K-Bro Announces Record Second Quarter Revenues and EBITDA

(TSX: KBL.UN)

    
    Second Quarter 2010 & YTD Financial Results
    -------------------------------------------

    -   Revenue for the three months ended June 30, 2010 was $25.9 million,
        an increase of 19.1% over the comparable 2009 period.  Revenue for
        the six months ended June 30, 2010 was $49.8 million, an increase of
        15.3% over the comparable 2009 period.
    -   EBITDA for the second quarter of 2010 increased by $0.2 million to
        $4.32 million from the second quarter of 2009, an increase of 5.2%.
    -   Net earnings after taxes decreased in the second quarter of 2010 to
        $1.97 million from $2.17 million in Q2, 2009, a decrease of 9.4%, due
        to increases to amortization of tangible and intangible assets and
        various financial charges.
    -   For the year-to-date, K-Bro made distributions of $0.550 per unit and
        distributable cash was $1.01 per unit.  Distributions of $3.85
        million were paid for the six-month period compared to distributable
        cash of $7.0 million for a payout ratio of 55.0%.

    Highlights and Significant Items
    --------------------------------

    -   In June, K-Bro signed ten year contracts with Vancouver Coastal
        Health Authority, Fraser Health Authority, Provincial Health Services
        Authority and Providence Health Care Society after being selected as
        the successful proponent under a competitive RFP process. Certain
        volumes have commenced processing in late June with the majority of
        the new volume expected to commence in November, 2010.
    -   Integration of the second plant in Vancouver commenced and positively
        contributed to EBITDA and revenue for the three and five months post-
        acquisition.
    

EDMONTON, Aug. 12 /CNW/ - K-Bro Linen Income Fund ("K-Bro" or the "Fund") today announced EBITDA of $4.32 million for the quarter ended June 30, 2010. Net earnings after tax were $1.97 million and distributable cash was $0.53 per unit.

    
    -------------------------------------------------------------------------
                                        For the three months ended June 30
    ($ 000's, except                -----------------------------------------
     per Unit amounts)                 2010       2009   $ Change   % Change
    -------------------------------------------------------------------------
    Revenue                       $  25,902  $  21,746      4,156        19%
    Operating expenses               21,578     17,635      3,943        22%
    EBITDA(1)                         4,324      4,111        213         5%
    EBITDA(1) as a % of revenue       16.7%      18.9%        -2%       -12%
    Earnings before income taxes      1,994      2,176       (182)      - 8%
    Income tax (expense) recovery       (29)        (8)       (21)      263%
    Net earnings                      1,965      2,168       (203)       -9%
    Basic earnings per Unit       $    0.29  $    0.31      (0.02)       -6%
    Diluted earnings per Unit     $    0.28  $    0.31      (0.03)      -10%

    Total assets                     93,279     84,639      8,640        10%
    Long-term debt, end of period    13,836      6,735      7,101       105%

    Cash provided by operating
     activities                       4,538      3,539        999        28%
    Net change in non-cash
     working capital items             (417)       494       (911)     -184%
    Maintenance capital
     expenditures                      (455)      (608)       153       -25%
    Distributable cash(1)             3,666      3,425        241         7%
    Distributions declared            1,926      1,926          -         0%
    Payout ratio(1)                   52.6%      56.2%        -4%        -6%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                         For the six months ended June 30
    ($ 000's, except                -----------------------------------------
     per Unit amounts)                 2010       2009   $ Change   % Change
    -------------------------------------------------------------------------
    Revenue                       $  49,834  $  43,239      6,595        15%
    Operating expenses               41,602     35,636      5,966        17%
    EBITDA(1)                         8,232      7,603        629         8%
    EBITDA(1) as a % of revenue       16.5%      17.6%        -1%        -6%
    Earnings before income taxes      3,742      3,682         60         2%
    Income tax (expense) recovery        (5)        77        (82)     -106%
    Net earnings                      3,737      3,760        (23)       -1%
    Basic earnings per Unit       $    0.54  $    0.54          -         0%
    Diluted earnings per Unit     $    0.54  $    0.54          -         0%

    Total assets                     93,279     84,639      8,640        10%
    Long-term debt, end of period    13,836      6,735      7,101       105%

    Cash provided by operating
     activities                       8,368      2,743      5,625       205%
    Net change in non-cash
     working capital items             (480)     4,677     (5,157)     -110%
    Maintenance capital
     expenditures                      (885)      (741)      (144)       19%
    Distributable cash(1)             7,003      6,679        324         5%
    Distributions declared            3,853      3,852          1         0%
    Payout ratio(1)                   55.0%      57.7%        -3%        -5%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Refer to the "Terminology" section for further details
    

The revenue increase in the quarter was primarily the result of the second processing plant in Vancouver which was completed on January 29, 2010. EBITDA increased by 5% to $4.32 million for the quarter and by 8% year-to-date to $8.23 million, compared to the respective 2009 periods. This increase is mainly as a result of the increased revenue in Vancouver and the continued corporate wide focus on operating cost reductions.

OUTLOOK

"The acquisition of our second Vancouver plant has lead to increased revenue and EBITDA in 2010. Further integration of the facility is presently underway that when completed will improve our operating margins" said Linda McCurdy, President and Chief Executive Officer. "With the signing of the long-term contracts in the Vancouver area, we have secured additional healthcare volume for the next decade and extended certain existing healthcare contracts to 2015. However, the continuing uncertainties in the financial markets and the slow recovery from the recent recession have negatively impacted consumer and business confidence and consequently the demand for accommodations which impacts our hospitality segment. We expect growth to be moderate over the remainder of the year."

CORPORATE PROFILE

K-Bro is the largest owner and operator of laundry and linen processing facilities in Canada. K-Bro provides a comprehensive range of general linen and operating room linen processing, management and distribution services to healthcare institutions, hotels and other commercial accounts. K-Bro currently has seven processing plants in six Canadian cities: Quebec City, Toronto, Edmonton, Calgary, Vancouver and Victoria.

Additional information regarding K-Bro including the Fund's 2009 Annual Information Form and other required securities filings are available on our website at www.k-brolinen.com and on the Canadian Securities Administrators' website at www.sedar.com; the System for Electronic Document Analysis and Retrieval ("SEDAR").

TERMINOLOGY

Throughout this News Release, and other documents referred to, and in order to provide a better understanding of the financial results, K-Bro uses the terms "EBITDA", "distributable cash" and "payout ratio". These terms do not have any standardized meaning under Canadian GAAP as set out in the CICA Handbook. Therefore, EBITDA, distributable cash and payout ratio may not be comparable to similar measures presented by other issuers. Specifically, the terms "EBITDA", "distributable cash", and "payout ratio" have been defined as:

EBITDA is defined by management as revenue less operating expenses which represents income from operations before amortization.

    
    -------------------------------------------------------------------------
                                            Three months       Six months
                                           ended June 30      ended June 30
                                         ------------------ -----------------
                                         ------------------ -----------------
    ($ 000's)                              2010     2009     2010     2009
    -------------------------------------------------------------------------
    Net earnings                           $1,965   $2,168   $3,737   $3,760
    Add (deduct):
    Income tax expense (recovery)              29        8        5      (77)
    Financial charges                         189       65      316      154
    Amortization of property,
     plant and equipment                    1,444    1,331    2,859    2,684
    Amortization of intangible assets         640      539    1,258    1,079
    Loss on disposal of property,
     plant and equipment                       57        -       57        3
    ------------------------------------------------------- -----------------
    EBITDA                                 $4,324   $4,111   $8,232   $7,603
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Distributable cash is defined by management as cash provided by operating activities, plus or minus the net change in non-cash working capital items, less maintenance capital expenditures and less cash taxes. Management believes this measure reflects the cash generated from the ongoing operation of the business. Distributable cash is a non-GAAP measure generally used by Canadian income trusts as an indicator of financial performance and it should not be seen as a measurement of liquidity or a substitute for comparable metrics prepared in accordance with GAAP. This measure is commonly used by investors, management and other stakeholders to evaluate the ongoing performance of K-Bro.

    
    -------------------------------------------------------------------------
                                            Three months       Six months
                                           ended June 30      ended June 30
                                         ------------------ -----------------
                                         ------------------ -----------------
    ($ 000's)                              2010     2009     2010     2009
    -------------------------------------------------------------------------
    Cash provided by (used in)
     operating activities                  $4,538   $3,539   $8,368   $2,743
    Add (deduct):
    Net changes in non-cash working
     capital items                           (417)     494     (480)   4,677
    Maintenance capital expenditures         (455)    (608)    (885)    (741)
    ------------------------------------------------------- -----------------
    Distributable cash                     $3,666   $3,425   $7,003   $6,679
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Payout ratio is defined by management as the actual cash distribution divided by distributable cash. This is a key measure used by investors to value K-Bro, assess its performance and provide an indication of the sustainability of distributions. The payout ratio depends on the distributable cash and the Fund's distribution policy.

    
    -------------------------------------------------------------------------
                                            Three months       Six months
                                           ended June 30      ended June 30
                                         ------------------ -----------------
                                         ------------------ -----------------
    ($ 000's)                                2010     2009     2010     2009
    -------------------------------------------------------------------------
    Cash distributions                      1,926    1,926    3,853    3,853
    Distributable cash                      3,666    3,425    7,003    6,679
    ------------------------------------------------------- -----------------
    Payout ratio                            52.6%    56.2%    55.0%    57.7%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Figures expressed in percentages are calculated from actual unrounded amounts.

FORWARD LOOKING STATEMENTS

This news release contains forward-looking information within the meaning of applicable securities laws. The use of any of the words "anticipate", "continue", "expect", "may", "will", "project", "should", "believe", and similar expressions suggesting future outcomes or events are intended to identify forward-looking information. Statements regarding such forward-looking information reflect management's current beliefs and are based on information currently available to management.

These statements are not guarantees of future performance and are based on management's estimates and assumptions that are subject to risks and uncertainties, which could cause K-Bro's actual performance and financial results in future periods to differ materially from the forward-looking information contained in this press release. These risks and uncertainties include, among other things, (i) K-Bro's competitive environment; (ii) utility costs; (iii) K-Bro's dependence on long-term contracts with the attendant renewal risk, (iv) increased capital expenditure requirements; (v) reliance on key personnel; and (vi) the availability of future financing. Material factors or assumptions that were applied in drawing a conclusion or making an estimate set out in the forward-looking information include: (i) volumes and pricing assumptions; (ii) utility costs; (iii) expected contribution from the newly acquired Vancouver plant; (iv) expected impact of labour cost initiatives; and, (v) the level of capital expenditures. Although the forward-looking information contained in this news release is based upon what management believes are reasonable assumptions, there can be no assurance that actual results will be consistent with these forward-looking statements. Certain statements regarding forward-looking information included in this news release may be considered "financial outlook" for purposes of applicable securities laws, and such financial outlook may not be appropriate for purposes other than this news release.

All forward-looking information in this news release is qualified by these cautionary statements. Forward-looking information in this news release is presented only as of the date made. Except as required by law, K-Bro does not undertake any obligation to publicly revise these forward-looking statements to reflect subsequent events or circumstances.

SOURCE K-Bro Linen Inc.

For further information: For further information: Linda McCurdy, President & Chief Executive Officer, K-Bro Linen Income Fund, Phone: (780) 453-5218; Chris Burrows, Vice-President & Chief Financial Officer, K-Bro Linen Income Fund, Phone: (780) 453-5218, Email: inquiries@k-brolinen.com, Web: www.k-brolinen.com


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