COLABOR INCOME FUND
TSX : CLB.UN

COLABOR INCOME FUND

July 14, 2009 15:44 ET

Colabor Income Fund: Increase in Sales and Earnings, on the Road to Conversion

BOUCHERVILLE, QUEBEC--(Marketwire - July 14, 2009) - FOR DISTRIBUTION IN CANADA ONLY. NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES.

Colabor Income Fund (TSX:CLB.UN) reports its results for its second quarter ended June 20 of the year ending December 31, 2009.

On July 8, 2009, the Fund issued a press release announcing its conversion to a corporation. This conversion is discussed in greater detail under Subsequent Event: Conversion to a Corporation.

It should be recalled that Colabor Income Fund is a taxed fund, accordingly its distributions to unitholders are taxed as a dividend rather than investment income. Moreover, the distributions include a significant return of capital.



Highlights of the 2009 Second Quarter Compared to 2008:

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- Sales up 1.8% to $283.7M
- EBITDA up 5.8% to $10.0M
- Net earnings up 52.1% to $1.7M
- Ratio of distributed cash to distributable cash after current income
taxes of 68.7% compared to 71% in 2008
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Highlights of the First Six Months of 2009 compared to 2008:

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- Sales up 17.9% to $540.7M
- EBITDA up 19.7% to $17.7M
- Net earnings up 70.3% to $3.0M
- Ratio of distributed cash to distributable cash after current income
taxes of 77.7% compared to 80.8% in 2008
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Results of Operations

The results of operations should be read taking the following into account:

- Results subsequent to the Bruce Edmeades acquisition are only included
since March 17, 2008 for the 2008 cumulative period but are included
since January 1 for the 2009 period;

- Results subsequent to the Bertrand Distributeur en alimentation
acquisition are only included since April 28, 2008 for the 2008
cumulative period but are included since January 1 for the 2009 period;

- The 2009 cumulative period includes 171 days compared to 166 days in
2008.



Consolidated Earnings (in thousands of dollars, except per unit amounts,
unaudited)

2009-06-20 2008-06-14
(84 days) (84 days) Variance
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$ $ $ %
Sales 283,722 100.00% 278,721 100.00% 5,001 1.79%
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Earnings before
financial
expenses,
amortization
and income
taxes 9,977 3.52% 9,428 3.38% 549 5.82%
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Financial
expenses 1,426 0.50% 1,628 0.58% (202) -12.41%
Amortization of
property, plant
and equipment 868 0.31% 875 0.31% (7) -0.80%
Amortization of
intangible
assets 2,180 0.77% 1,827 0.66% 353 19.32%
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4,474 1.58% 4,330 1.55% 144 3.33%
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Earnings before
income taxes
and non-
controlling
interest 5,503 1.94% 5,098 1.83% 405 7.94%
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Income taxes
Current 1,754 0.62% 1,114 0.40% 640 57.45%
Future 359 0.13% 934 0.34% (575) -61.56%
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2,113 0.75% 2,048 0.74% 65 3.17%
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Earnings before
non-controlling
interest 3,390 1.19% 3,050 1.09% 340 11.15%
Non-controlling
interest 1,646 0.58% 1,903 0.68% (257) -13.50%
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Net earnings 1,744 0.61% 1,147 0.41% 597 52.05%
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Basic and diluted
net earnings per
unit $0.12 $0.09
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2009-06-20 2008-06-14
(171 days) (166 days) Variance
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$ $ $ %
Sales 540,667 100.00% 458,750 100.00% 81,917 17.86%
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Earnings before
financial
expenses,
amortization
and income
taxes 17,701 3.27% 14,783 3.22% 2,918 19.74%
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Financial
expenses 2,987 0.55% 3,051 0.67% (64) -2.10%
Amortization of
property, plant
and equipment 1,756 0.32% 1,521 0.33% 235 15.45%
Amortization of
intangible
assets 4,377 0.81% 3,460 0.75% 917 26.50%
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9,120 1.68% 8,032 1.75% 1,088 13.55%
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Earnings before
income taxes and
non-controlling
interest 8,581 1.59% 6,751 1.47% 1,830 27.11%
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Income taxes
Current 1,844 0.34% 1,319 0.29% 525 39.80%
Future 1,052 0.19% 1,193 0.26% (141) -11.82%
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2,896 0.53% 2,512 0.55% 384 15.29%
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Earnings before
non-controlling
interest 5,685 1.06% 4,239 0.92% 1,446 34.11%
Non-controlling
interest 2,726 0.50% 2,501 0.55% 225 9.00%
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Net earnings 2,959 0.56% 1,738 0.37% 1,221 70.25%
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Basic and diluted
net earnings
per unit $0.20 $0.16
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Sales

Sales consist of:

For the Wholesale Segment: Gross sales to customers from the Boucherville warehouse and direct sales to affiliated-wholesalers, less rebates of 3% of the affiliated-wholesalers' sales, as provided in the agreement between Colabor LP and the affiliated-wholesalers.

For the Distribution Segment: Gross sales to customers from the London, Mississauga, Ottawa, Cambridge, Levis and Saguenay warehouses less rebates, as provided in individual agreements with these customers.

Inter-segment sales are then eliminated.

The following tables present a comparison of sales for the second quarter and the cumulative period, allocated between comparable sales and sales from the acquisition with the prior year's comparable periods.

Because the 2009 cumulative period comprises 171 days, whereas the 2008 cumulative period has 166 days, sales for the 2009 cumulative period have been adjusted based on the number of days in 2008, i.e. 166 (see 2009-06-20 adjusted column), to display the actual organic growth.



Sales (in thousands of dollars, unaudited)
2009-06-20
(84 days)
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Sales attributable
Comparable sales to acquisitions Total sales
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$ $ $
Wholesale Segment
Retail 31,390 31,390
Foodservice 93,656 93,656
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125,046 125,046

Inter-segment elimination (18,957) (5,535) (24,492)
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106,089 (5,535) 100,554

Distribution Segment
Foodservice 171,730 11,438 183,168
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277,819 5,903 283,722
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Comparable sales
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2008-06-14 Variance
(84 days) Variance (Total sales)
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$ $ % $ %
Wholesale Segment
Retail 31,341 49 0.2% 49 0.2%
Foodservice 80,977 12,679 15.7% 12,679 15.7%
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112,318 12,728 11.3% 12,728 11.3%

Inter-segment elimination (10,694) (8,263) N/A (13,798) N/A
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101,624 4,465 4.4% (1,070) -1.1%

Distribution Segment
Foodservice 177,097 (5,367) -3.0% 6,071 3.4%
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278,721 (902) -0.3% 5,001 1.8%
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2009-06-20
(171 days)
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Sales attributable
Comparable sales to acquisitions Total sales
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$ $ $

Wholesale Segment
Retail 58,367 58,367
Foodservice 168,079 168,079
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226,446 226,446

Inter-segment elimination (27,326) (17,108) (44,434)
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199,120 (17,108) 182,012

Distribution Segment
Foodservice 270,052 88,603 358,655
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469,172 71,495 540,667
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Comparable sales
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2009-06-20 2008-06-14 Variance
(Adjusted) (166 days) Variance (Total sales)
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$ $ $ % $ %
Wholesale Segment
Retail 56,660 56,819 (159) -0.3% 1,548 2.7%
Foodservice 163,164 139,678 23,486 16.8% 28,401 20.3%
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219 824 196,497 23,327 11.9% 29,949 15.2%

Inter-segment
elimination (26,527) (11,031) (15,496) N/A (33,403) N/A
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193,297 185,466 7 831 4.2% (3,454) -1.9%

Distribution Segment
Foodservice 262,156 273,284 (11,128) -4.1% 85,371 31.2%
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455,453 458,750 (3,297) -0.7% 81,917 17.9%
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Wholesale Segment

For the 84-day period, net of inter-segment eliminations and $5,535,000 in sales to Bertrand that was acquired on April 28, 2008, sales in the Wholesale Segment were up $4,465,000, which represents organic growth of 4.4%, an interesting growth rate despite the current economic situation and that is primarily attributable to the foodservice sector.

Inter-segment eliminations of $18,957,000 are sales by the Wholesale Segment to the Summit and Bertrand divisions.

In the cumulative period, the 171-day period in 2009 was reduced to 166 days, the same number of days as in the 2008 period, and shows organic growth of 4.2%.

Retail

There was essentially no organic growth in this segment, both in the quarter and in the adjusted cumulative period. Maintenance of this activity is primarily attributable to the conclusion of a major distribution agreement, in the 4th quarter of 2008, between an affiliated-wholesaler and an integrated oil company.

Foodservice

Organic growth in the Wholesale Segment is attributable to sales to foodservice affiliated distributors and was above 4% both in the quarter and the cumulative period.

In light of the significant deterioration of the Canadian economy in the first two quarters of 2009, organic growth in this segment is a clear indication that affiliated-wholesalers are continuing to increase their market share compared with their competitors.

The increase is partially attributable to the acquisition, by an affiliated-wholesaler serving the Gaspe and Lower St. Lawrence region in Quebec, of the activities of its main competitor.

Distribution Segment

2008 comparable sales:

Comparable sales are down 3% for the quarter and 4.1% for the cumulative period adjusted to 166 days.

The decline is mainly attributable to the Summit division which operates in Ontario, the Canadian province hardest hit by the recession in Canada at this time. The sharpest declines in sales were in the area of independent restaurants and cafeterias.

Earnings Before Financial Expenses, Amortization and Income Taxes (EBITDA)



Gross Profit and Synergies

Gross Profit:
Gross profit is composed of the following items:
- Wholesale Segment: profit on gross warehouse sales only, which consists
primarily of a profit margin on private brand-name products and profit
on inventory held. No profit margin is recognized on direct sales.
Income is attributed on such sales for purposes of rebates from
suppliers only.

Distribution Segment: Product acquisition cost with a percentage mark-
up that is market-driven or negotiated in current agreements.

- Rebates from Suppliers
A significant portion of Colabor's gross profit is derived from rebates
from suppliers. These rebates consist of: (i) agreements with suppliers
relating principally to distribution agreements, central billing, truck
load allowances and other incentives, (ii) rebates received from
suppliers based on buying volumes, (iii) cash discounts on purchases
based on terms of sale, and (iv) net advertising funds received in
connection with promotional activities.

Despite weak sales in the Distribution Segment, as described above, the
Fund managed to increase its EBITDA. As a percentage of sales, EBITDA was
3.52%, compared to 3.38% for the same quarter in the previous year.

The increase is attributable to the following:

- Organic growth was maintained in the Wholesale Segment which generated
better agreements with suppliers.
- Summit purchases from certain suppliers are now billed under the
Wholesale Segment, which increases the profitability of supplier
agreements, as such agreements, negotiated by the Wholesale Segment,
tend to be more significant.
- Since the start of the year, each division has reviewed its operations,
which has led to a reduction in certain types of expenses.
- The Bertrand acquisition, which has already made it possible to
generate a number of purchasing synergies.
- Profitability of the Cambridge distribution center, operated by Summit
and acquired from Bruce Edmeades, operated at a loss in 2008.


Income taxes

The acquisition of the assets of Summit Food Service Distributors Inc. was finalized and carried out on January 8, 2007. Under the new tax regime for "specified investment flowthrough" ("SIFT") entities, also called listed income trusts and partnerships, SIFTs are now subject to a similar tax treatment as corporations. This new tax treatment is applicable as of fiscal year 2007. However, existing SIFTs on October 31, 2006 could benefit from certain transitional rules and would not have been taxable under the new rules until 2011, provided they had not undergone an "undue expansion". As indicated in its decision rendered at the end of 2007, the Department of Finance considered the Summit acquisition transaction as an undue expansion. Accordingly, the Fund does not benefit from the transitional rules and is therefore subject to the new SIFT tax regime since the 2007 taxation year.



Balance Sheets

Consolidated Balance Sheets
(in thousands of dollars)

2009-06-20 2008-12-31
(unaudited)
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$ $
ASSETS
Current assets
Accounts receivable 97,317 80,804
Inventory 69,855 73,233
Prepaid expenses 2,715 1,664
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169,887 155,701
Deferred financing expenses 224 279
Share investment in a private company, at cost 6,159 6,159
Property, plant and equipment 14,140 15,029
Intangible assets 138,942 143,319
Goodwill 72,317 69,574
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401,669 390,061
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LIABILITIES
Current liabilities
Bank overdraft 4,884 7,714
Accounts payable and accrued liabilities 77,149 85,945
Income taxes payable 4,343 1,855
Balances of purchase price payable 12,581 10,103
Distributions payable to unitholders 1,307
Distributions payable to holders of
exchangeable Colabor LP units 456
Rebates payable 18,071 15,166
Deferred revenue 1,574 1,115
Instalments on long-term debt 690 707
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119,292 124,368
Bank loan 70,440 47,501
Balance of purchase price payable 3,750
Long-term debt 609 942
Debentures 46,193 45,725
Accrued benefit liability for employee benefits 772 772
Future income taxes 18,466 17,414
Non-controlling interest 30,157 29,713
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285,929 270,185
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UNITHOLDERS' EQUITY
Unitholders' capital account 135,323 135,323
Option to convert debentures 2,315 2,315
Contributed surplus 162 349
Units held for the long-term incentive plan (1,248) (875)
Deficit (20,812) (17,236)
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115,740 119,876
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401,669 390,061
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Cash Flow

Consolidated Cash Flows (in thousands of dollars)

2009-06-20 2008-06-14 2009-06-20 2008-06-14
(84 days) (84 days) 171 days) (166 days)
(unaudited) (unaudited) (unaudited) (unaudited)
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$ $ $ $
OPERATING ACTIVITIES
Net earnings 1,744 1,147 2,959 1,738
Non-cash items
Amortization of
property, plant and
equipment 868 875 1,756 1,521
Amortization of
intangible assets 2,180 1,827 4,377 3,460
Amortization of
deferred financing
expenses 27 24 55 43
Non-controlling
interest 1,646 1,903 2,726 2,501
Future income taxes 359 934 1,052 1,193
Compensation cost
from long-term
incentive plan 123 96 229 162
Amortization of
Debenture
transaction costs 230 208 468 414
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7,177 7,014 13,622 11,032
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Changes in operating
assets and liabilities
Accounts receivable (8,111) (14,151) (16,513) (15,741)
Income taxes (868) (868)
Inventory (2,350) (5,942) 3,378 (3,727)
Prepaid expenses (1) (330) (1,051) (1,171)
Accounts payable and
accrued liabilities (806) 10,074 (8,796) 18,183
Income taxes payable 1,672 (692) 2,488 (605)
Rebates payable 2,046 1,844 2,905 2,932
Deferred revenue 147 388 459 360
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(7,403) (9,677) (17,130) (637)
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Cash flows from operating
activities (226) (2,663) (3,508) 10,395
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INVESTING ACTIVITIES
Business acquisition (57,640) (70,424)
Payment of balances of
purchase price (4,015) (4,015)
Property, plant and
equipment (380) (308) (867) (450)
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Cash flows from
investing activities (4,395) (57,948) (4,882) (70,874)
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FINANCING ACTIVITIES
Bank loan 9,340 24,291 22,939 33,984
Financing expenses (225) (225)
Distributions paid to
unitholders (3,921) (2,199) (7,842) (4,862)
Distributions paid on
exchangeable Colabor
LP units (1,369) (913) (2,738) (2,282)
Repayment of long-term
debt (166) (143) (350) (260)
Purchase of units held
by the Fund for
long-term incentive plan (789) (575)
Issue of trust units 38,022 38,022
Unit and debenture issue
expenses (1,150) (1,150)
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Cash flows from financing
activities 3,884 57,683 11,220 62,652
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Net change in bank
overdraft (737) (2,928) 2,830 2,173
Bank overdraft, beginning
of period (4,147) (4,672) (7,714) (9,773)
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Bank overdraft, end
of period (4,884) (7,600) (4,884) (7,600)
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Credit Facilities

The Company has entered into a three-year agreement with a banking syndicate for operating credit facilities for an authorized amount of $100M secured by a first ranking hypothec on the Company's assets.

Under the terms of the credit agreement, the Fund is required to maintain (i) a prescribed ratio of total debt (excluding the debentures) to EBITDA less than 3.00:1.00 and (ii) a prescribed ratio of EBITDA to interest expenses greater than 3.50:1.00.

Based on the banking syndicate's method of calculation, the debt/EBITDA ratio is 1.79:1.00 and the interest coverage ratio is 6.00:1.00 times for the quarter.

During the quarter, the operating credit was increased by $9.3M to $70.4M, with $4M being used to repay balances of purchase price.

Distributions

In management's opinion, cash flows from operating activities and the funds from operating credits are sufficient to support planned capital expenditures, working capital requirements, monthly cash distributions of $0.0897 per unit and current income taxes and will comply with the banking syndicate's ratio requirements.

Standardized Distributable Cash

Information about standardized distributable cash has been prepared, in all material respects, in accordance with National Policy 41-201 - Income Trusts and Other Indirect Offerings published by the Canadian Securities Administrator in July 2007 and in accordance with the guidelines on disclosures in management's discussion and analysis in Standardized Distributable Cash in Income Trusts and Other Flow-through Entities, also released in July 2007 by the Canadian Institute of Chartered Accountants.

Standardized distributable cash is a non-GAAP measure and is a general indication of net cash from operations, which the enterprise may distribute to unitholders, at its discretion.

Colabor's business is subject to normal industry seasonal fluctuations due to weather conditions and holiday periods. Sales are generally lower at the beginning of the year due to lower consumer spending following the Christmas holiday season. They then increase gradually during the spring and summer months as sales of food consumed away from home increase and reach their peak in the last four months of the fiscal year, following the Colabor Exhibition at the end of September for the Wholesale Segment and, for the Summit division of the Distribution Segment, as a result of purchases at the Sell-A-Rama, also held at that time.

The Fund declares monthly distributions to unitholders of record on the last day of each month and pays the distributions on or around the 15th of the following month. The monthly distribution is $0.0897 per unit, for an annual distribution of $1.076.

The following table shows the changes in standardized distributable cash and distributed cash for the second quarter of 2009 and 2008, the 2009 and 2008 cumulative period and since the creation of the Fund, that is, June 28, 2005.



Standardized Distributable Cash (in thousands of dollars)

2009-06-20 2008-06-14 2009-06-20 2008-06-14 Since the
(84 days) (84 days) (171 days) (166 days) creation of
the Fund on
(unaudited) (unaudited) (unaudited) (unaudited) 2005-06-28
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$ $ $ $ $
Cash flows from
operating
activities (226) (2,663) (3,508) 10,395 104,420
Acquisition of
property,
plant and
equipment (380) (308) (867) (450) (5,742)
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Standardized
distributable
cash (606) (2,971) (4,375) 9,945 98,678
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Distributions
paid on units 3,921 2,199 7,842 4,862 40,674
Distributions
paid on
exchangeable
Colabor LP
units 1,369 913 2,738 2,282 21,323
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Distributed cash 5,290 3,112 10,580 7,144 61,997
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However, subsequent to publication, in October 2008, by the Canadian Institute of Chartered Accountants of a document entitled Improved Communication with Non-GAAP Financial Measures - General Principles and Guidance for Reporting EBITDA and Free Cash Flow, the Fund's management decided to present the following table, which is in a format that is largely used by financial analysts in their evaluation of distributable cash when making recommendations to investors.

This table contains information that is a non-GAAP measure of performance, such as the concept of earnings before financial expenses, amortization and income taxes (EBITDA) and the concept of standardized distributable cash. Since these concepts are not defined in Canadian GAAP, they may not be comparable with those of other funds.

EBITDA may be defined as follows:

EBITDA represents an indication of the entity's capacity to generate income from operations before taking into account management's financing decisions and costs of consuming tangible and intangible capital assets, which vary according to their vintage, technological currency, and management's estimate of their useful life. Accordingly, EBITDA comprises revenues less operating costs before interest expense, capital asset amortization and impairment charges, and income taxes.

The information disclosed in this table is shown directly in the Fund's financial statements, either in the consolidated statement of earnings, consolidated cash flows and notes to the consolidated financial statements.

The Fund's management also believes it is more relevant to synchronize the periods during which distributable cash is earned with the same periods in which distributed cash is reported, even though such cash is not yet distributed and with the weighted average number of units issued for those periods.

Readers may also obtain information on the changes in distributable cash over the same period in the previous year.



Distributable Cash (in thousands of dollars, except per unit amounts)

2009-06-20 2008-06-14 2009-06-20 2008-06-14
(84 days) (84 days) (171 days) (166 days)
(unaudited) (unaudited) (unaudited) (unaudited)
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$ $ $ $
Earnings before
financial expenses,
amortization and
income taxes 9,977 9,428 17,701 14,783
Financial expenses (1,426) (1,628) (2,987) (3,051)
Plus non-monetary
item - Amortization
of debenture
transaction costs 230 208 468 414
Acquisition of
property, plant
and equipment (380) (308) (867) (450)
Current income taxes (1,754) (1,114) (1,844) (1,319)
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Distributable cash 6,647 6,586 12,471 10,377
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Weighted average
number of units
Units 14,454,071 12,504,722 14,437,001 11,187,959
Exchangeable Colabor
LP units 5,087,439 5,087,439 5,087,439 5,087,439
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19,541,510 17,592,161 19,524,440 16,275,398
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Distributable cash
per unit $0,340 $0,374 $0.639 $0.638
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Variation -9.1% 0.2%
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Distributions declared
- Units 3,921 3,506 6,535 5,281
Distributions declared
- Exchangeable Colabor
LP units 1,369 1,369 2,282 2,282
Allowance for
distributions
relating to days
included in the
period for which no
distribution was
declared 871 823 871 823
Reversal of prior
period's allowance (1,592) (1,023)
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Distributed cash 4,569 4,675 9,688 8,386
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Excess of distributable
cash over distributed
cash 2,078 1,911 2,783 1,991
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Ratio of distributed
cash to distributable
cash 68.7% 71.0% 77.7% 80.8%
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Subsequent Event: Conversion to a Corporation

On July 8, 2009, the Fund announced its intention to convert from an income trust structure to a corporation (the "Conversion"). In order to effect the Conversion, Colabor has entered into an arrangement agreement (the "Arrangement Agreement") with ConjuChem Biotechnologies Inc. ("ConjuChem"), the details of which are further described below.

Following the Conversion, the new Colabor corporate entity will maintain the annual amount paid out to shareholders to a level equal to Colabor's current annual distribution on its trust units and will pay a quarterly dividend of 26.91 cents per share, which is the quarterly equivalent of Colabor's current monthly distribution of 8.97 cents per unit.

The Conversion is expected to be completed in late August 2009 and is subject to the approval of the unitholders of the Fund, to be obtained at a special meeting of unitholders to be held on or around August 19, 2009 and will be completed pursuant to a statutory plan of arrangement of ConjuChem (the "Plan of Arrangement") under Section 192 of the Canada Business Corporations Act ("CBCA")

Rationale and Benefits of the Conversion

Recent amendments to the Federal income tax rules relating to specified investment flow-through trusts ("SIFTs") allow for the conversion of a trust to a corporation to be effected on a tax deferred basis if completed prior to 2012.



Key benefits of the Conversion include:

- Greater access to equity capital markets and widening of potential
investor base in light of the decreasing importance of the public
business income trust market;
- The Colabor corporate entity will have an estimated equivalent of more
than $100 million of tax losses following the Conversion;
- The Plan of Arrangement provides for an effective and efficient method
to convert from an income trust to a corporation under existing
legislation; and
- The Conversion will lead to a simplified capital structure, as a result
of the elimination of a remaining minority interest in Colabor LP, and
more efficient corporate structure that will reduce overhead and
administrative costs.


Other elements to be considered include the fact that the new Colabor corporate entity expects to be able to pay a quarterly dividend that will, on a quarterly basis, equal Colabor's current cash distribution, the absence of negative tax impact from the Conversion given Colabor's current tax status, and finally the Conversion is tax deferred such that no income tax will be payable by Colabor or its unitholders (other than those who exercise a dissent right) as a result of the Conversion.

Details of the Conversion

As a result of the implementation of the Arrangement, Colabor's unitholders will receive one common share for every trust unit of Colabor held on the effective date of the Conversion, and ConjuChem will change its name to Colabor Group Inc. ("New Colabor"). Furthermore, the Exchangeable Colabor LP Units held by Colabor Investments Inc. will be acquired pursuant to the Arrangement by New Colabor in consideration of New Colabor common shares. Colabor Investments Inc., who will hold in the aggregate 26% of New Colabor common shares following the acquisition of its Exchangeable Colabor LP Units has indicated that it will vote in favour of the Conversion. The elimination of the remaining minority interest in Colabor LP will result in a simplified capital structure and an increase of approximately $50 million of the market capitalization of New Colabor compared to the current market capitalization of the Fund.

Outstanding convertible debentures of the Fund, amounting to $49 million, will become convertible post-arrangement into common shares of New Colabor on the same terms and conditions as were applicable to their conversion into trust units of the Fund prior to the Conversion.

The number of New Colabor common shares outstanding immediately after the Conversion will be 19,658,169 (24,445,486, when taking into account the common shares that may be issuable upon the conversion of convertible debentures).

Upon the completion of the Conversion, New Colabor will indirectly own and operate the existing businesses of Colabor LP and its subsidiaries, and the existing trustees of the Fund and management of Colabor LP will become the directors and management of New Colabor. Colabor Investments Inc., whose shareholders are the affiliated wholesalers of Colabor, currently holds the right to propose a nominee for election as trustee of the Fund. Following the Conversion, a similar right will be granted by New Colabor in favour of Colabor Investments Inc.

New Colabor will not retain any of the businesses currently carried on by ConjuChem or its related assets. Pursuant to the Plan of Arrangement, ConjuChem will transfer substantially all of its assets and all of its liabilities, including the consideration of $5 million, to a new subsidiary. All of the issued shares of this new subsidiary will be distributed to ConjuChem newly formed parent corporation ("New ConjuChem") as redemption price of New ConjuChem shares held in ConjuChem. ConjuChem, which will become New Colabor, will keep its tax attributes which are equivalent to more than $100 million of tax losses. New ConjuChem has agreed to indemnify the New Colabor corporate entity for losses or damages that may have resulted from the activities of ConjuChem prior to the Conversion.

The Conversion is subject to customary commercial conditions, including the receipt of regulatory approvals from various entities such as The Toronto Stock Exchange. As result of being an arrangement with a corporation governed by the CBCA, it is also subject to the approval of the Courts, as well as the approvals of not less than 66 2/3% of the votes cast at a meeting (the "Meeting") of the Colabor unitholders to be held to consider the Conversion. The mailing to the unitholders of an information circular in respect of the Meeting is expected on or around July 24, 2009 and the Conversion, subject to receipt of all necessary approvals, is expected to be completed in late August 2009.

At the meeting, unitholders will be asked also to consider a resolution to implement a Stock Option Plan for New Colabor, which plan will be further described in the information circular in respect of the Meeting.

Distributions for the period starting on August 1st, 2009 and ending on the closing date of the Conversion will be paid, on or around September 15, 2009, and calculated on a prorata basis using the current monthly distribution of 8.97 cents. It is expected that the New Colabor corporate entity will make its first dividend payment to its shareholders in January 2010 for the period from the completion of the arrangement to December 31, 2009.

Complete details of the terms of the Plan of Arrangement are set out in the Arrangement Agreement that will be filed by Colabor on SEDAR (www.sedar.com).

Additional Information

The Fund's MD&A and financial statements will also be available on SEDAR (www.sedar.com) following publication of this News Release. Additional information about Colabor Income Fund may also be found on SEDAR as well as on the Income Fund's Internet site at www.colaborincomefund.com.

About Colabor

Colabor is a wholesaler and distributor of food and non-food products serving the retail (grocery stores, convenience stores, etc.) and food-service (cafeterias, restaurants, hotels, restaurant chains, etc.) markets.

Caution

This News Release may contain forward-looking statements reflecting the opinions or present expectations of Colabor Income Fund or Colabor Limited Partnership concerning their performance as well as their respective business activities and future events. These statements are subject to a number of risks, uncertainties and assumptions. Actual results or events may differ.

Contact Information

  • Colabor Income Fund
    Mr. Gilles C. Lachance
    President and Chief Executive Officer
    450-449-0026, extension 265
    450-449-6180 (FAX)
    glachance@colabor.com
    or
    Colabor Income Fund
    Mr. Michel Loignon, CA
    Vice President and Chief Financial Officer
    450-449-0026, extension 235
    450-449-6180 (FAX)
    mloignon@colabor.com