Translate
Jun. 14, 2011 (Filing Services Canada) -- Badger Daylighting Ltd. (BAD - TSX), (the "Company" or "Badger") is pleased to announce its results for the year three months ended March 31, 2011.
Revenues for the three months ended March 31, 2011 increased by approximately 35 percent to $41.0 million from $30.3 million for the comparable quarter of 2010 due to a 48 percent increase in Canadian revenues and a 17 percent increase in United States revenues. As a result of the increase in revenues, the Company's quarterly EBITDA and funds generated from operations also increased from the same period in 2010. Badger's EBITDA increased by approximately 21 percent to $10.1 million for the three months ended March 31, 2011 from $8.3 million in the same quarter of 2010, while funds generated from operations increased by approximately 18 percent to $8.1 million from $6.9 million in both quarters. EBITDA margins in Canada were at a similar level in the first quarter of 2011 as 2010. The EBITDA margins in the United States decreased from 27 percent in the first quarter of 2010 to 20 percent in the first quarter of 2011 due to less revenue than anticipated from the various corporate locations due to poor weather in a number of areas.
The Company renewed and increased its extendable revolving credit facility to $60 million in June 2011. It is anticipated this renewal and increase in facility will provide sufficient funds for Badger's 2011 capital expenditure plan.
Badger had 429 daylighting units at the end of the first quarter of 2011, reflecting the addition of 18 daylighting units to the fleet and the retirement of one unit. Of the total, 236 units were operating in Canada and 193 in the United States at quarter-end. Badger had 412 daylighting units at December 31, 2010. The new units were financed from cash generated from operations and existing credit facilities.
Management's Discussion and Analysis
The following Management's Discussion and Analysis (MD&A) should be read in conjunction with the attached unaudited interim consolidated financial statements of Badger Daylighting Ltd. (the "Company" or "Badger"). The interim consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS"). Readers should also refer to the December 31, 2010 audited consolidated financial statements and MD&A, which along with all previous public filings, including the Company's Annual Information Form for the year ended December 31, 2010, may be found on SEDAR at www.sedar.com.
This MD&A has been prepared taking into consideration information available to June 13, 2011.
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION AND STATEMENTS
Certain statements and information contained in this MD&A and other continuous disclosure documents of the Company referenced herein, including statements related to the Company's capital expenditures, projected growth, view and outlook toward margins, cash dividends, customer pricing, future market opportunities and statements, and information that contain words such as "could", "should", "can", "anticipate", "expect", "believe", "will", "may" and similar expressions relating to matters that are not historical facts, constitute "forward-looking information" within the meaning of applicable Canadian securities legislation. These statements and information involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements and information. The Company believes the expectations reflected in such forward-looking statements and information are reasonable, but no assurance can be given that these expectations will prove to be correct. Such forward-looking statements and information included in this MD&A should not be unduly relied upon. These forward-looking statements and information speak only as of the date of this MD&A.
In particular, forward-looking information and statements include discussion concerning:
* Internal preparations for anticipated growth in 2011 with the hydrovac build increasing to two units per week;
* That the market for hydrovac services will continue to improve in 2011 in most markets;
* That the economy in Canada and the United States will not be materially different in 2011;
* That the new locations opened in 2010 in the United States will provide an increased contribution to cash flows from operations and net earnings during 2011;
* That Eastern Canada will continue with stable growth through an increase in the overall market for hydrovac services and continued infrastructure spending; and
* That there will be an increase in Western Canada revenue during 2011 due to various projects and spending in the oil and natural gas sector.
The forward-looking statements rely on certain expected economic conditions and overall demand for Badger's services and are based on certain assumptions. The assumptions used to generate forward-looking statements are, among other things, that:
* Badger has the ability to achieve its internal revenue, net earnings and cash flow forecasts for 2011;
* There will be long-term demand for hydrovac services provided in support of oil refineries, petro-chemical plants, power plants and other large industrial facilities throughout North America;
* Badger will maintain relationships with current customers and develop successful relationships with new customers;
* The Company will collect customer obligations in a timely manner; and
* Badger will execute its growth strategies.
Risk factors and other uncertainties that could cause actual results to differ materially from those anticipated in such forward-looking statements include, but are not limited to: supply-demand fluctuations for oil and natural gas and related products and services; political and economic conditions; industry competition; Badger's ability to attract and retain key personnel; the availability of future debt and equity financing; changes in laws or regulations, including taxation and environmental regulations; and fluctuations in foreign exchange or interest rates.
Readers are cautioned that the foregoing factors are not exhaustive. Additional information on these and other factors that could affect the Company's operations and financial results is included in reports on file with the Canadian securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com) or at the Company's website. The forward-looking statements and information contained in this MD&A are expressly qualified by this cautionary statement. The Company does not undertake any obligation to publicly update or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.
NON-IFRS FINANCIAL MEASURES
This MD&A contains references to certain financial measures, including some that do not have any standardized meaning prescribed by IFRS and that may not be comparable to similar measures presented by other corporations or entities. These financial measures are identified and defined below:
"Cash available for growth and distribution/dividend" is used by management to supplement cash flow as a measure of operating performance and leverage. The objective of this measure is to calculate the amount available for dividends to shareholders. It is defined as funds generated from operations less required debt repayments and maintenance capital expenditures, plus any proceeds received on the disposal of assets.
"EBITDA" is earnings before interest, taxes, depreciation and amortization and is a measure of the Company's operating profitability and is therefore useful to management and investors. EBITDA provides an indication of the results generated by the Company's principal business activities prior to how these activities are financed, assets are amortized or how the results are taxed in various jurisdictions. EBITDA is calculated from the Consolidated Statements of Comprehensive Income as gross profit less selling, general and administrative costs. It is calculated as follows:
------------------------------------------
Three months ended March 31,
------------------------------------------
$ 2011 2010
------------------------------------------
Gross profit
12,822,984 10,687,676
Selling, general
and administrative (2,697,642) (2,341,936)
------------------------------------------
EBITDA 10,125,342 8,345,740
------------------------------------------
"Funded debt" is a measure of Badger's long-term debt position. Funded debt is long-term debt.
"Funds generated from operations" is used to assist management and investors in analyzing operating performance and leverage. It is not intended to represent operating cash flow or operating profits for the period nor should it be viewed as an alternative to cash flow from operating activities, net earnings or other measures of financial performance calculated in accordance with IFRS. Funds generated from operations are derived from the Consolidated Statement of Cash Flows and is calculated as follows:
-------------------------------------------------
Three months ended March 31,
-------------------------------------------------
$ 2011 2010
-------------------------------------------------
Cash provided by 7,908,136 9,654,099
operating activities
-------------------------------------------------
Add (deduct):
Net change in non-cash
working capital relating to 167,708 (2,803,611)
operating activities
-------------------------------------------------
Funds generated from 8,075,844 6,850,488
operations
-------------------------------------------------
"Growth capital expenditures" are capital expenditures that are intended to improve Badger's efficiency, productivity or overall capacity and thereby allow Badger to access new markets. It generally represents any net additions to the daylighting fleet. Growth capital expenditures exclude acquisitions made during the period.
"Maintenance capital expenditures" are any amounts incurred during a reporting period to keep the Company's daylighting fleet at the same number of units, plus any other capital expenditures required to maintain the capacities of the existing business. They also include any costs incurred to extend the operational life of a daylighting unit. The amount will fluctuate from period-to-period depending on the number of units retired from the fleet.
"Net debt" is funded debt less cash and cash equivalents. Cash available for growth and distribution/dividend, EBITDA, funded debt, funds generated from operations, growth capital expenditures, maintenance capital expenditures and net debt throughout this document have the meanings set out above.
FINANCIAL HIGHLIGHTS
($ thousands, except per unit and total units outstanding information)
-------------------------------------------------------------------------
Three months Three months
Ended ended
March 31, March 31,
2011 2010
-------------------------------------------------------------------------
Revenues 40,971 30,334
-------------------------------------------------------------------------
EBITDA 10,125 8,346
-------------------------------------------------------------------------
Profit before tax 6,481 5,005
-------------------------------------------------------------------------
Income tax expense
Current 1,494 426
Deferred 605 270
-------------------------------------------------------------------------
Net profit 4,382 4,309
-------------------------------------------------------------------------
Profit per share - diluted ($) 0.40 0.40
-------------------------------------------------------------------------
Funds generated from operations 8,076 6,850
-------------------------------------------------------------------------
Funds generated from operations
per share - diluted ($) 0.74 0.63
-------------------------------------------------------------------------
Maintenance capital expenditures 417 1,690
-------------------------------------------------------------------------
Required long-term debt repayments 81 81
-------------------------------------------------------------------------
Cash available for growth and
dividends/distributions 7,611 5,274
-------------------------------------------------------------------------
Dividends/distributions declared 2,757 3,405
-------------------------------------------------------------------------
Growth capital expenditures 4,691 910
-------------------------------------------------------------------------
Total shares outstanding 10,813,631 10,808,503
-------------------------------------------------------------------------
OVERVIEW
Revenues for the three months ended March 31, 2011 increased by approximately 35 percent to $41.0 million from $30.3 million for the comparable quarter of 2010 due to a 48 percent increase in Canadian revenues and a 17 percent increase in United States revenues. As a result of the increase in revenues, the Company's quarterly EBITDA and funds generated from operations also increased from the same period in 2010. Badger's EBITDA increased by approximately 21 percent to $10.1 million for the three months ended March 31, 2011 from $8.3 million in the same quarter of 2010, while funds generated from operations increased by approximately 18 percent to $8.1 million from $6.9 million in the comparable quarter of 2010. EBITDA margins in Canada were similar in each reporting period. The EBITDA margins in the United States decreased from 27 percent in the first quarter of 2010 to 20 percent in the first quarter of 2011 due to less revenue than anticipated from the various corporate locations due to poor weather in a number of areas.
The Company renewed and increased its extendable revolving credit facility to $60 million in June 2011. It is anticipated this renewal and increase in facility will provide sufficient funds for Badger's 2011 capital expenditure plan.
Badger had 429 daylighting units at the end of the first quarter of 2011, reflecting the addition of 18 daylighting units to the fleet and the retirement of one unit. Of the total, 236 units were operating in Canada and 193 in the United States at quarter-end. Badger had 412 daylighting units at December 31, 2010. The new units were financed from cash generated from operations and existing credit facilities.
CORPORATE CONVERSION
On June 29, 2010, unitholders of the Badger Income Fund (the "Fund") voted in favour of converting the Fund into a corporation, pursuant to a statutory plan of arrangement (the "Conversion") involving, among others, the Fund, Badger, and the securityholders of the Fund. The Conversion was completed on December 31, 2010.
The Conversion was accounted for as a continuity of interests of the Fund since there was no change of control and since Badger continues to operate the business of the Fund. Accordingly, this MD&A and accompanying consolidated financial statements reflect Badger as a corporation at December 31, 2010 and as Badger Income Fund prior thereto. All references to "shares" refer collectively to Badger's common shares on and subsequent to December 31, 2010 and to Fund units prior to the Conversion. All references to "shareholders" refer collectively to holders of Badger's shares on and subsequent to December 31, 2010 and the Fund unitholders prior to the Conversion. References to "stock-based compensation" should be read as references to "unit-based compensation" for all periods prior to December 31, 2010.
As a result of the conversion, unitholders of the Fund received one common share of Badger for one unit of the Fund. The trust structure of Badger was reorganized into a publicly listed corporation, which became the owner of all issued and outstanding Fund units. Badger also now holds all the assets and liabilities previously held, directly or indirectly, by the Fund.
ACQUISITION OF BADGER BY CLEAN HARBORS, INC.
On January 26, 2011 Badger signed an agreement to be acquired by Clean Harbors, Inc. ("Clean Harbors"). Under the terms of the agreement, Clean Harbors was to acquire 100 percent of Badger's outstanding common shares for cash consideration of $20.50 per share (the "Transaction"). The Transaction was conditional on the approval of not less than 66 2/3 percent of the votes cast by the shareholders and optionholders of Badger. Badger held a meeting to consider the Transaction on April 26, 2011. The shareholder and optionholder vote did not receive the requisite number of votes required to approve the Transaction and, accordingly, the Transaction was not completed. As a result, pursuant to the terms of the agreement, Badger must pay Clean Harbors up to a maximum of $1.5 million.
OUTLOOK
Badger began 2011 with a strong quarter which was primarily due to better than forecast results in Eastern and Western Canada. In 2010 Western Canada had an early and prolonged spring breakup - this year Badger was able to work much later into the first quarter due to cold weather. In both Eastern and Western Canada Badger experienced a higher than anticipated level of demand for its services. In general the United States demand for Badger's services was moderated in the first quarter due to difficult weather conditions in several areas.
Looking ahead, Badger believes that results in 2011 will exceed management's original forecast for the following reasons:
1. Projects and spending in the oil and natural gas sector are currently at good levels for Badger which should allow Western Canada and key areas in the United States to grow.
2. New areas established in the United States last year are beginning to develop customers and work, which should improve United States growth this year.
3. Eastern Canada markets appear to be strong, with good forecast demand for Badger services.
4. Badger is currently very close to its target build rate of two units per week. These new units are primarily for growth purposes and will contribute to increased revenue as they are put into service.
5. The Clean Harbors potential acquisition of Badger and related process was a distraction for management and employees. With this distraction now removed, Badger can focus on improving and growing its business.
The first quarter of 2011 was a good one. Badger believes the rest of the year also looks good and the Company is looking forward to executing its plan for the year.
Results of Operations
Revenues
Revenues of $41.0 million for the three months ended March 31, 2011 were 35 percent greater than the $30.3 million generated during the comparable period in 2010. The increase is attributable to the following:
* Canadian revenues increased by 48 percent from $17.7 million in the first quarter of 2010 to $26.2 million in the first quarter of 2011. Western Canada hydrovac revenue increased by 55 percent due to a general increase in the number of days worked due in turn to a later than usual spring break-up plus an increase in demand for hydrovac services in various areas due to increased activity in the oil and natural gas industry. Eastern Canada revenue increased by 36 percent quarter-over-quarter due to a general increase in activity; and
* United States revenue went from $12.6 million for the three months ended March 31, 2010 to $14.8 million for the three months ended March 31, 2011. Removing the effect of the change in the foreign exchange rate, revenues increased by 23 percent quarter-over-quarter. The increase is due to more work in the United States West and East due to increased activity in the oil and natural gas industry plus the increase in activity at one large project.
Badger's average revenue per truck per month during the three months ended March 31, 2011 was $30,000 versus $22,000 for the three months ended March 31, 2010. The increase is due to increased revenue noted above.
Direct Costs
Direct costs for the quarter ended March 31, 2011 were $28.1 million compared to $19.6 million for the quarter ended March 31, 2010. This increase of 43 percent is greater than the increase in revenues of 35 percent due to less than anticipated revenues being generated from a number of the United States corporate locations due to poor weather.
Gross Profit
The gross profit percentage was 31.3 percent for the quarter ended March 31, 2011, a decrease from the 35.2 percent generated for the quarter ended March 31, 2010. The Canadian gross profit percentage decreased slightly from 37.2 percent for the three months ended March 31, 2010 to 35.9 percent for the three months ended March 31, 2011 due the investment to increase the number of Western Canada corporate locations. United States gross profit percentage decreased from 35.2 percent for the three months ended March 31, 2010 to 23.1 percent for the three months ended March 31, 2011 due to a significant increase in the number of corporate locations in 2010, many of which did not generate the anticipated amount of revenue due to poor weather conditions.
Depreciation of Property, Plant and Equipment
Depreciation of property, plant and equipment was $3.3 million for the three months ended March 31, 2011 or $0.1 million higher than the $3.2 million incurred for the three months ended March 31, 2010 due to the increased number of hydrovac units in the fleet.
Finance Cost
Finance cost was $0.3 million for the quarter ended March 31, 2011 versus $0.2 million for the quarter ended March 31, 2010. The higher finance cost was due to having a higher average debt balance quarter-over-quarter.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by 15 percent to $2.7 million for the quarter ended March 31, 2011 from $2.3 million for the quarter ended March 31, 2010. The main reasons for the increase were costs incurred related to the Clean Harbors transaction referred to above and an increase in personnel costs as a result of a growth in the business. As a percentage of revenues, selling, general and administrative expenses decreased to 6.6 percent for the first quarter of 2011 from 7.7 percent for the first quarter of 2010. The main reason for the decrease was the increase in revenues.
Income Taxes
The effective tax rate for the quarter ended March 31, 2011 was 32 percent, which is a significant increase from the effective tax rate of 14 percent for the quarter ended March 31, 2010. The main reason for the increase was the conversion to a corporate structure on December 31, 2010, as discussed above. As a trust the distributions made to unitholders were tax deductible.
Exchange Differences on Translation of Foreign Operations
The exchange differences results from converting the balance sheet and earnings statement related to the United States operations into Canadian currency.
Liquidity and Distributions
Funds generated from operations increased to $8.1 million for the quarter ended March 31, 2011 from $6.9 million for the comparable period in 2010 due primarily to increased Canadian EBITDA. The Company uses its cash to pay dividends to shareholders, build additional hydrovac units, invest in maintenance capital expenditures and repay long-term debt.
The Company had working capital of $38.7 million at March 31, 2011 compared to $38.1 million at December 31, 2010. The slight increase was due to the cash flow from operations and long-term debt proceeds exceeding capital expenditures and dividends to shareholders and an increase in accounts receivable due to the increase in revenues in each of Canada and the United States in the first quarter of 2011.
The following table outlines the cash available to fund growth and pay dividends to shareholders for the three months ended March 31, 2011:
----------------------------------------------------------------------
($)
----------------------------------------------------------------------
Cash provided by operating activities 7,908,136
Add (deduct): net change in non-cash
working capital 167,708
----------------------------------------------------------------------
Funds generated from operations 8,075,844
Add: proceeds from sale of property, plant
and equipment 33,554
----------------------------------------------------------------------
Deduct: required repayments of long-term debt (80,940)
----------------------------------------------------------------------
Deduct: maintenance capital expenditures (417,363)
----------------------------------------------------------------------
Cash available for growth capital expenditures
and dividends 7,611,095
----------------------------------------------------------------------
Growth capital expenditures 4,690,736
----------------------------------------------------------------------
Dividends declared 2,757,477
----------------------------------------------------------------------
In determining cash available for dividends the Company excludes non-cash working capital changes for the period as well as growth capital expenditures. Changes in non-cash working capital items have been excluded so as to remove the effects of timing differences in cash receipts and disbursements, which generally reverse themselves and can vary significantly between fiscal periods. Growth capital expenditures have been excluded so as to include only the maintenance capital expenditures required for the sustainability of the existing asset base.
The following table outlines the excess of cash provided by operating activities and net profit for the period over dividends declared during the quarter ended March 31, 2011 and the year ended December 31, 2010:
-------------------------------------------------------------------------
Three months ended Year ended
($) March 31, 2011 December 31, 2010
-------------------------------------------------------------------------
Cash provided by
operating activities 7,908,136 26,104,861
-------------------------------------------------------------------------
Net profit 4,381,826 19,633,096
-------------------------------------------------------------------------
Dividends/distributions declared 2,757,477 13,618,879
-------------------------------------------------------------------------
Excess of cash provided by
operating activities over
dividends/distributions
declared 5,150,659 12,485,982
-------------------------------------------------------------------------
Excess of net profit over
Dividends/distributions declared 1,624,349 6,014,217
-------------------------------------------------------------------------
The Company pays cash dividends monthly to its shareholders. These cash dividends may be reduced, increased or suspended entirely by the Board of Directors depending on the operations of Badger and the performance of its assets. The actual cash flow available for dividends to shareholders of Badger is a function of numerous factors, including: the Company's financial performance; debt covenants and obligations; working capital requirements; maintenance and growth capital expenditure requirements for the purchase of property, plant and equipment; and number of shares outstanding.
The Company maintains a strong balance sheet. The debt management strategy includes retaining sufficient funds from available distributable cash to finance maintenance capital expenditures as well as working capital needs. Growth capital expenditures will generally be financed through existing debt facilities or cash retained from operating activities. The majority of the cash provided by operating activities in the three months ended March 31, 2011 was used to finance maintenance and growth capital expenditures and to pay dividends to shareholders.
If maintenance capital expenditures increase in future periods, the Company's cash available for growth capital expenditures and dividends will be negatively affected. Due to Badger's growth rate in recent years, the majority of the hydrovac units are relatively new, with an average age of approximately five years. As a result, Badger is currently experiencing relatively low levels of maintenance capital expenditures. Over time, Badger would expect to incur annual maintenance capital expenditures in an amount that approximates the depreciation expense reported in the year. Badger estimates it will remove approximately 30 hydrovac units from the fleet in 2011. Badger is currently looking at the cost of extending the life of certain of these 30 hydrovac units, which could reduce this number significantly. Badger expects that cash provided by operations and cash available for growth capital expenditures and dividends will be sufficient to fund the maintenance capital expenditures in the future.
Badger is restricted from declaring dividends if it is in breach of the covenants under its credit facilities. As at the date of this MD&A the Company is in compliance with all debt covenants and is able to fully utilize all existing credit facilities. Badger does not have a stability rating.
Capital Resources
Investing
The Company spent $5.1 million on property, plant and equipment for the three months ended March 31, 2011 compared to $2.6 million for the three months ended March 31, 2010. The Company built 18 hydrovac units during the three months ended March 31, 2011 compared to four hydrovac units during the three months ended March 31, 2010. The costs to build a hydrovac unit decreased by approximately 9 percent from fiscal 2010 to the first quarter of 2011. The main reason for the decrease was the increased build rate resulting in fixed overhead costs being allocated to more units and a lower than expected average chassis cost due to the purchase of a group of chassis from a dealer who had them in stock from cancelled orders.
Maintenance capital expenditures are incurred during a period to keep the hydrovac fleet at the same number of units plus any other capital expenditures required to maintain the existing business. This amount will fluctuate from period-to-period depending on the number of units retired from the fleet. During the first quarter of 2011 only one hydrovac unit was removed from the fleet and, therefore maintenance capital expenditures were minimal.
During the fourth quarter of 2010 Badger acquired a number of cab and chassis. As at December 31, 2010 these assets were included as "Equipment under construction" of approximately $5.6 million. Based on the current build rate of the hydrovac units, Badger has enough cab and chassis on hand for the first half of 2011. Badger has committed to additional cab and chassis expenditures in the amount of approximately $7.3 million.
Financing
In June 2011 the Company's extendable revolving credit facility was renewed. The principal amount was increased from $40 million to $60 million. The facility has been used and will continue to be used to assist in financing Badger's capital expenditure program and support corporate activities. The facility has no required principal repayments. It expires on June 24, 2012 and is renewable at Badger's option for an additional 364-day period. If not renewed, interest is payable on the facility for 364 days, after which the entire amount must be repaid. The facility bears interest at the bank's prime rate or bankers' acceptance rate plus 1.25 percent plus 0 to 0.75 percent depending on Badger's ratio of funded-debt-to-EBITDA.
In connection with renewing the revolving credit facility the two mortgages outstanding in the amount of $3.1 million were paid off.
The Company's net debt outstanding increased slightly during the first quarter of 2011. As at March 31, 2011 Badger's cash and cash equivalents were $12.3 million resulting in net debt of $29.2 million versus cash and cash equivalents of $11.9 million and net debt of $28.8 million at December 31, 2010. During the fourth quarter of 2010 the Company made a substantial investment in cab and chassis, which are being used in its 2011 capital expenditure program.
Management believes that the Company's healthy balance sheet combined with funds generated from operations will provide sufficient capital to fund ongoing operations, pay dividends to shareholders, finance future capital expenditures and execute its strategic plan for the foreseeable future. The Company's practice is to utilize an appropriate mix of debt and equity to finance its maintenance capital expenditures and growth initiatives.
Badger is in compliance with all financial covenants under the credit facility agreement. There is no material impact on the covenants for changes due to IFRS. Financial performance relative to the financial ratio covenants under the extendable revolving credit facility is reflected in the table below:
---------------------------------------------------------------
Ratio March 31, December 31, Threshold
2011 2010
---------------------------------------------------------------
Current[(1)] 3.22:1 3.58:1 1.20:1 minimum
---------------------------------------------------------------
Funded Debt[(2)]to 0.80:1 0.83:1 2.00:1 maximum
EBITDA[(3)]
---------------------------------------------------------------
Fixed Charge 1.91:1 1.91:1 1.00:1 minimum
Coverage[(4)]
---------------------------------------------------------------
Distribution/Dividend[(5)] 0.60:1 0.71:1 1.00:1 maximum
---------------------------------------------------------------
1 Current ratio means the ratio of the consolidated current assets to consolidated net current liabilities (excluding the current portion of long-term debt).
2 Funded debt is long-term debt less cash and cash equivalents.
3 Funded debt to EBITDA means the ratio of consolidated funded debt to the aggregated EBITDA for the trailing 12 months. EBITDA is defined as the Company's actual EBITDA for the trailing 12 months.
4 Fixed charge coverage ratio means the trailing 12-month EBITDA less unfinanced capital expenditures and cash taxes, plus the unused portion of the extendable revolving credit facility, to the sum of the aggregate of scheduled long-term debt principal payments, interest and distributions/dividends.
5 Distribution/dividend ratio means distributions/dividends for the trailing 12-month period to the sum of funds generated from operations less scheduled long-term debt principal payments and maintenance capital expenditures.
In addition to the above the Company has committed to certain capital expenditures totalling approximately $12.4 million. These capital expenditures will be financed with existing credit facilities and funds generated from operations. There are no set terms for remitting payment for these financial commitments.
SHARE CAPITAL
There was no change to shareholders' capital during the first quarter of 2011. Shares outstanding at March 31, 2011 were 10,813,631. There was no change to the balance as of June 13, 2011.
SELECTED QUARTERLY FINANCIAL INFORMATION
-------------------------------------------------------------------------
($) 2011 IFRS
2010
Q1 Q4 Q3 Q2 Q1
-------------------------------------------------------------------------
Revenues 40,970,978 41,175,494 38,727,159 29,374,171 30,333,959
-------------------------------------------------------------------------
Net profit 4,381,826 5,668,694 6,371,129 3,284,227 4,309,046
-------------------------------------------------------------------------
Net profit
per share -
basic 0.41 0.52 0.59 0.31 0.40
-------------------------------------------------------------------------
Net profit
per share -
diluted 0.40 0.52 0.59 0.30 0.40
-------------------------------------------------------------------------
-------------------------------------------------------------------------
($) Canadian GAAP
2009
Q4 Q3 Q2
-------------------------------------------------------------------------
Revenues 33,123,204 35,004,725 29,459,240
-------------------------------------------------------------------------
Net profit 6,257,324 4,795,804 2,926,670
-------------------------------------------------------------------------
Net profit
per share -
basic 0.58 0.44 0.27
-------------------------------------------------------------------------
Net profit
per share -
diluted 0.58 0.44 0.27
-------------------------------------------------------------------------
INTERNATIONAL FINANCIAL REPORTING STANDARDS UPDATE
Badger has prepared its March 31, 2011 interim consolidated financial statements in accordance with IFRS 1, First-time Adoption of International Financial Reporting Standard, and with IAS 34, Interim Financial Reporting, as issued by the IASB. Previously, Badger prepared its financial statements in accordance with Canadian GAAP. The adoption of IFRS has not had a material impact on Badger's operations, strategic decisions, or internal controls.
Badger's IFRS accounting policies are provided in Note 4 to the interim consolidated financial statements. In addition, Note 27 to the interim consolidated financial statements presents reconciliations between the Company's 2010 previous GAAP results and the 2010 IFRS results and an explanation of how the transition from Canadian GAAP to IFRS has affected the Company's financial position, financial performance and cash flows.
ACCOUNTING STANDARDS PENDING ADOPTION
All accounting standards effective for periods beginning on or after January 1, 2011 have been adopted as part of the transition to IFRS. New IFRS pronouncements have been issued but are not in effect as at March 31, 2011. However, the pronouncements may have a future impact on the measurement and/or presentation of the Company's financial statements. These are outlined in Note 5 to the quarterly financial statements.
CRITICAL ACCOUNTING ESTIMATES
There have been no material changes to critical accounting estimates since December 31, 2010.
DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROL OVER FINANCIAL REPORTING
Disclosure controls and procedures
Badger's President and CEO and the VP Finance and CFO have designed, or caused to be designed under their direct supervision, Badger's disclosure controls and procedures (as defined by National Instrument 52-109 - Certification of Disclosure in Issuers' Annual and Interim Filings, adopted by the Canadian Securities Administrators) to provide reasonable assurance that (i) material information relating to Badger, including its consolidated subsidiaries, is made known to them by others within those entities, particularly during the period in which the annual filings are being prepared; and (ii) material information required to be disclosed in the annual filings is recorded, processed, summarized and reported on a timely basis. Further, they have evaluated, or caused to be evaluated under their direct supervision, the effectiveness of Badger's disclosure controls and procedures at December 31, 2010 and as a result of identifying the material weakness outlined below have concluded the disclosure controls and procedures are not effective.
Internal control over financial reporting
Badger's President and CEO and the VP Finance and CFO have also designed, or caused to be designed under their direct supervision, Badger's internal control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. Further, using the criteria established in Internal Control - Integrated Framework published by the Committee of Sponsoring Organizations of the Treadway Commission, they have evaluated, or caused to be evaluated under their direct supervision, the effectiveness of Badger's internal control over financial reporting at December 31, 2010 and as a result of identifying the material weakness outlined below have concluded the internal controls over financial reporting are not effective.
Material weakness
Badger has identified that it does not have sufficient accounting personnel with the appropriate tax expertise to allow for an effective review over the accuracy of its accounting for income taxes and the determination of the income tax provision. Management and the Board of Directors have determined that it is not economically feasible to maintain such personnel in-house or to engage an external tax consultant to perform an independent review. This material weakness could result in a misstatement in various tax-related accounts that could result in a material misstatement to Badger's annual consolidated financial statements and disclosures that would not be prevented or detected.
Changes in internal control over financial reporting
No changes were made to the design of Badger's internal control over financial reporting during the quarter ended March 31, 2011 that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.
Inherent limitations
Notwithstanding the foregoing, because of its inherent limitations a control system can provide only reasonable assurance that the objectives of the control system are met and may not prevent or detect misstatements. Management's estimates may be incorrect, or assumptions about future events may be incorrect, resulting in varying results. In addition, management has attempted to minimize the likelihood of fraud. However, any control system can be circumvented through collusion and illegal acts.
BUSINESS RISKS
The MD&A for the year ended December 31, 2010, which has been filed on SEDAR, includes an overview of business risks associated with the Company. Those business risks remain. The reader is also referred to Badger's 2010 Annual Information Form.
Badger is North America's largest provider of non-destructive excavating services. Badger traditionally works for contractors and facility owners in the utility and petroleum industries. Our key technology is the Badger Hydrovac, which is used primarily for safe digging in congested grounds and challenging conditions. The Badger Hydrovac uses a pressurized water stream to liquefy the soil cover, which is then removed with a powerful vacuum system and deposited into a storage tank. Badger manufactures its truck-mounted hydrovac units.
Badger's business model involves the provision of excavating services through two distinct entities: the Operating Partners (franchisees in the United States and agents in Canada), and Badger Corporate. Badger Corporate works with its Operating Partners to provide Hydrovac service to the end user. In this partnership, Badger provides the expertise, the trucks, and North American marketing and administration support. The Operating Partners deliver the service by operating the equipment and developing their local markets. All work is invoiced by Badger and then shared with the Operating Partner based upon a revenue sharing formula. In certain locations Badger has established corporate run operations to market and deliver the service in the local area.
The Toronto Stock Exchange has neither approved nor disapproved the information contained herein.
For more information regarding this Press Release, please contact:
Tor Wilson
President and CEO
2820, 715 - 5th Avenue SW
Calgary, Alberta T2P 2X6
Greg Kelly, CA
Vice President Finance and CFO
Phone (403) 264-8500
Fax (403) 228-9773
Badger Daylighting Ltd.
Interim Consolidated Financial Statements (unaudited)
For the period ended March 31, 2011
REVIEW OF INTERIM FINANCIAL STATEMENTS
Under National Instrument 51-102, Part 4, subsection 4.3(3)(a), if an auditor has not performed a review of the interim consolidated financial statements, the statements must be accompanied by a notice indicating that the financial statements have not been reviewed by an auditor.
The accompanying unaudited interim consolidated financial statements of the Corporation have been prepared by Badger Daylighting Ltd. management.
The Corporation's independent auditor has not performed a review of the accompanying unaudited interim consolidated financial statements in accordance with standards established by the CICA for a review of interim financial statements by an entity's auditor.
BADGER DAYLIGHTING LTD.
Unaudited Interim Consolidated Statement of Financial Position
(Expressed in Canadian Dollars)
------------------------------------------------------------------------
Notes March 31, December 31, January 1,
2011 2010 2010
$ $ $
------------------------------------------------------------------------
ASSETS
------------------------------------------------------------------------
Current Assets
------------------------------------------------------------------------
Cash and cash 6 12,290,768 11,890,341 7,516,605
equivalents
Trade and 7 40,647,488 37,869,248 30,205,878
other receivables
Inventories 8 2,495,762 1,993,609 1,792,708
Prepaid expenses 1,115,177 1,163,748 776,997
Income taxes receivable - 424,978 -
------------------------------------------------------------------------
56,549,195 53,341,924 40,292,188
------------------------------------------------------------------------
Non-current Assets
------------------------------------------------------------------------
Property, plant and 9 91,917,501 91,333,730 89,297,469
Equipment
------------------------------------------------------------------------
Intangible assets 10 6,746,513 6,520,513 6,416,512
------------------------------------------------------------------------
98,664,014 97,854,243 95,713,981
------------------------------------------------------------------------
Total Assets 155,213,209 151,196,167 136,006,169
------------------------------------------------------------------------
LIABILITIES AND
SHAREHOLDERS' EQUITY
------------------------------------------------------------------------
Current Liabilities
Trade and other payables 11 14,443,269 12,324,323 10,558,287
------------------------------------------------------------------------
Income taxes payable 1,108,279 - 907,377
------------------------------------------------------------------------
Distributions payable 14 - 1,135,431 1,134,893
------------------------------------------------------------------------
Dividends payable 14 919,159 - -
------------------------------------------------------------------------
Current portion of 15 323,768 323,768 323,768
long-term debt
------------------------------------------------------------------------
Provisions 12 1,088,000 1,450,850 805,847
------------------------------------------------------------------------
17,882,475 15,234,372 13,730,172
------------------------------------------------------------------------
Non-current Liabilities
------------------------------------------------------------------------
Long-term debt 15 41,163,212 40,347,627 31,960,496
------------------------------------------------------------------------
Provisions 12 - - 2,789,638
------------------------------------------------------------------------
Deferred taxation 20,423,979 20,194,282 19,960,129
------------------------------------------------------------------------
61,587,191 60,541,909 54,710,263
------------------------------------------------------------------------
Shareholders' Equity
------------------------------------------------------------------------
Shareholders' capital 16 44,473,107 44,473,107 44,387,955
------------------------------------------------------------------------
Contributed surplus 16 4,696,571 4,578,771 711,100
------------------------------------------------------------------------
Foreign currency 16 (3,531,381) (2,112,889) -
translation reserve
------------------------------------------------------------------------
Retained earnings 30,105,246 28,480,897 22,466,679
------------------------------------------------------------------------
75,743,543 75,419,886 67,565,734
------------------------------------------------------------------------
Total Liabilities 155,213,209 151,196,167 136,006,169
and Shareholders' Equity
------------------------------------------------------------------------
Commitments and contingencies 25
------------------------------------------------------------------------
The accompanying notes are an integral part of these interim consolidated financial statements.
BADGER DAYLIGHTING LTD.
Unaudited Interim Consolidated Statement of Comprehensive Income
(Expressed in Canadian Dollars)
-----------------------------------------------------------------------
For the three months ended
March 31, March 31,
Notes 2011 2010
$ $
-----------------------------------------------------------------------
Revenues 18 40,970,978 30,333,959
-----------------------------------------------------------------------
Direct costs 19 28,147,994 19,646,283
-----------------------------------------------------------------------
Gross profit 12,822,984 10,687,676
-----------------------------------------------------------------------
Depreciation of property, 9 3,324,329 3,161,230
plant and equipment
-----------------------------------------------------------------------
Amortization of 10 49,000 49,000
intangible assets
-----------------------------------------------------------------------
Selling, general 19 2,697,642 2,341,936
and administrative
-----------------------------------------------------------------------
Operating profit 6,752,013 5,135,510
-----------------------------------------------------------------------
Gain on sale of property, (26,808) (84,237)
plant and equipment
-----------------------------------------------------------------------
Finance cost 297,599 214,591
-----------------------------------------------------------------------
Profit before tax 6,481,222 5,005,156
-----------------------------------------------------------------------
Income tax expense 13 2,099,396 696,110
-----------------------------------------------------------------------
Net profit for the period 4,381,826 4,309,046
-----------------------------------------------------------------------
Other comprehensive income
Exchange differences on translation (1,418,492) (1,249,836)
of foreign operations net of tax
-----------------------------------------------------------------------
Total comprehensive income 2,963,334 3,059,210
for the period attributable to
shareholders of the Corporation
-----------------------------------------------------------------------
Earnings per share
-----------------------------------------------------------------------
Basic 20 0.41 0.40
Diluted 20 0.40 0.40
-----------------------------------------------------------------------
The accompanying notes are an integral part of these interim consolidated financial statements.
BADGER DAYLIGHTING LTD.
Unaudited Interim Consolidated Statement of Changes in Equity
(Expressed in Canadian Dollars)
-------------------------------------------------------------------------
Foreign
Currency
Shareholders' Contributed Translation Retained Total
capital surplus reserve earnings equity
$ $ $ $ $
-------------------------------------------------------------------------
As at January 1,
2010 44,387,955 711,100 - 22,466,679 67,565,734
-------------------------------------------------------------------------
Net profit
for the period - - - 4,309,046 4,309,046
-------------------------------------------------------------------------
Other
comprehensive
income - - (1,249,836) - (1,249,836)
for the period
-------------------------------------------------------------------------
Total
comprehensive
income for
the period 44,387,955 711,100 (1,249,836) 26,775,725 70,624,944
-------------------------------------------------------------------------
Distributions - - - (3,404,677)(3,404,677)
-------------------------------------------------------------------------
As at March 31,
2010 44,387,955 711,100 (1,249,836) 23,371,048 67,220,267
-------------------------------------------------------------------------
As at January 1,
2011 44,473,107 4,578,771 (2,112,889) 28,480,897 75,419,886
-------------------------------------------------------------------------
Net profit
for the period - - - 4,381,826 4,381,826
-------------------------------------------------------------------------
Other
comprehensive
income - - (1,418,492) - (1,418,492)
for the period
-------------------------------------------------------------------------
Total
comprehensive
income 44,473,107 4,578,771 (3,531,381) 32,862,723 78,383,220 for the period
-------------------------------------------------------------------------
Share-based
payment - 117,800 - - 117,800
Transactions
-------------------------------------------------------------------------
Dividends - - - (2,757,477) (2,757,477)
-------------------------------------------------------------------------
As at March 31,
2011 44,473,107 4,696,571 (3,531,381) 30,105,246 75,743,543
-------------------------------------------------------------------------
The accompanying notes are an integral part of these interim consolidated financial statements.
BADGER DAYLIGHTING LTD.
Unaudited Interim Consolidated Statement of Cash Flows
(Expressed in Canadian Dollars)
-------------------------------------------------------------------------
For the three months ended
March 31, March 31,
Notes 2011 2010
S S
-------------------------------------------------------------------------
Operating activities
-------------------------------------------------------------------------
Profit after tax 4,381,826 4,309,046
-------------------------------------------------------------------------
Non-cash adjustments to reconcile
profit from operations
to net cash flows:
Depreciation of property,
plant and equipment 9 3,324,329 3,161,230
Amortization of intangible assets 10 49,000 49,000
Deferred Income taxes 13 604,900 270,400
Share-based payment 16 117,800 (245,009)
transaction expense
Gain on sale of property (26,808) (84,237)
plant and equipment
Unrealized foreign exchange (375,203) (609,942)
gain on deferred tax
8,075,844 6,850,488
-------------------------------------------------------------------------
Net change in non-cash working (167,708) 2,803,611
capital relating to
operating activities
Net cash flows from 7,908,136 9,654,099
operating activities
-------------------------------------------------------------------------
Investing activities
-------------------------------------------------------------------------
Purchase of property, 9 (5,108,099) (2,599,688)
plant and equipment
-------------------------------------------------------------------------
Purchase of intangible assets 10 (275,000) -
-------------------------------------------------------------------------
Proceeds from sale of property, 33,554 194,157
plant and equipment
-------------------------------------------------------------------------
Net cash flows from (5,349,545) (2,405,531)
investing activities
-------------------------------------------------------------------------
Financing activities
-------------------------------------------------------------------------
Proceeds from 896,525 -
long-term debt
-------------------------------------------------------------------------
Repayment of (80,940) (499,379)
long-term debt
-------------------------------------------------------------------------
Dividends/distributions (2,973,749) (3,404,678)
paid to owners
-------------------------------------------------------------------------
Net cash flows from (2,158,164) (3,904,057)
financing activities
-------------------------------------------------------------------------
Net increase in cash and cash 400,427 3,344,511
Equivalents
-------------------------------------------------------------------------
Cash and cash equivalents, 11,890,341 7,516,605
beginning of period
-------------------------------------------------------------------------
Cash and cash equivalents, 14 12,290,768 10,861,116
end of period
-------------------------------------------------------------------------
Supplemental cash flow
information:
-------------------------------------------------------------------------
Interest paid 297,599 214,591
Income tax paid (35,684) 1,559,502
(recovered)
-------------------------------------------------------------------------
BADGER DAYLIGHTING LTD.
Notes to the Interim Consolidated Financial Statements
Three months ended March 31, 2011
(Unaudited - Expressed in Canadian Dollars)
Incorporation and Operations
Badger Daylighting Ltd. and its subsidiaries (together "Badger" or the "Corporation") provide non-destructive excavating services to the utility, transportation, industrial, engineering, construction and petroleum industries in Canada and the United States. Badger is a publicly traded corporation. The address of the registered office is 2820, 715 - 5th Avenue SW, Calgary, Alberta, T2P 2X6.
On December 31, 2010, Badger Income Fund (the "Fund") completed its conversion (the "Conversion") from an income trust to a corporation pursuant to a Plan of Arrangement (the "Arrangement"). Pursuant to the Arrangement, Fund unitholders exchanged their Fund units for common shares of Badger on a one-for-one basis. All references to shares and shareholders in these consolidated financial statements pertain to common shares and common shareholders subsequent to the Conversion and units and unitholders prior to the Conversion.
The consolidated financial statements of the Corporation for the period ended March 31, 2011 were authorised for issue in accordance with a resolution of the directors on June 13, 2011.
Basis of Preparation
Statement of compliance
These consolidated financial statements represent the first consolidated financial statements of the Corporation prepared in accordance with International Financial Reporting Standards ("IFRS"), including IAS 34 - Interim Financial Reporting, as issued by the International Accounting Standards Board ("IASB").
The Corporation adopted IFRS in accordance with IFRS 1 First-time Adoption of International Financial Reporting Standards ("IFRS 1") with a transition date to IFRS of January 1, 2010. Consequently the comparative figures for 2010 and the Corporation's statement of financial position as at January 1, 2010 have been restated from pre-changeover accounting principles generally accepted in Canada ("Canadian GAAP") to comply with IFRS.
The reconciliations to IFRS from the previously published Canadian GAAP consolidated financial statements are summarized in note 27. In addition, IFRS 1 allows certain exemptions from retrospective application of IFRS in the opening statement of financial position. Where these have been used they are explained in note 27.
Basis of measurement
These consolidated financial statements are stated in Canadian dollars and were prepared under the historical cost convention except for share-based payment transactions which are measured at fair value.
Use of estimates and judgments
The preparation of consolidated financial statements in accordance with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise judgment in applying the Corporation's accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 3.
Functional and presentation currency
These consolidated financial statements are presented in Canadian dollars, which is the Corporation's functional currency.
Significant accounting judgements, estimates and assumptions
The preparation of the financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and contingent liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting period. Estimates and judgments are continuously evaluated and are based on management's experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. However, actual outcomes can differ from these estimates.
The key sources of estimation uncertainty that have a significant risk of causing material adjustment to the amounts recognized in the consolidated financial statements are:
Impairment of non-financial assets
Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value less costs to sell and its value in use. The fair value less costs to sell calculation is based on available data from binding sales transactions in an arm's length transaction of similar assets or observable market prices less incremental costs for disposing of the asset. The value in use calculation is based on a discounted cash flow model. The cash flows are derived from the budget for the next five years and do not include restructuring activities that the Corporation is not yet committed to or significant future investments that will enhance the asset's performance of the cash generating unit being tested. The recoverable amount is most sensitive to the discount rate used for the discounted cash flow model as well as the expected future cash inflows and the growth rate used for extrapolation purposes.
Share-based payment transactions
The Corporation measures the cost of share-based payment transactions with employees by reference to the fair value of the equity instruments. Estimating fair value for share-based payment transactions requires determining the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determining and making assumptions about the most appropriate inputs to the valuation model including the expected life, volatility and dividend yield of the share option. The assumptions and models used for estimating fair value for share-based payment transactions are disclosed in Note 17.
Taxes
Provisions for taxes are made using the best estimate of the amount expected to be paid based on a qualitative assessment of all relevant factors. The Corporation reviews the adequacy of these provisions at the end of the reporting period. However, it is possible that at some future date an additional liability could result from audits by taxing authorities. Where the final outcome of these tax-related matters is different from the amounts that were initially recorded, such differences will affect the tax provisions in the period in which such determination is made.
Useful lives of property, plant and equipment
The Corporation estimates the useful lives of property, plant and equipment based on the period over which the assets are expected to be available for use. The estimated useful lives of property, plant and equipment are reviewed periodically and are updated if expectations differ from previous estimates due to physical wear and tear, technical or commercial obsolescence and legal or other limits on the use of the relevant assets. In addition, the estimation of the useful lives of property, plant and equipment are based on internal technical evaluation and experience with similar assets. It is possible, however, that future results of operations could be materially affected by changes in the estimates brought about by changes in factors mentioned above. The amounts and timing of recorded expenses for any period would be affected by changes in these factors and circumstances. A reduction in the estimated useful lives of the property, plant and equipment would increase the recorded expenses and decrease the non-current assets.
3 Significant accounting judgements, estimates and assumptions(continued)
Allowance for doubtful debts
The Corporation makes allowance for doubtful debts based on an assessment of the recoverability of receivables. Allowances are applied to receivables where events or changes in circumstances indicate that the carrying amounts may not be recoverable. Management specifically analysed historical bad debts, customer concentrations, customer creditworthiness, current economic trends and changes in customer payment terms when making a judgement to evaluate the adequacy of the allowance of doubtful debts of receivables. Where the expectation is different from the original estimate, such difference will impact the carrying value of receivables.
Fair value of financial instruments
The estimated fair value of financial assets and liabilities, by their very nature, are subject to measurement uncertainty. Trade receivables are stated after evaluation as to their collectability and an appropriate allowance for doubtful accounts is provided where considered necessary.
Summary of Significant Accounting Policies
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated.
A) Basis of consolidation
The consolidated financial statements include the accounts of Badger Daylighting Ltd. and its subsidiaries, all of which are wholly owned. Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Corporation obtains control, and continue to be consolidated until the date that such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the parent, using consistent accounting policies. All intra-company balances, income and expenses, unrealised gains and losses and dividends resulting from intra-company transactions are eliminated in full.
B) Cash and cash equivalents
Cash and cash equivalents include short-term investments with original maturities of three months or less and are recorded at cost, which approximates fair market value.
C) Inventories
Inventories are valued at the lower of cost and net realizable value, with cost being defined to include laid-down cost for materials and actual cost for direct labour on a weighted average basis.
D) Leases
Leases in terms of which the Corporation assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset.
Other leases are operating leases and the leased assets are not recognized in the Corporation's statement of financial position. Operating lease payments are recognised as a direct cost in the consolidated statement of comprehensive income.
4 Summary of Significant Accounting Policies (continued)
E) Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and/or accumulated impairment losses if any. Such cost includes the cost of replacing part of the plant and equipment and borrowing costs for long-term construction projects if the recognition criteria are met. When significant parts of property, plant and equipment are required to be replaced in intervals, the Corporation recognizes such parts as individual assets with specific useful lives and depreciation, respectively. Likewise, when a major inspection is performed, its cost is recognized in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognized in the income statement as incurred.
Depreciation is calculated on a straight-line basis to recognize the cost less estimated residual value over the estimated useful life of the assets as follows:
-------------------------------
Land improvements 10%
-------------------------------
Buildings 5%
-------------------------------
Shoring equipment 10%
-------------------------------
Shop and
office equipment 10%
-------------------------------
Truck and trailers 10%-15%
-------------------------------
Leasehold
Improvements 20%
-------------------------------
Computers 25%
-------------------------------
Depreciation of equipment under construction is not recorded until such time as the asset is available for use, i.e. when it is in the location and condition necessary for it to be capable of operating in the manner intended by management.
The assets' residual values, useful lives and methods of depreciation are reviewed at each financial year end and adjusted prospectively, if appropriate.
Gains or losses arising from derecogniton of an item of property, plant and equipment are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the statement of comprehensive income when the asset is derecognized.
F) Intangible assets
Intangible assets represent service rights acquired, customer relationships, trade name and a non-compete agreement. Intangible assets acquired separately are measured on initial recognition at cost. The cost of an intangible asset acquired in a business combination is its fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and any accumulated impairment losses. Internally generated intangible assets, excluding capitalized development costs, are not capitalized and any expenditure is reflected in the income statement in the year in which the expenditure is incurred.
The useful lives of intangible assets are assessed as either finite or indefinite
Intangible assets with finite lives are amortized over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least at each financial year end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortization period or method, as appropriate, and are treated as changes in accounting estimates.
4 Summary of Significant Accounting Policies (continued)
F) Intangible assets (continued)
Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the income statement when the asset is derecognized.
A summary of the policies applied to the Corporation's intangible assets is as follows:
-------------------------------------------------------------------------
Service rights Customer Trade name Non-compete
relationships agreement
-------------------------------------------------------------------------
Useful Lives Indefinite 5 years 5 years 5 years
-------------------------------------------------------------------------
Amortization method No amortization Straight- Straight- Straight-
line line line
-------------------------------------------------------------------------
G) Impairment of non-financial assets excluding goodwill
At the end of each reporting period, the Corporation reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Corporation estimates the recoverable amount of the cash-generating units ("CGU") to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual CGU's, or otherwise they are allocated to the smallest group of CGU's for which a reasonable and consistent allocation basis can be identified.
Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at least annually, and whenever there is an indication that the asset may be impaired.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset or CGU is estimated to be less than its carrying amount, the carrying amount of the asset or CGU is reduced to its recoverable amount. An impairment loss is recognized immediately in profit or loss.
Where an impairment loss subsequently reverses, the carrying amount of the asset or CGU is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset or CGU in prior years. A reversal of an impairment loss is recognized immediately in profit or loss.
H) Provisions
A provision is recognized if, as a result of a past event, the Corporation has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognized as finance cost.
4 Summary of Significant Accounting Policies (continued)
I) Goodwill
Goodwill represents the excess of the purchase price over the fair value of net assets acquired and liabilities assumed in a business combination. Goodwill is not amortized but is reviewed for impairment at least annually. For the purpose of impairment testing, goodwill is allocated to each of the Corporations CGU's expected to benefit from the synergies of the combination. CGU's to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the CGU may be impaired. If the recoverable amount of the CGU is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognized for goodwill is not reversed in a subsequent period.
J) Taxes
Tax expense comprises current and deferred tax. Tax is recognized in the income statement except to the extent it relates to items recognized in other comprehensive income or directly in equity.
Current Income tax
Current tax expense is based on the results for the period as adjusted for items that are not taxable or not deductible. Current tax is calculated using tax rates and laws that were enacted or substantively enacted at the end of the reporting period. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. Provisions are established where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred tax
Deferred tax is recognized, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the statement of financial position. Deferred tax is calculated using tax rates and laws that have been enacted or substantively enacted at the end of the reporting period, and which are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled.
Deferred tax liabilities:
* are generally recognized for all taxable temporary differences;
* are recognized for taxable temporary differences arising on investments in subsidiaries except where the reversal of the temporary difference can be controlled and it is probable that the difference will not reverse in the foreseeable future; and
* are not recognized on temporary differences that arise from goodwill which is not deductible for tax purposes.
Deferred tax assets:
* are recognized to the extent it is probable that taxable profits will be available against which the deductible temporary differences can be utilized; and
* are reviewed at the end of the reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax assets and liabilities are not recognized in respect of temporary differences that arise on initial recognition of assets and liabilities acquired other than in a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit.
4 Summary of Significant Accounting Policies (continued)
K) Revenue recognition
Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Corporation and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable, excluding discounts, rebates, sales taxes or duty. The Corporation assesses its revenue arrangements against specific criteria in order to determine if it is acting as principal or agent. The Corporation has concluded that it is acting as a principal in all of its revenue arrangements. The following specific recognition criteria must also be met before revenue is recognized:
Rendering of services
The Corporation recognizes revenue from services when the services are provided.
Truck placement fees
Truck placement fees are recognized when the truck is delivered.
L) Share-based payment
The Corporation operates a number of equity-settled and cash-settled share-based compensation plans under which it receives services from employees as consideration for equity instruments of the Corporation or cash payments.
Equity-settled awards
The Corporation uses the Black-Scholes pricing model to estimate the fair value of equity-settled awards at the grant date. The expense is recognized over the vesting period, which is the period over which all of the specified vesting conditions are satisfied. For awards with graded vesting, the fair value of each tranche is recognized over its respective vesting period.
No expense is recognised for awards that do not ultimately vest, except for equity-settled awards where vesting is conditional upon a market or non-vesting condition, which are treated as vesting irrespective of whether or not the market or non-vesting condition is satisfied, provided that all other performance and/or service conditions are satisfied.
Cash-settled awards
The Corporation uses the Black-Scholes pricing model to estimate the fair value of cash-settled awards. Fair value is established initially at the grant date and the obligation is revalued each reporting period until the awards are settled with any changes in the obligation recognised in selling, general and administrative expenses in the statement of comprehensive income.
M) Finance costs
Finance costs comprise interest expense on borrowings, unwinding of the discount on provisions and impairment losses recognized on financial assets. Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognized in profit or loss using the effective interest method.
4 Summary of Significant Accounting Policies (continued)
N) Foreign currency translation
The Corporation's consolidated financial statements are presented in Canadian dollars, which is also Badger Daylighting Ltd's functional currency.
Items included in the financial statements of each consolidated entity are measured using the currency of the primary economic environment in which the entity operates (the "functional currency"). Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities not denominated in the functional currency of an entity are recognized in the statement of comprehensive income.
Assets and liabilities of entities with functional currencies other than Canadian dollars are translated at the period end rates of exchange, and the results of their operations are translated at average rates of exchange for the period. The resulting translation adjustments are included in accumulated other comprehensive income in shareholders' equity. Additionally, foreign exchange gains and losses related to certain intercompany loans that are permanent in nature are included in accumulated other comprehensive income.
O) Financial assets
The Corporation classi?es its ?nancial assets as loans and receivables. The classification depends on the purpose for which the ?nancial assets were acquired. Management determines the classification of its ?nancial assets at initial recognition.
Loans and receivables are non-derivative ?nancial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period. These are classified as non-current assets. The Corporation's loans and receivables comprise 'trade and other receivables' and cash and cash equivalents in the consolidated statement of financial position.
Loans and receivables are initially recognized at fair value plus transaction costs and subsequently carried at amortized cost using the effective interest method.
A provision for impairment of trade receivables is established when there is objective evidence that the Corporation will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganization, and default or delinquency in payments are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognized in the statement of comprehensive income. When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables.
Financial assets are de-recognized when the contractual rights to the cash flows from the financial asset expire or when the contractual rights to those assets are transferred.
4 Summary of Significant Accounting Policies (continued)
P) Financial liabilities
The Corporation classi?es its ?nancial liabilities as other financial liabilities. Management determines the classification of its ?nancial liabilities at initial recognition. Other financial liabilities are recognized initially at fair value and subsequently measured at amortized cost using the effective interest rate method.
Other financial liabilities include trade and other payables, distributions payable, dividends payable and long-term debt. Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers.
Financial liabilities are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities.
Q) Fair value of financial instruments
The fair value of financial instruments that are traded in active markets at each reporting date is determined by reference to quoted market prices or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs.
For financial instruments not traded in an active market, the fair value is determined using appropriate valuation techniques. Such techniques may include using recent arm's length market transactions; reference to the current fair value of another instrument that is substantially the same; a discounted cash flow analysis or other valuation models.
R) Equity instruments
Equity instruments issued by the Corporation are recorded at the proceeds received net of direct issue costs.
S) Segment reporting
An operating segment is a component of the Corporation that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Corporation's other components. All operating segments' operating results are reviewed regularly by the Corporation's President and CEO to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available.
Recent accounting pronouncements
The Corporation has reviewed new and revised accounting pronouncements that have been issued but are not yet effective and determined that the following may have an impact on the Corporation:
i) IFRS 9, 'Financial Instruments' was issued in November 2009 as the first step in its project to replace IAS 39 'Financial Instruments: Recognition and Measurement'. IFRS 9 introduces new requirements for classifying and measuring financial assets that must be applied starting January 1, 2013, with early adoption permitted. The IASB intends to expand IFRS 9 during the intervening period to add new requirements for classifying and measuring financial liabilities, de-recognition of financial instruments, impairment and hedge accounting. The Corporation is currently assessing the impact of this standard.
ii) IFRS 10, 'Consolidated Financial Statements' was issued in May 2011 and will supersede the consolidation requirements in SIC-12 'Consolidation - Special Purpose Entities' and IAS 27 'Consolidated and Separate Financial Statements' effective for annual periods beginning on or after January 1, 2013, with early application permitted. IFRS 10 builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included within the consolidated financial statements of the parent company. The standard also provides additional guidance to assist in the determination of control where this is difficult to assess. The Corporation is currently assessing the impact of this standard.
iii) IFRS 11, 'Joint Arrangements' was issued in May 2011 and will supersede existing IAS 31, 'Joint Ventures' effective for annual period beginning on or after January 1, 2013, with early application permitted. IFRS 11 provides for the accounting of joint arrangements by focusing on the rights and obligations of the arrangement, rather than its legal form (as is currently the case). The standard also eliminates the option to account for jointly controlled entities using the proportionate consolidation method. The Corporation is currently assessing the impact of this standard.
iv) IFRS 12, 'Disclosure of Interests in Other Entities' was issued in May 2011 and is a new and comprehensive standard on disclosure requirements for all forms of interests in other entities, including subsidiaries, joint arrangements, associates and unconsolidated structured entities. IFRS 12 is effective for annual periods beginning on or after 1 January 2013, with earlier application permitted. The Corporation is currently assessing the impact of this standard.
Cash and cash equivalents
-------------------------------------------------------------------------
March 31, 2011 December 31, 2010 January 1, 2010
$ $ $
-------------------------------------------------------------------------
Cash at banks and on hand 2,522,523 1,827,431 2,742,690
Short-term investments 9,768,245 10,062,910 4,773,915
-------------------------------------------------------------------------
12,290,768 11,890,341 7,516,605
-------------------------------------------------------------------------
Cash at banks earn interest at floating rates based on daily bank deposit rates. Short-term investments are made for varying periods of between one and three months, depending on the immediate cash requirements of the Corporation, and earn interest at the respective short-term investment rates.
Trade and other receivables
-------------------------------------------------------------------------
March 31, 2011 December 31, 2010 January 1, 2010
$ $ $
-------------------------------------------------------------------------
Trade receivables 39,502,157 36,666,531 30,137,653
Other sundry receivables 1,145,331 1,202,717 68,225
-------------------------------------------------------------------------
40,647,488 37,869,248 30,205,878
-------------------------------------------------------------------------
Trade receivables are non-interest bearing and are generally on 30-90 day terms.
The ageing analysis of trade receivables is as follows:
-------------------------------------------------------------------------
Past due but not impaired
-------------------------------------------------------------------------
Greater
Total Not 31-60 61-90 than 90
$ past due days days days
$ $ $ $
-------------------------------------------------------------------------
March 31, 39,502,157 26,558,275 7,102,788 1,556,374 4,284,720
2011
-------------------------------------------------------------------------
December 31, 36,666,531 21,973,031 7,579,145 3,646,612 3,467,743
2010
-------------------------------------------------------------------------
January 1, 30,137,653 16,458,994 6,513,229 3,300,569 3,864,861
2010
-------------------------------------------------------------------------
Inventories
--------------------------------------------------------------
March 31, 2011 December 31, 2010 January 1, 2010
$ $ $
--------------------------------------------------------------
Raw materials 2,495,762 1,993,609 1,792,708
--------------------------------------------------------------
Property, plant and equipment
-------------------------------------------------------------------------
LAND LAND BUILDINGS EQUIPMENT SHORING
IMPROVE-MENTS UNDER EQUIPMENT
$ $ CONSTRUCTION $
-------------------------------------------------------------------------
COST
At January 1, 4,989,787 366,643 4,162,584 2,573,439 2,308,261
2010
-------------------------------------------------------------------------
Additions 137,500 - 4,793,441 2,998,126 17,287
-------------------------------------------------------------------------
Disposals - - - - (37,558)
-------------------------------------------------------------------------
Exchange - - - - -
Differences
-------------------------------------------------------------------------
At December 31, 5,127,287 366,643 8,956,025 5,571,565 2,287,990
2010
-------------------------------------------------------------------------
Additions - - 321,100 (1,626,003) -
-------------------------------------------------------------------------
Disposals - (366,643) - - (69,443)
-------------------------------------------------------------------------
Exchange - - - - -
Differences
-------------------------------------------------------------------------
At March 31, 5,127,287 - 9,277,125 3,945,562 2,218,547
2011
-------------------------------------------------------------------------
DEPRECIATION AND IMPAIRMENT
-------------------------------------------------------------------------
At January 1, - 366,643 2,139,212 - 1,130,667
2010
-------------------------------------------------------------------------
Charge for - - 297,574 - 187,130
the year
-------------------------------------------------------------------------
Disposals - - - - (17,432)
-------------------------------------------------------------------------
Exchange - - - - -
differences
-------------------------------------------------------------------------
At December 31, - 366,643 2,436,786 - 1,300,365
2010
-------------------------------------------------------------------------
Charge for - 139,025 - 45,937
the period
-------------------------------------------------------------------------
Disposals - (366,643) - - (62,697)
-------------------------------------------------------------------------
Exchange - - - - -
Differences
-------------------------------------------------------------------------
At March 31, - - 2,575,811 - 1,283,605
2011
-------------------------------------------------------------------------
Net book
Value
-------------------------------------------------------------------------
At January 1, 4,989,787 - 2,023,372 2,573,439 1,177,594
2010
-------------------------------------------------------------------------
At December 31,5,127,287 - 6,519,239 5,571,565 987,625
2010
-------------------------------------------------------------------------
At March 31, 5,127,287 - 6,701,314 3,945,562 934,942
2011
-------------------------------------------------------------------------
SHOP AND TRUCKS LEASEHOLD COMPUTERS TOTAL
OFFICE AND IMPROVE-MENTS
EQUIPMENT TRAILERS
$ $ $ $ $
-------------------------------------------------------------------------
COST
At January 1, 494,377 134,850,045 19,373 152,923 149,917,432
2010
-------------------------------------------------------------------------
Additions 48,305 9,033,880 22,630 35,185 17,086,354
-------------------------------------------------------------------------
Disposals (23,137) (5,569,827) - - (5,630,522)
-------------------------------------------------------------------------
Exchange (5,166) (2,712,604) (923) (8,520) (2,727,213)
differences
-------------------------------------------------------------------------
At December 31, 514,379 135,601,494 41,080 179,588 158,646,051
2010
-------------------------------------------------------------------------
Additions 30,253 6,382,749 - - 5,108,099
-------------------------------------------------------------------------
Disposals (76,932) (541,478) (9,865) (73,084) (1,137,445)
-------------------------------------------------------------------------
Exchange - (1,859,925) - (2,584) (1,862,509)
differences
-------------------------------------------------------------------------
At March 31, 467,700 139,582,840 31,215 103,920 160,754,196
2011
-------------------------------------------------------------------------
DEPRECIATION AND IMPAIRMENT
-------------------------------------------------------------------------
At January 1, 282,383 56,554,975 13,787 132,296 60,619,963
2010
-------------------------------------------------------------------------
Charge for 52,084 12,063,678 6,347 25,213 12,632,026
the
year
-------------------------------------------------------------------------
Disposals (23,137) (5,185,048) - - (5,225,617)
-------------------------------------------------------------------------
Exchange 21,523 (731,716) (712) (3,146) (714,051)
differences
-------------------------------------------------------------------------
At December 31, 332,853 62,701,889 19,422 154,363 67,312,321
2010
-------------------------------------------------------------------------
Charge for 12,841 3,118,973 1,569 5,984 3,324,329
the period
-------------------------------------------------------------------------
Disposals (76,932) (541,478) (9,865) (73,084) (1,130,699)
-------------------------------------------------------------------------
Exchange (2,629) (648,339) 94 (18,382) (669,256)
differences
-------------------------------------------------------------------------
At March 31, 266,133 64,631,045 11,220 68,881 68,836,695
2011
-------------------------------------------------------------------------
Net book value
-------------------------------------------------------------------------
At January 1, 211,994 78,295,070 5,586 20,627 89,297,469
2010
-------------------------------------------------------------------------
At December 31 , 181,526 72,899,605 21,658 25,225 91,333,730
2010
-------------------------------------------------------------------------
At March 31, 201,567 74,951,795 19,995 35,039 91,917,501
2011
-------------------------------------------------------------------------
Intangible assets
-------------------------------------------------------------------------
Service Customer Trade Non-compete Goodwill Total
rights relationships names agreements
$ $ $ $ $ $
-------------------------------------------------------------------------
Cost
At January 1, 4,354,511 810,000 80,000 90,000 1,621,000 6,955,511
2010
-------------------------------------------------------------------------
Additions 300,000 - - - - 300,000
At December 31 4,654,511 810,000 80,000 90,000 1,621,000 7,255,511
2010
-------------------------------------------------------------------------
Additions 275,000 - - - - 275,000
-------------------------------------------------------------------------
At March 31, 4,929,511 810,000 80,000 90,000 1,621,000 7,530,511
2011
-------------------------------------------------------------------------
Amortization
and impairment
-------------------------------------------------------------------------
At January 1, - 445,500 44,000 49,499 - 538,999
2010
-------------------------------------------------------------------------
Amortization
for the period - 162,000 16,000 17,999 - 195,999
-------------------------------------------------------------------------
At December 31, - 607,500 60,000 67,498 - 734,998
2010
-------------------------------------------------------------------------
Amortization
for the period - 40,500 4,000 4,500 - 49,000
-------------------------------------------------------------------------
At March 31, - 648,000 64,000 71,998 - 783,998
2011
-------------------------------------------------------------------------
Net book value
-------------------------------------------------------------------------
At January 1, 4,354,511 364,500 36,000 40,501 1,621,000 6,416,512
2010
-------------------------------------------------------------------------
At December 31,4,654,511 202,500 20,000 22,502 1,621,000 6,520,513
2010
-------------------------------------------------------------------------
At March 31, 4,929,511 162,000 16,000 18,002 1,621,000 6,746,513
2011
-------------------------------------------------------------------------
Trade and other payables
-----------------------------------------------
March 31 December 31, January 1
2011 2010 , 2010
$ $ $
-----------------------------------------------
Current
Trade 11,354,008 10,710,915 7,516,011
payables
Accrued 2,892,314 1,508,149 664,232
expenses
Other sundry 196,947 105,259 2,378,044
payables
-----------------------------------------------
14,443,269 12,324,323 10,558,287
-----------------------------------------------
Trade payables are non-interest bearing and are normally settled on 45 day terms.
Provisions
-------------------------------------------------------------------------
Bonus Performance Unit Total
Trust option
Share Plan plan
$ $ $ $
-------------------------------------------------------------------------
As at January 1, 469,847 336,000 2,789,638 3,595,485
2010
-------------------------------------------------------------------------
Arising during 677,850 437,000 1,078,033 2,192,883
the period
-------------------------------------------------------------------------
Utilised (469,847) - - (469,847)
Transfer to - - (3,867,671) (3,867,671)
equity
-------------------------------------------------------------------------
As at December 31, 677,850 773,000 - 1,450,850
2010
-------------------------------------------------------------------------
Arising during 382,000 - - 382,000
the period
-------------------------------------------------------------------------
Utilised (677,850) (67,000) - (744,850)
-------------------------------------------------------------------------
As at March 31, 382,000 706,000 - 1,088,000
2011
-------------------------------------------------------------------------
Upon conversion to a Corporation, the unit option plan was modified to provide the holder with the right to acquire ordinary shares of the Corporation which resulted in the share option plan being accounted for as an equity-settled share-based transaction (see note 17).
Income taxes
The major components of income tax expense for the periods ended are as follows:
--------------------------------------------
March 31, March 31,
2011 2010
$ $
--------------------------------------------
Current income tax 1,494,496 425,710
Deferred tax 604,900 270,400
--------------------------------------------
Total income tax expense 2,099,396 696,110
--------------------------------------------
The provision for income taxes, including deferred taxes, reflects an effective income tax rate that differs from the actual combined Canadian federal and provincial statutory rates of 27.35% (2010 - 28.85%). The Corporation's U.S. subsidiaries are subject to federal and state statutory tax rates of approximately 40% for both 2011 and 2010. The main differences are as follows:
----------------------------------------------------------------------
March 31, 2011 March 31, 2010
$ $
----------------------------------------------------------------------
Profit before tax 6,481,222 5,005,156
----------------------------------------------------------------------
Income tax expense at the statutory rate 1,772,614 1,443,988
Increase (decrease) resulting from:
Income attributable to unitholders - (982,250)
Tax rates in other jurisdictions 81,070 149,680
Other items 245,712 84,692
----------------------------------------------------------------------
Income tax expense 2,099,396 696,110
----------------------------------------------------------------------
All deferred taxes are classified as non-current, irrespective of the classification of the underlying assets or liabilities to which they relate, or the expected reversal of the temporary difference. In addition, deferred tax assets and liabilities have been offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity.
Distributions/dividends payable
During the three months ended March 31, 2011, the Corporation paid cash dividends of $1,838,318 (or $0.17 per common share) and declared a $919,159 cash dividend (or $0.085 per common share) to its shareholders of record at the close of business on March 31, 2011 to be paid April 15, 2011.
The Corporation declares dividends monthly to its shareholders. Prior to the conversion to a corporation (see note 1), the Fund made cash distributions on a monthly basis. Determination of the amount of cash dividends for any period is at the sole discretion of the directors and is based on certain criteria including financial performance as well as the projected liquidity and capital resource position of the Corporation. Dividends are declared to shareholders of the Corporation on the last business day of each month and paid on the 15th day of the month following the declaration (or if such day is not a business day, the next following business day).
Long-term debt
-----------------------------------------------------------------
March 31, December 31, January 1,
2011 2010 2010
$ $ $
-----------------------------------------------------------------
Extendable revolving 38,309,370 37,412,841 28,701,939
credit facility
-----------------------------------------------------------------
Commercial mortgage on land 2,633,748 2,687,500 2,902,492
and building, repayable
in monthly principal payments
of $17,917 plus interest
until June 2023,
bearing interest at
bank prime plus
0.75% [2011 - 3.75%;
December 31, 2010 - 3.75%;
January 1, 2010 - 3.00%]
-----------------------------------------------------------------
Commercial mortgage on land 543,862 571,054 679,833
and building, repayable
in monthly principal payments
of $9,064 plus interest
until February 2016,
bearing interest at
bank prime plus
0.75% [2011 - 3.75%;
December 31, 2010 - 3.75%;
January 1, 2010 - 3.00%]
-----------------------------------------------------------------
41,486,980 40,671,395 32,284,264
Less current portion 323,768 323,768 323,768
-----------------------------------------------------------------
41,163,212 40,347,627 31,960,496
-----------------------------------------------------------------
The Corporation has established a $40,000,000 extendable revolving credit facility, which subsequent to quarter end was increased to $60,000,000. The purpose of the credit facility is to finance the Corporation's capital expenditure program and for general corporate purposes. The credit facility bears interest, at the Corporation's option, at either the bank's prime rate [2010 - 3.00%] or bankers' acceptance rate plus 1.5% [2010 - 2.71%]. An additional stand-by fee calculated at an annual rate of 0.35% per annum is also required on the unused portion of the credit facility. This fee is expensed as incurred.
The credit facility has no required principal repayment. The credit facility expires on June 25, 2011 and is renewable at the Corporation's option for an additional 364 day period. If not renewed, interest is payable on the facility for 364 days after which the entire amount is to be repaid. This facility was renewed subsequent to March 31, 2011. See note 26.
The commercial mortgages and the extendable revolving credit facility are collateralized by a general security interest over the Corporation's assets, property and undertaking, present and future.
Under the terms of the credit facilities, the Corporation must comply with certain financial and non-financial covenants, as defined by the bank. Throughout 2011, and as at March 31, 2011, the Corporation was in compliance with all of these covenants.
15 Long-term debt (continued)
As at March 31, 2011, the Corporation has issued letters of credit in the amount of approximately $240,000. The outstanding letters of credit reduce the amount available under the extendable revolving credit facility.
At March 31, 2011, the Corporation had available $1,690,630 (December 31, 2010: $2,587,159) of undrawn committed borrowing facilities in respect of which all conditions precedent had been met.
Shareholders' capital and reserves
A) Authorized shares
Pursuant to the Plan of Arrangement discussed in note 1, Fund unitholders received one common share of Badger in exchange for every unit held on effective date of the Conversion.
B) Issued and outstanding
-----------------------------------------------------------
Number of Shares/Units $
-----------------------------------------------------------
At January 1, 2010 10,808,503 44,387,955
Units cancelled (1,092) -
Units issued pursuant 6,220 85,152
to the unit option plan
-----------------------------------------------------------
At December 31, 2010 10,813,631 44,473,107
and March 31, 2011
-----------------------------------------------------------
C) Foreign currency translation reserve
The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries.
D) Contributed surplus
The contributed surplus reserve is used to recognise the fair value of share options granted to employees, including key management personnel, as part of their remuneration. When options are subsequently exercised, the fair value of such options in contributed surplus is credited to share capital. Refer to Note 17 for further details of these plans.
---------------------------------------------------------
March 31, 2011 December 31, 2010
$ $
---------------------------------------------------------
Opening balance 4,578,771 711,100
Modification to equity- - 3,867,671
settled share plan
(note 17)
Share-based compensation 117,800 -
expense
---------------------------------------------------------
Closing balance 4,696,571 4,578,771
---------------------------------------------------------
Share-based payment plans
Unit option plan (cash-settled)
Prior to conversion to a corporation on December 31, 2010 (see note 1), the Fund granted options, under the unit option plan. The unit options were granted to directors, officers, employees and consultants of the Fund. The options provide the holder with the right to acquire units, with terms that do exceed 10 years from the date of the grant. The exercise price shall not be less than the closing price of the shares traded on the Toronto Stock Exchange on the first date preceding the date of the grant. Under the Unit Plan, vesting periods are determined by the trustees at the time of the grant. All unit options granted through to March 31, 2011 vest equally over a period of three years from the date of grant. The maximum number of Corporation units to be issued under this plan may not exceed 850,000 units.
Upon conversion to a Corporation, the Unit Plan was modified to provide the holder with the right to acquire ordinary shares of the Corporation (i.e. the share option plan). As a result of the modification, the share option plan (the "Share Plan") is accounted for as an equity-settled share-based transaction.
Share plan (equity-settled)
Under the Share Plan, directors, officers, employees and consultants of the Corporation are eligible to receive Corporation share options to acquire ordinary shares, with terms not to exceed 10 years from the date of the grant. The exercise price shall not be less than the closing price of the shares traded on the Toronto Stock Exchange on the first date preceding the date of the grant. Under the share option plan, vesting periods are determined by the directors of the Corporation at the time of the grant. All share options granted through to March 31, 2011 vest equally over a period of three years from the date of grant. The maximum number of Corporation shares to be issued under this plan may not exceed 850,000 shares.
A summary of the share-based payment transactions for the period ended March 31, 2011 and the year ended December 31, 2010 are as follows:
-------------------------------------------------------------------------
March 31, December 31,
2011 2010
-------------------------------------------------------------------------
Number Weighted Number Weighted
of average of average
options exercise options exercise
price price
$ $
-------------------------------------------------------------------------
Outstanding 768,280 16.96 - -
at
beginning of period
-------------------------------------------------------------------------
Pursuant - - 768,280 16.96
to the
Plan of Arrangement
-------------------------------------------------------------------------
Forfeited/expired (12,000) 18.07 - -
-------------------------------------------------------------------------
Outstanding 756,280 16.95 768,280 16.96
at
end of period
-------------------------------------------------------------------------
The following provides a summary of the Share Plan as at March 31, 2011:
----------------------------------------------------------------
Options Options
outstanding exercisable
----------------------------------------------------------------
Outstanding Weighted Weighted Number Weighted
at Average average exercisable average
March 31, remaining contractual exercise at March 31, exercise
2011 life price 2011 price
$ $
----------------------------------------------------------------
160,000 0.1 $17.50 160,000 $17.50
50,000 0.4 $17.45 50,000 $17.45
255,000 1.1 $16.41 255,000 $16.41
110,375 2.2 $22.45 73,583 $22.45
171,905 3.2 $13.69 57,301 $13.69
9,000 4.4 $14.20 - -
----------------------------------------------------------------
No options were issued or exercised during the period ended March 31, 2011. The estimated weighted average fair value of share options granted as of December 31, 2010 was $4.96.
17 Share-based payment plans (continued)
The fair value of each shared-based payment transaction was estimated on the date of the grant, as determined by using the Black-Scholes option-pricing model with the following assumptions:
------------------------------------
March 31,
2011
------------------------------------
Dividend 7.5%
yield
Forfeiture % 0%
Risk-free 3.5%
interest rate
Expected life 5 years
of options
Expected volatility factor 60%
of the future expected
market price of
Corporation shares
------------------------------------
The Corporation recorded compensation expense, included as part of selling, general and administrative expense, of $117,800 with an offsetting increase to contributed surplus in respect of the share options granted and outstanding as of March 31, 2011.
Long-term incentive plan (the "Incentive Plan")
The Corporation has reserved 200,000 shares for issuance under the Incentive Plan. The shares from the Incentive Plan are issued at the ten day weighted average price prior to the issuance date, with the related cost recorded as compensation expense, which is included in selling, general and administrative.
Performance Trust Share Plan (the "PTU Plan")
The Corporation established the PTU Plan to reward officers and employees. The number of shares earned is dependent upon the achievement of certain financial targets over a three-year period. The PTUs are earned over the same three-year period and vest on the third anniversary of the grant, at which time the holder is entitled to cash equal to the aggregate current market value of the number of shares subject to the PTUs. Dividends per PTU are added to the entitlement after the PTUs are earned. Compensation expense is based on the estimated fair value of the award determined at the end of each quarter and recognized on a straight-line basis throughout the term of the vesting period, with a corresponding increase to provisions. On May 13, 2008, May 15, 2009 and May 11, 2010, the Corporation granted awards pursuant to the plan and has recorded a recovery of $67,000 for the period ended March 31, 2011, which is included in selling, general and administrative expense.
Revenue
-------------------------------------
March 31, March 31,
2011 2010
$ $
-------------------------------------
Rendering of 40,847,225 30,003,895
services
Truck placement 123,753 330,064
fees
-------------------------------------
40,970,978 30,333,959
-------------------------------------
Expenses by nature
Direct costs and selling, general and administrative expenses include the following major by nature expenses:
-----------------------------------------
March 31, March 31,
2011 2010
$ $
-----------------------------------------
Wages, salaries 13,188,780 9,098,560
and benefits
Share-based 117,800 (245,009)
payment
-----------------------------------------
13,306,580 8,853,551
-----------------------------------------
Earnings per share
Basic earnings per share ("EPS")
Basic EPS is calculated by dividing profit or loss attributable to ordinary equity holders (the numerator) by the weighted average number of ordinary shares outstanding (the denominator) during the period. The denominator (number of units) is calculated by adjusting the shares in issue at the beginning of the period by the number of shares bought back or issued during the period, multiplied by a time-weighting factor.
The calculation of basic earnings per share for the three months ended March 31, 2011, was based on the profit available to common shareholders of $4,381,826 (2010 - $4,309,046), and a weighted average number of common shares outstanding of 10,813,631 (2010 - 10,808,503), calculated as follows:
--------------------------------------------------
March 31, March 31,
2011 2010
$ $
--------------------------------------------------
Issued common shares 10,813,631 10,808,503
outstanding,
beginning of period
Effect of share - -
options exercised
--------------------------------------------------
Weighted average 10,813,631 10,808,503
number of common shares,
end of period
--------------------------------------------------
Diluted EPS
Diluted EPS is calculated by adjusting the earnings and number of shares for the effects of dilutive options and other dilutive potential shares. The effects of anti-dilutive potential shares are ignored in calculating diluted EPS. All options are considered anti-dilutive when the Corporation is in a loss position.
The calculation of diluted earnings per share for the three months ended March 31, 2011, was based on a weighted average number of common shares outstanding after adjustment for the effects of all dilutive potential common shares of 10,959,380 (2010 - 10,828,308), calculated as follows:
---------------------------------------------------
March 31, March 31,
2011 2010
$ $
---------------------------------------------------
Weighted average number 10,813,631 10,808,503
of common shares (basic)
Effect of share 145,749 19,805
options
---------------------------------------------------
Weighted average 10,959,380 10,828,308
number of common
shares (diluted)
---------------------------------------------------
For the three months ended March 31, 2011, 110,375 options (2010 - 581,375) were excluded from the diluted weighted average number of common shares calculation as their effect would have been anti-dilutive. The average market value of the Corporation's shares for purposes of calculating the dilutive effect of share options was based on quoted market prices for the period during which the options were outstanding.
Segment reporting
The Corporation operates in two geographic/reportable segments providing non-destructive excavating services to each of these segments. The following is selected information for the periods ended March 31, 2011 and 2010 based on these geographic segments.
Each segment is responsible for its operating results.
-------------------------------------------------------------------------
FOR THREE MONTHS ENDED: MARCH 31, 2011
-------------------------------------------------------------------------
CANADA ($) U.S. ($) TOTAL ($)
-------------------------------------------------------------------------
Revenues 26,204,116 14,766,862 40,970,978
Direct costs 16,794,814 11,353,180 28,147,994
Depreciation of property,
plant and equipment 1,994,239 1,330,090 3,324,329
Amortization of intangible assets 49,000 - 49,000
Selling, general and administrative 2,228,686 468,956 2,697,642
Profit before tax 4,869,572 1,611,650 6,481,222
-------------------------------------------------------------------------
FOR THREE MONTHS ENDED: MARCH 31, 2010
-------------------------------------------------------------------------
CANADA ($) U.S. ($) TOTAL ($)
-------------------------------------------------------------------------
Revenues 17,715,594 12,618,365 30,333,959
Direct costs 11,129,865 8,516,418 19,646,283
Depreciation of property,
plant and equipment 1,836,132 1,325,098 3,161,230
Amortization of intangible assets 49,000 - 49,000
Selling, general and administrative 1,603,277 738,659 2,341,936
Profit before tax 2,989,490 2,015,666 5,005,156
-------------------------------------------------------------------------
Selected Consolidated Statement of Financial Position Information
------------------------------------------------------
Canada U.S. Total
($) ($) ($)
------------------------------------------------------
As At March 31,
2011
------------------------------------------------------
Property, 55,937,436 35,980,065 91,917,501
plant and equipment
Intangible assets 6,746,513 - 6,746,513
Total assets 92,781,661 62,431,548 155,213,209
------------------------------------------------------
As at December 31,
2010
------------------------------------------------------
Property, 54,922,254 36,411,476 91,333,730
plant and equipment
Intangible assets 6,520,513 - 6,520,513
Total assets 87,990,962 63,205,205 151,196,167
------------------------------------------------------
As at January 1,
2010
------------------------------------------------------
Property, 49,774,184 39,523,285 89,297,469
plant and equipment
Intangible assets 6,416,512 - 6,416,512
Total assets 75,345,036 60,661,133 136,006,169
------------------------------------------------------
Selected Consolidated Statement of Cash Flow Information
-------------------------------------------------------------------------
For three months March 31, March 31,
ended: 2011 2010
-------------------------------------------------------------------------
Canada U.S. Total Canada U.S. Total
($) ($) ($) ($) ($) ($)
-------------------------------------------------------------------------
Additions to
non-current
assets:
-------------------------------------------------------------------------
Property, 1,308,941 3,799,158 5,108,099 2,426,521 173,1672,599,688
plant and
equipment
Intangible 275,000 - 275,000 - - -
assets
-------------------------------------------------------------------------
Related party disclosure
The consolidated financial statements include the financial statements of Badger Daylighting Ltd. and the subsidiaries listed in the following table:
-----------------------------------------------------
%
equity
interest
-----------------------------------------------------
Name Country 2011 2010
of
Incorporation
-----------------------------------------------------
Badger Canada 100% 100%
Daylighting Inc.
Badger Daylighting Canada 100% 100%
(Fort McMurray)
Inc.
Badger Edmonton Canada 100% 100%
Ltd.
1095909 Alberta Canada 100% 100%
Ltd.
Badger Canada 100% 100%
ULC
Badger Daylighting United States of America 100% 100%
USA, Inc.
Badger Daylighting United States of America 100% 100%
Corp.
Badger, United States of America 100% 100%
LLC
-----------------------------------------------------
Balances and transactions between Badger Daylighting Ltd. and its subsidiaries, which are related parties of the Badger Daylighting Ltd., have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the Corporation and other related parties are disclosed below.
Transactions with related parties
During the period ended March 31, 2011, the Corporation was charged $200,000 [2010 - $56,000] for professional fees by a partnership in which a director of the Corporation is a partner. These transactions were incurred during the normal course of operations on similar terms and conditions to those entered into with unrelated parties. These transactions are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties.
Related party balances
As at March 31, 2011 and December 31, 2010 there were no significant outstanding balances with related parties.
Compensation of key management personnel
The remuneration of directors and other members of key management personnel during the periods were as follows:
---------------------------------
March 31, March 31,
2011 2010
$ $
---------------------------------
Compensation, 383,975 263,975
including
bonuses
Share-based 58,900 (122,500)
payments
---------------------------------
442,875 141,475
---------------------------------
Key management personnel and director transactions
Key management and directors of the Corporation control 3.3 percent of the voting shares of the Corporation.
Capital management
The Corporation's strategy is to carry a capital base to maintain investor, creditor and market confidence and to sustain future development of the business. The Corporation considers the capital structure to consist of net debt and shareholders' equity. The Corporation considers net debt to be total long-term debt less cash and cash equivalents. The Corporation seeks to maintain a balance between the level of net debt and shareholders' equity to facilitate access to capital markets to fund growth and working capital. On a historical basis, it is management's objective and view that the Corporation has maintained a conservative and appropriate ratio of net debt to net debt plus shareholders' equity. The Corporation may occasionally need to increase these levels to facilitate acquisition or expansion activities. This ratio was as follows:
--------------------------------------------------------
March 31, December 31, January 1,
2011 2010 2010
$ $ $
--------------------------------------------------------
Long-term debt 41,486,980 40,671,395 32,284,264
Cash and cash (12,290,768) (11,890,341) (7,516,605)
equivalents
--------------------------------------------------------
Net debt 29,196,212 28,781,054 24,767,659
Shareholders' 75,743,543 75,419,886 67,565,734
equity
--------------------------------------------------------
Total 104,939,755 104,200,940 92,333,393
capitalization
--------------------------------------------------------
Net debt to total 28% 28% 27%
capitalization (%)
--------------------------------------------------------
The Corporation sets the amounts of its various forms of capital in proportion to risk. The Corporation manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Corporation may adjust the amount of dividends to shareholders, return capital to shareholders, issue new shares, or sell assets to reduce net debt.
The Corporation is bound by certain financial and non-financial covenants as defined by its bank. If the Corporation is in violation of any of these covenants its ability to pay dividends may be inhibited. The Corporation monitors these covenants to ensure it remains in compliance. The financial covenants are as follows:
--------------------------------------------------
Ratio March 31, December 31, Threshold
2011 2010
--------------------------------------------------
Current[1] 3.22:1 3.58:1 1.20:1
Minimum
--------------------------------------------------
Funded Debt[2] to 0.80:1 0.83:1 2.00:1
EBITDA[3] maximum
--------------------------------------------------
Fixed Charge 1.91:1 1.91:1 1.00:1
Coverage[4] minimum
--------------------------------------------------
Dividend[5] 0.60:1 0.71:1 1.00:1
maximum
--------------------------------------------------
[1] Current Ratio means, the ratio of the consolidated current assets to consolidated net current liabilities [excluding the current portion of long-term debt].
[2] Funded debt is long-term debt, less cash and cash equivalents.
[3] Funded Debt to EBITDA (earnings before interest, taxes, depreciation and amortization) means the ratio of consolidated Funded Debt to the aggregated EBITDA for the trailing twelve-months. Funded Debt is defined as long-term debt including any current portion thereof. EBITDA is defined as the trailing twelve-months of EBITDA for the Corporation.
[4] Fixed Charge Coverage Ratio means, based on the trailing twelve-month EBITDA less unfinanced capital expenditures and cash taxes, plus the unused portion of the extendable revolving credit facility to the sum of the aggregate of scheduled long-term debt principal payments, interest and dividends.
[5] Dividend ratio means dividends for the trailing twelve-month period to the sum of funds generated from operations less scheduled long-term debt principal payments and maintenance capital expenditures.
Throughout 2011 and as at March 31, 2011 the Corporation was in compliance with all of these covenants.
There were no changes in the Corporation's approach to capital management during the period.
Financial instruments and risk management
The Corporation's activities expose it to a variety of financial risks: credit risk, liquidity risk and market risk. The Corporation's overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Corporation's financial performance.
Risk management is carried out by senior management, in particular, the Board of Directors.
Fair values
The Corporation's financial instruments recognized on the consolidated statement of financial position consist of cash and cash equivalents, trade and other receivables, trade and other payables, distributions payable, dividends payable and long-term debt. The fair values of these recognized financial instruments, excluding long-term debt, approximate their carrying values due to their short-term maturity. The carrying value of the long-term debt approximates fair value because each of the long-term facilities has a floating interest rate.
Credit risk
Credit risk arises when a failure by counter parties to discharge their obligations could reduce the amount of future cash inflows from financial assets on hand at the statement of financial position date. A substantial portion of the Corporation's trade receivable balance is with customers in the petroleum and utility industries and is subject to normal industry credit risks. The Corporation manages its exposure to credit risk through standard credit granting procedures and short payment terms. The Corporation attempts to monitor financial conditions of its customers and the industries in which they operate.
The maximum exposure to credit risk as at:
--------------------------------------------------
March 31, December 31, January 1,
2011 2010 2010
$ $ $
--------------------------------------------------
Trade and other 40,647,488 37,869,248 30,205,878
receivables
Cash and cash 12,290,768 11,890,341 7,516,605
equivalents
--------------------------------------------------
52,938,256 49,759,589 37,722,483
--------------------------------------------------
Liquidity risk
Liquidity risk is the risk that, as a result of operational liquidity requirements, the Corporation will not have sufficient funds to settle an obligation on the due date and will be forced to sell financial assets at a price which is less than what they are worth, or will be unable to settle or recover a financial asset.
The Corporation's operating cash requirements are continuously monitored by management. As factors impacting cash requirements change, liquidity risks may necessitate the need for the Corporation to raise capital by issuing equity or obtaining additional debt financing. The Corporation also mitigates liquidity risk by maintaining an insurance program to minimize exposure to insurable losses.
At March 31, 2011, the Corporation had available $1,690,630 of authorized borrowing capacity on the extendable revolving credit facility. The credit facility expires on June 25, 2011 renewable at the Corporation's option for an additional 364-day period. If not renewed, interest is payable on the facility for 364 days after which the entire amount is to be repaid. The Corporation believes it has sufficient funding through operations and the use of this facility to meet foreseeable financial obligations. Subsequent to quarter end, this facility was renewed. See note 26.
24 Financial instruments and risk management (continued)
The table below summarizes the maturity profile of the Corporation's financial liabilities at March 31, 2011 and December 31, 2010 based on contractual undiscounted payments.
-------------------------------------------------------------------------
Less than 1 1 to 2 2 to 5 > 5
Year years years years Total
-------------------------------------------------------------------------As at March 31, 2011
Trade and other
payables 14,443,269 - - - 14,443,269
Long-term debt 323,768 38,956,906 971,304 1,235,002 41,486,980
-------------------------------------------------------------------------
14,767,037 38,956,906 971,304 1,235,002 55,930,249
-------------------------------------------------------------------------
Market risk
The significant market risk exposures affecting the financial instruments held by the Corporation are those related to interest rates and foreign currency exchange rates which are explained as follows:
Interest rate risk
The Corporation is exposed to interest rate risk in relation to interest expense on its long-term debt. Interest is calculated at prime to prime plus 0.75% for certain of its borrowing facilities. The prime interest rate is subject to change. A sensitivity analysis would indicate that net profit for the period ended March 31, 2011 would have been affected by approximately $74,000 if the average interest rate changed by one percent. The Corporation does not currently use interest rate hedges or fixed interest rate contracts to manage the Corporation's exposure to interest rate fluctuations.
Foreign exchange risk
The Corporation has United States operations and Canadian operations which purchase certain products in United States dollars. As a result, fluctuations in the value of the Canadian dollar relative to the United States dollar can result in foreign exchange gains and losses. The Corporation does not currently have any agreements to fix or hedge the exchange rate of the Canadian dollar to the United States dollar.
United States dollar denominated balances, subject to exchange rate fluctuations, were as follows (amounts shown in Canadian dollar equivalent):
-------------------------------------------------------------------------
March 31, December 31, January 1,
2011 2010 2010
$ $ $
----------------------------------------------
Cash and cash equivalents 12,290,768 11,890,341 7,516,605
Trade and other receivables 13,285,592 14,379,943 13,143,011
Trade and other payables (3,694,915) (4,762,286) (5,770,681)
Income taxes payable (439,161) (437,000) (315,000)
Long-term debt (24,735,000) (25,500,000)(26,775,000)
----------------------------------------------
(3,292,716) (4,429,002)(12,201,065)
-------------------------------------------------------------------------
The following table demonstrates the Corporation's sensitivity to a 10% increase or decrease in the Canadian dollar against the foreign exchange rates. The sensitivity analysis includes only foreign currency denominated monetary items and adjusts their translation at the period end for a 10% change in the foreign currency rate (amounts shown in Canadian dollar equivalent).
-------------------------------------------------------------------------
Effect on Effect on
profit/(loss) profit/(loss)
before tax before tax
Increase/decrease in foreign exchange rate 2011 2010
-------------------------------------------------------------------------
10% strengthening in the Canadian dollar
against the US dollar (146,000) (174,000)
10% weakening in the Canadian dollar
against the US dollar 163,000 218,000
-------------------------------------------------------------------------
Commitments and contingencies
Legal disputes
The Corporation is not involved in any legal disputes that would generate a material impact to the financial results of the Corporation.
Operating leases
The Corporation has entered into operating leases for shop and office premises.
Future minimum rentals payable under non-cancellable operating leases are as follows:
-------------------------------------------------------------------------
March 31, December 31, January 1,
2011 2010 2010
$ $ $
----------------------------------------
Within one year 732,000 793,000 779,000
After one year but not more
than five years 826,000 736,000 940,000
More than five years - - -
Total 1,558,000 1,529,000 1,719,000
-------------------------------------------------------------------------
Purchase commitments
At March 31, 2011 the Corporation has commitments to purchase approximately $12,400,000 worth of capital assets and various parts and materials. There are no set terms for remitting payment for these financial obligations.
Subsequent events
1. On January 26, 2011, the Corporation signed an agreement to be acquired by Clean Harbors, Inc. ("Clean Harbors"). Under the terms of the agreement, Clean Harbors was to acquire 100% of the Corporation's outstanding common shares for cash consideration of $20.50 per common share (the "Transaction"). The Transaction was conditional on the approval of not less than 66 2/3 percent of the votes cast by the shareholders and optionholders. The Corporation held a meeting to consider the Transaction on April 26, 2011. The shareholder and optionholder vote did not receive the requisite number of votes required to approve the Transaction and as a result the Transaction was not completed. As a result pursuant to the terms of the agreement the Corporation must reimburse Clean Harbors for their expenses up to a maximum of $1,500,000.
2. In June, 2011, the Corporation renewed the extendable revolving credit facility. The principal was increased from $40,000,000 to $60,000,000. The facility has no required principal repayments and expires on June 24, 2012. It is renewable at Badger's option for an additional 364-day period. If not renewed, interest is payable on the facility for 364 days, after which the entire amount must be repaid. The facility bears interest at the bank's prime rate or bankers' acceptance rate plus 1.25 percent plus 0 to 0.75 percent depending on Badger's funded-debt-to-EBITDA ratio.
3. Subsequent to March 31, 2011, pursuant to the share option plan the Corporation had certain vested options surrendered by employees in return for a cash settlement of $2,191,648.
Explanation of transition to IFRS
The consolidated financial statements for the period ended March 31, 2011 are the Corporation's first interim consolidated financial statements prepared under IFRS. For all accounting periods prior to this, the Corporation prepared its consolidated financial statements under pre-changeover Canadian GAAP. In accordance with IFRS 1, certain disclosures relating to the transition to IFRS are given in this note. These disclosures are prepared under IFRS as set out in the basis of preparation in note 2.
IFRS 1 allows first time adopters to IFRS to take advantage of a number of voluntary exemptions from the general principal of retrospective restatement. The Corporation has taken the following exemptions:
IFRS 2
This standard has not been applied to equity settled share-based payment transactions where equity instruments were granted after November 7, 2002 but vested before January 1, 2010, the Corporation's transition date.
IFRS 3
This standard has not been applied retrospectively to business combinations that took place before the transition date.
IFRIC 4
This IFRIC has not been applied retrospectively. The Corporation made an assessment as to whether an arrangement, existing at the transition date, contains a lease on the basis of the facts and circumstances existing at that date. The assessment was made in accordance with the requirements IFRIC 4. The Corporation did not identify any arrangements containing a lease on the transition date.
IAS 21
This standard has not been applied retrospectively with regards to calculating the foreign currency translation reserve. The foreign currency translation reserve has been set to zero on the transition date and therefore a gain or loss on subsequent disposal of a foreign operation will only include foreign exchange differences that arose subsequent to the transition date.
IAS 23
This standard has not been applied retrospectively. As at the transition date, the Corporation did not have any qualifying assets.
Reconciliation of equity as at January 1, 2010
-------------------------------------------------------------------------
Effect of transition to IFRS
---------------------------------------------------
Pre- Reclassifi Share- Foreign Deferred IFRS
changeover -cations based currency tax $
Canadian payments (Note 3) (Note 4)
GAAP (Note 1) (Note 2) $ $
$ $ $
-------------------------------------------------------------------------
ASSETS
Current Assets
Cash and cash 7,516,605 7,516,605
Equivalents
Trade and other 30,205,878 30,205,878
Receivables
Inventories 1,792,708 1,792,708
Prepaid expenses 776,997 776,997
-----------------------------------------------------------
40,292,188 - - - 40,292,188
-----------------------------------------------------------
Non-current Assets
Property, plant 91,155,437 (1,857,968) 89,297,469
and equipment
Intangible assets 6,416,512 6,416,512
-----------------------------------------------------------
97,571,949 - - (1,857,968) - 95,713,981
-----------------------------------------------------------
Total Assets 137,864,137 - - (1,857,968) - 136,006,169
-----------------------------------------------------------
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current Liabilities
Trade and 11,364,134 (805,847) 10,558,287
other payables
Provisions - 805,847 805,847
Income taxes
payable 907,377 907,377
Distributions
payable 1,134,893 1,134,893
Current portion 323,768 323,768
of long-term debt
-----------------------------------------------------------
13,730,172 - - - - 13,730,172
-----------------------------------------------------------
Non-current Liabilities
Long-term debt 31,960,496 31,960,496
Provisions - 2,789,638 2,789,638
Deferred taxation 19,280,129 680,000 19,960,129
-----------------------------------------------------------
51,240,625 - 2,789,638 - 680,000 54,710,263
-----------------------------------------------------------
Shareholders'
Equity -
Shareholders'
capital -
Unitholders'
capital 44,387,955 44,387,955
Contributed
surplus 3,813,850 (3,102,750) 711,100
Retained
earnings 24,691,535 313,112 (1,857,968) (680,000) 22,466,679
-----------------------------------------------------------
72,893,340 - (2,789,638) (1,857,968)(680,000) 67,565,734
-----------------------------------------------------------
Total Liabilities
and Shareholders'
Equity 137,864,137 - - (1,857,968) - 136,006,169
-------------------------------------------------------------------------
27.1 Reconciliation of equity as at January 1, 2010 (continued)
The following explains the material adjustments to the consolidated statement of financial position as at January 1, 2010:
Note 1 - Reclassifications
Under pre-changeover Canadian GAAP, provisions are presented in trade and other payables. Under IFRS, separate disclosure on the face of the consolidated statement of financial position is required for the Corporation's provisions.
Note 2 - Share-based payments
Under pre-changeover Canadian GAAP, the Funds stock options awards granted to employees were classified as equity-settled share based awards and the fair value of the options was determined at the grant date and recognized on a straight-line basis over the employment period necessary to vest the award.
Under IFRS, the stock option awards are classified as cash-settled share-based awards. Each tranche in an award with graded vesting is considered a separate grant with a different vesting date and fair value measurement at each reporting period. Each grant is accounted for on that basis. As a result, the Corporation adjusted its expense for share-based awards to reflect this difference in recognition and reflects the related liability provisions.
Note 3 -Foreign currency
Under IFRS, the functional currency of an entity is determined by focusing on the primary economic environment in which it operates and less precedence is placed on factors regarding the financing from and operational involvement of the reporting entity which consolidates the entity in its financial statements. Under pre-changeover Canadian GAAP, equal precedence is placed on all factors. The effect of this change to IFRS resulted in the Corporation's United States subsidiaries having a different functional currency than the Corporation's functional currency. As such, the translation of the results and statement of financial position of the foreign operations into the Corporation's presentation currency requires a translation of all assets and liabilities at the closing rate at each reporting date with all resulting foreign exchange gains or losses recognized in other comprehensive income ("OCI"). Revenues and expenses of foreign operations are translated using average monthly foreign exchange rates, which approximate the foreign exchange rates on the dates of the transactions with foreign exchange differences recognized in OCI.
The Corporation reversed the balance of exchange differences on translation of foreign operations within other reserves and recorded a decrease to opening retained earnings.
Note 4 - Deferred tax
Under pre-changeover Canadian GAAP, the distributions to unitholders were a tax deductible item.
Under IFRS, the distributions to unitholders are not a tax deductible item. As a result, a higher tax rate must be applied to the December 31, 2009 temporary differences.
Reconciliations of equity as at December 31, 2010
-------------------------------------------------------------------------
Effect of transition to IFRS
--------------------------------------------------
Pre- Reclassifi- Share Foreign IFRS
changeover cations -based currency $
Canadian (Note 1) payments (Note 3)
GAAP $ (Note 2) $
$ $
-------------------------------------------------------------------------
ASSETS
Current Assets
Cash and cash
Equivalents 11,890,341 11,890,341
Trade and other
Receivables 37,869,248 37,869,248
Inventories 1,993,609 1,993,609
Income taxes
Receivable 424,978 424,978
Prepaid expenses 1,163,748 1,163,748
-------------------------------------------------------
53,341,924 - - - 53,341,924
-------------------------------------------------------
Non-current Assets
Property, plant
and equipment 94,566,785 (3,233,055) 91,333,730
Intangible assets 6,520,513 6,520,513
-------------------------------------------------------
101,087,298 - - (3,233,055) 97,854,243
-------------------------------------------------------
Total Assets 154,429,222 - - (3,233,055) 151,196,167
-------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Trade and
other payables 13,775,173 (1,450,850) 12,324,323
Provisions - 1,450,850 1,450,850
Distributions
payable 1,135,431 1,135,431
Current portion of
long-term debt 323,768 323,768
-------------------------------------------------------
15,234,372 - - - 15,234,372
-------------------------------------------------------
Non-current Liabilities
Long-term debt 40,347,627 40,347,627
Deferred taxation 20,194,282 20,194,282
-------------------------------------------------------
60,541,909 - - - 60,541,909
-------------------------------------------------------
Shareholders' Equity
Shareholders'
capital 44,473,107 44,473,107
Contributed
surplus 4,544,450 34,321 4,578,771
Foreign currency - (2,112,889) (2,112,889)
translation reserve
Retained earnings 29,635,384 (34,321) (1,120,166) 28,480,897
-------------------------------------------------------
78,652,941 - - (3,233,055) 75,419,886
-------------------------------------------------------
Total Liabilities and 154,429,222 - - (3,233,055)151,196,167
Shareholders' Equity
-------------------------------------------------------------------------
27.2 Reconciliations as at December 31, 2010 (continued)
Reconciliation of comprehensive income for the year ended December 31, 2010
-------------------------------------------------------------------------
Effect of transition to IFRS
---------------------------------------------------
Pre- Share- Foreign Deferred IFRS
changeover based currency tax $
Canadian payments (Note 3) (Note 4)
GAAP (Note 2) $ $
$ $
-------------------------------------------------------------------------
Revenues 139,610,783 139,610,783
Direct costs 92,403,644 92,403,644
--------------------------------------------------------
Gross profit 47,207,139 - - - 47,207,139
Depreciation of
property, plant
and equipment 12,975,873 (343,847) 12,632,026
Amortization of
intangible assets 195,999 195,999
Selling, general 12,224,084 347,433 12,571,517
and administrative
--------------------------------------------------------
Operating profit 21,811,183 347,433 343,847 - 21,807,597
Foreign exchange
(gain)/loss 393,954 (393,954) -
Gain on sale of
property, plant
and equipment (102,154) (102,154)
Finance cost 984,724 984,724
--------------------------------------------------------
Profit before tax 20,534,659 (347,433) 737,801 - 20,925,027
Income tax expense 1,971,931 (680,000) 1,291,931
--------------------------------------------------------
Net profit for
the year 18,562,728 (347,433) 737,801 680,000 19,633,096
Other comprehensive income
Exchange differences - (2,112,889) (2,112,889)
on translation of foreign
operations net of tax
Other comprehensive - - (2,112,889) - (2,112,889)
income for the year,
net of tax
Total comprehensive 18,562,728 (347,433)(1,375,088) 680,000 17,520,207
income for the year
attributable to
shareholders of the
Corporation
-------------------------------------------------------------------------
27.2 Reconciliations as at December 31, 2010 (continued)
The following explains the material adjustments to the consolidated statement of financial position as at December 31, 2010:
Note 1 - Reclassifications
Under pre-changeover Canadian GAAP, provisions are presented in trade and other payables. Under IFRS, separate disclosure on the face of the consolidated statement of financial position is required for the Corporation's provisions.
Note 2 - Share-based payments
Under pre-changeover Canadian GAAP, the Funds stock options awards granted to employees were classified as equity-settled share based awards and the fair value of the options was determined at the grant date and recognized on a straight-line basis over the employment period necessary to vest the award.
Under IFRS, the stock option awards are classified as cash-settled share-based awards. Each tranche in an award with graded vesting is considered a separate grant with a different vesting date and fair value measurement at each reporting period. Each grant is accounted for on that basis. As a result, the Corporation adjusted its expense for share-based awards to reflect this difference in recognition.
Note 3 -Foreign currency
Under IFRS, the functional currency of an entity is determined by focusing on the primary economic environment in which it operates and less precedence is placed on factors regarding the financing from and operational involvement of the reporting entity which consolidates the entity in its financial statements. Under pre-changeover Canadian GAAP, equal precedence is placed on all factors. The effect of this change to IFRS resulted in the Corporation's United States subsidiaries having a different functional currency than the Corporation's functional currency. As such, the translation of the results and statement of financial position of the foreign operations into the Corporation's presentation currency requires a translation of all assets and liabilities at the closing rate at each reporting date with all resulting foreign exchange gains or losses recognized in OCI. Revenues and expenses of foreign operations are translated using average monthly foreign exchange rates, which approximate the foreign exchange rates on the dates of the transactions with foreign exchange differences recognized in OCI.
The Corporation reversed the balance of exchange differences on translation of foreign operations within other reserves and recorded a decrease to opening retained earnings.
Note 4 - Deferred tax
Under pre-changeover Canadian GAAP, the distributions to unitholders were a tax deductible item.
Under IFRS, the distributions to unitholders are not a tax deductible item. As a result, a higher tax rate must be applied to the December 31, 2009 temporary differences.
Reconciliations as at March 31, 2010
Reconciliation of equity as at March 31, 2010
Effect of transition to IFRS
----------------------------------------------
Pre- Reclassifi- Share Foreign Deferred
changeover Cations -based currency tax
Canadian (Note 1) payments (Note 3) (Note 4)
GAAP $ (Note 2) $ $
$ $
----------------------------------------------------------
ASSETS
Current Assets
Cash 10,861,116
and cash
equivalents
Trade 25,682,157
and other
receivables
Inventories 1,938,205
Prepaid 1,055,888
expense s
----------------------------------------------------------
39,537,366 - - - -
----------------------------------------------------------
Non-current Assets
Property, 90,390,105 (2,868,573)
plant and
equipment
Intangible 6,367,513
assets
----------------------------------------------------------
96,757,618 - - (2,868,573) -
----------------------------------------------------------
Total 136,294,984 - - (2,868,573) -
Assets
----------------------------------------------------------
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current
Liabilities
Trade 11,089,555 (662,863)
and other
payables
Provisions - 662,863
Income 31,595
taxes receivable
Distributions 1,134,893
payable
Current 323,768
portion of
long-term
debt
----------------------------------------------------------
12,579,811 - - - -
----------------------------------------------------------
Non-current
Liabilities
Long-term 31,461,117
debt
Provisions - 2,544,629
Deferred 18,940,587 680,000
taxation
----------------------------------------------------------
50,401,704 - 2,544,629 - 680,000
----------------------------------------------------------
Shareholders' Equity
Unitholders' 44,387,955
capital
Contributed 4,095,850 (3,384,750)
surplus
Foreign - (1,249,836)
currency
translation
reserve
Retained 24,829,664 840,121 (1,618,737) (680,000)
earnings
----------------------------------------------------------
73,313,469 - (2,544,629) (2,868,573) (680,000)
----------------------------------------------------------
Total 136,294,984 - - (2,868,573) -
Liabilities and
Shareholders'
Equity
----------------------------------------------------------
IFRS
$
-----------------
ASSETS
Current Assets
Cash 10,861,116
and cash
equivalents
Trade 25,682,157
and other
receivables
Inventories 1,938,205
Prepaid 1,055,888
expense s
-----------------
39,537,366
-----------------
Non-current Assets
Property, 87,521,532
plant and
equipment
Intangible 6,367,513
assets
-----------------
93,889,045
-----------------
Total 133,426,411
Assets
-----------------
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current
Liabilities
Trade 10,426,692
and other
payables
Provisions 662,863
Income 31,595
taxes receivable
Distributions 1,134,893
payable
Current 323,768
portion of
long-term
debt
-----------------
12,579,811
-----------------
Non-current
Liabilities
Long-term 31,461,117
debt
Provisions 2,544,629
Deferred 19,620,587
taxation
-----------------
53,626,333
-----------------
Shareholders' Equity
Unitholders' 44,387,955
capital
Contributed 711,100
surplus
Foreign (1,249,836)
currency
translation
reserve
Retained 23,371,048
earnings
-----------------
67,220,267
-----------------
Total Liabilities and 133,426,411
Shareholders' Equity
-----------------
27.3 Reconciliations as at March 31, 2010 (continued)
Reconciliation of comprehensive income for the period ended March 31, 2010
-------------------------------------------------------------------------
Effect of transition to IFRS
------------------------------------------
Pre Share- Foreign Deferred IFRS
-changeover based currency tax $
Canadian payments (Note 3) (Note 4)
GAAP (Note 2) $ $
$ $
-------------------------------------------------------------------------
Revenues 30,333,959 30,333,959
Direct costs 19,646,283 19,646,283
----------------------------------------------------
Gross profit 10,687,676 - - - 10,687,676
Depreciation of
property, plant and
equipment 3,255,099 (93,869) 3,161,230
Amortization of
intangible assets 49,000 49,000
Selling, general and
administrative 2,868,945 (527,009) 2,341,936
----------------------------------------------------
Operating profit 4,514,632 527,009 (93,869) - 5,135,510
Foreign exchange
(gain)/loss 145,361 (145,361) -
Gain on sale of
property, plant
and equipment (84,237) (84,237)
Finance cost 214,591 214,591
----------------------------------------------------
Profit before tax 4,238,917 527,009 239,230 - 5,005,156
Income tax expense 696,110 696,110
----------------------------------------------------
Net profit for
the period 3,542,807 527,009 239,230 - 4,309,046
Other comprehensive
income Exchange
differences on
translation of foreign
operations net of tax - (1,249,836) (1,249,836)
----------------------------------------------------
Total comprehensive
income for the period
attributable to
shareholders of the
Corporation 3,542,807 527,009 (1,010,606) - 3,059,210
-------------------------------------------------------------------------
27.3 Reconciliations as at March 31, 2010 (continued)
The following explains the material adjustments to the consolidated statement of financial position as at March 31, 2010:
Note 1 - Reclassifications
Under pre-changeover Canadian GAAP, provisions are presented in trade and other payables. Under IFRS, separate disclosure on the face of the consolidated statement of financial position is required for the Corporation's provisions.
Note 2 - Share-based payments
Under pre-changeover Canadian GAAP, the Funds stock options awards granted to employees were classified as equity-settled share based awards and the fair value of the options was determined at the grant date and recognized on a straight-line basis over the employment period necessary to vest the award.
Under IFRS, the stock option awards are classified as cash-settled share-based awards. Each tranche in an award with graded vesting is considered a separate grant with a different vesting date and fair value measurement at each reporting period. Each grant is accounted for on that basis. As a result, the Corporation adjusted its expense for share-based awards to reflect this difference in recognition.
Note 3 -Foreign currency
Under IFRS, the functional currency of an entity is determined by focusing on the primary economic environment in which it operates and less precedence is placed on factors regarding the financing from and operational involvement of the reporting entity which consolidates the entity in its financial statements. Under pre-changeover Canadian GAAP, equal precedence is placed on all factors. The effect of this change to IFRS resulted in the Corporation's United States subsidiaries having a different functional currency than the Corporation's functional currency. As such, the translation of the results and statement of financial position of the foreign operations into the Corporation's presentation currency requires a translation of all assets and liabilities at the closing rate at each reporting date with all resulting foreign exchange gains or losses recognized in OCI. Revenues and expenses of foreign operations are translated using average monthly foreign exchange rates, which approximate the foreign exchange rates on the dates of the transactions with foreign exchange differences recognized in OCI.
The Corporation reversed the balance of exchange differences on translation of foreign operations within other reserves and recorded a decrease to opening retained earnings.
Note 4 - Deferred tax
Under pre-changeover Canadian GAAP, the distributions to unitholders were a tax deductible item.
Under IFRS, the distributions to unitholders are not a tax deductible item. As a result, a higher tax rate must be applied to the December 31, 2009 temporary differences.
Restatement of consolidated statement of cash flows from pre-changeover Canadian GAAP to IFRS
The restatement from pre-changeover Canadian GAAP to IFRS had no significant effect on the reported cash flows generated by the Corporation. The reconciling items between pre-changeover Canadian GAAP presentation and IFRS have no effect on the cash flows generated.
To view this press release as a webpage please click on the following link:
http://www.usetdas.com/pr/badger06142011.htm
Or
To view this press release as a printable PDF file, please click on the following link:
http://www.usetdas.com/maps/badger/badgerpr06142011.pdf
Source: Badger Daylighting Ltd. (TSX - BAD) www.badgerinc.com
Maximum News Dissemination by Filing Services Canada Inc. http://www.usetdas.com