Sino-Forest Reports Second Quarter 2010 Results
TORONTO, Aug. 10, 2010 /PRNewswire-FirstCall/ - Sino-Forest Corporation ("Sino-Forest") (TSX:TRE) announced its financial results today for the three months and first half ended June 30, 2010. All amounts in this release are expressed in U.S. dollars unless otherwise indicated.
Second Quarter 2010 Financial Highlights
- Revenue increased 36% in Q2, and 39% in H1 2010 to $557 million
- Gross margin from sales of standing timber in Yunnan generated $69
per m3
- Net Income for Q2 rose 41%, and 56% in the H1 of the year
- Diluted EPS for Q2 and H1 2010 rose 13% to 26 cents, and 22% to 44
cents, respectively
- Cash Flow From Operating Activities decreased 36% in Q2, and 53% for
H1 2010, primarily due to temporary increases in receivables
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(US$ millions, Second Quarter ended June 30 First Half ended June 30
except margins
and per share 2010 2009 Change 2010 2009 Change
amounts) $ $ % $ $ %
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Revenue 305.8 224.4 36 556.8 401.7 39
Gross Profit(1) 123.3 82.2 50 218.5 147.8 48
Gross Profit Margin 40.3% 36.6% 4%pts 39.2 36.8 2%pts
EBITDA(2) 174.1 145.4 20 320.2 260.3 23
Net Income 63.7 45.0 41 106.5 68.1 56
Diluted Earnings
Per Share 0.26 0.23 13 0.44 0.36 22
Cash Flow From
Operating
Activities 100.3 156.8 (36) 151.8 324.3 (53)
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Notes (1) and (2) are at the end of this release
Allen Chan, Chairman and CEO of Sino-Forest, said, "We are very pleased to report continuing double-digit growth in revenue and net income in the second quarter of 2010, despite a number of measures launched by China's Central Government to cool down an over-heated economy and property speculation. Sino-Forest was not overly affected by the tightening measures, as our operations are focused on emerging markets within China and as the country's large wood fibre deficit continues to grow. Further, the areas in and around Yunnan continue to show strong growth and demand for fibre as demonstrated by our sales in this region in the first half of 2010."
Mr. Chan added, "Despite the heavy rainfall in the second quarter of 2010 which caused severe flooding in many provinces across China, our operations were not significantly affected and we anticipate that there will be a short-term fibre shortage in the country's wood markets. Currently, log prices are about 5% below their highs in 2008, and we anticipate that these prices will continue to rebound given solid demand and the short-term impact from flooding. The flooding did impact the ability of certain customers to harvest plantation trees that we sold to them, which has therefore resulted in a build-up of our receivables. While this affected our cash flows in the second quarter, we expect this impact to be short-term. On our replanting program, the heavy rainfall had caused us to slowdown our progress; nonetheless we re-planted in the second quarter approximately 2,000 hectares of our targeted 25,000 hectares. We recommenced our replanting programme in July and anticipate achieving our target hectares by end of this year."
"We are also very pleased to have increased our ownership interest in Hong Kong-listed Omnicorp Limited from approximately 19.8% to approximately 53.5%. Omnicorp's core business is bringing quality hardwood into China in a sustainable manner, while Sino-Forest focuses on improving the growing yield output of China's low-yielding forest plantations", continued Mr. Chan.
Business Segment Highlights
The following table presents the total revenue breakdown for the three months ended June 30, 2010 and 2009:
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Second Second
Quarter ended Quarter ended
June 30, 2010 June 30, 2009
$'000 % $'000 %
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Wood Fibre Operations
Plantation Fibre 188,080 61.5 158,898 70.8
Trading of Wood Logs 100,413 32.9 56,771 25.3
Manufacturing and Other Operations 17,265 5.6 8,750 3.9
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Total 305,758 100.0 224,419 100.0
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Our revenue increased 36.2% in the second quarter of 2010 to $305.8 million, with the largest contribution coming from a 76.8% increase in the trading of wood logs.
Wood Fibre Operations
Plantation Fibre
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Second Quarter ended June 30, 2010
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Vol. of Av.
fibre price Total
Hectares sold per m(3) revenue
'000 m(3) $ $'000
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Standing timber 6,702 1,681 96 161,562
Harvested logs 2,634 363 73 26,518
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Total 9,336 2,044 92 188,080
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Second Quarter ended June 30, 2009
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Vol. of Av.
fibre price Total
Hectares sold per m(3) revenue
'000 m(3) $ $'000
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Standing timber 18,538 2,616 61 158,898
Harvested logs - - - -
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Total 18,538 2,616 61 158,898
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Revenue from sales of plantation fibre increased 18.4% to $188.1 million in Q2 2010, mainly due to an increase in the average selling price of standing timber sales and revenue from harvested logs, of which we had no sales in Q2 last year.
The 58.3% increase in the average selling price of standing timber was mainly due to a difference in sales mix. We sold broadleaf in Yunnan as standing timber at an average selling price of $102 per m(3) in the three months ended June 30, 2010, whereas we sold pine and Chinese fir as standing timber at an average price of $61 per m(3) in the same period in 2009.
The average sales per hectare increased 135.0% to $20,146 per hectare in the three months ended June 30, 2010, compared to $8,571 per hectare in the same period in 2009, due to sales of higher-yield trees from Yunnan.
The average yield per hectare sold as standing timber in Q2 2010 was 251 m(3) compared to 141 m(3) in the same period in 2009. The average yield per hectare sold as harvested logs in Q2 2010 was 138 m(3) compared to nil m(3) in the same period in 2009.
During the second quarter, we sold approximately 6,082 hectares of trees acquired under our master agreements, mainly in Yunnan and Hunan.
Plantation fibre sales comprised 61.5% of total revenue in the three months ended June 30, 2010, compared to 70.8% in the same period in 2009.
Trading of Wood Logs
Revenue from trading of imported and domestic wood products and logs increased 76.9% to $100.4 million in Q2 2010, compared to $56.8 million in the same period in 2009. This increase was primarily due to a higher volume of Russian wood logs sold.
Sales from trading of wood logs comprised 32.9% of total revenue in the second quarter of 2010, compared to 25.3% of total revenue in the same period in 2009.
Manufacturing and Other Operations Revenue
Revenue from manufacturing and other operations increased 97.3% to $17.3 million in Q2 2010, compared to $8.8 million in the same period in 2009, mainly due to increased sales of engineered wood flooring.
Gross Profit
Gross profit increased 49.9% to $123.3 million in the three months ended June 30, 2010, compared to $82.2 million in the same period in 2009. Gross profit margin, being gross profit expressed as a percentage of revenue, increased to 40.3% in Q2 2010 compared to 36.6% in the same period in 2009, mainly as a result of improved margins from plantation fibre operations.
Wood Fibre Operations Gross Profit Margins
Plantation Fibre
The overall gross profit margin from sales of standing timber increased to 66.4% or $64 per m(3) in Q2 2010, compared to 49.7% or $30 per m(3) in same period last year, mainly due to the increase in average selling price of standing timber. The overall margin from sales of harvested logs was 31.2% or $23 per m(3) in Q2 2010.
Trading of Wood Logs
The gross profit margin from trading of imported and domestic wood products and logs increased to 5.5% in Q2 2010 compared to 5.0% in the same period in 2009.
Manufacturing and Other Operations Gross Profit Margin
The gross profit margin from our manufacturing and other operations increased to 12.6% in the three months ended June 30, 2010, compared to 4.6% in the same period in 2009. This was mainly due to improvement in the engineered wood flooring business segment.
Selling, General and Administration Expenses
Our SG&A expenses increased 10.1% to $17.9 million in Q2 2010, compared to $16.3 million in the same period in 2009. The increase was in line with the business growth of the Company.
Net Income for the Period
As a result of the foregoing, net income for the period increased 41.4% to $63.7 million in Q2 2010, compared to $45.0 million in the same period in 2009. Overall net income for the period as a percentage of revenue increased slightly to 20.8% in Q2 2010, compared to 20.1% in the same period in 2009.
Cash flows from operating activities of continuing operations
Net cash provided from operating activities decreased to $100.3 million in Q2 2010, compared to $151.8 million in the same period in 2009. The decrease was due to cash used in working capital that mainly resulted from an increase in accounts receivable, offset by the increase in cash provided by operations.
Capital Expenditures
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Second Quarter ended June 30
2010 2009
Hectares $'million Hectares $'million
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Tree acquisition 38,306 204.3 41,114 152.5
Tree acquisition - acq of
subsidiaries - -
Re-planting and maintenance of
plantations 9.4 7.9
Panel manufacturing and others 10.8 2.6
Panel manufacturing & others - acq
of subsidiaries - -
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Total 224.5 163.0
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First Half ended June 30
2010 2009
Hectares $'million Hectares $'million
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Tree acquisition 76,084 387.6 117,091 398.1
Tree acquisition - acq of
subsidiaries 86,786 283.1 -
Re-planting and maintenance of
plantations 16.5 13.7
Panel manufacturing and others 13.0 7.8
Panel manufacturing & others - acq
of subsidiaries 6.6 -
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Total 706.8 419.6
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For fiscal 2010, capital expenditures are expected to be around $1,300 million for plantation acquisitions, replanting and maintenance, and approximately $30 million for the development of manufacturing facilities integrated with plantation operations.
Recent Developments
During the second quarter of 2010, we acquired 2,638,469,000 ordinary shares of Greenheart Resources Holdings Limited ("Greenheart"), representing approximately 34.4% of Greenheart's total issued share capital, for total consideration of approximately $33 million. During the same quarter, we increased our ownership in Omnicorp Limited ("Omnicorp") to 53.5% from 19.8% of the enlarged issued share capital of Omnicorp, for total cash consideration of HK$418.6 million (approximately $53.7 million). In July, we signed a co-operative framework agreement with China Development Bank Corporation (Guangzhou Branch) for project financing of up to Rmb10 billion (equivalent to US$1.5 billion) to support our wholly-owned subsidiary Sino-Panel (China) Investments Limited's projects in China.
Outlook
We remain upbeat about China's wood fibre market in the long term as there are several market factors that support a positive outlook for Sino-Forest. The Central Government continues to provide stimulus spending for infrastructure improvements, construction of low-income housing, and economic development in rural and western regions of the PRC. As demand for wood logs increases while the flow of imported logs slows, China's wood deficit continues to grow and log prices continue to rise. Sino-Forest has access to a substantial supply of fibre at fixed prices. We continue to improve the productive yield at our plantations through scientific advancements and silviculture expertise. In addition, the Company is producing competitively-priced plantation logs that could substitute for certain imported wood logs as raw material for downstream manufactured wood products.
We will continue to acquire plantation fibre through our six long-term master agreements, and to re-plant harvested land, as part of our long-term strategy to strengthen our position as one of China's leading operators of sustainable forest plantations.
Notice of Conference Call
Sino-Forest will hold a conference call for analysts and investors to further discuss its second quarter results on Tuesday, August 10, 2010 at 8:30 am EST / 8:30 pm HKT. To participate, please dial +1-647-427-7450 for local and international callers, or for North America toll-free access 888-231-8191. Alternatively, to listen to the live webcast and replay in a listen-only mode, go to Sino-Forest's website under "Investor Relations - Earnings Releases" or click on the following link: http://www.sinoforest.com/earningsreleases.asp.
About Sino-Forest Corporation
Sino-Forest is a leading, commercial forest plantation operator in China. Its principal businesses include the ownership and management of forest plantation trees and sales of standing timber, wood logs, and complementary manufacturing of downstream engineered-wood products. Sino-Forest also holds a majority interest in Omnicorp Limited (HK:0094), a Hong Kong listed investment holding company with hardwood concessions and harvesting rights in Suriname, South America. Sino-Forest's common shares have traded on the Toronto Stock Exchange under the symbol TRE since 1995. Learn more at www.sinoforest.com.
Note (1) to the Financial Highlights table: Gross profit for any period is defined as total revenue less cost of sales. Gross profit is presented as additional information because we believe that it is a useful measure for certain investors to determine our operating performance. Gross profit is not a recognized term under Canadian GAAP and should not be considered as an alternative to net income as an indicator of our operating performance or any other measure of performance derived in accordance with Canadian GAAP. Because it is not a Canadian GAAP measure, gross profit may not be comparable to similar measures presented by other companies.
Note (2) to the Financial Highlights table: EBITDA for any period is defined as income from continuing operations for the period after adding back depreciation and amortization and depletion of timber holdings from cost of sales, for the period. EBITDA is presented as additional information because we believe that it is a useful measure for certain investors to determine our operating cash flow and historical ability to meet debt service and capital expenditure requirements. EBITDA is not a measure of financial performance under Canadian GAAP and should not be considered as an alternative to cash flows from operating activities, a measure of liquidity or an alternative to net income as indicators of our operating performance or any other measures of performance derived in accordance with Canadian GAAP.
Cautionary note: No stock exchange or regulatory authority has approved or disapproved of information contained herein. Certain information included in this news release is forward-looking and is subject to important risks and uncertainties. When used in this news release, the words "believe", "intend", "estimate", "expect", "plan" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such words. These forward-looking statements are based on current expectations. The results or events predicted in these statements may differ materially from actual results or events and are no guarantees of future performance of Sino-Forest. Factors which could cause results or events to differ from current expectations include, among other things: our ability to acquire rights to additional standing timber, our ability to meet our expected plantation yields, the cyclical nature of the forest products industry and price fluctuation in and the demand and supply of logs, our reliance on joint venture partners, authorized intermediaries, key customers, suppliers and third party service providers, our ability to operate our production facilities on a profitable basis, changes in currency exchange rates and interest rates, and PRC economic, political and social conditions and government policy, and stock market volatility, other factors not currently viewed as material could cause actual results to differ materially from those described in the forwarding-looking statements. For additional information with respect to certain of these and other factors, see the reports filed by Sino-Forest Corporation with applicable Canadian securities administrators. Sino-Forest Corporation disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
CONSOLIDATED STATEMENTS OF INCOME AND
RETAINED EARNINGS
(Expressed in thousands of United States dollars, except for earnings
per share information) (Unaudited)
Three months ended Six months ended
June 30, June 30,
2010 2009 2010 2009
$ $ $ $
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Revenue 305,758 224,419 556,773 401,653
Costs and expenses
Cost of sales 182,496 142,173 338,307 253,882
Selling, general and
administration 17,924 16,285 35,340 31,089
Depreciation and
amortization 1,053 1,161 2,276 2,290
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201,473 159,619 375,923 287,261
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Income from operations
before the undernoted 104,285 64,800 180,850 114,392
Interest expense (30,190) (17,036) (57,884) (33,831)
Interest income 3,567 2,276 6,992 4,180
Exchange losses (965) (270) (893) (363)
(Loss) gain on changes
in fair value of
financial instruments (3,278) 2,588 (3,987) 1,607
Other income 137 1,051 455 1,272
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Income before income
taxes 73,556 53,409 125,533 87,257
Provision for income
taxes (9,567) (6,390) (18,351) (12,316)
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Net income from
continuing operations 63,989 47,019 107,182 74,941
Net loss from
discontinued operations (277) (1,970) (696) (6,887)
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Net income before non-
controlling interests 63,712 45,049 106,486 68,054
Non-controlling
interests (25) - (1) -
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Net income for the
period 63,687 45,049 106,485 68,054
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Earnings per share
Basic, for net income
for the period 0.26 0.23 0.44 0.36
Diluted, for net
income for the period 0.26 0.23 0.44 0.36
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Earnings per share
from continuing
operations
Basic, for net income
for the period 0.26 0.24 0.44 0.40
Diluted, for net
income for the period 0.26 0.24 0.44 0.39
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Loss per share from
discontinued operations
Basic, for net loss
for the period (0.00) (0.01) (0.00) (0.04)
Diluted, for net loss
for the period (0.00) (0.01) (0.00) (0.04)
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Retained earnings
Retained earnings,
beginning of period 1,097,053 792,562 1,054,257 769,557
Net income for the
period 63,687 45,049 106,485 68,054
Transfer from
statutory reserve 19 - 17 -
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Retained earnings,
end of period 1,160,759 837,611 1,160,759 837,611
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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Expressed in thousands of United States dollars) (Unaudited)
Three months ended Six months ended
June 30, June 30,
2010 2009 2010 2009
$ $ $ $
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Net income for the
period 63,687 45,049 106,485 68,054
Other comprehensive
income:
Unrealized gains on
foreign currency
translation of
self-sustaining
operations 15,225 1,230 15,013 494
Unrealized gains on
financial assets
designated as
available-for-sale,
after tax impact of
$143 for the three
and six months ended
June 30, 2010
(2009: $Nil) 466 5,515 2,005 4,305
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Other comprehensive
income 15,691 6,745 17,018 4,799
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Comprehensive income 79,378 51,794 123,503 72,853
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CONSOLIDATED BALANCE SHEETS
(Expressed in thousands of United States dollars) (Unaudited)
As at As at
June 30, December 31,
2010 2009
$ $
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ASSETS
Current
Cash and cash equivalents 922,732 1,102,366
Short-term deposits 62,821 70,387
Accounts receivable 316,758 282,306
Inventories 68,999 45,978
Prepaid expenses and other 70,646 54,747
Convertible bonds 29,090 29,446
Assets of discontinued operations - 1,531
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Total current assets 1,471,046 1,586,761
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Timber holdings 2,746,883 2,183,489
Capital assets, net 93,010 77,377
Intangible assets 8,103 636
Other assets 138,078 115,636
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4,457,120 3,963,899
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Bank indebtedness 153,891 103,991
Accounts payable and accrued liabilities 291,439 250,287
Income taxes payable 9,011 7,346
Liabilities of discontinued operations 12,543 12,156
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Total current liabilities 466,884 373,780
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Long-term debt 1,121,480 925,466
Future income tax liabilities 39,108 -
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Total liabilities 1,627,472 1,299,246
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Non-controlling interests 1,234 -
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Shareholders' equity
Equity portion of convertible senior notes 158,883 158,883
Share capital 1,253,561 1,213,495
Contributed surplus 12,392 12,200
Accumulated other comprehensive income 241,166 224,148
Statutory reserve 1,653 1,670
Retained earnings 1,160,759 1,054,257
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Total shareholders' equity 2,828,414 2,664,653
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4,457,120 3,963,899
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Commitments and Contingencies
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in thousands of United States dollars) (Unaudited)
Three months ended Six months ended
June 30, June 30,
2010 2009 2010 2009
$ $ $ $
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CASH FLOWS FROM OPERATING
ACTIVITIES
Net income for the
period 63,687 45,049 106,485 68,054
Net loss from
discontinued operations 277 1,970 696 6,887
Add (deduct) items not
affecting cash
Depletion of timber
holdings included in
cost of sales 68,800 79,432 137,056 143,637
Depreciation and
amortization 1,801 1,161 3,620 2,290
Accretion of
convertible senior
notes 6,453 3,045 12,657 5,904
Stock-based
compensation 1,000 1,239 2,172 2,325
Loss (gain) on
changes in fair
value of financial
instruments 3,278 (2,589) 3,987 (1,608)
Unrealized exchange
losses (gains) 282 22 (919) 3
Interest income from
Mandra - (300) (117) (600)
Other (926) (232) (1,579) 1,062
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144,652 128,797 264,058 227,954
Net change in non-cash
working capital
balances (44,381) 27,951 (112,352) 96,379
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Cash flows from
operating activities
of continuing
operations 100,271 156,748 151,706 324,333
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Cash flows (used in)
from operating
activities of
discontinued
operations (90) 215 (325) (2,574)
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CASH FLOWS USED IN
INVESTING ACTIVITIES
Additions to timber
holdings (174,950) (191,912) (364,717) (425,773)
Increase in other
assets (8,717) (351) (12,049) (5,608)
Additions to capital
assets (5,710) (2,610) (14,770) (5,873)
Decrease (increase)
in non-pledged
short-term deposits 731 (614) 7,920 (1,478)
Business acquisitions (132) - 4,019 -
Acquisition of
convertible bonds - - - (200)
Proceeds from
disposal of capital
assets 96 111 133 111
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Cash flows used in
investing activities (188,682) (195,376) (379,464) (438,821)
Cash flows from
investing activities
of discontinued
operations - 10,068 1,478 9,139
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CASH FLOWS FROM
FINANCING ACTIVITIES
Payment on deferred
financing costs - - (5,893) -
Increase (decrease)
in bank indebtedness 28,682 (6,286) 48,408 2,025
(Increase) decrease
in pledged short-term
deposits (311) 1,074 (174) 1,302
Issuance of shares,
net of issue costs 3,014 323,947 4,896 323,947
Payment on derivative
financial instrument - - - (2,891)
Repayment of long-term
debts (530) - (530) -
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Cash flows from
financing activities 30,855 318,735 46,707 324,383
Cash flows from
financing activities
of discontinued
operations - 1 - -
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Effect of exchange
rate changes on cash
and cash equivalents 5 145 264 (93)
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Net (decrease)
increase in cash and
cash equivalents (57,641) 290,536 (179,634) 216,367
Cash and cash
equivalents,
beginning of period 980,373 367,002 1,102,366 441,171
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Cash and cash
equivalents, end of
period 922,732 657,538 922,732 657,538
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Supplemental cash
flow information
Cash payment for
interest charged to
income 11,255 2,695 36,048 27,264
Interest received 1,429 506 2,429 1,187
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SOURCE Sino-Forest Corporation
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