Correction - Badger Daylighting Ltd. Announces Results for the Third Quarter Ended September 30, 2012 and a Dividend Increase
In previous version of press release, Interim Condensed Consolidated Financial Statements (unaudited) were inadvertently not attached. There are no other changes to the document.
Calgary, Alberta CANADA, November 12, 2012 /FSC/ - Badger Daylighting Ltd. (BAD - TSX)(the "Company" or "Badger"),is pleased to announce its financial and operating results for the nine and three months ended September 30, 2012.
It should be noted in comparing the results for the three months ended September 30, 2012 to the three months ended September 30, 2011 that the quarter ended September 30, 2011 was an exceptional quarter for Badger and although EBITDA margins and gross profit margins decreased in the third quarter of 2012 from the third quarter 2011, the third quarter of 2012 was a strong quarter.
Highlights for the three months ended September 30, 2012:
* Revenues increased by approximately 15 percent to $62.0 million from $53.9 million for the comparable quarter of 2011 due to 15 percent increases in each of Canadian and United States revenues;
* EBITDA increased by approximately 8 percent to $16.5 million from $15.3 million in the same quarter of 2011;
* Funds generated from operations decreased by approximately 9 percent period-over-period to $13.6 million from $15.0 million in the comparable quarter of 2011 due to the increase in cash taxes as a proportion of total tax expense;
* EBITDA margins in Canada decreased to 28 percent from 30 percent for the comparable period of last year due to additional costs associated with incentive compensation due to the increase in the price of Badger's shares. EBITDA margins in the United States decreased to 25 percent from 26 percent in the third quarter of 2011 due to lower margins in certain oil and natural gas industry locations;
* Badger had 600 daylighting units at the end of the third quarter of 2012, reflecting the addition of 100 daylighting units to the fleet to date in 2012 and the retirement of four units. Of the total, 289 units were operating in Canada and 311 in the United States at quarter-end. Badger had 504 daylighting units at December 31, 2011. The new units were financed from cash generated from operations, existing credit facilities and the June 2012 equity financing; and
* Effective November 2012 Badger's Board of Directors has approved a one-half-cent increase to the monthly dividend, increasing the total amount by 6 percent, from 8.5 cents to 9 cents per month. The Board determined that, based on Badger's continuing growth and positive financial results the increase was warranted. In the Board's dividend analysis, it considers many factors, including best use of current and future cash flow and sustainability of the dividend. Payment will be made on or about December 17, 2012 to shareholders of record on November 30, 2012.
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 were prepared in accordance with International Financial Reporting Standards (IFRS). Readers should also refer to the December 31, 2011 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, 2011, may be found on SEDAR at http://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, 2012 and 2011 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 9, 2012.
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 internal preparations for anticipated growth in 2012 will be completed;
* That as long as overall activity in the economy and the oil and natural gas industry remains essentially constant, Badger will be able to continue to grow the business in 2012;
* That Badger in 2012 can further develop the organization to position itself to be able to handle the planned future growth;
* That the new locations opened in the United States will provide an increased contribution to cash flows from operations and net profit during 2012;
* That the current business development initiative will provide Badger with the additional new customers necessary to grow the business in 2012 and the future;
* That Eastern Canada will continue with steady growth, driven by activity levels in the utility and construction segments that are forecast to be stable in 2012; and
* That there will be an increase in Western Canada revenue during 2012 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 2012;
* There will be long-term demand for hydrovac services from 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 strategy.
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: price 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 dividends" 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:
-***-
Three months Nine months
ended September 30, ended September 30,
---------------------------------------------------------------------
$ 2012 2011 2012 2011
---------------------------------------------------------------------
Gross profit 53,468,644 44,580,277
20,134,055 17,908,831
Selling, general and (10,007,111) (8,061,508)
administrative costs (3,643,606) (2,642,882)
---------------------------------------------------------------------
EBITDA 16,490,449 15,265,949 43,461,533 36,518,769
---------------------------------------------------------------------
-****-
"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:
FINANCIAL HIGHLIGHTS
($ thousands, except per share and total shares outstanding information)
-***-
Three months ended Nine months ended
September 30, September 30,
------------------------------------------------------------------
$ 2012 2011 2012 2011
------------------------------------------------------------------
Cash provided by 7,996,557 7,074,765 33,007,501 18,031,655
operating activities
Add (deduct): 2,227,629 12,028,049
Net change in
non-cash working 5,634,007 7,924,644
capital relating to
operating activities
Equity-settled share 0 0 655,316 2,191,648
plan settled in cash
------------------------------------------------------------------
Funds generated 13,630,564 14,999,409 35,890,446 32,251,352
from operations
------------------------------------------------------------------
-****-
"Growth capital expenditures" are capital expenditures that are intended to improve Badger's efficiency, productivity or overall capacity and thereby allow Badger to access new markets. They generally represent net additions to the daylighting fleet. Growth capital expenditures exclude acquisitions.
"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 dividends, 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.
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---------------------------------------------------------------
Three Three Nine Nine
months months months months
---------------------------------------------------------------
September September September September
30, 30, 30, 30,
---------------------------------------------------------------
2012 2011 2012 2011
---------------------------------------------------------------
Revenues 61,962 53,854 169,980 137,630
---------------------------------------------------------------
---------------------------------------------------------------
EBITDA 16,490 15,266 43,462 36,519
---------------------------------------------------------------
---------------------------------------------------------------
Profit before tax 11,494 11,203 29,168 23,888
---------------------------------------------------------------
Income tax expense
---------------------------------------------------------------
Current 1,809 990 5,400 3,139
---------------------------------------------------------------
Deferred 1,783 2,060 3,606 3,651
---------------------------------------------------------------
---------------------------------------------------------------
Net profit 7,902 8,153 20,162 17,099
---------------------------------------------------------------
---------------------------------------------------------------
Profit per share 0.64 0.75 1.77 1.58
- diluted ($)
---------------------------------------------------------------
---------------------------------------------------------------
Funds generated 13,631 14,999 35,890 32,251
from operations
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
Funds generated
from operations
---------------------------------------------------------------
per share - 1.1 1.38 3.15 2.98
diluted ($)
---------------------------------------------------------------
---------------------------------------------------------------
Maintenance capital 1,527 453 2,581 902
expenditures
---------------------------------------------------------------
---------------------------------------------------------------
Required long-term - - - 3,259
debt repayments
---------------------------------------------------------------
Cash available for
growth and
---------------------------------------------------------------
dividends 12,141 14,641 33,442 28,257
---------------------------------------------------------------
---------------------------------------------------------------
Dividends declared 3,143 2,757 8,791 8,272
---------------------------------------------------------------
Growth capital 12,484 12,662 36,655 23,887
expenditures
---------------------------------------------------------------
Total shares 12,326,631 10,813,631 12,326,631 10,813,631
Outstanding
(end of period)
---------------------------------------------------------------
-****-
OVERVIEW
It should be noted in comparing the results for the three months ended September 30, 2012 to the three months ended September 30, 2011 that the quarter ended September 30, 2011 was an exceptional quarter for Badger and although EBITDA margins and gross profit margins decreased in the third quarter of 2012 from the third quarter 2011, the third quarter of 2012 was a strong quarter.
Highlights for the three months ended September 30, 2012:
* Revenues increased by approximately 15 percent to $62.0 million from $53.9 million for the comparable quarter of 2011 due to 15 percent increases in each of Canadian and United States revenues;
* EBITDA increased by approximately 8 percent to $16.5 million from $15.3 million in the same quarter of 2011;
* Funds generated from operations decreased by approximately 9 percent period-over-period to $13.6 million from $15.0 million in the comparable quarter of 2011 due to the increase in cash taxes as a proportion total tax expense;
* EBITDA margins in Canada decreased to 28 percent from 30 percent for the comparable period of last year due to additional costs associated with incentive compensation due to the increase in the price of Badger's shares. EBITDA margins in the United States decreased to 25 percent from 26 percent in the third quarter of 2011 due to lower margins in certain oil and natural gas industry locations;
* Badger had 600 daylighting units at the end of the third quarter of 2012, reflecting the addition of 100 daylighting units to the fleet to date in 2012 and the retirement of four units. Of the total, 289 units were operating in Canada and 311 in the United States at quarter-end. Badger had 504 daylighting units at December 31, 2011. The new units were financed from cash generated from operations, existing credit facilities and the June 2012 equity financing; and
* Effective November 2012 Badger's Board of Directors has approved a one-half-cent increase to the monthly dividend, increasing the total amount by 6 percent, from 8.5 cents to 9 cents per month. The Board determined that, based on Badger's continuing growth and positive financial results the increase was warranted. In the Board's dividend analysis, it considers many factors, including best use of current and future cash flow and sustainability of the dividend. Payment will be made on or about December 17, 2012 to shareholders of record on November 30, 2012.
OUTLOOK
The third quarter was a good quarter for Badger as revenue growth continued, investments were made to support future growth and the fleet continued to grow. Some weakness or slower growth was experienced in selected oil and gas natural producing areas due to localized industry slowdowns. Good progress was made, however, in new markets and in adding new customers. Badger is optimistic that growth will continue for the rest of the year provided the overall North American economy stays at the same level and there is no major reduction in oil and natural gas industry activity in the regions where Badger operates for the remainder of the year.
Major initiatives for the remainder of 2012 remain as follows:
1. Work to improve the profitability of new locations and of currently underperforming locations. This remains a continuing priority. Badger has made progress in the United States, which has enabled the Company to remain busy as whole despite overall experiencing slightly lower activity in certain oil and natural gas regions.
2. In the first three quarters of 2012 Badger made good progress in filling personnel gaps in the organization plus adding people to handle future growth. It is anticipated that these investments, although having an adverse affect on margins today, will add value in the future.
3. Badger's business development capability has been enhanced. The investment in people and systems has increased greatly in 2012. This initiative will help Badger continue its growth plans for the future.
4. To streamline Badger's administration system through the use of electronic forms and other measures to transfer data electronically from the field to offices and from offices to Badger's customers.
5. The build of Badger units through year-end is forecast to continue at the same pace as in the first three quarters. This build rate is a just over two daylighting units per week. At the beginning of the year Badger expected to retire 10 to 15 trucks. Badger has retired four units during the first nine months of 2012 and anticipates retiring one to three units prior to the end of 2012.
Regional comments:
1. The United States East operations continue to grow by adding customers and locations. Badger has seen a reduction of work in the oil field sector, which moderated growth somewhat in the last quarter. Revenue growth in other markets has been able to replace the decline. It should be noted that although the customer base in the United States East has been diversified, revenue can fluctuate due to large project work starting and ending.
2. The United States West continues to lag the other United States region. The slower pace in the oil and natural gas industry in a few areas has hurt overall margins. Badger believes that its business development efforts will help increase revenue in the future.
3. Eastern Canada revenue and margins were on target for the quarter and are forecast to remain at the current level.
4. Western Canada business continues to provide good results for the Company. The third quarter was strong even with some localized market fluctuations. Badger expects Western Canada to have a good year.
The third quarter of 2012 generated reasonable results and was according to plan. This is despite the localized decline in the oil and natural gas sector plus Badger's as-yet unrealized investments in future growth. The Company's focus remains on growing its customer base, taking advantage of the opportunities that present themselves and improving margins in weak areas. Badger believes it will be able to continue growing through the fourth quarter and foreseeable future given a reasonable economy and essentially stable oil and natural gas industry.
Results of Operations
Revenues
Revenues of $62.0 million for the three months ended September 30, 2012 were 15 percent greater than the $53.9 million generated during the comparable period in 2011. The increase is attributable to the following:
* Canadian revenues increased by 15 percent from $28.8 million in the third quarter of 2011 to $33.1 million in the third quarter of 2012. Western Canada hydrovac revenue increased 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 a modest amount quarter-over-quarter due to a general increase in activity; and
* United States revenue went from $25.1 million for the three months ended September 30, 2011 to $28.9 million for the three months ended September 30, 2012. Removing the effect of the change in the foreign exchange rate, revenues increased by 13 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, 2012 was $33,000 versus $35,500 for the three months ended September 30, 2011. The $33,000 average revenue per truck is a good result for the quarter.
Badger's average revenue per truck per month for the nine months ended September 30, 2012 was $32,000 versus $31,600 for the nine months ended September 30, 2011.
Direct Costs
Direct costs for the quarter ended September 30, 2012 were $41.8 million compared to $35.9 million for the quarter ended September 30, 2011. The increase of 16 percent is marginally greater than the increase in revenues of 15 percent.
Gross Profit
The gross profit percentage was 32.5 percent for the quarter ended September 30, 2012, a decrease from 33.3 percent for the quarter ended September 30, 2011. The Canadian gross profit percentage decreased from 37.6 percent for the three months ended September 30, 2011 to 36.5 percent for the three months ended September 30, 2012. The United States gross profit percentage decreased from 28.3 percent for the three months ended September 30, 2011 to 27.9 percent for the three months ended September 30, 2012.
Depreciation of Property, Plant and Equipment
Depreciation of property, plant and equipment was $4.7 million for the three months ended September 30, 2012, $0.9 million higher than the $3.8 million incurred for the three months ended September 30, 2011, 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, 2012 versus $0.3 million for the quarter ended September 30, 2011.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by 38 percent to $3.6 million for the quarter ended September 30, 2012 from $2.7 million for the quarter ended September 30, 2011. The main reason for the increase was the additional costs associated with incentive compensation due to the increase in the price of Badger's shares. There was also an increase in personnel costs resulting from the growth in Badger's business. As a percentage of revenues, selling, general and administrative expenses increased to 5.9 percent for the third quarter of 2012 from 4.9 percent for the third quarter of 2011, for the same reasons.
Income Taxes
The effective tax rate for the nine months ended September 30, 2012 was 31 percent versus 28 percent for the nine months ended September 30, 2011. Profit before tax in the United States for the nine months ended September 30, 2012 increased relative to Canadian profit before tax in the same period, resulting in the increase in the effective tax rate given that corporate income tax rates are higher in the United States.
Exchange Differences on Translation of Foreign Operations
The exchange differences result from converting the balance sheet and profit statement related to the United States operations into Canadian currency.
Liquidity and Dividends
Funds generated from operations decreased to $13.6 million for the quarter ended September 30, 2012 from $15.0 million for the comparable period in 2011 due to cash taxes increasing as a proportion of total tax expense. 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 $42.8 million at September 30, 2012 compared to $39.7 million at December 31, 2011.
The following table outlines the cash available to fund growth and pay dividends to shareholders for the three months and nine months ended September 30, 2012:
-***-
-----------------------------------------------------
Three Nine
months months
-----------------------------------------------------
Ended Ended
September 30, September 30,
-----------------------------------------------------
($) 2012 2012
-----------------------------------------------------
-----------------------------------------------------
Funds generated 13,630,564 35,890,446
from operations
-----------------------------------------------------
Add: proceeds from
sale of property, plant
-----------------------------------------------------
and equipment 37,643 132,566
-----------------------------------------------------
Deduct: required - -
repayments of
long-term debt
-----------------------------------------------------
Deduct: maintenance -1,526,932 -2,580,906
capital expenditures
-----------------------------------------------------
Cash available
For growth capital
expenditures
-----------------------------------------------------
and dividends 12,141,275 33,442,106
-----------------------------------------------------
-----------------------------------------------------
Growth capital 12,484,042 36,655,412
expenditures
-----------------------------------------------------
-----------------------------------------------------
Dividends declared 3,143,292 8,791,101
-----------------------------------------------------
-****-
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, 2012 and 2011 and the year ended December 31, 2011:
-***-
----------------------------------------------------
Nine Nine Year
months months ended
----------------------------------------------------
Ended Ended December
September September 31,
30 30
----------------------------------------------------
($) 2012 2011 2011
----------------------------------------------------
Cash provided 33,007,501 18,031,655 33,469,398
by operating
activities
----------------------------------------------------
Net profit 20,161,599 17,098,659 25,803,156
----------------------------------------------------
Dividends declared 8,791,101 8,272,430 11,029,907
----------------------------------------------------
Excess of cash provided by operating
----------------------------------------------------
activities over 24,216,400 9,759,225 22,439,491
dividends
declared
----------------------------------------------------
Excess of net profit over
----------------------------------------------------
Dividends 11,370,498 8,826,229 14,773,249
declared
----------------------------------------------------
-****-
The Company pays cash dividends monthly to its shareholders. They 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, proceeds received from equity financings or cash retained from operating activities. The majority of the cash provided by operating activities in the nine months ended September 30, 2012 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 estimates it will remove approximately 10 to 15 hydrovac units from the fleet in 2012. 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 $14.0 million on property, plant and equipment for the three months ended September 30, 2012 compared to $13.1 million for the three months ended September 30, 2011. The Company built 31 hydrovac units during the three months ended September 30, 2012 compared to 28 during the three months ended September 30, 2011. The costs to build a hydrovac unit remained consistent with the average for 2011.
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 2012 only four hydrovac units were removed from the fleet and, therefore, maintenance capital expenditures were minimal.
Financing
On June 19, 2012 the Company completed an equity financing pursuant to a prospectus dated June 13, 2012 for gross proceeds of $37.5 million through the issuance of 1,500,000 common shares at a price of $25.00 per share. Badger intends to use the net proceeds to fund growth initiatives (ie. to fund its capital expenditure program and other growth initiatives it may pursue from time to time), for working capital, and for other general corporate purposes. It is currently anticipated that the full amount of the net proceeds will be used, over time, to finance the manufacture by Badger of additional hydrovacs. However, the exact timing of the build of these additional hydrovacs, and the number of additional hydrovacs to be built, will depend on (i) Badger's assessments from time to time of the economy and the need for Badger's hydrovac services and (ii) any increase or decrease in the cost of parts and labour over time associated with the manufacture of hydrovacs. The net proceeds were initially used to pay down amounts drawn under the extendable revolving credit facility.
The Company has a $55 million extendable revolving credit facility which is used to assist in financing Badger's capital expenditure program and support corporate activities, of which $26.2 million was drawn at September 30, 2012. The facility has no required principal repayments. It expires on June 23, 2013 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 decreased by 49 percent during the first nine months of 2012. As at September 30, 2012 Badger's cash and cash equivalents were $3.7 million, resulting in net debt of $22.5 million versus cash and cash equivalents of $2.6 million and net debt of $43.9 million at December 31, 2011. The main reason for the decrease was the funds received on closing the June 2012 equity financing.
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:
-***-
Ratio September 30 December 31 Threshold
2012 2011
--------------------------------------------
Funded Debt (1) 0.38:1 0.85:1 2.25:1
to EBITDA (2) maximum
Fixed Charge ]5.16:1 2.11:1 1.00:1
Coverage (3) minimum
--------------------------------------------
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 dividends.
-****-
The Company has committed to certain capital expenditures totalling approximately $9.4 million. They 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
Shareholders' capital increased from $44.5 million at December 31, 2011 to $80.6 million at September 30, 2012 due to the June 2012 equity financing and certain employees exercising their options. Shares outstanding at September 30, 2012 were 12,326,631. There was no change to the balance as of November 9, 2012.
-***-
SELECTED QUARTERLY FINANCIAL INFORMATION
--------------------------------------------
($)
2012
---------------------------------
Q3 Q2 Q1
--------------------------------------------
Revenues 61,961,587 53,984,135 54,034,368
--------------------------------------------
Net profit 7,901,918 6,144,629 6,115,052
--------------------------------------------
Net profit 0.64 0.56 0.57
per share
basic
--------------------------------------------
Net profit 0.64 0.56 0.56
per share
diluted
--------------------------------------------
-------------------------------------------------------
($)
2011
--------------------------------------------
Q4 Q3 Q2 Q1
-------------------------------------------------------
Revenues 56,548,569 53,853,710 42,804,832 40,970,978
-------------------------------------------------------
Net profit 8,704,497 8,152,566 4,564,267 4,381,826
-------------------------------------------------------
Net profit 0.80 0.75 0.42 0.41
per share
basic
-------------------------------------------------------
Net profit 0.80 0.75 0.42 0.40
per share
diluted
-------------------------------------------------------
----------------------
($)
2010
-----------
Q4
----------------------
Revenues 41,175,494
----------------------
Net profit 5,668,694
----------------------
Net profit 0.52
per share
basic
-****-
ACCOUNTING STANDARDS PENDING ADOPTION
New IFRS pronouncements have been issued but are not in effect as at September 30, 2012. The pronouncements may, however, 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, 2015, 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 has assessed this standard and determined that the standard will not have a material impact on the Company's financial statements.
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 has assessed this standard and determined that the standard is not applicable to the Company.
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 has assessed this standard and determined that the standard will result in additional disclosure relating to the Company's subsidiaries.
v) IFRS 13 'Fair Value Measurement' which is effective prospectively for annual periods beginning on or after January 1, 2013. IFRS 13 replaces fair value measurement guidance contained in individual IFRSs, providing a single source of fair value measurement guidance. The standard provides a framework for measuring fair value and establishes new disclosure requirements tenable readers to assess the methods and inputs used to develop fair value measurements and for recurring valuations that are subject to measurement uncertainty and the effect of those measurements on the financial statements. The Company has assessed this standard and determined that the standard may result in additional disclosure.
CRITICAL ACCOUNTING ESTIMATES
There have been no material changes to critical accounting estimates since December 31, 2011.
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, 2011 and as a result of identifying the material weakness outlined below have concluded the disclosure controls and procedures are not fully 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, 2011 and as a result of identifying the material weakness outlined below have concluded the internal controls over financial reporting are not fully 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, 2012 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, 2011, 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 2011 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
President and CEO
Greg Kelly, CA
Vice President Finance and CFO
1000, 635 - 8th Avenue SW
Calgary, Alberta T2P 3M3
Telephone 403-264-8500
Fax 403-228-9773
Badger Daylighting Ltd.
Interim Condensed Consolidated Financial Statements (unaudited)
For the period ended September 30, 2012
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 condensed 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)
As at Notes September December
30, 2012 31, 2011
$ $
--------------------------------------------------------------------
ASSETS
Current Assets
Cash and cash 3,657,359 2,622,191
equivalents
Trade and other 58,364,346 56,170,776
receivables
Prepaid expenses 1,646,976 1,183,571
Inventories 2,724,429 2,288,716
--------------------------
66,393,110 62,265,254
--------------------------
Non-current Assets
Property, plant 138,332,607 115,002,042
and equipment
Intangible assets 6,550,511 6,599,513
--------------------------
144,883,118 121,601,555
--------------------------
Total Assets 211,276,228 183,866,809
--------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Trade and other 15,933,874 13,290,835
payables
Income taxes 2,011,266 5,186,568
Payable
Dividends payable 1,047,764 919,159
Provisions 4 4,566,000 3,126,560
--------------------------
23,558,904 22,523,122
--------------------------
Non-current
Liabilities
Long-term debt 5 26,181,365 46,554,454
Deferred taxation 27,763,687 25,408,079
--------------------------
53,945,052 71,962,533
--------------------------
Shareholders' Equity
Shareholders' capital 6 80,640,111 44,473,107
Contributed surplus 6 2,060,607 2,657,923
Accumulated other 6 (3,553,090) (1,004,022)
comprehensive loss
Retained earnings 54,624,644 43,254,146
--------------------------
133,772,272 89,381,154
--------------------------
Total Liabilities and 211,276,228 183,866,809
Shareholders' Equity
--------------------------
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
September September
30 30
Notes 2012 2011
$ $
-------------------------------------------------------
Revenues 8 169,980,090 137,629,520
Direct costs 116,511,446 93,049,243
------------------------
Gross profit 53,468,644 44,580,277
Depreciation 13,378,873 10,570,356
of property,
plant and
equipment
Amortization of 49,002 147,000
intangible assets
Selling, general 10,007,111 8,061,508
and administrative
------------------------
Operating profit 30,033,658 25,801,413
Gain on sale of (112,636) (66,134)
property, plant
and equipment
Reimbursement to - 1,062,039
Clean Harbors, Inc.
Finance cost 978,650 917,023
------------------------
Profit before tax 29,167,644 23,888,485
Income tax expense 9,006,045 6,789,826
------------------------
Net profit for the period 20,161,599 17,098,659
Other comprehensive
income (loss)
Exchange differences on (2,549,068) 2,130,768
translation of foreign
operations
------------------------
Total comprehensive 17,612,531 19,229,427
income for the period
attributable to
shareholders of
the Corporation
------------------------
Earnings per share
Basic 9 1.77 1.58
Diluted 9 1.77 1.58
For the three
months ended
September September
30 30
Notes 2012 2011
$ $
------------------------------------------------------
Revenues 8 61,961,587 53,853,710
Direct costs 41,827,532 35,944,879
-----------------------
Gross profit 20,134,055 17,908,831
Depreciation 4,742,718 3,754,727
of property,
plant and
equipment
Amortization of - 49,000
intangible assets
Selling, general 3,643,606 2,642,882
and administrative
-----------------------
Operating profit 11,747,731 11,462,222
Gain on sale of (29,780) (14,108)
property, plant
and equipment
Reimbursement to - -
Clean Harbors, Inc.
Finance cost 283,017 273,499
-----------------------
Profit before tax 11,494,494 11,202,831
Income tax expense 3,592,576 3,050,265
-----------------------
Net profit for the period 7,901,918 8,152,566
Other comprehensive
income (loss)
Exchange differences on (2,771,853) 3,756,255
translation of foreign
operations
-----------------------
Total comprehensive 5,130,065 11,908,821
income for the period
attributable to
shareholders of
the Corporation
-----------------------
Earnings per share
Basic 9 0.64 0.75
Diluted 9 0.64 0.75
-****-
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)
Share Contributed
holders' surplus
capital
Notes $ $
------------------------------------------------
As at January 44,473,107 4,578,771
1, 2011
Net profit for - -
the period
Other - -
Comprehensive
income (loss)
for the period
Share-based - 231,800
Payment
transactions
Options - (2,191,648)
Surrendered
for cash
Dividends - -
------------------------
As at September 44,473,107 2,618,923
30, 2011
------------------------
As at January 1 44,473,107 2,657,923
2012
Net profit for - -
the period
Other - -
Comprehensive
income (loss)
for the period
Share-based 6,7 - 58,000
Payment
transactions
Share options 6 205,170 -
exercised
Options 6,7 - (655,316)
Surrendered
for cash
Shares issued 6 35,961,834 -
pursuant to
equity financing
Dividends - -
------------------------
As at September 80,640,111 2,060,607
30, 2012
------------------------
Accumulated Retained Total
other compre- earnings equity
hensive loss
Notes $ $ $
--------------------------------------------------------------
As at January (2,112,889) 28,480,897 75,419,886
1, 2011
Net profit for - 17,098,659 17,098,659
the period
Other 2,130,768 - 2,130,768
Comprehensive
income (loss)
for the period
Share-based - - 231,800
Payment
transactions
Options - - (2,191,648)
Surrendered
for cash
Dividends - (8,272,430) (8,272,430)
--------------------------------------
As at September 17,879 37,307,126 84,417,035
30, 2011
--------------------------------------
As at January 1 (1,004,022) 43,254,146 89,381,154
2012
Net profit for - 20,161,599 20,161,599
the period
Other (2,549,068) - (2,549,068)
Comprehensive
income (loss)
for the period
Share-based 6,7 - - 58,000
Payment
transactions
Share options 6 - - 205,170
exercised
Options 6,7 - - (655,316)
Surrendered
for cash
Shares issued 6 - - 35,961,834
pursuant to
equity financing
Dividends - (8,791,101) (8,791,101)
--------------------------------------
As at September (3,553,090) 54,624,644 133,772,272
30, 2012
--------------------------------------
-****-
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
September September
30, 30,
Notes 2012 2011
$ $
------------------------------------------------------------
Operating activities
Net profit for the 20,161,599 17,098,659
period
Non-cash adjustments
to reconcile profit
from operations to
net cash flows:
Depreciation of 13,378,873 10,570,356
property, plant
and equipment
Amortization of 49,002 147,000
intangible assets
Deferred income 3,606,000 3,651,000
taxes
Share-based payment 6,7 58,000 231,800
transaction expense
Equity-settled share 6,7 (655,316) (2,191,648)
plan settled in cash
Gain on sale of property (112,636) (66,134)
plant and equipment
Unrealized foreign (1,250,392) 618,671
exchange (gain) loss
on deferred tax
---------------------------
35,235,130 30,059,704
Net change in non-cash (2,227,629) (12,028,049)
working capital relating
to operating activities
---------------------------
Net cash flows from 33,007,501 18,031,655
operating activities
---------------------------
Investing activities
Purchase of property, (39,236,318) (24,789,245)
plant and equipment
Purchase of intangible - (275,000)
assets
Proceeds from sale of 132,566 166,486
property, plant and
equipment
---------------------------
Net cash flows used (39,103,752) (24,897,759)
in investing activities
---------------------------
Financing activities
Proceeds from issuance 6 35,961,834 -
of shares, net of
issuance costs
Proceeds received on the 6 205,170 -
exercise of share options
Proceeds from long-term - 9,279,590
debt
Repayment of long-term (20,373,089) (3,258,554)
debt
Dividends paid to owners (8,662,496) (8,488,702)
---------------------------
Net cash flows from 7,131,419 (2,467,666)
(used in) financing
activities
---------------------------
Net increase (decrease) 1,035,168 (9,333,770)
in cash and cash
equivalents
Cash and cash equivalents 2,622,191 11,890,341
beginning of period
---------------------------
Cash and cash equivalents 3,657,359 2,556,571
end of period
---------------------------
Supplemental cash flow
information:
Interest paid 978,650 917,023
---------------------------
Income tax paid 8,564,865 (26,232)
(recovered)
---------------------------
For the three
months ended
September September
30, 30,
Notes 2012 2011
$ $
------------------------------------------------------------
Operating activities
Net profit for the 7,901,918 8,152,566
period
Non-cash adjustments
to reconcile profit
from operations to
net cash flows:
Depreciation of 4,742,718 3,754,727
property, plant
and equipment
Amortization of - 49,000
intangible assets
Deferred income 1,783,000 2,059,700
taxes
Share-based payment 6,7 - 7,000
transaction expense
Equity-settled share 6,7 - -
plan settled in cash
Gain on sale of property (29,780) (14,108)
plant and equipment
Unrealized foreign (767,292) 990,524
exchange (gain) loss
on deferred tax
---------------------------
13,630,564 14,999,409
Net change in non-cash (5,634,007) (7,924,644)
working capital relating
to operating activities
---------------------------
Net cash flows from 7,996,557 7,074,765
operating activities
---------------------------
Investing activities
Purchase of property, (14,010,974) (13,114,263)
plant and equipment
Purchase of intangible - -
assets
Proceeds from sale of 37,643 93,787
property, plant and
equipment
---------------------------
Net cash flows used (13,973,331) (13,020,476)
in investing activities
---------------------------
Financing activities
Proceeds from issuance 6 - -
of shares, net of
issuance costs
Proceeds received on the 6 - -
exercise of share options
Proceeds from long-term - 4,960,633
debt
Repayment of long-term (19,033,392) -
debt
Dividends paid to owners (3,143,292) (2,757,476)
---------------------------
Net cash flows from (22,176,684) 2,203,157
(used in) financing
activities
---------------------------
Net increase (decrease) (28,153,458) (3,742,554)
in cash and cash
equivalents
Cash and cash equivalents 31,810,817 6,299,125
beginning of period
---------------------------
Cash and cash equivalents 3,657,359 2,556,571
end of period
---------------------------
Supplemental cash flow
information:
Interest paid 283,017 273,499
---------------------------
Income tax paid 1,390,643 12,715
(recovered)
---------------------------
-****-
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
BADGER DAYLIGHTING LTD.
Notes to the Interim Condensed Consolidated Financial Statements
Nine months ended September 30, 2012
(Unaudited - Expressed in Canadian Dollars)
1 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 1000, 635 - 8th Avenue SW, Calgary, Alberta T2P 3M3.
The consolidated financial statements of the Corporation for the period ended September 30, 2012 were authorised for issue in accordance with a resolution of the directors on November 9, 2012.
2 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 same accounting policies the Corporation used in its consolidated financial statements as at and for the year ending December 31, 2011.
The interim condensed consolidated financial statements should be read in conjunction with the Corporation's annual consolidated financial statements for the year ended December 31, 2011, as well as the Corporation's interim consolidated financial statements for the period ended June 30, 2012.
Basis of measurement
These consolidated financial statements have been prepared under the historical cost convention.
Functional and presentation currency
These consolidated financial statements are presented in Canadian dollars, which is the Corporation's functional currency.
3 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, 2015, 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 has assessed this standard and determined that the standard will not have a material impact on the Corporation's financial statements.
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 has assessed this standard and determined that the standard is not applicable to the Corporation.
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 has assessed this standard and determined that the standard will result in additional disclosure relating to the Corporation's subsidiaries.
x) IFRS 13 'Fair Value Measurement' which is effective prospectively for annual periods beginning on or after January 1, 2013. IFRS 13 replaces fair value measurement guidance contained in individual IFRSs, providing a single source of fair value measurement guidance. The standard provides a framework for measuring fair value and establishes new disclosure requirements to enable readers to assess the methods and inputs used to develop fair value measurements and for recurring valuations that are subject to measurement uncertainty and the effect of those measurements on the financial statements. The Corporation has assessed this standard and determined that the standard may result in additional disclosure.
4 Provisions
-***-
Bonus Performance Deferred Legal
$ Trust Share Unit Plan $ Total
Plan $ $
$
-------------------------------------------------------------------------
As at 677,850 773,000 - 800,000 2,250,850
January 1, 2011
Arising during 2,035,830 214,865 1,603,000 - 3,853,695
the year
Utilised (1,190,120) (987,865) - (800,000) (2,977,985)
-----------------------------------------------------------
As at 1,523,560 - 1,603,000 - 3,126,560
December 31, 2011
Arising during 1,730,674 - 1,759,000 - 3,489,674
the period
Utilised (1,958,234) - (92,000) - (2,050,234)
-----------------------------------------------------------
As at 1,296,000 - 3,270,000 - 4,566,000
September 30, 2012
-----------------------------------------------------------
-****-
Upon the implementation of the Deferred Unit Plan, on November 10, 2011 the Performance Trust Share Plan was terminated (note 7).
5 Long-term debt
-***
September 30, December 31, 2011
2012 $
$
--------------------------------------------------------------------
Extendable revolving credit facility 26,181,365 46,554,454
--------------------------------
-****-
The Corporation has established a $55,000,000 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 [December 31, 2011 - 3.00%] or bankers' acceptance rate plus 1.25% [December 31, 2011 - 2.41%]. 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 23, 2013 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.
The extendable revolving credit facility is collateralized by a general security interest over the Corporation's assets, property and undertaking, present and future.
Under the terms of the credit facilities, the Corporation must comply with certain financial and non-financial covenants, as defined by the bank. Throughout 2012, and as at September 30, 2012, the Corporation was in compliance with all of these covenants.
As at September 30, 2012, the Corporation has issued letters of credit in the amount of approximately $635,000. The outstanding letters of credit reduce the amount available under the extendable revolving credit facility.
At September 30, 2012, the Corporation had available $28,183,635 (December 31, 2011 - $13,445,546) of undrawn committed borrowing facilities in respect of which all conditions precedent had been met.
6 Shareholders' capital and reserves
A) Authorized shares
An unlimited number of voting common shares are authorized without nominal or par value.
B) Issued and outstanding
-***-
Number of Shares Amount
$
----------------------------
At January 1, 2011 and 10,813,631 44,473,107
December 31, 2011
Shares issued pursuant to 1,500,000 35,961,834
equity financing, net of
issuance costs
Shares issued pursuant to 13,000 205,170
the share option plan
----------------------------
At September 30, 2012 12,326,631 80,640,111
----------------------------
-****-
On June 19, 2012, the Corporation completed an equity financing through the issuance of 1,500,000 common shares at a price of $25.00 per common share for gross proceeds of $37,500,000. The Corporation incurred share issue costs of $1,538,166 (net of income taxes of $526,500), in connection with the equity financing, including a commission fee paid to the underwriters of $1,687,500 and professional and miscellaneous fees of $377,166.
C) Accumulated other comprehensive loss
The accumulated other comprehensive loss 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, 2012 December 31, 2011
$ $
--------------------------------------------------------------
Opening balance 2,657,923 4,578,771
Share-based payment 58,000 270,800
transactions
Equity-settled share plan (655,316) (2,191,648)
settled in cash
-------------------------------------
Closing balance 2,060,607 2,657,923
-------------------------------------
-****-
7 Share-based payment plans
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, 2012 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, 2012 and the year ended December 31, 2011 are as follows:
-***-
September 30, 2012 December 31, 2011
-------------------------------------------------------
Number Weighted Number Weighted
Of Average Of Average
exercise Exercise
options price options price
$ $
-------------------------------------------------------
Outstanding at 187,750 19.00 768,280 16.96
beginning of
period
Share options (13,000) 15.78 - -
exercised
Options (52,375) 13.69 (568,530) 16.27
surrendered
for cash
Forfeited (12,000) 22.45 (12,000) 18.07
-----------------------------------------
Outstanding at 110,375 21.54 187,750 19.00
End of period
-----------------------------------------
-****-
Pursuant to the share plan during the second quarter of 2012, the Corporation had 52,375 vested share options surrendered by employees in return for a cash settlement of $655,316.
For the period ended September 30, 2012 the Corporation recorded compensation expense, included as part of selling, general and administrative expense, of $58,000 (2011 - $231,800) with an offsetting increase to contributed surplus in respect of the share options granted and outstanding as of September 30, 2012.
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. Upon implementation of the Deferred Unit Plan the PTU Plan was terminated. PTU's which had been earned were transferred to deferred units.
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. The Corporation has recorded a compensation expense of $1,667,000 for the period ended September 30, 2012 (December 31, 2011 - $1,034,865), which is included in selling, general and administrative expenses.
Changes in the number of deferred units under the Badger DUP were as follows:
-***-
Units
-------------------------------------------
At January -
1, 2011
Granted 49,313
Transferred 79,688
from PTU Plan
Dividends earned 2,177
----------
At December 31, 2011 131,178
Granted 48,170
Dividends earned 2,780
Redeemed (3,603)
Forfeited (12,287)
----------
At September 30, 2012 166,238
----------
Exercisable at September 30, 2012 47,258
----------
-****-
8 Revenues
-***-
For the nine For the three
months ended months ended
September September September September
30, 2012 30, 2011 30, 2012 30, 2011
$ $ $ $
-----------------------------------------------------------
Rendering 169,002,968 136,617,627 61,890,657 53,487,371
of services
Truck 977,122 1,011,893 70,930 366,339
placement
fees
----------------------------------------------
169,980,090 137,629,520 61,961,587 53,853,710
----------------------------------------------
-****-
9 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, 2012, was based on the profit available to common shareholders of $20,161,599 (2011 - $17,098,659), and a weighted average number of common shares outstanding of 11,387,653 (2011 - 10,813,631).
The calculation of basic earnings per share for the three months ended September 30, 2012, was based on the profit available to common shareholders of $7,901,918 (2011 - $8,152,566), and a weighted average number of common shares outstanding of 12,326,631 (2011 - 10,813,631).
The weighted average number of common shares is calculated as follows:
-***-
For the nine months ended
September September 30
30, 2012 , 2011
----------------------------------------------------------
Issued common 10,813,631 10,813,631
shares outstanding,
beginning of period
Effect of equity financing 563,869 -
Effect of share options 10,153 -
exercised
--------------------------------
Weighted average number 11,387,653 10,813,631
of common shares, end
of period
--------------------------------
For the three months ended
September 30, 2012 September 30, 2011
----------------------------------------------------------------
Issued common 12,326,631 10,813,631
shares outstanding,
beginning of period
Effect of equity financing - -
Effect of share options - -
exercised
--------------------------------------
Weighted average number 12,326,631 10,813,631
of common shares, end
of period
--------------------------------------
-****-
Diluted EPS
Diluted EPS is calculated by adjusting the earnings and number of shares for the effects of dilutive options and other dilutive potential shares. The effects of anti-dilutive potential shares are ignored in calculating diluted EPS. All options are considered anti-dilutive when the Corporation is in a loss position.
The calculation of diluted earnings per share for the nine months ended September 30, 2012, was based on a weighted average number of common shares outstanding after adjustment for the effects of all dilutive potential common shares of 11,402,296 (2011 - 10,836,621).
The calculation of diluted earnings per share for the three months ended September 30, 2012, was based on a weighted average number of common shares outstanding after adjustment for the effects of all dilutive potential common shares of 12,345,740 (2011 - 10,831,981).
The weighted average number of dilutive potential common shares is calculated as follows:
-***-
For the nine months For the three months
ended ended
September September September September
30, 2012 30, 2011 30, 2012 30, 2011
--------------------------------------------------------------
Weighted average 11,387,653 10,813,631 12,326,631 10,813,631
number of common
shares (basic)
Effect of share 14,643 22,990 19,109 18,350
options
--------------------------------------------
Weighted average 11,402,296 10,836,621 12,345,740 10,831,981
number of common
shares (diluted)
--------------------------------------------
-****-
For the nine and three months ended September 30, 2012, there were no options (2011 - 110,375) excluded from the diluted weighted average number of common shares calculation. 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.
10 Segment reporting
The Corporation operates in two geographic/reportable segments providing non-destructive excavating services to each of these segments. The following is selected information for the periods ended September 30, 2012 and 2011 based on these geographic segments.
Each segment is responsible for its operating results.
-***-
For nine months September 30, 2012
ended:
---------------------------------------------------
Canada ($) U.S. ($) Total ($)
---------------------------------------------------
Revenues 91,770,544 78,209,546 169,980,090
Direct costs 58,124,196 58,387,250 116,511,446
Depreciation 6,633,434 6,745,439 13,378,873
of property,
plant and
equipment
Amortization 49,002 - 49,002
of intangible
assets
Selling, general 7,934,938 2,072,173 10,007,111
and
administrative
Profit before tax 18,186,837 10,980,807 29,167,644
---------------------------------------------------
For nine months September 30, 2011
ended:
---------------------------------------------------
Canada ($) U.S. ($) Total ($)
---------------------------------------------------
Revenues 79,836,462 57,793,058 137,629,520
Direct costs 49,584,822 43,464,421 93,049,243
Depreciation 6,102,361 4,467,995 10,570,356
of property,
plant and
equipment
Amortization 147,000 - 147,000
of intangible
assets
Selling, general 6,503,643 1,557,865 8,061,508
and
administrative
Profit before tax 16,742,602 7,145,883 23,888,485
---------------------------------------------------
For three months September 30, 2012
ended:
--------------------------------------------------
Canada ($) U.S. ($) Total ($)
--------------------------------------------------
Revenues 33,096,872 28,864,715 61,961,587
Direct costs 21,021,115 20,806,417 41,827,532
Depreciation 2,313,485 2,429,233 4,742,718
of property,
plant and
equipment
Amortization - - -
of intangible
assets
Selling, general 2,873,122 770,484 3,643,606
and
administrative
Profit before tax 6,644,313 4,850,181 11,494,494
--------------------------------------------------
For three months September 30, 2011
ended:
--------------------------------------------------
Canada ($) U.S. ($) Total ($)
--------------------------------------------------
Revenues 28,758,098 25,095,612 53,853,710
Direct costs 17,955,337 17,989,542 35,944,879
Depreciation 2,070,644 1,684,083 3,754,727
of property,
plant and
equipment
Amortization 49,000 - 49,000
of intangible
assets
Selling, general 2,036,041 606,841 2,642,882
and
administrative
Profit before tax 6,394,153 4,808,678 11,202,831
--------------------------------------------------
-****-
Selected Consolidated Statement of Financial Position Information
-***-
----------------------------------------------------
Canada ($) U.S. ($) Total ($)
----------------------------------------------------
As at September
30, 2012
Property, plant 70,702,237 67,630,370 138,332,607
and equipment
Intangible assets 6,550,511 - 6,550,511
Total assets 117,048,659 94,227,569 211,276,228
As at December
31, 2011
Property, plant 57,651,769 57,350,273 115,002,042
and equipment
Intangible assets 6,599,513 - 6,599,513
Total assets 100,078,941 83,787,868 183,866,809
----------------------------------------------------
-****-
Selected Consolidated Statement of Cash Flows Information
-***-
For nine September 30,
months 2012
ended:
------------------------------------------------
Canada U.S. Total
($) ($) ($)
------------------------------------------------
Additions to
non-current
assets:
Property, plant 20,044,668 19,191,650 39,236,318
And
equipment
Intangible - - -
assets
------------------------------------------------
For nine September 30,
months 2011
ended:
-----------------------------------------------
Canada U.S. Total
($) ($) ($)
-----------------------------------------------
Additions to
non-current
assets:
Property, plant 8,096,856 16,692,389 24,789,245
And
equipment
Intangible 275,000 - 275,000
assets
-----------------------------------------------
-****-
-***-
For three months September 30,
ended: 2012
--------------------------------------------------
Canada U.S Total
($) . ($) ($)
--------------------------------------------------
Additions to non-
current assets:
Property, plant and 7,482,945 6,528,029 14,010,974
equipment
Intangible assets - -
--------------------------------------------------
For three months September 30,
ended: 2011
--------------------------------------------------
Canada U.S. Total
($) ($) ($)
--------------------------------------------------
Additions to non-
current assets:
Property, plant and 5,335,706 7,778,557 13,114,263
equipment
Intangible assets - - -
--------------------------------------------------
-****-
11 Subsequent events
During April, 2012 the Corporation executed a non-binding letter of intent whereby it will acquire service rights and operating assets from certain of its agents for cash consideration of $2,635,000. The date the transaction will be completed is not known at this time.
To view this press release as a PDF, please click on the following link:
http://www.fscwire.com/pr/badgernov122012.pdf
Source: Badger Daylighting Ltd. (TSX - BAD) www.badgerinc.com
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