Custom Direct Income Fund Announces First Quarter 2007 Results



    TSX Symbol - CDI.UN
    Website: www.cdifund.com

    TORONTO, April 25 /CNW/ - Custom Direct Income Fund (the Fund), a leading
U.S. direct marketer and cheque provider, announced today the results of
operations for the first quarter of 2007.

    
    HIGHLIGHTS
    ----------
    Comparing the three-month period ended March 31, 2007 to the same period
    of 2006:
        -  Sales decreased slightly by 2.4%, following a reduction in
           advertising expenses of 23.8%
        -  Record high gross margin of 73.9% of sales, or $22.8 million
        -  Record high operating income of $8.6 million, representing a 34.7%
           increase
        -  Distributable cash generated was in excess of distributions paid
        -  Unitholder distributions remained consistent
        -  Record high cash balance at March 31, 2007 of US$14.0 million
    

    John Browning, President and CEO of Custom Direct said, "Sales decreased
slightly by 2.4% for the three months ended March 31, 2007 compared to the
same period of 2006. Gross margins of 73.9% of sales and $22.8 million for the
quarter ended March 31, 2007 were both at record high levels. For the first
quarter of 2007, operating income increased 34.7% compared to the first
quarter of 2006 and represented a record high of $8.6 million. The cash
balance of $14.0 million at March 31, 2007 was a record high as well.
    "As we discussed during 2006, we invested incremental advertising dollars
over our historical spending levels. We were able to reduce advertising
expenses by 23.8% in the first quarter of 2007 compared to 2006. With improved
advertising performance, we only experienced a 2.4% decrease in sales over the
same period. We anticipate that 2007 advertising spending will revert to
historical spending levels.
    "The migration of our business to the Internet continues, including new
product and service offerings, e-marketing and other initiatives. E-commerce
orders represented 39.9% of the first quarter sales, an increase in sales
dollars of $1.1 million from the same period of 2006.
    "In addition, sales from our ancillary products, including expedited
delivery and a licensing agreement to offer our patent-pending EZShield Check
Fraud Protection Program(R) (EZShield(TM)), have grown to 22.2% of our revenue
for the first quarter 2007, up from 16.0% for the same period of 2006. A
five-year EZShield(TM) licensing agreement, which began in mid-October of
2006, has exceeded our expectations and we look forward to its full impact in
2007.
    "On March 28, 2007, we announced that we will launch a new business line,
Giggleprint, which will bring us into the growing Internet-based print and
design business, providing small businesses and consumers with customized
print products to meet their graphic design needs. Giggleprint, which can be
found at www.giggleprint.com, will be launched in June 2007. We continue to
look for new products and services that can be sold to our existing customer
base to maximize their lifetime value.
    "We are also happy to report that we maintained consistent unitholder
distributions during the quarter. Given the strength of the Canadian dollar,
we were very pleased to have foreign currency contracts in place for the
purchase of Canadian dollars for these distributions. Our foreign currency
contracts are in effect through January 2009, which is a key strategy to
supporting our unitholders' desire for consistent distributions. The
arrangement's fixed exchange rate allows us to purchase 1.3050 Canadian
dollars for every U.S. dollar, which is favourable compared to the C$1.15587
per $1.00 closing rate at March 31, 2007."

    Operating Results
    -----------------
    The following tables summarize selected financial data for the three
months ended March 31, 2007 and 2006. The tables show operating results, with
the percentages of sales, as well as unitholder distributions and selected
balance sheet information. In the discussion following the tables, data for
the period is compared to the same period of 2006. Additional financial
information is presented in the consolidated financial statements at the end
of this release.

    
                                      (Unaudited)             (Unaudited)
                                      Three Months            Three Months
                                         Ended                   Ended
                                     March 31, 2007          March 31, 2006
                                   ------------------      ------------------
                                    Total       % of        Total       % of
                                    Amount      Sales       Amount      Sales
                                   ------------------      ------------------
                          (in millions of U.S. dollars, except per unit data)

    Operating Results
    -----------------
    Sales                           $   30.8    100.0%     $   31.6    100.0%
    Gross profit                    $   22.8     73.9%     $   22.8     72.0%
    Operating income                $    8.6     27.8%     $    6.4     20.1%
    Net income                      $    6.1     19.9%     $    4.0     12.8%
    Net income per unit - basic     $ 0.3141               $ 0.2071
    Net income per unit - diluted   $ 0.3141               $ 0.2071

    Unitholder Distributions
    ------------------------
    Distributions paid or payable
     to unitholders                 $    5.0               $    5.0
    Distributions per unit:
     - U.S. dollars                 $ 0.2586               $ 0.2586
     - Canadian dollars            C$ 0.3375              C$ 0.3375


                                      (Unaudited)
                                   At March 31, 2007     At December 31, 2006
                                   ------------------    --------------------
                              (in millions of U.S. dollars, except unit data)

    Balance Sheet Information
    -------------------------
    Cash and cash equivalents       $     14.0              $   10.6
    Unitholders' equity             $    142.1              $  140.4
    Units outstanding               19,517,255            19,517,255
    

    Operating Results for the Three Months Ended March 31, 2007
    -----------------------------------------------------------
    The Fund generated sales of $30.8 million in the three months ended March
31, 2007 compared to $31.6 million in the same period of 2006. The $0.8
million decrease in sales was primarily due to a decrease in the number of
orders, partially offset by growth in average order values, driven by
customers purchasing new product and service offerings, and also, from revenue
recognized from the EZShield licensing agreement, which was announced at the
end of the third quarter of 2006.
    The Fund produced a gross profit of $22.8 million, or 73.9% of sales, for
the three months ended March 31, 2007, compared to $22.8 million, or 72.0% of
sales, for the same period of 2006. The increase in gross profit as a
percentage of sales was due primarily to the margin realized from revenue
recognized from the EZShield licensing agreement.
    Operating income was $8.6 million, or 27.8% of sales, for the three
months ended March 31, 2007, compared to $6.4 million, or 20.1% of sales for
the same period of 2006. The $2.2 million growth in operating income was
primarily due to a decrease in advertising expense and, to a lesser extent,
reductions in Contact Center labour costs.
    Net income was $6.1 million, or 19.9% of sales, for the three months
ended March 31, 2007, compared to $4.0 million, or 12.8% of sales, for the
same period of 2006. The increase in net income was primarily due to the
increase in operating income and, to a lesser extent, a $0.4 million decrease
in amortization expense resulting from assets fully amortized in 2006. In
addition, the Fund recorded a $0.3 million unrealized loss on foreign currency
conversions during the three months ended March 31, 2007, compared to a
$0.2 million unrealized loss for the same period of 2006. These were partially
offset by an increase in income tax expense of $0.4 million due to the
increase in income before income taxes.

    Unitholder Distributions
    ------------------------
    The Trustees of the Fund declared total cash distributions of C$0.3375
per unit for the quarter ended March 31, 2007. The Fund makes consistent
unitholder distributions each month, with remaining cash being available to
fund operations and future cash needs, including future unitholder
distributions.
    Distributable cash is summarized in the tables below for the periods
presented.

    
                                       (Unaudited)             (Unaudited)
                                       Three Months            Three Months
                                          Ended                   Ended
                                      March 31, 2007          March 31, 2006
    -------------------------------------------------------------------------
                                               (in thousands of U.S. dollars)

    Net cash provided by
     operating activities               $   8,736               $   5,354
    Add (deduct):
      Changes in non-cash working
       capital items                       (1,516)                      9
      Adjustments for change in
       tax accounts                           333                     (36)
    -------------------------------------------------------------------------
                                            7,553                   5,327

    Deduct:
      Total capital expenditures             (324)                   (466)
    -------------------------------------------------------------------------
    Distributable cash                  $   7,229               $   4,861
    -------------------------------------------------------------------------
    Distributions declared              $   5,048               $   5,048
    -------------------------------------------------------------------------
    

    Distributable cash of $7.2 million for the first quarter of 2007
increased $2.4 million compared to the same period of 2006. The increase was
primarily due to an increase in net income. Capital spending for 2007 is
projected to remain in-line with previous period investments. Distributions
during the three months ended March 31, 2007 were paid using cash generated
from operations during the quarter. Our cash balance was a record high of
$14.0 million at March 31, 2007. Our year-end cash balances have been
consistently increasing since the inception of the Fund and at March 31, 2007,
our cash balance represented 69.3% of the scheduled cash distributions of
$20.2 million for one full year.
    Distributable cash is not a defined term under Canadian generally
accepted accounting principles but is determined by the Company as net cash
provided by operating activities for the period, adjusted to remove specific
non-cash items, including changes in working capital and income taxes, and
reduced by all capital expenditures.
    Management believes that distributable cash 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 income as a measure of profitability or as an
alternative to the statement of cash flows. Further, the Fund's method of
calculating distributable cash may not be comparable to calculations used by
other income trusts.

    Company Information
    -------------------
    The Fund indirectly holds 100% of the shares of common stock of Custom
Direct, Inc. Based in Maryland and Arkansas, Custom Direct has been selling
cheques, cheque-related accessories, and other products and services across
the United States since 1992 and offers the industry's widest selection of
cheque designs. Custom Direct is a direct marketer and the second largest
participant in the direct-to-consumer segment of the U.S. cheque industry.

    Basis of Presentation
    ---------------------
    The financial information of the Fund in this release represents the
consolidated operations of the Fund and the Custom Direct business for the
three months ended March 31, 2007 and 2006. All financial information in this
release is presented in U.S. dollars, unless otherwise noted.
    Further information can be found in the disclosure documents filed by
Custom Direct Income Fund with the Canadian securities regulatory authorities,
available at www.sedar.com.

    Forward-Looking Statements
    --------------------------
    We make statements in this release that are considered forward-looking
statements. Forward-looking information consists of disclosure regarding
possible events, conditions or results that is based on assumptions about
future economic conditions and courses of action. Forward-looking statements
are identified by the use of such words as "may," "could," "should," "would,"
"anticipates," "estimates," "expects," "intends," "plans," "predicts,"
"projects," "believes," "suspects," or words, phrases or expressions of
similar wording. These statements reflect management's current beliefs and are
based on information currently available to management, but indicate
management's expectations of future growth, results of operations, business
performance, and business prospects and opportunities. Any forward-looking
statements made are as of the date of this release, and the Fund assumes no
obligation to update or revise them to reflect new events or circumstances.

    
    Forward-looking statements:
        -  involve significant risks and uncertainties,
        -  should not be read as guarantees of future performance or results,
           and
        -  will not necessarily be accurate indications of whether or not the
           times at or by which such performance or results will be achieved.
    

    A number of factors could cause actual results to differ materially from
the results discussed in the forward-looking statements. Should one or more of
these uncertainties materialize or should the underlying assumptions prove
incorrect, actual results may vary from those expected. Given the
uncertainties surrounding forward-looking statements, you should not place
undue reliance on these statements.

    Conference Call
    ---------------
    Custom Direct will discuss its financial results for the first quarter of
2007 via conference call on Thursday, April 26, 2007 at 11:00 a.m. EST. The
following listing provides access information for the call and for phone and
web rebroadcasts:


    
        Conference Call:
        ----------------
        Dial-in number:         800-762-7141

        Rebroadcasts - Phone and Web:
        -----------------------------
        Dial-in number:         800-475-6701
        Reservation number:     870969
        Website:                www.cdifund.com
        Available through:      May 26, 2007



                                                    Custom Direct Income Fund

                                            Consolidated Statements of Income
    -------------------------------------------------------------------------


                                       (Unaudited)             (Unaudited)
                                       Three Months            Three Months
                                          Ended                   Ended
                                      March 31, 2007          March 31, 2006
    -------------------------------------------------------------------------
                         (in thousands of U.S. dollars, except per unit data)

    Sales                                 $   30,816              $   31,570
    -------------------------------------------------------------------------

    Cost of sales                              8,055                   8,821
    -------------------------------------------------------------------------
    Gross profit                              22,761                  22,749

    Operating expenses                        14,192                  16,386
    -------------------------------------------------------------------------
    Operating income                           8,569                   6,363
    -------------------------------------------------------------------------

    Other income (expense):

      Interest expense                          (536)                   (536)
      Amortization expense                      (343)                   (705)
      Gain (loss) on disposal of assets           26                      (8)
      Effect of foreign currency conversions    (312)                   (194)
    -------------------------------------------------------------------------
    Income before income taxes                 7,404                   4,920

    Income tax expense:
      Current                                    813                     464
      Future                                     460                     415
    -------------------------------------------------------------------------
      Total income taxes                       1,273                     879
    -------------------------------------------------------------------------

    Net income                            $    6,131              $    4,041
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net income per unit, basic            $   0.3141              $   0.2071
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net income per unit, diluted          $   0.3141              $   0.2071
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Distributions paid or payable
     per unit, basic and diluted          $   0.2586              $   0.2586
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Amounts in first quarter 2006 were restated to reflect a reclassification
    of royalty expenses related to our web affiliate program from cost of
    sales to operating expenses.


                                                    Custom Direct Income Fund

                               Consolidated Statement of Comprehensive Income
    -------------------------------------------------------------------------


                                                               (Unaudited)
                                                               Three Months
                                                                  Ended
                                                              March 31, 2007
    -------------------------------------------------------------------------
                                               (in thousands of U.S. dollars)

    Net income                                                    $    6,131
    -------------------------------------------------------------------------

    Other comprehensive income (loss), net of income taxes:
    Net transition adjustment - cash flow hedge                          719
    Net loss on derivatives designated as cash flow hedges              (115)
    -------------------------------------------------------------------------
    Other comprehensive income                                           604
    -------------------------------------------------------------------------

    Comprehensive income                                          $    6,735
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



                                                    Custom Direct Income Fund
                                                  Consolidated Balance Sheets
    -------------------------------------------------------------------------

                                      (Unaudited)
                                   At March 31, 2007    At December 31, 2006
    -------------------------------------------------------------------------
                                               (in thousands of U.S. dollars)

    Assets
      Current assets:
        Cash and cash equivalents         $   14,014              $   10,579
        Accounts receivable                    1,119                   1,110
        Inventory                              1,038                   1,454
        Prepaid expenses                       3,269                   2,405
        Future income taxes                        -                     231
    -------------------------------------------------------------------------
        Total current assets                  19,440                  15,779
    -------------------------------------------------------------------------

      Property and equipment, net              5,855                   5,866
    -------------------------------------------------------------------------

      Other assets:
        Goodwill                             161,706                 161,706
        Deferred financing costs                 227                     259
        Financial instruments                  5,867                   5,215
        Other                                    117                     117
    -------------------------------------------------------------------------
    Total assets                          $  193,212              $  188,942
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities and unitholders' equity
      Current liabilities:
        Accounts payable                  $    7,562              $    5,841
        Accrued wages,
         salaries and bonuses                  1,275                   1,187
        Accrued operating expenses             1,189                     911
        Deferred revenue                         319                     425
        Distributions payable to
         unitholders                           1,683                   1,683
        Future income taxes                      201                       -
        Other current liabilities                  5                      11
    -------------------------------------------------------------------------
        Total current liabilities             12,234                  10,058

      Long-term debt and other liabilities:
        Long-term debt                        37,500                  37,500
        Future income taxes                    1,363                     950
        Note payable                              53                      59
    -------------------------------------------------------------------------
        Total liabilities                     51,150                  48,567
    -------------------------------------------------------------------------

      Unitholders' equity                    142,062                 140,375
    -------------------------------------------------------------------------
    Total liabilities and unitholders'
     equity                               $  193,212              $  188,942
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



                                                    Custom Direct Income Fund

                               Consolidated Statements of Unitholders' Equity
    -------------------------------------------------------------------------

                                        (Unaudited)             (Unaudited)
                                        Three Months            Three Months
                                           Ended                   Ended
                                       March 31, 2007         March 31, 2006
    -------------------------------------------------------------------------
                                               (in thousands of U.S. Dollars)

    Balance - Beginning of Period         $  140,375              $  144,369

    Net income                                 6,131                   4,041
    Change in accumulated other
     comprehensive income                        604                       -
    Distributions paid or payable
     to unitholders                           (5,048)                 (5,048)
    -------------------------------------------------------------------------
    Balance - End of Period               $  142,062              $  143,362
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



                                                    Custom Direct Income Fund

                                        Consolidated Statements of Cash Flows
    -------------------------------------------------------------------------

                                       (Unaudited)             (Unaudited)
                                       Three Months            Three Months
                                          Ended                   Ended
                                      March 31, 2007          March 31, 2006
    -------------------------------------------------------------------------
                                               (in thousands of U.S. dollars)

    Cash flows from operating activities:
      Net income                          $    6,131              $    4,041
      Adjustments to reconcile net
       income to net cash provided
       by operating activities:
        Amortization expense                     343                     705
        Income tax expense - future              460                     415
        (Gain) loss on disposal of assets        (26)                      8
        Unrealized loss on financial
         instruments                             312                     194
        Changes in non-cash working
         capital items                         1,516                      (9)
    -------------------------------------------------------------------------
        Net cash provided by operating
         activities                            8,736                   5,354
    -------------------------------------------------------------------------

    Cash flows from investing activities:
      Purchases of property and equipment       (324)                   (466)
      Proceeds from sale of property and
       equipment                                  50                       -
    -------------------------------------------------------------------------
        Net cash used in investing activities   (274)                   (466)
    -------------------------------------------------------------------------

    Cash flows from financing activities:
      Repayments of note payable                  (5)                     (8)
      Distributions paid to unitholders       (5,048)                 (5,048)
    -------------------------------------------------------------------------
        Net cash used in financing activities (5,053)                 (5,056)
    -------------------------------------------------------------------------

    Effects of exchange rates on cash             26                     (14)

    Net increase in cash and cash equivalents  3,435                    (182)
    Cash and cash equivalents,
     beginning of period                      10,579                   9,155
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of period                        $   14,014              $    8,973
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Other cash flow information:
      Interest paid                       $      532              $      533
      Income taxes paid                   $      480              $      500
    

    %SEDAR: 00018682E




For further information:

For further information: Brian D. Briggs, Senior Vice President-Finance
and Chief Financial Officer, investorrelations@cdifund.com, (866) 712-7096,
www.cdifund.com, TSX Symbol - CDI.UN

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CUSTOM DIRECT INCOME FUND

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