Drive Products Income Fund

Drive Products Income Fund

August 14, 2008 13:05 ET

Drive Products Income Fund Announces 2008 Second Quarter Financial Results and August 2008 Cash Distributions

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

Sales, net loss and EBITDA for the quarter were $23.9 million, $0.7 million and $1.8 million, respectively. Sales, net loss and EBITDA for the six month period were $48.1 million, $1.0 million and $4.0 million, respectively. Sales in our Eastern branches were up as a result of our recent acquisitions but our Western branches continue to operate in a challenging environment. Market forces continue to affect sales in 2008. For example, the continued strength in the Canadian dollar resulted in price reductions across the board on many of our core products. This decrease was implemented in the third quarter of 2007 and as result, sales in the three and six month periods ended June 30, 2008 were negatively impacted. Once again, our recent acquisitions met our expectations with respect to sales, gross margins and EBITDA and helped provide some stability during the current industry cycle.

"During this current industry cycle, we have managed our resources carefully and with a long term focus," said Greg Edmonds, Chief Executive Officer of the Fund. "We intend to maintain the proper staffing, production and financial resources necessary to take advantage of the expected future recovery of our markets," "This focus will give us the scope and capability to take advantage of recovery in our markets and remain solidly positioned as the market leader in our industry. The second half of 2008 carries a renewed optimism with respect to the oil and gas industry in the West compared to the first half. Industry experts have revised their forecasts for drilling activity for the balance of 2008 and our Western branches should see some benefit from that in the upcoming quarters. In addition, we expect that favourable natural gas prices will cause many customers to revisit their capital programs for 2008 and adjust their 2008 budgets upward".

Cost of sales for the three and six month periods ended June 30, 2008 were $15.8 million and $31.9 million, respectively, compared to $14.5 million and $31.0 in the comparable 2007 periods. The increases are in line with the increase in sales in the comparable periods. Cost of sales were negatively impacted by annual price increases imposed by many of our vendors in 2008 but were more than offset by sourcing materials and products from new overseas vendors. This is evident from the consistency of the gross margin percentages in the comparable three and six month periods. Management has been diligent and successful in sourcing materials and products from around the world at lower prices.

Net losses for the three and six month periods ended June 30, 2008 amounted to $0.7 million and $1.0 million, respectively compared to $4.4 million and $4.9 million in the comparable 2007 periods. The 2007 periods were negatively impacted by a one-time, non-cash future tax expense of $3.8 million due to changes in federal tax rules governing income trusts. EBITDA, as defined below, for the three and six month periods ended June 30, 2008 was $1.8 million and $4.0 million, respectively, compared to $3.3 million and $6.7 million in the comparable 2007 periods.

Distributable cash in the three and six month periods ended June 30, 2008 was $1.4 million and $3.4 million, respectively (see non-GAAP measures below for a definition of distributable cash). Distributions declared in the three and six month periods ended June 30, 2008 were $1.7 million and $3.5 million, respectively. The payout ratio, calculated as cash distributions declared as a percentage of distributable cash, was 121.1% for the quarter ended June 30, 2008 and 102.9% in the 2008 year to date period. Since inception, the Fund has generated distributable cash of $19.9 million and declared distributions of $21.2 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 106.5%. 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 August 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 August 29, 2008 and will be paid on September 15, 2008.

On May 27, 2008, the Fund received approval from the Toronto Stock Exchange to repurchase up to 732,035 of its Trust units under a normal course issuer bid ("NCIB"). Purchases may be made over a one year period ending on May 29, 2009. Units purchased under the NCIB are cancelled by the Fund. From May 30, 2008 to June 30, 2008, the Fund purchased 31,910 Trust units at an aggregate cost of $119,964.

Summary of financial results:

($ thousands
except per
unit figures) Three months ended June 30 Six months ended June 30
% %
2008 2007 change 2008 2007 change
(unaudited) (unaudited) (unaudited) (unaudited)
$ $ $ $

Sales 23,922 21,745 10.0% 48,103 46,556 3.3%

Cost of Sales 15,814 14,454 9.4% 31,923 31,025 2.9%

Gross Margin 8,108 7,291 11.2% 16,180 15,531 4.2%

General and
Administrative 6,343 3,999 58.6% 12,195 8,807 38.5%

EBITDA(1) 1,765 3,292 (46.4%) 3,985 6,724 (40.7%)

Amortization 2,368 3,860 (38.7%) 4,754 7,693 (38.2%)

Interest expense 113 55 105.5% 201 95 111.6%

Future income
tax provision
(recovery) (74) 3,821 (81) 3,821

Income tax
provision 63 - 122 -

Net (loss) (705) (4,444) (1,011) (4,885)

Average number
of units
('000s)(2) 13,974 13,982 13,977 13,982

Basic and
earnings (loss)
per unit (0.050) (0.318) (0.072) (0.349)

Total assets 83,324 134,565 83,324 134,565

Long term
liabilities 2,780 4,277 2,780 4,277
per unit 0.125 0.220 0.250 0.495

(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

Second Quarter Interim Report

The Fund's second quarter interim report is available on the Fund's website at and at

(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 second quarter 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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