Hartco Income Fund
TSX : HCI.UN

Hartco Income Fund

March 06, 2007 17:18 ET

Hartco Income Fund Announces Fourth Quarter and 2006 Results

MONTREAL, QUEBEC--(CCNMatthews - March 6, 2007) - (TSX:HCI.UN) Hartco Income Fund (the "Fund") today reported its financial results for the fourth quarter and the year ended December 31, 2006. As a result of the organization's conversion to an income trust in 2005, the Fund's fiscal year-end changed to December 31st rather than the Saturday closest to January 31st as in prior years. Accordingly, the results for 2006 comprise a twelve-month period ended December 31st, 2006, compared to fiscal year 2005, which comprised an eleven-month period ended December 31st 2005. The Fund's financial statements and management discussion and analysis will be available on Sedar at www.sedar.com.

Results for the fourth quarter ended December 31, 2006

Consolidated net earnings for the fourth quarter ended December 31, 2006 amounted to $0.3 million or $0.02 per unit this year, compared to a loss of $2.5 million or $0.18 per unit for the quarter ended December 31, 2005 last year. Net earnings in the fourth quarter ended December 31, 2006 included an impairment charge of $4.0 million or $0.30 per unit related to the write-down of assets in the CompuSmart segment. The net loss in the fourth quarter of 2005 included $0.3 million of income fund conversion related expenses.

Consolidated revenues amounted to $155.6 million for the quarter ended December 31, 2006 this year, compared to $177.3 million for the quarter ended December 31, 2005 last year, a decrease of $21.7 million or 12.2% . Revenues in the Distribution and Franchising and CompuSmart segments decreased by $39.1 million while the Commercial segment revenues increased by $17.4 million or 19.7% .

For the quarter ended December 31, 2006, consolidated EBITDA (a definition is provided on the Non-GAAP measures section of the MD&A) was $2.1 million this year, compared to a loss of $1.5 million for the quarter ended December 31, 2005 last year. Cost reductions and the impact of unprofitable location closures increased EBITDA by $8.4 million, offset partially by the effect of margin erosion of $3.6 million and lower volumes of $1.2 million, mostly in the CompuSmart segment.

In 2006, the Fund recorded an impairment charge of $4.0 million related to the goodwill, property and equipment and intangible assets of the CompuSmart segment. The book value of these assets has been reduced to zero, representing the impact of expected future negative cash flows.

Consolidated results for the year ended December 31, 2006

For the year ended December 31, 2006, the consolidated loss was $3.0 million, compared to net earnings of $2.0 million for the eleven month period ended December 31, 2005. On a per unit basis, the loss was $0.22 for the year ended December 31, 2006 compared to net earnings of $0.15 for the eleven month period ended December 31, 2005. The loss included an impairment charge of $4.0 million, while 2005 net earnings included a significant gain on disposal of discontinued operations.

Net loss from continuing operations amounted to $3.0 million or $0.22 per unit for the twelve-month period ended December 31, 2006, compared to a loss of $4.3 million or $0.32 per unit for the eleven month period ended December 31, 2005.

Discontinued operations had no impact on the year ended December 31, 2006, while they generated net earnings of $6.3 million or $0.48 per unit last year, for the eleven month period ended December 31, 2005.

Consolidated revenues amounted to $577.7 million for the year ended December 31, 2006, compared to $589.2 million for the eleven month period ended December 31, 2005. The additional month increased revenues by $47.6 million or .1% in 2006, compared to the eleven-month period ended December 31, 2005. Excluding the additional month, combined revenues in the Distribution and Franchising and the CompuSmart segments decreased by $84.5 million, while they increased by $25.4 million in the Commercial segment.

Consolidated EBITDA stood at $1.6 million for the year ended December 31, 2006, compared to $2.1 million for the eleven month period ended December 31, 2005. When comparing the eleven-month period from February 1 to December 31, 2006 to the corresponding period in 2005, there is a favorable variance of $0.1 million in EBITDA. The slight increase in EBITDA reflects the positive impact of cost reductions and location closures of $13.8 million, offset by lower volume of $6.2 million and lower margin on revenues of $7.5 million, mainly in the Distribution and CompuSmart segments.

Patrick Waid, the Fund's president and chief operating officer, said: "The Fund's fourth quarter and year-end results reflect ongoing weakness in our CompuSmart retail operations, which had a negative impact on our Franchising and Distribution segment's performance. Encouraging improvements in our Commercial segment were insufficient to compensate for the retail division's poor results. However, the Fund operated profitably during the fourth quarter and its financial position remains strong."

Cash Distributions

During 2006, the Fund made cash distributions totalling $8.0 million to its unitholders and tracking shareholders. Distributions were also made in January and February 2007, for an additional $1.3 million.

Hartco Income Fund Outlook

"Following its recent decision to divest the CompuSmart retail operations, the Fund is focusing on the development and growth of its Commercial segment while improving its operating efficiencies and cost structure." Patrick Waid stated. "The Fund is committed to delivering much stronger operating results in 2007."

Fund Profile

Hartco Income Fund has been a leader in the Canadian information technology business for more than thirty years. Through its operating divisions, which together include more than 80 commercial and retail locations across Canada, Montreal-based Hartco Income Fund delivers digital technology products and services to consumers of every age and to private and public sector organizations of every size.

Forward-Looking Statements

This news release contains forward-looking information. Except for historical information contained herein, the statements in this document are forward-looking. Forward-looking statements involve known and unknown risks and uncertainties, which may cause actual results in future periods to differ materially from forecasted results. Those risks include, among others, changes in customer demand for information technology products or services, changes in supplier pricing actions or terms, customer orders, pricing actions by competitors, changes in laws and regulations and general changes in economic conditions.



APPENDIX

FINANCIAL HIGHLIGHTS
(In thousands of dollars, except per unit amounts)

Fourth Quarter Year 11 months
ended ended ended
December 31, December 31, December 31, December 31,
2006 2005 2006 2005
$ $ $ $
------------------------------------------------------------------------
------------------------------------------------------------------------
Revenues 155,620 177,303 577,689 589,237
EBITDA (1) 2,073 (1,469) 1,611 2,110

Net earnings (loss)
Continuing operations 263 (2,460) (3,007) (4,252)
Discontinued operations - - - 6,253
Net earnings (loss) 263 (2,460) (3,007) 2,001

Earnings (loss) per
unit from continuing
operations 0.02 (0.18) (0.22) (0.32)
Earnings (loss) per unit 0.02 (0.18) (0.22) 0.15

Distributable cash(2) 1,809 (1,021) 8,002 2,408
Cash Distributions 2,000 1,975 8,023 1,975

(1) Earnings before financial expenses, impairment charge, depreciation
and amortization, gains (losses) on disposal of businesses, income
fund conversion expenses, income taxes, share of results of equity
investments and non-controlling interest. EBITDA is a non-GAAP
measure as defined in the MD&A.

(2) Cash flow from operating activities excluding expenses incurred in
the conversion to an income fund, net of income taxes, less capital
expenditures, net of proceeds from disposal of assets. Distributable
cash is a non-GAAP measure as defined in the MD&A.

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