Asset impairments drive 2011 loss, negative outlook leads to CCAA filing

Published In: British Columbia, Business, Financial 
Wednesday, February 29, 2012 7:42 PM
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Asset impairments drive 2011 loss, negative outlook leads to CCAA filing

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Asset impairments drive 2011 loss, negative outlook leads to CCAA filing
PR Newswire
RICHMOND, BC, Feb. 29, 2012




RICHMOND, BC, Feb. 29, 2012 /PRNewswire/ - Catalyst Paper (TSX:CTL) posted a
net loss of $974.0 million ($2.55 per common share) in 2011 due in
large part to asset impairments on Canadian and Arizona-based
operations. Other factors contributing to the loss were capital
restructuring costs, a foreign exchange loss on the translation of U.S.
dollar denominated debt and fire-related outages at the Snowflake and
Powell River mills. The company's net loss in 2010 was $396.9 million
($1.04 per common share).


"We faced formidable economic and currency headwinds through 2011 made
worse by the fourth-quarter drop-off in pulp prices and a weaker
five-year paper and pulp industry forecast released in February 2012.
These combined factors triggered the requirement to take a $660.2
million impairment charge on Canadian operations," said Catalyst
President & CEO Kevin J. Clarke.


Sales in 2011 of $1,261.5 million were up over sales of $1,228.6 million
in 2010 as pricing momentum helped mitigate the effect of the strong
Canadian dollar. The company's net loss before specific items of $126.3
million ($0.33 per common share) widened in 2011 compared with a 2010
net loss before specific items of $87.0 million ($0.23 per common
share).


EBITDA of $41.6 million ($47.5 million before restructuring costs) in
2011 was down from $46.3 million in 2010 ($71.6 million before
restructuring costs).  Significant factors impacting EBITDA in 2010
included impairment and other closure costs related to Elk Falls and
the paper recycling operation, an unfavorable tax adjustment and a
foreign exchange gain on translation of U.S. dollar denominated debt.


"North American paper markets and world pulp markets weakened in the
last quarter of 2011 and higher inventory levels carried forward into
2012 for most paper grades as production curtailments failed to balance
the migration away from print to digital media by retailers and
publishers. We expect little if any improvement over the short-term in
what are persistently difficult markets," said President and CEO Kevin
J. Clarke. "With a challenging debt load, cash constraints and
difficult trade credit terms to contend with, filing for creditor
protection became inevitable when a consensual recapitalization
agreement with noteholders could not reached by January 31, 2012."


Fourth Quarter


During the final quarter of 2011, Catalyst posted a net loss of $708.0
million compared with a net loss of $205.7 million in the third quarter
(see selected highlights table). Before specific items, net loss of
$41.7 million compared to a net loss in the third quarter of $14.1
million.  EBITDA for Q4 was $2.8 million and $8.7 million before
restructuring costs, while EBITDA in Q3 was $26.8 million unchanged
before specific items.


Seasonal strength, low inventories and high operating rates helped keep
directory and newsprint prices steady quarter-over-quarter, however
benchmark prices declined for coated and uncoated in the quarter. The
steep decline in pulp transaction prices and a delayed shipment also
took a toll on sales in the fourth quarter as excess pulp inventory and
softening demand from China overwhelmed the positive impact of a weaker
Canadian dollar.


Liquidity and Debt


Total liquidity in 2011 decreased by nearly half to $96.7 million
compared with $189.4 million in 2010. This was due to lower cash on
hand and reduced availability under our amended asset-based loan
facility (ABL). Cash declined as a result of the US$26.0 million
redemption of remaining 8.625% senior unsecured notes due in 2011,
nearly $15 million in defined benefit pension plan contributions, $22.2
million in property tax payments, as well as incremental costs
associated with fires at our Snowflake and Powell River mills.


Working capital requirements decreased due to the impact of the $21.5
million interest deferral in December but was partially offset by
tightening vendor payment terms. The interest non-payment also
triggered a covenant violation on our 2016 Senior Secured Notes that
would have resulted in a cross-default on our asset-based loan facility
(ABL) in the absence of a waiver. The covenant violation resulted in
the reclassification to current debt of $414.9 million of 2016 Notes
and $48.0 in balance drawn on the ABL.


Free cash flow in 2011 worsened to negative $58.8 million compared with
$40.4 million in 2010. Cash flow from operations was down $27.4 million
compared to a year earlier due to lower EBITDA. The $20.0 million
change in non-cash working capital in 2011 comprised a $14.3 million
increase in accounts receivable, an inventory increase of $17.1
million, partially offset by $7.6 million in lower prepaids and $3.8
million in accounts payable and accrued liabilities.


Creditor Protection Filing


In June 2011, Catalyst announced that Perella Weinberg Partners had been
retained as financial advisors to assist the company's review of
recapitalization alternatives with a priority placed on debt reduction
in the face of persistently difficult economic and paper and pulp
market conditions.


In mid-December the company withheld a $21.5 million interest payment on
2016 Notes, pending the conclusion of debt restructuring discussions
with various stakeholders. In mid-January a consensual recapitalization
transaction was announced under the Canadian Business Corporations Act (CBCA), subject to approval of the agreement by two-thirds of all 2014
unsecured and 2016 secured noteholders, and ratification of a new
labour agreement by all six union locals at the company's BC mills.
These conditions were not met by the deadline of January 31, 2012.


As a result, the company has now been granted creditor protection to
April 30, 2012 by the Supreme Court of British Columbia under the Companies' Creditors Arrangement Act (CCAA). The order was recognized in U.S. courts under chapter 15 of
title 11 of the US bankruptcy code. The order also approves up to
approximately $175 million of debtor-in possession (DIP) financing
subject to certain lender terms and conditions, which is provided by JP
Morgan and replaces the company's ABL. All creditor proceedings are
stayed while the order is in force.


Selected Highlights







 





(In millions of Canadian dollars, except where otherwise stated)





 



2011



2010





 



Total



Q4



Q3



Q2



Q1



Total



Q4



Q3



Q2



Q1





Sales



$1,261.5



$319.8



$340.3



$297.8



$303.6



$1,228.6



$333.6



$322.3



$299.4



$273.3





Operating earnings (loss) - before impairment



(70.8)



(28.0)



(1.0)



(30.9)



(10.9)



(73.0)



1.5



6.0



(31.6)



(48.9)





Impairment and other closure costs



823.6



673.3



150.6



(0.3)







294.5



1.3



0.9



292.3









Operating earnings (loss) - after impairment



(894.4)



(701.3)



(151.6)



(30.6)



(10.9)



(367.5)



0.2



5.1



(323.9)



(48.9)





Depreciation and amortization



112.4



30.8



27.8



27.0



26.8



119.3



27.2



28.2



31.2



32.7





EBITDA 1



41.6



2.8



26.8



(3.9)



15.9



46.3



28.7



34.2



(0.4)



(16.2)








- before restructuring costs 1



47.5



8.7



26.8



(3.9)



15.9



71.6



28.7



34.5



10.5



(2.1)





Net earnings (loss) attributable to the Company



(974.0)



(708.0)



(205.7)



(47.4)



(12.9)



(396.9)



9.6



6.0



(368.4)



(44.1)








- before specific items 1



(126.3)



(41.7)



(14.1)



(46.9)



(23.6)



(87.0)



4.1



(9.6)



(43.9)



(37.6)





EBITDA margin 1



3.3%



0.9%



7.9%



(1.3%)



5.2%



3.8%



8.6%



10.6%



(0.1%)



(5.9%)








- before restructuring costs 1



3.8%



2.7%



7.9%



(1.3%)



5.2%



5.8%



8.6%



10.7%



3.5%



(0.8%)





Net earnings (loss) per share attributable to the
Company's common shareholders (in dollars)








 


- basic and diluted



$(2.55)



$(1.85)



$(0.54)



$(0.13)



$(0.03)



$(1.04)



$0.02



$0.02



$(0.96)



$(0.12)




 



- before specific items 1



(0.33)



(0.11)



(0.04)



(0.12)



(0.06)



(0.23)



0.01



(0.03)



(0.11)



(0.10)




1     Refer to Section 13, Non-GAAP measures, of our Q4 management's discussion and analysis.


Outlook


Economic recovery in Europe and North America continues to be hampered
by sovereign debt issues while economic growth forecasts for China have
slowed. This heightens the risk of volatility in the Canadian dollar
which in turn creates uncertainty for our operating and net earnings,
cash flow and liquidity.


Slowing demand in coated and uncoated specialty printing paper markets
in the first half of 2012 is expected to negatively affect operating
rates and product pricing, unless curtailments and closures balance
supply.  Directory paper demand is expected to decline more slowly with
better operating rates supporting stronger contract prices in 2012
compared to the prior year. Newsprint demand in North America continues
to contract due to Internet alternatives while a moderate decline in
export shipments is expected due to a slowdown in demand in several
international markets. Price impacts are uncertain.


With high end-user inventories placing significant pressure on pulp
prices in the first half, markets are expected to remain soft with any
potential recovery in the second of the year driven by China's pulp
requirements and buying patterns.


Price pressure is expected on commodity inputs including fossil fuel,
power, fibre and some chemicals, though lower demand from China for
recycled paper will relieve ONP price pressure and improve our
Snowflake mill cost structure in the short-term. With no extended mill
outages required, maintenance costs for 2012 will be moderately lower
than in 2011. Capital spending of approximately $25.0 million is
expected, net of federal credits for projects funded under the Pulp and
Paper Green Transformation Program (PPGTP).  The majority of the
spending on the PPGTP was incurred in 2011.


Priorities in 2012 are, by necessity, concentrated around meeting the
requirements for an orderly and timely exit from CCAA.  In keeping with
this financial goal, operations are continuing to keep a tight rein on
costs. Efforts to optimize the product mix and market positioning will
be ongoing, including innovation and new product development. 
Maximizing capacity utilization will be an operating priority, and
discussions continue with unions regarding the need for more
competitive wage structures at Canadian mills.


Further Annual Results Materials


This release, along with the full annual Management Discussion
&Analysis, Financial Statements and accompanying notes are available on
our web site at www.catalystpaper.com/Investors. This material is filed with SEDAR in Canada and EDGAR in the United
States.


Catalyst Paper manufactures diverse specialty mechanical printing
papers, newsprint and pulp. Its customers include retailers, publishers
and commercial printers in North America, Latin America, the Pacific
Rim and Europe. With four mills, located in British Columbia and
Arizona, Catalyst has a combined annual production capacity of 1.8
million tonnes. The company is headquartered in Richmond, British
Columbia, Canada and its common shares trade on the Toronto Stock
Exchange under the symbol CTL. Catalyst is listed on the Jantzi Social
Index® and is ranked by Corporate Knights magazine as one of the 50
Best Corporate Citizens in Canada.


Forward-Looking Statement


Certain matters in this news release, including statements with respect
to general economic and market conditions, demand for products, pricing
expectations, anticipated cost savings and capital expenditures, are
forward looking.  These forward-looking statements reflect management's
current views and are based on certain assumptions including
assumptions as to future economic conditions, demand for products,
levels of advertising, product pricing, ability to achieve operating
and labour cost reductions, currency fluctuations, production
flexibility and related courses of action, as well as other factors
management believes are appropriate.  Such forward looking statements
are subject to risks and uncertainties that may cause actual results to
differ materially from those contained in these statements, including
those risks and uncertainties identified under the heading "Risks and
Uncertainties" in Catalyst's management's discussion and analysis
contained in Catalyst's annual report for the year ended December 31,
2011 available at www.sedar.com.


 


 


 


 


 


SOURCE Catalyst Paper Corporation








 
Wednesday, February 29, 2012 7:42 PM

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