North American Energy Partners Inc. ("NAEP" or "the Company") (TSX:
NOA) (NYSE: NOA) today announced results for the three months and
six months ended September 30, 2010.
Conversion to US GAAP
The Company has prepared its consolidated financial statements
in conformity with accounting principles generally accepted in the
United States (US GAAP). All comparative financial information
contained herein has been revised to reflect the Company's results
as if they had been historically reported in accordance with US
GAAP. Unless otherwise specified, all dollar amounts discussed are
in Canadian dollars.
Consolidated Financial Highlights
Three Months Ended Six Months Ended
Sept. 30, Sept. 30,
(dollars in thousands) 2010 2009 2010 2009
----------------------------------------------------------------------------
Revenue $ 234,858 $ 170,702 $ 418,452 $ 317,221
Gross profit $ 29,097 $ 33,796 $ 44,717 $ 58,936
Gross profit margin 12.4% 19.8% 10.7% 18.6%
Operating income $ 12,305 $ 18,937 $ 13,369 $ 29,075
Operating margin 5.2% 11.1% 3.2% 9.2%
Net income (loss) $ 2,369 $ 4,299 $ (7,940) $ 14,226
Per share information
Net income (loss) - basic $ 0.07 $ 0.12 $ (0.22) $ 0.39
Net income (loss) - diluted $ 0.06 $ 0.12 $ (0.22) $ 0.39
Consolidated EBITDA(1) $ 22,609 $ 31,978 $ 34,788 $ 51,372
Capital expenditures $ 12,212 $ 23,555 $ 18,801 $ 43,265
Cash and cash equivalents $ 56,180 $ 97,491 $ 56,180 $ 97,491
----------------------------------------------------------------------------
(1) For a definition of Consolidated EBITDA and reconciliation to net
income, see "Non-GAAP Financial Measures" and "Consolidated EBITDA" at
the end of this release.
"We capitalized on strengthening market demand to increase
consolidated revenues by 38% during the three months ended
September 30, 2010," said President and CEO, Rod Ruston. "This
year-over-year gain was achieved with contribution from all three
of our operating segments as we secured and carried out work on new
piling, pipeline and oil sands construction contracts. We also
continued to successfully develop our environmental and tailings
services initiative, with revenue from this new service offering
beginning to benefit our Heavy Construction and Mining
segment."
Gross profit for the period was negatively impacted by weather
and project start-up delays that hampered productivity on certain
projects. Margins were also affected by an increase in lower-margin
recurring services work executed under the Company's long-term
overburden contract with Canadian Natural Resources Limited
(Canadian Natural) during the quarter.
"We continue to anticipate improved operating conditions and
performance in the latter part of the fiscal year," said Mr.
Ruston. "Demand for recurring services is expected to grow with all
operating oil sands mines back in full production for the first
time in over a year. Opportunities on the project development side
of our business also continue to increase as oil sands momentum
rebuilds and the commercial and industrial construction markets
recover. Our recent acquisition of Cyntech only adds to the
opportunities available to us."
On November 1, 2010, NAEP acquired the assets of Cyntech
Corporation and its US-based wholly-owned subsidiary, Cyntech
Anchor Systems LLC (collectively "Cyntech") for cash consideration
of approximately $20.8 million. Cyntech is a Calgary-based designer
and manufacturer of screw piles and pipeline anchoring systems, as
well as a provider of recurring tank maintenance services to the
petro-chemical industry. The acquisition brings NAEP capabilities
that complement its existing service offering, increase its
recurring services revenue stream and expand its reach into
international markets. The acquisition is consistent with NAEP's
stated intention to grow its less capital intensive businesses and
high-margin service offerings.
"Our outlook going forward is positive," Mr. Ruston added.
"Momentum is building in all parts of our business and we are
executing successfully on our growth strategy."
Consolidated Results for the Three Months Ended September 30, 2010
Three Months Ended Sept. 30,
(dollars in thousands) 2010 2009 Change
----------------------------------------------------------------------------
Revenue $ 234,858 $ 170,702 $ 64,156
For the three months ended September 30, 2010, consolidated
revenues increased to $234.9 million, from $170.7 million during
the same period last year. The $64.2 million improvement reflects
higher project development revenues from all three operating
segments, partially offset by a decrease in recurring services
revenues. The decline in recurring services revenues reflects a
temporary reduction in activity at Shell Canada Energy's (Shell
Albian) oil sands operations during the commissioning of the
Jackpine mine.
Three Months Ended Sept. 30,
(dollars in thousands) 2010 2009 Change
----------------------------------------------------------------------------
Gross profit $ 29,097 $ 33,796 $ (4,699)
Gross profit margin 12.4% 19.8%
Gross profit for the three months ended September 30, 2010 was
$29.1 million (12.4% of revenue), compared to $33.8 million (19.8%
of revenue) during the same period last year. The reduction in
gross profit margin primarily reflects lower-margin contracts in
the project mix and reduced productivity on certain projects as a
result of client start-up delays and unseasonably wet weather.
Three Months Ended Sept. 30,
(dollars in thousands) 2010 2009 Change
----------------------------------------------------------------------------
Operating income $ 12,305 $ 18,937 $ (6,632)
Operating margin 5.2% 11.1%
For the three months ended September 30, 2010, operating income
was $12.3 million (5.2% of revenue), compared to $18.9 million
(11.1% of revenue) during the same period last year. The change in
operating income primarily reflects the lower gross margins, as
well as a $1.4 million year-over-year increase in general and
administrative (G&A) expenses. G&A costs increased as a
result of a partial restructuring of the Company's stock option
plan.
Three Months Ended Sept. 30,
(dollars in thousands, except per
share amounts) 2010 2009 Change
----------------------------------------------------------------------------
Net income $ 2,369 $ 4,299 $ (1,930)
Per share information
Net income - basic $ 0.07 $ 0.12 $ (0.05)
Net income - diluted $ 0.06 $ 0.12 $ (0.06)
For the three months ended September 30, 2010, the Company
recorded net income of $2.4 million (basic income per share of
$0.07 and diluted income per share of $0.06), compared to $4.3
million (basic and diluted income per share of $0.12) during the
same period last year. The non-cash items affecting results in the
current period included gains on the embedded derivatives in
certain long-term supplier contracts, partially offset by a loss on
the embedded derivatives in a long-term customer contract. In the
prior-year period, the non-cash items affecting net income included
losses on the cross-currency and interest rate swaps, losses on
embedded derivatives in certain long-term supplier contracts and
losses on the embedded derivatives in a long-term customer
contract. Partially offsetting these losses were the positive
foreign exchange impact of the strengthening Canadian dollar on the
Company's 8 3/4% senior notes and a gain on an embedded derivative
related to redemption options in the 8 3/4% senior notes. Excluding
the above items, net income for the three months ended September
30, 2010 would have been $1.4 million (basic and diluted income per
share of $0.04), compared to $6.9 million during the same period
last year (basic and diluted income per share of $0.19).
Consolidated Results for the Six Months Ended September 30, 2010
Six Months Ended Sept. 30,
(dollars in thousands) 2010 2009 Change
----------------------------------------------------------------------------
Revenue $ 418,452 $ 317,221 $ 101,231
For the six months ended September 30, 2010, consolidated
revenues increased to $418.5 million, from $317.2 million during
the same period last year. The $101.2 million improvement reflects
increased demand for recurring services and the growing volume of
piling, pipeline and oil sands construction projects.
Six Months Ended Sept. 30,
(dollars in thousands) 2010 2009 Change
----------------------------------------------------------------------------
Gross profit $ 44,717 $ 58,936 $ (14,219)
Gross profit margin 10.7% 18.6%
Gross profit for the six months ended September 30, 2010 was
$44.7 million (10.7% of revenue), compared to $58.9 million ($18.6%
of revenue) during the same period last year. The reduction in
gross profit margin reflects increased volumes of lower-margin work
in the project mix, the impact of unusually wet weather conditions
on certain construction projects and productivity issues related to
the delayed start-up of two pipeline projects. Margin performance
was further affected by higher equipment costs related to the
increased repair maintenance activity undertaken during the
extended spring break-up period and lower than anticipated
utilization of our large mining trucks and shovels.
Six Months Ended Sept.30,
(dollars in thousands) 2010 2009 Change
----------------------------------------------------------------------------
Operating income $ 13,369 $ 29,075 $ (15,706)
Operating margin 3.2% 9.2%
For the six months ended September 30, 2010, operating income
was $13.4 million (3.2% of revenue), compared to $29.1 million
(9.2% of revenue) during the same period last year. The change in
operating income largely reflects the lower gross margins discussed
above. General and administrative expense remained stable between
the two periods.
Six Months Ended Sept. 30,
(dollars in thousands, except per
share amounts) 2010 2009 Change
----------------------------------------------------------------------------
Net (loss) income $ (7,940) $ 14,226 $ (22,166)
Per share information
Net (loss) income - basic $ (0.22) $ 0.39 $ (0.61)
Net (loss) income - diluted $ (0.22) $ 0.39 $ (0.61)
The Company recorded a net loss of $7.9 million (basic and
diluted loss per share of $0.22) for the six months ended September
30, 2010, compared to net income of $14.2 million (basic and
diluted income per share of $0.39) during the same period last
year. The non-cash items affecting current-year results included
the write-off of deferred financing costs at the settlement of the
8 3/4% senior notes and losses on cross-currency and interest rate
swaps. Partially offsetting these losses was the positive foreign
exchange impact of the strengthening Canadian dollar on the
Company's 8 3/4% senior notes, gains on embedded derivatives in
certain long-term supplier contracts and gains on embedded
derivatives in a long-term customer contract. In the prior-year
period, non-cash items affecting results included the positive
foreign exchange impact of the strengthening Canadian dollar on the
Company's 8 3/4% senior notes, gains on an embedded derivative
related to redemption options in the 8 3/4% senior notes and gains
embedded derivatives in long-term supplier contracts. Partially
offsetting these gains were losses on cross-currency and interest
rate swaps and losses on embedded derivatives in a long-term
customer contract. Excluding the above items, net loss for the six
months ended September 30, 2010 would have been $2.7 million (basic
loss per share of $0.07), compared to a net income of $6.9 million
during the same period last year (basic and diluted income per
share of $0.19).
Segment Results
Heavy Construction and Mining
Three Months Ended Sept. 30,
(dollars in thousands) 2010 2009 Change
----------------------------------------------------------------------------
Segment revenue $ 171,628 $ 154,055 $ 17,573
Segment profit 22,234 21,922 312
Segment profit percentage 13.0% 14.2%
For the three months ended September 30, 2010, revenue from the
Heavy Construction and Mining segment increased $17.6 million to
$171.6 million, primarily as a result of increased project
development revenues. The segment benefited from several new oil
sands projects, including tailings-related construction projects
for Shell Albian and mine development projects for Exxon Mobil
Corporation (Exxon) and Canadian Natural. Recurring services
revenues were lower compared to the same period last year as a
result of reduced activity at Shell Albian during the commissioning
of the Jackpine mine and the resulting integration activities at
the Muskeg River mine. Increased activity on the Company's
long-term overburden contract with Canadian Natural and increased
activity at Suncor Energy Inc. (Suncor) helped mitigate this
decline in recurring services revenues.
Segment margins for the three months ended September 30, 2010
were 13.0% of revenue, compared to 14.2% during the same period
last year. Profit margin in the prior-year period was lower than
normal due to the impact of a margin adjustment on the Company's
long-term overburden removal contract. Excluding this impact,
profit margin for the prior-year period would have been 16.8% of
revenue. The year-over-year change in Heavy Construction and Mining
profit margin primarily reflects an increase in lower-margin
overburden removal activity, wet weather-related productivity
impacts and start-up delays on a construction project.
Six Months Ended Sept. 30,
(dollars in thousands) 2010 2009 Change
----------------------------------------------------------------------------
Segment revenue $ 335,237 $ 285,881 $ 49,356
Segment profit 44,481 45,437 (956)
Segment profit percentage 13.3% 15.9%
For the six months ended September 30, 2010, revenue from the
Heavy Construction and Mining segment increased $49.4 million to
$335.2 million, reflecting increases in both recurring services and
project development revenues. The growth in recurring services
revenues reflects increased demand from Suncor and Canadian
Natural, partially offset by reduced activity at Shell Albian's
Jackpine and Muskeg River sites. The increase in project
development revenues reflects the start-up of construction projects
at Exxon's Kearl and Canadian Natural's Horizon sites, as well as
work on tailings-related construction projects at Shell Albian.
Segment margins for the six months ended September 30, 2010 were
13.3% of revenue, compared to 15.9% during the same period last
year. The change in profit margin reflects the increase in
lower-margin overburden removal work, costs related to client
start-up delays on a construction project and reduced project
efficiency due to abnormally wet weather.
Piling
Three Months Ended Sept. 30,
(dollars in thousands) 2010 2009 Change
----------------------------------------------------------------------------
Segment revenue $ 26,563 $ 15,058 $ 11,505
Segment profit 4,782 1,950 2,832
Segment profit percentage 18.0% 12.9%
For the three months ended September 30, 2010, Piling segment
revenues increased to $26.6 million, from $15.1 million during the
same period last year. This improvement reflects increased activity
levels in the commercial and industrial construction markets,
including an increase in high-volume oil sands projects. The
increased revenue also reflects the resumption of projects delayed
by unusually wet weather during the first quarter and a full three
months of contribution from the Company's new piling operations in
Ontario, compared to only two months of contribution in the
prior-year period.
Segment margins increased to 18.0% of revenue, from 12.9% during
the same period last year. This increase reflects improved market
conditions and increased demand for piling services, partially
offset by reduced productivity as a result of abnormally high
precipitation levels.
Six Months Ended Sept. 30,
(dollars in thousands) 2010 2009 Change
----------------------------------------------------------------------------
Segment revenue $ 45,709 $ 29,676 $ 16,033
Segment profit 6,176 4,634 1,542
Segment profit percentage 13.5% 15.6%
For the six months ended September 30, 2010, Piling segment
revenues were $45.7 million, compared to $29.7 million during the
same period last year. The $16.0 million increase in segment
revenues reflects improved market conditions, the resumption of
weather-delayed projects and six months' contribution from the new
Ontario piling operations, compared to two months' contribution
last year.
Segment margins for the six months ended September 30, 2010 were
13.5% compared to 15.6% during the same period last year. The
year-over-year change in profit margin reflects the impact of
unusually wet weather and continued delays in the execution of
certain project change-orders.
Pipeline
Three Months Ended Sept. 30,
(dollars in thousands) 2010 2009 Change
----------------------------------------------------------------------------
Segment revenue $ 36,667 $ 1,589 $ 35,078
Segment profit (loss) 879 (137) 1,016
Segment profit percentage 2.4% -8.6%
For the three months ended September 30, 2010, Pipeline revenues
increased to $36.7 million, from $1.6 million in the same period
last year. The significant increase in revenue reflects the
start-up of two new contracts in northern British Columbia
(BC).
Segment margin increased to 2.4% from a loss of 8.6% during the
same period last year. Current year margins reflect reduced
productivity related to client start-up delays and abnormally wet
weather conditions on the two new projects as well as the delayed
completion of the existing project in southern BC.
Six Months Ended Sept. 30,
(dollars in thousands) 2010 2009 Change
----------------------------------------------------------------------------
Segment revenue $ 37,506 $ 1,664 $ 35,842
Segment profit (loss) 156 229 (73)
Segment profit percentage 0.4% 13.8%
For the six months ended September 30, 2010, Pipeline revenues
increased to $37.5 million, from $1.7 million in the same period
last year, reflecting work on the new contracts. Segment margin for
the six months was 0.4%, compared to 13.8% in the prior-year
period. The change in segment margin reflects reduced productivity
related to client start-up delays and adverse weather conditions on
the two contracts in British Columbia. All three projects are
unit-price contracts.
Outlook
The Company anticipates a continued strengthening of demand for
services through the second half of the fiscal year despite some
lingering impacts of the global recession.
The Company's outlook for the recurring services business
remains positive and the recent acquisition of Cyntech is expected
to further expand recurring services revenues with the addition of
a tank servicing business which involves inspection, cleaning,
repair and relocation services for large-diameter petrochemical
tanks. Cyntech provides these services under a multi-year master
services agreement with a major integrated oil and gas producer. In
the oil sands, all operating oil sands mines are now back in full
production. NAEP is active on all of these sites and is currently
bidding on multi-year recurring services opportunities with some of
these customers.
The Company is also successfully developing its environmental
and tailings pond services offering. Recent investments in
specialized barge and dozer equipment and a new partnership with
Royal Boskalis International have now positioned NAEP to offer a
complete turnkey environmental service with both earth-moving and
water-related services. Over time, this is expected to provide a
significant new source of projects and recurring services
revenue.
The outlook for project development in the oil sands continues
to improve. NAEP remains active on Exxon's Kearl site and sees
opportunities to further expand its business with this customer.
The recent approval of Total E&P Canada Ltd.'s (Total's) plans
to construct a 300,000 barrel per day upgrader improves the
prospects for the associated Joslyn mine moving forward and
tendering for construction contracts could potentially begin as
early as the end of next year. North West Upgrading Inc. has also
indicated its intention to resume construction planning for its new
upgrader project. Other new developments such as Husky Energy
Inc.'s Sunrise, ConocoPhillips' Surmont and Suncor's Firebag SAGD
(Steam Assisted Gravity Drainage) projects are moving forward and
could eventually provide additional project development
opportunities as they reach the construction phase. The recent
acquisition of Cyntech, with its screw piling technology, enhances
the Company's service offering with respect to these SAGD projects.
While the outlook for project work is positive, it should be noted
that much of this work will not become available for tendering in
this fiscal year.
In the Piling segment, activity levels are expected to increase
as market conditions continue to improve and projects delayed by
poor weather conditions in the first half of the year resume
construction. Piling backlog continued to grow as a result of
increasing industrial construction activity levels in the oil sands
and a growing volume of business in the Ontario market. As
mentioned above, the Cyntech acquisition is expected to further
expand opportunities for the Piling segment with the expansion of
screw piling design, manufacturing and installation capabilities.
Screw piling is favoured on SAGD and power transmission projects
because of its low cost and high efficiency. The Piling segment is
also expected to benefit from the addition of revenues related to
Cyntech's pipeline anchoring systems business. To date, Cyntech has
established an international market for its patented anchoring
systems with customers in Canada, the US, Malaysia, Thailand,
Indonesia and Russia and the Company is now positioned to cross
market this technology to its own pipeline customers.
The Pipeline segment anticipates another quarter of improved
results as work progresses on TransCanada Pipelines' NPS
Groundbirch Mainline project and Spectra Energy's Maxhamish Loop
project. Both projects are scheduled for completion by the end of
the third quarter. The Pipeline segment also expects to complete a
small maintenance project for Shell Albian at the Muskeg River
Mine. Going forward, this segment will be targeting additional oil
sands pipeline maintenance contracts, with the goal of developing a
stable base of profitable recurring services work in this
segment.
Overall the Company is encouraged by the improving market
conditions and by the new opportunities created by the Cyntech
acquisition.
Conference Call and Webcast
Management will hold a conference call and webcast to discuss
its financial results for the three and six months ended September
30, 2010 tomorrow, Wednesday, November 3, 2010 at 9:00 am Eastern
time.
The call can be accessed by dialing:
Toll free: 1-877-407-9205 or International: 1-201-689-8054
A replay will be available through December 3, 2010 by
dialing:
Toll Free: 1-877-660-6853 or International: 1-201-612-7415
(Account: 286 Conference ID: 359795)
Interim Consolidated Balance Sheets
(Expressed in thousands of Canadian dollars)
September 30, March 31,
2010 2010
---------------------------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 56,180 $ 103,005
Accounts receivable, net (allowance
for doubtful accounts of $236, March
2010 - $ 1,691) 101,525 111,884
Unbilled revenue 137,197 84,702
Inventories 4,906 3,047
Prepaid expenses and deposits 10,511 6,881
Deferred tax assets 2,785 3,481
---------------------------------
313,104 313,000
Prepaid expenses and deposits 3,214 4,005
Assets held for sale 2,233 838
Property, plant and equipment 331,314 331,355
Investment in and advances to
unconsolidated joint venture 3,691 2,917
Intangible assets, net (accumulated
amortization of $5,850 March 2010 - $4,591) 8,433 7,669
Goodwill 25,111 25,111
Deferred financing costs 8,398 6,725
Deferred tax assets 44,109 10,997
---------------------------------
$ 739,607 $ 702,617
---------------------------------
---------------------------------
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities:
Accounts payable $ 106,231 $ 66,876
Accrued liabilities 33,475 47,191
Billings in excess of costs
incurred and estimated earnings on
uncompleted contracts 4,024 1,614
Current portion of capital lease
obligations 4,416 5,053
Current portion of term facilities 14,000 6,072
Current portion of derivative
financial instruments 2,743 22,054
Deferred tax liabilities 31,435 16,781
---------------------------------
196,324 165,641
Long term accrued liabilities 16,625 14,943
Capital lease obligations 6,212 8,340
Deferred lease inducements 707 761
Term facilities 59,446 22,374
8 3/4% senior notes - 203,120
Series 1 debentures 225,000 -
Derivative financial instruments 12,790 75,001
Other long-term obligations 7,547 3,578
Asset retirement obligation 377 360
Deferred tax liabilities 42,199 27,441
---------------------------------
567,227 521,559
Shareholders' equity:
Common shares (authorized - unlimited number
of voting common shares; issued and
outstanding - September 30, 2010 -
36,110,436 (March 31, 2010 - 36,049,276) 303,927 303,505
Additional paid-in capital 6,279 7,439
Deficit (137,826) (129,886)
---------------------------------
172,380 181,058
---------------------------------
$ 739,607 $ 702,617
---------------------------------
---------------------------------
Interim Consolidated Statements of Operations and Comprehensive Income
(Loss)
(Expressed in thousands of Canadian dollars, except per share amounts)
Three Months Ended Six Months Ended
September 30, September 30,
---------------------------------------------
2010 2009 2010 2009
---------------------------------------------
Revenue $ 234,858 $ 170,702 $ 418,452 $ 317,221
Project costs 132,440 65,437 209,717 119,699
Equipment costs 46,358 44,359 111,361 90,403
Equipment operating lease
expense 18,909 15,684 36,400 28,033
Depreciation 8,054 11,426 16,257 20,150
---------------------------------------------
Gross profit 29,097 33,796 44,717 58,936
General and administrative
costs 15,286 13,918 29,015 28,894
Loss on disposal of
property plant and equipment 585 260 581 301
(Gain) loss on disposal of
assets held for sale (25) 41 (25) (276)
Amortization of intangible
assets 672 417 1,260 910
Equity in loss of unconsolidated
joint venture 274 223 517 32
---------------------------------------------
Operating income before the
undernoted 12,305 18,937 13,369 29,075
Interest expense, net 7,708 6,409 15,437 12,961
Foreign exchange loss (gain) 49 (18,045) (1,648) (37,481)
Realized and unrealized (gain) loss
on derivative financial
instruments (1,308) 25,154 1,700 35,175
Loss on debt extinguishment - - 4,346 -
Other (income) expense (9) (200) (9) 333
---------------------------------------------
Income (loss) before income
taxes 5,865 5,619 (6,457) 18,087
Income taxes (benefit)
Current 3,259 1,264 4,487 1,264
Deferred 237 56 (3,004) 2,597
---------------------------------------------
Net income (loss) and
comprehensive income (loss)
for the period 2,369 4,299 (7,940) 14,226
---------------------------------------------
---------------------------------------------
Net income (loss) per share -
basic $ 0.07 $ 0.12 $ (0.22) $ 0.39
---------------------------------------------
---------------------------------------------
Net income (loss) per share -
diluted $ 0.06 $ 0.12 $ (0.22) $ 0.39
---------------------------------------------
---------------------------------------------
Interim Consolidated Statements of Cash Flows
(Expressed in thousands of Canadian dollars)
Three Months Ended Six Months Ended
September 30, September 30,
------------------------------------------
2010 2009 2010 2009
------------------------------------------
Cash provided by (used in):
Operating activities:
Net income (loss) for the period $2,369 $4,299 $(7,940) $ 14,226
Items not affecting cash:
Depreciation 8,054 11,426 16,257 20,150
Equity in loss of
unconsolidated joint venture 274 223 517 32
Amortization of intangible
assets 672 417 1,260 910
Amortization of deferred lease
inducements (27) (35) (54) (61)
Amortization of deferred
financing costs 357 838 883 1,643
Loss on disposal of property,
plant and equipment 585 260 581 301
(Gain) loss on disposal of
assets held for sale (25) 41 (25) (276)
Unrealized foreign exchange
gain on 8 3/4% senior notes - (18,060) (732) (37,600)
Unrealized (gain) loss on
derivative financial instruments
measured at fair value (1,308) 21,290 1,700 27,975
Loss on debt extinguishment - - 4,346 -
Stock-based compensation
expense 2,087 632 2,926 2,449
Accretion of asset retirement
obligation 9 (21) 17 (12)
Deferred income taxes (benefit) 237 56 (3,004) 2,597
Net changes in non-cash working
capital (16,496) 2,364 (4,140) (16,326)
------------------------------------------
(3,212) 23,730 12,592 16,008
------------------------------------------
Investing activities:
Acquisition - (4,880) - (4,880)
Purchase of property, plant and
equipment (10,759) (23,239) (16,777) (42,460)
Addition to intangible assets (1,453) (316) (2,024) (805)
Additions to assets held for
sale (1,703) (933) (1,703) (933)
Investment in and advances to
unconsolidated joint venture (750) (486) (1,291) (986)
Proceeds on disposal of
property, plant and equipment - 558 60 696
Proceeds on disposal of assets
held for sale 300 152 300 1,112
Net changes in non-cash working
capital (1,252) 3,919 (4,020) 2,647
------------------------------------------
(15,617) (25,225) (25,455) (45,609)
------------------------------------------
Financing activities:
Repayment of term facilities (2,500) (652) (5,000) (652)
Increase in term facilities - 21,200 50,000 33,000
Financing costs (216) (8) (7,920) (1,123)
Redemption of 8 3/4% senior notes - - (202,410) -
Issuance of series 1 debentures - - 225,000 -
Settlement of swap liabilities - - (91,125) -
Cash settlement of stock
options - (66) - (66)
Proceeds from stock options
exercised 241 - 305 -
Repayment of capital lease
obligations (1,384) (1,477) (2,812) (2,947)
------------------------------------------
(3,859) 18,997 (33,962) 28,212
------------------------------------------
(Decrease) increase in cash and
cash equivalents (22,688) 17,502 (46,825) (1,389)
Cash and cash equivalents,
beginning of period 78,868 79,989 103,005 98,880
------------------------------------------
Cash and cash equivalents, end
of period $ 56,180 $ 97,491 $56,180 $ 97,491
------------------------------------------
------------------------------------------
Non-GAAP Financial Measures
This release contains non-GAAP financial measures. These
measures do not have standardized meanings under Canadian GAAP or
U.S. GAAP and are therefore unlikely to be comparable to similar
measures used by other companies. The non-GAAP financial measure
disclosed by the Company in this press release is Consolidated
EBITDA (as defined within the credit agreement). The Company
provides a reconciliation of Consolidated EBITDA to net income
reported in accordance with US GAAP below. Investors and readers
are encouraged to review the reconciliation of this non-GAAP
financial measure to reported net income.
Consolidated EBITDA
Consolidated EBITDA is a measure defined by the Company's credit
agreement. This measure is defined as EBITDA (which is calculated
as net income before interest, income taxes, depreciation and
amortization) excluding the effects of unrealized foreign exchange
gain or loss, realized and unrealized gain or loss on derivative
financial instruments, non-cash stock-based compensation expense,
gain or loss on disposal of property, plant and equipment and
certain other non-cash items included in the calculation of net
income. The credit agreement requires the Company to maintain a
minimum interest coverage ratio and a maximum senior leverage
ratio, which are calculated using Consolidated EBITDA.
Non-compliance with these financial covenants could result in the
Company being required to immediately repay all amounts outstanding
under its credit facility. Consolidated EBITDA should not be
considered as an alternative to operating income or net income as a
measure of operating performance or cash flows as a measure of
liquidity. Consolidated EBITDA has important limitations as an
analytical tool and should not be considered in isolation or as a
substitute for analysis of the Company's results as reported under
Canadian GAAP or US GAAP. For example, Consolidated EBITDA:
- does not reflect cash expenditures or requirements for capital
expenditures or capital commitments;
- does not reflect changes in cash requirements for working
capital needs;
- does not reflect the interest expense or the cash requirements
necessary to service interest or principal payments on debt;
- excludes tax payments that represent a reduction in cash
available to the Company; and
- does not reflect any cash requirements for assets being
depreciated and amortized that may have to be replaced in the
future.
Consolidated EBITDA also excludes unrealized foreign exchange
gains and losses and realized and unrealized gains and losses on
derivative financial instruments, which, in the case of unrealized
losses, may ultimately result in a liability that will need to be
paid and in the case of realized losses, represents an actual use
of cash during the period.
A reconciliation of net income to Consolidated EBITDA is as
follows:
Three Months Ended Six Months Ended
Sept. 30, Sept. 30,
(dollars in thousands) 2010 2009 2010 2009
----------------------------------------------------------------------------
Net income (loss) $ 2,369 $ 4,299 $ (7,940) $ 14,226
Adjustments:
Interest expense 7,708 6,409 15,437 12,961
Income taxes 3,496 1,320 1,483 3,861
Depreciation 8,054 11,426 16,257 20,150
Amortization of
intangible assets 672 417 1,260 910
Unrealized foreign
exchange (gain) loss on senior
notes - (18,060) - (37,600)
Realized and unrealized (gain)
loss on derivative financial
instruments (1,308) 25,154 1,700 35,175
(Gain) loss on disposal of plant
and equipment and assets held
for sale 560 301 556 25
Stock-based compensation
expense 784 489 1,194 1,632
Equity in earnings of
unconsolidated joint venture 274 223 517 32
Loss on debt extinguishment - - 4,324 -
--------------------------------------------
Consolidated EBITDA $ 22,609 $ 31,978 $ 34,788 $ 51,372
--------------------------------------------
--------------------------------------------
Forward-Looking Information
This release contains forward-looking information that is based
on expectations and estimates as of the date of this release.
Forward-looking information is information that is subject to known
and unknown risks and other factors that may cause future actions,
conditions or events to differ materially from the anticipated
actions, conditions or events expressed or implied by such
forward-looking information. Forward-looking information is
information that does not relate strictly to historical or current
facts and can be identified by the use of the future tense or other
forward-looking words such as "believe", "expect", "anticipate",
"intend", "plan", "estimate", "should", "may", "could", "would",
"target", "objective", "projection", "forecast", "continue",
"strategy", "position" or the negative of those terms or other
variations of them or comparable terminology.
Examples of such forward-looking information in this release
include but are not limited to, the following, each of which is
subject to significant risks and uncertainties and is based on a
number of assumptions which may prove to be incorrect:
(A) information related to the level of activity in the
Company's key markets and demand for the Company's services,
including (1) the anticipation of improved operating conditions and
strengthening of demand for services through the second half of the
fiscal year despite some continuing weather-related delays and
lingering impacts of the global recession, (2) the expectation for
recurring services demand to grow with all operating oil sands
mines back in full production, (3) opportunities on the project
development side of the Company's business continuing to increase
as oil sands momentum rebuilds and the commercial and industrial
construction markets recover, (4) additional recurring revenue
growth opportunities materializing as a result of the Cyntech
acquisition, (5) new developments such as Husky Energy Inc.'s
Sunrise, ConocoPhillips' Surmont and Suncor's Firebag SAGD (Steam
Assisted Gravity Drainage) projects providing additional project
development opportunities as they reach the construction phase
and
(6) activity levels increasing as market conditions continue to
improve and projects delayed by poor weather conditions in the
first half of the year resume construction; is subject to the risks
and uncertainties that: continued reduced demand for oil and other
commodities as a result of slowing market conditions in the global
economy may result in reduced oil production and a decline in oil
prices; anticipated new major capital projects in the oil sands may
not materialize; demand for the Company's services may be adversely
impacted by regulations affecting the energy industry; failure by
the Company's customers to obtain required permits and licenses may
affect the demand for the Company's services; changes in the
Company's customers' perception of oil prices over the long-term
could cause its customers to defer, reduce or stop their capital
investment in oil sands projects, which would, in turn, reduce the
Company's revenue from those customers; reduced financing as a
result of the tightening credit markets may affect the Company's
customers' decisions to invest in infrastructure projects;
insufficient pipeline, upgrading and refining capacity or lack of
sufficient governmental infrastructure to support growth in the oil
sands region could cause the Company's customers to delay, reduce
or cancel plans to construct new oil sands projects or expand
existing projects, which would, in turn, reduce the Company's
revenue from those customers; a change in strategy by the Company's
customers to reduce outsourcing could adversely affect the
Company's results; cost overruns by the Company's customers on
their projects may cause its customers to terminate future projects
or expansions which could adversely affect the amount of work the
Company receives from those customers; because most of the
Company's customers are Canadian energy companies, a further
downturn in the Canadian energy industry could result in a decrease
in the demand for its services; and unanticipated short term
shutdowns of the Company's customers' operating facilities may
result in temporary cessation or cancellation of projects in which
the Company is participating; and
(B) information related to the future performance of the
Company, including (1) the Company's ability to cross market
pipeline anchoring technology to its own pipeline customers and
realize the benefits of additional revenues from this business, (2)
the completion of TransCanada Pipelines' NPS Groundbirch Mainline
project and Spectra Energy's Maxhamish Loop project by the end of
the third quarter and (3) improving operating performance as the
year progresses; is subject to the risks and uncertainties that:
shortages of qualified personnel or significant labour disputes
could adversely affect the Company's business; if the Company is
unable to obtain surety bonds or letters of credit required by some
of its customers, the Company's business could be impaired; the
Company is dependent on its ability to lease equipment and a
tightening of this form of credit could adversely affect the
Company's ability to bid for new work and/or supply some of its
existing contracts; a deterioration of credit market conditions may
restrict the Company's ability to secure new debt financing and/or
increase the cost; the Company's business is highly competitive and
competitors may outbid the Company on major projects that are
awarded based on bid proposals; the Company's customer base is
concentrated and the loss of or a significant reduction in business
from a major customer could adversely impact the Company's
financial condition; lump-sum and unit-price contracts expose the
Company to losses when its estimates of project costs are lower
than actual costs; the Company's operations are subject to
weather-related factors that may cause delays in its project work;
and environmental laws and regulations may expose the Company to
liability arising out of its operations or the operations of its
customers.
While management anticipates that subsequent events and
developments may cause its views to change, the Company does not
intend to update this forward-looking information, except as
required by applicable securities laws. This forward-looking
information represents management's views as of the date of this
document and such information should not be relied upon as
representing their views as of any date subsequent to the date of
this document. The Company has attempted to identify important
factors that could cause actual results, performance or
achievements to vary from those current expectations or estimates
expressed or implied by the forward-looking information. However,
there may be other factors that cause results, performance or
achievements not to be as expected or estimated and that could
cause actual results, performance or achievements to differ
materially from current expectations. There can be no assurance
that forward-looking information will prove to be accurate, as
actual results and future events could differ materially from those
expected or estimated in such statements. Accordingly, readers
should not place undue reliance on forward-looking information.
These factors are not intended to represent a complete list of the
factors that could affect the Company. See the risk factors
highlighted in materials filed with the securities regulatory
authorities in the United States and Canada from time to time,
including but not limited to the most recent Management's
Discussion and Analysis filed respectively in the United States and
Canada.
For more complete information about NAEP, you should read the
disclosure documents filed with the SEC and the CSA. You may obtain
these documents for free by visiting the SEC website at www.sec.gov
or SEDAR on the CSA website at www.sedar.com.
About the Company
North American Energy Partners Inc. (www.naepi.ca) is one of the
largest providers of heavy construction, mining, piling and
pipeline services in Western Canada. For more than 50 years, NAEP
has provided services to large oil, natural gas and resource
companies, with a principal focus on the Canadian oil sands. NAEP
maintains one of the largest independently owned equipment fleets
in the region.
Contacts: North American Energy Partners Inc. Kevin Rowand
Investor Relations (780) 969-5528 (780) 969-5599 (FAX)
krowand@nacg.ca
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