Canfor Pulp Products Inc. Announces Fourth Quarter 2012 Results and Quarterly Dividend

Canfor Pulp Products Inc. Announces Fourth Quarter 2012 Results and Quarterly 
Dividend 
VANCOUVER, BRITISH COLUMBIA -- (Marketwire) -- 02/14/13 -- Canfor
Pulp Products Inc. ("CPPI") (TSX:CFX) today reported net income of
$4.7 million, or $0.07 per share, for the fourth quarter of 2012,
compared to a net loss of $4.6 million, or $0.06 per share, for the
third quarter of 2012 and net income of $15.8 million, or $0.22 per
share, for the fourth quarter of 2011. For the year ended December
31, 2012, the Company's net income was $13.7 million, or $0.14 per
share, compared to $138.6 million, or $1.94 per share, for 2011. 
The Company reported operating income of $10.9 million for the fourth
quarter of 2012, an increase of $19.1 million from an operating loss
of $8.2 million reported for the third quarter of 2012, principally
as a result of improved pulp segment earnings related to higher
shipments and lower unit manufacturing costs, and to a lesser extent
the impact of one-time items.  
The following table summarizes selected financial information for the
Company for the comparative periods: 


 
                                  Q4       Q3        YTD        Q4       YTD
(millions of dollars,                                                       
 except for per share                                                       
 amounts)                       2012     2012       2012      2011      2011
----------------------------------------------------------------------------
Sales                       $  201.9  $ 177.7   $  810.4  $  212.7  $  941.0
Operating income (loss)     $   10.9  $  (8.2)  $   24.6  $   16.5  $  153.4
Net income (loss)           $    4.7  $  (4.6)  $   13.7  $   15.8  $  138.6
Net income (loss) per                                                       
 share, basic and diluted   $   0.07  $ (0.06)  $   0.14  $   0.22  $   1.94
----------------------------------------------------------------------------
----------------------------------------------------------------------------

 
Results in the fourth quarter of 2012 benefited from improved
operating rates with total pulp and paper production up over 43,000
tonnes, or 17%, following the extended scheduled outage and
subsequent ramp ups experienced in the challenging third quarter. The
higher produ
ction levels enabled the Company to increase shipment
volumes and rebuild inventory levels. Unit manufacturing costs
improved 12% from the previous quarter, for the most part reflecting
the impact of higher production volumes as well as lower fibre costs.
Operating income for the current quarter included an accounting gain
of $4.0 million reflecting amendments to the Company's salaried post
retirement benefit plans, while the comparative quarter included
one-time costs of $3.2 million associated with new five year
collective labour agreements. 
Global softwood pulp markets improved slightly through the fourth
quarter of 2012 with increased softwood pulp purchases from China
helping to offset weaker shipments to North America and Europe.
Global softwood pulp demand was up 7% from the previous quarter,
mostly reflecting increased purchases from China, with global
softwood pulp producer inventory levels up 2 days, to 29 days supply,
compared to the end of the third quarter.  
Northern Bleached Softwood Kraft ("NBSK") pulp list prices showed a
modest improvement in the fourth quarter with all regions seeing
increases in the US$10 to US$30 per tonne range. Compared to the
previous quarter, the average list price for North America was up
US$10 to US$863 per tonne. The Company's average list price to China
and price to Europe were up US$30 and US$23, respectively. Overall,
however, pulp sales realizations moved up only marginally in the
fourth quarter of 2012 as a result of increased volumes to
lower-margin regions, principally China.  
The Company's paper segment results were also improved in the current
quarter, reflecting reduced unit manufacturing costs and higher
shipment levels, which were partially offset by lower sales
realizations.  
During the fourth quarter of 2012, the Company obtained a new $110
million operating loan facility replacing its previous $40 million
operating loan facility. The Company's operating loans were undrawn
at December 31, 2012, with $108 million available and the balance
reserved for standby letters of credit. 
Commenting on the fourth quarter's results, CPPI's CEO, Don Kayne,
said, "After the challenges experienced in the last quarter, it was
encouraging to see solid improvements in productivity, as well as
some improvement in market conditions this quarter."  
NBSK pulp prices are projected to show a modest improvement through
the first half of 2013, but the outlook for the balance of the year
is more uncertain given the economic challenges in Europe and new
hardwood and softwood pulp capacity currently projected to come
online the second half of 2013. For the month of January, the Company
announced an increase in the North American NBSK pulp list price of
US$30 per tonne. There are no maintenance outages scheduled in the
first quarter of 2013.  
On December 6, 2012, the Company entered into an agreement with BC
Hydro under the Integrated Power Offer program to upgrade the
turbines at its Northwood Pulp Mill. The project is targeted for
completion in the fourth quarter of 2013. 
On February 13, 2013, the Board of Directors reinstated the Company's
dividend, declaring a quarterly dividend of $0.05 per share, payable
on March 5, 2013 to shareholders of record on February 26, 2013. In
addition, reflecting the Company's current corporate structure and
its latest outlook for 2013, the Board projects that it will declare
further quarterly dividends of $0.05 per share through the balance of
2013, but will review the issuance of dividends on a quarterly basis. 
Additional Information and Conference Call  
A conference call to discuss the fourth quarter's financial and
operating results will be held on Friday, February 15, 2013 at 7:30
AM Pacific time. To participate in the call, please dial 416-340-2216
or Toll-Free 866-226-1792. For instant replay access until March 1,
2013, please dial 800-408-3053 and enter participant pass code
7426712#. The conference call will be webcast live and will be
available at www.canforpulp.com. This news release, the attached
financial statements and a presentation used during the conference
call can be accessed via the Company's website at
http://www.canforpulp.com/investors/webcasts.  
Forward-Looking Statements 
Certain statements in this press release constitute "forward-looking
statements" which involve known and unknown risks, uncertainties and
other factors that may cause actual results to be materially
different from any future results, performance or achievements
expressed or implied by such statements. Words such as "expects",
"anticipates", "projects", "intends", "plans", "will", "believes",
"seeks", "estimates", "should", "may", "could", and variations of
such words and similar expressions are intended to identify such
forward-looking statements. These statements are based on
management's current expectations and beliefs and actual events or
results may differ materially. There are many factors that could
cause such actual events or results expressed or implied by such
forward-looking statements to differ materially from any future
results expressed or implied by such statements. Forward-looking
statements are based on current expectations and the Company assumes
no obligation to update such information to re
flect later events or
developments, except as required by law.  
CPPI is a leading global supplier of pulp and paper products with
operations based in the central interior of British Columbia. The
Company owns and operates three mills with annual capacity to produce
over one million tonnes of northern softwood market kraft pulp, 90%
of which is bleached to become NBSK pulp for sale to the market, and
approximately 140,000 tonnes of kraft paper. CPPI shares are traded
on the Toronto Stock Exchange under the symbol CFX. 
Canfor Pulp Products Inc. 
Fourth Quarter 2012 
Management's Discussion and Analysis 
This interim Management's Discussion and Analysis ("MD&A") provides a
review of Canfor Pulp Products Inc.'s ("CPPI" or "the Company")
financial performance for the quarter ended December 31, 2012
relative to the quarters ended September 30, 2012 and December 31,
2011, and the financial position of the Company at December 31, 2012.
It should be read in conjunction with CPPI's unaudited interim
consolidated financial statements and accompanying notes for the
quarters ended December 31, 2012 and 2011, as well as the 2011 annual
MD&A and the 2011 audited consolidated financial statements and notes
thereto, which are included in CPPI's Annual Report for the year
ended December 31, 2011 (available at www.canforpulp.com). The
financial information in this interim MD&A has been prepared in
accordance with International Financial Reporting Standards ("IFRS"),
which is the required reporting framework for Canadian publicly
accountable enterprises. 
Throughout this discussion, reference is made to operating income
before amortization which CPPI considers to be a relevant indicator
for measuring trends in the Company's performance and its ability to
generate funds to meet its debt service and capital expenditure
requirements, and to pay dividends. Operating income before
amortization is not a generally accepted earnings measure and should
not be considered as an alternative to net income or cash flows as
determined in accordance with IFRS. As there is no standardized
method of calculating this measure, CPPI's operating income before
amortization may not be directly comparable with similarly titled
measures used by other companies. A reconciliation of operating
income before amortization to operating income (loss) reported in
accordance with IFRS is included in this MD&A. 
Factors that could impact future operations are also discussed. These
factors may be influenced by both known and unknown risks and
uncertainties that could cause the actual results to be materially
different from those stated in this discussion. Factors that could
have a material impact on any future oriented statements made herein
include, but are not limited to: general economic, market and
business conditions; product selling prices; raw material and
operating costs; currency exchange rates; interest rates; changes in
law and public policy; the outcome of labour and trade disputes; and
opportunities available to or pursued by CPPI. 
All financial references are in millions of Canadian dollars unless
otherwise noted. The information in this report is as at February 13,
2013.  
Forward Looking Statements 
Certain statements in this MD&A constitute "forward-looking
statements" which involve known and unknown risks, uncertainties and
other factors that may cause actual results to be materially
different from any future results, performance or achievements
expressed or implied by such statements. Words such as "expects",
"anticipates", "projects", "intends", "plans", "will", "believes",
"seeks", "estimates", "should", "may", "could", and variations of
such words and similar expressions are intended to identify such
forward-looking statements. These statements are based on
management's current expectations and beliefs and actual events or
results may differ materially. There are many factors that could
cause such actual events or results expressed or implied by such
forward-looking statements to differ materially from any future
results expressed or implied by such statements. Forward-looking
statements are based on current expectations and the Company assumes
no obligation to update such information to reflect later events or
developments, except as required by law. 
CPPI SHARE EXCHANGE  
On March 2, 2012, Canadian Forest Products Ltd. ("Canfor") acquired
35,776,483 common shares of Canfor Pulp Products, Inc. ("CPPI") in
exchange for its 35,776,483 Class B Exchangeable LP Units of Canfor
Pulp Limited Partnership ("the Partnership") and 35,776,483 common
shares of Canfor Pulp Holding Inc. ("the General Partner"), pursuant
to the terms of an Exchange Agreement made as of January 1, 2011
among Canfor, CPPI, the General Partner and the Partnership. As a
result of the exchange, CPPI's interest in both the Partnership and
the General Partner increased from 49.8% to 100% and Canfor acquired
a 50.2% interest in CPPI. 
The discussion which follows refers to the results of the Partnership
for the comparative periods prior to the quarter ended March 31,
2012. For the quarter ended March 31, 2012, and all subsequent
quarters, the results of CPPI include the results of the Partnership. 
FOURTH QUARTER 2012 OVERVIEW  
Selected Financial Information and Statistics(1) 


 
                                Q4        Q3       YTD 
       Q4        YTD 
(millions of dollars,                                                       
 except for per share                                                       
 amounts)                     2012      2012      2012      2011       2011 
----------------------------------------------------------------------------
Operating income (loss)                                                     
 by segment:                                                                
  Pulp                     $   6.8   $  (8.4)  $  19.2   $  16.7   $  157.5 
  Paper                    $   6.9   $   5.0   $  19.4   $   3.4   $    9.5 
  Unallocated              $  (2.8)  $  (4.8)  $ (14.0)  $  (3.6)  $  (13.6)
----------------------------------------------------------------------------
Total operating income                                                      
 (loss)                    $  10.9   $  (8.2)  $  24.6   $  16.5   $  153.4 
Add: Amortization          $  20.0   $  15.2   $  67.1   $  21.4   $   66.8 
----------------------------------------------------------------------------
Total operating income                                                      
 before amortization       $  30.9   $   7.0   $  91.7   $  37.9   $  220.2 
Add (deduct):                                                               
  Working capital                                                           
   movements         
      $   2.4   $  (5.2)  $  12.2   $   1.2   $  (13.1)
  Salary pension plan                                                       
   contributions           $  (1.8)  $  (1.9)  $  (7.6)  $  (1.8)  $   (7.9)
  Other operating cash                                                      
   flows, net              $  (5.7)  $   1.5   $  (8.4)  $  (3.2)  $   (0.2)
----------------------------------------------------------------------------
Cash from operating                                                         
 activities                $  25.8   $   1.4   $  87.9   $  34.1   $  199.0 
Add (deduct):                                                               
  Distributions /                                                           
   dividends paid          $     -   $  (3.6)  $ (19.2)  $ (22.8)  $ (181.0)
  Finance expenses                                                          
   paid(1)                 $  (4.1)  $  (0.2)  $  (8.1)  $  (3.8)  $   (7.8)
  Capital additions,                                                        
   net(2)                  $ (11.5)  $ (19.9)  $ (66.8)  $ (41.6)  $  (77.0)
  Acquisition of CPPI                                                       
   cash on exchange        $     -   $     -   $   6.8   $     -   $      - 
  Other, net               $     -   $     -   $   0.2   $   0.1   $    0.6 
----------------------------------------------------------------------------
Change in cash /                                                            
 operating loans           $  10.2   $ (22.3)  $   0.8   $ (34.0)  $  (66.2)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Average exchange rate                                                       
 (US$ per C$1.00)(3)       $ 1.009   $ 1.005   $ 1.001   $ 0.977   $  1.011 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Certain prior period amounts have been restated due to a change in      
accounting policy for treatment of net interest expense for defined benefit 
post-retirement plans. Further details can be found in the Company's        
unaudited interim consolidated financial statements.                        
(2) Additions to property, plant and equipment are shown net of amounts     
received under Government funding initiatives.                              
(3) Source - Bank of Canada (average noon rate for the period).             

 
The Company reported operating income of $10.9 million for the fourth
quarter of 2012, an increase of $19.1 million from an operating loss
of $8.2 million reported for the third quarter of 2012, principally
as a result of improved pulp segment earnings r
elated to higher
shipments and lower unit manufacturing costs, and to a lesser extent
the impact of one-time items. 
Results in the fourth quarter of 2012 benefited from improved
operating rates with total pulp and paper production up over 43,000
tonnes, or 17%, following the extended scheduled outage and
subsequent ramp ups experienced in the challenging third quarter. The
higher production levels enabled the Company to increase shipment
volumes and rebuild inventory levels. Unit manufacturing costs
improved 12% from the previous quarter, for the most part reflecting
the impact of higher production volumes as well as lower fibre costs.
Operating income for the current quarter included an accounting gain
of $4.0 million reflecting amendments to the Company's salaried post
retirement benefit plans, while the comparative quarter included
one-time costs of $3.2 million associated with new five year
collective labour agreements.  
Global softwood pulp markets improved slightly through the fourth
quarter of 2012 with increased softwood pulp purchases from China
offset by weaker shipment volumes to North America and Europe. Global
softwood pulp demand was up 7% from the previous quarter, mostly
reflecting increased purchases from China, with global softwood pulp
producer inventory levels up 2 days, to 29 days supply, compared to
the end of the third quarter.  
Northern Bleached Softwood Kraft ("NBSK") pulp list prices showed a
modest improvement in the fourth quarter with all regions seeing
increases in the US$10 to US$30 per tonne range. Compared to the
previous quarter, the average list price for North America was up
US$10 to US$863 per tonne. The Company's average list price to China
and price to Europe were up US$30 and US$23, respectively. Overall,
however, pulp sales realizations moved up only marginally in the
fourth quarter of 2012 as a result of increased volumes to
lower-margin regions, principally China.   
The Company's paper segment results were also improved in the current
quarter, reflecting reduced unit manufacturing costs and higher
shipment levels, which were partially offset by lower sales
realizations.  
Compared to the fourth quarter of 2011, operating income was down
$5.6 million, principally reflecting lower pulp segment results.
Lower pulp earnings reflected lower market pulp prices and a 3%
stronger Canadian dollar, partially offset by higher shipment volumes
and lower unit manufacturing costs. Mitigating the weaker results in
the pulp segment were improved earnings from the paper segment. 
OPERATING RESULTS BY BUSINESS SEGMENT  
Pulp 
Selected Financial Information and Statistics - Pulp 


 
                                  Q4       Q3        YTD        Q4       YTD
(millions of dollars                                                        
 unless otherwise noted)        2012     2012       2012      2011      2011
----------------------------------------------------------------------------
Sales                       $  168.2  $ 144.8   $  675.0  $  179.1  $  802.9
Operating income before                                                     
 amortization               $   25.8  $   5.9   $   82.4  $   37.1  $  220.5
Operating income (loss)     $    6.8  $  (8.4)  $   19.2  $   16.7  $  157.5
----------------------------------------------------------------------------
Average pulp price                                                          
 delivered to U.S. -                                                        
 US$(4)                     $    863  $   853   $    872  $    920  $    977
Average price in Cdn$       $    855  $   849   $    871  $    942  $    966
----------------------------------------------------------------------------
Production - pulp (000 mt)     260.5    220.6      955.7     245.7     996.7
Shipments - pulp (000 mt)      246.6    214.4      961.8     231.0     978.5
Marketed on behalf of                                                       
 Canfor                         51.2     54.5      214.8      44.3     210.1
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--
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(4) Per tonne, NBSK pulp list price delivered to U.S. (Resource Information 
Systems, Inc.).                                                             

 
Overview 
Operating income for the pulp segment was $6.8 million for the fourth
quarter of 2012, an improvement of $15.2 million from an operating
loss of $8.4 million for the previous quarter, but down $9.9 million
from the fourth quarter of 2011. Results in the current quarter were
impacted by lower unit manufacturing costs and higher shipment
volumes, both reflecting improved operations in the quarter. Market
pulp production increased approximately 40,000 tonnes in the quarter
due to increased operating days and higher overall operating rates
following the extended scheduled outage and subsequent ramp ups
experienced in the third quarter. Included in both quarters' results
were certain one-time costs: the current quarter results included
$3.3 million of an accounting gain related to post retirement plan
adjustments, while the third quarter of 2012 included one-time costs
of $3.2 million associated with new five year collective labour
agreements. For the 2012 year as a whole, the operating income was
$19.2 million, down $138.3 million from $157.5 million in 2011.  
NBSK pulp list prices showed a small improvement in all regions in
the fourth quarter of 2012, with prices to North America up US$10 to
US$863 per tonne, but this was largely offset by a lower-value
regional sales mix.  
Lower operating earnings compared to the fourth quarter of 2011
reflected lower global market pulp prices, as NBSK pulp list prices
were down in all regions, with prices to North America declining
US$57, or 6%, per tonne and similar decreases seen for Europe and
China. Sales realizations were also negatively impacted by a 3%
stronger Canadian dollar compared to the fourth quarter of 2011.
Higher shipment volumes and a 7% reduction in unit manufacturing
costs, reflecting lower fibre costs and the impact of higher
production volumes, helped to mitigate the impact of reduced sales
realizations. Other contributing factors included the aforementioned
post retirement benefit accounting gain in the current quarter. 
Markets 
Global softwood pulp demand increased 7% compared to the third
quarter of 2012 and was up 3% for the full year 2012 compared to
2011(5). The increase in softwood shipments was primarily due to
increased purchasing from China, partially offset by reductions in
shipments to North America and Europe, particularly the latter
region. At the end of December 2012, World 20(6) softwood pulp
producer inventories increased 2 days from the end of the third
quarter, to 29 days of supply, but were down 7 days compared to
December 2011 inventories. Global demand for printing and writing
papers decreased 2% in 2012 as compared to 2011(5). 
Sales 
The Company's pulp shipments in the fourth quarter of 2012 were
247,000 tonnes, an increase of approximately 32,000 tonnes, or 15%,
from the previous quarter. Compared to the fourth quarter of 2011,
shipments were up 16,000 tonnes, or 7%. For the most part, the
increased shipments relative to both comparative periods reflected
higher production volumes coupled with higher levels of purchases by
Chinese consumers.  
Global softwood pulp pricing saw a small increase through the current
quarter. The North America NBSK pulp list price averaged US$863 per
tonne for the quarter, up US$10, or 1%, from the third quarter of
2012, while CPPI's average list price to China and price to Europe
were up US$30 and US$23, respectively, over the same period. Overall,
however, pulp sales realizations moved up only marginally in the
fourth quarter mostly as a result of increased volumes to
lower-margin regions, principally China.  
Compared to the fourth quarter of 2011, pulp sales realizations
decreased 12% reflecting lower NBSK pulp list pricing in all regions
and the 3% strengthening of the Canadian dollar. The North America
NBSK pulp list price decreased US$57 per tonne, or 6%. NBSK pulp list
prices to China and Europe also decreased compared to the same period
in 2011, with the average price down US$51 and US$65, respectively.
Also contributing to the lower sales realizations in the current
quarter were a higher proportion of shipments to China. 
Operations 
Pulp production in the fourth quarter of 2012 was 261,000 tonnes, up
approximately 40,000 tonnes, or 18%, from the previous quarter and up
almost 15,000 tonnes, or 6%, compared to the fourth quarter of 2011.
The increase in production compared to the third quarter of 2012
reflected a reduction in schedul
ed outages and improved operating
rates following the extended scheduled outage at the Company's Prince
George Pulp Mill in the previous quarter along with improved
operating rates at other facilities.  
Pulp unit manufacturing costs decreased 8% from the previous quarter
of 2012, with higher production volumes coupled with lower fibre
costs, in part due to lower-cost sawmill residual chips, and chemical
costs, partially offset by higher maintenance expense and a seasonal
increase in energy costs. The previous quarter's costs also included
one-time costs associated with the new five year collective labour
agreements.  
Compared to the fourth quarter of 2011, unit manufacturing costs
decreased 7%, principally reflecting the favourable impact of higher
production volumes, reduced chemical usage and lower fibre costs,
partially offset by timing of maintenance spending. Lower fibre costs
in the current quarter reflected lower-cost sawmill residual chips,
where prices are linked to NBSK pulp sales realizations, as well as a
reduction in higher-cost whole log chips.  
(5) As reported by Pulp and Paper Products Council ("PPPC")
statistics. 
(6) World 20 data is based on twenty producing countries representing
80% of world chemical market pulp capacity and is based on
information compiled and prepared by the PPPC. 
Paper  
Selected Financial Information and Statistics - Paper 


 
                                  Q4        Q3       YTD        Q4       YTD
(millions of dollars unless                                                 
 otherwise noted)               2012      2012      2012      2011      2011
----------------------------------------------------------------------------
Sales                        $  33.7  $   32.8  $  134.6  $   33.5  $  136.6
Operating income before                                                     
 amortization                $   7.9  $    5.9  $   23.2  $    4.4  $   13.1
Operating income             $   6.9  $    5.0  $   19.4  $    3.4  $    9.5
----------------------------------------------------------------------------
Production - paper (000 mt)     35.4      31.9     130.2      33.5     136.5
Shipments - paper (000 mt)      32.0      30.6     129.0      30.2     127.6
----------------------------------------------------------------------------
----------------------------------------------------------------------------

 
Overview 
Operating income for the paper segment was $6.9 million for the
fourth quarter of 2012, an increase of $1.9 million from the previous
quarter and up $3.5 million from the fourth quarter of 2011. For the
2012 year, operating income was $19.4 million, an improvement of $9.9
million compared to 2011.  
Compared to the third quarter of 2012, higher production volumes
resulted in lower unit manufacturing costs and increased shipments.
Unit sales realizations for paper products were down 2%, primarily
related to a lower percentage of prime bleached sales in the current
quarter. 
Compared to the fourth quarter of 2011, the improved results were
primarily the result of lower prices for slush pulp, reflecting lower
market pulp prices, which more than offset lower paper unit sales
realizations. 
Markets  
Global kraft paper demand was steady through the fourth quarter.
However, demand slowed in December as a number of sack kraft paper
producers in North America and Europe scheduled downtime over the
holiday period as customers balanced inventories at the end of the
year. 
Sales 
The Company's paper shipments in the fourth quarter of 2012 were
32,000 tonnes, an increase of almost 1,500 tonnes from the previous
quarter and 2,000 tonnes higher than the fourth quarter of 2011,
principally reflecting the higher production levels. Prime bleached
shipments, which attract higher prices, averaged 75% of total prime
shipments during the quarter compared to 85% in the previous quarter,
but were relatively unchanged from the fourth quarter of 2011.  
Unit sales realizations for paper products were down 2% from the
third quarter of 2012 and down 5% from the same period in the prior
year. The more significant decrease compared to the fourth quarter of
2011 related primarily to lower bleached paper prices into export
markets, principally Europe and China, and the 3% strengthening of
the Canadian dollar.  
Operations 
Paper production in the fourth quarter of 2012 was 35,400 tonnes, up
3,500 tonnes from the previous quarter and up almost 2,000 tonnes
compared to the same period in 2011. The increased production
primarily reflected higher operating rates in the current period. 
Paper unit manufacturing costs were 7% lower than the prior quarter
as a result of lower costs for slush pulp and the impact of higher
production volumes. 
Compared to the fourth quarter of 2011, unit manufacturing costs were
significantly lower, principally reflecting lower costs for slush
pulp. 
Unallocated Items  


 
                                 Q4        Q3       YTD        Q4       YTD 
(millions of dollars)          2012      2012      2012      2011      2011 
----------------------------------------------------------------------------
Corporate costs             $  (2.8)  $  (4.8)  $ (14.0)  $  (3.6)  $ (13.6)
Finance expense, net        $  (3.4)  $  (2.8)  $ (11.8)  $  (2.8)  $ (10.9)
Foreign exchange gain                                                       
 (loss) on long-term debt   $  (1.3)  $   3.9   $   2.4   $   2.4   $  (2.5)
Gain (loss) on derivative                                                   
 financial instruments      $  (0.1)  $   1.9   $   1.7   $   1.5   $  (1.6)
Foreign exchange gain                                                       
 (loss) on working capital  $   0.3   $  (1.5)  $  (1.2)  $  (1.3)  $   1.0 
----------------------------------------------------------------------------
----------------------------------------------------------------------------

 
Corporate costs were $2.8 million for the fourth quarter of 2012,
down $2.0 million
 from the previous quarter and down $0.8 million
from the fourth quarter of 2011. The reduction in the current quarter
primarily reflected the costs in the previous quarter related to
changes in senior management as a result of the integration of CPPI
and Canfor Corporation. A portion of the decrease from both
comparative periods also reflected part of the aforementioned gain
due to amendments to the Company's salaried post retirement benefit
plans.  
Net finance expense for the fourth quarter of 2012 was $3.4 million,
a $0.6 million increase compared to both the previous quarter and the
fourth quarter of 2011, primarily reflecting costs associated with a
new operating loan facility entered into in the fourth quarter of
2012. The finance expense for each period principally represents
interest expense on long-term debt and stand-by fees for the
Company's operating loans, as well as the finance expense relating to
the Company's defined benefit post-retirement benefit plans. 
The Company recorded a foreign exchange translation loss on its US
dollar denominated debt of $1.3 million for the fourth quarter of
2012, as a result of the weakening of the Canadian dollar against the
US dollar, which fell by just over 1% between the respective quarter
ends. In the comparative periods, a strengthening of the Canadian
dollar resulted in translation gains of $3.9 million and $2.4
million, respectively. 
The Company uses a variety of derivative financial instruments as
partial economic hedges against unfavourable changes in foreign
exchange rates, energy costs and interest rates. For the fourth
quarter of 2012, the Company recorded a net loss of $0.1 million
related to its derivative financial instruments, reflecting losses on
US dollar forward contracts related to the weakening of the Canadian
dollar offset in part by gains on crude oil collars.  
The following table summarizes the gains (losses) on derivative
financial instruments for the comparable periods:  


 
                                 Q4         Q3       YTD        Q4      YTD 
(millions of dollars)          2012       2012      2012      2011     2011 
----------------------------------------------------------------------------
Foreign exchange collars                                                    
 and forward contracts      $  (0.2)  $    1.8  $    1.7  $    1.4  $  (1.6)
Crude oil collars           $   0.1   $    0.1  $      -  $    0.1  $   0.1 
Natural gas swaps           $     -   $      -  $      -  $      -  $  (0.1)
----------------------------------------------------------------------------
                            $  (0.1)  $    1.9  $    1.7  $    1.5  $  (1.6)
----------------------------------------------------------------------------

 
Other Comprehensive Income (Loss)  
In the fourth quarter of 2012, the Company recorded an after-tax
charge to the statements of other comprehensive income (loss) of $1.7
million in relation to changes in the valuation of its defined
benefit post-employment compensation plans. The charge reflects a
reduction in the discount rate used to value the plans offset in part
by a slightly higher than expected rate of return on plan assets for
the period. In the previous quarter a charge of $4.7 million was
recorded, reflecting a reduction in discount rates offset slightly by
a higher than expected rate of return on plan assets for the period.
An after-tax loss of $5.0 million was recorded in the fourth quarter
of 2011. 
SUMMARY OF FINANCIAL POSITION  
The following table summarizes CPPI's cash flow and selected ratios
for and as at the end of the following periods:  


 
                                Q4        Q3       YTD        Q4        YTD 
(millions of dollars,                                                       
 except for ratios)           2012      2012      2012      2011       2011 
----------------------------------------------------------------------------
Increase (decrease) in                                                      
 cash and cash                                                              
 equivalents               $   3.2   $ (15.3)  $   0.8   $ (34.0)  $  (66.2)
  Operating activities     $  25.8   $   1.4   $  87.9   $  34.1   $  199.0 
  Financing activities     $ (11.1)  $   3.2   $ (27.3)  $ (26.6)  $ (188.8)
  Investing activities     $ (11.5)  $ (19.9)  $ (59.8)  $ (41.5)  $  (76.4)
Ratio of current assets                                                     
 to current liabilities                         1.1: 1              2.0 : 1 
Net debt to                                                                 
 capitalization                                   22.3%                20.9%
----------------------------------------------------------------------------
----------------------------------------------------------------------------

 
Changes in Financial Position 
Cash generated from operating activities was $25.8 million in the
fourth quarter of 2012, up from $1.4 million generated in the third
quarter. The increase resulted largely from higher operating
earnings. Also contributing to the increase was higher cash generated
from working capital movements, principally related to property
insurance and taxes paid in the previous quarter, offset in part by
higher accounts receivable in part reflecting the improved pricing in
the fourth quarter. Compared to the fourth quarter of 2011, cash
generated from operating activities was down by $8.3 million,
principally reflecting lower operating earnings.  
Financing activities used cash of $11.1 million in the current
quarter, compared to cash generated of $3.2 million in the previous
quarter and cash used of $26.6 million in the fourth quarter of 2011.
The current quarter cash flows included repayment of the $7.0 million
drawn on the Company's operating bank loans in the previous quarter.
In the immediately preceding quarter, financing cash outflows also
included dividends of $3.6 million, representing dividends declared
and paid during the quarter. In the fourth quarter of 2011,
distributions paid to unitholders was $22.8 million. Finance payments
in the current quarter were $4.1 million, principally relating to
interest payments on the Company's debt. Finance payments in the
third quarter of 2012 were $0.2 million primarily reflecting standby
fees for the Company's operating loans, while finance payments in the
fourth quarter of 2011 were at a similar level to the current
quarter.  
Cash used in investing activities in the current quarter was
comprised of $12.8 million of capital expenditures slightly offset by
$1.3 million in cash received from the Green Transformation Program
and other government grants. Capital expenditures in the current
quarter included equipment received related to the scheduled 2013
upgrades to the Northwood Pulp Mill turbines, as well as maintenance
capital related to outages and payments related to previous period
projects.  
Liquidity and Financial Requirements  
At December 31, 2012, 
CPPI had cheques issued in excess of cash on
hand of $1.2 million. During the fourth quarter of 2012, the Company
obtained a new $110.0 million operating loan facility replacing its
previous $40.0 million operating loan facility. No amounts were drawn
on the new bank facility, except for $1.7 million reserved for
several standby letters of credit. In addition, the Company has a
separate facility with a maturity date of November 30, 2013, to cover
the $7.5 million standby letter of credit issued to BC Hydro under a
power generation agreement.  
CPPI has US$110.0 million of senior debt that is scheduled for
repayment on November 30, 2013. This debt is in the form of unsecured
US dollar private placement notes and bears interest at 6.41%.  
The Company remained in compliance with the covenants relating to its
operating loans and long-term debt during the quarter, and expects to
remain so for the foreseeable future. 
Dividends  
On February 13, 2013, the Board of Directors reinstated the Company's
dividend, declaring a quarterly dividend of $0.05 per share, payable
on March 5, 2013 to shareholders of record on February 26, 2013. In
addition, reflecting the Company's current corporate structure and
its latest outlook for 2013, the Board projects that it will declare
further quarterly dividends of $0.05 per share through the balance of
2013, but will review the issuance of dividends on a quarterly basis. 
OUTLOOK  
Pulp  
NBSK pulp prices are projected to show a modest improvement through
the first half of 2013, but the outlook for the balance of the year
is more uncertain given the economic challenges in Europe and new
hardwood and softwood pulp capacity currently projected to come
online the second half of 2013. For the month of January, the Company
announced an increase in the North American NBSK pulp list price of
US$30 per tonne to US$900 per tonne.  
There are no maintenance outages planned for the first quarter of
2013.  
Paper  
Kraft paper demand was weak at the end of 2012 but low customer
inventories coupled with an anticipated pick up in demand in early
2013 should keep markets balanced through the first half of 2013. As
a result, prices in North America and Europe are projected to remain
relatively stable in the first quarter of 2013.  
Canfor Pulp Products Inc.  
Condensed Consolidated Balance Sheets 


 
                                                      As at           As at 
                                               December 31,    December 31, 
(millions of Canadian dollars, unaudited)              2012            2011 
----------------------------------------------------------------------------
ASSETS                                                             (Note 11)
Current assets                                                              
Accounts receivable     - Trade               $        61.6   $        70.8 
                        - Green                                             
                         Transformation                                     
                         Program                          -            19.7 
                        - Other (Note 12)              22.8            20.7 
Inventories (Note 2)                                  134.1           141.6 
Prepaid expenses and other assets                       8.3             5.8 
----------------------------------------------------------------------------
Total current assets                                  226.8           258.6 
----------------------------------------------------------------------------
Property, plant and equipment                         530.8           532.0 
Other long-term assets                                  0.4             0.6 
----------------------------------------------------------------------------
Total assets                                  $       758.0   $       791.2 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
LIABILITIES                                                                 
Current liabilities                                                         
Cheques issued in excess of cash on hand               $1.2   $         2.0 
Accounts payable and accrued liabilities               93.4           117.9 
Current portion of long-term debt (Note                                     
 3(b))                                                109.4               - 
Distributions payable                                     -             7.8 
----------------------------------------------------------------------------
Total current liabilities                             204.0           127.7 
----------------------------------------------------------------------------
Long-term debt (Note 3(b))                                -           111.9 
Retirement benefit obligations                        105.1            94.8 
Other long-term provisions                              3.6             3.1 
Deferred income taxes, net (Note 6)                    59.6               - 
----------------------------------------------------------------------------
Total liabilities                             $       372.3   $       337.5 
----------------------------------------------------------------------------
                                                                            
EQUITY                                                                      
Share capital (Note 11)                       $      $525.3   $       294.9 
Retained earnings (deficit)                          (139.6)          (67.3)
Non-controlling interests in the Partnership                                
 (Note 11)                                                -           226.1 
----------------------------------------------------------------------------
Total equity                                  $       385.7   $       453.7 
----------------------------------------------------------------------------
                                                                            
Total liabilities and equity                  $       758.0   $       791.2 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
Subsequent Event (Note 13)                                                  
                                                                            
The accompanying notes are an integral part of these condensed consolidated 
financial statements.                                                       

 
APPROVED BY THE BOARD 
Director, S.E. Bracken-Horrocks 
Director, R.L. Cliff 
Canfor Pulp Products Inc.  
Condensed Consolidated Statements of Income (Loss) 


 
                                      3 months ended        12 months ended 
                                        December 31,           December 31, 
(millions of Canadian dollars,                                              
 unaudited)                         2012        2011       2012        2011 
----------------------------------------------------------------------------
                                                                            
                                                                            
Sales (Note 12)                 $  201.9   $   212.7  $   810.4   $   941.0 
                                                                            
Costs and expenses                                                          
  Manufacturing and product                                                 
   costs (Note 12)                 136.4       140.0      576.0       579.5 
  Freight and other distribution                                            
   costs                            28.8        27.8      
116.4       116.0 
  Amortization                      20.0        21.4       67.1        66.8 
  Selling and administration                                                
   costs                             5.8         7.0       24.6        25.3 
  Restructuring and severance                                               
   costs                               -           -        1.7           - 
----------------------------------------------------------------------------
                                   191.0       196.2      785.8       787.6 
----------------------------------------------------------------------------
                                                                            
Operating income                    10.9        16.5       24.6       153.4 
                                                                            
Finance expense, net                (3.4)       (2.8)     (11.8)      (10.9)
Foreign exchange gain (loss) on                                             
 long-term debt                     (1.3)        2.4        2.4        (2.5)
Gain (loss) on derivative                                                   
 financial instruments (Note 5)     (0.1)        1.5        1.7        (1.6)
Foreign exchange gain (loss) on                                             
 working capital                     0.3        (1.3)      (1.2)        1.0 
--------------------------------------------------------------------------- 
Net income before income taxes       6.4        16.3       15.7       139.4 
Income tax expense (Note 6)         (1.7)       (0.5)      (2.0)       (0.8)
----------------------------------------------------------------------------
                                                                            
Net income                      $    4.7   $    15.8  $    13.7   $   138.6 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
Net income attributable to:                                                 
Controlling interest in the                                                 
 Partnership                    $    4.7   $     8.0  $     9.4   $    69.7 
Non-controlling interest in the                                             
 Partnership (Note 11)                 -         7.8        4.3        68.9 
----------------------------------------------------------------------------
                                                                            
Net income                      $    4.7   $    15.8  $    13.7   $   138.6 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
Net income per common share: (in                                            
 dollars)                                                                   
Attributable to controlling                                                 
 interest in the Partnership                                                
                                                                            
- Basic and diluted (Note 7)    $   0.07   $    0.22  $    0.14   $    1.94 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed consolidated 
financial statements.                                                       

 
Canfor Pulp Products Inc.  
Condensed Consolidated Statements of Other Comprehensive Income
(Loss) 


 
                                       3 months ended       12 months ended 
                                         December 31,          December 31, 
(millions of Canadian dollars,                                              
 unaudited)                           2012       2011       2012       2011 
----------------------------------------------------------------------------
Net income                        $    4.7   $   15.8   $   13.7   $  138.6 
Other comprehensive income                                                  
 (loss)                                                                     
  Defined benefit plan actuarial                                            
   losses (Note 4)                    (2.3)      (5.0)     (16.6)     (17.7)
  Income tax recovery on defined                                            
   benefit plan actuarial losses                                            
   (Note 6)                            0.6          -        4.1          - 
----------------------------------------------------------------------------
Other comprehensive income                                                  
 (loss), net of tax                   (1.7)      (5.0)     (12.5)     (17.7)
----------------------------------------------------------------------------
Total comprehensive income        $    3.0   $   10.8   $    1.2   $  120.9 
----------------------------------------------------------------------------
                                                                            
Total comprehensive income                                                  
 (loss) attributable to:                                                    
Controlling interest in the                                                 
 Partnership                      $    3.0   $    5.5   $   (3.1)  $   60.8 
Non-controlling interest in the                                             
 Partnership (Note 11)                   -        5.3        4.3       60.1 
----------------------------------------------------------------------------
Total comprehensive income        $    3.0   $   10.8   $    1.2   $  120.9 
----------------------------------------------------------------------------

 
Condensed Consolidated Statements of Changes in Equity  


 
                                     3 months ended         12 months ended 
                                       December 31,            December 31, 
(millions of Canadian                                                       
 dollars, unaudited)               2012        2011        2012        2011 
----------------------------------------------------------------------------
                                                                            
Share capital                                                               
Balance at beginning of                                                     
 period                       $   525.3   $   294.9   $   294.9   $   294.9 
Exchange transaction (Note                                                  
 11)                                  -           -       230.4           - 
----------------------------------------------------------------------------
Balance at end of period      $   525.3   $   294.9   $   525.3   $   294.9 
----------------------------------------------------------------------------
                                                                            
Retained earnings (deficit)                                                 
Balance at beginning of                                                     
 period                       $  (142.6)  $   (61.0)  $   (67.3)  $   (52.9)
Exchange transaction (Note                                                  
 11)                                  -           -       (57.8)          - 
Net income excluding amount                                                 
 attributable to non-                                                       
 controlling interest in the                                                
 Partnership                        4.7         8.0         9.4        69.7 
Defined benefit plan                                                        
 actuarial losses exclud
ing                                                 
 amount attributable to non-                                                
 controlling interest in the                                                
 Partnership, net of tax           (1.7)       (2.5)      (12.5)       (8.9)
Dividends/distributions                                                     
 declared excluding amount                                                  
 attributable to non-                                                       
 controlling interest in the                                                
 Partnership                          -       (11.8)      (11.4)      (75.2)
----------------------------------------------------------------------------
Balance at end of period      $  (139.6)  $   (67.3)  $  (139.6)  $   (67.3)
----------------------------------------------------------------------------
                                                                            
Total equity attributable to                                                
 equity holders of the                                                      
 Company                      $   385.7   $   227.6   $   385.7   $   227.6 
----------------------------------------------------------------------------
                                                                            
Non-controlling interest in                                                 
 the Partnership                                                            
Balance at beginning of                                                     
 period                       $       -   $   232.5   $   226.1   $   240.5 
Net income attributable to                                                  
 non-controlling interest in                                                
 the Partnership                      -         7.8         4.3        68.9 
Defined benefit plan                                                        
 actuarial losses                                                           
 attributable to non-                                                       
 controlling interest in the                                                
 Partnership                          -        (2.5)          -        (8.8)
Distributions to non-                                                       
 controlling interest in the                                                
 Partnership                          -       (11.7)          -       (74.5)
Exchange transaction (Note                                                  
 11)                                  -           -      (230.4)          - 
----------------------------------------------------------------------------
Balance at end of period      $       -   $   226.1   $       -   $   226.1 
----------------------------------------------------------------------------
                                                                            
Total equity                  $   385.7   $   453.7   $   385.7   $   453.7 
----------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed consolidated 
financial statements.                                                       

 
Canfor Pulp Products Inc.  
Condensed Consolidated Statements of Cash Flows 


 
                                         3 months ended     12 months ended 
                                           December 31,        December 31, 
(millions of Canadian dollars,                                              
 unaudited)                             2012       2011     2012       2011 
----------------------------------------------------------------------------
Cash generated from (used in):                                              
Operating activities                                                        
  Net income                         $   4.7   $   15.8   $ 13.7   $  138.6 
  Items not affecting cash:                                                 
    Amortization                        20.0       21.4     67.1       66.8 
    Income tax expense                   1.7        0.5      2.0        0.8 
    Foreign exchange (gain) loss on                                         
     long-term debt                      1.3       (2.4)    (2.4)       2.5 
    Changes in mark-to-market value                                         
     of derivative financial                                                
     instruments                        (0.2)      (3.7)     0.4       (1.8)
    Employee future benefits (Note                                          
     4)                                 (4.1)       0.3     (1.9)       2.2 
    Net finance expense                  3.4        2.8     11.8       10.9 
    Other, net                             -          -      0.3        0.2 
  Salary pension plan contributions     (1.8)      (1.8)    (7.6)      (7.9)
  Income taxes paid, net                (1.6)         -     (7.7)      (0.2)
  Net change in non-cash working                                            
   capital (Note 8)                      2.4        1.2     12.2      (13.1)
----------------------------------------------------------------------------
                                        25.8       34.1     87.9      199.0 
----------------------------------------------------------------------------
Financing activities                                                        
  Decrease in operating bank loans      (7.0)  -      -        -          - 
  Dividends / distributions paid           -      (22.8)   (19.2)    (181.0)
  Finance expenses paid                 (4.1)      (3.8)    (8.1)      (7.8)
----------------------------------------------------------------------------
                                       (11.1)     (26.6)   (27.3)    (188.8)
----------------------------------------------------------------------------
Investing activities                                                        
  Additions to property, plant and                                          
   equipment                           (12.8)     (40.2)   (87.6)     (68.5)
  Expenditures under Green                                                  
   Transformation Program                  -      (26.6)    (1.1)     (87.6)
  Reimbursements under Green                                                
   Transformation Program                0.7       25.2     19.7       75.6 
  Other government grants received       0.6          -      2.2        3.5 
  Acquisition of CPPI cash on exchange                                      
   (Note 11)                               -          -      6.8          - 
  Other, net                               -        0.1      0.2        0.6 
----------------------------------------------------------------------------
                                       (11.5)     (41.5)   (59.8)     (76.4)
----------------------------------------------------------------------------
Increase (decrease) in cash and                                             
 cash equivalents(i)                     3.2      (34.0)     0.8      (66.2)
Cash and cash equivalents at                                                
 beginning of period(i)                 (4.4)      32.0     (2.0)      64.2 
----------------------------------------------------------------------------
Cash and cash equivalents at end of                                         
 period(i)                           $  (1.2)  $   (2.0)  $ (1.2)  $   (2.0)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

 
(i) Cash and cash equivalents include cash on hand less unpresented
cheques. 
The accompanying notes are an integral part of these condensed
consolidated financial statements.  
Canfor Pulp Products Inc.  
Notes to the Condensed Consolidated Financial Statements 
(unaudited, millions of Canadian dollar
s unless otherwise noted) 
1. Basis of Preparation 
These condensed consolidated interim financial statements have been
prepared in accordance with International Accounting Standard ("IAS")
34 Interim Financial Reporting, and include the accounts of Canfor
Pulp Products Inc. ("CPPI") and its subsidiary entities, including
Canfor Pulp Limited Partnership ("the Partnership"). The
Partnership's operations consist of two NBSK pulp mills and one NBSK
pulp and paper mill located in Prince George, British Columbia and a
marketing group based in Vancouver, British Columbia ("the Pulp
Business"). 
On March 2, 2012, Canadian Forest Products Ltd. ("Canfor") exchanged
35,776,483 Class B Exchangeable Limited Partnership Units ("the
Exchange"), representing a 50.2% interest in the Partnership, for an
equivalent number of CPPI shares pursuant to the terms of the
exchange agreement dated January 1, 2011 between Canfor, CPPI, the
Partnership and Canfor Pulp Holding Inc., the general partner of the
Partnership ("the General Partner"). As a result of the Exchange,
CPPI's interest in both the Partnership and the General Partner
increased from 49.8% to 100% and Canfor acquired a 50.2% interest in
CPPI (see Note 11). 
At December 31, 2012, CPPI held a 100% interest in the Partnership
and the General Partner and Canfor held a 50.2% interest in CPPI. 
The condensed consolidated interim financial statements ("the
financial statements") at December 31, 2012 include the accounts of
CPPI, the Partnership and its subsidiaries (together referred to as
"CPPI" or "the Company"). Prior to March 2, 2012 Canfor held a direct
controlling interest in the Partnership. For all periods ending prior
to March 2, 2012, the financial statements present the financial
position, results of operations, and cash flows of the Pulp Business
from the perspective of Canfor's controlling interest in the Pulp
Business as if operated as a stand-alone partnership entity subject
to Canfor control. The acquisition of the Partnership by CPPI as a
result of the Exchange has been accounted for as a continuity of
interests by applying reverse acquisition accounting (see Note 11). 
The financial statements prior to March 2, 2012 have been prepared on
a Partnership entity basis. Accordingly, no recognition has been made
for income taxes related to Partnership income in the financial
statements prior to March 2, 2012. The tax attributes of the
Partnership's net assets flowed directly to the partners. 
These interim financial statements do not include all of the
disclosures required by International Financial Reporting Standards
("IFRS") for annual financial statements. Additional disclosures
relevant to the understanding of these interim financial statements,
including the accounting policies applied, can be found in the
Company's Annual Report for the year ended December 31, 2011,
available at www.canforpulp.com or www.sedar.com.  
The currency of presentation for these financial statements is the
Canadian dollar.  
Change in accounting policy  
Effective January 1, 2012, the Company retroactively changed its
accounting policy for the presentation of interest expense and
expected rate of return on assets of defined benefit post-retirement
plans. The net expense has been reclassified from operating income,
where it was included in manufacturing and product costs, to net
finance expense. Management considers the classification of net
pension interest expense with the Company's other interest expense to
provide more relevant information on the operating results of the
Company. The effect on the three months ended December 31, 2012 and
twelve months ended December 31, 2012 is an increase in operating
income and net finance expense of $0.8 million and $3.2 million,
respectively (2011 - $0.7 million and $2.9 million, respectively).
There is no impact on amounts recorded in the consolidated balance
sheet or opening equity as at January 1, 2012. 
Accounting standards issued and not applied  
Unless otherwise noted, the following new or revised standards and
amendments as adopted by the IASB are effective for annual periods
beginning on or after January 1, 2013, with earlier application
permitted. These new and revised accounting standards have not yet
been adopted by CPPI and the Company does not plan to early adopt any
of these standards.  
Consolidation and interests in other entities 
In May 2011, as part of its consolidation project, the IASB issued
the following new suite of consolidation and related standards. The
suite is intended to cover all aspects of interests in other entities
from determination of how to account for interests in other entities
to required disclosure of the interest in those entities. Early
adoption is permitted provided that the entire suite of consolidation
standards is adopted at the same time.  


 
--  IFRS 10, Consolidated Financial Statements, requires an entity to
    consolidate an investee when it has power over the investee, is exposed,
    or has rights, to variable returns from its involvements with the
    investee and has the ability to affect those returns through its power
    over the investee. IFRS 10 replaces SIC-12, Consolidation - Special
    Purpose Entities, and parts of IAS 27, Consolidated and Separate
    Financial Statements. IFRS 10 is not expected to have a material impact
    on amounts recorded in the financial statements of CPPI.  
    
--  IFRS 11, Joint Arrangements, redefines joint operations and joint
    ventures with a focus on the rights and obligations of an arrangement,
    rather than its legal form. The new Standard requires a venturer to
    classify its interest in a joint arrangement as a joint venture or joint
    operation. Joint ventures will be accounted for using the equity method
    of accounting, whereas for a joint operation the venturer will recognize
    its share of the assets, liabilities, revenue and expenses of the joint
    operation. IFRS 11 supersedes IAS 31, Interests in Joint Ventures, and
    SIC-13, Jointly Controlled Entities - Non-monetary Contributions by
    Venturers. IFRS 11 is not expected to have a material impact on amounts
    recorded in the financial statements of CPPI.  
    
--  IFRS 12, Disclosure of Interests in Other Entities, carries forward
    existing disclosure requirements and introduces  additional disclosures
    that address the nature of, and risks associated with, an entity's
    interests in other entities. IFRS 12 is not expected to have a material
    impact on amounts recorded in the financial statements of CPPI. 
    
--  There have been amendments to existing standards, including IAS 27
    (2011), Separate Financial Statements, and IAS 28 (2011), Investments in
    Associates and Joint Ventures. IAS 27 (2011) addresses accounting for
    subsidiaries, jointly controlled entities and associates in non-
    consolidated financial statements. IAS 28 (2011) sets out the equity
    accounting for joint ventures and associates once the assessment of the
    arrangement has been made under IFRS 11. The amendments to IAS 27 and
    IAS 28 are not expected to have a material impact on amounts recorded in
    the financial statements of the Company.  

 
Employee benefits 


 
--  IAS 19, Employee Benefits, has been amended to make changes to the
    recognition and measurement of defined benefit pension expense and
    termination benefits and to enhance the disclosure of all employee
    benefits. Pension benefit cost will be split between (i) the cost of
    benefits accrued in the current period (service cost) and benefit
    changes (past-service costs (including plan amendments, settlements and
    curtailments)); and (ii) finance expense or income. Interest cost and
    expected return on plan assets, which currently reflect different rates,
    will be replaced with a net interest amount that is calculated by
    applying one discount rate to the net defined benefit liability (asset).
    The principal impact on the Company of this
 portion of the amended
    Standard is expected to be an increase in net finance cost as the
    Company's return on plan assets will effectively be estimated at a lower
    rate.
    
    The amended Standard also requires immediate recognition of actuarial
    gains and losses in other comprehensive income as they arise, without
    subsequent recycling to net income. This is consistent with the
    Company's current accounting policy.
    
    In addition, under the amended Standard, the impact of plan amendments
    related to past service will no longer be recognized over a vesting
    period but instead will be recognized immediately in the period of a
    plan amendment.
    
    The amended Standard will result in an increase in operating income of
    approximately $1.1 million offset by an increase in finance expense of
    approximately $1.4 million in the 2012 comparative financial statements.

 
Other standards and amendments 


 
--  IFRS 9, Financial Instruments, addresses classification and measurement
    of financial assets and financial liabilities, and is effective January
    1, 2015, with earlier adoption permitted. The new Standard limits the
    number of categories for classification of financial assets to two:
    amortized cost and fair value through profit or loss. IFRS 9 also
    replaces the models for measuring equity instruments. Equity instruments
    are either recognized at fair value through profit or loss or at fair
    value through other comprehensive income. IFRS 9 is not expected to have
    a material impact on amounts recorded in the financial statements of
    CPPI.  
    
--  IFRS 13, Fair Value Measurement, clarifies that fair value is the price
    that would be received on sale of an asset, or paid to transfer a
    liability in an orderly transaction between market participants, at the
    measurement date. IFRS 13 is not expected to have a material impact on
    amounts recorded in the financial statements of CPPI.  
    
--  IAS 1, Presentation of Financial Statements, has been amended to require
    entities to separate items presented in other comprehensive income
    ("OCI") into two groups, based on whether or not items may be recycled
    to net income in the future. The amendment is effective for annual
    periods beginning on or after July 1, 2012, with earlier application
    permitted. IAS 1 is not expected to have a material impact on amounts
    recorded in the financial statements of CPPI.  

 
2. Inventories 


 
(millions of Canadian dollars)                     As at               As at
                                       December 31, 2012   December 31, 2011
----------------------------------------------------------------------------
Pulp                               $                59.4  $             64.1
Paper                                               18.2                17.0
Wood chips                                          10.9                16.0
Materials and supplies                              45.6                44.5
----------------------------------------------------------------------------
                                   $               134.1  $            141.6
----------------------------------------------------------------------------
----------------------------------------------------------------------------

 
3. Operating Loans and Long-Term Debt 
(a) Available Operating Loans 


 
                                                                      As at 
                                                  As at        December 31, 
(millions of Canadian dollars)        December 31, 2012                2011 
----------------------------------------------------------------------------
Operating loan facility            $              110.0   $            40.0 
Bridge loan credit facility                                                 
 (maximum $30.0 million)                              -                19.7 
Facility for BC Hydro letter of                                             
 credit                                             7.5                10.4 
----------------------------------------------------------------------------
Total operating loans                             117.5                70.1 
Drawn                                                 -                   - 
Letters of credit (for general                                              
 business purposes)                                (1.7)               (0.5)
BC Hydro letter of credit                          (7.5)              (10.4)
----------------------------------------------------------------------------
Total available operating loans    $              108.3   $            59.2 
----------------------------------------------------------------------------
----------------------------------------------------------------------------

 
The terms of the Company's operating loan facility include interest
payable at floating rates that vary depending on the ratio of net
debt to operating earnings before interest, taxes, depreciation,
amortization and certain other non-cash items, and is based on the
lenders' Canadian prime rate, bankers acceptances, US dollar base
rate or US dollar LIBOR rate, plus a margin. In the fourth quarter of
2012, CPLP entered into a new $110.0 million operating loan facility
replacing its previous $40.0 million operating loan facility. The new
facility has certain financial covenants that stipulate maximum net
debt to total capitalization ratios and minimum net worth amounts
based on shareholders' equity. The maturity date of the new facility
is November 13, 2016.  
During the third quarter of 2012, the Company terminated its $30.0
million bridge loan credit facility in conjunction with the
completion of the Canadian Federal Government Green Transformation
Program ("Program"). The facility was used to fund timing differences
between expenditures and reimbursements for projects funded by the
Program. The Company has a separate facility with a maturity date of
November 30, 2013 to cover a $7.5 million standby letter of credit
issued to BC Hydro.  
As at December 31, 2012, the Company was in compliance with all
covenants relating to its operating loans. 
(b) Long-Term Debt 
At December 31, 2012, the fair value of the Company's long-term debt,
which was measured at its amortized cost of $109.4 million (US$110.0
million), was $113.6 million (2011-$117.4 million). The fair value
was determined based on prevailing market rates for long-term debt
with similar characteristics and risk profile. 
4. Employee Future Benefits 
The Company measures its accrued benefit obligations and the fair
value of plan assets for accounting purposes as at December 31 of
each year. At the end of each interim reporting period, the Company
estimates movements in its accrued benefit liabilities based upon
movements in discount rates and the rates of return on plan assets,
as well as any significant changes to the plans. Adjustments are also
made for payments made and current service and interest costs. 
For the twelve months ended December 31, 2012, $16.6 million (before
tax) was charged to other comprehensive income. The charge reflects a
reduction in the discount rate used to value the plan obligations
offset slightly by a higher than expected rate of return on plan
assets for the period. For the three months ended December 31, 2012,
the charge was $2.3 million (before tax). For the twelve months ended
December 31, 2011, a pre-tax amount of $17.7 million was charged to
other comprehensive income principally reflecting a decrease in the
discount rate over the period. For the three months ended December
31, 2011 the pre-tax charge was $5.0 million. 
During the fourth quarter of 2012, the Company amended the salaried
post retirement benefit plans for certain CPPI employees and
retirees. The amendments reduced the Company's retirement benefit
obligation by $5.3 million (before tax). As a result of the
 plan
amendments, CPPI recognized an accounting gain of $4.0 million
(before tax) for vested past-service costs and deferred a gain of
$1.3 million (before tax) for unvested past-service costs.  
For the Company's single largest pension plan, a one percentage point
increase in the rate of return on plan assets over the year would
reduce the funded deficit by an estimated $0.8 million. A one
percentage point increase in the discount rate used in calculating
the actuarial estimate of future liabilities would reduce the funded
deficit by an estimated $12.8 million. 
The assumptions used to estimate the changes in net accrued benefit
liabilities were as follows: 


 
----------------------------------------------------------------------------
Pension Benefit Plans                                                       
Discount rate                                                               
   December 31, 2012                                                  4.20% 
   September 30, 2012                                                 4.30% 
   December 31, 2011                                                  5.00% 
   September 30, 2011                                                 5.00% 
   January 1, 2011                                                    5.50% 
Rate of return on plan assets                                               
   12 months ended December 31, 2012                                  9.50% 
   9 months ended September 30, 2012                                  6.60% 
   12 months ended December 31, 2011                                  2.50% 
   9 months ended September 30, 2011                                 (2.50)%
----------------------------------------------------------------------------
Other Benefit Plans                                                         
Discount rate                                                               
   December 31, 2012                                                  4.40% 
   September 30, 2012                                                 4.50% 
   December 31, 2011                                                  5.30% 
   September 30, 2011                                                 5.40% 
   January 1, 2011                                                    5.75% 
----------------------------------------------------------------------------
----------------------------------------------------------------------------

 
5. Derivative Financial Instruments 
The Company uses a variety of derivative financial instruments to
reduce its exposure to risks associated with fluctuations in foreign
exchange rates, energy costs and interest rates.  At December 31,
2012, the fair value of derivative financial instruments was a net
asset of $0.1 million December 31, 2012 (2011 - net asset of $0.4
million). The fair value of these financial instruments was
determined based on prevailing market rates for instruments with
similar characteristics. 
The following table summarizes the gain (loss) on derivative
financial instruments for the three and twelve months ended December
31, 2012 and 2011: 


 
                                        3 months ended      12 months ended 
                                          December 31,         December 31, 
(millions of Canadian dollars)          2012      2011       2012      2011 
----------------------------------------------------------------------------
Foreign exchange collars and                                                
 forward contracts                   $  (0.2)  $   1.4  $     1.7  $   (1.6)
Crude oil collars                        0.1       0.1          -       0.1 
Natural gas swaps                          -         -          -      (0.1)
----------------------------------------------------------------------------
                                     $  (0.1)  $   1.5  $     1.7  $   (1.6)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

 
The following table summarizes the fair value of the derivative
financial instruments included in the balance sheet at December 31,
2012 and 2011: 


 
                                                        As at          As at
                                                 December 31,   December 31,
(millions of Canadian dollars)                           2012           2011
----------------------------------------------------------------------------
Foreign exchange collars and forward contracts     $        -   $        0.3
Crude oil collars                                         0.1            0.1
----------------------------------------------------------------------------
Net current asset (liability)                      $      0.1   $        0.4
----------------------------------------------------------------------------
----------------------------------------------------------------------------

 
6. Income Taxes 
Income tax expense includes current tax expense on income for the
March 2, 2012 to December 31, 2012 period. Prior to the Exchange on
March 2, 2012, taxes were minimal reflecting the non-taxable status
of the Partnership (Note 11).  


 
                                         3 months ended     12 months ended 
(millions of Canadian dollars)        December 31, 2012   December 31, 2012 
----------------------------------------------------------------------------
Current                                 $          (2.0)  $            (1.4)
Deferred                                            0.3                (0.6)
----------------------------------------------------------------------------
Income tax expense                      $          (1.7)  $            (2.0)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

 
The reconciliation of income taxes calculated at the statutory rate
to the actual income tax provision is as follows: 


 
                                        3 months ended      12 months ended 
(millions of Canadian dollars)        December 31, 2012   December 31, 2012 
----------------------------------------------------------------------------
Income tax expense at statutory rate                                        
 2012 - 25.0%                           $          (1.6)  $            (3.9)
Add (deduct):                                                               
  Tax recovery (expense) at rates                                           
  other than statutory rate                         0.1                (0.1)
  Permanent difference from capital                                         
   gains and other non-deductible                                           
   items                                           (0.2)                0.2 
  Permanent difference - exchange                                           
   transaction                                        -                 0.9 
  Tax included in equity - exchange                                         
   transaction                                        -                 0.9 
----------------------------------------------------------------------------
Income tax expense                      $          (1.7)  $            (2.0)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

 
In addition to the amounts recorded to net income, a tax recovery of
$0.6 million was recorded to other comprehensive income for the three
month period ended December 31, 2012 in relation to the actuarial
losses on defined benefit employee compensation plans. For the twelve
months ended December 31, 2012, the related tax recovery was $4.1
million.  
The tax effects of the significant components of temporary
differences that give rise to deferred income tax assets and
liabilities are as follows: 


 
        
                                                               As at
(millions of Canadian dollars)                                  December 31,
                                                                        2012
----------------------------------------------------------------------------
                                                                            
Deferred income tax assets                                                  
  Retirement benefit obligations                            $           26.0
  Other                                                                  1.6
----------------------------------------------------------------------------
                                                            $           27.6
----------------------------------------------------------------------------
Deferred income tax liabilities                                             
  Depreciable capital assets                                $         (84.9)
  Unrealized foreign exchange gains on debt (current)                  (2.0)
  Other                                                                (0.3)
----------------------------------------------------------------------------
                                                            $         (87.2)
----------------------------------------------------------------------------
                                                                            
Total deferred income taxes, net                            $         (59.6)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

 
7. Earnings Per Share 
Basic net income per share is calculated by dividing the net income
available to common shareholders by the weighted average number of
common shares outstanding during the period. As a result of the
exchange transaction and the application of reverse acquisition
accounting, the CPPI shares relating to the non-controlling interest
shareholders were not included until March 2, 2012. This transaction
led to an increase in the weighted average number of shares
outstanding, with 71,269,790 shares outstanding as at December 31,
2012. The issuance of the new shares as a result of the exchange was
accompanied by a corresponding increase in CPPI's investment in the
Partnership and as a result there is no dilution of CPPI's net income
per share. 


 
                    3 months ended December 31, 12 months ended December 30,
                               2012        2011             2012        2011
----------------------------------------------------------------------------
Weighted average         71,269,790  35,776,483       65,257,263  35,776,483
 number of common                                                           
 shares                                                                     
----------------------------------------------------------------------------
----------------------------------------------------------------------------

 
8. Net Change in Non-Cash Working Capital 


 
                         3 months ended December   12 months ended December 
                                             31,                        31, 
(millions of Canadian                                                       
 dollars)                      2012         2011        2012           2011 
----------------------------------------------------------------------------
Accounts receivable        $   (1.7)  $     41.8   $    10.9   $       32.5 
Inventories                    (1.5)        (9.4)        7.4          (18.1)
Prepaid expenses and                                                        
 other assets                   6.9          3.6        (2.5)           5.2 
Accounts payable and                                                        
 accrued liabilities           (1.3)       (34.8)       (3.6)         (32.7)
----------------------------------------------------------------------------
Net decrease (increase)                                                     
 in non-cash working                                                        
 capital                   $    2.4   $      1.2   $    12.2   $      (13.1)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

 
9. Segment Information  
The Company has two reportable segments which operate as separate
business units and represent separate product lines.   
Sales between pulp and paper segments are accounted for at prices
that approximate fair value. These include sales of slush pulp from
the pulp segment to the paper segment. 


 
(millions of Canadian                              Elimination              
 dollars)                 Pulp  Paper Unallocated   Adjustment  Consolidated
----------------------------------------------------------------------------
3 months ended                                                              
 December 31, 2012                                                          
Sales to external                                                           
 customers             $ 168.2   33.7           -            -   $     201.9
Sales to other                                                              
 segments              $  18.0      -           -        (18.0)  $         -
Operating income                                                            
 (loss)                $   6.8    6.9        (2.8)           -   $      10.9
Amortization           $  19.0    1.0           -            -   $      20.0
Capital                                                                     
 expenditures(1)       $  12.3    0.3         0.2            -   $      12.8
----------------------------------------------------------------------------
3 months ended                                                              
 December 31, 2011                                                          
Sales to external                                                           
 customers             $ 179.1   33.5         0.1            -   $     212.7
Sales to other                                                              
 segments              $  19.9      -           -        (19.9)  $         -
Operating income                                                            
 (loss)                $  16.7    3.4        (3.6)           -   $      16.5
Amortization           $  20.4    1.0           -            -   $      21.4
Capital                                                                     
 expenditures(1)       $  66.0    0.7         0.1            -   $      66.8
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
12 months ended                                                             
 December 31, 2012                                                          
Sales to external                                                           
 customers             $ 675.0  134.6         0.8            -   $     810.4
Sales to other                                                              
 segments              $  67.2      -           -        (67.2)  $         -
Operating income                                                            
 (loss)                $  19.2   19.4       (14.0)           -   $      24.6
Amortization           $  63.2    3.8         0.1            -   $      67.1
Capital                                                                     
 expenditures(1)       $  86.9    1.1         0.7            -   $      88.7
Identifiable assets    $ 670.9   64.6        22.5            -   $     758.0
----------------------------------------------------------------------------
12 months ended                                         
                    
 December 31, 2011                                                          
Sales to external                                                           
 customers             $ 802.9  136.6         1.5            -   $     941.0
Sales to other                                                              
 segments              $  87.9      -           -        (87.9)  $         -
Operating income                                                            
 (loss)                $ 157.5    9.5       (13.6)           -   $     153.4
Amortization           $  63.0    3.6         0.2            -   $      66.8
Capital                                                                     
 expenditures(1)       $ 152.2    2.8         1.1            -   $     156.1
Identifiable assets    $ 702.5   63.8        24.9            -   $     791.2
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Capital expenditures represent cash paid for capital assets during the  
period and include capital expenditures financed by federal government-     
funded Green Transformation Program and other government grants.            

 
10. Related Party Transactions  
The Company depends on Canfor to provide approximately 59% (2011 -
54%) of its fibre supply as well as to provide certain key business
and administrative services as described below. As a result of these
relationships the Company considers its operations to be dependent on
its ongoing relationship with Canfor. 
The transactions with Canfor are consistent with the transactions
described in the December 31, 2011 audited consolidated financial
statements of CPPI and the Partnership and are based on agreed upon
amounts between the parties. 
Transactions and payables to Canfor include purchases of wood chips,
pulp and administrative services. These are summarized below: 


 
                   3 months ended December 31,  12 months ended December 31,
(millions of Canadian                                                       
dollars)                        2012      2011           2012           2011
----------------------------------------------------------------------------
Transactions                                                                
Canfor - purchase of wood                                                   
chips and other              $  25.7  $   29.6  $       104.9  $       119.0
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
                                                                            
                                                                            
                                                       As at           As at
                                                December 31,    December 31,
(millions of Canadian dollars)                          2012            2011
----------------------------------------------------------------------------
Balance Sheet                                                               
Included in accounts payable and accrued                                    
 liabilities:                                                               
  Canfor                                     $          12.9  $         18.2
  Lakeland                                                 -             0.9
Included in trade and other accounts                                        
 receivable:                                                                
  Products marketed for Canfor               $           4.4  $          3.2
  Canfor(1)                                              3.0               -
----------------------------------------------------------------------------
----------------------------------------------------------------------------

 
(1) Market rate of interest is charged on all amounts receivable from
Canfor.  
11. Acquisition of Interest in Canfor Pulp Limited Partnership  
As a result of the Exchange described in Note 1, CPPI increased its
interest in both the Partnership and the General Partner from 49.8%
to 100% and Canfor acquired a 50.2% interest in CPPI. 
The transaction was accounted for as a reverse acquisition under
IFRS, with Canfor's interest in the Pulp Business being the acquirer
for accounting purposes and CPPI the acquiree for accounting
purposes. The Pulp Business is continuing to operate under CPPI, the
legal parent. The financial statements have been presented, along
with the comparative periods, from the accounting perspective that
Canfor's interest in the Pulp Business is the continuing entity after
the exchange transaction as it has gained control of the Company
through a reverse transaction. Prior to March 2, 2012 49.8% of the
Pulp Business was held by CPPI and reflected as non-controlling
interest. Net income and comprehensive income attributable to CPPI's
non-controlling interest in the Pulp business was $4.3 million for
the twelve months ended December 31, 2012. Canfor's interest in the
Pulp Business was deemed to acquire CPPI on March 2, 2012, and as a
result of the transaction non-controlling interest of $230.4 million
was eliminated and 35,493,307 shares in the amount of $230.4 million
were deemed issued and included in share capital. 
The condensed consolidated financial statements include the balance
sheets, statements of income, statements of other comprehensive
income, statements of changes in equity, and cash flows of CPPI, the
Partnership and the subsidiaries of those entities from March 2,
2012. 
Management estimates that the fair value of CPPI's assets and
liabilities approximate their carrying values at March 2, 2012 (note
- CPPI's investment in the Partnership eliminates upon
consolidation). Excluding the investment in the Partnership, the
carrying values of the assets and liabilities of CPPI at March 2,
2012 were as follows: 


 
                                                                       As at
                                                                    March 2,
(millions of Canadian dollars)                                          2012
----------------------------------------------------------------------------
Assets acquired:                                                            
  Cash and cash equivalents                           $                  6.8
Liabilities assumed:                                                        
  Due to Canfor Pulp Limited Partnership              $                  0.1
  Income taxes payable                                $                  0.2
  Deferred income tax liability                       $                 31.4
----------------------------------------------------------------------------
----------------------------------------------------------------------------

 
As a result of the exchange there was no change in control for the
Pulp Business. The difference between the carrying value of the
non-controlling interest and the assets and liabilities acquired was
recognized directly in equity as a charge to retained earnings
(deficit). 


 
(millions of Canadian dollars)                                        Total 
----------------------------------------------------------------------------
Cash                                                       $            6.8 
Deferred taxes                                                        (63.2)
Income taxes payable                                                   (1.3)
Other liabilities                                                      (0.1)
----------------------------------------------------------------------------
Charge to retained earnings (deficit) as at March 2, 2012  $          (57.8)
----------------------------------------------------------------------------
------------------
----------------------------------------------------------

 
12. Insurance Claim Receivable 
During the second quarter of 2012, an incident at the Northwood Pulp
Mill resulted in an unscheduled shutdown and subsequent repairs. The
Company recognized a property damage insurance receivable of $5.6
million, which substantially offset the additional maintenance costs
related to this incident. This amount was included as a reduction in
Manufacturing and Product Costs in the income statement in the second
quarter of 2012 and in the twelve months ended December 31, 2012.  
The Company recognized a business interruption insurance receivable
of $9.7 million, less a deductible of $5.0 million, to recover the
estimated impact of year to date lost production. Of the net
insurance proceeds of $4.7 million, $3.7 million was included in
Sales in the second quarter of 2012 and an additional $1.0 million
was included in the third quarter of 2012.  
As at December 31, 2012, the total insurance receivable amount, net
of advances received, of $6.3 million is included within Other
Accounts Receivable. 
13. Subsequent Event 
On February 13, 2013, the Board of Directors reinstated the Company's
dividend, declaring a quarterly dividend of $0.05 per share, payable
on March 5, 2013 to shareholders of record on February 26, 2013.
Contacts:
Media Contact:
Christine Kennedy
Canfor's Vice President, Public Affairs &
Corporate Communications
(604) 661-5225
Christine.Kennedy@canfor.com 
Investor Contact:
Pat Elliott
Canfor's Vice President & Treasurer
(604) 661-5441
Patrick.Elliott@canfor.com 
Richard Remesch
Corporate Controller
(604) 661-5221
Rick.Remesch@canforpulp.com
www.canforpulp.com