Sino-Forest Corporation Reports Record Net Income, EPS, Cash Flows and Gross Margin for the Second Quarter 2004 Results.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 -- (All amounts are expressed in U.S. dollars, unless otherwise indicated) Sino-Forest Corporation ("we" or the "Company") (TSX TSX Toronto Stock Exchange (TSE before April, 2002) TSX Transfer from Stack Pointer to Index TSX True Space Extension :TRE TRE Tampere (Finland) TRE Tribunal Regional Eleitoral (Brazil) TRE Trinity Railway Express (Texas) TRE Theologische Realenzyklopädie .A) today announced its results for the three months ended June June: see month. 30, 2004. Second quarter net income increased 74.0%, to $12.7 million compared to $7.3 million in the second quarter of 2003. Net income was $0.09 per 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. share in the second quarter of 2004 compared to $0.06 per diluted share in the second quarter of 2003. Our gross profit(1) increased 27.5%, to $19.5 million in the second quarter of 2004, compared to $15.3 million in the second quarter of 2003. Gross profit margin Gross profit margin Gross profit divided by sales, which is equal to each sales dollar left over after paying for the cost of goods sold. gross profit margin A measure calculated by dividing gross profit by net sales. increased to 30.1% in the second quarter of 2004, compared to 23.2% in the second quarter of 2003. Our gross profit margin from sales of standing timber timber: see lumber; wood. increased to 57.7% in the second quarter of 2004, compared to 43.8% in the second quarter of 2003. Cash flows from operating activities increased 273.5%, to $25.4 million in the second quarter of 2004, compared to $6.8 million in the second quarter of 2003. The increase was the result of an increase in cash provided by operations and an improvement in net cash used in working capital, due primarily to a decrease in accounts receivable accounts receivable n. the amounts of money due or owed to a business or professional by customers or clients. Generally, accounts receivable refers to the total amount due and is considered in calculating the value of a business or the business' problems in paying . Our accounts receivable decreased significantly, to $45.9 million as of June 30, 2004, compared to $67.3 million, as of December December: see month. 31, 2003 as a result of our effort to improve on collection of outstanding receivables Receivables An asset designation applicable to all debts, unsettled transactions or other monetary obligations owed to a company by its debtors or customers. Receivables are recorded by a company's accountants and reported on the balance sheet, and they and include all debts owed due from our customers. Revenue decreased 1.8%, to $64.8 million in the second quarter of 2004, compared to $66.0 million in the second quarter of 2003. The decrease in revenue was due to the decrease in revenue from our imported logs trading business as a result of our decision to focus more on the higher margin plantation Plantation, city (1990 pop. 66,692), Broward co., SE Fla., a residential suburb of Fort Lauderdale; inc. 1953. The city has grown rapidly along with the development of S Florida. business, particularly the pine acquisition opportunity in Heyuan Heyuan (河源) is a prefecture-level city of Guangdong Province in the People's Republic of China. Heyuan has a population of about 207,600. The majority of the people are Cantonese and Hakka. Heyuan includes many rainforests. , Guangdong Province Noun 1. Guangdong province - a province in southern China Guangdong, Kwangtung . Revenue from sales of standing timber increased 19.9%, from $14.6 million in the second quarter of 2003 to $17.5 million in the second quarter of 2004. We sold 5,529 hectares of standing timber, compared to 5,280 hectares in the second quarter of 2003. The average selling price The average sales price of goods or commodities. Especially used in the retail sector and technology distribution. of our standing timber in the second quarter was $3,162 per hectare hectare (hĕk`târ, –tär), abbr. ha, unit of area in the metric system, equal to 10,000 sq m, or about 2.47 acres. compared to $2,769 per hectare in the second quarter of 2003. The increase in average selling price in the second quarter reflected the sale of pine trees from our purchased tree plantations PLANTATIONS. Colonies, (q.v.) dependencies. (q.v.) 1 Bl. Com. 107. In England, this word, as it is used in St. 12, II. c. 18, is never applied to, any of the British dominions in Europe, but only to the colonies in the West Indies and America. 1 Marsh. Ins, B. 1, c. 3, Sec. 2, page 64. which command higher average selling prices. Revenue from sales of wood chips increased 7.6%, from $30.4 million in the second quarter of 2003 to $32.7 million in the second quarter of 2004. We sold 345,800 bone dry metric tons (Transparent Optical Networking Services) A marketing term for providing dark fiber to a customer. The customer is responsible for generating the transmission signal and interpreting it at the other end. See dark fiber. of wood chips in our wood chips trading operations, compared to 332,100 bone dry metric tons in the second quarter of 2003. The average selling price of wood chips in the second quarter was $95 per bone dry metric ton, compared to $92 per bone dry metric ton in the second quarter of 2003. Revenue from sales of wood-based products decreased 36.0%, from $17.8 million in the second quarter of 2003 to $11.4 million in the second quarter of 2004. Revenue from commission income for the second quarters of each of 2003 and 2004 was $3.2 million. Agency fees on the sale of 215,400 bone dry metric ton and 214,300 bone dry metric tons wood chips in the second quarters of 2003 and 2004 respectively were $14.70 per bone dry metric ton. Costs and expenses were $49.3 million in the second quarter of 2004, a decrease of $4.7 million from $54.0 million in the second quarter of 2003. Our selling, general and administrative expenses increased 17.9%, from $2.8 million in the second quarter of 2003 to $3.3 million in the second quarter of 2004, primarily due to a charge for stock-based compensation expense of $2.7 million offset by a translation gain of $1.7 million. Interest expense fell to $1.9 million in the second quarter of 2004 from $3.0 million in the second quarter of 2003, reflecting the exchange of substantially all of our Exchangeable Notes in 2003. We had an exchange gain on 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. of $0.2 million in the second quarter of 2004, compared to an exchange loss on long-term debt of $1.2 million, reflecting the weakening weak·en tr. & intr.v. weak·ened, weak·en·ing, weak·ens To make or become weak or weaker. weak  en·er n. of the
Euro against the U.S. dollar in the second quarter of 2004.
We are currently in the process of performing a survey of approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. 65,000 hectares of pine trees offered for our consideration pursuant to the Heyuan Pine Acquisition Undertaking. We will also conduct a detailed 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, inventory to determine the actual standing volume of the pine trees. We have engaged Jaakko Poyry Consulting to design the methodology used in conducting the survey, as well as to perform a quality control analysis of our results. Following 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 the pine trees, we intend, pursuant to our rights in the undertaking, to commence negotiations leading to the lease of the underlying plantations lands to these pine trees. Our business is seasonal. Generally, the third and fourth quarters together account for approximately 60% of annual revenue, while the first and second quarters together account for approximately 40% of annual revenue. This reflects the desire of timber companies to take advantage of the peak growing seasons growing season, period during which plant growth takes place. In temperate climates the growing season is limited by seasonal changes in temperature and is defined as the period between the last killing frost of spring and the first killing frost of autumn, at which in the spring and summer before harvesting the trees, as well as the difficulty in the logging and hauling of timber during the rainy rain·y adj. rain·i·er, rain·i·est Characterized by, full of, or bringing rain. rain i·ness n.Adj. season in the second half of the year. This press release does not constitute an offer to sell or the solicitation solicitation In criminal law, the act of asking, inducing, or directing someone to commit a crime. The person soliciting another becomes an accomplice to the crime. The term also refers to the act of obtaining bribes, as well as to the crime of a prostitute who offers sexual of an offer to buy any securities in 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. or any other jurisdiction in which such offer, solicitation or sale would be unlawful Contrary to or unauthorized by law; illegal. When applied to promises, agreements, or contracts, the term denotes that such agreements have no legal effect. The law disapproves of such conduct because it is immoral or contrary to public policy. prior to registration or qualification under the securities laws of any such jurisdiction. The securities may not be offered or sold in the United States absent registration or an applicable exemption exemption n. 1) in income taxation, a credit given for each dependent, blindness or other disability, and age over 65, which result in a downward calculation in tax levels. from registration requirements. No public offer of securities is to be made in the United States. (1) Gross profit for any period is defined as total revenue less cost of sales. Gross profit is presented as additional information because we believe that it is a useful measure for certain investors to determine our operating performance. Gross profit is not a recognized term under 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. GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). and should not be considered as an alternative to net income as an 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. of our operating performance or any other measure of performance derived de·rive v. de·rived, de·riv·ing, de·rives v.tr. 1. To obtain or receive from a source. 2. 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 Canadian GAAP. Because it is not a Canadian GAAP measure, gross profit may not be comparable to similar measures presented by other companies. Gross profit is determined as follows:
3 Months Ended June 30 6 Months Ended June 30
2004 2003 2004 2003
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$'000 $'000 $'000 $'000
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Total revenue 64,818 66,000 105,601 104,337
Cost of sales (45,303) (50,740) (75,489) (79,956)
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Gross profit 19,515 15,260 30,112 24,381
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Please note: This press release contains projections and 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. regarding future events. Such forward-looking statements are not guarantees of future performance of the Company and are subject to risks and uncertainties that could cause actual results and company plans and objectives to differ materially from those expressed in the forward-looking statements. Such risks and uncertainties include, but not limited to, changes in China and international economies; changes in currency exchange rates; changes in worldwide demand for the Company's products; changes in worldwide production and production capacity in the forest products industry; competitive pricing pressures for the Company's products and changes in wood and timber costs. Today, at 10:30 a.m. Eastern Time, Sino-Forest will hold a conference call. Allen Al·len , Edgar 1892-1943. American anatomist who is noted for his studies of hormones and for the discovery (1923) of estrogen. Chan, Chairman and Chief Executive Officer, and Kee Wong n. 1. A field. , Executive Vice President and Chief Financial Officer, will discuss the corporation's results and its progress in acquiring additional pine trees in support of its growth strategy. The discussion will be followed by a question and answer session. To participate in the call, please dial-in at 10:25 a.m. (EST EST electroshock therapy. EST abbr. electroshock therapy ), Participants 1-800-817-8874 (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 and US) 800-962-670 (Hong Kong Hong Kong (hŏng kŏng), Mandarin Xianggang, special administrative region of China, formerly a British crown colony (2005 est. pop. 6,899,000), land area 422 sq mi (1,092 sq km), adjacent to Guangdong prov. ) 312-461-9315 (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). and other Asia)
Confirmation code: 575889 A replay of the call will be available for 30 days. Listeners must dial 888-203-1112 or 719-457-0820 and use 575889 to access replay.
SINO-FOREST CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(Expressed in thousands of U.S. dollars, except for earnings
per share information)
(Unaudited)
3 Months Ended June 30 6 Months Ended June 30
2004 2003 2004 2003
$ $ $ $
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Revenue
Sales 61,660 62,827 100,817 99,534
Commission income 3,158 3,173 4,784 4,803
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64,818 66,000 105,601 104,337
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Costs and expenses
Cost of sales 45,303 50,740 75,489 79,956
Selling, general
and administration 3,319 2,807 5,381 5,056
Depreciation and
amortization 705 480 1,437 959
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49,327 54,027 82,307 85,971
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Income from operations 15,491 11,973 23,294 18,366
Interest expense
(note 2) (1,903) (3,013) (3,813) (5,875)
Exchange gain (loss)
on long-term debt 165 (1,197) 688 (1,799)
Interest income 103 22 144 140
Amortization of deferred
financing costs (238) (259) (480) (346)
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Income before
income taxes 13,618 7,526 19,833 10,486
Provision for income
taxes (876) (234) (1,219) (447)
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Net income for
the period 12,742 7,292 18,614 10,039
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Earnings per share (note 8)
Basic 0.11 0.09 0.18 0.13
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Diluted 0.09 0.06 0.15 0.10
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Retained Earnings
Retained earnings,
beginning of period 177,533 147,353
Net income for the period 18,614 10,039
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Retained earnings,
end of period 196,147 157,392
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See accompanying notes
SINO-FOREST CORPORATION
CONSOLIDATED BALANCE SHEETS
(Expressed in thousands of U.S. dollars) (Unaudited)
As at June 30, As at December 31,
2004 2003
$ $
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ASSETS
Current
Cash and cash equivalents 2,623 6,929
Short-term deposits 70,128 21,674
Accounts receivable 45,944 67,345
Due from PRC CJV partners 2,603 6,688
Deposit for the purchase of plantations 6,041 6,041
Other receivables and prepaid expenses 6,005 5,818
Inventories 2,027 1,170
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Total current assets 135,371 115,665
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Capital assets, net 356,502 298,410
Deferred financing costs, net 3,841 4,230
Other assets 548 549
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496,262 418,854
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Bank indebtedness (note 3) 29,908 39,025
Accounts payable and accrued liabilities
(note 10) 24,791 22,051
Income taxes payable 14,682 13,465
Current portion of long-term debt
(note 4) 44,778 43,388
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Total current liabilities 114,159 117,929
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Long-term debt (note 4) 48,545 55,953
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Total liabilities 162,704 173,882
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Shareholders' equity
Share capital (note 5) 134,718 67,439
Contributed surplus (note 6) 2,693 -
Retained earnings (note 4(b)) 196,147 177,533
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Total shareholders' equity 333,558 244,972
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496,262 418,854
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See accompanying notes
SINO-FOREST CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in thousands of U.S. dollars) (Unaudited)
3 Months Ended 6 Months Ended
June 30 June 30
2004 2003 2004 2003
$ $ $ $
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income for the period 12,742 7,292 18,614 10,039
Add (deduct) items not affecting cash
Depletion of timber holdings 7,407 8,819 12,060 14,029
Accretion of Exchangeable Notes 9 1,105 17 2,633
Exchange loss (gain) on
long-term debt (165) 1,197 (688) 1,799
Depreciation and amortization 705 480 1,437 959
Stock-based compensation 2,693 - 2,693 -
Amortization of redemption
premium on long-term debt 729 729 1,457 910
Amortization of deferred financing
costs 238 259 480 346
Provision for impairment of an
interest rate cap agreement 104 - 195 -
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24,462 19,881 36,265 30,715
Net change in non-cash working
capital balances (note 7) 958 (13,087) 26,486 (6,334)
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Cash flows from operating
activities 25,420 6,794 62,751 24,381
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CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of long-term debt - 5,017 - 19,017
Increase (decrease) in bank
indebtedness (7,891) 1,860 (9,117) (1,528)
Issuance of shares, net of
issue costs 67,140 - 67,279 -
Increase in deferred financing
costs (350) (259) (350) (1,191)
Repayment of long-term debt (3,637) (470) (6,804) (940)
Increase (decrease) in amounts
due to related parties (note 10) (1,997) - 1,718 -
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Cash flows from financing
activities 53,265 6,148 52,726 15,358
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CASH FLOWS USED IN INVESTING
ACTIVITIES
Additions to capital assets (29,742)(18,474) (71,329) (42,945)
Decrease (increase) in short
term deposits (49,081) 989 (48,454) 4,195
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Cash flows used in investing
activities (78,823)(17,485) (119,783) (38,750)
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Net increase (decrease) in cash
and cash equivalents (138) (4,543) (4,306) 989
Cash and cash equivalents,
beginning of period 2,761 6,710 6,929 1,178
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Cash and cash equivalents,
end of period 2,623 2,167 2,623 2,167
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Supplemental cash flow information
Cash payment for interest
charged to income 1,428 1,199 2,437 2,171
Cash payment for interest
capitalized 829 1,007 1,651 1,176
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See accompanying notes
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Tabular figures are expressed in thousands of U.S. dollars,
unless otherwise indicated)
(Unaudited)
1. Basis of presentation The unaudited 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 do not conform in all respects to the requirements of 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 for annual financial statements. Accordingly, these interim consolidated financial statements 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 consolidated financial statements and notes included in the Company's Annual Report for the year ended December 31, 2003. These interim consolidated 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 consolidated financial statements for the year ended December 31, 2003. The quarterly results are not necessarily indicative indicative: see mood. of results to be expected for the entire year. The revenue for the second quarter of the year typically represents 25% to 30% of the entire year.
2. Interest expense
3 Months Ended June 30 6 Months Ended June 30
2004 2003 2004 2003
$ $ $ $
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Interest on long-term debt 758 1,869 1,529 4,079
Interest on short-term debt 416 415 827 886
Amortization of redemption
premium on long-term debt 729 729 1,457 910
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1,903 3,013 3,813 5,875
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3. Bank 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. Certain of the Company's banking facilities are collateralized by: (a)charges over certain of the Company's land-use rights, buildings and timber holdings which have an aggregate net book value at the consolidated balance sheet consolidated balance sheet A balance sheet in which assets and liabilities of a parent company and its controlled subsidiaries are combined, thereby presenting balance sheet items for the parent and its subsidiaries as if they were a single firm. date of $8,947,000 (December 31, 2003 - $9,161,000); and (b)certain short-term Short-term Any investments with a maturity of one year or less. short-term 1. Of or relating to a gain or loss on the value of an asset that has been held less than a specified period of time. deposits at the consolidated balance sheet date of $7,923,000 (December 31, 2003 - $8,540,000). In respect of the timber holdings pledged pledge n. 1. A solemn binding promise to do, give, or refrain from doing something: signed a pledge never to reveal the secret; a pledge of money to a charity. 2. a. in (a) above, the PRC CJV CJV Cooperative Joint Venture partners have undertaken to counter-indemnify the Company from their 30% share of the harvested timber. 4. Long-term debt (a) The IFC (Internet Foundation Classes) A class library from Netscape that provides an application framework and graphical user interface (GUI) routines for Java programmers. IFC was later made part of the Java Foundation Classes (JFC). See JFC, AFC and AWT. See also ICF. projects loans are collateralized by pledges PLEDGES, pleading. It was anciently necessary to find pledges or sureties to prosecute a suit, and the names of the pledges were added at the foot of the declaration; but in the course of time it became unnecessary to find such pledges because the plaintiff was no longer liable to be over the land-use rights, buildings, machinery and equipment which have an aggregate net book value at the consolidated balance sheet of approximately $24,529,000 (December 31, 2003 - $26,162,000). (b) Under the terms of the long-term debts agreements, the Company and Sino-Wood Partners, Limited, a wholly-owned subsidiary of the Company, must meet certain financial and non-financial covenants. These covenants include the maintenance of certain financial ratios, restrictions and limitations, including those on changing the nature of its business and payment of dividends. As at June 30, 2004, the current ratio of the Company, calculated on a 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: basis, did not comply with the minimum requirement specified spec·i·fy tr.v. spec·i·fied, spec·i·fy·ing, spec·i·fies 1. To state explicitly or in detail: specified the amount needed. 2. To include in a specification. 3. under the agreements of the IFC projects loans. As a consequence of the non-compliance, the Company may not make any distribution out of its profits or share capital and may not 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. any new debt without written approval from the IFC and other co-lenders. However, management does not believe that the aforesaid Before, already said, referred to, or recited. This term is used frequently in deeds, leases, and contracts of sale of real property to refer to the property without describing it in detail each time it is mentioned; for example,"the aforesaid premises. non-compliance and meeting the other covenants will affect the normal operations Generally and collectively, the broad functions that a combatant commander undertakes when assigned responsibility for a given geographic or functional area. Except as otherwise qualified in certain unified command plan paragraphs that relate to particular commands, "normal operations" of of the Company or accelerate the debt maturity. 5. Share capital Pursuant to a special resolution passed on June 21, 2004, the Class A Subordinate-Voting Shares of the Company were reclassified as common shares. During the six-month period ended June 30, 2004, 200,000 stock options have been exercised for proceeds of $272,000 and 200,000 common shares were issued. In May 2004, the Company completed a placement of 38,970,000 common shares for aggregate gross proceeds of $74,284,000. Share issue costs relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc the placement amounted to $7,277,000. In conjunction with the completion of the equity offering in May 2004, the Company purchased from management certain options to acquire shares in Sino-Wood Partners, Limited pursuant to securities purchase agreements for approximately Cdn$12,000,000. The amount is paid by the issuance of 2,400,000 common shares valued at Cdn$2.65 per share based upon the offering price. One half of the shares will vest 90 days following the completion of the offering and the remaining one half will vest on the first anniversary of the completion of the offering. The Company will record compensation expense of approximately $7,800,000 over the vesting Vesting The process by which employees accrue non-forfeitable rights over employer contributions that are made to the employee's qualified retirement plan account. Notes: period. The compensation expense recorded in the second quarter of 2004 amounted to $2,539,000. On May 11, 2004, options to acquire 2,820,000 common shares were granted to employees and independent directors at an exercise price of Cdn$2.72 in accordance with the Company's stock option plan. The options granted will vest over 3 years and expire expire /ex·pire/ (ek-spi´er) 1. to exhale. 2. to die. ex·pire v. 1. To breathe one's last breath; die. 2. To exhale. on May 10, 2009. The fair value of the stock options granted was estimated to be US$2,458,000 on the date of grant using the Black & Scholes Scholes(/skowlz/ or /šowlz/) could refer to the following places: United Kingdom:
--------------------------------------------------------------------- Dividend Yield 0.0% Volatility 54.6% Risk-free interest rate 3.7% Expected option lives (in years) 3.5 Weighted average fair value of each option (in U.S. dollars) $0.87 --------------------------------------------------------------------- --------------------------------------------------------------------- The compensation expense recorded for the second quarter of 2004 with respect to the above option granted amounted to $154,000. 6. Contributed surplus The contributed surplus of $2,693,000 represents stock-based compensation and options granted over the vesting period which was charged to the income statement during the period ended June 30, 2004. 7. Net change in non-cash working capital balances The net change in non-cash working capital balances comprises the followings:
3 Months Ended June 30 6 Months Ended June 30
2004 2003 2004 2003
$ $ $ $
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Accounts receivable (3,332) (19,130) 21,401 (15,606)
Due from LFB - 3,581 - 3,581
Due from PRC CJV partners 2,234 978 4,085 4,881
Deposit for the purchase
of plantations - 1,746 - -
Other receivables and
prepaid expenses 790 (551) (382) (403)
Inventories (1,093) (698) (857) (857)
Accounts payable and
accrued liabilities 1,483 755 1,022 1,631
Income taxes payable 876 232 1,217 439
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958 (13,087) 26,486 (6,334)
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8. Earnings per share Basic earnings per share is based on the weighted average number of common shares outstanding during the period. The common shares pledged under the Company's share purchase loans were deducted de·duct v. de·duct·ed, de·duct·ing, de·ducts v.tr. 1. To take away (a quantity) from another; subtract. 2. To derive by deduction; deduce. v.intr. from the weighted average number of common shares outstanding in calculating basic earnings per share. Diluted earnings per share diluted earnings per share An earnings measure calculated by dividing net income less preferred stock dividends for a period by the average number of shares of common stock that would be outstanding if all convertible securities were converted into shares of is based on the weighted average number of common shares outstanding, adjusted for stock options outstanding, shares to be issued for the purchase of the Sino-Wood Option and shares acquired under share purchase loans. The weighted average number of common shares outstanding for the period were as follows:
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Weighted average
Basic Diluted
---------------------------------------------------------------------
3 months ended June 30, 2004 116,359,000 117,088,000
6 months ended June 30, 2004 106,336,000 106,809,000
3 months ended June 30, 2003 75,682,000 80,494,000
6 months ended June 30, 2003 75,682,000 80,402,000
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9. Segmented information
By industry segment
3 Months Ended 3 Months Ended
June 30, 2004 June 30, 2003
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Plant- Wood- Plant- Wood-
ation Based Total ation Based Total
$ $ $ $ $ $
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Revenue from external
customers
Sale of wood chips 32,749 - 32,749 30,391 - 30,391
Sale of wood-based
products - 11,430 11,430 - 17,815 17,815
Sale of standing
timber 17,481 - 17,481 14,621 - 14,621
Commission income 3,158 - 3,158 3,173 - 3,173
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53,388 11,430 64,818 48,185 17,815 66,000
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Income (loss) from
operations 16,386 (895) 15,491 12,585 (612) 11,973
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Identifiable assets 374,663 121,599 496,262 249,187 121,708 370,895
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Interest income - 103 103 1 21 22
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Interest expense 454 1,449 1,903 435 2,578 3,013
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---------------------------------------------------------------------
Depreciation and
amortization 8 697 705 25 455 480
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Provision for (recovery
of) income taxes 1,012 (136) 876 240 (6) 234
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Depletion of timber
holdings included in
cost of sales 7,407 - 7,407 8,233 586 8,819
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Additions to capital
assets 29,169 573 29,742 17,754 720 18,474
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By industry segment
6 Months Ended 6 Months Ended
June 30, 2004 June 30, 2003
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Plant- Wood- Plant- Wood-
ation Based Total ation Based Total
$ $ $ $ $ $
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Revenue from external
customers
Sale of wood chips 48,052 - 48,052 45,032 - 45,032
Sale of wood-based
products - 24,831 24,831 - 30,311 30,311
Sale of standing
timber 27,934 - 27,934 24,191 - 24,191
Commission income 4,784 - 4,784 4,803 - 4,803
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80,770 24,831 105,601 74,026 30,311 104,337
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Income (loss) from
operations 24,929 (1,635) 23,294 19,443 (1,077) 18,366
---------------------------------------------------------------------
---------------------------------------------------------------------
Identifiable assets 374,663 121,599 496,262 249,187 121,708 370,895
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Interest income - 144 144 1 139 140
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---------------------------------------------------------------------
Interest expense 919 2,894 3,813 793 5,082 5,875
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---------------------------------------------------------------------
Depreciation and
amortization 18 1,419 1,437 46 913 959
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Provision for (recovery
of) income taxes 1,308 (89) 1,219 440 7 447
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---------------------------------------------------------------------
Depletion of timber
holdings included in
cost of sales 12,060 - 12,060 13,443 586 14,029
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---------------------------------------------------------------------
Additions to
capital assets 70,021 1,308 71,329 37,467 5,478 42,945
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By geographic geographic /geo·graph·ic/ (je?o-graf´ik) in pathology, of or referring to a pattern that is well demarcated, resembling outlines on a map. geographic pertaining to geography. segment The Company conducts substantially all of its operations in one geographic area, East Asia East Asia A region of Asia coextensive with the Far East. East Asian adj. & n. . During the quarter ended June 30, 2004, sales in the PRC and to other countries amounted to approximately $61,511,000 (June 30, 2003 - $60,161,000) and $149,000 (June 30, 2003 - $2,666,000), respectively. 10. Related party transactions (a) Pursuant to the respective service agreements, the Company pays consultancy fees consultancy fee n → honoraires mpl d'expert consultancy fee n → onorario di consulenza to companies controlled by certain directors who are also executives officers in lieu of Instead of; in place of; in substitution of. It does not mean in addition to. their compensation. The consultancy fees incurred for the period amounted to $274,000 (June 30, 2003 - $274,000). In addition, as at June 30, 2004, the Company had an aggregate amount of $645,000 (December 31, 2003 - $1,249,000) owed to these related companies. (b) The Company has provided interest free loans to employees under its stock option plan to finance the acquisition of common shares upon the exercise of options. When the Company makes these loans, the proceeds of the sale of the relevant common shares are delivered to the Company, the loan is repaid, and the balance of the proceeds is held by the Company on behalf of the employee. As of June 30, 2004, accounts payable and accrued liabilities Accrued liabilities are liabilities which have occurred, but have not been paid or logged under accounts payable during an accounting period; in other words, obligations for goods and services provided to a company for which invoices have not yet been received. included approximately $3,814,000 (December 31, 2003 - $3,937,000) owed to executive officers relating to these balances. These amounts are non-interest bearing and payable on demand. The Company has also assisted its employees in facilitating the sale of blocks of common shares held by employees. The proceeds of these sales may also be deposited in the Company's accounts on a temporary basis to be held by the Company on behalf of the employee. During the first quarter of 2004, the Company facilitated the sale of common shares for an executive officer. As of June 30, 2004, accounts payable and accrued liabilities included approximately $1,718,000 (December 31, 2003 - nil) in proceeds from this sale owing to owing to prep. Because of; on account of: I couldn't attend, owing to illness. owing to prep → debido a, por causa de this executive officer. This amount is non-interest bearing and payable on demand. The Company does not intend to facilitate sales of common shares for employees in the future. (c) Interest expenses for the period ended June 30, 2004 on the Exchangeable Notes was $21,000 (June 30, 2003 - $2,920,000) in which one of the directors of the Company is an officer and shareholder in a management company that provides certain advisory, management and general administrative services to the entity that ultimately holds the Exchangeable Notes. (d) Interest expense and redemption premium redemption premium See call premium. charged for the period ended June 30, 2004 on the Convertible Instruments amounted to $310,000 (June 30, 2003 - $192,000) and $1,171,000 (June 30, 2003 - $728,000) respectively in which one of the directors of the Company is an officer and shareholder in a management company that provides certain advisory, management and general administrative services to the entity that ultimately holds the Convertible Instruments. 11. Commitments As at June 30, 2004, the Company has various commitments to make capital contributions to the PRC co-operative joint ventures and wholly foreign owned enterprises Wholly Foreign Owned Enterprises (WFOEs) have become the investment vehicle of choice for the international investor wishing to manufacture, process, or assemble in China. It negates the need for a Chinese partner and does not require large amounts of registered capital to fund. of $18,489,000 (December 31, 2003 - $18,442,000). In addition, the Company has capital commitments in respect of buildings, timber holdings, plant and machinery of $15,789,000 (December 31, 2003 - $15,887,000). Commitments under operating leases Operating Lease A lease contract that allows the use of an asset, but does not convey rights similar to ownership of the asset. Notes: An operating lease is not capitalized it is accounted for as a rental expense. for land and buildings are as follows:
$
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Within 1 year 735
In the second year 600
In the third year 331
In the fourth year 300
In the fifth year 294
Thereafter 21,450
-------------------------------------------------------------
23,710
-------------------------------------------------------------
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12. Subsequent event On July July: see month. 28, 2004, the Company announced that it has engaged Morgan Stanley  To comply with Wikipedia's , the introduction of this article needs a complete rewrite. & Co. Incorporated as the sole underwriter underwriter n. a company or person which/who underwrites an insurance policy, issue of corporate securities, business, or project. (See: underwrite) UNDERWRITER, insurances. One who signs a policy of insurance, by which he becomes an insurer. in connection with an offering of guaranteed senior notes in the international markets. The anticipated size of the offering will be between $200-$250 million with an intermediate maturity. The final size and details of the offering including the interest rate payable on the notes will be determined after completion of the marketing activities. The Company intends to use the net proceeds Net Proceeds The amount received after all costs are deducted from the sale of a piece of property or security. Notes: In the case of an investor selling a security, net proceeds represent the proceeds from the sale minus any trading costs (i.e. commissions). of the offering to repay approximately $92 million of existing indebtedness, to acquire mature pine tree plantations in Heyuan, Guangdong Province and to use the balance of the net proceeds for general working capital purposes. |
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