XS Cargo Income Fund
TSX : XSC.UN

XS Cargo Income Fund

November 14, 2007 06:00 ET

XS Cargo Income Fund Reports 2007 Third Quarter Results

EDMONTON, ALBERTA--(Marketwire - Nov. 14, 2007) - XS Cargo Income Fund (the "Fund") (TSX:XSC.UN) today announced its results for the 2007 third quarter. The Fund's consolidated interim financial statements and Management's Discussion and Analysis ("MD&A") can be found on XS Cargo's website at www.xscargo.com and on SEDAR at www.sedar.com.

For the 2007 third quarter, the Fund reported sales of $29.3 million; EBITDA (1) of $1.9 million; and net earnings of $0.4 million or $0.07 per unit. Distributable cash (1) was $0.8 million or $0.07 per unit compared to distributions declared of $1.3 million or $0.11 per unit.

Michael McKenna, President and Chief Executive Officer of the Fund stated, "Our third quarter sales and gross margin showed marked improvement over the first half of the year, and our new IT systems were successfully installed on schedule. Our continued ability to source brand name products at significant discounts leaves us confident we can return to historic levels of profitability in 2008."

Highlights for the third quarter

- Third quarter sales of $29.3 million, up 12.7% from the third quarter of 2006.

- Third quarter gross margin of $11.2 million, up 14.7% from the second quarter of 2006.

- Gross margin percentage of 38.2% compared to 30.5% in the first quarter of 2007, 34.3% in the second quarter of 2007 and 37.5% for the third quarter of 2006.

- Freight costs, which are included in cost of goods sold, were 8.7% of sales compared to 9.8% of sales in the first quarter and 9.2% in the second quarter.

- Earnings from operations of $1.9 million, compared to earnings from operations of $3.1 million for the third quarter of 2006.

- Same store sales decrease of 2.0% for the third quarter compared to the third quarter of 2006, a significant improvement over the 15.7% same store sales decrease experienced in the second quarter. The improvement in same store sales was steady throughout the third quarter.

- One new store opened in Peterborough, Ontario on September 17.

- Continued successful sales of two-year product replacement extended warranty plans ("PRPs"). During the twenty-four months since implementation, $4.7 million of PRPs were sold, however only $2.6 million has been recognized as revenue to date and approximately $0.6 million was recognized during the quarter. Revenue from PRP sales is deferred and recognized on a straight-line basis over the two-year terms of the PRPs.

- Distributable cash (1) of $0.07 per unit compared to distributions declared of $0.11 per unit. Due to the seasonal nature of our business, over 40% of our annual distributable cash (1) is generated in the fourth quarter. Since the Fund declares equal monthly distributions throughout the year, it is expected that distributable cash (1) will be below distributions declared in the first three quarters.

- Completed the implementation of JDA® Software Group, Inc.'s Merchandise Management System and Distributed Store System for Windows. This integrated software solution includes: point-of-sale; inventory and distribution management; accounting and management reporting functions.

- JDA® Software Group, Inc. (NASDAQ:JDAS) is the enduring demand and supply chain partner to the world's leading retailers, manufacturers and suppliers, helping more than 5,500 customers in more than 60 countries realize real demand chain results.

Business of the Fund

The Fund commenced business operations on May 17, 2005, when it completed an initial public offering (the "IPO") of 6,106,000 trust units at a price of $10 per unit, for aggregate gross proceeds of $61,060,000. Concurrent with the closing of the IPO, the Fund acquired a 51% indirect interest in XS Cargo LP and XS Cargo LP acquired the net assets (the "Acquired Business") of Famous Brands (Edmonton) Inc. (the "Vendor"). XS Cargo LP operates 40 closeout retail stores in Alberta, British Columbia, Manitoba, Saskatchewan, Ontario, Newfoundland, Nova Scotia and New Brunswick.

(1) Non-GAAP Measures

References to "EBITDA" are to earnings before interest, income taxes, depreciation and amortization and references to "distributable cash" are to cash available for distribution to Unitholders in accordance with the distribution policies of the Fund. Management believes that, in addition to income or loss, EBITDA is a useful supplemental measure of performance and cash available for distribution before debt service, changes in working capital, capital expenditures and income taxes. Specifically, management believes that EBITDA is the appropriate measure from which to make adjustments to determine the distributable cash of the Fund. Distributable cash of the Fund is a measure generally used by open-ended trusts as an indicator of financial performance. As one of the factors that may be considered relevant by prospective investors is the cash distributed by the Fund relative to the price of the Units, management believes that distributable cash of the Fund is a useful supplemental measure that may assist prospective investors in assessing an investment in the Fund.

Earnings from operations have been derived by adding interest expense, amortization of property and equipment and intangible assets, unit-based compensation and non-controlling interest to net earnings for the period.

Payout ratio refers to the ratio of cash distributions declared to unitholders to distributable cash generated by the Fund.

EBITDA, distributable cash, earnings from operations and payout ratio are not earnings measures recognized by GAAP and do not have standardized meanings prescribed by GAAP. Investors are cautioned that EBITDA, distributable cash and earnings from operations should not replace net income or loss (as determined in accordance with GAAP) as an indicator of the Fund's performance, of its cash flows from operating, investing and financing activities or as a measure of its liquidity and cash flows. The Fund's methods of calculating EBITDA, distributable cash, earnings from operations and payout may differ from the methods used by other issuers and may not be comparable to similar measures presented by other issuers.

FORWARD LOOKING STATEMENTS

This press release contains forward-looking statements. All statements other than statements of historical fact contained in this press release are forward-looking statements. You can identify many of these statements by looking for words such as "believe", "expects", "will", "intends", "projects", "anticipates", "estimates", "continues" or similar words or the negative thereof. These forward-looking statements include statements with respect to the amount and timing of the payment of distributions of the Fund. There can be no assurance that the plans, intentions or expectations upon which these forward-looking statements are based will occur. Forward-looking statements are subject to risks, uncertainties and assumptions, including, but not limited to, those discussed elsewhere in the press release. There can be no assurance that such expectations will prove to be correct.

Some of the factors that could affect future results and could cause results to differ materially from those expressed in the forward-looking statements contained herein include, but are not limited to, those discussed under "Risk Factors" in the Fund's MD&A.

The forward-looking statements contained herein are expressly qualified in their entirety by this cautionary statement. The forward-looking statements included in this press release are made as of the date of this press release and, except as required by law, the Fund assumes no obligation to update or revise them to reflect new events or circumstances.



XS Cargo Income Fund
Consolidated Balance Sheets

September 30, December 31,
2007 2006
(unaudited)
$ $
Assets
Current
Cash and cash equivalents - 1,017,824
Rebate and other receivables 86,905 439,384
Inventory 27,388,308 22,288,806
Deposits on inventory 8,644,845 6,604,788
Prepaid expenses and deposits 970,776 828,775
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37,090,834 31,179,577
Deferred charges 350,291 331,799
Property and equipment 6,766,564 4,332,028
Intangible assets 5,763,800 6,718,000
Goodwill 101,788,426 101,788,426
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151,759,915 144,349,830
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Liabilities
Current
Bank indebtedness 9,964,175 -
Accounts payable and accrued liabilities 10,679,710 10,597,933
Deferred revenue 1,644,964 1,528,327
Distributions payable to unitholders (Note 6) 286,219 629,681
Distributions payable to non-controlling
interest (Note 7) 163,725 1,103,235
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22,738,793 13,859,176
Term loan (Note 4) 11,250,000 2,500,000
Subordinated loan (Note 4) 11,827,090 -
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45,815,883 16,359,176
Term loan (Note 4) - 15,000,000
Deferred revenue 497,881 607,513
Unamortized lease inducements 680,466 317,975
Future income taxes (Notes 3 and 5) 780,160 -
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47,774,390 32,284,664
Non-controlling interest (Note 7) 54,344,212 57,493,942
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102,118,602 89,778,606
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Unitholders' Equity
Fund Units (Note 6) 56,116,612 56,131,876
Contributed Surplus 6,360 -
Deficit (6,481,659) (1,560,652)
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49,641,313 54,571,224
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151,759,915 144,349,830
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XS Cargo Income Fund
Consolidated Statements of Earnings and Comprehensive Income
(Unaudited)

Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
2007 2006 2007 2006

$ $ $ $

Sales 29,250,232 25,960,077 82,427,072 74,454,818

Cost of goods sold 18,075,852 16,218,470 53,897,388 46,543,733
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Gross margin 11,174,380 9,741,607 28,529,684 27,911,085
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Expenses
Administrative and
operating 9,321,239 6,689,653 26,115,854 18,700,725
Amortization of
property and
equipment 327,936 237,220 936,216 624,897
Amortization of
intangible assets 328,100 298,000 954,200 894,000
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9,977,275 7,224,873 28,006,270 20,219,622
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Earnings before
the undernoted 1,197,105 2,516,734 523,414 7,691,463
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Other expenses
Interest on bank
indebtedness 54,027 44,061 229,442 167,948
Interest on loans 698,823 270,786 1,400,920 737,207
Foreign exchange
loss 115,216 23,636 246,176 43,557
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868,066 338,483 1,876,538 948,712
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Earnings (loss)
before
non-controlling
interest and
future income
taxes 329,039 2,178,251 (1,353,124) 6,742,751
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Future income
taxes (Notes 3 and 5) (489,000) - 780,160 -
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Earnings (loss)
before
non-controlling
interest 818,039 2,178,251 (2,133,284) 6,742,751

Non-controlling
interest (Note 7) 402,059 1,069,507 (1,047,609) 3,308,630
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Net earnings
(loss) and
comprehensive
income (loss) for
the period 415,980 1,108,744 (1,085,675) 3,434,121
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Basic and diluted
earnings (loss)
per unit (Note 12) 0.07 0.18 (0.18) 0.56
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XS Cargo Income Fund
Consolidated Statements of(Deficit) Retained Earnings
(Unaudited)

Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
2007 2006 2007 2006

$ $ $ $

(Deficit) retained
earnings,
beginning of the
period (6,038,982) (636,352) (1,560,652) 701,871

Net earnings (loss)
for the period 415,980 1,108,744 (1,085,675) 3,434,121

Distributions
declared in the
period (858,657) (1,889,044) (3,835,332) (5,552,644)
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Deficit, end of the
period (6,481,659) (1,416,652) (6,481,659) (1,416,652)
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XS Cargo Income Fund
Consolidated Statements of Cash Flows
(Unaudited)

Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
2007 2006 2007 2006

$ $ $ $

Cash provided by
(used for) the
following
activities

Operating
Activities
Net earnings (loss)
for the period 415,980 1,108,744 (1,085,675) 3,434,121
Items not affecting
cash:
Non-controlling
interest 402,059 1,069,507 (1,047,609) 3,308,630
Future income taxes (489,000) - 780,160 -
Amortization of
property and
equipment 327,936 237,220 936,216 624,897
Amortization of
intangible assets 328,100 298,000 954,200 894,000
Unit based
compensation
(Note 9) 15,700 43,500 89,060 103,500
LTIP expense
(Note 8) 13,993 - 13,993 -
Deferred charges,
net of costs
recognized (14,134) (30,414) (18,492) (124,979)
Deferred revenue,
net of revenue
recognized 11,604 196,622 7,005 901,457
Lease inducements
received, net of
amortization of
lease inducements 276,558 62,677 362,491 88,874
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1,288,796 2,985,856 991,349 9,230,500

Net change in
non-cash working
capital (3,221,818) (3,231,895) (7,107,304) (11,285,452)
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(1,933,022) (246,039) (6,115,955) (2,054,952)
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Financing
Activities
Net change in bank
indebtedness 2,787,187 1,720,276 9,964,175 4,586,592
Proceeds from
subordinated loan 11,827,090 - 11,827,090 -
Proceeds from
term loan - 2,500,000 3,750,000 2,500,000
Repayment of term
loan (10,000,000) - (10,000,000) -
Distributions paid
on Fund Units (858,657) (1,889,044) (4,178,794) (5,495,400)
Distributions paid
to non-
controlling
interest (491,175) (1,821,205) (3,130,691) (5,248,021)
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3,264,445 510,027 8,231,780 (3,656,829)
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Investing
Activities
Purchases of
property and
equipment (1,308,526) (263,988) (3,110,752) (1,730,715)
Investment in
LTIP trust
(Note 8) (22,897) - (22,897) -
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(1,331,423) (263,988) (3,133,649) (1,730,715)
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Decrease in cash
and cash
equivalents - - (1,017,824) (7,442,496)

Cash and cash
equivalents,
beginning
of period - - 1,017,824 7,442,496
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Cash and cash
equivalents,
end of
period - - - -
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Supplementary
cash flow
information

Interest paid 842,160 314,847 1,719,672 905,155

Contact Information

  • XS Cargo Income Fund
    Jeff Rootman
    Vice-President, Finance and Chief Financial Officer
    (780) 732-2112
    Website: www.xscargo.com