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| Share Name | Share Symbol | Market | Type |
|---|---|---|---|
| Orecap Invest Corp | TSXV:OCI | TSX Venture | Common Stock |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| -0.005 | -7.69% | 0.06 | 0.06 | 0.065 | 0.06 | 0.06 | 0.06 | 151,600 | 17:31:34 |
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Canfor Pulp Products Inc. ("CPPI") (TSX:CFX) today reported net income of $4.7
million, or $0.07 per share, for the fourth quarter of 2012, compared to a net
loss of $4.6 million, or $0.06 per share, for the third quarter of 2012 and net
income of $15.8 million, or $0.22 per share, for the fourth quarter of 2011. For
the year ended December 31, 2012, the Company's net income was $13.7 million, or
$0.14 per share, compared to $138.6 million, or $1.94 per share, for 2011.
The Company reported operating income of $10.9 million for the fourth quarter of
2012, an increase of $19.1 million from an operating loss of $8.2 million
reported for the third quarter of 2012, principally as a result of improved pulp
segment earnings related to higher shipments and lower unit manufacturing costs,
and to a lesser extent the impact of one-time items.
The following table summarizes selected financial information for the Company
for the comparative periods:
Q4 Q3 YTD Q4 YTD
(millions of dollars,
except for per share
amounts) 2012 2012 2012 2011 2011
----------------------------------------------------------------------------
Sales $ 201.9 $ 177.7 $ 810.4 $ 212.7 $ 941.0
Operating income (loss) $ 10.9 $ (8.2) $ 24.6 $ 16.5 $ 153.4
Net income (loss) $ 4.7 $ (4.6) $ 13.7 $ 15.8 $ 138.6
Net income (loss) per
share, basic and diluted $ 0.07 $ (0.06) $ 0.14 $ 0.22 $ 1.94
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Results in the fourth quarter of 2012 benefited from improved operating rates
with total pulp and paper production up over 43,000 tonnes, or 17%, following
the extended scheduled outage and subsequent ramp ups experienced in the
challenging third quarter. The higher production levels enabled the Company to
increase shipment volumes and rebuild inventory levels. Unit manufacturing costs
improved 12% from the previous quarter, for the most part reflecting the impact
of higher production volumes as well as lower fibre costs. Operating income for
the current quarter included an accounting gain of $4.0 million reflecting
amendments to the Company's salaried post retirement benefit plans, while the
comparative quarter included one-time costs of $3.2 million associated with new
five year collective labour agreements.
Global softwood pulp markets improved slightly through the fourth quarter of
2012 with increased softwood pulp purchases from China helping to offset weaker
shipments to North America and Europe. Global softwood pulp demand was up 7%
from the previous quarter, mostly reflecting increased purchases from China,
with global softwood pulp producer inventory levels up 2 days, to 29 days
supply, compared to the end of the third quarter.
Northern Bleached Softwood Kraft ("NBSK") pulp list prices showed a modest
improvement in the fourth quarter with all regions seeing increases in the US$10
to US$30 per tonne range. Compared to the previous quarter, the average list
price for North America was up US$10 to US$863 per tonne. The Company's average
list price to China and price to Europe were up US$30 and US$23, respectively.
Overall, however, pulp sales realizations moved up only marginally in the fourth
quarter of 2012 as a result of increased volumes to lower-margin regions,
principally China.
The Company's paper segment results were also improved in the current quarter,
reflecting reduced unit manufacturing costs and higher shipment levels, which
were partially offset by lower sales realizations.
During the fourth quarter of 2012, the Company obtained a new $110 million
operating loan facility replacing its previous $40 million operating loan
facility. The Company's operating loans were undrawn at December 31, 2012, with
$108 million available and the balance reserved for standby letters of credit.
Commenting on the fourth quarter's results, CPPI's CEO, Don Kayne, said, "After
the challenges experienced in the last quarter, it was encouraging to see solid
improvements in productivity, as well as some improvement in market conditions
this quarter."
NBSK pulp prices are projected to show a modest improvement through the first
half of 2013, but the outlook for the balance of the year is more uncertain
given the economic challenges in Europe and new hardwood and softwood pulp
capacity currently projected to come online the second half of 2013. For the
month of January, the Company announced an increase in the North American NBSK
pulp list price of US$30 per tonne. There are no maintenance outages scheduled
in the first quarter of 2013.
On December 6, 2012, the Company entered into an agreement with BC Hydro under
the Integrated Power Offer program to upgrade the turbines at its Northwood Pulp
Mill. The project is targeted for completion in the fourth quarter of 2013.
On February 13, 2013, the Board of Directors reinstated the Company's dividend,
declaring a quarterly dividend of $0.05 per share, payable on March 5, 2013 to
shareholders of record on February 26, 2013. In addition, reflecting the
Company's current corporate structure and its latest outlook for 2013, the Board
projects that it will declare further quarterly dividends of $0.05 per share
through the balance of 2013, but will review the issuance of dividends on a
quarterly basis.
Additional Information and Conference Call
A conference call to discuss the fourth quarter's financial and operating
results will be held on Friday, February 15, 2013 at 7:30 AM Pacific time. To
participate in the call, please dial 416-340-2216 or Toll-Free 866-226-1792. For
instant replay access until March 1, 2013, please dial 800-408-3053 and enter
participant pass code 7426712#. The conference call will be webcast live and
will be available at www.canforpulp.com. This news release, the attached
financial statements and a presentation used during the conference call can be
accessed via the Company's website at
http://www.canforpulp.com/investors/webcasts.
Forward-Looking Statements
Certain statements in this press release constitute "forward-looking statements"
which involve known and unknown risks, uncertainties and other factors that may
cause actual results to be materially different from any future results,
performance or achievements expressed or implied by such statements. Words such
as "expects", "anticipates", "projects", "intends", "plans", "will", "believes",
"seeks", "estimates", "should", "may", "could", and variations of such words and
similar expressions are intended to identify such forward-looking statements.
These statements are based on management's current expectations and beliefs and
actual events or results may differ materially. There are many factors that
could cause such actual events or results expressed or implied by such
forward-looking statements to differ materially from any future results
expressed or implied by such statements. Forward-looking statements are based on
current expectations and the Company assumes no obligation to update such
information to reflect later events or developments, except as required by law.
CPPI is a leading global supplier of pulp and paper products with operations
based in the central interior of British Columbia. The Company owns and operates
three mills with annual capacity to produce over one million tonnes of northern
softwood market kraft pulp, 90% of which is bleached to become NBSK pulp for
sale to the market, and approximately 140,000 tonnes of kraft paper. CPPI shares
are traded on the Toronto Stock Exchange under the symbol CFX.
Canfor Pulp Products Inc.
Fourth Quarter 2012
Management's Discussion and Analysis
This interim Management's Discussion and Analysis ("MD&A") provides a review of
Canfor Pulp Products Inc.'s ("CPPI" or "the Company") financial performance for
the quarter ended December 31, 2012 relative to the quarters ended September 30,
2012 and December 31, 2011, and the financial position of the Company at
December 31, 2012. It should be read in conjunction with CPPI's unaudited
interim consolidated financial statements and accompanying notes for the
quarters ended December 31, 2012 and 2011, as well as the 2011 annual MD&A and
the 2011 audited consolidated financial statements and notes thereto, which are
included in CPPI's Annual Report for the year ended December 31, 2011 (available
at www.canforpulp.com). The financial information in this interim MD&A has been
prepared in accordance with International Financial Reporting Standards
("IFRS"), which is the required reporting framework for Canadian publicly
accountable enterprises.
Throughout this discussion, reference is made to operating income before
amortization which CPPI considers to be a relevant indicator for measuring
trends in the Company's performance and its ability to generate funds to meet
its debt service and capital expenditure requirements, and to pay dividends.
Operating income before amortization is not a generally accepted earnings
measure and should not be considered as an alternative to net income or cash
flows as determined in accordance with IFRS. As there is no standardized method
of calculating this measure, CPPI's operating income before amortization may not
be directly comparable with similarly titled measures used by other companies. A
reconciliation of operating income before amortization to operating income
(loss) reported in accordance with IFRS is included in this MD&A.
Factors that could impact future operations are also discussed. These factors
may be influenced by both known and unknown risks and uncertainties that could
cause the actual results to be materially different from those stated in this
discussion. Factors that could have a material impact on any future oriented
statements made herein include, but are not limited to: general economic, market
and business conditions; product selling prices; raw material and operating
costs; currency exchange rates; interest rates; changes in law and public
policy; the outcome of labour and trade disputes; and opportunities available to
or pursued by CPPI.
All financial references are in millions of Canadian dollars unless otherwise
noted. The information in this report is as at February 13, 2013.
Forward Looking Statements
Certain statements in this MD&A constitute "forward-looking statements" which
involve known and unknown risks, uncertainties and other factors that may cause
actual results to be materially different from any future results, performance
or achievements expressed or implied by such statements. Words such as
"expects", "anticipates", "projects", "intends", "plans", "will", "believes",
"seeks", "estimates", "should", "may", "could", and variations of such words and
similar expressions are intended to identify such forward-looking statements.
These statements are based on management's current expectations and beliefs and
actual events or results may differ materially. There are many factors that
could cause such actual events or results expressed or implied by such
forward-looking statements to differ materially from any future results
expressed or implied by such statements. Forward-looking statements are based on
current expectations and the Company assumes no obligation to update such
information to reflect later events or developments, except as required by law.
CPPI SHARE EXCHANGE
On March 2, 2012, Canadian Forest Products Ltd. ("Canfor") acquired 35,776,483
common shares of Canfor Pulp Products, Inc. ("CPPI") in exchange for its
35,776,483 Class B Exchangeable LP Units of Canfor Pulp Limited Partnership
("the Partnership") and 35,776,483 common shares of Canfor Pulp Holding Inc.
("the General Partner"), pursuant to the terms of an Exchange Agreement made as
of January 1, 2011 among Canfor, CPPI, the General Partner and the Partnership.
As a result of the exchange, CPPI's interest in both the Partnership and the
General Partner increased from 49.8% to 100% and Canfor acquired a 50.2%
interest in CPPI.
The discussion which follows refers to the results of the Partnership for the
comparative periods prior to the quarter ended March 31, 2012. For the quarter
ended March 31, 2012, and all subsequent quarters, the results of CPPI include
the results of the Partnership.
FOURTH QUARTER 2012 OVERVIEW
Selected Financial Information and Statistics(1)
Q4 Q3 YTD Q4 YTD
(millions of dollars,
except for per share
amounts) 2012 2012 2012 2011 2011
----------------------------------------------------------------------------
Operating income (loss)
by segment:
Pulp $ 6.8 $ (8.4) $ 19.2 $ 16.7 $ 157.5
Paper $ 6.9 $ 5.0 $ 19.4 $ 3.4 $ 9.5
Unallocated $ (2.8) $ (4.8) $ (14.0) $ (3.6) $ (13.6)
----------------------------------------------------------------------------
Total operating income
(loss) $ 10.9 $ (8.2) $ 24.6 $ 16.5 $ 153.4
Add: Amortization $ 20.0 $ 15.2 $ 67.1 $ 21.4 $ 66.8
----------------------------------------------------------------------------
Total operating income
before amortization $ 30.9 $ 7.0 $ 91.7 $ 37.9 $ 220.2
Add (deduct):
Working capital
movements $ 2.4 $ (5.2) $ 12.2 $ 1.2 $ (13.1)
Salary pension plan
contributions $ (1.8) $ (1.9) $ (7.6) $ (1.8) $ (7.9)
Other operating cash
flows, net $ (5.7) $ 1.5 $ (8.4) $ (3.2) $ (0.2)
----------------------------------------------------------------------------
Cash from operating
activities $ 25.8 $ 1.4 $ 87.9 $ 34.1 $ 199.0
Add (deduct):
Distributions /
dividends paid $ - $ (3.6) $ (19.2) $ (22.8) $ (181.0)
Finance expenses
paid(1) $ (4.1) $ (0.2) $ (8.1) $ (3.8) $ (7.8)
Capital additions,
net(2) $ (11.5) $ (19.9) $ (66.8) $ (41.6) $ (77.0)
Acquisition of CPPI
cash on exchange $ - $ - $ 6.8 $ - $ -
Other, net $ - $ - $ 0.2 $ 0.1 $ 0.6
----------------------------------------------------------------------------
Change in cash /
operating loans $ 10.2 $ (22.3) $ 0.8 $ (34.0) $ (66.2)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Average exchange rate
(US$ per C$1.00)(3) $ 1.009 $ 1.005 $ 1.001 $ 0.977 $ 1.011
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Certain prior period amounts have been restated due to a change in
accounting policy for treatment of net interest expense for defined benefit
post-retirement plans. Further details can be found in the Company's
unaudited interim consolidated financial statements.
(2) Additions to property, plant and equipment are shown net of amounts
received under Government funding initiatives.
(3) Source - Bank of Canada (average noon rate for the period).
The Company reported operating income of $10.9 million for the fourth quarter of
2012, an increase of $19.1 million from an operating loss of $8.2 million
reported for the third quarter of 2012, principally as a result of improved pulp
segment earnings related to higher shipments and lower unit manufacturing costs,
and to a lesser extent the impact of one-time items.
Results in the fourth quarter of 2012 benefited from improved operating rates
with total pulp and paper production up over 43,000 tonnes, or 17%, following
the extended scheduled outage and subsequent ramp ups experienced in the
challenging third quarter. The higher production levels enabled the Company to
increase shipment volumes and rebuild inventory levels. Unit manufacturing costs
improved 12% from the previous quarter, for the most part reflecting the impact
of higher production volumes as well as lower fibre costs. Operating income for
the current quarter included an accounting gain of $4.0 million reflecting
amendments to the Company's salaried post retirement benefit plans, while the
comparative quarter included one-time costs of $3.2 million associated with new
five year collective labour agreements.
Global softwood pulp markets improved slightly through the fourth quarter of
2012 with increased softwood pulp purchases from China offset by weaker shipment
volumes to North America and Europe. Global softwood pulp demand was up 7% from
the previous quarter, mostly reflecting increased purchases from China, with
global softwood pulp producer inventory levels up 2 days, to 29 days supply,
compared to the end of the third quarter.
Northern Bleached Softwood Kraft ("NBSK") pulp list prices showed a modest
improvement in the fourth quarter with all regions seeing increases in the US$10
to US$30 per tonne range. Compared to the previous quarter, the average list
price for North America was up US$10 to US$863 per tonne. The Company's average
list price to China and price to Europe were up US$30 and US$23, respectively.
Overall, however, pulp sales realizations moved up only marginally in the fourth
quarter of 2012 as a result of increased volumes to lower-margin regions,
principally China.
The Company's paper segment results were also improved in the current quarter,
reflecting reduced unit manufacturing costs and higher shipment levels, which
were partially offset by lower sales realizations.
Compared to the fourth quarter of 2011, operating income was down $5.6 million,
principally reflecting lower pulp segment results. Lower pulp earnings reflected
lower market pulp prices and a 3% stronger Canadian dollar, partially offset by
higher shipment volumes and lower unit manufacturing costs. Mitigating the
weaker results in the pulp segment were improved earnings from the paper
segment.
OPERATING RESULTS BY BUSINESS SEGMENT
Pulp
Selected Financial Information and Statistics - Pulp
Q4 Q3 YTD Q4 YTD
(millions of dollars
unless otherwise noted) 2012 2012 2012 2011 2011
----------------------------------------------------------------------------
Sales $ 168.2 $ 144.8 $ 675.0 $ 179.1 $ 802.9
Operating income before
amortization $ 25.8 $ 5.9 $ 82.4 $ 37.1 $ 220.5
Operating income (loss) $ 6.8 $ (8.4) $ 19.2 $ 16.7 $ 157.5
----------------------------------------------------------------------------
Average pulp price
delivered to U.S. -
US$(4) $ 863 $ 853 $ 872 $ 920 $ 977
Average price in Cdn$ $ 855 $ 849 $ 871 $ 942 $ 966
----------------------------------------------------------------------------
Production - pulp (000 mt) 260.5 220.6 955.7 245.7 996.7
Shipments - pulp (000 mt) 246.6 214.4 961.8 231.0 978.5
Marketed on behalf of
Canfor 51.2 54.5 214.8 44.3 210.1
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(4) Per tonne, NBSK pulp list price delivered to U.S. (Resource Information
Systems, Inc.).
Overview
Operating income for the pulp segment was $6.8 million for the fourth quarter of
2012, an improvement of $15.2 million from an operating loss of $8.4 million for
the previous quarter, but down $9.9 million from the fourth quarter of 2011.
Results in the current quarter were impacted by lower unit manufacturing costs
and higher shipment volumes, both reflecting improved operations in the quarter.
Market pulp production increased approximately 40,000 tonnes in the quarter due
to increased operating days and higher overall operating rates following the
extended scheduled outage and subsequent ramp ups experienced in the third
quarter. Included in both quarters' results were certain one-time costs: the
current quarter results included $3.3 million of an accounting gain related to
post retirement plan adjustments, while the third quarter of 2012 included
one-time costs of $3.2 million associated with new five year collective labour
agreements. For the 2012 year as a whole, the operating income was $19.2
million, down $138.3 million from $157.5 million in 2011.
NBSK pulp list prices showed a small improvement in all regions in the fourth
quarter of 2012, with prices to North America up US$10 to US$863 per tonne, but
this was largely offset by a lower-value regional sales mix.
Lower operating earnings compared to the fourth quarter of 2011 reflected lower
global market pulp prices, as NBSK pulp list prices were down in all regions,
with prices to North America declining US$57, or 6%, per tonne and similar
decreases seen for Europe and China. Sales realizations were also negatively
impacted by a 3% stronger Canadian dollar compared to the fourth quarter of
2011. Higher shipment volumes and a 7% reduction in unit manufacturing costs,
reflecting lower fibre costs and the impact of higher production volumes, helped
to mitigate the impact of reduced sales realizations. Other contributing factors
included the aforementioned post retirement benefit accounting gain in the
current quarter.
Markets
Global softwood pulp demand increased 7% compared to the third quarter of 2012
and was up 3% for the full year 2012 compared to 2011(5). The increase in
softwood shipments was primarily due to increased purchasing from China,
partially offset by reductions in shipments to North America and Europe,
particularly the latter region. At the end of December 2012, World 20(6)
softwood pulp producer inventories increased 2 days from the end of the third
quarter, to 29 days of supply, but were down 7 days compared to December 2011
inventories. Global demand for printing and writing papers decreased 2% in 2012
as compared to 2011(5).
Sales
The Company's pulp shipments in the fourth quarter of 2012 were 247,000 tonnes,
an increase of approximately 32,000 tonnes, or 15%, from the previous quarter.
Compared to the fourth quarter of 2011, shipments were up 16,000 tonnes, or 7%.
For the most part, the increased shipments relative to both comparative periods
reflected higher production volumes coupled with higher levels of purchases by
Chinese consumers.
Global softwood pulp pricing saw a small increase through the current quarter.
The North America NBSK pulp list price averaged US$863 per tonne for the
quarter, up US$10, or 1%, from the third quarter of 2012, while CPPI's average
list price to China and price to Europe were up US$30 and US$23, respectively,
over the same period. Overall, however, pulp sales realizations moved up only
marginally in the fourth quarter mostly as a result of increased volumes to
lower-margin regions, principally China.
Compared to the fourth quarter of 2011, pulp sales realizations decreased 12%
reflecting lower NBSK pulp list pricing in all regions and the 3% strengthening
of the Canadian dollar. The North America NBSK pulp list price decreased US$57
per tonne, or 6%. NBSK pulp list prices to China and Europe also decreased
compared to the same period in 2011, with the average price down US$51 and
US$65, respectively. Also contributing to the lower sales realizations in the
current quarter were a higher proportion of shipments to China.
Operations
Pulp production in the fourth quarter of 2012 was 261,000 tonnes, up
approximately 40,000 tonnes, or 18%, from the previous quarter and up almost
15,000 tonnes, or 6%, compared to the fourth quarter of 2011. The increase in
production compared to the third quarter of 2012 reflected a reduction in
scheduled outages and improved operating rates following the extended scheduled
outage at the Company's Prince George Pulp Mill in the previous quarter along
with improved operating rates at other facilities.
Pulp unit manufacturing costs decreased 8% from the previous quarter of 2012,
with higher production volumes coupled with lower fibre costs, in part due to
lower-cost sawmill residual chips, and chemical costs, partially offset by
higher maintenance expense and a seasonal increase in energy costs. The previous
quarter's costs also included one-time costs associated with the new five year
collective labour agreements.
Compared to the fourth quarter of 2011, unit manufacturing costs decreased 7%,
principally reflecting the favourable impact of higher production volumes,
reduced chemical usage and lower fibre costs, partially offset by timing of
maintenance spending. Lower fibre costs in the current quarter reflected
lower-cost sawmill residual chips, where prices are linked to NBSK pulp sales
realizations, as well as a reduction in higher-cost whole log chips.
(5) As reported by Pulp and Paper Products Council ("PPPC") statistics.
(6) World 20 data is based on twenty producing countries representing 80% of
world chemical market pulp capacity and is based on information compiled and
prepared by the PPPC.
Paper
Selected Financial Information and Statistics - Paper
Q4 Q3 YTD Q4 YTD
(millions of dollars unless
otherwise noted) 2012 2012 2012 2011 2011
----------------------------------------------------------------------------
Sales $ 33.7 $ 32.8 $ 134.6 $ 33.5 $ 136.6
Operating income before
amortization $ 7.9 $ 5.9 $ 23.2 $ 4.4 $ 13.1
Operating income $ 6.9 $ 5.0 $ 19.4 $ 3.4 $ 9.5
----------------------------------------------------------------------------
Production - paper (000 mt) 35.4 31.9 130.2 33.5 136.5
Shipments - paper (000 mt) 32.0 30.6 129.0 30.2 127.6
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Overview
Operating income for the paper segment was $6.9 million for the fourth quarter
of 2012, an increase of $1.9 million from the previous quarter and up $3.5
million from the fourth quarter of 2011. For the 2012 year, operating income was
$19.4 million, an improvement of $9.9 million compared to 2011.
Compared to the third quarter of 2012, higher production volumes resulted in
lower unit manufacturing costs and increased shipments. Unit sales realizations
for paper products were down 2%, primarily related to a lower percentage of
prime bleached sales in the current quarter.
Compared to the fourth quarter of 2011, the improved results were primarily the
result of lower prices for slush pulp, reflecting lower market pulp prices,
which more than offset lower paper unit sales realizations.
Markets
Global kraft paper demand was steady through the fourth quarter. However, demand
slowed in December as a number of sack kraft paper producers in North America
and Europe scheduled downtime over the holiday period as customers balanced
inventories at the end of the year.
Sales
The Company's paper shipments in the fourth quarter of 2012 were 32,000 tonnes,
an increase of almost 1,500 tonnes from the previous quarter and 2,000 tonnes
higher than the fourth quarter of 2011, principally reflecting the higher
production levels. Prime bleached shipments, which attract higher prices,
averaged 75% of total prime shipments during the quarter compared to 85% in the
previous quarter, but were relatively unchanged from the fourth quarter of 2011.
Unit sales realizations for paper products were down 2% from the third quarter
of 2012 and down 5% from the same period in the prior year. The more significant
decrease compared to the fourth quarter of 2011 related primarily to lower
bleached paper prices into export markets, principally Europe and China, and the
3% strengthening of the Canadian dollar.
Operations
Paper production in the fourth quarter of 2012 was 35,400 tonnes, up 3,500
tonnes from the previous quarter and up almost 2,000 tonnes compared to the same
period in 2011. The increased production primarily reflected higher operating
rates in the current period.
Paper unit manufacturing costs were 7% lower than the prior quarter as a result
of lower costs for slush pulp and the impact of higher production volumes.
Compared to the fourth quarter of 2011, unit manufacturing costs were
significantly lower, principally reflecting lower costs for slush pulp.
Unallocated Items
Q4 Q3 YTD Q4 YTD
(millions of dollars) 2012 2012 2012 2011 2011
----------------------------------------------------------------------------
Corporate costs $ (2.8) $ (4.8) $ (14.0) $ (3.6) $ (13.6)
Finance expense, net $ (3.4) $ (2.8) $ (11.8) $ (2.8) $ (10.9)
Foreign exchange gain
(loss) on long-term debt $ (1.3) $ 3.9 $ 2.4 $ 2.4 $ (2.5)
Gain (loss) on derivative
financial instruments $ (0.1) $ 1.9 $ 1.7 $ 1.5 $ (1.6)
Foreign exchange gain
(loss) on working capital $ 0.3 $ (1.5) $ (1.2) $ (1.3) $ 1.0
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Corporate costs were $2.8 million for the fourth quarter of 2012, down $2.0
million from the previous quarter and down $0.8 million from the fourth quarter
of 2011. The reduction in the current quarter primarily reflected the costs in
the previous quarter related to changes in senior management as a result of the
integration of CPPI and Canfor Corporation. A portion of the decrease from both
comparative periods also reflected part of the aforementioned gain due to
amendments to the Company's salaried post retirement benefit plans.
Net finance expense for the fourth quarter of 2012 was $3.4 million, a $0.6
million increase compared to both the previous quarter and the fourth quarter of
2011, primarily reflecting costs associated with a new operating loan facility
entered into in the fourth quarter of 2012. The finance expense for each period
principally represents interest expense on long-term debt and stand-by fees for
the Company's operating loans, as well as the finance expense relating to the
Company's defined benefit post-retirement benefit plans.
The Company recorded a foreign exchange translation loss on its US dollar
denominated debt of $1.3 million for the fourth quarter of 2012, as a result of
the weakening of the Canadian dollar against the US dollar, which fell by just
over 1% between the respective quarter ends. In the comparative periods, a
strengthening of the Canadian dollar resulted in translation gains of $3.9
million and $2.4 million, respectively.
The Company uses a variety of derivative financial instruments as partial
economic hedges against unfavourable changes in foreign exchange rates, energy
costs and interest rates. For the fourth quarter of 2012, the Company recorded a
net loss of $0.1 million related to its derivative financial instruments,
reflecting losses on US dollar forward contracts related to the weakening of the
Canadian dollar offset in part by gains on crude oil collars.
The following table summarizes the gains (losses) on derivative financial
instruments for the comparable periods:
Q4 Q3 YTD Q4 YTD
(millions of dollars) 2012 2012 2012 2011 2011
----------------------------------------------------------------------------
Foreign exchange collars
and forward contracts $ (0.2) $ 1.8 $ 1.7 $ 1.4 $ (1.6)
Crude oil collars $ 0.1 $ 0.1 $ - $ 0.1 $ 0.1
Natural gas swaps $ - $ - $ - $ - $ (0.1)
----------------------------------------------------------------------------
$ (0.1) $ 1.9 $ 1.7 $ 1.5 $ (1.6)
----------------------------------------------------------------------------
Other Comprehensive Income (Loss)
In the fourth quarter of 2012, the Company recorded an after-tax charge to the
statements of other comprehensive income (loss) of $1.7 million in relation to
changes in the valuation of its defined benefit post-employment compensation
plans. The charge reflects a reduction in the discount rate used to value the
plans offset in part by a slightly higher than expected rate of return on plan
assets for the period. In the previous quarter a charge of $4.7 million was
recorded, reflecting a reduction in discount rates offset slightly by a higher
than expected rate of return on plan assets for the period. An after-tax loss of
$5.0 million was recorded in the fourth quarter of 2011.
SUMMARY OF FINANCIAL POSITION
The following table summarizes CPPI's cash flow and selected ratios for and as
at the end of the following periods:
Q4 Q3 YTD Q4 YTD
(millions of dollars,
except for ratios) 2012 2012 2012 2011 2011
----------------------------------------------------------------------------
Increase (decrease) in
cash and cash
equivalents $ 3.2 $ (15.3) $ 0.8 $ (34.0) $ (66.2)
Operating activities $ 25.8 $ 1.4 $ 87.9 $ 34.1 $ 199.0
Financing activities $ (11.1) $ 3.2 $ (27.3) $ (26.6) $ (188.8)
Investing activities $ (11.5) $ (19.9) $ (59.8) $ (41.5) $ (76.4)
Ratio of current assets
to current liabilities 1.1: 1 2.0 : 1
Net debt to
capitalization 22.3% 20.9%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Changes in Financial Position
Cash generated from operating activities was $25.8 million in the fourth quarter
of 2012, up from $1.4 million generated in the third quarter. The increase
resulted largely from higher operating earnings. Also contributing to the
increase was higher cash generated from working capital movements, principally
related to property insurance and taxes paid in the previous quarter, offset in
part by higher accounts receivable in part reflecting the improved pricing in
the fourth quarter. Compared to the fourth quarter of 2011, cash generated from
operating activities was down by $8.3 million, principally reflecting lower
operating earnings.
Financing activities used cash of $11.1 million in the current quarter, compared
to cash generated of $3.2 million in the previous quarter and cash used of $26.6
million in the fourth quarter of 2011. The current quarter cash flows included
repayment of the $7.0 million drawn on the Company's operating bank loans in the
previous quarter. In the immediately preceding quarter, financing cash outflows
also included dividends of $3.6 million, representing dividends declared and
paid during the quarter. In the fourth quarter of 2011, distributions paid to
unitholders was $22.8 million. Finance payments in the current quarter were $4.1
million, principally relating to interest payments on the Company's debt.
Finance payments in the third quarter of 2012 were $0.2 million primarily
reflecting standby fees for the Company's operating loans, while finance
payments in the fourth quarter of 2011 were at a similar level to the current
quarter.
Cash used in investing activities in the current quarter was comprised of $12.8
million of capital expenditures slightly offset by $1.3 million in cash received
from the Green Transformation Program and other government grants. Capital
expenditures in the current quarter included equipment received related to the
scheduled 2013 upgrades to the Northwood Pulp Mill turbines, as well as
maintenance capital related to outages and payments related to previous period
projects.
Liquidity and Financial Requirements
At December 31, 2012, CPPI had cheques issued in excess of cash on hand of $1.2
million. During the fourth quarter of 2012, the Company obtained a new $110.0
million operating loan facility replacing its previous $40.0 million operating
loan facility. No amounts were drawn on the new bank facility, except for $1.7
million reserved for several standby letters of credit. In addition, the Company
has a separate facility with a maturity date of November 30, 2013, to cover the
$7.5 million standby letter of credit issued to BC Hydro under a power
generation agreement.
CPPI has US$110.0 million of senior debt that is scheduled for repayment on
November 30, 2013. This debt is in the form of unsecured US dollar private
placement notes and bears interest at 6.41%.
The Company remained in compliance with the covenants relating to its operating
loans and long-term debt during the quarter, and expects to remain so for the
foreseeable future.
Dividends
On February 13, 2013, the Board of Directors reinstated the Company's dividend,
declaring a quarterly dividend of $0.05 per share, payable on March 5, 2013 to
shareholders of record on February 26, 2013. In addition, reflecting the
Company's current corporate structure and its latest outlook for 2013, the Board
projects that it will declare further quarterly dividends of $0.05 per share
through the balance of 2013, but will review the issuance of dividends on a
quarterly basis.
OUTLOOK
Pulp
NBSK pulp prices are projected to show a modest improvement through the first
half of 2013, but the outlook for the balance of the year is more uncertain
given the economic challenges in Europe and new hardwood and softwood pulp
capacity currently projected to come online the second half of 2013. For the
month of January, the Company announced an increase in the North American NBSK
pulp list price of US$30 per tonne to US$900 per tonne.
There are no maintenance outages planned for the first quarter of 2013.
Paper
Kraft paper demand was weak at the end of 2012 but low customer inventories
coupled with an anticipated pick up in demand in early 2013 should keep markets
balanced through the first half of 2013. As a result, prices in North America
and Europe are projected to remain relatively stable in the first quarter of
2013.
Canfor Pulp Products Inc.
Condensed Consolidated Balance Sheets
As at As at
December 31, December 31,
(millions of Canadian dollars, unaudited) 2012 2011
----------------------------------------------------------------------------
ASSETS (Note 11)
Current assets
Accounts receivable - Trade $ 61.6 $ 70.8
- Green
Transformation
Program - 19.7
- Other (Note 12) 22.8 20.7
Inventories (Note 2) 134.1 141.6
Prepaid expenses and other assets 8.3 5.8
----------------------------------------------------------------------------
Total current assets 226.8 258.6
----------------------------------------------------------------------------
Property, plant and equipment 530.8 532.0
Other long-term assets 0.4 0.6
----------------------------------------------------------------------------
Total assets $ 758.0 $ 791.2
----------------------------------------------------------------------------
----------------------------------------------------------------------------
LIABILITIES
Current liabilities
Cheques issued in excess of cash on hand $1.2 $ 2.0
Accounts payable and accrued liabilities 93.4 117.9
Current portion of long-term debt (Note
3(b)) 109.4 -
Distributions payable - 7.8
----------------------------------------------------------------------------
Total current liabilities 204.0 127.7
----------------------------------------------------------------------------
Long-term debt (Note 3(b)) - 111.9
Retirement benefit obligations 105.1 94.8
Other long-term provisions 3.6 3.1
Deferred income taxes, net (Note 6) 59.6 -
----------------------------------------------------------------------------
Total liabilities $ 372.3 $ 337.5
----------------------------------------------------------------------------
EQUITY
Share capital (Note 11) $ $525.3 $ 294.9
Retained earnings (deficit) (139.6) (67.3)
Non-controlling interests in the Partnership
(Note 11) - 226.1
----------------------------------------------------------------------------
Total equity $ 385.7 $ 453.7
----------------------------------------------------------------------------
Total liabilities and equity $ 758.0 $ 791.2
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Subsequent Event (Note 13)
The accompanying notes are an integral part of these condensed consolidated
financial statements.
APPROVED BY THE BOARD
Director, S.E. Bracken-Horrocks
Director, R.L. Cliff
Canfor Pulp Products Inc.
Condensed Consolidated Statements of Income (Loss)
3 months ended 12 months ended
December 31, December 31,
(millions of Canadian dollars,
unaudited) 2012 2011 2012 2011
----------------------------------------------------------------------------
Sales (Note 12) $ 201.9 $ 212.7 $ 810.4 $ 941.0
Costs and expenses
Manufacturing and product
costs (Note 12) 136.4 140.0 576.0 579.5
Freight and other distribution
costs 28.8 27.8 116.4 116.0
Amortization 20.0 21.4 67.1 66.8
Selling and administration
costs 5.8 7.0 24.6 25.3
Restructuring and severance
costs - - 1.7 -
----------------------------------------------------------------------------
191.0 196.2 785.8 787.6
----------------------------------------------------------------------------
Operating income 10.9 16.5 24.6 153.4
Finance expense, net (3.4) (2.8) (11.8) (10.9)
Foreign exchange gain (loss) on
long-term debt (1.3) 2.4 2.4 (2.5)
Gain (loss) on derivative
financial instruments (Note 5) (0.1) 1.5 1.7 (1.6)
Foreign exchange gain (loss) on
working capital 0.3 (1.3) (1.2) 1.0
---------------------------------------------------------------------------
Net income before income taxes 6.4 16.3 15.7 139.4
Income tax expense (Note 6) (1.7) (0.5) (2.0) (0.8)
----------------------------------------------------------------------------
Net income $ 4.7 $ 15.8 $ 13.7 $ 138.6
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net income attributable to:
Controlling interest in the
Partnership $ 4.7 $ 8.0 $ 9.4 $ 69.7
Non-controlling interest in the
Partnership (Note 11) - 7.8 4.3 68.9
----------------------------------------------------------------------------
Net income $ 4.7 $ 15.8 $ 13.7 $ 138.6
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net income per common share: (in
dollars)
Attributable to controlling
interest in the Partnership
- Basic and diluted (Note 7) $ 0.07 $ 0.22 $ 0.14 $ 1.94
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Canfor Pulp Products Inc.
Condensed Consolidated Statements of Other Comprehensive Income (Loss)
3 months ended 12 months ended
December 31, December 31,
(millions of Canadian dollars,
unaudited) 2012 2011 2012 2011
----------------------------------------------------------------------------
Net income $ 4.7 $ 15.8 $ 13.7 $ 138.6
Other comprehensive income
(loss)
Defined benefit plan actuarial
losses (Note 4) (2.3) (5.0) (16.6) (17.7)
Income tax recovery on defined
benefit plan actuarial losses
(Note 6) 0.6 - 4.1 -
----------------------------------------------------------------------------
Other comprehensive income
(loss), net of tax (1.7) (5.0) (12.5) (17.7)
----------------------------------------------------------------------------
Total comprehensive income $ 3.0 $ 10.8 $ 1.2 $ 120.9
----------------------------------------------------------------------------
Total comprehensive income
(loss) attributable to:
Controlling interest in the
Partnership $ 3.0 $ 5.5 $ (3.1) $ 60.8
Non-controlling interest in the
Partnership (Note 11) - 5.3 4.3 60.1
----------------------------------------------------------------------------
Total comprehensive income $ 3.0 $ 10.8 $ 1.2 $ 120.9
----------------------------------------------------------------------------
Condensed Consolidated Statements of Changes in Equity
3 months ended 12 months ended
December 31, December 31,
(millions of Canadian
dollars, unaudited) 2012 2011 2012 2011
----------------------------------------------------------------------------
Share capital
Balance at beginning of
period $ 525.3 $ 294.9 $ 294.9 $ 294.9
Exchange transaction (Note
11) - - 230.4 -
----------------------------------------------------------------------------
Balance at end of period $ 525.3 $ 294.9 $ 525.3 $ 294.9
----------------------------------------------------------------------------
Retained earnings (deficit)
Balance at beginning of
period $ (142.6) $ (61.0) $ (67.3) $ (52.9)
Exchange transaction (Note
11) - - (57.8) -
Net income excluding amount
attributable to non-
controlling interest in the
Partnership 4.7 8.0 9.4 69.7
Defined benefit plan
actuarial losses excluding
amount attributable to non-
controlling interest in the
Partnership, net of tax (1.7) (2.5) (12.5) (8.9)
Dividends/distributions
declared excluding amount
attributable to non-
controlling interest in the
Partnership - (11.8) (11.4) (75.2)
----------------------------------------------------------------------------
Balance at end of period $ (139.6) $ (67.3) $ (139.6) $ (67.3)
----------------------------------------------------------------------------
Total equity attributable to
equity holders of the
Company $ 385.7 $ 227.6 $ 385.7 $ 227.6
----------------------------------------------------------------------------
Non-controlling interest in
the Partnership
Balance at beginning of
period $ - $ 232.5 $ 226.1 $ 240.5
Net income attributable to
non-controlling interest in
the Partnership - 7.8 4.3 68.9
Defined benefit plan
actuarial losses
attributable to non-
controlling interest in the
Partnership - (2.5) - (8.8)
Distributions to non-
controlling interest in the
Partnership - (11.7) - (74.5)
Exchange transaction (Note
11) - - (230.4) -
----------------------------------------------------------------------------
Balance at end of period $ - $ 226.1 $ - $ 226.1
----------------------------------------------------------------------------
Total equity $ 385.7 $ 453.7 $ 385.7 $ 453.7
----------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Canfor Pulp Products Inc.
Condensed Consolidated Statements of Cash Flows
3 months ended 12 months ended
December 31, December 31,
(millions of Canadian dollars,
unaudited) 2012 2011 2012 2011
----------------------------------------------------------------------------
Cash generated from (used in):
Operating activities
Net income $ 4.7 $ 15.8 $ 13.7 $ 138.6
Items not affecting cash:
Amortization 20.0 21.4 67.1 66.8
Income tax expense 1.7 0.5 2.0 0.8
Foreign exchange (gain) loss on
long-term debt 1.3 (2.4) (2.4) 2.5
Changes in mark-to-market value
of derivative financial
instruments (0.2) (3.7) 0.4 (1.8)
Employee future benefits (Note
4) (4.1) 0.3 (1.9) 2.2
Net finance expense 3.4 2.8 11.8 10.9
Other, net - - 0.3 0.2
Salary pension plan contributions (1.8) (1.8) (7.6) (7.9)
Income taxes paid, net (1.6) - (7.7) (0.2)
Net change in non-cash working
capital (Note 8) 2.4 1.2 12.2 (13.1)
----------------------------------------------------------------------------
25.8 34.1 87.9 199.0
----------------------------------------------------------------------------
Financing activities
Decrease in operating bank loans (7.0) - - - -
Dividends / distributions paid - (22.8) (19.2) (181.0)
Finance expenses paid (4.1) (3.8) (8.1) (7.8)
----------------------------------------------------------------------------
(11.1) (26.6) (27.3) (188.8)
----------------------------------------------------------------------------
Investing activities
Additions to property, plant and
equipment (12.8) (40.2) (87.6) (68.5)
Expenditures under Green
Transformation Program - (26.6) (1.1) (87.6)
Reimbursements under Green
Transformation Program 0.7 25.2 19.7 75.6
Other government grants received 0.6 - 2.2 3.5
Acquisition of CPPI cash on exchange
(Note 11) - - 6.8 -
Other, net - 0.1 0.2 0.6
----------------------------------------------------------------------------
(11.5) (41.5) (59.8) (76.4)
----------------------------------------------------------------------------
Increase (decrease) in cash and
cash equivalents(i) 3.2 (34.0) 0.8 (66.2)
Cash and cash equivalents at
beginning of period(i) (4.4) 32.0 (2.0) 64.2
----------------------------------------------------------------------------
Cash and cash equivalents at end of
period(i) $ (1.2) $ (2.0) $ (1.2) $ (2.0)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) Cash and cash equivalents include cash on hand less unpresented cheques.
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Canfor Pulp Products Inc.
Notes to the Condensed Consolidated Financial Statements
(unaudited, millions of Canadian dollars unless otherwise noted)
1. Basis of Preparation
These condensed consolidated interim financial statements have been prepared in
accordance with International Accounting Standard ("IAS") 34 Interim Financial
Reporting, and include the accounts of Canfor Pulp Products Inc. ("CPPI") and
its subsidiary entities, including Canfor Pulp Limited Partnership ("the
Partnership"). The Partnership's operations consist of two NBSK pulp mills and
one NBSK pulp and paper mill located in Prince George, British Columbia and a
marketing group based in Vancouver, British Columbia ("the Pulp Business").
On March 2, 2012, Canadian Forest Products Ltd. ("Canfor") exchanged 35,776,483
Class B Exchangeable Limited Partnership Units ("the Exchange"), representing a
50.2% interest in the Partnership, for an equivalent number of CPPI shares
pursuant to the terms of the exchange agreement dated January 1, 2011 between
Canfor, CPPI, the Partnership and Canfor Pulp Holding Inc., the general partner
of the Partnership ("the General Partner"). As a result of the Exchange, CPPI's
interest in both the Partnership and the General Partner increased from 49.8% to
100% and Canfor acquired a 50.2% interest in CPPI (see Note 11).
At December 31, 2012, CPPI held a 100% interest in the Partnership and the
General Partner and Canfor held a 50.2% interest in CPPI.
The condensed consolidated interim financial statements ("the financial
statements") at December 31, 2012 include the accounts of CPPI, the Partnership
and its subsidiaries (together referred to as "CPPI" or "the Company"). Prior to
March 2, 2012 Canfor held a direct controlling interest in the Partnership. For
all periods ending prior to March 2, 2012, the financial statements present the
financial position, results of operations, and cash flows of the Pulp Business
from the perspective of Canfor's controlling interest in the Pulp Business as if
operated as a stand-alone partnership entity subject to Canfor control. The
acquisition of the Partnership by CPPI as a result of the Exchange has been
accounted for as a continuity of interests by applying reverse acquisition
accounting (see Note 11).
The financial statements prior to March 2, 2012 have been prepared on a
Partnership entity basis. Accordingly, no recognition has been made for income
taxes related to Partnership income in the financial statements prior to March
2, 2012. The tax attributes of the Partnership's net assets flowed directly to
the partners.
These interim financial statements do not include all of the disclosures
required by International Financial Reporting Standards ("IFRS") for annual
financial statements. Additional disclosures relevant to the understanding of
these interim financial statements, including the accounting policies applied,
can be found in the Company's Annual Report for the year ended December 31,
2011, available at www.canforpulp.com or www.sedar.com.
The currency of presentation for these financial statements is the Canadian dollar.
Change in accounting policy
Effective January 1, 2012, the Company retroactively changed its accounting
policy for the presentation of interest expense and expected rate of return on
assets of defined benefit post-retirement plans. The net expense has been
reclassified from operating income, where it was included in manufacturing and
product costs, to net finance expense. Management considers the classification
of net pension interest expense with the Company's other interest expense to
provide more relevant information on the operating results of the Company. The
effect on the three months ended December 31, 2012 and twelve months ended
December 31, 2012 is an increase in operating income and net finance expense of
$0.8 million and $3.2 million, respectively (2011 - $0.7 million and $2.9
million, respectively). There is no impact on amounts recorded in the
consolidated balance sheet or opening equity as at January 1, 2012.
Accounting standards issued and not applied
Unless otherwise noted, the following new or revised standards and amendments as
adopted by the IASB are effective for annual periods beginning on or after
January 1, 2013, with earlier application permitted. These new and revised
accounting standards have not yet been adopted by CPPI and the Company does not
plan to early adopt any of these standards.
Consolidation and interests in other entities
In May 2011, as part of its consolidation project, the IASB issued the following
new suite of consolidation and related standards. The suite is intended to cover
all aspects of interests in other entities from determination of how to account
for interests in other entities to required disclosure of the interest in those
entities. Early adoption is permitted provided that the entire suite of
consolidation standards is adopted at the same time.
-- IFRS 10, Consolidated Financial Statements, requires an entity to
consolidate an investee when it has power over the investee, is exposed,
or has rights, to variable returns from its involvements with the
investee and has the ability to affect those returns through its power
over the investee. IFRS 10 replaces SIC-12, Consolidation - Special
Purpose Entities, and parts of IAS 27, Consolidated and Separate
Financial Statements. IFRS 10 is not expected to have a material impact
on amounts recorded in the financial statements of CPPI.
-- IFRS 11, Joint Arrangements, redefines joint operations and joint
ventures with a focus on the rights and obligations of an arrangement,
rather than its legal form. The new Standard requires a venturer to
classify its interest in a joint arrangement as a joint venture or joint
operation. Joint ventures will be accounted for using the equity method
of accounting, whereas for a joint operation the venturer will recognize
its share of the assets, liabilities, revenue and expenses of the joint
operation. IFRS 11 supersedes IAS 31, Interests in Joint Ventures, and
SIC-13, Jointly Controlled Entities - Non-monetary Contributions by
Venturers. IFRS 11 is not expected to have a material impact on amounts
recorded in the financial statements of CPPI.
-- IFRS 12, Disclosure of Interests in Other Entities, carries forward
existing disclosure requirements and introduces additional disclosures
that address the nature of, and risks associated with, an entity's
interests in other entities. IFRS 12 is not expected to have a material
impact on amounts recorded in the financial statements of CPPI.
-- There have been amendments to existing standards, including IAS 27
(2011), Separate Financial Statements, and IAS 28 (2011), Investments in
Associates and Joint Ventures. IAS 27 (2011) addresses accounting for
subsidiaries, jointly controlled entities and associates in non-
consolidated financial statements. IAS 28 (2011) sets out the equity
accounting for joint ventures and associates once the assessment of the
arrangement has been made under IFRS 11. The amendments to IAS 27 and
IAS 28 are not expected to have a material impact on amounts recorded in
the financial statements of the Company.
Employee benefits
-- IAS 19, Employee Benefits, has been amended to make changes to the
recognition and measurement of defined benefit pension expense and
termination benefits and to enhance the disclosure of all employee
benefits. Pension benefit cost will be split between (i) the cost of
benefits accrued in the current period (service cost) and benefit
changes (past-service costs (including plan amendments, settlements and
curtailments)); and (ii) finance expense or income. Interest cost and
expected return on plan assets, which currently reflect different rates,
will be replaced with a net interest amount that is calculated by
applying one discount rate to the net defined benefit liability (asset).
The principal impact on the Company of this portion of the amended
Standard is expected to be an increase in net finance cost as the
Company's return on plan assets will effectively be estimated at a lower
rate.
The amended Standard also requires immediate recognition of actuarial
gains and losses in other comprehensive income as they arise, without
subsequent recycling to net income. This is consistent with the
Company's current accounting policy.
In addition, under the amended Standard, the impact of plan amendments
related to past service will no longer be recognized over a vesting
period but instead will be recognized immediately in the period of a
plan amendment.
The amended Standard will result in an increase in operating income of
approximately $1.1 million offset by an increase in finance expense of
approximately $1.4 million in the 2012 comparative financial statements.
Other standards and amendments
-- IFRS 9, Financial Instruments, addresses classification and measurement
of financial assets and financial liabilities, and is effective January
1, 2015, with earlier adoption permitted. The new Standard limits the
number of categories for classification of financial assets to two:
amortized cost and fair value through profit or loss. IFRS 9 also
replaces the models for measuring equity instruments. Equity instruments
are either recognized at fair value through profit or loss or at fair
value through other comprehensive income. IFRS 9 is not expected to have
a material impact on amounts recorded in the financial statements of
CPPI.
-- IFRS 13, Fair Value Measurement, clarifies that fair value is the price
that would be received on sale of an asset, or paid to transfer a
liability in an orderly transaction between market participants, at the
measurement date. IFRS 13 is not expected to have a material impact on
amounts recorded in the financial statements of CPPI.
-- IAS 1, Presentation of Financial Statements, has been amended to require
entities to separate items presented in other comprehensive income
("OCI") into two groups, based on whether or not items may be recycled
to net income in the future. The amendment is effective for annual
periods beginning on or after July 1, 2012, with earlier application
permitted. IAS 1 is not expected to have a material impact on amounts
recorded in the financial statements of CPPI.
2. Inventories
(millions of Canadian dollars) As at As at
December 31, 2012 December 31, 2011
----------------------------------------------------------------------------
Pulp $ 59.4 $ 64.1
Paper 18.2 17.0
Wood chips 10.9 16.0
Materials and supplies 45.6 44.5
----------------------------------------------------------------------------
$ 134.1 $ 141.6
----------------------------------------------------------------------------
----------------------------------------------------------------------------
3. Operating Loans and Long-Term Debt
(a) Available Operating Loans
As at
As at December 31,
(millions of Canadian dollars) December 31, 2012 2011
----------------------------------------------------------------------------
Operating loan facility $ 110.0 $ 40.0
Bridge loan credit facility
(maximum $30.0 million) - 19.7
Facility for BC Hydro letter of
credit 7.5 10.4
----------------------------------------------------------------------------
Total operating loans 117.5 70.1
Drawn - -
Letters of credit (for general
business purposes) (1.7) (0.5)
BC Hydro letter of credit (7.5) (10.4)
----------------------------------------------------------------------------
Total available operating loans $ 108.3 $ 59.2
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The terms of the Company's operating loan facility include interest payable at
floating rates that vary depending on the ratio of net debt to operating
earnings before interest, taxes, depreciation, amortization and certain other
non-cash items, and is based on the lenders' Canadian prime rate, bankers
acceptances, US dollar base rate or US dollar LIBOR rate, plus a margin. In the
fourth quarter of 2012, CPLP entered into a new $110.0 million operating loan
facility replacing its previous $40.0 million operating loan facility. The new
facility has certain financial covenants that stipulate maximum net debt to
total capitalization ratios and minimum net worth amounts based on shareholders'
equity. The maturity date of the new facility is November 13, 2016.
During the third quarter of 2012, the Company terminated its $30.0 million
bridge loan credit facility in conjunction with the completion of the Canadian
Federal Government Green Transformation Program ("Program"). The facility was
used to fund timing differences between expenditures and reimbursements for
projects funded by the Program. The Company has a separate facility with a
maturity date of November 30, 2013 to cover a $7.5 million standby letter of
credit issued to BC Hydro.
As at December 31, 2012, the Company was in compliance with all covenants
relating to its operating loans.
(b) Long-Term Debt
At December 31, 2012, the fair value of the Company's long-term debt, which was
measured at its amortized cost of $109.4 million (US$110.0 million), was $113.6
million (2011-$117.4 million). The fair value was determined based on prevailing
market rates for long-term debt with similar characteristics and risk profile.
4. Employee Future Benefits
The Company measures its accrued benefit obligations and the fair value of plan
assets for accounting purposes as at December 31 of each year. At the end of
each interim reporting period, the Company estimates movements in its accrued
benefit liabilities based upon movements in discount rates and the rates of
return on plan assets, as well as any significant changes to the plans.
Adjustments are also made for payments made and current service and interest
costs.
For the twelve months ended December 31, 2012, $16.6 million (before tax) was
charged to other comprehensive income. The charge reflects a reduction in the
discount rate used to value the plan obligations offset slightly by a higher
than expected rate of return on plan assets for the period. For the three months
ended December 31, 2012, the charge was $2.3 million (before tax). For the
twelve months ended December 31, 2011, a pre-tax amount of $17.7 million was
charged to other comprehensive income principally reflecting a decrease in the
discount rate over the period. For the three months ended December 31, 2011 the
pre-tax charge was $5.0 million.
During the fourth quarter of 2012, the Company amended the salaried post
retirement benefit plans for certain CPPI employees and retirees. The amendments
reduced the Company's retirement benefit obligation by $5.3 million (before
tax). As a result of the plan amendments, CPPI recognized an accounting gain of
$4.0 million (before tax) for vested past-service costs and deferred a gain of
$1.3 million (before tax) for unvested past-service costs.
For the Company's single largest pension plan, a one percentage point increase
in the rate of return on plan assets over the year would reduce the funded
deficit by an estimated $0.8 million. A one percentage point increase in the
discount rate used in calculating the actuarial estimate of future liabilities
would reduce the funded deficit by an estimated $12.8 million.
The assumptions used to estimate the changes in net accrued benefit liabilities
were as follows:
----------------------------------------------------------------------------
Pension Benefit Plans
Discount rate
December 31, 2012 4.20%
September 30, 2012 4.30%
December 31, 2011 5.00%
September 30, 2011 5.00%
January 1, 2011 5.50%
Rate of return on plan assets
12 months ended December 31, 2012 9.50%
9 months ended September 30, 2012 6.60%
12 months ended December 31, 2011 2.50%
9 months ended September 30, 2011 (2.50)%
----------------------------------------------------------------------------
Other Benefit Plans
Discount rate
December 31, 2012 4.40%
September 30, 2012 4.50%
December 31, 2011 5.30%
September 30, 2011 5.40%
January 1, 2011 5.75%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
5. Derivative Financial Instruments
The Company uses a variety of derivative financial instruments to reduce its
exposure to risks associated with fluctuations in foreign exchange rates, energy
costs and interest rates. At December 31, 2012, the fair value of derivative
financial instruments was a net asset of $0.1 million December 31, 2012 (2011 -
net asset of $0.4 million). The fair value of these financial instruments was
determined based on prevailing market rates for instruments with similar
characteristics.
The following table summarizes the gain (loss) on derivative financial
instruments for the three and twelve months ended December 31, 2012 and 2011:
3 months ended 12 months ended
December 31, December 31,
(millions of Canadian dollars) 2012 2011 2012 2011
----------------------------------------------------------------------------
Foreign exchange collars and
forward contracts $ (0.2) $ 1.4 $ 1.7 $ (1.6)
Crude oil collars 0.1 0.1 - 0.1
Natural gas swaps - - - (0.1)
----------------------------------------------------------------------------
$ (0.1) $ 1.5 $ 1.7 $ (1.6)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The following table summarizes the fair value of the derivative financial
instruments included in the balance sheet at December 31, 2012 and 2011:
As at As at
December 31, December 31,
(millions of Canadian dollars) 2012 2011
----------------------------------------------------------------------------
Foreign exchange collars and forward contracts $ - $ 0.3
Crude oil collars 0.1 0.1
----------------------------------------------------------------------------
Net current asset (liability) $ 0.1 $ 0.4
----------------------------------------------------------------------------
----------------------------------------------------------------------------
6. Income Taxes
Income tax expense includes current tax expense on income for the March 2, 2012
to December 31, 2012 period. Prior to the Exchange on March 2, 2012, taxes were
minimal reflecting the non-taxable status of the Partnership (Note 11).
3 months ended 12 months ended
(millions of Canadian dollars) December 31, 2012 December 31, 2012
----------------------------------------------------------------------------
Current $ (2.0) $ (1.4)
Deferred 0.3 (0.6)
----------------------------------------------------------------------------
Income tax expense $ (1.7) $ (2.0)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The reconciliation of income taxes calculated at the statutory rate to the
actual income tax provision is as follows:
3 months ended 12 months ended
(millions of Canadian dollars) December 31, 2012 December 31, 2012
----------------------------------------------------------------------------
Income tax expense at statutory rate
2012 - 25.0% $ (1.6) $ (3.9)
Add (deduct):
Tax recovery (expense) at rates
other than statutory rate 0.1 (0.1)
Permanent difference from capital
gains and other non-deductible
items (0.2) 0.2
Permanent difference - exchange
transaction - 0.9
Tax included in equity - exchange
transaction - 0.9
----------------------------------------------------------------------------
Income tax expense $ (1.7) $ (2.0)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
In addition to the amounts recorded to net income, a tax recovery of $0.6
million was recorded to other comprehensive income for the three month period
ended December 31, 2012 in relation to the actuarial losses on defined benefit
employee compensation plans. For the twelve months ended December 31, 2012, the
related tax recovery was $4.1 million.
The tax effects of the significant components of temporary differences that give
rise to deferred income tax assets and liabilities are as follows:
As at
(millions of Canadian dollars) December 31,
2012
----------------------------------------------------------------------------
Deferred income tax assets
Retirement benefit obligations $ 26.0
Other 1.6
----------------------------------------------------------------------------
$ 27.6
----------------------------------------------------------------------------
Deferred income tax liabilities
Depreciable capital assets $ (84.9)
Unrealized foreign exchange gains on debt (current) (2.0)
Other (0.3)
----------------------------------------------------------------------------
$ (87.2)
----------------------------------------------------------------------------
Total deferred income taxes, net $ (59.6)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
7. Earnings Per Share
Basic net income per share is calculated by dividing the net income available to
common shareholders by the weighted average number of common shares outstanding
during the period. As a result of the exchange transaction and the application
of reverse acquisition accounting, the CPPI shares relating to the
non-controlling interest shareholders were not included until March 2, 2012.
This transaction led to an increase in the weighted average number of shares
outstanding, with 71,269,790 shares outstanding as at December 31, 2012. The
issuance of the new shares as a result of the exchange was accompanied by a
corresponding increase in CPPI's investment in the Partnership and as a result
there is no dilution of CPPI's net income per share.
3 months ended December 31, 12 months ended December 30,
2012 2011 2012 2011
----------------------------------------------------------------------------
Weighted average 71,269,790 35,776,483 65,257,263 35,776,483
number of common
shares
----------------------------------------------------------------------------
----------------------------------------------------------------------------
8. Net Change in Non-Cash Working Capital
3 months ended December 12 months ended December
31, 31,
(millions of Canadian
dollars) 2012 2011 2012 2011
----------------------------------------------------------------------------
Accounts receivable $ (1.7) $ 41.8 $ 10.9 $ 32.5
Inventories (1.5) (9.4) 7.4 (18.1)
Prepaid expenses and
other assets 6.9 3.6 (2.5) 5.2
Accounts payable and
accrued liabilities (1.3) (34.8) (3.6) (32.7)
----------------------------------------------------------------------------
Net decrease (increase)
in non-cash working
capital $ 2.4 $ 1.2 $ 12.2 $ (13.1)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
9. Segment Information
The Company has two reportable segments which operate as separate business units
and represent separate product lines.
Sales between pulp and paper segments are accounted for at prices that
approximate fair value. These include sales of slush pulp from the pulp segment
to the paper segment.
(millions of Canadian Elimination
dollars) Pulp Paper Unallocated Adjustment Consolidated
----------------------------------------------------------------------------
3 months ended
December 31, 2012
Sales to external
customers $ 168.2 33.7 - - $ 201.9
Sales to other
segments $ 18.0 - - (18.0) $ -
Operating income
(loss) $ 6.8 6.9 (2.8) - $ 10.9
Amortization $ 19.0 1.0 - - $ 20.0
Capital
expenditures(1) $ 12.3 0.3 0.2 - $ 12.8
----------------------------------------------------------------------------
3 months ended
December 31, 2011
Sales to external
customers $ 179.1 33.5 0.1 - $ 212.7
Sales to other
segments $ 19.9 - - (19.9) $ -
Operating income
(loss) $ 16.7 3.4 (3.6) - $ 16.5
Amortization $ 20.4 1.0 - - $ 21.4
Capital
expenditures(1) $ 66.0 0.7 0.1 - $ 66.8
----------------------------------------------------------------------------
----------------------------------------------------------------------------
12 months ended
December 31, 2012
Sales to external
customers $ 675.0 134.6 0.8 - $ 810.4
Sales to other
segments $ 67.2 - - (67.2) $ -
Operating income
(loss) $ 19.2 19.4 (14.0) - $ 24.6
Amortization $ 63.2 3.8 0.1 - $ 67.1
Capital
expenditures(1) $ 86.9 1.1 0.7 - $ 88.7
Identifiable assets $ 670.9 64.6 22.5 - $ 758.0
----------------------------------------------------------------------------
12 months ended
December 31, 2011
Sales to external
customers $ 802.9 136.6 1.5 - $ 941.0
Sales to other
segments $ 87.9 - - (87.9) $ -
Operating income
(loss) $ 157.5 9.5 (13.6) - $ 153.4
Amortization $ 63.0 3.6 0.2 - $ 66.8
Capital
expenditures(1) $ 152.2 2.8 1.1 - $ 156.1
Identifiable assets $ 702.5 63.8 24.9 - $ 791.2
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Capital expenditures represent cash paid for capital assets during the
period and include capital expenditures financed by federal government-
funded Green Transformation Program and other government grants.
10. Related Party Transactions
The Company depends on Canfor to provide approximately 59% (2011 - 54%) of its
fibre supply as well as to provide certain key business and administrative
services as described below. As a result of these relationships the Company
considers its operations to be dependent on its ongoing relationship with
Canfor.
The transactions with Canfor are consistent with the transactions described in
the December 31, 2011 audited consolidated financial statements of CPPI and the
Partnership and are based on agreed upon amounts between the parties.
Transactions and payables to Canfor include purchases of wood chips, pulp and
administrative services. These are summarized below:
3 months ended December 31, 12 months ended December 31,
(millions of Canadian
dollars) 2012 2011 2012 2011
----------------------------------------------------------------------------
Transactions
Canfor - purchase of wood
chips and other $ 25.7 $ 29.6 $ 104.9 $ 119.0
----------------------------------------------------------------------------
----------------------------------------------------------------------------
As at As at
December 31, December 31,
(millions of Canadian dollars) 2012 2011
----------------------------------------------------------------------------
Balance Sheet
Included in accounts payable and accrued
liabilities:
Canfor $ 12.9 $ 18.2
Lakeland - 0.9
Included in trade and other accounts
receivable:
Products marketed for Canfor $ 4.4 $ 3.2
Canfor(1) 3.0 -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Market rate of interest is charged on all amounts receivable from Canfor.
11. Acquisition of Interest in Canfor Pulp Limited Partnership
As a result of the Exchange described in Note 1, CPPI increased its interest in
both the Partnership and the General Partner from 49.8% to 100% and Canfor
acquired a 50.2% interest in CPPI.
The transaction was accounted for as a reverse acquisition under IFRS, with
Canfor's interest in the Pulp Business being the acquirer for accounting
purposes and CPPI the acquiree for accounting purposes. The Pulp Business is
continuing to operate under CPPI, the legal parent. The financial statements
have been presented, along with the comparative periods, from the accounting
perspective that Canfor's interest in the Pulp Business is the continuing entity
after the exchange transaction as it has gained control of the Company through a
reverse transaction. Prior to March 2, 2012 49.8% of the Pulp Business was held
by CPPI and reflected as non-controlling interest. Net income and comprehensive
income attributable to CPPI's non-controlling interest in the Pulp business was
$4.3 million for the twelve months ended December 31, 2012. Canfor's interest in
the Pulp Business was deemed to acquire CPPI on March 2, 2012, and as a result
of the transaction non-controlling interest of $230.4 million was eliminated and
35,493,307 shares in the amount of $230.4 million were deemed issued and
included in share capital.
The condensed consolidated financial statements include the balance sheets,
statements of income, statements of other comprehensive income, statements of
changes in equity, and cash flows of CPPI, the Partnership and the subsidiaries
of those entities from March 2, 2012.
Management estimates that the fair value of CPPI's assets and liabilities
approximate their carrying values at March 2, 2012 (note - CPPI's investment in
the Partnership eliminates upon consolidation). Excluding the investment in the
Partnership, the carrying values of the assets and liabilities of CPPI at March
2, 2012 were as follows:
As at
March 2,
(millions of Canadian dollars) 2012
----------------------------------------------------------------------------
Assets acquired:
Cash and cash equivalents $ 6.8
Liabilities assumed:
Due to Canfor Pulp Limited Partnership $ 0.1
Income taxes payable $ 0.2
Deferred income tax liability $ 31.4
----------------------------------------------------------------------------
----------------------------------------------------------------------------
As a result of the exchange there was no change in control for the Pulp
Business. The difference between the carrying value of the non-controlling
interest and the assets and liabilities acquired was recognized directly in
equity as a charge to retained earnings (deficit).
(millions of Canadian dollars) Total
----------------------------------------------------------------------------
Cash $ 6.8
Deferred taxes (63.2)
Income taxes payable (1.3)
Other liabilities (0.1)
----------------------------------------------------------------------------
Charge to retained earnings (deficit) as at March 2, 2012 $ (57.8)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
12. Insurance Claim Receivable
During the second quarter of 2012, an incident at the Northwood Pulp Mill
resulted in an unscheduled shutdown and subsequent repairs. The Company
recognized a property damage insurance receivable of $5.6 million, which
substantially offset the additional maintenance costs related to this incident.
This amount was included as a reduction in Manufacturing and Product Costs in
the income statement in the second quarter of 2012 and in the twelve months
ended December 31, 2012.
The Company recognized a business interruption insurance receivable of $9.7
million, less a deductible of $5.0 million, to recover the estimated impact of
year to date lost production. Of the net insurance proceeds of $4.7 million,
$3.7 million was included in Sales in the second quarter of 2012 and an
additional $1.0 million was included in the third quarter of 2012.
As at December 31, 2012, the total insurance receivable amount, net of advances
received, of $6.3 million is included within Other Accounts Receivable.
13. Subsequent Event
On February 13, 2013, the Board of Directors reinstated the Company's dividend,
declaring a quarterly dividend of $0.05 per share, payable on March 5, 2013 to
shareholders of record on February 26, 2013.
FOR FURTHER INFORMATION PLEASE CONTACT:
Media Contact:
Christine Kennedy
Canfor's Vice President, Public Affairs &
Corporate Communications
(604) 661-5225
Christine.Kennedy@canfor.com
Investor Contact:
Pat Elliott
Canfor's Vice President & Treasurer
(604) 661-5441
Patrick.Elliott@canfor.com
Richard Remesch
Corporate Controller
(604) 661-5221
Rick.Remesch@canforpulp.com
www.canforpulp.com
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