Major Drilling Earnings Increase with Strong Revenue Growth and Higher Margins
MONCTON, NB, Sept. 6, 2011 /CNW/ --
MONCTON, NB, Sept. 6, 2011 /CNW/ - Major Drilling Group International
Inc. (TSX: MDI) today reported results for its first quarter of fiscal
year 2012, ended July 31, 2011. These are the first results the
Corporation is presenting following its adoption of the International
Financial Reporting Standards ('IFRS') effective May 1, 2011. The
previous fiscal year's results have been restated accordingly with only
minor changes.
Highlights
__________________________________________________________________
|In millions of Canadian dollars (except earnings per| Q1-12| Q1-11|
|share) | | |
|____________________________________________________|______|______|
|Revenue |$164.2|$109.5|
|____________________________________________________|______|______|
|Gross profit | 51.5| 26.5|
|____________________________________________________|______|______|
| |As percentage of sales | 31.4%| 24.2%|
|_|__________________________________________________|______|______|
|Net earnings | 17.9| 5.1|
|____________________________________________________|______|______|
|Earnings per share | 0.25| 0.07|
|____________________________________________________|______|______|
|Cash flow from operations (*) | 36.8| 15.3|
|____________________________________________________|______|______|
*before changes in non-cash operating working capital items, interest
and income taxes
-- Major Drilling posted quarterly revenue of $164.2 million, an
increase of 50% from the $109.5 million recorded for the same
quarter last year.
-- Gross margin percentage for the quarter improved significantly
to 31.4%, compared to 24.2% last year, and up from 25.4% in the
fourth quarter of fiscal 2011.
-- Net earnings were $17.9 million or $0.25 per share ($0.25 per
share diluted) for the quarter, compared to net earnings of
$5.1 million or $0.07 per share ($0.07 per share diluted) for
the prior year quarter.
-- The Company has increased its semi-annual dividend to $0.08 per
share, to be paid on November 1, 2011, which represents a 9.1%
increase from the previous dividend.
'Activity levels continue to be robust in every region. Our revenue
increased during the quarter by 50% to $164.2 million and we continue
to see inquiries from all categories of customers,' said Francis
McGuire, President and CEO of Major Drilling Group International Inc.
'We continue to be successful in delivering growth as well as
diversifying the scope of our drilling services. While drilling for
gold remains our most important contributor, accounting for 48% of our
revenue, 17% of our revenue now comes from energy, coal and
environmental drilling. Drilling for base metals and uranium accounts
for the remaining 35% of our revenue.'
Margins in this quarter improved significantly and were influenced by
three factors. First, ramp-up costs such as mobilization and up front
purchases have now normalized. Second, our efforts on training and
recruitment have allowed us to increase the number of shifts in the
field this quarter. Third, the contracts that were signed or renewed
this quarter reflected the stronger pricing environment. The next
period in which a significant number of renewals are expected to occur
is at the end of the calendar year.
'Looking at the balance of fiscal 2012, assuming that customers continue
with their stated plans, we expect to see continuing growth. Our
continuing efforts on training and recruitment should allow our global
utilization rates to continue to improve as each month goes by and as
we continue to add more drillers,' noted Mr. McGuire.
'Net capital expenditures for the quarter were $20.7 million as we
purchased 21 rigs while retiring 10 rigs through our modernization
program. During the quarter, we also added a significant number of
support vehicles and other support equipment to meet changing patterns
of demand and to ensure that we continue to meet the highest levels of
safety standards. These additions should improve rig utilization and
reliability as we focus on increasing the earning power of each crew
and each rig. In fact, now 60% of our rigs are less than five years
old in an industry where rigs tend to last 20 years.'
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 $21.1
million. Our goal remains to keep relatively low debt levels.
'Despite the recent events in the global economy, we have not seen our
customers modify their activity patterns. Demand for drilling services
continues to grow,' said Mr. McGuire. 'Most of our senior and
intermediate customers are in a much better financial position than
three years ago and many of our junior customers have recently raised
money. In addition, the price of gold is double what it was in 2008,
the price of copper is close to historic highs, and both are well above
average costs of production. Our biggest operational challenge
continues to be the shortage of labour. We continue to aggressively
and successfully invest in the recruitment and training of new
drillers.'
The Company has determined that it is appropriate to increase our
semi-annual dividend to $0.08 per common share, which will be paid on
November 1, 2011 to shareholders of record as of October 10, 2011. This
dividend is designated as an 'eligible dividend' for Canadian tax
purposes.
First quarter ended July 31, 2011
Total revenue for the quarter was $164.2 million, up 50% from the $109.5
million recorded in the same quarter last year. All of the Company's
regions contributed to this growth. The unfavourable foreign exchange
translation impact for the quarter, when comparing to the effective
rates for the same period last year, is estimated at $4 million on
revenue.
Revenue for the quarter from Canada-U.S. drilling operations increased
by 52% to $61.4 million compared to the same period last year. U.S.
mineral drilling operations continued a strong recovery, particularly
from its senior mining customers. Our energy division continued to be
affected by floods in North Dakota during the quarter but operations
have now returned to normal. In Canada, activity levels continue to
increase.
South and Central American revenue was up 28% to $51.3 million for the
quarter, compared to the prior year quarter. The increase was primarily
driven by strong growth in our Mexican, Argentinean and Colombian
operations.
Australian, Asian and African operations reported revenue of $51.4
million, up 77% from the same period last year. Australia accounted
for a significant portion of this growth as operations recovered from
floods in Queensland although all our contracted rigs did not return to
the field until August. Mongolia, Tanzania, and the new operation in
Mozambique also contributed to the strong growth.
The overall gross margin percentage for the quarter was 31.4%, up from
24.2% for the same period last year. Ramp-up costs such as mobilization
and up front purchases have now normalized. Also, training and
recruitment efforts allowed the Company to increase the number of
shifts in the field during the quarter. Finally, the contracts that
were signed or renewed this quarter reflected the stronger pricing
environment.
General and administrative costs were $12.3 million for the quarter
compared to $9.6 million in the same period last year. The increase
was due to the addition of a new operation in Mozambique and also
increased costs to support the strong growth in activity levels.
Other expenses for the quarter were $2.6 million, up from $2.1 million
in the prior year quarter, due primarily to higher incentive
compensation expenses given the Company's increased profitability.
The Annual Meeting of the shareholders of Major Drilling Group
International Inc. will be held at The TMX Broadcast Centre Gallery,
The Exchange Tower, 130 King St. W., Toronto, Ontario, on Thursday,
September 8, 2011 at 10:00 am EDT.
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 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 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, September 7, 2011 at 8:30 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.
Interim Condensed Consolidated Statements of Operations
(in thousands of Canadian dollars, except per share information)
(unaudited)
Three months ended
July 31
2011 2010
TOTAL REVENUE $ 164,152 $ 109,480
DIRECT COSTS 112,653 82,948
GROSS PROFIT 51,499 26,532
OPERATING EXPENSES
General and administrative 12,318 9,553
Other expenses 2,603 2,072
Loss (gain) on disposal of property, plant and
equipment 600 (112)
Foreign exchange loss 321 92
Finance costs 822 286
Depreciation and amortization (note 15) 8,580 7,147
25,244 19,038
EARNINGS BEFORE INCOME TAX 26,255 7,494
INCOME TAX - PROVISION (RECOVERY) (note 12)
Current 5,984 2,943
Deferred 2,379 (583)
8,363 2,360
NET EARNINGS (note 15) $ 17,892 $ 5,134
EARNINGS PER SHARE (note 13)
Basic * $ 0.25 $ 0.07
Diluted ** $ 0.25 $ 0.07
*Based on 72,040,376 and 71,354,739 daily
weighted average shares
outstanding for the fiscal year to date 2012 and
2011, respectively.
The total number of shares outstanding on July
31, 2011 was 72,040,376.
**Based on 72,920,523 and 71,749,419 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
(in thousands of Canadian dollars)
(unaudited)
Three months ended
July 31
2011 2010
NET EARNINGS $ 17,892 $ 5,134
OTHER COMPREHENSIVE EARNINGS
Unrealized gains on foreign currency translation
(net of tax of $0) 1,809 5,637
COMPREHENSIVE EARNINGS $ 19,701 $ 10,771
Major Drilling Group International Inc.
Interim Condensed Consolidated Statements of Changes in Equity
For the three months ended July 31, 2010 and 2011
(in thousands of Canadian dollars)
(unaudited)
Share Foreign
based Retained currency
Share payments translation
capital reserve earnings reserve Total
BALANCE AS AT
MAY 1, 2010 $ 144,919 $ 9,236 $ 153,358 $ - $ 307,513
Exercise of
stock options 134 - - - 134
Share based
payments
reserve - 516 - - 516
145,053 9,752 153,358 - 308,163
Comprehensive
earnings:
Net earnings - - 5,134 - 5,134
Unrealized
gains on
foreign
currency
translations - - - 5,637 5,637
Total
comprehensive
earnings - - 5,134 5,637 10,771
BALANCE AS AT
JULY 31, 2010 $ 145,053 $ 9,752 $ 158,492 $ 5,637 $ 318,934
BALANCE AS AT
APRIL 30,
2011 $ 150,642 $ 10,280 $ 170,425 $ (3,662) $ 327,685
Share based
payments
reserve - 554 - - 554
150,642 10,834 170,425 (3,662) 328,239
Comprehensive
earnings:
Net earnings - - 17,892 - 17,892
Unrealized
gains on
foreign
currency
translations - - - 1,809 1,809
Total
comprehensive
earnings - - 17,892 1,809 19,701
BALANCE AS AT
JULY 31, 2011 $ 150,642 $ 10,834 $ 188,317 $ (1,853) $ 347,940
Major Drilling Group International Inc.
Interim Condensed Consolidated Statements of Cash Flows
(in thousands of Canadian dollars)
(unaudited)
Three months ended
July 31
2011 2010
OPERATING ACTIVITIES
Earnings before income tax $ 26,255 $ 7,494
Operating items not involving cash
Depreciation and amortization (note 15) 8,580 7,147
Loss (gain) on disposal of property, plant
and equipment 600 (112)
Share based payments reserve 554 516
Finance costs 822 286
36,811 15,331
Changes in non-cash operating working capital
items (8,833) (3,270)
Finance costs paid (822) (286)
Income taxes (paid) received (5,013) 107
Cash flow from operating activities 22,143 11,882
FINANCING ACTIVITIES
Repayment of long-term debt (2,190) (2,281)
Proceeds from long-term debt 10,000 -
Proceeds from short-term debt - 10,400
Issuance of common shares - 134
Dividends paid (5,283) (4,750)
Cash flow from financing activities 2,527 3,503
INVESTING ACTIVITIES
Business acquisitions (net of cash acquired)
(note 16) - (2,352)
Acquisition of property, plant and equipment (21,410) (8,919)
Proceeds from disposal of property, plant and
equipment 684 540
Cash flow used in investing activities (20,726) (10,731)
Effect of exchange rate changes (367) 332
INCREASE IN CASH 3,577 4,986
CASH, BEGINNING OF THE PERIOD 16,215 30,232
CASH, END OF THE PERIOD $ 19,792 $ 35,218
Major Drilling Group International Inc.
Interim Condensed Consolidated Balance Sheets
As at July 31, 2011, April 30, 2011 and May 1, 2010
(in thousands of Canadian dollars)
(unaudited)
July 31, 2011 April 30, 2011 May 1, 2010
ASSETS
CURRENT ASSETS
Cash $ 19,792 $ 16,215 $ 30,232
Trade and other
receivables 109,045 100,300 62,128
Income tax receivable 3,053 2,720 10,053
Inventories 73,244 69,864 63,170
Prepaid expenses 7,880 8,439 4,813
213,014 197,538 170,396
PROPERTY, PLANT AND
EQUIPMENT (note 7) 248,647 235,473 198,935
DEFERRED INCOME TAX
ASSETS 7,947 11,575 9,379
GOODWILL (note 8) 28,673 28,316 26,475
INTANGIBLE ASSETS (note 9) 1,043 1,235 1,074
$ 499,324 $ 474,137 $ 406,259
LIABILITIES
CURRENT LIABILITIES
Trade and other payables $ 85,931 $ 88,599 $ 53,992
Income tax payable 5,601 4,297 2,830
Short-term debt 8,032 7,919 -
Current portion of
long-term debt (note 10) 8,251 8,402 8,887
107,815 109,217 65,709
CONTINGENT CONSIDERATION 2,626 2,612 2,011
LONG-TERM DEBT (note 10) 24,597 16,630 15,041
DEFERRED INCOME TAX
LIABILITIES 16,346 17,993 15,985
151,384 146,452 98,746
SHAREHOLDERS' EQUITY
Share capital (note 11) 150,642 150,642 144,919
Share based payments
reserve 10,834 10,280 9,236
Retained earnings 188,317 170,425 153,358
Foreign currency
translation reserve (1,853) (3,662) -
347,940 327,685 307,513
$ 499,324 $ 474,137 $ 406,259
MAJOR DRILLING GROUP INTERNATIONAL INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JULY 31, 2011 AND 2010 (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 has
operations in Canada, the United States, South and Central America,
Australia, Asia and Africa.
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 condensed consolidated financial statements have been prepared on
the historical cost basis, as explained in the accounting policies
below. Historical cost is generally based on the fair value of the
consideration given in exchange for assets.
3. FUTURE ACCOUNTING CHANGES
Certain new standards, interpretations, amendments and improvements to
existing standards were issued by the IASB or International Financial
Reporting Interpretations Committee ('IFRIC') that are mandatory for
accounting periods beginning in later periods. The standards impacted
that are applicable to the Company are as follows:
IFRS 9 Financial Instruments ('IFRS 9')
IFRS 9 was issued in November 2009 and will replace IAS 39 Financial Instruments: Recognition and Measurement ('IAS 39'). The new standard replaces the current multiple
classification and measurement models for financial assets and
liabilities with a single model that has only two classification
categories: amortized cost and fair value. IFRS 9 is effective for
annual periods beginning on or after January 1, 2013. The
Company is currently evaluating the impact of this standard on its
consolidated financial statements.
IFRS 10 Consolidated Financial Statements ('IFRS 10')
IFRS 10 establishes principles for the presentation and preparation of
consolidated financial statements when an entity controls one or more
other entities. IFRS 10 supersedes IAS 27 Consolidated and Separate Financial Statements and SIC-12 Consolidation - Special Purpose Entities and is effective for annual periods beginning on or after January 1,
2013. Earlier application is permitted. The Company is currently
evaluating the impact of this standard on its consolidated financial
statements.
IFRS 11 Joint Arrangements ('IFRS 11')
IFRS 11 introduces new accounting requirements for joint arrangements,
replacing IAS 31 Interests in Joint Ventures. IFRS 11 divides joint arrangements into two types, each having its own
accounting model. A 'joint operation' continues to be accounted for
using proportional consolidation, whereas a 'joint venture' must be
accounted for using equity accounting. IFRS 11 is effective for fiscal
years beginning on or after January 1, 2013.
IFRS 12 Disclosure of Interests in Other Entities ('IFRS 12')
IFRS 12 applies to entities that have an interest in a subsidiary, a
joint arrangement, an associate or an unconsolidated structured entity.
IFRS 12 is effective for annual periods beginning on or after January
1, 2013. The Company is currently evaluating the impact of this
standard on its consolidated financial statements.
IFRS 13 Fair Value Measurements ('IFRS 13')
IFRS 13 is a new standard meant to clarify the definition of fair value,
provide guidance on measuring fair value and improve disclosure
requirements related to fair value measurement. IFRS 13 is to be
applied for annual periods beginning on or after January 1, 2013. The
Company is currently evaluating the impact of this standard on its
consolidated financial statements.
4. SIGNIFICANT ACCOUNTING POLICIES
Cash
Cash is comprised of cash on hand and demand deposits in banks, cashable
at any time.
Financial instruments
Financial assets and financial liabilities are initially recognized at
fair value and their subsequent measurement is dependent on their
classification as described below. Their classification depends on the
purpose for which the financial instruments were acquired or issued,
their characteristics and the Company's designation of such
instruments. Settlement date accounting is used.
Asset/Liability Classification Measurement
Cash Loans and receivables Amortized cost
Trade and other receivables Loans and receivables Amortized cost
Trade and other payables Other financial liabilities Amortized cost
Short and long-term debt Other financial liabilities Amortized cost
Transaction costs are included in the initial carrying value of
financial instruments, except those classified as fair value through
profit or loss, and are amortized into income using the effective
interest method.
Loans and receivables - Loans and receivables are non-derivative financial assets with fixed
or determinable payments that are not quoted in an active market. Loans
and receivables are measured at amortized cost using the effective
interest method, less any impairment.
Interest income is recognized by applying the effective interest rate,
except for short-term receivables when the recognition of interest
would be immaterial.
Other financial liabilities - Other financial liabilities are subsequently measured at amortized cost
using the effective interest method. The effective interest method is a
method of calculating the amortized cost of a financial liability and
of allocating interest expense over the relevant period. The effective
interest rate is the rate that exactly discounts estimated future cash
payments (including all fees and points paid or received that form an
integral part of the effective interest rate, transaction costs and
other premiums or discounts) through the expected life of the financial
liability, or where appropriate, a shorter period, to the net carrying
amount on initial recognition.
Embedded derivatives - Derivatives embedded in non-derivative host contracts that are not
financial assets within the scope of IAS 39 (e.g. financial
liabilities) are treated as separate derivatives when their risks and
characteristics are not closely related to those of the host contracts
and the host contracts are not measured at fair value.
Revenue recognition
Revenue from drilling contracts is recognized based on the terms of
customer contracts that generally provide for revenue recognition on
the basis of actual meters drilled at contract rates or fixed monthly
charges or a combination of both. Revenue from ancillary services,
primarily relating to extra services to the customer, is recorded when
the services are rendered. Revenue is recognized when collection is
reasonably assured.
Earnings per share
Basic earnings per share are calculated by dividing net earnings (loss)
by the weighted average number of common shares outstanding during the
year.
Diluted earnings per share are determined as net earnings (loss) divided
by the weighted average number of diluted common shares for the year.
Diluted common shares reflect the potential dilutive effect of
exercising stock options.
Inventories
The Company maintains an inventory of operating supplies, drill rods and
drill bits. Inventories are valued at the lower of cost and net
realizable value, determined on a first in, first out ('FIFO') basis.
The value of used inventory items is considered minimal therefore they
are not valued, except for drill rods, which, if still considered
usable, are valued at 50% of cost.
Property, plant and equipment
Property, plant and equipment ('PP&E') are measured at cost, less
accumulated depreciation and impairment losses. Depreciation,
calculated principally on the straight-line method, is charged to
operations at rates based upon the estimated useful life of each
depreciable asset. When significant components of an item of PP&E have
different useful lives, they are accounted for as separate assets. The
following rates apply to those assets being amortized on the
straight-line method:
Residual value (%) Useful life (years)
Buildings 0 15-20
Drilling equipment 0-15 5-15
Automotive and off-road 0-10 5-10
equipment
Other (office, computer and shop 0 5-15
equipment)
Land and assets under construction not available for use are not
amortized. Costs for repairs and maintenance are charged to operations
as incurred. Subsequent costs are included in the assets carrying value
when it is probable that future economic benefits associated with it
will flow to the entity and when they are ready for their intended use.
Subsequent costs are amortized over the useful life of the asset and
replaced components are de-recognized. Amortization methods, residual
values and useful lives are re-assessed at minimum on an annual basis.
Leases
Leases are classified as finance leases whenever the terms of the lease
transfer substantially all the risks and rewards of ownership to the
lessee. All other leases are classified as operating leases.
Assets held under finance leases are initially recognized as assets of
the Company at their fair value at the inception of the lease or, if
lower, at the present value of the minimum lease payments. The
corresponding liability to the lessor is included in the consolidated
balance sheet as trade and other payables.
Lease payments are apportioned between finance expenses and reduction of
the lease obligation so as to achieve a constant rate of interest on
the remaining balance of the liability. Finance expenses are recognized
immediately in profit or loss, unless they are directly attributable to
qualifying assets, in which case they are capitalized as borrowing
costs. Contingent rentals are recognized as expenses in the periods in
which they are incurred.
Operating lease payments are recognized as an expense on a straight-line
basis over the lease term, except where another systematic basis is
more representative of the time pattern in which economic benefits from
the leased asset are consumed. Contingent rentals arising under
operating leases are recognized as an expense in the period in which
they are incurred.
In the event that lease incentives are received to enter into operating
leases, such incentives are recognized as a liability. The aggregate
benefit of incentives is recognized as a reduction of rental expense on
a straight-line basis, except where another systematic basis is more
representative of the time pattern in which economic benefits from the
leased asset are consumed.
Business combinations
Acquisitions of businesses are accounted for using the acquisition
method. The consideration transferred in a business combination is
measured at fair value, which is calculated as the sum of the
acquisition-date fair values of the assets transferred by the Company,
liabilities incurred by the Company to the former owners of the
acquiree and any equity interests issued by the Company in exchange for
control of the acquiree. Acquisition-related costs are generally
recognized in profit or loss as incurred.
At acquisition date, the identifiable assets acquired and the
liabilities assumed are recognized at their fair value.
Goodwill is measured as the excess of the sum of the consideration
transferred, the amount of any non-controlling interests in the
acquiree, and the fair value of the acquirer's previously held equity
interest in the acquiree (if any) over the net of the acquisition-date
amounts of the identifiable assets acquired and the liabilities
assumed. If, after reassessment, the net of the acquisition-date
amounts of the identifiable assets acquired and liabilities assumed
exceeds the sum of the consideration transferred, the amount of any
non-controlling interests in the acquiree and the fair value of the
acquirer's previously held interest in the acquiree (if any), then the
excess is recognized immediately in profit or loss as a bargain
purchase gain.
When the consideration transferred by the Company in a business
combination includes assets or liabilities resulting from a contingent
consideration arrangement, the contingent consideration is measured at
its acquisition-date fair value and included as part of the
consideration transferred in a business combination. Changes in the
fair value of the contingent consideration that qualify as measurement
period adjustments are adjusted retrospectively, with corresponding
adjustments against goodwill. Measurement period adjustments are
adjustments that arise from additional information obtained during the
'measurement period' (which cannot exceed one year from the acquisition
date) about facts and circumstances that existed at the acquisition
date.
The subsequent accounting for changes in the fair value of the
contingent consideration that do not qualify as measurement period
adjustments depends on how the contingent consideration is classified.
Contingent consideration that is classified as equity is not
re-measured at subsequent reporting dates and its subsequent settlement
is accounted for within equity. Contingent consideration that is
classified as an asset or a liability is re-measured at subsequent
reporting dates in accordance with IAS 39, or IAS 37 Provisions, Contingent Liabilities and Contingent Assets ('IAS 37'), as appropriate, with the corresponding gain or loss being
recognized in profit or loss.
If the initial accounting for a business combination is incomplete by
the end of the reporting period in which the combination occurs, the
Company reports provisional amounts for the items for which the
accounting is incomplete. Those provisional amounts are adjusted during
the measurement period (see above), or additional assets or liabilities
are recognized, to reflect new information obtained about facts and
circumstances that existed at the acquisition date that, if known,
would have affected the amounts recognized at that date.
Contingent liabilities acquired in a business combination - Contingent liabilities acquired in a business combination are
initially measured at fair value at the acquisition date. At the end of
subsequent reporting periods, such contingent liabilities are measured
at the higher of the amount that would be recognized in accordance with
IAS 37 and the amount initially recognized less cumulative amortization
recognized in accordance with IAS 18 Revenue.
Goodwill
Goodwill represents the excess of the purchase price of business
acquisitions, including acquisition costs, over the fair value of the
identifiable net assets acquired. The value of goodwill is tested for
impairment at least annually. Any impairment loss identified by this
test would be reported in earnings (loss) for the period during which
the loss occurred.
Intangible assets
Intangible assets that are acquired in a business combination are
recognized separately from goodwill and are initially recognized at
their fair value at the acquisition date (which is regarded as their
cost). Subsequent to initial recognition, intangible assets acquired in
a business combination are reported at cost less accumulated
amortization and accumulated impairment losses. Intangible assets
include customer relationships and a non-compete agreement, which are
amortized on a straight-line basis over a three and five-year period,
respectively.
Impairment of long-lived assets
At the end of each reporting period, the Company assesses whether there
are any indicators that the carrying values of its long-term assets are
impaired. If any such indication exists, the recoverable amount of the
asset is estimated in order to determine the extent of the impairment
loss (if any). Where it is not possible to estimate the recoverable
amount of an individual asset, the Company estimates the recoverable
amount of the cash-generating unit ('CGU') to which the asset belongs.
A CGU is the smallest identifiable group of assets that generate cash
inflows that are largely independent of the cash inflows from other
assets or group of assets. Where a reasonable and consistent basis of
allocation can be identified, corporate assets are also allocated to
individual CGUs, or otherwise they are allocated to the smallest group
of CGUs for which a reasonable and consistent allocation basis can be
identified.
The recoverable amount is the higher of the fair value less costs to
sell and the value in use. In assessing value in use, the estimated
future cash flows are discounted to their present value using a pre-tax
discount rate that reflects current market assessments of the time
value of money and the risks specific to the asset for which the
estimates of future cash flows have not been adjusted. If the
recoverable amount of an asset (or CGU) is estimated to be less than
its carrying amount, the carrying amount of the asset (or CGU) is
reduced to its recoverable amount. An impairment loss is recognized
immediately in profit or loss.
At the end of each reporting period the Company assesses whether there
is any indication that an impairment loss recognized in prior periods
for an asset other than goodwill may no longer exist or may have
decreased. If any such indication exists, the Company estimates the
recoverable amount of that asset.
Where an impairment loss subsequently reverses, the carrying amount of
the asset (or CGU) is increased to the revised estimate of its
recoverable amount, but so that the increased carrying amount does not
exceed the carrying amount that would have been determined had no
impairment loss been recognized for the asset (or CGU) in prior years.
A reversal of an impairment loss is recognized immediately in profit or
loss.
Income taxes
Current - The tax currently receivable or payable is based on taxable profit for
the year and any adjustments resulting from prior years. Taxable profit
differs from profit as reported in the consolidated statement of
operations because of items of income or expense that are taxable or
deductible in other years and items that are never taxable or
deductible. The Company's liability for current tax is calculated using
tax rates that have been enacted or substantively enacted by the end of
the reporting period.
Deferred - The Company follows the liability method of accounting for corporate
income taxes. This method takes a balance sheet approach and focuses on
the amount of income taxes payable or receivable that will arise if an
asset is realized or a liability is settled for its carrying amount.
These resulting assets and liabilities, referred to as 'deferred income
tax assets and liabilities', are computed and recognized based on carry
forwards of unused tax losses, unused tax credits and the differences
between the carrying amount of balance sheet items and their
corresponding tax values using the enacted, or substantively enacted,
income tax rates in effect when the assets are realized or the
liabilities are settled.
The Company's primary differences arise between the tax carrying value
and net book value of property, plant and equipment. Management reduces
the carrying value of the deferred income tax assets by a valuation
allowance when it is not probable that taxable profit will be available
against which the deductible temporary difference can be utilized.
Translation of foreign currencies
The consolidated financial statements are presented in Canadian dollars,
which is the Company's presentation currency.
Items included in the financial statements of each of the Company's
subsidiaries are measured using the functional currency. The majority
of the Company's subsidiaries have a functional currency of U.S.
dollars, Canadian dollars or Australian dollars. Foreign currency
transactions are translated into the functional currency using the
exchange rates prevailing at the dates of the transaction. Foreign
exchange gains and losses resulting from the settlement of such
transactions and from the translation of monetary assets and
liabilities not denominated in the functional currency of an entity are
recognized in the statement of operations. Non-monetary items that are
measured in terms of historical cost in a foreign currency are not
re-translated.
For the purposes of the consolidated financial statements, the assets
and liabilities of the Company's foreign operations (with functional
currencies other than Canadian dollars) are translated into Canadian
dollars using exchange rates at the end of the period. Income and
expense items are translated at the average rates of exchange for the
period. The resulting translation adjustments are recognized in other
comprehensive income within the foreign currency translation reserve.
Additionally, foreign exchange gains and losses related to certain
intercompany loans that are permanent in nature are included in other
comprehensive income and foreign currency translation reserve.
Share-based payments
The Company uses the fair value method to measure compensation expense
at the date of grant of stock options to employees and directors. The
fair value of each tranche for all option grants is determined using
the Black-Scholes option pricing model, which considers estimated
forfeitures at time of grant, and each tranche is amortized separately
to earnings on a graded vesting basis over the vesting period with an
offset to the share based payments reserve. When options are exercised,
the corresponding share based payments reserve and the proceeds
received by the Company are credited to share capital.
The Company records the fair value of deferred share units as
compensation expense, with offset to accrued liabilities.
Provisions
Provisions are recognized when the Company has a present obligation
(legal or constructive) as a result of a past event, it is probable
that the Company will be required to settle the obligation, and a
reliable estimate can be made of the amount of the obligation. The
amount recognized as a provision is the best estimate of the
consideration required to settle the present obligation at the end of
the reporting period, taking into account the risks and uncertainties
surrounding the obligation. When a provision is measured using the cash
flows estimated to settle the present obligation, its carrying amount
is the present value of those cash flows (where the effect of the time
value of money is material). When some or all of the economic benefits
required to settle a provision are expected to be recovered from a
third party, a receivable is recognized as an asset if it is virtually
certain that reimbursement will be received and the amount of the
receivable can be measured reliably.
Onerous contracts - Present obligations arising under onerous contracts are recognized and
measured as provisions. An onerous contract is considered to exist
where the Company has a contract under which the unavoidable costs of
meeting the obligations under the contract exceed the economic benefits
expected to be received from the contract.
Restructurings - A restructuring provision is recognized when the Company has developed
a detailed formal plan for restructuring and has raised a valid
expectation in those affected that it will carry out the restructuring
by starting to implement the plan or announcing its main features to
those affected by it. The measurement of a restructuring provision
includes only the direct expenditures arising from the restructuring,
which are those amounts that are both necessarily entailed by the
restructuring and not associated with the ongoing activities of the
entity.
5. KEY SOURCES OF ESTIMATION UNCERTAINTY AND CRITICAL ACCOUNTING JUDGMENTS
Use of estimates
The preparation of financial statements in conformity with IFRS requires
management to make judgments, estimates and assumptions that are not
readily apparent from other sources, which affect the reported amounts
of assets and liabilities at the dates of the financial statements and
the reported amounts of revenue and expenses during the reported
periods. The estimates and associated assumptions are based on
historical experience and other factors that are considered to be
relevant. Actual results could 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.
Management determines the estimated useful lives of its property, plant
and equipment based on historical experience of the actual lives of
property, plant and equipment of similar nature and functions, and
reviews these estimates at the end of each reporting period.
Management reviews the condition of inventories at the end of each
reporting period and recognizes a provision for slow-moving and
obsolete items of inventory when they are no longer suitable for use.
Management's estimate of the net realizable value of such inventories
is based primarily on sales prices and current market conditions.
Amounts used for impairment calculations are based on estimates of
future cash flows of the Company. By their nature, the estimates of
cash flows, including the estimates of future revenue, operating
expenses, utilization, discount rates and market pricing are subject to
measurement uncertainty. Accordingly, the impact in the consolidated
financial statements of future periods could be material.
Property, plant and equipment are aggregated into CGUs based on their
ability to generate largely independent cash inflows and are used for
impairment testing. The determination of the Company's CGUs is subject
to management's judgment.
Tax interpretations, regulations and legislation in the various
jurisdictions in which the Company operates are subject to change. As
such, income taxes are subject to measurement uncertainty. Deferred
income tax assets are assessed by management at the end of the
reporting period to determine the probability that they will be
realized from future taxable earnings.
Compensation costs accrued for long-term share-based payment plans are
subject to the estimation of what the ultimate payout will be using the
Black Scholes pricing model, which is based on significant assumptions
such as volatility, dividend yield and expected term.
The amount recognized as provisions and accrued liabilities, including
legal, contractual, constructive and other exposures or obligations, is
the best estimate of the consideration required to settle the related
liability, including any related interest charges, taking into account
the risks and uncertainties surrounding the obligation. In addition,
contingencies will only be resolved when one or more future events
occur or fail to occur. Therefore assessment of contingencies
inherently involves the exercise of significant judgment and estimates
of the outcome of future events. The Company assesses its liabilities
and contingencies based upon the best information available, relevant
tax laws and other appropriate requirements.
Judgments
The Company applied judgment in determining the functional currency of
the Company and its subsidiaries. Functional currency was determined
based on the currency that mainly influences sales prices, labour,
materials and other costs of providing services.
Property, plant and equipment and goodwill are aggregated into CGUs
based on their ability to generate largely independent cash inflows and
are used for impairment testing. The determination of the Company's
CGUs is subject to management's judgment with respect to the lowest
level at which independent cash inflows are generated.
The Company has applied judgment in determining the degree of
componentization of property, plant and equipment. Each part of an item of property, plant and equipment with a cost that
is significant in relation to the total cost of the item and has a
separate useful life has been identified as a separate component and is
depreciated separately.
The Company has applied judgment in recognizing provisions and accrued
liabilities, including judgment as to whether the Company has a present
obligation (legal or constructive) as a result of a past event; whether
it is probable that an outflow of resources embodying economic benefits
will be required to settle the obligation; and whether a reliable
estimate can be made of the amount of the obligation.
6. FIRST TIME ADOPTION OF IFRS
As disclosed in Note 2, these interim condensed consolidated financial
statements represent the Company's initial presentation of the
financial results of operations and financial position under IFRS for
the period ended July 31, 2011 in conjunction with the Company's annual
audited consolidated financial statements to be issued under IFRS as at
and for the year ending April 30, 2012. As a result, these interim
condensed consolidated financial statements have been prepared in
accordance with IFRS 1, First-time Adoption of International Financial Reporting Standards ('IFRS 1') and with IAS 34 as issued by the IASB. Previously, the
Company prepared its interim and annual consolidated financial
statements in accordance with Canadian GAAP.
IFRS 1 requires the presentation of comparative information as at the
May 1, 2010 transition date and subsequent comparative periods as well
as the consistent and retrospective application of IFRS accounting
policies. To assist with the transition, the provisions of IFRS 1 allow
for certain mandatory exceptions and optional exemptions for first-time
adopters to alleviate the retrospective application of specific IFRSs.
Exceptions and exemptions applied
IFRS 1 First-Time Adoption of IFRS - IFRS 1 provides entities adopting IFRS for the first time, a number of
optional exemptions and mandatory exceptions, in certain areas, to the
general requirement for full retrospective application of IFRS on the
date of transition.
The following are the optional exemptions that the Company has applied:
-- Business combinations - This exemption allows the Company to
not apply IFRS 3(R), Business Combinations, retrospectively to
business combinations that occurred before the date of
transition.
-- Share-based payments election - This exemption allows the
Company to not apply IFRS 2, Share-Based Payments ('IFRS 2') to
equity settled awards that were granted on or before November
7, 2002 or those granted after this date that had vested before
the date of transition. The Company also did not apply IFRS 2
to cash settled awards that were settled before the date of
transition to IFRS.
-- Foreign currency translation adjustment ('CTA') - This election
allows the Company, on the date of transition, to record the
CTA from all foreign operations, calculated under previous
GAAP, to retained earnings and reset the CTA balance to nil.
-- Fair value revaluation as deemed cost - This election allows
the Company to measure certain items of property, plant and
equipment at the date of transition at their fair value, and to
use that fair value as deemed cost at that date.
The remaining IFRS 1 exemptions and exceptions were not applicable or
material to the preparation of the Company's consolidated balance sheet
at the date of transition to IFRS on May 1, 2010.
The following mandatory exception is applicable to the Company:
-- Estimates - in accordance with IFRS 1, hindsight is not used to
create or revise estimates. The estimates previously made by
the Company under Canadian GAAP were not revised for
application of IFRS except when necessary to reflect any
differences in accounting policies between Canadian GAAP and
IFRS.
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. A discussion of transitional
adjustments follows the reconciliations.
IFRS Opening
Consolidated
Balance Sheet
As at May 1,
2010
(a) (b) (c) (d) (e) (f)
ASSETS Foreign
currency Share Fair value
translation based Deferred as
Previous payments share Contingent deemed
GAAP Adjustments reserve reserve units consideration cost IFRS
CURRENT
ASSETS
Cash $ 30,232 $ - $ - $ - $ - $ - $ - $ 30,232
Trade and
other
receivables 62,128 - - - - - - 62,128
Income tax
receivable 10,053 - - - - - - 10,053
Inventories 63,170 - - - - - - 63,170
Prepaid
expenses 4,813 - - - - - - 4,813
170,396 - - - - - - 170,396
PROPERTY,
PLANT AND
EQUIPMENT 210,812 - - - - - (11,877) 198,935
DEFERRED
INCOME TAX
ASSETS 8,910 - - - - - 469 9,379
GOODWILL 24,464 - - - - 2,011 - 26,475
INTANGIBLE
ASSETS 1,074 - - - - - - 1,074
$ 415,656 $ - $ - $ - $ - $ 2,011 $ (11,408) $ 406,259
LIABILITIES
CURRENT
LIABILITIES
Trade and
other
payables $ 54,027 $ - $ - $ - $ (35) $ - $ - $ 53,992
Income tax
payable 2,830 - - - - - - 2,830
Current
portion of
long-term
debt 8,887 - - - - - - 8,887
65,744 - - - (35) - - 65,709
CONTINGENT
CONSIDERATION - - - - - 2,011 - 2,011
LONG-TERM
DEBT 15,041 - - - - - - 15,041
DEFERRED
INCOME TAX
LIABILITIES 16,602 1,713 - - - - (2,330) 15,985
97,387 1,713 - - (35) 2,011 (2,330) 98,746
SHAREHOLDERS'
EQUITY
Share
capital 142,435 2,484 - - - - - 144,919
Share based
payments
reserve 11,142 (2,484) - 578 - - - 9,236
Retained
earnings 209,025 (1,713) (44,333) (578) 35 - (9,078) 153,358
Foreign
currency
translation
reserve (44,333) - 44,333 - - - - -
318,269 (1,713) - - 35 - (9,078) 307,513
$ 415,656 $ - $ - $ - $ - $ 2,011 $ (11,408) $ 406,259
IFRS
Consolidated
Balance Sheet
As at July
31, 2010
(a) (c) (d) (e) (f) (g)
ASSETS
Fair
Share Deferred value
Opening based as
Previous IFRS payments share Contingent deemed Building
GAAP restatements * Adjustments reserve units consideration cost componentization IFRS
CURRENT
ASSETS
Cash $ 35,218 $ - $ - $ - $ - $ - $ - $ - $ 35,218
Trade and
other
receivables 69,923 - - - - - - - 69,923
Income tax
receivable 8,045 - - - - - - - 8,045
Inventories 63,491 - - - - - - - 63,491
Prepaid
expenses 9,523 - - - - - - - 9,523
186,200 - - - - - - - 186,200
PROPERTY,
PLANT AND
EQUIPMENT 216,773 (11,877) - - - - 181 27 205,104
DEFERRED
INCOME TAX
ASSETS 9,064 469 - - - - (39) (7) 9,487
GOODWILL 25,249 2,011 - - - 828 - - 28,088
INTANGIBLE
ASSETS 1,185 - - - - - - - 1,185
$ 438,471 $ (9,397) $ - $ - $ - $ 828 $ 142 $ 20 $ 430,064
LIABILITIES
CURRENT
LIABILITIES
Trade and
other
payables $ 56,350 $ (35) $ - $ - $ (3) $ - $ - $ - $ 56,312
Income tax
payable 3,872 - - - - - - - 3,872
Short-term
debt 10,624 - - - - - - - 10,624
Current
portion of
long-term
debt 8,383 - - - - - - - 8,383
79,229 (35) - - (3) - - - 79,191
CONTINGENT
CONSIDERATION - 2,011 - - - 828 - - 2,839
LONG-TERM
DEBT 13,360 - - - - - - - 13,360
DEFERRED
INCOME TAX
LIABILITIES 16,342 (617) - - - - 8 7 15,740
108,931 1,359 - - (3) 828 8 7 111,130
SHAREHOLDERS'
EQUITY
Share
capital 142,569 2,484 599 - - - - - 145,652
Share based
payments
reserve 11,589 (1,906) (599) 69 - - - - 9,153
Retained
earnings 214,078 (55,667) - (69) 3 - 134 13 158,492
Foreign
currency
translation
reserve (38,696) 44,333 - - - - - - 5,637
329,540 (10,756) - - 3 - 134 13 318,934
$ 438,471 $ (9,397) $ - $ - $ - $ 828 $ 142 $ 20 $ 430,064
* total of May 1, 2010 transitional adjustments to re-state previous
GAAP to IFRS
IFRS
Consolidated
Balance Sheet
As at April
30, 2011
(a) (c) (d) (e) (f) (g)
Fair
Opening Share Deferred value
ASSETS IFRS based as
Previous restatements payments share Contingent deemed Building
GAAP * Adjustments reserve units consideration cost componentization IFRS
CURRENT
ASSETS
Cash $ 16,215 $ - $ - $ - $ - $ - $ - $ - $ 16,215
Trade and
other
receivables 100,300 - - - - - - - 100,300
Income tax
receivable 2,720 - - - - - - - 2,720
Inventories 69,864 - - - - - - - 69,864
Prepaid
expenses 8,439 - - - - - - - 8,439
197,538 - - - - - - - 197,538
PROPERTY,
PLANT AND
EQUIPMENT 246,509 (11,877) - - - - 726 115 235,473
DEFERRED
INCOME TAX
ASSETS 11,279 469 - - - - (155) (18) 11,575
GOODWILL 25,704 2,011 - - - 601 - - 28,316
INTANGIBLE
ASSETS 1,235 - - - - - - - 1,235
$ 482,265 $ (9,397) $ - $ - $ - $ 601 $ 571 $ 97 $ 474,137
LIABILITIES
CURRENT
LIABILITIES
Trade and
other
payables $ 88,618 $ (35) $ - $ - $ 16 $ - $ - $ - $ 88,599
Income tax
payable 4,297 - - - - - - - 4,297
Short-term
debt 7,919 - - - - - - - 7,919
Current
portion of
long-term
debt 8,402 - - - - - - - 8,402
109,236 (35) - - 16 - - - 109,217
CONTINGENT
CONSIDERATION - 2,011 - - - 601 - - 2,612
LONG-TERM
DEBT 16,630 - - - - - - - 16,630
DEFERRED
INCOME TAX
LIABILITIES 18,552 (617) - - - - 33 25 17,993
144,418 1,359 - - 16 601 33 25 146,452
SHAREHOLDERS'
EQUITY
Share
capital 146,600 2,484 1,558 - - - - - 150,642
Share based
payments
reserve 13,183 (1,906) (1,558) 561 - - - - 10,280
Retained
earnings 226,059 (55,667) - (561) (16) - 538 72 170,425
Foreign
currency
translation
reserve (47,995) 44,333 - - - - - - (3,662)
337,847 (10,756) - - (16) - 538 72 327,685
$ 482,265 $ (9,397) $ - $ - $ - $ 601 $ 571 $ 97 $ 474,137
* total of May 1, 2010 transitional adjustments to re-state previous
GAAP to IFRS
IFRS
Consolidated
Statement of
Operations
For the three
months ended
July 31, 2010 (c) (d) (f) (g)
Fair
Deferred value
Share as
Previous based share deemed Building
GAAP payments units cost componentization IFRS
TOTAL REVENUE $ 109,480 $ - $ - $ - $ - $ 109,480
DIRECT COSTS 82,948 - - - - 82,948
GROSS PROFIT 26,532 - - - - 26,532
OPERATING
EXPENSES
General and
administrative 9,556 - (3) - - 9,553
Other
expenses 2,003 69 - - - 2,072
Gain on
disposal of
property,
plant and
equipment (112) - - - - (112)
Foreign
exchange loss 92 - - - - 92
Finance costs 286 - - - - 286
Depreciation
and
amortization 7,355 - - (181) (27) 7,147
19,180 69 (3) (181) (27) 19,038
EARNINGS (LOSS)
BEFORE INCOME
TAX 7,352 (69) 3 181 27 7,494
INCOME TAX -
PROVISION
(RECOVERY)
Current 2,943 - - - - 2,943
Deferred (644) - - 47 14 (583)
2,299 - - 47 14 2,360
NET EARNINGS
(LOSS) $ 5,053 $ (69) $ 3 $ 134 $ 13 $ 5,134
IFRS
Consolidated
Statement of
Operations
For the twelve
months ended
April 30, 2011 (c) (d) (f) (g)
Fair
Deferred value
Share as
Previous based share deemed Building
GAAP payments units cost componentization IFRS
TOTAL REVENUE $ 482,276 $ - $ - $ - $ - $ 482,276
DIRECT COSTS 361,857 - - - - 361,857
GROSS PROFIT 120,419 - - - - 120,419
OPERATING
EXPENSES
General and
administrative 40,947 - 16 - - 40,963
Other
expenses 7,021 561 - - - 7,582
Gain on
disposal of
property,
plant and
equipment (377) - - - - (377)
Gain on sale
of investment (313) - - - - (313)
Foreign
exchange gain (892) - - - - (892)
Finance costs 1,275 - - - - 1,275
Depreciation
and
amortization 31,759 - - (726) (114) 30,919
79,420 561 16 (726) (114) 79,157
EARNINGS (LOSS)
BEFORE INCOME
TAX 40,999 (561) (16) 726 114 41,262
INCOME TAX -
PROVISION
(RECOVERY)
Current 13,548 - - - - 13,548
Deferred (108) - - 188 42 122
13,440 - - 188 42 13,670
NET EARNINGS
(LOSS) $ 27,559 $ (561) $ (16) $ 538 $ 72 $ 27,592
IFRS
Consolidated
Statement of
Comprehensive
Earnings
(Loss)
For the three
months ended
July 31, 2010
(c) (d) (f) (g)
Fair
Share Deferred value
based as
Previous payments share deemed Building
GAAP reserve units cost componentization IFRS
NET EARNINGS
(LOSS) $ 5,053 $ (69) $ 3 $ 134 $ 13 $ 5,134
OTHER
COMPREHENSIVE
EARNINGS
Unrealized
gain on
foreign
currency
translation
(net of tax
of $0) 5,637 - - - - 5,637
COMPREHENSIVE
EARNINGS
(LOSS) $ 10,690 $ (69) $ 3 $ 134 $ 13 $ 10,771
IFRS
Consolidated
Statement of
Comprehensive
Earnings
(Loss)
For the
twelve months
ended April
30, 2011
(c) (d) (f) (g)
Fair
Share Deferred value
based as
Previous payments share deemed Building
GAAP reserve units cost componentization IFRS
NET EARNINGS
(LOSS) $ 27,559 $ (561) $ (16) $ 538 $ 72 $ 27,592
OTHER
COMPREHENSIVE
LOSS
Unrealized
loss on
foreign
currency
translation
(net of tax
of $0) (3,662) - - - - (3,662)
COMPREHENSIVE
EARNINGS
(LOSS) $ 23,897 $ (561) $ (16) $ 538 $ 72 $ 23,930
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
Companies April 30, 2010, July 31, 2010 and April 30, 2011
historical annual and interim consolidated financial
statements.
b) Foreign currency translation reserve - The Company has applied
the IFRS 1 exemption as described in the 'exceptions and
exemptions applied' section above.
c) 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.
d) 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.
e) 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.
Fair value as deemed cost - The Company has applied the IFRS 1
f) exemption as described in the 'exceptions and exemptions
applied' section above.
g) 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 May 1,
2010 $ 1,542 $ 10,442 $ 219,751 $ 75,551 $ 25,846 $ 333,132
Additions - 2,020 40,198 19,808 592 62,618
Disposals (167) (1,213) (5,416) (5,370) - (12,166)
Business
acquisitions - - 7,459 2,143 19 9,621
Effect of
movements in
exchange
rates - (48) (4,154) (155) (956) (5,313)
Balance as
at April 30,
2011 1,375 11,201 257,838 91,977 25,501 387,892
Additions - - 16,249 4,479 682 21,410
Disposals - - (2,793) (483) - (3,276)
Effect of
movements in
exchange
rates 3 63 (1,022) 107 534 (315)
Balance as
at July 31,
2011 $ 1,378 $ 11,264 $ 270,272 $ 96,080 $ 26,717 $ 405,711
Accumulated
Depreciation
Land Buildings Drills Auto Other Total
Balance as
at May 1,
2010 $ - $ (2,363) $ (74,610) $ (40,444) $ (16,780) $ (134,197)
Disposals - 194 3,917 3,934 - 8,045
Depreciation - (668) (17,096) (11,125) (1,272) (30,161)
Effect of
movements in
exchange
rates - 46 3,368 (460) 940 3,894
Balance as
at April 30,
2011 - (2,791) (84,421) (48,095) (17,112) (152,419)
Disposals - - 1,603 389 - 1,992
Depreciation - (167) (4,799) (3,129) (294) (8,389)
Effect of
movements in
exchange
rates - 7 1,765 496 (516) 1,752
Balance as
at July 31,
2011 $ - $ (2,951) $ (85,852) $ (50,339) $ (17,922) $ (157,064)
Net book
value May 1,
2010 $ 1,542 $ 8,079 $ 145,141 $ 35,107 $ 9,066 $ 198,935
Net book
value April
30, 2011 $ 1,375 $ 8,410 $ 173,417 $ 43,882 $ 8,389 $ 235,473
Net book
value July
31, 2011 $ 1,378 $ 8,313 $ 184,420 $ 45,741 $ 8,795 $ 248,647
There were no impairments recorded as at May 1, 2010, April 30, 2011 or
July 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 May 1, 2010, April 30, 2011 or
July 31, 2011.
Capital expenditures were $21,410 and $8,969 for the periods ended July
31, 2011 and 2010, respectively. The Company did not obtain direct
financing for the period ended July 31, 2011 but obtained direct
financing of $50 for the period ended July 31, 2010.
8. GOODWILL
Changes in the goodwill balance were as follows:
Balance as at May 1, 2010 $ 26,475
Goodwill acquired 1,083
Effect of movement in exchange rates 758
Balance as at April 30, 2011 28,316
Effect of movement in exchange rates 357
Balance as at July 31, 2011 $ 28,673
Allocation of goodwill to CGUs
The carrying amount of goodwill was allocated to CGUs as follows:
April 30, 2011 May 1, 2010
Canada $ 13,223 $ 13,223
Chile 12,182 11,004
Other 2,911 2,248
$ 28,316 $ 26,475
Canada
The recoverable amount of the 'Canadian Branch' as a CGU is determined
on a value-in-use calculation, which uses cash flow projections based
on financial budgets and forward projections approved by management
covering a five-year period, and a discount rate of 14% per annum. Cash
flows beyond that period have been extrapolated using a steady 2% per
annum growth rate. While the mining services market in Canada is
cyclical in nature this organic growth rate has been achieved across
two business cycles and is seen by management as a fair and
conservative long-term average growth rate. Management believes that
any reasonably possible change in the key assumptions on which the
recoverable amount is based would not cause the aggregate carrying
amount to exceed the aggregate recoverable amount of the CGU.
Chile
The recoverable amount of the 'Chilean Branch' as a CGU is determined on
a value in use calculation, which uses cash flow projections based on
financial budgets and forward projections approved by management
covering a five-year period, and a discount rate of 15% per annum. Cash
flows beyond that period have been extrapolated using a steady 2% per
annum growth rate. While the mining services market in Chile is
cyclical in nature this organic growth rate has been achieved across
two business cycles and is seen by management as a fair and
conservative long-term average growth rate. Management believes that
any reasonably possible change in the key assumptions on which the
recoverable amount is based would not cause the aggregate carrying
amount to exceed the aggregate recoverable amount of the CGU.
Key assumptions
The key assumptions in the value in use calculations for the Canadian
and Chilean CGUs are as follows:
Revenue - The values assigned to the assumptions reflect past
experience, except for peak revenue that is reasonably expected to be
higher than the last peak during 2008 and 2009. The effect of the
incorporation of the acquired drill fleets and significant levels of
capital expenditure within both the Canadian and Chilean CGUs since
2007 that have been higher than the sustaining level, have provided
both CGUs with the basis on which to grow. The growth expected is
consistent with management's plans for focusing operations in these
markets and growing share in the specialized drilling market.
Gross margin - Management expects that gross margins will remain in a
range in line with historically achieved levels.
9. INTANGIBLE ASSETS
Changes in the intangible assets balance were as follows:
Balance as at May 1, 2010 $ 1,074
Intangible assets acquired 763
Amortization (761)
Effect of movement in exchange rates 159
Balance as at April 30, 2011 1,235
Amortization (191)
Effect of movement in exchange rates (1)
Balance as at July 31, 2011 $ 1,043
10. LONG-TERM DEBT
In the first quarter of the current fiscal year, the Company increased
its equipment and acquisition loan by $10,000, bearing interest at
prime plus 1%, with principle repayments commencing in the first
quarter of fiscal 2013 and maturing August, 2017.
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.
Authorized
Unlimited number of fully paid common shares, without nominal or par
value, carry one vote per share and carry a right to dividends.
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 May 1, 2010 71,243 $ 144,919
Options exercised during the year 797 5,723
Balance as at April 30, 2011 72,040 150,642
Options exercised during the period - -
Balance as at July 31, 2011 72,040 $ 150,642
12. INCOME TAXES
The income tax expense for the period can be reconciled to accounting
profit as follows:
July 31, 2011 July 31, 2010
Earnings before income tax $ 26,255 $ 7,494
Statutory Canadian corporate income tax 29% 30%
rate
Expected income tax expense based on
statutory rate $ 7,614 $ 2,248
Non-recognition of tax benefits related 48 222
to losses
Other foreign taxes paid 51 55
Rate variances in foreign jurisdictions (298) (606)
Other 948 441
Total income tax provision $ 8,363 $ 2,360
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.
July 2011 July 2010
Net earnings for the period $ 17,892 $ 5,134
Weighted average shares outstanding 72,040 71,355
- basic (000's)
Net effect of dilutive securities:
Stock options (000's) 881 394
Weighted average number of shares - 72,921 71,749
diluted (000's)
Earnings per share:
Basic $ 0.25 $ 0.07
Diluted $ 0.25 $ 0.07
The calculation of the diluted earnings per share for the periods ended
July 31, 2011 and 2010 exclude the effect of 75,271 options and 577,735
options, respectively, as they are 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. Management evaluates performance based on earnings from
operations in these three geographic segments before finance costs and
income taxes. Data relating to each of the Company's reportable
segments is presented as follows:
July 31, 2011 July 31, 2010
Revenue
Canada - U.S. $ 61,438 $ 40,451
South and Central America 51,292 40,017
Australia, Asia and Africa 51,422 29,012
$ 164,152 $ 109,480
Earnings from operations
Canada - U.S. $ 9,986 $ 5,605
South and Central America 10,599 4,521
Australia, Asia and Africa 11,058 1,163
31,643 11,289
Eliminations (25) (231)
31,618 11,058
Finance costs 822 286
General corporate expenses* 4,541 3,278
Income tax 8,363 2,360
Net earnings $ 17,892 $ 5,134
*General and corporate expenses include expenses for corporate offices
and stock options
Depreciation and amortization
Canada - U.S. $ 3,341 $ 2,292
South and Central America 2,271 1,901
Australia, Asia and Africa 2,664 2,709
Unallocated corporate assets 304 245
Total depreciation and $ 8,580 $ 7,147
amortization
July 31, 2011 April 30, 2011 May 1, 2010
Identifiable
assets
Canada - U.S. $ $ 134,666 $ 103,998
146,976
South and 193,905 189,083 157,937
Central America
Australia, Asia 139,396 130,071 102,574
and Africa
480,277 453,820 364,509
Eliminations (1,263) 439 460
Unallocated and 20,310 19,878 41,290
corporate assets
$ $ 474,137 $ 406,259
499,324
Canada - U.S. includes revenue in July 31, 2011 of $33,225 (July 31,
2010 - $27,028) for Canadian operations and property, plant and
equipment at July 31, 2011 of $46,506 (April 30, 2011 - $45,325; May 1,
2010 - $38,699).
15. NET EARNINGS FOR THE YEAR
Net earnings for the year have been arrived at after charging various
employee benefit expenses as follows. Direct costs include salaries
and wages of $39,331 for July 31, 2011 ($27,838 for July 31, 2010) and
other employee benefits of $7,528 for July 31, 2011 ($6,296 for July
31, 2010); general and administrative expense includes salaries and
wages of $5,181 for July 31, 2011 ($4,002 for July 31, 2010) and other
employee benefits of $911 for July 31, 2011 ($740 for July 31, 2010);
other expenses include share-based payments of $423 for July 31, 2011
($473 for July 31, 2010).
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:
2011 2010
Depreciation of property, plant
and
equipment $ 8,389 $ 7,015
Amortization of intangible assets 191 132
$ 8,580 $ 7,147
16. 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 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 $9,733 (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 July 31, 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
Total assets $ 9,512
Consideration
Cash $ 1,209
Trade and other payables 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
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, contracts and personnel. The purchase price for the
transaction was USD $2,449 (CAD $2,567), including customary working
capital adjustments of CAD $215, financed with cash. There is also a
contingent consideration of USD $750 to the purchase price, 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 has declared two semi-annual 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. These dividends are
designated as an 'eligible dividend' for Canadian tax purposes.
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:
Fair value
The carrying values of cash, accounts receivable, demand credit facility
and accounts payable and accrued charges 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 also approximates their fair value as
almost all debts carry variable interest rates.
July 31, 2011 April 30, 2011 May 1, 2010
Short-term debt $ 8,032 $ 7,919 $ -
Contingent considerations 2,626 2,612 2,011
Long-term debt 32,848 25,032 23,928
Credit risk
As at July 31, 2011, 72.4% of the Company's trade receivables were aged
as current and 0.3% 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 May 1, 2010 $ 1,605
Increase in impairment allowance 493
Write-off charged against allowance (1,125)
Foreign exchange translation differences 9
Balance as at April 30, 2011 982
Write-off charged against allowance (526)
Recovery of amounts previously written off (161)
Foreign exchange translation differences 17
Balance as at July 31, 2011 $ 312
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:
July 31, 2011 April 30, 2011 May 1, 2010
U.S. Dollars $ 16,609 $ 14,605 $ 2,843
If the Canadian dollar moved by plus or minus 10% at July 31, 2011, the
unrealized foreign exchange gain or loss would move by approximately
$1,661 (April 30, 2011 - $1,460, May 1, 2010 - $284).
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 $ 85,931 $ $ $ $ 85,931
other - - -
payables
Contingent 955 1,671 - - 2,626
consideration
Short-term 8,032 - - - 8,032
debt
Long-term 15,032 7,565 2,000
debt 8,251 32,848
$103,169 $ 16,703 $ 7,565 $ 2,000 $129,437
To view this news release in HTML formatting, please use the following URL: http://www.cnw.ca/en/releases/archive/September2011/06/c8497.html
Denis Larocque, Chief Financial Officer
Tel: (506) 857-8636
Fax: (506) 857-9211
ir@majordrilling.com