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Badger Daylighting Ltd. Announces Results for the Year Ended December 31, 2014

Badger Daylighting Ltd. Announces Results for the Year Ended December 31, 2014



Calgary, Alberta (FSCwire) - Badger Daylighting Ltd. is pleased to announce its results for the year and three months ended December 31, 2014.

 

Management’s Discussion and Analysis

 

The following Management’s Discussion and Analysis (MD&A) should be read in conjunction with the audited consolidated financial statements and related notes of Badger Daylighting Ltd. (the “Company” or “Badger”) for the year ended December 31, 2014.  The audited consolidated financial statements were prepared in accordance with International Financial Reporting Standards (IFRS).  Readers should also refer to the Annual Information Form for the year ended December 31, 2014 which, along with further information relating to Badger may be found on SEDAR at www.sedar.com.

 

All comparative share capital and profit per share amounts have been adjusted for the three for one share split that occurred on January 24, 2014.

 

This MD&A has been prepared taking into consideration information available to March 16, 2015.

 

CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION AND STATEMENTS

Certain statements and information contained in this MD&A and other continuous disclosure documents of the Company referenced herein, including statements related to the Company’s capital expenditures, projected growth, view and outlook toward margins, cash dividends, customer pricing, future market opportunities and statements, and information that contain words such as “could”, “should”, “can”, “anticipate”, “expect”, “believe”, “will”, “may” and similar expressions relating to matters that are not historical facts, constitute “forward-looking information” within the meaning of applicable Canadian securities legislation. These statements and information involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements and information. The Company believes the expectations reflected in such forward-looking statements and information are reasonable, but no assurance can be given that these expectations will prove to be correct. Such forward-looking statements and information included in this MD&A should not be unduly relied upon. These forward-looking statements and information speak only as of the date of this MD&A.

 

In particular, forward looking information and statements include discussion reflecting the Company’s belief that:

  • Internal preparations for anticipated growth in 2015 will be completed;
  • Overall activity and the economy remains relatively constant in areas and market segments not affected by activities in the oil and natural gas sector;
  • Areas associated with the oil and natural gas industry continue to operate at least at levels not significantly worse than the slowdown in the sector in 2009;
  • Badger can manage costs in areas and sectors affected by the low oil price environment and reallocate assets as required to areas which have strong economies and which have benefited from weak oil prices;
  • Badger can grow in areas unaffected by the low oil price environment;
  • Badger in 2015 can further develop the organization to position itself to be able to handle the planned future growth;
  • The business development efforts will provide Badger with the additional new customers necessary to grow the business in 2015 and the future;
  • Badger’s fleet is available to perform work in 2015 and truck replacements are not significantly more than planned;
  • Badger achieves revenue per truck greater than $30,000 per month on an annual basis;
  • Badger achieves Adjusted EBITDA levels of approximately 28 to 29 percent of revenue.

 

The forward-looking statements rely on certain expected economic conditions and overall demand for Badger’s services and are based on certain assumptions.  The assumptions used to generate forward-looking statements are, among other things, that:

  • Badger has the ability to achieve its revenue, net profit and cash flow forecasts for 2015;
  • There will be a long-term demand for hydrovac services from oil refineries, petro-chemical plants, power plants and other large industrial facilities in North America;
  • Badger will maintain relationships with current customers and develop successful relationships with new customers;
  • The Company will collect customer payments in a timely manner;
  • Badger will be able to compete effectively for the demand for its services;
  • The overall market for its services will not be adversely affected by weather, natural disasters, global events, legislation changes, technological advances, economic disruption or other factors beyond Badgers control;
  • Badger will execute its growth strategy;
  • Badger will obtain all labour, parts and supplies necessary to complete the planned hydrovac build.

 

Risk factors and other uncertainties that could cause actual results to differ materially from those anticipated in such forward-looking statements include, but are not limited to: price fluctuations for oil and natural gas and related products and services; political and economic conditions; industry competition; Badger’s ability to attract and retain key personnel; the availability of future debt and equity financing; changes in laws or regulations, including taxation and environmental regulations; extreme or unsettled weather patterns; and fluctuations in foreign exchange or interest rates.

 

Readers are cautioned that the foregoing factors are not exhaustive. Additional information on these and other factors that could affect the Company’s operations and financial results is included in reports on file with securities regulatory authorities in Canada and may be accessed through the SEDAR website (www.sedar.com) or at the Company’s website. The forward-looking statements and information contained in this MD&A are expressly qualified by this cautionary statement. The Company does not undertake any obligation to publicly update or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.

 

NON-IFRS FINANCIAL MEASURES

This MD&A contains references to certain financial measures, including some that do not have any standardized meaning prescribed by IFRS and that may not be comparable to similar measures presented by other corporations or entities. These financial measures are identified and defined below:

 

“Cash available for growth and dividends” is used by management to supplement cash flow as a measure of operating performance and leverage. The objective of this measure is to calculate the amount available for growth and/or dividends to shareholders. It is defined as funds generated from operations less required debt repayments and maintenance capital expenditures, plus any proceeds received on the disposal of assets.

 

“EBITDA” is earnings before interest, taxes, depreciation and amortization and is a measure of the Company’s operating profitability and is therefore useful to management and investors. EBITDA provides an indication of the results generated by the Company’s principal business activities prior to how these activities are financed, assets are amortized or the results are taxed in various jurisdictions. EBITDA is calculated from the consolidated statement of comprehensive income as gross profit less selling, general and administrative costs, deferred unit plan costs and unrealized foreign exchange gain/loss. “Adjusted EBITDA” is EBITDA prior to recognizing deferred unit costs and the unrealized foreign exchange gain or loss on the senior secured notes.  They are calculated as follows:

 

Three months ended December 31,

Twelve months ended December 31, 

$ thousands

2014

2013

2014     

2013

Gross profit

 

38,540

 

30,650

139,574

109,883

Selling, general and administrative costs

 

(3,801)

 

(5,112)

(19,453)

(15,714)

Deferred unit plan

(39)

(3,386)

(2,393)

(10,010)

Unrealized foreign exchange (loss) gain on senior secured notes

(2,667)

-

(3,839)

-

EBITDA

32,033

22,152

113,889

84,159

Deferred unit plan

39

3,386

2,393

10,010

Unrealized foreign exchange loss (gain) on senior secured notes

2,667

-

3,839

-

Adjusted EBITDA

34,739

25,538

120,121

94,169

 

 

 

 

 

 

           
 

 

“Funded debt” is a measure of Badger’s long-term debt position. Funded debt is long-term debt.

 

“Funds generated from operations” is used to assist management and investors in analyzing operating performance and leverage. It is not intended to represent operating cash flow or operating profits for the period nor should it be viewed as an alternative to cash flow from operating activities, net profit or other measures of financial performance calculated in accordance with IFRS. Funds generated from operations are derived from the consolidated statement of cash flows and is calculated as follows:

 

Three months ended December 31,

Twelve months ended December 31,

$ thousands

2014

2013

2014       

 

2013

Cash provided by operating activities

30,794

21,844

84,203

 

58,403

Add (deduct):

Net change in non-cash working capital relating to operating activities

 

 

4,330

 

 

(2,870)

 

 

16,276

 

11,419

Equity-settled share plan settled in cash

    -

                               -  

-

 

          1,513

Funds generated from operations

35,124

18,974

100,479

 

71,335

 

 

 

 

 

 

             
 

 

Growth capital expenditures” are capital expenditures that are intended to improve Badger’s efficiency, productivity or overall capacity and thereby allow Badger to expand overall activity and/or access new markets. They generally represent any net additions to the daylighting fleet. Growth capital expenditures exclude acquisitions.

 

“Maintenance capital expenditures” are any amounts incurred during a reporting period to keep the Company’s daylighting fleet at the same number of units (including costs incurred to extend the operational life of a daylighting unit), plus any other capital expenditures required to maintain the capacities of the existing business. The amount will fluctuate period-to-period depending on the number of units retired from the fleet.

 

“Net debt” is funded debt less cash and cash equivalents.

 

Cash available for growth and dividends, EBITDA, Adjusted EBITDA, funded debt, funds generated from operations, growth capital expenditures, maintenance capital expenditures and net debt throughout this document have the meanings set out above.

 

FINANCIAL HIGHLIGHTS

($ thousands, except per share and total shares outstanding information)
 

Three months ended December 31,

Twelve months ended December 31,

 

2014

2013

2014       

 

2013

 

 

 

 

 

 

Revenue

108,350

94,240

422,219

 

324,594

EBITDA

32,033

22,152

113,889

 

84,159

Adjusted EBITDA

34,739

25,538

120,121

 

94,169

Profit before tax

20,856

14,143

73,519

 

57,827

Income tax expense (recovery)

 

 

 

 

 

    Current

(465)

3,528

14,517

 

12,735

    Deferred

4,277

(618)

5,900

 

4,729

Net Profit

17,045

11,233

53,102

 

40,363

Profit per share – diluted ($)

0.47

0.30

1.43

 

1.09

Funds generated from operations

34,645

18,974

100,479

 

71,335

Funds generated from operations

 

 

 

 

 

    per share – diluted ($)

0.94

0.51

2.71

 

1.93

Maintenance capital expenditures

7,074

2,420

10,303

 

8,035

Long-term debt repayments

-

-

-

 

-

Cash available for growth and dividends

27,715

16,711

90,716

 

63,725

Dividends declared

3,333

3,333

13,332

 

13,323

Growth capital expenditures

16,911

16,733

88,779

 

62,444

Total shares outstanding (end of period)

37,033,893

37,033,893

37,033,893

 

37,033,893

 

 

OVERVIEW

Highlights for the three months ended December 31, 2014:

 

  • Revenues increased by approximately 15 percent to $108.4 million from $94.2 million for the comparable quarter of 2013 on relatively flat Canadian revenues and United States revenues that increased by 35 percent. Canadian revenues were effected by weaker conditions in Northern Alberta and a slow-down in a major project in Eastern Canada.
  • Adjusted EBITDA margin increased to 32 percent in the fourth quarter of 2014 from 27 percent for the same quarter of 2013 due to management’s focus on cost control.  This 5 percent increase in Adjusted EBITDA margins comes despite the addition of the lower margin Fieldtek business. Without Fieldtek Canadian margins would be an additional 2 percent higher.
  • Fourth quarter U.S. Adjusted EBITDA margins increased to 30 percent from 26 percent for the comparable period of last year helped by underlying business improvement and a full year of operating the hydrovacs added in 2013 as well as those hydrovacs added earlier in 2014.
  • Funds generated from operations increased by 83 percent period-over-period to $34.6 million from $19.0 million in the comparable quarter of 2013.
  • Badger had 998 daylighting units at the end of 2014, reflecting the addition of 221 daylighting units to the fleet in 2014 and the retirement of 14 units.  Of the total, 410 units were operating in Canada and 588 in the United States at year-end.  Badger had 356 units in Canada and 435 in the United States for a total of 791 units at December 31, 2013.  The new units were financed from cash generated from operations and existing credit facilities.

 

Highlights for the year-ended December 31, 2014:

 

  • Revenues increased 30 percent from $324.6 million in 2013 to $422.2 million in 2014.  Canadian revenue increased by 27 percent, including Fieldtek.  Without Fieldtek, revenue would have increased 12 percent.  US revenue increased by 33 percent, or 24 percent on a common currency basis.
  • Adjusted EBITDA improved 28 percent from $94.2 million to $120.1 million year-over-year.
  • Adjusted EBITDA margin for 2014 was 28 percent versus 29 percent in 2013.  The one percent decline in Adjusted EBITDA margin for the year was due to reduced margins in the first quarter of 2014 when increased labour and fuel costs in Western Canada were not passed on to customers. 
  • Funds generated from operations increased from $71.3 million in 2013 to $100.5 million in 2014.
  • Profit per share was $1.43 for 2014 compared to $1.09 for 2013.
  • Capital expenditures in 2014 were $99.1 million, split between growth capital of $88.8 million and maintenance capital of $10.3 million.
  • Net debt increased from $73.7 million at the end of 2013 to $105.2 million at the end of 2014 primarily due to the addition new hydrovac units to the fleet and associated increase in working capital needed to support operations.
  • On January 24, 2014 the Company closed a private placement of senior secured notes, which rank pari passu with the senior credit facilities, have a principal amount of US $75 million, an interest rate of 4.83 percent per annum and mature in 2022. 
  • In July 2014 the Company syndicated its senior, revolving credit facility, increasing the principal amount to $125 million. This facility matures on July 22, 2018.

 

OUTLOOK 

In 2014 Badger was faced with some challenges due to tough weather in the US for the first quarter and reduced activity in some northern oil and gas producing areas.  However, after a bit of a slow start in the first quarter, Badger is pleased with its response to these challenges and with its results for the full year.

 

2014 Comments:

  1. The Eastern half of the US experienced reduced activity in the first quarter due to a very tough winter. However Badger was able to move idle trucks and crews to the US West where there was a shortage of capacity to keep up with demand.  Although margins were slightly reduced due to moving and accommodation costs it was a positive move as it satisfied the customers and kept our employees working.  The US East recovered quickly after the winter and had a great year.
  2. US West produced better than expected results for revenue and margin growth.   The ground work done in 2013 paid off in 2014.
  3. Western Canada earned reduced EBITDA margins in the first quarter due to increased fuel and labour costs.  The Region responded appropriately and margins improved for the rest of the year.  Northern Alberta slowed down after the first quarter due to the end of several projects.  Activity is not expected to increase until the price of oil and gas improves.
  4. Eastern Canada exceeded expectations in terms of growth and profitability in 2014.  Structural changes made in 2013 had a positive impact in 2014.
  5. Badger built 221 trucks and retired 14, resulting in 207 growth trucks in 2014.  This represents a 26 percent growth in the fleet year over year.  These additional trucks should produce good margins and revenue for at least 10 years.
  6. Although revenue per truck was slightly less in 2014 ($32,169) versus 2013 ($34,600) Badger is still pleased with the result given the large increase in fleet size and challenges during the year. Badger targets revenue per truck to be over $30,000.
  7. Badger achieved revenue growth of 30 percent and Adjusted EBITDA growth of 28 percent.  Obviously we are very pleased with these metrics and always want to ensure our growth is not at the expense of profitability.
  8. 2014 Adjusted EBITDA was 28.4 percent which fits in our target range for Adjusted EBITDA of approximately 28 to 29 percent of revenue.  At this level Badger can grow organically and meet its strategic objectives.
  9. Badger divides its market in two broad categories – petroleum-related infrastructure plus oil field service and utilities plus other.  It should be noted that these shift slightly from year to year depending on where the growth opportunities are.  In 2014 the petroleum category dropped from 55 percent to 51 percent of revenue.
  10. One of Badger’s goals is to increase its customer base to diversify its revenue sources and also to achieve growth.  In 2014, Canada remained essentially flat with approximately 6,000 customers and the US grew their customer base from 3,200 to 4,300.  This is a good achievement in the US, but we need more.

 

Major initiatives for 2015:

  1. The biggest long-term challenge Badger faces is to continue to build the organization to achieve our overall objective of doubling the US business in three to five years.  This was achieved in the last three years.  As always, people are the key. Badger’s ability to attract and retain key people is the focus of management.
  2. The overriding management challenge and action in 2015 is to prudently manage costs in areas and sectors affected by the low oil price environment and to reallocate assets as required plus to aggressively aim to surpass growth targets in areas which have strong economies and which will benefit from weak oil prices. Badger is not certain what the results of its efforts will be but is committed to execute and take whatever actions are required.
  3. Badger reduced its truck build in early 2015 to compensate for idle trucks in areas with lower than normal activity. Given the market uncertainty, we believe we will build between 1 and 3 trucks per week for at least the first 2 quarters of 2015.  Our replacement truck estimate is 15 to 25 trucks this year and we retired 14 trucks in 2014.
  4. Focus on revenue per truck greater than $30,000 per truck per month. It will be a challenge in the first quarter with western Canada being slower than normal due to less activity in the low oil price environment plus an unseasonably warm winter as well as the Eastern part of the continent not yet in its construction season.
  5. Increase the effectiveness of the business development effort to continue to grow Badgers customer base, especially in the US.
  6. As always continued focus on providing value added service to all customers with the best truck best operator philosophy.

 

2015 Outlook:

 

Every year provides challenges and opportunities – 2015 is no different.  Last year it was the extreme cold winter in the US – this year it is the low oil price environment and unseasonably warm weather resulting in an earlier spring break-up in Western Canada.  However last year the cold weather was certain to pass in the spring.  It is much more difficult to forecast when the oil price will return to a more normal level.  With this in mind Badger will prudently manage costs and move assets out of areas affected by the low oil price environment.  However Badger will also aggressively pursue accelerated growth in areas of good economic growth to counterbalance negative impacts from the slow areas.  As always, Badger’s long term success depends on its ability to attract and retain employees and grow the organization.  The final result of course cannot be accurately predicted but Badger is confident growth will continue in 2015 although muted compared to 2014 which was a very satisfying year.

 

Results of Operations

 

Revenues

Fourth quarter revenues of $108.4 million for the three months ended December 31, 2014 were 15 percent greater than the $94.2 million generated during the comparable period in 2013. The increase is attributable to the following:

 

  • Canadian revenue increased by 5 percent from $50.7 million to $53.1 million before a one-time adjustment resulted in revenue of $49.4 million.  The adjustment related to intercompany parts sales, decreasing both revenue and cost of goods sold with no impact on gross margin, Adjusted EBITDA or net income.  Western Canada revenue was lower than forecast, with some continued softness in Northern Alberta and a slow down in a large eastern project.  This is the fourth full quarter in which Fieldtek, acquired in November 2013, has been part of the financial results.  Fieldtek performed well into the fourth quarter but did experience lower demand in December.  Without Fieldtek, Canadian revenues would have declined by 4%.
  • United States revenue in Canadian dollars increased from $43.5 million for the three months ended December 31, 2013 to $59.0 million for the three months ended December 31, 2014, an increase of 35 percent quarter-over-quarter. On a common currency basis, revenue increased by 26 percent.  The 26 percent increase is due to getting a full quarter of work out of hydrovacs added in 2013. 

 

Yearly revenue grew from $324.6 million in 2013 to $422.2 million in 2014. This 30 percent increase in revenue was accompanied by an Adjusted EBITDA margin of 28 percent, 1 percent lower than the 2013 Adjusted EBITDA margin of 29 percent.  Adjusted EBITDA margin in the first half of 2014 was 25 percent, and 32 percent in the second half.

 

Badger’s average revenue per truck per month during the three months ended December 31, 2014 was $30,435 versus $35,644 for the three months ended December 31, 2013. For the year, the revenue per truck per month in 2014 was $32,169 versus $34,600 in 2013.  The reduction in revenue per truck was the result of the addition to the fleet at a pace greater than demand growth.

 

Direct Costs

Direct costs for the quarter ended December 31, 2014 were $73.5 million before the parts adjustment discussed in the Revenue section above resulted in direct costs of $69.8 million.  These direct costs compare to $63.6 million for the quarter ended December 31, 2013. For the year, 2014 direct costs were $282.6 million, or 67 percent of revenue, versus $214.7 million, or 66 percent of revenue, for 2013.

 

Gross Profit

The gross profit margin was 36 percent for the quarter ended December 31, 2014, up from the 33 percent for the quarter ended December 31, 2013. Gross profit margin for 2014 was 33 percent versus 34 percent for 2013. Canada had a gross profit margin of 44 percent in the fourth quarter (46 percent without Fieldtek) and 35 percent for the year (35 percent without Fieldtek). The United States gross profit margin was 32 percent in the fourth quarter (30 percent in the fourth quarter of 2013) and 32 percent for the year (32 percent in 2013).

 

Depreciation of Property, Plant and Equipment

Depreciation of property, plant and equipment was $9.3 million for the three months ended December 31, 2014,

$2.4 million higher than the $6.9 million incurred for the three months ended December 31, 2013, due to the increased number of hydrovac units in the fleet.  Depreciation for all of 2014 was $33.6 million versus $24.2 million in 2013, also due to the increasing hydrovac fleet size.

 

Finance Cost

Finance cost was $1.6 million for the quarter ended December 31, 2014 versus $0.5 million for the same quarter in 2013. The higher finance cost was due to having a higher average debt balance as well as moving the majority of the balance from short-term Bankers’ Acceptance rates to the longer-term senior secured notes with slightly higher interest rates.  Finance costs were $5.8 million in 2014 versus $1.6 million in 2013, resulting from the same factors as mentioned above.

 

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased from $5.1 million in the fourth quarter of 2013 to $3.8 million in the same quarter of 2014, due to non-recurring entries in the U.S. related to recovering an over-accrual for medical insurance and recovering an over-accrual for bonuses.  For the full year SG&A cost $19.5 million in 2014 versus $15.7 million in 2013.  As a percentage of revenues, selling, general and administrative expenses remained below Badger’s target of 5 percent of revenue for the full year.

 

Income Taxes

The effective tax rate for the year ended December 31, 2014 was 28 percent versus 30 percent for the prior year. The effective tax rate changes from period to period based on the relative distribution of net income before tax to the various jurisdictions where the Company operates.  Generally, the Company is taxed at 26 percent in Canada and 40 percent in the US.

 

Exchange Differences on Translation of Foreign Operations

The exchange gain on translation of $13.4 million resulted from the conversion of the United States subsidiaries financial statements into Canadian dollars, as the Canadian dollar weakened relative to the United States dollar from the prior period.

 

Liquidity and Dividends

Funds generated from operations increased to $34.6 million for the quarter ended December 31, 2014 from $19.0 million for the comparable period in 2013 due primarily to increased revenues and EBITDA. The Company uses its cash to pay dividends to shareholders, to build additional hydrovac units, to invest in maintenance capital expenditures and to repay long-term debt.

 

The Company had working capital of $92.9 million at December 31, 2014 compared to $61.8 million at December 31, 2013 as revenue growth increased receivables, which was partially offset by an increase in trade payables.

 

The following table outlines the cash available to fund growth and pay dividends to shareholders for the three and twelve months ended December 31, 2014:

 

 

 

Year ended

($ thousands)

 

December 31, 2014

 

December 31, 2013

Funds Generated from Operations

 

 

100,479

 

 

71,335

Add: Proceeds from sale of property, plant and equipment

 

 

541

 

 

425

Deduct: Long-term debt repayment

 

 

-

 

 

-

Deduct: Maintenance capital

 

 

(10,304)

 

 

(8,035)

Cash Available for Growth Capital and Dividends

 

 

90,716

 

 

63,725

 

 

 

 

 

 

 

Growth Capital Expenditures

 

 

88,779

 

 

62,444

 

 

 

 

 

 

 

Dividends Declared

 

 

13,332

 

 

13,323

 

 

 

 

 

 

 

 

 

In determining cash available for dividends, the Company excludes non-cash working capital changes for the period as well as growth capital expenditures. Changes in non-cash working capital items are excluded so as to remove the effects of timing differences in cash receipts and disbursements, which generally reverse themselves and can vary significantly between fiscal periods. Growth capital expenditures are excluded so as to include only the maintenance capital expenditures required to sustain the existing asset base.

 

The following table outlines the excess of cash provided by operating activities and net profit over dividends declared during the years ended December 31, 2014 and 2013:

 

 

 

 

 

Year ended

($ thousands)

 

December 31, 2014

 

December 31, 2013

Cash provided by operating activities

 

 

84,203

 

 

58,403

Net profit

 

 

53,102

 

 

40,363

Dividends declared

 

 

13,332

 

 

13,323

Excess of cash provided by operating activities over dividends declared

 

 

70,871

 

 

45,080

Excess of net profit over dividends declared

 

 

39,770

 

 

27,040

 

 

 

The Company pays cash dividends monthly to its shareholders. They may be reduced, increased or suspended by the Board of Directors depending on the operations of Badger and the performance of its assets. The actual cash flow available for dividends to shareholders of Badger is a function of numerous factors, including: the Company’s financial performance; debt covenants and obligations; working capital requirements; maintenance and growth capital expenditure requirements for the purchase of property, plant and equipment; and the number of shares outstanding.

 

The Company maintains a strong balance sheet. Its debt management strategy includes retaining sufficient funds from available distributable cash to finance maintenance capital expenditures as well as working capital needs. Growth capital expenditures will generally be financed through existing debt facilities, proceeds received from equity financings or cash retained from operating activities. The majority of the cash provided by operating activities in 2014 was used to finance growth capital expenditures and to pay dividends to shareholders.

 

If maintenance capital expenditures increase in future periods, the Company’s cash available for growth capital expenditures and dividends will be negatively affected. Due to Badger’s growth rate in recent years, the majority of the hydrovac units are relatively new, with an average age of approximately four-and-one-half years. As a result, Badger is incurring relatively low maintenance capital expenditures. Over time, if growth slowed, Badger would expect to incur annual maintenance capital expenditures approximately equaling the year’s depreciation expense. Badger removed 14 hydrovac units from the fleet in 2014. Badger expects that cash provided by operations and cash available for growth capital expenditures and dividends will be sufficient to fund its future maintenance capital expenditures.

 

Badger is restricted from declaring dividends if it is in breach of the covenants under its credit facilities. As at the date of this MD&A the Company is in compliance with all debt covenants and is able to fully utilize its credit facilities as well as declare dividends. Badger does not have a credit rating.

 

Capital Resources__________________________________________________________________

Investing

The Company spent $24.0 million on property, plant and equipment for the three months ended December 31, 2014 compared to $19.2 million for the three months ended December 31, 2013. For the year, the Company spent $99.1 million, a $28.6 million increase over the $70.5 million spent in 2013.  The increase in property plant and equipment is largely due to the production of hydrovacs in 2014 as well as the production of other specialized vehicles and the investment in buildings.  The costs to build a hydrovac unit remained consistent with the average for 2013.

 

Maintenance capital expenditures are incurred during a period to keep the hydrovac fleet at the same number of units plus any other capital expenditures required to maintain the business. This amount will fluctuate period-to-period depending on the number of units retired from the fleet. During the year ended December 31, 2014, Badger added 221 units to the fleet (175 in 2013), of which 14 have been reflected as maintenance capital expenditures (14 in 2013).  Total maintenance capital expenditures for the year were $10.3 million as compared to $8.0 million in 2013. 

 

Financing

Syndicated credit facility

In 2014, the Corporation established a $125 million syndicated credit facility.  The purpose of the credit facility is to finance the Corporation's capital expenditure program and for general corporate purposes. The credit facility bears interest, at the Corporation's option, at either the bank's prime rate plus a tiered set of basis points or bankers' acceptance rate also with a tiered structure. A stand-by fee is also required on the unused portion of the credit facility on a tiered basis. The prime rate tiers range between zero and 125 basis points. The bankers’ acceptance tier ranges from 125 to 250 basis points. The stand-by fee tiers range between 25 and 50 basis points.  All of the tiers are based on the Company’s Funded Debt to EBITDA ratio.  The stand-by fee is expensed as incurred.

 

The credit facility expires on July 22, 2018.

 

The syndicated credit facility is collateralized by a general security interest over the Corporation’s assets, property and undertaking, present and future.

 

As at December 31, 2014, the Corporation has issued letters of credit of approximately $2.6 million. The outstanding letters of credit support the U.S. insurance program and certain performance bonds and reduce the amount available under the syndicated credit facility.

 

At December 31, 2014, the Corporation had available $86.0 million (December 31, 2013 - $16.3 million) of undrawn committed borrowing facilities in respect of which all conditions precedent had been met.

 

Senior secured notes

On January 24, 2014 Badger closed a private placement of senior secured notes.  The notes, which rank pari passu with the extendable revolving credit facility, have a principal amount of US $75.0 million and an interest rate of 4.83 percent per annum and mature on January 24, 2022. The Canadian dollar equivalent on January 24, 2014 was $82.9 million. Amortizing principal repayments of US $25.0 million are due under the notes on January 24, 2020, January 24, 2021 and January 24, 2022.  Interest is paid semi-annually in arrears.

 

The senior secured notes are collateralized by a general security interest over the Corporation’s assets, property and undertaking, present and future.

 

For the twelve months ended December 31, 2014, Badger recorded an unrealized foreign exchange loss of $3.8 million. This was due to the impact of the change over the period in the value of the Canadian dollar relative to the US dollar on the Corporation’s $75.0 million of US dollar denominated debt.

 

Under the terms of the credit facility and the senior secured notes, the Corporation must comply with certain financial and non-financial covenants, as defined by the bank. Throughout 2014, and as at December 31, 2014, the Corporation was in compliance with all of these covenants.

 

SHARE CAPITAL

Shares outstanding at December 31, 2014 were 37,033,893.

 

As of March 16, 2015 the outstanding shares totaled 37,045,791, an increase of 11,898 shares resulting from exercises under the Company’s Deferred Unit Plan.

 

SELECTED QUARTERLY FINANCIAL INFORMATION

 

All amounts are $000’s except Per Share amounts are $’s

2014

2013

Q4

Q3

Q2

Q1

Q4

Q3

Q2

Q1

Revenue

108,350

113,121

100,726

100,022

94,239

87,543

73,658

69,154

Net Profit

17,045

16,078

14,249

5,730

11,233

11,774

9,371

7,985

Net Profit per share – Basic

0.47

0.43

0.38

0.15

0.30

0.32

0.22

0.21

Net Profit per share – Diluted

0.47

0.43

0.38

0.15

0.30

0.32

0.25

0.22

 

 

CHANGES IN ACCOUNTING POLICIES

 

The Corporation adopted amendments to IFRS 7, IAS 32, IAS 36, and IFRIC 21 on January 1, 2014. There was no material impact to the Corporation’s interim condensed consolidated financial statements as a result of the adoption of those standards.

 

ACCOUNTING STANDARDS PENDING ADOPTION

 

The following are the IFRS pronouncements which have been issued but are not yet effective. The pronouncements may, however, have a future impact on the measurement and/or presentation of the Company’s consolidated financial statements. The pronouncements are as follows:

 

  1. IFRS 9, ‘Financial Instruments’ was issued in November 2009 as the first step in its project to replace IAS 39 ‘Financial Instruments: Recognition and Measurement’. IFRS 9 introduces new requirements for classifying and measuring financial assets that must be applied starting January 1, 2015, with early adoption permitted. The IASB intends to expand IFRS 9 during the intervening period to add new requirements for classifying and measuring financial liabilities, de-recognition of financial instruments, impairment and hedge accounting. The Company is assessing the impact of this standard on the consolidated financial statements.
  2. IFRS 15, “Revenue from Contracts with Customers” replaces IAS 11, Construction Contracts, IAS 18, Revenue, IFRIC 13, Customer Loyalty Programs, IFRIC 15, Agreements for the Construction of Real Estate, IFRIC 18, Transfers of Assets from Customers and SIC-31, Revenue - Barter Transactions Involving Advertising Services and is effective for annual periods beginning on or after January 1, 2017. IFRS 15 specifies how and when entities recognize revenue, as well as requires more detailed and relevant disclosures. The new standard provides a single, principles based five-step model to be applied to all contracts with customers, with certain exceptions.

                          a. Identify the contract(s) with the customer;

                          b. Identify the performance obligation(s) in the contract;

                          c. Determine the transaction price;

                          d. Allocate the transaction price to each performance obligation in the contract;

                          e. Recognize revenue when (or as) the entity satisfies a performance obligation.

The Corporation is currently evaluating the impact of this standard.

 

CRITICAL ACCOUNTING ESTIMATES

 

Management is responsible for applying judgement in preparing accounting estimates. Certain estimates and related disclosure included in the financial statements are particularly sensitive because of their significance to the financial statements and the possibility that future events affecting them may differ significantly from management’s current judgements. An accounting estimate is considered critical only if it requires the Company to make assumptions about matters that are highly uncertain at the time the accounting estimate is made, and if different estimates the Company could have used would have a material impact on Badger’s financial condition, changes in financial condition or results of operations.

 

While there are several estimates and assumptions made by management in the preparation of financial statements in accordance with IFRS, the following critical accounting estimates have been identified by management:
 

Depreciation of hydrovac units

This accounting estimate has the greatest effect on the Company’s financial results. It is carried out on the basis of the units’ estimated useful lives. The Company currently depreciates hydrovac units over 10 years based on current knowledge and working experience. There is a certain amount of business risk that newer technology or some other unforeseen circumstance could lower this life expectancy. A change in the remaining life of the hydrovac units or the expected residual value would affect the depreciation rate used to depreciate the hydrovac units and thus affect depreciation expense as reported in the Company’s consolidated statement of comprehensive income. These changes are reported prospectively when they occur.

 

Tax pools and their recoverability

Badger has estimated its tax pools for the income tax provision. The actual tax pools the Company may be able to use could be materially different in the future.

 

Intangible assets

Intangible assets consist of service rights acquired from Badger’s operating partners, customer relationships, trade name and non-compete agreements.  The initial valuation of intangibles at the closing date of any acquisition requires judgement and estimates by management with respect to identification, valuation and determining the expected periods of benefit. Valuations are based on discounted expected future cash flows and other financial tools and models and are amortized over their expected periods of benefit or not amortized if it is determined the intangible asset has an indefinite life. Intangible assets are reviewed annually with respect to their useful lives or more frequently if events or changes in circumstances indicate that the assets might be impaired. Impairment exists when the carrying amount of the intangible asset exceeds its recoverable amount, which is the higher of its fair value less costs to sell and its value in use. The fair value less costs to sell calculation is based on available data from binding sales transactions in an arm’s-length transaction of similar assets or observable market prices less incremental costs for disposing of the asset. The value in use calculation is based on a discounted cash flow model. The cash flows are derived from the projections for the next five years and do not include restructuring activities that the Company is not yet committed to or significant future investments that will enhance the asset’s performance. When an impairment loss reverses, the carrying amount of the intangible asset is increased to the revised estimate of the recoverable amount but not beyond the carrying amount that would have been determined had no impairment loss been recognized.

 

Goodwill

Goodwill is the amount that results when the cost of acquired assets exceeds their fair value at the date of acquisition. Goodwill is recorded at cost, is not amortized and is tested at least annually for impairment. The impairment test includes the application of a fair value test, with an impairment loss recognized when the carrying amount of goodwill exceeds its estimated fair value. Impairment provisions are not reversed if there is a subsequent increase in the fair value of goodwill.

 

Impairment of long-lived assets

The carrying value of long-lived assets, which include property, plant and equipment and intangible assets, is assessed for indications of impairment when events or circumstances indicate that the carrying amounts may not be recoverable from estimated cash flows. Estimating future cash flows requires assumptions about future business conditions and technological developments. Significant, unanticipated changes to these assumptions could require a provision for impairment in the future.

 

Collectability of trade and other receivables

The Company estimates the collectability of its trade and other receivables. The Company continually reviews the balances and makes an allowance when a receivable is deemed uncollectable. The actual collectability of trade and other receivables could differ materially from the estimate.

 

 

FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

 

Fair values

The Company’s financial instruments recognized on the consolidated statements of financial position consist of cash and cash equivalents, trade and other receivables, trade and other payables, deferred unit plan liability, dividends payable and long-term debt. The fair values of these recognized financial instruments, excluding long-term debt, approximate their carrying value due to their short-term maturity. The carrying value of the long-term debt approximates fair value because the long-term facilities have a floating interest rate.

 

Credit risk

Credit risk arises when a failure by counter parties to discharge their obligations could reduce the amount of future cash flows from financial assets on hand at the balance sheet date. A substantial portion of the Company’s trade receivables is with customers in the petroleum and utility industries and is subject to normal industry credit risks. The Company manages its exposure to credit risk through standard credit-granting procedures and short payment terms. The Company attempts to monitor financial conditions of its customers and the industries in which they operate.

 

Liquidity risk

Liquidity risk is the risk that, as a result of operational liquidity requirements, the Company will not have sufficient funds to settle an obligation on the due date and will be forced to sell financial assets at a price less than what they are worth, or will be unable to settle or recover a financial asset.

 

The Company’s operating cash requirements are continuously monitored by management. As factors impacting cash requirements change, liquidity risks may necessitate the Company raising capital by issuing equity or obtaining additional debt financing. The Company also mitigates liquidity risk by maintaining an insurance program to minimize exposure to insurable losses.

 

Market risk

The significant market risks affecting the financial instruments held by the Company are those related to interest rates and foreign currency exchange rates, as follows:

 

Interest rate risk

The Company is exposed to interest rate risk in relation to interest expense on a portion of its long-term debt whose rate is floating. Interest is calculated at prime. The prime interest rate is subject to change. A sensitivity analysis would indicate that net profit for the year ended December 31, 2014 would have been affected by approximately $0.8 million if the average interest rate changed by 1 percentage point. The Company does not use interest rate hedges or fixed interest rate contracts to manage its exposure to interest rate fluctuations but has chosen to issue USD 75.0 million in fixed rate senior secured notes which fixes interest exposure on a portion of the long term debt.

 

Foreign exchange risk

The Company has United States operations which generate United States dollar revenue and its Canadian operations purchase certain products in United States dollars. In addition, early in 2014 the Company closed a private placement of United States dollar-denominated senior secured notes.  As a result, fluctuations in the value of the Canadian dollar relative to the United States dollar can result in foreign exchange gains and losses. The Company does not have any agreements to fix the exchange rate of the Canadian dollar to the United States dollar.

 

 

DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROL OVER FINANCIAL REPORTING

 

Disclosure Controls and Procedures

Badger’s President and CEO and its VP Finance and CFO have designed, or caused to be designed under their direct supervision, Badger’s disclosure controls and procedures (as defined by National Instrument 52-109 – Certification of Disclosure in Issuers’ Annual and Interim Filings, adopted by the Canadian Securities Administrators) to provide reasonable assurance that (i) material information relating to Badger, including its consolidated subsidiaries, is made known to them by others within those entities, particularly during the period in which the annual filings are being prepared; and (ii) material information required to be disclosed in the annual filings is recorded, processed, summarized and reported on a timely basis.  Further,  they  have  evaluated,  or  caused  to  be  evaluated  under  their  direct  supervision,  the effectiveness of Badger’s disclosure controls and procedures at December 31, 2014 and have concluded the disclosure controls and procedures are fully effective.

 

Internal Control over Financial Reporting

Badger’s President and CEO and its VP Finance and CFO have also designed, or caused to be designed under their direct supervision, Badger’s internal control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. Further, using the criteria established in Internal Control Integrated Framework published by the Committee of Sponsoring Organizations of the Treadway Commission, they have evaluated, or caused to be evaluated under their direct supervision, the effectiveness of Badger’s internal control over financial reporting at December 31, 2014 and have concluded the internal controls over financial reporting are effective.

 

Changes in Internal Control over Financial Reporting

There were no changes to Badger’s internal control over financial reporting in the fourth quarter of 2014.

 

Inherent Limitations

Notwithstanding the foregoing, because of its inherent limitations a control system can provide only reasonable assurance that the objectives of the control system are met and may not prevent or detect misstatements. Management’s estimates may be incorrect, or assumptions about future events may be incorrect, resulting in varying results. In addition, management has attempted to minimize the likelihood of fraud.  However,  any  control  system  can  be  circumvented  through  collusion  and  illegal  acts.

 

BUSINESS RISKS

[Reference is also made to Badger’s 2014 Annual Information Form]

 

Reliance on the oil and natural gas sector

The oil and natural gas sector accounts for approximately 51 percent of the Company’s revenues in 2014, down from the 55 percent in 2013. The petroleum service industry, in which Badger participates, relies heavily on the volume of capital expenditures made by oil and natural gas explorers and producers. These spending decisions are based on several factors including, but not limited to: hydrocarbon prices, production levels of current reserves, fiscal regimes in operating areas, technology-driven exploration and extraction methodologies, and access to capital, all of which can vary greatly.  To minimize the impact of the oil and natural gas industry’s cycles, the Company also focuses on generating revenue from the utility and general contracting market segments.

 

Competition

The Company operates in a highly competitive environment for hydrovac services in Canada and the United States. In order to remain the leading provider of hydrovac services in these regions, Badger continually enhances its safety and operational procedures to ensure that they meet or exceed customer expectations. Badger also has the in-house capabilities necessary to continuously improve its daylighting units so that they remain the most productive and efficient hydrovacs in the business. There can be no assurance that Badger’s competitors will not achieve greater market acceptance due to pricing, efficiency, safety or other factors.

 

United States operations

Badger also faces risks associated with doing business in the United States. The Company has made a significant investment in the United States to develop the hydrovac market. The growth rate of the United States market is very hard to predict. The United States, and each of the 50 states, have their own unique set of laws, policies and regulations that have a real or apprehended effect on business operating conditions, approval or delay of potential new projects that could require Badger’s services, current rates of capital investment and the general level of confidence about future economic conditions among businesses and organizations.

 

Safety

Badger is exposed to liabilities that are unique to the services that it provides.  Such liabilities may relate to an accident or incident involving one of Badger’s hydrovacs or damage to equipment or property caused by one of the hydrovacs, and could involve significant potential claims or injuries to employees or third parties.  The amount of Badger’s insurance coverage may not be adequate to cover potential claims or liabilities and Badger may be forced to bear substantial costs as a result of one or more accidents.  Substantial claims resulting from an accident in excess of its related insurance coverage would harm Badger’s financial condition and operating results.  Moreover, any accident or incident involving Badger, even if Badger is fully insured or not held liable, could damage Badger’s reputation among customers and the public, thereby making it more difficult for Badger to compete effectively, and could significantly affect the future cost and availability of insurance.  Because Badger does not purchase replacement hydrovacs, but rather constructs them, the Company self-insures against the physical damage it could incur on the hydrovac units. Franchise owners are required to hold certain levels of insurance on the hydrovacs they lease from Badger.  These decisions will be re-evaluated periodically as circumstances change.

 

Safety is one of the Company’s on-going concerns. Badger has implemented programs to ensure its operations meet or exceed current hydrovac safety standards. The Company also employs safety advisors in each region who are responsible for maintaining and developing the Company’s safety policies. These regional safety advisors monitor the Company’s operations to ensure they are operating in compliance with such policies.

 

Depreciation of hydrovac units

The Company depreciates the hydrovac units over 10 years, a policy that is based on its current knowledge and operating experience. There is a certain amount of business risk that newer technology or some other unforeseen circumstance could lower this life expectancy.

 

Dependence on key personnel

Badger’s success depends on the services of key senior management members. The experience and talents of these individuals will be a significant factor in Badger’s continued success and growth. The loss of one or more of these individuals could have a material adverse effect on Badger’s operations and business prospects. Management and the Board of Directors are focused on succession planning and contingency planning with respect to key senior management personnel.

 

Availability of labour and equipment

While Badger has historically been able to source the labour and equipment required to run its business, there can be no assurances it will be able to do so in the future.

 

Reliance on key suppliers

Badger has established relationships with key suppliers. There can be no assurance that current sources of equipment, parts, components or relationships with key suppliers will be maintained. If these are not maintained, Badger’s ability to manufacture its hydrovac units may be impaired.

 

Fluctuations in weather and seasonality

Badger’s operating results have been, and are expected to remain, subject to quarterly and other fluctuations due to a variety of factors including changes in weather conditions and seasonality. For example, in Western Canada Badger’s results may be negatively affected if there is an extended spring break-up period since oil and natural gas industry sites may be inaccessible during such periods. In Eastern Canada, Badger has in the past experienced increased use of its equipment during cold winters, thus improving the results of its operations during such times. The Company may then experience a slow period during spring thaw. In the Eastern United States, Badger has experienced reduced work in unusually cold and snowy winters.

 

In the Western United States, Badger has from time-to-time been restricted by the imposition of government regulations from conducting its work in environmentally sensitive areas during the winter mating seasons of certain mammals and birds. This has had a negative effect on Badger’s results. As such, changes in the weather and seasonality may, depending on the location and nature of the event, have either a positive or negative effect on Badger’s operating and financial results.

 

Fluctuations in the economy and political landscape

Operations could be adversely affected by a general economic downturn, changes in the political landscape or limitations on spending.

 

Compliance with government regulations

While Badger believes it is in compliance with all applicable government standards and regulations, there can be no assurance that all of Badger’s business are, or will be, able to continue to comply with all applicable standards and regulations.

 

Environmental risk

As the owner and lessor of real property, Badger is subject to various federal, provincial / state and municipal laws relating to environmental matters. Such laws provide that Badger could be liable for the costs of removal and remediation of certain hazardous substances or wastes released or deposited on or in its properties or disposed at other locations. The failure to remove or remediate such substances, if any, could adversely affect Badger’s ability to sell such real property or borrow using such real property as collateral and could also result in claims against Badger.

 

Litigation

Legal proceedings may arise from time to time in the course of Badger’s business.  All industries, including the hydrovac industry, are subject to legal claims, with and without merit.  Such legal claims may be brought against Badger or one or more of its subsidiaries in the future from time to time.  Defense and settlement costs of legal claims can be substantial, even with respect to claims without merit.  Due to the inherent uncertainty of the litigation process, such process could divert management time and effort and the resolution of any particular legal proceeding to which Badger may become subject could have a material effect on Badger’s financial position and results of operations.

 

Income tax matters

Badger and its subsidiaries are subject to federal, provincial and state income taxes in Canada and the United States, as applicable.  While Badger works to keep itself and its subsidiaries in full compliance with all applicable legal requirements relating to federal, provincial and state legislation on income tax, sales tax, goods and services tax, excise tax and all other direct or indirect taxes including business tax, real estate tax, municipal and other taxes, there can be no assurance that Badger and its subsidiaries will not be subject to assessment, reassessment, audit, investigation, inquiry or judicial or administrative proceedings under any such laws.  As taxing regimes change their tax basis and rates, or initiate reviews of prior tax returns, Badger’s liability to income tax may increase and Badger could be exposed to increased costs of taxation, which could, among other things, reduce the amount of funds available to distribute to shareholders or otherwise have a material adverse effect on Badger’s business, results of operations or financial condition.

 

Badger is North America’s largest provider of non-destructive excavating services. Badger traditionally works for contractors and facility owners in the utility and petroleum industries. The Company’s key technology is the Badger Hydrovac, which is used primarily for safe digging in congested grounds and challenging conditions. The Badger Hydrovac uses a pressurized water stream to liquefy the soil cover, which is then removed with a powerful vacuum system and deposited into a storage tank. Badger manufactures its truck-mounted hydrovac units.

 

The Toronto Stock Exchange has neither approved nor disapproved the information contained herein.

 

For more information regarding this press release, please contact:

 

 

Tor Wilson                                                       Gerald Schiefelbein

 

President and CEO                                           Vice President Finance and CFO

1000, 635 – 8th Avenue SW Calgary Alberta T2P 3M3

Telephone 403-264-8500

Fax 403-228-9773

 

 

Badger Daylighting Ltd.

Consolidated Financial Statements

For the year ended December 31, 2014

 

 

Independent Auditor’s Report

 

 

 

To the Shareholders of Badger Daylighting Ltd.

 

We have audited the accompanying consolidated financial statements of Badger Daylighting Ltd., which comprise the consolidated statements of financial position as at December 31, 2014 and 2013 and the consolidated statements of comprehensive income, changes in equity and cash flows for the years then ended, and a summary of significant accounting policies and other explanatory information.

 

Management’s responsibility for the consolidated financial statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

 

Auditor’s responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

 

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

 

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Badger Daylighting Ltd. as at December 31, 2014 and 2013 and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards.

 

                      

 

 

Calgary, Canada                                                                                                                                               

To view the graphic in its original size, please click here

                                    

March 16, 2015                                                                                                                                                              Chartered Accountants

 

 

 

BADGER DAYLIGHTING LTD.

Consolidated Statement of Financial Position

(Expressed in thousands of Canadian Dollars)

 

As at December 31

Notes 

  2014

        $

2013

     $

 

 

 

 

ASSETS

 

 

 

Current Assets

 

 

 

Cash and cash equivalents

7

19,152

8,623

Trade and other receivables

8

111,964

92,115

Prepaid expenses

 

2,872

1,459

Inventories

9

4,400

3,300

Income taxes receivable

 

4,381

-

 

 

142,769

105,497

Non-current Assets

 

 

 

Property, plant and equipment

10

286,019

211,614

Goodwill and intangible assets

11

15,511

16,787

 

 

301,530

228,401

Total Assets

 

444,299

333,898

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

Current Liabilities

 

 

 

Trade and other payables

12

30,440

23,657

Deferred unit plan liability

17

12,887

13,933

Income taxes payable

 

5,423

4,952

Dividends payable

14

1,111

1,111

 

 

49,861

43,653

Non-current Liabilities

 

 

 

Long-term debt

15

124,358

82,319

Deferred income tax

13

45,832

36,857

 

 

170,190

119,176

Shareholders’ Equity

 

 

 

Shareholders’ capital

1, 16

80,944

80,944

Contributed surplus

16

548

548

Accumulated other comprehensive income

16

16,700

3,291

Retained earnings

 

126,056

86,286

 

 

224,248

171,069

Total Liabilities and Shareholders’ Equity

 

444,299

333,898

 

 

 

 

Commitments and contingencies

25

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements. These consolidated financial statements were approved by the Board on March 16, 2015 and were signed on its behalf.

 

 

 

Signed: Glen D. Roane                                                                          Signed: David M. Calnan

Director                                                                                                  Director

 

 

BADGER DAYLIGHTING LTD.

Consolidated Statement of Comprehensive Income

(Expressed in thousands of Canadian Dollars)

 

For the year ended December 31

Notes

2014

$

 2013

$

 

 

 

 

Revenues

18

422,219

324,594

Direct costs

19

282,645

214,711

Gross profit

 

139,574

109,883

 

 

 

 

Depreciation of property, plant and equipment

10

33,611

24,183

Amortization of intangible assets

11

1,276

213

Selling, general and administrative

19

19,453

15,714

Deferred unit plan

17

2,393

10,010

Operating profit

 

82,841

59,763

 

 

 

 

(Gain) loss on sale of property, plant and equipment

 

(323)

291

Finance cost

 

5,806

1,645

Unrealized foreign exchange loss on senior secured notes

 

3,839

-

Profit before tax

 

73,519

57,827

 

 

 

 

Income tax expense

13

20,417

17,464

Net profit for the year

 

53,102

40,363

 

 

 

 

Items that may be reclassified subsequently to profit or loss

 

 

 

Exchange differences on translation of foreign operations

 

13,409

5,530

Total comprehensive income for the year attributable to shareholders of the Corporation

 

66,511

45,893

 

 

 

 

Earnings per share

 

 

 

Basic

1, 20

1.43

1.09

Diluted

1, 20

1.43

1.09

 

 

 

 

 

 

 

 

 

 

 

BADGER DAYLIGHTING LTD.

Consolidated Statement of Changes in Equity

(Expressed in thousands of Canadian Dollars)

 

The accompanying notes are an integral part of these consolidated financial statements.

 

Shareholders’ capital

Contributed surplus

Accumulated other comprehensive income (loss)

Retained earnings

Total equity

For the year ended

Notes

$

$

$

$

$

 

 

 

 

 

 

 

As at December 31, 2012

 

80,640

2,061

(2,239)

59,246

139,708

Net profit for the year

 

-

-

-

40,363

40,363

Other comprehensive income for the year

 

-

-

5,530

-

5,530

Share options exercised

16

304

-

-

-

304

Options surrendered for cash

16

-

(1,513)

-

-

(1,513)

Dividends declared

14

-

-

-

(13,323)

(13,323)

As at December 31, 2013

 

80,944

548

3,291

86,286

171,069

 

 

 

 

 

 

 

Net profit for the year

 

-

-

-

53,102

53,102

Other comprehensive income for the year

 

-

-

13,409

-

13,409

Dividends declared

14

-

-

-

(13,332)

(13,332)

As at December 31, 2014

 

80,944

548

16,700

126,056

224,248

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

BADGER DAYLIGHTING LTD.

Consolidated Statement of Cash Flows

(Expressed in thousands of Canadian Dollars)

 

For the year ended December 31

Notes

2014

$

2013

$

 

 

 

 

Operating activities

 

 

 

Net profit for the year

 

53,102

40,363

Non-cash adjustments to reconcile profit from operations to net cash flows:

 

 

 

Depreciation of property, plant and equipment

10

33,611

24,183

Amortization of intangible assets

11

1,276

213

Deferred income tax

13

5,900

4,729

Equity-settled share plan settled in cash

16

-

(1,513)

(Gain) loss on sale of property plant and equipment

 

(323)

291

Unrealized foreign exchange loss on senior secured notes

 

3,839

-

Unrealized foreign exchange loss on deferred tax

 

3,074

1,556

 

 

100,479

69,822

Net change in non-cash working capital relating to operating activities

 

(16,276)

(11,419)

Net cash flows from operating activities

 

84,203

58,403

 

 

 

 

Investing activities

 

 

 

Purchase of property, plant and equipment

10

(99,083)

(70,479)

Purchase of intangible assets

11

-

(2,555)

Proceeds from sale of property, plant and equipment

 

541

425

Business combination

6

-

(19,160)

Net cash flows used in investing activities

 

(98,542)

(91,769)

 

 

 

 

Financing activities

 

 

 

Proceeds received on the exercise of share options

16

-

304

Proceeds from long-term debt

 

121,112

52,546

Repayment of long-term debt

 

(82,912)

-

Dividends paid

14

(13,332)

(13,321)

Net cash flows from financing activities

 

24,868

39,529

 

 

 

 

Net increase in cash and cash equivalents

 

10,529

6,163

Cash and cash equivalents, beginning of year

7

8,623

2,460

Cash and cash equivalents, end of year

7

19,152

8,623

 

 

 

 

Supplemental cash flow information:

 

 

 

Interest paid

 

5,806

1,645

Income tax paid

 

18,878

10,869

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

BADGER DAYLIGHTING LTD.

Notes to the Consolidated Financial Statements

For the year ended December 31, 2014

(Expressed in thousands of Canadian Dollars unless stated otherwise)

 

1 Incorporation and Operations

 

Badger Daylighting Ltd. and its subsidiaries (together “Badger” or the “Corporation”) provide non-destructive excavating services to the utility, transportation, industrial, engineering, construction and petroleum industries in Canada and the United States. Badger is a publicly traded corporation. The address of the registered office is 1000, 635 – 8th Avenue SW, Calgary, Alberta T2P 3M3. The consolidated financial statements of the Corporation were authorised for issue by the Board of Directors on March 16, 2015.

 

All current and comparative share capital and profit per share amounts have been adjusted to reflect the three-for-one share split that was completed in January 2014.

 

2 Basis of Preparation

 

Statement of compliance

These consolidated financial statements of the Corporation are prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”).

 

Basis of measurement

These consolidated financial statements have been prepared under the historical cost convention.

 

Functional and presentation currency

These consolidated financial statements are presented in Canadian dollars, which is the Corporation’s functional currency.

 

3 Significant Accounting Judgements, Estimates and Assumptions

 

The preparation of these consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and contingent liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting period. Estimates and judgments are continuously evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. However, actual outcomes can differ from those estimates.

 

The key sources of estimation uncertainty that have a significant risk of causing material adjustment to the amounts recognized in the consolidated financial statements are:

 

Impairment of non-financial assets

Impairment exists when the carrying value of an asset or cash generating unit (“CGU”) exceeds its recoverable amount, which is the higher of its fair value less costs to sell and its value in use. The fair value less costs to sell calculation is based on available data from binding sales transactions in an arm’s length transaction of similar assets or observable market prices less incremental costs for disposing of the asset. The value in use calculation is based on a discounted cash flow model. The cash flows are derived from the projection for the next five years and do not include restructuring activities that the Corporation is not yet committed to or significant future investments that will enhance the asset’s performance of the CGU being tested. The recoverable amount is most sensitive to the discount rate used for the discounted cash flow model as well as the expected future cash inflows and the growth rate used for extrapolation purposes.

 

 

Taxes

Provisions for taxes are made using the best estimate of the amount expected to be paid based on a qualitative assessment of all relevant factors. The Corporation reviews the adequacy of these provisions at the end of the reporting period. However, it is possible that at some future date an additional liability could result from audits by tax authorities of the respective jurisdictions in which it operates. Where the final outcome of these tax-related matters is different from the amounts that were initially recorded, such differences will affect the tax provisions in the period in which such determination is made.

 

Useful lives of property, plant and equipment

The Corporation estimates the useful lives of property, plant and equipment based on the period over which the assets are expected to be available for use. The estimated useful lives of property, plant and equipment are reviewed periodically and are updated if expectations differ from previous estimates due to physical wear and tear, technical or commercial obsolescence and legal or other limits on the use of the relevant assets. In addition, the estimation of the useful lives of property, plant and equipment are based on internal technical evaluation and experience with similar assets. It is possible, however, that future results of operations could be materially affected by changes in the estimates brought about by changes in factors mentioned above. The amounts and timing of recorded expenses for any period would be affected by changes in these factors and circumstances. A reduction in the estimated useful lives of the property, plant and equipment would increase the recorded expenses and decrease the non-current assets.

 

Business combinations

In a business combination, the Corporation may acquire assets and assume certain liabilities of an acquired entity. Estimates are made as to the fair value of property, plant and equipment, intangible assets, and goodwill, among other items. In certain circumstances, such as the valuation of property, plant and equipment and intangible assets acquired, the Corporation relies on independent third-party valuators. The determination of these fair values involves a variety of assumptions, including revenue growth rates, expected operating income, discount rates, and earnings multiples. For further information on business acquisitions, see Note 6.

 

Allowance for doubtful debts

The Corporation makes allowance for doubtful debts based on an assessment of the recoverability of receivables. Allowances are applied to receivables where events or changes in circumstances indicate that the carrying amounts may not be recoverable. Management specifically analysed historical bad debts, customer concentrations, customer creditworthiness, current economic trends and changes in customer payment terms when making a judgement to evaluate the adequacy of the allowance of doubtful debts of receivables. Where the expectation is different from the original estimate, such difference will impact the carrying value of receivables.

4 Summary of Significant Accounting Policies

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below.

 

A) Basis of consolidation

The consolidated financial statements include the accounts of Badger Daylighting Ltd. and its subsidiaries, all of which are wholly owned. Subsidiaries are consolidated from the date of acquisition, being the date on which the Corporation obtains control, and continue to be consolidated until the date that such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the parent, using consistent accounting policies. All intra-company balances, income and expenses, unrealized gains and losses and dividends resulting from intra-company transactions are eliminated in full.

 

B) Cash and cash equivalents

Cash and cash equivalents include cash at banks and on hand and short-term investments with original maturities of three months or less and are recorded at cost, which approximates fair market value.

 

C) Inventories

Inventories are valued at the lower of cost and net realizable value, with cost being defined to include laid-down cost for materials on a weighted average basis.

D) Leases

Leases in terms of which the Corporation assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability, so as to achieve a constant rate of interest on the balance of the liability. Finance charges are recognized in the consolidated statement of comprehensive income. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset.

 

Other leases are operating leases and the leased assets are not recognized in the Corporation’s consolidated statement of financial position. Operating lease payments are recognized as a direct cost in the consolidated statement of comprehensive income.

 

E)  Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and/or accumulated impairment losses if any. Such cost includes the cost of replacing part of the plant and equipment and borrowing costs for long-term construction projects if the recognition criteria are met. Repair and maintenance costs are recognized in the consolidated statement of comprehensive income as incurred.

 

Depreciation is calculated on a straight-line basis to recognize the cost less estimated residual value over the estimated useful life of the assets as follows:

 

Land improvements

50%

 

Buildings

5%

 

Shoring equipment

10%

 

Shop and office equipment

10%-25%

 

Truck and trailers

8%-15%

 

 

 

Depreciation of equipment under construction is not recorded until such time as the asset is available for use, i.e. when it is in the location and condition necessary for it to be capable of operating in the manner intended by management.

 

The assets’ residual values, useful lives and methods of depreciation are reviewed at each financial year end and adjusted prospectively, if appropriate.

 

Gains or losses arising from derecogniton of an item of property, plant and equipment are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the consolidated statement of comprehensive income when the asset is derecognized.

 

F)  Intangible assets

Intangible assets represent service rights acquired, customer relationships, trade name and non-compete agreements. Intangible assets acquired separately are measured on initial recognition at cost. The cost of an intangible asset acquired in a business combination is its fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and any accumulated impairment losses.

 

The useful lives of intangible assets are assessed as either finite or indefinite. Intangible assets with finite lives are amortized over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least at each financial year end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortization period or method, as appropriate, and are treated as changes in accounting estimates.

 

Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the consolidated statement of comprehensive income when the asset is derecognized.

 

A summary of the policies applied to the Corporation’s intangible assets is as follows:

 

 

Service rights

Other intangibles

Useful lives

Indefinite

5 years

Amortization method

No amortization

Straight-line

 

 

G)  Impairment of non-financial assets excluding goodwill

At the end of each reporting period, the Corporation reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Corporation estimates the recoverable amount of the CGU to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual CGU’s, or otherwise they are allocated to the smallest group of CGU’s for which a reasonable and consistent allocation basis can be identified.

Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at least annually, and whenever there is an indication that the asset may be impaired.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset or CGU is estimated to be less than its carrying amount, the carrying amount of the asset or CGU is reduced to its recoverable amount. An impairment loss is recognized immediately in the consolidated statement of comprehensive income.

Where an impairment loss subsequently reverses, the carrying amount of the asset or CGU is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset or CGU in prior years. A reversal of an impairment loss is recognized immediately in the consolidated statement of comprehensive income.

 

H)  Provisions

A provision is recognized if, as a result of a past event, the Corporation has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognized as finance cost.

I) Goodwill

Goodwill represents the excess of the purchase price over the fair value of net assets acquired and liabilities assumed in a business combination. Goodwill is not amortized but is reviewed for impairment at least annually. For the purpose of impairment testing, goodwill is allocated to each of the Corporation’s CGU’s expected to benefit from the synergies of the combination. CGU’s to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the CGU may be impaired. If the recoverable amount of the CGU is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognized for goodwill is not reversed in a subsequent period.

 

J)   Taxes

Tax expense comprises current and deferred tax. Tax is recognized in the consolidated statement of comprehensive income except to the extent it relates to items recognized directly in equity.

 

Current income tax

Current tax expense is based on the results for the period as adjusted for items that are not taxable or not deductible. Current tax is calculated using tax rates and laws that were enacted or substantively enacted at the end of the reporting period. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. Provisions are established where appropriate on the basis of amounts expected to be paid to the tax authorities.

 

Deferred tax

Deferred tax is recognized, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated statement of financial position. Deferred tax is calculated using tax rates and laws that have been enacted or substantively enacted at the end of the reporting period, and which are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled.

 

Deferred tax assets:

are recognized to the extent it is probable that taxable profits will be available against which the deductible temporary differences can be utilized; and

are reviewed at the end of the reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

 

Deferred tax liabilities:

are generally recognized for all taxable temporary differences;

are recognized for taxable temporary differences arising on investments in subsidiaries except where the reversal of the temporary difference can be controlled and it is probable that the difference will not reverse in the foreseeable future; and

are not recognized on temporary differences that arise from goodwill which is not deductible for tax purposes.

 

Deferred tax assets and liabilities are not recognized in respect of temporary differences that arise on initial recognition of assets and liabilities acquired other than in a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit.

 

K) Revenue recognition

Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Corporation and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable, excluding discounts, rebates, sales taxes or duty. The Corporation assesses its revenue arrangements against specific criteria in order to determine if it is acting as principal or agent. The Corporation has concluded that it is acting as a principal in all of its revenue arrangements. The following specific recognition criteria must also be met before revenue is recognized:

 

Rendering of services

The Corporation recognizes revenue from services when the services are provided.

 

Truck placement fees

Truck placement fees are recognized when the truck is delivered to the operating partner.

 

L)  Finance costs

Finance costs comprise interest expense on borrowings. Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognized in profit or loss using the effective interest rate method. No borrowing costs were capitalized during the year.

 

M) Share-based payment

The Corporation operates a number of equity-settled and cash-settled share-based compensation plans under which it receives services from employees as consideration for equity instruments of the Corporation or cash payments.

 

Equity-settled awards

The Corporation uses the Black-Scholes pricing model to estimate the fair value of equity-settled awards at the grant date. The expense is recognized over the vesting period, which is the period over which all of the specified vesting conditions are satisfied. For awards with graded vesting, the fair value of each tranche is recognized over its respective vesting period.

 

No expense is recognized for awards that do not ultimately vest, except for equity-settled awards where vesting is conditional upon a market or non-vesting condition, which are treated as vesting irrespective of whether or not the market or non-vesting condition is satisfied, provided that all other performance and/or service conditions are satisfied.

 

Cash-settled awards

The Corporation uses the market price of its shares to estimate the fair value of cash-settled awards. Fair value is established initially at the grant date and the obligation is revalued each reporting period until the awards are settled with any changes in the obligation recognized in the consolidated statement of comprehensive income.

N) Segment reporting

An operating segment is a component of the Corporation that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Corporation’s other components. All operating segments’ operating results are reviewed regularly by the Corporation’s President and CEO to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available.

 

O) Business combinations

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured at the fair value of the aggregate consideration transferred, measured at the acquisition date. All acquisition costs are expensed as incurred in selling, general and administrative expenses. Any contingent consideration to be paid is recognized at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration are recognized in accordance with IAS 39, Financial Instruments – Recognition and Measurement.

 

P) Foreign currency translation

Items included in the financial statements of each consolidated entity are measured using the currency of the primary economic environment in which the entity operates (the "functional currency"). Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities not denominated in the functional currency of an entity are recognized in the consolidated statement of comprehensive income.

 

Assets and liabilities of entities with functional currencies other than Canadian dollars are translated at the period end rates of exchange, and the results of their operations are translated at average rates of exchange for the period. The resulting translation adjustments are included in the accumulated other comprehensive income (loss) when settlement of which is neither planned nor likely to occur in the foreseeable future.

 

When settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely to occur in the foreseeable future, foreign exchange gain or losses related to such items are recognized in other comprehensive income, and presented in accumulated other comprehensive income (loss) in equity.

 

Q) Financial assets

The Corporation classifies its financial assets as loans and receivables. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition.

 

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for those with maturities greater than 12 months after the end of the reporting period. These are classified as non-current assets. The Corporation’s loans and receivables comprise ‘trade and other receivables’ and cash and cash equivalents in the consolidated statement of financial position.

 

Loans and receivables are initially recognized at fair value plus transaction costs and subsequently carried at amortized cost using the effective interest rate method.

 

A provision for impairment of trade receivables is established when there is objective evidence that the Corporation will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganization, and default or delinquency in payments are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of

the asset is reduced through the use of an allowance account, and the amount of the loss is recognized in the consolidated statement of comprehensive income. When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables.

 

Financial assets are de-recognized when the contractual rights to the cash flows from the financial asset expire or when the contractual rights to those assets are transferred.

 

R) Financial liabilities

The Corporation classifies its financial liabilities as other financial liabilities. Management determines the classification of its financial liabilities at initial recognition. Other financial liabilities are recognized initially at fair value and subsequently measured at amortized cost using the effective interest rate method.

 

Other financial liabilities include trade and other payables, deferred unit plan liability, dividends payable and long-term debt. Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers.

 

Financial liabilities are classified as current liabilities if payment is due within one year or less, if not, they are presented as non-current liabilities.

 

S) Equity instruments

Equity instruments issued by the Corporation are recorded at the proceeds received net of direct issue costs.

 

5 Recent accounting pronouncements

The Corporation adopted amendments to IFRS 7, IAS 32, IAS 36, and IFRIC 21 on January 1, 2014. There was no material impact to the Corporation's consolidated financial statements as a result of the adoption of those standards.

 

The Corporation has reviewed new and revised accounting pronouncements that have been issued but are not yet effective and determined that the following may have an impact on the Corporation:

 

IFRS 9, ‘Financial Instruments’ was issued in November 2009 as the first step in its project to replace IAS 39 ‘Financial Instruments: Recognition and Measurement’. IFRS 9 introduces new requirements for classifying and measuring financial instruments that must be applied starting January 1, 2018, with early adoption permitted. The IASB intends to expand IFRS 9 during the intervening period to add new requirements for classifying and measuring financial liabilities, de-recognition of financial instruments, impairment and hedge accounting. The Corporation will assess the impact of this standard in conjunction with the other phases, when the final standard including all phases is issued.

 

IFRS 15, ‘Revenue from Contracts with Customers” replaces IAS 11, Construction Contracts, IAS 18, Revenue, IFRIC 13, Customer Loyalty Programmes, IFRIC 15, Agreements for the Construction of Real Estate, IFRIC 18, Transfers of Assets from Customers and SIC-31, Revenue – Barter Transactions Involving Advertising Services and is effective for annual periods beginning on or after January 1, 2017. IFRS 15 specifies how and when entities recognize revenue, as well as requires more detailed and relevant disclosures. The new standard provides a single, principles based five-step model to be applied to all contracts with customers, with certain exceptions.

 

  1. Identify the contract(s) with the customer;
  2. Identify the performance obligation(s) in the contract;

  3. Determine the transaction price;
  4. Allocate the transaction price to each performance obligation in the contract;
  5. Recognize revenue when (or as) the entity satisfies a performance obligation.

 

The Corporation is currently evaluating the impact of this standard.

 

6 Business acquisitions

 

A)            In May 2013, the Corporation acquired the service rights from certain of its Canadian agents for cash consideration of $2,555. The entire purchase price was allocated to intangible assets (service rights).

B)            On November 1, 2013, the Corporation acquired the business and operating assets of Fieldtek Holdings Ltd. ("Fieldtek"). Fieldtek is a privately owned company based in Lloydminster, Alberta providing general vacuum truck and auxiliary services to the oil and gas industry, focused primarily on production tank cleaning and removal of waste oil and sand.

The aggregate purchase price of $19,160 was financed with Corporation's extendable revolving credit facility. The goodwill of $1,515 comprises the value of expected synergies arising from the acquisition and other not separately recognized intangibles.  Goodwill is allocated entirely to the Canada segment. The fair values of the assets acquired were as follows:

 

 

 

$

Property, plant and equipment

 

11,266

Intangible assets

 

6,379

Goodwill

 

1,515

 

 

19,160

 

 

 

 

 

7 Cash and cash equivalents

 

2014

$

2013

$

Cash at banks and on hand

19,152

8,524

Short-term investments

-

99

 

19,152

8,623

 

 

Cash at banks earn interest at floating rates based on daily bank deposit rates. Short-term investments are made for varying periods of between one and three months, depending on the immediate cash requirements of the Corporation, and earn interest at the respective short-term investment rates.

 

8 Trade and other receivables

 

 

2014

$

2013

$

Trade receivables

107,602

90,113

Other sundry receivables

4,362

2,002

 

111,964

92,115

 

 

Trade receivables are non-interest bearing and are generally on 30-90 day terms.  The allowance for doubtful debts as at December 31, 2014 is $1,023 (2013 - $534).

 

The ageing analysis of trade receivables is as follows:

 

 

 

 

 

Past due but not impaired

 

 

 

    Total

$

 

Not past due

$

 

31-60 days

$

 

61-90 days

$

Greater than 90 days

$

December 31, 2014

 

107,602

35,251

30,941

16,838

24,572

December 31, 2013

 

90,113

45,679

22,211

10,947

11,276

 

 

9 Inventories

 

 

2014

$

2013

$

Raw materials

4,400

3,300

 

 

10 Property, plant and equipment

 

 

Land

$

Land improvements

$

Buildings

$

Equipment under construction

$

Shoring equipment

$

Shop and office equipment

$

Trucks and trailers

$

 

 

Total

$

Cost

 

 

 

 

 

 

 

 

At December 31, 2012

5,292

227

12,074

6,342

2,316

836

217,560

244,647

Additions/transfers

144

371

1,606

696

132

267

67,263

70,479

Business combination

-

-

-

-

-

-

11,266

11,266

Disposals

-

-

-

-

(83)

(64)

(4,708)

(4,855)

Exchange differences

15

-

37

-

-

18

7,469

7,539

At December 31, 2013

5,451

598

13,717

7,038

2,365

1,057

298,850

329,076

Additions/transfers

-

36

3,335

446

576

205

94,485

99,083

Disposals

-

-

(17)

-

(116)

-

(3,740)

(3,873)

Exchange differences

30

-

79

-

-

28

14,925

15,062

At December 31, 2014

5,481

634

17,114

7,484

2,825

1,290

404,520

439,348

 

 

 

 

 

 

 

 

 

Depreciation

 

 

 

 

 

 

 

 

At December 31, 2012

-

120

3,471

-

1,514

344

89,630

95,079

Depreciation charge for the year

-

141

622

-

153

124

23,143

24,183

Disposals

-

-

-

-

(51)

(56)

(4,033)

(4,140)

Exchange differences

-

-

1

-

-

8

2,331

2,340

At December 31, 2013

-

261

4,094

-

1,616

420

111,071

117,462

Depreciation charge for the year

-

192

660

-

159

154

32,446

33,611

Disposals

-

-

(2)

-

(71)

-

(3,584)

(3,656)

Exchange differences

-

-

3

-

 

16

5,893

5,912

At December 31, 2014

-

453

4,755

-

1,704

590

145,827

153,329

 

 

 

 

 

 

 

 

 

Net book value

 

 

 

 

 

 

 

 

At December 31, 2013

5,451

337

9,623

7,038

749

637

187,779

211,614

At December 31, 2014

5,481

181

12,359

7,484

1,121

700

258,693

286,019

 

 

 

11 Goodwill and intangible assets

 

 

Service rights

$

Other  intangibles

$

Goodwill

$

Total

$

Cost

 

 

 

 

At December 31, 2013 and December 31, 2014

7,485

7,359

3,136

17,980

 

 

 

 

 

Amortization and impairment

 

 

 

 

At December 31, 2013

-

1,193

-

1,193

Amortization for the year

-

1,276

-

1,276

At December 31, 2014

-

2,469

-

2,469

 

 

 

 

 

Net book value

 

 

 

 

At December 31, 2013

7,485

6,166

3,136

16,787

At December 31, 2014

7,485

4,890

3,136

15,511

 

 

 

 

 

 

Impairment testing of goodwill and intangibles with indefinite lives

For impairment testing purposes, goodwill acquired through business combinations and service rights with indefinite lives have been allocated to the Eastern Canada and Western Canada cash-generating units respectively.

 

The Corporation performed the annual impairment tests of goodwill and service rights at December 31. The recoverable amount of the Eastern Canada and Western Canada cash-generating units have been determined based on a value in use calculation using post-tax cash flow projections from financial budgets approved by senior management, and projected over a five year period based on a growth rate of 4%. The post-tax discount rate applied to cash flow projections is 8.89% (2013 - 9.88%). No reasonably possible range of assumptions would result in an impairment being triggered.  As a result of this analysis, management did not identify any impairment.

 

12 Trade and other payables

 

 

2014

$

2013

$

Current

 

 

Trade payables

18,783

18,738

Bonuses payable

3,189

2,644

Accrued expenses

8,468

2,275

 

30,440

23,657

 

 

Trade payables are non-interest bearing and are normally settled on 45 day terms.

 

 

13 Income taxes

 

The major components of income tax expense for the years are as follows:

 

 

2014

$

2013

$

Current income tax

14,517

12,735

Deferred income tax

5,900

4,729

Total income tax expense

20,417

17,464

 

 

The provision for income taxes, including deferred taxes, reflects an effective income tax rate that differs from the actual combined Canadian federal and provincial statutory rates of 25.5% (2013 – 25.50%). The Corporation’s U.S. subsidiaries are subject to federal and state statutory tax rates of approximately 40% for both 2014 and 2013. The main differences are as follows:

 

 

2014

$

2013

$

Profit before tax

73,519

57,827

Income tax expense at the Canadian statutory rate

18,747

14,746

Increase (decrease) resulting from:

 

 

Tax rates in foreign jurisdictions

1,757

4,453

Other items

(87)

(1,735)

Income tax expense

20,417

17,464

 

 

All deferred taxes are classified as non-current, irrespective of the classification of the underlying assets or liabilities to which they relate, or the expected reversal of the temporary difference. In addition, deferred tax assets and liabilities have been offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity.

 

 

As at December 31, 2013
$

Recognized in profit or loss
$

As at December 31, 2014
$

Deferred tax assets

 

 

 

Tax loss carry-forwards

259

2,392

2,651

Deferred unit plan

3,553

(245)

3,308

Share issue costs

316

(105)

211

 

4,128

2,042

6,170

 

 

 

 

Deferred tax liabilities

 

 

 

Property, plant and equipment

37,108

11,369

48,477

Intangible assets

516

(94)

422

Partnership income

2,902

(893)

2,009

Reserve

459

43

502

Unrealized foreign exchange gain

-

592

592

 

40,985

11,017

52,002

Net deferred tax liability

36,857

8,975

45,832

 

 

14 Dividends payable

During the year ended December 31, 2014, the Corporation paid cash dividends of $13,332 (2013 - $13,323) (or $0.36 per common share (2013 - $0.36 per common share) and declared a $1,111 cash dividend (2013 - $1,111) (or $0.03 per common share (2013 - $0.03 per common share) to its shareholders of record at the close of business on December 31, 2014 that was paid January 15, 2014.

 

The Corporation declares dividends monthly to its shareholders. Determination of the amount of cash dividends for any period is at the sole discretion of the directors and is based on certain criteria including financial performance as well as the projected liquidity and capital resource position of the Corporation. Dividends are declared to shareholders of the Corporation on the last business day of each month and paid on the 15th day of the month following the declaration (or if such day is not a business day, the next following business day).

 

15 Long-term debt

 

 

2014

$

2013

$

Extendable revolving credit facility

37,426

82,319

Senior secured notes

86,932

-

 

124,358

82,319

 

 

Extendable revolving credit facility

 

The Corporation has established a $125 million syndicated credit facility.  The purpose of the credit facility is to finance the Corporation's capital expenditure program and for general corporate purposes. The credit facility bears interest, at the Corporation's option, at either the bank's prime rate plus a tiered set of basis points or bankers' acceptance rate also with a tiered structure. A stand-by fee is also required on the unused portion of the credit facility on a tiered basis. The prime rate tiers range between zero and 125 basis points. The bankers’ acceptance tier ranges from 125 to 250 basis points. The stand-by fee tiers range between 25 and 50 basis points.  All of the tiers are based on the Company’s Funded Debt to EBITDA ratio. The stand-by fee is expensed as incurred.

 

The credit facility expires on July 22, 2018.  

 

The syndicated credit facility is collateralized by a general security interest over the Corporation’s assets, property and undertaking, present and future.

 

Under the terms of the credit facility, the Corporation must comply with certain financial and non-financial covenants, as defined by the bank. Throughout 2014, and as at December, 2014, the Corporation was in compliance with all of these covenants.

 

As at December 31, 2014, the Corporation has issued letters of credit of approximately $2.6 million. The outstanding letters of credit support the U.S. insurance program and certain performance bonds and reduce the amount available under the syndicated credit facility.

 

At December 31, 2014, the Corporation had available $86.0 million (December 31, 2013 - $16.3 million) of undrawn committed borrowing facilities in respect of which all conditions precedent had been met.

 

Senior secured notes

 

On January 24, 2014 Badger closed a private placement of senior secured notes. The notes, which rank pari passu with the extendable revolving credit facility, have a principal amount of US $75,000, and an interest rate of 4.83% per annum and mature on January 24, 2022. The Canadian dollar equivalent on January 24, 2014 was $82,912. Amortizing principal repayments of US $25,000 are due under the notes on January 24, 2020, January 24, 2021 and January 24, 2022. Interest is paid semi-annually in arrears.

 

The senior secured notes are collateralized by a general security interest over the Corporation’s assets, property and undertaking, present and future.

 

Under the terms of the senior secured notes, the Corporation must comply with certain financial and non-financial covenants, as defined by the senior secured note agreement. Throughout 2014, and as at December, 2014, the Corporation was in compliance with all of these covenants.

 

For the year ended December 31, 2014, Badger recorded an unrealized foreign exchange loss of $3,839. This was due to the impact of the change over the period in the value of the Canadian dollar relative to the US dollar on the Corporation’s $75,000 of US dollar denominated debt.

 

16 Shareholders’ capital and reserves

 

A) Authorized shares

 

An unlimited number of voting common shares are authorized without nominal or par value.

 

B) Issued and outstanding

 

 

Number of Shares

Amount

$

At December 31, 2012

36,979,893

80,640

Shares issued pursuant to the share option plan

54,000

304

At December 31, 2013 and December 31, 2014

37,033,893

80,944

 

Share amounts have been restated to reflect the impact of the three-for-one common share split completed in January 2014.

 

C) Accumulated other comprehensive income (loss)

 

The accumulated other comprehensive income (loss) is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries.

 

D) Contributed surplus

The contributed surplus reserve is used to recognize the fair value of share options granted to employees, including key management personnel, as part of their remuneration. Refer to Note 17 for further details of these plans.

 

 

2014

$

2013

$

Opening balance

548

2,061

Equity-settled share plan settled in cash

-

(1,513)

Closing balance

548

548

 

 

17 Share-based payment plans

 

Deferred Unit Plan (cash-settled)

The Deferred Unit Plan (“DUP”) was established to reward officers and employees. Directors may also participate in the plan whereby they will be paid 60% to 100% of the annual retainer in the form of deferred units. Pursuant to the terms of the DUP, participants are granted deferred units with a value equivalent to the value of a Badger share. Subsequent to the January 2014 three-for-one common share split, each unit under the plan was amended to provide three units, each with a value of one post-split Badger share. The deferred units granted earn additional deferred units for the dividends that would otherwise have been paid on the deferred units as if they instead had been issued as Badger shares on the date of the grant. The deferred units granted other than to the directors, which vest immediately, vest equally over a period of three years from the date of the grant. Upon vesting, the participant may elect to redeem the deferred units for an equal number of Badger shares or the cash equivalent. The DUP has been accounted for as a cash-settled plan. The compensation expense is based on the estimated fair value of the deferred units outstanding at the end of each quarter and recognized using graded vesting throughout the term of the vesting period, with a corresponding credit to liabilities.

 

The liability of deferred units outstanding as at December 31, 2014 is $12,887 (2013 - $13,933).  The fair value of deferred units exercisable as at December 31, 2014 is $14,025 (2013 - $10,799).  Changes in the number of deferred units under the Badger DUP were as follows:

 

 

Units

At December 31, 2012

498,375

Granted

101,550

Dividends earned

14,418

Redeemed

(34,002)

Forfeited

(13,323)

At December 31, 2013

567,018

Granted

53,196

Dividends earned

5,555

Redeemed

(94,373)

Forfeited

(19,590)

At December 31, 2014

511,806

Exercisable at December 31, 2014

401,213

 

 

18 Revenues

 

2014

$

2013

$

Rendering of services

419,060

322,654

Truck placement fees

3,159

1,940

 

422,219

324,594

 

 

19 Expenses by nature

Direct costs and selling, general and administrative expenses include the following major expenses by nature:

 

 

2014

$

2013

$

Wages, salaries and benefits

 

153,483

124,854

Fees paid to operating partners

 

66,524

50,141

Fuel

 

25,832

17,311

Repairs and maintenance

 

24,365

17,973

         
 

 

20 Earnings per share

 

Basic earnings per share (“EPS”)

Basic EPS is calculated by dividing profit or loss attributable to ordinary equity holders (the numerator) by the weighted average number of ordinary shares outstanding (the denominator) during the year. The denominator is calculated by adjusting the shares in issue at the beginning of the year by the number of shares bought back or issued during the year, multiplied by a time-weighting factor. Earnings per share and share amounts have been retroactively restated to reflect the three-for-one share split completed in January 2014.

 

The calculation of basic earnings per share for the year ended December 31, 2014, was based on the profit available to common shareholders of $53,694 (2013 - $40,363), and a weighted average number of common shares outstanding of 37,033,893 (2013 – 37,006,770).

 

Weighted average number of common shares

 

2014

2013

Issued common shares outstanding, beginning of year

37,033,893

36,979,893

Effect of share options exercised

-

26,877

Weighted average number of common shares, end of year

37,033,893

37,006,770

       
 

 

Diluted EPS

Diluted EPS is calculated by adjusting the earnings and number of shares for the effects of dilutive options and other dilutive potential shares. The effects of anti-dilutive potential shares are ignored in calculating diluted EPS. All options are considered anti-dilutive when the Corporation is in a loss position. Diluted earnings per share and share amounts have been retroactively restated to reflect the three-for-one share split completed in January 2014.

 

The calculation of diluted earnings per share for the year ended December 31, 2014, was based on a weighted average number of common shares outstanding after adjustment for the effects of all dilutive potential common shares of 37,033,893 (2013 – 37,006,770). There were no adjustments for the effects of dilutive potential common shares at December 31, 2014 (2013 – nil).

 

21 Segment reporting

The Corporation operates in two geographic/reportable segments providing non-destructive excavating services in each of these segments. The following is selected information for the years ended December 31, 2014 and 2013 based on these geographic segments.

 

 

For the year ended:

December 31, 2014

December 31, 2013

 

Canada ($)

U.S. ($)

Total ($)

Canada ($)

U.S. ($)

Total ($)

Revenues

215,707

206,512

422,219

169,684

154,910

324,594

Direct costs

141,154

141,491

282,645

109,092

105,619

214,711

Depreciation of property, plant and equipment

14,663

18,948

33,611

11,409

12,774

24,183

Amortization of intangible assets

1,276

-

1,276

213

-

213

Selling, general and administrative

14,244

5,209

19,453

11,315

4,399

15,714

Profit before tax

32,866

40,653

73,519

26,320

31,507

57,827

 

 

 

For the year ended:

December 31, 2014

December 31, 2013

 

Canada ($)

U.S. ($)

Total ($)

Canada ($)

U.S. ($)

Total ($)

Additions to non-current assets:

 

 

 

 

 

 

    Property, plant and equipment

31,545

67,538

99,083

26,032

44,447

70,479

    Intangible assets

-

-

-

2,555

-

2,555

 

 

 

 

Canada ($)

U.S. ($)

Total ($)

As at December 31, 2014

 

 

 

Property, plant and equipment

120,561

165,458

286,019

Intangible assets

15,511

-

15,511

Total assets

215,251

229,048

444,299

 

 

 

 

As at December 31, 2013

 

 

 

Property, plant and equipment

103,740

107,874

211,614

Intangible assets

16,787

-

16,787

Total assets

178,703

155,195

333,898

 

 

22 Related party disclosure

The consolidated financial statements include the financial statements of Badger Daylighting Ltd. and the subsidiaries listed in the following table:

 

 

 

% equity interest

Name

Country of Incorporation

2014

2013

Badger Daylighting (Fort McMurray) Inc.

Canada

100%

100%

Badger Edmonton Ltd.

Canada

100%

100%

Fieldtek Ltd.

Canada

100%

100%

Badger ULC

Canada

100%

100%

Badger Daylighting USA, Inc.

United States of America

100%

100%

Badger Daylighting Corp.

United States of America

100%

100%

Badger, LLC

United States of America

100%

100%

 

 

Balances and transactions between Badger Daylighting Ltd. and its subsidiaries have been eliminated on consolidation and are not disclosed in this Note. Details of transactions between the Corporation and other related parties are disclosed below.

 

Transactions with related parties

During the year ended December 31, 2013, the Corporation was charged $197 for professional fees by a partnership in which a director of the Corporation was a partner. The director ceased being a partner in 2013 and therefore the professional fees are no longer considered related party transactions in 2014.  These transactions were incurred during the normal course of operations on similar terms and conditions to those entered into with unrelated parties and are measured at the fair value.

 

Related party balances

As at December 31, 2014 and December 31, 2013 there were no significant outstanding balances with related parties.

 

Compensation of key management personnel

The remuneration of directors and other members of key management personnel were as follows:

 

 

2014

$

2013

$

Compensation, including bonuses

2,461

2,251

Share-based payments

1,354

678

 

3,815

2,929

 

           

Key management personnel and director transactions

Key management and directors of the Corporation control 2 percent of the voting shares of the Corporation.

 

23 Capital management

The Corporation's strategy is to have a sufficient capital base to maintain investor, creditor and market confidence and to sustain future development of the business. The Corporation considers the capital structure to consist of net debt and shareholders' equity. The Corporation considers net debt to be total long-term debt less cash and cash equivalents. The Corporation seeks to maintain a balance between the level of net debt and shareholders' equity to facilitate access to capital markets to fund growth and working capital. On a historical basis, it has been management's objective and view that the Corporation has maintained a conservative and appropriate ratio of net debt to net debt plus shareholders' equity. The Corporation may occasionally need to increase these levels to facilitate acquisition or expansion activities. This ratio was as follows:

 

 

2014

$

2013

$

 

 

 

Long-term debt

124,358

82,319

Cash and cash equivalents

(19,152)

(8,623)

Net debt

105,206

73,696

Shareholders' equity

224,248

171,069

Total capitalization

319,454

244,765

Net debt to total capitalization (%)

33%

30%

 

 

The Corporation sets the amounts of its various forms of capital in proportion to risk. The Corporation manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Corporation may adjust the amount of dividends to shareholders, return capital to shareholders, issue new shares, or sell assets to reduce net debt.

 

The Corporation is bound by certain financial and non-financial covenants as defined by both the extendable revolving credit facility and the senior secured note agreement. If the Corporation is in violation of any of these covenants its ability to pay dividends may be inhibited. The Corporation monitors these covenants to ensure it remains in compliance. The financial covenants are as follows:

 

Ratio

December 31, 2014

December 31, 2013

Threshold

Funded Debt[1] to EBITDA[2]

0.92:1

0.88:1

2.75:1 maximum

Fixed Charge Coverage[3]

N/A

3.44:1

1.00:1 minimum

EBITDA[2] to Interest Expense[4]

19.67:1

N/A

3.00:1 minimum

Tangible Net Worth[5]

$208,737

N/A

$133,791

 

[1]                  Funded Debt is long-term debt, less cash and cash equivalents.

[2]                  Funded Debt to EBITDA (earnings before interest, taxes, depreciation and amortization) means the ratio of consolidated Funded Debt to the aggregated EBITDA for the trailing twelve-months. Funded Debt is defined as long-term debt including any current portion thereof. EBITDA is defined as the trailing twelve-months of EBITDA for the Corporation.

[3]                  Fixed Charge Coverage Ratio means, based on the trailing twelve-month EBITDA less unfinanced capital expenditures and cash taxes, plus the unused portion of the extendable revolving credit facility to the sum of the aggregate of scheduled long-term debt principal payments, interest and dividends. This covenant was removed upon establishment of the syndicated credit facility (see note 15).

[4]                  Interest expense is interest expense as calculated in accordance with IFRS. This covenant was effective upon establishment of the syndicated credit facility (see note 15).

[5]                  Tangible Net Worth is total consolidated shareholders equity less intangible assets. This covenant was effective upon establishment of the syndicated credit facility (see note 15).

Throughout 2014 and as at December 31, 2014 the Corporation was in compliance with all of these covenants.

 

There were no changes in the Corporation's approach to capital management during the year.

 

The Corporation’s activities expose it to a variety of financial risks: credit risk, liquidity risk and market risk. The Corporation’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Corporation’s financial performance.

 

Risk management is carried out by senior management, and the Board of Directors.

 

24 Financial instruments and risk management

Fair values

The Corporation's financial instruments recognized on the consolidated statement of financial position consist of cash and cash equivalents, trade and other receivables, trade and other payables, deferred unit plan liability, dividends payable and long-term debt. The fair values of these recognized financial instruments, excluding long-term debt, approximate their carrying values due to their short-term maturity.

 

Credit risk

Credit risk arises when a failure by counter parties to discharge their obligations could reduce the amount of future cash inflows from financial assets on hand at the reporting date. A substantial portion of the Corporation's trade receivable balance is with customers in the petroleum and utility industries and is subject to normal industry credit risks. The Corporation manages its exposure to credit risk through standard credit granting procedures and short payment terms. The Corporation attempts to monitor financial conditions of its customers and the industries in which they operate.

 

Liquidity risk

Liquidity risk is the risk that, as a result of operational liquidity requirements, the Corporation will not have sufficient funds to settle an obligation on the due date and will be forced to sell financial assets at a price which is less than what they are worth, or will be unable to settle or recover a financial asset.

 

The Corporation's operating cash requirements are continuously monitored by management. As factors impacting cash requirements change, liquidity risks may necessitate the need for the Corporation to raise capital by issuing equity or obtaining additional debt financing. The Corporation also mitigates liquidity risk by maintaining an insurance program to minimize exposure to insurable losses.

 

At December 31, 2014, the Corporation had available $86.0 million of authorized borrowing capacity on the extendable revolving credit facility. The credit facility expires on July 22, 2018. The Corporation believes it has sufficient funding through operations and the use of this facility to meet foreseeable financial obligations.

 

The table below summarizes the maturity profile of the Corporation’s financial liabilities at December 31, 2014 based on contractual undiscounted payments.

 

 

 

Less than 1 year

 

1 to 2 years

 

2 to 5 years

 

> 5 years

 

Total

As at December 31, 2014

 

 

 

 

 

Trade and other payables

30,440

-

-

-

30,440

Deferred unit plan liability

12,887

-

-

-

12,887

Long-term debt

-

-

37,425

86,933

124,358

 

42,907

-

37,425

86,933

167,685

 

 

 

Less than 1 year

 

1 to 2 years

 

2 to 5 years

 

> 5 years

 

Total

As at December 31, 2013

 

 

 

 

 

Trade and other payables

23,657

-

-

-

23,657

Deferred unit plan liability

13,933

-

-

-

13,933

Long-term debt

-

82,319

-

-

82,319

 

37,590

82,319

-

-

119,909

 

 

Market risk

The significant market risk exposures affecting the financial instruments held by the Corporation are those related to interest rates and foreign currency exchange rates which are explained as follows:

 

Interest rate risk

The Corporation is exposed to interest rate risk in relation to interest expense on a portion of its long-term debt. Interest is calculated at prime on its borrowing facilities. The prime interest rate is subject to change. A sensitivity analysis would indicate that net profit for the year ended December 31, 2014 would have been affected by approximately $0.8 million if the average interest rate changed by one percent. The Corporation does not currently use interest rate hedges or fixed interest rate contracts to manage the Corporation's exposure to interest rate fluctuations.

 

Foreign exchange risk

The Corporation has United States operations and Canadian operations which purchase certain products in United States dollars. As a result, fluctuations in the value of the Canadian dollar relative to the United States dollar can result in foreign exchange gains and losses. The Corporation does not currently have any agreements to fix or hedge the exchange rate of the Canadian dollar to the United States dollar.

 

United States dollar denominated balances, subject to exchange rate fluctuations, were as follows (amounts shown in Canadian dollar equivalent):

 

 

2014

$

2013

$

Cash and cash equivalents

16,837

8,623

Trade and other receivables

51,320

37,399

Trade and other payables

(11,442)

(8,734)

Income taxes payable

(4,643)

(3,097)

Long-term debt

(86,932)

(58,300)

 

(34,860)

(24,109)

 

 

The following table demonstrates the Corporation’s sensitivity to a 10% increase or decrease in the Canadian dollar against the foreign exchange rates. The sensitivity analysis includes only foreign currency denominated monetary items and adjusts their translation at the year end for a 10% change in the foreign currency rate (amounts shown in Canadian dollar equivalent).

 

 

Effect on profit/(loss) before tax

Effect on profit/(loss) before tax

Increase/decrease in foreign exchange rate

2014

$

2013

$

10% strengthening in the Canadian dollar against the US dollar

4,366

3,133

10% weakening in the Canadian dollar against the US dollar

(4,366)

(3,135)

 

 

25 Commitments and contingencies

 

Legal disputes

The Corporation is not involved in any legal disputes that would generate a material impact to the financial results of the Corporation.

 

Operating leases

The Corporation has entered into operating leases for shop and office premises.

 

Future minimum rentals payable under non-cancellable operating leases are as follows:

 

 

2014

$

2013

$

Within one year

3,087

2,575

After one year but not more than five years

5,755

4,159

Total

8,842

6,734

 

 

Purchase commitments

At December 31, 2014 the Corporation has commitments to purchase approximately $15,815 worth of capital assets and various parts and materials.  There are no set terms for remitting payment for these financial obligations.



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public://news_release_pdf/badger03172015.pdf

Source: Badger Daylighting Ltd. (TSX:BAD) http://www.badgerinc.com/

 

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