Stock Name: MDI
Amount: CAD 0.0733
Announcement Date: 05/03/2012
Record Date: 04/04/2012
Dividend Detail:
MONCTON, NB, March 5, 2012 /CNW/ - Major Drilling Group International
Inc. (TSX: MDI) today reported results for its third quarter of fiscal
2012, ended January 31, 2012.
Highlights | | | | | | | | | |
| | | | | | | | | |
In millions of Canadian dollars (except earnings per share) | | Q3-12 | | Q3-11 | | YTD-12 | | YTD-11 | |
| | | | | | | | | |
Revenue | | $182.2 | | $107.7 | | $560.2 | | $345.0 | |
Gross profit | | 47.1 | | 23.9 | | 172.7 | | 85.5 | |
| As percentage of sales | | 25.9% | | 22.2% | | 30.8% | | 24.8% |
EBITDA(1) | | 27.0 | | 10.8 | | 117.4 | | 50.5 | |
| As percentage of sales | | 14.8% | | 10.0% | | 21.0% | | 14.6% |
Net earnings | | 9.6 | | 1.7 | | 59.0 | | 18.1 | |
Earnings per share | | 0.12 | | 0.02 | | 0.79 | | 0.25 | |
| (1) Earnings before interest, taxes, depreciation and amortization (see "non-gaap measures") | ||||||||
Major Drilling posted quarterly revenue of $182.2 million, up nearly 70%
from the $107.7 million recorded for the same quarter last year. This
represents the highest level of third quarter revenue in the Company's
history.
Gross margin percentage for the quarter was 25.9% compared to 22.2% for
the corresponding period last year.
EBITDA increased 150% to $27.0 million compared to the corresponding
period last year.
Record third quarter earnings were reported at $9.6 million or $0.12 per
share for the quarter, compared to earnings of $1.7 million or $0.02
per share for the prior year quarter.
The Company has increased its semi-annual dividend by 12.5% to $0.09 per
share to be paid on May 2, 2012.
"The Company achieved the highest third quarter revenue and profits in
its history. Demand for drilling services continues to increase and
customers remain anxious to secure rigs and crews," said Francis
McGuire, President and CEO of Major Drilling. "The third quarter is
always seasonally the weakest quarter of our fiscal year, as mining and
exploration companies shut down, often for extended periods over the
holiday season. Nevertheless, we recorded the highest ever utilization
rate for a third quarter in our history. We saw our EBITDA grow by 150%
compared to the corresponding period last year, despite the heavy
ramp-up costs and delays in Canada, which were caused by mild weather."
"Going forward, the outlook for the fourth quarter remains strong,
although weather continued to be somewhat challenging throughout
February. During the third quarter, we renewed many of our contracts
with pricing catching up to market conditions. We expect demand from
gold and copper projects to continue to be strong in calendar 2012
assuming prices remain well above economical thresholds required for
sustained exploration. Strong demand from coal and iron ore projects
has also added a layer of work, which was not present at the peak in
2008," said Mr. McGuire. "Intermediate and junior mining companies with
advanced projects have ramped up their already busy drilling programs
by adding rigs, and most senior mining companies have increased their
exploration budgets for 2012. We are starting to see increased demand
for underground services around the world as mines are moving some
surface drilling activities underground. Even though underground
drilling tends to have lower margins, the Company expects to invest
more in this area given that these contracts provide more financial
stability, and target a different labour force."
"Our biggest operational challenge continues to be the speed at which we
can grow the labour force and shrink the productivity gap of new
drillers as they gain experience. We continue to aggressively and
successfully invest in the recruitment and training of new drillers.
Our ongoing efforts on recruitment and training should allow our global
utilization rates to continue to improve as we add more drillers. We
are also pleased to report that we have been able to reduce our
turnover rate of new entrants by half over the last 12 months. As
competition for drillers heats up, wage increases will be required in
certain areas to retain and attract the most experienced drillers,
which are key to high-quality customer service," observed Mr. McGuire.
"Net capital expenditures for the quarter were $22.5 million as we
purchased 19 rigs. We also retired eight rigs through our modernization
program.We are continuing the renewal of our fleet, which helps
improve productivity, safety and speeds up the training of crews. The
greater reliability of these rigs therefore allows us to increase the
earning power of each crew. In fact, 60% of our rigs are now less than
five years old in an industry where rigs tend to last 20 years."
"The Company is pleased to announce that today its Board of Directors
increased its cash dividend by 12.5% to $0.09 per common share payable
on May 2, 2012 to shareholders of record as of April 6, 2012. This
dividend is designated as an "eligible dividend" for Canadian tax
purposes," said Mr. McGuire.
"The Company would like to take this opportunity to welcome Fred Dyment
to its Board of Directors. Mr. Dyment is a Chartered Accountant with
over 35 years of experience in the oil and natural gas industry and in
international business. He held increasingly senior positions at Ranger
Oil Limited, including Chief Financial Officer and President and Chief
Executive Officer."
Third quarter ended January 31, 2012
Total revenue for the third quarter was $182.2 million compared to
$107.7 million recorded for the prior year period. Part of the increase
comes from the acquisition of the Bradley operations. Even without
considering this acquisition, revenue was still the highest third
quarter revenue in the Company's history. All of the Company's regions
contributed to this growth.
Revenue from Canada-U.S. drilling operations was up 83% to $69.8 million
for the quarter compared to $38.2 million for the same period last
year. U.S. mineral drilling operations continued a strong recovery,
particularly from its senior mining customers. In Canada, increased
activity levels, combined with the acquisition of Bradley, contributed
to the growth of revenue.
In South and Central America, revenue for the quarter was $59.2 million,
up 61% from $36.8 million recorded in the prior year quarter. The
increase was primarily driven by strong growth in our Mexican and
Chilean operations, combined with the addition of the Bradley
operations in Colombia and Suriname.
Australian, Asian and African drilling operations reported revenue of
$53.2 million, up 63% from $32.7 million reported in the same period
last year. Australia and Mongolia accounted for a significant portion
of this growth. New operations in Burkina Faso, Mozambique and the DRC,
combined with the addition of Bradley's operations in the Philippines,
accounted for the rest of the growth in the region.
The overall gross margin percentage for the quarter was 25.9% compared
to 22.2% for the same period last year. Third quarter margins are
always impacted by a slowdown during the holiday season combined with
higher than usual mobilizations, demobilizations and increased repairs
during this period. This quarter, mild weather in Canada also caused
delays in mobilizing to certain jobs.
General and administrative costs were $16.5 million for the quarter
compared to $10.1 million in the same period last year. The increase
was due to three main factors: i) new Bradley operations; ii) new
operations in Burkina Faso, Mozambique and the DRC; and iii) increased
costs to support the strong growth in activity levels.
Other expenses were $3.4 million for the quarter compared to $1.6
million for the same period last year, due to higher incentive
compensation expenses given the Company's improved profitability and
increased provision for bad debt.
Depreciation and amortization expense increased to $12.0 million for the
quarter compared to $8.0 million for the same quarter last year. Two
thirds of the increase relates to the acquisition of Bradley, including
the amortization of intangible assets, which are amortized over four
years. Investments in equipment over the last year account for the rest
of the increase.
Non-GAAP Financial Measures
In this news release, the Company uses the following non-GAAP financial
measures: EBITDA and EBITDA margin. The Company believes these non-GAAP
financial measures provide useful information to both management and
investors in measuring the financial performance of the Company. These
measures do not have a standardized meaning prescribed by GAAP and
therefore they may not be comparable to similarly titled measures
presented by other publicly traded companies, and should not be
construed as an alternative to other financial measures determined in
accordance with GAAP.
Some of the statements contained in this press release may be
forward-looking statements, such as, but not limited to, those relating
to worldwide demand for gold and base metals and overall commodity
prices, the level of activity in the minerals and metals industry and
the demand for the Company's services, the Canadian and international
economic environments, the Company's ability to attract and retain
customers and to manage its assets and operating costs, sources of
funding for its clients, particularly for junior mining companies,
competitive pressures, currency movements, which can affect the
Company's revenue in Canadian dollars, the geographic distribution of
the Company's operations, the impact of operational changes, changes in
jurisdictions in which the Company operates (including changes in
regulation), failure by counterparties to fulfill contractual
obligations, and other factors as may be set forth, as well as
objectives or goals, and including words to the effect that the Company
or management expects a stated condition to exist or occur. Since
forward-looking statements address future events and conditions, by
their very nature, they involve inherent risks and uncertainties.
Actual results in each case could differ materially from those
currently anticipated in such statements by reason of factors such as,
but not limited to, the factors set out in the discussion on pages 17
to 20 of the 2011 Annual Report entitled "General Risks and
Uncertainties", and such other documents as available on SEDAR at www.sedar.com. All such factors should be considered carefully when making decisions
with respect to the Company. The Company does not undertake to update
any forward-looking statements, including those statements that are
incorporated by reference herein, whether written or oral, that may be
made from time to time by or on its behalf, except in accordance with
applicable securities laws.
Based in Moncton, New Brunswick, Major Drilling Group International Inc.
is one of the world's largest metals and minerals contract drilling
service companies. To support its customers' mining operations, mineral
exploration and environmental activities, Major Drilling maintains
operations on every continent.
Financial statements are attached.
Major Drilling will provide a simultaneous webcast of its quarterly
conference call on Tuesday, March 6, 2012 at 9:00 AM (EST). To access the webcast please go to the investors/webcast section of
Major Drilling's website at www.majordrilling.com and click the attached link, or go directly to the CNW Group website at
www.newswire.ca for directions. Participants will require Windows MediaPlayer, which
can be downloaded prior to accessing the webcast. Please note that this
is listen only mode.
Major Drilling Group International Inc. | ||||||||||||
Interim Condensed Consolidated Statements of Operations | ||||||||||||
(in thousands of Canadian dollars, except per share information) | ||||||||||||
(unaudited) | ||||||||||||
| | | | | | | | | | | | |
| Three months ended | | Nine months ended | |||||||||
| January 31 | | January 31 | |||||||||
| | | | | | | | | | | | |
| 2012 | | 2011 | | 2012 | | 2011 | |||||
| | | | | | | | | | | | |
TOTAL REVENUE | $ | 182,188 | | $ | 107,720 | | $ | 560,194 | | $ | 345,018 | |
| | | | | | | | | | | | |
DIRECT COSTS | | 135,068 | | | 83,847 | | | 387,520 | | | 259,512 | |
| | | | | | | | | | | | |
GROSS PROFIT | | 47,120 | | | 23,873 | | | 172,674 | | | 85,506 | |
| | | | | | | | | | | | |
OPERATING EXPENSES | | | | | | | | | | | | |
| General and administrative | | 16,522 | | | 10,118 | | | 41,956 | | | 29,640 |
| Other expenses | | 3,388 | | | 1,573 | | | 12,036 | | | 6,005 |
| Loss (gain) on disposal of property, plant and equipment | | 635 | | | 391 | | | 1,316 | | | (427) |
| Foreign exchange (gain) loss | | (384) | | | 1,028 | | | (19) | | | (220) |
| Finance costs | | 874 | | | 265 | | | 2,660 | | | 876 |
| Depreciation and amortization (note 15) | | 12,017 | | | 8,048 | | | 29,963 | | | 22,742 |
| | 33,052 | | | 21,423 | | | 87,912 | | | 58,616 | |
| | | | | | | | | | | | |
EARNINGS BEFORE INCOME TAX | | 14,068 | | | 2,450 | | | 84,762 | | | 26,890 | |
| | | | | | | | | | | | |
INCOME TAX - PROVISION (RECOVERY) (note 12) | | | | | | | | | | | | |
| Current | | (3,910) | | | 597 | | | 13,377 | | | 9,447 |
| Deferred | | 8,412 | | | 182 | | | 12,367 | | | (683) |
| | 4,502 | | | 779 | | | 25,744 | | | 8,764 | |
| | | | | | | | | | | | |
NET EARNINGS | $ | 9,566 | | $ | 1,671 | | $ | 59,018 | | $ | 18,126 | |
| | | | | | | | | | | | |
EARNINGS PER SHARE (note 13) | | | | | | | | | | | | |
Basic * | $ | 0.12 | | $ | 0.02 | | $ | 0.79 | | $ | 0.25 | |
Diluted ** | $ | 0.12 | | $ | 0.02 | | $ | 0.78 | | $ | 0.25 | |
| ||||||||||||
* Based on 78,948,691 and 71,579,811 daily weighted average shares outstanding for the quarter ended January 31, 2012 and 2011, respectively and on 75,078,293 and 71,451,882 daily weighted average shares outstanding for the fiscal year to date 2012 and 2011, respectively. The total number of shares outstanding on January 31, 2012 was 79,086,376. ** Based on 80,067,340 and 72,534,171 daily weighted average shares outstanding for the quarter ended January 31, 2012 and 2011, respectively, and on 76,046,641 and 72,042,816 daily weighted average shares outstanding for the fiscal year to date 2012 and 2011, respectively. | ||||||||||||
| ||||||||||||
| ||||||||||||
Major Drilling Group International Inc. | ||||||||||||
Interim Condensed Consolidated Statements of Comprehensive Earnings (Loss) | ||||||||||||
(in thousands of Canadian dollars) | ||||||||||||
(unaudited) | ||||||||||||
| | | | | | | | | | | | |
| Three months ended | | Nine months ended | |||||||||
| January 31 | | January 31 | |||||||||
| | | | | | | | | | | | |
| 2012 | | 2011 | | 2012 | | 2011 | |||||
| | | | | | | | | | | | |
NET EARNINGS | $ | 9,566 | | $ | 1,671 | | $ | 59,018 | | $ | 18,126 | |
| | | | | | | | | | | | |
OTHER COMPREHENSIVE EARNINGS | | | | | | | | | | | | |
| Unrealized gains (losses) on foreign currency translations (net of tax of $0) | | 2,286 | | | (4,315) | | | 9,860 | | | 4,280 |
| Unrealized loss on cash flow hedge (net of tax of $0) | | (119) | | | - | | | (119) | | | - |
| | | | | | | | | | | | |
COMPREHENSIVE EARNINGS (LOSS) | $ | 11,733 | | $ | (2,644) | | $ | 68,759 | | $ | 22,406 | |
Major Drilling Group International Inc. | ||||||||||||||||||
Interim Condensed Consolidated Statements of Changes in Equity | ||||||||||||||||||
For the nine months ended January 31, 2011 and 2012 | ||||||||||||||||||
(in thousands of Canadian dollars) | ||||||||||||||||||
(unaudited) | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | |
| Share capital | | Reserves | | Share based payments reserve | | Retained earnings | | Foreign currency translation reserve | | Total | |||||||
| | | | | | | | | | | | | | | | | | |
BALANCE AS AT MAY 1, 2010 | $ | 144,919 | | $ | - | | $ | 9,236 | | $ | 153,358 | | $ | - | | $ | 307,513 | |
| | | | | | | | | | | | | | | | | | |
| Exercise of stock options | | 2,011 | | | - | | | (599) | | | - | | | - | | | 1,412 |
| Share based payments reserve | | - | | | - | | | 1,906 | | | - | | | - | | | 1,906 |
| Dividends | | - | | | - | | | - | | | (5,243) | | | - | | | (5,243) |
| | 146,930 | | | - | | | 10,543 | | | 148,115 | | | - | | | 305,588 | |
Comprehensive earnings: | | | | | | | | | | | | | | | | | | |
| Net earnings | | - | | | - | | | - | | | 18,126 | | | - | | | 18,126 |
| Unrealized gains on foreign currency translations | - | | | - | | | - | | | - | | | 4,280 | | | 4,280 | |
| Total comprehensive earnings | | - | | | - | | | - | | | 18,126 | | | 4,280 | | | 22,406 |
| | | | | | | | | | | | | | | | | | |
BALANCE AS AT JANUARY 31, 2011 | $ | 146,930 | | $ | - | | $ | 10,543 | | $ | 166,241 | | $ | 4,280 | | $ | 327,994 | |
| | | | | | | | | | | | | | | | | | |
BALANCE AS AT MAY 1, 2011 | $ | 150,642 | | $ | - | | $ | 10,280 | | $ | 170,425 | | $ | (3,662) | | $ | 327,685 | |
| | | | | | | | | | | | | | | | | | |
| Exercise of stock options | | 2,022 | | | - | | | (322) | | | - | | | - | | | 1,700 |
| Share issue (net of issue costs) (note 11) | | 76,439 | | | - | | | - | | | - | | | - | | | 76,439 |
| Share based payments reserve | | - | | | - | | | 1,766 | | | - | | | - | | | 1,766 |
| Dividends | | - | | | - | | | - | | | (6,242) | | | - | | | (6,242) |
| | 229,103 | | | - | | | 11,724 | | | 164,183 | | | (3,662) | | | 401,348 | |
Comprehensive earnings: | | | | | | | | | | | | | | | | | | |
| Net earnings | | - | | | - | | | - | | | 59,018 | | | - | | | 59,018 |
| Unrealized gains on foreign currency translations | - | | | - | | | - | | | - | | | 9,860 | | | 9,860 | |
| Unrealized loss on cash flow hedge | | - | | | (119) | | | - | | | - | | | - | | | (119) |
Total comprehensive earnings | | - | | | (119) | | | - | | | 59,018 | | | 9,860 | | | 68,759 | |
| | | | | | | | | | | | | | | | | | |
BALANCE AS AT JANUARY 31, 2012 | $ | 229,103 | | $ | (119) | | $ | 11,724 | | $ | 223,201 | | $ | 6,198 | | $ | 470,107 | |
Major Drilling Group International Inc. | ||||||||||||
Interim Condensed Consolidated Statements of Cash Flows | ||||||||||||
(in thousands of Canadian dollars) | ||||||||||||
(unaudited) | ||||||||||||
| | | | | | | | | | | | |
| Three months ended | | Nine months ended | |||||||||
| January 31 | | January 31 | |||||||||
| | | | | | | | | | | | |
| 2012 | | 2011 | | 2012 | | 2011 | |||||
| | | | | | | | | | | | |
OPERATING ACTIVITIES | | | | | | | | | | | | |
Earnings before income tax | $ | 14,068 | | $ | 2,450 | | $ | 84,762 | | $ | 26,890 | |
Operating items not involving cash | | | | | | | | | | | | |
| Depreciation and amortization (note 15) | | 12,017 | | | 8,048 | | | 29,963 | | | 22,742 |
| Loss (gain) on disposal of property, plant and equipment | | 635 | | | 391 | | | 1,316 | | | (427) |
| Share based payments reserve | | 645 | | | 695 | | | 1,766 | | | 1,906 |
Finance costs recognized in earnings before income tax | | 874 | | | 265 | | | 2,660 | | | 876 | |
| | 28,239 | | | 11,849 | | | 120,467 | | | 51,987 | |
Changes in non-cash operating working capital items | | 17,672 | | | 7,080 | | | (4,629) | | | (4,784) | |
Finance costs paid | | (938) | | | (265) | | | (2,724) | | | (876) | |
Income taxes (paid) recovered | | (4,915) | | | 2,188 | | | (16,240) | | | 473 | |
Cash flow from operating activities | | 40,058 | | | 20,852 | | | 96,874 | | | 46,800 | |
| | | | | | | | | | | | |
FINANCING ACTIVITIES | | | | | | | | | | | | |
Repayment of long-term debt | | (11,588) | | | (1,890) | | | (15,817) | | | (7,124) | |
Proceeds from long-term debt | | - | | | - | | | 25,000 | | | - | |
Repayment of short-term debt | | (5,141) | | | - | | | (5,141) | | | - | |
Proceeds from short-term debt | | - | | | - | | | - | | | 10,400 | |
Issuance of common shares | | 1,035 | | | 132 | | | 78,139 | | | 1,412 | |
Dividends paid | | (6,242) | | | (5,243) | | | (11,525) | | | (9,993) | |
Cash flow (used in) from financing activities | | (21,936) | | | (7,001) | | | 70,656 | | | (5,305) | |
| | | | | | | | | | | | |
INVESTING ACTIVITIES | | | | | | | | | | | | |
Business acquisitions (net of cash acquired) (note 16) | | (7,960) | | | (30) | | | (74,479) | | | (2,567) | |
Acquisition of property, plant and equipment (net of direct financing) | | (22,539) | | | (18,310) | | | (60,032) | | | (40,518) | |
Proceeds from disposal of property, plant and equipment | | 164 | | | 572 | | | 1,711 | | | 3,929 | |
Cash flow used in investing activities | | (30,335) | | | (17,768) | | | (132,800) | | | (39,156) | |
| | | | | | | | | | | | |
Effect of exchange rate changes | | 269 | | | 237 | | | (828) | | | (404) | |
| | | | | | | | | | | | |
(DECREASE) INCREASE IN CASH | | (11,944) | | | (3,680) | | | 33,902 | | | 1,935 | |
| | | | | | | | | | | | |
CASH, BEGINNING OF THE PERIOD | | 62,061 | | | 35,847 | | | 16,215 | | | 30,232 | |
| | | | | | | | | | | | |
CASH, END OF THE PERIOD | $ | 50,117 | | $ | 32,167 | | $ | 50,117 | | $ | 32,167 | |
| ||||||||||||
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Major Drilling Group International Inc. | ||||||||||||
Interim Condensed Consolidated Balance Sheets | ||||||||||||
As at January 31, 2012 and April 30, 2011 | ||||||||||||
(in thousands of Canadian dollars) | ||||||||||||
(unaudited) | ||||||||||||
| | | | | | |||||||
| January 31, 2012 | | April 30, 2011 | |||||||||
ASSETS | | | | | | |||||||
| | | | | | |||||||
CURRENT ASSETS | | | | | | |||||||
| Cash | $ | 50,117 | | $ | 16,215 | ||||||
| Trade and other receivables | | 122,722 | | | 100,300 | ||||||
| Income tax receivable | | 4,719 | | | 2,720 | ||||||
| Inventories | | 99,703 | | | 69,864 | ||||||
| Prepaid expenses | | 6,635 | | | 8,439 | ||||||
| | 283,896 | | | 197,538 | |||||||
| | | | | | |||||||
PROPERTY, PLANT AND EQUIPMENT (note 7) | | 315,160 | | | 235,473 | |||||||
| | | | | | |||||||
DEFERRED INCOME TAX ASSETS | | 4,659 | | | 11,575 | |||||||
| | | | | | |||||||
GOODWILL (note 8) | | 53,421 | | | 28,316 | |||||||
| | | | | | |||||||
INTANGIBLE ASSETS (note 9) | | 7,370 | | | 1,235 | |||||||
| | | | | | |||||||
| $ | 664,506 | | $ | 474,137 | |||||||
| | | | | | |||||||
| | | | | | |||||||
LIABILITIES | | | | | | |||||||
| | | | | | |||||||
CURRENT LIABILITIES | | | | | | |||||||
| Trade and other payables | $ | 100,357 | | $ | 88,599 | ||||||
| Income tax payable | | 4,789 | | | 4,297 | ||||||
| Short-term debt | | 7,893 | | | 7,919 | ||||||
| Current portion of long-term debt (note 10) | | 8,799 | | | 8,402 | ||||||
| | 121,838 | | | 109,217 | |||||||
| | | | | | |||||||
CONTINGENT CONSIDERATIONS | | 2,760 | | | 2,612 | |||||||
| | | | | | |||||||
LONG-TERM DEBT (note 10) | | 44,005 | | | 16,630 | |||||||
| | | | | | |||||||
DEFERRED INCOME TAX LIABILITIES | | 25,344 | | | 17,993 | |||||||
| | | | | | |||||||
DEFERRED REVENUE | | 452 | | | - | |||||||
| | 194,399 | | | 146,452 | |||||||
| | | | | | |||||||
SHAREHOLDERS' EQUITY | | | | | | |||||||
| Share capital (note 11) | | 229,103 | | | 150,642 | ||||||
| Reserves | | (119) | | | - | ||||||
| Share based payments reserve | | 11,724 | | | 10,280 | ||||||
| Retained earnings | | 223,201 | | | 170,425 | ||||||
| Foreign currency translation reserve | | 6,198 | | | (3,662) | ||||||
| | 470,107 | | | 327,685 | |||||||
| | | | | | |||||||
| $ | 664,506 | | $ | 474,137 | |||||||
MAJOR DRILLING GROUP INTERNATIONAL INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED JANUARY 31, 2012 AND 2011
(UNAUDITED)
(in thousands of Canadian dollars, except per share information)
1. NATURE OF ACTIVITIES
Major Drilling Group International Inc. ("the Company") is incorporated
under the Canada Business Corporations Act and has its head office at
111 St. George Street, Suite 100, Moncton, NB, Canada. The Company's
common shares are listed on the Toronto Stock Exchange ("TSX"). The
principal source of revenue consists of contract drilling for companies
primarily involved in mining and mineral exploration. The Company
maintains operations on every continent.
2. BASIS OF PRESENTATION
Statement of compliance
International Financial Reporting Standards ("IFRS") require entities
that adopt IFRS to make an explicit and unreserved statement, in their
first annual IFRS financial statements, of compliance with IFRS. The
Company will make this statement when it issues its financial
statements for the year ending April 30, 2012. These financial
statements have been prepared in accordance with IAS 34 Interim Financial Reporting ("IAS 34") as issued by the International Accounting Standards Board
("IASB") and using the accounting policies the Company expects to adopt
in its consolidated financial statements for the year ending April 30,
2012.
Basis of consolidation
The Interim Condensed Consolidated Financial Statements incorporate the
financial statements of the Company and entities controlled by the
Company. Control is achieved where the Company has the power to govern
the financial and operating policies of an investee entity so as to
obtain benefits from its activities.
The results of subsidiaries acquired or disposed of during the period
are included in the consolidated statement of operations from the
effective date of acquisition or up to the effective date of disposal,
as appropriate.
Intra-group transactions, balances, income and expenses are eliminated
on consolidation, where appropriate.
Basis of preparation
The Interim Condensed Consolidated Financial Statements have been
prepared based on the accounting policies presented in the first
quarter Notes to Interim Condensed Consolidated Financial Statements
for the three months ended July 31, 2011.
3. FUTURE ACCOUNTING CHANGES
The Company has not applied the following new and revised IFRSs that
have been issued but are not yet effective:
| IFRS 7 (as amended in 2011) Financial Instruments: Disclosures |
| IFRS 9 (as amended in 2010) Financial Instruments |
| IFRS 10 Consolidated Financial Statements |
| IFRS 11 Joint Arrangements |
| IFRS 12 Disclosure of Interests in Other Entities |
| IFRS 13 Fair Value Measurement |
| IAS 1 Presentation of Financial Statements |
| IAS 12 (amended) Income Taxes - recovery of underlying assets |
| IAS 19 Employee Benefits |
| IAS 27 (reissued) Separate Financial Statements |
| IAS 28 (reissued) Investments in Associates and Joint Ventures |
| IAS 32 (amended) Financial Instruments: Presentation |
The Company is currently evaluating the impact of applying these
standards to its Consolidated Financial Statements.
4. SIGNIFICANT NEW ACCOUNTING POLICIES
Derivative financial instruments
The Company has entered into a derivative financial instrument, in the
form of an interest rate swap, to manage its exposure to interest rate
risk. The derivative is initially recognized at fair value at the date
the derivative contract is executed and is subsequently re-measured to
fair value at each reporting date. The resulting gain or loss is
recognized in comprehensive earnings unless the derivative is
considered to be ineffective, in which event it is recognized in profit
or loss.
Hedge accounting
The Company designates the derivative as a cash flow hedge. At the
inception of the hedge, and on an ongoing basis, the Company documents
whether the hedging instrument used in the hedging relationship is
highly effective in offsetting changes in cash flows of the hedged
item.
Cash flow hedge
The effective portion of changes in the fair value of the derivative is
deferred in equity. The gain or loss relating to the ineffective
portion is recognized immediately in profit or loss.
Hedge accounting is discontinued when the Company revokes the hedging
relationship, the hedging instrument expires or is terminated, or no
longer qualifies for hedge accounting. Any cumulative gain or loss
deferred in equity at that time is recognized immediately in profit or
loss.
5. KEY SOURCES OF ESTIMATION UNCERTAINTY AND CRITICAL ACCOUNTING JUDGMENTS
The preparation of financial statements in conformity with IFRSs
requires management to make judgments, estimates and assumptions that
affect the application of accounting policies and the reported amounts
of assets, liabilities, income and expenses. Actual results may differ
from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognized in the period
in which the estimate is revised if the revision affects only that
period, or in the period of the revision and future periods if the
revision affects both current and future periods. Significant areas
requiring the use of management estimates relate to the useful lives of
property, plant and equipment for amortization purposes, property,
plant and equipment and inventory valuation, determination of income
and other taxes, assumptions used in compilation of share based
payments, fair value of assets acquired and liabilities assumed in
business acquisitions, amounts recorded as accrued liabilities, and
impairment testing of goodwill and intangible assets.
The Company applied judgment in determining the functional currency of
the Company and its subsidiaries, determination of cash generating
units ("CGUs"), the degree of componentization of property, plant and
equipment, and the recognition of provisions and accrued liabilities.
6. FIRST TIME ADOPTION OF IFRS
For the overall impact of IFRS on the opening balance sheet as at
transition date, including a discussion of the optional exemptions
taken and the applicable mandatory exceptions, refer to Note 6 in the
first quarter Notes to Interim Condensed Consolidated Financial
Statements for the three months ended July 31, 2011.
The following reconciliations present the adjustments made to the
Company's previous GAAP financial results of operations and financial
position to comply with IFRS 1 First-time Adoption of International Financial Reporting Standards ("IFRS 1"). A discussion of transitional adjustments follows the
reconciliations.
IFRS Consolidated Balance Sheet | |||||||||||||||||||||||||||
As at January 31, 2011 | |||||||||||||||||||||||||||
| | | | | (a) | | (b) | | (c) | | (d) | | (e) | | (f) | | | ||||||||||
ASSETS | | | Opening | | | | Share based | | | | | | | | | | | ||||||||||
| Previous | | IFRS | | | | payments | | Deferred | | Contingent | | Fair value as | | Building | | | ||||||||||
| GAAP | | restatements * | | Adjustments | | reserve | | share units | | consideration | | deemed cost | | componentization | | IFRS | ||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
CURRENT ASSETS | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cash | $ | 32,167 | | $ | - | | $ | - | | $ | - | | $ | - | | $ | - | | $ | - | | $ | - | | $ | 32,167 |
| Trade and other receivables | | 70,999 | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | 70,999 |
| Income tax receivable | | 4,784 | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | 4,784 |
| Inventories | | 67,155 | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | 67,155 |
| Prepaid expenses | | 5,345 | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | 5,345 |
| | 180,450 | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | 180,450 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
PROPERTY, PLANT AND EQUIPMENT | | 229,995 | | | (11,877) | | | - | | | - | | | - | | | - | | | 544 | | | 85 | | | 218,747 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
DEFERRED INCOME TAX ASSETS | | 10,643 | | | 469 | | | - | | | - | | | - | | | - | | | (116) | | | (12) | | | 10,984 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
GOODWILL | | 25,559 | | | 2,011 | | | - | | | - | | | - | | | 741 | | | - | | | - | | | 28,311 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
INTANGIBLE ASSETS | | 1,499 | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | 1,499 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| $ | 448,146 | | $ | (9,397) | | $ | - | | $ | - | | $ | - | | $ | 741 | | $ | 428 | | $ | 73 | | $ | 439,991 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
LIABILITIES | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
CURRENT LIABILITIES | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Trade and other payables | $ | 57,898 | | $ | (35) | | $ | - | | $ | - | | $ | 26 | | $ | - | | $ | - | | $ | - | | $ | 57,889 |
| Income tax payable | | 7,481 | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | 7,481 |
| Short-term debt | | 11,129 | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | 11,129 |
| Current portion of long-term debt | | 6,701 | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | 6,701 |
| | 83,209 | | | (35) | | | - | | | - | | | 26 | | | - | | | - | | | - | | | 83,200 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
CONTINGENT CONSIDERATION | | - | | | 2,011 | | | - | | | - | | | - | | | 741 | | | - | | | - | | | 2,752 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
LONG-TERM DEBT | | 10,178 | | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | 10,178 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
DEFERRED INCOME TAX LIABILITIES | | 16,441 | | | (617) | | | - | | | - | | | - | | | - | | | 25 | | | 18 | | | 15,867 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 109,828 | | | 1,359 | | | - | | | - | | | 26 | | | 741 | | | 25 | | | 18 | | | 111,997 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
SHAREHOLDERS' EQUITY | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Share capital | | 143,847 | | | 2,484 | | | 599 | | | - | | | - | | | - | | | - | | | - | | | 146,930 |
| Share based payments reserve | | 12,605 | | | (1,906) | | | (599) | | | 443 | | | - | | | - | | | - | | | - | | | 10,543 |
| Retained earnings | | 221,919 | | | (55,667) | | | - | | | (443) | | | (26) | | | - | | | 403 | | | 55 | | | 166,241 |
| Foreign currency translation reserve | | (40,053) | | | 44,333 | | | - | | | - | | | - | | | - | | | - | | | - | | | 4,280 |
| | 338,318 | | | (10,756) | | | - | | | - | | | (26) | | | - | | | 403 | | | 55 | | | 327,994 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| $ | 448,146 | | $ | (9,397) | | $ | - | | $ | - | | $ | - | | $ | 741 | | $ | 428 | | $ | 73 | | $ | 439,991 | |
* total of May 1, 2010 transitional adjustments to re-state previous GAAP to IFRS | |||||||||||||||||||||||||||
IFRS Consolidated Statement of Operations | | | | | | | | | | | | | | | | | | |
For the three months ended January 31, 2011 | | | | (c) | | (d) | | (f) | | (g) | | | ||||||
| | | | Share based | | Deferred | | Fair value | | Building | | | ||||||
| Previous GAAP | | payments | | share units | | as deemed cost | | componentization | | IFRS | |||||||
| | | | | | | | | | | | | | | | | | |
TOTAL REVENUE | $ | 107,720 | | $ | - | | $ | - | | $ | - | | $ | - | | $ | 107,720 | |
| | | | | | | | | | | | | | | | | | |
DIRECT COSTS | | 83,847 | | | - | | | - | | | - | | | - | | | 83,847 | |
| | | | | | | | | | | | | | | | | | |
GROSS PROFIT | | 23,873 | | | - | | | - | | | - | | | - | | | 23,873 | |
| | | | | | | | | | | | | | | | | | |
OPERATING EXPENSES | | | | | | | | | | | | | | | | | | |
| General and administrative | | 10,112 | | | - | | | 6 | | | - | | | - | | | 10,118 |
| Other expenses | | 1,434 | | | 139 | | | - | | | - | | | - | | | 1,573 |
| Loss on disposal of property, plant and equipment | | 391 | | | - | | | - | | | - | | | - | | | 391 |
| Foreign exchange loss | | 1,028 | | | - | | | - | | | - | | | - | | | 1,028 |
| Finance costs | | 265 | | | - | | | - | | | - | | | - | | | 265 |
| Depreciation and amortization | | 8,257 | | | - | | | - | | | (181) | | | (28) | | | 8,048 |
| | 21,487 | | | 139 | | | 6 | | | (181) | | | (28) | | | 21,423 | |
| | | | | | | | | | | | | | | | | | |
EARNINGS (LOSS) BEFORE INCOME TAX | | 2,386 | | | (139) | | | (6) | | | 181 | | | 28 | | | 2,450 | |
| | | | | | | | | | | | | | | | | | |
INCOME TAX - PROVISION (RECOVERY) | | | | | | | | | | | | | | | | | | |
| Current | | 597 | | | - | | | - | | | - | | | - | | | 597 |
| Deferred | | 125 | | | - | | | - | | | 47 | | | 10 | | | 182 |
| | 722 | | | - | | | - | | | 47 | | | 10 | | | 779 | |
| | | | | | | | | | | | | | | | | | |
NET EARNINGS (LOSS) | $ | 1,664 | | $ | (139) | | $ | (6) | | $ | 134 | | $ | 18 | | $ | 1,671 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
IFRS Consolidated Statement of Operations | | | | | | | | | | | | | | | | | | |
For the nine months ended January 31, 2011 | | | | (c) | | (d) | | (f) | | (g) | | | ||||||
| | | | Share based | | Deferred | | Fair value | | Building | | | ||||||
| Previous GAAP | | payments | | share units | | as deemed cost | | componentization | | IFRS | |||||||
| | | | | | | | | | | | | | | | | | |
TOTAL REVENUE | $ | 345,018 | | $ | - | | $ | - | | $ | - | | $ | - | | $ | 345,018 | |
| | | | | | | | | | | | | | | | | | |
DIRECT COSTS | | 259,512 | | | - | | | - | | | - | | | - | | | 259,512 | |
| | | | | | | | | | | | | | | | | | |
GROSS PROFIT | | 85,506 | | | - | | | - | | | - | | | - | | | 85,506 | |
| | | | | | | | | | | | | | | | | | |
OPERATING EXPENSES | | | | | | | | | | | | | | | | | | |
| General and administrative | | 29,614 | | | - | | | 26 | | | - | | | - | | | 29,640 |
| Other expenses | | 5,562 | | | 443 | | | - | | | - | | | - | | | 6,005 |
| Gain on disposal of property, plant and equipment | | (427) | | | - | | | - | | | - | | | - | | | (427) |
| Foreign exchange gain | | (220) | | | - | | | - | | | - | | | - | | | (220) |
| Finance costs | | 876 | | | - | | | - | | | - | | | - | | | 876 |
| Depreciation and amortization | | 23,371 | | | - | | | - | | | (544) | | | (85) | | | 22,742 |
| | 58,776 | | | 443 | | | 26 | | | (544) | | | (85) | | | 58,616 | |
| | | | | | | | | | | | | | | | | | |
EARNINGS (LOSS) BEFORE INCOME TAX | | 26,730 | | | (443) | | | (26) | | | 544 | | | 85 | | | 26,890 | |
| | | | | | | | | | | | | | | | | | |
INCOME TAX - PROVISION (RECOVERY) | | | | | | | | | | | | | | | | | | |
| Current | | 9,447 | | | - | | | - | | | - | | | - | | | 9,447 |
| Deferred | | (854) | | | - | | | - | | | 141 | | | 30 | | | (683) |
| | 8,593 | | | - | | | - | | | 141 | | | 30 | | | 8,764 | |
| | | | | | | | | | | | | | | | | | |
NET EARNINGS (LOSS) | $ | 18,137 | | $ | (443) | | $ | (26) | | $ | 403 | | $ | 55 | | $ | 18,126 | |
| ||||||||||||||||||
| ||||||||||||||||||
IFRS Consolidated Statement of Comprehensive Earnings (Loss) | ||||||||||||||||||
For the three months ended January 31, 2011 | | | | | | | | | | | | | | | | | | |
| | | | (b) | | (c) | | (e) | | (f) | | | ||||||
| | | | Share based | | Deferred | | Fair value | | Building | | | ||||||
| Previous GAAP | | payments reserve | | share units | | as deemed cost | | componentization | | IFRS | |||||||
| | | | | | | | | | | | | | | | | | |
NET EARNINGS (LOSS) | $ | 1,664 | | $ | (139) | | $ | (6) | | $ | 134 | | $ | 18 | | $ | 1,671 | |
| | | | | | | | | | | | | | | | | | |
OTHER COMPREHENSIVE EARNINGS | | | | | | | | | | | | | | | | | | |
| Unrealized loss on foreign currency translation (net of tax of $0) | (4,315) | - | | - | - | - | | (4,315) | |||||||||
| | | | | | | | | | | | | | | | | | |
COMPREHENSIVE EARNINGS (LOSS) | $ | (2,651) | | $ | (139) | | $ | (6) | | $ | 134 | | $ | 18 | | $ | (2,644) | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
IFRS Consolidated Statement of Comprehensive Earnings (Loss) | ||||||||||||||||||
For the nine months ended January 31, 2011 | | | | | | | | | | | | | | | | | | |
| | | | (b) | | (c) | | (e) | | (f) | | | ||||||
| | | | Share based | | Deferred | | Fair value | | Building | | | ||||||
| Previous GAAP | | payments reserve | | share units | | as deemed cost | | componentization | | IFRS | |||||||
| | | | | | | | | | | | | | | | | | |
NET EARNINGS (LOSS) | $ | 18,137 | | $ | (443) | | $ | (26) | | $ | 403 | | $ | 55 | | $ | 18,126 | |
| | | | | | | | | | | | | | | | | | |
OTHER COMPREHENSIVE EARNINGS | | | | | | | | | | | | | | | | | | |
| Unrealized gain on foreign currency translation (net of tax of $0) | 4,280 | - | - | - | - | | 4,280 | ||||||||||
| | | | | | | | | | | | | | | | | | |
COMPREHENSIVE EARNINGS (LOSS) | $ | 22,417 | | $ | (443) | | $ | (26) | | $ | 403 | | $ | 55 | | $ | 22,406 | |
Adjustments required to transition to IFRS:
| a) | Adjustments - Subsequent to the release of the April 30, 2011 annual consolidated financial statements, management identified adjustments required for a component of deferred tax and classification of a component of stock based payments in the Company's April 30, 2010, July 31, 2010 and April 30, 2011 historical annual and interim consolidated financial statements. |
| | |
| b) | Share based payments - The Company's policy under Canadian GAAP was to use the straight-line method to account for options that vest in installments over time. Under IFRS, each installment is accounted for as a separate share option grant with its own distinct vesting period, hence the fair value of each tranche differs. In addition, Canadian GAAP permits companies to either estimate the forfeitures at the grant date or record the entire expense as if all share based payments vest and then record forfeitures as they occur. IFRS requires that forfeitures be estimated at the time of grant to eliminate distortion of remuneration expense recognized during the vesting period. The estimate is revised if subsequent information indicates that actual forfeitures are likely to differ from previous estimates. |
| | |
| c) | Deferred Share Units ("DSUs") - The Company's policy under Canadian GAAP was to value the DSUs using the intrinsic value at each reporting date. Under IFRS we use the fair value, which is affected by changes in underlying volatility of the stock as well as changes in the stock price. |
| | |
| d) | Contingent consideration - Under Canadian GAAP, contingent consideration is recognized as part of the purchase cost when it can be reasonably estimated at the acquisition date and the outcome of the contingency can be determined beyond reasonable doubt. Under IFRS, contingent consideration, regardless of probability considerations, is recognized at fair value at the acquisition date. The Company has booked contingent considerations for the SMD Services and the North Star Drilling acquisitions. |
| | |
| e) | Fair value as deemed cost - The Company has applied the IFRS 1 exemption as described in the "exceptions and exemptions applied" section presented in the first quarter Notes to Interim Condensed Consolidated Financial Statements for the three months ended July 31, 2011. |
| | |
| f) | Building componentization - Under Canadian GAAP, costs incurred for property, plant and equipment on initial recognition are allocated to significant components when practicable. Under IFRS, costs incurred for plant and equipment on initial recognition are allocated to significant components, capitalized and depreciated separately over the estimated useful lives of each component. Practicability of allocating costs to significant components is not considered under IFRS. Costs incurred subsequent to the initial purchase of property, plant and equipment are capitalized when it is probable that future economic benefits will flow to the Company and the costs can be measured reliably. Upon capitalization, the carrying amount of components replaced, if any, are written off. The Company has componentized buildings. |
7. PROPERTY, PLANT AND EQUIPMENT
Changes in the property, plant and equipment balance were as follows for
the periods:
Cost | Land | | Buildings | | Drills | | Auto | | Other | | Total | ||||||
| | | | | | | | | | | | | | | | | |
Balance as at April 30, 2011 | $ | 1,375 | | $ | 11,201 | | $ | 257,838 | | $ | 91,977 | | $ | 25,501 | | $ | 387,892 |
Additions | | - | | | 127 | | | 45,397 | | | 11,811 | | | 3,138 | | | 60,473 |
Disposals | | - | | | - | | | (6,085) | | | (2,582) | | | (47) | | | (8,714) |
Business acquisitions | | 367 | | | 9,382 | | | 28,727 | | | 4,474 | | | 401 | | | 43,351 |
Effect of exchange rate changes and other | | 36 | | | 89 | | | 2,016 | | | 4,691 | | | (141) | | | 6,691 |
| | | | | | | | | | | | | | | | | |
Balance as at January 31, 2012 | $ | 1,778 | | $ | 20,799 | | $ | 327,893 | | $ | 110,371 | | $ | 28,852 | | $ | 489,693 |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Accumulated Depreciation | Land | | Buildings | | Drills | | Auto | | Other | | Total | ||||||
| | | | | | | | | | | | | | | | | |
Balance as at April 30, 2011 | $ | - | | $ | (2,791) | | $ | (84,421) | | $ | (48,095) | | $ | (17,112) | | $ | (152,419) |
Disposals | | - | | | - | | | 3,725 | | | 1,923 | | | 39 | | | 5,687 |
Depreciation | | - | | | (594) | | | (16,438) | | | (9,968) | | | (1,388) | | | (28,388) |
Effect of exchange rate changes and other | | - | | | 5 | | | 753 | | | 564 | | | (735) | | | 587 |
| | | | | | | | | | | | | | | | | |
Balance as at January 31, 2012 | $ | - | | $ | (3,380) | | $ | (96,381) | | $ | (55,576) | | $ | (19,196) | | $ | (174,533) |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Net book value April 30, 2011 | $ | 1,375 | | $ | 8,410 | | $ | 173,417 | | $ | 43,882 | | $ | 8,389 | | $ | 235,473 |
Net book value January 31, 2012 | $ | 1,778 | | $ | 17,419 | | $ | 231,512 | | $ | 54,795 | | $ | 9,656 | | $ | 315,160 |
There were no impairments recorded as at January 31, 2012, April 30,
2011 or January 31, 2011. The Company has assessed whether there is any
indication that an impairment loss recognized in prior periods for
property, plant and equipment may no longer exist or may have
decreased. There were no impairments requiring reversal as at January
31, 2012, April 30, 2011 or January 31, 2011.
Capital expenditures were $22,833 and $18,310 for the three months ended
January 31, 2012 and 2011 respectively, and $60,473 and $40,568 for the
nine months ended January 31, 2012 and 2011, respectively. The Company
obtained direct financing of $294 and $441 for the three and nine
months ended January 31, 2012, respectively (three months ended January
31, 2011 - nil; nine months ended January 31, 2011 - $50).
8. GOODWILL
Changes in the goodwill balance were as follows:
Balance as at April 30, 2011 | $ | 28,316 |
Goodwill on acquisition (note 17) | | 25,088 |
Effect of movement in exchange rates | | 17 |
Balance as at January 31, 2012 | $ | 53,421 |
For a full discussion on allocation of goodwill to cash generating units
("CGUs"), refer to Note 8 in the first quarter Notes to Interim
Condensed Consolidated Financial Statements for the three months ended
July 31, 2011.
Goodwill from the acquisition of Bradley Group Limited, as disclosed in
Note 16, has not been allocated to a CGU since the value is
preliminary.
9. INTANGIBLE ASSETS
Changes in the intangible assets balance were as follows:
Balance as at April 30, 2011 | $ | 1,235 |
Intangible assets on acquisition (note 17) | | 7,666 |
Amortization | | (1,575) |
Effect of movement in exchange rates | | 44 |
Balance as at January 31, 2012 | $ | 7,370 |
10. LONG-TERM DEBT
| | January 31, 2012 | | April 30, 2011 | ||
Revolving equipment and acquisition loan (authorized $50,000), bearing interest at either the bank's prime rate plus 0.75% or the bankers' acceptance rate plus 2.25% for Canadian dollar draws, and either the bank's U.S. dollar base rate in Canada plus 0.75% or the bank's LIBOR plus 2.25% for U.S. dollar draws, interest only payments required until maturity, maturing in September 2016, secured by corporate guarantees of companies within the group. | | $ | 11,223 | | $ | - |
Non-revolving term loan, bearing interest at either the bank's prime rate plus 0.75% or the bankers' acceptance rate plus 2.25% for Canadian dollar draws, and either the bank's U.S. dollar base rate in Canada plus 0.75% or the bank's LIBOR plus 2.25% for U.S. dollar draws, payable in monthly installments of $417, maturing in September 2016, secured by corporate guarantees of companies within the group. | | | 23,333 | | | - |
Revolving/non-revolving equipment and acquisition loan (authorized $45,000), bearing interest at either the bank's prime rate plus 1.0% or the bankers' acceptance rate plus 2.5% for Canadian dollar draws, and either the bank's U.S. dollar base rate in Canada plus 1.0% or the bank's LIBOR plus 2.5% for U.S. dollar draws, secured by corporate guarantees of companies within the group. This facility was refinanced in September 2011. | | | - | | | 24,552 |
Term loan bearing interest at 5.9%, payable in monthly installments of $84, unsecured, maturing in August 2021. | | | 9,584 | | | - |
Term loans bearing interest at rates ranging from 0% to 6.99%, payable in monthly installments of $25, secured by certain equipment, maturing through 2016. | | | 545 | | 480 | |
| | | | | | |
Note payable bearing interest at 4%, repayable over three years, maturing in September 2014. | | | 8,000 | | | - |
Derivative financial instrument with a notional principal amount of $23,333, swapping Canadian-Bankers' Acceptance- Canadian Dealer Offered Rate for an annual fixed rate of 3.665%, maturing in September 2016. | | | 119 | | | - |
| | | | | | |
| | | 52,804 | | | 25,032 |
Current portion | | | 8,799 | | | 8,402 |
| | $ | 44,005 | | $ | 16,630 |
The required annual principal repayments per remaining fiscal years on
long-term debt are as follows:
2012 | | $ | 1,584 |
2013 | | | 8,809 |
2014 | | | 8,598 |
2015 | | | 9,088 |
2016 | | | 4,402 |
2017 and beyond | | | 20,323 |
| | $ | 52,804 |
The Company hedges its exposure to floating rates under the
non-revolving term loan via an interest rate swap, exchanging a
variable rate interest payment for a fixed rate interest payment. The
interest swap contract was entered into early in the current quarter.
As at January 31, 2012 the swap is deemed effective and is recognized
as a cash flow hedge.
Under the terms of certain of the Company's debt agreements, the Company
must satisfy certain financial covenants. Such agreements also limit,
among other things, the Company's ability to incur additional
indebtedness, create liens, engage in mergers or acquisitions and make
dividend and other payments. The Company, at all times, was in
compliance with all covenants and other conditions imposed by its debt
agreements.
11. SHARE CAPITAL
On March 9, 2011, the Company announced a stock split for the issued and
outstanding common shares on a three for one basis. The record date for
the stock split was March 23, 2011. All share and stock option numbers
have been retroactively adjusted to reflect the stock split to provide
more comparable information.
On September 28, 2011, the Company issued a total of 5,900,000
Subscription Receipts at a price of $11.90 per Subscription Receipt for
aggregate gross proceeds of $70,210. These Subscription Receipts were
subsequently converted to 5,900,000 common shares in the Company upon
the closing of the acquisition by the Company of Bradley Group Limited
on September 30, 2011. The Companyused the net proceeds of the
offering to fund a portion of the purchase price in connection with
theacquisition. On October 25, 2011, the Company issued a further
885,000 common shares for further aggregate gross proceeds of $10,531
as a result of the exercise by the underwriters of an over allotment
option to purchase an additional 885,000 common shares of the Company
for $11.90 per share. The Companyis using the net proceeds from the
over allotment exercise for general corporate purposes.
Authorized
Unlimited number of fully paid common shares, without nominal or par
value, with each share carrying one vote and a right to dividends when
declared.
The movement in the Company's issued and outstanding share capital
during the period is as follows:
| Number of | | Share | |
| shares (000's) | | capital | |
| | | | |
Balance as at April 30, 2011 | 72,040 | | $ | 150,642 |
Exercise of stock options | 261 | | | 2,022 |
Share issue (net of issue costs)* | 6,785 | | | 76,439 |
Balance as at January 31, 2012 | 79,086 | | $ | 229,103 |
| | | | |
*share issue costs total $4,302 | ||||
12. INCOME TAXES
The income tax expense for the period can be reconciled to accounting
profit as follows:
| 2012 Q3 | | 2011 Q3 | | 2012 YTD | | 2011 YTD | ||||
| | | | | | | | | | | |
Earnings before income tax | $ | 14,068 | | $ | 2,450 | | $ | 84,762 | | $ | 26,890 |
| | | | | | | | | | | |
Statutory Canadian corporate income tax rate | | 29% | | | 30% | | | 29% | | | 30% |
| | | | | | | | | | | |
Expected income tax expense based on statutory | | | | | | | | | | | |
rate | $ | 4,080 | | $ | 735 | | $ | 24,581 | $ | 8,067 | |
Non-recognition of tax benefits related to losses | | 47 | | | 352 | | | 360 | | | 605 |
Other foreign taxes paid | | 273 | | | 62 | | | 560 | | | 271 |
Rate variances in foreign jurisdictions | | (137) | | | (441) | | | (625) | | | (1,389) |
Other | | 239 | | | 71 | | | 868 | | | 1,210 |
| $ | 4,502 | | $ | 779 | | $ | 25,744 | | $ | 8,764 |
The Company periodically assesses its liabilities and contingencies for
all tax years open to audit based upon the latest information
available. For those matters where it is probable that an adjustment
will be made, the Company recorded its best estimate of these tax
liabilities, including related interest charges. Inherent uncertainties
exist in estimates of tax contingencies due to changes in tax laws.
While management believes they have adequately provided for the
probable outcome of these matters, future results may include favorable
or unfavorable adjustments to these estimated tax liabilities in the
period the assessments are made, or resolved, or when the statute of
limitation lapses.
13. EARNINGS PER SHARE
All of the Company's earnings are attributable to common shares
therefore net earnings are used in determining earnings per share.
| 2012 Q3 | | 2011 Q3 | | 2012 YTD | | 2011 YTD | ||||
| | | | | | | | | | | |
Net earnings for the period | $ | 9,566 | | $ | 1,671 | | $ | 59,018 | | $ | 18,126 |
| | | | | | | | | | | |
Weighted average shares outstanding - basic (000's) | | 78,949 | | | 71,580 | | | 75,078 | | | 71,452 |
| | | | | | | | | | | |
Net effect of dilutive securities: | | | | | | | | | | | |
Stock options | | 1,118 | | | 954 | | | 969 | | | 591 |
Weighted average number of shares - diluted (000's) | | 80,067 | | | 72,534 | | | 76,047 | | | 72,043 |
| | | | | | | | | | | |
Earnings per share: | | | | | | | | | | | |
Basic | $ | 0.12 | | $ | 0.02 | | $ | 0.79 | | $ | 0.25 |
Diluted | $ | 0.12 | | $ | 0.02 | | $ | 0.78 | | $ | 0.25 |
There were no anti-dilutive options for the three months ended January
31, 2012 and 2011 and the nine months ended January 31, 2012 while the
calculation of diluted earnings per share for the nine months ended
January 31, 2011 exclude the effect of 30,543 options as they were
anti-dilutive.
14. SEGMENTED INFORMATION
The Company's operations are divided into three geographic segments
corresponding to its management structure, Canada - U.S., South and
Central America, and Australia, Asia and Africa. The services provided
in each of the reportable drilling segments are essentially the same.
The accounting policies of the segments are the same as those described
in Note 4 presented in the first quarter Notes to Interim Condensed
Consolidated Financial Statements for the three months ended July 31,
2011. Management evaluates performance based on earnings from
operations in these three geographic segments before finance costs and
income tax. Data relating to each of the Company's reportable segments
is presented as follows:
| | 2012 Q3 | | 2011 Q3 | | 2012 YTD | | 2011 YTD | ||||
| | | | | | | | | | | | |
Revenue | | | | | | | | | | | | |
| Canada - U.S. | $ | 69,805 | | $ | 38,191 | | $ | 215,394 | | $ | 129,211 |
| South and Central America | | 59,168 | | | 36,836 | | | 178,522 | | | 118,896 |
| Australia, Asia and Africa | | 53,215 | | | 32,693 | | | 166,278 | | | 96,911 |
| $ | 182,188 | | $ | 107,720 | | $ | 560,194 | | $ | 345,018 | |
| | | | | | | | | | | | |
Earnings from operations | | | | | | | | | | | | |
| Canada - U.S. | $ | 5,491 | | $ | 1,503 | | $ | 34,406 | | $ | 16,649 |
| South and Central America | | 9,560 | | | 1,400 | | | 36,750 | | | 10,535 |
| Australia, Asia and Africa | | 5,405 | | | 2,996 | | | 30,274 | | | 10,608 |
| | 20,456 | | | 5,899 | | | 101,430 | | | 37,792 | |
Eliminations | | (10) | | | (235) | | | (93) | | | (700) | |
| | 20,446 | | | 5,664 | | | 101,337 | | | 37,092 | |
Finance costs | | 874 | | | 265 | | | 2,660 | | | 876 | |
General corporate expenses * | | 5,504 | | | 2,949 | | | 13,915 | | | 9,326 | |
Income tax | | 4,502 | | | 779 | | | 25,744 | | | 8,764 | |
Net earnings | $ | 9,566 | | $ | 1,671 | | $ | 59,018 | | $ | 18,126 | |
| | | | | | | | | | | | |
*General corporate expenses include expenses for corporate offices, stock options and certain un-allocated costs | ||||||||||||
| | | | | | | | | | | | |
Depreciation and amortization | | | | | | | | | | | | |
| Canada - U.S. | $ | 4,970 | | $ | 2,815 | | $ | 12,365 | | $ | 7,381 |
| South and Central America | | 2,716 | | | 2,227 | | | 7,471 | | | 6,261 |
| Australia, Asia and Africa | | 3,189 | | | 2,668 | | | 8,244 | | | 7,948 |
Unallocated and corporate assets | | 1,142 | | | 338 | | | 1,883 | | | 1,152 | |
| $ | 12,017 | | $ | 8,048 | | $ | 29,963 | | $ | 22,742 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | January 31, 2012 | | April 30, 2011 | | | | |||
Identifiable assets | | | | | | | | | | | | |
| Canada - U.S. | | | | $ | 239,730 | | $ | 134,666 | | | |
| South and Central America | | | | | 202,127 | | | 189,083 | | | |
| Australia, Asia and Afirca | | | | | 175,914 | | | 130,071 | | | |
| | | | | 617,771 | | | 453,820 | | | | |
Eliminations | | | | | (1,606) | | | 439 | | | | |
Unallocated and corporate assets | | | | | 48,341 | | | 19,878 | | | | |
| | | | $ | 664,506 | | $ | 474,137 | | | | |
15. NET EARNINGS FOR THE YEAR
Net earnings for the year have been arrived at after charging various
employee benefit expenses as follows.
| 2012 Q3 | | 2011 Q3 | | 2012 YTD | | 2011 YTD | |||||
| | | | | | | | | | | | |
Direct costs: | | | | | | | | | | | | |
| Salaries and wages | $ | 47,750 | | $ | 31,383 | | $ | 87,080 | | $ | 91,376 |
| Other employee benefits | | 9,314 | | | 5,712 | | | 16,842 | | | 16,948 |
| | | | | | | | | | | | |
General and administrative expenses: | | | | | | | | | | | | |
| Salaries and wages | | 5,524 | | | 4,249 | | | 10,705 | | | 12,499 |
| Other employee benefits | | 890 | | | 642 | | | 1,801 | | | 2,024 |
| | | | | | | | | | | | |
Other expenses: | | | | | | | | | | | | |
| Share based payments | | 439 | | | 619 | | | 862 | | | 1,711 |
Amortization expense for intangible assets has been included in the
line item "Depreciation and amortization" in the Interim Condensed
Consolidated Statements of Operations with breakdown as follows:
| 2012 Q3 | | 2011 Q3 | | 2012 YTD | | 2011 YTD | ||||
| | | | | | | | | | | |
Depreciation of property, plant and equipment | $ | 10,921 | | $ | 7,910 | | $ | 28,388 | | $ | 22,340 |
Amortization of intangible assets | | 1,096 | | | 138 | | | 1,575 | | | 402 |
| $ | 12,017 | | $ | 8,048 | | $ | 29,963 | | $ | 22,742 |
16. BUSINESS ACQUISITIONS
Bradley Group Limited
Effective September 30, 2011, the Company acquired all the issued and outstanding shares of
Bradley Group Limited ("Bradley"), which provides a unique opportunity
to further the Company's corporate strategy of focusing on specialized
drilling, expanding its geographic footprint in areas of high growth
and of maintaining a balance in the mix of drilling services. The
acquisition was accounted for using the acquisition method and the
results of this operation were included in the statement of operations
as of the closing date. The acquired business includes the assets
acquired (indicated below), contracts and personnel. The purchase price
for the transaction was CAD $78,060, including customary working
capital adjustments and net of cash acquired, financed with cash and
debt.
The Company is in the process of finalizing the valuation of assets. As
at January 31, 2012, the values allocated to net tangible and
intangible assets are preliminary and are subject to adjustments as
additional information is obtained.
The estimated net assets acquired at fair market value at acquisition
are as follows:
Assets acquired | | | |
Trade and other receivables (net) | | $ | 23,978 |
Inventories | | | 15,330 |
Prepaid expenses | | | 540 |
Property, plant and equipment | | | 45,884 |
Deferred income tax assets | | | 350 |
Goodwill (not tax deductible) | | | 23,064 |
Intangible assets | | | 7,324 |
Trade and other payables | | | (19,057) |
Income tax payable | | | (1,751) |
Short-term debt | | | (5,101) |
Current portion of long-term debt | | | (113) |
Long-term debt | | | (10,352) |
Deferred income tax liability | | | (2,036) |
Total assets | | $ | 78,060 |
| | | |
Consideration | | | |
Cash | | $ | 72,000 |
Long-term debt (holdback) | | | 8,000 |
Less: Cash acquired | | | (1,940) |
| | $ | 78,060 |
The Corporation incurred acquisition-related costs of $857 relating to
external legal fees and due diligence costs. The legal fees and due
diligence costs have been included in the other expenses line of the
Interim Condensed Consolidated Statements of Operations.
It is impracticable to estimate the revenue and net income attributed to
the additional business generated by Bradley for the three months ended
January 31, 2012, or of the combined entity for the year as though the
acquisition date was May 1, 2011.
Resource Drilling
Effective March 24, 2011, the Company acquired the assets of Resource
Drilling, which provides contract drilling services in Mozambique,
where Major Drilling did not previously have a presence. The
acquisition was accounted for using the acquisition method and the
results of this operation were included in the statement of operations
as of the closing date. The acquired business includes drilling
equipment, inventory, contracts and personnel. The purchase price for
the transaction was USD $9,563 (CAD $9,345), including customary
working capital adjustments, financed with cash.
The net assets acquired at fair market value at acquisition are as
follows:
Assets acquired | | |
Inventories | $ | 946 |
Prepaid expenses | | 23 |
Property, plant and equipment | | 6,010 |
Goodwill (not tax deductible) | | 2,024 |
Intangible assets | | 342 |
Total assets | $ | 9,345 |
| | |
Consideration | | |
Cash | $ | 5,628 |
Trade and other payables | | 3,717 |
| $ | 9,345 |
North Star Drilling
Effective June 30, 2010, the Company acquired the assets of North Star
Drilling, which provides contract drilling services to the fresh water
and geothermal markets in certain mid-western states in the US, and
operates from its head office in Little Falls, Minnesota, as well as
from satellite offices in Brainerd and Bemidji, Minnesota. The
acquisition was accounted for using the acquisition method and the
results of this operation were included in the statement of operations
as of the closing date. The acquired business includes working capital,
drilling equipment, contracts and personnel. The purchase price for the
transaction, excluding contingent consideration, was USD $2,449 (CAD
$2,567), including customary working capital adjustments of CAD $215,
financed with cash. The contingent consideration of USD $750 to the
purchase price is based on future earnings. The acquiree is expected to
meet target earnings, with payments to be made over the next five
years.
The net assets acquired at fair market value at acquisition are as
follows:
Assets acquired and liabilities assumed | | |
Trade receivables (net) | $ | 776 |
Inventories | | 382 |
Prepaid expenses | | 18 |
Property, plant and equipment | | 1,078 |
Goodwill (not tax deductible) | | 1,083 |
Intangible assets | | 763 |
Trade and other payables | | (779) |
Net assets | $ | 3,321 |
| | |
Consideration | | |
Cash | $ | 2,567 |
Contingent consideration | | 754 |
| $ | 3,321 |
17. DIVIDENDS
The Company declared two dividends during the year, $0.08 per common
share paid on November 1, 2011 to shareholders of record as of October
10, 2011, and $0.09 per common share to be paid on May 2, 2012 to
shareholders of record as of April 6, 2012.
The Company declared two dividends during the previous year. The first
dividend of $0.07333 per common share was paid on November 1, 2010 to
shareholders of record as of October 8, 2010. The second dividend of
$0.07333 per common share was paid on May 2, 2011 to shareholders of
record as of April 8, 2011.
18. FINANCIAL INSTRUMENTS
There are no significant changes to financial instruments compared to
the Company's 2011 annual financial statements prepared under previous
GAAP except for the following:
Risk management objectives
The Company's corporate treasury function monitors and manages the
financial risks relating to the operations of the Company through
analysis of the various exposures. When deemed appropriate, the Company
uses financial instruments to hedge these risk exposures.
Interest rate risk management
The Company is exposed to interest rate risk as it borrows funds at both
fixed and floating interest rates. The risk is managed by the Company
by use of interest rate swap contracts when deemed appropriate.
Interest rate swap contract
Under the interest rate swap contract, the Company agrees to exchange
the difference between fixed and floating rate interest amounts
calculated on agreed notional principal amounts. This contract enables
the Company to mitigate the risk of changing interest rates on the cash
flow exposures on the issued variable rate debt held.
The following table details the notional principal amount and the
remaining term of the interest rate swap contract outstanding at the
reporting date.
Remaining term | Notional principal amount | Fair value | ||||
| | | | | | |
56 months | $ | 23,333 | | $ | (119) | |
The interest rate swap settles on a monthly basis swapping
Canadian-Bankers' Acceptance-Canadian Dealer Offered Rate for an annual
fixed rate of 3.665%.
Fair value
The carrying values of cash, trade and other receivables, demand credit
facility and trade and other payables approximate their fair value due
to the relatively short period to maturity of the instruments. The
following table shows carrying values of short and long-term debt and
contingent considerations and approximates their fair value, as most
debts carry variable interest rates and the remaining fixed rate debts
have been acquired recently and their carrying value continues to
reflect fair value. The fair value of the interest rate swap included
in long-term debt is measured using quoted interest rates.
| January 31, 2012 | | April 30, 2011 | ||
| | | | | |
Short-term debt | $ | 7,893 | | $ | 7,919 |
Contingent considerations | | 2,760 | | | 2,612 |
Long-term debt | | 52,804 | | | 25,032 |
Credit risk
As at January 31, 2012, 76.3% of the Company's trade receivables were
aged as current and 1.3% of the trade receivables were impaired.
The movement in the allowance for impairment of trade receivables during
the period was as follows:
Balance as at April 30, 2011 | $ | 982 |
Increase in impairment allowance | | 1,443 |
Write-off charged against allowance | | (518) |
Recovery of amounts previously written off | | (406) |
Foreign exchange translation differences | | 48 |
Balance as at January 31, 2012 | $ | 1,549 |
Foreign currency risk
The most significant carrying amounts of net monetary assets that: (1)
are denominated in currencies other than the functional currency of the
respective Company subsidiary; (2) cause foreign exchange rate
exposure; and (3) may include intercompany balances with other
subsidiaries, at the reporting dates are as follows:
| January 31, 2012 | | April 30, 2011 | ||
U.S. Dollars | $ | 37,021 | | $ | 14,605 |
If the Canadian dollar moved by plus or minus 10% at January 31, 2012,
the unrealized foreign exchange gain or loss would move by
approximately $3,702 (April 30, 2011 - $1,460).
Liquidity risk
The following table details the Company's contractual maturities for its
financial liabilities.
| 1 year | 2-3 years | 4-5 years | thereafter | Total | |||||
| | | | | | | | | | |
Trade and other payables | $ | 100,357 | $ | - | $ | - | $ | - | $ | 100,357 |
Short-term debt | | 7,893 | | - | | - | | - | | 7,893 |
Contingent considerations | | 1,004 | | 1,756 | | - | | - | | 2,760 |
Long-term debt | | 8,799 | | 17,760 | | 21,662 | | 4,583 | | 52,804 |
| $ | 118,053 | $ | 19,516 | $ | 21,662 | $ | 4,583 | $ | 163,814 |
For further information:
Denis Larocque, Chief Financial Officer
Tel: (506) 857-8636
Fax: (506) 857-9211
ir@majordrilling.com
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