General Donlee Income Fund Reports First Quarter March 31, 2010 Results

TORONTO, May 7 /CNW/ - General Donlee Income Fund (the "Fund" or "General Donlee") (TSX: GDI.UN) today announced its results for the first quarter ended March 31, 2010.

Although General Donlee was heavily impacted by the recent economic downturn, the Fund's current results reflect the company's efforts to control costs and attract new customers.

    
    Highlights of this quarters results:

    -   Sales were $10.4 million; an increase of $ 1.6 million and $1.9
        million respectively over the last two quarters of 2009.
    -   Sales order backlog of $41.6 million at March 31, 2010
    -   Cash generated from operating activities of $1.3 million
    -   $0.270/Unit in distributions paid to Unitholders for the quarter
    

We are encouraged by the fact that sales in the first quarter of 2010 were up $1.6 million or 18% over the fourth quarter of 2009 and $1.9 million or 22% over the third quarter of 2009. The Fund posted a gain of $0.1 million on the valuation of foreign exchange forward contracts in the first quarter, which helped mitigate some of the negative impact on earnings. Positive cash flow generated from operating activities was $0.9 million, consisting of cash from operating activities of $1.3 million, less $0.4 million in non-cash working capital items.

Throughout its history, General Donlee's formula for success has centered on its unique capabilities in providing superior products for its customers, and despite the current market conditions, our sales order backlog remains high as a result of our experienced management team's efforts to adjust the company's operational approaches to keep it in sync with the demands of the marketplace. Recent actions range from capital expenditures to improve production capacity, to reducing the number of manufacturing hours scheduled to control costs. This production backlog, which is $41.6 million at the end of the first quarter of 2010 and another $3.0 million added to the backlog shortly after the quarter's end, demonstrates our customers continued confidence in the company's ability to deliver.

The Fund has maintained its regular monthly distributions to Unitholders at the rate of $0.090 per Unit in the first quarter of 2010. Although the Fund's payout ratio in the quarter was higher than target, the company has at other times had lower payout ratios, and it continues to maintain its distributions as a reflection of our long-term view of the overall business.

Financial Highlights

The following is a summary of the financial data for the consolidated results of operations of the Fund for the three-month period ended March 31, 2010, and comparative results for the same period in 2009.

    
    ($ millions, except Unit and                        Three Months Ended
     per Unit amounts, unaudited)                       ------------------

                                                      Mar 31/10    Mar 31/09
                                                      ---------    ---------
    Operations
    ----------
    Sales                                                  10.4         13.8
    Gross profit                                            2.5          4.4
    Net income                                              0.6          2.9
    Basic income per Unit                              $0.118(a)    $0.530(b)

    Distributions
    -------------
    Distributable cash(1)                                   0.7          2.6
    Distributable cash per Unit(1)                     $0.140(a)    $0.464(b)
    Distributions paid                                      1.4          1.5
    Distributions paid per Unit                          $0.270       $0.270

    (1) Distributable cash is not a defined term under Canadian generally
        accepted accounting principles ("GAAP"), but is determined by the
        Fund as cash flow provided by operating activities (adjusted to
        remove changes in non-cash working capital items), less repayment of
        long-term bank debt and less the pro-rated reserve for maintenance
        capital expenditures, for which Management estimates $1.25 million
        for 2010. See reconciliation of distributable cash below. Management
        believes that this liquidity measure is a useful supplemental measure
        of performance, as it provides investors with an indication of the
        amount of cash available for distribution to Unitholders. Investors
        are cautioned, however, that distributable cash should not be
        construed as an alternative to using net earnings as a measure of
        profitability, or to using the statements of cash flows. Further, the
        Fund's method of calculating distributable cash may not be comparable
        to measures used by other companies or trusts. For details of
        distributable cash, see the table below.

        (a) Based on weighted average of 5,332,317 Units outstanding for the
            first quarter of 2010.
        (b) Based on weighted average of 5,508,326 Units outstanding for the
            first quarter of 2009.
    

Overall Financial Performance for the three months ended March 31, 2010

General Donlee's sales results for the first quarter of 2010, were $10.4 million - though they showed an improvement over its results in the last quarter of 2009 - nevertheless reflected the less robust economy witnessed in early 2010 as compared to the first quarter of 2009; sales in the first quarter of 2010 were down by $3.4 million or 25% from sales a year earlier. Sales in the Company's aerospace and power generation products division were $6.2 million in the first quarter of 2010, a decrease of $2.8 million, or 31%, over the same period in 2009, mainly due to a decrease in power generation sales and the rising Canadian dollar, however, these were offset somewhat by higher military aerospace sales. General Donlee's industrial products division's sales in the first quarter of 2010 were $4.2 million, a decrease of $0.6 million or 13% over the same period last year, again attributable to the continued slowdown in the capital goods market and, also partly due to client changes to delivery schedules for commercial aerospace landing gear components.

The Fund's $0.6 million net income for the three months ended March 31, 2010 was $2.3 million less than its net income in the first (and strongest) quarter of 2009; reflective of both the negative impact of the current economic slowdown, and the rising Canadian dollar, with a small offset the result of a gain on General Donlee's U.S. dollar foreign exchange forward contracts.

General Donlee's basic income per Unit was $0.118 for the three months ended March 31, 2010, down from $0.530 per Unit in the same period of 2009, as a result of the lower net income in 2010.

Distributable cash(1) for the three months ended March 31, 2010 was $0.7 million, or $0.140 per Unit, as compared to $2.6 million or $0.464 per Unit in the comparable period in 2009; the Fund maintained its monthly distribution level at $0.090 per Unit throughout the first quarter of 2010. In the three months ended March 31, 2010, distributions paid were $1.4 million or $0.270 per Unit, compared to $1.5 million or $0.270 per Unit in the same period in 2009. The Fund was able to reduce the total amount of distributions paid in 2010 by reducing the number of Units outstanding through a Normal Course Issuer Bid in 2009.

General Donlee continues to maintain adequate working capital to support its operations, as well as additional credit facilities to support any growth. At March 31, 2010, General Donlee had working capital of $17.4 million, compared to the $17.9 million reported at December 31, 2009, and a current ratio of 4.3:1.

Distributable Cash(1)

Distributable cash(1) for the three months ended March 31, 2010 was $0.7 million, or $0.140 per Unit, as compared to the $2.6 million or $0.464 per Unit posted in the three months ended March 31, 2009.

Regular distributions paid to Unitholders were $0.270 per Unit for the three months ended March 31, 2010, unchanged from the same period in 2009.

The following table details our calculation of distributable cash(1).

    
                                                         Three Months Ended

    ($000, except per Unit amounts)                      Mar 31       Mar 31
                                                          2010         2009
                                                          ----         ----

    Cash provided by operating activities                  $853       $2,014
    Adjust for net changes in non-cash working
     capital balances related to operations                 460        1,092
                                                        ---------------------
    Cash provided by operating activities before
     changes in non-cash working capital balances         1,313        3,106
    Repayment of long-term bank debt                       (251)        (239)
    Reserve for maintenance capital expenditures           (313)        (313)
                                                        ---------------------
    Distributable cash(1)                                  $749       $2,554

    Distributions paid to Unitholders                    $1,440       $1,484

    Basic income per Unit                                $0.118       $0.530

    Distributable cash(1) per Unit                       $0.140       $0.464

    Distributions paid per Unit                          $0.270       $0.270

    Payout ratio(2)                                        193%          58%

    (2) Payout ratio is not a defined term under Canadian GAAP, but is
        determined as actual distributions divided by distributable cash. The
        Fund's method of calculating its payout ratio may not be comparable
        to measures used by other companies or trusts.
    

Conversion to a Dividend Paying Corporation

On March 5, 2010, the Fund announced its intention to convert the Fund from an income trust to a publicly listed corporation. If approved, the conversion will be undertaken pursuant to a statutory plan of arrangement under the Canada Business Corporations Act with an anticipated effective date of January 1, 2011. On April 20, 2010, the Fund signed a definitive agreement with General Donlee and General Donlee Canada Inc., a newly incorporated wholly-owned subsidiary of the Fund, setting out the principal terms of the proposed arrangement. Pursuant to the proposed arrangement, the Fund's unitholders will receive one common share of General Donlee Canada Inc. for each unit of the Fund held, and GDI will assume all of the obligations of the Fund, including the outstanding convertible debentures. In accordance with an interim order of the Supreme Court of Nova Scotia dated April 27, 2010, the Conversion is subject to the approval of not less than two-thirds of votes cast by the unitholders voting in person or by proxy at the annual and special unitholder meeting to be held on June 14, 2010. The Conversion is also subject to the receipt of all necessary court and regulatory approvals, including the approval of the Toronto Stock Exchange for the listing of the shares to be issued and the debentures to be assumed by General Donlee Canada Inc. pursuant to the proposed arrangement.

Outlook

While 2009 presented economic challenges that continue somewhat into 2010, there is significant cause for a positive outlook for General Donlee. The company's ability to realize operational efficiencies, and steady production volume, albeit down somewhat from the strong first quarter of 2009, has allowed the company to remain profitable. Sales were higher this quarter than the last two quarters of 2009, which reinforces our belief that the industry is in a recovery from a tough year in 2009.

General Donlee enjoys a steady order level, and continues to deliver on existing commitments. We are also aggressively seeking new business. General Donlee's sales order backlog remains healthy, and is a direct indicator of the ongoing demand for its products. Management believes there is much to be encouraged about and the company's diverse platform of products and customer base will allow it to overcome the economic challenges of this market.

Company Profile

The Fund is a trust established to hold the securities of General Donlee Limited, a leading diversified manufacturer of precision-machined products for the military, commercial and general aerospace industries, and a specialist in the manufacture of precision-machined products for the industrial products and power generation industries. General Donlee's operating strategy focuses on targeting niche markets for products that are aligned with its sophisticated manufacturing capabilities and skilled workforce.

SEDAR Filings

The Fund will file on May 10, 2010 its interim Financial Statements (including the notes thereto) and Management's Discussion and Analysis for the period ended March 31, 2010 with SEDAR at www.sedar.com. These documents will also be available on the Fund's website at http://generaldonlee.com/investors/finReports.asp.

In addition to these documents, the Fund also files its annual financial statements and MD&A, Annual Information Form, its Notice of Annual Meeting and Management Information Circular, and its interim financial statements and MD&A with SEDAR.

Forward-looking Information

This document and the documents incorporated by reference herein contain forward-looking statements. Forward-looking information and statements are identified by words or phrases such as "anticipates", "expects", "believes", "estimates", "intends", "could", "may", "plans", "predicts", "projects", "will", "would", "foresees", "remain confident that" and other similar expressions or the negative of these terms and include, without limitation, forward-looking statements made herein relating to: expected timing and effects of the proposed arrangement; expected date of the annual and special meeting of unitholders; listing on the stock exchange. Actual events or results may differ materially. 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; economic growth and fluctuations (including the global credit crisis, and pension performance, funding and expenses); domestic and international economic conditions; and inability to obtain required consents, permits or approvals, for the proposed arrangement. 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, except as required by law, 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 unexpected 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: 00017571E

SOURCE GENERAL DONLEE INCOME FUND

For further information: For further information: Gerald Thain, Chief Financial Officer, Telephone: (416) 743-4417, E-mail: gthain@donleeprecision.com, Web site: www.generaldonlee.com

Organization Profile

GENERAL DONLEE INCOME FUND

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