Date: November 12, 2007
Source: BFI Canada Income Fund
Management Commentary
"We continued to advance our growth strategy in the third quarter, resulting in a strong financial performance and an asset base that is well-positioned for the future," said Keith Carrigan, Vice Chairman and Chief Executive Officer. "We achieved revenue growth of 19.3% in the quarter and 16.6% year to date, which drove EBITDA(A) growth of 18.0% in the quarter and 17.4% year to date. Free cash flow available for distribution(B) increased 23.8% in the quarter and 17.8% year to date, resulting in a payout ratio of 65.1% and 76.2% respectively.
"Our performance can be attributed to solid organic growth in our Canadian and U.S. segments, coupled with our successful acquisition activity. Organic Canadian and U.S. segment revenue growth, which excludes acquisitions and fuel and environmental surcharges, was 11.0% and 9.2% quarter over quarter, respectively, and 12.0% and 7.5%, year over year, respectively. Contributions from recent acquisitions, including Winters Bros.
Mr. Carrigan continued, "We would like to extend our appreciation to T. Iain Ronald, a Trustee of the Fund since 2002, who retired effective November 11, 2007. Iain served as the first Non-Executive Chairman of the Fund until 2006. We extend our appreciation to Iain for all of his contributions and his continued support. We would also like to welcome back Douglas W. Knight as a Trustee of the Fund, effective November 11, 2007. Doug previously served as a Trustee of the Fund between April 2002 and January 2005. As President of
Financial Highlights for the Three and Nine Months Ended September 30, 2007 - Total consolidated revenues increased 19.3% and 16.6% to $238.5 million and $666.3 million.
- Total consolidated revenue growth, excluding the impact of foreign currency translation, was 24.1% and 18.4%.
- Total EBITDA(A) growth, excluding the impact of foreign currency translation, was 22.3% and 19.0%.
- Free cash flow available for distribution(B) increased to $48.0 million and $120.9 million or 23.8% and 17.8%.
- The Fund's payout ratio was 65.1% and 76.2%.
- The Fund's payout ratio excluding the effects of the foreign currency hedge was 67.8% and 78.7%.
Other Highlights for the Three and Nine Months Ended September 30, 2007
- Effective August 31, 2007, the Fund acquired Winters Bros.
- Concurrent with the closing of the Winters Bros. acquisition, the Fund entered into a third amendment to its Amended and Restated Revolving Credit and Term Loan Agreement. The amendment increases the total available capacity by U.S. $320,000 and brings the total available lending under the U.S. revolving credit facility to U.S. $575,000. Including the accordion feature, total available credit under the U.S. long-term debt facility is U.S. $825,000. With the exception of certain modified financial covenants and the maintenance of interest rate swaps, all significant terms, including but not limited to pricing and maturity, under the U.S. revolving credit facility remain unchanged. As a condition of the amendedU.S. long-term debt facility agreement, the Fund's U.S. $160,000 note receivable ("U.S. notes") from IESI was effectively cancelled through a restructuring.
- Effective August 28, 2007, the Fund received all of the necessary permits for the expansion of its Seneca Meadows landfill. Based on current volumes, management expects the operating life of the site to extend through 2023.
- Effective August 31, 2007, the Fund's Calgary landfill received an operating permit which management expects will allow the site to continue accepting waste through 2010.
- Effective April 5, 2007, the Fund closed a 3,100 trust unit offering at $26.10 per trust unit. In addition, the underwriters exercised their over-allotment option to acquire an additional 465 trust units. The Fund applied the net proceeds from the offering, approximately $87,600, against advances from its U.S. revolving credit facility.
- Effective March 21, 2007, the Fund entered into aSecond Amending Agreement to its Fourth Amended and Restated Credit Agreement. The second amendment increases the total committed Canadian segment credit to $150,000 from $80,000 and the total available credit from this facility, subject to lender consent, to $200,000 from $120,000. The maturity date was extended to May 30, 2011 from June 30, 2010, and the maturity date remains subject to one year extensions.
- Effective March 28, 2007, the Fund entered into a new 15 year agreement for variable rate demand solid waste disposal revenue bonds ("IRBs") in the state of Texas. The IRBs are made available, to a maximum of U.S. $24,000 and are available to fund a portion of landfill construction activities, and equipment, vehicle, and container expenditures in the Fund's Texas operations. The IRBs bear interest at a discount to LIBOR. A portion of the Fund's drawings under this facility was used to repay the Fund's U.S. revolving credit facility with the balance used to finance landfill construction activities, and equipment, vehicle, and container expenditures. At September 30, 2007, approximately U.S. $2,600 of cash was restricted for the purpose of financing future activities and expenditures.
- For the three months ended September 30, 2007, and excluding the acquisition of Winters Bros., the Fund completed one new market acquisition in the Fund's Canadian segment, and completed six "tuck-in" acquisitions. For the nine months ended September 30, 2007, and excluding the acquisition of Winters Bros., the Fund completed two new market acquisitions, in the Fund's Canadian and U.S south segments, and completed 14 "tuck-in" acquisitions. Aggregate cash consideration, excluding the Winters Bros. acquisition, was approximately $12,500 and $47,500, respectively.
- As previously noted, the Trustees continue to actively work with management to review the Fund's corporate structure in light of changes to the taxation of income trusts as it relates to the Fund's continuous improvement and growth strategy.
Summarized Financial Highlights
Three months ended Nine months ended
September 30, September 30,
2007 2007
------------------------------------------------------------------------
------------------------------------------------------------------------
Revenues September 30, 2006 $ 199,981 $ 571,500
Organic growth and acquisitions
(includes fuel and environmental
surcharges) 48,279 105,422
Foreign currency exchange impact (9,747) (10,594)
------------------------------------------------------------------------
Revenues September 30, 2007 $ 238,513 $ 666,328
% Revenue growth before foreign
currency exchange impact 24.1% 18.4%
Total revenue growth % 19.3% 16.6%
EBITDA(A) September 30, 2006 $ 64,455 $ 175,682
Organic growth and acquisitions 14,349 33,459
Foreign currency exchange impact (2,736) (2,967)
------------------------------------------------------------------------
EBITDA(A) September 30, 2007 $ 76,068 $ 206,174
% EBITDA(A) growth before foreign
currency exchange impact 22.3% 19.0%
Total EBITDA(A) growth % 18.0% 17.4%
Free cash flow available for distribution(B) September 30, 2006
$ 38,762 $ 102,574
Organic growth and acquisitions 10,557 19,705
Foreign currency exchange impact (1,318) (1,421)
------------------------------------------------------------------------
Free cash flow available for distribution(B) September 30, 2007
$ 48,001 $ 120,858
% Free cash flow available for
distribution(B) growth before foreign
currency exchange impact 27.2% 19.2%
Total free cash flow available
for distribution(B) growth % 23.8% 17.8%
Free cash flow available for
distribution(B) without hedge $ 46,039 $ 116,966
------------------------------------------------------------------------
Aggregate distributions declared $ 31,227 $ 92,099
------------------------------------------------------------------------
Payout ratio with foreign
currency hedge 65.1% 76.2%
------------------------------------------------------------------------
Payout ratio without foreign
currency hedge 67.8% 78.7%
------------------------------------------------------------------------
Foreign Currency Hedge
A significant portion of the Fund's operating results, maintenance capital and landfill expenditures ("maintenance expenditures"), interest on long-term debt, and cash income taxes reported in Canadian dollars, originate in the U.S. Operating expenses, maintenance expenditures, interest on long-term debt, and cash income taxes originating in the U.S. are settled in U.S. dollars generated from U.S. operations which results in a natural cash flow hedge. A portion of the resultant free cash flow available for distribution(B) is hedged by three single rate hedge agreements through February 2008 to purchase 4,500 Canadian dollars monthly at an average foreign currency exchange rate of approximately $1.222.
Financial Highlights
(in thousands, except per weighted average trust unit and participating
preferred share ("PPS"))
Three months ended Nine months ended
September 30 September 30
---------------------------------------------------------------------------
---------------------------------------------------------------------------
2007 2006 2007 2006
---------------------------------------------------------------------------
---------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)
---------------------------------------------------------------------------
Operating results
Revenues $ 238,513 $ 199,981 $ 666,328 $ 571,500
Operating expenses 135,740 111,991 380,258 324,433
Selling, general
and administration
expenses ("SG&A") 26,705 23,535 79,896 71,385
---------------------------------------------------------------------------
Income before the following
("EBITDA(A)") 76,068 64,455 206,174 175,682
Amortization 41,490 38,587 120,780 110,831
Interest on long-term debt 10,775 8,767 29,140 24,996
Financing costs 6,328 - 7,192 79
Net gain on sale of
capital assets (109) (54) (1,343) (409)
Net loss (gain) on
financial instruments 3,674 3,260 (1,044) (539)
Net foreign exchange
(gain) loss (302) (809) 14,802 6,051
Other expenses - 28 5 187
---------------------------------------------------------------------------
Income before income taxes
and non-controlling interest 14,212 14,676 36,642 34,486
---------------------------------------------------------------------------
Income tax expense 2,147 1,792 2,668 6,566
Non-controlling interest 1,962 2,427 5,680 5,345
---------------------------------------------------------------------------
Net income $ 10,103 $ 10,457 $ 28,294 $ 22,575
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Net income per weighted
average trust unit,
basic & diluted $ 0.18 $ 0.20 $ 0.50 $ 0.42
Trust units and
PPSs outstanding
Weighted average number of
trust units outstanding 57,545 53,617 56,227 53,469
Weighted average number of
PPSs outstanding 11,161 11,774 11,272 11,922
---------------------------------------------------------------------------
Weighted average number
of trust units and PPSs
outstanding 68,706 65,391 67,499 65,391
---------------------------------------------------------------------------
Aggregate number of
trust units
and PPSs outstanding 68,706 65,391 68,706 65,391
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Maintenance and growth
expenditures
Maintenance expenditures $ 14,475 $ 13,972 $ 44,886 $ 40,862
Growth capital and landfill
expenditures ("growth
expenditures") 25,210 20,668 58,726 58,817
---------------------------------------------------------------------------
Total maintenance and
growth expenditures $ 39,685 $ 34,640 $ 103,612 $ 99,679
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Operating and free
cash flow
Cash generated from
operating activities $ 56,360 $ 51,916 $ 138,621 $ 127,515
Free cash flow available
for distribution(B) $ 48,001 $ 38,762 $ 120,858 $ 102,574
Free cash flow available
for distribution(B) per
weighted average
trust unit and PPS $ 0.70 $ 0.59 $ 1.79 $ 1.57
Distributions
Aggregate distributions
declared on weighted average
trust units $ 26,154 $ 23,802 $ 76,723 $ 69,352
Distributions attributable
to non-controlling interest 5,073 5,227 15,376 15,231
---------------------------------------------------------------------------
Aggregate distributions
declared $ 31,227 $ 29,029 $ 92,099 $ 84,583
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Aggregate distributions
declared per weighted
average trust unit and PPS $ 0.45 $ 0.44 $ 1.36 $ 1.29
Management's Discussion
(all amounts are in thousands, except per trust unit, PPS, and foreign currency exchange rate amounts)
Foreign Currency Exchange Rates
The Fund reports its financial results in Canadian dollars, and consequently changes in the foreign currency exchange rate between Canada and the U.S. impacts the translated value of the Fund's U.S. operating results to Canadian dollars. The U.S. segments financial position and operating results have been translated to Canadian dollars applying the following U.S. to Canadian dollar foreign exchange rates:
2007 2006
----------------------------- -------------------------------
Cumulative Cumulative
Current Average average Current Average average
----------------------------- -------------------------------
March 31 $ 1.153 $ 1.172 $ 1.172 $ 1.167 $ 1.155 $ 1.155
June 30 $ 1.063 $ 1.098 $ 1.135 $ 1.115 $ 1.122 $ 1.138
September 30 $ 0.996 $ 1.045 $ 1.105 $ 1.115 $ 1.121 $ 1.133
Readers are reminded that a significant portion of the Fund's financial results originate in the U.S. The impact of foreign currency exchange on the Fund's consolidated results is included in the Fund's MD&A for the three and nine months ended September 30, 2007.
Operating Highlights
Three months ended September 30 Nine months ended September 30
---------------------------------------------------------------------------
---------------------------------------------------------------------------
2007 2006 $ Change 2007 2006 $ Change
---------------------------------------------------------------------------
Revenues $ 238,513 $ 199,981 $ 38,532 $ 666,328 $ 571,500 $ 94,828
---------------------------------------------------------------------------
Canada $ 87,735 $ 76,891 $ 10,844 $ 247,109 $ 213,697 $ 33,412
U.S. south $ 82,278 $ 67,183 $ 15,095 $ 237,211 $ 197,024 $ 40,187
U.S.
northeast $ 68,500 $ 55,907 $ 12,593 $ 182,008 $ 160,779 $ 21,229
Operating expenses
$ 135,740 $ 111,991 $ 23,749 $ 380,258 $ 324,433 $ 55,825
---------------------------------------------------------------------------
Canada $ 46,022 $ 38,712 $ 7,310 $ 128,743 $ 107,992 $ 20,751
U.S. south $ 51,737 $ 44,302 $ 7,435 $ 152,518 $ 132,003 $ 20,515
U.S.
northeast $ 37,981 $ 28,977 $ 9,004 $ 98,997 $ 84,438 $ 14,559
SG&A $ 26,705 $ 23,535 $ 3,170 $ 79,896 $ 71,385 $ 8,511
---------------------------------------------------------------------------
Canada $ 9,826 $ 9,493 $ 333 $ 29,616 $ 27,864 $ 1,752
U.S. south $ 10,487 $ 8,837 $ 1,650 $ 30,960 $ 26,440 $ 4,520
U.S.
northeast $ 6,392 $ 5,205 $ 1,187 $ 19,320 $ 17,081 $ 2,239
EBITDA(A) $ 76,068 $ 64,455 $ 11,613 $ 206,174 $ 175,682 $ 30,492
---------------------------------------------------------------------------
Canada $ 31,887 $ 28,686 $ 3,201 $ 88,750 $ 77,841 $ 10,909
U.S. south $ 20,054 $ 14,044 $ 6,010 $ 53,733 $ 38,581 $ 15,152
U.S.
northeast $ 24,127 $ 21,725 $ 2,402 $ 63,691 $ 59,260 $ 4,431
The discussions to follow are in addition to the impact of foreign currency exchange fluctuations as detailed in the Fund's MD&A for the three and nine months ended September 30, 2007.
Revenues - Three and nine months ended September 30
The increase in consolidated revenues for the three months ended is due in part to organic Canadian and U.S. segment growth, where organic growth excludes the impact of fuel and environmental surcharges, acquisitions, and foreign currency translation. Aggregate growth through acquisition and higher fuel and environmental surcharges also contributed to the period over period change.
The increase in consolidated revenues for the nine months ended is due in part to organic Canadian and U.S. segment growth, defined above. Aggregate growth through acquisition also contributed to the period over period change. The unfavourable impact of foreign currency translation was partially offset by higher fuel and environmental surcharges.
Operating expenses - Three and nine months ended September 30
Higher total disposal and labour costs are attributable to higher collected waste volumes and higher costs to service new and existing customers, contracts, and acquisitions for the three and nine months ended. The balance of the total change for both periods is due principally to higher vehicle operating costs and repairs and maintenance expense partially offset by a decline in insurance expense.
Selling, general and administration expenses - Three and nine months ended September 30
Higher total salaries, including long-term incentive plan ("LTIP") accruals, are the primary reason for the period over period increases. Organic and acquisition growth, coupled with additional sales efforts are the primary reasons for the increases in total salaries. Higher facility and office costs and travel expenditures are the primary reason for the balance of change in both periods.
Free Cash Flow Available for Distribution(B)
Change in calculation
Effective July 6, 2007, the Canadian Securities Administrators ("CSA") amended National Policy 41-201 - Income Trusts and Other Indirect Offerings. Amended policy changes, which includes the concept of maintaining productive capacity, has resulted in a change to the Fund's calculation of free cash flow available for distribution(B). The Fund has historically viewed costs to maintain the productive capacity of its limited life landfills as a cost funded from excess free cash flow available for distribution(C). Accordingly, such amounts have not been included in the Funds determination of free cash flow available for distribution(B). Costs incurred to maintain the productive capacity of landfills are included in the Fund's landfill asset amortization rate per tonne and effective July 6, 2007 the Fund has elected to charge these amounts to the calculation of free cash flow available for distribution(B). The impact of this change is reflected through all free cash flow available for distribution(B) amounts disclosed in this press release.
Costs incurred to develop a replacement or new landfill site are deferred until such time as the replacement site is successfully permitted. Upon successful permitting, these costs are included in the Fund's landfill asset amortization rate per tonne and are charged to free cash flow available for distribution(B).
Results
Free cash flow available for distribution(B) totalled $48,001 and $120,858 for the three and nine months ended September 30, 2007 versus $38,762 and $102,574 for the comparative periods, respectively.
Free cash flow available for distribution(B) per weighted average trust unit and PPS for the three and nine months ended September 30, 2007 amounted to $0.70 and $1.79 and is $0.11 and $0.22 higher than the comparative periods, respectively.
Free Cash Flow Available for Distribution(B) - Cash Flow Approach
Three months ended Nine months ended
September 30 September 30
---------------------------------------------------------------------------
2007 2006 Change 2007 2006 Change
---------------------------------------------------------------------------
Cash generated
from operating
activities (per
statement of
cash flows) $ 56,360 $ 51,916 $ 4,444 $ 138,621 $ 127,515 $ 11,106
---------------------------------------------------------------------------
Operating
Changes in non-
cash working
capital items (6,182) 1,813 (7,995) 18,356 12,114 6,242
Net change in
landfill closure
and post-
closure costs (2,336) (1,315) (1,021) (7,505) 3,135 (10,640)
Maintenance
expenditures (14,475) (13,972) (503) (44,886) (40,862) (4,024)
Financing
Amortization of
gain on settlement
of bond
forward contracts 56 56 - 168 168 -
Financing and
deferred costs
(net of non
-cash portion) 6,297 (91) 6,388 7,093 (418) 7,511
Effect of foreign
currency hedges
to support
Canadian dollar
distributions 1,962 1,116 846 3,892 2,967 925
Realized foreign
exchange gain (1,374) (761) (613) (2,574) (2,045) (529)
Realized foreign
exchange loss
on U.S. notes 7,693 - 7,693 7,693 - 7,693
---------------------------------------------------------------------------
Free cash flow
available for
distribution(B) $ 48,001 $ 38,762 $ 9,239 $ 120,858 $ 102,574 $ 18,284
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Free Cash Flow Available for Distribution(B) - Operations Approach
Three months ended Nine months ended
September 30 September 30
---------------------------------------------------------------------------
2007 2006 Change 2007 2006 Change
---------------------------------------------------------------------------
EBITDA(A) $ 76,068 $ 64,455 $ 11,613 $ 206,174 $ 175,682 $ 30,492
---------------------------------------------------------------------------
Amortization of
capitalized
landfill asset
closure and
post-closure
costs, including
revisions to
estimated cash
flows (2,942) (2,888) (54) (7,845) (6,202) (1,643)
Interest on
long-term debt (10,775) (8,767) (2,008) (29,140) (24,996) (4,144)
Management
transaction
bonuses (other
expenses) - (28) 28 (5) (187) 182
Current income
taxes (1,893) (1,210) (683) (7,500) (3,996) (3,504)
Maintenance
expenditures (14,475) (13,972) (503) (44,886) (40,862) (4,024)
Effect of foreign
currency hedges
to support
Canadian dollar
distributions 1,962 1,116 846 3,892 2,967 925
Amortization of
gain on
settlement of
bond forward
contracts 56 56 - 168 168 -
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Free cash flow
available for
distribution(B) $ 48,001 $ 38,762 $ 9,239 $ 120,858 $ 102,574 $ 18,284
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Maintenance and Growth Expenditures
Three months ended Nine months ended
September 30 September 30
---------------------------------------------------------------------------
2007 2006 Change 2007 2006 Change
---------------------------------------------------------------------------
Total $ 39,685 $ 34,640 $ 5,045 $103,612 $ 99,679 $ 3,933
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Maintenance:
Canada $ 4,111 $ 4,530 $ (419) $ 14,147 $ 13,237 $ 910
U.S. 10,364 9,442 922 30,739 27,625 3,114
---------------------------------------------------------------------------
Total maintenance $ 14,475 $ 13,972 $ 503 $ 44,886 $ 40,862 $ 4,024
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Growth:
Canada $ 4,498 $ 4,888 $ (390) $ 16,236 $ 19,658 $ (3,422)
U.S. 20,712 15,780 4,932 42,490 39,159 3,331
---------------------------------------------------------------------------
Total growth $ 25,210$ 20,668$ 4,542$ 58,726$ 58,817 $ (91)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Maintenance and growth expenditures include amounts accrued in respect of capital and landfill assets received for which payment of such amounts remains outstanding at the end of any period or year.
Maintenance Expenditures
For the three months ended September 30, the Canadian segment decline is due in large part to the timing of expenditures and is not attributable to one specific or collective group of expenditure(s) or asset class. The U.S. segment increase is due principally to a larger business base, which is the result of solid organic and acquisition growth, and increasing costs to purchase maintenance capital.
For the nine months ended September 30, the Canadian and U.S. segment increases are due principally to vehicle expenditures. The primary reasons for the increases are consistent with those outlined above for the U.S. segment for the three months ended.
Maintenance expenditures are generally concentrated in the first three quarters of each year, which may result in the declaration and payment of distributions that are in excess of free cash flow available for distribution(B) for these quarters. The Fund's historical cumulative payout ratio is 82.3% from inceptionto September 30, 2007.
Growth Expenditures
The Canadian segment decrease in growth expenditures for the three months ended is due largely to landfill cell construction, relative to consumption, where comparative net consumption exceeded construction. Higher landfill cell construction and municipal contract wins are the primary reasons for the increase in U.S. segment growth expenditures for the three months ended September 30.
Canadian segment residential contract wins which commenced in the nine months ended September 30, 2006 exceeded those that commenced in nine months ended September 30, 2007 resulting in a decline in comparative period over period growth expenditures. The timing of landfill cell construction expenditures and municipal contract wins are the primary reasons for the U.S. segment increase in growth expenditures.
Distributions
The following table summarizes various details of the Fund's 2007 and 2006 distributions:
---------------------------------------------------------------------------
Nine months ended September 30
---------------------------------------------------------------------------
Percentage
increase
Monthly Annual Total in total
distribution distribution distributions distribut-
per trust per trust and PPS ions and
unit and unit and dividends PPS divi-
Period PPS dividend PPS dividend declared dends
---------------------------------------------------------------------------
2007 January September $ 0.1515$ 1.8180 $ 92,099 8.9%
---------------------------------------------------------------------------
---------------------------------------------------------------------------
2006 August-September $ 0.1515$ 1.8180 $ 19,814
January-July $ 0.1415 $ 1.6980 $ 64,769
---------------------------------------------------------------------------
Total $ 84,583
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Long-term debt
Summarized details of the Fund's long-term debt facilities are as follows:
Letters of credit
(not reported as
long-term debt
Facility drawn at on the Current
Available September 30, Consolidated available
lending 2007 Balance Sheets) capacity
---------------------------------------------------------------------------
Canadian
long-term
debt
facilities -
stated in
Canadian
dollars
Senior
secured
debentures,
series A $ 47,000 $ 47,000 $ - $ -
Senior
secured
debentures,
series B $ 58,000 $ 58,000 $ - $ -
Revolving
credit
facility $ 150,000 $ 68,000 $ 24,691 $ 57,309
U.S.
long-term
debt
facilities -
stated in
U.S. dollars
Term loan $ 195,000 $ 195,000 $ - $ -
Revolving
credit
facility $ 575,000 $ 335,000 $ 158,998 $ 81,002
IRBs $ 104,000 $ 96,500 $ - $ 7,500
Effective August 31, 2007 and concurrent with the closing of the Winters Bros. acquisition, the Fund entered into a third amendment to its Amended and Restated Revolving Credit and Term Loan Agreement. The amendment makes available an additional U.S. $320,000 bringing the total available capacity under the U.S. revolving credit facility to U.S. $575,000. With the exception of certain modified financial covenants and the maintenance of interest rate swaps, all significant terms, including but not limited to pricing and maturity, under the U.S. revolving credit facility remain unchanged. The previous long-term debt facility required IESI to maintain interest rate swaps for not less than 60% of its variable rate interest payable on the term loan, but not more than 50% of the total drawn facility. This condition has been modified and now requires IESI to maintain not less than 40% of total funded debt on a fixed rate basis within 30 days from the third amendment date.
Both the Canadian and U.S. long-term debt facilities have an accordion feature which can increase the available capacity of the Canadian revolving credit facility from $150,000 to $200,000 and can increase the available capacity of the U.S term loan and revolving credit facility from U.S. $770,000, in aggregate, to U.S. $825,000, in aggregate, subject to certain restrictions.
Definitions of EBITDA and free cash flow available for distribution
(A) All references to "EBITDA" in this press release are to "income before the following" on the consolidated statement of operations and comprehensive loss. "Income before the following" excludes some or all of the following: "amortization, interest on long-term debt, financing costs, net gain or loss on sale of capital and landfill assets, net gain or loss on financial instruments, net foreign exchange gain or loss, write-off of deferred financing costs, other expenses, income taxes, and non-controlling interest". EBITDA is a term used by the Fund that does not have a standardized meaning prescribed by Canadian generally accepted accounting principles ("GAAP") and is therefore unlikely to be comparable to similar measures used by other issuers. EBITDA is a measure of the Fund's operating profitability, and by definition, excludes certain items as detailed above. These items are viewed by management as either non-cash (in the case of amortization, certain financing costs, write-off of deferred financing costs, net gain or loss on financial instruments, net foreign exchange gain or loss, and future income taxes) or non-operating (in the case of interest on long-term debt, net gain or loss on sale of capital and landfill assets, certain financing costs, other expenses, current income taxes, and non-controlling interest). EBITDA is a useful financial and operating metric for investors as it represents a starting point in the determination of free cash flow available for distribution(B). The underlying reasons for exclusion of each item are as follows:
Amortization -- as a non-cash item amortization has no impact on the determination of free cash flow available for distribution(B).
Interest on long-term debt -- interest on long-term debt is a function of the Fund's debt/equity mix and interest rates; as such, it reflects the treasury/financing activities of the Fund and represents a different class of expense than those included in EBITDA.
Financing costs -- financing costs are a function of the Fund's treasury/financing activities and represents a different class of expense than those included in EBITDA.
Net gain or loss on sale of capital and landfill assets -- the net gain or loss on sale of capital and landfill assets has no impact on the determination of free cash flow available for distribution(B), because the proceeds were either reinvested in other capital assets or used to repay the Fund's revolving credit facility.
Net gain or loss on financial instruments -- as non-cash items, gains or losses on financial instruments have no impact on the determination of free cash flow available for distribution(B).
Net foreign exchange gain or loss -- as non-cash items, foreign exchange gains or losses have no impact on the determination of free cash flow available for distribution(B).
Write-off of deferred financing costs -- as a non-cash item, write-off of deferred financing costs has no impact on the determination of free cash flow available for distribution(B).
Other expenses -- other expenses represent amounts paid to management of the Fund on the closing of the IESI acquisition and are not considered an expense indicative of continuing operations. Accordingly, other expenses represent a different class of expense than those included in EBITDA.
Income taxes -- income taxes are a function of tax laws and rates and are affected by matters which are separate from the daily operations of the Fund.
Non-controlling interest -- non-controlling interest represents a direct non-controlling equity interest in IESI through PPS holdings. Accordingly, non-controlling interest represents a different class of expense than those included in EBITDA.
(B) The Fund has adopted a measurement called "free cash flow available for distribution" to supplement net income as a measure of operating performance. Free cash flow available for distribution is a term which does not have a standardized meaning prescribed by GAAP and is therefore unlikely to be comparable to similar measures used by other issuers. The objective of presenting this non-GAAP measure is to calculate the amount which is available for distribution to trust unitholders and participating preferred shareholders. Participating preferred share holdings are presented as non-controlling interest in the consolidated financial statements of the Fund; however, management of the Fund have elected to include the shareholdings of the participating preferred shareholders in the calculation of free cash flow available for distribution as participating preferred shares receive distributions that are economically equivalent to those received by trust unitholders and participating preferred shares are exchangeable on a one-to-one basis for trust units of the Fund. Details of the calculation are included in the "Other Performance Measures -- Free cash flow available for distribution(B)" section of the Fund's MD&A. Free cash flow available for distribution is not necessarily indicative of cash available to fund cash needs and should not be considered an alternative to cash flow as a measure of liquidity. All references to "free cash flow available for distribution" in this press release have the meaning set out in this note.
(C) Excess free cash flow available for distribution represents the result of free cash flow available for distribution(B) less distributions declared.
Forward-looking statements
This document may contain forward-looking statements relating to the Fund's operations or to the environment in which it 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 the Fund's Annual Information Form for the period ended December 31, 2006. Consequently, readers should not rely on such forward-looking statements. In addition, these forward-looking statements relate to the date on which they are made. Although the forward-looking statements contained herein are based on what management believes to be reasonable assumptions, the Fund cannot assure unitholders that actual results will be consistent with these forward looking statements, and the Fund 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 Fund, through its operating subsidiaries, is one of North America's largest full-service waste management companies, providing non-hazardous solid waste collection and disposal services for commercial, industrial, municipal and residential customers in five Canadian provinces and ten states in the United States. The Fund serves over 1.2 million customers with vertically integrated collection and disposal assets. The Fund's Canadian segment operates under the BFI Canada brand and is Canada's second largest full-service waste management company providing integrated non-hazardous solid waste collection and landfill disposal services in the provinces of British Columbia, Alberta, Manitoba, Ontario and Quebec. The Canadian segment operates one and owns and operates four landfills, carries on solid waste collection operations in 20 markets and operates four transfer collection stations, seven material recovery facilities and one landfill gas to energy facility. The Fund's U.S. operations provide integrated non-hazardous solid waste collection and landfill disposal services in two geographic regions: the south, consisting of various service areas in Texas, Louisiana, Oklahoma, Arkansas, Mississippi and Missouri, and the northeast, consisting of various service areas in New York, New Jersey, Pennsylvania and Maryland. The U.S. south and northeast segments operate in 38 markets and operates 32 transfer stations, 17 landfills and five material recycling facilities. The Fund's units are listed on the Toronto Stock Exchange under the symbol BFC.UN. For more information on the Fund, visit www.bficanada.com.
Management will hold a conference call on November 13, 2007 at 8:30 am (EDT) to discuss results for the three and nine months ended September 30, 2007. To access the call, participants should dial 416-644-3417 or 1-800-732-9307 at approximately 8:20 am (EDT). The conference call will also be webcast live at www.bficanada.com and subsequently archived on the BFI Canada website.
A rebroadcast of the call will be available until midnight on November 27, 2007. To access the rebroadcast, dial 416-640-1917 or 1-877-289-8525 and quote the reservation number 21250205#.
BFI CANADA INCOME FUND
Consolidated Balance Sheets
September 30, 2007 (unaudited) and December 31, 2006
(in thousands of dollars)
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September 30, December 31,
2007 2006
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ASSETS
CURRENT
Cash and cash equivalents $ 13,269 $ 9,275
Accounts receivable 124,763 102,350
Due from non-controlling interest - 6,638
Other receivables 782 1,737
Prepaid expenses 18,827 11,665
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157,641 131,665
OTHER RECEIVABLES 658 1,517
FUNDED LANDFILL POST-CLOSURE COSTS 5,517 4,142
INTANGIBLES 135,918 77,204
GOODWILL 602,746 481,334
DEFERRED COSTS 9,193 4,051
DEFERRED FINANCING COSTS - 7,015
CAPITAL ASSETS 395,595 322,372
LANDFILL ASSETS 643,850 730,290
OTHER ASSETS 4,603 7,070
FUTURE INCOME TAX ASSETS 3,639 -
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$ 1,959,360 $ 1,766,660
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LIABILITIES
CURRENT
Accounts payable $ 51,063 $ 64,284
Accrued charges 62,889 57,318
Distribution payable 10,409 9,907
Income taxes payable 2,232 1,280
Deferred revenues 15,937 10,212
Current portion of long-term debt - 50
Landfill closure and post-closure costs 3,827 5,824
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146,357 148,875
LONG-TERM DEBT 797,182 543,454
LANDFILL CLOSURE AND POST-CLOSURE COSTS 59,762 58,711
OTHER LIABILITIES 8,619 383
FUTURE INCOME TAX LIABILITIES 43,694 31,922
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1,055,614 783,345
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NON-CONTROLLING INTEREST 254,953 282,026
UNITHOLDERS' EQUITY 648,793 701,289
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$ 1,959,360 $ 1,766,660
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BFI CANADA INCOME FUND
Consolidated Statements of Operations and Comprehensive Loss
For the periods ended September 30, 2007 and September 30, 2006
(unaudited - in thousands of dollars, except net income per
trust unit amounts)
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Three months ended Nine months ended
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2007 2006 2007 2006
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REVENUES $ 238,513 $ 199,981 $ 666,328 $ 571,500
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EXPENSES
OPERATING 135,740 111,991 380,258 324,433
SELLING, GENERAL AND
ADMINISTRATION 26,705 23,535 79,896 71,385
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INCOME BEFORE THE FOLLOWING 76,068 64,455 206,174 175,682
AMORTIZATION 41,490 38,587 120,780 110,831
INTEREST ON LONG-TERM DEBT 10,775 8,767 29,140 24,996
FINANCING COSTS 6,328 - 7,192 79
NET GAIN ON SALE OF CAPITAL
ASSETS (109) (54) (1,343) (409)
NET LOSS (GAIN) ON FINANCIAL
INSTRUMENTS 3,674 3,260 (1,044) (539)
NET FOREIGN EXCHANGE (GAIN)
LOSS (302) (809) 14,802 6,051
OTHER EXPENSES - 28 5 187
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INCOME BEFORE INCOME TAXES AND
NON-CONTROLLING INTEREST 14,212 14,676 36,642 34,486
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INCOME TAX EXPENSE (RECOVERY)
Current 1,893 1,210 7,500 3,996
Future 254 582 (4,832) 2,570
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2,147 1,792 2,668 6,566
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INCOME BEFORE NON-CONTROLLING
INTEREST 12,065 12,884 33,974 27,920
NON-CONTROLLING INTEREST 1,962 2,427 5,680 5,345
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NET INCOME 10,103 10,457 28,294 22,575
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OTHER COMPREHENSIVE LOSS
Foreign currency translation
adjustment (41,959) 619 (92,452) (23,823)
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COMPREHENSIVE LOSS $ (31,856)$ 11,076 $ (64,158)$ (1,248)
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Net income per trust unit,
basic and diluted $ 0.18 $ 0.20 $ 0.50 $ 0.42
Weighted average number of
trust units outstanding
(thousands), basic 57,545 53,617 56,227 53,469
Weighted average number of
trust units outstanding
(thousands), diluted 68,706 65,391 67,499 65,391
BFI CANADA INCOME FUND
Consolidated Statements of Cash Flows
For the periods ended September 30, 2007 and September 30, 2006
(unaudited - in thousands of dollars)
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Three months ended Nine months ended
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2007 2006 2007 2006
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NET INFLOW (OUTFLOW) OF CASH
RELATED TO THE FOLLOWING ACTIVITIES
OPERATING
Net income $ 10,103 $ 10,457 $ 28,294 $ 22,575
Items not affecting cash
Amortization of intangibles 6,260 4,840 16,594 14,565
Amortization of deferred financing
costs - 337 - 1,012
Amortization of capital assets 16,555 14,281 47,996 41,721
Amortization of landfill assets 18,675 19,129 56,190 53,533
Net gain on sale of capital assets (109) (54) (1,343) (409)
Write-off of deferred costs 31 91 99 418
Write-off of deferred financing
costs - - - 79
Accretion of landfill closure and
post-closure costs 806 752 2,367 2,196
Unrealized foreign exchange (gain)
loss (6,621) (48) 9,683 8,096
Future income taxes 254 582 (4,832) 2,570
Net loss (gain) on financial
instruments 3,674 3,260 (1,044) (539)
Non-controlling interest 1,962 2,427 5,680 5,345
Landfill closure and post-closure
expenditures (1,412) (2,325) (2,707) (11,533)
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50,178 53,729 156,977 139,629
Changes in non-cash working capital
items 6,182 (1,813) (18,356) (12,114)
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Cash generated from operating
activities 56,360 51,916 138,621 127,515
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INVESTING
Acquisitions (326,083) (16,050) (363,536) (19,728)
Investment in other receivables - - (400) (1,484)
Proceeds from other receivables 308 313 2,164 1,131
Funded landfill post-closure costs (438) (925) (1,080) (2,123)
Purchase of capital assets (25,244) (19,867) (65,641) (60,195)
Purchase of landfill assets (16,510) (14,736) (42,457) (39,374)
Proceeds from the sale of capital
assets 274 341 1,852 1,141
Investment in deferred costs (3,058) (514) (4,623) (1,118)
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Cash utilized in investing
activities (370,751) (51,438) (473,721) (121,750)
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FINANCING
Payment of deferred financing costs - (277) - (998)
Proceeds from long-term debt 367,880 71,069 513,636 152,137
Repayment of long-term debt (22,209) (39,386) (171,460) (80,370)
Issuance of trust units, net of
issuance costs - (1) 87,579 (46)
Distributions paid to trust
unitholders and participating
preferred shareholders (31,228) (28,375) (91,597) (83,929)
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Cash generated from (utilized in)
financing activities 314,443 3,030 338,158 (13,206)
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Effect of foreign exchange changes
on foreign cash and cash
equivalents 208 13 936 236
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NET CASH INFLOW(OUTFLOW) 260 3,521 3,994 (7,205)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD OR YEAR 13,009 3,416 9,275 14,142
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CASH AND CASH EQUIVALENTS, END OF
PERIOD $ 13,269 $ 6,937 $ 13,269 $ 6,937
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BFI CANADA INCOME FUND
Consolidated Statements of Unitholders' Equity
For the periods ended September 30, 2007 and September 30, 2006
(unaudited - in thousands of dollars)
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Three months ended Nine months ended
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2007 2006 2007 2006
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CONTRIBUTED EQUITY
Trust units, beginning of
period or year $ 1,006,269 $ 908,222 $ 908,221 $ 891,070
Issuance of trust units, net
of issuance costs
and related tax effect,
during the period - (1) 89,431 (46)
Trust units issued on
exchange of PPSs, during the
period - - 8,617 17,197
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Trust units, end of period 1,006,269 908,221 1,006,269 908,221
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Class A units, beginning of
period or year - - - -
Class A units issued, during
the period - - - -
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Class A units, end of period - - - -
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Treasury units, beginning of
period or year - - - -
Trust units acquired by the
U.S. LTIP, during the period - - (1,698) (1,281)
Deferred compensation
obligation, during the
period - - 1,698 1,281
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Treasury units, end of
period - - - -
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TOTAL CONTRIBUTED EQUITY 1,006,269 908,221 1,006,269 908,221
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ACCUMULATED NET INCOME
Accumulated net income,
beginning of period or year 95,475 66,322 86,947 54,204
Net income, during the
period 10,103 10,457 28,294 22,575
Transition adjustment,
during the period - - (9,663) -
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ACCUMULATED NET INCOME, END
OF PERIOD 105,578 76,779 105,578 76,779
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ACCUMULATED DISTRIBUTIONS
Accumulated distributions,
beginning of period or year (311,560) (212,820) (260,991) (167,270)
Distributions declared,
during the period (26,154) (23,802) (76,723) (69,352)
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ACCUMULATED DISTRIBUTIONS,
END OF PERIOD (337,714) (236,622) (337,714) (236,622)
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DEFICIT (232,136) (159,843) (232,136) (159,843)
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ACCUMULATED OTHER
COMPREHENSIVE LOSS
Accumulated other
comprehensive loss,
beginning
of period or year (83,381) (56,909) (32,888) (32,467)
Foreign currency translation
adjustment, during the
period (41,959) 619 (92,452) (23,823)
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ACCUMULATED OTHER
COMPREHENSIVE LOSS, END OF
PERIOD (125,340) (56,290) (125,340) (56,290)
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DEFICIT AND ACCUMULATED OTHER
COMPREHENSIVE LOSS, END OF
PERIOD (357,476) (216,133) (357,476) (216,133)
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UNITHOLDERS' EQUITY $ 648,793 $ 692,088 $ 648,793 $ 692,088
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For more information, contact:
BFI Canada Income Fund
Chaya Cooperberg
Director, Investor Relations and Corporate Communications
(416) 401-7729
chaya.cooperberg@bficanada.com.
Web: www.bficanada.com.
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