Badger Daylighting Ltd. Announces Results for the Three Months Ended September 30, 2011 and Addition of Vice President United States Operations to Corporate Management Team
Calgary, Alberta CANADA, November 14, 2011 /FSC/ - Badger Daylighting Ltd. (BAD - TSX), (the "Company" or "Badger") is pleased to announce its results for the nine and three months ended September 30, 2011 and the appointment of John Kelly to the position of Vice President of United States Operations. With the recent and expected growth of Badger's United States business it is necessary to ensure Badger has the appropriate leadership in the United States. Mr. Kelly will be based at the Pittsboro, Indiana office and be responsible for all of Badger's United States operations. Derek Dillon continues as the Vice President of Canadian operations and is responsible for the ongoing operations and further development of Badger's Canadian business.
Highlights for the three months ended September 30, 2011:
* Revenues increased by approximately 39 percent to $53.9 million from $38.7 million for the comparable quarter of 2010 due to a 26 percent increase in Canadian revenues and a 59 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;
* EBITDA increased by approximately 51 percent to $15.3 million from $10.1 million in the same quarter of 2010;
* Funds generated from operations increased by approximately 44 percent period-over-period to $15.0 million from $10.4 million in the comparable quarter of 2010; and
* EBITDA margins in Canada increased to 30 percent from 28 percent for the comparable period of last year due to leveraging off the increase in revenues. EBITDA margins in the United States increased to 26 percent from 24 percent in the third quarter of 2010 due to the newer corporate locations generating more revenue allowing Badger to leverage off the prior costs of starting these locations.
Badger had 478 daylighting units at the end of the third quarter of 2011, reflecting the addition of 68 daylighting units to the fleet to date in 2011 and the retirement of two units. Of the total, 240 units were operating in Canada and 238 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.
Revenue and expense variance analysis in the MD&A focuses primarily on the year-over-year changes during the third quarter. Year-over-year variances for the nine months ended September 30, 2011 and 2010 are explained by the same general factors which contributed to the third quarter variance, unless otherwise indicated.
This MD&A has been prepared taking into consideration information available to November 10, 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:
* That the market for hydrovac services will continue to improve in the remainder of 2011 in most markets;
* That the economy in Canada and the United States will not be materially different in the remainder of 2011;
* That the new locations opened in 2010 in the United States will provide an increased contribution to cash flows from operations and net profit during the remainder of 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 the remainder of 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 profit 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 securities regulatory authorities in Canada 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 growth and/or 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 the results are taxed in various jurisdictions. EBITDA is calculated from the Consolidated Statement of Comprehensive Income as gross profit less selling, general and administrative costs. It is calculated as follows:
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Three months ended Nine months ended
September 30, September 30,
$ 2011 2010 2011 2010
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Gross profit 17,908,831 13,557,808 44,580,277 34,139,129
Selling, general
and administrative (2,642,882) (3,435,855) (8,061,508) (8,299,716)
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EBITDA 15,265,949 10,121,953 36,518,769 25,839,413
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"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 profit 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:
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Three months ended Nine months ended
September 30, September 30,
$ 2011 2010 2011 2010
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Cash provided by
operating activities 7,074,765 6,120,031 18,031,655 20,242,110
Add (deduct):
Net change in non-cash
working capital relating
to operating activities 7,924,644 4,269,338 12,028,049 3,614,854
Equity-settled share plan
settled in cash 0 0 2,191,648 0
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Funds generated
from operations 14,999,409 10,389,369 32,251,352 23,856,964
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"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. They generally represent 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 share and total shares outstanding information)
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Three months Three months Nine months Nine months
ended ended ended ended
September 30, September 30, September 30, September 30,
2011 2010 2011 2010
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Revenues 53,854 38,727 137,630 98,435
EBITDA 15,266 10,122 36,519 25,839
Profit before tax 11,203 6,510 23,888 15,367
Income tax expense
Current 990 (183) 3,139 586
Deferred 2,060 322 3,651 816
Net profit 8,153 6,371 17,099 13,964
Profit per share *
diluted ($) 0.75 0.59 1.58 1.29
Funds generated
from operations 14,999 10,389 32,251 23,857
Funds generated from operations
per share * diluted ($) 1.38 0.96 2.98 2.20
Maintenance capital
expenditures 453 3,913 902 7,577
Required long-term
debt repayments - 81 3,259 243
Cash available for growth and
dividends/distributions 14,641 6,933 28,257 16,864
Dividends/distributions
declared 2,757 3,404 8,272 10,214
Growth capital
expenditures 12,662 106 23,887 1,023
Total shares outstanding
(end of period) 10,813,631 10,807,411 10,813,631 10,807,411
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OVERVIEW
Highlights for the three months ended September, 30, 2011:
* Revenues increased by approximately 39 percent to $53.9 million from $38.7 million for the comparable quarter of 2010 due to a 26 percent increase in Canadian revenues and a 59 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;
* EBITDA increased by approximately 51 percent to $15.3 million from $10.1 million in the same quarter of 2010;
* Funds generated from operations increased by approximately 44 percent period-over-period to $15.0 million from $10.4 million in the comparable quarter of 2010; and
* EBITDA margins in Canada increased to 30 percent from 28 percent for the comparable period of last year due to leveraging off the increase in revenues. EBITDA margins in the United States increased to 26 percent from 24 percent in the third quarter of 2010 due to the newer corporate locations generating more revenue allowing Badger to leverage off the prior costs of starting these locations.
Badger had 478 daylighting units at the end of the third quarter of 2011, reflecting the addition of 68 daylighting units to the fleet to date in 2011 and the retirement of two units. Of the total, 240 units were operating in Canada and 238 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 to 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 a settlement agreement, Badger paid Clean Harbors $1.1 million.
OUTLOOK
Badger is very pleased with the progress and results generated by its four regions and manufacturing plant during the third quarter. Business development efforts were rewarded with more revenue and the operational locations worked hard to ensure the work was performed in a safe and efficient manner. The additional revenue and work load obviously stretched Badger's personnel and resources which are continuously developing.
Badger remains cautiously optimistic it will be able to continue this level of growth at least to the end of 2011, for the following reasons.
1. Business development personnel have focused their efforts on adding customers and finding opportunities to provide continuous work through traditional slow periods. For example, Badger normally experiences a slowdown in the Eastern United States Region starting after United States Thanksgiving. Badger is currently working hard to identify projects and facilities that may be able to use Badger during this otherwise slow period, thereby keeping revenue at higher levels.
2. The current level of oil and natural gas sector as well as general economic activity in Canada and the United States provides Badger with enough opportunities to keep its trucks busy and add revenue. Badger does not foresee much change in this level to the end of the year.
3. Areas added in the United States in 2010 are starting to perform at a reasonable level, which not only improves immediate financial results but provides a platform to grow. This investment in new areas has been worthwhile.
4. Eastern Canada results are good and the forecast is for this to continue.
5. Badger's manufacturing plant is currently adding two daylighting units per week to the Company's fleet. There is a high demand for units, which are being built almost exclusively for growth. Badger is also forecasting a minimal removal of units from the fleet in 2011.
Badger has spent a good deal of effort trying to determine what market conditions for its services will be like in 2012. It has been very difficult to predict the strength of the economy or activity levels in the oil and natural gas sector. The goal is to remain flexible enough to take advantage of opportunities for additional growth while remaining able to adjust the business to handle any slowdowns. Badger believes as long as market conditions remain relatively constant, the Company will be able to continue to grow the business in 2012.
Results of Operations
Revenues
Revenues of $53.9 million for the three months ended September 30, 2011 were 39 percent greater than the $38.7 million generated during the comparable period in 2010. The increase is attributable to the following:
* Canadian revenues increased by 26 percent from $22.9 million in the third quarter of 2010 to $28.8 million in the third quarter of 2011. Western Canada hydrovac revenue increased by 30 percent due to an increase in demand for hydrovac services in various areas generated by increased activity in the oil and natural gas industry. Eastern Canada revenue increased by 16 percent quarter-over-quarter due to a general increase in activity; and
* United States revenue went from $15.8 million for the three months ended September 30, 2010 to $25.1 million for the three months ended September 30, 2011. Removing the effect of the change in the foreign exchange rate, revenues increased by 71 percent quarter-over-quarter. The increase is due to more work in the United States West and East generated by increased activity in the oil and natural gas industry plus increased activity at one large project.
Badger's average revenue per truck per month during the three months ended September 30, 2011 was $35,500 versus $28,200 for the three months ended September 30, 2010. The increase is due to increased revenue noted above.
Direct Costs
Direct costs for the quarter ended September 30, 2011 were $35.9 million compared to $25.2 million for the quarter ended September 30, 2010. This increase of 43 percent is greater than the increase in revenues of 39 percent due to lower than anticipated revenues being generated from a number of the United States corporate locations which continue to incur costs as they work to increase their customer base and build revenue.
Gross Profit
The gross profit percentage was 33.3 percent for the quarter ended September 30, 2011, a decrease from the 35.0 percent generated for the quarter ended September 30, 2010. The Canadian gross profit percentage decreased slightly from 38.2 percent for the three months ended September 30, 2010 to 37.6 percent for the three months ended September 30, 2011. United States gross profit percentage decreased from 30.5 percent for the three months ended September 30, 2010 to 28.3 percent for the three months ended September 30, 2011 due to a significant increase in the number of corporate locations in 2011, many of which are not yet generating their targeted amount of revenue as they worked to increase their customer base.
Depreciation of Property, Plant and Equipment
Depreciation of property, plant and equipment was $3.8 million for the three months ended September 30, 2011, $0.4 million higher than the $3.4 million incurred for the three months ended September 30, 2010, due to the increased number of hydrovac units in the fleet.
Finance Cost
Finance cost was $0.3 million for the quarter ended September 30, 2011 versus $0.2 million for the quarter ended September 30, 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 decreased by 23 percent to $2.7 million for the quarter ended September 30, 2011 from $3.4 million for the quarter ended September 30, 2010. The main reason for the decrease was a decrease in non-cash compensation being only partially offset by an increase in personnel costs as a result of the growth in Badger's business. As a percentage of revenues, selling, general and administrative expenses decreased to 4.9 percent for the third quarter of 2011 from 8.9 percent for the third quarter of 2010. The main reason for the decrease was the same as above.
Income Taxes
The effective tax rate for the nine months ended September 30, 2011 was 28 percent, a significant increase from the effective tax rate of 9 percent for the nine months ended September 30, 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 result 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 $15.0 million for the quarter ended September 30, 2011 from $10.4 million for the comparable period in 2010 due primarily to increased revenues and revenue leverage as costs increased by a lesser amount than revenues. 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 $41.5 million at September 30, 2011 compared to $38.1 million at December 31, 2010.
The following table outlines the cash available to fund growth and pay dividends to shareholders for the three months and nine months ended September 30, 2011:
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Three months Nine months
ended September 30, ended September 30,
($) 2011 2011
-----------------------------------------------------------------------
Funds generated from operations 14,999,409 32,251,352
Add: proceeds from sale of property,
plant and equipment 93,787 166,486
Deduct: required repayments
of long-term debt - (3,258,554)
Deduct: maintenance
capital expenditures (452,585) (901,933)
Cash available for growth capital expenditures
and dividends 14,640,611 28,257,351
Growth capital expenditures 12,661,678 23,887,312
Dividends declared 2,757,476 8,272,430
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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 nine months ended September 30, 2011 and 2010 and the year ended December 31, 2010:
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Nine months Nine months Year ended
ended September ended September December 31,
($) 30, 2011 30, 2010 2010
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Cash provided by
operating activities 18,031,655 20,242,110 26,104,861
Net profit 17,098,659 13,964,402 19,633,096
Dividends/distributions
declared 8,272,430 10,213,577 13,618,879
Excess of cash provided by operating
activities over dividends/
distributions declared 9,759,225 10,028,533 12,485,982
Excess of net profit over
dividends/distributions
declared 8,826,229 3,750,825 6,014,217
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The Company pays cash dividends monthly to its shareholders. These cash dividends may be reduced, increased or suspended 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 nine months ended September 30, 2011 was used to finance 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 four 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 approximately equaling the year's depreciation expense. Badger anticipates removing a minimal number of hydrovac units from the fleet in 2011. Badger expects that cash provided by operations and cash available for growth capital expenditures and dividends will be sufficient to fund its 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 its credit facilities as well as declare dividends. Badger does not have a stability rating.
Capital Resources
Investing
The Company spent $13.1 million on property, plant and equipment for the three months ended September 30, 2011 compared to $4.0 million for the three months ended September 30, 2010. The Company built 28 hydrovac units during the three months ended September 30, 2011 compared to five hydrovac units plus incurring construction costs of $1.4 during the three months ended September 30, 2010. The costs to build a hydrovac unit decreased by approximately 10 percent from fiscal 2010 to the first nine months of 2011, mainly due to 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 business. This amount will fluctuate from period-to-period depending on the number of units retired from the fleet. During the first nine months of 2011 only two hydrovac units were removed from the fleet and, therefore, maintenance capital expenditures were minimal.
Financing
The Company has a $60 million extendable revolving credit facility which is used to assist in financing Badger's capital expenditure program and support corporate activities, of which $46.7 million was drawn at September 30, 2011. 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.
The Company's net debt increased by 53 percent during the first nine months of 2011. As at September 30, 2011 Badger's cash and cash equivalents were $2.6 million resulting in net debt of $44.1 million versus cash and cash equivalents of $11.9 million and net debt of $28.8 million at December 31, 2010. The main reason for the increase was the capital expenditures incurred during the first nine months of 2011.
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. Financial performance relative to the financial ratio covenants under the extendable revolving credit facility is reflected in the table below:
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Ratio September 30, 2011 December 31, 2010 Threshold
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Funded Debt(1) to EBITDA(2) 1.00:1 0.83:1 2.25:1 maximum
Fixed Charge Coverage(3) 2.11:1 1.91:1 1.00:1 minimum
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1 Funded debt is long-term debt less cash and cash equivalents.
2 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.
3 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.
The Company has committed to certain capital expenditures totalling approximately $14.1 million. These capital expenditures will be financed with existing credit facilities and funds generated from operations. There are no set terms for remitting payment for these financial commitments.
SHARE CAPITAL
There was no change to shareholders' capital during the first nine months of 2011. Shares outstanding at September 30, 2011 were 10,813,631. There was no change to the balance as of November 10, 2011.
SELECTED QUARTERLY FINANCIAL INFORMATION
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($) 2011
Q3 Q2 Q1
-------------------------------------------------------------------------
Revenues 53,853,710 42,804,832 40,970,978
Net profit 8,152,566 4,564,267 4,381,826
Net profit per
share - basic 0.75 0.42 0.41
Net profit per
share - diluted 0.75 0.42 0.40
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IFRS 2010
Q4 Q3 Q2 Q1
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Revenues 41,175,494 38,727,159 29,374,171 30,333,959
Net profit 5,668,694 6,371,129 3,284,227 4,309,046
Net profit per
share - basic 0.52 0.59 0.30 0.40
Net profit per
share - diluted 0.52 0.59 0.30 0.40
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Previous Canadian GAAP 2009 Q4
-------------------------------------------------------------------------
Revenues 33,123,204
Net profit 6,257,324
Net profit per
share - basic 0.58
Net profit per
share - diluted 0.58
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INTERNATIONAL FINANCIAL REPORTING STANDARDS
Badger has prepared its September 30, 2011 interim consolidated financial statements in accordance with IFRS and with International Accounting Standard (IAS) 34, Interim Financial Reporting. For all accounting periods prior to March 31, 2011, Badger prepared its financial statements in accordance with Canadian GAAP. The adoption of IFRS has had no material impact on Badger's operations, strategic decisions, or internal controls.
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 September 30, 2011. However, the pronouncements may have a future impact on the measurement and/or presentation of the Company's financial statements. The pronouncements are as follows:
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 Company 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 Company 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 periods 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 Company 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 January 1, 2013, with earlier application permitted. The Company is currently assessing the impact of this standard.
v) IFRS 13, 'Fair Value Measurement' was issued in May 2011 and sets out in a single IFRS a framework for measuring fair value. IFRS 13 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This definition of fair value emphasizes that fair value is a market-based measurement, not an entity-specific measurement. In addition, IFRS 13 also requires specific disclosures about fair value measurement. IFRS 13 is effective for annual periods beginning on or after January 1, 2013, with earlier application permitted. The Company is currently assessing the impact of this standard.
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 September 30, 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 was 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. The Company's 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 Greg Kelly, CA
President and CEO Vice President Finance and CFO
2820, 715 - 5th Avenue SW Telephone (403) 264-8500
Calgary, Alberta T2P 2X6 Fax (403) 228-9773
Badger Daylighting Ltd.
Interim Condensed Consolidated Financial Statements (unaudited)
For the period ended September 30, 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 condensed 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 condensed 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 September December January
30, 2011 31, 2010 1, 2010
$ $ $
-------------------------------------------------------------------------
ASSETS
Current Assets
Cash and cash
equivalents 2,556,571 11,890,341 7,516,605
Trade and other
receivables 55,426,879 37,869,248 30,205,878
Inventories 2,375,235 1,993,609 1,792,708
Income taxes receivable - 424,978 -
Prepaid expenses 1,386,280 1,163,748 776,997
-------------------------------------------------------------------------
61,744,965 53,341,924 40,292,188
-------------------------------------------------------------------------
Non-current Assets
Property, plant
and equipment 107,459,146 91,333,730 89,297,469
Intangible assets 6,648,513 6,520,513 6,416,512
-------------------------------------------------------------------------
114,107,659 97,854,243 95,713,981
-------------------------------------------------------------------------
Total Assets 175,852,624 151,196,167 136,006,169
-------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Trade and other payables 14,835,561 11,524,323 10,558,287
Income taxes payable 2,746,485 - 907,377
Distributions payable - 1,135,431 1,134,893
Dividends payable 919,159 - -
Current portion of
long-term debt 5 - 323,768 323,768
Provisions 4 1,778,000 2,250,850 805,847
-------------------------------------------------------------------------
20,279,205 15,234,372 13,730,172
-------------------------------------------------------------------------
Non-current Liabilities
Long-term debt 5 46,692,431 40,347,627 31,960,496
Provisions 4 - - 2,789,638
Deferred taxation 24,463,953 20,194,282 19,960,129
-------------------------------------------------------------------------
71,156,384 60,541,909 54,710,263
-------------------------------------------------------------------------
Shareholders' Equity
Shareholders' capital 6 44,473,107 44,473,107 44,387,955
Contributed surplus 6 2,618,923 4,578,771 711,100
Foreign currency
translation reserve 6 17,879 (2,112,889) -
Retained earnings 37,307,126 28,480,897 22,466,679
-------------------------------------------------------------------------
84,417,035 75,419,886 67,565,734
-------------------------------------------------------------------------
Total Liabilities and
Shareholders' Equity 175,852,624 151,196,167 136,006,169
-------------------------------------------------------------------------
-****-
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
BADGER DAYLIGHTING LTD.
Unaudited Interim Consolidated Statement of Comprehensive Income
(Expressed in Canadian Dollars)
-***-
-------------------------------------------------------------------------
For the nine months ended For the three months ended
September 30, September 30, September 30, September 30,
2011 2010 2011 2010
Notes $ $ $ $
-------------------------------------------------------------------------
Revenues 8 137,629,520 98,435,289 53,853,710 38,727,159
Direct costs 93,049,243 64,296,160 35,944,879 25,169,351
-------------------------------------------------------------------------
Gross profit 44,580,277 34,139,129 17,908,831 13,557,808
Depreciation of
property, plant
and equipment 10,570,356 9,793,230 3,754,727 3,365,964
Amortization of
intangible assets 147,000 146,999 49,000 49,000
Selling, general and
administrative 8,061,508 8,299,716 2,642,882 3,435,855
-------------------------------------------------------------------------
Operating profit 25,801,413 15,899,184 11,462,222 6,706,989
Gain on sale of
property, plant
and equipment (66,134) (154,703) (14,108) (48,167)
Reimbursement to Clean
Harbors, Inc. 9 1,062,039 - - -
Finance cost 917,023 686,724 273,499 245,498
-------------------------------------------------------------------------
Profit before tax 23,888,485 15,367,163 11,202,831 6,509,658
Income tax expense 6,789,826 1,402,761 3,050,265 138,529
-------------------------------------------------------------------------
Net profit for
the period 17,098,659 13,964,402 8,152,566 6,371,129
Other comprehensive income
Exchange differences
on translation of
foreign operations 2,130,768 (729,755) 3,756,255 (826,320)
-------------------------------------------------------------------------
Total comprehensive income
for the period
attributable to
shareholders of
the Corporation 19,229,427 13,234,647 11,908,821 5,544,809
-------------------------------------------------------------------------
Earnings per share
Basic 10 1.58 1.29 0.75 0.59
Diluted 10 1.58 1.29 0.75 0.59
-------------------------------------------------------------------------
-****-
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
BADGER DAYLIGHTING LTD.
Unaudited Interim Consolidated Statement of Changes in Equity
(Expressed in Canadian Dollars)
-***-
-------------------------------------------------------------------------
Shareholders' Contributed Foreign Retained Total
capital surplus currency earnings equity
$ $ translation $ $
reserve
Notes $
-------------------------------------------------------------------------
As at January 1, 2010
44,387,955 711,100 - 22,466,679 67,565,734
Net profit for the period
- - - 13,964,402 13,964,402
Other comprehensive income for the period
- - (729,755) - (729,755)
-------------------------------------------------------------------------
Total comprehensive income for the period
44,387,955 711,100 (729,755) 36,431,081 80,800,381
Distributions - - -(10,213,577)(10,213,577)
As at September 30, 2010
44,387,955 711,100 (729,755) 26,217,504 70,586,804
-------------------------------------------------------------------------
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
- - - 17,098,659 17,098,659
Other comprehensive income for the period
- - 2,130,768 - 2,130,768
-------------------------------------------------------------------------
Total comprehensive income for the period
44,473,107 4,578,771 17,879 45,579,556 94,649,313
Share-based payment transactions
- 231,800 - - 231,800
Options surrendered for cash
6 - (2,191,648) - -(2,191,648)
Dividends - - - (8,272,430)(8,272,430)
-------------------------------------------------------------------------
As at September 30, 2011
44,473,107 2,618,923 17,879 37,307,126 84,417,035
-------------------------------------------------------------------------
-****-
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
BADGER DAYLIGHTING LTD.
Unaudited Interim Consolidated Statement of Cash Flows
(Expressed in Canadian Dollars)
-***-
-------------------------------------------------------------------------
For the nine months ended For the three months ended
September 30, September 30, September 30, September 30,
2011 2010 2011 2010
Notes $ $ $ $
-------------------------------------------------------------------------
Operating activities
Net profit for
the period 17,098,659 13,964,402 8,152,566 6,371,129
Non-cash adjustments to reconcile profit from operations to net cash
flows:
Depreciation of property, plant
and equipment 10,570,356 9,793,230 3,754,727 3,365,964
Amortization of intangible
assets 147,000 146,999 49,000 49,000
Deferred Income
taxes 3,651,000 816,400 2,059,700 322,000
Share-based payment transaction
expense 7 231,800 (479,178) 7,000 569,229
Equity-settled
share plan settled
in cash 7 (2,191,648) - - -
Gain on sale of
property plant
and equipment (66,134) (154,703) (14,108) (48,167)
Unrealized foreign exchange
(gain) loss on
deferred tax 618,671 (230,186) 990,524 (239,786)
-------------------------------------------------------------------------
30,059,704 23,856,964 14,999,409 10,389,369
Net change in non-cash working capital relating to operating activities
(12,028,049) (3,614,854) (7,924,644) (4,269,338)
Net cash flows from operating activities
18,031,655 20,242,110 7,074,765 6,120,031
-------------------------------------------------------------------------
Investing activities
Purchase of property, plant and equipment
(24,789,245) (8,600,125) (13,114,263) (4,019,215)
Purchase of service rights
(275,000) (150,000) - (150,000)
Proceeds from sale of property, plant and equipment
166,486 826,605 93,787 537,501
-------------------------------------------------------------------------
Net cash flows from investing activities
(24,897,759) (7,923,520) (13,020,476) (3,631,714)
Financing activities
Proceeds from long-term debt
9,279,590 4,546,296 4,960,633 3,388,512
Repayment of long-term debt
(3,258,554) (242,801) - (80,940)
Dividends/distributions paid to owners
(8,488,702) (10,213,692) (2,757,476) (3,404,336)
-------------------------------------------------------------------------
Net cash flows from financing activities
(2,467,666) (5,910,197) 2,203,157 (96,764)
Net increase (decrease) in cash and cash equivalents
(9,333,770) 6,408,393 (3,742,554) 2,391,553
Cash and cash equivalents, beginning of period
11,890,341 7,516,605 6,299,125 11,533,445
-------------------------------------------------------------------------
Cash and cash equivalents, end of period
2,556,571 13,924,998 2,556,571 13,924,998
Supplemental cash flow information:
Interest paid 917,023 686,724 273,499 245,498
Income tax paid (recovered)
(26,232) 1,789,045 12,715 (127,517)
-------------------------------------------------------------------------
-****-
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
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 September 30, 2011 were authorised for issue in accordance with a resolution of the directors on November 10, 2011.
Basis of Preparation
Statement of compliance
These interim consolidated financial statements have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting ("IAS 34") as issued by the International Accounting Standards Board ("IASB") and using the accounting policies the Corporation expects to adopt in its consolidated financial statements as at and for the year ending December 31, 2011.
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 ("pre-changeover Canadian GAAP") to comply with IFRS.
The reconciliations to IFRS from the previously published pre-changeover Canadian GAAP consolidated financial statements are summarized in note 13. 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 13.
The interim condensed consolidated financial statements should be read in conjunction with the Corporation's pre-changeover Canadian GAAP annual consolidated financial statements for the year ended December 31, 2010, as well as the Corporation's interim consolidated financial statements for the period ended March 31, 2011.
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:
vi) 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.
vii) 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.
viii) IFRS 11, 'Joint Arrangements' was issued in May 2011 and will supersede existing IAS 31, 'Joint Ventures' effective for annual periods 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.
ix) 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 January 1, 2013, with earlier application permitted. The Corporation is currently assessing the impact of this standard.
x) IFRS 13, 'Fair Value Measurement' was issued in May 2011 and sets out in a single IFRS a framework for measuring fair value. IFRS 13 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This definition of fair value emphasizes that fair value is a market-based measurement, not an entity-specific measurement. In addition, IFRS 13 also requires specific disclosures about fair value measurement. IFRS 13 is effective for annual periods beginning on or after January 1, 2013, with earlier application permitted. The Corporation is currently assessing the impact of this standard.
Provisions
-***-
-------------------------------------------------------------------------
Bonus Performance Unit Legal Total
$ Trust option $ $
Share plan
Plan $
-------------------------------------------------------------------------
As at January 1, 2010 469,847 336,000 2,789,638 - 3,595,485
Arising during
the period 677,850 437,000 1,078,033 800,000 2,992,883
Utilised (469,847) - - - (469,847)
Transfer to equity - - (3,867,671) -(3,867,671)
-------------------------------------------------------------------------
As at
December 31, 2010 677,850 773,000 - 800,000 2,250,850
Arising during
the period 1,304,322 214,865 - - 1,519,187
Utilised (987,172) (204,865) -(800,000)(1,992,037)
As at
September 30, 2011 995,000 783,000 - - 1,778,000
-------------------------------------------------------------------------
-****-
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 payment plan (see note 7).
Long-term debt
-***-
-------------------------------------------------------------------------
September 30, 2011 December 31, 2010 January 1, 2010
$ $ $
-------------------------------------------------------------------------
Extendable revolving credit facility
46,692,431 37,412,841 28,701,939
Commercial mortgage on land and building,
repayable in monthly principal payments
of $17,917 plus interest until September
2023, bearing interest at bank prime plus
0.75% [2011 * 3.75%; December 31, 2010 *
3.75%; January 1, 2010
* 3.00%] - 2,687,500 2,902,492
Commercial mortgage on land 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%] - 571,054 679,833
-------------------------------------------------------------------------
46,692,431 40,671,395 32,284,264
Less current portion - 323,768 323,768
-------------------------------------------------------------------------
46,692,431 40,347,627 31,960,496
-------------------------------------------------------------------------
-****-
The Corporation has established a $60,000,000 extendable revolving credit facility. 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 1.25% [2010 - 2.71%]. An additional stand-by fee calculated at an annual rate of 0.275% 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 24, 2012 and is renewable at the Corporation's option for an additional 364 day period, after which the entire amount must be repaid. If not renewed, interest is payable on the facility for 364 days after which the entire amount is to be repaid.
5 Long-term debt (continued)
In connection with renewing the credit facility, the commercial mortgages were repaid.
BADGER DAYLIGHTING LTD.
Notes to the Interim Condensed Consolidated Financial Statements
Nine months ended September 30, 2011
(Unaudited ? Expressed in Canadian Dollars)
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 September 30, 2011, the Corporation was in compliance with all of these covenants.
As at September 30, 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 September 30, 2011, the Corporation had available $13,307,569 (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 the 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 to
the unit option plan 6,220 85,152
--------------------------------------------------------------
At December 31, 2010 and
September 30, 2011 10,813,631 44,473,107
--------------------------------------------------------------
-****-
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 7 for further details of these plans.
-***-
-----------------------------------------------------------------------
September 30, 2011 December 31, 2010
$ $
-----------------------------------------------------------------------
Opening balance 4,578,771 711,100
Modification to equity-settled
share plan (note 7) - 3,867,671
Share-based compensation expense 231,800 -
Equity-settled share plan
settled in cash (2,191,648) -
Closing balance 2,618,923 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 units 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 September 30, 2011 vest equally over a period of three years from the date of grant. The maximum number of units to be issued under this plan may not exceed 250,000 units (previously 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 payment transaction.
Share plan (equity-settled)
Under the Share Plan, directors, officers, employees and consultants of the Corporation are eligible to receive share options to acquire ordinary shares of the Corporation, 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 Plan, vesting periods are determined by the directors of the Corporation at the time of the grant. All share options granted through to September 30, 2011 vest equally over a period of three years from the date of grant. The maximum number of shares to be issued under this plan may not exceed 250,000 shares (previously 850,000 shares).
A summary of the share-based payment transactions for the period ended September 30, 2011 and the year ended December 31, 2010 are as follows:
-***-
-------------------------------------------------------------------------
September 30, 2011 December 31, 2010
Number of Weighted Number of Weighted
options average options average
exercise exercise
price price
$ $
-------------------------------------------------------------------------
Outstanding at beginning of period
768,280 16.96 - -
Pursuant to the Plan of Arrangement
- - 768,280 16.96
Options surrendered for cash
(568,530) 16.27 - -
Forfeited/expired (12,000) 18.07 - -
-------------------------------------------------------------------------
Outstanding at end of period
187,750 19.00 768,280 16.96
-------------------------------------------------------------------------
-****-
Pursuant to the share plan during the second quarter of 2011, the Corporation had 568,530 vested share options surrendered by employees in return for a cash settlement of $2,191,648.
For the nine month period ended September 30, 2011 the Corporation recorded compensation expense, included as part of selling, general and administrative expense, of $231,800 with an offsetting increase to contributed surplus in respect of the share options granted and outstanding as of September 30, 2011.
7 Share-based payment plans (continued)
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 as compensation expense $214,865 for the nine months ended September 30, 2011, which is included in selling, general and administrative expense.
Deferred Unit Plan (cash-settled)
In May 2011, the Corporation established the Deferred Unit Plan ("DUP"), which was approved by the shareholders at the September 22, 2011 Annual General Meeting. The DUP was established to reward officers and employees. Directors may also participate in the plan whereby they will be paid 60% to 100% of the annual retainer in the form of deferred units. Pursuant to the terms of the DUP, participants are granted deferred units with a value equivalent to the value of a Badger share. The deferred units granted earn additional deferred units for the dividends that would otherwise have been paid on the deferred units as if they instead had been issued as Badger shares on the date of the grant. The deferred units granted vest equally over a period of three years from the date of the grant. Upon vesting, the participant may elect to redeem the deferred units for an equal number of Badger shares or the cash equivalent. The DUP has been accounted for as a cash-settled plan. The compensation expense is based on the estimated fair value of the deferred units outstanding at the end of each quarter and recognised using graded vesting throughout the term of the vesting period, with a corresponding increase to provisions. As at September 30, 2011 no deferred units had been granted.
Revenues
-***-
-------------------------------------------------------------------------
For the nine months ended For the three months ended
September 30, September 30, September 30, September 30,
2011 2010 2011 2010
$ $ $ $
-------------------------------------------------------------------------
Rendering of services
136,617,627 97,356,704 53,487,371 38,237,910
Truck placement fees
1,011,893 1,078,585 366,339 489,249
-------------------------------------------------------------------------
137,629,520 98,435,289 53,853,710 38,727,159
-------------------------------------------------------------------------
-****-
Reimbursement to Clean Harbors, Inc.
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 a settlement agreement the Corporation reimbursed Clean Harbors $1,062,039.
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 nine months ended September 30, 2011, was based on the profit available to common shareholders of $17,098,659 (2010 - $13,964,402), and a weighted average number of common shares outstanding of 10,813,631 (2010 - 10,808,087).
The calculation of basic earnings per share for the three months ended September 30, 2011, was based on the profit available to common shareholders of $8,152,566 (2010 - $6,371,129), and a weighted average number of common shares outstanding of 10,813,631 (2010 - 10,807,411).
The weighted average number of common shares is calculated as follows:
-***-
-------------------------------------------------------------------------
For the nine months ended For the three months ended
September 30, September 30, September 30, September 30,
2011 2010 2011 2010
$ $ $ $
-------------------------------------------------------------------------
Issued common shares outstanding, beginning of period
10,813,631 10,808,503 10,813,631 10,807,411
Shares cancelled - (416) - -
Weighted average number of common shares, end of period
10,813,631 10,808,087 10,813,631 10,807,411
-------------------------------------------------------------------------
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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 nine months ended September 30, 2011, was based on a weighted average number of common shares outstanding after adjustment for the effects of all dilutive potential common shares of 10,836,621 (2010 - 10,825,700).
The calculation of diluted earnings per share for the three months ended September 30, 2011, was based on a weighted average number of common shares outstanding after adjustment for the effects of all dilutive potential common shares of 10,831,981 (2010 - 10,825,024).
The weighted average number of dilutive potential common shares is calculated as follows:
-***-
-------------------------------------------------------------------------
For the nine months ended For the three months ended
September 30, September 30, September 30, September 30,
2011 2010 2011 2010
$ $ $ $
-------------------------------------------------------------------------
Weighted average number of common shares (basic)
10,813,631 10,808,087 10,813,631 10,807,411
Effect of share options
22,990 17,613 18,350 17,613
Weighted average number of common shares (diluted)
10,836,621 10,825,700 10,831,981 10,825,024
-------------------------------------------------------------------------
-****-
10. Earnings per share (continued)
For the nine and three months ended September 30, 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 nine and three months ended September 30, 2011 and 2010 based on these geographic segments.
Each segment is responsible for its operating results.
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-------------------------------------------------------------------------
For nine months ended:
September 30, 2011 September 30, 2010
Canada U.S. Total Canada U.S. Total
($) ($) ($) ($) ($) ($)
-------------------------------------------------------------------------
Revenues
79,836,462 57,793,058 137,629,520 58,182,847 40,252,442 98,435,289
Direct costs
49,584,822 43,464,421 93,049,243 36,563,480 27,732,680 64,296,160
Depreciation of property, plant and equipment
6,102,361 4,467,995 10,570,356 5,832,648 3,960,582 9,793,230
Amortization of intangible assets
147,000 - 147,000 146,999 - 146,999
Selling, general and administrative expenses
6,503,643 1,557,865 8,061,508 5,723,602 2,576,114 8,299,716
Profit before tax
16,742,602 7,145,883 23,888,485 9,242,388 6,124,775 15,367,163
-------------------------------------------------------------------------
-****-
-***-
-------------------------------------------------------------------------
For three months ended:
September 30, 2011 September 30, 2010
Canada($) U.S.($) Total($) Canada($) U.S.($) Total($)
-------------------------------------------------------------------------
Revenues
28,758,098 25,095,612 53,853,710 22,906,738 15,820,421 38,727,159
Direct costs
17,955,337 17,989,542 35,944,879 14,167,769 11,001,582 25,169,351
Depreciation of property, plant and equipment
2,070,644 1,684,083 3,754,727 2,013,493 1,352,471 3,365,964
Amortization of intangible assets
49,000 - 49,000 49,000 - 49,000
Selling, general and administrative expenses
2,036,041 606,841 2,642,882 2,355,491 1,080,364 3,435,855
Profit before tax
6,394,153 4,808,678 11,202,831 4,147,818 2,361,840 6,509,658
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11. Segment reporting (continued)
Selected Consolidated Statement of Financial Position Information
-***-
-------------------------------------------------------------------
Canada ($) U.S. ($) Total ($)
-------------------------------------------------------------------
As At September 30, 2011
Property, plant and equipment 55,284,580 52,174,566 107,459,146
Intangible assets 6,648,513 - 6,648,513
Total assets 97,478,351 78,374,273 175,852,624
As at December 31, 2010
Property, plant and equipment 54,922,254 36,411,476 91,333,730
Intangible assets 6,520,513 - 6,520,513
Total assets 87,990,962 63,205,205 151,196,167
As at January 1, 2010
Property, plant and equipment 49,774,184 39,523,285 89,297,469
Intangible assets 6,416,512 - 6,416,512
Total assets 75,345,036 60,661,133 136,006,169
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Selected Consolidated Statement of Cash Flow Information
-***-
-------------------------------------------------------------------------
For nine months ended:
September 30, 2011 September 30, 2010
Canada($) U.S.($) Total($) Canada($) U.S.($) Total($)
-------------------------------------------------------------------------
Additions to non-current assets:
Property, plant and equipment
8,096,856 16,692,389 24,789,245 7,021,428 1,578,697 8,600,125
Intangible assets
275,000 - 275,000 150,000 - 150,000
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-****-
-***-
-------------------------------------------------------------------------
For three months ended:
September 30, 2011 September 30, 2010
Canada($) U.S.($) Total($) Canada($) U.S.($) Total ($)
-------------------------------------------------------------------------
Additions to non-current assets:
Property, plant and equipment
5,335,706 7,778,557 13,114,263 2,727,299 1,291,916 4,019,215
Intangible assets
- - - 150,000 - 150,000
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Subsequent events
As a result of implementing the Deferred Unit Plan on September 22, 2011, on November 10, 2011 the long-term incentive plan and Performance Trust Share Plan were terminated.
Explanation of transition to IFRS
The consolidated financial statements for the period ended September 30, 2011 are prepared under IFRS. For all accounting periods prior to March 31, 2011, 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.
-***-
-------------------------------------------------------------------------
Effect of transition to IFRS
-------------------------------------------------------------------------
Pre- Reclassifi- Share- Foreign Deferred IFRS
changeover cations based currency tax $
Canadian (Note 1) payments (Note 3) (Note 4)
GAAP $ (Note 2) $ $
$ $
-------------------------------------------------------------------------
ASSETS
Current Assets
Cash and cash equivalents
7,516,605 7,516,605
Trade and other receivables
30,205,878 30,205,878
Inventories
1,792,708 1,792,708
Prepaid expenses
776,997 776,997
-------------------------------------------------------------------------
40,292,188 - - - - 40,292,188
Non-current Assets
Property, plant and equipment
91,155,437 (1,857,968) 89,297,469
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 other payables
11,364,134 (805,847) 10,558,287
Provisions - 805,847 805,847
Income taxes payable
907,377 907,377
Distributions payable
1,134,893 1,134,893
Current portion of long-term debt
323,768 323,768
-------------------------------------------------------------------------
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
-------------------------------------------------------------------------
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Reconciliations as at December 31, 2010
Reconciliation 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 (2,250,850) 11,524,323
Provisions - 2,250,850 2,250,850
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 translation reserve
- (2,112,889)(2,112,889)
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 Shareholders' Equity
154,429,222 - - (3,233,055)151,196,167
-------------------------------------------------------------------------
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13.2 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 and administrative
12,224,084 347,433 12,571,517
-------------------------------------------------------------------------
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 on translation of foreign operations
- (2,112,889) (2,112,889)
-------------------------------------------------------------------------
Other comprehensive income for the year, net of tax
- - (2,112,889) - (2,112,889)
-------------------------------------------------------------------------
Total comprehensive income for the year attributable to
shareholders of the Corporation
18,562,728 (347,433) (1,375,088) 680,000 17,520,207
-------------------------------------------------------------------------
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Reconciliations as at September 30, 2010
Reconciliation of equity as at September 30, 2010
-***-
-------------------------------------------------------------------------
Effect of transition to IFRS
-------------------------------------------------------------------------
Pre- Reclassifi- Share- Foreign Deferred IFRS
changeover cations based currency tax $
Canadian (Note 1) payments (Note 3) (Note 4)
GAAP $ (Note 2) $ $
$ $
-------------------------------------------------------------------------
ASSETS
Current Assets
Cash and cash equivalents
13,924,998 13,924,998
Trade and other receivables
34,476,487 34,476,487
Inventories
1,837,319 1,837,319
Income taxes receivable
301,295 301,295
Prepaid expenses
1,037,769 1,037,769
-------------------------------------------------------------------------
51,577,868 - - - - 51,577,868
-------------------------------------------------------------------------
Non-current Assets
Property, plant and equipment
89,042,740 (2,308,505) 86,734,235
Intangible assets
6,419,513 6,419,513
-------------------------------------------------------------------------
95,462,253 - - (2,308,505) - 93,153,748
-------------------------------------------------------------------------
Total Assets
147,040,121 - - (2,308,505) - 144,731,616
-------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Trade and other payables
13,565,472 (2,003,000) 11,562,472
Provisions - 2,003,000 2,003,000
Distributions payable
1,134,778 1,134,778
Current portion of long-term debt
323,768 323,768
-------------------------------------------------------------------------
15,024,018 - - - - 15,024,018
Non-current Liabilities
Long-term debt
36,263,991 36,263,991
Provisions - 2,310,460 2,310,460
Deferred taxation
19,866,343 680,000 20,546,343
-------------------------------------------------------------------------
56,130,334 - 2,310,460 - 680,000 59,120,794
Shareholders' Equity
Unitholders' capital
44,387,955 44,387,955
Contributed surplus
4,426,650 (3,715,550) 711,100
Foreign currency translation reserve
- (729,755) (729,755)
Retained earnings
27,071,164 1,405,090 (1,578,750)(680,000)26,217,504
-------------------------------------------------------------------------
75,885,769 - (2,310,460 (2,308,505)(680,000)70,586,804
-------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity
147,040,121 - - (2,308,505) -144,731,616
-------------------------------------------------------------------------
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13.3 Reconciliations as at September 30, 2010 (continued)
Reconciliation of comprehensive income for the nine months ended September 30, 2010
-***-
-------------------------------------------------------------------------
Effect of transition to IFRS
-------------------------------------------------------------------------
Pre- Share- Foreign IFRS
changeover based currency $
Canadian payments (Note 3)
GAAP (Note 2) $
$ $
-------------------------------------------------------------------------
Revenues 98,435,289 98,435,289
Direct costs 64,296,160 64,296,160
-------------------------------------------------------------------------
Gross profit 34,139,129 - - 34,139,129
Depreciation of property, plant and equipment
10,040,920 (247,690) 9,793,230
Amortization of intangible assets
146,999 146,999
Selling, general and administrative
9,391,694 (1,091,978) 8,299,716
-------------------------------------------------------------------------
Operating profit 14,559,516 1,091,978 247,690 15,899,184
Foreign exchange (gain)/loss
31,528 (31,528) -
Gain on sale of property, plant and equipment
(154,703) (154,703)
Finance cost 686,724 686,724
-------------------------------------------------------------------------
Profit before tax
13,995,967 1,091,978 279,218 15,367,163
Income tax expense
1,402,761 1,402,761
-------------------------------------------------------------------------
Net profit for the period
12,593,206 1,091,978 279,218 13,964,402
Other comprehensive income
Exchange differences on translation of foreign operations
- (729,755) (729,755)
Total comprehensive income for the period attributable to
shareholders of the Corporation
12,593,206 1,091,978 (450,537) 13,234,647
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13. Reconciliations as at September 30, 2010 (continued)
Reconciliation of comprehensive income for the three months ended September 30, 2010
-***-
-------------------------------------------------------------------------
Effect of transition to IFRS
-------------------------------------------------------------------------
Pre- Share- Foreign IFRS
changeover based currency $
Canadian payments (Note 3)
GAAP (Note 2) $
$ $
-------------------------------------------------------------------------
Revenues 38,727,159 38,727,159
Direct costs 25,169,351 25,169,351
-------------------------------------------------------------------------
Gross profit 13,557,808 13,557,808
Depreciation of property, plant and equipment
3,415,935 (49,971) 3,365,964
Amortization of intangible assets
49,000 49,000
Selling, general and administrative
2,984,426 451,429 3,435,855
-------------------------------------------------------------------------
Operating profit 7,108,447 (451,429) 49,971 6,706,989
Foreign exchange (gain)/loss
153,150 (153,150) -
Gain on sale of property, plant and equipment
(48,167) (48,167)
Finance cost 245,498 245,498
-------------------------------------------------------------------------
Profit before tax 6,757,966 (451,429) 203,121 6,509,658
Income tax expense 138,529 138,529
-------------------------------------------------------------------------
Net profit for the period
6,619,437 (451,429) 203,121 6,371,129
Other comprehensive income
Exchange differences on translation of foreign operations
(826,320) (826,320)
Total comprehensive income for the period attributable to
shareholders of the Corporation
6,619,437 (451,429) (623,199) 5,544,809
-------------------------------------------------------------------------
-****-
Notes to the reconciliations
The following explains the material adjustments to equity and comprehensive income:
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.
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Source: Badger Daylighting Ltd. (TSX - BAD) www.badgerinc.com
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