Spinrite Income Fund

Spinrite Income Fund

May 11, 2006 20:43 ET

Spinrite Reports First Quarter Results for Fiscal 2006

LISTOWEL, ONTARIO--(CCNMatthews - May 11, 2006) - Spinrite Income Fund (TSX:SNF.UN), today announced its financial results for the thirteen-week period ended April 1, 2006.

"The challenges that we faced late in 2005 continued to adversely affect our results in the first quarter of 2006," said Dario Margve, President and Chief Executive Officer. "High retail inventory levels and a decline in consumer demand for fancy yarn negatively impacted sales during the first quarter."

"We anticipate these factors will likely persist for the remainder of the year," continued Mr. Margve. "However, we are making progress with our efforts to address these difficult issues and we continue to believe that our diverse product offerings and multi-brand strategy position Spinrite well for increasing U.S. market share over the long term."

The Fund has provided certain supplemental unaudited financial information for the period ended April 2, 2005 for comparison purposes. This comparable period of 2005 includes financial information of Spinrite Limited Partnership prior to the Fund's acquisition of Spinrite Limited Partnership on February 8, 2005.

Effective January 1, 2006, the Fund announced a change in accounting policy with the mandatory adoption of EIC-156, "Accounting by a vendor for consideration given to a customer". As a result, certain rebates and discounts given to customers are now being deducted to arrive at revenue for the Fund. Previously, these rebates and discounts were included in cost of sales. Prior to this accounting policy change, revenue for the period ended April 2, 2005 was reported as $40.5 million. Under the new policy, $2.5 million has been reclassified from cost of sales to yield adjusted revenue of $38.0 million for that period.

Revenue for the first quarter of 2006 was $20.5 million, a decrease of 46.1%, or $17.5 million from $38.0 million in the first quarter of 2005. Sales were affected by high retail inventory levels, declines in consumer demand for fancy yarn and the continued liquidation of fancy yarns through non-traditional outlets.

Compared to the first quarter of 2005, sales of fancy yarns decreased 76.0% to account for 25.5% of total sales in the first quarter of 2006, compared to 53.8% in the prior year. Sales of classic yarns decreased 18.6% in the first quarter compared to last year. Management believes this decline in classic yarns was caused by cautious retail buying rather than a decline in consumer spending.

Spinrite reported Adjusted EBITDA(a) of $3.5 million for the first quarter, a decrease of 69.7%, or $8.1 million from the comparable period in 2005. Adjusted EBITDA margin decreased from 30.7% to 17.3% as a result of lower sales and a decrease in gross profit percentage.

During the first quarter, the Fund repaid $2.7 million on the bank operating facility.

Distributable cash available to public unitholders for the first quarter was $2.6 million, and distributions declared were $5.4 million. The shortfall was funded by cash generated from improvements in working capital.

On March 30, 2006, the Fund announced its intention to reduce monthly distributions by 55% to $0.04 per unit from $0.08833 per unit. This change took effect with the April 2006 distribution which is payable in May 2006. The Fund also suspended all distributions to the non-controlling subordinated unitholders.

Due to the volatility and ongoing contraction of the yarn market, there can be no assurance that the current monthly distribution rate can be sustained. The Board of Trustees will continue to closely monitor the distribution rate relative to the Fund's performance.

Conference Call and Webcast

Management will host a conference call at 10 a.m. ET on Friday, May 12, 2006 to discuss its first quarter results. The call can be accessed by calling 1-866-250-4907 or 416-644-3433. A replay of the call will be available until midnight on May 19, 2006. It can be accessed at the Fund's website at www.spinriteincomefund.com.

The Fund's full interim financial statements, notes to financial statements and management's discussion and analysis are available at www.sedar.com and www.spinriteincomefund.com.

Spinrite Income Fund (TSX:SNF.UN) is the largest producer and marketer of craft yarn in Canada and one of the largest in the United States. Established in 1952, Spinrite researches, develops, manufactures and markets a broad variety of consumer craft yarns. The company also supports its market with patterns that provide customers with creative ideas for knitted products. Spinrite has approximately 520 employees at its fully integrated manufacturing and distribution centre in Listowel, Ontario.

(a)Adjusted EBITDA refers to earnings before interest, taxes, depreciation and amortization after making adjustments for certain non-recurring items. These adjustments include non-recurring management fees, foreign exchange translation gains or losses on debt and other instruments, and pre-funded management arrangements.

Forward-Looking Statements

This press release may contain forward-looking statements relating to expected future events and financial and operating results of the Fund that involve risks and uncertainties. Actual results may differ materially from management expectations as projected in such forward-looking statements for a variety of reasons, including market and general economic conditions and the risks and uncertainties detailed from time to time in the Fund's prospectus filed with the Canadian securities regulatory authorities. Due to the potential impact of these factors, 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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