Newalta's Strong Performance Continues
CALGARY, ALBERTA - May 11, 2004 /CNW/ - Newalta Income
Fund (TSX: NAL.UN) today announced consolidated financial results
for the three months ended March 31, 2004.
/T/
Financial Results and Highlights ($000s except per unit data)
Three Months Ended March 31
(unaudited)
%Increase
2004 2003 (Decrease)
-----------------------------------------------------------------------
Revenue 42,888 38,410 12
Operating income excluding
reorganization costs(1) 10,260 7,881 30
Operating income 10,260 3,397 202
Net earnings 9,872 2,026 387
Earnings per unit ($) 0.37 0.09 311
Diluted earnings per unit ($) 0.36 0.09 300
EBITDA(2) excluding
reorganization costs 13,845 11,718 18
EBITDA 13,845 7,234 91
Trailing 12 month EBITDA(2)
excluding reorganization costs 53,279 38,663 38
Trailing 12 month EBITDA 52,568 33,583 57
Cash flow(3) excluding
reorganization costs 13,801 11,111 24
Cash flow(2) 13,801 6,608 109
- per unit(s) .51 0.30 70
Maintenance capital expenditures 1,024 1,420 (28)
Principal repayments 750 - -
Cash available for growth and
distributions excluding
reorganization costs 12,022 9,758 23
- per unit - $ 0.45 0.45 -
Cash available for growth and
distributions 12,022 5,293 127
- per unit - $ 0.45 0.24 88
Cash distributions declared (1) 9,021 1,983 355
- per unit - $ 0.335 0.09 272
Growth and acquisition capital
expenditures 14,265 160 8,815
Weighted average units
outstanding(4) (000s) 26,878 21,888 23
Total units outstanding (000s) 27,075 22,029 23
-----------------------------------------------------------------------
-----------------------------------------------------------------------
/T/
(1) On March 1, 2003, Newalta Corporation converted to an income
trust. The first distribution was declared for the month of
March, 2003. The total cost of the reorganization was $5.8
million of which $4.5 million was incurred in the first three
months of 2003.
(2) 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
income as revenue less operating and selling, general and
administrative expenses. This measure does not have any
standardized meaning prescribed by Canadian GAAP and may not be
comparable to similar measures presented by other funds or
companies.
(3) 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 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
throughout this report are based on operating cash flow before
changes in non-cash working capital.
(4) For comparative purposes, the previously reported weighted
average shares outstanding in 2003 have been converted to units
on a 2:1 basis, and per unit calculations have been adjusted on
this basis.
FINANCIAL AND OPERATIONAL HIGHLIGHTS
- First quarter revenue improved 12% to $42.9 million.
- Oilfield revenue in the first quarter of 2004 was $28.8
million, an increase of 10%. The increase in revenue is mainly
attributed to the management initiatives completed in mid 2003 as
well as strong market demand and above average drilling activity.
- Industrial revenue in the first quarter of 2004 was $14.1
million, an increase of 15%, resulting mainly from acquisitions
completed in December 2003 and in the first quarter of 2004 and
management initiatives completed in mid 2003.
- Operating costs in the quarter were 58.1% of revenue as
compared to 60.6% in 2003. The reduction in operating costs
resulted from several management initiatives to reduce costs and
improve productivity that were completed in mid 2003.
- Operating income excluding reorganization costs improved 30% to
$10.3 million. The impact of acquisitions was largely offset by
the decline in the price of recovered crude oil as a result of
the stronger Canadian dollar.
- Cash flow excluding reorganization costs improved 24% to $13.8
million. Cash available for growth and distribution excluding
reorganization costs improved 23% to $12.0 million, well in
excess of the $9.0 million of declared distributions.
- Distributions per unit were increased 19% in March 2004.
- Net earnings improved 387% to $9.9 million.
- Three complementary acquisitions were completed in the quarter.
Total growth and acquisition capital expenditures were $14.3
million as compared to $0.2 million in 2003.
- Our balance sheet at March 31, 2004 remained very strong with
substantial unutilized debt capacity. We also commenced
negotiations to increase our credit facility.
The consolidated financial statements and notes thereto and
management's discussion and analysis are attached.
Management will hold a conference call on Wednesday, May 12, 2004
at 11:00 a.m. (ET) to discuss the Fund's performance for the
period ended March 31, 2004. To listen, please dial
1-800-814-4859 or 416-640-4127, or log onto the web cast at
www.newalta.com or www.ccnmatthews.com. For those unable to
listen to the live event, a rebroadcast will be available until
midnight, Wednesday, May 19, 2004. Please dial 416-640-1917 or
1-877-289-8525 and enter the pass code # 21049190.
Newalta Income Fund maximizes the inherent value in certain
industrial wastes through recovery of saleable products and
recycling, rather than disposal. Through an integrated network of
39 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
strong track record of profitable growth and environmental
stewardship, Newalta is focused on leveraging its proven
competencies in new service sectors and geographic markets from
coast to coast.
NEWALTA INCOME FUND
Management's Discussion & Analysis
FOR THE THREE MONTHS ENDED MARCH 31, 2004
This document contains forward-looking statements, relating to
the operations or to the environment in which Newalta Income Fund
and Newalta Corporation (collectively "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 those set forth in this report
and other public filings. 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 disclaims any intention or
obligation to update or revise any forward-looking statements,
whether as a result of new information, future events or
otherwise.
The following discussion and analysis should be read in
conjunction with the consolidated financial statements of Newalta
Income Fund (the "Fund") and notes thereto, the Management's
Discussion and Analysis, and the Renewal Annual Information Form
of the Fund for the year ended December 31, 2003 and the interim
consolidated financial statements of the Fund and notes thereto
for the three months ended March 31, 2004.
The Fund is the successor organization to Newalta Corporation.
Information for the three months ended March 31, 2004, along with
comparative information for 2003, is provided. Certain numbers
from the prior period have been reclassified to conform to those
reported for the Fund in the current period.
Management's discussion and analysis has been prepared taking
into consideration information available to April 30, 2004.
OVERALL PERFORMANCE - THREE MONTHS ENDED MARCH 31, 2003 AND 2004
Newalta's strong 2003 financial performance continued in 2004.
The increases in operating income and cash flow is attributable
to management initiatives completed in mid 2003 to increase
revenue, reduce costs and improve productivity. The impact of
recent acquisitions was largely offset by the decline in the
price of recovered crude oil as a result of the stronger Canadian
dollar. Internal growth capital investments in 2003 were very
modest and the 2004 internal growth program will not contribute
to performance until the second half of 2004. The demand for
Newalta's services and drilling activity remained strong. Revenue
improved 12% and net earnings improved 387%. Excluding the cost
to reorganize into an income trust, net earnings improved
approximately 100%. As a result of management initiatives to
increase revenue, reduce costs and improve productivity,
operating costs as a percentage of revenue were reduced to 58.1%
from 60.6% in 2003.
At March 31, 2004, the Fund's balance sheet remained strong. The
three complementary acquisitions completed in the first quarter
of 2004 totaling approximately $10.7 million were funded from
cash. Cash flow excluding reorganization costs improved 24% to
$13.8 million as compared to 2003. Cash available for growth and
distributions was $12.0 million, well in excess of the $9.0
million in declared distributions ($0.335 per unit).
Maintenance capital expenditures, which are funded from cash
flow, were $1.0 million as compared to $1.4 million in 2003.
Growth capital expenditures in the quarter were $14.3 million as
compared to $0.2 million in 2003.
Segmented information is discussed in Results of Operations.
RESULTS OF OPERATIONS
Revenue in the quarter increased $4.5 million or 12% to $42.9
million as compared to $38.4 million in 2003. The increase in
revenue was derived approximately equally from acquisitions and
management's initiatives to increase revenue. Strong WTI oil
prices were more than offset by the strength of the Canadian
dollar. While the volume of oil sold for Newalta's account
increased 22% in the quarter, oil sales in the quarter were only
$3.3 million as compared to $3.1 million in 2003, reflecting the
lower average price in Canadian dollars.
The Oilfield division ("Oilfield") recovers and resells crude oil
from oilfield wastes. Oilfield accounted for approximately 61% of
Newalta's total assets and generated 67% of Newalta's total
revenue. 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,
with the balance from drilling related activities. Revenue is
also impacted by activity levels which are driven mainly by
commodity prices. A change of Cdn $1.50 for WTI will result in an
impact on Newalta's operating income of approximately $0.5
million. Drilling activity in western Canada in the first quarter
of 2004 remained above the five-year average. During the quarter,
Oilfield recovered 314,000 barrels of crude oil, of which 83,000
barrels were sold for Newalta's account at an average price of
Cdn $39.47 per barrel. In 2003, oil recoveries totaled 332,000
barrels including 68,000 barrels for Newalta's account, at an
average price of Cdn $45.45 per barrel. Performance in 2004
remained very strong with revenue and net margin improving year
over year by 10% and 12% respectively. Improvements in revenue
were driven mainly by strong market demand for Oilfield's
services, as well as management initiatives to increase pricing
and add incremental revenue through strategic alliances and the
on-going development of on-site services. One satellite facility
was acquired in Drumheller, Alberta in the quarter for
approximately $2.0 million. Management initiatives to reduce
costs and improve productivity also contributed to the increase
in net margin. Operating costs as a percentage of revenue were
46.7% as compared to 48.1% in 2003. Oilfield offers a wide
variety of services that have similar profit margins, and as a
result, increases or decreases in operating costs, as a
percentage of revenue, are closely correlated with return on
investments. The outlook for Oilfield remains very positive.
Strong market demand and robust commodity prices are widely
expected to continue throughout 2004. These conditions, combined
with an active internal growth program, an aggressive strategy to
acquire complementary businesses in western Canada and the impact
of management initiatives to improve revenue and reduce costs,
should result in very strong performance in 2004.
The Industrial division ("Industrial") collects automotive and
industrial wastes and waste lubricating oil in western Canada,
which are processed into resalable products. Industrial accounted
for 35% of Newalta's total assets and generated 33% of Newalta's
total revenue. Industrial produces various recycled products from
waste lubricating oil, including base oil, burner fuel, fuel oil,
and drilling oil. In 2004, approximately $6.9 million or 49% of
Industrial revenue came from product sales, as compared to 65% in
2003, with the balance derived from collection and transportation
fees. Industrial's performance is impacted by the general state
of the economy in western Canada. The automotive after-market is
generally a stable market as the sale of goods such as lube oil
does not significantly fluctuate from year to year. During the
quarter, Industrial closed the acquisition of two complementary
businesses, including a satellite facility near Redwater, Alberta
and an industrial waste collection business with operations in
Cranbrook and Sparwood, British Columbia. The total purchase
price of the acquisitions was approximately $9.0 million.
Industrial revenue in 2004 improved 15% to $14.1 million. The
revenue increase of $1.8 million is mainly attributable to the
Hazmat acquisition in December 2003. Improvements in net margin
for the year were divided about equally between acquisitions and
management initiatives to reduce costs and improve productivity.
Collection and transportation revenues improved 67% to $7.2
million from $4.3 million in 2003. This increase is mainly
attributed to acquisitions. The volume of collected lube oil was
down slightly at 11.4 million liters (12.4 million liters in
2003). The service and product offerings of Industrial are
extremely competitive and have a wide range of profitability and
therefore, margin, as a percentage of revenue, does not
accurately reflect return on investments. At March 31, 2004, the
trailing 12 month EBITDA as a percentage of net book value of
fixed assets was 15.7% as compared to 11.3% for 2003.
Management's long-term target is 25%. Collection and
transportation revenue, and product sales, are expected to be
approximately equal for 2004. Pricing strategies and cost
reduction initiatives completed in mid 2003 and complementary
acquisitions are positively impacting operating results. In 2004,
Industrial will focus on developing product markets, increasing
collection activities in the waste water market, centrifugation
of sludges and the acquisition of complementary businesses.
Selling, general and administrative costs of $4.1 million were
9.6% of revenue in 2004 as compared to $3.4 million or 8.9% of
revenue in 2003. The increase is primarily attributed to
increased bonuses to employees and additional staff to handle
growth in the business. Management's goal is to maintain selling,
general and administrative costs, as a percent of revenue, at 10%
or less.
Depreciation and accretion increased $0.5 million to $3.5 million
(8.2% of revenue) from $3.0 million (7.9% of revenue) in 2003.
The increase in depreciation reflects the 2003 capital program.
Interest expense was lower in 2004 as a result of lower debt
levels throughout the year. Debt levels were reduced due to the
strong 2003 financial performance as well as the October 2003
equity issue.
On March 1, 2003, Newalta Corporation converted into an income
trust. Of the total conversion cost of $5.8 million, $4.5 million
($0.16 per unit after tax) was incurred in the first quarter of
2003.
Income tax expense for the quarter was $0.4 million as compared
to $1.4 million in 2003. On March 31, 2004, the Province of
Alberta announced a reduction in the corporate provincial tax
rate from 12.5% to 11.5%. This change in future tax rate has been
recognized by reducing the future income tax provision in the
first quarter by $0.65 million or $0.02 per unit. The 2003 income
tax expense does not reflect the full impact of the inherent
nature of income trusts which transfers income tax on
distributions to unitholders. Current taxes related to large
corporations and provincial capital taxes. Newalta does not
anticipate paying any cash income taxes in 2004, except large
corporations and provincial capital taxes.
Net earnings for the quarter were $9.9 million compared to $2.0
million in 2003. Diluted earnings per unit were $0.36 per unit
compared to $0.09 per unit in 2003. Cash flow excluding the
income trust reorganization cost increased 24% to $13.8 million
from $11.1 million in 2003.
During the first quarter of 2004, holders of rights to acquire
trust units exercised certain of their rights and 239,796 units
were issued by the Fund for proceeds of $1.9 million. As at March
31, 2004, and April 30, 2004 the Fund had 27,075,388 units
outstanding and 1,174,203 rights to acquire trust units
outstanding.
/T/
QUARTERLY COMPARISON ($000s except per unit data)
-----------------------------------------------------------------------
Three Months Ended March 31
2004 2003
-----------------------------------------------------------------------
Revenue 42,888 38,410
Net earnings 9,872 2,026
Earnings per unit ($) 0.37 0.09
Diluted earnings per unit ($) 0.36 0.09
-----------------------------------------------------------------------
/T/
Quarterly performance is affected by weather conditions,
commodity prices, market demand and capital investments as well
as acquisitions. Road bans, 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. The third quarter is 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 revenues can range from 20% to 27% of
the year-end revenue and typically average approximately 23%.
Second quarter revenues average 21% of year-end revenue and range
from 20% to 23%. Third quarter revenues range from 26% to 31% and
average approximately 29% of year-end totals. Fourth quarter
revenues average 27% and range from 24% to 30%. Quarterly
financial results have been prepared by management in accordance
with Canadian generally accepted accounting principles in
Canadian dollars.
LIQUIDITY
In the first quarter of 2004, Newalta generated cash flow of
$13.8 million. Maintenance capital expenditures were $1.0 million
and are anticipated to be $8.0 million for 2004. Scheduled
principal payments in the quarter were $0.75 million. The Fund
declared distributions of $9.0 million ($0.335 per unit) in the
quarter. During the quarter, Newalta generated $3.0 million of
cash flow in excess of its declared distributions as follows:
/T/
-----------------------------------------------------------------------
$ Millions
2004 2003
-----------------------------------------------------------------------
Cash flow from operations before
reorganization costs 13.8 11.1
Maintenance Capital (1.0) (1.4)
Proceeds from sale of fixed assets - 0.1
Debt repayment (0.8) -
Cash available for growth and
distribution before reorganization costs 12.0 9.8
Reorganization costs - (4.5)
Growth capital - (0.2)
Cash available for distribution 12.0 5.1
Distributions declared 9.0 (2.0)
Excess cash 3.0 3.1
-----------------------------------------------------------------------
-----------------------------------------------------------------------
/T/
Newalta currently has a $25.0 million operating line to fund
working capital requirements of which $21.3 million is unused.
Newalta's current financial performance is well in excess of its
debt covenants. The Fund does not have a stability rating.
CAPITAL RESOURCES
Newalta entered 2004 with plans to invest $20.0 million on
internal growth projects. During the first quarter of 2004, $3.0
million was spent and it is anticipated that the majority of
these projects will be completed by mid-year and should
contribute to Newalta's financial performance in the second half
of 2004. In addition, approximately $10.7 million was spent to
acquire three complementary businesses. Expenditures for growth
and acquisition capital will be funded from working capital and
the extendible term credit facility. Maintenance capital
expenditures of $1.0 million were funded from cash flow.
At March 31, 2004, Newalta had working capital of $21.8 million,
down from $31.1 million at December 31, 2003. The decrease in
working capital is primarily the result of funding the $10.7
million in complementary acquisitions from cash on hand at
December 31, 2003.
At March 31, 2004, Newalta had $21.3 million of unutilized
operating line and $25.0 million of unutilized extendible term
facility. Newalta has commenced renegotiation of its credit
facility that would pay out the existing 5-year term facility,
which had a balance of $12.8 million outstanding at March 31,
2004, and increase the existing extendible term facility from
$25.0 million to $65.0 million. While Newalta expects to be able
to successfully complete the negotiations for the increased
credit facility, there is no assurance that Newalta will be able
to do so. Upon completion of the increased credit facility, there
would be no scheduled principal payments before 2006 and the
unutilized extendible term facility would be as follows:
/T/
----------------------------------------------------------------------
$ Millions
----------------------------------------------------------------------
Bank indebtedness (1.2)
New extendible facility 65.0
----------------------------------------------------------------------
63.8
----------------------------------------------------------------------
Less:
Planned internal growth projects 17.0
Payout of 5-year facility 12.8
Scheduled principal for the remainder of 2004 -
----------------------------------------------------------------------
29.8
----------------------------------------------------------------------
Unutilized extendible term facility available
to fund future growth 34.0
----------------------------------------------------------------------
----------------------------------------------------------------------
/T/
OFF-BALANCE SHEET ARRANGEMENTS
Newalta currently has no off-balance sheet arrangements.
TRANSACTIONS WITH RELATED PARTIES
Bennett Jones LLP provides legal services to Newalta at market
rates. 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 paid for these legal services, in the
first quarter, was $0.1 million in 2004 and $0.5 million in 2003.
Newalta provides Oilfield services to Paramount Resources Ltd. at
market rates. 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 Newalta to
Paramount Resources Ltd., in the first quarter, was $0.2 million
in 2004 and $0.1 million in 2003.
CHANGES IN ACCOUNTING POLICIES INCLUDING INITIAL ADOPTION
Stock Based Compensation and Other Stock Based Payments
During 2003, the Fund adopted the provisions of the Canadian
Institute of Chartered Accountants amended Handbook Section 3870
Stock-Based Compensation and Other Stock-Based Payments. This
amendment requires expensing of the fair value of equity-based
compensation for fiscal years beginning on or after January 1,
2004, and allowed for the early adoption of the guidelines for
the year 2003. Pursuant to the transitional rules, the Fund chose
to early adopt the pronouncement on a prospective basis for 2003.
The non-cash expense for the period in 2004 was $157 ($58 in
2003).
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 is effective for all fiscal years
beginning on or after January 1, 2004. This change in accounting
standards affects the way the Fund records its obligation for the
eventual restoration of plants and facilities. The comparative
financial statements for 2003 have been adjusted to show the
impact of the change in accounting treatment. The increase in
non-cash expenses is not material.
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
Renewal 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 Renewal 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
December 31,
2003
($000s) (unaudited) March 31, 2004 (note 2)
--------------------------------------------------------------------
Assets
Current assets
Cash - 12,529
Accounts receivable 37,036 30,705
Inventories 7,690 7,897
Prepaid expenses 860 979
Future income tax 2,000 2,000
--------------------------------------------------------------------
47,586 54,110
Capital assets and intangibles 229,079 219,526
Goodwill 13,212 10,782
Deferred costs 857 854
--------------------------------------------------------------------
290,734 285,272
--------------------------------------------------------------------
--------------------------------------------------------------------
Liabilities
Current liabilities
Bank indebtedness 1,156 -
Accounts payable 18,277 17,162
Distribution payable (Note 9) 3,384 2,818
Current portion of long-term debt 3,001 3,002
--------------------------------------------------------------------
25,818 22,982
Long-term debt 9,750 10,500
Future income taxes 38,174 37,911
Asset retirement obligation (Note 2a) 4,939 4,736
--------------------------------------------------------------------
78,681 76,129
--------------------------------------------------------------------
Unitholders' Equity
Unitholders' capital (Note 4) 151,700 149,798
Contributed surplus 1,199 1,041
Accumulated earnings 91,134 81,262
Accumulated cash distributions (Note 9) (31,980) (22,958)
--------------------------------------------------------------------
212,053 209,143
--------------------------------------------------------------------
290,734 285,272
--------------------------------------------------------------------
--------------------------------------------------------------------
Newalta Income Fund
Consolidated Statements of Operations and Accumulated Earnings
--------------------------------------------------------------------
--------------------------------------------------------------------
For the Three Months Ended March 31 2004 2003
($000s) (unaudited) (Note 2)
Revenue 42,888 38,410
--------------------------------------------------------------------
Expenses
Operating 24,912 23,270
Selling, general and administrative 4,131 3,422
Interest 76 808
Depreciation and accretion 3,509 3,029
Reorganization - 4,484
--------------------------------------------------------------------
32,628 35,013
--------------------------------------------------------------------
Operating income 10,260 3,397
Provisions for income taxes
Current 125 175
Future (Note 6) 263 1,196
--------------------------------------------------------------------
388 1,371
--------------------------------------------------------------------
Net earnings 9,872 2,026
Accumulated earnings, beginning of period,
as reported 81,123 54,312
Cumulative effect of change in accounting
policy (Note 2) 139 160
--------------------------------------------------------------------
Accumulated earnings, end of period 91,134 56,498
--------------------------------------------------------------------
--------------------------------------------------------------------
Earnings per unit (Note 7) $0.37 $0.09
--------------------------------------------------------------------
--------------------------------------------------------------------
Diluted earnings per unit (Note 7) $0.36 $0.09
--------------------------------------------------------------------
--------------------------------------------------------------------
Newalta Income Fund
Consolidated Statements of Cash Flows
--------------------------------------------------------------------
--------------------------------------------------------------------
For the Three Months Ended March 31 2004 2003
($000s) (unaudited)
--------------------------------------------------------------------
Net inflow (outflow) of cash related to
the following activities:
Operating activities
Net earnings 9,872 2,026
Items not requiring cash:
Depreciation and accretion 3,509 3,029
Future income taxes 263 1,196
Stock compensation expense 157 376
Reorganization - (19)
--------------------------------------------------------------------
Cash flow from operations 13,801 6,608
Increase in working capital (4,888) (3,489)
Asset retirement costs incurred (23) (29)
--------------------------------------------------------------------
8,890 3,090
--------------------------------------------------------------------
Investing activities
Additions to capital assets (4,574) (1,580)
Net proceeds on sale of capital assets 22 100
Acquisitions (Note 3) (10,715) -
Deferred costs (3) (4)
--------------------------------------------------------------------
(15,270) (1,484)
--------------------------------------------------------------------
Financing activities
Issuance (repurchase) of units 1,902 (61)
Decrease in debt and debentures (751) (4,084)
Distributions to unitholders (8,456) -
--------------------------------------------------------------------
(7,305) (4,145)
--------------------------------------------------------------------
Net cash outflow (13,685) (2,539)
Cash (bank indebtedness), beginning of period 12,529 (759)
--------------------------------------------------------------------
Bank indebtedness, end of period (1,156) (3,298)
--------------------------------------------------------------------
Supplementary information:
Interest paid 224 1,182
Income taxes paid 134 124
NEWALTA INCOME FUND
Notes to the Consolidated Financial Statements
For the Three Months Ended March 31, 2004 and 2003
($000s) (Unaudited)
/T/
Newalta Income Fund (the "Fund") is a Canadian income trust
engaged, through its wholly-owned subsidiary Newalta Corporation
("Newalta"), in maximizing the inherent value of certain
industrial wastes through recovery of saleable products and
recycling, rather than disposal. Through a network integrated
facilities in western Canada, Newalta delivers 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
Newalta Income Fund was established by Deed of Trust dated
January 16, 2003. 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 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, 2003, except for the changes in
accounting policies as described in Note 2. These interim
financials statements and the notes thereto should be read in
conjunction with Newalta's consolidated financial statements for
the year ended December 31, 2003 as contained in the Annual
Report for fiscal 2003.
Accounting measurements at interim dates inherently involve
greater reliance on estimates than at year-end and the results of
operations for the interim periods shown in these statements are
not necessarily indicative of results to be expected for the
fiscal year. In the opinion of management, the accompanying
unaudited interim consolidated financial statements include all
adjustments (of a normal recurring nature) necessary to present
fairly the consolidated results of its operations and cash flows
for the three months ended March 31, 2004 and 2003.
2) Changes in accounting policies
a) Asset retirement obligations: In December 2002 the Canadian
Institute of Chartered Accountants ("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 is 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 $13.3 million. The fair value of this liability
at December 31, 2003 was $4,736 using a discount rate of 8% and
an inflation rate of 2%. Accretion expense for the three months
ended March 31, 2004 was $95 ($86 in 2003).
b) Stock-based compensation: During the fourth quarter of 2003,
the Fund adopted certain provisions of the CICA's amended
Handbook Section 3870. This amendment requires expensing of the
fair value of equity-based compensation effective for fiscal
years beginning on or after January 1, 2004, and allows for the
early adoption of the recommendations for the year ended 2003.
Pursuant to the transitional rules the Fund chose to early adopt
these provisions on a prospective basis. On a comparative basis,
this would have resulted in an increase in contributed surplus
for this change, and a corresponding non-cash charge of $58
($0.003 per unit), for the three months ended March 31, 2003. The
Interim Financial Statements for March 31, 2003 have been
adjusted to include these revised amounts. The corresponding
non-cash expense for the period in 2004 was $157 ($0.006 per
unit).
c) Impairment of Long-Lived Assets: Effective January 1, 2004,
the Fund adopted the new recommendation of the CICA on impairment
of long-lived assets issued in December 2002. This recommendation
provides guidance on the recognition, measurement and disclosure
of impairment of long-lived assets. There is a requirement to
recognize an impairment loss for a long-lived asset when its
carrying amount exceeds the sum of the undiscounted cash flows
expected from its use and eventual disposition. The impairment
loss is measured as the amount by which carrying amount of the
asset exceeds its fair value. As at March 31, 2004 there were no
indications of impairment of long-lived assets.
To account for the change in accounting standards as outlined in
(a) and (b) above, the historical amounts in the financial
statements have been adjusted as follows:
/T/
Asset
Retirement Adjusted
Consolidated At December 31, Obligation December 31,
Balance Sheets 2003 Adjustments 2003
--------------------------- -----------
Capital assets
& intangibles 217,517 2,009 219,526
Future income
tax 37,841 70 37,911
Site restoration 2,936 (2,936) -
Asset retirement
obligation - 4,736 4,736
Accumulated
earnings 81,123 139 81,262
Adjusted
Consolidated three
Statements of Asset months
Operations and For the three Retirement Stock-based ended
Accumulated months ended Obligation Compensation March 31,
Earnings March 31, 2003 Adjustments Adjustments 2003
----------------------------------------------------
Site
restoration
expense 128 (128) - -
Depreciation
and accretion
expense 2,895 134 - 3,029
Future income
tax provision 1,198 (2) - 1,196
Stock-based
compensation
expense 318 - 58 376
Net earnings 2,088 (4) (58) 2,026
/T/
The adjustments reduced basic earnings per unit from $0.10 to
$0.09 but had no effect on the diluted earnings per unit for the
three months ended March 31, 2003.
3) Acquisitions
The Fund made three acquisitions during the three months ended
March 31, 2004. The Fund 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, B.C. The amount of
the consideration given and the assets received were:
/T/
Total
---------
Total cash consideration 10,715
---------
Land 300
Plant & equipment 6,496
Intangibles 1,120
Petroleum & natural gas rights 500
Goodwill 2,430
Asset retirement obligation (131)
---------
Total 10,715
---------
---------
/T/
Certain of the above numbers are management's current estimate of
the known and expected costs, and may change as the final costs
are received.
4) Unitholders' capital
On March 1, 2003 and pursuant to the Plan of Arrangement
21,810,318 units were issued by the Fund in exchange for
43,620,665 common shares of Newalta previously outstanding.
Additional units were subsequently issued upon the exercise of
Exchange Rights, conversion of debentures, purchase of assets,
and issuance of new equity.
/T/
Units/Shares
(000's) Amount
-----------------------
Shares issued as at December 31, 2002 43,634 98,269
Non-board lot repurchased (13) (62)
Shares cancelled under the plan of arrangement (43,621) (98,207)
-----------------------
- -
Units issued under the plan of arrangement 21,811 98,207
Rights exercised 225 2
Units issued for cash 3,800 43,089
Units exchanged for debentures 750 6,000
Units issued on asset purchase 250 2,500
--------------------------------------------------------------------
Units outstanding as at December 31, 2003 26,836 149,798
Rights exercised 239 1,902
--------------------------------------------------------------------
Units outstanding as at March 31, 2004 27,075 151,700
--------------------------------------------------------------------
/T/
The Fund declared distributions of $0.105 per unit for each of
the months of January and February, 2004, increasing to $0.125
for the month of March, 2004. For the period a total of $0.335
per unit, or $9,021 has been distributed to unitholders as of
April 15, 2004. Since inception on March 1, 2003 a total of
$31,980 has been distributed to unitholders.
5) Trust Unit Rights Incentive Plan
During the period officers, trustees, and employees exercised
rights to acquire units of the Fund. A total of 239,796 rights
were exercised for $1,902.
6) Future 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.
7) Earnings per Unit
Basic per unit calculations for the periods ending March 31 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 and the convertible debentures.
/T/
Three Months Ended
March 31
2004 2003
-------------------
Weighted average number of units 26,878 21,888
Net additional units if rights exercised 585 261
Additional units if debentures converted - 750
--------------------------------------------------------------------
Diluted weighted average number of units 27,463 22,987
--------------------------------------------------------------------
8) Reconciliation of Unitholder Distributions Declared and Paid
Three Months Three Months
Ended March 31 Ended March 31
2004 2003
-------------- --------------
Cash flow from operations before
reorganization costs 13,801 11,111
Maintenance capital expenditures (1,024) (1,420)
Asset retirement and deferred costs (26) (33)
Net proceeds on sales of fixed assets 22 100
Scheduled principle repayment (751) -
--------------------------------------------------------------------
Cash available for growth and
distribution before reorganization
costs 12,022 9,758
Reorganization costs - (4,465)
-------------- --------------
Cash available for growth and
distribution 12,022 5,293
-------------- --------------
-------------- --------------
Unitholder distributions
declared - 9,021 1,983
- per unit - $ 0.335 0.09
Unitholder distributions
paid - 8,456 -
- per unit - $ 0.315 -
9) Reconciliation of Accumulated Unitholder Distributions
Balance, December 31, 2002 -
Unitholder distributions declared and paid (20,140)
Unitholder distributions declared (2,818)
---------
Balance, December 31, 2003 (22,958)
---------
---------
Unitholder distributions declared and paid (5,638)
Unitholder distributions declared (3,384)
---------
Balance, March 31, 2004 31,980
---------
---------
/T/
10) Segmented Information
The Fund has two reportable segments. The Oilfield segment
recovers and resells crude oil from oilfield waste. The
Industrial segment collects waste lubricating oil, automotive,
and industrial wastes which are processed into resalable
products.
/T/
For the three months ended March 31 ($000's)
Inter- Consolidated
2004 Oilfield Industrial segment Unallocated(2) Total
-----------------------------------------------------------------------
External
revenue 28,788 14,100 42,888
Inter
segment
revenue(1) 9 11 (20) -
Operating
expense 13,441 11,491 (20) 24,912
Depreciation
and accretion 2,164 1,125 220 3,509
-----------------------------------------------------------------------
Net margin 13,192 1,495 (220) 14,467
Selling,
general and
administrative 4,131 4,131
Interest expense 76 76
-----------------------------------------------------------------------
Operating
income 13,192 1,495 (4,427) 10,260
-----------------------------------------------------------------------
Capital
expenditures 4,425 7,382 1,183 12,990
Goodwill 10,782 2,430 13,212
Total assets 177,070 100,717 12,947 290,734
--------------------------------------------------------
--------------------------------------------------------
2003 Inter- Consolidated
(Note 2) Oilfield Industrial segment Unallocated(2) Total
-----------------------------------------------------------------------
External
revenue 26,106 12,304 38,410
Inter
segment
revenue(1) 51 84 (135) -
Operating
expense 12,558 10,847 (135) 23,270
Depreciation
and accretion 1,775 1,061 193 3,029
-----------------------------------------------------------------------
Net margin 11,824 480 (193) 12,111
Selling,
general and
administrative 3,422 3,422
Interest expense 808 808
Reorganization
costs 4,484 4,484
-----------------------------------------------------------------------
Operating
income 11,825 480 (8,907) 3,397
-----------------------------------------------------------------------
Capital
expenditures 1,236 711 (367) 1,580
Goodwill 10,782 10,782
Total assets 163,774 88,660 4,289 256,723
--------------------------------------------------------
--------------------------------------------------------
(1) Inter-segment revenues are 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