Western Forest Products posts net quarterly income of $9.5 million

Western Forest Products Inc. has announced results for the second quarter ended June 30, 2010.

The company reported EBITDA of $20.9 million for the second quarter of 2010 compared to EBITDA of $8.0 million in the first quarter and negative EBITDA of $16.0 million for the second quarter of 2009.

Net income for the second quarter of 2010 was $9.5 million ($0.02 per share), on sales of $181.5 million, which compared to a net income reported in the first quarter of 2010 of $7.3 million ($0.02 per share) and a net loss reported for the second quarter of 2009 of $30.1 million ($0.06 per share).

During the second quarter of 2010, product demand and pricing remained below historical trend levels. Despite the significant market challenges EBITDA for the quarter was $20.9 million, which is an improvement for the fourth consecutive quarter. Results were positively impacted by a marginal improvement in market conditions, significantly reduced costs and increased production volumes which reduced unit operating costs. These positive gains were adversely impacted by the strengthening of the Canadian dollar relative to the US dollar. The average exchange rate for the second quarter of 2010 of 1.029 was 12% lower than the average of 1.167 in the second quarter of 2009.

The net income for the second quarter of 2010 was $9.5 million which is an improvement of $39.6 million compared to the loss of $30.1 million incurred in the second quarter of 2009, and an improvement of $2.2 million compared to the net income of $7.3 million reported in the first quarter of 2010. First quarter 2010 net income included the benefit of a net $8.9 million one-time gain that arose from the reorganization of WFP Forest Products Limited. Excluding this item the net income increased by $11.1 million in the second quarter of 2010 compared to the first quarter of 2010.

Markets and Outlook

As expected, the recovery of the global economy continues to be extremely slow. The U.S. economy with generally high unemployment, increased home foreclosures, and tight credit, remains unpredictable. As a result, Western Forest Products expects only marginal improvements in new home construction for the remainder of 2010 and into 2011. Modest improvements in market demand for the second quarter in the US were largely tied to distributors refilling their depleted inventory chains, rather than increased demand from end customers. It is likely that lumber products, particularly commodity products, directed to this market will see continued demand and price turbulence, as this market works its way to recovery. Increased log and lumber demand in China, particularly for lower grade products, has helped offset the situation in the U.S. However, expansion into these markets will be slow and will see increased competition from producers seeking refuge from a weak U.S. market. Economic activity in Canada appears to be more stable and should allow sales revenue levels to be maintained, while European lumber demand has slowed significantly in the past couple of months due to economic concerns there.

With the relative uncertainty existing in the global marketplace, the company remains focused on:

• Continuing to optimize production with global demand


• Preserving liquidity and generating positive free cash flow


• Controlling spending and identifying opportunities to further reduce cash costs

The company will also continue to pursue opportunities that may arise to sell non-core or other land assets as appropriate. Any proceeds will first be directed to reduce or eliminate long-term debt with any surplus used to provide additional liquidity.

On July 26, 2010, Western Forest Products announced that it has reached a tentative agreement with the United Steelworkers Union ("USW") on a new four year labour contract. The contract, which covers the vast majority of Western's unionized hourly workforce, includes USW Locals 1-85 and 1-1937 and the Council of USW Locals certified for certain divisions of Western. The contract is subject to a ratification vote by the USW members, which may take several weeks to complete. Details of the tentative agreement are expected to be released during the certification process. The company's last contract with the USW, the Coast Master Agreement, expired on June 15, 2010.

Also on July 26, 2010, Western Forest Products announced that it will be re-starting its previously idled Ladysmith sawmill on or around September 7, 2010. The sawmill was indefinitely closed on April 26, 2008 due to poor market conditions. The operation will now employ approximately 29 workers operating on a one shift basis. In conjunction with the Ladysmith startup, Western also announced the ratification of a new labour agreement with Local 8 of the Pulp and Paper Workers of Canada Union ("PPWC"), which represents the hourly employees at the Ladysmith sawmill. Key provisions of the agreement include: a four year term expiring on December 31, 2014 with annual wage increases of 0%, 0%, 2% and 2% respectively. The last agreement with the PPWC expired on June 15, 2009.

Source: Western Forest Products