XS Cargo Income Fund
TSX : XSC.UN

XS Cargo Income Fund

November 10, 2006 08:30 ET

XS Cargo Income Fund Reports 2006 Third Quarter Results

EDMONTON, ALBERTA--(CCNMatthews - Nov. 10, 2006) - XS Cargo Income Fund (the "Fund") (TSX:XSC.UN) today announced its results for the 2006 third quarter. The Fund's consolidated interim financial statements and Management's Discussion and Analysis ("MD&A") can be found on XS Cargo's website at www.xscargo.com and on SEDAR at www.sedar.com.

For the 2006 third quarter, the Fund reported sales of $26.0 million; earnings before non-controlling interest of $2.2 million or $0.182 per unit outstanding; net earnings of $1.1 million or $0.182 per unit and EBITDA (1) of $3.0 million. Distributable cash (1) was $2.7 million or $0.22 per unit compared to distributions declared of $3.7 million or $0.31 per unit.

Michael McKenna, President and Chief Executive Officer of the Fund stated, "Our cross Canada expansion continues to generate solid growth in sales and gross margin. EBITDA (1) growth was restrained by significant upward wage pressures in Alberta. However, cost increases will be mitigated by our expansion outside Alberta, including three new stores opened in October".

Highlights for the third quarter

- Third quarter sales of $26.0 million, up 25.0% from the third quarter of 2005.

- Third quarter gross margin of $9.7 million, up 24.8% from the third quarter of 2005.

- Gross margin percentage of 37.5% compared to 37.6% for the third quarter of 2005.

- Earnings from operations of $3.1 million, up 4.6% from the third quarter of 2005.

- Same store sales increased by 1.3% for the third quarter and increased 2.3% for the year-to-date, excluding three of our stores that experienced expected cannibalization from new stores opening in overlapping trading areas.

- Excluding new stores, wage expense increased by 32%. Wages in Alberta represent 45% of overall wage costs and were 45% higher than the third quarter of 2005. This increase reflects labour market conditions experienced by many employers in Alberta.

- Three new stores opened on October 26 in Halifax, Nova Scotia; St. John's, Newfoundland; and Vancouver, British Columbia.

- A major upgrade to the point of sale and distribution system was completed during the quarter. Implementation problems had a negative impact on sales and freight costs during the quarter, but these are temporary and have been addressed.

- Continued successful sales of two-year product replacement extended warranty plans ("PRPs"). During the twelve months since implementation, $2.4 million of PRPs were sold, however only $0.7 million has been recognized as revenue to date and approximately $0.3 million was recognized during the quarter. Revenue from PRP sales is deferred and recognized on a straight-line basis over the two-year terms of the PRPs.

- Distributable cash (1) of $0.22 per unit compared to distributions declared of $0.31 per unit. Due to the seasonal nature of our business, over 40% of our annual distributable cash (1) is generated in the fourth quarter. Since the Fund declares equal monthly distributions throughout the year, it is expected that distributable cash (1) will be below distributions declared in the first three quarters.

Business of the Fund

The Fund commenced business operations on May 17, 2005, when it completed an initial public offering (the "IPO") of 6,106,000 trust units at a price of $10 per unit, for aggregate gross proceeds of $61,060,000. Concurrent with the closing of the IPO, the Fund acquired a 51% indirect interest in XS Cargo LP and XS Cargo LP acquired the net assets (the "Acquired Business") of Famous Brands (Edmonton) Inc. (the "Vendor"). XS Cargo LP operates 35 closeout retail stores in Alberta, British Columbia, Manitoba, Saskatchewan, Ontario, Newfoundland and Nova Scotia.

(1) Non-GAAP Measures

References to "EBITDA" are to earnings before interest, income taxes, depreciation and amortization and references to "distributable cash" are to cash available for distribution to Unitholders in accordance with the distribution policies of the Fund. Management believes that, in addition to income or loss, EBITDA is a useful supplemental measure of performance and cash available for distribution before debt service, changes in working capital, capital expenditures and income taxes. Specifically, management believes that EBITDA is the appropriate measure from which to make adjustments to determine the distributable cash of the Fund. Distributable cash of the Fund is a measure generally used by open-ended trusts as an indicator of financial performance. As one of the factors that may be considered relevant by prospective investors is the cash distributed by the Fund relative to the price of the Units, management believes that distributable cash of the Fund is a useful supplemental measure that may assist prospective investors in assessing an investment in the Fund.

Earnings from operations have been calculated as described below. In the case of the Fund, earnings from operations have been derived by adding interest expense, amortization of property and equipment and intangible assets, unit-based compensation and non-controlling interest to net earnings for the period. In the case of the Vendor, earnings from operations have been derived by adding amortization expense, employee profit sharing plan contributions, interest expense, and income tax expense to net earnings (loss) for the period.

Payout ratio refers to the ratio of cash distributions declared to unitholders to distributable cash generated by the Fund.

EBITDA, distributable cash, earnings from operations and payout ratio are not earnings measures recognized by GAAP and do not have standardized meanings prescribed by GAAP. Investors are cautioned that EBITDA, distributable cash and earnings from operations should not replace net income or loss (as determined in accordance with GAAP) as an indicator of the Fund's performance, of its cash flows from operating, investing and financing activities or as a measure of its liquidity and cash flows. The Fund's methods of calculating EBITDA, distributable cash, earnings from operations and payout may differ from the methods used by other issuers and may not be comparable to similar measures presented by other issuers.

FORWARD LOOKING STATEMENTS

This press release contains forward-looking statements. All statements other than statements of historical fact contained in this press release are forward-looking statements. You can identify many of these statements by looking for words such as "believe", "expects", "will", "intends", "projects", "anticipates", "estimates", "continues" or similar words or the negative thereof. These forward-looking statements include statements with respect to the amount and timing of the payment of distributions of the Fund. There can be no assurance that the plans, intentions or expectations upon which these forward-looking statements are based will occur. Forward-looking statements are subject to risks, uncertainties and assumptions, including, but not limited to, those discussed elsewhere in the press release. There can be no assurance that such expectations will prove to be correct.

Some of the factors that could affect future results and could cause results to differ materially from those expressed in the forward-looking statements contained herein include, but are not limited to, those discussed under "Risk Factors" in the Fund's MD&A.

The forward-looking statements contained herein are expressly qualified in their entirety by this cautionary statement. The forward-looking statements included in this press release are made as of the date of this press release and, except as required by law, the Fund assumes no obligation to update or revise them to reflect new events or circumstances.



XS Cargo Income Fund
Consolidated Balance Sheets

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September 30, December 31,
2006 2005
(unaudited)
$ $
Assets
Current
Cash and cash equivalents - 7,442,496
Rebate and other receivables 549,384 501,486
Inventory 22,260,785 15,752,388
Deposits on inventory 5,872,184 4,079,482
Prepaid expenses and deposits 840,660 612,151
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29,523,013 28,388,003
Deferred charges 249,393 124,414
Property and equipment 3,836,601 2,730,783
Intangible assets 7,016,000 7,910,000
Goodwill (Note 3) 101,788,426 101,788,426
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142,413,433 140,941,626
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Liabilities
Current
Bank indebtedness (Note 4) 4,586,592 -
Accounts payable and accrued liabilities 4,387,003 7,094,948
Deferred revenue 1,181,467 417,152
Distributions payable to unitholders (Note 5) 629,681 572,438
Distributions payable to non-controlling
interest (Note 6) 1,103,235 1,000,943
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11,887,978 9,085,481
Term loan (Note 4) 17,500,000 -
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29,387,978 9,085,481
Term Loan (Note 4) - 15,000,000
Deferred revenue 489,895 352,753
Unamortized lease inducements 230,990 142,116
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30,108,863 24,580,350
Non-controlling interest (Note 6) 57,589,346 59,527,529
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87,698,209 84,107,879
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Unitholders' Equity
Fund Units (Note 5) 56,131,876 56,131,876
Cumulative earnings 8,417,520 4,983,399
Cumulative distributions declared (9,834,172) (4,281,528)
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54,715,224 56,833,747
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142,413,433 140,941,626
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XS Cargo Income Fund
Consolidated Statements of Earnings

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Three Three Nine Period from
Months Months Months May 17,
ended ended ended 2005 to
September September September September
30, 2006 30, 2005 30, 2006 30, 2005
(unaudited) (unaudited) (unaudited) (unaudited)
$ $ $ $

Sales 25,960,077 20,775,101 74,454,818 32,531,053

Cost of goods sold 16,218,470 12,968,554 46,543,733 20,296,840
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Gross margin 9,741,607 7,806,547 27,911,085 12,234,213
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Expenses
Administrative and
operating 6,689,653 4,855,730 18,700,725 7,519,662
Amortization of property
and equipment 237,220 129,470 624,897 189,500
Amortization of intangible
assets 298,000 298,000 894,000 447,000
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7,224,873 5,283,200 20,219,622 8,156,162
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Earnings before the
undernoted 2,516,734 2,523,347 7,691,463 4,078,051
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Other expenses
Interest on bank
indebtedness 44,061 - 167,948 -
Interest on term loan 270,786 188,181 737,207 273,857
Foreign exchange loss 23,636 32,287 43,557 34,591
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338,483 220,468 948,712 308,448
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Earnings before
non-controlling
interest 2,178,251 2,302,879 6,742,751 3,769,603

Non-controlling interest
(Note 6) 1,069,507 1,129,551 3,308,630 1,848,979
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Net earnings for the
period 1,108,744 1,173,328 3,434,121 1,920,624
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Basic and diluted earnings
per unit (Note 10) 0.182 0.192 0.562 0.315
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XS Cargo Income Fund
Consolidated Statements of Cash Flows
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Three Three Nine Period from
Months Months Months May 17,
ended ended ended 2005 to
September September September September
Cash provided by (used 30, 2006 30, 2005 30, 2006 30, 2005
for) the following (unaudited) (unaudited) (unaudited) (unaudited)
activities $ $ $ $

Operating Activities
Net earnings for the
period 1,108,744 1,173,328 3,434,121 1,920,624
Items not affecting
cash:
Non-controlling interest 1,069,507 1,129,551 3,308,630 1,848,979
Amortization of property
and equipment 237,220 129,470 624,897 189,500
Amortization of
intangible assets 298,000 298,000 894,000 447,000
Unit based compensation
(Note 8) 43,500 40,000 103,500 157,330
Lease inducements
received, net of
amortization of lease
inducements 62,677 62,900 88,874 149,901
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2,819,648 2,833,249 8,454,022 4,713,334

Net change in non-cash
working capital (3,065,687)(1,486,541) (10,508,974) 2,725,623
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(246,039) 1,346,708 (2,054,952) 7,438,597
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Financing Activities
Repayment of amounts due
to Vendor - (721,214) - (901,394)
Net proceeds from the
issuance of Units - - - 56,131,876
Proceeds from bank
indebtedness 1,720,276 - 7,763,624 -
Repayment of bank
indebtedness - - (3,177,032) -
Proceeds from term loan 2,500,000 - 2,500,000 15,000,000
Distributions paid on
Fund Units (1,889,044)(1,991,777) (5,495,400) (1,991,777)
Distributions paid to
non-controlling interest (1,821,205)(1,467,600) (5,248,021) (1,467,600)
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510,027 (4,180,591) (3,656,829) 66,771,105
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Investing Activities
Purchases of property
and equipment (263,988) (198,396) (1,730,715) (223,677)
Business acquisition -
net of cash acquired
(Note 3) - - - (71,067,781)
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(263,988) (198,396) (1,730,715)(71,291,458)
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Increase (decrease) in
cash - (3,032,279) (7,442,496) 2,918,604

Cash and cash
equivalents,
beginning of period - 5,950,883 7,442,496 -
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Cash and cash
equivalents,
end of period - 2,918,604 - 2,918,604
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Supplementary cash flow
information

Interest paid 314,847 188,181 905,155 273,857

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Contact Information

  • XS Cargo Income Fund
    Jeff Rootman, CA
    Vice-President, Finance and Chief Financial Officer
    (780) 732-2112