Ainsworth Lumber Co. Ltd.
TSX : ANS

Ainsworth Lumber Co. Ltd.

February 28, 2007 20:19 ET

Ainsworth Reports Fourth Quarter and Annual 2006 Financial Results

VANCOUVER, BRITISH COLUMBIA--(CCNMatthews - Feb. 28, 2007) - Ainsworth Lumber Co. Ltd. (TSX:ANS) -



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Unaudited Three months ended Year ended
(Millions of Canadian dollars, December 31 December 31
except per share data, in ------------------------------------------
accordance with Canadian GAAP) 2006 2005 2006 2005
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Sales 119.2 302.1 827.1 1,248.2

Operating (loss) earnings (53.8) 45.1 (120.2) 257.6

Foreign exchange (loss) gain
on long-term debt (43.5) (0.2) (7.9) 28.3

Net (loss) income (78.1) 19.9 (108.0) 153.2

Basic (loss) earnings per
share (5.33) 1.36 (7.37) 10.45

Adjusted EBITDA (1) (24.8) 69.4 49.3 363.8

Cash (used in) provided by
operating activities (2) (67.5) 30.3 4.4 161.8
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(1) Adjusted EBITDA, a non-GAAP financial measure, represents operating
earnings before amortization, capital asset and timber deposit write-downs,
loss on disposal of capital assets and production line closure costs plus
other income (expense).

(2) Cash (used in) provided by operating activities
after changes in non-cash working capital.


Ainsworth had a net loss of $78.1 million, or $5.33 per share, for the fourth quarter of 2006 and a net loss of $108.0 million, or $7.37 per share, for the year 2006. This compares to net income of $19.9 million, or $1.36 per share, for the fourth quarter of 2005 and net income of $153.2 million, or $10.45 per share, for the year 2005.

OSB prices were substantially lower in 2006 compared to 2005. The benchmark North Central OSB price in 2006 averaged U.S.$218 per msf (on a 7/16th-inch basis) compared to U.S.$316 per msf in 2005. The decline in prices reflects significantly weakened demand for OSB as U.S. housing starts fell to a seasonally adjusted annual rate of 1.8 million in 2006 compared to 2.1 million in 2005. New home construction steadily decreased throughout 2006, from a seasonally adjusted annual rate of 2.1 million in the first quarter to 1.6 million in the fourth quarter of 2006.

OSB shipment volume was 15% lower in 2006 compared to 2005, reflecting market-related mill curtailments, a permanent closure of one of our Minnesota-based production lines, and extended maintenance downtime. Total 2006 sales decreased by $421.1 million, or 34%, compared to the prior year as a result of the combined effect of lower sales prices and reduced shipment volume.

The permanent closure of one of two production lines at our Bemidji, Minnesota OSB facility in August 2006 resulted in a capital asset write-down of $55.3 million and related severance costs of $5.9 million, which amounts were charged against income in the year. Our Cook and Grand Rapids, Minnesota OSB mills have been down since late September, due to a combination of low OSB prices and high operating costs. These curtailments are expected to be temporary.

The net loss for the fourth quarter and the year was also impacted by the movement of the Canadian dollar relative to the US dollar. The effect of foreign exchange rate fluctuations on our long-term debt led to a $36.2 million increase in 2006 net loss compared to 2005.

Adjusted EBITDA was $49.3 million in 2006, a decline of $314.4 million compared to the prior year. The reduction in profit margins was primarily due to lower OSB sales realizations and production volume decline. Adjusted EBITDA for the fourth quarter was also impacted by the stronger Canadian dollar and by $10.7 million in inventory write-downs on logs and spare parts.

Cash provided by operating activities was lower in 2006 compared to 2005 as a result of the decrease in net income. In light of the sharp downturn in residential housing construction, we took steps to mitigate the effects of a potential prolonged decline in demand and prices for our products. We negotiated two financing arrangements for the purchase of equipment for the new production line currently under construction at Grande Prairie, Alberta. We also refinanced the purchase of our aircraft through a sale-leaseback transaction. An additional $14.2 million (EUR 9.3 million) is available to be drawn under one of the equipment financing agreements in 2007. The temporary shutdown of the Cook and Grand Rapids facilities was a further step to conserve liquidity as these two mills incurred higher operating losses than our other mills.

Going forward into 2007, we expect OSB prices to be weak in North American markets because of the continued slowdown in new home construction. To help mitigate the effect of the low product prices, we have enhanced our focus on cost reduction initiatives and the production of value-added products. In 2007, we expect to realize cost reductions negotiated in 2006, particularly as they relate to our chemical and log purchases. We will also maintain our emphasis on value-added and export sales, which yield higher margins than commodity OSB products. We will continue to closely monitor the profitability of each mill and produce only where we expect to be profitable. We have also modified our planned capital expenditures by delaying the expected start up date for our second production line at Grande Prairie until 2008. Construction labour and material costs on this project escalated considerably throughout 2006 and we determined that the total cost of the project could be best managed by delaying the start up date to 2008.

The company will hold a conference call at 10:30 A.M. PST (1:30 P.M. EST) on Monday, March 5, 2007 to discuss the company's fourth quarter and annual results. The dial-in phone number is 1-888-294-9518, Reservation #21331780. To access the post-view line, dial 1-800-558-5253 or 1-416-626-4100, Reservation #21331780. This recording will be available until March 12, 2007.



AINSWORTH LUMBER CO. LTD.
Consolidated Balance Sheets
(In thousands of Canadian dollars)
Unaudited
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December 31 December 31
2006 2005
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ASSETS

Current Assets
Cash and cash equivalents $ 74,312 $ 209,201
Short-term investments 35,864 -
Accounts receivable, net of
allowance for doubtful accounts
of $Nil (2005: $Nil) 38,848 61,579
Inventories 95,515 108,530
Income taxes receivable - 28,409
Prepaid expenses 13,869 14,762
Restricted cash 62,184 39,016
Timber licence deposits - 5,998
Current portion of future income
tax assets 1,697 -
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322,289 467,495
Capital Assets, Net 968,539 875,896
Intangible Assets 14,243 14,209
Other Assets 53,810 55,463
Future Income Tax Assets 42,348 -
Goodwill 102,970 102,970
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$ 1,504,199 $ 1,516,033
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued
liabilities $ 58,763 $ 82,327
Income taxes payable 2,552 -
Current portion of future income
tax liabilities 10,708 31,362
Current portion of long-term debt 10,523 -
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82,546 113,689
Accrued Pension Benefit Liability 6,034 3,031
Reforestation Obligation 4,621 4,348
Long-term Debt 1,027,595 859,540
Future Income Tax Liabilities 89,293 120,256
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1,210,089 1,100,864
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SHAREHOLDERS' EQUITY
Capital Stock 55,827 55,827
Cumulative Translation Adjustment (56,722) (58,343)
Retained Earnings 295,005 417,685
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294,110 415,169
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$ 1,504,199 $ 1,516,033
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AINSWORTH LUMBER CO. LTD.
Consolidated Statements of Operations and Retained Earnings
Years Ended December 31
(In thousands of Canadian dollars, except per share data)
Unaudited
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2006 2005 2004
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Sales $ 827,118 $ 1,248,231 $ 909,922
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Costs and Expenses
Costs of products sold (exclusive
of amortization) 749,980 855,949 498,246
Selling and administration 41,124 30,777 31,014
Amortization of capital assets 88,004 103,907 53,852
Loss on disposal of capital assets 2,549 - -
Write-down of capital assets 55,290 - 793
Production line closure 5,915 - -
Write-down of timber deposits 4,502 - -
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947,364 990,633 583,905
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Operating (Loss) Earnings (120,246) 257,598 326,017

Finance Expense
Interest 68,913 64,914 40,723
Amortization of financing costs
and fees 5,399 4,888 3,234
Loss on repurchase of long-term debt - 1,485 106,198
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74,312 71,287 150,155


Other Income (Expense) 8,886 2,197 (3,351)
Foreign Exchange (Loss) Gain on
Long-term Debt (7,936) 28,313 73,815
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(Loss) Income Before Income Taxes (193,608) 216,821 246,326
Income Tax (Recovery) Expense (85,577) 63,667 71,244
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Net (Loss) Income (108,031) 153,154 175,082
Retained Earnings, Beginning of Year 417,685 278,742 118,563
Refundable Dividend Tax Recovery - 438 -
Dividends Paid (14,649) (14,649) (14,660)
Excess of Amount Paid on Purchase of
Capital Stock over Stated Capital - - (243)
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Retained Earnings, End of Year $ 295,005 $ 417,685 $ 278,742
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Basic and diluted (loss) earnings
per common share $ (7.37) $ 10.45 $ 11.98
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Weighted average number of common
shares outstanding 14,649,140 14,649,140 14,612,506
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AINSWORTH LUMBER CO. LTD.
Consolidated Statements of Cash Flows
Years Ended December 31
(In thousands of Canadian dollars)
Unaudited
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2006 2005 2004
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CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income $(108,031) $ 153,154 $ 175,082
Items not affecting cash
Amortization of capital assets 88,004 103,907 53,852
Amortization of deferred financing
costs and fees 5,399 4,888 3,234
Foreign exchange loss (gain) on
long-term debt 7,936 (28,313) (73,815)
Loss on repurchase of long-term debt - 1,485 106,198
Write-down of capital assets 55,290 - 793
Loss on disposal of capital assets 2,549 245 25
Write-down of timber deposits 4,502 - -
Change in non-current reforestation
obligation 273 (122) (332)
Future income taxes (96,139) 71,600 (14,353)
Non-cash stock-based compensation - - 2,640
Adjustment to net accrued pension
benefit asset 3,869 (7,278) 215
Utilization of investment tax credits - - 30,060
Change in non-cash operating working
capital 40,700 (137,718) 80,829
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Cash provided by operating activities 4,352 161,848 364,428
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of long-term debt 171,588 - 996,387
Repayment of long-term debt (2,321) - -
Repayment of capital lease obligations (174) (274) (275)
Repurchase of long-term debt - (31,067) (451,305)
Dividends paid (14,649) (14,649) (14,660)
Refundable dividend tax recovery - 438 -
Financing costs (6,011) - (26,214)
Repurchase of capital stock - - (284)
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Cash provided by (used in) financing
activities 148,433 (45,552) 503,649
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CASH FLOWS FROM INVESTING ACTIVITIES
Short-term investments (35,864) - -
Restricted cash (23,168) (32,455) (6,561)
Additions to capital assets (224,519) (57,275) (17,987)
Increase in other assets (4,267) (9,883) (1,555)
Proceeds on disposal of capital assets 155 27 40
Acquisition of intangible assets - (7,546) -
Timber licence deposits - (5,998) -
Investment in Minnesota OSB Facilities - - (584,847)
Investment in Voyageur Panel Limited,
net of cash acquired - - (245,158)
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Cash used in investing activities (287,663) (113,130) (856,068)
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Effect of foreign exchange rate
changes on cash
and cash equivalents (11) (28) -
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NET CASH (OUTFLOW) INFLOW (134,889) 3,138 12,009
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR 209,201 206,063 194,054
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CASH AND CASH EQUIVALENTS, END OF
YEAR $ 74,312 $ 209,201 $ 206,063
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SUPPLEMENTAL INFORMATION
Taxes paid $ 4,142 $ 61,484 $ 16,443
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Interest paid $ 70,200 $ 64,986 $ 138,351
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Forward-looking statements in this news release relating to the Company's expectations regarding OSB demand and pricing are made pursuant to the "safe harbour" provisions of the United States Private Securities Litigation Reform Act of 1995. When used herein, words such as "expect" and similar expressions are intended to identify forward-looking statements. Forward-looking statements are based on assumptions made by and information available to Ainsworth Lumber Co. Ltd. Investors are cautioned that such forward-looking statements involve risks and uncertainties. Important factors that could cause actual results to differ materially from those expressed or implied by such forward looking statements include, without limitation, the future demand for, and sales volumes of, the Company's products, future production volumes, efficiencies and operating cots, increases or decreases in the prices of the Company's products, the Company's future stability and growth prospects, the Company's future profitability and capital needs, including capital expenditures, and the outlook for and other future developments in the Company's affairs or in the industries in which the Company participates and factors detailed from time to time in the Company's periodic reports filed with the United States Securities and Exchange Commission, and other regulatory authorities. The Company has no intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Contact Information

  • Ainsworth Lumber Co. Ltd.
    Robert Allen
    Chief Financial Officer
    (604) 661-3200
    or
    Ainsworth Lumber Co. Ltd.
    Bruce Rose
    General Manager, Corporate Development
    (604) 661-3200
    (604) 661-3201 (FAX)
    Email: bruce.rose@ainsworth.ca
    Website: www.ainsworth.ca