OFI Income Fund (TSX: OFB.UN), a producer of fibreglass insulation products, today announced its 2008 third-quarter financial results for the period ended September 30, 2008.
PROPOSED ACQUISITION BY CERTAINTEED
The strategic process review resulted in the Fund entering into a definitive agreement on October 20, 2008 with CertainTeed Insulation Canada, Inc. ("CertainTeed") pursuant to which CertainTeed has agreed to acquire all the outstanding shares of OFI GP Inc., the general partner of OLI L.P., and all of the outstanding limited partnership units of OFI L.P.. Today, CertainTeed and its affiliates manufacture North America's leading brand of exterior and interior building products.
Under the agreement, the Fund and CertainTeed have agreed to (i) the acquisition by CertainTeed of the Fund's 55.9% indirect interest in OFI L.P. ("OFI LP") and all of the issued and outstanding common shares in the capital of OFI GP Inc., and (ii) the redemption of Fibreglass Holdings Inc.'s 44.1% direct interest in OFI L.P. by OFI L.P., for an aggregate purchase price of $81,000,000 less the amount of the debt owed by the Fund and certain closing adjustments as set out in the acquisition agreement.
After closing, the bulk of the proceeds, after payment of the debt owed by the Fund, various transaction costs, costs associated with the wind-up of the Fund and certain severance costs, will be paid to Unitholders through the redemption of all outstanding Units at a currently estimated cash redemption price of approximately $3.05 per Unit and $0.16 per class B subordinated exchangeable limited partnership unit of OFI L.P. (the "Class B LP Units") to which are attached the Special Voting Units. The final redemption price per Unit and Class B LP Unit will depend on the amount of the Adjusted Debt (as defined in the Agreement). To the extent the debt, price adjustments, transaction costs and wind-up expenses are different from the Fund's estimates, or if any unforeseen adjustments, costs or expenses arise, the actual amount paid to Unitholders could be different. The redemption of the outstanding Fund units will occur shortly after the closing of the transaction, which is scheduled to occur early in 2009. The transaction is subject to Unitholders' approval at a special meeting of Unitholders of the Fund which has been scheduled to take place on December 10, 2008.
FORBEARANCE AGREEMENT
On August 29, 2008, the Bank of Nova Scotia and the Canadian Imperial Bank of Commerce and the Fund entered into a forbearance arrangement, whereby its lenders agreed to forbear from exercising enforcement rights and remedies from certain of its covenants contained in the credit agreement at September 30, 2008 and any anticipated default in meeting these covenants at September 30, 2008 through February 28, 2009.
At September 30, 2008, the Fund has continued to meet the conditions set out in the forbearance agreement.
There can be no assurance that the Fund will be able to comply with the terms of the forbearance agreement with the Lenders should the Fund not be able to complete the transaction with CertainTeed and, if that were to happen, its lenders could terminate the forbearance agreement and exercise any or all enforcement rights and remedies resulting from past defaults.
FINANCIAL HIGHLIGHTS
- Third-quarter 2008 sales were $16.5 million, compared with $17.2 million in the 2007 period, representing a 4 percent decline. Sales for the nine-month period were $46.4 million representing a decrease of approximately 16 percent from the same nine-month period in 2007. The decrease is attributable to lower sales volume in the U.S. and lower pricing as the result of competitive market pressures.
- Gross profit declined in the third quarter of 2008 to 16.4 percent of sales ($2.7 million), compared with 24.2 percent of sales ($4.2 million) in the prior-year period. For the nine-month 2008 period gross profit declined to 13.1 percent of sales ($6.1 million) from 26.3 percent for the first nine months of 2007 ($14.5 million).
- Earnings before interest, taxes, depreciation, and amortization (EBITDA) were $1.1 million in the third quarter of 2008, representing a 71 percent decrease from $3.8 million in the 2007 period. EBITDA for the nine month period ending September 30. 2008 was $3.7 million down from $12.2 million in the first nine months of 2007. Normalized EBITDA for the three month period was $2.3 million compared to $3.8 million a year ago.
- As a result of the strategic review, the Fund determined that the carrying value assigned to goodwill, intangible assets and other assets exceeded fair value. Accordingly, the Fund took a $52.1 million write-down (non-cash) of its goodwill, intangible assets and other assets in the third quarter.
- The Fund recorded a net loss for the 2008 third quarter of $2.3 million prior to the non-cash impairment charges of $52.1 million and the related effect on future income taxes. As a result of these impairment charges, the decline in sales and its effect on gross profit, the Fund recorded a net loss for the 2008 third quarter of $51.1 million, compared with net income of $0.7 million in the third quarter of 2007.
"The Fund's financial results in 2008 continue to be adversely affected by the same conditions that emerged over a year and a half ago. However in Canada, the business continues to show stability as the Fund has not lost any of its Canadian customers this year," said Joseph Skarzenski, Chief Executive Officer. -- www.cnxmarketlink.com
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