VANCOUVER, Oct. 28, 2015 /CNW/ - Canfor Corporation (TSX:
CFP) today reported a net loss attributable to shareholders
("shareholder net loss") of $17.3
million, or $0.13 per share,
for the third quarter of 2015, compared to shareholder net income
of $11.1 million, or $0.08 per share, for the second quarter of 2015
and $45.5 million, or $0.34 per share, for the third quarter of
2014. For the nine months ended September 30, 2015, the Company's shareholder net
income was $23.1 million, or
$0.17 per share, compared to
shareholder net income of $145.3
million, or $1.05 per share,
reported for the comparable period of 2014.
The following table summarizes selected financial information
for the Company for the comparative periods:
(millions of Canadian dollars, except per share
amounts) |
|
Q3 |
|
Q2 |
|
YTD |
|
Q3 |
|
YTD |
|
2015 |
|
2015 |
|
2015 |
|
2014 |
|
2014 |
Sales |
$ |
989.9 |
$ |
952.4 |
$ |
2,872.3 |
$ |
838.0 |
$ |
2,487.2 |
Operating income before
amortization |
$ |
61.1 |
$ |
69.8 |
$ |
263.9 |
$ |
132.7 |
$ |
402.9 |
Operating income |
$ |
8.5 |
$ |
17.6 |
$ |
109.8 |
$ |
85.6 |
$ |
267.3 |
Net income (loss) attributable to
equity
shareholders of the Company |
$ |
(17.3) |
$ |
11.1 |
$ |
23.1 |
$ |
45.5 |
$ |
145.3 |
Net income (loss) per share
attributable to equity
shareholders of the Company, basic and diluted |
$ |
(0.13) |
$ |
0.08 |
$ |
0.17 |
$ |
0.34 |
$ |
1.05 |
Adjusted shareholder net income
(loss) |
$ |
6.4 |
$ |
(2.0) |
$ |
50.9 |
$ |
50.7 |
$ |
153.8 |
Adjusted shareholder net income
(loss) per
share, basic and diluted |
$ |
0.05 |
$ |
(0.02) |
$ |
0.38 |
$ |
0.38 |
$ |
1.11 |
After adjusting for items affecting comparability with the prior
periods, the Company's adjusted shareholder net income for the
third quarter of 2015 was $6.4
million, or $0.05 per share,
compared to an adjusted shareholder net loss of $2.0 million, or $0.02 per share, for the second quarter of
2015. Canfor's adjusted shareholder net income for the third
quarter of 2014 was $50.7 million, or
$0.38 per share.
The Company reported operating income of $8.5 million for the third quarter of 2015, down
$9.1 million from $17.6 million reported for the second quarter of
2015. Results for the third quarter included one-time costs
of $19.4 million (before tax)
associated with the announced closure of the Canal Flats sawmill. Excluding the
impact of the Canal Flats sawmill
closure, higher earnings in the third quarter of 2015 reflected
improved pulp and paper segment results driven by fewer maintenance
outages, improved productivity and a modest increase in Northern
Bleached Softwood Kraft ("NBSK") pulp sales realizations which more
than offset challenging market conditions in the lumber
segment.
In September 2015, key benchmark
lumber prices fell to levels not seen since early 2012 as a
combination of weak demand in China and oversupply in North America pushed lumber prices
lower. Low grade lumber products, in particular, which are
principally sold to China saw more
pronounced declines. Lumber demand in North America remained relatively stable as
total US housing starts in the current quarter averaged 1,163,000
units SAAR (seasonally adjusted annual rate), in line with the
previous quarter, while housing starts in Canada averaged 209,000 units SAAR, up 9% from
the previous quarter.
The average benchmark North American Random Lengths Western
Spruce/Pine/Fir ("SPF") 2x4 #2&Btr price was US$269 per Mfbm in the third quarter of 2015, in
line with the second quarter of 2015 while the benchmark Southern
Yellow Pine ("SYP") East 2x4 #2 price was down US$52 per Mfbm, or 14%, to US$331 per Mfbm. Western SPF lumber sales
realizations were broadly in line with the second quarter as the
benefit of a 6% weaker Canadian dollar outweighed declines in low
grade lumber prices and higher export taxes in the third quarter of
2015. SYP sales realizations were moderately lower in the
third quarter of 2015, as the impact of lower US-dollar benchmark
prices for narrower width dimensions was partly offset by a
combination of less pronounced price decreases in most wider
dimension grades and the high-value product mix produced at the
recently acquired US South operations.
Lumber shipments at over 1.3 billion board feet were down 2%
from the previous quarter principally reflecting slightly lower
lumber production as productivity improvements were more than
offset by an additional statutory holiday in Canada and shift configuration changes at
certain Western SPF operations in the third quarter of 2015.
Overall lumber unit manufacturing costs were down slightly compared
to the previous quarter partly due to improved productivity and
seasonally lower energy costs in the third quarter of 2015.
Global softwood pulp markets weakened slightly through the third
quarter of 2015, reflecting a seasonal slowdown in shipments and
minimal industry downtime through the summer months. The
average NBSK pulp list price to North
America, as published by RISI, was down US$13 per tonne, or 1%, to US$967 per tonne with a more pronounced decrease
in NBSK list prices to China. However, overall NBSK unit sales
realizations were modestly higher compared to the previous quarter
as the benefit of a 6% weaker Canadian dollar outweighed lower NBSK
US-dollar list prices in the current quarter. Bleached
Chemi-Thermo Mechanical Pulp ("BCTMP") markets and prices continued
to be challenging in the current quarter, with pulp unit sales
realizations remaining under pressure through the period.
Pulp shipments and production levels were both up approximately
5% from the previous quarter reflecting improved operating rates at
the Company's NBSK operations and fewer maintenance outages in the
current quarter. In the latter part of September, the
Northwood NBSK pulp mill entered its scheduled maintenance outage
reducing NBSK production by approximately 6,000 tonnes in the
current quarter. The Northwood pulp mill completed its
maintenance outage on schedule in early October and is now
operating at target levels. In the comparative second quarter
of 2015, scheduled maintenance outages were completed at the
Intercontinental and Prince George NBSK pulp mills and the Taylor
BCTMP pulp mill, reducing production by 14,000 tonnes. Pulp
unit manufacturing costs saw a modest decrease from the second
quarter of 2015 largely reflecting the increased productivity and
production, as well as lower energy and chemical costs, in the
current quarter. The Company continues to see the benefits from its
recent investment in energy based projects including the recently
completed Intercontinental pulp mill turbine that was commissioned
in April 2015.
During the third quarter, the Company announced the acquisition
of Anthony Forest Products ("AFP") based in El Dorado, Arkansas. AFP owns one sawmill,
which produces premium SYP lumber located in Arkansas, two laminating facilities which
produce beams and glulam products located in Arkansas and Georgia and two chip mills located in
Louisiana and Texas. In addition, AFP owns a 50% joint
venture with EACOM Timber Corporation located in Sault Ste. Marie, Ontario that manufactures
I-joists. The acquisition of AFP is anticipated to close in
the fourth quarter of 2015. In conjunction with the
acquisition, Canfor completed a US$100.0
million financing at an interest rate of 4.40% with an
average maturity in 2024.
Commenting on the Company's third quarter results, Canfor's
President and Chief Executive Officer, Don
Kayne, said, "Despite challenging lumber markets, we
continued to see a positive trend in productivity across our
operations." Kayne added "the pulp and paper segment performed very
well during the quarter, delivering strong results despite some
weakening in global pulp market conditions."
Looking ahead, North American lumber prices are forecast to
improve slightly in the fourth quarter of 2015 due to relatively
stable demand and light field inventory levels. The lumber
market in Japan is forecast to
remain stable while market conditions in China are projected to show a slight
improvement as inventory levels return to a more normalized
state. With reported global softwood pulp inventories at the
high end of what is considered a balance market, there is some risk
of downward pressure on global softwood pulp prices in the fourth
quarter of 2015.
Additional Information and Conference Call
A conference call to discuss the third quarter's financial and
operating results will be held on Thursday,
October 29, 2015 at 8:00 AM Pacific
time. To participate in the call, please dial 416-764-8688
or Toll-Free 888-390-0546. For instant replay access until
November 12, 2015, please dial
888-390-0541 and enter participant pass code 418826#. 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, Alabama, Georgia and Mississippi. Canfor produces primarily
softwood lumber and specialized wood products. Canfor also
owns a 51.4% 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 and also produces Bleached
Chemi-Thermo Mechanical Pulp. Canfor shares are traded on the
Toronto Stock Exchange under the symbol CFP.
Canfor Corporation
Third Quarter 2015
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
September 30, 2015 relative to the
quarters ended June 30, 2015 and
September 30, 2014, and the financial
position of the Company at September 30,
2015. It should be read in conjunction with Canfor's
unaudited interim consolidated financial statements and
accompanying notes for the quarters ended September 30, 2015 and 2014, as well as the 2014
annual MD&A and the 2014 audited consolidated financial
statements and notes thereto, which are included in Canfor's Annual
Report for the year ended December 31,
2014 (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 (Loss) 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 (Loss) before Amortization,
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 (Loss) 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 (Loss) 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. Throughout this discussion reference is made to the
current quarter which refers to the results for the third quarter
of 2015.
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 October 28, 2015.
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.
THIRD QUARTER 2015 OVERVIEW
Selected Financial Information and Statistics
(millions of Canadian dollars, except per share
amounts) |
|
Q3 |
|
Q2 |
|
YTD |
|
Q3 |
|
YTD |
|
2015 |
|
2015 |
|
2015 |
|
2014 |
|
2014 |
Operating income (loss) by
segment: |
|
|
|
|
|
|
|
|
|
|
|
Lumber |
$ |
(26.9) |
$ |
5.1 |
$ |
26.5 |
$ |
59.6 |
$ |
190.1 |
|
Pulp and Paper |
$ |
42.3 |
$ |
20.9 |
$ |
106.2 |
$ |
33.1 |
$ |
100.5 |
|
Unallocated and Other |
$ |
(6.9) |
$ |
(8.4) |
$ |
(22.9) |
$ |
(7.1) |
$ |
(23.3) |
Total operating income |
$ |
8.5 |
$ |
17.6 |
$ |
109.8 |
$ |
85.6 |
$ |
267.3 |
Add: Amortization |
$ |
52.6 |
$ |
52.2 |
$ |
154.1 |
$ |
47.1 |
$ |
135.6 |
Total operating income before
amortization1 |
$ |
61.1 |
$ |
69.8 |
$ |
263.9 |
$ |
132.7 |
$ |
402.9 |
Add (deduct): |
|
|
|
|
|
|
|
|
|
|
|
Working capital movements |
$ |
7.1 |
$ |
86.3 |
$ |
(7.8) |
$ |
(0.2) |
$ |
(85.2)) |
|
Defined benefit plan withdrawals
(contributions), net |
$ |
2.7 |
$ |
(5.5) |
$ |
0.2 |
$ |
(6.4) |
$ |
(25.8) |
|
Income taxes paid, net |
$ |
(25.1) |
$ |
(12.1) |
$ |
(59.2) |
$ |
(15.1) |
$ |
(36.4) |
|
Other operating cash flows, net2 |
$ |
16.2 |
$ |
(12.5) |
$ |
32.7 |
$ |
8.5 |
$ |
20.2 |
Cash from operating
activities |
$ |
62.0 |
$ |
126.0 |
$ |
229.8 |
$ |
119.5 |
$ |
275.7 |
Add (deduct): |
|
|
|
|
|
|
|
|
|
|
|
Finance expenses paid |
$ |
(3.8) |
$ |
(3.0) |
$ |
(9.4) |
$ |
(3.3) |
$ |
(8.7) |
|
Repayment of long-term debt, net |
$ |
(50.0) |
$ |
- |
$ |
(50.0) |
$ |
- |
$ |
- |
|
Distributions paid to non-controlling
interests |
$ |
(43.1) |
$ |
(6.7) |
$ |
(52.8) |
$ |
(2.7) |
$ |
(7.7) |
|
Share purchases |
$ |
- |
$ |
(13.2) |
$ |
(39.2) |
$ |
(1.2) |
$ |
(108.9) |
|
Capital additions, net |
$ |
(61.1) |
$ |
(49.4) |
$ |
(156.3) |
$ |
(63.5) |
$ |
(179.6) |
|
Timber investment loan |
$ |
(30.0) |
$ |
- |
$ |
(30.0) |
$ |
- |
$ |
- |
|
Proceeds received from sale of Lakeland
Winton |
$ |
15.0 |
$ |
- |
$ |
15.0 |
$ |
- |
$ |
- |
|
Acquisitions |
$ |
- |
$ |
(66.4) |
$ |
(139.5) |
$ |
(9.9) |
$ |
(9.9) |
|
Change in restricted cash3 |
$ |
- |
$ |
- |
$ |
50.2 |
$ |
- |
$ |
- |
|
Proceeds from the sale of Daaquam Sawmill |
$ |
- |
$ |
- |
$ |
- |
$ |
0.7 |
$ |
23.6 |
|
Repayment from Scotch & Gulf Lumber, LLC |
$ |
- |
$ |
- |
$ |
4.1 |
$ |
2.7 |
$ |
7.4 |
|
Other, net |
$ |
(5.2) |
$ |
(16.6) |
$ |
(26.5) |
$ |
(5.6) |
$ |
(4.8) |
Change in cash / operating
loans |
$ |
(116.2) |
$ |
(29.3) |
$ |
(204.6) |
$ |
36.7 |
$ |
(12.9) |
ROIC - Consolidated
period-to-date4 |
|
(0.9%) |
|
0.1% |
|
1.9% |
|
3.5% |
|
10.7% |
Average exchange rate (US$ per
C$1.00)5 |
$ |
0.764 |
$ |
0.813 |
$ |
0.794 |
$ |
0.918 |
$ |
0.914 |
1 Amortization includes amortization of certain
capitalized major maintenance costs. |
2 Further information on operating cash flows can be
found in the Company's unaudited interim consolidated financial
statements. |
3 Change in restricted cash relates to amounts
transferred into an escrow bank account for the first phase of
the
Beadles & Balfour acquisition which closed on January 2,
2015. |
4 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. |
5 Source - Bank of Canada (average noon rate for the
period). |
Analysis of Specific Material Items Affecting Comparability of
Shareholder Net Income (loss)
After-tax impact, net of non-controlling
interests |
|
|
|
|
|
|
|
|
|
|
(millions of Canadian dollars, except per
share
amounts) |
|
Q3
2015 |
|
Q2
2015 |
|
YTD
2015 |
|
Q3
2014 |
|
YTD
2014 |
Shareholder net income (loss), as
reported |
$ |
(17.3) |
$ |
11.1 |
$ |
23.1 |
$ |
45.5 |
$ |
145.3 |
(Gain) loss on derivative financial
instruments |
$ |
9.3 |
$ |
(7.7) |
$ |
18.8 |
$ |
0.7 |
$ |
0.7 |
Mill closure provision6 |
$ |
14.4 |
$ |
- |
$ |
14.4 |
$ |
- |
$ |
- |
Mark-to-market gain on investment in Lakeland
Mills Ltd. and Winton Global Lumber Ltd.7 |
$ |
- |
$ |
(6.1) |
$ |
(6.1) |
$ |
- |
$ |
- |
Mark-to-market loss on Taylor Pulp contingent
consideration, net8 |
$ |
- |
$ |
0.7 |
$ |
0.7 |
$ |
- |
$ |
- |
Mark-to-market adjustment to Canfor-LP OSB
sale contingent consideration9 |
$ |
- |
$ |
- |
$ |
- |
$ |
4.5 |
$ |
9.4 |
Gain on sale of Daaquam Sawmill |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
$ |
(1.6) |
Net impact of above items |
$ |
23.7 |
$ |
(13.1) |
$ |
27.8 |
$ |
5.2 |
$ |
8.5 |
Adjusted shareholder net income (loss) |
$ |
6.4 |
$ |
(2.0) |
$ |
50.9 |
$ |
50.7 |
$ |
153.8 |
Shareholder net income (loss) per share
(EPS), as reported |
$ |
(0.13) |
$ |
0.08 |
$ |
0.17 |
$ |
0.34 |
$ |
1.05 |
Net impact of above items per
share10 |
$ |
0.18 |
$ |
(0.10) |
$ |
0.21 |
$ |
0.04 |
$ |
0.06 |
Adjusted shareholder net income (loss)
per
share10 |
$ |
0.05 |
$ |
(0.02) |
$ |
0.38 |
$ |
0.38 |
$ |
1.11 |
6 During the third quarter of 2015, the Company
recorded one-time costs of $19.4 million (before tax)
associated
with the announced closure of the Canal Flats sawmill. |
7 On July 1, 2015, Canfor sold its 33.3% interest in
Lakeland Mills Ltd. and Winton Global Lumber Ltd. for $30.0
million. In the second quarter of 2015, Canfor's investment
was recorded at fair value and $7.0 million
mark-to-market gain (before-tax) was recognized. |
8 As part of the sale of the BCTMP Taylor pulp mill
to CPPI on January 30, 2015, Canfor could receive contingent
consideration based on the Taylor pulp mill's future earnings over
a three year period. On the acquisition date,
the contingent consideration was valued at $1.8 million
(before-tax) and Canfor recorded an asset and CPPI
recorded an offsetting liability for this amount. During the
second quarter of 2015, the contingent consideration
asset and liability were revalued to nil. The adjustment
above reflects the impact to Canfor EPS net of
non-controlling interest. |
9 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 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. The estimated fair value of
the contingent consideration at September 30, 2015 is nil. |
10 The year-to-date net impact of the adjusting
items per share and adjusted shareholder net income per share
may not equal the sum of the quarterly per share amounts due to
rounding and the weighted average common
shares outstanding during the applicable period. |
The Company reported operating income of $8.5 million for the third quarter of 2015, down
$9.1 million from $17.6 million reported for the second quarter of
2015. Results for the third quarter included one-time costs
of $19.4 million (before tax)
associated with the announced closure of the Canal Flats sawmill. Excluding the
impact of the Canal Flats sawmill
closure, higher earnings in the third quarter of 2015 reflected
improved pulp and paper segment results driven by fewer maintenance
outages, improved productivity and a modest increase in Northern
Bleached Softwood Kraft ("NBSK") pulp sales realizations which more
than offset challenging market conditions in the lumber
segment.
In September 2015, key benchmark
lumber prices fell to levels not seen since early 2012 as a
combination of weak demand in China and oversupply in North America pushed lumber prices
lower. Low grade lumber products, in particular, which are
principally sold to China saw more
pronounced declines. Lumber demand in North America remained relatively stable as
total US housing starts in the current quarter averaged 1,163,000
units SAAR (seasonally adjusted annual rate), in line with the
previous quarter, while housing starts in Canada averaged 209,000 units SAAR, up 9% from
the previous quarter.
The average benchmark North American Random Lengths Western
Spruce/Pine/Fir ("SPF") 2x4 #2&Btr price was US$269 per Mfbm in the third quarter of 2015, in
line with the second quarter of 2015 while the benchmark Southern
Yellow Pine ("SYP") East 2x4 #2 price was down US$52 per Mfbm, or 14%, to US$331 per Mfbm. Western SPF lumber sales
realizations were broadly in line with the second quarter as the
benefit of a 6% weaker Canadian dollar outweighed declines in low
grade lumber prices and higher export taxes in the third quarter of
2015. SYP sales realizations were moderately lower in the
third quarter of 2015, as the impact of lower US-dollar benchmark
prices for narrower width dimensions was partly offset by a
combination of less pronounced price decreases in most wider
dimension grades and the high-value product mix produced at the
recently acquired US South operations.
Lumber shipments at over 1.3 billion board feet were down 2%
from the previous quarter principally reflecting slightly lower
lumber production as productivity improvements were more than
offset by an additional statutory holiday in Canada and shift configuration changes at
certain Western SPF operations in the third quarter of 2015.
Overall lumber unit manufacturing costs were down slightly compared
to the previous quarter partly due to improved productivity and
seasonally lower energy costs in the third quarter of 2015.
Global softwood pulp markets weakened slightly through the third
quarter of 2015, reflecting a seasonal slowdown in shipments and
minimal industry downtime through the summer months. The
average NBSK pulp list price to North
America, as published by RISI, was down US$13 per tonne, or 1%, to US$967 per tonne with a more pronounced decrease
in NBSK list prices to China. However, overall NBSK unit sales
realizations were modestly higher compared to the previous quarter
as the benefit of a 6% weaker Canadian dollar outweighed lower NBSK
US-dollar list prices in the current quarter. Bleached
Chemi-Thermo Mechanical Pulp ("BCTMP") markets and prices continued
to be challenging in the current quarter, with pulp unit sales
realizations remaining under pressure through the period.
Pulp shipments and production levels were both up approximately
5% from the previous quarter reflecting improved operating rates at
the Company's NBSK operations and fewer maintenance outages in the
current quarter. In the latter part of September, the
Northwood NBSK pulp mill entered its scheduled maintenance outage
reducing NBSK production by approximately 6,000 tonnes in the
current quarter. The Northwood pulp mill completed its
maintenance outage on schedule in early October and is now
operating at target levels. In the comparative second quarter
of 2015, scheduled maintenance outages were completed at the
Intercontinental and Prince George NBSK pulp mills and the Taylor
BCTMP pulp mill, reducing production by 14,000 tonnes. Pulp
unit manufacturing costs saw a modest decrease from the second
quarter of 2015 largely reflecting the increased productivity and
production, as well as lower energy and chemical costs, in the
current quarter. The Company continues to see the benefits from its
recent investment in energy based projects including the recently
completed Intercontinental pulp mill turbine that was commissioned
in April 2015.
During the third quarter, the Company announced
the acquisition of Anthony Forest Products ("AFP") based in
El Dorado, Arkansas. AFP owns one
sawmill, which produces premium SYP lumber located in Arkansas, two laminating facilities which
produce beams and glulam products located in Arkansas and Georgia and two chip mills located in
Louisiana and Texas. In addition, AFP owns a 50% joint
venture with EACOM Timber Corporation located in Sault Ste. Marie, Ontario that manufactures
I-joists. The acquisition of AFP is anticipated to close in
the fourth quarter of 2015. In conjunction with the
acquisition, Canfor completed a US$100.0
million financing at an interest rate of 4.40% with an
average maturity in 2024.
Compared to the third quarter of 2014, operating
income was down $77.1 million
reflecting an $86.5 million decrease
in earnings in the lumber segment and a $9.2
million increase in earnings for the pulp and paper
segment. Excluding the costs associated with the announced
closure of the Canal Flats sawmill
and lumber inventory valuation adjustments in the third quarter of
2015, the decline in lumber segment operating income of
$60.9 million was principally
attributable to lower lumber sales realizations as lower US-dollar
benchmark lumber prices, export taxes on lumber shipments from
Canada to the US and higher
Western SPF log costs outweighed the benefit of a 17% weaker
Canadian dollar in the current quarter. Total lumber
production and shipments were well up from the same quarter in 2014
as a result of the Company's recent US South acquisitions and
productivity improvements, which more than offset changes in shift
configurations at certain Western SPF operations in the current
quarter. Improved pulp segment results reflected increased
NBSK productivity and modestly higher NBSK sales realizations as
the benefit of the 17% weaker Canadian dollar outweighed lower NBSK
US-dollar list prices to all regions in the third quarter of
2015.
OPERATING RESULTS BY BUSINESS SEGMENT
Lumber
Selected Financial Information and Statistics - Lumber
|
|
Q3 |
|
Q2 |
|
YTD |
|
Q3 |
|
YTD |
(millions of Canadian dollars, unless otherwise
noted) |
|
2015 |
|
2015 |
|
2015 |
|
2014 |
|
2014 |
Sales |
$ |
695.3 |
$ |
676.0 |
$ |
2,018.3 |
$ |
570.5 |
$ |
1,680.7 |
Operating income before amortization |
$ |
8.4 |
$ |
40.6 |
$ |
129.5 |
$ |
88.7 |
$ |
275.2 |
Operating income (loss) |
$ |
(26.9) |
$ |
5.1 |
$ |
26.5 |
$ |
59.6 |
$ |
190.1 |
Inventory valuation adjustments |
$ |
6.2 |
$ |
- |
$ |
6.2 |
$ |
- |
$ |
- |
Mill closure provisions |
$ |
19.4 |
$ |
- |
$ |
19.4 |
$ |
- |
$ |
- |
Operating income (loss) excluding inventory
valuation adjustments and one-time items |
$ |
(1.3) |
$ |
5.1 |
$ |
52.1 |
$ |
59.6 |
$ |
190.1 |
Average SPF 2x4 #2&Btr lumber price in
US$11 |
$ |
269 |
$ |
270 |
$ |
282 |
$ |
357 |
$ |
353 |
Average SPF price in Cdn$11 |
$ |
352 |
$ |
332 |
$ |
355 |
$ |
389 |
$ |
386 |
Average SYP 2x4 #2 lumber price in
US$12 |
$ |
331 |
$ |
383 |
$ |
376 |
$ |
438 |
$ |
415 |
Average SYP price in Cdn$12 |
$ |
433 |
$ |
471 |
$ |
474 |
$ |
477 |
$ |
454 |
U.S. housing starts (thousand units
SAAR)13 |
|
1,163 |
|
1,158 |
|
1,100 |
|
1,029 |
|
982 |
Production - SPF lumber (MMfbm)14 |
|
926.6 |
|
961.0 |
|
2,853.6 |
|
926.3 |
|
2,842.2 |
Production - SYP lumber (MMfbm)14,
15 |
|
301.8 |
|
304.9 |
|
841.2 |
|
150.4 |
|
439.4 |
Shipments - SPF lumber (MMfbm)16 |
|
1,014.3 |
|
1,046.1 |
|
2,991.0 |
|
956.2 |
|
2,798.2 |
Shipments - SYP lumber (MMfbm)15,
16 |
|
322.7 |
|
315.6 |
|
874.7 |
|
162.2 |
|
473.8 |
Shipments - wholesale lumber (MMfbm) |
|
6.0 |
|
4.8 |
|
16.2 |
|
6.0 |
|
16.1 |
11 Western Spruce/Pine/Fir, per thousand board feet
(Source - Random Lengths Publications, Inc.); Average price
in Cdn$ calculated as average Western Spruce/Pine/Fir price in US$
multiplied by the average exchange rate - C$
per US$1.00 according to Bank of Canada average noon rate for the
period. |
12 Southern Yellow Pine, Eastside, per thousand
board feet (Source - Random Lengths Publications, Inc.);
Average
price in Cdn$ calculated as average Southern Yellow Pine, Eastside
price in US$ multiplied by the average exchange
rate - C$ per US$1.00 according to Bank of Canada average noon rate
for the period. |
13 Source - U.S. Census Bureau, seasonally adjusted
annual rate ("SAAR"). |
14 Excluding production of trim blocks.
Production in prior periods has been restated from sawmill
production to
finished lumber production. |
15 Effective January 2, 2015, January 30, 2015 and
April 1, 2015, SYP lumber production and shipment volumes
include volume from Beadles & Balfour, Scotch Gulf and Southern
Lumber, respectively. |
16 Canfor-produced lumber, including lumber
purchased for remanufacture and excluding trim blocks. |
Overview
Operating loss for the lumber segment for the third quarter of
2015 was $26.9 million, a decrease of
$32.0 million compared to operating
income of $5.1 million in the
previous quarter, and down $86.5
million compared to operating income of $59.6 million in the same quarter of 2014.
Excluding inventory valuation adjustments and one-time costs
associated with the announced closure of the Canal Flats sawmill, the lumber segment's
operating loss was $1.3 million for
the third quarter of 2015, down $6.4
million from the second quarter of 2015 and down
$60.9 million from the same quarter
in 2014.
The decrease in adjusted operating income for the lumber segment
compared to the immediately preceding quarter principally reflected
lower SYP lumber sales realizations partially offset by slightly
lower unit manufacturing costs at the Company's Western SPF
operations. Western SPF lumber sales realizations were
broadly in line with the second quarter of 2015 as the benefit of a
6% weaker Canadian dollar was largely offset by higher export taxes
on Canadian shipments to the US and sharp declines in the price of
low grade products largely destined for offshore markets.
Total lumber production was down 3% as the positive impact of
productivity gains in the current quarter were negated by one
additional statutory holiday in Canada and fewer shifts at certain Western SPF
operations.
Compared to the third quarter of 2014, the decline in operating
income in the current quarter principally reflected lower lumber
sales realizations as lower US-dollar benchmark lumber prices and
the resulting export taxes outweighed the benefit of a 17% weaker
Canadian dollar. Total lumber shipments and production were
well up from the same quarter in 2014 due to the Company's recent
US South acquisitions and productivity improvements, which were
offset by changes in shift configurations at certain Western SPF
operations in the current quarter.
Markets
In September 2015, US-dollar
benchmark lumber prices fell to levels not seen since early 2012 as
weak demand in China and
oversupply in North America
combined to push lumber prices lower. In China, the recent slowdown in construction
activity and increased Russian supply as a result of the
devaluation of the Russian Ruble led to sharp declines in prices
for low grade lumber products. In North America, lumber
demand remained relatively stable in the third quarter of 2015,
reflecting steadily improving new home construction and repair and
remodeling activity; total US housing starts averaged 1,163,000
units17 SAAR (seasonally adjusted annual rate) for the
third quarter of 2015, in line with the second quarter of 2015 and
up 13% from the same period in 2014. Single-family starts,
which consume a higher proportion of lumber, were moderately
higher, up 6% compared to the second quarter of 2015, to 746,000
units17 SAAR. However, a combination of the weaker
Canadian dollar and increased North American lumber production,
with proportionately higher volumes directed to the US market,
resulted in Western SPF and SYP lumber prices coming under
increasing pressure as the quarter progressed.
In Canada, housing starts
averaged 209,000 units18 SAAR, up 9% from the previous
quarter and up 7% from the same period in 2014.
Sales
Sales for the lumber segment for the third quarter of 2015 were
$695.3 million, compared to
$676.0 million in the previous
quarter and $570.5 million for the
third quarter of 2014. The 3% increase in lumber sales
revenue compared to the second quarter of 2015 primarily reflected
seasonally higher log sales as well as higher SYP lumber shipments
and the weaker Canadian dollar, which more than offset declines in
SYP US-dollar benchmark prices during the third quarter of
2015. Compared to the third quarter of 2014, the increase of
$124.8 million, or 22%, in sales
revenue was principally due to higher SYP lumber shipments related
to the Company's recent acquisitions in the US South and the
benefit of a 17% weaker Canadian dollar, which more than offset
lower lumber prices relative to the same quarter in 2014.
Total lumber shipments in the third quarter of 2015, at over 1.3
billion board feet, were down 2% from the previous quarter, largely
due to the 3% lower total lumber production in the current
quarter. Third quarter lumber shipments reflected a higher
proportion of volumes sold to North
America, mostly due to excess supply of low grade lumber in
China. Compared to the third
quarter of 2014, lumber shipments were up 19% reflecting the
Company's recent growth in the US South as well as a larger
reduction in Western SPF inventory levels in the current
quarter.
Western SPF lumber sales realizations were broadly in line with
the previous quarter, as the benefit of a 6% weaker Canadian dollar
were largely offset by declines in low grade lumber prices and
higher average export taxes in the current quarter. The
average benchmark North American Random Lengths Western SPF 2x4
#2&Btr price at US$269 per Mfbm
was in line with second quarter of 2015 while prices for low grade
products principally destined for offshore markets were
significantly lower in the current quarter pushing offshore
realizations downward. During the third quarter of 2015, the
Company paid export taxes on lumber shipments from Canada to the US of 15% in July, 5% in August
and 5% in September for a quarterly export tax expense of
$14.3 million in the quarter up
$3.8 million from the second quarter
of 2015.
SYP sales realizations in the third quarter of 2015 were
moderately lower compared to the previous quarter with the average
Random Lengths SYP East 2x4 #2 price down US$52 per Mfbm to US$331 per Mfbm. Overall SYP sales
realizations reflected less pronounced price decreases in most wide
dimension products and the higher-value product mix produced at the
recently acquired US South operations.
Compared to the third quarter of 2014, Western SPF lumber sales
realizations were significantly lower principally reflecting lower
benchmark lumber prices and higher export taxes on shipments to the
US offset in part by the favourable impact of the 15 cents, or 17%, weaker Canadian dollar.
The average North American Random Lengths Western SPF 2x4
#2&Btr price was down US$88/Mfbm,
or 25%, to US$269 per Mfbm in the
third quarter of 2015. North American lumber sales
realizations were further impacted by export tax expenses of
$14.3 million in the current quarter
compared to no export tax on shipments from Canada to the US in the third quarter of
2014. Offshore lumber sales realizations were also lower in
the current quarter with sharp price declines across all grades,
particularly low grade products, partly offset by the weaker
Canadian dollar. While the average Random Lengths benchmark
SYP East 2x4 #2 price was down US$107
per Mfbm, or 24%, compared to the third quarter of 2014, SYP sales
realizations showed only a modest decline, as a result of the
higher-value sales mix produced at the recently acquired US South
operations as well as less pronounced price decreases in wide
dimension products.
17 U.S. Census Bureau |
18 CMHC - Canada Mortgage and Housing
Corporation |
Residual fibre revenue in the current quarter was higher
compared to both comparable periods largely due to additional chip
sales volume from the recently acquired US South operations.
Log sales were also higher compared to both comparable periods
reflecting increased timber harvesting in Western Canada following spring break-up in
the second quarter of 2015 and incremental log sales from the
recently acquired US South operations.
Operations
Lumber production at over 1.2 billion board feet, was down 3%
from the previous quarter as productivity improvements were more
than offset by an additional statutory holiday in Canada and fewer shifts at certain Western SPF
operations in the third quarter of 2015. SYP lumber
production in the third quarter of 2015 was broadly in line with
the previous quarter. Compared to the third quarter of 2014,
total lumber production was up 14% reflecting the incremental
production from the acquisitions of Scotch Gulf, Beadles &
Balfour and Southern Lumber. Excluding lumber production from
the recently acquired US South operations, lumber production was
slightly higher reflecting improved productivity following several
capital upgrades offset by certain changes in operating shift
configurations since the same quarter in the prior year.
Overall, unit manufacturing costs in both Western Canada and the US South were slightly
lower than the previous quarter. Lower unit manufacturing costs
reflected the impact of improved productivity and lower energy
costs due to lower diesel prices and seasonally lower energy
usage. During the third quarter of 2015, an inventory
valuation adjustment of $6.2 million
was recorded against Western SPF lumber inventory principally
reflecting lower offshore prices and 15% export tax in the first
twelve days of October prior to expiry of the Softwood Lumber
Agreement (see further discussion on the Softwood Lumber Agreement
expiry in the "Risks and Uncertainties" section).
During the third quarter of 2015, the Company announced the
permanent closure of the Canal
Flats sawmill due to the lack of economic fibre in the
region and depressed market conditions in the markets that the
sawmill serves. As a result of the announcement, the Company
recorded $19.4 million in related
closure costs, including the impairment of certain buildings and
equipment. The Canal Flats
sawmill is anticipated to cease operations partway through
November 2015.
Unit manufacturing costs in the current quarter of 2015 were in
line with those in the third quarter of 2014 with the positive
impact of productivity gains and lower energy costs offsetting
higher log contractor costs and longer hauling distances in
Western Canada.
Pulp and Paper
Selected Financial Information and Statistics - Pulp and
Paper19
|
|
Q3 |
|
Q2 |
|
YTD |
|
Q3 |
|
YTD |
(millions of Canadian dollars, unless otherwise
noted) |
|
2015 |
|
2015 |
|
2015 |
|
2014 |
|
2014 |
Sales |
$ |
294.6 |
$ |
276.4 |
$ |
854.0 |
$ |
267.5 |
$ |
806.5 |
Operating income before
amortization20 |
$ |
58.6 |
$ |
36.5 |
$ |
154.0 |
$ |
49.9 |
$ |
149.5 |
Operating income |
$ |
42.3 |
$ |
20.9 |
$ |
106.2 |
$ |
33.1 |
$ |
100.5 |
Average pulp price delivered to U.S. -
US$21 |
$ |
967 |
$ |
980 |
$ |
981 |
$ |
1,030 |
$ |
1,026 |
Average price in Cdn$21 |
$ |
1,266 |
$ |
1,205 |
$ |
1,236 |
$ |
1,122 |
$ |
1,123 |
Production - pulp (000 mt) |
|
310.5 |
|
294.6 |
|
913.3 |
|
305.3 |
|
904.4 |
Production - paper (000 mt) |
|
34.6 |
|
31.0 |
|
101.0 |
|
35.9 |
|
108.0 |
Shipments - pulp (000 mt) |
|
307.4 |
|
291.9 |
|
886.7 |
|
291.0 |
|
861.4 |
Shipments - paper (000 mt) |
|
32.1 |
|
33.8 |
|
98.0 |
|
35.7 |
|
106.7 |
19 Includes the Taylor pulp mill and 100% of Canfor
Pulp Products Inc., which are consolidated in Canfor's results.
The Taylor pulp mill was sold to Canfor Pulp Products Inc. on
January 30, 2015. Pulp production and shipment
volumes presented are for both NBSK and BCTMP. |
20 Amortization includes amortization of certain
capitalized major maintenance costs. |
21 Per tonne, NBSK pulp list price delivered to U.S.
(as published by RISI); Average price in Cdn$ calculated as
average pulp price delivered to US - US$ multiplied by the average
exchange rate - C$ per US$1.00 according
to Bank of Canada average noon rate for the period. |
Overview
Operating income for the pulp and paper segment was $42.3 million for the third quarter of 2015, up
$21.4 million from the previous
quarter and $9.2 million from the
third quarter of 2014.
Improved pulp and paper segment results compared to the second
quarter of 2015 reflected fewer maintenance outages and improved
productivity as well as a modest increase in NBSK pulp sales
realizations in the third quarter of 2015. The Northwood NBSK
pulp mill entered its scheduled maintenance outage in the latter
part of September while in the previous quarter, scheduled
maintenance outages were taken at the Intercontinental and Prince
George NBSK pulp mills, and the Taylor BCTMP pulp mill. Operating
results in the third quarter of 2015 also benefited from a modest
decrease in pulp unit manufacturing costs as well as higher energy
revenues. Operating income at the Company's paper operation
was also higher reflecting marginally higher unit sales
realizations in the current quarter which benefitted from the
continued weakening in the Canadian dollar and the impact of a
scheduled maintenance outage at the Company's paper machine in the
second quarter. The Company continues to see the benefits from its
recent investment in energy based projects including the recently
completed Intercontinental pulp mill turbine that was commissioned
in April 2015.
Compared to the third quarter of 2014, the improvement in the
current quarter's pulp segment results reflected increased NBSK
productivity coupled with modestly higher NBSK sales realizations
as the benefits of a 17% weaker Canadian dollar more than offset
lower NBSK US-dollar list prices to all regions. Total pulp
unit manufacturing costs were broadly in line with the same quarter
in 2014, as improved NBSK productivity and lower energy costs
offset higher NBSK fibre costs and higher maintenance costs related
to the Northwood outage in the current quarter. Higher energy
revenues compared to the same quarter in 2014 reflected the
incremental contribution from the Intercontinental turbine
generator which was completed in the second quarter of 2015.
Results at the Company's paper operation benefitted from
significantly higher unit sales realizations, which more than
offset higher unit manufacturing costs largely the result of
increased market-driven slush pulp costs.
Markets
Global softwood pulp markets weakened slightly through the third
quarter of 2015, reflecting a seasonal slowdown in shipments
through the summer months. Global softwood pulp producer
inventory levels increased 1 day from the end of June 2015 to 30 days' supply in September 201522, partly reflecting
the aforementioned seasonality in shipments and minimal industry
maintenance downtime (market conditions are generally considered
balanced when inventories are in the 27-30 days of supply
range).
Global shipments of bleached softwood kraft pulp decreased
slightly compared to the previous quarter and were broadly in line
with the same period in 201423. The decrease in
softwood pulp shipments compared to the previous quarter primarily
reflected lower shipments to China.
Sales
The Company's pulp shipments in the third quarter of 2015
totalled 307,400 tonnes, an increase of 15,500 tonnes, or 5%, from
the previous quarter and included increased NBSK shipments to both
Asia and North America, which more than offset lower
shipments to Europe.
Compared to the third quarter of 2014, pulp shipments were up
16,400 tonnes, or 6%. Paper shipments in the third quarter of
2015 were 32,100 tonnes, down 1,700 tonnes, or 5%, reflecting lower
shipments to Latin America and, to
a lesser extent, Europe in the
current quarter as well as a reduction in paper inventory levels in
the second quarter of 2015. Compared to the third quarter of
2014, paper shipments were down 3,600 tonnes, or 10%, reflecting
lower offshore shipments in the current quarter. Prime
bleached paper shipments, which attract higher prices, were down 3%
from the second quarter of 2015 and down 6% from the same quarter
in 2014.
The average North American US-dollar NBSK pulp list price, as
published by RISI, was down US$13 per
tonne, or 1%, compared to the average for the second quarter of
2015 with a similar decrease seen in the average European NBSK
price and a US$37 per tonne, or 5%,
decrease in the average China NBSK price. Average NBSK pulp
unit sales realizations were up in the third quarter as the benefit
of a 5 cent, or 6%, weaker Canadian
dollar outweighed the slightly lower list prices in the third
quarter of 2015. Discount levels from NBSK list prices were
consistent with the previous quarter. Marginally lower BCTMP
unit sales realizations continued to reflect challenging BCTMP
markets; prices trended lower in the current quarter but were
mitigated somewhat by the impact of the weaker Canadian
dollar. The Company's paper operation's current quarter unit
sales realizations saw a marginal improvement from the second
quarter of 2015 as the benefits of a 6% weaker Canadian dollar more
than offset lower paper prices and prime bleached shipments during
the quarter.
22 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"). |
23 As reported by PPPC statistics. |
Compared to the third quarter of 2014, NBSK pulp sales
realizations were moderately higher, with the benefit of a 17%
weaker Canadian dollar outweighing lower US-dollar NBSK pulp list
prices in all regions, increased shipments to lower-margin regions
and slightly higher discounts to North
America and Europe in the
current quarter. The average North American NBSK pulp list
price was US$63 per tonne, or 6%,
lower than the third quarter of 2014 with more pronounced declines
seen in US-dollar NBSK list prices to China where the average NBSK price was down
US$90 per tonne, or 12%. Also
compared to the same quarter in 2014, paper unit sales realizations
were up significantly as lower prices in nearly all regions and
lower prime bleached shipments were more than offset by the
benefits of a 17% weaker Canadian dollar and increased shipments to
higher-margin regions.
Energy revenue was up compared to the second quarter of 2015
reflecting increased turbine operating days and moderately higher
energy prices in the current quarter. Compared to the same
quarter in 2014, energy revenue was also higher with the
incremental contribution from the Intercontinental Pulp Mill
turbine which started selling power under an Electricity Purchase
Agreement in April
2015.
Operations
Pulp production in the current quarter was 310,500 tonnes, up
15,900 tonnes, or 5%, from the previous quarter, and up 5,200
tonnes, or 2%, from the third quarter of 2014. Production in
the current quarter increased as a result of fewer maintenance
outages quarter-over-quarter and improved operating rates in the
third quarter of 2015. Pulp production in the current quarter
included the scheduled maintenance outage at the Northwood Pulp
Mill which reduced quarterly production by 6,000 tonnes while the
second quarter of 2015 included scheduled outages at the
Intercontinental and Prince George Pulp Mills reducing NBSK
production by 11,000 tonnes, and a scheduled outage at the Taylor
pulp mill reducing BCTMP production by 3,000 tonnes.
Excluding the scheduled maintenance outages in both the third and
second quarters of 2015, total pulp production was up approximately
8,000 tonnes in the third quarter, mostly as a result of improved
NBSK pulp productivity, which included a new monthly production
record in August.
Paper production in the third quarter of 2015 was 34,600 tonnes,
up 3,600 tonnes, or 12%, from the second quarter of 2015 and down
1,300 tonnes, or 4%, from the third quarter of 2014. Current
quarter paper production returned to more normalized levels
following a scheduled nine day maintenance outage in the second
quarter of 2015. Compared to the third quarter of 2014, the
modest decline in paper production reflected slightly lower
productivity rates in the current quarter.
Pulp unit manufacturing costs saw a modest decrease from the
previous quarter, largely reflecting the quarter-over-quarter
impacts of the scheduled maintenance outages as well as improved
operating rates, coupled with seasonally lower energy costs and
lower chemical costs in the current quarter. Fibre costs for
the NBSK pulp mills were slightly lower than the previous quarter
as higher prices for sawmill residual chips (linked to Canadian
dollar NBSK pulp sales realizations) were more than offset by lower
delivered freight costs and lower whole log chip costs. Lower
BCTMP fibre costs in the current quarter reflected lower prices for
sawmill residual chips (linked to lower Canadian dollar BCTMP pulp
sales realizations). Paper unit manufacturing costs decreased
marginally from the second quarter of 2015, largely reflecting the
scheduled maintenance outage in the previous quarter offset by
increased market-driven slush pulp costs and higher operating
supply costs in the current quarter.
Pulp unit manufacturing costs were broadly in line with the
third quarter of 2014, with the inclusion of the lower cost BCTMP
Taylor pulp operation in the current quarter, improved NBSK
productivity and lower energy costs offsetting modestly higher
maintenance costs and higher NBSK fibre costs. Contributing
to the higher NBSK pulp fibre costs in the current quarter were
higher prices for sawmill residual chips, primarily reflecting
increased Canadian dollar NBSK pulp sales realizations compared to
the third quarter of 2014 and lower freight costs. Paper unit
manufacturing costs reflected the impact of both higher slush pulp
costs, principally reflecting higher pulp sales realizations, and
higher operating supply costs in the current quarter.
Unallocated and Other Items
Selected Financial Information
|
|
Q3 |
|
Q2 |
|
YTD |
|
Q3 |
|
YTD |
(millions of Canadian dollars) |
|
2015 |
|
2015 |
|
2015 |
|
2014 |
|
2014 |
Operating loss of Panels
operations24 |
$ |
(1.5) |
$ |
(0.6) |
$ |
(2.8) |
$ |
(0.7) |
$ |
(3.1) |
Corporate costs |
$ |
(5.4) |
$ |
(7.8) |
$ |
(20.1) |
$ |
(6.4) |
$ |
(20.2) |
Finance expense, net |
$ |
(6.4) |
$ |
(5.6) |
$ |
(17.3) |
$ |
(4.8) |
$ |
(13.6) |
Gain (loss) on derivative financial
instruments25 |
$ |
(14.9) |
$ |
12.7 |
$ |
(30.2) |
$ |
(1.1) |
$ |
(1.5) |
Other income (expense), net25 |
$ |
10.1 |
$ |
3.3 |
$ |
24.2 |
$ |
0.2 |
$ |
(7.3) |
24 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. |
25 In the prior periods, certain amounts have been
reclassified from Other Income to (Gain) Loss
on Derivative Financial Instruments, with no impact to net
income. |
During the third quarter of 2015, the Panels operations recorded
a $1.5 million operating loss, up
from both comparable periods primarily reflecting ongoing
maintenance, site clean-up and demolition costs during the
quarter.
Corporate costs were $5.4 million
for the third quarter of 2015, down $2.4
million from the previous quarter and down $1.0 from the third quarter of 2014 primarily due
to lower share based compensation expense recorded in the third
quarter of 2015.
Net finance expense for the third quarter of 2015 was
$6.4 million, up $0.8 million from the previous quarter and up
$1.6 million from the third quarter
of 2014. Finance expense in the current quarter included
one-time fees associated with the term debt refinancing that
occurred in the third quarter of 2015 (see further discussion on
the term debt refinancing in the "Liquidity and Financial
Requirements" section). In addition, the increase in finance
expense from the same quarter in 2014 also reflect higher net
interest expense related to the Company's employee future benefit
plans as well as higher net debt levels in the current quarter.
The Company uses a variety of derivative financial instruments
as partial economic hedges against unfavourable changes in foreign
exchange rates, energy costs, lumber prices and interest
rates. For the third quarter of 2015, the Company recorded a
net loss of $14.9 million,
principally reflecting realized losses on US dollar foreign
exchange collars as a result of the weakening of the Canadian
dollar during the quarter and to a lesser extent both realized and
unrealized mark-to-market losses on diesel hedges.
Other income, net for the third quarter of 2015 of $10.1 million principally reflected favourable
exchange movements on US dollar denominated cash, receivables and
payables, resulting from the weakening of the Canadian dollar
through the quarter.
Other Comprehensive Income (Loss)
The following table summarizes Canfor's Other Comprehensive
Income (Loss) for the comparable periods:
|
|
Q3 |
|
Q2 |
|
YTD |
|
Q3 |
|
YTD |
(millions of Canadian dollars) |
|
2015 |
|
2015 |
|
2015 |
|
2014 |
|
2014 |
Foreign exchange translation differences for
foreign operations, net of tax |
$ |
29.2 |
$ |
(6.2) |
$ |
57.3 |
$ |
11.2 |
$ |
11.8 |
Defined benefit actuarial gains (losses), net
of
tax |
$ |
9.9 |
$ |
16.4 |
$ |
23.1 |
$ |
11.7 |
$ |
(38.8) |
Other comprehensive income (loss), net of tax |
$ |
39.1 |
$ |
10.2 |
$ |
80.4 |
$ |
22.9 |
$ |
(27.0) |
In the third quarter of 2015, the Company recorded an after-tax
gain of $9.9 million in relation to
changes in the valuation of the Company's employee future benefit
plans. The gain principally reflected a higher discount rate
used to value the net defined benefit obligation in part offset by
a lower than expected return on plan assets. After-tax gains
of $16.4 million and $11.7 million were recorded in the second quarter
of 2015 and third quarter of 2014, respectively, with the gains in
both quarters reflecting higher discount rates, while the gain in
the third quarter of 2014 also included a modest return on plan
assets.
In addition, the Company recorded a $29.2
million other comprehensive gain in the quarter for foreign
exchange translation differences for foreign operations, reflecting
favourable foreign exchange movements during the quarter.
This compared to a foreign exchange translation loss of
$6.2 million in the previous quarter
and a foreign translation gain of $11.2
million in the third quarter of 2014.
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:
|
|
Q3 |
|
Q2 |
|
YTD |
|
Q3 |
|
YTD |
(millions of Canadian dollars, except
for ratios) |
|
2015 |
|
2015 |
|
2015 |
|
2014 |
|
2014 |
Increase (decrease) in cash and cash
equivalents |
$ |
(57.2) |
$ |
(70.3) |
$ |
(71.6) |
$ |
38.7 |
$ |
56.9 |
|
Operating activities |
$ |
62.0 |
$ |
126.0 |
$ |
229.8 |
$ |
119.5 |
$ |
275.7 |
|
Financing activities |
$ |
(44.6) |
$ |
(71.2) |
$ |
(34.1) |
$ |
(7.2) |
$ |
(57.5) |
|
Investing activities |
$ |
(74.6) |
$ |
(125.1) |
$ |
(267.3) |
$ |
(73.6) |
$ |
(161.3) |
Ratio of current assets to current
liabilities |
|
|
|
|
|
1.3:1 |
|
|
|
1.7:1 |
Net debt to capitalization |
|
|
|
|
|
15.3% |
|
|
|
8.5% |
ROIC - Consolidated
period-to-date |
|
(0.9%) |
|
0.1% |
|
1.9% |
|
3.5% |
|
10.7% |
Changes in Financial Position
Cash generated from operating activities was $62.0 million in the third quarter of 2015,
compared to cash generated of $126.0
million in the previous quarter and cash generated of
$119.5 million in the same quarter of
2014. The decrease in operating cash flows from the previous
quarter principally reflected lower cash earnings in the current
period and the seasonal drawdown of log inventories in Western Canada in the second quarter of 2015.
Also contributing to the reduction in operating cash flows from
both comparative periods were increased income tax installment
payments primarily related to Canfor Pulp Products Inc.
("CPPI"). During the third quarter of 2015, a reduction in
finished inventory and trade receivable levels favourably impacted
operating cash flow. Compared to the third quarter of the
2014, the decrease in operating cash flows was mostly attributable
to lower cash earnings in the current quarter.
Cash used in financing activities was $44.6 million in the current quarter, compared to
cash used of $71.2 million in the
previous quarter and $7.2 million in
the same quarter of 2014. In a refinancing of its Canadian
dollar denominated term debt, the Company reduced its term debt by
$50.0 million in the third quarter of
2015, ahead of its US$100.0 million
private placement financing that closed in early October (see
"Liquidity and Financial Requirements" for more
details). During the current quarter, the Company made
cash distributions of $43.1 million
to non-controlling shareholders, up from $6.7 million in the previous quarter and
$2.7 million in the same quarter of
2014, principally reflecting distributions made to the
non-controlling shareholders of CPPI for the special dividend that
was declared on July 21, 2015.
CPPI purchased 557,401 common shares under its Normal Course Issuer
Bid for $6.9 million, of which
$6.7 million was paid in cash during
the quarter. During the third quarter of 2015, the Company drew
$59.0 million against its operating
loan facility and had $201.0 million
outstanding on this facility at the end of the quarter.
Cash used for investing activities was
$74.6 million in the current quarter,
compared to $125.1 million in the
previous quarter and $73.6 million in
the same quarter of 2014. Cash used for capital additions was
$61.1 million, up $11.7 million from the previous quarter and down
$2.4 million from the third quarter
of 2014. Current quarter capital expenditures included the
ongoing construction of the Company's pellet plants in Chetwynd and Fort
St. John (see further discussion on the pellet plants in the
following "Commitments and Subsequent Events" section), as well as
smaller capital projects at both the SYP and Western SPF lumber
operations including a new sales, supply chain and transportation
ERP system in the US South, which went live on September 28, 2015. In the pulp and paper
segment, capital expenditures primarily related to payments made
for maintenance capital completed in the previous quarter and, to a
lesser extent, payments related to the scheduled maintenance outage
at the Northwood NBSK pulp mill in September. Investing
activities in the current quarter also included cash consideration
paid of $30.0 million related to the
timber investment loan made to Conifex Inc. and $15.0 million received for the first payment
related to the sale of the Company's investment in Lakeland Mills
Ltd. and Winton Global Lumber Ltd ("Lakeland Winton").
Liquidity and Financial Requirements
At September 30,
2015, the Company on a consolidated basis had cash of
$86.7 million, $201.0 million drawn on its operating loans, and
an additional $50.8 million reserved
for several standby letters of credit. During the quarter,
the company drew $59.0 million on its
operating loan and had total available undrawn operating loans at
period end of $265.7 million.
In the third quarter of 2015, Canfor's principal operating loans,
excluding CPPI, were extended to September
28, 2020 and, in conjunction with the extension, the
financial covenants were modified to exclude the minimum net worth
covenant based on shareholders' equity.
As previously highlighted, during the third quarter of 2015, the
Company repaid $50.0 million of its
floating interest rate term debt, while at the same time extending
its new $125.0 million term debt out
to September 28, 2020. The
financial covenants on the new $125.0
million term debt were also modified to exclude the minimum
net worth covenant based on shareholders' equity. In
conjunction with the acquisition of Anthony Forest Products
Company, the Company priced a US$100.0
million financing from Prudential Capital Group which closed
on October 2, 2015. Also during
the third quarter of 2015, the Company entered into a new
eight-year floating interest rate term loan for an additional
US$100.0 million to further support
growth in the US. This loan was undrawn as of September 30, 2015. Separately, 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 the third quarter of 2015 was 15.3%. For Canfor,
excluding CPPI, net debt to capitalization at the end of the third
quarter of 2015 was 15.6%.
On March 5, 2015, the Company
renewed its normal course issuer bid whereby it can purchase for
cancellation up to 6,767,993 common shares or approximately 5% of
its issued and outstanding common shares as of February 28, 2015. The renewed normal
course issuer bid is set to expire on March
4, 2016. During the third quarter of 2015, no common
shares were purchased under the Normal Course Issuer Bid.
Under a separate normal course issuer bid, CPPI purchased shares
from non-controlling shareholders increasing Canfor's ownership to
51.4% by quarter end. Canfor and CPPI may purchase more
shares through the balance of 2015 subject to the terms of their
normal course issuer bids and certain Board approved criteria.
Commitments and Subsequent Events
On January 30, 2015, the Company
completed the third phase of the acquisition of Scotch Gulf
increasing its ownership to 50%. On completion of this phase
of the acquisition, Canfor obtained control for accounting purposes
with the consolidation of Scotch Gulf starting on January 30, 2015. The final phase, whereby
the Company will own 100% of Scotch Gulf, is scheduled to close in
August 2016. The aggregate
purchase price for Scotch Gulf is US$80.5
million plus working capital.
On January 2,
2015, the first phase of the acquisition of Beadles &
Balfour closed representing an initial 55% ownership
interest. Canfor obtained control for accounting purposes
with the consolidation of Beadles & Balfour starting on
January 2, 2015. The final
phase whereby Canfor will wholly own Beadles & Balfour is
scheduled to close at the beginning of 2017. The aggregate
purchase price for Beadles & Balfour is US$68.0 million plus working capital.
In September 2014,
the Company announced plans to construct a pellet plant at both the
Chetwynd and Fort St. John Sawmill
sites, in the Northern British
Columbia interior (the "Pellet Plants") in partnership with
Pacific BioEnergy Corporation ("Pacific BioEnergy"). Canfor
owns an approximate 95% interest in the Pellet Plants while Pacific
BioEnergy owns the remaining 5% and has an option to increase its
ownership interest in the Pellet Plants up to a total of 30% over a
three year period. The Chetwynd Pellet plant is anticipated
to begin production in the fourth quarter of 2015 and the Fort St.
John Pellet plant is anticipated to begin production in the first
quarter of 2016.
On September 28,
2015, the Company entered into an agreement to purchase
Anthony Forest Products Company headquartered in El Dorado, Arkansas for a purchase price of
US$93.5 million, including working
capital. The acquisition is expected to close in the fourth quarter
of 2015.
OUTLOOK
Lumber
North American lumber prices are forecast to improve slightly in
the fourth quarter of 2015 due to relatively stable demand and
light field inventory levels. The lumber market in
Japan is forecast to remain stable
while market conditions in China
are projected to show a slight improvement as inventory levels
return to a more normalized state.
With the low Random Lengths Framing Lumber Composite Price
during the third quarter of 2015, an export duty of 15% was paid on
exports to the US until the current softwood lumber agreement
expired on October 12th,
2015.
Pulp and Paper
For the month of October 2015, the
Company's NBSK pulp list price is US$960 per tonne in North America, unchanged from September 2015. With reported global
softwood pulp inventories at the high end of what is considered a
balanced market, there is some risk of downward pressure on global
softwood pulp prices in the fourth quarter of 2015.
A scheduled maintenance outage at the Northwood Pulp Mill
commenced in September 2015 and was
completed in early October with a projected 26,000 tonnes of
reduced NBSK pulp production, 6,000 tonnes of which fell in the
third quarter of 2015 with the balance in the fourth quarter of
2015. No further maintenance outages are scheduled over the
balance of 2015.
OUTSTANDING SHARES
At October 28, 2015, there were
133,854,663 common shares of the Company 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 2014, the
IASB issued IFRS 15, Revenue from Contracts with Customers,
which will supersede IAS 18, Revenue, IAS 11,
Construction Contracts and related interpretations.
The new standard is effective for annual periods beginning on or
after January 1, 2018. The
Company is in the process of assessing the impact, if any, on the
financial statements of this new standard.
In July 2014, the
International Accounting Standards Board ("IASB") issued IFRS 9,
Financial Instruments. The required adoption date for
IFRS 9 is January 1, 2018 and the
Company is in the process of assessing the impact, if any, on the
financial statements of this new standard.
Further details of the new accounting standards
and potential impact on Canfor can be found in the Company's Annual
Report for the year ended December 31,
2014.
INTERNAL CONTROLS OVER FINANCIAL REPORTING
During the quarter ended September 30,
2015, 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 2014 annual statutory reports which are
available on www.canfor.com or www.sedar.com.
Softwood Lumber Agreement
On October 12,
2015, the Softwood Lumber Agreement ("SLA") expired.
No trade actions may be imposed for the importation of softwood
lumber from Canada to the US for a
period of twelve months following the SLA expiry date. It is
uncertain whether a new agreement between the Governments of
Canada and the U.S. will be
reached.
In the first twelve days of October prior to the
expiry of the SLA, the Company was subject to an export tax of 15%
on US bound Canadian lumber shipments.
SELECTED QUARTERLY FINANCIAL INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q3
2015 |
|
Q2
2015 |
|
Q1
2015 |
|
Q4
2014 |
|
Q3
2014 |
|
Q2
2014 |
|
Q1
2014 |
|
Q4
2013 |
Sales and income
(millions of Canadian dollars) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
$ |
989.9 |
$ |
952.4 |
$ |
930.0 |
$ |
860.4 |
$ |
838.0 |
$ |
907.3 |
$ |
741.9 |
$ |
809.5 |
Operating income |
$ |
8.5 |
$ |
17.6 |
$ |
83.7 |
$ |
62.0 |
$ |
85.6 |
$ |
97.3 |
$ |
84.4 |
$ |
53.8 |
Net income |
$ |
1.4 |
$ |
23.9 |
$ |
47.0 |
$ |
40.5 |
$ |
58.2 |
$ |
64.5 |
$ |
58.6 |
$ |
35.1 |
Shareholder net income (loss) |
$ |
(17.3) |
$ |
11.1 |
$ |
29.3 |
$ |
29.9 |
$ |
45.5 |
$ |
54.3 |
$ |
45.5 |
$ |
28.0 |
Per common share (Canadian dollars) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholder net income (loss) - basic and
diluted |
$ |
(0.13) |
$ |
0.08 |
$ |
0.22 |
$ |
0.22 |
$ |
0.34 |
$ |
0.39 |
$ |
0.33 |
$ |
0.20 |
Book value26 |
$ |
10.00 |
$ |
9.86 |
$ |
9.76 |
$ |
10.25 |
$ |
10.24 |
$ |
9.75 |
$ |
10.05 |
$ |
9.82 |
Statistics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lumber shipments (MMfbm) |
|
1,343 |
|
1,367 |
|
1,172 |
|
1,092 |
|
1,124 |
|
1,236 |
|
927 |
|
1,109 |
Pulp shipments (000 mt) |
|
307 |
|
292 |
|
287 |
|
314 |
|
291 |
|
314 |
|
256 |
|
330 |
Average exchange rate - US$/Cdn$ |
$ |
0.764 |
$ |
0.813 |
$ |
0.806 |
$ |
0.881 |
$ |
0.918 |
$ |
0.917 |
$ |
0.906 |
$ |
0.953 |
Average Western SPF 2x4 #2&Btr lumber price
(US$) |
$ |
269 |
$ |
270 |
$ |
308 |
$ |
340 |
$ |
357 |
$ |
335 |
$ |
367 |
$ |
370 |
Average SYP (East) 2x4 #2 lumber price (US$) |
$ |
331 |
$ |
383 |
$ |
413 |
$ |
427 |
$ |
438 |
$ |
405 |
$ |
403 |
$ |
415 |
Average NBSK pulp list price delivered to U.S.
(US$) |
$ |
967 |
$ |
980 |
$ |
995 |
$ |
1,025 |
$ |
1,030 |
$ |
1,030 |
$ |
1,017 |
$ |
983 |
26 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 the 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 share amounts) |
|
Q3
2015 |
|
Q2
2015 |
|
Q1
2015 |
|
Q4
2014 |
|
Q3
2014 |
|
Q2
2014 |
|
Q1
2014 |
|
Q4
2013 |
Shareholder net income (loss), as
reported |
$ |
(17.3) |
$ |
11.1 |
$ |
29.3 |
$ |
29.9 |
$ |
45.5 |
$ |
54.3 |
$ |
45.5 |
$ |
28.0 |
(Gain) loss on derivative financial
instruments |
$ |
9.3 |
$ |
(7.7) |
$ |
17.2 |
$ |
5.2 |
$ |
0.7 |
$ |
(2.1) |
$ |
2.1 |
$ |
0.1 |
Mill closure provisions |
$ |
14.4 |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
$ |
14.8 |
Mark-to-market gain on investment in
Lakeland Mills Ltd. and Winton Global
Lumber Ltd. |
$ |
- |
$ |
(6.1) |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
Mark-to-market adjustment, net to Taylor
pulp mill contingent consideration |
$ |
- |
$ |
0.7 |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
Mark-to-market adjustment to Canfor-LP
OSB sale contingent consideration |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
$ |
4.5 |
$ |
4.5 |
$ |
0.4 |
$ |
3.6 |
Gain on sale of Daaquam operation |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
$ |
(1.6) |
$ |
- |
Foreign exchange loss on long-term debt
and investments, net |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
$ |
1.5 |
One-time costs associated with collective
agreements for the lumber business |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
$ |
0.8 |
Net impact of above items |
$ |
23.7 |
$ |
(13.1) |
$ |
17.2 |
$ |
5.2 |
$ |
5.2 |
$ |
2.4 |
$ |
0.9 |
$ |
20.8 |
Adjusted shareholder net income
(loss) |
$ |
6.4 |
$ |
(2.0) |
$ |
46.5 |
$ |
35.1 |
$ |
50.7 |
$ |
56.7 |
$ |
46.4 |
$ |
48.8 |
Shareholder net income (loss) per
share (EPS), as reported |
$ |
(0.13) |
$ |
0.08 |
$ |
0.22 |
$ |
0.22 |
$ |
0.34 |
$ |
0.39 |
$ |
0.33 |
$ |
0.20 |
Net impact of above items per share |
$ |
0.18 |
$ |
(0.10) |
$ |
0.13 |
$ |
0.04 |
$ |
0.04 |
$ |
0.02 |
$ |
0.01 |
$ |
0.15 |
Adjusted net income (loss) per share |
$ |
0.05 |
$ |
(0.02) |
$ |
0.35 |
$ |
0.26 |
$ |
0.38 |
$ |
0.41 |
$ |
0.34 |
$ |
0.35 |
Canfor Corporation
Condensed Consolidated Balance Sheets
(millions of Canadian dollars, unaudited)
|
|
As
at
September 30,
2015 |
As at
December 31,
2014 |
ASSETS |
|
|
|
|
|
Current assets |
|
|
|
|
|
Cash and cash equivalents |
|
$ |
86.7 |
$ |
158.3 |
Restricted cash (Note 13(b)) |
|
|
- |
|
50.2 |
Accounts receivable |
- Trade |
|
|
124.8 |
|
91.3 |
|
- Other |
|
|
64.8 |
|
38.8 |
Inventories (Note 2) |
|
|
548.2 |
|
517.7 |
Prepaid expenses and other assets |
|
|
81.1 |
|
46.3 |
Total current assets |
|
|
905.6 |
|
902.6 |
Property, plant and
equipment |
|
|
1,363.4 |
|
1,216.1 |
Timber licenses |
|
|
508.2 |
|
519.5 |
Goodwill and other intangible
assets (Note 13(a,b,c)) |
|
|
195.7 |
|
105.0 |
Retirement benefit surplus
(Note 5) |
|
|
5.6 |
|
0.6 |
Long-term investments and other
(Note 3) |
|
|
77.0 |
|
101.3 |
Deferred income taxes, net |
|
|
1.4 |
|
1.7 |
Total assets |
|
$ |
3,056.9 |
$ |
2,846.8 |
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
Current liabilities |
|
|
|
|
|
Operating loans (Note 4(a)) |
|
$ |
201.0 |
$ |
68.0 |
Accounts payable and accrued
liabilities |
|
|
357.2 |
|
305.8 |
Current portion of deferred
reforestation obligations |
|
|
50.7 |
|
52.1 |
Forward purchase liability (Note
13(a)) |
|
|
73.2 |
|
- |
Total current liabilities |
|
|
682.1 |
|
425.9 |
Long-term debt (Note 4(b)) |
|
|
179.2 |
|
228.6 |
Retirement benefit obligations
(Note 5) |
|
|
256.2 |
|
263.2 |
Deferred reforestation
obligations |
|
|
58.6 |
|
60.0 |
Other long-term
liabilities |
|
|
17.0 |
|
19.6 |
Forward purchase liability
(Note 13(b)) |
|
|
41.4 |
|
- |
Deferred income taxes, net |
|
|
193.9 |
|
211.9 |
Total liabilities |
|
$ |
1,428.4 |
$ |
1,209.2 |
|
|
|
|
|
|
EQUITY |
|
|
|
|
|
Share capital |
|
$ |
1,056.0 |
$ |
1,068.0 |
Contributed surplus and other
equity |
|
|
(74.5) |
|
31.9 |
Retained earnings |
|
|
272.7 |
|
260.1 |
Accumulated foreign exchange
translation differences |
|
|
84.5 |
|
27.2 |
Total equity attributable to equity
shareholders of the Company |
|
|
1,338.7 |
|
1,387.2 |
Non-controlling interests |
|
|
289.8 |
|
250.4 |
Total equity |
|
$ |
1,628.5 |
$ |
1,637.6 |
Total liabilities and
equity |
|
$ |
3,056.9 |
$ |
2,846.8 |
Subsequent Events (Note 14(a,b))
The accompanying notes are an integral part of these condensed
consolidated interim 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 September 30, |
9 months ended September 30, |
(millions of Canadian dollars, except
per share data, unaudited) |
|
2015 |
|
2014 |
|
2015 |
|
2014 |
|
|
|
|
|
|
|
|
|
Sales |
$ |
989.9 |
$ |
838.0 |
$ |
2,872.3 |
$ |
2,487.2 |
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
Manufacturing and product costs |
|
709.1 |
|
544.4 |
|
2,025.1 |
|
1,610.3 |
|
Freight and other distribution costs |
|
165.3 |
|
140.7 |
|
470.8 |
|
410.9 |
|
Export taxes |
|
14.3 |
|
- |
|
24.8 |
|
- |
|
Amortization |
|
52.6 |
|
47.1 |
|
154.1 |
|
135.6 |
|
Selling and administration costs |
|
20.0 |
|
19.0 |
|
64.0 |
|
58.0 |
|
Restructuring, mill closure and severance
costs |
|
20.1 |
|
1.2 |
|
23.7 |
|
5.1 |
|
|
981.4 |
|
752.4 |
|
2,762.5 |
|
2,219.9 |
|
|
|
|
|
|
|
|
|
Operating income |
|
8.5 |
|
85.6 |
|
109.8 |
|
267.3 |
|
|
|
|
|
|
|
|
|
Finance expense, net |
|
(6.4) |
|
(4.8) |
|
(17.3) |
|
(13.6) |
Loss on derivative financial
instruments (Note 6) |
|
(14.9) |
|
(1.1) |
|
(30.2) |
|
(1.5) |
Other income (expense), net |
|
10.1 |
|
0.2 |
|
24.2 |
|
(7.3) |
Net income (loss) before income
taxes |
|
(2.7) |
|
79.9 |
|
86.5 |
|
244.9 |
Income tax recovery (expense) (Note
7) |
|
4.1 |
|
(21.7) |
|
(14.2) |
|
(63.6) |
Net income |
$ |
1.4 |
$ |
58.2 |
$ |
72.3 |
$ |
181.3 |
|
|
|
|
|
|
|
|
|
Net income (loss) attributable
to: |
|
|
|
|
|
|
|
|
Equity shareholders of the
Company |
$ |
(17.3) |
$ |
45.5 |
$ |
23.1 |
$ |
145.3 |
Non-controlling interests |
|
18.7 |
|
12.7 |
|
49.2 |
|
36.0 |
Net income |
$ |
1.4 |
$ |
58.2 |
$ |
72.3 |
$ |
181.3 |
|
|
|
|
|
|
|
|
|
Net income (loss) per common
share: (in Canadian dollars) |
|
|
|
|
|
|
|
|
Attributable to equity shareholders of
the Company |
|
|
|
|
|
|
|
|
|
- Basic and diluted (Note 8) |
$ |
(0.13) |
$ |
0.34 |
$ |
0.17 |
$ |
1.05 |
The accompanying notes are an integral part of these condensed
consolidated interim financial statements.
Canfor Corporation
Condensed Consolidated Statements of Other Comprehensive Income
(Loss)
|
3 months ended September 30, |
9 months ended September 30, |
(millions of Canadian dollars,
unaudited) |
|
2015 |
|
2014 |
|
2015 |
|
2014 |
|
|
|
|
|
|
|
|
|
Net income |
$ |
1.4 |
$ |
58.2 |
$ |
72.3 |
$ |
181.3 |
Other comprehensive income
(loss) |
|
|
|
|
|
|
|
|
Items that will not be recycled
through net income: |
|
|
|
|
|
|
|
|
|
Defined benefit plan actuarial gains
(losses) (Note 5) |
|
13.3 |
|
15.8 |
|
31.2 |
|
(52.5) |
|
Income tax recovery (expense) on
defined benefit plan actuarial |
|
|
|
|
|
|
|
|
|
|
gains (losses) (Note 7) |
|
(3.4) |
|
(4.1) |
|
(8.1) |
|
13.7 |
|
|
9.9 |
|
11.7 |
|
23.1 |
|
(38.8) |
Items that may be recycled through net
income: |
|
|
|
|
|
|
|
|
|
Foreign exchange translation
differences for foreign operations, net |
|
|
|
|
|
|
|
|
|
|
of tax |
|
29.2 |
|
11.2 |
|
57.3 |
|
11.8 |
Other comprehensive income (loss), net
of tax |
|
39.1 |
|
22.9 |
|
80.4 |
|
(27.0) |
Total comprehensive income |
$ |
40.5 |
$ |
81.1 |
$ |
152.7 |
$ |
154.3 |
|
|
|
|
|
|
|
|
|
Total comprehensive income
attributable to: |
|
|
|
|
|
|
|
|
Equity shareholders of the
Company |
$ |
20.4 |
$ |
67.5 |
$ |
101.0 |
$ |
121.7 |
Non-controlling interests |
|
20.1 |
|
13.6 |
|
51.7 |
|
32.6 |
Total comprehensive income |
$ |
40.5 |
$ |
81.1 |
$ |
152.7 |
$ |
154.3 |
The accompanying notes are an integral part of these condensed
consolidated interim financial statements.
Canfor Corporation
Condensed Consolidated Statements of Changes in Equity
|
3 months ended September
30, |
9 months ended September 30, |
(millions of Canadian dollars,
unaudited) |
|
2015 |
|
2014 |
|
2015 |
|
2014 |
|
|
|
|
|
|
|
|
|
Share capital |
|
|
|
|
|
|
|
|
Balance at beginning of period |
$ |
1,056.0 |
$ |
1,068.0 |
$ |
1,068.0 |
$ |
1,103.7 |
Share purchases (Note 8) |
|
- |
|
- |
|
(12.0) |
|
(35.7) |
Balance at end of period |
$ |
1,056.0 |
$ |
1,068.0 |
$ |
1,056.0 |
$ |
1,068.0 |
|
|
|
|
|
|
|
|
|
Contributed surplus and other
equity |
|
|
|
|
|
|
|
|
Balance at beginning of period |
$ |
(74.5) |
$ |
31.9 |
$ |
31.9 |
$ |
31.9 |
Forward purchase liabilities related
to acquisitions (Note 13(a,b)) |
|
- |
|
- |
|
(106.4) |
|
- |
Balance at end of period |
$ |
(74.5) |
$ |
31.9 |
$ |
(74.5) |
$ |
31.9 |
|
|
|
|
|
|
|
|
|
Retained earnings |
|
|
|
|
|
|
|
|
Balance at beginning of period |
$ |
283.1 |
$ |
214.6 |
$ |
260.1 |
$ |
234.2 |
Net income (loss) attributable to
equity shareholders of the Company |
|
(17.3) |
|
45.5 |
|
23.1 |
|
145.3 |
Defined benefit plan actuarial gains
(losses), net of tax |
|
8.5 |
|
10.8 |
|
20.6 |
|
(35.4) |
Share purchases (Note 8) |
|
- |
|
- |
|
(27.2) |
|
(73.2) |
Acquisition of non-controlling
interests (Note 8) |
|
(1.6) |
|
(0.4) |
|
(3.9) |
|
(0.4) |
Balance at end of period |
$ |
272.7 |
$ |
270.5 |
$ |
272.7 |
$ |
270.5 |
|
|
|
|
|
|
|
|
|
Accumulated foreign exchange
translation differences |
|
|
|
|
|
|
|
|
Balance at beginning of period |
$ |
55.3 |
$ |
5.1 |
$ |
27.2 |
$ |
4.5 |
Foreign exchange translation
differences for foreign operations, net |
|
|
|
|
|
|
|
|
|
of tax |
|
29.2 |
|
11.2 |
|
57.3 |
|
11.8 |
Balance at end of period |
$ |
84.5 |
$ |
16.3 |
$ |
84.5 |
$ |
16.3 |
|
|
|
|
|
|
|
|
|
Total equity attributable to equity
holders of the Company |
$ |
1,338.7 |
$ |
1,386.7 |
$ |
1,338.7 |
$ |
1,386.7 |
|
|
|
|
|
|
|
|
|
Non-controlling interests |
|
|
|
|
|
|
|
|
Balance at beginning of period |
$ |
318.1 |
$ |
237.1 |
$ |
250.4 |
$ |
223.1 |
Net income attributable to
non-controlling interests |
|
18.7 |
|
12.7 |
|
49.2 |
|
36.0 |
Defined benefit plan actuarial gains
(losses) attributable |
|
|
|
|
|
|
|
|
|
to non-controlling interests, net of taxes |
|
1.4 |
|
0.9 |
|
2.5 |
|
(3.4) |
Distributions to non-controlling
interests |
|
(43.1) |
|
(2.7) |
|
(52.8) |
|
(7.7) |
Acquisition of non-controlling
interests (Note 8) |
|
(5.3) |
|
(1.6) |
|
(12.0) |
|
(1.6) |
Non-controlling interests arising on
acquisitions (Note 13(a,b)) |
|
- |
|
- |
|
52.5 |
|
- |
Balance at end of period |
$ |
289.8 |
$ |
246.4 |
$ |
289.8 |
$ |
246.4 |
|
|
|
|
|
|
|
|
|
Total equity |
$ |
1,628.5 |
$ |
1,633.1 |
$ |
1,628.5 |
$ |
1,633.1 |
The accompanying notes are an integral part of these condensed
consolidated interim financial statements.
Canfor Corporation
Condensed Consolidated Statements of Cash Flows
|
3 months ended
September 30, |
9 months ended
September 30, |
(millions of Canadian dollars,
unaudited) |
|
2015 |
|
2014 |
|
2015 |
|
2014 |
Cash generated from (used
in): |
|
|
|
|
|
|
|
|
Operating activities |
|
|
|
|
|
|
|
|
|
Net income |
$ |
1.4 |
$ |
58.2 |
$ |
72.3 |
$ |
181.3 |
|
Items not affecting cash: |
|
|
|
|
|
|
|
|
|
|
Amortization |
|
52.6 |
|
47.1 |
|
154.1 |
|
135.6 |
|
|
Income tax expense (recovery) |
|
(4.1) |
|
21.7 |
|
14.2 |
|
63.6 |
|
|
Long-term portion of deferred
reforestation obligations |
|
(4.0) |
|
(3.9) |
|
(2.0) |
|
0.3 |
|
|
Changes in mark-to-market value of
derivative financial |
|
|
|
|
|
|
|
|
|
|
|
instruments |
|
1.3 |
|
1.3 |
|
1.7 |
|
1.7 |
|
|
Employee future benefits |
|
3.7 |
|
3.3 |
|
11.1 |
|
9.7 |
|
|
Finance expense, net |
|
6.4 |
|
4.8 |
|
17.3 |
|
13.6 |
|
|
Mill closure provisions |
|
19.4 |
|
- |
|
19.4 |
|
- |
|
|
Other, net |
|
0.6 |
|
8.7 |
|
8.5 |
|
17.3 |
|
Defined benefit pension plan
withdrawals (contributions), net |
|
2.7 |
|
(6.4) |
|
0.2 |
|
(25.8) |
|
Income taxes paid, net |
|
(25.1) |
|
(15.1) |
|
(59.2) |
|
(36.4) |
|
|
54.9 |
|
119.7 |
|
237.6 |
|
360.9 |
|
Net change in non-cash working capital
(Note 9) |
|
7.1 |
|
(0.2) |
|
(7.8) |
|
(85.2) |
|
|
62.0 |
|
119.5 |
|
229.8 |
|
275.7 |
Financing activities |
|
|
|
|
|
|
|
|
|
Change in operating bank loans (Note
4(a)) |
|
59.0 |
|
2.0 |
|
133.0 |
|
69.8 |
|
Repayment of long-term debt, net (Note
4(b)) |
|
(50.0) |
|
- |
|
(50.0) |
|
- |
|
Finance expenses paid |
|
(3.8) |
|
(3.3) |
|
(9.4) |
|
(8.7) |
|
Share purchases (Note 8) |
|
- |
|
(1.2) |
|
(39.2) |
|
(108.9) |
|
Acquisition of non-controlling
interests (Note 8) |
|
(6.7) |
|
(2.0) |
|
(15.7) |
- |
(2.0) |
|
Cash distributions paid to
non-controlling interests |
|
(43.1) |
|
(2.7) |
|
(52.8) |
|
(7.7) |
|
|
(44.6) |
|
(7.2) |
|
(34.1) |
|
(57.5) |
Investing activities
|
|
|
|
|
|
|
|
|
|
Additions to property, plant and
equipment and intangible |
|
|
|
|
|
|
|
|
|
|
assets, net |
|
(61.1) |
|
(63.5) |
|
(156.3) |
|
(179.6) |
|
Timber investment loan (Note 3) |
|
(30.0) |
|
- |
|
(30.0) |
|
- |
|
Proceeds on sale of Lakeland Winton
(Note 3) |
|
15.0 |
|
- |
|
15.0 |
|
- |
|
Acquisitions (Note 13(a,b,c)) |
|
- |
|
(9.9) |
|
(139.5) |
|
(9.9) |
|
Change in restricted cash (Note
13(b)) |
|
- |
|
- |
|
50.2 |
|
- |
|
Proceeds on sale of Daaquam Sawmill
(Note 11) |
|
- |
|
0.7 |
|
- |
|
23.6 |
|
Other, net |
|
1.5 |
|
(0.9) |
|
(6.7) |
|
(4.6) |
|
|
(74.6) |
|
(73.6) |
|
(267.3) |
|
(161.3) |
Increase (decrease)
in cash and cash equivalents* |
|
(57.2) |
|
38.7 |
|
(71.6) |
|
56.9 |
Cash and cash equivalents at beginning
of period* |
|
143.9 |
|
107.7 |
|
158.3 |
|
89.5 |
Cash and cash equivalents at end of
period* |
$ |
86.7 |
$ |
146.4 |
$ |
86.7 |
$ |
146.4 |
*Cash and cash equivalents include cash on hand less
unpresented cheques.
The accompanying notes are an integral part of these condensed
consolidated interim 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, 2014, available at www.canfor.com or
www.sedar.com.
There have been no new significant estimates or judgments since
the 2014 annual financial statements with the exception of those
related to the acquisitions of Scotch & Gulf Lumber, LLC
("Scotch Gulf"), Beadles Lumber Company & Balfour Lumber
Company Inc. ("Beadles & Balfour"), and Southern Lumber Company
Inc. ("Southern Lumber") (Note 13).
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.
These financial statements were authorized for issue by the
Company's Board of Directors on October 28,
2015.
Accounting Standards Issued and Not
Applied
In May 2014, the
IASB issued IFRS 15, Revenue from Contracts with Customers,
which will supersede IAS 18, Revenue, IAS 11,
Construction Contracts and related interpretations.
The new standard is effective for annual periods beginning on or
after January 1, 2018. The
Company is in the process of assessing the impact, if any, on the
financial statements of this new standard.
In July 2014, the
International Accounting Standards Board ("IASB") issued IFRS 9,
Financial Instruments. The required adoption date for
IFRS 9 is January 1, 2018 and the
Company is in the process of assessing the impact, if any, on the
financial statements of this new standard.
Further details of the new accounting standards
and potential impact on Canfor can be found in the Company's Annual
Report for the year ended December 31,
2014.
2. Inventories
(millions of Canadian dollars,
unaudited) |
As at
September 30,
2015 |
|
As at
December 31,
2014 |
Logs |
$ |
133.3 |
$ |
122.6 |
Finished products |
|
291.1 |
|
281.0 |
Residual fibre |
|
13.0 |
|
10.3 |
Processing materials and
supplies |
|
110.8 |
|
103.8 |
|
$ |
548.2 |
$ |
517.7 |
The above inventory balances are stated after inventory
write-downs from cost to net realizable value. Write-downs at
September 30, 2015 totaled
$7.7 million (December 31, 2014 - nil).
3. Long-Term Investments and Other
(millions of Canadian dollars,
unaudited) |
|
As at
September 30,
2015 |
|
As at
December 31,
2014 |
Investments |
$ |
37.2 |
$ |
64.4 |
Term loan Scotch Gulf (Note
13(a)) |
|
- |
|
23.2 |
Other deposits, loans and
advances |
|
39.8 |
|
13.7 |
|
$ |
77.0 |
$ |
101.3 |
On January 30, 2015 Canfor was
deemed to have control of Scotch Gulf (Note 13 (a)). The
acquisition method of accounting was applied on the acquisition
date of January 30, 2015 and the
equity investment in Scotch Gulf recorded in Long-Term Investments
and Other was derecognised. The term loan between Canfor and Scotch
Gulf was eliminated on consolidation of Scotch Gulf.
On July 1, 2015, the Company sold
its 33.3% investment in Lakeland Mills Ltd. and Winton Global
Lumber Ltd. ("Lakeland Winton") to Robert Stewart Holdings Ltd. for cash
consideration of $30.0 million. The
first installment of $15.0 million
was received on July 1, 2015 and the
second installment for $15.0 million
is scheduled to be received on July 1,
2017 and is recorded as a receivable under Long-Term
Investments and Other.
During the third quarter of 2015, the Company completed an
investment agreement with Conifex Inc. ("Conifex"), a subsidiary of
Conifex Timber Inc. As part of the agreement, Conifex issued a
five-year senior secured note payable to Canfor in the amount of
$30.0 million, secured by a forest
license located in British
Columbia with 200,000 cubic metres of annual allowable cut.
Canfor has the option, exercisable after one year, to convert the
loan into an ownership interest in the forest license.
4. Operating Loans and Long-Term Debt
(a) Available Operating Loans
(millions of Canadian
dollars, unaudited) |
|
As at
September 30,
2015 |
|
As at
December 31,
2014 |
Canfor (excluding
CPPI) |
|
|
|
|
Available Operating
Loans: |
|
|
|
|
|
Operating loan facility -
Canfor |
$ |
350.0 |
$ |
350.0 |
|
Facility for letters of credit -
Canfor |
|
37.5 |
|
37.5 |
|
Total operating loans -
Canfor |
|
387.5 |
|
387.5 |
|
Operating loan drawn |
|
(201.0) |
|
(68.0) |
|
Letters of credit |
|
(38.0) |
|
(13.8) |
Total available
operating loans - Canfor (excluding CPPI) |
$ |
148.5 |
$ |
305.7 |
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 |
|
Operating loan drawn |
|
- |
|
- |
|
Energy letters of credit |
|
(12.8) |
|
(12.2) |
Total available
operating loans - CPPI |
$ |
117.2 |
$ |
117.8 |
Consolidated: |
|
|
|
|
Total operating
loans |
$ |
517.5 |
$ |
517.5 |
Total available
operating loans |
$ |
265.7 |
$ |
423.5 |
In the third quarter of 2015, Canfor's principal
operating loans, excluding Canfor Pulp Products Inc. ("CPPI"), were
extended to September 28, 2020 and
certain financial covenants were removed. Interest is payable on
the operating loans 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.
CPPI extended the maturity date on its operating
loan facility to January 31, 2019 and
also removed certain financial covenants in the third quarter of
2015. 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.
Both Canfor's and CPPI's operating loan
facilities have certain financial covenants, including maximum net
debt to total capitalization ratios. In conjunction with the
extension of both operating facilities in the third quarter of
2015, the financial covenants were modified to exclude minimum net
worth covenants based on shareholders' equity.
Canfor (excluding CPPI) has a separate facility
to cover letters of credit. At September 30,
2015, $33.4 million of letters
of credit were covered under this facility with the balance of
$4.6 million covered under Canfor's
general operating loan facility.
CPPI has a separate facility to cover energy-related letters of
credit. During the second quarter of 2015, CPPI extended the
maturity on this facility to June 30,
2016. At September 30, 2015,
$9.4 million of energy-related
letters of credit were covered under this facility with the balance
of $3.4 million covered under CPPI's
general operating loan facility.
As at September 30, 2015, 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.
(b) Long-Term Debt
On September 28, 2015, the Company
repaid $175.0 million of its floating
interest rate term debt and completed a new $125.0 million floating interest rate term debt
financing with a maturity of September 28,
2020, resulting in a net decrease in debt of $50.0 million in the third quarter of 2015. The
term debt financing was completed to rebalance the Company's debt
levels prior to the completion of the US$100.0 million financing with Prudential
Capital Group (Note 14 (a)). The new $125.0
million term debt also excludes the minimum net worth
financial covenant and is subject to the same financial covenants
as the Company's operating loan facility.
During the third quarter of 2015, the Company also entered into
a new eight-year floating interest rate term loan for US$100.0 million to further support its growth in
the US. The debt is repayable at maturity and features financial
covenants consistent with other borrowings of the Company. The debt
was undrawn as of September 30,
2015.
5. Employee Future Benefits
For the three months ended September 30,
2015, defined benefit actuarial gains of $13.3 million (before tax) were recognized in
other comprehensive income. The gains recorded in the third
quarter of 2015 principally reflect a higher discount rate used to
value the net defined benefit obligations offset by lower than
expected return on plan assets. For the nine months ended
September 30, 2015, gains of
$31.2 million (before tax) were
recognized in other comprehensive income. For the three months
ended September 30, 2014, an amount
of $15.8 million (before tax) was
credited to other comprehensive income, and for the nine months
ended September 30, 2014, the losses
were $52.5 million (before tax).
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 $113.0
million.
The discount rate assumptions used to estimate the changes in
net retirement benefit obligations were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Pension |
|
Other |
|
|
|
Benefit Plans |
Benefit Plans |
|
September 30, 2015 |
|
|
|
4.10% |
|
4.10% |
|
June 30, 2015 |
|
|
|
3.90% |
|
3.90% |
|
December 31, 2014 |
|
|
|
3.90% |
|
3.90% |
|
September 30, 2014 |
|
|
|
4.40% |
|
4.40% |
|
June 30, 2014 |
|
|
|
4.30% |
|
4.40% |
|
December 31, 2013 |
|
|
|
4.80% |
|
4.90% |
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 September 30, 2015, the fair value
of the Company's long-term debt approximates its amortized cost of
$179.2 million (December 31, 2014 - $228.6
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 September 30,
2015 and December 31, 2014,
and shows the level within the fair value hierarchy in which they
have been classified:
(millions of Canadian
dollars, unaudited) |
|
Fair Value
Hierarchy
Level |
|
As at
September 30,
2015 |
|
As at
December 31,
2014 |
Financial assets
measured at fair value |
|
|
|
|
|
|
|
Investments - held for
trading |
|
Level 1 |
$ |
14.5 |
$ |
- |
|
Derivative financial instruments -
held for trading |
|
Level 2 |
|
- |
|
0.3 |
|
Royalty receivable - available for
sale |
|
Level 3 |
|
0.9 |
|
2.9 |
|
|
|
$ |
15.4 |
$ |
3.2 |
Financial
liabilities measured at fair value |
|
|
|
|
|
|
|
Derivative financial instruments -
held for trading |
|
Level 2 |
|
10.5 |
|
9.1 |
|
|
|
$ |
10.5 |
$ |
9.1 |
The Company invests in equity and debt securities, which are
traded in an active market and valued using closing prices on the
measurement date with gains or losses recognized through
comprehensive income.
The royalty receivable is measured at fair value at each
reporting period and is presented in Other Accounts Receivable on
the consolidated balance sheet. 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. The royalty agreement expired in September, 2015 and
the amount outstanding represents the final payment to Canfor under
the agreement.
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 September 30, 2015, the fair
value of derivative financial instruments was a net liability of
$10.5 million (December 31, 2014 - net liability of $8.8 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 losses on derivative
financial instruments for the three and nine month periods ended
September 30, 2015 and 2014:
|
3 months ended September 30, |
9 months ended September 30, |
(millions of Canadian dollars, unaudited) |
|
2015 |
|
2014 |
|
2015 |
|
2014 |
Foreign exchange collars and forward
contracts |
$ |
(8.5) |
$ |
(0.7) |
$ |
(20.9) |
$ |
(1.1) |
Energy derivatives |
|
(5.4) |
|
(0.9) |
|
(5.0) |
|
(0.3) |
Lumber futures |
|
(0.8) |
|
0.6 |
|
(2.9) |
|
1.4 |
Pulp futures |
|
- |
|
(0.1) |
|
- |
|
(0.8) |
Interest rate swaps |
|
(0.2) |
|
- |
|
(1.4) |
|
(0.7) |
Loss on derivative financial instruments |
$ |
(14.9) |
$ |
(1.1) |
$ |
(30.2) |
$ |
(1.5) |
7. Income Taxes
|
3 months ended September 30, |
9 months ended September 30, |
(millions of Canadian dollars, unaudited) |
|
2015 |
|
2014 |
|
2015 |
|
2014 |
Current |
$ |
(9.7) |
$ |
(15.0) |
$ |
(26.2) |
$ |
(38.4) |
Deferred |
|
13.8 |
|
(6.7) |
|
12.0 |
|
(25.2) |
Income tax recovery (expense) |
$ |
4.1 |
$ |
(21.7) |
$ |
(14.2) |
$ |
(63.6) |
The reconciliation of income taxes calculated at the statutory
rate to the actual income tax provision is as follows:
|
3 months ended September 30, |
9 months ended September 30, |
(millions of Canadian dollars,
unaudited) |
|
2015 |
|
2014 |
|
2015 |
|
2014 |
Income tax recovery (expense) at
statutory rate |
|
|
|
|
|
|
|
|
|
2015 - 26.0% (2014 - 26.0%) |
$ |
0.7 |
$ |
(20.8) |
$ |
(22.5) |
$ |
(63.7) |
Add (deduct): |
|
|
|
|
|
|
|
|
|
Entities with different income tax
rates and other tax |
|
|
|
|
|
|
|
|
|
|
adjustments |
|
2.7 |
|
(1.3) |
|
4.8 |
|
(0.4) |
|
Non-taxable income related to
non-controlling interests |
|
0.8 |
|
0.2 |
|
3.0 |
|
0.5 |
|
Permanent difference from capital
gains and losses and |
|
|
|
|
|
|
|
|
|
|
other non-deductible items |
|
(0.1) |
|
0.2 |
|
0.5 |
|
- |
Income tax recovery (expense) |
$ |
4.1 |
$ |
(21.7) |
$ |
(14.2) |
$ |
(63.6) |
In addition to the amounts recorded to net
income, a tax expense of $3.4 million
was recorded to other comprehensive income for the three month
period ended September 30, 2015
(three months ended September 30,
2014 - tax expense of $4.1
million) in relation to the actuarial gains on defined
benefit employee compensation plans. For the nine months ended
September 30, 2015, the tax expense
was $8.1 million (nine months ended
September 30, 2014 - tax recovery of
$13.7 million).
Also included in other comprehensive income for
the three months ended September 30,
2015 was a tax expense of $2.7
million related to foreign exchange differences on
translation of investments in foreign operations (three months
ended September 30, 2014 - tax
expense of $1.6 million). For the
nine months ended September 30, 2015,
the tax expense was $4.6 million
(nine months ended September 30, 2014
- tax expense of $1.6 million).
8. Earnings Per Share and Normal Course Issuer Bid
Basic net income per share is calculated by dividing the net
income attributable to common shareholders by the weighted average
number of common shares outstanding during the period.
|
3 months ended September 30, |
9 months ended September 30, |
|
2015 |
2014 |
2015 |
2014 |
Weighted average number of common shares |
133,854,693 |
135,376,993 |
134,324,118 |
137,941,437 |
On March 5, 2015,
the Company renewed its normal course issuer bid whereby it can
purchase for cancellation up to 6,767,993 common shares or
approximately 5% of its issued and outstanding common shares as of
February 28, 2015. The renewed normal
course issuer bid is set to expire on March
4, 2016. During the third quarter of 2015, Canfor did
not purchase any common shares. Under a separate normal course
issuer bid, CPPI purchased shares from non-controlling shareholders
during 2015 increasing Canfor's ownership from 50.5% at
December 31, 2014 to 51.4% at
September 30, 2015. As at
October 28, 2015, there were
133,854,693 common shares of the Company outstanding.
9. Net Change in Non-Cash Working Capital
|
3 months ended September 30, |
9 months ended September
30, |
(millions of Canadian dollars,
unaudited) |
|
2015 |
|
2014 |
|
2015 |
|
2014 |
Accounts receivable |
$ |
21.4 |
$ |
33.0 |
$ |
(25.7) |
$ |
(0.4) |
Inventories |
|
(9.1) |
|
(23.3) |
|
0.2 |
|
(53.7) |
Prepaid expenses and other assets |
|
9.7 |
|
(9.5) |
|
(19.9) |
|
(25.4) |
Accounts payable, accrued liabilities
and current portion of |
|
|
|
|
|
|
|
|
|
deferred reforestation obligations |
|
(14.9) |
|
(0.4) |
|
37.6 |
|
(5.7) |
Net decrease (increase) in non-cash
working capital |
$ |
7.1 |
$ |
(0.2) |
$ |
(7.8) |
$ |
(85.2) |
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 Canadian dollars,
unaudited) |
|
Lumber |
|
Pulp &
Paper |
|
Unallocated
& Other |
|
Elimination
Adjustment |
|
Consolidated |
3 months ended September 30,
2015 |
|
|
|
|
|
|
|
|
|
|
Sales to external
customers |
$ |
695.3 |
|
294.6 |
|
- |
|
- |
$ |
989.9 |
Sales to other
segments |
$ |
42.2 |
|
- |
|
- |
|
(42.2) |
$ |
- |
Operating income
(loss) |
$ |
(26.9) |
|
42.3 |
|
(6.9) |
|
- |
$ |
8.5 |
Amortization |
$ |
35.3 |
|
16.3 |
|
1.0 |
|
- |
$ |
52.6 |
Capital expenditures |
$ |
42.8 |
|
14.6 |
|
3.7 |
|
- |
$ |
61.1 |
3 months ended September 30,
2014 |
|
|
|
|
|
|
|
|
|
|
Sales to external customers |
$ |
570.5 |
|
267.5 |
|
- |
|
- |
$ |
838.0 |
Sales to other segments |
$ |
33.2 |
|
- |
|
- |
|
(33.2) |
$ |
- |
Operating income (loss) |
$ |
59.6 |
|
33.1 |
|
(7.1) |
|
- |
$ |
85.6 |
Amortization |
$ |
29.1 |
|
16.8 |
|
1.2 |
|
- |
$ |
47.1 |
Capital
expenditures1 |
$ |
46.3 |
|
16.2 |
|
1.0 |
|
- |
$ |
63.5 |
|
|
|
|
|
|
|
|
|
|
|
9 months ended September 30,
2015 |
|
|
|
|
|
|
|
|
|
|
Sales to external
customers |
$ |
2,018.3 |
|
854.0 |
|
- |
|
- |
$ |
2,872.3 |
Sales to other
segments |
$ |
121.4 |
|
- |
|
- |
|
(121.4) |
$ |
- |
Operating income
(loss) |
$ |
26.5 |
|
106.2 |
|
(22.9) |
|
- |
$ |
109.8 |
Amortization |
$ |
103.0 |
|
47.8 |
|
3.3 |
|
- |
$ |
154.1 |
Capital
expenditures1 |
$ |
107.9 |
|
40.8 |
|
7.6 |
|
- |
$ |
156.3 |
Identifiable assets |
$ |
2,061.0 |
|
791.6 |
|
204.3 |
|
- |
$ |
3,056.9 |
9 months ended September 30,
2014 |
|
|
|
|
|
|
|
|
|
|
Sales to external customers |
$ |
1,680.7 |
|
806.5 |
|
- |
|
- |
$ |
2,487.2 |
Sales to other segments |
$ |
103.1 |
|
- |
|
- |
|
(103.1) |
$ |
- |
Operating income (loss) |
$ |
190.1 |
|
100.5 |
|
(23.3) |
|
- |
$ |
267.3 |
Amortization |
$ |
85.1 |
|
49.0 |
|
1.5 |
|
- |
$ |
135.6 |
Capital
expenditures1 |
$ |
125.0 |
|
46.5 |
|
8.1 |
|
- |
$ |
179.6 |
Identifiable assets |
$ |
1,821.7 |
|
782.5 |
|
209.6 |
|
- |
$ |
2,813.8 |
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. Capital expenditures for
the nine months ended September 30, 2015 exclude the assets
purchased as part of the acquisitions of
Scotch Gulf, Beadles & Balfour, and Southern Lumber (Note 13
(a,b,c)). |
11. Sale of Daaquam Operation
On March 28, 2014, the Company
completed the sale of its Daaquam operation. Total gross proceeds
related to the disposition of the Daaquam operation were
$25.0 million. A pre-tax gain of
$2.2 million was recorded in the
first quarter of 2014 in Other Income.
12. Sale of Taylor Pulp Mill
On January 30,
2015, the Company completed the sale of its Bleached
Chemi-Thermo Mechanical Pulp ("BCTMP") Taylor pulp mill to CPPI for
cash consideration of $12.6 million
including final working capital. The sale also includes a
long-term fibre supply agreement under which Canfor will supply the
Taylor pulp mill with fibre at prices that approximate fair market
value. In addition to the cash consideration paid on the
acquisition date, Canfor may receive additional consideration over
a 3 year period, starting January 31,
2015, contingent on the Taylor pulp mill's annual adjusted
operating income before amortization. On the acquisition date, the
fair value of the contingent consideration was $1.8 million. At September
30, 2015, the contingent consideration had a fair value of
nil reflecting a reduction in forecast BCTMP prices over the
contingent consideration period.
13. US South Acquisitions
(a) Phased Purchase of Scotch Gulf
On August 9, 2013, Canfor
completed the first phase of the phased purchase of Scotch Gulf
representing an initial 25% interest. On August 1, 2014, Canfor completed the second phase
of the acquisition for $9.9 million
increasing its ownership to 33.3%. On January 30, 2015, Canfor completed the third
phase of the acquisition for $23.3
million bringing Canfor's interest in Scotch Gulf to
50%. Upon obtaining a 50% interest in Scotch Gulf, Canfor
obtained control for accounting purposes and the acquisition method
of accounting was applied with an acquisition date of January 30, 2015. Canfor was deemed to have
control of Scotch Gulf due to its 50% interest in the company,
various debt arrangements between Canfor and Scotch Gulf and
Canfor's commitment to purchase 100% of the company by August 2016. The acquisition has been accounted
for in accordance with IFRS 3, Business Combinations.
The acquisition included three sawmills and a treating facility
located in Mobile, Jackson and Fulton,
Alabama with combined annual lumber production capacity of
440 million board feet following capital upgrades and additional
shifts.
The following summarizes the consideration paid for Scotch Gulf
and preliminary amounts of assets acquired and liabilities assumed
and the non-controlling interest recognized at the acquisition
date:
(millions of Canadian dollars,
unaudited) |
|
|
|
Total consideration |
|
|
|
|
Cash |
|
$ |
23.3 |
|
Fair value of equity interest in Scotch Gulf held
immediately before the business combination |
|
|
46.6 |
Total consideration |
|
$ |
69.9 |
|
|
|
|
(millions of Canadian dollars,
unaudited) |
|
|
|
Recognized amounts of identifiable
assets acquired and liabilities assumed |
|
|
|
|
Cash |
|
$ |
1.0 |
|
Land |
|
|
2.7 |
|
Buildings, equipment and mobile |
|
|
64.5 |
|
Non-cash working capital, net |
|
|
38.5 |
Total net identifiable assets |
|
$ |
106.7 |
|
Non-controlling interest |
|
|
(53.3) |
|
Goodwill |
|
|
5.5 |
|
Deferred tax asset, net |
|
|
11.0 |
Total consideration |
|
$ |
69.9 |
The Company incurred acquisition-related costs of $1.4 million, principally relating to external
legal fees and due diligence costs, which have been included in
selling and administration costs. These amounts are recorded
in the Company's consolidated statement of income for the nine
months ended September 30,
2015. Scotch Gulf's results are recorded in the lumber
segment.
The goodwill of $5.5 million
recognized as part of the purchase is calculated as the excess of
the aggregate consideration transferred, the amount of
non-controlling interests and the fair value of the previously held
equity interest over the fair value of the identifiable assets
acquired and liabilities assumed. The goodwill arising from
the acquisition is attributable to management strength, expected
future income and cash-flow projections, access to new markets in
North America and the ability to
diversify Canfor's product offering. Goodwill calculated for
tax purposes is expected to be tax deductible over 15 years.
As part of the consolidation of Scotch Gulf, a net deferred tax
asset of $11.0 million was recognized
for differences between tax and accounting values of the property,
plant and equipment and goodwill acquired.
Canfor elected to calculate the non-controlling interest related
to Scotch Gulf as 50% of the fair value of the net identifiable
assets at the acquisition date. On the acquisition date, a
forward purchase liability of $69.9
million was recognized related to the Company's commitment
to purchase the remaining 50% of Scotch Gulf by August 2016 and was recorded as a long-term
liability and reduction to other equity. In the third quarter
of 2015, the forward purchase liability, which is now valued at
$73.2 million due to the change in
the US dollar foreign exchange rate, was reclassified to current on
the balance sheet to reflect the scheduled timing of the final step
in the phased acquisition of Scotch Gulf.
(b) Phased Purchase of Beadles & Balfour
On January 2,
2015, the Company completed the first phase of the
acquisition of Beadles & Balfour for $51.6 million, plus transaction closing costs
representing an initial 55% interest. The aggregate purchase
price for Beadles & Balfour is US$68.0
million, plus the acquisition of certain capital assets and
working capital. Canfor's initial 55% interest will increase
to 100% on January 2, 2017.
On completion of the first phase of the
acquisition, Canfor was deemed to have control of Beadles &
Balfour and the acquisition method of accounting was applied with
an acquisition date of January 2,
2015. The acquisition has been accounted for in
accordance with IFRS 3, Business Combinations.
The acquisition included two sawmills located in Thomasville and Moultrie, Georgia with annual production
capacity of 210 million board feet following capital upgrades and
additional shifts.
The following summarizes the consideration paid for Beadles
& Balfour and preliminary amounts of assets acquired and
liabilities assumed and the non-controlling interest recognized at
the acquisition date:
(millions of Canadian dollars,
unaudited) |
|
|
|
Total consideration |
|
|
|
|
Cash consideration paid |
|
$ |
50.8 |
|
Consideration payable |
|
|
0.8 |
Total consideration |
|
$ |
51.6 |
|
|
|
|
(millions of Canadian dollars,
unaudited) |
|
|
|
|
Land |
|
$ |
2.6 |
|
Buildings, equipment and mobile |
|
|
34.1 |
|
Non-cash working capital, net |
|
|
8.3 |
Total net identifiable assets |
|
$ |
45.0 |
|
Non-controlling interest |
|
|
(20.2) |
|
Goodwill |
|
|
17.7 |
|
Deferred tax asset, net |
|
|
9.1 |
Total consideration |
|
$ |
51.6 |
The Company incurred acquisition-related costs of $0.5 million, principally relating to external
legal fees and due diligence costs, which have been included in
selling and administration costs. These amounts were recorded
in the Company's consolidated statement of income in 2014 when
incurred. Beadles & Balfour's results are recorded in the
lumber segment.
The goodwill of $17.7 million
recognized as part of the purchase is calculated as the excess of
the aggregate consideration transferred and the amount of
non-controlling interests over the fair value of the identifiable
assets acquired and liabilities assumed. The goodwill arising
from the acquisition is attributable to expected synergies with
other Canfor-owned mills located in close proximity, management
strength, expected future income and cash-flow projections, access
to new markets and ability to diversify Canfor's product
offering. Goodwill calculated for tax purposes is expected to
be tax deductible over 15 years. As part of the consolidation
of Beadles & Balfour, a net deferred tax asset of $9.1 million was recognized for differences
between tax and accounting values of the property, plant and
equipment and goodwill acquired.
Canfor elected to calculate the non-controlling interest related
to Beadles & Balfour as 45% of the fair value of the net
identifiable assets at the acquisition date. On the acquisition
date, a forward purchase liability of $36.5
million was recognized related to the Company's commitment
to purchase the remaining 45% of Beadles & Balfour within two
years and was recorded as a long-term liability and reduction to
other equity. At September 30, 2015,
the forward purchase liability is valued at $41.4 million due to the change in the US dollar
foreign exchange rate.
(c) Purchase of Southern Lumber
On April 1, 2015,
the Company completed the acquisition of Southern Lumber's
Mississippi operating assets for
cash consideration of $65.6 million.
As a result of the acquisition, Canfor recognized approximately
$4.2 million of working capital,
$14.1 million of long-term assets
acquired and $47.3 million of
goodwill. The acquisition has been accounted for in accordance with
IFRS 3, Business Combinations.
The acquisition included a sawmill located in Hermanville, Mississippi with annual
production capacity of 90 million board feet following capital
upgrades and additional shifts.
The following summarizes the consideration paid for Southern
Lumber and preliminary recognized amounts of assets acquired and
liabilities assumed at the acquisition date:
(millions of Canadian dollars,
unaudited) |
|
|
|
Total consideration |
|
|
|
|
Cash consideration paid |
|
$ |
65.6 |
Total consideration |
|
$ |
65.6 |
|
|
|
|
(millions of Canadian dollars,
unaudited) |
|
|
|
|
Land |
|
$ |
0.5 |
|
Buildings, equipment and mobile |
|
|
13.6 |
|
Non-cash working capital, net |
|
|
4.2 |
Total net identifiable assets |
|
$ |
18.3 |
|
Goodwill |
|
|
47.3 |
Total consideration |
|
$ |
65.6 |
The Company incurred acquisition-related costs of $0.3 million, principally relating to external
legal fees and due diligence costs, which have been included in
selling and administration costs. These amounts were recorded
in the Company's consolidated statement of income in 2014 and 2015.
Southern Lumber's results are recorded in the lumber segment.
The goodwill of $47.3 million
recognized as part of the purchase is calculated as the excess of
the aggregate consideration over the fair value of the identifiable
assets acquired and liabilities assumed. The goodwill arising
from the acquisition is attributable to the premium products
produced, management strength, expected future income and cash-flow
projections, access to new markets in North America and the ability to diversify
Canfor's product offering. Goodwill calculated for tax
purposes is expected to be tax deductible over 15 years.
14. Subsequent Events
(a) Acquisition of Anthony Forest Products
Company
On September 28, 2015, the Company
entered into an agreement to purchase Anthony Forest Products
Company headquartered in El Dorado,
Arkansas for a purchase price of US$93.5 million, including working capital. As a
result of the acquisition, Canfor will recognize approximately
US$15.0 million of working capital
and US$78.5 million of long-term
assets acquired net of liabilities assumed. The acquisition is
expected to close in the fourth quarter of 2015.
Concurrent with the announced acquisition, the Company issued
US$100.0 million of senior unsecured
notes to Prudential Capital Group, bearing interest at 4.40%
subsequent to quarter end. The notes mature in three tranches with
US$33.3 million due on each of
October 2, 2023 and October 2, 2024 with the balance due on
October 2, 2025.
(b) Expiration of the Softwood Lumber
Agreement
On October 12, 2015, the Softwood
Lumber Agreement ("SLA") expired. No trade actions may be
imposed for the importation of softwood lumber from Canada to the US for a period of twelve months
following the SLA expiry date. It is uncertain whether a new
agreement between with Governments of Canada and the US will be reached.
In the first twelve days of October prior to the expiry of the
SLA, the Company was subject to an export tax of 15% on US bound
Canadian lumber shipments.
SOURCE Canfor Corporation
Image with caption: "Canfor Corporation (CNW Group/Canfor
Corporation)". Image available at:
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