Asset Impairment Overshadows Catalyst Paper’s Improved Financial Results
Continued weak print advertising resulted in another quarter of declining year-over-year demand for both coated and uncoated specialty grades. There was modest price improvement over the prior quarter for specialty grades and previously announced price increases were partially implemented.
Directory and newsprint demand were also down from the same quarter a year ago. Closure of a competing mill improved market conditions for directory and a previously announced increase for non-contract customers was implemented. The average North American benchmark price for newsprint was down slightly from the second quarter.
Reduced global paper demand and increased pulp inventories in the quarter contributed to softening markets for NBSK pulp, and the average benchmark pulp price for China was down 8.7 percent from the second quarter.
Cash Flows and Liquidity
Cash flows from operations were negative $38.8 million, compared with negative $5.4 million in the same quarter a year ago. This is due primarily to an increase in non-cash working capital of $44.5 million which more than offset $5.7 million in cash flows from operations before changes in non-cash working capital.
Total liquidity was $125.9 million, down from $183.9 million in the same quarter of 2010, with increased availability under Catalyst’s amended asset-based loan facility being more than offset by reduced cash on hand. Lower cash on hand resulted primarily from payment of $18.1 million in property taxes for 2011, a $4.1 million payment for outstanding property taxes for a prior year, $5.1 million cash contribution for the closure of our U.S. sales company’s benefit pension plan and an increase in cash used to fund working capital.
Catalyst believes its capital structure is too highly leveraged given current business and economic conditions, and has identified debt reduction as a priority. The company is reviewing alternatives for both its $250 million of 7.375 percent senior unsecured notes due March 2014 and its US$390 million 11.0 percent senior secured notes due December 2016. Discussions are ongoing with certain holders of these notes or their representatives. If the company is unable to make appropriate capital restructuring improvements, the debt level and debt service requirements could negatively impact its financial results and business operation.
Other Developments and Outlook