Interfor posts net loss of $2.6 million

International Forest Products Ltd. (Interfor) reported a net loss of $2.6 million or $0.06 per share in the second quarter of 2010.

The loss for the quarter includes a tax valuation allowance of $1.3 million or $0.03 per share, which results from Interfor no longer recognizing the tax benefit of loss carry forwards.

Excluding the tax valuation allowance and other one-time items the loss for the quarter was $0.6 million or $0.01 per share compared to a loss of $2.3 million or $0.05 per share in the first quarter and a loss of $13.4 million or $0.28 per share in the second quarter of 2009.

EBITDA for the quarter (adjusted to exclude "other income") was $13.1 million, compared to $9.7 million in the first quarter and negative $7.3 million in the same quarter last year.

"Higher commodity prices in April and early May were quickly offset by lower activity levels and prices in late May and June," said Duncan Davies, Interfor's President and CEO.

SPF 2x4, which peaked at US$320 in the last two weeks of April, dropped as low as US$188 in late June. For the quarter, SPF 2x4 averaged US$264 compared with US$269 in the first quarter. Hem-Fir studs were up US$19 to US$292 although sales volumes fell dramatically in the last six weeks of the quarter as SPF prices dropped faster than comparable Hem-Fir products.

Further impacting Interfor's results in the second quarter were higher log prices, particularly in the U.S., and lower chip prices in the B.C. Interior.

Lumber production increased 7% quarter-over-quarter to 277 million board feet, representing approximately 69% of rated capacity, in spite of a number of curtailments taken at Interfor's U.S. operations in June as conditions deteriorated.

Log production at Interfor's Canadian operations was 624,000 m3 in the second quarter compared with 648,000 m3 in the first quarter.

Lumber sales, including wholesale volumes, totalled 270 million board feet, an increase of 6 million board feet versus the first quarter. On a volume basis, excluding wholesale programs, sales to North American markets accounted for 78% of shipments in the second quarter versus 74% in the first quarter while Pacific Rim markets including Japan and China accounted for 21% compared to 23% in the first quarter.

In the quarter Interfor generated $4.4 million in cash from operations after changes in working capital were considered. Capital spending totalled $6.0 million, including $3.7 million on logging roads.

Net debt closed the quarter at $154.6 million or 30% of invested capital compared with $152.0 million and 30% at the end of the first quarter.

Business conditions deteriorated in the second half of the second quarter as the stimulus package directed at U.S. housing came to an end. At this point it is unclear whether the slowdown in activity is a natural reaction to the end of the housing assistance package or a reflection of a broader slowdown in economic activity.

SPF 2x4, as reported by Random Lengths, is currently trading at US$216 and Hem-Fir studs are at US$225. Duty rates are 10% in July, increasing to 15% in August.

In the face of this uncertainty, Interfor will continue to balance operating rates against sales activity. As indicated above, the company is currently operating on a reduced basis in the U.S. due to a combination of higher log prices and reduced activity levels in Hem-Fir product lines. In addition, the Grand Forks sawmill was curtailed for the first two weeks of July and the Hammond Cedar sawmill will be curtailed for two weeks at the end of July.

On the positive side, Interfor's Castlegar sawmill, which has been curtailed since it was acquired in April 2008, resumed operations on a reduced scale on July 5th. Results have been encouraging so far, with productivity levels and costs at or better than pro forma.

On July 22, 2010, Interfor obtained a financing commitment from its lending syndicate to extend the maturities of its existing credit facilities effective August 19, 2010. The maturity date of the Operating Line of Credit ($65 million) will be extended from February 28, 2011 to July 28, 2012. The maturity date of the Revolving Term Line ($200 million) will be extended from February 28, 2012 to July 28, 2013. All other terms and conditions of the lines remain substantially unchanged except for a reduction in pricing.

Based on the strength of the new credit facility, Interfor's Board of Directors has authorized a capital spending plan designed to increase the efficiency and cost structure of a number of its plants. The program totals $24.4 million and will be undertaken over the next 18 to 24 months.

Of particular note is a $4.0 million allocation to Adams Lake which builds on the success of the company's recent project at that facility. The new investments at Adams Lake will increase the effective two-shift capacity at that plant from 315 million board feet to 350 million board feet. The Adams Lake sawmill resumed operations in April 2009 following a $100 million rebuild. On completion, the effective capacity of the mill was rated at 285 million board feet. The balance of the capital plan includes projects throughout the Company's operating platform, the most significant of which is at the Beaver sawmill on the Olympic Peninsula which was acquired in September 2008.

Source: Interfor