Tembec reports financial results for its second quarter ended March 28, 2009



    MONTREAL, April 29 /CNW Telbec/ - Consolidated sales for the three-month
period ended March 28, 2009 were $417 million, down from $593 million in the
comparable period of the prior year. The Company generated a net loss of $99
million or $0.99 per share in the March 2009 quarter compared to a net loss of
$42 million or $0.49 per share in the months of January and February 2008 and
a net loss of $17 million or $0.17 per share in the month of March 2008. The
financial results of the prior year quarter included two distinct components
due to a financial recapitalization that occurred on February 29, 2008,
triggering the requirement for the Company to implement "fresh start"
accounting. Earnings before non-recurring items, interest, income taxes,
depreciation, amortization and other non-operating expenses (EBITDA) was
negative $63 million for the three-month period ended March 28, 2009, as
compared to negative EBITDA of $1 million a year ago and EBITDA of $6 million
in the prior quarter.
    The March 2009 quarterly financial results include an unfavourable
adjustment of $20 million relating to the carrying values of logs, lumber and
pulp inventories. The impact of other 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 $28 million on
sales of $84 million. This compares to negative EBITDA of $16 million on sales
of $146 million in the prior quarter. Sales decreased by $62 million, due to
lower prices and volumes for lumber and sawmill woodchips. US $ reference
prices for random lumber decreased by approximately US $31 per mbf while stud
lumber decreased by US $18 per mbf. Currency had a positive effect on pricing
as the Canadian $ averaged US $0.803, a 3% decline from US $0.827 in the prior
quarter. The net price effect was a decrease in EBITDA of $5 million or $33
per mbf. Mill level costs decreased by $6 million as the Company continued to
reduce expenses despite significant production curtailments necessitated by
poor demand for lumber. The most significant item impacting the March 2009
results was adjustments to the carrying values of inventories. In the prior
quarter, the Company's sawmills had benefited from a $3 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
absorbed a charge of $7 million as declining prices led to lower projected net
realizable values. During the March quarter, the Company incurred $1 million
of lumber export taxes, down from $3 million in the prior quarter. Lower
shipments to the United States caused the decrease. However, the prior quarter
had benefited from a favourable $3 million 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
March 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 negative EBITDA of $51 million on sales of
$223 million for the quarter ended March 2009 compared to EBITDA of $4 million
on sales of $272 million in the prior quarter. Sales declined by $49 million
primarily as a result of lower prices for paper pulp. While US $ reference
prices declined significantly, the current quarter pricing also benefited from
a weaker Canadian $. The net price effect was a decrease of $127 per tonne,
reducing EBITDA by $38 million. Pulp demand remained weak and the Company
incurred 182,600 tonnes of market related downtime and 1,300 tonnes of
maintenance downtime. This compares to 61,900 tonnes of market downtime and
19,600 tonnes of maintenance downtime in the prior quarter. The significant
downtime negatively impacted mill level manufacturing costs which increased by
$13 million. The decline in the selling price of pulp to "below full cost"
levels resulted in an unfavourable adjustment of $14 million to the carrying
value of pulp inventories and mill level costs. In the prior quarter, prices
had also declined, resulting in an unfavourable adjustment of $7 million to
the carrying value of inventories. The Company continues to focus on
maintaining targeted inventory levels and will initiate production
curtailments as required. Inventories were at 28 days of supply at the end of
March 2009, as compared to 42 days at the end of December 2008.
    The Paper segment generated EBITDA of $19 million on sales of $124
million. This compares to EBITDA of $19 million on sales of $126 million in
the prior quarter. Sales were relatively unchanged, with similar prices and
shipments. The US $ reference price for newsprint decreased by US $40 per
tonne while the reference price for coated bleached board was unchanged.
Currency had a positive effect on pricing as the Canadian $ was weaker. The
net effect was a decrease of $8 per tonne, decreasing EBITDA by $1 million.
Manufacturing costs were similar quarter over quarter as the Company continued
to reduce production in view of weak demand. The Company incurred 36,800
tonnes of market related downtime in the March 2009 quarter compared to 27,000
tonnes of market related downtime and 8,300 tonnes of maintenance downtime in
the prior quarter. One of the three newsprint machines at the Kapuskasing
newsprint mill was idle for the entire March 2009 quarter and the Pine Falls
newsprint mill was idle for three weeks to reduce inventory levels. The
Temiscaming bleached board mill was also idle for one week during the most
recent quarter.

    
    Liquidity
    ---------
    

    At the end of March 2009, the Company had net cash of $16 million plus
unused operating lines of $132 million. In response to the very difficult
conditions facing the forest products industry, the Company has developed a
focused list of initiatives that should generate approximately $100 million of
incremental liquidity over the next 12 months. The recently announced sale of
the St. Francisville mill site was part of these initiatives.

    
    Outlook
    -------
    

    While the March quarterly operating results were very poor, they were not
unanticipated. After adjusting for the $20 million of unfavourable inventory
adjustments to the carrying value of logs, lumber and pulp inventories, the
results were in line with our expectations. The impact of the rapidly
deteriorating pulp market on prices and demand was significant. In response
the Company undertook a record amount of production curtailments and actually
managed to reduce its inventories by 67,000 tonnes. The winter months also saw
extremely low US $ lumber selling prices, which were also anticipated given
the state of the economy in general, and the U.S. housing market in
particular. Looking ahead, lumber markets will remain challenging as there are
no clear signs of a U.S. housing recovery. Pulp markets are weak and we expect
this downturn to last for several quarters. More production curtailments will
likely be required in the future, but at a lesser pace than what was necessary
in the most recent quarter. We expect modest price increases as current levels
are not sustainable. Newsprint prices decreased in the March quarter and the
economic downturn will continue to put pressure on prices and demand. The
positives for the Company are a stronger US $, a decrease in energy costs, as
well as a relatively favourable 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, operating
efficiency and liquidity initiatives.

    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 March 28, 2009 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
    -------------------------------------------------------------------------

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

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                           Mar. 28  Sept. 27,
                                                              2009      2008
                                                                    (Audited)
    -------------------------------------------------------------------------
    ASSETS
    Current Assets:
      Cash and cash equivalents                            $    16   $   113
      Derivative financial instruments                           -         1
      Accounts receivable                                      267       371
      Inventories (note 3)                                     441       414
      Prepaid expenses                                          23        19
      Current assets from discontinued
       operations (note 2)                                       3         2
    -------------------------------------------------------------------------
                                                               750       920

    Investments                                                  6         9
    Fixed assets                                               657       668
    Other assets                                                 4        22
    Future income taxes                                          -         1
    -------------------------------------------------------------------------
                                                           $ 1,417   $ 1,620
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    LIABILITIES AND SHAREHOLDERS' EQUITY
    Current liabilities:
      Bank indebtedness                                    $     -   $     1
      Operating bank loans                                      85        49
      Accounts payable and accrued charges                     252       375
      Interest payable                                           3         3
      Current portion of long-term debt (note 4)                20        18
      Current liabilities related to discontinued
       operations (note 2)                                       4         3
    -------------------------------------------------------------------------
                                                               364       449

    Long-term debt (note 4)                                    427       378
    Other long-term liabilities and credits (note 5)           218       229
    Future income taxes                                          1         3
    Minority interest                                            -         1
    Non-current liabilities related to discontinued
     operations (note 2)                                        44        38

    Shareholders' equity:
      Share capital (note 6)                                   570       570
      Deficit                                                 (207)      (48)
    -------------------------------------------------------------------------
                                                               363       522
    -------------------------------------------------------------------------
                                                           $ 1,417   $ 1,620
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                 TEMBEC INC.
                    CONSOLIDATED STATEMENTS OF OPERATIONS
    -------------------------------------------------------------------------
    (unaudited) (in millions of dollars, unless otherwise noted)

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                             Company   Company   Company  Predeces- Predeces-
                                                               sor       sor
    -------------------------------------------------------------------------
                               Three       Six       One       Two      Five
                              months    months     month    months    months
                                  to        to        to        to        to
                             Mar. 28,  Mar. 28,  Mar. 29,  Feb. 29,  Feb. 29,
                                2009      2009      2008      2008      2008
    -------------------------------------------------------------------------
    Sales                     $  417    $  928    $  188    $  405    $  950
    Freight and sales
     deductions                   54       115        22        48       111
    Lumber export taxes
     (note 7)                      1         1         1         1         4
    Cost of sales                402       823       156       335       804
    Selling, general
     and administrative           23        46         9        22        48
    Depreciation and
     amortization                 18        36         8        30        72
    Restructuring and
     asset impairment
     charges (note 8)              1         1         -        (1)        -
    Gain on land sales
     and other (note 8)           (1)       (1)        -         -       (20)
    -------------------------------------------------------------------------
    Operating loss from
     continuing operations       (81)      (93)       (8)      (30)      (69)
    Interest, foreign exchange
     and other (note 9)            5        (9)       (9)        1        32
    Exchange loss (gain) on
     long-term debt                7        66        16         7        (9)
    -------------------------------------------------------------------------
    Loss from continuing
     operations before
     income taxes                (93)     (150)      (15)      (38)      (92)
    Income tax expense
     (recovery) (note 10)          3        (1)        -         3         6
    -------------------------------------------------------------------------
    Net loss from continuing
     operations                  (96)     (149)      (15)      (41)      (98)
    Loss from discontinued
     operations (note 2)          (3)      (10)       (2)       (1)       (4)
    -------------------------------------------------------------------------
    Net loss and
     comprehensive loss       $  (99)   $ (159)   $  (17)   $  (42)   $ (102)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Basic and diluted
     loss per share from
     continuing operations
     (note 6)                 $(0.96)   $(1.49)   $(0.15)   $(0.47)   $(1.14)
    Basic and diluted
     loss per share from
     discontinued operations
     (note 6)                 $(0.03)   $(0.10)   $(0.02)   $(0.02)   $(0.05)
    Basic and diluted loss
     per share (note 6)       $(0.99)   $(1.59)   $(0.17)   $(0.49)   $(1.19)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                     CONSOLIDATED STATEMENTS OF DEFICIT
    -------------------------------------------------------------------------

    (unaudited) (in millions of dollars)

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                             Company   Company   Company  Predeces- Predeces-
                                                               sor       sor
    -------------------------------------------------------------------------
                               Three       Six       One       Two      Five
                              months    months     month    months    months
                                  to        to        to        to        to
                             Mar. 28,  Mar. 28,  Mar. 29,  Feb. 29,  Feb. 29,
                                2009      2009      2008      2008      2008
    -------------------------------------------------------------------------
    Deficit,
     beginning of period      $ (108)   $  (48)   $    -    $ (331)   $ (271)
    Net loss                     (99)     (159)      (17)      (42)     (102)
    -------------------------------------------------------------------------
                              $ (207)   $ (207)   $  (17)   $ (373)   $ (373)
    Adjustment for fresh
     start                         -         -         -       373       373
    -------------------------------------------------------------------------
    Deficit, end of period    $ (207)   $ (207)   $  (17)   $    -    $    -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                 TEMBEC INC.
                     CONSOLIDATED STATEMENT OF CASH FLOW
    -------------------------------------------------------------------------

    (unaudited) (in millions of dollars)

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                             Company   Company   Company  Predeces- Predeces-
                                                               sor       sor
    -------------------------------------------------------------------------
                               Three       Six       One       Two      Five
                              months    months     month    months    months
                                  to        to        to        to        to
                             Mar. 28,  Mar. 28,  Mar. 29,  Feb. 29,  Feb. 29,
                                2009      2009      2008      2008      2008
    -------------------------------------------------------------------------
    Cash flows from
     operating activities:
      Net loss                $  (99)   $ (159)   $  (17)   $  (42)   $ (102)
      Adjustments for:
        Depreciation and
         amortization             18        36         8        30        72
        Unrealized foreign
         exchange and others       3        (1)        2        (2)       (2)
        Exchange loss (gain)
         on long-term debt         7        66        16         7        (9)
        Proceeds on sale of
         derivative financial
         instruments               -         2         -         -         -
        Future income taxes
         (recovery) (note 10)      3        (1)        -         3         6
        Investment and income
         tax credits              19        17        (2)       (3)       (7)
        Restructuring and
         asset impairment
         charges (note 8)          1         1         -        (1)        -
        Gain on land sales
         and other (note 8)       (1)       (1)        -         -       (20)
        Differences between
         cash contributions
         and pension expense      (5)       (3)       (2)       (4)       (8)
        Other                      -         -         1         3         5
    -------------------------------------------------------------------------
                                 (54)      (43)        6        (9)      (65)
    Changes in non-cash
     working capital:
      Accounts receivable         50       101       (21)       (9)       22
      Inventories                 28       (30)      (21)      (32)      (54)
      Prepaid expenses            (4)       (3)       (1)       (8)       (4)
      Accounts payable and
       accrued charges           (60)     (135)      (18)       (4)      (26)
    -------------------------------------------------------------------------
                                  14       (67)      (61)      (53)      (62)
    -------------------------------------------------------------------------
                                 (40)     (110)      (55)      (62)     (127)
    -------------------------------------------------------------------------
    Cash flows from investing
     activities:
      Reduced participation
       in joint venture            8         8         -         -        (5)
      Additions to fixed
       assets                    (15)      (30)       (4)      (10)      (23)
      Proceeds on land sales       1         1         -         -        17
      Decrease in investments      3         3         -         2         2
      Other                       (2)       (1)        -         -         1
    -------------------------------------------------------------------------
                                  (5)      (19)       (4)       (8)       (8)
    Cash flows from
     financing activities:
      Change in operating
       bank loans                  8        36         9       (97)      (27)
      Increase in long-
       term debt                   4         6         -       295       300
      Repayment of long-
       term debt                 (13)      (17)       (1)       (3)       (5)
      Decrease in other
       long-term liabilities       -         -        (2)       (1)       (3)
      Other                        2         6         -       (36)      (36)
    -------------------------------------------------------------------------
                                   1        31         6       158       229
                                 (44)      (98)      (53)       88        94
    -------------------------------------------------------------------------
    Foreign exchange on cash
     and cash equivalents held
     in foreign currencies         2         2         -         1         1
    -------------------------------------------------------------------------
    Net increase (decrease) in
     cash and cash equivalent    (42)      (96)      (53)       89        95
    Cash and cash equivalents,
     net of bank indebtedness,
     beginning of period          58       112       109        20        14
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     net of bank indebtedness,
     end of period            $   16    $   16    $   56    $  109    $  109
    -------------------------------------------------------------------------
    Supplemental information:
      Interest paid           $    9    $   20    $    -    $   44    $   48
      Income taxes recovered  $  (17)   $  (17)   $    -    $   (1)   $   (1)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                 TEMBEC INC.
                  CONSOLIDATED BUSINESS SEGMENT INFORMATION
    -------------------------------------------------------------------------

    (unaudited) (in millions of dollars)

                                                                 The Company
                                                          Three months ended
                                                              March 28, 2009
    -------------------------------------------------------------------------
                                                             Corpo-
                    Forest                         Chemi-     rate     Conso-
                  products      Pulp     Paper      cals   & other   lidated
    -------------------------------------------------------------------------
    Sales:
      External      $   65    $  204    $  124    $   24    $    -    $  417
      Internal          19        19         -         -         1        39
    -------------------------------------------------------------------------
                        84       223       124        24         1       456
    Earnings (loss)
     before the
     following         (28)      (51)       19         2        (5)      (63)
    Depreciation
     and
     amortization        6        11         1         -         -        18
    Other items
     (note 8)            2        (4)        -         1         1         -
    Operating
     earnings
     (loss) from
     continuing
     operations        (36)      (58)       18         1        (6)      (81)
    -------------------------------------------------------------------------
    Net fixed asset
     additions           2        12         1         -         -        15
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                                                 The Company
                                                             One month ended
                                                              March 29, 2008
    -------------------------------------------------------------------------
                                                             Corpo-
                    Forest                         Chemi-     rate     Conso-
                  products      Pulp     Paper      cals   & other   lidated
    -------------------------------------------------------------------------
    Sales:
      External      $   36    $  112    $   32    $    8    $    -    $  188
      Internal          14         4         -         1         -        19
    -------------------------------------------------------------------------
                        50       116        32         9         -       207
    Earnings (loss)
     before the
     following         (10)       13        (1)        -        (2)        -
    Depreciation
     and
     amortization        3         5         -         -         -         8
    Other items
     (note 8)            -         -         -         -         -         -
    Operating
     earnings
     (loss) from
     continuing
     operations        (13)        8        (1)        -        (2)       (8)
    -------------------------------------------------------------------------
    Net fixed asset
     additions           -         3         1         -         -         4
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                                             The Predecessor
                                                            Two months ended
                                                           February 29, 2008
    -------------------------------------------------------------------------
                                                             Corpo-
                    Forest                         Chemi-     rate     Conso-
                  products      Pulp     Paper      cals   & other   lidated
    -------------------------------------------------------------------------
    Sales:
      External      $   76    $  240    $   66    $   23    $    -    $  405
      Internal          27        13         -         -         1        41
    -------------------------------------------------------------------------
                       103       253        66        23         1       446
    Earnings (loss)
     before the
     following         (21)       29        (6)        2        (5)       (1)
    Depreciation
     and
     amortization       10        13         6         -         1        30
    Other items
     (note 8)           (1)        1        (1)        -         -        (1)
    Operating
     earnings
     (loss) from
     continuing
     operations        (30)       15       (11)        2        (6)      (30)
    -------------------------------------------------------------------------
    Net fixed asset
     additions           1         9         1         -        (1)       10
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                                                 The Company
                                                            Six months ended
                                                              March 28, 2009
    -------------------------------------------------------------------------
                                                             Corpo-
                    Forest                         Chemi-     rate     Conso-
                  products      Pulp     Paper      cals   & other   lidated
    -------------------------------------------------------------------------
    Sales:
      External      $  172    $  456    $  250    $   50    $    -    $  928
      Internal          58        39         -         -         3       100
    -------------------------------------------------------------------------
                       230       495       250        50         3     1,028
    Earnings (loss)
     before the
     following         (44)      (47)       38         5        (9)      (57)
    Depreciation
     and
     amortization       12        22         2         -         -        36
    Other items
     (note 8)            2        (4)        -         1         1         -
    Operating
     earnings
     (loss) from
     continuing
     operations        (58)      (65)       36         4       (10)      (93)
    -------------------------------------------------------------------------
    Net fixed asset
     additions           5        22         2         1         -        30
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                                                 The Company
                                                             One month ended
                                                              March 29, 2008
    -------------------------------------------------------------------------
                                                            Corpo-
                    Forest                         Chemi-     rate     Conso-
                  products      Pulp     Paper      cals   & other   lidated
    -------------------------------------------------------------------------
    Sales:
      External      $   36    $  112    $   32    $    8    $    -    $  188
      Internal          14         4         -         1         -        19
    -------------------------------------------------------------------------
                        50       116        32         9         -       207
    Earnings (loss)
     before the
     following         (10)       13        (1)        -        (2)        -
    Depreciation
     and
     amortization        3         5         -         -         -         8
    Other items
     (note 8)            -         -         -         -         -         -
    Operating
     earnings
     (loss) from
     continuing
     operations        (13)        8        (1)        -        (2)       (8)
    -------------------------------------------------------------------------
    Net fixed asset
     additions           -         3         1         -         -         4
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                                             The Predecessor
                                                           Five months ended
                                                           February 29, 2008
    -------------------------------------------------------------------------
                                                            Corpo-
                    Forest                         Chemi-     rate     Conso-
                  products      Pulp     Paper      cals   & other   lidated
    -------------------------------------------------------------------------
    Sales:
      External      $  196    $  533    $  165    $   56    $    -    $  950
      Internal          59        31         -         1         2        93
    -------------------------------------------------------------------------
                       255       564       165        57         2     1,043
    Earnings (loss)
     before the
     following         (43)       50       (18)        4       (10)      (17)
    Depreciation
     and
     amortization       23        31        15         1         2        72
    Other items
     (note 8)          (18)       (3)       (1)        -         2       (20)
    Operating
     earnings
     (loss) from
     continuing
     operations        (48)       22       (32)        3       (14)      (69)
    -------------------------------------------------------------------------
    Net fixed asset
     additions           2        19         2         1        (1)       23
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    




For further information:

For further information: Michel J. Dumas, Executive Vice President,
Finance & CFO, (819) 627-4268, michel.dumas@tembec.com; John Valley, Executive
Vice President, Business Development and Corporate Affairs, (416) 775-2819,
john.valley@tembec.com; Source: Tembec Inc.


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