CALGARY, ALBERTA – November 5, 2009 /CNW/ - Newalta Inc. ("Newalta") (TSX:NAL) today announced financial results for the three and nine months ended September 30, 2009.
"Compared to the second quarter of this year, adjusted EBITDA of $26.6 million was up almost 50% due to higher prices for the products that we recover as well as increased market activity," said Al Cadotte, President and CEO of Newalta. "Commodity prices have continued to rise and our markets are slowly recovering. With our reduced cost structure, we are well-positioned to deliver strong bottom-line results in the quarters ahead."
"The completion of our equity financing and the return of the letters of credit provide an additional $66 million in financial capacity to continue to invest in growth opportunities that will enhance our competitive position. We will continue to tightly manage costs to drive investor returns as we build for the continued success of our business."
Financial results and highlights for the three and nine months ended September 30, 2009
- Revenue, net earnings, and EBITDA in Q3 2009 were down from Q3 2008
by 23%, 81%, and 33%, respectively. A drop in commodity prices, as
compared to Q3 2008, resulted in a decrease in revenue of $5.8
million and a decline in EBITDA of $5.3 million. Excluding the impact
of commodity prices, foreign exchange, and non-cash stock-based
compensation, Q3 2009 EBITDA was down only 11% compared to the same
period in 2008 (13% year-to-date). On a year-to-date basis, revenue,
net earnings, and EBITDA fell by 23%, 102%, and 44%, respectively.
- Revenue and net margin(1) in the Western Division declined by 35% and
40% year-over-year, respectively, due primarily to the 46% decline in
crude oil prices, as well as continued weak North American drilling
activity, caused by the steep decline in natural gas prices. One-
third of the net margin decline was driven by lower crude oil pricing
alone. Excluding commodity price impacts, revenue and net margin were
each down approximately 30%. Compared to Q2 2009, revenue and net
margin were up $8.3 million and $6.6 million respectively, due in
part to the impact of cost reductions as well as improved commodity
prices.
- Despite the weak Ontario economy, the Eastern Division's net margin
in Q3 2009 was relatively flat, as compared to Q2 2009 and Q3 2008.
The stabilization of net margin was driven by improved lead pricing,
increased lead volumes, and the impact of our cost savings
initiatives.
- SG&A before non-cash stock-based compensation was down 24% in Q3
compared to last year.
- Maintenance capital expenditures(1) for the quarter were $1.6 million
compared to $6.9 million in 2008. Growth capital expenditures(1) were
$3.3 million, compared to $30.2 million in 2008.
Other highlights
- Total capital investment year-to-date was $19 million. Capital
expenditures for 2009 are anticipated to be approximately $30
million, comprised of $20 million for growth capital and $10 million
for maintenance capital.
- At the end of Q3 2009, senior long-term debt decreased $22 million to
$241.2 million, as compared to December 31, 2008.
- Newalta renewed its Credit Facility extending the maturity to October
12, 2011 and, at the election of Newalta, the principal amount has
been reduced from $375 million to $350 million.
- As a result of the implementation of the Oilfield Waste Liability
(OWL) Program from the Alberta Energy Resources Conservation Board
(ERCB), outstanding letters of credit totalling $22 million were
returned to Newalta. Management expects to have an additional $3
million returned in Q4 2009.
- On October 27th, Newalta completed an equity financing with the
issuance of approximately 6 million common shares for gross proceeds
of approximately $46 million (net proceeds of approximately $44
million).
- On a pro-forma basis as at September 30, 2009, the impact of the
equity financing reduces Newalta's funded debt from $267.9 million to
$224.1 million and decreases our funded debt to EBITDA covenant ratio
from 3.05 to 2.56.
- Newalta's Board of Directors declared a dividend of $0.05 per share
to holders of record as at September 30, 2009 which was paid October
15, 2009. Newalta expects to pay a dividend of $0.05 per share to
holders of record on December 31, 2009.
Financial Results and Highlights
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($000s except per % %
share/unit data) Increase YTD YTD Increase
(unaudited) Q3 2009 Q3 2008 (Decrease) 2009 2008 (Decrease)
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Revenue 122,169 158,579 (23) 346,093 451,694 (23)
Net earnings
(loss) 3,567 18,717 (81) (993) 49,797 (102)
- per share/
unit ($)
- basic 0.08 0.44 (82) (0.02) 1.19 (102)
- per share/
unit ($)
- diluted 0.08 0.44 (82) (0.02) 1.19 (102)
EBITDA(1) 25,253 37,441 (33) 55,223 98,153 (44)
- per share/
unit ($)(1) 0.60 0.89 (33) 1.30 2.35 (45)
Adjusted
EBITDA(1) 26,606 36,887 (30) 56,652 98,261 (42)
- per share/
unit ($)(1) 0.63 0.88 (28) 1.33 2.35 (43)
Cash from
operations 22,503 41,992 (46) 64,353 74,158 (13)
- per share/
unit ($) 0.53 1.00 (47) 1.52 1.77 (14)
Funds from
operations(1) 21,172 31,328 (32) 41,758 80,106 (48)
- per share/
unit ($)(1) 0.50 0.74 (32) 0.98 1.92 (49)
Maintenance
capital
expenditures(1) 1,614 6,891 (77) 5,089 12,301 (59)
Dividends/
Distributions
declared(1) 2,122 23,382 (91) 5,718 69,708 (92)
- per share/
unit - ($)(1) 0.05 0.56 (91) 0.15 1.67 (91)
Cash
distributed(1) 1,426 20,232 (93) 11,111 59,982 (81)
Growth capital
expenditures(1) 3,322 30,222 (89) 13,957 66,247 (79)
Weighted average
share/units
outstanding 42,438 42,102 1 42,447 41,823 1
Shares/units
outstanding,
September
30,(2) 42,438 42,186 1 42,438 42,186 1
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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 48,475,877 shares outstanding as at November 5, 2009.
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 6, 2009 at 11:00 a.m. (ET) to discuss Newalta's performance for the three and nine months ended September 30, 2009. To participate in the teleconference, please call 416-646-3095 or 1-877-974-0446. 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.comand, until midnight on Friday, November 13, 2009, by dialling 416-640-1917 or 1-877-289-8525 using the pass code 4178199 followed by the pound sign.
Newalta Inc. is Canada's largest industrial waste management and environmental services provider and focuses on maximizing the value inherent in industrial waste through the recovery of saleable products and recycling. It also provides environmentally sound disposal of solid, non-hazardous industrial waste. With talented people and a national network of facilities, Newalta serves customers in the automotive, construction, forestry, lead, manufacturing, mining, oil and gas, petrochemical, pulp and paper, refining, steel and transportation service industries. Providing solid investor returns, exceptional customer service, safe operations and environmental stewardship has enabled Newalta to expand into new service sectors and geographic markets. Newalta Inc. trades on the TSX as NAL. For more information, visit www.newalta.com.
NEWALTA INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Three and nine months ended September 30, 2009 and 2008
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 Inc., Newalta Income Fund (the "Fund"), and Newalta Corporation (the "Corporation" and together with Newalta Inc., the Fund, and other subsidiaries, "Newalta"), or their management, are intended to identify forward-looking statements. Such statements reflect the current views of Newalta with respect to future events and are subject to certain risks, uncertainties and assumptions, including, without limitation, general market conditions, oil and gas industry, commodity prices for oil and lead, battery manufacturing industry, debt service, future capital needs, exchange rates, dependence on senior management, seasonality of operations, growth, acquisition strategy, integration of businesses into Newalta's operations, potential liabilities from acquisitions, regulation, landfill operations, competition, risk of pending and future legal proceedings, employees, labour unions, fuel costs, access to industry and technology, possible volatility of the common share price, insurance, debt service, sales of additional shares, dependence on the Corporation, nature of the debentures issued by Newalta, Canadian federal income tax, redemption of shares, and such other risks or factors described from time to time in the reports filed with securities regulatory authorities by Newalta.
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, Newalta does 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 the Western division ("Western") and Eastern division ("Eastern"). Combined divisional net margin excludes inter-segment eliminations and unallocated revenue and expenses. Net margin for each of Western and Eastern 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 expenses added back.
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($000s) Q3 2009 Q3 2008 YTD 2009 YTD 2008
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Earnings (loss) before taxes 5,936 19,041 (719) 44,876
Add back (deduct):
Selling,general, and
administrative(1) 13,052 14,753 39,529 45,567
Finance charges(1) 6,958 5,952 18,675 17,866
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Consolidated net margin 25,946 39,746 57,485 108,309
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Unallocated net margin(1) 3,187 3,387 9,736 7,422
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Combined divisional net margin 29,133 43,133 67,221 115,731
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(1) Management does not allocate interest income; selling, general, and
administrative; taxes; finance charges; and corporate amortization
and accretion expense in the segmented analysis (see Note 15 to the
consolidated financial statements).
"EBITDA", "EBITDA per share", "Adjusted EBITDA", and "Adjusted EBITDA per share" are measures of Newalta's operating profitability. EBITDA provides an indication of the results generated by Newalta's 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 Newalta's 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. They are calculated as follows:
-------------------------------------------------------------------------
($000s) Q3 2009 Q3 2008 YTD 2009 YTD 2008
-------------------------------------------------------------------------
Net earnings (loss) 3,567 18,717 (993) 49,797
Add back (deduct):
Current income taxes 261 353 628 928
Future income taxes 2,108 (29) (354) (5,849)
Finance charges 6,958 5,952 18,675 17,866
Interest revenue - - - (80)
Amortization and accretion 12,359 12,448 37,267 35,491
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EBITDA 25,253 37,441 55,223 98,153
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Add back (deduct)
Non-cash stock-based
compensation 1,353 (554) 1,429 108
-------------------------------------------------------------------------
Adjusted EBITDA 26,606 36,887 56,652 98,261
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Weighted average number of
shares/units 42,438 42,102 42,447 41,823
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EBITDA per share 0.60 0.89 1.30 2.35
-------------------------------------------------------------------------
Adjusted EBITDA per share 0.63 0.88 1.33 2.35
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"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:
-------------------------------------------------------------------------
($000s) Q3 2009 Q3 2008 YTD 2009 YTD 2008
-------------------------------------------------------------------------
Cash from operations 22,503 41,992 64,353 74,158
Add back (deduct):
Changes in non-cash working
capital (1,541) (10,915) (23,301) 4,131
Asset retirement costs incurred 210 251 706 1,817
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Funds from operations 21,172 31,328 41,758 80,106
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Weighted average number of
shares/units 42,438 42,102 42,447 41,823
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Funds from operations per share 0.50 0.74 0.98 1.92
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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.
Throughout this document, unless otherwise stated, all currency is stated in Canadian dollars and MT is defined as "tonnes" or "metric tons".
The following discussion and analysis should be read in conjunction with (i) the consolidated financial statements of Newalta Inc. and the notes thereto for the three and nine months ended September 30, 2009, (ii) the consolidated financial statements of Newalta Inc. and notes thereto and Management's Discussion and Analysis of Newalta Inc. for the year ended December 31, 2008, (iii) the most recently filed Annual Information Form of Newalta Inc., (iv) the consolidated financial statements of the Fund and the notes thereto and Management's Discussion and Analysis for the three and nine months ended September 30, 2008, and (v) the consolidated financial statements of Newalta Inc. and the notes thereto and Management's Discussion and Analysis for the three months ended March 31, 2009 and the three and six months ended June 30, 2009. Information for the three and nine months ended September 30, 2009, along with comparative information for 2008, is provided.
This Management's Discussion and Analysis is dated November 5, 2009 and takes into consideration information available up to that date.
CORPORATE OVERVIEW
Stronger commodity pricing, seasonality, and modestly improved market demand drove increased profitability compared to Q2 2009, consistent with management's expectations. Q3 2009 was weaker than the same period last year; however, Q3 2008 had high commodity prices and the highest EBITDA in Newalta's history. When we compared Q3 2009 to Q3 2008, the $6.9 million decrease in EBITDA due to the impact of market and other changes would have been $15 million if cost savings not been realized. In excess of $8 million in cost savings were realized in Q3 2009, as compared to Q3 2008. Management has been successful in realizing approximately $16 million in cost efficiencies over the last two quarters, as compared to the same period in 2008.
EBITDA in Q3 2009 was $25.3 million, or 41% higher than in Q2 2009 and 33% lower than Q3 2008. After adjusting for commodity price impacts, EBITDA in Q3 2009 was 18% below Q3 2008. Throughout the year, as commodity prices slowly recovered, the year-over-year impact of commodity prices on EBITDA was diminished. Commodity price effects as a percentage of 2008 EBITDA decreased to 14% in Q3 from 28% in Q2, and 40% in Q1. On a year-to date basis, more than 60% of the decrease in EBITDA is due to lower commodity prices. Excluding the effect of commodity prices, revenue and EBITDA are down by only 17%, year-to-date.
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Impact of
Impact of market
change in and
commodity other
Q3 2008 prices(1) changes Q3 2009
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Revenue 158,579 (5,779) (30,631) 122,169
Expenses
Operating 106,385 (445) (22,076) 83,864
Selling, general and
administrative 14,753 - (1,701) 13,052
Finance charges 5,952 - 1,006 6,958
Amortization and accretion 12,448 - (89) 12,359
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Net earnings (loss) 18,717 (5,334) (9,816) 3,567
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EBITDA 37,441 (5,334) (6,854) 25,253
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-------------------------------------------------------------------------
Impact of
Impact of market
change in and
commodity other
YTD 2008 prices(1) changes Q3 2009
-------------------------------------------------------------------------
Revenue 451,694 (33,269) (72,332) 346,093
Expenses
Operating 307,894 (6,595) (49,958) 251,341
Selling, general and
administrative 45,567 - (6,038) 39,529
Finance charges 17,866 - 809 18,675
Amortization and accretion 35,491 - 1,776 37,267
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Net earnings (loss) 49,797 (26,674) (24,116) (993)
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EBITDA 98,153 (26,674) (16,256) 55,223
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(1) The change in commodity prices is defined as the change in the price
received for recovered crude oil and the change in the price of lead,
in each instance, in Canadian dollars.
In Q3 2009, Eastern's contribution to revenue and net margin partially compensated for the decline in activity levels in Western, compared to the same period in 2008. Eastern's share of total revenue and combined divisional net margin was 48% and 31%, respectively, compared to 38% and 22% in Q3 2008, respectively.
Revenue, net earnings, and EBITDA in Q3 2009 were down from Q3 2008 by 23%, 81%, and 33%, respectively and on a year-to-date basis, revenue, net earnings, and EBITDA fell by 23%, 102%, and 44%, respectively. Q3 2009 combined divisional net margin was down 31%, or $14.0 million, with the Western Division accounting for $13.3 million of the decline. A decline in commodity prices in Q3 2009 as compared to Q3 2008 resulted in a drop in revenue of $5.8 million and a decline in EBITDA of $5.3 million. Excluding the impact of commodity prices, foreign exchange, and non-cash stock-based compensation, Q3 2009 EBITDA was down only 11% compared to the same period in 2008 (13% year-to-date).
Our capital spending for 2009 is anticipated to be approximately $30 million, down from our previous estimate of $40 million. Maintenance capital is estimated to be $10 million, and growth capital spending is estimated to be $20 million.
Subsequent to Q3, management completed three key initiatives to strengthen our balance sheet and increase financial flexibility. First, our Credit Facility was renewed and extended to October 12, 2011 and, at the election of management, the principal amount was reduced from $375 million to $350 million. Second, we completed an equity financing for net proceeds of $43.8 million through the issuance of 6.0 million shares on October 27, 2009. Lastly, a refund of $22 million in letters of credit was obtained from the Alberta Energy Resources Conservation Board (ERCB) and a further $3 million is expected to be returned in Q4 2009. The impact of the equity financing, on a pro-forma basis as at September 30, 2009, would decrease our funded debt to EBITDA covenant ratio from 3.05 to 2.56.
OUTLOOK
During Q3, commodity prices improved, most notably crude oil and LME lead prices, and our performance continued to strengthen through the quarter. Management anticipates stable commodity prices and modest improvements in the economy to positively contribute to performance in Q4. Crude oil and lagged lead prices are trending 15% and 25% higher, respectively, in Q4 compared to Q3 2009. The ongoing success of our cost reduction program will continue to yield cost savings of approximately $8 million in the last quarter of the year. Our focus on expanding capacity at Ville Ste Catherine and developing onsite services across Canada in 2009 is expected to contribute positively in Q4 and throughout 2010. Onsite services, which includes Drill Site, Heavy Oil and other onsite services represent approximately 24% of our revenue year-to-date in 2009, an increase of 15% over 2008.
Our strengthened balance sheet provides Newalta with the financial capacity to capitalize on growth initiatives as signs of an economic recovery emerge through the fourth quarter and into 2010.
RESULTS OF OPERATIONS - WESTERN DIVISION
Overview
Western operates more than 55 facilities with more than 725 people in British Columbia, Alberta, Saskatchewan, Texas and Wyoming. We have organized our business units within the Western Division into Facilities, Heavy Oil and Drill Site. Western is operated and managed as an integrated set of assets to provide a broad range of seamless waste management and recycling services to customers.
Western's performance is affected by the following factors:
- fluctuation in the price of crude oil
- state of the oil and gas industry in western Canada
- natural gas drilling activity
- 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
The business units contributed the following to division revenue:
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Q3 2009 Q3 2008
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Facilities 71% 72%
Heavy Oil 25% 19%
Drill Site 4% 9%
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The following table compares Western's results for the periods indicated:
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YTD YTD
($000s) Q3 2009 Q3 2008 % Change 2009 2008 % Change
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Revenue - external 64,136 99,000 (35) 185,969 276,501 (33)
Revenue - internal 411 128 221 908 669 36
Operating costs 39,097 60,962 (36) 123,253 175,888 (30)
Amortization and
accretion 5,271 4,709 12 16,489 16,069 3
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Net margin 20,179 33,457 (40) 47,135 85,213 (45)
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Net margin as %
of revenue 31% 34% (9) 25% 31% (19)
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Maintenance capital 431 3,455 (88) 2,207 6,179 (64)
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Growth capital(1) 928 16,412 (94) 3,618 30,944 (88)
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Assets employed(2) 460,116 453,143 2
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(1) Growth capital does not include acquisitions.
(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.
In Q3 2009, net margin grew by 49%, or $6.7 million compared to Q2 2009. As compared to Q3 2008, net margin fell 40% due to lower crude oil prices and declining waste volumes. Excluding commodity price impacts, Q3 revenue was down approximately $30 million compared to Q3 2008 while net margin was down only $9 million. As a result of disciplined cost management, net margin as a percent of revenue was down slightly in Q3 2009 compared to last year, despite a $34.9 million decline in revenue. Excluding the impact of crude oil prices, net margin as a percent of revenue in Q3 2009 improved to 38%.
Facilities
The Facilities business unit is integral to our operations, providing the operational expertise and management capacity to support key business initiatives. Facilities revenue is primarily generated from:
- the processing and disposal 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
- onsite service in western Canada, excluding services provided by
Heavy Oil
- environmental services comprised of environmental projects and
drilling waste management services
Compared to Q2 2009, revenue improved 16%, driven primarily by an improvement in waste processing and water disposal volumes of 35% and 38% respectively, partially offset by lower recovered crude oil volumes due to a change in the mix of waste received. Year-over-year revenue fell 36% from Q3 2008, driven primarily by the 42% decrease year-over-year in crude oil prices. In addition, waste processing and water disposal volumes were down 46% and 20%, respectively.
The remainder of the business unit revenue was up over Q2 2009, in line with demand. Oil recycling product sales volumes improved over Q2 2009, with volume-driven revenue improvement partially offset by lower base oil prices. Onsite services continued to grow over Q2 2009 and Q3 2008, as we continue to aggressively pursue onsite project work and have been successful at securing new business.
Crude oil prices are expected to be higher in Q4 with the current Edmonton par price approximately 14% above the average price for Q3 2009.
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YTD YTD
Q3 2009 Q3 2008 % change 2009 2008 % change
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Waste processing
volumes
('000 m(3)) 74 137 (46) 228 368 (38)
Recovered crude oil
('000 bbl)(1) 43 55 (22) 148 173 (14)
Average crude oil
price received
(CDN$/bbl) 66 113 (42) 56 103 (46)
Recovered oil sales
($ millions) 2.8 6.2 (55) 8.3 17.9 (54)
Edmonton par price
(CDN$/bbl)(2) 72 123 (41) 62 115 (46)
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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.
Heavy Oil
Newalta's heavy oil services business began 15 years ago with facilities at Hughenden and Elk Point, Alberta. Using the centrifugation experience gained in processing heavy oil waste streams, Newalta launched a new onsite service for customers in the heavy oil market. This business has evolved from processing heavy oil in our facility network to operating equipment on customers' sites. Leveraging our facilities as staging areas, Newalta delivers a broad range of specialized services at numerous customer sites under short and long-term arrangements.
Heavy Oil business unit revenue is generated from three main areas:
- specialized onsite services 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
Heavy Oil's revenue increased $1.4 million over Q2 2009 and declined $2.3 million year-over-year. As compared to Q2 2009, volume declines were offset by an increase in crude oil pricing. On a year-over-year basis, the decline in the average crude oil price received drove most of the decline. Onsite services continue to provide growth opportunities as we focus on developing and securing long-term contracts.
Crude oil prices are expected to be higher in Q4 with the current Bow River Hardisty price approximately 15% above the Q3 2009 price.
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YTD YTD
Q3 2009 Q3 2008 % change 2009 2008 % change
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Waste processing
volumes
('000 m(3)) 115 134 (14) 366 378 (3)
Recovered crude oil
('000 bbl)(1) 42 47 (11) 150 139 8
Average crude oil
price received
(CDN$/bbl) 58 97 (40) 49 88 (44)
Recovered oil sales
($ millions) 2.4 4.5 (47) 7.4 12.3 (40)
Bow River Hardisty
(CDN$/bbl)(2) 67 106 (37) 58 95 (39)
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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.
Drill Site
Drill Site offers onsite and drill site services in the U.S. and western Canada. In addition, we integrate our services in western Canada with Facilities for processing customer waste. Although Newalta's current market share is very small, we expect to continue to expand services and establish operations in these markets by substantially improving equipment utilization.
Drill Site business unit revenue is presently generated primarily from the supply and operation of drill site processing equipment, including equipment for solids control and drill cuttings management. Currently, Drill Site delivers 4% of divisional revenue or 2% of consolidated revenue.
In both the U.S. and Canada, drilling remained weak due primarily to reduced activity as a result of low natural gas prices. Consistent with the seasonality of drilling activity in western Canada, activity increased in Q3 2009, as compared to Q2 2009. Revenue grew 39% in Q3 and was down 74% from Q3 2008. Our equipment-in-use of 20 units in Q3 2009 reflected depressed drilling activity; however, this was a modest improvement over Q2 2009 which had 13 units in use.
The table below reflects the changes in average drill site equipment-in-use and utilization:
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YTD YTD
Q3 2009 Q3 2008 % change 2009 2008 % change
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Average
equipment-in-use(1)
Canada 6 20 (70) 13 21 (38)
U.S. 14 41 (66) 15 33 (55)
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20 61 (67) 28 54 (48)
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Average equipment
available 178 147 21 174 143 22
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Utilization 11% 41% (73) 16% 38% (58)
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(1) "Average equipment in use" is calculated by taking the product of the
total amount of average processing equipment and the utilization rate
for the period. Average equipment available is adjusted by 10% for
maintenance and transportation. Maximum utilization of 100%
represents 90% of the total number of processing days.
RESULTS OF OPERATIONS - EASTERN DIVISION
Overview
Eastern provides industrial waste management, recycling and other environmental services to markets located in eastern Canada through its integrated network of over 30 facilities with more than 750 employees. This network has two business units, Québec/Atlantic and Ontario, and features Canada's largest lead-acid battery recycling facility with two long body kilns, located in Ville Ste-Catherine, Québec ("VSC") with a potential combined annual capacity of approximately 80,000MT. Current production levels fall below kiln potential capacity, consistent with market demand. In the event of sustained increases in market demand for lead and the availability of adequate feedstock supplies, further capital investment would be required to attain full potential production. The network also includes an engineered non-hazardous solid waste landfill located in Stoney Creek, Ontario ("SCL") with an annual permitted capacity of 750,000MT of waste per year and, based on current volumes, has an estimated remaining life of 10 years. The business units contributed the following to division revenue:
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Q3 2009 Q3 2008
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Québec/Atlantic 75% 33%
Ontario 25% 67%
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Eastern's performance is affected by the following factors:
- fluctuations in the LME trading price of lead
- supply and demand in the North American battery manufacturing
industry
- fluctuation in the U.S./Canadian dollar exchange rate
- 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 following table compares Eastern's results for the periods indicated:
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YTD YTD
($000s) Q3 2009 Q3 2008 % change 2009 2008 % change
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Revenue - external 58,033 59,579 (3) 160,124 175,113 (9)
Operating costs 45,178 45,551 (1) 128,996 132,675 (3)
Amortization and
accretion 3,901 4,352 (10) 11,042 11,920 (7)
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Net margin 8,954 9,676 (7) 20,086 30,518 (34)
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Net margin as % of
revenue 15% 16% (6) 13% 17% (24)
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Maintenance capital 1,184 3,421 (65) 2,882 6,046 (52)
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Growth capital(1) 1,026 9,334 (89) 6,511 23,043 (72)
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Assets employed(2) 410,987 387,832 6
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(1) Growth capital does not include acquisitions.
(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.
Eastern's net margin was up modestly from Q2 and relatively flat in Q3 2009 as compared to Q3 2008. The stabilization of net margin was driven by increased lead volumes, improved lead prices, and the impact of our cost savings initiatives. Performance in Québec/Atlantic continued to offset weak Ontario activity.
Québec/Atlantic
The Québec/Atlantic Canada business unit revenue is derived from:
- VSC, a lead-acid battery recycling facility in Québec
- waste treatment and transfer fixed facilities that process,
consolidate, and bulk hazardous waste
- onsite services, including a fleet of specialized vehicles and
equipment for waste transport and onsite processing
On a year-over-year basis, revenue growth returned in Q3 2009 due to increased production and sales from VSC and continued demand for services from the Québec/Atlantic facilities and onsite services. Capacity at VSC increased due to the successful start-up of the second kiln.
Average LME lead pricing in Q3 2009 was 29% higher than Q2 and 8% lower than in Q3 2008. Our direct sales price improved 19% over Q2 2009 due to improved commodity prices. Lagged lead prices are trending 25% higher in Q4 compared to Q3 2009.
With the kilns operating 78 days in Q3 2009, lead tonnage of 14,500 MT was flat compared to Q2 2009 and 33% higher year-over-year. Higher daily volumes resulted from the operation of the second kiln. The increased daily production was offset by a lower number of operating days due to our scheduled maintenance shutdown. The split between direct sales and tolling was 48% direct sales and 52% tolling in Q3 2009.
The table below highlights the lead sold and the percentage by weight of direct sales and tolling.
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YTD YTD
Q3 2009 Q3 2008 % change 2009 2008 % change
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Lead sold
('000 MT)(1) 14.5 10.9 33 42.9 33.7 27
% of lead sold
by weight
Direct 48% 62% (23) 56% 62% (10)
Tolling 52% 38% 37 44% 38% 16
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Average price -
direct sales
($/MT)(2) 2,139 2,175 (2) 1,780 2,643 (33)
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Average lagged LME
price (U.S.$/MT)(3) 1,751 1,911 (8) 1,390 2,456 (43)
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(1) YTD 2009 includes 2,600 MT sold to the LME in Q1 2009 that relates to
production during the commissioning phase of Kiln 2. Q2 2009 lead
sold was 14,500 MT, not 13,300 MT as set forth in our Q2 2009 MD&A.
(2) Average price received means all direct sales of finished products,
including finished products that are alloyed to customer
specifications. Q2 2009 average price - direct sales was $1,796/MT,
not $1,704/MT as set forth in our Q2 2009 MD&A.
(3) Average lagged LME price is based on a one-month lag consistent with
our pricing structure.
Onsite project work and fixed facility performance remained flat in Q3 2009, as compared to Q3 2008, despite a weaker economy. We continue to aggressively pursue onsite project work and have been successful at securing new business to replace completed projects.
Ontario
The Ontario business unit revenue is derived from:
- SCL, an engineered non-hazardous solid waste landfill
- waste treatment and transfer fixed facilities that process,
consolidate, and bulk hazardous waste
- onsite services, including a fleet of specialized vehicles and
equipment for emergency response, waste transport, and onsite
processing
Cost savings in Ontario played a key role in driving net margin improvement for Eastern over Q2 2009. Ontario performance continued to be impacted by the steep decline in the regional economy, with revenue falling from Q2 2009 levels. Revenue dropped 7% in Q3 2009 as compared to Q2 2009 due to lower volumes at our facilities and SCL. SCL tonnage fell by 9% from Q2, and was 40% below Q3 2008. Volumes at other Ontario facilities improved 5% compared to the second quarter and were down 7% compared to last year.
We are continuing to aggressively pursue a number of projects that are anticipated to contribute to ongoing performance.
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YTD YTD
Q3 2009 Q3 2008 % change 2009 2008 % change
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Landfill waste
('000 MT) 100.0 167.4 (40) 286.8 411.5 (30)
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Corporate and Other
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YTD YTD
($000s) Q3 2009 Q3 2008 % change 2009 2008 % change
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Selling, general
and administrative
expenses ("SG&A") 13,052 14,753 (12) 39,529 45,567 (13)
Less non-cash
stock-based
compensation 1,353 (554) 344 1,429 108 1,223
SG&A before non-cash
stock-based
compensation 11,699 15,306 (24) 38,100 45,459 (16)
SG&A before
non-cash
stock-based
compensation as
a % of revenue 9.6% 9.7% (1) 11.0% 10.1% 9
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SG&A was down 12% in Q3 compared to last year. SG&A before non-cash stock-based compensation was down 24% in Q3 compared to last year. We remain confident that our SG&A expense will remain at or about $13.0 million before non-cash stock-based compensation for Q4 2009, a 25% reduction from the same period last year.
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YTD YTD
($000s) Q3 2009 Q3 2008 % change 2009 2008 % change
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Amortization and
accretion 12,359 12,448 (1) 37,267 35,491 5
as a % of revenue 10.1% 7.8% 29 10.8% 7.9% 37
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Amortization and accretion in Q3 2009, as compared to Q3 2008 was flat due to lower capital expenditures and reduced depreciation for assets amortized on a unit of production basis with lower utilization. On a year-to-date basis, amortization and accretion increased primarily due to the growth in our capital asset base from our 2008 capital expenditure program. The net loss on the disposal of assets for the quarter was $0.1 million and year-to-date was $1.1 million. The loss on disposal was added to amortization and accretion.
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YTD YTD
($000s) Q3 2009 Q3 2008 % change 2009 2008 % change
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Bank fees and
interest 4,628 3,648 27 11,706 10,972 7
Convertible
debentures interest
and accretion
of issue costs 2,330 2,304 1 6,969 6,894 1
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Finance charges 6,958 5,952 17 18,675 17,866 5
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Finance charges increased in Q3 2009 primarily due to higher credit facility fees. Finance charges associated with the 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.
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YTD YTD
($000s) Q3 2009 Q3 2008 % change 2009 2008 % change
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Current tax 261 353 (26) 628 928 (32)
Future income tax 2,108 (29) 7,369 (354) (5,849) 94
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Provision for
(recovery of)
income taxes 2,369 324 631 274 (4,921) 106
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Current tax expense decreased on a quarterly and year-to-date basis due to reductions in applicable tax rates. Future income tax increased $2.1 million in Q3 2009 due to utilization of tax losses. To date, Newalta has generated approximately $175 million of tax loss carryforwards. 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" in this MD&A 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.
Our debt capital structure is as follows:
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September 30,
September 30, 2009 December 31,
($000s) 2009 - pro forma(4) 2008
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Use of credit facility:
Amount drawn on credit
facility(1) 243,338 243,338 264,687
Net proceeds from equity
issuance - (43,800) -
Letters of credit(2) 24,575 24,575 49,249
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Funded debt A 267,913 224,113 313,936
Unused credit facility
capacity(3) 107,087 125,887 111,064
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Debentures B 115,000 115,000 115,000
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Total Debt =A+B 382,913 339,113 428,936
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(1) Issue costs were $2.1 million in the first nine months of 2009 and
$0.4 million in the first nine months of 2008. See Note 4 of the
Notes to the Financial Statements.
(2) Letters of credit have been reduced to reflect the return of $22.0
million from the ERCB. 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) The principal amount of the Credit Facility was reduced from $375
million to $350 million on October 9, 2009.
(4) The September 30, 2009 pro forma column incorporates the impact of
the $43.8 million equity offering, closed on October 27, 2009 and the
effect of the change in the principal amount of the Credit Facility.
The impact of improved working capital, reduced cash dividends, and reduced capital expenditures resulted in a $22.1 million decrease in our senior long-term debt as compared to December 31, 2008, despite the year-over-year decline in EBITDA.
Our working capital at September 30, 2009 was $32.1 million compared with $40.0 million at December 31, 2008 and $82.8 million at September 30, 2008. This improvement highlights the degree of progress over the last 12 months by addressing the following key areas:
- business process initiatives to improve the timeliness and accuracy
of invoices
- improved collection processes
- strengthened credit risk management
As a result of these initiatives, notwithstanding a more challenging economic environment, days' sales outstanding in receivables were reduced by an additional 9 days since year end, building upon a 10 day improvement at December 31, 2008 over the previous year. In addition, over 90 day accounts were reduced to $1.3 million as compared to $6.5 million as at December 31, 2008.
At current activity levels, working capital of $32.1 million is expected to be sufficient to meet our ongoing commitments and operational requirements of the business. Management will continue to aggressively manage working capital in order to protect and maintain improvements made over the last 12 months.
The Current Ratio is defined as the ratio of total current assets to total current liabilities. As a result of the ongoing process improvements in the management and collection of receivables, as well as the management and payment of payables, this ratio remained flat at 1.35 times at September 30, 2009 as compared to 1.34 times at December 31, 2008. This ratio, at September 30, 2009, exceeds our bank covenant minimum requirement of 1.10:1.
SOURCES OF CASH
Our liquidity needs can be sourced in several ways including: funds from operations, borrowings against our credit facility, proceeds from the sale of assets, and the issuance of securities from treasury.
Credit Facility
The $375 million Credit Facility had a maturity date of October 12, 2010 and is available 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 $60.0 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.
On October 9, 2009, we renewed the Credit Facility with our Canadian lending syndicate. The terms of the Credit Facility were amended by extending the maturity to October 12, 2011, and, at the election of Newalta in anticipation of the return of the letters of credit, the principal amount was reduced from $375 million to $350 million. The extension of the Credit Facility and reduction in the principal amount are in keeping with our focus on tightly managing costs and the routine management of our financial structure. There were no other amendments to the terms of the Credit Facility.
At September 30, 2009, of the $46.7 million of outstanding letters of credit issued to various environmental regulatory authorities, $34.1 million have been issued in connection with our operations in Alberta. During the quarter, our letters of credit decreased $2.2 million due to the replacement of letters of credit with performance bonds associated with certain facilities in Ontario. On October 20, 2009, we received notification from the ERCB that we were eligible to the return of certain letters of credit. As a result, outstanding letters of credit totalling $22 million were returned to Newalta as at November 5, 2009. Under the terms of our Credit Facility, 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 interim period are excluded from funded debt. Management expects to receive an additional $3 million in Q4 2009. After giving effect to the return of these letters of credit, $24.6 million in letters of credit ($49.2 million at December 31, 2008) remain outstanding for Q3 covenant reporting purposes as security to third parties, including environmental regulatory authorities, to satisfy asset retirement obligations.
Financial performance relative to the financial ratio covenants(1) under the Credit Facility is reflected in the table below:
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September 30,
September 30, 2009
2009 - pro forma(7) Threshold
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Current Ratio(2) 1.35:1 1.35:1 1.10:1 minimum
Funded Debt(3) to
EBITDA(4)(5) 3.05:1 2.56:1 3.50:1 maximum
Fixed Charge Coverage(6) 1.51:1 1.51:1 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. Letters of credit have
been reduced to reflect the return of $22.0 million from the ERCB.
(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 Inc. 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. Funded debt to
EBITDA covenant will remain at 3.50:1 for the remainder of 2009. The
ratio is 3.00:1 in 2010.
(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.
(7) The September 30, 2009 pro forma column incorporates the impact of
the $43.8 equity offering, closed on October 27, 2009.
Our funded debt was $268.0 million for Q3 2009 reporting purposes resulting in a funded debt to EBITDA ratio of 3.05:1. On a year-to-date basis, management focused on reducing funded debt through the following initiatives:
- restricted capital spending in 2009
- reduced expenses with the implementation of our cost control program,
including: staff reductions, hiring restrictions, postponement of
salary increases and restrictions on travel and discretionary
expenses, and the suspension of our matching contributions to our
Employee Savings Plan.
- improved the management of working capital
- sold redundant, idle, or non-core assets
- recovery of outstanding letters of credit
- completed equity financing
Our actions will continue to have a positive impact on our debt position and will continue to strengthen our balance sheet as the economy recovers. Management remains confident that we will be able to manage within our covenants for 2009 and 2010.
Equity Issuance
On October 27, 2009, Newalta closed an equity financing with the issuance of 6,037,500 shares at a price of $7.65 per share for gross proceeds of $46.2 million (net proceeds of $43.8 million) which were used to reduce indebtedness.
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 Q3 2009.
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 Newalta's efficiency and productivity, allow Newalta to access new markets, and diversify its business. Growth capital or growth and acquisition capital are reported separately from maintenance capital by management 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 by management because these types of expenditures are not discretionary and are required to maintain current operating levels. Capital expenditures for Q3 2009 and Q3 2008 were:
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($000s) Q3 2009 Q3 2008 YTD 2009 YTD 2008
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Growth capital expenditures(1) 3,322 30,222 13,957 66,247
Maintenance capital expenditures 1,614 6,891 5,089 12,301
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Total capital expenditures(2) 4,936 37,113 19,046 78,548
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(1) Acquisitions in Q3 and YTD 2008 and Q3 and YTD 2009 were nil.
(2) The numbers in this table differ from the consolidated statement of
cash flows because the numbers above do not reflect the net change in
working capital related to capital asset accruals.
Total capital expenditures for the quarter were $4.9 million. Growth capital expenditures of $3.3 million were primarily used project related work. Growth capital expenditures YTD 2009 were funded by funds from operations and working capital. Maintenance capital decreased to $1.6 million.
Management has restricted capital expenditures in 2009 to $30 million, comprised of $20 million for growth capital and $10 million for maintenance capital. These investments will be funded entirely from funds from operations.
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 review of all factors, the Board declared a dividend of $0.05 per share, paid October 15 to shareholders of record as at September 30, 2009.
Newalta expects to pay a dividend of $0.05 per share to holders of record on December 31, 2009. The Board will continue to review future dividends, taking into account all factors noted above.
As at November 5, 2009, Newalta had 48,475,877 shares outstanding, outstanding options to purchase up to 1,970,200 shares and a number of shares that may be issuable pursuant to the $115.0 million in Debentures (see Sources of Cash - Debentures).
Contractual Obligations
For the three and nine months ended September 30, 2009, there have been no significant changes in our contractual obligations. For a summary of our contractual obligations, see page 28 of the MD&A for the year ended December 31, 2008.
SUMMARY OF QUARTERLY RESULTS
($000s except 2009
per share/ --------------------------
unit data) Q3 Q2 Q1
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Revenue 122,169 111,386 112,538
Earnings (loss) before
taxes 5,936 (293) (6,362)
Net earnings (loss) 3,567 (179) (4,381)
Earnings (loss) per
share/unit ($) 0.08 0.00 (0.10)
Diluted earnings (loss)
per share/unit ($) 0.08 0.00 (0.10)
Weighted average
share/units - basic 42,438 42,450 42,402
Weighted average
share/units - diluted 42,610 42,450 42,402
EBITDA 25,253 17,940 12,030
Adjusted EBITDA 26,606 18,253 11,792
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($000s except 2008 2007
per share/ --------------------------------------------
unit data) Q4 Q3 Q2 Q1 Q4
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Revenue 145,341 158,579 142,939 150,176 137,075
Earnings (loss) before
taxes 5,616 19,041 9,293 16,542 7,784
Net earnings (loss) 9,085 18,717 11,776 19,304 23,613
Earnings (loss) per
share/unit ($) 0.21 0.44 0.28 0.47 0.57
Diluted earnings (loss)
per share/unit ($) 0.21 0.44 0.28 0.46 0.54
Weighted average
share/units - basic 42,266 42,102 41,822 41,543 41,191
Weighted average
share/units - diluted 42,266 42,111 41,950 41,635 43,779
EBITDA 27,600 37,441 26,573 34,139 26,457
Adjusted EBITDA 27,630 36,887 24,190 34,184 26,250
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Quarterly performance is affected by seasonal variation as described below.
In 2007, acquisitions completed in eastern Canada in the second half of 2006 helped to partially offset the weak natural gas drilling environment in western Canada. Earnings before taxes in Q4 2007 were lower due to a $2 million loss on the disposal of leasehold improvements associated with the early termination of office space leases as well as increased SG&A and interest expense incurred in anticipation of growth. Net earnings in Q4 2007 were attributable to a future income tax recovery due to a reduction in the estimated future income tax rate.
In 2008, the increase in revenue, earnings before taxes, and net earnings compared to the first three quarters of 2007 were mainly due to full quarter contributions from acquisitions in each quarter as well as higher crude oil and lead revenue, driven both by increases in volume and commodity prices. Natural gas drilling remained at near 2007 levels in 2008. In Q4 2008, commodity prices declined significantly, negatively impacting revenue and margin in both divisions.
In 2009, the decrease in revenue, earnings before taxes, and net earnings as compared to the prior period was mainly due to weakening economic conditions experienced in Q1 2009. 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, management's cost containment program, and a strengthening of the economy as compared to Q1 2009. In Q3 2009, we observed improved commodity prices and seasonal increases; however our waste volumes remained below historic levels.
From Q4 2007 to Q4 2008, the increase in the weighted average number of shares/trust units is related to the former DRIP program of Newalta Income Fund. As a part of the conversion to a corporation on December 31, 2008, Newalta eliminated the DRIP program in January 2009.
Seasonality of Operations
Quarterly performance is affected by, among other things, weather conditions, commodity prices, 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.
In 2009, the volatility of commodity prices and foreign exchange combined with the impact of management's cost cutting initiatives may have an effect on the seasonality of our combined divisional net margin and EBITDA.
For Western, the frozen ground during the winter months in western Canada provides an optimal environment for drilling activities and consequently, the first quarter is typically strong. As warm weather returns in the spring, the winter's frost comes out of the ground rendering many secondary roads incapable of supporting the weight of heavy equipment until the roads have thoroughly dried out. Road bans, which are generally imposed in the spring, restrict waste transportation which reduces demand for the Western Division's services and therefore, the second quarter is generally the weakest quarter of the year for Western. The third quarter is typically the strongest quarter for Western due to favourable weather conditions and market cyclicality. The expansion into the U.S. is anticipated to somewhat reduce the impact that weather conditions have on drilling related activities as the areas in the U.S. in which we operate are not affected by frozen ground requirements for winter drilling nor are they impacted by the spring thaw. Normal seasonality for quarterly revenue as a percentage of annual Western revenue is approximately: 26% for the first quarter, 23% for the second quarter, 27% for the third quarter, and 24% in the fourth quarter.
Eastern's services are generally curtailed by colder weather in the first quarter, which is typically its weakest quarter as aqueous wastes and onsite work are restricted by colder temperatures. The third quarter is typically the strongest for Eastern due to the more favourable weather conditions and market cyclicality. The addition of VSC to Eastern has reduced the significance of this variability, as the demand for recycled lead is not generally affected by seasonality. Eastern's quarterly revenue as a percentage of annual Eastern revenue has not been affected by the trends discussed above due to the effect of acquisitions. Normal seasonality for quarterly revenue as a percentage of annual revenue for Eastern is approximately: 23% in the first quarter, 25% in the second quarter, 25% in the third quarter, and 27% in the fourth quarter.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements.
SENSITIVITIES
Our revenue is sensitive to changes in commodity prices for crude oil, base oils, and lead. These factors have both a direct and indirect impact on our business. The direct impact of these commodity prices is reflected in the revenue received from the sale of products such as crude oil, base oils, and lead. The indirect impact is the effect that the variations of these factors, including natural gas, has on activity levels of our customers and, therefore, demand for our services. The indirect impacts of these fluctuations previously discussed are not quantifiable.
We do not see any significant variation to the sensitivities provided in the MD&A for the year ended December 31, 2008.
CRITICAL ACCOUNTING ESTIMATES
The preparation of the financial statements in accordance with GAAP requires management to make estimates with regard to the reported amounts of revenue and expenses and the carrying values of assets and liabilities. These estimates are based on historical experience and other factors determined by management. Because this involves varying degrees of judgment and uncertainty, the amounts currently reported in the financial statements could, in the future, prove to be inaccurate.
Amortization and Accretion
Amortization of capital assets and intangible assets incorporates estimates of useful lives and residual values. These estimates may change as more experience is obtained or as general market conditions change impacting the operation of plant and equipment. Accretion expense is the increase in the asset retirement obligation over time. The asset retirement obligation is based on estimates that may change as more experience is obtained or as general market conditions change impacting the future cost of abandoning Newalta's facilities. Estimates for the three and nine months ended September 30, 2009 are consistent with those disclosed in the MD&A for the year ended December 31, 2008.
Asset Retirement Obligations
Asset retirement obligations are estimated by management based on the anticipated costs to abandon and reclaim all Newalta facilities and landfills as well as the projected timing of the costs to be incurred in future periods. Management, in consultation with Newalta's engineers, estimates these costs based on current regulations, costs, technology, and industry standards. The fair value estimate is capitalized as part of the cost of the related asset and amortized to expense over the asset's useful life. There were no significant changes in the estimates used to prepare the asset retirement obligation for the three and nine months ended September 30, 2009, as compared to those provided in Newalta's annual consolidated financial statements for the year ended December 31, 2008.
Goodwill
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, 2009, 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.
Income Taxes
Current income tax expense predominantly represents capital taxes paid in Central and Eastern Canada, federal and provincial income taxes, and U.S. taxation imposed on the U.S. subsidiary.
Future income taxes are estimated based on temporary differences between the book value and tax value of assets and liabilities using the applicable future income tax rates under current law. The change in these temporary differences results in a future income tax expense or recovery. The most significant risk in this estimate is the future income tax rate used for each entity based on provincial allocation calculations and the timing of reversal of temporary differences.
Estimates for the three and nine months ended September 30, 2009 are consistent with those disclosed in the MD&A for the year ended December 31, 2008.
Permits and other intangibles
Permits and other intangibles represent the book value of expiring permits and rights, indefinite permits, and non-competition contracts. The intrinsic value of the permits relates to the breadth of the terms and conditions and the types of waste we are able to process. In today's regulatory environment, management believes an operator would be unable to obtain similar permits with the same scope of operations. Therefore, management estimates that the value of our permits could be greater than its book value.
Stock-Based Compensation
Newalta has three stock-based compensation plans: the incentive plan adopted on March 1, 2003 (the "2003 Plan"); the incentive plan adopted on May 18, 2006 (the "2006 Plan" and together with the 2003 Plan, the "Converted Incentive Plans"); and the incentive option plan adopted on December 31, 2008 (the "Option Plan" and together with the Converted Incentive Plans, the "Incentive Plans").
In connection with the Conversion, the Converted Incentive Plans were amended such that the holders of such rights now have the right to receive, upon vesting and the payment of the exercise price related thereto, common shares of Newalta Inc. instead of trust units of the Fund, on a one-for-one basis. No further option based awards will be granted under the Converted Incentive Plans. Under the Incentive Plans, we may grant options to acquire up to 10% of the issued and outstanding shares to directors, officers, employees and consultants of Newalta or any its affiliates.
The 2003 Plan differs from the 2006 Plan and the Option Plan in the manner in which they may be settled by the grantee. The options under the 2003 Plan may only be settled in common shares, while the options under the 2006 Plan and Option Plan may be settled net in cash by the grantee. As such, options under the 2003 Plan are accounted for in accordance with the fair value recognition a provision of GAAP with the stock-based compensation expense measured at the grant date based on the fair value of the award and is recognized as an expense over the vesting period. Determining the fair value of stock-based awards at the grant date requires judgment, including estimating the expected term of the options (including the number of stock-based awards that are expected to be forfeited), the expected volatility of the underlying security and the expected dividends. The options granted under the 2006 Plan and the Option Plan are accounted for as stock appreciation rights since they may be subject to a net cash settlement provision. Accordingly, they are re-measured at each balance sheet date to reflect the net cash liability at that date.
New Accounting Standards in 2010 and Onward
Our assessment of new accounting standards for 2010 and onward are consistent with those disclosed in the MD&A for the year ended December 31, 2008.
2011 Changeover to IFRS
On March 11, 2008, the Accounting Standards Board of Canada ("AcSB") confirmed that effective January 1, 2011, International Financial Reporting Standards ("IFRS") will become Canadian GAAP for publicly accountable enterprises such as Newalta. At this time, the impact on our future consolidated balance sheets and statements of operations, comprehensive income and retained earnings are not reasonably determinable or estimable.
We have commenced our IFRS project and have established a formal project governance structure with a target implementation date of January 1, 2011. The following table summarizes our key activities, related milestones, and our accomplishments to date.
-------------------------------------------------------------------------
Key Activity Milestones Status Status
(as at June 30, (as at
2009) September 30,
2009)
-------------------------------------------------------------------------
Accounting Complete new Assessment Assessment
policies: financial policies processes are processes are
and procedures ongoing. We are ongoing. We
Identification manual addressing completing our have completed
of differences IFRS requirements. final review of our final
between Canadian Key milestones processes in review of
GAAP/IFRS include: the areas processes in
- Accounting - Opening balances identified in most areas and
policy choices estimates our high-level are confirming
under IFRS - Q3 2009 scoping review. our assessment
- Financial - Testing phase For all other with our
statement impact - Q3/Q4 2009 areas, we consultants
- Opening balances - SAP parallel run have made and auditors.
- Final - Q4 2009 significant For the
implementation - Finalize opening progress in our outstanding
decisions balances assessment areas, we
- Financial - Q4 2009/Q1 processes. have made
policies and 2010 significant
procedures progress in
our assessment
processes.
-------------------------------------------------------------------------
Detailed policy Develop working Working groups We are
assessment: groups and continue to be finalizing our
Identification of training to involved in the recommenda-
areas that may implement changes assessment of tions for
have a significant for significant significant systemic
impact. impact items. impact items. process
Key milestones changes
include: We are required by
- Develop and finalizing our IFRS.
implement recommendations
training for the systemic
programs for process changes
working groups required by IFRS.
- Q1 2009
- Identify and
recommend
systemic
process changes
- Q2/Q3 2009
-------------------------------------------------------------------------
IT Infrastructure: Ensure readiness Analysis of We have
Identify key for parallel issues is identified
changes in the processing of 2010 ongoing. and addressed
following areas: financial results key IT
- IT system changes and IFRS-compliant Testing of the infrastructure
and upgrades reporting in 2011 dual reporting issues. We
- Systemic process - Q4 2009 system is are proceeding
changes for data ongoing. in accordance
collection for with our IT
G/L, disclosures, plan.
and
consolidation
- One-time
processes due to
IFRS 1
-------------------------------------------------------------------------
Control Complete final Assessment is Assessment is
environment: signoff and review ongoing. ongoing.
Internal control of accounting
over financial policy changes
reporting by Q4 2010
- Accounting policy
changes and Update
approval certification
- Changes to process by Q4 2010
certification
process
-------------------------------------------------------------------------
Control Publish material Assessment is Assessment is
environment: changes in ongoing. ongoing.
Disclosure controls policies and known
and procedures impacts of IFRS Key stakeholder Key stakeholder
- MD&A throughout 2009 communications communications
communications & 2010 MD&A's - will continue will continue
package starting Q3 - 2009 into the into the
- IFRS adjustments balance of balance of
to Canadian GAAP Publish impact of 2009. 2009 and 2010.
statements (2010) conversion (with
- 2011 financial reconciliation to Material
statement GAAP) on key changes in
presentation measures by Q1 policies and
2011. known impacts
are expected
Publish disclosure to be
of 2010 comparative communicated
information (with throughout
reconciliation to 2010.
GAAP) in the
interim and annual
financial
statements - Q1 2011
-------------------------------------------------------------------------
Other Issues: Develop investor Assessment is Assessment is
Address impacts to relations ongoing. ongoing.
operations due to communication plan
IFRS: by Q3 2009
- Investor
relations Renegotiation of:
- Financial - Financial
covenants covenants - by
- Compensation Q3 - 2010
packages - Compensation
packages - by
Q3 - 2010
-------------------------------------------------------------------------
BUSINESS RISKS
The business of Newalta 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 in the first paragraph 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. Newalta's credit risk from its customers is mitigated by its broad customer base and diverse product lines. In the normal course of operations, Newalta is exposed to movements in U.S. dollar exchange rates relative to the Canadian dollar. The foreign exchange risk arises primarily from US dollar denominated long-term debt and working capital. Management has not entered into any financial derivatives to manage the risk for the foreign currency exposure as at September 30, 2009. The floating interest rate profile of Newalta's long-term debt exposes Newalta to interest rate risk. Newalta does 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.
DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROL OVER FINANCIAL
REPORTING
During the three months ended September 30, 2009, Newalta did not make any changes in the internal controls and procedures relating to disclosure and financial reporting that have materially affected, or are reasonably likely to materially affect, Newalta's 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 Inc. 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.
Consolidated Balance Sheets
September 30, December 31,
($000s) (unaudited) 2009 2008
-------------------------------------------------------------------------
Assets
Current assets
Accounts receivable 83,641 120,884
Inventories 32,390 29,781
Prepaid expenses and other 8,269 6,546
-------------------------------------------------------------------------
124,300 157,211
Note receivable 997 1,160
Capital assets 707,857 724,788
Permits and other intangibles (Note 3) 62,474 64,003
Goodwill 103,597 103,597
Future income taxes 2,162 1,151
-------------------------------------------------------------------------
1,001,387 1,051,910
-------------------------------------------------------------------------
Liabilities
Current liabilities
Accounts payable and accrued liabilities 90,126 109,698
Dividends/distributions payable 2,122 7,560
-------------------------------------------------------------------------
92,248 117,258
Senior long-term debt (Note 4 and 16) 241,199 263,251
Convertible debentures - debt portion 110,385 109,419
Other long-term liabilities 793 -
Future income taxes 40,641 40,039
Asset retirement obligations (Note 5) 21,765 21,094
-------------------------------------------------------------------------
507,031 551,061
-------------------------------------------------------------------------
Shareholders' Equity
Shareholders' capital (Note 6 and 16) 508,896 509,369
Convertible debentures - equity portion 1,850 1,850
Contributed surplus 1,679 988
Retained earnings (deficit) (18,069) (11,358)
-------------------------------------------------------------------------
494,356 500,849
-------------------------------------------------------------------------
1,001,387 1,051,910
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Consolidated Statements of Operations, Comprehensive Income (Loss) and
Retained Earnings (Deficit)
For the For the
Three Months Nine Months
($000s except per share/unit Ended September 30, Ended September 30,
data) (unaudited) 2009 2008 2009 2008
-------------------------------------------------------------------------
Revenue 122,169 158,579 346,093 451,694
Expenses
Operating (Note 14) 83,864 106,385 251,341 307,894
Selling, general and
administrative (Note 14) 13,052 14,753 39,529 45,567
Finance charges 6,958 5,952 18,675 17,866
Amortization and accretion
(Note 2) 12,359 12,448 37,267 35,491
-------------------------------------------------------------------------
116,233 139,538 346,812 406,818
-------------------------------------------------------------------------
Earnings (loss) before taxes 5,936 19,041 (719) 44,876
Provision for (recovery of)
income taxes
Current 261 353 628 928
Future 2,108 (29) (354) (5,849)
-------------------------------------------------------------------------
2,369 324 274 (4,921)
-------------------------------------------------------------------------
Net earnings (loss) and
comprehensive income (loss) 3,567 18,717 (993) 49,797
Retained earnings (deficit),
beginning of period (19,514) 7,694 (11,358) 22,940
Dividends/distributions (Note 10) (2,122) (23,382) (5,718) (69,708)
-------------------------------------------------------------------------
Retained earnings (deficit), end
of period (18,069) 3,029 (18,069) 3,029
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net earnings (loss) per
share/unit (Note 9) 0.08 0.44 (0.02) 1.19
-------------------------------------------------------------------------
Diluted earnings (loss)
per share/unit (Note 9) 0.08 0.44 (0.02) 1.19
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Consolidated Statements of Cash Flows
For the For the
Three Months Nine Months
Ended September 30, Ended September 30,
($000s) (unaudited) 2009 2008 2009 2008
-------------------------------------------------------------------------
Net inflow (outflow) of cash
related to the following
activities:
Operating Activities
-------------------------------------------------------------------------
Net earnings (loss) 3,567 18,717 (993) 49,797
Items not requiring cash:
Amortization and accretion
(Note 2) 12,359 12,448 37,267 35,491
Future income tax expense
(recovery) 2,108 (29) (354) (5,849)
Other 3,138 192 5,838 667
-------------------------------------------------------------------------
Funds from Operations 21,172 31,328 41,758 80,106
Decrease (increase) in non-cash
working capital (Note 13) 1,541 10,915 23,301 (4,131)
Asset retirement expenditures
incurred (210) (251) (706) (1,817)
-------------------------------------------------------------------------
22,503 41,992 64,353 74,158
-------------------------------------------------------------------------
Investing Activities
Additions to capital assets
(Note 13) (3,262) (33,077) (31,543) (82,839)
Net proceeds on sale of capital
assets 45 7,029 1,300 13,619
-------------------------------------------------------------------------
(3,217) (26,048) (30,243) (69,220)
-------------------------------------------------------------------------
Financing Activities
Issuance of shares/units - - 252 1,913
Issuance of convertible
debentures - 133 - (72)
Increase (decrease) in debt (17,883) 4,057 (23,415) 52,944
Decrease in note receivable 23 98 164 259
Dividends/distributions to
shareholders (Note 10) (1,426) (20,232) (11,111) (59,982)
-------------------------------------------------------------------------
(19,286) (15,944) (34,110) (4,938)
-------------------------------------------------------------------------
Net cash flow
Cash - beginning of period - - - -
-------------------------------------------------------------------------
Cash - end of period - - - -
-------------------------------------------------------------------------
Supplementary information:
Interest paid 4,288 3,432 14,416 14,858
Income taxes paid 14 360 438 1,100
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Notes to the Interim Consolidated Financial Statements
For the three and nine months ended September 30, 2009 and 2008
(all tabular data in $000s except per share/unit and ratio data)
(unaudited)
Newalta Inc. was incorporated on October 29, 2008 pursuant to the laws of the Province of Alberta. Newalta Inc. is engaged, through its wholly owned operating subsidiary, Newalta Corporation (the "Corporation", and together with Newalta Inc., collectively "Newalta"), in adapting technologies to maximize the value inherent in industrial waste through the recovery of saleable products and recycling. Newalta also provides environmentally sound disposal of solid, non-hazardous industrial waste. With an integrated network of facilities, Newalta provides waste management solutions to a broad customer base of national and international corporations in a range of industries, including automotive, construction, forestry, lead, manufacturing, mining, oil and gas, petrochemical, pulp and paper, refining, steel and transportation services.
Following changes in tax rules for specified investment flow-though entities, Newalta Income Fund (the "Fund") undertook steps to convert the Fund's income trust structure into a corporate structure. On December 17, 2008, unitholders of the Fund voted and approved the reorganization by way of a plan of arrangement under the Business Corporations Act (Alberta), into a corporation pursuant to an arrangement agreement dated November 12, 2008 (as amended) between Newalta Inc., Newalta Income Fund, Newalta Corporation, Newalta Industrial Services Inc. and Newalta Services Holdings Inc. (the "Arrangement").
On January 1, 2009, Newalta Corporation, Newalta Industrial Services Inc. and Newalta Services Holdings Inc. were amalgamated to form Newalta Corporation.
Prior to the Arrangement, which was effective on December 31, 2008, the consolidated financial statements included the accounts of the Fund and its subsidiaries. After giving effect to the Arrangement, the consolidated financial statements were prepared on a continuity of interests basis, which recognizes Newalta Inc. as the successor entity to the Fund.
NOTE 1. BASIS OF PRESENTATION
The interim consolidated financial statements include the accounts of Newalta. The interim consolidated 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 interim 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, 2008 as contained in the Annual Report for fiscal 2008.
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, 2008 except as noted in the following paragraph.
Goodwill and Intangible Assets
Effective January 1, 2009, Newalta adopted the Canadian Institute of Chartered Accountants ("CICA") new accounting standard, section 3064, Goodwill and Intangible Assets, replacing section 3062, Goodwill and Other Intangible Assets. The new Section establishes standards for the recognition, measurement, presentation and disclosure of goodwill and intangible assets. The standards concerning goodwill are unchanged from the standards included in the previous section 3062. The adoption of this new section did not have a material impact on Newalta's interim financial statements.
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 unaudited interim consolidated financial statements include all adjustments necessary to present fairly the consolidated results of Newalta Inc.'s operations and cash flows for the periods ended September 30, 2009 and 2008.
NOTE 2. DISPOSAL OF CAPITAL ASSETS
During the nine months ended September 30, 2009, Newalta disposed of certain transport vehicles and buildings with a net book value of $2.4 million for proceeds of $1.3 million. The resulting net loss of $1.1 million is included in amortization and accretion in the consolidated statements of operations, comprehensive income (loss) and retained earnings (deficit).
NOTE 3. PERMITS AND OTHER INTANGIBLES
-------------------------------------------------------------------------
September 30, 2009 December 31, 2008
-------------------------------------------------------------------------
Accumul- Accumul-
ated ated
Amorti- Net Book Amorti- Net Book
Cost zation Value Cost zation Value
-------------------------------------------------------------------------
Indefinite
permits 53,037 - 53,037 53,037 - 53,037
Expiring
permits/rights 11,602 (3,106) 8,496 11,602 (2,697) 8,905
Non-competition
contracts 9,090 (8,129) 941 9,070 (7,009) 2,061
-------------------------------------------------------------------------
Total 73,709 11,235 62,474 73,709 (9,706) 64,003
-------------------------------------------------------------------------
-------------------------------------------------------------------------
NOTE 4. SENIOR LONG-TERM DEBT
-------------------------------------------------------------------------
September 30, December 31,
2009 2008
-------------------------------------------------------------------------
Amount drawn on credit facility 243,338 264,687
Issue costs (2,139) (1,436)
-------------------------------------------------------------------------
Senior long-term debt 241,199 263,251
-------------------------------------------------------------------------
-------------------------------------------------------------------------
On October 9, 2009, Newalta extended the maturity of its Credit Facility to October 12, 2011, and elected to reduce the principal amount of the Credit Facility from $375 million to $350 million.
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, 2009, Newalta was in compliance with all covenants.
NOTE 5. RECONCILIATION OF ASSET RETIREMENT OBLIGATIONS
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:
-------------------------------------------------------------------------
Three Months Nine Months
ended September 30, ended September 30,
2009 2008 2009 2008
-------------------------------------------------------------------------
Asset retirement obligations,
beginning of period 21,511 20,343 21,094 20,985
Additional retirement obligations
added through development
activities - 289 - 289
Expenditures incurred to fulfill
obligations (210) (251) (706) (1,817)
Accretion 464 462 1,377 1,386
-------------------------------------------------------------------------
Asset retirement obligations, end
of period 21,765 20,843 21,765 20,843
-------------------------------------------------------------------------
NOTE 6. SHAREHOLDERS' CAPITAL
a) Shareholders' capital
Authorized capital of Newalta Inc. consists of an unlimited number of common shares and an unlimited number of preferred shares issuable in series.
On June 29, 2009, an aggregate of 60,483 common shares were cancelled and returned to Newalta Inc. Under the terms of the March 1, 2003 Plan of Arrangement, Newalta Corporation (a predecessor entity) converted from a corporate structure to Newalta Income Fund, a trust structure. The Plan of Arrangement provided that certificates formerly representing common shares of Newalta Corporation that were not deposited with the required documentation on or before March 1, 2009 ceased to represent a right or claim of any kind or nature and the right of the holder of such common shares to receive certificates representing trust units of the Fund or cash payments pursuant to the Plan of Arrangement, as the case may be, were deemed to be surrendered together with all dividends or distributions thereon held for such holder. These shares were valued at $11.99 each using the average carrying amount of shares outstanding prior to their return. As a result $0.7 million was transferred from Share Capital to Contributed Surplus.
The following table is a summary of the changes in Shareholders' capital during the period:
-------------------------------------------------------------------------
Shares (No.) Amount ($)
-------------------------------------------------------------------------
Shares outstanding as at October 29, 2008 - -
-------------------------------------------------------------------------
Shares issued pursuant to the Arrangement 42,400 509,369
-------------------------------------------------------------------------
Shares outstanding as at December 31, 2008 42,400 509,369
-------------------------------------------------------------------------
Shares issued 98 252
Shares cancelled and returned to treasury (60) (725)
-------------------------------------------------------------------------
Shares outstanding as at September 30, 2009 42,438 508,896
-------------------------------------------------------------------------
b) Unitholders' capital
-------------------------------------------------------------------------
Units (No.) Amount ($)
-------------------------------------------------------------------------
Units outstanding as at December 31, 2007 41,417 496,027
Contributed surplus on rights exercised - 241
Rights exercised 209 1,913
Units issued under the DRIP(1) 774 11,188
-------------------------------------------------------------------------
Units outstanding as at December 31, 2008
and September 30, 2009(2) 42,400 509,369
-------------------------------------------------------------------------
(1) Distribution Reinvestment Plan of the Fund.
(2) All outstanding units of the Fund were acquired by Newalta Inc.
pursuant to the Arrangement.
On October 27, 2009, Newalta issued 6.0 million shares pursuant to a bought deal equity financing at a price of $7.65 per share. Proceeds, net of issuance costs, were $43.8 million.
NOTE 7. CAPITAL DISCLOSURES
Newalta's capital structure consists of:
-------------------------------------------------------------------------
September 30, December 31,
2009 2008
-------------------------------------------------------------------------
Senior long-term debt 241,199 263,251
Letters of Credit or bonds issued as financial
security to third parties (Note 11) 65,858 64,457
Convertible debentures, debt portion 110,385 109,419
Shareholders' equity 494,481 500,849
-------------------------------------------------------------------------
-------------------------------------------------------------------------
911,923 937,976
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The objectives in managing the capital structure are to:
- Utilize an appropriate amount of leverage to manage risk and optimize
the return on shareholders' equity
- Provide borrowing capacity and financial flexibility
Management and the Board of Directors review and assess Newalta's capital structure and dividend/distribution 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
- 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:
-------------------------------------------------------------------------
September 30, December 31,
Ratio 2009 2008 Threshold
-------------------------------------------------------------------------
Current (1) 1.35:1 1.34:1 1.10:1 minimum
Funded Debt(2) to EBITDA(3)(4) 3.05:1 2.46:1 3.50:1 maximum
Fixed Charge Coverage(5) 1.51:1 1.19:1 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. Letters of credit have
been reduced to reflect the return of $22.0 million from the ERCB.
(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 Inc. 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. Funded debt to
EBITDA covenant will remain at 3.50:1 for the remainder of 2009. The
ratio is 3.00:1 in 2010.
(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.
NOTE 8. LONG-TERM INCENTIVE PLANS
a) The 2008 Option Plan
On January 2, 2009 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 $5.31 per share. A further 12,500 options were granted to a director of the Corporation on May 21, 2009 at an exercise price of $3.81 per share, with an additional 12,500 options being granted to a director of the Corporation on July 1, 2009 at an exercise price of $5.40 per share. Each tranche of the options vest over a four year period (with a five year life), and the holder of the option can exercise the option for either a share of Newalta Inc. 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 $0.7 million and $0.8 million for the three and nine months ended September 30, 2009 (nil for the same periods in 2008).
b) The 2003 and 2006 Option Plans
The options granted under the 2006 Plan have been accounted for as stock appreciation options and the total compensation expense for these options was nil for the three and nine months ended September 30, 2009 ($0.3 million for the same periods in 2008). During the first nine months of 2009, an aggregate of 1,810,050 options to acquire common shares were cancelled.
c) Share Appreciation Rights
On January 2, 2009, 791,500 share appreciation rights were granted to certain employees and an officer of the Corporation at the market price of $5.31. Each tranche of these rights vests over a four year period (with a five year life). The holder of the 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 $0.6 million and $0.7 million for the three and nine months ended September 30, 2009 ($0.3 million for the same periods in 2008). During the first nine months of 2009, an aggregate of 482,500 share appreciation rights were cancelled.
NOTE 9. EARNINGS PER SHARE/UNIT
Basic earnings per share/unit calculations for the three and nine months ended September 30, 2009 and 2008 were based on the weighted average number of shares/units outstanding for the periods. Diluted earnings per share/unit 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, 2009 were 1,082,700 and 1,937,700 respectively (2,140,000 for the three and nine months ended September 30, 2008).
The dilutive earnings per share calculation do 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, 2009 was 5,000,000 (5,000,000 for the three and nine months ended September 30, 2008).
-------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
-------------------------------------------------------------------------
Weighted average number of
shares/units 42,438 42,102 42,447 41,823
Net additional shares if options
exercised 172 9 - -
Net additional shares if
debentures converted - - - -
-------------------------------------------------------------------------
Diluted weighted average number
of shares/units 42,610 42,111 42,447 41,823
-------------------------------------------------------------------------
-------------------------------------------------------------------------
NOTE 10. SHAREHOLDER DIVIDENDS/DISTRIBUTIONS DECLARED AND PAID
a) Dividends
During the quarter, Newalta declared a dividend of $0.05 per share to holders of record on September 30, 2009. These dividends were paid on October 15, 2009.
b) Distributions
Prior to conversion to a corporation on December 31, 2008, the Fund made monthly distributions to its holders of trust units. Determination of the amount of cash distributions for any period was at the sole discretion of the Board of Trustees of the Fund and was based on certain criteria including financial performance as well as the projected liquidity and capital resource position of the Fund. Distributions were declared to holders of trust units of record on the last business day of each month, and paid on the 15th day of the month following (or if such day was not a business day, the next following business day).
Three Nine
Months ended Months ended
September 30, September 30,
2008 2008
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Unitholder distributions declared 23,382 69,708
per unit - $ 0.555 1.665
Unitholder distributions - paid in cash 20,232 59,982
Unitholder distributions - value paid in units 3,117 9,584
paid in cash - per unit $ 0.481 1.434
issued units - per unit $ 0.074 0.229
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NOTE 11. COMMITMENTS
a) Letters of Credit and Surety Bonds
As at September 30, 2009, Newalta had issued letters of credit and surety bonds in respect of compliance with environmental licenses in the amount of $46.7 million and $19.2 million respectively.
On October 20, 2009, Newalta received notification from the ERCB that we were eligible to the return of certain letters of credit. As a result, outstanding letters of credit totalling $22 million were returned to Newalta as at November 5, 2009.
NOTE 12. FINANCIAL INSTRUMENTS
Fair Values
Newalta's financial instruments include accounts receivable, note receivable, accounts payable and accrued liabilities, dividends/distributions payable, senior long-term debt, other long-term liabilities and convertible debentures. The fair values of Newalta's financial instruments that are included in the consolidated balance sheet, with the exception of the convertible 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. The fair values incorporate an assessment of credit risk. The carrying values of Newalta's financial instruments at September 30, 2009 are as follows:
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Total
Held for Loans and Available Other Carrying
trading Receivables for sale Liabilities Value
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Accounts
receivable - 83,641 - - 83,641
Note receivable - 997 - - 997
Accounts payable
and accrued
liabilities - - - 90,126 90,126
Dividends payable - - - 2,122 2,122
Other long-term
liabilities - - - 793 793
Senior long-term
debt(1) - - - 241,199 241,199
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(1) Net of related issue 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, 2009
-------------------------------------------------------------------------
Carrying Quoted fair
value(1) value
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7% Convertible debentures due November 30, 2012 112,235 115,000
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(1) Includes both the debt and equity portions.
Financial Instrument Risk Management
Credit risk
Newalta is subject to risk from its trade accounts receivable balances. The customer base is large and diverse and no single customer balance exceeds 9% 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.
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 $1.3 million which are considered to be outstanding beyond normal repayment terms at September 30, 2009. A provision of $0.9 million has been established as an allowance for doubtful accounts. No additional provision has been made as there has not been a significant change in credit quality and the amounts are still considered collectable. Newalta does not hold any collateral over these balances.
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Aging Trade Receivables Allowance for Net Receivables
by aged doubtful accounts
invoice date
September December September December September December
30, 2009 31, 2008 30, 2009 31, 2008 30, 2009 31, 2008
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Current 58,207 58,049 9 9 58,198 58,040
31-60
days 9,750 28,953 2 7 9,748 28,946
61-90
days 3,058 6,608 180 52 2,878 6,556
91
days + 1,265 6,503 689 1,465 576 5,038
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Total 72,280 100,113 880 1,533 71,400 98,580
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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, 2009 are as follows:
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Allowance for doubtful accounts
-------------------------------------------------------------------------
Balance, December 31, 2008 1,533
Additional amounts provided for 962
Amounts written off as uncollectible (1,673)
Amounts recovered during the period 58
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Balance, September 30, 2009 880
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Liquidity risk
Ultimate responsibility for liquidity risk management rests with the Board of Directors of Newalta Inc., which has built an appropriate liquidity risk management framework for the management of the 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. 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 convertible debentures will be repaid or refinanced. The table below provides an interest rate sensitivity analysis for the three and nine months ended September 30, 2009:
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Three Nine
Months Ended Months Ended
September 30, September 30,
2009 2009
-------------------------------------------------------------------------
Net earnings
-------------------------------------------------------------------------
If interest rates increased by 1% with all
other values held constant (480) (1,496)
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Market risk
Market risk is the risk that the fair value or future cash flows of our 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, recognised 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. Management has not entered into any financial derivatives to manage the risk for the foreign currency exposure as at September 30, 2009. The table below provides a foreign currency sensitivity analysis on long-term debt and working capital outstanding as at September 30, 2009:
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Net earnings
-------------------------------------------------------------------------
If the value of the U.S. dollar increased by $0.01
with all other variables held constant 149
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NOTE 13. SUPPLEMENTARY CASH FLOW INFORMATION
The following tables provide supplemental information.
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Change in non-cash operating Three Months Ended Nine Months Ended
net assets September 30, September 30,
2009 2008 2009 2008
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Changes in current assets (4,839) 8,481 32,911 13,128
Changes in current liabilities 10,224 6,879 (25,010) (21,412)
Dividends / distributions payable - (34) 5,438 (142)
Stock compensation, foreign
exchange and other (2,283) (710) (2,852) (511)
Changes in capital asset accruals (1,561) (3,701) 12,814 4,806
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Decrease (increase) in non-cash
working capital 1,541 10,915 23,301 (4,131)
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Operating activities - Other Three Months Ended Nine Months Ended
items not requiring cash September 30, September 30,
2009 2008 2009 2008
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Stock compensation expense 1,353 (554) 1,429 108
Foreign exchange 1,162 (370) 2,318 (854)
Accretion of convertible debentures 317 291 966 857
Amortization of deferred financing
charges 382 75 1,363 208
Other (76) 750 (238) 348
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Total other items not requiring
cash 3,138 192 5,838 667
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Net additions to capital assets Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
-------------------------------------------------------------------------
Capital expenditures during the
quarter (4,936) (36,825) (19,045) (78,260)
Changes in capital asset accruals 1,561 3,701 (12,814) (4,806)
Other 113 47 316 227
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Additions to capital assets (3,262) (33,077) (31,543) (82,839)
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NOTE 14. COMPARATIVE FIGURES
Income Statements
2008 comparative information reflects the reclassification of foreign exchange gains and losses from selling, general and administrative expenses to operating expenses. Prior to the fourth quarter of 2008, gains and losses as a result of fluctuations in the U.S. dollar exchange rate were immaterial, and Newalta tracked and reported the effects of these fluctuations centrally as an administrative cost. The reclassified foreign exchange gain for the three and nine months ended September 30, 2008 was $0.7 million and $1.2 million respectively.
Cash Flow Statements
2008 comparative information reflects the reclassification of the change in deferred revenue from other to decrease (increase) in non-cash working capital on the Cash Flow statements.
Segmented Information
The Western and Eastern Division and Unallocated 2008 comparative information in Note 15 reflects the reclassification of foreign currency exchange gains and losses from selling, general and administrative expenses to operating expenses.
NOTE 15. SEGMENTED INFORMATION
Newalta has 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 Western segment recovers and resells crude oil from oilfield waste, rents drill cuttings management and solids control equipment, provides environmental services comprised of environmental projects and drilling waste management, collects liquid and semi-solid industrial wastes as well as automotive wastes, including waste lubricating oil, and provides mobile site services in western Canada. The Eastern segment provides industrial waste collection, pre-treating, transfer, processing and disposal services and operates a fleet of specialized vehicles and equipment for waste transport and onsite processing, a lead recycling facility and an emergency response service in central and eastern Canada. Recovered materials both segments are processed into resalable products. The accounting policies of the segments are the same as those of Newalta.
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For the Three Months Ended September 30, 2009
Consoli-
Inter- Unallo- dated
Western Eastern segment cated(3) Total
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External revenue 64,136 58,033 - - 122,169
Inter segment revenue(1) 411 - (411) - -
Operating expense 39,097 45,178 (411) - 83,864
Amortization and
accretion expense 5,271 3,901 - 3,187 12,359
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Net margin 20,179 8,954 - (3,187) 25,946
Selling, general and
administrative - - - 13,052 13,052
Finance charges - - - 6,958 6,958
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Earnings (loss) before
taxes 20,179 8,954 - (23,197) 5,936
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Capital expenditures
and acquisitions(2) 1,358 2,210 - 1,368 4,936
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Goodwill 62,280 41,317 - - 103,597
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Total assets 520,164 413,946 - 67,277 1,001,387
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For the Three Months Ended September 30, 2008
Consoli-
Inter- Unallo dated
Western Eastern segment cated(3) Total
-------------------------------------------------------------------------
External revenue 99,000 59,579 - - 158,579
Inter segment revenue(1) 128 - (128) - -
Operating expense 60,962 45,551 (128) - 106,385
Amortization and
accretion expense 4,709 4,352 - 3,387 12,448
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Net margin 33,457 9,676 - (3,387) 39,746
Selling, general and
administrative - - - 14,753 14,753
Finance charges - - - 5,952 5,952
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Earnings (loss) before
taxes 33,457 9,676 - (24,092) 19,041
-------------------------------------------------------------------------
Capital expenditures
and acquisitions(2) 19,865 12,755 - 4,493 37,113
-------------------------------------------------------------------------
Goodwill 62,280 41,317 - - 103,597
-------------------------------------------------------------------------
Total assets 549,406 431,674 - 59,693 1,040,773
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(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.
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For the Nine Months Ended September 30, 2009
Consoli-
Inter- Unallo- dated
Western Eastern segment cated(3) Total
-------------------------------------------------------------------------
External revenue 185,969 160,124 - - 346,093
Inter segment
revenue(1) 908 - (908) - -
Operating expense 123,253 128,996 (908) - 251,341
Amortization and
accretion expense 16,489 11,042 - 9,736 37,267
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Net margin 47,135 20,086 - (9,736) 57,485
Selling, general and
administrative - - - 39,529 39,529
Finance charges - - - 18,675 18,675
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Earnings (loss) before
taxes 47,135 20,086 - (67,940) (719)
-------------------------------------------------------------------------
Capital expenditures
and acquisitions(2) 5,825 9,393 - 3,827 19,045
-------------------------------------------------------------------------
Goodwill 62,280 41,317 - - 103,597
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Total assets 520,164 413,946 - 67,277 1,001,387
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-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the Nine Months Ended September 30, 2008
Consoli-
Inter- Unallo dated
Western Eastern segment cated(3) Total
-------------------------------------------------------------------------
External revenue 276,501 175,113 - - 451,694
Inter segment revenue(1) 669 - (669) - -
Operating expense 175,888 132,675 (669) - 307,894
Amortization and
accretion expense 16,069 11,920 - 7,422 35,491
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Net margin 85,213 30,518 - (7,422) 108,309
Selling, general and
administrative - - - 45,567 45,567
Finance charges - - - 17,866 17,866
-------------------------------------------------------------------------
Earnings (loss) before
taxes 85,213 30,518 - (70,855) 44,876
-------------------------------------------------------------------------
Capital expenditures
and acquisitions(2) 37,122 29,089 - 12,337 78,548
-------------------------------------------------------------------------
Goodwill 62,280 41,317 - - 103,597
-------------------------------------------------------------------------
Total assets 549,406 431,674 - 59,693 1,040,773
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(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.
NOTE 16. SUBSEQUENT EVENTS
a) Renewal of Credit Facility
On October 9, 2009, Newalta extended the maturity of its Credit Facility to October 12, 2011, and elected to reduce the principal amount of the Credit Facility from $375 million to $350 million. There were no other amendments to the terms of the Credit Facility.
b) Letters of Credit
On October 20, 2009, Newalta received notification from the ERCB that we were eligible to the return of certain letters of credit. As a result, outstanding letters of credit totalling $22 million were returned to Newalta as at November 5, 2009.
c) Equity Issue
On October 27, 2009, Newalta closed an equity issuance to sell 6,037,500 million shares on a bought deal basis at a price of $7.65 per share to raise gross proceeds of $46.0 million (net proceeds of $43.8 million).