EXHIBIT 2
NORSKE XXXX CANADA LIMITED
-------------------------------------------------------------------------------------------------------------------------
Three months ended Nine months ended
FINANCIAL HIGHLIGHTS September 30 September 30
----------------------- ------------------------
unaudited (in millions of dollars, except where otherwise stated) 2002 2001 2002 2001
--------------------------------------------------------------------------------------------- ------------------------
SALES AND EARNINGS
Net sales $ 392.6 $ 322.1 $1,076.7 $ 975.9
Operating earnings (loss) (3.9) 13.7 (85.6) 68.4
Net earnings (loss) (20.1) 18.8 (86.0) 56.5
EBITDA (1) 42.4 45.0 46.3 156.8
EBITDA margin (%) (2) 10.8 14.0 4.3 16.1
OTHER FINANCIAL INFORMATION
Working capital (3) $ 302.5 $ 344.9 $ 302.5 $ 344.9
Capital expenditures 13.6 21.5 40.5 62.1
Total assets 2,938.6 3,171.9 2,938.6 3,171.9
Total debt (4) 903.3 1,168.9 903.3 1,168.9
Shareholders' equity 1,162.1 1,048.5 1,162.1 1,048.5
Current assets to current liabilities (3) 2.14:1 2.19:1 2.14:1 2.19:1
Total debt to total capitalization (%) (4), (5) 43.7 52.7 43.7 52.7
Common shares outstanding at end of period (in millions) 205.9 174.8 205.9 174.8
Weighted average common shares outstanding (in millions) 205.9 140.7 189.2 129.8
PER COMMON SHARE PERFORMANCE (IN DOLLARS)
Basic and diluted earnings (loss) $ (0.10) $ 0.13 $ (0.45) $ 0.44
EBITDA 0.21 0.32 0.24 1.21
Book value (6) 5.64 6.00 5.64 6.00
Cash flow (7) (0.23) 0.43 (0.31) 1.66
Price (8) - High 7.45 18.80 7.60 19.75
- Low 5.10 5.70 5.10 5.70
FOREIGN EXCHANGE RATES
Effective period foreign exchange rate - C$/US$ (9) 1.552 1.540 1.540 1.532
Average period spot foreign exchange rate - C$/US$ (10) 1.563 1.545 1.571 1.538
Period end spot foreign exchange rate - C$/US$ 1.586 1.579 1.586 1.579
SALES (IN THOUSANDS OF TONNES)
Specialties 223.1 114.6 600.3 249.4
Newsprint 201.6 149.4 550.7 437.1
Pulp and containerboard 126.6 154.6 375.3 540.7
AVERAGE SALES REVENUE PER TONNE (IN DOLLARS)
Specialties $ 874 $ 1,042 $ 893 $ 1,036
Newsprint 581 787 581 851
Pulp and containerboard 635 551 587 639
AVERAGE COST OF SALES PER TONNE (IN DOLLARS) (11)
Specialties $ 729 $ 766 $ 748 $ 753
Newsprint 551 643 589 631
Pulp and containerboard 479 500 559 570
(1) EBITDA is defined as earnings before interest, taxes, depreciation and
amortization, and before other non-operating income and expenses. As there
is no generally accepted method of calculating EBITDA, the measures as
calculated by the Company may not be comparable to similarly titled
measures reported by other companies. Throughout this report EBITDA is
calculated in the following manner:
Operating earnings (loss) $ (3.9) $ 13.7 $ (85.6) $ 68.4
Add: Depreciation and amortization 46.3 31.3 131.9 88.4
-------- --------- -------- ----------
EBITDA $ 42.4 $ 45.0 $ 46.3 $ 156.8
-------- --------- -------- ----------
-------- --------- -------- ----------
(2) EBITDA margin (%) is defined as EBITDA as a percentage of sales.
(3) Working capital and current assets to current liabilities, for these
purposes, exclude cash and short-term investments and current portion of
long-term debt.
(4) Total debt is comprised of long-term debt including current portion.
(5) Total capitalization is comprised of total debt and shareholders' equity.
(6) Book value is calculated based on common shares outstanding at the end of
the period.
(7) Operating cash flow after changes in non-cash working capital.
(8) A special distribution of $12.00 per common share was paid to shareholders
on August 28, 2001.
(9) Effective period foreign exchange rate represents a blended rate which
takes account of the applicable spot rates and the Company's revenue
hedging program in the period.
(10) Average period spot foreign exchange rate is the average Bank of Canada
noon spot rate over the reporting period.
(11) Average cost of sales per tonne for these purposes excludes selling,
general and administrative costs and depreciation and amortization.
NORSKE XXXX CANADA LIMITED
------------------------------------------------------------------------------------------------------------------------------------
QUARTERLY SEGMENTED INFORMATION 2001, Three months ended 2002, Three months ended
--------------------------------------- -----------------------------
unaudited March 31 June 30 Sept 30 Dec 31 March 31 June 30 Sept 30
(in millions of dollars, except where otherwise stated)
--------------------------------------------------------------------------------------------------- -----------------------------
SPECIALTIES
Net sales $ 61.6 $ 77.3 $119.4 $223.6 $170.4 $170.9 $195.1
EBITDA 14.0 17.1 26.8 45.3 26.3 14.3 25.2
EBITDA margin (%) 22.7 22.1 22.4 20.3 15.4 8.4 12.9
SALES (IN THOUSANDS OF TONNES) 59.1 75.7 114.6 222.1 181.5 195.7 223.1
PRODUCTION (IN THOUSANDS OF TONNES) 67.6 82.6 104.7 216.0 188.3 197.2 241.7
Average sales revenue per tonne (in dollars) $1,042 $1,021 $1,042 $1,007 $ 939 $ 873 $ 874
Average cost of sales per tonne (in dollars) (1) 741 741 766 771 754 763 729
NEWSPRINT
Net sales $147.4 $107.0 $117.5 $117.3 $ 91.0 $112.0 $117.1
EBITDA 38.7 20.6 15.0 11.4 (12.3) (8.2) 0.9
EBITDA margin (%) 26.3 19.3 12.8 9.7 (13.5) (7.3) 0.8
SALES (IN THOUSANDS OF TONNES) 163.0 124.7 149.4 166.8 150.6 198.5 201.6
PRODUCTION (IN THOUSANDS OF TONNES) 160.9 119.4 138.3 174.0 150.0 197.3 201.8
Average sales revenue per tonne (in dollars) $ 904 $ 858 $ 787 $ 703 $ 604 $ 564 $ 581
Average cost of sales per tonne (in dollars) (1) 621 632 643 606 653 581 551
BENCHMARK PRICE (US$ PER TONNE) (2)
Newsprint 48.8 gsm $ 607 $ 623 $ 572 $ 508 $ 462 $ 440 $ 452
PULP AND CONTAINERBOARD
Sales $177.7 $123.1 $106.4 $ 83.6 $ 92.5 $109.6 $122.0
Less: inter-segment sales (22.5) (17.8) (21.2) (11.7) (29.6) (32.7) (41.6)
--------------------------------------- -----------------------------
Net sales 155.2 105.3 85.2 71.9 62.9 76.9 80.4
--------------------------------------- -----------------------------
EBITDA 33.6 (12.2) 3.2 (2.6) (16.1) (0.1) 16.3
EBITDA margin (%) 21.6 (11.6) 3.8 (3.6) (25.6) (0.1) 20.3
SALES (IN THOUSANDS OF TONNES)
Pulp 184.3 156.7 127.4 99.9 85.8 107.6 97.7
Containerboard 23.6 21.5 27.2 28.8 25.1 30.2 28.9
--------------------------------------- -----------------------------
207.9 178.2 154.6 128.7 110.9 137.8 126.6
--------------------------------------- -----------------------------
PRODUCTION (IN THOUSANDS OF TONNES)
Pulp 168.4 155.3 109.4 105.7 80.4 101.8 98.3
Containerboard 24.7 25.4 27.4 24.1 27.0 27.6 29.9
--------------------------------------- -----------------------------
193.1 180.7 136.8 129.8 107.4 129.4 128.2
--------------------------------------- -----------------------------
Average sales revenue per tonne (in dollars) $ 747 $ 591 $ 551 $ 559 $ 567 $ 558 $ 635
Average cost of sales per tonne (in dollars) (1) 568 632 500 546 681 534 479
BENCHMARK PRICE (US$ PER TONNE) (2)
NBSK pulp $ 660 $ 545 $ 457 $ 463 $ 443 $ 457 $ 485
(1) Average cost of sales per tonne for these purposes excludes selling,
general and administrative costs and depreciation and amortization.
(2) Benchmark prices are sourced from RISI.
NORSKE XXXX CANADA LIMITED
-------------------------------------------------------------------------------------------------------------------------
Three months ended Nine months ended
CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS September 30 September 30
----------------------- ------------------------
unaudited (in millions of dollars, except where otherwise stated) 2002 2001 2002 2001
--------------------------------------------------------------------------------------------- ------------------------
(RESTATED (RESTATED
- NOTE 2) - NOTE 2)
NET SALES $392.6 $ 322.1 $1,076.7 $ 975.9
-------- -------- --------- --------
OPERATING EXPENSES
Cost of sales 334.5 261.0 983.4 771.7
Selling, general and administrative 15.7 16.1 47.0 47.4
Depreciation and amortization 46.3 31.3 131.9 88.4
-------- -------- --------- --------
396.5 308.4 1,162.3 907.5
-------- -------- --------- --------
OPERATING EARNINGS (LOSS) (3.9) 13.7 (85.6) 68.4
GAIN (LOSS) ON TRANSLATION / REPAYMENT OF LONG-TERM DEBT (5.7) (10.9) 10.6 (10.9)
OTHER EXPENSE, NET (NOTE 4) - (1.4) (12.7) (33.7)
INTEREST EXPENSE (17.6) (10.4) (59.6) (10.4)
INTEREST INCOME 0.1 9.3 1.7 34.3
-------- -------- --------- --------
EARNINGS (LOSS) BEFORE INCOME TAXES (27.1) 0.3 (145.6) 47.7
-------- -------- --------- --------
INCOME TAX EXPENSE (RECOVERY)
Current 0.9 1.1 12.1 3.2
Future (note 5) (7.9) (19.6) (71.7) (12.0)
-------- -------- --------- --------
(7.0) (18.5) (59.6) (8.8)
-------- -------- --------- --------
NET EARNINGS (LOSS) $(20.1) $ 18.8 $ (86.0) $ 56.5
RETAINED EARNINGS, BEGINNING OF PERIOD, RESTATED (NOTE 2) 297.5 903.1 363.4 902.6
SPECIAL DISTRIBUTION - (546.5) - (546.5)
DIVIDENDS - - - (37.2)
-------- -------- --------- --------
RETAINED EARNINGS, END OF PERIOD $ 277.4 $ 375.4 $ 277.4 $ 375.4
-------- -------- --------- --------
-------- -------- --------- --------
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE (IN DOLLARS) $ (0.10) $ 0.13 $ (0.45) $ 0.44
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (IN MILLIONS) 205.9 140.7 189.2 129.8
NORSKE XXXX CANADA LIMITED
-------------------------------------------------------------------------------------------------------------------------
As at
CONSOLIDATED BALANCE SHEETS --------------------------
SEPTEMBER 30 December 31
unaudited (in millions of dollars) 2002 2001
--------------------------------------------------------------------------------------------- --------------------------
(RESTATED
- NOTE 2)
ASSETS
Current assets
Cash and short-term investments $ - $ 104.8
Marketable securities - 34.4
Accounts receivable 307.0 303.1
Inventories 240.4 230.5
Prepaid expenses 19.3 4.1
------------ -----------
566.7 676.9
Fixed assets 2,331.7 2,416.4
Other assets 40.2 56.5
------------ -----------
$2,938.6 $3,149.8
------------ -----------
------------ -----------
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities $ 264.2 $ 285.6
Current portion of long-term debt (note 6) - 10.7
------------ -----------
264.2 296.3
Long-term debt (note 6) 903.3 1,163.9
Other long-term obligations 183.7 152.6
Future income taxes 416.8 492.0
Deferred credits 8.5 8.5
------------ -----------
1,776.5 2,113.3
------------ -----------
SHAREHOLDERS' EQUITY
Share capital (note 7) 884.7 673.1
Retained earnings 277.4 363.4
------------ -----------
1,162.1 1,036.5
------------ -----------
$2,938.6 $3,149.8
------------ -----------
------------ -----------
ON BEHALF OF THE BOARD
(SIGNED) "XXXXXXX X. XXXXXX" (SIGNED) "XXXXXXX X. XXXXXXXXX"
DIRECTOR DIRECTOR
NORSKE XXXX CANADA LIMITED
-------------------------------------------------------------------------------------------------------------------------
Three months ended Nine months ended
CONSOLIDATED STATEMENTS OF CASH FLOWS September 30 September 30
----------------------- ------------------------
unaudited (in millions of dollars) 2002 2001 2002 2001
--------------------------------------------------------------------------------------------- ------------------------
(RESTATED (RESTATED
- NOTE 2) - NOTE 2)
CASH PROVIDED (USED) BY
OPERATIONS
Net earnings (loss) $(20.1) $ 18.8 $ (86.0) $ 56.5
Items not requiring (providing) cash
Depreciation and amortization 46.3 31.3 131.9 88.4
Future income taxes (7.9) (19.6) (71.7) 7.1
Increase in other long-term obligations 3.0 7.2 7.1 9.7
Gain on sale of marketable securities (note 4) - - (4.8) -
Loss (gain) on translation/repayment of long-term debt 5.7 10.9 (10.6) 10.9
Loss on disposal of Mackenzie pulp operations (note 4) - - - 31.4
Other 1.0 2.4 14.6 4.1
------- ---------- -------- ----------
28.0 51.0 (19.5) 208.1
------- ---------- -------- ----------
------- ---------- -------- ----------
Change in non-cash working capital
Accounts receivable (32.1) 2.4 0.7 24.0
Inventories (23.4) 22.0 (10.6) 40.5
Prepaid expenses (13.8) 10.1 (15.1) (0.1)
Accounts payable and accrued liabilities (5.8) (25.3) (14.7) (57.2)
------- ---------- -------- ----------
(75.1) 9.2 (39.7) 7.2
------- ---------- -------- ----------
Cash provided (used) by operations (47.1) 60.2 (59.2) 215.3
------- ---------- -------- ----------
INVESTING
Acquisition of business - (74.1) - (74.1)
Additions to fixed assets (13.6) (21.5) (40.5) (62.1)
Proceeds from sale of marketable securities (note 4) - - 39.2 -
Proceeds from sale of Mackenzie pulp operations - - - 103.8
Proceeds from sale of fixed assets 0.2 0.1 1.5 0.7
Increase in other long-term obligations 3.4 - 3.4 -
Decrease (increase) in other assets 1.1 0.6 (2.6) 1.0
------- ---------- -------- ----------
(8.9) (94.9) 1.0 (30.7)
------- ---------- -------- ----------
FINANCING
Special distribution - (1,490.3) - (1,490.3)
Increase in revolving loan (note 6) 63.8 - 131.8 -
Issue of long-term debt (note 6) - 768.2 - 768.2
Repayment of long-term debt (note 6) (7.5) (238.1) (386.7) (238.1)
Issue of common shares, net of share issue costs (note 7) (0.3) - 208.3 -
Dividends paid - - - (37.2)
Financing costs - (28.4) - (28.4)
------- ---------- -------- ----------
56.0 (988.6) (46.6) (1,025.8)
------- ---------- -------- ----------
CASH, INCREASE (DECREASE) DURING PERIOD (1) - (1,023.3) (104.8) (841.2)
CASH, BEGINNING OF PERIOD (1) - 1,111.8 104.8 929.7
------- ---------- -------- ----------
CASH, END OF PERIOD (1) - $ 88.5 $ - $ 88.5
------- ---------- -------- ----------
------- ---------- -------- ----------
SUPPLEMENTAL INFORMATION
Income taxes paid $ 2.2 $ 0.3 $ 11.3 $ 2.2
Non-cash consideration for acquisition of business - 354.3 - 354.3
Non-cash proceeds from sale of Mackenzie pulp operations (note 4) - - - 34.6
Net interest paid (received) 18.0 7.1 59.9 (23.5)
(1) Cash includes cash and short-term investments.
NORSKE XXXX CANADA LIMITED
--------------------------------------------------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
unaudited (in millions of dollars, except where otherwise stated)
--------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Norske Xxxx
Canada Limited ("the Company" or "NorskeCanada") and from their respective
dates of acquisition of control or formation, its wholly-owned subsidiaries
and partnership. The Company's 50.1% proportionate share of Xxxxxx River
Energy Inc. ("PREI"), a joint venture between Great Lakes Power Inc.
("Great Lakes") and the Company, is accounted for using the proportionate
consolidation method. All inter-company transactions and amounts have been
eliminated on consolidation.
The accompanying unaudited consolidated financial statements of the Company
have been prepared in accordance with Canadian generally accepted
accounting principles on a basis consistent with those followed in the most
recent audited annual consolidated financial statements, except as
described in notes 2 and 3 below. These unaudited interim consolidated
financial statements do not include all information and note disclosures
required by Canadian generally accepted accounting principles for annual
financial statements, and therefore should be read in conjunction with the
December 31, 2001 audited consolidated financial statements and the notes
below.
2. SIGNIFICANT ACCOUNTING POLICIES
FOREIGN CURRENCY AND DERIVATIVES
Effective January 1, 2002, the Company adopted the Canadian Institute of
Chartered Accountants' ("CICA") revised Handbook Section 1650, FOREIGN
CURRENCY TRANSLATION. The revised standard eliminates the deferral and
amortization of foreign currency translation gains and losses on long-lived
monetary items. The revised standard also requires disclosure of these
foreign exchange gains and losses.
The Company xxxxxx a portion of its long-term debt denominated in foreign
currencies using forward foreign currency contracts. Gains or losses on
translation of long-term debt hedged by forward foreign currency contracts
are offset by the gains or losses on the translation of the forward foreign
currency contracts to the current foreign exchange spot rates. The
difference between the spot foreign exchange rate and the forward foreign
exchange rate at the date of acquiring a forward foreign currency contract
is amortized to earnings on a straight-line basis over the term of the
contract.
The revised standard has been applied retroactively, with restatement of
prior periods, resulting in a reduction to amounts previously reported at
December 31, 2001 for other assets of $17.1 million, future income taxes of
$3.0 million, and retained earnings of $14.1 million. At September 30,
2001, the restatement resulted in a reduction of other assets of $10.9
million, future income taxes of $1.9 million and retained earnings of $9.0
million. The restatement of prior period earnings resulted in a loss on
translation of long-term debt of $10.9 million and an income tax recovery
of $1.9 million for the quarter and nine months ended September 30, 2001.
For the year ended December 31, 2001, the restatement resulted in a loss on
translation of long-term debt of $17.1 million and an income tax recovery
of $3.0 million relating to unrealized foreign currency exchange losses
previously deferred.
STOCK OPTION PLANS
Effective January 1, 2002, the Company adopted the CICA's new Handbook
Section 3870, STOCK-BASED COMPENSATION AND OTHER STOCK-BASED PAYMENTS.
Under the new standard, stock-based payments to non-employees, and employee
awards that are direct awards of stock, call for settlement in cash or
other assets, or are stock appreciation rights that call for settlement by
the issuance of equity instruments, granted on or after January 1, 2002,
are accounted for using the fair value based method. No compensation cost
is required to be recorded for all other stock-based employee compensation
awards. Consideration paid by employees on the exercise of stock options is
recorded as share capital and contributed surplus. The Company discloses
the pro forma effect of accounting for these awards under the fair value
based method (see note 9). The adoption of this new standard has resulted
in no changes to amounts previously reported.
3. SEGMENTED INFORMATION
The Company operates in three business segments:
Specialties - manufacture and sale of groundwood specialty printing
papers
Newsprint - manufacture and sale of newsprint
Pulp and containerboard - manufacture and sale of softwood pulps and
containerboard
Subsequent to December 31, 2001, the Company segregated its newsprint
activities from those relating to groundwood specialty printing papers and
reports the results of these activities separately as the Newsprint and
Specialties segments. Segment information for prior periods has been
restated to reflect this change.
The segments are managed separately and all manufacturing facilities are
located in Canada.
NORSKE XXXX CANADA LIMITED
--------------------------------------------------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
unaudited (in millions of dollars, except where otherwise stated)
--------------------------------------------------------------------------------
SEGMENTED FINANCIAL INFORMATION
Paper
--------------------------------------------
Pulp and
Specialties Newsprint Subtotal containerboard Total
---------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30, 2002
Net sales 1 $ 195.1 $ 117.1 $ 312.2 $ 80.4 $ 392.6
Depreciation and amortization 22.8 16.1 38.9 7.4 46.3
Operating earnings (loss) 2.4 (15.2) (12.8) 8.9 (3.9)
Capital expenditures 9.6 2.9 12.5 1.1 13.6
THREE MONTHS ENDED SEPTEMBER 30, 2001
Net sales 1 119.4 117.5 236.9 85.2 322.1
Depreciation and amortization 8.3 12.3 20.6 10.7 31.3
Operating earnings (loss) 18.5 2.7 21.2 (7.5) 13.7
Capital expenditures 6.6 9.1 15.7 5.8 21.5
NINE MONTHS ENDED SEPTEMBER 30, 2002
Net sales 1 536.4 320.1 856.5 220.2 1,076.7
Depreciation and amortization 61.2 47.1 108.3 23.6 131.9
Operating earnings (loss) 4.6 (66.7) (62.1) (23.5) (85.6)
Capital expenditures 26.9 7.4 34.3 6.2 40.5
NINE MONTHS ENDED SEPTEMBER 30, 2001
Net sales 1 258.3 371.9 630.2 345.7 975.9
Depreciation and amortization 17.8 33.2 51.0 37.4 88.4
Operating earnings (loss) 40.1 41.1 81.2 (12.8) 68.4
Capital expenditures 12.5 21.5 34.0 28.1 62.1
1 Pulp and containerboard net sales are stated net of inter-segment pulp
sales of $41.6 million for the three months ended September 30, 2002 ($21.2
million - three months ended September 30, 2001) and $103.9 million for the
nine months ended September 30, 2002 ($61.5 million - nine months ended
September 30, 2001).
4. OTHER EXPENSE, NET
Other expense, net is comprised of the following:
Three months ended Nine months ended
September 30 September 30
--------------------- --------------------
2002 2001 2002 2001
-------- -------- --------------------
Write-off of deferred financing costs $ - $ - $ 15.8 $ -
Gain on sale of marketable securities - - (4.8) -
Loss on sale of Mackenzie pulp operations - - - 31.4
Other - 1.4 1.7 2.3
-------- -------- -------- --------
$ - $ 1.4 $ 12.7 $ 33.7
-------- -------- -------- --------
-------- -------- -------- --------
The deferred financing costs were associated with term and operating
credit facilities that were repaid in May 2002 and July 2002 respectively
(note 6).
On June 15, 2001, the Company sold its Mackenzie pulp operations for net
proceeds of $138.4 million and a loss of $19.0 million, net of tax recovery
of $12.4 million. The net proceeds included 1,750,000 shares of Xxxx and
Talbot Inc., which had a market value of $34.6 million on the closing date.
The Company disposed of these shares on March 28, 2002 for net proceeds of
$39.2 million and a gain of $4.8 million.
NORSKE XXXX CANADA LIMITED
--------------------------------------------------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
unaudited (in millions of dollars, except where otherwise stated)
--------------------------------------------------------------------------------
5. FUTURE INCOME TAXES
Future income taxes for nine months ended September 30, 2002 include a
non-cash recovery of $9.7 million relating to a change in the estimate of
the income tax liability for prior years.
6. LONG-TERM DEBT
The Company's long-term debt, including current maturities, is as follows:
AS AT As at
SEPTEMBER 30, December 31,
RECOURSE 2002 2001
------------- ------------
Senior notes, 8.625% due June 2011 (US$250.0 million) $ 396.5 $ 398.2
Senior notes, 10% due March 2009 (US$200.0 million) 337.0 340.7
-------- --------
733.5 738.9
Term loan, due June 2006, with interest at CDN prime rate/
US base rate plus 1.25%, or LIBOR/BA rate plus 2.25%,
at the Company's option - 72.2
Term loan, due August 2007, with interest at US prime rate
plus 1.75%, or LIBOR plus 2.75%, at the Company's option
(US$199.0 million) - 316.9
Revolving operating credit facility, due July 2005 (CDN$350.0 million),
with interest at CDN prime rate/US base rate plus 1.25%, or 132.2 -
LIBOR/BA rate plus 2.25%, at the Company's option.
-------- --------
865.7 1,128.0
-------- --------
NON-RECOURSE (PREI)
Term loan (senior debt), due August 2002, with interest at CDN prime
rate/US base rate plus 0.25%, or LIBOR/BA rate plus 1.25%, at
the Company's option - 35.1
Term loan (junior debt), due August 2002, with interest at BA rate
plus 3.5% - 11.5
First Mortgage Bonds, 6.387% due July 2009 (CDN$75.0 million) 37.6 -
-------- --------
37.6 46.6
-------- --------
Total long-term debt 903.3 1,174.6
Less: Current portion - (10.7)
-------- --------
$ 903.3 $1,163.9
-------- --------
-------- --------
On May 28, 2002, the Company repaid the outstanding balance on its term
loans. The Company used the proceeds from a share equity offering (note 7),
together with cash on hand and drawings on the existing credit facilities,
to fund the repayment.
On July 19, 2002, the Company repaid its then existing revolving credit
facility and replaced it with a new $350.0 million revolving operating
loan. The new operating credit facility is available based on a borrowing
base determined by accounts receivable and inventory balances and includes
a covenant to maintain the debt/capitalization ratio below 60%. An interest
coverage covenant is applicable only if the Company incurs additional
secured debt. At September 30, 2002, the unused recourse operating credit
facility available to the Company, after giving effect to the outstanding
letters of credit, was $192.0 million.
On July 24, 2002, PREI refinanced its debt by issuing $75.0 million of
First Mortgage Bonds due July 2009. As part of the refinancing, the Company
and the other shareholder of PREI each advanced $7.5 million to PREI. The
Company drew $7.5 million from the operating credit facility to finance its
advance.
7. SHARE CAPITAL
On May 28, 2002, the Company issued 31,100,000 common shares for net
proceeds of $208.3 million. The Company used the funds to repay its
term debt (note 6).
AS AT SEPTEMBER 30, 2002 As at December 31, 2001
--------------------------- ------------------------------
SHARES $ Shares $
--------------- --------- --------------- ------------
Continuity of common shares:
Beginning of period 174,810,132 673.1 124,189,252 1,262.6
Common shares issued 31,100,000 217.7 50,620,880 354.3
Special distribution - - - (943.8)
Share issue costs (net of income
tax recovery of $3.3 million) - (6.1) - -
--------------- --------- --------------- -----------
End of period 205,910,132 884.7 174,810,132 673.1
--------------- --------- --------------- -----------
--------------- --------- --------------- -----------
NORSKE XXXX CANADA LIMITED
--------------------------------------------------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
unaudited (in millions of dollars, except where otherwise stated)
--------------------------------------------------------------------------------
8. FINANCIAL INSTRUMENTS
The Company uses financial instruments to reduce its exposure to foreign
currency and price risk associated with its US dollar revenues and US
dollar long-term debt. The Company also uses interest rate swap derivatives
to reduce its exposure to changes in long-term fixed interest rates
associated with its senior notes.
REVENUE HEDGING INSTRUMENTS
At September 30, 2002, the Company's forward foreign currency contracts and
options hedging future revenues totalled notional US$571.0 million maturing
over the next 24 months at an average minimum rate of 1.5475 and average
maximum rate of 1.5836. At period-end exchange rates, the net amount that
the Company would pay to settle the unrecognized amount for these contracts
and options is $19.7 million.
LONG-TERM DEBT HEDGING INSTRUMENTS
The Company has forward foreign exchange contracts to acquire US dollars
totalling US$349.5 million over a five-year period at rates averaging
1.5688. In addition, the Company has entered into cancellable and
non-cancellable interest rate swaps on US$105.0 million under which it will
receive a fixed rate receipt at 8.625% and pay a floating rate averaging
LIBOR plus 2.51%. The termination dates are June 15, 2009 and June 15,
2011, and the cancellation dates range from June 15, 2005 to June 15, 2008.
At period-end rates, the net amount the Company would receive to settle
these contracts is $35.0 million.
9. STOCK-BASED COMPENSATION
The Company applies settlement accounting for recording share options
granted to directors, officers and employees. If the fair value method had
been used to determine compensation cost for share options granted to
directors, officers and employees, the Company's net loss and loss per
share would have been as follows:
Three months ended Nine months ended
September 30, 2002 September 30, 2002
---------------------- ----------------------
Net loss:
As reported (20.1) (86.0)
Pro forma (20.3) (86.5)
Net loss per common share:
As reported (0.10) (0.45)
Pro forma (0.10) (0.46)
The fair value of share options was estimated using the Black-Scholes
option-pricing model with the following assumptions:
Three months ended Nine months ended
September 30, 2002 September 30, 2002
---------------------- ----------------------
Risk-free interest rate (%) 5.2 5.2
Annual dividends per share - -
Expected stock price volatility (%) 26.0 26.0
The average expected life of the options used in the option pricing model
was determined as six years.
10. COMPARATIVE FIGURES
Certain comparative figures have been reclassified to conform with the
presentation adopted for the current period.
