CALGARY, ALBERTA - Nov. 4, 2010 /CNW/ - Newalta Corporation ("Newalta") (TSX:NAL) today announced financial results for the three and nine months ended September 30, 2010.
In Q3 2010, revenue was up $23 million, or 19%, Combined divisional net margin(1) was up $6.1 million, or 21%, and Adjusted EBITDA(1) was $3.1 million, or 12% higher than last year. Adjusted EBITDA on a trailing twelve-month basis was $110.7 million, or $2.28 per share. Increased drilling activity in western Canada resulted in strong performance in our Western Facilities and Western Onsite business units. These gains were partially offset by reduced performance at our Ville Ste-Catherine ("VSC") facility due to a temporary imbalance in the historical relationship between the value of our recycled lead and the cost to acquire the feedstock. Performance of the other business units was overall flat compared to 2009.
"We enter Q4 with stronger product prices and increased drilling activity, as well as higher volumes at VSC and SCL compared to Q3," said Al Cadotte, President and CEO of Newalta. "The recovery in our markets and the value of our products has been uneven in 2010, but the overall trend is positive. Year-to-date, revenue is up 19% and Adjusted EBITDA is up 50% compared to last year. We expect to continue to deliver strong year-over-year bottom-line increases in the quarters ahead as our markets stabilize and we capitalize on organic growth opportunities."
Financial results highlights for the three and nine months ended September 30, 2010:
- Revenue, net earnings and Adjusted EBITDA in Q3 2010 increased by 19%, 77% and 12%, respectively, compared to the same period last year. On a year-to-date basis compared to last year, revenue, net earnings and Adjusted EBITDA increased by 19%, 1631% and 50%, respectively. The year-to-date increase in Adjusted EBITDA to $85.1 million was primarily due to higher activity levels and improved productivity, with less than 10% of the improvement attributable to higher commodity prices.
- Revenue and net margin(1) in the Facilities Division increased by 20% and 19%, respectively, year-over-year in Q3, due to increased drilling activity in western Canada. Performance was tempered by weaker results at our Ville Ste-Catherine ("VSC") facility due to fluctuating lead prices. During this period, we extended our shutdown at VSC to complete facility improvements. Year-to-date, revenue and net margin are up 20% and 49%, respectively, due primarily to increased activity levels.
- Onsite Division's revenue and net margin increased by 16% and 24%, respectively, year-over-year in Q3 2010, due largely to higher drill site utilization driven by increased drilling activity. Year-to-date, revenue and net margin increased 17% and 42%, respectively, compared to last year, primarily due to increased demand for our drill site services combined with higher onsite project activity and improved crude oil prices.
- SG&A before non-cash stock-based compensation was $15.8 million in Q3 2010, or 10.9% of revenue and $45.4 million, or 11.0% of revenue, year-to-date.
- Funded Debt decreased by $9 million to $218 million compared to Q2 2010, while Adjusted EBITDA on a trailing twelve-month basis increased to $110.7 million at the end of Q3 2010. As a result, the Funded Debt to EBITDA ratio is below 2.0.
- Maintenance capital expenditures(1) for the quarter were $10.2 million, compared to $1.6 million in 2009. Growth capital expenditures(1) were $11.8 million, compared to $3.3 million in 2009. Year-to-date, maintenance and growth capital expenditures were $20.2 million and $25.9 million, respectively, compared to $5.1 million and $14.0 million, respectively, for the same period in 2009. We expect that substantially all of the $87 million in capital committed will be spent in 2010, with the remainder in Q1 2011. Of the total committed amount, growth capital is expected to account for approximately 65%.
- Our Board of Directors declared a dividend of $0.065 per share to holders of record as at September 30, 2010 which was paid October 15, 2010. We will pay a dividend of $0.065 per share to holders of record on December 31, 2010.
/T/
Financial Results and Highlights
Three months ended
September 30,
($000s except per share data) % Increase
(unaudited) 2010 2009 (Decrease)
----------------------------------------------------------------------------
Revenue 145,124 122,169 19
Net earnings 6,324 3,567 77
- per share ($) - basic 0.13 0.08 63
- per share ($) - diluted 0.13 0.08 63
EBITDA(1) 28,769 25,253 14
- per share ($)(1) 0.59 0.60 (2)
Adjusted EBITDA(1) 29,706 26,606 12
- per share ($)(1) 0.61 0.63 (3)
Cash from operations 28,976 22,503 29
- per share ($) 0.60 0.53 13
Funds from operations(1) 24,364 21,172 15
- per share ($)(1) 0.50 0.50 -
Maintenance capital expenditures(1) 10,244 1,614 535
Dividends declared(1) 3,152 2,122 49
- per share ($)(1) 0.065 0.05 30
Cash distributed(1) 2,424 1,426 70
Growth capital expenditures(1) 11,758 3,322 254
Weighted average shares outstanding 48,487 42,438 14
Shares outstanding, September 30, 48,487 42,438 14
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Nine months ended
September 30,
($000s except per share data) % Increase
(unaudited) 2010 2009 (Decrease)
----------------------------------------------------------------------------
Revenue 413,269 346,093 19
Net earnings 15,201 (993) 1631
- per share ($) - basic 0.31 (0.02) 1650
- per share ($) - diluted 0.31 (0.02) 1650
EBITDA(1) 82,449 55,223 49
- per share ($)(1) 1.70 1.30 31
Adjusted EBITDA(1) 85,145 56,652 50
- per share ($)(1) 1.76 1.33 32
Cash from operations 47,341 64,353 (26)
- per share ($) .98 1.52 (36)
Funds from operations(1) 67,776 41,758 62
- per share ($)(1) 1.40 0.98 43
Maintenance capital expenditures(1) 20,177 5,088 297
Dividends declared(1) 8,000 5,718 40
- per share ($)(1) 0.17 0.15 13
Cash distributed(1) 7,272 11,111 (35)
Growth capital expenditures(1) 25,931 13,957 86
Weighted average shares outstanding 48,485 42,447 14
Shares outstanding, September 30, 48,487 42,438 14
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(1) These financial measures do not have any standardized meaning prescribed
by Canadian generally accepted accounting principles ("GAAP") and are
therefore unlikely to be comparable to similar measures presented by
other issuers. Non-GAAP financial measures are identified and defined
throughout the attached Management's Discussion and Analysis.
(2) Newalta has 48,486,502 shares outstanding as at November 3, 2010.
/T/
Management's Discussion and Analysis and Newalta's unaudited consolidated financial statements and notes thereto are attached.
Management will hold a conference call on Friday, November 5, 2010 at 11:00 am (EST) to discuss Newalta's performance for the third quarter. To participate in the teleconference, please call 416-340-8018 or 866-223-7781. To access the simultaneous webcast, please visit www.newalta.com. For those unable to listen to the live call, a taped broadcast will be available at www.newalta.com and, until midnight on Friday, November 12, 2010 by dialing 800-408-3053 and using the pass code 4047722.
NEWALTA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
Three and nine months ended September 30, 2010 and 2009
Certain statements contained in this document constitute "forward-looking statements". When used in this document, the words "may", "would", "could", "will", "intend", "plan", "anticipate", "believe", "estimate", "expect", and similar expressions, as they relate to Newalta Corporation (the "Corporation" and together with its subsidiaries, "Newalta"), or their management, are intended to identify forward-looking statements. In particular, forward-looking statements included or incorporated by reference in this document include statements with respect to:
- future operating and financial results;
- anticipated industry activity levels;
- expected demand for our services;
- business prospects and strategy;
- capital expenditure programs and other expenditures;
- the amount of dividends declared or payable in the future;
- realization of anticipated benefits of acquisitions and growth capital investments;
- our projected cost structure; and
- expectations and implications of changes in legislation.
Such statements reflect our current views with respect to future events and are subject to certain risks, uncertainties and assumptions, including, without limitation:
- general market conditions of the industries we service;
- strength of the oil and gas industry, including drilling activity;
- fluctuations in commodity prices for oil and lead;
- fluctuations in interest rates and exchange rates;
- supply of waste lead acid batteries as feedstock to support direct lead sales;
- demand for our finished lead products by the battery manufacturing industry;
- our ability to secure future capital to support and develop our business, including the issuance of additional common shares;
- dependence on our senior management team and other operations management personnel with waste industry experience;
- the seasonal nature of our operations;
- success of our growth and acquisition strategies including integration of businesses into our operations and potential liabilities from acquisitions;
- the highly regulated nature of the waste management and environmental services business in which we operate;
- costs associated with operating our landfills and reliance on third party waste volumes;
- the competitive environment of our industry in eastern and western Canada;
- risk of pending and future legal proceedings;
- our ability to attract and retain skilled employees and maintain positive labour union relationships;
- fluctuations in the costs and availability of fuel for our operations;
- open access for new industry entrants and the general unprotected nature of technology used in the waste industry;
- possible volatility of the price of, and the market for, our common shares;
- obtaining insurance for various potential risks and hazards on reasonable financial terms;
- the nature of and market for our debentures; and
- such other risks or factors described from time to time in reports we file with securities regulatory authorities.
By their nature, forward-looking statements involve numerous assumptions, known and unknown risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections and other forward-looking statements will not occur. Many other factors could also cause actual results, performance or achievements to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements and readers are cautioned that the foregoing list of factors is not exhaustive. Should one or more of these risks or uncertainties materialize, or should assumptions underlying the forward-looking statements prove incorrect, actual results may vary materially from those described herein as intended, planned, anticipated, believed, estimated or expected. Furthermore, the forward-looking statements contained in this document are made as of the date of this document and the forward-looking statements in this document are expressly qualified by this cautionary statement. Unless otherwise required by law, we do not intend, or assume any obligation, to update these forward-looking statements.
RECONCILIATION OF NON-GAAP MEASURES
This Management's Discussion and Analysis contains references to certain financial measures, including some that do not have any standardized meaning prescribed by Canadian generally accepted accounting principles ("GAAP") and may not be comparable to similar measures presented by other corporations or entities. These financial measures are identified and defined below:
"Combined divisional net margin" and "net margin" are used by management to analyze divisional operating performance. Combined divisional net margin and net margin as presented are not intended to represent earnings before taxes, nor should it be viewed as an alternative to net earnings or other measures of financial performance calculated in accordance with GAAP. Combined divisional net margin is calculated from the segmented information contained in the notes to the consolidated financial statements and is defined as revenue less operating and amortization and accretion expenses for both of our operating segments. Combined divisional net margin excludes inter-segment eliminations and unallocated revenue and expenses. Net margin for each of our segments is calculated from the segmented information contained in the notes to the consolidated financial statements and is defined as earnings before taxes with financing and selling, general and administrative ("SG&A") expenses added back.
/T/
Three months Nine months
ended September 30, ended September 30,
($000s) 2010 2009 2010 2009
----------------------------------------------------------------------------
Earnings (loss) before taxes 9,364 5,936 22,295 (719)
Add back:
Selling, general and
administrative(1) 16,691 13,052 48,046 39,529
Finance charges(1) 6,609 6,958 19,055 18,675
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Consolidated net margin 32,664 25,946 89,396 57,485
----------------------------------------------------------------------------
Unallocated net margin(1) 2,527 3,187 9,449 9,736
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Combined divisional net margin 35,191 29,133 98,845 67,221
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(1) Management does not allocate interest income; SG&A; taxes; finance
charges; and corporate amortization and accretion expense in the
segmented analysis (see Note 15 to the unaudited Consolidated Financial
Statements).
/T/
"EBITDA", "EBITDA per share", "Adjusted EBITDA", and "Adjusted EBITDA per share" are measures of our operating profitability. EBITDA provides an indication of the results generated by our principal business activities prior to how these activities are financed, assets are amortized or how the results are taxed in various jurisdictions. In addition, Adjusted EBITDA provides an indication of the results generated by our principal business activities prior to recognizing non-cash stock-based compensation. Non-cash stock-based compensation, a component of employee remuneration, can vary significantly with changes in the price of our common shares. As such, Adjusted EBITDA provides improved continuity with respect to the comparison of our operating results over a period of time. EBITDA and Adjusted EBITDA are derived from the consolidated statements of operations, comprehensive income and retained earnings. EBITDA per share and Adjusted EBITDA per share are derived by dividing EBITDA and Adjusted EBITDA by the basic weighted average number of shares.
/T/
They are calculated as follows:
Three months Nine months
ended September 30, ended September 30,
($000s) 2010 2009 2010 2009
----------------------------------------------------------------------------
Net earnings (loss) 6,324 3,567 15,201 (993)
Add back (deduct):
Current income taxes 183 261 418 628
Future income taxes 2,857 2,108 6,676 (354)
Finance charges 6,609 6,958 19,055 18,675
Amortization and accretion 12,796 12,359 41,099 37,267
----------------------------------------------------------------------------
EBITDA 28,769 25,253 82,449 55,223
----------------------------------------------------------------------------
Add back:
Non-cash stock-based compensation 937 1,353 2,696 1,429
----------------------------------------------------------------------------
Adjusted EBITDA 29,706 26,606 85,145 56,652
----------------------------------------------------------------------------
Weighted average number of shares 48,487 42,438 48,485 42,447
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EBITDA per share 0.59 0.60 1.70 1.30
----------------------------------------------------------------------------
Adjusted EBITDA per share 0.61 0.63 1.76 1.33
----------------------------------------------------------------------------
/T/
"Funds from operations" is used to assist management and investors in analyzing cash flow and leverage. Funds from operations as presented is not intended to represent operating funds from operations 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 from operations is derived from the consolidated statements of cash flows and is calculated as follows:
/T/
Three months Nine months
ended September 30, ended September 30,
($000s) 2010 2009 2010 2009
----------------------------------------------------------------------------
Cash from operations 28,976 22,503 47,341 64,353
Add back (deduct):
Changes in non-cash working
capital (5,035) (1,541) 19,377 (23,301)
Asset retirement costs incurred 423 210 1,058 706
----------------------------------------------------------------------------
Funds from operations 24,364 21,172 67,776 41,758
----------------------------------------------------------------------------
Weighted average number of shares 48,487 42,438 48,485 42,447
----------------------------------------------------------------------------
Funds from operations per share 0.50 0.50 1.40 0.98
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/T/
References to Combined divisional net margin, net margin, EBITDA, EBITDA per share, Adjusted EBITDA, Adjusted EBITDA per share and Funds from operations throughout this document have the meanings set out above.
On December 31, 2009, the sole unitholder of Newalta Income Fund (the "Fund") approved the wind-up of the Fund. Subsequent to year end, on January 1, 2010, Newalta Inc. was amalgamated with its wholly-owned operating subsidiary, Newalta Corporation, to form Newalta Corporation.
The following discussion and analysis should be read in conjunction with (i) the consolidated interim financial statements of Newalta, and the notes thereto for the three and nine months ended September 30, 2010, (ii) the consolidated financial statements of Newalta and notes thereto and Management's Discussion and Analysis of Newalta for the year ended December 31, 2009, (iii) the most recently filed Annual Information Form of Newalta and (iv) the consolidated interim financial statements of Newalta and the notes thereto and Management's Discussion and Analysis for the three and nine months ended September 30, 2009. This information is available at SEDAR (www.sedar.com). Information for the three and nine months ended September 30, 2010, along with comparative information for 2009, is provided.
This Management's Discussion and Analysis is dated November 3, 2010 and takes into consideration information available up to that date. Throughout this document, unless otherwise stated, all currency is stated in Canadian dollars, MT is defined as "tonnes" or "metric tons" and references to shares includes trust units prior to the conversion to a corporate structure.
/T/
FINANCIAL RESULTS AND HIGHLIGHTS
Three months ended
September 30,
($000s except per share data) % Increase
(unaudited) 2010 2009 (Decrease)
----------------------------------------------------------------------------
Revenue 145,124 122,169 19
Net earnings 6,324 3,567 77
- per share ($) - basic 0.13 0.08 63
- per share ($) - diluted 0.13 0.08 63
EBITDA(1) 28,769 25,253 14
- per share ($)(1) 0.59 0.60 (2)
Adjusted EBITDA(1) 29,706 26,606 12
- per share ($)(1) 0.61 0.63 (3)
Cash from operations 28,976 22,503 29
- per share ($) 0.60 0.53 13
Funds from operations(1) 24,364 21,172 15
- per share ($)(1) 0.50 0.50 -
Maintenance capital expenditures(1) 10,244 1,614 535
Dividends declared(1) 3,152 2,122 49
- per share ($)(1) 0.065 0.05 30
Cash distributed(1) 2,424 1,426 70
Growth capital expenditures(1) 11,758 3,322 254
Weighted average shares outstanding 48,487 42,438 14
Shares outstanding, September 30, 48,487 42,438 14
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Nine months ended
September 30,
($000s except per share data) % Increase
(unaudited) 2010 2009 (Decrease)
----------------------------------------------------------------------------
Revenue 413,269 346,093 19
Net earnings 15,201 (993) 1631
- per share ($) - basic 0.31 (0.02) 1650
- per share ($) - diluted 0.31 (0.02) 1650
EBITDA(1) 82,449 55,223 49
- per share ($)(1) 1.70 1.30 31
Adjusted EBITDA(1) 85,145 56,652 50
- per share ($)(1) 1.76 1.33 32
Cash from operations 47,341 64,353 (26)
- per share ($) 0.98 1.52 (36)
Funds from operations(1) 67,776 41,758 62
- per share ($)(1) 1.40 0.98 43
Maintenance capital expenditures(1) 20,177 5,088 297
Dividends declared(1) 8,000 5,718 40
- per share ($)(1) 0.17 0.15 13
Cash distributed(1) 7,272 11,111 (35)
Growth capital expenditures(1) 25,931 13,957 86
Weighted average shares outstanding 48,485 42,447 14
Shares outstanding, September 30, 48,487 42,438 14
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(1) These financial measures do not have any standardized meaning prescribed
by Canadian generally accepted accounting principles ("GAAP") and are
therefore unlikely to be comparable to similar measures presented by
other issuers. Non-GAAP financial measures are identified and defined
throughout the attached Management's Discussion and Analysis.
/T/
NEWALTA
Newalta provides cost-effective solutions to industrial customers to improve their environmental performance with a focus on the recycling and recovery of products from industrial residues. These services are provided both through our network of 80 facilities across Canada and at our customers' facilities where we mobilize our equipment and people to process material directly onsite. Our customers operate in a broad range of industries including the oil and gas, petrochemical, refining, lead, manufacturing and mining industries. Newalta has delivered strong, profitable growth for over 15 years and has established a leadership position in the industry with talented people, efficient and safe operations, innovative approaches and high ethical standards.
Our strategic objective is to provide our customers with environmentally superior solutions to their complex environmental needs. We will leverage our existing talent and asset base to provide cost-effective solutions which reduce environmental footprints through recycling, recovery, reuse and where possible, eliminating transportation. Our longer term focus is to search globally for innovative ways of applying new technologies to provide solutions for existing customers as well as new markets.
THIRD QUARTER RESULTS
We continue to deliver year-over-year improvements in performance each quarter as our markets gradually improve and the value of our products strengthen. Q3 2010 results improved over last year with revenue up 19% and Adjusted EBITDA up 12%. Net earnings increased to $6.3 million from $3.6 million in Q3 2009, while Adjusted EBITDA increased to $29.7 million from $26.6 million. Our diversified business model supported continued improvement in performance despite fluctuations in the regions in which we operate, the industries in which we serve and the value of products we recover.
On a trailing twelve-month basis, Combined divisional net margin and Combined divisional net margin as a percentage of revenue continued to improve. Adjusted EBITDA on a trailing twelve-month basis increased to $110.7 million at the end of Q3 2010. As a result, our Funded Debt to EBITDA ratio is below 2.0. The ongoing improvement in financial leverage provides Newalta with greater financial flexibility. Productivity improvements and cost reductions implemented in 2009 have contributed to sustained performance improvements as our business continues to recover.
Table 1: Trailing Twelve Month Combined Divisional Net Margin and Trailing Twelve-Month Adjusted EBITDA
Results in both the Facilities and Onsite divisions were impacted by fluctuations in commodity prices and demand for our services as our customers reacted to supply/demand variations and evolving market conditions.
In Facilities, revenue and net margin increased by 20% and 19%, respectively, primarily due to improved contributions from our Western Facilities. Growth in Western Facilities was driven by increased drilling activity in western Canada with performance tempered by wet weather and pipeline restrictions that impacted volume receipts. Contributions from our Eastern Facilities were marginally up, despite slower event-based business at the Stoney Creek Landfill ("SCL") while results from our Ville Ste-Catherine ("VSC") facility were negatively affected by fluctuating lead prices. The cost to acquire waste batteries is related to the trading price of lead but the differential is impacted by the time between the commitment to acquire feedstock and the sale of recycled lead. Therefore, sharp short-term swings in the LME price can distort this relationship as seen in Q3 2010. As a result, we took this opportunity to extend our shutdown at VSC to complete facility improvements. We anticipate performance in 2011 to benefit from this extended shutdown. Commodity prices, net of foreign exchange, negatively impacted Q3 net margin by approximately $2.5 million.
In Onsite, increased oil & gas activity led results to the strongest quarter to date, with revenue and net margin increasing by 16% and 24%, respectively. Improved contributions from Western Onsite due to higher drill site utilization were partially offset by weaker results from Eastern Onsite due to reduced project activity.
Year-to-date, Adjusted EBITDA increased by 50% to $85.1 million. More than 90% of the improvement is attributable to higher activity levels and improved productivity with the balance driven by higher commodity prices.
Table 2: Revenue and Adjusted EBITDA
image/2010+11+04+q3chart.pdf
During the first half of 2010, we launched our Technical Development team. We established an organizational structure, secured the appropriate staff, began a review of prospective technologies and initiated testing on certain technologies. Throughout Q3, we continued to test and pilot centrifugation technology for application in oil sands tailings ponds and continued to assess opportunities to apply BioteQ Environmental Technologies Inc. ("BioteQ") technologies at our facilities as well as on our customer sites.
OUTLOOK
In Q4, we expect improved results compared to the prior year. Crude oil and lead prices for Q4 are above Q3 2010 and our key markets continue to strengthen. Oil & gas drilling activity is expected to continue to strengthen with the current average rig count in western Canada forecast for Q4 2010 up nearly 25% over Q3 2010 levels. We anticipate volumes at VSC will be approximately 17,000 MT and SCL volumes at or above 130,000 MT. In Onsite, we expect continued gains from the increased demand for drill site equipment in the U.S. Overall, we expect continued growth in the quarters ahead as our markets strengthen and as we realize returns from our 2010 growth investments.
RESULTS OF OPERATIONS - FACILITIES DIVISION
Overview
Facilities includes an integrated network of more than 55 facilities located to service key market areas across Canada employing over 900 people. This division features Canada's largest lead-acid battery recycling facility, located in Ville Ste-Catherine, Quebec ("VSC"), an engineered non-hazardous solid waste landfill located in Stoney Creek, Ontario ("SCL"), and over 25 oilfield facilities throughout western Canada. Facilities is organized into the Western Facilities, Eastern Facilities and VSC business units.
Facilities performance is affected by the following factors:
- fluctuation in the price of crude oil, lead and base oil
- state of the oil and gas industry in western Canada including drilling activity
- supply and demand in the North American battery manufacturing industry
- the amount of waste generated by producers
- fluctuation in the U.S./Canadian dollar exchange rate
- the strength of other industries in western Canada, including: construction, forestry, mining, petrochemical, pulp and paper, refining, and transportation service industries
- market conditions in eastern Canada and bordering U.S. states, including: automotive, construction, forestry, manufacturing, mining, oil and gas, petrochemical, pulp and paper, refining, steel, and transportation service industries
The business units contributed the following to division revenue:
/T/
Three months ended Nine months ended
September 30, September 30,
2010 2009 2010 2009
----------------------------------------------------------------------------
Western Facilities 52% 48% 48% 49%
Eastern Facilities 22% 23% 23% 23%
VSC 26% 29% 29% 28%
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/T/
Table 3: Facilities Revenue and Net Margin
image/2010+11+04+q3chart.pdf
/T/
The following table compares Facilities' results for the periods indicated:
Three months ended Nine months ended
September 30, September 30,
($000s) 2010 2009 %change 2010 2009 %change
----------------------------------------------------------------------------
Revenue(1) 95,076 79,456 20 279,346 232,552 20
Operating costs 65,471 54,158 21 187,310 165,806 13
Amortization and
accretion 7,323 6,549 12 21,986 19,758 11
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Net margin 22,282 18,749 19 70,050 46,988 49
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Net margin as %
of revenue 23% 24% (4) 25% 20% 25
----------------------------------------------------------------------------
Maintenance
capital 8,355 1,193 600 14,909 3,761 296
----------------------------------------------------------------------------
Growth
Capital 3,035 494 514 4,463 6,184 (28)
----------------------------------------------------------------------------
Assets
employed(2) 560,121 565,033 (1)
----------------------------------------------------------------------------
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(1) Includes $139,000 and $485,000 in internal revenue in Q3 2010 and Q3
2010 year-to-date, respectively, and $411,000 and $908,000 in Q3 2009
and Q3 2009 year-to-date, respectively.
(2) "Assets employed" is provided to assist management and investors in
determining the effectiveness of the use of the assets at a divisional
level. Assets employed is the sum of capital assets, intangible assets
and goodwill allocated to each division.
/T/
Over the last three quarters, performance from the Facilities division has steadily improved. As our markets continue to recover, we anticipate short-term fluctuations. However, overall activity levels are trending positively.
Table 4: Facilities Trailing Twelve-Month
Compared to Q3 2009, revenue and net margin grew by 20% and 19%, respectively, due primarily to growth in our Western Facilities. Increased drilling activity in western Canada significantly improved volume receipts in Western Facilities. Performance was mixed across the other business units. Volumes at SCL were flat and performance at VSC was negatively impacted by fluctuating commodity prices combined with lead procurement costs.
Year-to-date revenue and net margin increased by 20% and 49%, respectively, driven primarily by increased activity levels across all business units, specifically increased drilling activity, higher event-based business at SCL, and increased volumes at VSC. Commodity prices accounted for only 4% of the increase in net margin when compared to 2009.
Western Facilities
Western Facilities are located in British Columbia, Alberta and Saskatchewan and generate revenue from:
- the processing of industrial and oilfield-generated wastes, including collection, treatment, water disposal, clean oil terminalling, custom treating, and landfilling
- sale of recovered crude oil for our account
- oil recycling, including the collection and processing of waste lube oils and the sale of finished products
Q3 2010 Western Facilities revenue increased by 30% compared to Q3 2009 largely due to increased drilling activity. Wells and metres drilled increased by 59% and 70%, respectively, compared to Q3 2009. As a result, waste processing and recovered crude oil volumes increased by 84% and 9%. Crude oil recovered as a percentage of the waste processing volumes was impacted by a change in the waste mix. While performance was strong compared to 2009, anticipated volumes were tempered by the impact of wet weather and pipeline restrictions.
Year-to-date revenue increased by 18% due primarily to increased drilling activity combined with higher crude oil prices.
/T/
Three months ended Nine months ended
September 30, September 30,
2010 2009 % change 2010 2009 % change
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Waste processing
volumes ('000
m(3)) 129 70 84 335 218 54
Recovered crude
oil ('000
bbl)(1) 47 43 9 162 148 9
Average crude
oil price
received
(CDN$/bbl) 70.18 65.92 6 72.44 55.97 29
Recovered crude
oil sales ($
millions) 3.3 2.8 18 11.7 8.3 41
Edmonton par
price
(CDN$/bbl)(2) 73.96 72.21 2 76.39 62.30 23
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(1) Represents the total crude oil recovered and sold for our account.
(2) Edmonton par is an industry benchmark for conventional crude oil.
/T/
Table 5: Waste Processing Volumes - Western Facilities and Recovered Crude Oil - Western Facilities
image/2010+11+04+q3chart.pdf
Eastern Facilities
Eastern Facilities is comprised of facilities in Ontario, Quebec and Atlantic Canada and includes an engineered non-hazardous solid waste landfill located in Stoney Creek, Ontario. Eastern revenue is primarily derived from:
- the processing of industrial wastes, including collection, treatment, and disposal
- SCL, an engineered non-hazardous solid waste landfill with an annual permitted capacity of 750,000MT of waste per year
In Q3 2010, revenue grew by 19% compared to Q3 2009, due to improved activity levels at our facilities, excluding SCL. Event-based activity at SCL in Q3 was lower than the first two quarters of 2010; as a result, volume collected was flat compared to Q3 2009.
Year-to-date, revenue improved by 19% due to higher event-based projects at SCL in the first half of 2010. SCL volumes year-to-date averaged in excess of 150,000MT per quarter. For Q4, we expect landfill volumes to be at or above 130,000 MT.
/T/
Three months ended Nine months ended
September 30, September 30,
2010 2009 % change 2010 2009 % change
----------------------------------------------------------------------------
SCL Volume
Collected
('000 MT) 105.4 100.0 5 473.1 286.8 65
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/T/
Table 6: Volume Collected - Stoney Creek Landfill
image/2010+11+04+q3chart.pdf
Ville Ste-Catherine ("VSC")
VSC is our lead-acid battery recycling facility. This facility generates revenue from a combination of direct lead sales and tolling fees received for processing batteries. Historically, based on the operation of two kilns, our objective is to maintain a 50/50 split between direct sales and tolling. In 2010, based on customer demand, we expect tolling to account for approximately 55% of total production. Tolling fees are generally fixed, reducing our exposure to fluctuations in lead prices.
VSC revenue in Q3 2010 increased by 4% compared to Q3 2009 due to higher sales volumes. Total lead volume sold was 14,900 MT, 3% above Q3 2009 but below our expected range of 17,000 to 20,000 MT. The cost to acquire waste batteries is generally related to the trading price of lead at the time of purchase. As a result of the shipping, processing and refining of lead, there is a lag between the purchase and final sale of lead. Slow and modest changes in the value of lead result in a relatively stable differential between the price received for recycled lead and the cost to acquire lead acid waste batteries. However, sharp short-term swings in the LME price can distort this relationship resulting in a temporary disconnect in values. As a result, we extended our semi-annual maintenance shut down by two weeks to allow for capital investments to be completed during a period of low profitability. This resulted in less lead produced in the quarter. We anticipate performance in 2011 to benefit from this extended shutdown.
Year-to-date revenue increased 25% as a result of both higher lead prices and increased production.
We anticipate Q4 2010 production to be approximately 17,000 MT.
RESULTS OF OPERATIONS - ONSITE DIVISION
Overview
Onsite includes a network of 25 facilities with over 400 employees across Canada and the U.S. Onsite services involves the mobilization of equipment and our people to manage industrial by-products at our customer sites. Onsite includes: the processing of oilfield-generated wastes and the sale of recovered crude oil for our account; industrial cleaning; site remediation; dredging and dewatering; and drill site processing including solids control and drill cuttings management. Onsite includes the Western Onsite, Eastern Onsite and Heavy Oil business units.
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The business units contributed the following to division revenue:
Three months ended Nine months ended
September 30, September 30,
2010 2009 2010 2009
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Western Onsite 39% 23% 38% 26%
Eastern Onsite 25% 39% 27% 36%
Heavy Oil 36% 38% 35% 38%
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Onsite's performance is affected by the following factors:
- fluctuation in the price of crude oil and heavy oil price differentials
- state of the oil and gas industry in Canada and the U.S. including drilling activity
- fluctuation in the U.S./Canadian dollar exchange rate
- the amount of waste generated by producers
- changes in regulations
- market conditions in Canada and bordering U.S. states, including: automotive, construction, forestry, manufacturing, mining, oil and gas, petrochemical, pulp and paper, refining, steel, and transportation service industries
Table 7: Onsite Revenue and Net Margin
image/2010+11+04+q3chart.pdf
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The following table compares Onsite's results for the periods indicated:
Three months ended Nine months ended
September 30, September 30,
($000s) 2010 2009 % change 2010 2009 % change
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Revenue -
external 50,187 43,124 16 134,408 114,449 17
Operating costs 34,332 30,117 14 95,949 86,443 11
Amortization and
accretion 2,946 2,623 12 9,664 7,773 24
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Net margin 12,909 10,384 24 28,795 20,233 42
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Net margin as %
of revenue 26% 24% 8 21% 18% 17
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Maintenance
capital 1,240 420 195 3,967 1,327 199
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Growth capital 7,186 1,461 392 16,086 3,946 308
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Assets
employed(1) 247,036 240,297 3
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(1) "Assets employed" is provided to assist management and investors in
determining the effectiveness of the use of the assets at a divisional
level. Assets employed is the sum of capital assets, intangible assets
and goodwill allocated to each division.
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Since Q2 2009, Onsite performance has steadily improved and is nearing Q3 2008 performance. As utilization of our equipment improves, we continue to see incremental gains in profitability. We have demonstrated continued improvements in the profitability of our operations as we execute our strategy to grow these services across North America.
Table 8: Onsite Trailing Twelve-Month
Q3 2010 net margin was our strongest quarter to date. Compared to Q3 2009, revenue and net margin increased by 16% and 24%, respectively, while net margin as a percentage of revenue increased to 26% in Q3 2010 from 24%. The growth was primarily driven by higher drill site utilization as a result of the recovery in drilling activity.
Year-to-date revenue and net margin improved significantly due primarily to increased contributions from Western Onsite as well as improved results from Heavy Oil. Increased activity accounted for approximately 86% of the improvement in net margin, with the balance attributable to higher crude oil prices.
Western Onsite
Revenue is primarily generated from:
- the supply and operation of drill site processing equipment, including equipment for solids control and drill cuttings management throughout western Canada and the U.S.
- onsite service in western Canada, excluding services provided by Heavy Oil, including industrial cleaning; site remediation; centrifugation; and dredging and dewatering
- environmental services serving primarily oil & gas customers
Q3 2010 Western Onsite revenue improved by 96% compared to Q3 2009, due primarily to increased drilling activity in both western Canada and the U.S. Our total utilization rate for drill site equipment rose to 57% from 11% in Q3 2009. Utilization of our U.S. fleet has increased to 76% from 19% in Q3 2009 due primarily to activity in the Marcellus and Fayetteville shale gas plays. In western Canada, increased drilling activity improved our Canadian fleet utilization to 37% from 6% in Q3 2009.
Year-to-date revenue improved by 71% compared to the prior year due to the same factors impacting the Q3 results. Balancing our fleet equally between both the U.S. and Canadian markets enabled us to capitalize on increased demand in both areas. In addition, increased demand for onsite project work due to increased industrial activity in the western region has contributed to improved results.
We anticipate continued growth year-over-year in this business unit consistent with increased drilling activity in both Canada and the U.S.
Eastern Onsite
Eastern Onsite revenue is derived from:
- onsite service in eastern Canada, including industrial cleaning; centrifugation; and dredging and dewatering
- a fleet of specialized vehicles and equipment for emergency response, and onsite processing
Compared to Q3 2009, Eastern Onsite revenue decreased by 26%, due primarily to lower than anticipated project activity in Atlantic Canada. Our eastern onsite business is in the early stage of development. We are currently engaged primarily in short term, or event-based, projects, which will vary from quarter to quarter. As we establish our market position through the execution of short-term projects, we anticipate transitioning to longer term contracts which will provide more stable cash flow.
Year-to-date revenue decreased by 13%. Lower project activity in Atlantic Canada in the third quarter was partially offset by gains in the first six months of 2010 in Ontario from the petrochemical industry.
Heavy Oil
Our heavy oil services business began 15 years ago with facilities at Hughenden and Elk Point, Alberta. This business has expanded from processing heavy oil in our facility network to operating equipment on customers' sites. Leveraging our facilities as staging areas, we deliver a broad range of specialized services at numerous customer sites under short and long-term arrangements. Revenue from onsite services is generally based on processing volumes and is not directly susceptible to fluctuations in crude oil pricing.
Heavy Oil business unit revenue is generated from three main activities:
- specialized onsite services for heavy oil producers under short and long-term arrangements
- processing and disposal of oilfield-generated wastes, including water disposal, and landfilling
- sale of recovered crude oil for our account
Compared to Q3 2009, Heavy Oil revenue increased by 10% due primarily to increased onsite project activity. SAGD onsite projects continued to perform as expected. In Q3, we were also engaged in a project to use our centrifuge processing capabilities on mature fine tailings or MFT.
At our Heavy Oil facilities, waste processing and recovered crude oil volumes to our account increased by 8% and 10%, respectively, due to increased waste volumes from the area served by our Heavy Oil facilities as well as higher volumes from SAGD operations.
Year-to-date revenue compared to the prior year increased by 10% due primarily to growth in our onsite services and secondly to a 21% increase in the average crude oil price received.
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Three months ended Nine months ended
September 30, September 30,
% %
2010 2009 change 2010 2009 change
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Waste processing
volumes ('000 m(3)) 129 119 8 389 376 3
Recovered crude oil
('000 bbl)(1) 46 42 10 150 150 -
Average crude oil
price received
(CDN$/bbl) 55.98 57.54 (3) 59.68 49.24 21
Recovered crude oil
sales ($ millions) 2.6 2.4 8 9.0 7.4 22
Bow River Hardisty
(CDN$/bbl)(2) 67.58 67.22 1 70.87 58.12 22
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(1) Represents the total crude oil recovered and sold for our account.
(2) Bow River Hardisty is an industry benchmark for heavy crude oil.
/T/
Table 9: Waste Processing Volumes - Heavy Oil Facilities and Recovered Crude Oil - Heavy Oil Facilities
image/2010+11+04+q3chart.pdf
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CORPORATE AND OTHER
Three months ended Nine months ended
September 30, September 30,
% %
($000s) 2010 2009 change 2010 2009 change
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Selling, general and
administrative
expenses ("SG&A") 16,691 13,052 28 48,046 39,529 22
Less non-cash
stock-based
compensation 937 1,353 (31) 2,696 1,429 89
------------------------------------------------------
SG&A before non-cash
stock-based
compensation 15,754 11,699 35 45,350 38,100 19
SG&A before non-cash
stock-based
compensation
as a % of revenue 10.9% 9.6% 14 11.0% 11.0% -
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Three months ended Nine months ended
September 30, September 30,
% %
($000s) 2010 2009 change 2010 2009 change
----------------------------------------------------------------------------
Amortization and
accretion 12,796 12,359 4 41,099 37,267 10
as a % of revenue 8.8% 10.1% (13) 9.9% 10.8% (8)
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Amortization and accretion on a year-to-date basis includes a $1.4 million net loss on disposal of assets compared to a $1.1 million net loss in 2009. Compared to Q3 2009, amortization and accretion increased due to higher depreciation for assets amortized on a unit of production basis driven by higher utilization.
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Three months ended Nine months ended
September 30, September 30,
% %
($000s) 2010 2009 change 2010 2009 change
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Bank fees and
interest 4,252 4,628 (8) 12,005 11,706 3
Convertible
debentures interest
and accretion of
issue costs 2,357 2,330 1 7,050 6,969 1
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Finance charges 6,609 6,958 (5) 19,055 18,675 2
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Finance charges for the quarter decreased compared to Q3 2009 primarily due to lower senior debt. On a year-to-date basis, finance charges were flat. Finance charges associated with the Convertible Debentures ("Debentures") include an annual coupon rate of 7%, the accretion of issue costs and discount on the debt portion of the Debentures. See "Liquidity and Capital Resources" in this MD&A for discussion of our long-term borrowings.
/T/
Three months ended Nine months ended
September 30, September 30,
% %
($000s) 2010 2009 change 2010 2009 change
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Current tax 183 261 (30) 418 628 (33)
Future income tax 2,857 2,108 36 6,676 (354) (1,986)
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Provision for
(recovery of)
income taxes 3,040 2,369 28 7,094 274 2,489
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The increase in future income tax expense in the quarter and year-to-date is due primarily to higher taxable income compared to Q3 2009. To date, loss carry forwards are approximately $173 million. Other than provincial capital taxes and U.S. state and federal income taxes, we do not anticipate paying significant income tax for at least three years. See "Critical Accounting Estimates - Income Taxes" on page 34 of the MD&A for the year ended December 31, 2009 for further discussion.
LIQUIDITY AND CAPITAL RESOURCES
The term liquidity refers to the speed with which a company's assets can be converted into cash, as well as cash on hand. Our liquidity risk may arise from general day-to-day cash requirements, and in the management of our assets, liabilities and capital resources. Liquidity risk is managed against our financial leverage to meet obligations and commitments in a balanced manner. For further information on our risk management, refer to Note 18 to the consolidated financial statements for the year ended December 31, 2009.
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Our debt capital structure is as follows:
September 30, December 31,
($000s) 2010 2009
----------------------------------------------------------------------------
Use of Credit Facility:
Amount drawn on Credit
Facility(1) 192,609 195,199
Letters of credit 25,192 22,137
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Funded debt A 217,801 217,336
Unused Credit Facility capacity 132,199 132,664
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Debentures B 115,000 115,000
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Total Debt =A+B 332,801 332,336
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(1) See Note 5 to the unaudited Consolidated Financial Statements for the
three and nine months ended September 30, 2010. The net senior long-
term debt at September 30, 2010 was $192 million.
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We continue to focus on managing our working capital accounts while supporting our growth. Working capital at September 30, 2010 increased to $48.3 million from $31.0 million at December 31, 2009, due to increased activity levels, timing of receipts and payments, and our investment in BioteQ. Cash from operations was similarly impacted. Days' sales outstanding in receivables have increased slightly over year end and accounts receivable over 90 days of $1.8 million has increased in line with increased activity. Working capital improved by $12.1 million in Q3 2010 compared to Q2 2010, due largely to timing of payments.
At current activity levels, working capital is expected to be sufficient to meet our ongoing commitments and operational requirements of the business. We will continue to manage working capital prudently with increasing activity levels.
SOURCES OF CASH
Our liquidity needs can be sourced in several ways including: Funds from operations, borrowings against our Credit Facility, new debt instruments, the issuance of securities from treasury, return of letters of credit or replacement of letters of credit with other types of financial security, proceeds from the sale of assets and payments of dividends to shareholders.
Credit Facility
At September 30, 2010, $132 million was available and undrawn under the Credit Facility to fund growth capital expenditures and for general corporate purposes, as well as to provide letters of credit to third parties for financial security up to a maximum amount of $60 million. The aggregate dollar amount of outstanding letters of credit is not categorized in the financial statements as long-term debt; however, the issued letters of credit reduce the amount available under the Credit Facility and are included in the definition of Funded Debt for covenant purposes. Under the Credit Facility agreement, surety bonds (including performance and bid bonds) to a maximum of $125 million are excluded from the definition of Funded Debt. As at September 30, 2010, surety bonds issued and outstanding totalled $21.4 million. On October 12, 2010, we extended the maturity date of our Credit Facility with our Canadian lending syndicate to February 12, 2012. There were no other amendments to the terms of the Credit Facility.
/T/
Financial performance relative to the financial ratio covenants(1) under the
Credit Facility is reflected in the table below:
September 30, 2010 Threshold
----------------------------------------------------------------------------
Current Ratio(2) 1.44:1 1.10:1 minimum
Funded Debt(3) to EBITDA(4)(5) 1.94:1 3.00:1 maximum
Fixed Charge Coverage(6) 3.31:1 1.00:1 minimum
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(1) We are restricted from declaring dividends if we are in breach of the
covenants under our Credit Facility.
(2) Current Ratio means, the ratio of consolidated current assets to
consolidated net current liabilities (excluding the current portion of
long-term debt and capital leases outstanding, if any).
(3) Funded Debt is a non-GAAP measure, the closest measure of which is
long-term senior debt. Funded Debt is generally defined as long-term
debt and capital leases including any current portion thereof but
excluding future income taxes and future site restoration costs. Funded
Debt is calculated by adding the senior long-term debt to the amount of
letters of credit outstanding at the reporting date. In calculating
Funded Debt, letters of credit returned after the end of a fiscal
quarter but prior to the date that is 45 days following the end of the
first, second or third interim period (90 days following the end of the
annual period) are excluded.
(4) EBITDA is a non-GAAP measure, the closest measure of which is net
earnings. For the purpose of calculating the covenant, EBITDA is
defined as the trailing twelve-months consolidated net income for
Newalta before the deduction of interest, taxes, depreciation and
amortization, and non-cash items (such as non-cash stock-based
compensation and gains or losses on asset dispositions). Additionally,
EBITDA is normalized for any acquisitions completed during that
time frame and excludes any dispositions incurred as if they had
occurred at the beginning of the trailing twelve months.
(5) Funded Debt to EBITDA means the ratio of consolidated Funded Debt to
the aggregate EBITDA for the trailing twelve-months.
(6) Fixed Charge Coverage Ratio means, based on the trailing twelve-month
period, EBITDA less unfinanced capital expenditures and cash taxes to
the sum of the aggregate of principal payments (including amounts under
capital leases, if any), interest (excluding accretion for the
convertible debentures), dividends paid for such period, other than
cash payments in respect of a dividend reinvestment plan, if any.
Unlike the Funded Debt to EBITDA ratio, the Fixed Charge Coverage
ratio trailing twelve-month EBITDA is not normalized for acquisitions
or dispositions.
/T/
Table 10: Funded Debt to EBITDA
image/2010+11+04+q3chart.pdf
Our Funded Debt was $218 million as at September 30, 2010 which reflected a $50 million improvement over Q3 2009. As a result, our Funded Debt to EBITDA ratio is 1.94. This improvement provides Newalta with greater financial flexibility and will reduce future financing costs. Our other covenant ratios remained well within their thresholds. We will manage within our covenants throughout 2010.
Debentures
The Debentures have a maturity date of November 30, 2012 and bear interest at a rate of 7.0% payable semi-annually in arrears on May 31 and November 30 each year. Each $1,000 debenture is convertible into 43.4783 shares, at a conversion price of $23.00 per share, at any time at the option of the holders of the Debentures. The Debentures are not included in calculating financial covenants in the Credit Facility.
There were no redemptions of the Debentures in 2010.
USES OF CASH
Our primary uses of funds include maintenance and growth capital expenditures as well as acquisitions, payment of dividends, operating and SG&A expenses, and the repayment of debt.
Capital Expenditures
"Growth capital expenditures" or "growth and acquisition capital expenditures" are capital expenditures that are intended to improve our efficiency and productivity, allow us to access new markets, and diversify our business. Growth capital or growth and acquisition capital are reported separately from maintenance capital because these types of expenditures are discretionary. "Maintenance capital expenditures" are capital expenditures to replace and maintain depreciable assets at current service levels. Maintenance capital expenditures are reported separately from growth activity because these types of expenditures are not discretionary and are required to maintain current operating levels.
Capital expenditures for the three and nine months ended September 30, 2010 were:
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Capital expenditures for the three and nine months ended September 30, 2010
were:
Three months ended Nine months ended
September 30, September 30,
($000s) 2010 2009 2010 2009
----------------------------------------------------------------------------
Growth capital
expenditures 11,758 3,322 25,931 13,957
Maintenance capital
expenditures 10,244 1,614 20,177 5,088
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Total capital
expenditures(1) 22,002 4,936 46,108 19,045
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(1) The numbers in this table differ from the consolidated statements of
cash flows because the numbers above do not reflect the net change in
working capital related to capital asset accruals.
/T/
Total capital expenditures for the quarter were $22 million. Growth capital expenditures for the quarter and year-to-date relate primarily to drill site equipment in Western Onsite and centrifugation equipment for project work in our Heavy Oil business unit. Maintenance capital expenditures for the quarter related primarily to the construction of landfill cells, process equipment refurbishment at VSC and routine process equipment refurbishment at other facilities. Capital expenditures were funded by Funds from Operations.
We expect that substantially all of the $87 million in capital committed will be spent in 2010, with the remainder in Q1 2011. Capital to be spent in Q4 2010 will be evenly split between Onsite and Facilities. Anticipated Onsite expenditures include equipment for centrifugation and long term projects, while Facilities expenditures relate to process improvements and service extension. Of the total committed amount, growth capital is expected to account for approximately 65%.
We may revise the budget, from time to time, in response to changes in market conditions that materially impact our financial performance and/or investment opportunities.
Dividends and Share Capital
In determining the dividend to be paid to our shareholders, the Board of Directors considers a number of factors including the forecasts for operating and financial results, maintenance and growth capital requirements as well as market activity and conditions. After a review of all factors, the Board declared $3.2 million in dividends or $0.065 per share, paid October 15, 2010 to shareholders of record as at September 30, 2010, representing a 30% increase over the previous quarter.
We will pay a dividend of $0.065 per share to shareholders of record on December 31, 2010. The Board will continue to review future dividends, taking into account all factors noted above.
As at November 3, 2010, Newalta had 48,486,502 shares outstanding, outstanding options to purchase up to 2,789,575 shares and a number of shares that may be issuable pursuant to the $115.0 million in Debentures (see Sources of Cash - Debentures on page 27 of the MD&A for the year December 31, 2009.)
Contractual Obligations
For the three and nine months ended September 30, 2010, there were no significant changes in our contractual obligations. For a summary of our contractual obligations, see page 29 of the MD&A for the year ended December 31, 2009.
/T/
SUMMARY OF QUARTERLY RESULTS
2010 2009
($000s except per share data) Q3 Q2 Q1 Q4
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Revenue 145,124 136,905 131,240 137,308
Earnings (loss) before taxes 9,364 4,918 8,013 3,451
Net earnings (loss) 6,324 3,155 5,722 4,092
Earnings (loss) per share ($) 0.13 0.07 0.12 0.09
Diluted earnings (loss) per
share ($) 0.13 0.06 0.12 0.09
Weighted average shares -
basic 48,487 48,487 48,480 46,770
Weighted average shares -
diluted 48,909 48,844 48,826 47,049
EBITDA 28,769 26,310 27,370 24,698
Adjusted EBITDA 29,706 26,573 28,866 25,506
2009 2008
($000s except per share data) Q3 Q2 Q1 Q4
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Revenue 122,169 111,386 112,538 145,341
Earnings (loss) before taxes 5,936 (293) (6,362) 5,616
Net earnings (loss) 3,567 (179) (4,381) 9,085
Earnings (loss) per share ($) 0.08 - (0.10) 0.21
Diluted earnings (loss) per
share ($) 0.08 - (0.10) 0.21
Weighted average shares -
basic 42,438 42,450 42,402 42,266
Weighted average shares -
diluted 42,610 42,450 42,402 42,266
EBITDA 25,253 17,940 12,030 27,600
Adjusted EBITDA 26,606 18,253 11,792 27,630
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Quarterly performance is affected by, among other things, weather conditions, timing of onsite projects, commodity prices, foreign exchange rates, market demand, and the timing of our growth capital investments as well as acquisitions and the contributions from those investments. Growth capital investments completed in the first half of the year will tend to strengthen the second half financial performance. Revenue from certain business units is impacted by seasonality. However, due to the diversity of our business, the impact is limited on a consolidated basis. For example, waste volumes received at our oilfield facilities decline in the second quarter due to road bans which restrict drilling activity. This decline is offset by increased activity in our Eastern Onsite business unit due to the aqueous nature of work performed, as well as potentially by fluctuations in commodity prices, or event-based waste receipts at SCL. As experienced over the last eight quarters, fluctuations in commodity prices can dramatically impact our results.
In Q4 2008, crude oil prices declined significantly, negatively impacting revenue and earnings in the Western Facilities and Heavy Oil business units. In addition, earnings in Q4 2008 were negatively impacted by non-recurring charges related to conversion costs, reorganization charges and changes in estimated revenue associated with certain environmental projects.
In 2009, revenue and net earnings grew as the year progressed, with lower revenue, earnings before taxes, and net earnings in the first half of the year as compared to the prior period mainly due to weaker economic conditions. Lead and crude oil prices fell from historic highs achieved in 2008, continuing the negative impact on revenue and margin from Q4 2008. The improvement in Q2 2009 was driven by a combination of stronger commodity prices and management's cost containment program. In Q3 2009, we observed improved commodity prices and typical seasonal activity increases; however, our waste volumes remained below historic levels. Revenue in Q4 2009 improved due to higher commodity prices, better waste receipts at SCL and increased lead production at VSC. Weighted average shares increased reflecting the equity offering of 6 million shares completed in Q4 2009.
Q1 2010 revenue, earnings before taxes and net earnings reflect continued improvements in commodity prices and productivity and cost efficiencies combined with strengthened demand across all business units. Q2 2010 revenue, earnings before taxes and net earnings reflect continued recovery in activity levels, consistent with expectations. Q3 2010 revenue, earnings before taxes and net earnings improved. Strong performance in Western Facilities, Heavy Oil and Western Onsite was partially offset by lower contributions from VSC, SCL and Eastern Onsite.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements.
SENSITIVITIES
Our non-cash stock based compensation expense is sensitive to changes in our share price. A $1 change in our share price, up to $15 per share, has a $2.2 million direct impact on annual non-cash stock based compensation reflected in SG&A, before the effects of vesting. We anticipate that approximately one third of stock-based compensation will be settled in cash in future periods.
There have been no significant variations from the sensitivities provided in the MD&A for the year ended December 31, 2009. For further information on sensitivities, see page 33 of the MD&A for the year ended December 31, 2009.
FUTURE ACCOUNTING POLICY CHANGES
For information regarding our changes in accounting policies see page 45 of the Consolidated Financial Statements for the year ended December 31, 2009.
CRITICAL ACCOUNTING ESTIMATES
Management performs a test for goodwill impairment annually and whenever events or circumstances make it possible that impairment may have occurred. Determining whether impairment has occurred requires a valuation of the respective reporting unit, based on its future discounted cash flows. In applying this methodology, management relies on a number of factors, including actual operating results, future business plans, economic projections and market data. Management tests the valuation of goodwill as at September 30 of each year to determine whether or not any impairment in the goodwill balance recorded exists. In addition, on a quarterly basis, management assesses the reasonableness of assumptions used for the valuation to determine if further impairment testing is required.
Based on our test of the valuation of goodwill as at September 30, 2010, we did not see any impairment in the goodwill balance recorded nor were there any factors since that period which would lead management to believe that any impairment has occurred.
For the three and nine months ended September 30, 2010, there have been no significant changes in our critical accounting estimates. For further information on our critical accounting estimates, see page 34 of the MD&A for the year ended December 31, 2009.
INTERNATIONAL FINANCIAL REPORTING STANDARDS ("IFRS")
In February 2008, the Canadian Accounting Standards Board ("AcSB") confirmed that Canadian publicly accountable enterprises would be required to adopt IFRS for fiscal years beginning on or after January 1, 2011. IFRS uses a conceptual framework similar to GAAP, but there are differences in recognition, measurement and disclosures.
Management established a project team to plan for and achieve a smooth transition to IFRS. An external resource was also engaged in an advisory capacity. The Audit Committee of the Board of Directors regularly receives progress reports on the status of the IFRS implementation project.
The following table summarizes our key activities, related milestones, and accomplishments to date.
/T/
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Key Activity Milestones Status
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Accounting policies and
procedures:
- Identification of - Finalize accounting We have completed our
differences between policy choices under internal review of
IFRS and the IFRS differences between IFRS
company's existing and current policies and
policies and - Finalize opening procedures and have made
procedures balances initial assessments of
accounting policy
- Accounting policy - Complete new financial choices. We are in the
choices under IFRS policies and process of confirming
procedures manual these assessments with
- Financial statement addressing IFRS our consultants and
impact requirements auditors.
- Opening balances Financial statement
impacts are in varying
- Financial policies and stages of assessment
procedures and/or confirmation with
consultants and
- Identification of auditors.
areas that may have a
significant impact The audit of opening
balances is in progress
and is expected to be
completed in early 2011.
Communication of
financial impacts will
follow audit completion.
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Financial Statement
Preparation:
- Prepare financial - Senior management A preliminary pro forma
statements and note approval and Audit financial statement and
disclosures in Committee review of note disclosure
compliance with IFRS pro forma financial structure was presented
statements and to senior management and
- Quantify the effects disclosures (by Q3 the Audit Committee in
of converting to IFRS 2010) early 2009.
- Prepare first-time Updated pro forma
adoption financial statement and
reconciliations note disclosure
required under IFRS 1 structures have been
presented to senior
management and the Audit
Committee.
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IT Infrastructure:
Identify key changes - Ensure readiness for Required system upgrades
in the following areas: parallel processing and changes have been
of 2010 financial made.
- IT system changes and results and
upgrades IFRS-compliant Parallel SAP system is
reporting in 2011 operational.
- Systemic process (Q4 2009)
changes for data We are proceeding in
collection for G/L, - Identify and recommend accordance with our IT
disclosures, and systemic process plan.
consolidation changes (Q2/Q3 2009)
- One-time processes - Testing phase (Q3/Q4
due to IFRS 1 2009)
- SAP parallel run (Q4
2009)
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Key Activity Milestones Status
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Control Environment:
Internal control over - Complete final Assessment will be
financial reporting signoff and review ongoing throughout 2010.
of accounting policy Controls will be
- Accounting policy changes by Q4 2010 implemented and
changes and approval independently reviewed
- Update certification throughout 2011 to
- Changes to process by Q4 2010 ensure appropriate
certification process controls are effective.
Disclosure controls - Publish material No material changes are
and procedures changes in policies expected in the
and known impacts of certification process
- MD&A communications IFRS in the MD&A for 2010.
package throughout 2009
& 2010 Our 2010 disclosure
- IFRS adjustments to procedures ensure that
GAAP statements - Publish impact of key impacts due to IFRS
(2010) conversion (with are adequately
reconciliation to disclosed. Disclosure
- 2011 financial GAAP) on key measures requirements relating to
statement (Q1 2011) IFRS will be
presentation independently reviewed
- Publish disclosure of and tested throughout
2010 comparative 2011 to determine
information (with effectiveness.
reconciliation to
GAAP) in the interim Material changes in
and annual financial policies are discussed
statements (Q1 2011) in the MD&A. Financial
impacts will be
communicated as they are
finalized and confirmed.
----------------------------------------------------------------------------
Training, Communication
and Other:
- Provide training to - Develop working Issue specific training
key stakeholders groups and training sessions began in Q1
to implement changes 2010, and will continue
- Address impacts to for significant throughout the remainder
operations due to impact items of the year.
IFRS
- Develop investor Key communication
- Investor relations relations continues to be provided
communication plan through the MD&A.
- Financial covenants (Q3 2009) Assessment of
requirements for further
- Compensation packages - Review of: communication is
ongoing.
- Financial covenants
(by Q3 2010) Assessment of impact on
financial covenants and
- Compensation compensation packages is
packages (by Q3 in progress.
2010)
Key stakeholder
communications will
continue throughout
2010.
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/T/
Management is continuing to make progress on the transition to IFRS and has shifted its focus to working with our auditors to achieve agreement on conclusions. A summary of the key areas where changes in accounting policies are expected to impact our consolidated financial statements are listed below. This summary should not be regarded as a complete list of the changes that will result from the transition to IFRS. Rather, it is intended to highlight those areas management currently believes to be the most significant.
Most adjustments required on transition to IFRS will be made retrospectively against opening retained earnings as of January 1, 2010 ("transition date"). Transitional adjustments relating to those standards where comparative figures are not required to be restated will only be made as of the first day of the year of adoption.
First-Time Adoption of IFRS
The First-Time Adoption of International Financial Reporting Standard ("IFRS 1") provides entities adopting IFRS for the first time with a number of optional exemptions and mandatory exceptions, to the general requirement for full retrospective application of IFRS.
The most significant IFRS 1 exemptions expected to apply to Newalta are summarized below.
/T/
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Area of IFRS Summary of Exemption Available
----------------------------------------------------------------------------
Business Combinations An entity may elect, on transition to IFRS, not to
retrospectively apply IFRS 3, "Business
Combinations" to past business combinations. This
election is allowed subject to specific
requirements (an entity must maintain the
classification of the acquirer and acquiree,
recognize/derecognize certain assets or
liabilities as required under IFRS and remeasure
certain assets and liabilities at fair value).
Newalta intends to elect, on transition to IFRS,
to apply this exemption and not restate business
combinations prior to the transition date.
----------------------------------------------------------------------------
Property, Plant and An elective exemption exists whereby an entity may
Equipment (Capital elect to revalue, as the new cost basis for
Assets) property, plant and equipment, its fair value at
the date of transition. The exemption can be
applied on an asset by asset basis.
Newalta does not intend to take this election to
revalue any of its assets at transition date, and
will continue to measure its property, plant and
equipment at historical cost.
----------------------------------------------------------------------------
Share-Based Payments An entity may elect not to apply IFRS 2, "Share-
based Payments" to equity instruments granted on
or before November 7, 2002, or which vested prior
to transition to IFRS, and may also elect not to
apply IFRS 2 to liabilities arising from share-
based payment transactions which settled before
the date of transition to IFRS.
Newalta intends to elect, on transition to IFRS,
to take this exemption and not apply IFRS 2 to
equity instruments and liabilities as described
above.
----------------------------------------------------------------------------
Decommissioning In accounting for changes in obligations to
Liabilities (Asset dismantle, remove and restore items of property,
Retirement Obligations) plant and equipment, IFRS guidance requires
changes in such obligations to be added to or
deducted from the cost of the asset to which it
relates. The adjusted depreciable amount of the
asset is then depreciated prospectively over its
remaining useful life. Rather than recalculating
the effect of all such changes throughout the life
of the obligation, an entity may elect to measure
the liability and the related depreciation effects
at the date of transition to IFRS.
Newalta intends to elect to measure any
decommissioning liabilities and the related
depreciation effects at the date of transition to
IFRS.
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/T/
Expected Areas of Significance in Accounting Policies
The following table summarizes the key areas where accounting policies are expected to differ under IFRS and for which accounting policy decisions are necessary. This summary is limited to those areas (with the exception of transition policy choices made under IFRS 1 which are described above) that, based on management's assessment, may have an impact on Newalta's consolidated financial statements.
/T/
----------------------------------------------------------------------------
Accounting Policy Area Summary of Differences and Decision Requirements
----------------------------------------------------------------------------
Property, Plant and Under IFRS, an entity is required to prospectively
Equipment (Capital choose between the cost model and the revaluation
Assets) model to account for its capital and intangible
assets. The cost model refers to the use of an
asset's carrying value as its cost less any
accumulated depreciation and impairment loss, and
is generally consistent with GAAP. Under the
revaluation model the asset is carried at its fair
value as at the date of revaluation, less any
accumulated depreciation and impairment loss.
Value increases affect equity whereas decreases
(in excess of previously recognized surpluses, if
any) affect net income.
Newalta expects to continue to value property,
plant and equipment using the historical cost
method. As such, the impact of this difference
under IFRS will be minimal.
----------------------------------------------------------------------------
Borrowing Costs IFRS requires the capitalization of borrowing
costs that are directly attributable to the
acquisition, construction or production of a
qualifying asset as part of the cost of that
asset. A qualifying asset is an asset that
necessarily takes a substantial period of time to
prepare for its intended use or sale. Borrowing
costs are considered to be directly attributable
to a qualifying asset when they would have been
avoided if the expenditure on the qualifying asset
had not been made.
This change will be applied prospectively, and
will result in ongoing reduced finance charges and
increased capital asset values, which will be
driven by the levels of activity within qualifying
projects in any given period. As a result of
higher capital asset values we would expect
increased amortization expense in future periods.
----------------------------------------------------------------------------
Impairment Under GAAP, goodwill is tested for impairment by
comparing the fair value of the goodwill, on a
reporting unit basis, with the carrying value of
the goodwill. For remaining assets, GAAP generally
uses a two-step approach to impairment testing:
first comparing asset carrying values with
undiscounted future cash flows to determine
whether impairment exists; and then measuring any
impairment by comparing asset carrying values with
fair values.
With IFRS, goodwill is not tested independent of
other assets. Instead, a one-step approach is used
for testing and measuring impairment of all assets
at the cash generating unit (CGU) level. A cash-
generating unit (CGU) is the smallest identifiable
group of assets that generates cash inflows that
are largely independent of the cash inflows from
other assets or groups of assets. Any impairment
is applied first to goodwill and then prorated to
the other assets in the CGU. Impairment of assets
other than goodwill can be reversed in later
periods if there is a change in the estimate that
resulted in the original impairment.
Newalta has not completed its assessment of the
transition impact of this accounting policy
change. Prospective impacts will be dependent on
future circumstances. Differences in measurement
and recognition of impairment losses and reversals
could lead to increased income statement
volatility under IFRS.
----------------------------------------------------------------------------
Provisions including IFRS requires a provision to be recognized when:
Decommissioning there is a present obligation as a result of a
Liabilities(Asset past transaction or event; it is probable that an
Retirement Obligations) outflow of resources will be required to settle
and Constructive the obligation; and a reliable estimate can be
Obligations made of the obligation. "Probable" in this context
means more likely than not. Under GAAP, the
criterion for recognition in the financial
statement is "likely", which is a higher threshold
than "probable". Therefore it is possible that
there may be some contingent liabilities which
would meet the criteria for recognition under IFRS
that would not have been recognized under GAAP.
Other differences between IFRS and GAAP exist in
relation to the measurement of provisions, such as
the methodology for determining the best estimate
where there is a range of equally possible
outcomes (IFRS uses the mid-point of the range,
whereas GAAP uses the low end of the range) and
the requirement under IFRS for provisions to be
discounted where material.
In measuring the Decommissioning Liability, the
IFRS requirement is based on management's best
estimate of cash flows discounted to present value
using a discount rate which is based on the risks
specific to the liability (unless those risks have
been built into the cash flow estimates). GAAP
uses fair value of the obligation and cash flows
discounted using a credit adjusted risk-free rate
to discount cash flow estimates.
Management expects that as a result of changeover
to IFRS, there will be an increase to Capital
Assets and Decommissioning Liabilities at
transition, with a corresponding increase to
finance charges and amortization in prospective
periods. The assessment of the transition and
ongoing impact of this accounting policy change
has not been finalized, but the net impact to
Retained Earnings is not expected to be
significant.
----------------------------------------------------------------------------
Share-Based Payments Under GAAP, cash settled transactions and
transactions containing settlement alternatives
are measured and re-measured at each reporting
date using the intrinsic value method. IFRS
requires initial and subsequent measurement of
fair value by applying an option pricing model.
The difference will impact the accounting
measurement of awards of share appreciation rights
and options granted under Newalta's option plans
adopted in 2006 and 2008.
Newalta has not yet finalized its assessment of
the transition impact of this accounting policy
change, but does not expect the impact to be
significant. Future differences between the fair
value and intrinsic value of outstanding SARs and
options plans will result in different share-based
liability and expense measurements under IFRS and
GAAP.
----------------------------------------------------------------------------
Income Taxes IFRS requires that deferred tax assets and
liabilities must be classified as non-current in
the statement of financial position. Under GAAP,
future income taxes are classified as current and
non-current based on the classification of the
underlying assets or liabilities to which they
relate, or, if there is no underlying recognized
asset or liability, based on the expected reversal
of the temporary difference.
GAAP, like IFRS, current tax represents the amount
of income taxes payable (recoverable) based on
taxable profit (tax loss) for the period and is
measured based on tax rates and laws that are
enacted or substantively enacted at the reporting
date. However, the interpretation of
"substantively enacted" under GAAP may differ from
IFRS.
Newalta has not finalized its assessment of the
impact of this accounting policy change, but the
impact at transition and for future periods is not
expected to be significant.
----------------------------------------------------------------------------
/T/
The above list and related summaries should not be regarded as a complete list of changes that will result from transition to IFRS. It is intended to highlight those areas we believe to be most significant at this time; however, our assessment of the impacts of certain differences remain in process. Moreover, until a full set of financial statements under IFRS has been prepared, management will not be able to determine or precisely quantify all of the impacts that will result from converting to IFRS. There are significant ongoing International Accounting Standards Board ("IASB") projects that could affect the ultimate differences between GAAP and IFRS and their impact on Newalta's consolidated financial statements in future years. In particular, there may be additional new or revised IFRS standards in relation to income taxes, liabilities, leases, related party disclosures, and financial instruments. We have processes in place to ensure that such potential changes are monitored and evaluated. The future impacts of IFRS will also depend on the particular circumstances prevailing in those years. The differences described are those existing based on GAAP and IFRS as of November 3, 2010.
BUSINESS RISKS
Our business is subject to certain risks and uncertainties. Prior to making any investment decision regarding Newalta, investors should carefully consider, among other things, the risks described herein (including the risks and uncertainties listed on the front page of this Management's Discussion and Analysis) and the risk factors set forth in the most recently filed Annual Information Form of Newalta which are incorporated by reference herein.
FINANCIAL AND OTHER INSTRUMENTS
The carrying values of accounts receivable and accounts payable approximate the fair value of these financial instruments due to their short term maturities. Our credit risk from our customers is mitigated by our broad customer base and diverse product lines. Our top 20 customers generate approximately 38% of our total revenue, with 20% of these customers having a credit rating of A or higher and 75% of these customers having ratings of BBB or higher. In the normal course of operations, we are exposed to movements in U.S. dollar exchange rates relative to the Canadian dollar. The foreign exchange risk arises primarily from U.S. dollar denominated long-term debt and working capital. We have not entered into any financial derivatives to manage the risk for the foreign currency exposure as at September 30, 2010. In Q3 2010, our exposure to foreign exchange was mitigated by the rise in commodity prices as well as our U.S. dollar denominated long-term debt which served as a natural hedge, reducing our balance sheet exposure.
The floating interest rate profile of our long-term debt exposes us to interest rate risk. We do not use hedging instruments to mitigate this risk. The carrying value of the long-term debt approximates fair value due to its floating interest rates. For further information regarding our financial and other instruments, please refer to Note 13 to the Unaudited Consolidated Financial Statements for the three and nine months ended September 30, 2010.
In January 2010, we invested $4 million in shares and warrants in BioteQ Environmental Technologies Inc. The portion of the investment allocated to shares has been classified as available for sale and the portion of the investment allocated to warrants is a derivative accounted for much like held-for-trading investments. The investment is re-valued each quarter. The unrealized gain or loss on the shares is reflected on the Statements of Comprehensive Income and Accumulated Other Comprehensive Income, whereas the unrealized gain or loss for warrants is reflected on the Consolidated Statement of Operations under Finance charges.
DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROL OVER FINANCIAL REPORTING
During the three months ended September 30, 2010, there have been no changes in the internal controls and procedures relating to disclosure and financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ADDITIONAL INFORMATION
Additional information relating to Newalta, including the Annual Information Form, is available through the internet on the Canadian SEDAR which can be accessed at www.sedar.com. Copies of the Annual Information Form of Newalta may be obtained from Newalta Corporation on the internet at www.newalta.com, by mail at 211 - 11th Avenue S.W., Calgary, Alberta T2R 0C6, or by facsimile at (403) 806-7032.
/T/
Consolidated Balance Sheets
($000s) (unaudited) September 30, 2010 December 31, 2009
----------------------------------------------------------------------------
Assets
Current assets
Accounts receivable 115,710 84,317
Inventories 31,444 33,148
Investment (Note 2) 4,245 -
Prepaid expenses and other 7,726 6,183
----------------------------------------------------------------------------
159,125 123,648
Note receivable 934 978
Capital assets (Note 3) 707,676 701,884
Permits and other intangible
assets (Note 4) 60,839 61,935
Goodwill (Note 3) 102,897 103,597
Future tax asset 1,457 1,688
----------------------------------------------------------------------------
1,032,928 993,730
----------------------------------------------------------------------------
Liabilities
Current liabilities
Accounts payable and accrued
liabilities 107,641 90,191
Dividends payable 3,152 2,423
----------------------------------------------------------------------------
110,793 92,614
Senior long-term debt (Note 5) 192,325 188,123
Convertible debentures - debt portion 111,721 110,708
Other long-term liabilities (Note 9) 2,323 1,218
Future income taxes 45,702 39,164
Asset retirement obligations (Note 6) 22,331 21,903
----------------------------------------------------------------------------
485,195 453,730
----------------------------------------------------------------------------
Shareholders' Equity
Shareholders' capital (Note 7) 552,871 552,871
Convertible debentures - equity portion 1,850 1,850
Contributed surplus 1,679 1,679
Retained earnings (deficit) (9,199) (16,400)
Accumulated other comprehensive income 532 -
----------------------------------------------------------------------------
547,733 540,000
----------------------------------------------------------------------------
1,032,928 993,730
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Consolidated Statements of Operations and Retained Earnings (Deficit)
For the Three Months For the Nine Months
Ended Ended
($000s except per share data) September 30, September 30,
(unaudited) 2010 2009 2010 2009
----------------------------------------------------------------------------
Revenue 145,124 122,169 413,269 346,093
Expenses
Operating 99,664 83,864 282,774 251,341
Selling, general and
administrative 16,691 13,052 48,046 39,529
Finance charges 6,609 6,958 19,055 18,675
Amortization and
accretion (Note 3) 12,796 12,359 41,099 37,267
----------------------------------------------------------------------------
135,760 116,233 390,974 346,812
----------------------------------------------------------------------------
Earnings (loss) before taxes 9,364 5,936 22,295 (719)
Provision for (recovery of)
income taxes
Current 183 261 418 628
Future 2,857 2,108 6,676 (354)
----------------------------------------------------------------------------
3,040 2,369 7,094 274
----------------------------------------------------------------------------
Net earnings (loss) 6,324 3,567 15,201 (993)
Retained earnings (deficit),
beginning of period (12,371) (19,514) (16,400) (11,358)
Dividends (3,152) (2,122) (8,000) (5,718)
----------------------------------------------------------------------------
Retained earnings (deficit),
end of period (9,199) (18,069) (9,199) (18,069)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net earnings (loss) per
share (Note 10) 0.13 0.08 0.31 (0.02)
----------------------------------------------------------------------------
Diluted earnings (loss)
per share (Note 10) 0.13 0.08 0.31 (0.02)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Consolidated Statements of Comprehensive Income (Loss) and Accumulated
Other Comprehensive Income
For the Three Months For the Nine Months
Ended Ended
September 30, September 30,
($000s) (unaudited) 2010 2009 2010 2009
----------------------------------------------------------------------------
Net earnings (loss) 6,324 3,567 15,201 (993)
Other comprehensive income:
Unrealized (loss) gain on
available for sale
investment (1) - - 532 -
----------------------------------------------------------------------------
Other comprehensive income - - 532 -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Comprehensive income (loss) 6,324 3,567 15,733 (993)
----------------------------------------------------------------------------
Accumulated other
comprehensive income,
beginning of period 532 - - -
Other comprehensive income - - 532 -
----------------------------------------------------------------------------
Accumulated other comprehensive
income, end of period 532 - 532 -
----------------------------------------------------------------------------
(1) Net of tax of $nil and $0.3 million for the three and nine months ended
September 30, 2010.
Consolidated Statements of Cash Flows
For the Three Months For the Nine Months
Ended Ended
September 30, September 30,
($000s) (unaudited) 2010 2009 2010 2009
----------------------------------------------------------------------------
Net inflow (outflow) of cash
related to the following
activities:
Operating Activities
Net earnings (loss) 6,324 3,567 15,201 (993)
Items not requiring cash:
Amortization and accretion 12,796 12,359 41,099 37,267
Future income tax expense
(recovery) 2,857 2,108 6,676 (354)
Stock based compensation
expense 919 1,354 2,558 1,429
Other 1,468 1,784 2,242 4,409
----------------------------------------------------------------------------
Funds from Operations 24,364 21,172 67,776 41,758
Increase (decrease) in
non-cash working capital
(Note 14) 5,035 1,541 (19,377) 23,301
Asset retirement expenditures
incurred (423) (210) (1,058) (706)
----------------------------------------------------------------------------
28,976 22,503 47,341 64,353
----------------------------------------------------------------------------
Investing Activities
Additions to capital assets
(Note 14) (17,318) (3,262) (41,255) (31,543)
Net proceeds on sale of
capital assets 908 45 2,388 1,300
Purchase of investment
(Note 2) - - (4,000) -
----------------------------------------------------------------------------
(16,410) (3,217) (42,867) (30,243)
----------------------------------------------------------------------------
Financing Activities
Issuance of shares - - - 252
Increase (decrease) in debt (10,173) (17,883) 2,754 (23,415)
Decrease in note receivable 31 23 44 164
Dividends (Note 11) (2,424) (1,426) (7,272) (11,111)
----------------------------------------------------------------------------
(12,566) (19,286) (4,474) (34,110)
----------------------------------------------------------------------------
Net cash flow
Cash - beginning of period - - - -
----------------------------------------------------------------------------
Cash - end of period - - - -
----------------------------------------------------------------------------
Supplementary information:
Interest paid 3,345 4,288 14,182 14,416
Income taxes paid 150 14 450 438
----------------------------------------------------------------------------
----------------------------------------------------------------------------
/T/
Notes to the Interim Consolidated Financial Statements
For the three and nine months ended September 30, 2010 and 2009
(all tabular data in $000s except per share and ratio data) (unaudited)
Newalta Corporation (the "Corporation" or "Newalta") was incorporated on October 29, 2008 pursuant to the laws of the Province of Alberta. Newalta completed an internal reorganization resulting in a name change from Newalta Inc. to Newalta Corporation effective January 1, 2010. Newalta provides cost-effective solutions to industrial customers to improve their environmental performance with a focus on recycling and recovery of products from industrial residues. These services are provided both through our network of 80 facilities across Canada and at our customers' facilities where we mobilize our equipment and people to process material directly onsite. Our customers operate in a broad range of industries including the oil and gas, petrochemical, refining, lead, manufacturing and mining industries.
NOTE 1. BASIS OF PRESENTATION
The unaudited interim consolidated financial statements ("financial statements") include the accounts of Newalta. The financial statements have been prepared by management in accordance with Canadian generally accepted accounting principles ("GAAP"). Certain information and disclosures normally required to be included in the notes to the audited annual financial statements have been omitted or condensed. These financial statements and the notes thereto should be read in conjunction with the consolidated financial statements of Newalta Inc. for the year ended December 31, 2009 as contained in the Annual Report for fiscal 2009.
The accounting principles applied are consistent with those as set out in the annual financial statements of Newalta Inc. for the year ended December 31, 2009.
USE OF ESTIMATES AND ASSUMPTIONS
Accounting measurements at interim dates inherently involve reliance on estimates and the results of operations for the interim periods shown in these financial statements are not necessarily indicative of results to be expected for the fiscal year. In the opinion of management, the accompanying financial statements include all adjustments necessary to present fairly the consolidated results of Newalta's operations and cash flows for the periods ended September 30, 2010 and 2009.
NOTE 2. INVESTMENT
During the first quarter of 2010, Newalta acquired 3,636,364 common shares, at a price of $1.10 per share from the treasury of BioteQ Environmental Technologies Inc. ("BioteQ") for consideration of $4 million. Each share purchased includes a warrant to acquire an additional common share of BioteQ at $1.375 during the first year and $1.65 thereafter. The warrants expire after 5 years. This resulted in an initial gain of $2.8 million based on the closing bid price on the date of acquisition of the shares, including a value of $1.7 million assigned to warrants. The portion of the investment allocated to shares has been classified as available for sale and the portion of the investment allocated to warrants is a derivative accounted for much like held-for-trading investments.
The warrants have been valued using a binomial valuation methodology, with an expected volatility of 84%, a risk-free interest rate of 2.2% and no expected dividend. This has resulted in an unrealized loss on the portion of the investment allocated to warrants in the amount of $0.4 million for the three and nine months ended September 30, 2010. This loss has been included within Finance Charges.
Shares are carried at fair market value, based on the closing bid price as of the balance sheet date, with any gain or loss in the period recorded through Other Comprehensive Income.
NOTE 3. DISPOSAL OF CAPITAL ASSETS AND GOODWILL
During the nine months ended September 30, 2010, Newalta disposed of certain land, transport vehicles, building assets and associated goodwill with a net book value of $3.8 million for proceeds of $2.4 million. The resulting net loss of $1.4 million, including the disposal of goodwill having a carrying value of $0.7 million, is included in amortization and accretion in the consolidated statements of operations and retained earnings.
/T/
NOTE 4. PERMITS AND OTHER INTANGIBLE ASSETS
----------------------------------------------------------------------------
September 30, 2010 December 31, 2009
----------------------------------------------------------------------------
Cost Accumulated Net Book Cost Accumulated Net Book
Amortization Value Amortization Value
----------------------------------------------------------------------------
Indefinite
permits 53,037 - 53,037 53,012 - 53,012
Expiring
permits/rights 14,650 (6,856) 7,794 14,650 (6,338) 8,312
Non-competition
contracts 6,020 (6,012) 8 6,020 (5,409) 611
----------------------------------------------------------------------------
Total 73,707 (12,868) 60,839 73,682 (11,747) 61,935
----------------------------------------------------------------------------
----------------------------------------------------------------------------
NOTE 5. SENIOR LONG-TERM DEBT
----------------------------------------------------------------------------
September 30, December 31,
2010 2009
----------------------------------------------------------------------------
Commitments under credit facility(1) 194,112 191,280
Issue costs (1,787) (3,157)
----------------------------------------------------------------------------
Senior long-term debt 192,325 188,123
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Includes all outstanding cheques as at period end.
/T/
The Credit Facility's maturity date is February 12, 2012. An extension of the Credit Facility may be granted at the option of the lenders. If an extension is not granted, the entire amount of the outstanding indebtedness would be due in full at the maturity date. The facility also requires Newalta to be in compliance with certain covenants. At September 30, 2010, Newalta was in compliance with all covenants.
NOTE 6. RECONCILIATION OF ASSET RETIREMENT OBLIGATIONS
The total future asset retirement obligations were estimated by management based on the anticipated costs to abandon and reclaim facilities and wells, and the projected timing of these expenditures. The reconciliation of estimated and actual expenditures for the period is provided below:
/T/
----------------------------------------------------------------------------
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
----------------------------------------------------------------------------
2010 2009 2010 2009
----------------------------------------------------------------------------
Asset retirement obligations,
beginning of period 22,259 21,511 21,903 21,094
Expenditures incurred to fulfill
obligations (423) (210) (1,058) (706)
Accretion 495 464 1,486 1,377
----------------------------------------------------------------------------
Asset retirement obligations, end of
period 22,331 21,765 22,331 21,765
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/T/
NOTE 7. SHAREHOLDERS' CAPITAL
Authorized capital of Newalta Corporation consists of an unlimited number of common shares and an unlimited number of preferred shares issuable in series. The following table is a summary of the changes in shareholders' capital during the year ended December 31, 2009 and the nine months ended September 30, 2010:
/T/
Shares (#) Amount ($)
----------------------------------------------------------------------------
Shares outstanding as at December 31, 2008 42,400 509,369
Shares issued (net of issue costs) 6,136 44,227
Shares cancelled and returned to treasury (60) (725)
----------------------------------------------------------------------------
Outstanding as at December 31, 2009 48,476 552,871
Share issuance costs - (56)
Shares issued (net of issue costs) 11 56
----------------------------------------------------------------------------
Outstanding as at September 30, 2010 48,487 552,871
----------------------------------------------------------------------------
NOTE 8. CAPITAL DISCLOSURES
Newalta's capital structure consists of:
----------------------------------------------------------------------------
September December
30, 2010 31, 2009
----------------------------------------------------------------------------
Senior long-term debt 194,112 191,280
Letters of Credit issued as financial security
to third parties 25,192 22,137
(Note 12)
Convertible debentures, debt portion 111,721 110,708
Shareholders' equity 547,733 540,000
----------------------------------------------------------------------------
878,758 864,125
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/T/
The objectives in managing the capital structure are to:
- Utilize an appropriate amount of leverage to maximize return on Shareholders' equity, and
- To provide for borrowing capacity and financial flexibility to support Newalta's operations.
Management and the Board of Directors review and assess Newalta's capital structure and dividend policy at least at each regularly scheduled board meeting which are held at a minimum four times annually. The financial strategy may be adjusted based on the current outlook of the underlying business, the capital requirements to fund growth initiatives and the state of the debt and equity capital markets. In order to maintain or adjust the capital structure, Newalta may:
- Issue shares from treasury
- Issue new debt securities
- Cause the return of letters of credit with no additional financial security requirements
- Replace outstanding letters of credit with bonds or other types of financial security
- Amend, revise, renew or extend the terms of its then existing long-term debt facilities
- Enter into new agreements establishing new credit facilities
- Adjust the amount of dividends paid to shareholders, and/or
- Sell idle, redundant or non-core assets.
Management monitors the capital structure based on measures required pursuant to the Credit Facility agreement which restricts Newalta from declaring dividends and distributing cash if the Corporation is in breach of a covenant under the Credit Facility. These measures include:
/T/
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September December
Ratio 30, 2010 31, 2009 Threshold
----------------------------------------------------------------------------
Current(1) 1.44:1 1.34:1 1.10:1 minimum
Funded Debt(2) to EBITDA(3)(4) 1.94:1 2.60:1 3.00:1 maximum
Fixed Charge Coverage(5) 3.31:1 2.24:1 1.00:1 minimum
----------------------------------------------------------------------------
(1) Current Ratio means, the ratio of consolidated current assets to
consolidated net current liabilities (excluding the current portion of
long-term debt and capital leases outstanding, if any).
(2) Funded Debt is a non-GAAP measure, the closest measure of which is
long-term senior debt. Funded Debt is generally defined as long-term
debt and capital leases including any current portion thereof but
excluding future income taxes and future site restoration costs. Funded
Debt is calculated by adding the senior long-term debt to the amount of
letters of credit outstanding at the reporting date. In calculating
Funded Debt, letters of credit returned after the end of a fiscal
quarter but prior to the date that is 45 days following the end of the
first, second or third interim period (90 days following the end of the
annual period) are excluded.
(3) EBITDA is a non-GAAP measure, the closest measure of which is net
earnings. For the purpose of calculating the covenant, EBITDA is defined
as the trailing twelve-months consolidated net income for Newalta before
the deduction of interest, taxes, depreciation and amortization, and
non-cash items (such as non-cash stock-based compensation and gains or
losses on asset dispositions). Additionally, EBITDA is normalized for
any acquisitions completed during that time frame and excludes any
dispositions incurred as if they had occurred at the beginning of the
trailing twelve-months.
(4) Funded Debt to EBITDA means the ratio of consolidated Funded Debt to the
aggregate EBITDA for the trailing twelve-months.
(5) Fixed Charge Coverage Ratio means, based on the trailing twelve-month
period, EBITDA less unfinanced capital expenditures and cash taxes to
the sum of the aggregate of principal payments (including amounts under
capital leases, if any), interest (excluding accretion for the
convertible debentures), dividends paid for such period, other than
cash payments in respect of a dividend reinvestment plan, if any. Unlike
the Funded Debt to EBITDA ratio, the Fixed Charge Coverage ratio
trailing twelve-month EBITDA is not normalized for acquisitions or
dispositions.
/T/
NOTE 9. LONG-TERM INCENTIVE PLANS
a) The 2008 Option Plan
On January 4, 2010 a total of 842,500 options were granted to certain directors, officers and employees of the Corporation. The options were granted at the market price of $8.07 per share. Each tranche of the options vest over a three year period (with a five year life), and the holder of the option can exercise the option for either a share of Newalta or an amount of cash equal to the difference between the exercise price and the market price at the time of exercise. The options granted under the 2008 Plan have therefore been accounted for as stock appreciation options and the total compensation expense for these options was $0.5 million and $1.3 million for the three and nine months ended September 30, 2010 ($0.7 million and $0.8 million for the same periods in 2009).
b) Share Appreciation Rights
On January 4, 2010, 490,000 share appreciation rights were granted to certain employees of the Corporation at the market price of $8.07. On March 11, 2010, 40,000 share appreciation rights were granted to an officer of the Corporation at the market price of $8.70. On August 16, 2010, 80,000 share appreciation rights were granted to certain employees of the Corporation at the market price of $8.76. Each tranche of these rights vests over a three year period (with a five year life).
On March 11, 2010, the expiry date of 155,000 rights previously granted to an Officer, was amended such that the expiry date of such rights be five years from the initial grant date.
The holder of a share appreciation right has the option to exercise the right for an amount of cash equal to the difference between the exercise price and the market price at the time of exercise. The rights granted have been accounted for as stock appreciation rights. Total compensation expense for these rights was $0.4 million and $1.1 million for the three and nine months ended September 30, 2010 ($0.6 million and $0.7 million for the same periods in 2009).
c) Deferred Share Unit Plan
In May 2010, Newalta implemented a Deferred Share Unit Plan pursuant to which deferred share units ("DSU") may be granted to non-employee members of the Board of Directors on an annual basis. The number of deferred share units granted to a participant is calculated by dividing (i) a specified dollar amount of the participant's annual retainer, by (ii) the five-day volume weighted average trading price of the shares of Newalta traded through the facilities of the Toronto Stock Exchange on the trading days immediately preceding the date of grant. Dividends paid on the shares of Newalta are credited as additional DSUs. Each DSU entitles the holder to receive a cash payment equal to the five-day volume weighted average trading price of the shares preceding the date of redemption. The DSUs vest immediately and may only be redeemed within the period beginning on the date a holder ceases to be a participant under the plan and ending on December 31 of the following calendar year.
During the second quarter of 2010, an aggregate of 15,463 DSUs were granted to the non-employee members of the Board of Directors representing the 2010 grant. Total compensation expense for these DSUs was $nil and $0.1 million for the three and nine months ended September 30, 2010 (nil for the same periods in 2009).
d) Other Long-term liabilities
Other long-term liabilities consist of non-current obligations under the Corporation's long-term incentive plans.
NOTE 10. EARNINGS PER SHARE
Basic earnings per share calculations for the three and nine months ended September 30, 2010 and 2009 were based on the weighted average number of shares outstanding for the periods. Diluted earnings per share include the potential dilution of the outstanding options to acquire shares and from the conversion of the Debentures.
The calculation of dilutive earnings per share does not include anti-dilutive options. These options would not be exercised during the period because their exercise price is higher than the average market price for the period. The inclusion of these options would cause the diluted earnings per share to be overstated. The number of excluded options for the three and nine months ended September 30, 2010 was 1,072,700 (1,082,700 and 1,937,000 for the same periods in 2009).
The dilutive earnings per share calculation does not include the impact of anti-dilutive Debentures. These debentures would not be converted to shares during the period because the current period interest (net of tax) per share obtainable on conversion exceeds basic earnings per share. The inclusion of the Debentures would cause the diluted earnings per share to be overstated. The number of shares issuable on conversion of the Debentures excluded for the three and nine months ended September 30, 2010 was 5,000,000 (5,000,000 for the same periods in 2009).
/T/
----------------------------------------------------------------------------
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
----------------------------------------------------------------------------
2010 2009 2010 2009
----------------------------------------------------------------------------
Weighted average number of shares 48,487 42,438 48,485 42,447
Net additional shares if rights
exercised 422 172 298 -
Net additional shares if debentures
converted - - - -
----------------------------------------------------------------------------
Diluted weighted average number of
shares 48,909 42,610 48,783 42,447
----------------------------------------------------------------------------
----------------------------------------------------------------------------
/T/
NOTE 11. DIVIDENDS DECLARED AND PAID
During the quarter, Newalta declared a dividend of $0.065 per share to holders of shares of record on September 30, 2010. This dividend was paid on October 15, 2010.
NOTE 12. COMMITMENTS
As at September 30, 2010, Newalta had issued letters of credit and surety bonds in respect of compliance with environmental licenses in the amount of $25.2 million and $21.4 million respectively.
NOTE 13. FINANCIAL INSTRUMENTS
a) Fair Value of Financial Assets and Liabilities
Newalta's financial instruments include accounts receivable, investment, note receivable, accounts payable and accrued liabilities, dividends payable, senior long-term debt and debentures. The fair values of Newalta's financial instruments that are included in the consolidated balance sheet, with the exception of the investment and debentures, approximate their recorded amount due to the short term nature of those instruments for accounts receivable, accounts payable and accrued liabilities and for senior long-term debt and the note receivable due to the floating nature of the interest rate applicable to these instruments. The fair values incorporate an assessment of credit risk. The fair value of the investment allocated to shares is based on the closing bid price as of the balance sheet date. The fair value of the investment allocated to warrants reflects Newalta's best estimate of market value based on generally accepted valuation techniques or models and supported observable market prices. The carrying values of Newalta's financial instruments at September 30, 2010 are as follows:
/T/
----------------------------------------------------------------------------
Total
Held for Loans and Available Other Carrying
trading Receivables for sale Liabilities Value
----------------------------------------------------------------------------
Accounts receivable - 115,710 - - 115,710
Investment 1,330 - 2,915 - 4,245
Note receivable - 934 - - 934
Accounts payable and
accrued liabilities - - - 107,641 107,641
Dividends payable - - - 3,152 3,152
Senior long-term debt(1) - - - 192,325 192,325
----------------------------------------------------------------------------
(1) Net of related costs.
The fair value of the Debentures is based on the closing trading price on
the Toronto Stock Exchange as follows:
----------------------------------------------------------------------------
As at
September 30,
2010
Carrying Quoted fair
value(1) value
----------------------------------------------------------------------------
7% Convertible debentures due November 30, 2012 113,571 119,543
----------------------------------------------------------------------------
(1) Includes both the debt and equity portions.
/T/
Newalta categorizes its financial instruments carried at fair value into one of three different levels depending on the significance of inputs employed in their measurement.
Level 1 includes assets and liabilities measured at fair value based on unadjusted quoted prices for identical assets and liabilities in active markets that are accessible at the measurement date. An active market for an asset or liability is considered to be a market where transactions occur with sufficient frequency and volume to provide pricing information on an ongoing basis. Instruments valued using Level 1 inputs include our Debentures and BioteQ shares.
Level 2 includes valuations determined using directly or indirectly observable inputs other than quoted prices included within Level 1. Financial instruments in this category are valued using models or other industry standard valuation techniques derived from observable market data. Such valuation techniques include inputs such as quoted forward prices, time value, volatility factors and broker quotes that can be observed or corroborated in the market for the entire duration of the derivative instrument. Instruments valued using Level 2 inputs include our warrants of BioteQ.
Level 3 includes valuations based on inputs which are less observable, unavailable or where the observable data does not support a significant portion of the instruments' fair value. Generally, Level 3 valuations are longer dated transactions, occur in less active markets, occur at locations where pricing information is not available, or have no binding broker quote to support Level 2 classification. At September 30, 2010 and December 31, 2009, Newalta did not have any Level 3 assets or liabilities.
b) Financial Instrument Risk Management
Credit risk and economic dependence
Newalta is subject to credit risk on its trade accounts receivable balances. The customer base is large and diverse and no single customer balance exceeds 13% of total accounts receivable. Newalta views the credit risks on these amounts as normal for the industry. Credit risk is minimized by Newalta's broad customer base and diverse product lines and is mitigated by the ongoing assessment of the credit worthiness of its customers as well as monitoring the amount and age of balances outstanding.
Revenue from Newalta's largest customer represented 11% and 9% of revenue for the three and nine months ended September 30, 2010 (14% and 13% for the three and nine months ended September 30, 2009). This revenue is recognized within our Facilities segment.
Based on the nature of its operations, established collection history, and industry norms, receivables are not considered past due until 90 days after invoice date although standard payment terms require payment within 30 to 120 days. Depending on the nature of the service and/or product, customers may be provided with extended payment terms while Newalta gathers certain processing or disposal data. Included in the Corporation's trade receivable balance, are receivables totalling $1.8 million which are considered to be outstanding beyond normal repayment terms at September 30, 2010. A provision of $0.7 million has been established as an allowance for doubtful accounts. Newalta does not hold any collateral over these balances.
/T/
Trade Receivables Allowance for
Aging aged by invoice date doubtful accounts Net Receivables
----------------------------------------------------------------------------
September December September December September December
30, 2010 31, 2009 30, 2010 31, 2009 30, 2010 31, 2009
----------------------------------------------------------------------------
Current 70,673 53,981 - 13 70,673 53,968
31-60 days 17,955 15,454 - 21 17,955 15,433
61-90 days 6,669 3,159 13 65 6,656 3,094
91 days + 1,756 791 710 725 1,046 66
----------------------------------------------------------------------------
Total 97,053 73,385 723 824 96,330 72,561
----------------------------------------------------------------------------
/T/
To determine the recoverability of a trade receivable, management analyzes accounts receivable, first identifying customer groups that represent minimal risk (large oil and gas and other low risk large companies, governments and municipalities). Impairment of the remaining accounts is determined by identifying specific accounts that are at risk, and then by applying a formula based on aging to the remaining amounts receivable. All amounts identified as impaired are provided for in an allowance for doubtful accounts.
The changes in this account for the nine months ended September 30, 2010 are as follows:
/T/
---------------------------------------------------------------------------- Allowance for doubtful accounts ---------------------------------------------------------------------------- Balance, beginning of period 824 Additional amounts provided for (86) Amounts written off as uncollectible (286) Amounts recovered during the period 271 ---------------------------------------------------------------------------- Balance, end of period 723 ----------------------------------------------------------------------------
/T/
Liquidity risk
Ultimate responsibility for liquidity risk management rests with the Board of Directors of Newalta, which has built an appropriate liquidity risk management framework for the management of the Corporation's short, medium and long-term funding and liquidity management requirements. Management mitigates liquidity risk by maintaining adequate reserves, banking facilities and other borrowing facilities, by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities.
Interest rate risk
Newalta is exposed to interest rate risk to the extent that its credit facility has a variable interest rate. Management does not enter into any derivative contracts to manage the exposure to variable interest rates. The Debentures have a fixed interest rate until November 30, 2012, at which point, any remaining Debentures will need to be repaid or refinanced. The table below provides an interest rate sensitivity analysis for the three and nine months ended September 30, 2010:
/T/
----------------------------------------------------------------------------
Three months Nine months
ended ended
September September
30, 2010 30, 2010
----------------------------------------------------------------------------
Net earnings
----------------------------------------------------------------------------
If interest rates increased by 1% with all other
values held constant 376 750
----------------------------------------------------------------------------
/T/
Market risk
Market risk is the risk that the fair value or future cash flows of Newalta's financial instruments will fluctuate because of changes in market prices.
Newalta is exposed to foreign exchange market risk. Foreign exchange risk refers to the risk that the value of a financial commitment, recognized asset or liability will fluctuate due to changes in foreign currency exchange rates. The risk arises primarily from U.S. dollar denominated long-term debt and working capital. As at September 30, 2010, Newalta had $27.4 million in working capital and $24.4 million in long-term debt denominated in U.S. dollars. Management has not entered into any financial derivatives to manage the risk for the foreign currency exposure as at September 30, 2010.
The table below provides a foreign currency sensitivity analysis on long-term debt and working capital outstanding as at September 30, 2010:
/T/
----------------------------------------------------------------------------
Nine months ended
September 30, 2010
----------------------------------------------------------------------------
Net earnings
----------------------------------------------------------------------------
If the value of the U.S. dollar increased by $0.01 with
all other variables held constant 30
----------------------------------------------------------------------------
NOTE 14. CASH FLOW STATEMENT INFORMATION
The following tables provide supplemental information.
----------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
----------------------------------------------------------------------------
2010 2009 2010 2009
----------------------------------------------------------------------------
Changes in current assets (9,749) (4,839) (35,477) 32,911
Changes in current liabilities 21,846 10,223 18,178 (25,010)
Investment (391) - 4,245 -
Dividends / distributions payable (727) (1) (728) 5,438
Stock based compensation, foreign
exchange and other (619) (2,281) (853) (2,852)
Changes in capital asset accruals (5,325) (1,561) (4,742) 12,814
----------------------------------------------------------------------------
Total increase (decrease) in non-cash
working capital 5,035 1,541 (19,377) 23,301
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
----------------------------------------------------------------------------
2010 2009 2010 2009
----------------------------------------------------------------------------
Foreign exchange 315 1,162 (330) 2,318
Accretion of convertible debentures 345 317 1,013 966
Amortization of deferred financing
charges 505 382 1,448 1,363
Unrealized loss on investment 391 - 391 -
Other (88) (77) (280) (238)
----------------------------------------------------------------------------
Total other items not requiring cash 1,468 1,784 2,242 4,409
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
----------------------------------------------------------------------------
2010 2009 2010 2009
----------------------------------------------------------------------------
Cash additions to capital assets
during the year (22,643) (4,823) (45,997) (18,729)
Changes in capital asset accruals 5,325 1,561 4,742 (12,814)
----------------------------------------------------------------------------
Total cash additions to capital
assets (17,318) (3,262) (41,255) (31,543)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
/T/
NOTE 15. SEGMENTED INFORMATION
Effective January 1, 2010, Newalta reorganized its reporting structure into two divisions, Onsite and Facilities, which constitute our two reportable segments. The reportable segments are distinct strategic business units whose operating results are regularly reviewed by the Corporation's executive officers in order to assess financial performance and make resource allocation decisions. The reportable segments have separate operating management and operate in distinct competitive and regulatory environments. The Facilities segment includes the processing of industrial and oilfield-generated wastes including collection, treatment, and disposal; clean oil terminalling; custom treating; the sale of recovered crude oil for our account; oil recycling; and lead battery recycling. The Onsite segment involves the mobilization of equipment and staff to process waste at our customer sites, including the processing of oilfield-generated wastes, the sale of recovered crude oil; industrial cleaning; site remediation; dredging and dewatering; and drill site processing including solids control and drill cuttings management. Newalta had previously reported Western and Eastern reportable segments. As such, 2009 comparative information has been restated to present information under the applicable new segments.
/T/
For the Three Months Ended September 30, 2010
Inter- Consolidated
Facilities Onsite segment Unallocated(3) Total
----------------------------------------------------------------------------
External revenue 94,937 50,187 - - 145,124
Inter-segment revenue(1) 139 - (139) - -
Operating expense 65,471 34,332 (139) - 99,664
Amortization and
accretion expense 7,323 2,946 - 2,527 12,796
----------------------------------------------------------------------------
Net margin 22,282 12,909 - (2,527) 32,664
Selling, general and
administrative - - - 16,691 16,691
Finance charges - - - 6,609 6,609
----------------------------------------------------------------------------
Earnings (loss)
before taxes 22,282 12,909 - (25,827) 9,364
----------------------------------------------------------------------------
Capital expenditures
and acquisitions(2) 11,390 8,426 - 2,186 22,002
----------------------------------------------------------------------------
Goodwill 44,381 58,516 - - 102,897
----------------------------------------------------------------------------
Total assets 657,538 297,469 - 77,921 1,032,928
----------------------------------------------------------------------------
----------------------------------------------------------------------------
For the Three Months Ended September 30, 2009
Inter- Consolidated
Facilities Onsite segment Unallocated(3) Total
----------------------------------------------------------------------------
External revenue 79,045 43,124 - - 122,169
Inter-segment revenue(1) 411 - (411) - -
Operating expense 54,158 30,117 (411) - 83,864
Amortization and
accretion expense 6,549 2,623 - 3,187 12,359
----------------------------------------------------------------------------
Net margin 18,749 10,384 - (3,187) 25,946
Selling, general and
administrative - - - 13,052 13,052
Finance charges - - - 6,958 6,958
----------------------------------------------------------------------------
Earnings (loss) before
taxes 18,749 10,384 - (23,197) 5,936
----------------------------------------------------------------------------
Capital expenditures
and acquisitions(2) 1,687 1,881 - 1,368 4,936
----------------------------------------------------------------------------
Goodwill 44,381 59,216 - - 103,597
----------------------------------------------------------------------------
Total assets 655,382 278,728 - 67,277 1,001,387
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Inter-segment revenue is recorded at market, less the costs of serving
external customers.
(2) Includes capital asset additions and the purchase price of acquisitions.
(3) Management does not allocate selling, general and administrative, taxes,
and interest costs in the segment analysis.
For the Nine Months Ended September 30, 2010
Inter- Consolidated
Facilities Onsite segment Unallocated(3) Total
----------------------------------------------------------------------------
External revenue 278,861 134,408 - - 413,269
Inter-segment revenue(1) 485 - (485) - -
Operating expense 187,310 95,949 (485) - 282,774
Amortization and
accretion expense 21,986 9,664 - 9,449 41,099
----------------------------------------------------------------------------
Net margin 70,050 28,795 - (9,449) 89,396
Selling, general and
administrative - - - 48,046 48,046
Finance charges - - - 19,055 19,055
----------------------------------------------------------------------------
Earnings (loss)
before taxes 70,050 28,795 - (76,550) 22,995
----------------------------------------------------------------------------
Capital expenditures
and acquisitions(2) 19,372 20,053 - 6,683 46,108
----------------------------------------------------------------------------
Goodwill 44,381 58,516 - - 102,897
----------------------------------------------------------------------------
Total assets 657,538 297,469 - 77,921 1,032,928
----------------------------------------------------------------------------
----------------------------------------------------------------------------
For the Nine Months Ended September 30, 2009
Inter- Consolidated
Facilities Onsite segment Unallocated(3) Total
----------------------------------------------------------------------------
External revenue 231,644 114,449 - - 346,093
Inter-segment revenue(1) 908 - (908) - -
Operating expense 165,806 86,443 (908) - 251,341
Amortization and
accretion expense 19,758 7,773 - 9,736 37,267
----------------------------------------------------------------------------
Net margin 46,988 20,233 - (9,736) 57,485
Selling, general and
administrative - - - 39,529 39,529
Finance charges - - - 18,675 18,675
----------------------------------------------------------------------------
Earnings (loss)
before taxes 46,988 20,233 - (67,940) (719)
----------------------------------------------------------------------------
Capital expenditures
and acquisitions(2) 9,945 5,273 - 3,827 19,045
----------------------------------------------------------------------------
Goodwill 44,381 59,216 - - 103,597
----------------------------------------------------------------------------
Total assets 655,382 278,728 - 67,277 1,001,387
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Inter-segment revenue is recorded at market, less the costs of serving
external customers.
(2) Includes capital asset additions and the purchase price of acquisitions.
(3) Management does not allocate selling, general and administrative, taxes,
and interest costs in the segment analysis.