TRADING SYMBOL: The Toronto Stock Exchange - TIL.UN
VANCOUVER, Aug. 11 /CNW/ - Tree Island Wire Income Fund (the Fund) today
announced financial results for the second quarter and first six months of
2005. For the three months ended June 30, 2005, the Fund generated
distributable cash of $0.353 per unit and declared cash distributions of
$0.375. This brought first half distributable cash generated to $0.837 per
unit, exceeding the $0.75 per unit declared during the first six months by
12%. The Fund's annual distribution target is $1.50 per unit. As of June 30,
2005, the Fund's payout ratio from inception was 67%.
The Fund's results are based on the performance of Tree Island Industries
Ltd. (Tree Island) -one of North America's largest producers of wire and
fabricated wire products.
"As expected, we did not match the extraordinary results that we achieved
in the second quarter of 2004, but our results, excluding unusual items that
reduced distributable cash by $0.125 per unit, were solid," said Ted Leja,
President and CEO of Tree Island and a trustee of the Fund. "Moving into the
second half, our operational efficiency continues to improve and we expect
continued economic growth to support demand for our products. Customer
inventories of some products are also returning to a more balanced level,
although bulk nail inventories remain high. Market conditions are expected to
remain competitive, however, and could put downward pressure on margins. We
anticipate sales volumes for the second half of 2005 will be similar to the
second half of 2004. EBITDA is expected to be lower than in 2004, but higher
than in 2003.
Operating Results
For the three months ended June 30, 2005, the Fund generated total
distributable cash of $7.7 million or $0.353 per unit, compared to
$23.7 million or $1.083 per unit during the second quarter of 2004. Of this,
$6.1 million, or $0.279 per unit, was generated by operations. Gains from
foreign exchange conversion activities contributed the balance of
$1.6 million, or $0.074 per unit, net of taxes. The Fund declared
distributions of $0.125 per unit in each of April, May and June, totaling
$8.2 million, or $0.375 per unit, over the three-month period.
Second quarter revenue was $91.1 million, compared to $117.6 million in
the second quarter of 2004. The change in revenue reflects a 21% decrease in
sales volumes and a $7.0 million unfavourable impact on US dollar-based sales,
partially offset by a 6.2% increase in selling prices in Canada and a 5.6%
increase in US dollar selling prices in the US. The volume reduction resulted
from continuing high customer inventory levels for nails and industrial wire,
together with increased competition for collated nails, industrial wire and
stucco reinforcing mesh. The exchange impact reflects a 9% quarter-over-
quarter increase in the value of the Canadian dollar.
Selling, general and administration expenses were $4.9 million, down 13%
from the second quarter of 2004. The lower SG&A expenses reflect the benefit
of the stronger Canadian dollar on the conversion of US division costs, and a
lower accrual for Tree Island's EBITDA-based variable compensation plan,
partially offset by an accrual of $0.25 million for the company's long term
incentive plan ("LTIP").
Second quarter EBITDA was $8.5 million, compared to $33.7 million in
2004. The change in EBITDA reflects the decline in sales volumes, the absence
of 2004's inventory gains, and the impact of two unusual items. The first
unusual item was a $2.6 million writedown of the company's raw material
inventory, which lowered second quarter EBITDA and distributable cash results,
but which will be recovered in future quarters through lower raw material
costs. The writedown was triggered by reductions in negotiated rod prices for
the fourth quarter, following three quarters of stable pricing. While it is
uncertain whether the price reductions will hold, it is Tree Island's policy
to write down inventory value if the average cost of future rod orders is
below current inventory cost.
The second unusual item was $0.7 million in one-time costs associated
with the consolidation of the company's US operations. Scheduled for
completion in the second quarter of 2006, the consolidation is designed to
improve efficiency and generate ongoing savings in rent, electricity and
labour. An additional $0.8 million in expenses will be required to complete
this $1.5 million project.
Combined, the two unusual items had a $3.3 million negative impact on
second quarter EBITDA and a $2.7 million ($0.125 per unit) negative impact on
distributable cash results. EBITDA, plus gains from foreign exchange
conversions, was $11.1 million, down from $35.3 million in the second quarter
of 2004.
Net income for the period was $5.0 million ($0.23 per unit), compared to
$13.7 million ($0.83 per unit) generated during the second quarter of 2004.
The decrease in net income reflects reduced EBITDA and higher financing costs,
partially offset by reduced taxes, higher gains on foreign exchange
conversions and the elimination of the non-controlling interest.
Results from Operations
(In Thousands of Dollars, except volumes, per ton and per unit amounts)
<<
-------------------------------------------------------------------------
Three Months Ended June 30 Six Months Ended June 30
-------------------------------------------------------------------------
2005 2004 2003 2005 2004 2003
-------------------------------------------------------------------------
Sales Volumes
- Tons 69,596 88,064 76,931 138,375 173,527 154,572
Revenue 91,052 117,561 77,408 180,429 204,134 157,771
Cost of Goods
Sold (77,611) (78,209) (64,991) (151,329) (147,410) (132,400)
Depreciation (5,298) (5,119) (7,420) (10,413) (10,377) (15,411)
----------------------------------------------------------
Gross Profit 8,143 34,233 4,997 18,687 46,347 9,960
Gross Profit -
$ per Ton 117 389 65 135 267 64
Selling, General
and
Administrative
Expenses (4,909) (5,659) (5,009) (9,637) (10,260) (10,051)
----------------------------------------------------------
Operating
Profit 3,234 28,574 (12) 9,050 36,087 (91)
Foreign Exchange
Gain 2,566 1,614 5,009 5,268 3,336 8,618
Financing
Expenses (1,047) (554) (812) (2,119) (1,269) (1,561)
(Provision for)
Recovery of
Income Taxes 296 (9,812) 4,383 (542) (11,290) 7,067
Non-Controlling
Interest - (6,104) (3,320) - (9,016) (5,867)
----------------------------------------------------------
Net Income 5,049 13,718 5,248 11,657 17,848 8,166
-------------------------------------------------------------------------
Operating
Profit 3,234 28,574 (12) 9,050 36,087 (91)
Addback
Depreciation 5,298 5,119 7,420 10,413 10,377 15,411
----------------------------------------------------------
EBITDA 8,532 33,693 7,408 19,463 46,464 15,320
Foreign
Exchange Gain 2,566 1,614 5,009 5,268 3,336 8,618
----------------------------------------------------------
EBITDA Plus
Foreign
Exchange Gains 11,098 35,307 12,417 24,731 49,800 23,938
Distributable
Cash Generated 7,735 23,742 10,828 18,337 34,691 20,120
Distributable
Cash Generated
per Unit 0.353 1.083 0.494 0.837 1.583 0.918
-------------------------------------------------------------------------
Year-to-Date Results
--------------------
For the six months ended June 30, 2005, the Fund generated total
distributable cash of $18.3 million, compared to $34.7 million in the first
half of 2004. Year-to-date revenue was $180.4 million, compared to
$204.1 million during the first six months of 2004. SG&A expenses were
$9.6 million, down from $10.3 million from the same period in 2004. EBITDA was
$19.5 million, compared to $46.5 million in the first half of 2004. EBITDA
plus gains from foreign exchange conversions was $24.7 million, down from
$49.8 million in the first half of 2004. Net income for the six months was
$11.7 million ($0.53 per unit), compared to $17.8 million ($0.1.09 per unit)
in 2004. Distributable cash generated was $18.3 million ($0.837 per unit)
compared to $34.7 million ($1.583 per unit) in the first half of 2004.
Outlook
Raw material prices are currently stable through the third quarter, with
negotiated rates for fourth quarter supply of steel rod 5% to 10% lower. It is
uncertain at this time whether the fourth quarter price reduction will hold as
the cost of raw material inputs used in steel making has recently increased
and domestic and import steel rod manufacturers have been tightening supply.
Operationally, the focus continues to be on increasing efficiencies and
implementing profit-improving projects. In addition to the consolidation of
U.S. operations currently underway, the company is investing $1.2 million in a
new hot dip nail galvanizing facility which will increase galvanizing capacity
and nail quality at its Richmond, BC location. An additional $2.0 million will
be invested to increase automation at the welded reinforcing mesh facility in
Richmond, lowering costs and increasing capacity.
Fund Profile
The Fund was launched on November 12, 2002, with the completion of an
Initial Public Offering. There are 21,918,400 units of the Fund outstanding as
of June 30, 2005. The Fund holds a 100% ownership interest in Tree Island.
The Fund's performance depends entirely on the performance of Tree
Island.
Tree Island Profile
Tree Island Industries produces nails, bright wire, stainless steel wire,
galvanized wire, stucco reinforcing products, fence products and other
fabricated wire products primarily for customers in Western Canada and the
Western United States. Headquartered in Richmond, British Columbia, the
company markets these products under five highly respected brand names: Tree
Island, K-Lath, Advanced Wire Technology, Halsteel, and Industrial Wire
Products.
Forward-Looking Statements
This press release contains forward-looking statements based on
assumptions considered reasonable at the time they were prepared. Any
statements that are contained herein that are not statements of historical
fact may be deemed to be forward-looking statements. These statements speak
only to the conditions in existence as of the date of this press release, and
the Fund maintains no obligation to update such statements.
Forward-looking statements, by their nature, necessarily involve risks
and uncertainties that could cause actual results to differ materially from
those contemplated by the statements. Such risks and uncertainties include,
but are not limited to, risks associated with operations such as competition,
dependence on the construction industry, supplies of raw materials, dependence
on key personnel, labour relations, regulatory matters, environmental risks,
the successful execution of acquisition and integration strategies, foreign
exchange fluctuations, the effect of leverage and restrictive covenants in
financing arrangements, product liability, the ability to obtain insurance,
energy cost increases, the ability to fund necessary future capital
investments, and changes in tax legislation.
Interim Consolidated Financial Statements of
TREE ISLAND WIRE INCOME FUND
June 30, 2005
TREE ISLAND WIRE INCOME FUND
Interim Consolidated Balance Sheets (Unaudited)
(In thousands of dollars)
-------------------------------------------------------------------------
As at
As at, December
June 30 31, 2004
2005 (Audited)
----------- -----------
Assets
Current
Cash $ 2,315 $ 2,186
Accounts receivable 36,233 27,599
Prepaid expenses 2,262 2,252
Taxes receivable 367 -
Inventories 104,305 123,939
----------- -----------
145,482 155,976
Property, plant and equipment 101,365 109,655
Deferred charges 1,356 1,611
Goodwill 44,778 44,405
----------- -----------
$ 292,981 $ 311,647
----------- -----------
----------- -----------
Liabilities
Current
Revolving credit $ 27,872 $ 34,572
Current portion of long-term debt 2,289 2,245
Accounts payable and accrued liabilities 56,145 58,741
Income and other taxes payable - 2,864
Interest payable 297 361
----------- -----------
86,603 98,783
Long-term debt 239 277
Non-current liabilities 330 571
Future income taxes 20,279 23,141
----------- -----------
107,451 122,772
----------- -----------
Unitholders' Equity 185,530 188,875
----------- -----------
$ 292,981 $ 311,647
----------- -----------
----------- -----------
TREE ISLAND WIRE INCOME FUND
Interim Consolidated Statement of Operations (Unaudited)
For the three month and six month periods ended June 30, 2005 and
June 30, 2004
(In thousands of dollars, except per unit amounts)
-------------------------------------------------------------------------
Three Three
Months Months Six Months Six Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
----------------------- -----------------------
Sales $ 91,052 $ 117,561 $ 180,429 $ 204,134
Cost of goods sold 77,611 78,209 151,329 147,410
Depreciation 5,298 5,119 10,413 10,377
----------------------- -----------------------
Gross profit 8,143 34,233 18,687 46,347
Selling, general and
administrative expenses 4,909 5,659 9,637 10,260
----------------------- -----------------------
Operating profit 3,234 28,574 9,050 36,087
Foreign exchange gain 2,566 1,614 5,268 3,336
Financing expenses (1,047) (554) (2,119) (1,269)
----------------------- -----------------------
Income before provision
for income taxes 4,753 29,634 12,199 38,154
Recovery of (provision
for) income taxes
(note 4) 296 (9,812) (542) (11,290)
----------------------- -----------------------
Income before
non-controlling interest 5,049 19,822 11,657 26,864
Non-controlling interest
(note 3) - (6,104) - (9,016)
----------------------- -----------------------
Net income for the
period $ 5,049 $ 13,718 $ 11,657 $ 17,848
----------------------- -----------------------
----------------------- -----------------------
Basic and diluted net
income per unit $ 0.23 $ 0.83 $ 0.53 $ 1.09
----------------------- -----------------------
----------------------- -----------------------
Weighted-average number
of units
(Basic and diluted) 21,918,400 16,438,800 21,918,400 16,438,800
----------------------- -----------------------
----------------------- -----------------------
TREE ISLAND WIRE INCOME FUND
Interim Consolidated Statements of Unitholders' Equity (Unaudited)
For the three month and six month periods ended June 30, 2005 and
June 30, 2004
(In thousands of dollars)
-------------------------------------------------------------------------
Total Total
for Six for Six
Cumulative months months
Unit- Trans- ended ended
holders' Retained Distri- lation June 30, June 30,
Capital Earnings butions Adjustment 2005 2004
--------- --------- --------- --------- --------- ---------
Balance,
beginning
of period $209,857 $ 48,215 $(49,369) $(19,828) $188,875 $128,442
Activity for
the three
months ended
March 31 - 6,608 (8,219) 392 (1,219) (441)
--------- --------- --------- --------- --------- ---------
209,857 54,823 (57,588) (19,436) 187,656 128,001
Activity for
the three
months ended
June 30 - 5,049 (8,219) 1,044 (2,126) 9,726
--------- --------- --------- --------- --------- ---------
Balance, end
of period $209,857 $ 59,872 $(65,807) $(18,392) $185,530 $137,727
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
TREE ISLAND WIRE INCOME FUND
Interim Consolidated Statement of Cash Flows (Unaudited)
For the three month and six month periods ended June 30, 2005 and
June 30, 2004
(In thousands of dollars)
-------------------------------------------------------------------------
Three Three
Months Months Six Months Six Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
----------------------- -----------------------
Operating Activities
Net income for the
period $ 5,049 $ 13,718 $ 11,657 $ 17,848
Items not involving
cash
Depreciation 5,298 5,119 10,413 10,377
Amortization of
deferred charges 136 110 271 220
Future income tax
recovery (2,083) (1,183) (3,147) (2,280)
Non-controlling
interest (note 3) - 6,104 - 9,016
----------------------- -----------------------
Net cash flow from
operations 8,400 23,868 19,194 35,181
Change in non-cash
operating assets and
liabilities
Accounts receivable 5,136 (11,457) (8,634) (24,690)
Inventories 8,643 (32,752) 19,634 (18,907)
Accounts payable and
accrued liabilities 6,333 16,450 (2,911) 11,649
Income and other taxes
payable 571 6,679 (3,167) 9,321
Other 576 (577) 503 136
----------------------- -----------------------
29,659 2,211 24,619 12,690
----------------------- -----------------------
Investing Activities
Purchase of property,
plant and equipment (847) (935) (1,312) (1,298)
----------------------- -----------------------
(847) (935) (1,312) (1,298)
----------------------- -----------------------
Financing Activities
Payments to
non-controlling
interest - (1,748) - (3,494)
Repayment of long term
debt (20) (21) (40) (37)
(Repayment) drawdown of
revolving credit (20,616) 10,796 (6,700) 8,526
Distributions to
unitholders (8,219) (5,240) (16,438) (10,480)
----------------------- -----------------------
(28,855) 3,787 (23,178) (5,485)
----------------------- -----------------------
(Decrease) increase in
cash (43) 5,063 129 5,907
Cash, beginning of
period 2,358 999 2,186 155
----------------------- -----------------------
Cash, end of period $ 2,315 $ 6,062 $ 2,315 $ 6,062
----------------------- -----------------------
----------------------- -----------------------
Supplemental Cashflow
Information:
Interest paid $ 992 $ 497 $ 1,911 $ 1,070
----------------------- -----------------------
----------------------- -----------------------
Income taxes paid $ 1,102 $ 4,197 $ 6,817 $ 4,191
----------------------- -----------------------
----------------------- -----------------------
TREE ISLAND WIRE INCOME FUND
Notes to the Interim Consolidated Financial Statements (Unaudited)
For the three-month periods ended June 30, 2005 and June 30, 2004
(In the thousands of dollars, except for per-unit amounts)
-------------------------------------------------------------------------
1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited Interim Consolidated Financial Statements
of Tree Island Wire Income Fund (the "Fund") have been prepared by
management in accordance with Canadian generally accepted accounting
principles ("GAAP") on a basis consistent with those followed in the
most recent audited annual consolidated financial statements. These
unaudited Interim Consolidated Financial Statements do not include
all the information and note disclosures required by GAAP for annual
consolidated financial statements and therefore should be read in
conjunction with the December 31, 2004 audited consolidated financial
statements of the Fund and the notes below.
Certain of the comparative figures have been reclassified to conform
to the current interim period's presentation.
2. FORMATION OF THE FUND AND CONVERSION OF NON-CONTROLLING INTEREST TO
FUND UNITS
The Fund is an unincorporated open-ended, limited purpose trust
established under the laws of the Province of British Columbia
pursuant to a Declaration of Trust dated September 30, 2002. The Fund
was formed to acquire 75% of the common shares and $136,995 of 13.75%
Series A unsecured subordinated notes ("Tree Island Notes") of TI
Industries Inc. ("TII"), the predecessor of Tree Island Industries
Ltd. ("TIL"). This acquisition was completed on November 12, 2002. To
finance this acquisition, the Fund issued 16,438,800 units in a
public offering for net proceeds of $152,988, after deducting the
expenses of the offering.
Each unitholder participates pro rata in distributions of net
earnings and, in the event of termination of the Fund, participates
pro rata in the net assets remaining after satisfaction of all
liabilities. Income tax obligations related to the distribution of
net earnings by the Fund are the obligations of the unitholders.
Concurrently, with the Fund's acquisition of its effective 75%
interest in TIL, the 25% non-controlling interest in TIL, represented
by non-voting common shares and Series B notes, was issued to the
former shareholders of TII.
During 2004, 100% of the non-controlling interest in TIL exercised
their right to exchange their non-voting shares and Series B notes
for 5,479,000 units in the Fund. After the conversion of the non-
controlling interest the Fund owns 100% of the common shares of TIL.
3. NON-CONTROLLING INTEREST
Three Three
Months Months Six Months Six Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
----------- ----------- ----------- -----------
Current period share
of income $ - $ 4,574 $ - $ 5,950
Interest on Series B
Notes - 1,530 - 3,066
----------- ----------- ----------- -----------
$ - $ 6,104 $ - $ 9,016
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
The Series B Notes were 13.75%, unsecured, subordinated Series B
notes issued pursuant to the note indenture between TIL and
Computershare Trust Company of Canada, as trustee, dated as of
November 12, 2002.
The Series B Notes and non-voting common shares in TIL were exchanged
for units in the Fund on the basis of one unit for every $8.35
principal amount of Series B notes and one non-voting common share
for an aggregate of 5,479,600 units on July 20, 2004 and October 13,
2004.
4. INCOME TAXES
Income tax obligations relating to distributions from the Fund are
the obligations of the unitholders and, accordingly, no provision for
income taxes on the income of the Fund has been made. A provision for
income taxes is recognized for TIL and its subsidiaries, as TIL and
its subsidiaries are subject to tax, including large corporation
taxes. The provision for the period is divided between current and
future taxes as follows:
Three Three
Months Months Six Months Six Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
----------- ----------- ----------- -----------
Current tax expense $ (1,787) $ (10,995) $ (3,689) $ (13,570)
Future tax recovery 2,083 1,183 3,147 2,280
----------- ----------- ----------- -----------
$ 296 $ (9,812) $ (542) $ (11,290)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
The provision for income taxes varies from the amount that would be
expected if computed by applying the Canadian federal and provincial
and US federal and state statutory income tax rates to the earnings
before income taxes as shown in the following table:
5. POST-RETIREMENT BENEFITS
Three Three
Months Months Six Months Six Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
----------- ----------- ----------- -----------
Net income before
income taxes $ 4,753 $ 29,634 $ 12,199 $ 38,154
Net income of the
Fund subject to tax
in the hands of the
recipient (5,985) (5,995) (11,894) (12,099)
----------- ----------- ----------- -----------
Net (loss) income of
subsidiary companies
before income taxes (1,232) 23,639 305 26,055
Tax Rate 37.8% 37.8% 37.8% 37.8%
Expected (recovery)
provision for income
taxes $ (466) $ 8,936 $ 115 $ 9,849
Increased (Reduced) by:
Expenses not
deductible for tax (76) 88 20 175
Differential tax
rates on U.S.
subsidiaries 28 744 76 826
Other 218 44 331 440
----------- ----------- ----------- -----------
Income tax (recovery)
provision $ (296) $ 9,812 $ 542 $ 11,290
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
(a) The Fund has four defined contribution pension plans.
Contributions made by the Fund amounted to $428 for the three
months ended June 30, 2005 ($404 for the three months ended
June 30, 2004) and $873 for the six months ended June 30, 2005
($789 for six months ended June 30, 2004). Funding obligations
are satisfied upon making contributions.
(b) The senior executive retirement plan is unfunded. The cost
expensed in the three months ended June 30, 2005 is $52 ($76 in
the three months ended June 30, 2004), and in the six months
ended June 30, 2005 is $104 ($152 in the six months ended
June 30, 2004). At June 30, 2005, $2,359 ($2,216 as at
December 31, 2004), an estimate of the amount payable under the
plan, is included in accounts payable in respect of this plan.
6. SEGMENTED INFORMATION
(a) General information
The Fund operates primarily within one industry, the steel wire
and fabricated wire products industry with no separately
reportable business segments. The products are sold primarily to
customers in the United States and Canada.
(b) Geographic information
Three Three
Months Months Six Months Six Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
----------- ----------- ----------- -----------
SALES(i)
Canada $ 21,907 $ 22,135 $ 46,059 $ 41,233
United States 68,745 94,941 133,641 162,164
Other 400 485 729 737
----------- ----------- ----------- -----------
$ 91,052 $ 117,561 $ 180,429 $ 204,134
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
As at As at
June 30, December
2005 31, 2004
----------- -----------
PROPERTY, PLANT
AND EQUIPMENT(ii)
Canada $ 63,592 $ 67,985
United States 37,773 41,670
----------- -----------
$ 101,365 $ 109,655
----------- -----------
----------- -----------
GOODWILL(ii)
Canada $ 24,655 $ 24,655
United States 20,123 19,750
----------- -----------
$ 44,778 $ 44,405
----------- -----------
----------- -----------
(i) Sales are attributed to geographic areas based on the
location of customers.
(ii) Property, plant and equipment and goodwill are attributed to
geographic areas based on the location of the subsidiary
company owning the assets.
>>
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