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).