Ainsworth Announces 2010 Second Quarter Results

5.8.10

Highlights

  • Company was well positioned to benefit from period of high OSB prices in first half of 2010
  • Recorded fourth consecutive quarter of positive adjusted EBITDA
  • Adjusted EBITDA margin of 35.4% in Q2 2010 compared to -1.3% in Q2 2009
  • 35.7% growth in sales relative to Q2 2009 as a result of increased OSB prices
  • Cash balance increased by $22.0 million in Q2 2010, closing at $159.6 million

In the second quarter of 2010, Ainsworth recorded positive adjusted EBITDA of $34.0 million, a $34.9 million improvement over negative $0.9 million in the same period of 2009. Adjusted EBITDA margin on sales was positive 35.4% compared to negative 1.3% in the second quarter of 2009. This improvement was primarily the result of a $35.3 million improvement in gross profit (sales less cost of products sold (exclusive of amortization)).

OSB prices remained relatively high in the second quarter of 2010 before declining toward the end of the quarter. The average publicly reported North Central price for 7/16” OSB during the second quarter of 2010 was U.S.$294 (per thousand square feet “msf” 7/16-inch basis), an increase of 101% relative to the U.S.$146/msf average price reported during second quarter of 2009. Prices reached U.S.$395/msf during the week ended April 30, 2010 but finished the quarter at U.S.$205/msf during the week ended June 25, 2010.

Ainsworth recorded a net loss from continuing operations of $17.3 million in the second quarter of 2010, compared to net income of $29.8 million in the second quarter of 2009, despite an increase in gross profit of $35.3 million. This reduction is primarily due to a $75.2 million increase in the unrealized foreign exchange loss on long-term debt and a $9.2 million increase in income tax expense.

Ainsworth President and CEO Rick Huff said, “Based on the work we have done to streamline the business and execute on our strategy, we were able to take full advantage of what proved to be very favourable demand conditions in the first six months of the year.”

“As OSB prices return to what forecasters predict will be more modest and sustainable prices, we believe the same qualities that benefited us in the first half of 2010 – being customer oriented and committed to working safely and efficiently – will serve us well in the second half of the year. Our aim is to continue building the foundations of a business at Ainsworth that can be strong and profitable over the long term,” said Mr. Huff.

On May 11, 2010, Brookfield Special Situations II (OSB) L.P. (“BSS”) acquired 14,905,712 common shares and warrants to acquire 10,094,288 common shares of Ainsworth in a privately negotiated transaction. As a result, BSS now holds approximately 53.5% of the issued and outstanding common shares of Ainsworth on a fully diluted basis.

 

(1) Adjusted EBITDA, a non-GAAP financial measure, is defined as net (loss) income from continuing operations before amortization, gain on disposal of property, plant and equipment, costs of curtailed operations, stock option expense, finance expense, foreign exchange loss (gain) on long-term debt, other foreign exchange (gain) loss, income tax expense (recovery) and non-recurring items.
(2) Adjusted EBITDA margin, a non-GAAP financial measure, is defined as adjusted EBITDA divided by sales.
(3) 100,100,000 common shares were outstanding on June 30, 2010.

Performance and Operational Efficiency
Sales of $96.1 million in the second quarter of 2010 were $25.3 million higher than sales of $70.8 million for the same period in 2009. The increase in sales was due to a 46.6% increase in our realized sales price offset by a 7.4% decrease in volume as compared to the high production rates achieved in the second quarter of 2009.

During the first half of 2010, realized sales prices increased by 25.5% while volume increased by 1.0%, resulting in an overall increase in sales to $177.2 million compared to $140.0 million in the first half of 2009.

Cost of products sold was $57.5 million in the second quarter of 2010, representing a 14.7% decrease over costs of $67.4 million in the second quarter of 2009. During the first half of 2010, cost of products sold decreased by 9.3% to $119.0 million compared to the first half of 2009. The decrease for both periods is the result of a stronger Canadian dollar relative to the U.S. dollar, and savings in freight costs. These cost decreases were partially offset by increases in resin and wax pricing.

Liquidity
With respect to liquidity, we believe we have the necessary working capital to manage the Company effectively through all phases of the business cycle. We continue to take a disciplined approach to managing our cash and we are confident in our ability to fund any shortfall from operations, interest payments, debt principal repayments and essential capital expenditures.

Debt Maturities
Our debt principal repayments are scheduled to total $5 million in 2010 and $24 million in 2011. Our U.S. dollar Senior Secured Term Loan is scheduled to mature in 2014 and our U.S. dollar Senior Unsecured Notes mature in 2015. Ainsworth is permitted, under the terms of the Company’s indenture, to borrow an additional U.S.$125 million of senior secured debt and U.S.$75 million of senior unsecured debt. The availability of this funding is dependent on credit markets.

Conference Call Information
Ainsworth will hold a conference call on Friday, August 6, 2010 at 10:00 am PDT (1:00 pm EDT) to discuss the second quarter 2010 results. The dial-in phone number is 1-800-624-2161, Reservation #21477302. To access the post-view line, dial 1-800-558-5253, or 1-416-626-4100, Reservation #21477302. This recording will be available until the end of the day on August 13, 2010.

Forward Looking Statements
Forward-looking information provided in this news release relating to the Company’s expectations regarding OSB demand and pricing and the Company’s future prospects are forward-looking information pursuant to National Instrument 51-102 promulgated by the Canadian Securities Administrators. The Company believes that expectations reflected in such information are reasonable, but no assurance is given that such expectations will be correct. Forward-looking information is based on the Company’s beliefs and assumptions based on information available at the time the assumption was made and on management’s experience and perception of historical trends, current conditions and expected further developments as well as other factors deemed appropriate in the circumstances. Investors are cautioned that there are risks and uncertainties related to such forward-looking information and actual results may vary. Important factors that could cause actual results to differ materially from those expressed or implied by such forward looking information include, without limitation, factors detailed from time to time in the Company’s periodic reports filed with the Canadian Securities Administrators and other regulatory authorities. The forward-looking information is made as of the date of this news release and the Company assumes no obligation to update or revise them to reflect new events or circumstances, except as explicitly required by securities laws.

_____

For further information please contact:
Ainsworth Lumber Co. Ltd.
Suite 3194, Bentall 4
P.O. Box 49307
1055 Dunsmuir Street
Vancouver, B.C. V7X 1L3
Telephone: 604-661-3200
Facsimile: 604-661-3201
www.ainsworthengineered.com

Investor Relations Contact:
Bruce Gibson
bruce.gibson@ainsworth.ca