General Donlee Income Fund Reports Solid Performance in Second Quarter 2008



    TORONTO, Aug. 7 /CNW/ - General Donlee Income Fund (the "Fund" or
"General Donlee") (TSX: GDI.UN) today announced results for the second quarter
ended June 30, 2008, reporting ongoing solid performance as it continued to
focus on its strategies to leverage the momentum of the previous quarters and
the growing demand from the robust aerospace industry.
    General Donlee's second quarter 2008 results reflected its ability to
continue to maintain solid margins despite pressure on revenues from currency
fluctuations:

    
    -  Net income was $1.9 million or $0.273 per Unit
    -  Distributable cash was $2.1 million or $0.309 per Unit
    -  Distributions paid to Unitholders were $1.8 million or $0.270 per Unit
    -  The sales order backlog remained strong at $57.1 million

    In May 2008, the Fund announced a substantial issuer bid for cancellation
of up to 1,237,101 of its outstanding Units at a price of $8.75 per Unit. On
July 7, 2008, the Fund announced that it had taken up a total of 824,867 Units
tendered to the issuer bid, thereby increasing remaining Unitholders'
proportionate interests by reducing the number of Units outstanding to
5,812,234; the Fund also extended the issuer bid until August 1, 2008.
    On August 1, 2008 the Fund announced that it had taken up an additional
121,817 units at a price of $8.75 per unit. Following the take-up of the
121,817 units, 5,690,417 units will remain outstanding.
    General Donlee delivered net income of $1.9 million in the second quarter
of 2008 despite the impact of the strengthening Canadian dollar, thanks to its
solid operations and the continued demand for its services. With the Fund's
continuing solid performance and the ongoing demand for General Donlee's
services indicated by its $57.1 million order backlog, the Fund is
well-positioned to maintain distributions to Unitholders at the current
monthly distribution level of $0.09 per Unit.

    Financial Highlights

    The following summary of financial data presents the consolidated results
of operations of the Fund for the three-month and six-month periods ended June
30, 2008, including comparative results for the same periods in 2007.

    ($ millions, except       Three Months Ended         Six Months Ended
     Unit and per Unit        ------------------         ----------------
     amounts, unaudited)   June 30/08   June 30/07   June 30/08   June 30/07
                           ----------   ----------   ----------   ----------
    Operations
    ----------
    Sales                      13.3         14.2         25.7         27.5
    Gross profit                3.6          4.2          7.2          7.8
    Net income                  1.9          3.1          3.7          5.6
    Basic income per Unit   $ 0.273(a)   $ 0.359(b)   $ 0.505(c)   $ 0.644(b)

    Distributions
    -------------
    Distributable cash (1)      2.1          2.8          4.4          5.4
    Distributable cash per
     Unit (1)               $ 0.309(a)   $ 0.329(b)   $ 0.604(c)   $ 0.620(b)
    Cash distributions
     paid                       1.8          2.2          3.9          4.2
    Cash distributions
     paid per Unit          $ 0.270(a)   $ 0.260(b)   $ 0.540(c)   $ 0.490(b)

    (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 the reserve
        for maintenance capital expenditures, for which Management included
        $1.25 million for each of 2008 and 2007. 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 6,817,294 Units outstanding for the
        second quarter 2008.
    (b) Based on weighted average of 8,645,936 Units outstanding for the
        second quarter and year-to date 2007.
    (c) Based on weighted average of 7,310,086 Units outstanding for the
        year-to date 2008.
    

    Overall Financial Performance for six months ended June 30, 2008

    In the second quarter of 2008, General Donlee delivered another solid
performance by continuing to focus on its strategies to leverage the momentum
of the previous quarters and the ongoing demand from the strong aerospace
industry. The Company's sales in the first six months were $25.7 million, down
from $27.5 million in the first six months 2007, for three reasons: first, the
decision by one of its aerospace customers to rebalance its production
requirements, moving some of the deliverables previously slated for the first
half of the year into the second half; secondly, the 11% decline in the value
of the U.S. dollar, in which a significant portion of General Donlee's sales
are denominated; and thirdly, the fact that a military contract reflected in
the Company's 2007 results was completed. General Donlee is looking for
increased power generation sales in 2008 to mitigate some of this decrease.
General Donlee's aerospace and power generation products division delivered
sales of $16.0 million in the first half of 2008, a decrease of $2.2 million,
or 12%, over the first half of 2007, for the same reasons. General Donlee's
industrial products division produced first half sales of $9.7 million, up
from the first half of 2007 by $0.4 million, mainly as a result of beginning
to ship the aerospace contract for landing gear.
    While the effect of the declining U.S. dollar being felt across Canadian
industry was reflected in General Donlee's sales results for the period, the
Company's continued operational improvements and performance continue to
mitigate the currencies impact on gross profit. The equipment upgrades General
Donlee has made in recent years as well as the sales mix for the period also
enabled the Company to maintain a similar level of gross margin as compared to
the same period last year.
    The continuing improvement program General Donlee began in 2005 has
translated into consistently increasing sales demand, as reflected in the
sales order backlog at the end of the second quarter of 2008 of $57.1 million,
as compared to $57.4 million at the end of 2007. This backlog, which results
largely from the long-term nature of many of the Company's projects, is a good
indication of continuing strong demand for General Donlee's services for some
quarters to come.
    General Donlee's net income for the three months ended June 30, 2008 was
$1.9 million, down by $1.2 million when compared to the three months ended
June 30, 2007. For the six months ended June 30, 2008, net income was
$3.7 million compared to $5.6 million for the same period in 2007, a decrease
of $1.9 million. The main reason for the decreases was the additional interest
expense on the convertible debentures in the entire first half of 2008, which
were only in place for part of the month of June in 2007. The debentures have
provided the Company with the means to complete a normal course issuer bid and
two substantial issuer bids which General Donlee believes is an effective use
of capital given General Donlees's business and current market valuation,
while retaining sufficient working capital to pursue the Fund's growth
initiatives.
    The Company's net income in the first six months of 2008 generated
distributable cash(1) of $4.4 million or $0.604 per Unit, compared to
$5.4 million or $0.620 per Unit in distributable cash(1) in the comparable
period in 2007. In the first six months of 2008, the Fund paid cash
distributions of $0.540 per Unit - an increase of 10% over the $0.490 paid per
Unit in the same period of 2007.
    General Donlee continues to maintain a strong balance sheet, and its
consistent performance provides ample working capital to support its current
operations and investments and allows for capital to support future growth,
and the current level of distributions. At June 30, 2008, General Donlee had
working capital of $33.7 million, a decrease from year-end 2007 primarily the
result of the cash utilized to buy back 1,171,253 Units at a cost of
$10.2 million. The consolidated net debt-to-equity ratio of the Fund at June
30, 2008 was 2.72:1.
    The continued growth projected for the aerospace industry is expected to
provide an attractive operating environment for the Fund. In order to
capitalize fully on the opportunities inherent in this robust market, General
Donlee is continuing to invest in new equipment that will further increase
production capacity allowing it to capture a greater share of the market.

    Distributable Cash(1)

    Cash distributions to Unitholders increased by $0.050 per Unit for the
six months ended June 30, 2008 over the same period in 2007. Distributable
cash(1) was $4.4 million, or $0.604 per Unit, as compared to the six months
ended June 30, 2007, when distributable cash(1) was $5.4 million, or $0.620
per Unit.

    
    The following table shows the calculation of distributable cash(1).

                                    Three Months Ended     Six Months Ended
    ($000s, except per Unit         June 30    June 30    June 30    June 30
     amounts)                         2008       2007       2008       2007
                                   ------------------------------------------

    Cash provided by operating
     activities                     $ 1,194    $ 2,447    $ 3,211    $ 3,955
    Adjust for net changes in
     non-cash working capital
     balances related to
     operations                       1,324        710      1,927      2,029
                                   ------------------------------------------
    Cash provided by operating
     activities before changes
     in non-cash working capital
     balances                         2,518      3,157      5,138      5,984
    Repayment of long-term
     bank debt                          (99)         -        (99)         -
    Reserve for maintenance
     capital expenditures              (312)      (312)      (625)      (625)
                                   ------------------------------------------
    Distributable cash (1)          $ 2,107    $ 2,845    $ 4,414    $ 5,359

    Cash distributions paid to
     Unitholders                    $ 1,792    $ 2,248    $ 3,900    $ 4,238
                                   ------------------------------------------

    Basic income per Unit           $ 0.273    $ 0.359    $ 0.505    $ 0.644

    Distributable cash (1) per Unit $ 0.309    $ 0.329    $ 0.604    $ 0.620

    Cash distributions paid
     per Unit                       $ 0.270    $ 0.260    $ 0.540    $ 0.490
    


    Outlook

    The Fund continues to enjoy a positive outlook for the quarters ahead,
given the combination of its own further improved operational efficiency and
the expected continuing robustness of the aerospace sector. General Donlee's
$57.1 million sales order backlog as at the end of the second quarter supports
the Fund's optimistic view, as it provides a measurable indication of the
ongoing strong future demand for the Company's services.
    The investments General Donlee has made in recent quarters have enabled
the Company to deliver yet another solid quarterly performance; drawing on
both General Donlee's industry leadership and expertise, and its own effective
management strategies including these investments, the Company is able to take
greater advantage of the healthy aerospace sector. Looking into the second
half of 2008, General Donlee plans additional equipment investments, both to
support its current production demands and to further augment its capacity to
accommodate anticipated future opportunities. Recent operational improvements
have General Donlee performing more efficiently - and as a result, the Company
is delivering consistent gross margin percentages despite decreases in sales
that were caused, in part, by currency fluctuations. General Donlee looks
forward to growing production capacity, so as to capture even more of the
upside available in the current aerospace 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

    Today the Fund filed its interim Consolidated Financial Statements
(including the notes thereto) and Management's Discussion and Analysis for the
three and six months ended June 30, 2008 with SEDAR at www.sedar.com. These
documents are also available on the Fund's website at www.generaldonlee.com on
the Financial Reports page.
    In addition to these documents, the Fund also files its Annual Report,
Annual Information Form, its Notice of Annual Meeting and Management
Information Circular, and its interim financial statements with SEDAR.

    Forward-Looking Information

    As with all forward-looking statements, caution must be exercised to
ensure that appropriate interpretation is made. Certain forward-looking
statements are based on information currently available to Management, but are
subject to a number of uncertainties and risks that could cause actual results
to differ materially from the results discussed in the forward-looking
statements. These uncertainties and risks include, but are not limited to:
dependence on commercial aircraft sales and defence procurement; dependence on
power generation sales and sales to the industrial sector; production rates;
shipping schedules and timing of deliveries; dependence on key customers;
dependence on third party suppliers and manufacturers; raw material costs;
competition; satisfying product specifications; product liability and warranty
claims; environmental and other government regulation; quality certification
requirements; hedging effects; 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: 00017571E




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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