Arctic Glacier Income Fund
CNSX : AG.UN

Arctic Glacier Income Fund

May 30, 2012 21:15 ET

Arctic Glacier Posts First Quarter Results

WINNIPEG, MANITOBA--(Marketwire - May 30, 2012) - Arctic Glacier Income Fund (CNSX:AG.UN) today announced results for the first quarter ended March 31, 2012.

Summary *

  • Sales increased by $3.0 million or 13% compared to prior year
  • EBITDA improved by $1.4 million compared to prior year
  • Fund delisted from the TSX and listed on the CNSX
  • Finalized agreement to settle Canadian unitholder class action for $13.75 million, to be entirely funded by the Fund's insurers
  • Initiated court supervised recapitalization in Canada under Companies' Creditors Arrangement Act and the United States under Chapter 15 of U.S. Bankruptcy Code
  • Established $50 million debtor-in-possession financing facility to fund normal business operations during recapitalization process

*Dollar amounts in U.S. currency unless otherwise specified

During the first quarter of 2012, Arctic Glacier made substantial progress in the court-supervised search for a transaction regarding the sale, refinancing or recapitalization of the business. The search was initiated by way of a sale and investor solicitation process under the Companies' Creditors Arrangement Act (CCAA).

The initial order under the CCAA was granted on February 22, 2012 by the Manitoba Court of Queen's Bench and was followed the next day by an order issued by the U.S. Bankruptcy Court for the District of Delaware that provisionally recognized the Canadian proceedings under Chapter 15 of the U.S. Bankruptcy Code. A final order recognizing the Canadian proceedings was issued by the U.S. Court on March 16, 2012.

The sale and investor solicitation process involves two phases. Phase 1, which is complete, solicited and received non-binding letters of intent from several interested parties to invest in or acquire Arctic Glacier. The potential bidders were evaluated by the Fund in consultation with the court-appointed Monitor, together with TD Securities Inc. and the Chief Process Supervisor.

"We are very pleased with the level of interest that surfaced in Phase 1," said Keith McMahon, President and CEO of Arctic Glacier. "We received indications of interest from a large group of prospective acquirers and investors. After evaluating the submissions and conducting discussions, it was determined that a number of bidders were qualified to participate in Phase 2."

During Phase 2, announced on April 12, 2012, Arctic Glacier provides additional information to qualified bidders and seeks binding offers to conclude a transaction with the Fund.

The CCAA court proceedings also provide for a stay of certain creditor claims and authorize $50 million of specialized debtor-in-possession (DIP) financing from Arctic Glacier's current lenders to enable normal business operations to be maintained during the recapitalization process.

The CCAA filing was triggered by notices issued to the Fund on February 21, 2012 by secured lenders demanding immediate repayment of all obligations under the term loan and revolving term credit facilities. Commencing with the June 30, 2011 reporting period, the Fund had been in breach of certain financial covenants governing EBITDA levels and other measures under its credit facilities.

Following extensive discussions and negotiations with secured lenders in an effort to implement a recapitalization transaction that would improve the Fund's capital structure, the Trustees determined it was necessary to pursue a recapitalization under court supervision. The secured lenders supported this decision and the sale and investment process initiated under the CCAA.

First Quarter 2012 Review

Sales in the first quarter of 2012 totaled $25.3 million, an increase of $3.0 million or 13% from the same period in 2011. Excluding the effects of currency, sales in existing markets were up by $3.1 million as warmer winter weather this year drove sales volumes higher. The weaker Canadian dollar decreased the U.S. dollar value of sales generated in Canadian markets by $0.1 million.

Cost of sales totaled $39.8 million, an increase of $1.0 million or 3% compared to the same quarter of 2011. Excluding amortization, cost of sales was up by $1.6 million, primarily due to higher sales volumes. Amortization and depreciation expense decreased by $0.6 million as certain intangible assets were written off in 2011. The weaker Canadian dollar decreased the U.S. dollar value of costs incurred in Canadian markets by $0.1 million.

General and administrative expenses totaled $2.6 million, versus $2.5 million in the same period of 2011. The change was primarily due to higher staffing costs, offset by lower professional fees.

Finance costs of $24.4 million were $15.4 million higher than in the same quarter last year. The increase was driven by non-cash finance costs that mainly consisted of accrued interest and amortization of deferred financing charges. Offsetting the increase were lower cash finance costs, which decreased due to interest payable being accrued rather than paid out.

Other costs for the quarter totaled $21.3 million, comprised almost entirely of outlays related to reorganization activities. Other costs for the same quarter of 2011 totaled $10.3 million.

The packaged ice business in Arctic Glacier's markets -- Canada and the northeastern, central and western U.S. -- is highly seasonal. Demand for packaged ice in the first quarter is low, characterized by negative EBITDA and significant losses. Arctic Glacier incurs approximately 25% of its annual fixed costs in the first quarter, but typically generates less than 10% of its annual sales during this period. For the first quarter of 2012, EBITDA was negative $7.9 million, compared with negative $9.2 million for the same quarter last year.

The Fund's net losses are significantly influenced by reorganization costs, DIP financing fees, expenses of antitrust investigations and related litigation, outlays related to the review of financing and strategic alternatives and the writeoff of deferred finance fees. As these costs are not representative of the Fund's ongoing operations, a more appropriate measure of operating performance adjusts results to remove these costs. Accordingly, adjusted loss in the first quarter of 2012 was $26.7 million, compared to an adjusted loss of $31.9 million last year. That was equivalent to a loss of $0.08 (basic and diluted) per unit, compared to $0.82 (basic and diluted) last year. The decrease in adjusted loss was primarily due to a smaller first-quarter EBITDA deficiency, decreased amortization expense and an unrealized loss from mark-to-market adjustments of the fair value of convertible debentures in the first quarter of 2011. These factors were partly offset by higher finance costs and a reduced income tax recovery. The loss per unit was impacted by the increased number of units outstanding following settlement of the convertible debentures in 2011.

Including all expenses, net loss for the first quarter of 2012 totaled $62.7 million or $0.18 (basic and diluted) per unit, compared to a net loss of $35.6 million or $0.91 (basic and diluted) per unit in the same period of 2011. The difference in per-unit results is partly due to a higher number of units outstanding in the period just ended, owing to debenture conversion in mid-2011.

Financial Position

During the first quarter of 2012 the Fund arranged a $50.0 million DIP financing facility with its existing secured lenders as part of the CCAA and U.S. Chapter 15 proceedings. The facility provides funding for ongoing working capital, capital expenditure requirements and general corporate purposes during the sale and recapitalization process. At March 31, 2012, draws of $12.0 million had been made on the DIP facility, leaving the Fund with $38.0 million in undrawn availability and $5.3 million of cash on hand.

At March 31, 2012, the Fund had a working capital deficiency of $254.5 million. This resulted primarily from the classification of $219.4 million of long-term debt as current liabilities at December 31, 2011. The classification was required because of the Fund's default on secured loan agreements, which resulted in lenders demanding immediate repayment of all obligations under the term loan and revolving term credit facilities.

At March 31, 2012, Arctic Glacier's net debt was $236.1 million versus $192.2 million (excluding convertible debentures) at the same time last year. The Fund's net debt to EBITDA ratio at March 31, 2012 was 5.66 to 1 as defined by the revolving term credit facility, compared to 4.50 to1 at the same time last year. The maximum permitted covenant ratio under the revolving term credit facility and term loan is 5.0 to 1.

U.S. DOJ Investigation and Related Litigation

During the first quarter of 2012, Arctic Glacier took a major step forward in resolving civil litigation that arose following the antitrust investigations. On February 2, 2012, the parties agreed to settle the Canadian unitholder class action for a sum of C$13.75 million, to be entirely funded by the carriers of the Fund's directors' and officers' liability insurance, without the Fund admitting liability or making any monetary contribution.

All U.S. Justice Department antitrust investigations have been either settled or concluded with no action taken. Several state investigations remain outstanding but there has been no activity in this area for some time.

Outlook

Arctic Glacier's most pressing concern during 2012 will be to complete the court-supervised recapitalization that commenced in the first quarter through the initiation of a sale and investor solicitation process via CCAA and U.S. Chapter 15 proceedings.

The CCAA and Chapter 15 proceedings and the DIP financing facility have provided the Fund and its subsidiaries with temporary relief and access to financial resources to enable it to continue to operate with minimal disruption while the court supervised recapitalization of the business is undertaken. Arctic Glacier expects to maintain all operations at their normal capacity in both Canada and the United States during the course of these proceedings. No layoffs or lease terminations are currently planned and all suppliers of goods and services are intended to be paid as usual, including amounts owed to such suppliers prior to the CCAA filing.

On April 12, 2012, the Fund commenced Phase 2 of the sale and investment solicitation process that is expected to culminate in interested parties submitting final and binding offers regarding a transaction with the Fund. The deadline for offers to be received in Phase 2 is June 4, 2012.

Going forward, Arctic Glacier's principal operating activities are focused on:

  • Adding new sales volumes at attractive margins in retail and non-retail channels in current markets;
  • Working with customers to expand product categories and improve product mix to increase sales and profitability; and,
  • Pursuing technology-based initiatives in manufacturing and distribution to improve efficiencies and reduce costs.

At the same time, management will continue to carefully manage the Fund's cash position, operating costs and capital expenditures to provide liquidity to support regular operations.

As the Fund moves toward recapitalization, Arctic Glacier's core objectives remain unchanged: to provide value to customers through superior product quality and industry leading customer service.

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 39 production plants and 47 distribution facilities across Canada and the northeast, central and western United States servicing more than 75,000 retail locations.

Arctic Glacier Income Fund trust units are listed on the Canadian National Stock Exchange under the trading symbol AG.UN. There are 350.3 million trust units outstanding.

Forward-Looking Statements

This news release contains statements that constitute forward-looking information within the meaning of applicable securities legislation. All statements other than statements of historical fact are forward-looking statements. The forward-looking information in this news release includes, without limitation, statements regarding: (i) the Fund's CCAA and Chapter 15 proceedings; (ii) the Fund's financing arrangements and ability to meet obligations; and (iii) the maintenance of normal business operations. Such forward-looking statements reflect management's current beliefs and are based on information currently available to management.

Forward-looking information is presented for the purpose of assisting readers of this news release in understanding the Fund's financial condition and results of operations and its strategies, priorities and objectives and may not be appropriate for other purposes. Forward-looking information involves significant risks and uncertainties. Actual results, events, performances, achievements and developments are likely to differ, and may differ materially, from those expressed or implied by the forward-looking information contained in this news release. The forward-looking information contained in this news release is based on a number of assumptions which may prove to be incorrect, including, but not limited to, the potential impact on the Fund of (i) CCAA and Chapter 15 proceedings, (ii) the restructuring of the Fund's debt obligations or (iii) the ability of the Fund to maintain normal business operations. Although the forward-looking statements contained in this news release are based upon what management believes to be reasonable assumptions, the Fund cannot assure readers that actual results will be consistent with these forward-looking statements. Note that there can be no assurance that the Fund will successfully complete a sale or restructuring, or if completed, that such a transaction will be completed on terms favorable to the Fund or its unit holders. All of the foregoing indicate the existence of a material uncertainty that may cast significant doubt on the ability of the Fund to continue as a going concern.

The forward-looking statements contained herein are inherently subject to significant known and unknown risks and uncertainties and other factors that could cause actual results or events to differ from historical or anticipated results or events. These risk factors and others are discussed in the MD&A of the Fund for the three month period ended March 31, 2012 and the AIF of the Fund for the year ended December 31, 2011.

The forward-looking statements contained herein are expressly qualified in their entirety by this cautionary statement. These forward-looking statements are made as at the date of this news release, and, other than as required by applicable securities legislation, the Fund assumes no obligation to update or revise them, either publicly or otherwise, to reflect new events, information or circumstances, despite the fact that new events, information or circumstances may cause the Fund's views to change.

Non-IFRS Financial Measures

EBITDA and adjusted earnings (loss) are not recognized measures under International Financial Reporting Standards (IFRS). EBITDA is defined as earnings before finance costs, income taxes, depreciation, amortization, gains or losses on foreign exchange, asset impairment charges and non-operating costs related to reorganization, antitrust investigations and related litigation, review of financing and strategic alternatives and other non-recurring expenses. EBITDA is a performance measure used by many investors to provide an indication of cash generated 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 (loss) is defined as earnings (loss) after adding back the after-tax impact of reorganization costs, debtor in possession financing fees, costs of antitrust investigations and related litigation, cost of review of financing and strategic alternatives, asset impairment charges, loan prepayment penalty and write-off of deferred finance fees. Adjusted earnings (loss) is used by management to evaluate the ongoing profitability of the Fund by eliminating the effect of these material non-operating costs. Investors should be cautioned that EBITDA and adjusted earnings (loss) should not be construed as alternatives to earnings, cash from operating activities or other financial measures determined in accordance with IFRS as indicators of the Fund's performance. The Fund's method of calculating EBITDA and adjusted earnings (loss) may differ from other companies and income trusts and, accordingly, may not be comparable to measures used by them.

ARCTIC GLACIER INCOME FUND
Interim Condensed Consolidated Statements of Financial Position
As at March 31, 2012 and 2011 (unaudited) and December 31, 2011 (audited)
(thousands of U.S. dollars) March 31, 2012 March 31, 2011 December 31, 2011
ASSETS
Current assets
Cash $ 5,318 $ 2,156 $ 22,743
Accounts receivable 10,232 9,037 12,109
Inventories 14,015 14,598 10,091
Prepaids 10,273 4,448 5,106
39,838 30,239 50,049
Deferred tax asset - 13,470 -
Property, plant and equipment 126,537 135,798 129,183
Intangible assets 69,189 100,806 73,258
Goodwill 44,032 72,303 43,630
$ 279,596 $ 352,616 $ 296,120
LIABILITIES AND UNITHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable and accrued liabilities $ 13,232 $ 19,236 $ 15,733
Provisions 230 260 309
Antitrust related litigation settlements 12,005 13,741 11,667
Other financial liabilities 31,060 5,907 11,053
Convertible debentures - 84,248 -
Principal due within one year on long-term debt 237,816 2,920 207,668
294,343 126,312 246,430
Unit options - 182 -
Warrants - 430 -
Long-term debt 3,637 191,401 5,016
Deferred tax liability 511 4,605 663
Unitholders' equity (deficit)
Units 389,922 325,170 389,922
Deficit (401,265 ) (289,317 ) (338,577 )
Accumulated other comprehensive loss (7,552 ) (6,167 ) (7,334 )
(18,895 ) 29,686 44,011
$ 279,596 $ 352,616 $ 296,120
ARCTIC GLACIER INCOME FUND
Interim Condensed Consolidated Statements of Operations
Three months ended March 31, 2012 and 2011 (unaudited)
(thousands of U.S. dollars, except per unit amounts) 2012 2011
Sales $ 25,281 $ 22,281
Cost of sales 39,765 38,767
(14,484 ) (16,486 )
General and administrative expenses 2,626 2,491
Operating earnings (17,110 ) (18,977 )
Finance costs 24,386 8,994
Other costs 21,309 10,285
Loss before income taxes (62,805 ) (38,256 )
Income taxes
Current 45 112
Reduction (162 ) (2,744 )
(117 ) (2,632 )
Loss for the period $ (62,688 ) $ (35,624 )
Loss per unit - basic $ (0.18 ) $ (0.91 )
Loss per unit - diluted $ (0.18 ) $ (0.91 )
ARCTIC GLACIER INCOME FUND
Interim Condensed Consolidated Statements of Comprehensive Loss
Three months ended March 31, 2012 and 2011 (unaudited)
(thousands of U.S. dollars) 2012 2011
Loss for the period $ (62,688 ) $ (35,624 )
Other comprehensive loss
Foreign currency translation adjustments (218 ) (2,095 )
Comprehensive loss for the period $ (62,906 ) $ (37,719 )
ARCTIC GLACIER INCOME FUND
Interim Condensed Consolidated Statements of Changes in Unitholders' Equity (Deficit)
Three months ended March 31, 2012 and 2011 (unaudited)
(thousands of U.S. dollars) 2012 2011
Units
Balance, beginning and end of period $ 389,922 $ 325,170
Deficit
Balance, beginning of period (338,577 ) (253,693 )
Loss for the period (62,688 ) (35,624 )
Balance, end of period (401,265 ) (289,317 )
Accumulated other comprehensive loss
Balance, beginning of period (7,334 ) (4,072 )
Other comprehensive loss (218 ) (2,095 )
Balance, end of period (7,552 ) (6,167 )
Total Unitholders' Equity (Deficit) $ (18,895 ) $ 29,686
ARCTIC GLACIER INCOME FUND
Interim Condensed Consolidated Statements of Cash Flows
Three months ended March 31, 2012 and 2011 (unaudited)
(thousands of U.S. dollars) 2012 2011
Cash from (used in):
Operating activities
Loss for the period $ (62,688 ) $ (35,624 )
Adjustments for:
Depreciation and amortization 9,168 9,757
Finance costs 24,386 8,994
Interest paid (778 ) (9,109 )
Debtor-in-possession fees paid to lenders (1,033 ) -
Loan prepayment penalty 13,505 -
Antitrust related litigation settlements - 1,993
Recognition of rents on a straight-line basis 22 179
Loss (gain) on disposals of non-current assets 67 (7 )
Unit-based compensation expense - 99
Unrealized loss on convertible debentures - 7,656
Gain on settlement of acquisition payable - (1,091 )
Deferred income tax reduction (162 ) (2,744 )
(17,513 ) (19,897 )
Changes in non-cash working capital items (9,828 ) 2,137
(27,341 ) (17,760 )
Investing activities
Additions to property, plant and equipment (2,059 ) (2,759 )
Proceeds from disposal of property, plant and equipment 35 80
Additions to intangibles - (23 )
(2,024 ) (2,702 )
Financing activities
Proceeds from long-term debt 12,023 17,000
Principal repayments on long-term debt (50 ) (1,051 )
Payment of deferred financing charges - (2,587 )
11,973 13,362
Foreign currency translation adjustments (33 ) 16
Decrease in cash (17,425 ) (7,084 )
Cash, beginning of period 22,743 9,240
Cash, end of period $ 5,318 $ 2,156
ARCTIC GLACIER INCOME FUND
Interim Schedule of Distributable Cash
Three months ended March 31, 2012 and 2011 (unaudited)
(thousands of U.S. dollars, except per unit amounts) 2012 2011
Cash used in operating activities $ (27,341 ) $ (17,760 )
Adjustments:
Changes in working capital items(1) 9,828 (2,137 )
Accrued interest(1) (6,514 ) 1,511
Less sustaining capital expenditures(2) (1,394 ) (1,584 )
Distributable cash deficiency (25,421 ) (19,970 )
Add back reorganization costs 7,733 -
Add back costs of antitrust investigations and related litigation(3) 71 1,227
Add back costs of review of financing and strategic alternatives - 500
Distributable cash deficiency before deducting costs of reorganization, antitrust investigation and related litigation and review of financing and strategic alternatives $ (17,617 ) $ (18,243 )
Weighted average number of units 350,318 39,043
Distributable cash deficiency per unit $ (0.07 ) $ (0.51 )
Distributable cash deficiency per unit before deducting costs of reorganization, antitrust investigation and related litigation and review of financing and strategic alternatives $ (0.05 ) $ (0.47 )
(1) Changes in non-cash working capital items and accrued interest 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, and thus will not significantly affect the level of cash that would be available for distribution.
(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) Net costs of antitrust investigation and related litigation added back are comprised as follows:
2012 2011
Cost of antitrust investigations and related litigation $ 71 $ 3,220
Deduct discounted present value of litigation settlements - (1,993 )
$ 71 $ 1,227
ARCTIC GLACIER INCOME FUND
Reconciliation of Adjusted Loss
Three months ended March 31, 2012 and 2011 (unaudited)
(thousands of U.S. dollars, except per unit amounts) 2012 2011
Loss for the period $ (62,688 ) $ (35,624 )
Add:
Reorganization costs 21,238 -
Debtor in possession financing fees 1,033 -
Costs of antitrust investigations and related expenses(1) 71 3,220
Cost of review of financing and strategic alternatives - 500
Write off of deferred finance fees(2) 13,601 -
Adjusted loss for the period $ (26,745 ) $ (31,904 )
Loss per unit - basic and diluted $ (0.18 ) $ (0.91 )
Adjusted loss per unit - basic and diluted $ (0.08 ) $ (0.82 )
(1) Net of tax effect of $nil for the three months ended March 31, 2012 and 2011 since future tax recoveries are offset by valuations against future tax assets in U.S. subsidiaries which may not be fully realized
(2) Net of tax effect of $0.2 million in 2012 (2011 - $nil).

Contact Information

  • Arctic Glacier Income Fund
    Keith McMahon
    President & CEO
    Toll free investor relations phone: 1-888-573-9237

    Arctic Glacier Income Fund
    Doug Bailey
    Chief Financial Officer
    Toll free investor relations phone: 1-888-573-9237
    www.arcticglacier.com