Art In Motion Income Fund
TSX : AIM.UN

Art In Motion Income Fund

May 11, 2005 07:21 ET

Art In Motion Income Fund Announces 1st Quarter Results for 2005

VANCOUVER, BRITISH COLUMBIA--(CCNMatthews - May 11, 2005) - Art In Motion Income Fund (the "Fund")
(TSX:AIM.UN) today reported its interim financial results for the period ended March 31, 2005.
The Fund's unaudited consolidated financial statements for the period from January 1, 2005 to
March 31, 2005 are included in this news release. The Fund's financial statements and Management's
Discussion and Analysis are being concurrently filed on the SEDAR website (www.sedar.com) and on the
Fund's investor website at www.aimincomefund.com.

Management will host a conference call on Wednesday, May 11, 2005 at 08:00 am pacific time (11:00 am
eastern) to discuss the Fund's financial results for the period ended March 31, 2005. Garry Peters,
Chief Executive Officer, and Allan Achtemichuk, Chief Financial Officer will host the call. Following
management's presentation, there will be a question and answer session.

To participate in the teleconference, the numbers are 416.405.9328 or 1.800.387.6216.

A replay of the call will be available approximately one hour after the end of the conference call by
accessing Art In Motion's web site at www.aimincomefund.com. This call will be archived on the web
site until August 11, 2005 at midnight.

CEO's Remarks

"We continued to experience the same challenges we faced in recent quarters related to the strength of
the Canadian dollar and the slowing U.S. economy," says Garry Peters, CEO. "We see a real contrast in
business between the current quarter and the same period one year ago. At that time, an exceptionally
strong holiday buying season resulted in low inventories of our products with retailers, leading to
large replenishment orders in the winter months. Lower sales this past holiday season resulted in
unusually high post-season inventories, reducing the number and size of orders from many of our large
customers. Despite the exchange rate pressure on our margins, our continued focus on production
efficiencies and supply chain costs allowed us to generate the cash necessary to make the
distributions on our Fund units. Our balance sheet is strong and we will continue to focus on
developing new products, securing new customers and growing our top-line sales."

Overall Performance

This report covers the period from January 1, 2005 to March 31, 2005. A discussion of our results is
presented in the sections that follow. The following points present the highlights of our performance.




- The Fund's revenue for the quarter was $17.8 million.
- Gross profit for the quarter was $5.6 million for a gross margin of
31.4%.
- The Fund posted a net loss of $23,000 for the quarter after $355,000
in severance costs.
- Basic and diluted loss per unit was $0.0028.
- Earnings before interest, taxes depreciation and amortization (EBITDA)
for the quarter were $3.1 million for an EBITDA margin of 17.3%.
- The Fund generated $4.4 million in cash flow from operations.
- The Fund generated distributable cash of $2.8 million or $0.25722 per
unit on the total 10,706,760 units outstanding(1). The Fund's payout
ratio for the quarter was 97%. Excluding severance, the payout ratio
was 86%.
- The Fund had total assets of $126.9 million and $56.0 million in
current and long-term liabilities.


Note

(1) In addition to the 8,030,070 outstanding Fund units, there are 535,338 unsubordinated units of AIM
LP and 2,141,352 subordinated units of AIM LP held by the non-controlling interest. The subordinated
and unsubordinated units of AIM LP are currently held by GVP Holdings Inc (GVP) and represent GVP's
retained interest in our business. The Exchange Rights associated with the unsubordinated units
provide that these units could be exchanged for Fund units on a one-for-one basis as of January 30,
2005. These rights have not been exercised as of the date of this report.



Summary Results of Operations

-------------------------------------------------------------------------
(unaudited) (unaudited)
The Fund Pre-Fund(1)
3 months ended 3 months ended
(in thousands of dollars except March 31, March 31,
per unit amounts) 2005 2004
-------------------------------------------------------------------------
Revenue 17,772 24,337
Cost of sales 12,197 16,148
--------------------------------
Gross profit 5,575 8,189
31.4% 33.6%
Operating expenses(2) 6,288 4,174
Non-controlling interest (690) -
--------------------------------
Net earnings for the period (23) 4,015
-0.1% 16.5%
Add (deduct)
Non-controlling interest (690) -
Founders' employee participation
plan(3) 692 -
Interest 272 26
Amortization 1,805 453
Net change in value of hedges 1,021 -
--------------------------------
EBITDA(4) 3,077 4,494
17.3% 18.5%
--------------------------------

Basic and diluted earnings per unit -0.0028 n/a
-------------------------------------------------------------------------
(1) The values for the three-month period ended March 31, 2004 are
for the combined entities of the predecessor companies that were
amalgamated prior to the IPO to form GVP. To provide comparable
amounts we have eliminated shareholder bonuses and income taxes
from the 2004 amounts. The 2004 amounts have not been adjusted
for our $20 million term loan or the amortization of our
identifiable intangible assets.

(2) Operating Expenses are the combined net total of Expenses and
Other Earnings as shown in our Financial Statements. Operating
expenses include $355,000 in severance costs and $314,000 in
incremental FEPP costs related to Paul Wagler's resignation.

(3) Under the FEPP, GVP provides bonus payments to employees based
on the notional interest in a portion of its non-controlling
interest in AIM LP. The costs of the FEPP are recorded as a
charge against the Fund but are funded by GVP. These charges are
then offset against the non-controlling interest resulting in no
impact to our net earnings.

(4) See "Non-GAAP Measures" for our definition of EBITDA.


Discussion of 1st Quarter Results

Revenue for the quarter ended March 31, 2005 was $17.8 million compared to $24.3 million for the
quarter ended March 31, 2004 or a decrease of 27%. The revenue decrease was largely as a result of
some of our key customers holding excess inventory after the holiday season and sluggish post holiday
sales. In 2004 our first quarter sales were much higher as our customers had very low inventory after
the 2003 holiday season and were replenishing their stock in the first quarter of 2004. We are
beginning to see an improvement in the replenishment orders from some of our customers but their
inventory levels are higher than they normally carry.

Approximately 90% of our sales are denominated in US dollars. The strengthening of the Canadian dollar
relative to the US dollar also impacted our sales for the quarter. The average exchange rate for the
quarter was down almost 7% compared to the same quarter in 2004. Although the drop in foreign exchange
rates has impacted our gross sales, we use forward foreign exchange contracts to hedge our currency
risks and protect our margins.

Gross margin was 31.4% for the quarter ended March 31, 2005 compared to 33.6% for the quarter ended
March 31, 2004. Gross profit for the quarter ended March 31, 2005 was $5.6 million compared to $8.2
million for the quarter ended March 31, 2004.

The current period includes approximately $0.7 million of charges related to the FEPP where $0.2
million is charged to cost of sales and $0.5 million is charged to operating expenses. These costs are
funded by GVP and do not impact net earnings. Excluding these charges, our gross margin was 32.4% for
the quarter compared to 33.6% for the same quarter last year, down only marginally despite lower sales
and certain fixed manufacturing costs.

Operating expenses were $6.3 million for the quarter ended March 31, 2005 compared to $4.2 million for
the same period in 2004. The net increase in current year expenses is a result of several items the
most notable being increased amortization of $1.3 million, non-cash charges of $0.5 million related to
the FEPP, increased interest expense of $0.2 million and a one-time charge of $0.4 million related to
the resignation of our Chief Executive Officer on March 24, 2005, all of which are partially offset by
a $1.1 million reduction in selling, general and administrative expenses. In 2004 operating expenses
included a $1.0 million gain on foreign exchange.

For the quarter ended March 31, 2005 the Fund posted a net loss of $0.02 million after severance
costs. Net earnings for the same period in 2004 were $4.0 million.

EBITDA was $3.1 million for the quarter this year compared to $4.5 million for the same quarter last
year. The EBITDA margin was 17.3% this year compared to 18.5% for the same quarter last year. EBITDA
was 19.3% if we exclude the severance costs.

Cash Flow and Distributions

During the three-month period ended March 31, 2005 the Fund generated cash from operations of $4.4
million including $1.6 million related to changes in our non-cash operating working capital, which is
largely related to a $1.4 million reduction in accounts receivable. At March 31, 2005 we had a net
cash position of approximately $2.9 million including $18,000 drawn on our operating line.

The Fund's policy is to make distributions of our available cash to the maximum extent possible based
on our estimate of Distributable Cash for the year. We intend to make equal monthly cash distributions
to Unitholders of record on the last business day of each month, less amounts required to meet
estimated expenses, cash redemptions or repurchase of units and other obligations and to establish
reasonable reserves.



-------------------------------------------------------------------------
(in thousands of dollars except per unit amounts) 3 months ended
March 31, 2005
-------------------------------------------------------------------------
EBITDA(1) 3,077
Add (deduct)
Interest (272)
Capital expenditures (51)
-----------------
Distributable cash(1) 2,754
-----------------
Distributions on Fund units 2,509
Distributions on unsubordinated non-controlling
interest(2) 167
Distributions on subordinated non-controlling
interest(2) -
-----------------
2,676
-----------------

-------------------------------------------------------------------------
Outstanding units and per unit amounts
Total units outstanding 10,706,760
Distributable cash per unit $0.25722
Distributions paid per unit $0.24994
Distribution ratio 97.2%
-------------------------------------------------------------------------
(1) EBITDA and Distributable Cash are not recognized measures under
Canadian GAAP. See our discussion on "Non-GAAP Measures".

(2) In addition to the 8,030,070 outstanding Fund units, there are
535,338 unsubordinated units of AIM LP and 2,141,352 subordinated
units of AIM LP held by the non-controlling interest. These
subordinated and unsubordinated units of AIM LP are currently held
by GVP and represent GVP's retained interest in AIM LP.


Cash Distributions

For the period from January 1, 2005 to March 31, 2005, the Fund declared three monthly distributions
of $0.10417 per Fund unit. The same distributions were paid on the unsubordinated Class B Limited
Partnership (LP) units. The Board of Trustees of the Fund suspended distributions for the subordinated
Class C LP units for the quarter ended March 31, 2005. The payout ratio for the period was 97% after
the one-time charge related to the resignation of our CEO. Excluding this charge, our payout ratio
would be approximately 86%.

Outlook

The second quarter has historically been slower for our Regional and International customers. These
sales typically trend off in May and June as our customers await our next release of products which
begins selling at tradeshows in July. As we present our new line of products, we normally see sales
increase in the August to October timeframe. We expect these trends will be similar this year.

Our National customers have historically rolled out our new collections in January and February. This
year, because of high inventory levels after the November - December holiday season, several of our
large customers had not rolled out the new offerings until mid to late March. As it takes several
weeks for the product to move through their distribution systems and into their stores, we do not
expect any significant replenishment orders in the first half of the second quarter. However, we see
that inventory levels are dropping at some of our key accounts which should provide us with
replenishment orders later in the quarter.

We continue to develop our programs and product offerings with key customers and we are actively
pursuing new customers. In addition to focusing on new sales relationships we are aggressively working
on new product offerings. We have recently introduced a new decorative mirror program and have
received initial orders from two of our key customers. These mirrors are being produced off-shore and
require longer lead times than product shipped from our Coquitlam plant. We expect that this program
will provide additional revenue in the third quarter and beyond. Our initial focus for this program is
North America but we are looking at ways to introduce this program into international markets.

We are also working on a number of canvas transfer programs where we use different techniques to
adhere our pre-printed lithographs to canvas or print the images directly onto canvas. These products
provide alternate ways to present our images that are different from traditional framing. These
products are being offered in the North American and International markets at a variety of quality and
price points. Again, we expect these new product offerings will add revenue in the second half of the
year.

Rising oil prices and the low value of the US dollar create margin pressures from both a cost and
sales perspective. We continue to focus on production efficiencies and managing our supply chain costs
to help us maintain our margins. We have implemented new technology and processes to improve the
efficiency and reduce the manufacturing costs at our Coquitlam plant. We are also producing certain
products in China where customer lead times permit and that we could not otherwise cost effectively
produce locally. We expect that we will gradually increase our off-shore production as we identify
suitable manufacturing partners and work with our customers on planning for required lead times.


Our financial position remains strong and we will continue to focus on developing new products,
securing new customers and growing our top-line sales. We believe that if we stay focused on these
items, we will improve our results in future quarters.

Forward Looking Statements

This report contains "forward looking statements". These statements relate to future events or future
performance and reflect our expectations regarding our growth, results of operations, performance,
business prospects or opportunities or industry performance or trends. These forward-looking
statements reflect our current internal projections, expectations or beliefs and are based on
information currently available to us. In some cases, forward looking statements can be identified by
terminology such as "may", "will", "should", "expect", "intend", "plan", "anticipate", "believe",
"predict", "potential", "continue" or the negative of these terms or other comparable terminology. A
number of factors could cause actual events or results to differ materially from those discussed in
the forward-looking statements. You should specifically consider these factors including the risks and
uncertainties described under "Risk Factors" elsewhere in this report. Although we believe that the
forward-looking statements contained herein are based on reasonable assumptions, you cannot be assured
that actual results will be consistent with such statements. Forward-looking statements are made as of
the date hereof and we assume no obligation to update or revise them to reflect new events or
circumstances.

Non-GAAP Measures

References to EBITDA are to our net earnings that have been adjusted for: Non-controlling interest,
interest expense, income taxes, amortization, inclusion of realized gains and losses on forward
foreign exchange contracts and exclusion of unrealized gains and losses on forward foreign exchange
contracts and interest rate swap, and charges related to the Founders' Employee Participation Plan
(FEPP).

EBITDA is a measure used by many investors to compare issuers on the basis of ability to generate cash
flows from operations. EBITDA is not a recognized measure under Canadian GAAP and is not intended to
be representative of cash flows or results of operations determined in accordance with Canadian GAAP
or cash available for distribution. We believe that EBITDA is the appropriate measure from which to
make adjustments to determine our Distributable Cash. Since we intend to distribute substantially all
of our available cash on an ongoing basis, we believe that EBITDA is a useful supplemental measure in
evaluating our performance. You are cautioned, however, that EBITDA should not be construed as an
alternative to net earnings (as determined in accordance with Canadian GAAP) as an indicator of our
performance or to cash flows from operating activities as a measure of our liquidity and cash flows.
Our methods of calculating EBITDA may differ from methods used by other issuers and, accordingly, our
EBITDA may not be comparable to similarly titled amounts presented by other issuers.

Distributable cash is not a recognized measure under Canadian GAAP. Canadian open-ended income trusts,
such as the Fund, use distributable cash as an indicator of financial performance. We define
Distributable Cash as EBITDA less interest expense and sustaining capital expenditures.

Distributable cash may differ from similar computations as reported by other issuers and, accordingly,
may not be comparable to distributable cash as reported by such issuers. We believe that Distributable
cash is a useful supplemental measure that tracks the performance of the business, excluding the
effect of non-cash items. As such, we believe the most directly comparable GAAP measure is net
earnings.



ART IN MOTION INCOME FUND
Consolidated Balance Sheet
(in thousands of dollars)
(Unaudited)

-------------------------------------------------------------------------
March 31, December 31,
2005 2004
-------------------------------------------------------------------------

Assets

Current assets:
Cash and cash equivalents $ 2,877 $ 1,881
Accounts receivable 10,906 12,325
Forward foreign exchange contracts 4,678 4,780
Inventories 6,345 6,470
Prepaid expenses 1,344 1,326
-----------------------------------------------------------------------
26,150 26,782

Forward foreign exchange contracts 1,313 2,333

Property, plant and equipment 19,336 19,652

Deferred financing costs 39 43

Intangible assets 15,848 17,282

Goodwill 64,210 64,210
-------------------------------------------------------------------------

$ 126,896 $ 130,302
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Liabilities and Unitholders' Equity

Current liabilities:
Bank indebtedness $ 17 $ 662
Accounts payable and accrued liabilities 7,437 7,342
Distributions payable 892 892
Due to related party - 57
-----------------------------------------------------------------------
8,346 8,953

Interest rate swap 70 171

Long-term debt 20,000 20,000

Non-controlling interest 27,571 27,736

Unitholders' equity 70,909 73,442
-------------------------------------------------------------------------

$ 126,896 $ 130,302
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Commitments (note 3)

See accompanying notes to consolidated financial statements.



ART IN MOTION INCOME FUND
Consolidated Statement of Operations
(in thousands of dollars, except per unit amounts)
(Unaudited)

Three months ended March 31, 2005

-------------------------------------------------------------------------

Revenue:
Sales $ 16,753
Royalties 1,019
-----------------------------------------------------------------------
17,772
Cost of goods sold 12,197
-------------------------------------------------------------------------
5,575

Expenses:
Amortization 1,602
General and administrative (note 3) 1,892
Image and product development 470
Interest and bank charges 333
Selling 2,177
-----------------------------------------------------------------------
6,474
-------------------------------------------------------------------------

Loss before undernoted items (899)

Other earnings:
Interest rate swap 101
Foreign exchange gain 74
Interest and miscellaneous 11
-----------------------------------------------------------------------
186
-------------------------------------------------------------------------

Loss before non-controlling interest (713)

Non-controlling interest (690)
-------------------------------------------------------------------------

Loss for the period $ (23)
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Basic and diluted loss per unit $ (0.0028)
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Weighted average number of units outstanding 8,030,070
-------------------------------------------------------------------------
-------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.



ART IN MOTION INCOME FUND
Consolidated Statement of Unitholders' Equity
(in thousands of dollars)
(Unaudited)

Three months ended March 31, 2005

-------------------------------------------------------------------------
Unitholders' Accumulated
capital earnings Distributions Total
-------------------------------------------------------------------------

Balance,
December 31, 2004 $ 72,714 $ 728 $ - $ 73,442

Activity for the
period - (23) (2,510) (2,533)
-------------------------------------------------------------------------

Balance,
March 31, 2005 $ 72,714 $ 705 $ (2,510) $ 70,909
-------------------------------------------------------------------------
-------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.



ART IN MOTION INCOME FUND
Consolidated Statement of Cash Flows
(in thousands of dollars)
(Unaudited)

Three months ended March 31, 2005

-------------------------------------------------------------------------

Cash provided by (used in):

Operations:
Loss for the period $ (23)
Items not involving cash:
Amortization 1,805
Non-controlling interest (690)
Founders' Employee Participation Plan expenses 692
-----------------------------------------------------------------------
1,784
Net change in interest rate swap (101)
Net change in forward foreign exchange contracts 1,122
Change in non-cash operating working capital (note 5) 1,621
-----------------------------------------------------------------------
4,426

Investments:
Purchase of property, plant and equipment (51)

Financing:
Bank indebtedness (645)
Distributions paid or payable to unitholders (2,510)
Distributions paid or payable to non-controlling interest (167)
Due to related party (57)
-----------------------------------------------------------------------
(3,379)
-------------------------------------------------------------------------

Increase in cash and cash equivalents 996

Cash and cash equivalents, beginning of period 1,881
-------------------------------------------------------------------------

Cash and cash equivalents, end of period $ 2,877
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Interest paid $ 280
-------------------------------------------------------------------------
-------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.



ART IN MOTION INCOME FUND
Notes to Consolidated Financial Statements
(tabular amounts in thousands of Canadian dollars)
(Unaudited)

Three months ended March 31, 2005

-------------------------------------------------------------------------


1. Basis of presentation:

These interim consolidated financial statements have been prepared using Canadian generally accepted
accounting principles (Canadian GAAP). The interim financial statements include normal recurring
adjustments, which in management's opinion, are necessary for a fair presentation of the financial
results of the interim period presented.

The disclosures in these statements do not conform in all aspects to the requirements of Canadian GAAP
for annual financial statements. These statements follow the same accounting policies and methods of
their application as the most recent annual financial statements, except as described in note 2. These
statements should be read in conjunction with the significant accounting policies and other
information in the most recent annual financial statements of the Art In Motion Income Fund (the
"Fund").

There is no comparative information for the statements of operations and cash flows as the Fund was
established on August 3, 2004.

2. Accounting changes:

As of January 1, 2005, the Fund adopted Accounting Guideline 15, which requires a variable interest
entity ("VIE") to be consolidated by its primary beneficiary ("PB"). The PB is the party that absorbs
a majority of the VIE's expected losses and/or receives a majority of the expected residual returns.
The Fund has evaluated its variable interests and has determined that the adoption of this guidance
has no material impact on the financial statements.

3. Commitments:

In connection with the resignation of Paul Wagler, the Chief Executive Officer, Art In Motion Limited
Partnership agreed to make severance payments to Mr. Wagler of approximately $355,000. As of March 31,
2005, no payment had been made to Mr. Wagler, but a provision for settlement has been provided as a
charge to general and administrative expenses for the period.

In addition to the above noted severance payments, the resignation has also triggered the full vesting
of Mr. Wagler's Founder's Employee Participation Plan ("FEPP") units. As a result of the vesting of
these units, an additional accrual of approximately $314,000 was charged to general and administrative
expenses for the period. The costs related to the FEPP are funded by GVP Holdings Inc. and do not
impact the results of the Fund.

4. Segmented information:

The Fund operates in a single reportable operating segment as a publisher, framer and licensor of
images and fine-art reproductions.

The Fund's gross sales are derived from four main categories as follows:



---------------------------------------------------------------------

Artprints $ 2,326
Framed and other 9,457
Decographs 5,308
Transfers 638
----------------------------------------------------------------------

Gross sales 17,729
Discounts and allowances (976)
----------------------------------------------------------------------

Sales 16,753
Royalties 1,019
----------------------------------------------------------------------

$ 17,772
----------------------------------------------------------------------
----------------------------------------------------------------------

The Fund sells to customers located in the following regions:

----------------------------------------------------------------------

Canada $ 1,449
United States 13,863
Europe 2,092
Other 325
----------------------------------------------------------------------

Gross sales 17,729
Discounts and allowances (976)
----------------------------------------------------------------------

Sales $ 16,753
----------------------------------------------------------------------
----------------------------------------------------------------------

Royalty income is earned almost entirely from customers located in
the United States.

As at March 31, 2005, $66,000 of the Fund's assets were located in
the United States and the remainder of the assets were located in
Canada.

5. Supplemental information:

---------------------------------------------------------------------
March 31,
2005
---------------------------------------------------------------------

Change in non-cash operating working capital:
Accounts receivable $ 1,419
Inventories 125
Prepaid expenses (18)
Accounts payable and accrued liabilities 95
---------------------------------------------------------------------

$ 1,621
---------------------------------------------------------------------
---------------------------------------------------------------------


The Fund is an unincorporated, open-ended limited purpose trust established under the laws of British
Columbia to hold, indirectly, the securities of Art In Motion Limited Partnership. Art In Motion is a
leading global publisher, framer and licensor of images and fine-art reproductions. Art In Motion
designs, manufactures and markets fine-art reproductions based on proprietary artwork.

Contact Information

  • Art In Motion Income Fund
    Allan Achtemichuk
    Chief Financial Officer
    (877) AIM-3233 ((877) 246-3233)