Ainsworth acquisition gains support
Oct. 31, 2013, Vancouver - Ainsworth Lumber reports positive outlook with continued strong export growth in its financial results for the third quarter ended September 30, 2013.
Ainsworth President and Chief Executive Officer, Jim Lake said, "While lower OSB prices caused our results to decline versus the previous quarter, we generated adjusted EBITDA of $24.4 million in the third quarter of 2013, bringing our year to date adjusted EBITDA to $137.6 million. We also continued to experience growth in our export markets, and are pleased to report that we have recommenced commercial operations at our High Level mill."
Sales of $114.3 million in the third quarter of 2013 were stable compared to the third quarter of 2012. During the third quarter of 2013, the average U.S. benchmark price for the North Central and Western Canada regions decreased by 19% and 26%, respectively, compared to the same period in 2012. The impact of the U.S. benchmark declines on our realized pricing was moderated by the timing of price fluctuations, as well as the effect of a weaker Canadian dollar relative to the third quarter of 2012.
We also experienced stronger export pricing. Adjusted EBITDA was $24.4 million in the third quarter of 2013 compared to $37.0 million in the same period of 2012. Net income from continuing operations in the third quarter of 2013 was $10.7 million compared to $32.5 million in the third quarter of 2012. The $21.8 million decrease was due to a reduction in gross profit, increased costs of curtailed operations related to the start-up of the High Level mill, and a loss on the optional repayment of 10% of our senior notes, partially offset by a reduction in finance expense, and fluctuations in non-cash accounting gains and losses and income tax expense.
In the first nine months of 2013, sales were $383.7 million compared to $291.2 million in the same period of 2012. The $92.5 million increase was related to a 40.0% increase in realized pricing, partially offset by a 1.8% decrease in sales volumes. Adjusted EBITDA for the year to date was $137.6 million in 2013 compared to $63.5 million in 2012. Net income from continuing operations in the first nine months of 2013 was $50.0 million, compared to $21.7 million for the same period in 2012, representing an increase of $28.3 million. The increase included an increase in gross profit, and a decrease in finance expense, partially offset by increased costs of curtailed operations, and fluctuations in non-cash accounting gains and losses and income tax expense.
Adjusted EBITDA margin on sales for the third quarter of 2013 was 21.3% compared to 32.0% in the third quarter of 2012 (35.9% in the first nine months of 2013 compared to 21.8% in the same period of 2012).
Benchmark OSB pricing remained stable during the third quarter of 2013, although down from the previous quarter and the same period last year, with the North Central price for 7/16" OSB averaging U.S.$252 per msf (a decrease of 19% compared to the third quarter of 2012, and a 27% decrease compared to prior quarter). The Western Canadian price for 7/16" OSB averaged U.S.$230 per msf in the third quarter of 2013 (a decrease of 26% compared to the third quarter of 2012, and a 30% decrease compared to prior quarter).
At September 30, 2013, Ainsworth's available liquidity, consisting of cash and cash equivalents, was $150.8 million, an improvement of $44.0 million since December 31, 2012 resulting from our stronger operating results. During the third quarter of 2013, we exercised an option to redeem U.S.$35 million of our 7.5% senior secured notes, which represented 10% of the outstanding principal balance.
U.S. housing indicators continue to show improvement. Additionally, we continue to experience growth in our export markets, including Japan. As a result, we remain confident that the market will require additional supply in the years ahead. The restart of our High Level mill will allow us to meet the growing requirements of our existing customer base in North America and Asia as well as service new market segments.
100 Mile House Union Agreement
Ainsworth reached a new four-year agreement with the unionized employees at our 100 Mile House mill, which was ratified on September 9, 2013. Key provisions of the agreement include: a four year term expiring on June 30, 2017, with a lump sum payment of $2,500 per person in Year 1 followed by wage increases of 2%, 2% and 2.5% in the following years. The company now has collective agreements in place at both unionized facilities.
LP Acquisition of Ainsworth
On September 4, 2013, Ainsworth entered into an agreement with Louisiana-Pacific Corporation ("LP") under which LP will acquire all of the outstanding common shares of Ainsworth for a total consideration which equates to $3.76 per Ainsworth common share, based on the closing price of LP common shares on September 3, 2013. The proposed transaction has a total value of approximately U.S.$1.1 billion, including the assumption of net debt.
On October 29, 2013, the transaction was approved at the Company's special meeting of shareholders, with approximately 99.9% of the votes cast at the meeting voting in favour of the Arrangement Agreement. The Supreme Court of British Columbia has granted a final order to approve the plan. Ainsworth expects the acquisition to close by the end of 2013 or during the first quarter of 2014.
Further information about the Arrangement Agreement is set out in Ainsworth's management proxy circular dated September 24, 2013, which is available under Ainsworth's profile on www.sedar.com.