Winalta Inc. Reports Third Quarter Fiscal 2010 Results

CALGARY, Sept. 29 /CNW/ - Winalta Inc. ("Winalta" or the "Company") today announced financial results for its fiscal 2010 third quarter ended July 31, 2010. The Company reports that EBITDA for the three months ended July 31, 2010 was negative $0.4 million relative to positive $0.4 million in 2009. Included in the July 31, 2010 EBITDA is a reorganization charge of $0.6 million due entirely under the Companies' Creditors Arrangement Act (Canada) (CCAA). The Company incurred a net loss from continuing operations of $1.5 million on revenues of $1.9 million ($0.04 loss per share fully diluted) for the three months ended July 31, 2010 compared to net loss from continuing operations of $1.5 million on revenues of $1.3 million ($0.04 loss per share fully diluted) in 2009. The Company incurred a net loss from discontinued operations of $10.6 million ($0.30 loss per share fully diluted) for the three months ending July 31, 2010 compared to a net loss from discontinued operations of $3.9 million ($0.11 loss per share fully diluted) for the comparative quarter in 2009. The combined continuing and discontinued operations bring the total loss for the quarter ending July 31, 2010 to $12.1 million ($0.34 loss per share fully diluted) versus $5.4 million ($0.15 loss per share fully diluted) for the same quarter 2009.

On April 26, 2010, the Company applied for and obtained an order (the "Winalta Order") from the Courts granting creditor protection under the Companies' Creditors Arrangement Act ("CCAA") and a Monitor was appointed. The order applies to Winalta Inc., Winalta Homes Inc., Winalta Manufacturing Inc., Winalta Holdings Inc., Winalta Carlton Homes Inc., Winalta Oilfield Inc., Winalta Carriers Inc., Baywood Property Management Inc., Winalta Home Protection Inc., Winalta Construction Inc., 916830 Alberta Ltd. and certain non-operating subsidiaries collectively known as Winalta Inc. The Company has consulted with its primary lender and following such consultation continues to work to service and further reduce its debt by, among other things, attempting to sell its non-core assets to fund operations and meet its debt obligations. Accordingly, the interim financial results have been prepared on a going concern basis, which assumes that the future operations will allow for the realization of assets and discharge of liabilities in the normal course of business.

The Winalta Order was granted by the Court of Queen's Bench of Alberta and Deloitte and Touche Inc. was appointed as Monitor.

The Company has been granted six extensions of the Winalta Order with the latest one on September 17, 2010, allowing the Company a further extension to October 31, 2010 to develop a strategy for a restructuring plan to emerge from CCAA. In conjunction with its application to have the stay period under Winalta's CCAA process extended, Winalta, together with its subsidiaries, Winalta Carriers Inc., Baywood Property Management Inc. and Winalta Oilfield Rentals Inc., was also permitted by the Court to file a Plan of Arrangement to be presented to affected creditors of Winalta at a meeting of such creditors to be held on Thursday, October 14, 2010. Under the Plan of Arrangement, creditors will be offered payment of 100% of their proven claim, such amount to be payable on the terms set forth in the Plan of Arrangement. Should the Plan of Arrangement be approved by the requisite majority of affected creditors, Winalta plans on bringing a motion to the Court on October 22, 2010 for a Sanction Order sanctioning the Plan of Arrangement and providing for its implementation. Following receipt of the Sanction Order, Winalta Inc. and its subsidiaries, Winalta Carriers Inc., Baywood Property Management Inc. and Winalta Oilfield Rentals Inc. will amalgamate into Winalta Inc. and Winalta will emerge from CCAA protection and will operate its remaining core business being an oilfield rentals business.

Winalta's decreased revenue and net loss for the third quarter 2010 are reflective of the following:

    
    -   Net losses associated with the divestiture of Winalta's construction
        division

    -   Net losses associated with the divestiture of Winalta manufacturing
        and homes division

    -   Impairment losses associated with the sale of non-core assets
        associated with the home inventory and the lands held for development
    

Artie Kos, who assumed the role of President and CEO of Winalta Inc. on May 21, 2010, immediately focused on developing a disposal plan for non-core asset sales. Mr. Kos commented that, "Winalta is actively divesting of its non-core assets and is well positioned with salable, profit generating assets. Proceeds from the sale of non-core assets and homes sales are being used to pay down debt."

    
    Three Months Ended July 31, 2009
    ($ thousands)

                                                         2010         2009(1)

    Revenue                                            $1,867         $1,272

    Gross profit                                         $957           $898

    Gross profit %                                        51%            70%

    Net earnings (loss)                              $(12,128)       $(5,376)

    Loss per share                                     $(0.34)        $(0.15)

    EBITDA                                              $(367)          $445

    EBITDA per share                                   $(0.01)         $0.01

    (1) Comparative results for 2009 have been adjusted from previous
        reported results to be consistent with the current period for certain
        reclassification of management overhead costs and earnings from
        discontinued operations
    

Oilfield Division revenue increased by $595,000 for the third quarter of 2010 compared to the same quarter 2009.

Gross profit of $1.0 million for the three months ended July 31, 2010 was 51% on $1.9 million of revenue as compared to $0.8 million or 60% on $1.3 million in sales in 2009. The decline in gross profit reflects competitive pricing on rental units partially offset by higher utilization over the seasonally slow summer months. Relative to historical seasonal norms, the Company has achieved higher utilization due to the strength of customer relationships and high demand for the Company's newer fleet of units.

The net loss for the third quarter of $12.1 million relative to net loss of $5.4 million in 2009 is the result of increased expenses associated with the CCAA process combined with the losses incurred on discontinued operations and impairment relating to the Company's non-core asset sales.

Additional information and Management's Discussion and Analysis are available on SEDAR (www.sedar.com).

Use of Non-GAAP Measures

EBITDA is a non-GAAP measurement defined as "Earnings before interest, taxes, depreciation, amortization, impairment charges, discontinued operations, loss/gain on disposal of assets and stock-based compensation." The Company reports on EBITDA because it is a key measure used by management to evaluate performance. The Company believes EBITDA assists investors in assessing its performance on a consistent basis without regard to items such as depreciation and amortization, which are non-cash in nature and can vary significantly depending on accounting methods or non-operating factors such as historical cost. EBITDA is not a calculation based on GAAP and is not considered an alternative to net earnings in measuring the Company's performance. EBITDA does not have a standardized meaning and therefore may not be comparable with similar measures used by other issuers. EBITDA should not be used as an exclusive measure of cash flow since it does not account for the impact of working capital changes, capital expenditures, debt changes and other sources and uses of cash, which are disclosed in the consolidated statement of cash flows.

About Winalta

Winalta Inc. is an Oilfield Rentals provider that leases portable industrial accommodations and catering services to the energy sector.

Winalta Inc. shares trade on the TSX Venture Exchange under the symbol "WTA.A".

Forward-Looking Statements

The words "believe", "expect", "intend", "anticipate", or any variation of such words and similar expressions identify forward-looking statements, but their absence does not mean that the statement is not forward-looking. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. The CCAA proceedings have had a direct impact on Winalta's business and have compounded these risks and uncertainties. Winalta has assumed that the CCAA proceedings will allow the Company to continue to operate as a going concern, but the actions and decisions of creditors and other third parties with interest in the CCAA proceedings may be inconsistent with the Company's plans and therefore could cause actual events to differ materially from those contemplated in our forward-looking statements. These risks, without limitation include the following:

Strategic Risks - affecting our ability to:

    
    -   Continue as a going concern;

    -   Develop a comprehensive restructuring plan in an effective and timely
        manner;

    -   Resolve ongoing issues with creditors and other third parties whose
        interest may differ from ours;

    -   Obtain Court approval with respect to motions in the CCAA filed from
        time to time;

    -   Obtain creditor, Court and any other requisite third-party approvals
        for a comprehensive restructuring plan;

    -   Successfully implement a comprehensive restructuring plan or plans of
        reorganization;

    -   Obtain Court approval for asset sales, as required.
    

Financial risks - affecting our ability to:

    
    -   Generate cash from operations and maintain adequate cash-on-hand;

    -   Continue to maintain our cash management arrangements and obtain any
        further approvals from the Monitor, the Courts or other third
        parties, as necessary to continue such arrangements;

    -   Obtain alternative or replacement financing to replace the primary
        lender in restructuring our indebtedness and other obligations in a
        manner that allows us to obtain the approval of a plan or plans of
        reorganization from affected creditors;

    -   Realize full or fair value for any assets we may divest as part of a
        comprehensive restructuring plan.
    

Operation risks - affecting our ability to:

    
    -   Attract and retain customers despite the uncertainty caused by the
        CCAA;

    -   Avoid reduction in, or delay or suspension of, customer orders as a
        result of the uncertainty caused by the CCAA;

    -   Operate our business effectively in consultation with the Monitor;

    -   Actively and adequately communicate on and respond to events
        associated with the CCAA that could adversely affect our
        relationships with customers, suppliers and employees.
    

Procedural risks - affecting our ability to:

    
    -   Obtain Court orders or approvals with respect to motions we file from
        time to time;

    -   Reject, repudiate or terminate contracts.
    

These risks and uncertainties could affect the Company's business and operations in various ways. For example, negative events associated with the CCAA proceedings could adversely affect our operations and financial condition, sales, customer relationships, employees and vendors particularly if the CCAA proceedings are retracted. The Company continually monitors and evaluates these risk factors and takes action to minimize them. However, as many of these risks are outside of Company control, it is impossible to completely mitigate these risks. Readers are accordingly cautioned not to place undue reliance on forward-looking statements contained herein, which speak only as of the date of this news release. Winalta undertakes no obligation to publicly update or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, except as required by securities laws.

The TSX Venture Exchange has neither approved nor disapproved the contents of this news release. Neither the TSX Venture Exchange nor its Regulator Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

%SEDAR: 00005154E

For further information: Business Contact, Artie Kos, President & CEO, Winalta Inc., [email protected], Tel: [phone], Fax: [phone], www.winaltainc.com; Austin Fraser, Senior Vice President, Tel: [phone]