Drive Products Income Fund Reports 2009 Annual Financial Results
Sales, net loss and EBITDA for the 2009 annual period were $82.7 million, $21.0 million and $3.5 million, respectively, compared to $99.0 million, $7.5 million and $7.6 million in the 2008 annual period. "The Fund entered 2009 bracing itself for a very tough year as our economy, our country and the world had entered into a significant downturn. Revenue in 2009 was impacted by significantly lower sales volumes and aggressive competitive pricing pressures caused by the downturn. Although we took several actions throughout the year to control operating expenses, these efforts could not fully compensate for the impact of the recession and related decrease in gross margin dollars", said Greg Edmonds, Chief Executive Officer. The net loss was largely due to write-downs of intangible assets and goodwill totaling $20.1 million, caused by the reduction in profitability in both our Eastern and Western segments. It is important to note that the write-downs are non-cash charges on our consolidated statement of operations and do not impact cash flows or consolidated EBITDA.
However, during 2009 management took proactive steps to strengthen the Fund's operations and financial position. "As we move into 2010, I am pleased to report that we begin the new fiscal year supported by a strong balance sheet and very little debt. During the year, the Fund generated strong operating cash flows of $9.5 million compared to $3.1 million in the prior year. Net bank indebtedness has been reduced by $10.3 million since December 31, 2008. A corporate-wide initiative aimed at preserving a strong financial position during the downturn was facilitated by performance improvements to accounts receivable and inventory, reductions in working capital and non-essential capital spending and the disposition of a non-core business."
While there are signs that the Canadian economy is stabilizing, much of it is due to government stimulus and monetary policy. As such, it will be some time before we see true sustainable economic growth. To compensate, management adopted a more conservative approach in 2009. Distributions were suspended during the year and overhead expenses were removed from all businesses. Layoffs, wage and hiring freezes were also implemented in 2009. Headcount, including the disposition of one of our non-core businesses was reduced by 27% in the year.
Nevertheless, there is much work still to be done. We will continue to refocus our sales efforts and use our strong financial position to aggressively compete for market share. We expect the long term market fundamentals of the oil and gas industry to be positive and that this segment will eventually rebound. We are optimistic that in 2010, the Fund will be a beneficiary of the many government stimulus packages as they are focused on the construction industry. In addition, the recent awarding of the 2015 Pan American games to Toronto will have a positive impact on the Ontario construction industry.
SUMMARY OF CONSOLIDATED RESULTS:
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($ thousands Three months ended December 31 Year ended December 31
except per (See note 1) (See note 1)
unit
figures)
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2009 2008 % change 2009 2008 % change
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(unaudited)(unaudited) (audited)(audited)
$ $ $ $
Sales 24,092 28,853 (16.5%) 82,647 98,959 (16.5%)
Cost of Sales 17,185 19,426 (11.5%) 59,018 66,929 (11.8%)
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Gross Margin 6,907 9,427 (26.7%) 23,629 32,030 (26.2%)
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General and
administrati
ve 5,358 5,978 (10.4%) 20,564 22,427 (8.3%)
Foreign
exchange
(gain) (97) 1,133 108.6% (481) 1,976 124.3%
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EBITDA (2) 1,646 2,316 (28.9%) 3,546 7,627 (53.5%)
Amortization 1,891 2,502 (24.4%) 7,639 9,631 (20.7%)
Interest
expense 75 167 55.1% 419 538 (22.1%)
Current
income tax
provision
(recovery) (82) 69 218.8% 381 272 40.1%
Future income
tax expense
(recovery) (994) (226) 339.8% (1,130) (283) 299.3%
Gain on
discontinued
operations (2,596) - - (2,596) - -
Write-down of
intangible
assets 10,581 5,414 95.4% 10,581 5,414 (3.3%)
Write-down of
goodwill 9,501 - - 9,501 - -
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Net loss from
continuing
operations (16,730) (5,610) 198.2% (21,249) (7,945) 167.5%
Income (loss)
from
discontinued
operations (191) (68) 180.9% 276 475 (41.9%)
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Net loss (16,921) (5,678) 198.0% (20,973) (7,470) 180.7%
Other
comprehensiv
e loss (21) - - (126) - -
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Comprehensive
loss (16,942) (5,678) 198.4% (21,099) (7,470) 182.4%
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Average
number of
units
Outstanding
('000s) (3) 13,250 13,250 - 13,250 13,739 -
Basic and
diluted loss
per unit
from
continuing
operations (1.263) (0.423) - (1.604) (0.578) -
Basic and
diluted
earnings per
unit from
discontinued
operations (0.014) (0.005) - 0.021 0.035 -
Basic and
diluted net
loss per
unit (1.277) (0.429) - (1.583) (0.544) -
Total assets 38,830 75,105 - 38,830 75,105 -
Long term
liabilities 613 1,684 - 613 1,684 -
Distributions
per unit - 0.104 - 0.063 0.880 -
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(1) On November 30, 2009, the Fund sold the assets of Professional
Distribution Services ("PDS"). In accordance with GAAP, the operating
activities of PDS have been removed from the current and comparable
periods and separately disclosed as income from discontinued
operations.
(2) EBITDA is a non-GAAP measure. See "Non-GAAP Measures" below for a
definition of EBITDA. The Fund's taxable earnings are allocated to its
unitholders and taxed in their hands.
(3) For purposes of calculating the average number of units outstanding,
Fund units and Class B LP units exchangeable for Fund units have been
included.
2009 Annual Report
The Fund's 2009 Annual Report is available on the Fund's website at www.driveproducts.com and at www.sedar.com.
(1) Non-GAAP Measures
EBITDA and distributable cash are not earnings measures recognized by GAAP and do not have standardized meanings prescribed by GAAP. Therefore, EBITDA and distributable cash may not be comparable to similarly titled measures presented by other issuers. Investors are cautioned that EBITDA and distributable cash should not be construed as an alternative to net income or loss determined in accordance with GAAP as indicators of the Fund's performance or to cash flows from operating, investing and financing activities as measures of liquidity and cash flows. Management believes EBITDA and distributable cash are useful measures in evaluating the performance of the Fund and in determining whether to invest in units. EBITDA means net earnings adjusted to exclude income taxes, gains or losses on disposal of capital assets, amortization of capital assets and intangible assets, and interest expense. We have excluded impairments of goodwill and intangible assets in the presentation of EBITDA because we believe that such charges are non-recurring, one-time charges and that their exclusions will be useful to our investors to compare our period over period and year over year performance. Distributable cash means EBITDA adjusted for maintenance capital expenditures and other adjustments listed in the reconciliation provided in the annual Management's Discussion and Analysis.
About Drive Products Income Fund
Drive Products Income Fund holds a 52% indirect interest in Drive Products. Founded in 1983, Drive Products is a Canadian leader in the design and installation of systems solutions that transform a conventional new truck chassis into a specialized vehicle that meets a customer's technical and performance requirements. To achieve this, Drive Products offers a wide variety of products such as power take-offs, hydraulic pumps, motors and coolers, winches, cables and controls, drivelines, blowers and compressors, hoses and fittings, custom consoles, snowplows, spreaders and electronic spreader controls, from leading international manufacturers, in many instances as the sole distributor in Canada.
Forward-Looking Statements
This press release contains forward-looking information and forward-looking statements as defined in applicable securities laws (collectively referred to as "forward looking statements") relating to expected future events and financial and operating results of the Fund. Specifically, this press release contains forward-looking statements regarding the Fund's sales efforts and business strategies, the Fund's expectations regarding the oil and gas industry, the anticipated benefits to the Fund from government stimulus packages and the impact of the 2015 Pan American games. These statements involve known and unknown risks, uncertainties and assumptions relating to market and general economic conditions, including with respect to the oil and gas industry, the focus of government stimulus packages, the impact of the 2015 Pan American games and the risks, uncertainties and assumptions detailed from time to time in the Fund's continuous disclosure documents filed with the Canadian securities regulatory authorities which could cause actual results to differ materially from those anticipated by such forward-looking statements. 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.
