Hartco Income Fund
TSX : HCI.UN

Hartco Income Fund

August 09, 2007 16:47 ET

Hartco Income Fund Completes the Divestiture of CompuSmart and Announces 2007 Second Quarter Results

MONTREAL, QUEBEC--(Marketwire - Aug. 9, 2007) - Hartco Income Fund (the Fund) (TSX:HCI.UN) today announced its financial results for the second quarter ended June 30, 2007, including improved earnings from continuing operations and the completion of the divestiture of its CompuSmart retail division.

"We are satisfied with the results of the CompuSmart divestiture, including our ability to minimize cash flow risks and rapidly restructure our Distribution and Franchising business to improve profitability in spite of lower volumes, said Pat Waid, president and chief operating officer of the Fund. At the same time, we are encouraged by the revenue growth of our commercial segment and continue to focus on maximizing operating synergies to improve profitability."

Results for the second quarter ended June 30, 2007

Continuing operations

Consolidated revenues from continuing operations amounted to $118.3 million for the quarter ended June 30, 2007, compared to $127.4 million for the quarter ended June 30, 2006, a decrease of $9.1 million. Revenues in the Distribution and Franchising segment decreased by $14.5 million reflecting the impact of the CompuSmart divestiture. The Commercial segment revenues increased by $16.8 million or 21.1%, including the impact of the integration of CompuSmart Solutions Group with Metafore.

Consolidated EBITDA from continuing operations (a definition is provided in the Non-GAAP measures section of the MD&A) was $3.1 million for the quarter ended June 30, 2007, compared to $2.7 million for the quarter ended June 30, 2006, an increase of $0.4 million or 14.8%. The volume increase in the Commercial segment and improved profit margins in the Distribution and Franchising segment had a significant impact on EBITDA. Expense reductions in the Distribution and Franchising segment reflected the impact of the CompuSmart divestiture, net of severance costs.

Discontinued operations

The Fund announced on May 14, 2007 that it had completed the process of exploring strategic options for CompuSmart, which had started on January 8, 2007. At the end of the quarter, all stores were sold or closed, all employees were relocated or terminated, and no inventory was left. The Fund is currently negotiating with landlords and third parties to sublease, reassign or terminate remaining leases.

Consolidated

Consolidated loss for the second quarter ended June 30, 2007 amounted to $4.2 million, or $0.31 per unit, compared to a loss of $2.0 million, or $0.15 per unit, for the corresponding period ended June 30, 2006.

Net earnings from continuing operations amounted to $4.3 million, or $0.31 per unit, for the second quarter ended June 30, 2007 compared to $2.3 million, or $0.17 per unit, for the second quarter ended June 30, 2006, an increase of $2.0 million or $0.14 per unit. Loss from discontinued operations stood at $8.5 million, or $0.62 per unit, for the second quarter of 2007, compared to $4.3 million, or $0.32 per unit, from the corresponding quarter of the previous year, including divestiture expenses of $4.3 million related to severances, leases and other exit costs.

Results for the six-month period ended June 30, 2007

Continuing operations

Consolidated revenues from continuing operations amounted to $263.9 million for the six-month period ended June 30, 2007, compared to $271.9 million for the six-month period ended June 30, 2006, a decrease of $8.0 million or 2.9% . Revenues in the Distribution and Franchising segment decreased by $22.2 million, and were negatively impacted by the CompuSmart divestiture. The Commercial segment revenues increased by $39.2 million or 23.6%, including the impact of the integration of CompuSmart Solutions Group with Metafore.

Consolidated EBITDA from continuing operations stood at $6.6 million for the six-month period ended June 30, 2007, compared to $6.5 million for the six-month period ended June 30, 2006, an increase of $0.1 million. The volume increase in the Commercial segment was offset by lower margins and higher operating expenses. EBITDA was also affected by severances in the Distribution and Franchising segment, although operating expense reductions in that segment had a net favourable impact of $0.7 million on EBITDA.

Consolidated

Consolidated loss for the six-month period ended June 30, 2007 amounted to $4.9 million, or $0.36 per unit, compared to losses of $1.6 million, or $0.11 per unit, for the six-month period ended June 30, 2006. Net earnings from continuing operations amounted to $7.4 million, or $0.54 per unit, for the six-month period ended June 30, 2007, compared to $5.4 million, or $0.40 per unit, for the six-month period ended June 30, 2006. Loss from discontinued operations stood at $12.3 million, or $0.90 per unit, for the six-month period of 2007 compared to $7.0 million, or $0.51 per unit, in 2006 and included the cost of the divestiture of the CompuSmart segment for $4.7 million.

Cash Distributions

During the second quarter of 2007, the Fund made cash distributions totalling $2.0 million to its unit holders and tracking shareholders. Distributions were also made in July 2007 for an additional $0.7 million. On July 13, 2007, the Fund declared a distribution of $0.05 per unit to be paid on August 15, 2007 to unit holders and tracking shareholders of record on July 31, 2007.

Hartco Income Fund Outlook

The divestiture of CompuSmart is now substantially completed and will allow us to better focus our resources on profitably growing our core Commercial operations in the second half of 2007, said Pat Waid.

Fund Profile

Hartco Income Fund (TSX: HCI.UN) has been a leader in the Canadian information technology business for more than thirty years. Through its operating divisions, which together include more than 60 locations across Canada, Hartco Income Fund delivers information technology solutions 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. Risks that could cause our results to differ materially from our expectations are discussed in our annual Management s Discussion & Analysis.



APPENDIX

FINANCIAL HIGHLIGHTS
(In thousands of dollars,
except per unit amounts)
Quarter ended Six-month period ended
June 30 June 30
2007 2006 2007 2006
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$ $ $ $
Revenues 118,252 127,437 263,941 271,929
EBITDA (1) 3,084 2,715 6,625 6,454
Net earnings from
continuing operations 4,286 2,317 7,356 5,420
Loss from discontinued
operations (8,486) (4,291) (12,303) (6,976)
Loss (4,200) (1,974) (4,947) (1,556)
Earnings per unit from
continuing operations 0.31 0.17 0.54 0.40
Loss per unit from
discontinued operations (0.62) (0.32) (0.90) (0.51)
Loss per unit (0.31) (0.15) (0.36) (0.11)
Distributable cash(2) 2,443 8,616 (134) 8,106
Standardized distributable
cash(3) 5,855 6,327 4,650 5,589
Cash distributions 2,000 1,975 4,000 3,950

(1) Earnings from continuing operations before financial expenses, income
taxes, depreciation and amortization, 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 continuing operating activities, less capital
expenditures, net of proceeds from disposal of assets, plus collection
of loans receivable.

(3) Distributable cash plus or minus cash flow from (used for) discontinued
operations. Standardized distributable cash is a non-GAAP measure as
defined in the MD&A.

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