UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO SECTION 13a-16 OR 15d-16 OF THE
SECURITIES EXCHANGE ACT OF 1934
For November 18, 2003
Commission File Number: 001-14534
PRECISION DRILLING CORPORATION
(Exact name of registrant as specified in its charter)
4200, 150 - 6TH AVENUE S.W.
CALGARY, ALBERTA
CANADA T2P 3Y7
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F.
Form 20-F [_] Form 40-F [X]
Indicate by check mark if the registrant is submitting the Form 6-K in
paper as permitted by Regulation S-T Rule 101(b)(1)._______
Note: Regulation S-T Rule 101(b)(1) only permits the submission in
paper of a Form 6-K if submitted solely to provide an attached annual report to
security holders.
Indicate by check mark if the registrant is submitting the Form 6-K in
paper as permitted by Regulation S-T Rule 101(b)(7):_______
Note: Regulation S-T Rule 101(b)(7) only permits the submission in
paper of a Form 6-K if submitted to furnish a report or other document that the
registrant foreign private issuer must furnish and make public under the laws of
the jurisdiction in which the registrant is incorporated, domiciled or legally
organized (the registrant's "home country"), or under the rules of the home
country exchange on which the registrant's securities are traded, as long as the
report or other document is not a press release, is not required to be and has
not been distributed to the registrant's security holders, and, if discussing a
material event, has already been the subject of a Form 6-K submission or other
Commission filing on EDGAR.
Indicate by check mark whether the registrant by furnishing the
information contained in this Form is also thereby furnishing the information to
the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.
Yes [_] No [X]
If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82- N/A
-----
Precision Drilling Corporation
2003 Interim Report -- periods ended September 30, 2003
Management's Discussion and Analysis
HIGHLIGHTS
(Stated in thousands of dollars, except per share amounts)
Three months ended Nine months ended
September 30, September 30,
2003 2002 % Change 2003 2002 % Change
Financial Results
Revenue $ 468,097 $ 363,669 28.7 $ 1,424,331 $ 1,226,600 16.1
Operating earnings (1) 63,174 20,371 210.1 189,331 134,547 40.7
Earnings from continuing operations 37,772 10,459 261.1 116,022 76,927 50.8
Net earnings 37,772 12,246 208.4 133,531 82,402 62.0
Diluted earnings per share:
From continuing operations 0.68 0.19257.9 2.10 1.4148.9
After discontinued operations 0.68 0.22209.1 2.42 1.5160.3
Funds provided by
continuing operations 93,260 22,872 307.7 244,720 146,870 66.6
September 30, December 31,
2003 2002
Financial Position
Working capital $ 246,974 $ 210,256
Long-term debt (2) 446,372 514,878
Long-term debt to long-term debt plus equity (2) 0.21 0.25
(1) See explanation on page 8
(2) Excludes current portion of long-term debt
This discussion should be read in conjunction with the annual audited
consolidated financial statements of Precision Drilling Corporation
(Corporation) for the fiscal year ended December 31, 2002, as well as the
Management Discussion and Analysis which appears on pages 37 to 49 of the
Corporation's 2002 annual report, and with the interim financial statements for
the periods ending September 30, 2003.
Overview and Outlook
Earnings per share from continuing operations for the three months ended
September 30, 2003 was $0.68 compared to $0.19 in the same quarter of 2002.
Included in earnings from continuing operations are costs of $816 ($0.01 per
share) associated with business rationalization initiatives. For the nine month
period ended September 30, 2003, earnings per share from continuing operations
was $2.10 compared to $1.41 for the same period in 2002 while gains on disposal
of discontinued operations resulted in a further earnings per share of $0.32 for
a total of $2.42 per share for the nine month period ended September 30, 2003.
Revenue of $468.1 million for the third quarter increased by $104.4 million
or 29% over the same period in the prior year. The majority of this increase
came from the Corporation's Canadian operations. Activity levels in Canada were
strong in all of the Corporation's business segments. Revenue in Canada from the
Contract Drilling operation was up 53% while the Technology Services Canadian
operation was up 44%. Based on the number of rig operating days, drilling
activity in Canada was up 56% as high commodity prices positively impacted our
customer's cash flows and near perfect weather for most of the quarter allowed
equipment to move when required. The drive to maintain North American natural
gas production resulted in 71% of the wells drilled in Canada to September 30,
2003 being successful natural gas completions.
Activity levels throughout the Corporation are expected to remain strong
for the next six months with the principal driver being Canadian operations. All
indications are that 2003 will be a record year for wells drilled in Canada and
this activity level is expected to continue into 2004. A critical element of
being able to service this demand is the availability of trained field
personnel. In 2002, quickly ramping to winter activity levels from relatively
slow summer and fall seasons proved challenging. This year's second and third
quarter activity levels allowed the Corporation to maintain a high service
capability entering the fourth quarter. Notwithstanding, it is still expected
that an inability to staff relief crews for certain rigs will limit operations
during the peak periods.
In addition to the expected Canadian activity levels, the Corporation's
international contract drilling activity is expected to increase with the growth
in our Mexico integrated services contract from 7 rigs to 10 rigs as well as the
building of two custom rigs to work under separate contracts internationally,
one in the Middle East and one in Asia Pacific for a minimum period of 12 and 18
months, respectively.
As noted in the second quarter, the business plan for Technology Services
is being reviewed. This process is expected to be completed in the fourth
quarter and will result in the identification of core and non-core product
lines. These conclusions will guide future capital investment and divestiture
decisions and will form the basis for assessing the carrying value of the
Corporation's investment in Technology Services or components thereof.
Technology Services continues with the deployment of its new tools. The
43/4" Revolution(TM) Rotary Steerable tool (RST) has continued with field tests
and has been working on commercial jobs. As at September 30, 2003 the fleet of
43/4" tools stands at 24, up from 11 as at June 30, 2003. The design work for
the 63/4" rotary steerable is virtually complete and materials have been ordered
to build the initial prototypes. Bench testing of the 63/4" prototypes is
scheduled for the fourth quarter of 2003 with field tests planned for January,
2004.
The tool build for the Hostile Environment Logging Tool (HEL(TM)) continues
and tool deployment on a strategic basis proceeds. The active fleet of tools was
at 104 strings, up from 99 as at June 30, 2003. Intentions are to direct future
investment to increasing available tool sizes and expanding concurrent job
capability.
SEGMENT REVIEW
(Stated in thousands of dollars)
Three months ended Sept. 30, Nine months ended Sept. 30,
2003 2002 % Change 2003 2002 % Change
Operating earnings: (1)
Contract Drilling $ 62,236 $ 27,327 127.7 $ 186,551 $ 145,188 28.5
Technology Services 713 (7,840) 109.1 (5,772) (15,782) 63.4
Rental and Production 9,247 6,582 40.5 31,857 26,055 22.3
Corporate and Other (9,022) (5,698) (58.3) (23,305) (20,914) (11.4)
$ 63,174 $ 20,371 210.1 $ 189,331 $ 134,547 40.7
(1) See explanation on page 8
CONTRACT DRILLING
(Stated in thousands of dollars, except per day/hour amounts)
% of % of
Three months ended September 30, 2003 Revenue 2002 Revenue
Revenue $ 227,490 $ 154,457
Expenses:
Operating 139,137 61.1 107,698 69.8
General and administrative 7,346 3.2 6,214 4.0
Depreciation and amortization 19,961 8.8 14,397 9.3
Foreign exchange (1,190) (0.5) (1,179) (0.8)
Operating earnings (1) $ 62,236 27.4 $ 27,327 17.7
% Change
Number of drilling rigs (end of period) 239 241 (0.8)
Drilling rig operating days 11,820 7,775 52.0
Drilling revenue per operating day $ 14,365 $ 14,195 1.2
Number of service rigs (end of period) 239 242 (1.2)
Service rig operating hours 110,447 92,988 18.8
Service revenue per operating hour $ 432 $ 418 3.3
% of % of
Nine months ended September 30, 2003 Revenue 2002 Revenue
Revenue $ 701,884 $ 581,137
Expenses:
Operating 436,603 62.2 367,651 63.3
General and administrative 22,531 3.2 22,948 3.9
Depreciation and amortization 58,234 8.3 46,427 8.0
Foreign exchange (2,035) (0.3) (1,077) (0.2)
Operating earnings (1) $ 186,551 26.6 $ 145,188 25.0
% Change
Number of drilling rigs (end of period) 239 241 (0.8)
Drilling rig operating days 33,786 25,998 30.0
Drilling revenue per operating day $ 15,379 $ 16,088 (4.4)
Number of service rigs (end of period) 239 242 (1.2)
Service rig operating hours 326,383 297,222 9.8
Service revenue per operating hour $ 454 $ 449 1.1
(1) See explanation on page 8
The Contract Drilling Group's revenue increased by 47% in the third quarter
compared to the same quarter last year. For the nine month period, revenue has
increased 21% from the prior year.
In Canada, the drilling rig fleet achieved 10,848 operating days for a 52%
utilization in the quarter compared to 6,944 operating and a 34% utilization in
the comparable quarter of the prior year. The increase in rig operating days of
56% for the quarter and 33% for the nine-month period follows overall industry
activity. The activity levels for the third quarter were up on the prior year
due to near perfect weather in July and August, improved commodity pricing
resulting in higher industry activity and the backlog of work created by
unfavorable weather in the second quarter. Average day rates increased as a
result of increased demand and strong pricing on the spot market. Day rates in
Canada are expected to improve as anticipated activity reaches near record
levels. In the fourth quarter the Corporation will be adding two Super Single
Lights(TM), bringing the total rig fleet in Canada to 226.
During the quarter the Corporation experienced an increase in international
drilling activity as the number of drilling days increased over the same quarter
in 2002 by 41% to 972 days. The increase in drilling days was the result of
increased activity in Latin America, as Venezuela recovers from the effects of a
general strike, and a one rig project in Asia Pacific. The Corporation has
entered into a second rig contract in Asia Pacific and is mobilizing another rig
to the Middle East. These rig deployments, together with the increase in rigs
working on the Mexico integrated services contract from 7 to 10, will bring the
total drilling rigs working internationally to 19 and should result in growth
for international Contract Drilling.
In 2002 the Corporation was carrying on drilling operations in the U.S. and
accumulated 140 and 545 rig operating days in the three and nine month periods
ended September 30, 2002, respectively. No such operations were carried on in
2003.
The service rig fleet generated 110,447 operating hours in the third
quarter, up 19% from the same quarter last year. Average hourly rates have
increased 3% from the third quarter of 2002. As at September 30, 2003 the
Corporation was operating 239 service rigs, down three from the same period in
the prior year as two units were deregistered and one unit was involved in an
incident that has made it inoperable. Activity levels in well servicing were up
on the comparable quarter last year due to ideal weather conditions, increased
drilling activity and strong commodity pricing, heavy oil in particular.
TECHNOLOGY SERVICES
(Stated in thousands of dollars)
% of % of
Three months ended September 30, 2003 Revenue 2002 Revenue
Revenue $ 191,748 $ 161,569
Expenses:
Operating 138,852 72.4 122,182 75.6
General and administrative 20,467 10.7 23,847 14.8
Depreciation and amortization 19,455 10.1 13,028 8.1
Research and engineering 13,309 6.9 8,990 5.6
Foreign exchange (1,048) (0.5) 1,362 0.8
Operating earnings (1) $ 713 0.4 $ (7,840) (4.9)
% Change
Wireline jobs performed 11,855 7,818 51.6
Directional wells drilled 762 369 106.5
Well testing/CPD (2) man-days (Canada only) 13,368 10,415 28.4
% of % of
Nine months ended September 30, 2003 Revenue 2002 Revenue
Revenue $ 560,135 $ 494,756
Expenses:
Operating 415,890 74.3 370,930 75.0
General and administrative 60,140 10.7 67,054 13.6
Depreciation and amortization 61,048 10.9 42,704 8.6
Research and engineering 30,954 5.5 25,278 5.1
Foreign exchange (2,125) (0.4) 4,572 0.9
Operating earnings (1) $ (5,772) (1.0) $ (15,782) (3.2)
% Change
Wireline jobs performed 29,608 23,391 26.6
Directional wells drilled 2,124 1,156 83.7
Well testing/CPD (2) man-days (Canada only) 39,351 36,964 6.5
(1) See explanation on page 8 (2) Controlled Pressure Drilling (CPD)
In the quarter, revenue for Technology Services was 19% higher than the
comparable quarter in 2002. The most significant increase was realized in the
Canadian region where revenue increased $23.5 million (a 44% increase over 2002)
due to increased activity. Other areas with significant growth in revenue were
Mexico, with expansion outside of the integrated services contract, and the
Middle East, where the Corporation has been successful in adding new contracts
over the past 12 months. Revenue for the quarter was contributed from Canada at
40% (2002 - 36%), U.S. 24% (2002- 24%) and International 36% (2002 - 40%).
Operating earnings as a percentage of revenue improved significantly from a
loss of 5% in the third quarter of 2002 to slightly better than break even.
Depreciation expense increased as a result of asset write downs, increased
capital assets and a gain on disposal of capital assets in 2002 of $4.1 million
compared to a gain on disposal in 2003 of $1.5 million. Total capital
expenditures in the Technology Services segment in the last twelve months have
been $216.6 million.
Research and engineering costs have increased over the same quarter in the
prior year due to increased investment in the Rotary Steerable Tool, the costs
associated with LWD prototype tools and more wireline development projects in
progress.
The number of wireline jobs performed is up on the prior year quarter due
to increases in Canada, the US and Middle East where the Corporation began a
wireline project in the fourth quarter of 2002. Directional wells drilled are up
due to the introduction of the HEL(TM) system along with a shift in the types of
wells being drilled in Canada with an increased concentration of gas wells in
the current year.
The steps initiated in the first and second quarters to reduce costs and
improve profitability were continued in the third quarter. The benefits of some
of these actions were being realized late in the third quarter but the full
impact of these streamlined operations were not fully appreciated in the
quarter. In certain international regions the impact of these cost cutting
initiatives have stabilized an otherwise deteriorating situation. In these
international locations we will still be reliant on improved business to realize
long term profitability. Signs of these improvements are already appearing as
Technology Services has been awarded several directional drilling contracts
utilizing the new LWD technology, which are scheduled to start late in the
fourth quarter or early 2004.
Over the past year the Corporation has spent $19 million on the design and
implementation of an integrated Enterprise Resource Planning system for
Technology Services. The system, which has proven effective in Contract
Drilling, has been configured to provide timely information on all aspects of
the business, from asset tracking and
sales order development to revenue, expense and capital expenditure reporting
and control. The first installation of the new system will go live in Canada in
October of this year, replacing a myriad of stand alone financial and
operational systems and databases currently being maintained. All of the
Corporation's regional operations will be converted to the new globally
integrated system over the course of the next two years. This investment was
made to provide the tools and controls necessary to manage the planned growth of
Technology Services.
RENTAL AND PRODUCTION
(Stated in thousands of dollars)
% of % of
Three months ended September 30, 2003 Revenue 2002 Revenue
Revenue $ 48,859 $ 46,384
Expenses:
Operating 34,067 69.7 $ 34,559 74.5
General and administrative 2,517 5.2 2,297 5.0
Depreciation and amortization 3,072 6.3 3,268 7.0
Foreign exchange (44) (0.1) (322) (0.7)
Operating earnings (1) $ 9,247 18.9 $ 6,582 14.2
% Increase
Equipment rental days (000's) 200 151 32.5
Plant maintenance man-days (000's) 66 64 3.1
% of % of
Nine months ended September 30, 2003 Revenue 2002 Revenue
Revenue $ 162,312 $ 149,448
Expenses:
Operating 113,698 70.0 106,161 71.0
General and administrative 6,962 4.3 7,140 4.8
Depreciation and amortization 9,364 5.8 9,932 6.7
Foreign exchange 431 0.3 160 0.1
Operating earnings (1) $ 31,857 19.6 $ 26,055 17.4
% Change
Equipment rental days (000's) 595 450 32.2
Plant maintenance man-days (000's) 207 195 6.2
(1) See explanation on page 8
The Rental and Production segment experienced an increase in revenue of 5%
over the prior year to $48.9 million. The segment's rental division realized
higher revenues due to increased rental days and a modest increase in revenue
per rental day driven by the activity levels in Canada. During the quarter the
Corporation combined its three separate rental operations to form one business
unit in order to improve upon customer convenience and streamline operations.
Industrial plant maintenance revenue was in line with the prior year.
CORPORATE AND OTHER EXPENSES
Corporate and other expenses of $9.0 million for the third quarter have
increased by $2.1 million over the same period last year. The increase is the
result of additional costs incurred to support international operations and
increased incentive based compensation expense as a result of the improved
financial performance of the Corporation relative to 2002. For the nine month
period ended September 30, 2003 corporate and other expenses have increased from
$22.2 million in 2002 to $23.3 million in 2003. General and administrative costs
included in corporate and other expenses are comprised primarily of head office
functions.
OTHER ITEMS
Interest expense for the three months ended September 30, 2003 was $8.5
million, a decrease of $0.2 million or 2% from the same period last year. The
decrease is the result of a decline in the average interest rate paid on the
outstanding debt partially offset by the increase in net debt. The average net
debt outstanding increased from $526.7 million for the third quarter in 2002 to
$570.9 million in 2003. Net debt is defined as long-term debt, including current
portion, plus bank indebtedness less cash. The increase in average net debt is
principally due to capital spending in excess of funds provided from operations
over the last 3 months of 2002.
The effective tax rate on earnings before income taxes, non-controlling
interest and discontinued operations was 33% in comparison to 15% in the prior
year. The tax benefit derived from how the Corporation has structured its
foreign operations is amplified in periods when operating results are less, as
they were in the third quarter of 2002 compared to the third quarter of 2003.
During October the Corporation issued 34,900 shares on the exercise of
stock options.
LIQUIDITY AND CAPITAL RESOURCES
Funds generated from continuing operations for the current quarter were
$93.3 million up 308% from the prior year of $22.9 million. For the nine month
period ended September 30, 2003 funds generated from continuing operations were
$244.7 million, up 67% from the prior year. The Corporation spent $63.5 million
and $220.8 million on capital additions, net of proceeds of disposal, in the
three and nine month periods, respectively, ended September 30, 2003. The
principal capital additions related to the Corporations expansion in Technology
Services as the Corporation continues its new technology roll-out. During the
quarter the Corporation received $3.0 million from the sale of an investment and
for the nine month period the Corporation has received $10.6 million from the
sale of investments and $67.3 million from the sale of discontinued operations.
On the exercise of stock options the Corporation received $6.1 million in the
quarter and $16.3 million for the nine months ended September 30, 2003.
Working capital increased from $210.3 million at December 31, 2002 to
$247.0 million at September 30, 2003 and the working capital ratio increased
from 1.54 to 1.61.
The Corporation's total borrowing at September 30, 2003 amounted to $600.7
million of which 59% was fixed and 41% was floating. The Corporation's long-term
debt to long-term debt plus equity ratio improved from 0.25 as at December 31,
2002 to 0.21 as at September 30, 2003. The Corporation has unused lines of
credit amounting to $229.4 million at the end of the third quarter.
(1) NON-GAAP MEASURE
Operating earnings is not a recognized measure under Canadian generally
accepted accounting principles (GAAP). Management believes that in addition to
net earnings, operating earnings is a useful supplemental measure as it provides
an indication of the results generated by the Corporation's principal business
activities prior to consideration of how those activities are financed or how
the results are taxed in various jurisdictions. Investors should be cautioned,
however, that operating earnings should not be construed as an alternative to
net earnings determined in accordance with GAAP as an indicator of Precision's
performance. Precision's method of calculating operating earnings may differ
from other companies and, accordingly, operating earnings may not be comparable
to measures used by other companies.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this interim report, including statements
which may contain words such as "could", "plans", "should", "anticipates",
"expect", "believe", "will" and similar expressions and statements relating to
matters that are not historical facts are forward-looking statements including,
but not limited to, statements as to: future capital expenditures, including the
amount and nature thereof; drilling activity levels; oil and gas prices and
demand; expansion and other development trends of the oil and gas industry;
improvement in day rates; business strategy; expansion and growth of the
Corporation's business and operations, including the Corporation's market share
and position in the domestic and international drilling markets; and other such
matters.
These statements are based on certain assumptions and analyses made by the
Corporation in light of its experience and its perception of historical trends,
current conditions and expected future developments as well as other factors it
believes are appropriate in the circumstances. However, whether actual results,
performance or achievements will conform with the Corporation's expectations and
predictions is subject to a number of known and unknown risks and uncertainties
which could cause actual results to differ materially from the Corporation's
expectations, including: fluctuations in the price and demand of oil and gas;
fluctuations in the level of oil and gas exploration and development activities;
fluctuations in the demand for well servicing, contract drilling and ancillary
oilfield services; the existence of competitors, technological changes and
developments in the oil and gas industry; the ability of oil and gas companies
to raise capital; the effects of severe weather conditions on operations and
facilities; the existence of operating risks inherent in well servicing,
contract drilling and ancillary oilfield services; political circumstances
impeding the progress of work in any of the countries in which the Corporation
does business; identifying and acquiring suitable acquisition targets on
reasonable terms; general economic, market or business conditions, including
stock market volatility; changes in laws or regulations, including taxation,
environmental and currency regulations; the lack of availability of qualified
personnel or management; and other unforeseen conditions which could impact on
the use of services supplied by the Corporation.
Consequently, all of the forward-looking statements made in this report are
qualified by these cautionary statements and there can be no assurance that the
actual results or developments anticipated by the Corporation will be realized
or, even if substantially realized, that they will have the expected
consequences to or effects on the Corporation or its business or operations. The
Corporation assumes no obligation to update publicly any such forward-looking
statements, whether as a result of new information, future events or otherwise.
Consolidated Balance Sheets
(Stated in thousands of dollars)
September 30, December 31,
2003 2002
(unaudited)
Assets
Current assets:
Cash $ 18,270 $ 17,315
Accounts receivable 512,480 443,799
Income taxes recoverable 7,145 7,804
Inventory 111,972 132,909
649,867 601,827
Property, plant and equipment, net of accumulated depreciation 1,595,593 1,521,444
Intangibles, net of accumulated amortization 67,579 72,380
Goodwill 537,692 546,921
Other assets 8,959 17,443
$ 2,859,690 $ 2,760,015
Liabilities and Shareholders' Equity
Current liabilities:
Bank indebtedness (Note 5) $ 135,778 $ 95,321
Accounts payable and accrued liabilities 248,543 268,568
Current portion of long-term debt 18,572 27,682
402,893 391,571
Long-term debt 446,372 514,878
Future income taxes 324,771 318,547
Non-controlling interest 2,859 2,019
Shareholders' equity:
Share capital 929,180 912,916
Retained earnings 753,615 620,084
1,682,795 1,533,000
$ 2,859,690 $ 2,760,015
Common shares outstanding (000's) 54,639 54,067
Common share purchase options outstanding (000's) 3,542 4,119
Consolidated Statements of Earnings and Retained Earnings (unaudited)
(Stated in thousands of dollars, except per share amounts)
Three months ended Nine months ended
September 30, September 30,
2003 2002 2003 2002
Revenue $ 468,097 $ 363,669 $ 1,424,331 $ 1,226,600
Expenses:
Operating 311,931 264,439 966,441 844,742
General and administrative 38,331 38,211 106,991 116,085
Depreciation and amortization 43,686 31,797 132,213 102,293
Research and engineering 13,309 8,990 30,954 25,278
Foreign exchange (2,334) (139) (1,599) 3,655
404,923 343,298 1,235,000 1,092,053
Operating earnings 63,174 20,371 189,331 134,547
Interest 8,545 8,722 26,945 26,182
Dividend income - - - (39)
Gain on disposal of investments (1,862) (1,000) (3,026) (1,000)
Earnings before income taxes, non-controlling
interest and discontinued operations 56,491 12,649 165,412 109,404
Income taxes:
Current 5,028 23,696 37,945 64,362
Future 13,417 (21,825) 10,605 (32,943)
18,445 1,871 48,550 31,419
Earnings before non-controlling interest
and discontinued operations 38,046 10,778 116,862 77,985
Non-controlling interest 274 319 840 1,058
Earnings from continuing operations 37,772 10,459 116,022 76,927
Gain on disposal of discontinued operations - - 17,460 -
Discontinued operations, net of tax (Note 4) - 1,787 49 5,475
Net earnings 37,772 12,246 133,531 82,402
Retained earnings, beginning of period 715,843 598,975 620,084 528,819
Retained earnings, end of period $ 753,615 $ 611,221 $ 753,615 $ 611,221
Earnings per share from continuing operations:
Basic $ 0.69 $ 0.19 $ 2.14 $ 1.44
Diluted $ 0.68 $ 0.19 $ 2.10 $ 1.41
Earnings per share:
Basic $ 0.69 $ 0.23 $ 2.46 $ 1.54
Diluted $ 0.68 $ 0.22 $ 2.42 $ 1.51
Common shares outstanding (000's) 54,639 53,944 54,639 53,944
Weighted average shares outstanding (000's) 54,514 53,923 54,334 53,599
Diluted shares outstanding (000's) 55,334 54,871 55,226 54,717
Consolidated Statements of Cash Flow (unaudited)
(Stated in thousands of dollars)
Three months ended Nine months ended
September 30, September 30,
2003 2002 2003 2002
Cash provided by (used in):
Continuing operations:
Earnings from continuing operations $ 37,772 $ 10,459 $ 116,022 $ 76,927
Items not affecting cash:
Depreciation and amortization 43,686 31,797 132,213 102,293
Gain on disposal of investments (1,862) (1,000) (3,026) (1,000)
Future income taxes 13,417 (21,825) 10,605 (32,943)
Non-controlling interest 274 319 840 1,058
Amortization of deferred financing costs 321 323 965 971
Unrealized foreign exchange (gain)
loss on long-term debt (348) 2,799 (12,899) (436)
Funds provided by continuing operations 93,260 22,872 244,720 146,870
Changes in non-cash working capital balances (84,386) (11,465) (85,483) 16,785
8,874 11,407 159,237 163,655
Discontinued operations:
Earnings from discontinued operations -- 1,787 17,509 5,475
Items not affecting cash:
Gain on disposal of discontinued operations -- -- (17,460) --
Depreciation and amortization -- 631 133 1,806
Future income taxes -- 200 -- 569
Funds provided by discontinued operations -- 2,618 182 7,850
Investments:
Business acquisitions (Note 3) -- (3,050) (6,800) (3,050)
Purchase of property, plant and equipment (69,049) (59,971) (237,432) (166,363)
Purchase of intangibles -- (63) (6) (2,149)
Proceeds on sale of property, plant and equipment 5,500 8,386 16,646 25,688
Proceeds on disposal of investments 2,960 1,872 10,580 1,872
Proceeds on disposal of
discontinued operations (Note 4) -- -- 67,274 --
Investments 144 -- (730) (147)
(60,445) (52,826) (150,468) (144,149)
Financing:
Increase in long-term debt 35,980 24,507 80,940 34,626
Repayment of long-term debt (4,486) (5,994) (145,657) (92,439)
Issuance of common shares on exercise of options 6,115 1,826 16,264 21,851
Change in bank indebtedness 21,275 15,360 40,457 19,491
58,884 35,699 (7,996) (16,471)
Increase (decrease) in cash 7,313 (3,102) 955 10,885
Cash, beginning of period 10,957 27,218 17,315 13,231
Cash, end of period $ 18,270 $ 24,116 $ 18,270 $ 24,116
Notes to Consolidated Financial Statements (unaudited)
(Tabular amounts stated in thousands of dollars, except per share amounts)
1. BASIS OF PRESENTATION
These interim financial statements were prepared using accounting policies
and methods of their application consistent with those used in the preparation
of the Corporation's audited financial statements for the year ended December
31, 2002. These interim financial statements conform in all respects to the
requirements of generally accepted accounting principles in Canada for annual
financial statements with the exception of certain note disclosures regarding
balance sheet items and transactions occurring prior to the current reporting
period. As a result, these interim financial statements should be read in
conjunction with the Corporation's audited financial statements for the year
ended December 31, 2002 contained in the Corporation's 2002 annual report.
2. SEASONALITY OF OPERATIONS
The majority of the Corporation's operations are carried on in Canada. The
ability to move heavy equipment in the Canadian oil and natural gas fields is
dependent on weather conditions. As warm weather returns in the spring, the
winter's frost comes out of the ground rendering many secondary roads incapable
of supporting the weight of heavy equipment until they have thoroughly dried
out. The duration of this "spring breakup" has a direct impact on the
Corporation's activity levels. In addition, many exploration and production
areas in northern Canada are accessible only in winter months when the ground is
frozen hard enough to support equipment. The timing of freeze up and spring
breakup affects the ability to move equipment in and out of these areas. As a
result, late March through May is traditionally our slowest time.
3. ACQUISITION
In February, the Corporation acquired the operating assets of MacKenzie
Caterers (1984) Ltd., a provider of oilfield camp and catering services, for
$6.8 million. The net assets acquired were property, plant and equipment. No
value was assigned to intangibles or goodwill.
4. DISPOSAL OF SUBSIDIARIES
Effective January 1, 2003 the Corporation sold its 100% owned subsidiary,
Energy Industries Inc., for cash proceeds of $60.4 million, net of transaction
costs and bank indebtedness assumed by the purchaser. Energy Industries Inc. was
disposed of as it was not a core business to the Corporations' energy services
globalization strategy. Results of Energy Industries Inc.'s operations have been
disclosed as discontinued operations in comparative periods. Energy Industries
Inc. was a component of the Rental and Production segment.
In May 2003 the Corporation sold its 50% interest in Energy Equipment
Rentals General Partnership ("EER") and Oil Drilling & Exploration (Argentina)
SA ("OD&E") for cash proceeds of $6.9 million, net of transaction costs. Results
of EER and OD&E's operations have been disclosed as discontinued operations in
the current and comparative periods. Both entities were components of the
Contract Drilling segment.
5. BANK INDEBTEDNESS
In May 2003, the Corporation secured a new $30.0 million revolving demand
facility with a Canadian chartered bank. This facility expires on November 30,
2003 and is to be used as bridge financing for the construction of certain
drilling rigs and associated assets. It is anticipated that this financing will
be converted to term debt at or before maturity. Advances are available under
this facility either at the bank's prime lending rate, U.S. base rate, U.S.
Libor plus .65% or Bankers' Acceptance plus .65% or in combination. The
Corporation has drawn $26.7 million on this facility as at September 30, 2003.
6. STOCK-BASED COMPENSATION PLANS
The Corporation uses the intrinsic value based method to account for share
options and accordingly, no compensation costs have been recognized in the
financial statements. In accordance with the Corporation's stock option plans,
these options have an exercise price equal to the market price at date of grant.
The per share weighted average fair value of stock options granted during the
nine and three month periods ended September 30, 2003 were $19.48 and $18.93
respectively, based on the date of grant using the Black-Scholes option pricing
model with the following assumptions: average risk-free interest rate of 3.64%,
average expected life of 3.42 years and expected volatility of 48% for the nine
months ended September 30, 2003 and 3.37%, 3.54 years and 46% respectively for
the three months ended September 30, 2003.
Had the Corporation determined compensation costs based on the fair value
at the date of grant for stock options granted since January 1, 2002; net
earnings and earnings per share (EPS) would have decreased to the pro forma
amounts indicated below. These pro forma amounts reflect compensation cost
amortized over the options vesting period.
Three months ended Nine months ended
September 30, September 30,
2003 2002 2003 2002
Net earnings - As reported $ 37,772 $ 12,246 $ 133,531 $ 82,402
- Pro forma $ 35,607 $ 10,195 $ 126,664 $ 78,408
Diluted EPS - As reported $ 0.68 $ 0.22 $ 2.42 $ 1.51
- Pro forma $ 0.64 $ 0.19 $ 2.29 $ 1.43
7. GUARANTEES
The Corporation has entered into agreements indemnifying certain parties
primarily with respect to tax and specific third party claims associated with
businesses sold by the Corporation. Due to the nature of the indemnifications,
the maximum exposure under these agreements cannot be estimated. No amounts have
been recorded for such indemnities as the Corporation's obligations under them
are not probable and estimable.
8. SEGMENT INFORMATION
Contract Technology Rental and Corporate
Three months ended September 30 Drilling Services Production and Other Total
2003
Revenue $ 227,490 $ 191,748 $ 48,859 $ - $ 468,097
Operating earnings (loss) 62,236 713 9,247 (9,022) 63,174
Research and engineering - 13,309 - - 13,309
Depreciation and amortization 19,961 19,455 3,072 1,198 43,686
Total assets 1,342,054 1,260,539 174,117 82,980 2,859,690
Goodwill 257,531 251,589 28,572 - 537,692
Capital expenditures 32,798 27,609 2,269 6,373 69,049
2002
Revenue $ 154,457 $ 161,569 $ 46,384 $ 1,259 $ 363,669
Operating earnings (loss) 27,327 (7,840) 6,582 (5,698) 20,371
Research and engineering - 8,990 - - 8,990
Depreciation and amortization 14,397 13,028 3,268 1,104 31,797
Total assets 1,279,871 1,084,803 236,983 71,945 2,673,602
Goodwill 257,531 250,045 37,801 - 545,377
Capital expenditures* 10,530 44,307 3,237 1,960 60,034
Contract Technology Rental and Corporate
Nine months ended September 30 Drilling Services Production and Other Total
2003
Revenue $ 701,884 $ 560,135 $ 162,312 $ _ $ 1,424,331
Operating earnings (loss) 186,551 (5,772) 31,857 (23,305) 189,331
Research and engineering -- 30,954 -- -- 30,954
Depreciation and amortization 58,234 61,048 9,364 3,567 132,213
Total assets 1,342,054 1,260,539 174,117 82,980 2,859,690
Goodwill 257,531 251,589 28,572 -- 537,692
Capital expenditures* 62,794 148,817 9,463 16,364 237,438
2002
Revenue $ 581,137 $ 494,756 $ 149,448 $ 1,259 $ 1,226,600
Operating earnings (loss) 145,188 (15,782) 26,055 (20,914) 134,547
Research and engineering -- 25,278 -- -- 25,278
Depreciation and amortization 46,427 42,704 9,932 3,230 102,293
Total assets 1,279,871 1,084,803 236,983 71,945 2,673,602
Goodwill 257,531 250,045 37,801 _ 545,377
Capital expenditures* 29,534 121,329 14,947 2,702 168,512
* Excludes business acquisitions
Shareholder Information
Directors HEAD OFFICE
W.C. (Mickey) Dunn (2) (3) Precision Drilling Corporation
Edmonton, Alberta 4200, 150-6th Avenue S.W.
Robert J.S. Gibson (1) (3) Calgary, Alberta, Canada T2P 3Y7
Calgary, Alberta Telephone: 403-716-4500
Murray K. Mullen (2) Facsimile: 403-264-0251
Calgary, Alberta Website: www.precisiondrilling.com
Patrick M. Murray (1) BANKER
Dallas, Texas Royal Bank of Canada
Frederick W. Pheasey (3) Calgary, Alberta
Edmonton, Alberta
Hank B. Swartout LEGAL COUNSEL
Calgary, Alberta Borden Ladner Gervais LLP
H. Garth Wiggins (1)
Calgary, Alberta Calgary, Alberta
(1) Audit Committee member AUDITORS
(2) Compensation Committee member KPMG LLP
(3) Corporate Governance Calgary, Alberta
and Nominating Committee member
OFFICERS
Hank B. Swartout
Chairman of the Board,
President
and Chief Executive Officer
Dale E. Tremblay
Senior Vice President Finance
and Chief Financial Officer
John R. King
Senior Vice President
Technology Services
M.J. (Mick) McNulty
Senior Vice President
Operations Finance
R.T. (Bob) German
Vice President Finance and
Chief Accounting Officer
Jan M. Campbell
Corporate Secretary
Shareholder Information
STOCK EXCHANGE LISTINGS ACCOUNT QUESTIONS
Common shares of Precision Drilling Corporation are Our Transfer Agent can help you with a
listed on The Toronto Stock Exchange under the trading variety of shareholder related services,
symbol PD and on the New York Stock Exchange under including:
the trading symbol PDS. z Change of address
Toronto (TSX) z Lost share certificates
January 1, 2003 z Transfer of stock to
another person
to September 30, 2003 z Estate settlement
High: $56.68 You can call our Transfer Agent toll free at:
Low: $45.30 1-888-267-6555
Volume traded: 50.9 million You can write to them at:
New York (NYSE) Computershare Trust Company of
Canada
January 1, 2003 100 University Avenue, 9th Floor
to September 30, 2003 Toronto, Ontario M5J 2Y1
High: US $40.52 Or you can email them at:
Low: US $31.10 careregistryinfo@computershare.com
Volume traded: 43.3 million Shareholders of record who receive more
TRANSFER AGENT than one copy of this report can
contact our
AND REGISTRAR Transfer Agent and arrange to have their
Computershare Trust accounts consolidate. Shareholders who
Company of Canada own Precision shares through a brokerage
Calgary, Alberta firm can contact their broker to request
TRANSFER POINT consolidation of their accounts.
Computershare Trust ONLINE INFORMATION
Company, Inc. To receive our news releases by e-mail, or to
New York, New York view this interim report, please visit our
website at www.precisiondrilling.com and
refer to the Investor Relations section.
ESTIMATED RELEASE DATES FOR
FINANCIAL RESULTS
2003 Year End Results
February 12, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PRECISION DRILLING CORPORATION
Per: /s/ Jan M. Campbell
----------------------------
Jan M. Campbell
Corporate Secretary
Date: November 18, 2003
Pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 and
rules promulgated thereunder, certain certifications are required in respect of
annual and periodic reports filed with the Securities and Exchange Commission.
Although quarterly reports furnished to the SEC on Form 6-K are "current" and
not "periodic" reports, and do not require certification, the following
certifications are given here voluntarily.
FORM 6K EXHIBIT INDEX
EXHIBIT NO. PAGE
99.1 302 Certification - Chief Executive Officer 21
99.2 302 Certification - Chief Financial Officer 22
99.3 906 Certification - Chief Executive Officer 23
99.4 906 Certification - Chief Financial Officer 24