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XS Cargo Income Fund TSX: XSC.UN 
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XS Cargo Income Fund Reports 2007 First Quarter Results and Announces a 50% Reduction in Cash Distributions
EDMONTON, ALBERTA--(CCNMatthews - May 9, 2007) - XS Cargo Income Fund (TSX:XSC.UN) (the "Fund") today announced its results for the 2007 first quarter. The Fund's consolidated interim financial statements and Management's Discussion and Analysis ("MD&A") can be found on XS Cargo's website at www.xscargo.com and on SEDAR at www.sedar.com.
For the 2007 first quarter, the Fund reported sales of $23.7 million; loss before non-controlling interest of $1.9 million or $0.16 per unit outstanding; net loss of $0.9 million or $0.16 per unit and negative EBITDA (1) of $0.8 million. Negative distributable cash (1) was $1.3 million or $0.11 per unit compared to distributions declared of $2.9 million or $0.24 per unit.
Michael McKenna, President and Chief Executive Officer of the Fund stated, Continued difficulties with our inventory allocation systems caused greater than anticipated sales decreases, higher freight costs and labour inefficiencies. Despite the disappointing financial results, significant progress was made during the quarter to address these operational challenges. However, we feel it is prudent to reduce our monthly distributions until we realize the financial benefits of our efforts.
The Fund announced a reduction in the monthly distribution rate to $0.046875 per Trust Unit, beginning with the May 2007 distribution, which is payable on June 15, 2007 to unitholders of record at the close of business on May 31, 2007. On an annualized basis, the reduced distribution rate is $0.5625 per Trust Unit.
Highlights for the first quarter
- First quarter sales of $23.7 million, up 14.4% from the first quarter of 2006.
- First quarter gross margin of $7.2 million, down 5.0% from the first quarter of 2006.
- Gross margin percentage of 30.5% compared to 36.8% for the first quarter of 2006.
- Loss from operations of $0.8 million, compared to earnings from operations of $2.2 million for the first quarter of 2006.
- Same store sales decrease of 10.9% for the first quarter compared to the first quarter of 2006.
- Two new stores opened: Moncton, New Brunswick on February 26 and Kamloops, British Columbia on March 22.
- Continued successful sales of two-year product replacement extended warranty plans ("PRPs"). During the eighteen months since implementation, $3.6 million of PRPs were sold, however only $1.5 million has been recognized as revenue to date and approximately $0.4 million was recognized during the quarter. Revenue from PRP sales is deferred and recognized on a straight-line basis over the two-year terms of the PRPs.
- Negative distributable cash (1) of $0.11 per unit compared to distributions declared of $0.24 per unit. Due to the seasonal nature of our business, over 40% of our annual distributable cash (1) is generated in the fourth quarter. Since the Fund declares equal monthly distributions throughout the year, it is expected that distributable cash (1) will be below distributions declared in the first three quarters.
- We entered into agreements with JDA® Software Group, Inc. for the purchase of a new point-of-sale and inventory management system and with Retail Process Engineering for consulting and implementation services. The new system implementation commenced April 1, 2007 with targeted completion by the end of the third quarter.
- JDA® Software Group, Inc. (NASDAQ:JDAS) is the enduring demand and supply chain partner to the world's leading retailers, manufacturers and suppliers, helping more than 5,500 customers in more than 60 countries realize real demand chain results.
Business of the Fund
The Fund commenced business operations on May 17, 2005, when it completed an initial public offering (the "IPO") of 6,106,000 trust units at a price of $10 per unit, for aggregate gross proceeds of $61,060,000. Concurrent with the closing of the IPO, the Fund acquired a 51% indirect interest in XS Cargo LP and XS Cargo LP acquired the net assets (the "Acquired Business") of Famous Brands (Edmonton) Inc. (the "Vendor"). XS Cargo LP operates 38 closeout retail stores in Alberta, British Columbia, Manitoba, Saskatchewan, Ontario, Newfoundland, Nova Scotia and New Brunswick.
(1) Non-GAAP Measures
References to "EBITDA" are to earnings before interest, income taxes, depreciation and amortization and references to "distributable cash" are to cash available for distribution to Unitholders in accordance with the distribution policies of the Fund. Management believes that, in addition to income or loss, EBITDA is a useful supplemental measure of performance and cash available for distribution before debt service, changes in working capital, capital expenditures and income taxes. Specifically, management believes that EBITDA is the appropriate measure from which to make adjustments to determine the distributable cash of the Fund. Distributable cash of the Fund is a measure generally used by open-ended trusts as an indicator of financial performance. As one of the factors that may be considered relevant by prospective investors is the cash distributed by the Fund relative to the price of the Units, management believes that distributable cash of the Fund is a useful supplemental measure that may assist prospective investors in assessing an investment in the Fund.
Earnings from operations have been derived by adding interest expense, amortization of property and equipment and intangible assets, unit-based compensation and non-controlling interest to net earnings for the period.
Payout ratio refers to the ratio of cash distributions declared to unitholders to distributable cash generated by the Fund.
EBITDA, distributable cash, earnings from operations and payout ratio are not earnings measures recognized by GAAP and do not have standardized meanings prescribed by GAAP. Investors are cautioned that EBITDA, distributable cash and earnings from operations should not replace net income or loss (as determined in accordance with GAAP) as an indicator of the Fund's performance, of its cash flows from operating, investing and financing activities or as a measure of its liquidity and cash flows. The Fund's methods of calculating EBITDA, distributable cash, earnings from operations and payout may differ from the methods used by other issuers and may not be comparable to similar measures presented by other issuers.
FORWARD LOOKING STATEMENTS
This press release contains forward-looking statements. All statements other than statements of historical fact contained in this press release are forward-looking statements. You can identify many of these statements by looking for words such as "believe", "expects", "will", "intends", "projects", "anticipates", "estimates", "continues" or similar words or the negative thereof. These forward-looking statements include statements with respect to the amount and timing of the payment of distributions of the Fund. There can be no assurance that the plans, intentions or expectations upon which these forward-looking statements are based will occur. Forward-looking statements are subject to risks, uncertainties and assumptions, including, but not limited to, those discussed elsewhere in the press release. There can be no assurance that such expectations will prove to be correct.
Some of the factors that could affect future results and could cause results to differ materially from those expressed in the forward-looking statements contained herein include, but are not limited to, those discussed under "Risk Factors" in the Fund's MD&A.
The forward-looking statements contained herein are expressly qualified in their entirety by this cautionary statement. The forward-looking statements included in this press release are made as of the date of this press release and, except as required by law, the Fund assumes no obligation to update or revise them to reflect new events or circumstances.
XS Cargo Income Fund
Consolidated Balance Sheets
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March 31, December 31,
2007 2006
(unaudited)
$ $
Assets
Current
Cash and cash equivalents - 1,017,824
Rebate and other receivables 173,470 439,384
Inventory 25,158,913 22,288,806
Deposits on inventory 3,900,461 6,604,788
Prepaid expenses and deposits 691,641 828,775
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29,924,485 31,179,577
Deferred charges 330,835 331,799
Property and equipment 4,510,516 4,332,028
Intangible assets 6,420,000 6,718,000
Goodwill 101,788,426 101,788,426
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142,974,262 144,349,830
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Liabilities
Current
Bank indebtedness 4,647,293 -
Accounts payable and accrued liabilities 6,283,881 10,597,933
Deferred revenue 1,615,797 1,528,327
Distributions payable to unitholders (Note 5) 572,438 629,681
Distributions payable to non-controlling
interest (Note 6) 326,799 1,103,235
Term loan (Note 4) 6,250,000 2,500,000
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19,696,208 16,359,176
Term Loan (Note 4) 15,000,000 15,000,000
Deferred revenue 540,626 607,513
Unamortized lease inducements 366,783 317,975
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35,603,617 32,284,664
Non-controlling interest (Note 6) 55,578,212 57,493,942
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91,181,829 89,778,606
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Unitholders' Equity
Fund Units (Note 5) 56,131,876 56,131,876
Deficit (4,339,437) (1,560,652)
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51,792,433 54,571,224
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142,974,262 144,349,830
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XS Cargo Income Fund
Consolidated Statements of Earnings and Comprehensive Income
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Three Months Three Months
Ended Ended
March 31, March 31
2007 2006,
(unaudited) (unaudited)
$ $
Sales 23,657,656 20,671,865
Cost of goods sold 16,437,941 13,069,342
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Gross Margin 7,219,715 7,602,523
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Expenses
Administrative and operating 8,039,345 5,473,139
Amortization of property and equipment 294,978 174,857
Amortization of intangible assets 298,000 298,000
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8,632,323 5,945,996
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(Loss) earnings before the undernoted (1,412,608) 1,656,527
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Other expenses
Interest on bank indebtedness 87,429 39,765
Interest on term loan 342,942 222,632
Foreign exchange loss (gain) 17,479 (25,964)
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447,850 236,433
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(Loss) earnings before non-controlling interest (1,860,458) 1,420,094
Non-controlling interest (Note 6) (913,473) 696,549
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Net (loss) earnings and comprehensive (loss)
income for the period (Note 3) (946,985) 723,545
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Basic and diluted (loss) earnings per unit
(Note 10) (0.16) 0.12
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XS Cargo Income Fund
Consolidated Statements of (Deficit) Retained Earnings
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Three Months Three Months
Ended Ended
March 31, March 31
2007 2006,
(unaudited) (unaudited)
$ $
(Deficit) retained earnings,
beginning of the period (1,560,652) 701,871
Net (loss) earnings for the period (946,985) 723,545
Distributions declared in the period (1,831,800) (1,774,556)
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Deficit, end of the period (4,339,437) (349,140)
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XS Cargo Income Fund
Consolidated Statements of Cash Flows
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Three Months Three Months
Ended Ended
March 31, March 31
2007 2006,
(unaudited) (unaudited)
$ $
Cash provided by (used for) the following
activities
Operating Activities
Net loss for the period (946,985) 723,545
Items not affecting cash:
Non-controlling interest (913,473) 696,549
Amortization of property and equipment 294,978 174,857
Amortization of intangible assets 298,000 298,000
Unit based compensation (Note 8) 43,500 30,000
Deferred charges, net of costs recognized 964 (66,267)
Deferred revenue, net of revenue recognized 20,584 370,877
Lease inducements received, net of amortization
of lease inducements 48,808 (14,924)
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(1,153,624) 2,212,637
Net change in non-cash working capital (4,076,788) (11,597,566)
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(5,230,412) (9,384,929)
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Financing Activities
Proceeds from bank indebtedness 4,647,293 6,043,348
Proceeds from term loan 3,750,000 -
Distributions paid on Fund Units (1,889,046) (1,717,312)
Distributions paid to non-controlling interest (1,822,193) (1,653,239)
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4,686,054 2,672,797
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Investing Activities
Purchases of property and equipment (473,466) (730,364)
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Decrease in cash and cash equivalents (1,017,824) (7,442,496)
Cash and cash equivalents, beginning of period 1,017,824 7,442,496
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Cash and cash equivalents, end of period - -
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Supplementary cash flow information
Interest paid 430,371 262,397
For more information, please contact
XS Cargo Income FundJeff Rootman
Vice-President, Finance and Chief Financial Officer
(780) 732-2112
Website: www.xscargo.com