will commence once regulatory approval is received and will continue for one year, unless completed or terminated ter·mi·nate v. ter·mi·nat·ed, ter·mi·nat·ing, ter·mi·nates v.tr. 1. To bring to an end or halt: earlier. Canfor believes the normal course issuer bid is in the best interests of the Company. Purchases of Common Shares made under the bid will be effected through the facilities of the Toronto Stock Exchange. Conference Call A conference call to discuss the third quarter financial and operating results will be held Monday Monday: see week. , October 31, 2005 at 8:00 am Pacific (11:00 am Eastern). To participate in the call, please dial 604-678-9375 (Vancouver) or 1-866-898-9626 (Toll-Free North America North America, third largest continent (1990 est. pop. 365,000,000), c.9,400,000 sq mi (24,346,000 sq km), the northern of the two continents of the Western Hemisphere. ). The call will be web cast live and will be available at www.canfor.com. Canfor Corporation is a leading Canadian Canadian (kənā`dēən), river, 906 mi (1,458 km) long, rising in NE New Mexico. and flowing E across N Texas and central Oklahoma into the Arkansas River in E Oklahoma. integrated forest products company based in Vancouver, British Columbia. The Company is the largest producer of softwood softwood Timber obtained from coniferous trees (mainly of the pine and fir families). With the exception of bald cypress, tamarack, and larch, softwood trees are evergreens. lumber and one of the largest producers of northern softwood kraft pulp in Canada Canada (kăn`ədə), independent nation (2001 pop. 30,007,094), 3,851,787 sq mi (9,976,128 sq km), N North America. Canada occupies all of North America N of the United States (and E of Alaska) except for Greenland and the French islands of . Canfor also produces kraft paper, plywood, remanufactured lumber products, oriented strand board Oriented strand board, or OSB, or waferboard, or Sterling board (UK), is an engineered wood product formed by layering strands (flakes) of wood in specific orientations. (OSB), hardboard hardboard: see composition board. paneling and a range of specialized spe·cial·ize v. spe·cial·ized, spe·cial·iz·ing, spe·cial·iz·es v.intr. 1. To pursue a special activity, occupation, or field of study. 2. wood products, including baled fibre and fibre mat at 29 facilities located in British Columbia, Alberta Alberta (ălbûr`tə), province (2001 pop. 2,974,807), 255,285 sq mi (661,188 sq km), including 6,485 sq mi (16,796 sq km) of water surface, W Canada. , Quebec Quebec, city, Canada Quebec, Fr. Québec, city (1991 pop. 167,517), provincial capital, S Que., Canada, at the confluence of the St. Lawrence and St. Charles rivers. and Washington Washington, town, England Washington, town (1991 pop. 48,856), Sunderland metropolitan district, NE England. Washington was designated one of the new towns in 1964 to alleviate overpopulation in the Tyneside-Wearside area. State. Forward Looking Statements This news release contains statements that are forward-looking for·ward-look·ing adj. Concerned with or making provision for the future: forward-looking educators; a forward-looking corporate plan. Adj. 1. in nature. Some of these forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. can be identified by the use of terminology The terminology used in the computer and telecommunications field adds tremendous confusion not only for the lay person, but for the technicians themselves. What many do not realize is that terms are made up by anybody and everybody in a nonchalant, casual manner without any regard or such as "estimates", "plans", "expects", "anticipates", "approximately" and "projections". The accuracy of such statements is subject to a number of risks, uncertainties and assumptions that may cause actual results to differ materially from those expressed or implied Inferred from circumstances; known indirectly. In its legal application, the term implied is used in contrast with express, where the intention regarding the subject matter is explicitly and directly indicated. . Canfor Corporation Third Quarter 2005 - Report to Shareholders Management's Discussion and Analysis This interim Management's Discussion and Analysis Management's discussion and analysis (MD&A) A report from management to shareholders that accompanies the firm's financial statements in the annual report. It explains the period's financial results and enables management to discuss topics that may not be apparent in the financial (MD&A) provides a review of the significant developments that have impacted Canfor's performance during the third quarter of 2005 relative to the previous quarter and the last published annual results as at December December: see month. 31, 2004 and relative to the comparative quarter in 2004. This MD&A should be read in conjunction conjunction, in astronomy conjunction, in astronomy, alignment of two celestial bodies as seen from the earth. Conjunction of the moon and the planets is often determined by reference to the sun. with the interim consolidated financial statements Consolidated Financial Statements The combined financial statements of a parent company and its subsidiaries. Notes: Because consolidated financial statements present an aggregated look at the financial position of a parent and its subsidiaries, they enable you to gauge and accompanying ac·com·pa·ny v. ac·com·pa·nied, ac·com·pa·ny·ing, ac·com·pa·nies v.tr. 1. To be or go with as a companion. 2. notes as well as the annual MD&A and audited consolidated financial statements and notes, which are included in Canfor's Annual Report for the year ended December 31, 2004 (available at www.canfor.com). Factors that could impact future operations are also discussed. These factors may be influenced by known and unknown risks and uncertainties that could cause the actual results to be materially different from those stated in this discussion. Factors that could have a material impact on any future oriented o·ri·ent n. 1. Orient The countries of Asia, especially of eastern Asia. 2. a. The luster characteristic of a pearl of high quality. b. A pearl having exceptional luster. 3. statements made herein include, but are not limited to: general economic, market and business conditions; product selling prices; raw material and operating costs operating costs npl → gastos mpl operacionales ; foreign exchange rates; changes in law and public policy; rulings on countervailing and anti-dumping duties; and opportunities available to or pursued by Canfor. Throughout this discussion, reference is made to EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become (operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. before amortization), which Canfor considers to be an important indicator Indicator Anything used to predict future financial or economic trends. Notes: In the context of technical analysis, an indicator is a mathematical calculation based on a securities price and/or volume. The result is used to predict future prices. for identifying trends in the performance of each operating segment and of the Company's ability to generate funds to meet its debt repayment Repayment The act of paying back a debt. Notes: Everyone has to repay their debts eventually. See also: Debt, Defeasance, Loan and capital expenditure requirements. EBITDA is not a generally accepted earnings measure and should not be considered as an alternative to net income or cash flows as determined in accordance with Canadian generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting . As there is no standardized standardized pertaining to data that have been submitted to standardization procedures. standardized morbidity rate see morbidity rate. standardized mortality rate see mortality rate. method of calculating EBITDA, Canfor's use of the term may not be directly comparable with similarly titled measures used by other companies. The information in this report is as at October 28, 2005. All financial references are in millions of Canadian dollars unless otherwise noted.
SUMMARIZED RESULTS (1)(2)
(millions of
dollars, except
for per Q3 Q2 YTD Q3 YTD
share amounts) 2005 2005 2005 2004 2004
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Sales $ 941.9 $ 1,067.4 $ 2,975.2 $ 1,130.8 $ 2,956.5
Countervailing
& anti-dumping
duties
expensed $ 58.5 $ 67.5 $ 184.9 $ 73.8 $ 204.9
EBITDA $ 26.4 $ 105.0 $ 268.6 $ 242.5 $ 581.1
Operating
income (loss) $ (10.8) $ 67.1 $ 151.9 $ 203.2 $ 476.6
Foreign
exchange gain
(loss) on
long-term
debt $ 30.0 $ (11.7) $ 14.7 $ 40.5 $ 12.6
Net income from
continuing
operations,
after tax $ 17.4 $ 28.9 $ 109.0 $ 191.4 $ 354.7
Net income
(loss) from
discontinued
operations $ - $ (3.6) $ (0.7) $ 8.6 $ 17.8
Net income $ 17.4 $ 25.3 $ 108.3 $ 200.0 $ 372.5
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Per share,
diluted
Net income from
continuing
operations $ 0.12 $ 0.20 $ 0.76 $ 1.34 $ 2.83
Net income $ 0.12 $ 0.18 $ 0.75 $ 1.40 $ 2.97
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Average
Canadian/US
exchange
rate(3) $ 0.832 $ 0.804 $ 0.817 $ 0.765 $ 0.753
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(1) Prior year comparative figures quoted in this report reflect the
results of the former Slocan operations since April 1, 2004.
(2) Prior period figures have been restated throughout this report
to reflect the discontinued operations treatment of the Fort St
James, Slocan and Valemount operations, as discussed later in
this report.
(3) Source - Bank of Canada (average noon rate for the period)
Operating results in the third quarter were negatively impacted by the continuing decline in product prices and the strengthening of the Canadian dollar. Market prices for all of the major product lines except plywood were lower than in the previous quarter. Benchmark prices for 2x4 lumber decreased by 10%, OSB by 5% and pulp by 4%. The decline compared to the third quarter of 2004 was even more significant, with lumber prices decreasing by 26%, OSB by 18%, plywood by 34% and pulp by 8%. The impact of the lower US dollar denominated prices on the operating results was compounded by the strengthening of the Canadian dollar, which averaged nearly 4% stronger in the current quarter than in the second quarter and nearly 9% stronger than in the third quarter of 2004. The impact on Canfor's results of a change in chip prices, as discussed in the Lumber and Pulp and Paper segments, below, is a net negative for the quarter of $6.0 million. However, Canfor will be a net beneficiary beneficiary Person or entity (e.g., a charity or estate) that receives a benefit from something (e.g., a trust, life-insurance policy, or contract). A primary beneficiary receives proceeds from a trust or insurance policy before any other. in future periods as the lower priced chips flow through inventories. Several one-time adjustments were recorded in the current quarter, as noted below, which affect comparability with prior periods. (millions of dollars, after tax) ------------------------------------------------------------- Foreign exchange gain on long-term debt $ 24.7 Impact of 1.5% reduction in BC corporate tax rate 21.0 Write-down of timber licenses (8.9) Other tax adjustments (change in estimate of available capital losses, reassessment of prior years) (7.7) Provision for Tackama sawmill closure costs (2.5) ------------------------------------------------------------- Favourable impact on net income $ 26.6 ------------------------------------------------------------- ------------------------------------------------------------- Favourable impact on earnings per share $ 0.19 ------------------------------------------------------------- ------------------------------------------------------------- The second quarter results included an $11.7 million exchange loss on long-term debt, a $4.0 million loss on disposal of discontinued operations Discontinued operations Divisions of a business that have been sold or written off and that no longer are maintained by the business. and restructuring restructuring - The transformation from one representation form to another at the same relative abstraction level, while preserving the subject system's external behaviour (functionality and semantics). costs of $2.5 million. The third quarter 2004 results included a $38.3 million exchange gain on long-term debt and a $7.8 million favourable adjustment to a prior period's anti-dumping duty expense. (All of the preceding figures are after tax.)
OPERATING RESULTS BY BUSINESS SEGMENT
Lumber(4)
(millions of
dollars unless Q3 Q2 YTD Q3 YTD
otherwise noted) 2005 2005 2005 2004 2004
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Sales $ 601.3 $ 704.9 $ 1,947.4 $ 760.7 $ 1,861.8
EBITDA $ 22.1 $ 87.5 $ 210.9 $ 196.6 $ 421.3
EBITDA margin 4% 12% 11% 26% 23%
Operating
income $ 1.2 $ 67.4 $ 144.6 $ 174.4 $ 365.8
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Average 2x4 #2
& Better lumber
price -
US $(5) $ 327 $ 365 $ 362 $ 440 $ 415
Average price
in Cdn $ $ 392 $ 454 $ 443 $ 575 $ 549
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Production -
lumber (MMfbm) 1,058.2 1,179.1 3,390.8 1,060.2 2,917.7
Shipments -
Canfor-produced
lumber (MMfbm) 1,174.3 1,253.8 3,516.3 1,099.0 2,950.4
Shipments -
wholesale
lumber (MMfbm) 114.4 102.0 293.0 72.5 221.2
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(4) Excludes discontinued operations
(5) Per thousand board feet (Source - Random Lengths Publications,
Inc.)
Operating income was $1.2 million in the quarter, compared to $67.4 million in the second quarter and $174.4 million in the third quarter of 2004. Lower US dollar prices and the impact of the strengthened Canadian dollar were the main factors in the decrease in operating income. The current period's results also include a $3.0 million mill closure provision following the permanent closure of the Tackama sawmill sawmill, installation or facility in which cut logs are sawed into standard-sized boards and timbers. The saws used in such an installation are generally of three types: the circular saw, which consists of a disk with teeth around its edge; the band saw, which in September September: see month. . The implementation of lower chip market-based pricing, effective July July: see month. 1, 2005, resulted in chip income being approximately $13.0 million lower than in the previous quarter. Operations Production decreased by 10% from the second quarter, mainly because of maintenance shutdowns at several three-shift operations, curtailments at specific locations to balance inventories, the permanent closure of the Hines Hines , Earl Known as "Fatha." 1905-1983. American musician. A prominent jazz pianist for 50 years, he first gained wide recognition for his recordings with Louis Armstrong in the 1920s. Creek and Tackama sawmills and a 10-day shutdown shut·down n. A cessation of operations or activity, as at a factory. shutdown Noun the closing of a factory, shop, or other business Verb shut down for capital installations at the Plateau sawmill. As a result, lumber inventories were reduced by over 90 million board feet in the quarter. Cash conversion costs on a unit basis were 6% higher than in the prior quarter due to higher spending and the reduced production. Log costs decreased by 3% during the period, mainly due to increased harvesting har·vest n. 1. The act or process of gathering a crop. 2. a. The crop that ripens or is gathered in a season. b. The amount or measure of the crop gathered in a season. c. of lower grade logs. Lumber recovery continues to be a focus for the group and improved by 1% quarter over quarter, as quality and optimization optimization Field of applied mathematics whose principles and methods are used to solve quantitative problems in disciplines including physics, biology, engineering, and economics. best practices continue to be implemented throughout the operations. Markets and Outlook - see below, following Panels section
Panels
(millions of
dollars unless
otherwise Q3 Q2 YTD Q3 YTD
noted) 2005 2005 2005 2004 2004
--------------------------------------------------------------------
Sales $ 95.4 $ 89.8 $ 279.6 $ 109.0 $ 277.2
EBITDA $ 3.7 $ 11.8 $ 36.1 $ 38.5 $ 106.9
EBITDA margin 4% 13% 13% 35% 39%
Operating
income $ 1.3 $ 9.0 $ 28.1 $ 35.9 $ 101.1
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Average plywood
price in
Cdn $(6) $ 362 $ 361 $ 387 $ 548 $ 556
Average OSB
price in
US $(7) $ 291 $ 305 $ 320 $ 353 $ 406
Average OSB
price in
Cdn $ $ 350 $ 379 $ 392 $ 461 $ 539
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Production -
plywood (MMsf
3/8") 104.2 110.9 323.4 98.6 251.7
Production -
OSB (MMsf 3/8") 129.8 114.9 365.3 126.4 252.2
Shipments -
plywood (MMsf
3/8") 124.3 107.1 337.4 95.8 247.3
Shipments - OSB
(MMsf 3/8") 131.7 117.1 351.3 120.5 253.1
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(6) Per Msf 3/8" basis, delivered to Toronto (Source - C.C. Crowe
Publications, Inc.)
(7) Per Msf 7/16" North Central (Source - Random Lengths
Publications, Inc.)
Operating income of $1.3 million in the quarter was $7.7 million lower than in the previous quarter and $34.6 million lower than in the same period last year, primarily as a result of lower prices and the impact of the stronger Canadian dollar. A $2.2 million write-down of equipment replaced in the recent OSB capacity upgrade project also negatively impacted the current period's results. Operations Plywood production was 6% lower than in the previous quarter, mainly as a result of a 9-day maintenance shutdown at the Tackama plant, which was taken in order to improve reliability and uptime The time during which a system is working without failure. Contrast with downtime. See availability. measures. The lower production impacted conversion costs, which were 1% higher than in the previous quarter. OSB production was 13% higher than in the second quarter, as a result of increased daily production following the capital equipment upgrades made earlier in the year. Conversion costs were 5% higher in the quarter, mainly due to higher maintenance expenditures. The new OSB joint venture in Fort St John is expected to begin production in November. Markets - Lumber and Panels The third quarter of 2005 was marked by the devastating dev·as·tate tr.v. dev·as·tat·ed, dev·as·tat·ing, dev·as·tates 1. To lay waste; destroy. 2. To overwhelm; confound; stun: was devastated by the rude remark. hurricanes around the Gulf Coast of the United States The Gulf Coast region of the United States comprises the coasts of states which border the Gulf of Mexico. The states of Texas, Louisiana, Mississippi, Alabama, and Florida are known as the Gulf States. All Gulf States are located in the Southern region of the United States. . As a result, there was an immediate demand for lumber and panels used in the construction of temporary shelters in the Gulf area. Field inventories were very low prior to the hurricanes and, combined with the destruction of southern yellow pine forests Pine forest may refer to:
(2) (Sender Policy Framework) An e-mail authentication system that verifies that the message came from an authorized mail server. 2x4 #2 & Better prices in September. In August, prices had fallen to their lowest level this year, but increased to US $355 per thousand board feet in September and averaged US $327 during the quarter. However, this quarterly average was still 10% lower than the previous quarter and 26% lower than in the third quarter of 2004. Offshore shipments for the quarter were hampered by the independent container truckers' strike, which started at the end of June June: see month. and lasted for six weeks. The strike halted all container deliveries to and from all Vancouver ports. Alternative modes of transportation, such as break-bulk break-bulk adj. Having, being, or related to shipments of goods packed in small, separable units. shipping and redirecting shipments through the Port of Seattle The Port of Seattle is a port district that runs Seattle's seaport and airport. Its creation was approved by the voters of King County, Washington, on September 5, 1911. It is run by a five-member commission. The commissioners' terms run four years. , were implemented to minimize In a graphical environment, to hide an application that is currently displayed on screen. For example, in Windows and Mac, the application's window is removed from the screen and represented by an icon on the Windows Taskbar. In the Mac, the icon is placed in the Dock. See Win Minimize windows. the interruption INTERRUPTION. The effect of some act or circumstance which stops the course of a prescription or act of limitation's. 2. Interruption of the use of a thing is natural or civil. to offshore markets. The impact of the hurricanes on the North American North American named after North America. North American blastomycosis see North American blastomycosis. North American cattle tick see boophilusannulatus. panel market was even more pronounced than on the lumber market. The increase in demand for panel products before and after the storms helped reverse the recent downward trend in prices. The average price for Canadian softwood plywood delivered to Toronto Toronto (tərŏn`tō), city (1998 est pop. 2,400,000), provincial capital, S Ont., Canada, on Lake Ontario. Toronto is the largest city in Canada and since the 1970s has been one of the fastest-changing cities in North America, experiencing was Cdn $362 per Msf 3/8" for the quarter, which was a 34% decrease from the same quarter last year. The average OSB price of US $291 per Msf 7/16" North Central was 18% lower than a year ago. Outlook - Lumber and Panel Markets In the aftermath AFTERMATH. A right to have the last crop of grass or pasturage. 1 Chit. Pr. 181. of the hurricanes in the US Gulf region, large-scale large-scale adj. 1. Large in scope or extent. 2. Drawn or made large to show detail. large-scale Adjective 1. wide-ranging or extensive 2. housing reconstruction Reconstruction, 1865–77, in U.S. history, the period of readjustment following the Civil War. At the end of the Civil War, the defeated South was a ruined land. efforts will be required in the long term and are expected to take place over the next few years. Although typical seasonal declines in demand for both lumber and panel products are expected to result in lower prices in the fourth quarter, it is anticipated that stronger hurricane-related repair and remodeling remodeling /re·mod·el·ing/ (re-mod´el-ing) reorganization or renovation of an old structure. bone remodeling activity will partially offset these declines. Pulp and Paper (millions of dollars unless otherwise Q3 Q2 YTD Q3 YTD noted) 2005 2005 2005 2004 2004 -------------------------------------------------------------------- Sales $ 233.0 $ 244.2 $ 701.1 $ 248.7 $ 742.7 EBITDA $ 9.9 $ 8.3 $ 39.5 $ 17.5 $ 87.8 EBITDA margin 4% 3% 6% 7% 12% Operating income (loss) $ (2.1) $ (2.5) $ 5.4 $ 6.3 $ 55.2 -------------------------------------------------------------------- Average pulp price - US $(8) $ 588 $ 613 $ 614 $ 637 $ 627 Average price in Cdn $ $ 706 $ 763 $ 752 $ 833 $ 833 -------------------------------------------------------------------- Production - pulp (000 mt) 298.8 286.0 884.4 286.7 833.2 Production - paper (000 mt) 31.7 30.8 95.9 34.7 102.2 Shipments - Canfor-produced pulp (000 mt) 309.6 299.0 876.7 275.2 801.4 Marketed on behalf of HSLP (9) (000 mt) 90.9 102.5 275.5 85.4 248.9 Shipments - paper (000 mt) 31.1 33.0 96.6 34.1 108.8 -------------------------------------------------------------------- -------------------------------------------------------------------- (8) Per tonne, delivered to Northern Europe (9) Howe Sound Pulp and Paper Limited Partnership Operating income improved by $0.4 million over the previous quarter, but was $8.4 million lower than the same period in 2004. Higher pulp shipments and lower chip costs had a favourable impact in the current period, but these factors were offset by lower US dollar pulp prices and the impact of the stronger Canadian dollar. Operations Pulp production volume was 4% higher than in the previous quarter, mainly due to the Northwood The first Pentium 4 chips to use the 130 nanometer (0.13 micron) process technology. Introduced in 2002 with clock speeds from 2.0 to 2.2 GHz, model designations depend on the speed of the frontside bus. See Pentium 4. mill taking a 14.5 day maintenance shutdown in the second quarter. In the current quarter there were 4.5 days of downtime The time during which a computer is not functioning due to hardware, operating system or application program failure. , as the Intercontinental in·ter·con·ti·nen·tal adj. 1. Extending or taking place between or among continents: intercontinental exploration; intercontinental cooperation. 2. mill began its major maintenance shutdown in the last week of September. The shutdown was completed on time and on budget, with total downtime of 8.0 days, including 3.5 days in October. The Prince George Prince George, city (1991 pop. 69,653), central British Columbia, Canada, at the confluence of the Fraser and Nechako rivers. It is a railroad division point and a distribution center for a lumber region. pulp and paper mill also took a mini See minicomputer. maintenance shutdown in the first week of October, with the pulp line down for 7.5 days and the paper line down for 4.2 days. No other maintenance shutdowns are planned for 2005. Conversion costs were 7% lower than in the previous quarter, mainly due to the higher productivity. Despite price increases for natural gas and hog fuel, total energy costs were $1.3 million lower than in the previous quarter as a result of more energy being generated internally at the new co-generation facility. The turbo generator A turbo generator is a turbine directly connected to an electric generator for the generation of electric power. Large Steam powered turbo generators (steam turbine generators) provide the majority of the world's electricity and are also used by steam powered, turbo-electric ships. averaged 881 megawatt meg·a·watt n. Abbr. MW One million watts. meg  a·watt hours of electricity per day in the quarter,
which is 92% of the current target. The final target, after the second
precipitator pre·cip·i·tate v. pre·cip·i·tat·ed, pre·cip·i·tat·ing, pre·cip·i·tates v.tr. 1. To throw from or as if from a great height; hurl downward: is installed in February February: see month. 2006, is 1,232 megawatt hours per day. Fibre costs were also significantly lower in the period as a result of the new chip pricing formula, discussed in the Lumber segment above, which had a favourable impact of approximately $7.0 million on the Pulp and Paper segment's results in the quarter. Markets At the beginning of the third quarter, the chemical market pulp industry had 33 days of supply in inventory, having completed the second quarter with a shipments to capacity ratio of 94%. Softwood stocks, Canfor's key grade, stood at only 32 days of supply at the beginning of July. However, the western Canadian industry was severely hampered in July by the six-week long container truck drivers' strike at the Port of Vancouver, which curtailed shipments to markets that are served by container ships, such as China. By the end of the quarter, after experiencing strong shipments in September, inventories held by producers had returned to 33 days of supply, and to only 31 days of supply for softwood producers. Despite a softening softening /sof·ten·ing/ (sof´en-ing) malacia. softening a change of consistency, with loss of firmness or hardness. in the printing and writing segment of the market, Canfor's pulp shipment volumes were strong through the summer. Printing and writing paper demand fell off by 3.6% in July compared to the same month in 2004 and was 0.7% down on a year-to-date Year-to-date (YTD) The period beginning at the start of the calendar year up to the current date. basis. The decrease in demand was most pronounced in North America, where demand was down 8.1% year over year and 1.6% for the year to date. These results were likely impacted by the pulp and paper industry The global pulp and paper industry is dominated by North American (United States, Canada), northern European (Finland, Sweden) and East Asian countries (such as Japan). Australasia and Latin America also have significant pulp and paper industries. strike in Finland Finland, Finnish Suomi (swô`mē), officially Republic of Finland, republic (2005 est. pop. 5,223,000), 130,119 sq mi (337,009 sq km), N Europe. , but, nonetheless, indicate a softening in the key end-user (job) end-user - The person who uses a computer application, as opposed to those who developed or support it. The end-user may or may not know anything about computers, how they work, or what to do if something goes wrong. market. Outlook The fourth quarter is normally a strong period for the pulp industry. Paper is produced for use in catalogues, brochures and inserts in advance of the holiday season, which drives up demand for market pulp. At the end of the second quarter, pricing for softwood kraft woodpulp sold into Northwest For names and places containing the slightly longer word 'northwestern' (or variants), see . Northwest or north west is the ordinal direction halfway between north and west on a compass. It is the opposite of southeast. Europe Europe (y  r`əp), 6th largest continent, c.4,000,000 sq mi (10,360,000 sq km) including adjacent islands (1992 est. pop. 512,000,000). , a key market for Canfor, had been
US $610 per metric tonne tonnemeasure of weight or mass; 1 tonne=1000 kg. See also ton. . However, because of continued destocking in some markets in the early part of the summer, and excess pulp from several supply regions of the world, competition had driven pricing down to US $585 by the end of September. Canfor has advised customers of its intent to raise prices in all market areas in October, specifically, to US $620 in Northwest Europe. Coastal Operations (millions of dollars unless otherwise Q3 Q2 YTD Q3 YTD noted) 2005 2005 2005 2004 2004 -------------------------------------------------------------------- Sales $ 12.2 $ 28.5 $ 47.1 $ 12.4 $ 74.8 EBITDA $ (4.9) $ 3.5 $ (1.7) $ (1.7) $ 6.9 EBITDA margin (40)% 12% (4)% (14)% 9% Operating income (loss) $ (5.0) $ 1.1 $ (5.2) $ (2.8) $ 2.4 -------------------------------------------------------------------- Production - 000 m3 13.6 451.3 578.7 211.2 888.7 Shipments - 000 m3 190.6 330.3 612.8 119.4 788.4 -------------------------------------------------------------------- -------------------------------------------------------------------- The Coastal Operations segment had an operating loss operating loss The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. of $5.0 million in the quarter. Shipment volumes were down by 42% from the previous quarter, but were 60% higher than the same time last year. Prices were significantly weaker in the current period, averaging 26% lower than in the second quarter and 39% lower than in the third quarter of 2004. Market conditions have continued to be negatively impacted by oversupply o·ver·sup·ply n. pl. o·ver·sup·plies A supply in excess of what is appropriate or required. tr.v. o·ver·sup·plied, o·ver·sup·ply·ing, o·ver·sup·plies , soft demand and historically low prices for coastal logs. In response to these weak market conditions, and to reduce inventories to target levels, Canfor's logging operations were curtailed throughout the third quarter. Logging resumed in October and is expected to continue through November before the usual seasonal shutdown in December. Non-Segmented Items (millions of Q3 Q2 YTD Q3 YTD dollars) 2005 2005 2005 2004 2004 -------------------------------------------------------------------- Corporate costs $ (6.2) $ (7.9) $ (21.0) $ (10.6) $ (47.9) Equity income of affiliated companies $ - $ 2.4 $ 4.0 $ 4.9 $ 9.0 Net interest expense $ (10.0) $ (11.1) $ (32.9) $ (14.4) $ (47.2) Foreign exchange gain (loss) on long-term debt $ 30.0 $ (11.7) $ 14.7 $ 40.5 $ 12.6 Other income (expense) $ 1.3 $ (0.2) $ 0.9 $ (0.8) $ (0.1) Unusual expense $ (11.1) $ - $ (11.1) $ - $ - -------------------------------------------------------------------- -------------------------------------------------------------------- Corporate costs were $1.7 million lower than in the previous quarter and $4.4 million lower than in the third quarter of 2004, primarily as a result of lower association dues, legal fees and forestry and environmental costs. Equity income for the quarter was nil, $2.4 million lower than in the previous quarter and $4.9 million lower than in the third quarter of 2004. Canfor's equity investees were affected by similar price declines in the third quarter as was Canfor's lumber segment. Net interest expense was $1.1 million lower than in the previous quarter and $4.4 million lower than in the same quarter of 2004. Interest on long-term debt was significantly lower than in the same period last year as a result of long-term debt reductions, the stronger Canadian dollar and, in accordance with Canadian accounting requirements, the restatement Restatement A revision in a company's earlier financial statements. Notes: The need for restating financial figures can result from fraud, misrepresentation, or a simple clerical error. of the third quarter 2004 expense to include $2.4 million of interest on the convertible debentures Convertible Debenture Any type of debenture that can be converted into some other security. Notes: For example, a convertible bond can be converted into stock. (see "Changes in Accounting Policies", below). Unusual expense In March 2003, the Government of British Columbia (the Crown) introduced the Forestry Revitalization Plan (the Plan) that provides for significant changes to Crown forest policy and to the existing allocation The apportionment or designation of an item for a specific purpose or to a particular place. In the law of trusts, the allocation of cash dividends earned by a stock that makes up the principal of a trust for a beneficiary usually means that the dividends will be treated as of Crown timber tenures to licensees. The changes prescribed pre·scribe v. pre·scribed, pre·scrib·ing, pre·scribes v.tr. 1. To set down as a rule or guide; enjoin. See Synonyms at dictate. 2. To order the use of (a medicine or other treatment). in the Plan include the elimination of minimum cut control regulations, the elimination of existing timber processing regulations, and the elimination of restrictions limiting the transfer and subdivision of existing licenses. Through legislation, licensees are required to return 20% of their replaceable tenure tenure, in education tenure, in education, a guarantee of the permanence of a college or university teacher's position, awarded upon successful completion of a probationary period, usually seven years. to the Crown. The Plan states that approximately half of this volume will be redistributed re·dis·trib·ute tr.v. re·dis·trib·ut·ed, re·dis·trib·ut·ing, re·dis·trib·utes To distribute again in a different way; reallocate. Adj. 1. to open up opportunities for woodlots, community forests and First Nations and the other half will be available for public auction. Licensees will be compensated compensated /com·pen·sat·ed/ (kom´pen-sa?tid) counterbalanced; offset. by the Crown for the return of tenure and related infrastructure costs such as roads and bridges. The effect of the timber take-back results in a reduction of approximately 2.4 million cubic metres to Canfor's existing allowable annual cut on its replaceable tenures. While the legislation taking back the 20% was passed in March 2003, the government has not yet reduced the allowable harvest (tool, networking) Harvest - A highly scalable, customisable system for discovering resources on the Internet. Version: 1.3. http://tardis.ed.ac.uk/harvest/. levels. Canfor has worked with the government to identify those licenses and operating areas that are to be returned to the Crown and this allocation was determined in December 2004. The second phase of the take-back is a negotiation with the government concerning the "on-the-ground" sites or operating areas to be taken back. The site selection process is complete for Canfor on the coast and in the northeastern north·east n. 1. Abbr. NE The direction or point on the mariner's compass halfway between due north and due east, or 45° east of due north. 2. An area or region lying in the northeast. 3. portion of the province but continues in the central interior. The third phase is associated with compensation, concerning which Canfor is engaged in discussions with the Minister. The completion of negotiations with respect to site selection and compensation is expected to occur in the fourth quarter of 2005. Based on management's estimate of the amount of compensation likely to be received in the fourth quarter, the associated timber licenses have been written down to their estimated fair value at September 30, 2005, resulting in the recognition of an $11.1 million pre-tax pre-tax adj → anterior al impuesto pre-tax adj → avant impôt(s) pre-tax adj → al lordo d'imposta loss in the current period. Discontinued Operations During the second quarter, Canfor completed the sale of its Fort St James James, person in the Bible James, in the Gospel of St. Luke, kinsman of St. Jude. The original does not specify the relationship. James, rivers, United States James. , Slocan and Valemount sawmills in British Columbia for total cash proceeds of $59.0 million. A net after-tax loss of $4.0 million was recorded on the dispositions in that quarter, and was largely offset by the income from these operations up to the disposal dates. The sale of the Fort St James mill and associated harvesting rights was directed by the federal Commissioner of Competition as a condition to Canfor's acquisition of Slocan Forest Products Ltd. on April 1, 2004. The decision to sell the Slocan and Valemount sawmills was made as part of a process to focus the company's manufacturing assets around certain product lines and fibre baskets. Canfor has retained the right to any refund TO REFUND. To pay back by the party who has received it, to the party who has paid it, money which ought not to have been paid. 2. On a deficiency of assets, executors and administrators cum testamento annexo, are entitled to have refunded to them legacies of countervailing and anti-dumping duties paid prior to the dispositions. Lumber shipments from discontinued operations in 2005 totaled 120.5 million board feet(10) up to the date of disposition Act of disposing; transferring to the care or possession of another. The parting with, alienation of, or giving up of property. The final settlement of a matter and, with reference to decisions announced by a court, a judge's ruling is commonly referred to as disposition, regardless of of the mills in the second quarter. In 2004, lumber shipments from discontinued operations totaled 105.9 million board feet in the third quarter and 279.9 million board feet for the year to date period.
SUMMARY OF FINANCIAL POSITION
The following table summarizes Canfor's financial position as at the
end of the following periods:
(millions of Q3 Q2 YTD Q3 YTD
dollars) 2005 2005 2005 2004 2004
--------------------------------------------------------------------
Ratio of
current assets
to current
liabilities(11) 2.6 : 1 2.4 : 1
Ratio of net
debt to common
shareholders'
equity(12) 14 : 86 23 : 77
Increase
(decrease) in
net cash(11) $ (82.1) $ 98.9 $ (128.5) $ 165.7 $ 485.6
- comprised of
cash flow from
(used in):
Operating
activities $ 54.1 $ 129.8 $ 159.6 $ 229.2 $ 526.0
Financing
activities $ (55.8) $ (14.3) $ (68.2) $ (40.9) $ 49.3
Investing
activities $ (80.4) $ (18.8) $ (218.5) $ (49.6) $ (131.0)
Discontinued
operations $ - $ 2.2 $ (1.4) $ 27.0 $ 41.3
--------------------------------------------------------------------
--------------------------------------------------------------------
(10) These volumes are excluded from the shipment volumes quoted
elsewhere in this report.
(11) 2004 comparative figures have been restated to present cash net
of unpresented cheques.
(12) 2004 comparative figures have been restated to present the
convertible subordinated debentures as liabilities.
Changes in Financial Position Cash flow generated by operating activities was $54.1 million in the third quarter, which is $75.7 million less than in the previous quarter and $175.1 million lower than in the third quarter of 2004. The decrease in cash flow from operations Cash flow from operations A firm's net cash inflow resulting directly from its regular operations (disregarding extraordinary items such as the sale of fixed assets or transaction costs associated with issuing securities), calculated as the sum of net income plus noncash expenses is attributable attributable emanating from or pertaining to attribute. attributable proportion see attributable risk (below). attributable risk to the lower earnings in the current period, as a result of lower product prices and a less favourable exchange rate, as discussed earlier in this report. The impact of the lower earnings was partially offset by a $38.1 million reduction in inventories in the quarter. Cash used in financing activities of $55.8 million in the current quarter was comprised of $42.0 million of scheduled long-term debt repayments and $13.8 million for the purchase of one million of the Company's common shares for cancellation. Long-term debt payments of $14.3 million were made in the second quarter of 2005 and $41.6 million in the third quarter of 2004. Investing activities consumed con·sume v. con·sumed, con·sum·ing, con·sumes v.tr. 1. To take in as food; eat or drink up. See Synonyms at eat. 2. a. $80.4 million of cash in the current quarter. Capital expenditures of $84.7 million in the quarter included $34.8 million for the Plateau mill modernization modernization Transformation of a society from a rural and agrarian condition to a secular, urban, and industrial one. It is closely linked with industrialization. As societies modernize, the individual becomes increasingly important, gradually replacing the family, project, $19.9 million for the construction of the OSB joint venture project in Fort St John, and $5.1 million towards the Prince George pulp mill's recovery boiler Recovery boiler is the part of Kraft process of pulping where chemicals for white liquor are recovered and reformed from black liquor. In the process lignin of the wood, bound in black liquor at this phase, is burned and heat generated. precipitator upgrade project. In the second quarter, capital expenditures of $81.0 million were made, but were partially offset by $59.0 million in proceeds received on the sale of the Fort St James, Slocan and Valemount operations. Investing activities in the third quarter of 2004 included capital expenditures of $59.0 million. Liquidity and Financial Requirements At the end of the current period, Canfor was in a net cash position of $305.5 million and had $287.0 million of operating bank lines of credit available, as compared to the December 31, 2004 net cash position of $434.0 million and $280.4 million of unused operating lines of credit. Provisions contained in Canfor's long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. borrowing agreements limit both the amount of indebtedness INDEBTEDNESS. The state, of being in debt, without regard to the ability or inability of the party to pay the same. See 1 Story, Eq. 343; 2 Hill. Ab. 421. 2. the Company can incur To become subject to and liable for; to have liabilities imposed by act or operation of law. Expenses are incurred, for example, when the legal obligation to pay them arises. An individual incurs a liability when a money judgment is rendered against him or her by a court. and the amount of dividends it may pay on its common shares. The amount of dividends the Company is permitted to pay under its long-term borrowing agreements is approximately $535.0 million or $3.75 per share. The Company can incur approximately $1,371.0 million in additional long-term debt under these borrowing arrangements. OUTSTANDING SHARES At October 28, 2005, there were 142,510,396 common shares outstanding. CHANGES IN ACCOUNTING POLICIES Convertible Debentures - Effective January 1, 2005, Canfor retroactively ret·ro·ac·tive adj. Influencing or applying to a period prior to enactment: a retroactive pay increase. [French rétroactif, from Latin adopted new recommendations of the Canadian Institute of Chartered Accountants The Canadian Institute of Chartered Accountants (CICA) is the umbrella body for the Chartered Accountant profession in Canada and Bermuda. Membership of the CICA totals 70,000 Chartered Accountants and 8,500 students. (CICA CICA Competition In Contracting Act of 1984 (USA) CICA Canadian Institute of Chartered Accountants CICA Competition In Contracting Act CICA Criminal Injuries Compensation Authority (UK) ) concerning the balance sheet presentation of financial instruments as liabilities or equity. Canfor had previously accounted for its convertible subordinated debentures subordinated debenture An unsecured bond with a claim to assets that is subordinate to all existing and future debt. Thus, in the event that the issuer encounters financial difficulties and must be liquidated, all other claims must be satisfied before as equity, including the related interest charges, in accordance with EIC-71 Financial Instruments That May Be Settled at the Issuer's Option in Cash or its Own Equity Instruments. The prior year's figures have been restated to reflect the debentures as liabilities and the related interest as an expense on the income statement. There was no impact on previously reported earnings per share. The debentures had a maturity date of November 23, 2006 but were converted in November 2004 with the issuance of 11,742,424 Common Shares. Variable Interest Entities - Effective January 1, 2005, Canfor adopted the CICA's new accounting guideline guideline Medtalk A series of recommendations by a body of experts in a particular discipline. See Cancer screening guidelines, Cardiac profile guidelines, Gatekeeper guidelines, Harvard guidelines, Transfusion guidelines. for the consolidation of variable interest entities. The primary objective of the guideline is to identify and report on entities over which control is achieved through means other than voting rights Voting rights The right to vote on matters that are put to a vote of security holders. For example the right to vote for directors. voting rights The type of voting and the amount of control held by the owners of a class of stock. . The adoption of this guideline did not have a material impact on Canfor's financial position or results of operations. Cash and Temporary Investments - Effective January 1, 2005, Canfor retroactively amended a·mend v. a·mend·ed, a·mend·ing, a·mends v.tr. 1. To change for the better; improve: amended the earlier proposal so as to make it more comprehensive. 2. its presentation of cash and temporary investments to include unpresented cheques, which were previously included in accounts payable and disclosed dis·close tr.v. dis·closed, dis·clos·ing, dis·clos·es 1. To expose to view, as by removing a cover; uncover. 2. To make known (something heretofore kept secret). in the notes to the consolidated financial statements. RISKS AND UNCERTAINTIES A comprehensive discussion of Risks and Uncertainties was included in the 2004 Annual Report. An update of that discussion is included below. Canada/US Softwood Lumber Dispute On December 14, 2004, after completing its administrative review for the period from May 2002 to April 2003 (POR POR problem-oriented record. POR abbr. problem-oriented record POR Problem-Oriented Record. 1), the US Department of Commerce (DOC See doc file and docs. 1. Doc - Directed Oc 2. doc - /dok/ Common spoken and written shorthand for "documentation". Often used in the plural "docs" and in the construction "doc file" (i.e. documentation available on-line). ) determined the countervailing duty Noun 1. countervailing duty - a duty imposed to offset subsidies by foreign governments tariff, duty - a government tax on imports or exports; "they signed a treaty to lower duties on trade between their countries" (CVD CVD Cardiovascular disease, see there ) assessment rate of 17.18% applicable to all Canadian companies This is a list of companies from Canada.
Directory: A B C D E F G H I J K L M N O P Q R S T U V W X Y Z Current Companies for POR1. At that time, Canfor recorded a favourable adjustment to reduce its POR1 expense to 17.18%. In February 2005, the DOC announced a further reduction to the rate, to 16.37%, applicable to POR1 and to future cash deposits. As a result, in the first quarter, Canfor reduced its CVD accrual accrual, n continually recurring short-term liabilities. Examples are accrued wages, taxes, and interest. by $6.5 million, to record CVD expense at 16.37% for POR1. Canfor is currently paying deposits at 16.37% for CVD and 1.83% for antidumping an·ti·dump·ing adj. Intended to discourage importation and sale of foreign-made goods at prices substantially below domestic prices for the same items. duties (ADD) and is expensing the duties at the same rates. On June 2, 2005 the DOC released the preliminary results of their second countrywide coun·try·wide adv. & adj. Throughout a whole country; nationwide: launched a fundraising campaign countrywide; a countrywide search. Adj. 1. CVD administrative review for the period from May 1, 2003 to April 30, 2004 (POR2). The CVD rate was calculated to be 8.18% and was applicable for all non-zero Adj. 1. non-zero - not involving zero cardinal - being or denoting a numerical quantity but not order; "cardinal numbers" rate producers. At the same time, the DOC announced the preliminary results of their second ADD administrative review for POR2, which indicated a rate for Canfor of 1.42%. These assessment rates, as amended when the final determination rates are published later in 2005, would be applied to the entries for POR2. Canfor has made no adjustment to reflect these lower preliminary rates because of uncertainty surrounding sur·round tr.v. sur·round·ed, sur·round·ing, sur·rounds 1. To extend on all sides of simultaneously; encircle. 2. To enclose or confine on all sides so as to bar escape or outside communication. n. the outcome of anticipated challenges and appeals, and the rates will not be final until they are confirmed, with the DOC Final Determination expected in the fourth quarter of 2005. The cash deposit rate for shipments made subsequent to the Final Determination date will be set at the new rates. As at September 30, 2005, Canfor (including Slocan before April 1, 2004) had paid combined duty deposits of US $698.7 million (CVD of $529.1 million and ADD of $169.6 million) since inception INCEPTION. The commencement; the beginning. In making a will, for example, the writing is its inception. 3 Co. 31 b; Plowd. 343. Vide Consummation; Progression. of CVD and ADD in May 2002. The current dispute between Canada and the US over alleged subsidies provided through provincial Provincial has several meanings and may refer to:
in full North American Free Trade Agreement Trade pact signed by Canada, the U.S., and Mexico in 1992, which took effect in 1994. Inspired by the success of the European Community in reducing trade barriers among its members, NAFTA created the world's panels and in the US Court of International Trade. On August 31, 2004, a NAFTA Panel ruled, for the third time, that the US International Trade Commission (ITC ITC (Brit) n abbr (= Independent Television Commission) → Fernseh-Aufsichtsgremium ITC n abbr (BRIT) (= Independent Television Commission) → ) had failed to prove that Canadian lumber imports posed pose 1 v. posed, pos·ing, pos·es v.intr. 1. To assume or hold a particular position or posture, as in sitting for a portrait. 2. To affect a particular mental attitude. a threat of material injury to the US industry. The Panel gave the ITC ten days to comply with its ruling, which would effectively end the case and result in the return of all duties collected to date. On September 10, 2004, the ITC released a decision indicating that the Canadian lumber industry did not threaten the US industry with material injury during the period of investigation. On October 13, 2004, a NAFTA Panel formally issued its affirmation A solemn and formal declaration of the truth of a statement, such as an Affidavit or the actual or prospective testimony of a witness or a party that takes the place of an oath. An affirmation is also used when a person cannot take an oath because of religious convictions. of the ITC's negative injury ruling. In November 2004, the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. filed a request for an Extraordinary Challenge, claiming that the NAFTA Panel had violated vi·o·late tr.v. vi·o·lat·ed, vi·o·lat·ing, vi·o·lates 1. To break or disregard (a law or promise, for example). 2. To assault (a person) sexually. 3. the dispute settlement rules established under Chapter 19 of the NAFTA. On August 10, 2005, the Extraordinary Challenge Committee unanimously agreed that the Panel had not violated the settlement rules. Hence, the ITC's negative threat determination became final, requiring revocation The recall of some power or authority that has been granted. Revocation by the act of a party is intentional and voluntary, such as when a person cancels a Power of Attorney that he has given or a will that he has written. of the anti-dumping and countervailing duty orders on softwood lumber from Canada. To date, the ITC has refused to revoke To annul or make void by recalling or taking back; to cancel, rescind, repeal, or reverse. revoke v. to annul or cancel an act, particularly a statement, document, or promise, as if it no longer existed. the duty orders. On October 5, 2005, a NAFTA CVD Panel unanimously rejected re·ject tr.v. re·ject·ed, re·ject·ing, re·jects 1. To refuse to accept, submit to, believe, or make use of. 2. To refuse to consider or grant; deny. 3. the arguments presented by the DOC to support the calculation methodology used to determine the CVD rate for the original period of investigation (POI) and ordered the DOC to comply with the remand To send back. A higher court may remand a case to a lower court so that the lower court will take a certain action ordered by the higher court. A prisoner who is remanded into custody is sent back to prison subsequent to a Preliminary Hearing before a tribunal or magistrate and resubmit Verb 1. resubmit - submit (information) again to a program or automatic system feed back return, render - give back; "render money" revised calculations of the CVD rate by October 28, 2005. Although the result of this revised calculation cannot be determined at this time, a reduction in the CVD rate is expected. For the POI and the first and second administrative reviews, Canfor has been one of the companies listed as a mandatory Peremptory; obligatory; required; that which must be subscribed to or obeyed. Mandatory statutes are those that require, as opposed to permit, a particular course of action. respondent In Equity practice, the party who answers a bill or other proceeding in equity. The party against whom an appeal or motion, an application for a court order, is instituted and who is required to answer in order to protect his or her interests. in the ADD action, and as such has received a company-specific ADD rate. For the third administrative anti-dumping review covering the period May 1, 2004 to April 30, 2005 (POR3), the DOC has not announced the selection of the mandatory respondents In the context of marketing research, a representative sample drawn from a larger population of people from whom information is collected and used to develop or confirm marketing strategy. and, if Canfor is not selected, the Company would be assigned as·sign tr.v. as·signed, as·sign·ing, as·signs 1. To set apart for a particular purpose; designate: assigned a day for the inspection. 2. the "all others" rate arising from the average of the rates of the mandatory respondents selected for POR3. Because of the uncertainty in estimating the final assessment rates for either the CVD or ADD, since December 20, 2004 Canfor has expensed the duties at the same rate at which deposits are being paid, which is 16.37% for CVD and 1.83% for ADD. NAFTA Lawsuit lawsuit: see procedure; tort. In July 2002, Canfor filed a Notice of Arbitration arbitration Process of resolving a dispute or a grievance outside a court system by presenting it for decision to an impartial third party. Both sides in the dispute usually must agree in advance to the choice of arbitrator and certify that they will abide by the and Statement of Claim against the Government of the United States for damages of not less than US $250 million under Chapter 11 of the North American Free Trade Agreement North American Free Trade Agreement (NAFTA), accord establishing a free-trade zone in North America; it was signed in 1992 by Canada, Mexico, and the United States and took effect on Jan. 1, 1994. (NAFTA) as a result of the DOC's actions in issuing the preliminary and final determinations in the countervailing and anti-dumping proceedings. Canfor has asserted that the actions of the US Government have amounted to breaches of certain provisions of NAFTA, including the failure to provide Canfor with fair and equitable equitable adj. 1) just, based on fairness and not legal technicalities. 2) refers to positive remedies (orders to do something, not money damages) employed by the courts to solve disputes or give relief. (See: equity) EQUITABLE. treatment in accordance with international law. Canfor and the US Government selected a three-member panel to hear the dispute and a hearing on jurisdiction occurred in November 2004. However, a decision from the panel on jurisdiction has been stayed pending the US Government's request to consolidate Consolidate To combine the assets, liabilities, and other financial items of two or more entities into one. Notes: This term is generally used in the context of consolidated financial statements. Canfor's action with other lumber companies that have sought Chapter 11 proceedings Chapter 11 Proceedings Provisions of the Bankruptcy Reform Act under which the debtor firm is reorganized by a court because the estimated value of the reorganized firm exceeds the expected proceeds from its liquidation. . The consolidation application of the US Government was heard by a separate three-member panel in June 2005. The panel ruled in September 2005 that the Chapter 11 actions of Canfor, Tembec Tembec TSX: TBC, a paper company in Canada, was created in 1973 in the town of Témiscaming, in Quebec near the border of Ontario. The town’s economic lifeblood, a pulp mill owned by a large multinational corporation, was shut down in 1972. and Terminal Forest Products should be consolidated con·sol·i·date v. con·sol·i·dat·ed, con·sol·i·dat·ing, con·sol·i·dates v.tr. 1. To unite into one system or whole; combine: and heard together. The parties are currently discussing how this matter will proceed on a consolidated basis. Stumpage stump·age n. 1. Standing timber regarded as a commodity. 2. The value of standing timber. 3. The right to cut standing timber. stumpage 1. Rates As part of the Forestry Revitalization Plan, the Provincial Government is considering changes to the BC Interior stumpage system, which are expected to come into effect in April 2006. The impact of these changes to Canfor, if any, is not quantifiable Quantifiable Can be expressed as a number. The results of quantifiable psychological tests can be translated into numerical values, or scores. Mentioned in: Psychological Tests at this time. SUBSEQUENT EVENT On October 28, 2005, Canfor signed an agreement with the Province of British Columbia, in which Canfor will receive $57.0 million in compensation for the loss of tenures noted above, and a $5.0 million advance payment against lost infrastructure and road construction costs. Canfor is continuing discussions with the Province for further compensation for infrastructure, but the amount and timing of additional compensation is not yet determinable. No significant adjustment to the write-down recognized in the third quarter, as discussed above under "unusual expense", is anticipated.
SELECTED QUARTERLY FINANCIAL INFORMATION (13)
Q3 Q2 Q1 Q4
2005 2005 2005 2004
--------------------------------------------------------------------
Sales and Income
(millions of dollars)
Sales $ 941.9 $1,067.4 $ 965.9 $1,072.7
Operating income (loss) $ (10.8) $ 67.1 $ 95.6 $ 15.7
Net income from continuing
operations $ 17.4 $ 28.9 $ 62.7 $ 42.0
Net income $ 17.4 $ 25.3 $ 65.6 $ 43.0
Per common share (dollars)
Net income from continuing
operations
Basic $ 0.12 $ 0.20 $ 0.44 $ 0.31
Diluted $ 0.12 $ 0.20 $ 0.44 $ 0.30
Net income
Basic $ 0.12 $ 0.18 $ 0.46 $ 0.31
Diluted $ 0.12 $ 0.18 $ 0.46 $ 0.30
--------------------------------------------------------------------
Statistics
Lumber shipments (MMfbm) 1,289 1,356 1,165 1,319
Pulp shipments (000 mt) 310 299 268 313
Plywood shipments (MMsf 3/8") 124 107 106 96
OSB shipments (MMsf 3/8") 132 117 103 127
Average exchange rate
(Cdn$/US$) $ 0.832 $ 0.804 $ 0.815 $ 0.819
Average 2x4 #2&Btr
lumber price (US$) $ 327 $ 365 $ 398 $ 338
Average NBSK final
pulp price delivered
to Northern Europe (US$) $ 588 $ 613 $ 642 $ 609
Average plywood price-
Toronto (Cdn$) $ 362 $ 361 $ 439 $ 444
Average OSB price-
North Central (US$) $ 291 $ 305 $ 364 $ 260
--------------------------------------------------------------------
Q3 Q2 Q1 Q4
2004 2004 2004 2003
--------------------------------------------------------------------
Sales and Income
(millions of dollars)
Sales $ 1,130.7 $1,180.7 $ 645.1 $ 616.2
Operating income (loss) $ 203.2 $ 211.3 $ 62.1 $ 0.8
Net income from continuing
operations $ 191.3 $ 133.1 $ 30.2 $ 33.8
Net income $ 200.0 $ 142.0 $ 30.4 $ 32.6
Per common share (dollars)
Net income from continuing
operations
Basic $ 1.45 $ 1.01 $ 0.37 $ 0.42
Diluted $ 1.34 $ 0.94 $ 0.34 $ 0.38
Net income
Basic $ 1.52 $ 1.08 $ 0.37 $ 0.40
Diluted $ 1.40 $ 1.00 $ 0.34 $ 0.37
--------------------------------------------------------------------
Statistics
Lumber shipments (MMfbm) 1,171 1,278 723 711
Pulp shipments (000 mt) 275 285 242 261
Plywood shipments (MMsf 3/8") 96 109 45 36
OSB shipments (MMsf 3/8") 121 133 - -
Average exchange rate
(Cdn$/US$) $ 0.765 $ 0.736 $ 0.759 $ 0.760
Average 2x4 #2&Btr
lumber price (US$) $ 440 $ 437 $ 370 $ 298
Average NBSK final pulp
price delivered
to Northern Europe (US$) $ 637 $ 650 $ 590 $ 555
Average plywood price-
Toronto (Cdn$) $ 548 $ 592 $ 528 $ 542
Average OSB price-
North Central (US$) $ 353 $ 437 n/a n/a
--------------------------------------------------------------------
(13) Certain prior period figures have been restated for
comparability.
The main factors affecting the comparability of the results over the last eight quarters are the integration of the former Slocan operations as of April 1, 2004, changes in the value of the Canadian dollar against the US dollar, which impact US dollar revenues and the translation of US dollar denominated long-term debt, and changes in lumber, pulp, plywood and OSB prices, as highlighted in the table above. One-time items that had a significant impact on quarterly results include a $19.5 million gain from the sale of property in the fourth quarter of 2003, and restructuring and mill closure provisions of $18.3 million, $0.3 million and $10.2 million in the second, third and fourth quarters of 2004 respectively and $2.5 million in each of the second and third quarters of 2005 (all figures are after tax). The second quarter 2005 results were reduced by a $4.0 million after-tax loss on the sale of the Fort St James, Slocan and Valemount sawmills and the third quarter 2005 results were reduced by an $8.9 million after-tax write-down of timber licenses. In the third quarter of 2005, the BC Corporate income tax rate was reduced by 1.5%, which resulted in a $21.0 million favourable adjustment to the current and future income tax liability being recorded in the period. This was partially offset by $7.7 million of other tax adjustments related to the availability of capital losses and reassessments of prior tax years. Canfor's financial results are impacted by seasonal factors such as weather and building activity. Adverse weather conditions can cause logging curtailments, which can affect the supply of raw materials to sawmills, plywood and OSB plants, and pulp mills. Market demand also varies seasonally to some degree. For example, building activity and repair and renovation work, which affects demand for lumber and panel products, is generally stronger in the spring and summer months. Shipment volumes are affected by these factors as well as by global supply and demand conditions. Shortages in railcar supply had an adverse impact on shipment volumes in the first quarter of 2005 and also in the first three quarters of 2004. A container truckers' strike at the Port of Vancouver impacted offshore shipments in the third quarter of 2005.
Consolidated Statements of Income and Retained Earnings
3 months ended 9 months ended
(millions of dollars, September 30, September 30,
unaudited) 2005 2004 2005 2004
--------------------------------------------------------------------
Sales $ 941.9 $ 1,130.8 $ 2,975.2 $ 2,956.5
Costs and expenses
Manufacturing and
product costs 654.9 625.8 1,939.7 1,662.3
Freight and other
distribution costs 184.1 169.6 526.4 428.5
Countervailing and
anti-dumping duties
(Note 7) 58.5 73.8 184.9 204.9
Amortization 37.2 39.3 116.7 104.5
Selling and
administration costs 15.0 18.6 49.3 56.1
--------------------------------------------------------------------
949.7 927.1 2,817.0 2,456.3
Restructuring, mill closure
and other severance costs
(Note 8) 3.0 0.5 6.3 23.6
Operating income (loss)
from continuing
operations (10.8) 203.2 151.9 476.6
Equity income of
affiliated companies - 4.9 4.0 9.0
Interest expense
(Note 2) (10.0) (14.4) (32.9) (47.2)
Foreign exchange gain
on long-term debt 30.0 40.5 14.7 12.6
Other income (expense) 1.3 (0.8) 0.9 (0.1)
Unusual expense (Note 16) (11.1) - (11.1) -
--------------------------------------------------------------------
Net income (loss) from
continuing operations
before income taxes (0.6) 233.4 127.5 450.9
Income tax recovery
(expense) (Note 10) 18.0 (42.0) (18.5) (96.2)
--------------------------------------------------------------------
Net income from
continuing operations 17.4 191.4 109.0 354.7
Net income (loss) from
discontinued operations
(Note 3) - 8.6 (0.7) 17.8
--------------------------------------------------------------------
Net income $ 17.4 $ 200.0 $ 108.3 $ 372.5
--------------------------------------------------------------------
--------------------------------------------------------------------
Per common share (in
dollars) (Note 12)
Net income from
continuing operations
Basic $ 0.12 $ 1.45 $ 0.76 $ 3.09
Diluted $ 0.12 $ 1.34 $ 0.76 $ 2.83
Net income
Basic $ 0.12 $ 1.52 $ 0.76 $ 3.24
Diluted $ 0.12 $ 1.40 $ 0.75 $ 2.97
--------------------------------------------------------------------
--------------------------------------------------------------------
Retained earnings,
beginning of year $ 691.9 $ 277.0
Net income for the year
to date 108.3 372.5
Premium paid on common
shares purchased for
cancellation (4.9) -
--------------------------------------------------------------------
Retained earnings, end
of current period $ 795.3 $ 649.5
--------------------------------------------------------------------
--------------------------------------------------------------------
Consolidated Cash Flow Statements
3 months ended 9 months ended
(millions of dollars, September 30, September 30,
unaudited) 2005 2004 2005 2004
--------------------------------------------------------------------
Cash generated from (used in)
Operating activities
Net income from continuing
operations $ 17.4 $ 191.4 $ 109.0 $ 354.7
Items not affecting cash:
Amortization 37.2 39.3 116.7 104.5
Income taxes (22.5) 36.5 8.3 79.1
Long-term portion of
deferred reforestation (14.1) (32.9) (6.1) (16.9)
Employee future benefits 3.4 6.0 11.5 16.3
Unrealized foreign
exchange gain on
long-term debt (25.2) (38.7) (8.6) (10.6)
Adjustment to accrued
duties (Note 7) 2.8 (6.2) (4.7) 13.7
Other 5.3 (3.6) (2.2) (8.8)
Changes in non-cash
working capital 49.8 37.4 (64.3) (6.0)
--------------------------------------------------------------------
54.1 229.2 159.6 526.0
--------------------------------------------------------------------
Financing activities
Proceeds from long-term
debt - - 0.6 309.3
Repayment of long-term
debt (42.0) (41.6) (56.6) (268.4)
Common shares purchased
for cancellation
(Note 11) (13.8) - (13.8) -
Net proceeds on issuance
of common shares - 0.6 1.9 8.7
Other - 0.1 (0.3) (0.3)
--------------------------------------------------------------------
(55.8) (40.9) (68.2) 49.3
--------------------------------------------------------------------
Investing activities
Net proceeds from sale of
discontinued operations
(Note 3) - - 59.0 -
Property, plant, equipment
and timber (84.7) (59.0) (233.8) (101.1)
Howe Sound Pulp and Paper
Limited Partnership
(Note 14) - - (50.0) -
Business acquisition
costs, net of cash
acquired - - - (37.9)
Distributions from
affiliated companies - - 5.6 -
Proceeds on disposal of
property, plant and
equipment 4.1 8.0 5.2 9.5
Other 0.2 1.4 (4.5) (1.5)
--------------------------------------------------------------------
(80.4) (49.6) (218.5) (131.0)
--------------------------------------------------------------------
Increase (decrease) in
net cash from continuing
operations (82.1) 138.7 (127.1) 444.3
Increase (decrease) in
net cash from
discontinued operations
(Note 3) - 27.0 (1.4) 41.3
--------------------------------------------------------------------
Increase (decrease) in
net cash (82.1) 165.7 (128.5) 485.6
Net cash (short-term
indebtedness) at
beginning of period 387.6 222.3 434.0 (97.6)
--------------------------------------------------------------------
Net cash at end of period $ 305.5 $ 388.0 $ 305.5 $ 388.0
--------------------------------------------------------------------
--------------------------------------------------------------------
Net cash is comprised of:
Cash and temporary
investments (Note 2) $ 312.1 $ 389.4 $ 312.1 $ 389.4
Operating bank loans (6.6) (1.4) (6.6) (1.4)
--------------------------------------------------------------------
$ 305.5 $ 388.0 $ 305.5 $ 388.0
--------------------------------------------------------------------
--------------------------------------------------------------------
Changes in non-cash
working capital
Accounts receivable $ 3.4 $ 3.3 $ (19.1) $ (0.4)
Income taxes 4.6 (2.0) 3.8 4.6
Inventories 38.1 10.5 15.8 (4.2)
Prepaid expenses 11.9 2.6 (4.3) (5.0)
Accounts payable, accrued
liabilities and current
portion of deferred
reforestation (8.2) 23.0 (60.5) (1.0)
--------------------------------------------------------------------
$ 49.8 $ 37.4 $ (64.3) $ (6.0)
--------------------------------------------------------------------
--------------------------------------------------------------------
Cash payments (recoveries)
in the period
Interest, net $ 14.5 $ 18.4 $ 36.6 $ 44.6
Income taxes $ 0.8 $ 5.2 $ 3.0 $ 7.0
--------------------------------------------------------------------
--------------------------------------------------------------------
Consolidated Balance Sheets
As at As at
September December
(millions of dollars) 30, 2005 31, 2004
--------------------------------------------------------------------
(unaudited) (audited)
ASSETS
Current assets
Cash and temporary investments (Note 2) $ 312.1 $ 438.5
Accounts receivable
Trade 251.2 239.4
Other 69.9 62.2
Income taxes recoverable 11.2 14.7
Future income taxes 25.8 32.5
Inventories 593.4 609.2
Prepaid expenses 44.3 40.0
Current assets of discontinued operations
(Note 3) - 31.6
--------------------------------------------------------------------
Total current assets 1,307.9 1,468.1
--------------------------------------------------------------------
Long-term investments and other 190.4 197.4
Property, plant, equipment and timber 2,257.1 2,185.4
Deferred charges 87.9 94.9
Non-current assets of discontinued
operations (Note 3) - 33.8
--------------------------------------------------------------------
$ 3,843.3 $ 3,979.6
--------------------------------------------------------------------
--------------------------------------------------------------------
LIABILITIES
Current liabilities
Operating bank loans (Note 5) $ 6.6 $ 4.5
Accounts payable and accrued liabilities 357.3 463.5
Current portion of long-term debt 95.4 68.1
Current portion of deferred reforestation 49.6 46.6
Current liabilities of discontinued operations
(Note 3) - 19.5
--------------------------------------------------------------------
Total current liabilities 508.9 602.2
--------------------------------------------------------------------
Long-term debt (Note 5) 554.0 660.5
Other accruals and provisions (Note 6) 211.1 218.7
Long-term liabilities of discontinued operations
(Note 3) - 5.0
Future income taxes, net 495.7 499.2
Deferred credit (Note 14) 11.3 27.2
SHAREHOLDERS' EQUITY
Share capital - 142,510,396 shares outstanding 1,268.7 1,275.7
Retained earnings 795.3 691.9
Foreign exchange translation adjustment (1.7) (0.8)
--------------------------------------------------------------------
Total shareholders' equity 2,062.3 1,966.8
--------------------------------------------------------------------
$ 3,843.3 $ 3,979.6
--------------------------------------------------------------------
--------------------------------------------------------------------
Subsequent Event (Note 16)
APPROVED BY THE BOARD
Director, R.L. Cliff Director, J. A. Shepherd
Notes to the Consolidated Financial Statements 1. These interim financial statements do not include all of the disclosures required by Canadian generally accepted accounting principles for annual financial statements and, accordingly, should be read in conjunction with the financial statements and notes included in Canfor's Annual Report for the year ended December 31, 2004. These interim financial statements follow the same accounting policies and methods of computation Computation is a general term for any type of information processing that can be represented mathematically. This includes phenomena ranging from simple calculations to human thinking. as used in the 2004 consolidated financial statements, except as described in Note 2. 2. Changes in Accounting Policies and Presentation Convertible Debentures Effective January 1, 2005, Canfor retroactively adopted the new recommendations of the Canadian Institute of Chartered Accountants (CICA) concerning the balance sheet presentation of financial instruments as liabilities or equity. Canfor had previously accounted for its convertible subordinated debentures as equity, including the related interest charges, in accordance with EIC-71 Financial Instruments That May Be Settled at the Issuer's Option in Cash or its Own Equity Instruments. Prior year figures have been restated to reflect the debentures as liabilities and the related interest as an expense on the income statement. This had no impact on previously reported earnings per share or retained earnings Retained Earnings The percentage of net earnings not paid out in dividends, but retained by the company to be reinvested in its core business or to pay debt. It is recorded under shareholders equity on the balance sheet. . The debentures had a maturity date of November 23, 2006 but were converted in November 2004 with the issuance of 11,742,424 Common Shares. Variable Interest Entities Effective January 1, 2005, Canfor adopted the CICA's new accounting guideline for the consolidation of variable interest entities. The primary objective of the guideline is to identify and report on entities over which control is achieved through means other than voting rights. The adoption of this guideline did not have a material impact on Canfor's financial position or results of operations. Cash and Temporary Investments Effective January 1, 2005, Canfor retroactively amended its presentation of cash and temporary investments to include unpresented cheques, which were previously included in accounts payable. 3. Discontinued Operations During the second quarter, Canfor completed the sale of its Fort St James, Slocan and Valemount sawmills in British Columbia for total cash proceeds of $59.0 million. A net after-tax loss of $4.0 million was recorded on the dispositions in the second quarter. The sale of the Fort St James mill and associated harvesting rights was directed by the federal Commissioner of Competition as a condition to Canfor's acquisition of Slocan Forest Products Ltd. on April 1, 2004. The decision to sell the Slocan and Valemount sawmills was made as part of a process to focus the company's manufacturing assets around certain product lines and fibre baskets. Canfor retained the right to any refund of countervailing and anti-dumping duty (note 7) paid prior to the dispositions. The following table presents selected financial information for Fort St James, Slocan and Valemount for the year-to-date and comparative periods:
--------------------------------------------------------------------
3 months ended 9 months ended
September 30, September 30,
(millions of dollars) 2005 2004 2005 2004
--------------------------------------------------------------------
Sales to external
customers $ - $ 64.4 $ 61.7 $ 155.2
--------------------------------------------------------------------
Operating income
before income taxes - 13.4 5.1 27.6
Loss on disposal before
income taxes - - (6.2) -
Income tax recovery
(expense) - (4.8) 0.4 (9.8)
--------------------------------------------------------------------
Net income (loss) $ - $ 8.6 $ (0.7) $ 17.8
--------------------------------------------------------------------
Net income per share
- diluted $ - $ 0.06 $ - $ 0.14
--------------------------------------------------------------------
Cash flows from
discontinued operations
Cash generated from
(used in)
operating activities $ - $ 27.1 $ (2.1) $ 40.9
Cash generated from
(used in)
investing activities - (0.1) 0.7 0.4
--------------------------------------------------------------------
$ - $ 27.0 $ (1.4) $ 41.3
--------------------------------------------------------------------
4. Canfor-LP OSB Limited Partnership Canfor has entered into a limited partnership agreement with Louisiana-Pacific Louisiana-Pacific Corporation NYSE: LPX, commonly known as "LP", is a building materials manufacturer. It was founded in 1973 and is based in Nashville, Tennessee. Canada Ltd. to jointly undertake construction and operation of an oriented strand board mill with rated annual capacity of 820 million square feet (3/8" basis) in Fort St. John, British Columbia The City of Fort St. John is a small city in northeastern British Columbia, Canada. . Canfor has agreed to supply 330,000 cubic metres of timber annually to the joint venture out of its existing timber tenure in the area. The joint venture is in the pre-operating construction phase. During the third quarter of 2005, Canfor made capital contributions of $22.5 million to the venture (year to date - $78.8 million). In order to retain its 50% interest, Canfor has agreed to contribute 50% of the capital to fund the project, which is estimated to have a total cost of $242.6 million. These consolidated financial statements include the following amounts, which represent Canfor's 50% ownership interest in the partnership:
September 30, December 31,
(millions of dollars) 2005 2004
--------------------------------------------------------------------
Balance Sheet
Cash $ 6.4 $ 1.2
Other current assets 2.9 1.3
Construction in progress 111.8 41.8
Deferred start-up costs 7.3 3.0
Accounts payable and accrued liabilities (9.3) (7.0)
--------------------------------------------------------------------
$ 119.1 $ 40.3
--------------------------------------------------------------------
Cash flow
Cash used in operating activities
- working capital $ (4.5) $ 5.7
Cash used in investing activities (74.3) (44.8)
--------------------------------------------------------------------
$ (78.8) $ (39.1)
--------------------------------------------------------------------
5. Bank Indebtedness and Long-Term Debt At September 30, 2005, Canfor had $337.0 million of bank operating lines of credit available, of which $6.6 million was drawn down and an additional $43.4 million was utilized for several standby standby Medtalk adjective Referring to the immediate availability of a certain specialist–anesthesiologist, surgeon, who can be deployed in a medical emergency. Cf Concurrent. letters of credit. The agreements relative to Canfor's privately placed senior notes contain provisions limiting the amount of indebtedness that Canfor and its designated subsidiaries can incur and the amount of dividends paid to its common shareholders. Under these agreements, Canfor and its designated subsidiaries can presently incur approximately $1,372.0 million in additional long-term debt and pay up to $535.0 million, or approximately $3.75 per share, in dividends to its common shareholders. At September 30, 2005, the fair value of Canfor's long-term debt was $678.9 million.
6. Other Accruals and Provisions
September 30, December 31,
(millions of dollars) 2005 2004
--------------------------------------------------------------------
Deferred reforestation $ 61.3 $ 67.4
Countervailing duty provision (Note 7) 67.0 76.7
Accrued pension obligations 19.8 17.7
Post employment benefits 61.5 54.7
Other liabilities 1.5 2.2
--------------------------------------------------------------------
Total other accruals and provisions $ 211.1 $ 218.7
--------------------------------------------------------------------
7. Countervailing and Anti-dumping Duties The US Department of Commerce (DOC) imposed an 18.79% countervailing duty (CVD) on Canadian lumber shipments to the US effective May 16, 2002. Canfor's company-specific cash deposit rate was subsequently reduced to 12.24%, effective prospectively from March 10, 2004. Canfor continued to expense CVD at the 18.79% rate after this date, because of the uncertainty about whether a company-specific administrative review would be granted. On December 14, 2004, after completing its administrative review for the period from May 2002 to April 2003 (POR1), the DOC determined the CVD assessment rate of 17.18% applicable to all Canadian companies for POR1. At that time, Canfor recorded a favourable adjustment to reduce its POR1 expense to 17.18%. In February 2005, the DOC announced a further reduction to the rate, to 16.37%, applicable to POR1 and to future cash deposits, due to a calculation error on their part. As a result, in the first quarter, Canfor reduced its CVD accrual by $6.5 million, to record CVD expense at 16.37% for POR1. The combined additional CVD accrued ac·crue v. ac·crued, ac·cru·ing, ac·crues v.intr. 1. To come to one as a gain, addition, or increment: interest accruing in my savings account. 2. in excess of the cash deposits made at September 30, 2005 is $67.0 million and is included in "other accruals Accruals Accounts on a balance sheet that represent liabilities and non-cash-based assets used in accrual-based accounting. These accounts include, among many others, accounts payable, accounts receivable, goodwill, future tax liability and future interest expense. and provisions" (Note 6). The DOC also imposed anti-dumping duties (ADD) on Canadian lumber shipments to the US effective May 16, 2002. Canfor's company-specific rate was determined at 5.96% and Slocan's company-specific rate was determined at 7.71%. While the cash payments up to December 20, 2004 were made at the required deposit rates, Canfor regularly reviews its estimate of the ADD expense rate by applying the DOC's methodology to updated sales and cost data as it becomes available. On December 14, 2004, the DOC determined the ADD assessment rate for Canfor at 2.06% and for Slocan at 1.37% for POR1 and the cash deposit rate was reduced to 1.83% for US lumber shipments after December 20, 2004. The cumulative ADD cash deposits in excess of the calculated expense accrued at September 30, 2005 is $113.2 million and is being carried as a receivable under "long-term investments and other". The DOC officially announced in the Federal Register that it would be assessing duties in accordance with the rates that it determined in the reviews, which legal counsel advise would result in the excess ADD deposits being recoverable. Notwithstanding the rates established in the investigations and the posting of cash deposits, the final liability for the assessment of countervailing and anti-dumping duties will not be determined until the DOC's administrative review process is complete and all subsequent challenges or appeals are finalized. As at September 30, 2005, Canfor (including Slocan before April 1, 2004) had paid combined duty deposits of US $698.7 million (CVD of $529.1 million and ADD of $169.6 million) since inception of CVD and ADD in May 2002. On August 31, 2004, a NAFTA Panel ruled, for the third time, that the US International Trade Commission (ITC) had failed to prove that Canadian lumber imports posed a threat of material injury to the US industry. The Panel gave the ITC ten days to comply with its ruling, which would effectively end the case and result in the return of all duties collected to date. On September 10, 2004, the ITC released a decision indicating that the Canadian lumber industry did not threaten the US industry with material injury during the period of investigation. On October 13, 2004, a NAFTA Panel formally issued its affirmation of the ITC's negative injury ruling. In November 2004, the United States filed a request for an Extraordinary Challenge, claiming that the NAFTA Panel had violated the dispute settlement rules established under Chapter 19 of the NAFTA. On August 10, 2005, the Extraordinary Challenge Committee unanimously agreed that the Panel had not violated the settlement rules. Hence, the ITC's negative threat determination became final, requiring revocation of the anti-dumping and countervailing duty orders on softwood lumber from Canada. To date, the ITC has refused to revoke the duty orders. On October 5, 2005, a NAFTA CVD Panel unanimously rejected the arguments presented by the DOC to support the calculation methodology used to determine the CVD rate for the original period of investigation (POI) and ordered the DOC to comply with the remand and resubmit revised calculations of the CVD rate by October 28, 2005. Although the result of this revised calculation cannot be determined at this time, a reduction in the CVD rate is expected. For the POI and the first and second administrative reviews, Canfor has been one of the companies listed as a mandatory respondent in the ADD action, and as such has received a company-specific ADD rate. For the third administrative anti-dumping review covering the period May 1, 2004 to April 30, 2005 (POR3), the DOC has not announced the selection of the mandatory respondents and, if Canfor is not selected, the Company would be assigned the "all others" rate arising from the average of the rates of the mandatory respondents selected for POR3. Because of the uncertainty in estimating the final assessment rates for either the CVD or ADD, since December 20, 2004 Canfor has expensed the duties at the same rate at which deposits are being paid, which is 16.37% for CVD and 1.83% for ADD. Canadian Interests continue to aggressively defend the Canadian industry in this US trade dispute and are appealing the decision of these administrative agencies An official governmental body empowered with the authority to direct and supervise the implementation of particular legislative acts. In addition to agency, such governmental bodies may be called commissions, corporations (e.g. to the appropriate courts, NAFTA panels and the WTO. 8. Restructuring, Mill Closure and Other Severance The act of dividing, or the state of being divided. The term severance has unique meanings in different branches of the law. Courts use the term in both civil and criminal litigation in two ways: first, when dividing a lawsuit into two or more parts, and second, when Costs Mill closure costs of $3.0 million were recorded in the quarter as a result of the permanent closure of the Tackama sawmill in the period. The year-to-date expense of $6.3 million includes other mill closure costs of $0.5 million, restructuring costs of $0.6 million associated with the formation of a jointly owned paper sales and marketing partnership with an external party and severance costs of $2.2 million. Restructuring costs of $0.5 million were recorded in the third quarter of 2004 and $23.6 million for the year-to-date period. The year-to-date amount was comprised of $17.7 million of severance and other costs associated with the integration of Canfor and Slocan operations and $5.9 million of closure costs for the Taylor Taylor, city (1990 pop. 70,811), Wayne co., SE Mich., a suburb of Detroit adjacent to Dearborn; founded 1847 as a township, inc. as a city 1968. A small rural village until World War II, it developed significantly in the second half of the 20th cent. sawmill. The following provides a reconciliation of the restructuring, mill closure and other severance provision for the current period:
(millions of 3 months ended 9 months ended
dollars) September 30, 2005 September 30, 2005
--------------------------------------------------------------------
Mill Mill
Closure Closure
& Other & Other
Inte- Restruc- Inte- Restruc-
gration turing gration turing
Costs Costs Total Costs Costs Total
--------------------------------------------------------------------
Balance of
liability at
beginning of
period $ 6.5 $ 9.0 $ 15.5 $ 10.8 $ 13.5 $ 24.3
Accrued in
the period (i) - 3.0 3.0 - 6.3 6.3
Less: non-cash
items - (2.0) (2.0) - (3.0) (3.0)
Payments in
the period (1.7) (2.8) (4.5) (6.0) (9.6) (15.6)
--------------------------------------------------------------------
Balance of
liability at
end of period $ 4.8 $ 7.2 $ 12.0 $ 4.8 $ 7.2 $ 12.0
--------------------------------------------------------------------
(i) reported in the
following segments:
Lumber $ 3.0 $ 4.6
Pulp and Paper $ - $ 0.6
Coastal
Operations $ - $ 1.1
--------------------------------------------------------------------
9. Employee Future Benefits
Canfor's total benefit costs were as follows:
3 months ended 9 months ended
September 30, September 30,
(millions of dollars) 2005 2004 2005 2004
--------------------------------------------------------------------
Defined benefit pension
plans $ 4.0 $ 3.8 $ 12.1 $ 9.8
Other employee future
benefit plans 2.1 3.8 6.3 11.1
Defined contribution
pension plans 0.5 0.4 1.3 0.8
--------------------------------------------------------------------
$ 6.6 $ 8.0 $ 19.7 $ 21.7
--------------------------------------------------------------------
10. Income Tax Recovery (Expense)
3 months ended 9 months ended
September 30, September 30,
(millions of dollars) 2005 2004 2005 2004
--------------------------------------------------------------------
Current $ (5.3) $ (3.1) $ (10.4) $ (8.4)
Future 28.9 (66.7) (21.8) (151.9)
Tax benefit of current
Howe Sound Pulp and
Paper Limited
Partnership losses - 0.5 - 1.1
Tax on equity earnings - (1.9) (1.5) (3.1)
--------------------------------------------------------------------
23.6 (71.2) (33.7) (162.3)
Amortization of
deferred credit on
utilization of
acquired tax losses (5.6) 29.2 15.2 66.1
--------------------------------------------------------------------
$ 18.0 $ (42.0) $ (18.5) $ (96.2)
--------------------------------------------------------------------
The reconciliation of income taxes calculated at the statutory rate
to the actual income tax provision is as follows:
3 months ended 9 months ended
September 30, September 30,
(millions of dollars) 2005 2004 2005 2004
--------------------------------------------------------------------
Income tax recovery
(expense) at
statutory tax rate $ 0.2 $ (82.8) $ (44.4) $ (160.1)
Large corporation tax (1.3) (1.8) (3.8) (4.9)
Tax benefit of current
Howe Sound Pulp and
Paper Limited
Partnership losses - 0.5 - 1.1
Amortization of
deferred credit on
utilization of
acquired tax losses (5.6) 29.2 15.2 66.1
Permanent difference
from capital
gains and losses 7.9 12.2 3.0 2.3
Change in estimate of
available capital losses (4.7) - (8.6) -
1.5% reduction in British
Columbia corporate
tax rate 21.0 - 21.0 -
Other permanent
differences and
adjustments 0.5 0.7 (0.9) (0.7)
--------------------------------------------------------------------
Tax recovery (expense) $ 18.0 $ (42.0) $ (18.5) $ (96.2)
--------------------------------------------------------------------
--------------------------------------------------------------------
11. Share Capital During the third quarter, the Company purchased 1,000,000 common shares for cancellation under a Normal Course Issuer Bid. The shares were purchased on the open market at an average price of $13.84 per share, and the excess of the purchase price over the average book value per share, in the amount of $4.9 million, has been charged to retained earnings. The Normal Course Issuer Bid expired on October 14, 2005. 12. Earnings Per Share (millions of dollars, except for 3 months ended 9 months ended number of shares and September 30, September 30, per share amounts) 2005 2004 2005 2004 -------------------------------------------------------------------- Earnings per share from continuing operations Net income from continuing operations $ 17.4 $ 191.4 $ 109.0 $ 354.7 Basic earnings per share from continuing operations $ 0.12 $ 1.45 $ 0.76 $ 3.09 Net income from continuing operations - diluted earnings per share (a) $ 17.4 $ 193.0 $ 109.0 $ 359.4 Diluted earnings per share from continuing operations $ 0.12 $ 1.34 $ 0.76 $ 2.83 -------------------------------------------------------------------- Earnings per share Net income $ 17.4 $ 200.0 $ 108.3 $ 372.5 Basic earnings per share $ 0.12 $ 1.52 $ 0.76 $ 3.24 Net income - diluted earnings per share (a) $ 17.4 $ 201.6 $ 108.3 $ 377.2 Diluted earnings per share $ 0.12 $ 1.40 $ 0.75 $ 2.97 -------------------------------------------------------------------- Weighted average number of common shares 142,966,325 131,563,788 143,288,208 114,919,013 Incremental shares from stock options 130,846 246,253 184,430 246,708 Shares issuable upon conversion of convertible debentures - 11,742,424 - 11,742,424 -------------------------------------------------------------------- Diluted number of common shares 143,097,171 143,552,465 143,472,638 126,908,145 -------------------------------------------------------------------- (a) 2004 - after adding back interest on liability component of convertible debentures 13. Financial Instruments A significant portion of Canfor's income from operations is generated from sales denominated in US dollars. In order to manage some of the risk associated with fluctuating fluc·tu·ate v. fluc·tu·at·ed, fluc·tu·at·ing, fluc·tu·ates v.intr. 1. To vary irregularly. See Synonyms at swing. 2. To rise and fall in or as if in waves; undulate. v. exchange rates, Canfor enters into forward exchange contracts from time to time. At September 30, 2005, Canfor had US $3.7 million of forward contracts outstanding (2004 - nil). These contracts were fixed at an average rate of 1.2118 and have option periods extending through to April 2006. There was an unrecognized gain of $0.2 million on these contracts at September 30, 2005. Contracts totaling $41.9 million were exercised in the current quarter and a gain of $2.0 million was realized (2004 - contracts totaling US $5.2 million were exercised and a gain of $0.1 million was realized). Canfor also uses a variety of financial instruments to reduce its exposure to risks associated with lumber and pulp prices and energy costs. At the end of the current quarter, there were 62 lumber futures contracts Futures Contract An exchange traded agreement to buy or sell a particular type and grade of commodity for delivery at an agreed upon place and time in the future. Futures contracts are transferable between parties. outstanding (2004 - 320 contracts outstanding), which had an unrealized gain Unrealized Gain A profit that results from holding on to an asset rather than cashing it in and using the funds. Notes: Let's say you own a stock that has doubled, but you haven't sold it yet. This is said to be an unrealized gain. of $0.1 million. At September 30, 2005, Canfor had entered into swaps to hedge 3,000 tonnes of pulp at an average price of US $675 per tonne (2004 - nil). There was an unrealized gain of $0.1 million on these contracts at September 30, 2005. Commodity swaps Commodity Swap A swap where exchanged cash flows are dependent on the price of an underlying commodity. This is usually used to hedge against the price of a commodity. Notes: hedging hedging, in commerce, method by which traders use two counterbalancing investment strategies so as to minimize any losses caused by price fluctuations. It is generally used by traders on the commodities market. future natural gas purchases of 6.9 million Gigajoules were outstanding at the end of the current quarter (2004 - 2.2 million Gigajoules). There was an unrealized gain of $27.6 million on these swaps at September 30, 2005. 14. Howe Sound Howe Sound is a roughly triangular sound, actually a network of fjords situated immediately northwest of Vancouver. Geography Howe Sound's mouth at the Strait of Georgia is situated between West Vancouver, and the Sunshine Coast. Pulp & Paper Limited Partnership (HSLP HSLP High-Speed Line Printer ) Canfor acquired $643.0 million of tax losses from HSLP in 2001, which gave rise to a deferred credit of $104.0 million. On January 2, 2005, Canfor made a final contribution of $50.0 million to HSLP with respect to these losses. As at September 30, 2005, Canfor had $11.3 million of deferred credits remaining available to reduce income tax expense in future periods. 15. Segmented Information (a) (millions of Lumber Pulp & Coastal Corporate dollars) (b) Panels Paper Operations & Other Consolidated -------------------------------------------------------------------- 3 months ended September 30, 2005 Sales to external customers $ 601.3 95.4 233.0 12.2 - $ 941.9 Sales to other segments (c) $ 17.8 - - 2.6 - $ 20.4 Operating income (loss) $ 1.2 1.3 (2.1) (5.0) (6.2) $ (10.8) Amorti- zation $ 20.9 2.4 12.0 0.1 1.8 $ 37.2 Capital expendi- tures $ 49.9 21.9 5.8 1.0 6.1 $ 84.7 -------------------------------------------------------------------- 3 months ended September 30, 2004 (d) Sales to external customers $ 760.7 109.0 248.7 12.4 - $1,130.8 Sales to other segments (c) $ 30.2 0.8 - 2.1 - $ 33.1 Operating income (loss) $ 174.4 35.9 6.3 (2.8) (10.6) $ 203.2 Amorti- zation $ 22.2 2.6 11.2 1.1 2.2 $ 39.3 Capital expendi- tures $ 16.9 17.6 21.2 2.6 0.7 $ 59.0 -------------------------------------------------------------------- (millions of Lumber Pulp & Coastal Corporate dollars) (b) Panels Paper Operations & Other Consolidated -------------------------------------------------------------------- 9 months ended September 30, 2005 Sales to external customers $1,947.4 279.6 701.1 47.1 - $2,975.2 Sales to other segments (c) $ 92.6 - - 5.7 - $ 98.3 Operating income (loss) $ 144.6 28.1 5.4 (5.2) (21.0) $ 151.9 Amorti- zation $ 66.3 8.0 34.1 3.5 4.8 $ 116.7 Capital expendi- tures $ 84.6 86.2 50.0 3.5 9.5 $ 233.8 Identi- fiable assets $1,723.9 320.4 906.6 70.0 822.4 $3,843.3 -------------------------------------------------------------------- 9 months ended September 30, 2004 (d) Sales to external customers $1,861.8 277.2 742.7 74.8 - $2,956.5 Sales to other segments (c) $ 80.5 2.6 - 6.2 - $ 89.3 Operating income (loss) $ 365.8 101.1 55.2 2.4 (47.9) $ 476.6 Amorti- zation $ 55.5 5.8 32.6 4.5 6.1 $ 104.5 Capital expendi- tures $ 36.0 29.0 30.2 5.2 0.7 $ 101.1 Identi- fiable assets $1,796.1 200.0 892.4 74.5 1,001.5 $3,964.5 -------------------------------------------------------------------- (a) Operations are presented by product lines. Operations are considered to be in one geographic area, Canada, since the subsidiary in the United States is not significant to the total. (b) Sales for the quarter include sales of Canfor produced lumber of $544.8 million (2004 - $719.9 million) and $1,776.1 million for the year to date (2004 - $1,722.9 million). Excludes discontinued operations (Note 3). (c) Sales to other segments are accounted for at prices which approximate market value. (d) These figures include the results of the former Slocan operations since April 1, 2004. 16. Unusual Expense The Forestry Revitalization Plan In March 2003, the Government of British Columbia (the Crown) introduced the Forestry Revitalization Plan (the Plan) that provides for significant changes to Crown forest policy and to the existing allocation of Crown timber tenures to licensees. The changes prescribed in the Plan include the elimination of minimum cut control regulations, the elimination of existing timber processing regulations, and the elimination of restrictions limiting the transfer and subdivision of existing licenses. Through legislation, licensees are required to return 20% of their replaceable tenure to the Crown. The Plan states that approximately half of this volume will be redistributed to open up opportunities for woodlots, community forests and First Nations and the other half will be available for public auction. Licensees will be compensated by the Crown for the return of tenure and related infrastructure costs such as roads and bridges. The effect of the timber take-back results in a reduction of approximately 2.4 million cubic metres to Canfor's existing allowable annual cut on its replaceable tenures. While the legislation taking back the 20% was passed in March 2003, the government has not yet reduced the allowable harvest levels. Canfor has worked with the government to identify those licenses and operating areas that are to be returned to the Crown and this allocation was determined in December 2004. The second phase of the take-back is a negotiation with the government concerning the "on-the-ground" sites or operating areas to be taken back. The site selection process is complete for Canfor on the coast and in the northeastern portion of the province but continues in the central interior. The third phase is associated with compensation, concerning which Canfor is engaged in discussions with the Minister. The completion of negotiations with respect to site selection and compensation is expected to occur in the fourth quarter of 2005. Based on management's estimate of the amount of compensation likely to be received in the fourth quarter, the associated timber licenses have been written down to their estimated fair value at September 30, 2005, resulting in the recognition of an $11.1 million loss in the current period. Subsequent Event On October 28, 2005, Canfor signed an agreement with the Province of British Columbia, in which Canfor will receive $57.0 million in compensation for the loss of tenures noted above, and a $5.0 million advance payment against lost infrastructure and road construction costs. Canfor is continuing discussions with the Province for further compensation for infrastructure, but the amount and timing of additional compensation is not yet determinable. No significant adjustment to the write-down recognized above is anticipated. 17. Certain comparative information has been reclassified to conform to Verb 1. conform to - satisfy a condition or restriction; "Does this paper meet the requirements for the degree?" fit, meet coordinate - be co-ordinated; "These activities coordinate well" the presentation in the current period. Canfor Corporation (TSX:CFP) |
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