Arctic Glacier Income Fund
TSX : AG.UN

Arctic Glacier Income Fund

November 06, 2009 07:00 ET

Arctic Glacier Posts Third Quarter Results

WINNIPEG, MANITOBA--(Marketwire - Nov. 6, 2009) - Arctic Glacier Income Fund (TSX:AG.UN) today announced results for the third quarter ended September 30, 2009.

Summary*

  • Reached agreement with U.S. Department of Justice in U.S. packaged ice investigation
  • Third quarter sales decreased by $9 million or 8% due to poor weather and economic slowdown
  • Third quarter EBITDA decreased $4.2 million or 10% due to lower sales volumes
  • Nine-month EBITDA decreased by $3.8 million or 6% due to lower sales volumes
  • Nine-month EBITDA margin increased to 28.6% of sales from 28.2%

    *All dollar amounts in U.S. currency unless otherwise specified

"During the third quarter we continued to closely monitor expenses, maximize cash flow and reduce debt. This operating strategy minimized the financial effects of reduced sales volumes caused by poor weather and the economic slowdown," said Keith McMahon, President and CEO of Arctic Glacier Inc., the Fund's operating company. 

"Arctic Glacier's continued generation of strong free cash flow enables us to pay operating expenses, finance capital improvements and pay down debt," added Doug Bailey, the Fund's Chief Financial Officer. "Our close monitoring of operating expenses and focus on improving balance sheet strength enable the Fund to counter the challenges of the current business environment."

Third Quarter 2009 Review

Sales in the third quarter totaled $100.8 million, a decrease of $9.0 million or 8% compared to the same period in 2008. The change was mainly attributable to a sales reduction in previously serviced markets of $7.9 million or 8% as a result of unseasonably cool and wet weather conditions and the slowdown in the North American economy. In addition, the weaker Canadian dollar decreased the U.S. dollar value of sales generated in Canadian markets by $1.4 million. The decrease was partially offset by acquisitions that contributed $0.3 million to sales during the third quarter of 2009. Nine-month sales decreased by 8% from the same period in 2008 to $194.3 million.

Cost of sales, selling, general and administration expenses totaled $62.4 million, a reduction of $4.9 million or 7% from the third quarter of 2008. The decline was primarily a result of an expense reduction in previously serviced markets of $4.1 million or 6% as a result of reduced volumes, lower fuel costs and the results of recent productivity enhancement initiatives. In addition, the weaker Canadian dollar decreased the U.S. dollar value of costs incurred in Canadian operations by $1.0 million. Acquisitions added $0.2 million to operating costs in the quarter. For the nine-month period, cost of sales, selling, general and administration expenses decreased by $12.7 million to $138.7 million.

EBITDA during the third quarter decreased by $4.2 million, or 10%, to $38.4 million. The change was mainly due to an EBITDA reduction in previously serviced markets as a result of lower volumes from unseasonably cool and wet weather and the slow economy. Nine-month EBITDA decreased by $3.8 million or 6% to $55.6 million. 

EBITDA margins decreased to 38.1% of sales for the third quarter of 2009 compared to 38.8% for the same period of 2008. For the nine-month period, EBITDA margin increased to 28.6% of sales from 28.2% last year.

On October 13, 2009 a subsidiary of the Fund entered into an agreement with the U.S. Department of Justice ("DOJ") Antitrust Division (see "U.S. DOJ Investigation and Related Litigation", below). Terms of the agreement, among others, require the Fund to pay a fine of $9 million in installments over five years For the third quarter of 2009, legal fees and other expenses in connection with investigations by the DOJ, various state attorneys general and the DOJ Civil Division plus related civil litigation totaled $7.3 million, including legal outlays of $0.9 million and the discounted fair market value of the fine of $6.4 million. The year-to-date total legal costs at September 30 were $9.9 million, comprised of the discounted fair market value of the fine of $6.4 million and legal outlays of $3.5 million.

Adjusted earnings for the third quarter totaled $15.2 million, compared to $18.3 million in the same quarter of 2008. That was equivalent to $0.39 (basic) and $0.37 (diluted) per unit, compared to $0.47 (basic) and $0.44 (diluted) last year. The decrease was due to lower EBITDA results and higher interest costs. Including costs of the antitrust investigations and related expenses, three-month net income was $8.3 million or $0.21 (basic and diluted), compared to a loss of $6.5 million or $0.17 per unit (basic and diluted) in the same quarter of 2008.

Distributable cash, excluding costs of the antitrust investigations and related expenses, totaled $30.4 million, compared to $36.4 million for the third quarter of 2008. The decrease was due to reduced EBITDA, higher interest charges, reduced realized gains on foreign exchange contracts and higher sustaining capital expenditures. Including costs of the antitrust investigations and related expenses, distributable cash was $29.4 million, down from $34.8 million in the same quarter last year. For the nine-month period, excluding these expenses the Fund generated distributable cash of $34.2 million, compared to $40.8 million in the same period of 2008.

Financial Position

As at September 30, 2009, Arctic Glacier's net debt, excluding convertible debentures, was $161.3 million, down from $176.6 million at the same time last year. A total of $28.1 million of cash was applied to reduce debt following the suspension of distributions in September 2008, partially offset by $6.4 million of antitrust costs paid and $6.4 million representing the net present value of the fine that was recorded as debt.

The Fund had a working capital deficiency of $44.0 million at September 30, 2009. This resulted from the classification of $60 million of senior secured notes as current liabilities since they mature on January 4, 2010. The Fund is actively working to extend or refinance these notes. At the present time it cannot be predicted if the Fund will be successful in extending or refinancing the notes prior to maturity. Excluding the notes, the Fund's working capital was $16.0 million, compared to working capital of $19.6 million at the same time in 2008.

The Fund's net debt to EBITDA ratio at September 30, 2009 was 2.8:1 compared to 3.0:1 at the same time last year.The suspension of cash distributions allows the Fund to conserve cash and redeploy available resources to reduce debt and strengthen the balance sheet, better positioning the Fund to adjust to changing financial circumstances.

At September 30, 2009, the Fund's credit facilities were comprised of $60 million of senior notes and a $147.5 million revolving term credit facility. The Fund had approximately $53.7 million of available liquidity at September 30, 2009, including $47.4 million of unused capacity on its revolving term credit facility and $6.3 million of cash. As of September 30, 2009 the Fund was in compliance with all debt covenants.

U.S. DOJ Investigation and Related Litigation

The October 13, 2009 agreement with the DOJ (see above) settled all charges related to allegations that three former employees conspired with a co-conspirator company from January 2001 through July 2007 to allocate packaged ice customers in southeastern Michigan. Under terms of the agreement, which remains subject to court approval, the subsidiary agreed to plead guilty and to pay a fine of $9 million in installments over five years. The Fund has also agreed to cooperate with the DOJ's ongoing investigation of other companies and individuals. The agreement concludes the DOJ Antitrust Division investigation as it relates in any way to the Fund, its board, management and staff in all markets.

Still ongoing is an investigation by the DOJ Civil Division to determine if the U.S. government has been overcharged in its purchases of packaged ice and a number of state investigations to determine if state antitrust laws have been broken. Also outstanding are several class action lawsuits initiated in Canada and the U.S. Two court judgments have been rendered on civil cases during 2009. In February a class action in Kansas state court was dismissed for the plaintiff's failure to state an actionable claim against the Fund. In May a U.S. judge in Michigan dismissed the bulk of a civil case brought by a former employee against a subsidiary of the Fund. At this time, it is not possible to predict the timeline or final outcome of the investigations or litigation, or any potential effect they may have on the Fund or its operations.

Outlook

These challenges of poor weather, the slow economy and legal matters have not distracted Arctic Glacier from its core objectives of providing quality product and industry-leading customer service. 

Management will continue to follow a strategic direction defined by a number of objectives. The first is to improve profitability by close monitoring of expenses and capital outlays. The second is to gain strength and enhance liquidity by maximizing cash flow and ensuring credit availability. Third, the Fund aims to strengthen its financial position by reducing balance sheet leverage. The fourth is to capitalize on business opportunities as they arise. 

The Fund's strengthening financial position will enable management to capitalize on these opportunities. Arctic Glacier's strong growth to date has been largely fueled by acquisitions amid a consolidating industry, and while such activities are currently secondary in importance, management intends to resume growing when the business climate improves.

Arctic Glacier's ability to maintain strong operating cash flows and improve margins in spite of reduced sales volumes demonstrates that Arctic Glacier is well equipped to mitigate the challenging business environment. It also positions the Fund to take advantage of improvements in both economic factors and weather in the future. 

About Arctic Glacier

Arctic Glacier Income Fund, through its operating company, Arctic Glacier Inc., is a leading producer, marketer and distributor of high-quality packaged ice in North America, primarily under the brand name of Arctic Glacier® Premium Ice. Arctic Glacier operates 38 production plants and 48 distribution facilities across Canada and the northeast, central and western United States servicing more than 75,000 retail accounts.

Arctic Glacier Income Fund trust units are listed on the Toronto Stock Exchange under the trading symbol AG.UN. There are 39.0 million trust units outstanding.

Conference Call and Webcast

Arctic Glacier will discuss third quarter 2009 results during a conference call with a live audio webcast for investors and analysts on Friday, November 6 at 11 a.m. (EDT). To access the simultaneous webcast, log on to Arctic Glacier's website at www.arcticglacier.com. Please note the webcast allows participants to listen only.

Forward-Looking Statements

This news release contains forward-looking statements, which are subject to certain risks, uncertainties and assumptions. A number of factors could cause actual results to differ materially from the results discussed in these forward-looking statements, and there is no assurance that actual results will be consistent with these forward-looking statements. These forward-looking statements are made as at the date of this news release, and the Fund assumes no obligation to update or revise them, either publicly or otherwise, to reflect new events, information or circumstances.

Non-GAAP measures

EBITDA, adjusted earnings and distributable cash are not recognized measures under Canadian generally accepted accounting principles (GAAP). EBITDA is defined as earnings before interest, income taxes, depreciation, amortization, acquisition integration charges, gains or losses on foreign exchange, goodwill impairment charges, costs of antitrust investigations and related expenses and other non-recurring expenses. EBITDA is a performance measure used by management to provide an indication of cash available for distribution from ongoing operations prior to debt service, capital expenditures and income taxes and is often used to compare companies and income trusts on the basis of ability to generate cash from ongoing operations. Adjusted earnings is defined as earnings before one-time after tax costs of antitrust investigations and related expenses and goodwill impairment. Adjusted earnings is used by management to evaluate the ongoing profitability of the Fund by eliminating the effect of these material non-operating costs. Distributable cash is a performance measure used by management to summarize the funds available for distribution to unitholders in an income trust. Investors should be cautioned that EBITDA, adjusted earnings and distributable cash should not be construed as alternatives to earnings, cash from operating activities or other financial measures determined in accordance with GAAP as indicators of the Fund's performance. The Fund's method of calculating EBITDA, adjusted earnings and distributable cash may differ from other companies and income trusts and, accordingly, may not be comparable to measures used by them.

ARCTIC GLACIER INCOME FUND     
Interim Consolidated Balance Sheets
As at September 30, 2009 and 2008 (unaudited) and December 31, 2008 (audited)
     
      
(thousands of U.S. dollars)September 30, 2009 September 30, 2008 December 31, 2008
ASSETS           
Current assets           
 Cash $6,321  $6,972  $303 
 Accounts receivable 26,049   28,476   11,813 
 Inventories 9,839   9,785   9,032 
 Prepaid expenses 3,653   3,940   4,323 
  45,862   49,173   25,471 
            
Future income taxes -   4,827   - 
Property, plant and equipment 144,947   156,503   148,821 
Investments 818   818   818 
Intangible assets 124,633   133,720   130,811 
Goodwill 146,441   147,818   144,416 
 $462,701  $492,859  $450,337 
            
LIABILITIES AND UNITHOLDERS' EQUITY           
Current liabilities           
 Accounts payable and accrued liabilities$28,824  $28,079  $25,219 
 Principal due within one year on long-term debt 61,053   1,538   1,361 
  89,877   29,617   26,580 
            
Long-term debt 106,532   182,055   167,431 
Convertible debentures 79,330   77,232   68,023 
Future income taxes  6,920   -   1,511 
            
Unitholders' equity           
 Units 325,207   325,207   325,207 
 Contributed surplus 1,652   1,237   1,320 
 Equity portion of convertible debentures 8,358   8,358   8,358 
 Deficit (138,156)  (114,127)  (139,900)
 Accumulated other comprehensive loss  (17,019)  (16,720)  (8,193)
  180,042   203,955   186,792 
 $462,701  $492,859  $450,337 
   
   
ARCTIC GLACIER INCOME FUND 
Interim Consolidated Statements of Operations
Three months and nine months ended September 30, 2009 and 2008 (unaudited) 
   
 Three MonthsNine Months
(thousands of U.S. dollars, except per unit amounts)2009200820092008
Sales$100,825 $109,854 $194,307 $210,831 
Cost of sales, selling, general and administration expenses 62,389  67,259  138,662  151,387 
Earnings before the undernoted  38,436  42,595  55,645  59,444 
Amortization 7,521  7,934  22,693  23,051 
Interest 7,043  6,288  16,971  16,685 
Acquisition integration expenses 5  92  228  299 
Loss on disposal of property, plant and equipment 69  89  388  58 
Loss (gain) on foreign exchange (1,314) 227  (2,111) 929 
Costs of antitrust investigations and related expenses  7,297  1,617  9,913  4,675 
 Goodwill impairment -  31,966  -  31,966 
Earnings (loss) before income taxes 17,815  (5,618) 7,563  (18,219)
Income taxes            
  Current (138) 146  380  499 
  Future (reduction) 9,677  692  5,439  (7,632)
  9,539  838  5,819  (7,133)
Earnings (loss) for the period$8,276 $(6,456)$1,744 $(11,086)
             
 Earnings (loss) per unit            
   Basic$0.21 $(0.17)$0.04 $(0.28)
   Diluted 0.21  (0.17) 0.04  (0.28)
 
ARCTIC GLACIER INCOME FUND
Interim Consolidated Statements of Changes in Unitholders' Equity
Three months and nine months ended September 30, 2009 and 2008 (unaudited)
 Three MonthsNine Months
(thousands of U.S. dollars)2009200820092008
Units        
Balance, beginning of period$ 325,207 $  324,824 $ 325,207 $ 324,191 
Units issued, net of issue costs - 383 - 1,016 
Balance, end of period325,207 325,207 325,207 325,207 
Contributed surplus        
Balance, beginning of period1,526 1,142 1,320 942 
Unit-based compensation expense126 95 332 295 
Balance, end of period1,652 1,237 1,652 1,237 
Equity portion of convertible debentures        
Balance, beginning and end of period8,358 8,358 8,358 8,358 
Deficit        
Balance, beginning of period(146,432)(101,423)(139,900)(75,482)
Earnings (loss) for the period8,276 (6,456)1,744 (11,086)
Distributions declared - (6,248)- (27,559)
Balance, end of period(138,156)(114,127)(138,156)(114,127)
Accumulated other comprehensive loss        
Balance, beginning of period(11,539)(19,557)(8,193)(21,385)
Other comprehensive income (loss)(5,480)2,837 (8,826)4,665 
Balance, end of period(17,019)(16,720)(17,019)(16,720)
Total Unitholders' Equity$ 180,042 $  203,955 $ 180,042 $ 203,955 
 
 
ARCTIC GLACIER INCOME FUND
Interim Consolidated Statements of Comprehensive Income (Loss)
Three months and nine months ended September 30, 2009 and 2008 (unaudited)
 Three MonthsNine Months
(thousands of U.S. dollars)2009200820092008
Earnings (loss) for the period$8,276 $(6,456)$1,744 $(11,086)
Other comprehensive income (loss)            
 Net unrealized foreign currency translation gain (loss) (5,498) 2,819  (8,879) 4,648 
  Amortization of transitional adjustment to earnings (loss) for the period 18  18  53  17 
Other comprehensive income (loss) (5,480) 2,837  (8,826) 4,665 
Comprehensive income (loss) for the period$2,796 $(3,619)$(7,082)$(6,421)
 
 
ARCTIC GLACIER INCOME FUND
Interim Consolidated Statements of Cash Flows
Three months and nine months ended September 30, 2009 and 2008 (unaudited)
 Three MonthsNine Months
(thousands of U.S. dollars)2009200820092008
Cash from (used in):            
Operating activities            
 Earnings (loss) for the period$8,276 $(6,456)$1,744 $(11,086)
 Adjustments for:            
  Amortization 7,521  7,934  22,693  23,051 
   Amortization of deferred financing 370  348  1,033  939 
   Amortization of transitional adjustment on interest rate swap 18  17  53  55 
   Accretion of convertible debenture principal 431  415  1,176  1,234 
   Accretion of long-term debt 36  56  89  212 
   Recognition of rents on a straight-line basis 179  179  537  537 
  Unit-based compensation expense 126  95  332  295 
   Loss on disposal of property, plant and equipment 69  89  388  58 
   Unrealized foreign exchange loss (gain) on long-term debt  (1,090)   560  (1,691)   929 
   Unrealized loss (gain) on foreign exchange contracts  (262) 258  (515) 1,051 
  Changes in fair value of interest rate swap (112) 430  (524) 643 
  Costs of antitrust investigations 6,374  -  6,374  - 
  Goodwill impairment -  31,966  -  31,966 
  Future income taxes (reduction) 9,677  692  5,439  (7,632)
  31,613  36,583  37,128  42,252 
 Changes in non-cash working capital items 4,873  5,340  (10,046) (10,719)
  36,486  41,923  27,082  31,533 
             
Investing activities            
  Additions to property, plant and equipment (2,422) (3,067) (8,627) (12,446)
  Proceeds from disposal of property, plant and equipment 36  153  188  405 
  Additions to intangibles and goodwill (23) -  (23) (1,272)
  Acquisition of business operations (228) -  (228) (19,495)
  (2,637) (2,914) (8,690) (32,808)
             
Financing activities            
 Proceeds from long-term debt -  -  36,560  62,155 
 Principal repayments on long-term debt (30,588) (24,266) (49,464) (28,419)
 Units issued, net of issue costs -  383  -  1,016 
 Distributions paid -  (9,753) -  (31,158)
  (30,588) (33,636) (12,904) 3,594 
             
 Foreign exchange gain (loss) on cash held in foreign currency 417  (298) 530  (32)
Increase in cash 3,678  5,075  6,018  2,287 
Cash, beginning of period 2,643  1,897  303  4,685 
Cash, end of period$6,321 $6,972 $6,321 $6,972 
             
Supplementary cash flow information            
 Interest paid $6,346 $6,382 $14,454 $14,702 
 Income taxes paid (received) (138)           146  380  499 

ARCTIC GLACIER INCOME FUND
Interim Schedule of Distributable Cash
Three months and nine months ended September 30, 2009 and 2008 (unaudited)

 Three Months Nine Months
(in thousands of U.S. dollars, except per unit amounts)20092008 20092008
 Cash from operating activities$36,486 $41,923  $27,082 $31,533 
 Adjustments:             
  Changes in non-cash working capital items (1) (4,873) (5,340)  10,046  10,719 
  Less sustaining capital expenditures, net of dispositions (2) (2,169) (1,822)  (6,493) (6,085)
 Distributable cash 29,444  34,761   30,635  36,167 
 Add back costs of antitrust investigations and related expenses 923  1,617   3,539  4,675 
 Distributable cash excluding costs of antitrust investigations and related expenses$30,367 $36,378  $34,174 $40,842 
              
 Weighted average number of units 39,042.2  39,009.9   39,042.2  38,965.7 
 Distributable cash per unit$0.75 $0.89  $0.78 $0.93 
 Distributable cash per unit excluding costs of antitrust investigations and related expenses$0.78 $0.93  $0.88 $1.05 
              
 Distributions declared (3)$- $6,248  $- $27,559 
 Distributions declared per unit (3)$- $0.16  $- $0.71 
  1. Changes in non-cash working capital items have been excluded from cash from operating activities so as to remove the effects of timing differences in cash receipts and cash disbursements, which have significant seasonal fluctuations and vary significantly across quarters but generally reverse themselves. These fluctuations are funded from cash resources or the revolving term credit facility.

  2. Sustaining capital expenditures represent the replacement of property, plant and equipment to sustain current business operations and are funded from operating cash flow. 

  3. Distributions to unitholders were suspended after the August 2008 distribution that was declared on August 18, 2008 and paid on September 15, 2008.

ARCTIC GLACIER INCOME FUND
Reconciliation of Adjusted Earnings (Loss)
Three months and nine months ended September 30, 2009 and 2008 (unaudited)

 Three Months Nine Months
 (in thousands of U.S. dollars)20092008 20092008
Earnings (loss) for the period$8,276$(6,456) $1,744$(11,086)
  Add:           
   Costs of antitrust investigations and related expenses (1) 6,928 970   8,498 2,805 
 Goodwill impairment (2) - 23,775   - 23,775 
  Adjusted earnings  15,204 18,289   10,242 15,494 
  Add dilutive effect of convertible debentures 1,784 1,836   - - 
  Diluted adjusted earnings $16,988$20,125  $10,242$15,494 
            
  Basic weighted average number of units 39,042.2 39,009.9   39,042.2 38,965.7 
  Dilutive effect of:           
   Convertible debentures 7,190.5 7,190.5   - - 
   Options 86.9 -   47.2 - 
  Diluted weighted average number of units 46,319.6 46,200.4   39,089.4 38,965.7 
            
  Earnings (loss) per unit:           
   Basic$0.21$(0.17) $0.04$(0.28)
   Diluted$0.21$(0.17) $0.04$(0.28)
            
  Adjusted earnings per unit           
   Basic$0.39$0.47  $0.26$0.40 
   Diluted$0.37$0.44  $0.26$0.40 
  1. Net of tax effect of $369 and $1,415 for the three and nine months ended September 30, 2009 (2008 - $647 and $1,870). 

  2. Net of tax effect of $nil for the three and nine months ended September 30, 2009 (2008 - $8,191). 

The Toronto Stock Exchange does not approve or disapprove of the adequacy or accuracy of this release.

Contact Information

  • Arctic Glacier Income Fund
    Keith McMahon
    President & CEO
    Toll free investor relations phone: 1-888-573-9237
    or
    Arctic Glacier Income Fund
    Doug Bailey
    Chief Financial Officer
    Toll free investor relations phone: 1-888-573-9237
    www.arcticglacier.com