Arctic Glacier Income Fund
TSX : AG.UN

Arctic Glacier Income Fund

August 11, 2009 07:00 ET

Arctic Glacier Posts Second Quarter Results

WINNIPEG, MANITOBA--(Marketwire - Aug. 11, 2009) - Arctic Glacier Income Fund (TSX:AG.UN) today announced results for the second quarter ended June 30, 2009.

Summary (i)

- Second quarter sales decreased by $6.5 million or 8%

- Second quarter EBITDA decreased $0.3 million or 1%

- Six month EBITDA increased by $0.4 million or 2%

- Second quarter EBITDA margin increased to 33.7% of sales from 31.2%

- Completed manufacturing automation in Fremont, California plant

(i)All dollar amounts in U.S. currency unless otherwise specified

"Poor weather conditions in many markets during the last half of the quarter, combined with the economic downturn, reduced sales volumes during the second quarter," said Keith McMahon, President and CEO of Arctic Glacier Inc., the Fund's operating company. "Nonetheless, largely because of our close attention to operating costs, we continued to generate strong cash flows and improved margins. As a result, the Fund maintained profitability in a challenging economic environment."

"We will continue to strengthen Arctic Glacier by closely monitoring expenses, enhancing liquidity and reducing balance sheet leverage," added Doug Bailey, the Fund's Chief Financial Officer. "Our continued management of finances and attention to monitoring costs will help us mitigate the challenging business environment and position us well for the future."

Second Quarter 2009 Review

Sales in the second quarter totaled $70.4 million, a decrease of $6.5 million or 8% compared to the same period in 2008. The change was mainly attributable to a sales reduction in previously serviced markets of $5.4 million or 7% as a result of lower volumes from the slow economy, unseasonably cool temperatures and excessive rainfall in many markets. In addition, the weaker Canadian dollar decreased the U.S. dollar value of sales generated in Canadian markets by $1.6 million. The decrease was partially offset by the acquisition of Koldkist Ice in May 2008, which contributed $0.5 million to sales during the second quarter of 2009 until the anniversary date of the acquisition, after which sales are classified with previously serviced markets. Six-month sales decreased by 7% from the same period in 2008 to $93.5 million.

Cost of sales, selling, general and administration expenses totaled $46.7 million, a reduction of $6.2 million or 12% from the second quarter of 2008. That equated to 66.3% of sales, down from 68.8% last year. The decline was primarily the result of an expense reduction in previously serviced markets of $5.1 million as a result of reduced sales and production volumes, more favorable fuel costs and reduced labor costs. In addition, the weaker Canadian dollar decreased the U.S. dollar value of costs incurred in Canadian operations by $1.6 million. Acquisitions added $0.5 million to new operating costs in the second quarter of 2009 prior to the anniversary date of the acquisition. For the six-month period, cost of sales, selling, general and administration expenses decreased by $7.9 million to $76.3 million.

EBITDA during the second quarter decreased by $0.3 million or 1% to $23.7 million. The change was mainly due to an EBITDA reduction in previously serviced markets as a result of lower volumes from the slow economy and poor weather. Six-month EBITDA increased by 2% or $0.4 million to $17.2 million.

EBITDA margins increased to 33.7% of sales for the second quarter of 2009 compared to 31.2% for the same period of 2008 as a result of more favorable fuel costs, reduced labor expenses and other cost savings initiatives. For the six-month period, EBITDA margin increased to 18.4% in 2009 compared to 16.7% for the first six months of 2008.

Legal fees and other expenses in connection with the antitrust investigation by the U.S. Department of Justice ("DOJ") Antitrust Division, various state attorneys general and the DOJ Civil Division plus related civil litigation totaled $1.2 million for the second quarter of 2009. The year-to-date total at June 30 was $2.6 million.

Adjusted earnings for the second quarter totaled $7.2 million, compared to $9.0 million in the same quarter of 2008. That was equivalent to $0.18 per unit (basic and diluted), compared to $0.23 last year. The decrease was caused by increased tax and interest expenses, partially offset by unrealized foreign exchange gains. Including costs of the antitrust investigations and related expenses, three-month net income was $6.5 million or $0.17 (basic and diluted), compared to $7.8 million or $0.20 per unit (basic and diluted) in the same quarter of 2008.

Distributable cash, excluding costs of the antitrust investigations and related expenses, totaled $15.5 million, or 7% less than $16.7 million for the same quarter of 2008. The decrease was due to higher sustaining capital expenditures, reduced EBITDA and reduced gains on foreign exchange contracts. Deducting costs of the antitrust investigations and related expenses, distributable cash was $14.3 million. For the six-month period, excluding these expenses the Fund generated distributable cash of $3.8 million, compared to $4.5 million in the same period last year.

Financial Position

As at June 30, 2009, Arctic Glacier's net debt, excluding convertible debentures, was $186.0 million, compared to $207.3 million at the same time last year. The decrease of $21.3 million was driven by cash applied to reduce debt following the suspension of distributions in September 2008, partially offset by costs of the antitrust investigations and related expenses.

The Fund had a working capital deficiency of $42.5 million at June 30, 2009. This resulted from the classification of $60 million of senior secured notes to current liabilities in the first quarter since they mature on January 4, 2010. Excluding the notes, the Fund's working capital was $17.5 million, compared to working capital of $17.0 million at the same time in 2008. Once the DOJ investigation is resolved and access to credit markets improves, the Fund expects to refinance the notes prior to maturity or retire them from expected credit availability at maturity.

The Fund's net debt to EBITDA ratio at June 30, 2009 was 3.2:1 compared to 2.9:1 at December 31, 2008 and 3.1:1 at June 30, 2008. The first and second quarter ratios are typically higher due to seasonal operating requirements, while the third and fourth quarter ratios are typically lower. 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 June 30, 2009, the Fund's credit facilities were comprised of a $60 million senior note facility and a $151.3 million revolving term credit facility. The Fund had approximately $25.9 million of available liquidity at June 30, 2009, including $23.3 million of unused capacity on its revolving term credit facility and $2.6 million of cash. As of June 30, 2009 the Fund was in compliance with all debt covenants.

U.S. DOJ Investigation and Related Litigation

The antitrust investigation into the U.S. packaged ice industry by the DOJ and investigations by various state attorneys general are ongoing. Following the commencement of these investigations, a number of class action lawsuits were initiated in both Canada and the U.S. and the DOJ Civil Division initiated a civil investigation to determine if the U.S. federal government has been overcharged in its purchases of packaged ice.

On February 26, 2009, a civil class action case pending in Kansas state court was dismissed for the plaintiff's failure to state an actionable claim against the Fund. On May 7, 2009 a civil lawsuit was filed against a subsidiary of the Fund in Ontario Superior Court seeking damages on behalf of a class of customers in Ontario that purchased packaged ice directly from the subsidiary since January 1, 2001. The Fund is of the opinion that the claims are without merit and it will vigorously contest the action in court. On May 29, 2009 a U.S. judge dismissed the bulk of a civil case brought by a former employee against a subsidiary of the Fund. On June 24, 2009, a civil lawsuit was filed against a subsidiary of the Fund in Alberta Superior Court seeking damages on behalf of a class of customers in Alberta that purchased packaged ice directly from the subsidiary since January 1, 2002. The Fund is of the opinion that the claims are without merit and it will vigorously contest the action in court.

Outlook

Arctic Glacier continues to maintain profitable operations amid challenging business conditions of the current selling season.

The antitrust investigations in the U.S. and related civil litigation in both Canada and the U.S. remain ongoing. The Fund and its subsidiaries are cooperating with the authorities in the course of these investigations. In the course of its cooperation with the DOJ Antitrust Division, the Fund seeks to reach a resolution of the investigation pertaining to its subsidiaries. At this time, the Fund is unable to predict the timeline or final outcome of the investigations or related litigation, or any potential effect they may have on the Fund or its operations.

The economic recession continues to affect sales volumes. The atmosphere of economic anxiety accompanying the downturn has dampened consumer demand for Arctic Glacier's products and resulted in downward pressures on sales volumes. The duration of such conditions is difficult to gauge but as the economic cycle turns upward over the medium to longer term, it is expected sales will improve.

Volumes have also been significantly affected by disappointing weather conditions, which have been cooler and wetter than historical norms in many key markets during the peak selling season to date.

These challenges have not distracted Arctic Glacier from its core mission of providing quality product and industry-leading customer service.

Management will continue to follow a strategic direction defined by three 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 suspension of distributions in September 2008 allows the Fund to conserve cash and redeploy available resources to pay down debt and reduce interest costs.

The Fund's strengthening financial position will enable management to capitalize on business opportunities as they arise. 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 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 second quarter 2009 results during a conference call with a live audio webcast for investors and analysts on Tuesday, August 11 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 June 30, 2009 and 2008 (unaudited) and December 31, 2008 (audited)

June 30, June 30, December 31,
(thousands of U.S. dollars) 2009 2008 2008
----------------------------------------------------------------------------
----------------------------------------------------------------------------

ASSETS
Current assets
Cash $ 2,643 $ 1,897 $ 303
Accounts receivable 28,582 34,355 11,813
Inventories 13,834 14,890 9,032
Prepaid expenses 4,334 6,288 4,323
----------------------- ------------
49,393 57,430 25,471

Future income taxes 2,855 5,533 -
Property, plant and equipment 145,422 160,327 148,821
Investments 818 818 818
Intangible assets 126,078 136,511 130,811
Goodwill 144,991 180,659 144,416
----------------------- ------------

$ 469,557 $ 541,278 $ 450,337
----------------------- ------------
----------------------- ------------

LIABILITIES AND UNITHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued
liabilities $ 31,335 $ 35,219 $ 25,219
Distributions payable to unitholders - 3,506 -
Principal due within one year on
long-term debt 60,605 1,733 1,361
----------------------- ------------
91,940 40,458 26,580

Long-term debt 128,083 207,510 167,431
Convertible debentures 72,414 79,966 68,023
Future income taxes - - 1,511

Unitholders' equity
Units 325,207 324,824 325,207
Contributed surplus 1,526 1,142 1,320
Equity portion of convertible
debentures 8,358 8,358 8,358
Deficit (146,432) (101,423) (139,900)
Accumulated other comprehensive loss (11,539) (19,557) (8,193)
----------------------- ------------
177,120 213,344 186,792
----------------------- ------------

$ 469,557 $ 541,278 $ 450,337
----------------------- ------------
----------------------- ------------



ARCTIC GLACIER INCOME FUND
Interim Consolidated Statements of Operations
Three months and six months ended June 30, 2009 and 2008 (unaudited)

Three Months Six Months
----------------------------------------------------------------------------
----------------------------------------------------------------------------

(thousands of U.S. dollars,
except per unit amounts) 2009 2008 2009 2008
----------------------------------------------------------------------------

Sales $ 70,352 $ 76,834 $ 93,482 $ 100,977
Cost of sales, selling,
general and administration
expenses 46,665 52,871 76,273 84,128
------------------------------------------
Earnings before the undernoted 23,687 23,963 17,209 16,849
Amortization 7,541 7,620 15,172 15,117
Interest 4,971 4,531 9,928 10,397
Acquisition integration expenses 70 112 223 207

Loss (gain) on disposal of
property, plant and equipment 339 9 319 (31)
Loss (gain) on foreign exchange (1,532) (222) (797) 702
Costs of antitrust
investigations and related
expenses 1,158 2,057 2,616 3,058
------------------------------------------
Earnings (loss) before income
taxes 11,140 9,856 (10,252) (12,601)
Income taxes
Current 345 195 518 353
Future (reduction) 4,271 1,896 (4,238) (8,324)
------------------------------------------
4,616 2,091 (3,720) (7,971)
------------------------------------------

Earnings (loss) for the period $ 6,524 $ 7,765 $ (6,532) $ (4,630)
------------------------------------------
------------------------------------------

Earnings (loss) per unit
- basic and diluted $ 0.17 $ 0.20 $ (0.17) $ (0.12)
------------------------------------------



ARCTIC GLACIER INCOME FUND
Interim Consolidated Statements of Changes in Unitholders' Equity
Three months and six months ended June 30, 2009 and 2008 (unaudited)

Three Months Six Months
----------------------------------------------------------------------------
----------------------------------------------------------------------------

(thousands of U.S. dollars) 2009 2008 2009 2008
----------------------------------------------------------------------------

Units
Balance, beginning of period $ 325,207 $ 324,487 $ 325,207 $ 324,191
Units issued, net of
issue costs - 337 - 633
---------------------------------------------
Balance, end of period 325,207 324,824 325,207 324,824
---------------------------------------------

Contributed surplus
Balance, beginning of period 1,400 1,042 1,320 942
Unit-based compensation expense 126 100 206 200
---------------------------------------------
Balance, end of period 1,526 1,142 1,526 1,142
---------------------------------------------

Equity portion of
convertible debentures
Balance, beginning and end
of period 8,358 8,358 8,358 8,358
---------------------------------------------

Deficit
Balance, beginning of period (152,956) (98,538) (139,900) (75,482)
Earnings (loss) for the period 6,524 7,765 (6,532) (4,630)
Distributions declared - (10,650) - (21,311)
---------------------------------------------
Balance, end of period (146,432) (101,423) (146,432) (101,423)
---------------------------------------------

Accumulated other
comprehensive loss
Balance, beginning of period (6,231) (19,265) (8,193) (21,385)
Other comprehensive
income (loss) (5,308) (292) (3,346) 1,828
---------------------------------------------
Balance, end of period (11,539) (19,557) (11,539) (19,557)
---------------------------------------------

Total Unitholders' Equity $ 177,120 $ 213,344 $ 177,120 $ 213,344
---------------------------------------------
---------------------------------------------



ARCTIC GLACIER INCOME FUND
Interim Consolidated Statements of Comprehensive Income (Loss)
Three months and six months ended June 30, 2009 and 2008 (unaudited)

Three Months Six Months
----------------------------------------------------------------------------
----------------------------------------------------------------------------

(thousands of U.S. dollars) 2009 2008 2009 2008
----------------------------------------------------------------------------

Earnings (loss) for the period $ 6,524 $ 7,765 $ (6,532) $ (4,630)
------------------------------------------
Other comprehensive income (loss)
Net unrealized foreign currency
translation gain (loss) (5,325) (310) (3,381) 1,790
Amortization of transitional
adjustment to earnings (loss)
for the period 17 18 35 38
------------------------------------------
Other comprehensive income
(loss) (5,308) (292) (3,346) 1,828
------------------------------------------

Comprehensive income (loss)
for the period $ 1,216 $ 7,473 $ (9,878) $ (2,802)
------------------------------------------
------------------------------------------



ARCTIC GLACIER INCOME FUND
Interim Consolidated Statements of Cash Flows
Three months and six months ended June 30, 2009 and 2008 (unaudited)

Three Months Six Months
----------------------------------------------------------------------------
----------------------------------------------------------------------------

(thousands of U.S. dollars) 2009 2008 2009 2008
----------------------------------------------------------------------------

Cash from (used in):
Operating activities
Earnings (loss) for the period $ 6,524 $ 7,765 $ (6,532) $ (4,630)
Adjustments for:
Amortization 7,541 7,620 15,172 15,117
Amortization of deferred
financing 344 329 663 591
Amortization of transitional
adjustment on interest rate
swap 17 18 35 38
Accretion of convertible
debenture principal 390 411 745 819
Accretion of long-term debt 27 55 53 156
Recognition of rents on a
straight-line basis 179 179 358 358
Unit-based compensation expense 126 100 206 200
Loss (gain) on disposal of
property, plant and equipment 339 9 319 (31)
Unrealized foreign exchange
loss (gain) on long-term debt (1,063) (92) (601) 369
Unrealized loss (gain) on
foreign exchange contracts (526) 92 (253) 793
Changes in fair value of
interest rate swap (455) (842) (412) 213
Future income taxes (reduction) 4,271 1,896 (4,238) (8,324)
------------------------------------------
17,714 17,540 5,515 5,669
Changes in non-cash working
capital items (14,738) (10,001) (14,919) (16,059)
------------------------------------------
2,976 7,539 (9,404) (10,390)
------------------------------------------

Investing activities
Additions to property, plant
and equipment (3,729) (5,010) (6,205) (9,379)
Proceeds from disposal of
property, plant and equipment 22 168 152 252
Addition to goodwill - - - (1,272)
Acquisition of business
operations - (18,878) - (19,495)
------------------------------------------
(3,707) (23,720) (6,053) (29,894)
------------------------------------------

Financing activities
Proceeds from long-term debt 6,664 33,439 36,560 62,155
Principal repayments on
long-term debt (17,112) (3,850) (18,876) (4,153)
Units issued, net of issue
costs - 337 - 633
Distributions paid - (10,623) - (21,405)
------------------------------------------
(10,448) 19,303 17,684 37,230
------------------------------------------

Foreign exchange gain (loss)
on cash held in foreign
currency 211 (227) 113 266
------------------------------------------
Increase (decrease) in cash (10,968) 2,895 2,340 (2,788)
Cash (bank indebtedness),
beginning of period 13,611 (998) 303 4,685
------------------------------------------

Cash, end of period $ 2,643 $ 1,897 $ 2,643 $ 1,897
------------------------------------------
------------------------------------------

Supplementary cash flow
information
Interest paid $ 3,199 $ 2,624 $ 8,108 $ 8,320
Income taxes paid 345 195 518 353
------------------------------------------



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

Three Months Six Months
----------------------------------------------------------------------------
----------------------------------------------------------------------------

(in thousands of U.S. dollars,
except per unit amounts) 2009 2008 2009 2008
----------------------------------------------------------------------------

Cash from (used in) operating
activities $ 2,976 $ 7,539 $ (9,404) $ (10,390)
Adjustments:
Changes in non-cash working
capital items (1) 14,738 10,001 14,919 16,059
Less sustaining capital
expenditures, net of
dispositions (2) (3,390) (2,879) (4,324) (4,263)
-------------------------------------------
Distributable cash 14,324 14,661 1,191 1,406
Add back costs of antitrust
investigations and related
expenses 1,158 2,057 2,616 3,058
-------------------------------------------
Distributable cash excluding
costs of antitrust
investigations and related
expenses $ 15,482 $ 16,718 $ 3,807 $ 4,464
-------------------------------------------
-------------------------------------------

Weighted average number
of units 39,042.2 38,960.6 39,042.2 38,943.4
Distributable cash per unit $ 0.37 $ 0.38 $ 0.03 $ 0.04
Distributable cash per unit
excluding costs of antitrust
investigations and related
expenses $ 0.40 $ 0.43 $ 0.10 $ 0.11

Distributions declared (3) $ - $ 10,650 $ - $ 21,311
Distributions declared
per unit (3) $ - $ 0.27 $ - $ 0.55
-------------------------------------------

(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 six months ended June 30, 2009 and 2008 (unaudited)

Three Months Six Months
----------------------------------------------------------------------------
----------------------------------------------------------------------------

(thousands of U.S. dollars) 2009 2008 2009 2008
----------------------------------------------------------------------------

Earnings (loss) for the period $ 6,524 $ 7,765 $ (6,532) $ (4,630)
Add costs of antitrust
investigations and related
expenses (1) 695 1,234 1,570 1,835
-------------------------------------------
Adjusted earnings (loss) $ 7,219 $ 8,999 $ (4,962) $ (2,795)
-------------------------------------------
-------------------------------------------

Earnings (loss) per unit
- basic and diluted $ 0.17 $ 0.20 $ (0.17) $ (0.12)
Adjusted earnings (loss)
per unit - basic and diluted $ 0.18 $ 0.23 $ (0.13) $ (0.07)

(1) Net of tax effect of $463 and $1,046 for the three and six months ended
June 30, 2009 (2008 - $823 and $1,223).

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