Foremost Income Fund
TSX : FMO.UN

Foremost Income Fund

August 12, 2009 12:19 ET

Foremost Income Fund Reports Second Quarter Revenues and Earnings

CALGARY, ALBERTA--(Marketwire - Aug. 12, 2009) - Foremost Income Fund (TSX:FMO.UN) announces the financial results for the three and six months ended June 30, 2009.



CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME AND ACCUMULATED
EARNINGS
(000's, except per trust unit amounts) (Unaudited)

For the THREE months For the SIX months
ended June 30, ended June 30,
2009 2008 2009 2008
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Revenue $ 31,038 $ 52,991 $ 69,960 $102,848
Cost of sales 21,849 38,096 51,266 75,656
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9,189 14,895 18,694 27,192
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Selling, general and administrative 5,483 5,979 10,089 11,501
Interest - 85 5 237
Amortization 1,152 1,325 2,277 2,577
Foreign exchange loss (gain) 234 147 154 (140)
Realized gain on forward exchange
contracts (818) - (614) -
Gain on disposal of property, plant
and equipment (89) (3) (146) (2,332)
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5,962 7,533 11,765 11,843
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Income from continuing operations
before income taxes 3,227 7,362 6,929 15,349
Future income tax provision - - - -
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Income from continuing operations 3,227 7,362 6,929 15,349
Discontinued operations - 217 - 494
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Net income and comprehensive income 3,227 7,579 6,929 15,843
Accumulated earnings, beginning of
period 91,983 81,866 90,422 80,908
Premium on repurchase of trust units - (7) - (2,026)
Distributions to unitholders (2,141) (5,308) (4,282) (10,595)
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Accumulated earnings, end of period $ 93,069 $ 84,130 $ 93,069 $ 84,130
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Earnings per trust unit from
continuing operations
Basic $ 0.15 $ 0.35 $ 0.32 $ 0.73
Diluted $ 0.15 $ 0.35 $ 0.32 $ 0.72
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Earnings per trust unit
Basic $ 0.15 $ 0.36 $ 0.32 $ 0.75
Diluted $ 0.15 $ 0.35 $ 0.32 $ 0.74
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CONSOLIDATED BALANCE SHEETS
(000's) (Unaudited)

As at: June 30, December 31, June 30,
2009 2008 2008
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Assets
Current assets
Cash $ 33,323 $ 497 $ -
Accounts receivable 17,498 42,118 30,666
Inventories 40,467 56,448 62,148
Prepaid expenses 651 1,186 903
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91,939 100,249 93,717
Property, plant and equipment 51,497 53,687 55,212
Future income taxes 19,485 19,485 19,485
Goodwill and intangibles 15,074 15,176 15,253
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$177,995 $ 188,597 $ 183,667
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Liabilities and Unitholders' Equity
Current liabilities
Bank indebtedness $ - $ - $ 3,832
Accounts payable and accrued liabilities 14,208 22,484 23,614
Deferred revenue 7,318 12,449 9,419
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21,526 34,933 36,865
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Unitholders' equity
Unitholders' capital 62,115 62,115 61,373
Contributed surplus 1,285 1,127 1,299
Accumulated earnings 93,069 90,422 84,130
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156,469 153,664 146,802
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$177,995 $ 188,597 $ 183,667
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Both the Fund's balance sheet and statements of income reflect the impact of current market conditions and management's response to these conditions. From a balance sheet perspective, at June 30, 2009, the Fund had $33.3 million of cash on hand as compared with $3.8 million of bank indebtedness at June 30, 2008. The combined effect of lower business activity levels on working capital requirements plus specific initiatives to reduce operating costs to preserve cash generated $21.8 million of cash from non-cash working capital items for Q2-2009 and $27.7 million YTD-2009 compared with $5.8 million and $7.1 million for the respective periods in 2008. Working capital at June 30, 2009 was $70.4 million, a $13.5 million increase over the $56.9 million reported for June 30, 2008. Unitholders' equity represented 87.9% of total assets at June 30, 2009 versus 79.9% at June 30, 2008.

Consistent with management's expectations, Q2-2009 and YTD-2009 revenues and net incomes were significantly lower compared with 2008. These results reflect current levels of activity in the Fund's core markets which continue to be impacted by lower oilsands activity, weak North American natural gas drilling activity and uncertain commodity markets. Revenues for Q2-2009 amounted to $31.0 million versus $53.0 million for Q2-2008. YTD-2009 revenues were $70.0 million compared to $102.8 for YTD-2008. Gross profit dollars declined as a result of the lower revenues. The Q2-2009 gross profit percentage of 29.6% was higher than the 28.1% for Q2-2008 due to a higher proportion of fieldwork revenues and the delivery of a large vehicle order. The YTD-2009 product mix generated a gross profit percentage of 26.7% virtually the same as the 26.4% for YTD-2008. Compared with the same periods in 2008, Q2-2009 and YTD-2009 selling, general and administrative expenses decreased $0.5 million and $1.4 million respectively because of manpower reductions, discretionary cost reductions and reduced levels of accrued bonuses. Q2-2009 and YTD-2009 foreign exchange losses arose from the stronger Canadian dollar relative to March 31, 2009 and December 31, 2008. Accounted for on a marked to market basis, the closing of the foreign exchange forward contract associated with the vehicle order delivered and paid for in June resulted in a realized gain of $0.8 million for Q2-2009 and $0.6 million YTD-2009. No significant disposals of property, plant and equipment have occurred in 2009 unlike 2008 when the sale of property, plant and equipment resulted in proceeds of $3.9 million and a gain on disposal of $2.3 million. Mobile's Q2-2008 and YTD-2008 net income of $0.2 million and $0.5 million has been reported as discontinued operations.

The Fund's Q2-2009 net income was $3.2 million versus $7.6 million for Q2-2008. YTD-2009 net income was $6.9 million as compared with $15.8 million in 2008. Q2-2009 basic earnings per trust unit were $0.15 per unit compared to $0.35 for Q2-2008. YTD-2009 earnings per trust unit amount to $0.32 per unit versus $0.75 per trust unit for YTD-2008. Funds flow from operations has decreased as a result of lower earnings. Q2-2009 funds flow from operations was $4.4 million compared to $8.7 million in 2008. YTD-2009 funds flow from operations was $9.2 million as compared with $15.7 million for YTD-2008. In response to this, the Fund has reviewed its capital expenditure requirements and levels of trust unit distributions. Q2-2009 and YTD-2009 capital expenditures to maintain productive capacity were $0.1 million and $0.2 million respectively and are offset by the proceeds from the disposal of property, plant and equipment within each period. No trust units have been repurchased YTD-2009 whereas YTD-2008 included a $3.0 million repurchase of trust units. All paid in cash, Q2-2009 trust unit distributions were $2.1 million or $0.10 per trust unit compared to Q2-2008 trust unit distributions of $5.3 million or $0.25 per trust unit. YTD-2009 trust units distributions are $4.3 million or cumulatively $0.20 per trust unit versus $10.6 million or $0.50 per trust unit YTD-2008. The combination of operating, investing and financing activities generated a Q2-2009 increase in cash of $24.1 million versus $0.5 million for Q2-2008 and $32.5 million YTD-2009 (YTD-2008 - $0).

As discussed in the 2008 annual report, Q2-2009 and the YTD-2009 financial results reflect the Fund's expectations for continued weakness in its core markets through the first half of 2009 and its response to these market conditions. The Fund now believes that this weakness will persist throughout 2009. Accordingly, the Fund will maintain its focus on cost control, operational efficiency, critical capital expenditures and trust unit distributions to maintain its balance sheet strength and cash position. As part of this focus, the Fund continues to look for ways to reduced operating costs, re-align manpower and monetize non-essential assets. These cash accumulation efforts will enable the Fund to meet the impact of increased business activity on working capital and to pursue accretive acquisitions.

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 of: Universal Industries, a manufacturer of oil treating systems, shop and field storage tanks; Maloney Industries, a manufacturer of medium- to large-scale oil and gas process treating equipment; Stettler Universal Limited Partnership, a gas separator manufacturer; Corlac Industries; Peace Land Fabricating and Supply Ltd. and De-In Industries Ltd., all shop tank manufacturers. Foremost is comprised of the business unit of Foremost Industries, a manufacturer of custom equipment used for the oil and gas, construction, water-well and mining industries.

On behalf of the Trustees

Foremost Income Fund

James T. Grenon, 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 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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