Brascade Corporation
TSX : BCA.PR.B

August 12, 2005 15:58 ET

Brascade Announces 2005 Second Quarter Results

TORONTO, ONTARIO--(CCNMatthews - Aug. 12, 2005) - Brascade Corporation (TSX:BCA.PR.B) today reported net income for the six months ended June 30, 2005 of $505.5 million, compared $109.3 million for the same period last year. Net income for the three months ended June 30, 2005 was $433.1 million compared to $53.8 million in the second quarter of 2004.

Results for the current quarter include $359.4 million in gains from the restructuring and partial monetization of Brascade's investments in the mining and metals sector. On June 30, 2005, the shareholders of the company's mining and metals affiliate, Noranda Inc., and its subsidiary, Falconbridge Limited, approved the merger of their two companies.The merged company has chosen to continue in business under the name of Falconbridge Limited. Following the reorganization, Brascade owned 44,585,725 or 12% of the outstanding common shares of Falconbridge and $569.2 million of Falconbridge retractable preferred shares.

On August 11, 2005, Brascade received approximately $230 million in proceeds on the redemption by Falconbridge of a portion of its retractable preferred shares. On August 12, 2005, Brascade acquired 29,837,779 common shares of Falconbridge from Brascan Corporation (BNN - NYSE; BNN.LV.A - TSX), which brings its direct ownership of Falconbridge common shares to 74,423,504 or approximately 20% of the common shares. As consideration for this acquisition, Brascade issued to Brascan approximately 5.5 million junior preferred shares and approximately 21.0 million common shares. Brascan's beneficial ownership of Falconbridge common shares remains unchanged.

Mining and metal investments contributed $76.2 million for the first half of 2005, compared with $61.7 million for the same period last year. This improved performance reflects higher metal prices and increased sales volumes in the copper, nickel, zinc and aluminum businesses.

Forest product investments contributed $50.1 million for the first half of 2005, compared to $45.1 million for the same period last year. These results reflect an increase in ownership in Norbord Inc. from 22% to 36% and the continued strong performance of the company's investment in the oriented strandboard business ("OSB"), partly offset by a reduction in OSB prices from their record levels in 2004.

The company's Board of Directors declared the regular quarterly dividends on its Senior Preferred Shares, Series B payable on September 30, 2005 to shareholders of record on September 20, 2005.

The company's investments are continuing to benefit from higher metal prices, as well as the productivity improvement taken over the recent years.

Brascade Corporation holds investments in the natural resources and property sectors. The common shares of Brascade are wholly owned by Brascan Corporation, an asset management company with a focus on property, power and other infrastructure assets.

Edward C. Kress, Chairman and President, will be available at 416-363-9491 to answer any questions on the company's financial results.

This news release contains forward-looking statements concerning the company's business and operations. The Company cautions that, by their nature, forward-looking statements involve risk and uncertainty and the company's actual results could differ materially from those expressed or implied in such statements. Reference should be made to the most recent Annual Information Form for a description of the major risk factors.



Consolidated Statement of Operations
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(unaudited) Three months ended Six months ended
US$ millions, except per June 30 June 30
share amounts 2005 2004 2005 2004
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(Restated - Note 7)
Income
Equity income from
Falconbridge Limited $ 33.6 $ 25.0 $ 76.2 $ 61.7
Equity income from Norbord Inc. 20.9 27.4 51.1 45.1
Equity loss from Fraser Papers
Inc. (2.3) - (1.0) -
Foreign exchange gain (loss) 10.2 (0.5) 15.2 (0.7)
Other income 38.8 1.9 43.3 3.3
Gain on reorganization of
Falconbridge 359.4 - 359.4 -
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460.6 53.8 544.2 109.4
Expenses
Interest expense 27.3 - 38.5 -
Corporate 0.2 - 0.2 0.1
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27.5 - 38.7 0.1
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Net income $ 433.1 $ 53.8 $ 505.5 $ 109.3
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Net income per common share $ 17.32 $ 1.83 $ 20.22 $ 3.72
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Consolidated Statement of Retained Earnings (Deficit)
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Three months ended Six months ended
(unaudited) June 30 June 30
US$ millions 2005 2004 2005 2004
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(Restated - Note 7)
Deficit, beginning of period $ (936.4) $ (79.4) $(1,008.8) $(126.5)
Net income for the period 433.1 53.8 505.5 109.3
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(503.3) (25.6) (503.3) (17.2)
Preferred share dividends - 7.8 - 16.2
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Deficit, end of period $ (503.3) $ (33.4) $ (503.3) $ (33.4)
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Consolidated Balance Sheet
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June 30 December 31
US$ millions 2005 2004
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(unaudited) (Restated - Note 7)
Assets
Loans receivable $ 124.4 $ 102.6
Securities 678.8 103.3
Investment in Falconbridge Limited 610.8 803.8
Investment in Norbord Inc. 174.5 177.3
Investment in Fraser Papers Inc. 206.3 203.8
Investment in Canary Wharf Group, plc 524.8 524.8
Other assets - 8.4
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$ 2,319.6 $ 1,924.0
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Liabilities
Accounts payable $ 162.8 $ 208.9
Term debt (Note 4) 284.6 291.7
Retractable preferred shares (Note 5) 1,860.1 1,865.7
Shareholders'equity
(deficiency) (Note 6) 12.1 (442.3)
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$ 2,319.6 $ 1,924.0
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Consolidated Statement of Cash Flows
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Three months ended Six months ended
(unaudited) June 30 June 30
US$ millions 2005 2004 2005 2004
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(Restated - Note 7)
Cash flow from (used in)
operating activities
Dividend received $ 62.0 $ 8.8 $ 73.6 $ 18.0
Other income, net of expenses 1.1 1.8 (3.2) 3.2
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63.1 10.6 70.4 21.2
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Cash flow used in financing
activities
Preferred share dividend paid - (7.8) - (16.2)
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Cash flow used in investing
activities
Investment in Fraser Papers
common shares (3.5) - (3.5) -
Loans receivable (59.6) (2.8) (66.9) (5.0)
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(63.1) (2.8) (70.4) (5.0)
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Net change and closing cash
balance $ - $ - $ - $ -
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. REORGANIZATION

On September 13, 2004, Brascade Resources Inc. ("Brascade Resources") amalgamated with 4250231 Canada Limited, a wholly owned subsidiary of Brascan Corporation ("Brascan"), to form Brascade Corporation (the "company"). At the time of the amalgamation, Brascade Resources owned approximately 25% of the common shares of Noranda Inc. ("Noranda"), 21% of the common shares of Fraser Papers Inc. ("Fraser Papers") and 21% of the common shares of Norbord Inc. ("Norbord"), and 4250231 Canada Limited owned approximately 21% of the common shares of Fraser Papers, 21% of the common shares of Norbord and 16% of the ordinary shares of Canary Wharf Group, plc. 4250231 Canada Limited acquired its interests in Fraser Papers and Norbord from Brascan immediately prior to the amalgamation. In conjunction with this amalgamation, Brascan became the sole holder of the company's common shares. The publicly traded Preferred Shares of Brascade Resources, Series B and Series C, were exchanged for Senior Preferred Shares of the company, Series B and Series A, respectively, having the same terms, except for the elimination of their general voting rights and the addition of redemption rights at the option of the holders. The details of the reorganization and amalgamation are set out in the Brascade Resources' Management Proxy Circular dated August 20, 2004. At the time of the reorganization and amalgamation, Brascade Resources and 4250231 Canada Limited were controlled by Brascan and, accordingly, the accounts of the company are prepared on a continuity of interest basis with the assets and liabilities being combined at their carrying values in the accounts of their predecessors, with the differences from exchange amounts being recorded as an adjustment to retained earnings (deficit).

2. SUMMARY OF ACCOUNTING POLICIES

Reference is made to the most recently issued Annual Report of the company, which includes information necessary or useful for understanding the company's businesses and financial statement presentation. In particular, the company's significant accounting policies and practices are presented as Note 2 to the Consolidated Financial Statements included in that Report, and have been consistently applied in the preparation of these interim financial statements, except for the changes in accounting policies, described in Note 3.

The interim financial statements are unaudited and follow the accounting policies summarized in the notes to the annual financial statements. Financial information in this interim report reflects any adjustments (consisting only of normal recurring adjustments) that are, in the opinion of management, necessary to a fair statement of results for the interim periods in accordance with Canadian generally accepted accounting principles.
The results reported in these financial statements should not be regarded as necessarily indicative of results that may be expected for the entire year. Certain prior period amounts have been reclassified to conform to the current period's presentation.

3. CHANGES IN ACCOUNTING POLICIES

Consolidation of Variable InterestsEntities, AcG 15

Effective January 1, 2005, the company implemented the new Canadian Institute of Chartered Accountants ("CICA") issued Accounting Guideline 15, "Consolidation of Variable Interest Entities" (AcG 15) with retroactive restatement of prior periods. AcG 15 provides guidance for applying the principles in handbook section 1590, "Subsidiaries", to those entities (defined as variable Interest Entities ("VIEs")), in which either the equity at risk is not sufficient to permit that entity to finance its activities without additional subordinated financial support from other parties, or equity investors lack voting control, an obligation to absorb expected losses, or the right to share expected residual returns. AcG 15 requires consolidation of VIEs by the Primary Beneficiary, which is defined as the party which has exposure to them majority of a VIEs expected losses and/or expected residual returns. The adoption of AcG 15 resulted in the reclassification of the C$255 million debentures, exchangeable for up to 20 million common shares of Norbord, that were issued on September 30, 2004, to accounts payable. There was no impact to common equity.

Liabilities and Equity, CICAHandbookSection 3861

Effective January 1, 2005, the company adopted the amendment to CICA Handbook Section 3861, Financial Instruments: Disclosure and Presentation with retroactive restatement of prior periods. The amendment requires certain obligations that must or could be settled with a variable number of the issuer's own equity instruments to be presented as a liability. As a result, dividends and interests paid on these equity instruments have been reclassified as interest expense and unrealized foreign exchange movements have been recorded in income in 2004 by the company's equity accounted investee. The retroactive adoption of this amendment resulted in a cumulative adjustment to opening retained earnings at January 1, 2004 of $10 million. Net income attributable to common shares for the year ended December 31, 2004 will be reduced reflecting the foregoing items by $8 million. The impact on net income attributable to common shares for the six months ended June 30, 2005 was $nil (2004 - $nil).

4. TERM DEBT

The term debt is due to a common control company, bears interest at 6.5% and is due on June 30, 2009.



5. RETRACTABLE PREFERRED SHARES
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June 30 December 31
US$ millions, except number of shares 2005 2004
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(unaudited)
6,846,504 Class 1 Senior Preferred
Shares, Series B
(2004 - 6,846,504) $ 222.7 $ 228.3
52,807,686 Class 2 Junior Preferred
Shares, Series A
(2004 - 52,807,686) 1,637.4 1,637.4
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$ 1,860.1 $ 1,865.7
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6. SHAREHOLDERS' EQUITY
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June 30 December 31
US$ millions, except number of shares 2005 2004
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(unaudited)
25,000,003 Common shares
(2004 - 25,000,003) $ 512.9 $ 512.9
Deficit (503.3) (1,008.8)
Cumulative translation
adjustment 2.5 53.6
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$ 12.1 $ (442.3)
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7. RESTATED COMPARATIVE FIGURES

Certain comparative information has been restated to reflect the adoption of amendments to the CICA Handbook Section 3861, Financial Instruments - Disclosure and Presentation, and the implementation of Accounting Guideline 15, Consolidation of Variable Interest Entities.

Contact Information

  • Brascade Corporation
    Edward C. Kress
    Chairman and President
    416-363-9491