Foremost Income Fund

Foremost Income Fund

August 11, 2011 21:25 ET

Foremost Reports Q2 Results, Asset Acquisition & Redemption Price Increase of $0.40 per Unit to $6.80

CALGARY, ALBERTA--(Marketwire - Aug. 11, 2011) - Foremost Income Fund announces the financial results for the three and six months ended June 30, 2011.

Condensed Consolidated Interim Statements of Comprehensive Income
Unaudited
Three months ended June 30 , Six months ended June 30 ,
(000's), except per Trust Unit amounts 2011 2010 2011 2010
Revenue $ 65,856 $ 39,258 $ 122,254 $ 82,142
Cost of sales 52,307 28,903 98,387 63,403
Gross profit 13,549 10,355 23,867 18,739
Administrative expenses 5,516 4,433 10,148 8,492
Depreciation and amortization 1,060 993 1,997 1,993
Other income (563 ) (10 ) (555 ) (11 )
Income from operating activities 7,536 4,939 12,277 8,265
Net financing cost
Interest expense (income) 27 (25 ) 38 (45 )
Foreign exchange loss (gain) 64 (148 ) 77 9
Income before income tax 7,445 5,112 12,162 8,301
Income tax recovery
Net income and comprehensive income for the period $ 7,445 $ 5,112 $ 12,162 $ 8,301
Basic and diluted earnings per Trust Unit $ 0.36 $ 0.24 $ 0.58 $ 0.39

The June 30, 2011 financial statements are prepared in accordance with IFRSs and IFRS 1 First-time Adoption of International Financial Reporting Standards has been applied. The effects of the business conditions and operational responses by the Fund are found by comparing the 2011 and 2010 adjusted statements of income. The cumulative results of the steps undertaken by the Fund are found by comparing the June 30, 2011 and December 31, 2010 statements of financial position. The key elements from Q2 are:

  • Q2 revenues have increased 67.8% as a result of improvement in the domestic heavy oil markets and increased activity in the oil sands development. Q2 consolidated revenues were $65.9 million versus $39.3 million for 2010.
  • Q2 revenues generated outside of Canada have decreased from 12.5% to 9.5% of total revenues.
  • Q2 activities generated a Q2 gross profit percentage of 20.6% as compared with 26.4% in 2010; the lower margins are a result of residual low margin work carrying forward from 2010. Q2 gross profits were $13.5 million as compared with $10.4 million for 2010.
  • Q2 selling, general and administrative expenses decreased to 8.3% or revenue versus 11.2% of revenue in 2010. 2011 figures include $0.7 million related to Brahma and Air and Gas G.P. which did not exist in 2010 and $0.2 million of consulting fees related to the acquisition of the Bonnyville property. Selling, general and administrative expenses were $5.5 million in 2011 and $4.4 million for 2010.
  • Minor fluctuations in the exchange rate between the Canadian dollar against the U.S. dollar resulted in a Q2 $64,000 exchange loss compared to a $148,000 gain in 2010.
  • Q2 income from operations increased 52.6% to $7.5 million versus $4.9 million for 2010.
  • Q2 comprehensive and net income was $7.4 million compared to a $5.1 million in 2010, Q2 comprehensive and net income includes a $0.6 million gain on sale of equipment.
  • Trust Unit distributions, were suspended during Q2 as the Fund evaluates changes to Canada's tax laws proposed in the June, 2011 Federal budget. For the three month period ending June 30, 2011 the Fund redeemed 226,224 Trust Units, of which $1.4 million were paid in cash and $37,000 will be paid in the subsequent month.
  • Q2 basic and diluted earnings per Trust Unit were $0.36 per Trust Unit as compared with $0.24 per Trust Unit in 2010.
The key financial elements for the year to date are:
  • Year to date revenue has increased 48.8% as a result of improved domestic heavy oil markets and increased activity in oil sands development. Year to date consolidated revenues were $122.3 million versus $82.1 million in 2010.
  • Year to date revenues generated outside of Canada have decreased from 17.9% to 12.1% of total revenues.
  • Year to date gross margin percentage is 19.5% as compared with 22.8% in 2010; the lower margins are a result of residual low margin work carrying forward from 2010. Year to date gross profits were $23.9 million as compared with $18.7 million for 2010.
  • Year to date selling, general and administrative expenses decreased to 8.3% of revenue versus 10.3% of revenue in 2010. 2011 figures include $1.3 million related to Brahma and Air and Gas G.P. which did not exist in 2010 and $0.2 million of consulting fees related to the acquisition of the Bonnyville property. Selling, general and administrative expenses were $10.1 million in 2011 and $8.5 million for 2010
  • Minor fluctuations in the exchange rate between the Canadian dollar against the U.S. dollar resulted in a year to date $77,000 exchange loss compared to a $9,000 loss in 2010.
  • Year to date income from operations increased 48.5% to $12.3 million versus $8.3 million for 2010.
  • Q2 comprehensive and net income was $12.3 million compared to a $8.3 million in 2010, year to date comprehensive and net income includes a $0.6 million gain on sale of equipment.
  • Year to date Trust Unit distributions, are $0.10 per Trust Unit or $2.1 million in 2011 and $0.20 per Trust Unit or $4.3 million in 2010. The 2011 and 2010 Trust Unit distributions were paid from cash reserves and cash generated by operating activities. For the six month period ending June 30, 2011 the Fund redeemed 676,751 Trust Units, of which $4.3 million were paid in cash and $37,000 will be paid in the subsequent month.
  • Year to date basic and diluted earnings per Trust Unit were $0.58 per Trust Unit as compared with $0.39 per Trust Unit in 2010.
Condensed Consolidated Interim Statement of Financial Position
Unaudited
June 30 , December 31 ,
(000's) 2011 2010
Assets
Current assets
Cash $ 7,019 $ 21,766
Trade and other receivables 43,155 37,686
Inventories 59,973 41,275
Prepaid expenses 1,506 749
111,653 101,476
Property, plant and equipment 50,710 44,813
Deferred tax assets 30,010 30,010
Goodwill 3,154 3,154
Intangibles and other assets 1,521 1,628
$ 197,048 $ 181,081
Liabilities and Unitholders' Equity
Current liabilities
Trade and other payables $ 23,083 $ 15,560
Warranty provisions 919 835
Deferred revenue 13,309 10,747
Trust unit options 254 188
37,565 27,330
Unitholders' equity
Unitholders' capital 60,230 62,195
Accumulated earnings 99,253 91,556
159,483 153,751
$ 197,048 $ 181,081
  • Year to date cash flow used in operations for 2011, calculated as comprehensive and net 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 $0.6 million versus $0.7 million of cash generated in 2010.
  • Cash decreased $14.7 million to $7.0 million at June 30, 2011. This decrease was generated from a combination of $0.7 million of funds used in operations, $7.7 million of net capital expenditures and, $4.3 million of Trust Unit redemptions and $2.1 million of distributions to Trust Unit holders. Capital expenditures included the Fund's acquisition of a 65,000 shop tank manufacturing facility located north of Bonnyville, Alberta. The property, plant, and equipment have been recorded at preliminary value of $7.9 million in total.
  • Non-cash working capital accounts consist of trade and other receivables, inventories, prepaid expenses, trade and other payables, warranty provisions, and deferred revenue. All of these account balances at June 30, 2011 increased relative to December 31, 2010, reflecting the impact of increased business activity.
  • Working capital, defined as current assets less current liabilities decreased $0.1 million to $74.1 million as at June 30, 2011.
  • Property, plant and equipment at June 30, 2011 amounted to $50.7 million. The $5.9 million increase relative to 2010 reflects $8.7 million in acquisitions, $2.0 million decrease from amortization, $0.8 million in disposals.
  • No short-term or long-term bank indebtedness existed at June 30, 2011 or December 31, 2010.
  • Unitholders' equity increased from $153.7 million at December 31, 2010 to $159.5 million at June 30, 2011. The increase relates primarily to strong earnings out pacing Trust Unit redemptions and distributions

ACQUISITION OF ASSETS:

The Fund is pleased to announce that effective July 29, 2011, through its subsidiary Foremost Universal LP, it has acquired a manufacturing facility and equipment located in Stettler, Alberta from Enerflex Ltd. This synergistic group of assets including the 83,000 square foot facility will boost Foremost Universals' production capacity for separator and compression equipment. The facility is strategically located and will help to ensure timely and cost effective deliveries to our customers. Foremosts' management team will operate the business with an attention to outstanding product quality, customer service and improved efficiency. Acquisition costs, to be financed by the Fund's current cash position, will be in the range of approximately $4.9 million in cash, subject to closing adjustments.

TRUST UNIT REDEMPTIONS:

For the six month period ending June 30, 2011 the Fund redeemed 676,751 Trust Units at $6.40 per unit, of which $4.3 million were paid in cash and $37,000 being paid in the subsequent month. Due to the continued strong financial performance of the Fund, the Trustees have determined that, as of the date of August 12, 2011 the Fund will redeem tendered Trust Units at tangible book value + 10% or $6.80 per unit.

TRUST UNIT DISTRIBUTIONS:

The Fund has recently concluded an acquisition to expand its business and is continuing to evaluate other strategic expenditures. In addition, the June 6, 2011 Federal Budget introduced a tax change that may require the Fund to fundamentally change its capital structure. Efforts are underway to more fully understand the proposed tax changes; the accounting, legal and investment communities are providing feedback to the Department of Finance, hoping to have the provisions, which in many cases are difficult to understand or apply, at least clarified and hopefully amended. It should be noted that these proposed changes in rules do not relate to the Fund's decision to delist from the Toronto Stock Exchange in December of 2010.

As a result of these proposed tax changes, and to conserve the Fund's financial flexibility, the Trustees have determined it is prudent to forego its September 30, 2011 distribution. A more definitive course of action will likely be decided before the end of the 2011 fiscal year. To the extent a distribution is not paid, the cash will continue to strengthen the balance sheet and is taken into account in determining future redemption prices.

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;
  • Universal Bonnyville, shop tank manufacturer;
  • 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.

Contact Information