Tembec reports financial results for its first quarter ended December 27, 2008



    MONTREAL, Jan. 29 /CNW Telbec/ - Consolidated sales for the three-month
period ended December 27, 2008 were $511 million, down from $545 million in
the comparable period of the prior year. The Company generated a net loss of
$60 million or $0.60 per share in the December quarter compared to a net loss
of $60 million or $0.70 per share in the comparable three-month period of the
prior year. Earnings before non-recurring items, interest, income taxes,
depreciation, amortization and other non-operating expenses (EBITDA) was $6
million for the three-month period ended December 27, 2008, as compared to
negative EBITDA of $16 million a year ago and EBITDA of $29 million in the
prior quarter.
    The December 2008 quarterly financial results include an after-tax loss
of $50 million or $0.50 per share relating to the loss on translation of
foreign debt. After adjusting for this item and certain other items, the
Company would have generated a net loss of $4 million or $0.04 per share. This
compares to a net loss of $87 million or $1.03 per share in the corresponding
quarter of the prior year and a net loss of $5 million or $0.05 per share in
the previous quarter. The impact of specific items on the Company's financial
performance is discussed further in the Management Discussion and Analysis
(MD&A) of its financial results.

    Business Segment Results
    ------------------------

    The Forest Products segment generated negative EBITDA of $16 million on
sales of $146 million. This compares to negative EBITDA of $9 million on sales
of $167 million in the prior quarter. Sales decreased by $21 million, due to
lower prices and volumes for lumber. Engineered wood sales declined by $9
million as a result of lower volumes. The Temlam engineered wood joint venture
declared bankruptcy in early September and the Company ceased consolidating
its 50% share of sales and costs. US $ reference prices for random lumber
decreased by approximately US $75 per mbf while stud lumber decreased by US
$45 per mbf. Currency had a positive effect on pricing as the Canadian $
averaged US $0.827, a 14% decline from US $0.959 in the prior quarter. The net
price effect was a decrease in EBITDA of $5 million or $19 per mbf. Mill level
costs increased by $8 million. In the prior quarter, the Company's sawmills
had benefited from a $10 million favourable adjustment to the carrying value
of log and lumber inventories as increasing prices led to higher projected net
realizable values. The current quarter also benefited from a favourable
adjustment of $2 million. The non-consolidation of the Temlam engineered wood
operations improved EBITDA by $2 million. During the December quarter, the
Company incurred $3 million of lumber export taxes, unchanged from the prior
quarter. This amount was offset by a favourable adjustment relating to export
taxes previously paid during the October 2007 to March 2008 period. Lumber
export taxes are payable based on the 2006 agreement between Canada and the
United States. Applicable export tax rates vary based upon selling prices.
During the December quarter, the Company incurred a tax of 5% on Eastern
shipments and 15% on Western shipments, unchanged from the prior quarter.
    The Pulp segment generated EBITDA of $4 million on sales of $272 million
for the quarter ended December 2008 compared to EBITDA of $36 million on sales
of $361 million in the prior quarter. Sales declined by $89 million as a
result of lower shipments of all grades of pulp. While US $ reference prices
declined, the current quarter pricing benefited from the weaker Canadian $.
The net price effect was an increase of $29 per tonne, increasing EBITDA by $9
million. Pulp demand continued to weaken and the Company incurred 61,900
tonnes of market related downtime and 19,600 tonnes of maintenance downtime.
This compares to 23,400 tonnes of market downtime and 300 tonnes of
maintenance downtime in the prior quarter. The significant increase in
downtime negatively impacted mill level manufacturing costs which increased by
$26 million. The balance of the decline in EBITDA relates primarily to sales
volumes, which dropped by 28% over the prior quarter. The Company continues to
focus on maintaining targeted inventory levels and will initiate production
curtailments as required. Inventories were at 42 days of supply at the end of
December 2008, up from 30 days at the end of September 2008.
    The Paper segment generated EBITDA of $19 million on sales of $126
million. This compares to EBITDA of $7 million on sales of $126 million in the
prior quarter. Sales were unchanged, with higher prices offsetting lower
shipments. The US $ reference price for newsprint increased by US $37 per
tonne while the reference price for coated bleached board increased by US $60
per short ton. Currency also had a positive effect on pricing. The combined
price effect was an increase of $154 per tonne, increasing EBITDA by $19
million. During the December quarter, manufacturing costs increased by $5
million, primarily due to higher energy costs. The Company incurred 27,000
tonnes of market related downtime and 8,300 tonnes of maintenance downtime in
the December 2008 quarter compared to 30,400 tonnes of market related downtime
in the prior quarter. One of the three newsprint machines at the Kapuskasing
newsprint mill was idle for the entire December 2008 quarter and the Pine
Falls newsprint mill was idled for one week to reduce inventory levels.

    Liquidity
    ---------

    At the end of December 2008, the Company had net cash of $58 million plus
unused operating lines of $193 million. The Company had previously stated an
objective of maintaining $300 million of liquidity. The unplanned increase in
pulp inventories was the primary cause of the liquidity decrease in the
December quarter. The Company is continuing with pulp production curtailments
to control inventory levels. Cost reduction initiatives in SG&A are also being
implemented.

    Outlook
    -------

    Overall, the December quarterly operating results were in line with
expectations as the sharp decline in the relative value of the Canadian $
mitigated the impact of a rapidly deteriorating pulp market. The extremely low
US $ lumber selling prices experienced over the last several quarters
continues to depress earnings. Looking ahead, lumber markets will remain
challenging as there are no clear signs of a U.S. housing recovery. Pulp
markets have weakened considerably and we expect this downturn to last for
several quarters. The Company has responded by taking production curtailments,
and more will likely be required in the future. Newsprint prices increased in
the December quarter. However, US newsprint demand continues to decline and
producers will have to adjust to this reality. Overall, the problems facing
the financial community, as well as the broader economy, have led to
significant volatility and unprecedented decline in demand for most
commodities. The positives for the Company are a stronger US $, a significant
decrease in energy costs, as well as a good balance sheet and liquidity
position. The risks are in low US $ pricing for forest products and declining
demand as customers deal with the current economic and financial challenges.
The Company will continue to prioritize controllable items such as costs and
operating efficiency.

    Tembec is a large, diversified and integrated forest products company
which stands as the global leader in sustainable forest management practices.
With operations principally located in North America and in France, the
Company employs approximately 7,000 people. Tembec's common shares are listed
on the Toronto Stock Exchange under the symbol TMB and warrants under TMB.WT.
The full quarterly report, including the interim Management Discussion and
Analysis, the interim financial statements and the accompanying notes for the
quarter ended December 27, 2008 can be obtained on Tembec's website at
www.tembec.com or on SEDAR at www.sedar.com.

    This press release includes "forward-looking statements" within the
meaning of securities laws. Such statements relate to the Company's or
management's objectives, projections, estimates, expectations or predictions
of the future and can be identified by words such as "anticipate", "estimate",
"expect", "will" and "project" or variations of such words. These statements
are based on certain assumptions and analyses made by the Company in light of
its experience and its perception of future developments. Such statements are
subject to a number of risks and uncertainties, including, but not limited to,
changes in foreign exchange rates, product selling prices, raw material and
operating costs and other factors identified in our periodic filings with
securities regulatory authorities. Many of these risks are beyond the control
of the Company and, therefore, may cause actual actions or results to
materially differ from those expressed or implied herein. The Company
disclaims any intention or obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or
otherwise.


    
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                                 TEMBEC INC.
                         CONSOLIDATED BALANCE SHEETS
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    (unaudited) (in millions of dollars)

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                                                       Dec. 27,     Sept. 27,
                                                          2008          2008
                                                                    (Audited)
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    ASSETS
    Current Assets:
      Cash and cash equivalents                        $    58       $   113
      Derivative financial instruments                       -             1
      Accounts receivable                                  333           371
      Inventories (note 3)                                 480           414
      Prepaid expenses                                      18            19
      Current assets from discontinued
       operations (note 2)                                   3             2
    -------------------------------------------------------------------------
                                                           892           920

    Investments                                              8             9
    Fixed assets                                           665           668
    Other assets                                            24            22
    Future income taxes                                      1             1
    -------------------------------------------------------------------------
                                                       $ 1,590       $ 1,620
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    LIABILITIES AND SHAREHOLDERS' EQUITY
    Current liabilities:
      Bank indebtedness                                $     -       $     1
      Operating bank loans                                  77            49
      Accounts payable and accrued charges                 316           375
      Interest payable                                       3             3
      Current portion of long-term debt (note 4)            25            18
      Current liabilities related to discontinued
       operations (note 2)                                   3             3
    -------------------------------------------------------------------------
                                                           424           449

    Long-term debt (note 4)                                428           378
    Other long-term liabilities and credits (note 5)       230           229
    Future income taxes                                      2             3
    Minority interest                                        -             1
    Non-current liabilities related to discontinued
     operations (note 2)                                    44            38

    Shareholders' equity:
      Share capital (note 6)                               570           570
      Deficit                                             (108)          (48)
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                                                           462           522
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                                                       $ 1,590       $ 1,620
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                                 TEMBEC INC.
                    CONSOLIDATED STATEMENTS OF OPERATIONS
    -------------------------------------------------------------------------

    (unaudited) (in millions of dollars, unless otherwise noted)

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                                                           The           The
                                                       Company   Predecessor
    -------------------------------------------------------------------------
                                                       Quarter       Quarter
                                                         ended         ended
                                                       Dec. 27,      Dec. 29,
                                                          2008          2007
    -------------------------------------------------------------------------
    Sales                                              $   511       $   545
    Freight and sales deductions                            61            63
    Lumber export taxes (note 7)                             -             3
    Cost of sales                                          421           469
    Selling, general and administrative                     23            26
    Depreciation and amortization                           18            42
    Restructuring and asset impairment
     charges (note 8)                                        -             1
    Gain on land sales and other (note 8)                    -           (20)
    -------------------------------------------------------------------------
    Operating loss from continuing operations              (12)          (39)
    Interest, foreign exchange and other (note 9)          (14)           31
    Exchange loss (gain) on long-term debt                  59           (16)
    -------------------------------------------------------------------------
    Loss from continuing operations before income
     taxes and share of earnings of related companies      (57)          (54)
    Income tax expense (recovery) (note 10)                 (4)            3
    Share in losses (earnings) of related companies          -             -
    -------------------------------------------------------------------------
    Net loss from continuing operations                    (53)          (57)
    Loss from discontinued operations (note 2)              (7)           (3)
    -------------------------------------------------------------------------

    Net loss and comprehensive loss                    $   (60)      $   (60)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Basic and diluted loss per share
     from continuing operations (note 6)               $ (0.53)      $ (0.67)
    Basic and diluted loss per share from
     discontinued operations (note 6)                  $ (0.07)      $ (0.03)
    Basic and diluted loss per share (note 6)          $ (0.60)      $ (0.70)
    -------------------------------------------------------------------------
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                     CONSOLIDATED STATEMENTS OF DEFICIT
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    (unaudited) (in millions of dollars)

                                                           The           The
                                                       Company   Predecessor
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                       Quarter       Quarter
                                                         ended         ended
                                                       Dec. 27,      Dec. 29,
                                                          2008          2007
    -------------------------------------------------------------------------
    Deficit, beginning of period                       $   (48)      $  (271)
    Net loss                                               (60)          (60)
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    Deficit, end of period                             $  (108)      $  (331)
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                                 TEMBEC INC.
                     CONSOLIDATED STATEMENT OF CASH FLOW
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    (unaudited) (in millions of dollars)

                                                           The           The
                                                       Company   Predecessor
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                       Quarter       Quarter
                                                         ended         ended
                                                       Dec. 27,      Dec. 29,
                                                          2008          2007
    -------------------------------------------------------------------------
    Cash flows from operating activities:
      Net loss                                         $   (60)      $   (60)
      Adjustments for:
        Depreciation and amortization                       18            42
        Unrealized foreign exchange and
         others (note 9)                                    (4)            -
        Exchange loss (gain) on long-term debt              59           (16)
        Proceeds on sale of derivative financial
         instruments                                         2             -
        Future income taxes (recovery) (note 10)            (4)            3
        Investment tax credits                              (2)           (4)
        Restructuring and asset impairment
         charges (note 8)                                    -            (2)
        Gain on land sales and other (note 8)                -           (16)
        Differences between cash contributions
         and pension expense                                 2            (4)
        Other                                                -             1
    -------------------------------------------------------------------------
                                                            11           (56)
    Changes in non-cash working capital:
      Accounts receivable                                   51            31
      Inventories                                          (58)          (22)
      Prepaid expenses                                       1             4
      Accounts payable and accrued charges                 (75)          (22)
    -------------------------------------------------------------------------
                                                           (81)           (9)
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                                                           (70)          (65)
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    Cash flows from investing activities:
      Reduced participation in joint venture                 -            (5)
      Additions to fixed assets                            (15)          (13)
      Proceeds on land sales                                 -            17
      Other                                                  1             1
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                                                           (14)            -
    Cash flows from financing activities:
      Change in operating bank loans                        28            70
      Increase in long-term debt                             2             5
      Repayment of long-term debt                           (4)           (2)
      Increase (decrease) in other long-term
       liabilities                                           -            (2)
      Other                                                  4             -
    -------------------------------------------------------------------------
                                                            30            71
                                                           (54)            6
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    Foreign exchange on cash and cash equivalents
     held in foreign currencies                              -             -
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    Net increase (decrease) in cash and
     cash equivalent                                       (54)            6
    Cash and cash equivalents, net of bank
     indebtedness, beginning of period                     112            14
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    Cash and cash equivalents, net of bank
     indebtedness, end of period                       $    58       $    20
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    Supplemental information:
      Interest paid                                    $    11       $     4
      Income taxes paid                                $     -       $     -
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                                 TEMBEC INC.
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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    (unaudited) (in millions of dollars, unless otherwise noted)

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    Quarters ended December 27, 2008 and December 29, 2007
    (unaudited) (in millions of dollars)

                                                                 The Company
                                                           December 27, 2008
    -------------------------------------------------------------------------
               Forest                                   Corporate    Consoli-
             products       Pulp      Paper  Chemicals    & other      dated
    -------------------------------------------------------------------------
    Sales:
      External  $ 107      $ 252      $ 126      $  26      $   -      $ 511
      Internal     39         20          -          -          2         61
    -------------------------------------------------------------------------
                  146        272        126         26          2        572

    Earnings
     (loss)
     before the
     following    (16)         4         19          3         (4)         6
    Deprecia-
     tion and
     amortiza-
     tion           6         11          1          -          -         18
    Other items
     (note 7)       -          -          -          -          -          -
    Operating
     earnings
     (loss)
     from
     continuing
     operations   (22)        (7)        18          3         (4)       (12)
    -------------------------------------------------------------------------

    Net fixed
     asset
     additions      3         10          1          1          -         15
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                                                             The Predecessor
                                                           December 29, 2007
    -------------------------------------------------------------------------
               Forest                                   Corporate    Consoli-
             products       Pulp      Paper  Chemicals    & other      dated
    -------------------------------------------------------------------------
    Sales:
      External  $ 120      $ 293      $  99      $  33      $   -      $ 545
      Internal     32         18          -          1          1         52
    -------------------------------------------------------------------------
                  152        311         99         34          1        597

    Earnings
     (loss)
     before the
     following    (22)        21        (12)         2         (5)       (16)
    Deprecia-
     tion and
     amortiza-
     tion          13         18          9          1          1         42
    Other items
     (note 7)     (17)        (4)         -          -          2        (19)
    Operating
     earnings
     (loss)
     from
     continuing
     operations   (18)         7        (21)         1         (8)       (39)
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    Net fixed
     asset
     additions      1         10          1          1          -         13
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For further information:

For further information: Michel J. Dumas, Executive Vice President,
Finance & CFO, (819) 627-4268, michel.dumas@tembec.com; Richard Fahey, Vice
President, Communications and Public Affairs, (514) 871-2304,
richard.fahey@tembec.com; Source: Tembec Inc.


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