Foremost Income Fund

Foremost Income Fund

November 12, 2007 18:41 ET

Foremost Income Fund Reports Third Quarter Revenues and Earnings

CALGARY, ALBERTA--(Marketwire - Nov. 12, 2007) - Foremost Income Fund (TSX:FMO.UN) announces the financial results for the three and nine months ended September 30, 2007.

(000's, except per trust unit amounts)

for the THREE months for the NINE months
ended September 30, ended September 30,
2007 2006 2007 2006
Revenue $ 59,442 $ 71,479 $ 176,243 $ 204,306
Cost of sales 42,905 49,744 127,326 146,937
16,537 21,735 48,917 57,369
Selling, general and
administrative 5,618 7,887 17,401 19,588
Interest 421 297 1,081 611
Amortization 1,319 1,126 3,902 2,815
Foreign exchange (gain) loss 345 (144) 816 (306)
Gain on disposal of property,
plant and equipment (184) (125) (297) (125)
7,519 9,041 22,903 22,583
Income before income taxes 9,018 12,694 26,014 34,786
Future income tax recovery (475) (63) (19,843) (146)
Net income 9,493 12,757 45,857 34,932
Accumulated earnings, beginning
of period 78,392 47,602 58,165 37,950
Distributions to unitholders (8,234) (7,803) (24,371) (20,326)
Accumulated earnings, end of
period $ 79,651 $ 52,556 $ 79,651 $ 52,556

Earnings per trust unit
Basic $ 0.46 $ 0.66 $ 2.26 $ 1.82
Diluted $ 0.45 $ 0.64 $ 2.23 $ 1.77

Financial results for YTD-2007 and Q3-2007 continue to be impacted by the strength in worldwide oil related markets offset by the ongoing slowdown in North American natural gas drilling. Demand for oilsands and heavy oil products remained strong resulting in record quarter revenues and net incomes for the business entities that manufacture these products. These gains again, partially offset the drop in quarter revenues and net incomes from those business entities focused on the manufacture of natural gas related products, principally 100- to 400-bbl shop tanks and gas separators. The Q3-2007 results also reflect the renewed strength in the waterwell, mining and geotechnical industries which have again partially offset the impact of the natural gas drilling downturn.

In addition, the significant strengthening of the Canadian dollar resulted in a $0.3 million foreign exchange loss during Q3-2007.

Legislation whereby the Fund's income distributions would be subject to income tax commencing in 2011 was passed by the Government of Canada on June 22, 2007. The future income tax effect of this legislation was initially recognized on a prospective basis in Q2-2007 and resulted in the recognition of a future income tax recovery and corresponding future income tax asset in the amount of $18.6 million. During Q3-2007, an additional future income tax recovery and corresponding future income tax asset of $0.5 million was recorded.

Revenues for Q3-2007 were $59.4 million as compared to $71.5 million for Q3-2006. The Q3-2007 gross profit was $16.5 million (27.8%) compared to $21.7 million (30.4%) for Q3-2006, and income before income taxes was $9.0 million (15.2%) as compared to $12.7 million (17.7%). Q3-2007 net income, after recognition of the $0.5 million future income tax recovery, was $9.5 million as compared with $12.8 million in Q3-2006. Q3-2007 earnings per trust unit were $0.46 as compared to $0.66 for Q3-2006, with funds flow from operations amounting to $10.3 million versus $13.9 million for Q3-2006.

Revenues for YTD-2007 were $176.2 million as compared to $204.3 million for YTD-2006. The YTD-2007 gross profit was $48.9 million (27.8%) compared to $57.4 million (28.1%) and YTD-2007 income before income taxes was $26.0 million (14.8%) versus $34.8 million (17.0%) for YTD-2006. YTD-2007 net income, after taking into account the future income tax recovery, was $45.9 million as compared with $34.9 million for YTD-2006. YTD-2007 earnings per trust unit were $2.26 compared with $1.82 for YTD-2006, with funds flow from operations amounting to $29.9 million versus $38.1 million for YTD-2006. Q3-2007 revenues from oilsands and heavy oil products were down marginally ($0.6 million, 2%) from Q3-2006 due principally to project timing. Operating income from these products was up slightly ($0.2 million, 2%) as a result of better margins. Q3-2007 revenues from natural gas products decreased $11.9 million with related operating income decreasing $4.4 million. YTD-2007 revenues from oilsands and heavy oil products increased $14.6 million over YTD-2006 and contributed an additional $4.7 million in operating income relative to YTD-2006. YTD-2007 natural gas related products decreased $35.7 million with related operating income decreasing $11.4 million as compared to YTD-2006. The decline in revenues from coiled tubing drill rigs "CTR", partially offset by increases in revenues from waterwell, mineral and geotechnical drills accounts for the remaining differences.

The Fund's Q3-2007 and YTD-2007 results are indicative of the current state of its core markets. The current strength of revenues and operating incomes from worldwide oil related products is expected to continue into 2008. North American natural gas drilling related product revenues and operating incomes are expected to remain lower than previously reported until drilling activity in this sector increases. The Fund's current assessment is that natural gas drilling activity will not increase until late in fiscal 2008. The Fund also expects its mining and geotechnical revenues to remain strong into fiscal 2008. In response to this assessment the Fund has undertaken initiatives to transfer the manufacture of oil related products to certain gas related facilities to maintain its core workforce, utilize the benefits of its facility expansions and rebuild certain "deliver on demand" finished goods inventory. Combining these expectations and initiatives with current assessments for other product revenues and related net income expectations; management expects Q4-2007 revenues and net income to parallel the previous two quarters resulting in lower overall earnings when compared with fiscal 2006.

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; Wilco Industries; Corlac Industries; Peace Land Fabricating and Supply Ltd. and De-In Industries Ltd., all shop tank manufacturers. Foremost is comprised of the business units of Foremost Industries, a manufacturer of custom equipment used for the oil and gas, construction, water-well and mining industries; and Mobile Drilling Company, Inc., a U.S. based business which manufactures and sells rigs and parts for the geotechnical industry.

On behalf of the Trustees

Foremost Income Fund

James T. Grenon, Trustee


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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