Major Drilling Announces Record Quarterly Results
MONCTON, NB, Dec. 5, 2011 /CNW/ - Major Drilling Group International Inc.
today reported results for its second quarter of fiscal year 2012, ended October 31, 2011.Highlights
____________________________________________________________
|In millions of Canadian dollars| Q2-12| Q2-11|YTD-12 |YTD-11|
|(except earnings per share) | | | | |
|_______________________________|______|______|_______|______|
|Revenue |$213.9|$127.8| $378.0|$237.3|
|_______________________________|______|______|_______|______|
|Gross profit | 74.1| 35.1| 125.6| 61.6|
|_______________________________|______|______|_______|______|
| |As percentage of sales | 34.6%| 27.5%| 33.2%| 26.0%|
|_|_____________________________|______|______|_______|______|
|Net earnings | 31.6| 11.3| 49.5| 16.5|
|_______________________________|______|______|_______|______|
|Earnings per share | 0.43| 0.16| 0.68| 0.23|
|_______________________________|______|______|_______|______|
|Cash flow from operations (*) | 55.4| 24.8| 92.2| 40.1|
|_______________________________|______|______|_______|______|
*before changes in non-cash operating working capital items, finance costs and income taxes
-- Major Drilling posted the highest quarterly revenue in its
history at $213.9 million, up 67% from the $127.8 million
recorded for the same quarter last year.
-- Gross margin percentage for the quarter improved significantly
to 34.6%, compared to 27.5% last year.
-- Net earnings were $31.6 million or $0.43 per share ($0.42 per
share diluted) for the quarter, compared to net earnings of
$11.3 million or $0.16 per share ($0.16 per share diluted) for
the prior year quarter. This represents the highest quarterly
earnings in the Company's history.
-- Effective September 30, 2011, the Company acquired Bradley
Group Limited. Revenue for the quarter from Bradley (one
month) was $11 million.
'In this quarter, the Company achieved record quarterly revenue of $213.9 million, and record quarterly earnings of $31.6 million. Activity levels continued to be robust in every region and we continue to see inquiries from all categories of customers, although many customers are still in the process of finalizing their budgets,' said Francis McGuire, President and CEO of Major Drilling Group International Inc. 'Excluding the $11 million in revenue contributed by Bradley in the month of October, the Company still generated $203 million in revenue, well above the previous record of $191 million achieved in the second quarter of fiscal 2009.'
'Margins in this quarter improved significantly as ramp-up costs have normalized and as we get the full benefit of higher pricing in contracts that were signed or renewed in the previous quarter. In addition, we experienced very few operational or weather issues during the quarter. Our efforts on training and recruitment have allowed us to increase the number of shifts in the field, however the shortage of experienced drill crews will put added pressure on labour costs and productivity as we go forward, especially in our most active markets. Other costs are expected to rise as well, slowing down margin progression.'
'It is important to note that we are now in our third quarter, seasonally the weakest quarter of our fiscal year, as mining and exploration companies shut down, often for extended periods over the holiday season. Weather can also play an important role in affecting operations. At this time, most senior and intermediate companies have yet to decide on post-holiday start-up dates, all of which impacts third quarter revenue.'
'Looking at the balance of fiscal 2012, assuming that customers continue with their stated plans, we should see continuing growth. Our ongoing efforts on training and recruitment should allow our global utilization rates to continue to improve as each month goes by and as we add more drillers,' noted Mr. McGuire. 'Despite the current economic environment, our industry has not shown any signs of a slowdown to this point. Most commodity prices are still at relatively high levels while many of our customers, both seniors and juniors, are in much better financial position than three years ago. 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.'
'Capital expenditures for the quarter were $16.1 million as we purchased 16 rigs while retiring 11 rigs through our modernization program. The Bradley acquisition also contributed to increasing our drill fleet by 124 rigs, with the Company's total now standing at 700. 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.'
'Finally, effective September 30, 2011, we are very pleased to welcome the Bradley group and its employees into the Major Drilling group. The acquisition of Bradley Group is a unique opportunity to further Major Drilling's corporate strategy of focusing on specialized drilling, expanding our geographic footprint in areas of high growth and of maintaining a balance in our mix of drilling services. The operations of both companies are highly complimentary in terms of geography, personnel and strategies,' said Francis McGuire.
Second quarter ended October 31, 2011
Total revenue for the quarter was $213.9 million, up 67% from the $127.8 million recorded in the same quarter last year. All of the Company's regions contributed to this growth, with the Bradley acquisition contributing $11 million to the total.
Revenue for the quarter from Canada-U.S. drilling operations increased by $33.6 million or 66% to $84.2 million compared to the same period last year. U.S. mineral drilling operations continued a strong recovery, particularly from its senior mining customers and our energy division recovered from the floods that occurred last quarter in North Dakota. In Canada, increased activity levels, combined with the acquisition of Bradley, contributed to the growth of revenue.
South and Central American revenue was up 62% to $68.1 million for the quarter, compared to the prior year quarter. The increase was primarily driven by strong growth in our Mexican, Argentinean and Chilean operations.
Australian, Asian and African operations reported revenue of $61.6 million, up 75% from the same period last year. Australia and Mongolia accounted for a significant portion of this growth as operations recovered from floods experienced last year in Queensland, and increased activity levels were seen in Mongolia. Operations in South Africa also contributed to the strong growth as well as new operations in Mozambique and the DRC.
The overall gross margin percentage for the quarter was 34.6%, up from 27.5% 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 current stronger pricing environment.
General and administrative costs were $13.1 million for the quarter compared to $10.0 million in the same period last year. The increase was due to the acquisition of Bradley, the addition of new operations in Mozambique and the DRC and also increased costs to support the strong growth in activity levels.
Other expenses for the quarter were $6.0 million, up from $2.4 million in the prior year quarter, due primarily to higher incentive compensation expenses given the Company's increased profitability and costs related to the Bradley acquisition.
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 Tuesday, December 6, 2011 at 9:00 AM (EST). To access the webcast please go to the investors/webcast section of Major Drilling's website at www.majordrilling.com and click the attached link, or go directly to the CNW Group website at www.newswire.ca for directions. Participants will require Windows MediaPlayer, which can be downloaded prior to accessing the 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 Six months ended
October 31 October 31
2011 2010 2011 2010
TOTAL REVENUE $ 213,854 $ 127,818 $ 378,006 $ 237,298
DIRECT COSTS 139,799 92,717 252,452 175,665
GROSS PROFIT 74,055 35,101 125,554 61,633
OPERATING EXPENSES
General and
administrative 13,116 9,969 25,434 19,522
Other expenses 6,045 2,360 8,648 4,432
Loss (gain) on disposal
of property, plant and
equipment 81 (706) 681 (818)
Foreign exchange loss
(gain) 44 (1,340) 365 (1,248)
Finance costs 964 325 1,786 611
Depreciation and
amortization (note 14) 9,366 7,547 17,946 14,694
29,616 18,155 54,860 37,193
EARNINGS BEFORE INCOME
TAX 44,439 16,946 70,694 24,440
INCOME TAX - PROVISION
(RECOVERY) (note 11)
Current 11,303 5,907 17,287 8,850
Deferred 1,576 (282) 3,955 (865)
12,879 5,625 21,242 7,985
NET EARNINGS (note 14) $ 31,560 $ 11,321 $ 49,452 $ 16,455
EARNINGS PER SHARE
(note12)
Basic * $ 0.43 $ 0.16 $ 0.68 $ 0.23
Diluted ** $ 0.42 $ 0.16 $ 0.67 $ 0.23
*Based on 74,245,811 and 71,152,401 daily weighted average shares
outstanding for the quarter ended October 31, 2011 and 2010,
respectively
and on 73,143,093 and 71,387,919 daily weighted average shares
outstanding
for the fiscal year to date 2012 and 2011, respectively. The total
number
of shares outstanding on October 31, 2011 was 78,910,376.
** Based on 74,908,335 and 72,077,265 daily weighted average shares
outstanding for the quarter ended October 31, 2011 and 2010,
respectively,
and on 74,043,805 and 71,865,537 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 ComprehensiveEarnings
(in thousands of Canadian dollars)
(unaudited)
Three months ended Six months ended
October 31 October 31
2011 2010 2011 2010
NET EARNINGS $ 31,560 $ 11,321 $ 49,452 $ 16,455
OTHER COMPREHENSIVE EARNINGS
Unrealized gains on foreign
currency translations (net
of tax of $0) 5,765 2,958 7,574 8,595
COMPREHENSIVE EARNINGS $ 37,325 $ 14,279 $ 57,026 $ 25,050
Major Drilling GroupInternational Inc.
Interim Condensed Consolidated Statements of Changes in Equity
For the six months ended October 31, 2010 and2011
(in thousands of Canadian dollars)
(unaudited)
Share Foreign
based currency
payments Retained translation
Sharecapital reserve earnings reserve Total
BALANCE AS AT
MAY 1,2010 $ 144,919 $ 9,236 $ 153,358 $ - $ 307,513
Exercise of
stock
options 1,879 (599) - - 1,280
Share based
payments
reserve - 1,211 - - 1,211
Dividends - - (5,243) - (5,243)
146,798 9,848 148,115 - 304,761
Comprehensive
earnings:
Net earnings - - 16,455 - 16,455
Unrealized
gains on
foreign
currency
translations - - - 8,595 8,595
Total
comprehensive
earnings - - 16,455 8,595 25,050
BALANCE AS AT
OCTOBER 31,
2010 $ 146,798 $ 9,848 $ 164,570 $ 8,595 $ 329,811
BALANCE AS AT
MAY 1,2011 $ 150,642 $ 10,280 $ 170,425 $ (3,662) $ 327,685
Exercise of
stock
options 743 (78) - - 665
Share issue
(net of
issue costs)
(note 10) 76,439 - - - 76,439
Share based
payments
reserve - 1,121 - - 1,121
Dividends - - (6,242) - (6,242)
227,824 11,323 164,183 (3,662) 399,668
Comprehensive
earnings:
Net
earnings - - 49,452 - 49,452
Unrealized
gains on
foreign
currency
translations - - - 7,574 7,574
Total
comprehensive
earnings - - 49,452 7,574 57,026
BALANCE AS
ATOCTOBER 31,
2011 $ 227,824 $ 11,323 $ 213,635 $ 3,912 $ 456,694
Major Drilling Group International Inc.
Interim Condensed Consolidated Statementsof CashFlows
(in thousands of Canadian dollars)
(unaudited)
Three months ended Six months ended
October 31 October 31
2011 2010 2011 2010
OPERATING ACTIVITIES
Earnings before
income tax $ 44,439 $ 16,946 $ 70,694 $ 24,440
Operating items not
involving cash
Depreciation and
amortization (note
14) 9,366 7,547 17,946 14,694
Loss (gain) on
disposal of
property, plant
and equipment 81 (706) 681 (818)
Share based
payments reserve 567 695 1,121 1,211
Finance costs
recognized in
earnings before
income tax 964 325 1,786 611
55,417 24,807 92,228 40,138
Changes in non-cash
operating working
capital items (13,468) (8,594) (22,301) (11,864)
Finance costs paid (964) (325) (1,786) (611)
Income taxes paid (6,312) (1,822) (11,325) (1,715)
Cash flow from
operating activities 34,673 14,066 56,816 25,948
FINANCING ACTIVITIES
Repayment of
long-term debt (2,039) (2,953) (4,229) (5,234)
Proceeds from
long-term debt 15,000 - 25,000 -
Proceeds from
short-term debt - - - 10,400
Issuance of common
shares 77,104 1,146 77,104 1,280
Dividends paid - - (5,283) (4,750)
Cash flow from (used
in) financing
activities 90,065 (1,807) 92,592 1,696
INVESTING ACTIVITIES
Business
acquisitions (net of
cash acquired) (note
15) (66,519) (185) (66,519) (2,537)
Acquisition of
property, plant and
equipment (16,083) (13,289) (37,493) (22,208)
Proceeds from
disposal of
property, plant and
equipment 863 2,817 1,547 3,357
Cash flow used in
investing activities (81,739) (10,657) (102,465) (21,388)
Effect of exchange
rate changes (730) (973) (1,097) (641)
INCREASE IN CASH 42,269 629 45,846 5,615
CASH, BEGINNING OF
THE PERIOD 19,792 35,218 16,215 30,232
CASH, END OF THE
PERIOD $ 62,061 $ 35,847 $ 62,061 $ 35,847
Major Drilling Group International Inc.
Interim Condensed Consolidated Balance Sheets
As at October 31, 2011 and April 30, 2011
(in thousands of Canadian dollars)
(unaudited)
October31, 2011 April 30, 2011
ASSETS
CURRENT ASSETS
Cash $ 62,061 $ 16,215
Trade and other receivables 158,364 100,300
Income tax receivable 4,083 2,720
Inventories 90,831 69,864
Prepaid expenses 6,702 8,439
322,041 197,538
PROPERTY, PLANT AND EQUIPMENT(note
6) 302,674 235,473
DEFERRED INCOME TAX ASSETS 6,007 11,575
GOODWILL (note 7) 60,502 28,316
INTANGIBLE ASSETS (note 8) 1,126 1,235
$ 692,350 $ 474,137
LIABILITIES
CURRENT LIABILITIES
Trade and other payables $ 124,128 $ 88,599
Income tax payable 12,895 4,297
Short-term debt 12,788 7,919
Current portion of long-term
debt (note 9) 8,884 8,402
158,695 109,217
CONTINGENT CONSIDERATIONS 2,740 2,612
LONG-TERM DEBT (note 9) 55,538 16,630
DEFERRED INCOME TAX LIABILITIES 18,683 17,993
235,656 146,452
SHAREHOLDERS' EQUITY
Share capital (note 10) 227,824 150,642
Share based payments reserve 11,323 10,280
Retained earnings 213,635 170,425
Foreign currency translation
reserve 3,912 (3,662)
456,694 327,685
$ 692,350 $ 474,137
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 Interim Condensed Consolidated Financial Statements have been prepared based on the accounting policies presented in the first quarter Notes to Interim Condensed Consolidated Financial Statements for the three months ended July 31, 2011.
3. FUTURE ACCOUNTING CHANGES
The Company has not applied the following new and revised IFRSs that have been issued but are not yet effective:
IFRS 9 (as amended in 2010) Financial Instruments
IFRS 10 Consolidated Financial Statements
IFRS 11 Joint Arrangements
IFRS 12 Disclosure of Interests in Other Entities
IFRS 13 Fair Value Measurement
IAS 1 Presentation of Financial Statements
IAS 12 (amended) Income Taxes - recovery of underlying assets
IAS 19 Employee Benefits
IAS 27 (reissued) Separate Financial Statements
IAS 28 (reissued) Investments in Associates and Joint Ventures
The Company is currently evaluating the impact of applying these standards to its Consolidated Financial Statements.
4. KEY SOURCES OF ESTIMATION UNCERTAINTY AND CRITICAL ACCOUNTING JUDGMENTS
The preparation of financial statements in conformity with IFRSs requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. Significant areas requiring the use of management estimates relate to the useful lives of property, plant and equipment for amortization purposes, property, plant and equipment and inventory valuation, determination of income and other taxes, assumptions used in compilation of share based payments, fair value of assets acquired and liabilities assumed in business acquisitions, amounts recorded as accrued liabilities, and impairment testing of goodwill and intangible assets.
The Company applied judgment in determining the functional currency of the Company and its subsidiaries, determination of cash generating units ('CGUs'), the degree of componentization of property, plant and equipment, and the recognition of provisions and accrued liabilities.
5. FIRST TIME ADOPTION OF IFRS
For the overall impact of IFRS on the opening balance sheet as at transition date, including a discussion of the optional exemptions taken and the applicable mandatory exceptions, refer to Note 6 in the first quarter Notes to Interim Condensed Consolidated Financial Statements for the three months ended July 31, 2011.
The following reconciliations present the adjustments made to the Company's previous GAAP financial results of operations and financial position to comply with IFRS 1 First-time Adoption of International Financial Reporting Standards ('IFRS 1'). A discussion of transitional adjustments follows the reconciliations.
IFRSConsolidated
Balance Sheet
As at October31,
2010
(a) (b) (c) (d) (e) (f)
Opening Share
IFRS based Deferred
Previous restatements payments share Contingent Fairvalueas Building
ASSETS GAAP * Adjustments reserve units consideration deemed cost componentization IFRS
CURRENTASSETS
Cash $ 35,847 $ - $ - $ - $ - $ - $ - $ - $ 35,847
Trade and
other
receivables 85,563 - - - - - - - 85,563
Income tax
receivable 6,575 - - - - - - - 6,575
Inventories 64,447 - - - - - - - 64,447
Prepaid
expenses 6,689 - - - - - - - 6,689
199,121 - - - - - - - 199,121
PROPERTY, PLANT
ANDEQUIPMENT 223,646 (11,877) - - - - 363 57 212,189
DEFERRED INCOME
TAXASSETS 9,683 469 - - - - (77) (8) 10,067
GOODWILL 26,321 2,011 - - - 794 - - 29,126
INTANGIBLEASSETS 1,052 - - - - - - - 1,052
$ 459,823 $ (9,397) $ - $ - $ - $ 794 $ 286 $ 49 $ 451,555
LIABILITIES
CURRENT
LIABILITIES
Trade and
other payables $ 65,956 $ (35) $ - $ - $ 20 $ - $ - $ - $ 65,941
Income tax
payable 6,486 - - - - - - - 6,486
Short-term
debt 11,148 - - - - - - - 11,148
Current
portion of
long-term debt 7,048 - - - - - - - 7,048
90,638 (35) - - 20 - - - 90,623
CONTINGENT
CONSIDERATION - 2,011 - - - 794 - - 2,805
LONG-TERM DEBT 11,741 - - - - - - - 11,741
DEFERRED INCOME
TAXLIABILITIES 17,163 (617) - - - - 17 12 16,575
119,542 1,359 - - 20 794 17 12 121,744
SHAREHOLDERS'
EQUITY
Share capital 143,715 2,484 599 - - - - - 146,798
Share based
payments
reserve 12,049 (1,906) (599) 304 - - - - 9,848
Retained
earnings 220,255 (55,667) - (304) (20) - 269 37 164,570
Foreign
currency
translation
reserve (35,738) 44,333 - - - - - - 8,595
340,281 (10,756) - - (20) - 269 37 329,811
$ 459,823 $ (9,397) $ - $ - $ - $ 794 $ 286 $ 49 $ 451,555
* total of May 1, 2010 transitional adjustments to re-state previous GAAP to IFRS
IFRS
ConsolidatedStatement
of Operations
For the three
monthsended October
31, 2010 (b) (c) (e) (f)
Share Deferred Fairvalue
Previous based shareunits as deemed Building
GAAP payments cost componentization IFRS
TOTAL REVENUE $ 127,818 $ - $ - $ - $ - $ 127,818
DIRECTCOSTS 92,717 - - - - 92,717
GROSS PROFIT 35,101 - - - - 35,101
OPERATING EXPENSES
General and
administrative 9,946 - 23 - - 9,969
Other expenses 2,125 235 - - - 2,360
Gain on disposal of
property, plant and
equipment (706) - - - - (706)
Foreign exchange
gain (1,340) - - - - (1,340)
Finance costs 325 - - - - 325
Depreciation and
amortization 7,759 - - (182) (30) 7,547
18,109 235 23 (182) (30) 18,155
EARNINGS (LOSS)BEFORE
INCOME TAX 16,992 (235) (23) 182 30 16,946
INCOME TAX -
PROVISION(RECOVERY)
Current 5,907 - - - - 5,907
Deferred (335) - - 47 6 (282)
5,572 - - 47 6 5,625
NET EARNINGS (LOSS) $ 11,420 $ (235) $ (23) $ 135 $ 24 $ 11,321
IFRS Consolidated
Statement of
Operations
For the six months
endedOctober 31, 2010 (b) (c) (e) (f)
Share Deferred Fair value
Previous based share as deemed Building
GAAP payments units cost componentization IFRS
TOTAL REVENUE $ 237,298 $ - $ - $ - $ - $ 237,298
DIRECT COSTS 175,665 - - - - 175,665
GROSS PROFIT 61,633 - - - - 61,633
OPERATING EXPENSES
General and
administrative 19,502 - 20 - - 19,522
Other expenses 4,128 304 - - - 4,432
Gain on disposal of
property, plant and
equipment (818) - - - - (818)
Foreign exchange
gain (1,248) - - - - (1,248)
Finance costs 611 - - - - 611
Depreciation and
amortization 15,114 - - (363) (57) 14,694
37,289 304 20 (363) (57) 37,193
EARNINGS (LOSS)
BEFORE INCOME TAX 24,344 (304) (20) 363 57 24,440
INCOME TAX -
PROVISION(RECOVERY)
Current 8,850 - - - - 8,850
Deferred (979) - - 94 20 (865)
7,871 - - 94 20 7,985
NET EARNINGS (LOSS) $ 16,473 $ (304) $ (20) $ 269 $ 37 $ 16,455
IFRS Consolidated
Statement of
Comprehensive
Earnings (Loss)
For the three months
ended October 31,
2010
(b) (c) (e) (f)
Sharebased Deferred Fair value
payments share as Building
PreviousGAAP reserve units deemedcost componentization IFRS
NET EARNINGS(LOSS) $ 11,420 $ (235) $ (23) $ 135 $ 24 $ 11,321
OTHERCOMPREHENSIVE
EARNINGS
Unrealized gain on
foreign currency
translation
(net of tax of $0) 2,958 - - - - 2,958
COMPREHENSIVE
EARNINGS (LOSS) $ 14,378 $ (235) $ (23) $ 135 $ 24 $ 14,279
IFRS Consolidated
Statement
ofComprehensive
Earnings (Loss)
For the six months
ended October 31,
2010
(b) (c) (e) (f)
Share
based Deferred Fair value
Previous payments share as deemed Building
GAAP reserve units cost componentization IFRS
NET EARNINGS (LOSS) $ 16,473 $ (304) $ (20) $ 269 $ 37 $ 16,455
OTHER COMPREHENSIVE
EARNINGS
Unrealized gain on
foreign currency
translation
(net of tax of $0) 8,595 - - - - 8,595
COMPREHENSIVE
EARNINGS (LOSS) $ 25,068 $ (304) $ (20) $ 269 $ 37 $ 25,050
Adjustments required to transition to IFRS:
a) Adjustments - Subsequent to the release of the April 30, 2011
annual consolidated financial statements, management identified
adjustments required for a component of deferred tax and
classification of a component of stock based payments in the
Company's April 30, 2010, July 31, 2010 and April 30, 2011
historical annual and interim consolidated financial statements.
b) Share based payments - The Company's policy under Canadian GAAP
was to use the straight-line method to account for options that
vest in installments over time. Under IFRS, each installment is
accounted for as a separate share option grant with its own
distinct vesting period, hence the fair value of each tranche
differs. In addition, Canadian GAAP permits companies to either
estimate the forfeitures at the grant date or record the entire
expense as if all share based payments vest and then record
forfeitures as they occur. IFRS requires that forfeitures be
estimated at the time of grant to eliminate distortion of
remuneration expense recognized during the vesting period. The
estimate is revised if subsequent information indicates that
actual forfeitures are likely to differ from previous estimates
c) Deferred Share Units ('DSUs') - The Company's policy under
Canadian GAAP was to value the DSUs using the intrinsic value at
each reporting date. Under IFRS we use the fair value, which is
affected by changes in underlying volatility of the stock as well
as changes in the stock price.
d) Contingent consideration - Under Canadian GAAP, contingent
consideration is recognized as part of the purchase cost when it
can be reasonably estimated at the acquisition date and the
outcome of the contingency can be determined beyond reasonable
doubt. Under IFRS, contingent consideration, regardless of
probability considerations, is recognized at fair value at the
acquisition date. The Company has booked contingent
considerations for the SMD Services and the North Star Drilling
acquisitions.
e) Fair value as deemed cost - The Company has applied the IFRS 1
exemption as described in the 'exceptions and exemptions applied'
section presented in the first quarter Notes to Interim Condensed
Consolidated Financial Statements for the three months ended July
31, 2011.
f) Building componentization - Under Canadian GAAP, costs incurred
for property, plant and equipment on initial recognition are
allocated to significant components when practicable. Under IFRS,
costs incurred for plant and equipment on initial recognition are
allocated to significant components, capitalized and depreciated
separately over the estimated useful lives of each component.
Practicability of allocating costs to significant components is
not considered under IFRS. Costs incurred subsequent to the
initial purchase of property, plant and equipment are capitalized
when it is probable that future economic benefits will flow to
the Company and the costs can be measured reliably. Upon
capitalization, the carrying amount of components replaced, if
any, are written off. The Company has componentized buildings.
6. PROPERTY, PLANT AND EQUIPMENT
Changes in the property, plant and equipment balance were as follows for the periods:
Cost
Land Buildings Drills Auto Other Total
Balance as
at April 30,
2011 $ 1,375 $ 11,201 $ 257,838 $ 91,977 $ 25,501 $ 387,892
Additions - 117 26,321 9,101 2,101 37,640
Disposals - - (4,890) (1,747) (27) (6,664)
Business
acquisitions 367 12,468 41,274 14,627 2,170 70,906
Effect of
exchange
rate changes
and other 31 25 (16,693) 4,136 (205) (12,706)
Balance as
at October
31, 2011 $ 1,773 $ 23,811 $ 303,850 $ 118,094 $ 29,540 $ 477,068
Accumulated
Depreciation
Land Buildings Drills Auto Other Total
Balance as
at April 30,
2011 $ - $ (2,791) $ (84,421) $ (48,095) $ (17,112) $ (152,419)
Disposals - - 3,183 1,234 19 4,436
Depreciation - (344) (9,874) (6,540) (709) (17,467)
Business
acquisitions - (3,086) (12,676) (10,153) (1,769) (27,684)
Effect of
exchange
rate changes
and other - 23 18,679 716 (678) 18,740
Balance as
at October
31, 2011 $ - $ (6,198) $ (85,109) $ (62,838) $ (20,249) $ (174,394)
Net book
value April
30, 2011 $ 1,375 $ 8,410 $ 173,417 $ 43,882 $ 8,389 $ 235,473
Net book
value
October 31,
2011 $ 1,773 $ 17,613 $ 218,741 $ 55,256 $ 9,291 $ 302,674
There were no impairments recorded as at October 31, 2011, April 30, 2011 or October 31, 2010. 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 October 31, 2011, April 30, 2011 or October 31, 2010.
Capital expenditures were $16,230 and $13,289 for the three months ended October 31, 2011 and 2010 respectively, and $37,640 and $22,258 for the six months ended October 31, 2011 and 2010, respectively. The Company obtained direct financing of $147 for the three and six months ended October 31, 2011 (three months ended October 31, 2010 - nil; six months ended October 31, 2010 - $50).
7. GOODWILL
Changes in the goodwill balance were as follows:
Balance as at April 30, 2011 $ 28,316
Goodwill on acquisition (note 15) 32,387
Effect of movement in exchange rates (201)
Balance as at October 31, 2011 $ 60,502
For a full discussion on allocation of goodwill to CGUs, refer to Note 8 in the first quarter Notes to Interim Condensed Consolidated Financial Statements for the three months ended July 31, 2011.
8. INTANGIBLE ASSETS
Changes in the intangible assets balance were as follows:
Balance as at April 30, 2011 $ 1,235
Intangible assets on acquisition (note 15) 342
Amortization (479)
Effect of movement in exchange rates 28
Balance as at October 31, 2011 $ 1,126
9. LONG-TERM DEBT
October 31, 2011 April 30, 2011
Revolving equipment and
acquisition loan (authorized
$50,000), bearing interest
at either the bank's prime rate
plus 0.75% or the bankers'
acceptance rate plus
2.25% for Canadian dollar
draws, and either the bank's
U.S. dollar base rate in
Canada plus 0.75% or the bank's
LIBOR plus 2.25% for U.S.
dollar draws, interest
only payments required until
maturity, maturing in September
2016, secured by
corporate guarantees of
companies within the group. $ 21,224 $ -
Non-revolving term loan,
bearing interest at either the
bank's prime rate plus 0.75%
or the bankers' acceptance rate
plus 2.25% for Canadian dollar
draws, and either the
bank's U.S. dollar base rate in
Canada plus 0.75% or the bank's
LIBOR plus 2.25% for
U.S. dollar draws, payable in
monthly installments of $417,
maturing in September 2016,
secured by corporate guarantees
of companies within the group. 24,583 -
Revolving/non-revolving
equipment and acquisition loan
(authorized $45,000),
bearing interest at either the
bank's prime rate plus 1.0% or
the bankers' acceptance
rate plus 2.5% for Canadian
dollar draws, and either the
bank's U.S. dollar base rate
in Canada plus 1.0% or the
bank's LIBOR plus 2.5% for U.S.
dollar draws, secured by
corporate guarantees of
companies within the group.
This facility was refinanced in
September 2011. - 24,552
Term loan bearing interest at
5.9%, payable in monthly
installments of $84, unsecured,
maturing in August 2021. 9,833 -
Term loans bearing interest at
rates ranging from 0% to 6.99%,
payable in monthly installments
of $35, secured by certain
equipment, maturing through
2016. 782 480
Note payable bearing interest
at 4%, repayable over three
years, maturing in September
2014. 8,000 -
64,422 25,032
Current portion 8,884 8,402
$ 55,538 $ 16,630
The required annual principal repayments per remaining fiscal years on long-term debt are as follows:
2012 $ 3,204
2013 8,770
2014 8,635
2015 9,088
2016 5,648
2017 and beyond 29,077
$ 64,422
Under the terms of certain of the Company's debt agreements, the Company must satisfy certain financial covenants. Such agreements also limit, among other things, the Company's ability to incur additional indebtedness, create liens, engage in mergers or acquisitions and make dividend and other payments. The Company, at all times, was in compliance with all covenants and other conditions imposed by its debt agreements.
10. SHARE CAPITAL
On March 9, 2011, the Company announced a stock split for the issued and outstanding common shares on a three for one basis. The record date for the stock split was March 23, 2011. All share and stock option numbers have been retroactively adjusted to reflect the stock split to provide more comparable information.
On September 28, 2011, the Company issued a total of 5,900,000 Subscription Receipts at a price of $11.90 per Subscription Receipt for aggregate gross proceeds of $70,210. These Subscription Receipts were subsequently converted to 5,900,000 common shares in the Company upon the closing of the acquisition by the Company of Bradley Group Limited on September 30, 2011. The Company used the net proceeds of the offering to fund a portion of the purchase price in connection with the acquisition. On October 25, 2011, the Company issued a further 885,000 common shares for further aggregate gross proceeds of $10,531 as a result of the exercise by the underwriters of an over allotment option to purchase an additional 885,000 common shares of the Company for $11.90 per share. The Company will use the net proceeds from the over allotment exercise for general corporate purposes.
Authorized
Unlimited number of fully paid common shares, without nominal or par value, 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 April 30, 2011 72,040 $ 150,642
Exercise of stock options 85 743
Share issue (net of issue costs)* 6,785 76,439
Balance as at October 31, 2011 78,910 $ 227,824
*share issue costs total $4,302
11. INCOME TAXES
The income tax expense for the period can be reconciled to accounting profit as follows:
2012 Q2 2011 Q2 2012 YTD 2011 YTD
Earnings before
income tax $ 44,439 $ 16,946 $ 70,694 $ 24,440
Statutory Canadian
corporate income tax
rate 29% 30% 29% 30%
Expected income tax
expense based on
statutory
rate $ 12,887 $ 5,084 $ 20,501 $ 7,332
Non-recognition of
tax benefits related
to losses 265 31 313 253
Other foreign taxes
paid 236 154 287 209
Rate variances in
foreign jurisdictions (190) (342) (488) (948)
Other (319) 698 629 1,139
$ 12,879 $ 5,625 $ 21,242 $ 7,985
12. EARNINGS PER SHARE
All of the Company's earnings are attributable to common shares therefore net earnings are used in determining earnings per share.
2012 Q2 2011 Q2 2012 YTD 2011 YTD
Net earnings for the
period $ 31,560 $ 11,321 $ 49,452 $ 16,455
Weighted average shares
outstanding - basic
(000's) 74,246 71,152 73,143 71,388
Net effect of dilutive
securities:
Stock options 662 925 901 478
Weighted average number
of shares - diluted
(000's) 74,908 72,077 74,044 71,866
Earnings per share:
Basic $ 0.43 $ 0.16 $ 0.68 $ 0.23
Diluted $ 0.42 $ 0.16 $ 0.67 $ 0.23
The calculation of the diluted earnings per share for the three months ended October 31, 2011 and 2010 exclude the effect of 313,502 options and 899,205 options, respectively, and the six months ended October 31, 2011 and 2010 exclude the effect of 93,304 options and 1,019,205 options, respectively, as they are anti-dilutive.
13. SEGMENTED INFORMATION
The Company's operations are divided into three geographic segments corresponding to its management structure, Canada - U.S., South and Central America, and Australia, Asia and Africa. The services provided in each of the reportable drilling segments are essentially the same. The accounting policies of the segments are the same as those described in Note 4 presented in the first quarter Notes to Interim Condensed Consolidated Financial Statements for the three months ended July 31, 2011. Management evaluates performance based on earnings from operations in these three geographic segments before finance costs and income tax. Data relating to each of the Company's reportable segments is presented as follows:
2012 Q2 2011Q2 2012 YTD 2011 YTD
Revenue
Canada - U.S. $ 84,151 $ 50,569 $ 145,589 $ 91,020
South and
Central
America 68,062 42,043 119,354 82,060
Australia,
Asia and
Africa 61,641 35,206 113,063 64,218
$ 213,854 $ 127,818 $ 378,006 $ 237,298
Earnings from
operations
Canada - U.S. $ 18,929 $ 9,541 $ 28,915 $ 15,146
South and
Central
America 16,591 4,614 27,190 9,135
Australia,
Asia and
Africa 13,811 6,449 24,869 7,612
49,331 20,604 80,974 31,893
Eliminations (59) (234) (84) (465)
49,272 20,370 80,890 31,428
Finance costs 964 325 1,786 611
General
corporate
expenses * 3,869 3,099 8,410 6,377
Income tax 12,879 5,625 21,242 7,985
Net earnings $ 31,560 $ 11,321 $ 49,452 $ 16,455
*General corporate expenses include expenses for corporate offices
and stock options
Depreciation
and
amortization
Canada - U.S. $ 4,054 $ 2,274 $ 7,395 $ 4,566
South and
Central
America 2,484 2,133 4,755 4,034
Australia,
Asia and
Africa 2,391 2,571 5,055 5,280
Unallocated and
corporate
assets 437 569 741 814
$ 9,366 $ 7,547 $ 17,946 $ 14,694
October 31,
2011 April 30,2011
Identifiable
assets
Canada - U.S. $ 239,691 $ 134,666
South and
Central
America 218,660 189,083
Australia,
Asia and
Afirca 169,851 130,071
628,202 453,820
Eliminations (1,185) 439
Unallocated and
corporate
assets 65,333 19,878
$ 692,350 $ 474,137
14. 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 $47,750 for the quarter ending October 31, 2011 ($31,383 for the quarter ending October 31, 2010) and other employee benefits of $9,314 for the quarter ending October 31, 2011 ($5,712 for the quarter ending October 31, 2010); general and administrative expense includes salaries and wages of $5,524 for the quarter ending October 31, 2011 ($4,249 for the quarter ending October 31, 2010) and other employee benefits of $890 for the quarter ending October 31, 2011 ($642 for the quarter ending October 31, 2010); other expenses include share based payments of $439 for the quarter ending October 31, 2011 ($619 for the quarter ending October 31, 2010).
Direct costs include salaries and wages of $87,080 for the six months ending October 31, 2011 ($59,993 for the six months ending October 31, 2010) and other employee benefits of $16,842 for the six months ending October 31, 2011 ($11,236 for the six months ending October 31, 2010); general and administrative expense includes salaries and wages of $10,705 for the six months ending October 31, 2011 ($8,250 for the six months ending October 31, 2010) and other employee benefits of $1,801 for the six months ending October 31, 2011 ($1,382 for the six months ending October 31, 2010); other expenses include share based payments of $862 for the six months ending October 31, 2011 ($1,092 for the six months ending October 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:
2012 Q2 2011 Q2 2012 YTD 2011 YTD
Depreciation of property, plant $9,078 $7,415 $17,467 $14,430
and equipment
Amortization of intangible 288 132 479 264
assets
$9,366 $7,547 $17,946 $14,694
15. BUSINESS ACQUISITIONS
Bradley Group Limited
Effective September 30,( )2011, the Company acquired all the issued and outstanding shares of Bradley Group Limited ('Bradley'), which provides a unique opportunity to further the Company's corporate strategy of focusing on specialized drilling, expanding its geographic footprint in areas of high growth and of maintaining a balance in the mix of drilling services. The acquisition was accounted for using the acquisition method and the results of this operation were included in the statement of operations as of the closing date. The acquired business includes the assets acquired indicated below, contracts and personnel. The purchase price for the transaction was CAD $78,035, including customary working capital adjustments and net of cash acquired, financed with cash and debt.
The Company is in the process of finalizing the valuation of assets. As at October 31, 2011, the values allocated to net tangible and intangible assets are preliminary and are subject to adjustments as additional information is obtained.
The estimated net assets acquired at fair market value at acquisition are as follows:
Assets acquired
Trade and other receivables (net) $ 24,224
Inventories 15,346
Prepaid expenses 540
Property, plant and equipment 45,755
Deferred income tax assets 350
Goodwill (not tax deductible) 30,363
Trade and other payables (19,628)
Income tax payable (1,313)
Short-term debt (5,101)
Current portion of long-term debt (125)
Long-term debt (10,329)
Deferred income tax liability (2,047)
Total assets $ 78,035
Consideration
Cash $ 72,000
Long-term debt (holdback) 8,000
Trade and other payable 6,254
Less: Cash acquired (8,219)
$ 78,035
The Corporation incurred acquisition-related costs of $544 relating to external legal fees and due diligence costs. The legal fees and due diligence costs have been included in the other expense line of the Interim Condensed Consolidated Statements of Operations.
The revenue for the three months ended October 31, 2011 attributable to the additional business generated by Bradley was $11,434. It is impracticable to estimate the revenue and net income of the combined entity for the year as though the acquisition date was May 1, 2011.
Resource Drilling
Effective March 24, 2011, the Company acquired the assets of Resource Drilling, which provides contract drilling services in Mozambique, where Major Drilling did not previously have a presence. The acquisition was accounted for using the acquisition method and the results of this operation were included in the statement of operations as of the closing date. The acquired business includes drilling equipment, inventory, contracts and personnel. The purchase price for the transaction was USD $9,563 (CAD $9,345), including customary working capital adjustments, financed with cash.
The net assets acquired at fair market value at acquisition are as follows:
Assets acquired
Inventories $ 946
Prepaid expenses 23
Property, plant and equipment 6,010
Goodwill (not tax deductible) 2,024
Intangible assets 342
Total assets $ 9,345
Consideration
Cash $ 3,947
Trade and other payables 5,398
$ 9,345
North Star Drilling
Effective June 30, 2010, the Company acquired the assets of North Star Drilling, which provides contract drilling services to the fresh water and geothermal markets in certain mid-western states in the US, and operates from its head office in Little Falls, Minnesota, as well as from satellite offices in Brainerd and Bemidji, Minnesota. The acquisition was accounted for using the acquisition method and the results of this operation were included in the statement of operations as of the closing date. The acquired business includes working capital, drilling equipment, contracts and personnel. The purchase price for the transaction, excluding contingent consideration, was USD $2,449 (CAD $2,567), including customary working capital adjustments of CAD $215, financed with cash. The contingent consideration of USD $750 to the purchase price is based on future earnings. The acquiree is expected to meet target earnings, with payments to be made over the next five years.
The net assets acquired at fair market value at acquisition are as follows:
Assets acquired andliabilities 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
16. DIVIDENDS
The Company declared a dividend of $0.08 per common share paid on November 1, 2011 to shareholders of record as of October 10, 2011.
The Company declared two dividends during the previous year. The first dividend of $0.07333 per common share was paid on November 1, 2010 to shareholders of record as of October 8, 2010. The second dividend of $0.07333 per common share was paid on May 2, 2011 to shareholders of record as of April 8, 2011.
17. 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, trade and other receivables, demand credit facility and trade and other payables approximate their fair value due to the relatively short period to maturity of the instruments. The following table shows carrying values of short and long-term debt and contingent considerations and approximates their fair value, as most debts carry variable interest rates and the remaining fixed rate debts have been acquired recently and their carrying value continues to reflect fair value.
October 31, 2011 April30, 2011
Short-term debt $ 12,788 $ 7,919
Contingent considerations 2,740 2,612
Long-term debt 64,422 25,032
Credit risk
As at October 31, 2011, 84.8% 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 April 30, 2011 $ 982
Increase in impairment allowance 376
Write-off charged against allowance (526)
Recovery of amounts previously written off (357)
Foreign exchange translation differences 17
Balance as at October 31, 2011 $ 492
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:
October31, 2011 April 30, 2011
U.S. Dollars $ 35,388 $ 14,605
If the Canadian dollar moved by plus or minus 10% at October 31, 2011, the unrealized foreign exchange gain or loss would move by approximately $3,539 (April 30, 2011 - $1,460).
Liquidity risk
The following table details the Company's contractual maturities for its financial liabilities.
1 year 2-3 4-5years thereafter Total
years
Trade and $ 124,128 $ - $ - $ - $ 124,128
other payables
Short-term 12,788 - - - 12,788
debt
Contingent 996 1,744 - - 2,740
considerations
Long-term debt 8,884 17,770 32,936 4,832 64,422
$ 146,796 $ 19,514 $ 32,936 $ 4,832 $ 204,078
MAJOR DRILLING GROUP INTERNATIONAL INC.
CONTACT: Denis Larocque, Chief Financial Officer
Tel: (506) 857-8636
Fax: (506) 857-9211
ir@majordrilling.com