2015
Annual Report
CONTENTS
Financial Highlights
Message to Shareholders
Management’s Discussion and Analysis
Consolidated Financial Statements
Annual Information Form
pg
3
4
9
30
86
3
FINANCIAL HIGHLIGHTS
(in millions of dollars, except share and per share amounts)
2015
2014
Financial Summary
Sales
Adjusted EBITDA (1)
Net earnings (loss)
Per Share Data
Net earnings (loss) per common share
- basic and diluted
Price range per share
High
Low
Net book value per share
Operating cash flow per share before working capital
change
Weighted average shares outstanding (millions)
Financial Position
Total assets
Total debt
Total shareholders’ equity
Invested capital (1)
Financial Ratios (%)
Net debt as a % of invested capital, adjusted (1)
Pre-tax return (loss) on total assets (1)
Notes:
(1) See Glossary for definition.
1,687.4
91.7
(30.4)
1,447.2
169.3
40.7
(0.44)
23.34
9.12
10.36
0.96
69.5
1,389.8
468.8
725.3
1,177.6
38.4%
(1.9%)
0.62
22.15
13.02
9.54
2.17
66.0
1,068.5
220.4
636.5
839.0
24.1%
6.4%
“Our primary focus in 2016 is to increase the profitability of the operations we’ve
acquired in the last three years.
And, having dealt with Tacoma and completed Castlegar, we are in a great
position to use the free cash flow we generate in the next few years to pursue
additional value-creating opportunities.”
Message to Shareholders – February 2016
For further highlights, please see the Message to Shareholders and Management’s
Discussion and Analysis on the following pages.
4
Overview
MESSAGE TO SHAREHOLDERS
2015 was a challenging year for Interfor. The realignment of international currency
values which began in mid-2014 led to a significant drop in product prices and to
financial results that were well below those achieved in 2013 and 2014.
In spite of the issues that arose during the year, there were a number of positives
during the year that will add value to our Company in the years ahead. Those highlights
included:
We grew our production capacity by one-third with the acquisition of 5 sawmills in
the U.S.;
We rebuilt the Castlegar sawmill; and
We supplemented our financial position by raising $63.2 million in new share capital
and by terming out an additional US$100 million in debt at attractive rates.
We also acted quickly when the extent of the downturn in product markets became
apparent.
From a shareholder standpoint, our share price fell by 36% last year after gains of 68%
in 2013 and 63% in 2014.
While the drop in our share price was in line with the experiences of other companies in
our industry, we don’t take much comfort from that comparison.
Our goal is to distinguish ourselves from the others and to deliver above average returns
to our shareholders over time.
I believe the steps we’ve taken in recent years position Interfor to deliver on that goal.
More important, the actions we’ve taken in the last six to nine months will make us even
stronger in the years ahead.
I invite you to read the material covered in the next few pages and later in this report
and to form your own views on our progress. Please feel free to forward any comments
or questions you might have to me directly at duncan.davies@interfor.com.
Record Production and Sales Volumes; Financial Results Impacted by Lower
Prices and Losses at Tacoma
Interfor continued to grow its business in 2015.
For the year, lumber production was up 12% to 2.5 billion board feet, with the
Company’s operations in Canada accounting for 31% of production and our mills in the
U.S. accounting for 69%.
Sales volumes, including agency and wholesale activities, were up from 2.3 billion board
feet to 2.7 billion board feet last year.
Product prices, however, weakened materially in 2015.
For the year, the Random Lengths Composite Index, which measures prices for a basket
of products, came in at US$330 versus US$383 in 2014.
Message to Shareholders
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5
Western species were particularly hard hit: benchmark SPF 2x4 was down US$71 or
20% versus 2014 while Hem-Fir 9’ 2x4 studs were off US$93 or 23% year-over-year.
SYP 2x4 Eastside was off US$36 or 9% compared to 2014.
In financial terms, the reduction in prices more than offset the benefits of higher
production and sales volumes.
All in, Interfor lost $30.4 million after-tax in 2015 on sales of $1.69 billion compared
with earnings of $40.7 million after-tax in 2014 on sales of $1.45 billion
The loss in 2015 includes operating losses and closure costs at the Tacoma mill acquired
earlier in the year from Simpson Lumber Company, LLC (“Simpson”) which totaled $13.2
million after-tax.
EBITDA1 reported before one-time items (including the Tacoma closure costs) and
share-based compensation expenses, came in at $91.7 million versus $169.3 million in
2014.
The drop in the value of the Canadian dollar versus its U.S. counterpart (US$0.782 in
2015 versus US$0.905 in 2014) helped to shelter our Canadian operations from the full
extent of the drop in product prices in 2015 but left our U.S. operations exposed to the
downturn.
Strategic Update
Interfor has invested actively in recent years to grow our operating platform and to set
the stage for higher revenues and profitability in the years ahead. This process
continued in 2015 with the acquisition of four mills from Simpson in March and another
mill from The Price Companies, Inc. (“Price”), in June.
Together, those mills added 850 million board feet to our annual production capacity2.
All of Interfor’s acquisition work is undertaken using strict criteria and limits on the
amount of financial exposure we are prepared to accept on a specific transaction or in
aggregate.
This discipline proved highly beneficial when product markets turned soft in the spring.
The acquisition of the mills in Meldrim, Georgia, Georgetown, South Carolina and
Longview, Washington from Simpson was fairly straightforward, as was the purchase of
the Monticello mill in Arkansas from Price. The mills were profitable and in our opinion
contained significant potential upside. Equally important, the mills fit nicely within our
operating platforms in the U.S. South and Northwest.
The fourth mill acquired from Simpson in Tacoma, Washington, was more of a challenge.
As we indicated at the time of acquisition, the mill was not profitable and in need of a
significant turnaround.
As a result, we designed the Tacoma acquisition using a contingent value structure that
limited our upfront investment to the purchase of working capital with the ultimate
1 Refer to definition of Adjusted EBITDA in the Glossary.
2 After taking account of the closure of the Tacoma mill in July, the net increase in capacity
attributable to the acquisitions was 575 million board feet, bringing the Company’s total capacity
to approximately 3.0 billion board feet.
Message to Shareholders
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6
payment to the vendor tied to the mill’s profitability over a three year period of time,
subject to a minimum payment of US$10 million.
When markets deteriorated in the spring we made a decision to curtail the mill and then
closed it permanently in July when it became apparent the downturn would be more
severe than we first thought and the mill’s capital needs were more significant than we
were prepared to undertake.
Since then, the mill’s log and lumber inventories have been liquidated, its equipment
and machinery have been sold and agreement has been reached on the sale of the mill
property.
The property sale is expected to close mid-year 2016, subject to customary closing
conditions.
When completed, the cash proceeds for the monetization of the Tacoma assets are
expected to exceed the total of the operating losses and exit costs associated with the
facility. The gain on the sale of the property will be recorded on our books when the
property sale closes.
Castlegar Rebuild Completed; Results Ahead of Schedule
In November 2014 we announced a $50 million upgrade to our mill at Castlegar in the
B.C. Interior.
The project converted the mill from a 3-line operation to a 2-line facility using
technology similar to that employed at our mills at Adams Lake, Grand Forks and Port
Angeles. The main elements of construction were completed in late September and the
mill resumed operations in the first week of October.
I’m very pleased to report that the start-up of the mill has gone very well. Productivity
in the first three months of operation averaged 83% of target proforma and lumber
recovery and product quality are ahead of expectations.
Productivity has continued to ramp up since the end of the year, averaging 102% of
proforma in January.
Everything we see at Castlegar indicates that we have a real “winner” on our hands and
we’re looking for big things from the mill in the years ahead.
Balance Sheet Remains Strong
Maintaining a strong balance sheet is, we believe, one of the keys to success in a
business like ours and we have always brought the same kind of discipline to our
financing arrangements as we have in our investment and acquisition work.
In 2015 we took advantage of opportunities to raise additional equity capital and to term
out an additional US$100 million in debt.
The equity issue involved the sales of 3.3 million shares at a price of $20.10 per share,
and raised $63.2 million, net of underwriter’s commission and other issue costs.
The debt issue was comprised of 10 year senior secured notes at a fixed rate of 4.17%.
Message to Shareholders
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At year-end, Interfor had net debt outstanding of $452.3 million representing a net debt
to invested capital ratio of 38.4%.
Subsequent to year-end, we took steps to further solidify our financing arrangements by
extending the maturity dates of our Canadian Credit Facilities to May 19, 2019.
Senior Management Group Re-aligned
In December, Interfor’s senior management group was re-aligned with the appointment
of Ian Fillinger as Head of Operations.
Ian joined Interfor in 2005 and has held a series of progressively more senior positions
since that time. He played an important role in the design, construction and operation
of the Adams Lake mill and most recently served as Senior Vice President, Canadian
Operations where he was responsible for our B.C. Coast and Interior and Operations
including the rebuild project at Castlegar.
In his new role, Ian will assume responsibilities for all of the Company’s operations and
capital projects activity.
We were also fortunate last year to add Bart Bender in the role of Senior Vice President,
Sales & Marketing. Bart is a 25 year veteran of the building materials industry, having
served in a number of senior roles at Ainsworth Lumber Co. Ltd.
Along with the other members of our senior management group, Ian and Bart share a
mandate to drive improvements in performance throughout our operating platform and
to ensure a consistent and focused approach in management philosophy and capital
allocation across our three operating regions.
Tom Milroy Appointed to Board of Directors
At its meeting in February 2016, Interfor’s Board of Directors appointed Tom Milroy of
Toronto, Ontario as a director of the Company.
Mr. Milroy, who is 60, retired from the BMO Financial Group (“BMO”) in January 2015.
Over 21 years with BMO, Tom held a number of senior positions with that firm’s
investment banking group, serving from March 2008 to December 2014 as CEO of BMO
Capital Markets where he was responsible for all of BMO’s business involving corporate,
institutional and government clients globally.
Tom has a wealth of experience in forestry related advisory and financing work. We are
delighted to have him on board and expect him to make a big contribution to our
Company in the years ahead.
Tom has been nominated to stand for election as a director at the Company’s Annual
General Meeting in April.
Business Outlook Improving; Vision Remains Intact
Positive signs continue to emerge in the U.S. laying the foundation for better market
conditions in 2016 and beyond.
Our primary focus in 2016 is to increase the profitability of the operations we've
acquired in the last three years.
Message to Shareholders
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8
And, having dealt with Tacoma and completed Castlegar, we are in a great position to
use the free cash flow we generate in the next few years to pursue additional value-
creating opportunities.
In closing, I would like to thank our employees and Board of Directors for their
contributions and support over the course of the year.
I remain convinced we are on track to build significant value for our shareholders and
other stakeholders in the years ahead.
Duncan Davies
President & CEO
February 2016
MANAGEMENT’S DISCUSSION AND ANALYSIS
Prepared as of February 11, 2016
9
This Management’s Discussion and Analysis (“MD&A”) provides a review of financial condition and results
of operations as at and for the three and twelve months ended December 31, 2015 (“Q4’15” and “2015”,
respectively). It should be read in conjunction with the audited consolidated financial statements of
Interfor Corporation and its subsidiaries (“Interfor” or the “Company”) for the year ended December 31,
2015, and the notes thereto which have been prepared in accordance with International Financial
Reporting Standards (“IFRS”). This MD&A contains certain non-GAAP measures which, within the Non-
GAAP Measures section, are discussed, defined and reconciled to figures reported in the Company’s
consolidated financial statements. This MD&A has been prepared as of February 11, 2016.
All figures are stated in Canadian Dollars, unless otherwise noted, and references to US$/USD are to the
United States Dollar. For definitions of technical terms and abbreviations used within this MD&A, refer to
the Glossary in the Company’s 2015 Annual Report.
Forward-Looking Statements
This MD&A contains forward-looking statements that address or discuss activities, events or
developments that the Company expects or anticipates may occur in the future. Forward-
looking statements are included under the headings “Overview of 2015”, “Outlook”, “Liquidity”,
“Capital Resources”, “Off-Balance Sheet Arrangements”, “Financial Instruments and Other
Instruments”, “Accounting Policy Changes” and “Risks and Uncertainties”. These forward-
looking statements reflect management’s current expectations and beliefs and are based on
certain assumptions including those related to general business and economic conditions in
Canada, the U.S., Japan and China, and assessment of risks as described under “Risks and
Uncertainties”. Such forward-looking statements are subject to risks and uncertainties and no
assurance can be given that any of the events anticipated by such statements will occur or, if
they do occur, what benefit the Company will derive from them, if any. A number of factors
could cause actual results, performance or developments to differ materially from those
expressed or implied by such forward-looking statements, including those matters described
under the heading “Risks and Uncertainties” and in Interfor’s current Annual Information Form
available on www.sedar.com. Accordingly, readers should exercise caution in relying upon
forward-looking statements and the Company undertakes no obligation to publicly revise them
to reflect subsequent events or circumstances, except as required by law.
Overview of 2015
Q4’15 Results
Interfor recorded Adjusted EBITDA of $35.8 million in Q4’15 versus $11.5 million in Q3’15 and
$37.4 million in Q4’14. The Company’s results in Q4’15 reflect the benefits of higher prices
and progress on a number of key business initiatives. Highlights for the quarter include:
Higher Lumber Prices
o Key product benchmark prices strengthened throughout Q4’15 as the market
adjusted to production curtailments in a number of regions, greater stability in
Chinese demand and an extended fall buying period in North America due to
favourable weather.
Weaker Canadian Dollar
o The Canadian Dollar weakened against the U.S. Dollar, averaging $0.749 in Q4’15
versus $0.764 in Q3’15, resulting in favourable currency translations of U.S. Dollar
revenues.
Management’s Discussion and Analysis
10
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Castlegar Mill Re-Start
o The Castlegar sawmill modernization project commenced start-up procedures on
October 5th. Productivity and product quality were ahead of expectations
throughout the quarter, resulting in a positive earnings contribution in Q4’15 versus
a negative contribution in Q3’15.
Tacoma Sawmill Monetization
o Monetization of the former Tacoma sawmill assets progressed well in Q4’15, with:
(i) the sale of the remaining log and lumber inventories; (ii) a successful auction of
machinery, equipment and parts; and (iii) the signing of an agreement to sell the
mill property. Cash proceeds from the monetization of assets are expected to
exceed the total of the operating losses, exit costs and remaining asset value
associated with the facility, with the property sale expected to close in mid-2016
subject to customary closing conditions.
Free Cash Flow Generation and Debt Reduction with Increased Liquidity
o
Interfor generated $46.1 million in cash from operations after considering working
capital changes. During Q4’15, the Company’s net debt position expressed in U.S.
Dollars dropped from US$344.5 million to US$326.8 million.
o On February 9, 2016, Interfor extended the maturity dates of its Canadian
Operating Line and Revolving Term Line to May 19, 2019, which improved liquidity
and enhanced financial flexibility. At December 31, 2015, the Company’s net debt
to invested capital ratio was 38.4% and available liquidity would have been $147.0
million after considering the revised credit terms, versus $103.3 million at
September 30, 2015.
In Q4’15, Interfor recorded sales of $411.4 million and a net loss of $3.5 million, or $0.05 per
share, compared with net losses of $6.1 million and $5.2 million in Q3’15 and Q4’14,
respectively. Adjusted net earnings in the fourth quarter were $5.5 million, or $0.08 per
share, compared with an adjusted net loss of $15.4 million and adjusted net earnings of $10.2
million in Q3’15 and Q4’14, respectively.
Significant Financings, Investments & Operational Changes
On January 27, 2015, Interfor closed a bought deal public offering of subscription receipts (the
“Subscription Receipts”) through a syndicate of underwriters. The Company issued an
aggregate of 3,300,000 Subscription Receipts at a price of $20.10 per Subscription Receipt, for
aggregate gross proceeds of $66.3 million (the “Offering”). Each Subscription Receipt entitled
the holder thereof, for no additional consideration and without further action, to one Common
share of the Company upon closing of the acquisition of four sawmills from Simpson Lumber
Company, LLC (“Simpson”). Net proceeds of the Offering were used to partially fund this
acquisition.
On March 1, 2015, Interfor completed its acquisition of four sawmills and associated working
capital from Simpson. The sawmills are located in Tacoma, Washington; Longview,
Washington; Meldrim, Georgia and Georgetown, South Carolina and fit within the Company’s
existing operating infrastructure.
On March 16, 2015, the Company completed a US$100 million term debt financing of Senior
Secured Notes with Prudential Capital Group. The Senior Secured Notes carry an annual
interest rate of 4.17% and have a final maturity of March 26, 2026. The proceeds were used
to reduce the drawings under the Company’s Revolving Term Line. In conjunction with this
financing, Interfor decreased the credit available under its Revolving Term Line from $250
million to $200 million, without change to other terms and conditions.
Management’s Discussion and Analysis
11
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On April 27, 2015, Interfor extended the maturity date of its U.S. Operating Line from April 28,
2015, to May 1, 2017, and increased the credit available under that line from US$30 million to
US$50 million to provide enhanced financial flexibility. All other terms and conditions remain
substantially unchanged.
On May 22, 2015, Interfor curtailed operations at its Tacoma sawmill as a result of challenging
lumber and log market conditions. Following a comprehensive strategic review, the Company
announced its decision on July 30, 2015, to exit the mill. The Tacoma sawmill accounted for
47 million board feet of production in 2015 since acquisition.
On June 19, 2015, Interfor closed its acquisition of a sawmill and associated working capital in
Monticello, Arkansas, from Price Lumber Company. This acquisition increased Interfor’s U.S.
South capacity to 1.3 billion board feet and raised the proportion of Interfor’s total capacity in
the U.S. South to more than 40%.
Markets and Pricing
Each of the key benchmark prices for SYP East 2x4, Western SPF 2x4, and HF Stud 9’ 2x4
rebounded from 2015 low points in September to post successive monthly gains through the
end of 2015.
Market related production curtailments and severe weather events in the U.S. South impacted
supply to the benefit of Southern Yellow Pine prices during the fourth quarter. The SYP East
2x4 benchmark rebounded from US$317 per mfbm in September, increasing significantly
throughout Q4’15 to US$413 per mfbm in December. The average benchmark price for Q4’15
was US$400 per mfbm, or $69 per mfbm higher than Q3’15.
The HF Stud 9’ 2x4 benchmark increased from US$274 per mfbm in September and gained
throughout the fourth quarter to end the year at US$302 per mfbm in December. The average
benchmark price for Q4’15 was US$294 per mfbm, or US$9 per mfbm lower than Q3’15.
The Western SPF 2x4 benchmark rebounded from US$245 per mfbm in September to US$269
per mfbm in December, with modest monthly gains throughout the fourth quarter. The
average benchmark price for Q4’15 was US$263 per mfbm, or US$6 per mfbm lower than
Q3’15.
Production
Lumber production of 568 million board feet in Q4’15 was 50 million board feet lower than the
preceding quarter and 10 million board feet lower than Q4’14.
Production from the Company’s nine U.S. South sawmills totaled 243 million board feet in
Q4’15, down 44 million board feet compared to Q3’15. The lower production level in Q4’15
reflects temporary market-related adjustments to operating schedules across the U.S. South
platform and severe weather events which impacted the Georgetown sawmill most
significantly.
Canadian production totaled 186 million board feet in Q4’15, up 5 million board feet as
compared to Q3’15. The increase in Canadian production primarily reflects the start-up of the
Castlegar sawmill in the quarter partially offset by reduced operating hours at the other
Interfor mills in the region. In Q4’15, Interfor shipped approximately 90 million board feet of
lumber to U.S. markets from its B.C. sawmills, which represents approximately 15% of
Interfor’s total current quarterly production. Export duties applied pursuant to the Softwood
Lumber Agreement (“SLA”) expired on October 12, 2015. The SLA includes a standstill
provision which precludes the U.S. from bringing trade action against Canadian softwood
lumber producers for a 12 month period following expiry of the agreement. Export taxes on
lumber shipments from Canada into the U.S. were negligible in Q4’15.
Management’s Discussion and Analysis
12
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Production from the Company’s U.S. Northwest operations totaled 139 million board feet in
Q4’15, representing a decline of 11 million board feet from the prior quarter. This decline was
due to fewer operating hours at each of the Company’s four mills in the region.
Outlook
Interfor expects demand for lumber to continue to grow over the mid-term as the U.S. housing
market recovers and market promotion efforts in North America and offshore take full effect.
In addition, the Company is focused on a series of targeted initiatives related to margin
improvement opportunities across its operations in both the U.S. and Canada that should
contribute to Interfor’s financial results.
Interfor’s strategy of maintaining a diversified portfolio of lumber operations allows the
Company to both reduce risk and maximize returns on invested capital over the business cycle.
Interfor will continue its disciplined approach to production, cost control, inventory
management and capital spending. At the same time, Interfor will remain alert to growth
opportunities to position the Company for long term success.
Financial and Operating Highlights (1)
Notes:
(1) Figures in this table may not equal or sum to figures presented elsewhere due to rounding.
(2) Financial information presented for interim periods in this MD&A is prepared in accordance with IFRS and is
unaudited.
(3) Refer to the Non-GAAP Measures section of this MD&A for definitions and reconciliations of this measure to
figures reported in the Company’s consolidated financial statements.
(4) Gross sales before export taxes.
Unit20152014201520142013Financial Highlights(2)Total sales$MM411.4 389.0 1,687.4 1,447.2 1,105.2 Lumber$MM325.0 318.6 1,361.2 1,177.3 872.3 Logs, residual products and other$MM86.4 70.4 326.2 269.9 232.9 Operating earnings (loss)$MM(6.3)(1.1)(35.9)36.1 52.5 Net earnings (loss)$MM(3.5) (5.2)(30.4)40.7 42.2 Net earnings (loss) per share, basic and diluted$/share(0.05) (0.08)(0.44)0.62 0.73 Adjusted net earnings (loss)(3)$MM5.5 10.2 (20.0)62.3 60.7 Adjusted net earnings (loss) per share, basic and diluted(3)$/share0.08 0.15 (0.29)0.94 1.05 Adjusted EBITDA(3)$MM35.8 37.4 91.7 169.3 134.0 Adjusted EBITDA margin(3)%8.7%9.6%5.4%11.7%12.1%Total assets$MM1,389.8 1,068.5 1,389.8 1,068.5 824.1 Total debt$MM468.8 220.4 468.8 220.4 145.5 Pre-tax return on total assets(3)%(1.0%)(0.1%)(1.9%)6.4%7.3%Net debt to invested capital(3)%38.4%24.1%38.4%24.1%21.5%Operating HighlightsLumber productionmillion fbm568 578 2,497 2,222 1,725 Total lumber salesmillion fbm615 620 2,652 2,282 1,761 Lumber sales - Interfor producedmillion fbm586 605 2,544 2,217 1,701 Lumber sales - wholesale and commissionmillion fbm29 15 108 65 60 Lumber - average selling price(4)$/thousand fbm529514513 516 495 For the year ended December 31,For the 3 months ended December 31,
Management’s Discussion and Analysis
13
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Summary of Fourth Quarter 2015 Financial Performance
Sales
Interfor recorded $411.4 million of total sales, up 5.8% from $389.0 million in the fourth
quarter of 2014, driven by the sale of 615 million board feet of lumber at an average price of
$529 per mfbm. Lumber sales volume decreased 5 million board feet, or 0.8%, while average
selling price increased $15 per thousand board feet, or 2.9%, as compared to the same
quarter of 2014.
Lumber sales volume in the U.S. market grew by 32 million board feet, or 7.2% over the
fourth quarter, 2014. This growth is mostly attributable to sales from U.S. located sawmills
acquired in the first half of 2015. Offsetting the growth in U.S. sales was a reduction of 29
million board feet, or 42.7%, and 13 million board feet, or 21.7%, sold to markets in China
and Canada, respectively.
The increase in the average selling price of lumber reflects the strengthening of the U.S. Dollar
against the Canadian Dollar by 17.7% on average, partially offset by lower benchmark prices
in U.S. Dollar terms across all key species as compared to the fourth quarter of 2014.
Sales generated from logs, residual products and other increased by $16.0 million or 22.7%
compared to the same quarter of 2014. Nearly all of this increase is related to the disposal of
log inventories at the Tacoma sawmill in Q4’15, higher chip prices and the strengthened U.S.
Dollar.
Operations
Production costs increased by $23.0 million or 6.7% over the fourth quarter of 2014, explained
primarily by the impact of a weaker Canadian Dollar as noted above.
Depreciation of plant and equipment was $18.5 million, up 25.7% from the fourth quarter of
2014. The majority of this increase is explained by the inclusion of depreciation on sawmills
acquired in the first half of 2015, partially offset by lower operating rates at several sawmills.
Depletion and amortization of timber, roads and other was $10.7 million, up 23.4% from the
comparable quarter of 2014. The majority of this increase reflects higher rates of road
amortization within the Company’s B.C. Coastal logging division, due to production from camps
with higher road costs.
Corporate and Other
Selling and administration expenses were $10.2 million, up $1.3 million from the fourth
quarter of 2014. This increase reflects the growth of Interfor’s operations through the
acquisition of five sawmills in first half of 2015.
The $9.3 million long term incentive compensation expense mostly reflects the impact of a
49.0% increase in the market price for Interfor Common Shares during the quarter.
Export taxes were negligible in Q4’15 in respect of lumber shipments from the Company’s
Canadian operations to the U.S. because of the expiration of the SLA on October 12, 2015.
The duty rate was 0% throughout the comparable quarter of 2014.
In Q4’15, the Company took an impairment charge recorded in Restructuring costs of $2.9
million on equipment to be replaced in 2016 as a result of changes to government regulations.
Finance costs increased to $5.5 million from $2.3 million in the fourth quarter, 2014.
Financing the acquisition of five sawmills and capital improvements through borrowings in
2015 contributed to a higher average level of debt outstanding in Q4’15 as compared to Q4’14.
Management’s Discussion and Analysis
14
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Other income increased by $0.9 million in Q4’15, primarily as the result of the sale of timber
tenures in the B.C. Interior.
Income Taxes
The Company recorded an income tax recovery of $6.9 million in Q4’15, comprised of a $0.3
million current tax expense and a $7.2 million deferred tax recovery, mainly in respect of its
U.S. operations.
Net Earnings (Loss)
The Company recorded a net loss of $3.5 million or $0.05 per share, compared to a net loss of
$5.2 million or $0.08 per share in the comparable period, 2014. Adjusted Net Earnings were
$5.5 million or $0.08 per share compared with $10.2 million or $0.15 per share in Q4’14.
Summary of 2015 Financial Performance
Sales
Interfor recorded $1.7 billion in total sales, up 16.6% from $1.4 billion in 2014, driven by the
sale of 2.7 billion board feet of lumber at an average price of $513 per mfbm. Lumber sales
volume increased 370 million board feet, or 16.2%, while average selling price declined $3 per
thousand board feet, or 0.6%, as compared to 2014.
The growth in lumber sales volume was primarily in the U.S., where sales increased by 485
million board feet or 30.6% over 2014. This growth is mostly attributable to the impact of
seven sawmills acquired since March 14, 2014. Partially offsetting this growth in U.S. sales
was a 110 million board foot, or 38.4%, reduction in volume sold to China.
The decline in the average selling price of lumber reflects lower benchmark prices in U.S.
Dollar terms for key species as compared to 2014, partially offset by the strengthening of the
U.S. Dollar against the Canadian Dollar by 15.8% on average.
Sales generated from logs, residual products and other increased by $56.3 million or 20.9%
compared to 2014. Nearly all of this increase is related to wood chips and other residual
products as a result of higher lumber production, the disposal of log inventories at the exited
Tacoma sawmill and the stronger U.S. Dollar.
Operations
Production costs increased by $311.5 million or 25.1% as compared to 2014, explained
primarily by the 16.2% increase in lumber sales volume, higher costs at the Company’s
Canadian operations and the stronger U.S. Dollar as noted above.
Depreciation of plant and equipment was $71.5 million, up 29.6% from 2014. The majority of
this increase is explained by the inclusion of depreciation on seven sawmills acquired since
March 14, 2014 and the stronger U.S. Dollar.
Depletion and amortization of timber, roads and other was $37.5 million, up 29.6% as
compared with 2014. The majority of this increase reflects higher rates of road amortization
within the Company’s B.C. Coastal logging division, due to production from camps with higher
road costs, and a full period of amortization of a non-competition agreement associated with
the acquisition of two sawmills on March 14, 2014.
Management’s Discussion and Analysis
15
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Corporate and Other
Selling and administration expenses were $46.8 million, up $11.3 million from 2014. This
increase reflects the growth of Interfor’s operations with the acquisition of seven sawmills since
March 14, 2014 and the stronger U.S. Dollar. The Company incurred $2.1 million of non-
recurring acquisition and integration costs, which represents an increase of $0.5 million over
similar costs incurred in 2014.
The $5.4 million long term incentive compensation recovery in 2015 mainly reflects a 36.0%
decrease in the market price of Interfor Common Shares over the same period, partially offset
by the impact of incentive awards maturing.
Export taxes of $5.2 million were incurred in respect of lumber shipments from the Company’s
Canadian operations to the U.S. under the SLA. The duty rate averaged just over 6% for the
first nine and a half months of 2015 until the SLA expired on October 12, 2015. The duty rate
was 0% throughout 2014.
In the first quarter, 2015, Interfor sold substantially all of the assets of its Beaver-Forks
operation, located on the Olympic Peninsula in Washington, resulting in a reversal of a $1.2
million impairment recorded in 2014.
On July 30, 2015, the Company announced a plan to exit the Tacoma sawmill and recorded
related restructuring charges of $10.1 million, including severance, an onerous contract, site
closure costs and write-downs of inventories. Inventory write-downs reflect extraordinary
declines in fair value subsequent to the decision date.
In Q4’15, the Company took an impairment charge recorded in Restructuring costs of $2.8
million on equipment to be replaced in 2016 as a result of changes to government regulations.
Finance costs increased to $17.6 million from $8.9 million in 2014. Financing the acquisition of
seven sawmills since March 14, 2014, and capital improvements through borrowings
contributed to a higher average level of debt outstanding in 2015.
Other foreign exchange loss of $1.7 million is comprised primarily of foreign exchange losses
on foreign exchange forward contracts.
Other income of $0.8 million is comprised primarily of the gain on sale of timber tenures in the
B.C. Interior in Q4’15.
Income Taxes
The Company recorded an income tax recovery of $24.0 million in 2015, comprised of $0.6
million of current taxes net of a $24.6 million deferred tax recovery, mainly in respect of its
U.S. operations.
Net Earnings (Loss)
The Company recorded a net loss of $30.4 million or $0.44 per share, compared to net
earnings of $40.7 million or $0.62 per share in 2014. Adjusted Net Earnings were $(20.0)
million or $(0.29) per share compared with $62.3 million or $0.94 per share in 2014.
Management’s Discussion and Analysis
16
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Summary of Quarterly Results(1)
Notes:
(1) Figures in this table may not add due to rounding.
(2) Refer to the Non-GAAP Measures section of this MD&A for definitions and reconciliations of this measure to
figures reported in the Company’s consolidated financial statements.
(3) Gross sales before export taxes.
(4) Based on Bank of Canada foreign exchange rates.
The Company’s quarterly financial trends are most impacted by seasonality, levels of lumber
production, log costs, market prices for lumber and the USD/CAD foreign currency exchange
rate.
Logging operations are seasonal due to a number of factors including weather, ground
conditions and fire season closures. Generally, the Company’s B.C. Coastal logging operations
experience higher production levels in the latter half of the first quarter, throughout the second
and third quarters and in the first half of the fourth quarter. Logging activity in the B.C.
Interior is generally higher in the first half of the first quarter, slows during spring break-up
and increases in the third and fourth quarters. Sawmill operations are dependent on the
availability of logs from our logging operations and our suppliers. In addition, the market
demand for lumber and related products is generally lower in the winter due to reduced
construction and renovation activities, which increase during the spring, summer and fall.
Two sawmills acquired on March 14, 2014, four sawmills acquired on March 1, 2015, and one
sawmill acquired on June 19, 2015, have all contributed to the growth in production and sales.
The permanent closures of the Beaver sawmill and Tacoma sawmill impacted production and
sales subsequent to June 30, 2014, and May 22, 2015, respectively.
The volatility of the Canadian Dollar against the U.S. Dollar also impacted results. A weaker
Canadian Dollar increases the lumber sales realizations of Canadian operations and increases
net earnings or losses of U.S. operations when translated to Canadian Dollars.
UnitQ4Q3Q2Q1Q4Q3Q2Q1Financial Performance (Unaudited)Total sales$MM411.4 430.8 429.7 415.4 389.0 373.1 390.2 294.8 Lumber$MM325.0 343.3 352.2 340.7 318.6 303.0 325.2 230.4 Logs, residual products and other$MM86.4 87.5 77.5 74.7 70.4 70.1 65.0 64.4 Operating earnings (loss)$MM(6.3)(11.6)(25.8)7.8 (1.1)20.1 3.8 13.3 Net earnings (loss)$MM(3.5)(6.1)(20.6)(0.2)(5.2)11.0 7.4 27.5 Net earnings (loss) per share, basic and diluted$/share(0.05)(0.09)(0.29)(0.00)(0.08)0.16 0.11 0.43 Adjusted net earnings (loss)(2)$MM5.5 (15.4)(14.7)4.5 10.2 16.1 21.0 15.0 Adjusted net earnings (loss) per share, basic and diluted(2)$/share0.08 (0.22)(0.21)0.07 0.15 0.24 0.31 0.24 Adjusted EBITDA(2)$MM35.8 11.5 12.7 31.8 37.4 45.4 47.3 39.2 Shares outstanding - end of periodmillion70.0 70.0 70.0 70.0 66.7 66.7 66.7 66.7 Shares outstanding - weighted averagemillion70.0 70.0 70.0 67.8 66.7 66.7 66.7 63.8 Operating PerformanceLumber productionmillion fbm568618672639578567582495Total lumber salesmillion fbm615686719632620595628439 Lumber sales - Interfor producedmillion fbm586663688607605581607424 Lumber sales - wholesale and commissionmillion fbm2923312515142115Lumber - average selling price(3)$/thousand fbm529500490539514509518525Average USD/CAD exchange rate(4)1 USD in CAD1.33541.30891.22971.24121.13501.08901.09051.1033Closing USD/CAD exchange rate(4)1 USD in CAD1.38401.33941.24741.26831.16011.12081.06761.105320152014
Management’s Discussion and Analysis
17
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Liquidity
Balance Sheet
Net debt at December 31, 2015 was $452.3 million, or 38.4% of invested capital, representing
an increase of $249.8 million over the level of debt at December 31, 2014. Revaluation of U.S.
Dollar denominated debt into Canadian Dollars resulted in an increase of $65.4 million in 2015
over 2014 due to a 19.3% decline in the Canadian Dollar against the U.S. Dollar. In Q4’15,
the 3.3% decline in the Canadian Dollar against the U.S. Dollar resulted in an increase of $14.6
million in net debt, despite a decline of US$7.3 million in U.S. Dollar denominated borrowings.
As at December 31, 2015, the Company had net working capital of $168.9 million and available
liquidity of $112.1 million, including cash and borrowing capacity on operating and term
facilities.
On February 9, 2016, the Company extended the maturity of its Operating Line and Revolving
Term Line from February 27, 2017 to May 19, 2019. Certain other terms were also changed,
resulting in an increase in the maximum borrowing available under the financing agreement.
Based on the revised terms, available liquidity would have been $147.0 million as at December
31, 2015.
These resources, in addition to cash generated from operations, will be used to support working
capital requirements, debt servicing commitments and capital expenditures. We believe that
Interfor will have sufficient liquidity to fund operating and capital requirements for the
foreseeable future.
Cash Flow from Operating Activities
The Company generated $66.8 million of cash flow from operations before changes in working
capital in 2015, down $76.1 million over 2014. Incremental cash flow generated from
increased sales was offset by reduced sales margin, and increases of $11.3 million and $5.2
million to selling and administration costs and export taxes, respectively.
There was a net cash inflow from operations after changes in working capital of $101.4 million
in 2015, with $34.5 million of cash generated from operating working capital. In 2014, $18.8
million of cash was generated from operating working capital, leading to $161.8 million of total
cash generated from operations.
Thousands of dollars2015201420152014Net debtNet debt, period opening, CAD461,474$ 203,570$ 202,553$ 140,762$ Net drawing (repayment) on credit facilities, CAD(19,207) (16,945) 182,949 59,428 Impact on USD denominated debt from weakening CAD14,592 7,600 65,391 15,512 (Increase) decrease in cash and equivalents, CAD(4,556) 8,328 1,410 (13,149) Net debt, period ending, CAD452,303$ 202,553$ 452,303$ 202,553$ Net debt components by currencyUS Dollar debt, period opening, USD345,957$ 205,000$ 190,000$ 135,900$ Net drawing (repayment) on credit facilities, USD(7,258) (15,000) 148,699 54,100 US Dollar debt, period ending, USD338,699$ 190,000$ 338,699 190,000 Spot rate, period end1.3840 1.1601 US Dollar debt expressed in CAD468,759 220,419 Cash and cash equivalents, CAD(16,456) (17,866) Net debt, period ending, CAD452,303$ 202,553$ For the 3 months ended December 31,For the year ended December 31,
Management’s Discussion and Analysis
18
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Cash Flow from Investing Activities
Investing activities totaled $333.3 million in 2015, including $170.8 million for the Simpson
acquisition, $43.7 million for the Monticello acquisition, $8.7 million for payment of the
contingent purchase price to Keadle Lumber Enterprises Inc., $95.3 million for property, plant
and equipment and timber licences and other intangibles and $26.1 million for development of
logging roads. Discretionary mill improvements of $71.5 million during the period included
$43.9 million for the Castlegar sawmill rebuild.
In 2014, total investing activities of $200.9 million included $124.4 million for the acquisition
of Tolleson Ilim Lumber Company, and $51.7 million for property, plant and equipment and
$26.7 million for development of logging roads.
Cash Flow from Financing Activities
Net drawings on the Company’s credit facilities were $182.9 million and net proceeds from
issuance of 3.3 million shares were $63.2 million, leading to total cash from financing activities
of $229.7 million in 2015. This includes $151.3 million drawn on the Company’s credit
facilities to fund the Simpson and Monticello acquisitions.
In 2014, net drawings on the Company’s credit facilities were $59.4 million with total cash
from financing activities of $51.5 million.
Summary of Contractual Obligations
The estimated cash payments due in respect of contractual and legal obligations as at
December 31, 2015, including major capital improvements are summarized as follows:
Note: (1) Figures in this table may not add due to rounding.
(2) On February 9, 2016, the Company extended the maturities of its Operating Line and Revolving Term Line
from February 27, 2017 to May 19, 2019.
Capital Resources
The following table summarizes Interfor’s credit facilities and availability as of December 31,
2015:
Payments due by PeriodUp to 2-34-5 After 5Thousands of Canadian dollarsTotal1 YearYearsYearsYearsTrade accounts payable and accrued liabilities114,325$ 114,325$ - $ - $ - $ Income taxes payable398 398 - - - Reforestation liability37,848 11,052 8,054 8,692 10,050 Long term debt(2)468,759 - 191,959 - 276,800 Provisions and other liabilities41,378 15,315 6,032 1,813 18,218 Operating leases and capital commitments42,620 19,310 12,910 7,260 3,140 Total obligations (1)705,328$ 160,400$ 218,955$ 17,765$ 308,208$ RevolvingSeniorU.S.OperatingTermSecuredOperatingThousands of Canadian dollarsLineLineNotesLineTotalAvailable line of credit65,000$ 200,000$ 276,800$ 69,200$ 611,000$ Maximum borrowing available62,820$ 183,723$ 276,800$ 69,200$ 592,543$ Less: Drawings- 179,920 276,800 12,039 468,759 Outstanding letters of credit included in line utilization9,396 - - 2,290 11,686 Unused portion of facility53,424$ 3,803$ - 54,871$ 112,098$
Management’s Discussion and Analysis
19
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As at December 31, 2015, maximum borrowings available under the Company’s Operating Line
and Revolving Term Line were restricted by a financial covenant in the underlying credit
agreement. In the table above, this limitation has been applied to the Operating Line and
Revolving Term Line limits.
As stated above, based on the revised terms, available liquidity would have been $147.0
million as at December 31, 2015.
As of December 31, 2015, the Company had commitments for capital expenditures totaling
$7.8 million, related to both maintenance and discretionary capital projects.
Transactions between Related Parties
Other than transactions in the normal course of business with key management personnel, the
Company had no transactions between related parties in the year ended December 31, 2015.
Off-Balance Sheet Arrangements
The Company has off-balance sheet arrangements which include letters of credit and surety
performance bonds, primarily for timber purchases. At December 31, 2015, such instruments
aggregated $47.4 million (December 31, 2014 - $30.9 million). Off-balance sheet
arrangements have not had, and are not reasonably likely to have, any material impact on the
Company’s current or future financial condition, results of operations or cash flows.
Financial Instruments and Other Instruments
From time to time, the Company employs financial instruments, such as interest rate swaps
and foreign currency forward and option contracts, to manage exposure to fluctuations in
interest rates and foreign currency exchange rates. The Company’s policy is not to use
derivatives for trading or speculative purposes. Risk management strategies and relationships
are formally documented and assessed on a regular, ongoing basis to ensure derivatives are
effective in offsetting changes in fair values or cash flows of hedged items. The counter-
parties for all derivative contracts are the Company’s Canadian bankers who are highly-rated,
thereby mitigating the risk of credit loss on such instruments.
Interest Rate Swaps
As at December 31, 2015, Interfor had drawn a total of $192.0 million of floating rate debt,
excluding letters of credit, from its Revolving Term Line and U.S. Operating Line. The
Company’s facilities bear interest at the bank prime rate plus a premium, or, at the Company's
option, at rates for Bankers' Acceptances for Canadian Dollar loans or at LIBOR for U.S. Dollar
loans, in all cases dependent upon a financial ratio.
The Company has four interest rate swaps outstanding. On March 25, 2013, the Company
entered into two interest rate swaps, each with a notional value of US$25.0 million maturing
on February 27, 2017. Under the terms of these swaps, the Company pays an amount based
a fixed annual interest rate of 0.84% and receives payment based on 90 day LIBOR which is
recalculated at set interval dates.
On April 14, 2014, the Company entered into two interest rate swaps, each with a notional
value of US$25.0 million maturing on April 14, 2016. Under the terms of these swaps, the
Company pays an amount based a fixed annual interest rate of 0.58% and receives payment
based on 90 day LIBOR which is recalculated at set interval dates.
These interest rate swaps convert a portion of the Company’s floating-rate interest expense to
fixed-rate interest expense and have been designated as cash flow hedges. The fair value of
Management’s Discussion and Analysis
20
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these interest rate swaps at December 31, 2015, being an asset of $0.1 million (measured
based on Level 2 of the fair value hierarchy), has been recorded in Trade accounts receivable
and other (2014 - $0.1 million) and a loss of $0.1 million (2014 – nil) has been recognized in
Other comprehensive income.
Based on the Company’s average debt level during 2015, the sensitivity of a 100 basis point
increase in interest rates would result in an approximate decrease of $0.1 million in Net loss.
Foreign Currency Contracts
The Company is exposed to currency risk on cash and cash equivalents, accounts receivable,
accounts payable and provisions and long term debt that are denominated in a currency other
than the respective functional currencies of the Company’s domestic and foreign operations,
primarily Canadian and U.S. Dollars, but also the Euro, Sterling and Yen. The Company uses
foreign currency exchange forward, collar and option contracts to manage its currency risk
from time to time. The Company routinely assesses its foreign exchange exposure by
reviewing outstanding contracts, pending order files and working capital denominated in
foreign currencies.
As at December 31, 2015, the Company had no outstanding forward currency exchange
contract obligations (2014 - $0.2 million liability recorded in Trade accounts payable and
provisions). All foreign currency gains or losses on foreign currency contracts in 2015 have
been recognized in Other foreign exchange gain (loss) in Net earnings.
Unrealized gains and losses arising upon translation of net foreign currency investment
positions in U.S. Dollar functional currency foreign operations, together with any gain or losses
arising from hedges of those net investment positions, to the extent effective, are credited or
charged to net change in unrealized foreign currency translation gains (losses) in the
Consolidated Statement of Comprehensive Income. Upon sale, reduction or substantial
liquidation of an investment position, the previously recorded net unrealized gains (losses)
thereon in the Translation reserve are reclassified to the Consolidated Statement of Earnings.
As at December 31, 2015, the Company had designated the US$130.0 million drawn under its
Revolving Term Line and US$200.0 million drawn under its Senior Secured Notes as hedges
against the net investment in its U.S. operations.
The Company recorded a $56.5 million unrealized foreign exchange gain on translation of its
U.S. operations with a U.S. Dollar functional currency, net of revaluations of debt designated
as hedges against the net in investment in U.S. operations, to Other comprehensive income in
2015 (2014 - $20.4 million gain).
Outstanding Shares
As of December 31, 2015, Interfor had 70,030,455 Common Shares issued and outstanding.
These shares are listed on the Toronto Stock Exchange under the symbol IFP.
Controls and Procedures
The Company’s management, under the supervision of the Chief Executive Officer (“CEO”) and
the Chief Financial Officer (“CFO”), has evaluated the design and effectiveness of the
Company’s disclosure controls and procedures. Based on this evaluation, the CEO and CFO
have concluded that the Company’s disclosure controls and procedures were effective as of
December 31, 2015.
The Company’s management, under the supervision of the CEO and CFO, has evaluated the
design and effectiveness of the Company’s internal controls over financial reporting (“ICFR”)
Management’s Discussion and Analysis
21
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based on the criteria established within the 2013 COSO framework. Based on this evaluation,
the CEO and CFO have concluded that the Company’s ICFR were effective as of December 31,
2015.
The CEO and CFO acknowledge responsibility for the design of ICFR and confirm that there
were no changes in these controls that occurred during the year ended December 31, 2015,
which materially affected, or are reasonably likely to materially affect, the Company’s ICFR.
Critical Accounting Estimates
The Company’s financial statements include critical accounting estimates made by
management. Management is required to make various assumptions about matters that are
highly uncertain at the time accounting estimates are made; the use of different assumptions
could have a material impact on the Company’s financial condition and performance. These
critical accounting estimates are described below.
Valuation of Inventories. Lumber inventories are valued at the lower of cost and net realizable
value on a specific product basis. Log inventories are valued at the lower of cost and net
realizable value on a specific boom or sort basis. The unit net realizable value for lumber
inventories and B.C. Coast log inventories is determined by reference to the average sales
values by specific product in the period immediately following the reporting date. The unit
realizable value for B.C. Interior and U.S. log inventories is determined by reference to the
value of the projected lumber and residual outturns. The unit cost for lumber is based on a
three month moving average cost, lagged by one month and adjusted for unusual items. The
unit cost for B.C. Coast logs is based on a twelve month moving average cost lagged one
month and for B.C. Interior logs is based on the three month moving average cost, both
adjusted for unusual items. The unit cost for U.S. logs is based on purchase cost. When net
realizable value is lower than cost, a charge to operating earnings is recorded. Downward
movements in commodity prices could result in a material write-down of log and/or lumber
inventories at any given time.
Recoverability of Property, Plant and Equipment, Logging Roads and Bridges, Timber licences,
Other Intangible Assets, and Goodwill. Interfor’s assessment of recoverability of property,
plant and equipment, logging roads, bridges, timber licences and other intangible assets is
made with reference to projections of future cash flows to be generated by its operations. The
assessment of recoverability of goodwill is also made with reference to projections of future
cash flows to be generated by the related cash generating unit. In both cases the projected
cash flows are discounted to estimate the recoverable amount of the related assets.
The Company conducts a review of external and internal sources of information to assess
existence of any impairment indicators. External factors include adverse changes in expected
future prices, costs and other market and economic factors. Internal factors include changes
in the expected useful life of the asset or changes to the planned capacity of the asset.
Key assumptions used are based on industry sources, including Forest Economic Advisors, LLC,
as well as management estimates. Assumptions encompass lumber and residual chip sales
prices, applicable foreign exchange rates, operating rates of the assets, raw material and
conversion costs, the level of sales to the U.S. from Canada, the export tax rate, future capital
required to maintain the assets in their current operating condition, and other items.
A high degree of uncertainty exists in these assumptions and, as such, any significant change
in assumptions could result in a conclusion that the carrying value of these assets may not be
recovered, which could necessitate a material charge against operating earnings.
Management’s Discussion and Analysis
22
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Appropriate discount rates are determined by reference to current market conditions, specific
company factors and asset specific factors. The inflation rate applied within the cash flow
projections represents the published Bank of Canada consumer price index.
Interfor assesses the recoverability of Property, Plant and Equipment, Logging Roads and
Bridges, Timber Licences and Other Intangible Assets whenever events or circumstances
indicate that the carrying value may not be recoverable. Goodwill is tested for impairment
annually, and whenever events or changes in circumstances indicate that impairment may
exist. The Company assessed the recoverability of goodwill as at December 31, 2015 and
concluded that there were no impairments.
Reforestation and Other Forestry-related Liabilities. Crown legislation requires the Company to
complete reforestation activities on its forest and timber tenures. Accordingly, Interfor records
the estimated liability for reforestation as timber is cut, and includes these expenses in the
cost of current production. The estimate of future reforestation costs is based on detailed
prescriptions of reforestation as prepared by Registered Professional Foresters employed or
contracted by the Company. Considerations include the specifics of the areas logged and the
treatments prescribed for those areas, as well as the timing and success rates of the planned
activities. Estimates of reforestation liabilities could be materially impacted by forest fires,
wildlife grazing, unfavourable weather conditions, changing legislative requirements and
standards, or inaccurate projections, which could result in a charge against operating earnings.
The Company also has a legal obligation to deactivate certain roads constructed for access to
timber, once that access is no longer required. Accordingly, Interfor accrues the cost of road
deactivation as related timber is cut, including those expenses in the cost of current
production. The estimate of future road deactivation cost is based on comprehensive plans
prepared by Professional Foresters and Engineers employed by Interfor and includes such
considerations as road structure and terrain. Estimates of road deactivation liabilities could be
materially impacted by unfavourable terrain, changing legislative requirements and standards,
or inaccurate projections, which could result in a charge against operating earnings. Each of
these estimates is reviewed regularly on an ongoing basis.
Pension and Other Post-retirement Benefits. The Company sponsors two defined benefit
pension plans for those hourly employees not covered by forest industry union plans. It also
sponsors two post-retirement medical and life insurance plans.
The Company retains independent actuarial consultants to value the defined pension benefit
obligations, the post-retirement medical and life insurance obligations and related plan asset
values. Actuarial assumptions used in the valuation of plan obligations and assets include
assumptions for the discount rate used in calculations of net present value of obligations,
expected rates of return on plan assets to be used to fund obligations, and assumed rates of
increase for employee compensation and health care costs. Actual experience can vary
materially from estimates and could result in a material charge against operating earnings as
well as necessitate a current cash funding requirement.
Income Taxes. The Company’s provision for income taxes, both current and deferred, is based
on various judgments, assumptions and estimates including the tax treatment of transactions
recorded in the Company’s consolidated financial statements. Interfor records provisions for
income taxes based on the respective tax rules and regulations in the jurisdictions in which the
Company operates. Due to the number of variables associated with the judgments,
assumptions and estimates, and differing tax rules and regulations across the multiple
jurisdictions, the precision and reliability of the resulting estimates are subject to uncertainties
and may change as additional information becomes known.
Income tax assets and liabilities, both current and deferred, are measured according to the
Management’s Discussion and Analysis
23
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income tax legislation that is expected to apply when the asset is realized or the liability
settled. Deferred income tax assets and liabilities are comprised of the tax effect of temporary
differences between the carrying amount and tax basis of assets and liabilities, tax loss carry
forwards and tax credits. Assumptions underlying the composition of deferred income tax
assets and liabilities include estimates of future results of operations and the timing of the
reversal of temporary differences as well as the tax rates and laws in the applicable
jurisdictions at the time of the reversal. The composition of deferred income tax assets and
liabilities is reasonably likely to change from period to period due to the uncertainties
surrounding these assumptions.
Accounting Policy Changes
A number of new standards, and amendments to existing standards and interpretations, were
not yet effective for the year ended December 31, 2015, and have not been applied in
preparing the Company’s 2015 annual audited consolidated financial statements. The following
pronouncements are considered by the Company to be the most significant of several
pronouncements that may affect the financial statements:
IFRS 9, Financial Instruments, will replace the multiple classification and measurement models
in IAS 39, Financial Instruments: Recognition and Measurement, with a single model that has
only two classification categories: amortized cost and fair value. IFRS 9 is effective for annual
periods beginning on or after January 1, 2018, with earlier adoption permitted. The Company
does not expect this standard to have a significant effect on its financial statements.
IFRS 15, Revenue from Contracts with Customers, will replace all existing IFRS revenue
requirements and is effective for annual periods beginning on or after January 1, 2018, with
earlier adoption permitted. The Company has not yet completed an assessment of the impact,
if any, of this standard on its financial statements.
IFRS 16, Leases, eliminates the current dual accounting model for lessees, which distinguishes
between on-balance sheet finance leases and off-balance sheet operating leases. Under the
new standard, operating leases become an on-balance sheet liability that attracts interest,
together with a new right-of-use asset. In addition, lessees will recognize a front-loaded
pattern of expense for most leases, even when cash rentals are constant. IFRS 16 is effective
for annual periods beginning on or after January 1, 2019, with earlier adoption permitted. The
Company has not yet completed an assessment of the impact of this standard on its financial
statements.
Management’s Discussion and Analysis
24
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Non-GAAP Measures
This MD&A makes reference to the following non-GAAP measures: Adjusted net earnings
(loss), Adjusted net earnings (loss) per share, EBITDA, Adjusted EBITDA, Pre-tax return on
total assets and Net debt to invested capital, which are used by the Company and certain
investors to evaluate operating performance and financial position. These non-GAAP measures
do not have any standardized meaning prescribed by IFRS and are therefore unlikely to be
comparable to similar measures presented by other issuers. The following table provides a
reconciliation of these non-GAAP measures to figures as reported in the Company’s audited
consolidated financial statements prepared (unaudited for interim periods) in accordance with
IFRS:
Notes:
(1) 2015 adjusted net earnings, adjusted net earnings per share and adjusted EBITDA have been revised for inclusion
of Tacoma sawmill post-acquisition losses arising in Q1’15.
(2) Total assets at period beginning for three month periods; average of opening and closing total assets for twelve
month periods.
(3) Annualized rate.
(4) Net debt to invested capital as of the period end.
Thousands of Canadian dollars20152014201520142013Adjusted Net EarningsNet earnings (loss)(3,507)(5,187)(30,386)40,690 42,239 Add:- Restructuring costs, capital asset and timber write-downs2,866 857 12,829 24,129 371 Other foreign exchange loss (gain)(473)1,646 1,651 2,651 1,250 Long term incentive compensation expense (recovery)9,335 13,864 (5,431)23,933 18,841 Other (income) expense(863)(3)(757)37 (602)Beaver sawmill post-closure wind-down costs6 367 365 1,083 - Tacoma sawmill post-acquisition losses698 - 11,009 - - Income tax effect of above adjustments(2,564)(1,301)(9,311)(10,951)(1,432)Recognition of previously unrecognized deferred tax assets- - - (19,253)- Adjusted net earnings (loss)(1)5,498 10,243 (20,031)62,319 60,667 Weighted average number of shares - basic and diluted ('000)70,030 66,730 69,488 66,005 57,694 Adjusted net earnings (loss) per share(1)0.08 0.15 (0.29) 0.94 1.05 Adjusted EBITDANet earnings (loss)(3,507) (5,187)(30,386) 40,69042,239Add: Depreciation of plant and equipment18,482 14,707 71,492 55,16739,206Depletion and amortization of timber, roads and other10,734 8,699 37,478 28,91223,061Restructuring costs, capital asset and timber write-downs2,866 857 12,829 24,129371Finance costs5,459 2,268 17,569 8,9159,069Other foreign exchange loss (gain)(473) 1,646 1,651 2,6511,250Income tax expense (recovery)(6,943) 160 (24,017) (16,230)555EBITDA26,618 23,150 86,616 144,234115,751Add: Long term incentive compensation expense (recovery)9,335 13,864 (5,431) 23,93318,841Other (income) expense(863) (3)(757) 37(602)Beaver sawmill post-closure wind-down costs6 363 363 1,075 - Tacoma sawmill post-acquisition losses698 - 10,928 - - Adjusted EBITDA(1)35,794 37,374 91,719 169,279 133,990 Pre-tax return on total assetsOperating earnings (loss) before restructuring costs(3,461) (259)(23,111)60,19252,882Total assets(2)1,383,751 1,058,346 1,229,160 946,325728,083Pre-tax return on total assets(3)(1.0%)(0.1%)(1.9%)6.4%7.3%Net debt to invested capitalNet debtTotal debt468,759 220,419 468,759 220,419145,479Cash and cash equivalents(16,456)(17,866)(16,456)(17,866)(4,717)Total net debt452,303 202,553 452,303 202,553140,762Invested capitalNet debt452,303 202,553 452,303 202,553140,762Shareholders' equity725,254 636,480 725,254 636,480515,137Total invested capital1,177,557 839,033 1,177,557 839,033655,899Net debt to invested capital(4)38.4%24.1%38.4%24.1%21.5%For the year ended December 31,For the 3 months ended December 31,
Management’s Discussion and Analysis
25
____________________
Risks and Uncertainties
The Company is exposed to many risks and uncertainties in conducting its business including,
but not limited to the factors described below.
Price Volatility
The Company’s operating results are affected by fluctuations in the selling prices for lumber,
logs and wood chips. Prices are affected by such factors as the general level of economic
activity in the markets in which the Company sells its products, interest rates, construction
activity (in particular, housing starts in the United States, Canada, Japan and China), and log
and chip supply/demand relationships. The Company’s financial results may be significantly
affected by changes in the selling prices of its products.
Competition
The markets for the Company’s products are highly competitive on a global basis and
producers compete primarily on the basis of price. In addition, a majority of the Company’s
lumber production is sold in markets where the Company competes against many producers of
approximately the same or larger capacity. Some of the Company’s competitors have greater
financial resources and a number are, in certain product lines, lower-cost producers.
Factors which affect the Company’s competitive position include:
foreign currency exchange rates;
the cost of labour;
costs of harvesting or purchasing logs;
the ability to secure a quality log supply matched to a sawmill’s requirements;
the quality of its products and customer service;
the ability to secure space on vessels for overseas shipments and on trucks and railcars
for North American shipments;
the existence and cost of export taxes payable on sales from Canada to the United
States; and
its ability to maintain high operating rates to leverage fixed manufacturing costs.
If the Company is unable to successfully compete on a global basis, its financial condition could
suffer.
Availability and Cost of Log Supply
The log requirements of the Company’s sawmills are met using logs harvested from its timber
tenures, by long term trade and purchase agreements and by purchases on the open market
and through timber sale bids. Logs produced but unsuitable for use in the Company’s sawmills
are either traded for suitable logs or sold on the open market. Operating at normal capacity,
the Company’s Canadian sawmills generally purchase less than 40% of their log requirements
either through purchase agreements or on the open market. The Company relies almost
entirely on purchased fibre through purchase agreements for its U.S. based sawmills, with a
small volume occasionally supplied by the Company’s Canadian coastal logging operations for
the sawmill located on Washington’s Olympic Peninsula. As a result, fluctuations in the price,
quality or availability of log supply can have a material effect on the Company’s business,
financial position, results of operations and cash flow. In addition, weather-related issues can
restrict timely access to log supply.
Management’s Discussion and Analysis
26
____________________
The Company relies on third-party independent contractors to harvest timber in areas over
which it holds timber tenures. Increases in rates charged by these independent contractors or
the limited availability of these independent contractors may increase the Company’s timber
harvesting costs.
Additionally, in order to ensure uninterrupted access to logs harvested from its timber tenures
in Canada, the Company must also focus on the continuous development of road networks.
This encompasses an integrated plan by foresters, engineers and logging operations personnel
to identify future logging areas and develop the engineering for roads. The Company expects
to fund its ongoing road development with cash generated from operations and through
utilization of its existing credit facilities.
Natural or Man-Made Disasters
The Company’s operations are subject to adverse natural or man-made events such as forest
fires, severe weather conditions, climate change, timber disease and insect infestation and
earthquake activity. These events could damage or destroy the Company’s physical facilities
or timber supply and similar events could also affect the facilities of the Company’s suppliers or
customers. Any such damage or destruction could adversely affect the Company’s financial
results due to decreased production output or increased operating costs. Although
management believes it has reasonable insurance arrangements in place to cover certain of
such incidents, there can be no assurance that these arrangements will be sufficient to fully
protect the Company against such losses. As is common in the industry, the Company does
not insure loss of standing timber for any cause.
Currency Exchange Sensitivity
The Company’s Canadian operations ordinarily sell approximately 75% of their lumber into
export markets, with the majority of these sales denominated in U.S. Dollars and, to a lesser
extent, in Japanese Yen. While the Canadian operations also incur some U.S. Dollar–
denominated expenses, primarily for ocean freight and other transportation and for equipment
operating leases, the majority of expenses are incurred in Canadian Dollars. The Company’s
operations in the United States transact primarily in U.S. Dollars.
An increase in the value of the Canadian Dollar relative to the U.S. Dollar would reduce the
amount of revenue in Canadian Dollars realized by the Company from lumber sales made in
U.S. Dollars. This would reduce the Company’s operating margin and the cash flow available
to fund operations. Consequently, a significant strengthening of the Canadian Dollar against
the U.S. Dollar could have a material adverse effect on the Company’s business, financial
condition, results of operations and cash flows.
Government Regulation
The Company’s operations are subject to extensive provincial, state, federal or other laws and
regulations that apply to most aspects of its business activities. Where applicable, the
Company is required to obtain approvals, permits and licences for its operations as a condition
to operate.
From time to time, changes in government policy or regulation may impact the Company’s
operations. Until the details of all such changes are announced and implemented, the full
impact of these changes on the Company’s production, costs, financial position and results of
operations cannot be determined.
Management’s Discussion and Analysis
27
____________________
Allowable Annual Cut (“AAC”)
The Company holds cutting rights in British Columbia that represent an AAC of approximately
of 3.7 million cubic metres. Of this amount, 3.65 million cubic metres is in the form of
replaceable tenures (4 Tree Farm Licences and 19 Forest Licences). The remaining portion is
held in non-replaceable Timber Licences that will expire over time. In 2015, the Company sold
two non-replaceable Forest Licences associated with dead pine stands in the B.C. Interior.
The AAC is regulated by the Ministry of Forests, Lands and Natural Resource Operations and is
subject to a periodic Timber Supply Review process to make determinations that set harvesting
rates for each tenure. Many factors affect the AAC, such as timber inventory, operable land
base, growth rates, regulations, forest health, land use and environmental and social
considerations.
Reductions in the Company’s AAC from any new protected areas are subject to compensation
once these areas have been formally removed. Currently there is a Government plan in 2016
to set aside some additional area for conservation purposes in the Mid Coast region that may
affect some of the Company’s Timber Licences and trigger a claim for compensation. The
timber volume impacted has not been finalized, and the amount of compensation is not known
at this time.
Regulatory changes to meet new Ecosystem Based Management (“EBM”) requirements in the
Central Coast of B.C. are also expected to impact the Company’s timber supply in 2016, and
these are not compensable. The AAC impact is not known at this time.
The amount of timber available for harvest in the south-central portion of the B.C. Interior is
expected to decline over the next 10 years as the surplus of dead pine stands from the pine
beetle epidemic become no longer useable. A portion of Interfor’s tenures can expect some
modest AAC declines over this period, although they are not expected to have a material
impact on our internal supply.
Aboriginal Issues
Aboriginal groups have claimed aboriginal title and rights over substantial portions of British
Columbia, including areas where the Company’s forest tenures are situated, creating
uncertainty as to the status of competing property rights. The Federal and Provincial
governments have been seeking to negotiate settlements with aboriginal groups throughout
British Columbia in order to resolve aboriginal rights and title claims. In addition, the
governments have entered, and may continue to enter, into interim measure (reconciliation)
agreements with aboriginal groups. Any interim measures, agreements or settlements that
may result from the treaty process may involve a combination of cash, resources, grants of
conditional rights to resources on public lands and rights of self-government. The impact of
aboriginal claims or treaty settlements on the Company’s forest tenures or the amounts of
compensation to the Company, if any, cannot be estimated at this time.
The courts have also established that the Crown has a duty to consult with aboriginal groups
and, where appropriate, accommodate aboriginal interests. However, questions of
responsibility and appropriateness of balancing interests will continue to evolve as the parties
try to address these long-standing and complex issues. The Government of British Columbia
has been working to improve the functional relationship between the Crown and aboriginal
groups prior to treaty settlement. The Province of British Columbia and some First Nations
groups on the coast of British Columbia have signed Reconciliation Protocols that provide a
shared decision making process for resource and land use, as well as new forest sector
opportunities. These agreements overlap portions of the Company’s coastal tenures. The
agreements will be assessed and monitored in the years ahead to determine the extent of any
implications on those operations.
Management’s Discussion and Analysis
28
____________________
On June 26, 2014, the Supreme Court of Canada (“SCC”) released its ruling on Tsilhqot’in vs.
British Columbia. This ruling may define, for the first time, the criteria upon which aboriginal
title rests and is considered a positive development for the Company. It is also an important
motivation for the Federal and Provincial governments to move forward on the reconciliation
and treaty process in British Columbia.
The SCC ruling applies to 2% of the Tsilhqot’in traditional territory in a remote area of central
British Columbia. To date, aboriginal title has not been established in any of the Company’s
tenures and doing so will likely be a lengthy and complex process. The Company will continue
to manage its operations within the existing legal framework while paying close attention to
the direction provided by the Province of British Columbia and First Nations regarding the
application of this ruling. Therefore, risks and uncertainties remain consistent with those
referenced above.
Softwood Lumber Agreement
The majority (approximately 85%) of Interfor’s softwood lumber production is not impacted by
the SLA. The Company’s financial results are dependent on continued access to the U.S.
market for the portion of Company’s products that are manufactured in Canada and exported
to the U.S. Tariffs and other trade barriers that restrict or prevent access represent a
continuing risk to the Company’s Canadian based operations. The SLA implemented by the
federal governments of Canada and the United States in 2006, expired on October 12, 2015.
As part of that agreement the U.S. government agreed to a standstill period, where it would
not take any trade action against Canada for a twelve month period following expiry. If the
governments do not negotiate a new agreement, the U.S. may launch trade action after the
standstill period ends. This may result in the imposition of U.S. protective measures such as
countervailing and anti-dumping duties leveled against Canadian softwood lumber producers.
There is no assurance there will be any new trade agreement forthcoming or if a new trade
agreement was reached whether new export measures could adversely affect the Company’s
Canadian operations. Further, if there is no new agreement and the U.S. decides to take
trade action, the earliest date preliminary duties could take effect will be sometime in 2017,
with retroactive charges to October, 2016. The amount and impact of duties cannot be
determined at this time. Canada is expected to defend itself vigorously in any trade action
taken by the U.S.
Stumpage Fees
The Province of British Columbia charges stumpage fees to companies that harvest timber
from Crown land. Stumpage payments for a harvesting area are based on a competitive
market pricing system (“MPS”) that has been established for both the coast and interior
regions of British Columbia.
The stumpage system is complex and the subject of discussion involving, among other things,
lumber trade agreements between Canada and the United States. The primary variable in the
MPS is log pricing established through open market bidding for standing timber. In addition to
bid prices, there are a number of operational and administrative factors that determine an
individual stumpage rate for each cutting permit.
Periodic changes in the Provincial government’s administrative policy can affect the market
price for timber and the viability of individual logging operations. There can be no assurance
that current changes or future changes will not have a material impact on stumpage rates.
Management’s Discussion and Analysis
29
____________________
Environment
The Company has incurred, and will continue to incur, costs to minimize environmental impact,
prevent pollution and for continuous improvement of its environmental performance. The
Company may discover currently unknown environmental problems or conditions relating to its
past or present operations, or it may be faced with an unforeseen environmental liability in the
future. This may require site or other remediation costs to maintain compliance or correct
violations of environmental laws and regulations or result in governmental or private claims for
damage to person, property or the environment, which could have a material adverse effect on
the Company’s financial condition and results of operations.
Labour Disruptions
Production disruptions resulting from walkouts or strikes by unionized employees could result
in lost production and sales, which could have a material adverse impact on the Company’s
business. The Company believes that its current labour relations are stable and does not
anticipate any related disruptions to its operations in the foreseeable future.
The Company depends on a variety of third parties that employ unionized workers to provide
critical services to the Company. Labour disputes by these third parties could lead to
disruptions at the Company’s facilities. The Company’s Acorn, Hammond, Grand Forks, and
Castlegar sawmill employees are members of the Canadian United Steelworkers union
(“USW”). The collective agreement with the Southern Interior USW agreement (Grand Forks
and Castlegar) expires on June 30, 2018, while the USW agreement for the B.C. Coast (Acorn
and Hammond) expires on June 15, 2019. The Company also has 22 employees in the B.C.
Interior who are members of the Canadian Marine Service Guild (“CMSG”). A new collective
agreement was negotiated with the CMSG in 2015, which expires September 30, 2019.
In 2015, the Company acquired sawmills in Meldrim, Georgia and Longview, Washington where
employees are represented by the American USW and the International Association of
Machinist and Aerospace Workers (“IAM”), respectively. The American USW collective
agreement expires on June 30, 2016, while the IAM collective agreement expires on November
15, 2016.
Additional Information
Additional information relating to the Company and its operations, including the Company’s
Annual Information Form, can be found on its website at www.interfor.com and on SEDAR at
www.sedar.com.
CONSOLIDATED FINANCIAL STATEMENTS
MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL STATEMENTS
30
Management is responsible for the integrity and fair presentation of the accompanying
consolidated financial statements. The financial statements were prepared in accordance with
International Financial Reporting Standards and, where necessary, are based in part on
management’s best estimates and judgements. Financial information included elsewhere in the
2015 Annual Report is consistent with that disclosed in the consolidated financial statements.
Management maintains a system of internal accounting control which it believes provides
reasonable assurance that financial records are reliable and form a proper basis for preparation
of financial statements. The internal accounting control process includes communications to
employees of Interfor’s standards for ethical business conduct.
The Board of Directors is responsible for ensuring that management fulfills its
responsibilities for financial reporting and internal controls. The Board exercises this
responsibility primarily through its Audit Committee, the members of which are neither officers
nor employees of Interfor. The Audit Committee meets periodically with management and the
independent Auditors to satisfy itself that each group is properly discharging its responsibilities
and to review the consolidated financial statements and the independent Auditors’ report
thereon. The Company’s independent Auditors have full and free access to the Audit
Committee. The Audit Committee reports its findings to the Board of Directors for
consideration in approving the consolidated financial statements for issuance to the
shareholders. The Committee also makes recommendations to the Board with respect to the
appointment and remuneration of the independent Auditors.
The consolidated financial statements have been examined by the independent Auditors,
KPMG LLP, whose report follows.
“Duncan K. Davies”
“John A. Horning”
President and Chief Executive Officer
Executive Vice President and Chief Financial
Officer
February 11, 2016
CONSOLIDATED FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT
31
To the Shareholders
We have audited the accompanying consolidated financial statements of Interfor Corporation
(the “Company”) which comprise the consolidated statements of financial position as at
December 31, 2015 and December 31, 2014, the consolidated statements of loss,
comprehensive income, changes in equity and cash flows for the years ended December 31,
2015 and December 31, 2014, and notes, comprising a summary of significant accounting
policies and other explanatory information.
Management's Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated
financial statements in accordance with International Financial Reporting Standards, and for
such internal control as management determines is necessary to enable the preparation of
consolidated financial statements that are free from material misstatement, whether due to
fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on
our audits. We conducted our audits in accordance with Canadian generally accepted auditing
standards. Those standards require that we comply with ethical requirements and plan and
perform the audits to obtain reasonable assurance about whether the consolidated financial
statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the consolidated financial statements. The procedures selected depend on our
judgment, including the assessment of the risks of material misstatement of the consolidated
financial statements, whether due to fraud or error. In making those risk assessments, we
consider internal control relevant to the Company’s preparation and fair presentation of the
consolidated financial statements in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
entity’s internal control. An audit also includes evaluating the appropriateness of accounting
policies used and the reasonableness of accounting estimates made by management, as well
as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate
to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the
consolidated financial position of Interfor Corporation as at December 31, 2015 and December
31, 2014, and its consolidated financial performance and its consolidated cash flows for the
years ended December 31, 2015 and December 31, 2014 in accordance with International
Financial Reporting Standards.
KPMG LLP, Chartered Accountants
February 11, 2016
Vancouver, Canada
Consolidated Statements of Financial Position
(Expressed in thousands of Canadian Dollars)
As at December 31, 2015 and 2014
32
Assets
Current assets:
Cash and cash equivalents
Trade accounts receivable and other
Income tax receivable
Inventories
Prepayments and other
Assets held for sale
Employee future benefits
Other investments and assets
Property, plant and equipment
Logging roads and bridges
Timber licences
Other intangible assets
Goodwill
Deferred income taxes
Liabilities and Shareholders' Equity
Current liabilities:
Trade accounts payable and provisions
Reforestation liability
Income taxes payable
Reforestation liability
Long term debt
Employee future benefits
Provisions and other liabilities
Deferred income taxes
Equity:
Share capital
Contributed surplus
Translation reserve
Hedge reserve
Retained earnings
Note
December 31
2015
December 31
2014
10
19
6
5
22
7
4, 8
9
9
9
9
19
11
12
19
12
10
22
11
19
13
$
16,456
95,218
459
155,740
15,512
27,836
311,221
1,570
3,191
777,590
20,611
72,429
23,601
160,914
18,669
$
17,866
80,283
-
148,668
12,175
-
258,992
2,520
2,972
541,378
22,244
79,024
24,397
136,996
-
$1,389,796
$ 1,068,523
$ 130,840
11,052
398
142,290
25,074
468,759
8,391
20,028
-
553,559
7,665
77,425
62
86,543
725,254
$ 139,153
9,797
365
149,315
23,099
220,419
7,361
25,190
6,659
490,363
7,476
20,950
133
117,558
636,480
$ 1,389,796
$ 1,068,523
Commitments and contingencies (note 20); Subsequent events (note 10).
See accompanying notes to consolidated financial statements.
Approved on behalf of the Board of Directors:
“L. Sauder”, Director
“D.W.G. Whitehead”, Director
33
Consolidated Statements of Earnings (Loss)
(Expressed in thousands of Canadian Dollars, except earnings per share)
Years ended December 31, 2015 and 2014
Sales
Costs and expenses:
Note
2015
2014
$1,687,375
$1,447,157
Production
Selling and administration
4
Long term incentive compensation expense (recovery) 11
Export taxes
Depreciation of plant and equipment
Depletion and amortization of timber, roads and other
8
9
Operating earnings (loss) before restructuring costs
Restructuring costs
Operating earnings (loss)
Finance costs
Other foreign exchange loss
Other income (expense)
Earnings (loss) before income taxes
Income tax expense (recovery):
Current
Deferred
18
16
17
19
1,554,975
46,756
(5,431)
5,216
71,492
37,478
1,710,486
(23,111)
(12,829)
(35,940)
(17,569)
(1,651)
757
(18,463)
1,243,464
35,489
23,933
-
55,167
28,912
1,386,965
60,192
(24,129)
36,063
(8,915)
(2,651)
(37)
(11,603)
(54,403)
24,460
614
(24,631)
(24,017)
1,342
(17,572)
(16,230)
Net earnings (loss)
$ (30,386)
$ 40,690
Net earnings (loss) per share, basic and diluted
21
$
(0.44)
$
0.62
See accompanying notes to consolidated financial statements.
34
Consolidated Statements of Comprehensive Income
(Expressed in thousands of Canadian Dollars)
Years ended December 31, 2015 and 2014
Note
2015
2014
Net earnings (loss)
$ (30,386)
$ 40,690
Other comprehensive income:
Items that will not be recycled to Net earnings (loss):
Defined benefit plan actuarial losses
22
(1,005)
(1,342)
Items that are or may be recycled to Net earnings (loss):
Foreign currency translation differences for
foreign operations, net of tax
Loss in fair value of interest rate swaps
Income tax on other comprehensive income
Total items that are or may be recycled to Net earnings (loss)
16, 26
19
Total other comprehensive income, net of tax
56,475
(71)
376
56,780
55,775
20,389
(34)
-
20,355
19,013
Comprehensive income
$ 25,389
$ 59,703
See accompanying notes to consolidated financial statements.
Consolidated Statements of Changes in Equity
(Expressed in thousands of Canadian Dollars)
Years ended December 31, 2015 and 2014
35
Shares issued in business combination
4, 13(a)
61,640
Balance at December 31, 2013
Net earnings:
Other comprehensive income (loss):
Foreign currency translation differences for
foreign operations, net of tax
Defined benefit plan actuarial losses, net of tax
Loss in fair value of interest rate swaps
Contributions:
Balance at December 31, 2014
Net earnings (loss):
Other comprehensive income (loss):
Foreign currency translation differences for
foreign operations, net of tax
Defined benefit plan actuarial losses, net of tax
Loss in fair value of interest rate swaps
Contributions:
Note
Common Contributed
Surplus
Shares
Translation
Reserve
Hedge
Reserve
Retained
Earnings
Total
Equity
$ 428,723 $
7,476 $
561
$
167
$ 78,210 $ 515,137
-
-
-
-
22
26
-
-
-
-
-
-
-
40,690
40,690
20,389
-
-
-
-
(34)
-
(1,342)
-
20,389
(1,342)
(34)
-
-
-
61,640
490,363
7,476
20,950
133
117,558
636,480
-
-
(30,386)
(30,386)
-
-
-
-
-
-
-
-
22
26
56,475
-
-
-
-
(71)
-
-
-
(629)
-
56,475
(629)
(71)
-
-
63,196
189
Share issuance, net of share issue expenses
Stock options
4, 13(a)
13(b)
63,196
-
-
189
-
-
Balance at December 31, 2015
$ 553,559 $
7,665 $ 77,425
$
62
$ 86,543
$ 725,254
See accompanying notes to consolidated financial statements.
Consolidated Statements of Cash Flows
(Expressed in thousands of Canadian Dollars)
Years ended December 31, 2015 and 2014
36
Cash provided by (used in):
Operating activities:
Net earnings (loss)
Items not involving cash:
Note
2015
2014
$ (30,386)
$ 40,690
Depreciation of plant and equipment
Depletion and amortization of timber, roads and other
Income tax recovery
Finance costs
Other assets
Reforestation liability
Other liabilities and provisions
Stock options
Reversal of write-down of plant and equipment
Write-down of plant and equipment
Unrealized foreign exchange losses (gains)
Other income (expense)
8
9
19
16
12
13(b)
18
8, 18
17
Cash generated from (used in) operating working capital:
Trade accounts receivable and other
Inventories
Prepayments and other
Trade accounts payable and accrued liabilities
Income taxes paid
Investing activities:
Additions to property, plant and equipment
Additions to logging roads
Additions to timber and other intangible assets
Acquisitions
Proceeds on disposal of property, plant and equipment
Investments and other assets
8
9
9
4
Financing activities:
Issuance of share capital, net of share issue expenses 4, 13(a)
Interest payments
Debt refinancing costs
Change in operating line components of long term debt
Additions to long term debt
Repayments of long term debt
10
10
10
71,492
37,478
(24,017)
17,569
639
1,612
(8,252)
189
(1,195)
2,812
(337)
(758)
66,846
8,748
48,717
3,017
(24,986)
(965)
101,377
(93,832)
(26,133)
(1,500)
(223,263)
12,509
(1,033)
(333,252)
63,196
(16,186)
(292)
10,057
362,582
(189,691)
229,666
55,167
28,912
(16,230)
8,915
986
1,910
(63)
-
-
20,468
2,191
46
142,992
(8,628)
15,083
1,236
14,185
(3,077)
161,791
(48,922)
(26,656)
(2,818)
(124,421)
1,926
(13)
(200,904)
-
(7,122)
(757)
(1,789)
223,221
(162,004)
51,549
Foreign exchange gain on cash and cash equivalents held
in a foreign currency
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
799
(1,410)
17,866
$ 16,456
713
13,149
4,717
$ 17,866
See accompanying notes to consolidated financial statements.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
37
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)
____________________
1. Nature of operations:
Interfor Corporation and its subsidiaries (the “Company” or “Interfor”) produce wood
products in British Columbia, the U.S. Northwest and the U.S. South for sale to markets
around the world.
Interfor Corporation is incorporated under the Business Corporations Act (British Columbia)
with shares listed on the Toronto Stock Exchange. Its head office, principal address and
records office are located at Suite 3500, 1055 Dunsmuir Street, Vancouver, British
Columbia, Canada, V7X 1H7.
These consolidated financial statements of the Company as at and for the years ended
December 31, 2015 and 2014 comprise the accounts of Interfor Corporation and its
subsidiaries.
2. Basis of Preparation:
(a) Statement of compliance:
These consolidated financial statements have been prepared in accordance with
International Financial Reporting Standards (“IFRS”) and were approved by the Board of
Directors on February 11, 2016.
(b) Basis of measurement:
These consolidated financial statements have been prepared on the historical cost basis
except for the following material items in the Statements of Financial Position:
(i) Derivative financial instruments are measured at fair value;
(ii) Liabilities for cash-settled share-based payment arrangements are measured at fair
value; and
(iii) Employee benefit plan assets and liabilities are recognized as the net of the fair
value of the plan assets and the present value of the defined benefit obligations on a
plan by plan basis.
(c) Functional and presentation currency:
These consolidated financial statements are presented in Canadian Dollars, which is the
parent company’s functional currency. Certain of the Company’s subsidiaries have a
functional currency of the U.S. Dollar and are translated to Canadian Dollars. All
financial information presented in Canadian Dollars has been rounded to the nearest
thousand except number of shares and per share amounts.
(d) Use of estimates and judgements:
The preparation of these consolidated financial statements in conformity with IFRS
requires management to make judgements, estimates and assumptions that affect the
application of accounting policies and the reported amounts of certain assets, liabilities,
revenues and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to
accounting estimates are recognized, on a prospective basis, in the period in which the
estimates are revised.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
38
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)
____________________
2. Basis of Preparation (continued):
(d) Use of estimates and judgements (continued):
Significant areas requiring the use of management estimates relate to the
determination of restructuring, reforestation, road deactivation, environmental and tax
obligations, share-based compensation, recoverability of assets, rates for depreciation,
depletion and amortization, fair values of assets and liabilities acquired in business
combinations and impairment analysis of non-financial assets including goodwill.
Information about the use of management estimates that have the most significant
effect on the amounts recognized in the consolidated financial statements is included in
the following notes:
Note 3(e)
Inventories
Note 3(f)
Assets held for sale
Note 3(j)
Impairment of non-financial assets
Note 3(k)
Reforestation and other decommissioning provisions
Note 3(n)
Cash-settled share based compensation
Note 3(o)
Equity-settled share based compensation
Note 4
Note 9
Acquisitions
Roads and bridges, timber tenures, other intangible assets and goodwill
Note 12
Reforestation liability
3. Significant accounting policies:
The accounting policies set out below have been applied consistently to all periods
presented in these consolidated financial statements.
(a) Basis of consolidation:
These consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries from their respective dates of acquisition or incorporation.
All intercompany balances, including unrealized income and expenses arising from
intercompany transactions have been eliminated upon consolidation.
The Company measures goodwill in business acquisitions at the acquisition date as the
fair value of the consideration transferred including any non-controlling interest less the
fair value of the identifiable assets acquired and liabilities assumed, all measured as of
the acquisition date. When the excess is negative, a bargain purchase gain is
recognized immediately in Net earnings. Transaction costs, other than those associated
with the issuance of debt or equity securities, are expensed as incurred.
(b) Foreign currency:
(i) Foreign currency transactions:
Transactions in foreign currencies are translated to the functional currency of the
respective entity at transaction date exchange rates. Monetary assets and liabilities
denominated in foreign currencies are revalued using the exchange rate at the
reporting date.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
39
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)
____________________
3. Significant accounting policies (continued):
(b) Foreign currency (continued):
(i) Foreign currency transactions (continued):
Foreign exchange differences arising on revaluation are recognized in Net earnings.
Where revaluations relate to trade accounts receivables those foreign exchange
differences are adjusted to Sales in the Statement of Earnings; where revaluations
relate to trade accounts payables those foreign exchange differences are adjusted to
Production costs in the Statement of Earnings.
(ii) Foreign operations:
Certain of the Company’s subsidiaries have a functional currency of the U.S. Dollar.
Revenues and expenses of such foreign operations are translated to Canadian
Dollars at the transaction date exchange rate, or at average rates for the period
which approximate the transaction date, as appropriate. Assets and liabilities are
translated into Canadian Dollars at exchange rates in effect at the reporting date.
Related foreign currency translation differences are recognized in Other
comprehensive income, and recorded to the Translation reserve in Equity.
Foreign currency translation differences residing in the Translation reserve will be
released to Net earnings upon the reduction of the net investment in foreign
operations through the sale, reduction or substantial liquidation of an investment
position.
Monetary receivables from a foreign operation, the settlement of which are neither
planned nor likely in the foreseeable future are considered to form part of the net
investment in the foreign operation. Related foreign exchange translation
differences are recognized in Other comprehensive income and presented in the
Translation reserve in Equity.
(iii) Hedge of net investment in a foreign operation:
Financial liabilities denominated in foreign currencies are from time to time
designated as a hedge of the Company’s net investments in foreign operations.
Foreign currency differences arising on the revaluation of a financial liability
designated as a hedge of a net investment in a foreign operation are recognized in
Foreign currency translation differences in Other comprehensive income to the
extent that the hedge is effective, and presented in the Translation reserve in
Equity. To the extent that the hedge is ineffective, such differences are recognized
in Other foreign exchange gain (loss) in Net earnings.
When the Company terminates the designation of the hedging relationship and
discontinues its use of hedge accounting, any accumulated unrealized foreign
exchange differences remaining in the Translation reserve and subsequent
unrealized foreign exchange differences are recorded in Other foreign exchange gain
(loss) in Net earnings. When the hedged net investment is disposed of, the
relevant amount in the Translation reserve is reclassified to Net earnings.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
40
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)
____________________
3. Significant accounting policies (continued):
(c) Financial instruments:
(i) Non-derivative financial instruments:
Non-derivative financial instruments comprise cash and cash equivalents, trade and
other receivables, trade accounts payable and accrued liabilities, provisions, and
loans and borrowings including long term debt.
Cash and cash equivalents and trade and other receivables are designated as loans
and receivables and are initially measured at fair value plus any direct transaction
costs and thereafter at amortized cost using the effective interest rate method, less
any impairment losses.
Trade payables and accrued liabilities, provisions, and loans and borrowings
including long term debt are designated as other financial liabilities and are initially
measured at fair value and thereafter at amortized cost using the effective interest
rate method.
There are no financial instruments classified as available-for-sale or held-to-
maturity.
(ii) Derivative financial instruments:
The Company at times uses derivative financial instruments for economic hedging
purposes in the management of foreign exchange, interest rates, and commodity
price risks. The Company does not utilize derivative financial instruments for
trading or speculative purposes.
The Company has chosen not to designate derivative foreign currency exchange
forward contracts and collar contracts as hedges for accounting purposes.
Consequently, these derivative financial instruments, designated as held-for-trading,
are carried on the Statements of Financial Position at fair value, with changes in fair
value being recorded in Other foreign exchange gain (loss) in Net earnings.
The Company at times holds derivative interest rate swaps to hedge its interest rate
risk exposures and may designate these financial instruments as the hedging
instrument in a cash flow hedge of fluctuations in market interest rates associated
with specific drawings under its long term debt. The effective portion of changes in
the fair value of the derivative are recognized in Other comprehensive income and
presented in the Hedging reserve in Equity. Any ineffective portion of changes in
the fair value of the derivative is recognized immediately in Net earnings.
(iii) Share capital:
Shares are classified as equity. Incremental costs directly attributable to the
issuance of Shares and share options are recognized as a deduction from equity, net
of any tax effects.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
41
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)
____________________
3. Significant accounting policies (continued):
(d) Cash and cash equivalents:
Cash and cash equivalents consist of cash on deposit and short-term interest bearing
securities with maturities at their purchase date of three months or less.
(e) Inventories:
Lumber inventories are valued at the lower of cost and net realizable value on a specific
product basis. Cost is determined as the weighted average of cost of production on a
three month rolling average, lagged by one month and adjusted for abnormal costs, as
in the case of a curtailment. Net realizable value is the estimated selling price in the
normal course of business, less estimated costs of completion and selling expenses.
Log inventories are valued at the lower of cost and net realizable value on a specific
boom basis where logs are boomed, or in aggregate on a species and sort basis where
the logs are not boomed.
Cost for internally produced log inventories is determined as the weighted average cost
of logging on a twelve month rolling average, lagged by one month, for the B.C. Coast
and on a three month rolling average for the B.C. Interior, and adjusted for abnormal
costs, as in the case of a curtailment. Log inventories purchased from external sources
are valued at acquisition cost.
Net realizable value of logs is based on either market replacement cost or, for logs
designated for lumber processing, on estimated net realizable value less estimated
costs of completion and selling expenses.
Other inventories consist primarily of supplies which are recorded at lower of cost and
replacement cost, which approximates net realizable value.
(f) Assets held for sale:
Non-current assets, or disposal groups compromising assets and liabilities, are classified
as held-for-sale if available for immediate sale and if it is highly probable that their
carrying amount will be recovered primarily through sale rather than through continuing
use.
Such assets, or disposal groups, are measured at the lower of their carrying amount
and fair value less costs to sell. Any impairment loss on a disposal group is allocated
first to goodwill, and then to the remaining assets and liabilities on a pro rata basis,
except that losses are not allocated to inventories, financial assets, deferred tax assets
or employee benefit assets, which continue to be measured in accordance with the
Company’s other accounting policies. Impairment losses on initial classification as held
for sale and subsequent gains and losses on remeasurement are recognized in Net
earnings.
Once classified as held for sale, intangible assets and property, plant and equipment are
no longer amortized or depreciated.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
42
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)
____________________
3. Significant accounting policies (continued):
(g) Property, plant and equipment:
Property, plant and equipment are recorded at cost less accumulated depreciation and
impairment losses. Depreciation on machinery and equipment is provided on the basis
of hours operated relative to the asset’s lifetime estimated operating hours.
Depreciation on all other assets is provided on a straight-line basis (ranging from 2.5%
to 33% per year) over the estimated useful lives of the assets.
Depreciation methods, useful lives and residual values are reviewed annually and
adjusted, if appropriate.
Maintenance costs are recorded as expenses as incurred, with the exception of
programs that extend the useful life of an asset or increase its value, which are
capitalized.
Borrowing costs directly attributable to the acquisition, construction or production of
qualifying assets, being those requiring a substantial period of time prior to availability
for their intended use, are capitalized.
(h) Logging roads and bridges:
Logging roads and bridges are recorded at cost less accumulated amortization and
impairment losses. Road and bridge amortization is computed on the basis of timber
cut relative to available timber.
Amortization methods, useful lives and residual values are reviewed annually and
adjusted, if appropriate.
(i) Intangible assets:
(i) Timber licences:
Timber licences are recorded at cost less accumulated depletion and impairment
losses. Timber licence depletion is computed on the basis of timber cut relative to
available timber. Tree farm and forest licences are depleted on a straight-line basis
over 40 years. Amortization rates are reviewed annually to ensure they are aligned
with estimates of remaining economic useful lives of the associated intangible
assets.
(ii) Goodwill:
Goodwill is measured at cost less accumulated impairment losses. See Note 3(a) for
the policy on measurement of goodwill at initial recognition.
(iii) Other intangible assets:
Other intangible assets are recorded at cost less accumulated amortization and
impairment losses. Amortization on other intangible assets is provided on a
straight-line basis ranging from five to ten years, being the estimated useful lives of
the assets. Amortization rates are reviewed annually to ensure they are aligned
with estimates of remaining economic useful lives of the associated intangible
assets.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
43
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)
____________________
3. Significant accounting policies (continued):
(j) Impairment of non-financial assets:
The Company’s non-financial assets are reviewed for impairment whenever events or
circumstances indicate that the carrying amount may not be recoverable. Impairment
tests are carried out annually for goodwill or when an indicator of impairment is
identified.
External indicators of impairment include adverse changes in expected future prices,
costs and other market and economic factors. Internal indicators include changes in
the expected useful life of an asset or changes to the planned capacity of an asset.
An impairment loss is charged to Net earnings if an asset’s carrying amount exceeds its
recoverable amount. The recoverable amount is calculated based on the higher of its
fair value less direct costs to sell and its value in use.
Fair value is determined as the amount that would be obtained from the sale, net of
direct selling costs, of the asset in an arm’s length transaction between knowledgeable
and willing parties. Value in use is determined as the present value of the estimated
future cash flows expected to arise from the continued use of the asset in its present
form and its eventual disposal and does not consider future capital enhancements.
For purposes of assessing impairment, assets are grouped at the lowest level for which
there are separately identifiable cash inflows that are largely independent of the cash
inflows from other assets or groups of assets (cash generating units or “CGU”).
Goodwill is allocated to CGU’s or groups of CGU’s expected to benefit from it.
Impairment losses recognized for a CGU are first allocated to reduce the carrying
amount of goodwill, if any, assigned to the CGU, and then to reduce the carrying
amounts of the other assets in the CGU on a pro-rata basis.
Non-financial assets, other than goodwill, for which an impairment was previously
recognized, are reviewed for possible reversal of the impairment at each reporting date.
When an impairment loss is reversed, the increased carrying amount of the asset
cannot exceed the carrying amount that would have been determined, net of
amortization, had the impairment never been recognized.
An impairment loss recorded against goodwill is not reversed.
(k) Reforestation and other decommissioning provisions:
Forestry legislation in British Columbia requires the Company to incur the cost of
reforestation on its forest, timber and tree farm licences and to deactivate logging roads
once harvesting is complete and access is no longer required. Accordingly, the
Company records the fair value of the costs of reforestation and road deactivation in the
period in which the timber is cut, with the fair value of the liability determined with
reference to the present value of estimated future cash flows.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
44
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)
____________________
3. Significant accounting policies (continued):
(k) Reforestation and other decommissioning provisions (continued):
Provisions are measured at the expected value of future cash flows, discounted to their
present value and determined according to the probability of alternative estimates of
cash flows occurring for each operation. The measurement under IAS 37, Provisions,
Contingent Liabilities and Contingent Assets, is based on best estimates and can be
based on internal or external costs, depending upon which is most likely. Significant
judgements and estimates are involved in forming expectations of future activities and
the amount and timing of the associated cash flows. Those expectations are formed
based on existing regulatory requirements and the expertise of Registered Professional
Foresters and Engineers employed or contracted by the Company. Examples of
considerations include the specifics of the areas logged and the treatments prescribed
for those areas, as well as the timing and success rates of the planned activities in
terms of reforestation; and road structure and terrain for road deactivation.
Discount rates reflect the risks specific to the decommissioning provision. Adjustments
are made to decommissioning provisions each period for changes in the estimated
timing or amount of cash flows, changes in the discount rate and the unwinding of the
discount. As such, the discount rate reflects the current risk-free rate given that risks
are incorporated into the future cash flow estimates.
In periods subsequent to the initial measurement, changes in the liability resulting from
the passage of time are recognized as Finance costs and revisions to fair value
calculations are recognized as Production costs in Net earnings as they occur.
(l) Environmental costs:
Environmental expenditures are expensed or capitalized depending upon their future
economic benefit. Expenditures to prevent future environmental contamination are
capitalized as plant and equipment. Expenditures that relate to an existing condition
caused by past operations are expensed. Liabilities are recorded when rehabilitation
efforts are likely to occur and the costs can be reasonably estimated.
Provisions are measured at the expected value of future cash flows, discounted to their
present value and determined according to the probability of alternative estimates of
cash flows using a current pre-tax rate that reflects the risks specific to the liability.
The unwinding of the discount is recognized as a Finance cost in Net earnings.
(m) Employee benefits:
Defined benefit pension and other post-retirement benefit obligation accruals are
estimated using actuarial methods and assumptions, including management’s best
estimates of the discount rate, future investment earnings, salary escalation, and health
care costs and are calculated using the projected unit credit method.
Plan assets are valued at fair value for the purpose of calculating the expected return
on plan assets.
Actuarial gains and losses arise from actual experience being different from the
assumptions, or changes in actuarial assumptions used to determine the defined benefit
obligation, and are recognized in Other comprehensive income in the year in which they
occur.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
45
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)
____________________
3. Significant accounting policies (continued):
(m) Employee benefits (continued):
Pension expenses for defined contribution plans are limited to the Company’s
contribution to the plans in respect of services rendered by employees, as the Company
has no legal or constructive obligation to pay further amounts. Plans administered by
the government and the industry-wide unionized employees’ pension plan are treated
as defined contribution plans.
(n) Cash-settled share based compensation:
The Company has a Share Appreciation Rights (“SAR”) Plan, a Deferred Share Unit
(“DSU”) Plan and a Total Shareholder Return (“TSR”) Plan for directors, officers and
certain other eligible employees. The Company uses the fair value method of
accounting for obligations under the SAR, DSU and TSR Plans.
Compensation expense is recorded for SARs over the vesting period based on the
estimated fair value of the SARs at the date of grant. Fair value is measured using a
Black-Scholes option pricing model and is adjusted to reflect the number of SARs
expected to vest.
Compensation expense is recorded for DSUs either at the time of the grant, in the case
of DSUs which vest immediately, or over the performance period, in the case of DSUs
with deferred vesting, based on the fair value at the date of the grant.
Compensation expense is recorded for TSRs over the performance period based on the
estimated fair value of the TSRs at the date of the grant. Fair value is measured using
a combination of call options which are valued using a Black-Scholes pricing model.
The fair value of the SARs, DSUs and TSRs are subsequently measured at each
reporting date with any changes in fair value reflected in the Long term incentive
compensation expense in Net earnings. Liabilities are recorded in Trade accounts
payable and provisions and Provisions and other liabilities on the Statement of Financial
Position.
(o) Equity-settled share based compensation:
The Company has an employee Stock Option Plan for its key employees and directors.
The Company uses the fair value method of accounting for obligations under this Plan.
The grant-date fair value of options is recognized as an incentive compensation
expense, with a corresponding increase in contributed surplus, over the vesting period.
The fair value of the options is determined using the Black-Scholes option pricing model
which take into account, as of the grant date, the exercise price, the expected life of the
options, the current price of the underlying stock and its expected volatility, expected
dividends on the shares, and the risk-free interest rate over the expected life of the
option. Cash consideration received from employees when they exercise the options is
credited to share capital, as is the previously calculated fair value included in
contributed surplus.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
46
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)
____________________
3. Significant accounting policies (continued):
(p) Sales revenue:
The Company recognizes sales to external customers when the product is shipped and
title passes. Sales are recorded on a gross basis, including amounts charged to
customers for freight, wharfage and handling costs. Actual costs of export taxes,
freight, wharfage and handling are recorded to Export taxes and Production,
respectively, in Net earnings.
(q) Finance income and costs:
Finance income comprises net interest income on funds invested.
Finance costs comprise net interest expense on borrowings, the unwinding of the
discount on decommissioning provisions, net interest on defined benefit plans, the
amortization of prepaid finance costs and other related transaction costs.
(r) Income tax:
Income tax expense comprises current and deferred income taxes. Current and
deferred income taxes are recognized in Net earnings except to the extent that they
relate to a business combination, or items recognized directly in Equity or in Other
comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income or loss for
the year, using tax rates enacted or substantively enacted at the reporting date, and
any adjustment to income tax payable in respect of previous years.
Deferred income tax is recognized in respect of temporary differences between the
carrying amounts of assets and liabilities for accounting purposes and the amounts used
for taxation purposes. Deferred income tax is not recognized for the following
temporary differences: the initial recognition of assets or liabilities in a transaction that
is not a business combination and that affects neither accounting nor taxable profit or
loss, and differences relating to investments in subsidiaries and jointly controlled
entities to the extent that it is probable that they will not reverse in the foreseeable
future. In addition, deferred income tax is not recognized for taxable temporary
differences arising on the initial recognition of goodwill.
Deferred income tax is measured at the tax rates that are expected to be applied to
temporary differences when they reverse, based on the laws that have been enacted or
substantively enacted by the reporting date. Deferred income tax assets and liabilities
are offset if there is a legally enforceable right to offset current tax liabilities and assets,
and they relate to income taxes levied by the same tax authority on the same taxable
entity, or on different tax entities, but the intention is to settle current tax liabilities and
assets on a net basis or tax assets and liabilities will be realized simultaneously.
A deferred income tax asset is recognized for unused tax losses, tax credits and
deductible temporary differences, to the extent that it is probable that future taxable
profits will be available against which they can be utilized. Deferred income tax assets
are reviewed at each reporting date and are reduced to the extent that it is no longer
probable that the related tax benefit will be realized.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
47
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)
____________________
3. Significant accounting policies (continued):
(s) Earnings per share:
Basic earnings per share is computed by dividing Net earnings by the weighted average
number of common shares outstanding during the reporting period. Diluted earnings
per share is determined by adjusting Net earnings and the weighted average number of
common shares outstanding during the reporting period for the effects of all dilutive
potential common shares, including outstanding stock options, if any.
(t) New standards and interpretations not yet adopted:
A number of new standards, and amendments to standards and interpretations, are not
yet effective for the year ended December 31, 2015, and have not been applied in
preparing these consolidated financial statements. The following pronouncements are
considered by the Company to be the most significant of several pronouncements that
may affect the financial statements.
IFRS 9, Financial Instruments, will replace the multiple classification and measurement
models in IAS 39, Financial Instruments: Recognition and Measurement, with a single
model that has only two classification categories: amortized cost and fair value. IFRS
9 is effective for annual periods beginning on or after January 1, 2018, with earlier
adoption permitted. The Company does not expect this standard to have a significant
effect on its financial statements.
In May 2014, the International Accounting Standards Board issued IFRS 15, Revenue
from Contracts with Customers, which will supersede IAS 18, Revenue, IAS 11,
Construction Contracts and related interpretations. The new standard is effective for
annual periods beginning on or after January 1, 2017. The Company is in process of
assessing the impact, if any, on the financial statements of this new standard.
On January 13, 2016 the International Accounting Standards Board published a new
standard, IFRS 16, Leases, eliminating the current dual accounting model for lessees,
which distinguishes between on-balance sheet finance leases and off-balance sheet
operating leases. Under the new standard, a lease becomes an on-balance sheet
liability that attracts interest, together with a new right-of-use asset. In addition,
lessees will recognize a front-loaded pattern of expense for most leases, even when
cash rentals are constant. IFRS 16 is effective for annual periods beginning on or after
January 1, 2019, with earlier adoption permitted. The Company has not yet completed
an assessment of the impact of this standard on its financial statements.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
48
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)
____________________
4. Acquisitions:
On March 1, 2015, Interfor concluded the acquisition of sawmill operations in Meldrim,
Georgia; Georgetown, South Carolina; Longview, Washington; and Tacoma, Washington
from Simpson Lumber Company, LLC (“Simpson”), pursuant to an Asset Purchase
Agreement (“APA”) for total consideration of US$146,088,000 ($182,654,000).
Consideration per the APA included a series of future payments tied to the financial
performance of the Tacoma sawmill. The contingent future payments are calculated and
payable over three years as follows:
(a) An annual payment equal to half of the Tacoma sawmill’s EBITDA for each of the three
years post-closing; and
(b) A final payment at the end of the third year equal to 2.5 times the Tacoma sawmill’s
average annual EBITDA over the three year period.
The minimum total contingent future payments as outlined in (a) and (b) combined are
US$10,000,000 and the Company recorded a discounted provision of US$9,464,000
($11,833,000) in Provisions and other liabilities in the Consolidated Statements of Financial
Position as part of the acquisition. On July 30, 2015, the Company announced a plan to exit
its sawmilling operation located in Tacoma, Washington. On December 22, 2015, the
Company signed an agreement to sell the related real estate, subject to customary closing
conditions (note 5). The completion of the sale will accelerate the payment due date of the
contingent liability to within 45 days of the real estate closing, with the payout expected to
equal the US$10,000,000 minimum.
As at December 31, 2015, the provision of US$9,643,000 was revalued at the year-end
exchange rate to $13,345,000 and recorded in Trade accounts payable and provisions in
the Consolidated Statement of Financial Position. The Company recorded accretion
expense of $238,000 in 2015.
On June 19, 2015, Interfor concluded the acquisition of sawmill operations in Monticello,
Arkansas from The Price Lumber Company, Inc. (“Monticello”), for total consideration of
US$35,627,000 ($43,699,000).
In 2013, the Company acquired the Thomaston sawmill operations from Keadle Lumber
Enterprises, Inc. (“Keadle”). Upon acquisition, the Company agreed to pay additional
consideration of US$7,000,000, contingent upon receipt of an upgrade to the air permit
which allows the Company to operate a second shift. Approval was received on February
28, 2014, and a payment of $8,743,000 was made on February 27, 2015.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
49
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)
____________________
4. Acquisitions (continued):
These acquisitions have been accounted for as business combinations and the value of the
consideration transferred was allocated as follows:
Note
Simpson
Monticello
Keadle
Total
Net assets acquired:
Current assets
Property, plant and equipment
9
Current liabilities assumed
Consideration funded by:
Cash
Revolving Term Loan
Current liabilities
Cash consideration from
Common Share issuance
Cash consideration
10(b)
13(a)
Contingent future payments
Provisions and other liabilities
11
11
$ 57,661 $
129,227
186,888
(4,234)
2,900 $
40,846
43,746
(47)
- $ 60,561
170,073
-
230,634
-
(4,281)
-
$ 182,654 $ 43,699 $
- $ 226,353
- $
$
107,625
-
63,196
170,821
11,833
-
- $
43,675
24
-
43,699
-
-
8,743 $
-
-
8,743
151,300
24
-
8,743
-
(8,743)
63,196
223,263
11,833
(8,743)
$ 182,654 $ 43,699 $
- $ 226,353
Transaction costs of $2,105,000 related to the acquisitions were expensed in Selling and
administration expenses in Net earnings in 2015.
Since acquisition, Simpson and Monticello contributed sales of $183,502,000 and a net loss
of $31,564,000 to the Company’s results, including a $13,238,000 net loss at the Tacoma
sawmill. If the acquisitions had occurred on January 1, 2015, management estimates that
Sales and Net loss would have been $1,745,323,000 and $37,753,000, respectively. In
determining these amounts, management has assumed that the fair value adjustments that
arose on the acquisition dates would have been the same if the acquisitions had occurred
on January 1, 2015.
On March 14, 2014, a wholly-owned subsidiary of Interfor acquired all of the outstanding
common shares of Tolleson Ilim Lumber Company (“Tolleson”) from Ilim Timber
Continental, S.A. (“Ilim”), pursuant to a Share Purchase Agreement for total consideration
of $188,545,000. Tolleson, through its wholly-owned subsidiary, owned and operated two
sawmills in Perry and Preston, Georgia, and a remanufacturing facility in Perry, Georgia.
Subsequent to the acquisition, both Tolleson and its wholly-owned subsidiary were merged
into the Company’s wholly-owned subsidiary which had acquired the common shares of
Tolleson.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
50
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)
____________________
4. Acquisitions (continued):
The Tolleson acquisition was accounted for as a business combination and the value of
consideration transferred was allocated as follows:
Assets acquired:
Cash and cash equivalents
Other current assets
Property, plant and equipment
Other intangible assets
Goodwill
Liabilities assumed:
Current liabilities
Long term provisions and other liabilities
Deferred income taxes
Consideration funded by:
Current liabilities
Operating Line
Revolving Term Line
Cash consideration
Share capital (3,680,000 Common Shares)
Note
8
9
9
19
$ 2,484
16,790
86,561
22,190
107,419
235,444
(15,929)
(6,697)
(24,273)
$ 188,545
$ 2,086
24,964
99,855
126,905
61,640
$ 188,545
As part of the acquisition, the Company entered into a non-competition agreement with
Ilim under which Ilim and its associates are prohibited from carrying on various activities
within Canada and the U.S. that would be in competition with the Company’s operating
activities for a period of five years from the acquisition date. An intangible asset of
$22,190,000 was recognized in respect of this non-competition agreement, which is
being amortized to expense over its five year term.
In conjunction with recognizing a $24,273,000 deferred tax liability in accounting for the
acquisition of Tolleson, the Company recognized $19,253,000 of previously unrecognized
deferred tax assets related to its U.S. operations.
Transaction costs of $1,368,000 related to the acquisition were expensed in Selling and
administration expenses in Net earnings in 2014.
5. Assets held for sale:
On July 30, 2015, the Company announced a plan to exit its sawmilling operation located in
Tacoma, Washington and classified US$20,113,000 of the Tacoma sawmill property and
buildings as assets held for sale (note 8). As at December 31, 2015, these assets have
been revalued at the year-end exchange rate to $27,836,000. In accordance with IFRS,
these assets are no longer amortized.
There is a cumulative foreign currency translation gain of $2,689,000 included in Other
comprehensive income relating to the translation of the assets held for sale.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
51
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)
____________________
5. Assets held for sale (continued):
The Company does not expect to recognize any impairment losses on the remeasurement
of the Tacoma sawmill net assets to the lower of their carrying amount and the fair value
less costs to sell. See note 18 for a discussion of provisions and inventory write-downs
associated with the closure.
A sale of substantially all assets of the Tacoma sawmill will accelerate the due date of
contingent future payments, as described in note 4. On December 22, 2015, the Company
entered into a purchase and sales agreement to sell the remaining real estate assets,
subject to customary closing conditions. The sale is expected to complete in mid-2016.
6. Inventories:
Logs
Lumber
Other
2015
2014
$
69,980
69,046
16,714
$
71,841
66,798
10,029
$
155,740
$
148,668
Inventory expensed in the period includes production costs, depreciation of plant and
equipment, and depletion and amortization of timber, roads and other. The inventory
write-down to record inventory at the lower of cost and net realizable value at December
31, 2015, was $11,961,000 (2014 - $9,025,000).
7. Other investments and assets:
Timber deposits and other investments and deposits
Deferred financing fees, net of accumulated amortization
$
2015
1,528
1,663
$
2014
809
2,163
$
3,191
$
2,972
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)
____________________
8. Property, plant and equipment:
Cost
Balance at December 31, 2013
Additions
Acquisitions
Disposals
Transfers
Exchange rate movements
Balance at December 31, 2014
Additions
Acquisitions
Disposals
Transfers
Reclassification to assets held for sale
Exchange rate movements
Balance at December 31, 2015
Accumulated Depreciation
Balance at December 31, 2013
Depreciation
Disposals
Transfers
Impairment
Exchange rate movements
Balance at December 31, 2014
Depreciation
Disposals
Transfers
Impairment
Reversal of impairment
Reclassification to assets held for sale
Exchange rate movements
Balance at December 31, 2015
Net book value at
December 31, 2014
December 31, 2015
Note
Land
Buildings
Machinery and
Equipment
Mobile
Equipment
Computer
Equipment Improvements
Site
$
5
$
5
38,711 $
212
1,930
(106)
-
654
41,401
1,772
30,485
(643)
334
(25,066)
3,667
86,011 $ 519,313 $
382
4,972
(123)
1,141
3,489
95,872
424
16,199
(5,873)
15,194
(1,044)
10,359
-
73,368
(1,270)
25,626
27,251
644,288
6
99,549
(30,868)
65,936
-
81,701
51,950 $ 131,131 $ 860,612 $
19,048 $
787
2,927
(719)
5,163
685
27,891
16
1,844
(1,936)
2,157
(1)
2,034
32,005 $
Mobile
Equipment
23,912 $
1,319
1,535
(21)
370
1,209
28,324
2,124
6,152
(4,317)
5,471
-
3,807
41,561 $
46,009 $
2,604
1,824
(208)
4,445
1,796
56,470
320
2,723
(1,803)
6,974
(23)
5,071
69,732 $
Site
Buildings
Machinery and
Equipment
Computer
Equipment Improvements
$
31,029 $ 202,063 $
4,684
(102)
-
2,996
1,147
39,754
5,926
(4,991)
138
37
-
(23)
2,848
41,145
(959)
11
16,672
9,513
268,445
50,076
(25,048)
(592)
2,775
(1,195)
-
23,691
$
43,689 $ 318,152 $
12,960 $
2,125
(374)
-
-
293
15,004
3,793
(1,487)
(3)
-
-
(1)
805
18,111 $
16,409 $
2,934
(14)
(6)
7
831
20,161
5,351
(4,294)
349
-
-
-
2,072
23,639 $
22,177 $
3,687
(208)
11
793
765
27,225
4,748
(1,816)
1,694
-
-
-
1,796
33,647 $
52
Projects in
Process
Total
10,307 $ 750,198
47,224
40,618
86,561
-
(2,462)
-
(159)
(39,207)
35,873
697
917,235
12,415
96,110
86,671
170,073
12,935
(46,397)
-
(1,154)
(95,992)
(26,269)
-
109,737
2,357
18,386 $ 1,219,335
Total
$ 289,268
55,167
(1,672)
-
20,468
12,626
375,857
71,492
(38,593)
-
2,812
(1,195)
(30)
31,402
$ 441,745
Other
6,887 $
1,302
5
(15)
2,303
92
10,574
4,777
186
(957)
(1,228)
(135)
741
13,958 $
Other
4,630
592
(15)
(16)
-
77
5,268
1,598
(957)
(1,586)
-
-
(6)
190
4,507
There were $477,000 of borrowing costs capitalized in 2015 (2014 - $nil). Additions in 2015 include $2,278,000 of accrued contract costs (2014 - $1,698,000).
$
41,401 $
51,950
56,118 $ 375,843 $
87,442
542,460
12,887 $
13,894
8,163 $
17,922
29,245 $
36,085
5,306 $
9,451
12,415 $ 541,378
777,590
18,386
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
53
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)
____________________
9. Roads and bridges, timber tenures, other intangible assets and goodwill:
Cost
Note
Balance at December 31, 2013
Additions
Transfers
Acquisition
Disposals
Exchange rate movements
Balance at December 31, 2014
Additions
Transfers
Disposals
Exchange rate movements
4
Roads and
Bridges
Timber
Licences
Other
Intangibles
$
49,926 $
26,656
-
-
(7,461)
279
69,400
26,133
-
(832)
341
129,353 $
-
-
-
-
-
129,353
589
-
(11,508)
-
7,073 $
2,818
159
22,190
-
1,179
33,419
911
1,154
(137)
4,922
Goodwill
24,592
-
-
107,419
-
5,862
137,873
-
-
-
23,918
Balance at December 31, 2015
$
95,042 $
118,434 $
40,269 $
161,791
Accumulated amortization
Roads and
Bridges
Timber
Licences
Other
Intangibles
Goodwill
$
Balance at December 31, 2013
Amortization
Disposals
Exchange rate movements
Balance at December 31, 2014
Amortization
Disposals
Exchange rate movements
33,702 $
19,539
(6,280)
195
47,156
27,285
(178)
168
45,009 $
5,320
-
-
50,329
3,891
(8,215)
-
4,653 $
4,053
-
316
9,022
6,302
(137)
1,481
877
-
-
-
877
-
-
-
Balance at December 31, 2015
$
74,431 $
46,005 $
16,668 $
877
Net book value at
December 31, 2014
December 31, 2015
$
22,244 $
20,611
79,024 $
72,429
24,397 $
23,601
136,996
160,914
For the purpose of impairment testing, goodwill components of $13,078,000 and
$147,835,000 are attributable to the Coastal Whitewood cash-generating unit (“CWW
CGU”) and the U.S. Southeast cash-generating units (“SE CGU’s”), respectively.
The recoverable amounts for the goodwill impairment assessments were based on the
CGU’s (or groups of CGU’s) value in use and were determined by discounting the future
cash flows generated from the continuing use of the units for a period of twenty years. The
cash flows were projected based on past experience, actual operating results and the five
year business plan in the assessment for both 2014 and 2015. Due to the cyclical nature of
the forest industry, cash flows for a further 15 years were extrapolated based on an
average trend year.
The recoverable amount of both the CWW CGU and the SE CGU as at December 31, 2015,
and December 31, 2014 were determined to be higher than the related carrying amount
and no impairment has been recognized.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
54
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)
____________________
9. Roads and bridges, timber tenures, other intangible assets and goodwill
(continued):
Key assumptions used are based on industry sources, including Forest Economic Advisors,
LLC, as well as management estimates. These assumptions include lumber and residual
chip sales prices, applicable foreign exchange rates, operating rates of the assets, raw
material and conversion costs, the level of sales to the U.S. from Canada, the export tax
rate and the future capital required to maintain the assets in their current operating
condition.
A pre-tax discount rate of 16 percent (2014 – 16 percent) was applied in determining the
recoverable amount of each CGU assessed. The discount rate was estimated with the
assistance of external experts, past experience, and the industry average weighted average
cost of capital. An inflation rate of 1.0 percent (2014 – 2.0 percent) is applied to the
projected cash flows for years four through twenty.
The values assigned to key assumptions represent management’s assessment of future
trends in the forest industry and are based on both external sources and internal historical
data.
10. Cash and borrowings:
2015
Available line of credit
Maximum borrowing available
Drawings
Outstanding letters of credit
included in line utilization
Unused portion of line
2014
Available line of credit
Maximum borrowing available
Drawings
Outstanding letters of credit
included in line utilization
Operating
Line
Revolving
Term
Line
Senior
U.S.
Secured Operating
Line
Notes
Total
$ 65,000 $200,000 $276,800 $ 69,200 $ 611,000
592,543
468,759
183,723
179,920
276,800
276,800
62,820
-
69,200
12,039
9,396
$ 53,424 $
-
3,803 $
2,290
-
11,686
- $ 54,871 $ 112,098
$ 65,000 $250,000 $116,010 $ 34,803 $ 465,813
465,813
220,419
250,000
104,409
116,010
116,010
65,000
-
34,803
-
Unused portion of line
$ 56,363 $ 145,591 $
8,637
-
1,183
-
9,820
- $ 33,620 $ 235,574
Minimum principal amounts due on long term debt are follows:
2016
2017
2018
2019
2020
Thereafter
$
-
191,959¹
-
-
-
276,800
$ 468,759
1 On February 9, 2016, the Company extended the maturities of its Operating Line and Revolving
Term Line from February 27, 2017 to May 19, 2019.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
55
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)
____________________
10. Cash and borrowings (continued):
(a) Operating Line:
The Canadian operating line of credit (“Operating Line”) may be drawn in either CAD$
or US$ advances, and bears interest at bank prime plus a margin or, at the Company’s
option, at rates for Bankers’ Acceptances or LIBOR based loans plus a margin, and in all
cases dependent upon a financial ratio of total debt divided by twelve months’ trailing
EBITDA1. Borrowing levels under the Operating Line are subject to a borrowing base
calculation dependent on certain accounts receivable and inventories.
The Operating Line is secured by a general security agreement which includes a security
interest in all accounts receivable and inventories, charges against timber tenures, and
mortgage security on certain sawmills. The Operating Line is subject to certain financial
covenants including a minimum working capital requirement, a maximum ratio of total
debt to total capitalization and a minimum net worth calculation.
The Operating Line matures on February 27, 2017.
On February 9, 2016, the Company extended the maturity of its Operating Line and
Revolving Term Line from February 27, 2017 to May 19, 2019. Certain other terms
were also changed, resulting in an increase in the maximum borrowing available under
the financing agreement.
As at December 31, 2015, maximum borrowings available under the Company’s
Operating Line and Revolving Term Line were restricted by a financial covenant in the
underlying credit agreement. In the table above, this limitation has been applied to the
Operating Line and Revolving Term Line limits. Based on the changes to the agreement
terms effective on February 9, 2016, this restriction was removed and total available
liquidity would have been $147,011,000 as at December 31, 2015.
As at December 31, 2015, the Operating Line was drawn by $9,396,000 (2014 -
$8,637,000), including outstanding letters of credit. The Company did not recognize any
unrealized foreign exchange gains or losses (2014 - $72,000 gain) in Other
comprehensive income in relation to the Operating Line borrowing in 2015.
As at December 31, 2015, $53,424,000 of available credit on the Operating Line was
unused (2014 - $56,363,000).
(b) Revolving Term Line:
The Revolving Term Line may be drawn in either CAD$ or US$ advances, and bears
interest at bank prime plus a margin or, at the Company’s option, at rates for Bankers’
Acceptances or LIBOR based loans plus a margin, and in all cases dependent upon a
financial ratio of total debt divided by twelve months’ trailing EBITDA1.
1 EBITDA represents earnings before interest, taxes, depreciation, depletion, amortization and
non-cash asset revaluations.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
56
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)
____________________
10. Cash and borrowings (continued):
(b) Revolving Term Line (continued):
The Revolving Term Line is secured by a general security agreement which includes a
security interest in all accounts receivable and inventories, charges against timber
tenures, and mortgage security on certain sawmills. The Revolving Term Line is subject
to certain financial covenants including a minimum working capital requirement, a
maximum ratio of total debt to total capitalization and a minimum net worth calculation.
On March 16, 2015, the Company decreased the credit available under its Revolving
Term Line from $250,000,000 to $200,000,000. All other terms and conditions
remained unchanged.
The Revolving Term Line matures on February 27, 2017. Refer to note 10(a) for a
subsequent event impacting the maturity date of the Revolving Term Line.
As at December 31, 2015, maximum borrowings available under the Company’s
Operating Line and Revolving Term Line were restricted by a financial covenant in the
underlying credit agreement. In the table above, this limitation has been applied to the
Operating Line and Revolving Term Line limits. As indicated in note 10(a), this
restriction was removed by changes to the agreement terms effective February 9, 2016.
As at December 31, 2015, the Revolving Term Line was drawn by US$130,000,000
(2014 – US$90,000,000) revalued at the year-end exchange rate to $179,920,000
(2014 - $104,409,000). As at December 31, 2015, $3,803,000 of available credit on
the Revolving Term Line was unused (2014 - $145,591,000).
All outstanding U.S. Dollar drawings under the Revolving Term Line have been
designated as a hedge against the Company’s investment in its U.S. operations and
foreign exchange losses of $30,649,000 for the year ended December 31, 2015 (2014 -
$10,770,000 loss) arising on revaluation of the Revolving Term Line were recognized in
Foreign currency translation differences in Other comprehensive income.
(c) Senior Secured Notes:
On March 16, 2015, the Company issued US$100,000,000 of Series C Senior Secured
Notes, bearing interest at 4.17%. Together with the Series A Senior Secured Notes
(US$50,000,000, bearing interest at 4.33%) and Series B Senior Secured Notes
(US$50,000,000, bearing interst at 4.02%), US$200,000,000 of Senior Secured Notes
were outstanding as at December 31, 2015 (2014 – US$100,000,000) and revalued at
the year-end exchange rate to $276,800,000 (2014 - $116,010,000).
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
57
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)
____________________
10. Cash and borrowings (continued):
(c) Senior Secured Notes (continued):
The Senior Secured Notes are subject to certain financial covenants including a
minimum working capital requirement, a maximum ratio of total debt to total
capitalization and a minimum net worth calculation. Total payments of US$33,333,000
(US$16,667,000 for each of the Series A and Series B Senior Secured Notes) are
required on each of June 26, 2021 and 2022, with the balance due on June 26, 2023
for the Series A and B Senior Secured Notes. Payments of US$33,333,000 are required
on each of March 26, 2024 and 2025, with the balance due on March 26, 2026 for the
Series C Senior Secured Notes. In conjuction with the modifications to the Operating
Line and Revolving Term Line effective February 9, 2016, as per note 10(a), certain
financial covenants of the Senior Secured Notes were also modified. All other terms
and conditions remained unchanged.
The Senior Secured Notes have been designated as a hedge against the Company’s
investment in its U.S. operations and unrealized foreign exchange losses of
$32,760,000 (2014 - $4,705,000 loss) arising on their revaluation were recognized in
Foreign currency translation differences in Other comprehensive income for the year
ended December 31, 2015.
(d) U.S. Operating Line:
The U.S. Operating Line bears interest at rates for LIBOR based loans plus a margin
and is secured by accounts receivable and inventories of wholly-owned subsidiary,
Interfor U.S. Inc. The U.S. Operating Line is subject to a minimum net worth covenant,
with borrowing levels subject to a collateral calculation dependent upon certain
accounts receivable and inventories. On April 27, 2015, the Company extended the
maturity of its U.S. Operating Line from April 28, 2015 to May 1, 2017 and increased
the credit available from US$30,000,000 to US$50,000,000.
As at December 31, 2015, the U.S. Operating Line was drawn by US$10,354,000,
including outstanding letters of credit, revalued at the year-end exchange rate to
$14,330,000 (2014 – US$1,020,000 revalued at the year-end exchange rate to
$1,183,000), with cumulative foreign exchange losses of $2,053,000 (2014 - $115,000
loss) recognized in Foreign currency translation differences in Other comprehensive
income for the year ended December 31, 2015.
As at December 31, 2015, $54,871,000 (US$39,647,000) of the U.S. Operating Line
was unused (2014 - $33,620,000, US$28,980,000).
(d) Cash and cash equivalents:
At December 31, 2015, the Company’s cash balances are restricted by contractor
holdback payments of $784,000 (2014 - $15,000).
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
58
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)
____________________
11. Provisions and other liabilities:
2015
Note
Current
Non-current
11(a), 18
Restructuring
11(a)
Road deactivation
Environmental
11(a)
Cash-settled share based compensation
11(b)
11(c)
11(d)
Storm damage remediation funds 11(e)
Contingent future payment
4, 5
Retained compensation liabilities
11(f)
Lease incentives and other
SAR Plan
TSR Plan
DSU Plan
494
$
392
56
$
6,089
4,189
-
224
13,345
2,665
179
1,681
3,776
770
879
1,525
8,651
291
-
40
2,415
$
Total
2,175
4,168
826
6,968
5,714
8,651
515
13,345
2,705
2,594
$ 27,633
$ 20,028
$ 47,661
2014
Note
Current
Non-current
11(a), 18
Restructuring
11(a)
Road deactivation
Environmental
11(a)
Cash-settled share based compensation
11(b)
11(c)
11(d)
Storm damage remediation funds 11(e)
11(f)
Retained compensation liabilities
Air permit contingent payment
11(g)
Lease incentives and other
SAR Plan
TSR Plan
DSU Plan
$
627
406
56
12,450
10,614
763
224
7,193
8,121
1,175
$
1,498
3,645
772
$
2,494
5,059
10,614
310
382
-
416
Total
2,125
4,051
828
14,944
15,673
11,377
534
7,575
8,121
1,591
$ 41,629
$ 25,190
$ 66,819
The current portion of provisions and other liabilities is included in Trade accounts payable
and provisions in the Statements of Financial Position.
(a) Provisions:
Forestry legislation in British Columbia requires the Company to deactivate logging
roads once harvesting is complete and access is no longer required. Accordingly, the
Company records the fair value of the costs of road deactivation in the period in which
the timber is harvested, with the fair value of the liability determined with reference to
the present value of estimated future cash flows.
Environmental provisions are made when rehabilitation efforts are likely to occur and
the costs can be reasonably estimated. The environmental provision relates primarily
to obligations of the Castlegar sawmill.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
59
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)
____________________
11. Provisions and other liabilities (continued):
(a) Provisions (continued):
Provisions are measured at the expected value of future cash flows, discounted to their
present value and determined according to the probability of alternative estimates of
cash flows using a current pre-tax discount rate that reflects the risks specific to the
liability. The unwinding of the discount is recognized as a Finance cost in Net earnings.
Balance at December 31, 2013
$
530
$
3,916
$
792
Note
Restructuring Road deactivation
Environmental
Provisions made during year
Expenditures made during year
Unwind of discount
Changes in estimated future expenditures
Exchange rate movements
18
3,248
(1,810)
-
-
157
628
(103)
83
(473)
-
Balance at December 31, 2014
2,125
4,051
Provisions made during year
Expenditures made during year
Unwind of discount
Changes in estimated future expenditures
Exchange rate movements
18
4,131
(4,556)
-
-
475
346
(218)
58
(69)
-
-
(2)
15
23
-
828
-
-
10
(12)
-
Balance at December 31, 2015
$
2,175
$
4,168
$
826
(b) Share Appreciation Rights Plan:
Awards under the SAR Plan have been granted to directors, officers and certain
employees of the Company. The vesting of SARs occurs at a rate of 40% two years
after granting and 20% per annum thereafter. SARs expire ten years after the date of
grant. The SAR Plan uses notional units that are valued based on the Company’s
Common Share price on the Toronto Stock Exchange. The units are exercisable for
cash and recorded as liabilities. Under the SAR Plan, awards will be expensed over the
vesting periods based on the estimated fair value of the SARs at the date of grant. Fair
value is measured using a Black-Scholes option pricing model and is adjusted to reflect
the number of SARs expected to vest. Fair value of the SARs is subsequently measured
at each reporting date with any change in fair value resulting in a change in the
measure of the compensation for the award, which is amortized over the remaining
vesting periods.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
60
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)
____________________
11. Provisions and other liabilities (continued):
(b) Share Appreciation Rights Plan (continued):
Details of the Company’s SAR Plan for the years ended December 31, 2015 and 2014
are as follows:
2015
Weighted
average
strike price
Units
Outstanding, beginning of year 1,113,953
-
Granted
(149,100)
Exercised
(35,045)
Expired or cancelled
$ 7.35
-
5.77
9.52
2014
Weighted
average
strike price
$ 5.62
17.43
5.19
5.12
Units
1,410,850
147,403
(416,300)
(28,000)
Outstanding, end of year
929,808
$ 7.52
1,113,953
$ 7.35
Units exercisable, end of year
509,250
$ 5.03
427,350
$ 4.37
Weighted average fair value assumptions for grants made in 2015 and 2014 are as
follows:
Risk-free interest rate
Expected life
Annualized volatility
Dividend rate
Termination rate
Grant date fair value
2015
-
-
-
-
-
-
2014
2.0%
8.2 years
45%
0%
12%
$9.06
Details of units outstanding under the SAR Plan at December 31, 2015 are as follows:
Number
outstanding,
December 31,
2015
Strike
price
282,950
$1.38-$4.64
147,400
$4.77-$5.40
$6.01-$7.09
156,800
$8.02-$17.43 342,658
Units outstanding
Weighted
average Weighted
average
strike price
remaining
unit life (yrs)
5.0
3.7
4.6
7.3
$ 3.45
4.89
6.25
12.57
Units exercisable
Number
exercisable,
December 31,
2015
187,250
145,400
109,600
67,000
Weighted
average
strike price
$ 2.90
4.88
6.35
9.18
929,808
$ 7.52
509,250
$ 5.03
For the year ended December 31, 2015, the Company recorded a Long term incentive
compensation recovery in respect of the SAR Plan of $4,730,000 (2014 – expense of
$9,210,000).
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
61
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)
____________________
11. Provisions and other liabilities (continued):
(c) Total Shareholder Return Plan:
Under terms of the TSR Plan, a participant will receive a target number of performance
share units (“PSUs”) based on a target award divided by the value of the Company’s
Common Shares at the effective date of the grant. The number of PSUs which will
ultimately vest will be in a range from 50% to 150% of the original grant based on total
shareholder return over a three year performance period.
The number of PSU’s outstanding at December 31, 2015 and 2014 are as follows:
Outstanding, beginning of year
Granted
Matured
Cancelled
2015
709,214
144,975
(335,990)
-
2014
872,699
171,730
(326,961)
(8,254)
Outstanding, end of year
518,199
709,214
Compensation expense is recorded for the TSR Plan over the performance period based
on the estimated fair value of the TSR Plan payable at the date of the grant. The fair
value of obligations under the TSR Plan is subsequently measured at each reporting
date with any changes in fair value reflected in Long term incentive compensation
expense in Net earnings.
Fair value of the TSR Plan is measured using a combination of call options which are
valued using a Black-Sholes pricing model with weighted average assumptions for
grants as follows:
Risk-free interest rate
Expected life
Annualized volatility
Dividend rate
Termination rate
Grant date fair value
2015
2014
0.9%
3 years
47% to 56%
0.00%
0.00%
$2,340
1.4%
3 years
47% to 56%
0.00%
0.00%
$2,175
For the year ended December 31, 2015, the Company recorded Long term incentive
compensation expense under the TSR Plan of $655,000 (2014 – $10,429,000).
(d) Deferred Share Unit Plan:
The Company’s directors and certain officers participate in the DSU Plan. The DSU
Plan, which allows for immediate or deferred vesting, is intended to provide a better
link between share performance and compensation for the participants, in that DSUs
either increase or decrease in value in a direct relationship with the market price of the
Company’s Common Shares.
Participants in the TSR Plan may elect, subject to the approval of the Company’s Board
of Directors, to receive their award in DSUs at the end of any performance period.
DSUs may also be granted directly to directors or officers of the Company at the
discretion of the Board of Directors, who are required to take DSUs as payment of at
minimum 60% of their annual retainer.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
62
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)
____________________
11. Provisions and other liabilities (continued):
(d) Deferred Share Unit Plan (continued):
The number of DSUs outstanding at December 31, 2015 and 2014 are as follows:
2015
2014
Outstanding, beginning of year 551,249
157,973
Granted¹
(86,271)
Exercised
Units
Average
unit value
$21.27
18.73
21.91
Units
498,593
70,656
(18,000)
Average
unit value
$13.48
15.29
21.51
Outstanding, end of year
622,951
$14.06
551,249
$21.27
¹Fair value at the date of the grants.
Changes to the market value of the Company’s Common Shares subsequent to issuance
of awards will result in adjustments to the compensation accrual and Long term
incentive compensation expense in Net earnings. In the year ended December 31,
2105, the Company recorded a recovery of $2,835,000 (2014 – expense of $4,890,000)
in respect to the DSU Plan, of which a $3,795,000 recovery (2014 – expense of
$4,294,000) was recorded in Long term compensation and a $960,000 expense (2014 -
$596,000), related to payment for director’s fees, was recorded in Selling and
administration.
(e) Storm damage remediation funds:
In 2011, the Company settled with its insurers for recovery of certain losses relating to
storm damage suffered in 2010. An amount of $1,576,000 was set up as a provision
for future remediation on roads and bridges. Under the terms of the insurance
settlement, the insurance proceeds must be used for remediation. As at December 31,
2015, $515,000 (2014 - $534,000) of this provision remains unspent.
(f) Retained compensation liabilities:
Upon acquisition of the Tolleson sawmills on March 17, 2014, the Company assumed
certain incentive payments payable to certain senior management over a four year
period. The incentive is earned and recognized as a liability over the incentive period.
The liability of US$1,954,000 (2014 – US$6,530,000) was revalued at the year-end
exchange rate to $2,705,000 (2014 - $7,575,000).
(g) Air permit contingent payment:
Upon acquisition of the Thomaston sawmill operations from Keadle Lumber Enterprises
Inc. in 2013, the Company agreed to pay additional consideration of US$7,000,000,
contingent upon receipt of an upgrade to the air permit which will allow the Company to
operate a second shift (note 4). Approval was received on February 28, 2014 and a
payment of $8,743,000 was made on February 27, 2015.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
63
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)
____________________
12. Reforestation liability:
The Company has an obligation to reforest areas harvested under various timber rights.
The obligation is incurred as logging occurs and the fair value of the liability for
reforestation is determined with reference to the present value of estimated future cash
flows required to settle the obligation.
Changes in the reforestation liability for the years ended December 31 are as follows:
Reforestation liability, beginning of year
Reforestation expense on current logging and
market logging agreements
Reforestation expenditures
Unwind of discount
Changes in estimated future reforestation expenditures
Consisting of:
Current reforestation liability
Long term reforestation liability
2015
2014
$ 32,896
$ 32,416
12,888
(9,691)
360
(327)
11,264
(11,770)
529
457
$ 36,126
$ 32,896
$ 11,052
25,074
$
9,797
23,099
$ 36,126
$ 32,896
The total undiscounted amount of the estimated future expenditures required to settle the
reforestation obligation, adjusted for inflation, at December 31, 2015 is $37,848,000 (2014
- $34,628,000). The reforestation expenditures are expected to occur over the next one to
fifteen years and have been discounted at a long term risk-free interest rate of 2% (2014 –
2%). Reforestation expense resulting from obligations arising from current logging and
changes in estimated future expenditures are included in Production costs for the year and
expense related to the unwinding of the discount is included in Finance costs.
13. Share capital:
(a) Share transactions:
Authorized capital at December 31, 2015 consists of:
150,000,000 Common Shares (“Shares”) without par value; and
5,000,000 Preference Shares without par value.
On May 6, 2014, the Company eliminated its 1,700,000 authorized Class B Common
Shares (“Class B”), known as Multiple Voting Shares, re-designated its Class A
Subordinate Voting Shares (“Class A”) as Common Shares, and increased its authorized
Common Shares by 50,000,000 shares to 150,000,000 shares.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
64
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)
____________________
13. Share capital (continued):
(a) Share transactions (continued):
Share transactions during 2015 and 2014 were as follows:
Issued and Fully Paid
Balance, December 31, 2013
Shares issued in business
combination (note 4)
Balance, December 31, 2014
Shares issued for cash, net of
Share issue costs (note 4)
Balance, December 31, 2015
Number
63,050,455
Amount
$ 428,723
3,680,000
66,730,455
61,640
490,363
3,300,000
70,030,455
63,196
$ 553,559
On January 27, 2015, the Company closed a bought deal public offering of subscription
receipts (the “Subscription Receipts”) through a syndicate of underwriters. The
Company issued an aggregate of 3,300,000 Subscription Receipts (including 300,000
Subscription Receipts issued pursuant to the exercise of the over-allotment option) at a
price of $20.10 per Subscription Receipt, for cash proceeds, net of share issue costs, of
$63,196,000. In connection with the completion of the Simpson acquisition (note 4),
each Subscription Receipt was exchanged, for no additional consideration, for one
Common Share of the Company. The shares were issued on March 2, 2015 (note 4).
On March 14, 2014, the Company issued 3,680,000 Shares at a share price of $16.75
per share to partially fund the acquisition of Tolleson (note 4).
At December 31, 2015, 1,631,740 Shares are reserved for possible future issuance
pursuant to the share option plan.
(b) Equity-settled share based compensation:
The Company has an employee stock option plan for its key employees and directors
under which options may be granted to purchase up to 1,631,740 Shares, of which
1,567,565 remain available for issuance. The vesting of the options occurs at a rate of
40% two years after granting and 20% per annum thereafter. Options expire ten years
after the date of the grant. The exercise price of a stock option is at a price not less
than the closing price of a Common Share on the trading day immediately preceding
the grant date.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
65
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)
____________________
13. Share capital (continued):
(b) Equity-settled share based compensation (continued):
Details of the Company’s equity-settled share based compensation plan for the years
ended December 31, 2015 and 2014 are as follows:
2015
2014
Weighted
average
exercise price
Options
Weighted
average
exercise price
Options
Outstanding, beginning of year
Granted
Exercised
Expired or cancelled
-
78,926
-
(14,751)
$
-
21.85
-
22.22
$
-
-
-
-
Outstanding, end of year
64,175
$
21.77
-
$
Options exercisable, end of year
-
$
-
-
$
-
-
-
-
-
-
Weighted average fair value assumptions for grants made in 2015 and 2014 are as
follows:
Risk-free interest rate
Expected life
Annualized volatility
Dividend rate
Termination rate
Grant date fair value
2015
1.3%
8.2 years
45%
0%
12%
$10.48
2014
-
-
-
-
-
-
Details of options outstanding under the option plan at December 31, 2015 are as
follows:
Number
outstanding,
December 31,
Units outstanding
Weighted
average
remaining
Weighted
Number
exercisable,
average December 31,
2015
2015 unit life (yrs) exercise price
Units exercisable
Weighted
average
strike price
Strike
price
$17.26-$22.22
64,175
9.2
$
21.77
-
$
-
The Company recognized an expense of $189,000 for the year ended December 31,
2015 (2014 - $nil) in Contributed surplus.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
66
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)
____________________
14. Depreciation, depletion and amortization:
Depreciation, depletion and amortization allocated by function are as follows:
Production
Selling and administration
15. Personnel expenses:
2015
2014
$ 100,988
7,982
$ 79,359
4,720
$ 108,970
$ 84,079
Note
2015
2014
Wages and salaries
Government administered pensions and
unemployment insurance
Workers’ compensation insurance
Contributions to defined contribution plans
Expenses related to defined benefit plans
Cash-settled share based payment transactions
and other long term compensation expense
Medical, dental, group insurance and other
22
22
11
16. Finance costs:
Recognized in Net earnings (loss):
Interest on borrowing
Net interest on defined benefit plans
Unwind of discount on provisions
Amortization of deferred finance costs
Recognized in Other comprehensive income:
$ 219,362
$ 178,902
12,817
7,505
10,948
1,304
5,431
34,027
10,054
5,046
9,543
1,270
23,933
16,446
$ 291,394
$ 245,194
2015
$ (16,034)
(11)
(667)
(857)
$
2014
(7,568)
79
(627)
(799)
$ (17,569)
$
(8,915)
2015
2014
Effective portion of changes in fair value of interest rate swap
$
(71)
$
(34)
17. Other income (expense):
Gain (loss) on disposal of surplus equipment, licences and roads $
Gain (loss) on lumber futures trading
2015
758
(1)
2014
(46)
9
$
$
757
$
(37)
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
67
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)
____________________
18. Restructuring costs:
Tacoma sawmill:
Write-down of inventories
Severance
Site closure costs
Onerous contract
Beaver-Forks operation:
Write-down (reversal of write-down) of
plant and equipment
Severance
Onerous contract
Write-down of inventories
Other
Write-down of equipment
Severance
Other
Note
6
9
9
9
9
9
9
9
9
9
$
2015
6,475
3,016
574
64
(1,195)
5
175
32
2,812
871
-
$
2014
-
-
-
-
20,468
689
1,673
-
-
886
413
$ 12,829
$ 24,129
On July 31, 2014, the Company permanently closed its Beaver-Forks operation, located on
the Olympic Peninsula in Washington, USA and sold substantially all of the related assets
on February 26, 2015.
On July 30, 2015, the Company announced a plan to exit the Tacoma sawmill (note 4),
classified the assets as Assets held for sale (note 5) and recorded related restructuring
charges. Inventory write-downs reflect extraordinary declines in fair value of inventory
subsequent to decision date.
In December, 2015, the Company recorded an impairment against boilers at its Preston
sawmill located in Georgia, U.S., which are to be replaced in 2016 for regulatory
compliance.
19. Income taxes:
Income tax expense is as follows:
Current tax expense:
Current year
Adjustments for prior periods
Deferred income tax expense (recovery):
Origination and reversal of temporary differences
Change in unrecognized deferred income tax assets
$
2015
895
(281)
614
$
2014
1,281
61
1,342
(25,767)
1,136
(24,631)
3,330
(20,902)
(17,572)
$ (24,017)
$ (16,230)
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
68
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)
____________________
19. Income taxes (continued):
Income tax expense (recovery) recognized in Other comprehensive income is as follows:
Defined benefit plan actuarial losses
Foreign currency translation differences for foreign operations
$
2015
(376)
(321)
$
2014
-
176
$
(697)
$
176
The reconciliation of income taxes at the statutory rate to the income tax recovery is as
follows:
Income tax expense (recovery) at the statutory rate of
26.00% (2014 – 26.00%)
Change in unrecognized deferred income tax assets
Entities with different tax rates and foreign rate adjustments
Other
2015
2014
$ (14,145)
1,136
(12,702)
1,694
$
6,360
(20,902)
(639)
(1,049)
$ (24,017)
$ (16,230)
The statutory tax rate did not change from 2014.
The Company has the following non-capital loss carryforwards that are available to reduce
future taxable income:
(a) Canadian non-capital loss carry-forwards which total approximately $125,000,000
(2014 - $123,000,000), and expire between 2029 and 2033.
(b) U.S. net operating loss carry-forwards which total approximately US$179,000,000
(2014 - US$109,000,000), and expire between 2023 and 2035.
Unrecognized deferred income taxes:
The Company has unrecognized deferred income tax assets in relation to certain deductible
temporary differences and unused tax losses that are available to carry forward against
future taxable income.
Although the Company expects to realize the full benefit of the loss carry-forwards and
other deferred income tax assets, due to the cyclical nature of the wood products industry
and the economic conditions over the past several years, the Company has not recognized
the benefit of its deferred income tax assets in excess of its deferred income tax liabilities
in respect of Canadian operations, except in limited circumstances.
Deferred income tax assets related to the Company’s Canadian operations are not
recognized in respect of the following:
Non-capital losses carried forward
Deductible temporary differences
2015
$ 27,313
11,398
2014
$ 22,769
6,273
$ 38,711
$ 29,042
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
69
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)
____________________
19. Income taxes (continued):
Recognized deferred income taxes assets (liabilities):
December 31, 2015
Deferred income tax assets
Opening
Balance
Recognized in
Recognized
in Other
Income Tax Comprehensive
Acquired
in Business
Income (loss) Combination
Expense
Ending
Balance
Losses
Reserves
Tax credits
Defined benefit plan
actuarial losses
Share issuance costs
Other
Deferred income tax liabilities
Capital assets
Foreign currency
translation differences
for foreign operations
$ 72,304
24,579
955
$ 45,323
(5,847)
(844)
$
692
694
2,538
(108,245)
-
-
(18)
(13,983)
-
-
-
376
-
-
-
(176)
-
321
$
- $ 117,627
18,732
-
111
-
-
-
-
-
-
1,068
694
2,520
(122,228)
145
$ (6,659)
$ 24,631
$
697
$
- $ 18,669
December 31, 2014
Deferred income tax assets
Opening
Balance
Recognized in
Recognized
in Other
Income Tax Comprehensive
Acquired
in Business
Income (loss) Combination
Expense
Ending
Balance
Losses
Reserves
Tax credits
Defined benefit plan
actuarial losses
Share issuance costs
Other
Deferred income tax liabilities
Capital assets
Foreign currency
translation differences
for foreign operations
$ 59,904
15,242
955
$ 12,400
3,093
-
$
692
694
1,252
(78,521)
-
-
1,474
605
-
-
-
-
-
-
-
$
- $ 72,304
24,579
955
6,244
-
-
-
(188)
692
694
2,538
(30,329)
(108,245)
-
-
(176)
-
(176)
$
218
$ 17,572
$
(176)
$ (24,273) $
(6,659)
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
70
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)
____________________
20. Commitments and contingencies:
(a) Operating leases and contractual obligations:
The Company is obligated under various operating leases and contracts requiring
minimum annual payments in each of the next five years as follows:
2016
2017
2018
2019
2020
$ 19,310
7,840
5,070
4,560
2,700
(b) Surety Performance Bonds:
The Company has posted $35,746,000 in surety performance bonds, with various
expiry dates extending through December, 2020.
(c) Softwood Lumber Agreement:
The Canada-U.S. Softwood Lumber Agreement (“SLA”) expired on October 12, 2015,
eliminating export taxes on Canadian softwood lumber shipments to the United States.
A standstill provision within the SLA precludes the U.S. from bringing trade action
against Canadian softwood lumber producers for twelve months from expiry of the
agreement. It is uncertain whether a new agreement between the Governments of
Canada and the U.S. will be reached.
It is not yet possible to reasonably assess the future impact of possible trade actions
against the Company therefore no accrual has been recognized as of December 31,
2015.
(d) Other contingencies:
The Company is subject to a number of claims arising in the normal course of business
in respect of which either an adequate provision has been made or for which no
material liability is expected.
21. Net earnings per share:
Net earnings per share is based on the earnings attributable to shareholders and a
weighted average number of Shares, as definited in note 13, outstanding for the year.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)
____________________
71
21. Net earnings per share (continued):
The reconciliation of the numerator and denominator is determined as follows:
2015
Weighted
average
Net number of
loss
Shares Per Share
2014
Weighted
average
Net number of
Shares
earnings
Per Share
Issued Shares at
January 1
Effect of Shares issued on:
March 14, 2014
March 2, 2015
Basic and diluted
earnings (loss)
per Share
66,730
-
2,758
63,050
2,955
-
$ (30,386)
69,488* $
(0.44)
$ 40,690
66,005
$
0.62
*As the addition of stock options to the total Shares outstanding has an anti-dilutive impact on the
diluted earnings (loss) per share calculation, those stock options have not been included in the total
shares outstanding for purposes of the calculation of diluted earnings (loss) per Share.
22. Employee future benefits and other post-retirement plans:
The Company maintains a number of savings and retirement plans that are available to
employees that meet certain eligibility requirements.
(a) Defined contribution plans:
In Canada, salaried employees of the Company are provided with the opportunity to
make voluntary contributions to a Registered Retirement Savings Plan (“RRSP”) based
on a percentage of an employee’s earnings. The Company matches employees’ RRSP
contributions with contributions to a Deferred Profit Sharing Plan (“DPSP”) with the
employee’s future retirement benefits based on these contributions along with
investment earnings on the contributions.
For the DPSP, the Company’s funding obligations are satisfied upon making cash
contributions to an employee’s account. For 2015, the pension expense for this plan is
equal to the Company’s contribution of $1,785,000 (2014 - $2,649,000).
Certain eligible employees of the Canadian Merchant Services Guild (“CMSG”) are
required to make contributions based on a percentage of earnings into a defined
contribution plan. For 2015, the pension expense is equal to the Company’s
contribution of $44,000 (2014 - $49,000).
Employees of Interfor U.S. Inc. and Interfor Cedarprime Inc., wholly-owned U.S.
operating subsidiaries of the Company, contribute a percentage of their earnings to a
401(k) plan which the Company matches and which vest immediately. The Company’s
funding obligations are satisfied upon making cash contributions to an employee’s
account. For 2015, the pension expense for this plan is equal to the Company’s
contribution of $4,374,000 (2014 - $2,502,000).
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
72
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)
____________________
22. Employee future benefits and other post-retirement plans (continued):
(b) Unionized employees’ pension plan:
The Company contributes to an industry-wide benefit plan for unionized employees
based on a predetermined amount per hour worked by an employee. For 2015, the
pension expense for these plans is equal to the Company’s contribution of $3,958,000
(2014 - $3,346,000). As there is insufficient information available to enable the
Company to account for this plan as a defined benefit plan, the plan has been
accounted for as a defined contribution plan. The Company’s liability is limited to its
contributions.
(c) Supplementary pension plans:
The Company provides supplementary pension benefits to certain members of its senior
management in the form of a notional extension to the DPSP in Canada and the 401(k)
plan in the U.S. These commitments are not funded but are fully accrued by the
Company, with a portion of the commitments being secured by irrevocable letters of
credit.
During 2015 the Company recorded an expense of $788,000 (2014 - $792,000) in
respect of these plans. The amounts accrued for defined contribution commitments is
$6,062,000 (2014 - $5,481,000).
The accrued liabilities of this plan are included in the Company’s Statements of Financial
Position as follows:
Trade accounts payable and provisions
Employee future benefits obligation
(d) Defined benefit plans:
$
2015
418
5,644
$
2014
372
5,109
$
6,062
$
5,481
The Company and the non-union hourly employees at the Adams Lake operations make
contributions to a defined benefit pension plan that provides pension benefits upon
retirement. The plan entitles a retired employee to receive monthly payments based on
a schedule of defined benefit accruals for different periods of service.
The Company makes contributions to a defined benefit pension plan that provides
pension benefits to certain eligible employees of the CMSG upon retirement. The plan
provides a retired employee a monthly payment based on a percentage of their average
earnings at retirement, and their years of service. In addition, the Company provides
post-retirement medical and life insurance benefits to certain eligible CMSG retirees.
The Company maintains a non-contributory defined benefit pension plan for a former
senior executive.
The Company provides post retirement life insurance benefits to eligible retirees of a
wholly-owned subsidiary, Seaboard Shipping Company Limited (“SSCL”). In addition,
specified individuals at SSCL receive a supplemental pension based on a percentage of
final average earnings at retirement, and years of service. In 2014, SSCL settled all
plan benefits for a defined benefit pension plan, which was terminated December 31,
2013.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)
____________________
73
22. Employee future benefits and other post-retirement plans (continued):
(d) Defined benefit plans (continued):
The Company measures its defined benefit obligations and the fair value of plan assets
for accounting purposes as at December 31 of each year.
The most recent and the next scheduled actuarial valuations for funding purposes for
the significant pension plans are:
Adams Lake Pension Plan
CMSG Pension Plan
December 31, 2013
December 31, 2013
December 31, 2016
December 31, 2016
Most Recent Valuation
Next Scheduled Valuation
The significant pension plans are subject to the statutory requirements (including
minimum funding requirements) of their respective jurisdictions and the Income Tax
Act. Each plan’s pace of funding is determined by the Company, subject to the
statutory minimums and maximums.
In 2015, the Company paid contributions of $698,000 (2014 - $1,333,000), and in lieu
of making cash special payments to fund certain deficits, posted letters of credits
totaling $2,464,000 (2014 - $2,376,000). In 2016, the Company expects to pay
contributions of $732,000 to its defined benefit plans, and hold a total of $2,464,000 of
letters of credit.
The Company has determined that, in accordance with statutory requirements of the
plans (such as minimum funding requirements), the present value of refunds or
reductions in future contributions for all plans is not lower than the balance of the total
fair value of the plan assets less the total present value of obligations.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
74
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)
____________________
22. Employee future benefits and other post-retirement plans (continued):
(d) Defined benefit plans (continued):
The following summarizes the pension and other post-retirement obligations:
Pension Benefits
Other Post-retirement Benefits
2015
2014
2015
2014
Defined benefit obligation:
Beginning of year
Service cost
Employee contributions
Interest cost
Benefit payments
Past service settlements
Actuarial loss due to:
$
48,729 $
920
339
1,990
(2,094)
-
53,178 $
746
369
2,464
(2,839)
(186)
1,700 $
45
-
67
(48)
-
Demographic assumptions
Financial assumptions
Experience adjustment
Settlements
-
1,593
28
-
802
5,411
138
(11,354)
-
49
-
-
1,545
35
-
72
(70)
-
29
89
-
-
End of year
$
51,505 $
48,729 $
1,813 $
1,700
Plan assets:
Beginning of year
Interest on plan assets
Employer contributions
Employee contributions
Benefit payments
Administration costs
Actuarial gain
Settlements
$
50,575 $
56,882 $
1,995
650
339
(2,094)
(110)
665
-
2,595
1,263
369
(2,839)
(374)
4,395
(11,716)
- $
-
48
-
(48)
-
-
-
End of year
$
52,020 $
50,575 $
- $
Asset ceiling:
Beginning of year
Interest effect
Impact of settlements
End of year
$
$
- $
-
-
(700) $
(32)
732
- $
-
-
- $
- $
- $
-
-
70
-
(70)
-
-
-
-
-
-
-
-
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)
____________________
75
22. Employee future benefits and other post-retirement plans (continued):
(d) Defined benefit plans (continued):
The following summarizes the balances recognized on the Statements of Financial
Position:
Pension Benefits
Other Post-retirement Benefits
2015
2014
2015
2014
Fair value of plan assets
Present value of unfunded
$
52,020 $
50,575 $
- $
-
obligations
(371)
Present value of funded obligations (51,134)
(393)
(48,336)
(1,813)
-
(1,700)
-
Accrued benefit (obligation) $
515 $
1,846 $
(1,813) $
(1,700)
The following table shows the Company’s net expense recognized in the Statement of
Earnings and the actuarial (gains) losses recognized in Other comprehensive income:
Statement of Earnings
Production expense
Finance (income) costs
Restructuring costs
Pension Benefits
Other Post-retirement Benefits
2015
2014
2015
2014
$
1,030 $
(5)
-
1,120 $
(199)
176
45 $
67
-
35
72
-
$
1,025 $
1,197 $
112 $
107
Other comprehensive loss (income)
Actuarial losses (gains)
Effect of asset ceiling limit
$
$
956 $
-
956 $
1,956 $
(732)
1,224 $
49 $
-
49 $
118
-
118
The Company’s accrued benefit assets (liabilities) are included in the Company’s
Statements of Financial Position as follows:
Pension Benefits
Other Post-retirement Benefits
2015
2014
2015
2014
Employee future benefits
asset
$
1,570 $
2,520 $
- $
-
Trade accounts payable and
provisions
Employee future benefits obligation
(71)
(984)
(72)
(602)
(50)
(1,763)
(50)
(1,650)
$
515 $
1,846 $
(1,813) $
(1,700)
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
76
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)
____________________
22. Employee future benefits and other post-retirement plans (continued):
(d) Defined benefit plans (continued):
Plan assets consist of:
Asset category
Investment Funds
Canadian Equity
Global
Money Market
Fixed Income
Balanced
Cash
Other
Total
$
2015
2014
13,735 $
16,946
831
19,050
483
8
967
13,515
14,855
816
19,809
520
66
994
$
52,020 $
50,575
The plan assets held in investment funds are managed by Investment Managers and
the fair values of these investments have been determined based on the unit price of
the underlying funds. As such, all investment funds are categorized as Level 2 in the
fair value hierarchy.
Actuarial assumptions used in accounting for the Company maintained benefit plans
(expressed as weighted averages) are:
Pension Benefits
2015
2014
Other Post-retirement Benefits
2015
2014
Defined benefit obligation as of December 31
Discount rate
Compensation increases¹
3.75%
3.50%
Pension expense
Discount rate
Compensation increases¹
3.99%
3.50%
3.99%
3.50%
4.74%
3.50%
3.75%
-
3.96%
-
4.00%
-
4.75%
-
¹Compensation increases only relate to the CMSG plan.
For measurement purposes at December 31, 2015, the Company has assumed a 5.60%
health care cost trend in 2016 grading down to 4.38% in 2021 (2014 – 5.85% health
care cost trend in 2015 grading down to 4.38% in 2021).
Effect of 1% decrease in discount rate
on defined benefit obligation
$
7,533
$
250
Pension Benefits Other Post-retirement Benefits
The sensitivity to the discount rate has been determined assuming all other
assumptions remain unchanged. An increase in the discount rate would have an
opposite effect of similar magnitude.
The weighted average durations of the defined benefit pension plans and other post-
retirement benefit plans is fifteen years.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)
____________________
77
22. Employee future benefits and other post-retirement plans (continued):
(d) Defined benefit plans (continued):
Through its defined benefit pension plans and other post-retirement benefits, the
Company is exposed to a number of risks, the most significant of which are detailed
below:
Asset liability mismatch – The defined benefit plan obligations are calculated using a
discount rate set with reference to corporate bond yields. While the Adams Lake and
CMSG pension plans hold some fixed income investments, both plans hold a significant
proportion of equities, which are expected to outperform corporate bonds in the long
term. However, in the short term, there will be volatility in the funded status of the
plans. The duration of the invested assets for the SSCL plan is approximately matched
by the duration of the liabilities and are all held in fixed income investments.
Life expectancy – The majority of obligations are to provide benefits for the life of the
member, so increases in life expectancy would result in increased obligations.
23. Related party transactions:
Key management personnel are comprised of the Company’s directors and executive
officers.
The remuneration of key management personnel was as follows:
Salary and short-term employee benefits
Post-employment benefits
$
2015
7,171
728
$
2014
6,577
671
Share-based compensation expense (recovery)
(3,447)
18,791
Obligations in relation to key management personnel, including directors, are as follows:
$
4,452
$ 26,039
Trade accounts payable and provisions
Employee future benefits obligation
Provisions and other liabilities
$
2015
5,669
3,591
10,239
2014
$ 13,824
3,238
16,761
$ 19,499
$ 33,823
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
78
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)
____________________
24. Segmented information:
The Company manages its business as a single operating segment, solid wood. The
Company harvests and purchases logs which are sorted by species, size and quality and
then either manufactured into lumber products at the Company’s sawmills, or sold.
Substantially all operations are located in British Columbia, Canada and the Northwest and
Southeast regions of the U.S.
The Company sells to both foreign and domestic markets as follows:
United States
Canada
Japan
China/Taiwan
Other export
Sales by product line are as follows:
Lumber
Logs
Wood chips and other by products
Ocean freight and other
2015
2014
$ 1,144,927
236,517
140,900
110,828
54,203
$ 864,309
231,733
127,279
170,785
53,051
$ 1,687,375
$ 1,447,157
2015
2014
$ 1,361,192
174,090
141,717
10,376
$ 1,177,258
144,770
105,506
19,623
$ 1,687,375
$ 1,447,157
Non-current assets by geographic location are as follows:
United States
Canada
25. Capital management:
2015
2014
$ 709,002
369,573
$ 467,241
342,290
$ 1,078,575
$ 809,531
The Company’s policy is to maintain a strong capital base so as to maintain investor,
creditor and market confidence and to sustain future development of the business. The
Company monitors the pre-tax return on total assets, which it defines as operating
earnings before restructuring and capital asset write-downs, divided by the average of
Total assets for the period.
The Company seeks to maintain a balance between the higher returns that might be
possible with the leverage afforded by higher borrowing levels and the security afforded by
a sound capital position. The Company’s target is to create value for its shareholders over
the long term through increases in share value.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)
____________________
79
25. Capital management (continued):
There were no changes in the Company’s approach to capital management during 2015.
Under its debt financing agreements, the Company cannot exceed a total debt to total
capitalization ratio, with total debt defined as the total of indebtedness, including letters of
credit, and long term debt, net of cash and cash equivalents up to $20 million; and total
capitalization defined as total debt plus shareholders’ equity and subordinated debt,
excluding non-controlling interests, deferred income taxes, and a maximum of $20 million
cumulative (from January 1, 2012) non-cash asset revaluations. The financial covenants
under the debt financing agreements also carry a minimum working capital and a minimum
net worth requirement.
The Company is in compliance with all of its debt covenants and expects to remain in
compliance.
26. Financial instruments:
(a) Fair value of financial instruments:
At December 31, 2015, the fair value of the Company's long term debt approximated its
carrying value of $468,759,000 (2014 - $220,419,000). The fair values of other
financial instruments approximate their carrying values due to their short-term nature.
(b) Derivative financial instruments:
The Company may use a variety of derivative financial instruments to reduce its
exposures to risks associated with fluctuations in foreign exchange rates, lumber prices,
and floating interest rates on long-term debt. These include foreign currency forward,
collar and option contracts, interest rate swaps and lumber futures.
The Company has four interest rate swaps outstanding, each with a notional value of
US$25,000,000. The intent of these interest rate swaps is to convert floating-rate
interest expense to fixed-rate interest expense.
The Company entered into two interest rate swaps on March 25, 2013, each with
notional value of US$25,000,000 and maturing February 27, 2017. Under the terms of
these swaps the Company pays an amount based on a fixed annual interest rate of
0.84% and receives a 90 day LIBOR which is recalculated at set interval dates. On April
14, 2014, the Company entered into two interest rate swaps, each with a notional value
of US$25,000,000 and maturing on April 14, 2016. Under the terms of these interest
swaps, the company pays an amount based on a fixed annual interest rate of 0.58%
and receives a 90 day LIBOR which is recalculated at set interval dates.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
80
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)
____________________
26. Financial instruments (continued):
(b) Derivative financial instruments (continued):
In respect of its trading in foreign currency exchange forward, collar and option
contracts, and interest rate swaps, the Company does not expect any credit losses in
the event of non-performance by counterparties as the counterparties are the
Company’s bankers, which are all highly rated.
As at December 31, 2015, the Company had no outstanding obligations under foreign
currency contracts.
Fair value of the Company’s derivative financial instruments is measured based on Level
2 of the fair value hierarchy as defined under IFRS 13, Fair Value Measurement and
summarized in the following table as at December 31, 2015 and 2014.
Foreign exchange collars and forward contracts
Interest rate swaps
Total asset (liability), net
2015
-
61
61
$
$
2014
(177)
132
(45)
$
$
Financial instruments in an asset position are classified as Trade accounts receivable
and other in the Statements of Financial Position, while financial instruments in a
liability position are classified as Trade accounts payable and provisions. Financial
instrument assets and liabilities are not netted, for purposes of presentation on the
Statements of Financial Position.
The following table summarizes the gain (loss) on derivative financial instruments for
the years ended December 31, 2015 and 2014.
Foreign exchange collars and forward contracts¹
Interest rate swaps²
Lumber futures³
2015
$
(1,420)
(71)
(1)
$
2014
(884)
(34)
9
Total loss, net
$
(1,492)
$
(909)
¹ Recognized in Other foreign exchange gain (loss) in Net earnings (loss).
² Recognized in Other comprehensive income.
³ Recognized in Other income (loss) in Net earnings (loss).
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)
____________________
81
26. Financial instruments (continued):
(c) Hedge of investment in foreign operations:
As at December 31, 2015, U.S. Dollar borrowings under the Revolving Term Line and
Senior Secured Notes were designated as hedges against the Company’s investment in
its U.S. operations with unrealized foreign exchange gains (losses) recorded in Other
comprehensive income as follows:
Designation date
Opening
balance¹ Additions¹ Payments¹
Closing
balance¹
Unrealized foreign
exchange
gains (losses)²
2015
2014
- $
October 1, 2008³ $
-
March 2, 2013³
June 26, 20134
50,000
90,000
March 13, 2014³
-
December 15, 2014³
December 17, 20144 50,000
January 14, 20153
-
February 26, 20153
-
March 16, 20154
-
March 30, 20153
-
May 12, 20153
-
- $
-
-
-
-
-
10,000
135,000
100,000
10,000
35,000
-
-
-
(15,000)
-
-
-
(135,000)
-
-
-
$
-
-
50,000
75,000
-
50,000
10,000
-
100,000
10,000
35,000
$
-
-
(11,195)
(17,313)
-
(11,195)
(1,892)
(4,112)
(10,370)
(1,260)
(6,073)
$ (1,259)
(4,184)
120
(4,958)
(297)
(4,825)
-
-
-
-
-
$190,000
$290,000 $ (150,000) $330,000
$(63,410) $(15,403)
¹Denominated in U.S. Dollars.
²Denominated in Canadian Dollars.
³Drawn on Revolving Term Line.
4Drawn on Senior Secured Notes.
Repayments were de-designated as a hedge of the Company’s investment in its U.S.
operations.
(d) Financial risk management:
Financial instrument assets include cash and cash equivalents, deposits and accounts
receivable. Cash and cash equivalents, deposits and accounts receivable are
designated as loans and receivables and measured at amortized cost.
Financial instrument liabilities include bank indebtedness, accounts payable and other
provisions, long term debt, and certain other long term liabilities. All financial liabilities
are designated as other liabilities and are initially measured at fair value plus any direct
transaction costs and subsequently at amortized cost using the effective interest
method.
There are no financial instruments classified as available-for-sale or held-to-maturity.
The use of financial instruments exposes the Company to credit, liquidity and market
risk.
The Board of Directors has overall responsibility for the establishment and oversight of
the Company’s risk management framework. The Company’s risk management policies
are established to identify and analyze the risks faced by the Company, to set
appropriate risk limits and controls, and to monitor risks and adherence to limits.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
82
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)
____________________
26. Financial instruments (continued):
(d) Financial risk management (continued):
Risk management policies and systems are reviewed regularly to reflect changes in
market conditions and the Company’s activities. Through its standards and procedures,
management has developed a control environment in which employees are clear on
roles and obligations and management regularly monitors compliance with its risk
management policies and procedures.
(i) Credit risk:
Credit risk is the risk of financial loss to the Company if a customer or counterparty
to a financial instrument fails to meet its contractual obligations, and arises
primarily from the Company’s receivables from customers and from cash and cash
equivalents.
Accounts receivable
The Company’s exposure to credit risk is dependent upon individual characteristics
of each customer. Each new customer is assessed for creditworthiness before
payment and delivery terms and conditions are offered, with such review
encompassing any external ratings, and bank and other references. Purchase limits
are established for each customer, and are regularly reviewed. In some cases,
where customers fail to meet the Company’s benchmark creditworthiness, the
Company may choose to transact with the customer based on standard industry
terms.
Most North American sales are conducted under standard industry terms. Most
lumber sales outside of the North American markets are either insured as to 90% of
the receivable amounts by the Export Development Corporation or are secured by
documentary collections or irrevocable letters of credit.
The Company regularly reviews the collectability of its accounts receivable and
establishes an allowance for doubtful accounts based on its best estimate of any
potentially uncollectible accounts. Historically, the Company has managed its credit
tightly and has experienced minimal bad debts. Based on this past experience and
its detailed review of trade accounts receivable past due which were considered
uncollectible, a reserve in respect of doubtful accounts of $67,000 was recorded as
at December 31, 2015 (2014 - $46,000).
Deposits
The Company limits it exposure to credit risk by only investing in liquid securities
and only with counterparties that have a high credit rating. As such, management
does not expect any counterparty to fail to meet its obligations.
Guarantees
The Company did not provide any guarantees in 2015.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)
____________________
83
26. Financial instruments (continued):
(d) Financial risk management (continued):
(i) Credit risk (continued):
Exposure to credit risk
The carrying amount of financial assets represents the maximum credit exposure for
receivables in North America. As log and lumber sales outside of the North
American markets are typically insured by the Export Development Corporation to
90% or secured by irrevocable letters of credit, credit exposure for these sales is
limited.
Accounts receivable carrying values at the reporting date by geographic region were
as follows:
United States
Canada
Japan
China/Taiwan
Other
(ii) Liquidity risk:
2015
$ 62,148
16,233
5,837
5,523
5,477
2014
$ 44,975
16,107
7,848
4,444
6,909
$ 95,218
$ 80,283
Liquidity risk is the risk that the Company will not be able to meet its financial
obligations as they fall due. The Company ensures, as far as possible, that it will
always have sufficient liquidity to meet obligations when due and monitors cash flow
requirements daily and projections weekly. Weekly debt graphs are reviewed by
senior management to monitor cash balances and debt line utilizations.
The Company also maintains an Operating Line, a Revolving Term Line and a U.S.
Operating Line that can be drawn on to meet obligations.
The estimated cash payments due in respect of contractual and legal obligations
including capital commitments are summarized as follows: 1
Payments due by period
Up to
1 year
2-3
years
4-5
years
After 5
years
Total
Trade accounts payable and
accrued liabilities
398
Income taxes payable
37,848
Reforestation liability
Long term debt2
468,759
Provisions and other liabilities 41,378
Operating leases and
capital commitments
42,620
$ 114,325 $ 114,325 $
398
11,052
-
15,315
- $
-
8,054
191,959
6,032
- $
-
8,692
-
1,813
-
-
10,050
276,800
18,218
19,310
12,910
7,260
3,140
Total obligations
$ 705,328 $ 160,400 $ 218,955 $ 17,765 $ 308,208
¹ Figures in table may not add due to rounding.
² On February 9, 2016, the Company extended the maturities of its Operating Line and
Revolving Term Line from February 27,2017 to May 19, 2019.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
84
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)
____________________
26. Financial instruments (continued):
(d) Financial risk management (continued):
(iii) Market risk:
Market risk is the risk that changes in market prices, such as foreign exchange
rates, interest rates and equity prices, will affect the Company’s income or the value
of its holdings of financial instruments. The objective of market risk management is
to manage and control market risk exposures within acceptable parameters, while
optimizing the return relative to risk.
Currency risk
The Company is exposed to currency risk on cash and cash equivalents, accounts
receivable, accounts payable and provisions, long term debt and intercompany loans
that are denominated in a currency other than the respective functional currencies
of the Company’s domestic and foreign operations, primarily Canadian and U.S.
Dollars, but also the Euro, Sterling and Yen. The Company may use foreign
currency exchange forward, collar and option contracts to manage its currency risk
from time to time. The Company routinely assesses its foreign exchange exposure
by reviewing outstanding contracts, pending order files and working capital
denominated in foreign currencies.
At December 31, 2015, the Company has U.S. Dollar drawings under its Revolving
Term Line and Senior Secured Notes of US$330,000,000 (2014 – US$190,000,000).
These U.S. Dollar drawings have been designated as a hedge against the Company’s
net investment in its U.S. operations.
As at December 31, the Company’s accounts receivable were denominated in the
following currencies (in thousands):
2015
Accounts receivable
Accounts receivable held by foreign
CAD
USD
Japanese ¥
18,292
18,526
17,678
subsidiaries with USD functional currency
-
36,909
-
2014
Accounts receivable
Accounts receivable held by foreign
18,292
55,435
17,678
CAD
USD
Japanese ¥
19,745
20,773
27,211
subsidiaries with USD functional currency
-
31,184
-
As at December 31, 2015, the domestic operations of the Company held cash and
cash equivalents of US$5,118,000 (2014 – US$2,414,000). Cash and cash
equivalents held by foreign subsidiaries totaled US$320,000 (2014 -
US$9,650,000).
19,745
51,957
27,211
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)
____________________
85
26. Financial instruments (continued):
(d) Financial risk management (continued):
(iii) Market risk (continued):
Based on the Company’s net exposure to foreign currencies as at December 31,
2015, including U.S. Dollar denominated cash and cash equivalents, long term debt
and other financial instruments, the sensitivity of the U.S. Dollar balances to the
Company’s net annual earnings is as follows:
U.S. Dollar
$0.01 increase vs CAD
$269,000 decrease in net earnings
Based on the Company’s net exposure to foreign currencies as at December 31,
2015, in respect of its net investment in U.S. subsidiaries, the sensitivity of the U.S.
Dollar balances to the Company’s Other comprehensive income is as follows:
U.S. Dollar
$0.01 increase vs CAD
$1,652,000 increase in OCI
Interest rate risk
The Company has reduced its exposure to changes in interest rates on borrowings
by entering into interest rate swaps, as described in Note 26(b). The intent of these
swaps is to convert floating-rate interest expense to fixed-rate interest expense. In
addition, the Company issued US$100,000,000 of Senior Secured Notes (note
10(c)) on March 16, 2015, which bear interest at a fixed rate of 4.17%.
Based on the Company’s average debt level during 2015, the sensitivity of a 100
basis point increase in interest rates would result in an approximate decrease of
$74,000 in net earnings.
Other market price risk
The Company does not enter into commodity contracts other than to meet the
Company’s expected usage and sale requirements and such contracts are not
settled net.
ANNUAL INFORMATION FORM
Prepared as of February 11, 2016
86
FORWARD LOOKING INFORMATION
This report contains information and statements that are forward-looking in nature, including,
but not limited to, statements containing the words “will”, “is expected”, “forecast”, “target”
and similar expressions. Such statements involve known and unknown risks and uncertainties
that may cause Interfor’s actual results to be materially different from those expressed or
implied by those forward-looking statements. Such risks and uncertainties include, among
others: price volatility; competition; availability and cost of log supply; natural or man-made
disasters; foreign currency exchange fluctuations; changes in government regulation; export
and other trade barriers; environmental and community matters; labour disruptions; and other
factors referenced herein and in Interfor’s 2015 annual Management’s Discussion & Analysis
under “Risk and Uncertainties”, which is available on www.sedar.com. The forward-looking
information and statements contained in this report are based on management’s current
expectations and beliefs and are based on certain assumptions, including assumptions as to
general business and economic conditions in the U.S., Canada, Japan and China, as well as
other factors management believes are appropriate in the circumstances. Readers are
cautioned not to place undue reliance on forward-looking information or statements. Interfor
undertakes no obligation to update such forward-looking information or statements, except as
required by law.
DESCRIPTION OF THE BUSINESS
Interfor is a leading global supplier of lumber products. The Company has annual production
capacity of approximately 3 billion board feet and offers one of the most diverse lines of
lumber products to customers in North America, the Asia-Pacific region and Europe.
The Company has sawmilling operations in British Columbia, Washington, Oregon, Georgia,
South Carolina and Arkansas. Interfor also owns value-added remanufacturing facilities in
Washington and Georgia.
In this document, a reference to the “Company”, “Interfor”, “we” or “our” means Interfor
Corporation, its predecessors and its subsidiaries.
COMPANY HISTORY AND DESCRIPTION
Our business originated in the 1930’s with a sawmill in Whonnock, about 48 kilometres east of
Vancouver B.C. Since that time, we have made significant investments to expand, upgrade
and diversify our production facilities and timber base through capital programs and the
acquisition of manufacturing plants and timber resources.
The Company was incorporated under the Company Act (British Columbia) on May 6, 1963
and, on December 1, 1979, was amalgamated with subsidiary Whonnock Forest Products
Limited. On January 1, 1988, a change in name from Whonnock Industries Limited to
International Forest Products Limited occurred. On February 10, 2006 we transitioned under
the Business Corporations Act (British Columbia). Effective on May 6, 2014, the Company’s
name was changed to Interfor Corporation. Our head office and our registered and records
offices are located at Suite 3500, 1055 Dunsmuir Street, Vancouver, British Columbia, V7X
1H7.
Our significant indirectly wholly-owned subsidiary, Interfor U.S. Inc., is incorporated in the
State of Washington and owns and operates our U.S. sawmills. Interfor Cedarprime Inc.
(incorporated in the State of Washington) is also an indirectly wholly owned subsidiary of
Interfor. Directly wholly-owned subsidiaries include Interfor Sales & Marketing Ltd.
Annual Information Form
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87
(incorporated in British Columbia), Interfor Japan Ltd. (incorporated in British Columbia),
Interfor Insurance Corporation (incorporated in Barbados), and Seaboard Shipping Company
Limited (incorporated in British Columbia).
RECENT DEVELOPMENTS
2013
Increased North American demand as U.S. housing markets continued to improve, coupled
with price tension created by off-shore markets resulted in higher sales realizations and higher
operating rates in 2013.
On March 1, 2013, Interfor concluded the acquisition of Rayonier Inc.’s Wood Products
Business in Georgia, U.S.A. for US$84.4 million, adding three sawmills (Baxley, Eatonton and
Swainsboro) and a combined 360 million board feet to its annual lumber capacity and
broadening its product mix to include Southern Yellow Pine (“SYP”). We have filed a Business
Acquisition Report on SEDAR with respect to this acquisition.
On May 1, 2013, the Company acquired two timber tenures in the Kootenay Region of B.C.
from Springer Creek Management Ltd. The tenures have a combined allowable annual cut
(“AAC”) of approximately 174,000 cubic metres and will support increased production levels at
the Castlegar sawmill.
On July 1, 2013, the Company added a fourth sawmill (Thomaston) in Georgia for US$39.1
million, of which US$32.1 million was paid on closing. Payment of US$7.0 million was
contingent upon receipt of an upgrade to the air permit which would allow the Company to
operate a second shift. This permit was received in 2014 and the payment was made in
February, 2015.
On September 30, 2013, the Company closed a public offering of 7,187,500 Common Shares
at a price of $12.00 per share for gross proceeds of $86.3 million, with proceeds used to
complete capital upgrades and reduce debt.
2014
On March 14, 2014, Interfor acquired all of the outstanding common shares of Tolleson Ilim
Lumber Company from Ilim Timber Continental, S.A. for total consideration of $188.5 million,
comprising $126.9 million in cash and 3,680,000 Common Shares valued at $61.6 million.
This acquisition added two sawmills located in Perry and Preston, Georgia, and a
remanufacturing facility in Perry, Georgia. We have filed a Business Acquisition Report on
SEDAR with respect to this acquisition.
On June 27, 2014, the Company announced a curtailment of its Beaver-Forks operation on the
Olympic Peninsula in Washington State. Following a comprehensive strategic review,
permanent closure of the operation and consolidation of production at Interfor’s Port Angeles
facility was announced on July 31, 2014.
On November 6, 2014, Interfor announced a $50 million capital project to upgrade its sawmill
in Castlegar, B.C to convert the Castlegar mill to a two line operation with state-of-the-art
technology and optimization. The project was substantially completed in 2015 with full
operating performance targeted for the first quarter, 2016.
On December 17, 2014, the Company completed a US$50 million term debt financing with
Prudential Capital Group. The senior secured notes carry an annual interest rate of 4.02% and
have a final maturity of June 26, 2023.
On December 18, 2014, Interfor signed an agreement to acquire four sawmills from Simpson
Lumber Company, LLC, for consideration of US$94.7 million, plus working capital and
contingent future consideration.
Annual Information Form
____________________
2015
88
On January 27, 2015, Interfor closed a bought deal public offering of subscription receipts (the
“Subscription Receipts”) through a syndicate of underwriters. The Company issued an
aggregate of 3,300,000 Subscription Receipts at a price of $20.10 per Subscription Receipt, for
aggregate gross proceeds of $66.3 million (the “Offering”). Each Subscription Receipt entitled
the holder thereof, for no additional consideration and without further action, to one Common
Share upon closing of the acquisition of four sawmills and associated working capital from
Simpson Lumber Company, LLC (“Simpson”). Net proceeds of the Offering were used to
partially fund this acquisition.
On March 1, 2015, Interfor completed its acquisition of four sawmills and associated working
capital from Simpson. The sawmills are located in Tacoma, Washington; Longview,
Washington; Meldrim, Georgia and Georgetown, South Carolina and fit within the Company’s
existing operating infrastructure.
On March 16, 2015, the Company completed a US$100 million term debt financing of Senior
Secured Notes with Prudential Capital Group. The Senior Secured Notes carry an annual
interest rate of 4.17% and have a final maturity of March 26, 2026. The proceeds were used
to reduce the drawings under the Company’s Revolving Term Line. In conjunction with this
financing, Interfor decreased the credit available under its Revolving Term Line from $250
million to $200 million, without change to other terms and conditions.
On April 27, 2015, Interfor extended the maturity date of its U.S. Operating Line from April 28,
2015, to May 1, 2017, and increased the credit available under that line from US$30 million to
US$50 million to provide enhanced financial flexibility. All other terms and conditions remain
substantially unchanged.
On May 22, 2015, Interfor curtailed operations at its Tacoma sawmill as a result of challenging
lumber and log market conditions. Following a comprehensive strategic review, the Company
announced its decision on July 30, 2015, to exit the mill. The Tacoma sawmill accounted for
47 million board feet of production in 2015 since acquisition.
On June 19, 2015, Interfor closed its acquisition of a sawmill and associated working capital in
Monticello, Arkansas, from Price Lumber Company. This acquisition increased Interfor’s U.S.
South capacity to 1.3 billion board feet and raised the proportion of Interfor’s total capacity in
the U.S. South to more than 40%.
MANUFACTURING AND TIMBER SUPPLY
We operate five sawmills in B.C.and have U.S. operations comprising two sawmills and one
remanufacturing plant in Washington, two sawmills in Oregon, one sawmill in South Carolina,
one sawmill in Arkansas, and seven sawmills and one remanufacturing plant in Georgia. These
operations produce a wide range of products for sale in North American and offshore markets.
The products range from commodity structural lumber through to specialty products, such as
exterior decking and siding, machine stress rated products, industrial timbers and a wide range
of appearance grade items.
The mills are capable of cutting logs of various species and grades ranging in diameter from 4
inches to 80 inches. Many of our manufacturing facilities have recently been upgraded and
modified to improve the matching of timber resources with customers' lumber requirements.
In addition to improving our manufacturing capability through upgrades, we have increased
our efficiency and geographic diversity and expanded our current capacity through the addition
of four sawmills in Georgia, South Carolina, Washington and Arkansas, respectively, during
2015.
Annual Information Form
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89
Rated capacity and production of lumber for each mill is set out in the following table:
Sawmills
B.C. Coast(2)
B.C. Interior
U.S. Northwest(3,4)
U.S. Southeast(5)
Present
Rated
Capacity
(1)
Production for years
ended
December 31,
2015
2014 2013
(millions of board feet)
320
735
625
164
620
655
1,320
1,058
198
744
539
741
182
699
569
275
Total
3,000
2,497
2,222
1,725
(1) Based on two shifts per day and adjusted for regional operating parameters.
(2) Volumes include lumber custom-cut at third party facilities under the direction of Hammond
management amounting to 11 million board feet in 2014.
(3) The Beaver and Tacoma sawmills were curtailed on June 27, 2014 and May 22, 2015,
respectively.
(4) The Longview and Tacoma sawmills were acquired on March 1, 2015. The Tacoma mill was
permanently curtailed in August, 2015 and is not included in rated capacity. Volumes reported
are Interfor only.
(5) The Baxley, Eatonton and Swainsboro sawmills were acquired March 1, 2013. The Thomaston
sawmill was acquired on July 1, 2013. The Perry and Preston sawmills were acquired March 14,
2014. The Meldrim and Georgetown sawmills were acquired on March 1, 2015. The Monticello
sawmill was acquired on June 19, 2015. Volumes reported are Interfor only.
CANADIAN OPERATIONS
B.C. Coast
Hammond
The Hammond operation is located on the Fraser River in Maple Ridge, B.C. The facility is
focused on western red cedar and supplies siding, decking, fascia and timbers for both offshore
and North American markets. The facility consists of a three-line sawmill, a planer mill and dry
kilns.
Acorn
The Acorn operation is located on leased land in Delta, B.C. The facility consists of a log
dewatering and merchandizing system, a sawmill, a planer mill and dry kilns. The sawmill
specializes in sizes and grades of lumber for use in Japanese traditional housing made
primarily from hemlock and Douglas-fir logs.
B.C. Interior
Adams Lake
The Adams Lake operation is located near Kamloops, B.C. The mill manufactures kiln-dried
lumber for the U.S. and Canadian construction markets as well as for offshore markets.
Adams Lake has the capability to cut Douglas-fir as well as spruce-pine-fir (“SPF”), western red
cedar and hemlock.
The sawmill was rebuilt in 2008 to match the current and future timber resource in the area
and incorporated proven technology that has materially improved the operating efficiency and
cost structure of the Adams Lake operation.
Annual Information Form
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Castlegar
90
Our Castlegar operation, located in the southern interior of B.C., includes a sawmill, dry kilns,
a planer and transportation system for transporting logs on Arrow Lake. It has timber tenures
with an AAC of 624,000 cubic metres and manufactures fir-larch, SPF, cedar and hemlock
dimension lumber.
In 2015 Interfor rebuilt the sawmill, installing state-of-the-art technology and increasing
capacity to 210 million board feet. Construction was substantially completed in October, 2015,
with the ramp up to full capacity expected by the end of the first quarter of 2016.
Grand Forks
Our Grand Forks sawmill is located in the southern interior of B.C. and manufactures kiln dried
lumber for the U.S. and Canadian construction markets as well as the housing market in
Japan. It has timber tenures with an AAC of 514,000 cubic metres. The sawmill cuts
approximately 70% SPF and 30% fir-larch.
B.C. Timber Supply
In the Province of British Columbia (the “Crown”) owns about 95% of the timberlands from
which the majority of our timber is harvested. The remaining 5% of timberland is private land
which is primarily located on Vancouver Island and held by a few large industrial forest
landowners.
Forest and timber harvesting operations on Crown land in B.C. are regulated under the B.C.
Government’s Forest and Range Practices Act (British Columbia) and the Forest Act (British
Columbia). The Government is responsible for setting the AAC, approving forest development
plans and cutting permits, determining the stumpage system and managing compliance and
enforcement.
The Province provides for the use of Crown forest land through the granting of various forms of
timber tenures. These tenure agreements provide timber harvesting rights in exchange for
annual rent to cover general administration and fire preparedness obligations and stumpage
fees payable to the Crown.
Our Company is required to manage forest resources under our tenures in accordance with the
requirements of the applicable laws and regulations. Forest management of our tenures is
guided by a team of forest professionals that are engaged in a wide array of activities such as
resource planning, forest development, road building and harvesting, reforestation, forest
protection and environmental certification.
We hold various Forest Licence (“FL”), Tree Farm Licence (“TFL”) and Timber Licence (“TL”)
tenures that currently provide for an AAC of approximately of 3.7 million cubic meters. The
majority of Interfor’s tenures are long-term (15 and 25 year) renewable agreements that are
generally replaced every five years.
Our timber supply needs are met by a combination of logs harvested from our own timber
tenures, long-term trade and supply agreements, and log purchases on the open market.
When operating at normal capacity, our mills in B.C. currently require approximately one-third
of their log supply from external sources.
On the B.C. Coast, we harvest a variety of species consisting primarily of western hemlock,
amabilis fir, western red cedar and Douglas-fir. In the B.C. Interior, the species mix consists
of spruce, pine, fir, Douglas-fir, larch and cedar. The harvest is derived from both old growth
and second growth stands. Whereas one-third of the harvest currently comes from second
growth stands on the B.C. Coast, this amount is expected to increase significantly over the
next several decades. Logging operations are seasonal due to a number of factors including
weather, ground conditions and fire season closures.
Annual Information Form
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91
The following table shows our AAC under our FL and TFL tenures and other cutting rights and
the volume of timber harvested under our FLs and TFLs and other cutting rights for the periods
specified. It also presents the volume of log purchases and sales during the period.
B.C. Timber Supply
Allowable Annual Cut (1)
— Forest Licences
— Tree Farm Licences
— Non Replaceable Forest Licences
— Discretionary Annual Harvest Levels
Total AAC
Log Production
— Coast(2)
— Interior
Total Log Production
Years ended December 31,
2016
2015
2014
2013
(thousands of cubic metres)
2,775
2,775
2,775
2,684
875
-
50
875
220
80
875
220
40
801
286
40
3,700
3,950
3,910
3,811
1,331
1,523
1,639
1,708
1,517
1,959
3,039
3,040
3,598
Log Purchases
1,112
1,395
1,131
Log Sales
1,453
1,440
1,339
(1) AAC status at the beginning of each year (includes a provision for non-recoverable fibre).
(2) 2015 volumes include production volume of 30,000 cubic metres of third party timber sales
managed by Interfor (2014 – 48,000 cubic metres, 2013 - 25,000 cubic metres).
U.S. OPERATIONS
U.S. Northwest
Gilchrist
The Gilchrist sawmill is located in Gilchrist, Oregon. The sawmill processes lodgepole and
ponderosa pine to produce a wide range of specialty and industrial lumber products. The
sawmill has an on-site cogeneration plant to produce electricity for its own use as well as
steam for its dry kilns. At this location, we own and operate a short line railroad to connect to
a mainline for shipment of lumber and chips.
Molalla
The Molalla sawmill is located in Molalla, Oregon, approximately 50 kilometres southeast of
Portland. The sawmill processes primarily hemlock and Douglas-fir logs to produce stud
lumber for the U.S. market.
Port Angeles
The Port Angeles sawmill is located in Port Angeles, Washington, near a major highway and
waterways which are convenient for shipping lumber and chips as well as for receiving logs.
The sawmill primarily processes hemlock and Douglas-fir logs to produce stud and dimension
lumber for the U.S. market but is also capable of producing metric sizes for export.
Annual Information Form
____________________
Longview
92
The Longview sawmill is located in Longview, Washington, in close proximity to industrial
timberlands and large scale pulp and paper operations. This sawmill was acquired on March 1,
2015 from Simpson Lumber Company. The sawmill processes Douglas-fir logs to produce
green stud lumber for the U.S. market with primary focus on servicing home centers.
U.S. Southeast
Baxley
This sawmill in Baxley, Georgia was acquired on March 1, 2013 from Rayonier Inc. It operates
on a two shift basis and produces southern yellow pine lumber primarily in 2x4 through 2x12
products.
Eatonton
This sawmill in Eatonton, Georgia was acquired on March 1, 2013 from Rayonier Inc. It
operates on an extended one shift basis and produces southern yellow pine lumber primarily in
2x4 and 2x6 products.
Swainsboro
This sawmill in Swainsboro, Georgia was acquired on March 1, 2013 from Rayonier Inc. It
operates on a two shift basis and produces southern yellow pine lumber primarily in 2x4 and
2x6 products.
Thomaston
This sawmill in Thomaston, Georgia was acquired on July 1, 2013 from Keadle Lumber
Enterprises, Inc. The mill operates one shift and produces 2x4 through 2x12 southern yellow
pine dimension products.
Preston
This sawmill in Preston, Georgia was acquired on March 14, 2014 from Ilim Timber
Continental, S.A. The mill operates two shifts and produces 2x4 through 2x12 southern yellow
pine dimension products.
Perry
This sawmill in Perry, Georgia was acquired on March 17, 2014 from Ilim Timber Continental,
S.A. The mill operates an extended single shift and produces 2x4 through 2x12 southern
yellow pine dimension products.
Meldrim
This sawmill in Meldrim, Georgia was acquired on March 1, 2015 from Simpson Lumber
Company. It operates one shift and produces 2x4 through 2x12 southern yellow pine
dimension products.
Georgetown
This sawmill in Georgetown, South Carolina was acquired on March 1, 2015 from Simpson
Lumber Company. It operates one shift and produces 2x4 through 2x10 and 4x4 southern
yellow pine dimension products.
Monticello
This sawmill in Monticello, Arkansas was acquired on June 19, 2015 from Price Lumber
Company. It operates two shifts and produces 2x4, 2x6 and 4x4 southern yellow pine
dimension products.
Annual Information Form
____________________
U.S. Timber Supply
U.S. Northwest
93
Timber supply in the U.S. Northwest (“NW”) is sourced from a broad distribution of forest land
ownership (forest industrial lands; small private landowners; and State and Federal lands).
These sources represent a long-term supply base from which mills purchase their timber
supply. In 2015, approximately 51% of the log supply in the NW came from land that is
owned by industrial and small private landowners, while the remainder was sourced from
State, Federal and tribal lands.
Our timber supply requirements at the Port Angeles sawmill are weighted to western hemlock
with lesser volumes of Douglas-fir. At our Longview location, we only purchase Doulas-fir.
Douglas-fir is the prominent species, with smaller volumes of western hemlock and white fir at
the Molalla sawmill. All three of our western Oregon and Washington sawmills depend on
private industrial landowners and small private landowners for the majority of their supply. The
remainder of their supply is comprised of timber from State, Federal, and tribal lands.
At the Gilchrist sawmill, log purchases consist primarily of lodgepole pine and ponderosa pine
that are harvested from second growth forests and the thinning of young stands from
surrounding National Forests. This volume is supplemented with purchases from industrial and
non-industrial private lands.
U.S. Southeast
Timber in the U.S. Southeast (“SE”) is sourced primarily from privately held timberlands with
only minor volumes coming from publicly owned timberlands. Private timberland ownership
includes non-industrial private owners, timber real estate investment trusts (“timber REITs”)
and various institutional investors such as pension funds, who are typically represented by a
timberland investment management organization (“TIMO”). Both timber REITs and TIMOs are
considered industrial timberland owners. Interfor’s sawmills in Georgia purchase timber
comprised exclusively of southern yellow pine, originating from each of these sources.
The total 2016 log supply requirement for the mills in the U.S. is estimated to be supplied from
the following sources:
Expected Sources of Timber 2016
State, Federal and tribal lands
Industrial lands
Private lands
U.S.
Northwest
U.S.
Southeast
42%
48%
10%
100%
1%
20%
79%
100%
SALES, MARKETING AND COMPETITIVE POSITION
The global markets for the Company’s products are highly competitive and producers compete
primarily on the basis of price. In addition, a majority of Interfor’s lumber production is sold
into markets where competitors have the same or larger capacity and may be lower cost
producers.
Annual Information Form
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94
The following table shows our lumber sales by geographic area and total sales by product line
for the past three years:
Lumber
— U.S.A.
— Japan
— Canada
— China
— Other export
Offshore transportation and handling
Logs
Wood chips and other residuals
Ocean freight, contract services
and other
Total sales
Years ended December 31,
2015
2014
2013
(thousands of dollars)
$ 996,683
$ 770,153
$ 498,524
124,252
94,483
66,581
47,104
32,089
107,561
103,599
109,205
46,812
39,928
1,361,192
1,177,258
174,090
141,717
144,770
105,506
105,590
90,470
105,703
38,675
33,302
872,264
136,633
72,418
10,376
$1,687,375
19,623
$1,447,157
23,907
$1,105,222
Lumber Sales
Like other commodities, the demand for lumber is cyclical. It is affected by factors such as
interest rates, foreign currency exchange rates, freight rates, government tariffs and import
policies, and demand for housing.
In order to diminish the impact of rapid cyclical changes in any one market, we strategically
target worldwide markets and offer a diverse range of products. Interfor also has a specific
customer and product base in various countries, providing a diversified sales profile, and we
are aggressively targeting China’s rapidly growing wood frame construction market.
Product and market diversification is particularly important for B.C. Coastal producers where
the variability inherent in the log resource produces a much wider spectrum of product sizes
and quality than is the case in the B.C. Interior, the U.S. Northwest or the U.S. Southeast. A
continuing priority for our Company is to develop products and markets that more fully realize
the potential for higher grades, special dimensions and value-added items.
Lumber sales and marketing activities are organized into two sales groups to leverage global
expertise: Export and North America. Interfor Japan Ltd., with an office in Tokyo, has
developed niche markets and has increased sales directly to end-users. We also have an office
in France to serve Continental Europe and Middle East markets and an office in China to
support the growing demand for wood in that market.
The primary market for our cedar lumber continues to be North America where markets are
serviced through a combination of regional wholesale distributors and direct retail sales. Gains
have been made, however, in diversifying cedar sales into offshore markets in Europe, China,
Japan and Australia.
North American dimension and stud lumber produced in Canada and the U.S. Northwest is sold
out of our office in Bellingham, Washington to leverage our market expertise and to provide a
more diverse customer base for the Canadian mills in terms of geographic and market sectors.
SYP lumber produced in U.S. Southeast mills is sold out of our office in Peachtree City, Georgia
to leverage our regional knowledge of SYP market segments and distribution channels.
Annual Information Form
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Log Sales
95
We purchase and sell logs in order to obtain the appropriate size, grade and species of log to
suit market conditions and each mill’s cutting profile. We buy or trade logs through
agreements and open market transactions and sell logs that are either unsuitable for cutting or
in excess of our manufacturing requirements.
Wood Chips and Other Residuals Sales
As a by-product of lumber production, our sawmills produce wood chips and other residuals.
Essentially all of our wood chips produced in B.C. are sold under short-term and long-term
contracts to pulp producers. In general, wood chips produced on the B.C. Coast are sold at
prices related to current Northern Bleached Softwood Kraft (“NBSK”) pulp prices, while the
wood chips produced in the B.C. Interior are sold at current market prices for chips. Chips
from our U.S. Northwest and U.S. Southeast operations are sold to pulp producers or fibre
board manufacturers under short-term arrangements, with the exception of the Baxley,
Gilchrist, Longview and Port Angeles sawmills which each have a long-term contract with a
pulp producer.
DISTRIBUTION
We use various modes of surface transportation to deliver our lumber products. Shipments to
export markets are done by container and break-bulk vessels while shipments of lumber within
North America are done by truck and rail. In 2015, break-bulk shipments were transported
under contract with an independent ocean carrier and this arrangement is in place for
2016. Chips and logs are normally delivered by tug and barge or by truck. In Gilchrist,
Oregon, and in Grand Forks, B.C. we own short line railroads that connect to Class 1 railroads
for shipping lumber and chips.
HUMAN RESOURCES
In B.C., we directly employ approximately 1,162 people in our logging and manufacturing
operations and corporate offices. The Canadian United Steel Workers (“USW”) is the certified
bargaining agent for approximately 556 of these people. The agreement with the USW for the
B.C. Coast has an expiry date of June 14, 2019, while the Southern Interior USW agreement
expires on June 30, 2018. The Canadian Marine Service Guild (“CMSG”) represents 22
employees, and their collective agreement expires September 30, 2019. Negotiations with the
CMSG regarding renewal of the expired agreement are in process, with employees continuing
to work under the terms of the expired agreement with no workplace disruptions.
In the U.S., we employ approximately 1,694 employees in our sawmill and remanufacturing
operations in Washington, Oregon, Georgia, Arkansas, South Carolina and in our offices
located in Bellingham, Washington and Peachtree City, Georgia. The American USW is the
certified bargaining agent for approximately 36 of these people employed in the Meldrim,
Georgia sawmill. The International Association of Machinists (“IAM”) is the certified bargaining
agent for approximately 92 of these people employed in the Longview, Washington sawmill.
The American USW collective agreement expires on June 30, 2016, while the IAM collective
agreement expires on November 15, 2016.
THE ENVIRONMENT
Interfor is committed to responsible stewardship of the environment. We maintain an
Environmental Management System (“EMS”) for all of our woodlands and manufacturing
facilities. The EMS provides a structure for identifying, addressing and managing environmental
issues. Audits are performed regularly in both the woodlands and manufacturing operations to
verify its effectiveness.
Annual Information Form
____________________
Regulatory Compliance
96
Interfor operates in compliance with extensive provincial, state, federal or other laws and
regulations that apply to most aspects of our business activities.
Forest Management Certification
Interfor has achieved the internationally recognized Sustainable Forestry Initiative (“SFI”)
forest management certification for all of our B.C. woodlands operations. Independent third
party certification audits are conducted by KPMG Performance Registrar Inc.
Chain of Custody and Responsible Purchasing
Interfor maintains Chain-of-Custody (“CoC”) certifications at certain mills and fibre sourcing
procedures that track logs coming from sustainably managed forests through the
manufacturing process.
Coast Forest Conservation Initiative
Interfor is a member of the Coast Forest Conservation Initiative (“CFCI”) – a collaborative
effort of five B.C. forest product businesses committed to finding new approaches to forest
conservation and management in B.C.’s Central and North Coast. CFCI collaborates with the
Rainforest Solution Project (a group of environmental organizations namely Forest Ethics,
Greenpeace and the Sierra Club, B.C. Chapter) in a forum known as the Joint Solutions Project
(“JSP”). JSP works with the B.C. Government and First Nations on strategic items related to
the implementation of ecosystem based management (“EBM”). The joint work done by JSP is a
major step towards fulfilling the landmark Great Bear Rainforest agreement.
First Nations
First Nations (“FN”) groups have claimed Aboriginal title and rights over substantial portions of
British Columbia. Interfor tenures overlap with the traditional territories of over 60 different
FN groups. The Company’s operations in B.C. account for approximately 30% of its total
lumber production.
Interfor has a number of agreements and initiatives with FN in B.C., and as such, remains
committed to working with FN to develop economic opportunities of mutual benefit. Each FN
group is notified prior to development activities as part of the Forest Stewardship Planning
process.
On June 26, 2014 the Supreme Court of Canada (“SCC”) released its ruling on the Tsilhqot’in
vs. British Columbia. To the extent that this defines for the first time the criteria upon which
Aboriginal title rests is a positive development. It is also an important motivation for the
federal and provincial governments to move forward on the reconciliation and treaty process in
British Columbia.
The SCC ruling applies to two percent of the Tsilhqot’in traditional territory in a remote area of
Central B.C. – far removed from Interfor’s operations. To date, Aboriginal title has not been
established in any of Interfor’s tenures; and doing so will likely be a lengthy and complex
process. The Company will continue to manage its operations within the existing legal
framework while paying close attention to the direction provided by the Province of B.C. and
First Nations regarding the application of this ruling.
Mountain Pine Beetle
The Mountain Pine Beetle (“MPB”) infestation has resulted in the mortality of a significant
portion of the mature pine trees in the B.C. Interior The greatest impact has been in the
central interior region where there is a high percentage (over 60%) of pine in the forest.
Interfor operations are in the southern interior which have a much lower percentage of pine
Annual Information Form
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97
(less than 30%) and are less affected by the MPB. The longer term timber supply impacts of
the MPB are not expected to have a significant impact on the Company’s operating areas.
Reforestation and Other Forestry-related Liabilities.
Crown legislation requires the Company to complete reforestation activities on its forest and
timber tenures. Accordingly, Interfor records the estimated liability for reforestation as timber
is cut, and includes these expenses in the cost of current production. The estimate of future
reforestation costs is based on detailed prescriptions of reforestation as prepared by Registered
Professional Foresters employed or contracted by the Company. Considerations include the
specifics of the areas logged and the treatments prescribed for those areas, as well as the
timing and success rates of the planned activities. Estimates of reforestation liabilities are
reviewed annually, or more frequently if required, and can be materially impacted by forest
fires, wildlife grazing, unfavourable weather conditions, changing legislative requirements and
standards, or inaccurate projections, which could result in a charge against operating earnings.
The Company also has a legal obligation to deactivate certain roads constructed for access to
timber, once that access is no longer required. Accordingly, Interfor accrues the cost of road
deactivation as related timber is cut, including those expenses in the cost of current
production. The estimate of future road deactivation cost is based on comprehensive plans
prepared by Professional Foresters and Engineers employed by Interfor and includes such
considerations as road structure and terrain. Estimates of road deactivation liabilities are
reviewed annually, or more frequently if required, and can be materially impacted by
unfavourable terrain, changing legislative requirements and standards, or inaccurate
projections, which could result in a charge against operating earnings.
Continual Improvement
Each year a formal Management Review of the Company’s program and performance is
completed as part of the process of continual improvement.
Additional information about our environmental work and third party certification is available
on our website at www.interfor.com.
RESEARCH AND DEVELOPMENT
We contribute to and participate in industry research organizations that have made numerous
technical developments beneficial to us in areas such as sawing technology, drying techniques
and anti-sap stain applications. We also are committed to applied research and development
in the areas of environment, health and safety, forest management, and product and market
development. We also conduct product and market research on our own in Canada and the
U.S.
RISK FACTORS
Discussion of risk factors relating to the Company and its operations is included under the
heading Risks and Uncertainties within Management’s Discussion and Analysis prepared as of
February 11, 2016, which is incorporated by reference herein and available on SEDAR at
www.sedar.com.
Annual Information Form
____________________
CAPITAL STRUCTURE
98
The authorized share structure of the Company consists of:
150,000,000 Common Shares without Par Value with Special Rights and Restrictions
(“Common Shares”); and
5,000,000 Preference Shares without Par Value with Special Rights and Restrictions
(“Preference Shares”).
As at February 11, 2016 there were 70,030,455 Common Shares outstanding. There were no
Preference Shares outstanding.
The following is a summary of the material provisions of the authorized share capital of the
Company.
Common Shares
Each holder of a Common Share is entitled to receive notice of and to attend and vote in
person or by proxy at all meetings of the shareholders of the Company and is entitled to one
vote for each such share held.
Each holder of a Common Share is entitled to receive such dividends as the directors may in
their sole discretion declare from time to time. No holder of a Common Share will be entitled
to any dividend other than or in excess of the dividends declared by the directors. The
directors have the discretion to declare dividends on the Common Shares independently of
declaring dividends on any other classes of shares in the Company, and vice versa.
In the event of the liquidation, dissolution or winding-up of the Company or other distribution
of its assets for the purpose of winding up its affairs, holders of the Common Shares will not
receive any amount, property or asset, until the holders of the Preference Shares and any
other class or series of shares entitled to receive assets of the Company in priority to the
holders of the Common Shares, have first received the amount to which they are entitled.
Thereafter, the holders of the Common Shares will be entitled to all remaining property and
assets of the Company on a share for share basis.
Preference Shares
The Preference Shares may be issued in one or more series. The directors may by resolution
fix the number of Preference Shares in each series, determine the designation of the
Preference Shares of each series, and attach special rights and restrictions to the Preference
Shares of each series.
The Preference Shares rank in priority over the Common Shares and any other shares ranking
junior to the Preference Shares with respect to the payment of dividends and the distribution
of assets of the Company in the event of the liquidation, dissolution or winding-up of the
Company.
The registered holders of the Preference Shares shall not be entitled as a class to receive
notice of or to attend or to vote at any meeting of shareholders of the Company, except in the
event of matters affecting the priority rights or any other rights or restrictions attaching to the
Preference Shares.
Annual Information Form
____________________
99
MARKET FOR SECURITIES OF THE COMPANY
The Common Shares are listed on the Toronto Stock Exchange (“TSX”) under the symbol IFP.
The following table sets out the market price range and trading volumes of the Common
Shares on the TSX for the periods indicated:
Toronto Stock Exchange (TSX)
2015 Trading Volumes
Ticker: IFP
$ Low
$ High
Volume
18.33
20.20
16.80
16.65
16.46
19.24
15.87
11.42
9.27
8.86
11.34
12.19
22.33
23.61
20.87
18.93
20.70
21.09
21.65
17.53
12.79
13.45
14.22
14.87
7,764,215
6,065,058
7,673,158
6,238,000
5,570,779
4,314,696
8,241,729
10,235,821
7,726,321
11,220,511
8,346,797
5,788,411
Month
January
February
March
April
May
June
July
August
September
October
November
December
SECURITIES SUBJECT TO CONTRACTUAL RESTRICTION ON TRANSFER
Designation of class
Number of securities that
are subject to a
contractual restriction on
transfer
Percentage of class
Common Shares
3.68 million 1
5.3%
Note 1: Ilim Timber Continental, S.A. (“Ilim”) may not sell or otherwise transfer its Common Shares (other than a
pledge to an acceptable third party lender) without the prior written consent of Interfor, until one year following the
date that the Ilim board designee ceases to be a director of Interfor.
TRANSFER AGENT
The transfer agent for our Common Shares is Computershare Investor Services Inc. at its
principal offices in Vancouver, British Columbia.
MATERIAL CONTRACTS
The following material contracts were entered into by the Company during or after 2015, or
before 2015 but are still in effect:
1. Underwriting Agreement dated January 13, 2015, between the Company and a
syndicate of underwriters, led by RBC Dominion Securities Inc. and Raymond James
Ltd., to sell 3,000,000 subscription receipts (“Subscription Receipts”) at a price of
$20.10 each for aggregate gross proceeds of $60,300,000. Interfor also granted the
Annual Information Form
____________________
100
underwriters an over-allotment option to purchase up to an additional 300,000
subscription receipts at the issue price.
2. Subscription Receipt Agreement dated January 27, 2015, between the Company, RBC
Dominion Securities Inc., Raymond James Ltd. and Computershare Trust Company of
Canada, providing for the issue of subscription receipts. The Company issued an
aggregate of 3,300,000 Subscription Receipts at a price of $20.10 per Subscription
Receipt, for aggregate gross proceeds of $66.3 million (the “Offering”). Each
Subscription Receipt entitled the holder thereof, for no additional consideration and
without further action, to one Common Share upon closing of the acquisition of four
sawmills and associated working capital from Simpson Lumber Company, LLC. Net
proceeds of the Offering were used to partially fund this acquisition. In connection with
the completion of the Simpson acquisition on March 1, 2015, each subscription receipt
was automatically exchanged, for no additional consideration, for one Common Share
and the subscription receipts were delisted from the Toronto Stock Exchange.
3. First Amendment dated February 6, 2015, and Second Amendment dated February 23,
2015, to the Asset Purchase Agreement between Simpson Lumber Company, LLC and
Interfor U.S. Inc., amending the Asset Purchase Agreement, dated December 18, 2014,
between Simpson Lumber Company, LLC and Interfor U.S. Inc. for the acquisition of
four sawmills located in Meldrim, Georgia, Georgetown, South Carolina, Longview,
Washington and Tacoma, Washington for total consideration of approximately US$94.7
million, plus working capital and contingent future payments. The transaction closed on
March 1, 2015.
4. Amended and Restated Note Purchase and Private Shelf Agreement dated as of March
16, 2015, between the Company and the Prudential Capital Group for a US$100 million
term debt financing with Prudential Capital Group. The senior secured notes carry an
annual interest rate of 4.17% and have a final maturity date of March 26, 2026. The
proceeds were used to reduce drawings under the Company’s bank credit facilities.
5. In conjunction with the financing described immediately above, Interfor decreased the
credit available under its bank credit facilities from $250 million to $200 million, without
change to other terms and conditions, through the Second Amendment to the Interfor
March 31, 2014 Amended and Restated Credit Agreement dated for reference
February 20, 2015 among the Company, each of the lenders named therein, and Royal
Bank of Canada in its capacity as the arranger and the agent.
6. Interfor February 2016 Amended and Restated Credit Agreement, dated for reference
February 9, 2016, between the Company, each of the lenders named therein and Royal
Bank of Canada in its capacity as the arranger and agent, which extended the maturity
of the Company’s operating line and revolving term line from February 27, 2017 to
May 19, 2019. All other terms remained substantially unchanged except for an increase
in the maximum ratio of total debt to total capitalization, that resulted in an increase in
the maximum borrowing available under the credit agreement.
All of these contracts have been posted on www.sedar.com.
Annual Information Form
____________________
DIRECTORS AND OFFICERS
Directors of the Company
101
The following table sets out the Company’s directors as of February 10, 2016, their respective
municipalities of residence, positions and offices held with the Company, principal occupations
within the past five years and the period during which each director has served as a director:
Name and
Municipality of Residence
Director
Since
Positions Held and Principal Occupations
From
To
DUNCAN K. DAVIES
Vancouver, BC, Canada
November
1998
President and Chief Executive Officer
Interfor Corporation
2000
Present
PAUL HERBERT
Germantown, TN, USA
March
2014
Corporate Director
Chief Executive Officer, Ilim Group, Russia’s
largest forest pulp & paper company
JEANE HULL
Sheridan, WY, USA
May
2014
Corporate Director
Executive Vice President and Chief Technical
Officer, Peabody Energy Corporation, a
private-sector coal company
2013
Present
2007
2013
2015
Present
2007
2015
PETER M. LYNCH
Toronto, ON, Canada
October
2006
President & CEO, Dieffenbacher USA, Inc., a
manufacturer and designer of press and
forming systems
2013
Present
Independent Business Consultant
2010
2013
GORDON. H. MacDOUGALL
West Vancouver, BC, Canada
February
2007
Corporate Director
Vice Chairman, Connor, Clark & Lunn
Investment Management Ltd., an asset
management firm
2014
Present
2006
2014
J. EDDIE McMILLAN
Pensacola, FL, USA
E. LAWRENCE SAUDER
Vancouver, BC, Canada
October
2006
April
1984
Independent Business Consultant
2002
Present
Chief Executive Officer and Chairman, Metrie
Canada Ltd. (formerly Sauder Industries
Limited), a manufacturer and distributor of
building products
2010
Present
Chairman, Hardwoods Distribution Inc., a
distributor of wood products
2008
Present
L. SCOTT THOMSON
Vancouver, BC, Canada
October
2012
President and Chief Executive Officer, Finning
International Inc., a distributor of Caterpillar
products and support services
2013
Present
DOUGLAS W.G. WHITEHEAD
North Vancouver, BC, Canada
April
2007
Executive Vice-President, Finance and Chief
Financial Officer, Talisman Energy Inc., a
global upstream oil and gas company
2008
2013
Corporate Director
2008
Present
Annual Information Form
____________________
102
To our knowledge, only one of the Company’s directors has in the last 10 years been an officer
or director of a company that, while the person was acting in that capacity, was subject to
bankruptcy or similar proceedings or securities regulatory sanctions described in National
Instrument 51-102 Continuous Disclosure Obligations. From 1993 to 2010, Mr. Lynch was an
executive officer and director of Grant Forest Products Inc. (“Grant Forest”). On June 25,
2009, Grant Forest and certain affiliated entities filed and obtained protection under the
Companies’ Creditors Arrangement Act in order to restructure their business affairs and on
November 27, 2015, Grant Forest filed for bankruptcy.
The term of office for all current directors will end at the conclusion of the next Annual General
Meeting of the Company’s shareholders. The next Annual General Meeting is scheduled for
Thursday, April 28, 2016.
Committees of the Board
The table below lists the committees of Interfor’s board of directors and their members as of
February 10, 2016:
Committees
Audit
Corporate Governance & Nominating Committee
Management Resources & Compensation Committee
Environment & Safety Committee
Members
Douglas Whitehead (Chair)
Paul Herbert
Peter Lynch
Scott Thomson
Eddie McMillan (Chair)
Jeane Hull
Peter Lynch
Gordon MacDougall
Douglas Whitehead
Gordon MacDougall (Chair)
Eddie McMillan
Lawrence Sauder
Peter Lynch (Chair)
Paul Herbert
Jeane Hull
Lawrence Sauder
Scott Thomson
Officers of the Company
The following table sets out the Company’s officers as of February 11, 2016, their respective
municipalities of residence and their principal occupations for at least the last five years:
Name and
Municipality of Residence
Positions Held and Principal Occupations
From
To
DUNCAN K. DAVIES
Vancouver, BC, Canada
President & Chief Executive Officer
Interfor Corporation
JOHN A. HORNING
West Vancouver, BC, Canada
Executive Vice President & Chief Financial Officer
Interfor Corporation
Senior Vice President & Chief Financial Officer
Interfor Corporation
2000
Present
2014
Present
2002
2014
Annual Information Form
____________________
103
J. STEVEN HOFER
Bellingham, WA, USA
Senior Vice President, US Northwest Operations
Interfor Corporation
2014
Present
Senior Vice President, Sales & Marketing
Interfor Corporation
Vice President, Sales & Marketing
Interfor Corporation
General Manager, Sales & Marketing
Interfor U.S. Inc. (formerly Interfor Pacific Inc.)
2014
2015
2011
2014
2004
2011
JOSEPH A. RODGERS
Sharpsburg, GA, USA
Senior Vice President, US Southeast Operations
Interfor Corporation
2014
Present
Vice President, US Operations
Interfor Corporation
Vice President, Operations – Solid Wood
Temple-Inland Building Products
Operations Manager – Solid Wood
Temple-Inland Building Products
2013
2014
2011
2013
2009
2011
MARTIN L. JURAVSKY
Toronto, ON, Canada
Senior Vice President, Corporate Development and Strategy
Interfor Corporation
2014
Present
Vice President, Corporate Development and Strategy
Interfor Corporation
Business Consultant
Vice President, Corporate Development
Woodland Biofuels Inc.
Managing Director
Macquarie Capital Markets Canada Ltd.
IAN M. FILLINGER
Kamloops, BC, Canada
Senior Vice President, Head of Operations
Interfor Corporation
Senior Vice President, Canadian Operations
Interfor Corporation
Vice President, Canadian Operations
Interfor Corporation
Senior General Manager
Interfor Corporation
2013
2014
2012
2013
2011
2012
2009
2011
2015
Present
2014
2015
2013
2014
2013
2013
General Manager, Adams Lake & Coastal Manufacturing
Interfor Corporation
2012
2013
General Manager, Adams Lake Division
Interfor Corporation
MARK W. STOCK
North Vancouver, BC, Canada
Senior Vice President, Human Resources
Interfor Corporation
Vice President, Human Resources
Interfor Corporation
Vice President, Global Human Resources
Tree Island Industries Ltd.
2005
2012
2014
Present
2012
2014
2007
2012
Annual Information Form
____________________
BART BENDER
West Vancouver, BC, Canada
Senior Vice President, Sales & Marketing
Interfor Corporation
Senior Vice President, Operations
Ainsworth Lumber Co.
Vice President, Sales
Ainsworth Lumber Co.
General Manager, Sales
Ainsworth Lumber Co.
RICHARD J. SLACO
Delta, BC, Canada
Vice President & Chief Forester
Interfor Corporation
XENIA KRITSOS
Vancouver, BC, Canada
General Counsel & Corporate Secretary
Interfor Corporation
General Counsel & Corporate Secretary
Coalspur Mines Limited
Senior Legal Counsel
Hunter Dickinson Services Inc.
104
2015
Present
2014
2015
2012
2014
2002
2012
2002
Present
2015
Present
2013
2015
2009
2013
SHAREHOLDINGS OF DIRECTORS AND OFFICERS
As at December 31, 2015, the directors and officers of the Company as a group owned,
directly or indirectly, or exercised control of or direction over 875,434 Common Shares
representing approximately 1.25% of the outstanding Common Shares.
INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS
Since the commencement of our most recently completed financial year, and for the three
most recently completed financial years, no director or executive officer of the Company, no
person or company that is the direct or indirect beneficial owner of, or who exercises control or
direction over, more than 10% of the Company’s voting securities or any associate or affiliate
of such persons, has had any material interest in any transaction involving the Company.
LEGAL PROCEEDINGS
We are not a party to, and our property is not the subject of, any material legal proceedings
that took place in 2015, are currently in underway, or which we know to be contemplated.
INTEREST OF EXPERTS
KPMG LLP are the external auditors of the Company and have confirmed that they are
independent with respect to the Company within the meaning of the Rules of Professional
Conduct of Institute of Chartered Accountants of British Columbia and the applicable rules and
regulations thereunder.
Annual Information Form
____________________
AUDIT COMMITTEE INFORMATION
105
The Company’s Audit Committee (the "Committee") is mandated to oversee the accounting
and financial reporting processes of the Company and audits of its financial statements in
accordance with the Board’s objectives. The Committee’s functions include:
reviewing and, if appropriate, recommending approval by the Board of the Company’s
annual and quarterly financial statements, management’s discussion and analysis and
earnings press releases;
reviewing and approving disclosures required to be included in the Company’s Annual
Information Form and Management Information Circular relating to the Audit
Committee and audit and non-audit services and fees;
reviewing the process for certification, and the certification, of the interim and annual
financial statements by the Chief Executive Officer and Chief Financial Officer;
reviewing all public disclosure containing financial results or financial information;
reviewing matters related to internal controls over financial reporting of the Company
and ensuring the Company has adequate internal controls procedures in place;
reviewing the principal risks of the Company, other than the risks associated with the
Company’s compensation policies and practices, and ensuring that an effective risk
management strategy is in place;
reviewing the Company’s derivatives policies and activities, including details of
exposures to banks and other counterparties;
overseeing the activities of and directly communicating with the Company’s external
auditor;
satisfying itself that adequate procedures are in place for the review of the public
disclosure of financial information extracted or derived from the Company’s financial
statements and periodically assessing the adequacy of those procedures;
establishing and periodically reviewing the policies and procedures for the receipt,
retention and treatment of complaints received by the Company regarding accounting,
internal accounting controls or auditing matters, and the confidential, anonymous
submissions by the employees of the Company regarding questionable accounting or
auditing matters;
reviewing and approving the Company’s hiring policies regarding partners, employees
and former partners and employees of the former and present Auditor; and
reviewing the Company’s insurance programs, including the Company’s directors’ and
officers’ insurance coverage, and making recommendations for their renewal or
replacement.
The Committee’s Terms of Reference, attached as Appendix “A” to this Annual Information
Form, sets out its duties and responsibilities.
The Committee met four times in 2015, in conjunction with regularly scheduled Board
meetings.
Annual Information Form
____________________
106
Members’ Financial Literacy, Expertise and Simultaneous Service
The board of directors has determined that the members of the Audit Committee during 2015
were, and all current members of the Audit Committee are, literate and independent as defined
in National Instrument 52-110 – Audit Committees. The table below indicates the relevant
education and experience of each member of the Audit Committee:
Relevant Education and Experience
Director
Past Occupation
Douglas W.G.
Whitehead
Chair of the Audit
Committee since May
2012
Paul Herbert
Member since May 2014
Mr. Whitehead is a Corporate Director. From 2000 to 2008, he was the President and
Chief Executive Officer of Finning International Inc. (“Finning”). Prior to joining
Finning, Mr. Whitehead held a number of senior executive positions with Fletcher
Challenge Canada, including President and Chief Executive Officer, Senior Vice
President and Chief Operating Officer and Vice President of the Crown Packaging
Division. Mr. Whitehead is currently the director and Chair of Finning and a director of
both Belkorp Industries Inc. and Kal Tire. Previously, he served as director of Inmet
Mining Corporation, Ballard Power Systems Inc., Terasen Inc., Fletcher Challenge
Canada, Finlay Forest Industries and Timberwest Forest Limited. Mr. Whitehead holds
a Bachelor of Applied Science (Engineering) from the University of British Columbia and
a Master of Business Administration from the University of Western Ontario.
Mr. Herbert is a corporate director with over 47 years of experience in the pulp and
paper industry. From 2007 to 2013, Mr. Herbert was the Chief Executive Officer of Ilim
Group, Russia’s largest forest pulp & paper company. From 2003 to 2007, he was
Senior Vice President of Global Strategic Initiatives for International Paper. Prior
thereto, he held various senior executive positions with International Paper, including
Senior Vice President, Printing and Communications, President of International Paper
Europe and Vice President Engineering & Manufacturing. He is currently a director of
Ilim Timber Group in Russia. He holds a degree in Engineering from East London
Polytechnic University and an Executive Master of Business Administration from Texas
A&M University.
Peter M. Lynch
Member since April 2009
Mr. Lynch is currently President & CEO of Dieffenbacher USA, Inc. (“Dieffenbacher”).
Prior thereto he provided consulting services to Dieffenbacher. From 1993 to 2010, he
was an Executive Vice President and director of Grant Forest Products Inc. (and its
predecessor), a producer of OSB and engineered wood products. Mr. Lynch holds a
LL.B from Osgoode Law School and is a member of the Law Society of Upper Canada.
L. Scott Thomson
Member since November
2012
Mr. Thomson is currently President and CEO of Finning International Inc., the world's
largest Caterpillar equipment dealer. From 2008 to 2013, he was Chief Financial
Officer of Talisman Energy Inc. Prior thereto, Mr. Thomson was Executive Vice
President, Corporate Development, Vice President, Head of Mergers and Acquisitions,
and Vice President, Corporate Strategy at Bell Canada Enterprises Inc. Mr. Thomson
holds a Bachelor of Arts from Queen’s University and a Masters of Business
Administration from the University of Chicago.
AUDIT FEES
The Committee annually recommends the appointment of the Company’s external auditors and
approves the annual audit plan and compensation of the external auditors for all audit, audit
related and non-audit services. In the case of non-audit services, the services and
compensation are approved by the Committee before the services commence.
Annual Information Form
____________________
107
KPMG LLP, Chartered Accountants, Vancouver, are the independent auditors of the Company.
Fees paid or accrued to KPMG LLP for audit and other services for the years ended December
31, 2014 and December 31, 2015, were as follows:
Audit fees
Fees billed for professional services rendered.
Audit-related fees
Audit-related fees consist principally of fees for professional services rendered
with respect to audits of a defined benefit pension plan and subsidiary
companies (2015 and 2014) and bought deal financing involvement (2015).
Tax fees
Tax fees consist of fees for tax compliance services, planning and related
services, personal tax (foreign and domestic) compliance and planning advice,
indirect tax recovery audit contingency fees which are based on percentage of
recoveries (2015 and 2014), and advice on setup of Insurance Captive (2015).
All Other fees
Forestry certification, and assistance with ERP system design and conversion
review (2015 and 2014); advice on leading practice for IT procurement (2015).
TOTAL
CODE OF ETHICS
2015
2014
$581,256
$586,900
183,738
61,500
88,731
37,771
99,800
123,347
$953,525
$809,518
We have adopted a code of ethics that applies to our directors, officers and employees. A copy
of the code, entitled “Code of Conduct & Ethics”, can be found on our website at
www.interfor.com.
ADDITIONAL INFORMATION
Additional information relating to the Company, including directors’ and officers’ remuneration
and indebtedness, principal holders of the Company’s securities and securities authorized for
issuance under equity compensation plans, is contained in the Company’s Information Circular
for its most recent annual meeting of shareholders that involved the election of directors.
Additional financial information about the Company is provided in the Company’s audited
consolidated financial statements and Management’s Discussion and Analysis for the year
ended December 31, 2015.
Copies of the documents referred to above and additional information relating to the Company
are available on the SEDAR website at www.sedar.com, on the Company’s website
www.interfor.com and may also be obtained upon request from:
Interfor Corporation
General Counsel & Corporate Secretary
3500-1055 Dunsmuir Street
Vancouver, British Columbia
Canada, V7X 1H7
Telephone: 604 689 6800
Facsimile: 604 689 6825
E-mail: corporatesecretary@interfor.com
Annual Information Form
____________________
PURPOSE
Appendix “A”
AUDIT COMMITTEE
Terms of Reference
108
The Audit Committee has been established by the Board and under powers delegated to it by
the Board is mandated to oversee the accounting and financial reporting processes of the
Company and audits of its financial statements in accordance with the Board Objective.
COMPOSITION AND TERM OF OFFICE
1.
The Audit Committee shall consist of four or more Directors.
2.
3.
4.
All members of the Audit Committee shall be independent within the meaning of National
Instrument 52-110 (“NI 51-110”).
All members must be financially literate within the meaning of NI 52-110 or become
financially literate within a reasonable period following appointment and at least one
member should have accounting or related expertise.
The Chair of the Audit Committee along with other Audit Committee members will be
appointed annually by the Board following the AGM to hold office until the next AGM,
unless any member becomes unable to serve or is removed by the Board. A casual
vacancy may be filled and additional members may be appointed at any time by the
Board to hold office until the next AGM.
5.
A quorum shall consist of a simple majority.
DUTIES AND RESPONSIBILITIES
The Audit Committee shall perform the following functions, as well as any other functions
specifically authorized by the Board:
Financial Disclosure, Risk Management and Internal Controls
1.
Review the following documents before the public disclosure of same by the Company,
and, if appropriate, recommend approval by the Board of the Company’s:
a. annual and quarterly financial statements;
b. Management’s Discussion and Analysis; and
c. annual and interim earnings press releases.
The review will involve direct discussions with Management and the Company’s external
auditor (the “Auditor”), including an opportunity for an in-camera meeting with the
Auditor independent of Management.
2.
Review and approve the disclosures required by applicable securities laws to be included
in the Company’s Annual Information Form and Management Information Circular
relating to the Audit Committee and audit and non-audit services and fees.
Annual Information Form
____________________
109
3.
4.
5.
6.
7.
8.
Review the process for certification of the interim and annual financial statements by the
CEO and Chief Financial Officer (“CFO”) and the certification made by the CEO and CFO.
Review all news releases announcing financial results, containing financial information
based on unreleased financial results or non-GAAP financial measures or providing
earnings guidance, forward-looking financial information and future-oriented financial
information or financial outlooks before the public disclosure of same by the Company.
Review financial information contained in any prospectus, take-over bid circular, issuer
bid circular, rights offering circular and any other document that the Audit Committee is
to review before the public disclosure of same by the Company, and, if appropriate,
recommend approval by the Board.
Review matters related to internal controls over financial reporting of the Company and
ensure the Company has adequate procedures in place in respect thereof. Ensure that
the necessary measures are taken to follow up suggestions from the Auditor’s reports.
Review the principal risks of the Company, other than the risks associated with the
Company’s compensation policies and practices, and ensure that an effective risk
management strategy is in place.
Review the Company’s derivatives policies and activities, including details of exposures to
banks and other counterparties.
External Auditor
9.
Review and recommend to the Board the appointment of the Auditor to be nominated for
the purposes of preparing or issuing an Auditor’s report and performing other audit,
review or attest services for the Company.
10. Establish the mandate of the Auditor, including the annual engagement, audit plan, audit
scope and compensation for the audit services, subject to shareholder approval.
11. Oversee the activities of the Auditor. The Auditor shall report directly to the Audit
Committee.
12. Directly communicate and meet with the Auditor, with and without Management present,
to discuss the results of their examinations.
13. Review the independence of the Auditor, any rotation of the partners assigned to the
audit in accordance with applicable laws and professional standards, the internal quality
control findings of the Auditor’s firm and peer reviews.
14. Review the performance of the Auditor, including the relationship between the Auditor
and Management and the evaluation of the lead partner of the Auditor.
15. Resolve disagreements between Management and the Auditor regarding financial
reporting.
16. Review material written communications between the Auditor and Management.
Annual Information Form
____________________
Non-Audit Services
110
17. Pre-approve non-audit services. The Audit Committee may delegate to one or more of
its members the authority to pre-approve non-audit services. The pre-approval of
non-audit services by any member to whom authority has been delegated shall be
presented to the Committee at its first scheduled meeting following such pre-approval.
Company Policies
18. Satisfy itself that adequate procedures are in place for the review of the public disclosure
of financial information extracted or derived from the Company’s financial statements
and periodically assess the adequacy of those procedures.
19. Establish and periodically review the policies and procedures for the receipt, retention
and treatment of complaints received by the Company regarding accounting, internal
accounting controls or auditing matters, and the confidential, anonymous submissions by
the employees of the Company regarding questionable accounting or auditing matters.
20. Review and approve the Company’s hiring policies regarding partners, employees and
former partners and employees of the former and present Auditor.
Insurance
21. Review the Company’s insurance programs, including the Company’s directors’ and
officers’ insurance coverage, and make recommendations for their renewal or
replacement.
MEETINGS AND PROCEDURES
1.
2.
3.
4.
The Audit Committee shall meet a minimum of four (4) times per year and, subject to
these Terms of Reference and applicable law, otherwise establish its procedures and
govern itself as the members of the Audit Committee may see fit in order to carry out
and fulfill its duties and responsibilities hereunder. Extraordinary meetings of the Audit
Committee may be called at the request of a member on the Audit Committee or the
Chair of the Board to be held at such times and places as the person calling such
meeting may determine.
A majority of members of the Audit Committee will constitute a quorum (provided that a
quorum shall not be less than two (2) members). Decisions of the Audit Committee will
be by an affirmative vote of the majority of those members of the Audit Committee
voting at a meeting. In the event of an equality of votes, the Chair will not have a
casting or deciding vote. The Audit Committee may also act by resolution in writing
signed by all the members of the Audit Committee.
The Audit Committee shall appoint a Secretary who shall keep minutes or other records
of its meetings and proceedings.
The Chair of the Audit Committee shall report to the Board at its next regular meeting
the Audit Committee’s deliberations and recommendations, if any, requiring the Board’s
approval.
Annual Information Form
____________________
OTHER MATTERS
111
1.
2.
The Audit Committee is authorized to engage any outside advisor it deems necessary to
carry out its duties and responsibilities and to arrange payment of the advisor’s
compensation by the Company.
The Audit Committee may, at the request of the Board or at its own initiative, investigate
such other matters as it considers appropriate in furtherance of the Audit Committee’s
purpose.
112
GLOSSARY
Unless otherwise noted, all financial references in this Annual Report are in Canadian Dollars.
“Adjusted EBITDA” EBITDA excluding long term incentive compensation, other income (expense),
Beaver sawmill post-closure wind-down costs and Tacoma sawmill post-acquisition losses.
“Adjusted Net Earnings” Net earnings (loss) before restructuring costs, asset write-downs and other
costs, other foreign exchange gains (losses), long term incentive compensation, other income (expense),
Beaver sawmill post-closure wind-down costs, Tacoma sawmill post-acquisition losses, the income tax
effect of the aforementioned adjustments, and previously unrecognized deferred tax assets.
“Allowable Annual Cut (AAC)” The average annual volume of timber which the holder of a licence from
the Province of British Columbia may harvest on Crown land under the licence in a five-year control
period.
“Cash flow from operations” Cash flow provided by operating activities before considering changes in
operating working capital.
“Custom cutting” An arrangement under which a mill contracts to cut logs owned by a customer into
products of specifications defined by the customer.
“Crown” Administrative agency of the provincial government of British Columbia
“EBITDA” Earnings before finance costs, income taxes, depreciation, depletion, amortization,
restructuring costs, asset write-downs and other costs, and other foreign exchange gains (losses).
“Forest Licence” Replaceable, volume-based timber cutting rights for a specific volume of Crown timber
within a Timber Supply area.
“Invested Capital” The total of Net debt and shareholders’ equity.
“m³” A measure of one cubic metre of solid wood, British Columbia metric scale, as determined under the
Forest Act, equal to 35.3 cubic feet of solid wood.
“mfbm” or “Mbf” One thousand foot board measure equal to one thousand square feet of lumber, one
inch thick.
“Net debt” The total of long term debt and bank indebtedness, less cash and cash equivalents.
“Pre-tax return on total assets” Earnings (loss) before income taxes, restructuring costs, asset write-
downs and other costs, other foreign exchange gains (losses) and other income (expense), divided by the
average of opening and closing total assets for annual periods or by opening total assets for three month
periods.
“Silviculture” The art and science of controlling the establishment, growth, composition, health and
quality of forests.
“Stumpage” A charge assessed by the provincial government on all Crown timber harvested.
“Sustained yield (sustainable log supply)” The yield that a forest area can produce on an ongoing
basis without impairment of the long-term productivity of the land.
“Timber Licence” Non-replaceable, area based, Crown timber cutting rights.
“Tree Farm Licence” A renewable 25-year licence to manage a forest area to yield an annual harvest on
a sustainable basis.
“Value-added product” A commodity or other product that has been further processed to increase
financial value.
“Whitewood” Includes the Coastal species Hemlock, Balsam Fir, Douglas-Fir and Spruce; the term
whitewood is used on the British Columbia Coast to differentiate the above species from Western Red
Cedar and Yellow Cedar.
DIRECTORS
As of March 9, 2016
Duncan K. Davies
Vancouver, BC, Canada
Jeane Hull
Sheridan, WY, US
Gordon H. MacDougall
West Vancouver, BC, Canada
Thomas V. Milroy
Toronto, ON, Canada
L. Scott Thomson
Vancouver, BC, Canada
OFFICERS
As of March 9, 2016
E. Lawrence Sauder
Chair
John A. Horning
Executive Vice President &
Chief Financial Officer
Mark W. Stock
113
Paul Herbert
Germantown, TN, US
Peter M. Lynch
Toronto, ON, Canada
J. Eddie McMillan
Pensacola, FL, US
E. Lawrence Sauder
Vancouver, BC, Canada
Douglas W.G. Whitehead
North Vancouver, BC, Canada
Duncan K. Davies
President & Chief Executive Officer
Martin L. Juravsky
Senior Vice President, Corporate
Development & Strategy
Bart Bender
Senior Vice President, Human Resources
Senior Vice President, Sales & Marketing
Ian M. Fillinger
J. Steven Hofer
Senior Vice President, Head of Operations
Senior Vice President, US Northwest Operations
Richard J. Slaco
Xenia Kritsos
Vice President and Chief Forester
General Counsel & Corporate Secretary
CORPORATE INFORMATION
Stock Exchange
Common Shares listed on
The Toronto Stock Exchange
Symbol: IFP
Auditors
KPMG LLP, Vancouver, BC
Transfer Agent
Computershare Investor
Services Inc.
Vancouver, BC and Toronto, ON
114
Investor Contact
Martin Juravsky
Senior Vice President,
Corporate Development & Strategy
Tel: (604) 689-6873
martin.juravsky@interfor.com
Corporate Office
Tel: (604) 689-6800
Fax: (604) 688-0313
P.O. Box 49114
3500-1055 Dunsmuir Street
Vancouver, BC V7X 1H7
SALES AND MARKETING
North America – Cedar
Tel: (604) 422-3400
Fax: (604) 422-3244
1600 - 4720 Kingsway
Metrotower II
Burnaby, BC, Canada V5H 4N2
North America – Southern
Yellow Pine
Tel: (770) 282-3250
Fax: (770) 486-6837
700 Westpark Drive
Peachtree City, GA, US 30269
North America - Whitewood
Tel: (360) 788-2200
Fax: (360) 788-2210
2211 Rimland Drive, Suite 220
Bellingham, WA, US 98226
China
Tel: +86-21-6333-6268
Fax: +86-21-6333-6290
Unit 1007, Tower No. 1
No. 268 Zhongshan South Road
Shanghai, 200010, China
Japan
Tel: 03-5641-2351
Fax: 03-5641-2383
Kasahara Bldg. 6F, 1-7-7
Nihonbashi, Ningyocho, Chuo-ku
Tokyo, Japan 103 - 0013
Europe
Tel: +33-2-40-32-05-25
Fax: +33-2-40-32-02-25
ZI Cheviré
7 rue de l'Houmaille
44340 BOUGUENAIS, France
Export – Whitewood & Cedar
Tel: (604) 422-3468
Fax: (604) 422-3250
1600-4720 Kingsway
Metrotower II
Burnaby, BC, Canada V5H 4N2
OPERATIONS AND LOCATIONS
Acorn Division
(Sawmill)
Tel: (604) 581-0494
Fax: (604) 581-5757
9355 Alaska Way
Delta, BC V4C 4R7
Castlegar Division
(Sawmill and Woodlands)
Tel: (250) 365-4400
Fax: (604) 422-3252
P.O. Box 3728
2705 Arrow Lakes Drive
Castlegar, BC V1N 3W4
Eatonton Division
(Sawmill)
Tel: (706) 485-4271
Fax: (706) 485-3879
370 Dennis Station Road SW
Eatonton, GA 31024
Grand Forks Division
(Sawmill and Woodlands)
Tel: (250) 443-2400
Fax: (604) 422-3253
P.O. Box 39
570 68th Ave.
Grand Forks, BC V0H 1H0
Meldrim Division
(Sawmill)
Tel: (912) 748-7310
Fax: (912) 748-8354
911 Old River Road
Bloomingdale, GA 31302
Adams Lake Division
(Sawmill and Woodlands)
Tel: (250) 679-3234
Fax: (250) 679-3545
9200 Holding Road
Chase, BC V0E 1M2
Cedarprime
(Remanufacturing)
Interfor Cedarprime Inc.
Tel: (360) 988-2120
Fax: (360) 988-2126
601C West Front Street
Sumas, WA 98295
Georgetown Division
(Sawmill)
Tel: (843) 546-6138
Fax: (843) 527-4033
2701 Indian Hut Road
Georgetown, SC 29440-9146
Hammond Division
(Sawmill)
Tel: (604) 465-5401
Fax: (604) 422-3221
20580 Maple Crescent
Maple Ridge, BC V2X 1B1
Molalla Division
(Sawmill)
Tel: (503) 829-9131
Fax: (503) 829-5481
15555 S. Hwy. 211
Molalla, OR 97038
Perry Division
(Sawmill & Remanufacturing)
Tel: (478) 987-2105
Fax: (478) 987-5773
903 Jernigan Street
Perry, GA 31069-3435
Port Angeles Division
(Sawmill)
Tel: (360) 457-6266
Fax: (360) 457-1486
243701 Highway 101 West
Port Angeles, WA 98363
Swainsboro Division
(Sawmill)
Tel: (912) 562-4441
Fax: (912) 562-3621
8796 Highway 297
Swainsboro, GA 30401
Thomaston Division
(Sawmill)
Tel: (706) 648-4900
Fax: (706) 646-3534
75 Ben Hill Road
Thomaston, GA 30286
115
Baxley Division
(Sawmill)
Tel: (912) 367-3671
Fax: (912) 367-1500
1830 Golden Isles East
Baxley, GA 31513
Coastal Woodlands Division
(Woodlands)
Tel: (250) 286-1881
Fax: (250) 286-3412
1250A Ironwood Street
Campbell River, BC V9W 6H5
Gilchrist Division
(Sawmill)
Tel: (541) 433-2222
Fax: (541) 433-9581
P.O. Box 638
#1 Sawmill Road
Gilchrist, OR 97737
Longview Division
(Sawmill)
Tel: (360) 575-3600
Fax: (360) 575-3628
540 3rd Ave.
Longview, WA 98632
Monticello Division
(Sawmill)
Tel: (870) 224-7200
Fax: (870) 367-7924
211 Old Troy Road
Monticello, AR 71655
Preston Division
(Sawmill)
Tel: (229) 828-4265
Fax: (229) 828-4370
378 Tolleson Road
Preston, GA 31824
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