================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO SECTION 13A-16 OR 15D-16 OF THE
SECURITIES EXCHANGE ACT OF 1934
For November 15, 2005
Commission File Number: 001-14534
PRECISION DRILLING TRUST
(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.
Date: November 28, 2005
PRECISION DRILLING TRUST
By its Administrator PRECISION DRILLING
CORPORATION
By: /s/ Darren Ruhr
----------------------------------
Name: Darren Ruhr
Title: Vice President, Corporate Services
and Corporate Secretary
PRECISION DRILLING CORPORATION INTERIM REPORT 3
PERIODS ENDED SEPTEMBER 30, 2005 AND 2004
MANAGEMENT'S DISCUSSION AND ANALYSIS
HIGHLIGHTS
THREE MONTHS ENDED SEPTEMBER 30,
(STATED IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS) 2005 2004 % Change
--------------------------------------------------------------------------------------------------------------------
FINANCIAL RESULTS
Revenue $ 300,016 $ 218,023 37.6
Operating earnings (1) 111,956 61,799 81.2
Earnings from continuing operations 2,382 36,995 (93.6)
Net earnings 1,382,648 42,707 3,137.5
Diluted earnings per share:
From continuing operations 0.02 0.31 (93.5)
Net earnings 11.00 0.36 2,955.6
Funds provided by (used in) continuing operations $ (54,747) $ 56,477 (196.9)
--------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, December 31,
2005 2004
--------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
Working capital $ 2,948,598 $ 557,311
Long-term debt (2) -- 718,850
Cash and cash equivalents 1,585,247 122,012
Long-term debt to long-term debt plus equity (2) -- 0.24
--------------------------------------------------------------------------------------------------------------------
(1) SEE EXPLANATION ON PAGE 4
(2) EXCLUDES CURRENT PORTION OF LONG-TERM DEBT
PRECISION DRILLING CORPORATION - 1 - THIRD QUARTER INTERIM REPORT
OVERVIEW
Diluted earnings per share from continuing operations were $0.02 in the third
quarter of 2005 compared to $0.31 in 2004.
Diluted earnings per share from continuing operations in the third quarter of
2005 was reduced by $0.50 as a result of a number of one time items related to
the Corporation's recent reorganization activities.
First is the $65.5 million premium on repayment of the Corporation's outstanding
debentures and second is the $20.3 million market value adjustment to the shares
of Weatherford International Ltd. ("Weatherford") received on the sale of the
Energy Services and International Contract Drilling divisions. Excluding these
items, diluted earnings per share from continuing operations is $0.52 with the
68% increase over last year reflecting the strong market for oilfield services
in Canada and favorable weather conditions allowing activity levels to rise to
meet demand. Increased demand has resulted in improved pricing for all of our
service offerings.
On August 31, the Corporation completed the sale of its Energy Services and
International Contract Drilling divisions to Weatherford for a purchase price
consisting of 26 million common shares of Weatherford and $1.13 billion cash
consideration and recognized an associated gain of $1.262 billion. On September
13, Precision closed the sale of CEDA International Corporation ("CEDA"), which
carried on the Industrial Services business, for cash proceeds of $274 million,
recognizing a gain of $123 million.
In September, the Corporation announced its intentions to reorganize its
remaining operations and holdings into an income trust and on October 4 the
associated Notice of Special Meeting of Securityholders and Information Circular
were mailed to securityholders. The special meeting to consider the conversion
took place on October 31, 2005 with the actual conversion taking place on or
about November 7, 2005. Pursuant to the reorganization, shareholders will be
entitled to receive in exchange for each common share held (i) one unit of the
Trust; (ii) their pro-rata share of the 26 million common shares of Weatherford
owned by Precision; and (iii) their pro-rata share of up to $850 million of
cash. The Weatherford shares will not be subject to any resale restrictions.
Based on current business conditions, it is anticipated that the Board of
Trustees of the Trust will set the initial regular distributions to the Trust's
unitholders at approximately $0.24 per Trust Unit per month, with the first such
payment expected to be made in the month following the effective date of the
reorganization.
Also in September, Precision provided irrevocable redemption notices for
the repayment of all of its outstanding debentures and on October 17, 2005 paid
approximately $767 million to fulfill this obligation.
PRECISION DRILLING CORPORATION - 2 - THIRD QUARTER INTERIM REPORT
RESULTS OF CONTINUING OPERATIONS
-----------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30, 2005 2004 % Change
-----------------------------------------------------------------------------------------------------
Number of drilling rigs (end of period) 229 226 1.3
Drilling operating days 12,539 9,479 32.3
Drilling revenue per operating day 16,259 15,029 8.2
Number of service rigs (end of period) 238 239 (0.4)
Service rig operating hours 122,620 112,636 8.9
Service revenue per operating hour 551 479 15.0
-----------------------------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30, 2005 2004 % Change
-----------------------------------------------------------------------------------------------------
Number of drilling rigs (end of period) 229 226 1.3
Drilling operating days 32,587 29,526 10.4
Drilling revenue per operating day 17,300 16,031 7.9
Number of service rigs (end of period) 238 239 (0.4)
Service rig operating hours 335,108 344,315 (2.7)
Service revenue per operating hour 567 498 13.9
-----------------------------------------------------------------------------------------------------
Rig demand remains extremely strong and the wet weather conditions
throughout the second quarter further enhanced the situation in the third
quarter as ground conditions dried in July. The impact of this pent up demand
resulted in an outstanding quarter for revenues and earnings as the backlog of
wells to be drilled created a combination of positive factors. First, winter
pricing held up through the spring and into the summer and second, whenever
equipment became available there were customers that were prepared to put it to
work immediately. This contributed to the 81% increase in operating earnings in
the third quarter of 2005 relative to 2004.
Overall, the oil and gas service industry will benefit from the pricing
leverage established from third quarter activity. Accordingly, increased pricing
for the winter season will take effect in the fourth quarter.
All operating divisions reported significant revenue increases year over
year. Well Servicing's 25% increase was somewhat lower than Contract Drilling's
43% increase due to the natural time lag between drilling and completing wells.
Operating costs were lower as a percentage of revenue despite crew wage
increases that were implemented in the fourth quarter of 2004. Operating
expenses declined from 58% of revenue in the third quarter of 2004 to 53% in
2005. Equipment repair and maintenance expenditures were lower on a per day
basis as scheduled expenditures were spread over a higher activity level
relative to last year. In addition, operating expenses have not increased as
much as customer pricing.
General and administrative costs for the third quarter were slightly higher
than the same period in 2004. As a percentage of revenue, general and
administrative costs fell to 5.5% from 6.4 %. General and administrative costs
should further decline as the corporate function continues to be sized to meet
the needs of Precision's smaller business organization.
Depreciation expense remained relatively consistent as the impact of
increased activity was offset by the change in the estimated useful life of
drilling rigs from 4,150 to 5,000 utilization days effective January 1, 2005.
PRECISION DRILLING CORPORATION - 3 - THIRD QUARTER INTERIM REPORT
LIQUIDITY AND CAPITAL RESOURCES
The Corporation had cash and cash equivalents of $1.585 billion as at
September 30, 2005. The cash resources have been generated from the operations
of the Corporation plus the cash proceeds from the sale of the Energy Services
and International Contract Drilling divisions and CEDA. A portion of the cash
was utilized to fund the redemption of 100% of the Corporation's outstanding
public debt on October 17, 2005, for a total cost of approximately $767 million.
The balance of the cash resources will be utilized to fund most of the cash
distribution of $850 million to occur upon the completion of the proposed
reorganization into a trust. The balance of the $850 million cash payment, plus
cash costs related to the trust conversion, the net cash payments required on
purchase of vested stock options and the working capital needs of the Trust will
be funded by a new credit facility. The Corporation has obtained a $550 million,
three year committed revolving facility, from a syndicate of Canadian financial
institutions which will be sufficient to fund the above noted costs plus capital
expenditures. During October 2005, the Corporation issued 459,650 shares on the
exercise of stock options.
QUARTERLY FINANCIAL SUMMARY
(STATED IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS,
WHICH ARE PRESENTED ON A DILUTED BASIS) 2004 2005
--------------------------------------------------------------------------------------------------------------------
Quarters ended December 31 MARCH 31 JUNE 30SEPTEMBER 30
--------------------------------------------------------------------------------------------------------------------
Revenue 313,978 383,407 157,895 300,016
Operating earnings (1) 113,879 153,020 24,505 111,956
Earnings from continuing operations 60,582 88,281 9,308 2,382
Per share 0.49 0.71 0.07 0.02
Net earnings 88,183 138,518 25,851 1,382,648
Per share 0.71 1.11 0.21 11.00
Funds provided by (used in)
continuing operations 114,628 122,075 27,973 (54,747)
--------------------------------------------------------------------------------------------------------------------
2003 2004
Quarters ended December 31 March 31 June 30 September 30
--------------------------------------------------------------------------------------------------------------------
Revenue 263,907 361,524 134,963 218,023
Operating earnings (1) 88,729 131,570 24,065 61,799
Earnings from continuing operations 42,486 80,427 10,127 36,995
Per share 0.38 0.71 0.09 0.31
Net earnings 52,958 100,519 15,995 42,707
Per share 0.48 0.89 0.14 0.36
Funds provided by continuing operations 86,522 129,506 11,038 56,477
--------------------------------------------------------------------------------------------------------------------
(1) OPERATING EARNINGS - 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.
PRECISION DRILLING CORPORATION - 4 - THIRD QUARTER INTERIM REPORT
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
CERTAIN STATEMENTS CONTAINED IN THIS INTERIM REPORT, INCLUDING STATEMENTS
RELATED TO OUR PROPOSED REORGANIZATION AND THE WEATHERFORD SHARES, AND
STATEMENTS THAT 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, AND ARE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. THESE STATEMENTS INCLUDE, BUT
ARE NOT LIMITED TO STATEMENTS AS TO: OUR EXAMINATION OF AVAILABLE STRATEGIC
ALTERNATIVES FOR OUR CONTINUING BUSINESS, THE CORPORATION'S MARKET SHARE AND
POSITION IN THE DOMESTIC DRILLING MARKET; ANTICIPATED REDUCTIONS IN OUR GENERAL
AND ADMINISTRATIVE EXPENSES AND OTHER SUCH MATTERS.
THESE STATEMENTS ARE BASED ON CERTAIN ASSUMPTIONS AND ANALYSIS 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; 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.
PRECISION DRILLING CORPORATION - 5 - THIRD QUARTER INTERIM REPORT
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, December 31,
(STATED IN THOUSANDS OF DOLLARS) 2005 2004
--------------------------------------------------------------------------------------------------------------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 1,585,247 $ 122,012
Marketable securities, at lower of cost or market (Note 4) 2,072,749 -
Accounts receivable 356,335 309,292
Inventory 6,603 7,734
Other assets 7,742 --
Assets of discontinued operations (Note 5) -- 497,036
--------------------------------------------------------------------------------------------------------------------
4,028,676 936,074
Property, plant and equipment, net of accumulated depreciation 925,112 897,584
Intangibles, net of accumulated amortization 487 498
Goodwill 266,827 266,827
Other assets -- 9,116
Assets of discontinued operations (Note 5) -- 1,741,950
--------------------------------------------------------------------------------------------------------------------
$ 5,221,102 $ 3,852,049
--------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 153,240 $ 120,432
Income taxes payable 161,705 13,624
Current portion of long-term debt (Note 6) 765,133 --
Liabilities of discontinued operations (Note 5) -- 244,707
--------------------------------------------------------------------------------------------------------------------
1,080,078 378,763
Long-term debt -- 718,850
Future income tax liability 212,167 354,268
Liabilities of discontinued operations (Note 5) -- 78,427
Shareholders' equity:
Share capital (Note 7) 1,323,709 1,274,967
Contributed surplus (Note 7) 35,189 26,024
Cumulative translation adjustment -- (20,933)
Retained earnings 2,569,959 1,041,683
--------------------------------------------------------------------------------------------------------------------
3,928,857 2,321,741
Contingency (Note 8)
--------------------------------------------------------------------------------------------------------------------
$ 5,221,102 $ 3,852,049
--------------------------------------------------------------------------------------------------------------------
PRECISION DRILLING CORPORATION - 6 - THIRD QUARTER INTERIM REPORT
CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS
(UNAUDITED)
(STATED IN THOUSANDS OF DOLLARS, THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
EXCEPT PER SHARE AMOUNTS) 2005 2004 2005 2004
------------------------------------------------------------------------------------------------------------------------
Revenue $ 300,016 $ 218,023 $ 841,318 $ 714,510
Expenses:
Operating 158,581 127,109 449,694 406,242
General and administrative 16,486 13,942 56,495 44,951
Depreciation and amortization 18,923 17,488 52,096 53,209
Foreign exchange (5,930) (2,315) (6,448) (7,326)
------------------------------------------------------------------------------------------------------------------------
188,060 156,224 551,837 497,076
------------------------------------------------------------------------------------------------------------------------
Operating earnings 111,956 61,799 289,481 217,434
Interest:
Long-term 11,971 13,107 36,238 31,414
Other 39 10 207 38
Income (4,784) (165) (6,878) (299)
Premium on redemption of bonds 65,483 -- 65,483 --
Unrealized loss in market value of
short-term investments 20,262 -- 20,262 --
Gain on disposal of investments -- (2,532) -- (2,574)
------------------------------------------------------------------------------------------------------------------------
Earnings from continuing operations
before income taxes 18,985 51,379 174,169 188,855
Income taxes:
Current 171,612 10,978 216,299 44,992
Future (155,009) 3,406 (142,101) 16,314
------------------------------------------------------------------------------------------------------------------------
16,603 14,384 74,198 61,306
------------------------------------------------------------------------------------------------------------------------
Earnings from continuing operations 2,382 36,995 99,971 127,549
Discontinued operations, net of tax (Note 5) 1,380,266 5,712 1,447,046 31,672
------------------------------------------------------------------------------------------------------------------------
Net earnings 1,382,648 42,707 1,547,017 159,221
Retained earnings, beginning of period 1,206,052 910,793 1,041,683 794,279
Adjustment on cash purchase of employee
stock options, net of tax of $ 9,823 (18,741) -- (18,741) --
------------------------------------------------------------------------------------------------------------------------
Retained earnings, end of period $ 2,569,959 $ 953,500 $ 2,569,959 $ 953,500
------------------------------------------------------------------------------------------------------------------------
Earnings per share from continuing operations:
Basic $ 0.02 $ 0.31 $ 0.81 $ 1.12
Diluted $ 0.02 $ 0.31 $ 0.80 $ 1.11
------------------------------------------------------------------------------------------------------------------------
Earnings per share:
Basic $ 11.22 $ 0.36 $ 12.60 $ 1.40
Diluted $ 11.00 $ 0.36 $ 12.36 $ 1.38
------------------------------------------------------------------------------------------------------------------------
Common shares outstanding (000's) 123,883 121,346 123,883 121,346
Weighted average shares outstanding (000's) 123,285 118,308 122,778 113,688
Diluted shares outstanding (000's) 125,686 119,816 125,145 115,156
PRECISION DRILLING CORPORATION - 7 - THIRD QUARTER INTERIM REPORT
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
(STATED IN THOUSANDS OF DOLLARS) 2005 2004 2005 2004
-------------------------------------------------------------------------------------------------------------------------
Cash provided by (used in):
Continuing operations:
Earnings from continuing operations $ 2,382 $ 36,995 $ 99,971 $ 127,549
Items not affecting cash:
Stock-based compensation 1,812 2,619 7,276 5,562
Depreciation and amortization 18,923 17,488 52,096 53,209
Gain on disposal of investments -- (2,532) -- (2,574)
Premium on redemption of bonds 65,483 -- 65,483 --
Unrealized loss in market value of
short-term investments 20,262 -- 20,262 --
Future income taxes (155,009) 3,406 (142,101) 16,314
Amortization of deferred financing costs 457 465 1,374 1,145
Unrealized foreign exchange gain on
long-term monetary items (9,057) (1,964) (9,060) (4,184)
-------------------------------------------------------------------------------------------------------------------------
Funds provided by (used in)
continuing operations (54,747) 56,477 95,301 197,021
Changes in non-cash
Changes in non-cash working capital
working capital balances 106,929 (34,941) 166,365 59,881
-------------------------------------------------------------------------------------------------------------------------
52,182 21,536 261,666 256,902
Discontinued operations:
Funds provided by discontinued operations (Note 5) 53,330 48,516 195,877 123,317
Changes in non-cash working capital
Changes in non-cash working capital
balances of discontinued operations (21,286) (30,958) (69,550) (71,202)
-------------------------------------------------------------------------------------------------------------------------
32,044 17,558 126,327 52,115
-------------------------------------------------------------------------------------------------------------------------
Investments:
Business acquisitions, net of cash acquired (30,421) (1,160) (30,421) (660,002)
Purchase of property, plant and equipment (77,155) (83,629) (238,605) (192,610)
Purchase of intangibles -- (314) (20) (314)
Proceeds on sale of property,
plant and equipment 8,941 13,371 26,062 24,617
Proceeds on disposal of investments -- 5,829 -- 5,877
Proceeds on disposal of discontinued operations 1,306,280 8,553 1,306,280 49,299
Investments -- 1,340 -- --
-------------------------------------------------------------------------------------------------------------------------
1,207,645 (56,010) 1,063,296 (773,133)
Financing:
Increase in long-term debt -- -- -- 522,136
Repayment of long-term debt (3) (161,994) (12) (173,257)
Deferred financing costs on long-term debt -- (627) -- (5,612)
Issuance of common shares on
exercise of options 15,405 13,584 40,522 50,355
Issuance of common shares, net of costs -- 276,455 -- 276,455
Purchase of employee stock options (28,564) -- (28,564) --
Change in bank indebtedness -- (71,795) -- (147,909)
-------------------------------------------------------------------------------------------------------------------------
(13,162) 55,623 11,946 522,168
-------------------------------------------------------------------------------------------------------------------------
Increase in cash and cash equivalents 1,278,709 38,707 1,463,235 58,052
Cash and cash equivalents,
beginning of period 306,538 40,715 122,012 21,370
-------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 1,585,247 $ 79,422 $ 1,585,247 $ 79,422
-------------------------------------------------------------------------------------------------------------------------
PRECISION DRILLING CORPORATION - 8 - THIRD QUARTER INTERIM REPORT
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 amended consolidated financial statements for the
year ended December 31, 2004, except as noted below. These interim financial
statements conform in all respects to the requirements of Canadian generally
accepted accounting principles 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 amended consolidated financial statements for the year
ended December 31, 2004.
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. CHANGES IN ACCOUNTING ESTIMATE
Effective January 1, 2005 Precision changed the useful life of its drilling
rigs for purposes of determining depreciation expense to 5,000 utilization days
from 4,150 utilization days (3,650 operating days), and its drill string to
1,500 from 1,100 operating days. Utilization days include both operating and rig
move days. This change in accounting estimate has been applied prospectively and
resulted in $ 3.0 million reduction of depreciation expense for the three months
ended and a $ 7.2 million reduction for the nine months ended September 30,
2005.
4. MARKETABLE SECURITIES
Marketable securities consists of 26 million common shares of Weatherford
International Ltd. ("Weatherford") received as partial proceeds on the sale of
the Energy Services and International Contract Drilling divisions. The market
value of these securities was $2,072.7 million at September 30, 2005 and
$1,899.8 million at October 25, 2005.
5. DISPOSAL OF DISCONTINUED OPERATIONS
On August 31, 2005, the Corporation sold its Energy Services and
International Contract Drilling divisions to Weatherford for proceeds of
approximately $1.13 billion and 26 million common shares of Weatherford, valued
at $2.09 billion. In addition, on September 13, 2005 and effective August 31,
2005, the Corporation completed the sale of its industrial plant maintenance
business carried on by CEDA International Corporation ("CEDA") to Borealis
Investments Inc., an investment entity of the Ontario Municipal Employees
Retirement System, for proceeds of approximately $274 million. Included in the
CEDA proceeds was $26.8 million for the purchase of CASCA Electric Ltd. and
CASCA Tech Inc., a transaction undertaken by CEDA on July 29, 2005. The Energy
Services, International Contract Drilling and CEDA assets were included in the
Energy Services, Contract Drilling and Rental and Production segments
respectively and were disposed in accordance with an extensive process
undertaken by the Corporation's Board of Directors to investigate avenues of
value creation for the Corporation's
PRECISION DRILLING CORPORATION - 9 - THIRD QUARTER INTERIM REPORT
shareholders. The proceeds received in both transactions are subject to
adjustment based on changes in working capital and net property, plant and
equipment from December 31, 2004 to the effective date of the disposal. An
estimate has been recorded for these adjustments, however, the final amount is
to be agreed upon by the parties to the purchase and sale agreements and such
final amount could differ from the amount recorded.
On February 12, 2004, the Corporation sold substantially all of the assets
of Fleet Cementers Inc. for proceeds of $25.7 million. On May 7, 2004, the
Corporation sold the assets of the Polar Completions division for proceeds of
$15.0 million, subject to working capital adjustments. On August 31, 2004, the
Corporation sold its 65% interest in United Diamond Ltd. for proceeds of $8.5
million. Additional proceeds in the amount of up to $9.5 million are receivable
with respect to the sale of United Diamond Ltd., contingent upon the extent of
future business undertaken between the Corporation and United Diamond Ltd. No
portion of the $9.5 million of contingent proceeds has been recognized. These
assets were included in the Energy Services segment and were disposed of as they
were not a core component to the Corporation's energy services globalization
strategy.
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.
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
2005 2004 2005 2004
------------------------------------------------------------------------------------------------------------------
Revenue
Energy Services $ 190,554 223,161 689,319 614,241
International Contract Drilling 54,098 91,039 204,987 209,888
Industrial plant maintenance 38,530 43,480 149,371 130,969
------------------------------------------------------------------------------------------------------------------
$ 283,182 357,680 1,043,677 955,098
------------------------------------------------------------------------------------------------------------------
Loss on disposal of Fleet Cementers' assets -- (14) -- (362)
Loss on disposal of United Diamond -- (254) -- (254)
Gain on disposal of Energy Services and
International Contract Drilling 1,261,536 -- 1,261,536 --
Gain on disposal of Industrial
plant maintenance 123,458 -- 123,458 --
------------------------------------------------------------------------------------------------------------------
$ 1,384,994 (268) 1,384,994 (616)
------------------------------------------------------------------------------------------------------------------
Results of operations before income taxes
Energy Services 22,023 8,057 78,282 26,306
International Contract Drilling 9,566 12,270 39,496 39,492
Industrial plant maintenance 2,911 5,451 18,135 15,953
Other (25,185) (8,686) (33,981) (18,648)
Writedown of assets held for sale -- -- -- (6,117)
------------------------------------------------------------------------------------------------------------------
9,315 17,092 101,932 56,986
Income tax expense 14,043 9,718 39,880 22,018
------------------------------------------------------------------------------------------------------------------
Results of operations, before
non-controlling interest (4,728) 7,374 62,052 34,968
Non-controlling interest -- 1,394 -- 2,680
------------------------------------------------------------------------------------------------------------------
(4,728) 5,980 62,052 32,288
------------------------------------------------------------------------------------------------------------------
Discontinued operations $ 1,380,266 5,712 1,447,046 31,672
------------------------------------------------------------------------------------------------------------------
PRECISION DRILLING CORPORATION - 10 - THIRD QUARTER INTERIM REPORT
The following table provides additional information with respect to amounts
included in the balance sheet as assets/liabilities of discontinued operations:
2005 2004
------------------------------------------------------------------------------------------------------------
Accounts receivable -- 381,707
Inventory -- 106,618
Future income tax asset -- 8,711
------------------------------------------------------------------------------------------------------------
-- 497,036
------------------------------------------------------------------------------------------------------------
Capital assets -- 1,047,937
Intangibles -- 191,167
Goodwill -- 468,586
Future income tax asset -- 34,260
------------------------------------------------------------------------------------------------------------
-- 1,741,950
------------------------------------------------------------------------------------------------------------
Accounts payable -- 219,940
Income taxes payable -- 17,479
Future income tax liability -- 7,270
Other -- 18
------------------------------------------------------------------------------------------------------------
-- 244,707
------------------------------------------------------------------------------------------------------------
Future income tax liability -- 78,407
Other -- 20
------------------------------------------------------------------------------------------------------------
-- 78,427
------------------------------------------------------------------------------------------------------------
The following table provides additional information with respect to amounts
included in the cash flow statement as funds provided by discontinued
operations:
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
2005 2004 2005 2004
--------------------------------------------------------------------------------------------------------------------
Net earnings of discontinued operations 1,380,266 5,712 1,447,046 31,672
Items not affecting cash:
Loss (gain) on disposal of
discontinued operations (1,384,994) 268 (1,384,994) 616
Stock-based compensation 6,164 3,467 10,109 4,473
Depreciation and amortization 22,439 35,332 95,794 92,133
Non-controlling interest -- 1,394 -- 2,680
Writedown of assets of
discontinued operations -- -- -- 3,293
Future income taxes (25) (101) (1,735) (12,985)
Realization of cumulative translation
adjustments 24,828 -- 24,828 --
Unrealized foreign exchange loss on
long-term monetary items 4,652 2,444 4,829 1,435
--------------------------------------------------------------------------------------------------------------------
Funds provided by discontinued operations 53,330 48,516 195,877 123,317
--------------------------------------------------------------------------------------------------------------------
PRECISION DRILLING CORPORATION - 11 - THIRD QUARTER INTERIM REPORT
6. LONG TERM DEBT
During the third quarter of 2005, Precision provided irrevocable redemption
notices for the repayment of all its outstanding debentures and on October 17,
2005 paid $766.7 million to fulfill this obligation. The redemption price of the
debentures varied with market interest rates and the Canadian / U.S. exchange
rate. On September 20, 2005, the Corporation hedged 50% of its exposure to these
variables. The redemption price of the debentures and the value of the contracts
used to hedge the exposure to variations in that value are included in the
September 30, 2005 balance sheet at fair market value, amounting to $765.1
million in aggregate. The fair market value of these items was $766.7 million on
October 17 and the $1.6 million difference between the September 30 value and
the October 17 value will be charged to income in the fourth quarter.
Also during the third quarter of 2005, the Corporation cancelled its
undrawn $335 million revolving bank credit facility. Commitments have been
received from a syndicate of Canadian financial institutions for a new $550
million revolving facility, which will be in place in early November 2005.
7. SHARE CAPITAL
(a) ISSUED
Common Shares: Number Amount
--------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2004 60,790,212 $ 1,274,967
Options exercised - cash consideration 578,346 24,516
reclassification from contributed surplus -- 1,521
--------------------------------------------------------------------------------------------------------------------
Balance, May 18, 2005 61,368,558 1,301,004
Issued on 2:1 stock split 61,368,558 --
Options exercised - cash consideration 1,145,960 16,006
reclassification from contributed surplus -- 6,699
--------------------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 2005 123,883,076 $ 1,323,709
--------------------------------------------------------------------------------------------------------------------
ON MAY 18, 2005 THE CORPORATION SPLIT ITS OUTSTANDING COMMON SHARES ON A TWO FOR
ONE BASIS.
(b) CONTRIBUTED SURPLUS
Balance, December 31, 2004 $ 26,024
Stock-based compensation expense 17,385
Reclassification to common shares on exercise of options (8,220)
--------------------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 2005 $ 35,189
--------------------------------------------------------------------------------------------------------------------
(c) EQUITY INCENTIVE PLANS
Options Range of Weighted Average Options
Outstanding Exercise Price Exercise Price Exercisable
-------------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 2004 6,695,120 $ 15.53 - 36.32 $ 27.44 2,580,302
Granted 696,200 37.76 - 48.29 41.42
Exercised (2,302,652) 15.53 - 48.29 25.30
Cancelled (141,650) 15.53 - 31.87 30.26
Purchased (1,025,918) 15.53 - 45.25 31.19
-------------------------------------------------------------------------------------------------------------------
OUTSTANDING AT SEPTEMBER 30, 2005 3,921,100 $ 15.53 - 48.29 $ 30.09 2,539,200
-------------------------------------------------------------------------------------------------------------------
PRECISION DRILLING CORPORATION - 12 - THIRD QUARTER INTERIM REPORT
8. CONTINGENCY
The business and operations of Precision have been complex and the
Corporation has executed a number of significant financings, business
combinations, acquisitions and dispositions over the course of its history. The
computation of income taxes payable as a result of these transactions, and in
particular those completed within the last five years, involves many complex
factors as well as Precision's interpretation of relevant tax legislation and
regulations. Precision's management believes that the provision for income tax
is adequate and in accordance with Canadian generally accepted accounting
principles and applicable legislation and regulations. However, there are a
number of tax filing positions that can still be the subject of review by
taxation authorities who may successfully challenge Precision's interpretation
of the applicable tax legislation and regulations, with the result that
additional taxes could be payable by Precision and the amount payable could be
up to $300 million.
9. SUBSEQUENT EVENT
In September, the Corporation announced its intentions to reorganize its
remaining operations and holdings into an income trust and on October 4 the
associated Notice of Special Meeting of Securityholders and Information Circular
was mailed to securityholders. The special meeting to consider the conversion
took place on October 31, 2005, with the actual conversion anticipated to take
place on or about November 7, 2005.
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
As of the end of third quarter ended September 30, 2005, an evaluation of
the effectiveness of Precision's "disclosure controls and procedures" (as such
term is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act")) was carried out by Precision's
principal executive officer and principal financial officer. Based upon that
evaluation, the principal executive officer and principal financial officer have
concluded that as of the end of that fiscal quarter, Precision's disclosure
controls and procedures are effective to ensure that information required to be
disclosed by Precision in reports that it files or submits under the Exchange
Act is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission rules and forms.
During the third quarter ending September 30, 2005, there were no changes
in Precision's internal control over financial reporting that have materially
affected, or are reasonably likely to materially affect, Precision's internal
control over financial reporting.
It should be noted that while Precision's principal executive officer and
principal financial officer believe that Precision's disclosure controls and
procedures provide a reasonable level of assurance that they are effective, they
do not expect that Precision's disclosure controls and procedures or internal
control over financial reporting will prevent all errors and fraud. A control
system, no matter how well conceived or operated, can provide only reasonable,
not absolute, assurance that the objectives of the control system are met.
PRECISION DRILLING CORPORATION - 13 - THIRD QUARTER INTERIM REPORT
SHAREHOLDER INFORMATION
DIRECTORS
W.C. (Mickey) Dunn (2) (3)
EDMONTON, ALBERTA
Robert J.S. Gibson (1) (3)
CALGARY, ALBERTA
Patrick M. Murray (1)
DALLAS, TEXAS
Frederick W. Pheasey (2) (3)
EDMONTON, ALBERTA
Robert L. Phillips (2) (3)
VANCOUVER, BRITISH COLUMBIA
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
R.T. (Bob) German
VICE PRESIDENT AND
CHIEF ACCOUNTING OFFICER
Jan M. Campbell
CORPORATE SECRETARY
PRECISION DRILLING CORPORATION - 14 - THIRD QUARTER INTERIM REPORT
HEAD OFFICE
PRECISION DRILLING CORPORATION
4200, 150-6th Avenue S.W.
Calgary, Alberta, Canada
T2P 3Y7
Telephone: 403-716-4500
Facsimile: 403-264-0251
Website: www.precisiondrilling.com
LEAD BANK
ROYAL BANK OF CANADA
CALGARY, ALBERTA
LEGAL COUNSEL
BORDEN LADNER GERVAIS LLP
CALGARY, ALBERTA
PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP
NEW YORK, NEW YORK
AUDITORS
KPMG LLP
CALGARY, ALBERTA
STOCK EXCHANGE LISTINGS
Common shares of Precision Drilling Corporation are listed on The Toronto Stock
Exchange under the trading symbol PD and PD.U, and on the New York Stock
Exchange under the trading symbol PDS.
TRADING PROFILE
TORONTO (TSX:PD)
July 1, 2005 to
September 30, 2005
High: $60.98
Low: $46.31
Volume traded: 63.1 million
NEW YORK (NYSE:PDS)
July 1, 2005 to
September 30, 2005
High: US $51.72
Low: US $38.08
Volume traded: 48.2 million
PRECISION DRILLING CORPORATION - 15 - THIRD QUARTER INTERIM REPORT
TRANSFER AGENT AND REGISTRAR
COMPUTERSHARE TRUST COMPANY OF CANADA
CALGARY, ALBERTA
TRANSFER POINT
COMPUTERSHARE TRUST COMPANY, INC.
NEW YORK, NEW YORK
ACCOUNT QUESTIONS
Our Transfer Agent can help you with a variety of shareholder related services,
including:
- CHANGE OF ADDRESS
- LOST SHARE CERTIFICATES
- TRANSFER OF STOCK TO ANOTHER PERSON
- ESTATE SETTLEMENT
You can call our Transfer Agent toll free at: 1-888-267-6555
You can write to them at: COMPUTERSHARE TRUST COMPANY OF CANADA
100 University Avenue
9th Floor
Toronto, Ontario M5J 2Y1
Or you can email them at: caregistryinfo@computershare.com
Shareholders of record who receive more than one copy of this report can contact
our Transfer 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
2005 Fourth Quarter - February 9, 2006
PRECISION DRILLING CORPORATION
4200, 150 - 6th AVE SW, Calgary, Alberta, Canada T2P 3Y7
T 403 716 4500 F 403 264 0251 www.precisiondrilling.com
PRECISION DRILLING CORPORATION - 16 - THIRD QUARTER INTERIM REPORT