MONCTON, NB, March 4 /CNW/ - Major Drilling Group International Inc. (TSX: MDI) today reported results for its third quarter of fiscal year 2008, ended January 31, 2008.
Financial Highlights
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$ millions of 12 12
Canadian dollars months months
(except earnings to to
per share) January January
31, 31,
Q3-08 Q3-07 YTD-08 YTD-07 2008 2007
------ ------ ------ ------ -------- --------
-------------------------------------------------------------------------
Revenue $120.8 $90.1 $420.3 $286.4 $549.4 $375.3
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Gross profit 33.7 25.2 136.0 89.6 179.5 115.5
As percentage
of sales 27.9% 28.0% 32.4% 31.3% 32.7% 30.8%
-------------------------------------------------------------------------
Earnings from
continuing ops 7.7 5.7 49.3 28.7 67.1 38.0
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Earnings per share
from continuing
ops 0.32 0.25 2.09 1.24 2.86 1.65
-------------------------------------------------------------------------
Cash flow from
continuing
ops (x) 16.3 14.9 73.8 50.4 98.9 65.1
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(x) before changes in non-cash working capital items
- Revenue increased over 34 percent in the third quarter to
$120.8 million, compared to $90.1 million recorded in the same period
last year. This represents the highest level of third quarter revenue
in the Company's history.
- Weather conditions caused gross margins for the quarter to remain
relatively flat at 27.9 percent compared to 28.0 percent for the
corresponding period last year. Gross profit for the quarter was
$33.7 million compared to $25.2 million for the prior year quarter.
- Record third quarter earnings from continuing operations were reported
at $7.7 million or $0.32 per share, up over 35 percent from
$5.7 million or $0.25 per share for the prior year quarter.
- Net earnings for the quarter, after loss on discontinued operations,
were $7.2 million or $0.31 per share, up from $5.0 million or
$0.22 per share for the prior year quarter.
- Cash from operations, before changes in non-cash working capital items,
was $16.3 million for the quarter, compared to $14.9 million for the
same quarter last year.
"The Company achieved the highest third quarter revenue and profits in its
history. Demand for drilling services continues to increase and customers
remain anxious to secure rigs and crews," said Francis McGuire, President and
CEO of Major Drilling. "Margins for the third quarter, which is always our
seasonally weakest quarter, remained relatively flat as compared to last year
at 27.9 percent. Our operations were affected by heavy rains in Africa,
Australia, Mexico and Ecuador as well as by extreme weather in Canada, whereas
last year weather conditions were uniformly favourable. Also, our record
performance would have been even stronger if it were not for the impact of
foreign translations. For the quarter, the unfavourable foreign exchange
translation impact, when comparing to the effective rates for the same period
last year, is estimated at approximately $14 million on revenue and
$1.7 million on net earnings. As previously mentioned, we continue to make
significant investments in training, and we are on track to meeting our goal
of expanding our labour force by 20 percent this year."
"Going forward, the outlook for the fourth quarter looks strong although
weather continued to be challenging throughout February. With our on-going
training efforts, we anticipate putting 29 new rigs into service during the
fourth quarter, rigs that either arrived in the third quarter or will be
arriving during the fourth quarter subject to delivery schedules. Seven of
these are replacement rigs. In addition, we have increased our inventory
during the quarter by $13 million in anticipation of a busy year as well as to
avoid any potential supply shortages," noted Mr. McGuire. "We expect demand
from gold and copper projects to continue to be strong in calendar 2008 as
prices should remain well above economical thresholds required for sustained
exploration. Drilling demand from uranium companies is expected to increase in
2008 given the number of projects moving into the pre-feasibility stage around
the world. In addition, most observers believe that a slowdown in the U.S.
economy would have only a small impact on the demand for base metals as
problems on the supply side and continued demand from China and India should
keep prices above levels required for exploration," said Mr. McGuire.
"In terms of customer base, most senior and intermediate mining companies,
which represent the majority of our customers, have increased their 2008
exploration budgets from 2007. Most of the junior companies that we work for
have raised substantial amounts of cash, which should carry their exploration
programs through the next six to eight quarters. While financial markets may
become more selective in their future support for junior mining, we would
expect that projects with good fundamentals will continue to find financing.
The need to replace depleting reserves will continue to be the key driver in
the industry," said Mr. McGuire.
The Company also takes this opportunity to thank Jonathan Goodman, who has
stepped down from the Board of Directors, for his strong input over the course
of many years and welcomes to the Board Mr. Derek Pannell, former President
and CEO of Noranda/Falconbridge and board member of Teck Cominco. Mr. Pannell
brings over 35 years of experience in mining and international business to the
Company.
Third quarter ended January 31, 2008
Total revenue for the third quarter was $120.8 million, up 34.1 percent
from the $90.1 million recorded for the prior year period.
Revenue from Canada-U.S. drilling operations was up $4.8 million or
15.8 percent to $35.1 million for the quarter compared to $30.3 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 $38.8 million,
up 31.1 percent from $29.6 million recorded in the prior year quarter. Revenue
growth was driven primarily by the new acquisitions in Chile and Ecuador, and
good internal growth in Mexico.
Australian, Asian and African drilling operations reported revenue of
$46.8 million, up some 55.0 percent from $30.2 million reported in the same
period last year. The African acquisition, better rig utilization in Australia
and a new operation in Armenia accounted for most of the region's growth.
The overall gross margin percentage for the quarter was relatively flat at
27.9 percent as compared to 28.0 percent for the same period last year. Margin
growth was impacted by weather conditions and lower margins in the African
operations, which offset the impact of pricing and productivity improvements.
General and administrative costs were $11.2 million for the quarter,
compared to $8.8 million for the prior year period. The increase was primarily
due to the additional administrative costs relating to the acquisitions in
Africa, Chile and Ecuador, additions in management to accommodate growth, and
overall cost increases due to increased volume.
Other expenses were $2.6 million for the quarter compared to $2.0 million
for the same period last year, due to higher incentive compensation expenses,
given the Company's improved profitability in the current year, and to losses
on the disposal of assets.
Foreign exchange loss was $0.4 million for the quarter compared to nil for
the prior year period. This is due to the strengthening of the Canadian dollar
against the U.S. dollar.
Short-term interest expense was $0.2 million for the quarter compared to
revenue of $0.3 million 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 $7.0 million for the quarter compared to
$5.2 million for the same quarter last year, as a result of increased
investment in equipment.
The Company's tax expense was $4.0 million for the quarter compared to
$3.2 million for the same period last year, reflecting the Company's increased
profitability.
Earnings from continuing operations for the quarter were $7.7 million or
$0.32 per share ($0.32 per share diluted) compared to $5.7 million or
$0.25 per share ($0.24 per share diluted) in the prior year period.
Loss from discontinued operations was $0.4 million or $0.02 per share
compared to $0.7 million or $0.03 per share for the same period last year.
Resulting net earnings were $7.2 million or $0.31 per share ($0.30 per
share diluted) compared to $5.0 million or $0.22 per share ($0.21 per share
diluted) for the same period last year.
Year to date ended January 31, 2008
Revenue for the nine-month period ending January 31, 2008 increased
46.8 percent to $420.3 million from $286.4 million for the corresponding
period last year.
Canada-U.S. revenue increased by 31.0 percent or $32.3 million to
$136.5 million compared to $104.2 million last year with both countries
contributing to this growth.
Revenue in South and Central America increased by 46.1 percent or
$39.8 million to $126.1 million, compared to $86.3 million in the prior year
period. Internal growth in Mexico and Chile and acquisitions in Chile and
Ecuador accounted for most of the growth, with Venezuela and Argentina also
making strong contributions.
Revenue in Australia, Asia and Africa increased 64.4 percent or
$61.8 million to $157.7 million from $95.9 million in the prior year period.
Australia and the new African operations accounted for about 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 nine-month period were 32.4 percent compared to 31.3
percent last year due mainly to an improving pricing environment. With the
increase in revenue and improving gross margins, gross profit for the
nine-month period increased by 51.8 percent to $136.0 million compared to
$89.6 million for the prior year period.
General and administrative expenses increased to $32.1 million compared to
$23.6 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 $10.4 million for the nine-month period compared to
$7.1 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 $2.2 million for the nine-month period 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 $0.4 million for the nine-month period
compared to $0.3 million last year, while interest expense on long-term debt
was flat at $1.9 million compared to the same period last year.
Amortization expense increased to $19.5 million for the nine-month period,
compared to $14.6 million for the same period last year, as a result of
increased investment in equipment.
The provision for income tax for the nine-month period was $21.0 million
compared to $13.6 million for the prior year period reflecting the increase in
pre-tax earnings.
Earnings from continuing operations for the nine-month period were
$49.3 million or $2.09 per share ($2.06 per share diluted) compared to
$28.7 million or $1.24 per share ($1.22 per share diluted) for the same period
last year.
Loss from discontinued operations was $0.6 million or $0.02 per share
compared to a gain of $12.2 million or $0.53 per share last year.
Resulting net earnings were $48.7 million or $2.07 per share ($2.04 per
share diluted) compared to $41.0 million or $1.77 per share ($1.74 per share
diluted) for the same period last year.
On a rolling 12-month basis to January 31, 2008, revenue from continuing
operations increased by 46.4 percent to $549.4 million compared to
$375.3 million for the prior year period. Earnings from continuing operations,
on the same rolling 12-month basis, increased by 76.6 percent to $67.1 million
from $38.0 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 Administration (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, March 4, 2008 at 9:00 AM (EST). 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)
Nine months ended Three months ended
January 31 January 31
2008 2007 2008 2007
----------- ----------- ----------- -----------
TOTAL REVENUE $ 420,314 $ 286,388 $ 120,758 $ 90,092
DIRECT COSTS 284,293 196,838 87,046 64,870
----------- ----------- ----------- -----------
GROSS PROFIT 136,021 89,550 33,712 25,222
----------- ----------- ----------- -----------
OPERATING EXPENSES
General and
administrative 32,094 23,616 11,238 8,756
Other expenses 10,424 7,076 2,608 1,956
Foreign exchange
loss (gain) 2,154 366 449 (47)
Interest (revenue)
expense (378) (340) 239 (294)
Interest expense on
long-term debt 1,922 1,931 569 684
Amortization 19,511 14,584 6,973 5,209
----------- ----------- ----------- -----------
65,727 47,233 22,076 16,264
----------- ----------- ----------- -----------
EARNINGS BEFORE INCOME
TAX AND DISCONTINUED
OPERATIONS 70,294 42,317 11,636 8,958
----------- ----------- ----------- -----------
INCOME TAX - PROVISION
Current 19,268 7,472 3,011 (578)
Future 1,717 6,099 955 3,799
----------- ----------- ----------- -----------
20,985 13,571 3,966 3,221
----------- ----------- ----------- -----------
EARNINGS FROM CONTINUING
OPERATIONS 49,309 28,746 7,670 5,737
(LOSS) GAIN FROM
DISCONTINUED
OPERATIONS (note 6) (575) 12,248 (434) (735)
----------- ----------- ----------- -----------
NET EARNINGS $ 48,734 $ 40,994 $ 7,236 $ 5,002
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
EARNINGS PER SHARE FROM
-----------------------
CONTINUING OPERATIONS
---------------------
Basic(x) $ 2.09 $ 1.24 $ 0.32 $ 0.25
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted(xx) $ 2.06 $ 1.22 $ 0.32 $ 0.24
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
EARNINGS PER SHARE
------------------
Basic(x) $ 2.07 $ 1.77 $ 0.31 $ 0.22
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted(xx) $ 2.04 $ 1.74 $ 0.30 $ 0.21
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
(x) Based on 23,541,827 and 23,098,106 daily weighted average shares
outstanding for the fiscal year to date 2008 and 2007, respectively
and on 23,621,029 and 23,127,430 daily weighted average shares for
the quarter ended January 31, 2008 and 2007, respectively. The
total number of shares outstanding on January 31, 2008 was
23,671,008.
(xx) Based on 23,882,663 and 23,575,166 daily weighted average shares
outstanding for the fiscal year to date 2008 and 2007, respectively
and on 24,018,422 and 23,645,789 daily weighted average shares
outstanding for the quarter ended January 31, 2008 and 2007,
respectively.
Major Drilling Group International Inc.
Consolidated Statements of Comprehensive Earnings
(in thousands of Canadian dollars)
(unaudited)
Nine months ended Three months ended
January 31 January 31
2008 2007 2008 2007
----------- ----------- ----------- -----------
NET EARNINGS $ 48,734 $ 40,994 $ 7,236 $ 5,002
OTHER COMPREHENSIVE
(LOSS) GAIN
Unrealized (losses)
gains on translating
financial statements
of self-sustaining
foreign operations (19,429) 7,606 7,823 8,232
----------- ----------- ----------- -----------
COMPREHENSIVE EARNINGS $ 29,305 $ 48,600 $ 15,059 $ 13,234
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Consolidated Statements of Retained Earnings
(in thousands of Canadian dollars)
(unaudited)
Nine months ended
January 31
2008 2007
----------- -----------
RETAINED EARNINGS, BEGINNING OF THE PERIOD $ 108,438 $ 49,635
Net earnings 48,734 40,994
----------- -----------
RETAINED EARNINGS, END OF THE PERIOD $ 157,172 $ 90,629
----------- -----------
----------- -----------
Consolidated Statements of Accumulated Other
Comprehensive Loss
(in thousands of Canadian dollars)
(unaudited)
Nine months ended
January 31
2008 2007
----------- -----------
ACCUMULATED OTHER COMPREHENSIVE LOSS,
BEGINNING OF THE PERIOD $ (30,383) $ (30,249)
Unrealized (losses) gains on translating
financial statements of self-sustaining
foreign operations (19,429) 7,606
----------- -----------
ACCUMULATED OTHER COMPREHENSIVE LOSS,
END OF THE PERIOD $ (49,812) $ (22,643)
----------- -----------
----------- -----------
Major Drilling Group International Inc.
Consolidated Statements of Cash Flows
(in thousands of Canadian dollars)
(unaudited)
Nine months ended Three months ended
January 31 January 31
2008 2007 2008 2007
----------- ----------- ----------- -----------
OPERATING ACTIVITIES
Earnings from continuing
operations $ 49,309 $ 28,746 $ 7,670 $ 5,737
Operating items not
involving cash
Amortization 19,511 14,584 6,973 5,209
Loss on disposal of
capital assets 1,268 355 265 58
Future income tax 1,717 6,099 955 3,799
Stock-based compensation 1,955 663 388 131
----------- ----------- ----------- -----------
73,760 50,447 16,251 14,934
Changes in non-cash
operating working capital
items (16,757) (2,252) 1,145 1,660
----------- ----------- ----------- -----------
57,003 48,195 17,396 16,594
Loss from discontinued
operations, adjusted for
non-cash items (689) (2,706) (437) (212)
Changes in non-cash
operating working capital
items from discontinued
operations (803) 3,644 1,923 (84)
----------- ----------- ----------- -----------
Cash flow from operating
activities 55,511 49,133 18,882 16,298
----------- ----------- ----------- -----------
FINANCING ACTIVITIES
Repayment of long-term
debt (10,916) (11,508) (2,831) (4,727)
Additional long-term debt 10,000 459 10,000 -
Increase in (repayment of)
demand loans 8,489 (16,721) (7,323) (280)
Issuance of common shares 3,829 913 1,180 531
Discontinued operations (3,064) - 32 -
----------- ----------- ----------- -----------
Cash flow from (used in)
financing activities 8,338 (26,857) 1,058 (4,476)
----------- ----------- ----------- -----------
INVESTING ACTIVITIES
Net proceeds from sale of
discontinued operations - 28,755 - -
Business acquisitions
(net of cash
acquired) (note 5) (27,429) (13,058) - (13,058)
Acquisition of capital
assets, net of direct
financing (45,401) (24,329) (16,469) (9,250)
Proceeds from disposal of
capital assets 2,510 2,588 95 876
Discontinued Operations - 1,693 - 1,677
Other 36 - 36 -
----------- ----------- ----------- -----------
Cash flow used in
investing activities (70,284) (4,351) (16,338) (19,755)
----------- ----------- ----------- -----------
OTHER ACTIVITIES
Foreign exchange
translation adjustment (334) (1,314) (1,046) (123)
----------- ----------- ----------- -----------
(DECREASE) INCREASE IN
CASH (6,769) 16,611 2,556 (8,056)
CASH POSITION, BEGINNING
OF THE PERIOD 25,022 11,987 15,697 36,654
----------- ----------- ----------- -----------
CASH POSITION, END OF
THE PERIOD $ 18,253 $ 28,598 $ 18,253 $ 28,598
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Major Drilling Group International Inc.
Consolidated Balance Sheets
As at January 31, 2008 and April 30, 2007
(in thousands of Canadian dollars)
ASSETS January April
2008 2007
----------- -----------
(unaudited)
CURRENT ASSETS
Cash $ 18,253 $ 25,022
Accounts receivable 74,630 78,613
Income tax receivable 2,090 1,610
Inventories 69,375 50,976
Prepaid expenses 8,197 6,545
Future income tax assets 2,230 1,730
Assets of discontinued operations (note 6) - 3,253
----------- -----------
174,775 167,749
CAPITAL ASSETS 181,303 158,771
FUTURE INCOME TAX ASSETS 2,243 619
OTHER ASSETS 13,735 1,240
----------- -----------
$ 372,056 $ 328,379
----------- -----------
----------- -----------
LIABILITIES
CURRENT LIABILITIES
Demand loan $ 8,489 -
Accounts payable and accrued charges 55,786 $ 54,484
Income tax payable 8,356 4,121
Current portion of long-term debt 10,690 13,649
Liabilities of discontinued operations (note 6) 1,996 9,463
----------- -----------
85,317 81,717
LONG-TERM DEBT 22,009 18,136
FUTURE INCOME TAX LIABILITIES 8,654 7,020
DEFERRED GAIN - 519
----------- -----------
115,980 107,392
----------- -----------
----------- -----------
SHAREHOLDERS' EQUITY
Share capital 141,532 137,703
Contributed surplus 7,184 5,229
Retained earnings 157,172 108,438
Accumulated other comprehensive loss (49,812) (30,383)
----------- -----------
256,076 220,987
----------- -----------
$ 372,056 $ 328,379
----------- -----------
----------- -----------
MAJOR DRILLING GROUP INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE PERIODS ENDED JANUARY 31, 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 Loans and receivables Amortized cost
operations
Demand loan Other financial liabilities Amortized cost
Accounts payable and Other financial liabilities Amortized cost
accrued charges
Long-term debt Other financial liabilities Amortized cost
Liabilities of Other financial liabilities Amortized cost
discontinued operations
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. FUTURE ACCOUNTING CHANGES
-------------------------
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. The Company is currently evaluating the impact of the adoption of
these new Sections on its consolidated financial statements.
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.
4. 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.
5. 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 2,121
Goodwill 10,587
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
-----------
-----------
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 due 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 Q3 2007 Q3
----------- ----------- ----------- -----------
Revenue $ - $ 5,111 $ - $ -
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Loss before income tax - (2,235) - (311)
Net (loss) gain from
disposal of discontinued
operations, including
write-down of assets,
before income tax (274) 21,472 (163) (9)
Income tax expense (301) (6,989) (271) (415)
----------- ----------- ----------- -----------
(Loss) gain from
discontinued operations $ (575) $ 12,248 $ (434) $ (735)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
The assets and liabilities of discontinued operations are summarized as
follows:
Jan 2008 April 2007
----------- -----------
Current Assets
Other receivables $ - $ 3,253
----------- -----------
----------- -----------
Current Liabilities
Accounts payable $ - $ 3,950
Income tax payable 1,996 5,513
----------- -----------
$ 1,996 $ 9,463
----------- -----------
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7. SEGMENTED INFORMATION
---------------------
2008 YTD 2007 YTD 2008 Q3 2007 Q3
----------- ----------- ----------- -----------
Revenue
Canada - U.S. $ 136,477 $ 104,181 $ 35,133 $ 30,292
South and Central
America 126,093 86,275 38,818 29,647
Australia, Asia and
Africa 157,744 95,932 46,807 30,153
----------- ----------- ----------- -----------
$ 420,314 $ 286,388 $ 120,758 $ 90,092
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Earnings from continuing
operations
Canada - U.S. $ 25,282 $ 19,756 $ 3,083 $ 3,727
South and Central
America 33,317 19,432 7,791 6,782
Australia, Asia and
Africa 27,960 14,277 5,453 890
----------- ----------- ----------- -----------
86,559 53,465 16,327 11,399
Eliminations (833) (905) (268) (316)
----------- ----------- ----------- -----------
85,726 52,560 16,059 11,083
Interest expense, net 1,544 1,591 808 390
General corporate expenses 13,888 8,652 3,615 1,735
Income tax 20,985 13,571 3,966 3,221
----------- ----------- ----------- -----------
Earnings from continuing
operations 49,309 28,746 7,670 5,737
(Loss) gain from
discontinued operations (575) 12,248 (434) (735)
----------- ----------- ----------- -----------
Net earnings $ 48,734 $ 40,994 $ 7,236 $ 5,002
----------- ----------- ----------- -----------
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