Date: March 8, 2007
Source: BFI Canada Income Fund
BFI Canada Income Fund (TSX: BFC.UN) today reported strong financial results for the three months and year ended December 31, 2006. The Fund's 2006 financial results include a full year to date contribution from IESI Corporation ("IESI"), the Fund's U.S. segment, which was acquired by the Fund on January 21, 2005. Accordingly, the financial results, as reported, for the year ended December 31, 2005 excludes the Fund's U.S segment financial results for the period from January 1 to January 20, 2005. All amounts are in thousands of Canadian dollars, unless otherwise stated.
Management Commentary
"In 2006, the Fund continued to grow profitably, delivering benchmark financial performance and demonstrating the value of our business model," said Keith Carrigan, Vice Chairman and Chief Executive Officer. "Growth was achieved in every business segment through both organic improvement and contributions from 12 "tuck-in" acquisitions. We are especially pleased with the continuing improvement in organic revenues, which reflects the successful integration of our U.S. segments. Organic Canadian and U.S. segment revenue growth, which excludes acquisitions and fuel and environmental surcharges, was 12.9% and 10.7% year over year, respectively, and 9.6% and 7.3% quarter over quarter, respectively.
"This solid performance resulted in comparable consolidated year over year revenue and EBITDA growth of 10.5% and 11.6%, respectively, and consolidated quarter over quarter revenue and EBITDA growth of 12.6% and 21.9%, respectively. On the basis of these improvements, year over year free cash flow available for distribution(B) increased 15.2% and quarter over quarter free cash flow available for distribution increased(B) 28.6%."
Mr. Carrigan continued, "In recognition of our strong cash flow performance, our Trustees authorized in August 2006 the fifth increase in trust unit distributions since the Fund's inception, raising annualized distributions by 7.1% to $1.818 per trust unit. Despite this increase, our payout ratio declined to 75.6% and 80.5% in the three months and year ended December 31, 2006, respectively. This offers further evidence that our formula for creating value for unitholders is working."
In respect of 2007, Mr. Carrigan said, "we believe we are well positioned with a clear focus on business fundamentals. Our operating agenda includes adding new customers, increasing route density and renewing contracts at our traditionally high rate. To support our growth objectives, we are also committed to pursuing strategic acquisitions that deliver additional value for our unitholders. While 2006 was a year of solid financial performance, we think there are many opportunities in 2007 to continue our advancement and plan to firmly act on these."
Financial Highlights for the Three Months and Year Ended December 31, 2006 (as reported)
- Total consolidated revenues increased 12.6% to $200.3 million, and 13.9% to $771.8 million, respectively.
- Total organic and acquisition revenue growth increased 14.8% and 15.5%, respectively.
- Total organic and acquisition EBITDA growth increased 24.2% and 16.1%, respectively.
- Free cash flow available for distribution(B) increased to $39.3 million or 28.6% and $142.0 million or 17.5%, respectively.
- The Fund's payout ratio of was 75.6% and 80.5%, respectively.
- The Fund's payout ratio excluding the effects of the foreign currency hedge was 77.4% and 82.8%, respectively.
Other Highlights for the Three months and Year Ended December 31, 2006
- Based on the Fund's performance and consideration of the current and forecasted foreign currency exchange rate, Trustees of the Fund approved a 7.1% increase to distributions from an annual rate of $1.698 per trust unit to $1.818 per trust unit effective for the distribution paid on September 15, 2006 to unitholders of record on August 31, 2006. Distributions to holders of participating preferred shares ("PPSs") have increased by an equivalent amount.
- The Fund completed 12 "tuck-in" acquisitions in 2006 for aggregate cash consideration, including payments in respect of contingent consideration, totalling approximately $13,900 and $33,600, respectively.
- Effective February 10, 2006, the Fund entered into a Fourth Amended and Restated Credit Agreement in Canada. The amended and restated credit agreement increases the total available credit under the facility, subject to lender consent, from $80,000 to $120,000 and matures, subject to one year extensions, on June 30, 2010. Borrowing rates under the Fourth Amended and Restated Credit Agreement are more favourable than the predecessor credit agreement.
- Effective March 10, 2006, the Fund amended its Amended and Restated Revolving Credit and Term Loan Agreement in the U.S. The amendments increased the total available credit under the facility, subject to lender consent, from U.S. $500,000 to U.S. $550,000 and borrowing rates under the amended credit agreement are more favourable than the predecessor credit agreement.
- Effective September 30, 2006, the Fund exercised a portion of the accordion available through its U.S. term loan and revolving credit facility which increased the facility to U.S. $450,000 in aggregate. Available lending under the U.S. term loan and revolving credit facility increased by U.S. $10,000 and U.S. $55,000 to U.S. $195,000 and U.S. $255,000, respectively.
- In November 2006, the Fund entered into a 22 year agreement for variable rate demand solid waste disposal revenue bonds ("IRBs"). The IRBs are made available, to a maximum of U.S. $35,000, are available to fund a portion of landfill construction, equipment, vehicle, and container expenditures in the Fund's Pennsylvania operations. The IRBs bear interest at a discount to LIBOR. A portion of the Fund's U.S. $22,500 drawings under this facility have beenused to repay the Fund's U.S. revolving credit facility with the balance used to finance landfill construction and equipment expenditures.
- The Fund received a reaffirmed rating of "BBB" low stable from the Dominion Bond Rating Service on its series A and B senior secured debentures and a reaffirmed rating of "BB" from the Standard & Poor's Rating Service on its U.S. term loan. The Fund also received an upgraded rating, to "Ba3" from "B1", from Moody's Investor Services, Inc.
Comparable Year Over Year Financial Results
The Fund acquired IESI on January 21, 2005. Accordingly, the Fund's 2005 reported financial results exclude IESI's financial performance for the period January 1 to January 20, 2005. The following table compares the Fund's 2006 financial results to comparable 2005 financial results, which include IESI's financial results for the period January 1 to January 20, 2005.
Year ended
December 31
---------------------------------------------------------------------------
2005 -
(in thousands) 2006 Comparable
------------------------
---------------------------------------------------------------------------
Revenues $ 771,819 $ 698,206
Operating expenses 436,311 396,151
Selling, general and administration expenses 99,591 90,622
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Income before the following 235,917 211,433
Amortization 148,128 149,633
Interest on long-term debt 34,307 28,674
Financing costs 79 36,710
Net gain on sale of capital assets (443) (127)
Net loss (gain) on derivative financial instruments 3,363 (10,361)
Net foreign exchange (gain) loss (2,578) 10,081
Other expenses 210 11,000
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Income (loss) before income taxes and
non-controlling interest 52,851 (14,177)
Income tax expense (recovery) 12,917 (19,706)
Non-controlling interest 7,191 3,062
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Net income $ 32,743 $ 2,467
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Maintenance capital and landfill expenditures
("maintenance expenditures") $ 52,362 $ 46,813
Growth capital and landfill expenditures
("growth expenditures") 77,372 62,424
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Total maintenance and growth expenditures $ 129,734 $ 109,237
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Free cash flow available for distribution(B) $ 141,999 $ 123,252
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Summarized Financial Highlights
Three months
ended Year ended
December 31, December 31,
2006 2006
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Revenues December 31, 2005 $ 177,887 $ 677,424
Organic growth and acquisitions
(includes fuel and environmental surcharges) 26,249 105,137
Additional IESI 20 days - 20,782
Foreign currency exchange impact (3,817) (31,524)
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Revenues December 31, 2006 $ 200,319 $ 771,819
% Revenue growth before additional IESI
20 days and foreign currency exchange impact 14.8% 15.5%
Total revenue growth % 12.6% 13.9%
EBITDA(A) December 31, 2005 $ 49,430 $ 206,017
Organic growth and acquisitions 11,971 33,243
Additional IESI 20 days - 5,416
Foreign currency exchange impact (1,166) (8,759)
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EBITDA(A) December 31, 2006 $ 60,235 $ 235,917
% EBITDA(A) growth before additional IESI
20 days and foreign currency exchange impact 24.2% 16.1%
Total EBITDA(A) growth % 21.9% 14.5%
Free cash flow available for
distribution(B) December 31, 2005 $ 30,569 $ 120,879
Organic growth and acquisitions 9,704 23,264
Additional IESI 20 days - 2,373
Foreign currency exchange impact (958) (4,517)
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Free cash flow available for distribution(B)
December 31, 2006 $ 39,315 $ 141,999
% Free cash flow available for distribution(B)
growth before additional IESI 20 days and
foreign currency exchange impact 31.7% 19.2%
Total free cash flow available for
distribution(B) growth % 28.6% 17.5%
Free cash flow available for distribution(B)
without hedge $ 38,397 $ 138,114
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Aggregate distributions declared $ 29,720 $ 114,303
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Payout ratio with foreign currency hedge 75.6% 80.5%
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Payout ratio without foreign currency hedge 77.4% 82.8%
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Foreign Currency Exchange Impact
A significant portion of the Fund's revenues, EBITDA(A), capital and landfill expenditures, interest expense, and cash income taxes reported in Canadian dollars, originate in the U.S. Capital and landfill expenditures, interest expense, and cash income taxes originating in the U.S. are settled in U.S. dollars generated from U.S. operations resulting in a natural cash flow hedge. A portion of the resultant free cash flow available for distribution(B) originating from the U.S. is hedged by three, three year 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. The Fund reports its financial results in Canadian dollars. 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 Fund's U.S. segments operating results for the three months and year ended December 31, 2006 and 2005 have been translated to Canadian dollars applying an average foreign currency exchange rate of $1.139, $1.173, $1.134 and $1.211, respectively. The financial impact of changes in the foreign currency exchange rate on the Fund's consolidation of its U.S. segments financial results is included in Management's Discussion and Analysis ("MD&A") for the year ended December 31, 2006.
Financial Highlights
Three months ended Year ended
December 31 December 31
---------------------------------------------------------------------------
(in thousands, except per
weighted average 2006 2005 2006 2005
trust unit, PPS, and --------------------------------------------
subscription receipt amounts) (unaudited) (unaudited)
---------------------------------------------------------------------------
Revenues $ 200,319 $ 177,887 $ 771,819 $ 677,424
Operating expenses 111,878 102,171 436,311 383,197
Selling, general and
administration expenses 28,206 26,286 99,591 88,210
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Income before the following 60,235 49,430 235,917 206,017
Amortization 37,297 37,229 148,128 145,974
Interest on long-term debt 9,311 7,709 34,307 27,219
Financing costs - - 79 36,710
Net gain on sale of capital assets (34) (97) (443) (127)
Net loss (gain) on derivative
financial instruments 3,902 362 3,363 (10,361)
Net foreign exchange (gain) loss (8,629) (1,092) (2,578) 10,081
Other expenses 23 450 210 2,522
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Income (loss) before income taxes
and non-controlling interest 18,365 4,869 52,851 (6,001)
Income tax expense (recovery) 6,351 (1,617) 12,917 (19,706)
Non-controlling interest 1,846 1,433 7,191 3,062
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Net income $ 10,168 $ 5,053 $ 32,743 $ 10,643
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Net income per weighted average
trust unit, basic & diluted $ 0.19 $ 0.10 $ 0.61 $ 0.22
Weighted average number of trust
units outstanding 53,617 50,940 53,506 47,433
Weighted average number of PPSs
outstanding 11,774 14,451 11,885 15,827
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Weighted average number of trust
units and PPSs outstanding 65,391 65,391 65,391 63,260
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Aggregate number of trust units
and PPSs outstanding 65,391 65,391 65,391 65,391
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Maintenance capital and landfill
expenditures ("maintenance
expenditures") $ 11,611 $ 8,178 $ 52,362 $ 45,540
Growth capital and landfill
expenditures ("growth
expenditures") 18,554 24,588 77,372 62,424
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Total maintenance and growth
expenditures $ 30,165 $ 32,766 $ 129,734 $ 107,964
---------------------------------------------------------------------------
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Free cash flow available for
distribution(B) $ 39,315 $ 30,569 $ 141,999 $ 120,879
Free cash flow available for
distribution(B) per weighted
average trust unit and PPS $ 0.60 $ 0.47 $ 2.17 $ 1.91
Aggregate distributions
declared on weighted average
trust units $ 24,369 $ 21,595 $ 93,721 $ 76,630
Aggregate distributions declared
on weighted average subscription
receipts - - - 1,175
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Aggregate distributions declared
on weighted average trust units
and subscription receipts 24,369 21,595 93,721 77,805
---------------------------------------------------------------------------
Distributions attributable to
non-controlling interest 5,351 6,130 20,582 25,896
---------------------------------------------------------------------------
Aggregate distributions declared $ 29,720 $ 27,725 $ 114,303 $ 103,701
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Aggregate distributions declared
per weighted average trust unit
and PPS $ 0.45 $ 0.42 $ 1.75 $ 1.62
Aggregate distributions declared
per weighted average trust unit,
PPS, and subscription receipt $ 0.45 $ 0.42 $ 1.75 $ 1.64
Management's Discussion
(all amounts are in thousands of Canadian dollars, except per trust unit, PPS, and foreign currency exchange rate amounts)
Consolidation of IESI
The Fund acquired IESI effective January 21, 2005. Accordingly, the comparative financial information presented for the year ended December 31, 2005 does not include the Fund's U.S. segment financial results for the period January 1 to January 20, 2005. IESI's financial results for the period January 1 to January 20, 2005 are included in the Fund's MD&A for the year ended December 31, 2006.
Foreign Currency Exchange
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 Fund's U.S. segment financial position and operating results have been translated to Canadian dollars applying the following U.S. to Canadian dollar foreign exchange rates:
2006 2005
---------------------------------------------------------
Cumulative Cumulative
Current Average average Current Average average
---------------------------------------------------------
March 31 $ 1.167 $ 1.155 $ 1.155 $ 1.210 $ 1.228 $ 1.228
June 30 $ 1.115 $ 1.122 $ 1.138 $ 1.226 $ 1.244 $ 1.237
September 30 $ 1.115 $ 1.121 $ 1.133 $ 1.161 $ 1.203 $ 1.224
December 31 $ 1.165 $ 1.139 $ 1.134 $ 1.166 $ 1.173 $ 1.211
The impact of changes in the foreign currency exchange rate on the Fund's consolidated financial results is included in the Fund's MD&A for the year ended December 31, 2006.
Operating Highlights
(in thousands) Three months ended December 31 Year ended December 31
------------------------------------------------------------
2006 2005 $ Change 2006 2005 $ Change
------------------------------------------------------------
(unaudited) (unaudited)
------------------------------------------------------------
Revenues $ 200,319 $ 177,887 $ 22,432 $ 771,819 $ 677,424 $ 94,395
---------------------------------------------------------------------------
Canada $ 74,943 $ 61,948 $ 12,995 $ 288,640 $ 247,594 $ 41,046
U.S. south $ 70,097 $ 63,196 $ 6,901 $ 267,121 $ 233,745 $ 33,376
U.S. northeast $ 55,279 $ 52,743 $ 2,536 $ 216,058 $ 196,085 $ 19,973
Operating
expenses $ 111,878 $ 102,171 $ 9,707 $ 436,311 $ 383,197 $ 53,114
---------------------------------------------------------------------------
Canada $ 38,573 $ 32,248 $ 6,325 $ 146,565 $ 126,166 $ 20,399
U.S. south $ 45,260 $ 43,822 $ 1,438 $ 177,263 $ 161,860 $ 15,403
U.S. northeast $ 28,045 $ 26,101 $ 1,944 $ 112,483 $ 95,171 $ 17,312
Selling,
general
and
administration
expenses $ 28,206 $ 26,286 $ 1,920 $ 99,591 $ 88,210 $ 11,381
---------------------------------------------------------------------------
Canada $ 12,222 $ 11,720 $ 502 $ 40,086 $ 36,544 $ 3,542
U.S. south $ 10,130 $ 8,124 $ 2,006 $ 36,570 $ 29,325 $ 7,245
U.S. northeast $ 5,854 $ 6,442 $ (588) $ 22,935 $ 22,341 $ 594
EBITDA(A) $ 60,235 $ 49,430 $ 10,805 $ 235,917 $ 206,017 $ 29,900
---------------------------------------------------------------------------
Canada $ 24,148 $ 17,980 $ 6,168 $ 101,989 $ 84,884 $ 17,105
U.S. south $ 14,707 $ 11,250 $ 3,457 $ 53,288 $ 42,560 $ 10,728
U.S. northeast $ 21,380 $ 20,200 $ 1,180 $ 80,640 $ 78,573 $ 2,067
The discussions to follow are in addition to the following: the exclusion of the U.S. segment financial results for the period January 1 to January 20, 2005, and the impact of foreign currency exchange fluctuations as detailed in the Fund's MD&A for the year ended December 31, 2006.
Revenues - Three months and year ended December 31
The increase in consolidated revenues is due in part to solid organic Canadian and U.S. segment growth and contributions from strategic Canadian and U.S. "tuck-in" acquisitions.
Operating expenses - Three months and year ended December 31
Higher total disposal and labour costs amounting is the primary reason for the increases and is attributable to the collection and acceptance of additional waste volumes and higher costs to service new and existing customers, contracts, and acquisitions. The balance of the total change is not attributable to one significant operating expense item or combination of items.
Selling, general and administration expenses - Three months and year ended December 31
Higher total salaries, including long-term incentive plan ("LTIP") expenses, and costs written-off in respect of certain discontinued corporate development activities represent the primary reasons for the increases. Organic and acquisition growth, coupled with additional sales efforts are the primary reasons for the increases in total salaries.
Free Cash Flow Available for Distribution(B)
Free cash flow available for distribution(B) totalled $39,315 and $141,999 for the three months and year ended December 31, 2006, respectively, versus $30,569 and $120,879 for the comparative three months and year ended December 31, 2005.
Free cash flow available for distribution(B) per weighted average trust unit and participating preferred share for the three months and year ended December 31, 2006 amounted to $0.60 and $2.17, respectively, and is $0.13 and $0.26 higher than the comparative periods ended December 31, 2005.
Free Cash Flow Available for Distribution(B) - Cash Flow Approach
Three months ended December 31 Year ended December 31
---------------------------------------------------------------------------
2006 2005 Change 2006 2005 Change
---------------------------------------------------------------------------
Cash generated from
operating activities
(per statement of
cash flows) $ 58,183 $50,664 $ 7,519 $ 185,698 $ 124,656 $ 61,042
---------------------------------------------------------------------------
Operating
Changes in non-cash
working capital
items (8,585)(14,852) 6,267 3,529 1,433 2,096
Net change in
landfill closure
and post-closure
costs 1,411 3,381 (1,970) 4,546 5,127 (581)
Maintenance
expenditures (11,610) (8,178) (3,432) (52,362) (45,540) (6,822)
Financing
Amortization of
gain, or gain, on
settlement of bond
forward contracts 56 56 - 224 224 -
Financing costs
(net of non-cash
portion) (429) (502) 73 (847) 34,979 (35,826)
Effect of foreign
currency hedges to
support Canadian
dollar
distributions 918 - 918 3,885 - 3,885
Realized foreign
exchange gain (629) - (629) (2,674) - (2,674)
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Free cash flow
available for
distribution(B) $ 39,315 $ 30,569 $ 8,746 $ 141,999 $ 120,879 $ 21,120
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Free Cash Flow Available for Distribution(B) - Operations Approach
Three months ended December 31 Year ended December 31
---------------------------------------------------------------------------
2006 2005 Change 2006 2005 Change
---------------------------------------------------------------------------
EBITDA(A) $ 60,235 $ 49,430 $ 10,805 $ 235,917 $ 206,017 $ 29,900
---------------------------------------------------------------------------
Amortization of
capitalized
landfill asset
closure and
post-closure
costs, net of
revisions to
estimated cash
flows 664 (1,850) 2,514 (5,538) (6,315) 777
Interest on
long-term debt (9,311) (7,709) (1,602) (34,307) (27,219) (7,088)
Management
transaction
bonuses (other
expenses) (23) (450) 427 (210) (2,522) 2,312
Current income
taxes (1,614) (1,054) (560) (5,610) (4,002) (1,608)
Maintenance
expenditures (11,610) (8,178) (3,432) (52,362) (45,540) (6,822)
Effect of foreign
currency hedges
to support
Canadian dollar
distributions 918 324 594 3,885 236 3,649
Amortization of
gain on settlement
of bond forward
contracts 56 56 - 224 224 -
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Free cash flow
available for
distribution(B) $ 39,315 $ 30,569 $ 8,746 $ 141,999 $ 120,879 $ 21,120
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---------------------------------------------------------------------------
Maintenance and Growth Expenditures
Three months ended December 31 Year ended December 31
---------------------------------------------------------------------------
2006 2005 Change 2006 2005 Change
---------------------------------------------------------------------------
Total $ 30,165 $ 32,766 $ (2,601) $129,734 $ 107,964 $ 21,770
Maintenance:
Canada $ 5,138 $ 3,482 $ 1,656 $ 18,264 $ 16,441 $ 1,823
U.S. $ 6,473 $ 4,696 $ 1,777 $ 34,098 $ 29,099 $ 4,999
Growth:
Canada $ 11,058 $ 6,759 $ 4,299 $ 30,717 $ 17,714 $ 13,003
U.S. $ 7,496 $ 17,829 $(10,333) $ 46,655 $ 44,710 $ 1,945
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.
Three months and year ended December 31
Maintenance Expenditures
The Canadian and U.S. segment increases are due principally to a larger business base, the result of strong organic and acquisition growth, and increasing costs to purchase maintenance capital, including but not limited to vehicles, equipment, and landfill cell construction.
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. For fiscal 2007, the Fund is again targeting an annual payout ratio below 90.0%, which is consistent with the Fund's historical cumulative payout ratio of 84.2% from its inception to December 31, 2006.
Three months and year ended December 31
Growth Expenditures
Growth expenditures for the Fund's Canadian and U.S. segments are principally on account of acquired land for future landfill expansion, vehicles, equipment and containers to service organic revenue growth, including new contracts, and landfill cell development which benefits a future period or periods.
Growth expenditures represent capital and landfill assets additions required to meet the demands of acquired or organic growth or expenditures that specifically benefits a future period or periods. For 2007, management expects to incur growth expenditures to develop landfill airspace capacity that will benefit a future period or periods and to grow the Fund's collection operations.
Distributions
The following table summarizes various details of the Fund's 2006 and 2005 distributions:
Year ended December 31
---------------------------------------------------------------------------
Monthly Annual Total Percentage
distribution distribution distributions increase in
per trust per trust declared distributions
unit unit per trust per trust unit
Period and PPS and PPS unit and PPS and PPS
---------------------------------------------------------------------------
2006 August-December $ 0.1515 $ 1.8180 $ 49,534
January-July $ 0.1415 $ 1.6980 $ 64,769
---------------------------------------------------------------------------
Total $ 114,303 7.1%
---------------------------------------------------------------------------
---------------------------------------------------------------------------
2005 August-December $ 0.1415 $ 1.6980 $ 46,265
January-July $ 0.1309 $ 1.5708 $ 57,436
---------------------------------------------------------------------------
Total $ 103,701 8.1%
---------------------------------------------------------------------------
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Long-term debt
Summarized details of the Fund's long-term debt facilities are as follows:
Letters of credit
(not reported as
Facility long-term debt
drawn at on the Current
Available December 31, Consolidated available
lending 2006 Balance Sheets) capacity Maturity
---------------------------------------------------------------------------
Canadian long-term
debt facilities
- stated in
Canadian dollars
Senior secured
debentures,
series A $ 47,000 $ 47,000 $ - $ - 06/26/2009
Senior secured
debentures,
series B $ 58,000 $ 58,000 $ - $ - 06/26/2014
Revolving credit
facility $ 80,000 $ 44,000 $ 22,555 $ 13,445 06/30/2010
U.S. long-term
debt facilities
- stated in
U.S. dollars
Term loan $ 195,000 $ 195,000 $ - $ - 01/21/2012
Revolving credit
facility $ 255,000 $ 76,000 $ 128,141 $ 50,859 01/21/2010
IRBs $ 80,000 $ 67,500 $ - $ 12,500 10/01/2035
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 $80,000 to $120,000 and can increase the available capacity of the U.S term loan and revolving credit facility from U.S. $385,000, in aggregate, to U.S. $550,000, in aggregate, subject to certain restrictions. The Fund exercised a portion of its accordion feature available through its U.S. term loan and revolving credit facility. Available lending under the U.S. term loan and revolving credit facility increased by U.S. $10,000 and U.S. $55,000 to U.S. $195,000 and U.S. $255,000, respectively.
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. "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 derivative 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 derivative 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 derivative financial instruments - as non-cash items, gains or losses on derivative 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 participating preferred share 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 mesures 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 sharesare 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.
About BFI Canada
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 municipal, commercial, industrial and residential customers in five Canadian provinces and nine 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 19 markets and operates four transfer collection stations, seven material recovery facilities ("MRFs") 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 as follows: the south, consisting of various service areas in Texas, Louisiana, Oklahoma, Arkansas 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 35 markets, and include 41 collection operations, 23 transfer stations, 17 landfills and five material recycling facilities. The Fund's units are listed othe 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 March 9, 2007 at 8:30 am (EST) to discuss results for the three months and year ended December 31, 2006. To access the call, participants should dial 1-800-590-1817, at approximately 8:20 am (EST). The conference call will also be webcast live at www.bficanada.com and subsequently archived on the BFI Canada web site.
A rebroadcast of the call will be available until midnight on March 16, 2007. To access the rebroadcast, dial 1-877-289-8525 and quote the reservation number #21220708.
BFI CANADA INCOME FUND
Consolidated Balance Sheets
December 31, 2006 and December 31, 2005 (in thousands of dollars)
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December 31, December 31,
2006 2005
-----------------------------
ASSETS
CURRENT
Cash and cash equivalents $ 9,275 $ 14,142
Accounts receivable 102,350 81,855
Due from non-controlling interest 6,638 -
Other receivables 1,737 1,464
Prepaid expenses 11,665 10,953
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131,665 108,414
OTHER RECEIVABLES 1,517 1,518
FUNDED LANDFILL POST-CLOSURE COSTS 4,142 2,468
INTANGIBLES 77,204 84,503
GOODWILL 481,334 466,628
DEFERRED COSTS 11,121 13,478
DEFERRED FINANCING COSTS 7,015 6,577
CAPITAL ASSETS 322,372 292,495
LANDFILL ASSETS 730,290 739,226
FUTURE INCOME TAX ASSETS - 2,435
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$ 1,766,660 $ 1,717,742
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LIABILITIES
CURRENT
Accounts payable $ 64,284 $ 50,949
Accrued charges 57,318 45,172
Distribution payable 9,907 9,253
Income taxes payable 1,280 1,243
Deferred revenues 10,212 9,197
Current portion of long-term debt 50 29,718
Landfill closure and post-closure costs 5,824 15,798
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148,875 161,330
LONG-TERM DEBT 543,454 420,398
LANDFILL CLOSURE AND POST-CLOSURE COSTS 58,711 50,607
OTHER LIABILITIES 383 515
FUTURE INCOME TAX LIABILITIES 31,922 26,741
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783,345 659,591
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NON-CONTROLLING INTEREST 282,026 312,614
UNITHOLDERS' EQUITY 701,289 745,537
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$ 1,766,660 $ 1,717,742
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BFI CANADA INCOME FUND
Consolidated Statements of Operations
For the three months (unaudited) and year ended
December 31, 2006 and December 31, 2005
(in thousands of dollars, except net income per trust unit amounts)
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Three months ended Year ended
-----------------------------------------
2006 2005 2006 2005
-----------------------------------------
REVENUES $ 200,319 $ 177,887 $ 771,819 $ 677,424
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EXPENSES
OPERATING 111,878 102,171 436,311 383,197
SELLING, GENERAL AND
ADMINISTRATION 28,206 26,286 99,591 88,210
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INCOME BEFORE THE FOLLOWING 60,235 49,430 235,917 206,017
AMORTIZATION 37,297 37,229 148,128 145,974
INTEREST ON LONG-TERM DEBT 9,311 7,709 34,307 27,219
FINANCING COSTS - - 79 36,710
NET GAIN ON SALE OF CAPITAL ASSETS (34) (97) (443) (127)
NET LOSS (GAIN) ON DERIVATIVE
FINANCIAL INSTRUMENTS 3,902 362 3,363 (10,361)
NET FOREIGN EXCHANGE (GAIN) LOSS (8,629) (1,092) (2,578) 10,081
OTHER EXPENSES 23 450 210 2,522
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INCOME (LOSS) BEFORE INCOME TAXES
AND NON-CONTROLLING INTEREST 18,365 4,869 52,851 (6,001)
INCOME TAX EXPENSE (RECOVERY)
Current 1,614 1,054 5,610 4,002
Future 4,737 (2,671) 7,307 (23,708)
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6,351 (1,617) 12,917 (19,706)
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INCOME BEFORE NON-CONTROLLING
INTEREST 12,014 6,486 39,934 13,705
NON-CONTROLLING INTEREST 1,846 1,433 7,191 3,062
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NET INCOME $ 10,168 $ 5,053 $ 32,743 $ 10,643
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Net income per trust unit, basic
and diluted $ 0.19 $ 0.10 $ 0.61 $ 0.22
Weighted average number of trust
units outstanding
(thousands), basic 53,617 50,940 53,506 47,433
Weighted average number of trust
units outstanding
(thousands), diluted 65,391 65,391 65,391 63,260
BFI CANADA INCOME FUND
Consolidated Statements of Cash Flows
For the three months (unaudited) and year ended
December 31, 2006 and December 31, 2005
(in thousands of dollars )
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Three months ended Year ended
-----------------------------------------
2006 2005 2006 2005
-----------------------------------------
NET INFLOW (OUTFLOW) OF CASH
RELATED TO THE
FOLLOWING ACTIVITIES
OPERATING
Net income $ 10,168 $ 5,053 $ 32,743 $ 10,643
Items not affecting cash
Amortization of intangibles 5,286 5,137 19,851 20,384
Amortization of deferred
financing costs 368 450 1,380 1,487
Amortization of capital assets 15,153 14,077 56,874 56,185
Amortization of landfill assets 16,490 17,565 70,023 67,918
Net gain on disposal of capital
assets (34) (97) (443) (127)
Deferred costs 429 502 847 1,364
Write-off of deferred financing
costs - - 79 367
Accretion of landfill closure and
post-closure costs 736 841 2,932 2,908
Unrealized foreign exchange
(gain) loss (8,000) (768) 96 10,317
Future income taxes 4,737 (2,671) 7,307 (23,708)
Net loss (gain) on derivative
financial instruments 3,902 362 3,363 (10,361)
Non-controlling interest 1,846 1,433 7,191 3,062
Landfill closure and post-closure
expenditures (1,483) (6,072) (13,016) (14,350)
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49,598 35,812 189,227 126,089
Changes in non-cash working
capital items 8,585 14,852 (3,529) (1,433)
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Cash generated from operating
activities 58,183 50,664 185,698 124,656
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INVESTING
Acquisitions (13,850) (916) (33,578) (139,796)
Investment in other receivables (611) - (2,095) -
Proceeds from other receivables 502 390 1,633 1,225
Funded landfill post-closure costs (402) (230) (2,525) (916)
Purchase of capital assets (14,139) (18,294) (74,334) (54,525)
Purchase of landfill assets (15,677) (11,449) (55,051) (50,416)
Proceeds on disposal of capital
assets 42 313 1,183 556
Investment in deferred costs (792) (203) (1,910) (1,770)
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Cash utilized in investing
activities (44,927) (30,389) (166,677) (245,642)
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FINANCING
Payment of deferred financing costs (892) (1,481) (1,890) (5,514)
Proceeds from term and revolving
loan 63,269 51,292 215,406 517,286
Repayment of revolving loan and
acquired long-term debt (43,404) (42,190) (123,774) (643,797)
Issuance of trust units net of
issuance costs - (46) (46) 351,672
Distributions paid to unitholders
and participating preferred
shareholders (29,720) (27,695) (113,649) (97,545)
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Cash generated utilized in
financing activities (10,747) (20,120) (23,953) 122,102
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Effect of foreign exchange changes
on foreign cash and cash
equivalents (171) (93) 65 (256)
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NET CASH INFLOW (OUTFLOW) 2,338 62 (4,867) 860
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD OR YEAR 6,937 14,080 14,142 13,282
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CASH AND CASH EQUIVALENTS, END OF
YEAR $ 9,275 $ 14,142 $ 9,275 $ 14,142
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BFI CANADA INCOME FUND
Consolidated Statements of Unitholders' Equity
For the three months (unaudited) and year ended
December 31, 2006 and December 31, 2005
(in thousands of dollars)
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Three months ended Year ended
-----------------------------------------
2006 2005 2006 2005
-----------------------------------------
BALANCE, BEGINNING OF PERIOD OR
YEAR $ 692,088 $ 683,016 $ 745,537 $ 209,093
Net income 10,168 5,053 32,743 10,643
Issuance of trust units, net of
issuance costs and related tax
effect - (46) (46) 385,673
Issuance of trust units on exchange
of participating preferred shares - 76,157 17,197 250,400
Distributions (24,369) (21,595) (93,721) (77,805)
Cumulative foreign currency
translation adjustment 23,402 2,952 (421) (32,467)
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BALANCE, END OF PERIOD OR YEAR $ 701,289 $ 745,537 $ 701,289 $ 745,537
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