Article Excerpt:
TWST: We'd like to begin with a brief historical sketch of the company and a picture of the things you're doing at the present time.Mr. Gumprich: We're a Vancouver-based independent footwear retailer. We offer a broad selection of private label and brand named shoes and accessories through four separate retail banners: Sterling Shoes, Joneve, Shoe Warehouse and Freedmans. These retail concepts are designed to serve identified market segments. We trace our roots back to 1987 when we started with five Sterling stores and have grown from there. We currently have 106 stores open, with plans to have at least 122 stores by the end of 2006. We are primarily based in western Canada; however, over the last nine months we have begun to expand into Ontario. We believe that there is significant potential for growth in eastern Canada using the formats that have proven successful for us in the past. We don't have any plans to expand outside of Canada, but there's a lot of room in this market for us to grow. In July 2005, we became a public company listed on the Toronto Stock Exchange and the structure that we utilized to go public was that of an income trust. This structure is quite popular in Canada in a number of sectors. It is increasingly so for businesses wishing to go public because of the beneficial tax treatment that it offers. Due to the poor integration of the Canadian tax code, trusts can operate as flow through entities, distributing their earnings directly to their unit (share) holders without being taxed at the trust level. Our unitholders, if they are taxable, receive the gross earnings and pay tax at their own marginal rate. Because the Canadian tax regime is poorly integrated, trust unitholders end up receiving much more income on an after-tax basis than they would have if they had received a dividend from a corporate entity. In the case of unitholders not resident in Canada, distributions from the trust are only subject to a 15% withholding tax. We intend to distribute effectively all of our EBITDA. We hold back enough for debt coverage and maintenance capital expenditures. Our growth is funded through debt. The incremental earnings from our new stores will allow us to maintain a very conservative debt to EBITDA ratio of 0.5 times. That's more a Canadian tax lesson than anything else, but it outlines why we chose this structure, which gives us some significant advantages over our competitors.
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