PRT Forest Regeneration Income Fund

PRT Forest Regeneration Income Fund

April 30, 2009 22:53 ET

PRT Announces Results for First Quarter of 2009

VICTORIA, BRITISH COLUMBIA--(Marketwire - April 30, 2009) - PRT Forest Regeneration Income Fund (the "Fund") (TSX:PRT.UN) today announced results for its first quarter ended March 31, 2009. The Fund's interim financial report is enclosed as part of this release.

For the three months ended March 31, 2009, the Fund reported a net loss of $667,000 ($0.07 per unit) and Cash Available for Distribution of $26,000 ($0.003 per unit) as compared to net earnings of $251,000 ($0.03 per unit) and $1,064,000 ($0.11 per unit) respectively for the same quarter of 2008. The decline in earnings is mainly due to lower contract volumes in 2009 and also changes in product mix. Cash Available for Distribution is a term which does not have standardized meaning under Canadian generally accepted accounting principles, and may not be comparable to similar measures provided by other reporting entities. Standardized Distributable Cash - a comparable measure of cash flow prepared under guidance issued by the Canadian Institute of Chartered Accountants - totaled $(0.01) per unit in the first quarter, as compared to $0.25 per unit in 2008.

The Fund reported that revenues decreased by $2.8 million in the quarter, to $6.3 million. This was attributed to lower seedling contract volumes in 2009, which have resulted from severely reduced US lumber demand in the current economic cycle. The decrease was exacerbated by certain timing differences from 2008 due to changes in crop mix and the relatively colder spring which has led to later sowing than the previous year.

Production expenditures in the quarter declined with the lower seedling contract volumes, and margins also decreased with reduced capacity utilization and higher relative materials and utility costs. Selling, general and administrative expenses were lower due to expenditure reductions and capacity scale backs where practical.

President and CEO, Rob Miller, commented, "2009 will be a very challenging year for PRT, with orders expected to decline by 20% to 30% with the deepening economic recession and financial instability in certain segments of the forest industry. However, we continue to adapt and focus on the factors that are within our control including contract delivery performance, cost management, and continuing innovation in products and processes. These factors are essential to managing our business successfully through the current cycle and for the long term.

We believe that the downturn in seedling demand has been caused by cyclical rather than structural factors in the forest industry. We anticipate considerable opportunities for PRT beyond the current economic cycle, and expect that seedling markets will improve as house construction recovers and returns to more typical levels. US housing starts are well below their long term trend line and higher starts are supported by projected demographics. In addition, there is a large and growing reforestation backlog in British Columbia caused by the mountain pine beetle, and an increasing awareness of the importance of forests in fighting climate change and providing energy alternatives. These present unique opportunities to expand and diversify our markets, while levering off our core expertise in seedling propagation. By focusing on maintaining our core operational capabilities, managing our balance sheet, and developing new markets we will maximize long-term value creation for unitholders."

Management's Discussion and Analysis for the Fund is available at

About the Fund

PRT is the largest producer of container grown forest seedlings in North America, with 14 nursery locations which produced approximately 170 million seedlings in 2008. Units of the Fund are listed for trading on the Toronto Stock Exchange under the trading symbol PRT.UN.

Conference Call and Taped Replay

The Fund will host a conference call to further discuss the matters contained in this press release. The call will take place on Friday, May 1, 2009 at 11:00 AM PST, 2:00 PM EST. To participate in this conference, please call 1-877-407-8031 or 201-689-8031.

Persons unable to attend the conference call may listen to a recorded version by dialing 1-877-660-6853, account # 286, and the conference ID# 315782. This option is available through May 8, 2009. A recorded web cast version of the call may also be accessed from the Fund's website at

A conference call for the second quarter earnings release is scheduled to take place on Thursday, August 6, 2009.

Forward Looking Statements

This press release contains forward-looking statements that involve risks and uncertainties. These forward-looking statements relate to, among other things, expectations for future order volumes, pricing, operating costs and other expenditures; the outlook for future energy prices; plans and opportunities for capital spending; and other statements contained in this discussion that are not historical fact. Words such as "anticipate", "expect", "potential", "intends", "opportunity", "believes", "may", "will" and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are based on management's current expectations and beliefs and actual events or results may differ materially. Risks and uncertainties include, but are not limited to, agricultural risks and crop yields, future commodity prices, exchange rate risks, customer credit risks and customer insolvency, liquidity risks, the ability of PRT to comply with its debt covenants, the outlook for the forest industry, the impact of proposed changes to income trust taxation, and other risks identified from time to time in the Fund's annual report, annual information return, prospectus, and other filing documents. These documents are available in electronic form at, or by contacting the Fund directly. Forward-looking statements are based on current expectations and the Company assumes no obligation to update such information to reflect later events or developments, except as required by law. Readers are cautioned not to place undue reliance on forward looking statements.

Consolidated Balance Sheets (unaudited)

As at March 31 As at December 31
2009 2008

Current assets
Cash $ - $ 192
Accounts receivable 7,136 6,976
Inventories 2,205 2,369
Prepaid expenses and deposits 480 199
Unbilled revenue 2,837 4,065
$ 12,658 $ 13,801

Investment 255 265
Property, plant and equipment (note 4) 34,555 35,152
Property, plant and equipment held for
sale (note 4) 420 420
Intangible assets 564 631

$ 48,452 $ 50,269


Current liabilities
Operating line $ 6,167 $ 6,055
Accounts payable and accrued liabilities 3,012 4,051
Distribution payable to Unitholders - 192
Current portion of long-term debt 266 262
$ 9,445 $ 10,560

Long-term debt 5,497 5,482

Future income taxes 240 326
$ 15,182 $ 16,368

Unitholders' Equity

Capital contributions (note 7) $ 90,271 $ 90,249

Cumulative earnings 15,144 15,811
Unit option grants 39 25
Cumulative distributions declared (72,184) (72,184)
$ 33,270 $ 33,901
$ 48,452 $ 50,269

Consolidated Statements of Earnings, Comprehensive Income and Cumulative
Earnings (unaudited)
($000's except per unit amounts and number of units outstanding)

Three months ended March 31
2009 2008

Revenue $ 6,342 $ 9,102

Costs of production $ 4,131 $ 5,632
Selling, general and administration 1,821 2,174
Loss (Gain) on foreign exchange 79 (22)

Earnings before the following $ 311 $ 1,318

Interest 162 263
Depreciation 778 921
Amortization of intangibles 67 67
Equity in loss of investee 10 27
Gain on disposal of property, plant
and equipment (6) (1)
Exit activity charges (note 5) 47 -

Earnings (Loss) before income taxes $ (747) $ 41

Recovery of income taxes 80 210

Net earnings (loss) and comprehensive income $ (667) $ 251

Cumulative earnings - beginning of period 15,811 39,002

Cumulative earnings - end of period $ 15,144 $ 39,253

Basic and diluted earnings (loss) per
Trust Unit $ (0.07) $ 0.03
Weighted average number of Trust Units
outstanding 9,611,073 9,603,116

Consolidated Statements of Cash Flows (unaudited)

Three months ended March 31
2009 2008
Cash flows from operating activities
Net earnings (loss) $ (667) $ 251
Items not affecting cash
Depreciation and amortization
(excluding seedling containers) 777 921
Seedling container depreciation included
in costs of production 243 332
Amortization of intangibles 67 67
Provision for recovery of future income taxes (86) (215)
Gain on sale of property, plant and equipment (6) (1)
Equity in loss of investee 10 27
Unrealized loss on foreign exchange 112 5
Unrealized loss (gain) on interest rate swaps (5) 60
Stock Option grants 15 -
$ 460 $ 1,447

Net change in non-cash working capital
balances (111) 1,219

$ 349 $ 2,666

Cash flows from financing activities
Distributions paid to Unitholders $ (192) $ (1,556)
Repayment of long-term debt (66) (189)
Increase (decrease) in operating line 112 (1,079)
Issuance of Trust Units 22 -
$ (124) $ (2,824)


Cash flows from investing activities
Purchase of property, plant and equipment $ (431) $ (309)
Proceeds on sale of property, plant
and equipment 14 1
$ (417) $ (308)

Decrease in cash $ (192) $ (466)

Cash - beginning of period 192 672

Cash - end of period $ - $ 206

Review of Interim Financial Statements

Under National Instrument 51-102, Part 4, subsection 4.3(3) (a), if an auditor has not performed a review of the interim financial statements, they must be accompanied by a notice indicating that the financial statements have not been reviewed by an auditor.

The accompanying unaudited interim financial statements of the Company have been prepared by and are the responsibility of the Company's management.

The Company's independent auditor has not performed a review of these financial statements in accordance with standards established by the Canadian Institute of Chartered Accountants for a review of interim financial statements by an entity's auditor.

Notes to Consolidated Financial Statements

(in thousands of dollars except per unit amounts)

1. Significant accounting policies

These unaudited interim consolidated financial statements of the PRT Forest Regeneration Income Fund ("The Fund") have been prepared in accordance with Canadian generally accepted accounting principles. The interim financial statements follow the same accounting policies and method of application as the most recent annual consolidated financial statements. As such, these statements should be read in conjunction with the Fund's most recent annual report.

The preparation of these unaudited interim consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates.

PRT (the "Company") has forecasted its financial results and cash flows for 2009 using its best estimates of market and operating conditions. As detailed in note 9 to these financial statements, the Company is currently in compliance with all externally imposed capital requirements which includes four financial covenants. One covenant includes a requirement to maintain a ratio of total debt (excluding the Notes issued under the Trust Deed) to earnings before interest, taxes depreciation and amortization ("EBITDA") less cash taxes and sustaining capital expenditures not to exceed 3.5:1 ("debt to adjusted EBITDA"). Based on forecasted financial results for 2009, the Company may not generate sufficient adjusted EBITDA over the remainder of the year to maintain the required debt to adjusted EBITDA ratio. As a result, management has met with PRT's lender and has negotiated a waiver to this covenant for 2009. As a condition of the waiver, no new term debt advances will be authorized by the lender, which could require management to seek other credit facilities or capital should that become necessary.

The Fund uses the temporal method of foreign currency translation to translate foreign currency denominated accounts and the accounts of its foreign subsidiary. Monetary items are translated at the rate of exchange in effect at the balance sheet date. Non-monetary items and revenue and expense items are converted at the historical exchange rate in effect at the time the transaction occurred. The Fund records realized and unrealized foreign exchange gains and losses in the Statement of Earnings, Comprehensive Income and Cumulative Earnings as "Foreign exchange (gain) loss", and identifies unrealized gains and losses on the translation of foreign currency cash balances and non-cash monetary items as "Unrealized loss (gain) on foreign exchange" in the Statement of Cash Flows.

In the opinion of management, the accompanying unaudited interim consolidated financial statements contain all adjustments necessary to present fairly the Fund's financial position as at March 31, 2009 and December 31, 2008, as well as its results of operations and cash flow for the three months ended March 31, 2009 and March 31, 2008.

2. Accounting Policy Developments

The Fund has adopted the following new standards issued by the CICA:

Section 3064 - Goodwill and Intangible Assets: This section supersedes Sections 3062 and 3450, and primarily reduces the differences with IFRS in the accounting for intangible assets and results in closer alignment with U.S. GAAP. It also provides guidance for the recognition of internally developed intangible assets (including research and development activities), ensuring consistent treatment of all intangible assets, whether separately acquired or internally developed. Its adoption has had no material impact on the results of operations or financial position.

In January 2009, the CICA issued Handbook Sections 1582 - Business Combinations, 1601 - Consolidated Financial Statements, and 1602 - Non-controlling Interests. Section 1582 replaces CICA Handbook Section 1581, Business Combinations, and establishes standards for the accounting for business combinations that is equivalent to the business combination accounting standard under International Financial Reporting Standards. Section 1582 is applicable prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after January 1, 2011, with early adoption permitted. Section 1601 together with Section 1602 replaces CICA Handbook Section 1600, Consolidated Financial Statements. Section 1601 establishes standards for the preparation of consolidated financial statements. Section 1602 establishes standards for accounting for a non-controlling interest in a subsidiary in consolidated financial statements subsequent to a business combination. Sections 1601 and 1602 are applicable for interim and annual consolidated financial statements relating to fiscal years beginning on or after January 1, 2011, with early adoption permitted. An entity must adopt Section 1582, 1601 or 1602 at the same time. The Fund does not expect the adoption will have a material impact on the results of operations or financial position.

3. Seasonality of operating results

Revenues and cash flow are affected by the Fund's subsidiary, Pacific Regeneration Technologies Inc.'s ("PRT's") seedling crop cycles and by the seasonality of PRT's customers' planting season. PRT recognizes revenue under contracts on a percentage completion basis with costs incurred as a base. Revenue from non-contracted goods and services is recognized when the goods are delivered or the service has been substantially rendered. As such, fluctuations between quarters occur depending upon the activities and expenditures in the quarter. Comparatively high cost activities, such as harvesting, typically occur in the second and fourth quarters, and accordingly these quarters normally reflect a higher proportion of annual revenues.

4. Property, plant and equipment, and property held for sale

In October 2008, the Fund announced that it will close its seedling nursery facility in Maple Ridge, BC. The closure will take place in phases and operations are projected to cease in the latter part of 2009. The closure is not presented as discontinued operations considering the continuing involvement of the Fund in seedling nurseries, the transferability of crops between nurseries, and the Company's intention to relocate certain long-lived assets to other nursery locations in future years. In view of the fact that long-lived assets remain in service at March 31, 2009, no capital assets have been classified as held for sale at this time. However, the Company reviews long-lived assets for impairment when events in changes in circumstances indicate that the carrying value of those assets may not be recoverable and at March 31, 2009 no such changes in circumstances have been identified.

During the first quarter of 2007, PRT discontinued production at its Nevada nursery site in order to reduce production costs and improve crop production reliability. Exit activities are substantially complete and no further exit activity costs are expected. Production that would otherwise have been located at the Nevada nursery site has been absorbed by the Company's other nursery sites. Certain of Nevada capital assets which could be utilized at other nursery sites were transferred and will not be sold. The remaining assets are being actively marketed for sale. The following assets have been classified as held for sale, by major category:

Net Book Value ($000's)

March 31, December 31,
2009 2008
Land $ 251 $ 251
Buildings 15 15
Growing facilities 71 71
Equipment 83 83
$ 420 $ 420

5. Exit activity charges

In October 2008, the Fund announced that it will close its seedling nursery facility in Maple Ridge, BC and cease operations in the latter part of 2009 in order to improve production costs. Production that would otherwise have been located at the Maple Ridge nursery site will be absorbed by the Company's other nursery sites. It is expected that the exit activities will be completed by 2011.

Anticipated exit expenditures related to the Maple Ridge site are as follows:

Total Amounts
anticipated incurred Amounts incurred
expenditures in the period to date
Legal $ 50 $ - $ 48
Employee costs 420 29 212
Activities 1,841 15 28
Dismantling and
relocation of
long-lived assets 1,111 - -
$ 3,422 $ 44 $ 288

The above table excludes costs associated with the disposal of capital assets from the Maple Ridge site (see note 4), but does include the cost of relocating plant and equipment to other nursery sites.

Costs specific to exit activities are recognized when the activities take place and the costs are incurred, and are included in the Statement of Earnings as exit activity charges.

6. Unusual Items - Insurance claim outstanding

In late December 2008 the Company suffered damage to greenhouses at its two lower mainland nurseries as a result of unusually heavy snowfall. The loss is insured at replacement cost subject to an insurance deductible of $100 which was previously charged to earnings. Out of pocket expenses incurred in the current period for crop recovery and structure demolition and salvage operations were $215 and these costs are included in the insurance claim receivable.

7. Capital contributions

Capital contributions and units outstanding are:

Capital Contributions ($000's) Three months ended March 31
2009 2008
Capital Contributions - Beginning of period $ 90,249 $ 90,249
Units issued under ESOP program 22 -
Capital Contributions - End of period $ 90,271 $ 90,249

Three months ended March 31
2009 2008
Units outstanding - Beginning of period 9,603,116 9,603,116
Units issued under ESOP program 16,116 -
Units outstanding - End of period 9,619,232 9,603,116

The Fund has a Unit option plan whereby the Trustees of the Fund may, from time to time, grant options to purchase Units to eligible officers, employees and consultants of the Fund or any subsidiary, and to directors of any subsidiary. The aggregate number of Units reserved under the plan is 560,572. The maximum term of any option is ten years. The exercise price of an option cannot be less than the average of the Unit price at the close of business on the five trading days preceding the grant date.

During the year ended December 31, 2008 there were 107,000 Unit options granted to directors of PRT at an exercise price of $1.26 per unit and 248,600 Unit options granted to eligible officers and employees at an exercise price of $3.65 per unit. No other Units had been previously issued under the Unit option plan, and no grants were made in the quarter ended March 31, 2009. The Fund has applied the fair value method of accounting for Unit option grants. The fair value of each option granted was estimated using the Black-Scholes option pricing model with the weighted average assumptions below.

Weighted Average Assumptions
March 31, December 31,
2009 2008
Risk-free interest rate 2.5% 2.8%
Expected life (years) 6.0 6.0
Expected volatility 47.9% 42.3%
Dividend yield 8.0% 8.0%
Number of options granted - 355,600
Fair value of each option granted $ - $ 0.43

For both grants the compensation cost is being amortized against earnings over the three-year vesting period of the underlying options. The compensation cost recognized in the quarter related to the 354,600 Unit options issued in 2008 was $15 ($25 for the year ended December 31, 2008), with a corresponding credit to capital contributions.

During the three months ended March 31, 2009, no Unit options were eligible for exercise.

8. Distributions to Unitholders

For 2009 the Fund suspended distributions to Unitholders from current year operations. Distributions of $192 declared in 2008 were paid in January of 2009.

9. Capital Structure Financial Policies - summary review of the Fund's objectives, policies and processes for managing its capital structure

The Fund's objectives when managing capital are: (i) to maintain a flexible capital structure which optimizes the cost of capital at acceptable risk; and (ii) to manage capital in a manner which considers the interests of equity (Unit) holders and obligations to debt holders.

In the management of capital, the Fund includes Unitholders Equity, Long-term Debt (including any associated hedging assets or liabilities), short term bank indebtedness (Operating Line), cash and temporary investments in the definition of capital.

The Fund manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Fund may adjust the amount of distributions paid to unitholders, issue new units, issue new debt, retire existing debt, or issue new debt to replace existing debt with different characteristics.

PRT is subject to certain externally imposed capital requirements as related to both the Operating Line and Long-term Debt. These obligations require the Company to report to the lender on certain covenants including margin requirements monthly for the Operating Line, and the following key ratios reported quarterly for Long-term Debt:

1. Ratio of principal, interest, and other monies payable on loans and the notes issued under the Trust Deed to EBITDA less cash taxes and sustaining capital expenditures and adjusted by a notional "Fund for Debt Service" not to exceed 1:1;

2. Ratio of total debt (excluding the Notes issued under the Trust Deed) to EBITDA less cash taxes and sustaining capital expenditures not to exceed 3.5:1 (as discussed in note 1, this covenant has been waived for 2009);

3. Working capital ratio not less than 1:1; and

4. Tangible net worth not less than $17 million.

The Company is in compliance with all externally imposed capital requirements as at March 31, 2009.

10. Segmented information - geographic areas

The Company recorded revenues from customers located in the United States in the amount of $1,041 in the three months ended March 31, 2009 ($1,368 in the three months ended March 31, 2008). In addition, as at March 31, 2009 the Fund's total capital assets employed in the USA amounted to $3,192 (March 31, 2008 - $3,390).


Mailing Office PRT Forest Regeneration Income
Pacific Regeneration Technologies Inc. Fund
#101 - 1006 Fort Street Board of Trustees
Victoria, BC Colin A.C. Dobell
Canada, V8V 3K4 John G. Taylor, CA
Tel: 250-381-1404 Stuart E. Wolfe
Fax: 250-381-0252 Robert K. Withers
J. Mark Gardhouse
Robert A. Miller, CA
Registrar and Transfer Agent
Valiant Trust Company Pacific Regeneration Technologies
Board of Directors and Officers
World Wide Web Colin A.C. Dobell, Chairman & Director
Robert A. Miller, President & CEO
& Director
John G. Taylor, CA, Director
Market Information Stuart E. Wolfe, Director
Stock symbol: PRT.UN Robert K. Withers, Director
Stock Exchange: Toronto J. Mark Gardhouse, Director
Antony A. Pollard, V.P. Finance &
Administration, CFO & Secretary
Investor Relations Herb Markgraf, V.P. Marketing
Tel: 250-381-1404 ext. 229 Robert Maxwell, V.P. Production
Toll free: 1-866-553-8733 John Kitchen, V.P. Business
Email: Development

Contact Information

  • PRT Forest Regeneration Income Fund
    Tony Pollard
    VP Finance/CFO
    (866) 553-8733 ext. 229