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General Donlee Income Fund Reports Fourth Quarter and Full Year 2005 Results
Toronto, Canada, Mar 15, 2006 - General Donlee Income Fund (TSX: GDI.UN) today
announced its financial results for the fourth quarter and year ended December
31, 2005. Sales for the fourth quarter in 2005 were $9.4 million, an increase
of $1.3 million or 13% over the same period in 2004. Net earnings for the
fourth quarter in 2005 were $1.6 million, a substantial increase compared to
the same quarter in 2004.
Distributable cash(1) for the fourth quarter in 2005 totaled $0.7
million, or $0.082 per unit, down slightly from the same quarter in 2004 due
to a $0.7 million repayment of the term loan. Distributions paid in the fourth
quarter of 2005 totaled $1.3 million or $0.150 per unit. With the payment of
the August distribution in September the monthly distribution rate was
increased from $0.0084 per unit to $0.04 per unit. With the October
distribution at the end of November, the monthly targeted rate was increased
for a second time to $0.055 per unit. The December payment is not included in
this quarter, but is reflected in the following quarter's total. The
distributions paid in the fourth quarter of 2004 totaled $0.2 million or
$0.025 per unit.
Today, the Fund's Trustees declared the February 2006 distribution at the
current rate of $0.055 per unit which will be paid to Unitholders on March 31,
2006, to holders of record on March 28, 2006. The current targeted annual
distribution rate is equivalent to $0.66 per unit, up significantly from this
time last year and a reflection of the Fund's improving business results.
Financial Highlights
The following summary of financial data reflects the consolidated results
of operations of the Fund for the three-month and twelve-month periods ended
December 31, 2005:
<<
Three Months Ended Twelve Months Ended
($ millions, except unit --------------------- ----------------------
and per unit amounts, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
unaudited) 2005 2004 2005 2004
---------- ---------- ---------- ----------
Sales $ 9.4 $ 8.1 $ 34.1 $ 30.3
Gross profit 2.8 2.0 8.1 7.0
Net earnings before
goodwill charge 1.6 0.6 3.6 1.2
Net earnings before
charge per unit(a) $ 0.184 $ 0.062 $ 0.407 $ 0.133
Net earnings (loss) 1.6 0.6 3.6 (22.0)
Net earnings (loss)
per unit(a) $ 0.184 $ 0.062 $ 0.407 $ (2.455)
Distributable cash(1) 0.7 1.0 3.8 3.4
Distributable cash
per unit(a) $ 0.082 $ 0.108 $ 0.424 $ 0.377
Cash distributions paid 1.3 0.2 2.7 3.8
Cash distributions paid
per unit(a) $ 0.150 $ 0.025 $ 0.297 $ 0.425
(a) based on 8,947,000 units.
During the fourth quarter of 2005, results for both the aerospace and
power generation products division and the industrial products division
reflected improvements over those of the prior year and over each of the
preceding quarters in the current year. The commercial aerospace segment
performed solidly and the improvement in the industrial products division
reflected gains in all areas. Planned military shipments were delayed again,
likely to the first or second quarter of 2006, due to challenges with
outsourcing suppliers. Capital goods markets improved somewhat in the fourth
quarter yielding higher orders and shipments, which together with higher
efficiencies, helped generate better margins.
Management's Discussion and Analysis
The following is a discussion of the unaudited Consolidated Financial
Statements of General Donlee Income Fund (the "Fund") for the three- and
twelve-month periods ended December 31, 2005. It provides an overview of the
results of operations and the financial condition of the Fund for the year
ended December 31, 2005. Comparisons are supplied for the year ended December
31, 2004. The Consolidated Financial Statements have been prepared in
accordance with Canadian generally accepted accounting principles and are
reported in Canadian dollars.
Overall Performance
Sales for the year ended December 31, 2005 of $34.1 million reflect a 13%
increase over the year 2004. Sales in the Company's aerospace and power
generation products division increased 10% compared to 2004. In the industrial
products division, sales revenue for 2005 increased 15% compared to 2004. The
improvement in the level of shipments in the industrial products division is a
result of some of the operational issues being resolved with the appointment
in the first quarter of a new interim general manager, a concentrated effort
to ship products on a timely basis and the continued support from its largest
customer. The improved shipments in the fourth quarter and full year 2005
generated improved margins, net earnings and operating cash flows compared to
the same periods in 2004.
There is more than adequate working capital to support the Company's on-
going current operations and the consolidated net debt to equity ratio of the
Fund is low. With the pick-up in the aerospace and power generation products
division expected to continue and the strong effort in the industrial products
division to further restore margins, General Donlee expects to be in a good
position to take advantage of any new business opportunities as they arise.
Results of Operations
Financial Summary
The Consolidated Financial Statements of the Fund include the operations
of the aerospace and power generation products division and the industrial
products division of General Donlee. The Fund's consolidated sales of $9.4
million for the fourth quarter ended December 31, 2005 increased 16% over the
comparable total in 2004. For the year ended December 31, 2005, total sales
were $34.1 million up 13% from last year.
In the fourth quarter of 2005, the Fund recorded net earnings of $1.6
million which compares to the fourth quarter of 2004 when the Fund had
earnings of $0.6 million. For the year ended December 31, 2005 the Fund had
earnings of $3.6 million. In 2004, the Fund incurred a net loss of $22.0
million, reflecting a total non-cash goodwill impairment charge of $23.2
million and earnings from operations of $1.2 million before that charge.
Sales
Total sales for the quarter ended December 31, 2005 were $9.4 million, an
increase of $1.3 million compared to the similar period in 2004. For the year
ended December 31, 2005, sales were $34.1 million, an increase of $3.8 million
compared to the similar period last year.
Fourth Quarter Total Year
-------------- Incr/ -------------- Incr/
($ millions) 2005 2004 (Dec) 2005 2004 (Dec)
---------------------- ----------------------
Aerospace and power 5.2 4.3 0.9 18.4 16.7 1.7
generation products
Industrial products 4.2 3.8 0.4 15.7 13.6 2.1
----------------------------------------------
9.4 8.1 1.3 34.1 30.3 3.8
----------------------------------------------
Aerospace and Power Generation Products Division
For the fourth quarter and year-to-date periods ended December 31, 2005,
the aerospace and power generation division's net increase in sales compared
to the same period in the prior year can be attributed as follows:
Fourth Quarter Total Year
-------------- Incr -------------- Incr/
($ millions) 2005 2004 (Dec) 2005 2004 (Dec)
----------------------------------------------
Commercial aerospace 4.5 2.7 1.8 14.9 9.3 5.6
Military aerospace 0.4 1.0 (0.6) 2.0 4.1 (2.1)
Industrial 0.3 0.5 (0.2) 1.2 1.4 (0.2)
Power generation 0 0.1 (0.1) 0.3 1.9 (1.6)
----------------------------------------------
5.2 4.3 0.9 18.4 16.7 1.7
----------------------------------------------
In the fourth quarter of 2005, the volume increase in the commercial
aerospace segment reflects increased shipments, as was the case for the
improvement in the third quarter of 2005.
Military shipments that had been scheduled for shipment in the fourth
quarter have been delayed until likely the first or second quarter of 2006.
Commercial aerospace business remains strong, whereas activity in the power
generation segment continues to be substantially below the level of last year.
Industrial Products Division
In the fourth quarter ended December 31, 2005, the industrial products
division's sales of gears, splines and assemblies were $4.2 million, an
increase of $0.4 million, or 11% over the same period in 2004. The increased
shipments in the quarter reflect the higher steady volume of orders that were
received during the quarter.
The division's sales for the year ended December 31, 2005 were $15.7
million, an increase of $2.1 million, or 15% over the same period last year,
reflecting the shipment of the delayed orders from 2004 and the increase in
new orders received during the year. The industrial products division is
currently experiencing increased production activity with its largest
customer. No assurance can be given that this will continue.
Corporate
In the fourth quarter and the twelve-month period ended December 31,
2005, the Canadian dollar was on average 3% and 7% higher respectively versus
the U.S. dollar for the comparable periods in 2004, which had adverse impacts
on consolidated sales of approximately $0.2 million and $1.2 million
respectively. These results exclude the impact of foreign exchange forward
contracts. See "Foreign Exchange" and "Derivative Contracts" below.
Backlog
The sales order backlog at December 31, 2005 totaled $50.1 million, an
increase of 5% compared to the $47.7 million total at December 31, 2004. The
aerospace and power generation division accounts for approximately 94% of the
total backlog, while the industrial products division, which has a shorter
product cycle, accounts for the balance. The proportion contributed by the
industrial products division is similar to last year. The backlog includes the
aerospace and power generation division's 3-year, $5 million agreement
announced in mid-October.
Gross Profit
Gross profit for the fourth quarter and the twelve-month period ended
December 31 2005 has improved over the same quarter and the twelve-month
period ended December 31, 2004.
2005 2004
------ ------
Gross % of Gross % of
($ millions) Profit Sales Profit Sales
------ ----- ------ -----
Quarter ended Dec. 31 2.8 29.6% 2.0 24.7%
Twelve months ended Dec. 31 8.1 23.8% 7.0 23.2%
The gross profit percentage level for the three months ended December 31,
2005 is significantly improved over the 24.7% level achieved in the last
quarter of the prior year. The increase in gross profit has been due to
improved operational efficiencies in the industrial products division,
production volume increases and better product sales mix in both divisions.
During 2005, gross margin improved progressively in each quarter. For the
twelve months ended December 31, 2005 the gross margin was modestly higher
relative to the 2004 level. This was the net result of favorable product mix,
increased sales and production volumes and increased margins in the industrial
products segment, resolution of operational issues, all negatively offset by
the higher Canadian dollar versus the U.S. dollar (see above) and raw material
price increases. Rising energy costs have had a minimal impact on the
Company's manufacturing costs.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the quarter ended
December 31, 2005 were $0.8 million or 8.9% of sales, and included Fund costs
of $0.3 million. Selling, general and administrative expenses for the quarter
ended December 31, 2004, were $0.9 million or 11.5% of sales, and included
Fund costs of $0.3 million.
Selling, general and administrative expenses for the year ended December
31, 2005 were $3.4 million or 9.9% of sales, and included Fund costs of $0.9
million. Selling, general and administrative expenses for the year ended
December 31, 2004 were $3.3 million or 11.0% of sales, and included Fund costs
of $1.0 million. Included in the 2005 costs were one-time employment-related
costs.
Interest Expense
Interest expense was $0.1 million on the $16.1 million credit facility
for the quarter ended December 31, 2005. Interest expense for the quarter
ended December 31, 2004 was $0.1 million. Interest expense for the year ended
December 31, 2005 of $0.5 million was approximately equal to, the amount for
the year ended December 31, 2004.
Foreign Exchange Gain (Loss)
Foreign exchange loss for the quarter ended December 31, 2005 mainly
reflects the net impact of the Company's foreign exchange forward contracts
which, when marked-to-market at December 31, 2005, produced a foreign exchange
loss of $0.2 million. Foreign exchange gain for the quarter ended December 31,
2004 was $0.3 million. For current contracts see "Derivative Contracts" below.
Foreign exchange gain on the Company's forward exchange forward contracts
for the year ended December 31, 2005 was $0.2 million. Foreign exchange gain
during the year ended December 31, 2004 was $0.5 million.
The Company enters into foreign exchange forward contracts to seek to
minimize its exposure to fluctuations in foreign currency exchange rates.
These derivative products do not qualify for hedge accounting treatment;
therefore, the contracts are recorded on the consolidated balance sheet at
fair value with a corresponding gain or loss recorded in earnings. As exchange
rates fluctuate, foreign exchange gains and losses vary from period to period.
Amortization Expense
Fourth Quarter Total Year
-------------- ----------
($ millions) 2005 2004 2005 2004
---- ---- ---- ----
Property, plant and Equipment(a) 0.1 0.4 1.6 1.7
Other assets 0.0 0.7 0.9 2.6
---- ---- ---- ----
0.1 1.1 2.5 4.3
---- ---- ---- ----
(a) Included in cost of sales
The value of the contracted sales agreements (Other assets) that were
acquired in May 2002 was fully amortized at the end of April 2005, resulting
in a reduction in amortization expense of $1.7 million for the twelve months
ended December 31, 2005.
Gain on Disposal of Property, Plant and Equipment
A gain of $0.03 million was recognized in the first quarter of 2004 as a
result of the sale of a grinder that was replaced by a new grinder in the
industrial products division.
Goodwill
Effective June 30, 2002, the Fund adopted the CICA accounting standard
set out in Section 3062, "Goodwill and Other Intangible Assets". Under this
standard, goodwill is no longer amortized, but instead is tested for
impairment.
At year end December 31, 2005, the Fund performed its annual impairment
test. Based on results of step one of the annual impairment test, the
Corporation determined that there was no potential impairment to goodwill at
December 31, 2005. As a result, the Fund was not required to perform step two
of the impairment test.
During the second quarter of 2004, the Fund recorded a non-cash
impairment charge of $13.5 million. Allocation of the impairment charge was
$10.35 million against the aerospace and power generation products division
and $3.15 million against the industrial products division.
During the third quarter of 2004, the Fund recorded a non-cash impairment
charge of $9.65 million against the industrial products division.
For the year ended December 31, 2004, the total goodwill impairment
charge was $23.15 million, allocated $10.35 million to the aerospace and power
generation products division and $12.80 million to the industrial products
division.
Income Taxes
At December 31, 2005, the Company had non-capital loss carry forwards and
other undeducted items totaling $0.5 million for which no benefit has been
recognized in the consolidated financial statements. Income earned by the Fund
that is distributed annually to Unitholders is not currently subject to
taxation in the Fund but is taxed at the individual Unitholder level.
Net Earnings (Loss)
Net earnings of the Fund for the quarter ended December 31, 2005 were
$1.6 million. For the comparable quarter ended December 31, 2004, the net
earnings of the Fund were $0.6 million. For the year ended December 31, 2005,
net earnings were $3.6 million, which compared to a net loss of $22.0 million
after the goodwill impairment charge of $23.2 million for the year ended
December 31, 2004. The following table outlines the earnings components that
contributed to these consolidated results.
Fourth Quarter Total Year 2004
-------------- ---------------
Before After
($ millions) 2005 2004 2005 G/W G/W
---- ---- ---- ---- ----
Aerospace and power
generation products 0.9 0.2 2.7 1.3 (9.1)
Industrial products 1.0 0.7 1.8 0.9 (11.9)
Fund (0.3) (0.3) (0.9) (1.0) (1.0)
---- ---- ---- ---- ----
1.6 0.6 3.6 1.2 (22.0)
---- ---- ---- ---- ----
G/W: goodwill impairment charge
Quarterly Financial Information
2005
----
-------------------------------------------------------------------------
($000, except per 2005 2005 2005 2005
unit amounts) Fourth Third Second First Total
(unaudited) Quarter Quarter Quarter(b) Quarter(b) 2005
-------------------------------------------------------------------------
Total sales 9,368 7,867 8,823 8,064 34,122
-------------------------------------------------------------------------
Net earnings (loss) 1,642 1,493 878 (372) 3,641
-------------------------------------------------------------------------
Net earnings (loss)
per unit (basic
and diluted) $0.184 $0.167 $0.098 $(0.042) $0.407
-------------------------------------------------------------------------
Distributable cash(1) 732 1,084 1,512 465 3,793
-------------------------------------------------------------------------
Cash distributions 1,342 866 225 226 2,659
-------------------------------------------------------------------------
(b) Distributable cash was not re-stated in prior periods' calculations
to reflect the reserve for maintenance capital expenditures, as
required by the bank covenant dealing with the annual distributable
cash calculation.
(1) See "Distributions and Distributable Cash" section below.
2004
----
-------------------------------------------------------------------------
($000, except per 2004 2004 2004 2004
unit amounts) Fourth Third Second First Total
(unaudited) Quarter Quarter Quarter Quarter 2004
-------------------------------------------------------------------------
Total sales 8,063 6,264 6,989 8,940 30,256
-------------------------------------------------------------------------
Net earnings (loss)
before goodwill
charge 558 (13) 25 614 1,184
-------------------------------------------------------------------------
Net earnings (loss) 558 (9,663) (13,475) 614 (21,966)
-------------------------------------------------------------------------
Net earnings (loss)
before goodwill
per unit (basic
and diluted) $0.062 ($0.001) $0.003 $0.069 $0.133
-------------------------------------------------------------------------
Net earnings (loss)
per unit (basic
and diluted) $0.062 ($1.080) ($1.506) $0.069 $(2.455)
-------------------------------------------------------------------------
Distributable cash(1) 969 591 361 1,455 3,376
-------------------------------------------------------------------------
Cash distributions 226 782 1,228 1,566 3,802
-------------------------------------------------------------------------
General Donlee's business operations are cyclical, particularly in the
aerospace and power generation products division. The most significant factors
leading to variations in operating results are economic conditions, aerospace
and business capital spending levels, the level of the Canadian dollar versus
foreign currencies, reliance on customers' orders, and the time required to
manufacture and ship to the customer. The Company's products are required to
be produced to customer requirements and sales revenue is recognized only when
products are completed and shipped. Accordingly, fluctuations in customer
demand and the timing of shipments contribute to variability in the Company's
sales.
Derivative Contracts
The Company has entered into foreign exchange forward contracts to seek
to reduce exposure to currency rate fluctuations. As at December 31, 2005, the
Company has foreign currency forward exchange contracts outstanding to sell
U.S. $6.0 million (2004 - U.S. $6.0 million) and buy Canadian dollars at an
average exchange rate of CDN $1.2452 (2004 - $1.2951) per U.S. dollar. These
contracts mature from January 2006 to December 2006.
In addition at December 31, 2005 the Company has foreign currency forward
exchange contracts to buy Euro 1.3 million at an average exchange rate of U.S.
$1.2150. These contracts mature from August 2006 to October 2006.
Balance Sheet
Consolidated working capital at December 31, 2005 was $12.5 million. At
December 31, 2004, working capital totaled $10.2 million. The increase
reflected work-in-process inventory for the military components that have not
yet been shipped. The current ratio at December 31, 2005 was 3.3:1.0, which is
up from 3.1:1.0 at December 31, 2004. The increase in the ratio is primarily
the result of higher work-in-process inventories.
The consolidated net debt to equity ratio was 0.35:1.00 at December 31,
2005 (total debt net of cash), the same as at December 31, 2004. During 2005,
the Company voluntarily repaid $1.0 million of the term loan. The net debt
level includes $0.8 million for the deposit on the equipment that has been
ordered for delivery in 2006.
Units Outstanding
Upon completion of the initial public offering in May 2002, the Fund had
8,947,000 units outstanding. Since May 2002, no units have been issued or
retired, and as at December 31, 2005, there are 8,947,000 units outstanding.
There have been no options granted on the Fund's units. The units are listed
for trading on the Toronto Stock Exchange under the symbol GDI.UN.
Liquidity
Cash flow generated by the Company is required to fund capital
expenditures, distributions to Unitholders of the Fund, and third party bank
interest, as well as other ongoing operational requirements. Management
believes that there is more than adequate working capital to support the
Company's on-going current operations. The consolidated net debt to equity
ratio is low and the Company has an available revolving operating credit
facility of $3.0 million, of which $0.7 million was drawn at December 31,
2005.
Cash Flow From Operating Activities
During the quarter ended December 31, 2005, cash provided by operating
activities was $0.5 million. This was comprised of cash flows from operations
of $1.6 million, while non-cash working capital items required $1.1 million,
reflecting increases in work-in-process inventory and accounts receivable,
partially offset by higher accounts payable and decreases in prepaid expenses
and customer deposits. The increase in work-in-process inventory reflects the
investment in material, labour and overhead as a result of the delay in the
military shipment, as discussed above, and the increased production levels in
the aerospace and power generation division. Higher accounts payable reflects
the liabilities to suppliers for the raw material purchases. Increased
accounts receivable reflects the increased sales levels.
For the quarter ended December 31, 2004, cash provided from operating
activities was breakeven. This was comprised of $1.3 million cash flow from
operations, while non-cash working capital items required $1.3 million,
reflecting increases in accounts receivable and work-in-process inventory,
partially offset by higher accounts payable.
During the year ended December 31, 2005, cash provided by operating
activities was $3.4 million. This was comprised of cash flows from operations
of $5.8 million, while non-cash working capital items required $2.4 million,
reflecting increases in work-in-process inventory, partially offset by
decreases in accounts receivable, customer deposits and prepaid expenses and
higher accounts payable.
For the year ended December 31, 2004, cash provided from operating
activities was $3.6 million, comprised of $5.2 million from operations, while
non-cash working capital items required $1.6 million reflecting increases in
accounts receivable and work-in-process inventory, partially offset by higher
accounts payable and customer deposits.
Distributions
Distributable Cash(1)
For the quarter December 31, 2005, distributable cash(1) was $0.7 million
or $0.082 per unit. For the quarter ended December 31, 2004, distributable
cash(1) was $1.0 million or $0.108 per unit.
For the year ended December 31, 2005, distributable cash(1) was $3.8
million or $0.424 per unit. For the year ended December 31, 2004,
distributable cash(1) was $3.4 million or $0.377 per unit.
The following table shows the calculation of distributable cash(1)
reflecting cash flows from operations and cash requirements for capital
expenditures and repayment of term debt.
Quarter Ended Year Ended
------------- ----------
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
2005 2004 2005 2004
---------- ---------- ---------- ----------
Cash provided by operating
activities $474 $(34) $3,384 $3,624
Net changes in non-cash
working capital balances
related to operations 1,119 1,309 2,447 1,622
----------------------------------------------
Cash provided by operating
activities before changes
in non-cash working
capital balances 1,593 1,275 5,831 5,246
Add (deduct) items not
affecting cash:
Derivative contracts (118) 141 (85) 25
Employee future benefits 269 200 387 200
Gain on disposal of
equipment 0 (1) 0 30
---------- ---------- ---------- ----------
1,744 1,615 6,133 5,501
Term loan repayment (700) 0 (1,000) 0
Bank advance machine deposit 780 0 780 0
Machine deposit to supplier (780) 0 (780) 0
Deferred finance charge 0 0 (90) 0
Purchases of property,
plant and equipment (net
of proceeds from disposal) (6) (646) (20) (2,125)
Prorated reserve for
maintenance capital
expenditures (306) 0 (1,230) 0
---------- ---------- ---------- ----------
Distributable cash(1) $732 $969 $3,793 $3,376
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Cash distributions paid
to Unitholders 1,342 226 2,659 3,802
---------- ---------- ---------- ----------
Net earnings (loss)
per unit $0.184 $0.062 $0.407 $(2.455)
---------- ---------- ---------- ----------
Distributable cash(1)
per unit $0.082 $0.108 $0.424 $0.377
---------- ---------- ---------- ----------
Cash distributions paid
per unit $0.150 $0.025 $0.297 $0.425
---------- ---------- ---------- ----------
1. Distributable cash is not a defined term under Canadian generally
accepted accounting principles (GAAP), but is determined by the Fund
as cash flow from operating activities adjusted to remove changes in
non-cash working capital items including derivative contracts and
employee future benefits, repayment of long-term bank debt and
further reduced by purchases of property, plant and equipment (not
funded) or reserve for maintenance capital expenditures if actual
capital expenditures do not exceed $1.25 million annually. 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.
Cash Distributions
The Fund increased its monthly distribution from $0.0084 to $0.04 per
unit for August and made a special additional payment of $0.04 per unit at
that time. In October, the Fund again increased its monthly distribution from
$0.04 per unit to $0.055 per unit. Total cash distributions paid by the Fund
in the quarter ended December 31, 2005 amounted to $1.3 million or $0.150 per
unit. The $0.5 million distribution for the month of December 2005 was paid
January 31, 2006, and is not included in the preceding quarterly figure. For
the year ended December 31, 2005, cash distributions paid to Unitholders were
$2.7 million or $0.297 per unit.
For the quarter ended December 31, 2004 cash distributions amounted to
$0.2 million or $0.025 per unit. For the year ended December 31, 2004, cash
distributions paid to Unitholders were $3.8 million or $0.425 per unit. In
2004, there were two significant reductions in distributions, which in total
reduced the targeted annual distribution level from $0.70 to $0.10 per unit.
Details of the cash distributions paid for the twelve months ended
December 31, 2005 are:
Period Record Date Payment Date Per Unit Total
------ ----------- ------------ -------- -------
($ 000)
December(04) January 27 January 30 $0.0084 $ 75
January February 24 February 27 0.0084 75
February March 28 March 31 0.0084 76
--------- --------
First quarter sub-total 0.0252 226
--------- --------
March April 26 April 29 0.0084 75
April May 26 May 31 0.0084 75
May June 27 June 30 0.0084 75
--------- --------
Second quarter sub-total 0.0252 225
--------- --------
June July 26 July 29 0.0084 75
July August 26 August 31 0.0084 75
August September 27 September 30 0.0800 716
--------- --------
Third quarter sub-total 0.0968 866
--------- --------
September October 26 October 31 0.0400 358
October November 25 November 30 0.0550 492
November December 22 December 29 0.0550 492
--------- --------
Fourth quarter sub-total 0.1500 1,342
--------- --------
Total Year $0.2972 $2,659
--------- --------
Monthly distributions are usually paid on or about the last day of the
month, for the prior month, with a record date typically three business days
earlier. The Company's credit facilities have not been and are not intended to
be used to make distributions.
Tax Status of Cash Distributions in 2005
The Fund is the sole registered holder of $82.95 million of notes, issued
by the Company, bearing interest at 15.82% per annum ($13.1 million annually).
The interest earned on the notes is currently the only material source of
income to the Fund. As a result of the decline in General Donlee's
profitability, which since the I.P.O. in 2002 has been impacted by, among
other things, weak business conditions and the stronger Canadian dollar, the
Fund has formally waived during the fourth quarter of 2005 defaults related to
a total of $1.7 million of unpaid interest (2004 - $3.1 million). For the year
ended December 31, 2005, the Fund has formally waived $9.2 million of unpaid
interest (2004 - $9.8 million) which is net of Fund costs paid by the Company
on behalf of the Fund. The unpaid back interest for the fourth quarter and the
year ended December 31, 2005 will therefore not be recoverable by the Fund,
and the Company is not in default under the note indenture.
In the year 2005, the Fund paid distributions of $0.2972 per unit
comprised of $0.19798 per unit (66.62%) classed as taxable income and $0.09922
per unit (33.38%) classed as return of capital. In the year 2004, the Fund's
distributions of $0.42492 per unit were comprised of $0.22724 per unit
(53.48%) classed as taxable income and $0.19768 per unit (46.52%) classed as
return of capital.
Outlook for Future Distributions
In October 2004, the Fund reported in a press release that the largest
customer of the industrial products division had terminated a sourcing
agreement with a view to increasing its overseas outsourcing of components. In
actual fact, a substantial volume of components were displaced from the
industrial products division and switched to overseas outsourcing. Ultimately
substitute orders have been received from the customer amounting to
approximately the same sales value as those lost, however, the change in
production mix has had some adverse impact on the division's margins, as was
expected. At this time it is difficult for Management to place a value on this
additional work, however it is expected to have a favourable impact on the
results of the industrial products division during 2006.
After Management's assessment of the changes in the relationship with
this major customer and the mid to longer-term impact on the Fund's sales
revenue, margins and cash flow, the Board approved the adjusted level of
monthly distributions to $0.055 per unit for the foreseeable future.
Management based its assessment on the pick up in sales and cash flow
generation in the aerospace and power generation division that occurred in
2005, as well as the expected favourable impact in the industrial products
division. Future changes to the relationship with this customer remain
possible.
Capital Resources
Credit Facilities
During the first quarter, the Company negotiated a renewed credit
arrangement totaling $16.8 million, which became effective during March 2005.
The facility includes a $9.7 million non-amortizing term loan, a $3.0 million
revolving operating loan facility, a $4.0 million non-revolving lease facility
and a $0.1 million corporate credit card facility. The term loan expires April
30, 2008, the operating loan facility is renewable annually and the lease will
be amortized over 5 years. The financial covenants have been revised to
correspond with the increased facility.
During the first quarter of 2005, the original $10.0 million non-
amortizing term facility was reduced to $9.7 million and during the fourth
quarter of 2005 the facility was paid down to $9.0 million. At December 31,
$0.7 million was outstanding against the $3.0 million operating credit
facility and $0.8 million was advanced from the $4.0 million lease facility
for a machine deposit and is included in long-term debt. The $0.1 million
corporate credit card facility was not utilized at December 31, 2005.
During the fourth quarter of 2005, the Company has drawn $0.8 million
under the new lease facility for the down payment on a new $3.0 million multi-
functional machining centre that is scheduled for delivery late in 2006.
The Company has three key financial loan covenants governing its credit
facilities. These financial covenants are: a fixed charge coverage covenant; a
senior debt covenant; and an annual cash distributions covenant. At December
31, 2005, the Company was in compliance with these key financial loan
covenants.
Additions to Property, Plant and Equipment
Additions to property, plant and equipment were minimal, totaling $0.02
million for the year ended December 31, 2005. $2.2 million was spent during
the year ended December 31, 2004.
As previously discussed last quarter, Management has entered into an
agreement for the acquisition of a new large capacity multi-functional
machining centre at a cost of $3.0 million which will be funded by the lease
facility. The purchase of this equipment was contingent on formalizing a 3-
year agreement with an existing customer in the aerospace and power generation
segment providing for additional orders currently estimated at $5.0 million.
This agreement has now been formalized. The $3.0 million will be funded in the
year 2006, and will be financed over 5 years utilizing the existing $4.0
million lease facility. The addition of this machining centre will help reduce
the production scheduling constraints currently facing the aerospace and power
generation division and provide it with greater flexibility in the production
of future aerospace and power generation components.
Management has reviewed the future capital needs and the Company expects
to spend approximately $2.0 million to satisfy future production requirements
on new capital expenditures during 2006, which is expected to be financed from
operating cash flow. This amount is in addition to the balance to be spent on
the multi-functional machining center ordered in 2005.
Future capacity needs and the condition of aging equipment will also
require the Company to spend an additional $2.0 million on maintenance capital
expenditures. This expenditure is expected to be funded by a lease facility,
similar to the facility that was put in place for the multi-functional
machining centre. Total planned capital additions for the year 2006
approximate $7.0 million.
Contractual Obligations
($ 000) Payment Due by Period
1 Year 1-3 4-5 Over
------ --- --- -----
Total or less Years Years 5 Years
----- ------- ----- ----- -------
Bank debt 9,000 0 9,000 0 0
Bank advance machine
deposit 780 780
----------------------------------------------
----------------------------------------------
Total contractual
obligations 9,780 0 9,000 0 780
----------------------------------------------
The $9.0 million non-amortizing term loan matures on April 30, 2008. The
interest rate on the non-amortizing term loan is Canadian bank prime plus 1/4%
and the bank advance for the machine deposit is prime plus 1/2%
The asset relating to employee future benefits reflects the accounting
for the actuarial determination that a shortfall in the funding of future
pension benefits was estimated as a result of the actuarial review completed
as at December 31, 2004. The results of the review require the Company to make
special payments over the next five years to deal with a pension deficiency of
$2.6 million, consisting of a going concern deficiency of $0.7 million and a
solvency deficiency of $1.9 million. The amount paid for 2005 was $0.4 million
and based on the current deficiency the required annual payment for 2006 is
estimated at $0.5 million. In addition, another actuarial review is required
as of December 31, 2005, as the actuarially determined asset to solvency
liability ratio of the plan was approximately 76% as at December 31, 2004.
This actuarial review is expected to be completed in the second quarter of
2006.
Off-Balance Sheet Arrangements
The Fund has off-balance sheet arrangements, which include a pension plan
and a foreign exchange forward contracts program (as detailed in the Foreign
Exchange section).
Transactions with Related Parties
The Fund did not have any material transactions with related parties
during the year ended December 31, 2005 or since the inception of the Fund's
operations in May 2002.
Proposed Transactions
From time to time, the Fund explores potential strategic opportunities
and transactions. These opportunities and transactions may include strategic
joint venture relationships, significant debt or equity investments in the
Fund or the Company by third parties, the acquisition or disposition of
material assets, the development of new products, the sale of the Fund or the
Company and other similar opportunities or transactions. Such opportunities or
transactions may have a significant effect on the price or value of the Fund's
securities. The Fund's general policy is to not publicly disclose the pursuit
of a potential strategic opportunity or transaction. Accordingly, there can be
no assurance that investors who buy or sell securities of the Fund are doing
so at a time when the Fund is not pursuing a particular strategic opportunity
or transaction that it is not required by applicable law to disclose but that,
if publicly disclosed, would have a significant effect on the price or value
of the Fund's securities.
On February 28, 2006 the Fund announced that the Board of Directors of
General Donlee formed a special committee of independent directors ("Special
Committee") to review and assess the various strategic options available to
General Donlee that could improve Unitholder value. Some of the options to be
explored include: an equity investment in the Fund and/or the Company; a
merger or other business combination with a third party; a restructuring, and
the sale of all or part of General Donlee. The Special Committee has engaged
National Bank Financial as its financial advisor in connection with this work.
There can be no assurance that any transaction will result from this
initiative.
Critical Accounting Assumptions
The preparation of consolidated financial statements in conformity with
Canadian generally accepted accounting principles requires Management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the period. Actual results could differ from those estimates. The major
items incorporating estimates or assumptions by Management are discussed
below.
Valuation of Work-in-Process Inventories
Work-in-process is valued on an average cost basis which involves
determining the total labour hours required to arrive at the last operation
completed. The labour hours are then multiplied by the Company labour and
overhead rates to arrive at a dollar cost. All purchases of raw material and
outside process costs, which have been incurred to reach this stage of
completion, are also added to the value of the labour and overhead to arrive
at the work-in-process inventory value.
Provision for Slow Moving, Scrap or Obsolete Inventories
A review of all inventories on hand is completed to identify all parts
which may not be categorized as saleable in the immediate future, as a result
of being surplus or defective. A realizable value is then determined for the
parts, and a provision is taken against inventories.
Allowance for Doubtful Accounts
An allowance for uncollectible accounts is provided for, based on a
selection of specific amounts due from customers, which may be deemed as
uncollectible.
Amortization of Property, Plant and Equipment
Amortization is calculated on a straight-line basis over the estimated
useful lives of the assets. The Company uses a 10-year life for buildings, a
10-year life for production equipment, a 5-year life for office furniture and
equipment and a 3-year life for computer equipment.
Values of Pension Obligations and Assets
The cost of pension benefits earned by employees is actuarially
determined using the projected benefit method pro-rated on services and
Management's best estimate of expected plan investment performance, salary
escalation, and retirement ages of employees. For the purposes of calculating
the expected return on plan assets, those assets are valued at fair value.
Past service costs from plan amendments are amortized on a straight-line basis
over the average remaining service period of employees active at the date of
amendment. The excess of the net actuarial gain (loss) over 10% of the greater
of the accrued benefit obligation and the fair value of the plan assets is
amortized over the average remaining service period of active employees.
Amount of Pension Costs Charged to Earnings
The cost of pension benefits earned by employees is actuarially
determined using the projected credit benefit method pro-rated based on
services in accordance with the recommendations of the Canadian Institute of
Chartered Accountants. For the quarter ended December 31, 2005, the Company
made contributions to the pension fund of $0.2 million, which included the
$0.1 million to partially fund the deficiency and $0.1 million for regular
contributions. For the year ended December 31, 2005, the Company made
contributions to the pension fund of $0.8 million, which included $0.4 million
to partially fund the deficiency and $0.4 million for regular contributions.
Impairment of Intangible and Goodwill Assets
The Fund applies the recommendations of the Canadian Institute of
Chartered Accountants on accounting for goodwill and other intangible assets.
In accordance with the standard, goodwill is not amortized and is tested
annually for impairment in value or more frequently if required. To perform
this annual impairment test the Company must estimate the fair value of the
divisions using a combination of the present value of future cash flows
approach, a multiple of earnings approach and the market capitalization
approach.
Fair Values of Acquired Assets and Liabilities on the Acquisition Date
The acquisition of assets and liabilities has been accounted for by the
purchase method. The purchase price has been allocated to assets and
liabilities based on the book values from the predecessor company, with the
difference between the purchase price and net assets of the predecessor
company received being recorded as Other assets and Goodwill.
New Accounting Policies
The Fund has had no major changes in accounting policies since its
inception in May 2002. The key accounting policies followed are outlined in
Note 2 of the Fund's Consolidated Financial Statements as at December 31,
2005.
Financial Instruments
The Company's financial instruments consist of cash, accounts receivable,
accounts payable and accrued liabilities, operating loan and long-term debt,
the amounts of which are included in the Fund's balance sheet as at December
31, 2005. There have not been any significant changes to the nature of these
financial instruments since December 31, 2004.
Business Risks and Uncertainties
Sales
The Company is dependent on the military, commercial and general
aerospace industries. Although the military business remains relatively solid,
recent economic conditions within the commercial airline industry have meant
that uncertainty exists in the market for the industry's manufacturers and
suppliers. The downturn in the commercial airline industry has particularly
affected the wide-body aircraft market, whereas General Donlee manufactures
most of its aerospace components for the business and regional jet and narrow-
body commercial aircraft and military markets. In most instances, these sales
are supported by long-term contracts with a history of very few cancellations.
The most serious competition comes from the in-house capabilities of the
Company's aerospace customers.
The Company is also dependent on industrial manufacturers. A further
slowdown could adversely affect the Company's sales to industrial producers.
Further deterioration in the condition of these customers or the loss of
business in-house or to foreign competition could affect the Company's future
sales volumes.
Key Customers
Although the Company has a reasonably diversified customer base and
strong, stable relationships, the loss of a large customer could have an
adverse effect on the Company. For the year ended December 31, 2005, 79% of
the Company's sales were to 10 of its customers. Of the two largest customers,
one from the aerospace and power generation products division represented 15%
of total sales and one from the industrial products division accounted for 28%
of total Company sales. In the year ended December 31, 2004, a similar pattern
existed with 78% of total sales made to 10 of its customers. Of the two
largest customers, one from the aerospace and power generation products
division represented 15% of total sales and one from the industrial products
division accounted for 27% of total sales. In the third quarter of 2004, a
change in the sourcing relationship occurred with the largest customer of the
industrial products division. This change has had an adverse impact on the
cash flow generated by the Company; however, at this point, it is very
difficult to quantify the future impact as short-term orders from this
customer are increasing. Termination or reduction by one or both of such
customers of their relationship or volume of business with the Company could
have a material adverse effect upon its results.
Raw Material Costs
The Company's business exposes it to potential unrecoverable raw material
costs in certain instances. Although some long-term contracts allow for
materials cost escalation, not all do. In most cases, the raw materials that
the Company uses are not available on futures or forwards markets. The Company
attempts to commit with its suppliers to lock in forward pricing on
significant items where possible.
Product Liability
The Company's businesses expose it to potential product liability risks
that are inherent in the development, manufacture and sale of aerospace,
industrial and power generation products. Although the Company maintains what
Management believes to be suitable product liability insurance, there can be
no assurance that it will be able to maintain such insurance on acceptable
terms or that any such insurance will provide adequate protection against
potential liabilities. Insufficient insurance coverage in the event of a
significant claim could have a material adverse effect on the Company's
business, financial condition and results of operations.
Bank Financing
General Donlee's operations are dependent on adequate bank financing.
During the first quarter of 2005, General Donlee renewed its existing
financing with a $16.8 million facility that includes a $9.7 million non-
amortizing term loan, a revolving operating line of $3.0 million, a non-
revolving $4.0 million lease facility and a $0.1 million corporate credit card
facility. Subsequent to the renewal, during the year the Company voluntarily
paid down the term loan by $0.7 million to $9.0 million.
General Donlee's ability to make repayments of the principal or interest
on, or to refinance, its indebtedness will depend on its future operating
performance and cash flow, which are subject to prevailing economic
conditions, prevailing interest rate levels, and financial, competitive,
business and other factors, many of which are beyond its control.
The Company's credit facility contains three financial covenants that
limit the discretion of General Donlee with respect to certain business
matters. The covenants include a fixed charge covenant, a senior debt covenant
and an annual cash distributions covenant. A failure to comply with the
obligations in the Company's credit facility could result in an event of
default, which, if not cured or waived, could permit acceleration of the
relevant indebtedness. These covenants place restrictions on, among other
things, the ability of the Company to incur additional indebtedness, to pay
interest to the Fund, to declare and pay distributions, to create liens or
other encumbrances, to make payments, investments, loans and guarantees and to
sell or otherwise dispose of assets and merge or consolidate with another
entity. A copy of the Company's credit facility can be viewed on the Internet
at www.sedar.com.
Foreign Exchange
For the year ended December 31 2005, approximately 50% of General
Donlee's sales revenue was denominated in U.S. dollars. It is estimated by
Management that a one cent increase in the value of the Canadian dollar,
resulting in a weaker U.S. dollar against the Canadian dollar, would impact
gross profit negatively by approximately $0.1 million per annum. Varying
amounts of raw material and service purchases are denominated in U.S. dollars,
providing some natural offset in our U.S. dollar exposure. General Donlee also
seeks to reduce its U.S. dollar exchange exposure by entering into foreign
exchange forward contracts.
Reliance on Key Personnel and Skilled Workforce
General Donlee's operation is dependent on the abilities, experience and
efforts of its Management and highly skilled workforce. While General Donlee
has entered into employment agreements with certain members of its Management,
the business prospects of the Company could be adversely affected if any of
these people are unable or unwilling to continue their employment with General
Donlee.
Possible Changes to Income Tax Treatment of Income Trusts
In our third quarter report to Unitholders we outlined that on September
8, 2005, the federal Department of Finance released a consultation paper and
launched public consultations on tax and other issues related to publicly-
listed, flow-through entities ("FTEs") including income funds. The focus of
the paper was to, among other things, assess whether the tax system should be
modified. In the consultation paper, the Department of Finance identified
three possible policy responses to issues relating to FTEs: (i) limiting
deductibility of interest expense by operating entities, (ii) taxing FTEs in a
manner similar to corporations, or (iii) making the tax system more neutral
with respect to all forms of business organization by better integrating the
personal and corporate tax system. The Department of Finance indicated that
this was not an exhaustive list of the possible policy responses. We also
pointed out that if changes were made to the Canadian tax system to implement
a particular policy response, it could not be determined at that time whether
or how such changes would affect the holding by a particular holder of units
of the Fund.
Subsequently in 2005, the federal Department of Finance announced that
the consultation process was complete and that the issues related to publicly-
listed, flow-through entities would not be pursued at that time. At this time
it is not possible to ascertain if these issues will be raised again by the
Department of Finance operating under the guidance of the new federal
government.
Outlook
Aerospace industry forecasts for 2006 are somewhat more optimistic than
has been the case over the last few years. General Donlee has started to see
higher volumes in its commercial and military aerospace segments and this has
been reflected in General Donlee's sales order backlog, which remains strong
at December 31, 2005.
At December 31, 2005, General Donlee's sales order backlog totaled $50.1
million, which compares to $47.7 million at the 2004 year end. Most of this
backlog is accounted for by the aerospace and power generation division, due
to the longer term nature of its contracts.
The aerospace and power generation division is experiencing some pick up
in activity in the aerospace segment, however the power generation area
remains relatively inactive. While market conditions continue to be
challenging, we are cautiously optimistic that the aerospace and power
generation business will continue to improve in step with improving industry
forecasts.
In the near term, in the industrial products business, we expect to
continue to experience increased sales activity, as well we plan to continue
to focus on solidifying customer relationships and on operational improvements
in order to seek to generate higher gross profit margins.
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; interest and foreign exchange rates; leverage
and restrictive debt covenants; continued availability of credit facilities;
regulatory requirements; reliance on key personnel and our 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; 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.
Sedar Filings
In addition to filing the audited annual and unaudited interim
consolidated financial statements (including the notes thereto) on
www.sedar.com, General Donlee Income Fund files its Annual and Interim
Management's Discussion and Analysis, its Annual Information Form and its
Notice of Annual Meeting and Management Information Circular.
General Donlee Income Fund
Interim Consolidated Balance Sheets
As at December 31, 2005 and 2004
(unaudited)
(in thousands of dollars, except unit and per unit amounts)
-------------------------------------------------------------------------
December 31, December 31,
2005 2004
-------------------------------------------------------------------------
(audited)
Assets
Current
Cash $ 513 $ 183
Accounts receivable 4,945 5,938
Inventory 11,817 8,115
Prepaid expenses 207 263
Derivative contracts 495 580
-------------------------------------------------------------------------
17,977 15,079
Property, plant and equipment 8,294 9,895
Deposit on equipment 780 -
Goodwill 16,507 16,507
Other assets 68 849
Employee future benefits 463 76
-------------------------------------------------------------------------
$ 44,809 $ 42,406
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liabilities
Current
Operating loan $ 715 $ -
Accounts payable and accrued liabilities 4,122 3,897
Customer deposits 689 726
Current portion of long-term debt - 300
-------------------------------------------------------------------------
5,526 4,905
-------------------------------------------------------------------------
Long-term debt 9,780 9,700
-------------------------------------------------------------------------
15,306 14,605
-------------------------------------------------------------------------
Unitholders' Equity
Trust units 83,021 83,021
Deficit (54,238) (55,220)
-------------------------------------------------------------------------
28,783 27,801
-------------------------------------------------------------------------
$ 44,089 $ 42,406
-------------------------------------------------------------------------
-------------------------------------------------------------------------
General Donlee Income Fund
Consolidated Statements of Earnings and Deficit
For the Periods Ended December 31, 2005 and 2004
(unaudited)
(in thousands of dollars, except unit and per unit amounts)
-------------------------------------------------------------------------
Three- Three- Twelve- Twelve-
Month Month Month Month
Period Period Period Period
Ended Ended Ended Ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
2005 2004 2005 2004
-------------------------------------------------------------------------
Sales $ 9,368 $ 8,063 $ 34,122 $ 30,256
Cost of sales 6,594 6,068 25,988 23,227
-------------------------------------------------------------------------
Gross profit 2,774 1,995 8,134 7,029
-------------------------------------------------------------------------
Expenses
Selling, general and
administrative 834 930 3,391 3,341
Interest 111 125 453 482
Foreign exchange (gain)
loss 179 (265) (223) (532)
Amortization of other
assets 8 646 872 2,584
-------------------------------------------------------------------------
1,132 1,436 4,493 5,875
-------------------------------------------------------------------------
Earnings before undernoted
items 1,642 559 3,641 1,154
(Gain) loss on disposal of
property, plant and
equipment - 1 - (30)
Goodwill impairment charge - - - 23,150
-------------------------------------------------------------------------
Net earnings (loss) for
the period 1,642 558 3,641 (21,966)
Deficit at beginning
of period (54,538) (55,552) (55,220) (29,452)
Distributions paid to
unitholders (1,342) (226) (2,659) (3,802)
-------------------------------------------------------------------------
Deficit at end of period $ (54,238) $ (55,220) $ (54,238) $ (55,220)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net earnings (loss) per
trust unit -
Basic and diluted
(8,947,000 units) $ 0.184 $ 0.062 $ 0.407 $ (2.455)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Distributions per trust
unit -
Basic and diluted
(8,947,000 units) $ 0.150 $ 0.025 $ 0.297 $ 0.425
-------------------------------------------------------------------------
-------------------------------------------------------------------------
General Donlee Income Fund
Consolidated Statements of Cash Flows
For the Periods Ended December 31, 2005 and 2004
(unaudited)
(in thousands of dollars, except unit and per unit amounts)
-------------------------------------------------------------------------
Three- Three- Twelve- Twelve-
Month Month Month Month
Period Period Period Period
Ended Ended Ended Ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
2005 2004 2005 2004
-------------------------------------------------------------------------
Cash flows from operating
activities
Net earnings (loss)
for the period $ 1,642 $ 558 $ 3,641 $ (21,966)
Add (deduct) items not
affecting cash:
Amortization of
property, plant
and equipment 94 411 1,620 1,733
Amortization of other
assets 8 646 872 2,584
Gain on disposal - 1 - (30)
Derivative contracts 118 (141) 85 (25)
Employee future benefits (269) (118) (387) (200)
Goodwill impairment
charge - - - 23,150
-------------------------------------------------------------------------
Cash provided by operating
activities before changes
in non cash working
capital balances 1,593 1,357 5,831 5,246
Net change in non-cash
working capital balances
related to operations (1,119) (1,391) (2,447) (1,622)
-------------------------------------------------------------------------
Cash provided (used)
by operating activities 474 (34) 3,384 3,624
-------------------------------------------------------------------------
Cash flows from investing
activities
Purchase of property,
plant and equipment (6) (47) (20) (2,189)
Proceeds from disposal of
property, plant and
equipment - - - 64
Deposit on equipment (780) - (780) -
-------------------------------------------------------------------------
Cash used in investing
activities (786) (47) (800) (2,125)
-------------------------------------------------------------------------
Cash flows from financing
activities
Deferred finance charges - - (90) -
Advances in operating loan 715 - 715 -
Advances in long-term debt 780 - 780 1,475
Repayment of long-term debt (700) (599) (1,000) (1,475)
Distributions paid (1,342) (226) (2,659) (3,802)
-------------------------------------------------------------------------
Cash used in financing
activities (547) (825) (2,254) (3,802)
-------------------------------------------------------------------------
Net increase (decrease) in
cash during the period (859) (906) 330 (2,303)
Cash at beginning of period 1,372 1,089 183 2,486
-------------------------------------------------------------------------
Cash at end of period $ 513 $ 183 $ 513 $ 183
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The notes to the above financial statements should be read in conjunction
with these statements. A full set of unaudited consolidated financial
statements and notes for the year ended December 31, 2005 is available on the
Financial Reports page of our 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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