Major Drilling Reports First Quarter Results and Declares Dividend
Major Drilling Reports First Quarter Results and Declares Dividend
MONCTON, NB, Sept. 8 /CNW/ - Major Drilling Group International Inc. (TSX: MDI) today reported results for its first quarter of fiscal year 2010 ended July 31, 2009.
Highlights
In millions of Canadian dollars Q1-10 Q1-09
(except earnings per share) ----- -----
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Revenue $ 62.5 $ 178.2
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Gross profit 17.2 63.3
As percentage of sales 27.6% 35.5%
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Net (loss) earnings (3.3) 26.3
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(Loss) earnings per share (0.14) 1.11
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Cash flow from operations ((*)) 7.6 36.5
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((*)) before changes in working capital
- Cash flow generated from operations during the quarter was $7.6
million.
- Cash on hand at quarter-end was $52.2 million while total debt was
$33.0 million, for a net cash position of $19.2 million.
- Major Drilling posted quarterly revenue of $62.5 million, down 64.9
percent from the $178.2 million recorded for the same quarter last
year.
- Gross margin percentage for the quarter was 27.6 percent, compared to
35.5 percent for the corresponding period last year.
- Excluding restructuring charges and impairment charges, earnings before
taxes for the quarter were $0.2 million.
- The Company posted a restructuring charge of $1.2 million related to
further retrenchment and closedown costs and also posted a goodwill
impairment charge of $2.0 million during the quarter.
- Net loss (including restructuring and impairment charge) was $3.3
million or $0.14 per share for the quarter, compared to net earnings of
$26.3 million or $1.11 per share for the prior year quarter.
- The Company has declared a semi-annual dividend of $0.20 per share to
be paid on November 2, 2009.
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.
“During the quarter, activity levels were flat relative to the fourth quarter but due to the weakening U.S. dollar, the Company posted lower revenue in Canadian dollars. Market conditions during the quarter continued to be difficult and operations were still affected by ongoing delays and program cancellations. With the liquidity crisis, a large number of specialized projects, which tend to be more costly for customers than conventional projects, and where the Company has historically placed its main focus, have either been cancelled or very heavily cut back,” said Francis McGuire, President and CEO of Major Drilling.
“In terms of regional performance, Latin America and Canada are holding up relatively well. The Company continues to explore new opportunities to expand its geographic footprint. For instance, during the quarter, the Company started operations in Colombia. On the other hand, market conditions are much more difficult in Australia, the U.S. and Africa. During the quarter, we took further actions in Australia to restructure the operations by closing down two offices and reducing personnel. As such, the Company recorded a further restructuring charge of $1.2 million during the quarter. Australia was also affected by adverse weather conditions. Queensland, where the Company concentrates its operations, suffered its worst floods since 1974. The restructuring combined with better weather conditions should improve performance in that region going forward.”
“While we expect continued improvements as the year goes on, calendar 2009 will remain difficult. If customers move forward with their stated plans, we should see gradual gains as each month goes by. Despite the upward movement in commodity prices and the fund raising activity that occurred in the last few months, customers, especially the large mining companies, remain very hesitant to invest in exploration. Most of these companies are not expected to reset their budgets until next calendar year and will remain focused on cash management. Although improved, the capital markets remain challenging for junior mining companies,” said Mr. McGuire.
“Subsequent to the quarter, general activity levels have begun to increase. However, we expect pricing to remain competitive until utilization rates pick up significantly, especially in conventional drilling. Over time, we expect many of the supply issues that face most commodities to come back into focus and that even 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 increase demand for specialized drilling.”
“The Company continues to be in an excellent financial position remaining debt-free, net of cash. Total cash level, net of long-term debt, stood at $19.2 million at quarter-end. Despite the difficult environment, the Company generated $7.6 million from operations, reduced general and administrative costs by almost 35 percent and kept net capital expenditures at only $2.4 million during the quarter,” stated Mr. McGuire.
“Given the Company’s ability to generate cash even in these most difficult times, the Company is pleased to announce that today its Board of Directors declared its third semi-annual cash dividend of $0.20 per common share payable on November 2, 2009 to shareholders of record as of October 9, 2009. This dividend is designated as an “eligible dividend” for Canadian tax purposes,” said Mr. McGuire.
First quarter ended July 31, 2009
Total revenue for the quarter was $62.5 million down 64.9 percent from the $178.2 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.
Revenue for the quarter from Canada-U.S. drilling operations decreased by 63.7 percent to $20.2 million compared to $55.6 million for the same period last year. Cancellations and decreased pricing impacted both countries.
South and Central American revenue was at $18.2 million for the quarter, down 67.1 percent from the $55.3 million posted for the prior year quarter. During the quarter, the Company started operations in Colombia. In Ecuador operations are still on hold due to delays related to mining law implementation.
Australian, Asian and African operations reported revenue of $24.1 million, down some 64.2 percent from the $67.4 million reported in the same period last year. Cancellation of drilling programs and severe weather issues impacted revenue in Australia. Indonesia was affected by a reduction in drilling programs and pricing while Mongolian revenue continued to be down compared to last year as the mining industry awaited the final passage of that country’s mining laws.
The overall gross margin percentage for the quarter was 27.6 percent, down from 35.5 percent for the same period last year. Reduced pricing due to increased competitive pressures and delays significantly impacted margins. Pricing dropped by more than 20 percent overall since October 2008 but the Company has been able to recapture some of this loss through productivity gains and cost cutting. Finally, weather issues in Australia impacted margins, especially in the energy sector.
General and administrative costs were $8.9 million for the quarter, down 33.6 percent compared to $13.4 million in the same period last year. The decrease was due to cost cutting initiatives implemented in November and February.
Other expenses for the quarter were $0.9 million, down from $3.8 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 $0.7 million compared to a loss of $0.2 million in the prior year quarter.
Short-term interest revenue was flat at $0.1 million compared to the same quarter last year, while interest expense on long-term debt was down to $0.3 million compared to $0.6 million for the same quarter last year due to lower levels of debt and reduced interest rates.
Amortization expense was $7.7 million for the quarter compared to $7.6 million for the same quarter last year, as a result of the increased direct investment in equipment.
During the quarter, the Company recorded a restructuring charge of $1.2 million to account for retrenchment and closedown costs primarily in Australia. Also, the Company recorded a net non-cash goodwill impairment charge of $2.0 million. This eliminated goodwill of $3.7 million recorded on the Paragon del Ecuador S.A. acquisition, offset by a reduction of a holdback of $1.7 million, 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.
Income tax expense was $0.2 million in the quarter compared to $11.5 million for the prior year quarter. Tax expense for the quarter was impacted by the non-recognition or reversal of tax losses in Ecuador and losses in Tanzania.
Net loss for the quarter was $3.3 million or $0.14 per share ($0.14 per share diluted) compared to net earnings of $26.3 million or $1.11 per share ($1.10 per share diluted) in the prior year period.
The Annual General Meeting of the shareholders of Major Drilling Group International Inc. will be held at The TSX Broadcast Centre, TSX Gallery, The Exchange Tower, 130 King St. W., Toronto, Ontario, tomorrow, September 9, 2009 at 10:00 am EDT.
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 Wednesday, September 9, 2009 at 8:30 AM (EDT). 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) Three months ended July 31 2009 2008 ------------- ------------- TOTAL REVENUE $ 62,489 $ 178,215 DIRECT COSTS 45,259 114,911 ------------- ------------- GROSS PROFIT 17,230 63,304 ------------- ------------- OPERATING EXPENSES General and administrative 8,872 13,378 Other expenses 885 3,825 Foreign exchange (gain) loss (680) 167 Interest revenue (69) (75) Interest expense on long-term debt 303 601 Amortization 7,727 7,596 Restructuring charge (note 5) 1,220 - Goodwill impairment (note 6) 2,032 - ------------- ------------- 20,290 25,492 ------------- ------------- (LOSS) EARNINGS BEFORE INCOME TAX (3,060) 37,812 ------------- ------------- INCOME TAX - (RECOVERY) PROVISION Current (285) 10,108 Future 521 1,374 ------------- ------------- 236 11,482 ------------- ------------- NET (LOSS) EARNINGS $ (3,296) $ 26,330 ------------- ------------- ------------- ------------- (LOSS) EARNINGS PER SHARE ------------------------- Basic (*) $ (0.14) $ 1.11 ------------- ------------- ------------- ------------- Diluted (**) $ (0.14) $ 1.10 ------------- ------------- ------------- ------------- (*) Based on 23,716,073 and 23,707,043 daily weighted average shares outstanding for the fiscal year to date 2010 and 2009, respectively. The total number of shares outstanding on July 31, 2009 was 23,716,073. (**) Based on 23,861,826 and 24,026,276 daily weighted average shares outstanding for the fiscal year to date 2010 and 2009, respectively. Major Drilling Group International Inc. Consolidated Statements of Comprehensive (Loss) Earnings (in thousands of Canadian dollars) (unaudited) Three months ended July 31 2009 2008 ------------- ------------- NET (LOSS) EARNINGS $ (3,296) $ 26,330 OTHER COMPREHENSIVE (LOSS) EARNINGS Unrealized (losses) gains on translating financial statements of self-sustaining foreign operations (24,428) 2,900 ------------- ------------- COMPREHENSIVE (LOSS) EARNINGS $ (27,724) $ 29,230 ------------- ------------- ------------- ------------- Consolidated Statements of Retained Earnings (in thousands of Canadian dollars) (unaudited) Three months ended July 31 2009 2008 ------------- ------------- RETAINED EARNINGS, BEGINNING OF THE PERIOD $ 218,983 $ 182,533 Net (loss) earnings (3,296) 26,330 ------------- ------------- RETAINED EARNINGS, END OF THE PERIOD $ 215,687 $ 208,863 ------------- ------------- ------------- ------------- Consolidated Statements of Accumulated Other Comprehensive Loss (in thousands of Canadian dollars) (unaudited) Three months ended July 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 (24,428) 2,900 ------------- ------------- ACCUMULATED OTHER COMPREHENSIVE LOSS, END OF THE PERIOD $ (29,507) $ (41,652) ------------- ------------- ------------- ------------- Major Drilling Group International Inc. Consolidated Statements of Cash Flows (in thousands of Canadian dollars) (unaudited) Three Months Ended July 31 2009 2008 ------------- ------------- OPERATING ACTIVITIES Net (loss) earnings $ (3,296) $ 26,330 Operating items not involving cash Amortization 7,727 7,596 Loss on disposal of property, plant and equipment 67 812 Future income tax 521 1,374 Stock-based compensation 505 398 Goodwill impairment (note 6) 2,032 - ------------- ------------- 7,556 36,510 Changes in non-cash operating working capital items (538) (18,401) ------------- ------------- Cash flow from operating activities 7,018 18,109 ------------- ------------- FINANCING ACTIVITIES Repayment of long-term debt (3,076) (3,042) Repayment of demand credit facilities - (583) Issuance of common shares - 7 Dividend paid (4,743) - ------------- ------------- Cash flow used in financing activities (7,819) (3,618) ------------- ------------- INVESTING ACTIVITIES Acquisition of property, plant and equipment, net of direct financing (3,304) (18,891) Proceeds from disposal of property, plant and equipment 895 472 ------------- ------------- Cash flow used in investing activities (2,409) (18,419) ------------- ------------- OTHER ACTIVITIES Foreign exchange translation adjustment (2,673) 4 ------------- ------------- DECREASE IN CASH (5,883) (3,924) CASH POSITION, BEGINNING OF THE PERIOD 58,035 20,695 ------------- ------------- CASH POSITION, END OF THE PERIOD $ 52,152 $ 16,771 ------------- ------------- ------------- ------------- Major Drilling Group International Inc. Consolidated Balance Sheets As at July 31, 2009 and April 30, 2009 (in thousands of Canadian dollars) (unaudited) ASSETS July April 2009 2009 ------------- ------------- CURRENT ASSETS Cash $ 52,152 $ 58,035 Accounts receivable 44,902 52,538 Income tax receivable 8,166 6,014 Inventories 65,311 72,764 Prepaid expenses 5,666 3,478 Future income tax assets 912 2,644 ------------- ------------- 177,109 195,473 PROPERTY, PLANT AND EQUIPMENT 220,689 240,224 FUTURE INCOME TAX ASSETS 3,359 1,403 GOODWILL AND INTANGIBLE ASSETS (note 9) 26,692 32,072 ------------- ------------- $ 427,849 $ 469,172 ------------- ------------- ------------- ------------- LIABILITIES CURRENT LIABILITIES Accounts payable and accrued charges $ 39,437 $ 47,691 Income tax payable 1,371 1,719 Current portion of long-term debt 11,938 15,049 Future income tax liabilities 1,092 1,071 ------------- ------------- 53,838 65,530 LONG-TERM DEBT 21,098 23,507 FUTURE INCOME TAX LIABILITIES 14,786 14,789 ------------- ------------- 89,722 103,826 ------------- ------------- SHAREHOLDERS' EQUITY Share capital 142,233 142,233 Contributed surplus 9,714 9,209 Retained earnings 215,687 218,983 Accumulated other comprehensive loss (29,507) (5,079) ------------- ------------- 338,127 365,346 ------------- ------------- $ 427,849 $ 469,172 ------------- ------------- ------------- ------------- MAJOR DRILLING GROUP INTERNATIONAL INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) FOR THE PERIODS ENDED JULY 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. The Company is currently evaluating the impact of the adoption of this new Section on its consolidated financial statements.
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 current economic and industry downturn ongoing, 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 ending July 31, 2009, the balance having been previously expensed.
The current quarter 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.
On July 31, 2009, accounts payable included $1,110 of restructuring charges not paid.
6. GOODWILL IMPAIRMENT
----------------------
During the quarter, 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 cost for the three months ended July 31, 2009 was $9,493. 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 periods were reversed.
The Company’s credit facility related to operations is in part secured by a general assignment of the Company’s inventory.
9. GOODWILL AND INTANGIBLE ASSETS --------------------------------- July 2009 April 2009 ------------- -------------- Goodwill $ 25,222 $ 30,470 Intangible assets 1,470 1,602 ------------- -------------- $ 26,692 $ 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 three months ending July 31, 2009:
2010 YTD 2009 YTD
------------- --------------
Balance at beginning of the period $ 32,072 $ 14,837
Amortization of intangible assets (132) -
Goodwill adjustment (note 6) (1,690) -
Goodwill impairment (note 6) (2,032) -
Goodwill acquired - 321
Effect of foreign currency exchange rate
changes (1,526) 158
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$ 26,692 $ 15,316
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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:
July 2009 April 2009
------------- --------------
Long-term debt $ 33,036 $ 38,556
Share capital 142,233 142,233
Contributed surplus 9,714 9,209
Retained earnings 215,687 218,983
Cash (52,152) (58,035)
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$ 348,518 $ 350,946
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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 2009.
11. FINANCIAL INSTRUMENTS
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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 $33,036 as at July 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 34% (22% in 2009) of total quarterly revenue, with no one customer representing more than 10% 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 July 31, 2009, 68.1% of the Company’s trade receivables are aged as current (under 30 days) and 4.2% 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.
The Company does not enter into derivatives to manage credit risk.
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 July 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 $66 and a one percentage decrease in interest rates would have caused a quarterly increase in net income of $66.
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 as at July 31, 2009, and assuming that all other variables remain constant, a 10% 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
appreciates depreciates
10% 10%
------------- --------------
Indonesian Rupiah $ (199) $ 199
US Dollar 141 (141)
Increase (decrease)
in comprehensive earnings
----------------------------
Canadian Canadian
dollar dollar
appreciates depreciates
10% 10%
------------- --------------
Australian Dollar $ (3,533) $ 3,533
US Dollar (21,791) 21,791
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 July 31, 2009 are as follows:
Total 1 year 2-3 years 4-5 years 5+ years
------ ------- --------- --------- ----------
Accounts payable &
accrued charges $ 39,437 $ 39,437 $ - $ - $ -
Long-term debt 33,036 11,938 14,635 6,463 -
---------- ---------- ---------- ---------- -----------
$ 72,473 $ 51,375 $ 14,635 $ 6,463 $ -
---------- ---------- ---------- ---------- -----------
---------- ---------- ---------- ---------- -----------
12. SEGMENTED INFORMATION
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2010 YTD 2009 YTD
------------- --------------
Revenue
Canada - U.S. $ 20,188 $ 55,568
South and Central America 18,243 55,288
Australia, Asia and Africa 24,058 67,359
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$ 62,489 $ 178,215
------------- --------------
------------- --------------
Earnings (loss) from operations
Canada - U.S. $ 1,613 $ 14,998
South and Central America 1,906 15,845
Australia, Asia and Africa (704) 12,266
------------- --------------
2,815 43,109
Eliminations (324) (302)
------------- --------------
2,491 42,807
Interest expense, net 234 526
General corporate expenses 2,065 4,469
Restructuring charge 1,220 -
Goodwill impairment 2,032 -
Income tax 236 11,482
------------- --------------
Net (loss) earnings $ (3,296) $ 26,330
------------- --------------
------------- --------------
Goodwill impairment relates to the South and Central America segment
(see Note 6 - Goodwill Impairment).
For further information: Denis Larocque, Chief Financial Officer, (506) 857-8636, Fax: (506) 857-9211, ir@majordrilling.com
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