Spinrite Income Fund

Spinrite Income Fund

November 04, 2005 09:30 ET

Spinrite Reports Third Quarter Results for Fiscal 2005

LISTOWEL, ONTARIO--(CCNMatthews - Nov. 4, 2005) - Spinrite Income Fund (TSX:SNF.UN)


- Revenue of $27.8 million in the quarter
- Sales of value-added fancy yarns up 11.2% from third quarter
last year
- Adjusted EBITDA for the quarter up from last year to
$7.2 million
- Generated distributable cash available to public unitholders
of $4.9 million during the quarter
- Increased annual distributions per unit by 6% to $1.06
- Named Vendor of the Year by Michaels Stores Inc.

Spinrite Income Fund (TSX:SNF.UN), today announced its financial results for the 13 weeks ended October 1, 2005, and for the combined 39 weeks from January 1 to October 1, 2005.

"Our performance during the third quarter was solid and the long-term prospects for the craft yarn industry remain promising," said Dario Margve, President and Chief Executive Officer. "The strong financial performance since inception of the Fund enabled us to announce a six percent increase to unitholder distributions, which began with our September distribution."

"During the quarter, we were recognized by Michaels Stores Inc. for our outstanding working relationship and performance and this is an accomplishment that all employees can be proud of," added Mr. Margve. "We are committed to providing all of our retail partners with strong marketing support, industry-leading product innovation and excellent customer service."

The third quarter results reported are compared to Spinrite Limited Partnership's results of operations for the 13 weeks ended September 25, 2004. The year-to-date combined results include active operations of the Fund from February 8 to October 1, 2005 and Spinrite Limited Partnership's operations from January 1 to February 7, 2005.

Spinrite had revenue in the third quarter of $27.8 million, up $0.5 million or 1.8% from $27.3 million for the same period in the prior year. Sales of value-added fancy yarns increased 11.2%, while sales of classic and cotton yarns were consistent with the prior year. Sales of commercial and other discontinued yarns were down 67.2% from the prior year. This decline was expected due to Spinrite's decision to exit this low-margin business.

Revenues rose 26.8% or $22.4 million to $106.0 million for the 39 weeks ended October 1, 2005 compared to $83.6 million for the comparable period ended September 25, 2004. Sales of value added fancy yarns and classic yarns increased 43.6% and 21.4%, respectively, over last year for the 39 week period.

Gross profit decreased slightly in the third quarter by approximately $100,000 or 1.0% to $10.2 million. Gross profit percentage in the third quarter was 36.7% compared to 37.7% during the same period last year. The decrease was caused by higher labour costs associated with production downtime due to extreme hot weather.

"Extreme summer temperatures adversely impacted our productivity and forced us to add overtime shifts at our plant to make up for lost production," said Ryan Newell, Chief Financial Officer. "We are in the process of installing an air cooling system at our plant to address productivity issues which will mitigate any such margin pressure in 2006."

Spinrite reported Adjusted EBITDA(a) of $7.2 million for the 13 weeks ended October 1, 2005, an increase of 1.4% from $7.1 million for the 13 weeks ended September 25, 2004. For the 39 weeks ended October 1, 2005 Spinrite reported Adjusted EBITDA of $30.1 million, an increase of $4.8 million, or 19.0%, from $25.3 million for the comparable period in 2004.

The Fund makes regular monthly distributions to public unitholders of record as of the last business day of each month. During the quarter, the Fund declared three cash distributions to public unitholders totalling $5.2 million. Since inception, Spinrite has generated distributable cash available to public unitholders of $18.0 million and declared distributions to public unitholders of $13.2 million, for a 73.5% payout ratio. In September, the Fund increased distributions by six percent to an annual rate of $1.06 per unit.

"Consumer demand for craft yarns is expected to be robust during the Holiday season," said Mr. Margve. "To meet this anticipated demand, many retailers took aggressive inventory positions in the second and third quarters. Our sales in the fourth quarter of the year will be affected by these inventory positions, but we are confident the craft yarn market will continue to grow, though at a more moderate pace."

The Fund's full interim financial statements, notes to financial statements and management's discussion and analysis are available at www.sedar.com or at www.spinriteincomefund.com.

Spinrite is the largest marketer of craft yarn in Canada and one of the largest and fastest growing in the United States. Established in 1952, Spinrite researches, develops, manufactures and markets a broad variety of consumer craft yarns. The company also supports its market with patterns that provide customers with creative ideas for knitted products. Spinrite has approximately 600 employees at its fully integrated manufacturing and distribution centre in Listowel, Ontario.

(a) While not a Canadian GAAP measure, the Company believes that in addition to net income or loss, EBITDA is a useful supplemental measure of cash available for distribution prior to debt service, changes in working capital, capital expenditures and taxes.

Adjusted EBITDA refers to earnings before interest, taxes, depreciation and amortization after making adjustments for certain non-recurring items. These adjustments include non-recurring management fees, foreign exchange translation gains or losses on debt and other instruments, and pre-funded management arrangements.

Forward-Looking Statements

This press release may contain forward-looking statements relating to expected future events and financial and operating results of the Fund that involve risks and uncertainties. Actual results may differ materially from management expectations as projected in such forward-looking statements for a variety of reasons, including market and general economic conditions and the risks and uncertainties detailed from time to time in the Fund's prospectus filed with the Canadian securities regulatory authorities. Due to the potential impact of these factors, 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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