MONCTON, NB, Dec. 7 /CNW/ -- Major Drilling Group International Inc. (TSX: MDI) today reported results for its second quarter of fiscal year 2010 ended October 31, 2009.
Highlights
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In millions of Canadian Q2-10 Q2-09 YTD-10 YTD-09
dollars (except earnings ------- ------- ------- ---------
per share)
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Revenue $ 75.5 $ 191.0 $ 138.0 $ 369.2
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Gross profit
As percentage of sales 22.8 70.4 40.0 133.7
30.2% 36.9% 29.0% 36.2%
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Net earnings 4.1 29.3 0.8 55.6
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Earnings per share 0.17 1.23 0.03 2.35
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Cash flow from
operations * 12.3 38.9 19.9 75.5
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* before changes in working capital
- Cash flow from continuing operations before changes in working capital
was $12.3 million for the quarter.
- Net cash position increased by $8.7 million to $27.8 million from the
first quarter, positioning the Company well for future growth.
- Major Drilling posted quarterly revenue of $75.5 million, down
60.5 percent from the $191.0 million recorded for the same quarter last
year, but up $13.0 million or 21 percent from the first quarter of
fiscal 2010.
- Gross margin percentage for the quarter was 30.2 percent, compared to
36.9 percent for the corresponding period last year.
- Net earnings were $4.1 million or $0.17 per share for the quarter,
compared to net earnings of $29.3 million or $1.23 per share for the
prior year quarter.
"As expected, we started to see a recovery during the quarter as revenue was up 21 percent relative to the first quarter despite the weakening U.S. dollar. Global exploration spending continued to improve, driven by sustained strength in key commodity prices, particularly gold and copper. Also, the financing environment has improved for mining companies over the past few months. These factors helped improve our drill utilization as we moved through the quarter, particularly the specialized rigs," said Francis McGuire, President and CEO of Major Drilling.
"In terms of regional performance, South America and Canada continued to improve both in utilization and productivity. On the other hand, areas such as Australia, U.S. and Mexico have been slower to show improvement."
While general market conditions are improving, the Company cautions that broad volatility in all aspects of its business continues and, accordingly, actual results may vary substantially from all forward-looking information in this press release.
"Many of the supply issues that face most commodities are coming back into focus and with moderate growth in the world economy, the need to explore and develop mines will increase. We believe that at that point, the need to develop resources in areas that are increasingly difficult to access will return, which should further increase demand for specialized drilling. We have seen a noticeable increase in inquiries from intermediate and senior customers, which could have a positive impact on the market by this spring. Customers, especially the large mining companies, are still formulating their plans for calendar 2010 and it is too early to anticipate the full impact of their decisions."
"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, often for extended periods over the holiday season. At this time, most senior and intermediate companies are still working through their budget process and have yet to decide on post-holiday start up dates. Also, due to the time it takes to mobilize once contracts are awarded, a slow pace of start ups is expected in January, which will impact overall third quarter revenue. We expect pricing to remain competitive until utilization rates pick up significantly, especially in conventional drilling," observed Mr. McGuire.
"The Company continues to be in an excellent financial position remaining debt-free, net of cash. Total cash level, net of long-term debt, increased by $8.7 million during the quarter to stand at $27.8 million at quarter-end. Despite the difficult environment, the Company generated $12.3 million from operations, reduced general and administrative costs and kept net capital expenditures to only $3.3 million during the quarter," stated Mr. McGuire.
"While capital expenditures have been low up to this point in this fiscal year, we continue to see opportunity to broaden our footprint in the coal and coal seam gas sector. We currently have 14 rigs in this sector but during the next few months we will be adding a further 6 rigs. Three of our mineral rigs are being adapted for these purposes and 3 additional rigs will be purchased in the coming quarter. These rigs are expected to be in operation by late spring and should add to the success of the Company in developing this market segment."
Second quarter ended October 31, 2009
Total revenue for the quarter was $75.5 million down 60.5 percent from the $191.0 million recorded in the same quarter last year. Cancellations or delays of drilling programs, combined with price reductions, significantly affected revenue in all three regions as compared to last year. However, as compared to the first quarter ended July 31, 2009, revenue was up 20.8 percent overall.
Revenue for the quarter from Canada-U.S. drilling operations decreased by 62.2 percent to $24.1 million compared to $63.7 million for the same period last year. Revenue improved 19 percent in this region as compared to the first quarter.
South and Central American revenue was at $24.2 million for the quarter, down 55.4 percent from the $54.3 million posted for the prior year quarter. As compared to the first quarter, revenue was up 33 percent with Chile and Argentina accounting for three-quarters of that increase as that region was the first to begin to recover.
Australian, Asian and African operations reported revenue of $27.3 million, down some 62.6 percent from the $73.0 million reported in the same period last year. Cancellation of drilling programs and decreased pricing impacted all regions. Revenue increased 13 percent as compared to the first quarter as increases in Mongolia and Africa were somewhat mitigated by reductions in Australia and Indonesia.
The overall gross margin percentage for the quarter was 30.2 percent, down from 36.9 percent for the same period last year. Reduced pricing due to increased competitive pressures and delays significantly impacted margins although the Company has been able to recapture some of this loss through productivity gains and cost cutting.
General and administrative costs were $8.1 million for the quarter, down 36.7 percent compared to $12.8 million in the same period last year. The decrease was due to cost cutting initiatives implemented in November 2008 and February 2009.
Other expenses for the quarter were $1.1 million, down from $4.9 million in the prior year quarter, due primarily to lower incentive compensation expenses given the Company's decreased profitability in the current year.
Foreign exchange gain in the quarter was $0.1 million compared to a loss of $1.5 million in the prior year quarter.
Short-term interest revenue was nil this quarter compared to an expense of $0.2 million for the same quarter last year, while interest expense on long-term debt was down to $0.3 million compared to $0.5 million for the same quarter last year due to lower debt levels.
Amortization expense was $7.7 million for the quarter compared to $8.2 million for the same quarter last year, as a result of equipment write-downs in the previous quarters.
Income tax expense was $1.7 million in the quarter compared to $13.3 million for the prior year quarter as a result of reduced earnings.
Net earnings were $4.1 million or $0.17 per share ($0.17 per share diluted) compared to $29.3 million or $1.23 per share ($1.22 per share diluted) for the same period last year.
Year to date ended October 31, 2009
Revenue for the six months ended October 31, 2009 decreased 62.6 percent to $138.0 million from $369.2 million for the corresponding period last year.
Canada-U.S. revenue decreased by 62.9 percent or $75.0 million to $44.3 million compared to $119.3 million last year with cancellations and decreased pricing impacting both countries.
Revenue in South and Central America decreased by 61.3 percent to $42.4 million, compared to $109.6 million in the prior year period. Mexico, Chile and Argentina accounted for all of the reduction while shutdowns in Venezuela and Ecuador were offset by a new operation in Colombia where the Company moved much of its Venezuelan and Ecuadorian equipment.
Revenue in Australia, Asia and Africa decreased 63.4 percent to $51.3 million from $140.3 million in the prior year period. Every country in this segment was affected by reduced pricing and utilization due to cancellation of drilling programs.
Gross margins for the year to date were 29.0 percent compared to 36.2 percent last year, due mainly to significantly decreased pricing, which was somewhat offset by improvements in drillers' productivity.
General and administrative expenses decreased to $17.0 million compared to $26.2 million for the same period last year. The decrease was due to cost cutting initiatives implemented in November 2008 and February 2009.
Other expenses were $2.0 million for the year compared to $8.7 million for the same period last year due primarily to lower incentive compensation expenses given the Company's decreased profitability in the current year.
Foreign exchange gain was $0.8 million compared to a loss of $1.6 million in the prior year period.
Short-term interest was a revenue of $0.1 million for the year compared to an expense of $0.2 million last year, while interest expense on long-term debt was $0.6 million compared to $0.9 million last year due to lower debt levels.
Amortization expense decreased to $15.4 million compared to $15.8 million in the previous period, as a result of equipment write-downs in the previous quarters.
The provision for income tax for the year was $1.9 million compared to $24.7 million for the prior year reflecting the decreased profitability of the operations. This year's provision is also impacted by the non-recognition or reversal of tax losses in Ecuador and losses in Tanzania.
Net earnings were $0.8 million or $0.03 per share ($0.03 per share diluted) compared to $55.6 million or $2.35 per share ($2.32 per share diluted) last year.
Some of the statements contained in this press release may be forward-looking statements, such as, but not limited to, those relating to worldwide demand for gold and base metals and overall commodity prices, the level of activity in the minerals and metals industry and the demand for the Company's services, the Canadian and international economic environments, the Company's ability to attract and retain customers and to manage its assets and operating costs, sources of funding for its clients, particularly for junior mining companies, competitive pressures, currency movements, which can affect the Company's revenue in Canadian dollars, the geographic distribution of the Company's operations, the impact of operational changes, changes in jurisdictions in which the Company operates (including changes in regulation), failure by counterparties to fulfill contractual obligations, and other factors as may be set forth, as well as objectives or goals, and including words to the effect that the Company or management expects a stated condition to exist or occur. Since forward-looking statements address future events and conditions, by their very nature, they involve inherent risks and uncertainties. Actual results in each case could differ materially from those currently anticipated in such statements by reason of factors such as, but not limited to, the factors set out in the discussion starting on pages 19 to 22 of the 2009 Annual Report entitled "General Risks and Uncertainties", as available on SEDAR at www.sedar.com. All such factors should be considered carefully when making decisions with respect to the Company. The Company does not undertake to update any forward-looking statements, including those statements that are incorporated by reference herein, whether written or oral, that may be made from time to time by or on its behalf, except in accordance with applicable securities laws.
Based in Moncton, New Brunswick, Major Drilling Group International Inc. is one of the world's largest metals and minerals contract drilling service companies. To support its customers' mining operations and mineral exploration activities, Major Drilling maintains operations in Canada, the United States, South and Central America, Australia, Indonesia, Mongolia, and Africa.
Financial statements are attached.
Major Drilling will provide a simultaneous webcast of its quarterly conference call on Tuesday, December 8, 2009 at 9:00 AM (EST). To access the webcast please go to the webcast section of Major Drilling's website at www.majordrilling.com and click the attached link, or go directly to the CNW Group website at www.newswire.ca for directions. Participants will require Windows MediaPlayer, which can be downloaded prior to accessing the call. Please note that this is listen only mode.
Major Drilling Group International Inc.
Consolidated Statements of Operations
(in thousands of Canadian dollars, except per share information)
(unaudited)
Six months ended Three months ended
October 31 October 31
2009 2008 2009 2008
---------- ---------- ---------- -----------
TOTAL REVENUE $ 138,017 $ 369,225 $ 75,528 $ 191,010
DIRECT COSTS 97,995 235,483 52,736 120,572
---------- ---------- ---------- -----------
GROSS PROFIT 40,022 133,742 22,792 70,438
---------- ---------- ---------- -----------
OPERATING EXPENSES
General and
administrative 16,998 26,172 8,126 12,794
Other expenses 2,032 8,696 1,147 4,871
Foreign exchange
(gain) loss (829) 1,628 (149) 1,461
Interest (revenue)
expense (95) 207 (26) 173
Interest expense on
long-term debt 574 944 271 452
Amortization 15,440 15,753 7,713 8,157
Restructuring charge
(note 5) 1,220 - - -
Goodwill impairment
(note 6) 2,032 - - -
---------- ---------- ---------- -----------
37,372 53,400 17,082 27,908
---------- ---------- ---------- -----------
EARNINGS BEFORE INCOME
TAX 2,650 80,342 5,710 42,530
---------- ---------- ---------- -----------
INCOME TAX - PROVISION
Current 1,302 22,907 1,587 12,799
Future 584 1,829 63 455
---------- ---------- ---------- -----------
1,886 24,736 1,650 13,254
---------- ---------- ---------- -----------
NET EARNINGS $ 764 $ 55,606 $ 4,060 $ 29,276
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
EARNINGS PER SHARE
------------------
Basic * $ 0.03 $ 2.35 $ 0.17 $ 1.23
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
Diluted ** $ 0.03 $ 2.32 $ 0.17 $ 1.22
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
* Based on 23,717,467 and 23,708,168 daily weighted average shares
outstanding for the fiscal year to date 2010 and 2009, respectively
and on 23,718,861 and 23,709,293 daily weighted average shares for
the quarter ended October 31, 2009 and 2008, respectively. The total
number of shares outstanding on October 31, 2009 was 23,722,573.
** Based on 24,025,755 and 23,987,920 daily weighted average shares
outstanding for the fiscal year to date 2010 and 2009, respectively
and on 23,894,788 and 23,940,827 daily weighted average shares
outstanding for the quarter ended October 31, 2009 and 2008,
respectively.
Major Drilling Group International Inc.
Consolidated Statements of Comprehensive (Loss) Earnings
(in thousands of Canadian dollars)
(unaudited)
Six months ended Three months ended
October 31 October 31
2009 2008 2009 2008
---------- ---------- ---------- -----------
NET EARNINGS $ 764 $ 55,606 $ 4,060 $ 29,276
OTHER COMPREHENSIVE (LOSS)
EARNINGS
Unrealized (losses)
gains on translating
financial statements of
self-sustaining foreign
operations (24,016) 34,353 412 31,453
---------- ---------- ---------- -----------
COMPREHENSIVE (LOSS)
EARNINGS $ (23,252) $ 89,959 $ 4,472 $ 60,729
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
Consolidated Statements of Retained Earnings
(in thousands of Canadian dollars)
(unaudited)
Six months ended
October 31
2009 2008
------------- ------------
RETAINED EARNINGS, BEGINNING OF THE PERIOD $ 218,983 $ 182,533
Net earnings 764 55,606
Dividends (4,745) (4,742)
------------- ------------
RETAINED EARNINGS, END OF THE PERIOD $ 215,002 $ 233,397
------------- ------------
------------- ------------
Consolidated Statements of Accumulated Other
Comprehensive Loss
(in thousands of Canadian dollars)
(unaudited)
Six months ended
October 31
2009 2008
------------- ------------
ACCUMULATED OTHER COMPREHENSIVE LOSS,
BEGINNING OF THE PERIOD $ (5,079) $ (44,552)
Unrealized (losses) gains on translating
financial statements of self-sustaining
foreign operations (24,016) 34,353
------------- ------------
ACCUMULATED OTHER COMPREHENSIVE LOSS,
END OF THE PERIOD $ (29,095) $ (10,199)
------------- ------------
------------- ------------
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
2009 2008 2009 2008
---------- ---------- ---------- -----------
OPERATING ACTIVITIES
Net earnings $ 764 $ 55,606 $ 4,060 $ 29,276
Operating items not
involving cash
Amortization 15,440 15,753 7,713 8,157
Loss (gain) on disposal
of property, plant and
equipment 1 1,164 (66) 352
Future income tax 584 1,829 63 455
Stock-based compensation 1,044 1,098 539 700
Goodwill impairment
(note 6) 2,032 - - -
---------- ---------- ---------- -----------
19,865 75,450 12,309 38,940
Changes in non-cash
operating working capital
items (325) (2,452) 213 15,949
---------- ---------- ---------- -----------
Cash flow from operating
activities 19,540 72,998 12,522 54,889
---------- ---------- ---------- -----------
FINANCING ACTIVITIES
Repayment of long-term
debt (6,469) (5,923) (3,393) (2,881)
Additional long-term debt - 10,000 - 10,000
Repayment of demand credit
facilities - (2,179) - (1,596)
Issuance of common shares 28 28 28 21
Dividend paid (4,743) (4,742) - (4,742)
---------- ---------- ---------- -----------
Cash flow (used in) from
financing activities (11,184) (2,816) (3,365) 802
---------- ---------- ---------- -----------
INVESTING ACTIVITIES
Business acquisition - (21,805) - (21,805)
Acquisition of property,
plant and equipment, net
of direct financing (7,208) (33,964) (3,904) (15,073)
Proceeds from disposal of
property, plant and
equipment 1,497 1,893 602 1,421
---------- ---------- ---------- -----------
Cash flow used in
investing activities (5,711) (53,876) (3,302) (35,457)
---------- ---------- ---------- -----------
OTHER ACTIVITIES
Foreign exchange
translation adjustment (3,157) 2,025 (484) 2,021
---------- ---------- ---------- -----------
(DECREASE) INCREASE IN
CASH (512) 18,331 5,371 22,255
CASH POSITION, BEGINNING
OF THE PERIOD 58,035 20,695 52,152 16,771
---------- ---------- ---------- -----------
CASH POSITION, END OF
THE PERIOD $ 57,523 $ 39,026 $ 57,523 $ 39,026
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
Major Drilling Group International Inc.
Consolidated Balance Sheets
As at October 31, 2009 and April 30, 2009
(in thousands of Canadian dollars)
(unaudited)
ASSETS October April
2009 2009
------------- ------------
CURRENT ASSETS
Cash $ 57,523 $ 58,035
Accounts receivable 51,561 52,538
Income tax receivable 8,814 6,014
Inventories 62,508 72,764
Prepaid expenses 6,126 3,478
Future income tax assets 822 2,644
------------- ------------
187,354 195,473
PROPERTY, PLANT AND EQUIPMENT 217,724 240,224
FUTURE INCOME TAX ASSETS 4,108 1,403
GOODWILL AND INTANGIBLE ASSETS (note 9) 26,297 32,072
------------- ------------
$ 435,483 $ 469,172
------------- ------------
------------- ------------
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued charges $ 47,823 $ 47,691
Income tax payable 2,947 1,719
Current portion of long-term debt 11,976 15,049
Future income tax liabilities 1,148 1,071
------------- ------------
63,894 65,530
LONG-TERM DEBT 17,761 23,507
FUTURE INCOME TAX LIABILITIES 15,407 14,789
------------- ------------
97,062 103,826
------------- ------------
SHAREHOLDERS' EQUITY
Share capital 142,261 142,233
Contributed surplus 10,253 9,209
Retained earnings 215,002 218,983
Accumulated other comprehensive loss (29,095) (5,079)
------------- ------------
338,421 365,346
------------- ------------
$ 435,483 $ 469,172
------------- ------------
------------- ------------
MAJOR DRILLING GROUP INTERNATIONAL INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE PERIODS ENDED OCTOBER 31, 2009 AND 2008
(in thousands of Canadian dollars)
1. BASIS OF PRESENTATION
---------------------
These interim consolidated financial statements were prepared using accounting policies and methods consistent with those used in the preparation of the Company's audited consolidated financial statements for the year ended April 30, 2009, except for the adoption of new accounting policies as disclosed in Note 2 below. These interim consolidated 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 consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes for the year ended April 30, 2009 contained in the Company's 2009 annual report.
2. CHANGES IN ACCOUNTING POLICIES
------------------------------
Goodwill and Intangible Assets
Effective May 1, 2009 the Company adopted the new CICA Handbook Section 3064, Goodwill and Intangible Assets, which establishes standards for recognition, measurement, presentation and disclosure of goodwill subsequent to its initial recognition and of intangible assets. Standards concerning goodwill are unchanged from the standards included in the previous CICA Handbook Section 3062. The adoption of this new standard did not have a material impact on the Company's consolidated financial statements.
3. FUTURE ACCOUNTING CHANGES
-------------------------
Business combinations
In January 2009, the CICA issued Section 1582, Business Combinations, which replaces Section 1581 of the same title. This Section applies prospectively to business combinations for which the date of acquisition is in fiscal years beginning on or after January 1, 2011. The Section establishes standards for accounting for a business combination.
Consolidated financial statements and non-controlling interests
In January 2009, the CICA issued Section 1601, Consolidated Financial Statements, and Section 1602, Non-Controlling Interests, which together replace Section 1600, Consolidated Financial Statements. These sections apply to interim and annual consolidated financial statements for fiscal years beginning on or after January 1, 2011. They establish standards for the preparation of consolidated financial statements and accounting for a non-controlling interest in a subsidiary in the consolidated financial statements subsequent to a business combination. The Company is currently evaluating the impact of the adoption of these new Sections on its consolidated financial statements.
International Financial Reporting Standards ("IFRS")
In February 2008, the Accounting Standards Board ("AcSB") confirmed that the use of IFRS will be required in 2011 for publicly accountable enterprises in Canada. In April 2008, the AcSB issued an IFRS Omnibus Exposure draft proposing that publicly accountable enterprises be required to apply IFRS, in full and without modification, on January 1, 2011 for companies with a calendar year end, therefore the transition date for the Company is May 1, 2011. This will require the restatement, for comparative purposes, of amounts reported by the Company for its year ended April 30, 2011, and of the opening balance sheet as at May 1, 2010. The Company is currently in the process of developing a conversion implementation plan and assessing the impacts of the conversion on the consolidated financial statements and disclosures of the Company.
4. SEASONALITY OF OPERATIONS
-------------------------
The Company's operations tended to exhibit a seasonal pattern whereby its fourth quarter (February to April) was its strongest. With the exception of the third quarter, the Company has, over the past several years, exhibited comparatively less seasonality in quarterly revenue. The third quarter (November to January) is normally the Company's weakest quarter due to the shutdown of mining and exploration activities, often for extended periods over the holiday season, particularly in South and Central America. With the recent economic and industry downturn, it is not yet clear whether or not the Company's revenue will return to more historical seasonal patterns, or whether a recent lack of seasonality will continue.
5. RESTRUCTURING CHARGE
--------------------
The Company initiated a restructuring plan in fiscal year 2009 to standardize the drilling equipment fleet and reduce operating costs by rationalizing the workforce and business locations. These initiatives have generated a total restructuring charge of $10,263, of which $1,220 was expensed in the first quarter of the current fiscal year, the balance having been previously expensed.
The current fiscal year charges include $594 for severance, $204 for lease terminations and $422 for other relocation expenses mainly relating to the closure of two regional offices in Australia.
As of October 31, 2009, these charges had been fully paid.
6. GOODWILL IMPAIRMENT
-------------------
In the first quarter of the current fiscal year, the Company recorded a net non-cash goodwill impairment charge of $2,032. This eliminated goodwill of $3,722 recorded on the Paragon del Ecuador S.A. acquisition offset by a reduction of a holdback of $1,690, which was a contingent consideration to the purchase price and dependant on the political situation in Ecuador. The goodwill impairment charge resulted from political issues and uncertainty still affecting the mining industry in Ecuador and therefore the inability of this region to generate the expected revenue.
7. BUSINESS ACQUISITION
--------------------
Effective August 1, 2008 the Company acquired the assets of the exploration drilling company Forage à Diamant Benoît Ltée ("Benoît") based in Val-d'Or, Québec. Through this purchase, Major Drilling acquired 19 drill rigs, support equipment and inventory, existing contracts and personnel. The purchase price for the transaction was $23,117, including customary working capital adjustments, financed by cash and debt.
The net assets acquired at fair market value at acquisition are as follows:
Assets acquired and liabilities assumed
Accounts receivable $ 5,055
Prepaid expenses 241
Inventories 533
Property, plant and equipment 7,489
Intangible assets 2,350
Goodwill (not tax deductible) 13,223
Accounts payable (884)
Income tax payable (2,842)
Future income tax liability (2,048)
-----------
Net assets $ 23,117
-----------
-----------
Consideration
Cash $ 21,867
Accounts payable 500
Long-term debt 750
-----------
$ 23,117
-----------
-----------
8. INVENTORY
---------
The cost of inventory recognized as an expense and included in direct costs for the six and three months ended October 31, 2009 was $17,598 and $9,493 respectively. During the period, there were no significant write downs of inventory as a result of net realizable value being lower than cost and no inventory write downs recognized in previous years were reversed.
9. GOODWILL AND INTANGIBLE ASSETS
------------------------------
October 2009 April 2009
------------- ------------
Goodwill $ 24,959 $ 30,470
Intangible assets 1,338 1,602
------------- ------------
$ 26,297 $ 32,072
------------- ------------
Intangible assets include the carrying value of customer relationships and a non-compete agreement, which are amortized on a straight-line basis over four and three years respectively.
Changes in the goodwill and intangible assets balance were as follows for the six and three months ending October 31, 2009:
2010 YTD 2009 YTD 2010 Q2 2009 Q2
---------- ---------- ---------- -----------
Balance at beginning of
the period $ 32,072 $ 14,837 $ 26,692 $ 15,316
Amortization of intangible
assets (264) - (132) -
Goodwill adjustment
(note 6) (1,690) - - -
Goodwill impairment
(note 6) (2,032) - - -
Goodwill and intangible
assets acquired - 14,757 - 14,757
Effect of foreign currency
exchange rate changes (1,789) 2,760 (263) 2,281
---------- ---------- ---------- -----------
$ 26,297 $ 32,354 $ 26,297 $ 32,354
---------- ---------- ---------- -----------
10. CAPITAL MANAGEMENT
------------------
The Company includes shareholders' equity (excluding accumulated other comprehensive loss), long-term borrowings and demand credit facility net of cash in the definition of capital.
Total managed capital was as follows:
October 2009 April 2009
------------- ------------
Long-term debt $ 29,737 $ 38,556
Share capital 142,261 142,233
Contributed surplus 10,253 9,209
Retained earnings 215,002 218,983
Cash (57,523) (58,035)
------------- ------------
$ 339,730 $ 350,946
------------- ------------
The Company's objective when managing its capital structure is to maintain financial flexibility in order to: i) preserve access to capital markets; ii) meet financial obligations; and iii) finance internally generated growth and potential new acquisitions. To manage its capital structure, the Company may adjust spending, issue new shares, issue new debt or repay existing debt.
Under the terms of certain of the Company's debt agreements, the Company must satisfy certain financial covenants. Such agreements also limit, among other things, the Company's ability to incur additional indebtedness, create liens, engage in mergers or acquisitions and make dividend and other payments. During the period, the Company was, and continues to be, in compliance with all covenants and other conditions imposed by its debt agreements.
In order to facilitate the management of its capital requirements, the Company prepares annual budgets that are updated as necessary, dependent on various factors.
The Company's objectives with regards to capital management remain unchanged from fiscal 2009.
11. FINANCIAL INSTRUMENTS
---------------------
Fair value
The carrying values of cash, accounts receivable and accounts payable and accrued charges approximate their fair value due to the relatively short period to maturity of the instruments. Long-term debt has a carrying value of $29,737 as at October 31, 2009 (April 30, 2009 - $38,556) and also approximates its fair market value.
Risk management
The Company is exposed to various risks related to its financial assets and liabilities. There have been no substantive changes in the Company's exposure to financial instrument risks, its objectives, policies and processes for managing those risks, or the methods used to measure them, from previous periods, unless otherwise stated in this note.
Credit risk
The Company is exposed to credit risk from its accounts receivable. The Company has adopted a policy of dealing only with creditworthy counterparties and obtaining sufficient collateral where appropriate, as a means of mitigating the risk of financial loss from defaults. It carries out, on a continuing basis, credit checks on its customers and maintains provisions for contingent credit losses. The Company also diversifies its credit risk by dealing with a large number of customers in various countries. Demand for the Company's drilling services depends upon the level of mineral exploration and development activities conducted by mining companies, particularly with respect to gold, nickel and copper. The Company's five largest customers account for 25 percent (26 percent in 2009) of total quarterly revenue, with no one customer representing more than 10 percent of its revenue for 2010 or 2009.
The carrying amounts for accounts receivable are net of allowances for doubtful accounts, which are estimated based on aging analysis of receivables, past experience, specific risks associated with the customer and other relevant information. The maximum exposure to credit risk is the carrying value of the financial assets.
As at October 31, 2009, 74.5 percent of the Company's trade receivables are aged as current (less than 30 days) and 4.0 percent of the trade receivables are impaired.
Credit risk also arises from cash and cash equivalents and deposits with banks and financial institutions. This risk is limited because the counterparties are banks with high credit ratings assigned by international credit-rating agencies.
Interest rate risk
The demand loan and long-term debt of the Company bear a floating rate of interest, which exposes the Company to interest rate fluctuations.
As at October 31, 2009 the Company has estimated that a one percentage point increase in interest rates would have caused a quarterly decrease in net income of approximately $64 and a one percentage decrease in interest rates would have caused a quarterly increase in net income of $64.
Foreign currency risk
Foreign currency risk arises as the Company has operations located internationally where local operational currency is not the same as the functional currency of the Company.
A significant portion of the Company's operations are located outside of Canada. The accounting impact of foreign currency exposure is minimized since the operations are classified as self-sustaining operations. In certain developing countries, the Company mitigates its risk of large exchange rate fluctuations by conducting business primarily in U.S. dollars. U.S. dollar revenue exposure is partially mitigated by offsetting U.S. dollar labour and material expenses. Monetary assets denominated in foreign currencies are exposed to foreign currency fluctuations.
Based on the Company's foreign currency net monetary exposures and net assets as at October 31, 2009, and assuming that all other variables remain constant, a 10 percent rise or fall in the Canadian dollar against the other foreign currencies would have resulted in increases (decreases) in the net earnings and comprehensive earnings as follows:
Increase (decrease) in
------------------------
net earnings
--------------
Canadian Canadian
dollar dollar
appre- depre-
ciates 10% ciates 10%
------------- ------------
US Dollar $ (11) $ 11
Indonesian Rupiah (196) 196
Tanzanian Shilling 164 (164)
Chilean Peso 277 (277)
Increase (decrease) in
------------------------
comprehensive earnings
------------------------
Canadian Canadian
dollar dollar
appre- depre-
ciates 10% ciates 10%
------------- ------------
Australian Dollar $ (1,698) $ 1,698
US Dollar (24,678) 24,678
Liquidity risk
Liquidity risk arises from the Company's management of working capital, the finance charges and principal repayments on its debt instruments. The risk is that the Company would not be able to meet its financial obligations as they become due.
The Company manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities.
Total financial liabilities, by due date, as at October 31, 2009 are as follows:
Total 1 year 2-3 years 4-5 years 5+ years
--------- --------- ---------- ---------- ----------
Accounts payable &
accrued charges $ 47,823 $ 47,823 $ - $ - $ -
Long-term debt 29,737 11,976 12,733 5,028 -
--------- --------- ---------- ---------- ----------
$ 77,560 $ 59,799 $ 12,733 $ 5,028 $ -
--------- --------- ---------- ---------- ----------
--------- --------- ---------- ---------- ----------
12. SEGMENTED INFORMATION
---------------------
2010 YTD 2009 YTD 2010 Q2 2009 Q2
---------- ---------- ---------- -----------
Revenue
Canada - U.S. $ 44,279 $ 119,271 $ 24,091 $ 63,703
South and Central
America 42,403 109,604 24,160 54,316
Australia, Asia and
Africa 51,335 140,350 27,277 72,991
---------- ---------- ---------- -----------
$ 138,017 $ 369,225 $ 75,528 $ 191,010
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
Earnings from operations
Canada - U.S. $ 5,381 $ 34,856 $ 3,768 $ 19,858
South and Central
America 5,268 29,813 3,362 13,968
Australia, Asia and
Africa 566 27,438 1,270 15,172
---------- ---------- ---------- -----------
11,215 92,107 8,400 48,998
Eliminations (657) (603) (333) (301)
---------- ---------- ---------- -----------
10,558 91,504 8,067 48,697
Interest expense, net 479 1,151 245 625
General corporate expenses 4,177 10,011 2,112 5,542
Restructuring charge 1,220 - - -
Goodwill impairment 2,032 - - -
Income tax 1,886 24,736 1,650 13,254
---------- ---------- ---------- -----------
Net earnings $ 764 $ 55,606 $ 4,060 $ 29,276
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
Goodwill impairment relates to the South and Central American segment (see Note 6 - Goodwill Impairment).
