BFI Canada Income Fund
TSX : BFC.UN

BFI Canada Income Fund

August 08, 2006 07:00 ET

BFI Canada Income Fund Announces Results for the Three and Six Months Ended June 30, 2006 and a 7.1% Distribution Increase

TORONTO, ONTARIO--(CCNMatthews - Aug. 8, 2006) - BFI Canada Income Fund (the "Fund") (TSX:BFC.UN) today reported strong continuing financial results for the three and six months ended June 30, 2006. The Fund also announced a 7.1% increase in distributions, effective with the September 15th, 2006 payment. The Fund's 2006 financial results include a full year to date contribution from IESI Corporation ("IESI") which was acquired by the Fund on January 21, 2005. Accordingly, the comparable six month period ended June 30, 2005 excludes IESI's financial results for the period from January 1 to January 20, 2005.

Management Commentary

"The Fund's financial performance reflects strong evidence that our market-focused strategies are sound and working well," said Keith Carrigan, Vice Chairman and Chief Executive Officer. "The result is strong organic revenue growth improvements in Canada and the U.S. of 10.0% and 11.2% for the second quarter and 12.8% and 15.5% year to date, respectively. Our second quarter and year to date Canadian and U.S. EBITDA(A) grew by 11.5% and 4.6% and 14.0% and 7.9%, respectively. My fellow trustees and I have decided to share this positive performance with unitholders in the form of an increase in distributions. Inclusive of the increased distribution and excluding the foreign currency hedge benefit that we currently enjoy, I am confident that our estimated 2006 annual payout ratio will be below 90.0%, based on current foreign currency exchange rates. I believe the time is right to increase our distributions given current and future business conditions, which clearly supports a continued positive outlook and has set the stage for us to build additional value through our continuous improvement strategies."

Financial Highlights

- Revenues for three and six months ended June 30, 2006 increased, when compared to a year ago, by 6.0% to $192.7 million, and 17.3% to $371.5 million, respectively. Excluding the impact of foreign currency exchange fluctuations and the impact of consolidating IESI's financial results for an additional 20 days in the six months ended June 30, 2006, consolidated revenues increased 13.2% and 16.7% for the three and six months ended June 30, 2006, respectively.

- Free cash flow available for distribution(B) increased to $33.3 million in the second quarter and grew 11.4% to $63.9 million on a six month basis compared to a year ago.

- The Fund's payout ratio of 83.4% in the second quarter and 87.0% in the first half of 2006 is in line with management's annual payout ratio target of sub 90.0%.

Distribution Increase

Based on the Fund's performance and consideration of the current foreign currency exchange rates, trustees of the Fund have approved a 7.1% increase to future distributions from an annual rate of $1.698 per trust unit to $1.818 per trust unit effective for the distribution payable on September 15, 2006 to unitholders of record on August 31, 2006. Future distributions payable to holders of participating preferred shares will increase by an amount equal to the future increase in per unit distributions payable to trust unitholders of the Fund.

Other Highlights for the Three and Six Months Ended June 30, 2006
(in thousands of Canadian dollars, unless otherwise stated)

- The Fund completed three "tuck-in" acquisitions for aggregate cash consideration, including payments in respect of contingent consideration, totalling approximately $1,300 and $3,700 for the three and six months ended June 30, 2006, respectively.

- IESI drew U.S. $17,000 of variable rate solid waste disposal revenue bonds ("IRB"). A portion of the IRB proceeds was used to repay IESI's revolving credit facility with the balance used to finance construction activities at the Seneca Meadows landfill.

- Effective February 10, 2006, BFI Canada Holdings Inc. ("Holdings") entered into a Fourth Amended and Restated Credit Agreement. The amended and restated credit agreement increases the total available credit under the facility, subject to lender consent, from $80,000 to $120,000 and matures, subject to one year extensions, on June 30, 2010. Borrowing rates under the Fourth Amended and Restated Credit Agreement are more favourable than the predecessor credit agreement.

- IESI amended its Amended and Restated Revolving Credit and Term Loan Agreement, effective March 10, 2006. The amendments increased the total available credit under the facility, subject to lender consent, from U.S. $500,000 to U.S. $550,000 and borrowing rates under the amended credit agreement are more favourable than the predecessor credit agreement.



Summarized Financial Highlights
Three months Six months
ended ended
June 30, 2006 June 30, 2006
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Revenues June 30, 2005 $ 181,766 $ 316,821
Organic growth and acquisitions
(includes fuel surcharges) 23,922 53,051
Additional IESI 20 days - 20,782
Foreign currency exchange impact (13,033) (19,135)
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Revenues June 30, 2006 $ 192,655 $ 371,519
% Revenue growth before additional IESI
20 days and foreign currency exchange impact 13.2% 16.7%
Total revenue growth % 6.0% 17.3%

EBITDA(A) June 30, 2005 $ 59,518 $ 99,593
Organic growth and acquisitions 4,726 11,284
Additional IESI 20 days - 5,416
Foreign currency exchange impact (3,568) (5,066)
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EBITDA(A) June 30, 2006 $ 60,676 $ 111,227
% EBITDA(A) growth before additional
IESI 20 days and foreign currency
exchange impact 7.9% 11.3%
Total EBITDA(A) growth % 1.9% 11.7%

Free cash flow available for
distribution(B) June 30, 2005 $ 33,176 $ 57,359
Organic growth and acquisitions 355 4,452
Additional IESI 20 days - 2,373
Foreign currency exchange impact (238) (299)
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Free cash flow available for
distribution(B) June 30, 2006 $ 33,293 $ 63,885
% Free cash flow available for
distribution(B) growth before additional
IESI 20 days and
foreign currrency exchange impact 1.1% 7.8%
Total free cash flow available for
distribution(B) growth % 0.4% 11.4%

Free cash flow available for
distribution(B) without hedge $ 32,190 $ 62,034
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Aggregate distributions declared $ 27,777 $ 55,554
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Payout ratio with foreign currency hedge 83.4% 87.0%
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Payout ratio without foreign currency hedge 86.3% 89.6%
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Foreign Currency Exchange Impact

A significant portion of the Fund's revenues, EBITDA(A), capital and landfill expenditures, interest expense, and cash income taxes reported in Canadian dollars, originate in the U.S. Capital and landfill expenditures, interest expense, and cash income taxes originating in the U.S. are settled in U.S. dollars generated from U.S. operations resulting in a natural cash flow hedge. A portion of the resultant free cash flow available for distribution(B) originating from the U.S. is hedged by three, three year single rate hedge agreements through February 2008 to purchase $4,500 Canadian dollars monthly at an average foreign currency exchange rate of approximately $1.22. The Fund reports its financial results in Canadian dollars, and consequently changes in the foreign currency exchange rate between Canada and the U.S. impacts the translated value of the Fund's U.S. operating results to Canadian dollars. IESI's operating results for the three and six months ended June 30, 2006 and 2005 have been translated to Canadian dollars applying an average foreign currency exchange rate of $1.122, $1.138, $1.244 and $1.237, respectively. The financial impact of changes in the foreign currency exchange rate on the Fund's consolidation of IESI's financial results is included in Management's Discussion and Analysis ("MD&A") for the three and six months ended June 30, 2006.



Financial Highlights


Three months ended Six months ended
June 30 June 30
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(in thousands, except per
weighted average trust unit,
participating 2006 2005 2006 2005
preferred share, and ---------------------------------------
subscription (un- (un- (un- (un-
receipt amounts) audited) audited) audited) audited)
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Revenues $ 192,655 $ 181,766 $ 371,519 $ 316,821
Operating expenses 108,761 100,367 212,442 177,115
Selling, general and
administration expenses 23,218 21,881 47,850 40,113
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Income before the following 60,676 59,518 111,227 99,593
Amortization 36,971 39,984 72,244 69,992
Interest on long-term debt 8,203 7,031 16,229 12,306
Financing costs - - 79 36,710
Net gain on sale of capital
assets (301) - (355) -
(Gain) loss on derivative
financial instruments (4,110) 3,580 (3,799) (1,113)
Foreign exchange loss (gain) 7,599 (2,351) 6,860 974
Other expenses 52 537 159 1,611
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Income (loss) before income
taxes and non-controlling
interest 12,262 10,737 19,810 (20,887)
Income tax expense (recovery) 2,067 99 3,604 (19,852)
Non-controlling interest 1,835 2,882 2,918 (329)
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Net income (loss) $ 8,360 $ 7,756 $ 13,288 $ (706)
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Net income (loss) per weighted
average trust unit, basic
& diluted $ 0.16 $ 0.16 $ 0.25 $ (0.02)

Weighted average number of
trust units outstanding 53,616 47,675 53,393 44,425
Weighted average number of
participating preferred
shares outstanding 11,775 17,716 11,998 16,668
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Weighted average number of
trust units and participating
preferred shares outstanding 65,391 65,391 65,391 61,093
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Aggregate number of trust
units and participating
preferred shares outstanding 65,391 65,391 65,391 65,391
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Maintenance capital and
landfill expenditures $ 17,118 $ 15,835 $ 26,817 $ 24,135
Growth capital and landfill
expenditures 22,708 17,162 38,149 25,825
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Total capital and landfill
expenditures $ 39,826 $ 32,997 $ 64,966 $ 49,960
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Free cash flow available for
distribution(B) $ 33,293 $ 33,176 $ 63,885 $ 57,359
Free cash flow available for
distribution(B) per weighted
average trust unit and
participating preferred share $ 0.51 $ 0.51 $ 0.98 $ 0.94
Aggregate distributions
declared on weighted average
trust units $ 22,775 $ 18,739 $ 45,550 $ 34,363
Aggregate distributions
declared on weighted average
subscription receipts - - - 1,175
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Aggregate distributions
declared on weighted average
trust units and subscription
receipts 22,775 18,739 45,550 35,538
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Distributions attributable to
participating preferred
shareholders 5,002 6,963 10,004 13,337
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Aggregate distributions
declared $ 27,777 $ 25,702 $ 55,554 $ 48,875
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Aggregate distributions
declared per weighted average
trust unit and participating
preferred share $ 0.42 $ 0.39 $ 0.85 $ 0.78

Aggregate distributions
declared per weighted average
trust unit, participating
preferred share, and
subscription receipt $ 0.42 $ 0.39 $ 0.85 $ 0.80


Management's Discussion

(all amounts are in thousands of Canadian dollars, except per trust unit, participating preferred share, and foreign currency exchange rate amounts)

Consolidation of IESI

The Fund acquired IESI effective January 21, 2005. Accordingly, the comparative financial information presented for the six months ended June 30, 2005 does not include IESI's financial results for the period January 1 to January 20, 2005. IESI's financial results for the period January 1 to January 20, 2005 are included in the Fund's MD&A for the three and six months ended June 30, 2006.

Foreign Currency Exchange

The Fund reports its financial results in Canadian dollars, and consequently changes in the foreign currency exchange rate between Canada and the U.S. impacts the translated value of the Fund's U.S. operating results to Canadian dollars. IESI's financial position and operating results have been translated to Canadian dollars applying the following U.S. to Canadian dollar foreign exchange rates:



2006 2005
------------------------------------------------------------
------------------------------------------------------------
Current Average Cumulative Current Average Cumulative
average average
------------------------------------------------------------
------------------------------------------------------------
March 31 $ 1.167 $ 1.155 $ 1.155 $ 1.210 $ 1.228 $ 1.228
June 30 $ 1.115 $ 1.122 $ 1.138 $ 1.226 $ 1.244 $ 1.237



The financial impact of changes in the foreign currency exchange rate on the Fund's consolidation of IESI's financial results is included in the Fund's MD&A for the three and six months ended June 30, 2006.




Operating Highlights
(in thousands) Three months ended June 30
----------------------------------------
2006 2005 $ Change
----------------------------------------
(unaudited) (unaudited) (unaudited)
----------------------------------------
Revenues $ 192,655 $ 181,766 $ 10,889
---------------------------------------------------------------
Canada $ 72,329 $ 65,073 $ 7,256
U.S. south $ 66,021 $ 62,760 $ 3,261
U.S. northeast $ 54,305 $ 53,933 $ 372

Operating expenses $ 108,761 $ 100,367 $ 8,394
---------------------------------------------------------------
Canada $ 36,398 $ 32,539 $ 3,859
U.S. south $ 44,362 $ 42,808 $ 1,554
U.S. northeast $ 28,001 $ 25,020 $ 2,981

Selling, general and
adminstration expenses $ 23,218 $ 21,881 $ 1,337
---------------------------------------------------------------
Canada $ 8,970 $ 8,359 $ 611
U.S. south $ 8,538 $ 7,645 $ 893
U.S. northeast $ 5,710 $ 5,877 $ (167)

EBITDA(A) $ 60,676 $ 59,518 $ 1,158
---------------------------------------------------------------
Canada $ 26,961 $ 24,175 $ 2,786
U.S. south $ 13,121 $ 12,307 $ 814
U.S. northeast $ 20,594 $ 23,036 $ (2,442)



Operating Highlights
(in thousands) Six months ended June 30
-----------------------------------------
2006 2005 $ Change
-----------------------------------------
(unaudited) (unaudited) (unaudited)
-----------------------------------------
Revenues $ 371,519 $ 316,821 $ 54,698
----------------------------------------------------------------
Canada $ 136,806 $ 120,073 $ 16,733
U.S. south $ 129,841 $ 107,839 $ 22,002
U.S. northeast $ 104,872 $ 88,909 $ 15,963

Operating expenses $ 212,442 $ 177,115 $ 35,327
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Canada $ 69,280 $ 60,692 $ 8,588
U.S. south $ 87,701 $ 73,872 $ 13,829
U.S. northeast $ 55,461 $ 42,551 $ 12,910
Selling, general and
adminstration expenses $ 47,850 $ 40,113 $ 7,737
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Canada $ 18,371 $ 16,258 $ 2,113
U.S. south $ 17,603 $ 13,765 $ 3,838
U.S. northeast $ 11,876 $ 10,090 $ 1,786

EBITDA(A) $ 111,227 $ 99,593 $ 11,634
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Canada $ 49,155 $ 43,123 $ 6,032
U.S. south $ 24,537 $ 20,202 $ 4,335
U.S. northeast $ 37,535 $ 36,268 $ 1,267


The discussions to follow are in addition to the consolidation of IESI for the full six months ended June 30, 2006 and the impact of foreign currency exchange fluctuations for the three and six months ended June 30, 2006.

Revenues - Three and six months ended June 30

Canadian and U.S. segment price increases, organic growth, higher fuel surcharges, and the acceptance of higher waste volumes at Fund-owned landfills are the primary reasons for the increases. Acquisitions completed in the Fund's U.S. segments between April 2005 and June 2006 also contributed to the U.S. segment increases.

Operating expenses - Three and six months ended June 30

Higher Canadian and U.S. segment disposal, labour, operating equipment repairs and maintenance, and fuel expenditures, related principally to the collection and acceptance of additional waste volumes, and higher costs to service new and existing customers and contracts are the primary reasons for the increases, coupled with acquisitions.

Selling, general and administration expenses - Three and six months ended June 30

Higher professional fees, including amounts incurred in defence of the Lachenaie landfill statement of claim, and long-term incentive plan ("LTIP") expenses, which are being accrued at a rate of 2.25% of budgeted free cash flow available for distribution(B) in accordance with amendments to the Fund's LTIPs, are the primary reasons for the Canadian and aggregate U.S. segment increases, coupled with acquisitions and the write-off of deferred costs in respect of discontinued acquisitions in the Fund's U.S. segments.

Free Cash Flow Available for Distribution(B)

Free cash flow available for distribution(B) totalled $33,293 and $63,885 for the three and six months ended June 30, 2006, respectively, versus $33,176 and $57,359 for the comparative three and six months ended June 30, 2005. The $117 and $6,526 increases are due in large part to higher EBITDA(A) contributions from continuing operations, approximately $1,200 and $11,600, coupled with the effect of foreign currency hedges to support Canadian dollar distributions, approximately $1,300 and $2,000, partially offset by higher interest on long-term debt attributable to higher interest rates and higher outstanding indebtedness, approximately $1,200 and $3,900, and higher maintenance capital and landfill expenditures, approximately $1,300 and $2,700, respectively.

Free cash flow available for distribution(B) per weighted average trust unit and participating preferred share for the three and six months ended June 30, 2006 amounted to $0.51 and $0.98, respectively, and is equal to and $0.04 higher than the comparative periods ended June 30, 2005.

Trustees and management of the Fund have elected to define and calculate free cash flow available for distribution(B) using an operations approach, calculated as follows:



(in thousands) Three months ended June 30
--------------------------------------------------------------------
2006 2005 2004
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EBITDA(A) $ 60,676 $ 59,518 $ 17,054
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Amortization of capitalized
landfill asset closure and
post-closure costs, net of
revisions to estimated cash flows (1,842) (1,557) (872)
Interest on long-term debt (8,203) (7,031) (1,280)
Management transaction bonuses
(other expenses) (52) (478) -
Current income taxes (157) (1,321) (105)
Withholding taxes on foreign
source income (1,170) - -
Maintenance capital and
landfill expenditures (17,118) (15,835) (6,260)
Effect of foreign currency hedges
to support Canadian dollar
distributions 1,103 (176) -
Amortization of gain on settlement
of bond forward contracts 56 56 -
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Free cash flow available for
distribution(B) $ 33,293 $ 33,176 $ 8,537
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Six months ended June 30
---------------------------------------------------------------------
2006 2005 2004
---------------------------------------------------------------------

EBITDA(A) $ 111,227 $ 99,593 $ 31,188
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Amortization of capitalized
landfill asset closure and
post-closure costs, net of
revisions to estimated cash flows (3,314) (2,475) (1,707)
Interest on long-term debt (16,229) (12,306) (2,456)
Management transaction bonuses
(other expenses) (159) (1,611) -
Current income taxes (1,616) (1,695) (210)
Withholding taxes on
foreign source income (1,170) - -
Maintenance capital and
landfill expenditures (26,817) (24,135) (7,365)
Effect of foreign currency hedges
to support Canadian dollar
distributions 1,851 (124) -
Amortization of gain on settlement
of bond forward contracts 112 112 -
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Free cash flow available for
distribution(B) $ 63,885 $ 57,359 $ 19,450
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Maintenance and Growth Capital and Landfill Expenditures
(in thousands) Three months ended June 30 Six months ended June 30
---------------------------------------------------------

2006 2005 $ Change 2006 2005 $ Change
---------------------------------------------------------
---------------------------------------------------------
(un- (un- (un- (un-
audited) audited) audited) audited)
------------------ ------------------

Total $ 39,826 $ 32,997 $ 6,829 $ 64,966 $ 49,960 $ 15,006

Maintenance:
Canada $ 5,195 $ 7,038 $ (1,843) $ 8,634 $ 9,604 $ (970)
U.S. $ 11,923 $ 8,797 $ 3,126 $ 18,183 $ 14,531 $ 3,652

Growth:
Canada $ 7,073 $ 2,404 $ 4,669 $ 14,770 $ 6,833 $ 7,937
U.S. $ 15,635 $ 14,758 $ 877 $ 23,379 $ 18,992 $ 4,387


Three and six months ended June 30

Maintenance Capital and Landfill Expenditures ("Maintenance Expenditures")

The Canadian segment declines are due principally to timing and receipt of vehicles and equipment. Increases in the U.S. segment are related principally to a larger business base, increasing costs to purchase various capital and landfill assets, and higher expenditures incurred on account of landfill cell development and vehicle and equipment purchases, coupled with maintenance expenditures incurred for acquisitions completed through the Fund's U.S. segments between April 1, 2005 and June 30, 2006.

Maintenance expenditures are generally concentrated in the first three quarters of each year, which may result in the declaration and payment of distributions that are in excess of free cash flow available for distribution(B) for these quarters. For fiscal 2006, the Fund is again targeting an annual payout ratio below 90.0%, which is consistent with the Fund's historical cumulative payout ratio of 86.7% from its inception to June 30, 2006.

Three and six months ended June 30

Growth Capital and Landfill Expenditures ("Growth Expenditures")

Growth expenditures for the Fund's Canadian and U.S. segment are principally on account of acquired vehicles, equipment and containers to service organic revenue growth, including new contracts, and landfill cell development which benefits a future period or periods.

Growth expenditures represent capital required to meet the demands of acquired or organic growth or capital that specifically benefits a future period or periods. For 2006, management expects to incur growth expenditures to develop landfill airspace capacity that will benefit a future period or periods and to grow the Fund's collection operations.

Distributions

In August 2006, the Fund increased its distribution rate by an additional 7.1% to an annualized rate of $1.818 per trust unit and participating preferred share beginning with the distribution payable on September 15, 2006 to trust unitholders and participating preferred shareholders of record on August 31, 2006.

The Fund declared distributions to trust unitholders and participating preferred shareholders for the three and six months ending June 30, 2006, totalling $0.42 and $0.85, respectively, per weighted average trust unit and participating preferred share. The Fund declared a distribution payable to unitholders of record on June 30, 2006, payable July 14, 2006, of $0.1415 per trust unit and participating preferred share.

Long-term debt

Summarized details of the Fund's long-term debt facilities are as follows:



---------------------------------------------------------------------
Letters of
credit (not
reported as
long-term
debt
on the
Facility Consol-
drawn at idated Current
Available June 30, Balance available
lending 2006 Sheets) capacity
---------------------------------------------------------------------
Canadian long-term debt
facilities stated in
Canadian dollars
Senior secured debentures,
series A $ 47,000 $ 47,000 $ - $ -
Senior secured debentures,
series B $ 58,000 $ 58,000 $ - $ -
Revolving credit facility $ 80,000 $ 36,000 $ 22,118 $ 21,882


U.S. long-term debt facilities
stated in U.S. dollars
Term loan $ 185,000 $ 185,000 $ - $ -
Revolving credit facility $ 200,000 $ 78,000 $ 91,059 $ 30,941
IRB $ 45,000 $ 37,000 $ - $ 8,000


Both the Canadian and U.S. long-term debt facilities have an accordion feature which increases the available capacity of the Canadian revolving credit facility from $80,000 to $120,000 and increases the available capacity of the U.S. term loan and revolving credit facility from U.S. $385,000, in aggregate, to U.S. $550,000, in aggregate.

Definitions of EBITDA and free cash flow available for distribution

(A) All references to "EBITDA" in this press release are to "income before the following" on the consolidated statement of operations. "Income before the following" excludes some or all of the following: "amortization, interest on long-term debt, financing costs, net gain or loss on sale of capital and landfill assets, gain or loss on derivative financial instruments, foreign exchange gain or loss, write-off of deferred financing costs, other expenses, income taxes, and non-controlling interest". EBITDA is a term used by the Fund that does not have a standardized meaning prescribed by Canadian generally accepted accounting principles ("GAAP") and is therefore unlikely to be comparable to similar measures used by other issuers. EBITDA is a measure of the Fund's operating profitability, and by definition, excludes certain items as detailed above. These items are viewed by management as either non-cash (in the case of amortization, certain financing costs, write-off of deferred financing costs, gain or loss on derivative financial instruments, foreign exchange gain or loss, and future income taxes) or non-operating (in the case of interest on long-term debt, net gain or loss on sale of capital and landfill assets, certain financing costs, other expenses, current income taxes, and non-controlling interest). EBITDA is a useful financial and operating metric for investors as it represents a starting point in the determination of free cash flow available for distribution(B). The underlying reasons for exclusion of each item are as follows:

Amortization -- as a non-cash item amortization has no impact on the determination of free cash flow available for distribution(B).

Interest on long-term debt -- interest on long-term debt is a function of the Fund's debt/equity mix and interest rates; as such, it reflects the treasury/financing activities of the Fund and represents a different class of expense than those included in EBITDA.

Financing costs -- financing costs are a function of the Fund's treasury/financing activities and represents a different class of expense than those included in EBITDA.

Net gain or loss on sale of capital and landfill assets -- the net gain or loss on sale of capital and landfill assets has no impact on the determination of free cash flow available for distribution(B), because the proceeds were either reinvested in other capital assets or used to repay the Fund's revolving credit facility.

Gain or loss on derivative financial instruments -- as non-cash items, gains or losses on derivative financial instruments have no impact on the determination of free cash flow available for distribution(B).

Foreign exchange gain or loss -- as non-cash items, foreign exchange gains or losses have no impact on the determination of free cash flow available for distribution(B).

Write-off of deferred financing costs -- as a non-cash item, write-off of deferred financing costs has no impact on the determination of free cash flow available for distribution(B).

Other expenses -- other expenses represent amounts paid to management of the Fund on the closing the IESI acquisition and are not considered an expense indicative of continuing operations. Accordingly, other expenses represent a different class of expense than those included in EBITDA.

Income taxes -- income taxes are a function of tax laws and rates and are affected by matters which are separate from the daily operations of the Fund.

Non-controlling interest -- non-controlling interest represents a direct non-controlling equity interest in IESI through participating preferred share holdings. Accordingly, non-controlling interest represents a different class of expense than those included in EBITDA.

(B) The Fund has adopted a measurement called "free cash flow available for distribution" to supplement net income as a measure of operating performance. Free cash flow available for distribution is a term which does not have a standardized meaning prescribed by GAAP and is therefore unlikely to be comparable to similar measures used by other issuers. The objective of presenting this non-GAAP measure is to calculate the amount which is available for distribution to trust unitholders and participating preferred shareholders. Participating preferred share holdings are presented as non-controlling interest in the consolidated financial statements of the Fund; however, management of the Fund have elected to include the shareholdings of the participating preferred shareholders in the calculation of free cash flow available for distribution as participating preferred shares receive distributions that are economically equivalent to those received by trust unitholders and participating preferred shares are exchangeable on a one-to-one basis for trust units of the Fund. Free cash flow available for distribution is calculated as EBITDA(A) less amortization of capitalized landfill asset closure and post-closure costs net of revisions to estimated cash flows, interest on long-term debt, other expenses, current income taxes, withholding taxes on foreign source income, maintenance capital expenditures, and the effect of the foreign currency hedge to support current period Canadian dollar distributions. Additionally, the Fund's gain on settlement of two bond forward contracts on June 25, 2004 will be amortized to free cash flow available for distribution over the remaining terms of the senior secured debentures. Free cash flow available for distribution is not necessarily indicative of cash available to fund cash needs and should not be considered an alternative to cash flow as a measure of liquidity. All references to "free cash flow available for distribution" in this press release have the meaning set out in this note.

Forward-looking statements

This document may contain forward-looking statements relating to the Fund's operations or to the environment in which it operates, which are based on the Fund's operations, estimates, forecasts and projections. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict, or are beyond the Fund's control. A number of important factors could cause actual outcomes and results to differ materially from those expressed in these forward-looking statements. These factors include those set forth in the Fund's Annual Information Form for the period ended December 31, 2005. Consequently, readers should not rely on such forward-looking statements. In addition, these forward-looking statements relate to the date on which they are made. Although the forward-looking statements contained herein are based upon what management believes to be reasonable assumptions, the Fund cannot assure unitholders that actual results will be consistent with these forward looking statements, and the Fund disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

The Fund, through its operating subsidiaries, is one of North America's largest full-service waste management companies, providing non-hazardous solid waste collection and disposal services for municipal, commercial, industrial and residential customers in five Canadian provinces and nine states in the United States. The Fund serves over one million customers with vertically integrated collection and disposal assets. The Fund's Canadian segment operates under the BFI Canada brand and is Canada's second largest full-service waste management company providing integrated non-hazardous solid waste collection and landfill disposal services in the provinces of British Columbia, Alberta, Manitoba, Ontario and Quebec. The Canadian segment operates one and owns and operates four landfills, carries on solid waste collection operations in 19 markets and operates four transfer collection stations, seven material recovery facilities ("MRFs") and one landfill gas to energy facility. The Fund's U.S. operations provide integrated non-hazardous solid waste collection and landfill disposal services in two geographic regions as follows: the south, consisting of various service areas in Texas, Louisiana, Oklahoma, Arkansas and Missouri, and the northeast, consisting of various service areas in New York, New Jersey, Pennsylvania and Maryland. The U.S. south and northeast segments operate in 35 markets, and include 41 collection operations, 23 transfer stations, 17 landfills and six recycling facilities. The Fund's trust units are listed on the Toronto Stock Exchange under the symbol BFC.UN. For more information on the Fund, visit www.bficanada.com.

Management will hold a conference call on August 8, 2006 at 11:00 am (EST) to discuss results for the three and six months ended June 30, 2006. To access the call, participants should dial 1-866-250-4910, at approximately 10:50 am (EST). The conference call will also be webcast live at www.bficanada.com or www.ccnmatthews.com and subsequently archived on the BFI Canada site.

A rebroadcast of the call will be available until midnight on August 15, 2006. To access the rebroadcast, dial 1-877-289-8525 and quote the reservation number 21198317#.



BFI CANADA INCOME FUND
Consolidated Balance Sheets
June 30, 2006 (unaudited) and
December 31, 2005 (in thousands of dollars)
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December 31,
June 30, 2006 2005
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ASSETS
CURRENT
Cash and cash equivalents $ 3,416 $ 14,142
Accounts receivable 92,553 81,855
Other receivables 1,747 1,464
Prepaid expenses 10,771 10,953
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108,487 108,414

OTHER RECEIVABLES 1,808 1,518
FUNDED LANDFILL POST-CLOSURE COSTS 3,214 2,468
INTANGIBLES 74,437 84,503
GOODWILL 452,734 466,628
DEFERRED COSTS 17,157 13,478
DEFERRED FINANCING COSTS 6,320 6,577
CAPITAL ASSETS 298,059 292,495
LANDFILL ASSETS 709,394 739,226
FUTURE INCOME TAX ASSETS - 2,435
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$ 1,671,610 $ 1,717,742
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LIABILITIES
CURRENT
Accounts payable $ 53,419 $ 50,949
Accrued charges 42,635 45,172
Distribution payable 9,253 9,253
Income taxes payable 354 1,243
Deferred revenues 10,064 9,197
Current portion of long-term debt 147 29,718
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115,872 145,532

LONG TERM DEBT 475,500 420,398
LANDFILL CLOSURE AND POST-CLOSURE COSTS 59,478 66,405
OTHER LIABILITIES 2,454 515
FUTURE INCOME TAX LIABILITIES 25,160 26,741
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678,464 659,591
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NON-CONTROLLING INTEREST 288,331 312,614
UNITHOLDERS' EQUITY 704,815 745,537
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$ 1,671,610 $ 1,717,742
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BFI CANADA INCOME FUND
Consolidated Statements of Operations
For the periods ended June 30, 2006 and June 30, 2005
(unaudited - in thousands of dollars, except net income
per trust unit amounts)

---------------------------------------------------------------------
Three months ended Six months ended
------------------ ----------------
2006 2005(1) 2006 2005(1)
---- ------- ---- -------
REVENUES $ 192,655 $ 181,766 $ 371,519 $ 316,821
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EXPENSES
OPERATING 108,761 100,367 212,442 177,115
SELLING, GENERAL AND
ADMINISTRATION 23,218 21,881 47,850 40,113
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INCOME BEFORE THE FOLLOWING 60,676 59,518 111,227 99,593
AMORTIZATION 36,971 39,984 72,244 69,992
INTEREST ON LONG TERM DEBT 8,203 7,031 16,229 12,306
FINANCING COSTS - - 79 36,710
NET GAIN ON SALE OF CAPITAL
ASSETS (301) - (355) -
LOSS (GAIN) ON DERIVATIVE
FINANCIAL INSTRUMENTS (4,110) 3,580 (3,799) (1,113)
FOREIGN EXCHANGE (GAIN) LOSS 7,599 (2,351) 6,860 974
OTHER EXPENSES 52 537 159 1,611
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INCOME (LOSS) BEFORE INCOME
TAXES AND NON-CONTROLLING
INTEREST 12,262 10,737 19,810 (20,887)
INCOME TAX EXPENSE (RECOVERY)
Current 157 1,321 1,616 1,695
Future 1,910 (1,222) 1,988 (21,547)
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2,067 99 3,604 (19,852)
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INCOME (LOSS) BEFORE NON-
CONTROLLING INTEREST 10,195 10,638 16,206 (1,035)
NON-CONTROLLING INTEREST 1,835 2,882 2,918 (329)
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NET INCOME (LOSS) $ 8,360 $ 7,756 $ 13,288 $ (706)
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Net income (loss) per trust
unit, basic and diluted $ 0.16 $ 0.16 $ 0.25 $ (0.02)
Weighted average number of
trust units outstanding
(thousands), basic 53,616 47,675 53,393 44,425
Weighted average number of
trust units outstanding
(thousands), diluted 65,391 65,391 65,391 61,093


Notes:
(1) Certain comparative amounts have been reclassified to conform to
the current period's presentation


BFI CANADA INCOME FUND
Consolidated Statements of Cash Flows
For the periods ended June 30, 2006 and June 30, 2005
(unaudited - in thousands of dollars)
---------------------------------------------------------------------
Three months ended Six months ended
------------------ ----------------
2006 2005 2006 2005
---- ---- ---- ----
NET INFLOW (OUTFLOW) OF CASH
RELATED TO THE
FOLLOWING ACTIVITIES
OPERATING
Net income (loss) $ 8,360 $ 7,756 $ 13,288 $ (706)
Items not affecting cash
Amortization of intangibles 4,803 5,174 9,725 10,157
Amortization of deferred
financing costs 337 374 675 670
Amortization of capital assets 13,719 15,692 27,440 27,885
Amortization of landfill assets 18,112 18,744 34,404 31,280
Net gain on disposal of capital
assets (301) - (355) -
Deferred costs 292 37 327 826
Write-off of deferred financing
costs - - 79 367
Accretion of landfill closure and
post-closure costs 713 740 1,444 1,343
Unrealized foreign exchange
(gain) loss 8,336 (2,475) 8,144 850
Future income taxes 1,910 (1,222) 1,988 (21,547)
Loss (gain) on derivative
financial instruments (4,110) 3,580 (3,799) (1,113)
Non-controlling interest 1,835 2,882 2,918 (329)
Landfill closure and post-closure
expenditures (5,929) (2,583) (9,208) (3,706)
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48,077 48,699 87,070 45,977
Changes in non-cash working
capital items 4,751 3,480 (10,301) (10,106)
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Cash generated from
operating activities 52,828 52,179 76,769 35,871
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INVESTING
Acquisitions (1,320) - (3,678) (128,475)
Investment in other receivables (1,484) - (1,484) -
Proceeds from other receivables 585 384 818 605
Funded landfill post-closure
costs (216) (194) (1,198) (410)
Purchase of capital assets (22,967) (16,435) (40,328) (24,892)
Purchase of landfill assets (16,859) (16,562) (24,638) (25,068)
Proceeds on disposal of capital
assets 464 - 800 -
Deferred costs (323) (229) (604) (475)
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Cash utilized in investing
activities (42,120) (33,036) (70,312) (178,715)
---------------------------------------------------------------------
FINANCING
Payment of deferred financing
costs (22) - (721) (4,033)
Proceeds from term and revolving
loan 45,819 - 81,068 404,823
Repayment of revolving loan and
acquired long-term debt (28,284) (2,000) (40,984) (565,493)
Issuance of trust units net of
issuance costs (4) - (45) 351,717
Withholding taxes on foreign
source income (1,170) - (1,170) -
Distributions paid to unitholders
and participating preferred
shareholders (27,777) (25,679) (55,554) (43,433)
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Cash (utilized in) generated from
financing activities (11,438) (27,679) (17,406) 143,581
---------------------------------------------------------------------
Effect of foreign exchange
changes on foreign cash
and cash equivalents 192 (84) 223 (25)
---------------------------------------------------------------------
NET CASH (OUTFLOW) INFLOW (538) (8,620) (10,726) 712
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 3,954 22,614 14,142 13,282
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CASH AND CASH EQUIVALENTS, END
OF PERIOD $ 3,416 $ 13,994 $ 3,416 $ 13,994
---------------------------------------------------------------------
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BFI CANADA INCOME FUND
Consolidated Statements of Unitholders' Equity
For the periods ended June 30, 2006 and June 30, 2005
(unaudited - in thousands of dollars)
---------------------------------------------------------------------
Three months ended Six months ended
------------------ ----------------
2006 2005 2006 2005
---- ---- ---- ----
BALANCE, BEGINNING
OF PERIOD $ 745,455 $ 648,600 $ 745,537 $ 209,093
Net income (loss) 8,360 7,756 13,288 (706)
Issuance of trust units,
net of issuance costs and
related tax effect (4) - (45) 385,719
Issuance of trust units on
exchange of participating
preferred shares 17 84,073 17,197 174,079
Distributions (22,775) (18,739) (45,550) (35,538)
Foreign tax credit
distributed to unitholders (1,170) - (1,170) -
Cumulative foreign currency
translation adjustment (25,068) 8,423 (24,442) (2,534)
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BALANCE, END OF PERIOD $ 704,815 $ 730,113 $ 704,815 $ 730,113
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