XS Cargo Income Fund
TSX : XSC.UN

XS Cargo Income Fund

March 27, 2008 19:40 ET

XS Cargo Income Fund Reports 2007 Fourth Quarter and Year End Results

EDMONTON, ALBERTA--(Marketwire - March 27, 2008) - XS Cargo Income Fund (the "Fund") (TSX:XSC.UN) today announced its results for the 2007 fourth quarter and year end. The Fund's audited consolidated year end 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 year, the Fund reported sales of $125.1 million, EBITDA (1) of $0.8 million, and loss before non-controlling interest of $73.5 million or $6.121 per unit outstanding. Included in the Fund's reported loss before non-controlling interest, were non-cash write downs totaling approximately $69 million, made up of $65.6 million for goodwill and $3.4 million for intangibles in order to reduce the carrying value of such assets to their fair value. The Fund reported a net loss of $37.4 million or $6.121 basic loss per unit ($6.125 diluted loss per unit).

Results for the fourth quarter continued to be negatively affected by the implementation of the new Merchandise Management System which imposed several additional steps in receiving, picking, and shipping inventory. Though the system has been designed to increase efficiencies, initially all of the new processes overwhelmed the distribution centres. This caused inventory processing and distribution throughput to decrease dramatically, and accordingly impacted fourth quarter sales.

Gross margin for the quarter was also directly and indirectly affected by the system implementation due to significant additional external freight costs, increased third party warehousing, increased service inventory write-offs, and provisions for deposits on inventory.

Michael McKenna, President and Chief Executive Officer of the Fund stated, "Results for the year were negatively impacted by issues resulting from the implementation of the new Merchandise Management System. However, I remain confident that the initiatives which we have undertaken to correct these issues will be effective. Our new Vice-President of Distribution & Logistics continues to work to correct the problems noted, and increase our efficiencies."

The Fund is not in compliance with certain of its financial covenants as at December 31, 2007 and continues to work with its lenders to resolve these breaches and negotiate mutually acceptable terms as quickly as possible.

Highlights for the year:

- Sales of $125.1 million, up 7.1% from 2006.

- Gross margin of $39.0 million, down 8.3% from 2006.

- Gross margin percentage of 31.1% compared to 36.4% in 2006, due in part to increased freight costs, write-off of service inventory and a provision for deposits on inventory.

- Freight costs, which are included in cost of goods sold, were 11.5% of sales compared to 7.7% of sales in 2006.

- Earnings from operations (1) of $1.0 million, down by $12.9 million from 2006.

- Same store sales decrease of 8.2% from 2006.

- Continued successful sales of two-year product replacement extended warranty plans ("PRPs"). During the twenty-seven months since implementation, $5.3 million of PRPs were sold, however only $3.1 million has been recognized as revenue to date and approximately $2.1 million was recognized during the year. Revenue from PRP sales is deferred and recognized on a straight-line basis over the two-year terms of the PRPs.

- Five new stores were opened during the year.

- Negative distributable cash (1) of $0.15 per unit compared to distributions declared of $0.58 per unit.

Highlights for the fourth quarter:

- Fourth quarter sales of $42.6 million, up 0.7% from the fourth quarter of 2006.

- Fourth quarter gross margin of $10.4 million, a decrease of 28.4% from the fourth quarter of 2006.

- Gross margin percentage of 24.4% compared to 34.4% for the fourth quarter of 2006, due in part to increased freight costs, write-off of service inventory and a provision for deposits on inventory.

- Loss from operations (1) of $1.4 million, down $6.1 million from the fourth quarter of 2006.

- Same store sales decrease of 7.2% for the fourth quarter.

- Negative distributable cash (1) of $0.18 per unit compared to distributions declared of $0.07 per unit.

Business of the Fund

The Fund owns a 51% indirect interest in XS Cargo LP which operates 40 closeout retail stores in Alberta, British Columbia, Manitoba, Saskatchewan, Ontario, Newfoundland, Nova Scotia and New Brunswick.

(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. EBITDA is calculated as Net Earnings (loss) plus non-controlling interest, plus future income tax expense, plus impairment of goodwill, plus impairment of intangible assets, plus interest on term, subordinated and operating loans, plus amortization of intangible assets and amortization of property and equipment. 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. 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 derived by adding interest expense, amortization of property and equipment and intangible assets, future income taxes, impairment of goodwill and intangible assets, foreign exchange gain or loss, unit-based compensation and non-controlling interest to net earnings 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 and in the Fund's Annual Information Form.

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.

Contact Information

  • XS Cargo Income Fund
    Michael McKenna
    President and Chief Executive Officer
    (780) 413-4296
    Website: www.xscargo.com