Canfor Pulp Products Inc. Announces Second Quarter 2015 Results and Quarterly Dividend

Commenting on the second quarter's results, CPPI's Chief Executive Officer, Don Kayne, said, "Results in the quarter reflected fairly stable NBSK market conditions, the impact of the scheduled maintenance outages at several of Canfor Pulp's facilities as well as higher shipments to China, reflecting the impact of the Chinese Lunar New Year in the first quarter."

For the month of July 2015, the Company's NBSK pulp list price is US$980 per tonne in North America, unchanged from June 2015. With reported global softwood pulp inventories at the high end of the balanced range heading into the seasonally slower summer period, there is some risk of downward pressure on global softwood pulp prices in the third quarter of 2015. A weakening of the Canadian dollar should mitigate this price pressure.

A maintenance outage is planned to begin at the Northwood Pulp Mill in September 2015, with a projected 25,000 tonnes of reduced NBSK pulp production, 5,000 tonnes of which will fall in the third quarter of 2015 with the balance in the fourth quarter of 2015.

On July 21, 2015, the Board of Directors declared a quarterly dividend of $0.0625 per share and a special dividend of $1.1250 per share, both payable on August 10, 2015, to the shareholders of record on August 3, 2015. The special dividend has been declared as a result of strong cash generated by the business in 2014 and 2015 to-date.

Additional Information and Conference Call
A conference call to discuss the second quarter's financial and operating results will be held on Wednesday, July 22, 2015 at 8:00 AM Pacific time. To participate in the call, please dial 416-764-8688 or Toll-Free 888-390-0546. For instant replay access until August 5, 2015, please dial 888-390-0541 and enter participant pass code 494894#. 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 reflect later events or developments, except as required by law.

CPPI is a leading global supplier of pulp and paper products with operations in the central interior of British Columbia ("BC") employing approximately 1,300 people throughout the organization. Canfor Pulp owns and operates three mills in Prince George, BC with a total capacity of 1.1 million tonnes of Premium Reinforcing Northern Bleached Softwood Kraft Pulp and 140,000 tonnes of kraft paper, as well as one mill in Taylor, BC with an annual production capacity of 220,000 tonnes of Bleached Chemi-Thermo Mechanical Pulp ("BCTMP").  Canfor Pulp is the largest North American and one of the largest global producers of market NBSK Pulp.  CPPI shares are traded on the Toronto Stock Exchange under the symbol CFX.

Canfor Pulp Products Inc.
Second Quarter 2015
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 June 30, 2015 relative to the quarters ended March 31, 2015 and June 30, 2014, and the financial position of the Company at June 30, 2015.  It should be read in conjunction with CPPI's unaudited interim consolidated financial statements and accompanying notes for the quarters ended June 30, 2015 and 2014, as well as the 2014 annual MD&A and the 2014 audited consolidated financial statements and notes thereto, which are included in CPPI's Annual Report for the year ended December 31, 2014 (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 (Loss) 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. Reference is also made to Adjusted Net Income (Loss) (calculated as Net Income (Loss) less specific items affecting comparability with prior periods - for the full calculation, see reconciliation included in the section "Analysis of Specific Material Items Affecting Comparability of Net Income (Loss)") and Adjusted Net Income (Loss) per Share (calculated as Adjusted Net Income (Loss) divided by weighted average number of shares outstanding during the period). Operating Income (Loss) before Amortization, Adjusted Net Income (Loss) and Adjusted Net Income (Loss) per Share are not generally accepted earnings measures 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 these measures, CPPI's Operating Income (Loss) before Amortization, Adjusted Net Income (Loss) and Adjusted Net Income (Loss) per Share may not be directly comparable with similarly titled measures used by other companies. Reconciliations of Operating Income (Loss) before Amortization to Operating Income (Loss) and Adjusted Net Income (Loss) to Net Income (Loss) reported in accordance with IFRS are 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 July 21, 2015. 

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.

SECOND QUARTER 2015 OVERVIEW

Selected Financial Information and Statistics

Analysis of Specific Material Items Affecting Comparability of Net Income

The Company reported operating income of $20.9 million for the second quarter of 2015, a decrease of $20.5 million from $41.4 million reported for the first quarter of 2015. The decrease largely reflected the impact of maintenance outages and lower unit sales realizations for both pulp and paper segments. The current quarter results included scheduled maintenance outages at two of the Company's Northern Bleached Softwood Kraft ("NBSK") pulp mills, its Bleached Chemi-Thermo Mechanical Pulp ("BCTMP") mill and its kraft paper machine.

Global softwood pulp markets remained relatively balanced through the second quarter of 2015, supported by solid global softwood pulp demand and the industry's seasonal spring maintenance period. The average NBSK pulp list price to North America, as published by RISI, was stable through the quarter, remaining unchanged from March 2015 at US$980 per tonne, and down US$15 per tonne, or 2%, compared to the average in the previous quarter.  Overall, NBSK pulp unit sales realizations were down compared to the previous quarter, reflecting lower pricing in all regions, and, to a lesser extent, the impact of a slightly stronger Canadian dollar (up 1%) and increased shipments to lower-margin regions. BCTMP markets were challenging in the second quarter, with the Company seeing a modest decline in unit sales realizations compared to the first quarter of 2015. 

Pulp shipments increased 7% from the previous quarter, reflecting a full quarter of shipments from the Taylor Pulp Mill, as well as a marginal increase in NBSK pulp shipments, principally to China, in part due to the traditional Chinese Lunar New Year holiday impacting shipments in the first quarter. Pulp production levels were up 2%, with the Taylor Pulp Mill production more than offsetting scheduled maintenance outages at the Company's Intercontinental and Prince George Pulp Mills, which reduced market pulp production by approximately 11,000 tonnes. In the current quarter, there was also a scheduled maintenance outage at the Taylor Pulp Mill, which reduced market pulp production by approximately 3,000 tonnes. Pulp unit manufacturing costs in the second quarter of 2015 were up compared to the first quarter of 2015, largely reflecting these maintenance outages, offset somewhat by seasonally lower energy prices and usage.

The Company's paper segment's operating income was down $2.2 million from the previous quarter, reflecting the impact of the scheduled maintenance outage of the Prince George Kraft paper machine, and to a lesser extent, a marginal decrease in unit sales realizations, offset in part by increased shipments to the North American market.

Compared to the second quarter of 2014, operating income was down $8.7 million, with higher earnings in the paper segment more than offset by lower pulp segment operating income. In the latter segment, the benefit of a 10 cent, or 11%, weaker Canadian dollar and higher production volumes were more than offset by lower US dollar NBSK pulp realizations and higher unit manufacturing costs, related largely to market-driven increases in fibre costs as well as costs associated with the scheduled maintenance outages in the current quarter. Compared to the same period in 2014, the paper segment's improved unit sales realizations, mainly attributable to the weaker Canadian dollar, more than offset lower shipments and the impact from the scheduled maintenance outage at the Company's paper machine in the current quarter.

OPERATING RESULTS BY BUSINESS SEGMENT

Pulp

Selected Financial Information and Statistics - Pulp

Overview

Operating income for the pulp segment was $18.1 million for the second quarter of 2015, a decrease of $18.2 million from the previous quarter and $10.7 million below the second quarter of 2014.  Pulp segment financial results and information in 2015 include the Taylor Pulp Mill, acquired January 30, 2015.

The current quarter pulp results included the impact of the scheduled maintenance outages at the Intercontinental and Prince George Pulp Mills and the Taylor Pulp Mill, which reduced market pulp production by approximately 11,000 tonnes and 3,000 tonnes, respectively. Decreased operating results compared to the previous quarter largely reflected higher unit manufacturing costs due to these outages as well as a modest decline in NBSK and BCTMP pulp sales realizations, driven by lower pricing to all regions, increased shipments to lower-margin regions and, to a lesser extent, a 1 cent, or 1%, stronger Canadian dollar.

Compared to the second quarter of 2014, the benefit of an 11% weaker Canadian dollar and higher production volumes were more than offset by lower US dollar list prices to all regions and higher unit NBSK pulp manufacturing costs. Higher unit NBSK pulp manufacturing costs reflected a largely market-driven increase in fibre costs as well as costs associated with the scheduled maintenance outages in the current quarter.

The current quarter's results also reflected the lower unit sales realizations and manufacturing costs attributable to the Taylor Pulp BCTMP facility.

Markets

Global softwood pulp markets remained relatively balanced through the second quarter of 2015, with increased shipments to China offset in part by declines to North America and Europe. Global softwood pulp producer inventory levels tightened through the quarter, decreasing 3 days from the end of March 2015 to 30 days' supply in May 2015¹⁰ (latest available data), partly reflecting supply constraints due to seasonal maintenance downtime, as inventory levels ended the quarter at the high end of the balanced range (market conditions are generally considered balanced when inventories are in the 27-30 days of supply range).

Global shipments of bleached softwood kraft pulp improved modestly compared to the previous quarter and were broadly in line with the same period in 2014¹¹. The increase in softwood pulp shipments compared to the previous quarter in part reflected increased shipments to Asia.

Sales

The Company's pulp shipments in the second quarter of 2015 totalled 291,900 tonnes, an increase of 19,800 tonnes, or 7%, from the previous quarter, reflecting the Taylor Pulp Mill shipments for the full quarter as well as a marginal increase in NBSK pulp shipments. Increased NBSK pulp shipments reflected increased shipments to China, in part due to the traditional Chinese Lunar New Year holiday in the previous quarter, partially offset by reduced shipments to North America. Compared to the same period in 2014, pulp shipments were up 45,000 tonnes, or 18%, mostly due to the addition of the Taylor Pulp Mill, which more than offset a marginal reduction in NBSK pulp shipments, with higher NBSK pulp demand in North America partially offset by reduced shipments to Asia.

The average North American NBSK pulp list price, as published by RISI, was down US$15 per tonne, or 2%, compared to the average for the first quarter of 2015.  Overall NBSK pulp sales realizations were down in the second quarter of 2015, reflecting lower pricing in all regions, and, to a lesser extent, increased shipments to lower-margin regions, particularly China. Also contributing to the reduced sales realizations in the second quarter of 2015, was the 1 cent, or 1%, stronger Canadian dollar compared to the previous quarter. Discount levels were consistent with the previous quarter. BCTMP unit sales realizations reflected moderately lower market prices, attributable to the challenging BCTMP markets, coupled with the slightly stronger Canadian dollar in the second quarter of 2015.

Compared to the second quarter of 2014, NBSK pulp sales realizations were up slightly, with the 11% weaker Canadian dollar and increased shipments to North America offsetting lower NBSK pulp US dollar list prices in all regions, as published by RISI, and to a lesser extent, increased discounts in North America. The average NBSK pulp list price to North America saw a decrease of US$50 per tonne, or 5%, while prices to China saw a similar decline.

Energy revenue was broadly in line with both comparable periods as the contribution from the recently completed turbine upgrade at the Intercontinental Pulp Mill, which commenced selling power under an Electricity Purchase Agreement in the current quarter, was offset by the impact of the maintenance outages in the current quarter, coupled with seasonally lower energy prices compared to the previous quarter.   

Operations

Pulp production in the current quarter was 294,600 tonnes, up 6,800 tonnes, or 2%, from the previous quarter, and up 56,900 tonnes, or 24%, from the second quarter of 2014. The increase in production from both comparable periods included the production from the Taylor Pulp Mill for the full quarter. Excluding production volume from the Taylor Pulp Mill, the Company's NBSK pulp production decreased modestly compared to the previous quarter but was up slightly compared to the same period in the prior year. Production in the current quarter also reflected scheduled maintenance outages at the Intercontinental and Prince George Pulp Mills, which reduced market pulp production by approximately 11,000 tonnes and a scheduled maintenance outage at the Taylor Pulp Mill, which reduced market pulp production by approximately 3,000 tonnes. There were no maintenance outages in the previous quarter, while in the comparative second quarter of 2014, production levels included maintenance outages at the Intercontinental and Prince George Pulp Mills, which reduced market pulp production by approximately 18,000 tonnes. 

Pulp unit manufacturing costs saw an increase from the previous quarter, largely reflecting the maintenance outages in the quarter, which resulted in higher costs and lower production volumes, and to a lesser degree, higher outage-related chemical costs in the current period, offset somewhat by seasonally lower energy price and usage. Fibre costs for the NBSK pulp mills were broadly in line with the previous quarter as lower prices for sawmill residual chips (linked to lower Canadian dollar NBSK pulp sales realizations) and a lower proportion of higher-cost whole log chips offset seasonally higher price adjustments. Fibre costs for the BCTMP mill was lower than the previous quarter, also reflecting lower prices for sawmill residual chips (linked to lower Canadian dollar BCTMP pulp sales realizations).

Compared to the second quarter of 2014, unit manufacturing costs were also up, with the inclusion of the lower cost BCTMP unit costs and the favourable impact of the higher production volumes largely offsetting modestly higher costs associated with the scheduled maintenance outages in the current quarter and a marginal increase in NBSK pulp fibre costs. Contributing to the higher NBSK pulp fibre costs in the current quarter were higher prices for sawmill residual chips, reflecting increased Canadian dollar NBSK pulp sales realizations, somewhat mitigated by lower freight costs.

Paper

Selected Financial Information and Statistics - Paper

Overview

Operating income for the paper segment was $5.7 million for the second quarter of 2015, down $2.2 million from the first quarter of 2015 and up $1.9 million from the second quarter of 2014.

The decrease in operating income compared to the previous quarter largely reflected the impact of a scheduled maintenance outage at the Company's paper machine and, to a lesser extent, a marginal decrease in unit sales realizations. The lower unit sales realizations were in part attributable to lower prices in some markets as European producers leveraged the relative weakening of the European Euro, the impact of the slightly stronger Canadian dollar and reduced prime bleached sales, offset in part by increased demand from the North American market.

Compared to the second quarter of 2014, improved unit sales realizations, driven primarily by the 11% weaker Canadian dollar, more than offset lower shipments and higher unit manufacturing costs reflecting the impact of the scheduled maintenance outage in the current quarter, which was five days longer than the outage in the same period in 2014.

Markets

Global kraft paper market demand was steady through the second quarter of 2015. North American markets were balanced, while certain offshore markets faced increased competition in part impacted by economic factors in both Asian and European markets.

Sales

The Company's paper shipments in the second quarter of 2015 were 33,800 tonnes, up 1,700 tonnes, or 5%, from the previous quarter and down 5,900 tonnes, or 15%, from the same period of the previous year.  The increased shipments compared to the previous quarter were principally due to higher demand from North America while demand to most other regions was relatively stable. Compared to the second quarter of 2014, the lower shipments in part reflected the drawdown to normal inventory levels in that quarter following the transportation challenges faced in the first quarter of 2014. Prime bleached shipments, which attract higher prices, were down 2% from both comparative periods.

Current quarter unit sales realizations saw a marginal decrease from the first quarter of 2015, reflecting somewhat weaker prices, in part attributable to lower prices in some markets as European producers leveraged the relative weakening of the European Euro, coupled with the 1% stronger Canadian dollar and decreased prime bleached shipments. Somewhat mitigating these factors were increased shipments to higher-margin regions. Compared to the same period in 2014, unit sales realizations were well up, benefitting from the 11% weaker Canadian dollar, and to a lesser extent, higher prices and increased shipments to higher-margin regions, all of which more than offset the decline in realizations on sales to Europe due to the strengthening Canadian dollar compared to the European Euro, and a lower percentage of prime bleached sales.

Operations

Paper production in the second quarter of 2015 was 31,000 tonnes, down 4,400 tonnes, or 12%, from both comparable periods. The current quarter production reflected a scheduled nine day maintenance outage at the Company's paper machine in April 2015, which reduced paper production by approximately 3,300 tonnes. In the comparative second quarter of 2014, production levels included the impact of a four day maintenance outage at the Company's paper machine, which reduced paper production by approximately 1,600 tonnes.  Production in the current quarter also reflected lower slush pulp transfers from the Prince George Pulp Mill due to the aforementioned scheduled maintenance outage.

Paper unit manufacturing costs increased modestly from the previous quarter, with lower slush pulp costs due to lower overall pulp unit sales realizations in the current quarter more than offset by the impact of the lower production volumes and higher costs related to the outage and, to a lesser degree, higher chemical costs in the current quarter.

Compared to the second quarter of 2014, higher paper unit manufacturing costs reflected the impact of the longer maintenance outage in the current quarter, market-driven increases in slush pulp costs and higher chemical costs.  

Unallocated Items

Selected Financial Information

Corporate costs of $2.9 million for the second quarter of 2015 and net finance expense of $1.3 million for the second quarter of 2015 were in line with both comparative quarters.

The Company uses a variety of derivative financial instruments as partial economic hedges against unfavourable changes in foreign exchange rates, energy costs, interest rates and pulp prices. For the second quarter of 2015, the Company recorded a net gain of $4.6 million, principally reflecting unrealized mark-to-market gains on US dollar foreign exchange collars as a result of the strengthening of the Canadian dollar at the close of the current quarter relative to the exchange rate at the close of the first quarter of 2015.

Other expense, net for the second quarter of 2015 of $0.6 million included unfavourable exchange movements on US dollar denominated cash, receivables and payables, resulting from the slight strengthening of the Canadian dollar through the quarter. In the current quarter, other expense, net also included a $1.8 million mark-to-market gain related to the Taylor Pulp Mill contingent consideration liability, reflecting lower forecast BCTMP prices over the contingent consideration period (See further discussion in the "Purchase of Taylor Pulp Mill" section).

Other Comprehensive Income (Loss)

In the second quarter of 2015, the Company recorded an after-tax gain of $4.5 million in relation to changes in the valuation of the Company's employee future benefit plans. The gain principally reflected a higher discount rate used to value the net defined benefit obligation.  After-tax losses of $2.2 million and $1.8 million were recorded in the first quarter of 2015 and second quarter of 2014, respectively, both reflecting lower discount rates, offset in part by returns on plan assets, while the loss in the second quarter of 2014 also included actuarial assumption and experience adjustments.

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:

Changes in Financial Position

Cash generated from operating activities was $30.5 million in the second quarter of 2015, down $9.1 million from the previous quarter, with lower cash earnings partly offset by a smaller build in non-cash working capital and the timing of tax installment payments in the current quarter. The increase in non-cash working capital in the current quarter reflected a reduction in accounts payable balances, in part reflecting seasonally lower electricity accruals, coupled with slightly higher accounts receivable balances, attributable to the higher pulp shipments.  Partially offsetting these factors was a reduction of paper and raw material inventories, with the former largely reflecting the outage in the current quarter and the latter in part due to lower whole log deliveries during the spring break-up period.  Compared to the second quarter of 2014, cash generated from operating activities decreased by $21.1 million, reflecting a $10.7 million decrease in non-cash working capital in the second quarter of 2014, principally due to the timing of payments related to maintenance outages offset in part by an increase in trade accounts receivable balances in that quarter, and to a lesser degree, the lower cash earnings compared to the current quarter.

Cash used for financing activities was $12.3 million in the second quarter of 2015, up $5.7 million from the previous quarter and $2.2 million from the second quarter of 2014.  Cash flows in the current period included a $4.4 million dividend (6.25 cents per share), in line with both the previous quarter and the second quarter of 2014.  Finance expenses paid in the second quarter of 2015 at $0.6 million were broadly in line with the prior quarter and the second quarter of 2014.  In the second quarter of 2015, CPPI purchased 137,855 common shares under its Normal Course Issuer Bid for $2.0 million, all of which was paid in cash during the period.  Cash paid for share purchases in the second quarter also included $5.3 million related to share purchases at the end of the first quarter. This compares to cash paid for Normal Course Issuer Bid share purchases of $1.7 million in the first quarter of 2015 and no share purchases in the second quarter of 2014 (see further discussion of the shares purchased under the Normal Course Issuer Bid in the following "Liquidity and Financial Requirements" section). No amounts were drawn against the Company's operating loan facility at the end of the second quarter of 2015. 

Cash used for investing activities of $12.5 million in the current quarter included final payments related to the completion of the Intercontinental Pulp Mill's turbine upgrade at the end of the previous quarter and maintenance-of-business capital related to the aforementioned maintenance outages during the quarter. The Intercontinental Pulp Mill facility commenced selling power under an Electricity Purchase Agreement in the second quarter of 2015.

Liquidity and Financial Requirements

At June 30, 2015, CPPI had cash of $89.7 million and operating loan facilities of $130.0 million which were unused, except for $11.6 million reserved for several standby letters of credit related to energy sales agreements. In early July, the Company made a tax installment payment of $19.0 million.

During the second quarter of 2015, the Company extended the maturity date on its $30.0 million operating loan facility, which covers energy-related letters of credit, to June 30, 2016. 

CPPI has $50.0 million of floating interest rate term debt, repayable in November 2018.

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.

On March 5, 2015, the Company renewed its normal course issuer bid whereby it can purchase for cancellation up to 3,541,491 common shares or approximately 5% of its issued and outstanding common shares as of February 28, 2015. The renewed normal course issuer bid is set to expire on March 4, 2016. During the second quarter of 2015, CPPI purchased 137,855 common shares for $2.0 million (an average of $14.51 per common share). Cash paid for shares purchases in the second quarter of 2015 of $7.3 million also included payments of $5.3 million for purchases that occurred in the first quarter of 2015.  As a result of the share purchases during the quarter, Canfor's interest in CPPI increased to 51.0% by quarter end. The Company may purchase more shares through the balance of 2015 subject to the terms of the normal course issuer bid and certain Board approved criteria.

Dividends

On July 21, 2015, the Board of Directors declared a quarterly dividend of $0.0625 per share and a special dividend of $1.1250 per share, both payable on August 10, 2015, to the shareholders of record on August 3, 2015. The special dividend has been declared as a result of strong cash generated by the business in 2014 and 2015 to-date.

Purchase of Taylor Pulp Mill

On January 30, 2015, CPPI completed the purchase of the Taylor Pulp Mill from Canfor for cash consideration of $12.6 million including final working capital. The acquisition also includes a long-term fibre supply agreement under which Canfor will supply the Taylor Pulp Mill with fibre at prices that approximate fair market value. In addition to the cash consideration paid on the acquisition date, CPPI may also pay contingent consideration to Canfor, based on the Taylor Pulp Mill's annual adjusted operating income before amortization over a three year period, starting January 31, 2015. On the acquisition date, the fair value of the contingent consideration was $1.8 million and was recorded as a long-term provision.  CPPI recognized long-term assets acquired net of liabilities assumed at a fair value of $2.8 million and net working capital of $11.6 million. The acquisition has been accounted for in accordance with IFRS 3 Business Combinations. 

If the acquisition had occurred on January 1, 2015, CPPI's consolidated sales for the six months ended June 30, 2015 would have increased by approximately $8.9 million and consolidated net income for the six months ended June 30, 2015 would have increased by approximately $0.2 million.  The Taylor Pulp Mill's results are recorded in the pulp segment.

During the second quarter of 2015, CPPI reversed the $1.8 million contingent consideration provision, resulting in a gain recorded to Other Income to reflect lower forecast BCTMP prices over the contingent consideration period.

OUTLOOK

Pulp

For the month of July 2015, the Company's NBSK pulp list price is US$980 per tonne in North America, unchanged from June 2015. With reported global softwood pulp inventories at the high end of the balanced range heading into the seasonally slower summer period, there is some risk of downward pressure on global softwood pulp prices in the third quarter of 2015. A weakening of the Canadian dollar should mitigate this price pressure.

A maintenance outage is planned to begin at the Northwood Pulp Mill in September 2015, with a projected 25,000 tonnes of reduced NBSK pulp production, 5,000 tonnes of which will fall in the third quarter of 2015 with the balance in the fourth quarter of 2015.

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