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 May 5, 2004
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
---------
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: May 5, 2004
In connection with its First Quarter Report to Shareholders and Consolidated
Financial Statements furnished on this Form 6-K, Precision Drilling Corporation
is voluntarily filing certifications by its Chief Executive Officer and Chief
Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and
voluntarily furnishing certifications by its Chief Executive Officer and Chief
Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
2004 PRECISION DRILLING CORPORATION INTERIM REPORT
Period ended March 31
MANAGEMENT'S DISCUSSION AND ANALYSIS
HIGHLIGHTS
Three months ended March 31,
(Stated in thousands of dollars, except per share amounts) 2004 2003 % Change
-----------------------------------------------------------------------------------------------------------
FINANCIAL RESULTS
Revenue $ 665,165 $ 587,970 13.1
Operating earnings (1) 173,196 118,851 45.7
Earnings from continuing operations 107,438 74,146 44.9
Net earnings 100,519 83,129 20.9
Diluted earnings per share:
From continuing operations 1.91 1.34 42.5
After discontinued operations 1.79 1.51 18.5
Funds provided by continuing operations 180,496 132,402 36.3
MARCH 31, 2004 December 31, 2003
--------------------------------------------------------------------------------------------------
FINANCIAL POSITION
Working capital $ 421,795 $ 248,261
Long-term debt (2) 391,172 399,422
Long-term debt to long-term debt plus equity (2) 0.17 0.19
--------------------------------------------------------------------------------------------------
(1) See explanation on page 6
(2) Excludes current portion of long-term debt
REVENUE CONTRACT DRILLING GROUP TECHNOLOGY SERVICES RENTAL AND PRODUCTION TOTAL PRECISION DRILLING
($ Millions)
------------- ----------------------- ------------------- --------------------- ------------------------
2000 231 94 40 365
2001 356 175 47 578
2002 305 175 48 528
2003 335 203 50 588
2004 387 227 51 665
OPER. EARNINGS
($ Millions)
--------------
2000 75 14 10 99
2001 116 35 12 163
2002 102 9 9 120
2003 105 13 8 126
2004 149 30 10 189
OVERVIEW
Earnings per share from continuing operations for the three months ended
March 31, 2004 was $1.91 compared to $1.34 in the same quarter of 2003, while
net earnings per share were $1.79 compared to $1.51 in the prior year. Net
earnings in the current quarter were reduced by the writedown of assets on a
business held for sale as the current fair market valuation is less than the
estimated fair value as at December 31, 2003. The current period results were
also reduced by the expensing of the fair value of stock options for $2.1
million ($0.04 per share) in accordance with new Canadian accounting standards.
The Corporation has retroactively applied the new standards and restated prior
year earnings by $1.8 million ($0.03 per share).
Revenue of $665.2 million for the first quarter increased by $77.2 million
or 13% over the same period in the prior year. The principal increase was from
the Corporation's Canadian operations. Activity levels in Canada in the first
quarter of 2003 were strong and has remained strong in the first quarter of
2004. All of the Corporation's business segments in Canada performed at or above
the activity levels experienced in the first quarter of the prior year and all
business units experienced increased pricing for their services as compared to
the prior year. Revenue in Canada from the Contract Drilling operation was up
13% while operating days were up only 1%. Revenue in the Technology Services
Canadian operation was up 15%.
The first quarter of 2004 saw an increase in the Corporation's
international rig activity of 58%, based on the number of rig operating days. On
April 2 the Corporation announced it had executed a definitive agreement to
purchase the worldwide land drilling business and assets of GlobalSanteFe for
US$316.5 million. The purchase includes 31 land rigs located in the Middle East,
North Africa and South America and an extensive fleet of specialized rig
transport equipment. The acquisition will expand on the Corporation's growing
international rig operation and will bring the total fleet of international rigs
to 50. The acquisition of the land drilling assets of GlobalSanteFe will enable
the Corporation to continue its growth in the international drilling rig market.
The transaction is expected to be completed before the end of May 2004.
SEGMENT REVIEW
Three months ended March 31, 2004 2003 % Change
------------------------------------------------------------------------------------------------------------------------
OPERATING EARNINGS: (1)
Contract Drilling $ 148,608 $ 104,525 42.2
Technology Services 29,793 13,098 127.5
Rental and Production 9,741 8,271 17.8
Corporate and Other (14,946) (7,043) (112.2)
------------------------------------------------------------------------------------------------------------------------
$ 173,196 $ 118,851 45.7
------------------------------------------------------------------------------------------------------------------------
(1) see explanation on page 6
CONTRACT DRILLING
Three months ended March 31, % OF % of
(Stated in thousand of dollars, except per day/hour amounts) 2004 REVENUE 2003 Revenue
------------------------------------------------------------------------------------------------------------------------
Revenue $ 387,251 $ 335,312
Expenses:
Operating 203,445 52.5 197,066 58.8
General and administrative 10,038 2.6 8,887 2.6
Depreciation and amortization 24,357 6.3 25,613 7.6
Foreign exchange 803 0.2 (779) (0.2)
------------------------------------------------------------------------------------------------------------------------
Operating earnings (1) $ 148,608 38.4 $ 104,525 31.2
------------------------------------------------------------------------------------------------------------------------
% Change
------------------------------------------------------------------------------------------------------------------------
Number of drilling rigs (end of period) 244 241 1.2
Drilling rig operating days 16,097 15,466 4.1
Drilling revenue per operating day $ 17,903 $ 16,088 11.3
Number of service rigs (end of period) 239 240 (0.4)
Service rig operating hours 150,693 138,918 8.5
Service revenue per operating hour $ 534 $ 496 7.7
------------------------------------------------------------------------------------------------------------------------
(1) see explanation on page 6
Contract Drilling's revenue increased by 15% in the first quarter compared
to the same quarter last year while operating earnings increased by 42%. The
increase in operating earnings as a percentage of revenue was the result of an
increase in drilling day rates and service rig rates experienced in the latter
half of 2003 that carried through into the peak period of 2004.
In Canada, the drilling rig fleet achieved 14,768 operating days for a 72%
utilization in the quarter compared to 14,641 operating days and a 72%
utilization in the comparable quarter of the prior year. Revenue for contract
drilling was up 13% due to an increase in the average daily rate of 12%. During
the quarter the Corporation experienced manpower shortages but not to the same
extent experienced in the first quarter of 2003. In the first quarter the
Corporation added the second Super Single(R) Light drilling rig and retired one
conventional rig on April 1, 2004, bringing the current total rig fleet in
Canada to 225.
Service rig activity increased by 8% over the prior year to 150,693 hours
and 69% utilization. The improved service hours is attributable to well
completions due to the strong drilling activity in the fourth quarter of 2003.
As a result of high demand the service rig business experienced an 8% increase
in the average hourly rate over the prior year comparable quarter. The activity
levels for the quarter were impacted somewhat by the extremely cold weather
conditions experienced at times during the quarter in Western Canada and the
warmer weather experienced later in the quarter which resulted in early road
bans in Southern Canada.
During the quarter the Corporation experienced an increase in international
drilling activity as the number of drilling days increased over the same quarter
in 2003 by 58% to 1,329 operating days. The increase in drilling days was the
result of increased activity in Latin America, as Venezuela was negatively
impacted by a general strike in the first quarter of 2003, an increase in the
number of rigs working on the Corporation's integrated services contract in
Mexico from 7 to 10, and the start of a one rig contract in the Middle East. The
platform mounted rig mobilized for Asia/Pacific is in the region and is expected
to begin operations in the second quarter.
TECHNOLOGY SERVICES
Three months ended March 31, % OF % of
(Stated in thousand of dollars) 2004 REVENUE 2003 Revenue
-------------------------------------------------------------------------------------------------------------------
Revenue $ 227,214 $ 203,037
Expenses:
Operating 149,417 65.8 143,432 70.6
General and administrative 15,169 6.7 19,969 9.8
Depreciation and amortization 20,655 9.1 18,753 9.2
Research and engineering 11,263 4.9 8,899 4.4
Foreign exchange 917 0.4 (1,114) (0.5)
-------------------------------------------------------------------------------------------------------------------
Operating earnings (1) $ 29,793 13.1 $ 13,098 6.5
-------------------------------------------------------------------------------------------------------------------
% Change
-------------------------------------------------------------------------------------------------------------------
Wireline jobs performed 11,058 10,002 10.6
Directional wells drilled 959 750 27.9
Well testing/CPD (2) man-days 29,406 24,747 18.8
-------------------------------------------------------------------------------------------------------------------
(1) see explanation on page 6
(2) Controlled Pressure Drilling (CPD)
In the quarter, revenue for Technology Services was 12% higher than the
comparable quarter in 2003. The most significant increase was realized in the
Canadian region where revenue increased $16.4 million (a 15% increase over 2003)
due to a slight increase in activity and an increase in pricing for our
services. Other areas with significant growth in revenue were the United States
with a 24% increase due to an increase in activity and Latin America with a 120%
increase due to the general strike impacting 2003 results. Revenue for the
quarter was contributed from Canada at 56% (2003 - 55%), US 17% (2003 - 15%) and
International 27% (2003 - 30%).
Operating earnings of 13% of revenue was a significant improvement from 6%
in the comparable quarter of 2003. The improved operating earnings were the
result of increased pricing and utilization in Canada, cost reduction
initiatives in the US and increased activity in South America where the
Corporation was impacted by the general strike in Venezuela during the first
quarter of 2003. Depreciation expense increased as a result of increased capital
assets offset by lower gains on disposal of assets. Total capital expenditures
in the Technology Services segment in the last twelve months have been $143.5
million.
Research and engineering costs have increased over the same quarter in the
prior year due to the emphasis on bringing the Rotary Steerable tool to market
in various sizes, and the costs associated with upgrading the LWD tools with the
latest design changes.
The number of wireline jobs performed is up on the prior year quarter due
to increases in Canada, the US and Mexico. Directional wells drilled by the
Corporation are up due to the introduction of the new technologies in various
sizes.
The improved financial performance in Technology Services outpaced market
driven activity as the segment continued to build on the actions taken in 2003
to focus on business efficiencies in its most promising markets.
The Corporation continues with the implementation of an integrated
Enterprise Resource Planning information system. The first phase was completed
in the Canadian operation in the fourth quarter of 2003 with the next phase
scheduled to go live in the third quarter of 2004 in the Corporation's US
operations.
RENTAL AND PRODUCTION
Three months ended March 31, % OF % of
(Stated in thousand of dollars) 2004 REVENUE 2003 Revenue
--------------------------------------------------------------------------------------------------------------------
Revenue $ 50,700 $ 49,621
Expenses:
Operating 35,000 69.0 35,164 70.9
General and administrative 2,644 5.2 2,654 5.3
Depreciation and amortization 3,302 6.5 3,319 6.7
Foreign exchange 13 0.1 213 0.4
--------------------------------------------------------------------------------------------------------------------
Operating earnings (1) $ 9,741 19.2 $ 8,271 16.7
--------------------------------------------------------------------------------------------------------------------
% Change
Equipment rental days (000's) 253 232 9.1
Plant maintenance man-days (000's) 59 60 (1.7)
--------------------------------------------------------------------------------------------------------------------
(1) see explanation on page 6
The Rental and Production segment experienced an increase in revenue of 2%
over the prior year to $50.7 million. The segment's rental division realized
higher revenues due to increased rental days driven by the activity levels in
Canada. Industrial plant maintenance revenue was in line with the prior year.
CORPORATE AND OTHER
CORPORATE AND OTHER EXPENSES
Corporate and other expenses of $14.9 million for the first quarter have
increased by $7.9 million over the same period last year. Expenses in 2003 were
reduced by a $3.5 million benefit recorded as a result of the settlement of a
dispute arising from a previous divestment. Stock option and earnings related
compensation expense was also higher in 2004 than in 2003.
OTHER ITEMS
Interest expense for the three months ended March 31, 2004 was $8.2
million, a decrease of $1.1 million or 12% from the same period last year. The
decrease is the result of a lower average net debt balance for the first quarter
of 2004. The average net debt outstanding decreased from $663.6 million for the
first quarter in 2003 to $508.7 million in 2004. Net debt is defined as
long-term debt, including current portion, plus bank indebtedness less cash. The
decrease in average net debt is principally due to cash receipts from the
exercise of stock options and funds provided by operations in excess of capital
spending.
The effective tax rate on earnings before income taxes, non-controlling
interest and discontinued operations was 34% in comparison to 32% in the prior
year.
During April the Corporation issued 143,625 shares on the exercise of stock
options.
LIQUIDITY AND CAPITAL RESOURCES
Funds generated from continuing operations for the current quarter were
$180.5 million up 36% from the prior year of $132.4 million. The Corporation
spent $49.6 million on capital additions, net of proceeds of disposal, in the
three month period ended March 31, 2004. The principal capital additions related
to the Corporation's expansion in Technology Services as the Corporation
continues its new technology roll-out. During the quarter the Corporation
received $25.7 million from the sale of Fleet Cementers and $30.5 million on the
exercise of stock options.
Working capital increased from $248.3 million at December 31, 2003 to
$421.8 million at March 31, 2004 and the working capital ratio increased from
1.6 to 2.0.
The Corporation's total borrowing at March 31, 2004 amounted to $483.7
million, a reduction of $80.8 million since December 31, 2003, of which 72% was
fixed and 28% was floating. The Corporation's long-term debt to long-term debt
plus equity ratio improved from 0.19 as at December 31, 2003 to 0.17 as at March
31, 2004. The Corporation's unused operating credit line amounts to $337.9
million at March 31, 2004. Precision also has bridge financing in place to
complete its recently announced acquisition and is exploring long-term financing
alternatives.
(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
MARCH 31, December 31,
(Stated in thousands of dollars) 2004 2003
--------------------------------------------------------------------------------------------------------------------
(unaudited) (restated - Note 4)
ASSETS
Current assets:
Cash $ 20,209 $ 21,370
Accounts receivable 699,391 544,850
Inventory 95,676 99,088
Assets of discontinued operations (NOTE 3) 12,312 21,150
--------------------------------------------------------------------------------------------------------------------
827,588 686,458
Property, plant and equipment, net of accumulated depreciation 1,587,732 1,588,250
Intangibles, net of accumulated amortization 63,778 65,262
Goodwill 528,547 527,443
Other assets 8,612 8,932
Assets of discontinued operations (NOTE 3) 4,086 32,040
--------------------------------------------------------------------------------------------------------------------
$ 3,020,343 $ 2,908,385
--------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank indebtedness $ 79,077 $ 147,909
Accounts payable and accrued liabilities 292,631 260,545
Income taxes payable 15,177 7,373
Current portion of long-term debt 13,418 17,158
Liabilities of discontinued operations (NOTE 3) 5,490 5,212
--------------------------------------------------------------------------------------------------------------------
405,793 438,197
Long-term debt 391,172 399,422
Future income taxes 340,356 320,599
Future income taxes of discontinued operations - 1,107
Non-controlling interest 4,628 3,771
Shareholders' equity:
Contributed surplus 15,766 14,266
Share capital 967,830 936,744
Retained earnings 894,798 794,279
--------------------------------------------------------------------------------------------------------------------
1,878,394 1,745,289
Subsequent event (NOTE 6)
--------------------------------------------------------------------------------------------------------------------
$ 3,020,343 $ 2,908,385
--------------------------------------------------------------------------------------------------------------------
Common shares outstanding (000's) 55,753 54,846
Common share purchase options outstanding (000's) 2,547 3,393
CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS (UNAUDITED)
Three Months Ended March 31,
(Stated in thousands of dollars, except per share amounts) 2004 2003
--------------------------------------------------------------------------------------------------------------------
(restated - Note 4)
Revenue $ 665,165 $ 587,970
Expenses:
Operating 387,862 376,037
General and administrative 42,807 35,224
Depreciation and amortization 49,725 48,858
Research and engineering 11,263 8,899
Foreign exchange 312 101
--------------------------------------------------------------------------------------------------------------------
491,969 469,119
--------------------------------------------------------------------------------------------------------------------
Operating earnings 173,196 118,851
Interest 8,188 9,269
--------------------------------------------------------------------------------------------------------------------
Earnings from continuing operations before income taxes and
non-controlling interest 165,008 109,582
Income taxes:
Current 36,893 22,568
Future 19,820 12,582
--------------------------------------------------------------------------------------------------------------------
56,713 35,150
--------------------------------------------------------------------------------------------------------------------
Earnings from continuing operations before non-controlling interest 108,295 74,432
Non-controlling interest 857 286
--------------------------------------------------------------------------------------------------------------------
Earnings from continuing operations 107,438 74,146
Discontinued operations, net of tax (NOTE 3) (6,919) 8,983
--------------------------------------------------------------------------------------------------------------------
Net earnings 100,519 83,129
Retained earnings, beginning of period 794,279 613,805
--------------------------------------------------------------------------------------------------------------------
Retained earnings, end of period $ 894,798 $ 696,934
--------------------------------------------------------------------------------------------------------------------
Earnings per share from continuing operations:
Basic $ 1.94 $ 1.37
Diluted $ 1.91 $ 1.34
--------------------------------------------------------------------------------------------------------------------
Earnings per share:
Basic $ 1.81 $ 1.53
Diluted $ 1.79 $ 1.51
--------------------------------------------------------------------------------------------------------------------
Common shares outstanding (000's) 55,753 54,266
Weighted average shares outstanding (000's) 55,485 54,161
Diluted shares outstanding (000's) 56,309 55,149
CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
Three Months Ended March 31,
(Stated in thousands of dollars) 2004 2003
----------------------------------------------------------------------------------------------------------------------------
(restated - Note 4)
Cash provided by (used in):
Continuing operations:
Earnings from continuing operations $ 107,438 $ 74,146
Items not affecting cash:
Stock-based compensation 2,051 1,672
Depreciation and amortization 49,725 48,858
Future income taxes 19,820 12,582
Non-controlling interest 857 286
Amortization of deferred financing costs 320 322
Unrealized foreign exchange loss (gain) on
long-term monetary items 285 (5,464)
----------------------------------------------------------------------------------------------------------------------------
Funds provided by continuing operations 180,496 132,402
Changes in non-cash working capital balances (111,238) (149,713)
----------------------------------------------------------------------------------------------------------------------------
69,258 (17,311)
Funds provided by (used in) discontinued operations (3,898) (2,230)
Changes in non-cash working capital balances of discontinued operations 8,592 (271)
----------------------------------------------------------------------------------------------------------------------------
4,694 (2,501)
Investments:
Business acquisitions (630) (6,800)
Purchase of property, plant and equipment (53,728) (76,732)
Proceeds on sale of property, plant and equipment 4,713 4,237
Proceeds on disposal of discontinued operations (NOTE 3) 25,746 60,360
Investments - (759)
----------------------------------------------------------------------------------------------------------------------------
(23,899) (19,694)
Financing:
Increase in long-term debt 1,263 44,960
Repayment of long-term debt (4,365) (5,440)
Issuance of common shares on exercise of options 30,535 6,209
Change in bank indebtedness (78,647) 3,159
----------------------------------------------------------------------------------------------------------------------------
(51,214) 48,888
----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash (1,161) 9,382
Cash, beginning of period 21,370 17,315
----------------------------------------------------------------------------------------------------------------------------
Cash, end of period $ 20,209 $ 26,697
----------------------------------------------------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Tabular amounts stated in thousands of dollars)
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, 2003, except as noted below. 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, 2003 contained in the Corporation's
2003 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. DISPOSAL OF DISCONTINUED OPERATIONS
On February 12, 2004, the Corporation sold substantially all of the assets
of Fleet Cementers, Inc. for proceeds of $25.7 million. The Corporation has
entered into an agreement for the sale of the assets of the Polar Completions
division. The closing of the transaction is anticipated to take place on or
about May 7, 2004 and the carrying value of the assets has been written down to
the aggregate purchase price. These assets are being disposed of as they are not
a core component to the Corporation's energy services globalization strategy.
Effective January 1, 2003, the Corporation sold Energy Industries Inc., a
wholly-owned subsidiary included in the Rental and Production segment.
Results of the operations of these businesses have been classified as
results of discontinued operations. The following table provides additional
information with respect to amounts included in the results of discontinued
operations.
2004 2003
--------------------------------------------------------------------------------------------------
Revenue
Fleet Cementers and Polar Completions $ 8,192 $ 11,703
Other - 560
--------------------------------------------------------------------------------------------------
$ 8,192 $ 12,263
--------------------------------------------------------------------------------------------------
Gain on disposal of Energy Industries $ - $ 13,071
Loss on disposal of Fleet Cementers' assets (943) -
--------------------------------------------------------------------------------------------------
(943) 13,071
--------------------------------------------------------------------------------------------------
Results of operations before income taxes
Fleet Cementers and Polar Completions (850) (4,796)
Other - 49
Writedown of assets held for sale (6,117) -
--------------------------------------------------------------------------------------------------
(6,967) (4,747)
Income tax expense (recovery) (991) (659)
--------------------------------------------------------------------------------------------------
(5,976) (4,088)
--------------------------------------------------------------------------------------------------
Discontinued operations $ (6,919) $ 8,983
--------------------------------------------------------------------------------------------------
The following table provides additional information with respect to amounts
included in the balance sheet as assets/liabilities held for sale:
2004
-------------------------------------------------------------------------------
Accounts receivable $ 5,449
Inventory 6,863
-------------------------------------------------------------------------------
$ 12,312
-------------------------------------------------------------------------------
Capital assets $ 3,160
Other 926
-------------------------------------------------------------------------------
$ 4,086
-------------------------------------------------------------------------------
Accounts payable $ 3,752
Other 1,738
-------------------------------------------------------------------------------
$ 5,490
-------------------------------------------------------------------------------
The following table provides additional information with respect to amounts
included in the cash flow statement of funds provided by (used in) assets
classified as discontinued operations:
2004 2003
--------------------------------------------------------------------------------------------------
Net earnings of discontinued operations $ (6,919) $ 8,983
Items not affecting cash:
Loss (gain) on disposal of discontinued operations 943 (13,071)
Depreciation and amortization 782 1,888
Stock-based compensation - 96
Writedown of assets of discontinued operations 3,293 -
Future income taxes (1,997) (126)
--------------------------------------------------------------------------------------------------
Funds provided (used in) by discontinued operations $ (3,898) $ (2,230)
--------------------------------------------------------------------------------------------------
4. STOCK-BASED COMPENSATION
Effective January 1, 2004, the Corporation has adopted the revised Canadian
accounting standards with respect to accounting for stock-based compensation.
Under the new standard, the fair value of common share purchase options is
calculated at the date of grant and that value is recorded as compensation
expense over the vesting period of those grants. The Corporation has
retroactively applied this standard, with restatement of prior years, to all
common share purchase options granted since January 1, 2002. This has resulted
in a charge to net earnings of $2.1 million at March 31, 2004 ($1.8 million at
March 31, 2003) and a reduction to opening retained earnings of $14.5 million at
January 1, 2004 ($6.3 million at January 1, 2003).
Included in share capital at March 31, 2004 is $766,000 (December 31, 2003
- $215,000) relating to stock-based compensation expense on options that were
exercised.
5. SEGMENT INFORMATION
CONTRACT TECHNOLOGY RENTAL AND CORPORATE
Three months ended March 31, 2004 DRILLING SERVICES PRODUCTION AND OTHER TOTAL
-------------------------------------------------------------------------------------------------------------------------------
Revenue $ 387,251 $ 227,214 $ 50,700 $ - $ 665,165
Operating earnings (loss) 148,608 29,793 9,741 (14,946) 173,196
Research and engineering - 11,263 - - 11,263
Depreciation and amortization 24,357 20,655 3,302 1,411 49,725
Total assets 1,502,344 1,283,193 178,946 55,860 3,020,343
Goodwill 257,531 242,314 28,702 - 528,547
Capital expenditures* 17,201 25,723 6,465 4,339 53,728
-------------------------------------------------------------------------------------------------------------------------------
Contract Technology Rental and Corporate
Three months ended March 31, 2003 Drilling Services Production and Other Total
-------------------------------------------------------------------------------------------------------------------------------
Revenue $ 335,312 $ 203,037 $ 49,621 $ - $ 587,970
Operating earnings (loss) 104,525 13,098 8,271 (7,043) 118,851
Research and engineering - 8,899 - - 8,899
Depreciation and amortization 25,613 18,753 3,319 1,173 48,858
Total assets 1,421,031 1,238,468 179,365 81,254 2,920,118
Goodwill 257,531 241,340 28,572 - 527,443
Capital expenditures* 8,298 60,028 3,849 4,557 76,732
-------------------------------------------------------------------------------------------------------------------------------
* excludes business acquisitions
6. SUBSEQUENT EVENT
On April 2, 2004, the Corporation entered into a definitive agreement to
buy all of the worldwide land drilling business and assets from GlobalSantaFe
Corporation for US $316.5 million. The transaction is anticipated to be
completed during the second quarter of 2004. The acquisition will be accounted
for by the purchase method with the results of the acquired operations to be
included in the financial statements from the effective date of acquisition. The
Corporation has bridge financing in place to complete the transaction and is
exploring long-term financing alternatives.
SHAREHOLDER INFORMATION HEAD OFFICE
Precision Drilling Corporation
DIRECTORS 4200, 150-6th Avenue S. W.
Calgary, Alberta, Canada T2P 3Y7
W.C. (MICKEY) DUNN (2) (3) Telephone: 403-716-4500
Edmonton, Alberta Facsimile: 403-264-0251
Website: www.precisiondrilling.com
ROBERT J.S. GIBSON (1) (3)
Calgary, Alberta BANKER
Royal Bank of Canada
MURRAY K. MULLEN (2) Calgary, Alberta
Calgary, Alberta
LEGAL COUNSEL
PATRICK M. MURRAY (1) Borden Ladner Gervais LLP
Dallas, Texas Calgary, Alberta
FREDERICK W. PHEASEY (3) AUDITORS
Edmonton, Alberta KPMG LLP
Calgary, Alberta
HANK B. SWARTOUT
Calgary, Alberta
H. GARTH WIGGINS (1)
Calgary, Alberta
(1) Audit Committee member
(2) Compensation Committee member
(3) Corporate Governance 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 and
Chief Accounting Officer
JAN M. CAMPBELL
Corporate Secretary
STOCK EXCHANGE LISTINGS ACCOUNT QUESTIONS
Common shares of Precision Drilling Our Transfer Agent can help
Corporation are listed on The Toronto you with a variety of shareholder
Stock Exchange under the trading symbols related services, including:
PD and PD.U, and on the New York Stock
Exchange under the trading symbol PDS. CHANGE OF ADDRESS
TORONTO (TSX) Lost share certificates
January 1, 2004 to March 31, 2004 Transfer of stock to another person
High: $67.50 Estate settlement
Low: $55.89
Volume traded: 17.2 million YOU CAN CALL OUR TRANSFER AGENT TOLL FREE AT:
1-888-267-6555
NEW YORK (NYSE)
January 1, 2004 to March 31, 2004 YOU CAN WRITE TO THEM AT:
High: US $50.50 Computershare Trust Company of Canada
Low: US $43.30 100 University Avenue, 9th Floor
Volume traded: 11.9 million Toronto, Ontario M5J 2Y1
TRANSFER AGENT AND REGISTRAR OR YOU CAN EMAIL THEM AT:
Computershare Trust Company of Canada caregistryinfo@computershare.com
Calgary, Alberta
Shareholders of record who
TRANSFER POINT receive more than one copy of this
Computershare Trust Company, Inc. report can contact our Transfer
New York, New York Agent and arrange to have their
accounts consolidated. Shareholders
who own Precision shares through a
brokerage firm can contact their
broker to request consolidation of
their accounts.
ONLINE INFORMATION
To receive our news releases
by e-mail, or to view this interim
report, please visit our web site
at www.precisiondrilling.com and
refer to the Investor Relations
section.
ESTIMATED RELEASE DATES
FOR FINANCIAL RESULTS
2004 Second Quarter - July 29, 2004
2004 Third Quarter - October 28, 2004