Calfrac Announces Third Quarter Results CALGARY, Nov. 4 /CNW/ - Calfrac Well Services Ltd. ("Calfrac" or "the
Company") (TSX-CFW) announces its financial and operating results for the
three months and nine months ended September 30, 2009.
HIGHLIGHTS
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Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 Change 2009 2008 Change
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(000s, except ($) ($) (%) ($) ($) (%)
per share and
unit data)
(unaudited)
Financial
Revenue 133,261 151,650 (12) 418,376 391,933 7
Operating
income(1) 16,499 27,812 (41) 47,978 56,281 (15)
Net income
(loss) 2,842 11,203 (75) (6,400) 10,003 (164)
Per share
- basic 0.08 0.30 (73) (0.17) 0.27 (163)
Per share
- diluted 0.08 0.30 (73) (0.17) 0.27 (163)
Funds
provided by
operations(2) 12,199 27,128 (55) 35,040 55,909 (37)
Per share
- basic 0.32 0.72 (56) 0.93 1.48 (37)
Per share
- diluted 0.32 0.72 (56) 0.93 1.48 (37)
EBITDA(3) 15,112 26,983 (44) 45,397 57,216 (21)
Per share
- basic 0.40 0.71 (44) 1.20 1.52 (21)
Per share
- diluted 0.40 0.71 (44) 1.20 1.52 (21)
Working capital
(end of
period) 103,331 104,700 (1) 103,331 104,700 (1)
Shareholders'
equity (end
of period) 378,972 378,890 - 378,972 378,890 -
Weighted
average common
shares
outstanding
(No.)
Basic 37,742 37,843 - 37,742 37,653 -
Diluted 37,742 37,853 - 37,742 37,681 -
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Operating (end
of period)
Pumping
horsepower
(000s) 371 287 29
Coiled tubing
units (No.) 18 18 -
Cementing
units (No.) 21 18 17
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(1) Operating income is defined as net income (loss) plus depreciation,
interest, equity share of net income from long-term investments,
foreign exchange gains or losses, gains or losses on disposal of
capital assets, income taxes and non-controlling interest. Management
believes that operating income is a useful supplemental measure as it
provides an indication of the financial results generated by
Calfrac's business segments prior to consideration of how these
segments are financed or how they are taxed. Operating income is a
measure that does not have any standardized meaning under generally
accepted accounting principles ("GAAP") and, accordingly, may not be
comparable to similar measures used by other companies.
(2) Funds provided by operations is defined as cash provided by operating
activities before the net change in non-cash operating assets and
liabilities. Funds provided by operations is a measure that provides
shareholders and potential investors with additional information
regarding the Company's liquidity and its ability to generate funds
to finance its operations. Management utilizes this measure to assess
the Company's ability to finance operating activities and capital
expenditures. Funds provided by operations is a measure that does not
have any standardized meaning prescribed under GAAP and, accordingly,
may not be comparable to similar measures used by other companies.
(3) EBITDA is defined as net income (loss) before interest, taxes,
depreciation, amortization and non-controlling interest. EBITDA is
presented because it is frequently used by securities analysts and
others for evaluating companies and their ability to service debt.
EBITDA is a measure that does not have any standardized meaning
prescribed under GAAP and, accordingly, may not be comparable to
similar measures used by other companies.
PRESIDENT'S MESSAGEI am pleased to present Calfrac's operating and financial highlights for the three and nine months ended September 30, 2009 and discuss our prospects for the remainder of the year. During the third quarter, our Company:
- acquired the fracturing assets of a U.S. competitor, Pure Energy
Services Ltd. ("Pure"), for a total purchase price of approximately
$44.5 million, including transaction costs;
- entered into a definitive agreement to acquire Century Oilfield
Services Inc. ("Century") for $90.0 million plus the assumption of
approximately $30.0 million in indebtedness and other liabilities on
an aggregate net basis;
- negotiated an increase to the Company's credit facilities to $170.0
million, which includes a $35.0 million incremental facility
available upon closing of the Century acquisition, with a syndicate
of Canadian financial institutions;
- commenced cementing operations in the Chicontepec region of Mexico;
and
- experienced strong levels of fracturing and coiled tubing activity in
Western Siberia.
Financial Highlights
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For the three months ended September 30, 2009, the Company recorded:
- revenue of $133.3 million, a decrease of 12 percent from the third
quarter of 2008;
- operating income of $16.5 million versus $27.8 million in the
comparable period in 2008;
- net income of $2.8 million or $0.08 per share, including a foreign
exchange loss before income taxes of $1.8 million, compared to $11.2
million or $0.30 per share in the same period in 2008; and
- a $5.5 million or $0.15 per share future income tax recovery arising
from a reversal of the increase in the deferred credit balance that
was recorded in the first half of the year as the Company has
adjusted its estimated tax position for the full year in Canada.
For the nine months ended September 30, 2009, the Company's results
included:
- revenue of $418.4 million, an increase of 7 percent from the
comparable period of 2008;
- a net loss of $6.4 million or $0.17 per share, including a foreign
exchange loss of $3.9 million, compared to net income of $10.0
million or $0.27 per share in the same period in 2008;
- funds provided by operations of $35.0 million or $0.93 per share
versus $55.9 million or $1.48 per share in the same quarter of 2008;
and
- working capital of $103.3 million and $72.9 million of unutilized
credit facilities at the end of the period.
Overall, Calfrac continues to benefit from its solid presence in several
key North American unconventional resource plays, where drilling activity
remains relatively strong and revenue per job is high, as well as the positive
momentum achieved in its international markets.Operational Highlights -------------------------------------------------------------------------Canada During the third quarter, fracturing and coiled tubing activity in western Canada continued to be concentrated in the unconventional natural gas resource plays of the Montney and Horn River basins located in northern Alberta and northeast British Columbia. The Company completed a large-scale operation working together with a major oil and natural gas company in the Horn River region as the general contractor as well as maintained steady activity in the Deep Basin under the terms of a take-or-pay contract. Calfrac also expanded its presence in the Bakken oil play in southeast Saskatchewan during the third quarter. However, shallow gas and coalbed methane fracturing activity levels remained relatively slow during the quarter as a result of the low natural gas price environment. A full quarter's benefit was realized from the cost rationalization measures undertaken early in the second quarter, which partially mitigated the financial impact of the drilling slowdown in western Canada. United States In August, Calfrac acquired the fracturing assets of a U.S. competitor for approximately $44.5 million. This was a counter-cyclical acquisition deliberately undertaken during a period of lower activity levels and associated reduced asset valuations. This form of acquisition is in keeping with Calfrac's model for growth, which emphasizes organic growth during periods of higher asset pricing and cost effective acquisitions during periods of lower activity. This equipment had been deployed by the competitor in the Piceance Basin and it continued to operate in this basin as the Company experienced a resurgence in activity in this operating region during the latter part of the third quarter. Activity levels in the Denver Julesburg Basin also increased from the historical low levels experienced during the second quarter. In Arkansas, fracturing and cementing activity levels remained strong during the third quarter while competitive pricing pressures appear to have stabilized. Russia In Western Siberia, strong fracturing and coiled tubing activity levels resulted in strong financial performance from this geographic segment. However, Calfrac's reported Canadian dollar financial results were negatively impacted by an 18 percent decline in the value of the Russian rouble from the third quarter of 2008. The Company is currently preparing tenders for the 2010 annual contract bid process and is optimistic about Calfrac's prospects for the upcoming year. Mexico The Company's fracturing activity in the Chicontepec region increased significantly from the second quarter of 2009 due to the deployment of a second fracturing spread and the impact of a full quarter of operations offsetting a decline in fracturing activity in the Burgos field. The Company also deployed six cementing units from Canada into Mexico during the third quarter and early in the fourth quarter and commenced cementing operations in Chicontepec in mid-September. Argentina During the third quarter, activity in the Company's cementing operations in Argentina declined slightly from the record levels experienced in the previous three-month period, however, Calfrac continues to generate strong operating margins in this market. The Company employed a conservative approach in entering this new market during the second quarter of 2008 and continues to prudently evaluate and develop new market opportunities as the Argentina business environment evolves. Corporate On September 21, 2009, Calfrac announced that it had entered into a definitive agreement to pay $90.0 million for all of the issued and outstanding common shares of Century Oilfield Services Inc. plus the assumption of approximately $30.0 million in indebtedness and other liabilities on an aggregate net basis. This transaction is scheduled to close in mid-November 2009. This transaction would provide the Company with equipment built similar to Calfrac's specifications at a good valuation, a larger presence within the Montney, Horn River and Bakken unconventional resource plays and make Calfrac the largest Canadian fracturing service provider in terms of fracturing pumping capacity. Also during the third quarter, Calfrac purchased the fracturing assets of a U.S. competitor, Pure Energy Services Ltd. for total consideration of approximately $44.5 million and added approximately 45,000 of pumping horsepower. Pure Energy's equipment was manufactured to similar specifications as a majority of Calfrac's equipment fleet and averages less than three years old. During the third quarter, and in conjunction with the two acquisitions discussed above, the Company negotiated an increase to its credit facilities from $90.0 million to $170.0 million with a consortium of Canadian financial institutions, including a $35.0 million incremental facility available upon closing of the Century acquisition. The terms of the new covenant structure are more favourable than the previous facility, providing further flexibility to the Company. Outlook and Business Prospects -------------------------------------------------------------------------The global economic slowdown has reduced the demand for oil and natural gas which has led to a significant decline in drilling activity in Canada and the United States as well as increased price competition for oilfield services. North American natural gas prices are anticipated to remain at lower levels over the short term. The Company has thoroughly realigned its cost structure through significant workforce reductions in Canada and the United States, wage and retirement contribution rollbacks as well as cuts to discretionary operating expenses. The Company also suspended primary cementing operations in the Canadian market during April and redeployed six cementing units into Mexico during the third quarter and early in the fourth quarter. These measures have contributed to maintaining the Company's strong financial condition as we enter the fourth quarter. Working capital as at September 30, 2009 was approximately $103.3 million. Fracturing and coiled tubing activity levels in Canada are expected to improve in the fourth quarter and into 2010. Oil and natural gas drilling and completion activity is anticipated to be focused in the unconventional resource plays of northwest Alberta, northeast British Columbia and southeast Saskatchewan. With the closing of the acquisition of Century, Calfrac will have a larger presence in the fracturing and coiled tubing markets in Canada. In the United States, fracturing and cementing activity in the Fayetteville shale play of Arkansas is expected to remain relatively strong throughout the remainder of 2009. While the Company experienced significant pricing pressure in this market earlier in 2009, Calfrac believes that pricing levels have stabilized. The addition of the fracturing assets acquired from Pure during the third quarter has allowed Calfrac to capitalize on the increase in completion activity in the Rocky Mountain region that has occurred in the last quarter. Calfrac believes that activity levels in this region will be reasonably strong throughout the remainder of the year. Early in the fourth quarter, the Company redeployed a large fracturing crew from the Rocky Mountain region to Pennsylvania as it commenced operations servicing the Marcellus shale play. Calfrac recently deployed a sixth coiled tubing unit into Western Siberia and it is expected to be operational late in the fourth quarter of 2009. The annual contract tender process is currently underway in Russia and the Company is optimistic that its three fracturing spreads and six coiled tubing units will be highly utilized during 2010. The Company commenced fracturing operations in Poza Rica, Mexico servicing the Chicontepec oil and natural gas field for Pemex during the second quarter and continued to diversify its pressure pumping operations in Mexico with the commencement of cementing operations during September. Calfrac's Mexican equipment fleet is currently comprised of three fracturing spreads and six cementing units. This expansion is anticipated to lead to higher levels of overall equipment utilization and to improve the financial performance of this geographic segment for the remainder of 2009 and into the future. Calfrac added a third cementing unit in Argentina during the third quarter of 2009. The Company's Latin America management team will continue to evaluate growth opportunities to broaden the scale of these operations in this market. The Company has negotiated with its lenders to increase its credit facilities by $80.0 million to $170.0 million, including a $35.0 million incremental facility available upon the closing of the Century acquisition. At September 30, 2009, Calfrac has utilized approximately $62.1 million of these facilities with remaining borrowing capacity of approximately $107.9 million, including a $35.0 million incremental facility available upon closing of the Century acquisition, should it be required. Overall, demand for pressure pumping services in North America over the short term remains unclear, however, Calfrac's long-term outlook for the pressure pumping industry remains strong. Calfrac has rationalized its cost structure and streamlined its operating efficiencies. Calfrac's geographical diversification continues to benefit the Company and it believes that the improving financial performance of its international segments can be extended. The Company will maintain its strong balance sheet and continue to execute on its strategy through these difficult market conditions. Calfrac believes that the strengths of its business model and its conservative approach to the current economic challenges leave it well-positioned to capitalize on future opportunities. On behalf of the Board of Directors, Douglas R. Ramsay President & Chief Executive Officer November 4, 2009 2009 Overview ------------------------------------------------------------------------- In the third quarter of 2009, the Company: - generated revenue of $133.3 million versus $151.7 million in the third quarter of 2008; - reported net income of $2.8 million or $0.08 per share, including a $5.5 million future income tax recovery arising from a reversal of the increase in the deferred credit balance that was recorded in the first half of the year as the Company has adjusted its estimated tax position for the full year in Canada, compared to $11.2 million or $0.30 per share in the comparable 2008 period; - announced the acquisition of Century Oilfield Services Inc. for $90.0 million plus the assumption of approximately $30.0 million in indebtedness and other liabilities on an aggregate net basis, the closing of which is to occur in mid-November 2009; - acquired the fracturing assets of a U.S. competitor, Pure Energy Services Ltd., for a total purchase price of approximately $44.5 million; - negotiated an increase to the Company's credit facilities to $170.0 million, including a $35.0 million incremental facility available upon the closing of the Century acquisition for a period of approximately six months thereafter subject to extension at the lender's discretion, with a syndicate of Canadian financial institutions; and - recorded a foreign exchange loss of $1.8 million versus $0.7 million in the comparable period of 2008. For the nine months ended September 30, 2009 the Company: - increased revenue by 7 percent to $418.4 million from $391.9 million in the comparative period in 2008; - reported a net loss of $6.4 million or $0.17 per share compared to net income of $10.0 million or $0.27 per share in the comparable 2008 period; - incurred capital expenditures of $83.9 million, including the acquisition of Pure's fracturing assets, primarily to bolster the Company's fracturing equipment fleet; - combined Calfrac's Mexico and Argentina operations under an experienced management team to form a new Latin America division; - initiated cost reduction measures in Canada and the United States through workforce planning which resulted in restructuring costs of approximately $1.5 million during the first nine months of 2009; and - incurred a foreign exchange loss of $3.9 million versus a foreign exchange gain of $0.8 million in the comparable period of 2008. Financial Overview - Three Months Ended September 30, 2009 Versus 2008 ------------------------------------------------------------------------- Canada ------------------------------------------------------------------------- Three Months Ended September 30, 2009 2008 Change ------------------------------------------------------------------------- (000s, except operational information) ($) ($) (%) (unaudited) Revenue 45,463 75,294 (40) Expenses Operating 37,221 55,542 (33) Selling, General and Administrative (SG&A) 2,152 3,064 (30) ------------------------------- 39,373 58,606 (33) ------------------------------- Operating income(1) 6,090 16,688 (64) Operating income (%) 13.4% 22.2% (40) Fracturing revenue per job ($) 83,910 68,966 22 Number of fracturing jobs 496 915 (46) Coiled tubing revenue per job ($) 14,784 11,384 30 Number of coiled tubing jobs 260 738 (65) ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) Refer to "Non-GAAP Measures" on page 15 for further information.Revenue Revenue from Calfrac's Canadian operations during the third quarter of 2009 was $45.5 million versus $75.3 million in the comparable three-month period of 2008. The 40 percent decrease in revenue was primarily due to lower fracturing and coiled tubing activity and the impact of suspending cementing operations in Canada during the second quarter of 2009 offset partially by the completion of larger jobs in the unconventional resource plays located in northern Alberta and northeast British Columbia. Operating Expenses Operating expenses in Canada decreased by 33 percent to $37.2 million during the third quarter of 2009 from $55.5 million in the same period of 2008. The decrease in Canadian operating expenses was mainly due to lower overall fracturing and coiled tubing activity levels combined with lower personnel costs as a result of the impact of restructuring initiatives undertaken during the second quarter of 2009. SG&A Expenses SG&A expenses for Calfrac's Canadian operations during the third quarter of 2009 decreased from the corresponding period in 2008 by 30 percent to $2.2 million primarily due to lower compensation expenses. United States << ------------------------------------------------------------------------- Three Months Ended September 30, 2009 2008 Change ------------------------------------------------------------------------- (000s, except operational and exchange rate information) ($) ($) (%) (unaudited) Revenue 52,524 54,568 (4) Expenses Operating 45,257 38,985 16 SG&A 1,585 2,184 (27) ------------------------------- 46,842 41,169 14 ------------------------------- Operating income(1) 5,682 13,399 (58) Operating income (%) 10.8% 24.6% (56) Fracturing revenue per job ($) 56,313 59,197 (5) Number of fracturing jobs 883 859 3 Cementing revenue per job ($) 18,786 13,869 35 Number of cementing jobs 149 268 (44) Cdn$/US$ average exchange rate(2) 1.0976 1.0416 5 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) Refer to "Non-GAAP Measures" on page 15 for further information. (2) Source: Bank of Canada. >> RevenueRevenue from Calfrac's United States operations decreased during the third quarter of 2009 to $52.5 million from $54.6 million in the comparable quarter of 2008. The decrease in United States revenue was due primarily to lower fracturing activity levels in the Rocky Mountain region, lower cementing activity levels and competitive pricing pressures, offset partially by the appreciation in the value of the United States dollar, higher fracturing activity levels and job sizes in Arkansas and the completion of larger cementing jobs. Operating Expenses Operating expenses in the United States were $45.3 million for the third quarter of 2009, an increase of 16 percent from the comparative period in 2008 primarily due to the impact of the higher value of the United States dollar, increased usage of proppant resulting from the completion of larger fracturing jobs in Arkansas and higher equipment repair expenses. SG&A Expenses SG&A expenses in the United States during the third quarter of 2009 decreased by 27 percent from the comparable period in 2008 to $1.6 million primarily due to lower personnel expenses, offset partially by the appreciation in the value of the United States dollar. Russia << ------------------------------------------------------------------------- Three Months Ended September 30, 2009 2008 Change ------------------------------------------------------------------------- (000s, except operational and exchange rate information) ($) ($) (%) (unaudited) Revenue 17,774 15,197 17 Expenses Operating 10,735 10,561 2 SG&A 888 1,061 (16) ------------------------------- 11,623 11,622 - ------------------------------- Operating income(1) 6,151 3,575 72 Operating income (%) 34.6% 23.5% 47 Fracturing revenue per job ($) 74,572 123,721 (40) Number of fracturing jobs 147 64 130 Coiled tubing revenue per job ($) 45,112 59,665 (24) Number of coiled tubing jobs 151 122 24 Cdn$/rouble average exchange rate(2) 0.0350 0.0429 (18) ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) Refer to "Non-GAAP Measures" on page 15 for further information. (2) Source: Bank of Canada. >> RevenueDuring the third quarter of 2009, the Company's revenue from Russian operations increased by 17 percent to $17.8 million from $15.2 million in the corresponding three-month period of 2008 mainly due to higher fracturing and coiled tubing activity levels being partially offset by smaller job sizes, lower annual contract pricing and the depreciation of the Russian rouble by 18 percent versus the Canadian dollar. Operating Expenses Operating expenses in Russia in the third quarter of 2009 were $10.7 million compared to $10.6 million in the corresponding period of 2008. The increase in operating expenses was primarily due to the higher revenue base and equipment utilization offset partially by the depreciation in the Russian rouble against the Canadian dollar. SG&A Expenses SG&A expenses in Russia were $0.9 million for the three-month period ended September 30, 2009 versus $1.1 million in the same quarter of 2008. The decrease was primarily due to the depreciation of the Russian rouble. Latin America << ------------------------------------------------------------------------- Three Months Ended September 30, 2009 2008 Change ------------------------------------------------------------------------- (000s, except operational and exchange rate information) ($) ($) (%) (unaudited) Revenue 17,500 6,591 166 Expenses Operating 14,328 7,454 92 SG&A 617 252 145 ------------------------------- 14,945 7,706 94 ------------------------------- Operating income (loss)(1) 2,555 (1,115) 329 Operating income (loss) (%) 14.6% -16.9% 186 Cdn$/Mexican peso average exchange rate(2) 0.0828 0.1009 (18) Cdn$/Argentine peso average exchange rate(2) 0.2846 0.3376 (16) ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) Refer to "Non-GAAP Measures" on page 15 for further information. (2) Source: Bank of Canada. >> RevenueCalfrac's Latin America operations generated total revenue of $17.5 million during the third quarter of 2009 versus $6.6 million in the comparable three-month period in 2008. For the three months ended September 30, 2009 and 2008, revenue generated through subcontractors was $3.2 million and $2.1 million, respectively. The increase in revenue was primarily due to higher fracturing activity with the expansion of the Company's fracturing operations into the Chicontepec region during the second quarter, the completion of larger jobs in Mexico, higher cementing activity levels and larger job sizes in Argentina, combined with the commencement of cementing operations in Mexico during the third quarter of 2009, offset partially by the appreciation of the Canadian dollar versus the Mexican and Argentine peso. Operating Expenses Operating expenses in Latin America for the three months ended September 30, 2009 increased by 92 percent from the comparative period in 2008 to $14.3 million. This increase was primarily due to higher fracturing activity and higher product costs related to the completion of more and larger fracturing jobs in Mexico, costs related to the start-up and commencement of cementing operations in Mexico during the third quarter of 2009, combined with incremental expenses related to higher activity levels and cementing job sizes in Argentina. SG&A Expenses SG&A expenses in Latin America increased to $0.6 million from $0.3 milli on in the comparable quarter of 2008 primarily due to the Company's expanded scale of operations in Mexico and Argentina. Corporate << ------------------------------------------------------------------------- Three Months Ended September 30, 2009 2008 Change ------------------------------------------------------------------------- (000s) ($) ($) (%) (unaudited) Expenses Operating 488 686 (29) SG&A 3,491 4,049 (14) ------------------------------- 3,979 4,735 (16) Operating loss(1) (3,979) (4,735) 16 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) Refer to "Non-GAAP Measures" on page 15 for further information. >> Operating ExpensesOperating expenses primarily relate to manufacturing and R&D personnel located in the Corporate headquarters who directly support the Company's global field operations. The 29 percent decrease in Corporate operating expenses from the third quarter of 2008 is mainly due to lower compensation expenses as a result of a decrease in the number of personnel supporting the Company's operations and the impact of cost-saving initiatives implemented during the second quarter of 2009. SG&A Expenses For the three months ended September 30, 2009, Corporate SG&A expenses decreased by 14 percent from the comparable 2008 period to $3.5 million, mainly due to lower compensation expenses resulting from cost-saving measures implemented early in the second quarter of 2009, offset partially by higher stock-based compensation expenses. Interest and Depreciation Expenses The Company's net interest expense of $3.8 million for the third quarter of 2009 represented an increase of $1.1 million from $2.7 million in the comparable period of 2008. This increase was primarily due to higher reported interest expense related to the Company's unsecured senior notes resulting from the appreciation in the value of the United States dollar and additional interest expense related to the $59.1 million drawdown on the Company's credit facilities. For the three months ended September 30, 2009, depreciation expense increased by 21 percent to $15.4 million from $12.8 million in the corresponding quarter of 2008, mainly as a result of the Company's acquisition of fracturing assets from Pure, a larger fleet of equipment operating in North America and the appreciation in the value of the United States dollar. Foreign Exchange Losses or Gains The Company incurred a foreign exchange loss of $1.8 million during the third quarter of 2009 versus $0.7 million in the comparative three-month period of 2008. Foreign exchange gains and losses arise primarily from the translation of Calfrac's international operations in Russia, Mexico and Argentina using the temporal method. On a quarter-over-quarter basis, the change in foreign exchange losses or gains was mainly due to the impact of the appreciation of the Canadian dollar on foreign assets denominated in United States dollars, Russian roubles, Mexican pesos or Argentine pesos. Income Tax Expenses The Company recorded an income tax recovery of $7.0 million during the third quarter of 2009 compared to income tax expense of $0.3 million in the comparable period of 2008. The effective income tax rate for the three months ended September 30, 2009 was 170 percent compared to an effective tax rate of 3 percent in the same quarter of 2008. The decrease in total income tax expense was primarily due to pre-tax losses in Canada and the United States offset partially by higher profitability in Russia, Mexico and Argentina. During the third quarter, the increase in the deferred credit balance that was recorded in the first half of the year was reversed as the Company has adjusted its estimated tax position for the full year in Canada. This resulted in an additional future income tax recovery of $5.5 million for the three months ended September 30, 2009. Summary of Quarterly Results ------------------------------------------------------------------------- Three Months Ended Dec. 31, Mar. 31, June 30, Sept. 30, 2007 2008 2008 2008 ------------------------------------------------------------------------- (000s, except per share ($) ($) ($) ($) and unit data) (unaudited) Financial Revenue 114,450 145,627 94,657 151,650 Operating income (loss)(1) 19,872 29,477 (1,008) 27,812 Net income (loss) 3,653 14,269 (15,469) 11,203 Per share - basic 0.10 0.38 (0.41) 0.30 Per share - diluted 0.10 0.38 (0.41) 0.30 Funds provided by operations(1) 19,582 28,790 (9) 27,128 Per share - basic 0.53 0.77 - 0.72 Per share - diluted 0.53 0.77 - 0.72 EBITDA(1) 18,790 31,047 (813) 26,983 Per share - basic 0.51 0.83 (0.02) 0.71 Per share - diluted 0.51 0.83 (0.02) 0.71 Capital expenditures 12,101 14,820 19,341 18,414 Working capital (end of period) 92,156 111,989 94,056 104,700 Shareholders' equity (end of period) 350,915 377,056 364,068 378,890 ------------------------------------------------------------------------- Operating (end of period) Pumping horsepower (000s) N/A 232 255 287 Coiled tubing units (No.) 18 18 18 18 Cementing units (No.) 16 17 17 18 ------------------------------------------------------------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- Three Months Ended Dec. 31, Mar. 31, June 30, Sept. 30, 2008 2009 2009 2009 ------------------------------------------------------------------------- (000s, except per share ($) ($) ($) ($) and unit data) (unaudited) Financial Revenue 172,430 180,388 104,727 133,261 Operating income (loss)(1) 25,658 27,427 4,052 16,499 Net income (loss) 7,861 5,528 (14,770) 2,842 Per share - basic 0.21 0.15 (0.39) 0.08 Per share - diluted 0.21 0.15 (0.39) 0.08 Funds provided by operations(1) 24,838 22,713 128 12,199 Per share - basic 0.66 0.60 - 0.32 Per share - diluted 0.66 0.60 - 0.32 EBITDA(1) 26,740 25,945 4,340 15,112 Per share - basic 0.71 0.69 0.11 0.40 Per share - diluted 0.71 0.69 0.11 0.40 Capital expenditures 32,233 15,857 9,862 58,212 Working capital (end of period) 100,575 129,532 111,864 103,331 Shareholders' equity (end of period) 393,476 402,537 380,515 378,972 ------------------------------------------------------------------------- Operating (end of period) Pumping horsepower (000s) 287 303 319 371 Coiled tubing units (No.) 18 18 18 18 Cementing units (No.) 18 20 20 21 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) Refer to "Non-GAAP Measures" on page 15 for further information. N/A - Not Available Financial Overview - Nine Months Ended September 30, 2009 Versus 2008 ------------------------------------------------------------------------- Canada ------------------------------------------------------------------------- Nine Months Ended September 30, 2009 2008 Change ------------------------------------------------------------------------- (000s, except operational information) ($) ($) (%) (unaudited) Revenue 157,067 190,610 (18) Expenses Operating 135,870 154,458 (12) SG&A 7,090 7,672 (8) -------------------------------- 142,960 162,130 (12) -------------------------------- Operating income(1) 14,107 28,480 (50) Operating income (%) 9.0% 14.9% (40) Fracturing revenue per job ($) 90,515 62,276 45 Number of fracturing jobs 1,504 2,530 (41) Coiled tubing revenue per job ($) 18,226 9,711 88 Number of coiled tubing jobs 952 2,049 (54) ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) Refer to "Non-GAAP Measures" on page 15 for further information.Revenue Revenue from Calfrac's Canadian operations during the first nine months of 2009 decreased by 18 percent to $157.1 million from $190.6 million in the comparable period of 2008. The decrease in revenue was due primarily to lower fracturing and coiled tubing activity combined with the impact of suspending the Company's primary cementing operations in April 2009 offset partially by an increase in the proportion of larger jobs completed in the unconventional resource plays located in northwest Alberta and northeast British Columbia. Operating Expenses Operating expenses in Canada were $135.9 million during the first nine months of 2009 versus $154.5 million in the same period of 2008. The decrease in Canadian operating expenses was mainly due to lower activity levels and the impact of cost rationalization measures offset by an increase in equipment repair expenses and $1.5 million of restructuring costs. SG&A Expenses SG&A expenses for Calfrac's Canadian operations were $7.1 million during the first nine months of 2009, a decrease of 8 percent from the corresponding period of 2008 due primarily to lower personnel costs. United States << ------------------------------------------------------------------------- Nine Months Ended September 30, 2009 2008 Change ------------------------------------------------------------------------- (000s, except operational and exchange rate information) ($) ($) (%) (unaudited) Revenue 164,020 137,210 20 Expenses Operating 136,212 96,222 42 SG&A 5,319 5,957 (11) -------------------------------- 141,531 102,179 39 -------------------------------- Operating income(1) 22,489 35,031 (36) Operating income (%) 13.7% 25.5% (46) Fracturing revenue per job ($) 76,899 60,834 26 Number of fracturing jobs 1,973 2,139 (8) Cementing revenue per job ($) 19,998 13,296 50 Number of cementing jobs 615 533 15 Cdn$/US$ average exchange rate(2) 1.1694 1.0180 15 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) Refer to "Non-GAAP Measures" on page 15 for further information. (2) Source: Bank of Canada. >> RevenueRevenue from Calfrac's United States operations increased during the first nine months of 2009 to $164.0 million from $137.2 million in the comparable period of 2008. The increase in revenue was primarily due to the impact of the 15 percent appreciation in the value of the United States dollar versus the Canadian dollar, an increase in the number of larger fracturing jobs completed in Arkansas combined with the completion of more and larger cementing jobs offset partially by competitive pricing pressures and lower fracturing activity in the Rocky Mountain region. Operating Expenses Operating expenses in the United States were $136.2 million for the first nine months of 2009, an increase of 42 percent from the comparative period in 2008 primarily due to the impact of the appreciation of the United States dollar against the Canadian dollar, increased usage of proppant and higher equipment repair expenses resulting from the completion of larger fracturing jobs as well as higher operating costs related to the increased scale and activity levels of the Company's cementing operations in Arkansas. SG&A Expenses SG&A expenses in the United States during the first nine months of 2009 decreased by 11 percent from the comparable period in 2008 to $5.3 million primarily due to lower compensation expenses, offset partially by the appreciation of the United States dollar. Russia << ------------------------------------------------------------------------- Nine Months Ended September 30, 2009 2008 Change ------------------------------------------------------------------------- (000s, except operational and exchange rate information) ($) ($) (%) (unaudited) Revenue 51,932 45,131 15 Expenses Operating 33,364 34,037 (2) SG&A 2,648 2,780 (5) -------------------------------- 36,012 36,817 (2) -------------------------------- Operating income(1) 15,920 8,314 91 Operating income (%) 30.7% 18.4% 67 Fracturing revenue per job ($) 75,430 133,541 (44) Number of fracturing jobs 438 185 137 Coiled tubing revenue per job ($) 45,418 62,086 (27) Number of coiled tubing jobs 416 329 26 Cdn$/rouble average exchange rate(2) 0.0360 0.0424 (15) ------------------------------------------------------------------------- (1) Refer to "Non-GAAP Measures" on page 15 for further information. (2) Source: Bank of Canada. >> RevenueDuring the first nine months of 2009, the Company's revenue from Russian operations increased by 15 percent to $51.9 million from $45.1 million in the corresponding nine-month period of 2008. Total revenue during the first nine months of 2009 was higher than in the comparative nine-month period in 2008 primarily due to higher fracturing and coiled tubing activity being partially offset by smaller job sizes, lower annual contract pricing and the depreciation of the Russian rouble by 15 percent against the Canadian dollar. Operating Expenses Operating expenses in Russia in the first nine months of 2009 were $33.4 million compared to $34.0 million in the corresponding period of 2008. The decrease in operating expenses was primarily due to the depreciation in the Russian rouble against the Canadian dollar, offset partially by higher fracturing and coiled tubing activity. SG&A Expenses SG&A expenses in Russia were $2.6 million for the nine-month period ended September 30, 2009 versus $2.8 million in the same period of 2008. The slight decrease in SG&A expenses was primarily due to the depreciation of the Russian rouble, offset partially by higher occupancy costs. Latin America << ------------------------------------------------------------------------- Nine Months Ended September 30, 2009 2008 Change ------------------------------------------------------------------------- (000s, except operational and exchange rate information) ($) ($) (%) (unaudited) Revenue 45,357 18,982 139 Expenses Operating 35,658 20,860 71 SG&A 1,685 594 184 -------------------------------- 37,343 21,454 74 -------------------------------- Operating income (loss)(1) 8,014 (2,472) 424 Operating income (loss) (%) 17.7% -13.0% 236 Cdn$/Mexican peso average exchange rate(2) 0.0857 0.0969 (12) Cdn$/Argentine peso average exchange rate(2) 0.3124 0.3237 (3) ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) Refer to "Non-GAAP Measures" on page 15 for further information. (2) Source: Bank of Canada. >> RevenueCalfrac's Latin America operations generated total revenue of $45.4 million during the first nine months of 2009 versus $19.0 million in the comparable nine-month period in 2008. For the nine months ended September 30, 2009 and 2008, revenue generated through subcontractors was $9.3 million and $7.2 million, respectively. The increase in revenue was primarily due to higher fracturing activity and larger job sizes in Mexico, higher cementing activity in Argentina as these operations commenced during the second quarter of 2008 and the commencement of cementing operations in Mexico during the third quarter of 2009 offset partially by the 12 percent decline in the Mexican peso versus the Canadian dollar. Operating Expenses Operating expenses in Latin America for the nine months ended September 30, 2009 increased by 71 percent from the comparative period in 2008 to $35.7 million. This increase was primarily due to a higher revenue base from a full quarter of fracturing operations in the Chicontepec region plus increased product costs in Mexico related to the completion of larger fracturing jobs, incremental expenses related to the Company's operations in Argentina which began during the second quarter of 2008 combined with start-up and incremental operating expenses related to the commencement of cementing operations in Mexico during the third quarter of 2009. These factors were partially offset by the depreciation of the Mexican peso. SG&A Expenses SG&A expenses in Latin America increased by $1.1 million from the comparable period of 2008 to $1.7 million in the first nine months of 2009 primarily due to the Company's expanded scale of operations in Mexico and Argentina, offset partially by the depreciation of the Mexican peso against the Canadian dollar. Corporate << ------------------------------------------------------------------------- Nine Months Ended September 30, 2009 2008 Change ------------------------------------------------------------------------- (000s) ($) ($) (%) (unaudited) Expenses Operating 1,898 1,774 7 SG&A 10,654 11,298 (6) -------------------------------- 12,552 13,072 (4) Operating loss(1) (12,552) (13,072) 4 ------------------------------------------------------------------------- (1) Refer to "Non-GAAP Measures" on page 15 for further information. >> Operating ExpensesOperating expenses primarily relate to manufacturing and R&D personnel located in the Corporate headquarters who directly support the Company's global field operations. The 7 percent increase in Corporate operating expenses from the first nine months of 2008 is mainly due to an increase in the number of personnel directly supporting the Company's broader scale of operations. SG&A Expenses For the nine months ended September 30, 2009, Corporate SG&A expenses decreased by 6 percent to $10.7 million, mainly due to lower compensation expenses arising from restructuring initiatives implemented early in the second quarter, offset slightly by higher stock-based compensation expenses. Interest and Depreciation Expenses The Company's net interest expense of $11.0 million for the first nine months of 2009 represented an increase of $2.9 million from $8.1 million in the comparable period of 2008. This increase was primarily due to higher reported interest expense related to the Company's unsecured senior notes resulting from the appreciation in the value of the United States dollar and additional interest expense related to the drawdown on the Company's revolving term credit facilities. For the nine months ended September 30, 2009, depreciation expense increased by 24 percent to $45.6 million from $36.9 million in the corresponding period of 2008, mainly as a result of the Company's larger fleet of equipment operating in North America, the acquisition of fracturing assets from Pure and the appreciation in the value of the United States dollar. Foreign Exchange Losses or Gains The Company incurred a foreign exchange loss of $3.9 million during the first nine months of 2009 versus a foreign exchange gain of $0.8 million in the comparative nine-month period of 2008. Foreign exchange gains and losses arise primarily from the translation of Calfrac's international operations in Russia, Mexico and Argentina using the temporal method. The change from a foreign exchange gain to a loss was mainly due to the appreciation of the Canadian dollar on foreign assets denominated in United States dollars, Russian roubles, Mexican pesos or Argentine pesos. Income Tax Expenses The Company recorded income tax recovery of $4.8 million during the first nine months of 2009 versus income tax expense of $2.4 million during the comparable period of 2008. The effective income tax rate for the nine months ended September 30, 2009 was 43 percent compared to an effective tax rate of 20 percent in the same period of 2008. The change in the effective income tax rate period-over-period is due to the change in the mix of taxable earnings and losses incurred in the countries in which the Company operates and the differing rates of income tax attributable to those earnings and losses. In addition, Canadian losses for 2009 are being recovered at full statutory rates, however, the provision for income taxes on Canadian income in 2008 was tax affected at a significantly lower effective rate due to the offsetting impact of drawing down the deferred credit. Liquidity and Capital Resources ------------------------------------------------------------------------- ------------------------------------------------------------------------- Three Months Ended Nine Months Ended Sept. 30, Sept. 30, ------------------------------------------------------------------------- 2009 2008 2009 2008 ------------------------------------------------------------------------- (000s) ($) ($) ($) ($) (unaudited) Cash provided by (used in): Operating activities (11,721) (1,830) 25,290 27,124 Financing activities 32,483 216 45,596 6,991 Investing activities (56,080) (20,012) (89,066) (53,899) Effect of exchange rate changes on cash and cash equivalents (4,184) 1,851 (7,690) 3,421 ------------------------------------------------------------------------- Decrease in cash and cash equivalents (39,502) (19,775) (25,870) (16,363) ------------------------------------------------------------------------- -------------------------------------------------------------------------Operating Activities The Company's cash flow from operating activities for the nine months ended September 30, 2009 was $25.3 million versus $27.1 million in the comparable period in 2008. The change was primarily due to a $19.0 million net change in non-cash working capital that was more than offset by a $20.9 million reduction in funds provided by operations (refer to "Non-GAAP Measures" on page 15). At September 30, 2009, Calfrac's working capital was approximately $103.3 million, a decrease of 1 percent from September 30, 2008. The Company reviewed its quarter-end accounts receivable balance in detail and determined that a provision for doubtful accounts receivable totalling $1.0 million was adequate. The majority of this provision related to a customer that filed for Chapter 11 restructuring under United States bankruptcy law. Financing Activities Net cash provided by financing activities for the first nine months of 2009 was $45.6 million compared to $7.0 million in the comparable period of 2008 as the Company drew $59.1 million on its revolving term credit facility, repaid $15.0 million on its operating line of credit and assumed a $3.3 million mortgage as a result of the acquisition of Pure's fracturing assets during the first nine months of 2009. In addition, Calfrac received proceeds of $8.9 million from the issuance of common shares during the first nine months of 2008 and no such amounts in the same period of 2009. In February 2007, Calfrac completed a private placement of senior unsecured notes for an aggregate principal amount of US$135.0 million. These notes are due on February 15, 2015 and bear interest at 7.75 percent per annum. On September 29, 2009, the Company increased its credit facilities from $90.0 million to $170.0 million with a syndicate of Canadian chartered banks. It consists of an operating facility of $10.0 million, a syndicated facility of $125.0 million and an incremental facility of $35.0 million, which is available upon closing of the Century acquisition for a period of approximately six months thereafter subject to extension at the lender's discretion. The terms of the renewed credit facility are based upon parameters of certain bank covenants and range from prime plus 1 percent to prime plus 1.75 percent. As of September 30, 2009, the Company had drawn $62.1 million on its syndicated facility, leaving a further $107.9 million in immediately available credit, including a $35.0 million incremental facility available upon the closing of the Century acquisition for a period of approximately six months thereafter, should these funds be required. At September 30, 2009, the Company had cash and cash equivalents of $10.6 million. A portion of these funds was invested in short-term investments, which consisted primarily of an overnight money market fund and is not exposed to any liquidity issues. The Company pays semi-annual dividends to shareholders of $0.05 per common share at the discretion of the Board of Directors, which qualify as "eligible dividends" as defined by the Canada Revenue Agency. These dividends are funded by funds provided by operations and totalled $1.9 million in each of the first nine months of 2009 and 2008. Investing Activities For the first nine months of 2009, Calfrac's net cash used for investing activities was $89.1 million versus $53.9 million for the same period of 2008. Capital expenditures were $83.9 million in the first nine months of 2009 compared to $52.6 million in the same period of 2008. Capital expenditures in 2009 included the acquisition of fracturing assets of Pure during the third quarter of 2009 for $42.3 million and the remaining capital expenditures were primarily related to increasing the pumping capacity of the Company's fracturing equipment fleet throughout North America. On January 11, 2008, the Company acquired the remaining 70 percent of the common shares of ChemErgy Ltd. that it did not previously own for aggregate consideration of approximately $6.6 million. The purchase price was satisfied through the payment to the vendors of approximately $4.8 million in cash, the transfer of real property at a value of approximately $0.5 million and the issuance of 71,581 common shares of the Company with a value of approximately $1.3 million. On January 4, 2008, the Company acquired all the shares of 1368303 Alberta Ltd. from a Canadian competitor for cash and share consideration totalling approximately $2.7 million. The Company issued 78,579 common shares with a value of approximately $1.3 million in conjunction with the acquisition, in addition to approximately $1.4 million of cash. All of the consideration paid was assigned to capital assets, as the acquired company had no assets or liabilities other than fracturing equipment. Additionally, net cash used for investing activities was impacted by the net change in non-cash working capital from the purchase of capital assets. The effect of changes in foreign exchange rates on the Company's cash and cash equivalents during the first nine months of 2009 was a loss of $7.7 million versus a gain of $3.4 million during the same period of 2008. These gains relate to cash and cash equivalents held by the Company in a foreign currency. With its strong working capital position, credit facilities and anticipated funds provided by operations, the Company expects to have adequate resources to fund its financial obligations and planned capital expenditures for 2009 and beyond. Proposed Acquisition On September 20, 2009, the Company and Century entered into a definitive agreement pursuant to which the Company will acquire all of the issued and outstanding common shares of Century, a privately held fracturing services company operating in Western Canada. Under the terms of the agreement, the purchase price of $90.0 million will consist of approximately $13.5 million of cash plus up to 5,144,695 common shares of the Company, with an agreed value of $76.5 million. For accounting purposes, the shares issuable in the transaction have a fair value of approximately $82.2 million based on the weighted average price of the Company's shares for the three trading days preceding and the three days following the date of the agreement. The fair value of the share consideration for accounting purposes is calculated on a different basis than the agreed value and results in a higher recorded purchase price. Including estimated transaction costs, the total consideration will be approximately $99.5 million for accounting purposes. If approved by the shareholders of Century, the acquisition is expected to close on or after November 10, 2009. Outstanding Share Data The Company is authorized to issue an unlimited number of common shares. Employees have been granted options to purchase common shares under the Company's shareholder-approved stock option plan. The number of shares reserved for issuance under the stock option plan is equal to 10 percent of the Company's issued and outstanding common shares. As at October 31, 2009, there were 37,742,186 common shares issued and outstanding, and 2,537,978 options to purchase common shares. Advisories -------------------------------------------------------------------------Forward-Looking Statements In order to provide Calfrac shareholders and potential investors with information regarding the Company and its subsidiaries, including management's assessment of Calfrac's plans and future operations, certain statements contained in this press release, including statements that contain words such as "anticipates", "can", "may", "expect", "believe", "intend", "forecast", "will", or similar words suggesting future outcomes, are forward-looking statements. Forward-looking statements in this document include, but are not limited to, statements with respect to future capital expenditures, future financial resources, future oil and natural gas well activity, outcome of specific events, trends in the oil and natural gas industry and the Company's growth prospects including, without limitation, its international growth strategy and prospects. These statements are derived from certain assumptions and analyses made by the Company based on its experience and interpretation of historical trends, current conditions, expected future developments and other factors that it believes are appropriate in the circumstances, including assumptions related to commodity pricing, North American drilling activity and the expectation that access to capital will continue to be restricted for many of Calfrac's customers. Forward-looking statements are subject to a number of known and unknown risks and uncertainties that could cause actual results to differ materially from the Company's expectations. The most significant risk factors to Calfrac relate to prevailing economic conditions; commodity prices; sourcing, pricing and availability of raw materials, component parts, equipment, suppliers, facilities and skilled personnel; dependence on major customers; uncertainties in weather and temperature affecting the duration of the service periods and the activities that can be completed; and regional competition. Readers are cautioned that the foregoing list of risks and uncertainties is not exhaustive. Further information about these risks and uncertainties may be found under "Business Risks" below. Consequently, all of the forward-looking statements made in this press release are qualified by these cautionary statements and there can be no assurance that actual results or developments anticipated by the Company will be realized, or that they will have the expected consequences or effects on the Company or its business or operations. The Company assumes no obligation to update publicly any such forward-looking statements, whether as a result of new information, future events or otherwise, except as required pursuant to applicable securities laws. Business Risks The business of Calfrac is subject to certain risks and uncertainties. Prior to making any investment decision regarding Calfrac, investors should carefully consider, among other things, the risk factors set forth in the Company's most recently filed Annual Information Form and incorporated by reference herein. The Annual Information Form is available through the Internet on the Canadian System for Electronic Document Analysis and Retrieval (SEDAR), which can be accessed at www.sedar.com. Copies of the Annual Information Form may also be obtained on request without charge from Calfrac at 411 - 8th Avenue S.W., Calgary, Alberta T2P 1E3, or at www.calfrac.com, or by facsimile at 403-266-7381. Non-GAAP Measures Certain measures in this press release do not have any standardized meaning as prescribed under Canadian GAAP and are therefore considered non-GAAP measures. These measures include operating income, funds provided by operations and EBITDA. These measures may not be comparable to similar measures presented by other entities. These measures have been described and presented in this press release in order to provide shareholders and potential investors with additional information regarding the Company's financial results, liquidity and its ability to generate funds to finance its operations. Management's use of these measures has been disclosed further in this press release as these measures are discussed and presented. Additional Information Further information regarding Calfrac Well Services Ltd., including the most recently filed Annual Information Form, can be accessed on the Company's website at www.calfrac.com or under the Company's public filings found at www.sedar.com. Third Quarter Conference Call Calfrac will be conducting a conference call for interested analysts, brokers, investors and news media representatives to review its 2009 third quarter results at 10:00 a.m. (Mountain Time) on Thursday, November 5, 2009. The conference call dial-in number is 1-877-974-0447 or 416-644-3433. The seven-day replay numbers are 1-877-289-8525 or 416-640-1917 (once connected, enter 4177961 followed by the number sign). A webcast of the conference call may be accessed via the Company's website at www.calfrac.com.
CONSOLIDATED BALANCE SHEETS
-------------------------------------------------------------------------
-------------------------------------------------------------------------
As at September December
30, 2009 31, 2008
-------------------------------------------------------------------------
(000s) (unaudited) ($) ($)
ASSETS
Current assets
Cash and cash equivalents 10,622 36,492
Accounts receivable 118,647 120,048
Income taxes recoverable 1,810 6,681
Inventory 37,545 41,123
Prepaid expenses and deposits 7,033 5,813
-------------------------------------------------------------------------
175,657 210,157
Capital assets 473,656 459,874
Goodwill 10,523 10,523
Future income taxes 18,384 11,218
-------------------------------------------------------------------------
678,220 691,772
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities 69,020 94,582
Bank loan - 15,000
Current portion of long-term debt (note 5) 3,306 -
-------------------------------------------------------------------------
72,326 109,582
Long-term debt (note 5) 200,168 159,899
Other long-term liabilities 1,282 1,368
Future income taxes 22,212 24,815
Deferred credit 3,105 2,588
Non-controlling interest 155 44
-------------------------------------------------------------------------
299,248 298,296
-------------------------------------------------------------------------
Shareholders' equity
Capital stock (note 6) 168,813 168,813
Contributed surplus (note 7) 9,914 7,297
Retained earnings 203,365 211,652
Accumulated other comprehensive income (loss) (3,120) 5,714
-------------------------------------------------------------------------
378,972 393,476
-------------------------------------------------------------------------
678,220 691,772
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Contingencies (note 10)
See accompanying notes to the consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
2009 2008 2009 2008
-------------------------------------------------------------------------
(000s, except per share data) ($) ($) ($) ($)
(unaudited)
Revenue 133,261 151,650 418,376 391,933
-------------------------------------------------------------------------
Expenses
Operating 108,028 113,229 343,001 307,349
Selling, general and
administrative 8,734 10,609 27,397 28,303
Depreciation 15,448 12,773 45,563 36,868
Interest, net 3,763 2,692 10,951 8,072
Equity share of income from
long-term investments - - - (122)
Foreign exchange losses
(gains) 1,807 704 3,902 (805)
Loss (gain) on disposal of
capital assets (420) 125 (1,321) (8)
-------------------------------------------------------------------------
137,360 140,132 429,493 379,657
-------------------------------------------------------------------------
Income (loss) before income
taxes and non-controlling
interest (4,099) 11,518 (11,117) 12,276
-------------------------------------------------------------------------
Income taxes
Current (227) (1,426) 1,234 (3,848)
Future (6,745) 1,769 (6,062) 6,243
-------------------------------------------------------------------------
(6,972) 343 (4,828) 2,395
-------------------------------------------------------------------------
Income (loss) before
non-controlling interest 2,873 11,175 (6,289) 9,881
Non-controlling interest 31 (28) 111 (122)
-------------------------------------------------------------------------
Net income (loss) for the
period 2,842 11,203 (6,400) 10,003
Retained earnings, beginning
of period 200,523 194,947 211,652 198,039
Dividends - - (1,887) (1,892)
-------------------------------------------------------------------------
Retained earnings, end
of period 203,365 206,150 203,365 206,150
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Income (loss) per share
Basic 0.08 0.30 (0.17) 0.27
Diluted 0.08 0.30 (0.17) 0.27
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME AND ACCUMULATED
OTHER COMPREHENSIVE INCOME
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
2009 2008 2009 2008
-------------------------------------------------------------------------
(000s) (unaudited) ($) ($) ($) ($)
Net income (loss) for
the period 2,842 11,203 (6,400) 10,003
Other comprehensive
income (loss)
Change in foreign currency
translation adjustment (5,260) 2,276 (8,834) 3,563
-------------------------------------------------------------------------
Comprehensive income (loss) (2,418) 13,479 (15,234) 13,566
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Accumulated other
comprehensive income (loss),
beginning of period 2,140 (4,917) 5,714 (6,204)
Other comprehensive income
(loss) for the period (5,260) 2,276 (8,834) 3,563
-------------------------------------------------------------------------
Accumulated other
comprehensive income (loss),
end of period (3,120) (2,641) (3,120) (2,641)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
2009 2008 2009 2008
-------------------------------------------------------------------------
(000s) (unaudited) ($) ($) ($) ($)
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Net income (loss) for the
period 2,842 11,203 (6,400) 10,003
Items not involving cash
Depreciation 15,448 12,773 45,563 36,868
Amortization of debt
issue costs 168 159 532 464
Stock-based compensation 875 1,127 2,617 2,583
Equity share of income
from long-term investments - - - (122)
Loss (gain) on disposal
of capital assets (420) 125 (1,321) (8)
Future income taxes (6,745) 1,769 (6,062) 6,243
Non-controlling interest 31 (28) 111 (122)
-------------------------------------------------------------------------
12,199 27,128 35,040 55,909
Net change in non-cash
operating assets and
liabilities (23,920) (28,958) (9,750) (28,785)
-------------------------------------------------------------------------
(11,721) (1,830) 25,290 27,124
-------------------------------------------------------------------------
FINANCING ACTIVITIES
Bank loan proceeds - - 5,000 -
Issuance of long-term
debt 42,541 - 62,541 -
Bank loan repayments (10,000) - (20,000) -
Long-term debt repayments (58) - (58) -
Net proceeds on issuance
of common shares - 216 - 8,883
Dividends - - (1,887) (1,892)
-------------------------------------------------------------------------
32,483 216 45,596 6,991
-------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of capital
assets (note 4) (58,212) (18,414) (83,931) (52,574)
Proceeds on disposal of
capital assets 959 28 2,133 285
Acquisitions, net of
cash acquired - - - (6,117)
Long-term investments
and other - 83 - 326
Net change in non-cash
working capital from
purchase of capital assets 1,173 (1,709) (7,268) 4,181
-------------------------------------------------------------------------
(56,080) (20,012) (89,066) (53,899)
-------------------------------------------------------------------------
Effect of exchange rate
changes on cash and cash
equivalents (4,184) 1,851 (7,690) 3,421
-------------------------------------------------------------------------
Increase (decrease) in
cash position (39,502) (19,775) (25,870) (16,363)
Cash and cash equivalents,
beginning of period 50,124 42,516 36,492 39,104
-------------------------------------------------------------------------
Cash and cash equivalents,
end of period 10,622 22,741 10,622 22,741
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
(figures in text and tables are in 000s except share data and certain
other exceptions as indicated) (unaudited)
1. BASIS OF PRESENTATION
The interim financial statements of Calfrac Well Services Ltd. (the
"Company") do not conform in all respects to the requirements of
generally accepted accounting principles (GAAP) for annual financial
statements. The interim financial statements should be read in
conjunction with the most recent annual financial statements.
2. SEASONALITY OF OPERATIONS
The Company's Canadian business is seasonal in nature. The lowest
activity levels are typically experienced during the second quarter
of the year when road weight restrictions are in place and access to
wellsites in Canada is reduced.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) The interim financial statements follow the same accounting
policies and methods of application as the most recent annual
financial statements, except for the adoption of the Canadian
Institute of Chartered Accountants (CICA) Handbook Section 3064
Goodwill and Intangible Assets. Section 3064 replaces the
previous Section 3062 and establishes standards for the
recognition, measurement, presentation and disclosure of
intangible assets and goodwill subsequent to its initial
recognition. The adoption of Section 3064 has not had an impact
on the Company's consolidated financial statements, as the
provisions relating to goodwill are unchanged from the previous
standard and the Company has no recognizable intangible assets.
(b) In 2006, the CICA Accounting Standards Board (AcSB) adopted a
strategic plan for the direction of accounting standards in
Canada. As part of that plan, the AcSB confirmed in February 2008
that International Financial Reporting Standards (IFRS) will
replace Canadian GAAP in 2011 for profit-oriented Canadian
publicly accountable enterprises. As the Company will be required
to report its results in accordance with IFRS starting in 2011,
the Company has developed its project plan which includes the
following key elements:
- determine appropriate changes to accounting policies and
required amendments to financial disclosures;
- identify and implement changes in associated processes and
information systems;
- comply with internal control requirements; and
- educate and train internal and external stakeholders.
The Company is currently analysing accounting policy alternatives
and identifying implementation options for the areas that have
been identified as having the greatest potential impact to the
Company's financial statements or the greatest risk in terms of
complexity to implement. The areas identified to date include
capital assets, impairment and foreign currency translation.
4. ASSET ACQUISITION
On August 14, 2009, the Company purchased the fracturing assets of a
competitor for $44,513 including related transaction costs. The
Company acquired $42,252 of capital assets including fracturing
equipment and certain real property, as well as $2,261 of the
vendor's parts and materials inventory. The purchase price was
satisfied through payment of $41,071 in cash and the assumption of
long-term debt in the amount of $3,442.
5. LONG-TERM DEBT
---------------------------------------------------------------------
As at September December
30, 2009 31, 2008
---------------------------------------------------------------------
(000s) ($) ($)
US$135,000 senior unsecured notes, due
February 15, 2015 bearing interest at 7.75%,
payable semi-annually 144,545 164,430
Less: unamortized debt issue costs (3,496) (4,531)
---------------------------------------------------------------------
141,049 159,899
$125,000 extendible revolving term loan facility
currently bearing interest at the Canadian prime
rate plus 1%, secured by the Canadian and U.S.
assets of the Company 59,099 -
US$3,107 mortgage bearing interest at U.S. prime
less 1%, repayable $35 per month principal and
interest, secured by certain real property 3,326 -
---------------------------------------------------------------------
203,474 159,899
Less: current portion of long-term debt (3,306) -
---------------------------------------------------------------------
200,168 159,899
---------------------------------------------------------------------
---------------------------------------------------------------------
The fair value of the senior unsecured notes based on the closing
price at September 30, 2009 was $140,035 (December 31, 2008 -
$77,282).
The interest rate on the term revolving facility is based upon the
parameters of certain bank covenants, and range from prime plus 1% to
prime plus 1.75%. The facility is repayable in 8 equal quarterly
principal instalments of $2,955 commencing September 30, 2010 plus a
final payment of $35,459 on September 28, 2012, assuming the facility
is not extended. The term and commencement of principal repayments
under the facility may be extended by one year on each anniversary at
the request of the Company and acceptance by the lenders. The Company
also has the ability to prepay principal without penalty.
6. CAPITAL STOCK
Authorized capital stock consists of an unlimited number of common
shares.
---------------------------------------------------------------------
Continuity of Common
Shares (year-to-date) 2009 2008
---------------------------------------------------------------------
Shares Amount Shares Amount
---------------------------------------------------------------------
(No.) ($000s) (No.) ($000s)
Balance, January 1 37,741,561 168,813 37,201,872 155,254
Issued upon exercise
of stock options - - 492,311 11,379
Issued on acquisitions - - 150,160 2,640
Purchased under Normal
Course Issuer Bid - - - -
---------------------------------------------------------------------
Balance, September 30 37,741,561 168,813 37,844,343 169,273
---------------------------------------------------------------------
---------------------------------------------------------------------
The weighted average number of common shares outstanding for the nine
months ended September 30, 2009 was 37,741,561 basic and 37,741,561
diluted (nine months ended September 30, 2008 - 37,653,459 basic and
37,681,393 diluted). The difference between basic and diluted shares
for the nine months ended September 30, 2008 was attributable to the
dilutive effect of stock options issued by the Company and shares
held in trust. All of the outstanding options disclosed in note 8
could be potentially dilutive in the future; however they were not
included in the calculation of diluted shares for the nine months
ended September 30, 2009, as they would have an anti-dilutive effect.
7. CONTRIBUTED SURPLUS
---------------------------------------------------------------------
Continuity of Contributed Surplus
(year-to-date) 2009 2008
---------------------------------------------------------------------
(000s) ($) ($)
Balance, January 1 7,297 6,025
Stock options expensed 2,617 2,583
Stock options exercised - (2,496)
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Balance, September 30 9,914 6,112
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---------------------------------------------------------------------
8. STOCK OPTIONS
---------------------------------------------------------------------
Continuity of Stock Options
(year-to-date) 2009 2008
---------------------------------------------------------------------
Average Average
Exercise Exercise
Options Price Options Price
---------------------------------------------------------------------
(No.) ($) (No.) ($)
Balance, January 1 2,043,344 21.69 1,224,223 22.90
Granted during the
period 852,500 8.45 1,328,000 19.91
Exercised for common
shares - - (492,311) 18.04
Forfeited (191,049) 19.86 (74,269) 23.81
Expired (164,400) 32.59 - -
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Balance, September 30 2,540,395 16.68 1,985,643 22.07
---------------------------------------------------------------------
---------------------------------------------------------------------
Stock options vest equally over three or four years and expire three-
and-one-half or five years from the date of grant. The exercise price
of outstanding options ranges from $8.35 to $29.79 with a weighted
average remaining life of 3.30 years. When stock options are
exercised the proceeds, together with the amount of compensation
expense previously recorded in contributed surplus, are added to
capital stock.
9. CAPITAL STRUCTURE
The Company's capital structure is comprised of shareholders' equity
and long-term debt. The Company's objectives in managing capital are
(i) to maintain flexibility so as to preserve the Company's access to
capital markets and its ability to meet its financial obligations,
and (ii) to finance growth, including potential acquisitions.
The Company manages its capital structure and makes adjustments in
light of changing market conditions and new opportunities, while
remaining cognizant of the cyclical nature of the oilfield services
sector. To maintain or adjust its capital structure, the Company may
revise its capital spending, adjust dividends paid to shareholders,
issue new shares or new debt or repay existing debt.
The Company monitors its capital structure and financing requirements
using, amongst other parameters, the ratio of long-term debt to cash
flow. Cash flow for this purpose is defined as cash provided by
operating activities before the net change in non-cash operating
assets and liabilities as reflected in the consolidated statement of
cash flows. The ratio of long-term debt to cash flow does not have
any standardized meaning prescribed under GAAP and may not be
comparable to similar measures used by other companies.
At September 30, 2009, the long-term debt to cash flow ratio was
3.40:1 (December 31, 2008 - 1.98:1) calculated on a 12-month trailing
basis as follows:
---------------------------------------------------------------------
As at September December
30, 2009 31, 2008
---------------------------------------------------------------------
(000s) ($) ($)
Long-term debt (net of unamortized debt
issue costs) (note 5) 203,474 159,899
Cash flow 59,878 80,747
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Long-term debt to cash flow ratio 3.40 1.98
---------------------------------------------------------------------
---------------------------------------------------------------------
The Company is subject to certain financial covenants relating to
working capital, leverage and the generation of cash flow in respect
of its operating and revolving credit facilities. These covenants are
monitored on a monthly basis. The Company is in compliance with all
such covenants.
The Company's capital management objectives, evaluation measures and
targets have remained unchanged over the periods presented.
10. CONTINGENCIES
Greek Operations
As a result of the acquisition and amalgamation with Denison Energy
Inc. ("Denison") in 2004, the Company assumed certain legal
obligations relating to Denison's Greek operations.
In 1998, North Aegean Petroleum Company E.P.E. ("NAPC"), a Greek
subsidiary of a consortium in which Denison participated (and which
is now a majority-owned subsidiary of the Company), terminated
employees in Greece as a result of the cessation of its oil and gas
operations in that country. Several groups of former employees have
filed claims against NAPC and the consortium alleging that their
termination was invalid and that their severance pay was improperly
determined.
In 1999, the largest group of plaintiffs received a ruling from the
Athens Court of First Instance that their termination was invalid and
that salaries in arrears amounting to approximately
$10,672 ((euro)6,846 euros) plus interest was due to the former
employees. This decision was appealed to the Athens Court of Appeal,
which allowed the appeal in 2001 and annulled the above-mentioned
decision of the Athens Court of First Instance. The said group of
former employees filed an appeal with the Supreme Court of Greece,
which was heard on May 29, 2007. The Supreme Court of Greece allowed
the appeal and sent the matter back to the Athens Court of Appeal for
the consideration of the quantum of awardable salaries in arrears. On
June 3, 2008, the Athens Court of Appeal rejected NAPC's appeal of
the Supreme Court of Greece's decision, and reinstated the award of
the Athens Court of First Instance, which decision has been further
appealed to the Supreme Court of Greece, and on November 3, 2009 was
postponed until March 16, 2010. Counsel to NAPC has obtained a
judicial order entitling NAPC to obtain certain employment
information in respect of the plaintiffs which is required in order
to assess the extent to which the plaintiffs have mitigated any
damages which may otherwise be payable. NAPC intends to vigorously
defend the appeal decision before the Supreme Court of Greece both in
relation to the merits of the plaintiffs' case as well as in respect
of the quantum of any damages which may be awarded. In the event that
an adverse ruling is issued by the Supreme Court of Greece, NAPC and
the Company intend to assess available rights of appeal to any other
levels of court in any jurisdiction where such an appeal is
warranted.
Several other smaller groups of former employees have filed similar
cases in various courts in Greece. One of these cases was heard by
the Athens Court of First Instance on January 18, 2007. By judgment
rendered November 23, 2007, the plaintiff's allegations were
partially accepted, and the plaintiff was awarded compensation for
additional work of approximately $55 ((euro)35 euros), plus interest.
The appeal of this decision was heard on June 2, 2009, at which time
an additional claim by the plaintiff seeking damages of
$348 ((euro)223 euros), plus interest, was also heard. A decision in
respect of the hearing has been rendered which accepted NAPC's appeal
and rejected the additional claim of the plaintiff. Another one of
the lawsuits seeking salaries in arrears of
$200 ((euro)128 euros), plus interest, was heard by the Supreme Court
of Greece on November 6, 2007, at which date the appeal of the
plaintiffs was denied for technical reasons due to improper service.
A rehearing of this appeal scheduled for September 22, 2009 was
postponed until September 21, 2010. The remaining action, which is
seeking salaries in arrears of approximately $684 ((euro)439 euros)
plus interest, was scheduled to be heard before the Athens Court of
First Instance on October 1, 2009, but was adjourned as a result of
the recently held Greek elections. No date has been set for the
adjourned hearing.
The direction and financial consequences of the potential decisions
in these actions cannot be determined at this time and, consequently,
no provision has been recorded in these financial statements.
11. COMPARATIVES
Certain comparatives have been reclassified to conform with the
financial statement presentation adopted in the current period.
12. SEGMENTED INFORMATION
The Company's activities are conducted in four geographic segments:
Canada, Russia, the United States and Latin America. All activities
are related to fracturing, coiled tubing, cementing and well
stimulation services for the oil and natural gas industry.
---------------------------------------------------------------------
United
Canada Russia States
---------------------------------------------------------------------
(000s) ($) ($) ($)
---------------------------------------------------------------------
Three Months Ended September 30, 2009
Revenue 45,463 17,774 52,524
Operating income (loss)(1) 6,090 6,151 5,682
Segmented assets 279,055 102,802 249,103
Capital expenditures 11,317 1,699 44,099
Goodwill 7,236 979 2,308
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---------------------------------------------------------------------
Three Months Ended September 30, 2008
Revenue 75,294 15,197 54,568
Operating income (loss)(1) 16,688 3,575 13,399
Segmented assets 272,741 107,577 217,492
Capital expenditures 6,133 861 10,961
Goodwill 7,236 979 2,308
---------------------------------------------------------------------
---------------------------------------------------------------------
Nine Months Ended September 30, 2009
Revenue 157,067 51,932 164,020
Operating income (loss)(1) 14,107 15,920 22,489
Segmented assets 279,055 102,802 249,103
Capital expenditures 23,709 3,135 54,890
Goodwill 7,236 979 2,308
---------------------------------------------------------------------
---------------------------------------------------------------------
Nine Months Ended September 30, 2008
Revenue 190,610 45,131 137,210
Operating income (loss)(1) 28,480 8,314 35,031
Segmented assets 272,741 107,577 217,492
Capital expenditures 17,243 1,747 30,305
Goodwill 7,236 979 2,308
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
Latin Consol-
America Corporate idated
---------------------------------------------------------------------
(000s) ($) ($) ($)
---------------------------------------------------------------------
Three Months Ended September 30, 2009
Revenue 17,500 - 133,261
Operating income (loss)(1) 2,555 (3,979) 16,499
Segmented assets 47,260 - 678,220
Capital expenditures 1,097 - 58,212
Goodwill - - 10,523
---------------------------------------------------------------------
---------------------------------------------------------------------
Three Months Ended September 30, 2008
Revenue 6,591 - 151,650
Operating income (loss)(1) (1,115) (4,735) 27,812
Segmented assets 20,980 - 618,790
Capital expenditures 459 - 18,414
Goodwill - - 10,523
---------------------------------------------------------------------
---------------------------------------------------------------------
Nine Months Ended September 30, 2009
Revenue 45,357 - 418,376
Operating income (loss)(1) 8,014 (12,552) 47,978
Segmented assets 47,260 - 678,220
Capital expenditures 2,197 - 83,931
Goodwill - - 10,523
---------------------------------------------------------------------
---------------------------------------------------------------------
Nine Months Ended September 30, 2008
Revenue 18,982 - 391,933
Operating income (loss)(1) (2,472) (13,072) 56,281
Segmented assets 20,980 - 618,790
Capital expenditures 3,279 - 52,574
Goodwill - - 10,523
---------------------------------------------------------------------
---------------------------------------------------------------------
(1) Operating income (loss) is defined as net income (loss) plus
depreciation, interest, equity share of net income from long-term
investments, foreign exchange gains or losses, gains or losses on
disposal of capital assets, income taxes and non-controlling
interest.
The following table sets forth consolidated revenue by service line:
---------------------------------------------------------------------
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
2009 2008 2009 2008
---------------------------------------------------------------------
(000s) ($) ($) ($) ($)
Fracturing 115,262 125,766 353,050 323,173
Coiled tubing 10,656 15,680 36,245 40,324
Cementing 4,151 8,105 19,754 21,250
Other 3,192 2,099 9,327 7,186
---------------------------------------------------------------------
133,261 151,650 418,376 391,933
---------------------------------------------------------------------
---------------------------------------------------------------------
13. PROPOSED ACQUISITION
On September 20, 2009, the Company and Century entered into a
definitive agreement pursuant to which the Company will acquire all
of the issued and outstanding common shares of Century, a privately
held fracturing services company operating in Western Canada. Under
the terms of the agreement, the purchase price of $90.0 million will
consist of approximately $13.5 million of cash plus up to 5,144,695
common shares of the Company, with an agreed value of $76.5 million.
For accounting purposes, the shares issuable in the transaction have
a fair value of approximately $82.2 million based on the weighted
average price of the Company's shares for the 3 trading days
preceding and the 3 trading days following the date of the agreement.
Including estimated transaction costs, the total consideration will
be approximately $99.5 million for accounting purposes. If approved
by the shareholders of Century, the acquisition is expected to close
on or after November 10, 2009.
For further information Douglas R. Ramsay, President and Chief Executive Officer, Telephone: (403) 266-6000, Fax: (403) 266-7381 Source: Calfrac Well Services Ltd.
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