EDMONTON, ALBERTA -- North American Energy Partners Inc. ("NAEP" or "the Company")
(Toronto:NOA.TO - News)(NYSE:NOA - News) today announced results for the three
and nine months ended December 31, 2008.
Unless otherwise specified, all dollar amounts discussed
are in Canadian dollars.
Consolidated Financial Highlights (dollars in millions)
Three Months Nine Months
Ended Dec 31, Ended Dec 31,
2008 2007 2008 2007
restated (1) restated (1)
----------------- -----------------
Revenue $ 258.6 $ 274.9 $ 797.8 $ 666.1
Gross profit $ 51.0 $ 50.6 $ 142.9 $ 100.7
Gross profit percentage 19.7% 18.4% 17.9% 15.1%
Operating (loss) income $ (2.2) $ 33.2 $ 47.8 $ 49.8
Net (loss) income $ (14.7) $ 24.7 $ 3.2 $ 19.3
Consolidated EBITDA (2) $ 47.9 $ 42.1 $ 120.9 $ 79.7
Capital spending $ 9.4 $ 8.0 $ 84.9 $ 51.6
(1) See "Restatement December 31, 2007" at the end of this release.
(2) For a definition of Consolidated EBITDA (as defined within the
revolving credit agreement) and reconciliation to net income see
"Non-GAAP Financial Measures" at the end of this release. Our use of
the term "Consolidated EBITDA (as defined within the revolving
credit agreement)" replaces the term "Consolidated EBITDA (per
bank)" used in prior filings. The definition of Consolidated EBITDA
has not changed.The Company maintained solid operating performance in the
three and nine months ended December 31, 2008, despite lower
volume in the Pipeline division.
"Growing demand for our recurring oil sands services helped
us offset the impacts of weaker construction markets and
the third quarter fall-off in Pipeline revenues following
completion of Kinder Morgan's TMX Anchor Loop project,"
said Rod Ruston, President and CEO. "Our solid operating
performance, coupled with prudent cash management, contributed
to the timely strengthening of our balance sheet. Our cash
balance at December 31, 2008 was $42 million compared to
$10 million of bank borrowings at September 30, 2008," said
Mr. Ruston.
"Like most businesses, we are facing the effects of the
global economic downturn. At times like this, businesses
focus on reducing costs, controlling spending and conserving
cash. Our industry is no different. A number of oil sands
companies have announced reductions to their capital spending
budgets, which has led to delays and deferrals to some of
the early-stage development projects. Commercial and industrial
construction activity has also slowed significantly in Western
Canada. This business environment, coupled with the completion
of our major TMX Anchor Loop project, will result in a decline
in construction revenues."
"In addition, we recorded a net loss of $14.7 million in
the three months ended December 31, 2008 as a result of
a $32.8 million goodwill impairment charge in the Pipeline
segment."
"On a more positive note, demand for the recurring services
that support our customers' on-going oil sands mining operations
remains strong as evidenced by our results. This is the
single largest part of our business and while we expect
to see some near-term variability in the next few quarters,
over the longer term, we expect recurring services revenue
will continue to grow. This should help to offset some of
the negative impacts we're experiencing in other areas of
our business."
"In the short term, we are reviewing our cost structure
to ensure our overhead costs are aligned with the lower
activity levels expected in the next quarter and through
the next fiscal year," said Mr. Ruston.
Consolidated Results for the Three Months Ended December
31, 2008
Consolidated revenue for the three months ended December
31, 2008 was $258.6 million, compared to $274.9 million
in the same period last year. The $16.3 million decrease
primarily reflects the completion of the TMX Anchor Loop
project and reduced activity in commercial and industrial
construction, partially offset by continued growth in oil
sands activity levels.
Gross profit increased to $51.0 million or 19.7% of revenue,
from $50.6 million or 18.4% of revenue, last year. The gross
margin improvement reflects higher margins in all three
segments, each of which benefited from project close-out
activities and the processing of change orders.
The operating loss of $2.2 million resulted from a goodwill
impairment charge of $32.8 million in the Pipeline segment.
The impairment charge reflects a less optimistic outlook
for the Pipeline segment as a result of changing market
conditions including increased competition. Excluding the
impact of this charge, operating income would have been
$30.6 million, compared to $33.2 million during the same
period last year.
A net loss of $14.7 million (diluted loss per share of $0.41)
was recorded for the three months ended December 31, 2008,
compared to net income of $24.7 million (diluted earnings
per share of $0.67) during the same period last year. The
net loss resulted from the impact of non-cash items including,
the goodwill impairment charge and the net impact of unrealized
foreign exchange losses and unrealized derivative financial
instruments gains. Excluding these non-cash items, diluted
earnings per share would have been $0.59 for the three months
ended December 31, 2007, compared to $0.50 in the same period
last year.
The bottom-line was enhanced by a one-time cash gain of
$3.7 million, net of tax, in other income resulting from
the cancellation of a US dollar interest rate swap at the
option of the counterparties. The cancelled US dollar interest
rate swap was one of three swaps that were established to
manage the foreign currency and interest rate risk exposure
associated with the Company's 8 3/4% senior notes at the
time of issuance. The US dollar interest rate swap contained
a cancellation option that the remaining two swaps do not.
The counterparties to the swap exercised this cancellation
option effective February 2, 2009. As a result of the cancellation,
the Company's annual interest expense will increase by US$6.3
million if the current three-month LIBOR rate remains unchanged
until the senior notes mature in December 1, 2011.
In addition, the Company is now exposed to both interest
rate and foreign currency risk. Specifically, a 100 basis
point increase (decrease) in the three-month US LIBOR rate
will result in a US$2.0 million decrease (increase) in annual
interest expense and a $0.01 increase (decrease) in the
Canadian to US dollar exchange rate would result in a C$0.06
million decrease (increase) in annual interest expense,
based on the December 31, 2008 three-month US LIBOR rate
of 1.4%.
Consolidated Results for the Nine Months Ended December
31, 2008
Consolidated revenue increased to $797.8 million for the
nine months ended December 31, 2008, a 19.8% gain over the
same period last year. This improvement reflects strong
activity levels in the oil sands, including a significant
increase in demand for recurring services.
Gross profit increased 41.9% to $142.9 million, from $100.7
million a year ago, reflecting higher revenues and improved
gross margin. Gross margin increased to 17.9%, up from 15.1%
a year ago. This improvement primarily reflects the Pipeline
segment's return to profitability in the first half of fiscal
2009, the partial recovery of losses incurred on a Pipeline
contract executed in fiscal 2007 and improvement in the
management and purchasing of tires.
Operating income of $47.8 million, compared to $49.8 million
last year, was impacted by the $32.8 million goodwill impairment
charge. Excluding the impact of this non-cash charge, operating
income would have increased by 61.8% to $80.6 million, reflecting
the gross profit improvement and a slightly lower G&A
expense as a percentage of revenue.
The Company reported net income of $3.2 million (diluted
earnings per share of $0.09), compared to net income of
$19.3 million (diluted earnings per share of $0.52) last
year. The year-over-year change reflects strong operating
performance offset by non-cash items including the goodwill
impairment charge and the net impact of unrealized foreign
exchange losses and unrealized derivative financial instruments
gains. Excluding these non-cash items, diluted earnings
per share would have been $1.29 for the nine months ended
December 31, 2008, compared to $0.55 last year.
The nine-month results were also enhanced by the one-time
cash gain of $3.7 million, net of tax, in other income resulting
from the cancellation of the US dollar interest rate swap.
Segment Financial Highlights (dollars in millions)
Heavy Construction and Mining
Three Months Nine Months
Ended Dec 31, Ended Dec 31,
2008 2007 2008 2007
------------------ ------------------
Revenue $ 198.6 $ 154.4 $ 564.1 $ 431.1
Segment profit $ 38.5 $ 28.1 $ 86.4 $ 68.6
Segment profit percentage 19.4% 18.2% 15.3% 15.9%For the three months ended December 31, 2008, Heavy Construction
and Mining segment revenue increased to $198.6 million,
a 28.6% improvement over the prior year. Project development
activities at Petro-Canada's Fort Hills project and Suncor's
Voyageur and Millennium Naphtha Unit projects, combined
with strong demand for recurring site services work, including
master services work at Albian's Jackpine Mine and Muskeg
River Mine, were the primary factors in this revenue growth.
Recurring services have become an increasingly significant
contributor to the Company's revenues as more oil sands
projects move into the stable, operational phase of their
lifecycles. For the nine-month period, Heavy Construction
and Mining revenue increased to $564.1 million, representing
a year-over-year increase of 30.9%.
For the three months ended December 31, 2008, Heavy Construction
and Mining segment margin increased to 19.4%, from 18.2%
last year. This improvement reflects an increased percentage
of higher-margin site services and site preparation work
in the revenue mix. Segment margin for the nine months ended
December 31, 2008 decreased to 15.3%, from 15.9%, primarily
reflecting the negative impact of production challenges
on a single project.
Piling
Three Months Nine Months
Ended Dec 31, Ended Dec 31,
2008 2007 2008 2007
------------------ ------------------
Revenue $ 41.6 $ 43.8 $ 132.7 $ 121.7
Segment profit $ 12.7 $ 11.4 $ 32.4 $ 31.7
Segment profit percentage 30.7% 26.0% 24.4% 26.1%For the three months ended December 31, 2008, Piling segment
revenue was $41.6 million, compared to $43.8 million during
the same period last year. Weaker conditions in the commercial
and industrial construction sectors were the key factor
in this revenue change. For the nine-month period, Piling
revenue increased to $132.7 million, a year-over-year improvement
of 9.0%. Work on several major oil sands-related plant and
upgrader projects was a significant contributor to the revenue
growth during this period.
Despite lower revenue in the three months ended December
31, 2008, segment margins increased to 30.7%, from 26.0%
last year. This improvement reflects the positive impact
of change orders processed during the period. During the
nine months ended December 31, 2008, an increased proportion
of lower-margin, lower-risk time-and-materials projects
resulted in the dilution of Piling segment margins to 24.4%,
from 26.1% a year ago.
Pipeline
Three Months Nine Months
Ended Dec 31, Ended Dec 31,
2008 2007 2008 2007
------------------ ------------------
Revenue $ 18.4 $ 76.7 $ 101.0 $ 113.3
Segment profit $ 5.6 $ 12.9 $ 22.5 $ 14.2
Segment profit percentage 30.4% 16.9% 22.2% 12.5%Successful completion of the TMX Anchor Loop project in
October 2008 led to a rapid decline in Pipeline activity
in the latter part of the current quarter. Pipeline segment
revenue for the three months ended December 31, 2008 was
$18.4 million, compared to $76.7 million in the same period
last year when the project was operating at a peak activity
level. For the nine months ended December 31, 2008, Pipeline
achieved revenues of $101.0 million, compared to $113.3
million a year ago.
Although Pipeline segment profit for the three months ended
December 31, 2008 decreased as a result of lower revenue,
margins increased to 30.4%, from 16.9%, as final change
orders for the TMX project were processed at the end of
the project. Margins for the nine months ended December
31, 2008 also improved, increasing to 22.2% from 12.5% last
year. In comparing the nine month Pipeline margin results,
it is important to note that margins last year were negatively
impacted by the recognition of $2.0 million in previously
unrecognized costs related to a fixed-priced contract. Margins
for the nine months of this year have subsequently benefited
from the realization of $5.3 million in related claims revenue.
Excluding the impact of these items, margins for the nine
months would have been 17.9%, compared to 14.3% a year ago.
Outlook
The Company's customers have been impacted by the current
extraordinary economic environment and have responded by
controlling costs in both their capital and operating budgets.
A number of large oil sands projects in the planning and
early development phases have been delayed, including Suncor's
Voyageur expansion and Petro-Canada's Fort Hills project.
While the Company's piling and industrial construction work
on the Voyageur project was largely complete, the postponement
of the Fort Hills project will likely have a negative impact
on heavy construction and piling revenues going forward.
Oil sands projects in the operating or late development
phases have been less affected by the current economic challenges.
Unlike conventional oil operations, existing oil sands mining
operations are less sensitive to changes in oil prices due
to their immense up-front capital investment and relatively
low operating costs. These projects need to be operated
at full capacity in order to defray the high fixed cost
and maintain low unit costs. Accordingly, the Company does
not expect that long-term demand for recurring services
provided in support of the ongoing efficient operation of
oil sands mines will be negatively impacted by the current
economic environment. These recurring services, which include
overburden removal, equipment and labor supply, mine infrastructure
development and maintenance and land reclamation, are the
core of the Company's business and represented approximately
60% of oil sands revenue and 45% of consolidated revenues
on a trailing 12-month basis to December 31, 2008. This
was up from 50% of oil sands revenue and 37% of consolidated
revenues during the same period last year.
The Company expects that long-term demand for recurring
services will remain strong and continue to grow over time.
However, management does anticipate increased variability
in recurring services revenues throughout 2009 as customers
balance production requirements with the need to achieve
operational efficiencies. In addition, a near-term reduction
in overburden removal revenues will result from a customer's
request to re-align NAEP's overburden removal schedule with
its own project start-up schedule. The temporary overburden
removal shutdown, which will be in effect until the end
of April 2009, is not associated with the current economic
climate but relates specifically to the timing of the customer's
start-up program.
The Company has redeployed equipment from this project to
service other oil sands customers and lessen the impact
to both parties. The Company believes its excellent customer
relationships with the major oil sands producers and strong
position on every site enabled it to undertake this type
of redeployment quickly and effectively.
Commercial and industrial construction activity in Western
Canada is expected to remain weak over the coming quarters,
reducing demand for construction and piling services. Infrastructure-related
construction activity is expected to be significantly stronger
and could help to mitigate some of this impact. Canada's
federal government has recently earmarked $12 billion for
"shovel-ready" infrastructure projects over the next two
years, while the Province of Alberta has committed $120
billion to infrastructure improvements over the next 20
years.
Pipeline segment revenues are expected to decline in the
next quarter as the TMX project has now been successfully
completed. The Company is looking at several new pipeline
opportunities to replace this revenue but does not expect
to be involved in a major pipeline project in the near term.
"As we work through these challenging market conditions,
we are continuing to leverage our strong market position,
high quality equipment fleet and experienced management
team to secure profitable business. Concurrently, we are
enhancing our competitive position by working proactively
with suppliers and reviewing our internal cost structures
to realize additional cost savings," said Mr. Ruston. "Overall,
we believe these actions, coupled with the opportunities
for recurring services, will enable us to manage effectively
through the current economic uncertainty."
Conference Call and Webcast
Management will hold a conference call and webcast to discuss
its third quarter, 2009 fiscal year financial results tomorrow,
Friday, February 6, 2009, at 8:30 am Eastern time.
The call can be accessed by dialing:
Toll free: 1-877-407-9205 or International: 1-201-689-8054
A replay will be available through February 28, 2009 by
dialing:
Toll Free: 1-877-660-6853 International: 1-201-612-7415
(Account: 286 Passcode: 311605)
Interim Consolidated Balance Sheets
(in thousands of Canadian dollars)
December 31, March 31,
2008 2008
----------- -----------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 42,309 $ 32,871
Accounts receivable 143,248 166,002
Unbilled revenue 60,657 70,883
Inventory 15,210 110
Prepaid expenses and deposits 6,817 9,300
Other assets - 3,703
Future income taxes 2,488 8,217
----------- -----------
270,729 291,086
Future income taxes 13,317 18,199
Assets held for sale 1,206 1,074
Plant and equipment 338,749 281,039
Goodwill 167,319 200,072
Intangible assets, net of accumulated
amortization of $2,927 (March 31, 2008 - $2,105) 1,306 2,128
----------- -----------
$ 792,626 $ 793,598
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 93,321 $ 113,143
Accrued liabilities 29,872 45,078
Billings in excess of costs incurred and
estimated earnings on uncompleted contracts 6,842 4,772
Current portion of capital lease obligations 10,202 4,733
Current portion of derivative financial
instruments 12,226 4,720
Future income taxes 10,387 10,907
----------- -----------
162,850 183,353
Deferred lease inducements 862 941
Capital lease obligations 12,962 10,043
Director deferred stock unit liability 380 190
Senior notes 244,214 198,245
Derivative financial instruments 55,774 93,019
Asset retirement obligation 470 -
Future income taxes 25,269 24,443
----------- -----------
502,781 510,234
----------- -----------
Shareholders' equity:
Common shares (authorized - unlimited number
of voting and non-voting common shares;
issued and outstanding - 36,038,476 voting
common shares (March 31, 2008 - 35,929,476
voting common shares) 299,973 298,436
Contributed surplus 4,993 4,215
Deficit (15,121) (19,287)
----------- -----------
289,845 283,364
----------- -----------
$ 792,626 $ 793,598
----------- -----------
----------- -----------
Interim Consolidated Statements of Operations, Comprehensive (Loss) Income
and Deficit
(in thousands of Canadian dollars, except per share amounts)
(unaudited)
Three Months Nine Months
Ended December 31, Ended December 31,
-------------------- --------------------
2008 2007 2008 2007
--------- --------- --------- ---------
Restated Restated
Revenue $ 258,565 $ 274,894 $ 797,836 $ 666,096
Project costs 129,912 167,323 433,504 397,262
Equipment costs 55,549 44,231 162,146 131,582
Equipment operating lease
expense 11,934 4,825 30,317 12,329
Depreciation 10,178 7,885 29,004 24,179
--------- --------- --------- ---------
Gross profit 50,992 50,630 142,865 100,744
General and administrative
costs 19,156 17,009 57,717 48,996
Loss on disposal of plant and
equipment 1,022 5 3,778 850
Loss on disposal of asset held
for sale - - 24 316
Amortization of intangible
assets 268 443 822 766
Impairment of goodwill 32,753 - 32,753 -
--------- --------- --------- ---------
Operating (loss) income before
the undernoted (2,207) 33,173 47,771 49,816
Interest expense 6,774 7,399 19,663 20,333
Foreign exchange loss/(gain) 32,504 (1,784) 39,099 (33,136)
Realized and unrealized (gain)/
loss on derivative financial
instruments (26,523) (4,510) (21,171) 36,690
Other income (5,343) (115) (5,364) (351)
--------- --------- --------- ---------
(Loss) income before income
taxes (9,619) 32,183 15,544 26,280
Income taxes
Current income taxes 1,779 8 1,842 29
Future income taxes 3,301 7,469 10,527 6,951
--------- --------- --------- ---------
Net (loss) income and
comprehensive (loss) income
for the period (14,699) 24,706 3,175 19,300
Deficit, beginning of period -
as previously reported (422) (64,477) (19,287) (55,526)
Change in accounting policy
related to financial
instruments - - - (3,545)
Change in accounting policy
related to inventory - - 991 -
--------- --------- --------- ---------
Deficit, end of period $ (15,121) $ (39,771) $ (15,121) $ (39,771)
--------- --------- --------- ---------
--------- --------- --------- ---------
Net (loss) income per
share - basic $ (0.41) $ 0.69 $ 0.09 $ 0.54
--------- --------- --------- ---------
--------- --------- --------- ---------
Net (loss) income per
share - diluted $ (0.41) $ 0.67 $ 0.09 $ 0.52
--------- --------- --------- ---------
--------- --------- --------- ---------
Interim Consolidated Statements of Cash Flows
(in thousands of Canadian dollars) (unaudited)
Three Months Nine Months
Ended December 31, Ended December 31,
-------------------- --------------------
2008 2007 2008 2007
--------- --------- --------- ---------
Restated Restated
Cash provided by (used in):
Operating activities:
Net (loss) income for the
period $ (14,699) $ 24,706 $ 3,175 $ 19,300
Items not affecting cash:
Depreciation 10,178 7,885 29,004 24,179
Write-down of other assets
to replacement cost - - - 1,848
Amortization of intangible
assets 268 443 822 766
Amortization of deferred
lease inducements (26) (26) (79) (78)
Loss on disposal of plant and
equipment 1,022 5 3,778 850
Loss on disposal of assets
held for sale - - 24 316
Impairment of goodwill 32,753 - 32,753 -
Unrealized foreign exchange
loss/(gain) on senior notes 32,509 (1,612) 38,825 (32,626)
Amortization of bond issue
costs, premiums and
financing costs 219 162 577 669
Unrealized change in the fair
value of derivative financial
instruments (27,189) (5,177) (23,172) 34,688
Stock-based compensation
expense 497 276 1,803 1,023
Accretion expense - asset
retirement obligation 53 - 159 -
Future income taxes 3,301 7,469 10,527 6,951
Net changes in non-cash
working capital 24,377 (1,294) (10,702) 3,531
--------- --------- --------- ---------
63,263 32,837 87,494 61,417
--------- --------- --------- ---------
Investing activities:
Acquisition, net of cash
acquired - - - (1,581)
Purchase of plant and
equipment (9,369) (8,021) (84,895) (51,566)
Additions to assets held for
sale (350) - (350) (2,248)
Proceeds on disposal of plant
and equipment 3,173 120 7,821 4,036
Proceeds on disposal of assets
held for sale - - 194 10,200
Net changes in non-cash
working capital (2,068) (18,976) 3,191 (4,727)
--------- --------- --------- ---------
(8,614) (26,877) (74,039) (45,886)
--------- --------- --------- ---------
Financing activities:
Cheques issued in excess of
cash deposits (311) - - -
(Decrease) increase in
revolving credit facility (10,000) 20,000 - (500)
Repayment of capital lease
obligations (2,029) (900) (4,719) (2,508)
Issue of common shares - 859 - 1,599
Stock options exercised - - 702 -
Financing costs - (7) - (774)
--------- --------- --------- ---------
(12,340) 19,952 (4,017) (2,183)
--------- --------- --------- ---------
Increase in cash and cash
equivalents 42,309 25,912 9,438 13,348
Cash and cash equivalents,
beginning of period - (4,669) 32,871 7,895
--------- --------- --------- ---------
Cash and cash equivalents,
end of period $ 42,309 $ 21,243 $ 42,309 $ 21,243
--------- --------- --------- ---------
--------- --------- --------- ---------Restatement December 31, 2007
In preparing the financial statements for the year ended
March 31, 2008, we determined that the previously issued
interim unaudited consolidated financial statements for
the three and nine months ended December 31, 2007 did not
properly account for an embedded derivative with respect
to price escalation features in a supplier maintenance contract.
The embedded derivative has been measured at fair value
and included in derivative financial instruments on the
consolidated balance sheet with changes in fair value recognized
in net income. The impact of this restatement on the Interim
Consolidated Balance Sheet as at December 31, 2007 is a
$0.2 million reduction to future income taxes (long-term
assets), a $0.6 million reduction to derivative financial
instruments and a $0.4 million improvement to deficit. The
impact on the Interim Consolidated Statement of Operations
and Comprehensive (Loss) Income for the three and nine months
ended December 31, 2007 is an adjustment to unrealized income
on derivative financial instruments and income tax expense.
For the three months ended December 31, 2007, this resulted
in a reduction to net income of $0.7 million (restated as
net income of $24.7 million), a reduction to basic earnings
per share of $0.02 (restated as $0.69 earnings per share),
and a reduction to diluted earnings per share of $0.02 (restated
as $0.67 earnings per share). For the nine months ended
December 31, 2007, this resulted in an increase to net income
of $2.2 million (restated as a net income of $19.3 million),
an increase to basic earnings per share of $0.06 (restated
as $0.54 earnings per share) and an increase to diluted
earnings per share of $0.06 (restated as $0.52 earnings
per share).
Non-GAAP Financial Measures
This release contains non-GAAP financial measures. These
measures do not have standardized meanings under Canadian
GAAP or US GAAP and are therefore unlikely to be comparable
to similar measures used by other companies. The non-GAAP
financial measure disclosed by the Company in this press
release is Consolidated EBITDA (as defined within the revolving
credit agreement). The Company provides a reconciliation
of Consolidated EBITDA to net income reported in accordance
with Canadian GAAP below. Investors and readers are encouraged
to review the reconciliation of this non-GAAP financial
measure to reported net income.
Consolidated EBITDA (as defined within the revolving credit
agreement)
Consolidated EBITDA is a measure defined by our revolving
credit agreement. This measure is defined as EBITDA (which
is calculated as net income before interest, income taxes,
depreciation and amortization) excluding the effects of
unrealized foreign exchange gain or loss, realized and unrealized
gain or loss on derivative financial instruments, non-cash
stock-based compensation expense, gain or loss on disposal
of plant and equipment and certain other non-cash items
included in the calculation of net income. Our revolving
credit agreement requires us to maintain a minimum interest
coverage ratio and a maximum senior leverage ratio, which
are calculated using Consolidated EBITDA. Non-compliance
with these financial covenants could result in our being
required to immediately repay all amounts outstanding under
our revolving credit facility. Consolidated EBITDA should
not be considered as an alternative to operating income
or net income as a measure of operating performance or cash
flows as a measure of liquidity. Consolidated EBITDA has
important limitations as an analytical tool and should not
be considered in isolation or as a substitute for analysis
of our results as reported under Canadian GAAP or U.S. GAAP.
For example, Consolidated EBITDA:
- does not reflect cash expenditures or requirements for
capital expenditures or capital commitments;
- does not reflect changes in cash requirements for our
working capital needs;
- does not reflect the interest expense or the cash requirements
necessary to service interest or principal payments on debt;
- excludes tax payments that represent a reduction in cash
available to the Company; and
- does not reflect any cash requirements for assets being
depreciated and amortized that may have to be replaced in
the future.
Consolidated EBITDA also excludes unrealized foreign exchange
gains and losses and realized and unrealized gains and losses
on derivative financial instruments, which, in the case
of unrealized losses, may ultimately result in a liability
that will need to be paid and in the case of realized losses,
represents an actual use of cash during the period. Our
use of the term "Consolidated EBITDA (as defined within
the revolving credit agreement)" replaces the term "Consolidate
EBITDA (per bank)" used in prior filings. The definition
of Consolidated EBITDA has not changed.
A reconciliation of net (loss) income to Consolidated EBITDA
(as defined within the revolving credit agreement) is as
follows:
Three Months Nine Months
Ended Dec 31, Ended Dec 31,
2008 2007 2008 2007
restated restated
-------------------- --------------------
Net (loss) income $ (14.7) $ 24.7 $ 3.2 $ 19.3
Adjustments:
Interest expense $ 6.8 $ 7.4 $ 19.7 $ 20.3
Income taxes $ 5.1 $ 7.5 $ 12.4 $ 7.0
Depreciation $ 10.2 $ 7.9 $ 29.0 $ 24.2
Amortization of intangible
assets $ 0.3 $ 0.4 $ 0.8 $ 0.8
Unrealized foreign exchange
loss (gain) on senior notes $ 32.5 $ (1.6) $ 38.8 $ (32.6)
Realized and unrealized (gain)
loss on derivative financial
instruments $ (26.5) $ (4.5) $ (21.2) $ 36.7
Loss on disposal of equipment
and assets held for sale $ 1.0 $ 0.0 $ 3.8 $ 1.2
Stock-based compensation $ 0.4 $ 0.3 $ 1.6 $ 1.0
Write down of other assets
to replacement cost $ - $ - $ - $ 1.8
Impairment of goodwill $ 32.8 $ - $ 32.8 $ -
--------- --------- --------- ---------
Consolidated EBITDA $ 47.9 $ 42.1 $ 120.9 $ 79.7
(as defined in the revolving --------- --------- --------- ---------
credit agreement) --------- --------- --------- ---------Forward-Looking Information
This release contains forward-looking information that is
based on expectations and estimates as of the date of this
document. Forward-looking information is information that
is subject to known and unknown risks and other factors
that may cause future actions, conditions or events to differ
materially from the anticipated actions, conditions or events
expressed or implied by such forward-looking information.
Forward-looking information is information that does not
relate strictly to historical or current facts and can be
identified by the use of the future tense or other forward-looking
words such as "believe", "expect", "anticipate", "intend",
"plan", "estimate", "should", "may", "objective", "projection",
"forecast", "continue", "strategy", "position" or the negative
of those terms or other variations of them or comparable
terminology. Forward-looking information involves known
and unknown risks, uncertainties and other factors which
may cause actual results, performance or achievements to
vary from those expressed or implied in the forward-looking
information in this document.
Examples of such forward looking information in this document
include but are not limited to the following, each of which
is subject to significant risks and uncertainties and is
based on a number of assumptions which may prove to be incorrect:
(A) information related to the level of activity in the
Company's key markets and demand for the Company's services,
including (1) demand for recurring services becoming more
variable over the short term but continuing to grow over
the longer term, (2) commercial and industrial construction
activity in Western Canada remaining weak over the coming
quarters, reducing demand for construction and piling services
and (3) infrastructure related construction activity being
significantly stronger and mitigating some of the reduced
activity in commercial and industrial construction; is subject
to the risks and uncertainties that; there could be a further
downturn in the Canadian energy industry due to fluctuations
in oil prices, anticipated major projects in the oil sands
may or may not materialize due to changes in the long-term
view of oil prices, insufficient pipeline upgrading and
refining capacity and/or insufficient governmental infrastructure
to support the growth in the oil sands region could cause
customers to delay, reduce or cancel plans to construct
new oil sands projects or expand existing projects, cost
overruns by customers on their projects may cause customers
to terminate future projects and projects funded by government
spending may not materialize; and is based on the assumption
that long-term views of the economic viability of oil sands
projects will not significantly change; and
(B) information related to the future performance of the
Company, including (1) lower activity levels expected in
the next quarter and through the next fiscal year, (2) the
postponement of the Fort Hills project having a negative
impact on heavy construction and piling revenues going forward
(3) the Pipeline segment revenues declining in the fourth
quarter, (4) a near-term reduction in overburden removal
revenues, (5) management's ability to continue leveraging
the Company's strong market position, high quality equipment
fleet and experienced management team to secure profitable
business, (6) management's ability to enhance the Company's
competitive position by working proactively with suppliers
and reviewing internal cost structures to realize additional
cost savings and (7) management's ability to manage the
business effectively through the current economic uncertainty;
is subject to the risks and uncertainties that; the Company
may be unsuccessful when new projects are tendered, the
Company could lose a customer and suffer a significant reduction
in business, the Company may be exposed to losses when estimates
of project costs are lower than actual costs or work is
delayed due to weather-related factors, the Company may
be unable to attract qualified personnel, the Company may
be unable to obtain equipment and tires, the Company may
not be able to secure financing at a reasonable cost for
equipment purchases; and is based on the assumptions that
the Company is successful in the bidding process, the Company
can continue to execute profitably under its contracts and
the Company can secure financing for equipment purchases.
While management anticipates that subsequent events and
developments may cause its views to change, the Company
does not intend to update this forward-looking information,
except as required by applicable securities laws. This forward-looking
information represents management's views as of the date
of this document and such information should not be relied
upon as representing their views as of any date subsequent
to the date of this document. The Company has attempted
to identify important factors that could cause actual results,
performance or achievements to vary from those current expectations
or estimated expressed or implied by the forward-looking
information. However, there may be other factors that cause
results, performance or achievements not to be as expected
or estimated and that could cause actual results, performance
or achievements to differ materially from current expectations.
There can be no assurance that forward-looking information
will prove to be accurate, as actual results and future
events could differ materially from those expected or estimated
in such statements. Accordingly, readers should not place
undue reliance on forward-looking information. These factors
are not intended to represent a complete list of the factors
that could affect the Company. See the risk factors highlighted
in materials filed with the securities regulatory authorities
in the United States and Canada from time to time, including
but not limited to the most recent Form "Management's Discussion
and Analysis" filed respectively in the United States and
Canada.
For more complete information about NAEP, you should read
the disclosure documents filed with the United States Securities
and Exchange Commission (SEC) and the Canadian Securities
Administrators (CSA). You may obtain these documents for
free by visiting the IDEA System on the SEC website at www.sec.gov or SEDAR on the
CSA website at www.sedar.com.
About the Company
North American Energy Partners Inc. (www.nacg.ca)
is one of the largest providers of heavy construction, mining,
piling and pipeline services in Western Canada. For more
than 50 years, NAEP has provided services to large oil,
natural gas and resource companies, with a principal focus
on the Canadian oil sands. NAEP maintains one of the largest
independently owned equipment fleets in the region.
