CANFOR PULP PRODUCTS INC.

Transcription

1 CANFOR PULP PRODUCTS INC. First Quarter Reprt Fr the three mnths ended March 31, 2012

2 Canfr Pulp Prducts Inc. First Quarter 2012 Management s Discussin and Analysis This Interim Management s Discussin and Analysis (MD&A) prvides a review f Canfr Pulp Prducts Inc. (CPPI r the Cmpany) financial perfrmance fr the quarter ended March 31, 2012 relative t the same perid in the prir year and relative t the previus quarter, and the financial psitin f the Cmpany at March 31, This MD&A shuld be read in cnjunctin with the unaudited cndensed cnslidated financial statements and accmpanying ntes fr the quarters ended March 31, 2012 and, as well as the annual MD&A and audited cnslidated financial statements and ntes which are included in CPPI s Annual Reprt. Additinal infrmatin relating t CPPI including CPPI s Annual Infrmatin Frm (AIF) dated February 6, 2012, is available n SEDAR at r at In this MD&A, references are made t EBITDA (Earnings befre Interest, Taxes, Depreciatin and Amrtizatin and befre ther nn-perating incme and expenses) and distributable cash. The Cmpany cnsiders EBITDA t be a relevant indicatr fr identifying trends in the Cmpany s perfrmance and f the Cmpany s ability t generate funds t meet its debt service, capital expenditure requirements and t pay dividends. Management believes distributable cash is a gd measure f available cash generated. EBITDA and distributable cash shuld nt be cnsidered as alternatives t net incme r cash flw frm peratins as determined in accrdance with Canadian generally accepted accunting principles. As there is n standardized methd f calculating EBITDA r distributable cash, the Cmpany s use f these terms may nt be directly cmparable with similarly titled measures used by ther cmpanies. Calculatins f EBITDA and distributable cash are prvided in this MD&A. The infrmatin in this reprt is as at April 23, Frward-Lking Statements Certain statements in this MD&A cnstitute "frward-lking statements" which invlve knwn and unknwn risks, uncertainties and ther factrs that may cause actual results t be materially different frm any future results, perfrmance r achievements expressed r implied by such statements. Wrds such as "expects", "anticipates", "intends", "plans", "will", "believes", "seeks", "estimates", "shuld", "may", "culd" and variatins f such wrds and similar expressins are intended t identify such frward-lking statements. In sme instances, material assumptins are disclsed elsewhere in this MD&A in respect f frward-lking statements. Other risks and uncertainties are detailed frm time t time in reprts filed by the Cmpany with the securities regulatry authrities in all f the prvinces and territries f Canada t which recipients f this MD&A are referred fr additinal infrmatin cncerning the Cmpany and prspects and uncertainties relating t the Cmpany. Althugh we believe that the expectatins reflected by the frward-lking statements presented in this MD&A are reasnable, these frwardlking statements are based n management s current expectatins and beliefs and actual events r results may differ materially. New risk factrs may arise frm time t time and it is nt pssible fr management t predict all f thse risk factrs r the extent t which any factr r cmbinatin f factrs may cause actual events and results, perfrmance and achievements f the Cmpany t be materially different frm thse cntained in frward-lking statements. The frward-lking statements speak nly as f the date n which such statement is made, are based n current infrmatin and expectatins and the Cmpany assumes n bligatin t update such infrmatin t reflect later events r develpments, except as required by law. Frward-lking statements in this MD&A include statements made under: Markets Pulp n page 7; Outlk Pulp n page 7; Outlk Kraft Paper n page 8; Financial Requirements and Liquidity n page 10; CPPI Dividends n page 11. Critical Accunting Estimates n page 12 Changes in Accunting Plicies and New Accunting Prnuncements n page 13 Material risk factrs that culd cause actual results t differ materially frm the frward-lking statements cntained in this MD&A include: general ecnmic, market and business cnditins; prduct selling prices; raw material and perating csts; exchange rates; changes in law and public plicy; and pprtunities available t r pursued by the Cmpany. Additinal infrmatin cncerning these and ther factrs can be fund in CPPI s Annual Infrmatin Frm dated February 6, 2012, which is available n 2

3 Canfr Pulp Prducts Inc. First Quarter 2012 The infrmatin in this reprt is as at April 23, CANFOR PULP PRODUCTS INC. Canfr Pulp Prducts Inc. (CPPI) is the successr t Canfr Pulp Incme Fund (the Fund) fllwing the cmpletin f the cnversin f the Fund frm an incme trust t a crprate structure n January 1, (the Cnversin). The Cnversin invlved the exchange, n a ne-fr-ne basis, f all utstanding Fund Units fr cmmn shares f CPPI. Upn cmpletin f the Cnversin, the unithlders f the Fund became the sle sharehlders f CPPI and CPPI became the direct hlder f the 49.8% interest in Canfr Pulp Limited Partnership (the Partnership). CPPI was incrprated n March 12, The Partnership is a limited partnership frmed n April 21, 2006, under the laws f Manitba t acquire and carry n the Nrthern Bleached Sftwd Kraft (NBSK) pulp and paper business f Canfr. The business cnsists f tw NBSK pulp mills and ne NBSK pulp and paper mill lcated in Prince Gerge, BC and a marketing grup based in Vancuver, BC (the Pulp Business). On March 2, 2012, Canadian Frest Prducts Ltd. (Canfr) exchanged 35,776,483 Class B Exchangeable Limited Partnership Units (the Exchange), representing a 50.2% interest in Canfr Pulp Limited Partnership (the Partnership), fr an equivalent number f CPPI shares pursuant t the terms f the exchange agreement dated January 1,. As a result f the Exchange, CPPI increased its interest in bth the Partnership and the General Partner frm 49.8% t 100% and Canfr acquired a 50.2% interest in CPPI (see nte 4 f the Cmpany s Cndensed Cnslidated Financial Statements). Prir t March 2, 2012 Canfr held a direct cntrlling interest in the Partnership. Fr all perids ending prir t March 2, 2012, the financial statements present the financial psitin, results f peratins, and cash flws f the Pulp Business frm the perspective f Canfr s cntrlling interest in the Pulp Business as if perated as a standalne partnership entity subject t Canfr cntrl. The acquisitin f the Partnership by CPPI as a result f the Exchange has been accunted fr as a cntinuity f interests by applying reverse acquisitin accunting. At April 23, 2012, CPPI held a ttal f 14,254,005 Class A Limited Partnership Units and 57,016,020 Class B Limited Partnership Units, representing 100% f the Partnership. The discussin which fllws in the Overview f Financial Results, Operating Results by Business Segment, Summary f Financial Psitin and Financial Requirements and Liquidity sectins, refer t the results f the Partnership fr the cmparative perids prir t the quarter ended March 31, 2012 unless therwise nted. Fr the quarter ended March 31, 2012 the results f CPPI, include the results f the Partnership (tgether referred t as CPPI r the Cmpany). 3

4 Structure The fllwing chart illustrates, n a simplified basis, the wnership structure f CPPI and the Partnership (cllectively the Cmpany) as at March 31, Simplified Ownership Structure CANFOR CORPORATION (British Clumbia) 100% Public Sharehlders 49.8% 35,493,307 Shares Canadian Frest Prducts Ltd. (British Clumbia) 50.2% 35,776,483 Shares CANFOR PULP PRODUCTS INC. (British Clumbia) 100% CANFOR PULP HOLDING INC. (General Partner) and CANFOR PULP LIMITED PARTNERSHIP (Manitba) The Pulp Business 4

5 The Business and Strategic Objectives The Cmpany is a leading glbal supplier f pulp and paper prducts with peratins based in the central interir f British Clumbia. The strategy is t maximize cash generatin and enhance the value f its assets by: (i) preserving its lw-cst perating psitin, and (ii) maintaining the premium quality f its prducts. The Cmpany may als cnsider strategic acquisitins subject t availability f capital. The Cmpany wns and perates three mills with annual capacity t prduce ver ne millin tnnes f nrthern sftwd market kraft pulp, 90% f which is bleached t becme NBSK pulp fr sale t the market, and apprximately 140,000 tnnes f kraft paper. OVERVIEW OF FINANCIAL RESULTS Highlights Three mnths ended March 31, 2012: Reprted net incme f $10.3 millin r $0.13 per share n sales f $220.0 millin. Generated EBITDA f $28.8 millin. Achieved average daily prductin recrd at the Nrthwd Pulp Mill. Financial Results (millins f dllars, except fr per share amunts, unaudited) Q Q4 Q1 Sales EBITDA Operating incme Net incme Per share, basic and diluted Net incme $0.13 $0.22 $0.71 EBITDA 1 $0.40 $0.54 $0.95 Average exchange rate (US$/Cdn$) Ntes: 1 Cmparative figures have been reclassified t cnfrm t current year presentatin. 2 Surce Bank f Canada (average nn rate fr the perid). Recnciliatin f Net Incme t EBITDA (millins f dllars, unaudited) Q Q4 Q1 Net incme Add (deduct): Amrtizatin Interest expense Freign exchange gain n lng-term debt (2.0) (2.4) (2.5) Gain n derivative financial instruments (1.3) (1.5) (1.6) Freign exchange lss n wrking capital Lss n dispsal f fixed assets Incme tax expense EBITDA Nte: 1 Cmparative figures have been reclassified t cnfrm t current year presentatin. 5

6 Three mnths ended March 31, 2012 cmpared t December 31, : The Cmpany generated EBITDA f $28.8 millin n sales f $220.0 millin in the first quarter f 2012 cmpared t EBITDA f $38.5 millin n sales f $212.7 millin in the furth quarter f. The decline in results f the pulp segment were due t lwer realized pulp prices as a result f lwer NBSK pulp US dllar list prices and a strnger Canadian dllar, partially ffset by lwer unit manufacturing csts and higher shipment vlumes. Paper segment results declined as a result f lwer realised paper prices partially ffset by lwer csts fr slush pulp. Three mnths ended March 31, 2012 cmpared t March 31, : EBITDA fr the first quarter f 2012 was $28.8 millin, $38.7 millin lwer than the first quarter f. The decline was primarily attributable t lwer pulp perating segment results partially ffset by imprved paper segment results. The decline in pulp segment results was due t lwer NBSK pulp US dllar list prices and higher unit manufacturing csts, partially ffset by higher pulp shipment vlumes and a weaker Canadian dllar. The imprved paper segment results were due t lwer prices fr slush pulp, partially ffset by lwer realized paper prices and lwer shipment vlumes. OPERATING RESULTS BY BUSINESS SEGMENT Pulp (millins f dllars unless therwise nted, unaudited) Q Q4 Q1 Sales EBITDA EBITDA 1 margin 15% 21% 31% Operating incme Average NBSK pulp list price (US$ per tnne, delivered t USA) Average NBSK pulp list price (Cdn$ per tnne, delivered t USA) Prductin pulp (000 mt) Shipments Partnership-prduced pulp (000 mt) Marketed n behalf f Canfr (000 mt) Nte: 1 Cmparative figures have been reclassified t cnfrm t current year presentatin. Three mnths ended March 31, 2012 cmpared t December 31, : Pulp segment perating incme f $12.2 millin decreased $4.5 millin due primarily t lwer NBSK US list prices and a strnger Canadian dllar, partially ffset by lwer cash manufacturing csts and higher shipment vlumes. Realized pulp prices in Canadian dllar terms decreased 9% due t lwer Nrth American NBSK US list prices which averaged US$870 per tnne cmpared t US$920 per tnne in the prir perid and a strnger Canadian dllar. The Canadian dllar strengthened 2% averaging $0.999 US/Cdn, (Q ). Unit manufacturing csts decreased 8% when cmpared t the prir quarter due t lwer fibre csts, lwer chemical csts and the impact f the extended maintenance utage at the Nrthwd Pulp Mill in the furth quarter f, resulting in higher prductin vlumes and lwer spending n maintenance csts in the current quarter. Market pulp prductin increased 16,000 tnnes, primarily due t the impact f the extended maintenance utage at the Nrthwd Pulp Mill in the furth quarter f. Fibre csts decreased apprximately 9% during the quarter due primarily t a reductin in the price f sawmill residual chips which are tied in part t realized pulp prices. Sales vlume increased 39,600 tnnes primarily as a result f imprved demand in the current quarter cmbined with lwer than average shipments in the furth quarter f. Three mnths ended March 31, 2012 cmpared t March 31, : 6

7 Pulp segment perating incme f $12.2 millin decreased $39.3 millin due primarily t lwer NBSK US list prices and higher unit manufacturing csts, partially ffset by higher shipment vlumes and a weaker Canadian dllar. Realized pulp prices in Canadian dllar terms decreased 15% due primarily t lwer Nrth American NBSK US list prices which averaged US$870 per tnne cmpared t US$970 per tnne in the prir year quarter. The Canadian dllar weakened 1% averaging $0.999 US/Cdn, (Q ). Unit manufacturing csts increased 3% when cmpared t the prir year quarter due t higher chemical csts and higher spending n fixed csts, all f which were partially ffset by lwer fibre csts. Sales vlume increased 5,300 tnnes. Operatins The Nrthwd Pulp Mill set quarterly and mnthly average daily prductin recrds in the first quarter f NBSK market pulp prductin during the quarter increased 16,000 tnnes when cmpared t the furth quarter f, hwever, declined 2,800 tnnes when cmpared t the first quarter f. There were n maintenance utages in the first quarter f 2012 r as cmpared t 18,800 tnnes f reduced prductin as a result f the extended maintenance utage at the Nrthwd Pulp Mill in the furth quarter f. Markets Pulp Glbal sftwd pulp markets appear t be recvering with signs f strength heading int the spring maintenance perid. Prducer inventry levels decreased thrugh the quarter resulting in price increases in March and April 2012 in sme regins. Pulp and Paper Prducts Cuncil (PPPC) statistics reprted an increase in shipments f bleached sftwd sulphate pulp f 6% fr the first tw mnths f 2012 as cmpared t the same perid in with cntinued strng shipments t China ffset by reductins in Eurpe and Nrth America. PPPC reprted glbal demand fr printing and writing papers remained flat fr the first tw mnths f 2012 as cmpared t. At the end f February 2012, Wrld 20 1 bleached sftwd pulp prducer inventries were at 31 days f supply. By cmparisn, December inventries were at 36 days f supply. Market cnditins are generally cnsidered balanced when inventries are in the days f supply range. Strng demand and decreasing prducer inventries during the quarter enabled prducers t reverse the successive price decreases seen in the previus quarter and successfully implement price increases in several markets. NBSK pulp list prices increased US$25 in Eurpe t US$850 and increased US$20 in China t US$710. Nrth American prices settled at US$870 fr the quarter after declining US$20 in January. Nte: 1 Wrld 20 data is based n twenty prducing cuntries representing 80% f wrld chemical market pulp capacity and is based n infrmatin cmpiled and prepared by the PPPC. Outlk Pulp The glbal sftwd pulp market is prjected t recver mdestly thrugh the secnd quarter. Prducer inventries have steadily declined thrugh the first quarter and with a majrity f NBSK mills heading int the annual spring maintenance perid, prices are prjected t rise in the shrt term. Fr the mnth f April, the Cmpany has annunced NBSK pulp list price increases f US$30 in Nrth America t US$900, US$20 in Eurpe t US$870, and US$30 in China t US$740. A scheduled maintenance utage is planned at the Intercntinental Pulp Mill in the secnd quarter f 2012 with an estimated 11,000 tnnes f reduced prductin. In additin a maintenance utage is planned at the Prince Gerge Pulp Mill which will be extended t cmplete the final prject under the Green Transfrmatin Prgram and a partial rebuild f the recvery biler. This will result in a ttal f apprximately 17,000 tnnes f reduced prductin at the Prince Gerge Pulp Mill, f which 5,000 tnnes falls in the secnd quarter with the balance f 12,000 tnnes in the third quarter f A scheduled maintenance utage at the Nrthwd Pulp Mill is planned fr the furth quarter f 2012 with an estimated 8,000 tnnes f reduced prductin. Paper 7

8 (millins f dllars unless therwise nted, unaudited) Q Q4 Q1 Sales EBITDA EBITDA 1 margin 12% 14% 9% Operating incme Prductin paper (000 mt) Shipments paper (000 mt) Nte: 1 Cmparative figures have been reclassified t cnfrm t current year presentatin. Three mnths ended March 31, 2012 cmpared t December 31, : Operating incme f the paper segment declined $0.7 millin as a decrease in realized paper prices in Canadian dllar terms and lwer shipment vlumes were partially ffset by lwer unit manufacturing csts. The decrease in unit manufacturing csts was primarily attributable t lwer prices fr slush pulp. Realized paper prices decreased 9% due t price decreases in all regins and a lwer percentage f prime bleached sales in the current quarter. The slush pulp is transferred t the paper segment at a market price with the decrease directly attributable t the decrease in the realized price f pulp. Three mnths ended March 31, 2012 cmpared t March 31, : The $0.6 millin increase in perating incme was due t lwer prices fr slush pulp, partially ffset by a 3% decrease in realized paper prices in Canadian dllar terms and lwer shipment vlumes. The decrease in slush pulp prices is directly attributable t the decrease in the realized pulp price in Canadian dllar terms. Sales vlumes decreased in the first quarter f 2012 due in part t belw target prductin levels and weaker demand early in the perid. Operatins Paper prductin was slightly belw target fr the first quarter f 2012 due t minr peratinal issues. Ttal paper machine prductin was 32,900 tnnes, 600 tnnes lwer than the furth quarter f and 1,600 tnnes lwer than the first quarter f. Markets Kraft Paper Glbal Kraft paper demand shwed signs f imprvement in all regins by the end f the first quarter. The Paper Shipping Sack Manufacturers Assciatin (PSSMA) statistics fr the first quarter f 2012 revealed that the industry perating rates increased t 81% frm 72% in the furth quarter f. The PSSMA als reprted that shipments fr the first quarter f 2012 increased 2% when cmpared t the furth quarter f, hwever, when cmpared t the first quarter f shipments decreased 7%. The Cmpany s paper shipments in the first quarter f 2012 were dwn 3% frm the furth quarter f and dwn 12% frm the first quarter f. Prime bleached shipments were dwn 8% frm the prir quarter and dwn 3% when cmpared t the first quarter. Outlk Kraft Paper Kraft paper demand increased steadily thrugh the first quarter resulting in healthy rder files heading int the secnd quarter. Prices are beginning t recver in sme exprt markets and are prjected t cntinue t imprve thrugh the secnd quarter. A scheduled maintenance utage n the Cmpany s paper machine in June 2012 will result in apprximately 2,000 tnnes f reduced prductin. Nn-Segmented Csts 8

9 (millins f dllars, unaudited) Q Q4 Q1 Net unallcated csts Interest expense, net Freign exchange gain n lng-term debt (2.0) (2.4) (2.5) Freign exchange lss n wrking capital Gain n derivative financial instruments (1.3) (1.5) (1.6) Other expense Nte: 1 Cmparative figures have been reclassified t cnfrm t current year presentatin. Net Unallcated Csts Unallcated csts, cmprised principally f general and administrative expenses, ttaled $3.4 millin in the first quarter f 2012 cmpared t $3.6 millin in the furth quarter f and $2.9 millin in the first quarter f. Interest Expense Fr the first quarter f 2012 the net interest expense f $2.8 millin remained unchanged frm the prir quarter. The Cmpany retractively changed its accunting plicy t reclassify pensin interest expense frm emplyee benefits expense t interest expense. The effect n the three mnths ended March 31, 2012 is an increase in interest expense and a decrease in manufacturing and prduct csts f $0.8 millin (three mnths ended March 31, - $0.8 millin). Other Nn-segmented Items The freign exchange gain n lng-term debt f $2.0 millin resulted frm translating the US$110 millin debt at perid-end exchange rates, reflecting the strnger Canadian dllar as f March 31, The freign exchange lss n wrking capital f $0.8 millin resulted frm translating US dllar balances at peridend exchange rates. The net gain f $1.3 millin n derivative financial instruments recrded in the first quarter f 2012 results frm the settlement f maturing cntracts during the quarter and the revaluatin t market f utstanding cntracts at the end f the quarter fr US dllar frward cntracts and West Texas Intermediate (WTI) crude il cllars. The US dllar frward cntracts are used t hedge the impact f currency fluctuatins n US dllar wrking capital while the WTI crude il cllars are used t hedge expsure t fluctuatins in fuel csts related t the Cmpany s inbund and utbund freight charges. 9

10 SUMMARY OF FINANCIAL POSITION The fllwing table summarizes the financial psitin as at the end f and fr the fllwing perids: March 31, December 31, (millins f dllars, except fr ratis, unaudited) 2012 Rati f current assets t current liabilities Rati f net debt t sharehlders equity Increase (decrease) in cash and cash equivalents 21.8 (13.5) Cmprised f cash flw frm (used in): Q Operating activities Financing activities (8.0) (76.6) Investing activities (11.7) (12.1) Q1 Nte: 1 Net debt cnsists f lng-term debt, net f cash and cash equivalents. Changes in Financial Psitin Cash generated frm perating activities was $41.5 millin in the first quarter f 2012 cmpared t $75.2 millin in the first quarter f. The decrease is the result f lwer perating earnings partially ffset by an increase in cash generated frm wrking capital. The lwer perating earnings are attributable t lwer realized pulp and paper prices, partially ffset by lwer unit manufacturing csts and higher pulp shipments. The increase f cash generated frm wrking capital during the first quarter f 2012 was primarily the result f a decrease in the vlume and carrying cst f finished pulp inventries and differences in the timing f cllectin and payment f trade receivable and accunts payable balances related t sales under agency agreements and receipts in respect f HST credits. The cash used in financing activities f $8.0 millin in the quarter represents $7.8 millin in distributins paid in January 2012, and $0.2 millin in interest payments. The distributins paid related t amunts declared and utstanding at December 31, and these amunts were paid prir t the exchange by Canfr f Partnership units fr CPPI shares n March 2, Included in the first quarter f financing activities were distributins ttalling $76.3 millin f which $39.2 millin related t the final Fund distributin declared in December The cash used in investing activities in the quarter is cmprised f $20.7 millin in sustaining and discretinary capital expenditures, $3.9 millin in majr maintenance expenditures and $2.1 millin relating t expenditures under the gvernment funded prgrams, partially ffset by $8.1 millin f funds received fr claims under the Green Transfrmatin and ther gvernment funded prgrams, and $0.1 millin in interest incme and $6.8 millin f CPPI cash included n cnslidatin at March 2, 2012 as a result f Canfr s acquisitin f CPPI thrugh the share exchange. FINANCIAL REQUIREMENTS AND LIQUIDITY Lng-term Debt At March 31, 2012 the Cmpany had utstanding lng-term debt f $109.9 millin (December 31, $111.9 millin, US$110.0 millin fr bth 2012 and ) in the frm f unsecured US dllar private placement ntes (the Ntes). The Ntes bear interest at 6.41% and are repayable in full n their maturity date f Nvember 30, Operating Lans The Cmpany has a $40.0 millin bank credit facility with a maturity date f Nvember 30, 2013, f which $0.8 millin was utilized at March 31, 2012 fr a standby letter f credit issued fr general business purpses. In additin, the Cmpany has a separate facility with a maturity date f Nvember 30, 2013, t cver the $10.4 millin standby letter f credit issued t BC Hydr under a pwer generatin agreement. The Cmpany als has an undrawn $30.0 millin bridge lan credit facility with a maturity date f December 31, 2012 t fund timing differences between expenditures and reimbursements fr prjects funded under the Green Transfrmatin Prgram. Interest and ther csts f the bank credit facility are at prevailing market rates. 10

11 Cash Management The Cmpany manages cash resurces t fund current and future peratins thrugh management f its capital structure in cnjunctin with cash flw frecasting, including anticipated investing and financing activities. The Cmpany uses the bank credit facility t meet shrt-term wrking capital requirements. The Cmpany als reviews n an nging basis, the level f capital expenditures, dividends and timing f scheduled majr maintenance utages and may adjust these peridically t manage cash resurces. The Cmpany peridically discunts letters f credit n utstanding trade receivables t reduce brrwing csts, t reduce credit and freign currency expsure, and t increase shrt-term liquidity. Debt Cvenants The Ntes and bank credit agreements each cntain similar financial cvenants including a maximum allwable debt:ebitda leverage rati and minimum required EBITDA:interest cverage rati. The Cmpany remained in cmpliance with all cvenants at March 31, OUTSTANDING SHARES At April 23, 2012, there were a ttal f 71,269,790 CPPI shares utstanding, f which Canfr wns 35,776,483 shares representing a 50.2% interest in CPPI. CPPI DIVIDENDS As part f Canfr s exchange f its Partnership interest fr shares f CPPI n March 2, 2012, Canfr waived its right t receive dividends paid frm cash accumulated frm Partnership distributins and nt distributed t CPPI sharehlders prir t that exchange. The Bard f Directrs tday declared a quarterly dividend payable n May 11, 2012 t the nn-canfr sharehlders f recrd n May 4, 2012 f $0.22 per share, being the amunt f such accumulated cash in CPPI at the date f the exchange. As all cash accumulated frm Partnership distributins and nt distributed t CPPI sharehlders prir t Canfr s exchange will be paid n May 11, 2012, future dividends will be shared equally by all CPPI sharehlders, including Canfr. CPPI is entirely dependent n cash generated frm the Partnership t make dividend payments t its sharehlders. Management believes distributable cash t be a gd measure f available cash generated frm the Partnership. Cash available fr distributins frm the Partnership is based n the level f prjected sustainable cash flw frm peratins befre changes in nn-cash wrking capital less anticipated capital expenditures and interest expense. The Bard cnsiders business risks and uncertainties which culd impact thse prjectins. It is prjected that nrmal seasnal fluctuatins in wrking capital will be funded frm cash resurces r the revlving shrt-term credit facility. (millins f dllars, unaudited) Three mnths ended March 31, 2012 March 31, Cash flw frm peratins befre wrking capital changes $ 28.4 $ 66.0 Add (deduct): Capital expenditures net 1 (7.9) (5.7) Majr maintenance amrtizatin (5.4) (3.6) Interest 2 (2.0) (2.1) Distributable cash $ 13.1 $ 54.6 Distributable cash per share $ 0.18 $ 0.77 Nte: 1 Presented net f gvernment funding and excludes majr maintenance capital. 2 Represents interest expense n credit facilities and lng-term debt and excludes pensin interest expense. 11

12 RELATED PARTY TRANSACTIONS The transactins with related parties are cnsistent with the transactins described in the December 31, audited cnslidated financial statements and are based n agreed upn amunts, and are summarized in nte 11 f the unaudited interim cndensed cnslidated financial statements. SELECTED QUARTERLY FINANCIAL INFORMATION (millins f dllars unless therwise nted, unaudited) Q Q4 Sales and Incme Sales Operating incme EBITDA Net incme Per share (dllars) Net incme basic and diluted 2 $0.13 $0.22 $0.33 $0.68 $0.71 $0.67 $0.77 $0.61 Statistics Pulp shipments (000 mt) Paper shipments (000 mt) Q3 Q2 Q1 Q Q Q Average exchange rate (US$/Cdn$) Average NBSK pulp list price (US$ per tnne, delivered t USA) Ntes: 1 Cmparative figures have been reclassified t cnfrm t current year presentatin. 2 Based n CPPI shares utstanding at March 31, Surce Bank f Canada (average nn rate fr the perid) , , Sales are primarily influenced by changes in market pulp prices, sales vlumes and fluctuatins in Canadian dllar exchange rates. Operating incme, net incme and EBITDA are primarily impacted by: sales revenue; freight csts; fluctuatins f fibre, chemical, and energy prices; level f spending and the timing f maintenance dwntime; and prductin curtailments. Net incme is als impacted by fluctuatins in Canadian dllar exchange rates, the revaluatin t the perid end rate f US dllar denminated wrking capital balances and lng-term debt, and revaluatin f utstanding natural gas swaps and US dllar frward cntracts. INTERNAL CONTROLS OVER FINANCIAL REPORTING During the quarter ending March 31, 2012, there were n changes in the Cmpany s internal cntrls ver financial reprting that materially affected, r wuld be reasnably likely t materially affect, such cntrls. RISKS AND UNCERTAINTIES The Cmpany is subject t certain risks and uncertainties related t its investment in the Partnership, as well as all f the risks and uncertainties related t the business f the Partnership. The Cmpany s cllective labur agreements expire n April 30, A cmprehensive discussin f these and ther risks and uncertainties is cntained in CPPI s Annual Infrmatin Frm dated February 6, 2012, which is available n and CRITICAL ACCOUNTING ESTIMATES The preparatin f financial statements in cnfrmity with generally accepted accunting principles (GAAP) requires management t make estimates and assumptins that affect the amunts recrded in the financial statements. On an nging basis, based upn currently available infrmatin, management reviews its estimates, including thse related t asset useful lives fr amrtizatin, impairment f lng-lived assets, pensin and ther emplyee future benefit plans and asset retirement bligatins. While it is reasnably pssible that circumstances may arise which cause actual results t differ frm these estimates, management des nt believe it is likely that any such differences will materially affect the Cmpany s financial cnditin. CHANGE IN ACCOUNTING POLICIES AND NEW ACCOUNTING PRONOUNCEMENTS 12

13 Change in Accunting Plicy Effective January 1, 2012, the Cmpany retractively changed its accunting plicy t reclassify pensin interest expense frm emplyee benefits expense included in manufacturing and prduct csts t interest expense included in nn-perating items n the Cndensed Cnslidated Statement f Cmprehensive Incme. Management cnsiders classificatin f pensin interest expense with the Cmpany's ther interest expenses t prvide mre relevant infrmatin n the perating results f the Cmpany. The effect n the three mnths ended March 31, 2012 is an increase in interest expense and a decrease in manufacturing and prduct csts f $0.8 millin (three mnths ended March 31, - $0.8 millin), with n impact t pening equity as at January 1, The impact n perating activities in the Cmpany s Cndensed Cnslidated Statement f Cash Flws fr the three mnths ended March 31, 2012 was an increase f $0.8 millin (three mnths ended March 31, - $0.8 millin) t interest expense with a crrespnding decrease t emplyee future benefits. New Accunting Prnuncements As f January 1, 2013, the Cmpany will be required t adpt the fllwing Internatinal Financial Reprting Standards (IFRS) and Internatinal Accunting Standards (IAS) as issued by the Internatinal Accunting Standards Bard (IASB). Refer t the Cmpany s annual financial statements fr a mre detailed descriptin f the belw nted standards. The adptin f the fllwing standards is nt expected t have a material impact n the Cmpany s cnslidated financial statements: IFRS 10 Cnslidated Financial Statements IFRS 11 Jint Arrangements IFRS 12 Disclsure f Interests in Other Entities IFRS 13 Fair Value Measurement IAS 27 Separate Financial Statements Amended IAS 19 Emplyee Benefits Amended IAS 28 Investments in Assciates In June, the IASB als issued amended IAS 1, Presentatin f Financial Statements, which is effective fr annual perids beginning n r after July 1, The amendment will require cmpanies t grup tgether items within Other Cmprehensive Incme that may be reclassified t the prfit r lss sectin f the incme statement (cmmnly referred t as recycling ). The adptin f this amendment is nt expected t have a material impact n the Cmpany s cnslidated financial statements. 13