Canfor Corporation (TSX:CFP) today reported net income attributable to
shareholders ("shareholder net income") of $45.5 million, or $0.33 per share,
for the first quarter of 2014, compared to $28.0 million, or $0.20 per share,
for the fourth quarter of 2013 and $61.9 million, or $0.43 per share, for the
first quarter of 2013.
The following table summarizes selected financial information for the Company
for the comparative periods:
Q1 Q4 Q1
(millions of Canadian dollars,
except per share amounts) 2014 2013 2013
--------------------------------------------------------------------------
Sales $ 741.9 $ 809.5 $ 786.3
Operating income, as reported $ 84.4 $ 53.8 $ 100.0
Operating income, adjusted for one-
time items $ 84.4 $ 74.9 $ 100.0
Net income attributable to equity
shareholders of the Company $ 45.5 $ 28.0 $ 61.9
Net income per share attributable
to equity shareholders of the
Company, basic and diluted $ 0.33 $ 0.20 $ 0.43
Adjusted shareholder net income $ 46.4 $ 48.8 $ 70.3
Adjusted shareholder net income per
share, basic and diluted $ 0.34 $ 0.35 $ 0.49
--------------------------------------------------------------------------
--------------------------------------------------------------------------
After adjusting for items affecting comparability with the prior periods, the
Company's adjusted shareholder net income for the first quarter of 2014 was
$46.4 million, or $0.34 per share, compared to an adjusted shareholder net
income of $48.8 million, or $0.35 per share, for the fourth quarter of 2013.
Canfor's adjusted shareholder net income for the first quarter of 2013 was $70.3
million, or $0.49 per share.
The Company reported operating income of $84.4 million for the first quarter of
2014, compared to operating income of $53.8 million for the fourth quarter of
2013. After adjusting for one-time costs in the previous quarter, most notably
costs associated with the announced closure of the Company's Quesnel Sawmill,
operating income for the current quarter was up $9.5 million. The modest
improvement in operating income was largely attributable to gains in lumber and
pulp sales realizations, with both benefitting from a weaker Canadian dollar.
These gains were partially offset by significantly lower lumber and pulp
shipments resulting from abnormally severe winter weather which limited railcar
supply to Western Canada, and a 28-day truckers' strike at Canada's largest port
in Vancouver, British Columbia.
The harsh winter weather conditions also curtailed home construction activity
across much of North America in the current quarter. U.S. housing starts
averaged 923,000 units SAAR (seasonally adjusted annual rate), down 8% from the
previous quarter. In Canada, housing starts were down 11% from the fourth
quarter of 2013, to 175,000 units SAAR. Offshore demand was stable but the
truckers' strike at the port in Vancouver materially impacted lumber shipments.
The Company's lumber sales realizations in North America were up from the
previous quarter, largely due to a 5% weaker Canadian dollar and, to a lesser
extent, the absence of export taxes on U.S. bound shipments (for the Company's
Canadian operations) compared to the previous quarter. U.S. dollar prices for
North American products saw little change quarter-over-quarter, with a US$3
decrease in the benchmark North American Random Lengths Western Spruce/Pine/Fir
("SPF") 2X4 #2&Btr price to US$367 per Mfbm, offset by modest increases in
several other grades and dimensions. Overall sales realizations for Southern
Yellow Pine ("SYP") products saw modest increases compared to the previous
quarter, with a US$12 per Mfbm, or 3%, decrease in the benchmark SYP 2x4 #2
price, more than offset by moderate gains in wider dimension products. Offshore
sales realizations (in US$) saw moderate gains in the current quarter, for the
most part reflecting stable demand and improved prices, the latter partly
reflecting negotiated monthly or quarterly pricing.
Lumber shipments were down 16% from the previous quarter reflecting the
aforementioned transportation challenges, while lumber production was up 3%,
primarily the result of more operating hours mainly due to the Christmas period
in the previous quarter as well as additional shifts in the current period at
the Company's southern pine operations. Production in the current quarter
continued to be impacted by capital related downtime and ramp-ups, as well as
the closure of the Company's Quesnel Sawmill in mid-March. Unit manufacturing
costs were higher compared to the previous quarter, reflecting a modest increase
in unit log costs, principally driven by market-related increases in stumpage,
coupled with higher seasonal and market-related energy costs and continued dust
control efforts, all of which were partly offset by the favourable impact on
unit costs from higher production.
Global softwood pulp markets showed a modest improvement in all major regions in
the first quarter of 2014, while global softwood pulp producer inventory levels
remained balanced over the period increasing 1 day from the end of December
2013, to 28 days' supply in March 2014. Average Northern Bleached Softwood Kraft
("NBSK") pulp list prices saw solid gains in all regions during the first
quarter of 2014, with the North American NBSK pulp list price increasing US$34,
or 3%, from the previous quarter to US$1,017 per tonne (the highest level in
almost three years), while list prices to China and Europe saw gains of 2%.
Current quarter pulp sales realizations were also buoyed by the weaker Canadian
dollar and proportionately higher shipments to the higher-margin U.S. market.
Pulp shipments were down 74,000 tonnes, or 22%, from the prior quarter, largely
reflecting the transportation challenges experienced in the quarter. Pulp
production levels were up 4% from the previous quarter, mainly as a result of an
improvement in operating rates as the quarter progressed and a scheduled
maintenance outage at Canfor Pulp's Prince George Pulp Mill in the previous
quarter. Pulp unit manufacturing costs were up slightly compared to the previous
quarter, with the favourable impact of increased production more than offset by
higher market prices for sawmill residual chips and higher energy costs, the
latter reflecting both seasonally higher consumption as well as natural gas
price increases.
On March 28, 2014, the Company completed the sale of its Daaquam Sawmill. Total
proceeds related to the disposition of the Daaquam operation approximated $25
million.
Commenting on the first quarter performance, Canfor's President and Chief
Executive Officer, Don Kayne, said, "Despite the many challenges presented by
weather and transportation related disruptions, we continued to see progress
during the quarter from the significant capital investments made at our lumber
and pulp facilities in recent years."
Looking ahead, North American lumber consumption is forecast to rebound in the
second quarter of 2014, as warmer weather contributes to stronger demand in the
residential construction market. Lumber shipments across North America are
anticipated to improve through the second and third quarters of 2014, releasing
the backlog of shipments caused by the shortage of railcars earlier in 2014.
Offshore lumber markets are projected to remain stable, supported by steady
demand from Asia and other emerging markets. Delayed offshore lumber shipments
resulting from the truckers' strike at the Vancouver Port are forecast to be
largely cleared through the second quarter of 2014. NBSK pulp markets are
projected to face challenges by the middle of the year; a risk of price weakness
remains due in part to the significant new hardwood pulp capacity forecast to
come online through 2014. Canfor Pulp anticipates that it will clear its
transportation-related backlog of finished inventories by early in the third
quarter of 2014.
Additional Information and Conference Call
A conference call to discuss the first quarter's financial and operating results
will be held on Thursday, May 1, 2014 at 8:00 AM Pacific time. To participate in
the call, please dial 416-340-9534 or Toll-Free 800-952-6845. For instant replay
access until May 15, 2014, please dial 800-408-3053 and enter participant pass
code 6959461#. The conference call will be webcast live and will be available at
www.canfor.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.canfor.com/investor-relations/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.
Canfor is a leading integrated forest products company based in Vancouver,
British Columbia ("BC") with interests in BC, Alberta, North and South Carolina
and Alabama. Canfor produces primarily softwood lumber and also produces
bleached chemi-thermo mechanical pulp and specialized wood products. Canfor also
owns a 50.4% interest in Canfor Pulp Products Inc., which is one of the largest
producers of northern bleached softwood kraft pulp in Canada and a leading
producer of high performance kraft paper. Canfor shares are traded on the
Toronto Stock Exchange under the symbol CFP.
Canfor Corporation
First Quarter 2014
Management's Discussion and Analysis
This interim Management's Discussion and Analysis ("MD&A") provides a review of
Canfor Corporation's ("Canfor" or "the Company") financial performance for the
quarter ended March 31, 2014 relative to the quarters ended December 31, 2013
and March 31, 2013, and the financial position of the Company at March 31, 2014.
It should be read in conjunction with Canfor's unaudited interim consolidated
financial statements and accompanying notes for the quarters ended March 31,
2014 and 2013, as well as the 2013 annual MD&A and the 2013 audited consolidated
financial statements and notes thereto, which are included in Canfor's Annual
Report for the year ended December 31, 2013 (available at www.canfor.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 Canfor considers to be a relevant indicator for measuring
trends in the performance of each of its operating segments and the Company's
ability to generate funds to meet its debt repayment and capital expenditure
requirements. Reference is also made to Adjusted Shareholder Net Income (Loss)
(calculated as Shareholder Net Income (Loss) less specific items affecting
comparability with prior periods - for the full calculation, see reconciliation
included in the section "Analysis of Specific Material Items Affecting
Comparability of Shareholder Net Income (Loss)") and Adjusted Shareholder Net
Income (Loss) per Share (calculated as Adjusted Shareholder Net Income (Loss)
divided by the weighted average number of shares outstanding during the period).
Operating Income before Amortization and Adjusted Shareholder Net Income (Loss)
and Adjusted Shareholder Net Income (Loss) per Share are not generally accepted
earnings measures 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 these measures, Canfor's Operating Income before
Amortization, Adjusted Shareholder Net Income (Loss) and Adjusted Shareholder
Net Income (Loss) per Share may not be directly comparable with similarly titled
measures used by other companies. Reconciliations of Operating Income before
Amortization to Operating Income (Loss) and Adjusted Shareholder Net Income
(Loss) to Net Income (Loss) reported in accordance with IFRS are 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 Canfor.
All financial references are in millions of Canadian dollars unless otherwise
noted. The information in this report is as at April 29, 2014.
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.
FIRST QUARTER 2014 OVERVIEW
Selected Financial Information and Statistics
Q1 Q4 Q1
(millions of Canadian dollars,
except per share amounts) 2014 2013 2013
-------------------------------------------------------------------------
Operating income (loss) by segment:
Lumber $ 56.4 $ 37.4 $ 88.4
Pulp and Paper $ 36.5 $ 23.2 $ 18.9
Unallocated and Other $ (8.5) $ (6.8) $ (7.3)
-------------------------------------------------------------------------
Total operating income $ 84.4 $ 53.8 $ 100.0
Add: Amortization $ 44.5 $ 44.9 $ 46.9
-------------------------------------------------------------------------
Total operating income before
amortization $ 128.9 $ 98.7 $ 146.9
Add (deduct):
Working capital movements $ (177.8) $ (14.5) $ (94.5)
Defined benefit pension plan
contributions $ (13.5) $ (14.0) $ (13.5)
Other operating cash flows, net(1) $ 12.3 $ 28.6 $ 17.1
-------------------------------------------------------------------------
Cash from (used in) operating
activities $ (50.1) $ 98.8 $ 56.0
Add (deduct):
Finance expenses paid $ (2.8) $ (5.9) $ (2.5)
Distributions paid to non-
controlling interests $ (2.1) $ (2.4) $ (2.4)
Capital additions, net $ (53.1) $ (67.5) $ (46.4)
Investment in Scotch & Gulf
Lumber, LLC $ - $ (0.5) $ -
Loan to Scotch & Gulf Lumber, LLC $ 2.6 $ 2.1 $ -
Repayment of long-term debt, net $ - $ (66.6) $ -
Other, net $ (2.9) $ (33.0) $ 5.6
-------------------------------------------------------------------------
Change in cash / operating loans $ (108.4) $ (75.0) $ 10.3
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Quarterly ROIC - Consolidated(2) 3.5% 2.0% 4.8%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Average exchange rate (US$ per
C$1.00)(3) $ 0.906 $ 0.953 $ 0.991
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Other operating cash flows in the fourth quarter of 2013 include a $20.0
million accounting provision for the closure of the Company's Quesnel
Sawmill. Further information on operating cash flows can be found in the
Company's unaudited interim consolidated financial statements.
(2) Consolidated Return on Invested Capital ("ROIC") is equal to operating
income/loss, plus realized gains/losses on derivatives, equity income/loss
from joint venture and other income/expense, all net of minority interest,
divided by the average invested capital during the period. Invested capital
is equal to capital assets, plus long-term investments and net non-cash
working capital, all excluding minority interest components.
(3) Source - Bank of Canada (average noon rate for the period).
Analysis of Specific Material Items Affecting Comparability of Shareholder Net
Income
After-tax impact, net of non-
controlling interests Q1 Q4 Q1
(millions of Canadian dollars,
except per share amounts) 2014 2013 2013
-------------------------------------------------------------------------
Shareholder net income, as reported $ 45.5 $ 28.0 $ 61.9
(Gain) loss on derivative financial
instruments $ 2.1 0.1 (2.2)
Gain on sale of Daaquam Sawmill $ (1.6) $ - $ -
Foreign exchange loss on long-term
debt $ - $ 1.5 $ 2.3
Mill closure provisions $ - $ 14.8 $ -
One-time costs associated with
collective agreements for the
lumber business $ - $ 0.8 $ -
Loss on sale of Canfor-LP OSB(4) $ 0.4 $ 3.6 $ -
Canfor's 50% interest in Canfor-LP
OSB's income, net of tax(4) $ - $ - $ 8.3
-------------------------------------------------------------------------
Net impact of above items $ 0.9 $ 20.8 $ 8.4
-------------------------------------------------------------------------
Adjusted shareholder net income $ 46.4 $ 48.8 $ 70.3
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Shareholder net income per share
(EPS), as reported $ 0.33 $ 0.20 $ 0.43
Net impact of above items per share $ 0.01 $ 0.15 $ 0.06
-------------------------------------------------------------------------
Adjusted shareholder net income per
share $ 0.34 $ 0.35 $ 0.49
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(4) The Company completed the sale of its 50% share of the Canfor-LP OSB
Limited Partnership ("Canfor-LP OSB") in the second quarter of 2013 and
recorded a gain of $33.4 million (after tax). As part of the sale, Canfor
may receive additional annual consideration over a 3 year period, starting
June 1, 2013, based on Peace Valley OSB's annual adjusted earnings before
interest, tax, depreciation and amortization. An asset was recorded based on
the fair value of this additional consideration and will be adjusted to
current estimated fair value each reporting period. Based on the estimated
fair value at March 31, 2014, a loss of $0.4 million (after tax) was
recorded in the first quarter of 2014.
The Company reported operating income of $84.4 million for the first quarter of
2014, compared to operating income of $53.8 million for the fourth quarter of
2013. After adjusting for one-time costs in the previous quarter, most notably
costs associated with the announced closure of the Company's Quesnel Sawmill,
operating income for the current quarter was up $9.5 million. The modest
improvement in operating income was largely attributable to gains in lumber and
pulp sales realizations, with both benefitting from a weaker Canadian dollar.
These gains were partially offset by significantly lower lumber and pulp
shipments resulting from abnormally severe winter weather which limited railcar
supply to Western Canada, and a 28-day truckers' strike at Canada's largest port
in Vancouver, British Columbia.
The harsh winter weather conditions also curtailed home construction activity
across much of North America in the current quarter. U.S. housing starts
averaged 923,000 units SAAR (seasonally adjusted annual rate), down 8% from the
previous quarter. In Canada, housing starts were down 11% from the fourth
quarter of 2013, to 175,000 units SAAR. Offshore demand was stable but the
truckers' strike at the port in Vancouver materially impacted lumber shipments.
The Company's lumber sales realizations in North America were up from the
previous quarter, largely due to a 5% weaker Canadian dollar and, to a lesser
extent, the absence of export taxes on U.S. bound shipments (for the Company's
Canadian operations) compared to the previous quarter. U.S. dollar prices for
North American products saw little change quarter-over-quarter, with a US$3
decrease in the benchmark North American Random Lengths Western Spruce/Pine/Fir
("SPF") 2X4 #2&Btr price to US$367 per Mfbm, offset by modest increases in
several other grades and dimensions. Overall sales realizations for Southern
Yellow Pine ("SYP") products saw modest increases compared to the previous
quarter, with a US$12 per Mfbm, or 3%, decrease in the benchmark SYP 2x4 #2
price, more than offset by moderate gains in wider dimension products. Offshore
sales realizations (in US$) saw moderate gains in the current quarter, for the
most part reflecting stable demand and improved prices, the latter partly
reflecting negotiated monthly or quarterly pricing.
Lumber shipments were down 16% from the previous quarter reflecting the
aforementioned transportation challenges, while lumber production was up 3%,
primarily the result of more operating hours mainly due to the Christmas period
in the previous quarter as well as additional shifts in the current period at
the Company's southern pine operations. Production in the current quarter
continued to be impacted by capital related downtime and ramp-ups, as well as
the closure of the Company's Quesnel Sawmill in mid-March. Unit manufacturing
costs were higher compared to the previous quarter, reflecting a modest increase
in unit log costs, principally driven by market-related increases in stumpage,
coupled with higher seasonal and market-related energy costs and continued dust
control efforts, all of which were partly offset by the favourable impact on
unit costs from higher production.
Global softwood pulp markets showed a modest improvement in all major regions in
the first quarter of 2014, while global softwood pulp producer inventory levels
remained balanced over the period increasing 1 day from the end of December
2013, to 28 days' supply in March 2014. Average Northern Bleached Softwood Kraft
("NBSK") pulp list prices saw solid gains in all regions during the first
quarter of 2014, with the North American NBSK pulp list price increasing US$34,
or 3%, from the previous quarter to US$1,017 per tonne (the highest level in
almost three years), while list prices to China and Europe saw gains of 2%.
Current quarter pulp sales realizations were also buoyed by the weaker Canadian
dollar and proportionately higher shipments to the higher-margin U.S. market.
Pulp shipments were down 74,000 tonnes, or 22%, from the prior quarter, largely
reflecting the transportation challenges experienced in the quarter. Pulp
production levels were up 4% from the previous quarter, mainly as a result of an
improvement in operating rates as the quarter progressed and a scheduled
maintenance outage at Canfor Pulp's Prince George Pulp Mill in the previous
quarter. Pulp unit manufacturing costs were up slightly compared to the previous
quarter, with the favourable impact of increased production more than offset by
higher market prices for sawmill residual chips and higher energy costs, the
latter reflecting both seasonally higher consumption as well as natural gas
price increases.
Compared to the first quarter of 2013, operating income was down $15.6 million,
with operating income down $32.0 million in the lumber segment and up $17.6
million in the pulp and paper segment. These results included the impact from
reduced sales volumes mainly attributable to the aforementioned transportation
challenges in the current quarter, offset in part by improved lumber and pulp
sales realizations, primarily reflecting the favourable impact of a 9% weaker
Canadian dollar. Unit manufacturing costs were up in both segments compared to
the same period in 2013, in part reflecting lower production levels, as a result
of capital project ramp-ups, and increased energy costs as well as higher costs
for raw materials.
OPERATING RESULTS BY BUSINESS SEGMENT
Lumber
Selected Financial Information and Statistics - Lumber
Q1 Q4 Q1
(millions of Canadian dollars
unless otherwise noted) 2014 2013 2013
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Sales $ 495.7 $ 533.7 $ 542.3
Operating income before
amortization $ 84.3 $ 66.1 $ 115.7
Operating income $ 56.4 $ 37.4 $ 88.4
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Mill closure provisions $ - $ 20.0 $ -
One-time costs associated with
collective agreements $ - $ 1.1 $ -
--------------------------------------------------------------------------
Operating income excluding unusual
items $ 56.4 $ 58.5 $ 88.4
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Average SPF 2x4 #2&Btr lumber price
in US$(5) $ 367 $ 370 $ 391
Average SPF price in Cdn$ $ 405 $ 388 $ 395
Average SYP 2x4 #2 lumber price in
US$(6) $ 403 $ 415 $ 452
Average SYP price in Cdn$ $ 445 $ 436 $ 456
--------------------------------------------------------------------------
U.S. housing starts (thousand units
SAAR)(7) 923 1,008 957
--------------------------------------------------------------------------
Production - SPF lumber (MMfbm)(8) 980.8 944.8 1,026.6
Production - SYP lumber (MMfbm)(8) 135.4 135.3 131.1
Shipments - SPF lumber (MMfbm)(9) 779.4 961.1 963.3
Shipments - SYP lumber (MMfbm)(9) 143.2 142.4 122.4
Shipments - wholesale lumber
(MMfbm) 4.8 5.7 7.1
--------------------------------------------------------------------------
--------------------------------------------------------------------------
(5) Western Spruce/Pine/Fir, per thousand board feet (Source - Random
Lengths Publications, Inc.).
(6) Southern Yellow Pine, Eastside, per thousand board feet (Source - Random
Lengths Publications, Inc.).
(7) Source - U.S. Census Bureau, seasonally adjusted annual rate ("SAAR").
(8) Excluding production of trim blocks.
(9) Canfor-produced lumber, including lumber purchased for remanufacture and
excluding trim blocks.
Overview
Operating income for the lumber segment was $56.4 million for the first quarter
of 2014, an increase of $19.0 million compared to operating income of $37.4
million in the previous quarter, and down $32.0 million from operating income of
$88.4 million reported for the first quarter of 2013. Results in the lumber
segment for the fourth quarter of 2013 were impacted by various unusual items
including an expense of $20.0 million related to the announced closure of the
Quesnel Sawmill and one-time costs of $1.1 million associated with new five year
collective agreements ratified in the quarter. Excluding the impact of these
unusual items, operating income for the lumber segment was down $2.1 million
from the fourth quarter of 2013.
The decrease in lumber segment earnings compared to the fourth quarter of 2013
largely reflected a 16% decrease in shipments, primarily the result of the
aforementioned transportation challenges in the quarter. Mostly offsetting the
impact of reduced shipments were gains in sales realizations, which benefitted
from a 5% weaker Canadian dollar and, to a lesser degree, lower export taxes
over the period, with no export taxes on U.S. bound shipments in the current
quarter. Higher unit cash conversion costs, reflecting increased energy costs
and continued dust control efforts, were offset in part by the favourable unit
impact of more production in the current quarter, resulting mainly from more
operating hours. A modest increase in unit log costs was primarily driven by
market-related increases in stumpage as well as higher hauling and logging
costs.
Compared to the first quarter of 2013, the reduced operating income was mostly
attributable to the transportation disruptions. The impact of a 15% decrease in
sales volumes was lessened by improved sales realizations which reflected a
favourable foreign exchange impact, offset in part by lower U.S. dollar prices
across most grades. Unit manufacturing costs were up compared to the same period
in 2013, driven principally by increased log costs, reflecting market-related
stumpage increases and higher hauling and logging costs. Also contributing to
the higher unit manufacturing costs were higher weather-related and
market-related energy costs and lower production volumes, for the most part
reflecting capital ramp-ups and the closure of the Quesnel Sawmill in the
current period.
Markets
During the first quarter of 2014, the lumber market was significantly hampered
by an unusually severe winter. Overall lumber demand weakened as U.S. housing
starts averaged 923,000 units(10) SAAR, down 8% from the fourth quarter of 2013
and 4% lower than the same period in 2013. Single-family starts, which consume a
larger proportion of lumber, also dropped 8% compared to the fourth quarter of
2013 to 605,000 units(10) SAAR. Demand in the repair and remodeling sector
experienced a similar temporary decline due to the prolonged winter.
Furthermore, the weather also limited railcar supply to Western Canada,
resulting in delayed Western SPF lumber shipments across the North American
continent.
In Canada, lumber consumption was lower than the previous quarter, as Canadian
housing starts averaged 175,000 units(11) SAAR for the quarter, down 21,000
units, or 11%, compared to the fourth quarter of 2013 and in line with the same
period in 2013.
Canfor's offshore lumber shipments were down compared to the previous quarter
due to the shortage of railcar supply and the truckers' strike in March at the
port in Vancouver, Canada, which was resolved at the end of the quarter.
(10) U.S. Census Bureau
(11) CMHC - Canada Mortgage and Housing Corporation
Sales
Sales for the lumber segment for the first quarter of 2014 were $495.7 million,
compared to $533.7 million in the previous quarter and $542.3 million in the
first quarter of 2013, as higher sales realizations in the current period were
more than offset by lower shipments. Total shipments in the first quarter of
2014, at 923 million board feet, were down 16% from the previous quarter, and
down 15% from the same period in 2013, largely reflecting the transportation
challenges. Current quarter sales also included higher residual fibre revenue
compared to both periods in 2013 due primarily to higher residual prices (linked
to NBSK sales realizations).
Solid gains in North American sales realizations compared to the previous
quarter principally reflected the favourable impact of the 5% weaker Canadian
dollar (for the Company's Canadian operations) and to a lesser extent, the
absence of export taxes on U.S. bound shipments in the current quarter. Overall,
there was little change in U.S. dollar prices for North American products, with
a US$3 per Mfbm decrease in the benchmark North American Random Lengths Western
SPF 2X4 #2&Btr price to US$367 per Mfbm, offset by modest increases in several
other grades and dimensions. Offshore sales realizations (in US$) saw moderate
gains in the current quarter largely due to the nature of pricing, much of which
is negotiated monthly or quarterly in advance. Overall sales realizations for
SYP products were up slightly compared to the previous quarter, with a US$12 per
Mfbm, or 3%, decrease in the benchmark SYP 2x4 #2 price, more than offset by
moderate gains in the 2x6 #2 price and other wider dimension products.
Compared to the first quarter of 2013, sales realizations showed a moderate
improvement despite a marginal decrease in benchmark prices, principally
reflecting a favourable foreign exchange impact, as sales realizations for
Canadian operations benefited from a 9 cent, or 9%, weaker Canadian dollar. The
benchmark North American Random Lengths Western SPF 2x4 #2&Btr price was down
US$24 per Mfbm, or 6%, compared to the first quarter of 2013, with higher
decreases seen for several other grades and dimension products, including 2x6 #2
products. The impact from lower North American prices were somewhat lessened by
a more muted decrease in quarter-over-quarter offshore sales realizations (in
US$). SYP products saw more marked decreases, with the benchmark SYP 2X4 #2
price down US$49 per Mfbm, or 11%, and larger decreases were seen in wider
dimension products. There were no export taxes on U.S. bound shipments in either
quarter.
Total residual fibre revenue was higher in the current quarter compared to the
fourth quarter of 2013, mainly reflecting market-driven increases in sawmill
residual chip prices and to a lesser degree, higher shipments. Compared to the
first quarter of 2013, total residual fibre revenue was also up, with higher
sawmill residual chip prices more than offsetting slightly lower shipments of
sawmill residual chips.
Operations
Lumber production, at over 1.1 billion board feet, was up 3% from the previous
quarter, reflecting more operating hours largely due to the Christmas period in
the previous quarter as well as additional shifts at the Company's southern pine
operations. Capital related downtime and ramp-ups impacted both the current
quarter and the fourth quarter of 2013, with the completion of the Company's
Houston planer upgrade in the current quarter and the ramp-up of its Mackenzie
and Darlington major sawmill upgrade projects through both periods. Compared to
the first quarter of 2013, lumber production was down 4%, with productivity and
operating hours impacted by capital projects, offset in part by continued
capital-driven productivity improvements. Production in the current quarter was
also impacted by the closure of the Company's Quesnel Sawmill in mid-March,
while productivity was also hampered by the particularly harsh winter weather.
Overall, the Company's lumber unit manufacturing costs were higher than the
previous quarter, driven by a modest increase in unit log costs and a similar
increase in unit cash conversion costs. The increase in unit cash conversion
costs in part reflected increases in energy costs as well as continued dust
control efforts partially mitigated by the favourable impact of higher
production levels on unit costs. Higher log costs were primarily attributable to
market-driven increases in stumpage as well as higher hauling and logging costs.
Compared to the first quarter of 2013, unit manufacturing costs were up,
principally reflecting the market-related stumpage increases and upward pressure
on hauling and logging costs, in part due to higher diesel prices. Contributing
to the increased unit manufacturing costs were the lower production volumes
reflecting the capital ramp-ups in the current period, the continuing dust
control efforts and higher energy costs, both severe weather and market-related,
as well as higher labour costs.
Pulp and Paper
Selected Financial Information and Statistics - Pulp and Paper(12)
Q1 Q4 Q1
(millions of Canadian dollars
unless otherwise noted) 2014 2013 2013
--------------------------------------------------------------------------
Sales $ 246.2 $ 275.8 $ 243.5
Operating income before
amortization $ 53.0 $ 39.2 $ 38.3
Operating income $ 36.5 $ 23.2 $ 18.9
--------------------------------------------------------------------------
Average pulp price delivered to
U.S. - US$(13) $ 1,017 $ 983 $ 897
Average price in Cdn$ $ 1,122 $ 1,032 $ 905
--------------------------------------------------------------------------
Production - pulp (000 mt) 310.4 299.5 317.0
Production - paper (000 mt) 36.7 30.8 34.8
Shipments - pulp (000 mt) 255.9 329.5 308.2
Shipments - paper (000 mt) 31.3 31.1 35.0
--------------------------------------------------------------------------
--------------------------------------------------------------------------
(12) Includes the Taylor Pulp Mill and 100% of Canfor Pulp Products Inc.,
which is consolidated in Canfor's results. Pulp production and shipment
volumes presented are for both NBSK and bleached chemi-thermo mechanical
pulp ("BCTMP").
(13) Per tonne, NBSK pulp list price delivered to U.S. (Resource Information
Systems, Inc.).
Overview
Operating income for the pulp and paper segment was $36.5 million for the first
quarter of 2014, up $13.3 million from the previous quarter, and up $17.6
million from the first quarter of 2013.
Improved pulp and paper segment results compared to the previous quarter
reflected a moderate increase in pulp sales realizations, resulting from
increases in NBSK pulp list prices and a weakening of the Canadian dollar, down
5% from the previous quarter. Offsetting these gains were reduced shipments due
to the aforementioned transportation challenges experienced in the current
quarter. While overall shipments were down, sales realizations benefitted from
reduced volumes to lower-margin regions, principally China. Unit manufacturing
costs were up slightly compared to the previous quarter, with higher fibre
(linked to NBSK pulp sales realizations) and energy costs largely offset by
higher production volumes, primarily the result of improved operating rates. The
current quarter results also included increased energy revenue with the start-up
of Canfor Pulp's recently upgraded Northwood Pulp Mill turbines.
Higher operating earnings compared to the first quarter of 2013 principally
reflected the improved NBSK pulp markets, with strong gains in NBSK pulp list
prices across all regions coupled with a 9% weaker Canadian dollar. Partially
offsetting these gains were lower total shipments compared to the same period in
2013 which similarly reflected the transportation challenges experienced in the
current quarter. Compared to the first quarter of 2013, higher unit
manufacturing costs reflected higher market-based fibre and energy costs and
lower production levels, offset in part by lower chemical costs.
Markets
Global softwood pulp markets showed a modest improvement in the first quarter of
2014, with solid increases in list prices across all regions through the quarter
and global softwood pulp producer inventory levels remaining in the balanced
range. Global softwood pulp producer inventory levels increased 1 day from the
end of December 2013, to 28 days' supply in March 2014(14), partly reflecting
the aforementioned transportation disruptions. Market conditions are generally
considered balanced when inventories are in the 27-30 days of supply range.
Global shipments of bleached softwood kraft pulp were down 3% in the first
quarter of 2014 compared to the previous quarter and relatively flat compared to
the same period in 2013(15). The decrease in softwood pulp shipments compared to
the fourth quarter of 2013 reflected decreases to almost all regions in part due
to the transportation challenges experienced in North America.
(14) 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 Pulp and Paper Products Council ("PPPC").
(15) As reported by PPPC statistics.
Sales
The Company's pulp shipments in the first quarter of 2014 were 256,000 tonnes, a
decrease of 74,000 tonnes, or 22%, from the previous quarter, and down 52,000
tonnes, or 17% from the same period in 2013, largely reflecting the
transportation challenges in the current quarter. Shipments to China were well
down from both comparative periods, with the decrease relative to the fourth
quarter of 2013 in part reflecting strong buying late in 2013 and the
traditional Chinese Lunar New Year holiday in the current quarter, offset in
part by increased volumes to the U.S. Reduced shipments compared to the previous
quarter also reflected a build in finished goods inventories to target levels
following a significant drawdown related to the higher Chinese purchasing
activity at the end of 2013.
Global softwood pulp markets saw solid price increases through the current
quarter, with the North American NBSK pulp list price reaching the highest level
in almost three years, increasing US$34 per tonne to US$1,017, an increase of 3%
from the fourth quarter of 2013. NBSK pulp list prices to China and Europe
experienced similar solid gains through the quarter, both up 2% from the
previous quarter to US$753 per tonne and US$920 per tonne, respectively. Current
quarter sales realizations further benefitted from the 5% weaker Canadian dollar
as well as increased shipments to the higher-margin U.S. market. Current quarter
sales included higher energy revenue with the start-up of the Company's upgraded
Northwood Pulp Mill turbines combined with additional operating days reflecting
a planned maintenance outage of the Prince George Pulp Mill turbine in the
fourth quarter of 2013. Bleached chemi-thermo mechanical pulp ("BCTMP") average
sales realizations showed a solid increase compared to the previous quarter
reflecting the weaker Canadian dollar coupled with a marginal increase in market
prices.
Compared to the first quarter of 2013, pulp sales realizations saw strong gains
as a result of marked improvements in average pulp list prices in all regions
and the 9% weaker Canadian dollar. The North American NBSK pulp list price
increased US$120 per tonne, or 13%. NBSK pulp list prices to Europe and China
also experienced solid increases, both up 11% compared to the first quarter of
2013. Contributing to the improved NBSK pulp list prices were reduced volumes to
lower-margin regions, principally China, which more than offset the impact of
increased pressure on discounts in North American markets compared to the same
period in 2013. Energy revenue was also up compared to the same period in 2013,
principally attributable to the upgrades to the Northwood Pulp Mill turbines.
BCTMP sales realizations were well up compared to the first quarter of 2013,
also reflecting higher market pricing and the weaker Canadian dollar.
Operations
Pulp production in the current quarter was 310,000 tonnes, an increase of 11,000
tonnes, or 4%, from the previous quarter, and a decrease of 7,000 tonnes, or 2%,
compared to the first quarter of 2013. Increased production compared to the
fourth quarter of 2013 reflected an improvement in operating rates as the
quarter progressed. The previous quarter also included a scheduled maintenance
outage at Canfor Pulp's Prince George Pulp Mill which resulted in reduced market
pulp production of 4,000 tonnes. Compared to the first quarter of 2013,
production levels were impacted by slightly lower operating rates and increased
transfers of slush pulp to the paper segment in the current quarter.
Pulp unit manufacturing costs increased slightly from the previous quarter, with
higher energy costs, reflecting market-related price increases as well as
increased consumption in part due to the harsh weather in the quarter, as well
as a modest increase in fibre costs offsetting the favourable impact of higher
production levels and reduced chemical and (timing-based) maintenance spending.
Higher fibre costs principally reflected a market-related increase in prices for
sawmill residual chips, where prices are linked to NBSK pulp sales realizations,
mitigated slightly by seasonal pricing adjustments.
Higher unit manufacturing costs compared to the first quarter of 2013 were
primarily driven by increased fibre costs and to a lesser extent, higher energy
costs and the impact of lower production levels, offset in part by reduced
chemical costs. The increase in energy costs resulted mainly from increased
rates and higher gas usage, in part related to increased electricity generation.
Contributing to the higher fibre costs in the current quarter were higher prices
for sawmill residual chips, reflecting increased market prices, coupled with
higher prices for whole log chips, in part related to pressure on stumpage
rates, offset in part by a small decrease in the proportion of the higher-cost
whole log chips.
Unallocated and Other Items
Selected Financial Information
Q1 Q4 Q1
(millions of Canadian dollars) 2014 2013 2013
-------------------------------------------------------------------------
Operating loss of Panels
operations(16) $ (1.3) $ (0.5) $ (0.7)
Corporate costs $ (7.2) $ (6.3) $ (6.6)
Finance expense, net $ (4.4) $ (6.4) $ (8.8)
Foreign exchange loss on long-term
debt $ - $ (3.4) $ (3.8)
Gain (loss) on derivative financial
instruments $ (3.5) $ (0.2) $ 3.3
Other income (expense), net $ 3.3 $ (3.1) $ 1.7
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(16) The Panels operations include the Company's PolarBoard oriented strand
board ("OSB") plant, which is currently indefinitely idled and its Tackama
plywood plant, which was closed in January 2012.
Corporate costs were $7.2 million for the first quarter of 2014, up slightly
from both comparative periods in 2013, in part reflecting higher incentive-based
compensation costs.
Net finance expense for the first quarter of 2014 was $4.4 million, down $2.0
million from the fourth quarter of 2013 and down $4.4 million from the first
quarter of 2013. The decrease from both comparative periods principally
reflected lower debt levels in both Canfor and Canfor Pulp in the current
quarter coupled with lower employee future benefit net interest costs, due in
part to the improved financial position of most of the Company's defined benefit
plans. Finance expense for the first quarter of 2013 included refinancing costs
incurred to extend the maturity of the Company's principal operating loan
facility.
The Company uses a variety of derivative financial instruments as partial
economic hedges against unfavourable changes in foreign exchange rates, energy
costs, lumber prices, pulp prices and interest rates. In the first quarter of
2014, the Company recorded a net loss of $3.5 million related to its derivative
instruments, principally reflecting unrealized losses on US dollar foreign
exchange collars and forward contracts as a result of the weakening of the
Canadian dollar through the quarter, as well as realized and unrealized losses
on interest rate swap instruments due to lower interest rates between the
respective quarter ends.
The following table summarizes the gains (losses) on derivative financial
instruments for the comparable periods:
Q1 Q4 Q1
(millions of Canadian dollars) 2014 2013 2013
-------------------------------------------------------------------------
Foreign exchange collars and
forward contracts $ (2.9) $ 0.3 $ 1.4
Energy derivatives $ 0.2 $ 0.1 $ 0.1
Lumber futures $ 0.1 $ 0.2 $ 2.2
Pulp futures $ (0.3) $ (0.1) $ -
Interest rate swaps $ (0.6) $ (0.7) $ (0.4)
-------------------------------------------------------------------------
$ (3.5) $ (0.2) $ 3.3
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Other income, net of $3.3 million in the first quarter of 2014 included a
pre-tax accounting gain of $2.2 million related to the sale of the Daaquam
Sawmill in Quebec (see further discussion in the "Sale of Daaquam Sawmill"
section later in this document). The Company also recorded a $0.6 million
negative fair value adjustment to the Canfor-LP OSB contingent consideration
asset, largely reflecting weaker forecast OSB prices offset by favourable
forecast foreign exchange rates over the contingent consideration period. Also
included in other income, net in the current quarter were foreign exchange gains
on US dollar denominated working capital of $3.7 million resulting from the
weakening of the Canadian dollar relative to the US dollar over the course of
the quarter.
Other Comprehensive Income (Loss)
The following table summarizes Canfor's Other Comprehensive Income (Loss) for
the comparable periods:
Q1 Q4 Q1
(millions of Canadian dollars) 2014 2013 2013
---------------------------------------------------------------------------
Foreign exchange translation
differences for foreign operations $ 10.6 $ 8.0 $ 3.5
Defined benefit actuarial gains
(losses), net of tax $ (24.3) $ 40.4 $ 5.8
---------------------------------------------------------------------------
Other comprehensive income (loss),
net of tax $ (13.7) $ 48.4 $ 9.3
---------------------------------------------------------------------------
---------------------------------------------------------------------------
In the first quarter of 2014, the Company recorded an after-tax loss to the
Statements of Other Comprehensive Income (Loss) of $24.3 in relation to changes
in the valuation of the Company's employee future benefit plans. The loss
reflects a lower discount rate used to value the net retirement benefit
obligations, offset in part by a modest return on plan assets. Defined benefit
actuarial gains, net of taxes, were recorded in both the comparable periods,
with an after-tax gain of $40.4 million in the fourth quarter of 2013 and an
after-tax gain of $5.8 million in the first quarter of 2013.
In addition, the Company recorded a $10.6 million of other comprehensive gain in
the quarter for foreign exchange differences for foreign operations, reflecting
favourable foreign exchange movements during the quarter. This compared to a
foreign exchange translation gain of $8.0 million in the previous quarter and
$3.5 million in the first quarter of 2013.
SUMMARY OF FINANCIAL POSITION
The following table summarizes Canfor's cash flow and selected ratios for and as
at the end of the following periods:
Q1 Q4 Q1
(millions of Canadian dollars,
except for ratios) 2014 2013 2013
-------------------------------------------------------------------------
Increase (decrease) in cash and
cash equivalents $ (1.6) $ (0.4) $ 23.3
Operating activities $ (50.1) $ 98.8 $ 56.0
Financing activities $ 99.9 $ (33.8) $ 8.1
Investing activities $ (51.4) $ (65.4) $ (40.8)
Ratio of current assets to current
liabilities 1.7 : 1 1.7 : 1 1.5 : 1
Net debt to capitalization 13.1% 8.0% 18.8%
Quarterly ROIC - Consolidated 3.5% 2.0% 4.8%
Quarterly ROCE - Canfor solid wood
business(17) 2.7% 2.4% 5.6%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(17) Return on Capital Employed ("ROCE") for the Canfor solid wood business
represents consolidated ROCE adjusted to remove the Company's interest in
Canfor-LP OSB and pulp and paper operations, including CPPI and the Taylor
Pulp Mill. Consolidated ROCE is equal to shareholder net income for the
period plus finance expense, after tax, divided by the average capital
employed during the period (which consists of current and long-term debt and
operating loans, and shareholders' equity, less cash and temporary
investments).
Changes in Financial Position
Cash used in operating activities was $50.1 million in the first quarter of
2014, compared to cash generated of $98.8 million in the previous quarter and
cash generated of $56.0 million in the same quarter of 2013. The decrease in
operating cash flows from both comparative periods principally reflected a
seasonal log inventory build coupled with significantly higher finished lumber
and pulp inventory levels due to the transportation challenges experienced in
the current quarter. The increase in non-cash working capital balances of $177.8
million was partially offset by higher cash earnings in the first quarter of
2014. In addition, the Company made income tax payments of $11.8 million in the
first quarter of 2014 compared to $0.3 million in the fourth quarter of 2013,
and income taxes recovered of $0.5 million in the first quarter of 2013.
Cash generated from financing activities was $99.9 million in the current
quarter, compared to cash used of $33.8 million in the previous quarter and cash
generated of $8.1 million in the first quarter of 2013. The previous quarter
cash flows included repayment of CPPI's US$110 million 6.41% interest rate debt
and the completion of CPPI's $50.0 million floating rate term debt financing.
During the current quarter, Canfor purchased 196,400 common shares under its
Normal Course Issuer Bid for $5.0 million, of which $2.0 million was paid during
the quarter. This compares to the purchase of 1,474,600 common shares for $33.4
million, all of which was paid in the fourth quarter of 2013 (see further
discussion of the shares purchased under the Normal Course Issuer Bid in the
following "Liquidity and Financial Requirements" section). During the current
quarter, the Company paid $2.8 million in finance costs, down from $5.9 million
paid in the previous quarter that included the final interest payment on CPPI's
US$110 million term debt. Compared to the first quarter of 2013, cash used for
financing activities was up $91.8 million principally reflecting a net draw on
the Company's operating loan facility of $106.8 million compared to a net draw
of $13.0 million in the same quarter of the previous year. At the end of the
first quarter, Canfor had $182.0 million outstanding on its operating loan
facilities.
Cash used for investing activities was $51.4 million in the current quarter,
compared to $65.4 million in the fourth quarter of 2013 and $40.8 million in the
first quarter of 2013. Cash used for capital additions was $53.1 million, down
$14.4 million from the previous quarter and up $6.7 million from same quarter in
2013. Cash paid for capital in the current quarter included capital projects at
the Company's Mackenzie, Grande Prairie and Houston operations. In the pulp and
paper segment, current quarter capital expenditures of $10.1 million primarily
related to Canfor Pulp's Northwood and Intercontinental Pulp Mills' turbine
upgrades. Construction of the Northwood Pulp Mill turbines was substantially
completed in 2013 and the facility commenced selling power in the current
quarter. Completion of the upgrade to the Intercontinental Pulp Mill turbine is
targeted for early 2015.
Liquidity and Financial Requirements
At March 31, 2014, the Company on a consolidated basis had cash of $87.9
million, $182.0 million drawn on its operating loans, and an additional $26.0
million reserved for several standby letters of credit. Total available undrawn
operating loans were $272.0 million.
Canfor has $100.0 million of floating interest rate term debt, repayable in
February 2017 and CPPI has $50.0 million of floating interest rate term debt,
repayable in November 2018.
The Company and CPPI remained in compliance with the covenants relating to their
operating loans and long-term debt during the quarter, and expect to remain so
for the foreseeable future.
The Company's consolidated net debt to total capitalization at the end of the
first quarter of 2014 was 13.1%. For Canfor, excluding CPPI, net debt to
capitalization at the end of the first quarter was 12.9%.
On March 5, 2014, the Company renewed its normal course issuer bid whereby it
can purchase for cancellation up to 6,995,228 common shares or approximately 5%
of its issued and outstanding common shares as of February 28, 2014. The renewed
normal course issuer bid is set to expire on March 4, 2015. During the first
quarter of 2014, Canfor purchased 196,400 common shares for $5.0 million, of
which $2.0 million was paid in cash in the period.
Sale of Daaquam Sawmill
On March 28, 2014, the Company completed the sale of its Daaquam Sawmill. Total
proceeds related to the disposition of the Daaquam operation approximated $25
million, all of which were received subsequent to period end. A pre-tax gain of
$2.2 million was recorded in the first quarter of 2014 in Other Income.
OUTLOOK
Lumber
For the second quarter of 2014, North American lumber consumption is forecast to
rebound as warmer weather is projected to result in stronger demand in the
residential construction market and increased home improvement projects.
Shipments across North America are anticipated to improve through the second and
third quarters of 2014, releasing the backlog of shipments caused by the
shortage of railcars earlier in 2014. Offshore markets are projected to remain
stable, supported by steady demand from Asia and other emerging markets. Delayed
offshore shipments resulting from the truckers' strike at the port in Vancouver
are forecast to be largely cleared through the second quarter of 2014.
Pulp and Paper
NBSK pulp markets are projected to face challenges by the middle of the year,
with the annual spring maintenance downtime providing some supply side relief in
the second quarter of 2014. For the month of April 2014, the Company announced
NBSK pulp list prices of US$1,030 per tonne in North America, unchanged from
March 2014, and list prices to China and Europe also remained unchanged. A risk
of price weakness remains due in part to the significant new hardwood pulp
capacity forecast to come online through 2014. The Company anticipates that it
will clear its transportation-related backlog of finished inventories by early
in the third quarter of 2014.
OUTSTANDING SHARES
At April 29, 2014, there were 139,572,193 common shares outstanding.
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with International
Financial Reporting Standards requires management to make estimates and
assumptions that affect the amounts recorded in the financial statements. On an
ongoing basis, management reviews its estimates, including those related to
useful lives for amortization, impairment of long-lived assets, certain accounts
receivable, pension and other employee future benefit plans and asset retirement
and deferred reforestation obligations based upon currently available
information. While it is reasonably possible that circumstances may arise which
cause actual results to differ from these estimates, management does not believe
it is likely that any such differences will materially affect the Company's
financial condition.
ACCOUNTING STANDARDS ISSUED AND NOT APPLIED
In May 2011, the International Accounting Standards Board ("IASB") issued IFRS
9, Financial Instruments. The required adoption date for IFRS 9 has been
deferred from the original date of January 1, 2015 and is currently under review
by the IASB.
Further details of the new accounting Standard and the potential impact on
Canfor can be found in the Company's Annual Report for the year ended December
31, 2013.
INTERNAL CONTROLS OVER FINANCIAL REPORTING
During the quarter ended March 31, 2014, there were no changes in the Company's
internal controls over financial reporting that materially affected, or would be
reasonably likely to materially affect, such controls.
RISKS AND UNCERTAINTIES
A comprehensive discussion of risks and uncertainties is included in the
Company's 2013 annual statutory reports which are available on www.canfor.com or
www.sedar.com.
SELECTED QUARTERLY FINANCIAL INFORMATION
----------------------------------------------------------------------------
Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2
2014 2013 2013 2013 2013 2012 2012 2012
----------------------------------------------------------------------------
Sales and
income(millions of
Canadian dollars)
Sales $ 741.9 $809.5 $755.9 $843.2 $786.3 $700.3 $663.7 $685.0
Operating income $ 84.4 $ 53.8 $ 49.3 $128.2 $100.0 $ 49.0 $ 18.1 $ 22.6
Net income $ 58.6 $ 35.1 $ 33.6 $114.3 $ 67.5 $ 24.7 $ 18.8 $ 5.0
Shareholder net
income $ 45.5 $ 28.0 $ 28.4 $110.3 $ 61.9 $ 21.3 $ 20.5 $ 2.6
Per common share
(Canadian dollars)
Shareholder net
income - basic and
diluted $ 0.33 $ 0.20 $ 0.20 $ 0.77 $ 0.43 $ 0.15 $ 0.14 $ 0.02
Book value(18) $ 10.05 $ 9.82 $ 9.47 $ 9.25 $ 8.29 $ 7.79 $ 7.65 $ 7.64
----------------------------------------------------------------------------
Statistics
Lumber shipments
(MMfbm) 927 1,109 1,172 1,224 1,093 1,110 1,093 1,120
Pulp shipments (000
mt) 256 330 268 308 308 298 269 282
----------------------------------------------------------------------------
Average exchange
rate - US$/Cdn$ $ 0.906 $0.953 $0.963 $0.977 $0.991 $1.009 $1.005 $0.990
----------------------------------------------------------------------------
Average Western SPF
2x4 #2&Btr lumber
price (US$) $ 367 $ 370 $ 328 $ 335 $ 391 $ 335 $ 300 $ 295
Average SYP (East)
2x4 #2 lumber
price (US$) $ 403 $ 415 $ 393 $ 392 $ 452 $ 386 $ 322 $ 325
Average NBSK pulp
list price
delivered to U.S.
(US$) $ 1,017 $ 983 $ 947 $ 937 $ 897 $ 863 $ 853 $ 900
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(18) Book value per common share is equal to shareholders' equity at the end of
the period, divided by the number of common shares outstanding at the end of
period.
In addition to exposure to changes in product prices and foreign exchange, the
Company's financial results are impacted by seasonal factors such as weather and
building activity. Adverse weather conditions can cause logging curtailments,
which can affect the supply of raw materials to sawmills and pulp mills. Market
demand also varies seasonally to some degree. For example, building activity and
repair and renovation work, which affects demand for lumber products, is
generally stronger in the spring and summer months. Shipment volumes are
affected by these factors as well as by global supply and demand conditions.
Other material factors that impact the comparability of the quarters are noted
below:
----------------------------------------------------------------------------
After-tax impact, net
of non-controlling
interests
(millions of
Canadian
dollars,
except for per Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2
share amounts) 2014 2013 2013 2013 2013 2012 2012 2012
----------------------------------------------------------------------------
Shareholder net
income, as
reported $ 45.5 $ 28.0 $ 28.4 $ 110.3 $ 61.9 $ 21.3 $ 20.5 $ 2.6
(Gain) loss on
derivative
financial
instruments $ 2.1 $ 0.1 $ (2.2) $ 1.0 $(2.2) $ 6.5 $ (4.4) $ 4.2
Gain on sale of
Daaquam
Sawmill $ (1.6) $ - $ - $ - $ - $ - $ - $ -
(Gain) loss on
sale of
Canfor-LP OSB $ 0.4 $ 3.6 $ 1.0 $(33.4) $ - $ - $ - $ -
Foreign
exchange
(gain) loss on
long-term debt
and
investments,
net $ - $ 1.5 $ (1.0) $ 1.8 $ 2.3 $ 1.2 $ (4.0) $ 2.4
Mill closure
provisions $ - $ 14.8 $ - $ - $ - $ - $ - $ -
One-time costs
associated
with
collective
agreements for
the lumber
business $ - $ 0.8 $ - $ - $ - $ - $ - $ -
Canfor's 50%
interest in
Canfor-LP
OSB's income,
net of tax $ - $ - $ - $ 3.8 $ 8.3 $ - $ - $ -
Change in
substantively
enacted tax
rate $ - $ - $ - $ 4.2 $ - $ - $ - $ -
Net gain on
post
retirement and
pension plan
amendments $ - $ - $ - $ - $ - $ (8.7) $ - $ -
Restructuring
charges for
management
changes $ - $ - $ - $ - $ - $ - $ 1.5 $ -
----------------------------------------------------------------------------
Net impact of
above items $ 0.9 $ 20.8 $ (2.2) $(22.6) $ 8.4 $ (1.0) $ (6.9) $ 6.6
----------------------------------------------------------------------------
Adjusted
shareholder
net income $ 46.4 $ 48.8 $ 26.2 $ 87.7 $ 70.3 $ 20.3 $ 13.6 $ 9.2
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Shareholder net
income per
share (EPS),
as reported $ 0.33 $ 0.20 $ 0.20 $ 0.77 $ 0.43 $ 0.15 $ 0.14 $ 0.02
Net impact of
above items
per share $ 0.01 $ 0.15 $(0.02) $(0.16) $ 0.06 $(0.01) $(0.05) $ 0.05
----------------------------------------------------------------------------
Adjusted net
income per
share $ 0.34 $ 0.35 $ 0.18 $ 0.61 $ 0.49 $ 0.14 $ 0.09 $ 0.07
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Canfor Corporation
Condensed Consolidated Balance Sheets
As at As at
March 31, December 31,
(millions of Canadian dollars, unaudited) 2014 2013
--------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents $ 87.9 $ 89.5
Accounts receivable
- Trade 118.7 112.6
- Other 66.5 39.3
Inventories (Note 2) 647.6 471.9
Prepaid expenses and other assets 36.0 39.1
--------------------------------------------------------------------------
Total current assets 956.7 752.4
--------------------------------------------------------------------------
Property, plant and equipment 1,152.0 1,151.9
Timber licenses 530.8 534.6
Goodwill and other intangible assets 99.5 93.5
Retirement benefit surplus (Note 5) 27.5 42.2
Long-term investments and other (Note 3) 112.4 112.5
Deferred income taxes, net 6.2 6.2
--------------------------------------------------------------------------
Total assets $ 2,885.1 $ 2,693.3
--------------------------------------------------------------------------
--------------------------------------------------------------------------
LIABILITIES
Current liabilities
Operating loans (Note 4) $ 182.0 $ 74.6
Accounts payable and accrued liabilities 347.5 321.8
Current portion of deferred reforestation
obligations 43.9 44.1
--------------------------------------------------------------------------
Total current liabilities 573.4 440.5
--------------------------------------------------------------------------
Long-term debt 153.3 153.1
Retirement benefit obligations (Note 5) 209.4 200.5
Deferred reforestation obligations 83.4 69.8
Other long-term liabilities 14.3 14.9
Deferred income taxes, net 216.1 217.1
--------------------------------------------------------------------------
Total liabilities $ 1,249.9 $ 1,095.9
--------------------------------------------------------------------------
EQUITY
Share capital $ 1,102.2 $ 1,103.7
Contributed surplus 31.9 31.9
Retained earnings 255.3 234.2
Accumulated foreign exchange translation
differences 15.1 4.5
--------------------------------------------------------------------------
Total equity attributable to equity holders
of the Company 1,404.5 1,374.3
Non-controlling interests 230.7 223.1
--------------------------------------------------------------------------
Total equity $ 1,635.2 $ 1,597.4
--------------------------------------------------------------------------
Total liabilities and equity $ 2,885.1 $ 2,693.3
--------------------------------------------------------------------------
--------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
APPROVED BY THE BOARD
"R.S. Smith" "M.J. Korenberg"
Director, R.S. Smith Director, M.J. Korenberg
Canfor Corporation
Condensed Consolidated Statements of Income
3 months ended March 31,
(millions of Canadian dollars, except per
share data, unaudited) 2014 2013
-------------------------------------------------------------------------
Sales $ 741.9 $ 786.3
Costs and expenses
Manufacturing and product costs 478.7 492.2
Freight and other distribution costs 113.8 129.4
Amortization 44.5 46.9
Selling and administration costs 18.3 16.3
Restructuring, mill closure and severance
costs 2.2 1.5
-------------------------------------------------------------------------
657.5 686.3
-------------------------------------------------------------------------
Operating income 84.4 100.0
Finance expense, net (4.4) (8.8)
Foreign exchange loss on long-term debt - (3.8)
Gain (loss) on derivative financial
instruments (Note 6) (3.5) 3.3
Other income, net 3.3 1.7
-------------------------------------------------------------------------
Net income before income taxes 79.8 92.4
Income tax expense (Note 7) (21.2) (24.9)
-------------------------------------------------------------------------
Net income $ 58.6 $ 67.5
-------------------------------------------------------------------------
Net income attributable to:
Equity shareholders of the Company $ 45.5 $ 61.9
Non-controlling interests 13.1 5.6
-------------------------------------------------------------------------
Net income $ 58.6 $ 67.5
-------------------------------------------------------------------------
Net income per common share: (in Canadian
dollars)
Attributable to equity shareholders of the
Company
- Basic and diluted (Note 8) $ 0.33 $ 0.43
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Canfor Corporation
Condensed Consolidated Statements of Other Comprehensive Income (Loss)
3 months ended March 31,
(millions of Canadian dollars, unaudited) 2014 2013
-------------------------------------------------------------------------
Net income $ 58.6 $ 67.5
Other comprehensive income (loss)
Items that will not be recycled through net
income:
Defined benefit plan actuarial gains
(losses) (Note 5) (32.8) 7.7
Income tax recovery (expense) on defined
benefit actuarial gains (losses) (Note 7) 8.5 (1.9)
-------------------------------------------------------------------------
(24.3) 5.8
Items that may be recycled through net
income:
Foreign exchange translation differences
for foreign operations 10.6 3.5
-------------------------------------------------------------------------
Other comprehensive income (loss), net of
tax (13.7) 9.3
-------------------------------------------------------------------------
Total comprehensive income $ 44.9 $ 76.8
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Total comprehensive income attributable to:
Equity shareholders of the Company $ 35.2 $ 71.1
Non-controlling interests 9.7 5.7
-------------------------------------------------------------------------
Total comprehensive income $ 44.9 $ 76.8
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Canfor Corporation
Condensed Consolidated Statements of Changes in Equity
3 months ended March 31,
(millions of Canadian dollars, unaudited) 2014 2013
---------------------------------------------------------- --------------
Share capital
Balance at beginning of period $ 1,103.7 $ 1,126.2
Share purchases (Note 8) (1.5) -
-------------------------------------------------------------------------
Balance at end of period $ 1,102.2 $ 1,126.2
-------------------------------------------------------------------------
Contributed surplus
-------------------------------------------------------------------------
Balance at beginning and end of period $ 31.9 $ 31.9
-------------------------------------------------------------------------
Retained earnings
Balance at beginning of period $ 234.2 $ (35.1)
Net income attributable to equity
shareholders of the Company 45.5 61.9
Defined benefit plan actuarial gains
(losses), net of tax (20.9) 5.7
Share purchases (Note 8) (3.5) -
-------------------------------------------------------------------------
Balance at end of period $ 255.3 $ 32.5
-------------------------------------------------------------------------
Accumulated foreign exchange translation
differences
Balance at beginning of period $ 4.5 $ (10.5)
Foreign exchange translation differences
for foreign operations 10.6 3.5
-------------------------------------------------------------------------
Balance at end of period $ 15.1 $ (7.0)
-------------------------------------------------------------------------
Total equity attributable to equity holders
of the Company $ 1,404.5 $ 1,183.6
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Non-controlling interests
Balance at beginning of period $ 223.1 $ 199.4
Net income attributable to non-controlling
interests 13.1 5.6
Defined benefit plan actuarial gains
(losses) attributable to non-controlling
interests, net of taxes (3.4) 0.1
Distributions to non-controlling interests (2.1) (2.4)
-------------------------------------------------------------------------
Balance at end of period $ 230.7 $ 202.7
-------------------------------------------------------------------------
Total equity $ 1,635.2 $ 1,386.3
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Canfor Corporation
Condensed Consolidated Statements of Cash Flows
3 months ended March 31,
(millions of Canadian dollars, unaudited) 2014 2013
-------------------------------------------------------------------------
Cash generated from (used in):
Operating activities
Net income $ 58.6 $ 67.5
Items not affecting cash:
Amortization 44.5 46.9
Income tax expense 21.2 24.9
Long-term portion of deferred
reforestation obligations 13.4 14.1
Foreign exchange loss on long-term debt - 3.8
Changes in mark-to-market value of
derivative financial instruments 3.4 (5.3)
Employee future benefits 3.2 3.5
Net finance expense 4.4 8.8
Other, net 4.3 (0.7)
Defined benefit pension plan contributions (13.5) (13.5)
Income taxes recovered (paid), net (11.8) 0.5
-------------------------------------------------------------------------
127.7 150.5
Net change in non-cash working capital
(Note 9) (177.8) (94.5)
-------------------------------------------------------------------------
(50.1) 56.0
-------------------------------------------------------------------------
Financing activities
Change in operating bank loans 106.8 13.0
Finance expenses paid (2.8) (2.5)
Share purchases (Note 8) (2.0) -
Cash distributions paid to non-
controlling interests (2.1) (2.4)
-------------------------------------------------------------------------
99.9 8.1
-------------------------------------------------------------------------
Investing activities
Additions to property, plant and equipment
and intangible assets, net (53.1) (46.4)
Loan repayment from Scotch & Gulf Lumber,
LLC (Note 11) 2.6 -
Other, net (0.9) 5.6
-------------------------------------------------------------------------
(51.4) (40.8)
-------------------------------------------------------------------------
Increase (decrease) in cash and cash
equivalents(i) (1.6) 23.3
Cash and cash equivalents at beginning of
period(i) 89.5 (17.1)
-------------------------------------------------------------------------
Cash and cash equivalents at end of
period(i) $ 87.9 $ 6.2
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(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 Corporation
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 (the "financial
statements") have been prepared in accordance with International Accounting
Standard ("IAS") 34 Interim Financial Reporting, and include the accounts of
Canfor Corporation and its subsidiary entities, hereinafter referred to as
"Canfor" or "the Company".
These 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
financial statements, including the accounting policies applied, can be found in
the Company's Annual Report for the year ended December 31, 2013, available at
www.canfor.com or www.sedar.com.
Canfor's financial results are impacted by seasonal factors such as weather and
building activity. Adverse weather conditions can cause logging curtailments,
which can affect the supply of raw materials to sawmills and pulp mills. Market
demand also varies seasonally to some degree. For example, building activity and
repair and renovation work, which affects demand for solid wood products, are
generally stronger in the spring and summer months. Shipment volumes are
affected by these factors as well as by global supply and demand conditions.
The currency of presentation for these financial statements is the Canadian dollar.
Accounting Standards Issued and Not Applied
In May 2011, the International Accounting Standards Board ("IASB") issued IFRS
9, Financial Instruments. The required adoption date for IFRS 9 has been
deferred from the original adoption date of January 1, 2015 and is currently
under review by the IASB.
Further details of the new accounting Standard and potential impact on Canfor
can be found in the Company's Annual Report for the year ended December 31,
2013.
2. Inventories
As at As at
March 31, December 31,
(millions of Canadian dollars) 2014 2013
---------------------------------------------------------------------------
Logs $ 218.0 $ 134.5
Finished products 319.0 222.3
Residual fibre 9.5 14.9
Processing materials and supplies 101.1 100.2
---------------------------------------------------------------------------
$ 647.6 $ 471.9
---------------------------------------------------------------------------
---------------------------------------------------------------------------
3. Long-Term Investments and Other
As at As at
March 31, December 31,
(millions of Canadian dollars) 2014 2013
---------------------------------------------------------------------------
Investments $ 53.7 $ 53.8
Term loan to Scotch & Gulf Lumber, LLC
(Note 11) 31.6 33.0
Contingent consideration (Note 12) 12.2 11.4
Other deposits, loans and advances 14.9 14.3
---------------------------------------------------------------------------
$ 112.4 $ 112.5
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Included in Long-Term Investments and Other is Canfor's initial 25% interest in
Scotch & Gulf Lumber, LLC ("Scotch Gulf") and a term loan receivable from Scotch
Gulf (Note 11). Investments also include the Company's 33.3% investment in
Lakeland Mills Ltd. and Winton Global Lumber Ltd. The Company does not have
significant influence with respect to this investment.
4. Operating Loans
Available Operating Loans
As at As at
March 31, December 31,
(millions of Canadian dollars) 2014 2013
--------------------------------------------------------------------------
Canfor (excluding CPPI)
Available Operating Loans:
Total operating loans - Canfor (excluding
CPPI) $ 350.0 $ 350.0
Drawn (177.0) (64.0)
Letters of credit (principally
unregistered pension plans) (13.8) (14.8)
--------------------------------------------------------------------------
Total available operating loans - Canfor
(excluding CPPI) $ 159.2 $ 271.2
--------------------------------------------------------------------------
CPPI
Available Operating Loans:
Operating loan facility $ 110.0 $ 110.0
Facility for letters of credit related to
energy agreements 20.0 20.0
--------------------------------------------------------------------------
Total operating loans - CPPI 130.0 130.0
Drawn (5.0) (10.6)
Energy letters of credit (12.2) (12.2)
--------------------------------------------------------------------------
Total available operating loans - CPPI $ 112.8 $ 107.2
--------------------------------------------------------------------------
Consolidated:
Total operating loans $ 480.0 $ 480.0
Total available operating loans $ 272.0 $ 378.4
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Canfor's principal operating loans, excluding Canfor Pulp Products Inc.
("CPPI"), mature on February 28, 2018. Interest is payable at floating rates
based on the lenders' Canadian prime rate, bankers acceptances, US dollar base
rate or US dollar LIBOR rate, plus a margin that varies with the Company's net
debt to total capitalization ratio.
The terms of CPPI's operating loan facility include interest payable at floating
rates that vary depending on the ratio of net debt to total capitalization and
is based on lenders' Canadian prime rate, bankers acceptances, US dollar base
rate or US dollar LIBOR rate, plus a margin. The maturity date of this facility
is January 31, 2018.
Both Canfor's and CPPI's operating loan facilities have certain financial
covenants that stipulate maximum net debt to total capitalization ratios and
minimum net worth amounts based on shareholders' equity.
CPPI has a separate facility with a maturity date of June 30, 2015 to cover
energy-related letters of credit. At March 31, 2014, $9.4 million of
energy-related letters of credit were covered under this facility with the
balance of $2.8 million covered under CPPI's general operating loan facility.
As at March 31, 2014, the Company and CPPI were in compliance with all covenants
relating to their operating loans. Substantially all borrowings of CPPI
(operating loans and long-term debt) are non-recourse to other entities within
the Company.
5. Employee Future Benefits
For the three months ended March 31, 2014, a loss of $32.8 million (before tax)
was recognized in other comprehensive income in relation to changes in the
valuation of the Company's employee future benefit plans. The loss reflects a
lower discount rate used to value the net retirement benefit obligations, offset
in part by a modest return on plan assets. For the three months ended March 31,
2013, a gain of $7.7 million (before tax) was recognized in other comprehensive
income.
For the Company's defined benefit plans, a one percentage point increase in the
discount rate used in calculating the actuarial estimate of future liabilities
would decrease the accrued benefit obligation by an estimated $78.1 million.
The discount rate assumptions used to estimate the changes in net retirement
benefit obligations were as follows:
---------------------------------------------------------------------------
Pension Benefit Plans
Discount rate
March 31, 2014 4.40%
December 31, 2013 4.80%
March 31, 2013 4.10%
December 31, 2012 4.20%
---------------------------------------------------------------------------
Other Benefit Plans
Discount rate
March 31, 2014 4.50%
December 31, 2013 4.90%
March 31, 2013 4.30%
December 31, 2012 4.40%
---------------------------------------------------------------------------
---------------------------------------------------------------------------
6. Financial Instruments
Canfor's cash and cash equivalents, accounts receivable, other deposits, loans
and advances, operating loans, accounts payable and accrued liabilities, and
long-term debt are measured at amortized cost subsequent to initial measurement.
At March 31, 2014, the fair value of the Company's long-term debt approximates
its amortized cost of $153.3 million (December 31, 2013 - $153.1 million).
Derivative instruments are measured at fair value. IFRS 13, Fair Value
Measurement, requires classification of financial instruments within a hierarchy
that prioritizes the inputs to fair value measurement.
The three levels of the fair value hierarchy are:
Level 1 - Unadjusted quoted prices in active markets for identical
assets or liabilities;
Level 2 - Inputs other than quoted prices that are observable for the
asset or liability, either directly or indirectly;
Level 3 - Inputs that are not based on observable market data.
The following table summarizes Canfor's financial instruments measured at fair
value at March 31, 2014 and December 31, 2013, and shows the level within the
fair value hierarchy in which they have been classified:
Fair Value As at As at
Hierarchy March 31, December 31,
(millions of Canadian dollars) Level 2014 2013
--------------------------------------------------------------------------
Financial assets measured at
fair value
Derivative financial
instruments - held for trading Level 2 $ 0.3 $ 0.6
Royalty receivable - available
for sale Level 3 4.7 5.3
Contingent consideration -
available for sale (Note 12) Level 3 12.2 12.8
--------------------------------------------------------------------------
$ 17.2 $ 18.7
--------------------------------------------------------------------------
Financial liabilities measured
at fair value
Derivative financial
instruments - held for trading Level 2 $ 3.5 $ 0.3
--------------------------------------------------------------------------
$ 3.5 $ 0.3
--------------------------------------------------------------------------
--------------------------------------------------------------------------
The royalty receivable and contingent consideration are measured at fair value
at each reporting period and are presented in Other Accounts Receivable and
Long-Term Investments and Other on the consolidated balance sheet, depending on
their respective liquidity. The fair value of the royalty receivable is
determined by discounting future expected cash flows based on energy price
assumptions and future sales volume assumptions until the termination of the
royalty agreement in September 2015. The fair value of the contingent
consideration is determined by discounting future expected cash flows based on
forecast oriented strand board ("OSB") prices, sales volumes, foreign exchange
rates and margins for the Peace Valley OSB operation (Note 12).
The Company uses a variety of derivative financial instruments to reduce its
exposure to risks associated with fluctuations in foreign exchange rates, lumber
prices, pulp prices, energy costs, and floating interest rates on long-term
debt.
At March 31, 2014, the fair value of derivative financial instruments was a net
liability of $3.2 million (December 31, 2013 - net asset of $0.3 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 month periods ended March 31, 2014 and 2013:
3 months ended March 31,
(millions of Canadian dollars) 2014 2013
-------------------------------------------------------------------------
Foreign exchange collars and forward
contracts $ (2.9) $ 1.4
Energy derivatives 0.2 0.1
Lumber futures 0.1 2.2
Pulp futures (0.3) -
Interest rate swaps (0.6) (0.4)
-------------------------------------------------------------------------
$ (3.5) $ 3.3
-------------------------------------------------------------------------
-------------------------------------------------------------------------
7. Income Taxes
3 months ended March 31,
(millions of Canadian dollars) 2014 2013
--------------------------------------------------------------------------
Current $ (13.9) $ (5.2)
Deferred (7.3) (19.7)
--------------------------------------------------------------------------
Income tax expense $ (21.2) $ (24.9)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
The reconciliation of income taxes calculated at the statutory rate to the
actual income tax provision is as follows:
3 months ended March 31,
(millions of Canadian dollars) 2014 2013
-------------------------------------------------------------------------
Income tax expense at statutory rate 2014 -
26.0% (2013 - 25.0%) $ (20.7) $ (23.1)
Add (deduct):
Non-taxable income related to non-
controlling interests in limited
partnerships 0.1 -
Entities with different income tax rates
and other tax adjustments (0.4) (1.3)
Permanent difference from capital gains
and losses and other non-deductible items (0.2) (0.5)
-------------------------------------------------------------------------
Income tax expense $ (21.2) $ (24.9)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
In addition to the amounts recorded to net income, a tax recovery of $8.5
million was recorded to other comprehensive income for the three month period
ended March 31, 2014 (three months ended March 31, 2013 - expense of $1.9
million) in relation to the actuarial gains (losses) on defined benefit employee
compensation plans.
8. Earnings Per Share and Normal Course Issuer Bid
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.
3 months ended March 31,
2014 2013
--------------------------------------------------------------------------
Weighted average number of common shares 139,894,792 142,752,431
--------------------------------------------------------------------------
--------------------------------------------------------------------------
On March 5, 2014, the Company renewed its normal course issuer bid whereby it
can purchase for cancellation up to 6,995,228 common shares or approximately 5%
of its issued and outstanding common shares as of February 28, 2014. The renewed
normal course issuer bid is set to expire on March 4, 2015. During the first
quarter of 2014, Canfor purchased 196,400 common shares for $5.0 million (an
average of $25.46 per common share), of which $2.0 million was paid in the
quarter and the balance paid in April 2014.
9. Net Change in Non-Cash Working Capital
3 months ended March 31,
(millions of Canadian dollars) 2014 2013
-------------------------------------------------------------------------
Accounts receivable $ (13.8) $ (48.1)
Inventories (194.9) (99.5)
Prepaid expenses and other assets (2.2) 1.5
Accounts payable, accrued liabilities and
current portion of deferred reforestation
obligations 33.1 51.6
-------------------------------------------------------------------------
Net increase in non-cash working capital $ (177.8) $ (94.5)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
10. Segment Information
Canfor has two reportable segments (lumber segment and pulp and paper segment)
which offer different products and are managed separately because they require
different production processes and marketing strategies.
Sales between segments are accounted for at prices that approximate fair value.
These include sales of residual fibre from the lumber segment to the pulp and
paper segment for use in the pulp production process.
The Company's panels business does not meet the criteria to be reported fully as
a separate segment and is included in Unallocated & Other below.
(millions of Pulp & Unallocated Elimination
Canadian dollars) Lumber Paper & Other Adjustment Consolidated
----------------------------------------------------------------------------
3 months ended March
31, 2014
Sales to external
customers $ 495.7 246.2 - - $ 741.9
Sales to other
segments $ 35.5 - - (35.5) $ -
Operating income
(loss) $ 56.4 36.5 (8.5) - $ 84.4
Amortization $ 27.9 16.5 0.1 - $ 44.5
Capital
expenditures(1) $ 39.6 10.1 3.4 - $ 53.1
Identifiable assets $ 1,920.0 782.0 183.1 - $ 2,885.1
----------------------------------------------------------------------------
3 months ended March
31, 2013
Sales to external
customers $ 542.3 243.5 0.5 - $ 786.3
Sales to other
segments $ 31.2 - - (31.2) $ -
Operating income
(loss) $ 88.4 18.9 (7.3) - $ 100.0
Amortization $ 27.3 19.4 0.2 - $ 46.9
Capital
expenditures(1) $ 38.0 7.0 1.4 - $ 46.4
Identifiable assets $ 1,692.6 777.3 144.7 - $ 2,614.6
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Capital expenditures represent cash paid for capital assets during the
periods. Pulp & Paper includes capital expenditures by CPPI that were
partially financed by government grants.
11. Phased Purchase of Scotch & Gulf Lumber, LLC
On August 9, 2013, the Company completed the first phase of the purchase of
Scotch Gulf for $29.5 million, representing an initial 25% interest in Scotch
Gulf, plus transaction closing costs and a proportionate share of working
capital. Canfor's initial 25% interest will increase over a 3 year period to 33%
after twelve months, 50% after eighteen months and 100% at the end of the term.
Scotch Gulf has an option under the purchase agreement to accelerate the final
closing of the phased purchase to a date earlier than August 2016 under certain
conditions. The aggregate purchase price for Scotch Gulf is US$80.0 million,
plus working capital.
As part of the transaction, Scotch Gulf borrowed $34.0 million from Canfor in
the form of a term loan that will be repaid from the distribution of cash
earnings over the course of the phased purchase agreement with any net
outstanding amount at August 2016 applied against the final phase purchase price
payment. The term loan has an interest rate equal to the floating rate on
Canfor's principal operating loans plus 1.0% and is secured by Scotch Gulf's
operating assets. At March 31, 2014, $31.6 million was outstanding on the term
loan receivable which is included in Long-Term Investments and Other on the
balance sheet (Note 3).
12. Sale of Canfor-LP OSB Joint Venture
On May 31, 2013, the Company completed the sale of its 50% share in Canfor-LP
OSB, which owns the Peace Valley OSB mill, to Louisiana-Pacific Corporation
("LP") for cash proceeds of $77.9 million including working capital. A pre-tax
gain on sale of $38.3 million was recorded in the second quarter of 2013 which
included recognition of Canfor's share of the operating income for the first
half of 2013.
As part of the sale, Canfor may receive additional annual consideration over a 3
year period, starting June 1, 2013, contingent on Peace Valley OSB's annual
adjusted earnings before interest, tax, depreciation and amortization. At March
31, 2014, the fair value of the contingent consideration is $12.2 million, and
is presented in Long-Term Investments and Other (Note 3). During the first
quarter of 2014, Canfor recognized a $0.6 million negative fair value adjustment
on the contingent consideration in other expense.
13. Sale of Daaquam Sawmill
On March 28, 2014, the Company completed the sale of its Daaquam Sawmill. Total
gross proceeds related to the disposition of the Daaquam operation approximated
$25.0 million, all of which were received subsequent to period end. A pre-tax
gain of $2.2 million was recorded in the first quarter of 2014 in Other Income.
FOR FURTHER INFORMATION PLEASE CONTACT:
Media Contact:
Christine Kennedy
Vice President, Public Affairs & Corporate Communications
(604) 661-5225
Christine.Kennedy@canfor.com
Investor Contact:
Pat Elliott
Vice President & Treasurer
(604) 661-5441
Patrick.Elliott@canfor.com
Silver Pursuit Resources Ltd. (TSXV:SPF)
과거 데이터 주식 차트
부터 5월(5) 2024 으로 6월(6) 2024
Silver Pursuit Resources Ltd. (TSXV:SPF)
과거 데이터 주식 차트
부터 6월(6) 2023 으로 6월(6) 2024
