Drive Products Income Fund
TSX : DPI.UN

Drive Products Income Fund

March 27, 2008 14:46 ET

Drive Products Income Fund Reports 2007 Annual Financial Results

TORONTO, ONTARIO--(Marketwire - March 27, 2008) - Drive Products Income Fund (TSX:DPI.UN) today announced its annual financial results for the year ended December 31, 2007. The Fund commenced operations on August 25, 2006 when it completed its initial public offering ("IPO") and as such the 2006 period is not comparable. For comparative purposes, the pre-IPO results of Drive Products for the period from January 1, 2006 to August 24, 2006 have been combined with the results of the Fund for the subsequent 129 day period to December 31, 2006.

"2007 proved to be a very challenging year for Drive Products. Given the strong results we achieved in 2006, we could not have imagined the magnitude of the downturn in drilling activity in the province of Alberta and the resulting effects on the company. The sharp decline in oil and natural gas drilling severely impacted capital investments made by many of our Western customers and sales in our Western branches were sharply down as a result," said Greg Edmonds, Chief Executive Officer. "In Eastern Canada, the rapid appreciation in the Canadian dollar, which reached a high of U.S. $1.10 in November of 2007, increased the competition in the marketplace. As U.S. supplier costs went down, competitors, who don't normally carry a lot of inventory, were able to buy and sell at reduced prices. To remain competitive, we offered price concessions and this had an impact on the level of sales and margins in Eastern Canada. The decline in the oil and gas segment and the impact of the Canadian dollar overshadowed some positive notes in the year. For example, our defence business had a record year, increasing sales by 13.2% to $12.0 million and our snow and ice control business increased 38.7% to $8.6 million compared to 2006".

These conditions and the resulting accounting transactions translated into a net loss of $51.3 million (2006 net earnings $12.3 million) under Generally Accepted Accounting Principles for the year. The Company had year over year reductions in revenue ($91.0 million vs. $102.2 million). EBITDA for the year remained positive ($11.4 million vs. $18.9 million). The company continues to make monthly distributions.

The Fund engaged an independent valuator to perform a valuation of goodwill and intangible assets at December 31, 2007. The results of the independent valuation determined that there was an impairment of goodwill of $34.9 million and intangible assets of $11.5 million. The impairment to intangible assets related entirely to the value of the customer relationships set up at the IPO date. The factors that contributed to the write downs included the depressed state of the price of natural gas which has impacted drilling activity in the West, the Alberta government's recently announced decision to revise the royalty regime in Alberta, the Federal government's enacted tax on trusts and the overall reduction in drilling activity with respect to conventional oil in the West.

"The challenging operating environment experienced by our Western branches in 2007 is expected to continue through the first half of 2008. We are confident in the long-term fundamentals of the oil and gas industry in Alberta. The reduced drilling levels over the last year has resulted in reduced production of natural gas in the Western Canadian Sedimentary Basin. This reduced production is expected to eventually help correct the surplus of natural gas in storage which in turn should result in an increase in drilling. Once this occurs, capital spending by several of our Western customers should pick up and we are well positioned to benefit when the current trend reverses. Our Eastern branches have responded to the surging Canadian dollar and our military business continues to do well. We forecast modest increases in sales in our Eastern branches and recent acquisitions will help to further diversify our exposure to certain markets. We are excited about the acquisitions completed subsequent to the year end. The U.S. acquisition gives us a platform to grow our business there and may open distribution channels that we have not previously explored. The Fund's balance sheet remains strong and we are conservatively financed with a debt to equity ratio of 0.05 to 1 and $20.8 million in working capital. This strength will allow us to explore opportunities to acquire complementary or competing businesses," Mr. Edmonds concluded.



Summary of results:

----------------------------------------------------------------------------
----------------------------------------------------------------------------

($ 129 day
thousands period
except ended
per unit Three months ended Twelve months ended December
figures) December 31 December 31 31
----------------------------------------------------------------------------
% %
2007 2006 change 2007 2006 (1) change 2006
----------------------------------------------------------------------------

(audited) (audited) (audited) (unaudited) (audited)
$ $ $ $

Sales 23,135 28,709 (19.4%) 90,963 102,165 (11.0%) 39,737

Cost of
Sales
and
General
and
Admin-
istra-
tive 20,499 24,266 (15.5%) 79,534 83,220 (4.4%) 33,417
----------------------------------------------------------------------------
----------------------------------------------------------------------------

EBITDA (2) 2,636 4,443 (40.7%) 11,429 18,945 (39.7%) 6,320
Amortiz-
ation 3,133 3,954 (20.8%) 14,449 6,165 134.4% 5,469
Interest
expense 62 28 121.4% 239 461 (48.2%) 26
Future
income
tax
provision
(recovery) (2,166) - 1,660 - -
Write-down
of
intangible
assets 11,493 - 11,493 - -
Write-down
of goodwill 34,890 - 34,890 - -
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Net
earnings
(loss) (3) (44,776) 461 (51,302) 12,319 825
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Average
number of
units
outstanding
('000s) (4) 13,982 13,982 13,982 - 13,982

Basic and
diluted
earnings
(loss) per
unit (3.202) 0.033 (3.669) - 0.059

Total assets 76,165 140,304 76,165 140,304 140,304

Long term
liabilities 3,000 460 3,000 460 460
Distributions
per unit 0.193 0.275 0.880 0.387
----------------------------------------------------------------------------
----------------------------------------------------------------------------

(1) The Fund commenced operations on August 25, 2006. Results for the
twelve month period ended December 31, 2006 are based on internally
prepared financial statements and are not comparable to 2007. In 2006,
rent expense was not at market rates, nor were there any public company
costs or amortization of intangible assets for the period prior to
August 25, 2006.
(2) EBITDA is a non-GAAP measure. See "Non-GAAP Measures" below for a
definition of EBITDA. 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.
(3) The Fund's taxable earnings are allocated to its unitholders and taxed
in their hands.
(4) For purposes of calculating the average number of units outstanding,
Fund units and Class B units exchangeable for Fund units have been
included.


Annual Report

The Fund's Annual Report is available on the Fund's website at www.driveproducts.com and at www.sedar.com.

Drive Products will hold a conference call to discuss these financial results on March 28, 2008 at 9:00 am (Eastern).

Available on the call to answer questions will be Greg Edmonds, Chief Executive Officer and Chris Boudreau, Chief Financial Officer.

To participate in the conference call, please dial 416-640-3405 or 1-866-322-2356 (Passcode ID 5702646). An archived recording of the call will be available at 1-888-203-1112 (Passcode ID 5702646) from two hours after completion of the call to midnight April 18, 2008.

(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 and the risks and uncertainties detailed from time to time in the Fund's continuous disclosure documents filed with the Canadian securities regulatory authorities. 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.

Contact Information