MONCTON, NB, June 10 /CNW/ - Major Drilling Group International Inc. (TSX: MDI) today reported results for its fourth quarter of fiscal year 2008, ended April 30, 2008.
Financial Highlights
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$ millions (except
earnings per share) Q4-08 Q4-07 Fiscal 2008 Fiscal 2007
----- ----- ----------- -----------
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Revenue $ 170.0 $ 129.0 $ 590.3 $ 415.4
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Gross profit 59.4 43.5 195.4 133.1
As percentage of sales 35.0% 33.7% 33.1% 32.0%
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Earnings from
continuing operations 25.3 17.8 74.6 46.5
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Earnings per share
from continuing
operations 1.07 0.77 3.16 2.01
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Cash flow from
continuing
operations((x)) 35.3 25.1 109.1 75.6
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((x)) before changes in non-cash working capital items
Francis McGuire, President & CEO of Major Drilling, summarized the results
as follows: "Fiscal year revenue is up 42% and earnings are up 60%, all while
maintaining low debt levels."
- Major Drilling posted the highest quarterly revenue in its history at
$170.0 million, up 31.8 percent from the same period last year. Annual
revenue moved to a new record for the sixth consecutive year at
$590.3 million, despite foreign currency movements, an increase of
42.1 percent over the previous record of $415.4 million set last year.
- The Company posted the highest quarterly earnings in its history with
earnings from continuing operations for the quarter increasing by over
42.1 percent to $25.3 million or $1.07 per share, compared to
$17.8 million or $0.77 per share for the prior year quarter. Earnings
from continuing operations for fiscal 2008 increased over 60.4 percent,
to $74.6 million ($3.16 per share), an annual record, from earnings of
$46.5 million ($2.01 per share) recorded in fiscal 2007.
- Gross margin percentage for the quarter was 35.0 percent, compared to
33.7 percent for the corresponding period last year. Annual gross
margins were 33.1 percent for fiscal 2008 compared to 32.0 percent for
fiscal 2007.
- Net earnings for the quarter were $25.4 million or $1.07 per share
compared to net earnings of $17.8 million or $0.77 per share for the
prior year quarter.
- Cash flow from continuing operations, before changes in non-cash
working capital items, was up 40.6 percent to $35.3 million for the
quarter, compared to $25.1 million for the same quarter last year.
Annual cash flow from operations, before changes in non-cash working
capital items, was $109.1 million in fiscal 2008, up 44.3 percent from
the $75.6 million recorded in fiscal 2007.
- Net capital expenditures for fiscal 2009 are projected at some
$80 million.
"Revenue continued to grow this quarter with contributions from all
regions as the Company continued to benefit from a favorable pricing
environment and its investments in additional equipment, while still being
somewhat constrained by labour availability," said Mr. McGuire. "Operations
that were hampered by weather in February picked up as the quarter progressed.
Earnings contribution improved in Canada-U.S. and Latin America although the
region of Australia, Asia and Africa, while still making a positive
contribution, faced operational issues which impacted quarterly earnings."
"Canada-U.S. benefited from improved pricing and newer equipment, which
helped productivity. Our energy rigs in the U.S., however, had low levels of
utilization; utilization is expected to improve by June. In Latin America,
improved pricing and increased labour productivity as our labour force gains
experience, were the main factors for the improvement in profit margins.
Revenue in Latin America was somewhat impacted by changes in government mining
policies in Ecuador and Venezuela. In Australia, heavy rain affected
operations in February, mainly in the energy sector, which typically is more
profitable than the mineral sector. In Africa, operational and management
issues affected results as the Company continues with the integration of its
acquisition in the region. The Company has made several management and
operational changes in the region and expects results to improve in the coming
quarters."
"Fiscal 2008 was a very satisfying year as the Company continued to
increase its investments in training and safety, which is essential to
internal growth," noted Mr. McGuire. "The Company grew its revenue by
$175 million with two thirds of the growth occurring in U.S. dollar contracts.
At the same exchange rate as last year, we would have shown an additional
$42 million of growth. Due to the fact that most of our costs are kept in the
same currency as our revenue, the impact of foreign exchange on earnings was
limited to approximately $7 million. The fundamental demand drivers in the
global markets show no signs of major change and most industry watchers are
calling for the supply of metals to remain relatively tight for the
foreseeable future as mineral companies continue to search for significant
discoveries," observed Mr. McGuire.
"Strong demand from gold projects is expected to continue in calendar 2008
as gold prices should remain well above minimum thresholds. Worldwide drilling
demand from uranium companies is expected to continue in 2008 given the number
of projects moving into the pre-feasibility stage, although uranium projects
in some regions might be affected by regulatory delays. Demand for base metals
could be affected by a U.S. recession but problems on the supply side due to
the lack of discoveries and continued demand from emerging economies should
keep prices above levels required for exploration," said Mr. McGuire.
"Looking at fiscal 2009, the Company expects its revenue growth to come
from two main drivers: from additional investments in people and equipment and
price increases. The Company also continues to seek acquisitions that will
either enhance its strategy of dominating specialized drilling or that will
expand its geographical footprint," said Mr. McGuire. "Given the strong demand
and the Company's favorable financial position, net capital expenditures are
expected to reach a record at $80 million in the upcoming year. In addition,
the Company has started a new research and development program with the goal
of finding new ways to enhance productivity and safety. Labour availability
will remain the Company's greatest challenge, and we will continue to increase
our investments in training but we expect competition for experienced drillers
to intensify as the year goes on," noted Mr. McGuire. "In parts of our African
region, where pricing has lagged, we expect to continue to improve rig
availability and pricing. These initiatives should progressively improve
profitability in the region as we move through the year. Finally, we continue
to be mindful of the impact that governments can have on exploration
activities as certain countries seek an increased share in the benefits of
this commodity boom."
Fourth quarter ended April 30, 2008
Total revenue for the fourth quarter was $170.0 million, up 31.8 percent
from the $129.0 million recorded for the prior year period. Revenue growth was
affected by the strengthening Canadian dollar against the U.S. dollar as
compared to the same period last year. The unfavourable foreign exchange
translation impact for the quarter, when comparing to the effective rates for
the same period last year, is estimated at $16 million on revenue.
Revenue from Canada-U.S. drilling operations was up $5.5 million or
11.7 percent to $52.5 million for the quarter compared to $47.0 million for
the same period last year. Improved pricing and better winter conditions at
the end of the quarter, as compared to last year, contributed to the improved
performance of the region.
In South and Central America, revenue for the quarter was $60.4 million,
up 47.0 percent from $41.1 million recorded in the prior year quarter. This
strong year-over-year quarterly growth was driven primarily by strong demand
in Mexico, Chile (including the Harris acquisition) and Argentina. Operations
in Venezuela and Ecuador were impacted by political decisions near the end of
the quarter, which limited their contribution.
Australian, Asian and African drilling operations reported revenue of
$57.1 million, up some 39.6 percent from $40.9 million reported in the same
period last year. Revenue growth in the region came mainly from Africa,
Australia and a new operation in Armenia. Mongolian revenue was flat as the
mining industry in that country continues to struggle with uncertainty
relating to government mining policies.
The overall gross margin percentage for the quarter was 35.0 percent, up
from 33.7 percent for the same period last year. Gross margin percentages
improved year-over-year in Canada-U.S. and South and Central America due to
generally improved pricing, better equipment and better drilling conditions in
Canada in April. However, weather negatively affected productivity in February
and our energy rigs had low levels of utilization in both Australia and the
U.S. throughout the quarter. In Africa, operational and management issues
affected results as the Company continues with the integration of its
acquisition in the region. The Company has made several management and
operational changes in the region and expects results to improve in the coming
quarters.
General and administrative costs were $12.7 million for the quarter,
compared to $10.2 million for the prior year period. The increase was due to
the administrative costs relating to the acquisitions in Chile and Ecuador,
additions to management to accommodate growth and overall cost increases due
to increased volume. The Company added significant additional resources in
safety and training, particularly in the second half of the year. In addition,
the Company has started a new research and development program with the goal
of finding new ways to enhance productivity and safety.
Other expenses were $3.2 million for the quarter compared to $2.2 million
for the same period last year, due to higher incentive compensation expenses
given the Company's improved profitability in the current year.
Foreign exchange loss was nil for the quarter compared to $0.5 million for
the prior year period.
Short-term interest expense was $0.2 million for the quarter compared to
revenue of $0.4 million last year, while interest on long-term debt was
$0.5 million compared to $0.7 million for the prior year quarter.
Amortization expense increased to $7.5 million for the quarter compared to
$5.9 million for the same quarter last year, as a result of increased
investment in equipment.
The Company's tax expense was $10.1 million for the quarter, reflecting
the Company's profitability, compared to $6.6 million for the same period last
year.
Earnings from continuing operations for the quarter were $25.3 million or
$1.07 per share ($1.05 per share diluted) compared to $17.8 million or
$0.77 per share ($0.75 per share diluted) in the prior year period.
Gain from discontinued operations was $0.1 million compared to nil for the
same period last year.
Net earnings were $25.4 million or $1.07 per share ($1.05 per share
diluted) compared to $17.8 million or $0.77 per share ($0.75 per share
diluted) for the same period last year.
Year ended April 30, 2008
Revenue for the fiscal year ended April 30, 2008 increased 42.1 percent to
$590.3 million from $415.4 million for the corresponding period last year.
Revenue growth was affected by the strengthening Canadian dollar against the
U.S. dollar as compared to the same period last year. The unfavourable foreign
exchange translation impact for the year, when comparing to the effective
rates for the same period last year, is estimated at $42 million on revenue.
Canada-U.S. revenue increased by 25.0 percent to $189.0 million compared
to $151.2 million last year. Additional equipment and improved pricing
contributed to the growth in that region.
Revenue in South and Central America increased by 46.4 percent or
$59.1 million to $186.5 million, compared to $127.4 million in fiscal 2007.
Revenue growth was driven primarily by good internal growth in Mexico, Chile
and Argentina and by new acquisitions in Chile and Ecuador.
Revenue in Australia, Asia and Africa increased 57.0 percent to
$214.8 million from $136.8 million in fiscal 2007. Australia and the new
African operations accounted for two thirds 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 were 33.1 percent compared to 32.0 percent last
year, due mainly to an improving pricing environment and despite increased
investments in training and increased labour and materials cost. With the
increase in revenue and improving gross margins, gross profit for the year
increased by 46.8 percent to $195.4 million compared to $133.1 million for the
prior year.
General and administrative expenses increased to $44.8 million compared to
$33.8 million for the same period last year. This increase is primarily due to
additions to the management team to accommodate growth and additional safety
and training efforts, the African, Ecuadorian and Chilean acquisitions, and
overall cost increases due to increased volume.
Other expenses were $13.6 million for the year compared to $9.3 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, offset by a reduction in the provision for
doubtful accounts.
Foreign exchange loss was $2.1 million compared to $0.8 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 $0.2 million for the year compared to a
revenue of $0.7 million last year, while interest on long-term debt was
$2.4 million in fiscal 2008 compared to $2.6 million last year.
Amortization expense increased to $27.0 million compared to $20.5 million
last year, as a result of increased investment in equipment.
The provision for income tax for the year was $31.1 million compared to
$20.2 million for the prior year reflecting the increase in pre-tax earnings.
Earnings from continuing operations were $74.6 million or $3.16 per share
($3.12 per share diluted) compared to $46.5 million or $2.01 per share
($1.98 per share diluted) last year.
Loss from discontinued operations was $0.5 million or $0.02 per share
compared to a gain of $12.3 million or $0.53 per share last year. Discontinued
operations include last year's sale of the manufacturing division and the
termination of operations in China. Gain from discontinued operations for
fiscal 2007 largely reflects the gain of $15.6 million (after income taxes)
from the sale of the manufacturing division, partially offset by a loss in the
Chinese operations after close-down provisions.
Net earnings were $74.1 million or $3.14 per share ($3.10 per share
diluted) compared to $58.8 million or $2.54 per share ($2.50 per share
diluted) for 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 web cast of its quarterly
conference call on Tuesday, June 10, 2008 at 9:00 AM (EDT). To access the web
cast 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)
Twelve months ended Three months ended
April 30 April 30
2008 2007 2008 2007
---------- ---------- ---------- ----------
TOTAL REVENUE $ 590,309 $ 415,437 $ 169,995 $ 129,049
DIRECT COSTS 394,868 282,367 110,575 85,529
---------- ---------- ---------- ----------
GROSS PROFIT 195,441 133,070 59,420 43,520
---------- ---------- ---------- ----------
OPERATING EXPENSES
General and
administrative 44,813 33,821 12,719 10,205
Other expenses 13,606 9,252 3,182 2,176
Foreign exchange
loss (gain) 2,142 828 (12) 461
Interest (revenue)
expense (153) (729) 225 (388)
Interest expense
on long-term debt 2,403 2,615 481 684
Amortization 26,962 20,526 7,451 5,942
---------- ---------- ---------- ----------
89,773 66,313 24,046 19,080
---------- ---------- ---------- ----------
EARNINGS BEFORE
INCOME TAX AND
DISCONTINUED
OPERATIONS 105,668 66,757 35,374 24,440
---------- ---------- ---------- ----------
INCOME TAX - PROVISION
Current 27,315 13,932 8,047 6,460
Future 3,758 6,279 2,041 180
---------- ---------- ---------- ----------
31,073 20,211 10,088 6,640
---------- ---------- ---------- ----------
EARNINGS FROM
CONTINUING OPERATIONS 74,595 46,546 25,286 17,800
(LOSS) GAIN FROM
DISCONTINUED OPERATIONS (500) 12,257 75 9
---------- ---------- ---------- ----------
NET EARNINGS $ 74,095 $ 58,803 $ 25,361 $ 17,809
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
EARNINGS PER SHARE FROM
-----------------------
CONTINUING OPERATIONS
---------------------
Basic(x) $ 3.16 $ 2.01 $ 1.07 $ 0.77
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Diluted(x)(x) $ 3.12 $ 1.98 $ 1.05 $ 0.75
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
EARNINGS PER SHARE
Basic(x) $ 3.14 $ 2.54 $ 1.07 $ 0.77
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Diluted(x)(x) $ 3.10 $ 2.50 $ 1.05 $ 0.75
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
(x)Based on 23,576,973 and 23,135,889 daily weighted average shares
outstanding for the fiscal year to date 2008 and 2007, respectively and
on 23,684,754 and 23,253,058 daily weighted average shares for the
quarter ended April 30, 2008 and 2007, respectively. The total number of
shares outstanding on April 30, 2008 was 23,706,173.
(x)(x)Based on 23,899,983 and 23,490,195 daily weighted average shares
outstanding for the fiscal year to date 2008 and 2007, respectively and
on 24,061,576 and 23,686,734 daily weighted average shares outstanding
for the fourth quarter ended April 30, 2008 and 2007, respectively.
Consolidated Statements of Comprehensive Earnings
(in thousands of Canadian dollars)
(unaudited)
Twelve months ended Three months ended
April 30 April 30
2008 2007 2008 2007
---------- ---------- ---------- ----------
NET EARNINGS $ 74,095 $ 58,803 $ 25,361 $ 17,809
OTHER COMPREHENSIVE
(LOSS) GAIN
Unrealized (losses)
gains on translating
financial statements
of self-sustaining
foreign operations (14,169) (134) 5,260 (7,740)
---------- ---------- ---------- ----------
COMPREHENSIVE EARNINGS $ 59,926 $ 58,669 $ 30,621 $ 10,069
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Consolidated Statements of Retained Earnings
(in thousands of Canadian dollars)
(unaudited)
Twelve months ended
April 30
2008 2007
---------- ----------
RETAINED EARNINGS, BEGINNING OF THE YEAR $ 108,438 $ 49,635
Net earnings 74,095 58,803
---------- ----------
RETAINED EARNINGS, END OF THE YEAR $ 182,533 $ 108,438
---------- ----------
---------- ----------
Consolidated Statements of Accumulated Other
Comprehensive Loss
(in thousands of Canadian dollars)
(unaudited)
Twelve months ended
April 30
2008 2007
---------- ----------
ACCUMULATED OTHER COMPREHENSIVE LOSS,
BEGINNING OF THE YEAR $ (30,383) $ (30,249)
Unrealized losses on translating financial
statements of self-sustaining foreign
operations (14,169) (134)
---------- ----------
ACCUMULATED OTHER COMPREHENSIVE LOSS,
END OF THE YEAR $ (44,552) $ (30,383)
---------- ----------
---------- ----------
Consolidated Statements of Cash Flows
(in thousands of Canadian dollars)
(unaudited)
Twelve months ended Three months ended
2008 2007 2008 2007
---------- ---------- ---------- ----------
OPERATING ACTIVITIES
Earnings from
continuing operations $ 74,595 $ 46,546 $ 25,286 $ 17,800
Operating items not
involving cash
Amortization 26,962 20,526 7,451 5,942
Loss (gain) on
disposal of
capital assets 1,218 977 (50) 622
Future income tax 3,758 6,279 2,041 180
Stock-based
compensation 2,556 1,265 601 602
---------- ---------- ---------- ----------
109,089 75,593 35,329 25,146
Changes in non-cash
operating working
capital items (28,483) (14,509) (11,726) (12,257)
---------- ---------- ---------- ----------
80,606 61,084 23,603 12,889
(Loss) gain from
discontinued
operations, adjusted
for non-cash items (614) (1,271) 75 (55)
Changes in non-cash
operating working
capital items from
discontinued operations (917) 3,154 (114) (79)
---------- ---------- ---------- ----------
Cash flow from operating
activities 79,075 62,967 23,564 12,755
---------- ---------- ---------- ----------
FINANCING ACTIVITIES
Repayment of
long-term debt (14,080) (16,863) (3,164) (5,355)
Additional
long-term debt 20,000 459 10,000 -
Increase in
(repayment of)
demand loans 2,179 (16,721) (6,310) -
Issuance of common shares 4,437 2,653 608 1,740
Discontinued operations (3,061) - 3 -
---------- ---------- ---------- ----------
Cash flow from (used in)
financing activities 9,475 (30,472) 1,137 (3,615)
---------- ---------- ---------- ----------
INVESTING ACTIVITIES
Net proceeds from sale
of discontinued
operations - 28,717 - (43)
Business acquisitions
(net of cash
acquired) (note 5) (27,925) (13,058) (496) -
Acquisition of capital
assets, net of direct
financing (68,101) (36,803) (22,700) (12,474)
Proceeds from disposal
of capital assets 3,647 3,040 1,137 452
Discontinued operations - 687 - -
---------- ---------- ---------- ----------
Cash flow used in
investing activities (92,379) (17,417) (22,059) (12,065)
---------- ---------- ---------- ----------
OTHER ACTIVITIES
Foreign exchange
translation adjustment (498) (2,043) (200) (658)
---------- ---------- ---------- ----------
(DECREASE) INCREASE
IN CASH (4,327) 13,035 2,442 (3,583)
CASH POSITION,
BEGINNING OF THE PERIOD 25,022 11,987 18,253 28,605
---------- ---------- ---------- ----------
CASH POSITION,
END OF THE PERIOD $ 20,695 $ 25,022 $ 20,695 $ 25,022
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Consolidated Balance Sheets
As at April 30, 2008 and April 30, 2007
(in thousands of Canadian dollars)
ASSETS
2008 2007
---------- ----------
CURRENT ASSETS
Cash $ 20,695 $ 25,022
Accounts receivable 103,555 78,613
Income tax receivable 3,218 1,610
Inventories 75,094 50,976
Prepaid expenses 6,280 6,545
Future income tax assets 3,948 1,730
Assets of discontinued operations (note 6) - 3,253
---------- ----------
212,790 167,749
CAPITAL ASSETS 199,007 158,771
FUTURE INCOME TAX ASSETS 334 619
GOODWILL AND OTHER ASSETS 14,837 1,240
---------- ----------
$ 426,968 $ 328,379
---------- ----------
---------- ----------
LIABILITIES
CURRENT LIABILITIES
Demand loan $ 2,179 -
Accounts payable and accrued charges 73,870 $ 54,484
Income tax payable 10,541 4,121
Current portion of long-term debt 11,798 13,649
Future income tax liabilities 1,177 -
Liabilities of discontinued
operations (note 6) 2,028 9,463
---------- ----------
101,593 81,717
LONG-TERM DEBT 28,317 18,136
FUTURE INCOME TAX LIABILITIES 9,152 7,020
DEFERRED GAIN - 519
---------- ----------
139,062 107,392
---------- ----------
SHAREHOLDERS' EQUITY
Share capital 142,140 137,703
Contributed surplus 7,785 5,229
Retained earnings 182,533 108,438
Accumulated other comprehensive loss (44,552) (30,383)
---------- ----------
287,906 220,987
---------- ----------
$ 426,968 $ 328,379
---------- ----------
---------- ----------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE YEARS AND QUARTERS ENDED APRIL 30, 2008 AND 2007
(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
The Company has adopted the policy of amortizing transaction costs to net
income using the effective interest method.
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.
In accordance with CICA Handbook Section 3855, a search for embedded
derivatives in our contracts as at January 1, 2008 was conducted. There were
no embedded features identified that require separate presentation from the
related host contract.
3. ACCOUNTING STANDARDS PENDING ADOPTION
-------------------------------------
Inventories
In June 2007, the CICA issued Section 3031, Inventories, replacing Section
3030, Inventories. The new Section will be applicable to financial statements
relating to fiscal years beginning on or after January 1, 2008. Accordingly,
the Company will adopt the new standards for its fiscal year beginning May 1,
2008. It provides more guidance on the measurement and disclosure requirements
for inventories. The Company does not expect that the adoption of this Section
will have a material effect on its consolidated financial statements.
Financial instruments
In December 2006, the CICA issued Section 3862, Financial Instruments -
Disclosures, Section 3863, Financial Instruments - Presentation, and Section
1535, Capital Disclosures. All three Sections will be applicable to financial
statements relating to fiscal years beginning on or after October 1, 2007.
Accordingly, the Company will adopt the new standards for its fiscal year
beginning May 1, 2008. Section 3862 on financial instruments disclosures,
requires the disclosure of information about: a) the significance of financial
instruments for the entity's financial position and performance and b) the
nature and extent of risks arising from financial instruments to which the
entity is exposed during the period and at the balance sheet date, and how the
entity manages those risks. Section 3863 on the presentation of financial
instruments is unchanged from the presentation requirements included in
Section 3861. Section 1535 on Capital Disclosures requires the disclosure of
information about an entity's objectives, policies and processes for managing
capital. As the standards relate only to disclosure requirements they will
have no effect on financial results.
Goodwill and intangible assets
In February 2008, the CICA issued Section 3064, Goodwill and Intangible
Assets, replacing Section 3062, Goodwill and Other Intangible Assets and
Section 3450, Research and Development Costs. Various changes have been made
to other sections of the CICA Handbook for consistency purposes. The new
Section will be applicable to financial statements relating to fiscal years
beginning on or after October 1, 2008. Accordingly, the Company will adopt the
new standards for its fiscal year beginning May 1, 2009. Section 3064
establishes standards for the recognition, measurement, presentation and
disclosure of goodwill subsequent to its initial recognition and of intangible
assets by profit-oriented enterprises. Standards concerning goodwill are
unchanged from the standards included in the previous Section 3062. The
Company is currently evaluating the impact of the adoption of this new Section
on its consolidated financial statements.
IFRS
Effective January 1, 2011, International Financial Reporting Standards
will replace Canadian GAAP. The Accounting Standards Board has released an
exposure draft that outlines the standards. The Company is currently assessing
the effect that this transition will have on our operations and financial
reporting.
4. SEASONALITY OF OPERATIONS
-------------------------
The geographic distribution of the Company's 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.
5. BUSINESS ACQUISITIONS
---------------------
Effective September 1, 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$23,934 (C$25,203), 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 9,621
Future income tax assets 2,328
Goodwill 11,570
Accounts payable (1,156)
----------
Net assets $ 25,203
----------
----------
Consideration
Cash $ 25,203
----------
----------
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$5,999 (C$5,805), 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
----------
----------
6. 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 paid in December 2007 in
the amount of A$3.5 million (C$3.2 million). The net gain before income taxes
was 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 (loss) gain from discontinued operations is summarized as follows:
2008 YTD 2007 YTD 2008 Q4 2007 Q4
-------- -------- ------- -------
Revenue $ - $ 5,109 $ - $ (2)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Loss before income tax - (2,538) - (303)
Net (loss) gain
from disposal of
discontinued
operations, including
write-down of assets,
before income tax (179) 21,430 95 (42)
Income tax (expense)
recovery (321) (6,635) (20) 354
---------- ---------- ---------- ----------
(Loss) gain
from discontinued
operations $ (500) $ 12,257 $ 75 $ 9
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
The assets and liabilities of discontinued operations are summarized as
follows:
April 2008 April 2007
---------- ----------
Current Assets
Other receivables $ - $ 3,253
---------- ----------
---------- ----------
Current Liabilities
Accounts payable $ - $ 3,950
Income tax payable 2,028 5,513
---------- ----------
$ 2,028 $ 9,463
---------- ----------
---------- ----------
7. SEGMENTED INFORMATION
---------------------
2008 YTD 2007 YTD 2008 Q4 2007 Q4
-------- -------- ------- -------
Revenue
Canada - U.S. $ 189,018 $ 151,226 $ 52,542 $ 47,045
South and
Central America 186,491 127,402 60,398 41,127
Australia, Asia and
Africa 214,800 136,809 57,055 40,877
---------- ---------- ---------- ----------
$ 590,309 $ 415,437 $ 169,995 $ 129,049
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Earnings from
continuing operations
Canada - U.S. $ 37,818 $ 29,658 $ 12,537 $ 9,902
South and
Central America 54,147 31,741 20,830 12,309
Australia, Asia and
Africa 33,482 19,706 5,522 5,429
---------- ---------- ---------- ----------
125,447 81,105 38,889 27,640
Eliminations (1,129) (1,231) (296) (325)
---------- ---------- ---------- ----------
124,318 79,874 38,593 27,315
Interest expense, net 2,250 1,886 706 296
General corporate
expenses 16,400 11,231 2,513 2,579
Income tax 31,073 20,211 10,088 6,640
---------- ---------- ---------- ----------
Earnings from
continuing operations 74,595 46,546 25,286 17,800
(Loss) gain from
discontinued
operations (500) 12,257 75 9
---------- ---------- ---------- ----------
Net earnings $ 74,095 $ 58,803 $ 25,361 $ 17,809
---------- ---------- ---------- ----------
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