Arctic Glacier Income Fund
TSX : AG.UN

Arctic Glacier Income Fund

August 12, 2008 07:00 ET

Arctic Glacier Posts Second Quarter Results

Distribution Rate Temporarily Reduced To $0.90 Per Unit Annualized

WINNIPEG, MANITOBA--(Marketwire - Aug. 12, 2008) - Arctic Glacier Income Fund (TSX:AG.UN) today announced results for the second quarter ended June 30, 2008. The Fund concurrently announced a temporary reduction in the rate of monthly cash distributions to unitholders.

Summary

- Acquired operations of Koldkist Ice in Portland, OR

- Implemented technology improvements at Koldkist Ice

- Constructed new distribution centre in Raritan, NJ

- Expanded cold storage facility in Fresno, CA

- Completed efficiency improvements to manufacturing plants acquired in 2007 located in Lansing, MI and Barstow, CA

- Increased revolving term credit by US$26 M to US$161 M

- Commencing in August, distributions reduced to annual rate of $0.90 per unit from $1.10

"During the second quarter, Arctic Glacier advanced the Fund's growth strategy by completing a platform acquisition and initiating a number of rationalization and integration measures," said Keith McMahon, President and CEO of Arctic Glacier Inc., the Fund's operating company. "By acquiring the operations of Koldkist Ice in Portland, Oregon, Arctic Glacier expanded market coverage northward from California and created a new platform for future growth in the Pacific Northwest."

Integration and rationalization of acquired operations included installation of technology improvements at Koldkist Ice; construction of a new distribution facility in Raritan, New Jersey; expansion of cold storage space in Fresno, California and improvements to manufacturing plants in Lansing, Michigan and Barstow, California.

"Arctic Glacier gains a number of benefits from the rationalization and integration of acquired operations," said Doug Bailey, the Fund's Chief Financial Officer. "The short-term gain consists of cost savings, and over the longer term we increase productivity, harness synergies and improve margins."

Second Quarter 2008 Review

Sales in the second quarter totaled $77.6 million, a decrease of $2.2 million or 3% compared to the same period in 2007. The reduction was entirely attributable to the stronger Canadian dollar, which reduced sales by $4.7 million. Absent the stronger dollar, sales were up by $2.5 million or 4%, largely due to operations acquired during the second half of 2007 and the first half of 2008. These acquisitions contributed $2.4 million to the second-quarter total, while sales in previously serviced markets increased by 1% as a result of higher pricing, partially offset by less than favorable weather in certain markets. For the first six months of 2008, sales decreased 4% to $101.9 million due to the stronger Canadian dollar, which reduced sales by $8.0 million. Excluding the effect of the stronger dollar, sales were up 3%, driven by a $3.5 million contribution from acquisitions and $0.2 million from previously serviced markets.

The cost of sales, selling, general and administrative expenses increased 2% to $53.4 million. The change was mainly due to increased fuel costs and recent acquisitions, partially offset by the stronger Canadian dollar. For the six-month period, SG&A was down by $0.3 million to $84.8 million.

EBITDA during the second quarter decreased by 11% to $24.2 million. Poor spring weather and higher fuel costs resulted in a decrease in EBITDA in previously serviced markets of $2.3 million and the stronger Canadian dollar reduced EBITDA by $1.5 million. Recently acquired operations contributed EBITDA of $0.7 million in the quarter. Six-month EBITDA moved down 19% to $17.1 million. EBITDA in previously serviced markets decreased by $3.2 million due to poor spring weather and higher fuel costs and the stronger Canadian dollar reduced EBITDA by $1.0 million. These decreases are offset by a contribution from recent acquisitions of $0.2 million.

The costs and related expenses of the previously announced investigation into the U.S. packaged ice industry by the Antitrust Division of the U.S. Department of Justice totaled $2.1 million for the second quarter, bringing the total for the first six months of 2008 to $3.1 million.

Net income for the second quarter totaled $7.8 million, compared to $11.7 million in the same quarter of 2007. On a per unit basis, that equated to $0.20 (basic and diluted), versus $0.30 (basic) and $0.29 (diluted) for the same period last year. The change was due to costs related to the antitrust investigation, as well as reduced EBITDA caused by unfavorable weather, higher fuel costs and the stronger Canadian dollar. For the first six months of 2008, net loss was $4.6 million or $0.12 (basic and diluted), compared to earnings of $0.8 million or $0.02 (basic and diluted) last year.

Excluding the costs of the antitrust investigation and related expenses, distributable cash totaled $16.9 million or $0.43 per unit for the second quarter of 2008, compared to $18.5 million or $0.48 per unit in 2008. The decrease was due to the same reasons as net income (above). Six-month distributable cash excluding the costs of the antitrust investigation and related expenses was $4.6 million or $0.12 per unit, versus $5.8 million or $0.15 per unit for the same period in 2007. Including the costs of the antitrust investigation and related expenses, distributable cash totaled $14.8 million or $0.38 per unit (basic and diluted) for the second quarter of 2008 and $1.5 million or $0.04 per unit for the six months ended June 30, 2008.

The Fund declared distributions to unitholders totaling $10.7 million during the quarter, up from $10.6 million in 2007. That equates to $0.28 per unit for the second quarter in both years.

Distribution Rate Reduced

"Arctic Glacier's increasing cost base in the context of current economic conditions led the Fund to examine its ability to finance operations while paying monthly distributions at current levels," said Mr. McMahon. "In particular, legal costs of the antitrust investigation in the United States and related expenses have increased to significant levels. These outlays are ongoing and are difficult to quantify. In addition, the slowing economy, coupled with fuel costs at historic highs is creating unprecedented economic conditions that are likely to dampen consumer purchasing, which may reduce Arctic Glacier's sales volumes."

In view of these considerations, the Trustees of the Fund have deemed it prudent to temporarily reduce the Fund's level of distributions. Effective with the August 2008 distribution payable on September 15, 2008, monthly cash distributions will be reduced by 18% to $0.0750 per unit or $0.90 on an annualized basis from $0.0917 per unit or $1.10 annualized.

The Trustees believe this measure will better position the Fund to adjust to changing financial circumstances and enhance unitholder value over the long term.

Financial Position

As at June 30, 2008, Arctic Glacier's total long-term debt, excluding convertible debentures, was $213.4 million, compared to $177.4 million at the same time last year.

The Fund's net debt to EBITDA ratio at end of the quarter was 3.1:1 (after adjusting EBITDA by $4.7 million to reflect the trailing 12-month contribution of acquisitions and the realized gain on foreign currency contracts). That compares to 2.1:1 at December 31, 2007 (after a similar adjustment to EBITDA of $2.6 million). The first and second quarter ratios are typically higher due to seasonal operating requirements, while the third and fourth quarter ratios are typically lower.

At June 30, 2008, the Fund's credit facilities were comprised of a US$60 million senior note facility and a US$161 million revolving term credit facility. The size of the revolving term credit facility was increased by US$26 million in the second quarter and certain quarterly leverage covenants were amended to finance the acquisition of operations of Koldkist Ice and related transaction costs, future acquisitions and growth capital expenditures.

Outlook

The acquisition of Koldkist Ice of Portland, Oregon during the second quarter adds US$8.5 million in annual revenues, substantially expands Arctic Glacier's market coverage northward from California and creates a strategic new platform for further penetration in the Pacific Northwest. Rationalization and integration activities undertaken during the second quarter further improve the financial contributions from Koldkist Ice and several other recent acquisitions.

The strong Canadian dollar has continued to have a negative effect on the Fund's income statement and distributable cash. Conversely, the dollar's appreciation can be beneficial in the domain of acquisitions in that it reduces the investment required to acquire U.S. operations.

"Arctic Glacier is taking steps to mitigate rising costs, especially in the category of fuel," said Mr. McMahon. "We have adjusted pricing and continue to pay close attention to expenses in all areas. During the second quarter we began deferring or cancelling planned outlays for certain non-essential sustaining capital expenditures."

Arctic Glacier is continuing to cooperate fully with the ongoing investigation being conducted by the Antitrust Division of the U.S. Department of Justice into possible antitrust violations in the packaged ice industry in the United States.

The Fund has implemented decisive measures to address a changing economic environment and the costs of the industry antitrust investigation. As it does so, Arctic Glacier's profitable operations, expanding market coverage, comprehensive rationalization activities and lean management structure will continue to enable the Fund to pay monthly distributions to unitholders, while generating future value for unitholders.

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 51 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 38.9 million trust units outstanding.

Conference Call and Webcast

Arctic Glacier will discuss second quarter 2008 results during a conference call with a live audio webcast for investors and analysts on Tuesday, August 12 at 11 a.m. (EDT). To access the simultaneous webcast, log on to Arctic Glacier's website at www.arcticglacierinc.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 and distributable cash are not recognized measures under Canadian generally accepted accounting principles (GAAP). EBITDA is defined as earnings before interest, taxes, depreciation, amortization, acquisition integration charges, gains or losses on foreign exchange 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. 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 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 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, 2008 and 2007 (unaudited) and December 31, 2007 (audited)

June 30, June 30, December 31,
(thousands) 2008 2007 2007
----------------------------------------------------------------------------
ASSETS
Current assets
Cash $ 1,934 $ 2,962 $ 4,645
Accounts receivable 35,032 36,290 13,182
Inventories 15,184 15,178 11,797
Prepaid expenses 6,412 5,552 4,693
-----------------------------------------
58,562 59,982 34,317

Future income taxes 5,642 1,205 -
Property, plant and equipment 163,486 160,710 156,099
Investments 834 871 811
Other assets 70 155 113
Intangible assets 139,130 143,343 132,173
Goodwill 184,218 182,044 172,973
-----------------------------------------
$ 551,942 $ 548,310 $ 496,486
-----------------------------------------
-----------------------------------------

LIABILITIES AND UNITHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued
liabilities $ 35,913 $ 30,289 $ 24,972
Distributions payable to
unitholders 3,575 3,544 3,569
Principal due within one year
on long-term debt 1,767 14,381 3,165
-----------------------------------------
41,255 48,214 31,706

Long-term debt 211,598 162,995 147,123
Convertible debentures 81,541 81,448 80,302
Future income taxes - - 2,790

Unitholders' equity
Units 375,067 371,215 374,433
Contributed surplus 1,270 927 1,069
Equity portion of convertible
debentures 9,206 9,484 9,206
Deficit (112,182) (84,371) (86,109)
Accumulated other comprehensive
loss (55,813) (41,602) (64,034)
-----------------------------------------
217,548 255,653 234,565
-----------------------------------------
$ 551,942 $ 548,310 $ 496,486
-----------------------------------------
-----------------------------------------



ARCTIC GLACIER INCOME FUND
Interim Consolidated Statements of Operations
Three months and six months ended June 30, 2008 and 2007 (unaudited)

Three Months Six Months
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(thousands, except per unit amounts) 2008 2007 2008 2007
----------------------------------------------------------------------------
Sales $ 77,637 $ 79,792 $101,872 $ 106,170
Cost of sales, selling, general
and administration expenses 53,411 52,541 84,797 85,108
----------------------------------------
Earnings before the undernoted 24,226 27,251 17,075 21,062
Amortization 7,698 7,848 15,225 15,669
Interest 4,580 4,831 10,473 9,864
Acquisition integration charges 111 114 207 578
Loss (gain) on disposal of
property, plant and equipment 10 12 (30) (124)
Loss (gain) on foreign exchange (220) (1,727) 711 (1,929)
Non-recurring expenses - 1,032 - 1,032
Costs of antitrust investigation
and related expenses 2,085 - 3,087 -
----------------------------------------
Earnings (loss) before income taxes 9,962 15,141 (12,598) (4,028)

Income taxes
Current 198 270 357 487
Future (reduction) 1,928 3,141 (8,312) (5,304)
----------------------------------------
2,126 3,411 (7,955) (4,817)
----------------------------------------
Earnings (loss) for the period $ 7,836 $ 11,730 $ (4,643) $ 789
----------------------------------------
----------------------------------------

Earnings (loss) per unit
Basic $ 0.20 $ 0.30 $ (0.12) $ 0.02
Diluted $ 0.20 $ 0.29 $ (0.12) $ 0.02



ARCTIC GLACIER INCOME FUND
Interim Consolidated Statements of Changes in Unitholders' Equity
Three months and six months ended June 30, 2008 and 2007 (unaudited)

Three Months Six Months
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(thousands) 2008 2007 2008 2007
----------------------------------------------------------------------------
Units
Balance, beginning of period $ 374,727 $ 369,739 $ 374,433 $303,176
Units issued, net of issue
costs 340 1,476 634 68,039
----------------------------------------------
Balance, end of period 375,067 371,215 375,067 371,215
----------------------------------------------

Contributed surplus
Balance, beginning of period 1,169 889 1,069 815
Unit-based compensation
expense 101 75 201 149
Unit options exercised - (37) - (37)
----------------------------------------------
Balance, end of period 1,270 927 1,270 927
----------------------------------------------

Equity portion of convertible
debentures
Balance, beginning of period 9,206 9,564 9,206 9,566
Conversion of convertible
debentures - (80) - (82)
----------------------------------------------
Balance, end of period 9,206 9,484 9,206 9,484
----------------------------------------------

Deficit
Balance, beginning of period (109,298) (85,492) (86,109) (64,456)
Earnings (loss) for the period 7,836 11,730 (4,643) 789
Distributions declared (10,720) (10,609) (21,430) (20,704)
----------------------------------------------
Balance, end of period (112,182) (84,371) (112,182) (84,371)
----------------------------------------------

Accumulated other
comprehensive loss
Balance, beginning of period (53,993) (16,484) (64,034) (12,938)
Other comprehensive income
(loss) (1,820) (25,118) 8,221 (28,664)
----------------------------------------------
Balance, end of period (55,813) (41,602) (55,813) (41,602)
----------------------------------------------
Total Unitholders' Equity $ 217,548 $ 255,653 $ 217,548 $255,653
----------------------------------------------
----------------------------------------------



ARCTIC GLACIER INCOME FUND
Interim Consolidated Statements of Comprehensive Income (Loss)
Three months and six months ended June 30, 2008 and 2007 (unaudited)

Three Months Six Months
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(thousands) 2008 2007 2008 2007
----------------------------------------------------------------------------
Earnings (loss) for the period $ 7,836 $ 11,730 $(4,643) $ 789
Other comprehensive income (loss)
Net gain (loss) on translation
of self-sustaining foreign
operations (1,838) (25,145) 8,183 (28,720)
Amortization of transitional
adjustment to earnings (loss)
for the period 18 27 38 56
-------------------------------------------
Other comprehensive income (loss) (1,820) (25,118) 8,221 (28,664)
-------------------------------------------
Comprehensive income (loss) for
the period $ 6,016 $(13,388) $ 3,578 $(27,875)
-------------------------------------------
-------------------------------------------



ARCTIC GLACIER INCOME FUND
Interim Consolidated Statements of Cash Flows
Three months and six months ended June 30, 2008 and 2007 (unaudited)

Three Months Six Months
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(thousands) 2008 2007 2008 2007
----------------------------------------------------------------------------
Cash from (used in):
Operating activities
Earnings (loss) for the period $ 7,836 $11,730 $ (4,643) $ 789
Adjustments for:
Amortization 7,698 7,848 15,225 15,669
Amortization of deferred financing 333 259 596 514
Amortization of transitional
adjustment on interest rate swap 18 27 38 56
Accretion of convertible
debenture principal 415 389 825 786
Accretion of long-term debt 55 279 156 513
Recognition of rents on a
straight-line basis 180 194 361 387
Unit-based compensation expense 101 75 201 149
Loss (gain) on disposal of
property, plant and equipment 10 12 (30) (124)
Unrealized foreign exchange
loss (gain) on long-term debt (90) (1,034) 375 (1,177)
Unrealized loss (gain) on
foreign exchange options 95 (619) 800 (939)
Unrealized loss (gain) on
interest rate swap (849) (435) 214 (328)
Future income taxes (reduction) 1,928 3,141 (8,312) (5,304)
-----------------------------------------
17,730 21,866 5,806 10,991
Changes in working capital items (10,144) (16,128) (16,499) (19,279)
-----------------------------------------
7,586 5,738 (10,693) (8,288)
-----------------------------------------

Investing activities
Additions to property, plant and
equipment (5,057) (6,761) (9,449) (11,105)
Proceeds from disposal of
property, plant and equipment 170 145 253 417
Additions to goodwill - (1,701) (1,274) (1,701)
Acquisition of business operations (19,243) (5,778) (19,867) (27,903)
-----------------------------------------
(24,130) (14,095) (30,337) (40,292)
-----------------------------------------

Financing activities
Proceeds from long-term debt 33,608 19,402 62,502 55,144
Principal repayments on long-term
debt (3,886) (1,896) (4,196) (54,502)
Units issued, net of issue costs 340 712 634 67,256
Distributions paid (10,716) (10,595) (21,424) (20,197)
------------------------------------------
19,346 7,623 37,516 47,701
------------------------------------------

Foreign exchange gain (loss) on
cash held in foreign currency 157 (664) 803 (835)
------------------------------------------
Increase (decrease) in cash 2,959 (1,398) (2,711) (1,714)
Cash (bank indebtedness),
beginning of period (1,025) 4,360 4,645 4,676
------------------------------------------
Cash, end of period $ 1,934 $ 2,962 $ 1,934 $ 2,962
------------------------------------------
------------------------------------------

Supplementary cash flow
information
Interest paid $ 4,074 $ 3,921 $ 9,768 $ 10,281
Income taxes paid 198 270 357 487
------------------------------------------



ARCTIC GLACIER INCOME FUND
Interim Schedule of Distributable Cash
Three months and six months ended June 30, 2008 and 2007 (unaudited)

Three Months Six Months
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(thousands, except per unit amounts) 2008 2007 2008 2007
----------------------------------------------------------------------------
Cash from (used in) operating
activities $ 7,586 $ 5,738 $ (10,693) $ (8,288)
Adjustments:
Changes in working capital items (1) 10,144 16,128 16,499 19,279
Less sustaining capital
expenditures, net of
dispositions (2) (2,906) (3,374) (4,293) (5,218)
----------------------------------------
Distributable cash $ 14,824 $ 18,492 $ 1,513 $ 5,773
Add back one-time costs of
antitrust investigation and
related expenses 2,085 - 3,087 -
----------------------------------------
Distributable cash excluding costs
of antitrust investigation and
related expenses $ 16,909 $ 18,492 $ 4,600 $ 5,773
----------------------------------------
----------------------------------------

Weighted average number of units 38,960.6 38,536.3 38,943.4 37,589.8
Distributable cash per unit $ 0.38 $ 0.48 $ 0.04 $ 0.15
Distributable cash per unit
excluding costs of antitrust
investigation and related expenses $ 0.43 $ 0.48 $ 0.12 $ 0.15

Distributions declared $ 10,720 $ 10,609 $ 21,430 $ 20,704
Distributions declared per unit $ 0.28 $ 0.28 $ 0.55 $ 0.55
Distributions declared per unit
(annualized) $ 1.10 $ 1.10 $ 1.10 $ 1.10
----------------------------------------

(1) Changes in 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, and thus will not significantly
affect the level of cash distributions.
(2) Sustaining capital expenditures represent the replacement of property,
plant and equipment to sustain current business operations and are
funded from operating cash flow.


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
    Website: www.arcticglacierinc.com