Arctic Glacier Income Fund
TSX : AG.UN

Arctic Glacier Income Fund

August 14, 2007 06:00 ET

Arctic Glacier Posts Second Quarter Sales Record

Acquisitions over past 12 months drive gains

WINNIPEG, MANITOBA--(Marketwire - Aug. 14, 2007) - Arctic Glacier Income Fund (TSX:AG.UN) today announced results for the second quarter ended June 30, 2007.

Highlights

- Completed 4 tuck-in acquisitions in Canada & northeastern U.S.

- Converted manufacturing plant in Santa Ana, California into a distribution center

- Completed manufacturing capacity increases in California and Ontario

- Completed manufacturing facility upgrade in Pennsylvania

- Completed construction of distribution facility in Albany, New York

- Increased sales 32% to second-quarter record $79.8 million

- Increased EBITDA 33% to second-quarter record $27.3 million

- Increased distributable cash 14% to second-quarter record $18.5 million

"Arctic Glacier's sales reached a record second-quarter high," said Keith McMahon, President and CEO of Arctic Glacier Inc., the Fund's operating company. "Since the end of the second quarter of 2006, the Fund made the major acquisitions of Union Ice in California and Happy Ice in New York, plus the final portion of our largest-ever acquisition - California Ice. In addition, during the first two quarters of 2007 we completed five tuck-in acquisitions. The revenues contributed by these new operations resulted in a 32% gain over the same quarter last year."

Mr. McMahon added that Arctic Glacier's program of rationalization and integration measures for acquired operations allowed the company to capture synergies and maximize operational efficiencies. These activities included increasing manufacturing capacity at four plants in California and one in Ontario, completing a drying and packaging equipment upgrade in Pennsylvania and construction of a new distribution facility in Albany, New York.

Doug Bailey, Chief Financial Officer of Arctic Glacier, said Canada's capital markets have enabled Arctic Glacier to achieve growth measures while maintaining financial strength. "During the first quarter the Fund completed a $70.1 million offering of new units. This allowed us to complete the acquisition of Union Ice and pay down debt, while maintaining overall leverage at a reasonable level."

Second Quarter 2007 Review

Sales in the second quarter totaled $79.8 million, an increase of $19.3 million or 32% from the same period in 2006. Most of the gain was attributable to California Ice, Happy Ice and Union Ice operations, acquired during 2006 and the first quarter of 2007. Sales in previously serviced markets increased $0.7 million or 1% compared to the same quarter in 2006, while the stronger Canadian dollar decreased reported sales by $1.5 million. For the first six months of 2007, sales increased by 41% to $106.2 million.

EBITDA during the second quarter was $27.3 million, an increase of $6.7 million or 33% from the same period last year. Six-month EBITDA totaled $21.1 million, up 30% from the first half of 2006. The total for the second quarter was higher than the six month figure because of seasonality in the packaged ice business. During the winter months that comprise the first quarter of the calendar year, sales of packaged ice are slow and EBITDA, earnings and distributable cash are normally negative. As a result, gains during the second quarter are partially offset by negative results from the first quarter and the total for six months is typically lower than the second-quarter figure.

Net income for the most recent quarter increased 31% to $11.7 million or $0.30 (basic) and $0.29 (diluted) compared to $0.30 (basic and diluted) for the same quarter of 2006. For the first six months of 2007, earnings totaled $0.8 million or $0.02 per unit (basic and diluted), versus $4.6 million, or $0.16 per unit (basic and diluted) in the same period in 2006. The six-month earnings results were lower than the second quarter for the same reason as EBITDA (above).

Acquisitions during the past year powered a 14% increase in distributable cash, to a second quarter high of $18.5 million. The increase was partially offset by the stronger Canadian dollar and a non-recurring expense related to clean-up and repair of Arctic Glacier's Mamaroneck manufacturing plant following a severe storm in April. On a per-unit basis that equated to $0.48, versus $0.54 in the same quarter of 2006. The decrease was primarily due to the factors noted above and the timing of acquisitions of California Ice and Happy Ice during the last half of the second quarter of 2006. The acquisitions were completed as summer approached, with rising temperatures driving the seasonal ramp up in sales volumes. The new operations therefore contributed to results only during the busiest portion of the quarter. By contrast, during the second quarter of 2007 these same operations contributed to results during the entire period, including the slower first half of the quarter. This had the effect of reducing distributable cash per unit for the full three-month period just ended.

During the first six months of 2007, distributable cash totaled $5.7 million or $0.15 per unit, compared to $9.5 million or $0.33 last year. The main reason for the decrease was the significantly expanded scale of operations following the acquisitions of 2006. This resulted in a larger first quarter distributable cash deficiency in 2007, which partially offset the increase in the second quarter and reduced six-month results accordingly.

The Fund declared distributions to unitholders totaling $10.6 million during the quarter, up 24% from 2006. That equates to $0.28 per unit for the second quarter in both years. The Fund's current monthly distribution rate of $0.0917 per unit amounts to an annualized rate of $1.10.

Financial Position

As at June 30, 2007, Arctic Glacier's total long-term debt, excluding convertible debentures, was $177.4 million, compared to $186.1 million at December 31, 2006. The decrease relates to the reduction of debt from the proceeds of a $70.1 million equity offering in the first quarter.

The Fund's net debt to EBITDA ratio at June 30, 2007 was 2.6:1 (after adjusting EBITDA by $3.7 million to reflect the trailing 12-month contribution of acquisitions made during the year). That compares to 2.7:1 at December 31, 2006 (EBITDA adjusted by $8.8 million). The Fund's intention is to maintain an annual average leverage ratio of less than 2.25:1. The first and second quarter ratios are typically higher due to seasonal operating requirements, while the third and fourth quarter ratios are typically lower.

Outlook

Arctic Glacier's acquisitions over the past year are performing well. Sales and other key performance metrics increased to new highs in the second quarter. In addition, as rationalization and integration initiatives are completed and brought onstream, the Fund benefits from the productivity enhancements, operational synergies and cost reductions they enable. The results point to the prospect of similar benchmarks being achieved in the third and final quarters of 2007.

The growth initiatives over the past year have strengthened Arctic Glacier's position as the second-largest packaged ice company in North America. Management has consolidated Arctic Glacier's leadership in key markets that include all of Canada, the populous northeastern states, Michigan including the greater Detroit area, the central states and California.

The expanded scale of Arctic Glacier, the accretive nature of the Fund's acquisitions and enhanced profitability due to rationalization initiatives will combine to produce record highs at the end of 2007.

In 2007 the Fund will benefit from a full year of contributions from California Ice and Happy Ice, plus 10 months from Union Ice. Due to the seasonal nature of the packaged ice business, the third quarter is the company's busiest period and Arctic Glacier is well positioned at the midpoint of the fiscal year. The Fund's accretive acquisitions, rationalized operations and tight focus on overhead will continue to generate distributable cash exceeding monthly requirements for distributions at the current annualized rate of $1.10 per unit. The Fund will continue to pay unitholder distributions while maximizing unitholder value in the future.

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 37 manufacturing plants and 52 distribution facilities across Canada and the northeast, central and western United States servicing more than 70,000 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 2007 results during a conference call with a live audio webcast for investors and analysts on Tuesday, August 14 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, amortization, acquisition integration charges and other non-recurring expenses. EBITDA is a performance measure 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 measure 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 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, 2007 and 2006 (unaudited) and December 31, 2006 (audited)

June 30, June 30, December
(thousands) 2007 2006 31, 2006
---------------------------------------------------------------------------
ASSETS
Current assets
Cash $ 2,962 $ 4,882 $ 4,676
Accounts receivable 36,290 33,577 14,791
Inventories 15,178 12,347 12,881
Prepaid expenses 5,552 4,279 4,268
--------------------------------------
59,982 55,085 36,616

Future income taxes 1,205 - -
Property, plant and equipment 160,710 155,034 162,564
Investments 871 515 953
Other assets 155 8,776 7,875
Intangible assets 143,343 127,862 148,912
Goodwill 182,044 170,333 186,572
--------------------------------------
$ 548,310 $ 517,605 $ 543,492
--------------------------------------
--------------------------------------

LIABILITIES AND UNITHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued
liabilities $ 30,289 $ 39,168 $ 26,175
Distributions payable to unitholders 3,544 2,989 3,037
Principal due within one year on
long-term debt 14,381 2,773 14,280
--------------------------------------
48,214 44,930 43,492

Long-term debt 162,995 151,996 171,783
Convertible debentures 81,448 89,999 85,496
Future income taxes - 4,733 4,696

Unitholders' equity
Units 371,215 297,019 303,469
Contributed surplus 927 775 815
Equity portion of convertible
debentures 9,484 10,161 9,566
Deficit (84,371) (58,051) (63,284)
Accumulated other comprehensive loss (41,602) (23,957) (12,541)
--------------------------------------
255,653 225,947 238,025
--------------------------------------
$ 548,310 $ 517,605 $ 543,492
--------------------------------------
--------------------------------------



ARCTIC GLACIER INCOME FUND
Interim Consolidated Statements of Operations
Three and six months ended June 30, 2007 and 2006 (unaudited)

Three Months Six Months
------------------------------------------
------------------------------------------
(thousands, except per unit
amounts) 2007 2006 2007 2006
---------------------------------------------------------------------------
Sales $ 79,792 $ 60,464 $ 106,170 $ 75,126
Cost of sales, selling, general
and administration expenses 52,541 39,926 85,108 58,957
------------------------------------------
Earnings before the undernoted 27,251 20,538 21,062 16,169
Amortization 7,848 5,507 15,669 10,114
Interest 4,831 2,494 9,864 3,594
Acquisition integration expenses 114 173 578 287
Loss (gain) on disposal of
property, plant and equipment 12 (115) (124) (126)
Gain on foreign exchange (1,727) (464) (1,929) (273)
Non-recurring expenses 1,032 - 1,032 -
Debt settlement costs - 751 - 751
------------------------------------------
Earnings (loss) before income
taxes 15,141 12,192 (4,028) 1,822
Income tax
Current 270 258 487 340
Future (reduction) 3,141 2,989 (5,304) (3,113)
------------------------------------------
3,411 3,247 (4,817) (2,773)
------------------------------------------
Earnings for the period $ 11,730 $ 8,945 $ 789 $ 4,595
------------------------------------------
------------------------------------------

Earnings per unit
Basic $ 0.30 $ 0.30 $ 0.02 $ 0.16
Diluted 0.29 0.30 0.02 0.16
------------------------------------------



ARCTIC GLACIER INCOME FUND
Interim Consolidated Statements of Changes in Unitholders' Equity
Three and six months ended June 30, 2007 and 2006 (unaudited)

Three Months Six Months
(thousands) 2007 2006 2007 2006
---------------------------------------------------------------------------
Units
Balance, beginning of period $ 369,739 $ 249,925 $ 303,469 $ 249,747
Adoption of new accounting
policies - - (293) -
------------------------------------------
369,739 249,925 303,176 249,747
Units issued, net of issue costs 1,476 47,094 68,039 47,272
------------------------------------------
Balance, end of period 371,215 297,019 371,215 297,019
------------------------------------------

Contributed surplus
Balance, beginning of period 889 756 815 723
Unit-based compensation expense 75 19 149 52
Unit options exercised (37) - (37) -
------------------------------------------
Balance, end of period 927 775 927 775
------------------------------------------

Equity portion of convertible
debentures
Balance, beginning of period 9,564 - 9,566 -
Convertible debentures issued - 10,161 - 10,161
Conversion of convertible
debentures (80) - (82) -
------------------------------------------
Balance, end of period 9,484 10,161 9,484 10,161
------------------------------------------

Deficit
Balance, beginning of period (85,492) (58,458) (63,284) (46,432)
Adoption of new accounting
policies - - (1,172) -
------------------------------------------
(85,492) (58,458) (64,456) (46,432)
Earnings for the period 11,730 8,945 789 4,595
Distributions declared (10,609) (8,538) (20,704) (16,214)
------------------------------------------
Balance, end of period (84,371) (58,051) (84,371) (58,051)
------------------------------------------

Accumulated other comprehensive
loss
Balance, beginning of period (16,484) (20,323) (12,541) (20,782)
Adoption of new accounting
policies - - (397) -
------------------------------------------
(16,484) (20,323) (12,938) (20,782)
Other comprehensive loss (25,118) (3,634) (28,664) (3,175)
------------------------------------------
Balance, end of period (41,602) (23,957) (41,602) (23,957)
------------------------------------------
Total Unitholders' Equity $ 255,653 $ 225,947 $ 255,653 $ 225,947
------------------------------------------
------------------------------------------



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

Three Months Six Months
-----------------------------
-----------------------------
(thousands) 2007 2007
---------------------------------------------------------------------------
Earnings for the period $ 11,730 $ 789
-----------------------------
Other comprehensive loss:
Unrealized loss on translation of
self-sustaining foreign operations (25,145) (28,720)
Amortization of transitional adjustment to
loss for the period 27 56
-----------------------------
Other comprehensive loss (25,118) (28,664)
-----------------------------
Comprehensive loss for the period $ (13,388) $ (27,875)
-----------------------------
-----------------------------



ARCTIC GLACIER INCOME FUND
Interim Consolidated Statements of Cash Flows
Three and six months ended June 30, 2007 and 2006 (unaudited)

Three Months Six Months
------------------------------------------------
------------------------------------------------
(thousands) 2007 2006 2007 2006
---------------------------------------------------------------------------
Cash from (used in):
Operating activities
Earnings for the period $ 11,730 $ 8,945 $ 789 $ 4,595
Adjustments for:
Amortization 7,848 5,507 15,669 10,114
Accretion of convertible
debenture principal 389 160 786 160
Accretion of long-term
debt 279 - 513 -
Accretion of deferred
financing 259 - 514 -
Recognition of rents on a
straight-line basis 194 - 387 -
Unit-based compensation 75 20 149 52
Non-cash portion of debt
settlement costs - 751 - 751
Loss (gain) on disposal
of property, plant and
equipment 12 (115) (124) (126)
Unrealized foreign
exchange gain on
long-term debt (1,035) - (1,177) -
Unrealized gain on
foreign exchange
options (619) (411) (939) (220)
Unrealized gain on
interest rate swap (435) - (328) -
Future income taxes
(reduction) 3,141 2,989 (5,304) (3,113)
-------------------------------------------------
21,838 17,846 10,935 12,213
Changes in working
capital items (16,128) 2,593 (19,279) 340
-------------------------------------------------
5,710 20,439 (8,344) 12,553
-------------------------------------------------

Investing activities
Additions to property,
plant and equipment (6,761) (8,328) (11,105) (12,383)
Proceeds from disposal of
property, plant and
equipment 145 456 417 527
Additions to other assets - (7,551) - (7,551)
Additions to goodwill (1,701) - (1,701) -
Acquisition of business
operations (5,778) (196,991) (27,903) (197,266)
-------------------------------------------------
(14,095) (212,414) (40,292) (216,673)
-------------------------------------------------

Financing activities
Proceeds from long-term
debt 19,402 57,664 55,144 73,742
Principal repayments on
long-term debt (1,896) (1,704) (54,502) (1,948)
Convertible debentures
issued - 100,000 - 100,000
Units issued, net of
issue costs 712 47,094 67,256 47,272
Distributions paid (10,595) (8,108) (20,197) (15,782)
-------------------------------------------------
7,623 194,946 47,701 203,284
-------------------------------------------------

Foreign exchange loss on
cash held in foreign
currency (636) (719) (779) (595)
-------------------------------------------------
Increase (decrease) in
cash (1,398) 2,252 (1,714) (1,431)
Cash, beginning of period 4,360 2,630 4,676 6,313
-------------------------------------------------
Cash, end of period $ 2,962 $ 4,882 $ 2,962 $ 4,882
-------------------------------------------------
-------------------------------------------------

Supplementary cash flow
information
Interest paid $ 3,921 $ 1,487 $ 10,281 $ 2,702
Income taxes paid 270 259 487 340
-------------------------------------------------



ARCTIC GLACIER INCOME FUND
Interim Schedule of Distributable Cash
Three and six months ended June 30, 2007 and 2006 (unaudited)

Three Months Six Months
-------------------------------------------
-------------------------------------------
(thousands, except per unit
amounts) 2007 2006 2007 2006
---------------------------------------------------------------------------
Cash from (used in)operating
activities $ 5,710 $ 20,439 $ (8,344) $ 12,553
Adjustments:
Changes in working capital
items 16,128 (2,593) 19,279 (340)
-------------------------------------------
21,838 17,846 10,935 12,213
Less sustaining capital
expenditures, net of
dispositions (3,374) (1,687) (5,218) (2,668)
-------------------------------------------
Distributable cash $ 18,464 $ 16,159 $ 5,717 $ 9,545
-------------------------------------------
-------------------------------------------

Weighted average number of
units 38,536.3 29,817.7 37,589.8 28,863.1
Distributable cash per unit $ 0.48 $ 0.54 $ 0.15 $ 0.33

Distributions declared $ 10,609 $ 8,538 $ 20,704 $ 16,214
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
-------------------------------------------


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