General Donlee Income Fund Reports Third Quarter 2010 Results

TORONTO, Nov. 5 /CNW/ - General Donlee Income Fund (the "Fund" or "General Donlee") (TSX: GDI.UN) today announced its results for the third quarter, ended September 30, 2010. Anchored by a double-digit increase in sales over the same quarter last year, General Donlee's third quarter 2010 results reflect both the positive impact of the company's ongoing activities to increase sales, and its efforts to control costs. 

Highlights of the third quarter's results include:

• Sales of $10.0 million, an increase of 16% over the same quarter in 2009
• A production order backlog of $47.1 million as of September 30, 2010 - $2.2 million higher than at the end of 2009;
• Cash generated from operating activities of $2.5 million; and
• $0.270/Unit in distributions paid to Unitholders for the quarter.

"Having managed to deliver a profitable performance through the challenges of 2009 and the first nine months of 2010, General Donlee is finding its new rhythm and beginning to rebuild momentum," said Michael Snow, Chief Executive Officer of General Donlee Limited, who joined the company on July 26, bringing a wealth of leadership in manufacturing businesses serving customers across the Americas and Asia. "We see the significant increase in our sales results in the third quarter as a positive sign of the growing recovery in our industry. Our growth strategy will focus on capturing new opportunities in high value precision machining in aerospace, power generation, military, and oil and gas markets."

Operations deliver positive cash flow

The company's operating activities generated positive cash flow of $2.5 million during the quarter, consisting of cash from operating activities of $1.3 million plus $1.2 million contributed by changes in working capital items. The Fund posted an unrealized gain of $0.3 million on the valuation of foreign exchange forward contracts when marked-to-market in the third quarter, as a result of the higher closing value of the Canadian dollar on September 30, 2010.

Production order backlog grows

General Donlee's ongoing efforts to increase revenues from both current and new customers led to an increase in its production order backlog, which reached $47.1 million at September 30, 2010 - higher than the backlog recorded at December 31, 2009.

The backlog, which reflects the long-term nature of many General Donlee's projects, indicates continued demand for its products in the year ahead. Its restoration to levels higher than year-end 2009, after a slight reduction at the end of the first quarter, suggests continued opportunity for growth. The company also sees the increased rate of quoting on new business in both divisions as a further positive sign of what lies ahead. 

Monthly distributions continue

The Fund maintained its regular monthly distributions to Unitholders at the rate of $0.090 per Unit in the third quarter of 2010. While the Fund's payout ratio in the quarter was higher than target, the Fund has at other times maintained lower payout ratios. The Trustees' decision to leave the payout unchanged in the third quarter reflects their long-term view of the 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 and nine-month periods ended September 30, 2010, and comparative results for the comparable periods in 2009.                 

($ millions, except Unit and per Unit amounts, unaudited)	Three Months Ended		Nine Months Ended
	Sept. 30/10	Sept. 30/09	Sept. 30/10	Sept. 30/09
Operations
Sales	10.0	8.6	30.4	32.9
Gross profit	2.4	1.0	7.3	8.2
Net income	1.4	0.2	1.6	5.0
Basic income per Unit	$0.262^(a)	$0.040^(b)	$0.294^(c)	$0.930^(d)
Distributions
Distributable cash ^(1)	0.7	(0.6)	2.1	2.8
Distributable cash per Unit ^(1)	$0.131^(a)	$(0.120)^(b)	$0.394^(c)	$0.514^(d)
Distributions paid	1.4	1.4	4.3	4.4
Distributions paid per Unit	$0.270	$0.270	$0.810	$0.810

(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 third quarter of 2010.
(b)     Based on weighted average of 5,332,317 Units outstanding for the third quarter of 2009.
(c)     Based on weighted average of 5,332,317 Units outstanding year-to-date 2010.
(d)     Based on weighted average of 5,412,561 Units outstanding year-to-date 2009.

Overall Financial Performance for the nine months ended September 30, 2010

General Donlee's sales results for the nine months ended September 30, 2010 were $30.4 million, a decrease of $2.5 million or 8% from a year earlier, reflecting increases in military aerospace and industrial sales net of lower commercial aerospace and power generation sales as well as the negative effect of the 10% rise in the Canadian dollar versus year ago levels. Sales in the Company's aerospace and power generation products division were $18.2 million in the first nine months of 2010, a decrease of $4.1 million, or 18%, 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 nine months of 2010 were $12.2 million, an increase of $1.6 million or 15% over the same period last year, due to the company's successful efforts both to attract new customers and to expand its sales to existing customers.

The Fund's $1.6 million net income for the nine months ended September 30, 2010 was $3.4 million less than its net income in the same period in 2009, reflecting mostly the change in the unrealized foreign exchange loss on forward contracts which, when marked-to-market at September 30, created a $0.6 million unrealized foreign exchange loss as compared to an unrealized foreign exchange gain of $2.3 million in the same period in 2009 - a  swing of $2.9 million. General Donlee's basic income per Unit was $0.294 for the nine months ended September 30, 2010, down from $0.930 per Unit in the same period a year prior.

Distributable cash¹ for the nine months ended September 30, 2010 was $2.1 million, or $0.394 per Unit, as compared to $2.8 million or $0.514 per Unit in the comparable period in 2009; the Fund has maintained its monthly distribution level at $0.090 per Unit throughout 2010. In the nine months ended September 30, 2010, distributions paid were $4.3 million or $0.810 per Unit, consistent with the $4.4 million or $0.810 per Unit in the same period 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 September 30, 2010, General Donlee had working capital of $16.0 million, compared to the $17.9 million reported at December 31, 2009, and a current ratio of 3.8:1.

Distributable Cash¹    

General Donlee's distributable cash¹ for the three months ended September 30, 2010 was $0.7 million, or $0.131 per Unit, as compared to the $(0.6) million or $(0.120) per Unit posted in the three months ended September 30, 2009. Distributable cash¹ for the nine months ended September 30, 2010 was $2.1 million, or $0.394 per Unit, as compared to the $2.8 million or $0.514 per Unit posted in the nine months ended September 30, 2009.

Regular distributions paid to Unitholders were $0.270 per Unit for the three months ended September 30, 2010, the same as the comparable period in 2009. Regular distributions paid to Unitholders were $0.810 per Unit for the nine months ended September 30, 2010, compared to $0.810 per unit for the comparable period in 2009.

The following table details General Donlee's calculation of distributable cash¹.

	Three Months Ended				Nine Months Ended
($000, except per Unit amounts)	Sept. 30 2010		Sept. 30 2009		Sept. 30 2010	Sept. 30 2009
Cash provided by operating activities	$2,505		$3,561		$4,370	$8,864
Adjust for net changes in non-cash     working capital balances related to   operations	(1,239)		(3,645)		(570)	(4,421)
Cash provided by operating activities   before changes in non-cash working   capital balances	1,266		(84)		3,800	4,443
Repayment of long-term bank debt	(257)		(245)		(763)	(725)
Reserve for maintenance capital expenditures	(313)		(313)		(938)	(938)
Distributable cash^1	$696		$(642)		$2,099	$2,780
Distributions paid to   Unitholders	$1,440		$1,440		$4,320	$4,379
Basic income per Unit	$0.262		$0.040		$0.294	$0.930
Distributable cash^1 per Unit	$0.131		$(0.120)		$0.394	$0.514
Distributions paid per Unit	$0.270		$0.270		$0.810	$0.810
Payout ratio^2	206%		n/a		206%	158%

^{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 a publicly listed income trust to a publicly listed corporation. The conversion will be undertaken pursuant to a statutory plan of arrangement under the Canada Business Corporations Act. 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 General Donlee Canada Inc. 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 plan of arrangement was approved by Unitholders at the annual and special meeting of Unitholders held June 14, 2010.  On July 28, 2010, the Fund obtained a final order from the Nova Scotia Supreme Court approving the plan of arrangement. Subject to final approval of the Toronto Stock Exchange, and other required approvals, it is anticipated that the plan of arrangement will be become effective on or about January 1, 2011.

Distributions

The Fund expects that it will pay monthly cash distributions up until the arrangement takes effect, subject to the discretion of the Trustees. Following the completion of the arrangement, the intention is for General Donlee Canada Inc. to adopt a cash management policy that will enable it to pay dividends to shareholders while allowing the Company the flexibility to maximize long term shareholders value.

The board has not made any final determinations respecting the Company's dividend policies after December 31, 2010, including whether the Company will pay dividends, or what the frequency or amount of any such dividend. The declaration of dividends will be subject to the discretion of the board of directors of General Donlee Canada Inc. and its determination of the best strategy to maximize shareholder value.

Outlook

Management at General Donlee is encouraged by the company's performance through the challenges of 2009 and the first nine months of 2010, when it was able to deliver profitable results despite difficult economic times. Now, as the company's momentum begins to pick up again, General Donlee's outlook is hopeful for continued economic improvements that will lead to even further opportunities.

The Company's sales performance, in particular, is gaining strength; up 16% in the third quarter over the same period last year. With growth in the military sector, the industrial sector, and certain segments of the commercial aerospace sector, the Company is working to take advantage of every opportunity that presents itself.

"General Donlee isn't, however, limiting itself to finding new opportunities: we are also proactively creating them, pursuing new leads in the power generation division, working to expand sales with new and current customers - and contracting with outside agencies to expand our sales coverage," said Mr. Snow.

"And concurrent with our efforts to improve our top line, we are maintaining our focus on our bottom line, looking for new ways to contain costs and to make our operations more efficient. Our successes to date in 2010 - which contributed to our improved margins in the third quarter - speak well for what lies ahead," he said.

Looking to the fourth quarter, Mr. Snow and his management team see an increased production order backlog worth $47.1 million. "This achievement signals three positive things: one, that General Donlee has already secured a significant amount of work to follow projects currently in production; two, that General Donlee continues to do a thorough job of seeking out and securing business opportunities; and three, that our customers like what we are doing," said Mr. Snow.

"A diverse offering of highly-specialized production services, flexible business strategies that allow the Company to respond to changing economic realities, and smart decision-making about capital investments and cost controls: these are some of the characteristics that have allowed General Donlee to remain a factor in the aerospace industry for almost half a century. They, together with a strong production order backlog, a team of highly-skilled, dedicated employees, and a loyal - and growing - customer base, give General Donlee reason to look with optimism on the quarters to come," he said.

Fund 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

On November 8, 2010, the Fund will file its interim Financial Statements (including the notes thereto) and Management's Discussion and Analysis for the period ended September 30, 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; 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 the Company's 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

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