Clearwater reports second quarter 2008 results


    HALIFAX, Aug. 14 /CNW/ - (TSX:CLR.UN):

    - Sales and gross profit for the second quarter of 2008 were $69 million
      and $13 million versus $75 million and $16 million in 2007 (prior to
      adjustment in 2008 for new inventory standard)
    - Year to date sales and gross profit were $126 million and $25 million
      versus $134 million and $28 million (prior to adjustment in 2008 for
      new inventory standard)
    - Distributable cash relatively stable for the first half of 2008 versus
      2007 being a shortfall of $6.4 million versus a shortfall of
      $5.3 million in 2007.
    - Sea and fishing trials completed for newly converted clam vessel,
      positioning clam business for growth. Incurred $1.6 million of
      commissioning costs during the quarter.
    - Negotiated renewed and expanded joint venture agreement for the shrimp
      business, securing continued partnership for the future.
    - Acquires new lobster vessel, improved efficiencies to result
    - Fund enters into transaction agreement

    Today, Clearwater Seafoods Income Fund (the "Fund") reported second
quarter 2008 results.
    Sales and gross profit for the second quarter of 2008 were $69 million and
$13 million versus $75 million and $16 million in 2007 (prior to the
adjustment in 2008 for new inventory standard).
    There were a number of significant events, positive and negative, that
impacted the second quarter of 2008 as discussed below.

    - Exchange - For the second quarter of 2008, sales and margins were
      negatively impacted by $2 million when current effective rates are
      compared to those of 2007.

      Fluctuating exchange rates also resulted in an increase of $2.4 million
      in realized foreign exchange expense compared to 2007. It is important
      to understand that more than 80% of Clearwater's sales are denominated
      in currencies other than the Canadian dollar, whereas the majority of
      its expenses are in Canadian dollars. As a result, foreign exchange
      fluctuations can have a material impact on Clearwater's financial

      The overall impact of exchange on cash earnings was $4.4 million versus
      2007 ($2 million negative impact on sales and gross profit and
      $2.4 million reduction in realized exchange gains).

    - Vessel commissioning and restructuring expenses - During the quarter
      Clearwater incurred approximately $1.6 million in commissioning its new
      clam vessel. In addition, Clearwater incurred approximately $700,000 in
      restructuring costs for its lobster business.

    - Lobster margins - margins were impacted in 2008 by increased shore
      prices from the December 2007 lobster buy. However, lower shore prices
      and good quality in the spring of 2008 buy have resulted in a stronger
      inventory position at the end of the second quarter, which we will see
      the benefit from in the second half of the year.

    - Administration and selling expense reductions - Clearwater achieved
      continued reductions in administrative and selling expenses in 2008.
      This relates mainly to lower spending on professional and consulting
      fees. The current year strategic review costs of approximately $130,000
      are offset by lower professional and consulting costs for the first
      quarter of 2008. The prior year included costs of approximately
      $650,000 related to potential acquisitions and approximately $200,000
      more in information technology consultation spending. The impact of the
      new inventory accounting standard resulted in an additional reduction
      of $2.3 million in selling and administrative costs in the current
      quarter as those costs were reclassified to cost of goods sold.

    - Impact from the adoption of new inventories accounting standard - The
      adoption of a new inventory standard had the impact of increasing
      second quarter earnings by $1 million but it did not materially impact
      year-to-date results (see details at the end of this release).

    The factors listed above led to lower distributable cash levels in the
second quarter but on a year-to-date basis distributable cash levels are
relatively consistent with 2007. Distributable cash for the first half of 2008
was a shortfall of $6.4 versus a shortfall of $5.3 million in 2007.
Distributable cash for the second quarter of 2008 was a shortfall of
$5 million versus $594,000 of distributable cash in 2007. On January 21, 2008
due to the 2007 financial results, the Trustees of the Fund announced the
suspension of monthly distributions. Tom Traves, Chairman of the Trustees has
stated "The Trustees will continue to monitor the distribution policy with
distributions to be determined quarterly and paid in arrears after considering
the traditional criteria in determining the distribution policy." The Trustees
have decided it would be appropriate to not pay a distribution for the second
quarter of 2008.

    Strategic investments

    In late April 2008, Clearwater took delivery of the vessel it had been
converting over the past several months for its clam fishery. The vessel
undertook sea trials and commissioning in the second quarter and commenced
fishing in June. Management continues to believe there is strong potential for
growth in the clam business and expects to begin to realize this potential in
the latter part of the year. This new vessel combined with the ocean bottom
mapping technology will enable the clam business to realize significant
improvements for 2008 and beyond.
    Clearwater has also renewed and expanded its joint venture agreement for
its shrimp harvesting operations effective April 1, 2008. The key terms of
this new agreement include an extension of the partnership for a further
10 years, the contribution by our partner of the factory vessel Ocean Prawns
and the contribution by both parties of rights to fish shrimp and turbot
fishing quotas. Each partner's equity interests in the partnership were
adjusted to reflect the contribution of the vessel and use of quotas such that
Clearwater's share of the partnership earnings have increased from 50% to 54%
from April 1, 2008 onwards. This joint venture will enable Clearwater and its
partner to combine shrimp harvesting assets and related shrimp and turbot
quotas into a larger operating entity that is expected to create efficiencies
and improved profits for the business in the future.
    Finally, subsequent to quarter-end Clearwater purchased a vessel for
conversion for the lobster fleet. The total expected cost, including
conversion costs is approximately $5.7 million. This vessel will lower the
average age of the lobster fleet, improve operating efficiency and reliability
of fishing efforts, significantly lower fuel consumption and result in greater
stability in crewing. As a result, Clearwater expects to retire 3 of the
4 existing lobster vessels in the latter part of the year. We expect to
realize increased returns from this vessel due to lower fleet management costs
and lower mortality from improved handling.
    The overall impact of these investments is to increase our harvesting
capacity while reducing our expected operating costs through employing more
efficient vessels and reducing the size of our fleet.

    Strategic Review

    Earlier today Clearwater Seafoods Income Fund announced that it had
entered into an acquisition agreement with CS Acquisition Limited Partnership
("CS Acquisition"), a partnership consortium led by Clearwater Fine Foods
Incorporated ("CFFI"), the controlling unitholder of Clearwater Seafoods
Limited Partnership.
    Under the terms of the Agreement, CS Acquisition will acquire all of the
assets of the Fund, which will result in the Fund's unitholders receiving
$4.50 per unit and the holders of convertible debentures receiving 101% of the
par value of debentures plus accrued interest.
    Based on the recommendation of its Special Committee, the Board of
Trustees has unanimously resolved to recommend that unitholders approve the
transaction. The Fund will issue a management information circular which will
contain its recommendation to unitholders together with the formal valuation
and fairness opinion.
    This offer effectively results in CS Acquisition Limited Partnership
acquiring all of the Fund's investment in Clearwater. Concurrent with this
transaction, Clearwater will reorganize it current capital structure, which
will effectively result in the replacement of existing debt facilities with
new debt facilities and the consolidation of its partnership units.
    For further details of this proposed transaction please see the news
release on this topic issued earlier today by Clearwater.


    From an operational perspective, the clam business operated without any
significant interruptions during the year-to-date period although we did incur
significant expenses commissioning our new clam vessel.
    Lobster margins were impacted in 2008 by increased shore prices from the
December 2007 lobster buy. However, lower shore prices and good quality in the
spring of 2008 buy have resulted in a stronger inventory position at the end
of the second quarter, which we will see the benefit from in the second half
of the year. In addition, we incurred approximately $700,000 in restructuring
expenses for our lobster business during the quarter to position it for
greater profits in the future.
    Administrative and selling expenses continue to be lower than 2007.
    The only earnings in the frozen at sea shrimp business resulted from the
one vessel in our joint venture. We successfully brought our new shrimp vessel
on-stream in the second quarter and renewed and expanded the joint venture
agreement for the shrimp harvesting operations effective April 1, 2008.
    In summary, margins were impacted by commissioning costs, foreign exchange
and lower lobster margins. However, a fully commissioned clam fleet and a new
shrimp joint venture will provide the opportunity to increase our harvest and
sales volumes going forward.


    Colin MacDonald, Clearwater's CEO stated "We hold significant quotas in
our key species, we have leading edge, innovative harvesting and processing
technologies and we are vertically integrated. Our business strategies to
deliver long-term value are sound. We have an outstanding and dedicated
workforce, excellent quota positioning, and global customer relationships that
span decades and we look forward to building on these strengths for the
balance of 2008 and going forward."

    Colin MacDonald
    Chief Executive Officer
    Clearwater Seafoods Limited Partnership
    August 14, 2008

    Financial Statements and Management's Discussion and Analysis Documents

    For an analysis of Clearwater and Clearwater Seafoods Income Fund's
quarterly results, please see management's discussion and analysis and the
second quarter and year-to-date 2008 financial statements. These documents can
be found in the disclosure documents filed by Clearwater Seafoods Income Fund
with the securities regulatory authorities available at or at
its website (

    Financial Highlights and Significant Items

    Summary of impact of new inventory accounting standard

    The second quarter and year-to-date 2008 results were prepared in
accordance with the new inventory standard issued by the Canadian Institute of
Chartered Accountants, effective January 1, 2008 for Clearwater. This standard
provides more extensive guidance on the determination of cost and requires
that variable overheads, a portion of administration expenses and depreciation
be inventoried and as a result, included in the cost of goods sold. This
standard was not applied retroactively and prior year numbers were not
restated. An adjustment was made to decrease opening deficit to reflect the
impact of this standard on the opening inventory figure for January 1, 2008.
The first quarter 2007 does not reflect a similar adjustment and therefore the
quarters are not readily comparable.
    The following table illustrates the impact of the new standard on amounts
reported in the second quarter and year-to-date 2008 financial statements.

                                        prior to
                                     application    Adjustment    Amount per
                                          of new       for new     financial
                                        standard      standard    statements

    Cost of good sold                $   101,180   $    10,245   $   111,425
    Gross profit                          25,168       (10,245)       14,923
    Administration and selling            17,728        (4,943)       12,785
    Depreciation and Amortization          5,596        (5,231)          365
    Net loss                         $    (9,807)  $       (71)  $    (9,878)

    Second quarter
                                        prior to
                                     application    Adjustment    Amount per
                                          of new       for new     financial
                                        standard      standard    statements
    Cost of good sold                $    56,295   $     4,301   $    60,596
    Gross profit                          12,938        (4,301)        8,637
    Administration and selling             9,037        (2,339)        6,698
    Depreciation and Amortization          2,840        (3,013)         (173)
    Net income                       $    10,440   $     1,051   $    11,491


    Key Financial Figures ($000's except unit amounts)

    Clearwater                 13 weeks ended              26 weeks ended
                           June 28,      June 30,      June 28,      June 30,
                              2008          2007          2008          2007
    Sales              $    69,223   $    75,311   $   126,348   $   134,406
    Net earnings
     (loss)            $    11,491   $    12,120   $    (9,878)  $    15,788
    Basic net
     earnings (loss)
     per unit          $      0.22   $      0.23   $     (0.19)  $      0.30
    Cash flows from
     before changes
     in working
     capital           $    (2,529)  $     2,012   $    (3,697)  $    (1,605)
     cash (1)          $    (4,964)  $       594   $    (6,421)  $    (5,307)
     declared (1)      $         -   $     7,901   $         -   $    15,817

    Weighted Average
     Units outstanding
    Limited Partnership
     Units              51,126,912    52,662,604    51,163,225    52,725,098
    Fully diluted       62,324,111    64,484,281    62,360,424    60,620,119

    1. Please refer to the Distributable Cash definition in the MD&A for
       detailed reconciliations of these amounts. The Fund receives
       distributions from Clearwater and in turn distributes them to its
       unitholders. As such, distributable cash for the Fund is equal to the
       distributions received and paid.
    2. The Fund does not consolidate the results of Clearwater's operations
       but rather accounts for the investment using the equity method. Due to
       the limited amount of information that this would provide on the
       underlying operations of Clearwater, the financial highlights of
       Clearwater are included above.

    About Clearwater

    Clearwater is recognized for its consistent quality, wide diversity and
reliable delivery of premium seafood, including scallops, lobster, clams,
coldwater shrimp, crab and ground fish.
    Since its founding in 1976, Clearwater has invested in science, people,
technology, resource ownership and resource management to preserve and grow
its seafood resource. This commitment has allowed it to remain a leader in the
global seafood market.
    %SEDAR: 00018023E

For further information:

For further information: Robert Wight, Chief Financial Officer,
Clearwater, (902) 457-2369; Tyrone Cotie, Director of Corporate Finance and
Investor Relations, Clearwater, (902) 457-8181

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