CALGARY, May 15 /CNW/ - Badger Income Fund (the "Fund" or "Badger") is pleased to announce its first-quarter results. Revenues increased by approximately seven percent to $27.6 million for the three months ended March 31, 2007 from $25.7 million for the same period in 2006, due to increased activity in the United States. However, due to an early spring break-up in Western Canada and added personnel costs, net earnings, EBITDA and funds generated from operations each decreased marginally in the first quarter of 2007 from the same period in 2006. Effective April 1, 2007 Badger purchased Benko Sewer Service, a well-managed company in Eastern Canada that provides sewer maintenance and hydrovac services. This acquisition provides Badger with more complete hydrovac coverage in the southern Ontario market, an additional service offering to customers in that specific region and a strong addition to Badger's management team. Benko's sales in the company's 2006 fiscal year were approximately $4 million.
FINANCIAL HIGHLIGHTS
($ thousands, except per unit and
total units outstanding information)
Three months Three months
ended ended
March 31, 2007 March 31, 2006
--------------------------------
Revenues 27,574 25,729
EBITDA(1) 7,849 8,032
Earnings before income taxes 5,217 5,916
Taxes
Current 187 185
Future 801 711
Net earnings 4,230 5,020
Net earnings per unit - diluted 0.39 0.47
Funds generated from operations(2) 7,585 7,750
Funds generated from operations per unit
- diluted 0.70 0.72
Maintenance capital expenditures(3) 667 635
Long-term debt repayments 27 27
Cash available for growth and distribution(4) 7,015 7,190
Cash distributions declared 3,389 3,158
Growth capital expenditures(3) 2,153 4,875
Total units outstanding, end of period 10,758,618 10,749,480
--------------------------------------------------
The following financial measures do not have any standardized meaning
prescribed by Canadian generally accepted accounting principles (GAAP) and may
not be comparable to similar measures as presented by other funds or entities:
(1) Earnings before interest, taxes, depreciation and amortization
(EBITDA) is a measure of the Fund's operating profitability and is
therefore useful to management and investors. EBITDA provides an
indication of the results generated by the Fund's principal business
activities prior to how these activities are financed, assets are
amortized or how the results are taxed in various jurisdictions. EBITDA
is calculated from the Consolidated Statements of Earnings and Retained
Earnings as gross margin, less selling, general and administrative costs
and foreign exchange loss (gain).
(2) Funds generated from operations is used to assist management and
investors in analyzing operating performance and leverage. It is not
intended to represent operating cash flow or operating profits for the
period nor should it be viewed as an alternative to cash flow from
operating activities, net earnings or other measures of financial
performance calculated in accordance with GAAP. Funds generated from
operations is calculated from the Consolidated Statements of Cash Flows
and is defined as cash provided by operating activities before changes in
non-cash working capital.
(3) Maintenance capital expenditures is defined as the amount incurred
during the period to keep the Fund's daylighting fleet at the same number
of units, plus any other capital expenditures required to maintain the
existing business. It also includes any costs incurred to enhance the
operational life of a daylighting unit. This amount will fluctuate from
period-to-period depending on the number of units retired from the fleet.
During the three-month period ended March 31, 2007, Badger added 15 units
to the fleet and removed two from service. As a result, 13 of the units
added during the three months ended March 31, 2007 represent growth
capital expenditures, while two of the units represent maintenance
capital expenditures. The economic life of a Badger hydrovac is
approximately 10 years. The average age of the fleet is approximately
four-and-a-half years.
(4) Cash available for growth and distribution 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 which is
available for distribution to unitholders. 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.
OPERATIONAL SUMMARY
1. Badger's operations in Western Canada posted good results in the first
two months of the quarter but activity slowed down abruptly in March
due to the timing of this year's spring break-up. The slowdown in
March adversely affected overall results for the quarter. This is in
contrast to 2006 when March was a record month for Badger due to ideal
winter weather conditions.
2. In Eastern Canada results were similar to the first quarter of 2006,
which traditionally is the slow quarter in this region.
3. Badger's United States operations provided good revenue, EBITDA and
net profit growth in the quarter. Strong results in this area provided
a good balance to the slower than usual activity in Western Canada. An
additional corporate location was established in the United States
East during the quarter, bringing the total to four operating in this
region. Early in the second quarter Badger opened an additional
corporate location in the United States East. These locations should
contribute to the future growth of Badger.
4. Revenue per truck per month was $30,000 for the three months ended
March 31, 2007, compared to $32,800 in the first three months of 2006.
Badger budgets an overall fleet average of $25,000 per truck per
month.
5. Badger had 298 units at the end of the first quarter of 2007,
reflecting the addition of 15 daylighting units to the fleet to date
in 2007 and the retirement of two units. The Fund had 285 units at
December 31, 2006.
INTERIM MANAGEMENT'S DISCUSSION AND ANALYSIS
This Management's Discussion and Analysis should be read in conjunction with the attached unaudited interim consolidated financial statements of Badger Income Fund (the "Fund" or "Badger"). Readers should also refer to the audited consolidated financial statements and Management's Discussion and Analysis included in Badger Income Fund's 2006 Annual Report. Additional information is also available on the Fund's website (www.badgerinc.com) and all previous public filings, including the most recently filed Annual Information Form, are available through SEDAR (www.sedar.com).
This Management's Discussion and Analysis has been prepared taking into consideration information available to May 14, 2007.
Disclaimer
This quarterly report contains forward-looking statements subject to various risk factors and uncertainties, which may cause the actual results, performances or achievements of Badger to be materially different from any future results, performances or achievements expressed or implied by such forward-looking statements. Such factors include, but are not limited to: the future tax treatment of income trusts; supply-demand fluctuations for oil and natural gas and related products and services; political and economic conditions; the demand for services provided by Badger; industry competition and Badger's ability to attract and retain key personnel. The Fund believes that the expectations reflected in these forward-looking statements are reasonable; however, no assurance can be given that these expectations will prove to be correct and such forward-looking statements included in the quarterly report should not be relied upon. In addition, these forward-looking statements relate to the date on which they are made. Badger disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Results of Operations
Revenues
Revenues of $27.6 million for the three months ended March 31, 2007 were seven percent higher than the $25.7 million in revenues generated during the comparable period of 2006. The increase is attributable to the following:
(1) In the United States revenues increased to $9.4 million from
$6.0 million period-over-period. This 58 percent increase is due to
Badger's continued focus in certain geographical areas and market
segments, which has resulted in an increased customer base and demand
for hydrovac services. The other major contributing factor was the
increased activity related to oil field service in the United States.
(2) In Western Canada revenue dropped in March due to the early onset of
spring break-up, which compared unfavourably to ideal weather
conditions experienced in the first quarter of 2006.
(3) In Eastern Canada first-quarter revenue was similar to the comparable
period of 2006. This quarter is traditionally the slowest quarter in
the East.
Badger's average revenue per truck per month during the three months ended March 31, 2007 was $30,000 versus $32,800 per month for the three months ended March 31, 2006.
Included in revenues is approximately $502,000 of truck placement and franchise fees for the three months ended March 31, 2007, versus $654,000 for the three months ended March 31, 2006.
Direct Costs
Direct costs for the quarter ended March 31, 2007 were $17.3 million compared to $16.1 million for the quarter ended March 31, 2006. This is consistent with the increase in revenues.
Gross Margin
Gross margin was 37.1 percent for the quarter ended March 31, 2007, which is a modest decrease from the 37.6 percent for the quarter ended March 31, 2006.
Amortization
Amortization of property, plant and equipment was $2.4 million for the three months ended March 31, 2007, $0.4 million higher than the $2.0 million for the three months ended March 31, 2006. This increase was the result of having more hydrovac units in the fleet.
Interest Expense
Interest expense was $227,000 for the quarter ended March 31, 2007 versus $68,000 for the quarter ended March 31, 2006. The higher interest expense is attributable to maintaining a higher balance of debt during the first quarter of 2007 than in the first quarter of 2006. The increased debt was used to fund growth capital expenditures.
Selling, General and Administrative
Selling, general and administrative expenses were $2.3 million for the quarter ended March 31, 2007 compared to $1.7 million for the quarter ended March 31, 2006. As a percentage of revenues, selling, general and administrative expenses were 8.3 percent for the first quarter of 2007 versus 6.4 percent for the first quarter of 2006. The increase is due to hiring additional personnel to manage growth, compensation increases required to retain quality personnel in a competitive labour environment, and higher general office costs to support the growth in business. Other factors include added professional fees including additional costs incurred on the announced internal reorganization, which was postponed as a result of the Government of Canada's October 31, 2006 announcement concerning the planned taxation of income trusts.
Income Taxes
The effective tax rate for the quarter ended March 31, 2007 was 19 percent versus 15 percent for the quarter ended March 31, 2006. For the remainder of 2007 the Fund anticipates an effective tax rate of 19 percent.
The minimal effective tax rate overall is due to the trust structure, which results in tax-deductible distributions being made to unitholders.
Liquidity
Funds generated from operations for the quarter ended March 31, 2007 decreased to $7.6 million from $7.8 million for the comparable period in 2006 due to decreased activity levels in Western Canada.
The Fund had working capital of $12.7 million at March 31, 2007 compared to $9.4 million at December 31, 2006. The increase is predominantly due to increased revenues resulting in an increase in the Fund's accounts receivable balance. Good levels of cash flow from operations allowed Badger to build new daylighting units, pay down long-term debt and make distributions, while maintaining a healthy working capital position.
The following table outlines the cash available to fund growth and pay distributions to unitholders for the three months ended March 31, 2007:
Cash provided by operating activities $5,627,683
Add (deduct): net change in non-cash
working capital 1,956,942
----------
Funds generated from operations 7,584,625
Add: proceeds on disposal of property,
plant and equipment 124,745
Less: required repayments of long-term debt (27,192)
Less: maintenance capital expenditures((x)) (667,392)
Cash available for growth capital expenditures
and distributions $7,014,786
----------
----------
Growth capital expenditures((x)) $2,152,592
----------
----------
Cash distributions declared $3,388,964
----------
----------
((x)) Maintenance and growth capital expenditures for the three months
ended March 31, 2007 totalled $2,819,984.
The Fund makes regular monthly cash distributions to unitholders. These cash distributions may be reduced, increased or suspended entirely by the trustees depending on the operations of Badger and the performance of its assets. The actual cash flow available for distribution to holders of Fund units is a function of numerous factors, including the Fund's financial performance; debt covenants and obligations; maintenance and growth capital expenditure requirements for the purchase of property, plant and equipment; and number of units outstanding. It may also be impacted by the future tax treatment of income trusts.
The majority of the cash provided by operating activities was used to finance maintenance and growth capital expenditures and to pay distributions to unitholders. As outlined in the above chart, cash which was not distributed to unitholders was used to finance growth capital expenditures.
If maintenance capital expenditures increase in future periods, the Fund's cash available for growth capital expenditures and distribution will be negatively affected. Due to Badger's growth rate in recent years, the majority of the Fund's hydrovac units are relatively new, with an average age of approximately four-and-a-half years. As a result, Badger is currently experiencing relatively low levels of maintenance capital expenditures. Over time, Badger would expect to incur annual maintenance capital expenditures in an amount that approximates the amortization expense reported in the year. Badger expects that continued cash provided by operations will be sufficient to fund the maintenance capital expenditures in the future.
Badger is restricted from declaring distributions and distributing cash if it is in breach of the covenants under its credit facility. As at the date of this quarterly report the Fund is in compliance with all debt covenants and is able to fully utilize all existing credit facilities. Badger does not have a stability rating.
Currently the Fund has a $20 million extendable, revolving facility to fund working capital requirements and finance capital expenditures, of which $9.5 million was used at March 31, 2007. The Fund will maintain an appropriate mix of flexible debt and equity to finance its maintenance capital expenditures and growth initiatives.
Capital Resources
The Fund spent $2.8 million on property, plant and equipment for the three months ended March 31, 2007, compared to $5.5 million for the three months ended March 31, 2006. The Fund added 15 units to the fleet in the first quarter of 2007, which is the same number as in the first quarter of 2006. The decrease of $2.7 million in capital expenditures was due to Badger incurring certain costs in 2006 which related to the build of the units in the first quarter of 2007.
On April 1, 2007 Badger acquired all of the operating assets and business of Benko Sewer Service, an Ontario-based hydrovac excavation and sewer maintenance service provider. The purchase price of $4.0 million was settled with a cash payment.
Management believes that the Fund's healthy balance sheet and unutilized borrowing capacity, combined with funds generated from operations, will provide sufficient capital to fund ongoing operations and distributions to unitholders.
Number of Daylighting Units
During the three-month period ended March 31, 2007 Badger added seven units to the Canadian fleet, transferred one to the United States and removed two from service, bringing the total to 202 units operating in Canada as at March 31, 2007. In the United States, Badger added eight units and transferred one from Canada, bringing the total number of units in the United States to 96 at March 31, 2007. Subsequent to the end of the quarter, the acquisition of Benko Sewer Service added three additional hydrovac units to the Canadian fleet as well as four sewer maintenance vehicles and three camera units.
Contractual Obligations and Committed Capital Investment
The Fund intends to meet its contractual obligations through funds generated by operating activities. The Fund's contractual obligations for the next five years, relating to repayment of long-term debt, are as follows (assuming the extendable revolving credit facility is not renewed on June 30, 2007):
April 1, 2007 to December 31, 2007 $81,576
2008 9,588,851
2009 108,768
2010 108,768
2011 108,768
Thereafter 462,300
-----------
Total $10,459,031
-----------
-----------
In addition to the contractual obligations above, as at March 31, 2007 the Fund had committed to certain capital expenditures, including the acquisition of Benko Sewer Service, totalling approximately $5.8 million. These capital expenditures will be financed with existing credit facilities and funds generated from operations, as well as alternative sources of financing as required. There are no set terms for remitting payment for these financial obligations.
Unitholders' Capital
There were no changes to unitholders' capital during the three months ended March 31, 2007.
The total units outstanding at March 31, 2007 were 10,758,618. There was no change to the balance as of May 14, 2007.
Selected Quarterly Financial Information
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Quarter Ended
-----------------------------------------------------------
2007 2006
-----------------------------------------------------------
Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31
-------------------------------------------------------------------------
Revenue ($) 27,574,051 25,621,658 25,324,030 21,696,318 25,728,890
-------------------------------------------------------------------------
Net earnings
($) 4,229,918 4,659,784 3,974,958 2,841,459 5,020,254
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Net earnings
per unit -
basic ($) 0.39 0.43 0.37 0.26 0.47
-------------------------------------------------------------------------
Net earnings
per unit -
diluted ($) 0.39 0.43 0.37 0.26 0.47
-------------------------------------------------------------------------
-------------------------------------------------
Quarter Ended
-----------------------------------
2005
-----------------------------------
Dec. 31 Sept. 30 June 30
-------------------------------------------------
Revenue ($) 23,093,735 20,471,322 18,923,312
-------------------------------------------------
Net earnings
($) 3,468,113 3,547,545 3,629,935
-------------------------------------------------
Net earnings
per unit -
basic ($) 0.32 0.33 0.34
-------------------------------------------------
Net earnings
per unit -
diluted ($) 0.32 0.33 0.34
-------------------------------------------------
Change in Accounting Policies
As of January 1, 2007, the Fund prospectively adopted CICA Section 1530 "Comprehensive Income", Section 3251 "Equity", Section 3855 "Financial Instruments - Recognition and Measurement", Section 3861 "Financial Instruments - Disclosure and Presentation" and Section 3865 "Hedges". Under the new standards a new financial statement, the Consolidated Statement of Comprehensive Income, has been introduced that provides for certain gains and losses and other amounts arising from changes in fair value, to be temporarily recorded outside the income statement. In addition, all financial instruments, including derivatives, are to be included in the Fund's Consolidated Balance Sheets and measured, in most cases, at fair values, and requirements for hedge accounting have been further clarified. There is no material impact to the Fund's consolidated financial statements as a result of implementing the new standards. As required by the new standards, prior periods have not been restated.
As of January 1, 2007 the Fund adopted revised CICA Section 1506 "Accounting Changes", which provides expanded disclosures for changes in accounting policies, accounting estimates and corrections of errors. Under the new standard, accounting changes should be applied retrospectively unless otherwise permitted or where impracticable to determine. As well, voluntary changes in accounting policy are made only when required by a primary source of GAAP or when the change results in more relevant and reliable information. There is no material impact to the Fund's consolidated financial statements as a result of implementing this new standard.
For a detailed discussion about the accounting policies adopted, please refer to Note 2 of the interim consolidated financial statements for the three-month period ended March 31, 2007.
Internal Control Over Financial Reporting
Internal control over financial reporting ("ICFR") is designed to provide reasonable assurance regarding the reliability of the Fund's financial reporting and its compliance with Canadian GAAP in its financial statements. The President and CEO and the VP Finance and CFO have evaluated whether there were any changes to the Fund's ICFR during the three months ended March 31, 2007 that have materially affected or are reasonably likely to materially affect the ICFR. No such changes were identified through their evaluation.
Business Risks
The Management's Discussion and Analysis for the year ended December 31, 2006, which is included in the Fund's 2006 Annual Report, includes an overview on business risks associated with the Fund. Those business risks remain in effect. Reference should also be made to Badger's 2006 Annual Information Form.
OUTLOOK
The length of spring break-up in Western Canada is expected to have the biggest impact on results for this region during the next quarter. At this time certain areas are going back to work while others are still hampered by poor conditions.
The construction season historically begins in Eastern Canada during the second quarter, which should help increase utilization levels of daylighting units.
Growth in the United States is projected to continue with new locations and more trucks forecast for the year.
Badger continues to build four to five trucks per month.
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 financial statements, the statements must be accompanied by a notice indicating that the financial statements have not been reviewed by an auditor.
The accompanying unaudited interim consolidated financial statements of the Fund have been prepared by Badger Income Fund's management.
The Fund's independent auditor has not performed a review of the accompanying unaudited interim consolidated financial statements in accordance with standards established by the Canadian Institute of Chartered Accountants for a review of interim financial statements by an entity's auditor.
BADGER INCOME FUND
unaudited consolidated balance sheets
March 31, December 31,
2007 2006
$ $
------------------------------
ASSETS
Current
Cash 1,758,937 1,319,912
Accounts receivable 24,046,957 22,873,841
Inventories 2,129,431 1,399,661
Prepaid expenses 785,305 679,675
------------------------------
28,720,630 26,273,089
Property, plant and equipment 62,658,112 62,367,823
Intangible assets 1,551,336 1,551,336
------------------------------
------------------------------
92,930,078 90,192,248
------------------------------
------------------------------
LIABILITIES AND UNITHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities 14,790,327 14,951,723
Income taxes payable 32,787 671,544
Distributions payable 1,129,655 1,129,655
Current portion of long-term debt 108,768 108,768
------------------------------
------------------------------
16,061,537 16,861,690
Long-term debt 10,350,263 8,516,284
Future income taxes 11,060,186 10,259,536
------------------------------
37,471,986 35,637,510
------------------------------
Unitholders' equity
Unitholders' capital (note 3) 43,488,255 43,488,255
Contributed surplus (note 4) 1,036,000 973,600
Retained earnings 10,933,837 10,092,883
------------------------------
55,458,092 54,554,738
92,930,078 90,192,248
------------------------------
------------------------------
See accompanying notes
BADGER INCOME FUND
unaudited consolidated statements of earnings and comprehensive income
and retained earnings
Three Months Three Months
Ended Ended
Mar. 31/07 Mar. 31/06
$ $
------------------------------
Revenues 27,574,051 25,728,890
Direct costs 17,342,371 16,067,101
------------------------------
Gross margin 10,231,680 9,661,789
------------------------------
------------------------------
Expenses
Amortization 2,391,831 2,003,646
Loss (gain) on sale of property, plant
and equipment 13,119 44,324
Interest
Long-term 16,483 16,159
Current 210,467 51,409
Selling, general and administrative 2,295,855 1,659,083
Foreign exchange loss (gain) 86,707 (28,905)
------------------------------
5,014,462 3,745,716
------------------------------
Earnings before income taxes 5,217,218 5,916,073
------------------------------
Income taxes
Current 186,650 184,719
Future 800,650 711,100
------------------------------
987,300 895,819
------------------------------
Net earnings and comprehensive income for
the period 4,229,918 5,020,254
Retained earnings, beginning of period 10,092,883 6,842,902
Cash distributions (3,388,964) (3,158,258)
------------------------------
Retained earnings, end of period 10,933,837 8,704,898
------------------------------
Net earnings per unit (note 5)
Basic 0.39 0.47
------------------------------
------------------------------
Diluted 0.39 0.47
------------------------------
------------------------------
See accompanying notes
BADGER INCOME FUND
unaudited consolidated statements of cash flows
Three Months Three Months
Ended Ended
Mar. 31/07 Mar. 31/06
$ $
------------------------------
Operating activities
Net earnings for the period 4,229,918 5,020,254
Non-cash items:
Amortization 2,391,831 2,003,646
Future income taxes 800,650 711,100
Unit-based compensation 62,400 -
Foreign exchange loss (gain) 86,707 (28,905)
Loss (gain) on sale of property,
plant and equipment 13,119 44,324
------------------------------
7,584,625 7,750,419
Net change in non-cash working capital
relating to operating activities (1,956,942) 211,704
------------------------------
5,627,683 7,962,123
------------------------------
Financing activities
Proceeds from long-term debt 1,861,171 -
Repayment of long-term debt (27,192) (27,124)
Distributions to unitholders (3,388,964) (3,157,213)
Increase (decrease) in bank indebtedness - 129,936
------------------------------
(1,554,985) (3,054,401)
------------------------------
Investing activities
Purchase of property, plant and
equipment (2,819,984) (5,510,065)
Proceeds on disposal of property,
plant and equipment 124,745 101,848
Net change in non-cash working capital
relating to investing activities (938,434) -
------------------------------
(3,633,673) (5,408,217)
------------------------------
Increase (decrease) in cash during
the period 439,025 (500,495)
Cash, beginning of period 1,319,912 1,190,398
------------------------------
Cash, end of period 1,758,937 689,903
------------------------------
See accompanying notes
Notes to the Consolidated Financial Statements
(unaudited)
1. Basis of Presentation and Summary of Significant Accounting Policies
The unaudited interim consolidated financial statements include the
accounts of the Fund and its wholly-owned subsidiaries and have been
prepared by management in accordance with Canadian generally accepted
accounting principles. These unaudited interim consolidated financial
statements have been prepared following the same accounting policies and
methods of application as the audited consolidated financial statements
of the Fund for the fiscal year ended December 31, 2006, except as noted
below in Note 2. The disclosures provided below are incremental to those
included in the Fund's annual audited consolidated financial statements.
The unaudited interim consolidated financial statements and the related
notes should be read in conjunction with the audited consolidated
financial statements and the related notes in the Fund's Annual Report
for the year ended December 31, 2006.
Accounting measurements at interim dates inherently involve greater
reliance on estimates than at year-end and the results of operations for
the interim periods shown in these statements are not necessarily
indicative of results to be expected for the fiscal year. In the opinion
of management, the accompanying unaudited interim consolidated financial
statements include all adjustments (of a normal recurring nature)
necessary to present fairly the consolidated results of its operations
and cash flows for the three months ended March 31, 2007 and 2006.
Certain comparative figures have been reclassified to conform to the
current period's presentation.
2. Changes in Accounting Policies
As of January 1, 2007 the Fund adopted the Canadian Institute of
Chartered Accountants ("CICA") Handbook Section 1530 "Comprehensive
Income", Section 3251 "Equity", Section 3855 "Financial Instruments -
Recognition and Measurement", Section 3861 "Financial Instruments -
Disclosure and Presentation" and Section 3865 "Hedges". As required by
the new standards, prior periods have not been restated.
The adoption of these standards has had no material impact on the Fund's
net earnings or cash flows. The other effects of the implementation of
the new standards are discussed below.
Comprehensive Income
--------------------
The new standards introduce comprehensive income, which consists of net
earnings and other comprehensive income ("OCI"). Upon adoption of Section
1530, the Fund revised its "Consolidated Statements of Earnings and
Accumulated Earnings" to include the newly required statement of
comprehensive income by creating a combined statement.
The adoption of comprehensive income has been made in accordance with the
applicable transitional provisions and no amounts have been reclassified
to accumulated other comprehensive income.
Financial Instruments
---------------------
The financial instruments standard establishes the recognition and
measurement criteria for financial assets, financial liabilities and
derivatives. All financial instruments are required to be measured at
fair value on initial recognition of the instrument, except for certain
related party transactions. Measurement in subsequent periods depends on
whether the financial instrument has been classified as 'held-for-
trading', 'available-for-sale', 'held-to-maturity', 'loans and
receivables', or 'other financial liabilities' as defined by the
standard.
Financial assets and financial liabilities 'held-for-trading' are
measured at fair value with changes in those fair values recognized in
net earnings. Financial assets 'available-for-sale' are measured at fair
value, with changes in those fair values recognized in OCI. Financial
assets 'held-to-maturity', 'loans and receivables' and 'other financial
liabilities' are measured at amortized cost using the effective interest
method of amortization. The methods used by the Fund in determining fair
value of financial instruments are unchanged as a result of implementing
the new standard.
Accounts receivable is designated as 'loans and receivables'. Accounts
payable and accrued liabilities, cash distributions payable and long-term
debt are designated as 'other financial liabilities'. Risk management
assets and liabilities are derivative financial instruments classified as
'held-for-trading'.
Accounting Changes
------------------
As of January 1, 2007, the Fund adopted revised CICA Section 1506
"Accounting Changes", which provides expanded disclosures for changes in
accounting policies, accounting estimates and corrections of errors.
Under the new standard, accounting changes should be applied
retrospectively unless otherwise permitted or where impracticable to
determine. As well, voluntary changes in accounting policy are made only
when required by a primary source of GAAP or when the change results in
more relevant and reliable information. There is no material impact to
the Fund's consolidated financial statements as a result of implementing
this new standard.
3. Unitholders' Capital
Units Amount ($)
-------------------------------------------------------------------------
March 31, 2007 10,758,618 43,488,255
-------------------------------------------------------------------------
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The Fund declared distributions of $0.105 per unit for each of the months
of January, February and March for a total of $3,388,964 million.
4. Unit-Based Compensation
A summary of the unit option transactions for the three months ended
March 31, 2007 are as follows:
-------------------------------------------------------------------------
Three months
ended March 31,
2007
Weighted
average
exercise
price
Units $
Outstanding at beginning of period 345,000 17.49
Granted - -
Exercised - -
Forfeited (15,000) 17.50
-------------------------------------------------------------------------
Outstanding at end of period 330,000 17.49
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Options Outstanding Options Exercisable
Weighted
average Weighted Number Weighted
Outstanding remaining average exercisable average
Range of at March 31, contractual exercise at March 31, exercise
prices 2007 life price 2007 price
-------------------------------------------------------------------------
$17.50 280,000 4.1 $17.50 - -
-------------------------------------------------------------------------
$17.45 50,000 4.4 $17.45 - -
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The Fund recorded compensation expense, included as part of selling,
general and administrative expenses, of $62,400 with an offsetting
increase to contributed surplus for the three months ended March 31,
2007.
5. Net Earnings per Unit
Basic per unit calculations for the three months ended March 31, 2007 and
2006 were based on the weighted average number of units outstanding of
10,758,618 and 10,740,478, respectively. Diluted per unit calculations
for the three months ended March 31, 2007 and 2006 were based on the
weighted average units outstanding of 10,758,618 and 10,749,310,
respectively.
6. Comparative Figures
Certain of the comparative figures have been reclassified to conform to
the current period's presentation.
7. Subsequent Event
On April 1, 2007, Badger completed the acquisition of the operating
assets and business of Benko Sewer Service, an Ontario-based hydrovac
excavation and sewer maintenance service provider, for an aggregate
purchase price of $4.0 million. The purchase price consideration was
comprised of a $4.0 million cash payment.
8. Segmented Information
The Fund operates in two geographic/reportable segments providing
daylighting services to each of these segments. The following is selected
information for the three months ended March 31, 2007 and 2006 based on
these geographic segments:
Three months ended
March 31, 2007
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Canada ($) USA ($) Total ($)
Revenues 18,147,663 9,426,388 27,574,051
Direct costs 11,303,052 6,039,319 17,342,371
Selling, general and administrative 1,403,457 892,398 2,295,855
EBITDA (x) 5,427,011 2,422,107 7,849,118
Amortization 1,661,652 730,179 2,391,831
Earnings before income taxes 3,527,800 1,689,418 5,217,218
Property, plant and equipment 42,841,750 19,816,362 62,658,112
Intangible assets 1,551,336 - 1,551,336
Total assets 63,711,634 29,218,444 92,930,078
Capital expenditures 278,865 2,541,119 2,819,984
Three months ended
March 31, 2006
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Canada ($) USA ($) Total ($)
Revenues 19,774,695 5,954,195 25,728,890
Direct costs 12,261,659 3,805,442 16,067,101
Selling, general and administrative 1,113,424 545,659 1,659,083
EBITDA (x) 6,402,384 1,629,227 8,031,611
Amortization 1,520,456 483,190 2,003,646
Earnings before income taxes 4,770,948 1,145,125 5,916,073
Property, plant and equipment 41,221,736 11,527,970 52,749,706
Intangible assets 1,401,336 - 1,401,336
Total assets 63,113,995 17,093,058 80,207,053
Capital expenditures 3,489,776 2,020,289 5,510,065
(x) Earnings before interest, taxes, depreciation and amortization
(EBITDA) is a measure of the Fund's operating profitability
and is therefore useful to management and investors. EBITDA provides
an indication of the results generated by the Fund's principal
business activities prior to how these activities are financed,
assets are amortized or how the results are taxed in various
jurisdictions. EBITDA is calculated from the Consolidated Statements
of Earnings and Retained Earnings as gross margin, less selling,
general and administrative costs and foreign exchange loss (gain).
Badger Income Fund is an open-ended trust that is North America's largest
provider of non-destructive excavating services. Badger traditionally
works for contractors and facility owners in the utility and petroleum
industries. Our key technology is the Badger Hydrovac, which is used
primarily for safe digging in congested grounds and challenging
conditions. The Badger Hydrovac uses a pressurized water stream to
liquefy the soil cover, which is then removed with a powerful vacuum
system and deposited into a storage tank. Badger manufactures its truck-
mounted hydrovac units.
Badger Income Fund'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 limited 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.
%SEDAR: 00020566E