Major Drilling Reports Fourth Quarter Results
MONCTON, NB, June 7, 2011 /CNW/ --
MONCTON, NB, June 7, 2011 /CNW/ - Major Drilling Group International
Inc. (TSX: MDI) today reported results for its fourth quarter of fiscal
2011, ended April 30, 2011.
Highlights
_____________________________________________________________________
|In millions of Canadian dollars | Q4-11|Q4-10|Fiscal 2011|Fiscal 2010|
|(except earnings per share) | | | | |
|________________________________|______|_____|___________|___________|
|Revenue |$137.3|$97.4| $482.3| $307.9|
|________________________________|______|_____|___________|___________|
|Gross profit | 34.9| 22.4| 120.4| 74.4|
| As percentage of sales | 25.4%|23.0%| 25.0%| 24.2%|
|________________________________|______|_____|___________|___________|
|Net earnings (loss) | 9.4| 3.2| 27.6| (0.5)|
|________________________________|______|_____|___________|___________|
|Earnings (loss) per share | $0.13|$0.05| $0.39| ($0.01)|
|________________________________|______|_____|___________|___________|
|Cash flow from operations | | | | |
|(before changes in non-cash | | | | |
|working capital items) | $19.2| $9.4| $60.9| $30.6|
|________________________________|______|_____|___________|___________|
-- Major Drilling posted quarterly revenue of $137.3 million, up
41 percent from the $97.4 million recorded for the same quarter
last year.
-- Net earnings were $9.4 million or $0.13 per share ($0.13 per
share diluted) for the quarter, compared to net earnings of
$3.2 million or $0.05 per share ($0.04 per share diluted) for
the prior year quarter.
-- During the quarter, the Company enacted a 3 for 1 stock split.
Amounts per share have been adjusted accordingly and are now
presented post-split.
'As expected, demand for drilling services continued to grow during the
quarter although weather conditions prevented us from fully
capitalizing on our contracts in hand. In Australia, we continued to
be affected by floods in Queensland where weather conditions caused a
third of our contracted rigs to remain idle during the quarter. In
Canada, extreme winter conditions impacted revenue, while in the U.S.,
floods in North Dakota affected our energy operations. In both
Australia and the U.S., these conditions affected the most specialized
and productive rigs in our fleet. These operations should recover
during the quarter,' said Francis McGuire, President and CEO of Major
Drilling.
'In addition to the weather, the strong pickup in activity in the
industry has brought transitional issues, which affected our margins
during the quarter. Also, many suppliers in the industry are facing
the same transitional issues as drilling firms. This has created
temporary bottlenecks, which will gradually get resolved as the whole
industry grapples with the ramp-up. For example, fuel shortages in
Mongolia have caused clients to declare a 'force majeure' temporarily
affecting many of our rigs. The clients have advised that they plan to
drill these meters when local conditions allow and we will be employing
all of our efforts to meet our clients' needs. Despite these delays,
our utilization rates are climbing and we are experiencing pricing
improvements on all new contracts.'
'During the quarter, we have invested heavily in building up our labour
force. In October 2010, we had 3,400 people on our weekly payroll. By
April, we had 4,000. Wage increases were required to retain and
attract the most experienced drillers, which are key to high-quality
customer service. As the pool of available experienced drillers is
drying up, we have had to increase the number of trainee drillers,
which has and will continue to temporarily affect productivity as they
gain experience. In the four key areas where the labour shortage is
most problematic (Canada, the USA, Australia and Chile) we have now
established four new training centres. The goals for these centres are
to improve our retention rate for new entrants but also to speed up
their learning curve to minimize the impact on productivity.'
'Activity levels in the current fiscal year should be robust.
Intermediate and junior mining companies with advanced projects
continue to ramp up their already busy drilling programs by adding
rigs. Most senior mining companies have significantly increased their
exploration budgets for calendar 2011, and junior mining companies have
had good access to capital markets. Also, we continue to see inquiries
from all categories of customers. As demand expands, the industry is
nearing capacity in terms of labour and pricing should continue to
improve as the year progresses.'
'Net capital expenditures for the quarter were $22.1 million as we
purchased 25 rigs while retiring 21 rigs through our modernization
program. We also added 15 drills through our Mozambique acquisition.
In fiscal 2012, the Company expects to spend approximately $70 million
in capital expenditures, with the intent of purchasing 40 rigs,
approximately 30 being replacements of older rigs with low utilization
rates. The rigs we intend to purchase will help improve productivity
and safety while reducing training time for crews. With the shortage
of crews re-emerging as an issue, our focus turns to increasing the
earning power of each crew and each rig. Also, this year we will be
investing heavily in support equipment and vehicles, which are key to
utilization and productivity.'
'When we experience significant increases in activity, the Company's
working capital requirements increase. These working capital
requirements, combined with our investments in capital expenditures
during the quarter, brought our net debt levels, net of cash, to $16.7
million. We are forecasting significant investments in capex in the
upcoming first quarter to gear up for present demand but these
investments will diminish as the year progresses.'
'Finally, as announced on March 24, 2011, we are very pleased to welcome
Resource Drilling (Mozambique) and its employees into the Major
Drilling group. Not only does this acquisition provide us with assets,
experienced drillers and existing contracts in Mozambique, it also
provides a foundation for our expansion in this exciting region, which
shows great mining potential, particularly for coal projects,' said
Francis McGuire.
Fourth quarter ended April 30, 2011
Total revenue for the fourth quarter was $137.3 million compared to
$97.4 million recorded for the prior year period. All of the Company's
regions contributed to this growth although Australia, Canada and U.S.
revenue was affected by weather issues.
Revenue from Canada-U.S. drilling operations was up 40 percent to $52.1
million for the quarter compared to the same period last year. U.S.
operations saw a strong recovery, particularly from its senior mining
customers, but had its energy division affected by floods in North
Dakota. In Canada, activity levels continue to increase but margins
were affected by extreme winter conditions.
In South and Central America, revenue for the quarter was $50.5 million,
up 31 percent from the prior year quarter. The increase was primarily
driven by Argentina and Mexico, where activity levels picked up
substantially compared to last year.
Australian, Asian and African drilling operations reported revenue of
$34.7 million, up 61 percent from the same period last year. The
revenue increase came primarily from Mongolia, Australia and Tanzania,
but the Company also saw increases from the recent start-up of
Kazakhstan and its recent acquisition in Mozambique.
The overall gross margin percentage for the quarter was 25.4 percent
compared to 23.0 percent for the same period last year. Margins were
impacted by costs relating to the ramp-up of operations and additional
training costs as the Company geared up for new contracts, as well as
by weather issues.
General and administrative costs were $11.3 million for the quarter
compared to $8.5 million in the same period last year. The increase
was due to the addition of the new environmental, Mozambique and
Kazakhstan divisions but also increased due to the costs of supporting
the strong growth in activity levels.
Other expenses were flat at $1.2 million for the quarter compared to the
same period last year.
Foreign exchange gain was $0.7 million compared to a loss of $0.5
million in the prior year period. The gain was due to the effect of
exchange rate variations on monetary working capital items.
Short-term interest expense was $0.2 million for the quarter compared to
a revenue of $0.1 million last year, while interest on long-term debt
was $0.2 million compared to $0.3 million for the prior year quarter.
Amortization expense increased to $8.4 million for the quarter compared
to $7.3 million for the same quarter last year, as additional equipment
was purchased during the year.
The Company's tax expense was $4.8 million for the quarter compared to
$2.0 million for the same period last year.
Net earnings were $9.4 million or $0.13 per share ($0.13 per share
diluted) for the quarter compared to net earnings of $3.2 million or
$0.05 per share ($0.04 per share diluted) for the prior year quarter.
Year ended April 30, 2011
Revenue for the fiscal year ended April 30, 2011 increased 57 percent to
$482.3 million from $307.9 million for the corresponding period last
year, with all regions contributing to this growth. Revenue growth was
affected by the strengthening Canadian dollar against the U.S. dollar
as compared to the same period last year. The unfavourable foreign
exchange translation impact for the year, when comparing to the
effective rates for the same period last year, is estimated at $15
million on revenue.
Canada-U.S. revenue increased by 75 percent to $181.3 million compared
to $103.3 million last year with both countries contributing to this
growth.
Revenue in South and Central America increased by 58 percent to $169.4
million, compared to $107.4 million in the prior year period. Most of
the growth in the region came from Mexico, Argentina and Chile.
Revenue in Australia, Asia and Africa increased 36 percent to $131.6
million from $97.1 million in the prior year period. Mongolia and
Indonesia were the main drivers of growth in the region while the
Company added operations in Kazakhstan and Mozambique.
Gross margins for the year were 25.0 percent compared to 24.2 percent
last year representing general improvements in pricing, partially
offset by increased training, mobilization and consumable costs, to
accommodate the present growth.
General and administrative costs were $40.9 million or 8.5 percent of
revenue compared to $33.4 million or 10.9 percent of revenue in the
same period last year. The increase was due to the addition of our
U.S. based environmental division and also increased costs to support
the strong growth in activity levels.
Other expenses were $6.3 million for the year compared to $5.0 million
for the same period last year due primarily to higher incentive
compensation expenses given the Company's increased profitability in
the current year.
Foreign exchange gain was $0.9 million for the year compared to $0.1
million in the prior year period as a result of favorable currency
variations during the year on net monetary items.
Short-term interest expense was $0.6 million for the year compared to a
revenue of $0.2 million last year, while interest expense on long-term
debt was $0.7 million compared to $1.1 million for the same period last
year.
Amortization expense increased to $31.8 million for the year, compared
to $30.1 million for the same period last year, as a result of
additional equipment being purchased during the year.
Last year, the Company recorded a restructuring charge of $1.2 million,
relating mainly to Australia. Also last year, the Company recorded a
non-cash goodwill and intangible assets impairment charge of $1.5
million in Ecuador.
The income tax provision for the year was $13.4 million compared to $2.9
million for the prior year period.
Net earnings for the year were $27.6 million or $0.39 per share ($0.38
per share diluted) compared to a net loss of $0.5 million or $0.01 per
share ($0.01 per share diluted) for the same period last year.
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 starting on
pages 15 to 17 of the 2010 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 in Canada, the United States, South and Central America,
Australia, Asia, and Africa.
Financial statements are attached.
Major Drilling will provide a simultaneous webcast of its quarterly
conference call on Wednesday, June 8, 2011 at 9:00 AM (EDT). 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 call. Please note that this
is listen only mode.
Major Drilling Group International Inc.
Consolidated Statements of Operations
(in thousands of Canadian dollars, except per share information)
(unaudited)
Twelve months ended Three months ended
April 30 April 30
2011 2010 2011 2010
TOTAL REVENUE $ 482,276 $ 307,856 $ 137,258 $ 97,368
DIRECT COSTS 361,857 233,483 102,345 74,996
GROSS PROFIT 120,419 74,373 34,913 22,372
OPERATING EXPENSES
General and 40,947 33,437 11,333 8,507
administrative
Other expenses 6,331 5,000 1,196 1,172
Foreign exchange (892) (138) (672) 525
(gain) loss
Interest expense 557 (214) 226 (86)
(revenue)
Interest expense on 718 1,068 173 255
long-term debt
Amortization 31,759 30,058 8,388 7,275
Restructuring charge - 1,220 - -
Goodwill impairment - 1,519 - (513)
79,420 71,950 20,644 17,135
EARNINGS BEFORE INCOME 40,999 2,423 14,269 5,237
TAX
INCOME TAX - PROVISION
(RECOVERY)
Current 13,548 5,946 4,101 2,732
Future (108) (3,059) 746 (720)
13,440 2,887 4,847 2,012
NET EARNINGS (LOSS) $ 27,559 $ (464) $ 9,422 $ 3,225
EARNINGS (LOSS) PER
SHARE
Basic * $ 0.39 $ (0.01) $ 0.13 $ 0.05
Diluted ** $ 0.38 $ (0.01) $ 0.13 $ 0.04
*Based on 71,530,882 and 71,179,311 daily weighted average shares
outstanding for the fiscal year to date 2011 and 2010, respectively and
on 71,794,149 and 71,242,719 daily weighted average shares for the
quarter ended April 30, 2011 and 2010, respectively. The total number
of shares outstanding on April 30, 2011 was 72,040,376.
**Based on 72,253,581 daily weighted average shares outstanding for the
fiscal year to date 2011 and on 72,984,266 and 71,896,533
daily weighted average shares outstanding for the fourth quarter
ended April 30, 2011 and 2010, respectively.
For the year ended April 30, 2010 the exercise of stock options would
have been anti-dilutive.
Major Drilling Group International Inc.
Consolidated Statements of Comprehensive Earnings (Loss)
(in thousands of Canadian dollars)
(unaudited)
Twelve months ended Three months ended
April 30 April 30
2011 2010 2011 2010
NET EARNINGS $ 27,559 $ (464) $ 9,422 $ 3,225
(LOSS)
OTHER
COMPREHENSIVE
LOSS
Unrealized loss
on translating
financial
statements of
self-sustaining
foreign
operations (3,662) (39,254) (7,942) (14,277)
COMPREHENSIVE $ 23,897 $ (39,718) $ 1,480 $
EARNINGS (LOSS) (11,052)
Consolidated Statements of Retained Earnings
(in thousands of Canadian dollars)
(unaudited)
Twelve months ended
April 30
2011 2010
RETAINED EARNINGS, BEGINNING OF THE YEAR $ 209,025 $ 218,983
Net earnings (loss) 27,559 (464)
Dividends (10,525) (9,494)
RETAINED EARNINGS, END OF THE YEAR $ 226,059 $ 209,025
Consolidated Statements of Accumulated Other
Comprehensive Loss
(in thousands of Canadian dollars)
(unaudited)
Twelve months ended
April 30
2011 2010
ACCUMULATED OTHER COMPREHENSIVE LOSS,
BEGINNING OF THE YEAR $ (44,333) $ (5,079)
Unrealized losses on translating
financial statements of
self-sustaining foreign operations (3,662) (39,254)
ACCUMULATED OTHER COMPREHENSIVE LOSS,
END OF THE YEAR $ (47,995) $ (44,333)
Major Drilling Group International Inc.
Consolidated Statements of Cash Flows
(in thousands of Canadian dollars)
(unaudited)
Twelve months ended Three months ended
April 30 April 30
2011 2010 2011 2010
OPERATING ACTIVITIES
Net earnings (loss) $ 27,559 $ (464) $ 9,422 $ 3,225
Operating items not
involving cash
Amortization 31,759 30,058 8,388 7,275
(Gain) loss on disposal
of property, plant and (377) 662 49 (272)
equipment
Future income tax (108) (3,059) 746 (720)
(recovery)
Stock-based 2,041 1,933 578 448
compensation
Goodwill impairment - 1,519 - (513)
60,874 30,649 19,183 9,443
Changes in non-cash
operating working capital (13,023) (9,872) (18,759) (21,434)
items
Cash flow from (used in) 47,851 20,777 424 (11,991)
operating activities
FINANCING ACTIVITIES
Repayment of long-term (8,939) (11,522) (1,815) (2,496)
debt
Repayment of short-term (3,131) - (3,131) -
debt
Proceeds from long-term 10,000 - 10,000 -
debt
Proceeds from short-term 10,400 - - -
debt
Issuance of common shares 4,165 202 2,753 174
Dividends paid (9,993) (9,488) - -
Cash flow from (used in) 2,502 (20,808) 7,807 (2,322)
financing activities
INVESTING ACTIVITIES
Business acquisitions
(net of cash acquired) (3,776) (1,974) (1,209) (1,974)
(note 5)
Acquisition of property,
plant and equipment, net
of direct financing (62,568) (24,532) (22,053) (7,250)
Proceeds from disposal of
property, plant and
equipment 4,498 2,932 569 1,322
Cash flow used in (61,846) (23,574) (22,693) (7,902)
investing activities
OTHER ACTIVITIES
Foreign exchange (2,524) (4,198) (1,490) (1,244)
translation adjustment
DECREASE IN CASH (14,017) (27,803) (15,952) (23,459)
CASH POSITION, BEGINNING 30,232 58,035 32,167 53,691
OF THE PERIOD
CASH POSITION, END OF THE $ 16,215 $ 30,232 $ 16,215 $ 30,232
PERIOD
Major Drilling Group International Inc.
Consolidated Balance Sheets
As at April 30, 2011 and April 30, 2010
(in thousands of Canadian dollars)
(unaudited)
ASSETS April April
2011 2010
CURRENT ASSETS
Cash $ 16,215 $ 30,232
Accounts receivable 100,300 62,128
Income tax receivable 2,720 10,053
Inventories 69,864 63,170
Prepaid expenses 8,439 4,813
Future income tax assets 194 793
197,732 171,189
PROPERTY, PLANT AND EQUIPMENT 246,509 210,812
FUTURE INCOME TAX ASSETS 11,085 8,117
GOODWILL AND INTANGIBLE ASSETS (note 7) 26,939 25,538
$ 482,265 $ 415,656
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued charges $ 88,618 $ 54,027
Income tax payable 4,297 2,830
Short-term debt (note 8) 7,919 -
Current portion of long-term debt 8,402 8,887
Future income tax liabilities 472 819
109,708 66,563
LONG-TERM DEBT (note 9) 16,630 15,041
FUTURE INCOME TAX LIABILITIES 18,080 15,783
144,418 97,387
SHAREHOLDERS' EQUITY
Share capital 146,600 142,435
Contributed surplus 13,183 11,142
Retained earnings 226,059 209,025
Accumulated other comprehensive loss (47,995) (44,333)
337,847 318,269
$ 482,265 $ 415,656
MAJOR DRILLING GROUP INTERNATIONAL INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE PERIODS ENDED APRIL 30, 2011 AND 2010
(in thousands of Canadian dollars)
1. BASIS OF PRESENTATION
These interim consolidated financial statements were prepared using
accounting policies and methods consistent with those used in the
preparation of the Company's audited consolidated financial statements
for the year ended April 30, 2010. These interim consolidated
financial statements conform in all respects to the requirements of
Canadian generally accepted accounting principles for annual financial
statements, with the exception of certain note disclosures. As a
result, these interim consolidated financial statements should be read
in conjunction with the Company's audited consolidated financial
statements and notes for the year ended April 30, 2010, contained in
the Company's 2010 annual report.
2. FUTURE ACCOUNTING CHANGES
International Financial Reporting Standards ('IFRS')
In February 2008, the Accounting Standards Board ('AcSB') confirmed that
the use of IFRS will be required in 2011 for publicly accountable
enterprises in Canada. In April 2008, the AcSB issued an IFRS Omnibus
Exposure draft proposing that publicly accountable enterprises be
required to apply IFRS, in full and without modification, on January 1,
2011 for companies with a calendar year end, therefore the transition
date for the Company is May 1, 2011. This will require the restatement,
for comparative purposes, of amounts reported by the Company for its
year ended April 30, 2011, and of the opening balance sheet as at May
1, 2010. The Company expects the transition to IFRS to impact
accounting, financial reporting, internal control over financial
reporting, disclosure controls and procedures, taxes, and information
systems and processes. The Company has established a transition plan to
ensure the timely conversion to IFRS.
3. SEASONALITY OF OPERATIONS
With the exception of the third quarter, the Company exhibits
comparatively less seasonality in quarterly revenue than in the past.
The third quarter (November to January) is normally the Company's
weakest quarter due to the shutdown of mining and exploration
activities, often for extended periods over the holiday season,
particularly in South and Central America.
4. FUNCTIONAL CURRENCY
Effective May 1, 2010, the Company's operation in Chile changed its
functional currency from the U.S. dollar to the Chilean peso. Factors
considered when changing the functional currency included contract
revenue being determined in local currency, the currency of operating
costs and local regulations requiring invoicing and settlement of these
being performed in the local currency. This change has been done in
accordance with CICA Handbook Section 1651, Foreign Currency
Translation, and consequently applied prospectively. All items were
translated to the new functional currency using the exchange rate at
the date of the change.
5. BUSINESS ACQUISITIONS
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 have a presence. The acquired business
includes drilling equipment, inventory, contracts and employees. The
purchase price for the transaction was USD $9,733 (CAD $9,512),
including customary working capital adjustments, financed with cash.
The Company is in the process of finalizing the valuation of assets. As
at April 30, 2011, the values allocated to net tangible 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
Inventories $ 946
Prepaid expenses 23
Property, plant and equipment 8,543
Net assets $ 9,512
Consideration
Cash $ 1,209
Due to vendor 8,303
$ 9,512
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
acquired business includes drilling equipment, contracts and
employees. The purchase price for the transaction was USD $2,449 (CAD
$2,567), including customary working capital adjustments, financed with
cash. There is also a contingent consideration of USD $750 to the
purchase price, based on future earnings.
The net assets acquired at fair market value at acquisition are as
follows:
Assets acquired and liabilities assumed
Accounts receivable $ 776
Inventories 382
Prepaid expenses 18
Property, plant and equipment 1,078
Goodwill 329
Intangible assets 763
Accounts payable (779)
Net assets $ 2,567
Consideration
Cash $ 2,567
SMD Services
Effective February 26, 2010, the Company acquired SMD Services based in
Huntsville, Alabama. Through this purchase, Major Drilling entered the
environmental drilling sector and acquired a small fleet of sonic,
probe and auger drill rigs, as well as a skilled management team and
personnel. The purchase price for the transaction was USD $1,953 (CAD
$2,064), including customary working capital adjustments, financed with
cash. There is also a contingent consideration of USD $2,000 to the
purchase price, based on future earnings.
The net assets acquired at fair market value at acquisition are as
follows:
Assets acquired and liabilities assumed
Cash $ 90
Accounts receivable 234
Prepaid expenses 46
Property, plant and equipment 1,605
Intangible assets 249
Accounts payable (160)
Net assets $ 2,064
Consideration
Cash $ 2,064
6. INVENTORY
The cost of inventory recognized as an expense and included in direct
costs for the twelve and three months ended April 30, 2011 was $73,463
and $15,755 respectively. During the period, there were no significant
write-downs of inventory as a result of net realizable value being
lower than cost and no inventory write-downs recognized in previous
years were reversed.
7. GOODWILL AND INTANGIBLE ASSETS
April 2011 April 2010
Goodwill $ 25,704 $ 24,464
Intangible assets 1,235 1,074
$ 26,939 $ 25,538
Intangible assets include the carrying value of customer relationships
and a non-compete agreement, which are amortized on a straight-line
basis between a three and five year period.
Changes in the goodwill and intangible assets balance were as follows
for the twelve and three months ending April 30, 2011 and 2010:
2011 YTD 2010 YTD 2011 Q4 2010 Q4
Balance at beginning of the $ 25,538 $ 32,072 $ 27,058 $ 26,137
period
Goodwill and intangible 1,092 249 - 249
assets acquired
Amortization of intangible (761) (528) (189) (132)
assets
Goodwill adjustment - (2,203) - (513)
Goodwill impairment - (1,519) - 513
Effect of foreign currency
exchange rate changes 1,070 (2,533) 70 (716)
$ 26,939 $ 25,538 $ 26,939 $ 25,538
8. SHORT-TERM DEBT
In the first quarter of the current fiscal year, the Company borrowed
5,375 million Chilean pesos (CAD $10.4 million), initially secured by
a USD $10 million stand-by letter of credit drawn from the Company's
demand credit facility. In the third quarter, the stand-by letter of
credit was increased to USD $11 million due to the weakening of the US
dollar. In the fourth quarter, the Company re-financed this facility,
reducing the borrowing to 3,835 million Chilean pesos (CAD $7.3
million), secured by the same stand-by letter of credit adjusted to USD
$8 million and carrying interest at an annual rate of 7.7 percent,
maturing in April 2012.
9. LONG-TERM DEBT
In the fourth quarter of the current fiscal year, the Company increased
its equipment and acquisition loan by $10 million.
10. CAPITAL MANAGEMENT
The Company includes shareholders' equity (excluding accumulated other
comprehensive loss), short and long-term borrowings and demand credit
facility net of cash in the definition of capital.
Total managed capital was as follows:
April 2011 April 2010
Short-term debt $ 7,919 $ -
Long-term debt 25,032 23,928
Share capital 146,600 142,435
Contributed surplus 13,183 11,142
Retained earnings 226,059 209,025
Cash (16,215) (30,232)
$ 402,578 $ 356,298
The Company's objective when managing its capital structure is to
maintain financial flexibility in order to: i) preserve access to
capital markets; ii) meet financial obligations; and iii) finance
internally generated growth and potential new acquisitions. To manage
its capital structure, the Company may adjust spending, issue new
shares, issue new debt or repay existing debt.
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. During the period, the Company was, and
continues to be, in compliance with all covenants and other conditions
imposed by its debt agreements.
In order to facilitate the management of its capital requirements, the
Company prepares annual budgets that are updated as necessary,
dependent on various factors.
The Company's objectives with regards to capital management remain
unchanged from fiscal 2010.
11. FINANCIAL INSTRUMENTS
Fair value
The carrying values of cash, accounts receivable and accounts payable
and accrued charges approximate their fair value due to the relatively
short period to maturity of the instruments. Long-term debt has a
carrying value of $25,032 as at April 30, 2011 (April 30, 2010 -
$23,928), which also approximates its fair value.
Risk management
The Company is exposed to various risks related to its financial assets
and liabilities. There have been no substantive changes in the
Company's exposure to financial instrument risks, its objectives,
policies and processes for managing those risks, or the methods used to
measure them, from previous periods, unless otherwise stated in this
note.
Credit risk
The Company is exposed to credit risk from its accounts receivable. The
Company has adopted a policy of dealing only with creditworthy
counterparties and obtaining sufficient collateral where appropriate,
as a means of mitigating the risk of financial loss from defaults. It
carries out, on a continuing basis, credit checks on its customers and
maintains provisions for contingent credit losses. The Company also
diversifies its credit risk by dealing with a large number of customers
in various countries. Demand for the Company's drilling services
depends upon the level of mineral exploration and development
activities conducted by mining companies, particularly with respect to
gold, nickel and copper. The Company's five largest customers account
for 19.6 percent (27 percent in 2010) of total quarterly revenue, with
no one customer representing more than 10 percent of its revenue for
2011 or 2010.
The carrying amounts for accounts receivable are net of allowances for
doubtful accounts, which are estimated based on aged analyses of
receivables, past experience, specific risks associated with the
customer and other relevant information. The maximum exposure to credit
risk is the carrying value of the financial assets.
As at April 30, 2011, 84.8 percent of the Company's trade receivables
were aged as current and 0.7 percent of the trade receivables were
impaired.
Credit risk also arises from cash and cash equivalents and deposits with
banks and financial institutions. This risk is limited because the
counterparties are banks with high credit ratings assigned by
international credit-rating agencies.
Interest rate risk
The demand loan and long-term debt of the Company bear a floating rate
of interest, which exposes the Company to interest rate fluctuations.
As at April 30, 2011, the Company has estimated that a one percentage
point increase in interest rates would cause a quarterly decrease in
net income of approximately $61 and a one percentage point decrease in
interest rates would cause a quarterly increase in net income of $61.
Foreign currency risk
Foreign currency risk arises as the Company has operations located
internationally where local operational currency is not the same as the
functional currency of the Company.
A significant portion of the Company's operations are located outside of
Canada. The accounting impact of foreign currency exposure is minimized
since the operations are classified as self-sustaining operations. In
certain developing countries, the Company mitigates its risk of large
exchange rate fluctuations by conducting business primarily in U.S.
dollars. U.S. dollar revenue exposure is partially mitigated by
offsetting U.S. dollar labour and material expenses. Monetary assets
denominated in foreign currencies are exposed to foreign currency
fluctuations.
Based on the Company's foreign currency net monetary exposures and net
assets as at April 30, 2011, and assuming that all other variables
remain constant, a 10 percent rise or fall in the Canadian dollar
against the other foreign currencies would have resulted in increases
(decreases) in the net earnings and comprehensive earnings as follows:
Increase (decrease) in net earnings
Canadian dollar Canadian dollar
appreciates 10% depreciates 10%
U.S. Dollar $ (1,460) $ 1,460
Increase (decrease) in comprehensive earnings
Canadian dollar Canadian dollar
appreciates 10% depreciates 10%
U.S. Dollar $ (23,282) $ 23,282
Chilean Peso (3,904) 3,904
Australian Dollar (844) 844
Liquidity risk
Liquidity risk, the risk that the Company would not be able to meet its
financial obligations as they become due, arises from the Company's
management of working capital, finance charges and principal repayments
on its debt instruments.
The Company manages liquidity risk by maintaining adequate reserves,
banking facilities and reserve borrowing facilities, by continuously
monitoring forecast and actual cash flows and matching the maturity
profiles of financial assets and liabilities.
Total financial liabilities, by due date, as at April 30, 2011 are as
follows:
Total 1 year 2-3 years 4-5 years
Accounts payable & $ 88,618 $ 88,618 $ - $ -
accrued charges
Short-term debt 7,919 7,919 - -
Long-term debt 25,032 8,402 12,499 4,131
$ 121,569 $ 104,939 $ 12,499 $ 4,131
12. SEGMENTED INFORMATION
2011 YTD 2010 YTD 2011 Q4 2010 Q4
Revenue
Canada - U.S. $ 181,280 $ 103,337 $ 52,069 $ 37,257
South and Central 169,381 107,434 50,485 38,545
America
Australia, Asia and 131,615 97,085 34,704 21,566
Africa
$ 482,276 $ 307,856 $ 137,258 $ 97,368
Earnings (loss) from
operations
Canada - U.S. $ 21,429 $ 10,098 $ 4,858 $ 4,704
South and Central 20,233 10,884 9,668 5,484
America
Australia, Asia and 14,033 (3,823) 3,935 (1,506)
Africa
55,695 17,159 18,461 8,682
Eliminations (921) (1,342) (222) (318)
54,774 15,817 18,239 8,364
Interest expense, net 1,275 854 399 169
General corporate expenses 12,500 9,801 3,571 3,471
Restructuring charge - 1,220 - -
Goodwill impairment - 1,519 - (513)
Income tax 13,440 2,887 4,847 2,012
Net earnings (loss) $ 27,559 $ (464) $ 9,422 $ 3,225
Goodwill impairment relates to the South and Central American segment
for the fiscal year 2010.
To view this news release in HTML formatting, please use the following URL: http://www.cnw.ca/en/releases/archive/June2011/07/c3554.html
Denis Larocque, Chief Financial Officer
Tel: (506) 857-8636
Fax: (506) 857-9211
ir@majordrilling.com