Newalta Announces Record First Quarter Performance
CALGARY, ALBERTA--Newalta Income Fund (TSX: NAL.UN) today announced unaudited financial results for the three months ended March 31, 2003. As Newalta Income Fund is the successor organization to Newalta Corporation, information for the three months ended March 31, 2003 along with comparative information for the respective period in 2002 is provided. Financial Highlights ($000's) /T/ Three Months Ended March 31 (unaudited) 2003 2002 %Increase (Decrease) ---------------------------------------- Revenue 38,410 23,705 62 Operating income before reorganization costs 7,945 4,653 71 Operating income 3,461 4,653 (26) Net earnings 2,088 2,713 (23) Net earnings per unit (cents)(2) 9.5 15.3 (38) Diluted net earnings per unit (cents) 9.5 15.3 (38) EBITDA(1) before reorganization costs 11,776 7,907 49 EBITDA 7,292 7,907 (8) Trailing 12 month EBITDA before reorganization costs 38,721 30,714 26 Trailing 12 month EBITDA 33,641 28,186 19 Cash flow before reorganization costs 11,111 6,976 59 Cash flow 6,608 6,976 (5) Cash flow before reorganization costs, per unit (cents) 50.8 39.4 29 Cash flow per unit (cents) 30.2 39.4 (23) Capital expenditures, net 1,484 2,444 (39) Weighted average units outstanding (000s) (2) 21,888 17,704 24 Total units outstanding (000s)(2) 22,029 17,704 24 ------------------------------------------------------------------- /T/ (1) EBITDA is provided to assist management and investors in determining the ability of the Fund to generate cash from operations. It is calculated from the consolidated statements of income as revenue less operating and general and administrative expenses. This measure does not have any standardized meaning prescribed by GAAP and may not be comparable to similar measures presented by other funds or companies. (2) For comparative purposes the previously reported weighted average and total number of shares outstanding in 2002 have been converted to units on a 2:1 basis, and per unit calculations have been restated on this basis. (3) Distributable cash is provided to assist management and investors in determining the ability of the Fund to make cash distributions. It is defined as cash flow from operations less scheduled principal payments and net capital expenditures. This measure does not have any standardized meaning prescribed by GAAP and may not be comparable to similar measures presented by other funds or companies. Financial Summary and Operational Highlights Revenue increased $14.7 million, or 62%, from the first quarter of last year. Operating income, excluding reorganization costs, improved more than 70% to $7.9 million. Diluted net earnings per unit, excluding reorganization costs, increased 51% from 15.3 cents in 2002 to 23.1 cents in 2003. Distributable cash (3), excluding the reorganization costs, was 44 cents per unit for the quarter. "The investments that we made last year, including the Mohawk acquisition, the improvements in productivity and profitability that we achieved and the robust market conditions in the quarter all contributed to outstanding results. As well, higher crude oil prices during the quarter contributed $1.0 million to operating income," said Al Cadotte, President and Chief Executive Officer. "Initiatives undertaken in the first quarter to increase prices, reduce costs and enhance efficiencies will drive improved profitability for the remainder of the year. We remain determined to maximize the performance of our operations this year and to deliver superior returns to our unitholders." Outlook The outlook for 2003 is very positive with excellent results in the first quarter and steps already taken and underway to further enhance performance. In addition, we are taking action now to drive 2004 performance as we also explore potential acquisitions to capitalize on our unique recycling and recovery capabilities, our management experience and our network of facilities and infrastructure. Management's Discussion and Analysis as well as financial statements and notes to the financial statements are attached. Management will hold a conference call on Monday, May 5, 2003 at 1:00 p.m. (ET) to discuss the first quarter results. To listen, please dial 1-800-814-4857 or 416-640-4127, or log onto the webcast at www.newalta.com or www.cdn-news.com. For those unable to listen to the live event, a rebroadcast will be available until midnight, May 12, 2003. Please dial 416-640-1917 or 1-877-289-8525 and enter the passcode 250722. This document may contain forward-looking statements, relating to the operations or to the environment in which Newalta operates, which are based on the Fund'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 the Fund'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. Newalta Income Fund maximizes the inherent value in industrial wastes through recovery of saleable products and recycling, rather than disposal. Through an integrated network of 34 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. MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002 The following discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2002 of Newalta Corporation in the fiscal 2002 annual report, and the MD&A in the fiscal 2002 annual report, including the section on risks and uncertainties. Summary In the first quarter of 2003, Newalta Income Fund (the "Fund") increased revenue 62% to $38.4 million, from $23.7 million in the first quarter of 2002. Operating income before reorganization costs improved 71% to $7.9 million. These increases were mainly the result of strong commodity prices, high levels of activity in the Oilfield division, and the Fund's 2002 acquisitions and capital upgrades. Net earnings were approximately 77% of the $2.7 million earned in the first quarter of fiscal 2002, reflecting the one time reorganization expense of converting into an income fund. These reorganization costs totaled $4.5 million or 13.6 cents per unit after tax. Cash flow was 5% lower than last year at $6.6 million. Excluding reorganization costs cash flow improved by 59% to $11.1 million and EBITDA1 improved by 49% to $11.8 million. After reorganization costs, net earnings per unit were 9.5 cents compared with 15.3 cents per unit2 in 2002. Excluding reorganization costs, diluted net earnings per unit were 23.1 cents per unit in the first quarter of 2003 compared with 15.3 cents per unit in 2002. Net capital expenditures for the first quarter were $1.5 million compared with $2.5 million in 2002 and were primarily sustenance in nature. On March 1, 2003, the Fund completed its reorganization from a corporation focusing on growth through reinvestment of cash flow to a trust entity that will distribute a substantial portion of cash flow to its unitholders. On March 20, 2003, the Fund announced the first monthly distribution of 9 cents per unit payable to unitholders of record as of March 31, 2003. Subsequently, on April 15, 2003 the Fund paid unitholders a total of $2.0 million. Results of Operations - Three months ended March 31, 2003 Strong first quarter performance reflected strong commodity prices, high oilfield activity levels, the impact of the 2002 capital projects, and consolidation activities undertaken in late 2002. Higher crude prices contributed $1.0 million in revenue and operating income in the first quarter of 2003. In the first quarter, general and administrative expenses increased to $0.8 million from $0.6 million in the first quarter of 2002. Included in these expenses was a non-cash accrual of $0.3 million for the stock appreciation rights expense ($0.2 million 2002). Interest expense of $0.8 million was equal to last year's expense. Lower average debt levels were offset by slightly higher interest rates. The decrease in long-term debt during the first quarter was primarily due to the retirement of the $3.0 million convertible debentures assumed with the acquisition of certain oilfield facilities in 2001. As a percentage of revenue, depreciation decreased to 8% from 10% in 2002. The reorganization costs incurred during the quarter relate to restructuring the corporation into an income fund. The income tax expense recognizes the future liability arising from the difference between taxable and accounting income. Due to the reorganization into an income fund, with the exception of capital taxes, the Fund does not anticipate being cash taxable in the future. Also during the first quarter, the Company implemented a new pricing strategy in both divisions, which should be fully implemented by the end of the second quarter of 2003. ------------------------------- (1) EBITDA is provided to assist management and investors in determining the ability of the Fund to generate cash from operations. It is calculated from the consolidated statements of income as revenue less operating and general and administrative expenses. This measure does not have any standardized meaning prescribed by GAAP and may not be comparable to similar measures presented by other funds or companies. (2) Per unit calculations for 2002, prior to the reorganization into the Fund, are calculated as if the weighted average number of shares at the time had been converted to units on a 2:1 basis, and have been retroactively restated. Segmented Performance Oilfield The Oilfield segment recovers and resells crude oil from oilfield wastes. This segment accounted for 62% of the Fund's total assets and generated 67% of the Fund's total revenue. Revenue from the Oilfield segment 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 83% of Oilfield revenues come from wastes generated from day to day oil and gas production. Revenues in the Oilfield segment are partially dependent upon, and vary with, oilfield activity and commodity prices. During the first quarter, drilling rig utilization averaged 86% (68% in 2002) in western Canada, the number of wells drilled increased to 4,030 from 3,358 in 2002, and WTI averaged US$33.90 (US$21.64 in 2002). During the quarter, the Oilfield segment recovered 68,000 barrels of crude oil, which was sold at an average price of $45.45 per barrel. Comparable recoveries in first quarter of 2002 were 60,019 barrels, at an average price of $29.59 per barrel. Revenue for the three months from the Oilfield segment increased 40% to $25.6 million and segment margin improved 62% to $11.6 million. Net margin, as a percentage of revenue, increased from 39% to 45% as a result of improved commodity prices for recovered crude oil and reduced operating costs resulting from cost reduction initiatives and productivity improvements. Segment capital expenditures for the quarter were $1.2 million compared with $0.4 million in 2002. The outlook for the Oilfield segment remains positive. Continuing strength in oilfield activity combined with strategic initiatives to improve profitability should deliver strong performance for the balance of 2003. Industrial The Industrial segment collects automotive and industrial wastes and waste lubricating oil in western Canada, which are then processed into resalable products. This segment accounted for 36% of the Fund's total assets and generated 33% of the Fund's total revenue. The Industrial segment produces various recycled products from waste lubricating oil, including base oil, burner fuel, fuel oil, and drilling oil. Approximately 65% of the Industrial segment revenue comes from product sales with the balance from collection fees. In the first quarter segment revenue increased 138%, to $12.8 million from $5.4 million in 2002. The Mohawk acquisition contributed $4.7 million in revenue and $0.5 million in net margin. The remaining revenue increase of approximately $2.0 million and a net margin decrease of approximately $0.35 million resulted from the liquidation of excess burner fuel inventory. Accordingly, net margins for the quarter increased $0.1 million. As a result of the Mohawk acquisition and the inventory liquidation, revenue attributed to product sales increased 250% to $8.3 million. Also as a result of the Mohawk acquisition, waste lube oil collection in the quarter increased 35% to 12.4 million liters from 9.1 million liters in 2002. Segment capital expenditures for the quarter were $0.7 million compared with $1.8 million in 2002. Collection activity and product sales are expected to continue at a high level for the balance of 2003 as newly acquired assets become fully utilized. Price increases, which will be in place by the end of the second quarter of 2003, and cost reduction initiatives currently underway should improve net margins. Capital Expenditures Capital expenditures for the first quarter, net of disposal proceeds, were $1.5 million, compared with $2.5 million a year ago. The expenditures related primarily to sustenance spending. Total sustenance capital expenditures for 2003 are estimated to be approximately $7.5 million. Total growth capital expenditures for 2003, excluding acquisitions, if any, are estimated to be approximately $4.0 million. Liquidity and Financial Resources At March 31, 2003, total long-term debt (including convertible debentures and the current portion of long-term debt) was $46.0 million or 1.4 times trailing EBITDA, compared with $59.5 million, or 2.1 times trailing EBITDA a year ago. During the quarter, management negotiated a new credit facility with two Canadian chartered banks. The new facility provides for a total of $65.0 million in loan capacity, with equal quarterly payments of $0.75 million commencing June 30, 2003. Unitholders' Capital During the first quarter, under a Plan of Arrangement, the Fund issued 21.8 million units and 0.3 million Exchange Rights in exchange for all of the common shares and options of Newalta Corporation. In March 2003, holders of 0.2 million Exchange Rights exercised resulting in an additional issuance of 0.2 million units. Outstanding units at the end of the quarter totaled 22.0 million units. Risks and Uncertainties This report contains forward-looking statements that involve a number of risks and uncertainties, including statements regarding the outlook for the Fund's business and results of operations. There are a number of factors that could cause actual results to differ materially from those indicated. Operational risks include: - The business of the Fund is affected by fluctuations in the level of activity in the oil and natural gas industry, which, in turn, is directly affected by changes in world energy prices. - Fluctuations in commodity prices also affect the value of the crude oil the Fund recovers and resells. In the first quarter, oil sales accounted for 8% of total revenue and in 2002 oil sales accounted for 7 % of total revenue. - The waste management industry is highly regulated, and the Fund's business is affected by government legislation. - The Fund's business is also affected by seasonality and by competition, which varies by location and by type of service. The Fund currently has no swaps, hedges nor derivatives in place. Financial risk is limited to the Fund's exposure to fluctuations in interest rates, and to the normal business risk incurred with trade accounts receivable. In the first quarter of 2003, a 1% change in interest rates would have increased/decreased operating income by $0.1 million. Some sales are to customers based in the United States and as a result the Fund is exposed to the risk of currency exchange rate changes. Both exchange rate and trade receivables risk are minimized through the Fund's credit granting and receivables collection processes. /T/ Quarterly comparison ($000's) Three Months Ended March 31 ------------------------------------------------------------------ 2003 2002 ------------------------------------------------------------------ Revenue 38,410 23,705 Net earnings 2,088 2,713 Net earnings per unit (cents) 9.5 15.3 Diluted net earnings per unit (cents) 9.5 15.3 Newalta Income Fund Consolidated Balance Sheets ($000s) March 31, December 31, 2003 2002 Unaudited Audited ------------------------------------------------------------------------ Assets Current assets Accounts receivable 28,809 27,924 Inventory 7,304 7,923 Prepaid expenses 723 730 ------------------------------------------------------------------------ 36,836 36,577 Capital assets and intangibles 206,227 207,642 Goodwill 10,782 10,782 Deferred costs 815 811 ------------------------------------------------------------------------ 254,660 255,812 ------------------------------------------------------------------------ ------------------------------------------------------------------------ Liabilities Current liabilities Bank indebtedness 3,298 759 Accounts payable 16,232 17,626 Current portion of long-term debt (Note 3) 3,005 2,339 Current portion of debentures 3,000 6,000 ------------------------------------------------------------------------ 25,535 26,724 Long-term debt (Note 3) 37,001 38,751 Debentures 3,000 3,000 Future income taxes 33,222 32,024 Site restoration 2,830 2,732 ------------------------------------------------------------------------ 101,588 103,231 ------------------------------------------------------------------------ Unitholders' Equity Unitholders' capital (Note 4) 98,209 98,269 Contributed surplus 446 Accumulated earnings (Note 2) 56,400 54,312 Accumulated cash distributions (1,983) ------------------------------------------------------------------------ 153,072 152,581 ------------------------------------------------------------------------ 254,660 255,812 ------------------------------------------------------------------------ ------------------------------------------------------------------------ Newalta Income Fund Consolidated Statements of Income and Accumulated Earnings For the Three Months ended March 31 ($000s) (Unaudited) --------------------------------------------------------------------- 2003 2002 --------------------------------------------------------------------- Revenue 38,410 23,705 --------------------------------------------------------------------- Expenses Operating 25,789 15,159 General and administrative 845 639 Interest 808 781 Depreciation and site remediation 3,023 2,473 Reorganization (Note 2) 4,484 --------------------------------------------------------------------- Operating income 3,461 4,653 Provisions for income taxes Current 175 150 Future 1,198 1,790 --------------------------------------------------------------------- 1,373 1,940 --------------------------------------------------------------------- Net earnings 2,088 2,713 Accumulated earnings, beginning of period 54,312 44,282 Goodwill write-down, net of tax (2,233) Stock appreciation rights (155) --------------------------------------------------------------------- Accumulated earnings, end of period 56,400 44,607 --------------------------------------------------------------------- Net earnings per unit (cents) (Note 2) 9.5 15.3 Diluted net earnings per unit (cents) (Note 2) 9.5 15.3 --------------------------------------------------------------------- Newalta Income Fund Consolidated Statements of Cash Flows For the Three Months ended March 31 ($000s) (Unaudited) 2003 2002 ---------------------------------- Net inflow (outflow) of cash related to the following activities: Operating activities Net earnings 2,088 2,713 Items not requiring cash Depreciation and site remediation 3,023 2,473 Future income taxes 1,198 1,790 Stock compensation expense 318 Reorganization (19) ------------------------------------------------------------------------ Cash flow from operations 6,608 6,976 Increase in working capital (3,489) (27,809) ------------------------------------------------------------------------ 3,119 (20,833) ------------------------------------------------------------------------ Investing activities Additions to capital assets (1,580) (2,500) Net proceeds on sale of capital assets 100 38 Deferred costs (4) 18 Site restoration (29) 55 ------------------------------------------------------------------------ (1,513) (2,389) ------------------------------------------------------------------------ Financing activities Equity proceeds receivable 28,000 Repurchase of non-board lot shares (61) Repurchase of debentures (3,000) Decrease in long-term debt (1,084) (3,854) ------------------------------------------------------------------------ (4,145) 24,146 ------------------------------------------------------------------------ Net cash inflow (outflow) (2,539) 924 Cash (bank indebtedness), beginning of period (759) (10,374) ------------------------------------------------------------------------ Cash (bank indebtedness), end of period (3,298) (9,450) ------------------------------------------------------------------------ ------------------------------------------------------------------------ Cash flow from operations per unit (cents) Basic 30.2 39.4 Diluted 30.0 39.0 Supplementary information: Interest paid 1,182 743 Income taxes paid 124 89 NEWALTA INCOME FUND Notes to the Consolidated Financial Statements For the Three Months ended March 31, 2003 and 2002 ($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 in oil, gas and industrial wastes through recovery of saleable products and recycling, rather than disposal. Through 34 integrated facilities in western Canada, Newalta delivers solutions to a broad customer base of national and international corporations, including producers of crude oil and natural gas, and automotive and industrial businesses. 1. Summary of Significant Accounting Policies Newalta Income Fund was established by Deed of Trust dated January 16, 2003. Pursuant to the terms of a Plan of Arrangement, the Fund acquired all of the common shares of Newalta on March 1, 2003. Prior to the Plan of Arrangement the consolidated financial statements include the accounts of Newalta and its subsidiaries. After giving effect to the Plan of Arrangement, the consolidated financial statements include the accounts of the Fund and its subsidiaries. For reporting purposes the Fund is considered the continuing entity of Newalta. 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. 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, 2002 as contained in the Annual Report for fiscal 2002. The Fund is a unit trust for income tax purposes, and is taxable on taxable income not allocated to the unitholders. During the first quarter of 2003, the Fund allocated all of its taxable income to the unitholders, and accordingly, no provision for income taxes is required at the Fund level. Newalta is subject to corporate income taxes and follows the liability method of accounting for income taxes. 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 result of its operations and cash flows for the three months ended March 31, 2003 and 2002. 2. Reorganization On February 24, 2003, the shareholders and option holders of Newalta approved a Plan of Arrangement under section 193 of the Business Corporations Act (Alberta). The purpose of the Arrangement was to convert Newalta from a corporate entity concentrating on growth through reinvestment of cash flow to a trust entity which will distribute a substantial portion of cash flow to unitholders. The Plan of Arrangement was affected on March 1, 2003. Under the Plan of Arrangement the Fund issued units in exchange for all of the shares of Newalta on a 1:2 basis. Prior to the exchange, Newalta had approximately 43,634,000 shares outstanding and, subsequent to the exchange, the Fund had approximately 21,810,000 units outstanding. Associated with the reorganization, the Fund recorded reorganization costs of $4,484 (excluding $596 recorded in 2002). Effective March 1, 2003, the Fund established a Trust Unit Rights Incentive Plan (the "Rights Incentive Plan") to replace the stock option plan of Newalta. In accordance with the CICA Handbook section 3870 regarding stock based compensation, grants under the Rights Incentive Plan are valued and expensed at the time of issuance. Rights are valued as options using a Black-Scholes option pricing model. Prior to March 1, 2003, Newalta had outstanding both options and stock appreciation rights. The options were issued prior to January 1, 2002 and, in accordance with CICA Handbook section 3870, had not been valued nor expensed in the financial statements. The stock appreciation rights were issued after January 1, 2002 and were expected to be settled in cash. Accordingly an expense was recognized in each period based on the gain in the underlying value of the common shares of Newalta. For the first two months of 2003, prior to reorganization into the Fund, Newalta expensed $318 in stock appreciation rights expense. In the first quarter of 2002, Newalta recognized $214 as an expense for stock appreciation rights. 3. Debt (a) Banking facility On February 20, 2003, the Fund entered into an agreement for a new banking facility with a syndicate arranged by two Canadian chartered banks. The lending facility provides for a total of $65,000 comprised of a $25,000 extendable term facility, a $15,000 reducing 5-year term facility, and a $25,000 operating facility. The credit facility is secured principally by a general security agreement over the Fund's assets. Subject to certain conditions the term facilities charge interest at prime plus 1% or at Bankers Acceptance base plus 2.5% at the Fund's option. The operating facility charges interest at prime plus .25% or at Bankers Acceptance base plus 1.85%, also at the Fund's option. At March 31, 2003, the Fund had utilized $40.0 million of the term facilities and $3.3 million of the operating facility. (b) Debentures On February 28, 2003, $3,000 of 8% debentures were redeemed by Newalta in exchange for cash. The remaining $6,000 of 9.5% debentures mature half on September 1, 2003 and the balance on September 1, 2004. The debentures are convertible to units of the Fund at a conversion price of $8.00 per unit. 4. Unitholders' capital 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 granted pursuant to the Plan of Arrangement. The Fund declared a distribution $0.09 per unit for a total of $1,983 to be paid on April 15, 2003 to unitholders of record on March 31, 2003. /T/ Units/Shares Amount ---------------------------- Shares issued as at December 31, 2002 (000s) 43,634 $98,269 Shares cancelled under the plan of arrangement (43,634) (98,269) Units issued under the plan of arrangement 21,817 98,269 Non-board lot repurchased (6) (62) Rights exercised 218 2 ------------------------------------------------------------------------ Units outstanding as at March 31, 2003 22,029 $98,209 ------------------------------------------------------------------------ /T/ 5. Trust Unit Rights Incentive Plan On February 24, 2003, the Shareholders of Newalta approved the Rights Incentive Plan. On March 1, 2003, the Fund granted 1,042,500 Rights under the plan to certain executives, trustees, and employees. The Rights vest 20% annually from March 1, 2004 until March 1, 2008 and are exercisable at market value at the time of the grant, $9.30 per unit. In addition, pursuant to the Plan of Arrangement, the outstanding stock options as of March 1, 2003 were exchanged for Exchange Rights that are exercisable for units at $0.01 per unit. 218,000 Exchange Rights were exercised during March 2003, and a further 89,000 vest at various dates over the next three years. The Fund accounts for Rights granted pursuant to the Rights plan using intrinsic values. On this basis compensation costs are not required to be recognized in the financial statements for Rights granted at market value. Had compensation costs for the Fund's Rights Plan been determined based on the fair value methodology at the date of the grant, the Fund's pro-forma net earnings for the quarter would have been reduced by $963 and net earnings per unit would have been 5.1 cents per unit. The fair market value of the Rights is estimated on the grant date using the Black-Scholes option pricing model with the following assumptions: risk-free interest rate of 6%; yield of 12%; expected life of seven years; and expected volatility of 48%. The Exchange Rights were valued at the date of conversion, March 1, 2003, and the value of the Exchange Rights was attributed to the Contributed Surplus of the Fund. The market value of the Exchange Rights was recorded at $446 using the Black-Scholes option pricing model with the following assumptions: risk-free interest rate of 6%; yield of 12%; expected life of three years; and expected volatility of 48%. 6. Net Earnings per unit Basic per unit calculations for the three months ending March 31, 2003 were based on the weighted average number of units outstanding for the quarter of 21,888,000 units. Basic per unit calculations for the three months ending March 31, 2002 were based on the weighted average number of shares outstanding for the quarter. Diluted net earnings were based on the weighted average number of units outstanding of 22,900,000 units for the quarter ended March 31, 2003 and on the weighted average number of shares outstanding for the quarter ended March 31, 2002. The per unit and per share calculations and number of shares have been retroactively restated to reflect the 2 for 1 conversion of shares into units effective March 1, 2003. 7. 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/ ------------------------------------------------------------------------ Corporate Consoli- Inter- and dated 2003 Oilfield Industrial segment Unallocated Total ------------------------------------------------------------------------ External revenue 25,621 12,789 38,410 Inter segment revenue(3) 50 85 (135) - Operating expense 11,384 10,897 (135) 22,146 Indirect operating expense(4) 931 700 2,012(5) 3,643 Depreciation and amortization 1,718 1,112 193 3,023 ------------------------------------------------------------------------ Net margin 11,638 165 (2,205) 9,598 General and administrative 845 845 Interest expense 808 808 Reorganization costs 4,484 4,484 ------------------------------------------------------------------------ Operating income 11,638 165 (8,342) 3,461 ------------------------------------------------------------------------ Capital expenditures 1,236 711 (367) 1,580 Goodwill 10,782 10,782 Total assets 158,244 92,127 4,289 254,660 -------------------------------------------------- -------------------------------------------------- /T/ (3) Inter-segment revenues are recorded at market, less the costs of serving external customers. (4) Indirect operating expenses are defined as the allocated general management costs for the reporting unit. (5) Management does not allocate certain indirect operating, general & administrative, taxes, and interest costs in the segment analysis. NEWALTA INCOME FUND Notes to the Consolidated Financial Statements For the Three Months ended March 31, 2003 and 2002 ($000s) (Unaudited) /T/ ------------------------------------------------------------------------ Corporate Consoli- Inter- and dated 2002 Oilfield Industrial segment Unallocated Total ------------------------------------------------------------------------ External revenue 18,321 5,384 23,705 Inter segment revenue(3) 36 102 (138) - Operating expense 8,479 4,159 (138) 12,500 Indirect operating expense(4) 1,032 595 1,032(5) 2,659 Depreciation and amortization 1,658 680 135 2,473 ------------------------------------------------------------------------ Net margin 7,188 52 (1,167) 6,073 General and administrative 639 639 Interest expense 781 781 ------------------------------------------------------------------------ Operating income 7,188 52 (2,587) 4,653 ------------------------------------------------------------------------ Capital expenditures 375 1,790 335 2,500 Goodwill 10,624 10,624 Total assets 148,822 75,396 35,426 259,644 ---------------------------------------------------- ----------------------------------------------------
For further information: Newalta Income Fund - Ronald L. Sifton, Senior Vice President, Finance and Chief Financial Officer, (403) 206-2684; Website: www.newalta.com