Associated Brands Income Fund
TSX : ABF.UN

Associated Brands Income Fund

March 29, 2007 11:43 ET

Associated Brands Income Fund Announces Fourth Quarter and Year End 2006 Results

- REVENUE GROWTH OF 9.0% FOR FOURTH QUARTER

TORONTO, ONTARIO--(CCNMatthews - March 29, 2007) - Associated Brands Income Fund (TSX:ABF.UN) (the "Fund" or "Associated Brands") announced today the results of the Fund for the three months and year ended December 31, 2006.

Revenue increased 9.0% in the fourth quarter of 2006 to $46.7 million from $42.8 million last year, the result of increased volumes with existing customers, price increases and new products introduced throughout the year to existing and new customers. For the year ended December 31, 2006, revenue was $159.4 million compared to $150.5 million in the prior year. The appreciation of the Canadian dollar compared to the U.S. dollar reduced reported revenue by $0.8 million in the fourth quarter of 2006 and $6.0 million for the year ended December 31, 2006 compared to the same periods in 2005.

"We were pleased to see the continued positive momentum in our fourth quarter revenue compared with the prior year," commented Rob Dougans, President and Chief Executive Officer. "We will continue to work with our customers to broaden the distribution of our current product platforms while dedicating resources to developing innovative products for our customers to further drive revenue growth."

EBITDA in the fourth quarter of 2006 was $3.6 million, and for the year ended December 31, 2006 was $8.0 million compared to $0.7 million and $8.0 million for the same periods in 2005. EBITDA was negatively impacted in 2006 by higher costs for commodities, ingredients, packaging, energy and freight. The price increases implemented in 2006 across substantially all product categories with Canadian and U.S. customers partially offset these input cost pressures. Unfavourable manufacturing variances were experienced during the year, due primarily to reduced productivity and higher labour costs at the Judson and Medina dry-blend facilities. Reduced line productivity also negatively affected overhead absorption.

"Despite our revenue growth, our 2006 contribution margins remain at unsatisfactory levels (as compared to 2005). Furthermore, our contribution margin performance has been inconsistent, quarter to quarter. Our immediate key objective is to enhance production efficiency and significantly reduce costs in our manufacturing facilities including variable and fixed overhead." Mr. Dougans added; "In addition, we will focus on reducing our input costs and will continue to effectively manage input cost risks through purchase contracts and vendor resourcing."

Selling, general and administrative expenses were higher in 2006 than in the prior year due to the planned recruitment of certain key positions in late 2005 and 2006 together with increased professional fees. Partially offsetting these increases was the significant reduction in costs which were incurred in 2005 related to the nutritional and transfat content labelling packaging conversion.

With the reduction in earnings and cash flows in 2006, the Fund performed an assessment on goodwill and intangible assets for potential impairment and determined that a non-cash write-down of goodwill in the amount of $22.3 million was required. This non-cash charge to earnings was taken in the fourth quarter of 2006.

Distributable cash in the fourth quarter of 2006 was $1.2 million or $0.056 per Fund unit (diluted) compared to a shortfall of $0.8 million or ($0.067) per Fund unit (diluted) last year. For the year ended December 31, 2006, distributable cash was $1.0 million or $0.047 per Fund unit (diluted) compared to $3.9 million or $0.302 per Fund unit (diluted) in 2005. In January 2006 the Fund suspended further monthly cash distributions until such time as the business performance of the Fund improved on a sustained basis. Distributions were $0.11 per Fund unit in the fourth quarter of 2005, and $0.70 per Fund unit for the year ended December 31, 2005.

"Our financial and operating results in 2006 were again disappointing and well below our expectations. We will need to closely monitor our compliance with the covenants contained in the Fund's Credit Agreement through 2007". Mr. Dougans concluded. "Our immediate focus is to complete our execution of the initiatives we commenced in 2006 and continue to take decisive business improvement actions to achieve improved profitability in 2007."



Financial Highlights:

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Three months ended Year ended
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($000, except unit and per Dec. 31 Dec. 31 Dec. 31 Dec. 31,
unit amounts) 2006 2005 2006 2005
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Revenue 46,695 42,820 159,399 150,500
EBITDA 3,604 659 8,032 7,987
Earnings (Loss) before
under-noted items: 1,696 (615) 578 2,028
Write-down of goodwill and
other intangible assets (22,264) (32,000) (22,264) (63,245)
Non-recurring expenses (878) (883) (2,329) (883)
Non-controlling interest - 3,350 - 6,210
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Net earnings (Loss) (21,446) (30,148) (24,015) (55,890)
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Earnings (Loss) per unit before
under-noted items - diluted $0.078 $(0.052) $ 0.027 $ 0.155
Net loss per unit (diluted) $(1.526) $(2.563) $(1.803) $(4.751)
Distributable cash (shortfall) 1,230 (786) 990 3,941
Distributable cash (shortfall)
per Fund unit diluted $0.056 $(0.067) $ 0.047 $0.302
Distributions declared
per Fund unit - $ 0.110 - $0.700
Weighted average Fund
units outstanding - 14,051,972 11,762,800 13,320,027 11,762,800
basic
Weighted average Fund
units outstanding -
diluted 21,824,233 13,069,767 21,092,289 13,069,767
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SPECIAL MEETING OF UNITHOLDERS

The Fund has set April 3, 2007 as the record date for a special meeting of unitholders to consider and if deemed advisable, approve, among other matters, the terms of the agreement to sell the Fund's operating subsidiaries to a wholly-owned subsidiary of a fund managed by Torquest Partners, as announced by the Fund on March 18, 2007. The special meeting is expected to be held on May 4, 2007.

The Fund's Annual General Meeting of unitholders will be deferred until after the special meeting of unitholders on May 4, 2007.

ASSOCIATED BRANDS INCOME FUND (TSX:ABF.UN), through its operating subsidiaries, is a leading North American manufacturer and supplier of private-label dry-blend food products and household products. Since beginning operations in 1985, Associated Brands has grown to become one of the three largest suppliers of a diverse range of private-label dry-blend food products in North America, producing over eleven million cases annually across multiple product categories currently sold to 45 of the 50 largest North American food retailers. Associated Brands plans to build unitholder value by leveraging its solid presence in the U.S. private-label market, expanding its product offerings to current and new customers and adding additional contract manufacturing business, and through accretive acquisitions that meet its strict operating and strategic criteria. More information can be obtained at www.associatedbrands.com.

This press release contains certain forward-looking information and statements. Forward-looking information typically contains statements with words such as "consider", "anticipate", "believe", "expect", "plan", "intend", "may", "likely" or similar words suggesting future outcomes or statements regarding an outlook for, or future changes in, the Fund's financial performance, results of operations or distributions or other expectations, future events or performance. Readers should not place undue reliance on forward-looking information and should be aware that forward looking statements are subject to known and unknown risks, uncertainties and other factors that could cause actual results, performance or achievements of the Fund to differ materially from those suggested by the forward-looking statements. These factors include, but are not limited to, the possible failure to successfully plan and execute business improvement strategies; restrictions and covenants contained in the Fund's credit agreement and under the terms of its exchangeable debentures; the absence of long term sales contracts; possible failure to develop new product offerings; operating hazards; sensitivity of sales to weather conditions; product liability; compliance with or changes in environmental, health and safety and other regulations and guidelines; changes in income tax legislation; possible declines in vertical industry markets (grocery, foodservice, industrial and contract manufacturing); competition; reliance on key personnel; possible labour action; volatility in commodity prices and other input materials prices; foreign exchange exposure; exposure to floating interest rates; exposures under derivative financial instruments; the possible failure to expand into the United States; changes in consumer preferences; capital expenditures; and failure to complete proposed transaction.

The above list of important factors affecting forward-looking information is not exhaustive, and reference should be made to the other risks discussed in the Fund's filings with Canadian securities regulatory authorities. The Fund undertakes no obligation, except as required by law, to update publicly or otherwise any forward-looking information, whether as a result of new information, future events or otherwise, or the above list of factors affecting this information.

Except as outlined below, financial information is in accordance with Canadian generally accepted accounting principles ("GAAP").

As used herein, "EBITDA" means earnings (loss) before interest, income taxes, depreciation, amortization, translation gains and losses arising on all monetary assets and liabilities of the Fund denominated in a foreign currency, goodwill and other intangible assets write-down, non-recurring expenses and non-controlling interests. EBITDA is not a recognized measure under GAAP. Management believes that EBITDA is a useful supplemental measure to net earnings (loss), as it provides investors with an indication of cash available for distribution prior to debt service, capital expenditures and income taxes.

Distributable cash is also not a defined term under GAAP. Distributable cash is equal to net earnings (loss) before amortization, future income taxes and translation gains and losses arising from all monetary assets and liabilities of the Fund denominated in a foreign currency, less capital expenditures and debt repayments and reserves that the trustees may consider appropriate. Management believes distributable cash is a useful supplemental measure of operating performance, as it provides investors with an indication of cash available for distribution.

Investors should be cautioned that neither EBITDA nor distributable cash should be construed as an alternative to net earnings (loss) determined in accordance with GAAP as an indicator of the Fund's performance or to cash flows from operating, investing and financing activities as a measure of liquidity and cash flows. The Fund's method of calculating EBITDA and distributable cash may differ from the methods by which other issuers calculate EBITDA and distributable cash and, accordingly, EBITDA and distributable cash may not be comparable to measures used by other issuers.

Associated Brands' 2006 Consolidated Financial Statements and Management's Discussion and Analysis are available on the investor relations page at www.associatedbrands.com and on SEDAR at www.sedar.com.

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