Connors Bros. Income Fund Announces Second Quarter Results - EBITDA Up 12% Before $35 Million Recall Cost



    TORONTO, Aug. 14 /CNW/ - Connors Bros. Income Fund (TSX: CBF.UN) (the
"Fund"), whose subsidiaries market consumer food products under brands such as
Bumble Bee(R), Clover Leaf(R), Brunswick(R), Castleberry's(R) and Sweet    
Sue(R), today announced its results for the quarter ended June 30, 2007.
(Note: amounts in U.S. dollars unless otherwise noted).

    
    Second Quarter Summary:

    - The Fund's operating results for the quarter were negatively impacted
      by estimated net charges of $34.3 million due to a recall (the
      "Recall") in July of non-seafood products processed on one line of its
      Augusta, Georgia production facility.

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                               Summary Results
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                                               Three months ended
                                ---------------------------------------------
                                            June 30, 2007
                                ----------------------------------
                                  Excluding     Recall  Including     July 1,
    (in millions)                    Recall    Charges     Recall       2006
                                ---------------------------------------------

    Revenue                         $ 231.8    $ (13.5)   $ 218.3    $ 220.6
    Cost of sales                     196.9       11.8      208.7      185.3
    Gross profit                       34.9      (25.3)       9.6       35.3
    SG&A                               23.3          -       23.3       21.7
    Recall expense                        -      (13.0)      13.0          -
    Net earnings (loss)             $   8.3    $ (34.3)   $ (26.1)   $   6.2
    Adjusted EBITDA                 $  20.8    $ (34.8)   $ (14.0)   $  18.5
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    - Revenues, excluding Recall charges, increased by $11.2 million, or 5.1%
      to $231.8 million for the second quarter of 2007 compared to the same
      period last year. Case volume was up 3.3% behind strong performance in
      tuna and other seafood categories.

    - Market shares remain strong in both the U.S. and Canada. In the U.S.,
      Connors shares are up in almost all categories and, for the first time,
      the Fund's Bumble Bee brand has taken over the leading market position
      in tuna. In Canada, Clover Leaf continues its leadership position with
      a 47% share of total canned seafood and new products are enabling the
      Fund to expand its presence in the refrigerated category.

    - The net loss, recognizing the Recall, for the second quarter was
      $26.1 million, or $0.52 per unit, and included $34.3 million, or $0.68
      per unit, in estimated net charges related to the Recall.

    - Net earnings excluding the net Recall charges for the second quarter
      were $8.3 million, or $0.16 per unit, an increase of $2.1 million from
      the same period in 2006.

    - EBITDA of $20.8 million for the second quarter, excluding the impact of
      the Recall, increased by $2.3 million, or 12.3%, due to solid volume
      performance and the sale of non-strategic assets. EBITDA factoring in
      the Recall charge was a loss of $14.0 million compared to a gain of
      $18.5 million in 2006

    - Working capital improvement efforts resulted in a $36 million reduction
      in inventory versus the same period a year ago, to $224 million, the
      lowest level in 20 months.

    - Standardized distributable cash generated for the quarter was
      C$22.7 million or C$0.45 per unit, resulting in a standardized
      distributable cash payout ratio of 76.6% due primarily to solid
      operating cash flows and a reduction in working capital levels.

    - On August 7, 2007 the Fund announced that, as a result of the expected
      cost of the Recall, it was suspending the payment of regular monthly
      cash distributions for an expected six month period.

    "The voluntary recall of products and the shutdown of our Augusta, Georgia
processing facility highlighted continuing challenges in our meat and poultry
business," said Chris Lischewski, president and chief executive officer of the
Fund's operating subsidiaries. "Our seafood business has performed well in
both the U.S. and Canada with improvements in shipments, sales, market shares,
and margins."
    "The recall will present a challenge for the organization in the second
half of 2007, but we are working to minimize the expense of the recall and the
impact on the Fund's financial performance. Specifically, the second half of
the year will be negatively impacted by the loss of certain meat and poultry
sales related to the recall as we believe the Augusta factory will be closed
for about 8 to 12 weeks. However, we expect solid performance at our seafood
factories and continued momentum in seafood sales to offset a majority of the
margin loss enabling us to deliver adjusted EBITDA, excluding the cost of the
recall, which is flat to up 3% compared to 2006. This is slightly off from
prior guidance where we projected the full year to be up 3% to 5%."

    Operational and Financial Summary:

    Revenue excluding Recall charges for the second quarter of 2007 was $231.8
million, an increase of $11.2 million or 5.1% as compared to      $220.6
million for the second quarter of 2006. Revenue excluding Recall charges
increased due to improved U.S. tuna shipments and strong demand for
ready-to-eat tuna and pouched tuna products. Revenue excluding Recall charges
for the six months ended June 30, 2007 increased to $481.9 million, compared
to $464.7 million for the first six months of 2006, an increase of       
$17.2 million or 3.7%.
    The net loss for the second quarter of 2007 was $26.1 million, or $0.52
per unit, and included net charges related to the Recall of $34.3 million, or
$0.68 per unit. Net earnings excluding net Recall charges for the second
quarter were $8.3 million, or $0.16 per unit, an increase of $2.1 million from
$6.2 million, or $0.12 per unit, for the second quarter of 2006. The increase
was mainly attributable to a $2.5 million gain on sale of non-strategic red
meat brands and a $4.3 million charge to write off deferred debt issuance
costs on extinguished debt incurred in the second quarter of 2006 (with no
comparable charge in the current quarter), offset by an increase in the income
tax provision (excluding the Recall tax benefit). Net earnings excluding the
net Recall charges decreased $0.2 million to $18.0 million, or $0.35 per unit
for the first six months of 2007 from $18.2 million, or $0.35 per unit for the
first six months of 2006.
    Adjusted EBITDA, which excludes the negative impact of the Recall charges,
for the second quarter of 2007 increased by $2.3 million to      $20.8
million, or 12.3%, from $18.5 million in the second quarter of 2006 as a
result of strong seafood performance and the gain on sale of non strategic red
meat brands. For the first six months of 2007, adjusted EBITDA increased to
$41.6 million from $38.2 million, up 8.9%, from the comparable period in 2006.

    Standardized Distributable Cash and Distributable Cash

    In the second quarter, we began to measure and report on Standardized
distributable cash, a new measure of distributable cash recommended by the
Canadian Institute of Chartered Accountants. For the second quarter of 2007,
standardized distributable cash was C$22.7 million, or C$0.45 per unit,
compared to C$20.9 million, or C$0.41 per unit, for the second quarter of
2006, an increase of $1.8 million or 8.6%. The standardized distributable cash
payout ratio for the second quarter of 2007 was 76.6%, favorable to the
standardized distributable cash payout ratio of 83.3% for the same period last
year. Standardized distributable cash for the twelve months ended June 30,
2007 was C$58.9 million, or C$1.16 per unit, resulting in a trailing twelve
month standardized distributable cash payout ratio of 118.0%. Distributions in
excess of standardized distributable cash were funded from cash flows from
operations.
    Historically, we have measured distributable cash as EBITDA less
maintenance capital expenditures, interest paid, and cash taxes. Distributable
cash for the three, six and twelve months ended June 30, 2007 included   
$34.8 million in pre-tax net Recall charges, which are excluded from
standardized distributable cash. Including these charges, distributable cash
for the second quarter of 2007 was a deficit of C$25.5 million, or C$0.50 per
unit, compared to distributable cash of C$16.4 million, or C$0.32 per unit,
for the second quarter of 2006. Excluding the Recall charges, adjusted
distributable cash was C$17.4 million, or C$0.32 per unit resulting in an
adjusted distributable cash payout ratio of 104.1%, compared to a payout ratio
of 105.8% fore the second quarter of 2006.
    Distributable cash for the twelve months ended June 30, 2007 was        
C$36.8 million, or C$0.72 per unit, resulting in a trailing twelve month
distributable cash payout ratio of 188.8%. The high payout ratio was due to
the charges related to the Recall. Distributions in excess of distributable
cash were funded from cash flows from operations. Excluding the Recall
charges, adjusted distributable cash for the twelve months ended June 30, 2007
was C$78.5 million or C$1.55 per unit, resulting in adjusted distributable
cash payout ratio for the twelve months ended June 30, 2007 of 88.5%.

    Other Financial Highlights

    As of June 30, 2007, consolidated debt was $253.4 million, resulting in a
twelve-month leverage ratio of 4.6x (due to the $34.8 million impact on EBITDA
resulting from the Recall), which would not have been not in compliance with
the 3.25x maximum leverage ratio covenant of the credit agreement. On August
14, 2007, the lenders of the Fund's senior credit facilities agreed to waive
an event of non-compliance, as well as non-compliance with the restricted
payments covenant. Also as of June 30, 2007 the Fund had stand-by letters of
credit in the amount of $1.4 million limiting borrowing under the senior
credit facilities.
    During the three and six months ended June 30, 2007, the Operating
Companies invested $5.6 million and $11.8 million, respectively, in property,
plant, equipment (including a $2.5 million payment for the new ERP platform
which had been accrued at December 31, 2006) and a $6.1 million investment in
a tuna processing business headquartered in Thailand. These investments were
financed primarily from cash from operations and borrowings under the credit
facilities.
    Inventory balances decreased from $260.7 million as of July 1, 2006 to
$224.4 million, a decrease of $36.3 million in connection with an initiative
to reduce working capital investment.

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                          CONNORS BROS. INCOME FUND
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             EBITDA and Adjusted EBITDA (see Non-GAAP Measures)
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                                                                      Twelve
                         Three months ended     Six months ended      months
                       --------------------- ---------------------     ended
                         June 30,    July 1,   June 30,    July 1,   June 30,
    (in thousands except
     for per unit data)     2007       2006       2007       2006       2007
                       ---------- ---------- ---------- ---------- ----------

    Net earnings (loss) $(26,094)  $  6,179   $(16,367)  $ 18,210   $ 11,900

    Add interest
     expense, net          4,297      4,321      8,586      8,271     16,968
    Add debt issuance
     costs related to
     extinguished debt         -      4,321          -      4,321          -
    Add (less) income
     taxes (benefit)      (1,126)       149        222      1,041      2,185
    Depreciation           4,364      2,505      8,741      4,895     13,968
    Trademark intangibles
     impairment charge     3,500          -      3,500          -      3,500
    Amortization of
     intangibles           1,040      1,033      2,078      2,079      4,165
                       ---------- --------------------- ---------------------
      EBITDA (loss)      (14,019)    18,508      6,760     38,817     52,686
    Adjustments:
    Add impact of product
     recall               34,806          -     34,806          -     34,806
    Add (less) restruc-
     turing and other
     transition costs
     (recovery)                -          -          -       (567)     2,096
    Gain on insurance
     claims                    -          -          -          -        (77)
                       ---------- ---------- ---------- ---------- ----------
      Adjusted EBITDA   $ 20,787   $ 18,508   $ 41,566   $ 38,250   $ 89,511
                       ---------- ---------- ---------- ---------- ----------
                       ---------- ---------- ---------- ---------- ----------

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                          CONNORS BROS. INCOME FUND
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                       Results of Operations - Quarter
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                                                Three months ended
                                ---------------------------------------------
                                           June 30, 2007
                                ----------------------------------
    (in thousands, except         Excluding     Recall  Including     July 1,
     earnings per unit)              Recall    Charges     Recall       2006
                                ---------------------------------------------

    Volume - equivalent cases         7,485                            7,244

    Revenue                        $231,769   $(13,475)  $218,294   $220,570
    Gross profit                     34,916    (25,292)     9,624     35,253
    Selling, general and
     administrative expenses         23,260          -     23,260     21,690
    Product recall expenses               -     13,014     13,014          -
    Net interest expense              4,297          -      4,297      4,321
    Debt issuance costs related
     to extinguished debt                 -          -          -      4,321
    Other income, net                (3,727)               (3,727)    (1,407)
    Net earnings (loss)            $  8,251   $(34,345)  $(26,094)  $  6,179
    Net earnings per unit -
     basic                         $   0.16   $  (0.68)  $  (0.52)  $   0.12
    Net earnings per unit -
     diluted                       $   0.16   $  (0.67)  $  (0.51)  $   0.12


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                     Results of Operations - Year-to-Date
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                                                Six months ended
                                ---------------------------------------------
                                           June 30, 2007
                                ----------------------------------
    (in thousands, except         Excluding     Recall  Including     July 1,
     earnings per unit)              Recall    Charges     Recall       2006
                                ---------------------------------------------

    Volume - equivalent cases        16,332                           15,653

    Revenue                        $481,856   $(13,475)  $468,381   $464,666
    Gross profit                     72,273    (25,292)    46,981     69,718
    Selling, general and
     administrative expenses         45,076          -     45,076     39,925
    Product recall expenses               -     13,014     13,014          -
    Net interest expense              8,586          -      8,586      8,271
    Debt issuance costs related
     to extinguished debt                 -          -          -      4,321
    Other income, net                (3,550)               (3,550)    (1,483)
    Net earnings (loss)            $ 17,978   $(34,345)  $(16,367)  $ 18,210
    Net earnings per unit -
     basic                         $   0.35   $  (0.68)  $  (0.32)  $   0.35
    Net earnings per unit -
     diluted                       $   0.35   $  (0.67)  $  (0.32)  $   0.35

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                          CONNORS BROS. INCOME FUND
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           Standardized Distributable Cash (see Non-GAAP Measures)
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                                                                      Twelve
                         Three months ended      Six months ended     months
    (in thousands      --------------------- ---------------------     ended
     except for per      June 30,    July 1,   June 30,    July 1,   June 30,
     unit)                  2007       2006       2007       2006     2007(1)
                       ---------- ---------- ---------- ---------- ----------
    Cash provided
     by operating
     activities         $ 25,567   $ 20,899   $ 51,850   $ 15,070   $ 66,959
    Less capital
     expenditures          4,976      2,324     11,172      3,785     14,995
                       ---------- ---------- ---------- ---------- ----------
      Standardized
       Distributable
       Cash - USD         20,591     18,575     40,678     11,285     51,964
    Average exchange
     rate for the
     period               1.1010     1.1225     1.1370     1.1385     1.1330
                       ---------- ---------- ---------- ---------- ----------
      Standardized
       Distributable
       Cash - C$       C$ 22,671  C$ 20,850  C$ 46,251  C$ 12,848  C$ 58,875
                       ---------- ---------- ---------- ---------- ----------
                       ---------- ---------- ---------- ---------- ----------

    Cash distributions
     declared          C$ 17,371  C$ 17,371  C$ 34,742  C$ 34,742  C$ 69,484
    Standardized
     Distributable
     Cash payout
     ratio                  76.6%      83.3%      75.1%     270.4%     118.0%

    Standardized
     Distributable
     Cash per trust
     unit
    Weighted average
     units outstanding
     - basic              50,619     51,432     50,781     51,451     50,759
      Basic            C$   0.45  C$   0.41  C$   0.91  C$   0.25  C$   1.16
    Weighted average
     units outstanding
     - diluted            51,470     51,470      51,47     51,470     51,470
      Diluted          C$   0.44  C$   0.41  C$   0.90  C$   0.25  C$   1.14
    Cash Distributions
     per unit - basic  C$   0.34  C$   0.34  C$   0.68  C$   0.68  C$   1.37
    Cash Distributions
     per unit
     - diluted         C$   0.34  C$   0.34  C$   0.67  C$   0.67  C$   1.35

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    Note - The Fund has adopted the recommendations of CICA Interpretive
    Release - Standardized Distributable Cash in Income Trusts and Other
    Flow-Through Entities, which defines standardized distributable cash.

    Conference Call and Webcast

    The Fund will host a conference call to review its financial results on
Wednesday, August 15, 2007, at 8:30 a.m. Eastern Time (9:30 a.m. Atlantic).
Please call 416-644-3419 or 1-800-731-5319 to access the call. The call will
be webcast live and archived on the Fund's web site. After opening remarks,
there will be a question and answer session for participants.
    A taped rebroadcast will be available to listeners following the call
until August 22, 2007, at midnight. To access the rebroadcast, please dial
416-640-1917 or 1-877-289-8525 and quote passcode 21242358#.

    Non-GAAP Measures

    EBITDA, adjusted EBITDA, distributable cash and adjusted distributable
cash are not recognized measures and do not have standardized meanings under
Canadian generally accepted accounting principles. Standardized distributable
cash has been defined by the Canadian Institute of Chartered Accountants,
however it is also a non-GAAP measure. Accordingly, these measures may not be
comparable to similar measures presented by other issuers. Please refer to the
Fund's Management's Discussion and Analysis for the three and six months ended
June 30, 2007, which is available at www.sedar.com, for additional information
concerning these measures and a reconciliation of these measures to the
relevant GAAP measure for the periods presented.

    Forward Looking Statements

    The statements contained in this news release that are forward-looking
are based on current expectations, and are subject to a number of
uncertainties and risks, and actual results may differ materially. These
uncertainties and risks include, but are not limited to: final determination
of the costs and expenses related to the Recall, availability of resources
such as fish, meat and other raw materials, competitive pressures and changes
in market activity, risks associated with U.S. and international sales and
foreign exchange, and regulatory requirements. Further information can be
found in the disclosure documents filed by the Fund with the Canadian
securities regulatory authorities, available at www.sedar.com.

    About Connors Bros. Income Fund

    Connors Bros. Income Fund indirectly owns, through its subsidiaries, a
100% interest in Clover Leaf Seafoods, L.P. and Bumble Bee Foods, LLC.
Together, these two operating companies comprise North America's largest
branded seafood company, offering a full line of canned tuna, salmon, sardine
and specialty seafood products, marketed under leading brands including Clover
Leaf(R), Bumble Bee(R), Brunswick(R), Snow's(R) and Beach Cliff(R), as well as
a full-line of canned chicken and canned meat products in the U.S. under the
Castleberry's(R), and Sweet Sue(R) brand names. For further information,
please visit the Fund's website at www.connors.ca.
    %SEDAR: 00016892E




For further information:

For further information: Kent McNeil, Executive Vice President & Chief
Financial Officer, Connors Bros., Ltd., (858) 715-4076

Organization Profile

CONNORS BROS. INCOME FUND

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