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General Donlee Income Fund Reports Fourth Quarter and Year Ended December 31 2009 Results and Intention to Convert to a Dividend Paying Corporation
Toronto, Canada, Mar 8, 2010 - General Donlee Income Fund
(the "Fund" or "General Donlee") (TSX: GDI.UN) today announced its results
for the fourth quarter and year ended December 31, 2009, as well as its
intention to become a share capital corporation before January 1, 2011.
The operating company's Management made strategic decisions during the quarter
which somewhat mitigated the effects of the wide-reaching economic pressures
that continue to affect its industry. General Donlee's fourth quarter 2009
results included:
- Sales of $8.8 million, compared to the Q4 2008 sales level of
$14.6 million
- Sales order backlog of $44.9 million at December 31, 2009
- Net income at $1.0 million, compared to the $1.7 million earned in Q4
2008
- Basic income of $0.192 per Unit, as compared to $0.304 per Unit in
the same period last year
- $0.270 in distributions paid to Unitholders for the quarter
- The Trustees' affirmation of the current distribution level
The reduced production and sales due to the industry slowdown caused the
Fund's net income to drop to $1.0 million in the fourth quarter of 2009,
compared to $1.7 million in the same period of 2008; however, when compared to
the third quarter of 2009, sales and net income were up $0.3 million and $0.8
million respectively. The Fund posted gains on the valuation of foreign
exchange forward contracts and marketable securities, which helped mitigate
some of the negative impact on earnings in the fourth quarter. Cash flow
generated from operating activities of $0.9 million remained positive for the
fourth quarter, and consisted of cash from operating activities of $0.6
million and a net change in non-cash working capital items of $0.3 million.
General Donlee's experienced management team has seen the company through
times of vigorous market activity as well as leaner times like those
experienced in recent quarters, and understands that the best way to position
the Company well for the future is to be flexible. In keeping with that
experience, Management has introduced changes to its operations in recent
quarters to ensure they are in lockstep with the realities of the market;
these include reducing the number of labour hours scheduled, to ensure maximum
efficiencies in the face of reduced production demands. Management believes
that moves like these, together with the continuing healthy production backlog
of $44.9 million, will help mitigate the impact of the economic slowdown on
General Donlee's overall performance, both now and as market conditions
improve.
The Fund maintained its regular monthly distributions to Unitholders at the
rate of $0.090 per Unit in the fourth quarter of 2009, despite the pressure on
sales. As a result, given the negative effects continued economic pressures
have had on General Donlee's financial results, the Fund's payout ratio in the
last three quarters has been significantly higher than target. A strong long-
term commitment to Unitholder value has historically underpinned the Fund's
performance - illustrated, among other things, by the conservative payout
ratio the Fund has traditionally maintained - and has not wavered, despite the
challenges of a difficult market. Accordingly, Management and the Trustees,
barring any unforeseen circumstances, have affirmed the current distribution
level, but will continue on an ongoing basis to monitor the Fund's results and
their potential impact on future distributions to Unitholders.
Financial Highlights
The following summary of financial data presents the consolidated results of
operations of the Fund for the three-month and twelve-month periods ended
December 31, 2009, including comparative results for the same periods in 2008.
($ millions, except Unit Three Months Ended Twelve Months Ended
and per Unit amounts, ------------------ -------------------
unaudited) Dec 31/09 Dec 31/08 Dec 31/09 Dec 31/08
--------- --------- --------- ---------
Operations
----------
Sales 8.8 14.6 41.7 53.7
Gross profit 1.7 5.6 9.9 16.5
Net income 1.0 1.7 6.1 6.8
Basic income per Unit $0.192(a) $0.304(b) $1.124(c) $1.041(d)
Distributions
-------------
Distributable cash(1) 0.1 3.4 2.8 10.1
Distributable cash
per Unit(1) $0.011(a) $0.615(b) $0.526(c) $1.559(d)
Distributions paid 1.4 1.9 5.8 7.4
Distributions paid per Unit $0.270 $0.350 $1.080 $1.160
(1) Distributable cash is not a defined term under Canadian generally
accepted accounting principles ("GAAP"), but is determined by the
Fund as cash flow provided by operating activities (adjusted to
remove changes in non-cash working capital items), less repayment of
long-term bank debt and less the pro-rated reserve for maintenance
capital expenditures, for which Management estimates $1.25 million
for 2009. See reconciliation of distributable cash below. Management
believes that this liquidity measure is a useful supplemental measure
of performance, as it provides investors with an indication of the
amount of cash available for distribution to Unitholders. Investors
are cautioned, however, that distributable cash should not be
construed as an alternative to using net earnings as a measure of
profitability, or to using the statements of cash flows. Further, the
Fund's method of calculating distributable cash may not be comparable
to measures used by other companies or trusts. For details of
distributable cash, see the table below.
(a) Based on weighted average of 5,332,317 Units outstanding for the
fourth quarter of 2009.
(b) Based on weighted average of 5,606,957 Units outstanding for the
fourth quarter of 2008.
(c) Based on weighted average of 5,392,335 Units outstanding for the
twelve months 2009.
(d) Based on weighted average of 6,507,840 Units outstanding for the
twelve months 2008.
Overall Financial Performance for 2009
- Net income for the year was $6.1 million, compared to $6.8 million in
2008
- Basic income per Unit for the year was $1.124, up from $1.041 in 2008
Despite the economic downturn in the markets General Donlee serves, in 2009
the Company delivered sales of $41.7 million - a reduction of $12.0 million or
22% from its sales a year earlier. Sales in the Company's aerospace and power
generation products division were $28.0 million, a decrease of $4.5 million,
or 14%, over 2008, mostly due to a decrease in commercial aerospace sales,
offset by higher military aerospace sales net of the increased (on average)
U.S. dollar ("USD"). Its industrial products division's sales in 2009 were
$13.7 million, a decrease of $7.5 million or 35% over the same period last
year, due to the continued slowdown in the capital goods market and client
changes to delivery schedules for commercial aerospace landing gear
components.
The $6.1 million in net income the Fund achieved for the twelve months ended
December 31, 2009 was only $0.7 million less than the same period in the
previous year; this result incorporated both the negative impact of the
economic slowdown and a gain on its USD foreign exchange forward contracts.
The basic income per Unit of $1.124 for 2009 was up from $1.041 per Unit in
2008 as a result of the repurchase of Trust Units under its Issuer Bids,
thereby leaving a lesser number of Trust Units outstanding.
Distributable cash(1) for the twelve months ended December 31, 2009 was $2.8
million, or $0.526 per Unit, as compared to $10.1 million or $1.559 per Unit
in the comparable period in 2008; the Fund maintained its monthly distribution
level at $0.090 throughout 2009. In the twelve months ended December 31, 2009,
distributions paid were $5.8 million or $1.080 per Unit, compared to $7.4
million or $1.160 per Unit in 2008; the Fund was able to reduce the total
amount of distributions paid by reducing the number of Units outstanding at
the end of 2009.
General Donlee continues to maintain adequate working capital to support its
operations, as well as additional credit facilities to support any growth. At
December 31, 2009, General Donlee had working capital of $17.9 million,
compared to the $19.9 million reported at December 31, 2008, and a current
ratio of 4.5:1.
Distributable Cash(1)
Distributable cash(1) for the twelve months ended December 31, 2009 was $2.8
million, or $0.526 per Unit, as compared to the $10.1 million or $1.559 per
Unit posted in the twelve months ended December 31, 2008. This was due to the
reduction in cash provided by operating activities which resulted from the
ongoing economic slowdown in the industries General Donlee serves.
Regular distributions paid to Unitholders were $1.080 per Unit for the twelve
months ended December 31, 2009, unchanged from the same period in 2008.
The following table shows the calculation of distributable cash(1).
Three Months Ended Twelve Months Ended
($000, except per Dec 31 Dec 31 Dec 31 Dec 31
Unit amounts) 2009 2008 2009 2008
--------- --------- --------- ---------
Cash provided by
operating activities $893 $487 $9,757 $8,538
Adjust for net changes in
non-cash working capital
balances related to operations (275) 3,508 (4,696) 3,425
------------------------------------------
Cash provided by operating
activities before changes in
non-cash working
capital balances 618 3,995 5,061 11,963
Repayment of long-term bank debt (247) (235) (972) (566)
Reserve for maintenance
capital expenditures (312) (312) (1,250) (1,250)
------------------------------------------
Distributable cash(1) $59 $3,448 $2,839 $10,147
Distributions paid
to Unitholders $1,440 $1,950 $5,819 $7,398
------------------------------------------
Basic income per Unit $0.192 $0.304 $1.124 $1.041
Distributable cash(1)
per Unit $0.011 $0.615 $0.526 $1.559
Distributions paid per Unit $0.270 $0.350 $1.080 $1.160
Payout ratio(2) n/a 69% 205% 74%
(2) Payout ratio is not a defined term under Canadian GAAP, but is
determined as actual distributions divided by distributable cash. The
Fund's method of calculating its payout ratio may not be comparable
to measures used by other companies or trusts.
Intention to Convert to a Dividend Paying Corporation
The Fund announced today its intention to convert the Fund from an income
trust to a publicly listed dividend paying corporation. The Board of Trustees
of the Fund has approved a process for the conversion by way of a statutory
plan of arrangement under the Canada Business Corporations Act. The conversion
is subject to completion of the detailed conversion plan and related
agreements as well as various conditions, including the receipt of required
consents and approvals, including approval from the Exchange and Unitholders
of the Fund. It is anticipated that Unitholders will be asked to consider and
approve the conversion and other related matters at the annual and special
meeting of the Unitholders of the Fund which is expected to be held in June
2010. The conversion is currently expected to be completed on or about
December 31, 2010.
The proposed conversion relates to the federal government's plan to impose a
tax at the trust level on distributions of certain income from publicly traded
mutual fund trusts, such as the General Donlee Income Fund, at rates of tax
comparable to the combined federal and provincial corporate tax rate - and to
treat such distributions as dividends to Unitholders. Following the
announcement of this plan by the Minister of Finance on October 31, 2006,
Management of the Fund reviewed with legal and accounting experts the
potential impact of the proposed tax changes, and concluded that it is in the
best interests of the Fund and its Unitholders to convert the Fund to a
dividend paying corporation.
Further information on the conversion will be made available once the detailed
plan has been completed and approved by the Board of Trustees of the Fund.
Outlook
Despite the economic realities that played out in 2009, General Donlee's
outlook for the year ahead remains, on the whole, positive. The Company's
operational efficiency and its production volume, although down somewhat from
2008, remain steady - and its production backlog, a direct indicator of the
ongoing demand for its products, remains strong. The Company's diverse
platform of products and customer base continue to help mitigate decreases in
the aerospace industry, which is expected to again decline slightly in the
coming year.
The strategies that have consistently underpinned General Donlee's business -
through markets both vigorous and lean - remain solid, and Management is
committed to upholding them in the year ahead. At their foundation is the
flexibility to respond to changing market conditions, and, as it did in 2009,
General Donlee will make any ongoing adjustments required in 2010 to ensure
its operations continue to be appropriate for demand. The Fund has undertaken
a search for a new President and Chief Executive Officer to replace Thomas
Faucette, who retired January 29, 2010.
General Donlee has built a solid reputation in its industry for excellence and
performance - and has done so on the strength of its commitment to delivering
value for its customers and its Unitholders, in both the near and long terms.
It looks forward to maintaining that standard of excellence in the year ahead.
Company Profile
The Fund is a trust established to hold the securities of General Donlee
Limited, a leading diversified manufacturer of precision-machined products for
the military, commercial and general aerospace industries, and a specialist in
the manufacture of precision-machined products for the industrial products and
power generation industries. General Donlee's operating strategy focuses on
targeting niche markets for products that are aligned with its sophisticated
manufacturing capabilities and skilled workforce.
SEDAR Filings
The Fund will file on March 8, 2010 its annual Consolidated Financial
Statements (including the notes thereto) and Management's Discussion and
Analysis for the year ended December 31, 2009 with SEDAR at www.sedar.com.
These documents will also be available on the Fund's website at
www.generaldonlee.com on the Financial Reports page.
In addition to these documents, the Fund also files its Annual Report, Annual
Information Form, its Notice of Annual Meeting and Management Information
Circular, and its interim financial statements with SEDAR.
Forward-Looking Information
As with all forward-looking statements, caution must be exercised to ensure
that appropriate interpretation is made. Certain forward-looking statements
are based on information currently available to Management, but are subject to
a number of uncertainties and risks that could cause actual results to differ
materially from the results discussed in the forward-looking statements. These
uncertainties and risks include, but are not limited to: dependence on
commercial aircraft sales and defence procurement; dependence on power
generation sales and sales to the industrial sector; production rates;
shipping schedules and timing of deliveries; dependence on key customers;
dependence on third party suppliers and manufacturers; raw material costs;
competition; satisfying product specifications; product liability and warranty
claims; environmental and other government regulation; quality certification
requirements; hedging effects; ability to fund pension deficits, interest and
foreign exchange rates; leverage and restrictive debt covenants; continued
availability of credit facilities; regulatory requirements; reliance on key
personnel and the Company's skilled workforce; changes in accounting policies;
the ability to obtain orders; contract awards and terminations; input costs;
possible changes to the tax laws affecting income trusts; economic growth and
fluctuations (including the global credit crisis, and pension performance,
funding and expenses); and domestic and international economic conditions. In
addition, these forward-looking statements relate to the date on which they
are made. Although the forward-looking statements contained herein are based
upon what Management believes to be reasonable assumptions, the Fund cannot
assure Unitholders that actual results will be consistent with these forward-
looking statements, and 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. In formulating the forward-looking
statements herein, Management has assumed that business and economic
conditions affecting it will continue substantially in the ordinary course,
including without limitation with respect to industry conditions, general
levels of economic activity, regulation, taxes, foreign exchange rates and
interest rates, that there will be no material changes in its facilities,
equipment, customer and employee relations, credit arrangements or credit and
collections experience, and that the integration of new equipment will proceed
relatively smoothly.
Further information can be found in the disclosure documents filed by General
Donlee Income Fund with the securities regulatory authorities, available at
www.sedar.com or through the Fund's website at www.generaldonlee.com.
For further information:
Ralph Barnes
Director, Investor Relations,
tel: 416.743.4417
email: rbarnes@generaldonlee.com
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