Ainsworth Lumber Co. Ltd.
TSX : ANS
TSX : ANS.WT

Ainsworth Lumber Co. Ltd.

March 03, 2009 20:40 ET

Ainsworth Reports Financial Results for the Fourth Quarter of 2008

VANCOUVER, BRITISH COLUMBIA--(Marketwire - March 3, 2009) - Ainsworth Lumber Co. Ltd. (TSX:ANS)(TSX:ANS.WT) today reported its unaudited financial results for the quarter and the year ended December 31, 2008.

The year 2008 was a period of significant change at Ainsworth. On July 29, 2008 we completed a recapitalization plan which resulted in a realignment of equity and non-equity interests. The outcome of the recapitalization was a significant de-leveraging of our balance sheet. Our total debt and cash interest expense was reduced, and we are in a significantly better position to meet future market challenges. The results for the year 2008, as disclosed below, include the period from January 1 to July 29, 2008 before the recapitalization and the period from July 30 to December, 2008 under the recapitalized Company.

After a strategic review, we decided to permanently close the Grand Rapids OSB mill in August 2008 and the other two Minnesota-based OSB mills in January 2009. For financial accounting purposes, the U.S. OSB operations met the criteria to qualify for discontinued operations in December 2008, and the results of the Minnesota mills have been eliminated from sales, operating loss and adjusted EBITDA as disclosed below for both 2008 and 2007.



Selected Financial Information
In millions of Canadian dollars, except per share amounts
(Unaudited)

Three months ended Year ended
December 31 December 31
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2008 2007 2008 2007
-------- -------- -------- --------
(1)
Sales $ 90.4 $ 88.6 $ 359.3 $ 460.9
Operating loss (11.0) (78.4) (44.9) (143.5)
Foreign exchange (loss) gain on
long-term debt (79.1) 3.1 (132.0) 161.3
Net loss from continuing operations (79.9) (80.5) (233.5) (32.0)
Net loss (156.7) (184.5) (321.8) (216.5)

Adjusted EBITDA (2) (3.2) (13.3) (8.3) (24.4)

Adjusted working capital (3) 226.8 124.7 226.8 124.7

Net loss from continuing operations
per share (0.80) (5.50) (4.60) (2.20)
Net loss per share (1.57) (12.59) (6.33) (14.78)
Weighted average common shares
outstanding (in millions) (4) 100.0 14.6 50.8 14.6

(1) On July 29, 2008 the Company completed a major financial
recapitalization of its balance sheet. In accordance with Canadian
Institute of Chartered Accountants Handbook Section 1625 -
Comprehensive Revaluation of Assets and Liabilities, the Company
adopted fresh start accounting as at July 29, 2008. Reported sales and
adjusted EBITDA were relatively unaffected, as the Company's physical
operations were not impacted by the financial recapitalization. The
results for the year 2008, as disclosed above, include the period from
January 1 to July 29, 2008 before the recapitalization and the period
from July 30 to December, 2008 under the recapitalized Company. Details
regarding the financial recapitalization are included in Note 1 of the
consolidated financial statements for the period ended December 31,
2008, which will be available on SEDAR and the Company's website at the
close of business on March 3, 2009.

(2) Adjusted EBITDA, a non-GAAP financial measure, is defined as net (loss)
income before amortization, (gain) loss on disposal of capital assets,
finance expense, realized currency translation adjustments, foreign
exchange (gain) loss on long-term debt, other foreign exchange (gain)
loss, income tax recovery and other non-recurring items. See our
Management's Discussion and Analysis for the year ended December 31,
2008 for a reconciliation of non-GAAP measures.

(3) Adjusted working capital, a non-GAAP financial measure, is defined as
current assets less restricted cash, current portion of future income
tax assets and current liabilities plus current portion of future
income tax liabilities.

(4) 89,905,712 common shares and 10,094,288 noteholder warrants were issued
on December 31, 2008 bringing total common shares and noteholder
warrants outstanding to 100,000,000.


The U.S., Ainsworth's most important geographic market for structural panels, is in a severe recession. On January 23, 2009 the U.S. Commerce Department announced that 2008 U.S. housing starts - the key driver of OSB demand - fell to its lowest level in 63 years. U.S. housing demand faces many challenges, such as mortgage market contraction, an excess supply of new and existing homes, rising foreclosures, and home price deflation. As a result, we expect U.S. market conditions will not improve until late 2010, at the earliest, and OSB products will remain oversupplied until at least 2011. Canadian housing market conditions also weakened in 2008 and the outlook is uncertain for 2009 and beyond.

Net loss from continuing operations for the quarter was $79.9 million on sales of $90.4 million compared to net loss from continuing operations of $80.5 million on sales of $88.6 million for the same period in 2007. The main factors in the decreased loss from continuing operations were improvements in operating earnings offset by an increase in foreign exchange losses. For the year, net loss from continuing operations of $233.5 million represented a $201.5 million increase in losses from 2007. The main factor in the increased loss from continuing operations was a $132.0 million unrealized foreign exchange loss on long-term debt in 2008, compared with a $161.3 million gain a year earlier. The decrease in sales is primarily the result of reduced shipment volumes.

Adjusted EBITDA was negative $3.2 million in the fourth quarter of 2008 compared with negative $13.3 million in the same period of 2007. The improvement was the result of a decline in cost of goods sold, which increased our gross profit. For the year 2008, adjusted EBITDA was negative $8.3 million compared with negative a $24.4 million of EBITDA in 2007. This improvement was primarily due to improved gross profit, partially offset by a reduction in other income.

The average of the market prices reported by Random Lengths during the fourth quarter of 2008 was U.S.$173 per msf (North Central region, on a 7/16th-inch basis) compared to U.S.$165 per msf in the fourth quarter of 2007. On an annual basis, the average market price was U.S.$172 per msf in 2008 and U.S.$161 per msf in 2007. The Random Lengths benchmark price was higher in 2008 than in 2007, despite the deterioration in the U.S. housing market, due to a reduction in overall production capacity.

OSB shipments from our continuing operations of 378,376 msf in the fourth quarter of 2008 were not significantly different than in the same period of 2007. For the year, OSB shipments from continuing operations were 17% lower in 2008 compared to 2007. Production at our jointly-owned OSB facility at High Level, Alberta was indefinitely curtailed as of December 20, 2007 and the mill remains closed.

Until North American market conditions improve, we have frozen all discretionary capital expenditures. In the meantime, based on current and forecasted pricing, we believe that we have sufficient working capital to fund any shortfall from operations, interest payments, debt repayments and essential capital expenditures. During the fourth quarter of 2008, as a result of the global economic crisis, the terms and availability of debt and equity capital have been materially restricted. As a result, should such conditions continue through to maturity of our senior unsecured notes in 2015 and should the Company require debt or equity financing, debt capital may not be available on acceptable terms, which may require management to explore strategic alternatives to improve its capital structure, enhance liquidity, refinance debt, sell non-core assets and reduce costs and expenditures. Adjusted working capital as at December 31, 2008 was $226.8 million compared to $124.7 million at December 31, 2007.

The Company will hold a conference call on Wednesday, March 4, 2009 at 9:00 a.m. PST (12:00 pm EST) to discuss the 2008 annual results. The dial-in phone number is 1-888-294-9518, Reservation #21416777. To access the post-view line, dial 1-800-558-5253, or 1-416-626-4100, Reservation #21416777. This recording will be available until the end of the day on March 11, 2009.

Excerpts from the company's financial statements for the period ended December 31, 2008 are attached. To view the complete financial statements, including the notes to the financial statements, click on the following link: http://media3.marketwire.com/docs/2008_Financial_file.pdf.



AINSWORTH LUMBER CO. LTD.
Consolidated Balance Sheets
(In thousands of Canadian dollars)
(Unaudited) The Company The Predecessor
---------------------------------------------------------- ---------------
December 31 July 29 December 31
2008 2008 2007
----------------------------------------
ASSETS
Current Assets
Cash and cash equivalents $ 192,584 $ 208,827 $ 69,627
Short-term investments 1,586 887 835
Accounts receivable 19,916 28,045 21,355
Inventories 53,251 46,848 60,749
Income taxes receivable - 1,916 -
Prepaid expenses 5,681 7,545 10,228
Restricted cash 5,344 6,997 7,104
Assets held for disposal 5,337 10,693 14,085
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283,699 311,758 183,983
Capital Assets, Net 652,448 599,102 594,755
Other Assets 14,512 25,370 22,272
Goodwill - - 51,970
Assets Held for Disposal 33,019 94,447 247,721
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$ 983,678 $ 1,030,677 $ 1,100,701
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and
accrued liabilities $ 27,539 $ 47,213 $ 33,176
Income taxes payable 2,764 - 2,689
Current portion of future
income tax liabilities 8,492 8,474 23,682
Current portion of long-term debt 12,366 10,600 10,122
Liabilities related to assets
held for disposal 8,933 7,029 5,614
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60,094 73,316 75,283
Accrued Pension Benefit Liability 4,278 5,610 -
Other Liabilities 3,512 3,383 4,451
Long-term Debt 627,115 528,350 967,250
Future Income Tax Liabilities 60,160 3,183 34,327
Liabilities Related to Assets
Held for Disposal 2,368 7,222 6,651
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757,527 621,064 1,087,962
SHAREHOLDERS' EQUITY
Capital Stock 409,613 409,613 55,827
(Deficit) Retained Earnings (180,984) - 62,698
Accumulated Other
Comprehensive Loss (2,478) - (105,786)
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226,151 409,613 12,739
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$ 983,678 $ 1,030,677 $ 1,100,701
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AINSWORTH LUMBER CO. LTD.
Consolidated Statements of Operations
(In thousands of Canadian dollars, except per share data)
(Unaudited) The Company The Predecessor
---------------------------------------------------------- ---------------
Five months Seven months Year ended
to December 31 to July 29 December 31
2008 2008 2007
-------------------------------------------
Sales $ 156,232 $ 203,073 $ 460,888
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Costs and Expenses
Costs of products sold
(exclusive of amortization) 146,228 194,919 460,524
Selling and administration 13,164 16,071 30,798
Amortization of
capital assets 13,834 21,973 46,988
Gain on disposal of
capital assets (331) (3,092) (39)
Cost of class action lawsuit 273 318 15,114
Impairment of goodwill - - 51,000
Write-down of capital assets - 837 -
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173,168 231,026 604,385
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Operating Loss (16,936) (27,953) (143,497)

Finance Expense
Interest on long-term debt 22,811 39,536 74,154
Transaction costs - 25,363 2,897
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22,811 64,899 77,051

Other Income 2,048 729 5,999
Foreign Exchange (Loss)
Gain on Long-term Debt (98,720) (33,261) 161,315
Loss on Derivative
Financial Instrument (9,857) - -
Other Foreign Exchange
Gain (Loss) 24,488 383 (9,465)
--------------------------------------------------------------------------
Loss Before Income Taxes (121,788) (125,001) (62,699)

Income Tax (Recovery) Expense (15,949) 2,623 (30,688)
--------------------------------------------------------------------------
Net Loss from Continuing
Operations (105,839) (127,624) (32,011)

Net Loss from Discontinued
Operations (75,145) (13,176) (184,444)
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Net Loss $ (180,984) $ (140,800) $ (216,455)
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Basic and diluted net loss
per common share:
Continuing operations $ (1.06) $ (8.71) $ (2.19)
Discontinued operations (0.75) (0.90) (12.59)
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Basic and diluted net loss
per common share $ (1.81) $ (9.61) $ (14.78)
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Weighted average number of
common shares outstanding 100,000,000 14,649,140 14,649,140
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AINSWORTH LUMBER CO. LTD.
Consolidated Statements of Cash Flows
(In thousands of Canadian dollars)
(Unaudited) The Company The Predecessor
---------------------------------------------------------- ---------------
Five months Seven months Year ended
to December 31 to July 29 December 31
2008 2008 2007
-------------------------------------------
CASH FLOWS FROM OPERATING
ACTIVITIES
Net loss $ (180,984) $ (140,800) $ (216,455)
Items not affecting cash
Amortization of capital
assets 14,244 27,152 65,859
Non-cash portion of
interest expense 7,899 929 1,457
Foreign exchange loss (gain)
on long-term debt 98,720 33,261 (161,315)
Impairment of intangible
assets - - 12,226
Impairment of goodwill - - 51,000
Impairment of capital
assets 69,900 837 80,780
(Gain) loss on disposal of
capital assets (429) (3,264) 259
Loss on derivative
financial instrument 9,857 - -
Change in non-current
reforestation obligation 129 (405) (170)
Future income taxes (8,076) 11,146 (9,577)
Adjustment to net accrued
pension benefit asset (4,541) - 4,433
Realized currency
translation loss - 1,465 11,180
Change in non-cash
operating working capital (16,118) 23,520 32,980
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Cash used in operating
activities (9,399) (46,159) (127,343)
--------------------------------------------------------------------------
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from issue of
long-term debt - - 109,825
Repayment of long-term debt (5,926) (5,762) (8,622)
Repayment of capital
lease obligations (161) (179) (283)
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Cash (used in) provided by
financing activities (6,087) (5,941) 100,920
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CASH FLOWS FROM INVESTING
ACTIVITIES
Short-term investments (699) (51) 35,029
Restricted cash 1,653 107 55,080
Additions to capital assets (4,086) (4,530) (70,077)
Decrease (increase) in
other assets 1,551 (133) 1,332
Proceeds on disposal of
capital assets 382 6,764 1,226
Settlement of warranty holdback - 2,852 -
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Cash (used in) provided by
investing activities (1,199) 5,009 22,590
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Effect of foreign exchange rate
changes on cash and cash
equivalents 442 30 (852)
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NET CASH (OUTFLOW) INFLOW (16,243) (47,061) (4,685)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 208,827 69,627 74,312
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CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 192,584 $ 22,566 $ 69,627
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Components of cash and
cash equivalents:
Cash balances with banks $ 192,584 $ 22,566 $ 69,627
Investments with original
maturities of three months
or less - - -
--------------------------------------------------------------------------
$ 192,584 $ 22,566 $ 69,627
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SUPPLEMENTAL INFORMATION
Net proceeds of
recapitalization $ - $ 186,261 $ -
Taxes paid 2,377 345 6,702
Interest paid 15,448 13,406 73,988
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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.

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