EACOM Timber Corporation Announces Financial Results – March 31, 2010

2010-07-29 | News / Press Releases

VANCOUVER, B.C. MONTREAL, QUEBEC— EACOM Timber Corporation (TSX VENTURE: ETR;
“EACOM” or the “Company”) today reported its financial results for the year ended March 31,
2010.

On March 26, 2010, EACOM entered into a definitive purchase agreement to acquire the forest
products business of Domtar Corporation (“Domtar”). The Company closed the acquisition on
June 30, 2010 and accordingly the acquisition is not reflected in the operating results of the
Company for the year ended March 31, 2010. The Company paid approximately $102 million in
cash and issued 48,070,712 common shares (valued at approximately $27 million) to Domtar
upon closing the acquisition.

At March 31, 2010, the Company has $145 million recorded as restricted cash which related to
the acquisition of the Domtar forest products business. The Company closed in escrow a $145
million brokered private placement financing for subscription receipts on March 26, 2010. The
financing was to fund the cash portion of the acquisition purchase price for the Domtar forest
products business acquisition, as well as provide working capital for the business. The
financing was completed at $0.50 per subscription receipt. On closing the acquisition on June
30, 2010, the subscription receipts were converted into common shares on a one for one basis
for no additional consideration and the escrowed proceeds were released to the Company.

 

RESULTS OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 2010

The loss and comprehensive loss for the year ended March 31, 2010 was $3,369,000 ($0.07 per
common share) compared to $1,870,000 ($0.05 per common share) for 2009, an increase of
$1,499,000. This increase was due mainly to higher professional and due diligence fees, travel
expenses and Big River Sawmill holding costs for the year ended March 31, 2010 compared to
the same period in 2009. In addition, there was a higher gross profit from sales in 2009
compared to 2010. Partially offsetting these factors was a gain on investments of $231,000 in
2010 compared to a loss of $84,000 in 2009.

 

SALES, COST OF SALES AND GROSS MARGIN

For the year ended March 31, 2010, the Company recognized sales of $4,285,000 and cost of
sales of $4,227,000 for a gross profit of $58,000 and a gross profit margin of approximately
1.4% of sales. North American customers accounted for 5% of the total sales, 2% of sales
were to Middle East customers and the balance of 93% of the sales were to other overseas
customers. The Company purchased 20% of the lumber from Canadian vendors and 80% from
US vendors. For the year ended March 31, 2009, the Company recognized sales of $880,000
and cost of sales of $783,000 for a gross profit of $97,000 and a gross profit margin of
approximately 11.0% of sales.

 

GENERAL AND ADMINISTRATION

 

Personnel expenses

Personnel expenses for the twelve months ended March 31, 2010 were $318,000 compared to
$379,000 in 2009. The decrease of $61,000 was due to lower salaries and benefits resulting
from a reduction in the number of employees for the year.

Professional fees
Professional fees for the year ended March 31, 2010 were $2,042,000 compared to $331,000 in
2009, an increase of $1,711,000. The increase was due primarily to higher consulting and
advisory services related to the acquisition of the Big River sawmill assets and the Domtar
forest products business. In addition, the Company incurred higher expenses in 2010 than in
2009 as a result of the preparation of a filing statement required to seek graduation to the TSX
Venture exchange from the NEX.

Shareholder and other corporate expenses
For the twelve months ended March 31, 2010, shareholder and other corporate expenses were
$155,000 compared to $140,000 in the corresponding period last year. The increase of
$15,000 was also due to additional filing fees associated with the Company’s application to
graduate to the TSX Venture exchange and the associated sponsorship fee.

Insurance and other office
For the twelve months ended March 31, 2010, insurance and other office expenses were
$512,000 compared to $286,000 in the corresponding period last year. The increase of
$226,000 was due primarily to the Big River Sawmill insurance expense offset with a reduction
of office general expenses.

Facilities
For the twelve months ended March 31, 2010, facility expenses were $199,000 compared to
$251,000 in the prior year. The decrease of $52,000 was due to reduced facility maintenance
expense and a sublease of part of the facility. The decrease in facility maintenance expense
was partially offset by the recognition of the costs to return a portion of the Company’s
laboratory space to warehouse space.

Travel
For the twelve months ended March 31, 2010, travel expenses were $352,000 compared to
$130,000 in the corresponding period last year. The increase of $222,000 due primarily to
travel related to the acquisition of the Big River sawmill assets and the Domtar forest products
business.

 

STOCK‐BASED COMPENSATION

Stock-based compensation for the twelve months ended March 31, 2010 were $149,000
compared to $98,000 in 2009. This increase was due primarily to a higher fair value of options
granted during the current fiscal year resulting in a higher amortized expense recognized
during the period.

 

GAIN/LOSS ON INVESTMENTS HELD FOR TRADING

For the year ended March 31, 2010 the Company recognized a gain of $231,000 compared to a
loss of $84,000 in same period last year. The gains recognized in the current year are due to
gains realized on equity investments and lumber future contracts whereas the loss in the prior
year was due primarily to losses on lumber futures contracts.

 

OTHER INCOME

For the twelve months ended March 31, 2010, interest and other revenue were $83,000
compared to $134,000 in the prior year. The decrease was due primarily to a lower interest and
dividend income on investments. In the current year the Company received a $70,000
payment from a third party pursuant to the Sell Option Agreement for the Big River sawmill.
The Sell Option Agreement was not exercised by the third party.

 

LIQUIDITY AND CAPITAL RESOURCES

At March 31, 2010 the Company’s cash and cash equivalents totaled $2,244,000 compared to
$1,234,000 at March 31, 2009. Working capital at March 31, 2010 was $637,000 compared to
$1,517,000 at March 31, 2009. Accounts payable and accrued liabilities at March 31, 2010
include accrued liabilities of $1,530,000 related to the due diligence and purchase agreement
negotiations for the acquisition of the Domtar forest products business.

For the twelve months ended March 31, 2010, the Company used $1,386,000 for operations
compared to $2,171,000 for the corresponding period of the prior year. The cash used in
operations decreased even though the net loss in 2010 increased to $3,369,000 from
$1,858,000 in 2009 as the changes in non-cash working capital increased to a $1,858,000
inflow in 2010 compared to a $325,000 outflow in 2009.

Cash from financing activities for the twelve months ended March 31, 2010, was $6,232,000
compared to $277,000 for the corresponding period of the prior year. During 2010 the
Company completed two private placements for gross proceeds of $3,800,000 and received
$2,875,000 from the exercise of warrants. In 2009, the Company completed one private
placement for gross proceeds of $300,000.

Cash consumed from investing activities for the year ended March 31, 2010 was $3,836,000
compared to $119,000 in the corresponding period of the prior year. Cash used for investing in
2010 was primarily related to $3,185,000 used for the acquisition of the Big River sawmill.
The Company has $145 million included in restricted cash which relates to the acquisition of
the Domtar forest products business. On March 26, 2010, the Company closed a $145 million
brokered private placement of subscription receipt financing in escrow. The financing is to fund
the cash portion (estimated to be $102 million) of the acquisition purchase price of $129.4
million, as well as provide working capital for the business. The financing was completed at
$0.50 per subscription receipt. On closing the acquisition on June 30, 2010, the subscription
receipts were converted into common shares on a one for one basis for no additional
consideration and the escrowed proceeds were released to the Company. If the acquisition had
not closed, then the escrowed proceeds would have been returned to the investors and the
subscription receipts cancelled. At the closing of the financing, the Company was obliged to pay
a cash commission of 6% of the proceeds on the completion of the Domtar forest products
business acquisition and agent’s warrants to acquire common shares equal to 6% of the
common shares issued under the subscription receipts at a price of $0.50 per share. The
agent’s warrants expire two years from the date of grant. At March 31, 2010, the Company had
paid $387,760 in deferred financing costs in relation to this financing.

 

About EACOM

EACOM Timber Corporation is a TSX-V listed company. EACOM owns seven sawmills and an
equity interest in an eighth sawmill, all located in Eastern Canada and related tenures.
The mills are Timmins, Nairn Centre, Gogama and Ear Falls in Ontario and Val-d’Or, Ste-
Marie and Matagami in Quebec. The equity interest is in the Elk Lake sawmill located in
Ontario. The sawmills in Ear Falls, Ontario, and Ste-Marie, Quebec, are currently idled.
EACOM also owns one idle mill in Big River Saskatchewan.
The TSX Venture Exchange has neither approved nor disapproved the contents of this press
release. All directorships are subject to TSX Venture Exchange approval.

 

Forward-Looking Statements

All statements in this news release that are not based on historical fact are “forward-looking statements.”
While management has based any forward-looking statements contained herein on its current
expectations, the information on which such expectations were based may change. These forward-looking
statements rely on a number of assumptions concerning future events and are subject to a number of
risks, uncertainties, and other factors, many of which are outside of our control that could cause actual
results to materially differ from such statements. Such risks, uncertainties, and other factors include, but
are not necessarily limited to, those set forth under the captions “Risk Factors” of the Filing Statement
dated January 8, 2010 and the current MD&A for EACOM Timber Corporation on file with the Canadian
Securities Commissions.

MEDIA RELATIONS

(514) 917-1040


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