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Fletcher Challenge Cannada Reports Earnings

April 26, 2000

For Immediate Release

FLETCHER CHALLENGE CANADA REPORTS
NET EARNINGS OF 19 CENTS PER SHARE

Vancouver, B.C. - Fletcher Challenge Canada today announced net earnings of $23.2 million, or 19 cents per share, for the three months ended March 31, 2000. Net earnings for the same period a year earlier were $11.5 million, or nine cents per share, which included after-tax earnings of $9.1 million from an adjustment to the gain on sale of a former operation.
Earnings were up from the previous quarter, when the company recorded net earnings of $17.6 million prior to one-time costs associated with the proposed acquisition of the Paper Division assets of 50.8 per cent shareholder Fletcher Challenge Limited.
FCCL chairman Alexander Toeldte said the improvement in earnings represented the company’s best quarter in more than four years.
He said that while the earnings reflected increases in pulp and containerboard prices, the company also had record sales volumes and shipments of paper during the last month of the quarter.
“We are seeing strong newsprint demand now that publisher inventories are down to their lowest levels since the fall of 1994,” Toeldte said. “The outlook for continued market improvement is favourable as advertising lineage remains robust, exports are increasing and imports from offshore are declining,” he said.
A US$50 per tonne newsprint price increase took effect on April 1 and the company has announced a further US$40 per short ton price increase for its high-bright offset paper effective May 1, Toeldte said.
Sales were $335 million in the quarter, up from $270 million in the same period last year. Cash flow from operations was $72.9 million during the quarter, compared to $7.6 million in the same period one year ago. Working capital requirements decreased by $5.5 million during the quarter. The company’s cash balance increased by $49 million to $794 million at the close of the quarter.
Company president Russ Horner reported operating earnings for the pulp and containerboard segment increased by $14.4 million to $38.9 million in the quarter and sales realizations were approximately $85 per tonne higher than three months earlier.
“NBSK pulp prices increased by US$30 per tonne in all markets in January and by a further US$20 per tonne in Japan in February in response to tight market conditions,” Horner said. Company pulp sales volume increased by 11,000 tonnes and exceeded production by 6,000 tonnes.
“We expect pulp markets to tighten further in the near term as producers undergo annual maintenance shutdowns during a period of strong seasonal demand,” he said. The company has implemented a further US$40 per tonne pulp price increase in all markets effective April 1, 2000.
The newsprint and specialties segment incurred an operating loss of $8.7 million, a slight decline from the previous quarter’s loss of $7.1 million. Operations in the current quarter reflected a lower proportion of directory paper sales, a concerted effort to reduce paper inventory levels and convert slow-moving inventory items into cash, and an increase in fibre prices from the previous quarter. These factors were largely offset by increased newsprint selling prices in offshore markets and an increase in prices for high-bright specialty papers in the quarter. Paper shipment levels were up 5,000 tonnes in the quarter and exceeded production by 19,000 tonnes.
Newsprint prices in the company’s main western North American market increased by US$40 per tonne in October 1999. Improving demand led to a similar newsprint price increase in Asia effective January 1, 2000. A US$40 per short ton price increase for the company’s high-bright offset paper was implemented in January and a US$45 per short ton price increase for the company’s soft-nip calendered paper took effect in March.
Fletcher Challenge Canada has a June 30 fiscal year end. Net earnings for the nine months ended March 31, 2000 were $42.0 million or 34 cents per share, compared to $38.1 million, or 31 cents per share, for the same period last year. The fiscal 2000 results include the one-time expense of $9.2 million after tax for costs in connection with the proposal by the company to acquire the Paper Division assets of Fletcher Challenge Limited. The fiscal 1999 results included other non-operating income of $35.4 million after tax, partially offset by an after-tax provision of $22.0 million consisting of severance, pension bridging and other costs associated with a reduction of the hourly workforce at the company’s manufacturing facilities.
Sales for the nine months were $916 million, up from $814 million for the same period a year ago. Cash flow from operations was $88.7 million, compared to $9.0 million in the corresponding period of last year. Working capital requirements increased by $73 million during the period.
On April 3, 2000, the company’s 50.8 per cent shareholder, Fletcher Challenge Limited, announced it had reached an agreement to sell its Paper Division to international pulp and paper producer Norske Skog. The sale of the Paper Division to Norske Skog includes the 50.8 per cent shareholding in Fletcher Challenge Canada held by Fletcher Challenge Limited. The transaction is conditional on approvals from Fletcher Challenge Limited shareholders, Norske Skog’s corporate assembly and various regulatory authorities. Company management believes the transaction will close in July.
The company’s balance sheet remains under review by the board of directors of Fletcher Challenge Canada. “In the meantime, the company remains focused on delivering the operational improvement targets that have been set, while benefiting from pulp and paper market conditions that are continuing to strengthen,” Toeldte said.
The company’s board of directors today declared a cash dividend of 15 cents per share, payable June 15, 2000 to shareholders of record on June 1.


Editors: Fletcher Challenge Canada has a June 30 fiscal year end. This release reports results of the company’s third fiscal quarter.

For further information, contact:
Jay Whitwham Stuart Clugston
Vice-President, Secretary and Treasurer Vice-President, Corporate Affairs
(604) 654-4486 (604) 654-4463
FLETCHER CHALLENGE CANADA LIMITED

Consolidated Statements of Earnings 3 months ended
March 31 9 months ended
March 31
(in millions of dollars) unaudited 2000 1999 2000 1999
Net sales $ 334.7 $ 269.5 $ 915.8 $ 813.9
Operating expenses
Cost of products sold 257.4 238.9 720.8 677.4
Selling and administrative 18.3 14.1 51.2 45.2
Depreciation 28.8 27.7 85.6 83.2
304.5 280.7 857.6 805.8
Operating earnings (loss) 30.2 (11.2) 58.2 8.1
Other income (expense) (note 2) (0.1) 8.2 (12.8) 15.4
Interest income 9.6 8.3 26.8 28.4
Earnings from continuing operations before income taxes 39.7 5.3 72.2 51.9
Income taxes 16.5 2.9 30.2 22.9
Earnings from continuing operations 23.2 2.4 42.0 29.0
Earnings from discontinued operations - 9.1 - 9.1
Net earnings $ 23.2 $ 11.5 $ 42.0 $ 38.1
Earnings per share from continuing operations (in dollars) $ 0.19 $ 0.02 $ 0.34 $ 0.23
Earnings per share (in dollars) $ 0.19 $ 0.09 $ 0.34 $ 0.31
Consolidated Balance Sheets As at March 31
(in millions of dollars) unaudited 2000 1999
Assets
Current assets
Cash and short term investments $ 793.5 $ 742.3
Accounts receivable 244.4 279.7
Inventories 171.8 179.2
Prepaid expenses 3.6 5.4
1,213.3 1,206.6
Fixed assets 1,305.1 1,354.6
Other assets 15.2 10.7
$ 2,533.6 $ 2,571.9
Liabilities and shareholders’ equity
Current liabilities
Accounts payable and accrued liabilities $ 170.0 $ 198.0
Employee future benefits 87.0 82.1
Future income taxes and related deferred credits 195.4 175.5
452.4 455.6
Shareholders’ equity
Share capital 1,262.6 1,262.6
Retained earnings 818.6 853.7
2,081.2 2,116.3
$ 2,533.6 $ 2,571.9
On behalf of the board


Director Director

FLETCHER CHALLENGE CANADA LIMITED

Consolidated Statements of Cash Flows 3 months ended
March 31 9 months ended
March 31
(in millions of dollars) unaudited 2000 1999 2000 1999
Cash provided by (used for)
Operations
Earnings from continuing operations $ 23.2 $ 2.4 $ 42.0 $ 29.0
Items not requiring (providing) cash
Depreciation 28.8 27.7 85.6 83.2
Employee future benefits (1.6) 0.8 4.0 10.6
Income taxes 16.9 (5.6) 29.8 19.5
Other 0.1 0.5 0.6 (0.1)
67.4 25.8 162.0 142.2
Change in non-cash working capital 5.5 (18.2) (73.3) (133.2)
Cash provided by operations 72.9 7.6 88.7 9.0
Per share (in dollars) $ 0.59 $ 0.06 $ 0.71 $ 0.07
Investment
Net additions to fixed assets (7.4) (28.7) (30.4) (56.3)
Decrease in other assets 2.0 0.3 1.9 1.2
(5.4) (28.4) (28.5) (55.1)
Financing
Dividends paid (18.6) (18.6) (55.9) (55.9)
Increase (decrease) in cash 48.9 (39.4) 4.3 (102.0)
Cash at beginning of period 744.6 781.7 789.2 844.3
Cash at end of period $ 793.5 $ 742.3 $ 793.5 $ 742.3
Supplemental information
Income taxes paid $ 0.6 $ - $ 2.8 $ 1.8

Segmented Information 3 months ended
March 31 9 months ended
March 31
(in millions of dollars) unaudited 2000 1999 2000 1999
Net sales
Newsprint and specialties $ 165.5 $ 158.8 $ 471.8 $ 509.6
Pulp and containerboard 186.8 125.0 498.1 352.4
Inter-segment sales of pulp (17.6) (14.3) (54.1) (48.1)
$ 334.7 $ 269.5 $ 915.8 $ 813.9
Operating earnings (loss)
Newsprint and specialties $ (8.7) $ 0.6 $ (23.0) $ 38.4
Pulp and containerboard 38.9 (11.8) 81.2 (30.3)
$ 30.2 $ (11.2) $ 58.2 $ 8.1
Depreciation
Newsprint and specialties $ 15.6 $ 14.6 $ 46.2 $ 44.0
Pulp and containerboard 13.2 13.1 39.4 39.2
$ 28.8 $ 27.7 $ 85.6 $ 83.2
Shipments - M tonnes
Newsprint and specialties 238 210 685 637
Market pulp 188 181 546 480
Containerboard 27 28 79 77
Production - M tonnes
Newsprint and specialties 219 195 665 641
Market pulp 182 174 535 502
Containerboard 26 28 79 81

FLETCHER CHALLENGE CANADA LIMITED

Consolidated Statements of Retained Earnings 3 months ended
March 31 9 months ended
March 31
(in millions of dollars) unaudited 2000 1999 2000 1999
Balance, beginning of period
As previously reported $ 814.0 $ 903.4 $ 876.1 $ 913.1
Effect of change in accounting policies (note 3) - (42.6) (43.6) (41.6)
As restated 814.0 860.8 832.5 871.5
Net earnings 23.2 11.5 42.0 38.1
Dividends (18.6) (18.6) (55.9) (55.9)
Balance, end of period $ 818.6 $ 853.7 $ 818.6 $ 853.7
Notes to the Consolidated Financial Statements
(tabular figures in millions of dollars) unaudited
1. Derivatives
The Company uses options and forward contracts to hedge a portion of its future U.S. dollar revenues. Options and forward contracts outstanding as at March 31, 2000 are as follows:
Forward Contracts Options
Floor Ceiling

Maturity US$
Amount
C$ Rate US$
Amount Minimum
C$ Rate US$
Amount Maximum
C$ Rate

Fiscal 2000 $ - - $ 66 1.4994 $ 66 1.5397
Fiscal 2001 62 1.4793 138 1.5174 138 1.5419
Fiscal 2002 135 1.4886 - - - -
2. Other Income (Expense)
The Company incurred costs of $13.0 million in respect of the proposed acquisition of the operations and assets of the Paper Division of Fletcher Challenge Limited. Shareholder approval, which was a prerequisite for the transaction, was not obtained at the Extraordinary General Meeting held on November 2, 1999. Accordingly, the costs were included in other expense of the quarter ended December 31, 1999.
3. Change in Accounting Policies and Comparative Figures
During the quarter ended September 30, 1999, the Company retroactively changed its policies of accounting for income taxes and post-retirement benefits other than pensions and adopted new standards under Canadian generally accepted accounting principles. Income taxes are now accounted for under the liability method rather than the deferral method previously used. Post-retirement benefits other than pensions are now accounted for under an actuarial accrual basis rather than the ‘pay as you go’ basis previously used. These changes resulted in an increase (decrease) in fixed assets of $86.4 million, other assets of $(61.6) million, employee future benefits liability of $71.6 million, future income taxes and related deferred credits of $(3.2) million and retained earnings of $(43.6) million as at June 30, 1999. The changes resulted in a decrease in net earnings for the three months and nine months ended March 31, 2000 of $0.5 million and $1.6 million, respectively.
Certain comparative figures have been reclassified to conform with the presentation adopted for the current year.
4. Common Shares Outstanding
As at March 31, 2000, the number of Class A common shares outstanding is 124,189,252 shares (March 31, 1999 – 124,189,252 shares).

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