Sun Gro Horticulture Income Fund Announces Reclassification of Income Tax Asset

    TRADING SYMBOL: Toronto Stock Exchange - GRO.UN

    VANCOUVER, March 7 /CNW/ - Sun Gro Horticulture Income Fund (the Fund)
today announced that, as part of an internal review of tax matters, it
determined that Sun Gro Horticulture Canada Ltd. (Sun Gro, or the company) had
filed an income tax return for 2002 that incorrectly carried back operating
losses in that year to a prior period. This resulted in an income tax refund
to the company of $1.1 million that was received in 2003. Instead of carrying
the operating losses back and receiving the tax refund, they should have been
carried forward to offset taxable income in subsequent years. The company has
reached an agreement with the Canada Revenue Agency to repay the $1.1 million
tax refund plus $0.3 million of accrued interest. Payment will be made in
March 2007 with funds drawn on Sun Gro's revolving operating facility. The
company has restated its 2005 balance sheet to reflect a reclassification of
this income tax asset. The benefit of these operating losses will be available
to offset taxes payable in future years. The reclassification did not affect
earnings or distributable cash in 2005 and 2006.
    The restated December 31, 2005 balance sheet reflects a reduction in
future taxes payable, and an increase in accounts payable and other accrued
liabilities equal to the $1.1 million. The interest amount has been recorded
as a 2006 expense. The $1.1 million is equivalent to approximately
$3.5 million of operating losses. The addition of this amount to the operating
losses that the company may carry forward to offset future taxable income
brings the total of Sun Gro's loss carryforwards to approximately
$9.9 million. Of this total, $5.4 million expires in 2010 and $4.5 million
expires in 2015. By utilizing these loss carryforwards, Sun Gro has not yet
needed to take any tax deduction for depreciation. These deductions will still
be available to offset future taxable income in Canada after the loss
carryforwards are utilized.

    Forward-Looking Statements
    This news release contains forward-looking statements. These statements
relate to future events or future performance and reflect Sun Gro's
expectations regarding its growth, results of operations, performance,
business prospects, opportunities or industry performance or trends. These
forward-looking statements reflect management's current internal projections,
expectations or beliefs and are based on information currently available. In
some cases, forward-looking statements can be identified by terminology such
as "may", "will", "should", "expect", "intend", "plan", "anticipate",
"believe", "predict", "potential", "continue" or the negative of these terms
or other comparable terminology. A number of factors could cause actual events
or results to differ materially from those discussed in the forward-looking
statements. Important factors that could cause actual results to differ
materially from Sun Gro's expectations include, among other things,
fluctuations in currency exchange rates, changes in tax laws, the impact of
adverse weather conditions on harvesting operations, an increase in freight
rates, and the impact of an increase in fuel costs. You should specifically
consider these factors, including the risks and uncertainties described in the
Fund's most recent annual information form for the year ended December 31,
2005. In addition, the Fund's ability to make distributions to unitholders is
entirely dependent on Sun Gro's performance. Although management believes that
the forward-looking statements contained in this news release are based on
reasonable assumptions, readers cannot be assured that actual results will be
consistent with such statements. Forward-looking statements are made as of the
date of this news release and Sun Gro assumes no obligation to update or
revise them to reflect new events or circumstances.

    Non-GAAP Measures
    Distributable cash is not an earnings measure recognized by GAAP and does
not have a standardized meaning prescribed by GAAP. Therefore, the
distributable cash of the Fund may not be comparable to the distributable cash
measures presented by other issuers. However, distributable cash is commonly
used by Canadian open-ended trusts as an indicator of financial performance
and the Fund believes that distributable cash is a useful supplemental measure
that may assist in assessing the potential return on an investment in the
Fund. The calculation of distributable cash is based on cash flows from
operating activities before changes in non-cash operating working capital,
adjusted for sustaining capital expenditures, realized gains from forward
currency contracts, government grants and loans, and such reserves as the
Board of Directors and Trustees of the Fund may consider appropriate. Certain
expenditures that are incurred as part of earnings-enhancing capital projects
and acquisitions are excluded from the determination of distributable cash
flow if the project or acquisition is funded by term debt or equity financing.

    Income Fund Profile
    Sun Gro Horticulture Income Fund was launched with the completion of an
Initial Public Offering of 22,023,000 trust units on March 27, 2002. The Fund
is dependent on Sun Gro's operations, with monthly distributions to its
unitholders based entirely on Sun Gro's performance.

    Company Profile
    Sun Gro was founded in 1929 in Vancouver, BC and has grown to become
North America's largest producer of sphagnum peat, and the largest distributor
of peat moss, and peat and bark-based growing media to professional plant
growers in the US and Canada. Sun Gro sells its professional products
primarily to greenhouse, nursery and specialty crop growers, as well as to
golf course developers and landscapers. Sun Gro also sells peat moss and
peat-based growing mixes to retail customers, either by way of private label
partnerships or under its own brand names. Approximately 80% of the company's
sales volume goes to the US.

    %SEDAR: 00017490E

For further information:

For further information: Bradley A. Wiens, Vice-President, Finance and
CFO, Sun Gro Horticulture Income Fund, Tel: (425) 373-3603, Email:, Website:

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