EXHIBIT 2
NORSKE ▇▇▇▇ CANADA LIMITED
------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED YEAR ENDED
FINANCIAL HIGHLIGHTS DECEMBER 31 DECEMBER 31
unaudited (in millions of dollars, except where -------------------------------- --------------------------------
otherwise stated) 2002 2001 2002 2001
----------------------------------------------------------------------- --------------- --------------------------------
SALES AND EARNINGS
Net sales $ 405.6 $ 412.8 $ 1,482.3 $ 1,388.7
Operating earnings (loss) (36.3) 11.3 (121.9) 79.7
Net earnings (loss) (37.3) (12.0) (123.3) 44.5
EBITDA (1) 10.3 54.1 56.6 210.9
EBITDA margin (%) (2) 2.5 13.1 3.8 15.2
OTHER FINANCIAL INFORMATION
Working capital (3) $ 240.4 $ 286.5 $ 240.4 $ 286.5
Capital expenditures 41.7 30.6 82.2 92.7
Total assets 2,893.5 3,149.8 2,893.5 3,149.8
Total debt (4) 886.2 1,174.6 886.2 1,174.6
Shareholders' equity 1,124.7 1,036.5 1,124.7 1,036.5
Current assets to current liabilities (3) 1.83:1 2.00:1 1.83:1 2.00:1
Total debt to total capitalization (4), (5) 0.44:1 0.53:1 0.44:1 0.53:1
Common shares outstanding at end of period (in
millions) 205.9 174.8 205.9 174.8
Weighted average common shares outstanding (in
millions) 205.9 174.8 193.4 141.1
PER COMMON SHARE PERFORMANCE (IN DOLLARS)
Basic and diluted earnings (loss) $ (0.18) $ (0.07) $ (0.64) $ 0.32
EBITDA 0.05 0.31 0.29 1.49
Book value (6) 5.46 5.93 5.46 5.93
Cash flow (7) 0.27 0.29 (0.01) 1.89
Price (8) - High 5.67 6.88 7.60 19.75
- Low 4.70 5.39 4.70 5.39
FOREIGN EXCHANGE RATES
Effective period foreign exchange rate - C$/US$ (9) 1.558 1.547 1.545 1.535
Average period spot foreign exchange rate - C$/US$ (10) 1.570 1.580 1.570 1.548
Period end spot foreign exchange rate - C$/US$ 1.580 1.593 1.580 1.593
SALES (IN THOUSANDS OF TONNES)
Specialties 247.8 222.1 848.1 471.5
Newsprint 198.8 166.8 749.5 603.9
Pulp and containerboard 117.6 128.7 492.9 669.4
AVERAGE SALES REVENUE PER TONNE (IN DOLLARS)
Specialties $ 872 $ 1,007 $ 887 $ 1,022
Newsprint 606 703 588 810
Pulp and containerboard 587 559 587 624
AVERAGE COST OF SALES PER TONNE (IN DOLLARS) (11)
Specialties $ 782 $ 771 $ 758 $ 761
Newsprint 591 606 590 624
Pulp and containerboard 559 546 559 565
(1) EBITDA is defined as earnings before interest, taxes, depreciation and
amortization, and before other non-operating income and expenses. As there
is no generally accepted method of calculating EBITDA, the measures as
calculated by the Company may not be comparable to similarly titled
measures reported by other companies. EBITDA is presented because we
believe it is a useful indicator of a company's ability to meet debt
service and capital expenditure requirements. The Company interprets EBITDA
trends as an indicator of relative operating performance. EBITDA should not
be considered by an investor as an alternative to net income, as an
indicator of Norske ▇▇▇▇ Canada Limited's financial performance or as an
alternative to cash flows as a measure of liquidity.
Throughout this report EBITDA is calculated in the following manner:
Operating earnings (loss) $ (36.3) $ 11.3 $ (121.9) $ 79.7
Add: Depreciation and amortization 46.6 42.8 178.5 131.2
-------------- -------------- ------------ -------------
EBITDA $ 10.3 $ 54.1 $ 56.6 $ 210.9
============== ============== ============ =============
(2) EBITDA margin (%) is defined as EBITDA as a percentage of sales.
(3) Working capital and current assets to current liabilities, for these
purposes, exclude cash and short-term investments and current portion of
long-term debt.
(4) Total debt is comprised of long-term debt including current portion.
(5) Total capitalization is comprised of total debt and shareholders' equity.
(6) Book value is calculated based on common shares outstanding at the end of
the period.
(7) Operating cash flow is stated after changes in non-cash working capital.
(8) A special distribution of $12.00 per common share was paid to shareholders
on August 28, 2001.
(9) Effective period foreign exchange rate represents a blended rate which
takes account of the applicable spot rates and the Company's revenue
hedging program in the period.
(10) Average period spot foreign exchange rate is the average Bank of Canada
noon spot rate over the reporting period.
(11) Average cost of sales per tonne, for these purposes, excludes selling,
general and administrative costs and depreciation and amortization.
NORSKE ▇▇▇▇ CANADA LIMITED
-----------------------------------------------------------------------------------------------------------------------------------
2001, 2002,
YEAR YEAR
QUARTERLY SEGMENTED INFORMATION 2001, THREE MONTHS ENDED ENDED 2002, THREE MONTHS ENDED ENDED
unaudited ----------------------------------- -------- ------------------------------------------------
(in millions of dollars, except where
otherwise stated) MAR 31 JUN 30 SEPT 30 DEC 31 DEC 31 MAR 31 JUN 30 SEPT 30 DEC 31 DEC 31
------------------------------------------------------------------------- -------- ------------------------------------------------
SPECIALTIES
Net sales $ 61.6 $ 77.3 $ 119.4 $ 223.6 $ 481.9 $ 170.4 $ 170.9 $ 195.1 $ 216.1 $ 752.5
EBITDA $ 14.0 $ 17.1 $ 26.8 $ 45.3 $ 103.2 $ 26.3 $ 14.3 $ 25.2 $ 13.9 $ 79.7
EBITDA margin (%) 22.7 22.1 22.4 20.3 21.4 15.4 8.4 12.9 6.4 10.6
SALES (IN THOUSANDS OF TONNES) 59.1 75.7 114.6 222.1 471.5 181.5 195.7 223.1 247.8 848.1
PRODUCTION (IN THOUSANDS OF TONNES) 67.6 82.6 104.7 216.0 470.9 188.3 197.2 241.7 238.0 865.2
Average sales revenue per tonne
(in dollars) $ 1,042 $ 1,021 $ 1,042 $ 1,007 $ 1,022 $ 939 $ 873 $ 874 $ 872 $ 887
Average cost of sales per tonne
(in dollars) (1) $ 741 $ 741 $ 766 $ 771 $ 761 $ 754 $ 763 $ 729 $ 782 $ 758
NEWSPRINT
Net sales $ 147.4 $ 107.0 $ 117.5 $ 117.3 $ 489.2 $ 91.0 $ 112.0 $ 117.1 $ 120.5 $ 440.6
EBITDA $ 38.7 $ 20.6 $ 15.0 $ 11.4 $ 85.7 $ (12.3) $ (8.2) $ 0.9 $ (3.0) $ (22.6)
EBITDA margin (%) 26.3 19.3 12.8 9.7 17.5 (13.5) (7.3) 0.8 (2.5) (5.1)
SALES (IN THOUSANDS OF TONNES) 163.0 124.7 149.4 166.8 603.9 150.6 198.5 201.6 198.8 749.5
PRODUCTION (IN THOUSANDS OF TONNES) 160.9 119.4 138.3 174.0 592.6 150.0 197.3 201.8 198.1 747.2
Average sales revenue per tonne
(in dollars) $ 904 $ 858 $ 787 $ 703 $ 810 $ 604 $ 564 $ 581 $ 606 $ 588
Average cost of sales per tonne
(in dollars) (1) $ 621 $ 632 $ 643 $ 606 $ 624 $ 653 $ 581 $ 551 $ 591 $ 590
BENCHMARK PRICE (US$ PER TONNE) (2)
Newsprint 48.8 gsm, West Coast
Delivery $ 607 $ 623 $ 572 $ 508 $ 578 $ 462 $ 440 $ 452 $ 472 456
PULP AND CONTAINERBOARD
Sales $ 177.7 $ 123.1 $ 106.4 $ 83.6 $ 490.8 $ 92.5 $ 109.6 $ 122.0 $ 110.2 $ 434.3
Less: inter-segment sales (22.5) (17.8) (21.2) (11.7) (73.2) (29.6) (32.7) (41.6) (41.2) (145.1)
--------------------------------- -------- ------------------------------------ --------
Net sales $ 155.2 $ 105.3 $ 85.2 $ 71.9 $ 417.6 $ 62.9 $ 76.9 $ 80.4 $ 69.0 $ 289.2
--------------------------------- -------- ------------------------------------ --------
EBITDA $ 33.6 $ (12.2) $ 3.2 $ (2.6) $ 22.0 $ (16.1) $ (0.1) $ 16.3 $ (0.6) $ (0.5)
EBITDA margin (%) 21.6 (11.6) 3.8 (3.6) 5.3 (25.6) (0.1) 20.3 (0.9) (0.2)
SALES (IN THOUSANDS OF TONNES)
Pulp 184.3 156.7 127.4 99.9 568.3 85.8 107.6 97.7 90.1 381.2
Containerboard 23.6 21.5 27.2 28.8 101.1 25.1 30.2 28.9 27.5 111.7
--------------------------------- -------- ------------------------------------ --------
207.9 178.2 154.6 128.7 669.4 110.9 137.8 126.6 117.6 492.9
--------------------------------- -------- ------------------------------------ --------
PRODUCTION (IN THOUSANDS OF TONNES)
Pulp 168.4 155.3 109.4 105.7 538.8 80.4 101.8 98.3 93.8 374.3
Containerboard 24.7 25.4 27.4 24.1 101.6 27.0 27.6 29.9 29.6 114.1
--------------------------------- -------- ------------------------------------ --------
193.1 180.7 136.8 129.8 640.4 107.4 129.4 128.2 123.4 488.4
--------------------------------- -------- ------------------------------------ --------
Average sales revenue per tonne
(in dollars) $ 747 $ 591 $ 551 $ 559 $ 624 $ 567 $ 558 $ 635 $ 587 $ 587
Average cost of sales per tonne
(in dollars) (1) $ 568 $ 632 $ 500 $ 546 $ 565 $ 681 $ 534 $ 479 $ 559 $ 559
BENCHMARK PRICE (US$ PER TONNE) (2)
NBSK pulp $ 660 $ 545 $ 457 $ 463 $ 531 $ 443 $ 457 $ 485 $ 447 $ 458
(1) Average cost of sales per tonne for these purposes excludes selling,
general and administrative costs and depreciation and amortization.
(2) Benchmark prices are sourced from RISI.
NORSKE ▇▇▇▇ CANADA LIMITED
--------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS THREE MONTHS ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31
unaudited -------------------------------- ---------------------------------
(in millions of dollars, except where otherwise stated) 2002 2001 2002 2001
--------------------------------------------------------------------------- ---------------- ---------------- ----------------
(RESTATED - (RESTATED -
NOTE 2) NOTE 2)
NET SALES $ 405.6 $ 412.8 $ 1,482.3 $ 1,388.7
---------------------------------------------------------- -------------- --------------- --------------- ---------------
OPERATING EXPENSES
Cost of sales 377.0 342.5 1,360.4 1,114.2
Selling, general and administrative 18.3 16.2 65.3 63.6
Depreciation and amortization 46.6 42.8 178.5 131.2
-------------- --------------- --------------- ---------------
441.9 401.5 1,604.2 1,309.0
-------------- --------------- --------------- ---------------
OPERATING EARNINGS (LOSS) (36.3) 11.3 (121.9) 79.7
FOREIGN EXCHANGE GAIN (LOSS) ON TRANSLATION OF
LONG-TERM DEBT 1.7 (6.2) 12.3 (17.1)
OTHER EXPENSE, NET (NOTE 4) (0.6) (6.5) (13.3) (40.2)
INTEREST EXPENSE (18.3) (23.7) (77.9) (34.1)
INTEREST INCOME - 0.7 1.7 35.0
-------------- --------------- --------------- ---------------
EARNINGS (LOSS) BEFORE INCOME TAXES (53.5) (24.4) (199.1) 23.3
-------------- --------------- --------------- ---------------
INCOME TAX EXPENSE (RECOVERY)
Current 3.6 2.4 15.7 5.6
Future (note 5) (19.8) (14.8) (91.5) (26.8)
-------------- --------------- --------------- ---------------
(16.2) (12.4) (75.8) (21.2)
-------------- --------------- --------------- ---------------
NET EARNINGS (LOSS) $ (37.3) $ (12.0) $ (123.3) $ 44.5
RETAINED EARNINGS, BEGINNING OF PERIOD, RESTATED
(NOTE 2) 277.4 375.4 363.4 902.6
SPECIAL DISTRIBUTION - - - (546.5)
DIVIDENDS - - - (37.2)
-------------- --------------- --------------- ---------------
RETAINED EARNINGS, END OF PERIOD $ 240.1 $ 363.4 $ 240.1 $ 363.4
============== =============== =============== ===============
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE
(IN DOLLARS) $ (0.18) $ (0.07) $ (0.64) $ 0.32
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
(IN MILLIONS) 205.9 174.8 193.4 141.1
NORSKE ▇▇▇▇ CANADA LIMITED
-----------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS AS AT
------------------------------------
DECEMBER 31 DECEMBER 31
unaudited (in millions of dollars) 2002 2001
-----------------------------------------------------------------------------------------------------------------------------
(RESTATED -
NOTE 2)
ASSETS
Current assets
Cash and short-term investments $ - $ 104.8
Marketable securities - 34.4
Accounts receivable 277.3 303.1
Inventories 242.7 230.5
Prepaid expenses 9.2 4.1
--------------- --------------
529.2 676.9
Fixed assets 2,326.6 2,416.4
Other assets 37.7 56.5
--------------- --------------
$ 2,893.5 $ 3,149.8
=============== ==============
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities $ 288.8 $ 285.6
Current portion of long-term debt (note 6) - 10.7
--------------- --------------
288.8 296.3
Long-term debt (note 6) 886.2 1,163.9
Other long-term obligations 188.3 152.6
Future income taxes 397.0 492.0
Deferred credits 8.5 8.5
--------------- --------------
1,768.8 2,113.3
--------------- --------------
SHAREHOLDERS' EQUITY
884.6 673.1
Share capital (note 7)
Retained earnings 240.1 363.4
--------------- --------------
1,124.7 1,036.5
--------------- --------------
$ 2,893.5 $ 3,149.8
=============== ==============
ON BEHALF OF THE BOARD
(SIGNED) "▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇" (SIGNED) "▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇"
DIRECTOR DIRECTOR
NORSKE ▇▇▇▇ CANADA LIMITED
----------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED YEAR ENDED
CONSOLIDATED STATEMENTS OF CASH FLOWS DECEMBER 31 DECEMBER 31
-------------------------------- -------------------------------
unaudited (in millions of dollars) 2002 2001 2002 2001
-------------------------------------------------------------------------------------------- -------------------------------
(RESTATED - (RESTATED -
NOTE 2) NOTE 2)
CASH PROVIDED (USED) BY
OPERATIONS
Net earnings (loss) $ (37.3) $ (12.0) $ (123.3) $ 44.5
Items not requiring (providing) cash
Depreciation and amortization 46.6 42.8 178.5 131.2
Future income taxes (19.8) (14.8) (91.5) (7.7)
Increase (decrease) in other long-term obligations 4.9 (4.8) 12.0 4.9
Gain on sale of marketable securities (note 4) - - (4.8) -
Foreign exchange loss (gain) on translation of
long-term debt (1.7) 6.2 (12.3) 17.1
Loss on sale of Mackenzie pulp operations (note 4) - - - 31.4
Write-off of deferred financing costs - - 15.8 -
Other 2.7 3.4 1.5 7.5
---------------------------- -----------------------------
(4.6) 20.8 (24.1) 228.9
---------------------------- -----------------------------
Change in non-cash working capital
Accounts receivable 29.7 35.2 30.4 59.2
Inventories (2.4) 11.8 (13.0) 52.3
Prepaid expenses 10.2 6.4 (4.9) 6.3
Accounts payable and accrued liabilities 23.7 (23.3) 9.0 (80.5)
---------------------------- -----------------------------
61.2 30.1 21.5 37.3
---------------------------- -----------------------------
Cash provided (used) by operations 56.6 50.9 (2.6) 266.2
---------------------------- -----------------------------
INVESTING
Acquisition of business - - - (74.1)
Additions to fixed assets (41.7) (30.6) (82.2) (92.7)
Proceeds from sale of marketable securities (note 4) - - 39.2 -
Proceeds from sale of Mackenzie pulp operations - - - 103.8
Proceeds from sale of fixed assets - - 1.5 0.7
Increase (decrease) in other long-term obligations (0.2) - 3.2 -
Decrease (increase) in other assets (1.8) 0.6 (4.4) 1.6
---------------------------- -----------------------------
(43.7) (30.0) (42.7) (60.7)
---------------------------- -----------------------------
FINANCING
Special distribution - - - (1,490.3)
Increase (decrease) in revolving loan (note 6) (12.7) - 119.1 -
Issue of long-term debt (note 6) - 0.5 - 768.7
Repayment of long-term debt (note 6) - (2.8) (386.7) (240.9)
Issue of common shares, net of share issue costs (note 7) (0.2) - 208.1 -
Financing costs - (2.3) - (30.7)
Dividends paid - - - (37.2)
---------------------------- -----------------------------
(12.9) (4.6) (59.5) (1,030.4)
---------------------------- -----------------------------
CASH, INCREASE (DECREASE) DURING PERIOD (1) - 16.3 (104.8) (824.9)
CASH, BEGINNING OF PERIOD (1) - 88.5 104.8 929.7
---------------------------- -----------------------------
CASH, END OF PERIOD (1) $ - $ 104.8 $ - $ 104.8
============================ =============================
SUPPLEMENTAL INFORMATION
Income taxes paid $ 2.1 2.2 12.8 5.0
Non-cash consideration for acquisition of business - - - 354.3
Non-cash proceeds from sale of Mackenzie pulp
operations (note 4) - - - 34.6
Net interest paid (received) 17.2 3.6 77.1 (19.9)
(1) Cash includes cash and short-term investments.
NORSKE ▇▇▇▇ CANADA LIMITED
--------------------------------------------------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
unaudited (in millions of dollars, except where otherwise stated)
--------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Norske ▇▇▇▇
Canada Limited ("the Company" or "NorskeCanada") and from their respective
dates of acquisition of control or formation, its wholly-owned subsidiaries
and partnership. The Company's 50.1% proportionate share of ▇▇▇▇▇▇ River
Energy Inc. ("PREI"), a joint venture between Great Lakes Power Inc.
("Great Lakes") and the Company, is accounted for using the proportionate
consolidation method. All inter-company transactions and amounts have been
eliminated on consolidation.
The accompanying unaudited consolidated financial statements of the Company
have been prepared in accordance with Canadian generally accepted
accounting principles on a basis consistent with those followed in the most
recent audited annual consolidated financial statements, except as
described in notes 2 and 3 below. These unaudited interim consolidated
financial statements do not include all information and note disclosures
required by Canadian generally accepted accounting principles for annual
financial statements, and therefore should be read in conjunction with the
December 31, 2001 audited consolidated financial statements and the notes
below.
2. SIGNIFICANT ACCOUNTING POLICIES
FOREIGN CURRENCY AND DERIVATIVES
Effective January 1, 2002, the Company adopted the Canadian Institute of
Chartered Accountants' ("CICA") revised Handbook Section 1650, FOREIGN
CURRENCY TRANSLATION. The revised standard eliminates the deferral and
amortization of foreign currency translation gains and losses on long-lived
monetary items. The revised standard also requires disclosure of these
foreign exchange gains and losses.
The Company ▇▇▇▇▇▇ a portion of its long-term debt denominated in US
currency using forward contracts. Gains or losses on translation of
long-term debt hedged by forward contracts are offset by the gains or
losses on the translation of the forward contracts to the current foreign
exchange spot rates. The difference between the spot foreign exchange rate
and the forward foreign exchange rate at the date of acquiring a forward
contract is deferred and amortized to earnings on a straight-line basis
over the term of the contract.
The revised standard has been applied retroactively, with restatement of
prior periods, resulting in a reduction to amounts previously reported at
December 31, 2001 for other assets of $17.1 million, future income taxes of
$3.0 million, and retained earnings of $14.1 million. The restatement of
prior year earnings resulted in a loss on translation of long-term debt of
$17.1 million and an income tax recovery of $3.0 million. For the quarter
ended December 31, 2001, the restatement resulted in a loss on translation
of long-term debt of $6.2 million and an income tax recovery of $1.1
million relating to unrealized foreign currency exchange losses previously
deferred, and a charge to retained earnings of $5.1 million.
STOCK OPTION PLANS
Effective January 1, 2002, the Company adopted the CICA's new Handbook
Section 3870, STOCK-BASED COMPENSATION AND OTHER STOCK-BASED PAYMENTS.
Under the new standard, stock-based payments to non-employees, and employee
awards that are direct awards of stock, call for settlement in cash or
other assets, or are stock appreciation rights that call for settlement by
the issuance of equity instruments, granted on or after January 1, 2002,
are accounted for using the fair value based method. No compensation cost
is required to be recorded for all other stock-based employee compensation
awards. Consideration paid by employees on the exercise of stock options is
recorded as share capital and contributed surplus. The Company discloses
the pro forma effect of accounting for these awards under the fair value
based method (see note 9). The adoption of this new standard has resulted
in no changes to amounts previously reported.
3. SEGMENTED INFORMATION
The Company operates in three business segments:
Specialties - manufacture and sale of groundwood specialty printing
papers
Newsprint - manufacture and sale of newsprint
Pulp and containerboard - manufacture and sale of softwood pulps and
containerboard
Subsequent to December 31, 2001, the Company segregated its newsprint
activities from those relating to groundwood specialty printing papers and
reports the results of these activities separately as the Newsprint and
Specialties segments. Segment information for prior periods has been
restated to reflect this change.
The segments are managed separately and all manufacturing facilities are
located in Canada.
NORSKE ▇▇▇▇ CANADA LIMITED
--------------------------------------------------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
unaudited (in millions of dollars, except where otherwise stated)
--------------------------------------------------------------------------------
SEGMENTED FINANCIAL INFORMATION
PAPER
-------------------------------------------------
PULP AND
SPECIALTIES NEWSPRINT SUBTOTAL CONTAINERBOARD TOTAL
------------------------------------------------------------------------------------------
THREE MONTHS ENDED DECEMBER 31, 2002
Net sales (1) $ 216.1 120.5 336.6 69.0 405.6
Depreciation and amortization 23.5 16.3 39.8 6.8 46.6
Operating earnings (loss) (9.6) (19.3) (28.9) (7.4) (36.3)
Capital expenditures 15.9 12.1 28.0 13.7 41.7
THREE MONTHS ENDED DECEMBER 31, 2001
Net sales (1) 223.6 117.3 340.9 71.9 412.8
Depreciation and amortization 17.2 15.2 32.4 10.4 42.8
Operating earnings (loss) 28.1 (3.8) 24.3 (13.0) 11.3
Capital expenditures 10.4 9.8 20.2 10.4 30.6
YEAR ENDED DECEMBER 31, 2002
Net sales (1) 752.5 440.6 1,193.1 289.2 1,482.3
Depreciation and amortization 84.7 63.4 148.1 30.4 178.5
Operating earnings (loss) (5.0) (86.0) (91.0) (30.9) (121.9)
Capital expenditures 42.8 19.5 62.3 19.9 82.2
YEAR ENDED DECEMBER 31, 2001
Net sales (1) 481.9 489.2 971.1 417.6 1,388.7
Depreciation and amortization 35.0 48.4 83.4 47.8 131.2
Operating earnings (loss) 68.2 37.3 105.5 (25.8) 79.7
Capital expenditures 22.9 31.3 54.2 38.5 92.7
(1) Pulp and containerboard net sales are stated net of inter-segment pulp
sales of $41.2 million for the three months ended December 31, 2002 ($11.7
million - three months ended December 31, 2001) and $145.1 million for the
year ended December 31, 2002 ($73.2 million - year ended December 31,
2001).
4. OTHER EXPENSE, NET
Other expense, net is comprised of the following:
THREE MONTHS ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31
-------------------------- -------------------------
2002 2001 2002 2001
-------------------------- -------------------------
Write-off of deferred financing costs $ - $ - $ 15.8 $ -
Gain on sale of marketable securities - - (4.8) -
Loss on sale of Mackenzie pulp operations - - - 31.4
Provision for credit risk on commodity swaps - 6.5 - 6.5
Other 0.6 - 2.3 2.3
--------- --------- --------- ---------
$ 0.6 $ 6.5 $ 13.3 $ 40.2
========= ========= ========= =========
The write-off of deferred financing costs was associated with term and
operating credit facilities that were repaid in May 2002 and July 2002
respectively (note 6).
On June 15, 2001, the Company sold its Mackenzie pulp operations for net
proceeds of $138.4 million and a loss of $19.0 million, net of tax recovery
of $12.4 million. The net proceeds included 1,750,000 shares of ▇▇▇▇ and
Talbot Inc., which had a market value of $34.6 million on the closing date.
The Company disposed of these shares on March 28, 2002 for net proceeds of
$39.2 million and a gain of $4.8 million.
NORSKE ▇▇▇▇ CANADA LIMITED
--------------------------------------------------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
unaudited (in millions of dollars, except where otherwise stated)
--------------------------------------------------------------------------------
5. FUTURE INCOME TAXES
Income tax recovery for the year ended December 31, 2002 includes a
non-cash recovery of $9.7 million relating to a change in the estimate of
the income tax liability for prior years. For the year ended December 31,
2001, income tax recovery included a release of future income taxes of
$22.8 million related to a reduction in provincial corporate income taxes,
and $16.1 million in connection with the utilization of acquired tax
losses.
6. LONG-TERM DEBT
The Company's long-term debt, including current maturities, is as follows:
AS AT AS AT
DEC. 31, 2002 DEC. 31, 2001
------------- -------------
RECOURSE
Senior notes, 8.625% due June 2011 (US$250.0 million) $ 394.9 $ 398.2
Senior notes, 10% due March 2009 (US$200.0 million) 335.0 340.7
------------- -------------
729.9 738.9
Revolving operating loan of up to $350.0 million, due July 2005, with
interest at CDN prime rate/US base rate plus 1.25%, or LIBOR/BA
rate plus 2.25%, at the Company's option. 118.7 -
Term loan, due June 2006, with interest at CDN prime rate/US base
rate plus 1.25%, or LIBOR/BA rate plus 2.25%, at the Company's
option - 72.2
Term loan, due August 2007, with interest at US prime rate plus
1.75%, or LIBOR plus 2.75%, at the Company's option (US$199.0
million) - 316.9
------------- -------------
848.6 1,128.0
------------- -------------
NON-RECOURSE (PREI)
First Mortgage Bonds, 6.387% due July 2009 37.6 -
Term loan (senior debt), due August 2002, with interest at CDN prime
rate/US base rate plus 0.25%, or LIBOR/BA rate plus 1.25%, at the
Company's option - 35.1
Term loan (junior debt), due August 2002, with interest at BA rate
plus 3.5% - 11.5
------------- -------------
37.6 46.6
------------- -------------
Total long-term debt 886.2 1,174.6
Less: Current portion - (10.7)
------------- -------------
$ 886.2 $ 1,163.9
============= =============
On May 28, 2002, the Company repaid the outstanding balance on its term
loans and used the proceeds from an equity offering (note 7), together with
cash on hand and drawings on its then existing credit facilities, to fund
the repayment.
On July 19, 2002, the Company replaced its then existing revolving
credit facility with a new $350 million revolving operating loan.
Substantially all of the assets of the Company are pledged as security
under the new revolving loan and the revolving loan's availability is
determined by a borrowing base, calculated on accounts receivable and
inventory balances, and includes a covenant to maintain the
debt/capitalization ratio below 60%. An interest coverage covenant is
applicable in certain circumstances if the Company incurs secured debt
other than under its revolving operating loan. No such debt has been
incurred. At December 31, 2002, the unused portion of the revolving
operating loan available to the Company, after giving effect to outstanding
letters of credit, was $183.1 million.
As at December 31, 2002, the Company remained in compliance with the
covenants under both its credit facilities and bond indentures. However,
the Company's Consolidated Fixed Charge Ratio was below the 2.0:1 threshold
of the bond indentures, which, while not constituting a default, does
prohibit the payment of dividends and limits the amount of additional debt
that can be incurred outside of the existing credit facilities.
On July 24, 2002, PREI refinanced its debt by issuing $75.0 million of
First Mortgage Bonds due July 2009. The First Mortgage Bonds are secured by
a pledge of substantially all the assets of PREI. As part of the
refinancing, the Company and Great Lakes each advanced $7.5 million to
PREI. The Company drew $7.5 million from its revolving operating loan to
finance its advance.
7. SHARE CAPITAL
On May 28, 2002, the Company issued 31,100,000 common shares for net cash
proceeds of $208.1 million. The Company used the funds to repay its term
debt (note 6).
AS AT DECEMBER 31, 2002 AS AT DECEMBER 31, 2001
------------------------------ -----------------------------
SHARES $ SHARES $
------------------------------ -----------------------------
Continuity of common shares:
Beginning of period 174,810,132 673.1 124,189,252 1,262.6
Special distribution - - - (943.8)
Common shares issued 31,100,000 217.7 50,620,880 354.3
Share issue costs (net of income tax
recovery of $3.4 million) - (6.2) - -
--------------- ------------- -------------- --------------
End of period 205,910,132 884.6 174,810,132 673.1
=============== ============= ============== ==============
NORSKE ▇▇▇▇ CANADA LIMITED
--------------------------------------------------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
unaudited (in millions of dollars, except where otherwise stated)
--------------------------------------------------------------------------------
8. FINANCIAL INSTRUMENTS
The Company uses financial instruments to reduce its exposure to foreign
currency and price risk associated with its revenues, energy costs and
long-term debt. The Company also uses interest rate swaps to reduce its
exposure to changes in long-term fixed interest rates associated with its
senior notes.
REVENUE AND COST HEDGING INSTRUMENTS
Foreign currency options and forward contracts outstanding to sell
US dollars were as follows:
AS AT DECEMBER 31, 2002:
Options
-----------------------------------------------------
Floor Ceiling Forward Contracts
----------------------------------------------------- ---------------------------
Average Average
Term US$Millions Rate US$Millions Rate US$Millions Rate
----------------------------------------------------------------------------- ---------------------------
0 to 12 months $ 297 1.5595 $ 285 1.6095 $ 118 1.5330
13 to 24 months $ 133 1.5695 $ 127 1.6263 $ 38 1.6123
AS AT DECEMBER 31, 2001:
Options
-----------------------------------------------------
Floor Ceiling Forward Contracts
----------------------------------------------------- ---------------------------
Average Average
Term US$Millions Rate US$Millions Rate US$Millions Rate
----------------------------------------------------------------------------- ---------------------------
0 to 12 months $ 96 1.5344 $ 96 1.6020 $ 389 1.5229
13 to 24 months $ 51 1.5277 $ 51 1.5787 $ 81 1.5105
At December 31, 2002, no commodity price hedging instruments for product
sales of the Company were outstanding. The Company has an oil swap to
purchase 240,000 bbls at a contract rate of US$23.74 settling between
November 2003 and March 2004.
LONG-TERM DEBT HEDGING INSTRUMENTS
The Company has forward foreign exchange contracts to acquire US dollars
totalling US$349.0 million over a 5-year period at rates averaging 1.5701.
In addition, the Company has entered into cancellable and non-cancellable
interest rate swaps on US$105.0 million under which it will receive a fixed
rate receipt at 8.625% and pay a floating rate averaging LIBOR plus 2.51%.
The termination dates are June 15, 2009 and June 15, 2011, and the
cancellation dates range from June 15, 2005 to June 15, 2008.
9. STOCK-BASED COMPENSATION
The Company applies settlement accounting for recording share options
granted to directors, officers and employees. If the fair value method had
been used to determine compensation cost for share options granted to
directors, officers and employees, the Company's net loss and loss per
share would have been as follows:
Three months ended Year ended
December 31, 2002 December 31, 2002
------------------------- --------------------------
Net loss:
As reported (37.3) (123.3)
Pro forma (37.6) (123.9)
Net loss per common share:
As reported (0.18) (0.64)
Pro forma (0.18) (0.64)
The fair value of share ooptions was estimated using the Black-Scholes
option-pricing model with the following assumptions:
Three months ended Year ended
December 31, 2002 December 31, 2002
------------------------- --------------------------
Risk-free interest rate (%) 5.0 5.0
Annual dividends per share Nil Nil
Expected stock price volatility (%) 27.3 27.3
Average fair value of options granted $1.75 $1.75
The average expected life of the options used in the option pricing model
was determined as four years.
10. COMPARATIVE FIGURES
Certain comparative figures have been reclassified to conform with the
presentation adopted for the current period.