Drive Products Income Fund
TSX : DPI.UN

Drive Products Income Fund

November 13, 2007 14:25 ET

Drive Products Income Fund Announces 2007 Third Quarter Financial Results and November 2007 Cash Distributions

TORONTO, ONTARIO--(Marketwire - Nov. 13, 2007) - Drive Products Income Fund (TSX:DPI.UN) (the "Fund") released third quarter financial results today and announced the November 2007 cash distributions to untiholders. The Fund commenced operations on August 25, 2006 when it completed its initial public offering ("IPO"). As such, references to comparable 2006 periods are based on the unaudited financial statements of Drive Products, the operating entity.

"The third quarter of 2007 proved to be a very challenging one for the Fund and management is disappointed with our results", said Greg Edmonds, Chief Executive Officer. "Several factors have contributed to these results including weak natural gas prices, fuelled in part by unseasonably warm weather and the uncertainty caused by the Alberta government's drawn-out royalty debate which have resulted in a continued reduction in drilling activity in Alberta. As a result, our Western branches continue to feel the effects of these issues. In the East, the rapid appreciation in the Canadian dollar has had a favourable impact on our purchasing costs but customers have demanded sales concessions to match the Canadian dollar's appreciation and we have responded by doing so. For the most part, we have been able to maintain our historical margins, but the reduced sales prices, along with the issues in Alberta, have resulted in disappointing sales results for the Fund in the third quarter and in the year to date period."

Sales decreased 17.0% to $21.3 million in the third quarter of 2007 compared to $25.6 million in the third quarter of 2006. September 2007 year to date sales decreased by 7.7% to $67.8 million, compared to $73.5 million for the same period in 2006. Sales in 2007 were augmented by the contributions of DSI, PDS, 4WD and Dynamic. Collectively, these companies contributed approximately $2.3 million in the three month period ended September 30, 2007 and $6.6 million in the nine month period ended September 30, 2007 compared to $1.1 million in comparable periods in 2006. Defence industry sales at $3.0 million for the quarter ended September 30, 2007 were consistent with those in the comparable quarter in 2006 but increased 16.2% to $9.3 million for the nine month period ended September 30, 2007 compared to $8.0 million during the same period in 2006.

Net losses for the three and nine month periods ended September 30, 2007 were $1.6 million and $6.5 million respectively, compared to net income of $3.0 million and $11.9 million for the comparable 2006 periods. The 2006 periods are not comparable as the Fund commenced operations on August 25, 2006. As such, amortization of intangible assets recorded in connection with the IPO amounted to $3.2 million in the third quarter of 2007 compared to $1.4 million in the third quarter of 2006 and $10.3 million in nine month period ended September 30, 2007 versus $1.4 million in the comparable 2006 period. Also in the year to date period, the Fund, as required under Canadian GAAP, recorded a future income tax non-cash provision of $3.8 million to earnings in respect of temporary differences between the financial reporting and tax basis of assets and liabilities that are expected to reverse after 2010. This non-cash charge was due to the enactment of Bill C-52 in 2007. The provision is not expected to have an impact on the Fund's cash flows or distributions to unitholders.

EBITDA, as defined below, for the three month and nine month periods ended September 30, 2007 was $2.1 and $8.8 million respectively, compared to $4.8 million and $14.5 million for the 2006 comparable periods. The reduction in EBITDA is partially attributed to increased general and administrative expenses incurred for public company costs and increased rent expense which was not at market rates in 2006. However, the majority of the reduction resulted from the downturn in our Alberta branches. EBITDA in our Western branches decreased by $2.2 million in the current quarter and $4.6 million year to date. Acquisitions contributed approximately $0.2 million to EBITDA in the three month period ended September 30, 2007 and $1.2 million in the nine month period ended September 30, 2007 compared to $0.2 million in comparable periods in 2006.

The Fund also announces that its Board of Trustees has approved a cash distribution of $0.0642 per unit for the month of November 2007 (equivalent to $0.77 per unit on an annualized basis). The distribution is payable to each unitholder of the Fund and to each unitholder of the Class B limited partnership units of Drive Products Limited Partnership of record on November 30, 2007 and will be paid on December 14, 2007.

The turbulent markets that we are operating in are creating opportunities for acquisitions. Management believes that growth over the next few quarters will be driven by this strategy. We continue to seek businesses that meet our acquisition criteria and are extending our search into the United States. The US search represents a significant change from our historical strategic plan. This change has occurred as a result of the new Canadian landscape shaped by the issues in Alberta and the stronger Canadian dollar. Our strong capital resources and the depth of our management team make us confident that we will be able to use acquisitions to create an advantage for the Fund during this industry downturn. While acquisitions are important, management will also focus on asset management and operations as well to ensure that overhead costs are in line with sales expectations.



Summary of results:

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($ thousands
except
per unit For the three months For the nine months
figures) ended September 30 ended September 30
---------------------------------------------------------------------------
2007 vs 2007 vs
2007 2006(1) 2006 2007 2006(1) 2006
---------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)
$ $ $ $

Sales 21,272 25,644 (17.0%) 67,828 73,456 (7.7%)

Cost of
Sales and
General
and Admin-
istrative 19,204 20,889 (8.1%) 59,037 58,952 0.1%
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EBITDA(2) 2,068 4,755 (56.5%) 8,791 14,504 (39.4%)
Amortization 3,624 1,735 11,316 2,209
Interest
expense 82 64 177 433
Future
income tax
provision 5 - 3,826 -
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Net earnings
(loss)(3) (1,643) 2,956 (6,528) 11,862
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Average
number of
units
outstanding
('000s)(4) 13,982 - 13,982 -

Basic and
diluted
loss per
unit (0.12) - (0.47) -

Total assets 129,566 150,683 129,566 150,683

Long term
liabilities 4,294 551 4,294 551
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(1) The Fund commenced operations on August 25, 2006. Results for the three
and nine month periods ended September 30, 2006 are based on internally
prepared financial statements and are not comparable to 2007. In 2006,
rent expense was not at market rates, nor were there any public company
costs or amortization of intangible assets for the period prior to
August 25, 2006.

(2) EBITDA is a non-GAAP measure. See "Non-GAAP Measures" below for a
definition of EBITDA.

(3) The Fund's taxable earnings are allocated to its unitholders and taxed
in their hands.

(4) For purposes of calculating the average number of units outstanding,
Fund units and Class B units exchangeable for Fund units have been
included.


Third Quarter Interim Report

The Fund's third quarter interim report is available on the Fund's website at www.driveproducts.com and at www.sedar.com.

Drive Products will hold a conference call to discuss these financial results on November 14, 2007 at 9:00 am (Eastern).

Available on the call to answer questions will be Greg Edmonds, Chief Executive Officer and Chris Boudreau, Chief Financial Officer.

To participate in the conference call, please dial 416-640-3405 or 1-866-322-2356.

An archived recording of the call will be available at 416-915-1028 or 1-866-244-4494 (Passcode ID 435681) from two hours after the completion of the call to midnight December 5, 2007.

EBITDA and distributable cash are not earnings measures recognized by Canadian GAAP and do not have standardized meanings prescribed by Canadian GAAP. Therefore, EBITDA and distributable cash may not be comparable to similarly titled measures presented by other issuers. Investors are cautioned that EBITDA and distributable cash should not be construed as an alternative to net income or loss determined in accordance with Canadian GAAP as indicators of the Fund's performance or to cash flows from operating, investing and financing activities as measures of liquidity and cash flows. EBITDA means net earnings adjusted to exclude income taxes, gains or losses on disposal of capital assets, amortization of capital assets and intangible assets, and interest expense. Distributable cash means EBITDA, adjusted for maintenance capital expenditures and other adjustments listed in the reconciliation provided in management's discussion and analysis of financial condition and results of operations for the first quarter available at www.sedar.com.

About Drive Products Income Fund

Drive Products Income Fund holds a 54.5% indirect interest in Drive Products. Founded in 1983, Drive Products is a Canadian leader in the design and installation of systems solutions that transform a conventional new truck chassis into a specialized vehicle that meets a customer's technical and performance requirements. To achieve this, Drive Products offers a wide variety of products such as power take-offs, hydraulic pumps, motors and coolers, winches, cables and controls, drivelines, blowers and compressors, hoses and fittings, custom consoles, snowplows, spreaders and electronic spreader controls, from leading international manufacturers, in many instances as the sole distributor in Canada.

Forward-Looking Statements

This press release contains forward-looking statements relating to expected future events and financial and operating results of the Fund. These statements involve known and unknown risks and uncertainties. Actual results may differ materially from those anticipated by such forward-looking statements for a variety of reasons, including without limitation, market and general economic conditions and the risks and uncertainties detailed from time to time in the Fund's continuous disclosure documents filed with the Canadian securities regulatory authorities. The Fund disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by applicable law.

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