TSX: WEF
DUNCAN, BC, May 4 /CNW/ - Western Forest Products Inc. ("Western" or the
"Company") announced today the Company's results for the 1st quarter ended
March 31, 2005. The Company will host a teleconference call on Monday, May 9,
2005 at 10:00 a.m. PST (1:00 p.m. EST) on the Company's results. (See below
for details on participation.)
The Company's operations generated EBITDA of $8.7 million during the
first three months of 2005, an improvement over the EBITDA loss of
$15.8 million during the fourth quarter of 2004. After applicable deductions,
the Company reported a net loss of $5.3 million ($0.21 per share) in the
quarter compared to a net loss of $19.6 million ($0.76 per share) in the
immediately preceding quarter.
Q1 2005 Highlights
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- EBITDA for the solid wood segment of $11 million, an increase of
$21.3 million over the previous quarter reflecting an improvement in
lumber sales volumes, pricing, a weaker Canadian dollar and changes in
inventory provisions.
- The pulp segment generated $1.9 million of EBITDA, an improvement over
the loss of $1.8 million in the prior quarter on higher prices and a
more favourable exchange rate.
- The Company reached agreement with the BC Government for the
reimbursement of $5.8 million covering certain project engineering and
related costs that had been previously incurred on lands taken back
under the Forestry Revitalization Plan.
- Bank indebtedness decreased by $10.9 million in the quarter from the
application of cash flow from operations.
- The Company established a working capital reserve account under the
terms of the Bond Indenture to be funded by the proceeds of asset
sales. The balance available in the reserve account is currently
$33 million following the sale of a former mill site in early April.
The amounts in the reserve account are available for operational
requirements.
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Reynold Hert, President & CEO commenting on the results noted, "The
results for the quarter are encouraging and reflect the improvement in lumber
and pulp markets as well as the impact of the movement in our pulp log and
lumber inventory cost and market provisions. We are expecting to see increases
in the volume of our lumber sales for the remainder of the year compared to
this quarter although there may be some softening in prices as the year
progresses."
About Western:
Western is an integrated Canadian forest products company and the second
largest coastal woodland operator in British Columbia. Principal activities
conducted by Western and its subsidiaries include timber harvesting,
reforestation, sawmilling logs into lumber and wood chips, value-added
remanufacturing and producing NBSK pulp. Over 95% of Western's logging is
conducted on government owned timberlands in British Columbia. All of
Western's operations, employees and corporate facilities are located in the
coastal region of British Columbia and its products are sold in 30 countries
worldwide.
Forward Looking Statement
This press release and the documents attached hereto contain statements
that are forward-looking in nature. Those statements appear in a number of
places herein and include statements regarding the intent, belief or current
expectations of Western, primarily with respect to market and general economic
conditions, future costs, expenditures, available harvest levels and future
operating performance of Western. Such statements may be indicated by words
such as "estimate", "expect", "intend", "believes" and similar words and
phrases. Readers are cautioned that any such forward-looking statements are
not guarantees and may involve known and unknown risks and uncertainties, and
that actual results may differ from those expressed or implied in the forward-
looking statements as a result of various factors, including general economic
and business conditions, product selling prices, raw material and operating
costs, changes in foreign-currency exchange rates, changes in government
regulation, fluctuations in demand and supply for Western's products, industry
production levels, the ability of Western to execute its business plan and
misjudgements in the course of preparing forward-looking statements. The
information contained under "Risks and Uncertainties" section of Western's
annual management's discussion and analysis and under the "Risk Factors"
section of Western's Annual Information Form identifies important factors that
could cause such differences. All written and oral forward-looking statements
attributable to Western or persons acting on behalf of Western are expressly
qualified in their entirety by the foregoing cautionary statements. Western
does not expect to update forward-looking statements as conditions change.
TELECONFERENCE CALL NOTIFICATION:
Monday, May 9, 2005 at 10:00 a.m. PST/1:00 p.m. EST
---------------------------------------------------
On Monday, May 9, 2005, Western Forest Products Inc. will host a
teleconference call at 10:00 a.m. PST (1:00 p.m. EST). To participate in the
teleconference please dial 1-800-814-4860 in Canada and the U.S. (toll free)
and in Toronto or Internationally, 416-640-4127 before 10:00 a.m. PST
(1:00 p.m. EST). This call will be taped, available one hour after the
teleconference, and on replay until May 19, 2005. To hear a complete replay,
please call 1-877-289-8525 in Canada and the U.S. (toll free), Passcode
21123246 followed by the number sign or in Toronto and Internationally,
416-640-1917, Passcode 21123246 followed by the number sign. This call will
also be webcast from Western's website at www.westernforest.com.
Western Forest Products Inc. - 2005 First Quarter Report
Management's Discussion & Analysis
The following discussion and analysis reports and comments on the
financial condition and results of operations of Western Forest Products Inc.
(the "Company", "us", "we", or "our"), on a consolidated basis, for our first
quarter ended March 31, 2005 to help security holders and other readers
understand our Company and the key factors underlying our financial results.
You should read this discussion and analysis in conjunction with our
consolidated financial statements and related notes thereto, for the first
quarter ended March 31, 2005, and our audited consolidated financial
statements and management's discussion and analysis ("MD&A") for the period
from July 28, 2004 to December 31, 2004 (the "2004 Annual Report") which are
filed on SEDAR at less than www.sedar.com greater than under our Company's
name.
We acquired the solid wood and pulp business of Doman Industries Limited
("Doman") and certain of its subsidiaries (collectively with Doman, the
"Predecessor") on July 27, 2004 in connection with the implementation of the
Predecessor's Plan of Compromise and Arrangement under the Companies'
Creditors Arrangement Act (Canada) and Reorganization under the Canada
Business Corporations Act (the "Plan"). This discussion and analysis also
compares our results for the first quarter ended March 31, 2005 with our
Predecessor's 2004 first quarter results. The consolidated financial and other
information of the Company issued subsequent to the Plan implementation may
not be comparable with the consolidated financial information and other
information issued by the Predecessor prior to the Plan implementation.
Accordingly, the discussion and analysis of our financial condition and
results of operations compared to our Predecessor should be reviewed with
caution.
Unless otherwise noted, the information in this discussion and analysis
is updated to May 2, 2005. All financial references are in Canadian dollars
unless otherwise noted.
<<
Summary of Selected Results for the Quarter
1st Quarter 4th Quarter 1st Quarter
2005 2004 2004
(millions of dollars) Company Company Predecessor(1)
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Sales $ 162.7 $ 165.8 $ 163.0
Countervailing & anti-dumping
duties $ 8.6 $ 9.3 $ 9.5
EBITDA $ 8.7 $ (15.8) $ 15.8
Operating earnings (loss) $ 2.5 $ (24.5) $ 4.4
Interest expense $ (11.8) $ (11.2) $ (30.0)
Foreign exchange gain (loss) on
long-term debt $ (1.6) $ 12.5 $ (10.0)
Net loss $ (5.3) $ (19.6) $ (44.3)
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Per share:
Basic $ (0.21) $ (0.76) $ (1.07)
Diluted $ (0.21) $ (0.76) $ (1.07)
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(1) Q1 2004 restated for the sale of the Port Alice pulp mill by our
Predecessor in May, 2004.
Overview
The net loss for the first quarter of 2005 was $5.3 million ($0.21 per
share) compared to a net loss of $19.6 million ($0.76 per share) in the
immediately preceding quarter and a net loss of $44.3 million recorded by our
Predecessor in the first quarter of 2004. The results for the quarter
benefited from higher lumber and pulp prices and a slight weakening in the
Canadian dollar compared to the previous quarter.
These factors also resulted in positive EBITDA of $8.7 million in the
quarter compared to negative $15.8 million in the previous quarter and
positive $15.8 million in the first quarter of 2004. The $24.5 million
improvement in EBITDA compared to the previous quarter was partly offset by
the $14.1 million negative impact of exchange rates on the Company's long-term
debt that is denominated in US dollars as the Company recorded a loss in the
quarter of $1.6 million on the translation of this debt compared to a gain of
$12.5 million in the previous quarter.
As disclosed in our 2004 Annual Report, the deposit rate that Western
pays with respect to the countervailing and antidumping duties in the softwood
lumber dispute with the US decreased from 27.22% through to December 20, 2004
to 20.96% until February 24, 2005 and 20.15% thereafter. Softwood lumber
duties expensed in the quarter totalled $8.6 million compared to $9.3 million
in the immediately preceding quarter and $9.5 million in the first quarter of
2004.
Included in other income during the quarter is $5.8 million for
reimbursements agreed to date with the BC Government for project engineering
and other costs incurred by our Predecessor with respect to certain timber
cutting rights taken back by the BC Government under the Forestry
Revitalisation Plan. We received $2.7 million during the quarter and the
balance of $3.1 million is included in accounts receivable at March 31, 2005.
The following table reconciles EBITDA as reported in the previous quarter
to the current quarter:
(millions of dollars)
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EBITDA for the three months ended December 31, 2004 $ (15.8)
Improvement in average prices realised 5.0
Impact of weakening (strengthening) Canadian dollar 3.7
Change in volumes sold (1.3)
Impact of changes in lower of cost and market to inventory
values 15.8
Other 1.3
------------
EBITDA for the three months ended March 31, 2005 $ 8.7
------------
------------
EBITDA for the current quarter compared to the previous quarter: the
improvement in average prices realised is for lumber and pulp; the Canadian
dollar weakened by approximately 3% resulting in higher revenues as
approximately 70% of lumber sales and all pulp sales are denominated in
US dollars; lumber sales volumes increased in the quarter (impact is shown at
the previous quarters negative margins); and both the pulp log and lumber
inventory lower of cost and market write-down movements positively impacted
the current quarter.
EBITDA in the current quarter decreased to $8.7 million compared to the
$15.8 million recorded by our Predecessor in the first quarter of 2004. The
decrease of $7.1 million is primarily attributable to the changes in the
accounting policy for the treatment of spur roads (we expense directly whereas
our Predecessor capitalized and amortised), lower realised sales prices for
logs and pulp, the impact of lower log production levels on costs and higher
general corporate costs, offset to some extent by higher lumber prices and
lower pulp operating costs.
Solid Wood Segment
1st Quarter 4th Quarter 1st Quarter
(millions of dollars 2005 2004 2004
except where noted) Company Company Predecessor
-------------------------------------------------------------------------
Lumber sales $ 97.3 $ 87.8 $ 101.1
Log sales 18.2 27.7 14.1
By-product sales 7.1 5.7 5.3
-------------------------------------------
$ 122.6 $ 121.2 $ 120.5
-------------------------------------------
-------------------------------------------
EBITDA $ 11.0 $ (10.3) $ 17.7
EBITDA margin 9.0% (8.5)% 14.7%
Operating earnings (loss) $ 5.5 $ (18.6) $ 8.5
Total assets employed $ 584.1 $ 594.0 $ 471.1
Lumber sales (MMfbm) 162 158 175
Log sales (thousands m(3)) 166 236 100
Lumber production (MMfbm) 185 158 155
Log production (thousands m(3)) 498 894 769
Average lumber sales revenue
per Mfbm $ 599 $ 557 $ 577
Average log sales revenue
per m(3) $ 110 $ 117 $ 141
The solid wood segment had operating income of $5.5 million in the
quarter compared to an operating loss of $18.6 million in the previous quarter
and operating income of $8.5 million in the comparative quarter of 2004.
EBITDA similarly improved to $11.0 million in the quarter compared to negative
$10.3 million in the previous quarter and positive $17.7 million in the
comparative quarter of 2004. The main factors driving the improvement in
results compared to the previous quarter are the improvement in lumber pricing
and a weaker Canadian dollar that resulted in an increase of 7.5% in average
revenue per thousand board feet, the $15.8 million impact of the change in
pulp log and lumber inventories lower of cost and market write-downs, lower
depreciation and amortization expense as a result of the fourth quarter
including cumulative adjustments resulting from the completion of the "fresh
start" allocation process and lower countervailing and anti-dumping duties
resulting from the lower deposit rates.
Lumber sales were lower than expected in the first quarter of 2005 being
impacted by un-seasonally poor weather on both the Atlantic and Pacific
coasts. In addition, we experienced some logistical difficulties in obtaining
rail cars to move our lumber into the United States. Demand from the Japanese
market was lower than expected as was demand for western red cedar in the
quarter and as a consequence production at both the Nanaimo and Silvertree
mills was reduced to one shift in early March. Operations at both mills are
expected to resume to two shifts later in the second quarter with the
anticipated recovery in the Japanese and western red cedar market.
The start up of logging operations after the year end break were delayed
as a result of higher than optimum inventories following the increased logging
effort in the previous quarter to meet our cut control requirements and lower
than expected lumber sales discussed above. As a result, log production was
lower in the first quarter of 2005 compared to the previous quarter and the
2004 first quarter comparative. The lower log production also resulted in
lower log sales compared to the previous quarter. The Vancouver log market
remained fairly static in the quarter compared with the previous quarter with
prices received weakening slightly to an average of $110 per m(3) compared to
$117 per m(3).
Pulp Segment
1st Quarter 4th Quarter 1st Quarter
(millions of dollars 2005 2004 2004
except where noted) Company Company Predecessor(1)
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Sales $ 40.1 $ 44.6 $ 42.4
EBITDA $ 1.9 $ (1.8) $ 0.1
EBITDA margin 4.7% (4.0)% 0.2%
Operating earnings (loss) $ 1.2 $ (2.2) $ (2.2)
Total assets employed $ 86.5 $ 84.6 $ 220.9
Pulp sales (thousands of tonnes) 62 75 61
Pulp production (thousands of
tonnes) 67 73 64
Average pulp revenue per tonne $ 651 $ 601 $ 697
Average pulp price delivered
to Northern Europe -
(US$ per tonne)(2) $ 640 $ 600 $ 590
(1) 2004 restated for the sale of the Port Alice pulp mill which was sold
by our Predecessor in May 2004.
(2) Benchmark prices sourced from Resource Information Systems, Inc.
Operating earnings from the pulp segment during the quarter were
$1.2 million compared to negative $2.2 million in the previous quarter and the
comparative quarter of 2004. EBITDA for the pulp segment in the quarter was
$1.9 million compared to negative $1.8 million in the previous quarter and
$0.1 million in the first quarter of 2004. Results in the quarter were
positively impacted by improved pulp market prices and the slight weakening of
the Canadian dollar compared to the fourth quarter.
Production in the quarter was negatively impacted compared to the
previous quarter due to both fewer production days (86 days compared to
90 days) and a lower daily production rate (777 tonnes compared to 807 tonnes)
as a result of lower equipment reliability and employee turnover. We are
developing a plan to address these items.
Other Corporate Items
Selling and administration expense increased to $6.2 million in the
quarter compared to $5.8 million in the previous quarter and $4.9 million
recorded by our Predecessor in the first quarter of 2004 primarily as a result
of additional legal and consulting costs incurred by the Company.
Changes in Financial Position and Liquidity
1st Quarter 4th Quarter 1st Quarter
(millions of dollars 2005 2004 2004
except where noted) Company Company Predecessor(1)
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Cash flow from operations $ 15.2 $ (22.8) $ 0.1
Capital additions $ (2.5) $ (4.4) $ (5.7)
Change in bank indebtedness $ (10.9) $ 24.2 $ 2.5
Financial ratios:
Current assets to current
liabilities 1.93 1.76 n/a
Debt to shareholders equity 1.83 1.78 n/a
Debt to market capitalization 2.43 2.62 n/a
(1) Q1 2004 restated for the sale of the Port Alice pulp mill by our
Predecessor in May, 2004.
Cash flow from operations in the quarter of $15.2 million compares to a
cash outflow of $22.8 million in the previous quarter and $0.1 million in the
first quarter of 2004. The $38.0 million improvement in cash flow from
operations compared to the previous quarter is primarily attributable to the
improvement in markets that drove the increase in EBITDA of $24.5 million. In
addition, the fourth quarter of 2004 included an interest payment on the
long-term secured debt of $17.0 million. Interest on the debt is payable on
June 30 and December 31 each year.
Additions to property, plant and equipment in the first quarter were
$2.5 million, almost all of it being for road construction in the logging
sector. This was lower than expected due to the slow start up of logging
operations as previously discussed.
Bank indebtedness decreased by $10.9 million in the quarter to
$67.2 million as the cash flow from operations was used to reduce the balance
outstanding.
At March 31, 2005 the Company had a cash balance of $12.0 million plus
available credit of $29.8 million under its credit facility to meet its
operational requirements. In addition, on March 24, the Company established a
working capital reserve account as defined in the Bond Indenture with a
permissible ceiling of up to $50.0 million. Proceeds from asset sales will be
credited to the reserve account and be available for operational requirements,
if needed. At March 31, 2005, proceeds from asset sales amounted to
$21.3 million and now form the balance in the working capital reserve account
and are shown on the balance sheet as restricted cash. A further $11.7 million
was credited to the account following the sale of one of the Company's former
mill sites subsequent to the quarter end increasing the balance in the account
to $33.0 million.
Selected Quarterly Information
To assist shareholders and other readers understand our business, we have
included as Appendix A to the MD&A a table of the financial results and
operating data for the Company and its Predecessor for the last eight
quarters. Note that in the case of the Predecessor the amounts shown do not
extend beyond the operating earnings (loss) line as a comparison of items
below that line is not meaningful as a result of the Predecessors different
capital structure.
In a normal operating year, there is some seasonality to the Company's
operations with higher activity in the second and third quarters as
construction activity, particularly in the US tends to be higher. Logging
activity may also vary depending on weather conditions due to snow and ice in
the winter and the threat of forest fires in the summer.
Risks and Uncertainties
A discussion of risks and uncertainties is included in our 2004 Annual
Report and Annual Information Form.
Outlook
Lumber prices in the US were stronger during the first quarter of 2005
driven by continuing high US housing starts as well as supply problems caused
by very wet weather and rail car shortages in western Canada. Although the
number of new building permits issued in the US remains high we are
anticipating a softening in the market as we move into the second half of the
year due to higher interest rates. We expect the Japanese market to begin to
recover towards the middle of the year as noted earlier.
We anticipate increases in the volume of lumber sales for the remainder
of the year compared to this quarter driven by the anticipated recovery in the
Japanese market, increased availability of rail cars following the move of our
rail loading activity to a third party provider, and an increase in the amount
of dry lumber produced. The three kilns at our Saltair mill with a drying
capacity for dimensional lumber of 130 million board feet are being brought
back into service at a cost of $0.3 million.
With respect to pulp markets, we have seen short term pricing weakness
for softwood kraft pulp due to production and consumption imbalances in the
market place. Producer inventories have risen as buyers de-stocked in the face
of stalled prices. For the market as a whole, the ratio of demand to capacity
for 2005 is the highest it has been for many years. As a result, we expect to
see prices for softwood pulp firm over the next couple of months as
maintenance curtailment takes effect and softwood demand improves. Pricing
should recover further over the third and fourth quarters.
We continue to pursue our strategy of managing cash flow and interest
costs, growing the business and enhancing corporate governance.
The initial review of alternatives to refinance our US$221 million
Secured Bonds indicates that the high yield debt market has become more
expensive in the last month due to a number of negative factors. We will
pursue opportunities to refinance the Bonds at a lower cost and can redeem
them at any time after July 27, 2005, subject to certain terms and conditions.
Outstanding Share Data
As of May 2, 2005, 25,635,424 of our Common Shares are issued and
outstanding. In addition, we have issued 569,373 Tranche 1 Class C Warrants,
854,146 Tranche 2 Class C Warrants, and 1,423,743 Tranche 3 Class C Warrants
(collectively, the "Class C Warrants"). We have reserved up to 2,847,262
Common shares for issuance upon the exercise of the Class C Warrants. We have
also reserved 2,500,000 Common shares for issuance upon the exercise of
options granted under our incentive stock option plan. As of May 2, 2005 we
have granted 299,590 options under our incentive stock option plan.
Other Matters
There has been no change to the information provided in our MD&A for the
period from July 28, 2004 to December 31, 2004, dated March 24, 2005 ("2004
Annual MD&A") in respect of the following items: Contractual Obligations
(other than ordinary course), Financial Instruments, Off-balance Sheet
Arrangements, Transactions with Related Parties, Critical Accounting
Estimates, Changes in Accounting Policy and Risks and Uncertainties. Please
see our 2004 Annual MD&A for information on these items.
Additional information about the Company, including our Annual
Information Form is available at less than www.sedar.com greater than under
the Company name, Western Forest Products Inc. Information about the operation
of our business by our Predecessor prior to the implementation of the Plan,
including our Predecessor's last Form 20-F, is available at
less than www.sedar.com greater than under the Predecessor's name, Doman
Industries Limited.
On behalf of the Board of Directors
John MacIntyre Reynold Hert
Chairman President and Chief Executive Officer
Duncan, BC
May 2, 2005
Note:
We have prepared the financial information contained in this discussion
and analysis in accordance with Canadian generally accepted accounting
principles ("GAAP"). Reference is also made to EBITDA. EBITDA refers to
operating earnings (losses) before interest, taxes, amortization and other
non-operating income and expenses and in the case of our Predecessor, also
before restructuring costs and asset write-downs. We have included information
concerning EBITDA because the Company understands that it is used by certain
investors as a measure of the Company's performance. As EBITDA is a non-GAAP
measure, it may not be comparable to EBITDA calculated by others. EBITDA does
not represent cash generated from operations as defined by Canadian GAAP and
it is not necessarily indicative of cash available to fund cash needs. "EBIT"
refers to operating earnings (losses) before interest, income and capital
taxes and other non-operating income and expenses.
The foregoing contains statements which constitute forward-looking
statements within the meaning of the United States Securities Exchange Act of
1934. Those statements appear in a number of places in this document and
include statements regarding our intent, belief or current expectations
primarily with respect to market and general economic conditions, future
costs, expenditures, available harvest levels and our future operating
performance. Such statements may be indicated by words such as "estimate",
"expect", "intend", "believes" and similar words and phrases. Readers are
cautioned that any such forward-looking statements are not guarantees and may
involve known and unknown risks and uncertainties, and that actual results may
differ from those expressed or implied in the forward-looking statements as a
result of various factors, including general economic and business conditions,
product selling prices, raw material and operating costs, changes in foreign
currency exchange rates, changes in government regulation, fluctuations in
demand and supply for our products, industry production levels, our ability to
execute our business plan and misjudgments in the course of preparing forward-
looking statements. The information contained under "Risks and Uncertainties"
in our 2004 Annual MD&A and under "Risk Factors" in our Annual Information
Form identifies important factors that could cause such differences. All
written and oral forward-looking statements attributable to us or persons
acting on our behalf are expressly qualified in their entirety by the
foregoing cautionary statements.
Management's Discussion and Analysis - Appendix A
Summary of Selected Results for the Last Eight Quarters
Selected Financial Information
(millions of Canadian dollars except per unit sales prices)
Quarter
------------------------------
2005 2004
--------- -------------------
1st 4th 3rd
--------- -------------------
(July 28 -
Sept 30)
------------------------------
Company
--------- -------------------
Average Exchange Rate - Cdn $ to purchase
one U.S.$ $ 1.2259 $ 1.2219 $ 1.3227
Net sales
Lumber $ 97.3 $ 87.8 $ 85.5
Logs 18.2 27.7 31.8
By-Products 7.1 5.7 5.2
--------- -------------------
Solid wood segment 122.6 121.2 122.5
Pulp segment 40.1 44.6 35.8
--------- -------------------
162.7 165.8 158.3
Costs and expenses 154.0 181.6 140.5
--------- -------------------
Operating earnings (loss) before
amortization (EBITDA) 8.7 (15.8) 17.8
Amortization of property, plant and
equipment 6.2 8.7 5.5
--------- -------------------
Operating earnings (loss) (EBIT) $ 2.5 $ (24.5) $ 12.3
--------- -------------------
--------- -------------------
Net earnings (loss) $ (5.3) $ (19.6) $ 14.1
Net loss per share - basic and diluted $ (0.21) $ (0.76) $ 0.55
Sales Volumes
Lumber - millions of board feet 162 158 135
Logs - thousands of cubic metres 166 236 291
Pulp - thousands of tonnes 62 75 51
Production volumes
Lumber - millions of board feet 185 158 132
Logs - thousands of cubic metres 498 894 681
Pulp - thousands of tonnes 67 73 46
Sales prices
Lumber - per thousand board feet $ 599 $ 557 $ 633
Logs - per cubic metre $ 110 $ 117 $ 109
Pulp - per tonne $ 651 $ 601 $ 694
EBITDA
Solid wood segment $ 11.0 $ (10.3) $ 19.7
Pulp segment 1.9 (1.8) 0.5
General corporate (4.2) (3.7) (2.4)
--------- -------------------
Amortization $ 8.7 $ (15.8) $ 17.8
--------- -------------------
--------- -------------------
Solid wood segment $ 5.6 $ 8.3 $ 4.8
Pulp segment 0.6 0.4 0.7
--------- -------------------
EBIT $ 6.2 $ 8.7 $ 5.5
--------- -------------------
--------- -------------------
Solid wood segment $ 5.5 $ (18.6) $ 14.9
Pulp segment 1.2 (2.2) (0.2)
General corporate (4.2) (3.7) (2.4)
--------- -------------------
$ 2.5 $ (24.5) $ 12.3
--------- -------------------
--------- -------------------
Quarter
--------------------------------
2004
--------------------------------
3rd 2nd 1st
(July 1 -
July 27)
--------------------------------
Predecessor (restated for sale
of Port Alice pulp mill
in May, 2004)
--------------------------------
Average Exchange Rate - Cdn $ to purchase
one U.S.$ $ 1.3338 $ 1.3489 $ 1.3190
Net sales
Lumber $ 21.4 $ 116.4 $ 101.1
Logs 13.5 53.4 14.1
By-Products 3.0 6.5 5.3
--------------------------------
Solid wood segment 37.9 176.3 120.5
Pulp segment 6.4 52.2 42.4
--------------------------------
44.3 228.5 163.0
Costs and expenses 44.8 181.5 147.2
--------------------------------
Operating earnings (loss) before
amortization (EBITDA) (0.5) 47.0 15.8
Amortization of property, plant and
equipment 4.4 17.3 11.4
--------------------------------
Operating earnings (loss) (EBIT) $ (4.9) $ 29.7 $ 4.4
--------------------------------
--------------------------------
Net earnings (loss)
Net loss per share - basic and diluted
Sales Volumes
Lumber - millions of board feet 30 171 175
Logs - thousands of cubic metres 120 449 100
Pulp - thousands of tonnes 9 66 61
Production volumes
Lumber - millions of board feet 59 175 155
Logs - thousands of cubic metres 422 1,158 769
Pulp - thousands of tonnes 11 72 64
Sales prices
Lumber - per thousand board feet $ 712 $ 681 $ 577
Logs - per cubic metre $ 113 $ 119 $ 141
Pulp - per tonne $ 734 $ 797 $ 697
EBITDA
Solid wood segment $ 10.9 $ 37.0 $ 17.7
Pulp segment (10.7) 12.2 0.1
General corporate (0.7) (2.1) (2.0)
--------------------------------
Amortization $ (0.5) $ 47.1 $ 15.8
--------------------------------
--------------------------------
Solid wood segment $ 4.0 $ 14.6 $ 9.2
Pulp segment 0.4 2.5 2.3
--------------------------------
EBIT $ 4.4 $ 17.1 $ 11.5
--------------------------------
--------------------------------
Solid wood segment $ 6.9 $ 22.4 $ 8.5
Pulp segment (11.1) 9.7 (2.2)
General corporate (0.7) (2.1) (2.0)
--------------------------------
$ (4.9) $ 30.0 $ 4.3
--------------------------------
--------------------------------
Quarter
--------------------------------
2003
--------------------------------
4th 3rd 2nd
--------------------------------
Predecessor (restated for sale
of Port Alice pulp mill
in May, 2004)
--------------------------------
Average Exchange Rate - Cdn $ to purchase
one U.S.$ $ 1.3226 $ 1.3794 $ 1.4232
Net sales
Lumber $ 81.3 $ 92.2 $ 79.2
Logs 25.9 22.1 26.3
By-Products 6.2 5.5 4.9
--------------------------------
Solid wood segment 113.4 119.8 110.4
Pulp segment 43.4 40.1 39.4
--------------------------------
156.8 159.9 149.8
Costs and expenses 162.7 164.2 169.7
--------------------------------
Operating earnings (loss) before
amortization (EBITDA) (5.9) (4.3) (19.9)
Amortization of property, plant and
equipment 12.2 9.5 12.8
--------------------------------
Operating earnings (loss) (EBIT) $ (18.1) $ (13.8) $ (32.7)
--------------------------------
--------------------------------
Net earnings (loss)
Net loss per share - basic and diluted
Sales Volumes
Lumber - millions of board feet 156 164 153
Logs - thousands of cubic metres 176 171 168
Pulp - thousands of tonnes 67 64 61
Production volumes
Lumber - millions of board feet 165 143 141
Logs - thousands of cubic metres 709 473 754
Pulp - thousands of tonnes 62 59 61
Sales prices
Lumber - per thousand board feet $ 521 $ 562 $ 518
Logs - per cubic metre $ 147 $ 129 $ 157
Pulp - per tonne $ 648 $ 627 $ 646
EBITDA
Solid wood segment $ (1.1) $ (1.6) $ (4.5)
Pulp segment (2.2) (1.0) (14.0)
General corporate (2.6) (1.6) (1.5)
--------------------------------
Amortization $ (5.9) $ (4.2) $ (20.0)
--------------------------------
--------------------------------
Solid wood segment $ 9.8 $ 7.3 $ 10.4
Pulp segment 2.4 2.3 2.3
--------------------------------
EBIT $ 12.2 $ 9.6 $ 12.7
--------------------------------
--------------------------------
Solid wood segment $ (10.9) $ (8.9) $ (14.9)
Pulp segment (4.6) (3.3) (16.3)
General corporate (2.6) (1.6) (1.8)
--------------------------------
$ (18.1) $ (13.8) $ (32.7)
--------------------------------
--------------------------------
Our results for the fourth quarter compared to the third quarter of 2004
reflect the weaker lumber and pulp markets, a stronger Canadian dollar and the
write-down of pulp log inventories. The 2003 quarterly operating losses of our
Predecessor primarily reflect weak lumber markets and the strengthening
Canadian dollar. These results improved in 2004 as the markets and prices
improved significantly, particularly in the second quarter of 2004.
Consolidated Balance Sheets
(Expressed in thousands of Canadian dollars)
-------------------------------------------------------------------------
March December
31, 2005 31, 2004
--------------------------
(Unaudited) (Audited)
Assets
Current assets:
Cash $ 12,027 $ 5,005
Accounts receivable 81,727 77,970
Inventory 174,097 176,709
Restricted cash (note 5) 21,319 -
Prepaid expenses 4,723 5,204
--------------------------
293,893 264,888
Restricted assets (note 5) - 24,428
Investments 7,272 7,166
Property, plant and equipment 389,912 395,554
Other assets 1,265 1,397
--------------------------
$ 692,342 $ 693,433
--------------------------
--------------------------
Liabilities and Shareholders' Equity
Current liabilities
Bank indebtedness (note 4) $ 67,217 $ 78,113
Accounts payable and accrued liabilities 84,812 72,174
--------------------------
152,029 150,287
Long-term debt (note 5) 255,790 253,522
Future income taxes 10,537 10,537
Other liabilities 29,604 29,382
--------------------------
447,960 443,728
Shareholders' equity
Common Shares 255,175 255,175
Deficit (10,793) (5,470)
--------------------------
244,382 249,705
--------------------------
--------------------------
$ 692,342 $ 693,433
--------------------------
--------------------------
Commitments and Contingencies (note 6)
See accompanying notes to consolidated financial statements
Approved on behalf of the Board:
"Reynold Hert" Director
"John MacIntyre" Director
Consolidated Statements of Operations
(Unaudited)
(Expressed in thousands of Canadian dollars,
except for share and per share amounts)
-------------------------------------------------------------------------
Three months ended
March 31
--------------------------
2005 2004
--------------------------
Company Predecessor
(Restated)
Sales $ 162,735 $ 163,003
Cost and expenses
Cost of goods sold 124,958 119,021
Anti-dumping and countervailing duties 8,573 9,537
Freight expenses 14,316 13,736
Amortization of property, plant and equipment 6,193 11,462
Selling and administration 6,164 4,865
--------------------------
160,204 158,621
--------------------------
Operating earnings 2,531 4,382
Interest expense (11,807) (30,007)
Foreign exchange loss on translation of
long-term debt (1,593) (9,961)
Other income 5,797 59
Financial restructuring costs - (3,308)
--------------------------
Loss before income taxes (5,072) (38,835)
Income taxes (251) (363)
--------------------------
Net loss from continuing operations (5,323) (39,198)
Net loss from discontinued operations - (5,143)
--------------------------
Net loss (5,323) (44,341)
Provision for dividends on preferred shares - (1,203)
--------------------------
Net loss attributable to common and
non-voting shares $ (5,323) $ (45,544)
--------------------------
--------------------------
Loss per share:
Basic $ (0.21) $ (1.07)
Diluted $ (0.21) $ (1.07)
Weighted average number of common and
non-voting shares outstanding
(thousands of shares) 25,635 42,481
See accompanying notes to the consolidated financial statements
Consolidated Statements of Cash Flows
(Unaudited)
(Expressed in thousands of Canadian dollars)
-------------------------------------------------------------------------
Three months ended
March 31
--------------------------
2005 2004
--------------------------
Company Predecessor
(Restated)
Cash provided by (used in):
Operations:
Net loss from continuing operations $ (5,323) $ (39,198)
Items not involving cash:
Amortization of property, plant
and equipment 6,193 11,462
Amortization and write-down of deferred
charges 44 1,094
Foreign currency translation loss 1,593 9,961
Accretion of debt discount 676 -
Gain on property, plant and equipment
disposals (42) (412)
Other 116 586
--------------------------
3,257 (16,507)
--------------------------
Changes in non-cash working capital items:
Accounts receivable (3,757) (16,102)
Inventory 2,612 (6,178)
Prepaid expenses 481 (2,027)
Accounts payable and accrued liabilities 12,638 23,933
Accounts payable and accrued liabilities
subject to compromise - 19,673
--------------------------
11,974 19,299
--------------------------
Cash provided by continuing operations 15,231 2,792
Cash used by discontinued operations (2,671)
--------------------------
15,231 121
--------------------------
Investments:
Additions to property, plant and equipment (437) (39)
Additions to capitalized roads (2,014) (5,706)
Disposals of property, plant and equipment 1,941 1,025
Restricted cash (18,436) -
Bill 28 take back proceeds and
infrastructure advance (note 6(a)) 21,545
Other 88 146
--------------------------
2,687 (4,574)
--------------------------
Financing:
Bank indebtedness (10,896) 2,539
--------------------------
(10,896) 2,539
--------------------------
Increase (decrease) in cash 7,022 (1,914)
Cash, beginning of period 5,005 21,561
--------------------------
Cash, end of period $ 12,027 $ 19,647
--------------------------
--------------------------
See accompanying notes to the consolidated financial statements
Notes to Interim Consolidated Financial Statements
(Unaudited)
(Tabular amounts expressed in thousands of Canadian dollars)
1. Basis of Presentation
Western Forest Products Inc.'s (the "Company") business is the
harvesting of timber and the manufacturing and sale of lumber and
pulp for worldwide markets.
The Company acquired all of its operating assets from Doman
Industries Limited and certain of it subsidiaries ("Doman" or the
"Predecessor") on July 27, 2004. For a complete discussion of the
Company's acquisition of Doman's assets and Doman's reorganization,
please see the Company's annual report filed on Sedar at
www.sedar.com.
The Predecessor's financial information has been presented to provide
additional information for the reader. In reviewing the Predecessor's
financial information, readers are reminded that they do not reflect
the effects of the financial reorganization or the application of
its accounting described in the Company's 2004 annual report.
Certain amounts presented in the Predecessor's financial information
have been reclassified to conform with the presentation adopted by
the Company and have also been restated to reflect the classification
of the Port Alice pulp mill as discontinued operations.
2. Significant Accounting Policies
These interim consolidated financial statements do not include all
disclosures required by Canadian generally accepted accounting
principles for annual financial statements and, accordingly, should
be read in conjunction with the Company's most recent audited annual
consolidated financial statements. These interim consolidated
financial statements follow the same accounting policies and methods
of application used in the Company's consolidated financial
statements as at December 31, 2004 and for the period from
July 28, 2004 to December 31, 2004.
3. Adoption of New Accounting Policy
The new Canadian Institute of Chartered Accountants Accounting
Guideline 15 "Consolidation of Variable Interest Entities" is
effective for fiscal years commencing after November 1, 2004. The
Guideline provides criteria for identifying Variable Interest
Entities and their consolidation. The Company has determined that the
Guideline does not materially impact the Company's Consolidated
Interim Financial Statements.
4. Credit Facility
On July 27, 2004 the Company established a three-year revolving
credit facility, secured by receivables and inventory, which bears an
interest rate of prime plus 0.75%. The size of this asset backed
facility is determined by the level of outstanding receivables and
inventory, but cannot exceed $100,000,000.
At March 31, 2005, of the full $100,000,000 of the facility that was
available to the Company, $67,217,000 had been drawn down and
$2,966,000 was used to support standby letters of credit leaving a
balance of $29,817,000 available for future use.
5. Long-Term Debt
On July 27, 2004 the Company issued US$221,000,000 of 15% Secured
Bonds due in 2009 for proceeds of US$210,000,000. Interest is payable
semi-annually in arrears on December 31 and June 30 of each year
commencing December 31, 2004. The Company has the right to defer
payment of up to one-half of the interest payable on any interest
payable date for up to five years but not beyond the maturity date of
the Secured Bonds. The Secured Bonds are secured by a first priority
charge over all of the fixed assets of the Company including timber
tenures, sawmills and the value-added lumber remanufacturing plant.
The security ranks subordinate to the security provided under the
working capital facility (see note 4). The Secured Bonds are
redeemable at the option of the Company at any time after
July 27, 2005 at their principal amount plus (i) a premium (which
decreases annually to their 2009 maturity date resulting in a
redemption price of: 2005 - 107.50%; 2006 - 105.50%; 2007 - 103.50%;
2008 - 101.50%) and (ii) any accrued and unpaid interest.
The indenture governing the Secured Bonds contains certain
restrictions regarding, among other things, the ability of the
Company to incur additional indebtedness (with certain exceptions)
and limitations on the payment of dividends and other restricted
payments. Subject to ensuring adequate liquidity, proceeds from asset
sales, a softwood lumber duty settlement and capital market
transactions are generally to be used to redeem Secured Bonds. On
March 24, the Company established a working capital reserve account
as defined in the Bond Indenture with a permissible ceiling of up to
$50,000,000. Proceeds from asset sales will be credited to the
reserve account and be available for operational requirements, if
needed. At March 31, 2005, proceeds from asset sales amounted to
$21,319,000 and now form the balance in the working capital reserve
account and are shown on the balance sheet as restricted cash.
6. Commitments and Contingencies
(a) The Forestry Revitalization Plan
Retroactive to March 31, 2003, the Government of British Columbia
(the "Crown" or "Provincial Government") as part of the Forestry
Revitalization Plan (the "FR Plan"), reduced the Crown land portion
of the allowable annual cut ("AAC") from major tenure holders by 20%,
less an exemption for the first 200,000 cubic metres, in exchange for
compensation payable by the Crown. In January 2005, pursuant to terms
of the settlement framework agreement negotiated in late 2004, the
Company received $16,545,000 in compensation for the loss of 685,216
cubic metres of AAC and 827 hectares of timber licences. Under this
agreement, the Company also received an advance payment of $5,000,000
towards compensation for improvements the Company made to Crown land
in the take-back areas ($4,000,000 was recorded as a reduction in
capitalized roads and $1,000,000 has been recorded in accounts
payable for future site obligations). The amounts were included as
receivables in restricted assets as of December 31, 2004 and these
proceeds resulted in no gain or loss due to the fair value
allocations as at July 28, 2004.
Negotiations in 2005 will finalize take-back areas, complete the
compensation payments for improvements and determine if there will be
cost recovery for costs already incurred for planning and
inventories. Included in other income during the quarter is
$5.8 million for reimbursements agreed to date with the BC Government
for project engineering and other costs incurred by our Predecessor
with respect to certain timber cutting rights taken back by the BC
Government. We received $2.7 million during the quarter and the
balance of $3.1 million is included in accounts receivable at
March 31, 2005. The final comprehensive settlement agreement is
expected to be reached in 2005.
(b) Softwood Lumber Duties
The Company has recorded countervailing and antidumping duties
assessed on Canadian softwood lumber exports to the United States
totalling $8,573,000 for the first quarter of 2005. Cumulative duties
from May 22, 2002, when cash deposits were made necessary for
shipments of Canadian lumber into the US, until March 31, 2005, total
US$80,600,000.
The Company and other Canadian forest product companies, the Federal
Government and Canadian Provincial Governments ("Canadian Interests")
categorically deny the US allegations and strongly disagree with the
final countervailing and antidumping determinations made. Canadian
Interests continue to aggressively defend the Canadian industry in
this U.S. trade dispute and have appealed the US decisions to NAFTA
panels and the WTO.
A NAFTA Panel has ruled that the US authorities have not been able to
provide the NAFTA Panel with substantive evidence to support their
ruling of "threat of injury". The NAFTA Panel requested that they
reverse their ruling on "threat of injury" with which they
reluctantly complied. US interests are appealing this ruling to an
Extraordinary Challenge Committee ("ECC") Panel. If the ECC Panel
upholds this finding by the NAFTA Panel, the Company would expect
that all prior duties paid would be refunded with interest. However,
there can be no certainty that they would comply with this ruling and
US industry and trade groups have indicated that they may even
challenge the constitutional validity of NAFTA in US courts.
The final amount of countervailing and antidumping duties that may be
assessed on the Company's Canadian softwood lumber exports to the
U.S. cannot be determined at this time and will depend on appeals of
the final determinations to any reviewing courts, NAFTA or WTO
panels. Notwithstanding the final rates established in the
investigations, the final liability for the assessment of
countervailing and antidumping duties will not be determined until
each annual administrative review process is complete, including
appeals.
(c) Litigation and Claims
In the normal course of its business activities, the Company is
subject to a number of claims and legal actions that may be made by
customers, suppliers and others in respect of which either provision
has been made or for which no material liability is expected.
Subsequent to the quarter end the Company and the Province of British
Columbia resolved a number of outstanding claims and counterclaims in
settlement of which the Company will receive $1.3 million in cash.
7. Segmented Information
The Company is an integrated Canadian forest products company
operating in two industry segments. The Solid Wood Segment comprises
the Company's timber harvesting, reforestation, sawmilling,
value-added lumber remanufacturing and lumber marketing operations.
The Pulp Segment comprises the Company's NBSK pulp manufacturing and
sales operations.
---------------------------------------------------------------------
Quarter ended March 31, 2005
--------------------------------
Solid wood Pulp Total
---------------------------------------------------------------------
Sales to external customers $122,595 $40,140 $162,735
Sales to other segment 7,751 - 7,751
-------------------------------
$130,346 $40,140 $170,486
-------------------------------
---------------------------------------------------------------------
Quarter ended March 31, 2005
--------------------------------
Solid wood Pulp Total
---------------------------------------------------------------------
Segmented operating earnings $5,503 $1,250 $6,753
General corporate expenses (4,222)
Interest expense (11,807)
Foreign exchange loss on translation
of long-term debt (1,593)
Other income 5,797
Income tax expense (251)
--------------------------------
Net loss $(5,323)
--------
--------
8. Pension Expense
The Company has defined benefit pension plans which cover
substantially all salaried employees. The plans provide pensions
based on length of service and final average earnings. The Company
also has health care plans covering certain hourly and retired
salaried employees. The Company recorded expense of $934,000 in the
three months ended March 31, 2005 with respect to these defined
benefit plans and a further $2,119,000 with respect to the
contributions to the hourly paid employee union pension plans.
9. Financial Instruments
The Company has significant exposures to individual customers
including one customer which comprised 12% of the Company's sales for
the quarter. The accounts receivable balance from the same customer
comprised 24% of the Company's outstanding receivables at
March 31, 2005 and was insured through the Export Development
Corporation as to approximately 44% of the balance outstanding. The
Company's general practice is to make sales on a cash basis, without
credit terms, or to insure them for 90% of their sales value with the
Export Development Corporation. The uninsured portion primarily
results from the increased sales activity with this customer and is
expected to be temporary while insurance levels and trade terms are
modified.
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