Drive Products Income Fund
TSX : DPI.UN

Drive Products Income Fund

May 14, 2008 13:40 ET

Drive Products Income Fund Announces 2008 First Quarter Financial Results and May 2008 Cash Distributions

TORONTO, ONTARIO--(Marketwire - May 14, 2008) - Drive Products Income Fund (TSX:DPI.UN) (the "Fund") released first quarter 2008 financial results today and announced the May 2008 cash distributions to unitholders.

"Much effort was spent in the first quarter of 2008 integrating the operations of Universal Technical Services, L.L.C., W.H. Green Specialties Inc. and the Docap line of products and I'm pleased to say that these recent acquisitions have met our expectations with respect to sales and gross margins," said Greg Edmonds, Chief Executive Officer. "They helped compensate for the sluggish sales in Western Canada during the quarter and will continue to provide some stability during this period. These acquisitions have proven to be accretive to the Fund and given our strong balance sheet, we continue to seek out similar acquisition targets. The Fund remains conservatively financed with a long-term debt to equity ratio of 0.05 to 1.0 and $18.1 million in working capital. Management expects that growth over the next few quarters will continue to be driven by our acquisition strategy. We will continue to seek businesses that meet our acquisition criteria and be accretive to the Fund."

Sales decreased 2.5% to $24.2 million in the first quarter of 2008 compared to $24.8 million in the first quarter of 2007. Sales in the first quarter of 2008 were augmented by the contributions of companies and product lines recently acquired. Collectively, these companies contributed approximately $5.0 million in the three month period ended March 31, 2008. Defence industry sales were $3.1 million for the quarter ended March 31, 2008 compared to $3.1 million in the first quarter of 2007. The 2008 quarter includes approximately $0.6 million from Universal Technical Services, the recently acquired South Carolina firm. Snow and ice control sales ended the season with sales of $1.9 million compared to $1.2 million in the first quarter of 2007.

Our Western branches continue to be hampered by the market pressures in the province of Alberta and sales continue to suffer as a result. Management undertook an initiative to evaluate the sales activity of many of our customers in the province of Alberta and learned that we haven't lost many customers during this tough period. Our customers have simply purchased less product as a result of the current market conditions. We took some comfort in the fact that these customers do not appear to have shifted to a competitor and believe that when the current cycle reverses, sales to these customers will bounce back. Management is confident in the long-term fundamentals of the oil and gas industry; however, in the meantime, we are managing during this downturn by refocusing our sales efforts on other industries such as construction and infrastructure.

Cost of sales were $16.1 million in the three month period ended March 31, 2008 compared to $16.6 million in the comparable 2007 period. The slight decrease is in line with the decrease in revenues in the comparable periods. General and administrative expenses were $5.9 million in the first quarter of 2008 compared to $4.8 million in the comparable 2007 quarter. The increase in the general and administration expenses are largely acquisition related as they accounted for approximately $1.0 million of the increase. Management continues to focus on asset management as well as ensuring that overhead costs are in line with sales expectations.

Net losses for the three month period ended March 31, 2008 amounted to $0.3 million compared to $0.4 million in the comparable 2007 period. Amortization of intangible assets amounted to $2.1 million compared to $3.5 million in the comparable 2007 period. The reduction in amortization of intangible assets is largely related to the write-down of intangible assets that took place at December 31, 2007. EBITDA, as defined below, for the three month period ended March 31, 2008 was $2.2 million compared to $3.4 million in the comparable 2007 period. The reduction in EBITDA was focused in our Western branches. EBITDA in our Western branches decreased by $1.8 million in the current quarter compared to 2007.

Distributable cash for the first quarter of 2008 was $2.0 million or $0.1402 per unit (see non-GAAP measures below for a definition of distributable cash) and the Fund declared distributions of $1.8 million or $0.1251 per unit to each unitholder of record of the Fund and to each unitholder of record of the Class B limited partnership units of DPLP, which were funded from operating cash flows. The payout ratio, cash distributions declared as a percentage of distributable cash, was 89.2% for the quarter ended March 31, 2008 and 118.3% in the comparable 2007 quarter. Since inception, the Fund has generated distributable cash of $18.5 million and declared distributions of $19.5 million per unit to each unitholder of record of the Fund and to each unitholder of record of the Class B limited partnership units of DPLP, representing a payout ratio of 105.4%. Management believes that the current level of distributions is sustainable for the foreseeable future.

The Fund also announces that its Board of Trustees has approved a cash distribution of $0.04171 per unit for the month of May 2008 (equivalent to $0.50052 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 May 30, 2007 and will be paid on June 13, 2008.



Summary of quarterly results:

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($ thousands except per unit figures) Three months ended March 31
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2008 2007 % change
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(unaudited) (unaudited)
$ $

Sales 24,181 24,812 (2.5%)

Cost of Sales 16,096 16,572 (2.9%)
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Gross Margin 8,085 8,240 (1.9%)

General and Administrative 5,864 4,808 22.0%
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EBITDA (1) 2,221 3,432 (35.3%)

Amortization 2,386 3,833 (39.7%)

Interest expense 89 40 217.9%

Future income tax provision (recovery) (7) -

Income tax provision 59 -
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Net (loss) (306) (441)
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Average number of units outstanding
('000s) (2) 13,982 13,982

Basic and diluted earnings (loss)
per unit (0.022) (0.032)

Total assets 81,946 138,075

Long term liabilities 2,869 412
Distributions per unit 0.125 0.275
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(1) EBITDA is a non-GAAP measure. See "Non-GAAP Measures" below for a
definition of EBITDA. The Fund's taxable earnings are allocated to its
unitholders and taxed in their hands.
(2) For purposes of calculating the average number of units outstanding,
Fund units and Class B units exchangeable for Fund units have been
included.


First Quarter Interim Report

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

(1) Non-GAAP Measures

EBITDA and distributable cash are not earnings measures recognized by GAAP and do not have standardized meanings prescribed by 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 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. Management believes EBITDA and distributable cash are useful measures in evaluating the performance of the Fund and in determining whether to invest in units. 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. We have excluded impairments of goodwill and intangible assets in the presentation of EBITDA because we believe that such charges are non-recurring, one-time charges and that their exclusions will be useful to our investors to compare our period over period and year over year performance. Distributable cash means EBITDA adjusted for maintenance capital expenditures and other adjustments listed in the reconciliation provided in the annual Management's Discussion and Analysis.

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, oil field services industry conditions, defence spending, competition, interest rates, income tax legislation, reliance on suppliers, exchange rates, stock market volatility and other risks and uncertainties described from time to time in the Fund's continuous disclosure documents filed with the Canadian securities regulatory authorities or which may be unknown to the Fund. 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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