Tembec reports financial results for its second quarter ended March 31, 2007
MONTREAL, May 3 /CNW Telbec/ - Consolidated sales for the second quarter
ended March 31, 2007 were $790 million, down from $818 million in the
comparable period last year. The Company generated a net loss of $45 million
or $0.54 per share compared to a net loss of $168 million or $1.96 per share
in the corresponding quarter ended March 25, 2006. Earnings before unusual
items, interest, income taxes, depreciation, amortization and other
non-operating expenses (EBITDA) was $17 million, as compared to EBITDA of
$4 million a year ago and EBITDA of $13 million in the prior quarter.
The March 2007 quarterly financial results include an after-tax gain of
$10 million or $0.12 per share relating to a gain on translation of foreign
debt. After adjusting for this item and certain other items, the Company would
have generated a net loss of $58 million or $0.70 per share. This compares to
a net loss of $110 million or $1.28 per share in the corresponding quarter
ended March 25, 2006 and net earnings of $17 million or $0.21 per share in the
previous quarter. The impact of specific items on the Company's financial
performance is discussed further in the Management Discussion and Analysis
(MD&A) of its financial results.
Business Segment Results
------------------------
The Forest Products segment generated negative EBITDA of $22 million on
sales of $213 million. This compares to negative EBITDA of $15 million on
sales of $204 million in the prior quarter. The sales increase of $9 million
was caused primarily by higher volumes and selling prices for Eastern SPF
lumber. US $ reference prices for random lumber increased by approximately
US $6 per mfbm while stud lumber increased by US $14 per mfbm. Currency
provided a small positive as the Canadian $ averaged $0.854, a 3% decline from
$0.877 in the prior quarter. The net price effect was an increase in EBITDA of
$2 million or $6 per mfbm. Margins were negatively impacted by higher
operating costs caused by seasonal weather and reduced operating levels at
several facilities. The March quarter also saw lower profitability in
Specialty and Engineered wood as the winter period normally experiences
reduced activity. During the quarter, the Company incurred $5 million of
lumber export taxes as compared to $3 million in the prior quarter. Lumber
export taxes are payable based on the new agreement between Canada and the
United States. While the tax rates on our Eastern and Western shipments
remained unchanged at 5% and 15% respectively, a combination of higher U.S.
shipments and higher value products generated the majority of the increase.
The lumber tax was also applicable for the entire March quarter, whereas the
first 11 days of the prior quarter were not subject to lumber export taxes.
The Pulp segment generated EBITDA of $39 million on sales of $382 million
for the quarter ended March 2007 compared to EBITDA of $20 million on sales of
$327 million in the December 2006 quarter. The $55 million increase in sales
was the result of increased shipments and prices for all grades of pulp. In
the December quarter, shipments had been below normal levels due to increased
maintenance downtime. As well, finished goods inventory needed to be
increased. Paper pulp inventories had decreased to 18 days of supply at the
end of September, a level which was not sustainable given customer service
requirements. In the March quarter, sales and production were balanced and
inventory levels ended at 27 days, unchanged from the end of the prior
quarter. US $ reference prices increased for all grades of pulp, led by
softwood and specialty grades. Prices were also assisted by currency as the
Canadian $ averaged 3% less versus the US $ as compared to the prior quarter.
The net price effect was an increase of $34 per tonne, increasing EBITDA by
$17 million. Margins were also assisted by lower manufacturing costs. During
the December 2006 quarter, the Company incurred higher labour and maintenance
material costs associated with maintenance shutdowns at four of its pulp
mills, including 10 days and 11 days respectively at the Tartas specialty pulp
mill and the Tarascon paper pulp mill. Total downtime reached 21,400 tonnes in
the December quarter. In the most recent quarter, maintenance downtime was
only 4,400 tonnes. The latter amount does not include 12,400 tonnes of lost
production associated with an explosion in one of the two flash pulp dryers at
the Temiscaming high yield pulp mill. The dryer was off-line for approximately
one month. The cost of this incident including repairs and the value of lost
sales was approximately $4 million. The dryer was restarted in March and has
been operating well since that time.
The Paper segment generated negative EBITDA of $2 million on sales of
$209 million. This compares to EBITDA of $6 million on sales of $207 million
in the prior quarter. The sales increase of $2 million was due to higher
shipments of coated and specialty papers partially offset by lower shipments
and prices for newsprint. US $ reference prices for newsprint and coated
papers declined by US $40 per tonne and US $3 per short ton respectively. The
reference price for coated bleached board increased by US $13 per short tonne.
Prices were assisted by currency as the Canadian $ averaged 3% less versus the
US $. The net price effect was a decrease of $9 per tonne, decreasing EBITDA
by $2 million. Increased energy and fibre costs, primarily at the
St. Francisville paper mill, were also a factor that reduced segment margins.
The depreciation of the Canadian currency versus the US $ also increased
St. Francisville's reported costs. Total downtime in the March quarter was
3,900 tonnes compared to 10,900 tonnes in the prior quarter.
Outlook
-------
Overall, the March quarterly operating results fell short of the
Company's expectations. Continued low lumber selling prices combined with the
approximately $4 million cost of the flash dryer explosion at the Temiscaming
pulp mill negatively impacted the results. Better margins are anticipated in
the coming quarters as market pulp prices remain strong and we expect some
improvement in lumber prices, albeit from a low level. While the recent
strengthening of the Canadian $ versus the US $ is a negative, the Company
continues to manage the business on the assumption that the Canadian $ will
trade in the US $ 0.87 to US $0.89 range. The primary challenges faced by the
industry are the strength of the Canadian $ and higher chemical, energy and
wood costs, particularly in Eastern Canada. These issues are being addressed
as part of the Company's recovery plan. While the recent softwood lumber
agreement did not represent an optimal outcome for Canadian lumber
manufacturers, it did replenish the Company's liquidity. Efforts have now
turned to optimization of operations given the new lumber export taxes and
quotas and the difficult market conditions.
Liquidity at the end of March 2007 was $185 million. The March / April
period represents peak seasonal inventory and we expect liquidity to increase
over the next several months as inventory levels decline. In addition, the
Company continues with other initiatives to improve liquidity. The target for
fiscal 2007 is to generate $100 million of additional liquidity through a
combination of asset sales and increased working capital facilities. To date,
a total of $60 million has been generated through these initiatives.
Tembec is a large, diversified and integrated forest products company.
With operations principally located in North America and in France, the
Company employs approximately 9,000 people. Tembec's common shares are listed
on the Toronto Stock Exchange under the symbol TBC. Additional information on
Tembec is available on its website at www.tembec.com
This press release includes "forward-looking statements" within the
meaning of securities laws. Such statements relate to the Company's or
management's objectives, projections, estimates, expectations or predictions
of the future and can be identified by words such as "anticipate", "estimate",
"expect" and "project" or variations of such words. These statements are based
on certain assumptions and analyses made by the Company in light of its
experience and its perception of future developments. Such statements are
subject to a number of risks and uncertainties, including, but not limited to,
changes in foreign exchange rates, product selling prices, raw material and
operating costs and other factors identified in our periodic filings with
securities regulatory authorities in Canada and the United States. Many of
these risks are beyond the control of the Company and, therefore, may cause
actual actions or results to materially differ from those expressed or implied
herein. The Company disclaims any intention or obligation to update or revise
any forward-looking statements, whether as a result of new information, future
events or otherwise.
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TEMBEC INC.
CONSOLIDATED BALANCE SHEETS
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(unaudited) (in millions of dollars)
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Mar. 31, Sept. 30,
2007 2006
(Audited)
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Assets
Current Assets:
Cash and cash equivalents $ 33 $ 31
Accounts receivable 437 405
Inventories 595 483
Prepaid expenses 28 20
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1,093 939
Investments 32 32
Fixed assets 1,748 1,807
Other assets 138 169
Future income taxes 105 63
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$ 3,116 $ 3,010
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Liabilities and Shareholders' Equity
Current Liabilities:
Bank indebtedness $ 3 $ 5
Operating bank loans 148 235
Accounts payable and accrued charges 412 407
Interest payable 19 19
Current portion of long-term debt (note 3) 20 21
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602 687
Long-term debt (note 3) 1,516 1,433
Other long-term liabilities and credits 164 150
Future income taxes 122 121
Minority interest 5 5
Redeemable preferred shares 26 26
Shareholders' equity:
Share capital (note 4) 840 840
Accumulated other comprehensive loss (3) (3)
Deficit (156) (249)
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681 588
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$ 3,116 $ 3,010
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TEMBEC INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
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Quarters and six months ended March 31, 2007 and March 25, 2006
(unaudited) (in millions of dollars, unless otherwise noted)
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Quarters Six months
2007 2006 2007 2006
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Sales $ 790 $ 818 $ 1,514 $ 1,607
Freight and sales deductions 90 97 174 191
Lumber duties and export
taxes (note 5) 5 11 8 17
Cost of sales 641 668 1,232 1,351
Selling, general and
administrative 37 38 70 76
Depreciation and amortization 46 56 94 112
Recovery of lumber duties
(note 6) - - (238) -
Restructuring charge - mill
closures (note 6) - 176 29 176
Gain on land sales (note 6) (4) - (12) -
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Operating earnings (loss)
from continuing operations (25) (228) 157 (316)
Interest, foreign exchange
and other (note 7) 36 10 24 31
Exchange loss (gain) on
long-term debt (13) 3 48 (3)
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Earnings (loss) from
continuing operations,
before income taxes and
share in earnings of
a related company (48) (241) 85 (344)
Income tax recovery (note 8) (1) (25) (5) (49)
Share in earnings of a
related company (2) - (3) -
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Net earnings (loss) from
continuing operations (45) (216) 93 (295)
Earnings from discontinued
operations (note 2) - 48 - 52
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Net earnings (loss) $ (45) $ (168) $ 93 $ (243)
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Basic and diluted earnings
(loss) per share from
continuing operations
(note 4) $ (0.54) $ (2.52) $ 1.08 $ (3.44)
Basic and diluted earnings
per share from discontinued
operations (note 4) - $ 0.56 - $ 0.60
Basic and diluted earnings
(loss) per share (note 4) $ (0.54) $ (1.96) $ 1.08 $ (2.84)
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TEMBEC INC.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (DEFICIT)
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Quarters and six months ended March 31, 2007 and March 25, 2006
(unaudited) (in millions of dollars, unless otherwise noted)
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Quarters Six months
2007 2006 2007 2006
-------------------------------------------------------------------------
Retained earnings (deficit),
beginning of period $ (111) $ (20) $ (249) $ 55
Net earnings (loss) (45) (168) 93 (243)
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Deficit, end of period $ (156) $ (188) $ (156) $ (188)
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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
-------------------------------------------------------------------------
Quarters and six months ended March 31, 2007 and March 25, 2006
(unaudited) (in millions of dollars, unless otherwise noted)
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Quarters Six months
2007 2006 2007 2006
-------------------------------------------------------------------------
Net earnings (loss) $ (45) $ (168) $ 93 $ (243)
Other comprehensive income
(loss):
Exchange translation of
foreign subsidiaries - - - -
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Comprehensive income (loss) $ (45) $ (168) $ 93 $ (243)
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TEMBEC INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------------------------------------------
Quarters and six months ended March 31, 2007 and March 25, 2006
(unaudited) (in millions of dollars)
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Quarters Six months
2007 2006 2007 2006
-------------------------------------------------------------------------
Cash flows from operating
activities:
Net earnings (loss) $ (45) $ (168) $ 93 $ (243)
Adjustments for:
Earnings from
discontinued
operations (note 2) - (48) - (52)
Depreciation and
amortization 46 56 94 112
Unrealized foreign
exchange and others
(note 7) 4 (18) 6 (32)
Exchange loss (gain) on
long-term debt (13) 3 48 (3)
Proceeds on sale of
derivative financial
instruments - (1) - 3
Future income taxes
(note 8) (1) (26) (43) (52)
Utilization of investment
tax credits - - 33 -
Restructuring charge
- mill closures (note 6) - 173 17 173
Gain on land sales
and other (4) - (12) -
Other (3) 2 (1) 5
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(16) (27) 235 (89)
Changes in non-cash working
capital:
Temporary investments - 10 - 16
Accounts receivable (43) (6) (19) 2
Inventories (64) (29) (105) (45)
Prepaid expenses (5) (2) (8) (6)
Accounts payable and
accrued charges 10 (43) (12) (48)
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(102) (70) (144) (81)
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(118) (97) 91 (170)
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Cash flows from investing
activities:
Additions to fixed assets (16) (25) (31) (49)
Proceeds on land sales 2 - 11 -
Acquisition of investments,
net of disposals 2 - 2 (7)
Other (4) - (9) (1)
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(16) (25) (27) (57)
Cash flows from financing
activities:
Change in operating bank
loans 6 44 (87) 128
Increase in long-term debt 23 7 40 10
Repayment of long-term debt (6) (4) (9) (6)
Increase (decrease) in
other long-term liabilities 2 1 (3) 2
Other (2) 6 (1) 6
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23 54 (60) 140
Cash generated (used) by
continuing operations (111) (68) 4 (87)
Cash generated by discontinued
operations (note 2) - 84 - 91
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Foreign exchange loss on
cash and cash equivalents
held in foreign currencies - - - -
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Net increase (decrease) in
cash and cash equivalents (111) 16 4 4
Cash and cash equivalents,
net of bank indebtedness,
beginning of period 141 (12) 26 -
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Cash and cash equivalents,
net of bank indebtedness,
end of period $ 30 $ 4 $ 30 $ 4
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Supplemental information:
Interest paid $ 44 $ 63 $ 65 $ 67
Income taxes paid $ 2 $ 1 $ 2 $ 1
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TEMBEC INC.
CONSOLIDATED BUSINESS SEGMENT INFORMATION
-------------------------------------------------------------------------
Quarters ended March 31, 2007 and March 25, 2006
(unaudited) (in millions of dollars)
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-------------------------------------------------------------------------
March 31, 2007
-------------------------------------------------------------------------
Chemical
Forest & other Consoli-
products Pulp Paper products dated
-------------------------------------------------------------------------
Sales:
External $ 174 $ 364 $ 209 $ 43 $ 790
Internal 39 18 - 2 59
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213 382 209 45 849
Earnings (loss) before
the following (22) 39 (2) 2 17
Depreciation and
amortization 14 18 12 2 46
Other items (note 6) (4) - - - (4)
Operating earnings
(loss) from continuing
operations (32) 21 (14) - (25)
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Net fixed asset additions 3 10 2 1 16
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-------------------------------------------------------------------------
March 25, 2006
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Chemical
Forest & other Consoli-
products Pulp Paper products dated
-------------------------------------------------------------------------
Sales:
External $ 234 $ 335 $ 202 $ 47 $ 818
Internal 54 21 - 1 76
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288 356 202 48 894
Earnings (loss) before
the following 13 2 (12) 1 4
Depreciation and
amortization 14 27 13 2 56
Other items (note 6) - 169 7 - 176
Operating loss from
continuing operations (1) (194) (32) (1) (228)
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Net fixed asset additions 8 15 2 - 25
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TEMBEC INC.
CONSOLIDATED BUSINESS SEGMENT INFORMATION
-------------------------------------------------------------------------
Six months ended March 31, 2007 and March 25, 2006
(unaudited) (in millions of dollars)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
March 31, 2007
-------------------------------------------------------------------------
Chemical
Forest & other Consoli-
products Pulp Paper products dated
-------------------------------------------------------------------------
Sales:
External $ 344 $ 669 $ 416 $ 85 $ 1,514
Internal 73 40 - 3 116
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417 709 416 88 1,630
Earnings (loss) before
the following (37) 59 4 4 30
Depreciation and
amortization 28 38 24 4 94
Other items (note 6) (250) 29 - - (221)
Operating earnings (loss)
from continuing
operations 185 (8) (20) - 157
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Net fixed asset additions 6 19 5 1 31
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March 25, 2006
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Chemical
Forest & other Consoli-
products Pulp Paper products dated
-------------------------------------------------------------------------
Sales:
External $ 468 $ 627 $ 418 $ 94 $ 1,607
Internal 96 42 - 4 142
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564 669 418 98 1,749
Earnings (loss) before
the following 24 (30) (24) 2 (28)
Depreciation and
amortization 27 54 27 4 112
Other items (note 6) - 169 7 - 176
Operating loss from
continuing operations (3) (253) (58) (2) (316)
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Net fixed asset additions 17 28 4 - 49
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TEMBEC INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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(in millions of dollars, unless otherwise noted)
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1. Significant accounting policies
Basis of presentation
These unaudited consolidated financial statements have been prepared in
accordance with Canadian GAAP using the same accounting policies and methods
as the most recent audited consolidated financial statements. These interim
consolidated financial statements should be read in conjunction with the
annual audited consolidated financial statements for the year ended
September 30, 2006.
Changes in accounting policies
Effective October 1, 2006, the Company adopted the new recommendations of
the Canadian Institute of Chartered Accountants (CICA) under CICA Handbook
Section 1530, Comprehensive Income, Section 3251, Equity, Section 3855,
Financial Instruments - Recognition and Measurement, Section 3861 Financial
Instruments - Disclosure and Presentation and Section 3865, Hedges. These new
Handbook Sections, which apply to fiscal years beginning on or after
October 1, 2006, provide requirements for the recognition and measurement of
financial instruments and on the use of hedge accounting. Section 1530
establishes standards for reporting and presenting comprehensive income which
is defined as the change in equity from transactions and other events from
non-owner sources. Other comprehensive income refers to items recognized in
comprehensive income but that are excluded from net income calculated in
accordance with generally accepted accounting principles.
Under Section 3855, all financial instruments are classified into one of
these five categories: held-for-trading, held-to-maturity investments, loans
and receivables, available-for-sale financial assets or other financial
liabilities. All financial instruments and derivatives are measured in the
balance sheet either at fair value except for loans and receivables,
held-to-maturity investments and other financial liabilities which are
measured at amortized cost. Subsequent measurement and changes in fair value
will depend on their initial classification, as follows: held-for-trading
financial assets are measured at fair value and changes in fair value are
recognized in net income. Available-for-sale financial instruments are
measured at fair value with changes in fair value recorded in other
comprehensive income until the instrument is derecognized or impaired. All
derivative instruments, including embedded derivatives, are recorded in the
balance sheet at fair value unless they qualify for the normal sale normal
purchase exemption. All changes in their fair value are recorded in income
unless cash flow hedge accounting is used, in which case changes in fair value
are recorded in other comprehensive income.
As a result of the adoption of these new standards, the Company has
classified its cash and cash equivalents as held-for-trading. Accounts
receivable are classified as loans and receivables. The Company's investments
consist mainly of equity investments which are excluded from the
recommendations of this standard and of loans receivable which are classified
as loans and receivables. Bank indebtedness, operating bank loans, accounts
payable and accrued charges, long-term debt, including interest payable, and
redeemable preferred shares are classified as other liabilities, all of which
are measured at amortized cost. The Company has elected to measure all
derivatives and embedded derivatives at fair value and the Company has
maintained its policy not to use hedge accounting.
Section 3855 also provides guidance on accounting for transaction costs
incurred upon the issuance of debt instruments or modification of a financial
liability. Transaction costs are now deducted from the financial liability and
are amortized using the effective interest method over the expected life of
the related liability. As a result of the application of Section 3855,
unamortized financing costs of $4 million ($7 million - September 2006),
previously recorded in Other assets, have been reclassified against long-term
debt. Previously recorded cumulative translation adjustment on self-sustaining
operations is now presented in Accumulated other comprehensive income. The
adoption of these new standards had no impact on the Company's deficit
position as at October 1, 2006.
Carrying value and fair value of financial assets and liabilities are
summarized as follows:
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Carrying Fair
Classification value value
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Held-for-trading $ 33 $ 33
Loans and receivables 457 457
Held-to-maturity - -
Available-for-sale - -
Other liabilities 2,144 1,664
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Effective October 1, 2006, the Company applied the accounting treatment
prescribed by emerging issues committee ("EIC") EIC-162 of the CICA Handbook
with respect to stock-based compensation for employees eligible to retire
before the vesting date. EIC-162 provides guidance to determine compensation
costs attributable to a stock-based award under a compensation plan that
contains a provision that allows an employee to continue vesting after the
employee has retired. The application of EIC-162 had no impact on the
financial statements of the Company.
Business of the Company
The Company operates an integrated forest products business. The
performance of each segment is evaluated by the management of the Company
against short-term and long-term financial objectives as well as environmental
and other key criteria. The Forest Products segment consists primarily of
forest and sawmill operations, which produce lumber and building materials.
The Pulp segment includes the manufacturing and marketing activities of a
number of different types of pulps. The Paper segment consists primarily of
production and sales of newsprint, coated papers and bleached board. The
Chemical and other products segment consists primarily of the transformation
and sale of resins and pulp by-products. Intersegment transfers of wood chips,
pulp and other services are recorded at transfer prices agreed to by the
parties, which are intended to approximate fair market value. The accounting
policies used in these business segments are the same as those described in
the annual audited consolidated financial statements.
2. Discontinued operations
On February 27, 2006, the Company completed the sale of its oriented
strandboard (OSB) business located in Saint-Georges-de-Champlain, Quebec to
Jolina Capital Inc. ("Jolina"). The comparative financial results of the OSB
operation have been reclassified as discontinued operations.
Condensed earnings from discontinued operations related to the OSB are as
follows for the quarter and six months ended March 25, 2006:
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Six
Quarter months
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Sales $ 15 $ 38
Operating profit 1 7
Income taxes 17 19
Earnings from discontinued operations 48 52
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Earnings per common share from discontinued
operations $ 0.56 $ 0.60
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Condensed cash flows from discontinued operations are as follows for the
quarter and six months ended March 25, 2006:
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Six
Quarter months
-------------------------------------------------------------------------
Cash flows from operating activities $ 3 $ 10
Cash flows from investing activities 81 81
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Cash flows generated by discontinued operations $ 84 $ 91
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3. Long-term debt
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Mar. 31, Sept. 30,
Maturity 2007 2006
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Tembec Inc. - 6% unsecured notes 09/2009 $ 20 $ 24
Tembec Industries - US$350 million
8.625% unsecured senior notes 06/2009 404 391
Tembec Industries - US$500 million
8.5% unsecured senior notes 02/2011 578 559
Tembec Industries - US$350 million
7.75% unsecured senior notes 03/2012 404 391
Tembec SAS 12/2013 22 10
Tembec Envirofinance SAS 06/2017 32 21
Tembec Energie SAS 12/2014 11 -
Proportionate share - Marathon (50%) 03/2006 8 10
Proportionate share - Temlam (50%) 06/2015 40 40
Other Various 21 15
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1,540 1,461
Less current portion 20 21
Less unamortized financing costs 4 7
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$ 1,516 $ 1,433
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4. Share capital
The following table provides the reconciliation between basic and diluted
loss per share:
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Quarters Six months
2007 2006 2007 2006
-------------------------------------------------------------------------
Net earnings (loss) from
continuing operations $ (45) $ (216) $ 93 $ (295)
Net earnings (loss) $ (45) $ (168) $ 93 $ (243)
Weighted average number
of common shares
outstanding 85,616,232 85,616,232 85,616,232 85,616,232
Dilutive effects:
Employees stock options 217,285 91,933 175,713 45,461
Weighted average number
of diluted common
shares outstanding 85,833,517 85,708,165 85,791,945 85,661,693
Basic and diluted
earnings (loss) per
share from continuing
operations $ (0.54) $ (2.52) $ 1.08 $ (3.44)
Basic and diluted
earnings (loss)
per share $ (0.54) $ (1.96) $ 1.08 $ (2.84)
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The diluted loss per share is the same as the basic loss per share as the
dilutive factors result in a decrease in the loss per share.
Under the Long-Term Incentive Plan, the Company may, from time to time,
grant options to its employees. The plan provides for the issuance of common
shares at an exercise price equal to the market price of the Company's common
shares on the date of the grant. These options vest over a five-year period
and expire ten years from the date of issue. For the six-month period ending
March 31, 2007, the Company had not granted any options (December 2005 -
634,741 stock options at $2.15; March 2006 - 439,800 stock options at $0.97).
The compensation expense recorded was not significant.
The fair value of options granted was estimated on the date of grant using
the Black & Scholes option-pricing model with the following assumptions:
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March 25, 2006
-------------------------------------------------------------------------
Dividend Yield 0.0%
Volatility 37.6%
Risk-free interest rate 3.9%
Expected option lives (in years) 7.5
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Weighted average fair value of options granted $ 0.64
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The following table summarizes the changes in options outstanding and the
impact on weighted average per share exercise price during the period.
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2007 2006
-------------------------------------------------------------------------
Weighted Weighted
average average
exercise exercise
Shares price Shares price
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Balance, beginning of
fiscal year 4,829,239 $ 7.35 4,129,253 $ 9.00
Options granted - - 634,741 2.15
Options expired (102,202) 5.62 (43,900) 11.94
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Balance, end of December 4,727,037 7.38 4,720,094 8.05
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Options granted - - 439,800 0.97
Options expired (62,269) 10.94 (140,686) 10.49
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Balance, end of March 4,664,768 $ 7.34 5,019,208 $ 7.36
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5. Lumber duties and export taxes
Effective October 12, 2006, the Governments of Canada and the United
States implemented an agreement for the settlement of the softwood lumber
dispute. The Softwood Lumber Agreement ("SLA") requires that an export tax be
collected by the Government of Canada, which is based on the price and volume
of lumber shipped. The SLA had an effective date of October 12, 2006, at which
time the U.S. Department of Commerce ("USDOC") revoked all existing
countervailing and antidumping duty orders on softwood lumber shipped to the
U.S. from Canada.
6. Other items
2007
Recovery of lumber duties:
During the December 2006 quarter, the Company recorded net proceeds of
$238 million pertaining to the recovery of lumber duties on deposit with the
USDOC that had accumulated since May 2002. The amount received by the Company
corresponds to approximately 82% of the total amount deposited. In addition,
the Company received a further $30 million, which corresponds to approximately
82% of the interest accrued on the deposits since May 2002. This latter amount
was recorded as interest income. The total amount of $268 million represents
substantially all of the monies the Company expects to receive as part of the
settlement.
Restructuring charge - mill closure:
Also during the December 2006 quarter, the Company announced the permanent
closure of the Smooth Rock Falls, Ontario pulp mill. The facility had been
idled since the end of July 2006. The Company recorded a charge of $29 million
relating to special termination pension benefits, severance and other relating
items.
Gain on land sales:
The Company completed the sale of a number of land and other properties
and recorded a net gain of $4 million in the March 2007 quarter and $8 million
in the December 2006 quarter.
During the December 2006 quarter, the Company completed the sale of its
small pine lumber operation located in Brassac, France. The transaction had no
significant effect on the Company's financial statements.
2006
Restructuring charges:
During the March 2006 quarter, the Company recognized an impairment charge
of $169 million related to the property, plant and equipment of the Smooth
Rock Falls, Ontario pulp mill as the majority of its long-lived assets are no
longer recoverable and exceed their fair value.
As a result of the ongoing restructuring of the St. Francisville,
Louisiana paper mill, the Company recorded an unusual charge of $7 million
relating to additional severance and other related costs.
The following table provides an analysis of the other items by business
segment:
-------------------------------------------------------------------------
-------------------------------------------------------------------------
2007
Forest Consoli-
products Pulp dated
-------------------------------------------------------------------------
Lumber duties $ (238) $ - $ (238)
Pensions - 17 17
Gain on sale of assets (12) - (12)
Severance, other labour-related and
idling costs - 12 12
-------------------------------------------------------------------------
$ (250) $ 29 $ (221)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
2006
Consoli-
Paper Pulp dated
-------------------------------------------------------------------------
Fixed assets write-down $ 169 $ - $ 169
Pensions - 4 4
Severance, other labour-related and
idling costs - 3 3
-------------------------------------------------------------------------
$ 169 $ 7 $ 176
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The following table provides the reconciliation components of the mill
closure provisions:
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Quarters Six months
2007 2006 2007 2006
-------------------------------------------------------------------------
Opening balance $ 14 $ 11 $ 9 $ 19
Additions: Severance and
other labour-
related costs - 3 10 3
Idling and other
costs - - 2 -
Payments: Severance and
other labour-
related costs (3) (2) (9) (8)
Idling and other
costs (1) - (2) (2)
-------------------------------------------------------------------------
Ending balance $ 10 $ 12 $ 10 $ 12
-------------------------------------------------------------------------
-------------------------------------------------------------------------
7. Interest, foreign exchange, and other
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Quarters Six months
2007 2006 2007 2006
-------------------------------------------------------------------------
Interest on long-term debt $ 30 $ 29 $ 60 $ 60
Interest on short-term debt 2 5 5 7
Interest income - lumber
duties - - (30) -
Interest income - other (1) - (4) (1)
Investment income - (2) - (2)
Interest capitalized on
construction projects - (1) - (2)
-------------------------------------------------------------------------
31 31 31 62
Amortization of deferred
financing costs 2 2 3 3
Amortization of deferred
gain on foreign exchange
contract - (17) - (38)
Derivative financial
instruments loss (gain) - (3) - 1
Loss on consolidation of
foreign integrated
subsidiaries 2 - 3 2
Other foreign exchange items (1) (3) (16) (1)
Bank charges and other
financing expenses 2 - 3 2
-------------------------------------------------------------------------
5 (21) (7) (31)
-------------------------------------------------------------------------
$ 36 $ 10 $ 24 $ 31
-------------------------------------------------------------------------
-------------------------------------------------------------------------
8. Income Taxes
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Quarters Six months
2007 2006 2007 2006
-------------------------------------------------------------------------
Earnings (loss) before
income taxes and
minority interest
from continuing
operations $ (48) $ (241) $ 85 $ (344)
-------------------------------------------------------------------------
Income taxes based on
combined federal and
provincial income
tax rates of 33.3%
(2006 - 33.3%) (16) (80) 28 (114)
Decrease (increase)
resulting from:
Future income taxes
adjustment due to
rate enactments - - - 4
Change in valuation
allowance 17 55 (36) 63
Rate differential between
jurisdictions - (3) (3) (5)
Non taxable portion of
exchange loss (gain)
on long-term debt (2) - 6 (1)
Other permanent differences - 2 - 2
Large corporations tax - 1 - 2
-------------------------------------------------------------------------
15 55 (33) 65
-------------------------------------------------------------------------
Income taxes recovery $ (1) $ (25) $ (5) $ (49)
-------------------------------------------------------------------------
Income taxes:
Current - 1 38 3
Future (1) (26) (43) (52)
-------------------------------------------------------------------------
Income taxes recovery $ (1) $ (25) $ (5) $ (49)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
9. Employee Future Benefits
The following table presents the Company's future benefit costs:
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Quarters Six months
2007 2006 2007 2006
-------------------------------------------------------------------------
Defined benefit pension
plans $ 5 $ 10 $ 10 $ 19
Other employee future
benefit plans 2 4 3 6
Defined contribution and
other retirement plans 3 3 6 7
-------------------------------------------------------------------------
10 17 19 32
Portion included in
Restructuring charge
- mill closure (note 6) - - 17 -
-------------------------------------------------------------------------
$ 10 $ 17 $ 36 $ 32
-------------------------------------------------------------------------
-------------------------------------------------------------------------
10. Comparative figures
Certain comparative figures have been reclassified to conform with the
financial statement presentation adopted.
For further information: Michel J. Dumas, Executive Vice President,
Finance & CFO, (819) 627-4268, michel.dumas@tembec.com; John Valley, Executive
Vice President, Business Development & Corporate Affairs, (819) 627-4387,
john.valley@tembec.com; Source: Tembec Inc.
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