OFI Income Fund Reports 2008 Second-Quarter Results



    
    -   Fund generates positive EBITDA and operating cash flow, although it
        incurs a net loss for the quarter
    -   Shipments of Canadian residential batts increases by 25% in the
        second quarter of 2008 over prior year
    -   Market and currency weaknesses result in more than 45% decline in
        revenue from the U.S. in the quarter over prior year
    -   Fund begins strategic review process
    -   The Fund and its Lenders agree to enter into a forbearance agreement
    

    OTTAWA, Aug. 12 /CNW/ - OFI Income Fund (TSX: OFB.UN), a producer of
fibreglass insulation products, today announced its 2008 second-quarter
financial results for the period ended June 30, 2008.

    
    Financial Highlights

    -   Second-quarter 2008 sales were $15.1 million, compared with
        $18.8 million in the 2007 period, representing a 20 percent decline.
        Sales for the six-month period were $29.9 million representing a
        decrease of approximately 21 percent from the same six-month period
        in 2007. The decrease is attributable to lower sales volume in the
        U.S, lower pricing as the result of competitive market pressures and
        the effect of the weaker U.S. dollar compared with the Canadian
        dollar.
    -   Gross profit declined in the second quarter of 2008 to 10.5 percent
        of sales ($1.6 million), compared with 24.7 percent of sales
        ($4.7 million) in the prior-year period. For the six-month 2008
        period gross profit declined to 11.3 percent of sales ($3.4 million)
        from 27.3 percent for the first six months of 2007 ($10.4 million).
    -   Earnings before interest, taxes, depreciation, and amortization
        (EBITDA(*)) were $0.5 million in the second quarter of 2008,
        representing an 86 percent decrease from $3.6 million in the 2007
        period. EBITDA for the six month period ending June 30. 2008 was
        $2.6 million down from $8.3 million in the first six months of 2007.
        Normalized EBITDA for the three month period was $0.7 million
        compared to $3.7 million a year ago.
    -   Due to continued market pressures, the Fund determined that the
        carrying value assigned to goodwill and intangible assets exceeded
        fair value. Accordingly, the Fund took a $32.6 million write-down
        (non-cash) of its goodwill and intangible assets in the second
        quarter.
    -   The Fund recorded a net loss for the 2008 second quarter of
        $3.5 million prior to the non-cash impairment charge of $32.6
        million. As a result of this impairment charge, the decline in sales
        and its effect on gross profit, the Fund recorded a net loss for the
        2008 second quarter of $36.1 million, compared with net income of
        $0.4 million in the second 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," said Joseph
Skarzenski, Chief Executive Officer. "These conditions include deteriorating
construction markets in the United States and the effects of the weaker U.S.
dollar.
    "In Canada, the sales effort paired with quality improvements in our
Western plant has resulted in an increase of 25 percent in residential batt
insulation shipments in the second quarter of 2008 over the second quarter of
2007," Joseph Skarzenski reported.

    Strategic Review Process

    In April 2008, in light of the weak market conditions and decreased
financial performance, the Fund Trustees initiated a process to evaluate
alternatives to enhance unitholder value. At the time the Board formed a
special committee to review the Fund's strategic alternatives, develop
strategies, and consider courses of action that will strengthen the business
of OFI. The Committee has retained the services of a financial advisor, CIBC
World Markets, to assist in identifying, examining, and considering strategic
alternatives available to the Fund including, if deemed advisable, the sale of
the Fund.
    At this time, no agreement in respect of any transaction has been reached
between the Fund and a third party. There can be no assurance that any current
discussions will result in any transaction.

    Forbearance Agreement with its Lenders

    As a result of non-compliance with one of its borrowing covenants, the
Fund and its Lenders agreed on August 11, 2008, to enter into a forbearance
arrangement, whereby the Lenders will forbear from exercising enforcement
rights and remedies from certain covenant defaults up and until February 28,
2009, subject to the Fund continuing to meet certain conditions during this
period. These conditions include, but are not limited to, the reduction of the
operating facility from $4 million to $2 million and meeting EBITDA levels.

    Distributions, Distributable Cash ((*)), and Liquidity

    Cash flow from operating activities remained positive in each of the
first two quarters of 2008, amounting to $1.3 million, but was down from
$8.0 million in the 2007 period.
    OFI generated $1.2 million in distributable cash for the six-month period
of 2008. No distributions were declared to Fund unitholders or to the holders
of the Class B Subordinated Exchangeable units during the second quarter of
2008.
    The Fund's ability to continue as a going concern is dependent on future
profitable operations and continued compliance with the terms of its
agreements with its lenders.

    Outlook

    "We will continue to focus on strengthening our position and performance
in the Canadian and European markets in the coming months. Current
stabilization of pricing and currency are providing some improvement in U.S.
performance, but the market there remains weak. We continue to manage our
production levels to suit the current demand levels," Joseph Skarzenski
concluded.

    
    Consolidated Financial Statements

                                       Three month            Six month
                                       period ended          period ended
                                          June 30               June 30
                                   --------------------  --------------------
                                       2008       2007       2008       2007
                                       ----       ----       ----       ----
                                                (in thousands)
                                                  (unaudited)
    Sales                           $15,077    $18,841    $29,892    $37,897
    Cost of sales                    13,492     14,187     26,505     27,545
                                   ------------------------------------------
    Gross profit                      1,585      4,654      3,387     10,352

    Selling, general and
     administrative expenses          3,715      3,353      6,885      6,451
    Income (loss) before taxes
     and non-controlling interest   (36,345)     3,538    (37,931)     6,186
                                   ------------------------------------------
    Net income (loss)              $(36,117)      $422   $(37,663)    $1,901
                                   ------------------------------------------
    Normalized EBITDA(*)               $721     $3,726     $2,801     $8,416
                                   ------------------------------------------

    Distributable Cash(*)            $1,033     $3,524     $1,237     $6,847

    Distributions declared on
     Fund Units                           -      3,543      1,685      7,594
    Distributions declared on
     Class B Subordinated
     Exchangeable LP Units of OFI LP      -          -          -          -
                                   ------------------------------------------
    Total Distributions declared         $-     $3,543     $1,685     $7,594
                                   ------------------------------------------
    Payout Ratio                         0%     100.5%     136.2%     110.9%
                                   ------------------------------------------
    


    (*)Definition of EBITDA and Other Non-GAAP Measures

    References to EBITDA are to earnings before interest, taxes, amortization
and unrealized foreign exchange (gain)/loss on cash and cash equivalents,
unrealized (gain)/loss on derivative instruments and non-controlling interest.
Because the Fund will distribute its available cash to the maximum extent
possible on an ongoing basis (after providing for certain amounts), management
believes that in addition to net income or loss, EBITDA is a useful
supplemental measure of cash available for distribution prior to debt service,
changes in working capital, capital expenditures, non-controlling interest and
taxes. However, EBITDA is not a recognized measure and does not have a
standardized meaning under GAAP. Investors are cautioned that EBITDA should
not be construed as an alternative to net income (as determined in accordance
with GAAP) as an indicator of the Fund's performance, or as an alternative to
cash flows from operating, investing and financing activities as a measure of
the Fund's liquidity and cash flows. The Fund's method of calculating EBITDA
may differ from the methods used by other issuers and, accordingly, the Fund's
EBITDA may not be comparable to similar measures used by other issuers.
    A reconciliation of net income to EBITDA is provided under the headings
"Results of Fund's Operations - Summary of Selected Consolidated Financial
Information".
    Management views distributable cash as a cash flow measure. It is a
non-GAAP measure generally used by Canadian income funds as an indicator of
their ability to generate cash that could be used for distributions to
unitholders. As the Fund will distribute its available cash to the maximum
extent possible on an on-going basis (after providing for certain amounts),
management believes that distributable cash is a useful supplemental measure
that may assist prospective investors in assessing an investment in Fund
units. See "Summary of Distributable Cash of the Fund". Investors are
cautioned that distributable cash should not be construed as an alternative to
net income or loss determined in accordance with GAAP as an indicator of the
Fund's performance or to cash flows from operating, investing and financing
activities as a measure of liquidity and cash flows. The method of calculating
the Fund's distributable cash may differ from similar computations, as
reported by other issuers and, accordingly, may not be comparable to
distributable cash as reported by other issuers.

    Class B Subordinated Exchangeable LP units

    The Class B Subordinated Exchangeable LP units represent 44.1% of the
total votes that may be cast at meetings of the Unitholders. In addition,
until September 30, 2009, the holders of the B Subordinated Exchangeable LP
units were granted a number of governance rights, including the right to veto
certain transactions such as the sale of all or substantially all of the
assets of OFI LP, under the various agreements governing the relationship
between the Fund, its various subsidiaries and the holders of the B
Subordinated Exchangeable LP units.

    Forward-Looking Statements

    Certain statements contained in this discussion constitute
forward-looking information within the meaning of securities laws.
Forward-looking information may relate to the Fund's future outlook and
anticipated events, the Fund's business, its operations, its financial
performance, its financial condition or its results and, in some cases, can be
identified by terminology such as "may", "will", "should", "expect", "plan",
"anticipate", "believe", "intend", "estimate", "predict", "potential",
"continue" or other similar expressions concerning matters that are not
historical facts. Particularly, statements regarding the Fund's future
operating results and economic performance, the Fund's objectives and
strategies to achieve those objectives, and the status of the Fund's strategic
review process are forward-looking statements. These statements are based on
certain factors and assumptions including expected growth, results of
operations, performance and business prospects and opportunities. While
management considers these assumptions to be reasonable based on information
currently available to it, they may prove to be incorrect. Forward
looking-information is also subject to certain factors, including risks and
uncertainties that could cause actual results to differ materially from what
management currently expects. These factors include the Fund's ability to
continue as a going concern, changes in market and competition, governmental
or regulatory developments, general economic conditions, credit availability,
compliance with the terms and conditions of the forbearance agreement, the
strength of the construction industry in North America, the fluctuations in
foreign currency, the development of new products and services, the
enhancement of existing products and services, the introduction of competing
products, many of which are beyond the Fund's control. Therefore, future
events and results may vary significantly from what management currently
foresees. For more exhaustive information on these risks and uncertainties you
should refer to the section entitled "Risks and Uncertainties" in the current
MD&A as well as the Annual Information Form for the year ended December 31,
2007, dated March 19, 2008 Forward-looking information contained in this
discussion is based on management's current estimates, expectations, and
projections, which management believes are reasonable as of the current date.
You should not place undue importance on forward-looking information and
should not rely upon this information as of any other date. While the Fund may
elect to, it is under no obligation (and expressly disclaims any such
obligation) and does not undertake to update or alter this information at any
particular time except as required under applicable securities legislation.

    About OFI Income Fund

    Since 1980, OFI has been manufacturing and distributing a broad range of
fibreglass insulation products, including fibreglass ceiling tiles, designed
for thermal and acoustical applications and destined for the Canadian, U.S.,
and international residential and non-residential/industrial markets. OFI
operates under a low-cost structure. Additional information is available at
www.sedar.com or the company's website at www.ofigroup.com.


    
    OFI Income Fund

                     CONSOLIDATED INTERIM BALANCE SHEETS
                     (in thousands of Canadian dollars)
                                 (unaudited)

                                                             June   December
                                                         30, 2008   31, 2007
                                                                $          $
    -------------------------------------------------------------------------
    ASSETS
    Current
    Cash and cash equivalents                               1,314      6,930
    Accounts receivable                                     6,433      6,346
    Investment tax credits receivable                         108         98
    Inventories                                             7,477      8,384
    Prepaid expenses                                          680        337
    Derivative financial instruments                            -        742
    -------------------------------------------------------------------------
    Total current assets                                   16,012     22,837
    -------------------------------------------------------------------------
    Long-term
    Property, plant and equipment                          52,963     54,186
    Other assets                                            3,362      3,757
    Intangible assets                                      51,606     55,979
    Goodwill                                               25,493     57,183
    -------------------------------------------------------------------------
    Total long-term assets                                133,424    171,105
    -------------------------------------------------------------------------
    Total assets                                          149,436    193,942
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND UNITHOLDERS' EQUITY
    Current
    Accounts payable                                        2,664      3,474
    Accrued liabilities                                     3,148      3,174
    Debt                                                   35,682          -
    Distributions payable to Fund unitholders                   -        843
    Derivative financial instruments                          504        110
    -------------------------------------------------------------------------
    Total current liabilities                              41,998      7,601
    -------------------------------------------------------------------------

    Debt                                                        -     39,525
    Future income taxes                                     3,286      3,554
    -------------------------------------------------------------------------
    Total long-term liabilities                             3,286     43,079
    -------------------------------------------------------------------------

    Non-controlling interest                               62,035     62,035
    -------------------------------------------------------------------------

    Commitments and contingencies

    UNITHOLDERS' EQUITY
    Fund units                                            123,370    123,370
    Deficit                                               (81,253)   (42,143)
    -------------------------------------------------------------------------
    Total unitholders' equity                              42,117     81,227
    -------------------------------------------------------------------------
    Total liabilities and unitholders' equity             149,436    193,942
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    OFI Income Fund

                CONSOLIDATED INTERIM STATEMENTS OF INCOME AND
                             COMPREHENSIVE INCOME
    (in thousands of Canadian dollars and units, except per unit amounts)
                                 (unaudited)

                                        For the three          For the six
                                         months ended          months ended
                                           June 30               June 30
                                       2008       2007       2008       2007
                                          $          $          $          $
    -------------------------------------------------------------------------

    Sales                            15,077     18,841     29,892     37,897
    Cost of sales                    13,492     14,187     26,505     27,545
    -------------------------------------------------------------------------
    Gross profit                      1,585      4,654      3,387     10,352
    -------------------------------------------------------------------------

    OTHER INCOME & EXPENSES
    Selling, general and
     administrative                   3,715      3,353      6,885      6,451
    Research and development             65        241        119        305
    Foreign exchange loss (gain)         51        (27)      (715)       342
    Amortization of deferred
     financing charges                  124         43        157         87
    Interest on debt                    584        245      1,194        446
    Changes in unrealized
     derivative financial
     instruments                        816     (2,683)     1,136     (3,312)
    Interest income                      (6)       (56)       (39)      (153)
    Intangible assets impairment
     charge                             891          -        891          -
    Goodwill impairment charge       31,690          -     31,690          -
    -------------------------------------------------------------------------
    Income (loss) before taxes
     and non-controlling interest   (36,345)     3,538    (37,931)     6,186
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Future income taxes                (228)     1,555       (268)     1,555
    Income (loss) before
     non-controlling interest       (36,117)     1,983    (37,663)     4,631
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Non-controlling interest              -      1,561          -      2,730
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net income (loss) and
     comprehensive income (loss)
     for the period                 (36,117)       422    (37,663)     1,901
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net income (loss) per unit
    Basic                            (2.786)     0.033     (2.905)     0.147
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Diluted                          (2.786)     0.033     (2.905)     0.147
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Weighted average number of
     units outstanding
    Basic                            12,963     12,963     12,963     12,963
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Diluted                          12,963     23,202     12,963     23,202
    Income (loss) before taxes
     and non-controlling interest   (36,345)     3,538    (37,931)     6,186
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    OFI Income Fund

                 CONSOLIDATED INTERIM STATEMENT OF CHANGES IN
                             UNITHOLDERS' EQUITY
                 (in thousands of Canadian dollars and units)
                                 (unaudited)

                                      Units     Amount    Deficit      Total
                                        No.          $          $          $
    -------------------------------------------------------------------------
    Unitholders' Equity
     December 31, 2006               12,963    123,370     (8,501)   114,869
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net loss attributable
     to Fund units                                        (20,993)   (20,993)
    Distributions declared
     on Fund units                                        (12,649)   (12,649)
    -------------------------------------------------------------------------
    Unitholders' Equity
     December 31, 2007               12,963    123,370    (42,143)    81,227
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Transitional adjustment
     related to the adoption
     of CICA HB Section 3031,
     "Inventories"                                            238        238
    Net loss attributable
     to Fund units                                        (37,663)   (37,663)
    Distributions declared
     on Fund units                                         (1,685)    (1,685)
    -------------------------------------------------------------------------
    Unitholders' Equity
     June 30, 2008                   12,963    123,370    (81,253)    42,117
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    OFI Income Fund

                CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
                     (in thousands of Canadian dollars)
                                 (unaudited)

                                        For the three          For the six
                                         months ended          months ended
                                           June 30               June 30
                                       2008       2007       2008       2007
                                          $          $          $          $
    -------------------------------------------------------------------------
    OPERATING ACTIVITIES
    Net income (loss) for the
     period                         (36,117)       422    (37,663)     1,901
    Add (deduct) items not
     involving cash:
    Non-controlling interest
     share of income                      -      1,561          -      2,730
    Amortization of property,
     plant and equipment                818        836      1,601      1,638
    Amortization of other assets        198          -        395          -
    Amortization of deferred
     financing costs                    124         43        157         87
    Amortization of intangible
     assets                           1,741      1,741      3,482      3,483
    Loss on disposal of asset             5        166         22        166
    Future income taxes                (228)     1,555       (268)     1,555
    Intangible assets impairment
     charge                             891          -        891          -
    Goodwill impairment charge       31,690          -     31,690          -
    Changes in unrealized
     derivative financial
     instruments                        816     (2,683)     1,136     (3,312)
    Unrealized foreign exchange
     loss (gain) on cash and
     cash equivalents                     4        (29)        18        (50)
    -------------------------------------------------------------------------
                                        (58)     3,612      1,461      8,198

    Net change in non-cash
     working capital balances
     related to operations              951        132       (131)      (223)
    -------------------------------------------------------------------------
    Cash provided by operating
     activities                         893      3,744      1,330      7,975
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    INVESTING ACTIVITIES
    Purchase of property, plant
     and equipment                      (67)      (154)      (400)    (5,304)
    Additions to other assets             -     (1,282)         -     (2,478)
    Change in cash restricted
     for payment on interest on
     non-revolving construction loan      -          -          -         82
    -------------------------------------------------------------------------
    Cash used in investing activities   (67)    (1,436)      (400)    (7,782)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    FINANCING ACTIVITIES
    Issuance (repayment) of debt          -          -     (4,000)     5,010
    Cash distributions paid to
     Fund and Class B units               -     (4,051)    (2,528)   (11,302)
    -------------------------------------------------------------------------
    Cash used in financing activities     -     (4,051)    (6,528)    (6,292)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Unrealized foreign exchange
     gain (loss) on cash and cash
     equivalents                         (4)        29        (18)        50

    Net increase (decrease) in
     cash and cash equivalents          822     (1,714)    (5,616)    (6,049)
    Cash and cash equivalents,
     beginning of period                492      4,853      6,930      9,188
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of period                    1,314      3,139      1,314      3,139
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplemental disclosures
     of cash flow information:
      Interest paid                     584        613      1,194      1,166
      Interest received                   6         56         39        153
      Income taxes paid                   -          -          -          -
    -------------------------------------------------------------------------
    

    %SEDAR: 00022462E




For further information:

For further information: Catherine Skarzenski, Executive Vice President
and Chief Financial Officer, Tel. (613) 247-7116, Fax (613) 736-7281, e-mail
investors@ofiincomefund.com.

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