Arctic Glacier Income Fund

Arctic Glacier Income Fund

March 24, 2005 07:00 ET

Arctic Glacier Earns Record $14.3 Million In 2004


NEWS RELEASE TRANSMITTED BY CCNMatthews

FOR: ARCTIC GLACIER INCOME FUND

TSX SYMBOL: AG.UN

MARCH 24, 2005 - 07:00 ET

Arctic Glacier Earns Record $14.3 Million In 2004

WINNIPEG, MANITOBA--(CCNMatthews - March 24, 2005) - Arctic Glacier
Income Fund (TSX:AG.UN)

Acquisitions fuel 33% increase in net earnings

The Arctic Glacier Income Fund (TSX:AG.UN) today announced results for
the fourth quarter and year ended December 31, 2004.

Highlights for 2004

- Record sales of $114.4 million

- Record net earnings of $14.3 million

- Completed four acquisitions involving 19 companies

- Established leading market position in Michigan including key Detroit
market

- Expanded leading market position in New York City and northern New
Jersey

- Improved tax efficiency of cash flow from U.S. subsidiaries to Fund

- Maintained $1.07 per unit annualized distribution rate

- Fixed interest rates to January 2010 with new US$60 million senior
note issue

- Signed franchising agreement with largest ice manufacturer in St.
Louis, Missouri market

"We view 2004 as a year of challenges and achievements," said Robert
Nagy, President and CEO of Arctic Glacier Inc., the Fund's operating
company. "The challenges were derived from unfavorable weather in our
principal markets. However, our acquisition program resulted in record
year-end highs in several categories. The strong growth and sustained
profitability achieved in 2004 reflect the soundness of our strategy,
the efficiency of our operations and the strength of our team."

Unseasonably cool and wet weather in almost all of Arctic Glacier's
markets during the key summer season resulted in lower sales of packaged
ice than anticipated during 2004. The financial contribution of
acquisitions made in 2003 and early 2004 were partly offset by the
adverse effect of the unseasonable weather on expected results. In spite
of this challenge, the Fund still posted record levels for sales,
EBITDA, earnings and distributable cash.

The two largest acquisitions during 2004 were completed in late
December, which was too late in the year to contribute to distributable
cash. An additional restraint on distributable cash was the dilutive
effect of units from the Fund's October 2003 equity offering, for which
the proceeds were not deployed until late in 2004. These factors, in
addition to the poor weather conditions, resulted in distributable cash
per unit falling significantly below management's expectations.

"Distributable cash for 2004 amounted to $0.96 per unit. With the
expectation that the remaining proceeds from the 2003 equity offering
would be fully deployed by the end of 2004 and the expected return to
more normal weather patterns, the Fund maintained distributions at an
annualized rate of $1.07 per unit," said Keith McMahon, Executive Vice
President and CFO of Arctic Glacier. "The result was a payout ratio of
111%. During 2005, our acquisitions completed in 2004 will be fully
accretive to distributable cash. The strong and sustainable cash flow
that results is expected to exceed distributions, resulting in a payout
ratio of less than 100% during 2005."

Fourth Quarter Operational Review

During the fourth quarter, Arctic Glacier continued to execute its
growth strategy in key U.S. markets as it enhanced its operating and
financial position in those markets.

The Fund acquired the assets and operations of the Losquadro Ice Group
of New York City in December, with annual sales of approximately $10
million. This acquisition clearly establishes Arctic Glacier as the
market leader in New York City, expanding the Fund's presence to
Brooklyn, Queens, Staten Island, Long Island and northern New Jersey.

Late in December, Arctic Glacier completed the acquisition of the
Michigan-based Party Time Ice group of companies, with annual sales of
approximately $20 million. This acquisition, the largest in the history
of Arctic Glacier, provides the Fund with a leading market position in
Michigan, and in particular the densely populated market of Detroit. It
also establishes a new platform for future regional expansion.

These acquisitions were funded with the remaining undeployed proceeds of
the October 2003 equity offering as well as proceeds from a senior
secured note facility established with John Hancock Life Insurance
Company in December 2004.

Fourth Quarter Financial review

Sales in the fourth quarter totaled $16.5 million, a 5% increase from
the same period in 2003. Acquisitions contributed $1.3 million in sales,
while previously serviced markets gained $0.2 million. This was
partially offset by the stronger Canadian dollar, which reduced the
volume of reported sales by $0.8 million.

Operating results for the fourth quarter improved from last year. The
improvement is primarily the result of savings realized from the
rationalization of production facilities in Pennsylvania, integration of
distribution networks in acquired businesses, and operational changes
made in the latter part of the year. As a result, EBITDA increased to
$1.4 million, compared to negative $0.6 million for the same period in
2003.

Amortization increased 21% to $3.2 million and interest expense
increased to $0.6 million from $0.3 million in 2003 as a result of
acquisitions and the resultant debt financing.

Earnings for the fourth quarter totaled $0.2 million, compared to a loss
of $1.3 million for the same period in 2003. On a per-unit basis,
earnings were $0.01 per unit (basic and diluted) versus a loss of $0.06
in 2003.

Fiscal 2004 Financial Review

Powered by acquisitions completed in late 2003 and early 2004, revenues
increased 18% to a record $114.4 million. Acquired operations
contributed $24.3 million to sales, offsetting a decrease of $3.8
million in previously serviced markets due to poor weather and a
reduction of reported sales by $3.3 million due to the stronger Canadian
dollar.

EBITDA increased 15% to a record $28.1 million as a result of the
contribution of acquired operations. EBITDA margin, at 24.5% of sales,
was down from 25.2% in 2003 primarily as a result of lower margins
associated with newly acquired operations over the first 18 to 24 months
after acquisition until the full effect of cost savings and efficiencies
are realized. Margins were also eroded by reduced operational and fixed
cost efficiency resulting from the weather-related reduction in sales
volumes, and increased fuel and packaging costs.

Amortization increased 18% to $12.0 million in 2004 as a result of
acquisitions and capital investment, combined with costs associated with
amortizing the value assigned to new customer relationships and
non-competition agreements arising from acquisitions. Interest expense
totaled $1.8 million, compared to $1.6 million in 2003, as a result of
higher debt levels to finance acquisitions.

Net earnings advanced 33% to a new high of $14.3 million, mainly due to
acquired operations and gains on currency management. On a per-unit
basis, earnings (basic and diluted) increased to $0.61 from $0.59.

Distributable cash increased 25% to a record $22.3 million. However, the
dilutive effect of the higher number of units in 2004 from the
undeployed proceeds of the October 2003 equity offering led to
distributable cash per unit of $0.96, compared to $0.98 in 2003.

Financial Position

In December, Arctic Glacier established a long-term senior secured note
facility with John Hancock Life Insurance Company. Under this facility,
the Fund issued US$60 million of notes, maturing in January 2010, with a
fixed interest rate of 5.35%, which provides certainty with respect to
interest rate exposure on a significant portion of the Fund's debt. This
enhances stability of cash flow and distributions to unitholders.

As at December 31, 2004, Arctic Glacier's total debt was $112.8 million,
compared to $32.0 million at the same time last year, with the increase
due primarily to the Fund's acquisition and growth program during the
year. Net debt, defined as total long-term debt and obligations under
capital leases less cash, was $98.0 million, up from $21.0 million in
2003. Included in the 2004 figures is $13 million of temporary bridge
financing under existing credit facilities.

The Fund's net debt to EBITDA ratio at year end was 2.6:1, or 2.2:1
excluding the temporary bridge financing. This compares to 0.9:1 at
December 31, 2003, or 1.8:1 excluding the undeployed equity capital. The
Fund had total working capital of $15.8 million, including $14.8 million
in cash, at year end 2004, versus $12.1 million of working capital one
year ago.

Outlook

"With the proceeds of the October 2003 equity offering fully deployed
and contributing to cash flow, we expect the acquisitions completed
during 2004 will be accretive to distributable cash during 2005," said
Mr. Nagy. "In addition, we will continue to focus on maximizing
operational efficiencies. These factors, combined with a return to more
normal weather patterns, are expected to enable the Fund to generate
sufficient cash to exceed the current annualized distribution level of
$1.10 per unit."

During 2005, management will continue to implement the Fund's three-part
growth strategy. It consists of actively investigating accretive
acquisition opportunities, improving margins of acquired operations
through rationalization and investments in improved product quality, and
franchising the Arctic Glacier® Premium Ice brand.

Arctic Glacier will discuss fourth quarter and year end results for 2004
during a conference call with a live audio webcast for investors and
analysts on Thursday, March 24 at 11 a.m. (EST). To access the
simultaneous webcast, please visit Arctic Glacier's website at
www.arcticglacierinc.com. Please note the webcast allows participants to
listen only.

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 under the brand name of
Arctic Glacier® Premium Ice. Arctic Glacier operates 24 production
plants and 39 distribution facilities across Canada and the central,
midwest and northeastern United States servicing more than 50,000 retail
accounts.

Arctic Glacier Income Fund trust units are listed on the Toronto Stock
Exchange under the trading symbol AG. There are 23.3 million trust units
outstanding.

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.

EBITDA and distributable cash are not recognized measures under Canadian
generally accepted accounting principles (GAAP). EBITDA is defined as
earnings before interest, taxes, amortization, non-recurring expenses
and acquisition integration charges that are one-time costs unique to
each individual acquisition. EBITDA is a performance metric used by many
investors 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.
Distributable cash is a performance metric used by many investors to
summarize the funds available for distribution to unitholders in an
income trust. Investors should be cautioned that EBITDA and
distributable cash should not be construed as alternatives to net
income, cash from operations or other financial measures determined in
accordance with GAAP as indicators of the Fund's performance. The Fund's
method of calculating EBITDA 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 December 31, 2004 and 2003 (audited)

(thousands) 2004 2003
---------------------------------------------------------------------
ASSETS
Current assets
Cash $ 14,755 $ 11,032
Accounts receivable 7,845 6,417
Inventories 5,961 3,515
Prepaid expenses 2,180 2,213
---------------------------------------------------------------------
30,741 23,177
Property, plant and equipment 120,717 89,061
Other assets 3,739 2,343
Intangibles 25,695 2,735
Goodwill 106,150 97,341
---------------------------------------------------------------------
$ 287,042 $ 214,657
---------------------------------------------------------------------
---------------------------------------------------------------------

LIABILITIES AND UNITHOLDERS' EQUITY

Current liabilities
Accounts payable and accrued liabilities $ 12,325 $ 8,366
Distributions payable to unitholders 2,083 2,076
Obligations under capital leases
due within the fiscal year 38 427
Principal due within the fiscal
year on long-term debt 514 203
---------------------------------------------------------------------
14,960 11,072
Obligations under capital leases - 38
Long-term debt 112,252 31,377
Future income taxes 10,426 5,701

Unitholders' equity
Capital contributions 201,721 200,905
Contributed surplus 334 -
Cumulative earnings 22,327 8,026
Cumulative distributions (57,462) (32,505)
Cumulative translation adjustment (17,516) (9,957)
---------------------------------------------------------------------
149,404 166,469
---------------------------------------------------------------------
$ 287,042 $ 214,657
---------------------------------------------------------------------
---------------------------------------------------------------------



ARCTIC GLACIER INCOME FUND
Interim Consolidated Statements of Operations
Three and twelve months ended December 31, 2004 and 2003

Three Months Twelve Months
------------------------------------------------------------------------
(unaudited) (audited)
(thousands, except per
unit amounts) 2004 2003 2004 2003
------------------------------------------------------------------------
Sales $ 16,484 $ 15,740 $114,434 $ 97,170
Cost of sales, selling,
general and administration
expenses 15,061 16,387 86,384 72,708
------------------------------------------------------------------------
Earnings (loss) before
the undernoted 1,423 (647) 28,050 24,462
Amortization 3,205 2,656 12,044 10,225
Interest 613 303 1,784 1,609
Acquisition integration
charges 147 96 462 213
Loss (gain) on disposal of
property, plant & equipment 77 331 (286) 387
Gain on foreign exchange
options (334) - (1,235) -
Debt settlement costs 518 - 518 -
Non-recurring expenses 10 (35) 119 241
Reduction in cumulative
translation adjustment 585 - 585 -
------------------------------------------------------------------------
Earnings (loss) before
income taxes (3,398) (3,998) 14,059 11,787
Income tax expense (reduction)
Current 153 346 1,542 1,437
Future (3,766) (3,056) (1,784) (414)
------------------------------------------------------------------------
(3,613) (2,710) (242) 1,023
------------------------------------------------------------------------
Earnings (loss) for the period $ 215 $ (1,288) $ 14,301 $ 10,764
------------------------------------------------------------------------
------------------------------------------------------------------------

Earnings (loss) per unit
- basic and diluted $ 0.01 $ (0.06) $ 0.61 $ 0.59
------------------------------------------------------------------------



Interim Consolidated Statements of Cumulative Earnings
Three and twelve months ended December 31, 2004 and 2003

Three Months Twelve Months
------------------------------------------------------------------------
(unaudited) (audited)
(thousands) 2004 2003 2004 2003
------------------------------------------------------------------------
Cumulative earnings (deficit),
beginning of period $ 22,112 $ 9,314 $ 8,026 $ (2,738)
Earnings (loss) for
the period 215 (1,288) 14,301 10,764
------------------------------------------------------------------------
Cumulative earnings,
end of period $ 22,327 $ 8,026 $ 22,327 $ 8,026
------------------------------------------------------------------------
------------------------------------------------------------------------



ARCTIC GLACIER INCOME FUND
Interim Consolidated Statements of Cash Flows
Three and twelve months ended December 31, 2004 and 2003

Three Months Twelve Months
------------------------------------------------------------------------
(unaudited) (audited)
(thousands) 2004 2003 2004 2003
------------------------------------------------------------------------
Cash from (used in):
Operating activities
Earnings (loss) for
the period $ 215 $ (1,288) $ 14,301 $ 10,764
Adjustments for:
Amortization 3,205 2,656 12,044 10,225
Loss (gain) on disposal of
property, plant & equipment 77 331 (286) 387
Unit based compensation
expense 51 - 334 -
Unrealized losses (gains)
on foreign exchange options 69 - (200) -
Non-cash portion of debt
settlement expenses 518 - 518 -
Non-cash reduction in
cumulative translation
adjustment 585 - 585 -
Future income taxes
reduction (3,766) (3,056) (1,784) (414)
------------------------------------------------------------------------
Funds from operations 954 (1,357) 25,512 20,962
Changes in working
capital items 9,638 7,491 1,518 2,178
------------------------------------------------------------------------
10,592 6,134 27,030 23,140
------------------------------------------------------------------------

Investing activities
Additions to property,
plant and equipment (3,752) (3,153) (14,940) (8,630)
Proceeds from disposal of
property, plant and
equipment 111 295 908 337
Additions to other assets (2,725) (149) (2,999) (800)
Additions to intangibles (13) (134) (13) (137)
Additions to goodwill (52) (65) (196) (65)
Acquisition of business
operations (51,274) (16,203) (63,526) (50,834)
------------------------------------------------------------------------
(57,705) (19,409) (80,766) (60,129)
------------------------------------------------------------------------

Financing activities
Proceeds from long-term
debt 73,550 2,723 100,156 32,570
Principal repayments on
long-term debt (15,914) (31,267) (16,073) (44,905)
Principal payments under
capital lease obligations (12) (110) (426) (338)
Units issued, net of
issue costs 213 47,302 816 70,954
Cash distributions paid (6,246) (5,783) (24,950) (19,038)
------------------------------------------------------------------------
51,591 12,865 59,523 39,243
------------------------------------------------------------------------

Foreign exchange loss on
cash held in foreign currency (1,623) (1,613) (2,064) (3,141)
------------------------------------------------------------------------
Increase (decrease) in cash 2,855 (2,023) 3,723 (887)
Cash, beginning of period 11,900 13,055 11,032 11,919
------------------------------------------------------------------------
Cash, end of period $ 14,755 $ 11,032 $ 14,755 $ 11,032
------------------------------------------------------------------------
------------------------------------------------------------------------



ARCTIC GLACIER INCOME FUND
Schedule of Distributable Cash
Three and twelve months ended December 31, 2004 and 2003 (unaudited)

Three Months Twelve Months
------------------------------------------------------------------------
(thousands, except per
unit amounts) 2004 2003 2004 2003
------------------------------------------------------------------------
Cash from operating
activities $ 10,592 $ 6,134 $ 27,030 $ 23,140
Adjustments:
Changes in working
capital items (9,638) (7,491) (1,518) (2,178)
------------------------------------------------------------------------
954 (1,357) 25,512 20,962
Less sustaining capital
expenditures, net of
dispositions (304) 343 (3,221) (3,168)
------------------------------------------------------------------------
Distributable cash $ 650 $ (1,014) $ 22,291 $ 17,794
------------------------------------------------------------------------
------------------------------------------------------------------------

Weighted average number
of units 23,341 22,837 23,312 18,173
Distributable cash per unit $ 0.03 $ (0.04) $ 0.96 $ 0.98

Distributions declared $ 6,248 $ 6,227 $ 24,957 $ 19,744
Distributions declared
per unit $ 0.27 $ 0.27 $ 1.07 $ 1.07


-30-

Contact Information

  • FOR FURTHER INFORMATION PLEASE CONTACT:
    Arctic Glacier Income Fund
    Robert Nagy
    President & CEO
    Toll-free investor relations phone: 1-888-573-9237
    or
    Arctic Glacier Income Fund
    Keith McMahon
    Executive VP & Chief Financial Officer
    Toll-free investor relations phone: 1-888-573-9237