Davis + Henderson reports fourth quarter, year-end 2009 results
Stock Exchange Symbol: DHF.UN
Website: www.dhltd.com
TORONTO, March 2 /CNW/ - Davis + Henderson ("D+H" or the "Business") today reported solid financial results for the three and twelve months ended December 31, 2009. By way of a separate news release issued today, the Company announced it will seek unitholder approval to convert to a corporation from an Income Trust effective January 1, 2011 and indicated its intentions related to future unitholder distributions.
Financial Overview
On July 27, 2009, Davis + Henderson acquired Resolve Business Outsourcing Income Fund ("Resolve") and as a result, the Business experienced large increases in revenues and expenses as compared to prior periods. Overall, management considers the results of the Business for both the quarter and the year to be good in the context of the challenging economic environment that persisted throughout the year and is pleased with the business integration activity completed to date.
Fourth Quarter Highlights
- Revenue was $156.2 million, an increase of $66.9 million, or 74.8%
compared to the same quarter in 2008.
- EBITDA(1) was $36.5 million, an increase of $9.6 million, or 35.6%
compared to the same quarter in 2008. As expected, EBITDA increased
at a lower rate than revenue growth due to the inclusion of service
offerings within the former Resolve that contributed lower margins as
a percentage of revenue compared to other D+H services.
- Adjusted income(1) was $28.7 million, an increase of $7.2 million or
33.4% compared to the same quarter in 2008. Adjusted income per unit
was $0.5385, up 10.1% compared to the same quarter in 2008.
- Net income was $25.6 million, an increase of $11.7 million, or 83.7%
compared to the same quarter in 2008. Net income per unit was
$0.4809, up 51.7% compared to the same quarter in 2008. Net income
benefited from mark-to-market unrealized gains on derivative
instruments and the recovery of future income taxes, both more fully
described in the MD&A.
- Cash distributions paid for the quarter were $0.4599 per unit,
unchanged from the same quarter in 2008.
2009 Highlights
- Revenue was $481.8 million for the year ended December 31, 2009, an
increase of $114.5 million or 31.2% compared to 2008.
- EBITDA(1) was $135.0 million, an increase of $13.5 million or 11.1%
compared to 2008. As expected, EBITDA increased at a lower rate than
revenue due to the inclusion of service offerings within the former
Resolve that contributed lower margins as a percentage of revenue
compared to other D+H services.
- Adjusted income(1) was $108.9 million, an increase of $9.8 million or
9.8% compared to 2008. Adjusted income(1) per unit was $2.2708 per
unit, up 0.6% compared to 2008.
- Net income was $95.0 million, an increase of $16.6 million or 21.1%
compared to 2008. Net income per unit was $1.9808, an 11.0% increase
over 2008. Net income was positively impacted by growing operating
results, mark-to-market unrealized gains on derivative instruments
and changes in future income taxes, offset by an increase in
amortization of intangibles from acquisitions.
- Cash distributions paid increased by 2.9% to $1.8396 per unit from
$1.7881 per unit in 2008.
Management Commentary
Davis + Henderson had a solid year in a challenging economic environment, making good progress in advancing our vision of being a leading solutions provider to customers in the financial services marketplace.
With the acquisition of Resolve completed, the integration of the Business is now underway to allow us to better serve customers and improve our delivery effectiveness. This strategic acquisition added market-leading services, enhanced our capabilities and diversified our revenue and cash flow.
Financially, the Business delivered solid results for the year taken as a whole considering the economic environment. Compared to 2008, the Business experienced reduced revenues from our programs to the chequing account due to lower business cheque order volumes and to a lesser extent, lower mortgage origination services fees. In both service areas, the financial impact was partially offset by growth initiatives and continuing expense reduction activities. In the fourth quarter, we benefited from stronger origination services revenues and moderating declines in cheque order volumes that contributed to growth in earnings and cash flow over the comparable period in 2008.
Over the first half of 2010, we expect revenues will continue to show a substantial year-over-year increase as a result of the inclusion of the Resolve business. During 2010, we will remain focused on our organic growth initiatives and our integration activities.
For a more detailed discussion, please see the Management's Discussion and Analysis below.
(1) Davis + Henderson reports several non-GAAP measures, including EBITDA
and Adjusted income used above. Adjusted income is calculated as net
income, adjusted to remove the non-cash impacts of certain fair value
and purchase accounting items and future tax recoveries or expenses.
These items are excluded in calculating Adjusted income as they are
non-cash items and are not considered indicative of the financial
performance of the Business for the period being reviewed. Any non-
GAAP measures should be considered in context with the GAAP financial
presentation and should not be considered in isolation or as a
substitute for GAAP net earnings or cash flow. Further, Davis +
Henderson's measures may be calculated differently from similarly
titled measures of other companies. A reconciliation of these non-
GAAP measures to related GAAP measures is included in the attachments
to this news release.
Caution Concerning Forward-looking Statements
This news release contains certain statements that constitute forward-looking information within the meaning of applicable securities laws ("forward-looking statements"). Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Business, or developments in Davis + Henderson's industry, to differ materially from the anticipated results, performance, achievements or developments expressed or implied by such forward-looking statements. Forward-looking statements include all disclosure regarding possible events, conditions or results of operations that are based on assumptions about future economic conditions and courses of action. Forward-looking statements may also include, without limitation, any statement relating to future events, conditions or circumstances. Davis + Henderson cautions you not to place undue reliance upon any such forward-looking statements, which speak only as of the date they are made.
Risks related to forward-looking statements include, among other things, challenges presented by declines in the use of cheques by consumers; the Fund's dependence on a limited number of large financial institution customers and dependence on their acceptance of new programs; strategic initiatives being undertaken to meet the Fund's financial objective; stability and growth in the real estate and mortgage markets; as well as general market conditions, including economic and interest rate dynamics and investor interest in, and government regulations relating to, Income Trusts. Forward-looking statements are based on management's current plans, estimates, projections, beliefs and opinions, and Davis + Henderson does not undertake any obligation to update forward-looking statements should assumptions related to these plans, estimates, projections, beliefs and opinions change.
Conference Call
Davis + Henderson will discuss its financial results for the three and 12 months ended December 31, 2009 via conference call at 10:00 a.m. EST (Toronto time) on Wednesday, March 3, 2010. The number to use for this call is 647-427-7450 for Toronto area callers or 1-888-231-8191 for all other callers. The conference call will be hosted by Bob Cronin, Chief Executive Officer and by Brian Kyle, Chief Financial Officer. The conference call will also be available on the web by accessing CNW Group's website www.newswire.ca/webcast/. For anyone unable to listen to the scheduled call, the rebroadcast number will be: 416-849-0833 for Toronto area callers, or 1-800-642-1687 for all other callers, with Encore Password 56205637. The rebroadcast will be available until Wednesday, March 17, 2010. An archive recording of the conference call will also be available at the above noted web address for one month following the call and a text version of the call will be available at www.dhltd.com.
Additional Information
Additional information relating to the Fund, including the Fund's most recently filed Annual Information Form, is available on SEDAR at www.sedar.com.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Management's Discussion and Analysis ("MD&A") for the fourth quarter of 2009 and year ended December 31, 2009 should be read in conjunction with MD&A in the Fund's Annual Report for the year ended December 31, 2008, dated February 24, 2009, the Short Form Prospectus, dated May 30, 2006, and the attached unaudited consolidated financial statements. External economic and industry factors remain substantially unchanged from the annual MD&A and the Short Form Prospectus, unless otherwise stated.
STRATEGY
Davis + Henderson is a leading solutions provider to the financial services marketplace. We have several market-leading service offerings within Canada, including our cheque supply program, the servicing of student loans, the provision of registration and related services for secured loan products and the delivery of leading technology solutions within the mortgage market. We also offer broader technology solutions in the commercial lending, small business lending and leasing area, as well as servicing solutions within the credit card market and other outsourced services in a number of specialty areas.
Davis + Henderson's strategy is to establish market leading positions within well defined and growing service areas in the financial services marketplace and to further expand our service offerings by enhancing the activities that we perform on behalf of our customers. We expect to advance this strategy through internal (or organic) initiatives, as well as by partnering with third parties and by way of selective acquisitions. The Business' financial goal is to deliver stable and modestly growing cash distributions to unitholders by targeting annual revenue growth in the range of 3% to 5%. The Business has three primary strategies to meet its objectives. These are to: (i) evolve and enhance the value of the cheque supply program and services to the chequing account; (ii) extend our technology supported services related to personal, student and commercial lending and leasing markets; and (iii) pursue opportunities in other areas within the financial services marketplace.
Over the past several years, D+H has executed this strategy by evolving our programs to the chequing account, completing several acquisitions, including Advanced Validation Systems Limited Partnership ("AVS" or "AVS L.P.") in 2005, Filogix in 2006, Cyence in 2008 and Resolve in 2009, and by further enhancing our services and capabilities. As a result, we offer a diverse range of market-leading services.
Since December 2001, the initial public offering date of Davis + Henderson Income Fund, the Business has operated as a subsidiary of an Income Trust pursuant to its declaration of trust. In 2007, changes were made to the Income Tax Act that will require certain Income Trusts, including D+H, to be subject to taxes after fiscal 2010, similar to those paid by taxable Canadian corporations. In response to these changes and related impacts, D+H will hold a combined annual general and special meeting (the "Meeting") on June 17, 2010, at which time unitholders will be asked to approve its conversion from an Income Trust into a corporation effective January 1, 2011. The Trustees and management of Davis + Henderson believe that the proposed conversion of the Fund's capital structure is in the best interests of unitholders and the Business and believe the conversion can be expected to provide the following benefits: (i) enhanced access to capital markets which will benefit the Business as it continues to expand through acquisitions; (ii) a corporate structure that is expected to attract new investors and provide a more liquid trading market for our securities; and (iii) a simplified tax and legal structure, more comparable to the majority of public companies operating in Canada, providing, among other items, the benefit of reduced internal and external administrative costs.
As well, if the proposed conversion is approved, commencing in 2011, distributions to owners will be characterized as dividends rather than regular income. This provides the benefit of dividend tax credits for qualifying owners thereby reducing the after-tax impact on distributions.
Implementation of the conversion is expected to occur by way of plan of arrangement and is subject to approval by not less than 66 2/3% of the votes cast at the Meeting as well as customary conditions, including the receipt of applicable regulatory, court and the Toronto Stock Exchange approvals. Upon completion of the conversion, unitholders will receive on a tax deferred roll over basis one share of the resulting public corporation for each unit held. An information circular in respect of the Meeting, which will provide a detailed outline of the proposed conversion, is expected to be available by mid-May, 2010. In connection with a review of the proposed conversion, the Board of Trustees of Davis + Henderson have retained financial, legal and taxation advisors.
Independent of the conversion plan and as a result of the enacted tax changes, the Business will be subject to taxes commencing in 2011 that will reduce the amount of cash flow otherwise available for distribution. Had the Business been a corporation in 2009, pro forma taxes(1) would have been in the range of approximately $0.60 to $0.66 per unit.
It is our current intention to pay quarterly distributions commencing in 2011 at an initial annualized rate of $1.20 per share. On a pro forma basis, had distributions been $1.20 per unit for 2009, the pro forma payout ratio would have been in the range of approximately 72% to 75%.
Consistent with past practices, actual distributions will only be made to owners of record based upon a declaration by the Trustees. Among other items, in determining actual distributions, the Trustees will consider the financial performance, capital plans, acquisition plans, expectations of future economic conditions and other factors.
Provided the conversion is approved, distributions made by Davis + Henderson beginning in 2011 will be taxed as dividends rather than regular income as they are today. Certain investors may be entitled to dividend tax credits which would enhance after-tax yield and significantly reduce the after-tax impact of the reduction in distributions.
For the remainder of 2010, we intend to maintain our current annualized distributions at $1.84 per unit ($0.1533 per unit monthly).
Notwithstanding the proposed structural changes and distribution changes attributed to the changes to the law, the strategies and objectives of the Business remain unchanged.
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(1) Pro forma taxes have been estimated for 2009 on the assumption that
the Business had been a corporation paying taxes at the applicable
statutory corporate tax rates. Taxes have been estimated using
Adjusted income as a proxy for taxable income. A range has been
provided to reflect the fact that certain decisions may impact the
utilization of timing differences and tax losses that would change
the amount of taxes actually paid.
(2) Pro forma payout ratio is calculated by dividing the intended
distribution of $1.20 per unit by Adjusted income for 2009 after
deducting taxes as described. Adjusted income is a non-GAAP term
defined as net income after removing the non-cash impact of certain
fair value and purchase accounting items and future tax recoveries or
expenses. This term has limitations as an analytical tool and should
not be considered in isolation or as a substitute for analysis of
results as reported under GAAP. See the Fund's financial statements
for a reconciliation of Adjusted income to net income.
FINANCIAL INFORMATION PRESENTATION
Between 2006 and 2009, the Business operated as and reported upon two business segments, the "D+H Segment" and the "Filogix Segment". Subsequent to the completion of the Resolve acquisition, the Business announced that it would move to a single integrated operation in order to better serve customers and maximize efficiencies. The Business is now managed along functional lines and operating decisions and performance assessment is aligned with these functions. As such, the Business now reports as a single segment. Revenue pertaining to major service areas and expenses pertaining to significant categories have been presented to reflect how management operates the Business.
OPERATING RESULTS FOR THE FOURTH QUARTER
Overview
D+H had solid operating performance in the fourth quarter of 2009. While the large year-over-year increases in the fourth quarter revenues and expenses were primarily due to the inclusion of the Resolve and Cyence results, the Business also benefited from stronger origination services revenue and moderating declines in cheque order volumes, both of which are more fully described below. Additionally, the Business continued its integration activities, including activities related to the attainment of cost synergies.
Consolidated Operating and Financial Results(1)
(in thousands of Canadian dollars, except per unit amounts, unaudited)
Quarter ended December 31,
2009 2008
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Revenue $ 156,215 $ 89,357
Expenses 119,671 62,413
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EBITDA(2) 36,544 26,944
Amortization of capital assets and
non-acquisition intangibles 4,551 3,800
Interest expense 3,326 1,647
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Adjusted income(2) 28,667 21,497
Amortization of mark-to-market adjustment of
interest-rate swaps 103 151
Net unrealized loss (gain) on derivative
instruments(3) (1,620) 3,653
Future income tax expense (recovery) (2,747) 399
Amortization of intangibles from acquisitions 7,330 3,409
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Income from continuing operations 25,601 13,885
Income from discontinued operations - 51
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Net income $ 25,601 $ 13,936
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Adjusted income per unit, basic and diluted(2) $ 0.5385 $ 0.4892
Net income per unit, basic and diluted $ 0.4809 $ 0.3171
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Quarter ended
December 31,
2009 vs. 2008
% change
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Revenue 74.8%
EBITDA(2) 35.6%
Adjusted income per unit(2) 10.1%
Net income per unit 51.7%
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(1) The results of the quarter ended December 31, 2009 include the
results of the Cyence and Resolve businesses effective from the dates
of acquisition of December 19, 2008 and July 27, 2009, respectively.
(2) EBITDA and Adjusted income are non-GAAP terms. See the Non-GAAP
Measures section for a more complete description of these terms and
reconciliation to GAAP.
(3) The Business enters into derivative contracts to fix the interest
rates and foreign exchange rates on a significant portion of its
outstanding bank debt and foreign currency transactions,
respectively. For accounting purposes, these derivative instruments
do not qualify for hedge accounting treatment and, accordingly, any
change in the fair value of these contracts is recorded through
income. Provided the Business does not cancel its derivative
contracts prior to maturity, the amounts represent a non-cash
unrealized gain or loss that will subsequently reverse through
income. The Company has historically held its derivative contracts to
maturity.
Revenue
Consolidated revenue for the fourth quarter was $156.2 million, an increase of $66.9 million, or 74.8%, compared to the same quarter in 2008. The increase in consolidated revenue is primarily attributable to the inclusion of revenues from acquisitions including Resolve since July 27, 2009 and Cyence since December 19, 2008. Reported revenue also benefited from the positive impact of annual cheque program changes and stronger mortgage origination service fees. Revenue was negatively impacted by the economic slow down which reduced demand for cheque orders, particularly from small business. Excluding the acquisition of the Resolve and Cyence businesses, consolidated revenue was approximately unchanged compared to the same quarter in 2008.
(in thousands of Canadian dollars, unaudited)
Quarter ended December 31,
2009 2008
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Revenue
Programs to the chequing account $ 71,787 $ 71,913
Loan servicing 29,554 -
Loan registration technology services 21,729 948
Lending technology services 17,527 14,652
Other 15,618 1,844
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$ 156,215 $ 89,357
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Revenue for the fourth quarter from programs to the chequing account was $71.8 million, a decrease of $0.1 million, or 0.2%, compared to the same quarter in 2008. The modest decrease is primarily attributable to reduced demand for cheque orders, particularly from small business, partially offset by annual program changes and product and service enhancements, such as IDefence(R) and BizAssist(R), which positively impacted revenue in the fourth quarter of 2009. Management believes that cheque orders from small business consumers were negatively impacted by the economic downturn, which both reduced cheque usage by existing businesses and reduced the number of small business start-ups. During the fourth quarter of 2009, there was a moderating of cheque order volume decline compared to previous quarters. In general, notwithstanding the larger than anticipated decline in volumes during 2009, management believes that the long-term historical trend related to cheque order decline is relatively unchanged and continues to be in the low single digit range.
Revenue for the fourth quarter of 2009 from loan servicing, which includes student loan administration services and credit card servicing was $29.6 million. There was no comparative revenue for 2008 as these services were part of the Resolve business acquired on July 27, 2009. Revenue from student loan administrative services, which comprise the largest portion of revenues within this service area, are expected to be relatively stable over the short-term with modestly growing volumes and new program initiatives being offset by reduced pricing related to particular contracts.
Loan registration technology services revenue for the fourth quarter of 2009 was $21.7 million. This service area includes the personal property search and registration ("PPSA") business acquired with the Resolve acquisition and the existing PPSA program operated by D+H. Volumes in this area can be variable, but in general would be expected to improve with an improving economic environment, particularly as it relates to servicing customers within the automotive and commercial lending areas.
Revenue for the fourth quarter from lending technology services, which include services to the mortgage market and other credit markets was $17.5 million, an increase of $2.9 million, or 19.7%, compared to the same quarter in 2008. Revenue for the fourth quarter included the results of the Cyence business which was acquired in late 2008. Excluding the results of the Cyence business, revenue increased $0.7 million, or 5.0%, compared with the same period in 2008. This increase is primarily as a result of increased mortgage origination service fees, up 5.9% during the quarter compared to the same quarter in 2008, due to strong activity in the Canadian housing and mortgage markets. In addition, 2008 included a $1.4 million recovery related to a customer resolution. The more recent strength in these markets may not be expected to be sustained at these levels over future periods.
Other revenue for the fourth quarter of 2009 of $15.6 million is comprised of a number of smaller service offerings, the largest of which are contact centre services. Revenue within the contact centre services area is more variable due to changing customer initiatives and also will vary depending upon customer contract wins and losses, which are more common in these service areas as compared to other D+H service areas.
Expenses
On a consolidated basis, expenses for the fourth quarter of 2009 of $119.7 million increased by $57.3 million, or 91.7%, compared to the same quarter in 2008. The net increase was due to the inclusion of the expense base of the Resolve and Cyence businesses and the ongoing current costs of integrating the businesses, partially offset by continued cost management activities undertaken in the context of the economic environment.
Quarter ended December 31,
(in thousands of Canadian dollars, unaudited) 2009 2008
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Employee compensation and benefits $ 53,437 $ 20,621
Non-compensation direct expenses(1) 42,234 30,199
Other operating expenses(2) 19,388 10,016
Occupancy costs 4,612 1,577
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$ 119,671 $ 62,413
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(1) Non-compensation direct expenses include materials, shipping, selling
expenses and third party direct disbursements.
(2) Other operating expenses include communication costs, licensing fees,
professional fees and expenses not included in other categories.
Employee compensation and benefits costs of $53.4 million for the fourth quarter of 2009 increased by $32.8 million, or 159.1%, compared to the same quarter in 2008, with the increase primarily due to the inclusion of Resolve and Cyence expenses. Resolve service offerings, such as loan servicing, contact centre services and other process outsourcing services are more employee intensive compared to other D+H service areas.
Non-compensation direct expenses were $42.2 million for the fourth quarter of 2009, an increase of $12.0 million, or 39.9%, compared to the same quarter in 2008 mainly due to inclusion of Resolve and Cyence expenses partially offset by reductions related to reduced costs associated with lower order volumes.
Other operating expenses were $19.4 million for the fourth quarter of 2009, an increase of $9.4 million, or 93.6%, compared to the same quarter in 2008 with increases attributed to the inclusion of Resolve and Cyence expenses and other net reductions related to reduced volumes and other cost containment activities.
Occupancy costs were $4.6 million for the fourth quarter of 2009, an increase of $3.0 million, or 192.5%, compared to the same quarter in 2008 mainly due to inclusion of Resolve and Cyence facilities, which as described above, are employee intensive service businesses.
EBITDA
EBITDA during the fourth quarter of 2009 was $36.5 million, an increase of $9.6 million, or 35.6%, compared to the same quarter in 2008. The increase in EBITDA (35.6%) relative to the increase in revenue (74.8%) during the fourth quarter of 2009 reflected the inclusion of service offerings within Resolve which contributed lower margins as a percentage of revenues compared to other D+H services.
Amortization of Capital and Non-acquisition Intangible Assets
Amortization of capital and non-acquisition intangible assets for the fourth quarter of 2009 increased by $0.8 million, or 19.8%, compared to the fourth quarter of 2008. This increase related to the inclusion of amortization related to assets acquired from the Resolve and Cyence businesses, partially offset by the impact of certain capital and other assets having become fully amortized.
Other Expenses
Interest expense for the fourth quarter of 2009 increased by $1.7 million compared to the prior year, due to an increase in the level of outstanding debt related to the acquisition of Resolve in 2009 and Cyence in late 2008. Partially offsetting the increases was a reduction in the average interest rate on certain of the outstanding debt.
An unrealized gain on interest-rate swaps and foreign currency contracts of $1.6 million was recognized in the fourth quarter of 2009 (Q4 2008 - $3.7 million loss) reflecting mark-to-market adjustments related to changes in market interest rates at December 31, compared to September 30, and from currency fluctuations on foreign exchange contracts. These unrealized gains and losses for interest-rate swaps are recognized in income as these swaps are not designated as hedges for accounting purposes. In addition, unrealized gains and losses on foreign exchange contracts are recognized in income as the foreign exchange contracts do not qualify for hedge accounting treatment. Provided the Business does not cancel its interest-rate swaps or foreign exchange contracts, the unrealized amounts represent a non-cash unrealized gain or loss that will subsequently reverse through income as the related swaps and foreign exchange contracts mature. The Company has historically held its derivative contracts to maturity.
In the fourth quarter of 2009, the Fund recorded a future tax recovery of $2.7 million (Q4 2008 - $0.4 million expense) primarily due to the decrease in substantively enacted future tax rates.
Amortization of acquisition related intangibles for the fourth quarter of 2009 increased as compared to the same period in 2008 due to the incremental intangible assets from the acquisition of Resolve.
Net Income
Net income of $25.6 million for the fourth quarter of 2009 increased by $11.7 million, or 83.7%, compared to the same period in 2008 with increased EBITDA from the businesses acquired in the Resolve acquisition more than offsetting increased amortization and interest expense. On a per unit basis, net income increased by 51.7% to $0.4809 per unit, compared to the fourth quarter of 2008, with income benefiting from the change in the mark-to-market unrealized gains and losses of derivative instruments and change in future income taxes.
Excluding the non-cash impacts of mark-to-market gains and losses on derivative instruments, future income taxes and amortization of intangibles from acquisitions, Adjusted income of $28.7 million for the fourth quarter of 2009 increased by $7.2 million, or 33.4%, compared to the same period in 2008. On a per unit basis, Adjusted income per unit of $0.5385 increased by $0.0493, or 10.1%, compared to the fourth quarter of 2008.
CASH FLOW AND LIQUIDITY
The following table is derived from, and should be read in conjunction with, the Consolidated Statements of Cash Flows and includes non-GAAP measures. Management believes this supplementary disclosure provides useful additional information related to the cash flows of the Fund, repayment of debt and other investing activities. See the non-GAAP section for a discussion of non-GAAP terms used.
Summary of Cash Flows(1)
(in thousands of Canadian dollars, unaudited)
Quarter ended December 31,
2009 2008
-------------------------------------------------------------------------
Cash flows from operating activities $ 40,575 $ 31,806
Add:
Changes in non-cash working capital and other
items(2) (7,356) (6,380)
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Adjusted cash flows from operating activities 33,219 25,426
Less:
Maintenance asset expenditures(3) 4,809 2,791
Growth asset expenditures(3) 304 1,731
Contract payments(4) 20 393
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Adjusted cash flows after capital expenditures
and contract payments 28,086 20,511
Less:
Distributions paid to unitholders 24,482 20,211
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3,604 300
Cash flows provided by (used in repayment) of
long-term indebtedness (6,000) 28,000
Cash flows used in issuance costs for long-term
indebtedness - -
Fair value of trust units issued - -
Fair value of acquisitions(5) (1,449) (38,876)
Changes in non-cash working capital and other
items(2) 7,356 6,380
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Increase (decrease) in cash and cash equivalents
for the period $ 3,511 $ (4,196)
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(1) The subtotals in this table are not consistent with GAAP and
accordingly are considered non-GAAP measures. See the Non-GAAP
Measures section for a more complete description of these terms.
(2) Changes in non-cash working capital and certain other balance sheet
items have been excluded from adjusted cash flows from operating
activities so as to remove the effects of timing differences in cash
receipts and cash disbursements, which generally reverse themselves,
but can vary significantly across quarters and to remove certain of
the payments related to the acquisition and related restructuring
activities that were recorded as part of the acquisition. For
details, see the Changes in Non-Cash Working Capital and Other Items
section.
(3) Maintenance asset expenditures are defined by the Fund as asset
expenditures necessary to maintain and sustain the current productive
capacity of the Business or generally improve the efficiency of the
Business. Growth asset expenditures are defined by the Fund as asset
expenditures that increase the productive capacity of the Business
with a reasonable expectation of an increase in cash flow.
(4) The Business has various payment obligations under customer and
partner contracts, which include fixed contract or program initiation
payments and annual payments payable over the life of the contract.
The aggregate of all contract payments, both fixed and variable,
reflects, among other things, the high degree of integration and
sharing between Davis + Henderson and its customers and partners of
the many activities related to ordering, data handling, customer
service, customer access and other activities.
(5) For the quarter ended December 31, 2009, the fair value of
acquisitions included updates to recording of net assets related to
acquisitions of businesses and payments related to customer service
contracts of $0.4 million.
Summary of Cash Flows per Unit
(in Canadian dollars, unaudited)
Quarter ended December 31,
2009 2008 % change
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Adjusted cash flows from operating
activities $ 0.6240 $ 0.5786 7.8%
Adjusted cash flows after capital
expenditures and contract payments $ 0.5276 $ 0.4667 13.0%
Cash distributions paid to unitholders $ 0.4599 $ 0.4599 0.0%
Distributions declared during period(1) $ 0.4599 $ 0.4999 -8.0%
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(1) Includes a special non-cash distribution in 2008 of $0.04 per unit.
Cash Flows, Income and Distributions Paid
The following table compares cash flows from operating activities and income to distributions paid:
Quarter ended December 31,
(in thousands of Canadian dollars, unaudited) 2009 2008
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Cash flows from operating activities $ 40,575 $ 31,806
Net income $ 25,601 $ 13,936
Adjusted income(1) $ 28,667 $ 21,497
Distributions paid during period $ 24,482 $ 20,211
Excess (shortfall) of cash flows from operating
activities over cash distributions paid $ 16,093 $ 11,595
Excess (shortfall) of net income over cash
distributions paid $ 1,119 $ (6,275)
Excess (shortfall) of Adjusted income over cash
distributions paid $ 4,185 $ 1,286
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(1) Adjusted income is a non-GAAP term. See the Non-GAAP Measures section
for a more complete description of this term.
Historically, excess cash flows from operating activities over cash distributions paid have been used to fund capital expenditures, pay down debt and to fund acquisitions. Distributions exceeded net income as a result of non-cash charges recorded through income including amortization of intangible assets related to acquisitions and non-cash future income taxes. Since July 27, 2009 and over the next several quarters, the Company made and will continue to be making payments related to restructuring activities pertaining to the operational integration of the Business as well as payments related to the settlement of outstanding contractual obligations within Resolve.
Expenditures on Capital Assets and Contract Payments
Total capital asset expenditures for the fourth quarter of 2009 were $5.1 million, an increase of $0.6 million compared to the same period in 2008. However, fixed contract payments decreased $0.4 million in the fourth quarter of 2009 compared to 2008. While the Company expects to have larger capital expenditures going forward, given the increased size of operations, there were only modest changes to capital in the fourth quarter of 2009 compared to 2008 as the Company planned for further integration activities.
The Business' capital program provides for continued expenditures to be funded by cash flows from operations.
Distributions
The Fund paid cash distributions of $0.4599 per unit ($24.5 million) during the fourth quarter of 2009 and $0.4599 per unit ($20.2 million) in the same period in 2008. In connection with the Resolve acquisition, D+H issued 9,286,581 units on July 27, 2009, which increased the distributions paid by the Fund by $4.3 million in the fourth quarter of 2009.
On an annualized basis, the cash distribution rate for December 2009 was $1.84 per unit, unchanged compared to December 2008.
Changes in Non-Cash Working Capital and Other Items
(in thousands of Canadian dollars, unaudited)
Quarter ended December 31,
2009 2008
-------------------------------------------------------------------------
Decrease (increase) in non-cash working capital
items $ 4,854 $ 6,022
Decrease (increase) in other operating assets and
liabilities 2,502 358
-------------------------------------------------------------------------
Decrease (increase) in non-cash working capital
and other items $ 7,356 $ 6,380
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The decrease in non-cash working capital items for the fourth quarter of 2009 was primarily related to decrease in trade receivables due to timing and seasonality, partially offset by decrease in payables reflecting severance payments and other payments related to settlement of obligations in connection with the acquisition of Resolve.
We would expect to apply cash to fund increases in non-cash working capital during the first half of 2010 as timing differences relating to the reduction in non-cash working capital experienced in the fourth quarter of 2009 reverse, and as we make further payments related to the acquisition of Resolve.
2009 OPERATING RESULTS
The following table is derived from, and should be read in conjunction with, the Consolidated Statements of Income and includes non-GAAP measures. Management believes this supplementary disclosure provides useful additional information. See Non-GAAP Measures section for a discussion of non-GAAP terms used. Effective July 27, 2009, the consolidated results include those of Resolve.
Operating and Financial Results(1)
(in thousands of Canadian dollars, except per unit amounts)
Year ended December 31,
2009 2008 2007
-------------------------------------------------------------------------
Revenue $ 481,764 $ 367,231 $ 369,726
Expenses 346,721 245,678 250,237
-------------------------------------------------------------------------
EBITDA(2) 135,043 121,553 119,489
Amortization of capital assets and
non-acquisition intangibles 16,579 15,538 15,080
Interest expense 9,541 6,847 7,531
Minority interest - - 379
-------------------------------------------------------------------------
Adjusted income(2) 108,923 99,168 96,499
Amortization of mark-to-market
adjustment of interest-rate swaps 478 561 678
Net unrealized loss (gain) on
derivative instruments(3) (4,145) 5,691 (740)
Future income tax expense (recovery) (2,511) 1,217 1,591
Amortization of intangibles from
acquisition 20,087 13,716 13,298
-------------------------------------------------------------------------
Income from continuing operations 95,014 77,983 81,672
Income from discontinued operations - 465 567
-------------------------------------------------------------------------
Net income $ 95,014 $ 78,448 $ 82,239
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Adjusted income per unit, basic and
diluted(2) $ 2.2708 $ 2.2565 $ 2.1958
Net income per unit, basic and diluted $ 1.9808 $ 1.7851 $ 1.8713
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
2009 vs. 2008 vs.
2008 2007
% change % change
-------------------------------------------------------------------------
Revenue 31.2% -0.7%
EBITDA(2) 11.1% 1.7%
Adjusted income per unit(2) 0.6% 2.8%
Net income per unit 11.0% -4.6%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) The results for 2009 include those of Resolve, effective from the
date of acquisition of July 27, 2009.
(2) EBITDA and Adjusted income are non-GAAP terms. See the Non-GAAP
Measures section for a more complete description of these terms and
reconciliation to GAAP.
(3) The Business enters into derivative contracts to fix the interest
rates and foreign exchange rates on a significant portion of its
outstanding bank debt and foreign currency transactions,
respectively. For accounting purposes, these derivative instruments
do not qualify for hedge accounting treatment and, accordingly, any
change in the fair value of these contracts is recorded through
income. Provided the Business does not cancel its derivative
contracts prior to maturity, the amounts represent a non-cash
unrealized gain or loss that will subsequently reverse through
income. The Company has historically held its derivative contracts to
maturity.
Year Ended December 31, 2009 Compared to Year Ended December 31, 2008
Revenue
Total consolidated revenue for the year ended December 31, 2009 was $481.8 million, an increase of $114.5 million, or 31.2%, compared to 2008 with the increase primarily due to the inclusion of the Resolve and Cyence businesses and organic initiatives from other service areas. Offsetting this increase was the impact of the economic slow down, which negatively impacted business volumes in certain service areas. Excluding the acquisitions of Resolve and Cyence, total revenue decreased by approximately $10.0 million, or 2.7%, compared to 2008. Revenue by major service area is summarized in the table below.
Year ended December 31,
2009 2008
-------------------------------------------------------------------------
Revenue
Programs to the chequing account $ 288,557 $ 294,358
Lending technology services 69,244 61,828
Loan servicing 50,645 -
Loan registration technology services 41,785 4,143
Other 31,533 6,902
-------------------------------------------------------------------------
$ 481,764 $ 367,231
-------------------------------------------------------------------------
Revenue from programs to the chequing account for 2009 was $288.6 million, a decrease of $5.8 million, or 2.0%, compared to 2008. The decrease is primarily attributable to the economic slow down, which negatively impacted small business demand for cheque orders. This was partially offset by the positive impact of annual program changes and product and service enhancements, such as IDefence(R) and BizAssist(R).
Revenue for 2009 from lending technology services was $69.2 million, an increase of $7.4 million, or 12.0%, compared to 2008. Revenue for 2009 includes the results of the Cyence business which was acquired in late 2008. Excluding the results of the Cyence business, revenue within this service area decreased approximately 6.0%, compared to 2008, primarily as a result of reduced mortgage origination services revenue and decreases in revenue from project implementation services. For 2009, mortgage origination services revenue declined 4.7% compared to the previous year.
Revenue for 2009 from loan servicing, which includes student loan administration services and credit card servicing, was $50.6 million. There was no comparative revenue for 2008 as these services were part of the Resolve business acquired on July 27, 2009. Revenue from student loan administrative services, which comprise the largest portion of revenue within this service area, are expected to be relatively stable over the short term with modestly growing volumes and new program initiatives being offset by reduced pricing related to particular contracts.
Loan registration technology services revenue for 2009 was $41.8 million, an increase of $37.6 million compared to 2008. This service area includes the personal property search and registration ("PPSA") business acquired with the Resolve acquisition and the existing PPSA program operated by D+H. The majority of the increase in 2009 came from Resolve. Volumes in this area can be variable but in general would be expected to improve with an improving economic environment.
Increased revenues from the remaining service areas are primarily attributed to the inclusion of the results of Resolve as described earlier.
The following pro forma table reflects management's estimate of the current relative size of each of the major service areas as a percentage of total revenue on an annualized basis.
Allocation of Revenue by Service Area(1) % Revenue
-------------------------------------------------------------------------
Revenue
Programs to the chequing account 45%
Loan servicing 18%
Loan registration technology services 15%
Lending technology services 11%
Other 11%
-------------------------------------------------------------------------
100%
-------------------------------------------------------------------------
(1) Based on management's estimate using pro forma 2009 revenue.
Expenses
For 2009, consolidated expenses increased by $101.0 million, or 41.1%, to $346.7 million compared to 2008. The net increase was primarily due to the inclusion of the expense base of Resolve and Cyence and the ongoing current costs of integrating the businesses, partially offset by decreases related to lower cheque order volume, continued cost containment initiatives undertaken in the context of the economic environment and integration cost savings and synergies associated with business acquisitions.
Year ended December 31,
(in thousands of Canadian dollars, unaudited) 2009 2008
-------------------------------------------------------------------------
Employee compensation and benefits $ 141,606 $ 81,753
Non-compensation direct expenses(1) 144,256 123,937
Other operating expenses(2) 49,679 33,658
Occupancy costs 11,180 6,330
-------------------------------------------------------------------------
$ 346,721 $ 245,678
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Non-compensation direct expenses include materials, shipping, selling
expenses and third party direct disbursements.
(2) Other operating expenses include communication costs, licensing fees,
professional fees and expenses not included in other categories.
Employee compensation and benefits costs for 2009 were $141.6 million, an increase of $59.9 million, or 73.2%, compared to 2008. This increase reflected the inclusion of Resolve and Cyence expenses. Other expenses were relatively unchanged year over year as general annual increases were offset by personnel and other employee-related cost reductions.
Non-compensation direct expenses were $144.3 million for 2009, an increase of $20.3 million, or 16.4%, compared to 2008, with increases attributed to the inclusion of Resolve and Cyence expenses, partially offset by reduced costs associated with lower order volumes.
Other operating expenses were $49.7 million for 2009, an increase of $16.0 million, or 47.6%, compared to 2008 with increases attributed to the inclusion of Resolve and Cyence expenses, partially offset by other net reductions related to reduced volumes and other cost containment initiatives.
Occupancy costs were $11.2 million for 2009, an increase of $4.9 million, or 76.6%, compared to 2008 with increases primarily related to the inclusion of Resolve and Cyence facilities.
EBITDA
For 2009, EBITDA was $135.0 million, an increase of $13.5 million, or 11.1%, compared to 2008. The 2009 increase in EBITDA of 11.1% relative to the increase in revenue of 31.2% reflected the inclusion of service offerings within Resolve which contributed lower margins as a percentage of revenue compared to other D+H services.
Amortization of Capital and Non-acquisition Intangible Assets
On a consolidated basis, amortization of capital and non-acquisition intangible assets increased by $1.0 million, or 6.7%, in 2009 compared to 2008, due to the inclusion of amortization related to assets acquired from the Resolve and Cyence businesses, partially offset by the impact of certain capital and other assets having become fully amortized.
Other Expenses
For 2009, interest expense increased by $2.7 million, due to an increase in the level of outstanding debt related to the acquisitions of Resolve and Cyence. Partially offsetting this increase was a reduction in the average interest rate on portions of the outstanding debt.
Amortization of mark-to-market adjustment of interest-rate swaps refers to the amortization of net losses in fair market value of interest-rate swaps that were deferred prior to January 1, 2007. Commencing January 1, 2007, the Business no longer designated its interest-rate swaps as hedges for accounting purposes.
For 2009, an unrealized gain on interest-rate swaps and currency contracts of $4.1 million was recorded (2008 - unrealized loss of $5.7 million), reflecting mark-to-market adjustments related to changes in market interest rates at December 31, 2009 compared to December 31, 2008 (or on July 27, 2009 for swaps acquired on acquisition) and from currency fluctuations on foreign exchange contract changes since July 27, 2009. These unrealized gains and losses for interest-rate swaps are recognized in income as these swaps are not designated as hedges for accounting purposes. Unrealized gains and losses on foreign exchange contracts are recognized in income as the foreign exchange contracts do not qualify for hedge accounting treatment. Provided the Business does not cancel its interest-rate swaps or foreign exchange contracts, the unrealized amounts represent a non-cash unrealized gain or loss that will subsequently reverse through income as the related swaps and foreign exchange contracts mature. The Company has historically held its derivative contracts to maturity.
A large portion of the income earned by the Business and distributed annually to unitholders is not subject to taxation in the Fund, but is taxed at the unitholder level. The Fund and its subsidiaries do not anticipate being subject to taxes until 2011, as long as all taxable income generated by the Fund is paid to unitholders in the form of distributions. In 2011 and subsequent years, it is anticipated that the Fund will have converted to a corporate entity and will be subject to corporate taxes on its taxable income at the statutory tax rate in effect. The Company remains focused on ensuring that tax effective structures are utilized to minimize the amount and timing of future taxes payable.
The Fund does recognize future income tax assets and liabilities, with a corresponding impact on future income tax expense or recovery based on temporary differences expected to reverse. For the parts of the organization structured as trusts and partnerships, future taxes are set up only for timing differences expected to reverse after December 31, 2010. For corporate entities, all timing differences are considered in establishing future tax balances. For 2009, the Fund recorded a future tax recovery of $2.5 million (2008 - $1.2 million expense) primarily due to the decrease in substantively enacted future tax rates.
The base upon which taxes are paid by the Business differs from reported net income before taxes as the Business records substantial amortization expense on intangibles that is not deductible for taxation purposes. While taxable income can vary from income for accounting purposes for several reasons, the Company considers Adjusted income as an approximate proxy for taxable income.
The Business has net operating losses for tax purposes of $68.2 million available to reduce taxable income in future periods.
Amortization of acquisition-related intangibles for 2009 increased compared to 2008. The increase in amortization related to the incremental intangible assets arising on the acquisitions of the Resolve and Cyence businesses will add annualized amortization of approximately $18.0 million. The intangible assets recorded on the acquisition of Resolve consisted of rights related to customer relationships and proprietary software and are amortized on a straight-line basis over periods ranging from 3 to 15 years. For more information on the acquisition, see Note 2 to the consolidated financial statements.
Income from Discontinued Operations
Effective December 31, 2008, the Fund ceased providing services under a U.S. cheque supply contract. As a result, the 2008 operating results from the U.S. operations related to the service of this contract have been classified as discontinued operations.
Net Income
For 2009, net income of $95.0 million increased by $16.6 million, or 21.1%, compared to 2008. On a per unit basis, net income per unit of $1.9808 increased by $0.1957 , or 11.0%, compared to 2008. Net income per unit for the year was positively impacted by growing operating results, mark-to-market unrealized gains on derivative instruments and changes in future income taxes as previously described, offset by an increase in amortization of intangibles from acquisitions.
For 2009, excluding the non-cash impacts of mark-to-market gains and losses on derivative instruments, future income taxes and amortization of intangibles from acquisitions, Adjusted income of $108.9 million, increased by $9.8 million, or 9.8%, compared to 2008. Adjusted income per unit of $2.2708 increased by 0.6% compared to 2008.
EIGHT QUARTER CONSOLIDATED STATEMENT OF INCOME - SUMMARY
(in thousands of Canadian dollars, except per unit amounts, unaudited)
2009
Q4 Q3 Q2 Q1
-------------------------------------------------------------------------
Revenue $ 156,215 $ 142,463 $ 94,557 $ 88,529
Expenses 119,671 104,879 62,080 60,091
-------------------------------------------------------------------------
EBITDA(1) 36,544 37,584 32,477 28,438
Amortization of capital
assets and non-acquisition
intangibles 4,551 4,530 3,679 3,819
Interest expense 3,326 2,681 1,787 1,747
Minority interest - - - -
-------------------------------------------------------------------------
Adjusted income(1) 28,667 30,373 27,011 22,872
Amortization of mark-to-market
adjustment of interest-rate
swaps 103 103 136 136
Net unrealized loss (gain)
on derivative instruments(2) (1,620) (1,647) (1,069) 191
Future income tax expense
(recovery) (2,747) 1,018 (718) (64)
Amortization of intangibles
from acquisition 7,330 5,942 3,441 3,374
-------------------------------------------------------------------------
Income from continuing
operations 25,601 24,957 25,221 19,235
Income from discontinued
operations - - - -
-------------------------------------------------------------------------
Net income $ 25,601 $ 24,957 $ 25,221 $ 19,235
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Adjusted income per unit,
basic and diluted(1) $ 0.5385 $ 0.6002 $ 0.6146 $ 0.5204
Net income per unit, basic
and diluted $ 0.4809 $ 0.4931 $ 0.5739 $ 0.4377
-------------------------------------------------------------------------
-------------------------------------------------------------------------
2008
Q4 Q3 Q2 Q1
-------------------------------------------------------------------------
Revenue $ 89,357 $ 95,055 $ 95,407 $ 87,412
Expenses 62,413 61,664 61,334 60,267
-------------------------------------------------------------------------
EBITDA(1) 26,944 33,391 34,073 27,145
Amortization of capital
assets and non-acquisition
intangibles 3,800 4,219 3,771 3,748
Interest expense 1,647 1,690 1,754 1,756
Minority interest - - - -
-------------------------------------------------------------------------
Adjusted income(1) 21,497 27,482 28,548 21,641
Amortization of mark-to-market
adjustment of interest-rate
swaps 151 151 152 107
Net unrealized loss (gain)
on derivative instruments(2) 3,653 728 (1,034) 2,344
Future income tax expense
(recovery) 399 52 766 -
Amortization of intangibles
from acquisition 3,409 3,412 3,447 3,448
-------------------------------------------------------------------------
Income from continuing
operations 13,885 23,139 25,217 15,742
Income from discontinued
operations 51 167 149 98
-------------------------------------------------------------------------
Net income $ 13,936 $ 23,306 $ 25,366 $ 15,840
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Adjusted income per unit,
basic and diluted(1) $ 0.4892 $ 0.6253 $ 0.6496 $ 0.4924
Net income per unit, basic
and diluted $ 0.3172 $ 0.5303 $ 0.5772 $ 0.3604
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) EBITDA and Adjusted income are non-GAAP terms. See the Non-GAAP
Measures section for a more complete description of these terms.
(2) The Business enters into derivative contracts to fix the interest
rates and foreign exchange rates on a significant portion of its
outstanding bank debt and foreign currency transactions,
respectively. For accounting purposes, these derivative instruments
do not qualify for hedge accounting treatment. Accordingly, any
change in the fair value of these contracts is recorded through
income. Provided the Business does not cancel its derivative
contracts prior to maturity, the amounts represent a non-cash
unrealized gain or loss that will subsequently reverse through
income. The Company has historically held its derivative contracts to
maturity.
The Fund has generally reported quarterly revenues that are stable and growing when measured on a year-over-year basis, however more recent changes in the economic environment and the housing and mortgage markets have increased volatility. Measured on a sequential quarter-over-quarter basis, revenues can vary as they are subject to seasonality and are generally stronger in the second and third quarter of each year. The acquisition of the Resolve business has resulted in a substantial increase in all reported balances in 2009, except per unit amounts, which were additionally impacted by the issuance of 9,286,581 additional units of Davis + Henderson to fund the Resolve acquisition.
Adjusted income per unit has generally been trending consistently with changing revenue. Net income has been more variable as it has been affected by the variability in the changes in non-cash items such as mark-to-market adjustments on interest-rate swap and foreign exchange contracts, amortization of intangibles from acquisition and by changes in future income tax provisions.
SELECTED BALANCE SHEET INFORMATION
(in thousands of Canadian dollars, unaudited)
Year ended December 31,
2009 2008 2007
-------------------------------------------------------------------------
Total assets $ 941,555 $ 663,906 $ 634,152
-------------------------------------------------------------------------
Total long-term liabilities $ 278,801 $ 165,106 $ 135,143
-------------------------------------------------------------------------
Total assets of $941.6 million at December 31, 2009 increased by $277.6 million compared with total assets at December 31, 2008, primarily as a result of the acquisition of Resolve. The increase in total assets between December 31, 2008 and December 31, 2007 was primarily a result of the acquisition of Cyence in 2008.
Long-term liabilities increased by $113.7 million and was principally due to the increase in credit facilities in order to assume the debt obligations within Resolve and adjustments to future tax liabilities. The increase in long-term liabilities between December 31, 2007 and December 31, 2008 was principally the result of debt drawn to fund the Cyence acquisition and adjustments to the fair value of interest-rate swaps and future tax liabilities.
CASH FLOW AND LIQUIDITY
The following table is derived from, and should be read in conjunction with, the Consolidated Statements of Cash Flows and includes non-GAAP measures. Management believes this supplementary disclosure provides useful additional information related to the cash flows of the Fund, repayment of debt and other investing activities. See the Non-GAAP Measures section for a discussion of non-GAAP terms used.
Summary of Cash Flows(1)
(in thousands of Canadian dollars, unaudited)
Year ended December 31,
2009 2008 2007
-------------------------------------------------------------------------
Cash flows from operating activities $ 119,722 $ 116,062 $ 117,401
Add (deduct):
Changes in non-cash working capital
and other items(2) 5,780 (594) (4,949)
-------------------------------------------------------------------------
Adjusted cash flows from operating
activities 125,502 115,468 112,452
Less:
Maintenance asset expenditures(3) 8,391 6,852 11,753
Growth asset expenditures(3) 3,277 3,366 251
Contract payments(4) 3,137 3,220 3,492
-------------------------------------------------------------------------
Adjusted cash flows after capital
expenditures and contract payments(3) 110,697 102,030 96,956
Distributions paid to unitholders 87,962 78,580 78,357
-------------------------------------------------------------------------
Adjusted cash flows after capital,
contract payments and distributions
paid 22,735 23,450 18,599
Cash flows provided by (used in
repayment) of long-term indebtedness (11,948) 18,000 (15,000)
Cash flows used in issuance costs for
long-term indebtedness (1,621) - -
Fair value of trust units issued 119,394 - -
Fair value of acquisitions(5) (130,968) (43,126) (746)
Changes in non-cash working capital and
other items(2) (5,780) 594 4,949
Distributions paid to minority interest - - (442)
-------------------------------------------------------------------------
Increase (decrease) in cash and cash
equivalents for the year $ (8,188) $ (1,082) $ 7,360
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) The subtotals in this table are not consistent with GAAP and
accordingly are considered non-GAAP measures. See the Non-GAAP
Measures section for a more complete discussion of non-GAAP terms and
reconciliation to GAAP.
(2) Changes in non-cash working capital and certain other balance sheet
items have been excluded from adjusted cash flows from operating
activities so as to remove the effects of timing differences in cash
receipts and cash disbursements, which generally reverse themselves,
but can vary significantly across quarters and to remove certain of
the payments related to the acquisition and related restructuring
activities that were recorded as part of the acquisition. For
details, see the Changes in Non-Cash Working Capital and Other Items
section.
(3) Maintenance asset expenditures are defined by the Fund as asset
expenditures necessary to maintain and sustain the current productive
capacity of the Business or generally improve the efficiency of the
Business. Growth asset expenditures are defined by the Fund as asset
expenditures that increase the productive capacity of the Business
with a reasonable expectation of an increase in cash flow.
(4) The Business has various payment obligations under customer and
partner contracts, which include fixed contract or program initiation
payments and annual payments payable over the life of the contract.
The aggregate of all contract payments, both fixed and variable,
reflects, among other things, the high degree of integration and
sharing between Davis + Henderson and its customers and partners of
the many activities related to ordering, data handling, customer
service, customer access and other activities.
(5) For 2009 and 2007, fair value of acquisitions includes payments
related to customer service contracts of $0.4 million and $0.8
million respectively.
Summary of Cash Flows per Unit
(in Canadian dollars, unaudited)
Year ended December 31,
2009 2008 2007
-------------------------------------------------------------------------
Adjusted cash flows from operating
activities $ 2.6164 $ 2.6275 $ 2.5588
Adjusted cash flows after capital
expenditures and contract payments $ 2.3078 $ 2.3217 $ 2.2062
Cash distributions paid to unitholders $ 1.8396 $ 1.7881 $ 1.7830
Distributions declared during year(1) $ 1.8396 $ 1.8384 $ 1.7980
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Includes a special non-cash distribution in 2008 of $0.04 per unit.
--------------------------------------------------------------------
2009 vs. 2008 vs.
2008 2007
% change % change
--------------------------------------------------------------------
Adjusted cash flows from operating activities -0.4% 2.7%
Adjusted cash flows after capital expenditures
and contract payments -0.6% 5.2%
Cash distributions paid to unitholders 2.9% 0.3%
Distributions declared during year(1) 0.1% 2.2%
--------------------------------------------------------------------
--------------------------------------------------------------------
(1) Includes a special non-cash distribution in 2008 of $0.04 per unit.
Cash Flows, Income and Distributions Paid
The following table compares cash flows from operating activities and income to distributions paid:
(in thousands of Canadian dollars, Year ended December 31,
unaudited) 2009 2008 2007
-------------------------------------------------------------------------
Cash flows from operating activities $ 119,722 $ 116,062 $ 117,401
Net income $ 95,014 $ 78,448 $ 82,239
Adjusted income(1) $ 108,923 $ 99,168 $ 96,499
Distributions paid during year $ 87,962 $ 78,580 $ 78,357
Excess (shortfall) of cash flows from
operating activities over cash
distributions paid $ 31,760 $ 37,482 $ 39,044
Excess (shortfall) of net income over
cash distributions paid $ 7,052 $ (132) $ 3,882
Excess (shortfall) of Adjusted income
over cash distributions paid $ 20,961 $ 20,588 $ 18,142
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Adjusted income is a non-GAAP term. See the Non-GAAP Measures section
for a more complete description of this term.
Historically, excess cash flows from operating activities over cash distributions paid have been used to fund capital expenditures, pay down debt and to fund acquisitions. Since July 27, 2009 and over the next several quarters, the Company has made and will continue to be making payments related to restructuring activities pertaining to the operational integration of the Business as well as payments related to the settlement of outstanding contractual obligations within Resolve.
Expenditures on Capital Assets and Contract Payments
For 2009, total capital expenditures increased by $1.5 million compared to 2008. Additionally, fixed contract payments decreased $0.1 million during 2009, as compared to 2008.
The year-over-year variance reflected the timing of capital project expenditures and the inclusion of capital expenditures made within the newly acquired Resolve business. The Business' capital program provides for continued expenditures to be funded by cash flows from operations.
Distributions
The Trustees of the Fund establish distribution levels of the Fund with reference to its financial position, historical results, projected performance of the Business and funds required for potential acquisitions. The Fund intends to make monthly cash distributions of its adjusted cash flows after capital asset and contract expenditures, subject to working capital requirements, debt repayments and other reserves.
The Fund paid cash distributions of $1.8396 per unit ($88.0 million) in 2009 compared to $1.7881 per unit ($78.6 million) in 2008. In connection with the Resolve acquisition, D+H issued 9,286,581 units on July 27, 2009, which increased the distributions paid by the Fund by $7.1 million in 2009. For 2009, cash distributions per unit increased by 2.9%. On an annualized basis, the cash distribution rate for December 2009 was $1.84 per unit, unchanged compared to December 2008.
Distributions paid can be different than distributions declared during a period. Monthly distributions are declared by the Fund for unitholders of record on the last business day of each month and are paid within 31 days following each month end. In 2009, these amounts were the same on a per unit basis. The holders of the new units of D+H issued for the purchase of Resolve were unitholders of record on July 31, 2009, and accordingly, these units were entitled to all distributions declared during the year subsequent to this date and were paid distributions during the year in respect of distributions declared from July to December.
In general, mutual fund trusts, like the Fund, must distribute all their taxable income to their unitholders in order not to pay income taxes in the trust.
The tax allocation of distributions to be declared for 2009 is 100% "other income", as was the case for all of 2008.
The Fund may issue an unlimited number of trust units. Each trust unit is transferable and represents an equal, undivided beneficial interest in any distribution from the Fund and the net assets of the Fund. All units are of the same class with equal rights and privileges and are not subject to future calls or assessments. Each unit entitles the holder to one vote at all meetings of unitholders. As at December 31, 2009 and March 2, 2010, the total number of trust units outstanding was 53,233,373 compared to 43,946,792 trust units outstanding as at December 31, 2008. This reflects an issuance of an additional 9,286,581 trust units on July 27, 2009 in exchange for all the outstanding units of Resolve.
Changes in Non-Cash Working Capital and Other Items
(in thousands of Canadian dollars, unaudited)
Year ended December 31,
2009 2008 2007
-------------------------------------------------------------------------
Minority interest $ - $ - $ 379
Decrease (increase) in non-cash working
capital items (8,443) 1,933 4,256
Decrease (increase) in other operating
assets and liabilities 2,663 (1,339) 314
-------------------------------------------------------------------------
Decrease (increase) in non-cash
working capital and other items $ (5,780) $ 594 $ 4,949
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The net increase in non-cash working capital items for 2009 was primarily a result of a decrease in payables reflecting normal course timing differences of when payments are made, payments made under certain multi-year compensation programs and severance payments made earlier in the year partially offset by a decrease in receivables due to normal course timing differences.
Acquisitions
With the acquisition of Resolve, the Business significantly advanced its strategy by expanding its service offerings within the financial services industry, by establishing market leading positions in several niche markets and by increasing its overall servicing capabilities. The acquisition was funded through the issuance of Davis + Henderson units in exchange for all the outstanding units of Resolve, valued at $119.5 million (net of after-tax issuance costs of $0.6 million), and the assumption of Resolve debt. Including transaction costs and estimated restructuring costs, the total cost of the acquisition (excluding the assumed debt) is expected to be approximately $130.0 million. Management has not yet completed its assessment of the valuation of the assets acquired and liabilities assumed for this acquisition and continues to estimate transaction and restructuring costs. As a result, the presented purchase information may change. For additional information on the acquisition, refer to Note 2 to the consolidated financial statements.
Cash Balances and Long-term Indebtedness
At December 31, 2009, cash and cash equivalents totaled $3.9 million, compared to $12.1 million at December 31, 2008. The balance of long-term indebtedness as at December 31, 2009, before deducting unamortized deferred finance fees, was $210.0 million compared to $148.0 million at December 31, 2008. During the third quarter of 2009, the Business increased its credit facilities in order to assume approximately $70.0 million of debt obligation within Resolve. The long-term indebtedness is recorded on the Balance Sheet, net of $1.5 million of unamortized deferred financing fees as at December 31, 2009.
Total credit facilities available at December 31, 2009 were $260.0 million consisting of two non-revolving term loans and two revolving credit facilities. A non-revolving term loan of $120.0 million matures June 15, 2011 and the second non-revolving term loan of $70.0 million matures January 2, 2011. A revolving credit facility of $50.0 million matures June 15, 2011 and the second revolving credit facility of $20.0 million matures January 2, 2011. As of December 31, 2009, the Business had drawn $190.0 million under the non-revolving term loans and $20.0 million under the revolving term credit facilities. The Business is permitted to draw on the revolving facilities' available balance of $50.0 million to fund capital expenditures or for other general purposes.
The Credit Agreement contains a number of covenants and restrictions, including the requirement to meet certain financial ratios and financial condition tests. The financial covenants include a leverage test, a fixed charge coverage ratio test, a minimum net worth test and a limit on the maximum amount of distributions that may be made by Davis + Henderson, L.P. to the Fund during each rolling, four-quarter period. Davis + Henderson was in compliance with all of its financial covenants and financial condition tests as of the end of its latest quarterly period. A copy of the Credit Agreement is available at www.sedar.com.
Management, to reduce liquidity risk, has historically renewed the terms of the Fund's long-term indebtedness in advance of its maturity dates and the Fund has maintained financial ratios that are conservative compared to financial covenants applicable to the credit facilities. Further, the Fund has made numerous voluntary payments on its outstanding long-term indebtedness.
As of December 31, 2009, the Fund had interest-rate swap hedge contracts in place with certain of its lenders, such that the borrowing rates on 90.5% of outstanding indebtedness are effectively fixed at the interest rates and for the time periods ending as outlined in the table below.
(in thousands of Canadian dollars, unaudited)
-------------------------------------------------------------------------
Fair value of interest-rate swaps
---------------------------------
Notional Interest
Maturity Date Amount Asset Liability Rate(1)
-------------------------------------------------------------------------
March 16, 2010 $ 65,000 $ - $ 650 4.490%
July 15, 2010 33,000 - 1,064 4.815%
January 5, 2011 22,000 - 338 1.980%
June 15, 2011 20,000 - 1,192 4.685%
June 15, 2011 25,000 - 1,489 4.685%
December 18, 2014 25,000 109 - 2.720%
-------------------------------------------------------------------------
$ 190,000 $ 109 $ 4,733
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) The listed interest rates exclude bankers' acceptance fees currently
in effect. Such fees could increase depending on the Fund's financial
leverage as compared to certain levels specified in the Credit
Agreement. As of December 31, 2009, $140 million of the Fund's debt
was subject to bankers' acceptance fees of 1.00% with the balance of
$70 million subject to bankers' acceptance fees of 3.75%.
As at December 31, 2009, the Fund would have to pay the fair value of $4.7 million if it were to close out five of the interest-rate swap contracts and would receive $0.1 million on the closing of the remaining contract as set out on the balance sheet. It is not the present intention of management to close out these contracts and the Company has historically held its derivative contracts to maturity. The Fund expects to continue to enter into interest-rate swaps for the purpose of hedging interest rates.
The Fund's remaining indebtedness of $20.0 million as at December 31, 2009 is subject to floating interest rates that may be funded either by way of prime-rate loans or through the issuance of bankers' acceptance with maturities and interest rates which reset typically in the one-month to three-month range.
The average effective interest rate applicable to the Fund's total indebtedness was 5.641% as at December 31, 2009.
As at December 31, 2009, the Fund had several foreign-exchange contracts in place with one of its lenders amounting to $2.5 million USD.
-------------------------------------------------------------------------
Fair value of foreign exchange contracts
----------------------------------------
Notional Exchange
Maturity Date Amount Asset Liability Rate
-------------------------------------------------------------------------
January 19, 2010 $ 500 $ 93 $ - 1.2375
February 16, 2010 500 99 - 1.2500
March 16, 2010 500 99 - 1.2500
April 15, 2010 500 28 - 1.1057
May 17, 2010 500 28 - 1.1057
-------------------------------------------------------------------------
$ 2,500 $ 347 $ -
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The last of these contracts expires on May 17, 2010. Under these contracts, the Fund is required to deliver the agreed USD amount and in return receive the contracted CDN dollar amount set forth in each contract. As at December 31, 2009, the fair value the Fund would have received if it were to have closed out the foreign exchange contracts was $0.3 million. It is not the present intention of management to close out these contracts. The Company has historically held its derivative contracts to maturity.
The Company believes that its customers, suppliers and lenders, while impacted by the current economic slow down, will continue to operate with the Company on similar terms to those currently in place. As well, while the Company's products and services may be impacted by the changing economic environment, the Company expects to remain profitable and generate positive cash flow.
Cash flows from operations, together with cash balances on hand and unutilized term credit facilities are expected to be sufficient to fund the Business' operating requirements, asset expenditures, contractual obligations and anticipated distributions.
Contractual Obligations - Payments Due by Period
The table below presents the contractual obligations of the Business as at December 31, 2009 and the timing of the expected payments.
-------------------------------------------------------------------------
(in thousands of
Canadian dollars, Less than 1 - 3 4 - 5 After 5
unaudited) Total 1 year years years years
-------------------------------------------------------------------------
Long-term
indebtedness $ 210,000 $ - $ 210,000 $ - $ -
Operating leases 36,586 14,176 15,983 2,907 3,520
Employee future
benefits 4,987 316 839 598 3,235
Contractual supplier
obligation 1,319 330 989 - -
Obligations relating
to deferred
compensation
program 845 - 845 - -
-------------------------------------------------------------------------
$ 253,737 $ 14,822 $ 228,656 $ 3,505 $ 6,755
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Long-term Indebtedness
As at December 31, 2009, the Fund had $260.0 million of available credit facilities consisting of two non-revolving term loans and two revolving credit facilities. These include a non-revolving term loan maturing June 15, 2011 of $120.0 million, a second non-revolving term loan of $70.0 million maturing January 2, 2011, a revolving credit facility maturing June 15, 2011 of $50.0 million (of which $20.0 million was drawn at December 31, 2009) and a second revolving credit facility maturing January 2, 2011 of $20.0 million (of which nil was drawn at December 31, 2009). The credit facilities do not require the Fund to make any principal payments prior to their stated maturities.
Operating Leases
The Business rents facilities, equipment and vehicles under various operating leases. As of December 31, 2009, minimum payments under these operating leases totalled $36.5 million.
Employee Future Benefits
Obligations relating to employee future benefits relate to the Fund's non-pension post-retirement benefit plans. The latest actuarial valuation of the post-retirement benefit plans was performed as of December 31, 2009.
Contractual Supplier Obligation
The contractual supplier obligation relates to payments to be made for a customized software package.
Deferred Compensation Program
The deferred compensation program, which commenced on January 1, 2009, is a long-term incentive plan that includes a cash award component and a cash-settled unit-based compensation component. Both the cash component and the cash-settled unit-based compensation component awarded at the grant date are subject to a three-year target for compound annual growth in adjusted income. The units awarded will earn distributions through the three years equal to the actual per unit distributions declared on the units of Davis + Henderson during the fiscal periods that form the performance period. The cash-settled unit-based compensation is determined based on the average trading price for the units in the 30 days following the release of the results for the last fiscal year in the performance period, along with the annualized growth rate achieved and the distributions earned. The employee must remain an employee throughout the three-year performance period in order for the plan to vest, with limited exceptions. The first possible payment under this program is in 2012.
Cumulative Summary of Cash Flows(1)
The table below provides an analysis of cash flows of the Fund since inception (December 20, 2001) through to December 31, 2009, excluding the transactions pertaining to the purchase of the original Davis + Henderson business by the Fund.
December 20, 2001 to
(in thousands of Canadian dollars, unaudited) December 31, 2009
-------------------------------------------------------------------------
Cash flows from operating activities $ 738,223
Less:
Expenditures on capital assets and contract payments 100,067
-------------------------------------------------------------------------
Adjusted cash flows after capital expenditures and
contract payments 638,156
Less:
Distributions paid to unitholders 513,335
-------------------------------------------------------------------------
Adjusted cash flows after capital, contract payments
and distributions paid 124,821
Cash flows provided by (used in) other financing activities
Net proceeds from issuance of trust units 228,594
Proceeds from long-term indebtedness net of issuance costs 120,980
Distributions paid to minority interest (562)
Repayments of long-term indebtedness (68,000)
-------------------------------------------------------------------------
281,012
Acquisition of businesses and customer service contracts (401,955)
-------------------------------------------------------------------------
Increase in cash and cash equivalents for the period 3,878
Cash and cash equivalents, beginning of period -
-------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 3,878
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cumulative distributions paid as a % of adjusted cash
flows after capital expenditures and contract payments 80.4%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) The subtotals in this table are not consistent with GAAP and
accordingly are considered non-GAAP measures. See the Non-GAAP
Measures section for a more complete description of these terms.
Adjusted cash flows after capital, contract payments and distributions paid of $124.8 million were retained by the Business and used to contribute to the funding of acquisitions and to pay down debt.
In general, mutual fund trusts, including the Fund, must distribute all their taxable income to their unitholders in order not to pay income taxes in the trust. Taxable income may be less than cash generated if the Business has excess tax deductions it can utilize to reduce taxable income.
Non-GAAP Measures
The information presented within the tables in this MD&A include certain adjusted financial measures such as "EBITDA" (Earnings before income taxes, depreciation and amortization), "Adjusted income" (net income before certain non-cash charges) and "Adjusted cash flow after capital expenditures and contract payments", all of which are not defined terms under Canadian generally accepted accounting principles ("GAAP"). These non-GAAP financial measures are derived from, and should be read in conjunction with, the Consolidated Statements of Income and the Consolidated Statements of Cash Flow. Management believes these supplementary disclosures provide useful additional information related to the operating results of the Fund.
Management uses these subtotals as measures of financial performance and as a supplement to the Consolidated Statements of Income and Consolidated Statements of Cash Flow. Investors are cautioned that these measures should not be construed as an alternative to using net income as a measure of profitability or as an alternative to the GAAP Consolidated Statements of Income or other GAAP statements. Further, the Fund's method of calculating each balance may not be comparable to calculations used by other Income Trusts bearing the same description.
EBITDA
In addition to its use by management as an internal measure of financial performance, EBITDA is used to measure (with adjustments) compliance with certain financial covenants under the Fund's credit facility. EBITDA is also widely used by the Fund and others in assessing performance and value of a business. EBITDA has limitations as an analytical tool, and the reader should not consider it in isolation or as a substitute for analysis of results as reported under GAAP.
Adjusted Income
Adjusted income is used as a measure of internal performance similar to net income, but is calculated after removing the non-cash impacts of certain fair value and purchase accounting items and future tax recoveries or expenses. These items are excluded in calculating Adjusted income as they are non-cash items and not considered indicative of the financial performance of the Business for the period being reviewed.
Adjusted Cash Flows from Operating Activities and Adjusted Cash Flows after Capital Expenditures and Contract Payments
Certain subtotals presented within the cash flows table above, such as "Adjusted cash flows from operating activities" and "Adjusted cash flows after capital expenditures and contract payments", are not defined terms under GAAP. Management uses these subtotals as measures of internal performance and as a supplement to the Consolidated Statements of Cash Flows.
OUTLOOK
Davis + Henderson's overall long-term objective is to deliver stable and modestly growing cash distributions by growing revenue in the 3% to 5% range. For 2009, revenue was substantially above this target due to the inclusion of the results of Resolve effective from the date of acquisition on July 27, 2009. For the first half of 2010, we expect revenues will continue to show a substantial increase over the prior year as a result of the inclusion of the Resolve business within our consolidated results.
In the immediate future, we will focus on executing our organic growth initiatives, integrating the Business and continuing to diligently manage costs. Beyond the immediate term, we believe that combining Davis + Henderson and Resolve will solidly position the Business in the markets we serve and allow us to grow consistent with our long-term objectives.
As set out in our statement of strategy, we look to grow our Business through a combination of organic initiatives, partnering with third parties and by way of selective acquisitions. Our organic initiatives are many and include: (1) the ongoing enhancement and evolution of our cheque program through the addition of value-added service enhancements (such as our IDefence(R) and BizAssist(R) programs), (2) the expansion of our current services within the student lending, commercial and personal lending areas (including the mortgage, credit card and personal property markets), (3) selling and delivering our lending technology services to new customers and (4) combining the capabilities of D+H together with those of the recently acquired Resolve and Cyence businesses to develop new service offerings for our financial institution customers.
With the inclusion of several new service areas over the last several years, we expect to experience some level of increase in variability in year-over-year quarterly revenues, earnings and cash flows, due to: (i) volume variances within the registration service area; (ii) variability in professional services work; and (iii) variability in fees relating to origination services revenues due to recent significant variability in the housing market.
We are continuing to integrate the previously separate business segments into a single operation. As part of this integration, we expect to achieve cost synergies by the end of 2010 in the amount of $8.0 million annually. To date, we believe that we have attained annualized savings in the range of $4.0 million to $6.0 million through the elimination of certain corporate costs and the reduction of duplicate senior management personnel. Future cost synergies are expected from additional organizational alignment and operational integration activities, of which most will occur in the later part of 2010. The cost to be incurred related to the attainment of these synergies is expected to be in the $8.0 million to $10.0 million range of which approximately $6.0 million has been paid to date. These restructuring cost estimates have been recorded as part of the acquisition costs of the Business.
The Business' 2009 capital program was $14.8 million. For 2010, with a full-year inclusion of Resolve and various integration initiatives, we expect the consolidated capital program to be in the range of $24.0 million to $27.0 million, although additional integration saving opportunities may result in an expansion of our capital program.
Since December 2001, the initial public offering date of Davis + Henderson Income Fund, the Business has operated as a subsidiary of an Income Trust pursuant to its declaration of trust. In 2007, changes were made to the Income Tax Act that will require certain Income Trusts, including D+H, to be subject to taxes after fiscal 2010, similar to those paid by taxable Canadian corporations. In response to these changes and related impacts, D+H will hold the Meeting on June 17, 2010, at which time unitholders will be asked to approve its conversion from an Income Trust into a corporation effective January 1, 2011. The Trustees and management of Davis + Henderson believe that the proposed conversion of the Fund's capital structure is in the best interests of unitholders and the Business and believe the conversion can be expected to provide the following benefits: (i) enhanced access to capital markets which will benefit the Business as it continues to expand through acquisitions; (ii) a corporate structure that is expected to attract new investors and provide a more liquid trading market for our securities; and (iii) a simplified tax and legal structure, more comparable to the majority of public companies operating in Canada, providing, among other items, the benefit of reduced internal and external administrative costs.
As well, if the proposed conversion is approved, commencing in 2011, distributions to owners will be characterized as dividends rather than regular income. This provides the benefit of dividend tax credits for qualifying owners thereby reducing the after-tax impact on distributions.
Implementation of the conversion is expected to occur by way of plan of arrangement and is subject to approval by not less than 66 2/3% of the votes cast at the Meeting as well as customary conditions, including the receipt of applicable regulatory, court and the Toronto Stock Exchange approvals. Upon completion of the conversion, unitholders will receive on a tax deferred roll over basis one share of the resulting public corporation for each unit held. An information circular in respect of the Meeting, which will provide a detailed outline of the proposed conversion, is expected to be available by mid-May, 2010. In connection with a review of the proposed conversion, the Board of Trustees of Davis + Henderson have retained financial, legal and taxation advisors. The Business currently estimates the cost of the proposed conversion, including associated structuring and taxation advice and other advisors fees, to be approximately $1.5 million.
Independent of the conversion plan and as a result of the enacted tax changes, the Business will be subject to taxes commencing in 2011 that will reduce the amount of cash flow otherwise available for distribution. Had the Business been a corporation in 2009, pro forma taxes would have been in the range of approximately $0.60 to $0.66 per unit.
It is our current intention to pay quarterly distributions commencing in 2011 at an initial annualized rate of $1.20 per share. On a pro forma basis, had distribution been $1.20 per unit for 2009, the pro forma payout ratio would have been in the range of 72% to 75%.
Consistent with past practices, actual distributions will only be made to owners of record based upon a declaration by the Trustees. Among other items, in determining actual distributions, the Trustees will consider the financial performance, capital plans, acquisition plans, expectations of future economic conditions and other factors.
Provided the conversion is approved, distributions made by Davis + Henderson will be taxed as dividends rather than regular income as they are today. Certain investors may be entitled to dividend tax credits which would enhance after-tax yield and significantly reduce the after-tax impact of the reduction in distributions.
For the remainder of 2010, we intend to maintain our current annualized distributions at $1.84 per unit ($0.1533 per unit monthly).
Notwithstanding the proposed structural changes and distribution changes attributed to the changes to the law, the strategies and objectives of the Business remain unchanged.
Caution Concerning Forward-Looking Statements
This MD&A contains certain statements that constitute forward-looking information within the meaning of applicable securities laws ("forward-looking statements"). Statements concerning Davis + Henderson's objectives, goals, strategies, intentions, plans, beliefs, expectations and estimates, and the business, operations, financial performance and condition of Davis + Henderson are forward-looking statements. The words "believe", "expect", "anticipate", "estimate", "intend", "may", "will", "would" and similar expressions and the negative of such expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements are subject to important assumptions, including the following specific assumptions: the ability of Davis + Henderson to meet its revenue and EBITDA targets; general industry and economic conditions; changes in Davis + Henderson's relationship with its customers and suppliers; pricing pressures and other competitive factors. Davis + Henderson has also made certain macroeconomic and general industry assumptions in the preparation of such forward-looking statements. While Davis + Henderson considers these factors and assumptions to be reasonable based on information currently available, they may prove to be incorrect.
Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Business, or developments in Davis + Henderson's industry, to differ materially from the anticipated results, performance, achievements or developments expressed or implied by such forward-looking statements.
Risks related to forward-looking statements include, among other things, challenges presented by declines in the use of cheques by consumers; the Fund's dependence on a limited number of large financial institution customers and dependence on their acceptance of new programs; strategic initiatives being undertaken to meet the Fund's financial objective; stability and growth in the real estate, mortgage and lending markets; as well as general market conditions, including economic and interest rate dynamics and investor interest in, and government regulations relating to, Income Trusts. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. Forward-looking statements are based on management's current plans, estimates, projections, beliefs and opinions, and Davis + Henderson does not undertake any obligation to update forward-looking statements should assumptions related to these plans, estimates, projections, beliefs and opinions change except as required by applicable securities laws.
ADDITIONAL INFORMATION
Additional information relating to the Fund, including the Fund's most recently filed Annual Information Form, is available on SEDAR at www.sedar.com.
CONSOLIDATED BALANCE SHEETS
December 31, 2009 and 2008
(in thousands of Canadian dollars)
2009 2008
-------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 3,878 $ 12,066
Accounts receivable (note 3) 57,251 16,180
Inventory (note 4) 6,197 4,475
Prepaid expenses 6,074 2,813
Future income tax asset - current (note 11) 3,274 -
-------------------------------------------------------------------------
76,674 35,534
Future income tax asset (note 11) 21,425 3,162
Capital assets (note 5) 33,296 20,464
Other assets 82 1,082
Fair value of derivatives (note 9) 456 -
Intangible assets (note 6) 289,774 144,675
Goodwill (note 7) 519,848 458,989
-------------------------------------------------------------------------
$ 941,555 $ 663,906
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LIABILITIES AND UNITHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 72,274 $ 41,617
Distributions payable to unitholders 8,161 6,737
Deferred revenue - current 7,028 777
-------------------------------------------------------------------------
87,463 49,131
Long-term indebtedness (note 8) 208,463 147,331
Fair value of derivatives (note 9) 4,733 6,759
Deferred revenue - non-current 9,510 -
Other long-term liabilities (note 10) 7,161 812
Future income tax liability (note 11) 48,934 10,204
-------------------------------------------------------------------------
366,264 214,237
Unitholders' equity:
Trust units (note 12) 595,859 476,343
Deficit (20,086) (25,714)
Accumulated other comprehensive income (loss) (482) (960)
-------------------------------------------------------------------------
575,291 449,669
Commitments (note 14)
-------------------------------------------------------------------------
$ 941,555 $ 663,906
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated
financial statements.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands of Canadian dollars, except per unit amounts, unaudited)
Quarter ended Year ended
December 31, December 31,
2009 2008 2009 2008
-------------------------------------------------------------------------
Revenue $ 156,215 $ 89,357 $ 481,764 $ 367,231
Cost of sales and operating
expenses (note 4) 120,004 62,773 348,003 247,215
Amortization of capital assets 1,829 1,169 6,105 4,689
-------------------------------------------------------------------------
34,382 25,415 127,656 115,327
Interest expense 3,429 1,798 10,019 7,408
Net unrealized loss (gain) on
derivative instruments (1,620) 3,653 (4,145) 5,691
Amortization of intangible
assets (note 6) 9,719 5,680 29,279 23,028
-------------------------------------------------------------------------
Income from continuing
operations before income
taxes 22,854 14,284 92,503 79,200
Future income tax expense
(recovery) (note 11) (2,747) 399 (2,511) 1,217
-------------------------------------------------------------------------
Income from continuing
operations 25,601 13,885 95,014 77,983
Income from discontinued
operations (note 17) - 51 - 465
-------------------------------------------------------------------------
Net income $ 25,601 $ 13,936 $ 95,014 $ 78,448
-------------------------------------------------------------------------
Net income per unit, basic
and diluted $ 0.4809 $ 0.3171 $ 1.9808 $ 1.7851
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated
financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands of Canadian dollars, unaudited)
Quarter ended Year ended
December 31, December 31,
2009 2008 2009 2008
-------------------------------------------------------------------------
Net income $ 25,601 $ 13,936 $ 95,014 $ 78,448
Other comprehensive income:
Amortization of mark-to-market
adjustment of interest-rate
swaps 103 151 478 561
-------------------------------------------------------------------------
Total comprehensive income $ 25,704 $ 14,087 $ 95,492 $ 79,009
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated
financial statements.
CONSOLIDATED STATEMENTS OF DEFICIT AND ACCUMULATED
OTHER COMPREHENSIVE INCOME (LOSS)
(in thousands of Canadian dollars, unaudited)
Quarter ended Year ended
December 31, December 31,
2009 2008 2009 2008
-------------------------------------------------------------------------
Deficit
Deficit, beginning of period $ (21,205) $ (17,681) $ (25,714) $ (23,371)
Net income 25,601 13,936 95,014 78,448
Distributions (24,482) (21,969) (89,386) (80,791)
-------------------------------------------------------------------------
Deficit, end of period (20,086) (25,714) (20,086) (25,714)
-------------------------------------------------------------------------
Accumulated Other Comprehensive
Income (Loss)
Accumulated other comprehensive
income (loss), beginning of
period (585) (1,111) (960) (1,521)
Other comprehensive income:
Amortization of mark-to-market
adjustment of interest-rate
swaps 103 151 478 561
-------------------------------------------------------------------------
Accumulated other comprehensive
income (loss), end of period(1) (482) (960) (482) (960)
-------------------------------------------------------------------------
Deficit and accumulated other
comprehensive income (loss),
end of period $ (20,568) $ (26,674) $ (20,568) $ (26,674)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Accumulated other comprehensive income (loss) consists of cumulative
net gains and losses that were deferred prior to January 1, 2007 when
hedge accounting was used by the Fund.
The accompanying notes are an integral part of these consolidated
financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of Canadian dollars, unaudited)
Quarter ended Year ended
December 31, December 31,
2009 2008 2009 2008
-------------------------------------------------------------------------
Cash and cash equivalents
provided by (used in):
OPERATING ACTIVITIES
Net income $ 25,601 $ 13,936 $ 95,014 $ 78,448
Add:
Amortization of capital
assets 1,829 1,233 6,105 4,930
Amortization of capital
assets included in cost of
sales 333 360 1,282 1,537
Amortization of intangible
assets 9,719 5,694 29,279 23,084
Amortization of
mark-to-market adjustment
of interest-rate swaps 103 151 478 561
Net unrealized loss (gain)
on derivative instruments (1,620) 3,653 (4,145) 5,691
Future income tax expense
(recovery) (2,747) 399 (2,511) 1,217
-------------------------------------------------------------------------
33,219 25,426 125,502 115,468
Decrease (increase) in
non-cash working capital
items 4,854 6,022 (8,443) 1,933
Changes in other operating
assets and liabilities 2,502 358 2,663 (1,339)
-------------------------------------------------------------------------
40,575 31,806 119,722 116,062
-------------------------------------------------------------------------
FINANCING ACTIVITIES
Net proceeds from (repayment
of) long-term indebtedness (6,000) 28,000 (11,948) 18,000
Issuance costs of long-term
indebtedness - - (1,621) -
Issuance costs of trust units - - (700) -
Distributions paid to
unitholders (24,482) (20,211) (87,962) (78,580)
-------------------------------------------------------------------------
(30,482) 7,789 (102,231) (60,580)
-------------------------------------------------------------------------
INVESTING ACTIVITIES
Expenditures on capital assets,
non-acquisition intangible
assets and long-term contracts
intangible assets and long
term contracts (5,133) (4,915) (14,805) (13,438)
Acquisition of businesses
(note 2) (1,011) (38,876) (10,436) (43,126)
Payments related to customer
service contracts (438) - (438) -
-------------------------------------------------------------------------
(6,582) (43,791) (25,679) (56,564)
-------------------------------------------------------------------------
Increase (decrease) in cash
and cash equivalents for the
period 3,511 (4,196) (8,188) (1,082)
Cash and cash equivalents,
beginning of period 367 16,262 12,066 13,148
-------------------------------------------------------------------------
Cash and cash equivalents,
end of period $ 3,878 $ 12,066 $ 3,878 $ 12,066
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Supplementary information:
Cash interest paid $ 2,880 $ 1,633 $ 9,033 $ 6,398
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated
financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2009 and 2008
(in thousands of Canadian dollars, except unit and per unit amounts, unaudited)
NATURE OF BUSINESS
Davis + Henderson Income Fund (the "Fund") is a limited-purpose trust, formed under the laws of the Province of Ontario by a declaration of trust dated November 6, 2001 and as amended and restated on July 23, 2004. The Fund holds indirectly all of the partnership units of Davis + Henderson, Limited Partnership ("Davis + Henderson L.P.") and its subsidiaries including Filogix Limited Partnership ("Filogix L.P."), Filogix Inc., Cyence International Inc. ("Cyence"), Resolve Corporation ("Resolve") and Advanced Validation System Limited Partnership ("AVS L.P.").
1. SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements have been prepared using the following accounting policies generally accepted in Canada.
2. ACQUISITIONS
a. Resolve Business
On July 27, 2009, the Fund acquired all of the outstanding units of Resolve Business Outsourcing Income Fund through the exchange of 0.285 trust units of the Fund for each unit of Resolve Business Outsourcing Income Fund. A total of 9,286,581 Fund trust units were issued for this exchange.
Resolve is a leading provider in Canada of student loan administration services, credit card portfolio management services, and search and registration services, among other offerings. The net assets acquired and consideration given were as follows:
Net assets acquired, at fair value:
Current assets $ 55,362
Capital and other assets 16,522
Intangible assets 164,996
Future income tax asset 21,410
Payables and other current liabilities (65,517)
Future income tax liability (45,100)
Long-term indebtedness (73,812)
Other long-term liabilities (6,800)
-------------------------------------------------------------------------
67,061
Goodwill 63,632
-------------------------------------------------------------------------
Total $ 130,693
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Consideration for 100% ownership:
Units issued $ 120,094
Acquisition costs, net of cash acquired of $3,212 10,599
-------------------------------------------------------------------------
Total $ 130,693
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The value of the Fund's trust units issued on acquisition reflects the unit's average trading price over a five-day period surrounding the Fund's announcement to acquire Resolve Business Outsourcing Income Fund on June 3, 2009. The estimated acquisition costs of $13.8 million, which included transaction and restructuring costs was reduced by Resolve's cash on hand of $3.2 million at the date of acquisition. In addition, the Fund also incurred after tax costs of $0.6 million to issue additional trust units. The Fund has not completed its assessment and valuation of the assets acquired and liabilities assumed for this acquisition. As a result, the amount of the purchase price in excess of the carrying value of the acquired assets and liabilities allocated to the acquired assets and liabilities in the consolidated balance sheet has not been finalized.
b. Cyence Business
On December 19, 2008, the Fund completed an agreement to acquire a 100% interest in Cyence International Inc., a provider of credit lifecycle management software and service solutions to financial institutions in Canada and the United States. The net assets acquired and consideration given were as follows:
Net assets acquired, at fair value:
Current assets $ 3,868
Capital other assets 1,025
Intangible assets 24,999
Future income tax asset 5,059
Payables and other current liabilities (5,832)
Future income tax liability (6,785)
-------------------------------------------------------------------------
22,334
Goodwill 16,379
-------------------------------------------------------------------------
Total $ 38,713
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Consideration for 100% ownership:
Cash $ 38,713
-------------------------------------------------------------------------
Total $ 38,713
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The purchase price and related transaction costs were financed with $28 million from the drawdown of the existing credit facility, and the balance from cash on hand.
c. AVS Business
On April 28, 2005, the Fund entered into an agreement to acquire a 50% interest in AVS L.P. through a step-by-step acquisition over 20 months ending January 2007. On May 25, 2006, the Fund entered into an amending agreement to accelerate its remaining obligation as well as exercising its option to acquire a further 25% interest in the AVS business. Total consideration paid for the 75% interest in the AVS business was $11.1 million of which $3.5 million was allocated to intangible assets, $7.2 million to goodwill and the remaining balance to net assets.
Effective January 2, 2008, the Fund acquired the remaining 25% of interest in the AVS business for a consideration of $4.2 million of which $1.4 million was allocated to intangible assets, $2.7 million to goodwill, and the remaining balance to net assets.
Each step acquisition was made with available cash on hand.
3. ACCOUNTS RECEIVABLE
2009 2008
-------------------------------------------------------------------------
Trade receivables $ 56,073 $ 15,608
Other receivables 1,178 572
-------------------------------------------------------------------------
$ 57,251 $ 16,180
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The amount for allowance for doubtful accounts recorded as at December 31, 2009 was $614 (2008 - $551). The amount of past due accounts as at December 31, 2009 was $919 (2008 - $945).
4. INVENTORY
2009 2008
-------------------------------------------------------------------------
Raw materials $ 2,457 $ 1,988
Work-in-process 1,322 1,503
Finished goods 2,418 984
-------------------------------------------------------------------------
$ 6,197 $ 4,475
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Raw materials primarily consist of paper but also include foil, hologram and ink. Work-in-process consists of base stock, which refers to sheets of cheque stock with non-personalized background print, and manufacturer coupons. Finished goods primarily consist of retail products, labels, accessories, security bags and corporate seals.
Inventory that was recognized as cost of sales during the year ended December 31, 2009 was $42,401 (2008 - $48,541). The amount of write-down of inventories recognized as an expense during the year ended December 31, 2009 was $189 (2008 - $222).
5. CAPITAL ASSETS
2009
-------------------------------------------------------------------------
Furniture,
fixtures
and
Machinery leasehold
Land and and Computer improve-
buildings equipment equipment ments Total
-------------------------------------------------------------------------
Cost
Balance at
January 1, 2009 $ - $ 15,589 $ 18,491 $ 9,048 $ 43,128
Additions(1) 2,975 4,414 8,971 4,039 20,399
Other movements(2) - (32) (1,873) (289) (2,194)
-------------------------------------------------------------------------
Balance at
December 31,
2009 $ 2,975 $ 19,971 $ 25,589 $ 12,798 $ 61,333
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Depreciation and
impairment losses
Balance at
January 1, 2009 $ - $ 8,609 $ 7,438 $ 6,617 $ 22,664
Amortization 45 1,421 4,879 1,042 7,387
Other movements(2) - (32) (1,700) (282) (2,014)
-------------------------------------------------------------------------
Balance at
December 31,
2009 $ 45 $ 9,998 $ 10,617 $ 7,377 $ 28,037
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net carrying
amount at
December 31,
2009 $ 2,930 $ 9,973 $ 14,972 $ 5,421 $ 33,296
-------------------------------------------------------------------------
-------------------------------------------------------------------------
2008
-------------------------------------------------------------------------
Furniture,
fixtures
and
Machinery leasehold
Land and and Computer improve-
buildings equipment equipment ments Total
-------------------------------------------------------------------------
Cost
Balance at
January 1, 2008 $ - $ 15,191 $ 47,044 $ 8,324 $ 70,559
Additions(1) - 483 10,264 705 11,452
Other movements(2) - (85) (6,413) 19 (6,479)
Reclass for
Handbook Section
3064 - - (32,404) - (32,404)
-------------------------------------------------------------------------
Balance at
December 31,
2008 $ - $ 15,589 $ 18,491 $ 9,048 $ 43,128
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Depreciation and
impairment losses
Balance at
January 1, 2008 $ - $ 7,679 $ 24,887 $ 5,794 $ 38,360
Amortization - 1,015 10,531 825 12,371
Other movements(2) - (85) (6,392) (2) (6,479)
Reclass for
Handbook Section
3064 - - (21,588) - (21,588)
-------------------------------------------------------------------------
Balance at
December 31,
2008 $ - $ 8,609 $ 7,438 $ 6,617 $ 22,664
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net carrying
amount at
December 31,
2008 $ - $ 6,980 $ 11,053 $ 2,431 $ 20,464
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Includes amounts added through acquisitions.
(2) Other movements primarily relate to fully amortized assets removed
from the accounts during the year.
6. INTANGIBLE ASSETS
2009
---------------------------------------------------
Contracts Software
---------- ----------------------
Internally
Purchased developed
---------------------------------------------------
Cost
At January 1,
2009 $ 8,761 $ 21,727 $ 10,676
Additions(1) 1,600 10,510 4,883
Other movements(2) (3,562) (2,423) (1,433)
---------------------------------------------------
At December 31,
2009 $ 6,799 $ 29,814 $ 14,126
---------------------------------------------------
---------------------------------------------------
Amortization and
impairment loss
At January 1,
2009 $ 5,414 $ 17,393 $ 4,194
Amortization 2,841 4,368 1,983
Other movements(2) (3,562) (2,500) (1,503)
---------------------------------------------------
At December 31,
2009 $ 4,693 $ 19,261 $ 4,674
---------------------------------------------------
---------------------------------------------------
Net carrying amount
At December 31,
2009 $ 2,106 $ 10,553 $ 9,452
---------------------------------------------------
---------------------------------------------------
2009
-------------------------------------------------------------------------
Acquisition of businesses Total
------------------------------------------- -----------
Customer
Proprietary Brand relation-
Contracts software names ships
-------------------------------------------------------------------------
Cost
At January 1,
2009 $ 1,201 $ 56,093 $ 10,900 $ 107,064 $ 216,422
Additions(1) 438 14,600 - 142,200 174,231
Other movements(2) (1,201) (193) - (16,329) (25,141)
-------------------------------------------------------------------------
At December 31,
2009 $ 438 $ 70,500 $ 10,900 $ 232,935 $ 365,512
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Amortization and
impairment loss
At January 1,
2009 $ 864 $ 11,017 $ 1,452 $ 31,413 $ 71,747
Amortization 374 6,325 728 12,660 29,279
Other movements(2) (1,201) (193) - (16,329) (25,288)
-------------------------------------------------------------------------
At December 31,
2009 $ 37 $ 17,149 $ 2,180 $ 27,744 $ 75,738
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net carrying amount
At December 31,
2009 $ 401 $ 53,351 $ 8,720 $ 205,191 $ 289,774
-------------------------------------------------------------------------
-------------------------------------------------------------------------
2008
---------------------------------------------------
Contracts Software
---------- ----------------------
Internally
Purchased developed
---------------------------------------------------
Cost
At January 1,
2008(4) $ 12,581 $ 20,509 $ 10,230
Additions(1) 1,260 3,493 2,717
Other movements(2) (5,080) (2,275) (2,271)
---------------------------------------------------
At December 31,
2008 $ 8,761 $ 21,727 $ 10,676
---------------------------------------------------
---------------------------------------------------
Amortization and
impairment loss
At January 1,
2008(4) $ 6,757 $ 14,875 $ 5,018
Amortization(3) 3,464 4,261 1,647
Other movements(2) (4,807) (1,743) (2,471)
---------------------------------------------------
At December 31,
2008 $ 5,414 $ 17,393 $ 4,194
---------------------------------------------------
---------------------------------------------------
Net carrying amount
At December 31,
2008 $ 3,347 $ 4,334 $ 6,482
---------------------------------------------------
---------------------------------------------------
2008
-------------------------------------------------------------------------
Acquisition of businesses Total
------------------------------------------- -----------
Customer
Proprietary Brand relation-
Contracts software names ships
-------------------------------------------------------------------------
Cost
At January 1,
2008(4) $ 1,201 $ 41,993 $ 8,400 $ 97,521 $ 192,435
Additions(1) - 14,100 2,500 9,543 33,613
Other movements(2) - - - - (9,626)
-------------------------------------------------------------------------
At December 31,
2008 $ 1,201 $ 56,093 $ 10,900 $ 107,064 $ 216,422
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Amortization and
impairment loss
At January 1,
2008(4) $ 303 $ 6,773 $ 887 $ 23,067 $ 57,680
Amortization(3) 560 4,208 561 8,327 23,028
Other movements(2) 1 36 4 19 (8,961)
-------------------------------------------------------------------------
At December 31,
2008 $ 864 $ 11,017 $ 1,452 $ 31,413 $ 71,747
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net carrying amount
At December 31,
2008 $ 337 $ 45,076 $ 9,448 $ 75,651 $ 144,675
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Software additions other than proprietary software for the year ended
December 31, 2009 and 2008 include software added through
acquisitions.
(2) Other movements primarily relate to fully amortized assets removed
from the accounts during the year.
(3) Amortization for the year ended December 31, 2008 does not include
$56 of amortization that relates to discontinued operations.
(4) Balances include amounts reclassified for Handbook Section 3064.
7. GOODWILL
2009 2008
-------------------------------------------------------------------------
Balance, beginning of year $ 458,989 $ 438,502
Goodwill acquired during the year:
AVS acquistion - 2,691
Cyence acquisition (1,417) 17,796
Resolve acquisition 63,632 -
Filogix adjustment (1,356) -
-------------------------------------------------------------------------
Balance, end of year $ 519,848 $ 458,989
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The Filogix adjustment relates to the recognition of future tax assets in respect of loss carryforwards that were available at the point of acquisition and for which a valuation allowance had been recorded as of the acquisition date in 2006.
8. LONG-TERM INDEBTEDNESS
2009 2008
-------------------------------------------------------------------------
Non-revolving term loan maturing June 15, 2011 $ 120,000 $ 120,000
Non-revolving term loan maturing January 2, 2011 70,000 -
Revolving credit facility maturing June 15, 2011 20,000 28,000
-------------------------------------------------------------------------
210,000 148,000
Deferred finance costs (1,537) (669)
-------------------------------------------------------------------------
$ 208,463 $ 147,331
-------------------------------------------------------------------------
-------------------------------------------------------------------------
As at December 31, 2009, the Fund had $260 million of available credit facilities consisting of two non-revolving term loans and two revolving credit facilities. These include a non-revolving term loan maturing June 15, 2011 of $120 million, a second non-revolving term loan of $70 million maturing January 2, 2011, a revolving credit facility maturing June 15, 2011 of $50 million (of which $20 million was drawn at December 31, 2009) and a second revolving credit facility maturing January 2, 2011 of $20 million (of which nil was drawn at December 31, 2009). The credit facilities do not require the Fund to make any principal payments prior to their stated maturities. The facilities bear interest at rates that depend on certain financial ratios of the Fund and vary in accordance with borrowing rates in Canada. The credit facilities, including any hedge contracts with the lenders, are secured in first priority by a pledge of substantially all of the Fund's assets and by a pledge of the Fund's indirect ownership interest in Davis + Henderson L.P. The carrying value of long-term indebtedness approximates its fair value as it bears interest at floating rates that reset in most cases within three months and in all cases within one year.
The Fund also has obligations outstanding pursuant to letters of credit and performance guarantees aggregating to approximately $5 million, of which less than $0.1 million represents a drawing under the committed revolving credit facilities.
The Credit Agreement for the Fund contains a number of covenants and restrictions including the requirement to meet certain financial ratios and financial condition tests. As at December 31, 2009, the Fund was in compliance with all of its financial covenants and financial condition tests.
Deferred finance costs relate to amendments to credit agreement on July 27, 2009 and the renewal and amendment of long-term indebtedness on June 15, 2006. Amortization of deferred finance costs during the quarter ended December 31, 2009 was $354 (Q4 2008 - $69) and during the year ended December 31, 2009 was $753 (2008 - $277). Amortization of deferred finance costs is recognized over the term of the facilities as interest expense using the effective interest method.
9. FINANCIAL INSTRUMENTS
Recognition and Measurement
The Fund's financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, distributions payable to unitholders, interest-rate swaps, foreign exchange contracts and long-term indebtedness. The Fund does not enter into financial instruments for trading or speculative purposes. As such, financial assets are classified as held to maturity, or loans and receivables. Financial liabilities are recorded at amortized cost. Initially, all financial assets and financial liabilities must be recorded on the balance sheet at fair value. Subsequent measurement is determined by the classification of each financial asset and financial liability. All derivatives, including embedded derivatives that must be separately accounted for, are recorded at fair value in the consolidated balance sheet. Transaction costs related to financial instruments are generally capitalized and then amortized over the expected life of the financial instrument using the effective interest method.
Credit Risk
The Fund's financial assets that are exposed to credit risk consist primarily of cash and cash equivalents, accounts receivable, foreign exchange contracts and interest-rate swaps. The Fund, in its normal course of business, is exposed to credit risk from its customers. The Fund is exposed to credit loss in the event of non-performance by counterparties to the interest-rate swaps and foreign exchange contracts. Risks associated with concentrations of credit risk with respect to accounts receivable, foreign exchange contracts and interest-rate swaps are limited due to the credit rating of the applicable customers and swap counterparties serviced by the Fund and the generally short payment terms and frequent settlement of foreign exchange and swap differences.
Market Risk
The Fund is subject to interest-rate risks as its credit facilities bear interest at rates that depend on certain financial ratios of the Fund and vary in accordance with borrowing rates in Canada and the United States.
The following table presents a sensitivity analysis to changes in market interest rates and their potential impact on the Fund for the year ended December 31, 2009. As the sensitivity is hypothetical, it should be used with caution.
-------------------------------------------------------------------------
+ 100 bps -100 bps
-------------------------------------------------------------------------
Increase (decrease) in interest expense $ 200 $ (200)
Change to net unrealized (gain) loss on interest-
rate swaps (2,400) 2,400
-------------------------------------------------------------------------
Increase (decrease) in net income $ 2,200 $ (2,200)
-------------------------------------------------------------------------
Increase (decrease) in total comprehensive income $ 2,200 $ (2,200)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The Fund manages its interest-rate risks through the use of interest-rate swaps for some of its outstanding long-term indebtedness. As at December 31, 2009, the Fund has entered into interest-rate swap contracts with its lenders, such that the floating borrowing rates on $190.0 million, or 90.5%, of its outstanding term indebtedness are effectively fixed at interest rates and for periods shown in the following table:
-------------------------------------------------------------------------
Fair value of
interest-rate swaps
-----------------------
Notional Interest
Maturity date amount Asset Liability rate(1)
-------------------------------------------------------------------------
March 16, 2010 $ 65,000 $ - $ 650 4.490%
July 15, 2010 33,000 - 1,064 4.815%
January 5, 2011 22,000 - 338 1.980%
June 15, 2011 20,000 - 1,192 4.685%
June 15, 2011 25,000 - 1,489 4.685%
December 18, 2014 25,000 109 - 2.720%
-------------------------------------------------------------------------
$ 190,000 $ 109 $ 4,733
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) The listed interest rates exclude bankers' acceptance fees currently
in effect. Such fees could increase depending on the Fund's financial
leverage as compared to certain levels specified in the Credit
Agreement. As of December 31, 2009, $140 million of the Fund's debt
was subject to bankers' acceptance fees of 1.00% with the balance of
$70 million subject to bankers' acceptance fees of 3.75%.
The Fund is a party to foreign exchange contracts. As these foreign exchange contracts do not qualify for hedge accounting, the unrealized gain or loss is recorded as mark-to-market on derivative instruments in the consolidated statements of income. The following table lists the foreign exchange contracts as at December 31, 2009:
-------------------------------------------------------------------------
Fair value of foreign
exchange contracts
-----------------------
Notional Exchange
Maturity date amount Asset Liability rate
-------------------------------------------------------------------------
January 19, 2010 $ 500 $ 93 $ - 1.2375
February 16, 2010 500 99 - 1.2500
March 16, 2010 500 99 - 1.2500
April 15, 2010 500 28 - 1.1057
May 17, 2010 500 28 - 1.1057
-------------------------------------------------------------------------
$ 2,500 $ 347 $ -
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The following table presents a sensitivity analysis to changes in the foreign exchange between the Canadian and US dollar on the Fund for the year ended December 31, 2009. As the sensitivity is hypothetical, it should be used with caution.
-------------------------------------------------------------------------
+ $0.05 CAD -$0.05 CAD
Per USD Per USD
-------------------------------------------------------------------------
Increase (decrease) in net income $ (44) $ 44
Unrealized gain (loss) on mark-to-market on foreign
exchange contracts (125) 125
-------------------------------------------------------------------------
Total increase (decrease) in net income $ 169 $ (169)
-------------------------------------------------------------------------
Increase (decrease) in total comprehensive income $ 169 $ (169)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liquidity Risk
The Fund has long-term indebtedness with maturity dates of January 2, 2011 and June 15, 2011. The degree to which the Fund is leveraged may reduce its ability to obtain additional financing for working capital and to finance investments to maintain and grow the current levels of cash flows from operations. The Fund may be unable to extend the maturity date of the credit facilities or to refinance outstanding indebtedness.
Management, to reduce liquidity risk, has historically renewed the terms of the Fund's long-term indebtedness in advance of its maturity dates and the Fund has maintained financial ratios that are conservative compared to financial covenants applicable to the credit facilities. Further, the Fund has made numerous voluntary payments on its outstanding long-term indebtedness and a portion of its committed term credit facilities remains undrawn.
Management measures liquidity risk through comparisons of current financial ratios with financial covenants contained in the Credit Agreement.
Fair Value Hierarchy
The Fund values instruments carried at fair value using quoted market prices, where available. Quoted market prices represent a Level 1 valuation. When quoted market prices are not available, the Fund maximizes the use of observable inputs within valuation models. When all significant inputs are observable, the valuation is classified as Level 2. Valuations that require a significant use of unobservable inputs are considered Level 3. The following table outlines the fair value hierarchy of instruments carried at fair value:
2009
-------------------------------------------------------------------------
Level 1 Level 2 Level 3 Total
Assets:
Derivative instruments $ - $ 456 $ - $ 456
-------------------------------------------------------------------------
$ - $ 456 $ - $ 456
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liabilities:
Derivative instruments $ - $ 4,733 $ - $ 4,733
-------------------------------------------------------------------------
$ - $ 4,733 $ - $ 4,733
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The Level 2 financial instruments recorded in the Fund's balance sheet include interest-rate swaps and foreign exchange contracts.
Hedge Accounting
Where derivatives are held for risk management purposes or when transactions meet the criteria, including documentation requirements, specified in the CICA Handbook Section 3865, hedge accounting is applied to the risks being hedged. When hedge accounting is not applied, the change in the fair value of the derivative is recognized in income, including instruments used for economic hedging purposes that do not meet the requirements for hedge accounting.
Effective January 1, 2007, the Fund ceased applying hedge accounting on the outstanding interest-rate swaps and foreign exchange contracts.
Derivative Financial Instruments
Derivatives are carried at fair value and are reported as assets where they have a positive fair value and liabilities where they have a negative fair value. Derivatives may be embedded in other financial instruments or contracts. Derivatives embedded in other financial instruments are valued as separate derivatives when their economic characteristics and risks are not clearly and closely related to those of the host contract unless such contracts relate to normal course operations and qualify for the normal purchase and sale exemption in accordance with the standards.
Accumulated Other Comprehensive Income (Loss)
When applicable, changes in the fair value of cash flow hedging instruments are recorded in accumulated other comprehensive income (loss) until recognized in the consolidated statement of income. Accumulated other comprehensive income (loss) forms part of unitholders' equity.
10. OTHER LONG-TERM LIABILITIES
2009 2008
-------------------------------------------------------------------------
Deferred compensation program $ 845 $ -
Employee future benefits 4,987 707
Contractual supplier obligation 1,319 -
Capital lease 10 105
-------------------------------------------------------------------------
$ 7,161 $ 812
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The deferred compensation program, which commenced on January 1, 2009, is a long-term incentive plan that includes a cash award component and a cash-settled unit-based compensation component. Both the cash component and the cash-settled unit-based compensation component awarded at the grant date are subject to a three year target for compound annual growth in adjusted income. The units awarded will earn distributions through the three years equal to the actual per unit distributions declared on the units of Davis + Henderson during the fiscal periods that form the performance period. The cash-settled unit-based compensation is determined based on the average trading price for the units in the 30 days following the release of the results for the last fiscal year in the performance period, along with the annualized growth rate achieved and the distributions earned. The employee must remain an employee throughout the three year performance period in order for the plan to vest, with limited exceptions. The first possible payment under this program is in 2012. As at December 31, 2009, the estimated obligation has been recognized on the assumption that the grant will be fully earned. An expense of $0.8 million was recorded in the consolidated statement of earnings for the year ended December 31, 2009 relating to the deferred compensation program.
Employee future benefits consist of defined contribution pension plans and a non-pension post-retirement benefit plan. Obligations relating to employee future benefits relate to the non-pension post-retirement benefit plan. The Fund's non-pension post-retirement benefit plans are defined benefit plans funded on a cash basis by contributions from the Fund, which covers certain medical costs of a limited number of employees. The Fund measures its accrued benefit obligations and the fair value of the plan for accounting purposes as at December 31 of each year. The latest actuarial valuation of the post-retirement benefit plan was performed as at December 31, 2009. The next valuation will be performed in 2010.
The Fund's principal pension plans are defined contribution pension plans that provide pensions to substantially all eligible employees. Total expense for the Fund's defined contribution pension plan for the year ended December 31, 2009 was $2.2 million (2008 - $2 million).
The components of post-retirement benefit obligation recognized, including the acquisition of Resolve are as follows:
2009
-------------------------------------------------------------------------
Change in post-retirement benefit obligation
Balance at beginning of year $ 707
Acquisition of Resolve 3,392
Current service costs 89
Interest cost 248
Plan amendments (71)
Benefits paid (159)
Actuarial loss (gain) (256)
-------------------------------------------------------------------------
Balance at end of year 3,950
-------------------------------------------------------------------------
Funded status
Balance of post retirement benefit obligation 3,950
Unamortized net actuarial loss 884
Unamortized past service benefits 153
-------------------------------------------------------------------------
Accrued non-pension post-retirement benefit liability $ 4,987
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Actuarial assumptions:
Accrued benefit obligation
Discount rate 7.25%
Rate of compensation increase 3.04%
Net benefit plan expense
Discount rate 6.50%
Rate of compensation increase 2.00%
The assumed health-care cost trend rates
Initial weighted average health-care trend rate 6.50%
Ultimate weighted average health care trend rate 4.50%
Year the rate reaches the ultimate trend rate 2029
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Effects of change in assumed health cost trend rates:
1% increase:
Effect on total service and interest cost components $ 38
Effect on post-retirement accrued benefit obligation 434
1% decrease:
Effect on total service and interest cost components (31)
Effect on post-retirement accrued benefit obligation 357
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The contractual supplier obligation relates to payments to be made for a customized software package. The total liability is $1,928 of which $609 is recorded in current liabilities.
11. INCOME TAXES
The Fund is a mutual fund trust for income tax purposes and will be a specified investment flow through trust ("SIFT") for years commencing after 2010. As such, the Fund is subject to current income taxes on any taxable income of its corporate subsidiaries, on any of its taxable income for its flow-through subsidiaries not distributed to unitholders prior to January 1, 2011 and on all taxable income subsequent to December 31, 2010. If the Fund's equity capital grows beyond certain dollar limits prior to January 1, 2011, the Fund would become a SIFT and would commence in that year being subject to tax on income distributed. The Fund expects that its income distributed will not be subject to tax prior to 2011 and accordingly has not provided for future income taxes on its temporary differences and those of its flow-through subsidiary trust and partnerships expected to reverse prior to 2011 as it is considered tax exempt for accounting purposes.
Taxable income distributed by the Fund to its unitholders will be taxable income of those unitholders.
Significant components of the Fund's future tax assets and liabilities with respect to differences between the consolidated carrying values and the related tax bases of the assets and liabilities within certain partnership, trust and corporate subsidiaries are as follows:
2009 2008
-------------------------------------------------------------------------
Future income tax assets:
Capital assets less than tax values $ 2,935 $ 3,121
Intangible assets less than tax values 10,284 10,979
Tax losses available for future periods 19,289 1,677
Accrued and other liabilities 6,088 -
-------------------------------------------------------------------------
38,596 15,777
Valuation allowance (13,897) (12,615)
-------------------------------------------------------------------------
Total future tax asset 24,699 3,162
Future income tax liabilities:
Capital assets greater than tax values 3,208 2,849
Intangible assets greater than tax values 45,726 7,355
-------------------------------------------------------------------------
Total future tax liabilities 48,934 10,204
-------------------------------------------------------------------------
Net future income tax liabilities $ 24,235 $ 7,042
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The Fund does not expect the temporary differences between the carrying amount and tax base of certain intangible assets to reverse in the foreseeable future and accordingly has reduced the related future income tax asset by a valuation allowance of $10,284.
The Fund also does not expect to realize the benefit of certain loss carryforwards of U.S. corporate subsidiaries in the foreseeable future and accordingly has not recognized a future income tax asset for such losses by recording a valuation allowance of $3,613.
No future tax liability has been provided for the taxable temporary difference related to goodwill since this amount is not deductible for tax purposes and is therefore specifically exempt from the recognition requirements.
The provision for future income taxes in the consolidated statement of income represents the change in the consolidated net future income tax liabilities, excluding amounts that were recorded as an adjustment to goodwill. The effective tax rate for the period differs from the expected tax rate due to the results of operations of the Fund's corporate subsidiaries and the change in temporary differences expected to reverse after 2010 for the Fund, its flow-through trust and partnership subsidiaries.
The provision for (recovery of) income taxes included in the consolidated statements differs from the provision computed at statutory rates for the years ended December 31, 2009 and 2008 as follows:
2009 2008
-------------------------------------------------------------------------
Income before income taxes $ 92,503 $ 79,665
Income taxes at statutory rates of 33% (2008 -33.5%) 30,526 26,688
Increase (decrease) resulting from:
Impact of income distributed to unitholders (30,774) (25,596)
Change in future tax rates (2,225) -
Change in valuation allowance (82) 125
Other Items 44 -
-------------------------------------------------------------------------
Future income tax (recovery) expense $ (2,511) $ 1,217
-------------------------------------------------------------------------
-------------------------------------------------------------------------
As at December 31, 2009, certain corporate subsidiaries of the Fund had $68,194 of net operating losses for income tax purposes. These losses will begin to expire commencing in fiscal 2022. The deductibility of losses of a U.S. corporate subsidiary of $7,268 is subject to annual limitations.
12. TRUST UNITS
An unlimited number of trust units may be issued by the Fund pursuant to the Fund's Declaration of Trust. Each unit is transferable and represents an equal, undivided beneficial interest in any distributions from the Fund and in the net assets of the Fund. All units are of the same class with equal rights and privileges and are not subject to future calls or assessments. Each unit entitles the holder to one vote at all meetings of unitholders and a pro rata share of distributions declared by the Fund. The Fund intends to make monthly cash distributions of its distributable cash, as defined in the Fund's Declaration of Trust, subject to working capital requirements and other reserves. The net proceeds from the issuance of trust units and the number of units outstanding are as follows:
2009 2008
-------------------------------------------------------------------------
Balance, beginning of year $ 476,343 $ 474,585
Non-cash distribution - 1,758
Units issued 119,516 -
-------------------------------------------------------------------------
Balance, end of year $ 595,859 $ 476,343
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Units outstanding, end of year 53,233,373 43,946,792
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The weighted average number of units outstanding during the year ended December 31, 2009 was 47,966,736 (2008 - 43,946,792).
13. CAPITAL
The Fund views its capital as the combination of its indebtedness and equity balances. In general, the overall capital of the Fund is evaluated and determined in the context of its financial objectives and its strategic plan.
While the Fund carries a level of cash on hand, this amount is modest in relation to its overall capital and is generally in an amount determined in reference to its pending distribution obligations and short-term changes in non-cash working capital balances.
With respect to its level of indebtedness, the Fund determines the appropriate level in the context of its cash flow and overall business risks. Generally, the Fund has maintained low level of indebtedness relative to cash flow in order to provide increased financial flexibility and to provide increased protection for unitholders relative to their expectation of distributions. Additionally, the Fund has historically generated cash flow in excess of distributions and has used a portion of such excess to pay down indebtedness. The Fund would consider increasing its level of indebtedness relative to cash flow to assist in the financing of an acquisition. As well, the Fund will review its level of indebtedness in the context of the change in taxation impacting the Fund commencing 2011.
The Fund's indebtedness is subject to a number of covenants and restrictions including the requirement to meet certain financial ratios and financial condition tests at a subsidiary level. One such ratio is the "Total Funded Debt / EBITDA Ratio" as defined in the Credit Agreement. The maximum ratio allowed for a 12-month trailing period is 2.50. For the 12-month trailing period ended December 31, 2009, this ratio was calculated at 1.27 (12-month trailing period ended December 31, 2008 - 1.26). Management also uses this ratio as a key indicator in managing the Fund's capital.
With respect to its equity, the current level of capital is considered adequate in the context of current operations and the present strategic plan of the Fund. The equity component of capital increases primarily based upon the income of the business less the distribution paid. Any major acquisition would be financed in part with additional equity. The Fund will also review its level of equity in the context of the change in taxation impacting the Fund commencing in 2011.
14. COMMITMENTS
As at December 31, 2009, the Fund has annual lease obligations with respect to real estate, vehicles and equipment as follows:
2010 $ 14,176
2011 7,129
2012 4,815
2013 4,039
2014 2,907
Thereafter 3,520
-------------------------------------------------------------------------
$ 36,586
-------------------------------------------------------------------------
-------------------------------------------------------------------------
15. SIGNIFICANT CUSTOMERS
For the year ended December 31, 2009, the Fund earned 67% of its consolidated revenue from its seven largest customers (2008 - 78%). For the year ended December 31, 2009, three of these customers individually accounted for greater than 10%, but not more than 15% of the Fund's total revenue (for the year ended December 31, 2008, four of these customers individually accounted for greater than 10%, but no more than 17% of the Fund's total revenue).
16. SEGMENTED INFORMATION
The Fund had previously operated and reported upon two business segments, the "D+H Segment" and the "Filogix Segment". Subsequent to the completion of the Resolve acquisition, the Fund announced that it would move to a single integrated operation in order to better serve customers and maximize effectiveness. The Business is now managed along functional lines and operating decisions and performance assessment is aligned with these functions. As such, the Fund will report its business as a single segment and prior year segment information has been restated to conform to the current year's presentation.
Revenue pertaining to major service areas for the quarter and year ended December 31, 2009 and 2008 are as follows:
Quarter ended Year ended
December 31, December 31,
2009 2008 2009 2008
-------------------------------------------------------------------------
Revenue
Programs to the chequing
account $ 71,787 $ 71,913 $ 288,557 $ 294,358
Lending technology services 17,527 14,652 69,244 61,828
Loan servicing 29,554 - 50,645 -
Loan registration technology
services 21,729 948 41,785 4,143
Other 15,618 1,844 31,533 6,902
-------------------------------------------------------------------------
$ 156,215 $ 89,357 $ 481,764 $ 367,231
-------------------------------------------------------------------------
17. DISCONTINUED OPERATIONS
Effective December 31, 2008, the Fund ceased servicing a U.S. cheque supply contract. As a result, the U.S. operations were classified as discontinued operations at December 31, 2008.
Revenue attributable to the discontinued operations during the quarter and the year ended December 31, 2009 was nil (Q4 2008 - $2,351; 2008 - $8,148). Income per unit information relating to the discontinued operations is as follows:
Quarter ended Year ended
December 31, December 31
2009 2008 2009 2008
-------------------------------------------------------------------------
Income from discontinued
operations, per unit, basic
and diluted $ - $ 0.0012 $ - $ 0.0106
Income from continuing
operations, per unit, basic
and diluted 0.4809 0.3159 1.9808 1.7745
-------------------------------------------------------------------------
Net income per unit, basic
and diluted $ 0.4809 $ 0.3171 $ 1.9808 $ 1.7851
-------------------------------------------------------------------------
-------------------------------------------------------------------------
18. COMPARATIVE FIGURES
Certain comparative figures have been reclassified to conform to the current period's presentation.
SUPPLEMENTARY FINANCIAL INFORMATION
Consolidated Operating Results by Period
-------------------------------------------------------------------------
Three Three Three Three
Year months months months months
ended ended ended ended ended
(in thousands of December December September June March
Canadian dollars, 31, 31, 30, 30, 31,
unaudited) 2009 2009 2009 2009 2009
-------------------------------------------------------------------------
Revenue $ 481,764 $ 156,215 $ 142,463 $ 94,557 $ 88,529
Expenses 346,721 119,671 104,879 62,080 60,091
-------------------------------------------------------------------------
EBITDA(1) 135,043 36,544 37,584 32,477 28,438
Amortization of
capital assets and
non-acquisition
intangibles 16,579 4,551 4,530 3,679 3,819
Interest expense 9,541 3,326 2,681 1,787 1,747
Minority interest - - - - -
-------------------------------------------------------------------------
Adjusted income(1) 108,923 28,667 30,373 27,011 22,872
Amortization of
mark-to-market
adjustment of
interest-rate swaps 478 103 103 136 136
Net unrealized loss
(gain) on derivative
instruments(2) (4,145) (1,620) (1,647) (1,069) 191
Future income tax
expense (recovery) (2,511) (2,747) 1,018 (718) (64)
Amortization of
intangibles from
acquisition 20,087 7,330 5,942 3,441 3,374
-------------------------------------------------------------------------
Income from
continuing
operations 95,014 25,601 24,957 25,221 19,235
Income (loss) from
discontinued
operations - - - - -
-------------------------------------------------------------------------
Net income $ 95,014 $ 25,601 $ 24,957 $ 25,221 $ 19,235
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash flows from
operating
activities $ 119,722 $ 40,575 $ 38,959 $ 27,173 $ 13,015
Changes in non-cash
working capital
and other items(3) 5,781 (7,356) (4,056) 3,517 13,676
-------------------------------------------------------------------------
Adjusted cash flows
from operating
activities 125,503 33,219 34,903 30,690 26,691
Less:
Asset expenditures
and contract
payments(4) 14,805 5,133 2,818 2,491 4,363
-------------------------------------------------------------------------
Adjusted cash flows
after capital
expenditures and
contract payments 110,698 28,086 32,085 28,199 22,328
Distributions paid
to unitholders 87,962 24,482 23,058 20,211 20,211
-------------------------------------------------------------------------
22,736 3,604 9,027 7,988 2,117
Cash flows provided
by (used in) other
financing
activities (13,569) (6,000) (5,569) (2,000) -
Fair value of
acquisitions (130,968) (1,449) (129,682) 103 60
Fair value of
trust units
issued 119,394 - 119,394 - -
Changes in non-cash
working capital
and other items(3) (5,781) 7,356 4,056 (3,517) (13,676)
Distributions paid
to minority
interest - - - - -
-------------------------------------------------------------------------
Increase (decrease)
in cash and cash
equivalents for
the period $ (8,188) $ 3,511 $ (2,774) $ 2,574 $ (11,499)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Three Three Three Three
Year months months months months
ended ended ended ended ended
(in thousands of December December September June March
Canadian dollars, 31, 31, 30, 30, 31,
unaudited) 2008 2008 2008 2008 2008
-------------------------------------------------------------------------
Revenue $ 367,231 $ 89,357 $ 95,055 $ 95,407 $ 87,412
Expenses 245,678 62,413 61,664 61,334 60,267
-------------------------------------------------------------------------
EBITDA(1) 121,553 26,944 33,391 34,073 27,145
Amortization of
capital assets and
non-acquisition
intangibles 15,538 3,800 4,219 3,771 3,748
Interest expense 6,847 1,647 1,690 1,754 1,756
Minority interest - - - - -
-------------------------------------------------------------------------
Adjusted income(1) 99,168 21,497 27,482 28,548 21,641
Amortization of
mark-to-market
adjustment of
interest-rate swaps 561 151 151 152 107
Net unrealized loss
(gain) on derivative
instruments(2) 5,691 3,653 728 (1,034) 2,344
Future income tax
expense (recovery) 1,217 399 52 766 -
Amortization of
intangibles from
acquisition 13,716 3,409 3,412 3,447 3,448
-------------------------------------------------------------------------
Income from
continuing
operations 77,983 13,885 23,139 25,217 15,742
Income (loss) from
discontinued
operations 465 51 167 149 98
-------------------------------------------------------------------------
Net income $ 78,448 $ 13,936 $ 23,306 $ 25,366 $ 15,840
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash flows from
operating
activities $ 116,062 $ 31,806 $ 35,110 $ 32,623 $ 16,523
Changes in non-cash
working capital
and other items(3) (594) (6,380) (3,169) (82) 9,037
-------------------------------------------------------------------------
Adjusted cash flows
from operating
activities 115,468 25,426 31,941 32,541 25,560
Less:
Asset expenditures
and contract
payments(4) 13,438 4,915 3,027 2,962 2,534
-------------------------------------------------------------------------
Adjusted cash flows
after capital
expenditures and
contract payments 102,030 20,511 28,914 29,579 23,026
Distributions paid
to unitholders 78,580 20,211 20,211 19,305 18,853
-------------------------------------------------------------------------
23,450 300 8,703 10,274 4,173
Cash flows provided
by (used in) other
financing
activities 18,000 28,000 (5,000) (5,000) -
Fair value of
acquisitions (43,126) (38,876) - - (4,250)
Fair value of
trust units
issued - - - - -
Changes in non-cash
working capital
and other items(3) 594 6,380 3,169 82 (9,037)
Distributions paid
to minority
interest - - - - -
-------------------------------------------------------------------------
Increase (decrease)
in cash and cash
equivalents for
the period $ (1,082) $ (4,196) $ 6,872 $ 5,356 $ (9,114)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Three Three Three Three
Year months months months months
ended ended ended ended ended
(in thousands of December December September June March
Canadian dollars, 31, 31, 30, 30, 31,
unaudited) 2007 2007 2007 2007 2007
-------------------------------------------------------------------------
Revenue $ 369,726 $ 88,641 $ 92,724 $ 99,250 $ 89,111
Expenses 250,237 62,075 61,695 64,450 62,017
-------------------------------------------------------------------------
EBITDA(1) 119,489 26,566 31,029 34,800 27,094
Amortization of
capital assets and
non-acquisition
intangibles 15,080 3,970 3,809 3,670 3,631
Interest expense 7,531 1,713 1,819 1,945 2,054
Minority interest 379 (139) 205 204 109
-------------------------------------------------------------------------
Adjusted income(1) 96,499 21,022 25,196 28,981 21,300
Amortization of
mark-to-market
adjustment of
interest-rate swaps 678 163 163 176 176
Net unrealized loss
(gain) on derivative
instruments(2) (740) 823 957 (2,196) (324)
Future income tax
expense (recovery) 1,591 137 - 1,454 -
Amortization of
intangibles from
acquisition 13,298 3,386 3,347 3,271 3,294
-------------------------------------------------------------------------
Income from
continuing
operations 81,672 16,513 20,729 26,276 18,154
Income (loss) from
discontinued
operations 567 109 147 244 67
-------------------------------------------------------------------------
Net income $ 82,239 $ 16,622 $ 20,876 $ 26,520 $ 18,221
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash flows from
operating
activities $ 117,401 $ 32,141 $ 28,802 $ 34,784 $ 21,674
Changes in non-cash
working capital
and other items(3) (4,949) (6,959) 425 (1,814) 3,399
-------------------------------------------------------------------------
Adjusted cash flows
from operating
activities 112,452 25,182 29,227 32,970 25,073
Less:
Asset expenditures
and contract
payments(4) 15,496 4,354 4,598 2,955 3,589
-------------------------------------------------------------------------
Adjusted cash flows
after capital
expenditures and
contract payments 96,956 20,828 24,629 30,015 21,484
Distributions paid
to unitholders 78,357 26,676 17,403 17,403 16,875
-------------------------------------------------------------------------
18,599 (5,848) 7,226 12,612 4,609
Cash flows provided
by (used in) other
financing
activities (15,000) - (5,000) (10,000) -
Fair value of
acquisitions (746) - (837) - 91
Fair value of
trust units
issued - - - - -
Changes in non-cash
working capital
and other items(3) 4,949 6,959 (425) 1,814 (3,399)
Distributions paid
to minority
interest (442) (187) (255) - -
-------------------------------------------------------------------------
Increase (decrease)
in cash and cash
equivalents for
the period $ 7,360 $ 924 $ 709 $ 4,426 $ 1,301
-------------------------------------------------------------------------
-------------------------------------------------------------------------
----------------------------------------
Year Year
ended ended
(in thousands of December December
Canadian dollars, 31, 31,
unaudited) 2006 2005
----------------------------------------
Revenue $ 317,967 $ 270,470
Expenses 223,562 191,401
----------------------------------------
EBITDA(1) 94,405 79,069
Amortization of
capital assets and
non-acquisition
intangibles 13,040 12,206
Interest expense 6,016 3,301
Minority interest 202 -
----------------------------------------
Adjusted income(1) 75,147 63,562
Amortization of
mark-to-market
adjustment of
interest-rate swaps - -
Net unrealized loss
(gain) on derivative
instruments(2) - -
Future income tax
expense (recovery) - -
Amortization of
intangibles from
acquisition 8,236 2,422
----------------------------------------
Income from
continuing
operations 66,911 61,140
Income (loss) from
discontinued
operations (382) (389)
----------------------------------------
Net income $ 66,529 $ 60,751
----------------------------------------
----------------------------------------
Cash flows from
operating
activities $ 89,753 $ 76,844
Changes in non-cash
working capital
and other items(3) (1,048) (564)
----------------------------------------
Adjusted cash flows
from operating
activities 88,705 76,280
Less:
Asset expenditures
and contract
payments(4) 9,855 10,674
----------------------------------------
Adjusted cash flows
after capital
expenditures and
contract payments 78,850 65,606
Distributions paid
to unitholders 61,311 54,910
----------------------------------------
17,539 10,696
Cash flows provided
by (used in) other
financing
activities 202,749 (10,000)
Fair value of
acquisitions (223,852) (3,214)
Fair value of
trust units
issued - -
Changes in non-cash
working capital
and other items(3) 1,048 564
Distributions paid
to minority
interest - -
----------------------------------------
Increase (decrease)
in cash and cash
equivalents for
the period $ (2,516) $ (1,954)
----------------------------------------
----------------------------------------
Summary of Cash Flows Per Unit
-------------------------------------------------------------------------
Three Three Three Three
Year months months months months
ended ended ended ended ended
(in Canadian December December September June March
dollars, 31, 31, 30, 30, 31,
unaudited) 2009 2009 2009 2009 2009
-------------------------------------------------------------------------
Adjusted income
per unit, basic
and diluted $ 2.2708 $ 0.5385 $ 0.6002 $ 0.6146 $ 0.5204
Net income per
unit, basic and
diluted $ 1.9808 $ 0.4809 $ 0.4931 $ 0.5739 $ 0.4377
Adjusted cash
flows from
operating
activities $ 2.6164 $ 0.6240 $ 0.6897 $ 0.6983 $ 0.6073
Adjusted cash
flows after asset
expenditures and
contract payments $ 2.3078 $ 0.5276 $ 0.6340 $ 0.6417 $ 0.5081
Cash distributions
paid to
unitholders $ 1.8396 $ 0.4599 $ 0.4599 $ 0.4599 $ 0.4599
Distributions
declared during
period $ 1.8396 $ 0.4599 $ 0.4599 $ 0.4599 $ 0.4599
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Three Three Three Three
Year months months months months
ended ended ended ended ended
(in Canadian December December September June March
dollars, 31, 31, 30, 30, 31,
unaudited) 2008 2008 2008 2008 2008
-------------------------------------------------------------------------
Adjusted income
per unit, basic
and diluted $ 2.2565 $ 0.4892 $ 0.6253 $ 0.6496 $ 0.4924
Net income per
unit, basic and
diluted $ 1.7851 $ 0.3172 $ 0.5303 $ 0.5772 $ 0.3604
Adjusted cash
flows from
operating
activities $ 2.6275 $ 0.5786 $ 0.7268 $ 0.7405 $ 0.5816
Adjusted cash
flows after asset
expenditures and
contract payments $ 2.3217 $ 0.4667 $ 0.6579 $ 0.6731 $ 0.5240
Cash distributions
paid to
unitholders $ 1.7881 $ 0.4599 $ 0.4599 $ 0.4393 $ 0.4290
Distributions
declared during
period $ 1.8384 $ 0.4999 $ 0.4599 $ 0.4496 $ 0.4290
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Three Three Three Three
Year months months months months
ended ended ended ended ended
(in Canadian December December September June March
dollars, 31, 31, 30, 30, 31,
unaudited) 2007 2007 2007 2007 2007
-------------------------------------------------------------------------
Adjusted income
per unit, basic
and diluted $ 2.1959 $ 0.4784 $ 0.5733 $ 0.6595 $ 0.4847
Net income per
unit, basic and
diluted $ 1.8713 $ 0.3782 $ 0.4750 $ 0.6035 $ 0.4146
Adjusted cash
flows from
operating
activities $ 2.5588 $ 0.5730 $ 0.6651 $ 0.7502 $ 0.5705
Adjusted cash
flows after asset
expenditures and
contract payments $ 2.2062 $ 0.4739 $ 0.5604 $ 0.6830 $ 0.4889
Cash distributions
paid to
unitholders $ 1.7830 $ 0.6070 $ 0.3960 $ 0.3960 $ 0.3840
Distributions
declared during
period $ 1.7980 $ 0.6180 $ 0.3960 $ 0.3960 $ 0.3880
-------------------------------------------------------------------------
-------------------------------------------------------------------------
----------------------------------------
Year Year
ended ended
(in Canadian December December
dollars, 31, 31,
unaudited) 2006 2005
----------------------------------------
Adjusted income
per unit, basic
and diluted $ 1.8164 $ 1.6762
Net income per
unit, basic and
diluted $ 1.6081 $ 1.6020
Adjusted cash
flows from
operating
activities $ 2.1441 $ 2.0116
Adjusted cash
flows after asset
expenditures and
contract payments $ 1.9059 $ 1.7301
Cash distributions
paid to
unitholders $ 1.4940 $ 1.4480
Distributions
declared during
period $ 1.5000 $ 1.4500
----------------------------------------
----------------------------------------
(1) EBITDA and Adjusted income are non-GAAP terms. See the Non-GAAP
Measures section for a more complete description of these terms.
(2) The Business enters into derivative contracts to fix the interest
rates and foreign exchange rates on a significant portion of its
outstanding bank debt and foreign currency transactions,
respectively. For accounting purposes, these derivative instruments
do not qualify for hedge accounting treatment. Accordingly, any
change in the fair value of these contracts is recorded through
income. Provided the Business does not cancel its derivative
contracts prior to maturity, the amounts represent a non-cash
unrealized gain or loss that will subsequently reverse through
income. The Company has historically held its derivative contracts to
maturity.
(3) Changes in non-cash working capital and certain other balance sheet
items have been excluded from adjusted cash flows from operating
activities so as to remove the effects of timing differences in cash
receipts and cash disbursements, which generally reverse themselves
but can, vary significantly across quarters. Minority interest and
changes to other long-term liabilities are deducted to arrive at
adjusted cash flows.
(4) Asset expenditures include expenditure on capital assets, contract
payments and non-acquisition intangibles.
Condensed Consolidated Balance Sheet
-------------------------------------------------------------------------
(in thousands of Canadian December September June March
dollars, unaudited) 31, 2009 30, 2009 30, 2009 31, 2009
-------------------------------------------------------------------------
Cash and cash equivalents $ 3,878 $ 367 $ 3,141 $ 567
Other current assets 72,796 85,160 29,996 27,137
Capital and other assets 55,259 61,204 24,203 23,854
Intangible assets 289,774 293,623 136,905 140,902
Goodwill 519,848 516,374 457,636 459,037
-------------------------------------------------------------------------
$ 941,555 $ 956,728 $ 651,881 $ 651,497
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Payables and other current
liabilities $ 87,463 $ 93,385 $ 36,745 $ 37,464
Other long-term liabilities 70,338 75,165 15,691 17,804
Long-term indebtedness 208,463 214,109 145,470 147,400
Unitholders' equity 575,291 574,069 453,975 448,829
-------------------------------------------------------------------------
$ 941,555 $ 956,728 $ 651,881 $ 651,497
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(in thousands of Canadian December September June March
dollars, unaudited) 31, 2008 30, 2008 30, 2008 31, 2008
-------------------------------------------------------------------------
Cash and cash equivalents $ 12,066 $ 16,262 $ 9,390 $ 4,034
Other current assets 23,468 25,604 26,847 25,382
Capital and other assets 24,708 18,883 19,977 20,394
Intangible assets 144,675 123,270 126,903 130,815
Goodwill 458,989 441,193 441,193 441,193
-------------------------------------------------------------------------
$ 663,906 $ 625,212 $ 624,310 $ 621,818
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Payables and other current
liabilities $ 49,101 $ 44,119 $ 42,427 $ 38,491
Other long-term liabilities 17,805 6,038 5,143 7,417
Long-term indebtedness 147,331 119,262 124,193 129,123
Unitholders' equity 449,669 455,793 452,547 446,787
-------------------------------------------------------------------------
$ 663,906 $ 625,212 $ 624,310 $ 621,818
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(in thousands of Canadian December September June March
dollars, unaudited) 31, 2007 30, 2007 30, 2007 31, 2007
-------------------------------------------------------------------------
Cash and cash equivalents $ 13,148 $ 12,224 $ 11,515 $ 7,089
Other current assets 26,149 29,644 29,772 26,332
Capital and other assets 21,597 16,897 21,454 20,938
Intangible assets 134,756 142,623 141,830 145,846
Goodwill 438,502 438,502 438,502 438,502
-------------------------------------------------------------------------
$ 634,152 $ 639,890 $ 643,073 $ 638,707
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Payables and other current
liabilities $ 49,116 $ 45,165 $ 45,994 $ 41,034
Other long-term liabilities 6,289 5,673 6,732 6,688
Long-term indebtedness 129,054 128,985 133,916 143,847
Unitholders' equity 449,693 460,067 456,431 447,138
-------------------------------------------------------------------------
$ 634,152 $ 639,890 $ 643,073 $ 638,707
-------------------------------------------------------------------------
-------------------------------------------------------------------------
---------------------------------------------------
(in thousands of Canadian December December
dollars, unaudited) 31, 2006 31, 2005
---------------------------------------------------
Cash and cash equivalents $ 5,788 $ 8,304
Other current assets 27,457 17,076
Capital and other assets 20,944 16,375
Intangible assets 148,316 22,260
Goodwill 438,546 361,288
---------------------------------------------------
$ 641,051 $ 425,303
---------------------------------------------------
---------------------------------------------------
Payables and other current
liabilities $ 44,420 $ 35,665
Other long-term liabilities 4,978 5,302
Long-term indebtedness 143,778 50,000
Unitholders' equity 447,875 334,336
---------------------------------------------------
$ 641,051 $ 425,303
---------------------------------------------------
---------------------------------------------------
Distribution History
-------------------------------------------------------------------------
Distributions per unit(1)
Month 2009 2008 2007 2006 2005 2004 2003
-------------------------------------------------------------------------
January $0.1533 $0.1430 $0.1280 $0.1220 $0.1200 $0.1150 $0.1117
February 0.1533 0.1430 0.1280 0.1220 0.1200 0.1150 0.1117
March 0.1533 0.1430 0.1320 0.1250 0.1200 0.1168 0.1117
April 0.1533 0.1430 0.1320 0.1250 0.1200 0.1168 0.1133
May 0.1533 0.1533 0.1320 0.1250 0.1200 0.1168 0.1133
June 0.1533 0.1533 0.1320 0.1250 0.1200 0.1168 0.1133
July 0.1533 0.1533 0.1320 0.1250 0.1200 0.1168 0.1133
August 0.1533 0.1533 0.1320 0.1250 0.1220 0.1168 0.1133
September 0.1533 0.1533 0.1320 0.1250 0.1220 0.1168 0.1133
October 0.1533 0.1533 0.1320 0.1250 0.1220 0.1168 0.1150
November(2) 0.1533 0.1533 0.3430 0.1280 0.1220 0.1200 0.1150
December(3) 0.1533 0.1933 0.1430 0.1280 0.1220 0.1200 0.1150
-------------------------------------------------------------------------
$1.8396 $1.8384 $1.7980 $1.5000 $1.4500 $1.4044 $1.3599
-------------------------------------------------------------------------
-------------------------------------------------------------------------
---------------------------------
Distributions per unit(1)
Month 2002 2001
---------------------------------
January $0.1083 $ -
February 0.1083 -
March 0.1083 -
April 0.1083 -
May 0.1083 -
June 0.1083 -
July 0.1117 -
August 0.1117 -
September 0.1117 -
October 0.1117 -
November(2) 0.1117 -
December(3) 0.1117 0.0427
---------------------------------
$1.3200 $0.0427
---------------------------------
---------------------------------
(1) Monthly distributions are made to unitholders of record on the last
business day of each month and are paid within 31 days following each
month end.
(2) November 2007 declared distributions include a special distribution
of $0.20 for unitholders of record on November 15, 2007 and was paid
on November 30, 2007.
(3) December 2008 declared distributions include a non-cash special
distribution of $0.04 for unitholders of record on December 31, 2008
and was paid on December 31, 2008.
Tax Allocation of Distributions
-------------------------------------------------------------------------
2009 2008 2007 2006 2005 2004 2003 2002
-------------------------------------------------------------------------
Dividend income 0.0% 0.0% 0.0% 0.0% 0.0% 15.0% 19.5% 16.9%
Other income 100.0% 100.0% 100.0% 100.0% 91.6% 75.2% 69.5% 71.5%
Return of
capital 0.0% 0.0% 0.0% 0.0% 8.4% 9.8% 11.0% 11.6%
-------------------------------------------------------------------------
100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
-------------------------------------------------------------------------
The above tax allocation of distributions for 2009 represents an estimate
based on the total expected distributions for the year ended December 31,
2009.
Other Statistics
(in thousands, except per unit amounts)
Trading price range of Number of
units (TSX: "DHF.UN") units Market
----------------------- Average outstanding capitali-
Quarter High Low Close daily at zation at
volume quarter end quarter end
------------------------------------------------------------------------
2009 - Q4 16.92 14.05 16.92 177 53,233 900,709
- Q3 14.99 12.25 14.90 182 53,233 793,177
- Q2 14.29 11.51 12.25 126 43,947 538,348
- Q1 16.76 10.40 11.92 104 43,947 523,846
2008 - Q4 17.15 10.30 16.79 117 43,947 737,867
- Q3 16.40 13.50 15.47 93 43,947 679,857
- Q2 17.85 15.53 15.58 83 43,947 684,691
- Q1 21.75 15.77 17.19 107 43,947 755,445
2007 - Q4 22.00 18.75 21.00 98 43,947 922,883
- Q3 20.10 17.14 19.80 78 43,947 870,146
- Q2 19.79 16.30 19.31 90 43,947 848,613
- Q1 17.19 15.00 16.60 87 43,947 729,517
2006 - Q4 19.80 13.80 15.46 143 43,947 679,417
- Q3 19.49 17.21 19.19 96 43,947 843,339
- Q2 21.99 16.99 17.70 100 43,947 777,858
- Q1 23.18 19.50 21.50 61 37,921 815,297
2005 - Q4 24.00 16.32 23.19 92 37,921 879,383
- Q3 24.07 19.50 21.19 88 37,921 803,542
- Q2 22.85 19.58 20.92 61 37,921 793,303
- Q1 23.25 19.65 22.00 67 37,921 834,257
2004 - Q4 23.25 18.80 22.70 81 37,921 860,802
- Q3 19.62 16.75 19.45 58 37,921 737,559
- Q2 19.34 15.05 18.00 93 37,921 682,574
- Q1 19.40 16.71 19.40 92 37,921 735,663
2003 - Q4 17.50 15.10 17.45 67 37,921 661,718
- Q3 15.65 14.52 15.30 99 37,921 580,188
- Q2 15.20 12.91 15.00 82 37,921 568,812
- Q1 13.69 12.48 12.94 92 37,921 490,695
2002 - Q4 13.25 11.22 12.86 139 37,921 487,661
- Q3 12.13 10.45 12.10 165 37,921 458,842
- Q2 11.25 10.00 10.95 176 37,921 415,233
- Q1 11.20 10.11 10.51 149 18,955 199,217
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About Davis + Henderson
Davis + Henderson is a leading solutions provider to the financial services marketplace. Founded in 1875, the company today provides innovative programs, technology products and technology based business services to customers who offer chequing accounts, credit card accounts and personal, commercial, and other lending and leasing products. Davis + Henderson Income Fund is listed on the Toronto Stock Exchange under the symbol DHF.UN. Further information can be found in the disclosure documents filed by Davis + Henderson Income Fund with the securities regulatory authorities, available at www.sedar.com.
%SEDAR: 00017092EF
For further information: Bob Cronin, Chief Executive Officer, Davis + Henderson, Limited Partnership, (416) 696-7700, extension 5301, [email protected]; Brian Kyle, Chief Financial Officer, Davis + Henderson, Limited Partnership, (416) 696-7700, extension 5690, [email protected]
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