While year-end results were below the prior year due to weaker sales through the first three quarters of 2005, fourth quarter results were positive compared to 2004.
For the year ended December 31, 2005 , consolidated sales declined 8% to $69.8 million compared to $75.6 million in the prior year. This decline related primarily to lower sales in Canada . On a volume basis, United States sales improved compared to 2004, although this growth was entirely offset by the effect of the rising Canadian dollar. Canadian sales for the year were $36.3 million compared to $41.6 million in 2004. This decline was due primarily to a reduction in single-detached housing starts in Ontario and Quebec , the Company's two largest Canadian markets for its residential products.
In the United States , 2005 sales were $33.5 million compared to $34.0 million in 2004. This small decrease in sales is attributable to the depreciation of the US dollar relative to the Canadian dollar in 2005 compared to the prior year, the effect of which reduced reported United States sales in Canadian dollars by $2.1 million. Expressed in US dollars, United States sales increased by 6% or US$1.5 million compared to the prior year. Management views the United States residential market as an important part of the Fund's growth strategy over the next several years. In order to capitalize on the growth opportunity this market represents, Arriscraft has intensified its sales and marketing efforts in the United States residential market and management believes that the noticeable volume increase in United States sales in 2005 demonstrates the potential of this growth strategy.
The decline in the Fund's consolidated sales in 2005 resulted in a reduction in Adjusted EBITDA to $8.8 million for the year compared to $11.0 million for 2004. The Fund incurred a net loss of $7.1 million in 2005 compared to a net income of $89,000 in 2004. Included in the 2005 net loss was a non-cash charge to income of $6.4 million for a reduction in the carrying value of goodwill on the Fund's balance sheet.
The Fund generated Distributable Cash of $4.8 million for the year ended December 31, 2005 . Cash distributions declared during the year were $4.2 million or $0.600 per Unit. As announced on July 27, 2005 , the Fund elected to suspend monthly cash distributions as well as distributions on the subordinated exchangeable LP Units and payments under the discretionary.
Payment plan for management
For the three months ended December 31, 2005 , consolidated sales increased 19% to $17.5 million from $14.6 million in the comparable period in 2004. This increase was due primarily to improved sales in Arriscraft's United States residential and non-residential markets, combined with a firming up of sales in its Canadian business.
The Fund's increased sales in the fourth quarter compared to the year earlier period resulted in an increase in Adjusted EBITDA to $2.2 million from negative $0.5 million in the same period in 2004. Including the $6.4 million goodwill impairment mentioned above, the Fund incurred a net loss of $6.5 million in the quarter compared to a net loss of $2.8 million for the three months ended December 31, 2004 . For the fourth quarter 2005, the Fund generated Distributable Cash of $1.2 million.
"2005 was a difficult year for the Fund and its Unitholders. However, we were pleased to see positive momentum in the fourth quarter, the result of our recent initiatives to accelerate sales growth in all of our key markets. In particular, we are encouraged by tangible growth in our United States sales despite a strong Canadian dollar," commented David Boles, President and Chief Executive Officer. "In the short time since joining Arriscraft, I have been exceedingly impressed by the much strength possessed by this fine business.
Going forward, we will build on these competitive advantages for the benefit of our Unitholders."
Beginning in 2006, management has established the following priorities:
- To reorganize and strengthen Arriscraft's sales team to successfully penetrate the United States residential building stone market.Management is confident a small increase in United States market share will generate tangible benefits under all market conditions.
- To reduce unit production costs by instilling a results-oriented culture that incorporates continuous improvement at all of Arriscraft's production facilities. To this end, key performance indicators to measure and enhance throughput, productivity, waste control and yield are being implemented.
- To capitalize on the improved operating performance at the Georgia plant with the goal of selling the facility's full production capacity to allow further plant expansion and achieve higher efficiencies of scale, thereby lowering unit cost. Increased United States production will also mitigate the impact of foreign exchange rate fluctuations and optimize distribution costs.
- To strengthen head office functions to enhance financial controls,reporting and management.
As these initiatives are implemented, management believes Distributable Cash will grow through 2006 and the Fund will have the ability to re-instate cash distributions during the year. Management has instituted a number of initiatives, particularly in the United States sales area that, if successful,will result in significant long-term benefits for Arriscraft and its operations. However, the magnitude and timing of the growth resulting from these programs remains uncertain at this time. To best realize the benefit of these initiatives and associated investments, the determination of the sustainable level of distributions on an ongoing basis must be made after the effects of these measures are known. Accordingly, the timing of the resumption and the amount of future cash distributions will be determined in the second half of 2006, when the effectiveness of management's sales growth initiatives can be evaluated. This decision will conform to the Fund's objective to appropriately balance the needs of Unitholders, lenders and the growth of its business.
"While 2005 was a challenging year, a number of positive trends were experienced through the last quarter and in early 2006 that we believe will increase sales and enhance operating and financial performance over the long term. Our efforts in 2006 are being directed at generating sales growth that is both profitable and sustainable, and we believe we have the production facilities, the market position, the product line and the people to achieve this objective," Mr. Boles concluded.
| Period Ended December 31, 2005
(in $,000 except per Unit amounts)
| Three Months
| Adjusted EBITDA
| Net Income (Loss)
| Basic Income (Loss) per Unit
| Distributable Cash
| Distributable Cash per Unit(a)
| Cash Distributions Declared(b)
| Cash Distributions Declared per Unit(b)
(a) For the purpose of calculating Distributable Cash per Unit, the aggregate number of Units issued and outstanding assumes conversion of Management Units into Units. No distributions were paid on Management Units during the year ended December 31, 2005.
(b) As announced on July 27, 2005 , the Fund elected to suspend the August 15 distribution to Unitholders and subsequently suspended further cash distributions. It is the intention of the trustees to resume cash distributions by the Fund at a prudent and sustainable rate during 2006.
Arriscraft International Income Fund
The Fund owns the Arriscraft International manufactured stone, brick and natural stone masonry products business conducted through Arriscraft International LP, Arriscraft International LLC and certain affiliates in Canada and the United States . Arriscraft produces manufactured stone masonry products in Canada and the United States using its proprietary The Natural Edge(R) manufacturing process. These products offer the aesthetic and physical benefits of natural stone combined with the strength, simplicity of construction and cost-effectiveness of traditional masonry. Arriscraft also produces brick and natural stone masonry products and distributes its masonry products across Canada and most of the United States.
This press release contains forward-looking statements. Often, but not always, forward-looking statements can be identified by the use of words such as "plans", "expects" or "does not expect", "is expected", "estimates", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or state that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Fund to be materially different from any future results, performance or achievements expressed or implied by the Forward-looking statements.
Examples of such statements include: (A) the intention to resume cash distributions; (B) the Fund's goals to generate growth; and (C) growth in Distributable Cash. Actual results and developments are likely to differ, and may differ materially, from those expressed or implied by the forward-looking statements contained in this press release.
Such forward-looking statements are based on a number of assumptions which may prove to be incorrect, including, but not limited to: the ability of the Fund to implement its programs for growth; level of activity in the residential and non-residential construction markets and the economy generally; consumer interest in the Fund's products; competition; foreign exchange rates; and anticipated and unanticipated costs. While the Fund anticipates that subsequent events and developments may cause the Fund's views to change, the Fund specifically disclaims any obligation to update these forward-looking statements. These forward-looking statements should not be relied upon as representing Fund's views as of any date subsequent to the date of this press release. Although the Fund has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. The factors identified above are not intended to represent a complete list of the factors that could affect the Fund. Additional factors are noted in Management's Discussion and Analysis for the Fund under "Risk and Uncertainties".
"Adjusted EBITDA" is determined by making adjustments to earnings before interest, taxes, depreciation and amortization ("EBITDA") for certain items that management believes do not affect Arriscraft's cash flow. EBITDA and Adjusted EBITDA are not recognized measures under Canadian generally accepted accounting principles ("GAAP"); however, Management believes EBITDA and Adjusted EBITDA are useful supplemental measures to net earnings as they provide investors with an indication of cash available for distribution prior to debt service, capital expenditures and income taxes. Distributable Cash is not a measure recognized under GAAP and does not have a standardized meaning prescribed by GAAP. Management believes Distributable Cash is a relevant measure of the ability of the Fund to earn and distribute cash returns to Unitholders. A reconciliation of cash provided by operating activities to EBITDA, Adjusted EBITDA and Distributable Cash is set out in Management's Discussion and Analysis of the Fund for the year ended December 31, 2005.
The Fund's 2005 Consolidated Financial Statements and Management's Discussion and Analysis, are available on the Fund's web site at www.arriscraft.com and on SEDAR at www.sedar.com.
For further information please contact:
Arriscraft International Income Fund,
President and CEO,
Tel: (519) 653-3275.