Tree Island announces Q4 and full year 2009 results

For the 12 months ended December 31, 2009 the Fund reported 2009 revenue of $165.6 million and a net loss of $26.9 million. Inventories were reduced by $72.9 million during 2009, a decrease of -68.4 percent ; selling, general and administrative ("SG&A") expenses decreased by -11.7 percent compared to 2008; and subsequent to the year-end, on March 25, 2010, the Fund announced a new three-year, $35 million senior secured revolving credit facility with Wachovia Capital Finance Corporation.  The Fund also reduced its revolving credit balance, net of cash, by $65.3 million, ending the year with a net cash position of $1.3 million.

"2009 was the most challenging year in our history as residential construction markets reached a 50-year low and we faced significant financing risks in our business," said Ted Leja, President and CEO of Tree Island Industries and a Trustee of the Fund. "We took appropriate steps to address these issues, and our business viability and future prospects have improved as a result.

"Financially, our priorities were to resolve our loan defaults, strengthen our balance sheet and secure alternate sources of credit to finance our operations. We worked steadily to reduce debt under our previous credit facility, selling surplus lands at our Richmond manufacturing facility for net proceeds of $8.7 million, and tightening our management of working capital and cash. We also negotiated with two significant trade creditors to convert amounts owing into long-term debt."

Continued Leja, "In addition, we raised $9.75 million of new capital by way of a private placement of debentures in the fourth quarter of 2009, and in January 2010, we raised a further $10 million through a rights offering to unit-holders. As at December 31, 2009, we had significantly reduced our revolving credit balance and ended the year with a net cash position of $1.3 million. Subsequent to the year-end, we announced a new three-year, $35 million senior secured revolving credit facility with Wachovia Capital Finance Corporation. With these actions, we believe we now have the appropriate financing in place to support our business, and we will be in a much better positioned to fund our working capital requirements as markets gradually improve."

"I am pleased with the work we have done thus far in rebuilding Tree Island," added Amar Doman, Chairman of the Fund. "The Company's focus is now on driving profitabilities. The recapitalization is now complete with the successful capital raises and the new Wachovia credit facility."

On the market front, residential construction markets began to stabilize in the second half of the year, ending a three-year downward trend. However, the overall level of activity remained at historically low levels. According to the US Census Bureau, 2009 housing starts of just 116,900 in the key US Western Region represented a 50-year low, and were down ---40.4 percent from 2008. Demand from the commercial construction and industrial/OEM markets also remained weak in both the US and Canada, reflecting the impact of depressed economic conditions and tight credit markets.

Tree Island's sales volumes reflected the low demand levels, as well as the impact of restrictions on working capital, which led the company to focus production resources on more profitable product lines, and away from higher-volume, lower-margin products. Total sales volumes declined by -45.2 percent in the fourth quarter and by -42.6 percent for the full year, compared to the same periods in 2008. Sales volumes to the industrial/OEM, commercial construction and residential construction markets experienced the most significant reduction, with agricultural, specialty and international trading sales volumes also showing declines.

While finished product prices stabilized during the second half of 2009, on a full-year basis, they were significantly weaker than in 2008. The decline in average product prices reflects lower demand levels, the impact of the significant drop in steel prices that began in Q4 2008, and the industry-wide liquidation of product inventories that followed. The combination of lower sales volumes and weaker year-over-year selling prices resulted in a reduction in revenues in both the fourth quarter and full-year periods.

In response to these challenges, Tree Island continued to reorganize its operations in line with market conditions. The company closed its Fontana manufacturing and Corona distribution facilities, both located in California. Activities from these operations were consolidated into remaining facilities to ensure the continued supply of a full range of Tree Island's quality products to customers. Workforce reductions also continued, with the company reducing its hourly workforce by -50 percent and its salaried workforce by -32 percent since July 2008.

Tree Island's business strategy, meanwhile, shifted away from volume growth and towards a "Back to Basics" strategy designed to improve profitability through a focus on pricing discipline, improved efficiencies, premium products, and customer service.  These initiatives, together with a reduction in writedowns as inventory values became better aligned with market conditions, contributed to an improvement in gross profit per ton in the second half of 2009, compared to the first half. Cost control initiatives, meanwhile, helped to reduce 2009 SG&A expenses by $2.8 million, compared to 2008, an improvement of 11.7%.

As a result of these achievements and the significant reduction in inventory writedowns, Q4 2009 gross profit improved by $22 million and a gross profit per ton improved by $497. The Fund also reported fourth quarter net income of $13.3 million, compared to a net loss of $79.9 million in Q4 2008.