PRT Forest Regeneration Income Fund
TSX : PRT.UN

PRT Forest Regeneration Income Fund

May 01, 2008 20:17 ET

PRT Announces Results for First Quarter

VICTORIA, BRITISH COLUMBIA--(Marketwire - May 1, 2008) - PRT Forest Regeneration Income Fund (TSX:PRT.UN) today announced results for its first quarter ended March 31, 2008. The Fund's interim financial statements are enclosed as part of this release.

For the three months ended March 31, 2008, the Fund reported net earnings of $251,000 ($0.03 per unit) and cash available for distribution of $1,064,000 ($0.11 per unit). Net earnings and Cash Available for Distribution decreased by $0.12 and $0.11 per unit respectively relative to the same quarter of 2007, due to the lower order volumes in 2008. Results for the quarter were generally in line with management's expectations. 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 measures provided by other reporting entities.

The Fund reported that revenues decreased by 22% in the quarter, to $9.1 million. This was attributed to lower seedling contract volumes in 2008, which have resulted from reduced US lumber demand in the current economic cycle.

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

President and CEO John Kitchen commented: "Our operating environment in 2008 is very challenging. We have seen unprecedented late order reductions as our forest industry customers adjust to the severe downturn in their industry, due to the sharp reduction in US housing starts and other factors. Our focus at this time is to minimize expenditures, and maintain our physical and human resources to be ready for an eventual recovery in seedling demand."

Kitchen added, "We expect that once the US housing market settles and begins to move back towards the historical trend line we will see a recovery in seedling demand from our core customer base. In addition, we anticipate that government and other programs aimed at addressing reforestation backlog and climate change initiatives will continue to increase and add to seedling demand in future years. In particular, the effect of the Mountain Pine Beetle on reforestation needs in BC has not been fully felt in our markets, but could have a significant long-term impact once government programs get underway. By maintaining our key resources we will have the capability to take advantage of these opportunities in future years."

Management's Discussion and Analysis for the Fund is available at www.sedar.com.

About the Fund

PRT is the largest producer of container grown forest seedlings in North America, with 15 nurseries, and expecting to produce over 160 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 2, 2008 at 11:00 AM PST, 2:00 PM EST. To participate in this conference, please call 1-866-585-6398.

Persons unable to attend the conference call may listen to a recorded version by dialing 1-866-245-6755, and the passcode is 191558. This option is available until May 9, 2008. A recorded web cast version of the call may also be accessed from the Fund's website at http://www.prtgroup.com/financial/.

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 customer orders and silviculture spending, the timing and amount of future orders, costs and expenditures, and other statements that are not historical fact. Risks and uncertainties include, but are not limited to, future commodity prices and exchange rates, agricultural risks, the outlook for the forest industry, and other risks identified from time to time in the Fund's annual report, annual information return, and prospectus. These risks and uncertainties may cause actual results to differ materially from the expectations expressed herein. As such, readers are cautioned to not to place undue reliance in forward-looking statements.

Forward-looking statements are based on current expectations and neither the Fund nor PRT assumes any obligation to update such information to reflect later events or developments, except as required by law.



Consolidated Balance Sheets (unaudited)
($000's)

As at As at
March 31 December 31
2008 2007
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Assets

Current assets
Cash $ 206 $ 672
Accounts receivable 6,964 8,976
Inventories 2,072 2,236
Prepaid expenses and deposits 481 496
Unbilled revenue 4,240 4,159
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$ 13,963 $ 16,539

Property, plant and equipment 41,894 42,840
Property, plant and equipment held for sale
(note 4) 797 797
Investment 278 305
Intangible assets 831 897
Goodwill (note 5) 19,175 19,175
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$ 76,938 $ 80,553
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Liabilities

Current liabilities
Operating line $ 8,261 $ 9,340
Accounts payable and accrued liabilities 2,530 3,444
Distribution payable to Unitholders 192 672
Current portion of long-term debt 1,492 1,517
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$ 12,475 $ 14,973

Long-term debt 4,142 4,219

Future income taxes 1,275 1,490
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$ 17,892 $ 20,682
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Unitholders' Equity

Capital contributions (note 6) $ 90,249 $ 90,249

Cumulative earnings 39,253 39,002

Cumulative distributions declared (70,456) (69,380)
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$ 59,046 $ 59,871
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$ 76,938 $ 80,553
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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
2008 2007
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Revenue $ 9,102 $ 11,714
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Expenses
Costs of production $ 5,632 $ 6,839
Selling, general and administration 2,174 2,275
Foreign exchange gain (22) (18)
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Operating earnings before the following $ 1,318 $ 2,618

Interest expense 263 248
Depreciation 921 1,027
Amortization of intangibles 67 67
Equity in loss of investee 27 35
Gain on sale of property, plant and equipment (1) (13)
Exit activity charges (note 4) - 128
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Earnings before income taxes $ 41 $ 1,126

Recovery of income taxes 210 352
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Net earnings and comprehensive income $ 251 $ 1,478

Cumulative earnings - beginning of period 39,002 46,529
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Cumulative earnings - end of period $ 39,253 $ 48,007
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Basic and diluted earnings per unit $ 0.03 $ 0.15
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Weighted average number of units outstanding 9,603,116 9,602,955
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Consolidated Statements of Cash Flows (unaudited)
($000's)

Three months ended March 31
2008 2007
---------------------------

Cash flows from operating activities
Net earnings $ 251 $ 1,478
Items not affecting cash
Depreciation and amortization
(excluding seedling containers) 921 1,027
Seedling container depreciation included
in costs of production 332 336
Amortization of intangibles 67 67
Recovery of future income taxes (215) (362)
Unrealized loss on foreign exchange 5 89
Unrealized loss on interest rate swaps 60 -
Equity in loss of investee 27 35
Gain on sale of property, plant and equipment (1) (13)
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$ 1,447 $ 2,657

Net change in non-cash working capital balances 1,219 2,760
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$ 2,666 $ 5,417
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Cash flows from financing activities
Distributions paid to Unitholders $ (1,556) $ (2,449)
Repayment of long-term debt (189) (396)
Decrease in operating line (1,079) (2,020)
Issuance of Trust Units - 16
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$ (2,824) $ (4,849)
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Cash flows from investing activities
Purchase of property, plant and equipment $ (309) $ (571)
Proceeds on sale of property, plant and
equipment 1 13
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$ (308) $ (558)
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Increase (decrease) in cash $ (466) $ 10

Cash - beginning of period 672 720

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Cash - end of period $ 206 $ 730
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Notes to Financial Statements

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.

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) losses in the Statement of Earnings and in Unitholders' Equity as "Foreign exchange (gain) loss", and identifies unrealized (gains) losses on the translation of foreign currency cash balances and non-cash monetary items as "Unrealized (gain) loss 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, 2008 and December 31, 2007, as well as its results of operations and cash flow for the three months ended March 31, 2008 and March 31, 2007.

2. Future accounting changes

The CICA has issued the following new standards that may affect the financial disclosures and results of operations of the Company. PRT will adopt the requirements commencing in the year ended December 31, 2008 and is currently considering their impact.

Section 1535 - Capital Disclosures: This section establishes standards for disclosing information about an entity's capital and how it is managed. Under this standard, there is a requirement to disclose information about the Company's objectives, policies and processes for managing its capital. Evaluation by management of this new section is ongoing.

Section 3031 - Inventories: This section prescribes the accounting treatment for inventories and provides guidance on the determination of cost and its subsequent recognition as an expense, including any write-down to net realizable value. It also provides guidance on the cost formulas that are used to assign costs to inventories. Management does not expect adoption of this section to significantly affect the Fund as section 3031 also does not apply to the measurement of inventories held by producers of agricultural and forest products to the extent that they are measured at net realizable value in accordance with well-established practices in those industries.

Section 3064 - Goodwill and Intangible Assets: This section supersedes Sections 3062 and 3450, and primarily addresses intangible assets and treatment of research and development costs. Management does not expect adoption of the section to significantly affect the Fund.

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 held for sale and exit activity charges

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.

Exit expenditures related to the Nevada site for dismantling and transportation of assets to other sites amounted to $170 in 2007; this amount excludes costs associated with the disposal of capital assets from the Nevada nursery site (as discussed below), but does include the cost of relocating equipment and other assets to 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 were either sold during the period or 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,
2008 2007
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Land $ 252 $ 252
Buildings 294 294
Growing facilities 99 99
Equipment 152 152
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$ 797 $ 797
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5. Goodwill

Under Canadian GAAP, goodwill is not amortized but is subject to an annual impairment test which management performs every August; this test is referenced to the Fund's unit trading price. After adjusting the carrying value of goodwill at December 31, 2007 for an estimated impairment, management has committed to completing the evaluation of goodwill impairment in 2008, and this assessment is ongoing. Any adjustment to the estimated loss based on the completion of the measurement of the impairment loss will recognized in 2008. This impairment is a non-cash charge and has no impact on cash available for distribution. During our ongoing evaluation no impairment to the value of other identifiable intangible assets or property, plant and equipment has been identified.

6. Capital contributions

Capital contributions and units outstanding are:



Capital Contributions ($000's) Three months ended March 31
2008 2007
---------------------------
Capital Contributions - Beginning of period $ 90,249 $ 90,233
Units issued under ESOP program - 16
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Capital Contributions - End of period $ 90,249 $ 90,249
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Three months ended March 31
2008 2007
---------------------------
Units outstanding - Beginning of period 9,603,116 9,601,216
Units issued under ESOP program - 1,900
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Units outstanding - End of period 9,603,116 9,603,116
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7. Distribution to Unitholders

As of March 31, 2008 the Fund declared distributions to Unitholders from current year operations of $1,075,549 (2007 - $2,160,701). Per unit distributions declared on account of current year operations are as follows:



Record Payment Taxable Non- Taxable
Date Date Interest Taxable Dividend Total
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01/31/2008 02/15/2008 $0.04363 $0.00237 $ - $0.04600
02/29/2008 03/14/2008 $0.04363 $0.00237 $ - $0.04600
03/31/2008 04/15/2008 $0.01763 $0.00237 $ - $0.02000
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Total $0.10489 $0.00711 $ - $0.11200
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8. Segmented information - geographic areas

The Company recorded revenues from customers located in the United States in the amount of $1,368 in the three months ended March 31, 2008 ($1,594 in the three months ended March 31, 2007). In addition, as at March 31, 2008 the Fund's total capital assets located in the USA amounted to $3,390 (December 31, 2007 - $3,448).

9. Comparative figures

Certain of the comparative figures have been restated to conform with the presentation adopted in the current period.

Contact Information

  • PRT Forest Regeneration Income Fund
    Robert Miller
    VP Finance/CFO
    1-866-553-8733 ext. 227
    Website: www.prtgroup.com