Foremost Income Fund
TSX : FMO.UN

Foremost Income Fund

November 11, 2010 17:13 ET

Foremost Income Fund Reports Third Quarter Revenues and Earnings

CALGARY, ALBERTA--(Marketwire - Nov. 11, 2010) - Foremost Income Fund (TSX:FMO.UN) announces the financial results for the three and nine months ended September 30, 2010.



CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME AND ACCUMULATED
EARNINGS
(000's, except per
trust unit amounts) For the THREE months For the NINE months
(Unaudited) ended September 30, ended September 30,
2010 2009 2010 2009
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Revenue $ 42,241 $ 24,082 $ 124,384 $ 94,042
Cost of sales 32,701 17,348 96,104 68,614
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9,540 6,734 28,280 25,428
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Selling, general and
administrative 4,544 3,663 13,046 13,752
Interest income (14) (7) (59) (2)
Amortization 1,000 1,152 3,092 3,429
Foreign exchange loss 65 303 75 457
Realized gain on
forward exchange
contracts - - - (614)
Loss (gain) on disposal
of property, plant and
equipment - 1 (9) (145)
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5,595 5,112 16,145 16,877
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Net income and
comprehensive income 3,945 1,622 12,135 8,551
Accumulated earnings,
beginning of period 81,892 93,069 77,985 90,422
Distributions to
unitholders (2,143) (2,141) (6,426) (6,423)
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Accumulated earnings,
end of period $ 83,694 $ 92,550 $ 83,694 $ 92,550
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Earnings per trust unit
Basic $ 0.18 $ 0.08 $ 0.57 $ 0.40
Diluted $ 0.18 $ 0.08 $ 0.57 $ 0.40
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CONSOLIDATED BALANCE SHEET
(000's) (Unaudited)

As at: September 30, December 31, September 30,
2010 2009 2009
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Assets
Current assets
Cash $ 19,986 $ 37,035 $ 34,870
Accounts receivable 27,726 19,444 15,948
Inventories 51,273 34,563 38,622
Prepaid expenses 596 353 423
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99,581 91,395 89,863
Property, plant and
equipment 47,115 49,555 50,503
Future income taxes 19,485 19,485 19,485
Goodwill, intangibles and
other assets 3,625 1,431 15,022
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$ 169,806 $ 161,866 $ 174,873
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Liabilities and Unitholders'
Equity
Current liabilities
Accounts payable and
accrued liabilities $ 17,429 $ 13,871 $ 12,506
Deferred revenue 4,969 6,467 6,342
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22,398 20,338 18,848
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Unitholders' equity
Unitholders' capital 62,195 62,115 62,115
Contributed surplus 1,519 1,428 1,360
Accumulated earnings 83,694 77,985 92,550
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147,408 141,528 156,025
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$ 169,806 $ 161,866 $ 174,873
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Q3-2010 operating results reflect stronger than anticipated revenues, lower gross profit margins and increased selling, general and administrative expenses. Compared with Q3-2009, revenues for Q3-2010 increased 75.4% and the gross profit percentage declined 5.5%. Selling, general and administrative expenses increased 24.0% reflecting increased sales costs, due diligence costs relating to an acquisition and the first time inclusion of administrative costs of the acquisition. As a result, the Q3-2010 net income was $3.9 million versus $1.6 million for Q3-2009.

Q3-2010 consolidated revenues were $42.2 million compared with $24.1 million in Q3-2009. Consolidated Q3-2010 gross profit was $9.5 million (22.5%) versus $6.7 million (28.0%) for Q3-2009. The Q3-2010 $3.95 million net income resulted in basic earnings per trust unit of $0.18 as compared with $1.6 million and $0.08 per trust unit for Q3-2009. Funds flow from operations was $5.0 million for Q3-2010 versus $2.9 million for Q3-2009 due to the higher net income. Changes in Q3-2010 non-cash working capital items used $9.2 million of cash versus the generation of $0.9 million in cash during Q3-2009. Q3-2010 and Q3- 2009 capital expenditures to maintain productive capacity were $0.1 million and $0.1 million respectively. During Q3-2010 the Fund acquired 100% of the issued and outstanding shares of Brahma Compression Ltd. ("Brahma") for a cash consideration of $3.25 million, assumption and repayment of $4.0 million in bank indebtedness and a contingent consideration based upon earnings results for a five year period. Q3-2010 and Q3-2009 trust unit distributions were $2.1 million or $0.10 per trust unit. The combination of operating, investing and financing activities resulted in a cash reduction of $13.8 million for Q3-2010 versus a $1.5 million increase in Q3-2009.

YTD-2010 consolidated revenues were $124.4 million compared with $94.0 million in YTD-2009 representing an increase of 32.3%. Consolidated YTD-2010 gross profit was $28.3 million (22.7%) versus $25.4 million (27.0%) for YTD-2009. The YTD- 2010 $12.1 million net income resulted in basic earnings per trust unit of $0.57 as compared with $8.6 million and $0.40 per trust unit for YTD-2009. Funds flow from operations was $15.3 million for YTD-2010 versus $12.1 million for YTD-2009 due to the higher net income. Changes in YTD-2010 non-cash working capital items used $18.9 million of cash versus the generation of $28.7 million in cash during YTD-2009. YTD-2010 and YTD-2009 capital expenditures to maintain productive capacity were $0.3 million and $0.3 million respectively. YTD-2010 investment also includes the acquisition of Brahma for $3.25 million and the repayment of $4.0 million of related bank indebtedness. YTD-2010 and YTD-2009 trust unit distributions were $6.4 million or $0.30 per trust unit. The combination of operating, investing and financing activities resulted in a YTD-2010 decrease in cash of $17.0 million versus a $34.0 million increase in YTD-2009. The Fund had $20.0 million in cash at September 30, 2010 as compared with $37.0 million at December 31, 2009 and $34.9 million at September 30, 2009. The Fund had no short-term borrowings or long-term debt at any of these points in time.

As discussed in the 2009 annual report, Q3-2010 financial results reflect the Fund's expectations for challenging market conditions and its response to them. Although revenue levels are expected to exceed 2009, the Fund believes these conditions will continue to impact operating margins throughout the remainder of fiscal 2010. 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. The Fund continues to closely manage discretionary operating costs and manpower levels. These efforts are necessary to ensure the Fund can respond to any improvement in its core markets and continue the pursuit of additional accretive acquisitions.

During Q3-2010, the Fund completed the acquisition of Brahma. The Fund expects a modest increase in revenues and net income from this acquisition for Q4-2010 as it undertakes to integrate the acquired operations.

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 and Brahma a sub-200 horsepower compressor manufacturer. 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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