MONCTON, NB, Dec. 11 /CNW/ - Major Drilling Group International Inc. (TSX: MDI) today reported results for its second quarter of fiscal year 2008, which ended October 31, 2007.
Highlights
-------------------------------------------------------------------------
$ millions of 12 12
Canadian dollars months months
(except earnings to to
per share) October October
31, 31,
Q2-08 Q2-07 YTD-08 YTD-07 2007 2006
-------------------------------------------------------------------------
Revenue $156.1 $101.8 $299.6 $196.3 $518.7 $343.7
-------------------------------------------------------------------------
Gross profit 54.7 33.8 102.3 64.3 171.1 103.0
As percentage
of sales 35.0% 33.2% 34.2% 32.8% 33.0% 30.0%
-------------------------------------------------------------------------
Earnings from
continuing
operations 22.8 13.0 41.6 23.0 65.2 31.3
-------------------------------------------------------------------------
Earnings per
share from
continuing
operations 0.97 0.56 1.77 1.00 2.79 1.36
-------------------------------------------------------------------------
Cash flow
from continuing
operations
(x) 31.3 19.8 57.5 35.5 95.8 55.7
-------------------------------------------------------------------------
(x) before changes in non-cash working capital items
- Major Drilling posted the highest quarterly revenue in its history
with revenue of $156.1 million, up 53.3 percent from the
$101.8 million recorded for the same quarter last year.
- Gross margin percentage for the quarter was 35.0 percent compared to
33.2 percent for the corresponding period last year, with good
performance from all segments.
- The Company recorded the highest quarterly earnings from continuing
operations in its history at $22.8 million or $0.97 per share, up
75.4 percent from $13.0 million or $0.56 per share for the prior year
quarter.
- Net earnings for the quarter, after loss from discontinued
operations, were $22.6 million or $0.96 per share, up from
$13.1 million or $0.57 per share for the prior year quarter.
- Cash flow from continuing operations before changes in working
capital was $31.3 million for the quarter compared to $19.8 million
for the same period last year.
- During the quarter, the Company acquired two businesses: Harris
Drilling in Chile and Paragon Drilling in Ecuador.
"During this second quarter, we experienced continued strong momentum in
our business and achieved record quarterly revenue and earnings," said Francis
McGuire, President and CEO of Major Drilling. "Our strong results were driven
by a combination of additional investments in people and equipment,
acquisitions and an improved pricing environment. These factors contributed to
year-over-year revenue growth of 53 percent and gross margins improved
significantly to 35.0 percent, a level not seen in the last several years.
This performance was achieved in spite of the effects of the strengthening
Canadian dollar against the U.S. dollar. The unfavourable foreign exchange
translation impact, for the quarter, when comparing to the effective rates for
the same period last year, is estimated at $9 million on revenue and
$1.8 million on net earnings."
"During the quarter, we took delivery of 18 new rigs that contributed
revenue this period. We also added 18 rigs through acquisitions although they
did not contribute revenue for the full period as 11 were acquired in
September from Harris and 7 were acquired near quarter-end from Paragon,"
noted Mr. McGuire. "Overall margins continued to improve despite continuing
cost increases in labour, training and safety, as well as African margins
still lagging behind other regions. Investment in recruitment and training is
crucial to our continuing growth but does affect overall operating margin
growth as we incur both additional costs and lower initial productivity with
new crews. In the last quarter, we have stepped up our already significant
investments in training, and we are on track to meeting our goal of expanding
our labour force by 20 percent this year."
"Cash flow from continuing operations before changes in working capital in
the quarter continued to improve, increasing 58 percent to $31.3 million
compared to $19.8 million in the prior year quarter," said Mr. McGuire. "The
Company invested $14.7 million during the quarter in its capital expenditure
program, bringing the total for the year to $29.7 million. During the quarter,
the Company also spent $27.4 million on acquisitions bringing the total net
debt, net of cash, to $23.8 million."
"The mineral drilling industry outlook remains positive. Gold, which
accounts for just under half of the Company's activity, has seen its price
rise above the US$800 per ounce level. The prices of base metals, which
account for about 35 percent of the Company's revenue, remain at levels well
above what is needed to support exploration. We have also seen increased
activity in uranium as more projects in that field are moving into the
pre-feasibility stage," noted Mr. McGuire.
"The Company expects its continued growth to come from additional
investments in people and equipment, strong market conditions and its
acquisitions. On September 6, 2007, the Company announced the acquisition of
Harris y Cia Ltda. in Chile, adding 11 drill rigs, all of which are currently
committed to work on a double shift basis conducting mainly specialized
drilling in the active northern region of Chile. This acquisition, made for
US$23.5 million, is expected to generate additional revenue of approximately
US$11 million from the time of the acquisition to the end of our fiscal year
on April 30, 2008," said Mr. McGuire. "On October 25, 2007, the Company
announced that it had acquired the assets of Paragon del Ecuador S.A. Paragon
was the largest mineral exploration drilling contractor in Ecuador, operating
7 drill rigs. The purchase price for the transaction was US$6 million and it
is expected to produce additional revenue of approximately US$3.6 million for
the balance of our fiscal year."
"It is important to note that we are now in our third quarter,
traditionally the weakest quarter of our fiscal year, as mining and
exploration companies shut down operations, often for extended periods over
the holiday season. Additionally, the Company schedules substantial overhaul
and maintenance work on its equipment during this slower period as it prepares
for the busy fourth quarter. These factors result in reduced revenue,
increased costs, and reduced margins in the quarter," observed Mr. McGuire.
"Weather conditions also have a significant impact on operations. Last year,
weather conditions were very favourable; conditions to date have been more
challenging. These factors increase the volatility of our third quarter
results."
"Finally, I would like to take this opportunity to thank Terry MacGibbon,
who did not re-offer as a Director, for his years of service to the Company. I
would also like to welcome Jo Mark Zurel, former CFO at CHC Helicopter
Corporation, to the Board."
Second quarter ended October 31, 2007
Total revenue for the second quarter was $156.1 million, up 53.3 percent
from the $101.8 million recorded for the prior year period.
Revenue from Canada-U.S. drilling operations was up $12.6 million or
32.0 percent to $52.0 million for the quarter compared to $39.4 million for
the same period last year. Additional equipment and improved pricing
contributed to the growth in that region.
In South and Central America, revenue for the quarter was up $15.5 million
or 52.9 percent, to $44.8 million compared to $29.3 million for the same
period last year. Revenue growth was driven primarily by Mexico, Chile
(including the Harris acquisition) and Argentina.
Australian, Asian and African drilling operations reported revenue of
$59.3 million, up $26.1 million or 78.6 percent from $33.2 million reported in
the same period last year. Approximately 40 percent of this growth is
attributable to the African acquisition made in December 2006. Australia and a
new operation in Armenia accounted for another 40 percent of the growth, with
the rest coming from Tanzania, Mongolia and Indonesia.
The overall gross margin percentage for the quarter was 35.0 percent, up
from 33.2 percent for the same period last year. Good margin improvements in
South and Central America, U.S. and Australia were muted somewhat by labour
productivity issues in Canada, by lower margins in the African operations, and
by the new Armenian operation, which is in its start-up phase.
General and administrative costs were $10.8 million for the quarter
compared to $7.6 million for the prior year quarter. The increase is primarily
due to the acquisitions in Africa and Chile and increased administrative
salary expenses and staffing levels.
Other expenses were $4.3 million for the quarter compared to $2.3 million
for the same period last year due primarily to higher incentive compensation
expenses given the Company's improved profitability in the current year, and
losses on disposal of assets.
Foreign exchange loss was $0.7 million for the quarter compared to
$0.1 million for the prior year period as a result of unfavourable variation
in the U.S. dollar against the Canadian dollar.
Short-term interest revenue was flat at $0.3 million for the quarter
compared to last year, while interest on long-term debt was $0.6 million
compared to $0.7 million for the prior year quarter.
Amortization expense increased to $6.5 million for the quarter compared to
$5.0 million for the same quarter last year, as a result of the increased
direct investment in equipment.
The Company's tax expense was $9.2 million for the quarter compared to
$5.5 million for the same period last year reflecting the increased
profitability of the operations.
Earnings from continuing operations for the quarter were $22.8 million or
$0.97 per share ($0.95 per share diluted) compared to $13.0 million or
$0.56 per share ($0.55 per share diluted) in the prior year period.
Loss from discontinued operations was $0.3 million, or $0.01 per share,
compared to a gain of $0.2 million or $0.01 per share for the same period last
year.
Net earnings were $22.6 million or $0.96 per share ($0.94 per share
diluted) compared to $13.1 million or $0.57 per share ($0.56 per share
diluted) for the same period last year.
Year to date ended October 31, 2007
Revenue for the six-months ended October 31, 2007 increased 52.6 percent
to $299.6 million from $196.3 million for the corresponding period last year.
Canada-U.S. revenue increased by 37.1 percent or $27.4 million to
$101.3 million compared to $73.9 million last year with both countries
contributing to this growth.
Revenue in South and Central America increased by 54.2 percent or
$30.7 million to $87.3 million, compared to $56.6 million in the prior year
period. Mexico and Chile accounted for over three quarters of the growth,
while Venezuela and Argentina also made strong contributions.
Revenue in Australia, Asia and Africa increased 68.5 percent or
$45.1 million to $110.9 million from $65.8 million in the prior year period.
Australia and the new African operations accounted for 70 percent of the
growth in this segment. As well, all other countries in the region grew their
revenue and the Company commenced operations in Armenia.
Gross margins for the year to date were 34.2 percent compared to
32.8 percent last year, due mainly to an improving pricing environment and
improvements in drillers' productivity. With the increase in revenue and
improving gross margins, gross profit for the year increased by 59.1 percent
to $102.3 million compared to $64.3 million for the same period last year.
General and administrative expenses increased to $20.9 million compared to
$14.9 million for the same period last year. This increase is primarily due to
additions to the management team to accommodate growth, administrative salary
increases and the African and Chilean acquisitions.
Other expenses were $7.8 million for the year compared to $5.1 million for
the same period last year due primarily to higher incentive compensation
expenses given the Company's improved profitability in the current year, and
losses on disposal of assets.
Foreign exchange loss was $1.7 million compared to $0.4 million in the
prior year period as a result of unfavourable variation in the U.S. dollar
against the Canadian dollar.
Short-term interest revenue was $0.6 million for the year compared to nil
last year, while interest on long-term debt was $1.4 million compared to
$1.2 million last year.
Amortization expense increased to $12.5 million compared to $9.4 million
in the previous period, as a result of the increased direct investment in
equipment.
The provision for income tax for the year was $17.0 million compared to
$10.4 million for the prior year reflecting the increased profitability of the
operations.
Earnings from continuing operations were $41.6 million or $1.77 per share
($1.74 per share diluted) compared to $23.0 million or $1.00 per share
($0.98 per share diluted) last year.
Loss from discontinued operations was $0.1 million or $0.01 per share
compared to a gain of $13.0 million or $0.56 per share last year.
Net earnings were $41.5 million or $1.77 per share ($1.74 per share
diluted) compared to $36.0 million or $1.56 per share ($1.53 per share
diluted) for last year.
On a rolling 12-month basis to October 31, 2007, revenue from continuing
operations increased by 50.9 percent to $518.7 million compared to
$343.7 million for the prior year period. Earnings from continuing operations,
on the same rolling 12-month basis, more than doubled to $65.2 million from
$31.3 million for the corresponding period last year.
Some of the statements contained in this press release may be
forward-looking statements, such as estimates and statements that describe or
are with respect to the future price of minerals and metals, the Company's
future plans, objectives or goals, 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 19 to 22 of the 2007 Annual Report
entitled "General Risks and Uncertainties", as filed with the Canadian
Securities Commission (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 and mineral exploration
activities, Major Drilling maintains operations in Canada, the United States,
South and Central America, Australia, Indonesia, Mongolia, Armenia and Africa.
Financial statements are attached.
Major Drilling will provide a simultaneous webcast of its quarterly
conference call on Tuesday, December 11, 2007 at 9:00 AM (EST). To access the
webcast please go to the Major Drilling website at www.majordrilling.com and
click the attached link, or go directly to the CNW Group website at
www.newswire.ca for directions. Participants will require Windows MediaPlayer,
which can be downloaded prior to accessing the call. Please note that this is
listen only mode.
Major Drilling Group International Inc.
Consolidated Statements of Operations
(in thousands of Canadian dollars, except per share information)
(unaudited)
Six months ended Three months ended
October 31 October 31
2007 2006 2007 2006
---------- ---------- ---------- ----------
TOTAL REVENUE $ 299,556 $ 196,296 $ 156,136 $ 101,845
DIRECT COSTS 197,247 131,968 101,471 68,021
---------- ---------- ---------- ----------
GROSS PROFIT 102,309 64,328 54,665 33,824
---------- ---------- ---------- ----------
OPERATING EXPENSES
General and
administrative 20,856 14,860 10,830 7,629
Other expenses 7,816 5,120 4,289 2,287
Foreign exchange loss 1,705 413 726 89
Interest revenue (617) (46) (269) (302)
Interest expense on
long-term debt 1,353 1,247 629 653
Amortization 12,538 9,375 6,479 4,982
---------- ---------- ---------- ----------
43,651 30,969 22,684 15,338
---------- ---------- ---------- ----------
EARNINGS BEFORE INCOME
TAX AND DISCONTINUED
OPERATIONS 58,658 33,359 31,981 18,486
---------- ---------- ---------- ----------
INCOME TAX - PROVISION
Current 16,257 8,050 8,687 4,071
Future 762 2,300 479 1,456
---------- ---------- ---------- ----------
17,019 10,350 9,166 5,527
---------- ---------- ---------- ----------
EARNINGS FROM CONTINUING
OPERATIONS 41,639 23,009 22,815 12,959
(LOSS) GAIN FROM
DISCONTINUED OPERATIONS
(note 5) (141) 12,983 (252) 150
---------- ---------- ---------- ----------
NET EARNINGS $ 41,498 $ 35,992 $ 22,563 $ 13,109
---------- ---------- ---------- ----------
EARNINGS PER SHARE FROM
-----------------------
CONTINUING OPERATIONS
---------------------
Basic (x) $ 1.77 $ 1.00 $ 0.97 $ 0.56
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Diluted (xx) $ 1.74 $ 0.98 $ 0.95 $ 0.55
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
EARNINGS PER SHARE
------------------
Basic (x) $ 1.77 $ 1.56 $ 0.96 $ 0.57
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Diluted (xx) $ 1.74 $ 1.53 $ 0.94 $ 0.56
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
(x)Based on 23,502,226 and 23,083,444 daily weighted average shares
outstanding for the fiscal year to date 2008 and 2007, respectively and on
23,570,950 and 23,102,258 daily weighted average shares for the quarter ended
October 31, 2007 and 2006, respectively. The total number of shares
outstanding on October 31, 2007 was 23,612,877.
(xx)Based on 23,864,099 and 23,578,124 daily weighted average shares
outstanding for the fiscal year to date 2008 and 2007, respectively and on
23,959,055 and 23,569,533 daily weighted average shares outstanding for the
quarter ended October 31, 2007 and 2006, respectively.
Major Drilling Group International Inc.
Consolidated Statements of Comprehensive Earnings
(in thousands of Canadian dollars)
(unaudited)
Six months ended Three months ended
October 31 October 31
2007 2006 2007 2006
---------- ---------- ---------- ----------
NET EARNINGS $ 41,498 $ 35,992 $ 22,563 $ 13,109
OTHER COMPREHENSIVE LOSS
Unrealized losses on
translating financial
statements of self-
sustaining foreign
operations (27,252) (626) (20,121) (1,572)
---------- ---------- ---------- ----------
COMPREHENSIVE EARNINGS $ 14,246 $ 35,366 $ 2,442 $ 11,537
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Consolidated Statements of Retained Earnings
(in thousands of Canadian dollars)
(unaudited)
Six months ended
October 31
2007 2006
--------- ---------
RETAINED EARNINGS, BEGINNING OF THE PERIOD $ 108,438 $ 49,635
Net earnings 41,498 35,992
--------- ---------
RETAINED EARNINGS, END OF THE PERIOD $ 149,936 $ 85,627
--------- ---------
--------- ---------
Consolidated Statements of Accumulated Other
Comprehensive Loss
(in thousands of Canadian dollars)
(unaudited)
Six months ended
October 31
2007 2006
--------- ---------
ACCUMULATED OTHER COMPREHENSIVE LOSS,
BEGINNING OF THE PERIOD $ (30,383) $ (30,249)
Unrealized losses on translating
financial statements of self-sustaining
foreign operations (27,252) (626)
--------- ---------
ACCUMULATED OTHER COMPREHENSIVE LOSS,
END OF THE PERIOD $ (57,635) $ (30,875)
--------- ---------
--------- ---------
Major Drilling Group International Inc.
Consolidated Statements of Cash Flows
(in thousands of Canadian dollars)
(unaudited)
Six months ended Three months ended
October 31 October 31
2007 2006 2007 2006
---------- ---------- ---------- -----------
OPERATING ACTIVITIES
Earnings from continuing
operations $ 41,639 $ 23,009 $ 22,815 $ 12,959
Operating items not
involving cash
Amortization 12,538 9,375 6,479 4,982
Loss on disposal of
capital assets 1,003 297 899 188
Future income tax 762 2,300 479 1,456
Stock-based
compensation 1,567 532 646 171
---------- ---------- ---------- -----------
57,509 35,513 31,318 19,756
Changes in non-cash
operating working
capital items (17,902) (3,912) (7,565) 902
---------- ---------- ---------- -----------
39,607 31,601 23,753 20,658
(Loss) gain from
discontinued operations,
adjusted for non-cash
items (252) (2,494) (252) 6
Changes in non-cash
operating working
capital items from
discontinued operations (2,726) 3,728 (2,726) (397)
---------- ---------- ---------- -----------
Cash flow from operating
activities 36,629 32,835 20,775 20,267
---------- ---------- ---------- -----------
FINANCING ACTIVITIES
Repayment of long-term
debt (8,085) (6,781) (2,926) (2,657)
Additional long-term
debt - 459 - -
Increase in (repayment
of) demand loans 15,812 (16,441) 15,812 280
Issuance of common
shares 2,649 382 786 24
Discontinued operations (3,096) - - -
---------- ---------- ---------- -----------
Cash flow from (used in)
financing activities 7,280 (22,381) 13,672 (2,353)
---------- ---------- ---------- -----------
INVESTING ACTIVITIES
Net proceeds from sale
of discontinued
operations - 28,755 - 408
Business acquisitions
(net of cash
acquired)(note 4) (27,429) - (27,429) -
Acquisition of capital
assets, net of direct
financing (28,932) (15,079) (14,401) (7,762)
Proceeds from disposal
of capital assets 2,415 1,712 1,695 1,073
Discontinued operations - 16 - 293
---------- ---------- ---------- -----------
Cash flow (used in) from
investing activities (53,946) 15,404 (40,135) (5,988)
---------- ---------- ---------- -----------
OTHER ACTIVITIES
Foreign exchange
translation adjustment 712 (1,191) 804 (343)
---------- ---------- ---------- -----------
(DECREASE) INCREASE IN
CASH (9,325) 24,667 (4,884) 11,583
CASH POSITION, BEGINNING
OF THE PERIOD 25,022 11,987 20,581 25,071
---------- ---------- ---------- -----------
CASH POSITION, END OF
THE PERIOD $ 15,697 $ 36,654 $ 15,697 $ 36,654
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
Major Drilling Group International Inc.
Consolidated Balance Sheets
As at October 31, 2007 and April 30, 2007
(in thousands of Canadian dollars)
ASSETS October April
2007 2007
---------- -----------
(unaudited)
CURRENT ASSETS
Cash $ 15,697 $ 25,022
Accounts receivable 91,324 78,613
Income tax receivable 2,064 1,610
Inventories 56,403 50,976
Prepaid expenses 9,947 6,545
Future income tax assets 2,710 1,730
Assets of discontinued operations(note 5) 3,079 3,253
---------- -----------
181,224 167,749
CAPITAL ASSETS 165,874 158,771
FUTURE INCOME TAX ASSETS 1,103 619
OTHER ASSETS 14,794 1,240
---------- -----------
$ 362,995 $ 328,379
---------- -----------
---------- -----------
LIABILITIES
CURRENT LIABILITIES
Demand loan $ 15,812 $ -
Accounts payable and accrued charges 63,122 54,484
Income tax payable 9,311 4,121
Current portion of long-term debt 10,692 13,649
Liabilities of discontinued operations(note 5) 3,163 9,463
---------- -----------
102,100 81,717
LONG-TERM DEBT 12,990 18,136
FUTURE INCOME TAX LIABILITIES 8,045 7,020
DEFERRED GAIN 411 519
---------- -----------
123,546 107,392
---------- -----------
SHAREHOLDERS' EQUITY
Share capital 140,352 137,703
Contributed surplus 6,796 5,229
Retained earnings 149,936 108,438
Accumulated other comprehensive loss (57,635) (30,383)
---------- -----------
239,449 220,987
---------- -----------
$ 362,995 $ 328,379
---------- -----------
---------- -----------
MAJOR DRILLING GROUP INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE PERIODS ENDED OCTOBER 31, 2007 AND 2006
(in thousands of Canadian dollars)
1. BASIS OF PRESENTATION
---------------------
These interim financial statements were prepared using accounting policies
and methods consistent with those used in the preparation of the Company's
audited financial statements for the year ended April 30, 2007, except for the
adoption of new accounting policies as disclosed in Note 2 below. These
interim financial statements conform in all respects to the requirements of
Canadian generally accepted accounting principles for annual financial
statements, with the exception of certain note disclosures. As a result, these
interim financial statements should be read in conjunction with the Company's
audited financial statements and notes for the year ended April 30, 2007
contained in the Company's 2007 annual report.
2. CHANGES IN ACCOUNTING POLICIES
------------------------------
The Company adopted the Canadian Institute of Chartered Accountants (CICA)
Handbook Section 1530 - Comprehensive Income, Section 3855 - Financial
Instruments - Recognition and Measurement, Section 3861 - Financial
Instruments - Disclosure and Presentation, and section 3865 - Hedges, on
May 1, 2007.
As a result of the adoption of Section 1530, Comprehensive Income, the
Company now presents Consolidated Statements of Comprehensive Earnings, which
consists of net earnings and other comprehensive loss representing gains and
losses from the translation of the Company's self-sustaining foreign
operations. Accumulated other comprehensive loss (AOCL) is presented as a
separate component of the shareholders' equity section in the Consolidated
Balance Sheets. Previously, these gains and losses were deferred in cumulative
translation adjustments within shareholders' equity and are now the only
element included in AOCL.
As a result of adopting CICA Section 3855, Financial Instruments -
Recognition and Measurement, financial assets classified as loans and
receivables and financial liabilities classified as other liabilities have to
be measured initially at fair value. The adoption of CICA Section 3855 has not
resulted in any changes to the carrying values of financial instruments.
The Company's financial assets and financial liabilities are classified
and measured as follows:
Asset/Liability Classification Measurement
--------------- -------------- -----------
Cash Held for trading Fair value
Accounts receivable Loans and receivables Amortized cost
Assets of discontinued
operations Loans and receivables Amortized cost
Demand loan Other financial liabilities Amortized cost
Accounts payable and
accrued charges Other financial liabilities Amortized cost
Long-term debt Other financial liabilities Amortized cost
Liabilities of
discontinued operations Other financial liabilities Amortized cost
Section 3861 establishes standards for presentation of financial
instruments and non-financial derivatives and identifies the information that
should be disclosed about them.
The Company does not currently have derivatives and therefore the adoption
of CICA Handbook Section 3865, Hedges, has had no impact on the Company's
financial statements.
3. SEASONALITY OF OPERATIONS
-------------------------
The geographic distribution of our growth is having an impact on our
historical seasonal patterns. With the exception of the third quarter, the
Company exhibits comparatively less seasonality in quarterly revenue than in
the past since a relatively higher proportion of revenue is coming from
regions with more temperate or tropical climates that are not impacted by
winter weather conditions, and strong cyclical growth tends to mute normal
seasonal patterns. Historically, the Company's operations tended to exhibit a
seasonal pattern whereby its fourth quarter (February to April) was its
strongest. The third quarter (November to January) is normally the Company's
weakest quarter due to the shutdown of mining and exploration activities for
extended periods over the holiday season, particularly in South and Central
America.
4. BUSINESS ACQUISITIONS
---------------------
Effective September 6, 2007 the Company acquired the exploration drilling
company Harris y Cia Ltda. ("Harris") in Chile. Through this purchase, Major
Drilling acquired 11 drill rigs, support equipment, inventory, an office and
repair facilities. As part of this acquisition, the Company also acquired
Harris' existing contracts and retained key management personnel, as well as
the other employees, including a number of experienced drillers. The purchase
price for the transaction was US$23.5 (C$24.7) million, including customary
working capital adjustments, financed with cash. This transaction closed on
September 10, 2007.
Net assets acquired at fair market value at acquisition are as follows:
Assets & liabilities acquired
Cash $ 1,149
Accounts receivable 631
Inventories 1,060
Capital assets 10,315
Future income tax assets 941
Goodwill 11,767
Accounts payable (1,156)
-----------
Net assets $ 24,707
-----------
-----------
Consideration
Cash $ 24,707
-----------
-----------
Effective October 25, 2007 the Company acquired the assets of the
exploration drilling company Paragon del Ecuador S.A. ("Paragon") in Ecuador.
Through this purchase, Major Drilling acquired 7 drill rigs, support equipment
and inventory, existing contracts and personnel. The purchase price for the
transaction was US$6.0 (C$5.8) million, subject to various holdbacks, financed
by cash and debt. This transaction closed October 25, 2007.
Net assets acquired at fair market value at acquisition are as follows:
Assets acquired
Inventories $ 586
Capital assets 2,023
Goodwill 3,196
-----------
Net assets $ 5,805
-----------
-----------
Consideration
Cash $ 3,871
Long-term debt 1,934
-----------
$ 5,805
-----------
-----------
5. DISCONTINUED OPERATIONS
-----------------------
On June 7, 2006, the Company sold its manufacturing subsidiary ("UDR") for
A$46.8 million (C$39.2 million). The consideration for the sale was
A$43.3 million (C$36.2 million) cash and a holdback due in December 2007 in
the amount of A$3.5 million (C$3.2 million). The net gain before income taxes
is C$22.2 million. UDR previously constituted the Company's entire
manufacturing segment. The Company made the strategic decision to focus its
corporate resources on the mineral drilling business, where it competes as one
of the world's largest contract drillers.
The Company also made the strategic decision to close its operations in
China in July, 2006. The Company opened a branch in China with the goal of
quickly developing a large pool of Chinese drillers. Having shown little
progress in building a pool of local drillers in China, the Company decided to
close the operation. Chinese operations were previously reported within the
Australian Asian and African segment.
The gain from discontinued operations is summarized as follows:
2008 YTD 2007 YTD 2008 Q2 2007 Q2
---------- ---------- ---------- -----------
Revenue $ - $ 5,111 $ - $ 333
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
Loss before income tax - (1,924) - (259)
Net (loss) gain from
disposal of discontinued
operations, including
write-down of assets,
before income tax (111) 21,481 (252) 585
Income tax expense (30) (6,574) - (176)
---------- ---------- ---------- -----------
(Loss) gain from
discontinued operations $ (141) $ 12,983 $ (252) $ 150
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
The assets and liabilities of discontinued operations are summarized as
follows:
Oct 2007 April 2007
---------- -----------
Current Assets
Other receivables $ 3,079 $ 3,253
---------- -----------
---------- -----------
Current Liabilities
Accounts payable $ - $ 3,950
Income tax payable 3,163 5,513
---------- -----------
$ 3,163 $ 9,463
---------- -----------
---------- -----------
6. SEGMENTED INFORMATION
---------------------
2008 YTD 2007 YTD 2008 Q2 2007 Q2
---------- ---------- ---------- -----------
Revenue
Canada - U.S. $ 101,344 $ 73,889 $ 52,007 $ 39,371
South and Central
America 87,275 56,628 44,814 29,302
Australia, Asia
and Africa 110,937 65,779 59,315 33,172
---------- ---------- ---------- -----------
$ 299,556 $ 196,296 $ 156,136 $ 101,845
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
Earnings from continuing
operations
Canada - U.S. $ 22,199 $ 16,029 $ 11,009 $ 9,331
South and Central
America 25,526 12,650 13,651 6,747
Australia, Asia
and Africa 22,507 13,387 12,718 6,310
---------- ---------- ---------- -----------
70,232 42,066 37,378 22,388
Eliminations (565) (589) (273) (299)
---------- ---------- ---------- -----------
69,667 41,477 37,105 22,089
Interest expense, net 736 1,201 360 351
General corporate
expenses 10,273 6,917 4,764 3,252
Income tax 17,019 10,350 9,166 5,527
---------- ---------- ---------- -----------
Earnings from continuing
operations 41,639 23,009 22,815 12,959
(Loss) gain from
discontinued operations (141) 12,983 (252) 150
---------- ---------- ---------- -----------
Net earnings $ 41,498 $ 35,992 $ 22,563 $ 13,109
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
7. RECLASSIFICATIONS
-----------------
Certain comparative figures have been reclassified to conform to the
presentation adopted in the current period.