VANCOUVER, Feb. 22, 2018 /CNW/ - Canfor Corporation (TSX:
CFP) today reported fourth quarter 2017 results:
Highlights
- Q4, 2017 adjusted operating income of $190.8 million, aided by improved lumber unit
sales realizations and record-high pulp and paper earnings;
operating income of $598.5 million
and record-high sales of $4.66
billion in 2017
- Adjusted net income of $114.8
million, or $0.89 per share;
$363.4 million, or $2.77 per share, for 2017
- CVD/ADD duty deposit rate reduced from 27.98% to 20.52%
following final determination by US Department of Commerce;
combined duty expense of 14.34% recorded in fourth quarter of 2017
to reflect impact of updated sales and cost data on ADD rate in
2017
- Net debt of $97.5 million, or
4.6% net debt to total capitalization, at December 31, 2017
- Construction of new state-of-the-art US$120 million greenfield sawmill in Georgia approved by Board of Directors: 275
million board feet of high-value dimension Southern Yellow Pine
lumber
Financial Results
The following table summarizes selected financial information
for the Company for the comparative periods:
(millions of Canadian
dollars, except per share amounts)
|
|
Q4 2017
|
|
Q3
2017
|
|
YTD 2017
|
|
Q4
2016
|
|
YTD
2016
|
Sales
|
$
|
1,182.2
|
$
|
1,165.2
|
$
|
4,658.8
|
$
|
1,043.5
|
$
|
4,234.9
|
Reported Operating
income before amortization
|
$
|
278.2
|
$
|
166.9
|
$
|
807.3
|
$
|
137.6
|
$
|
548.4
|
Reported Operating
income
|
$
|
214.2
|
$
|
105.4
|
$
|
557.4
|
$
|
74.0
|
$
|
306.1
|
Adjusted operating
income before amortization1
|
$
|
254.8
|
$
|
195.8
|
$
|
848.4
|
$
|
135.6
|
$
|
530.9
|
Adjusted operating
income1
|
$
|
190.8
|
$
|
134.3
|
$
|
598.5
|
$
|
72.0
|
$
|
288.6
|
Net
income2
|
$
|
131.8
|
$
|
66.2
|
$
|
345.4
|
$
|
38.0
|
$
|
150.9
|
Net income per share,
basic and diluted2
|
$
|
1.02
|
$
|
0.51
|
$
|
2.63
|
$
|
0.29
|
$
|
1.14
|
Adjusted net
income2
|
$
|
114.8
|
$
|
84.6
|
$
|
363.4
|
$
|
37.7
|
$
|
136.8
|
Adjusted net income
per share, basic and diluted2
|
$
|
0.89
|
$
|
0.65
|
$
|
2.77
|
$
|
0.29
|
$
|
1.03
|
1 Adjusted
for countervailing and anti-dumping duty deposits expensed for
accounting purposes (net recovery of $23.4 million in the fourth
quarter of 2017, expense of $32.1 million in the third quarter of
2017 and expense of $44.3 million in 2017); a recovery of $3.2
million and $2.0 million related to lower estimated Canal Flats
closure costs recorded in the third quarter of 2017 and fourth
quarter of 2016, respectively; and a one-time gain of $15.5 million
related to a legal settlement in 2016.
|
2
Attributable to equity shareholders of the Company
|
The Company reported operating income of $214.2 million for the fourth quarter of 2017, up
$108.8 million from reported
operating income of $105.4 million
for the third quarter of 2017, with the increase reflecting higher
operating earnings for both the lumber and pulp and paper segments.
Lumber segment results reflected significantly higher Western
Spruce/Pine/Fir ("Western SPF") lumber prices, lower duties
expensed in the current quarter and modest increases in Southern
Yellow Pine ("SYP") lumber prices. These factors more than offset
continued challenges presented by weather which contributed to
lower production and shipments through the quarter, as well as
upward pressure on purchased wood and unit log costs in Western
Canada. Record pulp and paper segment earnings largely
reflected a sharp improvement in demand, which resulted in
significantly higher Northern Bleached Softwood Kraft ("NBSK") pulp
and Bleached Chemi-Thermo Mechanical Pulp ("BCTMP") US-dollar
pricing.
During the fourth quarter of 2017, the US Department of Commerce
("DOC") announced its final countervailing duty ("CVD") and
anti-dumping duty ("ADD") determinations, while the US
International Trade Commission issued an affirmative determination
of injury. As a result, Canfor was issued a final ADD rate of
7.28%, and was subject to countervailing duties on Canadian lumber
exports destined to the US at a reduced rate of 13.24%, effective
December 28, 2017. Cash deposits are
posted at the published CVD and ADD rates as determined by the
DOC. For accounting purposes, however, Canfor recorded the
ADD expense at a rate of 1.1%, which was estimated by applying the
DOC's methodology to updated sales and cost data. This resulted in
a combined effective CVD and ADD rate of 14.34% for the applicable
period in 2017.
Reflecting the aforementioned duty adjustments, reported results
for the fourth quarter of 2017 incorporated a net duty recovery of
$23.4 million, determined as
follows:
- Recovery of $14.0 million to
true-up the preliminary countervailing duty to the Company's final
countervailing duty rate as published by the DOC for applicable
shipments made between April 24, 2017
and August 25, 2017;
- A further $30.9 million recovery
to true-up the preliminary anti-dumping duty expense to the lower
accrual rate on applicable shipments from June 30, 2017 to December
31, 2017 ($15.9 million of
this pertained to the fourth quarter of 2017);
- Cash deposits of $21.5 million
made in the current period
North American lumber demand remained solid in the fourth
quarter of 2017, with US housing starts, on a seasonally adjusted
basis, averaging 1,251,000 units, up 7% from the previous quarter,
and in line with the fourth quarter of 2016. Single-family starts,
which consume a higher proportion of lumber compared to
multi-family starts, hit a 10-year high in November and were up 5%
from the previous quarter, while multi-family starts were up 12%
compared to the third quarter of 2017. In Canada, housing starts remained near
historical highs, averaging 233,000 units on a seasonally adjusted
basis, up 4% from the previous quarter, and up 16% from the same
period in 2016. Offshore lumber demand remained steady.
Western SPF lumber unit sales realizations increased
significantly compared to the third quarter of 2017 reflecting
higher average Western SPF lumber prices, a 1 cent, or 1%, weaker Canadian dollar and a
higher-value sales mix. Strong underlying demand and limited
available supply contributed to historically high benchmark Western
SPF lumber prices, with the benchmark North American Random Lengths
Western SPF 2x4 #2&Btr price averaging US$462 per Mfbm, up US$56 per Mfbm, or 14%, from the previous
quarter, with similar increases seen across most wider dimensions.
SYP lumber unit sales realizations were modestly higher compared to
the prior quarter as a higher-value sales mix, a 12% increase in
the SYP East 2x4 #2 price and strong 2x6 pricing more than offset
seasonally lower pricing in wider dimensions.
Total lumber shipments, at 1.24 billion board feet, were 9%
lower than the previous quarter reflecting lower productivity,
capital related downtime in the US South, increased statutory
holidays, and weather-related transportation challenges in
Western Canada, which placed
constraints on railcar and truck availability.
Total lumber production, at 1.24 billion board feet, was down 5%
from the previous quarter reflecting fewer operating hours as a
result of the aforementioned factors. Ongoing weather challenges
impacted log deliveries, log profile and drying capacity in
Western Canada, which contributed
to lower productivity in the current quarter. Severe wet weather,
coupled with capital related downtime, accounted for a decrease of
6% in SYP production quarter-over-quarter.
Lumber unit manufacturing costs in the fourth quarter of 2017
were moderately higher than the previous quarter, as the severe
weather conditions in Western
Canada impacted log deliveries, contributing to higher
purchase wood and log hauling costs. Cash conversion costs were
impacted by seasonally higher energy costs, as well as the
unfavourable impact of lower production volumes. Log costs in the
US South remained stable.
The strong surge in pulp demand in the current quarter,
principally from China, was partly
in response to new regulations by the Chinese government
restricting the import of recycled mixed paper. This
development, in combination with already solid demand, a modest
decline in the Canadian dollar and various unforeseen global pulp
supply disruptions, paved the way for a significant increase in
NBSK pulp unit sales realizations quarter-over-quarter.
Average BCTMP unit sales realizations also saw strong gains,
reflecting the good market conditions and the favourable foreign
exchange movement in the fourth quarter of 2017. Energy
revenues also increased, for the most part reflecting strong power
generation combined with seasonally higher energy prices.
Pulp shipments and production volumes were broadly in line with
the previous quarter. The impact on pulp production of the
previously announced unscheduled outage at CPPI's Northwood NBSK
pulp mill in November, was offset in part by improved productivity
across all NBSK pulp mills, including the Northwood mill following
the outage. After taking account of scheduled and unscheduled
outages in each period, total pulp production for the fourth
quarter was slightly below that of the third quarter. The
anticipated benefit of a slipped vessel shipment from the previous
quarter into the fourth quarter was offset by a delayed vessel
shipment over the year end due to adverse weather conditions.
Pulp unit manufacturing costs were largely consistent with the
previous quarter, as increased maintenance spend combined with
higher energy usage in the current quarter, primarily due to the
aforementioned unplanned outage, was offset by lower chemical costs
and improved productivity towards the end of the period.
Commenting on the Company's fourth quarter results, Canfor's
President and Chief Executive Officer, Don
Kayne, said, "Despite the many operational challenges
presented by weather, our lumber business had another strong
quarter, driven by steadily improving demand and prices for our
products. Similarly, our pulp business had a strong quarter,
delivering record financial results and recovering well from the
recovery boiler upset at Northwood earlier in the period."
Subsequent to year-end, Canfor announced it will proceed with
construction of new US$120 million,
state-of-the-art 275 million board foot sawmill in Washington, Georgia, with a projected start-up in the
third quarter of 2019.
Looking ahead, the US housing market is forecast to continue its
ongoing gradual recovery through 2018. North American lumber prices
are projected to remain at current historical-high levels in the
first quarter of 2018, reflecting low inventories, solid demand and
weather-related challenges in Western
Canada. For the Company's key offshore lumber markets,
demand is anticipated to remain solid through the first quarter of
2018, particularly in Japan. The
various disruptions presented by weather to-date in 2018 are
projected to result in lower production and shipment volumes for
the first quarter of 2018.
Global softwood kraft pulp markets are projected to remain well
positioned through the first quarter of 2018, with continued strong
shipments into Asian markets, particularly China, and sustained demand in other
markets. CPPI has announced NBSK pulp list price increases of
US$10 per tonne to China for January
2018, and two consecutive price increases to North America, each of US$30 per tonne, for February and March
2018. A balanced kraft pulp market is projected to continue
into the second quarter of 2018, when many pulp producers have
their traditional spring maintenance outages. The BCTMP market is
seeing some reduced demand in the first quarter of 2018, which is
resulting in downward price pressure. Early 2018 weather
related transportation disruptions are projected to result in
delayed shipments and modestly higher costs for the first quarter
of 2018. The pulp outlook for the remainder of the year is
more uncertain given incremental pulp capacity currently projected
to come online and the potential for the reinstatement of some
import permits for recovered paper in China through 2018.
Refer to the Company's annual Management's Discussion and
Analysis for further discussion on the Company's results for the
fourth quarter of 2017 on page 25.
Additional Information and Conference Call
A conference call to discuss the fourth quarter's financial and
operating results will be held on Friday,
February 23, 2018 at 8:00 AM Pacific
time. To participate in the call, please dial Toll-Free
888-390-0546. For instant replay access until March 9, 2018, please dial 888-390-0541 and enter
participant pass code 843323#. 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.
Non-IFRS Measures and Forward Looking Statements
Operating Income before Amortization and Adjusted Net Income and
Adjusted Net Income 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.
Refer to the Company's Annual Management's Discussion and
Analysis for a reconciliation of Operating Income before
Amortization to Operating Income and Adjusted Net Income to Net
Income reported in accordance with IFRS.
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, Mississippi and Arkansas. Canfor
produces primarily softwood lumber and also owns a 54.8% interest
in Canfor Pulp Products Inc., which is one of the largest global
producers of market northern bleached softwood kraft pulp and a
leading producer of high performance kraft paper. Canfor
shares are traded on The Toronto Stock Exchange under the symbol
CFP.
Canfor Corporation
Condensed Consolidated Balance
Sheets
(millions of
Canadian dollars, unaudited)
|
|
As
at
December
31, 2017
|
As at
December 31,
2016
|
ASSETS
|
|
|
|
|
Current
assets
|
|
|
|
|
Cash and cash
equivalents
|
$
|
288.2
|
$
|
156.6
|
Accounts
receivable
|
-
Trade
|
|
193.0
|
|
164.2
|
|
-
Other
|
|
45.5
|
|
66.5
|
Inventories
|
|
628.9
|
|
549.0
|
Prepaid expenses and
other
|
|
51.4
|
|
50.6
|
Total current
assets
|
|
1,207.0
|
|
986.9
|
Property, plant
and equipment
|
|
1,438.1
|
|
1,460.8
|
Timber
licenses
|
|
518.3
|
|
532.7
|
Goodwill and other
intangible assets
|
|
228.1
|
|
238.8
|
Long-term
investments and other (Note 4)
|
|
83.3
|
|
50.7
|
Retirement benefit
surplus (Note 6)
|
|
7.9
|
|
5.9
|
Deferred income
taxes, net
|
|
5.6
|
|
1.3
|
Total
assets
|
$
|
3,488.3
|
$
|
3,277.1
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
Current
liabilities
|
|
|
|
|
Operating
loans
|
$
|
-
|
$
|
28.0
|
Accounts payable and
accrued liabilities
|
|
470.0
|
|
384.1
|
Current portion of
deferred reforestation obligations
|
|
49.5
|
|
48.5
|
Forward purchase
liability
|
|
-
|
|
41.7
|
Current portion of
long-term debt (Note 5)
|
|
0.3
|
|
-
|
Total current
liabilities
|
|
519.8
|
|
502.3
|
Long-term debt
(Note 5)
|
|
385.4
|
|
448.0
|
Retirement benefit
obligations (Note 6)
|
|
272.0
|
|
302.2
|
Deferred
reforestation obligations
|
|
63.0
|
|
56.9
|
Other long-term
liabilities
|
|
23.7
|
|
23.7
|
Deferred income
taxes, net
|
|
223.4
|
|
205.5
|
Total
liabilities
|
$
|
1,487.3
|
$
|
1,538.6
|
|
|
|
|
|
EQUITY
|
|
|
|
|
Share
capital
|
$
|
1,014.9
|
$
|
1,047.7
|
Contributed surplus
and other equity
|
|
31.9
|
|
(4.6)
|
Retained
earnings
|
|
629.5
|
|
351.7
|
Accumulated other
comprehensive income
|
|
55.1
|
|
88.9
|
Total equity
attributable to equity shareholders of the Company
|
|
1,731.4
|
|
1,483.7
|
Non-controlling
interests
|
|
269.6
|
|
254.8
|
Total
equity
|
$
|
2,001.0
|
$
|
1,738.5
|
Total liabilities
and equity
|
$
|
3,488.3
|
$
|
3,277.1
|
|
|
|
The accompanying
notes are an integral part of these condensed consolidated interim
financial statements.
|
|
APPROVED BY THE
BOARD
|
"R.S.
Smith"
|
"C.A.
Pinette"
|
Director, R.S.
Smith
|
Director, C.A.
Pinette
|
Canfor Corporation
Condensed Consolidated
Statements of Income
|
3 months ended
December 31,
|
12 months ended
December 31,
|
(millions of Canadian
dollars, except per share data, unaudited)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
Sales
|
$
|
1,182.2
|
$
|
1,043.5
|
$
|
4,658.8
|
$
|
4,234.9
|
|
|
|
|
|
|
|
|
|
Costs and
expenses
|
|
|
|
|
|
|
|
|
|
Manufacturing and
product costs
|
|
732.3
|
|
729.0
|
|
3,038.1
|
|
2,947.2
|
|
Freight and other
distribution costs
|
|
166.3
|
|
150.5
|
|
656.2
|
|
635.8
|
|
Countervailing and
anti-dumping duty expense, net of recovery (Note 12)
|
(23.4)
|
|
-
|
|
44.3
|
|
-
|
|
Amortization
|
|
64.0
|
|
63.6
|
|
249.9
|
|
242.3
|
|
Selling and
administration costs
|
|
29.0
|
|
26.7
|
|
114.5
|
|
103.7
|
|
Restructuring, mill
closure and severance costs, net of recovery
|
|
(0.2)
|
|
0.3
|
|
(1.0)
|
|
3.4
|
|
|
968.0
|
|
970.1
|
|
4,102.0
|
|
3,932.4
|
|
|
|
|
|
|
|
|
|
Equity
income
|
|
-
|
|
0.6
|
|
0.6
|
|
3.6
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
214.2
|
|
74.0
|
|
557.4
|
|
306.1
|
|
|
|
|
|
|
|
|
|
Finance expense,
net
|
|
(6.9)
|
|
(8.0)
|
|
(30.8)
|
|
(32.8)
|
Foreign exchange gain
(loss) on long-term debt
|
|
(0.7)
|
|
(3.1)
|
|
8.8
|
|
4.1
|
Gain (loss) on
derivative financial instruments
|
|
(6.5)
|
|
2.1
|
|
(5.2)
|
|
2.9
|
Other income
(expense), net
|
|
1.5
|
|
(4.1)
|
|
(3.8)
|
|
(12.5)
|
Net income before
income taxes
|
|
201.6
|
|
60.9
|
|
526.4
|
|
267.8
|
Income tax expense
(Note 3)
|
|
(49.0)
|
|
(16.7)
|
|
(132.8)
|
|
(63.9)
|
Net
income
|
$
|
152.6
|
$
|
44.2
|
$
|
393.6
|
$
|
203.9
|
|
|
|
|
|
|
|
|
|
Net income
attributable to:
|
|
|
|
|
|
|
|
|
Equity shareholders
of the Company
|
$
|
131.8
|
$
|
38.0
|
$
|
345.4
|
$
|
150.9
|
Non-controlling
interests
|
|
20.8
|
|
6.2
|
|
48.2
|
|
53.0
|
Net
income
|
$
|
152.6
|
$
|
44.2
|
$
|
393.6
|
$
|
203.9
|
|
|
|
|
|
|
|
|
|
Net income per
common share: (in Canadian dollars)
|
|
|
|
|
|
|
|
|
Attributable to
equity shareholders of the Company
|
|
|
|
|
|
|
|
|
-
|
Basic and diluted
(Note 7)
|
$
|
1.02
|
$
|
0.29
|
$
|
2.63
|
$
|
1.14
|
|
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
December 31,
|
12 months ended
December 31,
|
(millions of Canadian
dollars, unaudited)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
Net
income
|
$
|
152.6
|
$
|
44.2
|
$
|
393.6
|
$
|
203.9
|
Other
comprehensive income (loss)
|
|
|
|
|
|
|
|
|
Items that will not
be recycled through net income:
|
|
|
|
|
|
|
|
|
|
Defined benefit plan
actuarial gains (losses) (Note 6)
|
|
38.4
|
|
20.3
|
|
24.1
|
|
(50.9)
|
|
Income tax recovery
(expense) on defined benefit plan actuarial losses/gains (Note
3)
|
|
(8.7)
|
|
(5.3)
|
|
(5.0)
|
|
13.2
|
|
|
29.7
|
|
15.0
|
|
19.1
|
|
(37.7)
|
Items that may be
recycled through net income:
|
|
|
|
|
|
|
|
|
|
Foreign exchange
translation of foreign operations, net of tax
|
|
2.6
|
|
10.4
|
|
(33.8)
|
|
(11.1)
|
|
Change in fair value
of available-for-sale financial instruments, net of tax
|
|
-
|
|
(0.2)
|
|
-
|
|
-
|
Other comprehensive
income (loss), net of tax
|
|
32.3
|
|
25.2
|
|
(14.7)
|
|
(48.8)
|
Total
comprehensive income
|
$
|
184.9
|
$
|
69.4
|
$
|
378.9
|
$
|
155.1
|
|
|
|
|
|
|
|
|
|
Total
comprehensive income attributable to:
|
|
|
|
|
|
|
|
|
Equity shareholders
of the Company
|
$
|
154.0
|
$
|
62.1
|
$
|
322.2
|
$
|
107.4
|
Non-controlling
interests
|
|
30.9
|
|
7.3
|
|
56.7
|
|
47.7
|
Total
comprehensive income
|
$
|
184.9
|
$
|
69.4
|
$
|
378.9
|
$
|
155.1
|
|
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
December 31,
|
12
months ended December 31,
|
(millions of Canadian
dollars, unaudited)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
Share
capital
|
|
|
|
|
|
|
|
|
Balance at beginning
of period
|
$
|
1,019.9
|
$
|
1,047.7
|
$
|
1,047.7
|
$
|
1,047.7
|
Share purchases (Note
7)
|
|
(5.0)
|
|
-
|
|
(32.8)
|
|
-
|
Balance at end of
period
|
$
|
1,014.9
|
$
|
1,047.7
|
$
|
1,014.9
|
$
|
1,047.7
|
|
|
|
|
|
|
|
|
|
Contributed
surplus and other equity
|
|
|
|
|
|
|
|
|
Balance at beginning
of period
|
$
|
31.9
|
$
|
(4.6)
|
$
|
(4.6)
|
$
|
(74.5)
|
Forward purchase
liability related to acquisitions (Note 11)
|
|
-
|
|
-
|
|
36.5
|
|
69.9
|
Balance at end of
period
|
$
|
31.9
|
$
|
(4.6)
|
$
|
31.9
|
$
|
(4.6)
|
|
|
|
|
|
|
|
|
|
Retained
earnings
|
|
|
|
|
|
|
|
|
Balance at beginning
of period
|
$
|
488.8
|
$
|
299.9
|
$
|
351.7
|
$
|
257.7
|
Net income
attributable to equity shareholders of the Company
|
|
131.8
|
|
38.0
|
|
345.4
|
|
150.9
|
Defined benefit plan
actuarial gains (losses), net of tax
|
|
19.6
|
|
13.8
|
|
10.6
|
|
(32.4)
|
Share purchases (Note
7)
|
|
(10.7)
|
|
-
|
|
(57.9)
|
|
-
|
Elimination of
non-controlling interests (Note 11)
|
|
-
|
|
-
|
|
(16.6)
|
|
(20.0)
|
Acquisition of
non-controlling interests
|
|
-
|
|
-
|
|
(3.7)
|
|
(4.5)
|
Balance at end of
period
|
$
|
629.5
|
$
|
351.7
|
$
|
629.5
|
$
|
351.7
|
|
|
|
|
|
|
|
|
|
Accumulated other
comprehensive income
|
|
|
|
|
|
|
|
|
Balance at beginning
of period
|
$
|
52.5
|
$
|
78.6
|
$
|
88.9
|
$
|
100.0
|
Foreign exchange
translation of foreign operations, net of tax
|
|
2.6
|
|
10.4
|
|
(33.8)
|
|
(11.1)
|
Change in fair value
of available-for-sale financial instruments, net of tax
|
|
-
|
|
(0.1)
|
|
-
|
|
-
|
Balance at end of
period
|
$
|
55.1
|
$
|
88.9
|
$
|
55.1
|
$
|
88.9
|
Total equity
attributable to equity shareholders of the
Company
|
$
|
1,731.4
|
$
|
1,483.7
|
$
|
1,731.4
|
$
|
1,483.7
|
|
|
|
|
|
|
|
|
|
Non-controlling
interests
|
|
|
|
|
|
|
|
|
Balance at beginning
of period
|
$
|
240.1
|
$
|
254.5
|
$
|
254.8
|
$
|
296.8
|
Net income
attributable to non-controlling interests
|
|
20.8
|
|
6.2
|
|
48.2
|
|
53.0
|
Defined benefit plan
actuarial gains (losses) attributable to non-
|
|
|
|
|
|
|
|
|
controlling
interests, net of tax
|
|
10.1
|
|
1.2
|
|
8.5
|
|
(5.3)
|
Change in fair value
of available-for-sale financial instruments, net of tax
|
|
-
|
|
(0.1)
|
|
-
|
|
-
|
Distributions to
non-controlling interests
|
|
(1.8)
|
|
(7.0)
|
|
(8.4)
|
|
(30.1)
|
Elimination of
non-controlling interests (Note 11)
|
|
-
|
|
-
|
|
(19.9)
|
|
(39.7)
|
Acquisition of
non-controlling interests
|
|
(0.1)
|
|
-
|
|
(14.1)
|
|
(19.9)
|
Non-controlling
interests arising from investment (Note 5)
|
|
0.5
|
|
-
|
|
0.5
|
|
-
|
Balance at end of
period
|
$
|
269.6
|
$
|
254.8
|
$
|
269.6
|
$
|
254.8
|
Total
equity
|
$
|
2,001.0
|
$
|
1,738.5
|
$
|
2,001.0
|
$
|
1,738.5
|
|
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
December 31,
|
12 months ended
December 31,
|
(millions of Canadian
dollars, unaudited)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Cash generated
from (used in):
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
|
|
|
|
|
|
|
|
Net income
|
$
|
152.6
|
$
|
44.2
|
$
|
393.6
|
$
|
203.9
|
|
Items not affecting
cash:
|
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
64.0
|
|
63.6
|
|
249.9
|
|
242.3
|
|
|
Income tax
expense
|
|
49.0
|
|
16.7
|
|
132.8
|
|
63.9
|
|
|
Long-term portion of
deferred
|
|
|
|
|
|
|
|
|
|
|
|
reforestation
obligations
|
|
9.3
|
|
(3.7)
|
|
5.4
|
|
(4.8)
|
|
|
Foreign exchange loss
(gain) on long-term debt
|
|
0.7
|
|
3.1
|
|
(8.8)
|
|
(4.1)
|
|
|
Changes in
mark-to-market value of derivative
|
|
|
|
|
|
|
|
|
|
|
|
financial
instruments
|
|
(0.9)
|
|
(0.5)
|
|
0.9
|
|
(4.9)
|
|
|
Employee future
benefits
|
|
1.3
|
|
3.3
|
|
11.0
|
|
13.0
|
|
|
Finance expense,
net
|
|
6.9
|
|
8.0
|
|
30.8
|
|
32.8
|
|
|
Adjustment to accrued
duties (Note 12)
|
|
(44.9)
|
|
-
|
|
(44.9)
|
|
-
|
|
|
Gain on sale of
Anthony EACOM Inc., net
|
|
0.3
|
|
-
|
|
(3.7)
|
|
-
|
|
|
Gain on legal
settlement, net
|
|
-
|
|
-
|
|
-
|
|
(15.5)
|
|
|
Equity
income
|
|
-
|
|
(0.6)
|
|
(0.6)
|
|
(3.6)
|
|
|
Recovery on
operations closure provisions
|
|
-
|
|
(2.0)
|
|
(3.2)
|
|
(2.0)
|
|
|
Write-down of
advances to Licella (Note 10)
|
|
-
|
|
7.0
|
|
-
|
|
7.0
|
|
|
Other, net
|
|
(3.2)
|
|
1.3
|
|
(8.3)
|
|
1.7
|
|
Defined benefit plan
contributions, net
|
|
(10.4)
|
|
(7.7)
|
|
(28.8)
|
|
(33.3)
|
|
Cash received from
legal settlement
|
|
-
|
|
-
|
|
-
|
|
16.3
|
|
Income taxes paid,
net
|
|
(4.2)
|
|
0.2
|
|
(43.9)
|
|
(29.9)
|
|
|
220.5
|
|
132.9
|
|
682.2
|
|
482.8
|
|
Net change in
non-cash working capital (Note 8)
|
|
(63.9)
|
|
28.1
|
|
(72.1)
|
|
101.0
|
|
|
156.6
|
|
161.0
|
|
610.1
|
|
583.8
|
Financing
activities
|
|
|
|
|
|
|
|
|
|
Change in operating
bank loans
|
|
-
|
|
(68.0)
|
|
(28.0)
|
|
(130.0)
|
|
Proceeds from
long-term debt, net (Note 5)
|
|
4.3
|
|
-
|
|
6.0
|
|
-
|
|
Repayment of
long-term debt (Note 5)
|
|
(50.1)
|
|
-
|
|
(50.3)
|
|
-
|
|
Finance expenses
paid
|
|
(6.7)
|
|
(7.5)
|
|
(21.1)
|
|
(22.0)
|
|
Share purchases (Note
7)
|
|
(12.0)
|
|
-
|
|
(87.0)
|
|
-
|
|
Acquisition of
non-controlling interests
|
|
-
|
|
-
|
|
(17.7)
|
|
(24.7)
|
|
Cash distributions
paid to non-controlling interests
|
|
(1.8)
|
|
(5.4)
|
|
(10.0)
|
|
(28.5)
|
|
Other, net
|
|
0.5
|
|
-
|
|
0.5
|
|
-
|
|
|
(65.8)
|
|
(80.9)
|
|
(207.6)
|
|
(205.2)
|
Investing
activities
|
|
|
|
|
|
|
|
|
|
Additions to
property, plant and equipment, timber
|
|
|
|
|
|
|
|
|
|
|
and
intangible assets,
net
|
|
(94.0)
|
|
(63.4)
|
|
(252.1)
|
|
(233.8)
|
|
Proceeds on disposal
of property, plant and equipment
|
|
1.1
|
|
0.8
|
|
11.4
|
|
3.9
|
|
Proceeds on sale of
Anthony EACOM Inc., net
|
|
13.1
|
|
-
|
|
21.1
|
|
-
|
|
Proceeds on sale of
Lakeland Winton
|
|
-
|
|
-
|
|
15.0
|
|
-
|
|
Acquisitions (Note
11)
|
|
(3.6)
|
|
-
|
|
(59.8)
|
|
(83.9)
|
|
Advances to Licella
(Note 10)
|
|
-
|
|
(3.5)
|
|
-
|
|
(7.0)
|
|
Other, net
|
|
1.9
|
|
(1.0)
|
|
(2.0)
|
|
3.0
|
|
|
(81.5)
|
|
(67.1)
|
|
(266.4)
|
|
(317.8)
|
Foreign exchange gain
(loss) on cash and cash equivalents
|
|
0.1
|
|
1.8
|
|
(4.5)
|
|
(1.7)
|
Increase in cash
and cash equivalents*
|
|
9.4
|
|
14.8
|
|
131.6
|
|
59.1
|
Cash and cash
equivalents at beginning of period*
|
|
278.8
|
|
141.8
|
|
156.6
|
|
97.5
|
Cash and cash
equivalents at end of period*
|
$
|
288.2
|
$
|
156.6
|
$
|
288.2
|
$
|
156.6
|
|
*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
Three months and twelve
months ended December 31, 2017 and
December 31, 2016
(unaudited, millions of Canadian dollars unless otherwise
noted)
1. Basis of Preparation
These condensed consolidated interim financial statements (the
"financial statements") include the accounts of Canfor Corporation
and its subsidiary entities, including Canfor Pulp Products Inc.
("CPPI"), 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 interim or 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 twelve months ended December 31, 2017, available at www.canfor.com or
www.sedar.com.
These financial statements were authorized for issue by the
Company's Board of Directors on February 22,
2018.
Certain comparative amounts for the prior year have been
reclassified to conform to the current year's presentation.
Accounting Standards Issued and Not Applied
In May 2014, the International
Accounting Standards Board ("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 has performed an assessment of the impact
of the new standard, and has determined that adoption of this
standard will have no significant impact on the Company's financial
statements.
In July 2014, the IASB issued IFRS
9, Financial Instruments. The required adoption date for
IFRS 9 is January 1, 2018. The
Company has performed an assessment of the impact of the new
standard, and has determined that adoption of this standard will
have no significant impact on the Company's financial
statements.
In January 2016, the IASB issued
IFRS 16, Leases, which will supersede IAS 17, Leases
and related interpretations. The required adoption date for IFRS 16
is January 1, 2019. IFRS 16
introduces a single, on-balance sheet lease accounting model for
lessees. A lessee recognizes a right-of-use asset representing its
right to use the underlying asset and a lease liability
representing its obligation to make lease payments. In addition,
the nature of expenses related to those leases will change as IFRS
16 replaces straight-line operating lease expense with a
depreciation expense for right-of-use assets and interest expense
on lease liabilities.
It is expected that IFRS 16 will have an impact on the Company's
financial statements with recognition of new assets and liabilities
for its operating leases. The Company is still in the process of
assessing the quantitative impact on its financial statements of
this new standard. The Company's future minimum lease payments, on
an undiscounted basis, under non-cancellable operating leases at
December 31, 2017 are $42.5 million.
2. Seasonality of Operations
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 affect 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.
3. Income Taxes
|
3 months ended
December 31,
|
12 months
ended December 31,
|
(millions of Canadian
dollars, unaudited)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Current
|
$
|
(40.6)
|
$
|
(2.8)
|
$
|
(120.7)
|
$
|
(37.9)
|
Deferred
|
|
(8.4)
|
|
(13.9)
|
|
(12.1)
|
|
(26.0)
|
Income tax
expense
|
$
|
(49.0)
|
$
|
(16.7)
|
$
|
(132.8)
|
$
|
(63.9)
|
The reconciliation of income taxes calculated at the statutory
rate to the actual income tax provision is as follows:
|
3 months ended
December 31,
|
12 months
ended December 31,
|
(millions of Canadian
dollars, unaudited)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Income tax expense at
statutory rate of 26.0%
|
$
|
(52.5)
|
$
|
(15.8)
|
$
|
(136.9)
|
$
|
(69.6)
|
Add
(deduct):
|
|
|
|
|
|
|
|
|
|
Non-taxable income
related to non-
|
|
|
|
|
|
|
|
|
|
|
controlling
interests
|
|
0.1
|
|
0.4
|
|
0.4
|
|
6.7
|
|
Entities with
different income tax rates
|
|
|
|
|
|
|
|
|
|
|
and other tax
adjustments
|
|
(0.5)
|
|
0.9
|
|
(1.9)
|
|
(0.4)
|
|
Permanent difference
from capital gains
|
|
|
|
|
|
|
|
|
|
|
and other
non-deductible items
|
|
0.1
|
|
(2.2)
|
|
1.8
|
|
(0.6)
|
|
Change in
substantively enacted tax
|
|
|
|
|
|
|
|
|
|
|
legislation
|
|
3.8
|
|
-
|
|
3.8
|
|
-
|
Income tax
expense
|
$
|
(49.0)
|
$
|
(16.7)
|
$
|
(132.8)
|
$
|
(63.9)
|
In the fourth quarter of 2017, the Provincial Government of
British Columbia passed
legislation increasing the provincial corporate tax rate from 11%
to 12% effective January 1, 2018. In
addition, the Federal Government of the
United States passed tax reform legislation, which included
a reduction of the federal corporate income tax rate from 35% to
21% effective January 1, 2018.
Accordingly, a $3.8 million net tax
recovery was recorded in net income in the fourth quarter of 2017
to record the impact of these rate changes on deferred taxes, with
an additional $1.1 million being
recorded in other comprehensive income (loss) as an income tax
recovery on defined benefit plan actuarial losses.
In addition, a tax expense of $9.8
million, before the tax rate adjustment, in relation to the
actuarial gains on the defined benefit plans (three months ended
December 31, 2016 - expense of
$5.3 million) was recorded in other
comprehensive income (loss) for the three months ended December 31, 2017. For the twelve months ended
December 31, 2017, the tax expense,
before the tax rate adjustment, was $6.1
million (twelve months ended December
31, 2016 - recovery of $13.2
million on actuarial losses).
Also included in other comprehensive income (loss) for the three
months ended December 31, 2017 was a
tax expense of $0.3 million related
to foreign exchange differences on translation of investments in
foreign operations (three months ended December 31, 2016 - expense of $0.8 million). For the twelve months ended
December 31, 2017, the tax recovery
was $2.3 million (twelve months ended
December 31, 2016 - recovery of
$1.2 million).
4. Long-Term Investments and Other
(millions of Canadian
dollars, unaudited)
|
|
As at December 31,
2017
|
|
As at
December 31,
2016
|
Investments
|
$
|
22.5
|
$
|
14.7
|
Anti-dumping duties
receivable
|
|
44.9
|
|
-
|
Equity investment in
Anthony EACOM Inc.
|
|
-
|
|
16.8
|
Other deposits,
loans, advances and long-term assets
|
|
15.9
|
|
19.2
|
|
$
|
83.3
|
$
|
50.7
|
The anti-dumping duties receivable balance represents
anti-dumping cash deposits paid in excess of the calculated expense
accrued at December 31, 2017 (Note
12).
5. Long-Term Debt
Canfor has the following long-term debt, all of which is
unsecured:
(millions of Canadian
dollars, unaudited)
|
|
As
at
December
31,
2017
|
|
As at
December 31,
2016
|
|
Canfor
Corporation
|
|
|
|
|
|
|
CAD$125.0 million,
floating interest, repayable September 28, 2022
|
$
|
125.0
|
$
|
125.0
|
|
|
US$100.0 million,
floating interest, repayable September 28, 2025
|
|
125.5
|
|
134.3
|
|
|
US$100.0 million,
fixed interest of 4.4%, repayable in three equal tranches on
October 2, 2023, 2024 and 2025
|
|
125.5
|
|
134.3
|
|
|
Other (US$7.7
million)1
|
|
9.7
|
|
4.4
|
|
Canfor Pulp Products
Inc.
|
|
|
|
|
|
|
CAD$50.0 million,
floating interest
|
|
-
|
|
50.0
|
|
$
|
385.7
|
$
|
448.0
|
Less: Current
portion
|
|
(0.3)
|
|
-
|
Long-term
portion
|
$
|
385.4
|
$
|
448.0
|
|
1Amount
relates to net financing for specific capital projects at Canfor's
U.S. sawmills.
|
In 2017, the Company extended the maturity date on its Canadian
dollar denominated $125.0 million
term loan from September 28, 2020 to
September 28, 2022, and extended the
maturity date on its US dollar denominated $100.0 million floating rate term loan from
September 28, 2023 to September 28, 2025.
In the fourth quarter of 2017, the Company obtained $4.3 million (US$3.4
million) in net financing at an interest rate of 1.3% to
fund certain capital projects at its U.S. sawmills. The structure
of the financing arrangement included a 95% investment in a new
subsidiary, resulting in the recognition of $0.5 million (US$0.4
million) in non-controlling interests.
On December 29, 2017, the
Company's subsidiary CPPI repaid the full principal balance of its
term debt of $50.0 million.
All borrowings of the Company feature similar financial
covenants, including a maximum debt to total capitalization
ratio.
As at December 31, 2017, the
Company is in compliance with all covenants relating to its
long-term debt.
6. Employee Future Benefits
The Company has several funded and unfunded defined benefit
pension plans and defined contribution plans that provide benefits
to substantially all salaried employees and certain hourly
employees. Benefits are also provided to certain salaried and
hourly employees through the Company's non-pension post-retirement
benefit plans, which are unfunded. The defined benefit
pension plans are based on years of service and final average
salary. Canfor's other non-pension post-retirement benefit plans
are non-contributory and include a range of health care and other
benefits. Canfor also provides pension bridge benefits to certain
eligible former employees.
Annuity contracts
In the three months and twelve months ended December 31, 2017, the Company purchased
$45.8 million and $136.3 million, respectively, of buy-in annuities
(three and twelve months ended December 31,
2016 - $216.1 million) through
its defined benefit pension plans, increasing total annuities
purchased to $422.9 million
(December 31, 2016 - $286.6 million). Future cash flows from the
annuities will match the amount and timing of benefits payable
under the plans, substantially mitigating the exposure to future
volatility in the related pension obligations. In the three and
twelve months ended December 31,
2017, transaction costs of $1.3
million and $4.9 million,
respectively, (three and twelve months ended December 31, 2016 - $19.5
million) related to the purchase were recognized in other
comprehensive income (loss), principally reflecting the difference
between the annuity rate compared to the discount rate used to
value the obligations on a going concern basis.
Voluntary Retiree Buyout Program
In October 2017, certain
non-pension post-retirement benefit plan members of Canfor and CPPI
were given an offer to receive lump-sum payment in exchange for
settlement of their future non-pension post-retirement benefit
obligations under the Voluntary Retiree Buyout Program ("the
Program"). Acceptance of the offer constitutes an irrevocable
election to terminate future benefit obligations by plan members,
and as such, settlement was recorded at the time of election by
members. The deadline for elections made under the Program was
October 31, 2017, and the resulting
payments were made from November 2017
through January 2018. Under the
program, $7.4 million of non-pension
post-retirement benefit obligations were settled and derecognized
in the fourth quarter of 2017, resulting in a settlement adjustment
of $3.0 million, which was included
in operating income. For the year ended December 31, 2017, $3.3
million was paid out under the Program, with an additional
$1.1 million paid in January 2018.
Medical Services Plan changes
On November 2, 2017, the
Legislative Assembly of British
Columbia enacted the Budget Measures Implementation
Act, 2017, which included a 50% reduction in Medical
Services Plan ("MSP") premiums effective January 1, 2018. This change in legislation was
recognized in actuarial financial assumptions in the fourth quarter
of 2017, and resulted in a $49.0
million pre-tax reduction of the non-pension post-retirement
benefit obligation and a corresponding gain recognized through
other comprehensive income (loss).
In addition, in measuring the accrued benefit obligation at
December 31, 2017, the MSP growth
trend rate actuarial financial assumption was reduced from 4.5% to
2.0% resulting in an additional $14.7
million pre-tax gain in the fourth quarter of 2017.
Significant assumptions
The actuarial assumptions used in measuring Canfor's benefit
plan provisions and benefit costs are as follows:
|
December 31, 2017
|
December 31,
2016
|
|
Defined
Benefit
Pension
Plans
|
Other
Benefit
Plans
|
Defined
Benefit
Pension Plans
|
Other
Benefit
Plans
|
Discount
rate
|
3.4%
|
3.4%
|
3.9%
|
3.9%
|
Rate of compensation
increases
|
3.0%
|
n/a
|
3.0%
|
n/a
|
|
|
|
|
|
Initial medical cost
trend rate
|
n/a
|
6.5%
|
n/a
|
7.0%
|
Ultimate medical cost
trend rate
|
n/a
|
4.5%
|
n/a
|
4.5%
|
Year ultimate rate is
reached
|
n/a
|
2022
|
n/a
|
2022
|
7. Earnings per Share and Normal Course Issuer
Bid
Basic net income per share is calculated by dividing the net
income attributable to common equity shareholders by the weighted
average number of common shares outstanding during the period.
|
3
months ended December 31,
|
12 months
ended December 31,
|
|
2017
|
2016
|
2017
|
2016
|
Weighted average
number of common shares
|
129,189,217
|
132,804,573
|
131,449,999
|
132,804,573
|
On March 7, 2017, the Company
renewed its normal course issuer bid whereby it can purchase for
cancellation up to 6,640,227 common shares or approximately 5% of
its issued and outstanding common shares as of March 1, 2017. The renewed normal course issuer
bid is set to expire on March 6,
2018. During the fourth quarter of 2017, Canfor purchased
633,176 common shares for $15.7
million (an average of $24.80
per common share), of which $12.0
million was paid during the period. For the twelve months
ended December 31, 2017, the Company
purchased 4,159,593 common shares for $90.7
million (an average price of $21.81 per common share), of which $32.8 million was charged to share capital and
$57.9 million was charged to retained
earnings. As at December 31, 2017,
based on trade date, there were 128,644,980 common shares of the
Company outstanding.
Subsequent to year end, the Company purchased 19,500 shares for
$0.5 million (an average of
$25.64 per common share). As at
February 22, 2018, based on trade
date, there were 128,625,480 common shares of the Company
outstanding.
Under a separate normal course issuer bid, CPPI purchased 7,575
common shares in the fourth quarter of 2017 for $0.1 million (an average of $13.20 per common share) from non-controlling
shareholders. For the twelve months ended December 31, 2017, CPPI purchased 1,448,109
common shares for $17.8 million (an
average of $12.29 per common share).
As at December 31, 2017, and
February 22, 2018, Canfor's ownership
interest in CPPI was 54.8%.
8. Net Change in Non-Cash Working Capital
|
3 months ended December 31,
|
12 months ended
December 31,
|
(millions of Canadian
dollars, unaudited)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Accounts
receivable
|
$
|
13.3
|
$
|
34.9
|
$
|
(24.3)
|
$
|
32.5
|
Inventories
|
|
(75.8)
|
|
(13.2)
|
|
(85.7)
|
|
45.7
|
Prepaid
expenses
|
|
8.2
|
|
29.2
|
|
(3.8)
|
|
4.2
|
Accounts payable,
accrued liabilities and current
portion of deferred
reforestation obligations
|
|
(9.6)
|
|
(22.8)
|
|
41.7
|
|
18.6
|
Net decrease
(increase) in non-cash working capital
|
$
|
(63.9)
|
$
|
28.1
|
$
|
(72.1)
|
$
|
101.0
|
9. 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
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
Sales to external
customers
|
$
|
859.3
|
$
|
322.9
|
$
|
-
|
$
|
-
|
$
|
1,182.2
|
Sales to other
segments
|
|
44.0
|
|
-
|
|
-
|
|
(44.0)
|
|
-
|
Operating income
(loss)
|
|
154.9
|
|
66.8
|
|
(7.5)
|
|
-
|
|
214.2
|
Amortization
|
|
45.2
|
|
18.8
|
|
-
|
|
-
|
|
64.0
|
Capital
expenditures2
|
|
64.5
|
|
28.1
|
|
1.4
|
|
-
|
|
94.0
|
3 months ended
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
Sales to external
customers
|
$
|
785.7
|
$
|
257.8
|
$
|
-
|
$
|
-
|
$
|
1,043.5
|
Sales to other
segments
|
|
32.3
|
|
-
|
|
-
|
|
(32.3)
|
|
-
|
Operating income
(loss)
|
|
57.4
|
|
22.9
|
|
(6.3)
|
|
-
|
|
74.0
|
Amortization
|
|
43.6
|
|
19.2
|
|
0.8
|
|
-
|
|
63.6
|
Capital
expenditures2
|
|
45.1
|
|
18.3
|
|
-
|
|
-
|
|
63.4
|
12 months ended
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
Sales to external
customers
|
$
|
3,461.1
|
$
|
1,197.7
|
$
|
-
|
$
|
-
|
$
|
4,658.8
|
Sales to other
segments
|
|
173.1
|
|
0.2
|
|
-
|
|
(173.3)
|
|
-
|
Operating income
(loss)
|
|
441.9
|
|
154.6
|
|
(39.1)
|
|
-
|
|
557.4
|
Amortization
|
|
175.5
|
|
74.4
|
|
-
|
|
-
|
|
249.9
|
Capital
expenditures2
|
|
163.6
|
|
83.1
|
|
5.4
|
|
-
|
|
252.1
|
Identifiable
assets
|
|
2,285.1
|
|
815.6
|
|
387.6
|
|
-
|
|
3,488.3
|
12 months ended
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
Sales to external
customers
|
$
|
3,133.2
|
$
|
1,101.7
|
$
|
-
|
$
|
-
|
$
|
4,234.9
|
Sales to other
segments
|
|
147.1
|
|
0.2
|
|
-
|
|
(147.3)
|
|
-
|
Operating income
(loss)
|
|
237.4
|
|
98.2
|
|
(29.5)
|
|
-
|
|
306.1
|
Amortization
|
|
164.4
|
|
73.8
|
|
4.1
|
|
-
|
|
242.3
|
Capital
expenditures2
|
|
168.8
|
|
64.0
|
|
1.0
|
|
-
|
|
233.8
|
Identifiable
assets
|
|
2,268.9
|
|
785.2
|
|
223.0
|
|
-
|
|
3,277.1
|
|
2Capital
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 exclude the assets purchased as part of the
acquisition of Wynndel Box and Lumber Ltd. in 2016.
|
10. Licella Pulp Joint Venture
On May 27, 2016, CPPI and Licella
Fibre Fuel Pty Ltd. ("Licella") agreed to form a joint venture
under the name Licella Pulp Joint Venture to investigate
opportunities to integrate Licella's Catalytic Hydrothermal Reactor
platform into CPPI's pulp mills to economically convert biomass
into next generation biofuels and biochemicals. Licella is a
subsidiary of Ignite Energy Resources Ltd. ("IER") an Australian
energy technology development company.
Under IFRS 11, Joint Arrangements, the joint venture is
classified as a joint operation and CPPI will recognize its assets,
liabilities and transactions, including its share of those incurred
jointly, in its consolidated financial statements. For the three
months ended December 31, 2017, the
Company's share of the joint venture's expenses was $0.3 million (three months ended December 31, 2016 - $0.2
million). For the twelve months ended December 31, 2017, the Company's share of the
joint venture's expenses was $1.1
million (twelve months ended December
31, 2016 - $0.6 million),
which have been recognized in manufacturing and product costs. The
Company is required to contribute the first $20.0 million of any funding requirements,
including cash and non-cash contributions, to the joint venture, of
which $1.7 million has been
contributed as at December 31,
2017.
In conjunction with the joint venture agreement and CPPI's
commitment to innovation and the development of potentially
transforming technology, CPPI provided a convertible credit
facility to IER, the parent company of Licella, which matures on
June 21, 2019. The advances on
this credit facility are convertible, at CPPI's option, into common
shares of IER.
With regards to the convertible credit facility, during 2016,
CPPI advanced $7.0 million to Licella
and exercised its option to convert $3.5
million of the amount advanced into common shares of
IER. Due to the inherent nature of this type of innovation
and technology development, CPPI considers these advances to be
substantially research and development in nature. As a result, at
December 31, 2016, CPPI recognized
losses of $7.0 million in other
income (expense). This reflects the Company's consideration of the
intrinsic risk associated with these advances. No advances were
made by CPPI in 2017.
11. Acquisitions
(a) US South
On January 2, 2015, the Company
completed the first phase of the acquisition of Beadles Lumber
Company & Balfour Lumber Company Inc. ("Beadles & Balfour")
for total consideration of $51.6
million (US$44.0 million),
representing an initial 55% interest.
On January 2, 2017, the Company
completed the final phase of the acquisition of Beadles &
Balfour for $41.8 million
(US$31.1 million) bringing Canfor's
interest in Beadles & Balfour to 100%. Upon completion of the
final phase of the acquisition, the forward purchase liability of
$41.8 million and non-controlling
interest of $19.9 million were
derecognized, and $36.5 million was
recorded in other equity. In addition, $16.6
million was charged to retained earnings reflecting Canfor's
election to account for the non-controlling interest related to
Beadles & Balfour as the non-controlling share of the fair
value of the net identifiable assets at the acquisition date.
On July 29, 2016, Canfor completed
the final phase of the acquisition of Scotch & Gulf Lumber, LLC
("Scotch Gulf") for $61.6 million
(US$54.9 million) bringing Canfor's
interest in Scotch Gulf to 100%. Upon completion of the final phase
of the acquisition, the forward purchase liability of $71.8 million and non-controlling interest of
$39.7 million were derecognized, and
$69.9 million was credited to other
equity. In addition, $20.0 million
was charged to retained earnings reflecting Canfor's election to
account for the non-controlling interest related to Scotch Gulf as
the non-controlling share of the fair value of the net identifiable
assets at the acquisition date.
All of the acquisitions were accounted for in accordance with
IFRS 3, Business Combinations.
(b) Wynndel Box and Lumber
Ltd.
On April 15, 2016, the Company
completed the acquisition of the assets of Wynndel Box and Lumber Ltd. ("Wynndel") for
total consideration of $40.3 million.
The acquisition has been accounted for in accordance with IFRS 3,
Business Combinations.
The acquisition of Wynndel included a sawmill located in the
Creston Valley of British
Columbia, which produces premium boards and customized
specialty wood products with an annual production capacity of 80
million board feet. Canfor acquired the assets of Wynndel,
including approximately 65,000 cubic meters of annual harvesting
rights in the Kootenay Lake Timber Supply Area.
At the acquisition date, the Company paid $19.7 million, and a working capital true-up
payment of $2.6 million was paid in
early July 2016. On April 5, 2017, the Company paid an instalment of
$14.4 million. The final instalment
of $3.6 million was paid on
October 13, 2017.
12. Countervailing and Anti-Dumping Duties
On November 25, 2016, a petition
was filed by the US Lumber Coalition to the US Department of
Commerce ("DOC") and the US International Trade Commission ("ITC")
alleging certain subsidies and administered fees below the fair
market value of timber that favour Canadian lumber producers, an
assertion the Canadian industry and Provincial and Federal
Governments strongly deny and have successfully disproven in
international courts in the past. Canfor was selected by the DOC as
a "mandatory respondent" to the countervailing and anti-dumping
investigations and is subject to company specific countervailing
and anti-dumping duties.
On April 24, 2017, the DOC
announced its preliminary countervailing duty ("CVD") of 20.26%
specific to Canfor, to be posted by cash deposits or bonds on the
exports of softwood lumber to the US effective April 28, 2017 to August
25, 2017. Following this period, CVD duties were not
applicable on lumber shipments destined to the US from August 26, 2017 to December 27, 2017. On June
23, 2017, the DOC announced its preliminary anti-dumping
duty determination ("ADD") of 7.72% specific to Canfor, to be
posted by cash deposits or bonds on the exports of softwood lumber
to the US effective June 30,
2017.
Final countervailing and anti-dumping duty determinations were
announced by the DOC on November 2,
2017, while the ITC issued an affirmative determination of
injury on December 7, 2017. As
a result, Canfor was issued a final ADD rate of 7.28% effective
November 8, 2017, and was subject to
countervailing duties on Canadian lumber exports destined to the US
at a reduced rate of 13.24%, effective December 28, 2017. Notwithstanding the final
rates established in the DOC's investigation, the final liability
for the assessment of CVD and ADD will not be determined until an
official administrative review of the respective period is
complete. The first period of review will be based on sales and
cost data from April 2017 to
December 2018, and is currently
anticipated to be completed in 2020.
For the three months ended December 31,
2017, the Company reduced its countervailing expense accrual
by $14.0 million reflecting the
difference in the DOC's preliminary and final countervailing duty
rates. In the case of the ADD, cash deposits are posted at the
final published ADD rate of 7.28% as determined by the DOC, however
for accounting purposes, the expense is being accrued at 1.1%
reflecting Canfor's best estimate of the rate applicable to its
product shipment profile, as determined by applying the DOC's
methodology to current sales and cost data. Canfor will reassess
its estimate of the anti-dumping duty rate at the end of each
quarter in 2018 by applying the DOC's methodology to updated sales
and cost data as this becomes available. These estimates may result
in a material adjustment to the Income Statement on a quarterly
basis during the first period of review. Accordingly, for the three
months ended December 31, 2017, the
Company reduced its anti-dumping duty accrual by $30.9 million reflecting the difference in the
DOC's preliminary rate of 7.72%, and the Company's estimated
accrual rate of 1.1% for the applicable period in 2017.
The cumulative countervailing and anti-dumping duty cash
deposits in excess of the calculated expense accrued at
December 31, 2017 is $14.0 million and $30.9
million, respectively. These balances are being carried as
receivables under 'long-term investments and other'.
For the three months ended December 31,
2017, the Company recorded a net countervailing and
anti-dumping duty recovery of $23.4
million reflecting the above adjustment. For the twelve
months ended December 31, 2017 the
Company has recorded a net countervailing and anti-dumping duty
expense of $44.3 million.
Canfor and other Canadian forest product companies, the Federal
Government and Canadian Provincial Governments categorically deny
the US allegations and strongly disagree with the current
countervailing and anti-dumping determinations made by the DOC.
Canada has proceeded with legal
challenges under NAFTA and through the WTO, where Canadian
litigation has proven successful in the past.
SOURCE Canfor Corporation