MONCTON, NEW BRUNSWICK -- (Marketwired) -- 09/06/16 -- Major Drilling Group International Inc. (TSX: MDI) today reported results for its first quarter of fiscal year 2017, ended July 31, 2016.
Highlights
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In millions of Canadian dollars
(except earnings per share) Q1-17 Q1-16
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Revenue $69.1 $83.9
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Gross profit 15.1 21.6
As percentage of revenue 21.9% 25.8%
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EBITDA(1) 3.8 11.4
As percentage of revenue 5.5% 13.5%
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Net loss (9.8) (11.2)
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Loss per share (0.12) (0.14)
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(1) Earnings before interest, taxes, depreciation and amortization,
excluding restructuring charges (see "non-GAAP financial measures")
-- Quarterly revenue was $69.1 million, down 18% from the $83.9 million
recorded for the same quarter last year, but up 8% over the last 3
months.
-- Gross margin percentage for the quarter was 21.9%, compared to 25.8% for
the corresponding period last year.
-- Net cash decreased $4.6 million during the quarter to $33.4 million.
-- Net loss was $9.8 million or $0.12 per share for the quarter, compared
to a net loss of $11.2 million or $0.14 per share for the prior year
quarter.
"Although most mining companies remain cautious in their spending, we have seen an increase in activity compared to the beginning of the year. Revenue is up 8% compared to the previous quarter as demand for our services has improved," said Denis Larocque, President and CEO of Major Drilling Group International Inc.
"The Company's net cash position (net of debt) continues to be positive at $33.4 million. The decrease this quarter was mainly due to the purchase of over $3 million in inventory in preparation for potential increased activity levels. The Company also spent $2.8 million on capital expenditures this quarter," added Mr. Larocque.
"We continue to focus our efforts on getting prepared in anticipation of a possible recovery in demand for our services while remaining disciplined on pricing and focused on cost control. Commodity prices have improved over the last six months, fueling mineral financings, which have continued to improve during the quarter. However, there is typically a lag between the timing of these financings and the impact they can have on the drilling industry. The Company's financial strength allows it to invest in safety, to maintain its equipment in good condition, and to retain many of its skilled employees, strategically positioning us to react quickly when the industry recovers."
"In the long-term, we believe that most commodities will face an imbalance between supply and demand as mining reserves continue to decrease due to the lack of exploration. Typically, gold and copper projects represent over 70% of the Company's activity. Mineral reserves of ten of the top senior gold mining companies have decreased by almost 15% over the last two years. As well, many industry experts expect that the copper market will face a deficit position by no later than 2018, due to the continued production and high grading of mines, combined with the lack of exploration work conducted to replace reserves. Therefore, it is expected that at some point in the near future, the need to develop resources in areas that are increasingly difficult to access will significantly increase, at which time we expect to see a resurgence in demand for specialized drilling," said Mr. Larocque.
First quarter ended July 31, 2016
Total revenue for the quarter was $69.1 million, down 18% from revenue of $83.9 million recorded in the same quarter last year. The favourable foreign exchange translation impact for the quarter is estimated at $1.8 million on revenue but negligible on net earnings, when comparing to the effective rates for the same period last year.
Revenue for the quarter from Canada-U.S. drilling operations decreased by 14% to $43.8 million compared to the same period last year. The increase in revenue from the US operations was more than offset by the decrease from the Canadian operations.
South and Central American revenue was down 34% to $13.5 million for the quarter, compared to the prior year quarter. The decrease came mostly from the Mexican and Chilean operations.
Asian and African operations reported revenue of $11.8 million, down 5% from the same period last year. Asia showed some improvement, which was more than offset by a decrease in activity levels in Africa.
The overall gross margin percentage for the quarter was 21.9%, down from 25.8% for the same period last year. Pricing pressure and higher repair costs impacted margins in the current quarter.
General and administrative costs were flat at $10.6 million compared to the same quarter last year, despite a small increase due to foreign exchange translation. The Company continues to monitor its general and administrative costs across all of its operations.
The income tax provision for the quarter was an expense of $0.9 million compared to an expense of $2.8 million for the prior year period. The tax expense for the quarter was impacted by non-tax affected losses and non-deductible expenses, while incurring taxes in profitable branches.
Net loss was $9.8 million or $0.12 per share for the quarter, compared to a net loss of $11.2 million or $0.14 per share for the same quarter last year.
The Annual and Special Meeting of the shareholders of Major Drilling Group International Inc. will be held at The TMX Broadcast Centre, Gallery, The Exchange Tower, 130 King St. W., Toronto, Ontario, on Friday, September 9, 2016 at 3:00 pm EDT.
Non-GAAP Financial Measures
In this news release, the Company uses the non-GAAP financial measure, EBITDA, excluding restructuring charges. The Company believes these non-GAAP financial measures provide useful information to both management and investors in measuring the financial performance of the Company. These measures do not have a standardized meaning prescribed by GAAP and therefore they may not be comparable to similarly titled measures presented by other publicly traded companies, and should not be construed as an alternative to other financial measures determined in accordance with GAAP.
Forward-Looking Statements
Some of the statements contained in this news 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 on pages 15 to 18 of the 2016 Annual Report entitled "General Risks and Uncertainties", and such other documents as available on the SEDAR website 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.
Major Drilling Group International Inc. is one of the world's largest drilling services companies primarily serving the mining industry. To support its customers' varied exploration drilling requirements, Major Drilling maintains field operations and offices in Canada, the United States, Mexico, South America, Asia, Africa and Europe. Major Drilling provides all types of drilling services including surface and underground coring, directional, reverse circulation, sonic, geotechnical, environmental, water-well, coal-bed methane, shallow gas, underground percussive/longhole drilling and a variety of drilling-related mine services.
Financial statements are attached.
Webcast/Conference Call Information
Major Drilling will provide a simultaneous webcast and conference call to discuss its quarterly results on Wednesday, September 7, 2016 at 9:00 AM (EDT). To access the webcast, which includes a slide presentation, please go to the investors/webcast section of Major Drilling's website at www.majordrilling.com and click on the link. Please note that this is listen only mode.
To participate in the conference call, please dial 416-340-2216 and ask for Major Drilling's First Quarter Conference Call. To ensure your participation, please call in approximately five minutes prior to the scheduled start of the call.
For those unable to participate, a taped rebroadcast will be available approximately one hour after the completion of the call until midnight, Wednesday September 21, 2016. To access the rebroadcast, dial 905-694-9451 and enter the passcode 7971354. The webcast will also be archived for one year and can be accessed on the Major Drilling website at www.majordrilling.com.
Major Drilling Group International Inc.
Interim Condensed Consolidated Statements of Operations
(in thousands of Canadian dollars, except per share information)
(unaudited)
Three months ended
July 31
2016 2015
------------------ ------------------
TOTAL REVENUE $ 69,089 $ 83,934
DIRECT COSTS 53,948 62,317
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GROSS PROFIT 15,141 21,617
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OPERATING EXPENSES
General and administrative 10,629 10,640
Other expenses 723 1,068
Loss (gain) on disposal of property,
plant and equipment 158 (2,624)
Foreign exchange (gain) loss (174) 1,168
Finance costs 47 70
Depreciation of property, plant and
equipment 11,956 12,258
Amortization of intangible assets 650 958
Restructuring charge (note 10) - 6,432
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23,989 29,970
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LOSS BEFORE INCOME TAX (8,848) (8,353)
------------------ ------------------
INCOME TAX - PROVISION (RECOVERY)
(note 7)
Current 3,685 2,884
Deferred (2,751) (57)
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934 2,827
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NET LOSS $ (9,782) $ (11,180)
------------------ ------------------
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LOSS PER SHARE (note 8)
Basic $ (0.12) $ (0.14)
------------------ ------------------
------------------ ------------------
Diluted $ (0.12) $ (0.14)
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Major Drilling Group International Inc.
Interim Condensed Consolidated Statements of Comprehensive Earnings
(in thousands of Canadian dollars)
(unaudited)
Three months ended
July 31
2016 2015
------------------ ------------------
NET LOSS $ (9,782) $ (11,180)
OTHER COMPREHENSIVE EARNINGS
Items that may be reclassified
subsequently to profit or loss
Unrealized gain on foreign currency
translations (net of tax) 11,368 20,961
Unrealized (loss) gain on
derivatives (net of tax) (137) 4
------------------ ------------------
COMPREHENSIVE EARNINGS $ 1,449 $ 9,785
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Major Drilling Group International Inc.
Interim Condensed Consolidated Statements of Changes in Equity
For the three months ended July 31, 2016 and 2015
(in thousands of Canadian dollars)
(unaudited)
Share-based
Share capital Reserves payments reserve
--------------- ----------------- ----------------
BALANCE AS AT MAY 1, 2015 $ 239,726 $ 24 $ 17,234
Share-based payments
reserve - - 263
--------------- ----------------- ----------------
239,726 24 17,497
--------------- ----------------- ----------------
Comprehensive earnings:
Net loss - - -
Unrealized gain on
foreign currency
translations - - -
Unrealized gain on
derivatives - 4 -
--------------- ----------------- ----------------
Total comprehensive
earnings - 4 -
--------------- ----------------- ----------------
BALANCE AS AT JULY 31,
2015 $ 239,726 $ 28 $ 17,497
--------------- ----------------- ----------------
--------------- ----------------- ----------------
BALANCE AS AT MAY 1, 2016 $ 239,726 $ 326 $ 18,317
Share-based payments
reserve - - 290
--------------- ----------------- ----------------
239,726 326 18,607
--------------- ----------------- ----------------
Comprehensive earnings:
Net loss - - -
Unrealized gain on
foreign currency
translations - - -
Unrealized loss on
derivatives - (137) -
--------------- ----------------- ----------------
Total comprehensive
earnings - (137) -
--------------- ----------------- ----------------
BALANCE AS AT JULY 31,
2016 $ 239,726 $ 189 $ 18,607
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Major Drilling Group International Inc.
Interim Condensed Consolidated Statements of Changes in Equity
For the three months ended July 31, 2016 and 2015
(in thousands of Canadian dollars)
(unaudited)
Foreign currency
Retained translation
earnings reserve Total
--------------- ----------------- ---------------
BALANCE AS AT MAY 1, 2015 $ 152,764 $ 50,644 $ 460,392
Share-based payments
reserve - - 263
--------------- ----------------- ---------------
152,764 50,644 460,655
--------------- ----------------- ---------------
Comprehensive earnings:
Net loss (11,180) - (11,180)
Unrealized gain on
foreign currency
translations - 20,961 20,961
Unrealized gain on
derivatives - - 4
--------------- ----------------- ---------------
Total comprehensive
earnings (11,180) 20,961 9,785
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BALANCE AS AT JULY 31,
2015 $ 141,584 $ 71,605 $ 470,440
--------------- ----------------- ---------------
--------------- ----------------- ---------------
BALANCE AS AT MAY 1, 2016 $ 105,876 $ 61,896 $ 426,141
Share-based payments
reserve - - 290
--------------- ----------------- ---------------
105,876 61,896 426,431
--------------- ----------------- ---------------
Comprehensive earnings:
Net loss (9,782) - (9,782)
Unrealized gain on
foreign currency
translations - 11,368 11,368
Unrealized loss on
derivatives - - (137)
--------------- ----------------- ---------------
Total comprehensive
earnings (9,782) 11,368 1,449
--------------- ----------------- ---------------
BALANCE AS AT JULY 31,
2016 $ 96,094 $ 73,264 $ 427,880
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--------------- ----------------- ---------------
Major Drilling Group International Inc.
Interim Condensed Consolidated Statements of Cash Flows
(in thousands of Canadian dollars)
(unaudited)
Three months ended
July 31
2016 2015
------------------ ------------------
OPERATING ACTIVITIES
Loss before income tax $ (8,848) $ (8,353)
Operating items not involving cash
Depreciation and amortization 12,606 13,216
Loss (gain) on disposal of property,
plant and equipment 158 (2,624)
Share-based payments reserve 290 263
Restructuring charge - 5,045
Finance costs recognized in loss
before income tax 47 70
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4,253 7,617
Changes in non-cash operating working
capital items (7,624) (1,096)
Finance costs paid (47) (72)
Income taxes paid (635) (4,118)
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Cash flow (used in) from operating
activities (4,053) 2,331
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FINANCING ACTIVITIES
Repayment of long-term debt (2,072) (1,784)
Dividends paid - (1,603)
------------------ ------------------
Cash flow used in financing activities (2,072) (3,387)
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INVESTING ACTIVITIES
Acquisition of property, plant and
equipment (net of direct financing)
(note 6) (2,777) (3,265)
Proceeds from disposal of property,
plant and equipment 1,172 5,869
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Cash flow (used in) from investing
activities (1,605) 2,604
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Effect of exchange rate changes 1,122 2,131
------------------ ------------------
(DECREASE) INCREASE IN CASH (6,608) 3,679
CASH, BEGINNING OF THE PERIOD 50,228 44,897
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CASH, END OF THE PERIOD $ 43,620 $ 48,576
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Major Drilling Group International Inc.
Interim Condensed Consolidated Balance Sheets
As at July 31, 2016 and April 30,2016
(in thousands of Canadian dollars)
(unaudited)
July 31, 2016 April 30, 2016
----------------- -----------------
ASSETS
CURRENT ASSETS
Cash $ 43,620 $ 50,228
Trade and other receivables 61,425 55,829
Note receivable 462 457
Income tax receivable 4,051 7,513
Inventories 79,915 74,144
Prepaid expenses 5,039 2,498
----------------- -----------------
194,512 190,669
NOTE RECEIVABLE 1,413 1,531
PROPERTY, PLANT AND EQUIPMENT 237,081 240,703
DEFERRED INCOME TAX ASSETS 11,890 9,564
GOODWILL 57,992 57,641
INTANGIBLE ASSETS 2,609 3,193
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$ 505,497 $ 503,301
----------------- -----------------
----------------- -----------------
LIABILITIES
CURRENT LIABILITIES
Trade and other payables $ 36,951 $ 34,068
Income tax payable 1,295 1,859
Current portion of contingent
consideration 3,000 3,000
Current portion of long-term debt 4,017 5,288
----------------- -----------------
45,263 44,215
CONTINGENT CONSIDERATION 5,347 5,347
LONG-TERM DEBT 6,218 6,936
DEFERRED INCOME TAX LIABILITIES 20,789 20,662
----------------- -----------------
77,617 77,160
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SHAREHOLDERS' EQUITY
Share capital 239,726 239,726
Reserves 189 326
Share-based payments reserve 18,607 18,317
Retained earnings 96,094 105,876
Foreign currency translation reserve 73,264 61,896
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427,880 426,141
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$ 505,497 $ 503,301
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MAJOR DRILLING GROUP INTERNATIONAL INC. NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED JULY 31, 2016 AND 2015 (UNAUDITED) (in thousands of Canadian dollars, except per share information)
1. NATURE OF ACTIVITIES
Major Drilling Group International Inc. (the "Company") is incorporated under the Canada Business Corporations Act and has its head office at 111 St. George Street, Suite 100, Moncton, NB, Canada. The Company's common shares are listed on the Toronto Stock Exchange ("TSX"). The principal source of revenue consists of contract drilling for companies primarily involved in mining and mineral exploration. The Company has operations in Canada, the United States, Mexico, South America, Asia, Africa and Europe.
2. BASIS OF PRESENTATION
Statement of compliance
These Interim Condensed Consolidated Financial Statements have been prepared in accordance with IAS 34 Interim Financial Reporting ("IAS 34") as issued by the International Accounting Standards Board ("IASB") and using the accounting policies as outlined in the Company's annual Consolidated Financial Statements for the year ended April 30, 2016.
On September 6, 2016, the Board of Directors authorized the financial statements for issue.
Basis of consolidation
These Interim Condensed Consolidated Financial Statements incorporate the financial statements of the Company and entities controlled by the Company. Control is achieved when the Company is exposed, or has rights to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.
The results of subsidiaries acquired or disposed of during the period are included in the Consolidated Statements of Operations from the effective date of acquisition or up to the effective date of disposal, as appropriate.
Intra-group transactions, balances, income and expenses are eliminated on consolidation, where appropriate.
Basis of preparation
These Interim Condensed Consolidated Financial Statements have been prepared based on the historical cost basis except for certain financial instruments that are measured at fair value, using the same accounting policies and methods of computation as presented in the Company's annual Consolidated Financial Statements for the year ended April 30, 2016.
3. APPLICATION OF NEW AND REVISED IFRS
The following IASB standards, now in effect, have had no significant impact on the Company's Consolidated Financial Statements:
IFRS 10 (amended) Consolidated Financial Statements IFRS 11 (amended) Joint Arrangements - Accounting for Acquisitions of Interests in Joint Operations IAS 1 (amended) Presentation of Financial Statements IAS 16 (amended) Property, Plant and Equipment IAS 28 (amended) Investments in Associates and Joint Ventures IAS 38 (amended) Intangible Assets
The Company has not applied the following revised IASB standards that have been issued, but are not yet effective:
IFRS 9 (as amended in 2014) Financial Instruments(i) IFRS 15 Revenue from Contracts with Customers(i) IFRS 16 Leases(ii) IAS 7 (amended) Statement of Cash Flows(iii) IAS 12 (amended) Income Taxes(iii) (i)Effective for annual periods beginning on or after January 1, 2018, with earlier application permitted (ii)Effective for annual periods beginning on or after January 1, 2019, with earlier application permitted (iii)Effective for annual periods beginning on or after January 1, 2017, with earlier application permitted
4. KEY SOURCES OF ESTIMATION UNCERTAINTY AND CRITICAL ACCOUNTING JUDGMENTS
The preparation of financial statements, in conformity with International Financial Reporting Standards ("IFRS"), requires management to make judgments, estimates and assumptions that are not readily apparent from other sources, which affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised, if the revision affects only that period, or in the period of the revision and future periods, if the revision affects both current and future periods. Significant areas requiring the use of management estimates relate to the useful lives of property, plant and equipment for depreciation purposes, property, plant and equipment and inventory valuation, determination of income and other taxes, assumptions used in the compilation of share-based payments, fair value of assets acquired and liabilities assumed in business acquisitions, amounts recorded as accrued liabilities, contingent consideration and allowance for doubtful accounts, and impairment testing of goodwill and intangible assets.
The Company applied judgment in determining the functional currency of the Company and its subsidiaries, the determination of cash-generating units ("CGUs"), the degree of componentization of property, plant and equipment, and the recognition of provisions and accrued liabilities.
5. SEASONALITY OF OPERATIONS
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.
6. PROPERTY, PLANT AND EQUIPMENT
Capital expenditures for the three months ended July 31, 2016 were $2,777 (2015 - $5,236). The Company obtained direct financing of nil in the current quarter (2015 - $1,971).
7. INCOME TAXES
The income tax provision for the period can be reconciled to accounting loss as follows:
Q1 2017 Q1 2016
------------------ ------------------
Loss before income tax $ (8,848) $ (8,353)
------------------ ------------------
Statutory Canadian corporate income tax
rate 27% 27%
Expected income tax recovery based on
statutory rate (2,389) (2,255)
Non-recognition of tax benefits related
to losses 1,207 3,281
Other foreign taxes paid 291 453
Rate variances in foreign jurisdictions 137 (306)
Permanent differences 1,170 1,546
Other 518 108
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Income tax provision recognized in net
loss $ 934 $ 2,827
------------------ ------------------
------------------ ------------------
The Company periodically assesses its liabilities and contingencies for all tax years open to audit based upon the latest information available. For those matters where it is probable that an adjustment will be made, the Company records its best estimate of these tax liabilities, including related interest charges. Inherent uncertainties exist in estimates of tax contingencies due to changes in tax laws. While management believes they have adequately provided for the probable outcome of these matters, future results may include favorable or unfavorable adjustments to these estimated tax liabilities in the period the assessments are made, or resolved, or when the statutes of limitations lapse.
8. LOSS PER SHARE
All of the Company's earnings are attributable to common shares therefore net loss is used in determining loss per share.
Q1 2017 Q1 2016
------------------ ------------------
Net loss $ (9,782) $ (11,180)
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Weighted average number of shares -
basic and diluted (000's) 80,137 80,137
------------------ ------------------
Loss per share:
Basic $ (0.12) $ (0.14)
Diluted $ (0.12) $ (0.14)
The calculation of diluted loss per share for the three months ended July 31, 2016 excludes the effect of 3,710,913 options (2015 - 3,921,796) as they were anti-dilutive.
The total number of shares outstanding on July 31, 2016 was 80,136,884 (2015 - 80,136,884).
9. SEGMENTED INFORMATION
The Company's operations are divided into the following three geographic segments, corresponding to its management structure: Canada - U.S.; South and Central America; and Asia and Africa. The services provided in each of the reportable segments are essentially the same. The accounting policies of the segments are the same as those described in the Company's annual Consolidated Financial Statements for the year ended April 30, 2016. Management evaluates performance based on earnings from operations in these three geographic segments before finance costs, general corporate expenses and income taxes. Data relating to each of the Company's reportable segments is presented as follows:
9. SEGMENTED INFORMATION (Continued)
Q1 2017 Q1 2016
------------------ ------------------
Revenue
Canada - U.S.(i) $ 43,797 $ 51,031
South and Central America 13,496 20,481
Asia and Africa 11,796 12,422
------------------ ------------------
$ 69,089 $ 83,934
------------------ ------------------
------------------ ------------------
(Loss) earnings from operations
Canada - U.S. $ (3,318) $ 826
South and Central America (1,900) 1,205
Asia and Africa (1,625) (8,505)
------------------ ------------------
(6,843) (6,474)
Finance costs 47 70
General corporate expenses(ii) 1,958 1,809
Income tax 934 2,827
------------------ ------------------
Net loss $ (9,782) $ (11,180)
------------------ ------------------
------------------ ------------------
(i)Canada - U.S. includes revenue of $19,941 and $31,672 for Canadian operations for the three months ended July 31, 2016 and 2015, respectively.
(ii)General corporate expenses include expenses for corporate offices and stock options.
Q1 2017 Q1 2016
----------------- -----------------
Capital expenditures
Canada - U.S. $ 1,359 $ 4,036
South and Central America 970 687
Asia and Africa 448 513
----------------- -----------------
Total capital expenditures $ 2,777 $ 5,236
----------------- -----------------
----------------- -----------------
Depreciation and amortization
Canada - U.S. $ 7,133 $ 6,724
South and Central America 3,109 3,515
Asia and Africa 2,011 2,604
Unallocated and corporate assets 353 373
----------------- -----------------
Total depreciation and amortization $ 12,606 $ 13,216
----------------- -----------------
----------------- -----------------
9. SEGMENTED INFORMATION (Continued)
July 31, 2016 April 30, 2016
----------------- -----------------
Identifiable assets
Canada - U.S.(i) $ 223,397 $ 223,606
South and Central America 146,217 138,961
Asia and Africa 100,382 95,554
Unallocated and corporate assets 35,501 45,180
----------------- -----------------
Total identifiable assets $ 505,497 $ 503,301
----------------- -----------------
----------------- -----------------
(i)Canada - U.S. includes property, plant and equipment at July 31, 2016 of $66,958 (April 30, 2016 - $70,527) for Canadian operations.
10. RESTRUCTURING CHARGE
During the previous year, due to ongoing market difficulties in the Republic of South Africa and Namibia, the Company decided to close its operations in those countries.
These restructuring initiatives generated impairment losses calculated based on the determination of the fair value of assets less cost of disposal. Fair value was determined through the use of industry knowledge and specialists.
The costs related to these initiatives were recorded as part of the restructuring charge for a total of $6,432. This amount consisted of an impairment charge of $3,479 relating to property, plant and equipment, a write-down of $1,304 to reduce inventory to net realizable value, employee severance charges of $387 incurred to rationalize the workforce, and other non-cash charges of $262. The remaining charge of $1,000 related to the cost of winding down operations.
11. FINANCIAL INSTRUMENTS
Fair value
The carrying values of cash, trade and other receivables, demand credit facility and trade and other payables approximate their fair value due to the relatively short period to maturity of the instruments. The carrying value of long-term debt approximates its fair value as most debts carry variable interest rates, and the remaining fixed rate debts have been acquired recently and their carrying value continues to reflect fair value. The fair value of the interest rate swap included in long-term debt is measured using quoted interest rates. Contingent consideration is recorded at fair value and is classified as level 2 in accordance with the fair value hierarchy.
-- Level 1 - quoted prices (unadjusted) in active markets for identical
assets or liabilities;
-- Level 2 - inputs other than quoted prices included in Level 1 that are
observable for the assets or liabilities, either directly (i.e., as
prices) or indirectly (i.e., derived from prices); and
-- Level 3 - inputs for the assets or liabilities that are not based on
observable market data (unobservable inputs).
11. FINANCIAL INSTRUMENTS (Continued)
There were no transfers of amounts between Level 1, Level 2 and Level 3 financial instruments for the quarter ended July 31, 2016. Additionally, there are no financial instruments classified as Level 3.
The fair value hierarchy requires the use of observable market inputs whenever such inputs exist. A financial instrument is classified to the lowest level of the hierarchy for which a significant input has been considered in measuring fair value.
During the quarter, due to the level of EBITDA, the debt service ratio was not met under the debt agreement. The debt continues to be presented as long-term, consistent with the debt agreement, as the lenders provided a waiver during the quarter.
Credit risk
As at July 31, 2016, 87.0% (April 30, 2016 - 85.9%) of the Company's trade receivables were aged as current and 1.4% (April 30, 2016 - 7.2%) of the trade receivables were impaired.
The movements in the allowance for impairment of trade receivables during the three-month periods were as follows:
July 31, 2016 July 31, 2015
------------------ ------------------
Opening balance $ 3,554 $ 4,204
Increase in impairment allowance 344 440
Recovery of amounts previously impaired (63) (155)
Write-off charged against allowance (3,127) (192)
Foreign exchange translation
differences 22 109
------------------ ------------------
Ending balance $ 730 $ 4,406
------------------ ------------------
------------------ ------------------
Foreign currency risk
As at July 31, 2016, the most significant carrying amounts of net monetary assets that: (i) are denominated in currencies other than the functional currency of the respective Company subsidiary; (ii) cause foreign exchange rate exposure; and (iii) may include intercompany balances with other subsidiaries, including the impact on earnings before income taxes ("EBIT"), if the corresponding rate changes by 10%, are as follows:
Rate
Variance USD/CAD CFA/USD ARS/USD IDR/USD Other
----------------------------------------------------------------
Exposure $ 2,898 $ 2,655 $ 1,067 $ (1,210) $ 1,333
EBIT impact +10% 322 295 119 (134) 147
11. FINANCIAL INSTRUMENTS (Continued)
Liquidity risk
The following table details contractual maturities for the Company's financial liabilities.
1 year 2-3 years 4-5 years thereafter Total
Trade and other
payables $ 36,951 $ - $ - $ - $ 36,951
Contingent
consideration 3,000 5,347 - - 8,347
Long-term debt
(interest included) 4,226 4,263 2,158 88 10,735
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$ 44,177 $ 9,610 $ 2,158 $ 88 $ 56,033
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Contacts:
Major Drilling Group International Inc.
David Balser
Chief Financial Officer
(506) 857-8636
(506) 857-9211 (FAX)
ir@majordrilling.com
www.majordrilling.com
