PRT Forest Regeneration Income Fund. INTERIM REPORT For the quarter ended March 31, 2008

Transcription

1 PRT Forest Regeneration Income Fund INTERIM REPORT For the quarter ended March 31, 2008 Q1

2 Consolidated Balance Sheets (unaudited) ($000 s) Assets As at March 31 As at December 31 Current assets Cash $ 206 $ 672 Accounts receivable 6,964 8,976 Inventories 2,072 2,236 Prepaid expenses and deposits Unbilled revenue 4,240 4,159 $ 13,963 $ 16,539 Property, plant and equipment 41,894 42,840 Property, plant and equipment held for sale (note 4) Investment Intangible assets Goodwill (note 5) 19,175 19,175 Liabilities $ 76,938 $ 80,553 Current liabilities Operating line $ 8,261 $ 9,340 Accounts payable and accrued liabilities 2,530 3,444 Distribution payable to Unitholders Current portion of long-term debt 1,492 1,517 $ 12,475 $ 14,973 Long-term debt 4,142 4,219 Future income taxes 1,275 1,490 $ 17,892 $ 20,682 Unitholders' Equity Capital contributions (note 6) $ 90,249 $ 90,249 Cumulative earnings 39,253 39,002 Cumulative distributions declared (70,456) (69,380) $ 59,046 $ 59,871 $ 76,938 $ 80,553 Page 2

3 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 Revenue $ 9,102 $ 11,714 Expenses Costs of production $ 5,632 $ 6,839 Selling, general and administration 2,174 2,275 Foreign exchange gain (22) (18) Operating earnings before the following $ 1,318 $ 2,618 Interest expense Depreciation 921 1,027 Amortization of intangibles Equity in loss of investee Gain on sale of property, plant and equipment (1) (13) Exit activity charges (note 4) Earnings before income taxes $ 41 $ 1,126 Recovery of income taxes Net earnings and comprehensive income $ 251 $ 1,478 Cumulative earnings - beginning of period 39,002 46,529 Cumulative earnings - end of period $ 39,253 $ 48,007 Basic and diluted earnings per unit $ 0.03 $ 0.15 Weighted average number of units outstanding 9,603,116 9,602,955 Page 3

4 Consolidated Statements of Cash Flows (unaudited) ($000 s) Three months ended March 31 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 Amortization of intangibles 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 Gain on sale of property, plant and equipment (1) (13) $ 1,447 $ 2,657 Net change in non-cash working capital balances 1,219 2,760 $ 2,666 $ 5,417 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 $ (2,824) $ (4,849) Cash flows from investing activities Purchase of property, plant and equipment $ (309) $ (571) Proceeds on sale of property, plant and equipment 1 13 $ (308) $ (558) Increase (decrease) in cash $ (466) $ 10 Cash - beginning of period Cash - end of period $ 206 $ 730 Page 4

5 Review of Interim Financial Statements Under National Instrument , 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 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, 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 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 Page 5

6 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 noncontracted 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, Land $ 252 $ 252 Buildings Growing facilities Equipment $ 797 $ 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 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. Page 6

7 6. Capital contributions Capital contributions and units outstanding are: Capital Contributions ($000's) Three months ended March 31 Capital Contributions - Beginning of period $ 90,249 $ 90,233 Units issued under ESOP program - 16 Capital Contributions - End of period $ 90,249 $ 90,249 Three months ended March 31 Units outstanding - Beginning of period 9,603,116 9,601,216 Units issued under ESOP program - 1,900 Units outstanding - End of period 9,603,116 9,603, Distribution to Unitholders As of March 31, 2008 the Fund declared distributions to Unitholders from current year operations of $1,075,549 ( $2,160,701). Per unit distributions declared on account of current year operations are as follows: Record Date Payment Date Taxable Interest Non-Taxable Taxable Dividend Total 01/31/ /15/2008 $ $ $ - $ /29/ /14/2008 $ $ $ - $ /31/ /15/2008 $ $ $ - $ Total $ $ $ - $ 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. Page 7

8 INFORMATION Mailing Office PRT Forest Regeneration Income Fund Pacific Regeneration Technologies Inc. Board of Trustees # Fort Street Colin A.C. Dobell Victoria, BC Allan D. Laird Canada, V8V 3K4 George C. Stevens, Q.C. Tel: John G. Taylor, CA Fax: Pacific Regeneration Technologies Inc. Registrar and Transfer Agent Board of Directors and Officers Computershare Investor Services Colin A.C. Dobell, Chairman & Director John Kitchen, President & CEO & Director World Wide Web Allan D. Laird, Director George C. Stevens, Q.C., Director Gerry Bellerive, CA Director Market Information Robert A. Miller, V.P. Finance & Stock symbol: PRT.UN Administration, CFO & Secretary Stock Exchange: Toronto Herb Markgraf, V.P. Business Development Robert Maxwell, V.P. Production Investor Relations Tel: ext. 227 Toll free: Page 8