UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16
OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of August, 2013
Commission File Number: 033-80178-02
Tembec Inc.
(Translation of registrant's name into English)
800, René-Lévesque Boulevard West, Suite 1050, Montréal, Québec, Canada, H3B 1X9
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.
[ ] Form 20-F [ x ] Form 40-F
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): [ ]
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): [ ]
SUBMITTED HEREWITH
Exhibits
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
TEMBEC INC. | ||
(Registrant) | ||
Date: August 2, 2013 | By: | /s/ Patrick LeBel |
Patrick LeBel | ||
Title: | Vice President, General Counsel and Corporate Secretary |
TEMBEC INC. CONSOLIDATED BALANCE SHEETS |
(unaudited) (in millions of Canadian dollars) |
||||||
|
||||||
|
June 29, | Sept. 29, | ||||
|
2013 | 2012 | ||||
|
||||||
ASSETS |
||||||
Current assets: |
||||||
Cash and cash equivalents |
$ | 94 | $ | 87 | ||
Restricted cash |
- | 5 | ||||
Trade and other receivables |
153 | 200 | ||||
Inventories (note 3) |
238 | 255 | ||||
Prepaid expenses |
8 | 7 | ||||
|
493 | 554 | ||||
Property, plant and equipment (note 4) |
462 | 485 | ||||
Biological assets |
4 | 4 | ||||
Other long-term receivables |
11 | 12 | ||||
Deferred tax assets |
2 | 4 | ||||
|
$ | 972 | $ | 1,059 | ||
|
||||||
LIABILITIES AND SHAREHOLDERS' EQUITY |
||||||
Current liabilities: |
||||||
Operating bank loans (note 5) |
$ | 57 | $ | 68 | ||
Trade, other payables and accrued charges |
185 | 230 | ||||
Interest payable |
2 | 10 | ||||
Income tax payable |
5 | 3 | ||||
Provisions (note 7) |
6 | 3 | ||||
Current portion of long-term debt (note 6) |
16 | 16 | ||||
|
271 | 330 | ||||
|
||||||
Long-term debt (note 6) |
365 | 323 | ||||
Provisions (note 7) |
12 | 17 | ||||
Employee future benefits |
152 | 285 | ||||
Other long-term liabilities |
2 | 2 | ||||
|
802 | 957 | ||||
Shareholders' equity: |
||||||
Share capital (note 8) |
567 | 564 | ||||
Deficit |
(400 | ) | (453 | ) | ||
Accumulated other comprehensive earnings (loss) |
3 | (9 | ) | |||
|
170 | 102 | ||||
|
$ | 972 | $ | 1,059 |
The accompanying notes are an integral part of these interim consolidated financial statements.
- 1 -
TEMBEC INC. CONSOLIDATED STATEMENTS OF NET EARNINGS (LOSS) |
Quarters and nine months ended June 29, 2013 and June 23, 2012 |
||||||||||||
(unaudited) (in millions of Canadian dollars, unless otherwise noted) |
||||||||||||
|
||||||||||||
|
Quarters | Nine months | ||||||||||
|
2013 | 2012 | 2013 | 2012 | ||||||||
Sales |
$ | 399 | $ | 415 | $ | 1,182 | $ | 1,223 | ||||
Freight and other deductions |
54 | 59 | 158 | 169 | ||||||||
Lumber export taxes |
1 | 1 | 2 | 6 | ||||||||
Cost of sales (excluding depreciation and amortization) |
296 | 311 | 892 | 953 | ||||||||
Selling, general and administrative |
18 | 18 | 56 | 54 | ||||||||
Share-based compensation (note 8) |
- | (1 | ) | 1 | - | |||||||
Depreciation and amortization |
9 | 11 | 29 | 33 | ||||||||
Other items (note 9) |
4 | 2 | 28 | (1 | ) | |||||||
Operating earnings |
17 | 14 | 16 | 9 | ||||||||
|
||||||||||||
Interest, foreign exchange and other |
6 | 7 | 19 | 27 | ||||||||
Exchange loss on long-term debt |
11 | 8 | 21 | - | ||||||||
Net finance costs (note 10) |
17 | 15 | 40 | 27 | ||||||||
Loss before income taxes |
- | (1 | ) | (24 | ) | (18 | ) | |||||
|
||||||||||||
Income tax expense (note 11) |
4 | 4 | 16 | 17 | ||||||||
Net loss |
$ | (4 | ) | $ | (5 | ) | $ | (40 | ) | $ | (35 | ) |
|
||||||||||||
Basic and diluted net loss in dollars per share (note 8) |
$ | (0.04 | ) | $ | (0.05 | ) | $ | (0.40 | ) | $ | (0.35 | ) |
TEMBEC INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS) |
Quarters and nine months ended June 29, 2013 and June 23, 2012 |
||||||||||||
(unaudited) (in millions of Canadian dollars) |
||||||||||||
|
||||||||||||
|
Quarters | Nine months | ||||||||||
|
2013 | 2012 | 2013 | 2012 | ||||||||
Net loss |
$ | (4 | ) | $ | (5 | ) | $ | (40 | ) | $ | (35 | ) |
|
||||||||||||
Other comprehensive earnings (loss), net of income taxes: |
||||||||||||
Defined benefit pension plans and other benefit plans (note 12) |
30 | - | 93 | - | ||||||||
Foreign currency translation differences for foreign operations |
8 | (5 | ) | 12 | (10 | ) | ||||||
|
||||||||||||
Total comprehensive earnings (loss) |
$ | 34 | $ | (10 | ) | $ | 65 | $ | (45 | ) |
The accompanying notes are an integral part of these interim consolidated financial statements.
- 2 -
TEMBEC INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY |
Quarters ended June 29, 2013 and June 23, 2012 |
||||||||||||
(unaudited) (in millions of Canadian dollars) |
||||||||||||
|
||||||||||||
|
Quarter ended June 29, 2013 | |||||||||||
|
Translation | |||||||||||
|
Share | of foreign | Shareholders' | |||||||||
|
capital | operations | Deficit | equity | ||||||||
Balance - beginning of period, March 30, 2013 |
$ | 567 | $ | (5 | ) | $ | (426 | ) | $ | 136 | ||
|
||||||||||||
Net loss for the period |
- | - | (4 | ) | (4 | ) | ||||||
Other comprehensive earnings (loss), net of income taxes: |
||||||||||||
Defined benefit pension plans and other benefit plans (note 12) |
- | - | 30 | 30 | ||||||||
Foreign currency translation differences for foreign operations |
- | 8 | - | 8 | ||||||||
Issue of warrants (note 8) |
- | - | - | - | ||||||||
|
||||||||||||
Balance - end of period, June 29, 2013 |
$ | 567 | $ | 3 | $ | (400 | ) | $ | 170 |
|
Quarter ended June 23, 2012 | |||||||||||
|
Translation | |||||||||||
|
Share | of foreign | Shareholders' | |||||||||
|
capital | operations | Deficit | equity | ||||||||
Balance - beginning of period, March 24, 2012 |
$ | 564 | $ | (3 | ) | $ | (363 | ) | $ | 198 | ||
|
||||||||||||
Net loss for the period |
- | - | (5 | ) | (5 | ) | ||||||
Other comprehensive earnings (loss), net of income taxes: |
||||||||||||
Foreign currency translation differences for foreign operations |
- | (5 | ) | - | (5 | ) | ||||||
|
||||||||||||
Balance - end of period, June 23, 2012 |
$ | 564 | $ | (8 | ) | $ | (368 | ) | $ | 188 |
The accompanying notes are an integral part of these interim consolidated financial statements.
- 3 -
TEMBEC INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY |
Nine months ended June 29, 2013 and June 23, 2012 |
||||||||||||
(unaudited) (in millions of Canadian dollars) |
||||||||||||
|
||||||||||||
|
Nine months ended June 29, 2013 | |||||||||||
|
Translation | |||||||||||
|
Share | of foreign | Shareholders' | |||||||||
|
capital | operations | Deficit | equity | ||||||||
Balance - beginning of year, September 29, 2012 |
$ | 564 | $ | (9 | ) | $ | (453 | ) | $ | 102 | ||
|
||||||||||||
Net loss for the period |
- | - | (40 | ) | (40 | ) | ||||||
Other comprehensive earnings (loss), net of income taxes: |
||||||||||||
Defined benefit pension plans and other benefit plans (note 12) |
- | - | 93 | 93 | ||||||||
Foreign currency translation differences for foreign operations |
- | 12 | - | 12 | ||||||||
Issue of warrants (note 8) |
3 | - | - | 3 | ||||||||
|
||||||||||||
Balance - end of period, June 29, 2013 |
$ | 567 | $ | 3 | $ | (400 | ) | $ | 170 |
|
Nine months ended June 23, 2012 | |||||||||||
|
Translation | |||||||||||
|
Share | of foreign | Shareholders' | |||||||||
|
capital | operations | Deficit | equity | ||||||||
Balance - beginning of year, September 24, 2011 |
$ | 564 | $ | 2 | $ | (333 | ) | $ | 233 | |||
|
||||||||||||
Net loss for the period |
- | - | (35 | ) | (35 | ) | ||||||
Other comprehensive earnings (loss), net of income taxes: |
||||||||||||
Foreign currency translation differences for foreign operations |
- | (10 | ) | - | (10 | ) | ||||||
|
||||||||||||
Balance - end of period, June 23, 2012 |
$ | 564 | $ | (8 | ) | $ | (368 | ) | $ | 188 |
The accompanying notes are an integral part of these interim consolidated financial statements.
- 4 -
TEMBEC INC. CONSOLIDATED STATEMENTS OF CASH FLOWS |
Quarters and nine months ended June 29, 2013 and June 23, 2012 |
||||||||||||
(unaudited) (in millions of Canadian dollars) |
||||||||||||
|
||||||||||||
|
Quarters | Nine months | ||||||||||
|
2013 | 2012 | 2013 | 2012 | ||||||||
Cash flows from operating activities: |
||||||||||||
Net loss |
$ | (4 | ) | $ | (5 | ) | $ | (40 | ) | $ | (35 | ) |
Adjustments for: |
||||||||||||
Depreciation and amortization |
9 | 11 | 29 | 33 | ||||||||
Net finance costs (note 10) |
17 | 15 | 40 | 27 | ||||||||
Income tax expense (note 11) |
4 | 4 | 16 | 17 | ||||||||
Income tax paid |
(5 | ) | (3 | ) | (13 | ) | (13 | ) | ||||
Excess cash contributions over employee future benefits expense |
(8 | ) | (6 | ) | (25 | ) | (23 | ) | ||||
Provisions |
- | - | - | 9 | ||||||||
Impairment loss (note 9) |
- | - | 22 | 17 | ||||||||
Loss (gain) on sale of assets (note 9) |
2 | - | - | (28 | ) | |||||||
Other |
1 | - | (3 | ) | (2 | ) | ||||||
|
16 | 16 | 26 | 2 | ||||||||
Changes in non-cash working capital: |
||||||||||||
Trade and other receivables |
19 | (1 | ) | 23 | (21 | ) | ||||||
Inventories |
34 | 20 | 3 | (49 | ) | |||||||
Prepaid expenses |
4 | (1 | ) | (1 | ) | (4 | ) | |||||
Trade, other payables and accrued charges |
(36 | ) | (15 | ) | (34 | ) | (17 | ) | ||||
|
21 | 3 | (9 | ) | (91 | ) | ||||||
|
37 | 19 | 17 | (89 | ) | |||||||
Cash flows from investing activities: |
||||||||||||
Disbursements for property, plant and equipment |
(31 | ) | (24 | ) | (93 | ) | (75 | ) | ||||
Proceeds from sale of net assets (note 9) |
97 | 1 | 99 | 84 | ||||||||
Other |
1 | 3 | 2 | 6 | ||||||||
|
67 | (20 | ) | 8 | 15 | |||||||
Cash flows from financing activities: |
||||||||||||
Change in operating bank loans |
(29 | ) | (1 | ) | (11 | ) | 62 | |||||
Change in restricted cash |
1 | 6 | 5 | 4 | ||||||||
Increase in long-term debt |
4 | - | 28 | 55 | ||||||||
Repayments of long-term debt |
(3 | ) | (6 | ) | (5 | ) | (9 | ) | ||||
Interest paid |
(19 | ) | (18 | ) | (38 | ) | (33 | ) | ||||
Other |
- | 1 | - | - | ||||||||
|
(46 | ) | (18 | ) | (21 | ) | 79 | |||||
|
58 | (19 | ) | 4 | 5 | |||||||
Foreign exchange gain (loss) on cash and cash equivalents held in foreign currencies |
2 | (1 | ) | 3 | (4 | ) | ||||||
Net increase (decrease) in cash and cash equivalents |
60 | (20 | ) | 7 | 1 | |||||||
|
||||||||||||
Cash and cash equivalents, beginning of period |
34 | 120 | 87 | 99 | ||||||||
Cash and cash equivalents, end of period |
$ | 94 | $ | 100 | $ | 94 | $ | 100 |
The accompanying notes are an integral part of these interim consolidated financial statements.
- 5 -
TEMBEC INC. BUSINESS SEGMENT INFORMATION |
Quarters and nine months ended June 29, 2013 and June 23, 2012 |
(unaudited) (in millions of Canadian dollars) |
The Company operates an integrated forest products business, which is managed in four segments. During the December 2012 quarter, the Company reorganized its internal reporting structure. The High-Yield Pulp segment was renamed the Paper Pulp segment and now includes the chemical pulp mill that was previously part of the Specialty Cellulose and Chemical Pulp segment. The latter was then renamed the Specialty Cellulose Pulp segment. The Forest Products and the Paper segments were unaffected by the organizational changes. The segments are:
The Forest Products segment consists primarily of forest and sawmills operations, which produce lumber and building materials.
The Specialty Cellulose Pulp segment consists primarily of manufacturing and marketing activities of specialty cellulose including the transformation and sale of resins and pulp by-products. A significant portion of chemical products sales are related to by-products generated by the two specialty cellulose pulp mills.
The Paper Pulp segment includes the manufacturing and marketing activities of high-yield pulps and chemical pulps.
The Paper segment consists primarily of production and sales of coated bleached board and newsprint.
Intersegment transfers of wood chips, pulp and other services are recorded at transfer prices agreed to by the parties, which are intended to approximate fair market value. The basis of presentation and the accounting policies used in these business segments are the same as those described in note 2 and 3 of the Companys audited consolidated financial statements for the year ended September 29, 2012. Comparative prior period segment information has been restated to conform with the new segment presentation.
The performance of each segment is evaluated by management of the Company against short-term and long-term financial objectives as well as environmental, safety and other key criteria. The financial performance is measured based on earnings before interest, income taxes, depreciation and amortization, and other specific or non-recurring items (adjusted EBITDA). This measure is included in the internal reports that are reviewed by senior management. Segment adjusted EBITDA is used to measure performance as management believes that such information is the most relevant in evaluating financial results relative to other entities that operate within similar businesses. Net finance costs and income tax are not allocated to operating segments.
- 6 -
TEMBEC INC. BUSINESS SEGMENT INFORMATION |
Quarters ended June 29, 2013 and June 23, 2012
(unaudited)
(in millions of Canadian dollars)
|
Quarter ended June 29, 2013 | ||||||||||||||||||||
|
Specialty | ||||||||||||||||||||
|
Forest | Cellulose | Paper | Consolidation | |||||||||||||||||
|
Products | Pulp | Pulp | Paper | Corporate | adjustments | Consolidated | ||||||||||||||
Sales: |
|||||||||||||||||||||
External |
$ | 95 | $ | 120 | $ | 98 | $ | 86 | $ | - | $ | - | $ | 399 | |||||||
Internal |
15 | - | 8 | - | 2 | (25 | ) | - | |||||||||||||
|
110 | 120 | 106 | 86 | 2 | (25 | ) | 399 | |||||||||||||
Freight and other deductions |
10 | 11 | 20 | 13 | - | - | 54 | ||||||||||||||
Lumber export taxes |
1 | - | - | - | - | - | 1 | ||||||||||||||
Cost of sales |
89 | 85 | 81 | 65 | 1 | (25 | ) | 296 | |||||||||||||
Selling, general and administrative |
3 | 5 | 2 | 2 | 6 | - | 18 | ||||||||||||||
Share-based compensation |
- | - | - | - | - | - | - | ||||||||||||||
Earnings (loss) before the following (adjusted EBITDA): |
7 | 19 | 3 | 6 | (5 | ) | - | 30 | |||||||||||||
Depreciation and amortization |
2 | 4 | 3 | - | - | - | 9 | ||||||||||||||
Other items (note 9) |
- | - | 2 | - | 2 | - | 4 | ||||||||||||||
Operating earnings (loss) |
$ | 5 | $ | 15 | $ | (2 | ) | $ | 6 | $ | (7 | ) | $ | - | $ | 17 | |||||
Additions to property, plant and equipment |
$ | 1 | $ | 24 | $ | 2 | $ | 3 | $ | - | $ | - | $ | 30 | |||||||
Total assets |
$ | 159 | $ | 468 | $ | 148 | $ | 119 | $ | 78 | $ | - | $ | 972 | |||||||
Total liabilities |
$ | 57 | $ | 210 | $ | 41 | $ | 123 | $ | 371 | $ | - | $ | 802 |
|
Quarter ended June 23, 2012 | ||||||||||||||||||||
|
Specialty | ||||||||||||||||||||
|
Forest | Cellulose | Paper | Consolidation | |||||||||||||||||
|
Products | Pulp | Pulp | Paper | Corporate | adjustments | Consolidated | ||||||||||||||
Sales: |
|||||||||||||||||||||
External |
$ | 72 | $ | 124 | $ | 133 | $ | 86 | $ | - | $ | - | $ | 415 | |||||||
Internal |
14 | - | 11 | - | 4 | (29 | ) | - | |||||||||||||
|
86 | 124 | 144 | 86 | 4 | (29 | ) | 415 | |||||||||||||
Freight and other deductions |
8 | 11 | 29 | 11 | - | - | 59 | ||||||||||||||
Lumber export taxes |
1 | - | - | - | - | - | 1 | ||||||||||||||
Cost of sales |
76 | 91 | 106 | 63 | 4 | (29 | ) | 311 | |||||||||||||
Selling, general and administrative |
3 | 5 | 3 | 3 | 4 | - | 18 | ||||||||||||||
Share-based compensation |
- | - | - | - | (1 | ) | - | (1 | ) | ||||||||||||
Earnings (loss) before the following (adjusted EBITDA): |
(2 | ) | 17 | 6 | 9 | (3 | ) | - | 27 | ||||||||||||
Depreciation and amortization |
2 | 3 | 6 | - | - | - | 11 | ||||||||||||||
Other items (note 9) |
- | - | - | - | 2 | - | 2 | ||||||||||||||
Operating earnings (loss) |
$ | (4 | ) | $ | 14 | $ | - | $ | 9 | $ | (5 | ) | $ | - | $ | 14 | |||||
Additions to property, plant and equipment |
$ | - | $ | 22 | $ | - | $ | 1 | $ | 1 | $ | - | $ | 24 | |||||||
Total assets |
$ | 209 | $ | 369 | $ | 359 | $ | 120 | $ | 32 | $ | - | $ | 1,089 | |||||||
Total liabilities |
$ | 61 | $ | 172 | $ | 69 | $ | 128 | $ | 471 | $ | - | $ | 901 |
- 7 -
TEMBEC INC. BUSINESS SEGMENT INFORMATION |
Nine months ended June 29, 2013 and June 23, 2012
(unaudited) (in millions of Canadian dollars)
|
Nine months ended June 29, 2013 | ||||||||||||||||||||
|
Specialty | ||||||||||||||||||||
|
Forest | Cellulose | Paper | Consolidation | |||||||||||||||||
|
Products | Pulp | Pulp | Paper | Corporate | adjustments | Consolidated | ||||||||||||||
Sales: |
|||||||||||||||||||||
External |
$ | 266 | $ | 343 | $ | 322 | $ | 251 | $ | - | $ | - | $ | 1,182 | |||||||
Internal |
49 | - | 23 | - | 8 | (80 | ) | - | |||||||||||||
|
315 | 343 | 345 | 251 | 8 | (80 | ) | 1,182 | |||||||||||||
Freight and other deductions |
29 | 27 | 67 | 35 | - | - | 158 | ||||||||||||||
Lumber export taxes |
2 | - | - | - | - | - | 2 | ||||||||||||||
Cost of sales |
259 | 250 | 265 | 191 | 7 | (80 | ) | 892 | |||||||||||||
Selling, general and administrative |
9 | 15 | 6 | 8 | 18 | - | 56 | ||||||||||||||
Share-based compensation |
- | - | - | - | 1 | - | 1 | ||||||||||||||
Earnings (loss) before the following (adjusted EBITDA): |
16 | 51 | 7 | 17 | (18 | ) | - | 73 | |||||||||||||
Depreciation and amortization |
6 | 10 | 11 | 2 | - | - | 29 | ||||||||||||||
Other items (note 9) |
- | - | 24 | - | 4 | - | 28 | ||||||||||||||
Operating earnings (loss) |
$ | 10 | $ | 41 | $ | (28 | ) | $ | 15 | $ | (22 | ) | $ | - | $ | 16 | |||||
Additions to property, plant and equipment |
$ | 3 | $ | 72 | $ | 8 | $ | 6 | $ | 1 | $ | - | $ | 90 | |||||||
Total assets |
$ | 159 | $ | 468 | $ | 148 | $ | 119 | $ | 78 | $ | - | $ | 972 | |||||||
Total liabilities |
$ | 57 | $ | 210 | $ | 41 | $ | 123 | $ | 371 | $ | - | $ | 802 |
|
Nine months ended June 23, 2012 | ||||||||||||||||||||
|
Specialty | ||||||||||||||||||||
|
Forest | Cellulose | Paper | Consolidation | |||||||||||||||||
|
Products | Pulp | Pulp | Paper | Corporate | adjustments | Consolidated | ||||||||||||||
Sales: |
|||||||||||||||||||||
External |
$ | 258 | $ | 380 | $ | 335 | $ | 250 | $ | - | $ | - | $ | 1,223 | |||||||
Internal |
66 | - | 32 | - | 8 | (106 | ) | - | |||||||||||||
|
324 | 380 | 367 | 250 | 8 | (106 | ) | 1,223 | |||||||||||||
Freight and other deductions |
32 | 30 | 74 | 33 | - | - | 169 | ||||||||||||||
Lumber export taxes |
6 | - | - | - | - | - | 6 | ||||||||||||||
Cost of sales |
299 | 266 | 301 | 185 | 8 | (106 | ) | 953 | |||||||||||||
Selling, general and administrative |
11 | 14 | 6 | 9 | 14 | - | 54 | ||||||||||||||
Share-based compensation |
- | - | - | - | - | - | - | ||||||||||||||
Earnings (loss) before the following (adjusted EBITDA): |
(24 | ) | 70 | (14 | ) | 23 | (14 | ) | - | 41 | |||||||||||
Depreciation and amortization |
8 | 7 | 17 | 1 | - | - | 33 | ||||||||||||||
Other items (note 9) |
(22 | ) | - | - | - | 21 | - | (1 | ) | ||||||||||||
Operating earnings (loss) |
$ | (10 | ) | $ | 63 | $ | (31 | ) | $ | 22 | $ | (35 | ) | $ | - | $ | 9 | ||||
Additions to property, plant and equipment |
$ | 8 | $ | 53 | $ | 8 | $ | 5 | $ | 1 | $ | - | $ | 75 | |||||||
Total assets |
$ | 209 | $ | 369 | $ | 359 | $ | 120 | $ | 32 | $ | - | $ | 1,089 | |||||||
Total liabilities |
$ | 61 | $ | 172 | $ | 69 | $ | 128 | $ | 471 | $ | - | $ | 901 |
- 8 -
TEMBEC INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
Quarters and nine months ended June 29, 2013 and June 23, 2012 |
(unaudited) (in millions of Canadian dollars, unless otherwise noted) |
1. |
Reporting entity and nature of operations |
Tembec Inc. (the Corporation) and its subsidiaries (collectively Tembec or the Company) operate an integrated forest products business. | |
The Corporation is incorporated and domiciled in Canada and listed on the Toronto Stock Exchange under the symbol TMB. The address of the Company's registered office is 800 René-Lévesque Blvd. West, Suite 1050, Montreal, Quebec, Canada, H3B 1X9. | |
2. |
Basis of presentation |
Statement of compliance | |
These unaudited interim consolidated financial statements and the notes thereto have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) applicable to the preparation of interim financial statements, including International Accounting Standard (IAS) 34 Interim Financial Reporting. | |
The accounting policies and the basis of presentation applied in these unaudited interim consolidated financial statements are consistent with those applied and disclosed in the Companys audited consolidated financial statements for the year ended September 29, 2012. Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual profit or loss. The Companys interim results are not necessarily indicative of its results for a full year. | |
These unaudited interim consolidated financial statements do not include all of the information and disclosures required in the annual financial statements and, accordingly, should be read in conjunction with the Companys audited consolidated financial statements for the year ended September 29, 2012. | |
These unaudited interim consolidated financial statements were authorized for issue by the Board of Directors on August 1, 2013. | |
Accounting estimates and judgments | |
The preparation of unaudited interim consolidated financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and reported amounts of assets and liabilities, income and expense. Actual results may differ from those estimates. | |
In preparing these unaudited interim consolidated financial statements, the significant judgments made by management in applying the Companys significant accounting policies and key sources of information were the same as those applied to the consolidated financial statements for the year ended September 29, 2012. | |
3. |
Inventories |
|
June 29, | Sept. 29, | |||||
|
2013 | 2012 | |||||
Finished goods |
$ | 113 | $ | 118 | |||
Logs and wood chips |
55 | 61 | |||||
Supplies and materials |
70 | 76 | |||||
|
$ | 238 | $ | 255 | |||
|
|||||||
Inventories carried at net realizable value |
$ | 17 | $ | 48 |
During the quarters ended in June 2013 and 2012, cost of sales consists primarily of inventories recognized as an expense. Inventories at June 29, 2013, were written down by $2 million (September 29, 2012 - $6 million) to reflect net realizable value being lower than cost. The write-down and reversal, if any, are included in cost of sales.
- 9 -
TEMBEC INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
Quarters and nine months ended June 29, 2013 and June 23, 2012 |
(unaudited) (in millions of Canadian dollars, unless otherwise noted) |
4. |
Property, plant and equipment |
|
Net book value | ||||||
|
June 29, | Sept. 29, | |||||
|
2013 | 2012 | |||||
Land |
$ | 10 | $ | 11 | |||
Buildings |
44 | 53 | |||||
Production equipment: |
|||||||
Pulp and paper |
234 | 300 | |||||
Sawmill |
17 | 19 | |||||
Forest access roads |
7 | 6 | |||||
Assets under construction |
150 | 96 | |||||
|
$ | 462 | $ | 485 |
On May 17, 2013, the Company sold its pulp mill located in Skookumchuck, British Columbia (BC). The net book value of the property, plant and equipment sold was $79 million (note 9). | |
On March 16, 2012, the Company announced a $190 million capital investment to upgrade its specialty cellulose manufacturing facility at Temiscaming, Quebec. The Company has recently completed a detailed re-estimation exercise for the project and is now forecasting a total estimated cost of $235 million. As at the end of June 2013, the Company had incurred $113 million of capital expenditures for this project and had $49 million of outstanding commitments. During the nine-month period ended June 29, 2013, the Company had total additions to property, plant and equipment of $90 million (June 2013 quarter - $30 million), of which $54 million (June 2013 quarter - $19 million) was for the upgrade to the specialty cellulose manufacturing facility. | |
During the March 2013 quarter, the Company recorded an impairment charge of $22 million related to its pulp mill located in Skookumchuck, BC (note 9). | |
5. |
Operating bank loans |
On March 4, 2011, the Company entered into a new $200 million asset-based revolving five-year working capital facility (ABL) expiring in March 2016. On March 25, 2013, the Company disclosed that it had reached an agreement with existing ABL lenders to amend and extend the facility. The maturity date was extended by one year and is now set to expire in March 2017. The Company also negotiated a reduction of the aggregate revolving loan commitments from $200 million to $175 million and related adjustments to certain thresholds due to a reduction in the number of mills it operates. The Company had previously disclosed that the ABL lenders had expressed concern regarding their security position on collateral related to Ontario operations. The recent decision by the Supreme Court of Canada regarding the Indalex case led to satisfactory resolution of potential security issues regarding the Companys Ontario collateral. As a result, full access to the ABL facility is effectively restored. | |
As at June 29, 2013, the amount available, based on eligible receivables and inventories, was $128 million of which $57 million was drawn and $52 million was reserved for letters of credit. Interest is calculated based either on the BA Rate, the LIBOR, the Canadian Prime Rate or the U.S. Base Rate, as the case may be, plus an applicable margin. | |
The French operations are supported by receivable factoring agreements. As such, the borrowing base fluctuates periodically, depending on shipments and cash receipts. At the end of June 2013, the amount available was $24 million of which a negligible amount was drawn. | |
The Companys exposure to liquidity risk is disclosed in note 13. |
- 10 -
TEMBEC INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
Quarters and nine months ended June 29, 2013 and June 23, 2012 |
(unaudited) (in millions of Canadian dollars, unless otherwise noted) |
6. |
Long-term debt |
This note provides information about the contractual terms of the Companys long-term interest-bearing loans and borrowings, which are measured at amortized cost. |
|
June 29, | Sept. 29, | ||||||||
|
Maturity | 2013 | 2012 | |||||||
Tembec Industries Inc. - US $305 million - 11.25% senior secured notes |
12/2018 | $ | 321 | $ | 300 | |||||
Tembec Tartas SAS |
Various | 19 | 22 | |||||||
Tembec Energy LP - 6.35% secured term loan |
06/2022 | 20 | 20 | |||||||
Tembec Energy LP - 5.5% secured term loan |
10/2027 | 28 | - | |||||||
Kirkland Lake Engineered Wood Products Inc. |
Various | 8 | 8 | |||||||
Other |
Various | 2 | 2 | |||||||
|
$ | 398 | $ | 352 | ||||||
Less current portion |
16 | 16 | ||||||||
Less unamortized financing costs |
17 | 13 | ||||||||
|
$ | 365 | $ | 323 |
In connection with the specialty cellulose project in Temiscaming, Quebec, the Company entered into a $75 million term loan facility, bearing interest at 5.5%. The loan has a 15-year term consisting of a three-year construction or drawdown period followed by a 12-year amortization period. The term of the loan will be shortened by three years if the Company does not complete certain future capital expenditures at the Temiscaming specialty cellulose mill. The loan is secured by a second ranking charge on the project assets. During the December 2012 quarter, the Company received three tranches totalling $24 million and during the June 2013 quarter the Company received another tranche of $4 million on the term loan. | |
The Companys credit agreements contain covenants that could in certain circumstances restrict the ability of the Company to incur or guarantee additional indebtedness, to encumber or dispose of its assets or make certain payments or distributions. | |
7. |
Provisions |
June 29, | Sept. 29, | ||||||
2013 | 2012 | ||||||
Site restoration | $ | 12 | $ | 13 | |||
Reforestation | 1 | 2 | |||||
Other | 5 | 5 | |||||
$ | 18 | $ | 20 | ||||
Current | $ | 6 | $ | 3 | |||
Non-current | 12 | 17 | |||||
$ | 18 | $ | 20 |
- 11 -
TEMBEC INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
Quarters and nine months ended June 29, 2013 and June 23, 2012 |
(unaudited) (in millions of Canadian dollars, unless otherwise noted) |
8. |
Share capital |
Authorized | |
Unlimited number of common voting shares, without par value. | |
Unlimited number of non-voting Class A preferred shares issuable in series without par value, with other attributes to be determined at time of issuance. | |
Warrants | |
In connection with the $75 million term loan facility, the Company has granted the lender an option to acquire 3 million common shares of the Corporation at a price of $7 per share. The warrants expire on August 30, 2017. During the December 2012 quarter, concurrently with the first disbursement under the term loan facility, the Company recorded the estimated value of the warrants, which was determined to be $3 million. | |
Issued and fully paid |
June 29, | Sept. 29, | ||||||
2013 | 2012 | ||||||
100,000,000 common shares | $ | 564 | $ | 564 | |||
3,000,000 warrants | 3 | - | |||||
$ | 567 | $ | 564 |
Net loss per share
The following table provides the reconciliation between basic and diluted net loss per share:
|
Quarters | Nine months | |||||||||||
|
2013 | 2012 | 2013 | 2012 | |||||||||
Net loss |
$ | (4 | ) | $ | (5 | ) | $ | (40 | ) | $ | (35 | ) | |
Weighted average number of common shares outstanding |
100,000,000 | 100,000,000 | 100,000,000 | 100,000,000 | |||||||||
Dilutive effect of employees share options and warrants |
- | - | - | - | |||||||||
Weighted average number of diluted common shares outstanding |
100,000,000 | 100,000,000 | 100,000,000 | 100,000,000 | |||||||||
Basic and diluted net loss in dollars per share |
$ | (0.04 | ) | $ | (0.05 | ) | $ | (0.40 | ) | $ | (0.35 | ) |
The warrants and employees share options had no dilutive effect for the above periods; however, these securities could potentially dilute earnings per share in future periods.
- 12 -
TEMBEC INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
Quarters and nine months ended June 29, 2013 and June 23, 2012 |
(unaudited) (in millions of Canadian dollars, unless otherwise noted) |
8. |
Share capital (continued) |
Shareholder Rights Plan | |
At the Annual and Special Meeting of Shareholders held on January 31, 2013, the Shareholder Rights Plan (the Plan), which had been previously adopted by the Board of Directors (the Board) of the Corporation, was approved and ratified by a majority of the Shareholders. The Plan is designed to encourage the fair treatment of the Companys shareholders in the event of any take-over bid for the Companys common shares. It provides the Board with sufficient time to assess and evaluate any unsolicited take-over bid, and to explore and develop, if appropriate, alternatives that enhance shareholder value and to give shareholders adequate time to consider any such transaction. Accordingly, as of the close of business on January 31, 2013, one right was issued and attached to each common share of the Corporation. Each right entitles the holder of the right to purchase from the Corporation an additional share of the Corporation subject to the terms and conditions of the Plan. | |
Share-based compensation | |
Under the prior Long-Term Incentive Plan, the Company had, from time to time, granted options to its employees. The plan provided for the issuance of common shares at an exercise price equal to the market price of the Companys common shares on the date of the grant. These options vest over a five-year period and expire ten years from the date of issue. | |
The following table summarizes the changes in options outstanding and the impact on weighted average per share exercise price during the period: |
|
Weighted average | ||||||
|
Options | exercise price | |||||
Balance, beginning of year, September 29, 2012 |
104,987 | $ | 66.13 | ||||
Options expired |
3,492 | 184.59 | |||||
Balance, end of period, December 29, 2012 |
101,495 | $ | 62.06 | ||||
Options expired |
389 | 210.96 | |||||
Options cancelled |
3,263 | 97.51 | |||||
Balance, end of period, March 30, 2013 |
97,843 | $ | 60.29 | ||||
Options cancelled |
1,409 | 63.85 | |||||
Balance, end of period, June 29, 2013 |
96,434 | $ | 60.23 |
On November 17, 2010, under the Directors Share Award plan, non-executive members of the Board were granted 655,175 Deferred Share Units (DSU), and on January 27, 2011, 95,824 additional DSUs were granted. These DSUs vest in three equal amounts over the next three Annual General Shareholders' meetings beginning on January 27, 2011.
On November 15, 2011, the Board approved the establishment of a Performance-Conditioned Share Unit (PCSU) plan. Under the PCSU plan, designated senior executives will be granted a specified number of DSUs or PCSUs annually, which vest over successive three-year periods, based on total shareholder return over the performance period as determined relative to a peer group and the increase in value of the Companys weighted average share price over the performance period. On January 26, 2012, 373,147 DSUs were granted of which 5,564 were forfeited during the June 2012 quarter, 5,905 during the December 2012 quarter, and 30,866 during the March 2013 quarter. On November 15, 2012, an additional 726,803 DSUs were granted of which 60,308 were forfeited during the March 2013 quarter.
The following table summarizes the details of share-based compensation expenses (credits) relating to its different plans:
|
Quarters | Nine months | |||||||||||
|
2013 | 2012 | 2013 | 2012 | |||||||||
Directors' share award plan |
$ | - | $ | (1 | ) | $ | 1 | $ | - | ||||
Performance-conditioned share unit plan |
- | - | - | - | |||||||||
|
$ | - | $ | (1 | ) | $ | 1 | $ | - |
- 13 -
TEMBEC INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
Quarters and nine months ended June 29, 2013 and June 23, 2012 |
(unaudited) (in millions of Canadian dollars, unless otherwise noted) |
9. |
Other items |
The following table provides a summary of the other items by business segment of the Company: |
|
Quarters | Nine months | |||||||||||
|
2013 | 2012 | 2013 | 2012 | |||||||||
Forest Products: |
|||||||||||||
Gain on sale of BC sawmills |
$ | - | $ | - | $ | - | $ | (24 | ) | ||||
Loss on sale/closure of hardwood flooring plants |
- | - | - | 2 | |||||||||
|
- | - | - | (22 | ) | ||||||||
Paper Pulp: |
|||||||||||||
Loss on sale of Skookumchuck, BC, pulp mill |
2 | - | 2 | - | |||||||||
Impairment loss - Skookumchuck, BC, pulp mill |
- | - | 22 | - | |||||||||
|
2 | - | 24 | - | |||||||||
Corporate: |
|||||||||||||
Costs for permanently idled facilities |
2 | 2 | 6 | 9 | |||||||||
Gain on sale of assets |
- | - | (2 | ) | - | ||||||||
Impairment loss - Temlam loan receivable |
- | - | - | 16 | |||||||||
Gain on sale of minority equity investment |
- | - | - | (4 | ) | ||||||||
|
2 | 2 | 4 | 21 | |||||||||
|
$ | 4 | $ | 2 | $ | 28 | $ | (1 | ) |
2013
On May 17, 2013, the Company sold its pulp mill located in Skookumchuck, BC, for proceeds of $97 million. As a result of the sale, the Company recorded a loss of $2 million in the June 2013 quarter. The following table provides information related to Balance Sheet items of the mill at time of sale:
Current assets |
$ | 41 | ||
Long-term assets |
79 | |||
Current liabilities |
(12 | ) | ||
Employee future benefits and other |
(9 | ) | ||
|
$ | 99 |
During the June 2013 quarter, the Company recorded a charge of $2 million relating to several permanently idled facilities. The costs relate to custodial, site security, legal and remediation activities. For the nine-month period ended June 29, 2013, these charges amount to $6 million.
During the March 2013 quarter, the Company announced that it had reached an agreement to sell its pulp mill located in Skookumchuck, BC. The Company recorded an impairment charge of $22 million on the non-current assets to reflect anticipated net proceeds of sale.
During the December 2012 quarter, the Company recorded a gain of $2 million relating to the sale of land and building in Cranbrook, BC.
- 14 -
TEMBEC INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
Quarters and nine months ended June 29, 2013 and June 23, 2012 |
(unaudited) (in millions of Canadian dollars, unless otherwise noted) |
9. |
Other items (continued) |
2012 | |
During the June 2012 quarter, the Company recorded a charge of $2 million relating to several permanently idled facilities. The costs relate to custodial, site security, legal and remediation activities. For the nine-month period ended June 23, 2012, these charges amount to $9 million. | |
During the March 2012 quarter, the Company recorded an impairment charge of $16 million related to the loan receivable from Temlam Inc. The latter is currently under creditor protection and owns an idled laminated veneer lumber (LVL) facility located in Amos, Quebec. The Company has a 50% secured interest in the facility. The cutting rights that were previously attached to the LVL facility were granted to another company. In the absence of a guaranteed fiber supply, the Company has concluded that the re-start of the facility is unlikely and has adjusted its carrying value to the amount anticipated to be realized upon liquidation or sale. | |
On March 23, 2012, the Company sold its British Columbia Southern Interior wood products assets for proceeds of $66 million. The sale included the Elko and Canal Flats sawmills and approximately 1.1 million cubic meters of combined Crown tenures, private land and contract annual allowable cut. As a result of the sale, the Company recorded a gain of $24 million in the March 2012 quarter. The following table provides information related to Balance Sheet items of the two sawmills at the time of sale: |
Current assets |
$ | 35 | ||
Long-term assets |
28 | |||
Current liabilities |
(10 | ) | ||
Long-term reforestation obligations |
(9 | ) | ||
Employee future benefits and other |
(2 | ) | ||
|
$ | 42 |
On December 22, 2011, the Company recorded a gain of $4 million relating to the sale of a minority equity position in two dissolving pulp mills located in the Province of New Brunswick. | |
On November 25, 2011, the Company sold its Toronto, Ontario, flooring plant for proceeds of $13 million. Concurrently, the Company also announced the closure of its Huntsville, Ontario, hardwood flooring plant. The sale of the Toronto plant and the closure of the Huntsville plant resulted in a charge of $2 million that has been recorded in the December 2011 quarter. | |
10. |
Net finance costs |
|
Quarters | Nine months | |||||||||||
|
2013 | 2012 | 2013 | 2012 | |||||||||
Interest on long-term debt |
$ | 10 | $ | 10 | $ | 30 | $ | 26 | |||||
Interest on short-term debt |
1 | - | 2 | 1 | |||||||||
Bank charges and other financing expenses |
1 | - | 2 | 2 | |||||||||
Net foreign exchange loss (gain), excluding exchange on long-term debt |
(2 | ) | (2 | ) | (3 | ) | - | ||||||
Interest income |
- | (1 | ) | - | (1 | ) | |||||||
Exchange loss (gain) on long-term debt |
11 | 8 | 21 | - | |||||||||
Expected return on plan assets less accretion of employee future benefits obligation (note 12) |
(2 | ) | - | (6 | ) | - | |||||||
Interest capitalized on assets under construction |
(2 | ) | - | (6 | ) | (1 | ) | ||||||
|
$ | 17 | $ | 15 | $ | 40 | $ | 27 | |||||
|
|||||||||||||
Finance costs |
$ | 21 | $ | 18 | $ | 49 | $ | 28 | |||||
Finance income |
(4 | ) | (3 | ) | (9 | ) | (1 | ) | |||||
Net finance costs |
$ | 17 | $ | 15 | $ | 40 | $ | 27 |
- 15 -
TEMBEC INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
Quarters and nine months ended June 29, 2013 and June 23, 2012 |
(unaudited) (in millions of Canadian dollars, unless otherwise noted) |
11. |
Income taxes |
The reconciliation of income taxes calculated at the statutory rate to the actual tax provision is as follows: |
|
Quarters | Nine months | |||||||||||
|
2013 | 2012 | 2013 | 2012 | |||||||||
Loss before income taxes |
$ | - | $ | (1 | ) | $ | (24 | ) | $ | (18 | ) | ||
Income tax recovery based on combined federal and provincial income tax rates of 26.3% (2012 - 26.3%) Increase (decrease) resulting from: |
$ | - | $ | - | $ | (6 | ) | $ | (5 | ) | |||
Unrecognized (recognized) tax asset arising from current losses and other tax adjustments |
(1 | ) | 4 | 12 | 16 | ||||||||
Difference in statutory income tax rate |
1 | 1 | 5 | 4 | |||||||||
Non-deductible (taxable) portion of exchange loss (gain) on long-term debt |
1 | 1 | 2 | - | |||||||||
Other permanent differences |
3 | (2 | ) | 3 | 2 | ||||||||
|
4 | 4 | 22 | 22 | |||||||||
Income tax expense |
$ | 4 | $ | 4 | $ | 16 | $ | 17 | |||||
Income taxes: |
|||||||||||||
Current |
$ | 4 | $ | 2 | $ | 14 | $ | 9 | |||||
Deferred |
- | 2 | 2 | 8 | |||||||||
Income tax expense |
$ | 4 | $ | 4 | $ | 16 | $ | 17 |
12. |
Employee future benefits |
The Company measures its defined benefit obligations and the fair value of plan assets at year-end. At the end of each interim reporting period, the Company estimates changes in its accrued benefit liabilities based upon variations in discount rates and rates of return on plan assets, as well as any significant changes to the plans, if any. Adjustments are also made for payments made and current service and interest costs. | |
The following table presents the Companys employee future benefit costs included in net loss: |
|
Quarters | Nine months | |||||||||||
|
2013 | 2012 | 2013 | 2012 | |||||||||
Defined benefit pension plans |
$ | 3 | $ | 3 | $ | 8 | $ | 7 | |||||
Defined contribution and other retirement plans |
1 | 2 | 5 | 7 | |||||||||
Other benefit plans |
- | - | 1 | 1 | |||||||||
Current service cost |
$ | 4 | $ | 5 | $ | 14 | $ | 15 | |||||
|
|||||||||||||
Interest cost |
$ | 9 | $ | 10 | $ | 26 | $ | 29 | |||||
Expected return on plan assets |
(11 | ) | (10 | ) | (32 | ) | (29 | ) | |||||
Net finance income |
$ | (2 | ) | $ | - | $ | (6 | ) | $ | - | |||
|
|||||||||||||
Curtailment gain |
$ | (1 | ) | $ | - | $ | (1 | ) | $ | (2 | ) |
- 16 -
TEMBEC INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
Quarters and nine months ended June 29, 2013 and June 23, 2012 |
(unaudited) (in millions of Canadian dollars, unless otherwise noted) |
12. |
Employee future benefits (continued) |
The variation in discount rate on obligations and the difference between the actual rate of return and the expected rate of return on plan assets generated an actuarial gain (loss) on employee future benefits, included in comprehensive earnings, as follows: |
|
Quarters | Nine months | |||||||||||
|
2013 | 2012 | 2013 | 2012 | |||||||||
|
|||||||||||||
Actuarial gain - variation in discount rate |
$ | 41 | $ | - | $ | 83 | $ | - | |||||
Actuarial gain (loss) - actual rate of return exceeds (is below) expected rate of return |
(11 | ) | - | 10 | - | ||||||||
|
$ | 30 | $ | - | $ | 93 | $ | - |
The actuarial gain on variation in discount rate recognized in the statement of comprehensive earnings (loss) at June 29, 2013, was based on an increase of the discount rate from 3.69% used at September 29, 2012 and December 29, 2012, to 4.14% at March 30, 2013 and 4.48% at June 29, 2013. The actual rate of return on assets for the nine-month period was 6.2% (annualized 8.3%), which is 1.4% higher than the expected rate of return of 4.8% (annualized 6.4%). | |
13. |
Financial instruments |
Fair value | |
The carrying amount of cash and cash equivalents, restricted cash, trade and other receivables, operating bank loans, trade, other payables and accrued charges, and interest payable approximates their fair values because of the near-term maturity of those instruments. The carrying value of the long-term loans receivable and other long-term liabilities also approximates their fair values. | |
The carrying value and the fair value of long-term debt are as follows: |
June 29, | Sept. 29, | ||||||
2013 | 2012 | ||||||
Carrying value | $ | 381 | $ | 339 | |||
Fair value | $ | 425 | $ | 369 |
The fair value of the senior secured notes was estimated using quoted market prices; the fair value of the other long-term debts were estimated based on discounted cash flows using period-end market yields of similar instruments having the same maturity.
Derivative financial instruments are the only financial instruments of the Company measured at fair value on a recurring basis and have been valued in accordance with Level 1 of the fair value hierarchy, which is based on unadjusted quoted prices in an active market. The Company had no derivative financial instruments at June 29, 2013 and September 29, 2012.
Financial risk management
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was:
|
June 29, | Sept. 29, | |||||
|
2013 | 2012 | |||||
Loans and receivables, other than cash, cash equivalents and restricted cash |
$ | 164 | $ | 212 | |||
Cash, cash equivalents and restricted cash |
$ | 94 | $ | 92 |
- 17 -
TEMBEC INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
Quarters and nine months ended June 29, 2013 and June 23, 2012 |
(unaudited) (in millions of Canadian dollars, unless otherwise noted) |
13. |
Financial instruments (continued) |
Exposure to liquidity risk | |
Liquidity risk arises from the possibility that the Company will not be able to meet its financial obligations as they fall due. The Company has an objective of maintaining liquidity equal to 12 months of maintenance capital expenditures, interest and principal repayments and seasonal working capital requirements, which would amount to approximately $135 million to $150 million of liquidity. | |
A liquidity reserve in the form of cash, cash equivalents and undrawn revolving credit facilities is maintained to assist in the solvency and financial flexibility of the Company. Liquidity reserves as at June 29, 2013, totalled $137 million. In addition, the Company had entered into two secured term loan facilities totalling $105 million of which $57 million was undrawn. Repayment of amounts due within one year may also be funded by normal collection of current trade accounts receivable and cash on hand. | |
The following are the contractual maturities of financial liabilities, including interest payments: |
June 29, 2013 | |||||||||||||||||||
Carrying | Contractual | After | |||||||||||||||||
amount | cash flows | Year 1 | Years 2-3 | Years 4-5 | 5 years | ||||||||||||||
Secured bank loans | $ | 384 | (1) | $ | 606 | $ | 41 | $ | 85 | $ | 85 | $ | 395 | ||||||
Unsecured loans | 14 | 15 | 6 | 6 | 2 | 1 | |||||||||||||
Operating bank loans | 57 | 57 | 57 | - | - | - | |||||||||||||
Trade and others | 187 | 187 | 187 | - | - | - | |||||||||||||
$ | 642 | $ | 865 | $ | 291 | $ | 91 | $ | 87 | $ | 396 |
(1) before financing costs |
14. |
Capital management |
It is the Companys objective to manage its capital to ensure adequate capital resources exist to support operations while maintaining its business growth. The Company sets the amount of capital in proportion to risk. The Company manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk of characteristics of the underlying assets. | |
The Company monitors capital on the basis of net debt to total capitalization ratio. Net debt is calculated as a total debt (long-term debt plus bank indebtedness and operating bank loans) less cash, cash equivalents, and restricted cash. | |
Total capitalization includes net debt plus provisions, accrued benefit liability, deferred income taxes, other long-term liabilities, and shareholders equity. | |
The Companys long-term objective is to maintain the net debt to total capitalization ratio at 40% or less. A strong balance sheet provides the Company with the ability to access capital markets at favourable rates. The net debt to total capitalization ratio of the Company was 52% as at June 29, 2013 (September 29, 2012 45%). The increase was due to a higher debt borrowed primarily to finance the Temiscaming specialty cellulose project combined with the significant contributions that are being made to fund defined benefit pension plans. The Company anticipates that the net debt to total capitalization ratio will remain in excess of its target until the Temiscaming project is completed and begins to generate the projected incremental adjusted EBITDA. | |
There were no changes in the Companys approach to capital management during the period. |
- 18 -
Exhibit 99.2
Managements Discussion and Analysis
for the quarter ended June 29, 2013
The following interim Management Discussion and Analysis (MD&A) provides a review of the significant developments and issues that impacted Tembecs financial performance during its third fiscal quarter ended June 29, 2013. The MD&A should be read in conjunction with the interim consolidated financial statements for the period ended June 29, 2013, and the audited consolidated financial statements and annual MD&A for the fiscal year ended September 29, 2012, included in the Companys Financial Report. Financial data has been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). All financial references are stated in Canadian dollars, unless otherwise noted. All references to quarterly information relate to Tembecs fiscal quarters. Adjusted EBITDA, net debt, total capitalization, free cash flow and certain other financial measures utilized in the MD&A are non-IFRS financial measures. As they have no standardized meaning prescribed by IFRS, they may not be comparable to similar measures presented by other companies. Non-IFRS financial measures are described in the Definitions section on the last page of the MD&A.
The interim MD&A includes forward-looking statements within the meaning of securities laws. Such statements relate, without limitation, to the Companys or managements objectives, projections, estimates, expectations or predictions of the future and can be identified by words such as may, will, could, anticipate, estimate, expect and project, the negative or variations thereof, and expressions of similar nature. Forward-looking statements are based on certain assumptions and analyses made by the Company in light of its experience, information available to it and its perception of future developments. Such statements are subject to a number of risks and uncertainties, including, but not limited to, changes in foreign exchange rates, product selling prices, raw material and operating costs and other factors identified in the Companys periodic filings with securities regulatory authorities. Many of these risks are beyond the control of the Company and, therefore, may cause actual actions or results to materially differ from those expressed or implied herein. The forward-looking statements contained herein reflect the Companys expectations as of the date hereof and are subject to change after such date. The Company disclaims any intention to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by applicable securities legislation. The information in the MD&A is as at August 1, 2013, the date of filing in conjunction with the Companys press release announcing its results for the third fiscal quarter. Disclosure contained in this document is current to that date, unless otherwise stated.
CONSOLIDATED RESULTS |
|
Quarterly Results ($ millions) | |||||||||||||||||||||||
|
Fiscal 2012 | Fiscal 2013 | ||||||||||||||||||||||
|
Dec 11 | Mar 12 | Jun 12 | Sep 12 | Dec 12 | Mar 13 | Jun 13 | Sep 13 | ||||||||||||||||
Sales |
401 | 407 | 415 | 443 | 376 | 407 | 399 | - | ||||||||||||||||
Freight and other deductions |
53 | 57 | 59 | 63 | 50 | 54 | 54 | - | ||||||||||||||||
Lumber export taxes |
2 | 3 | 1 | 1 | 1 | - | 1 | - | ||||||||||||||||
Cost of sales |
316 | 326 | 311 | 337 | 286 | 310 | 296 | - | ||||||||||||||||
SG&A |
18 | 18 | 18 | 20 | 19 | 19 | 18 | - | ||||||||||||||||
Share-based compensation |
- | 1 | (1 | ) | (1 | ) | 1 | - | - | - | ||||||||||||||
Adjusted EBITDA |
12 | 2 | 27 | 23 | 19 | 24 | 30 | - | ||||||||||||||||
Depreciation & amortization |
12 | 10 | 11 | 13 | 11 | 9 | 9 | - | ||||||||||||||||
Other items |
2 | (5 | ) | 2 | 51 | 1 | 23 | 4 | - | |||||||||||||||
Operating earnings (loss) |
(2 | ) | (3 | ) | 14 | (41 | ) | 7 | (8 | ) | 17 | - | ||||||||||||
Interest, foreign exchange & other |
10 | 10 | 7 | 14 | 7 | 6 | 6 | - | ||||||||||||||||
Exchange loss (gain) on long-term debt |
(2 | ) | (6 | ) | 8 | (13 | ) | 4 | 6 | 11 | - | |||||||||||||
Pre-tax loss |
(10 | ) | (7 | ) | (1 | ) | (42 | ) | (4 | ) | (20 | ) | - | - | ||||||||||
Income tax expense |
6 | 7 | 4 | 5 | 6 | 6 | 4 | - | ||||||||||||||||
Net loss |
(16 | ) | (14 | ) | (5 | ) | (47 | ) | (10 | ) | (26 | ) | (4 | ) | - |
-1-
BUSINESS SEGMENTS |
During the December 2012 quarter, the Company reorganized its internal reporting structure, which impacted segment disclosure included in the current period financial statements and MD&A. Prior to the change, the Company had reported the results of the Skookumchuck, BC, Northern Bleached Softwood Kraft (NBSK) pulp mill as part of the Specialty Cellulose and Chemical Pulp segment. Subsequent to the organizational change, the mill has been regrouped with the high-yield pulp mills in a new segment called Paper Pulp. The Specialty Cellulose and Chemical Pulp segment has been renamed Specialty Cellulose Pulp. Comparative prior period segment information has been restated in the interim financial statements to conform to the new presentation. The following summarizes fiscal 2012 quarterly and total year financial results of the two new segments that will be utilized as comparables in fiscal 2013.
|
($ millions) | ||||||||||||||
|
TOTAL | ||||||||||||||
|
Dec 11 | Mar 12 | Jun 12 | Sep 12 | 2012 | ||||||||||
Specialty Cellulose Pulp |
|||||||||||||||
Sales |
123 | 133 | 124 | 127 | 507 | ||||||||||
Freight and other deductions |
10 | 9 | 11 | 10 | 40 | ||||||||||
Cost of sales |
84 | 91 | 91 | 86 | 352 | ||||||||||
SG&A |
4 | 5 | 5 | 6 | 20 | ||||||||||
Adjusted EBITDA |
25 | 28 | 17 | 25 | 95 | ||||||||||
Depreciation and amortization |
2 | 2 | 3 | 4 | 11 | ||||||||||
Operating earnings |
23 | 26 | 14 | 21 | 84 | ||||||||||
|
|||||||||||||||
Paper Pulp |
|||||||||||||||
Sales |
103 | 120 | 144 | 140 | 507 | ||||||||||
Freight and other deductions |
20 | 25 | 29 | 31 | 105 | ||||||||||
Cost of sales |
88 | 107 | 106 | 126 | 427 | ||||||||||
SG&A |
2 | 1 | 3 | 1 | 7 | ||||||||||
Adjusted EBITDA |
(7 | ) | (13 | ) | 6 | (18 | ) | (32 | ) | ||||||
Depreciation and amortization |
6 | 5 | 6 | 6 | 23 | ||||||||||
Other item - impairment of Chetwynd pulp mill |
- | - | - | 50 | 50 | ||||||||||
Operating loss |
(13 | ) | (18 | ) | - | (74 | ) | (105 | ) |
-2-
JUNE 2013 QUARTER VS MARCH 2013 QUARTER |
CONSOLIDATED SUMMARY |
SALES |
|||||||||||||||
$ millions |
March | June | Total | Price | Volume & Mix | ||||||||||
|
2013 | 2013 | Variance | Variance | Variance | ||||||||||
Forest Products |
104 | 110 | 6 | (1 | ) | 7 | |||||||||
Specialty Cellulose Pulp |
120 | 120 | - | - | - | ||||||||||
Paper Pulp |
122 | 106 | (16 | ) | 5 | (21 | ) | ||||||||
Paper |
87 | 86 | (1 | ) | - | (1 | ) | ||||||||
Corporate |
2 | 2 | - | - | - | ||||||||||
|
435 | 424 | (11 | ) | 4 | (15 | ) | ||||||||
Less: Intersegment Sales |
(28 | ) | (25 | ) | 3 | ||||||||||
Sales |
407 | 399 | (8 | ) |
Sales decreased by $8 million as compared to the prior quarter. Currency had a small positive effect on pricing as the Canadian dollar averaged US $0.977, a 1.4% decline from US $0.991 in the prior quarter. Forest Products segment sales increased by $6 million due to higher lumber shipments. Specialty Cellulose Pulp segment sales were flat. Paper Pulp segment sales decreased by $16 million due to lower shipments, partially offset by higher prices. Paper segment sales decreased by $1 million due to lower shipments.
ADJUSTED EBITDA |
|||||||||||||||
$ millions |
March | June | Total | Price | Cost & Volume | ||||||||||
|
2013 | 2013 | Variance | Variance | Variance | ||||||||||
Forest Products |
7 | 7 | - | (1 | ) | 1 | |||||||||
Specialty Cellulose Pulp |
14 | 19 | 5 | - | 5 | ||||||||||
Paper Pulp |
4 | 3 | (1 | ) | 5 | (6 | ) | ||||||||
Paper |
5 | 6 | 1 | - | 1 | ||||||||||
Corporate |
(6 | ) | (5 | ) | 1 | - | 1 | ||||||||
|
24 | 30 | 6 | 4 | 2 |
Adjusted EBITDA increased by $6 million as compared to the prior quarter. The Forest Products segment adjusted EBITDA did not change. Specialty Cellulose Pulp segment adjusted EBITDA increased by $5 million due to lower costs. Paper Pulp segment adjusted EBITDA declined by $1 million due to higher costs, partially offset by higher prices. Paper segment adjusted EBITDA increased by $1 million as a result of lower costs.
OPERATING EARNINGS (LOSS) |
||||||||||||||||||
|
Adjusted | |||||||||||||||||
$ millions |
March | June | Total | EBITDA | Depreciation | Other Items | ||||||||||||
|
2013 | 2013 | Variance | Variance | Variance | Variance | ||||||||||||
Forest Products |
5 | 5 | - | - | - | - | ||||||||||||
Specialty Cellulose Pulp |
11 | 15 | 4 | 5 | (1 | ) | - | |||||||||||
Paper Pulp |
(21 | ) | (2 | ) | 19 | (1 | ) | - | 20 | |||||||||
Paper |
4 | 6 | 2 | 1 | 1 | - | ||||||||||||
Corporate |
(7 | ) | (7 | ) | - | 1 | - | (1 | ) | |||||||||
|
(8 | ) | 17 | 25 | 6 | - | 19 |
The Company generated operating earnings of $17 million compared to an operating loss of $8 million in the prior quarter. In addition to the previously noted increase in adjusted EBITDA, other items also provided a positive variance. The prior quarter results included a $22 million impairment charge related to the Skookumchuck, BC, NBSK pulp mill. A more detailed explanation of segment variances is included in the analysis that follows.
-3-
JUNE 2013 QUARTER VS MARCH 2013 QUARTER |
SEGMENT RESULTS FOREST PRODUCTS |
|
March | June | |||||||
|
2013 | 2013 | Variance | ||||||
Financial ($ millions) |
|||||||||
Sales (1) |
104 | 110 | 6 | ||||||
|
|||||||||
Freight and other deductions |
10 | 10 | - | ||||||
Lumber export taxes |
- | 1 | (1 | ) | |||||
Cost of sales (1) |
84 | 89 | (5 | ) | |||||
SG&A |
3 | 3 | - | ||||||
Adjusted EBITDA |
7 | 7 | - | ||||||
Depreciation and amortization |
2 | 2 | - | ||||||
Operating earnings |
5 | 5 | - | ||||||
|
|||||||||
Shipments |
|||||||||
SPF lumber (mmbf) |
171 | 188 | 17 | ||||||
|
|||||||||
Reference Prices |
|||||||||
KD #2 & better delivered G.L. (US $ per mbf) |
484 | 436 | (48 | ) | |||||
KD stud delivered G.L. (US $ per mbf) |
426 | 438 | 12 |
(1) Includes intersegment sales eliminated on consolidation |
The Forest Products segment generated adjusted EBITDA of $7 million on sales of $110 million for the quarter ended June 29, 2013, compared to adjusted EBITDA of $7 million on sales of $104 million in the prior quarter. Sales increased by $6 million due to higher lumber shipments.
Market conditions were strong at the beginning of the quarter, but declined in May and June. US $ reference prices for random lumber decreased by US $48 per mbf while stud lumber increased by US $12 per mbf. This is a seasonally stronger period for stud lumber as the impact of the housing construction season is more pronounced on this grade of lumber. Currency was favourable as the Canadian dollar averaged US $0.977, a 1.4% decline from US $0.991 in the prior quarter. The net effect decreased sales and adjusted EBITDA by $1 million or $4 per mbf. Lumber shipments were equal to 83% of capacity versus 76% in the prior quarter. Sawmill costs decreased by $2 million. The summer months are seasonally higher productivity and lower cost periods.
During the June 2013 quarter, the Company incurred $340,000 of lumber export taxes, on shipments of lumber to the United States, up from $290,000 in the prior quarter. Lumber export taxes are payable based on the 2006 Softwood Lumber Agreement (SLA) between Canada and the United States. Applicable export tax rates may vary based on selling prices. During the June 2013 quarter, the Company incurred a tax of 0.9% on its lumber shipments, up from 0.8% in the prior quarter.
The Forest Products segment generated operating earnings of $5 million, unchanged from the prior quarter.
-4-
JUNE 2013 QUARTER VS MARCH 2013 QUARTER |
SEGMENT RESULTS SPECIALTY CELLULOSE PULP |
|
March | June | |||||||
|
2013 | 2013 | Variance | ||||||
Financial ($ millions) |
|||||||||
Sales - Pulp |
95 | 93 | (2 | ) | |||||
Sales - Chemicals |
25 | 27 | 2 | ||||||
|
120 | 120 | - | ||||||
|
|||||||||
Freight and other deductions |
9 | 11 | (2 | ) | |||||
Cost of sales |
92 | 85 | 7 | ||||||
SG&A |
5 | 5 | - | ||||||
Adjusted EBITDA |
14 | 19 | 5 | ||||||
Depreciation and amortization |
3 | 4 | (1 | ) | |||||
Operating earnings |
11 | 15 | 4 | ||||||
|
|||||||||
Shipments |
|||||||||
Specialty grades (000's tonnes) |
47 | 45 | (2 | ) | |||||
Viscose grades (000's tonnes) |
15 | 16 | 1 | ||||||
|
62 | 61 | (1 | ) | |||||
|
|||||||||
Average prices |
|||||||||
Specialty grades (C $ per tonne) |
1,708 | 1,717 | 9 | ||||||
Viscose grades (C $ per tonne) |
941 | 979 | 38 |
The Specialty Cellulose Pulp segment generated adjusted EBITDA of $19 million on sales of $120 million for the quarter ended June 29, 2013, compared to adjusted EBITDA of $14 million on sales of $120 million in the prior quarter.
Demand for specialty grades was flat while US and euro prices were relatively unchanged quarter-over-quarter. However, with the Canadian dollar weakening by 1.4% versus the US dollar, Canadian dollar equivalent pricing increased by $9 per tonne. While viscose grade pricing improved, this market remains oversupplied and prices remain relatively low. Overall, pricing was favourable, improving adjusted EBITDA by $1 million. Mill manufacturing costs were unchanged quarter-over-quarter. The current quarter cost of sales was reduced by $1 million due to a favourable net realizable value increase on the carrying values of viscose grade finished goods inventories. This is the opposite of the prior quarter when cost of sales had absorbed a charge of $1 million related to the net realizable value of viscose grade inventories. Higher profitability in Chemicals increased adjusted EBITDA by $1 million. Finished goods inventories of pulp were at approximately 41 days of supply at the end of June 2013, unchanged from the end of the prior quarter.
The Specialty Cellulose Pulp segment generated operating earnings of $15 million compared to operating earnings of $11 million in the prior quarter. The previously noted increase in adjusted EBITDA accounted for the higher operating earnings.
-5-
JUNE 2013 QUARTER VS MARCH 2013 QUARTER |
SEGMENT RESULTS PAPER PULP |
|
March | June | |||||||
|
2013 | 2013 | Variance | ||||||
Financial ($ millions) |
|||||||||
Sales (1) |
122 | 106 | (16 | ) | |||||
|
|||||||||
Freight and other deductions |
24 | 20 | 4 | ||||||
Cost of sales (1) |
92 | 81 | 11 | ||||||
SG&A |
2 | 2 | - | ||||||
Adjusted EBITDA |
4 | 3 | (1 | ) | |||||
Depreciation and amortization |
3 | 3 | - | ||||||
Other item - impairment of Skookumchuck pulp mill |
22 | - | 22 | ||||||
Other item - loss on sale of Skookumchuck pulp mill |
- | 2 | (2 | ) | |||||
Operating loss |
(21 | ) | (2 | ) | 19 | ||||
|
|||||||||
Shipments |
|||||||||
NBSK pulp (000's tonnes) |
75 | 33 | (42 | ) | |||||
High-yield pulp (000's tonnes) |
113 | 125 | 12 | ||||||
Internal (000's tonnes) |
16 | 16 | - | ||||||
Total |
204 | 174 | (30 | ) | |||||
|
|||||||||
Reference Prices |
|||||||||
NBSK - delivered China (US $ per tonne) |
678 | 700 | 22 | ||||||
BEK - delivered China (US $ per tonne) |
677 | 705 | 28 |
(1) Includes intersegment sales eliminated on consolidation |
The Paper Pulp segment generated adjusted EBITDA of $3 million on sales of $106 million for the quarter ended June 2013, compared to adjusted EBITDA of $4 million on sales of $122 million in the prior quarter. The $16 million decrease in sales was due to lower shipments of Northern Bleached Softwood Kraft (NBSK) pulp, partially offset by higher shipments of high-yield pulp. In May 2013, the Company completed the sale of its remaining NBSK mill located in Skookumchuck, BC. During the most recent quarter, the mill generated sales of $23 million and adjusted EBITDA of $3 million. In the prior quarter, the mill had generated sales of $50 million and adjusted EBITDA of $6 million.
Market conditions for paper pulp remained relatively weak although demand was stable. The benchmark price (delivered China) for NBSK increased by US $22 per tonne while reference prices for bleached eucalyptus kraft (BEK) increased by US $28 per tonne. Currency was also positive as the Canadian dollar averaged US $0.977, a 1.4% decline from US $0.991 in the prior quarter. Overall, average paper pulp prices increased by $29 per tonne, improving adjusted EBITDA by $5 million. Paper pulp shipments were equal to 98% of capacity, unchanged from the prior quarter. Manufacturing costs increased by $3 million, primarily for energy at the NBSK mill and chemicals at the two high-yield pulp mills. Adjusted EBITDA was also negatively impacted by $4 million due to a volume variance associated with lower shipments of NBSK pulp. Paper Pulp inventories were at 23 days of supply at the end of June 2013, as compared to 24 days at the end of March 2013.
The Paper Pulp segment generated an operating loss of $2 million compared to an operating loss of $21 million in the prior quarter. The prior quarter results include a $22 million impairment charge related to the Skookumchuck, BC, NBSK pulp mill. The current quarter results include a loss of $2 million related to the sale of the Skookumchuck pulp mill.
-6-
JUNE 2013 QUARTER VS MARCH 2013 QUARTER |
SEGMENT RESULTS PAPER |
|
March | June | |||||||
|
2013 | 2013 | Variance | ||||||
Financial ($ millions) |
|||||||||
Sales |
87 | 86 | (1 | ) | |||||
|
|||||||||
Freight and other deductions |
11 | 13 | (2 | ) | |||||
Cost of sales |
68 | 65 | 3 | ||||||
SG&A |
3 | 2 | 1 | ||||||
Adjusted EBITDA |
5 | 6 | 1 | ||||||
Depreciation and amortization |
1 | - | 1 | ||||||
Operating earnings |
4 | 6 | 2 | ||||||
|
|||||||||
Shipments |
|||||||||
Coated bleached board (000's tonnes) |
44 | 45 | 1 | ||||||
Newsprint (000's tonnes) |
59 | 55 | (4 | ) | |||||
Total |
103 | 100 | (3 | ) | |||||
|
|||||||||
Reference Prices |
|||||||||
16 pt. Coated bleached board (US $ per short ton) |
1,090 | 1,123 | 33 | ||||||
Newsprint - 48.8 gram East Coast |
|||||||||
(US $ per tonne) |
615 | 607 | (8 | ) |
The Paper segment generated adjusted EBITDA of $6 million on sales of $86 million for the quarter ended June 2013, compared to adjusted EBITDA of $5 million on sales of $87 million in the prior quarter. Lower newsprint shipments led to the $1 million decrease in sales.
In terms of markets, coated bleached board improved slightly. The newsprint market weakened due to continued lower North American demand combined with the restart of previously idled capacity. The US $ reference prices for coated bleached board increased by US $33 per short ton while the US $ reference price for newsprint declined by US $8 per tonne. Currency was positive as the Canadian dollar averaged US $0.977, a 1.4% decrease from US $0.991 in the prior quarter. The net effect was a small increase in average coated bleached board price, increasing adjusted EBITDA by $1 million. Coated bleached board shipments were equal to 102% of capacity as compared to 97% in the prior quarter. The shipment to capacity percentage for newsprint was 91%, compared to 99% in the prior quarter. Manufacturing costs were relatively unchanged quarter-over-quarter with lower energy costs offset by higher fiber and freight costs.
The Paper segment generated operating earnings of $6 million, compared to operating earnings of $4 million in the prior quarter. The previously noted increase in adjusted EBITDA contributed to the higher operating earnings.
-7-
JUNE 2013 QUARTER VS MARCH 2013 QUARTER |
SEGMENT RESULTS CORPORATE |
March | June | |||||
2013 | 2013 | |||||
Financial ($ millions) | ||||||
General and administrative expenses | 6 | 5 | ||||
Share-based compensation | - | - | ||||
Other items: | ||||||
Custodial - idled facilities | 1 | 2 | ||||
Operating expenses | 7 | 7 |
The Company recorded a negligible expense for share-based compensation in the current quarter and in the prior quarter. Senior executives currently participate in a long-term incentive plan which entitles participants to potentially receive units that are equal in value to one common share. The units have a defined vesting period and are subject to performance conditions that ultimately determine the amount of units that vest and are earned by plan participants. Non-executive members of the board of directors receive a portion of their fees in the form of Deferred Share Units (DSU). The DSUs vest at specified dates. The period credit/expense for the share-based compensation plans consists of normal periodic variation in the number of units based on anticipated or normal vesting and the change in the value of the Companys share price.
The Corporate segments other items include expenses relating to several permanently idled facilities. The costs relate to custodial, site security, legal and remediation activities. These legacy costs totalled $2 million in the most recent quarter compared to $1 million in the prior quarter.
-8-
JUNE 2013 QUARTER VS MARCH 2013 QUARTER |
INTEREST, FOREIGN EXCHANGE AND OTHER |
The following table summarizes interest, foreign exchange and other expenses by component:
$ millions | ||||||
March | June | |||||
2013 | 2013 | |||||
Interest on debt | 10 | 11 | ||||
Capitalized interest | (2 | ) | (2 | ) | ||
Foreign exchange items | (1 | ) | (2 | ) | ||
Employee future benefits | (2 | ) | (2 | ) | ||
Bank charges and other | 1 | 1 | ||||
6 | 6 |
There were no significant interest expense variances quarter-over-quarter. The expense relates primarily to interest on the US $305 million 11.25% senior secured notes maturing in December 2018. Capitalized interest relates primarily to the large capital project currently under construction at the Temiscaming, QC, specialty cellulose mill. Foreign exchange items are primarily caused by gains or losses on the translation of US $ net monetary assets. When the Canadian dollar weakens versus the US dollar, as was the case in the last two quarters, gains are generated. The credit for employee future benefits results from the anticipated return on plan assets exceeding the amount of obligation accretion.
TRANSLATION OF FOREIGN DEBT |
During the June 2013 quarter, the Company recorded a loss of $11 million on the translation of its US $ denominated debt as the relative value of the Canadian dollar decreased from US $0.984 to US $0.951.
During the March 2013 quarter, the Company recorded a loss of $6 million on the translation of its US $ denominated debt as the relative value of the Canadian dollar decreased from US $1.004 to US $0.984.
INCOME TAXES |
During the June 2013 quarter, the Company recorded an income tax expense of $4 million on nil earnings before income taxes. The income tax expense reflected a $4 million unfavourable variance versus an anticipated nil income tax expense based on the Companys effective tax rate of 26.3% . The higher corporate tax rates applicable to the Companys French operations generated an unfavourable variance of $1 million. The non-deductible portion of the exchange loss on the translation of foreign debt also generated an unfavourable variance of $1 million.
During the March 2013 quarter, the Company recorded an income tax expense of $6 million on a loss before income taxes of $20 million. The income tax expense reflected an $11 million unfavourable variance versus an anticipated income tax recovery of $5 million based on the Companys effective tax rate of 26.3% . The March 2013 quarter absorbed an $8 million unfavourable variance related to period losses for which no deferred tax asset was recognized. The higher corporate tax rates applicable to the Companys French operations generated an unfavourable variance of $2 million.
-9-
JUNE 2013 QUARTER VS MARCH 2013 QUARTER |
NET LOSS |
The Company generated a net loss of $4 million or $0.04 per share for the quarter ended June 29, 2013. This compares to a net loss of $26 million or $0.26 per share for the quarter ended March 30, 2013. As noted previously, the Companys financial results were impacted by certain specific items. The following table summarizes the impact of these items on the reported financial results. The Company believes it is useful supplemental information as it provides an indication of results excluding the specific items. This supplemental information is not intended as an alternative measure for net earnings as determined by IFRS. The table below contains the gain or loss on translation of foreign debt, which is a recurring item. Because the Company has a substantial amount of US $ denominated debt, relatively minor changes in the value of the Canadian dollar versus the US dollar can lead to large unrealized periodic gains or losses. As well, this item receives capital gain/loss tax treatment and is not tax-affected at regular business income rates.
|
Quarter ended | Quarter ended | ||||||||||
|
March 30, 2013 | June 29, 2013 | ||||||||||
|
$ millions | $ per share | $ millions | $ per share | ||||||||
Net loss as reported - in accordance with IFRS |
(26 | ) | (0.26 | ) | (4 | ) | (0.04 | ) | ||||
Specific items (after-tax): |
||||||||||||
Loss on translation of foreign debt |
5 | 0.05 | 9 | 0.09 | ||||||||
Impairment - Skookumchuck pulp mill |
16 | 0.16 | - | - | ||||||||
Loss on sale of Skookumchuck pulp mill |
- | - | 1 | 0.01 | ||||||||
Costs for permanently idled facilities |
1 | 0.01 | 1 | 0.01 | ||||||||
Unrecognized deferred tax assets on above items |
7 | 0.07 | 2 | 0.02 | ||||||||
Net earnings excluding specific items - not in accordance with IFRS |
3 | 0.03 | 9 | 0.09 |
COMPREHENSIVE EARNINGS |
The following table summarizes the impact of items affecting the reported total comprehensive earnings during the last two quarters:
|
$ millions | |||||
|
March | June | ||||
|
2013 | 2013 | ||||
Net loss |
(26 | ) | (4 | ) | ||
Foreign currency translation gain (loss) on foreign operations |
(2 | ) | 8 | |||
Employee future benefit gain |
63 | 30 | ||||
Total comprehensive earnings |
35 | 34 |
Comprehensive items include gains or losses related to the currency translation of the assets and liabilities of the Companys French and U.S. operations. The gains or losses are generated by changes in the end of period exchange rates. During the June 2013 quarter, the currency translation of the French operations generated a gain of $8 million. During the March 2013 quarter, the currency translation of the French operations generated a loss of $2 million.
During the June 2013 quarter, the Company recognized a gain of $30 million relating to the estimated net obligation for employee future benefits. The average discount rate applied to estimate the present value of future obligations increased from 4.14% to 4.48%, thereby reducing estimated future obligations by $41 million. This was partially offset by the actual return on plan assets being $11 million below the expected return. During the March 2013 quarter, the Company recognized a gain of $63 million relating to the estimated net obligation for employee future benefits. The average discount rate applied to estimate the present value of future obligations increased from 3.69% to 4.14%, thereby reducing estimated future obligations by $42 million. As well, the actual return on plan assets exceeded the expected return by $21 million.
-10-
JUNE 2013 QUARTER VS JUNE 2012 QUARTER |
CONSOLIDATED SUMMARY |
SALES |
|||||||||||||||
$ millions |
June | June | Total | Price | Volume & Mix | ||||||||||
|
2012 | 2013 | Variance | Variance | Variance | ||||||||||
Forest Products |
86 | 110 | 24 | 11 | 13 | ||||||||||
Specialty Cellulose Pulp |
124 | 120 | (4 | ) | 2 | (6 | ) | ||||||||
Paper Pulp |
144 | 106 | (38 | ) | 5 | (43 | ) | ||||||||
Paper |
86 | 86 | - | (3 | ) | 3 | |||||||||
Corporate |
4 | 2 | (2 | ) | - | (2 | ) | ||||||||
|
444 | 424 | (20 | ) | 15 | (35 | ) | ||||||||
Less: Intersegment Sales |
(29 | ) | (25 | ) | 4 | ||||||||||
Sales |
415 | 399 | (16 | ) |
Sales decreased by $16 million from the same quarter a year ago. Currency was a positive factor as the Canadian dollar averaged US $0.977, a 1.4% decrease from US $0.991 in the year ago quarter. Forest Products segment sales increased by $24 million as a result of higher shipments and prices. Specialty Cellulose Pulp segment sales decreased by $4 million due to lower shipments. Paper Pulp segment sales declined by $38 million due to lower shipments. Paper segment sales were flat, with higher shipments offset by lower prices.
ADJUSTED EBITDA |
|||||||||||||||
$ millions |
June | June | Total | Price | Cost & Volume | ||||||||||
|
2012 | 2013 | Variance | Variance | Variance | ||||||||||
Forest Products |
(2 | ) | 7 | 9 | 11 | (2 | ) | ||||||||
Specialty Cellulose Pulp |
17 | 19 | 2 | 2 | - | ||||||||||
Paper Pulp |
6 | 3 | (3 | ) | 5 | (8 | ) | ||||||||
Paper |
9 | 6 | (3 | ) | (3 | ) | - | ||||||||
Corporate |
(3 | ) | (5 | ) | (2 | ) | - | (2 | ) | ||||||
|
27 | 30 | 3 | 15 | (12 | ) |
Adjusted EBITDA increased by $3 million from the prior year quarter. Forest Products segment adjusted EBITDA improved by $9 million from the prior year quarter due to higher prices. Specialty Cellulose Pulp segment adjusted EBITDA increased by $2 million due to higher prices. Paper Pulp segment adjusted EBITDA decreased by $3 million due to higher costs, partially offset by higher prices. Paper segment adjusted EBITDA decreased by $3 million due to lower prices.
OPERATING EARNINGS (LOSS) |
||||||||||||||||||
|
Adjusted | |||||||||||||||||
$ millions |
June | June | Total | EBITDA | Depreciation | Other Items | ||||||||||||
|
2012 | 2013 | Variance | Variance | Variance | Variance | ||||||||||||
Forest Products |
(4 | ) | 5 | 9 | 9 | - | - | |||||||||||
Specialty Cellulose Pulp |
14 | 15 | 1 | 2 | (1 | ) | - | |||||||||||
Paper Pulp |
- | (2 | ) | (2 | ) | (3 | ) | 3 | (2 | ) | ||||||||
Paper |
9 | 6 | (3 | ) | (3 | ) | - | - | ||||||||||
Corporate |
(5 | ) | (7 | ) | (2 | ) | (2 | ) | - | - | ||||||||
|
14 | 17 | 3 | 3 | 2 | (2 | ) |
The Company generated operating earnings of $17 million compared to operating earnings of $14 million in the same quarter a year ago. The previously noted increase in adjusted EBITDA led to the increase in operating earnings. The impairment and sale of the Skookumchuck pulp mill reduced depreciation expense by $3 million. The Paper Pulp segment also absorbed a $2 million loss on the sale of the pulp mill in the June 2013 quarter. A more detailed explanation of segment variances is included in the analysis that follows.
-11-
JUNE 2013 QUARTER VS JUNE 2012 QUARTER |
SEGMENT RESULTS FOREST PRODUCTS |
|
June | June | |||||||
|
2012 | 2013 | Variance | ||||||
Financial ($ millions) |
|||||||||
Sales (1) |
86 | 110 | 24 | ||||||
|
|||||||||
Freight and other deductions |
8 | 10 | (2 | ) | |||||
Lumber export taxes |
1 | 1 | - | ||||||
Cost of sales (1) |
76 | 89 | (13 | ) | |||||
SG&A |
3 | 3 | - | ||||||
Adjusted EBITDA |
(2 | ) | 7 | 9 | |||||
|
|||||||||
Depreciation and amortization |
2 | 2 | - | ||||||
Operating earnings (loss) |
(4 | ) | 5 | 9 | |||||
|
|||||||||
Shipments |
|||||||||
SPF lumber (mmbf) |
165 | 188 | 23 | ||||||
|
|||||||||
Reference Prices |
|||||||||
KD #2 & better delivered G.L. (US $ per mbf) |
392 | 436 | 44 | ||||||
KD stud delivered G.L. (US $ per mbf) |
387 | 438 | 51 |
(1) Includes intersegment sales eliminated on consolidation |
The Forest Products segment generated adjusted EBITDA of $7 million on sales of $110 million. This compares to negative adjusted EBITDA of $2 million on sales of $86 million in the comparable quarter of the prior year. Higher lumber prices and shipments increased sales by $19 million. Higher shipments of wood chips generated the balance of the increase.
Demand for SPF lumber improved with shipments equal to 83% of capacity, as compared to 72% in the year ago quarter. US $ reference prices for random lumber increased by US $44 per mbf while the reference price for stud lumber was up US $51 per mbf. Currency was also favourable as the Canadian dollar averaged US $0.977, a 1.4% decline from US $0.991 in the prior year quarter. As a result, the average selling price of SPF lumber increased by $59 per mbf, increasing adjusted EBITDA by $11 million. Cost of sales for the sawmills increased by $3 million, primarily for fibre.
During the June 2013 quarter, the Company incurred $340,000 of lumber export taxes on shipments of lumber from its Eastern sawmills to the United States, down from $1,210,000 in the prior year quarter. The effective tax rate was 0.9% versus 5.1% in the year ago quarter. The higher selling prices for SPF lumber led to a lower export tax rate.
The Forest Products segment generated operating earnings of $5 million, as compared to an operating loss of $4 million in the prior year quarter. The previously noted increase in adjusted EBITDA generated the improvement in operating results.
-12-
JUNE 2013 QUARTER VS JUNE 2012 QUARTER |
SEGMENT RESULTS SPECIALTY CELLULOSE PULP |
|
June | June | |||||||
|
2012 | 2013 | Variance | ||||||
Financial ($ millions) |
|||||||||
Sales - Pulp |
98 | 93 | (5 | ) | |||||
Sales - Chemicals |
26 | 27 | 1 | ||||||
|
124 | 120 | (4 | ) | |||||
|
|||||||||
Freight and other deductions |
11 | 11 | - | ||||||
Cost of sales |
91 | 85 | 6 | ||||||
SG&A |
5 | 5 | - | ||||||
Adjusted EBITDA |
17 | 19 | 2 | ||||||
Depreciation and amortization |
3 | 4 | (1 | ) | |||||
Operating earnings |
14 | 15 | 1 | ||||||
|
|||||||||
Shipments |
|||||||||
Specialty grades (000's tonnes) |
52 | 45 | (7 | ) | |||||
Viscose grades (000's tonnes) |
10 | 16 | 6 | ||||||
|
62 | 61 | (1 | ) | |||||
|
|||||||||
Average prices |
|||||||||
Specialty grades (C $ per tonne) |
1,672 | 1,717 | 45 | ||||||
Viscose grades (C $ per tonne) |
1,114 | 979 | (135 | ) |
The Specialty Cellulose Pulp segment generated adjusted EBITDA of $19 million on sales of $120 million. This compares to adjusted EBITDA of $17 million on sales of $124 million in the year ago quarter. The $5 million decline in pulp sales was due to lower shipments of specialty grade pulp, partially offset by increased shipments of viscose grade pulp.
Demand for specialty grades was weaker than in the prior year quarter. Despite weaker market conditions, US dollar and euro prices were relatively unchanged. The $45 per tonne improvement in Canadian dollar prices was largely due to currency as the Canadian dollar weakened by 1.4% versus the US dollar and 3.0% versus the euro. However, this increase was offset by a $135 per tonne decrease in viscose grade prices. The 6,000 tonne increase in viscose grade shipments was not due to increased demand, but rather to lower demand for specialty grades. The viscose market remains oversupplied and prices have weakened considerably since 2011. Overall, pricing was unchanged and did not cause a variance in adjusted EBITDA. Mill manufacturing costs decreased by $3 million, primarily for energy and maintenance material at the Tartas mill. Adjusted EBITDA was negatively impacted by $3 million due to a mix variance associated with shipping lower volumes of specialty grade pulp and higher volumes of viscose grade pulp. Higher profitability in Chemicals increased adjusted EBITDA by $1 million.
The Specialty Cellulose Pulp segment generated operating earnings of $15 million compared to operating earnings of $14 million in the comparable quarter of the prior year. The previously noted increase in adjusted EBITDA led to the higher operating earnings.
-13-
JUNE 2013 QUARTER VS JUNE 2012 QUARTER |
SEGMENT RESULTS PAPER PULP |
|
June | June | |||||||
|
2012 | 2013 | Variance | ||||||
Financial ($ millions) |
|||||||||
Sales (1) |
144 | 106 | (38 | ) | |||||
|
|||||||||
Freight and other deductions |
29 | 20 | 9 | ||||||
Cost of sales (1) |
106 | 81 | 25 | ||||||
SG&A |
3 | 2 | 1 | ||||||
Adjusted EBITDA |
6 | 3 | (3 | ) | |||||
Depreciation and amortization |
6 | 3 | 3 | ||||||
Other item - loss on sale of Skookumchuck pulp mill |
- | 2 | (2 | ) | |||||
Operating earnings (loss) |
- | (2 | ) | (2 | ) | ||||
|
|||||||||
Shipments |
|||||||||
NBSK pulp (000's tonnes) |
57 | 33 | (24 | ) | |||||
High-yield pulp (000's tonnes) |
164 | 125 | (39 | ) | |||||
Internal (000's tonnes) |
20 | 16 | (4 | ) | |||||
Total |
241 | 174 | (67 | ) | |||||
|
|||||||||
Reference Prices |
|||||||||
NBSK - delivered China (US $ per tonne) |
690 | 700 | 10 | ||||||
BEK - delivered China (US $ per tonne) |
667 | 705 | 38 |
(1) Includes intersegment sales eliminated on consolidation |
The Paper Pulp segment generated adjusted EBITDA of $3 million on sales of $106 million. This compares to adjusted EBITDA of $6 million on sales of $144 million in the year ago quarter. The $38 million decrease in sales was caused by lower shipments of pulp. The Chetwynd, BC, high-yield pulp mill did not operate during the June 2013 quarter. In the prior year quarter, the mill had shipped 48,500 tonnes and had recorded sales of $28 million. In May 2013, the Company completed the sale of its remaining NBSK mill located in Skookumchuck, BC. During the most recent quarter, the mill generated sales of $23 million and adjusted EBITDA of $3 million. In the prior year quarter, the mill had generated sales of $43 million and adjusted EBITDA of $2 million.
The reference price for NBSK pulp increased by US $10 per tonne. While the reference price for BEK increased by US $38 per tonne, the increase in high-yield pulp prices was a more modest US $17 per tonne. Currency was a positive factor as the Canadian dollar averaged US $0.977, a 1.4% decline from the year ago quarter. Overall, Canadian dollar prices improved by $29 per tonne increasing adjusted EBITDA by $5 million. Paper pulp shipments were equal to 98% of capacity as compared to 90% in the prior year quarter. The prior year percentage includes the capacity of the Chetwynd high-yield pulp mill. Mill level manufacturing costs increased by $1 million. In the prior year quarter, the high-yield pulp mills had benefited from an $8 million reduction to cost of sales related to a positive net realizable value adjustment on the carrying values of finished goods pulp inventories. The current quarter benefited from a favourable net realizable value adjustment of $1 million.
The Paper Pulp segment generated an operating loss of $2 million compared to nil operating earnings in the comparable quarter of the prior year. The current quarter includes a $2 million loss related to the sale of the Skookumchuck pulp mill.
-14-
JUNE 2013 QUARTER VS JUNE 2012 QUARTER |
SEGMENT RESULTS PAPER |
|
June | June | |||||||
|
2012 | 2013 | Variance | ||||||
Financial ($ millions) |
|||||||||
Sales |
86 | 86 | - | ||||||
|
|||||||||
Freight and other deductions |
11 | 13 | (2 | ) | |||||
Cost of sales |
63 | 65 | (2 | ) | |||||
SG&A |
3 | 2 | 1 | ||||||
Adjusted EBITDA |
9 | 6 | (3 | ) | |||||
Depreciation and amortization |
- | - | - | ||||||
Operating earnings |
9 | 6 | (3 | ) | |||||
|
|||||||||
Shipments |
|||||||||
Coated bleached board (000's tonnes) |
43 | 45 | 2 | ||||||
Newsprint (000's tonnes) |
53 | 55 | 2 | ||||||
Total |
96 | 100 | 4 | ||||||
|
|||||||||
Reference Prices |
|||||||||
16 pt. Coated bleached board (US $ per short ton) |
1,130 | 1,123 | (7 | ) | |||||
Newsprint - 48.8 gram East Coast |
|||||||||
(US $ per tonne) |
640 | 607 | (33 | ) |
The Paper segment generated adjusted EBITDA of $6 million on sales of $86 million. This compares to adjusted EBITDA of $9 million on sales of $86 million in the same quarter a year ago. Higher shipments offset lower selling prices and the total dollar value of sales was unchanged.
In terms of markets, coated bleached board was relatively stable. Newsprint was weaker due to a combination of lower North American demand and the restart of previously idled capacity. The US $ reference price for coated bleached board declined by US $7 per short ton while the reference price for newsprint declined by US $33 per tonne. Currency was favourable as the Canadian dollar declined by 1.4% from US $0.991 to US $0.977. The net effect was that pricing for newsprint declined, reducing adjusted EBITDA by $3 million. Coated bleached board shipments were equal to 102% of capacity as compared to 96% in the year ago quarter. Newsprint shipment to capacity was 91% compared to 87% in the prior year quarter. Costs were unchanged quarter-over-quarter.
The Paper segment generated operating earnings of $6 million, compared to $9 million in the prior year quarter. The previously noted drop in adjusted EBITDA led to the lower operating earnings.
-15-
JUNE 2013 QUARTER VS JUNE 2012 QUARTER |
SEGMENT RESULTS CORPORATE |
|
June | June | ||||
|
2012 | 2013 | ||||
Financial ($ millions) |
||||||
General and administrative expenses |
4 | 5 | ||||
Share-based compensation |
(1 | ) | - | |||
Other items: |
||||||
Custodial - idled facilities |
2 | 2 | ||||
Operating expenses |
5 | 7 |
The Company recorded a negligible expense for share-based compensation in the current quarter, compared to a $1 million credit in the year ago quarter. Senior executives currently participate in a long-term incentive plan which entitles participants to potentially receive units that are equal in value to one common share. The units have a defined vesting period and are subject to performance conditions that ultimately determine the amount of units that vest and are earned by plan participants. Non-executive members of the board of directors receive a portion of their fees in the form of Deferred Share Units (DSU). The DSUs vest at specified dates. The period credit/expense for the share-based compensation plan consists of normal periodic variation in the number of units based on anticipated or normal vesting and the changes in the value of the Companys share price.
The Corporate segments other items include expenses relating to several permanently idled facilities. The costs relate to custodial, site security, legal and remediation activities. These legacy costs totalled $2 million in the most recent quarter, unchanged from the year ago quarter.
-16-
JUNE 2013 QUARTER VS JUNE 2012 QUARTER |
INTEREST, FOREIGN EXCHANGE AND OTHER |
The following table summarizes interest, foreign exchange and other expenses by component:
$ millions | ||||||
June | June | |||||
2012 | 2013 | |||||
Interest on debt | 10 | 11 | ||||
Interest income | (1 | ) | - | |||
Capitalized interest | - | (2 | ) | |||
Foreign exchange items | (2 | ) | (2 | ) | ||
Employee future benefits | - | (2 | ) | |||
Bank charges and other | - | 1 | ||||
7 | 6 |
There were no significant interest expense variances quarter-over-quarter. The interest expense relates primarily to interest on the US $305 million 11.25% senior secured notes maturing in December 2018. The increase in capitalized interest is related to the Temiscaming, QC, specialty cellulose project. Foreign exchange items relate primarily to gains or losses on the translation of US $ net monetary assets. When the Canadian dollar weakens versus the US dollar, as was the case in both June quarters, gains are generated. The credit for employee future benefits results from the anticipated return on plan assets exceeding the amount of obligation accretion.
TRANSLATION OF FOREIGN DEBT |
During the June 2013 quarter, the Company recorded a loss of $11 million on the translation of its US $ denominated debt as the relative value of the Canadian dollar decreased from US $0.984 to US $0.951.
During the June 2012 quarter, the Company recorded a loss of $8 million on the translation of its US $ denominated debt as the relative value of the Canadian dollar decreased from US $1.001 to US $0.976.
INCOME TAXES |
During the June 2013 quarter, the Company recorded an income tax expense of $4 million on nil earnings before income taxes. The income tax expense reflected a $4 million unfavourable variance versus an anticipated nil income tax expense based on the Companys effective tax rate of 26.3% . The higher corporate tax rates applicable to the Companys French operations generated an unfavourable variance of $1 million. The non-deductible portion of the exchange loss on the translation of foreign debt also generated an unfavourable variance of $1 million.
During the June 2012 quarter, the Company recorded an income tax expense of $4 million on a loss before income taxes of $1 million. The income tax expense reflected a $4 million unfavourable variance versus an anticipated nil income tax expense based on the Companys effective tax rate of 26.3% . The June 2012 quarter absorbed a $4 million unfavourable variance related to period losses for which no deferred tax asset was recognized. The higher corporate tax rates applicable to the Companys French operations generated an unfavourable variance of $1 million. The non-deductible portion of the exchange loss on the translation of foreign debt generated an unfavourable variance of $1 million.
-17-
JUNE 2013 QUARTER VS JUNE 2012 QUARTER |
NET LOSS |
The Company generated a net loss of $4 million or $0.04 per share for the quarter ended June 29, 2013, compared to a net loss of $5 million or $0.05 per share for the quarter ended June 23, 2012. As noted previously, the Companys financial results were impacted by certain specific items. The following table summarizes the impact of these items on the reported financial results. The Company believes it is useful supplemental information as it provides an indication of results excluding the specific items. This supplemental information is not intended as an alternative measure for net earnings as determined by IFRS. The table below contains the gain or loss on translation of foreign debt, which is a recurring item. Because the Company has a substantial amount of US $ denominated debt, relatively minor changes in the value of the Canadian dollar versus the US dollar can lead to large unrealized periodic gains or losses. As well, this item receives capital gain/loss tax treatment and is not tax-affected at regular business income rates.
|
Quarter ended | Quarter ended | ||||||||||
|
June 23, 2012 | June 29, 2013 | ||||||||||
|
$ millions | $ per share | $ millions | $ per share | ||||||||
Net loss as reported - in accordance with IFRS |
(5 | ) | (0.05 | ) | (4 | ) | (0.04 | ) | ||||
Specific items (after-tax): |
||||||||||||
Loss on translation of foreign debt |
7 | 0.07 | 9 | 0.09 | ||||||||
Loss on sale of Skookumchuck pulp mill |
- | - | 1 | 0.01 | ||||||||
Costs for permanently idled facilities |
2 | 0.02 | 1 | 0.01 | ||||||||
Unrecognized deferred tax asset on above items |
1 | 0.01 | 2 | 0.02 | ||||||||
Net earnings excluding specific items - not in accordance with IFRS |
5 | 0.05 | 9 | 0.09 |
COMPREHENSIVE EARNINGS (LOSS) |
The following table summarizes the impact of items affecting the reported total comprehensive earnings (loss) during the June 2013 quarter and the comparable period a year ago:
|
$ millions | |||||
|
June | June | ||||
|
2012 | 2013 | ||||
Net loss |
(5 | ) | (4 | ) | ||
Foreign currency translation gain (loss) on foreign operations |
(5 | ) | 8 | |||
Employee future benefit gain |
- | 30 | ||||
Total comprehensive earnings (loss) |
(10 | ) | 34 |
Comprehensive items include gains or losses related to the currency translation of the assets and liabilities of the Companys French and U.S. operations. The gains or losses are generated by the changes in the end of period exchange rates. During the June 2013 quarter, the currency translation of the French operations generated a gain of $8 million. In the June 2012 quarter, the currency translation of the French operations generated a loss of $4 million. The currency translation of the U.S. operations generated a loss of $1 million.
During the June 2013 quarter, the Company recognized a gain of $30 million relating to the estimated net obligation for employee future benefits. The average discount rate applied to estimate the present value of future obligations increased from 4.14% to 4.48%, thereby reducing estimated future obligation by $41 million. This was partially offset by the actual return on plan assets being $11 million below the expected return. There were no employee future benefit gains or losses in the prior year period.
-18-
NINE MONTH ENDED JUNE 2013 VS NINE MONTHS ENDED JUNE 2012 |
CONSOLIDATED SUMMARY |
SALES |
|||||||||||||||
$ millions |
June | June | Total | Price | Volume & Mix | ||||||||||
|
2012 | 2013 | Variance | Variance | Variance | ||||||||||
Forest Products |
324 | 315 | (9 | ) | 44 | (53 | ) | ||||||||
Specialty Cellulose Pulp |
380 | 343 | (37 | ) | (3 | ) | (34 | ) | |||||||
Paper Pulp |
367 | 345 | (22 | ) | 1 | (23 | ) | ||||||||
Paper |
250 | 251 | 1 | (11 | ) | 12 | |||||||||
Corporate |
8 | 8 | - | - | - | ||||||||||
|
1,329 | 1,262 | (67 | ) | 31 | (98 | ) | ||||||||
Less: Intersegment Sales |
(106 | ) | (80 | ) | 26 | ||||||||||
Sales |
1,223 | 1,182 | (41 | ) |
Sales decreased by $41 million as compared to the same period a year ago. Currency was not a significant factor as the Canadian dollar averaged US $0.992, a 0.3% increase from US $0.989 in the prior year period. Forest Products segment sales decreased by $9 million as a result of lower shipments, partially offset by higher prices. Specialty Cellulose Pulp segment sales decreased by $37 million due primarily to lower shipments. Paper Pulp segment sales decreased by $22 million due to lower shipments. Paper segment sales increased by $1 million due to higher shipments, partially offset by lower prices.
ADJUSTED EBITDA |
|||||||||||||||
$ millions |
June | June | Total | Price | Cost & Volume | ||||||||||
|
2012 | 2013 | Variance | Variance | Variance | ||||||||||
Forest Products |
(24 | ) | 16 | 40 | 44 | (4 | ) | ||||||||
Specialty Cellulose Pulp |
70 | 51 | (19 | ) | (3 | ) | (16 | ) | |||||||
Paper Pulp |
(14 | ) | 7 | 21 | 1 | 20 | |||||||||
Paper |
23 | 17 | (6 | ) | (11 | ) | 5 | ||||||||
Corporate |
(14 | ) | (18 | ) | (4 | ) | - | (4 | ) | ||||||
|
41 | 73 | 32 | 31 | 1 |
Adjusted EBITDA increased by $32 million from the prior year nine-month period. Forest Products segment adjusted EBITDA improved by $40 million from the prior year period due to higher prices. Specialty Cellulose Pulp segment adjusted EBITDA decreased by $19 million due to higher costs and lower prices. Paper Pulp segment adjusted EBITDA improved by $21 million due to lower costs. Paper segment adjusted EBITDA decreased by $6 million because of lower prices, partially offset by lower costs.
OPERATING EARNINGS (LOSS) |
||||||||||||||||||
|
Adjusted | |||||||||||||||||
$ millions |
June | June | Total | EBITDA | Depreciation | Other Items | ||||||||||||
|
2012 | 2013 | Variance | Variance | Variance | Variance | ||||||||||||
Forest Products |
(10 | ) | 10 | 20 | 40 | 2 | (22 | ) | ||||||||||
Specialty Cellulose Pulp |
63 | 41 | (22 | ) | (19 | ) | (3 | ) | - | |||||||||
Paper Pulp |
(31 | ) | (28 | ) | 3 | 21 | 6 | (24 | ) | |||||||||
Paper |
22 | 15 | (7 | ) | (6 | ) | (1 | ) | - | |||||||||
Corporate |
(35 | ) | (22 | ) | 13 | (4 | ) | - | 17 | |||||||||
|
9 | 16 | 7 | 32 | 4 | (29 | ) |
The Company generated operating earnings of $16 million compared to operating earnings of $9 million in the same period a year ago. The previously noted increase in adjusted EBITDA was partially offset by a $29 million unfavourable variance in other items. In the prior year period, the Company had sold its two BC sawmills and had recorded a gain of $24 million. This was partially offset by a $16 million charge relating to the impairment of a loan receivable. In the nine-month period ended June 2013, the Paper Pulp segment absorbed a $22 million impairment charge related to the Skookumchuck, BC, NBSK pulp mill and a subsequent $2 million loss was also recorded when the mill was sold in May 2013. A more detailed explanation of segment variances is included in the analysis that follows.
-19-
NINE MONTH ENDED JUNE 2013 VS NINE MONTHS ENDED JUNE 2012 |
SEGMENT RESULTS FOREST PRODUCTS |
|
June | June | |||||||
|
2012 | 2013 | Variance | ||||||
Financial ($ millions) |
|||||||||
Sales (1) |
324 | 315 | (9 | ) | |||||
|
|||||||||
Freight and other deductions |
32 | 29 | 3 | ||||||
Lumber export taxes |
6 | 2 | 4 | ||||||
Cost of sales (1) |
299 | 259 | 40 | ||||||
SG&A |
11 | 9 | 2 | ||||||
Adjusted EBITDA |
(24 | ) | 16 | 40 | |||||
Depreciation and amortization |
8 | 6 | 2 | ||||||
Other item - gain on sale of BC sawmills |
(24 | ) | - | (24 | ) | ||||
Other item - loss on sale/closure of flooring operations |
2 | - | 2 | ||||||
Operating earnings (loss) |
(10 | ) | 10 | 20 | |||||
|
|||||||||
Shipments |
|||||||||
SPF lumber (mmbf) - East |
470 | 550 | 80 | ||||||
SPF lumber (mmbf) - West |
171 | - | (171 | ) | |||||
Total |
641 | 550 | (91 | ) | |||||
|
|||||||||
Reference Prices |
|||||||||
KD #2 & better delivered G.L. (US $ per mbf) |
359 | 449 | 90 | ||||||
KD stud delivered G.L. (US $ per mbf) |
339 | 413 | 74 |
(1) Includes intersegment sales eliminated on consolidation |
The Forest Products segment generated adjusted EBITDA of $16 million on sales of $315 million. This compares to negative adjusted EBITDA of $24 million on sales of $324 million in the comparable nine-month period of the prior year. The sale of the Companys two BC sawmills at the end of the March 2012 quarter had a significant impact on sales. The sawmills had shipped 171 million board feet of lumber in the prior year period and had generated lumber, chip and by-product revenues of $79 million. Sales also decreased by $9 million due to the divestiture of the hardwood flooring operations in November 2011. Higher SPF lumber prices and shipments from the Companys Eastern sawmills increased sales by $78 million, partially offsetting the previously noted decreases.
Demand for SPF lumber improved with Eastern lumber shipments equal to 81% of capacity, as compared to 69% in the year ago period. US $ reference prices for random lumber increased by US $90 per mbf while the reference price for stud lumber was up US $74 per mbf. Currency was relatively unchanged as the Canadian dollar averaged US $0.992, a 0.3% increase from US $0.989 in the comparable nine-month period a year ago. The average selling price of SPF lumber increased by $80 per mbf, increasing adjusted EBITDA by $44 million. Cost of manufacturing for the Eastern sawmills increased by $2 million, primarily for fibre.
During the nine-month period ended June 2013, the Company incurred $2 million of lumber export taxes on shipments of lumber from its Eastern sawmills to the United States, down from $3 million in the prior year nine-month period. The effective tax rate was 1.7% versus 5.5% in the year ago period. The prior year period also included $3 million of export taxes for Western sawmill lumber shipments to the United States.
The Forest Products segment generated operating earnings of $10 million, as compared to an operating loss of $10 million in the prior year period. The previously noted improvement in adjusted EBITDA accounted for the improvement in operating results. In the prior year period, the Company sold its two BC sawmills and recorded a gain of $24 million. The Company also sold its Toronto, Ontario, flooring plant and announced the closure of its Huntsville, Ontario, flooring plant. The combined effect was a charge of $2 million.
-20-
NINE MONTH ENDED JUNE 2013 VS NINE MONTHS ENDED JUNE 2012 |
SEGMENT RESULTS SPECIALTY CELLULOSE PULP |
|
June | June | |||||||
|
2012 | 2013 | Variance | ||||||
Financial ($ millions) |
|||||||||
Sales - Pulp |
306 | 269 | (37 | ) | |||||
Sales - Chemicals |
74 | 74 | - | ||||||
|
380 | 343 | (37 | ) | |||||
|
|||||||||
Freight and other deductions |
30 | 27 | 3 | ||||||
Cost of sales |
266 | 250 | 16 | ||||||
SG&A |
14 | 15 | (1 | ) | |||||
Adjusted EBITDA |
70 | 51 | (19 | ) | |||||
Depreciation and amortization |
7 | 10 | (3 | ) | |||||
Operating earnings |
63 | 41 | (22 | ) | |||||
|
|||||||||
Shipments |
|||||||||
Specialty grades (000's tonnes) |
158 | 139 | (19 | ) | |||||
Viscose grades (000's tonnes) |
34 | 35 | 1 | ||||||
|
192 | 174 | (18 | ) | |||||
|
|||||||||
Average prices |
|||||||||
Specialty grades (C $ per tonne) |
1,651 | 1,693 | 42 | ||||||
Viscose grades (C $ per tonne) |
1,316 | 967 | (349 | ) |
The Specialty Cellulose Pulp segment generated adjusted EBITDA of $51 million on sales of $343 million. This compares to adjusted EBITDA of $70 million on sales of $380 million in the year ago period. The $37 million decline in pulp sales was due to lower shipments of specialty grades as well as lower prices for viscose grades.
Demand for specialty grades was weaker than in the prior year nine-month period even though realized Canadian dollar prices increased by $42 per tonne. However, this increase was more than offset by a $349 per tonne decrease in viscose grade prices. The latter market has weakened considerably since 2011. Overall, pricing was lower and reduced adjusted EBITDA by $7 million. Mill manufacturing costs increased by $6 million, primarily for chemicals and under-absorption of fixed costs as the two mills have produced 6% fewer tonnes in the current nine-month period. Adjusted EBITDA was also negatively impacted by $8 million due to a volume variance associated with lower shipments of specialty grade pulp.
The Specialty Cellulose Pulp segment generated operating earnings of $41 million compared to operating earnings of $63 million in the comparable nine-month period of the prior year. The previously noted decline in adjusted EBITDA led to the lower operating earnings.
-21-
NINE MONTH ENDED JUNE 2013 VS NINE MONTHS ENDED JUNE 2012 |
SEGMENT RESULTS PAPER PULP |
|
June | June | |||||||
|
2012 | 2013 | Variance | ||||||
Financial ($ millions) |
|||||||||
Sales (1) |
367 | 345 | (22 | ) | |||||
|
|||||||||
Freight and other deductions |
74 | 67 | 7 | ||||||
Cost of sales (1) |
301 | 265 | 36 | ||||||
SG&A |
6 | 6 | - | ||||||
Adjusted EBITDA |
(14 | ) | 7 | 21 | |||||
Depreciation and amortization |
17 | 11 | 6 | ||||||
Other item - impairment and sale of Skookumchuck pulp mill |
- | 24 | (24 | ) | |||||
Operating loss |
(31 | ) | (28 | ) | 3 | ||||
|
|||||||||
Shipments |
|||||||||
NBSK pulp (000's tonnes) |
147 | 164 | 17 | ||||||
High-yield pulp (000's tonnes) |
416 | 372 | (44 | ) | |||||
Internal (000's tonnes) |
58 | 47 | (11 | ) | |||||
Total |
621 | 583 | (38 | ) | |||||
|
|||||||||
Reference Prices |
|||||||||
NBSK - delivered China (US $ per tonne) |
697 | 680 | (17 | ) | |||||
BEK - delivered China (US $ per tonne) |
606 | 670 | 64 |
(1) Includes intersegment sales eliminated on consolidation |
The Paper Pulp segment generated adjusted EBITDA of $7 million on sales of $345 million. This compares to negative adjusted EBITDA of $14 million on sales of $367 million in the year ago period. The $22 million decrease in sales was caused by lower shipments of high-yield pulp. The Chetwynd, BC, high-yield pulp mill did not operate in the first nine months of fiscal 2013, reducing sales by 130,000 tonnes. This was partially offset by increased shipments from the Companys two other high-yield pulp mills.
The reference price for NBSK declined by US $17 per tonne. While the reference price for BEK increased by US $64 per tonne, the increase in high-yield pulp prices was a more modest US $15 per tonne. Currency was relatively unchanged as the Canadian dollar averaged US $0.992, a 0.3% increase from US $0.989 in the comparable nine-month period a year ago. Overall, Canadian dollar prices increased by $2 per tonne increasing adjusted EBITDA by $1 million. Paper pulp shipments were equal to 98% of capacity as compared to 77% in the prior year period. The prior year percentage includes the capacity of the Chetwynd, BC, high-yield pulp mill. Mill level manufacturing costs declined by $13 million, primarily at the Skookumchuck NBSK pulp mill. In the prior year period, the mill had absorbed costs related to 17 days of unplanned downtime due to problems associated with its recovery boiler. Profitability also improved due to the closure of the Chetwynd high-yield pulp mill, which generated negative adjusted EBITDA of $8 million in the year ago period.
The Paper Pulp segment generated an operating loss of $28 million compared to an operating loss of $31 million in the comparable nine-month period of the prior year. The impairment and sale of the Skookumchuck pulp mill was the primary cause of the $6 million decline in depreciation expense. The previously noted improvements in adjusted EBITDA and depreciation expense were partially offset by a $22 million impairment charge related to the Skookumchuck, BC, NBSK, pulp mill and a subsequent $2 million loss recorded when the mill was sold in May 2013.
-22-
NINE MONTH ENDED JUNE 2013 VS NINE MONTHS ENDED JUNE 2012 |
SEGMENT RESULTS PAPER |
|
June | June | |||||||
|
2012 | 2013 | Variance | ||||||
Financial ($ millions) |
|||||||||
Sales |
250 | 251 | 1 | ||||||
|
|||||||||
Freight and other deductions |
33 | 35 | (2 | ) | |||||
Cost of sales |
185 | 191 | (6 | ) | |||||
SG&A |
9 | 8 | 1 | ||||||
Adjusted EBITDA |
23 | 17 | (6 | ) | |||||
Depreciation and amortization |
1 | 2 | (1 | ) | |||||
Operating earnings |
22 | 15 | (7 | ) | |||||
|
|||||||||
Shipments |
|||||||||
Coated bleached board (000's tonnes) |
121 | 128 | 7 | ||||||
Newsprint (000's tonnes) |
160 | 167 | 7 | ||||||
Total |
281 | 295 | 14 | ||||||
|
|||||||||
Reference Prices |
|||||||||
16 pt. Coated bleached board (US $ per short ton) |
1,137 | 1,108 | (29 | ) | |||||
Newsprint - 48.8 gram East Coast |
|||||||||
(US $ per tonne) |
640 | 621 | (19 | ) |
The Paper segment generated adjusted EBITDA of $17 million on sales of $251 million. This compares to adjusted EBITDA of $23 million on sales of $250 million in the same nine-month period a year ago. The $1 million increase in sales was due to higher shipments, offset by lower prices.
In terms of markets, coated bleached board was relatively stable. Newsprint was weaker due to a combination of lower North American demand and the restart of previously idled capacity. The US $ reference price for coated bleached board declined by US $29 per short ton while the reference price for newsprint dropped by US $19 per tonne. Currency was relatively unchanged as the Canadian dollar averaged US $0.992, a 0.3% increase from US $0.989 in the comparable nine-month period a year ago. The combined effect was that overall pricing for both products declined, reducing adjusted EBITDA by $11 million. Coated bleached board shipments were equal to 95% of capacity as compared to 90% in the year ago period. Newsprint shipment to capacity was 93% compared to 89% in the prior year period. Costs provided a partial offset to the lower prices, declining by $5 million over the year ago period. Favourable variances were generated in energy costs, productivity and overhead costs.
The Paper segment generated operating earnings of $15 million compared to operating earnings of $22 million in the prior year period. The previously noted decrease in adjusted EBITDA led to the lower operating earnings.
-23-
NINE MONTH ENDED JUNE 2013 VS NINE MONTHS ENDED JUNE 2012 |
SEGMENT RESULTS CORPORATE |
|
June | June | ||||
|
2012 | 2013 | ||||
Financial ($ millions) |
||||||
General and administrative expenses |
14 | 17 | ||||
Share-based compensation |
- | 1 | ||||
Other items: |
||||||
Custodial - idled facilities |
9 | 6 | ||||
Sale of BC office |
- | (2 | ) | |||
Impairment of loan receivable |
16 | - | ||||
Gain on sale of minority equity investment |
(4 | ) | - | |||
Operating expenses |
35 | 22 |
The Company recorded a $1 million charge for share-based compensation in the current period, compared to a negligible amount in the year ago period. Senior executives currently participate in a long-term incentive plan which entitles participants to potentially receive units that are equal in value to one common share. The units have a defined vesting period and are subject to performance conditions that ultimately determine the amount of units that vest and are earned by plan participants. Non-executive members of the board of directors receive a portion of their fees in the form of Deferred Share Units (DSU). The DSUs vest at specified dates. The period credit/expense for the share-based compensation plans consists of normal periodic variation in the number of units based on anticipated or normal vesting and the changes in the value of the Companys share price.
The Corporate segments other items include expenses relating to several permanently idled facilities. The costs relate to custodial, site security, legal and remediation activities. These legacy costs totalled $6 million in the most recent nine-month period, compared to $9 million in the year ago period. The current period also includes a gain of $2 million relating to the sale of the Cranbrook, BC, office. The prior year period results include a $16 million charge relating to the impairment of a loan receivable. The nine-month period ended June 2012 also includes a gain of $4 million generated by the sale of a minority equity interest in two dissolving pulp mills.
-24-
NINE MONTH ENDED JUNE 2013 VS NINE MONTHS ENDED JUNE 2012 |
INTEREST, FOREIGN EXCHANGE AND OTHER |
The following table summarizes interest, foreign exchange and other expenses by component:
$ millions | ||||||
June | June | |||||
2012 | 2013 | |||||
Interest on debt | 27 | 32 | ||||
Interest income | (1 | ) | - | |||
Capitalized interest | (1 | ) | (6 | ) | ||
Foreign exchange items | - | (3 | ) | |||
Employee future benefits | - | (6 | ) | |||
Bank charges and other | 2 | 2 | ||||
27 | 19 |
The interest expense relates primarily to interest on the US $305 million 11.25% senior secured notes maturing in December 2018. In the prior nine-month period, the amount of outstanding notes was US $255 million for the first five months. The increase in capitalized interest was caused by the Temiscaming specialty cellulose project. Foreign exchange items relate primarily to gains or losses on the translation of US $ net monetary assets. When the Canadian dollar weakens versus the US dollar, as was the case in the most recent nine-month period, gains are generated. The credit for employee future benefits results from the anticipated return on plan assets exceeding the amount of obligation accretion.
TRANSLATION OF FOREIGN DEBT |
During the nine-month period ended June 2013, the Company recorded a loss of $21 million on the translation of its US $ denominated debt as the relative value of the Canadian dollar decreased from US $1.017 to US $0.951.
During the nine-month period ended June 2012, the Company did not record a gain or a loss on the translation of its US $ denominated debt as the relative value of the Canadian dollar increased from US $0.971 to US $0.976.
INCOME TAXES |
During the nine-month period ended June 2013, the Company recorded an income tax expense of $16 million on a loss before income taxes of $24 million. The income tax expense reflected a $22 million unfavourable variance versus an anticipated income tax recovery of $6 million based on the Companys effective tax rate of 26.3% . The nine-month period ended June 2013 absorbed a $12 million unfavourable variance related to period losses for which no deferred tax asset was recognized. Based on past financial performance, deferred income tax assets of the Companys Canadian operations have not been recognized as it has not been determined that future realization of these assets is probable. The higher corporate tax rates applicable to the Companys French operations generated an unfavourable variance of $5 million.
During the nine-month period ended June 2012, the Company recorded an income tax expense of $17 million on a loss before income taxes of $18 million. The income tax expense reflected a $22 million unfavourable variance versus an anticipated income tax recovery of $5 million based on the Companys effective tax rate of 26.3% . The nine-month period ended June 2012 absorbed a $16 million unfavourable variance related to period losses for which no deferred tax asset was recognized. The higher corporate tax rates applicable to the Companys French operations generated an unfavourable variance of $4 million.
-25-
NINE MONTH ENDED JUNE 2013 VS NINE MONTHS ENDED JUNE 2012 |
NET LOSS |
The Company generated a net loss of $40 million or $0.40 per share for the nine-month period ended June 29, 2013, compared to a net loss of $35 million or $0.35 per share for the nine-month period ended June 23, 2012. As noted previously, the Companys financial results were impacted by certain specific items. The following table summarizes the impact of these items on the reported financial results. The Company believes it is useful supplemental information as it provides an indication of results excluding the specific items. This supplemental information is not intended as an alternative measure for net earnings as determined by IFRS. The table below contains the gain or loss on translation of foreign debt, which is a recurring item. Because the Company has a substantial amount of US $ denominated debt, relatively minor changes in the value of the Canadian dollar versus the US dollar can lead to large unrealized periodic gains or losses. As well, this item receives capital gain/loss tax treatment and is not tax-affected at regular business income rates.
|
Nine months ended | Nine months ended | ||||||||||
|
June 23, 2012 | June 29, 2013 | ||||||||||
|
$ millions | $ per share | $ millions | $ per share | ||||||||
Net loss as reported - in accordance with IFRS |
(35 | ) | (0.35 | ) | (40 | ) | (0.40 | ) | ||||
Specific items (after-tax): |
||||||||||||
Loss on translation of foreign debt |
- | - | 18 | 0.18 | ||||||||
Impairment of Temlam loan receivable |
14 | 0.14 | - | - | ||||||||
Sale of minority equity investment |
(4 | ) | (0.04 | ) | - | - | ||||||
Sale/closure of hardwood flooring plants |
2 | 0.02 | - | - | ||||||||
Gain on sale of BC sawmills |
(18 | ) | (0.18 | ) | - | - | ||||||
Impairment and sale of Skookumchuck pulp mill |
- | - | 17 | 0.17 | ||||||||
Gain on sale of BC office |
- | - | (1 | ) | (0.01 | ) | ||||||
Costs for permanently idled facilities |
7 | 0.07 | 4 | 0.04 | ||||||||
Unrecognized deferred tax asset (liability) on above items |
(2 | ) | (0.02 | ) | 10 | 0.10 | ||||||
Net earnings (loss) excluding specific items - not in accordance with IFRS |
(36 | ) | (0.36 | ) | 8 | 0.08 |
COMPREHENSIVE EARNINGS (LOSS) |
The following table summarizes the impact of items affecting the reported total comprehensive earnings (loss) during the nine-month period ended June 2013 and the comparable period a year ago:
|
$ millions | |||||
|
June | June | ||||
|
2012 | 2013 | ||||
Net loss |
(35 | ) | (40 | ) | ||
Foreign currency translation gain (loss) on foreign operation |
(10 | ) | 12 | |||
Employee future benefit gain |
- | 93 | ||||
Total comprehensive earnings (loss) |
(45 | ) | 65 |
Comprehensive items include gains or losses related to the currency translation of the assets and liabilities of the Companys French and U.S. operations. The gains or losses are generated by the changes in the end of period exchange rates. During the nine-month period ended June 2013, the currency translation of the French operations generated a gain of $13 million, partially offset by a loss of $1 million relating to U.S. operations. In the prior year period, the currency translation of the French operations generated a loss of $10 million.
During the nine-month period ended June 2013, the Company recognized a gain of $93 million relating to the estimated net obligation for employee future benefits. The average discount rate applied to estimate the present value of future obligations increased from 3.69% to 4.48%, thereby reducing estimated future obligations by $83 million. As well, the actual return on plan assets for the first nine months of the fiscal year exceeded the expected return by $10 million. There were no employee future benefit gains or losses in the prior year period.
-26-
SELECTED QUARTERLY INFORMATION |
Selected quarterly information for the eight most recently completed fiscal quarters is disclosed below.
|
$ millions (except as otherwise noted) | |||||||||||||||||||||||
|
Sept 11 | Dec 11 | Mar 12 | Jun 12 | Sept 12 | Dec 12 | Mar 13 | June 13 | ||||||||||||||||
Sales |
421 | 401 | 407 | 415 | 443 | 376 | 407 | 399 | ||||||||||||||||
Adjusted EBITDA |
19 | 12 | 2 | 27 | 23 | 19 | 24 | 30 | ||||||||||||||||
Depreciation and amortization |
12 | 12 | 10 | 11 | 13 | 11 | 9 | 9 | ||||||||||||||||
Other items |
2 | 2 | (5 | ) | 2 | 51 | 1 | 23 | 4 | |||||||||||||||
Operating earnings (loss) |
5 | (2 | ) | (3 | ) | 14 | (41 | ) | 7 | (8 | ) | 17 | ||||||||||||
Net loss |
(17 | ) | (16 | ) | (14 | ) | (5 | ) | (47 | ) | (10 | ) | (26 | ) | (4 | ) | ||||||||
Basic and fully diluted net loss per share ($) |
(0.17 | ) | (0.16 | ) | (0.14 | ) | (0.05 | ) | (0.47 | ) | (0.10 | ) | (0.26 | ) | (0.04 | ) | ||||||||
Comprehensive earnings (loss) |
(83 | ) | (21 | ) | (14 | ) | (10 | ) | (86 | ) | (4 | ) | 35 | 34 |
FINANCIAL POSITION |
|
($ millions) | |||||||||||||||||||||||
|
Fiscal 2012 | Fiscal 2013 | ||||||||||||||||||||||
|
Dec 11 | Mar 12 | Jun 12 | Sept 12 . | Dec 12 | Mar 13 | Jun 13 | Sept 13 | ||||||||||||||||
Cash flow from operations before working capital changes |
2 | (16 | ) | 16 | 11 | (1 | ) | 11 | 16 | - | ||||||||||||||
Less: |
||||||||||||||||||||||||
Additions to property, plant and equipment |
23 | 28 | 24 | 45 | 34 | 26 | 30 | - | ||||||||||||||||
Interest on debt |
8 | 9 | 10 | 11 | 11 | 10 | 10 | - | ||||||||||||||||
Free cash flow (negative) |
(29 | ) | (53 | ) | (18 | ) | (45 | ) | (46 | ) | (25 | ) | (24 | ) | - |
Cash Flow Operations
Cash flow from operations before working capital changes in the first nine months of fiscal 2013 was $26 million, compared to $2 million in the same period a year ago. After allowing for capital expenditures of $90 million and interest on debt of $31 million, free cash flow in the first nine months of fiscal 2013 was negative $95 million compared to negative $100 million in the prior year. In the first nine months of fiscal 2013, non-cash working capital items used $9 million.
Capital Expenditures
During the first nine months of fiscal 2013, capital expenditures totalled $90 million compared to $75 million in the same period a year ago. The Company estimates that annual capital expenditures of $35 million to $40 million are required to adequately maintain its facilities. The higher level of capital expenditures relates to one relatively large capital project. In March 2012, the Company announced a major capital investment to upgrade its specialty cellulose mill in Temiscaming, Quebec. The project involves the replacement of three low-pressure boilers with a single new high-pressure boiler designed to burn waste sulphite liquor generated by the specialty cellulose manufacturing process. The project also includes the installation of a new 50-megawatt electrical turbine. The total estimated cost of the project is currently $235 million. During the first nine months of fiscal 2013, $54 million was spent on the project, bringing total cumulative project expenditures to $113 million.
-27-
FINANCIAL POSITION |
The completion of the boiler portion of the project is scheduled for April 2014 and the start-up of the turbine should occur in September 2014. The Company anticipates that the Temiscaming specialty cellulose project will improve annual adjusted EBITDA by approximately $48 million. The improvement will include approximately $28 million of incremental electricity revenues, $7 million of operating and maintenance cost reduction and $13 million of productivity and margin enhancements associated with the production increase of 15,000 tonnes of specialty pulp per year.
The following table summarizes capital expenditures by segment:
Nine months ended |
June | June | ||||
$ millions |
2012 | 2013 | ||||
Forest Products |
8 | 3 | ||||
Specialty Cellulose Pulp - Cogen project |
28 | 54 | ||||
Specialty Cellulose Pulp - Other |
25 | 18 | ||||
Paper Pulp |
8 | 8 | ||||
Paper |
5 | 6 | ||||
Corporate |
1 | 1 | ||||
|
75 | 90 |
Liquidity
The Company has set an objective of maintaining a minimum liquidity of $135 million to $150 million. At the end of June 2013, the Company had total cash of $94 million plus unused operating lines of $43 million, for total liquidity of $137 million. At September 2012, the date of the last audited financial statements, the Company had net cash of $92 million and unused operating lines of $48 million. In addition, the Company has entered into two secured term loan facilities totalling $105 million to fund a portion of the Temiscaming Cogen project, of which $57 million was undrawn at the end of the June 2013 quarter. The Company is currently negotiating with its two project lenders to increase the amount of financing by $28 million, bringing it to $133 million in total. There remains an amount of $122 million to be spent over the next five quarters to complete the Temiscaming Cogen project. During this period, the Companys liquidity will likely fall below its stated objective.
Liquidity is being negatively impacted by the significant contributions that are being made to fund defined benefit pension plans. The Province of Quebec has recently announced pension funding relief measures that will apply to calendar 2014 and 2015. The Company is currently attempting to obtain similar funding relief measures for certain Ontario registered plans.
The following table summarizes operating line availability and utilization:
Operating Lines |
||||||||||||
$ millions |
September | December | March | June | ||||||||
|
2012 | 2012 | 2013 | 2013 | ||||||||
Borrowing base |
187 | 170 | 196 | 173 | ||||||||
Less: availability reserve |
(23 | ) | (19 | ) | (22 | ) | (21 | ) | ||||
Net availability |
164 | 151 | 174 | 152 | ||||||||
|
||||||||||||
Outstanding letters of credit |
(48 | ) | (48 | ) | (47 | ) | (52 | ) | ||||
Amount drawn |
(68 | ) | (69 | ) | (86 | ) | (57 | ) | ||||
Unused amount |
48 | 34 | 41 | 43 |
-28-
FINANCIAL POSITION |
In March 2011, the Company entered into a five-year $200 million ABL (asset-based loan) facility expiring in March 2016. On March 25, 2013, the Company disclosed that it had reached an agreement with existing ABL lenders to amend and extend the facility. The maturity date was extended by one year and is now set to expire in March 2017. The Company also negotiated a reduction of the aggregate revolving loan commitment from $200 million to $175 million and related adjustments to certain thresholds due to a reduction in the number of mills it operates. The ABL has a first priority charge over the receivables and inventories of the Companys Canadian operations. The facility is subject to a permanent availability reserve of $15 million. This amount is increased to $25 million if the Companys trailing 12-month adjusted EBITDA falls below $60 million. There is also a variable reserve, which totalled $6 million at the end of the June 2013 quarter.
The outstanding letters of credit constitute security for various operating items, principally the unfunded portion of supplementary retirement plans, future landfill closure liabilities and performance guarantees related to electricity generation agreements.
Long-term debt
|
Fiscal 2012 | Fiscal 2013 | ||||||||||||||||||||||
|
Dec 11 | Mar 12 | Jun 12 | Sept 12 | Dec 12 | Mar 13 | Jun 13 | Sept 13 | ||||||||||||||||
Net debt / total capitalization |
34% | 37% | 40% | 45% | 50% | 55% | 52% | - | ||||||||||||||||
Adjusted EBITDA / interest on indebtedness (times) |
1.5 | 0.4 | 2.9 | 2.2 | 1.9 | 2.4 | 3.0 | - |
In March 2012, the Company entered into a $75 million term loan facility to assist with the financing of the previously mentioned Temiscaming, Quebec, specialty cellulose project. The interest rate on the facility is 5.5% . The loan has a 15-year term consisting of a three-year construction or drawdown period followed by a 12-year amortization period. The term of the loan will be shortened by three years if the Company does not complete certain future capital expenditures at the Temiscaming specialty cellulose mill. The loan is secured by a second ranking charge on the project assets. The Company has also granted the lender a five-year option starting on the first loan disbursement date to acquire 3 million common shares of Tembec at a price of $7 per share. As at the end of June 2013, the Company had drawn $28 million on the facility. The Company is currently in discussions with the lender to increase the facility by $18 million, bringing it to $93 million in total. At time of writing, the Company had obtained a commitment letter from the lender and was actively negotiating an amended loan agreement. While the Company believes it will be successful in securing these additional funds, there can be no assurance that it will ultimately reach a satisfactory agreement with the lender at this time.
In June 2012, the Company entered into a $30 million term loan facility to assist with the financing of the previously noted specialty cellulose project in Temiscaming, Quebec. The interest rate on this loan will be the greater of 6.35% and the yield on equivalent terms Government of Canada bonds plus 4.25% at the date the funds are advanced. The loan will be reimbursed in blended monthly instalments over a period of eight years beginning approximately 24 months after the initial advance, with a balloon payment of $18 million to be repaid at the end of the ten-year term period. The loan is secured by a first ranking charge on the project assets. On July 12, 2012, the Company received $20 million representing the first tranche advanced under the facility. The interest rate on this tranche was set at 6.35% . The final $10 million tranche is scheduled to be advanced in the September 2013 quarter. The Company is currently in discussions with the lender to increase the facility by $10 million, bringing it to $40 million in total. At time of writing, the Company had obtained a commitment letter from the lender and was actively negotiating an amended loan agreement. While the Company believes it will be successful in securing these additional funds, there can be no assurance that it will ultimately reach a satisfactory agreement with the lender at this time.
The Companys long-term objective is to maintain the net debt to total capitalization ratio at 40% or less. A strong balance sheet provides the Company with the ability to access capital markets at favourable rates. The net debt to total capitalization ratio of the Company was 52% as at June 29, 2013, as compared to 45% at the end of the prior fiscal year. The increase is due primarily to increased debt levels to finance the previously noted Temiscaming specialty cellulose project. The Company anticipates that the net debt to total capitalization ratio will remain in excess of its target until the Temiscaming project is completed and begins to generate the projected incremental adjusted EBITDA.
-29-
FINANCIAL POSITION |
Credit Ratings
Moodys Investors Service (Moodys) has assigned a B3 rating to the senior secured notes and the same level for the Companys corporate credit rating. Standard and Poors (S&P) has assigned a CCC+ rating to the senior secured notes as well as the Companys corporate credit rating. Moodys has a negative outlook with respect to its rating. S&P has a developing outlook with respect to its rating.
CAPITAL STOCK INFORMATION |
As at August 1, 2013, issued and outstanding capital shares consisted of 100,000,000 common shares (100,000,000 as at September 29, 2012). During the December 2012 quarter, the Company granted an option to acquire 3 million common shares of the Company at a price of $7 per share. The option expires on August 30, 2017.
INTERNAL CONTROLS OVER FINANCIAL REPORTING |
During the quarter ended June 29, 2013, the Company did not make any changes to its internal controls over financial reporting that would have materially affected, or would likely materially affect, such controls.
-30-
OUTLOOK |
Overall, the June 2013 quarterly results were in line with expectations. The sharp decline in lumber prices was offset by a weaker than forecast Canadian dollar. While the Company had anticipated a price correction in lumber, the US $100 per thousand board feet decline between April and June was larger than expected. The very high prices in March and April led to increased supply at a time when none was required. Pricing has recently stabilized and some modest improvement is expected in the coming quarters, supported by a continued gradual recovery in United States new home construction. Specialty Cellulose Pulp segment results continue to be negatively impacted by a relatively high percentage of viscose grade shipments. While pricing for specialty grades remained stable, demand has been softer than anticipated. We continue to assess the market with our customers and are adjusting our production plans accordingly. We anticipate that it will be one or two quarters before we see an increase in demand for specialty grades. Market conditions for viscose grade pulp remained weak. The latter market is currently under pressure as new capacity is exceeding demand growth. The Company will continue to maintain a relatively modest exposure of 30,000 to 40,000 tonnes per year to the viscose market. The Paper Pulp segment had positive results, but the market remains relatively soft with no clear direction. While we have seen the implementation of small increment price increases, we expect new capacity will cause this market to remain challenging. Paper segment results were unchanged despite declining newsprint prices. Recently restarted newsprint capacity combined with continued declining North American demand have had a predictable effect on prices. The Company continues with its capital expenditure program, with a strong emphasis on its two specialty cellulose mills. The cornerstone of the program is the high-pressure boiler and turbine currently under construction at the Temiscaming, Quebec, site. The project will materially improve the mills cost structure and margins. A total of $113 million has been spent on the Temiscaming specialty cellulose project to the end of the June 2013 quarter. During the quarter, the Company closed the sale of the Skookumchuck, BC, NBSK pulp mill for cash proceeds of $97 million. This represents a milestone in the ongoing transformation plan as the Company no longer owns or operates a chemical grade paper pulp facility.
FINANCIAL PERFORMANCE & OTHER DATA |
Fiscal 2012 | Fiscal 2013 | ||||||||||||||||||||||||
Dec 11 | Mar 12 | Jun 12 | Sep 12 | Dec 12 | Mar 13 | Jun 13 | Sep 13 | ||||||||||||||||||
Shares outstanding - end of quarter (millions) | 100 | 100 | 100 | 100 | 100 | 100 | 100 | - | |||||||||||||||||
Book value per share ($) | 2.12 | 1.98 | 1.88 | 1.02 | 1.01 | 1.36 | 1.70 | - | |||||||||||||||||
Foreign exchange: | |||||||||||||||||||||||||
1 C $ = US $ | - average | 0.977 | 0.998 | 0.991 | 1.003 | 1.009 | 0.991 | 0.977 | - | ||||||||||||||||
- period end | 0.980 | 1.001 | 0.976 | 1.017 | 1.004 | 0.984 | 0.951 | - | |||||||||||||||||
1 euro = US $ | - average | 1.350 | 1.309 | 1.286 | 1.250 | 1.297 | 1.319 | 1.307 | - | ||||||||||||||||
- period end | 1.304 | 1.326 | 1.256 | 1.284 | 1.322 | 1.282 | 1.302 | - | |||||||||||||||||
1 euro = C $ | - average | 1.382 | 1.312 | 1.298 | 1.246 | 1.286 | 1.332 | 1.337 | - | ||||||||||||||||
- period end | 1.331 | 1.325 | 1.287 | 1.263 | 1.317 | 1.302 | 1.369 | - |
-31-
DEFINITIONS NON-IFRS FINANCIAL MEASURES |
The following summarizes non-IFRS financial measures utilized in the MD&A. As there is no generally accepted method of calculating these financial measures, they may not be comparable to similar measures reported by other companies.
Adjusted EBITDA refers to earnings before interest, income taxes, depreciation, amortization and other items. Since the Company excludes other items such as gains and losses on significant asset disposals, restructuring charges and custodial costs for permanently idled facilities, it differs from EBITDA. Adjusted EBITDA does not have any standardized meaning according to IFRS. The Company defines adjusted EBITDA as sales less cost of sales and selling, general and administrative expenses, meaning it represents operating earnings before depreciation, amortization and other items. The Company considers adjusted EBITDA to be a useful indicator of the financial performance of the Company, the business segments and the individual business units. The most comparable financial measure is operating earnings or loss. The following table is a reconciliation of quarterly operating earnings to the Companys definition of adjusted EBITDA:
|
$ millions | |||||||||||||||||||||||
|
Fiscal 2012 | Fiscal 2013 | ||||||||||||||||||||||
|
Dec 11 | Mar 12 | Jun 12 | Sep 12 | Dec 12 | Mar 13 | Jun 13 | Sep 13 | ||||||||||||||||
Operating earnings (loss) |
(2 | ) | (3 | ) | 14 | (41 | ) | 7 | (8 | ) | 17 | - | ||||||||||||
Depreciation and amortization |
12 | 10 | 11 | 13 | 11 | 9 | 9 | - | ||||||||||||||||
Other items |
2 | (5 | ) | 2 | 51 | 1 | 23 | 4 | - | |||||||||||||||
Adjusted EBITDA |
12 | 2 | 27 | 23 | 19 | 24 | 30 | - |
Free cash flow refers to cash provided by operating activities before changes in non-cash working capital balances less interest expense and capital expenditures. Working capital changes are excluded as they are often seasonal and temporary in nature. The Company considers free cash flow to be a useful indicator of its ability to generate discretionary cash flow, thereby improving its overall liquidity position.
Net debt refers to debt less cash, restricted cash and cash equivalents.
Total capitalization refers to net debt plus deferred income taxes, other long-term liabilities and credits, and shareholders equity.
Net debt to total capitalization is used by the Company to measure its financial leverage.
|
$ millions | |||||||||||||||||||||||
|
Fiscal 2012 | Fiscal 2013 | ||||||||||||||||||||||
|
Dec 11 | Mar 12 | Jun 12 | Sep 12 | Dec 12 | (1) | Mar 13 | (1) | Jun 13 | Sep 13 | ||||||||||||||
Long-term debt |
269 | 314 | 318 | 323 | 348 | 353 | 365 | - | ||||||||||||||||
Net unamortized financing costs |
13 | 11 | 12 | 13 | 16 | 16 | 17 | - | ||||||||||||||||
Current portion of long-term debt |
18 | 19 | 16 | 16 | 16 | 16 | 16 | - | ||||||||||||||||
Operating bank loans / Bank indebtedness |
48 | 69 | 68 | 68 | 69 | 86 | 57 | - | ||||||||||||||||
Less: total cash |
(86 | ) | (127 | ) | (101 | ) | (92 | ) | (57 | ) | (35 | ) | (94 | ) | - | |||||||||
Net debt |
262 | 286 | 313 | 328 | 392 | 436 | 361 | - | ||||||||||||||||
Other long-term liabilities and credits |
292 | 282 | 277 | 304 | 292 | 222 | 166 | - | ||||||||||||||||
Shareholders' equity |
212 | 198 | 188 | 102 | 101 | 136 | 170 | - | ||||||||||||||||
Total capitalization |
766 | 766 | 778 | 734 | 785 | 794 | 697 | - | ||||||||||||||||
|
||||||||||||||||||||||||
Net debt to total capitalization ratio |
34% | 37% | 40% | 45% | 50% | 55% | 52% | - |
(1) Ratio is calculated excluding "held for sale" reclassifications |
-32-
Exhibit 99.3
Form 52-109F2 - Certification of Interim Filings Full Certificate
I, James Lopez, President and Chief Executive Officer of Tembec Inc., certify the following:
1. |
Review: I have reviewed the interim financial report and interim MD&A (together, the interim filings) of Tembec Inc. (the issuer) for the interim period ended June 29, 2013. | |||
2. |
No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings. | |||
3. |
Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings. | |||
4. |
Responsibility: The issuers other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 - Certification of Disclosure in Issuers Annual and Interim Filings, for the issuer. | |||
5. |
Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuers other certifying officer and I have, as at the end of the period covered by the interim filings | |||
(a) |
designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that | |||
(i) |
material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and | |||
(ii) |
information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and | |||
(b) |
designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuers GAAP. |
- 2 -
5.1 |
Control framework: The control framework the issuers other certifying officer and I used to design the issuers ICFR is the Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO 1992). | ||
5.2 |
N/A | ||
5.3 |
N/A | ||
6. |
Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuers ICFR that occurred during the period beginning on March 31, 2013 and ended on June 29, 2013 that has materially affected, or is reasonably likely to materially affect, the issuers ICFR. |
Date: August 1, 2013
(s) James Lopez
______________________________________
James Lopez
President and Chief Executive Officer
Exhibit 99.4
Form 52-109F2 - Certification of Interim Filings Full Certificate
I, Michel Dumas, Executive Vice President, Finance and Chief Financial Officer of Tembec Inc., certify the following:
1. |
Review: I have reviewed the interim financial report and interim MD&A (together, the interim filings) of Tembec Inc. (the issuer) for the interim period ended June 29, 2013. | |||
2. |
No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings. | |||
3. |
Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings. | |||
4. |
Responsibility: The issuers other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 - Certification of Disclosure in Issuers Annual and Interim Filings, for the issuer. | |||
5. |
Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuers other certifying officer and I have, as at the end of the period covered by the interim filings | |||
(a) |
designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that | |||
(i) |
material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and | |||
(ii) |
information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and | |||
(b) |
designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuers GAAP. |
- 2 -
5.1 |
Control framework: The control framework the issuers other certifying officer and I used to design the issuers ICFR is the Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO 1992). | ||
5.2 |
N/A | ||
5.3 |
N/A | ||
6. |
Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuers ICFR that occurred during the period beginning on March 31, 2013 and ended on June 29, 2013 that has materially affected, or is reasonably likely to materially affect, the issuers ICFR. |
Date: August 1, 2013
(s) Michel Dumas
__________________________________
Michel Dumas
Executive
Vice President, Finance and Chief
Financial Officer
Exhibit 99.5
PRESS RELEASE |
TEMBEC REPORTS FINANCIAL RESULTS FOR ITS THIRD QUARTER ENDED JUNE 29, 2013
Montreal, Quebec, August 1, 2013: Consolidated sales for the three-month period ended June 29, 2013, were $399 million, as compared to $415 million in the same quarter a year ago. The Company generated a net loss of $4 million or $0.04 per share in the June 2013 quarter compared to a net loss of $5 million or $0.05 per share in the June 2012 quarter. Operating earnings before depreciation, amortization and other items (adjusted EBITDA) was $30 million for the three-month period ended June 29, 2013, as compared to adjusted EBITDA of $27 million a year ago and adjusted EBITDA of $24 million in the prior quarter.
Business Segment Results
The Specialty Cellulose Pulp segment generated adjusted EBITDA of $19 million on sales of $120 million for the quarter ended June 29, 2013, compared to adjusted EBITDA of $14 million on sales of $120 million in the prior quarter. Demand for specialty grades was flat while US and euro prices were relatively unchanged quarter-over-quarter. However, with the Canadian dollar weakening by 1.4% versus the US dollar, Canadian dollar equivalent pricing increased by $9 per tonne. While viscose grade pricing improved, this market remains oversupplied and prices remain relatively low. Overall, pricing was favourable, improving adjusted EBITDA by $1 million. Mill manufacturing costs were unchanged quarter-over-quarter. The current quarter cost of sales was reduced by $1 million due to a favourable net realizable value increase on the carrying values of viscose grade finished goods inventories. This is the opposite of the prior quarter when cost of sales had absorbed a charge of $1 million related to the net realizable value of viscose grade inventories. Higher profitability in Chemicals increased adjusted EBITDA by $1 million.
The Forest Products segment generated adjusted EBITDA of $7 million on sales of $110 million for the quarter ended June 29, 2013, compared to adjusted EBITDA of $7 million on sales of $104 million in the prior quarter. Sales increased by $6 million due to higher lumber shipments. Market conditions were strong at the beginning of the quarter, but declined in May and June. US $ reference prices for random lumber decreased by US $48 per mbf while stud lumber increased by US $12 per mbf. This is a seasonally stronger period for stud lumber as the impact of the housing construction season is more pronounced on this grade of lumber. Currency was favourable as the Canadian dollar weakened versus the US dollar. The net effect decreased sales and adjusted EBITDA by $1 million or $4 per mbf. Lumber shipments were equal to 83% of capacity versus 76% in the prior quarter. Sawmill costs decreased by $2 million. The summer months are seasonally higher productivity and lower cost periods.
The Paper Pulp segment generated adjusted EBITDA of $3 million on sales of $106 million for the quarter ended June 2013, compared to adjusted EBITDA of $4 million on sales of $122 million in the prior quarter. The $16 million decrease in sales was due to lower shipments of Northern Bleached Softwood Kraft (NBSK) pulp, partially offset by higher shipments of high-yield pulp. In May 2013, the Company completed the sale of its remaining NBSK mill located in Skookumchuck, BC. During the most recent quarter, the mill generated sales of $23 million and adjusted EBITDA of $3 million. In the prior quarter, the mill had generated sales of $50 million and adjusted EBITDA of $6 million. Market conditions for paper pulp remained relatively weak although demand was stable. The benchmark price (delivered China) for NBSK increased by US $22 per tonne while reference prices for bleached eucalyptus kraft (BEK) increased by US $28 per tonne. Currency was also positive as the Canadian dollar weakened versus the US dollar. Overall, average paper pulp prices increased by $29 per tonne, improving adjusted EBITDA by $5 million. Paper pulp shipments were equal to 98% of capacity, unchanged from the prior quarter. Manufacturing costs increased by $3 million, primarily for energy at the NBSK mill and chemicals at the two high-yield pulp mills. Adjusted EBITDA was also negatively impacted by $4 million due to a volume variance associated with lower shipments of NBSK pulp.
The Paper segment generated adjusted EBITDA of $6 million on sales of $86 million for the quarter ended June 2013, compared to adjusted EBITDA of $5 million on sales of $87 million in the prior quarter. Lower newsprint shipments led to the $1 million decrease in sales. In terms of markets, coated bleached board improved slightly. The newsprint market weakened due to continued lower North American demand combined with the restart of previously idled capacity. The US $ reference prices for coated bleached board increased by US $33 per short ton while the US $ reference price for newsprint declined by US $8 per tonne. The weaker Canadian dollar was a positive. The net effect was a small increase in average coated bleached board price, increasing adjusted EBITDA by $1 million. Coated bleached board shipments were equal to 102% of capacity as compared to 97% in the prior quarter. The shipment to capacity percentage for newsprint was 91%, compared to 99% in the prior quarter. Manufacturing costs were relatively unchanged quarter-over-quarter with lower energy costs offset by higher fiber and freight costs.
Outlook
Overall, the June 2013 quarterly results were in line with expectations. The sharp decline in lumber prices was offset by a weaker than forecast Canadian dollar. While the Company had anticipated a price correction in lumber, the US $100 per thousand board feet decline between April and June was larger than expected. The very high prices in March and April led to increased supply at a time when none was required. Pricing has recently stabilized and some modest improvement is expected in the coming quarters, supported by a continued gradual recovery in United States new home construction. Specialty Cellulose Pulp segment results continue to be negatively impacted by a relatively high percentage of viscose grade shipments. While pricing for specialty grades remained stable, demand has been softer than anticipated. We continue to assess the market with our customers and are adjusting our production plans accordingly. We anticipate that it will be one or two quarters before we see an increase in demand for specialty grades. Market conditions for viscose grade pulp remained weak. The latter market is currently under pressure as new capacity is exceeding demand growth. The Company will continue to maintain a relatively modest exposure of 30,000 to 40,000 tonnes per year to the viscose market. The Paper Pulp segment had positive results, but the market remains relatively soft with no clear direction. While we have seen the implementation of small increment price increases, we expect new capacity will cause this market to remain challenging. Paper segment results were unchanged despite declining newsprint prices. Recently restarted newsprint capacity combined with continued declining North American demand have had a predictable effect on prices. The Company continues with its capital expenditure program, with a strong emphasis on its two specialty cellulose mills. The cornerstone of the program is the high-pressure boiler and turbine currently under construction at the Temiscaming, Quebec, site. The project will materially improve the mill’s cost structure and margins. A total of $113 million has been spent on the Temiscaming specialty cellulose project to the end of the June 2013 quarter. During the quarter, the Company closed the sale of the Skookumchuck, BC, NBSK pulp mill for cash proceeds of $97 million. This represents a milestone in the ongoing transformation plan as the Company no longer owns or operates a chemical grade paper pulp facility.
Tembec is a manufacturer of forest products – lumber, pulp, paper and specialty cellulose – and a global leader in sustainable forest management practices. Principal operations are in Canada and France. With annual sales of approximately $2 billion, Tembec has 3,700 employees and is listed on the TSX (TMB). The full quarterly report, including the interim Management Discussion and Analysis, the interim financial statements and the accompanying notes for the quarter ended June 29, 2013, can be obtained on Tembec’s website at www.tembec.com or on SEDAR at www.sedar.com.
This press release includes forward-looking statements within the meaning of securities laws. Such statements relate, without limitation, to the Companys or managements objectives, projections, estimates, expectations or predictions of the future and can be identified by words such as may, will, could, anticipate, estimate, expect and project, the negative or variations thereof, and expressions of similar nature. Forward-looking statements are based on certain assumptions and analyses made by the Company in light of its experience, information available to it and its perception of future developments. Such statements are subject to a number of risks and uncertainties, including, but not limited to, changes in foreign exchange rates, product selling prices, raw material and operating costs and other factors identified in the Companys periodic filings with securities regulatory authorities. Many of these risks are beyond the control of the Company and, therefore, may cause actual actions or results to materially differ from those expressed or implied herein. The forward-looking statements contained herein reflect the Companys expectations as of the date hereof and are subject to change after such date. The Company disclaims any intention to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by applicable securities legislation.
- 30 -
Investor Contact: | Michel J. Dumas |
Executive Vice President, Finance and CFO | |
Tel: 819 627-4268 | |
E-mail: michel.dumas@tembec.com | |
Media Contact: | Linda Coates |
Vice President, Human Resources and Corporate Affairs | |
Tel.: 416 775-2819 | |
E-mail: linda.coates@tembec.com |
Exhibit 99.6
Unaudited supplemental condensed consolidating financial information of
TEMBEC INC.
Periods ended June 29, 2013 and June 23, 2012
TEMBEC INC. |
SUPPLEMENTAL INFORMATION |
June 29, 2013 |
Supplemental condensed consolidating financial information |
The following condensed consolidating financial information is prepared in compliance with National Instrument 51-102 Continuous Disclosure Obligations, under Canadian securities laws.
The senior secured notes (the Notes) of Tembec Industries Inc. (the "Subsidiary Issuer") are fully and unconditionally guaranteed on a joint and several basis by Tembec Inc. (the "Parent Company") and most of the Subsidiary Issuers subsidiaries located in Canada (the Guarantor Subsidiaries). The Subsidiary Issuer and each of the Guarantor Subsidiaries are 100% owned by the Parent Company. The Notes are not guaranteed by the Companys other subsidiaries (the Other Subsidiaries).
The following supplemental condensed consolidating financial information sets forth, on an unconsolidated basis, the balance sheets as at June 29, 2013, September 29, 2012 and June 23, 2012, the statements of comprehensive earnings (loss) and the statements of cash flows for the nine-month periods ended June 29, 2013 and June 23, 2012, for the Parent Company and for the Subsidiary Issuer. It also provides the same information on a combined basis for the Guarantor Subsidiaries and the Other Subsidiaries.
The supplemental condensed consolidating financial information, which has been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), reflects the investments of the Parent Company in the Subsidiary Issuer using the equity method. Investments of the Subsidiary Issuer in the Guarantor Subsidiaries and Other Subsidiaries are also accounted for using this method.
More information on the Company and its significant accounting policies are included in the audited consolidated financial statements for the year ended September 29, 2012.
TEMBEC Supplemental Information for third quarter 2013 | 1 |
TEMBEC INC. |
SUPPLEMENTAL INFORMATION |
June 29, 2013 |
Supplemental condensed consolidating financial information |
Condensed Consolidated Balance Sheets |
||||||||||||||||||
(unaudited)(in millions of Canadian dollars) |
||||||||||||||||||
|
June 29, 2013 | |||||||||||||||||
|
Parent | Subsidiary | Guarantor | Other | Consolidation | |||||||||||||
|
Company | Issuer | Subsidiaries | Subsidiaries | Adjustments | Consolidated | ||||||||||||
ASSETS |
||||||||||||||||||
Current assets: |
||||||||||||||||||
Cash and cash equivalents |
$ | - | $ | - | $ | 58 | $ | 36 | $ | - | $ | 94 | ||||||
Restricted cash |
- | - | - | - | - | - | ||||||||||||
Trade and other receivables |
36 | 324 | 233 | 77 | (517 | ) | 153 | |||||||||||
Inventories |
- | - | 198 | 40 | - | 238 | ||||||||||||
Prepaid expenses |
- | 1 | 6 | 1 | - | 8 | ||||||||||||
|
36 | 325 | 495 | 154 | (517 | ) | 493 | |||||||||||
|
||||||||||||||||||
Investments |
205 | 407 | - | - | (612 | ) | - | |||||||||||
Property, plant and equipment |
- | 6 | 338 | 118 | - | 462 | ||||||||||||
Biological assets |
- | - | 4 | - | - | 4 | ||||||||||||
Employee future benefits |
- | - | - | - | - | - | ||||||||||||
Other long-term receivables |
- | 9 | - | 2 | - | 11 | ||||||||||||
Deferred tax assets |
1 | (2 | ) | - | 3 | - | 2 | |||||||||||
|
$ | 242 | $ | 745 | $ | 837 | $ | 277 | $ | (1,129 | ) | $ | 972 | |||||
|
||||||||||||||||||
LIABILITIES AND SHAREHOLDERS' EQUITY |
||||||||||||||||||
Current liabilities: |
||||||||||||||||||
Operating bank loans |
$ | - | $ | - | $ | 57 | $ | - | $ | - | $ | 57 | ||||||
Trade, other payables and accrued charges |
70 | 168 | 411 | 53 | (517 | ) | 185 | |||||||||||
Interest payable |
- | 1 | 1 | - | - | 2 | ||||||||||||
Income tax payable |
- | (1 | ) | - | 6 | - | 5 | |||||||||||
Provisions |
- | 6 | - | - | - | 6 | ||||||||||||
Current portion of long-term debt |
1 | - | - | 15 | - | 16 | ||||||||||||
|
71 | 174 | 469 | 74 | (517 | ) | 271 | |||||||||||
|
||||||||||||||||||
Long-term debt |
1 | 310 | 41 | 21 | (8 | ) | 365 | |||||||||||
Provisions |
- | - | 12 | - | - | 12 | ||||||||||||
Employee future benefits |
- | 112 | 14 | 26 | - | 152 | ||||||||||||
Other long-term liabilities |
- | - | 2 | - | - | 2 | ||||||||||||
|
72 | 596 | 538 | 121 | (525 | ) | 802 | |||||||||||
|
||||||||||||||||||
Shareholders' equity: |
||||||||||||||||||
Share capital |
567 | 555 | 731 | 40 | (1,326 | ) | 567 | |||||||||||
Retained earnings (deficit) |
(400 | ) | (409 | ) | (432 | ) | 113 | 728 | (400 | ) | ||||||||
Accumulated other comprehensive earnings (loss) |
3 | 3 | - | 3 | (6 | ) | 3 | |||||||||||
|
170 | 149 | 299 | 156 | (604 | ) | 170 | |||||||||||
|
$ | 242 | $ | 745 | $ | 837 | $ | 277 | $ | (1,129 | ) | $ | 972 |
TEMBEC Supplemental Information for third quarter 2013 | 2 |
TEMBEC INC. |
SUPPLEMENTAL INFORMATION |
June 29, 2013 |
Supplemental condensed consolidating financial information |
Condensed Consolidated Balance Sheets (continued) |
||||||||||||||||||
(unaudited)(in millions of Canadian dollars) |
||||||||||||||||||
|
September 29, 2012 | |||||||||||||||||
|
Parent | Subsidiary | Guarantor | Other | Consolidation | |||||||||||||
|
Company | Issuer | Subsidiaries | Subsidiaries | Adjustments | Consolidated | ||||||||||||
ASSETS |
||||||||||||||||||
Current assets: |
||||||||||||||||||
Cash and cash equivalents |
$ | - | $ | 1 | $ | 29 | $ | 57 | $ | - | $ | 87 | ||||||
Restricted cash |
- | - | 5 | - | - | 5 | ||||||||||||
Trade and other receivables |
36 | 307 | 210 | 65 | (418 | ) | 200 | |||||||||||
Inventories |
- | - | 228 | 27 | - | 255 | ||||||||||||
Prepaid expenses |
- | 1 | 5 | 1 | - | 7 | ||||||||||||
|
36 | 309 | 477 | 150 | (418 | ) | 554 | |||||||||||
|
||||||||||||||||||
Investments |
102 | 372 | - | - | (474 | ) | - | |||||||||||
Property, plant and equipment |
- | 6 | 379 | 100 | - | 485 | ||||||||||||
Biological assets |
- | - | 4 | - | - | 4 | ||||||||||||
Employee future benefits |
- | - | - | - | - | - | ||||||||||||
Other long-term receivables |
- | 10 | - | 2 | - | 12 | ||||||||||||
Deferred tax assets |
- | (1 | ) | - | 5 | - | 4 | |||||||||||
|
$ | 138 | $ | 696 | $ | 860 | $ | 257 | $ | (892 | ) | $ | 1,059 | |||||
|
||||||||||||||||||
LIABILITIES AND SHAREHOLDERS' EQUITY |
||||||||||||||||||
Current liabilities: |
||||||||||||||||||
Operating bank loans |
$ | - | $ | - | $ | 65 | $ | 3 | $ | - | $ | 68 | ||||||
Trade, other payables and accrued charges |
34 | 113 | 442 | 59 | (418 | ) | 230 | |||||||||||
Interest payable |
- | 10 | - | - | - | 10 | ||||||||||||
Income tax payable |
- | - | - | 3 | - | 3 | ||||||||||||
Provisions |
- | 1 | 2 | - | - | 3 | ||||||||||||
Current portion of long-term debt |
1 | - | - | 15 | - | 16 | ||||||||||||
|
35 | 124 | 509 | 80 | (418 | ) | 330 | |||||||||||
|
||||||||||||||||||
Long-term debt |
1 | 289 | 18 | 23 | (8 | ) | 323 | |||||||||||
Provisions |
- | 5 | 12 | - | - | 17 | ||||||||||||
Employee future benefits |
- | 195 | 52 | 38 | - | 285 | ||||||||||||
Other long-term liabilities |
- | - | 2 | - | - | 2 | ||||||||||||
|
36 | 613 | 593 | 141 | (426 | ) | 957 | |||||||||||
|
||||||||||||||||||
Shareholders' equity: |
||||||||||||||||||
Share capital |
564 | 555 | 696 | 40 | (1,291 | ) | 564 | |||||||||||
Retained earnings (deficit) |
(453 | ) | (463 | ) | (429 | ) | 85 | 807 | (453 | ) | ||||||||
Accumulated other comprehensive earnings (loss) |
(9 | ) | (9 | ) | - | (9 | ) | 18 | (9 | ) | ||||||||
|
102 | 83 | 267 | 116 | (466 | ) | 102 | |||||||||||
|
$ | 138 | $ | 696 | $ | 860 | $ | 257 | $ | (892 | ) | $ | 1,059 |
TEMBEC Supplemental Information for third quarter 2013 | 3 |
TEMBEC INC. |
SUPPLEMENTAL INFORMATION |
June 29, 2013 |
Supplemental condensed consolidating financial information |
Condensed Consolidated Balance Sheets (continued) |
||||||||||||||||||
(unaudited)(in millions of Canadian dollars) |
||||||||||||||||||
|
June 23, 2012 | |||||||||||||||||
|
Parent | Subsidiary | Guarantor | Other | Consolidation | |||||||||||||
|
Company | Issuer | Subsidiaries | Subsidiaries | Adjustments | Consolidated | ||||||||||||
ASSETS |
||||||||||||||||||
Current assets: |
||||||||||||||||||
Cash and cash equivalents |
$ | - | $ | - | $ | 38 | $ | 62 | $ | - | $ | 100 | ||||||
Restricted cash |
- | - | 1 | - | - | 1 | ||||||||||||
Trade and other receivables |
36 | 282 | 166 | 50 | (349 | ) | 185 | |||||||||||
Inventories |
- | - | 247 | 25 | - | 272 | ||||||||||||
Prepaid expenses |
- | 3 | 5 | 2 | - | 10 | ||||||||||||
|
36 | 285 | 457 | 139 | (349 | ) | 568 | |||||||||||
|
||||||||||||||||||
Investments |
159 | 450 | - | - | (609 | ) | - | |||||||||||
Property, plant and equipment |
- | 6 | 393 | 99 | - | 498 | ||||||||||||
Biological assets |
- | - | 4 | - | - | 4 | ||||||||||||
Employee future benefits |
- | - | - | 1 | - | 1 | ||||||||||||
Other long-term receivables |
- | 9 | 1 | 2 | - | 12 | ||||||||||||
Deferred tax assets |
- | - | (1 | ) | 7 | - | 6 | |||||||||||
|
$ | 195 | $ | 750 | $ | 854 | $ | 248 | $ | (958 | ) | $ | 1,089 | |||||
|
||||||||||||||||||
LIABILITIES AND SHAREHOLDERS' EQUITY |
||||||||||||||||||
Current liabilities: |
||||||||||||||||||
Operating bank loans |
$ | - | $ | - | $ | 65 | $ | 3 | $ | - | $ | 68 | ||||||
Trade, other payables and accrued charges |
5 | 104 | 397 | 60 | (349 | ) | 217 | |||||||||||
Interest payable |
- | 1 | - | - | - | 1 | ||||||||||||
Income tax payable |
- | - | - | 2 | - | 2 | ||||||||||||
Provisions |
- | 1 | 1 | - | - | 2 | ||||||||||||
Current portion of long-term debt |
2 | - | - | 14 | - | 16 | ||||||||||||
|
7 | 106 | 463 | 79 | (349 | ) | 306 | |||||||||||
|
||||||||||||||||||
Long-term debt |
- | 301 | - | 23 | (6 | ) | 318 | |||||||||||
Provisions |
- | 5 | 10 | - | - | 15 | ||||||||||||
Employee future benefits |
- | 171 | 51 | 38 | - | 260 | ||||||||||||
Other long-term liabilities |
- | - | 2 | - | - | 2 | ||||||||||||
|
7 | 583 | 526 | 140 | (355 | ) | 901 | |||||||||||
|
||||||||||||||||||
Shareholders' equity: |
||||||||||||||||||
Share capital |
564 | 555 | 668 | 40 | (1,263 | ) | 564 | |||||||||||
Retained earnings (deficit) |
(368 | ) | (380 | ) | (340 | ) | 76 | 644 | (368 | ) | ||||||||
Accumulated other comprehensive earnings (loss) |
(8 | ) | (8 | ) | - | (8 | ) | 16 | (8 | ) | ||||||||
|
188 | 167 | 328 | 108 | (603 | ) | 188 | |||||||||||
|
$ | 195 | $ | 750 | $ | 854 | $ | 248 | $ | (958 | ) | $ | 1,089 |
TEMBEC Supplemental Information for third quarter 2013 | 4 |
TEMBEC INC. |
SUPPLEMENTAL INFORMATION |
June 29, 2013 |
Supplemental condensed consolidating financial information |
Condensed Consolidated Statements of Comprehensive Earnings (Loss) |
||||||||||||||||||
(unaudited)(in millions of Canadian dollars, unless otherwise noted) |
||||||||||||||||||
|
Nine months ended June 29, 2013 | |||||||||||||||||
|
Parent | Subsidiary | Guarantor | Other | Consolidation | |||||||||||||
|
Company | Issuer | Subsidiaries | Subsidiaries | Adjustments | Consolidated | ||||||||||||
Sales |
$ | - | $ | 2 | $ | 1,009 | $ | 188 | $ | (17 | ) | $ | 1,182 | |||||
Freight and other deductions |
- | - | 149 | 13 | (4 | ) | 158 | |||||||||||
Lumber export taxes |
- | - | 2 | - | - | 2 | ||||||||||||
Cost of sales (excluding depreciation and amortization) |
- | - | 794 | 111 | (13 | ) | 892 | |||||||||||
Selling, general and administrative |
- | 6 | 39 | 11 | - | 56 | ||||||||||||
Share-based compensation |
- | 1 | - | - | - | 1 | ||||||||||||
Depreciation and amortization |
- | - | 23 | 6 | - | 29 | ||||||||||||
Other items |
- | 1 | 26 | 1 | - | 28 | ||||||||||||
Operating earnings (loss) |
- | (6 | ) | (24 | ) | 46 | - | 16 | ||||||||||
|
||||||||||||||||||
Interest, foreign exchange and other |
4 | (9 | ) | 11 | (3 | ) | 16 | 19 | ||||||||||
Exchange loss (gain) on long-term debt |
- | 21 | - | - | - | 21 | ||||||||||||
Net finance costs (income) |
4 | 12 | 11 | (3 | ) | 16 | 40 | |||||||||||
Earnings (loss) before income taxes and share of results for equity accounting |
(4 | ) | (18 | ) | (35 | ) | 49 | (16 | ) | (24 | ) | |||||||
Income tax expense (recovery) |
(1 | ) | 1 | - | 16 | - | 16 | |||||||||||
Share of results for equity accounting |
(37 | ) | (20 | ) | - | - | 57 | - | ||||||||||
Net earnings (loss) |
(40 | ) | (39 | ) | (35 | ) | 33 | 41 | (40 | ) | ||||||||
Other comprehensive earnings (loss), net of income taxes: |
||||||||||||||||||
Defined benefit pension plans and other benefit plans |
93 | 93 | 32 | 11 | (136 | ) | 93 | |||||||||||
Foreign currency translation differences for foreign operations |
12 | 12 | - | 12 | (24 | ) | 12 | |||||||||||
Total comprehensive earnings (loss) |
$ | 65 | $ | 66 | $ | (3 | ) | $ | 56 | $ | (119 | ) | $ | 65 | ||||
Basic and diluted net loss in dollars per share |
$ | (0.40 | ) |
TEMBEC Supplemental Information for third quarter 2013 | 5 |
TEMBEC INC. |
SUPPLEMENTAL INFORMATION |
June 29, 2013 |
Supplemental condensed consolidating financial information |
Condensed Consolidated Statements of Comprehensive Earnings (Loss) (continued) |
||||||||||||||||||
(unaudited)(in millions of Canadian dollars, unless otherwise noted) |
||||||||||||||||||
|
Nine months ended June 23, 2012 | |||||||||||||||||
|
Parent | Subsidiary | Guarantor | Other | Consolidation | |||||||||||||
|
Company | Issuer | Subsidiaries | Subsidiaries | Adjustments | Consolidated | ||||||||||||
Sales |
$ | - | $ | 1 | $ | 1,029 | $ | 208 | $ | (15 | ) | $ | 1,223 | |||||
Freight and other deductions |
- | - | 158 | 15 | (4 | ) | 169 | |||||||||||
Lumber export taxes |
- | - | 6 | - | - | 6 | ||||||||||||
Cost of sales (excluding depreciation and amortization) |
- | - | 830 | 134 | (11 | ) | 953 | |||||||||||
Selling, general and administrative |
- | 4 | 46 | 4 | - | 54 | ||||||||||||
Share-based compensation |
- | - | - | - | - | - | ||||||||||||
Depreciation and amortization |
- | - | 29 | 4 | - | 33 | ||||||||||||
Other items |
(1 | ) | 19 | (19 | ) | - | - | (1 | ) | |||||||||
Operating earnings (loss) |
1 | (22 | ) | (21 | ) | 51 | - | 9 | ||||||||||
Interest, foreign exchange and other |
- | 2 | 25 | - | - | 27 | ||||||||||||
Exchange loss (gain) on long-term debt |
- | - | - | - | - | - | ||||||||||||
Net finance costs |
- | 2 | 25 | - | - | 27 | ||||||||||||
Earnings (loss) before income taxes and share of results for equity accounting |
1 | (24 | ) | (46 | ) | 51 | - | (18 | ) | |||||||||
Income tax expense |
- | - | - | 17 | - | 17 | ||||||||||||
Share of results for equity accounting |
(36 | ) | (13 | ) | - | - | 49 | - | ||||||||||
Net earnings (loss) |
(35 | ) | (37 | ) | (46 | ) | 34 | 49 | (35 | ) | ||||||||
|
||||||||||||||||||
Other comprehensive earnings (loss), net of income taxes: |
||||||||||||||||||
Defined benefit pension plans and other benefit plans |
- | - | - | - | - | - | ||||||||||||
Foreign currency translation differences for foreign operations |
(10 | ) | (10 | ) | - | (10 | ) | 20 | (10 | ) | ||||||||
Total comprehensive earnings (loss) |
$ | (45 | ) | $ | (47 | ) | $ | (46 | ) | $ | 24 | $ | 69 | $ | (45 | ) | ||
Basic and diluted net loss in dollars per share |
$ | (0.35 | ) |
TEMBEC Supplemental Information for third quarter 2013 |
6 |
TEMBEC INC. |
SUPPLEMENTAL INFORMATION |
June 29, 2013 |
Supplemental condensed consolidating financial information |
Condensed Consolidated Statements of Cash Flows |
||||||||||||||||||
(unaudited)(in millions of Canadian dollars) |
||||||||||||||||||
|
Nine months ended June 29, 2013 | |||||||||||||||||
|
Parent | Subsidiary | Guarantor | Other | Consolidation | |||||||||||||
|
Company | Issuer | Subsidiaries | Subsidiaries | Adjustments | Consolidated | ||||||||||||
Cash flows from operating activities: |
||||||||||||||||||
Net earnings (loss) |
$ | (40 | ) | $ | (39 | ) | $ | (35 | ) | $ | 33 | $ | 41 | $ | (40 | ) | ||
Adjustments for: |
||||||||||||||||||
Depreciation and amortization |
- | - | 23 | 6 | - | 29 | ||||||||||||
Net finance costs |
4 | 12 | 11 | (3 | ) | 16 | 40 | |||||||||||
Income tax expense (recovery) |
(1 | ) | 1 | - | 16 | - | 16 | |||||||||||
Income tax paid |
- | - | - | (13 | ) | - | (13 | ) | ||||||||||
Excess cash contributions over employee future benefits expense |
- | (20 | ) | (4 | ) | (1 | ) | - | (25 | ) | ||||||||
Provisions |
- | - | - | - | - | - | ||||||||||||
Impairment loss |
- | - | 22 | - | - | 22 | ||||||||||||
Gain on sale of assets |
- | - | - | - | - | - | ||||||||||||
Share of results for equity accounting |
37 | 20 | - | - | (57 | ) | - | |||||||||||
Other |
- | (1 | ) | 1 | (3 | ) | - | (3 | ) | |||||||||
|
- | (27 | ) | 18 | 35 | - | 26 | |||||||||||
Change in non-cash working capital: |
||||||||||||||||||
Trade and other receivables |
- | (29 | ) | (50 | ) | (10 | ) | 112 | 23 | |||||||||
Inventories |
- | - | 13 | (10 | ) | - | 3 | |||||||||||
Prepaid expenses |
- | - | (1 | ) | - | - | (1 | ) | ||||||||||
Trade, other payables and accrued charges |
33 | 55 | (3 | ) | (7 | ) | (112 | ) | (34 | ) | ||||||||
|
33 | 26 | (41 | ) | (27 | ) | - | (9 | ) | |||||||||
|
33 | (1 | ) | (23 | ) | 8 | - | 17 | ||||||||||
Cash flows from investing activities: |
||||||||||||||||||
Disbursements for property, plant and equipment |
- | (1 | ) | (84 | ) | (8 | ) | - | (93 | ) | ||||||||
Proceeds from sale of net assets |
- | - | 99 | - | - | 99 | ||||||||||||
Investments in a subsidiary |
(31 | ) | - | - | - | 31 | - | |||||||||||
Interest received |
- | 36 | 3 | 1 | (40 | ) | - | |||||||||||
Other |
- | 2 | - | - | - | 2 | ||||||||||||
|
(31 | ) | 37 | 18 | (7 | ) | (9 | ) | 8 | |||||||||
Cash flow from financing activities: |
||||||||||||||||||
Change in operating bank loans |
- | - | (8 | ) | (3 | ) | - | (11 | ) | |||||||||
Change in restricted cash |
- | - | 5 | - | - | 5 | ||||||||||||
Increase in long-term debt |
- | - | 28 | - | - | 28 | ||||||||||||
Repayments of long-term debt |
- | - | - | (5 | ) | - | (5 | ) | ||||||||||
Proceeds from issue of share capital |
- | - | 31 | - | (31 | ) | - | |||||||||||
Interest paid |
(2 | ) | (37 | ) | (23 | ) | (16 | ) | 40 | (38 | ) | |||||||
Other |
- | - | 1 | (1 | ) | - | - | |||||||||||
|
(2 | ) | (37 | ) | 34 | (25 | ) | 9 | (21 | ) | ||||||||
|
- | (1 | ) | 29 | (24 | ) | - | 4 | ||||||||||
Foreign exchange gain (loss) on cash and cash equivalents held in foreign currencies |
- | - | - | 3 | - | 3 | ||||||||||||
Net increase (decrease) in cash and cash equivalents |
- | (1 | ) | 29 | (21 | ) | - | 7 | ||||||||||
|
||||||||||||||||||
Cash and cash equivalents, beginning of period |
- | 1 | 29 | 57 | - | 87 | ||||||||||||
Cash and cash equivalents, end of period |
$ | - | $ | - | $ | 58 | $ | 36 | $ | - | $ | 94 |
TEMBEC Supplemental Information for third quarter 2013 | 7 |
TEMBEC INC. |
SUPPLEMENTAL INFORMATION |
June 29, 2013 |
Supplemental condensed consolidating financial information |
Condensed Consolidated Statements of Cash Flows (continued) |
||||||||||||||||||
(unaudited)(in millions of Canadian dollars) |
||||||||||||||||||
|
Nine months ended June 23, 2012 | |||||||||||||||||
|
Parent | Subsidiary | Guarantor | Other | Consolidation | |||||||||||||
|
Company | Issuer | Subsidiaries | Subsidiaries | Adjustments | Consolidated | ||||||||||||
Cash flows from operating activities: |
||||||||||||||||||
Net earnings (loss) |
$ | (35 | ) | $ | (37 | ) | $ | (46 | ) | $ | 34 | $ | 49 | $ | (35 | ) | ||
Adjustments for: |
||||||||||||||||||
Depreciation and amortization |
- | - | 29 | 4 | - | 33 | ||||||||||||
Net finance costs |
- | 2 | 25 | - | - | 27 | ||||||||||||
Income tax expense |
- | - | - | 17 | - | 17 | ||||||||||||
Income tax paid |
- | - | - | (13 | ) | - | (13 | ) | ||||||||||
Excess cash contributions over employee future benefits expense |
- | (10 | ) | (10 | ) | (3 | ) | - | (23 | ) | ||||||||
Provisions |
- | 6 | 3 | - | - | 9 | ||||||||||||
Impairment loss |
- | 16 | 1 | - | - | 17 | ||||||||||||
Gain on sale of assets |
(1 | ) | (3 | ) | (24 | ) | - | - | (28 | ) | ||||||||
Share of results of for equity accounting |
36 | 13 | - | - | (49 | ) | - | |||||||||||
Other |
- | (1 | ) | (2 | ) | 1 | - | (2 | ) | |||||||||
|
- | (14 | ) | (24 | ) | 40 | - | 2 | ||||||||||
Change in non-cash working capital: |
||||||||||||||||||
Trade and other receivables |
- | 57 | 72 | (4 | ) | (146 | ) | (21 | ) | |||||||||
Inventories |
- | - | (51 | ) | 2 | - | (49 | ) | ||||||||||
Prepaid expenses |
- | (2 | ) | - | (2 | ) | - | (4 | ) | |||||||||
Trade, other payables and accrued charges |
3 | (87 | ) | (65 | ) | (14 | ) | 146 | (17 | ) | ||||||||
|
3 | (32 | ) | (44 | ) | (18 | ) | - | (91 | ) | ||||||||
|
3 | (46 | ) | (68 | ) | 22 | - | (89 | ) | |||||||||
Cash flows from investing activities: |
||||||||||||||||||
Disbursements for property, plant and equipment |
- | (2 | ) | (57 | ) | (16 | ) | - | (75 | ) | ||||||||
Proceeds from sale of net assets |
1 | 3 | 80 | - | - | 84 | ||||||||||||
Investment in a subsidiary |
- | - | - | - | - | - | ||||||||||||
Interest received |
- | 27 | 2 | - | (29 | ) | - | |||||||||||
Other |
- | - | 5 | 1 | - | 6 | ||||||||||||
|
1 | 28 | 30 | (15 | ) | (29 | ) | 15 | ||||||||||
Cash flow from financing activities: |
||||||||||||||||||
Change in operating bank loans |
- | - | 65 | (3 | ) | - | 62 | |||||||||||
Change in restricted cash |
- | - | (1 | ) | 5 | - | 4 | |||||||||||
Increase in long-term debt |
- | 51 | - | 4 | - | 55 | ||||||||||||
Repayments of long-term debt |
(4 | ) | - | - | (5 | ) | - | (9 | ) | |||||||||
Proceeds from issue of share capital |
- | - | - | - | - | - | ||||||||||||
Interest paid |
- | (33 | ) | (28 | ) | (1 | ) | 29 | (33 | ) | ||||||||
Other |
- | - | - | - | - | - | ||||||||||||
|
(4 | ) | 18 | 36 | - | 29 | 79 | |||||||||||
|
- | - | (2 | ) | 7 | - | 5 | |||||||||||
Foreign exchange gain (loss) on cash and cash equivalents held in foreign currencies |
- | - | - | (4 | ) | - | (4 | ) | ||||||||||
Net increase (decrease) in cash and cash equivalents |
- | - | (2 | ) | 3 | - | 1 | |||||||||||
|
||||||||||||||||||
Cash and cash equivalents, beginning of period |
- | - | 40 | 59 | - | 99 | ||||||||||||
Cash and cash equivalents, end of period |
$ | - | $ | - | $ | 38 | $ | 62 | $ | - | $ | 100 |
TEMBEC Supplemental Information for third quarter 2013 | 8 |
]+H[;5FC7RV1L9]3G//Y5AAL1#%7@T=
M&*P