Parkland reports record fourth quarter and fiscal year



    Performance Highlights

    - Record fourth quarter and full year EBITDA
    - Monthly distributions increased in December and January
    - Special distribution at year end

    RED DEER, AB, Feb. 25 /CNW/ - Parkland Income Fund today announced its
business performance for the three months and year ended December 31, 2007.
Annual volumes, revenue, earnings and EBITDA were all at record levels and
allowed the Fund to increase monthly distributions to $0.105 per unit and
declare special distribution payments at year end.
    President and CEO Mike Chorlton commented "Parkland's results set a new
record for fourth quarter EBITDA. The Commercial Division acquisitions that
were completed during 2007 and specifically propane marketing contributed to
our strong fourth quarter performance. These operations are counter-seasonal
to Parkland's traditional Retail fuel marketing business and contribute most
strongly in the winter season.
    Parkland's financial results for the year ended December 31, 2007 set a
new record for EBITDA at $115 million, substantially exceeding the previous
record of $70.7 million realized in 2006. The performance of the acquisitions
as well as growth in fuel volume and gross margins per litre within our
existing business added significant earnings in 2007.
    We were able to increase monthly distributions for the second time in
2007 by a further 8.5 percent in December to $0.105 per unit and declare an
additional special distribution in December totaling $0.77 per unit. The
increased level of monthly distributions was established after considering
Parkland's budgets and business prospects for 2008."
    Parkland's accounting policy related to valuation of inventory was
changed from LIFO to FIFO in the fourth quarter of 2007. This change resulted
in an increase in EBITDA and net earnings before tax in the amount of
$4.2 million for the year ended December 31, 2007, $1.0 million for 2006 and
$4.5 million for 2005. The 2006 and 2005 comparative numbers in this report
are restated for this change.

    Outlook
    -------

    Fuel margins in the first quarter of 2008 are at seasonal levels and
operations remain profitable. Propane sales volumes are sensitive to weather
conditions and as our marketing region experienced colder temperatures in
parts of January and February, volumes increased. Oil and gas drilling in
northern Alberta has been less robust than the prior year and forestry
harvesting is at a cyclical low with the result that demand for fuels in the
Commercial sector has moderated from the high growth levels seen in recent
years. The grain segment of agriculture is at an all-time high driving strong
demand for fuel and crop inputs. Parkland's operations in this region remain
profitable with positive growth prospects. Management continues to assess
acquisitions which will add accretive cash flow and unitholder value.


    
    Consolidated Operating and Financial Highlights
    ($millions except volume and per unit amounts)

                           Three months ended         Twelve months ended
                               December 31                December 31
                           2007     2006     2005     2007     2006     2005
    -------------------------------------------------------------------------
    Fuel volumes
     (millions of
     litres)                541      386      297    2,030    1,501    1,177
    Net sales and
     operating revenue $  456.2 $  278.9 $  231.3 $1,697.6 $1,199.9 $  875.5
    EBITDA             $   17.9 $   10.6 $    8.6 $  115.0 $   70.7 $   41.2
    Net earnings
     (loss)            $   10.2 $   15.5 $    4.7 $   80.7 $   59.6 $   29.5
      Per unit -
       basic           $   0.24 $   0.39 $   0.12 $   1.66 $   1.50 $   0.75
      Per unit -
       diluted         $   0.23 $   0.38 $   0.11 $   1.64 $   1.48 $   0.75
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Year Over Year Changes in EBITDA (in millions of dollars)

    2006 EBITDA                                                     $   70.7
    Fuel volume increase                                                39.7
    Fuel gross profit increase                                          25.2
    Merchandise and related gross profit increase                        3.0
    Commercial gross profit increase                                    26.5
    Operating and MG&A increase                                        (50.1)
    2007 EBITDA                                                        115.0
    

    MANAGEMENT DISCUSSION and ANALYSIS

    Non-GAAP Measures

    EBITDA refers to Earnings Before Interest on Long-Term Debt, Income Tax
Expense, Amortization of Capital Assets, Refinery Remediation Accrual and Loss
on Disposal of Capital Assets and can be calculated from the GAAP amounts
included in the Fund's financial statements. Management believes that EBITDA
is a relevant measure to users of its financial information as it provides an
indication of pre-tax earnings available to distribute to debt and equity
holders in the Fund. The Fund's definition of EBITDA may not be consistent
with other providers of financial information and therefore may not be
comparable.

    Accounting Policy Change

    Parkland changed its accounting policy related to the valuation of
inventory from last-in first-out (LIFO) to first-in first-out (FIFO) basis for
the year ended December 31, 2007. This change has been mandated by new
accounting standards for 2008 and the Fund has chosen to adopt the new
standard early. With the acquisitions in 2007 of businesses with substantial
volumes of non-fuel business, Parkland had significant categories of inventory
that were historically recorded on a FIFO basis. In order to harmonize the
accounting methods we opted for early adoption of the FIFO basis and applied
the change retrospectively. The change resulted in higher gross profits,
EBITDA and net earnings of $0.4 million in the fourth quarter of 2007 (2006 -
$1.0 million, 2005 - decrease of $2.9 million). For the year ended
December 31, 2007, gross profits, EBITDA and net earnings before tax increased
by $4.2 million (2006 - $1.0 million, 2005 - $4.5 million).

    THREE MONTHS ENDED DECEMBER 31, 2007

    
    Quarterly Financial Information

    Three months ended                   March      June September  December
    ($millions except fuel volumes          31        30        30        31
     and per unit amounts)
    -------------------------------------------------------------------------
    2007  Fuel volumes (millions of
           litres)                         440       471       578       541
          Net sales and operating
           revenues                     $334.0    $424.6    $482.9    $456.2
          Net earnings                   $17.1     $22.0     $31.4     $10.2
          EBITDA                         $23.1     $48.2     $25.8     $17.9
          Earnings per unit (restated)
            - basic                      $0.37     $0.42     $0.63     $0.24
            - diluted                    $0.37     $0.42     $0.62     $0.23
    -------------------------------------------------------------------------
    2006  Fuel volumes (millions of
           litres)                         329       374       412       386
          Net sales and operating
           revenues                     $241.6    $320.2    $359.3    $278.9
          Net earnings                    $8.7     $27.2      $8.2     $15.5
          EBITDA                         $11.3     $29.7     $19.1     $10.6
          Earnings per unit (restated)
            - basic                      $0.22     $0.68     $0.21     $0.39
            - diluted                    $0.22     $0.68     $0.20     $0.38
    -------------------------------------------------------------------------
    

    Volume

    Fuel volumes increased by 155 million litres in the fourth quarter of
2007 to 541 million litres. The propane business acquired through the
acquisitions of Neufeld and Joy earlier in 2007 contributed 44 million litres
of new fuel volume. The wholesale, industrial and cardlock volumes of diesel
and gasoline acquired through Neufeld and UPPI contributed significantly to
the 109 million litre increase (44 percent) in wholesale gasoline and diesel
compared to the same quarter in 2006. Fuel volumes from the retail business
increased by 2 million litres compared to the fourth quarter of 2006
experiencing some restraint due to higher retail fuel prices and a modest
weakening of the economy in western Canada.

    Sales Revenue

    Net sales and operating revenue for the quarter ended December 31, 2007
was $456.1 million compared to $278.8 million in 2006, an increase of
$177.3 million or 64 percent, as our results show the activity from the
companies that were acquired in 2007. Fuel sales revenue accounted for
$414.2 million compared to $263.7 million in the same period last year, an
increase of $150.5 million. The increase in fuel sales revenue of 57 percent
was greater than the fuel volume increase of 40 percent, which reflects the
increased retail selling prices in the fourth quarter of 2007.
    Commercial product sales were $26.3 million for the quarter with a
significant contribution from late season fertilizer sales. Parkland did not
have significant operations in this segment prior to 2007.
    Convenience store merchandise sales increased moderately with sales of
$15.6 million in the quarter as compared to $15.2 million last year, an
increase of 3 percent.

    Net Earnings

    Net earnings for the fourth quarter were $10.2 million compared to
$15.5 million in the same period in 2006. Fourth quarter earnings in 2007
included $0.4 million ($1.0 million in 2006) arising from the inventory
accounting policy change. Parkland was able to generate $8.4 million of gross
profit from its commercial sales segment which was entirely attributable to
the acquisitions completed in 2007.
    Gross profits of $61.8 million for the quarter increased significantly
from the $29.1 million in 2006. Marketing, general and administrative expenses
increased by $5.3 million or 86 percent compared to the fourth quarter of
2006. The increase reflected the acquisitions of the new businesses and higher
costs related to incentive compensation driven by both higher earnings and
expanded operations. Operating and direct costs increased by $20.1 million or
162 percent over 2006 as a result of the acquisitions. The increase in
operating costs related primarily to the acquired businesses.
    In the fourth quarter of 2007, Parkland recorded a non-cash charge for
future refinery remediation in the amount of $2.7 million (nil in 2006).
    Current income tax charges were $1.3 million for the three months ended
December 31, 2007 compared to a credit of $7.8 million in the comparative
quarter of 2006. In the third quarter of 2006 taxable income was significantly
greater than distributions made to unitholders and a tax provision was
recorded in that period. An increase in monthly distributions combined with
special distribution payments at December 29, 2006 reduced taxable income
considerably which resulted in the Fund recording a current income tax
recovery in the fourth quarter of 2006.
    EBITDA for the quarter increased to $17.9 million, up from the $10.5
million generated in the same period of 2006.

    Capital Assets

    Capital expenditures in the fourth quarter of 2007 totalled
$16.4 million. The major items include two small business acquisitions and
three new retail sites.

    YEAR ENDED DECEMBER 31, 2007

    Net Earnings

    Significantly higher fuel volumes, higher average fuel margins, increased
convenience store sales and margins all contributed to higher net earnings in
2007. The acquisitions in 2007 played a major part in the increased business
activity and earnings for the year. Parkland was able to generate
$28.2 million of gross profit from its commercial sales segment which was
mostly attributable to the Neufeld, Joy and UPPI acquisitions.
    Gross profit was $232.5 million, an increase of $94.5 million over 2006.
This increase was partially offset by a $19.8 million increase in marketing,
general and administrative expenses over 2006 and a $30.4 million increase in
operating and direct costs. The increased costs related primarily from the
acquired businesses and higher incentive compensation arising from higher
profits and expanded operations.
    EBITDA in 2007 was $115.0 million, an increase of $44.3 million or
63 percent over 2006, consistent with the increases in gross profits. Net
earnings for the year of $80.7 million were significantly higher than the
$59.6 million reported in 2006 and $32.9 million in 2005.

    Volume

    Fuel volumes increased by 529 million litres in 2007 to just over
2.0 billion litres. The propane business acquired through the acquisitions of
Neufeld and Joy earlier in 2007 contributed 114 million litres of new fuel
volume. The wholesale, industrial and cardlock volumes of diesel and gasoline
acquired through Neufeld and UPPI contributed significantly to the 392 million
litre increase (40 percent) in wholesale gas and diesel volumes over 2006.
Retail volumes increased by 23 million litres (4 percent) over 2006.
    The Fund's station upgrade program and addition of new Esso sites
continues to drive moderate growth in retail volumes. Reseller volumes also
increased to match product purchase availability. Retail volumes are driven by
the number of stations in operation, general business and economic conditions,
weather and competitive conditions in various markets. Reseller volumes are
more dependent on general industry supply and demand conditions. Parkland
plans to continue to generate modest volume increases through general market
growth, improved performance at existing sites and the addition of new sites
as opportunities arise.

    Sales Revenue

    Net sales and operating revenue for the year ended December 31, 2007 was
$1.7 billion compared to $1.2 billion in 2006, an increase of 42 percent. In
2007, fuel sales revenue accounted for $1.558 billion compared to $1.140
billion in 2006, an increase of $418 million. Fuel sales revenue varies with
fuel volumes, overall average crude prices and retail and wholesale margins.
The increase in fuel sales revenue of 37 percent was slightly greater than the
fuel volume increase of 35 percent, reflecting the increased retail selling
prices in 2007.
    Commercial product sales were $74.9 million for the year ended
December 31, 2007 (nil in 2006) as this business segment originated with the
acquisitions completed in 2007.
    Convenience store merchandise sales also increased with sales of $64.5
million in 2007 as compared to $59.6 million in 2006, an increase of 8
percent. Convenience store merchandise sales were up primarily as a result of
higher average sales per store.

    Cost of Sales and Gross Profit

    Fuel cost of sales increased to $1.370 billion in 2007 as compared to
$1.018 billion in 2006. Similar to sales revenue, cost of sales increased as a
result of higher volumes and higher average per litre costs of fuel products.
Fuel costs are generally driven by changes in the underlying cost of crude
oil. Convenience store merchandise cost of sales increased to $48.2 million in
2007 from $44.1 million in 2006, consistent with the increase in merchandise
sales.
    These factors led to gross profit of $232.5 million in 2007, which was
$94.5 million higher than the $138.0 million achieved in 2006. This increase
was primarily driven by higher average fuel margins which were 8.79 cents, on
a per litre basis, compared to 7.58 cents the prior year. Additional increases
resulted from a $0.9 million increase in convenience store margins, $28.2
million addition of gross profit on sales of commercial products and higher
overall fuel volumes.
    A key driver to margins is the Fund's ability to competitively purchase
both fuel and convenience store merchandise. As one of the largest independent
fuel retailers in western Canada, the Fund has established positive
relationships with the key fuel suppliers in its market area and has long-term
contracts with its three principal fuel suppliers. These contracts provide the
Fund with a consistent source of supply at competitive prices. Additionally,
the growth in the convenience store network and the implementation of the
Short Stop Express marketing program has improved the Fund's relationships
with wholesalers and other merchandise suppliers, providing better pricing,
increased incentives and additional promotional support.

    Operating Expenses

    Operating and direct expenses for 2007 were $77.7 million, up from
$47.3 million in 2006, an increase of 64 percent. These increased costs were
primarily as a result of the acquisitions. Site operating costs are sensitive
to changes in fuel sales volume and, as a result, total costs were higher than
the prior year. Also affecting site operating costs is the continued upward
pressure on wages that is being experienced in western Canada due to a robust
economy and tight labor supply, specifically for convenience store personnel,
truck drivers and trades personnel.
    Marketing, general and administrative expenses were $39.8 million for the
year ended December 31, 2007, an increase of $19.8 million over 2006 expenses
of $20 million. Significant drivers of these increased costs were the
inclusion of overhead costs of the acquired businesses and provision for
higher variable compensation costs arising from strong profits. Staffing
levels increased as a result of the acquisitions. The cost of hiring,
compensating and retaining employees and consultants remains relatively high
due to strong demand, particularly for those with specialized training and
experience. The Fund is investing heavily in its employee base by providing
for increased training throughout the organization, including the acquired
companies. The Fund believes that this investment in its people will generate
long term benefits including higher retention and improved efficiency. More
onerous regulatory compliance activities are also contributing to the higher
costs. Parkland incurred consulting costs during the second half of the year
related to a business process reengineering project that has been initiated to
improve efficiencies, strengthen internal controls and complete the
integration of systems with the acquired companies.
    The Fund incurred $0.2 million in maintenance expenses in 2007 and 2006
related to the Fas Gas Plus upgrade program. Although portions of the Fas Gas
Plus program are recorded as maintenance capital, there are significant
components which represent maintenance expenses. To a large extent these
expenses are discretionary and are generating improved results at the upgraded
sites.
    Included in expenses for the 2007 calendar year are $2.5 million for
environmental remediation costs as compared to $1.1 million in 2006.
Generally, remediation costs for which the Fund is legally obligated are
recorded as an Asset Retirement Obligation and expensed as accretion over the
estimated life of the asset. Amounts included in remediation costs generally
relate to costs at sites where the Fund decided to replace underground storage
tanks even though it was not legally obligated to do so. It is the Fund's
policy to upgrade tanks when a major site upgrade takes place, such as a
conversion to a Short Stop convenience store. The Fund has a discretionary
long-term tank replacement program and plans to continue incurring expenses
annually to modernize its underground tank network and reduce its exposure to
future environmental liabilities.

    Refinery Assets

    During 2007, Parkland continued its program of repairs to its storage
tanks and voluntary remediation at the Bowden refinery site and incurred costs
of $0.9 million related to this program. The refinery site generated revenue
of $2.0 million during the year from its custom processing agreement with a
petrochemical plant operator. The Fund has received notification from the
petrochemical plant operator of its intent to terminate the agreement at the
end of 2008. This will be an early termination under the contract and will
give rise to a termination fee which will be quantified during 2008 depending
on final processed volumes
    The Fund incurred operating and repair costs totalling $2.4 million
during 2007, resulting in a net loss of $0.4 million at its refinery site.
Many of the repair costs were incurred in advance of applying for renewal of
the refinery operating license and in preparation for potential additional
operations at the site such as temporary fuel storage. The refinery license
renewal was approved in 2007 and the Fund continues to pursue revenue
generating opportunities at this site.
    The Refinery Remediation Accrual represents the present value estimate of
the Fund's cost to remediate this site. The total undiscounted estimated
future cash flows, to be incurred over an extended period after operations
cease, are approximately $13.8 million net of salvage value of equipment and
will be accreted. Discounting these incremental cash flows resulted in a
$2.7 million increase in the refinery remediation accrual at December 31,
2007. The costs are expected to be incurred between 2018 and 2027. The
discount rate used to determine the present value of the future costs is
6.9 percent (2006 - 6.9 percent).

    Capital Assets and Amortization

    Amortization expense increased to $21.6 million in 2007 from $8.5 million
in 2006. Amortization for capital assets acquired in 2007 plus amortization on
intangible assets accounted for most of the increase compared to 2006.
    During 2007, the Fund expended $28.9 million in capital investments, of
which $14.6 million was classified as maintenance capital and $14.3 million
was classified as growth capital. The classification of capital as growth or
maintenance is subject to judgment as many of the Fund's capital projects have
components of both. It is the Fund's policy to treat all capital related to
service station upgrades as maintenance capital even though it includes the
expectation of a financial return, while the construction of a new building on
an existing site is considered growth capital. For accounting purposes,
amounts expended on both maintenance and growth capital are treated as
purchases of capital assets.
    The primary components of maintenance capital in 2007 were $3.5 million
for service station upgrades, $1.5 million for tank replacements, $2.0 million
for technology initiatives, $1.3 million for trucks and trailers and
$1.3 million for other projects.
    The 2007 growth capital related primarily to major upgrades at existing
retail sites, expansion of the trucking fleet, propane storage, tanks and the
addition of three new company operated service station sites and 15 new
independent dealers. The growth capital incurred related to independent
dealers consisted primarily of new signage and pumps.
    Parkland owns 110 of the sites in the Fas Gas and Short Stop retail
chains, an industrial property in Red Deer which is used as a maintenance
facility, a fuel terminal facility in Whitehorse and the refinery property.
During 2007, the Fund acquired through corporate acquisition land, land
improvements and buildings valued at $28.5 million including major facilities
in Grande Prairie AB and Burnaby BC together with 17 branch locations. These
properties are primarily in northern Alberta and British Columbia and
represent branch locations. The Fund has lease-to-purchase arrangements on
four of the Fas Gas properties and long-term lease arrangements on an
additional 38 sites.
    Parkland operates through its Petrohaul division its own fleet of trucks
to meet its fuel hauling needs. During 2007, the Fund also acquired the
trucking fleets of Neufeld, Joy and UPPI. The long distance bulk carrier fleet
as at December 31, 2007 consists of 62 trucks and 71 trailer units. Parkland
is focused on continuing to integrate the distribution piece of its operations
and capturing additional synergies in 2008. In the third quarter of 2007, the
Fund recruited for and successfully filled the Vice President, Supply and
Distribution position to provide strategic planning and leadership to this
business unit.
    The Fund is looking to consolidate and grow its trucking fleet to better
serve its widespread and growing marketing network. The Fund's capital plan
calls for the addition of 12 power units and trailers in 2008 as part of its
long term objective of handling substantially all of its fuel hauling and
reducing its reliance on third party carriers.
    It is the Fund's policy to treat all capital related to the replacement
and betterment of its fleet as maintenance capital even though it includes the
expectation of a financial return, while the addition of new trucks and
trailers to increase the size of the fleet is considered growth capital.

    Interest

    For the year ended December 31, 2007 interest on long-term debt was
$1.7 million which was $0.7 million higher than the prior year. Debt levels
have increased during the year while interest rates have stayed relatively
steady, resulting in the increase in overall interest costs. Approximately 81
percent of the Fund's long-term debt bears interest at variable rates linked
to prime.

    Income taxes

    In 2007, the Fund retained taxable income within corporate subsidiaries
resulting in a current tax provision of $1.3 million compared to $0.8 million
for 2006. Parkland's income taxes payable are typically nominal as it is a
trust and taxes are paid on distributions directly by the Unitholders in
Parkland or in its subsidiary, Parkland Holdings Limited Partnership. The 2007
provision results from capital taxes and from retaining funds for corporate
purposes.
    During the second quarter of 2007, a $7.5 million charge was recorded due
to the enactment of the specified investment flow-through ("SIFT") tax
legislation during the period. Under the new legislation, in 2011 and beyond,
as distributions will no longer be tax deductible, the Fund will not be able
to make distributions to reduce its taxable income and is no longer considered
to be exempt from income taxes for accounting purposes. Accordingly, the
future income tax liability was increased to reflect the current temporary
differences expected to be remaining at the Trust level in 2011 using the SIFT
tax rate of 31.5 percent. On October 30, 2007, the Government of Canada
proposed rate reductions which, if and when enacted, would lower the SIFT tax
rate to 28 percent and will reduce future corporate income tax rates by an
additional 3.5 percent. With the new legislation, distributions to unitholders
would be taxable beginning in 2011 as distributions will no longer be
deductible by the Trust for income tax purposes. Such distributions would not
be immediately taxable to investors: they would generally reduce the adjusted
cost base of units held by investors, however, such distributions would
potentially be at a lower payout ratio. The new legislation is not currently
expected to directly affect our cash flow levels and distribution policies
until 2011 at the earliest. The estimate of future income taxes is based on
the current tax status of the Fund. Future events, which could materially
affect future income taxes such as acquisitions and dispositions and
modifications to the distribution policy, are not reflected under Canadian
GAAP until the events occur and the related legal requirements have been
fulfilled. As a result, future changes to the tax legislation could lead to a
material change in the recorded amount of future income taxes.
    It should be noted that the charges for future income taxes are a
non-cash charge, and are not a proxy for the amount of taxes the Fund may
expect to pay starting January 1, 2011, effective with implementation of the
federal government's Tax Fairness Plan.
    The allocation of taxes to the Unitholders for 2007 is based on the
calculated taxable income of the Fund as follows:

    
    -------------------------------------------------------------------------
    $000's
    -------------------------------------------------------------------------
    Net income before tax                                            $88,739
    -------------------------------------------------------------------------
    Permanent differences                                                106
    -------------------------------------------------------------------------
    Timing differences                                                 4,320
    -------------------------------------------------------------------------
    Taxable income                                                   $93,165
    -------------------------------------------------------------------------
    Less income retained in taxable entities in the Fund               2,647
    -------------------------------------------------------------------------
    Taxable income to allocate to Unitholders                        $90,518
    -------------------------------------------------------------------------
    Distributions                                                    $90,518
    -------------------------------------------------------------------------
    Taxable portion of distributions                                     100%
    -------------------------------------------------------------------------
    

    The Fund's business has historically been seasonal and can be
significantly affected by events occurring throughout the year. In the first
quarter, fuel demand is relatively weak which causes excess supply and weaker
market conditions. The second and third quarters significantly improve with
spring and summer driving seasons and increased industrial and farm activity
creating higher demand, while the fourth quarter sees a return to more average
market conditions. With the addition of the acquired companies, some of whose
business activities are counter seasonal to Parkland's, the impact of
seasonality on the financial results each quarter have diminished in 2007.
Propane and heating fuel sales are strong in the colder months and fertilizer
and agricultural sales and services are strong in the spring and late fall.
    In 2006, margins exceeded historical levels in each of the quarters with
the second and third quarters being exceptionally strong. Margins were
influenced by supply shortages within the western Canadian market as well as
the North America wide market. Margins have continued to remain strong
throughout 2007, with the peak in fuel margins occurring in the second
quarter. Margins declined somewhat during the third quarter but remained
strong by historical comparison.

    LIQUIDITY AND CAPITAL RE

SOURCES Working Capital Parkland's working capital increased to $28.1 million at December 31, 2007 as compared to $21.4 million at December 31, 2006. The change in accounting policy relating to inventories increased working capital by $13.2 million (2006 - $9.0 million). The cash balance at December 31, 2007 was $6.3 million compared to the December 31, 2006 balance of $36.5 million and cash generated from operating activities during 2007 was $82.8 million compared to $70.3 million in 2006. Cash of $14.8 million net was expended during the year in connection with financing activities and $98.3 million was expended in connection with investing activities, primarily the acquisitions and purchase of capital assets. Further details can be found in the Consolidated Statement of Cash Flows. During the year the Fund entered into a credit agreement which included a $32.0 million revolving operating facility that will be used primarily for working capital requirements. The facility also provides for letters of credit to a maximum of $30.0 million subject to margin calculations. The Fund has outstanding letters of credit as at December 31, 2007 of $25.1 million (2006 - $24.7 million). The Commercial business typically extends credit to its customers on terms that exceed average receivable terms in Parkland's traditional fuel business. It is not uncommon for the Fund to experience an increase in trade receivables in the fourth quarter with collections occurring in the first and second quarters of the following year. The Fund increased its operating facility to ensure adequate working capital during this period. Financing Activities In January 2007, Parkland completed the issuance of 4,080,000 Fund units (post split) for net proceeds of $47.5 million on a bought deal basis through a syndicate of investment dealers. The proceeds were used in part to fund the purchase of Neufeld. The Fund assumed debt totalling $30.1 million during the year in connection with the acquisitions of Neufeld Petroleum, United Petroleum Products Inc and Roblyn Bulk Sales. Parkland borrowed an additional $10 million under the Neufeld credit facility shortly after the acquisition. The Fund repaid all assumed debt using proceeds of $22.3 million from its revolving operating facility and $19.5 million in additional term loans. At December 31, 2007 Parkland had $14.4 million in long-term debt (excluding $4.1 million of the current portion). Management believes that cash flow from operations will be adequate to fund maintenance capital, interest and targeted distributions. Growth capital expenditures in 2007 have been funded by existing cash balances, new debt financing and cash flow from operations. It is management's intent, on an ongoing basis, to finance growth capital through debt or the issue of additional units. Any additional debt would be serviced by anticipated increases in cash flow and it is expected that current debt to EBITDA ratios would be maintained. On December 31, 2007, the Company was in compliance with all of the financial covenants under its syndicated credit facility. The ratios are tested on a trailing rolling four quarter basis. The financial covenants under the syndicated credit facility are as follows: 1. Ratio of current assets to current liabilities shall not be less than 1.05 to 1.00 on a consolidated basis; 2. Ratio of funded debt to EBITDA shall not exceed 2.50 to 1.00; 3. Ratio of EBITDA less capital expenditures and taxes to sum of interest, principal and distributions shall not be less than 1.00 to 1.00; and 4. Ratio of funded debt to capitalization shall not exceed 0.50 to 1.00. In February 2008, the Fund accepted the terms and conditions of a financing arrangement with HSBC Bank Canada. The financing arrangement increased the Fund's credit facility from $128.1 million to $159.1 million. The financing arrangement is comprised of $32 million for operating debt, $30 million for letters of credit and the remainder for term debt. The increased financing will be used to finance growth opportunities in 2008. Distributions The following table sets forth the record date, date of payment, per Trust Unit amount of distributions paid and total cash distributed for 2007: ------------------------------------------------------------------------- Record Date Payment Date Per Trust Unit Total Cash Distributed (000's) ------------------------------------------------------------------------- January 31, 2007 February 15, 2007 $0.0800 $3,699 ------------------------------------------------------------------------- February 28, 2007 March 15, 2007 $0.0800 $3,795 ------------------------------------------------------------------------- March 30, 2007 April 13, 2007 $0.0800 $3,797 ------------------------------------------------------------------------- April 30, 2007 May 15, 2007 $0.0800 $3,832 ------------------------------------------------------------------------- May 31, 2007 June 15, 2007 $0.0967 $4,675 ------------------------------------------------------------------------- June 29, 2007 July 13, 2007 $0.0967 $4,677 ------------------------------------------------------------------------- July 31, 2007 August 15, 2007 $0.0967 $4,678 ------------------------------------------------------------------------- August 31, 2007 September 14, 2007 $0.0967 $4,681 ------------------------------------------------------------------------- September 28, 2007 October 15, 2007 $0.0967 $4,686 ------------------------------------------------------------------------- October 31, 2007 November 15, 2007 $0.0967 $4,687 ------------------------------------------------------------------------- November 30, 2007 December 14, 2007 $0.0967 $4,688 ------------------------------------------------------------------------- December 31, 2007 January 15, 2008 $0.1050 $5,115 ------------------------------------------------------------------------- December 31, 2007 January 15, 2008 $0.3500(1) $17,049 ------------------------------------------------------------------------- December 31, 2007 January 15, 2008 $0.4200(2) $20,459(2) ------------------------------------------------------------------------- Total distributions declared to Unitholders $1.8719 $90,518 ------------------------------------------------------------------------- Notes: (1) Represents the cash portion of a special distribution. (2) Represents the portion of the special distribution that was distributed to unitholders by way of Trust Units. On December 17, 2007, the Board of Directors met to review the results of operations for 2007 and the cash balance on hand and declared a special distribution of $0.77 per Fund unit. On January 7, 2008, the Board of Directors decided to pay the special distribution in a combination of cash and Fund units. The cash payments totalled $0.35 per Fund unit while the unit payments totalled $0.42 per Fund unit. The number of Fund units was established with reference to the 10 day weighted average trading price as at date of record December 31, 2007 which was $16.05 per unit. Consequently, the Fund unit portion of the special distribution was 0.02617 Fund units per Fund unit owned on the date of record. ------------------------------------------------------------------------- Total distributions declared to Unitholders in 2007 $90,518 ------------------------------------------------------------------------- Total distributions declared to Unitholders in 2006 $56,171 ------------------------------------------------------------------------- Total distributions declared to Unitholders in 2005 $23,872 ------------------------------------------------------------------------- Total distributions declared to Unitholders in 2004 $21,075 ------------------------------------------------------------------------- Total distributions declared to Unitholders in 2003 $20,376 ------------------------------------------------------------------------- Total distributions declared to Unitholders in 2002 $13,208 ------------------------------------------------------------------------- Distributable Cash Flow ------------------------------------------------------------------------- For the year $000's For the three months ended ended ------------------------------------------------------------------------- March June September December December 31 30 30 31 31 ------------------------------------------------------------------------- Cash flows from operating activities $4,252 $54,946 $22,837 $801 $82,836 ------------------------------------------------------------------------- Less: Total capital expenditures (3,413) (3,421) (7,353) (16,371) (30,558) ------- ------- ------- -------- -------- ------------------------------------------------------------------------- Standardized distrib- utable cash flow (1) 839 51,525 15,484 (15,570) 52,278 ------------------------------------------------------------------------- Add back ------------------------------------------------------------------------- Growth capital expenditures 626 1,993 1,547 11,844 16,010 ------------------------------------------------------------------------- Proceeds on disposal of capital items 298 418 242 125 1,083 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Increase (decrease) in non-cash working capital 14,849 (18,374) 14,865 19,837 31,177 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Distributable cash flow $16,612 $35,562 $32,138 $16,236 $100,548 ------- ------- ------- ------- -------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- Distributable cash flow per unit - basic $0.36 $0.72 $0.65 $0.33 $2.05 - diluted $0.35 $0.71 $0.64 $0.32 $2.03 ------------------------------------------------------------------------- Distribution payout ratio (2) 68% 37% 44% 320%(3) 90% ------------------------------------------------------------------------- (1) Standardized distributable cash flow is a measure defined by the Canadian Institute of Chartered Accountants (CICA), see discussion below. (2) See Distributions Paid To Unitholders. (3) Includes year-end special distribution of $37.5 million. Distribution Reinvestment Plan ------------------------------ Parkland Income Fund has established a Distribution Reinvestment Plan administered by Valiant Trust Company. Details are available from the Fund or from Valiant Trust Company. Fund Description ---------------- Parkland Income Fund operates retail and wholesale fuels and convenience store businesses under its Fas Gas Plus, Fas Gas, Race Trac Fuels and Short Stop Food Stores brands and through independent branded dealers, and transports fuel through its Petrohaul division. With over 550 locations, Parkland has developed a strong market niche in western and northern Canadian non-urban markets. Through Neufeld Petroleum and Propane the Fund markets propane, gasoline, diesel, lubricants, industrial fluids, agricultural inputs and delivery services to commercial and industrial customers in Northern Alberta, Northeastern British Columbia and the Northwest Territories. To maximize value for its unitholders, the Fund is focused on the continuous refinement of its retail portfolio, increased revenue diversification through growth in non-fuel revenues and active supply chain management. Parkland operates the Bowden refinery near Red Deer, Alberta producing drilling fluids on a contract basis. The Fund is an unincorporated open-ended limited purpose trust established under the laws of the Province of Alberta. The Fund, together with the limited partnership that issued the exchangeable LP Units, own, indirectly, securities which collectively represent the right to receive cash flow available for distribution from the business operated by Parkland Industries Limited Partnership, after current taxes, debt service payments, maintenance capital expenditures and other cash requirements. The Fund's units trade on the Toronto Stock Exchange (TSX) under the symbol PKI.UN. For more information, visit www.parkland.ca. Certain information included herein is forward-looking. Forward-looking statements include, without limitation, statements regarding the future financial position, business strategy, budgets, projected costs, capital expenditures, financial results, taxes and plans and objectives of or involving Parkland. Many of these statements can be identified by looking for words such as "believe", "expects", "expected", "will", "intends", "projects", "anticipates", "estimates", "continues", or similar words. Parkland believes the expectations reflected in such forward-looking statements are reasonable but no assurance can be given that these expectations will prove to be correct and such forward-looking statements should not be unduly relied upon. Forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties some of which are described in the Fund's annual report, annual information form and other continuous disclosure documents. Such forward-looking statements necessarily involve known and unknown risks and uncertainties and other factors, which may cause the Fund's actual performance and financial results in future periods to differ materially from any projections of future performance or results expressed or implied by such forward-looking statements. Such factors include, but are not limited to: general economic, market and business conditions; industry capacity; competitive action by other companies; refining and marketing margins; the ability of suppliers to meet commitments; actions by governmental authorities including increases in taxes; changes in environmental and other regulations; and other factors, many of which are beyond the control of Parkland. Any forward-looking statements are made as of the date hereof and the Fund does not undertake any obligation, except as required under applicable law, to publicly update or revise such statements to reflect new information, subsequent or otherwise. Conference Call --------------- Parkland will hold a conference call for Analysts, Brokers and Investors to discuss fourth quarter and annual results as follows: Tuesday, February 26, 2008, 9:00 a.m. (11:00 a.m. Eastern Time) Direct: 416-644-3418 Toll-free: 800-732-6179 The replay will be available as follows: From Tuesday February 26, 2008, 9:00 a.m. (11:00 a.m. Eastern Time) To Tuesday, March 11, 2008 at 9:59 p.m. (11:59 p.m. Eastern Time) Direct: 416-640-1917 Toll-free: 877-289-8525 Passcode: 21263614 followed by the number sign. Webcast ------- http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID= 2173820 If you prefer to receive Company news releases via e-mail, please request at corpinfo@parkland.ca. Consolidated Balance Sheet (restated - see Note 2) December 31, December 31, ($000's) 2007 2006 ----------- ----------- Assets Current Assets Cash and cash equivalents $ 6,296 $ 36,462 Accounts receivable 102,360 40,294 Inventories (Note 4) 48,476 29,315 Prepaid expenses and other 10,401 3,874 ----------- ----------- 167,533 109,945 Capital assets (Note 5) 179,952 68,541 Intangible assets (Note 6) 15,120 - Goodwill (Note 7) 11,594 - Other long term assets 1,514 1,499 Future income taxes - 1,438 ----------- ----------- $ 375,713 $ 181,423 ----------- ----------- ----------- ----------- Liabilities Current Liabilities Bank indebtedness (Note 8) $ 22,250 $ - Accounts payable and accrued liabilities 85,311 62,124 Distributions declared and payable 22,175 15,842 Income tax payable 1,716 459 Deferred revenue 3,839 - Long-term debt - current portion (Note 9) 4,101 10,145 ----------- ----------- 139,392 88,570 Long-term debt (Note 9) 14,392 1,651 Refinery remediation accrual (Note 10) 5,713 3,038 Asset retirement obligations (Note 11) 2,227 1,140 Future income taxes (Note 17) 5,284 - ----------- ----------- 167,008 94,399 ----------- ----------- Unitholders' Capital (Note 12) Class B Limited Partners' Capital 12,606 14,331 Class C Limited Partners' Capital 54,121 - Unitholders' Capital 141,978 72,693 ----------- ----------- 208,705 87,024 ----------- ----------- $ 375,713 $ 181,423 ----------- ----------- ----------- ----------- Consolidated Statements of Earnings and Other Comprehensive Income, Accumulated Other Comprehensive Income and Retained Earnings (restated - see Note 2) For the years ended December 31, December 31, ($000's except unit and per unit amounts) 2007 2006 ----------- ----------- Net sales and operating revenue $1,697,663 $1,199,866 Cost of sales 1,465,155 1,061,824 ----------- ----------- Gross profit 232,508 138,042 ----------- ----------- Expenses Operating and direct costs 77,668 47,342 Marketing, general and administrative 39,846 20,044 Amortization 21,627 8,453 Refinery remediation 2,677 - Interest on long-term debt 1,676 1,044 Loss on disposal of capital assets 275 608 ----------- ----------- 143,769 77,491 ----------- ----------- Earnings before income taxes 88,739 60,551 Income tax expense (Note 17) Current 1,280 782 Future 6,722 193 ----------- ----------- 8,002 975 ----------- ----------- Net earnings 80,737 59,576 Other comprehensive income - - ----------- ----------- Comprehensive income $ 80,737 $ 59,576 ----------- ----------- ----------- ----------- Accumulated other comprehensive income, beginning of year $ - $ - Comprehensive income - - ----------- ----------- Accumulated other comprehensive income, end of year $ - $ - ----------- ----------- ----------- ----------- Retained earnings, beginning of year $ - $ - Change in accounting policy for restatement of inventory to FIFO (Note 2) - 7,979 Allocation to Class B Limited Partners (Note 12) (14,339) (15,602) Allocation to Class C Limited Partners (Note 12) (8,624) - Allocation to Unitholders (Note 12) (57,774) (51,953) ----------- ----------- Retained earnings, end of year $ - $ - ----------- ----------- ----------- ----------- Net earnings per unit (Note 3) - basic $ 1.66 $ 1.50 - diluted $ 1.64 $ 1.48 Units outstanding (Note 12) 49,986 38,580 ----------- ----------- ----------- ----------- Consolidated Statement of Cash Flows (restated - see Note 2) For the years ended December 31, December 31, ($000's) 2007 2006 ----------- ----------- Cash Provided By Operations Net earnings $ 80,737 $ 59,576 Add (deduct) non-cash items Amortization 21,627 8,453 Loss on disposal of capital assets 275 608 Unit incentive compensation (Note 12) 1,916 341 Refinery remediation accrual (Note 10) 2,677 - Accretion expense 61 60 Asset retirement obligation expenditures - (40) Refinery remediation expenditures (2) - Future taxes 6,722 193 ----------- ----------- Funds flow from operations 114,013 69,191 Net changes in non-cash working capital (Note 20) (31,177) 1,057 ----------- ----------- Cash from operating activities 82,836 70,248 ----------- ----------- Financing Activities Long-term debt repayments (52,959) (4,815) Distributions to Class B Limited Partners (Note 12) (15,998) (12,934) Distributions to Class C Limited Partners (Note 12) (9,618) - Distributions to Unitholders (Note 12) (44,443) (28,274) Fund units issued (Note 12) 50,133 2,235 Proceeds from long-term debt 29,554 - Net changes in non-cash working capital (Note 20) 28,583 12,500 ----------- ----------- Cash used for financing activities (14,748) (31,288) ----------- ----------- Investing Activities Acquisition of Neufeld Petroleum (Note 13) (47,610) - Acquisition of Joy Propane Ltd. (Note 14) (9,872) - Acquisition of United Petroleum Products (Note 15) (10,425) - Acquisition of Roblyn Bulk Sales Ltd. (Note 16) (2,491) - Recovery in other assets (15) 360 Purchase of capital assets (28,924) (12,846) Proceeds on sale of capital assets 1,083 1,698 ----------- ----------- Cash used for investing activities (98,254) (10,788) ----------- ----------- (Decrease) increase in cash (30,166) 28,172 Cash and cash equivalents, beginning of year 36,462 8,290 ----------- ----------- Cash and cash equivalents, end of year $ 6,296 $ 36,462 ----------- ----------- ----------- ----------- Notes to Consolidated Financial Statements December 31, 2007 Dollar and unit amounts presented in tables are in thousands, except per unit and text information. 1. ACCOUNTING POLICIES Basis of Presentation Parkland Income Fund (the "Fund" or "Parkland") is an unincorporated, open-ended limited purpose mutual fund trust established under the laws of the Province of Alberta on April 30, 2002. The Fund was created to acquire the fuel marketing, convenience store and related ancillary businesses formerly owned by Parkland Industries Ltd. This acquisition was completed on June 28, 2002 through a Plan of Arrangement that resulted in the previous Parkland Industries Ltd. shareholders indirectly exchanging their shares for Units in the Fund or Class B Limited Partnership Units in Parkland Holdings Limited Partnership ("LP Units"), a limited partnership controlled by the Fund. Principles of Consolidation The consolidated financial statements include the accounts of all wholly owned subsidiaries, partnerships and trusts. All significant accounts and transactions between consolidated entities are eliminated. The LP units are, to the greatest extent possible, the economic equivalent to a unit in the Fund. The Class B LP units had a call feature which would have resulted in their conversion to trust units in June 2008 resulting in an income tax obligation to the holders. At a meeting of Class B LP unitholders on June 22, 2007 this call feature was deferred to June 30, 2011. In certain circumstances the Fund may compel the exchange of the LP Units. As such, the LP units, including both Class B and Class C units, are treated as being equivalent to Fund Units. Use of Estimates The preparation of the financial statements necessarily involves the use of estimates and approximations. Should the underlying assumptions change, the actual amounts could differ from those estimated. Estimates are used when accounting for items such as allowance for doubtful accounts, asset retirement obligations, the refinery remediation accrual, amortization and income taxes. These estimates are subject to measurement uncertainty and the effect on the financial statements of future periods could be material. Inventories The Fund values its inventories at the lower of cost and market value. The Fund uses the first-in first-out (FIFO) method of determining the cost of inventory. Goodwill The Fund must record goodwill relating to a corporate acquisition when the total purchase price exceeds the fair value for accounting purposes of the net identifiable assets and liabilities of the acquired company. The goodwill balance is assessed for impairment annually at year-end or as events occur that could result in an impairment. Impairment is recognized based on the fair value of the reporting entity compared to the book value of the reporting entity. If the fair value of the Fund is less than the book value, impairment is measured by allocating the fair value of the Fund to the identifiable assets and liabilities as if the Fund has been acquired in a business combination for a purchase price equal to its fair value. Any excess of the book value of goodwill over the implied value of goodwill is the impairment amount. Impairment is charged to earnings and is not tax affected, in the year in which it occurs. Goodwill is stated at cost less impairment and is not amortized. Amortization Amortization is provided for on a straight line basis over the estimated useful lives of assets at the following annual rates: Land improvements 4 percent Buildings 5 percent Equipment 10 - 20 percent Assets under capital lease 10 - 20 percent Intangible Assets Customer relationships and tradenames acquired during acquisitions are recorded at estimated fair value and will be amortized using the straight-line method over their estimated useful lives of 5 years. The value of non-compete agreements acquired was recorded at estimated fair value and will be amortized using the straight-line method over the term of the agreement. Intangible assets are tested for impairment when conditions exist which may indicate that the estimated future net cash flows from the asset will be insufficient to cover its carrying value. Deferred Revenue Deferred revenue consists of deposits and prepayments by customers for the purchase of product not yet delivered and not recorded as revenue by the Fund. Income Taxes Income earned directly by the Limited Partnership is not subject to income taxes as its income is taxed directly to the Limited Partnership unitholders. Income earned in the Fund and distributed to the Fund unitholders is taxed directly to the Fund unitholders. Income taxes incurred by taxable entities controlled by the Fund are accounted for using the future method. Under this method, the Fund recognizes a future tax liability whenever recovery or settlement of the carrying amount of an asset or liability would result in future income tax outflow. Similarly, the Fund recognizes a future income tax asset whenever recovery or settlement of the carrying amount of an asset or liability would generate future income tax reductions. Asset Retirement Obligations The estimated future costs to remove underground fuel storage tanks at locations where the Fund has a legal obligation to remove these tanks are recorded as Asset Retirement Obligations at the time the tanks are installed. A corresponding increase to the carrying value of the fuel storage tanks is also recorded at installation. The Fund recognizes accretion expense in connection with the discounted retirement obligations and amortization in connection with the increase in carrying value over the estimated remaining life of the respective underground fuel storage tanks. Long-Term Debt Capital lease obligations, which relate to transactions which are similar in nature to a purchase, are capitalized and included in long-term debt. Earnings Per Unit Basic earnings per unit are calculated on the weighted average number of units outstanding for the period. Diluted earnings per unit are calculated by application of the Treasury Stock Method. Under this method, the diluted number of units are calculated based upon the weighted average number of units outstanding for the period plus the dilutive effect of the exercise of those employee options which were "in- the-money" during the period. Special distributions to unitholders in the form of additional units are recorded at the declaration date. The computation of earnings per unit for prior years are retroactively restated to reflect the change in units as a result of special distributions in the form of new units issued. Revenue The Fund recognizes revenue on its sale of goods when title passes to the purchaser or when services are rendered. Grants of Options and Restricted Units The Fund accounts for its grants of options and restricted units in accordance with the fair value based method of accounting for stock-based compensation. Cash and Cash Equivalents Cash and cash equivalents include short-term investments, such as money market deposits or similar type instruments, with a maturity of three months or less when purchased. Prior Year Numbers Certain prior year numbers have been restated to conform with current year presentation. 2. CHANGES IN ACCOUNTING POLICIES On January 1, 2007, the Fund adopted the Canadian Institute of Chartered Accountants (CICA) handbook sections 1530 "Comprehensive Income", section 3251 "Equity" and section 3855 "Financial Instruments - Recognition and Measurement". These standards result in changes in the accounting for financial instruments as well as introduction of accumulated other comprehensive income as a separate component of unitholders' capital. As required, these standards have been adopted prospectively and comparative amounts for the prior periods have not been restated. Comprehensive Income Comprehensive income is comprised of net earnings or loss and other comprehensive income ("OCI"). OCI represents the change in capital for a period that arises from, among other things, unrealized gains and losses on available for sale securities and changes in the fair value of derivative instruments designated as cash flow hedges. The Fund does not currently have any OCI. Equity This section establishes the standards for presentation of capital and changes in capital during the period. It requires separate presentation of changes in unitholders' capital for the period arising from net income, OCI, contributed surplus, retained earnings, unitholders' capital and reserves. Accumulated OCI would be included in the consolidated balance sheet as a separate component of unitholders' capital. Financial Instruments This section establishes standards for the recognition and measurement of financial instruments which is comprised of: financial assets, financial liabilities, derivatives and non-financial derivatives. A financial asset is cash or a contractual right to receive cash or another financial asset, including equity, from another party. A financial liability is the contractual obligation to deliver cash or another financial asset to another party. A derivative is a financial instrument whose value changes in response to a specified variable, requires little or no net investment and is settled at a future date. An embedded derivative is a derivative that is a part of a non-derivative contract and not directly related to that contract. Under this standard, embedded derivatives must be accounted for as a separate financial instrument. A non-financial derivative is a contract that can be settled net in cash or another financial instrument. Under this standard, all financial instruments are initially recorded at fair value and are subsequently accounted for based on one of four classifications: held for trading, held-to-maturity, loans and receivables and other financial liabilities or available-for-sale. The classification of a financial instrument depends on its characteristics and the purpose for which it was acquired. Fair values are based upon quoted market prices available from active markets or are otherwise determined using a variety of valuation techniques and models. i) Held for trading Held for trading financial instruments are financial assets or financial liabilities that are purchased with the intention of selling or repurchasing in the near term. Any financial instrument can be designated as held for trading as long as its fair value can be reliably measured. A derivative is classified as held for trading, unless designated as and considered an effective hedge. Held for trading instruments are recorded at fair value with any subsequent gains or losses from changes in the fair value recorded directly into earnings. All of the Fund's cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities and distributions declared and payable are designated as held for trading and are recorded at fair value. ii) Held-to-maturity Held-to-maturity investments are financial assets with fixed or determinable payments and a fixed maturity that the Fund has the intent and ability to hold to maturity. These financial assets are measured at amortized cost using the effective interest method. Any gains or losses arising from the sale of a held-to-maturity investment are recorded directly into earnings. The Fund has not designated any financial instruments as held-to- maturity. iii) Loans and receivables and other financial liabilities Loans and receivables and other financial liabilities are accounted for at amortized cost using the effective interest method of amortization. The fair value of other assets and long-term debt approximate their carrying values due to their floating interest rates. iv) Available-for-sale Available-for-sale assets are those assets that are not classified as held for trading, held-to-maturity or loans and receivables. Available-for-sale instruments are recorded at fair value. Any gains or losses arising from the change in fair value is recorded in OCI and upon the sale of the instrument or other-than-temporary impairment, the cumulative gain or loss is transferred into earnings. The Fund has not designated any financial instruments as available- for-sale. The methods used by the Fund in determining the fair value of financial instruments are unchanged as a result of implementing the new standard. Under this standard, all guarantees upon inception are required to be recognized on the balance sheet at their fair value. No subsequent re- measurement is required to fair value each guarantee at each subsequent balance sheet date unless the guarantee is considered a derivative. Inventories In June 2007, Canada's Accounting Standards Board (AcSB) issued CICA Handbook Section 3031, Inventories. This new standard provides considerable guidance when determining the cost of inventory. Where costs of inventory items cannot be specifically identified, costs must be assigned consistently on either a "first-in, first-out" (FIFO) or weighted average cost basis. A "last-in first-out" (LIFO) cost basis is no longer acceptable. The standard is effective for fiscal periods beginning on or after January 1, 2008. The Fund early adopted this standard effective January 1, 2007 and applied it retrospectively. As a result of the early adoption of CICA Handbook Section 3031 Inventories and its retrospective application, the Fund recorded the following adjustments to the financial statements: Inventories increased $13.2 million (2006 - $9.0 million), Cost of Sales decreased $4.2 million (2006 - $1.0 million), Net Earnings increased $3.2 million (2006 - $0.8 million) and Unitholders' Capital increased $13.2 million (2006 - $9.0 million). Unitholders' Capital and Inventories at January 1, 2006 were increased by $8.0 million to reflect the impact of this change in accounting policy in prior years. The change in accounting policy increased Net Earnings Per Unit - Basic and Net Earnings Per Unit - Diluted by $0.09 (2006 - $0.03 and $0.02 respectively). 3. EARNINGS ANALYSIS AND EARNINGS PER UNIT (restated - see Note 2) 2007 2006 ------------------------ Net earnings $ 80,737 $ 59,576 ------------------------ Earnings per unit - basic $ 1.66 $ 1.50 - diluted $ 1.64 $ 1.48 Equivalent units outstanding, beginning of year 39,858 39,456 Weighted average of Class C units issued 4,960 - Weighted average of Fund units issued 3,801 - Weighted average of equivalent units issued pursuant to restricted unit plan 26 - Weighted average of equivalent units issued pursuant to distribution reinvestment plan 27 45 Weighted average of equivalent units issued pursuant to exercise of unit options 163 249 ------------------------ Denominator utilized in basic earnings per unit 48,835 39,750 Incremental equivalent units outstanding that were dilutive 460 415 ------------------------ Denominator utilized in diluted earnings per unit 49,295 40,165 ------------------------ Equivalent units outstanding at January 1, 2006 and January 1, 2007 have been restated for the retroactive change resulting from the special distribution of units on December 31, 2007 and December 31, 2006 as well as for the three-for-one split on May 25, 2007. 4. INVENTORIES (restated - see Note 2) 2007 2006 ------------------------ Gas and diesel $ 33,241 $ 25,358 Agricultural inputs 4,624 - Convenience store merchandise 4,448 3,855 Lubricants 2,749 - Propane 2,297 - Other 1,117 102 ------------------------ $ 48,476 $ 29,315 ------------------------ ------------------------ 5. CAPITAL ASSETS Accumulated Net Book December 31, 2007 Cost Amortization Value ------------------------------------- Land $ 26,035 $ - $ 26,035 Land improvements 9,572 2,666 6,906 Buildings 42,927 12,206 30,721 Assets under capital lease 15,554 9,547 6,007 Equipment 156,207 45,924 110,283 ------------------------------------- $ 250,295 $ 70,343 $ 179,952 ------------------------------------- ------------------------------------- Accumulated Net Book December 31, 2006 Cost Amortization Value ------------------------------------- Land $ 13,069 $ - $ 13,069 Land improvements 6,940 2,278 4,662 Buildings 24,738 10,530 14,208 Assets under capital lease 14,038 7,996 6,042 Equipment 63,420 32,860 30,560 ------------------------------------- $ 122,205 $ 53,664 $ 68,541 ------------------------------------- ------------------------------------- 6. INTANGIBLE ASSETS Accumulated Net Book December 31, 2007 Cost Amortization Value ------------------------------------- Customer relationships $ 11,649 $ 1,724 $ 9,925 Tradenames 4,966 836 4,130 Non-compete agreements 1,146 81 1,065 ------------------------------------- $ 17,761 $ 2,641 $ 15,120 ------------------------------------- ------------------------------------- 7. GOODWILL Goodwill arose through acquisitions described in Notes 14 and 15. 8. BANK INDEBTEDNESS On August 1, 2007, the Fund entered into a credit agreement with a syndicate of banks which included a revolving operating facility for working capital requirements to a maximum of $32 million (2006 - $32 million) and subject to margin calculations. The operating facility bears interest at the Prime Rate Advance Rate, a rate determined as the Bank's prime rate plus a percentage according to the ratio of funded debt to Earnings Before Interest on Long-Term Debt, Income Tax Expense, Amortization of Capital Assets, Refinery Remediation Accrual and Loss on Disposal of Capital Assets. The effective rate of interest at December 31, 2007 was 6.0 percent. 9. LONG-TERM DEBT 2007 2006 ------------------------ Bank loans $ 310 $ - Term loan 14,167 - Mortgage payable 248 272 Capital lease obligations 3,768 4,529 Mortgages repaid during the year - 2,959 Bank loans repaid during the year - 4,036 ------------------------ 18,493 11,796 Less current portion 4,101 10,145 ------------------------ $ 14,392 $ 1,651 ------------------------ ------------------------ Estimated repayments for the next 5 years are: Obligations Other Loans under capital leases ------------------------ 2008 $ 1,486 $ 2,615 2009 450 2,583 2010 388 2,565 2011 265 2,543 2012 265 2,504 Thereafter 2,376 1,915 ------------------------ 5,230 14,725 Interest expense included in minimum lease payments 1,462 - ------------------------ $ 3,768 $ 14,725 ------------------------ ------------------------ Bank Loans Bank loans are payable in monthly instalments of $13,189 (2006 - $103,768) plus interest ranging from nil to six percent (2006 - 6.35 percent). The bank loans are secured by vehicles with a net book value of $346,233. Term Loan The term loan is repayable in monthly payments of $208,333 plus interest at the Prime Rate Advance Rate. The effective rate of interest at December 31, 2007 was 6.0 percent (2006 - 6.5 percent). The loan is due in August 2013. The obligations under the credit agreement are secured by a mortgage over the Fund's real property, assignment of insurance and an unlimited guarantee from the secured entities. Mortgage Payable The mortgage payable is repayable in monthly instalments of $3,368 (2006 - $122,346) including interest at 6.25 percent (2006 - 6.7 to 6.8 percent). The mortgage is secured by real property with a net book value of $1,122,452 (2006 - $8,907,000) and matures in October 2008. Capital Lease Obligations Capital lease obligations are payable in monthly instalments totalling $197,305 including interest varying from 0 percent to 16.34 percent and prime plus 0.35 percent per annum. The effective rate of interest at year end for the prime based lease was 6.35 percent (2006 - 6.35 percent). The capital lease obligations are for land, buildings and equipment with a net book value of $5,826,677 and mature at various dates ending September 2022. See Note 24 - Subsequent Events. 10. REFINERY REMEDIATION ACCRUAL In December 2004, the Fund eliminated the carrying value of its Bowden refinery and recorded a net liability of $3.4 million for future estimated costs of remediation of the site, net of salvage value, based on the uncertainty of creating an alternative to the refinery being dismantled, remediated and sold for salvage values. The Refinery Remediation Accrual represents the present value estimate of the Fund's cost to remediate the site. $0.4 million of remediation costs incurred in 2006 were charged against the accrual. During 2006, the Fund entered into a custom processing agreement to toll produce fluids used in the oilfields. The commercial agreement utilized a portion of the processing units at the refinery. The Fund is continuing to pursue other economically viable uses for the remaining processing units at the refinery and therefore any decision to dismantle, remediate and sell the refinery site has been deferred indefinitely. The Fund renewed its refinery operating license in 2007 and fully intends to maximize the revenue generating potential of this facility. The obligations relating to future environmental remediation, however, continue to exist. Assuming the Fund continues operations at the refinery, remediation for any potential environmental liabilities associated with a complete dismantling of the site would be delayed indefinitely. The Fund has estimated the discounted cost of remediation on the basis that operations continue and that remediation would be part of a multi year management plan. Remediation costs have been estimated from independent engineering studies conducted in December 2007. The total undiscounted estimated future cash flows, to be incurred over an extended period after operations cease, are approximately $13.8 million net of salvage value of equipment and will be accreted. Discounting these incremental cash flows resulted in a $2.7 million increase in the refinery remediation accrual at December 31, 2007. The costs are expected to be incurred between 2018 and 2027. The discount rate used to determine the present value of the future costs is 6.9 percent (2006 - 6.9 percent). 11. ASSET RETIREMENT OBLIGATIONS A reconciliation of the Fund's estimated liability for the removal of its underground storage tanks is as follows: 2007 2006 ------------------------ Asset retirement obligations, beginning of year $ 1,140 $ 1,120 Additions during the year 70 - Expenditures during the year - (40) Change in estimates 956 - Accretion expense 61 60 ------------------------ Asset retirement obligations, end of year $ 2,227 $ 1,140 ------------------------ ------------------------ The Fund is liable for the environmental obligations related to the removal of its underground storage tanks at properties that it leases. The Asset Retirement Obligation represents the present value estimate of the Fund's cost to remove these tanks. The total undiscounted estimated future cash flows required to settle the Fund's obligation increased to $3.2 million (2006 - $1.5 million), which primarily reflects the Fund's estimate of increased costs and inflation. Discounting these incremental cash flows resulted in a $1.0 million increase in the asset retirement obligation at December 31, 2007. The costs are expected to be incurred between 2007 and 2019. The discount rate used to determine the present value of the future costs is 6.9 percent (2006 - 6.9 percent). 12. UNITHOLDERS' CAPITAL An unlimited number of Fund Units and LP Units may be created and issued, pursuant to the Fund Declaration of Trust and the Amended and Restated Limited Partnership Agreement, respectively, as outlined in the Plan of Arrangement. Fund Units represent an undivided interest in the Fund. LP Units represent a partnership interest in Parkland Holdings Limited Partnership and are exchangeable on a one-for-one basis into Fund Units. Both Fund Unitholders and LP Unitholders are entitled to vote at meetings of the Fund and are entitled to distributions from time to time as determined by the Board of Directors. 2007 (restated - see Note 2) Number Number of Units Amount of Units Amount --------------------------------------------- Class B Limited Partnership Units Balance, beginning of year 8,566 $ 14,331 8,724 $ 13,055 Adjustment to beginning retained earnings - - - 1,793 --------------------------------------------- Adjusted balance, beginning of year 8,566 14,331 8,724 14,848 Allocation of retained earnings - 14,339 - 13,581 Additional allocation of retained earnings - - - 228 Distribution to partners - (15,998) - (12,934) Exchanged for Fund units (32) (66) (158) (1,392) --------------------------------------------- Balance, end of year 8,534 $ 12,606 8,566 $ 14,331 --------------------------------------------- Class C Limited Partnership Units Balance, beginning of period - $ - - $ - Adjustment to beginning retained earnings - - - - --------------------------------------------- Adjusted balance, beginning of year - - - - Issued on capital acquisition, net of issue costs 5,519 58,954 - - Allocation of retained earnings - 8,624 - - Additional allocation of retained earnings - - - - Exchanged for fund units (354) (3,839) - - Distribution to partners - (9,618) - - --------------------------------------------- Balance, end of period 5,165 $ 54,121 - $ - --------------------------------------------- Fund Units Balance, beginning of year 30,014 $ 72,693 28,288 $ 45,046 Adjustment to beginning retained earnings - - - 6,186 --------------------------------------------- Adjusted balance, beginning of year 30,014 72,693 28,288 51,232 Allocation of retained earnings - 57,774 - 45,010 Additional allocation of retained earnings - - - 757 Issued on vesting of restricted units 26 - - - Unit incentive compensation - 1,916 - 341 Issued for cash, net of issue costs 4,080 47,037 - - Issued under distribution reinvestment plan 44 636 63 491 Issued under unit option plan 462 2,460 339 1,744 To be issued to unitholders pursuant to special distribution 1,275 20,459 1,165 14,963 Distribution to unitholders - (64,902) - (43,237) Exchange of Limited Partnership units 386 3,905 159 1,392 --------------------------------------------- Balance, end of year 36,287 $ 141,978 30,014 $ 72,693 --------------------------------------------- 49,986 $ 208,705 38,580 $ 87,024 --------------------------------------------- --------------------------------------------- On May 4, 2007 the Directors passed a resolution authorizing the Fund to provide for a division of its units on a three-for-one unit basis. The unit split did not change the rights of the holders of units and each unit outstanding after the split is entitled to one vote. These financial statements have been adjusted retroactively for the three-for-one split. Of the 5.519 million Class C Limited Partnership units issued, 4.697 million units are subject to escrow provisions under which one third will be released in each of the three years from January 25, 2007. Unit Option Plan The Fund has a Unit Option Plan under which the Fund may grant up to 3,600,000 unit options to directors, officers, employees and consultants. The maximum number of options is reduced by the number of units allocated to the Restricted Unit Plan. The unit options have a 10 year term and, with limited exceptions, vest proportionally over the first three anniversary dates following the grant. The table below represents the status of the Fund's Unit Option Plan as at December 31, 2007 and 2006 and the changes therein for the years then ended: 2007 2006 Weighted Weighted Number Average Number Average of Unit Exercise of Unit Exercise Options Price Options Price --------------------------------------------- Option units, beginning of year 1,228 $ 6.20 1,650 $ 6.03 Cancelled - - (84) 7.01 Exercised (449) 5.50 (338) 5.18 --------------------------------------------- Option units, end of year 779 $ 6.60 1,228 $ 6.20 --------------------------------------------- --------------------------------------------- Exercisable options, end of year 589 $ 6.43 813 $ 5.58 --------------------------------------------- --------------------------------------------- Exercise prices for outstanding options at December 31, 2007 have the following ranges: 97,875 from $4.15 - $5.87, 196,908 from $6.32 - $6.68 and 484,019 from $6.73 - $7.27. These issue prices represent the market value at the time of issue. The corresponding remaining contractual life for these options range from 5-8 years. The Fund accounts for its grants of options using the fair value based method of accounting for stock based compensation. The total cost to be reported is $0.4 million (2006 - $0.5 million). The compensation cost that has been included in marketing, general and administrative expenses is $0.2 million (2006 - $0.2 million). The fair value of the options granted is estimated using the Black-Scholes options pricing model on the basis of the following assumptions: Expected average annual distribution $ 1.80 Expected average volatility 20 percent Weighted average risk-free interest rate 3.25 percent Expected life 3 years Restricted Unit Plan Effective January 1, 2006, the Fund adopted a Restricted Unit Plan to complement the Unit Option Plan. Under the Plan the units granted in 2006 vest over a five year period and the units issued in 2007 vest over a three year period. The units are subject to entity performance criteria. The table below represents the status of the Fund's Restricted Unit Plan as at December 31, 2007 and the changes therein for the year then ended: 2007 2006 Number Weighted Number Weighted of Units Average of Units Average (000's) Unit Price (000's) Unit Price --------------------------------------------- Restricted units, beginning of year 131 $ 6.60 - $ - Granted 191 12.83 137 6.60 Issued (26) 6.60 - - Cancelled (2) 12.38 (6) 6.55 --------------------------------------------- Restricted units, end of year 294 $ 10.62 131 $ 6.60 --------------------------------------------- --------------------------------------------- The Fund accounts for its grants of restricted units over the graded vesting schedule of each grant. Each grant of restricted units is treated as if the grant were a series of awards rather than a single award. The fair value of the award is determined based on the different expected lives for the restricted units that vest each year. The total cost to be reported for 2007 is $2.4 million (2006 - $0.8 million). The compensation cost that has been included in marketing, general and administrative expenses for 2007 grants is $1.8 million ($0.2 million for 2006). 13. ACQUISITION OF NEUFELD PETROLEUM AND PROPANE LTD. AND NEUFELD HOLDINGS LTD. On January 24, 2007, the Fund acquired all of the outstanding shares of Neufeld Petroleum & Propane Ltd. and Neufeld Holdings Ltd. ("Neufeld Petroleum"). The transaction was accounted for using the purchase method with the allocation of the purchase price as follows: Estimated fair value of net assets acquired: Capital assets $ 87,905.2 Working capital, net (excluding bank indebtedness) 24,750.0 Intangible asset - customer relationships 6,264.1 Intangible asset - tradenames 4,581.2 Intangible asset - non compete agreement 561.0 ------------ $ 124,061.5 ------------ ------------ Consideration: Cash paid to vendor $ 23,468.0 Class C Limited Partnership Units 47,620.1 Acquisition costs 1,982.5 Bank indebtedness assumed 2,137.8 Shareholder loans paid out 17,828.0 Management bonus paid out 4,331.1 Long-term debt assumed 26,694.0 ------------ $ 124,061.5 ------------ ------------ The effective date of the transaction was November 1, 2006. The interim period net earnings after tax to January 24, 2007 of $3 million have been credited to the purchase price. 14. ACQUISITION OF JOY PROPANE LTD. On April 24, 2007, the Fund acquired all of the outstanding shares of Joy Propane Ltd. The transaction was accounted for using the purchase method with the allocation of the purchase price as follows: Estimated fair value of net assets acquired: Capital assets $ 9,716.7 Working capital, other 1,056.0 Cash 1,414.0 Goodwill 4,488.9 ------------ 16,675.6 ------------ ------------ Consideration: Cash paid to vendor 11,201.5 Acquisition costs 84.6 Class C Limited Partnership Units 5,389.5 ------------ $ 16,675.6 ------------ ------------ The effective date of the transaction was February 28, 2007. The interim period net earnings after tax to April 24, 2007 of $168,500 have been credited to the purchase price. There is no tax basis on the goodwill. Goodwill relates to the Fuel Marketing segment. 15. ACQUISITION OF UNITED PETROLEUM PRODUCTS INC. On May 28, 2007, the Fund acquired all of the outstanding shares of United Petroleum Products Inc. The transaction was accounted for using the purchase method with the allocation of the purchase price as follows: Estimated fair value of net assets acquired: Capital assets $ 2,538.4 Working capital, net 2,240.6 Intangible asset - customer relationships 5,000.0 Intangible asset - non compete agreement 200.0 Goodwill 7,105.4 ------------ $ 17,084.4 ------------ ------------ Consideration: Cash paid to vendor $ 10,382.9 Acquisition costs 41.7 Class C Limited Partnership Units 5,944.7 Bank debt assumed 715.1 ------------ $ 17,084.4 ------------ ------------ The effective date of the transaction was May 1, 2007. The interim period net earnings after tax to May 28, 2007 of $247,000 have been credited to the purchase price. There is no tax basis on the goodwill. Goodwill relates to the Fuel Marketing segment. 16. ACQUISITION OF ROBLYN BULK SALES LTD. On December 3, 2007, the Fund acquired all of the outstanding shares of Roblyn Bulk Sales Ltd., a distributor of bulk fuels located in Edson, Alberta. The transaction was accounted for using the purchase method with the allocation of the purchase price as follows: Estimated fair value of net assets acquired: Capital assets $ 1,645.0 Working capital 246.3 Intangible asset - customer relationships 385.0 Intangible asset - tradenames 385.0 Intangible asset - non compete agreement 385.0 ------------ 3,046.3 ------------ ------------ Consideration: Cash paid to vendor 2,491.0 Long term debt assumed 555.3 ------------ $ 3,046.3 ------------ ------------ 17. INCOME TAXES Income tax expense varies from the amounts that would be computed by applying the Canadian Federal and Provincial income tax rates to earnings before provision for income taxes as shown in the following table: 2007 2006 % % --------------------------------------------- Provision for income taxes at statutory rates $ 28,876 32.54 $ 19,673 32.49 Add (deduct) the tax effect of: Income earned in limited partnership (29,228) (32.94) (18,560) (30.65) Effect of taxation of Trusts in 2011 7,717 8.69 - - Large corporation/capital taxes 50 0.06 89 0.15 Other 587 0.66 (227) (0.37) --------------------------------------------- $ 8,002 9.01 $ 975 1.62 --------------------------------------------- --------------------------------------------- The net future income tax liability is comprised of: 2007 2006 ---------------------- Future income tax liabilities Capital assets carrying value in excess of tax values $ 248 $ - Effect of taxation of Trusts in 2011 7,252 - Effect of LIFO to FIFO inventory adjustment 2,017 - Future income tax assets Capital assets tax values in excess of carrying values (2,805) - Refinery remediation (1,428) (1,438) ---------------------- Net future income tax liability (asset) $ 5,284 $ (1,438) ---------------------- ---------------------- On June 12, 2007, the new Trust taxation rules previously announced by the government on October 31, 2006 became substantively enacted. As a result, the future income tax payable and corresponding future income tax expense on the Trust's temporary differences between the accounting basis and the tax basis of its assets and liabilities was recorded in the second quarter of 2007, which totalled $7.5 million. During 2007, the federal government substantively enacted various tax rate reductions, which lowered the corporate tax rates for the years 2008 to 2012 and beyond. The corporate tax rates were reduced from 20.5% in 2008 to an ultimate rate of 15% in 2012 and future years. These federal rate reductions also reduce the taxation rate applicable to trusts from 31.5% to 29.5% starting in 2011 and to 28% in 2012 and beyond. The Fund applied these rate reductions to its future income tax calculations in 2007, resulting in a total future income tax expense of approximately $7.3 million after adjusting for final changes in the third quarter to the purchase price allocation of the acquired companies. 18. COMMITMENTS The Fund has contracted obligations under various debt agreements as well as under operating and capital leases for land, building and equipment. Minimum operating lease payments under the existing terms for each of the five succeeding years are as follows: 2008 $ 2,404 2009 $ 1,586 2010 $ 955 2011 $ 490 2012 $ 315 Thereafter $ 577 The Fund has outstanding letters of credit totalling $25.1 million (2006 - $24.7 million) which mature at various dates to October 31, 2008. The Fund's credit facility provides for letters of credit to a maximum of $30.0 million, subject to margin calculations. The Fund also has purchase commitments under its fuel supply contracts that require the purchase of approximately 1.9 billion litres of fuel products at variable costs over the next year. 19. FINANCIAL INSTRUMENTS The fair value of cash and cash equivalents, accounts receivable, tax payable, distributions payable, bank indebtedness, deferred revenue and accounts payable and accrued liabilities are equal to their carrying values due to their short term maturities. The fair value of the term loan and operating line of credit equal their carrying values as their interest rates fluctuate with the prime lending rate. The carrying values and fair values of mortgages payable, bank loans, capital lease obligations and mortgages and loans receivable are as follows: 2007 2006 Carrying Fair Carrying Fair Value Value Value Value ---------------------------------------------- Mortgages payable $ 248 $ 250 $ 3,238 $ 3,228 Bank loans $ 310 $ 307 $ - $ - Capital lease obligations $ 3,768 $ 4,197 $ 4,529 $ 4,575 Mortgages and loans receivable $ 1,119 $ 1,170 $ 1,393 $ 1,495 Fair value of mortgages payable, bank loans, mortgages and loans receivable and capital lease obligations are estimated using discounted cash flow analysis based upon incremental borrowing rates for similar borrowing arrangements. The Fund does not have a significant credit exposure to any individual customer. The Fund reviews a new customer's credit history before extending credit and conducts regular reviews of its existing customers' credit performance. Mortgages and loans receivable are receivable in monthly instalments of $38,310 (2006 - $38,787), bear interest at rates ranging between nil and 11 percent (2006 - nil and 13 percent) and are secured by specific assets of the mortgage. 20. NET CHANGES IN NON-CASH WORKING CAPITAL (restated - see Note 2) 2007 2006 ---------------------- Accounts receivable $ (18,646) $ (6,041) Inventories (7,926) (2,374) Prepaid expenses and other (6,376) (2,304) Accounts payable (55) 12,455 Income taxes payable (1,871) (679) Deferred revenue 3,697 - ---------------------- Subtotal for operating activities $ (31,177) $ 1,057 ---------------------- ---------------------- Operating line of credit $ 22,250 $ - Distributions declared and payable 6,333 12,500 ---------------------- Subtotal for financing activities $ 28,583 $ 12,500 ---------------------- ---------------------- Other cash flow information Cash taxes paid $ 2,802 $ 1,461 ---------------------- ---------------------- Cash interest paid $ 1,676 $ 1,044 ---------------------- ---------------------- 21. SEGMENTED INFORMATION The Fund's operations have been predominantly in fuel marketing and convenience store sales in western Canada. With the acquisitions in 2007, the Fund now sells propane, fertilizer, lubes, other agricultural inputs and industrial products and services. The Fund's operating segments have been adjusted to reflect these changes. Fuel Marketing includes sales of gasoline, diesel, heating oil, propane fuel and variable rents derived from service station sites. Convenience Store Merchandise continues to include the operations of the Fund owned and operated convenience stores that are integrated into fuel marketing sites and bear common operating costs. Commercial includes primarily the non-fuel components of the acquired businesses as noted in the previous paragraph. Due to the amount of common operating and property costs it is not practical to report these segments below their respective gross profits. The segregation of capital expenditures and total assets is not practical as the reportable segments represent product sales that are generated from common locations. Convenience Fuel Store Marketing Merchandise Commercial Total --------------------------------------------------- Year ended December 31, 2007 Net sales and operating revenue $ 1,558,220 $ 64,538 $ 74,905 $ 1,697,663 Cost of sales 1,370,257 48,154 46,744 1,465,155 --------------------------------------------------- Gross profit $ 187,963 $ 16,384 $ 28,161 $ 232,508 --------------------------------------------------- --------------------------------------------------- Year ended December 31, 2006 (restated - see Note 2) Net sales and operating revenue $ 1,140,242 $ 59,624 $ - $ 1,199,866 Cost of sales 1,017,707 44,117 - 1,061,824 --------------------------------------------------- Gross profit $ 122,535 $ 15,507 $ - $ 138,042 --------------------------------------------------- --------------------------------------------------- 22. RELATED PARTY TRANSACTIONS During 2007, Parkland paid $0.7 million (2006 - $0.4 million) for legal services to Bennett Jones LLP where David Spencer, a Parkland director, is a partner. The majority of services received related to documentation for the acquisitions and a new credit facility. Parkland provides management, labor, accounting and delivery services to Neufeld Petroleum and Propane (High Level) Ltd. (NPPHL). NPPHL is owned by Abe Neufeld, Parkland's Vice President, Commercial Business Development and consists of a small scale Petro-Canada bulk fuel agency in High Level, Alberta. The services are provided by Parkland on a cost recovery basis and totaled $0.5 million during the year. Parkland also sells fuel and related products to NPPHL. The total amount of sales during 2007 was $0.3 million. In addition, Parkland received rental income totaling $0.4 million from NPPHL. The above transactions are all in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. The exchange amounts represent normal commercial terms. 23. RECENT ACCOUNTING PRONOUNCEMENTS Capital Disclosures and Financial Instruments - Presentation and Disclosure The CICA issued three new accounting standards: section 1535 "Capital Disclosures", section 3862 "Financial Instruments - Disclosures" and section 3863 "Financial Instruments - Presentation". Section 1535 establishes disclosure requirements about an entity's capital and how it is managed. The purpose will be to enable users of the financial statements to evaluate objectives, policies and processes for managing capital. Sections 3862 and 3863 will replace section 3861 "Financial Instruments - Disclosure and Presentation", revising and enhancing disclosure requirements while carrying forward its presentation requirements. These new sections will place increased emphasis on disclosure about the nature and extent of risks arising from financial instruments and how the entity manages those risks. The mandatory effective date is for annual and interim periods in fiscal years beginning on or after October 1, 2007. The Fund will begin application of these sections effective January 1, 2008. International Financial Reporting Standards ("IFRS") The Canadian Accounting Standards Board ("AcSB") has adopted a strategy to apply IFRSs to publicly accountable enterprises in the future. In May 2007, the AcSB published an updated version of its "Implementation Plan for Incorporating International Financial Reporting Standards into Canadian GAAP". This plan includes an outline of the key decisions that the AcSB will need to make as it implements the Strategic Plan for publicly accountable enterprises. One step in the implementation plan is for the AcSB to conduct a Progress Review to determine if the changeover date to IFRSs for fiscal years beginning on or after January 1, 2011 continues to be appropriate. The AcSB has commenced these activities and published its initial plan "Progress Review - Steps to IFRS Incorporation into Canadian GAAP" in July 2007. On February 13, 2008, the AcSB confirmed the transition date of January 1, 2011. The transition date of January 1, 2011, will require the Fund to restate for comparative purposes amounts reported for the year ended December 31, 2010. The Fund is still investigating the impact of the adoption of IFRSs on its financial statements. 24. SUBSEQUENT EVENTS Long-Term Debt On February 13, 2008, the Fund accepted the terms and conditions of a financing arrangement with HSBC Bank Canada. The financing arrangement increases the Fund's credit facility from $128.1 million to $159.1 million. The financing arrangement is comprised of $32 million for operating debt, $30 million for letters of credit and the remainder for term debt. The increased financing will be used to finance growth opportunities in 2008. Parkland Income Fund Supplementary Information Three months ended December 31 ($000's except volume) 2007 2006 2005 ------------------------------------------------------------------------- Volume (millions of litres) Retail gas and diesel 139 137 124 Wholesale gas and diesel 358 249 173 Propane 44 - - ------------------------------------------------------------------------- Total fuel volume 541 386 297 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Net sales and operating revenue Retail gas and diesel $ 119,231 $ 102,311 $ 67,774 Wholesale gas and diesel 266,540 161,386 152,066 Propane 28,397 - - ------------------------------------------------------------------------- Fuel sales 414,168 263,697 219,840 Convenience store merchandise sales 15,617 15,179 11,540 Commercial sales 26,349 - - ------------------------------------------------------------------------- Total net sales and operating revenue 456,134 278,876 231,380 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Gross profit $ 61,841 $ 29,099 $ 23,941 Less: Convenience store merchandise gross profit $ 3,802 $ 3,833 $ 3,023 Gross profit on commercial sales 8,398 - - Other revenue included in gross profit 2,297 3,118 1,738 ------------------------------------------------------------------------- Fuel gross profit $ 47,344 $ 22,148 $ 19,180 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Cents per litre $ 0.0875 $ 0.0574 $ 0.0646 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Year ended December 31 ($000's except volume) 2007 2006 2005 ------------------------------------------------------------------------- Volume (millions of litres) Retail gas and diesel 550 527 497 Wholesale gas and diesel 1,366 974 680 Propane 114 - - ------------------------------------------------------------------------- Total fuel volume 2,030 1,501 1,177 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Net sales and operating revenue Retail gas and diesel $ 469,966 $ 433,495 $ 353,786 Wholesale gas and diesel 1,025,281 706,747 476,783 Propane 62,973 - - ------------------------------------------------------------------------- Fuel sales 1,558,220 1,140,242 830,569 Convenience store merchandise sales 64,538 59,624 44,970 Commercial sales 74,905 - - ------------------------------------------------------------------------- Total net sales and operating revenue 1,697,663 1,199,866 875,539 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Gross profit $ 232,508 $ 138,042 $ 96,447 Less: Convenience store merchandise gross profit $ 16,384 $ 15,507 $ 11,856 Gross profit on commercial sales 28,161 - - Other revenue included in gross profit 9,429 8,824 7,014 ------------------------------------------------------------------------- Fuel gross profit $ 178,534 $ 113,711 $ 77,577 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Cents per litre $ 0.0879 $ 0.0758 $ 0.0659 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Station counts: Retail Fas Gas 36 94 111 Fas Gas Plus 92 91 95 Race Trac 2 Esso 11 6 115 ------------------------------------------------------------------------- 141 191 321 ------------------------------------------------------------------------- Wholesale Race Trac Fuels 153 188 215 Fas Gas Plus 26 16 - Fas Gas 32 Esso 179 170 - ------------------------------------------------------------------------- 390 374 215 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Total stations 531 565 536 ------------------------------------------------------------------------- -------------------------------------------------------------------------

For further information:

For further information: Red Deer: Mike W. Chorlton, President and CEO,
(403) 357-6400; John G. Schroeder, Vice President and CFO, (403) 357-6400

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Parkland Fuel Corporation

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