Horizon North Logistics Inc. Announces Results For The Year Ended December
31, 2009
CALGARY, Feb. 25 /CNW/ - TSX Symbol: HNL - Horizon North Logistics Inc. ("Horizon" or the "Corporation") reported its financial and operating results for the year ended December 31, 2009 and 2008.
Highlights
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Year Year Year
ended ended ended
December December December
(000's except per share amounts) 31, 2009 31, 2008 31, 2007
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Revenue $ 143,892 $ 180,779 $ 95,846
EBITDAS(1) 33,517 45,143 23,054
Operating earnings(1) 8,486 20,086 7,764
Earnings before goodwill impairment
loss(2) 5,456 12,588 6,080
Goodwill impairment loss - 110,537 -
Net (loss) earnings 5,456 (97,949) 6,080
Net (loss) earnings per share - diluted $ 0.05 $ (0.89) $ 0.07
Total assets 239,507 247,181 321,413
Total long-term financial liabilities(3) 44,702 47,946 23,387
Funds from operations(4) 29,381 36,356 14,872
Capital spending 33,026 56,174 32,104
Proceeds from issuance of common shares - - 56,950
Business acquisitions, net of cash
acquired 818 581 59,170
Debt to total capitalization ratio 0.21:1 0.22:1 0.08:1
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(1) EBITDAS (Earnings before interest, taxes, depreciation, amortization,
gain/loss on disposal of property, plant and equipment and stock
based compensation) and operating earnings are not recognized
measures under Canadian generally accepted accounting principles
(GAAP). Management believes that in addition to net earnings, EBITDAS
is a useful supplemental measure as it provides an indication of the
Corporation's ability to generate cash flow in order to fund working
capital, service debt, pay current income taxes and fund capital
programs. 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 taxed. Investors should be cautioned, however, that
EBITDAS and operating earnings should not be construed as
alternatives to net earnings determined in accordance with GAAP as an
indicator of the Corporation's performance. Horizon's method of
calculating EBITDAS and operating earnings may differ from other
entities and accordingly, EBITDAS and operating earnings may not be
comparable to measures used by other entities. For a reconciliation
of EBITDAS and operating earnings to net earnings.
(2) Earnings before goodwill impairment loss is not a recognized measure
under GAAP. Horizon's method of calculating earnings before goodwill
impairment loss may differ from other entities and accordingly,
earnings before goodwill impairment loss may not be comparable to
measures used by other entities. For a reconciliation of earnings
before goodwill impairment loss to net earnings.
(3) Long-term financial liabilities include operating lines of credit,
the current and long-term portions of long-term debt, and exclude
deferred financing costs.
(4) Funds from operations is not a recognized measure under GAAP.
Management believes that in addition to cash flow from operations,
funds from operations is a useful supplemental measure as it provides
an indication of the cash flow generated by the Corporation's
principal business activities prior to consideration of changes in
working capital. Investors should be cautioned, however, that funds
from operations should not be construed as an alternative to cash
flow from operations determined in accordance with GAAP as an
indicator of the Corporation's performance. Horizon's method of
calculating funds from operations may differ from other entities and
accordingly, funds from operations may not be comparable to measures
used by other entities. Funds from operations is equal to cash flow
from operations before changes in non-cash working capital items
related to operations.
Overview of Horizon's Objectives, Strategies and Outlook
Horizon's primary objective in 2009 was to maintain the strength of the Corporation's balance sheet in the face of the difficulties facing the world economy. Total borrowings at the end of 2009 amounted to $44.7 million compared to $47.9 million at the end of 2008. Pro-active measures were taken to achieve this objective including employee salary reductions led by a 20% rollback in senior management ranks, maintaining staffing levels consistent with activity levels particularly in our manufacturing plants and strict capital spending controls. The Corporation's annual bonus incentive plans are also designed to be sensitive to profitability levels.
A strong balance sheet and relatively good cash flow from operations of $29.4 million facilitated a number of initiatives that should have a positive impact on future results. These initiatives include the following:
- In late 2008, the Grande Prairie camp manufacturing facility was
expanded by 25% to now include 40,300 square feet of heated, covered
space. The expansion was left idle in 2009 but is now being fully
utilized.
- In late 2009, 20,000 square feet of additional space was acquired
adjacent to the primary Kamloops manufacturing facility. Total space
at this location now amounts to 72,000 square feet. Minor
modifications to the new space are currently underway and the
facility will be fully functional by the end of March 2010.
- In July 2009, the Corporation acquired Paramount Structures Inc., a
company that had developed a unique blast resistant structure for use
at refineries and petrochemical plants to protect employees whose
jobs take them close to potential blast sources. Units are currently
being built in our Grande Prairie manufacturing facilities and first
sale and rental revenues will be recognized in the first quarter of
2010.
- In December 2009, Horizon acquired the Canadian based drill camp
fleet from Ensign Energy Services Inc., significantly increasing the
Corporation's share of the side by side drill camp market. What made
this transaction particularly attractive was the opportunity to forge
a close working relationship with one of Canada's premier drilling
contractors.
- During 2009, the Corporation repurchased 5.2 million of its common
shares at an average price of $1.23 per share. The Corporation took
this action as a result of its view that its shares were undervalued
and the purchase and cancelation of shares represented an attractive
investment that would benefit all shareholders.
It is cliché to say "what a difference a year makes", but it is very true when you consider the business prospects Horizon is now facing compared to this time last year. Commitments for camp manufacturing and sales are growing weekly and bidding activity is strong with new projects being announced on a regular basis. The BlackSands camp facilities in Fort McMurray are fully occupied and plans are in place to expand the executive accommodation at that location by 148 beds. We continue to look for locations and opportunities to build another such facility.
Much of the optimism portrayed in the preceding paragraph stems from improved economic conditions in the oil sands and minerals mining businesses. Crude oil prices have improved from the low $30 range to hold steady in the $70 to $80 range. With the expansion and other improvements at the site, Horizon's 2010 capital budget has increased from $15.0 million to $23.0 million. Mineral prices have also improved, led by record prices for gold. The worst of the financial markets crisis appears to be over and capital markets have opened up to provide funding for resource development projects. We expect these developments to have a positive impact on 2010 results.
Financial Results
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Year ended December 31, 2009
Inter-
segment
Camps & Marine Elimi-
(000's) Catering Matting Services Corporate nations Total
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Revenue $120,516 $ 19,798 $ 5,102 $ - $ (1,524) $143,892
Expenses
Cost of
goods sold 22,474 3,264 - - (104) 25,634
Operating 63,132 10,011 3,638 - (1,386) 75,395
General &
adminis-
trative 2,549 479 4 6,251 - 9,283
Foreign
exchange
loss (gain) 19 190 (3) (143) - 63
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EBITDAS $ 32,342 $ 5,854 $ 1,463 $ (6,108) $ (34) $ 33,517
Stock based
compensation 335 99 9 78 - 521
Depreciation &
amortization 18,775 5,821 1,165 240 (84) 25,917
Gain on
disposal of
property,
plant &
equipment (1,398) (9) - - (1,407)
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Operating
earnings
(loss) $ 14,630 $ (57) $ 289 $ (6,426) $ 50 $ 8,486
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Interest
income (88)
Interest
expense on
operating
lines of
credit 270
Interest
expense on
long-term
debt 1,350
Earnings on
equity
investments (729)
Income tax
expense 2,227
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Net earnings $ 5,456
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----------
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Year ended December 31, 2008
Inter-
segment
Camps & Marine Elimi-
(000's) Catering Matting Services Corporate nations Total
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Revenue $137,025 $ 36,166 $ 10,447 $ - $ (2,859) $180,779
Expenses
Cost of
goods sold 23,138 12,389 218 - (193) 35,552
Operating 69,456 14,942 7,288 - (2,356) 89,330
General &
adminis-
trative 2,413 494 - 7,799 - 10,706
Foreign
exchange
loss (gain) - 179 - (131) - 48
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EBITDAS $ 42,018 $ 8,162 $ 2,941 $ (7,668) $ (310) $ 45,143
Stock based
compensation 809 196 19 738 - 1,762
Depreciation
&
amortization 16,037 6,060 1,075 174 (64) 23,282
Loss
(gain) on
disposal of
property,
plant &
equipment 30 (17) - - 13
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Operating
earnings
(loss) $ 25,142 $ 1,923 $ 1,847 $ (8,580) $ (246) $ 20,086
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Interest
income (39)
Interest
expense on
operating
lines of
credit 647
Interest
expense on
long-term
debt 1,657
Earnings on
equity
investments (589)
Income tax
expense 5,822
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Earnings
before
goodwill
impairment
loss 12,588
Goodwill
impairment
loss 114,910
Income tax
recovery
associated
with
goodwill
impairment
loss (4,373)
----------
Net loss $(97,949)
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Camps & Catering
Camps & Catering revenue is comprised of camp, catering and service
revenue, camp and space sales, and space rental revenue as follows:
Year
Three months ended ended
(000's except --------------------------------------- ---------
rental days March June September December December
and mandays) 2009 2009 2009 2009 2009
--------------------------------------- ---------
Revenue from operations
Camps, catering &
service revenue $ 26,583 $ 16,088 $ 17,536 $ 16,736 $ 76,943
Camp sales revenue 3,262 10,488 5,437 7,334 26,521
Space sales revenue 1,690 451 2,067 942 5,150
Space rental revenue 642 1,450 1,063 747 3,902
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Revenue from operations $ 32,177 $ 28,477 $ 26,103 $ 25,759 112,516
Contract cancellation
fee - 8,000 - - 8,000
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Total revenue $ 32,177 $ 36,477 $ 26,103 $ 25,759 $120,516
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EBITDAS
Operations $ 11,881 $ 6,551 $ 4,785 $ 1,125 $ 24,342
Contract cancellation
fee - 8,000 - - 8,000
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Total EBITDAS $ 11,881 $ 14,551 $ 4,785 $ 1,125 $ 32,342
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Operating earnings
Operations $ 6,632 $ 2,357 $ 896 $ (3,255) $ 6,630
Contract cancellation
fee - 8,000 - - 8,000
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Total Operating
earnings $ 6,632 $ 10,357 $ 896 $ (3,255) $ 14,630
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Bed rental days(1) 133,315 108,801 109,417 83,966 435,499
Catering mandays(2) 111,893 92,017 87,439 83,364 374,713
Year
Three months ended ended
(000's except --------------------------------------- ---------
rental days March June September December December
and mandays) 2008 2008 2008 2008 2008
--------------------------------------- ---------
Camps, catering &
service revenue $ 18,787 $ 17,969 $ 27,288 $ 32,380 $ 96,424
Camp sales revenue 6,197 3,430 6,563 10,245 26,435
Space sales revenue 2,723 1,680 2,787 2,048 9,238
Space rental revenue 1,100 1,473 1,084 1,271 4,928
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Total revenue $ 28,807 $ 24,552 $ 37,722 $ 45,944 $137,025
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EBITDAS $ 8,776 $ 6,141 $ 12,527 $ 14,574 $ 42,018
Operating earnings $ 5,398 $ 2,372 $ 7,779 $ 9,593 $ 25,142
Bed rental days(1) 148,775 115,854 154,682 168,311 587,622
Catering mandays(2) 122,188 85,909 117,959 137,839 463,895
(1) One bed rental day equals the rental of one bed for one day.
(2) One catering manday equals 3 meals for one person for one day.
Fourth Quarter
--------------
Revenue from the Camps & Catering segment was $25,759,000 for the 3 months ended December 31, 2009, a decrease of $20,186,000 or 44% as compared to the same period in 2008.
Revenues from the BlackSand facilities were $7,137,000 as compared to $17,375,000 for the same period in 2008. Bed rental days were 46,612 in Q4 2009 as compared to 89,585 in Q4 2008. Utilization in the fourth quarter was primarily from beds under contract to a major customer, while 2008 included a number of additional, short term clients. In Q4 2008, utilization was significantly higher, with utilization by our major customer increasing steadily throughout the quarter with the facilities nearing full occupancy in December 2008.
On a per bed rental day basis, revenues declined from $194 per day in Q4 2008 to $153 per day in Q4 2009. Contract terms with a major customer were renegotiated in the third quarter of 2009 resulting in a reduction of the per manday rates charged for both the lodge and the craft camp facilities taking into account an extension in the timeline of the overall commitment. This also resulted in a shift in the mix of rooms occupied with more craft camp rooms as opposed to higher-priced executive lodge rooms.
In Q4 2009, a rate reduction was granted to a major customer reflecting significantly reduced occupancy of rooms over the Christmas break. A reduced rate was charged during this period to reflect the decreased number of beds occupied for a total reduction of $485,000. Adjusting for this amount, the actual rate per day charged was $163 per day.
Revenues from conventional equipment were $4,982,500 as compared to $10,943,000 in the same period in 2008. Activity levels declined significantly following reduced drilling and exploration, construction and infrastructure activities. These declines were felt across all revenue streams, with the largest declines seen in our open camp facilities. Bed rental days decreased by 53%, from 78,726 in Q4 2008 to 37,354 in Q4 2009 and catering mandays fell by 50% from 73,558 in Q4 2008 to 36,637 in Q4 2009. On a per bed rental day basis, revenues declined from an average of $139 per day in Q4 2008 to $133 per day in Q4 2009 as competitive pressures had a negative effect on pricing during the quarter. In addition, a larger proportion of revenues in the fourth quarter were derived from lower priced catering only revenues.
Combined camp and space sales revenues were $8,276,000 for Q4 2009 as compared to $12,293,000 in Q4 2008. Demand for newly manufactured units was reduced as compared to the prior year as projects were either put on hold or cancelled. Revenues mostly came from smaller units produced throughout the quarter as compared to 2008 where several large contracts were completed and delivered.
Revenues from service work were slightly above prior year levels at $4,616,000 in Q4 2009 as compared to $4,062,000 in Q4 2008. Service revenues were higher in the quarter mainly driven by the completion of several larger projects which extended throughout the quarter.
Space rental revenues declined by $524,000 as demand from all sectors including mining, forestry, construction and oil and gas dropped due to global economic conditions.
EBITDAS from the BlackSand facilities were essentially breakeven in the quarter and included $1,837,000 of costs related to the correction of moisture accumulation problems at the Lodge. The project was completed in early 2010 for a total project cost of $2.5 million. Also included in Q4 2009 was the effect of the rate reduction over the Christmas break as described above which affected EBITDAS in the amount of $235,000, as costs such as labour and utilities did not decline in direct proportion with revenues due to the short term duration of the credit. Adjusting for these two amounts, EBITDAS from BlackSand facilities would have been $2,370,000 or 31% of revenues as compared to $9,290,000 or 54% of revenues in Q4 2008. EBITDAS at the BlackSand facilities were impacted by the amended contract terms as discussed above with a significant number of beds at BlackSand in Q4 2008 were billed on a take-or-pay basis for which full revenues were earned that did not have associated catering and housekeeping costs.
EBITDAS on conventional, service and sales revenues declined from $5,380,000 million or 19% of revenues to $1,175,000 or 6% of revenues in Q4 2009 driven predominantly by the reduction in sales activity and pressure seen on pricing as a result of competition. One time charges in the amount of $460,000 were recognized related to inventory and asset verifications undertaken in the quarter. Results for the quarter also included costs related to the start up of the blast resistant structures business which amounted to $177,000, of which no costs were included in 2008 as the business was acquired in mid 2009.
During the fourth quarter of 2009, employees at the BlackSand site undertook a union certification vote. Based upon the outcome of this vote, the Alberta Labor Relations Board certified the union as the exclusive agent to represent the employees at the site. Management has since entered into negotiations with the union with the intent of signing a collective agreement.
Year ended December 31, 2009
----------------------------
Revenue from the Camps & Catering segment for the year ended December 31, 2009 was $120,516,000, a decrease of $16,509,000 or 12% as compared to the year ended December 31, 2008.
Revenues from the BlackSand facilities were $32,543,000 for the year, a slight decrease from the prior year's total of $34,718,000. Revenues for 2008 reflect 6 months of operations as the facilities commenced operations in the third quarter of 2008, while 2009 results include 12 months of operations. After opening in Q3 2008, occupancy steadily increased throughout the year and peaked near the end of the 2008. Utilization remained strong through the first quarter of 2009, but decreased in the second quarter with the restructuring of a long term contract with a major customer resulting in a reduction of the overall number of contracted beds and a change in mix with more craft rooms utilized as opposed to higher-priced executive rooms. Bed rental days for 2009 totalled 200,536 as compared to 179,344 in 2008, with the average revenue per bed rental day dropping to $162 per day in 2009 from $194 in 2008 reflecting the change in the mix with more craft rooms than higher priced executive style lodge rooms, and the effect of a credit granted to our major customer reflecting reduced occupancy of rooms over the 2009 holiday period.
Revenues from conventional equipment were $27,456,000 for the year as compared to $46,162,000 in 2008. Bed rental days decreased by 42%, from 408,278 in 2008 to 234,963 in 2009 as activity levels in all sectors declined significantly as compared to the prior year reflecting the general downturn in the economy. On a per bed rental day basis, revenues for 2009 were $117 per day as compared to $113 per day in 2008 reflecting a larger proportion of revenues derived from lower priced catering only revenues.
Combined camp and space sales revenues were $31,671,000 in 2009 compared to $35,673,000 in 2008. Demand for newly manufactured units was reduced as compared to the prior year as projects were either put on hold or cancelled.
Revenues from service work were slightly above prior year levels at $16,944,000 in 2009 as compared to $14,375,000 in 2008. Service revenues were generated from larger projects carried on during the year. Space rental revenues declined by $1,025,000 as demand from all sectors including mining, forestry, construction and oil and gas dropped due to global economic conditions.
Revenue, EBITDAS and operating earnings included the effect of an $8.0 million contract cancellation fee related to the restructuring of a long term contract with a large oil sands customer which flowed directly into EBITDAS and operating earnings during the year.
EBITDAS from the BlackSand facilities was $10,017,000 or 31% of revenues in 2009 as compared to $16,397,000 or 47% of revenue in 2008. Results for the year included $2,376,000 of costs related to the correction of moisture accumulation problems at the lodge. The project was completed in early 2010 for a total cost of $2.5 million. Also included was the effect of credit granted to a major customer in Q4 2009 reflecting reduced occupancy of rooms over the Christmas break which affected EBITDAS in the amount of $235,000. Adjusting for these two amounts, EBITDAS from the BlackSand facilities would have been $12,778,000 or 38% of revenues. EBITDAS at the BlackSand facilities were impacted by the amended contract terms as discussed above with a significant number of beds at BlackSand in Q4 2008 were billed on a take-or-pay basis for which full revenues were earned that did not have associated catering and housekeeping costs.
EBITDAS from conventional operations, service and sales were $14,325,000 or 18% of revenues as compared to $25,688,000 or 25% of revenues in 2008 reflecting the reduction of sales volumes as compared to 2008. Also included in 2009 were one time charges of $460,000 related to inventory and asset verifications undertaken in the fourth quarter, and costs related to the initial setup of the blast resistant structures business totalling $354,000.
Matting
Matting revenue is comprised of mat rental revenue, mat sales, installation, transportation, service, and other revenue as follows:
Year
Three months ended ended
(000's except ------------------------------------------ -----------
rental days March June September December December
and mats) 2009 2009 2009 2009 2009
------------------------------------------ -----------
Mat rental revenue $ 905 $ 1,309 $ 1,504 $ 1,817 $ 5,535
Mat sales revenue 1,523 597 1,220 875 4,215
Installation,
transportation,
service and other
revenue 2,699 2,133 2,394 2,822 10,048
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Total revenue $ 5,127 $ 4,039 $ 5,118 $ 5,514 $ 19,798
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------------------------------------------ -----------
EBITDAS $ 1,037 $ 1,245 $ 1,791 $ 1,781 $ 5,854
Operating (loss)
earnings $ (598) $ (240) $ 372 $ 409 $ (57)
Mat rental days 305,638 538,209 649,750 856,236 2,349,833
Average mats in
rental fleet 13,437 12,479 13,421 13,826 13,289
Mats sold
New mats 1,226 48 870 1,150 3,294
Used mats 1,109 981 1,738 305 4,133
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Total mats sold 2,335 1,029 2,608 1,455 7,427
Year
Three months ended ended
(000's except ------------------------------------------ -----------
rental days March June September December December
and mats) 2008 2008 2008 2008 2008
------------------------------------------ -----------
Mat rental revenue $ 1,926 $ 840 $ 1,303 $ 1,394 $ 5,463
Mat sales revenue 2,805 145 7,387 4,447 14,784
Installation,
transportation,
service and other
revenue 5,275 2,802 4,187 3,655 15,919
------------------------------------------ -----------
Total revenue $ 10,006 $ 3,787 $ 12,877 $ 9,496 $ 36,166
------------------------------------------ -----------
------------------------------------------ -----------
EBITDAS $ 3,129 $ 456 $ 2,926 $ 1,651 $ 8,162
Operating earnings
(loss) $ 1,613 $ (1,102) $ 1,322 $ 90 $ 1,923
Mat rental days 620,605 259,329 434,441 442,130 1,756,505
Average mats in
rental fleet 17,189 18,222 18,398 14,953 17,029
Mats sold
New mats 2,201 103 9,119 2,277 13,700
Used mats 1,123 266 330 4,674 6,393
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Total mats sold 3,324 369 9,449 6,951 20,093
Fourth Quarter
--------------
Revenue from the Matting segment decreased $3,982,000 in the three months ended December 31, 2009 as compared to the three months ended December 31, 2008.
Mat rental revenues for the three months ended December 31, 2009 were $423,000 higher than the three months ended December 31, 2008. Mat rental days were significantly higher during the quarter due to increased activity in shale gas development projects in north eastern British Columbia. Mat utilization was considerably higher, with 67% of mats rented during the quarter as compared to 32% during the same period in the prior year. However, offsetting the increase in activity was a decline in rental rates. Rates in the quarter were $2.12 per mat rental day as compared to $3.15 per mat rental day in Q4 2008. General economic conditions and competition had a negative effect on pricing as customers demanded significant rate concessions.
Mat sales revenues for the three months ended December 31, 2009 were $3,572,000 lower than the three months ended December 31, 2008. The total number of mats sold decreased significantly as customers shifted from mat purchases to mat rentals. The shift was a result of the type of projects being undertaken and a focus by customers on reducing capital expenditures in favour of mat rentals. Revenue per mat sold was $601 per mat as compared to $640 per mat in the same period in 2008. The majority of mats sold in Q4 2009 were HD hybrid ("HD hybrid") mats which sell at a discount compared to traditional oak mats, whereas in Q4 2008 the majority of mats sold were used oak mats. The HD hybrid mats utilize a combination of oak and softwood material while still retaining structural rigidity and durability.
Installation, transportation, service and other revenues for the three months ended December 31, 2009 were $833,000 lower than the three months ended December 31, 2008. The decrease was driven primarily by a drop in trucking related to mat sales which were stronger in Q4 2008. Mat management customers were focused on project specific services and reduced staging and strategic relocation work. Although rental volumes were higher, Q4 2009 saw the continued trend of the need to bundle services, often including transportation and installation services within rental rates to obtain or maintain jobs in an increasingly competitive environment.
EBITDAS and operating earnings increased by $130,000 and $319,000 respectively, driven primarily by the relative increase in mat rentals as compared to the same period in the prior year. Mat rental days were significantly higher than the same period in the prior year; however, rental margins were negatively impacted by competitive pressures and the bundling of transportation and installation services resulting in decreased margins for these services as well. Efforts were focused on reducing costs in a number of areas and a shift in manufacturing towards construction of HD hybrid mats. The hybrid mats are less costly to manufacture, and their reduced weight helps lower trucking and installation costs.
Year ended December 31, 2009
----------------------------
Revenue from the Matting segment decreased $16,368,000 in the year ended December 31, 2009 as compared to the year ended December 31, 2008.
Mat rental revenues for 2009 were consistent with 2008 levels. Customers working on shale gas projects in north eastern British Columbia drove stronger utilization rates and higher rental volumes throughout the year, but at the expense of rental rates which declined steadily throughout the year. Rates were negatively impacted as competitors continually reduced rates in an effort to keep and secure work.
Mat sales volumes for the year decreased significantly, with customers focused on mat rentals due to the types of projects being undertaken and in an effort to reduce capital spending. New mat sales declined most significantly, with used mat sales also declining as a result of the above factors.
Installation, transportation, service and other revenue was $5,871,000 lower than 2008. This decrease was driven primarily as a result of decreased mat sales. Stronger mat rental volumes helped offset some of the shortfall, but customers focused more on specific projects and less on strategic staging and relocation of managed mats overshadowing the gains on the rental side. We also saw the impact of bundling of transportation and installation services within rental rates in order to remain competitive.
EBITDAS decreased by $2,308,000 as compared to the prior year driven by the overall reduction in mat sales revenues. As a percentage of revenues, EBITDAS for 2009 was 30% as compared to 23% in 2008. This increase was driven by 28% of 2009 revenues coming from mat rentals as compared to 15% in 2008, which typically generate higher margins despite the impacts of competitive pressures. In addition, efforts were focused on reducing costs in a number of areas.
Marine Services
Marine Services revenue is comprised of tug and barge revenue, barge camp revenue, and rental and other revenue as follows:
Three months Year
ended ended
------------------------------------------- -----------
(000's) March June September December December
2009 2009 2009 2009 2009
------------------------------------------- -----------
Tug revenue $ - $ 30 $ 517 $ 1 $ 548
Barge revenue - - 191 - 191
Barge camp revenue 1,282 1,676 75 1 3,034
Rental and other
revenue 473 286 326 244 1,329
------------------------------------------- -----------
Total revenue $ 1,755 $ 1,992 $ 1,109 $ 246 $ 5,102
------------------------------------------- -----------
------------------------------------------- -----------
EBITDAS $ 891 $ 929 $ (175) $ (182) $ 1,463
Operating
earnings (loss) $ 599 $ 637 $ (468) $ (479) $ 289
Three months Year
ended ended
------------------------------------------- -----------
(000's) March June September December December
2008 2008 2008 2008 2008
------------------------------------------- -----------
Tug revenue $ - $ 351 $ 3,281 $ 83 $ 3,715
Barge revenue 196 212 178 15 601
Barge camp revenue 2,575 539 185 1,273 4,572
Rental and other
revenue 608 269 335 347 1,559
------------------------------------------- -----------
Total revenue $ 3,379 $ 1,371 $ 3,979 $ 1,718 $ 10,447
------------------------------------------- -----------
------------------------------------------- -----------
EBITDAS $ 2,150 $ 96 $ 428 $ 267 $ 2,941
Operating
earnings (loss) $ 1,890 $ (170) $ 151 $ (24) $ 1,847
Fourth Quarter
--------------
Revenues from the Marine Services segment for the three months ended December 31, 2009 decreased $1,472,000 as compared to the same period in the prior year. Tug and barge revenues were lower in the three months ended December 31, 2009, down $97,000 from the same period in the prior year as overall activity in the Northwest Territories was minimal. Barge camp revenues in Q4 2008 related to a winter drilling support project which did not occur in 2009. Rental and other revenues were generated from a combination of providing maintenance services and storage of equipment and supplies for customers. This revenue decreased by $103,000 in the three months ended December 31, 2009 compared to the prior period. $73,000 of this amount was attributable to reduced maintenance services and $30,000 to lower rentals.
EBITDAS and operating earnings for the three months ended December 31, 2009 were $449,000 and $455,000 lower compared to the same period in the prior year directly related to the reduction in overall activity in the region.
Year ended December 31, 2009
----------------------------
Revenues from the Marine Services segment for the year ended December 31, 2009 decreased $5,345,000 as compared to the same period in the prior year. Tug and barge revenues were lower throughout the year with very little activity in the Northwest Territories with the majority of our marine equipment not utilized during the year. 2009 activity was comprised of limited cargo and supply transportation. Barge camp revenues included a winter drilling support project in the first quarter and a $500,000 cancelation fee related to a barge camp rental contract in the second quarter of 2009. Very little work was contracted for the period when the northern waterways are typically open. Rental and other revenues decreased $230,000 compared to the prior year due to reduced activity, $150,000 was attributable to reduced maintenance services and $80,000 due to lower rentals.
For the year ended December 31, 2009 EBITDAS and operating earnings were $1,478,000 and $1,558,000 lower as compared to the same period in the prior year as a result of reduced activity levels throughout the year.
Corporate
Corporate costs are the costs of the head office which include the Chief Executive Officer, President, Chief Financial Officer, Vice President of Safety, Corporate Secretary, Corporate Accounting staff, and associated costs of supporting a public company. Overall cash costs were $1,603,000 (excluding Stock Based Compensation and Depreciation & Amortization) in the three months ended December 31, 2009 as compared to $2,701,000 in the same period in 2008. 2008 fourth quarter costs included onetime costs of $475,000 related to the departure of a senior executive. For the year ended December 31, 2009 corporate cash costs decreased to $6,251,000 or 4.3% of revenues from $7,799,000 or 4.3% of revenues in the year ended December 31, 2008. This decrease is largely a result of salary rollbacks implemented in the second quarter of 2009, led by senior management at 20%, and an overall focus on managing costs.
Other Items
Foreign exchange loss
Foreign exchange loss increased for the year ended December 31, 2009 to $63,000 as compared to $48,000 in the year ended December 31, 2008. The loss in the year ended December 31, 2009 is a result of the decrease in value of the Corporations U.S. dollar denominated accounts.
Interest income
Interest income of $88,000 was earned on long-term receivables. In the year ended December 31, 2008, interest income of $39,000 was earned on related party loans provided as well as deposits held as guarantees.
Interest on operating lines of credit and long-term debt
Interest on operating lines of credit and long-term debt decreased to $1,620,000 in the year ended December 31, 2009 from $2,304,000 in the year ended December 31, 2008. The decrease in interest expense is attributable to the decrease in the average amount of debt held of $31,125,000 in the year ended December 31, 2009 as compared to $42,819,000 in the year ended December 31, 2008.
Earnings on equity investments
The earnings on equity investments of Kitikmeot Caterers Ltd. ("Kitikmeot"), Sakku Caterers Limited ("Sakku"), Mackenzie Valley Logistics Inc. ("Mackenzie Valley"), and Mackenzie Delta Integrated Oilfield Services Ltd. ("MDIOS") were $729,000 in the year ended December 31, 2009, net of a one-time impairment charge of $412,000 related to Sakku as compared to earnings of $589,000 in the year ended December 31, 2008.
- Mackenzie Valley, MDIOS and Beaufort Logistics Inc. contributed
earnings of $171,000 for the year ended December 31, 2009 as compared
to loss of $191,000 in the year ended December 31, 2008.
- Kitikmeot contributed earnings of to $1,008,000 for the year ended
December 31, 2009 as compared to earnings $510,000 in the year ended
December 31, 2008.
- Sakku contributed a loss of $38,000 for the year ended December 31,
2009 as compared to earnings of $270,000 in the year ended
December 31, 2008. A one-time impairment charge of $412,000 related
to Sakku was recorded reflecting reduced activity and benefits
anticipated from this ongoing relationship.
Income taxes
Income tax expense increased to $2,227,000, an effective tax rate of 29.0%, for the year ended December 31, 2009 from $1,449,000, an effective tax rate of 1.5%, for the year ended December 31, 2008. Included in the December 31, 2008 tax expense is approximately $4,373,000 of tax recovery attributable to the goodwill impairment loss. If tax expense is adjusted for this recovery, it results in an adjusted tax expense of $5,822,000. If the 2008 loss before income taxes is adjusted for the goodwill impairment loss to arrive at adjusted earnings before income taxes of $18,410,000, the effective tax rate is 31.6% for 2008.
Liquidity and Capital Resources
The Corporation has a strong working capital position and borrowing
capacity as set out below:
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(000's) December 2009 December 2008
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Current assets $ 40,102 $ 50,465
Operating lines of credit 6,900 8,834
Current liabilities excluding
borrowings(1) 12,964 18,177
Current portion of long-term debt 1,939 488
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Current liabilities 21,803 27,499
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Working capital(2) 18,299 22,966
Bank borrowing
Operating lines of credit 6,900 8,834
Senior secured revolving term facility 29,100 38,400
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Total Bank borrowings 36,000 47,234
Available bank lines(3)(4) 80,000 80,500
Borrowing capacity(5) 44,000 33,266
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(1) Calculated as the sum of bank indebtedness, accounts payable and
accrued liabilities, deferred revenue and income taxes payable.
(2) Calculated as current assets less current liabilities.
(3) For 2009, includes $80,000,000 available to Horizon.
(4) For 2008, includes $80,000,000 available to Horizon and $1,000,000
(Horizon's 50% portion - $500,000) available to Horizon's joint
venture, Arctic Oil & Gas Services Inc.
(5) Calculated as available bank lines less total bank borrowing.
At December 31, 2009, Horizon's working capital position of $18,299,000 decreased from 2008 levels of $22,966,000 with total bank borrowings declining to $36,000,000 at December 31, 2009 from $47,234,000 at December 31, 2008. Bank borrowings were reduced using funds from operations and proceeds from the sale of used equipment which remained after funding capital additions.
Subsequent to December 31, 2009, Horizon renewed its revolving credit and senior secured revolving term credit facilities. The credit facilities were renewed for an additional 16 months, extending the maturity date on the senior secured revolving term facility and operating line to July 2, 2011. The interest rate on the operating line was increased to the bank prime rate plus 1.25% and the senior secured revolving term facility remained unchanged at the bank prime rate plus 1.50%. Borrowing capacity under the senior secured revolving term facility was reduced from $60,000,000 to $40,000,000 at management's request to better align borrowing capacity with anticipated borrowing requirements.
Horizon's borrowing facilities through its 50% owned joint venture, Arctic Oil & Gas Services Inc., were revised during the year. As a result, the facility is now in place only to support letters of credit, with borrowings no longer available.
During the year ended December 31, 2009, the Corporation spent $33,026,000 ($56,174,000 - December 31, 2008) on capital asset additions of which $24,521,000 was purchased using cash and $8,505,000 using notes payable. Capital spending was concentrated on the acquisition of the camp rental assets from Ensign Energy Services Inc., replacement camp rental fleet, replacement rental mats, configuration and site preparation work at the BlackSand facilities and improvements, and investment in the blast resistant structures rental fleet. Horizon evaluates and manages its capital spending plans taking into account proceeds from disposals, which for the year ended December 31, 2009 totalled $10,574,000. In the year ended December 31, 2008, the Corporation's spending was concentrated on the completion of the BlackSand Executive Lodge facilities, land for a second executive lodge facility, additional beds and space rental equipment and the addition of mats to its rental fleet.
The Corporation's contractual obligations for the next five years are as follows:
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(000's) Operating
lines of Long-term Operating
credit debt leases
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Year 1 or less $ 6,900 $ 1,939 $ 1,892
Year 2 - 13,166 1,548
Year 3 - 15,554 1,049
Year 4 - 3,425 584
Year 5+ - 3,718 493
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Total $ 6,900 $ 37,802 $ 5,566
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The Corporation was granted approval from the Toronto Stock Exchange for a normal course issuer bid to repurchase up to a maximum of 7,426,978 common shares of the Corporation over the period from July 24, 2009 to July 23, 2010. All shares repurchased will be cancelled. As at February 25, 2010, 5,185,000 common shares had been repurchased and cancelled for a weighted average purchase price of $1.23 excluding transaction costs.
The Corporation does not anticipate having any issues with respect to credit facility covenant violations. The Corporation is in compliance with its four debt covenants on its bank borrowings as set out below:
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Debt Covenant December 31, 2009
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Current ratio(1) - must be greater than 1.2:1 1.84:1
Debt(2) to EBITDAS(3)(4) - must be less than 2:1 1.3:1
Debt service coverage(5) - must be greater than 1.5:1 9.2:1
Debt(2) to total capitalization(6) - must be less than 0.5:1 0.21:1
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(1) Current ratio is calculated as ratio of current assets to current
liabilities.
(2) Calculated as the sum of operating lines of credit and long-term
debt.
(3) EBITDAS (Earnings before interest, taxes, depreciation, amortization,
gain/loss on disposal of property, plant and equipment and stock
based compensation) is not a recognized measure under Canadian
generally accepted accounting principles (GAAP). Management believes
that in addition to net earnings, EBITDAS is a useful supplemental
measure as it provides an indication of the Corporation's ability to
generate cash flow in order to fund working capital, service debt,
pay current income taxes and fund capital programs. Investors should
be cautioned, however, that EBITDAS should not be construed as an
alternative to net earnings determined in accordance with GAAP as an
indicator of the Corporation's performance. Horizon's method of
calculating EBITDAS may differ from other entities and accordingly,
EBITDAS may not be comparable to measures used by other entities.
(4) Debt to EBITDAS is calculated as the ratio of debt to trailing
12 months EBITDAS.
(5) Debt service coverage is calculated as the ratio of trailing
12 months EBITDAS less cash taxes to debt service. EBITDAS less cash
taxes is calculated as the trailing 12 months EBITDAS less trailing
12 months current tax expense. Debt service is calculated as the sum
of trailing 12 months interest expense on operating lines of credit,
trailing 12 months interest expense on long-term debt and current
portion of long-term debt.
(6) Debt to total capitalization is calculated as the ratio of debt to
total capitalization. Total capitalization is calculated as the sum
of debt and shareholder's equity.
Consolidated Balance Sheets
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(000's) December 2009 December 2008
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Assets
Current assets:
Cash & cash equivalents $ 602 $ -
Accounts receivable 24,915 37,873
Inventory 11,771 9,960
Prepaid expenses 1,824 1,682
Income taxes receivable 990 950
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40,102 50,465
Other Assets 3,061 -
Property, plant and equipment, net 156,425 147,924
Goodwill 472 -
Intangible assets, net 35,320 43,032
Long-term investments 4,127 5,760
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$ 239,507 $ 247,181
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Liabilities and Shareholders' Equity
Current liabilities:
Bank indebtedness $ - $ 1,776
Operating lines of credit 6,900 8,834
Accounts payable and accrued
liabilities 10,896 14,234
Deferred revenue 2,068 2,167
Current portion of long-term debt 1,939 488
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21,803 27,499
Long-term debt 35,863 38,624
Future income tax liability 12,687 11,456
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70,353 77,579
Shareholders' equity:
Share capital 245,353 257,505
Contributed surplus 11,812 5,564
Deficit (88,011) (93,467)
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169,154 169,602
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$ 239,507 $ 247,181
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Consolidated Statements of Operations and (Deficit) Retained Earnings
For the year ended December 31, 2009 and 2008
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(000's) December 2009 December 2008
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Revenue $ 143,892 $ 180,779
Expenses:
Cost of goods sold 25,634 35,552
Operating 75,395 89,330
General and administrative 9,283 10,706
Stock based compensation 521 1,762
Depreciation of property,
plant and equipment 17,048 14,315
Amortization of intangible assets 8,869 8,967
(Gain) loss on disposal of property,
plant and equipment (1,407) 13
Foreign exchange loss 63 48
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135,406 160,693
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Operating earnings 8,486 20,086
Goodwill impairment loss - 114,910
Interest income (88) (39)
Interest expense on operating
lines of credit 270 647
Interest expense on long-term debt 1,350 1,657
Earnings on equity investments (729) (589)
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Earnings (loss) before income taxes 7,683 (96,500)
Income taxes:
Current income tax expense 924 3,654
Future income tax expense (recovery) 1,303 (2,205)
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2,227 1,449
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Net earnings (loss) and comprehensive
(loss) income 5,456 (97,949)
(Deficit) Retained earnings,
beginning of period (93,467) 4,482
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Deficit, end of period $ (88,011) $ (93,467)
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Earnings (loss) per share:
Basic $ 0.05 $ (0.89)
Diluted $ 0.05 $ (0.89)
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Consolidated Statements of Cash Flows
For the year ended December 31, 2009 and 2008
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(000's) December 2009 December 2008
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Cash provided by (used in):
Operating activities:
Net earnings (loss) $ 5,456 $ (97,949)
Items not involving cash:
Depreciation of property,
plant and equipment 17,048 14,315
Amortization of intangible assets 8,869 8,967
Future income tax expense (recovery) 1,303 (2,205)
Stock based compensation 521 1,762
Goodwill impairment loss - 114,910
Earnings on equity investments (729) (589)
Gain on sale of property,
plant and equipment (3,087) (2,855)
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29,381 36,356
Changes in non-cash working capital
items 6,254 (16,751)
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35,635 19,605
Investing activities:
Purchase of other assets (3,061) -
Purchase of property, plant and
equipment (24,521) (56,174)
Purchase of intangibles (864) -
Proceeds on sale of property,
plant and equipment 10,574 8,572
Return of capital from equity
investments 2,362 334
Business acquisitions (818) (581)
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(16,328) (47,849)
Changes in non-cash working
capital items 1,900 914
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(14,428) (46,935)
Financing activities:
(Repayment of) proceeds from bank
indebtedness (1,776) 1,776
Share purchase costs (57) (15)
Repurchase of Shares (6,368) -
Repayment of operating lines of credit (1,934) (12,156)
Proceeds from long-term debt 23,101 43,800
Repayment of long-term debt (32,916) (6,578)
Repayment of capital leases - (507)
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(19,950) 26,320
Changes in non-cash working capital
items (655) (210)
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(20,605) 26,110
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Increase (decrease) in cash position 602 (1,220)
Cash, beginning of period - 1,220
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Cash, end of period $ 602 $ -
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Supplementary information:
Income taxes paid $ 958 $ 7,009
Interest received 88 39
Interest paid 1,784 2,197
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This press release may contain forward-looking statements that are subject to risk factors associated with the oil and gas and mining businesses and the overall economy. The Corporation believes that the expectations reflected in this press release are reasonable, but results may be affected by a variety of variables. The Corporation relies on litigation protection for "forward-looking" statements.
For further information: Bob German, President and Chief Executive Officer or Scott Matson, Vice President Finance and Chief Financial Officer, 1600, 505 - 3rd Street S.W., Calgary, Alberta T2P 3E6; Telephone: (403) 517-4654, Fax: (403) 517-4678; website: www.horizonnorth.ca
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