Foremost Income Fund
TSX : FMO.UN

Foremost Income Fund

November 11, 2008 15:12 ET

Foremost Income Fund Reports Third Quarter Revenues and Earnings

CALGARY, ALBERTA--(Marketwire - Nov. 11, 2008) - Foremost Income Fund (TSX:FMO.UN) announces the financial results for the three and nine months ended September 30, 2008.



(000's, except per trust
unit amounts)
For the THREE months For the NINE months
ended September 30, ended September 30,
2008 2007 2008 2007
----------------------------------------------------------------------------
Revenue $ 57,270 $ 58,052 $ 160,118 $ 170,020
Cost of sales 41,641 41,864 117,297 123,096
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15,629 16,188 42,821 46,924
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Selling, general and
administrative 6,195 5,347 17,696 16,472
Interest 22 421 259 1,081
Amortization 1,163 1,312 3,740 3,876
Foreign exchange loss (gain) (54) 345 (194) 816
Gain on disposal of
property, plant and equipment (31) (184) (2,363) (297)
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7,295 7,241 19,138 21,948
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Income from continuing
operations before income
taxes 8,334 8,947 23,683 24,976
Future income tax recovery - (475) - (19,843)
-----------------------------------------------
Income from continuing
operations 8,334 9,422 23,683 44,819
Discontinued operations
(note 12) 87 71 581 1,038
-----------------------------------------------
Net income and comprehensive
income 8,421 9,493 24,264 45,857
Accumulated earnings,
beginning of period 84,130 78,392 80,908 58,165
Premium on repurchase of
trust units - - (2,026) -
Distributions to unitholders (5,352) (8,234) (15,947) (24,371)
-----------------------------------------------
Accumulated earnings, end of
period $ 87,199 $ 79,651 $ 87,199 $ 79,651
-----------------------------------------------
-----------------------------------------------

Earnings per trust unit from
continuing operations
Basic $ 0.39 $ 0.46 $ 1.11 $ 2.21
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Diluted $ 0.39 $ 0.45 $ 1.10 $ 2.18
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Earnings per trust unit
Basic $ 0.39 $ 0.46 $ 1.14 $ 2.26
-----------------------------------------------
Diluted $ 0.39 $ 0.45 $ 1.13 $ 2.23
-----------------------------------------------


The lower YTD-2008 and Q3-2008 revenues reflect reduced oilsands activity, the impact of uncertain commodity markets on customers buying decisions and continued weakness in North American natural gas drilling activity. The combination of these tougher market conditions and changing product mix resulted in Q3-2008 and YTD-2008 gross profit percentages being slightly lower than those reported in 2007. Selling, general and administrative costs increased due to marketing expenses associated with certain bi-annual trade shows, increased international operating costs, higher legal costs and lower employee benefit plan recoveries. Both Q3-2008 and YTD-2008 income from continuing operations before income taxes are lower than the same periods in 2007. Unlike 2007, YTD-2008 income from continuing operations and net income are not impacted by the initial recognition of future income tax assets. YTD-2008 results include a first quarter $2.4 million gain on sale of property, plant and equipment. Q3-2008 trust unit distributions were $0.25 per trust unit and were all paid in cash whereas the trust unit distribution for Q3-2007 was $0.40 per trust unit and paid with cash and trust units. Non-cash working capital changes in Q3-2008 reflect the shift in product sales at Foremost from coiled tubing drill rigs "CTR" to other products and a corresponding change in the timing and amount of up-front cash deposits and progress payments received from customers. Accordingly, work in progress inventory has increased and deferred revenue, representing customer advance payments normally applied against work in progress, has decreased resulting in a shortfall in cash flow from operations in Q3-2008 and a corresponding increase in bank indebtedness.

Consolidated revenues for Q3-2008 were $57.3 million compared with $58.1 million for Q3-2007. Consolidated Q3-2008 gross profit was $15.6 million (27.3%) versus $16.2 million (27.9%) for Q3-2007. Q3-2008 income from continuing operations before income taxes was $8.3 million compared with $8.9 million in Q3-2007. Income from discontinued operations was $0.1 million for Q3-2008 and Q3-2007. Net income for Q3-2008 was $8.4 million versus $9.5 million in Q3-2007. Q3-2008 basic earnings per trust unit were $0.39 as compared to $0.46 for Q3-2007. Q3-2008 funds flow from continuing operations was $9.5 million as compared with $10.2 million in Q3-2007. For the reasons outlined above, continuing operations cash flows from operating activities reflect a shortfall of $6.3 million for Q3-2008 versus the $9.8 million generated in Q3-2007.

Revenues for YTD-2008 were $160.1 million as compared to $170.0 million for YTD-2007. The YTD-2008 gross profit was $42.8 million (26.7%) compared to $46.9 million (27.6%) in 2007. YTD-2008 income from continuing operations before income taxes was $23.7 million (14.8%) versus $25.0 million (14.7%) for YTD-2007. YTD-2008 income from discontinued operations was $0.6 million versus $1.0 million for YTD-2007. YTD-2008 net income was $24.3 million as compared with $45.9 million for YTD-2007, which included a $19.8 million one-time future income tax recovery. YTD-2008 earnings per trust unit from continuing operations were $1.11 as compared with $2.21 in YTD-2007 after including a $0.94 per unit future income tax recovery. YTD-2008 earnings per trust unit were $1.14 compared with $2.26 for YTD-2007. YTD-2008 funds flow from continuing operations was $25.3 million versus $28.9 million for YTD-2007. YTD-2008 continuing operations cash flows from operating activities were $16.1 million versus $14.8 million for YTD-2007.

As described earlier, the Fund's Q3-2008 results are indicative of the current state of its core markets and the seasonal pattern of its revenues. Revenues and earnings generated from new oilsands projects are expected to be lower for 2008 and early 2009 with steady improvement anticipated for later in 2009. Revenues and earnings generated from North American natural gas drilling are currently expected to be similar to last year. Looking forward, the Fund believes any significant increase in natural gas drilling activity will not occur until the second half of 2009. Revenues from its waterwell, mineral and ancillary drilling equipment markets are expected to remain strong. Compared with the third quarter, fourth quarter revenues are expected to decrease reflecting deletion of the discontinued operations and a slowdown in vessel sales. In response to current conditions, the Fund continues to concentrate on the management of operating costs, manufacturing efficiencies, development of the international marketplace and development of additional internal revenue opportunities. Potential acquisition opportunities continue to be evaluated.

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 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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