TRADING SYMBOL: The Toronto Stock Exchange - TIL.UN
RICHMOND, BC, May 12 /CNW/ - Tree Island Wire Income Fund (the Fund)
today announced results for the first quarter of 2005. For the three months
ended March 31, 2005, the Fund generated distributable cash of $0.484 per
unit, 3% below the $0.500 per unit generated in the first quarter of 2004.
Distributable cash results exceeded the $0.375 per unit of cash distributions
declared during the period.
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.
"Our first quarter results remained strong, despite more demanding
business conditions," said Ted Leja, President and CEO of Tree Island and a
trustee of the Fund. "High levels of customer inventory and increased
competition from import manufacturers, combined with inclement weather in the
southwestern U.S. and Eastern Canada, had a negative impact on our sales
volumes and EBITDA. However, our revenues and gross profit per ton improved
over the first quarter of 2004, reflecting higher average product prices. Our
solid operating results, together with a foreign exchange gain, helped us
again achieve very strong distributable cash results. We're off to a good
start in 2005."
Operating Results
For the three months ended March 31, 2005, the Fund generated total
distributable cash of $10.6 million or $0.484 per unit. Of this, $8.9 million,
or $0.406 per unit, was generated by operations. Gains from foreign exchange
conversion activities contributed the balance of $1.7 million, or $0.078 per
unit, net of taxes. The Fund declared distributions of $0.125 per unit in each
of January, February and March, totaling $8.2 million, or $0.375 per unit,
over the three-month period.
First quarter revenue increased 3.8% to $89.4 million, from $86.6 million
during the same period in 2004. The increase reflects a 28% increase in
product prices, offset by a 20% decrease in sales volumes. Sales volumes were
affected by high inventory levels at many of Tree Island's customers - a
lingering impact of 2004 inventory build-ups that occurred in response to
rising prices and concerns about product shortages. Increased competition from
import products also had a negative impact on sales volumes, as did poor
weather conditions in the southwestern U.S. and Eastern Canada, which delayed
construction projects and resulted in reduced demand for nails and stucco
reinforcing mesh.
Gross profit was $10.5 million, compared to $12.1 million in the first
quarter of 2004, reflecting the decline in sales volumes. On a per ton basis,
gross profit increased to $153 per ton from $142 per ton as a result of higher
selling prices and increased efficiencies at the company's operations.
EBITDA was down 14% to $10.9 million, from $12.8 million in the first
quarter of 2004. The change in EBITDA reflects the 20% decrease in volumes,
offset by the 8% increase in gross profit per ton. Gains on foreign exchange
conversions added an additional $2.7 million to EBITDA, up from $1.7 million
in the first quarter of 2004. Net income for the period was $6.6 million
($0.30 per unit), up 59% from $4.1 million ($0.25 per unit) during the same
quarter in 2004. The increase in net income reflects reduced taxes, higher
gains on foreign exchange conversions and the elimination of the non-
controlling interest, partially offset by the decrease in EBITDA and higher
financing costs.
<<
Results from Operations
(In Thousands of Dollars, except volumes, per ton and per unit amounts)
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Three Months Ended March 31
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2005 2004 2003
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Sales Volumes - Tons 68,779 85,463 77,461
Revenue 89,377 86,573 80,363
Cost of Goods Sold (73,718) (69,201) (67,409)
Depreciation (5,115) (5,258) (7,991)
-----------------------------
Gross Profit 10,544 12,114 4,963
Gross Profit - $ per Ton 153 142 64
Selling, General and Administrative Expenses (4,728) (4,601) (5,042)
-----------------------------
Operating Profit 5,816 7,513 (79)
Foreign Exchange Gain 2,702 1,722 3,609
Financing Expenses (1,072) (715) (748)
(Provision for) Recovery of Income Taxes (838) (1,478) 2,683
Non-Controlling Interest - (2,912) (2,547)
-----------------------------
Net Income 6,608 4,130 2,918
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Operating Profit 5,816 7,513 (79)
Addback Depreciation 5,115 5,258 7,991
-----------------------------
EBITDA 10,931 12,771 7,912
Foreign Exchange Gain 2,702 1,722 3,609
-----------------------------
EBITDA Plus Foreign Exchange Gains 13,633 14,493 11,521
Distributable Cash Generated 10,602 10,951 9,294
Distributable Cash Generated per Unit 0.4837 0.4996 0.4240
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Outlook
Management anticipates second quarter results will be significantly below
those achieved in the record-breaking second quarter of 2004, when volumes
skyrocketed and margins exceeded normal levels because of one-time inventory
gains resulting from increased selling prices.
Continuing inventory surpluses and competition from import manufacturers
are expected to negatively affect sales volumes in the coming quarter, and
could put continued downward pressure on finished product prices. However,
end-user demand is expected to remain healthy through 2005, with a
continuation of strong economic activity driving demand from the non-
residential construction, manufacturing, forestry and agriculture sectors.
Both the Canada Mortgage and Housing Corporation in Canada and the National
Association of Home Builders in the US project residential housing starts will
decline from previous record levels, but still remain strong.
Although rod prices are expected to decline slightly in the second half,
rod costs are expected to remain at historically high levels as a result of
the high cost of materials used in steel making, increases in ocean freight
costs and recent consolidation in the steel industry.
Tree Island's 2005 margins and EBITDA are expected to be stronger than in
2003, but below the levels achieved in 2004, reflecting the absence of 2004's
one-time inventory gains.
Operationally, the focus will be on increasing efficiencies and
implementing profit-improving projects. As part of its U.S. consolidation,
Tree Island USA consolidated IWP's nail production into Halsteel's facility.
Later this year, AWT's wire-making equipment will be moved to IWP, enabling
the division to close the leased AWT facility without reducing production
capacity. These changes are expected to be completed by the second quarter of
2006 at an estimated cost of $1.5 million, and management expects to realize
ongoing savings in rent, electricity and labour.
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,
representing 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
March 31, 2005
TREE ISLAND WIRE INCOME FUND
Interim Consolidated Balance Sheets (Unaudited)
(In thousands of dollars)
-------------------------------------------------------------------------
As at As at
March 31, December 31,
2005 2004
(Audited)
------------ ------------
Assets
Current
Cash $ 2,358 $ 2,186
Accounts receivable 41,369 27,599
Prepaid expenses 2,439 2,252
Taxes receivable 903 -
Inventories 112,948 123,939
------------ ------------
160,017 155,976
Property, plant and equipment 105,240 109,655
Deferred charges 1,483 1,611
Goodwill 44,507 44,405
------------ ------------
$ 311,247 $ 311,647
------------ ------------
------------ ------------
Liabilities
Current
Revolving credit $ 48,488 $ 34,572
Current portion of long-term debt 2,257 2,245
Accounts payable and accrued liabilities 49,521 58,741
Income and other taxes payable - 2,864
Interest payable 379 361
------------ ------------
100,645 98,783
Long-term debt 258 277
Non-current liabilities 532 571
Future income taxes 22,156 23,141
------------ ------------
123,591 122,772
------------ ------------
Unitholders' Equity 187,656 188,875
------------ ------------
$ 311,247 $ 311,647
------------ ------------
------------ ------------
TREE ISLAND WIRE INCOME FUND
Interim Consolidated Statement of Operations (Unaudited)
For the three month periods ended March 31, 2005 and March 31, 2004
(In thousands of dollars, except per unit amounts)
-------------------------------------------------------------------------
Three Months Three Months
Ended Ended
March 31, March 31,
2005 2004
------------ ------------
Sales $ 89,377 $ 86,573
Cost of goods sold 73,718 69,201
Depreciation 5,115 5,258
------------ ------------
Gross profit 10,544 12,114
Selling, general and administrative expenses 4,728 4,601
------------ ------------
Operating profit 5,816 7,513
Foreign exchange gain 2,702 1,722
Financing expenses (1,072) (715)
------------ ------------
Income before provision for income taxes 7,446 8,520
Provision for income taxes (note 4) (838) (1,478)
------------ ------------
Income before non-controlling interest 6,608 7,042
Non-controlling interest (note 3) - (2,912)
------------ ------------
Net income for the period $ 6,608 $ 4,130
------------ ------------
------------ ------------
Basic and diluted net income per unit $ 0.30 $ 0.25
------------ ------------
------------ ------------
Weighted-average number of units
(Basic and diluted) 21,918,400 16,438,800
------------ ------------
------------ ------------
TREE ISLAND WIRE INCOME FUND
Interim Consolidated Statements of Unitholders' Equity (Unaudited)
For the three month periods ended March 31, 2005 and March 31, 2004
(In thousands of dollars)
-------------------------------------------------------------------------
Total for Total for
Three Three
months months
Unit- Cumulative ended ended
holders' Retained Distrib Translation March March
Capital Earnings -utions Adjustment 31, 2005 31, 2004
--------- --------- --------- --------- --------- ---------
Balance,
beginning
of period $209,857 $ 48,215 $(49,369) $(19,828) $188,875 $128,442
Activity for
the three
months ended - 6,608 (8,219) 392 (1,219) (441)
--------- --------- --------- --------- --------- ---------
Balance, end
of period $209,857 $ 54,823 $(57,588) $(19,436) $187,656 $128,001
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
TREE ISLAND WIRE INCOME FUND
Interim Consolidated Statement of Cash Flows (Unaudited)
For the three month periods ended March 31, 2005 and March 31, 2004
(In thousands of dollars)
-------------------------------------------------------------------------
Three Months Three Months
Ended Ended
March 31, March 31,
2005 2004
------------ ------------
Operating Activities
Net income for the period $ 6,608 $ 4,130
Items not involving cash
Depreciation 5,115 5,258
Amortization of deferred charges 135 110
Future income tax recovery (1,064) (1,097)
Non-controlling interest (note 3) - 2,912
------------ ------------
Net cash flow from operations 10,794 11,313
Change in non-cash operating assets and
liabilities
Accounts receivable (13,770) (13,233)
Inventories 10,991 13,845
Accounts payable and accrued liabilities (9,244) (4,801)
Income and other taxes payable (3,738) 2,642
Other (73) 713
------------ ------------
(5,040) 10,479
------------ ------------
Investing Activities
Purchase of property, plant and equipment (465) (363)
------------ ------------
(465) (363)
------------ ------------
Financing Activities
Payments to non-controlling interest - (1,746)
Repayment of long term debt (20) (16)
Drawdown (repayment) of revolving credit 13,916 (2,270)
Distributions to unitholders (8,219) (5,240)
------------ ------------
5,677 (9,272)
------------ ------------
Increase in cash 172 844
Cash, beginning of period 2,186 155
------------ ------------
Cash, end of period $ 2,358 $ 999
------------ ------------
------------ ------------
Supplemental Cashflow Information:
Interest paid $ 919 $ 573
------------ ------------
------------ ------------
Income taxes paid (received) $ 5,715 $ (6)
------------ ------------
------------ ------------
TREE ISLAND WIRE INCOME FUND
Notes to the Interim Consolidated Financial Statements (Unaudited)
For the three month periods ended March 31, 2005 and March 31, 2004
(In thousands of dollars, except per unit amounts)
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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 financial statements. These unaudited
Interim Consolidated Financial Statements do not include all the
information and note disclosures required by GAAP for annual
financial statements and therefore should be read in conjunction with
the December 31, 2004 audited 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
PUBLICLY TRADED 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 trust 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 TII, the 25% non-controlling interest in TII, 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 TII exercised
their right to exchange their non-voting shares and Series B notes
for publicly traded units in the Fund. The Fund issued
5,479,600 units in exchange. After the conversion of the non-
controlling interest the Fund owns 100% of the common shares of TIL.
3. NON-CONTROLLING INTEREST
Three Months Three Months
Ended Ended
March 31, March 31,
2005 2004
------------ ------------
TIL
Current period share of income $ - $ 1,376
Interest on Series B Notes - 1,536
------------ ------------
$ - $ 2,912
------------ ------------
------------ ------------
The 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 notes and non-voting common shares in TIL were exchanged for
trust units 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 Months Three Months
Ended Ended
March 31, March 31,
2005 2004
------------ ------------
Current tax expense $ (1,902) $ (2,575)
Future tax recovery 1,064 1,097
------------ ------------
$ (838) $ (1,478)
------------ ------------
------------ ------------
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:
Three Months Three Months
Ended Ended
March 31, March 31,
2005 2004
------------ ------------
Net income before income taxes $ 7,446 $ 8,520
Net income of the Fund subject to tax in
the hands of the recipient (5,909) (6,104)
------------ ------------
Net income of subsidiary company before
income taxes 1,537 2,416
Tax Rate 37.8% 37.8%
Expected provision for income taxes $ 581 $ 913
Increased (Reduced) by:
Expenses not deductible for tax 96 87
Differential tax rates on U.S. subsidiaries 48 82
Other 113 396
------------ ------------
Income tax provision $ 838 $ 1,478
------------ ------------
------------ ------------
5. POST-RETIREMENT BENEFITS
(a) The Fund has four defined contribution pension plans.
Contributions made by the Fund amounted to $445 for the three
months ended March 31, 2005 ($384 for the three months ended
March 31, 2004). Funding obligations are satisfied upon making
contributions.
(b) The senior executive retirement plan is unfunded. The cost
expensed in the three months ended March 31, 2005 is $52 ($75 in
the three months ended March 31, 2004). At March 31, 2005 $2,278
($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. SUBSEQUENT EVENTS
On April 6, 2005, Tree Island Wire USA , the US division of TIL
announced that during 2005 it will move the operations of Advanced
Wire Technology ("AWT") to its operating facility at Industrial Wire
Products (" IWP"). The costs of this consolidation, expected to be
incurred over the twelve months to March 2006, are estimated at
$1,500.
7. 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 Months Three Months
Ended Ended
March 31, March 31,
2005 2004
------------ ------------
SALES(i)
Canada $ 24,152 $ 19,098
United States 64,896 67,223
Other 329 252
------------ ------------
$ 89,377 $ 86,573
------------ ------------
------------ ------------
As at As at
March 31, December 31,
2005 2004
------------ ------------
PROPERTY, PLANT AND EQUIPMENT(ii)
Canada $ 65,431 $ 67,985
United States 39,809 41,670
------------ ------------
$ 105,240 $ 109,655
------------ ------------
------------ ------------
GOODWILL(ii)
Canada $ 24,655 $ 24,655
United States 19,852 19,750
------------ ------------
$ 44,507 $ 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.
>>
%SEDAR: 00018590E
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