Newalta Income Fund Announces 2005 First Quarter Results
CALGARY, ALBERTA - May 9, 2005 /CNW/ - Newalta Income Fund
(TSX:NAL.UN) ("Newalta" or the "Fund") today announced results for the
first quarter ended March 31, 2005. Revenue improved $5.6 million or 13%
and cash flow2 increased 12% to $15.4 million, or $0.56 per unit,
compared to $13.8 million, or $0.51 per unit for the same period in
2004. Increased cash flow resulted from the impact of the 2004 capital
program and from higher crude oil prices. Operating expenses, as a
percent of revenue, were reduced to 56% compared to 58% in the first
quarter of 2004 and 60% in the fourth quarter of last year. Cash
distributed during the three months ended March 31, 2005 was $8.9
million, which represented 61% of the $14.6 million cash available for
growth and distributions3. Monthly distributions were increased 20% from
12.5 cents to 15.0 cents per unit commencing with the March 2005
distribution.
Oilfield division revenue increased $5.4 million or 19% compared to 2004
and net margin4 increased $3.3 million or 25%. A significant portion of
increased revenue and net margin was associated with growth in on-site
services, satellites and partnerships as a result of growth capital
expenditures completed in 2004. Increased crude oil prices contributed
an additional $1.0 million of Oilfield revenue and net margin. Results
were strong during the quarter, despite early spring break-up conditions
and the imposition of road bans in the first week of March.
Industrial division revenue increased $0.2 million or 1% compared to
last year and net margin declined $0.5 million. Higher crude oil prices
resulted in a decline in net margin of $0.4 million compared to 2004.
Excluding the decline in performance attributable to increased crude oil
prices, revenue was up $0.5 million and net margin was down $0.1
million. The first quarter is typically the slowest quarter for
Industrial due to freezing conditions. Acquisitions completed in 2004
added to the existing seasonality of Industrial's first quarter. Recent
acquisitions, primarily vacuum and on-site services, experienced low
utilization levels during the winter months as they are heavily
dependent on the ability to transport liquid materials. Excluding the
contributions from 2004 acquisitions, the performance of the base
business was relatively unchanged in comparison with the same quarter of
last year. An extended plant shutdown for scheduled preventative
maintenance also contributed to weaker performance. Increased
contribution from 2004 acquisitions is expected throughout the remainder
of 2005.
Selling, general and administrative ("SG&A") costs decreased by $0.9
million to $5.0 million compared to the fourth quarter of 2004. SG&A
costs were 10.4% of revenue and were consistent with management's
expectation of $5.0 million per quarter at current activity levels.
EBITDA1 of $16.1 million for the three months increased 16% compared to
$13.8 million in 2004. Cash available for growth and distributions grew
by 21% to $14.6 million, or $0.53 per unit, compared to $12.0 million,
or $0.45 per unit, in the same quarter last year.
Maintenance capital was $0.9 million compared to $1.0 million in 2004.
Total maintenance capital for 2005 is expected to be approximately $9.0
million. Growth and acquisition capital expenditures in the quarter were
$12.3 million compared to $14.3 million in 2004. An Oilfield facility in
Green Court, Alberta was acquired during the quarter for total cash
consideration of $8.0 million. Including the acquisition of an Oilfield
facility in Plover Lake, Saskatchewan announced April 18, 2005 for $4.0
million, total capital expenditures for the year, excluding any
additional acquisitions, are estimated to be approximately $54.0 million.
"We met our financial objectives in the first quarter and we made
excellent progress on all of our initiatives to continue to improve and
grow our operations. We increased our distributions in the quarter and
the cash available for growth and distributions was $5.7 million above
the actual cash distributed to our investors," said Al Cadotte, Newalta
Income Fund's President and Chief Executive Officer.
Newalta's liquidity and capital resource capacity remains strong with a
working capital ratio of 1.97, a long-term debt to 12-month trailing
EBITDA ratio of 0.83 and $34.6 million of the $90.0 million credit
facility unutilized at March 31, 2005.
During the quarter, a total of $1.3 million of distributions was
reinvested by unitholders under the Distribution Reinvestment Plan (the
"DRIP"), representing an average participation rate of approximately
13%, resulting in Newalta issuing 60,239 trust units. The DRIP provides
eligible holders of trust units of Newalta with the opportunity to
reinvest their monthly cash distributions to acquire additional trust
units at a net purchase price equal to 95% of the average market price
as defined in the DRIP.
/T/
FINANCIAL AND OPERATIONAL HIGHLIGHTS
Three Months Ended
($000's, except per unit data) March 31 (unaudited)
-------------------------------
%Increase
2005 2004 (Decrease)
-------------------------------
Revenue 48,487 42,888 13
Operating income 11,015 10,260 7
Net earnings 9,795 9,872 (1)
Earnings per unit ($) 0.36 0.37 (3)
Diluted earnings per unit ($) 0.35 0.36 (3)
EBITDA(1) 16,067 13,845 16
Trailing 12 month EBITDA 57,148 52,577 9
Cash flow(2) 15,400 13,801 12
- per unit ($) 0.56 0.51 10
Maintenance capital expenditures 881 1,024 (14)
Principal repayments - 750 (100)
Cash available for growth and
distributions(3) 14,574 12,022 21
- per unit - $ 0.53 0.45 18
Distributions declared 10,954 9,021 21
- per unit - $ 0.40 0.335 19
Cash distributed 8,913 8,456 5
Growth and acquisition capital
expenditures 12,362 14,265 (13)
Weighted average units outstanding 27,343 26,878 2
Total units outstanding 27,486 27,075 2
------------------------------------------------------------------------
------------------------------------------------------------------------
/T/
(1) EBITDA is provided to assist management and investors in determining
the ability of Newalta to generate cash from operations. It is
calculated from the consolidated statements of operations and
accumulated earnings as revenue less operating and selling, general and
administrative expenses. This measure does not have any standardized
meaning prescribed by Canadian generally accepted accounting principles
("GAAP") and may not be comparable to similar measures presented by
other funds or entities.
(2) Management uses cash flow (before changes in non-cash working
capital) to analyze operating performance and leverage. Cash flow as
presented does not have any standardized meaning prescribed by Canadian
GAAP and therefore it may not be comparable with the calculation of
similar measures for other funds or entities. Cash flow as presented is
not intended to represent operating cash flow or operating profits for
the period nor should it be viewed as an alternative to cash flow from
operating activities, net earnings or other measures of financial
performance calculated in accordance with Canadian GAAP. All references
to cash flow and cash flow per unit throughout this document are based
on operating cash flow before changes in non-cash working capital and
asset retirement costs.
(3) Management uses cash available for growth and distributions to
supplement cash flow as a measure of operating performance and leverage.
Cash available for growth and distributions as presented does not have
any standardized meaning prescribed by Canadian GAAP and therefore it
may not be comparable with the calculation of similar measures for other
funds or entities. The objective of this non-GAAP measure is to
calculate the amount which is available for distribution to unitholders.
Cash available for growth and distributions is defined as cash flow less
maintenance capital expenditures, principal repayments, asset retirement
costs and deferred costs plus net proceeds on sales of fixed assets. All
references to cash available for growth and distributions throughout
this document have the meaning set out in this note.
(4) Management uses net margin to analyze divisional operating
performance. Net margin as presented does not have any standardized
meaning prescribed by Canadian GAAP and therefore it may not be
comparable with the calculation of similar measures for other funds or
entities. Net margin as presented is not intended to represent operating
income nor should it be viewed as an alternative to net earnings or
other measures of financial performance calculated in accordance with
Canadian GAAP. Net margin is defined as revenue less operating and
depreciation, amortization and accretion expenses.
The consolidated financial statements and notes thereto and Management's
Discussion and Analysis are attached.
Management will hold a conference call on Tuesday, May 10, 2005 at
1:00p.m. (ET) to discuss the Fund's performance for the three months
ended March 31, 2005. To listen, please dial 1-800-565-0813 or
416-695-9702, or log onto the webcast at www.newalta.com. For those
unable to listen to the live event, a rebroadcast will be available at
www.newalta.com and, until midnight on May 17, 2005, by dialing
1-888-509-0082 or 416-695-5275.
Newalta Income Fund is an open-ended trust that maximizes the inherent
value in certain industrial wastes through recovery of saleable products
and recycling, rather than disposal. Through an integrated network of 42
state-of-the-art facilities, Newalta delivers world-class solutions to a
broad customer base of national and international corporations, in a
range of industries, including the automotive, forestry, pulp and paper,
manufacturing, mining, oil and gas, petrochemical, and transportation
services industries. With a track record of profitable growth and
environmental stewardship, Newalta is focused on leveraging its position
in new service sectors and geographic markets from coast to coast.
NEWALTA INCOME FUND
Management's Discussion and Analysis
FOR THE THREE MONTHS ENDED MARCH 31, 2005
This document contains certain forward-looking statements, relating to
the operations or to the environment in which Newalta Income Fund (the
"Fund") and Newalta Corporation (the "Corporation" and together with the
Fund, "Newalta") operate, which are based on Newalta's operations,
estimates, forecasts and projections. These statements are not
guarantees of future performance and involve risks and uncertainties
that are difficult to predict, or are beyond Newalta's control. A number
of important factors could cause actual outcomes and results to differ
materially from those expressed in these forward-looking statements.
These factors include, but are not limited to, general economic,
regulatory, oil and gas industry activity and such other risks or
factors described from time to time in the reports filed with securities
regulatory authorities by Newalta. Consequently, readers should not
place any undue reliance on such forward-looking statements. In
addition, these forward-looking statements relate to the date on which
they are made. Newalta does not undertake any intention or obligation to
update or revise any forward-looking statements, whether as a result of
new information, future events or otherwise. All forward-looking
statements contained in this document are expressly qualified by this
cautionary statement.
The following discussion and analysis should be read in conjunction with
the consolidated interim financial statements of the Fund for the three
months ended March 31, 2005, the consolidated financial statements of
the Fund and notes thereto, the Management's Discussion and Analysis and
the Annual Information Form of the Fund for the year ended December 31,
2004, and consolidated interim financial statements of the Fund and the
notes thereto and the Management's Discussion and Analysis for the three
months ended March 31, 2004.
Information for the three months ended March 31, 2005, along with
comparative information for 2004, is provided.
This Management's Discussion and Analysis is dated May 5, 2005 and takes
into consideration information available up to that date.
OVERALL PERFORMANCE
Revenue for the first quarter increased 13% to $48.5 million compared to
$42.9 million in 2004. The Oilfield division ("Oilfield") was the
primary source for the revenue increase, providing a $5.4 million or 19%
increase over last year. Net margin in Oilfield increased by 25% to
$16.5 million compared to $13.2 million in 2004. Significant
contribution to Oilfield revenue and net margin was provided by growth
capital initiatives related to the expansion of on-site services,
satellites and partnerships which were completed in 2004. Increased
crude oil prices resulted in an additional $1.0 million contribution to
Oilfield revenue and net margin in the first quarter. Strong Oilfield
performance was tempered however, by unseasonably warm temperatures
which led to early spring break-up conditions. Industrial division
("Industrial") revenue increased $0.2 million to $14.3 million from
$14.1 million and net margin declined $0.5 million to $1.0 million
compared to 2004. High crude oil prices continued to impact Industrial,
resulting in a reduction to net margin of $0.4 million due to decreased
collection revenue and increased transportation fuel costs. Excluding
this effect, Industrial's first quarter performance was consistent with
expectations. The first quarter is typically Industrial's weakest
quarter due to the restricted ability to transport liquid materials
during the winter months. The seasonal nature of the Industrial business
has been accentuated with recent acquisitions, which experience low
market activity levels during freezing conditions, and therefore
increased contribution to revenue and net margin is not expected until
the second and third quarters.
Cash flow increased 12% to $15.4 million compared to $13.8 million in
2004. Maintenance capital expenditures, which are funded from cash flow,
were $0.9 million compared to $1.0 million in 2004. Cash available for
growth and distribution increased 21% to $14.6 million compared to $12.0
million in the same quarter of 2004 due to increased cash flow and the
elimination of principal repayments. Cash distributed to unitholders
represented 61% of cash available for growth and distributions.
Distributions were increased from 12.5 cents to 15.0 cents per unit
commencing with the March 2005 distribution.
Growth capital expenditures of $4.3 million were incurred in the quarter
compared to $3.6 million in 2004. Contribution from the growth capital
expenditures made in 2004 was experienced in Oilfield, but was modest in
Industrial due to seasonality. Total acquisition expenditures were $8.0
million compared to $10.7 million in 2004.
Segmented information is discussed in further detail in the Results of
Operations.
RESULTS OF OPERATIONS
Combined divisional net margin in the first quarter increased $2.8
million or 19% to $17.4 million compared to $14.6 million in 2004. The
increase in net margin was predominantly attributable to growth capital
initiatives and acquisitions completed in 2004. Higher crude oil prices
contributed a net $0.6 million increase in combined divisional net
margin compared to 2004.
OILFIELD
Oilfield recovers and resells crude oil from oilfield waste. Oilfield
accounted for approximately 60% of Newalta's total assets and generated
70% of Newalta's revenue in the first quarter. Revenue from Oilfield is
generated mainly from the fees charged for the treatment and processing
of various oilfield waste materials and from the sale of recovered crude
oil. Approximately 85% of revenue comes from day to day production
related waste. Revenue is also impacted by oilfield activity levels
which are driven mainly by commodity prices. A change of Cdn $1.50 for
WTI is estimated to impact operating income by approximately $0.5
million.
Oilfield revenue of $34.2 million increased 19% compared to $28.7
million in 2004. Of the $5.5 million in incremental revenue in the first
quarter, over 70% was associated with the acquisition and expansion of
satellite facilities as well as growth in on-site services and
partnerships. The remainder of the revenue increase was largely
attributable to increased crude oil prices. A shortened winter drilling
program, however, reduced activity levels as road bans were implemented
in the first week of March.
Recovered crude oil sales increased by 29% to $4.3 million compared to
$3.3 million in 2004. Oil sold for Newalta's account was unchanged at
83,355 barrels as compared to 83,034 barrels in the same quarter of
2004. The price per barrel sold increased by 29% to an average price of
Cdn $50.73 per barrel compared to an average price of Cdn $39.47 per
barrel in 2004. Total crude oil recovered from waste processing
increased 2% to 319,161 barrels compared to 313,890 barrels in 2004.
Oilfield net margin increased by $3.3 million or 25% to $16.5 million
compared to $13.2 million in the prior year, of which $1.0 million was
attributable to increased crude oil prices. The remaining improvement in
profitability was due to the impact of 2004 growth capital and
acquisition expenditures as well as pricing increases. Operating costs
as a percentage of revenue were reduced to 45% compared to 46% in the
same quarter of 2004.
Acquisitions completed in the first quarter included an Oilfield
facility in Green Court, Alberta acquired on March 1, 2005 for total
cash consideration of $8.0 million. The impact of this acquisition on
first quarter performance was modest. Growth capital expenditures in the
division were $1.3 million compared to $2.0 million in 2004. Maintenance
capital expenditures were $0.5 million compared to $0.4 million in 2004.
The outlook for Oilfield for the remainder of 2005 remains positive.
Activity levels are expected to remain strong as producers take
advantage of favourable market conditions and robust commodity prices.
Growth capital investments and acquisitions made in 2004 are expected to
continue to positively impact 2005 performance. These conditions,
combined with the impact of management initiatives, a plan to develop
complementary services and an aggressive growth program, should result
in continued strong results.
INDUSTRIAL
Industrial collects liquid and semi-solid industrial wastes as well as
automotive wastes, including waste lubricating oil, and provides mobile
site services in western Canada. Recovered materials are processed into
resaleable products. Industrial accounted for 35% of Newalta's total
assets and generated 30% of Newalta's total revenue for the quarter
ended March 31, 2005. Industrial produces various resaleable products
from waste lubricating oil, including base oils, refinery feedstocks,
industrial fuels and carrier fluids such as drilling oil. Approximately
$6.6 million or 46% of revenue during the quarter was derived from
product sales as compared to $7.0 million or 49% in 2004. The balance of
Industrial's revenue was derived mainly from collection and processing
fees, which increased 8% to $7.8 million from $7.2 million in 2004.
Industrial's performance is impacted by the general state of the economy
in western Canada, as well as commodity prices and economic conditions
related to the oil and gas, mining and forestry industries. The
automotive market is generally a stable market as the sale of goods such
as lube oil does not significantly fluctuate from year to year.
Industrial revenue for the first quarter increased $0.2 million or 1% to
$14.3 million compared to $14.1 million in 2004. Net margin declined
$0.5 million to $1.0 million compared to 2004. High crude oil prices
continued to impact Industrial, resulting in a reduction to net margin
of $0.4 million due to decreased collection revenue, as industrial fuel
consumers sourced alternate fuel sources, and increased transportation
fuel costs. Excluding this effect, Industrial's revenue was up $0.5
million and net margin was down $0.1 million. Revenue was also impacted
by an extended preventative maintenance shutdown in the North Vancouver
plant which was twice the duration of the shutdown last year. Because
the first quarter is typically the slowest quarter for Industrial,
planned maintenance and process improvements are performed during this
period. The impact of acquisitions completed in 2004 provided a
contribution to increased revenue but had only a modest impact on net
margin. The recent acquisitions added to the already seasonal nature of
Industrial, as they are site service oriented and heavily dependent on
moving liquid materials. Because of freezing conditions during the first
quarter, many Industrial projects are deferred until the second and
third quarters. Additionally, mine work, such as road de-dust, does not
commence until roads begin to dry in the spring. As a consequence, first
quarter revenue historically accounts for approximately 21% of
Industrial year-end revenue and contributes only approximately 10% of
the year's net margin.
Growth capital expenditures in the first quarter were $0.4 million
compared to $0.5 million in 2004. Maintenance capital expenditures were
$0.2 million compared to $0.5 million in 2004.
Industrial will continue to focus on developing product markets,
leveraging its centrifugation expertise in sludge processing, increasing
utilization of its fleet of mobile equipment for site services,
expanding waste water processing as well as identifying potential
acquisitions of complementary businesses. This strategy, combined with
the contribution from acquisitions and growth capital spending
investments undertaken in 2004, is anticipated to contribute to strong
performance for the remainder of 2005.
CORPORATE AND OTHER
Selling, general and administrative ("SG&A") costs increased $0.9
million or 22% to $5.0 million compared to the first quarter of 2004.
SG&A costs decreased by $0.9 million compared to the fourth quarter of
2004 and were consistent with management's expectation of $5.0 million
per quarter at current activity levels. SG&A costs as a percent of
revenue were 10.4% compared to 9.6% in the same quarter of last year.
The increase in first quarter SG&A costs was due primarily to increased
salaries and related costs, increased corporate governance and other
costs associated with growth in the business. Management's continued
goal is to maintain SG&A costs, as a percent of revenue, at 10% or less.
Depreciation, amortization and accretion increased $0.9 million or 26%
to $4.4 million compared to $3.5 million in the same quarter of last
year. Included in depreciation, amortization and accretion was a $0.4
million loss on the disposal of redundant equipment. As a percentage of
revenue, depreciation, amortization and accretion, excluding the loss on
disposal, was comparable to the first quarter of 2004 at 8.3% of revenue.
Interest expense increased by $0.5 million to $0.6 million compared to
$0.1 million in 2004. The increase was a result of higher average debt
levels in the first quarter of 2005 compared to 2004. Long-term debt at
the end of the first quarter was $47.6 million compared to $36.6 million
in the prior year.
Income tax expense was $1.2 million compared to $0.4 million in 2004.
Income tax expense was lower in 2004 due to a decrease in the Alberta
corporate tax rate announced March 31, 2004 which resulted in a $0.7
million reduction to future income tax in that quarter. Current tax
expense was related to large corporation taxes and provincial capital
taxes. Newalta does not anticipate paying any cash income taxes in 2005,
with the exception of large corporation taxes and provincial capital
taxes.
Operating income increased by 7% to $11.0 million compared to $10.3
million in 2004.
Net earnings for the quarter were $9.8 million compared to $9.9 million
in 2004. Diluted earnings per unit were $0.35 per unit compared to $0.36
in 2004. Cash flow increased 12% to $15.4 million or $0.56 per unit
compared to 13.8 million or 0.51 per unit in 2004.
As at May 5, 2005 the Fund had 27,533,892 units outstanding and
outstanding rights to acquire up to 1,205,186 units.
/T/
SUMMARY OF QUARTERLY RESULTS
($000s, except 2005 2004 2003
per unit data) Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2
------------------------------------------------------------------------
Revenue 48,487 49,339 45,990 40,449 42,888 40,098 41,981 34,543
------------------------------------------------------------------------
Operating
income 11,015 8,941 11,447 8,095 10,260 9,938 12,186 5,676
------------------------------------------------------------------------
Net earnings 9,795 8,364 10,088 7,880 9,872 9,171 9,740 5,853
------------------------------------------------------------------------
Earnings per
unit ($) 0.36 0.31 0.37 0.29 0.37 0.35 0.43 0.26
------------------------------------------------------------------------
Diluted
earnings per
unit ($) 0.35 0.30 0.36 0.28 0.36 0.35 0.42 0.26
------------------------------------------------------------------------
Weighted
average
units 27,343 27,265 27,244 27,147 26,878 25,966 22,907 22,196
------------------------------------------------------------------------
Diluted units 27,910 27,866 27,756 27,608 27,463 26,515 23,404 22,897
------------------------------------------------------------------------
------------------------------------------------------------------------
/T/
Quarterly performance is affected by weather conditions, commodity
prices, market demand and capital investments as well as acquisitions.
The ability to transport waste is dependent on weather conditions.
During the winter months the ability to provide various site services or
transport certain liquids can be restricted due to freezing conditions.
The first quarter is therefore typically the weakest quarter for the
Industrial division. For the Oilfield division, frozen ground during the
winter months tends to provide an optimal environment for drilling
activities and the first quarter is typically strong for Oilfield. 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 they have thoroughly dried out. Road bans,
which are generally imposed in the spring, restrict waste transportation
which reduces demand for Newalta's services and, therefore, the second
quarter is generally the weakest quarter of the year for Oilfield. The
third quarter is typically the strongest quarter for both Oilfield and
Industrial due to favourable weather conditions and market cyclicality.
Changes in commodity prices and drilling activity throughout the year
will also impact performance. Similarly, acquisitions and growth capital
investments completed in the first half will tend to strengthen second
half financial performance. First quarter revenue can range from 20% to
26% of year-end revenue and typically averages approximately 24%. Second
quarter revenue averages approximately 22% of year-end revenue and can
range from 20% to 23%. Third quarter revenue can range from 26% to 31%
and averages approximately 27% of year-end totals. Fourth quarter
revenue averages approximately 27% and can range from 24% to 30%. In
2004, quarterly revenues as a percent of total year-end revenue were 24%
in the first quarter, 23% in the second quarter, 26% in the third
quarter and 27% in the fourth quarter.
Quarterly financial results have been prepared by management in
accordance with Canadian generally accepted accounting principles in
Canadian dollars.
LIQUIDITY
For the three months ended March 31, 2005, Newalta generated cash flow
of $15.4 million. Maintenance capital expenditures were $0.9 million
compared to $1.0 million in 2004. No principal payments were made in the
first quarter and according to the terms of the credit facility, no
further principal repayments are due until July 2006, at the earliest.
Cash distributed during the quarter represented 61% of cash available
for growth and distributions. Monthly distributions were increased from
12.5 cents to 15.0 cents per unit commencing with the March 2005
distribution.
For the three months ended March 31, 2005, $5.7 million of cash
available for growth and distributions was generated in excess of cash
distributed, calculated as follows:
/T/
------------------------------------------------------------------------
($ millions) 2005 2004
------------------------------------------------------------------------
Cash flow 15.4 13.8
Maintenance capital (0.9) (1.0)
Proceeds on sale of capital assets 0.1 -
Principal repayments - (0.8)
------------------------------------------------------------------------
Cash available for growth and distributions 14.6 12.0
Cash distributed (8.9) (8.5)
------------------------------------------------------------------------
Excess cash 5.7 3.5
------------------------------------------------------------------------
------------------------------------------------------------------------
/T/
The Fund is restricted from declaring distributions and distributing
cash if it is in breach of the covenants under its credit facility.
Current financial performance is well in excess of the debt covenants
under the credit facility. At March 31, 2005, Newalta had a long-term
debt to 12-month trailing EBITDA ratio of 0.83 and a working capital
ratio of 1.97. Newalta does not have a stability rating.
At March 31, 2005, Newalta had working capital of $26.0 million, up from
$21.4 million at December 31, 2004. The increase in working capital is
primarily the result of the excess cash that was not distributed to
holders of trust units. At current activity levels, working capital of
$26.0 million is expected to be sufficient to meet the ongoing
commitments and operational demands of the business.
During the interim period ended March 31, 2005, there has been no
material changes to the specified contractual obligations as set forth
in the Management's Discussion and Analysis for the year ended December
31, 2004.
Newalta currently has a $25.0 million operating line to fund working
capital and financial security requirements, of which $13.6 million was
unutilized at March 31, 2005. Letters of credit provided as financial
security to third parties totaled $7.8 million at March 31, 2005. In
addition to the operating line, Newalta's credit facility also includes
a $65.0 million extendible term facility to fund growth capital and
acquisition expenditures.
The total estimated cost for asset retirement at March 31, 2005 was
$13.8 million. At March 31, 2005, $5.0 million of asset retirement costs
has been accrued in the consolidated balance sheet.
Regulatory approval was received in the third quarter of 2004 for the
Distribution Reinvestment Plan (the "DRIP") of the Fund. The DRIP
provides eligible holders of trust units of Newalta with the opportunity
to reinvest their monthly cash distributions to acquire additional trust
units at a net purchase price equal to 95% of the average market price
as defined in the DRIP. During the first quarter of 2005, a total of
$1.3 million was reinvested by unitholders under the DRIP, representing
an average participation rate of approximately 13%, resulting in Newalta
issuing 60,239 trust units.
CAPITAL RESOURCES
Total capital expenditures in the first quarter were $13.2 million
compared to $15.3 million in 2004. Maintenance capital expenditures in
the quarter were $0.9 million compared to $1.0 million in 2004. Total
maintenance capital expenditures for 2005 are estimated to be
approximately $9.0 million. Maintenance capital is funded from cash
flow. A total of $4.3 million was spent on internal growth projects in
the quarter compared to $3.6 million in 2004. It is estimated that
spending on internal growth projects will be approximately $30.0 million
for 2005. Total acquisition expenditures in the first quarter were $8.0
million compared to $10.7 million in 2004. On March 1, 2005, Newalta
acquired an Oilfield facility in Green Court, Alberta for total cash
consideration of $8.0 million. The total investment in the facility,
including additional capital anticipated to be expended in 2005, is
estimated to be $10.0 million. In addition, effective April 15, 2005, an
Oilfield facility in Plover Lake, Saskatchewan was acquired for total
cash consideration of $4.0 million. Including the Plover Lake
acquisition, total capital expenditures for the year are estimated to be
approximately $54.0 million, excluding any additional acquisitions.
Future expenditures for growth capital will be funded from working
capital and the extendible term credit facility. Sources of funding for
acquisitions will be dependent on the size of the acquisition.
Total capital expenditures for the first quarter are summarized as
follows:
/T/
------------------------------------------------------------------------
($ millions) 2005 2004
------------------------------------------------------------------------
Growth capital 4.3 3.6
Acquisitions 8.0 10.7
------------------------------------------------------------------------
Total growth and acquisition capital 12.3 14.3
Maintenance capital 0.9 1.0
------------------------------------------------------------------------
Total capital expenditures 13.2 15.3
------------------------------------------------------------------------
------------------------------------------------------------------------
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Newalta's existing credit facility provides for a $25.0 million
operating line plus a $65.0 million extendible term facility. At March
31, 2005, Newalta had $13.6 million of unutilized operating line and
$21.0 million of unutilized extendible term facility.
OFF-BALANCE SHEET ARRANGEMENTS
Newalta currently has no off-balance sheet arrangements.
TRANSACTIONS WITH RELATED PARTIES
Bennett Jones LLP provides legal services to Newalta. Mr. Vance
Milligan, a Trustee and Corporate Secretary of the Fund, is a partner in
the law firm of Bennett Jones LLP and is involved in providing and
managing the legal services provided to Newalta. The total amount of
these legal services in the first quarter of 2005 was $0.1 million
compared to $0.1 million in 2004.
Newalta provides Oilfield services to Paramount Resources Ltd., an oil
and gas company. Mr. Clayton Riddell, a Trustee and Chairman of the
Board of the Fund, is Chairman and Chief Executive Officer of Paramount
Resources Ltd. The total revenue for services provided by Newalta to
Paramount Resources Ltd. in the first quarter of 2005 was $0.5 million
(representing approximately 1% of the revenue of the Fund) compared to
$0.2 million (representing approximately 0.5% of the revenue of the
Fund) in 2004.
These transactions were incurred in the normal course of operations on
similar terms and conditions to those entered into with unrelated
parties. These transactions are measured at the exchange amount, which
is the amount of consideration established and agreed to by the related
parties.
CRITICAL ACCOUNTING ESTIMATES
The preparation of the financial statements in accordance with Canadian
GAAP requires management to make estimates with regard to the reported
amounts of revenues 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 judgement and uncertainty, the amounts currently reported in
the financial statements could, in the future, prove to be inaccurate.
ASSET RETIREMENT OBLIGATIONS
Asset retirement obligations are estimated by management based on the
anticipated costs to abandon and reclaim all Newalta facilities and
wells and the projected timing of the costs to be incurred in future
periods. Management, in consultation with the Corporation'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.
GOODWILL
Management performs a test for goodwill impairment annually and whenever
events or circumstances make it more likely than not that an impairment
may have occurred. Determining whether an impairment has occurred
requires valuation of the respective reporting unit, which is estimated
using a discounted cash flow method. In applying this methodology,
management relies on a number of factors, including actual operating
results, future business plans, economic projections and market data.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization of the Fund's 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 the Fund's
plant and equipment.
CHANGES IN ACCOUNTING POLICIES INCLUDING INITIAL ADOPTION
VARIABLE INTEREST ENTITIES
In June 2003, the Canadian Institute of Chartered Accountants ("CICA")
issued Accounting Guideline 15 ("ACG-15"), Consolidation of Variable
Interest Entities, which defines Variable Interest Entities as entities
that have insufficient equity or their equity investors lack one or more
specified essential characteristics of a controlling financial interest.
The standard provides guidance for determining when an entity is a
Variable Interest Entity and who, if anyone, should consolidate the
Variable Interest Entity. ACG-15 applies to all annual and interim
periods beginning on or after November 1, 2004. The adoption of this new
accounting guideline does not have an impact on the consolidated
financial statements of the Fund.
FINANCIAL INSTRUMENTS - RECOGNITION AND MEASUREMENT, HEDGES, AND
COMPREHENSIVE INCOME
The Accounting Standards Board ("AcSB") has issued three exposure drafts
on financial instruments which will apply to interim and annual
financial statements relating to fiscal years beginning on or after
October 1, 2006. It will require the following:
- all trading financial instruments will be recognized on the balance
sheet and will be fair valued through the income statement;
- all remaining financial assets will be recorded at cost and amortized
through the financial statements;
- a new statement for comprehensive income that will include certain
gains and losses on translation of assets and liabilities; and
- an update to Accounting Guideline 13 to incorporate the fair value
changes not recorded in the income statement to be recorded through the
comprehensive income statement.
The Fund is currently evaluating the impact of this new accounting
guideline but its adoption is not expected to have an impact on the
consolidated financial statements.
EXCHANGEABLE SECURITIES ISSUED BY SUBSIDIARIES OF INCOME TRUSTS
On January 19, 2005, the CICA Emerging Issues Committee ("EIC") issued
EIC Abstract 151, Exchangeable Securities Issued by Subsidiaries of
Income Trusts which provides guidance on how to present exchangeable
securities representing a retained interest in a subsidiary of an income
trust on the consolidated balance sheet of the income trust. This
Abstract must be applied retroactively, with restatement of prior
periods, to all financial statements issued after January 19, 2005.
Newalta does not have exchangeable shares and, accordingly, the adoption
of this new accounting guideline does not have an impact on the
consolidated financial statements of the Fund.
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 Canadian customers is
minimized by its broad customer base and diverse product lines. In the
normal course of operations, Newalta is exposed to movements in the U.S.
dollar exchange rates, relative to the Canadian dollar. Newalta sells
and purchases some product in U.S. dollars. Newalta does not utilize
hedging instruments but rather chooses to be exposed to current U.S.
exchange rates as increases or decreases in exchange rates are not
considered to be significant over the period of the outstanding
receivables and payables. 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.
ADDITIONAL INFORMATION
Additional information relating to the Fund, including the Annual
Information Form, is available through the Internet on the Canadian
System for Electronic Document Analysis and Retrieval (SEDAR) which can
be accessed at www.sedar.com. Copies of the Annual Information Form of
the Fund may be obtained from Newalta Corporation at #1200, 333 - 11th
Avenue S.W., Calgary, Alberta T2R 1L9 or by facsimile at (403) 262-7348.
/T/
Newalta Income Fund
Consolidated Balance Sheets
------------------------------------------------------------------------
March 31, December 31,
($000's) (unaudited) 2005 2004
------------------------------------------------------------------------
Assets
Current assets
Accounts receivable 40,926 40,885
Inventories 7,160 7,214
Prepaid expenses 1,089 1,075
Future income tax 3,600 3,600
------------------------------------------------------------------------
52,775 52,774
Capital assets 263,245 255,197
Intangibles 4,078 3,212
Goodwill 13,212 13,212
Deferred costs 550 550
------------------------------------------------------------------------
333,860 324,945
------------------------------------------------------------------------
------------------------------------------------------------------------
Liabilities
Current liabilities
Accounts payable 22,675 27,996
Distribution payable (Note 10) 4,123 3,412
------------------------------------------------------------------------
26,798 31,408
Long-term debt (Note 5) 47,638 36,617
Future income taxes 42,417 41,347
Asset retirement obligation (Note 11) 5,009 4,875
------------------------------------------------------------------------
121,862 114,247
------------------------------------------------------------------------
Unitholders' Equity
Unitholders' capital (Note 6) 157,190 154,170
Contributed surplus 1,117 1,678
Accumulated earnings 127,262 117,467
Accumulated cash distributions (Note 10) (73,571) (62,617)
------------------------------------------------------------------------
211,998 210,698
------------------------------------------------------------------------
333,860 324,945
------------------------------------------------------------------------
------------------------------------------------------------------------
Newalta Income Fund
Consolidated Statements of Operations and
Accumulated Earnings
------------------------------------------------------------------------
For the Three Months
Ended March 31
($000's) (unaudited) 2005 2004
------------------------------------------------------------------------
Revenue 48,487 42,888
Expenses
Operating 27,384 24,912
Selling, general and administrative 5,036 4,131
Interest 644 76
Depreciation, amortization, and accretion 4,408 3,509
------------------------------------------------------------------------
37,472 32,628
------------------------------------------------------------------------
Operating income 11,015 10,260
Provision for income taxes
Current 150 125
Future (Note 8) 1,070 263
------------------------------------------------------------------------
1,220 388
------------------------------------------------------------------------
Net earnings 9,795 9,872
Accumulated earnings, beginning of period,
as reported 117,467 81,123
Cumulative effect of change in accounting
policy (Note 2b) - 139
------------------------------------------------------------------------
Accumulated earnings, end of period 127,262 91,134
------------------------------------------------------------------------
------------------------------------------------------------------------
Earnings per unit (Note 9) $ 0.36 $ 0.37
------------------------------------------------------------------------
------------------------------------------------------------------------
Diluted earnings per unit (Note 9) $ 0.35 $ 0.36
------------------------------------------------------------------------
------------------------------------------------------------------------
Newalta Income Fund
Consolidated Statements of Cash Flows
------------------------------------------------------------------------
For the Three Months
Ended March 31
($000's) (unaudited) 2005 2004
------------------------------------------------------------------------
Net inflow of cash related to the following
activities:
Operating activities
Net earnings 9,795 9,872
Items not requiring cash:
Depreciation, amortization, and accretion 4,408 3,509
Future income taxes 1,070 263
Stock compensation expense 127 157
------------------------------------------------------------------------
15,400 13,801
Increase in non-cash working capital (1,036) (3,395)
Asset retirement costs incurred (40) (23)
------------------------------------------------------------------------
14,324 10,383
------------------------------------------------------------------------
Investing activities
Additions to capital assets (5,228) (4,574)
Net proceeds on sale of capital assets 95 22
Acquisitions (Note 4) (8,015) (10,715)
Increase in non-cash working capital (4,286) (1,493)
Deferred costs - (3)
------------------------------------------------------------------------
(17,434) (16,763)
------------------------------------------------------------------------
Financing activities
Issuance of units 1,002 1,902
Increase (decrease) in long-term debt 11,021 (751)
Distributions to unitholders (8,913) (8,456)
------------------------------------------------------------------------
3,110 (7,305)
------------------------------------------------------------------------
Net cash inflow (outflow) - (13,685)
Cash - beginning of period - 12,529
------------------------------------------------------------------------
Cash - end of period - (1,156)
------------------------------------------------------------------------
------------------------------------------------------------------------
Supplementary information:
------------------------------------------------------------------------
Interest paid 657 224
------------------------------------------------------------------------
Income taxes paid 148 134
------------------------------------------------------------------------
NEWALTA INCOME FUND
Notes to the Consolidated Financial Statements
For the Three Months Ended March 31, 2005 and 2004
($000's)
/T/
Newalta Income Fund (the "Fund") was established by Deed of Trust dated
January 16, 2003. The Fund is a Canadian income trust engaged, through
its wholly-owned operating subsidiary Newalta Corporation (the
"Corporation"), in maximizing the inherent value in certain industrial
wastes through recovery of saleable products and recycling, rather than
disposal. Through an integrated network of facilities, the Corporation
delivers waste management solutions to a broad customer base of national
and international corporations, in a range of industries, including the
automotive, forestry, pulp and paper, manufacturing, mining, oil and
gas, petrochemical, and transportation services industries.
1) Summary of Significant Accounting Policies
The interim consolidated financial statements include the accounts of
the Fund and its wholly-owned subsidiary companies and have been
prepared by management in accordance with Canadian generally accepted
accounting principles. Certain information and disclosures normally
required to be included in the notes to the audited annual financial
statements have been omitted or condensed. The accounting principles
applied are consistent with those as set out in the Fund's annual
financial statements for the year ended December 31, 2004. These interim
financial statements and the notes thereto should be read in conjunction
with the consolidated financial statements of the Fund for the year
ended December 31, 2004 as contained in the Annual Report for fiscal
2004.
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 (of a normal recurring nature) necessary to present
fairly the consolidated results of the Fund's operations and cash flows
for the periods ended March 31, 2005 and 2004.
2) Changes in Accounting Policies
a) Variable Interest Entities: In June 2003, the CICA issued Accounting
Guideline 15 ("ACG-15"), Consolidation of Variable Interest Entities,
which defines Variable Interest Entities as entities that have
insufficient equity or their equity investors lack one or more specified
essential characteristics of a controlling financial interest. The
standard provides guidance for determining when an entity is a Variable
Interest Entity and who, if anyone, should consolidate the Variable
Interest Entity. ACG-15 applies to all annual and interim periods
beginning on or after November 1, 2004. The adoption of the standard
does not have an impact on the consolidated financial statements of the
Fund.
b) Asset retirement obligations: In December 2002, the CICA issued a new
standard on the accounting for asset retirement obligations. This
standard requires recognition of a liability for the future retirement
obligations associated with property, plant and equipment. These
obligations are initially measured at fair value, which is the
discounted future value of the liability. This fair value is capitalized
as part of the cost of the related asset and amortized to expense over
its useful life. The liability accretes until the date of expected
settlement of the retirement obligations. The new standard was effective
for all fiscal years beginning on or after January 1, 2004. The Fund
estimates the undiscounted cash flows related to asset retirement
obligations, adjusted for inflation, to be incurred over the estimated
period of 20 years to be $13.8 million. The cumulative effect of this
change in accounting standards was an increase to retained earnings at
March 31, 2004 of $139.
3) Seasonality of Operations
The ability to transport waste is dependent on weather conditions.
During the winter months the ability to provide various site services or
transport certain liquids can be restricted due to freezing conditions.
The first quarter is therefore typically the weakest quarter for the
Industrial segment. For the Oilfield segment, frozen ground during the
winter months tends to provide an optimal environment for drilling
activities and the first quarter is typically strong for Oilfield. 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 they have thoroughly dried out. Road bans,
which are generally imposed in the spring, restrict waste transportation
which reduces demand for the Corporation's services and, therefore, the
second quarter is generally the weakest quarter of the year for
Oilfield. The third quarter is typically the strongest quarter for both
Oilfield and Industrial due to favourable weather conditions and market
cyclicality. First quarter revenue ranges from 20% to 26% of year-end
revenue and has averaged approximately 24%. Second quarter revenue has
averaged approximately 22% of year-end revenue and ranges from 20% to
23%. Third quarter revenue ranges from 26% to 31% and has averaged
approximately 27% of year-end revenue. Fourth quarter revenue has
averaged approximately 27% and ranges from 24% to 30%.
4) Acquisitions
a) On March 1, 2005 the Corporation acquired an oilfield facility in
Green Court, Alberta. The amount of the consideration paid and the
assets received were:
/T/
-------
Total cash consideration 8,015
-------
-------
Plant and equipment 7,081
Intangibles 1,000
Asset retirement obligation (66)
-------
Total 8,015
-------
-------
/T/
b) The Corporation acquired a satellite oilfield facility located near
Drumheller, Alberta on January 1, 2004; purchased a second satellite
facility near Redwater, Alberta on March 1, 2004; and on March 31, 2004
acquired the business and assets of an industrial services company in
Cranbrook, British Columbia. The amount of the consideration paid and
the assets received were:
/T/
January 1, March 1, March 31,
2004 2004 2004
Acquisition Acquisition Acquisition Total
-----------------------------------------------
Total cash consideration 2,012 4,000 4,703 10,715
-----------------------------------------------
-----------------------------------------------
Land - - 300 300
Plant and equipment 1,553 2,075 2,868 6,496
Intangibles 500 100 520 1,120
Petroleum and natural
gas rights - 500 - 500
Goodwill - 1,400 1,030 2,430
Asset retirement obligation (41) (75) (15) (131)
-----------------------------------------------
Total 2,012 4,000 4,703 10,715
-----------------------------------------------
-----------------------------------------------
/T/
In both 2005 and 2004 the purchased assets consisted of stand-alone
businesses that expanded the service offerings, geographic coverage, and
customer base of the Corporation. The consolidated financial statements
of the Fund include earnings from the date of acquisition, for each
acquisition. Certain of the above amounts are management's current
estimate of the known and expected fair values of the assets acquired,
and may change as final information becomes known.
5) Long-term Debt
/T/
March 31, December 31,
2005 2004
------------------------------------------------------------------------
Operating term facility 3,638 2,617
Extendable term facility 44,000 34,000
------------------------------------------------------------------------
47,638 36,617
----------------------
----------------------
/T/
Effective May 19, 2004, the Corporation secured a new credit facility
which provides for a $25,000 operating term facility plus a $65,000
extendable term facility. The credit facility is secured principally by
a general security agreement over the assets of the Corporation.
Interest on the facilities is subject to certain conditions, and may be
charged at a prime based or a Banker's Acceptance ("BA") based rate, at
the option of the Corporation. The operating facility charges interest
at the lenders' prime rate, or at the BA rate plus 1.25%. The term
facility charges interest at the lenders' prime rate plus 0.25%, or at
the BA rate plus 1.75%. The operating and the term facilities are
subject to an annual review, and extension at the option of the lender.
If an extension is not granted, principal repayments for the term loan
would commence in 15 months at the quarterly rate of one-twelfth of the
outstanding indebtedness for three quarters and a balloon payment for
the balance at the end of the fourth quarter. The operating loan,
subject to certain conditions, would be due in full in 12 months.
6) Unitholders' Capital
Authorized capital of the Fund consists of a single class of an
unlimited number of Trust Units.
The following table is a summary of the changes in Unitholders' capital
during the period:
/T/
Units/Shares
(000's) Amount
------------------------------------------------------------------------
Units outstanding as at December 31, 2003 26,836 149,798
Rights exercised 410 3,378
Units issued under the DRIP program 48 994
------------------------------------------------------------------------
Units outstanding as at December 31, 2004 27,294 154,170
Contributed surplus on rights exercised - 688
Rights exercised 132 1,002
Units issued under the DRIP program 60 1,330
------------------------------------------------------------------------
Units outstanding as at March 31, 2005 27,486 157,190
------------------------------------------------------------------------
------------------------------------------------------------------------
/T/
On October 15, 2004, the Fund implemented a Dividend Reinvestment Plan
("DRIP") which allows participating unitholders to increase their
investment in the Fund through the automatic reinvesting of their
monthly distributions in units. Under the terms of the DRIP,
reinvestment units are purchased by unitholders from the treasury of the
Fund at a cost of 95% of the volume weighted average TSX trading price
for the 10 trading days immediately preceding the distribution payment
date.
The Fund declared distributions of $0.125 per unit for each of the
months of January and February, 2005, increasing to $0.15 for the month
of March 2005, for total declared distributions of $0.40 per unit for
the period. During the period $8,913 of cash was distributed to
unitholders ($8,456 during the same period in 2004).
7) Rights to Acquire Trust Units
(a) Trust Unit Rights Incentive Plan
On March 18, 2005, directors, officers and employees of the Corporation
exercised rights to acquire 107,800 units pursuant to the Trust Unit
Rights Incentive Plan of the Fund for $1,001.
On March 22, 2005, rights to acquire up to 40,000 trust units were
granted to certain employees of the Corporation. The fair value of the
rights was estimated at $1.67 per right on the grant date using the
Black-Scholes option pricing model with the following assumptions:
risk-free interest rate of 3.5%; yield of 7.5%; expected life of five
years; and expected volatility of 19.75%.
(b) Exchange Rights
During the period, 24,001 Exchange Rights were exercised by directors,
officers, and employees of the Corporation for $1.
8) Income Tax
On March 31, 2004, the Province of Alberta announced a reduction in the
corporate tax rate from 12.5% to 11.5%. The Fund recognized the change
in future tax rate by reducing the future income tax liability for the
period ended March 31, 2004 by $650 or $0.02 per unit.
9) Earnings per Unit
Basic per unit calculations for the periods ending March 31, 2005 and
2004 were based on the weighted average number of units outstanding for
the periods. Diluted earnings per unit include the potential dilution of
the outstanding rights to acquire trust units.
/T/
Three Months Ended March 31
2005 2004
-----------------------------
Weighted average number of units 27,343 26,878
Net additional units if rights exercised 567 585
------------------------------------------------------------------------
Diluted weighted average number of units 27,910 27,463
------------------------------------------------------------------------
------------------------------------------------------------------------
10) Reconciliation of Unitholder Distributions Declared and Paid
Three Months Ended March 31
2005 2004
-----------------------------
Cash flow from operations before
non-cash working capital and
asset retirement costs 15,400 13,801
Maintenance capital expenditures (881) (1,024)
Asset retirement and deferred costs (40) (26)
Net proceeds on sales of fixed assets 95 22
Principal repayments - (751)
------------------------------------------------------------------------
Cash available for growth and distribution 14,574 12,022
-----------------------------
-----------------------------
Unitholder distributions declared 10,954 9,021
- per unit - $ 0.400 0.335
Unitholder distributions - paid in cash 8,913 8,456
Unitholder distributions - units issued 1,330 -
- paid in cash - per unit $ 0.326 0.315
- issued units - per unit $ 0.049 -
Reconciliation of Accumulated Unitholder Distributions:
---------
Balance, December 31, 2003 (22,958)
---------
Unitholder distributions declared and paid in cash (36,247)
Unitholder distributions declared (3,412)
---------
(39,659)
---------
Balance, December 31, 2004 (62,617)
Unitholder distributions declared and paid in cash or units (6,831)
Unitholder distributions declared (4,123)
---------
Balance, March 31, 2005 (73,571)
---------
---------
/T/
11) Reconciliation of Asset Retirement Obligation
The total future asset retirement obligation was estimated by management
based on the anticipated costs to abandon and reclaim the Corporation's
facilities and wells, and the projected timing of these expenditures.
The net present value is estimated to be $5,009 ($4,939 in 2004) based
on a total estimated future liability of $13,800. Cash expenditures to
fulfill these obligations will be incurred over the next 20 years, with
the majority of the expenses occurring in the 15-20 year range. The Fund
used a discount rate of 8% and an inflation rate of 2% to calculate the
present value of the asset retirement obligation.
/T/
Three Months Ended March 31
-----------------------------
2005 2004
-----------------------------
Asset retirement obligation, beginning of
period 4,875 4,736
Additional retirement obligations added
through acquisitions 66 131
Costs incurred to fulfill obligations (40) (23)
Accretion 108 95
-----------------------------
Asset retirement obligation, end of period 5,009 4,939
-----------------------------
-----------------------------
/T/
12) Transactions with Related Parties
Bennett Jones LLP provides legal services to the Fund. Mr. Vance
Milligan, a Trustee and Corporate Secretary of the Fund is a partner in
the law firm of Bennett Jones LLP and is involved in providing and
managing the legal services provided to the Fund. The total cost of
these legal services during the period was $84 compared to $61 in 2004.
The Corporation provides Oilfield services to Paramount Resources Ltd.,
an oil and gas company. Mr. Clayton Riddell, a Trustee and Chairman of
the Board of the Fund, is Chairman and Chief Executive Officer of
Paramount Resources Ltd. The total amount invoiced by the Fund to
Paramount Resources Ltd. during the period was $459 compared to $172 in
2004.
These transactions were incurred during the normal course of operations
on similar terms and conditions to those entered into with unrelated
parties. These transactions are measured at the exchange amount, which
is the amount of consideration established and agreed to by the related
parties.
13) Comparative Figures
Certain of the prior period's comparative figures have been reclassified
to conform to the current period's presentation.
14) Segmented Information
The Fund has two reportable segments. The reportable segments are
distinct strategic business units whose operating results are regularly
reviewed by the Fund'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 Oilfield segment recovers
and resells crude oil from oilfield waste. The Industrial segment
collects liquid and semi-solid industrial wastes as well as automotive
wastes, including waste lubricating oil, and provides mobile site
services in western Canada. Recovered materials are processed into
resaleable products. The accounting policies of the segments are the
same as those of the Fund.
/T/
For the three months ended March 31 ($000's)
Inter- Consolidated
2005 Oilfield Industrial segment Unallocated(2) Total
------------------------------------------------------------------------
External
revenue 34,159 14,328 48,487
Inter segment
revenue(1) 131 43 (174) -
Operating
expense 15,520 12,038 (174) 27,384
Depreciation,
amortization
and
accretion 2,312 1,350 746 4,408
------------------------------------------------------------------------
Net margin 16,458 983 - (746) 16,695
Selling,
general and
administrative 5,036 5,036
Interest expense 644 644
------------------------------------------------------------------------
Operating
income 16,458 983 (6,426) 11,015
------------------------------------------------------------------------
Capital
expenditures 9,766 583 2,894 13,243
Goodwill 10,782 2,430 13,212
Total assets 201,213 115,602 17,045 333,860
------------------------------------------------------------------------
------------------------------------------------------------------------
Inter- Consolidated
2004 Oilfield Industrial segment Unallocated(2) Total
------------------------------------------------------------------------
External
revenue 28,741 14,147 42,888
Inter segment
revenue(1) 9 11 (20) -
Operating
expense 13,390 11,542 (20) 24,912
Depreciation,
amortization
and
accretion 2,156 1,133 220 3,509
------------------------------------------------------------------------
Net margin 13,204 1,483 (220) 14,467
Selling,
general and
administrative 4,131 4,131
Interest expense 76 76
------------------------------------------------------------------------
Operating
income 13,204 1,483 (4,427) 10,260
------------------------------------------------------------------------
Capital
expenditures 4,384 9,722 1,183 15,289
Goodwill 10,782 2,430 13,212
Total assets 176,472 101,315 12,947 290,734
------------------------------------------------------------------------
------------------------------------------------------------------------
(1) Inter-segment revenue is recorded at market, less the costs of
serving external customers.
(2) Management does not allocate selling, general & administrative,
taxes, and interest costs in the segment analysis.
For further information: Newalta Income Fund - Ronald L. Sifton, Senior Vice President, Finance and Chief Financial Officer, (403) 206-2684; Website: www.newalta.com