2008-07-31 19:47:00
PRT Announces Results for Second Quarter
VICTORIA, BRITISH COLUMBIA–(EMWNews – July 31, 2008) – PRT Forest Regeneration Income Fund (the “Fund”) (TSX:PRT.UN) today announced results for its second quarter and six months ended June 30, 2008. The Fund’s interim financial report is enclosed as part of this release.
For the six month period, the Fund reported net earnings of $1,217,000 ($0.13 per unit) and Cash Available for Distribution of $2,650,000 ($0.28 per unit). Net earnings decreased by $0.33 per unit reflecting approximately 20% lower contract volumes this year, while Cash Available for Distribution decreased by $0.36 per unit for the comparable six month period. 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.
For the three months ended June 30, 2008, the Fund reported net earnings of $966,000 ($0.10 per unit) and Cash Available for Distribution of $1,586,000 ($0.17 per unit). Aggregate results were in line with management’s expectations given consideration for the current economic environment and the seasonal nature of PRT’s business.
Revenues in the six month period decreased by $6.9 million or 24%, with lower contract volumes being the primary cause. Production expenditures declined with the lower volumes, but margins also declined due to lower efficiencies of scale. Selling, general and administration costs were lower than the first six months of 2007 due to cost reduction efforts and the one time effect of proxy solicitation costs in 2007.
As previously announced, Rob Miller succeeded John Kitchen as President and CEO in a management realignment effective July 7, 2008. John Kitchen was appointed VP – Business Development to enable him to pursue new business initiatives for PRT.
Commenting on the first six months of 2008, President and CEO, Rob Miller, said, “Our markets are very challenging this year, with lower seedling orders resulting from the current downturn in the forest industry. Our customers are dealing with the combined effects of the sharp downturn in US housing starts, low lumber prices and higher Canadian dollar, and the resulting reduction in timber harvesting has impacted our industry. However, we have and are taking measures to stabilize our business and cash flow through this cycle, and will closely monitor our financial performance and distribution policy to ensure our company is sustainable.”
“While our near term outlook may remain challenging through 2009, we see substantial opportunities for PRT beyond the current economic cycle. Seedling markets will improve as house construction 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 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 factors will lead to substantial seedling demand in the years to come, and we are maintaining our operational capacity and balance sheet strength to be ready for that opportunity. This will maximize long term value creation for unitholders.”
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 nursery locations and producing 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 August 1, 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 722626. This option is available until August 8, 2008 A recorded web cast version of the call may also be accessed from the Fund’s website at www.prtgroup.com.
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, our ability to grow and supply products in accordance with defined specifications, 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, and annual information return. 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.
Second Quarter Report
Consolidated Balance Sheets (unaudited)
($000's)
As at June 30 As at December 31
2008 2007
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Assets
Current assets
Cash $ 205 $ 672
Accounts receivable 10,402 8,976
Inventories 1,929 2,236
Prepaid expenses and deposits 415 496
Unbilled revenue 2,149 4,159
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$ 15,100 $ 16,539
Property, plant and equipment 41,218 42,840
Property, plant and equipment
held for sale (note 4) 797 797
Investment 242 305
Intangible assets 764 897
Goodwill (note 5) 19,175 19,175
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$ 77,296 $ 80,553
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Liabilities
Current liabilities
Operating line $ 7,881 $ 9,340
Accounts payable and accrued liabilities 3,070 3,444
Distribution payable to Unitholders 192 672
Current portion of long-term debt 1,773 1,517
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$ 12,916 $ 14,973
Long-term debt 3,665 4,219
Future income taxes 1,279 1,490
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$ 17,860 $ 20,682
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Unitholders' Equity
Capital contributions (note 6) $ 90,249 $ 90,249
Cumulative earnings 40,219 39,002
Cumulative distributions declared (71,032) (69,380)
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$ 59,436 $ 59,871
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$ 77,296 $ 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 Six months
ended June 30 ended June 30
2008 2007 2008 2007
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Revenue $ 12,824 $ 17,104 $ 21,926 $ 28,818
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Expenses
Costs of production $ 8,206 $ 9,420 $ 13,838 $ 16,259
Selling, general and administration 2,391 3,027 4,565 5,302
Foreign exchange loss (gain) 9 (108) (13) (126)
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Operating earnings before the
following $ 2,218 $ 4,765 $ 3,536 $ 7,383
Interest expense 229 249 492 497
Depreciation 923 1,021 1,844 2,048
Amortization of intangibles 66 66 133 133
Equity in loss of investee 36 31 63 66
Loss (Gain) on sale of property,
plant and equipment (10) 45 (11) 32
Exit activity charges (note 4) - 42 - 170
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Earnings before income taxes $ 974 $ 3,311 $ 1,015 $ 4,437
Recovery of (provision for)
income taxes (8) (418) 202 (66)
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Net earnings and comprehensive
income $ 966 $ 2,893 $ 1,217 $ 4,371
Cumulative earnings - beginning
of period 39,253 48,007 39,002 46,529
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Cumulative earnings - end of period $ 40,219 $ 50,900 $ 40,219 $ 50,900
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Basic and diluted earnings per unit $ 0.10 $ 0.31 $ 0.13 $ 0.46
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Weighted average number of
units outstanding 9,603,116 9,603,011 9,603,116 9,602,983
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Consolidated Statements of Cash Flows (unaudited)
($000's)
Three months Six months
ended June 30 ended June 30
2008 2007 2008 2007
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Cash flows from operating activities
Net earnings $ 966 $ 2,893 $ 1,217 $ 4,371
Items not affecting cash
Depreciation and amortization
(excluding seedling containers) 923 1,021 1,844 2,048
Seedling container depreciation
included in costs of production 326 334 658 670
Amortization of intangibles 66 66 133 133
Provision for (recovery of)
future income taxes 4 413 (211) 51
Unrealized loss (gain) on
foreign exchange 7 (198) 12 (109)
Unrealized loss (gain) on
interest rate swaps (24) (39) 36 (39)
Equity in loss of investee 36 31 63 66
Gain on sale of property,
plant and equipment (10) 45 (11) 32
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$ 2,294 $ 4,566 $ 3,741 $ 7,223
Net change in non-cash working
capital balances (589) (2,058) 630 702
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$ 1,705 $ 2,508 $ 4,371 $ 7,925
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Cash flows from financing activities
Distributions paid to Unitholders $ (576) $ (2,112) $ (2,132) $ (4,561)
Proceeds of long-term debt - 174 - 174
Repayment of long-term debt (191) (198) (380) (594)
Increase (decrease) in
operating line (379) 157 (1,458) (1,863)
Issuance of Trust Units - - - 16
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$ (1,146) $ (1,979) $ (3,970) $ (6,828)
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Cash flows from investing activities
Purchase of property, plant
and equipment $ (570) $ (473) $ (879) $ (1,044)
Proceeds on sale of property,
plant and equipment 10 65 11 78
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$ (560) $ (408) $ (868) $ (966)
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Increase (decrease) in cash $ (1) $ 121 $ (467) $ 131
Cash - beginning of period 206 730 672 720
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Cash - end of period $ 205 $ 851 $ 205 $ 851
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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 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 June 30, 2008 and December 31, 2007, as well as its results of operations and cash flow for the three months ended June 30, 2008 and 2007, and the six months ended June 30, 2008 and 2007.
2. Accounting Policy Developments
The Fund has adopted the following new standards issued by the CICA:
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.
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. Portions of this section do not affect the Fund as section 3031 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.
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)
June 30, 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 be 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 Six months
ended June 30 ended June 30
2008 2007 2008 2007
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Capital Contributions -
Beginning of period $ 90,249 $ 90,249 $ 90,249 $ 90,233
Units issued under ESOP program - - - 16
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Capital Contributions -
End of period $ 90,249 $ 90,249 $ 90,249 $ 90,249
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Three months Six months
ended June 30 ended June 30
2008 2007 2008 2007
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Units outstanding -
Beginning of period 9,603,116 9,603,116 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 9,603,116 9,603,116
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7. Distribution to Unitholders
As of June 30, 2008 the Fund declared distributions to Unitholders from current year operations of $1,652 (2007 – $4,225). Per unit distributions declared on account of current year operations are as follows:
Record Payment Taxable Taxable
Date Date Interest Non-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
04/30/2008 05/15/2008 $ 0.01763 $ 0.00237 $ - $ 0.02000
05/31/2008 06/13/2008 $ 0.01763 $ 0.00237 $ - $ 0.02000
06/30/2008 07/15/2008 $ 0.01763 $ 0.00237 $ - $ 0.02000
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Total $ 0.15778 $ 0.01422 $ - $ 0.17200
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8. 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 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;
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 June 30, 2008.
9. Segmented information – geographic areas
The Company recorded revenues from customers located in the United States in the amount of $2,955 and $1,368 in the six months and three months ended June 30, 2008 ($2,952 and $1,594 in the six and three months ended June 30, 2007). In addition, as at June 30, 2008 the Fund’s total capital assets located in the USA amounted to $3,333 (December 31, 2007 – $3,448).
10. Comparative figures
Certain of the comparative figures have been restated to conform with the presentation adopted in the current period.
INFORMATION
Mailing Office
Pacific Regeneration Technologies Inc.
#101 - 1006 Fort Street
Victoria, BC
Canada, V8V 3K4
Tel: 250-381-1404
Fax: 250-381-0252
Registrar and Transfer Agent
Computershare Investor Services
World Wide Web
www.prtgroup.com
Market Information
Stock symbol: PRT.UN
Stock Exchange: Toronto
PRT Forest Regeneration Income Fund
Board of Trustees
Colin A.C. Dobell
Allan D. Laird
George C. Stevens, Q.C.
John G. Taylor, CA
Robert A. Miller, CA
Pacific Regeneration Technologies Inc.
Board of Directors and Officers
Colin A.C. Dobell, Chairman & Director
Robert A. Miller, President & CEO & Director
Allan D. Laird, Director
George C. Stevens, Q.C., Director
John G. Taylor, CA, Director
Antony A. Pollard, V.P. Finance &
Administration, CFO & Secretary
Herb Markgraf, V.P. Marketing
Robert Maxwell, V.P. Production
John Kitchen, V.P. Business Development
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For more information, please contact PRT Forest Regeneration Income Fund or PRT Forest Regeneration Income Fund |
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