Foremost Income Fund

Foremost Income Fund

August 13, 2013 11:15 ET

Foremost Income Fund Reports Q2 Results

CALGARY, ALBERTA--(Marketwired - Aug. 13, 2013) - Foremost Income Fund ("Foremost" or the "Fund") announces the financial results for the period ended June 30, 2013.

OVERVIEW

The Fund is an unincorporated open end mutual fund trust conducting its business through Foremost Universal LP ("Universal") and Foremost Industries LP ("Foremost"). The Fund derives its operational income from both Universal and Foremost. Universal's overall business is focused on the oil and gas industry and contains the business units located at:

  • Lloydminster, Alberta - manufacturer of oil treating systems, shop and field storage tanks;
  • Bonnyville, Alberta - shop tank manufacturer
  • Calgary, Alberta - one manufacturing facility of medium- to large-scale oil and gas process treating equipment and another location which manufacturers sub-200 horsepower compressors
  • Stettler, Alberta - gas separator and hydrovac manufacturer;
  • Hythe, Alberta - shop tank manufacturer

Foremost is comprised of the Calgary, Alberta based business unit of Foremost Industries, a manufacturer of custom equipment used for the oil and gas, construction, water-well and mining industries.

FINANCIAL RESULTS:

During the second quarter of 2013 estimates of gross margin on three specific field jobs were reduced dramatically due to several factors. These include overrun of labour hours due to the complexity of site labour requirements and high turnover of staff. Also, all of these jobs were bid over two years ago when safety and QC requirements were not as stringent as today. The cumulative impact to net income for 2013 was a loss of $6.4M, $2.0M relating to Q1 2013 and $4.4M for Q2 2013. Net income for 2013 would have been $7.7M had the originally estimated margins been maintained, as compared to the actual net income of $1.3M. Note that only the large oilsand/field projects have been impacted by these reduced estimates and that two of out of these three jobs will still close with a positive gross margin, but below original estimate. Necessary controls and processes have been put in place to reduce the risk of estimating inaccuracies.

The key elements from Q2 2013 are:

  • Revenues have dropped when comparing Q2 2013 and 2012, with a decrease of 9.4%. Consolidated revenues were $56.6 million in 2013 versus $62.5 million for 2012.

  • Revenues outside of Canada have increased to 22.7% in 2013 from 15.7% of total revenues in 2012.

  • Operating activities generated a gross profit percentage of 8.4% as compared with 20.9% in 2012. Gross profits were $4.8 million as compared with $13.0 million for 2012. Lower than expected margin on field work within the Universal segment has contributed to this drop in margin.

  • Administrative increased to 10.5% of revenue in 2013 from 9.6% of revenue in 2012. Administrative expenses were $5.9 million in 2013 and $6.0 million for 2012.

  • Large fund transfers from Euros and fluctuations in the exchange rates between the Canadian dollars against the U.S. dollar resulted in a $225,000 exchange gain compared to a $41,000 gain in 2012.

  • Income from operations decreased 129.0% from income of $6.1 million in 2012 to a loss of $1.8 million for 2013.

  • Comprehensive income was $5.1 million in 2012 compared to a loss of $1.5 million in 2013; comprehensive income includes $250,000 income tax recovery in 2013 and a charge of $1.1 million for 2012.

  • The Fund redeemed 13,326 Trust Units during the quarter through its normal redemption program resulting in payments of $106,000.

  • Basic and diluted earnings per Trust Unit were $0.27 per Trust Unit in 2012 compared with a loss of $0.08 per Trust Unit in 2013.

  • Quarter to date cash flow used in operations for 2013, calculated as comprehensive income adjusted for items not involving cash such as amortization, gains on disposals of property, plant and equipment, Trust Units based compensation and changes in non-cash working capital totaled $738,000 versus cash generated of $7.6 million in 2012.

The key elements for the year to date are as follows:

  • Year to date revenue has decreased 9.5%. Year to date consolidated revenues were $120.6 million versus $133.3 million in 2012.

  • Year to date revenues generated outside of Canada have increased to 23.3% from 16.8% of total revenues.

  • Year to date gross margin percentage is 12.4% as compared with 21.4% in 2012. Year to date gross profits were $15.0 million as compared with $28.5 million in 2012. This is a direct result of increased competition and lower than expected margin on field job work due to increased labour costs.

  • Year to date selling, general and administrative expenses increased to 9.5% of revenue versus 9.0% of revenue in 2012. Selling, general and administrative expenses were $11.4 million in 2013 and $12.0 million for 2012.

  • Large fund transfers from Euros and fluctuations in the exchange rates between the Canadian dollars against the U.S. dollar resulted in a $178,000 exchange gain in 2013 compared to a $9,000 gain in 2012.

  • Year to date income from operations decreased 89.2% to $1.6 million versus $15.0 million in 2012.

  • Year to date comprehensive and net income was $1.3 million compared to $12.7 million in 2012. 2013 year to date comprehensive and net income includes a $272,000 utilization of deferred tax assets, 2012 was $2.3 million.

  • Year to date basic and diluted earnings per Trust Unit were $0.07 as compared with $0.68 per Trust Unit in 2012.

  • Cash has decreased $8.4 million since December 31, 2012. This decrease was the result of $5.3 million of funds used in operations, net capital expenditures of $3.0 million and $178,000 of Trust Unit redemptions. Working capital, defined as current assets less current liabilities decreased $7.2 million to $73.7 million since December 31, 2012.

  • Property, plant and equipment at June 30, 2013 amounted to $61.1 million. The $1.2 million increase relative to 2012 reflects $4.1 million in additions, $2.9 million in amortization and disposals.

  • Short-term indebtedness increased to $22.6 million at June 30, 2013, compared to $14.1 million at December 31, 2012.

  • Unitholders' equity increased from $163.2 million at December 31, 2012 to $164.3 million at June 30, 2013.


SUMMARY OF QUARTERLY INFORMATION (unaudited)
(000's, except per trust unit amounts)
2013 Q1 Q2 Q3 Q4 Total
Revenue $ 64,001 $ 56,602 $ 120,603
Income from operations $ 3,475 $ (1,820 ) $ 1,655
Comprehensive Income $ 2,810 $ (1,505 ) $ 1,305
Net income
Per trust unit, basic & diluted $ 0.15 $ (0.08 ) $ 0.07
2012 Q1 Q2 Q3 Q4 Total
Revenue $ 70,822 $ 62,499 $ 64,746 $ 63,363 $ 261,430
Income from operations $ 8,952 $ 6,102 $ 7,386 $ 1,869 $ 24,309
Comprehensive Income $ 7,653 $ 5,078 $ 5,625 $ 1,371 $ 19,727
Net income (loss)
Per trust unit, basic and diluted $ 0.41 $ 0.27 $ 0.30 $ 0.07 $ 1.05

TRUST UNIT REDEMPTIONS AND DISTRIBUTIONS

For the period ending June 30, 2013 the Fund redeemed 21,886 Trust Units at an average price of $8.10 through its normal redemption program resulting in cash payments of $178,000. The Trustees have determined that, as of the date of August 7, 2013 the Fund will redeem tendered Trust Units at tangible book value + 10% or $8.20 per unit.

On behalf of the Trustees

Foremost Income Fund

Bevan May, Trustee

FORWARD-LOOKING STATEMENT

Certain statements in this news release may constitute "forward-looking" statements which involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Fund to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. When used in this news release, such statements use words such as "may", "will", "expect", "believe", "plan" and other similar terminology. These statements include statements the Fund's intention to proceed with a Unitholders' meeting and information regarding the Trustees' views of the future prospects and tax treatment of the Fund and tax treatment of the Special Redemption, the Fund's expectations regarding the future availability of cash to meet redemption requests and the Trustee's expectations for redemption prices in December 2011 and January 2012. These statements reflect management's current expectations regarding future events and operating performance and speak only as of the date of this news release. These forward-looking statements involve a number of risks and uncertainties, including: the impact of general economic conditions, industry conditions, changes in laws and regulations, increased competition, fluctuations in commodity prices and foreign exchange, and interest rates and stock market volatility.

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