Countryside Power Income Fund
TSX : COU.UN

Countryside Power Income Fund

November 09, 2006 06:00 ET

Countryside Power Income Fund Reports Financial Results for Third Quarter of 2006

Continuing to Execute Growth Strategy

LONDON, ONTARIO--(CCNMatthews - Nov. 9, 2006) - Countryside Power Income Fund (TSX:COU.UN) ("the Fund") today announced its financial results for the third quarter ended September 30, 2006. All figures are in Canadian dollars unless otherwise stated.

Highlights for the quarterly period ended September 30, 2006:

- Revenue was $25.0 million

- Adjusted EBITDA(i) was $9.6 million

- Distributable cash(i) was $6.7 million, or $0.338 per trust unit, and declared distributions totalled $5.1 million, or $0.259 per unit

- Payout Ratio of 77% to distributable cash

"Our strong performance during the third quarter reflects the peak season cash flows from our Cogeneration Facilities," said Goran Mornhed, President and Chief Executive Officer of Countryside Ventures LLC (the "Manager"). "Our recent award of a 20-year contract with the Ontario Power Authority for electric power output from a new cogeneration facility at London District Energy demonstrates the organic growth potential of our assets."

Results for Third Quarter

Countryside's consolidated revenue in the three months ended September 30, 2006, was $25.0 million, a decrease of $1.8 million compared with the same period last year. The Fund's total revenue in the nine months ended September 30, 2006, was $69.8 million, an increase of $26.5 million compared with the same period last year. The majority of this increase was related to the inclusion of the Cogen Facilities' results for the full nine-month period in 2006.

The Fund's Adjusted EBITDA in the three months ended September 30, 2006, was $9.6 million, a decrease of $1.0 million from the prior year period. The decrease primarily reflects the foreign exchange impact on the Cogen Facilities' operating results. However, the U.S. dollar distributable cash flow contribution from the Cogen Facilities that is used to meet Canadian level commitments and unitholder distributions is primarily hedged through U.S. dollar denominated debentures and foreign exchange hedging instruments. The Fund's Adjusted EBITDA in the nine-month period ended September 30, 2006 was $25.1 million, an increase of $7.1 million from the prior year period, due primarily to the addition of the Cogen Facilities for full nine-month period in 2006.

Net income in the three months ended September 30, 2006, was $3.2 million, or $0.16 per unit, compared with $5.2 million or $0.35 per unit in the comparable period of 2005. In addition to the changes in Adjusted EBITDA noted above, net income was impacted by factors that include a decrease in net unrealized gains on derivative instruments, a decrease in the future tax provision, a decrease in interest expense related to decreased debt outstanding in the current quarter and an increase in net unrealized gains on foreign exchange related to US dollar denominated debentures. Net income in the nine months ended September 30, 2006, was $11.2 million, or $0.57 per unit, compared with $9.1 million or $0.61 per unit, in the comparable period of 2005.

Distributable cash for the quarterly period ended September 30, 2006, was $6.7 million and distributions declared were $5.2 million. In the prior year period, distributable cash was $6.2 million and distributions declared were $3.8 million. On a per-unit basis, distributable cash of $0.338 per trust unit decreased $0.080 per trust unit from the prior year period due primarily to the issuance of new trust units which the refinanced acquisition debt used to purchase the Cogen Facilities. Cash distributions to unitholders declared for the quarter totalled $0.259 per unit. In the nine-month period ended September 30, 2006, distributable cash was $18.9 million, or $0.960 on per trust unit. Distributions to unitholders declared in the nine-month period ended September 30, 2006, totaled $0.776 per unit, resulting in a payout ratio of 81% for the period.

USEB Financial Reporting Violation

USEB remains in default of the loan agreements as they relate to certain financial reporting matters. USEB has disputed this position; however, we continue to seek an amicable resolution of this issue. USEB delivered the fiscal 2005 year end audited financial statements for the USEB Operating Assets, and the unaudited financial statements for the quarterly periods ended March 31, 2006 and June 30, 2006. USEB has not delivered the Consolidated USEB audited financial statements for fiscal year ended 2005, among other documents. USEB continues to remain current on all scheduled debt service payments to date, and pursuant to its recently submitted financial statements, has indicated compliance with the fixed charge coverage ratio covenant under the loan agreements.

USEB may face some risk of higher foreign exchange translation costs regarding debt service payments under the USEB loans in 2007 as a result of the expiration of its foreign exchange hedge. Also, USEB cash flow may be adversely affected by a potential reduction of tax credit related income under Section 29 of the Internal Revenue Code. We are in discussions with USEB regarding these issues. Our loan balances are collateralized by a first lien on all of the operating assets and cash reserves of USEB, the latter of which totals approximately US$32 million in liquid investments. We continue to believe the value of our collateral exceeds the outstanding loan balances.

The financial reporting information and concomitant officer's certificates of a subsidiary of the Fund, which were delayed in the second quarter of 2006 due to delayed financial reporting by USEB, have been delivered to the Lenders as required under the September 15, 2006 amendment to the Amended Credit Facility, and the Fund is currently in compliance with the terms of the Amended Credit Facility.

Outlook

During the third quarter, an indirect subsidiary of the Fund was awarded a 20-year combined heat and power generation contract ("CHP") by the Ontario Power Authority ("OPA") as part of a competitive bidding process. As a result, the Fund is adding a natural gas-fired cogeneration to its existing London District Energy system, with 17 megawatts of electric power generation capacity and additional thermal capacity. The Fund's indirect subsidiary, Countryside London Cogeneration Corp. will execute an engineering procurement and construction contract in the fourth quarter of 2006 and commercial operation is scheduled to begin in the second quarter of 2008. The capital cost of the project is estimated at $27 million, and in addition to $3 million to expand the London system's chilled water system to support customer growth.

Government Tax Announcement

On October 31, 2006, the Canadian government announced proposed changes to income tax rules applicable to publicly traded trusts and partnerships that will see certain income at these entities taxed in a manner similar to income earned by (and distributions made by) a corporation. The application of the rules will be delayed to the 2011 taxation year for existing trusts. The Fund is considering this announcement and the possible impact of the proposed rules to the Fund.

Distributable Cash Summary

The Fund pays monthly cash distributions to unitholders on or about the last business day of each month to unitholders of record on the last business day of the prior month.



Rolling
Three-month Three-month Nine-month twelve-month
period ended period ended period ended period ended
September 30, September 30, September 30, September 30,
2006 2005 2006 2006
$ $ $ $
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Cash provided by
operating activities 7,763 6,008 16,527 19,673
Add (deduct): Changes in
working capital (1,420) 860 1,283 3,355
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Funds from operations
before working capital
changes 6,343 6,868 17,810 23,028
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Add:
Receipt of principal on
USEB loans 517 463 1,509 1,985
Transaction costs
expensed(1) - - - 642

Deduct:
Principal repayments on
Cogen Facilities'
project-related debt - 957 - -
Purchases of capital
assets for regular
operations(2) 152 142 397 525

Distributable cash for
the period 6,707 6,232 18,922 25,130
Distributions declared
for the period 5,185 3,832 15,356 20,030
Weighted Average number
of trust units
outstanding
- basic (thousands of
trust units) 19,838 14,905 19,712 19,108
- diluted (thousands of
trust units) 25,735 14,905 25,647 24,323
Distributable cash per
trust unit for the
period - basic 0.338 0.418 0.960 1.315
Distributions declared
per trust unit for the
period (whole dollars) 0.259 0.257 0.776 1.035
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(1) Transaction costs related to the Ripon Power acquisition transaction
were paid to the Manager from financing proceeds and were not operational
in nature.

(2) Purchases of capital assets for regular operations are
non-expansionary capital expenditures. Total capital expenditures
were as follows; in the three-month period ended September 30, 2006 -
$1,348, for the three-month period ended September 30, 2005 - $210, in
the nine-month period ended September 30, 2006 - $1,798 and in the
twelve-month period ended September 30, 2006 - $1,980.

(3) As the timing of the receipt of the royalty interest income
earned in a period is dependent upon the timing and extent of equity
distributions made by USEB to its shareholders', royalty interest
income will only be included in the calculation of distributable cash
when payments related to the royalty interest are received from USEB.


Conference Call and Webcast

Management will host a conference call at 10 a.m. (ET) on Thursday, November 9, 2006, to discuss the results. Please call 416-644-3417 or 1-800-814-4859 to access the call.

The call will be webcast live and archived on the Countryside web site at www.countrysidepowerfund.com.

Countryside's financial statements for the period and management's discussion and analysis are available at www.countrysidepowerfund.com.

(i) Non-GAAP Measures

Distributable cash does not have any standardized meaning prescribed by GAAP and is therefore unlikely to be comparable to similar measures presented by other issuers. Since the Fund and its subsidiaries distribute substantially all of their available cash on an on-going basis, management believes that distributable cash is an important measure in evaluating the performance of the Fund and determining whether to invest in units of the Fund. For a reconciliation of cash provided by operating activities from the Consolidated Statements of Cash Flows to distributable cash please see the Fund's MD&A for the three-month period ended September 30, 2006.

Adjusted earnings before interest, income taxes, unrealized (gains) losses on derivative instruments, foreign exchange gains and losses, and depreciation and amortization ("Adjusted EBITDA") is not a measure under Canadian GAAP and there is no standardized measure of Adjusted EBITDA and therefore, it may not be comparable to similar measures presented by other funds or companies. Management uses Adjusted EBITDA as a key measure of operating performance, and thus has framed a portion of the MD&A comments accordingly. Adjusted EBITDA can be calculated from the Fund's GAAP statements as operating income, plus depreciation and amortization.

About Countryside Power Income Fund

Countryside Power Income Fund has investments in two district energy systems in Canada, with a combined thermal and electric generation capacity of approximately 122 megawatts, and two gas-fired cogeneration plants in California with a combined power generation capacity of 94 megawatts. In addition, the Fund has an indirect investment in 22 renewable power and energy projects located in the United States, which currently have approximately 51 megawatts of electric generation capacity and sold approximately 710,000 MMBtus of boiler fuel in 2005. The Fund's investment in the projects consists of loans to, and a convertible royalty interest in, U.S. Energy Biogas Corp.

Forward-Looking Statements

This press release may contain forward-looking statements relating to expected future events and financial and operating results of the Fund that involve risks and uncertainties. Actual results may differ materially from management expectations as projected in such forward-looking statements for a variety of reasons, including market and general economic conditions and the risks and uncertainties detailed from time to time in the Fund's prospectus filed with the Canadian securities regulatory authorities. Due to the potential impact of these factors, 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, unless required by applicable law.

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