Business Review Presented by: Kevin J. Clarke, President and CEO Brian Baarda, Vice-President Finance and CFO May 22, 2012 New York
Forward-Looking Statements The presentation and answers to questions today contain forward-looking statements. Forward-looking statements are statements that address or discuss activities, events or developments that we expect or anticipate may occur in the future and can be identified by the use of words such as believe, expect, anticipate, intend, plan, likely, predict, estimate, forecast, and similar words or phrases or the negative of such words or phrases. These forward-looking statements reflect our current beliefs, intentions or expectations based on certain assumptions and estimates, which could prove to be significantly incorrect, including our ability to develop, manufacture and sell new products and services that meet the needs of our customers and gain commercial acceptance, our ability to continue to sell our products and services in the expected quantities at the expected prices and expected times, our ability to successfully obtain cost savings from our cost reduction initiatives, our ability to implement business strategies and pursue opportunities, expected cost of goods sold, expected component supply costs and constraints and expected foreign exchange and tax rates. While considered reasonable by management, these forward-looking statements are inherently subject to known and unknown risks and uncertainties and other factors that could cause actual results or events to differ from historical or anticipated results or events. These risks, uncertainties and other factors include the impact of general economic conditions in the countries in which we do business, conditions in the capital markets and our ability to obtain financing and refinance existing debt, market conditions and demand for our products (including declines in advertising and circulation), product selling prices, the implementation of trade restrictions in jurisdictions where our products are marketed, fluctuations in foreign exchange or interest rates, raw material prices (including wood fibre, chemicals and energy), our ability to successfully obtain cost savings from our cost reduction initiatives, the effect of, or change in, environmental and other governmental regulations, labour relations, the availability of qualified personnel, legal proceedings, the effects of competition from domestic and foreign producers, our ability to implement business strategies and pursue opportunities, the risk of natural disaster and other factors beyond our control, and risks and uncertainties relating to our creditor protection proceedings, including our ability to continue as a gong concern and ability to implement a debt restructuring. As a result, no assurance can be given that any of the events or results anticipated by such forward-looking statements will occur or, if they do occur, what benefit they will have on our operations or financial condition. Readers are cautioned not to place undue reliance on these forward-looking statements. We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. 2
Non-GAAP Measures Except where otherwise indicated, the financial information in this presentation is determined on the basis of U.S. GAAP. EBITDA is a non-gaap measure, calculated as operating earnings (loss) plus depreciation and amortization and impairment. We focus on EBITDA as we believe this measure enables comparison of our results between periods without regard to debt service, income taxes, capital expenditure requirements, and impairment. EBITDA before restructuring costs, net earnings (loss) attributable to the Company before specific items, and net earnings (loss) per share attributable to the Company s common shareholders before specific items are non-gaap measures. We use measures excluding specific items in evaluating our results between periods without regard to specific items that adversely or positively affect our EBITDA and net earnings (loss). Free cash flow is a non-gaap measure, calculated as EBITDA after capital expenditures, interest and taxes paid, and adjustments to reflect employee future benefit payments. The closest GAAP measure is cash provided by operating activities less cash used by investing activities. We report free cash flow as we believe it is useful for investors and other users to be aware of this measure so they can better assess our operating performance. 3
Changes in Accounting Policies During Q1 2012, we adopted the following accounting standards issued by the Financial Accounting Standards Board (FASB). We adopted these standards as a result of the creditor protection proceedings and holding restricted cash. Upon commencement of the CCAA proceedings we adopted FASB Accounting Standards Codification (ASC) 852, Reorganizations. This standard requires that financial statements distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Accordingly, professional fees, DIP-related financing costs, charges related to indefinite idlings and permanent closures and other provisions for losses directly associated with or resulting from the reorganization must be recorded in Reorganization items, net in the consolidated statement of operations. Prepetition obligations incurred prior to the Initial Order under CCAA that may be impaired by the reorganization process must be classified as Liabilities subject to compromise in the balance sheet at the amounts expected to be allowed as claims by the Court. We adopted Accounting and Reporting Manual (ARM) 1030, Financial Statement Presentation, Reporting Cash Balances and Cash Flows for the recognition, measurement and classification of restricted cash. The policy prescribes that restricted cash be segregated and separately presented in the balance sheet, classified in the balance sheet as current or non-current based on the facts pertaining to the restricted cash, and excluded from cash and cash equivalents in the statement of cash flows. 4
Business Overview and Outlook Financial Results 5
Highlights Financials Achieved $23M in EBITDA as a result of restructuring costs, tight cost control and deferral of scheduled maintenance $28M restructuring and reorganization costs incurred on the recapitalization initiative and creditor protection proceedings Limited trade terms driving low liquidity levels Creditor Protection and Restructuring Process CCAA Order effective to June 30, 2012 DIP financing secured as part of CCAA proceedings Negotiated a competitive five-year labour deal with annual savings estimated at $18 to $20 million Amended plan of arrangement will be voted on by creditors on May 23, 2012 Repudiated the PRD lease, selling poplar plantation lands and selling assets from the shuttered Elk Falls mill Significant property tax reduction of $2.5 million achieved at our Crofton facility Property tax agreement with Powell River reached through 2014 and divested interest in lands to the City for $3.0 million in proceeds Sales and Marketing Grew sales of all grades in key international markets 6
North American Paper Demand and NBSK Pulp Shipments North American Paper Demand and NBSK Pulp Shipments (in thousands of metric tonnes) Source: PPPC 3,500 2,625 1,750 875 - Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2009 2010 2011 2012 NEWSPRINT 1,418 1,395 1,431 1,522 1,343 1,328 1,336 1,405 1,263 1,222 1,249 1,280 1,230 COATED MECHANICAL 917 899 1,073 1,080 990 960 1,075 1,016 933 872 965 923 856 UNCOATED MECHANICAL* 1,006 1,036 1,110 1,121 1,045 1,086 1,129 1,129 1,042 1,028 1,073 989 842 LIGHTWEIGHT UNCOATED 170 171 200 181 170 154 171 166 135 130 130 129 112 NBSK PULP 2,574 2,768 2,751 2,751 2,911 3,020 2,917 3,204 3,254 3,117 3,071 2,954 3,335 * Uncoated mechanical is comprised of high-gloss and standard grades We are growing share in declining markets 7
Challenges Weakness in market NBSK pulp markets weakened due to excess inventory build-up in China, with benchmark prices declining 3.6% to US$687 per tonne compared to Q4 2011 Market conditions for all paper segments remain challenging, with reduced demand and declining operating rates for coated and uncoated paper and newsprint demand continuing its downward trend due to the migration of information and advertising to the Internet Creditor protection proceedings Significant reorganization costs incurred since entering the CCAA proceedings continue to put cash flow and liquidity under pressure The CCAA proceedings have resulted in compressed vendor credit terms which continue to put cash flow and liquidity under pressure Exit financing must be arranged as a condition to exit from CCAA protection Turnover rates at levels similar to last year, however, difficult to hire in current circumstances, leading to increased pressure on remaining employees 8
Outlook Slowdown in China and high pulp inventories expected to put continued downward pressure on benchmark prices for NBSK pulp The market for coated and uncoated mechanical paper expected to remain challenging in the second quarter due to declining operating rates before rebounding in the second half of the year Although the Company s operating revenue combined with the DIP Facility are expected to provide sufficient liquidity while operating under the CCAA proceedings, compressed vendor credit terms and reorganization costs are expected to continue to put pressure on cash flow and liquidity The outcome of the May 23 vote on the amended plan of arrangement will significantly impact the exit date from CCAA, the liabilities that will be compromised under CCAA and future reorganization costs 9
Q1 2012 Financial Results 2011 2012 ($millions, except per share amounts) Q1 Q2 Q3 Q4 Total Q1 LTM Sales $ 303.6 $ 297.8 $ 340.3 $ 319.8 $ 1,261.5 $ 315.8 $ 1,273.7 EBITDA 15.9 (3.9) 26.8 2.8 41.6 18.1 43.8 Restructuring costs 5.9 5.9 5.2 11.1 EBITDA before restructuring costs $ 15.9 $ (3.9) $ 26.8 $ 8.7 $ 47.5 $ 23.3 $ 54.9 EBITDA margin before restructuring costs 5.2% (1.3%) 7.9% 2.7% 3.8% 7.4% 4.3% Net earnings (loss) attributable to the Company $ (12.9) $ (47.4) $ (205.7) $ (708.0) $ (974.0) $ (25.6) $ (986.7) Net earnings (loss) attributable to the Company before specific items $ (23.6) $ (46.9) $ (14.1) $ (41.7) $ (126.3) $ (9.6) $ (112.3) Net earnings (loss) per share attributable to the Company s common shareholders $ (0.03) $ (0.13) $ (0.54) $ (1.85) $ (2.55) $ (0.07) $ (2.58) Net earnings (loss) per share attributable to the Company s common shareholders before specific items $ (0.06) $ (0.12) $ (0.04) $ (0.11) $ (0.33) $ (0.03) $ (0.29) Average F/X spot rate (USD/CAD) Average effective F/X rate (USD/CAD) 1.015 1.033 1.020 0.977 1.011 0.999 1.007 1.011 1.032 1.020 0.977 1.010 0.999 1.007 10
EBITDA Reconciliation Q1 2012 vs. Q4 2011 ($millions) EBITDA 1 Q4 2011 EBITDA 1 $ 2.8 Restructuring costs 5.9 Q4 2011 EBITDA before specific items 1 8.7 Paper prices 0.2 Pulp prices (7.9) Impact of CDN$ (4.7) Volume and mix (2.7) Distribution costs (1.3) Furnish mix and costs 6.6 Power and fuel costs 2.7 Maintenance costs 8.5 Selling, general and administrative 2.2 Lower of cost or market impact on inventory, net of inventory change 11.2 Other, net (0.2) Q1 2012 EBITDA before restructuring costs 1 23.3 Restructuring costs (5.2) Q1 2012 EBITDA 1 $ 18.1 1 EBITDA and EBITDA before restructuring costs are non-gaap measures. 11
EBITDA Reconciliation Q1 2012 vs. Q1 2011 ($millions) EBITDA 1 Q1 2011 EBITDA 1 $ 15.9 Restructuring costs - Q1 2011 EBITDA before restructuring costs 1 15.9 Paper prices 3.7 Pulp prices (14.9) Impact of CDN$ 2.8 Volume and mix 2.3 Distribution costs (3.7) Furnish mix and costs 3.1 Power and fuel costs (3.4) Maintenance costs 7.1 Selling, general and administrative 0.9 Lower of cost or market impact on inventory, net of inventory change 8.0 Other, net 1.5 Q1 2012 EBITDA before restructuring costs 1 23.3 Restructuring costs (5.2) Q1 2012 EBITDA 1 $ 18.1 1 EBITDA and EBITDA before specific items are non-gaap measures. 12
Free Cash Flow 2011 2012 ($millions) Q1 Q2 Q3 Q4 Total Q1 LTM EBITDA before restructuring costs $ 15.9 $ (3.9) $ 26.8 $ 8.7 $ 47.5 $ 23.3 $ 54.9 Restructuring costs (5.9) (5.9) (5.2) (11.1) EBITDA 15.9 (3.9) 26.8 2.8 41.6 18.1 (43.8) Interest expense, excluding amortization (17.6) (17.6) (19.0) (18.4) (72.6) (3.3) (58.3) Capital expenditures (2.3) (5.6) (5.6) (6.2) (19.7) (1.9) (19.3) Reorganization costs (13.5) (13.5) Income taxes received (paid) (0.3) (0.1) 0.5 (0.2) (0.1) 0.2 Employee future benefits, net of funding (1.2) (1.1) (1.3) (4.4) (8.0) (2.9) (9.7) Free cash flow $ (5.5) $ (28.3) $ 1.4 $ (26.4) $ (58.8) $ (3.5) $ (56.8) 13
Q1 2012 Liquidity 2011 2012 Q1 Q2 Q3 Q4 Q1 ($millions) Prior ABL Amended ABL Amended ABL Amended ABL DIP Facility Borrowing base $ 174.1 2 $ 134.3 2 $ 167.3 2 $ 151.8 2 $ 142.1 1 Letters of credit (25.5) (28.1) (27.7) (32.2) (17.8) Net amount drawn (31.5) (48.0) (77.8) Minimum excess availability (35.0) Available to be drawn 3 $ 113.6 $ 106.2 $ 108.1 $ 71.6 $ 46.5 Cash on hand 53.8 30.2 17.8 25.1 19.3 Restricted cash 4 2.1 Total liquidity $ 167.4 $ 136.4 $ 125.9 $ 96.7 $ 67.9 1 Borrowing base for the DIP Facility includes reserves of $3.2 million for pension, $3.6 million for employees, $2.0 million for landlord waivers, $1.5 million for insured receivables dilution, $2.0 million for credit insurance deductibles, and $1.5 million for CCAA charges in priority to DIP charge 2 Borrowing base for the ABL Facility included a reserve of $0.4 million at December 31, 2011 for unpaid property taxes and associated penalties (Q3 2011 - $0.4 million, Q2 2011 - $4.5 million, Q1 2011 - $4.4 million). 3 The DIP Facility and ABL Facility in place prior to the CCAA proceedings are subject to certain financial covenants as disclosed in our interim consolidated financial statements for the three months ended March 31, 2012 in note 14, Long-term debt. 4 Restricted cash consists of $1.6 million frozen funds that will be netted against the amount withdrawn on the DIP Facility and $0.5 million in frozen proceeds on the sale of certain assets at our discontinued paper recycling operation. 14
Liabilities Subject to Compromise (in $ millions) Liabilities subject to compromise consist of the following: 2014 Notes (principal outstanding) 251.6 2016 Notes (principal outstanding) 407.2 Accrued interest (2014 Notes) 10.8 Accrued interest (2016 Notes) 36.3 Employee future benefits * 300.4 Other compromised claims (AP and accrued liabilities) 46.2 Repudiated contracts (PRD) 15.8 1,068.3 FASB ASC 852 requires that pre-petition liabilities of Catalyst Paper Corporation and its subsidiaries that are potentially compromised by the creditor protection proceedings be reclassified in the balance sheet to Liabilities subject to compromise. The future impact of the creditor protection proceedings on the company s liabilities and obligations are not currently determinable. Therefore, reclassification of an obligation to Liabilities subject to compromise should not be interpreted to mean that the obligation will be compromised. The classification of liabilities as subject to compromise versus non-subject to compromise is based on currently available information and may significantly change in the future. 15
Capitalization ($millions, except where otherwise stated) 2011 2012 Total debt Dec 31 March 31 Proforma 11.0% senior secured notes, due November 1, 2017 (1) $ $ $ 250 7.375% senior notes, due March 2014 (2) 256 252 11.0% senior secured notes, due December 2016 (3) 285 280 11.0% Class B senior secured notes, due December 2016 (4) 99 97 Modification difference in carrying value of 8.625% and 11.0% senior secured notes on exchange (5) 31 30 Revolving asset based loan 48 Debtor-in-possession loan facility 78 78 Capital lease obligation 9 9 9 Other non-recourse (PREI) 114 114 114 Total 842 860 451 Shareholders equity attributable to the Company (594) (616) Total capitalization attributable to the Company $ 248 $ 244 Cash $ 25 $ 19 Net debt ratio (6) 366% 375% (1) (2) (3) (4) (5) (6) US$250 million; assumes CAD USD parity on exit date from CCAA proceedings US$250 million US$280 million US$110 million US$38 million Net debt ratio equals net debt (i.e., total debt less cash), divided by net capitalization (i.e., shareholders equity attributable to the Company and total debt less cash) 16
EBITDA Sensitivities ($millions) EBITDA (1), (2) Impact of US$10/t change in price of Specialty printing papers $ 8 Newsprint 5 Pulp 4 $ 17 Impact of $0.01 change in US$ (3) 7 (1), (4) Impact of 5% change in price of Natural gas and oil direct purchases 1 Electricity direct purchases 6 Coal 1 Impact of US$5/bbl change in price of West Texas Int. (WTI) Oil on freight costs 3 (1), (4) Impact of US$5/unit change Wood chips (Bdt) 9 ONP (ST) 2 (1) Based on a foreign exchange rate of US$1.00 (2) Based on annualized sales of Q1 2012 (3) Based on Q1 2012 annualized net cash flows and a foreign exchange movement to US$1.01 from US$1.00 and excluding our hedging program and the impact of the translation of U.S. dollar denominated debt (4) Based on annualized Q1 2012 consumption levels 17
Appendix
Summary of Segmented Financial Information 2011 2012 ($millions, except where otherwise stated) Q1 Q2 Q3 Q4 Total Q1 LTM Sales (000 MT) Specialty printing papers 206.7 202.8 229.8 239.3 878.6 203.8 875.7 Newsprint 116.4 111.8 117.8 105.7 451.7 130.2 465.5 Pulp 76.3 78.4 92.2 61.6 308.5 93.1 325.3 399.4 393.0 439.8 406.6 1,638.8 427.1 1,666.5 Sales Specialty printing papers $ 167.1 $ 160.9 $ 187.9 $ 202.8 $ 718.7 $ 169.9 $ 721.5 Newsprint 75.4 71.5 77.0 70.9 294.8 85.5 304.9 Pulp 61.1 65.4 75.4 46.1 248.0 60.4 247.3 $ 303.6 $ 297.8 $ 340.3 $ 319.8 $ 1,261.5 $ 315.8 $ 1,273.7 EBITDA Specialty printing papers $ 11.3 $ (10.6) $ 12.6 $ 10.8 $ 24.1 $ 11.3 $ 24.1 Newsprint (0.6) (7.6) (1.4) (2.6) (12.2) 2.9 (8.7) Pulp 5.2 14.3 15.6 (5.4) 29.7 3.9 28.4 $ 15.9 $ (3.9) $ 26.8 $ 2.8 $ 41.6 $ 18.1 $ 43.8 EBITDA before restructuring costs Specialty printing papers $ 11.3 $ (10.6) $ 12.6 $ 14.3 $ 27.6 $ 13.7 $ 30.0 Newsprint (0.6) (7.6) (1.4) (1.1) (10.7) 4.4 (5.7) Pulp 5.2 14.3 15.6 (4.5) 30.6 5.2 30.6 $ 15.9 $ (3.9) $ 26.8 $ 8.7 $ 47.5 $ 23.3 $ 54.9 Operating earnings (loss) Specialty printing papers $ (7.2) $ (29.3) $ (26.7) $ (522.5) $ (585.7) $ 5.1 $ (573.4) Newsprint (5.3) (11.9) (136.4) (86.3) (239.9) 1.7 (232.9) Pulp 1.6 10.6 11.5 (92.5) (68.8) 3.4 (67.0) $ (10.9) $ (30.6) $ (151.6) $ (701.3) $ (894.4) $ 10.2 $ (873.3) 19
Impact of Specific Items on Net Earnings (Loss) Attributable to the Company 2011 2012 ($millions, except per share amounts) Q1 Q2 Q3 Q4 Total Q1 LTM Net earnings (loss) attributable to the Company as reported $ (12.9) $ (47.4) $ (205.7) $ (708.0) $ (974.0) $ (25.6) $ (986.7) Specific items, after taxes: Foreign exchange loss (gain) on long-term debt (10.7) (4.5) 41.0 (14.0) 11.8 (11.6) 10.9 Loss on Snowflake fire 4.1 0.3 4.4 4.4 Loss on Powell River fire 1.2 0.8 2.0 2.0 Impairment (recovery) and other closure costs (0.3) 150.6 673.3 823.6 823.6 Restructuring costs 5.9 5.9 5.2 11.1 Reorganization items, net 22.4 22.4 Net earnings (loss) attributable to the Company before specific items $ (23.6) $ (46.9) $ (14.1) $ (41.7) $ (126.3) $ (9.6) $ (112.3) Net earnings (loss) per share attributable to the Company s common shareholders before specific items $ (0.06) $ (0.12) $ (0.04) $ (0.11) $ (0.33) $ (0.03) $ (0.29) 20
Paper Market Share by Segment- 2011 and Q1 2012 Catalyst Paper vs. PPPC - December 2011 Sales Volume, Share and Capacity Total News Specialties Total Share CTL Shipments December YTD 2011 (Volume) 451,705 878,584 1,330,289 CTL Shipments December YTD 2010 (Volume) 491,332 867,022 1,358,354 CTL December YTD 2011 vs. December YTD 2010 (%) - 8% 1% -2% PPPC NA Shipments December YTD 2011 (Volume) 7,343,246 7,999,878 15,343,124 PPPC NA Shipments December YTD 2010 (Volume) 7,841,200 8,779,322 16,620,522 PPPC NA Shipments December 2011 vs. December 2010 % - 6% - 9% -8% December CTL YTD Share 2011 % 6.2% 11.0% 8.7% December CTL YTD Share 2010 % 6.3% 9.9% 8.2% Catalyst Paper vs. PPPC - March 2012 Sales Volume, Share and Capacity Total News Specialties Total Share CTL Shipments March YTD 2012 (Volume) 130,236 203,791 334,027 CTL Shipments March YTD 2011 (Volume) 116,416 206,658 323,074 CTL March YTD 2012 vs. March YTD 2011 (%) 12% - 1% 3% PPPC NA Shipments March YTD 2012 (Volume) 1,686,085 1,752,357 3,438,442 PPPC NA Shipments March YTD 2011 (Volume) 1,831,800 2,030,823 3,862,623 PPPC NA Shipments March 2012 vs. March 2011 % - 8% - 14% - 11% March CTL YTD Share 2012 % 7.7% 11.6% 9.7% March CTL YTD Share 2011 % 6.4% 10.2% 8.4% 21