FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For November 22, 2002
PRECISION DRILLING CORPORATION
4200, 150 - 6TH AVENUE S.W.
CALGARY, ALBERTA
CANADA T2P 3Y7
(Indicated by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F)
Form 20F [_] Form 40-F [X]
(Indicated 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 12g-3-2(b) under the Securities Exchange Act of
1934)
Yes [_] No [X]
If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b): 82-___________.
N/A
---
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PRECISION DRILLING CORPORATION
Per: /s/ Jan Campbell
-------------------------
Jan Campbell
Corporate Secretary
Date: November 25, 2002
INTERIM REPORT TO SHAREHOLDERS 2002 [GRAPHIC OMITTED - COMPANY LOGO]
PRECISION DRILLING
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS PERIODS ENDED SEPTEMBER 30, 2002
FINANCIAL HIGHLIGHTS
(STATED IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
--------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30 NINE MONTHS ENDED SEPTEMBER 30
----------------------------------------- ---------------------------------------------
FINANCIAL RESULTS 2002 2001 % CHANGE 2002 2001 % CHANGE
---------------------------------------------------------------------------------- ---------------------------------------------
Revenue $ 382,830 $ 474,016 (19.2) $ 1,294,898 $ 1,497,588 (13.5)
Operating earnings (1) 23,626 90,287 (73.8) 144,304 307,849 (53.1)
Earnings before goodwill amortization 12,246 49,588 (75.3) 82,402 176,650 (53.4)
Net earnings 12,246 41,648 (70.6) 82,402 152,830 (46.1)
Diluted earnings per share:
Before goodwill amortization 0.22 0.92 (76.1) 1.51 3.25 (53.5)
After goodwill amortization 0.22 0.77 (71.4) 1.51 2.81 (46.3)
Cash flow (2) 25,490 109,978 (76.8) 154,720 372,389 (58.5)
Cash flow per share - diluted (2) 0.46 2.05 (77.6) 2.83 6.84 (58.6)
================================================================================================================================
--------------------------------------------------------------------------------
September 30, December 31,
Financial Position 2002 2001
--------------------------------------------------------------------------------
Working capital $ 194,054 $ 215,919
Long-term debt(3) $ 440,466 $ 496,200
Long-term debt to long-term debt plus equity (3) 0.22 0.26
================================================================================
(1) See footnote on page 2
(2) Cash flow is defined as "Funds provided by operations" in the financial
statements
(3) Excludes current portion of long-term debt
Earnings per share before goodwill amortization of $0.22 was down significantly
from the $0.92 registered in the third quarter of 2001. Similarly, earnings per
share before goodwill amortization, for the nine months ended September 30,
declined to $1.51 in 2002 compared to $3.25 in 2001.
Activity levels in Canada and the US have been negatively impacted by continued
skepticism as to the sustainability of relatively high commodity prices,
particularly natural gas. The strong cash flow being generated by our customers
is being directed to strengthening balance sheets in the face of these uncertain
times. In addition, wet weather conditions in many Canadian drilling regions in
August and September hampered the movement of oilfield service equipment to
wellsite locations.
We continue to invest in our international businesses to increase our geographic
presence to enable us to rapidly deploy the new tools being introduced by our
Technology Services Group. Certain international operations, such as South
America, are being negatively impacted by regional political and economic
conditions.
PRECISION DRILLING 2002 INTERIM REPORT 1
INTERIM REPORT TO SHAREHOLDERS 2002 [GRAPHIC OMITTED - COMPANY LOGO]
The 2001 comparative numbers have been restated to give effect to the
retroactive application of the new Canadian accounting standard for foreign
exchange gains and losses on translation of US dollar denominated long-term
debt. This new standard, which is consistent with US practice, resulted in a
decrease in earnings per share of $0.03 for each of the three and nine month
periods ended September 30, 2001.
The continued shift of the Corporation's revenue stream from domestic to
international is illustrated in the following graphs.
[GRAPHIC OMITTED - PIE CHART]
--------------------------------------------------------------------------------
REVENUE BY GEOGRAPHIC DISTRIBUTION
2002: NINE MONTHS ENDED SEPTEMBER 30 2001: NINE MONTHS ENDED SEPTEMBER 30
TOTAL: $1,294.9 MILLION TOTAL: $1,497.6 MILLION
REST OF WORLD 33% REST OF WORLD 25%
CANADA 67% CANADA 75%
--------------------------------------------------------------------------------
The following graphs illustrate the continued transition of the Corporation in
providing diversified services to our customers.
[GRAPHIC OMITTED - PIE CHART]
--------------------------------------------------------------------------------
REVENUE BY SEGMENT
2002: NINE MONTHS ENDED SEPTEMBER 30 2001: NINE MONTHS ENDED SEPTEMBER 30
TOTAL: $1,294.9 MILLION TOTAL: $1,497.6 MILLION
TECHNOLOGY SERVICES 38% TECHNOLOGY SERVICES 34%
RENTAL & PRODUCTION 17% RENTAL & PRODUCTION 14%
CONTRACT DRILLING 45% CONTRACT DRILLING 52%
--------------------------------------------------------------------------------
SEGMENT REVIEW
(Stated in thousands of dollars)
------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
------------------------ -----------------------
2002 2001 2002 2001
----------------------------------------------------------- -----------------------
Operating earnings: (1)
Contract Drilling Group $ 26,842 $ 75,657 $ 143,851 $ 227,457
Technology Services Group (7,840) 12,597 (15,782) 59,501
Rental and Production Group 10,322 8,610 37,149 42,404
Corporate and Other (5,698) (6,577) (20,914) (21,513)
------------------------------------------------------------------------------------
$ 23,626 $ 90,287 $ 144,304 $ 307,849
====================================================================================
(1) 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.
2 PRECISION DRILLING 2002 INTERIM REPORT
INTERIM REPORT TO SHAREHOLDERS 2002 [GRAPHIC OMITTED - COMPANY LOGO]
CONTRACT DRILLING GROUP
(Stated in thousands of dollars, except per day/hour amounts)
-------------------------------------------------------------------------------------
% OF % OF
THREE MONTHS ENDED SEPTEMBER 30 2002 REVENUE 2001 REVENUE
-------------------------------------------------------------------------------------
Revenue $ 155,369 $ 242,385
Expenses:
Operating 108,429 69.8 142,787 58.9
General and administrative 6,348 4.1 7,641 3.1
Depreciation and amortization 14,552 9.3 16,402 6.8
Foreign exchange (802) (0.5) (102) --
-------------------------------------------------------------------------------------
Operating earnings $ 26,842 17.3 $ 75,657 31.2
=====================================================================================
% CHANGE
-------------------------------------------------------------------------------------
Number of drilling rigs (end of period) 241 244 (1.2)
Drilling operating days 7,845 10,974 (28.5)
Drilling revenue per operating day $ 14,185 $ 16,335 (13.2)
Number of service rigs (end of period) 242 257 (5.8)
Service rig operating hours 92,988 127,642 (27.1)
Service revenue per operating hour $ 418 $ 405 3.2
=====================================================================================
-------------------------------------------------------------------------------------
% OF % OF
NINE MONTHS ENDED SEPTEMBER 30 2002 REVENUE 2001 REVENUE
-------------------------------------------------------------------------------------
Revenue $583,955 $ 783,277
Expenses:
Operating 370,008 63.4 472,365 60.3
General and administrative 23,367 4.0 25,188 3.2
Depreciation and amortization 46,829 8.0 59,305 7.6
Foreign exchange (100) - (1,038) (0.1)
-------------------------------------------------------------------------------------
Operating earnings $143,851 24.6 $ 227,457 29.0
=====================================================================================
% CHANGE
-------------------------------------------------------------------------------------
Number of drilling rigs (end of period) 241 244 (1.2)
Drilling operating days 26,208 37,190 (29.5)
Drilling revenue per operating day $ 16,067 $ 15,728 2.2
Number of service rigs (end of period) 242 257 (5.8)
Service rig operating hours 297,222 392,543 (24.3)
Service revenue per operating hour $ 449 $ 421 6.7
=====================================================================================
The Contract Drilling Group revenue declined year over year by 36% and 25%,
respectively, for the three and nine month periods ended September 30, 2002.
Consistent with overall industry activity, the utilization rate for our Canadian
drilling rig fleet declined to 34% in the third quarter of 2002 compared to 47%
in the same period in 2001. Reduced demand for drilling rigs has resulted in
downward pressure on pricing. Average revenue per drilling day has declined by
14% in the third quarter of 2002 compared to the same period in 2001. Third
quarter drilling activity in Canada was focused on shallow gas and heavy oil
wells.
International drilling operations saw activity decline in the third quarter of
2002 versus 2001 primarily as a result of a reduction in the number of rigs
working in Venezuela, where political and economic instability has reduced
oilfield activity. This was partially offset by additional rigs working in
Mexico.
The service rig operation was impacted by many of the same factors as the
Canadian drilling operation. Activity levels, as measured by operating hours,
declined by 27% year over year in the third quarter, however, average hourly rig
rates increased by 3% over the same period.
PRECISION DRILLING 2002 INTERIM REPORT 3
INTERIM REPORT TO SHAREHOLDERS 2002 [GRAPHIC OMITTED - COMPANY LOGO]
TECHNOLOGY SERVICES GROUP
(Stated in thousands of dollars)
-------------------------------------------------------------------------------------
% OF % OF
THREE MONTHS ENDED SEPTEMBER 30 2002 REVENUE 2001 REVENUE
-------------------------------------------------------------------------------------
Revenue $ 161,569 $ 170,307
Expenses:
Operating 122,182 75.6 115,195 67.6
General and administrative 23,847 14.8 22,600 13.3
Depreciation and amortization 13,028 8.1 12,295 7.2
Research and engineering 8,990 5.6 7,187 4.2
Foreign exchange 1,362 0.8 433 0.3
-------------------------------------------------------------------------------------
Operating earnings $ (7,840) (4.9) $ 12,597 7.4
=====================================================================================
% CHANGE
-------------------------------------------------------------------------------------
Wireline jobs performed 7,818 9,592 (18.5)
Directional wells drilled 369 317 16.4
Well testing/CPD (1) man-days
(Canada only) 10,415 17,824 (41.6)
=====================================================================================
-------------------------------------------------------------------------------------
% OF % OF
NINE MONTHS ENDED SEPTEMBER 30 2002 REVENUE 2001 REVENUE
-------------------------------------------------------------------------------------
Revenue $ 494,756 $ 504,719
Expenses:
Operating 370,930 75.0 323,189 64.0
General and administrative 67,054 13.6 61,494 12.2
Depreciation and amortization 42,704 8.6 36,548 7.2
Research and engineering 25,278 5.1 22,434 4.5
Foreign exchange 4,572 0.9 1,553 0.3
-------------------------------------------------------------------------------------
Operating earnings $ (15,782) (3.2) $ 59,501 11.8
=====================================================================================
% CHANGE
-------------------------------------------------------------------------------------
Wireline jobs performed 23,391 29,829 (21.6)
Directional wells drilled 1,156 914 26.5
Well testing/CPD (1) man-days
(Canada only) 36,964 46,133 (19.9)
=====================================================================================
(1) CONTROLLED PRESSURE DRILLING (CPD)
The Technology Services Group experienced a marginal decline in revenue from
$170.3 million in the third quarter of 2001 to $161.6 million in 2002. Revenue
declines of 25% and 32% in Canada and the US, respectively, were offset by
increases in all of the group's other operating regions, namely Latin America,
Europe/Africa, the Middle East and Asia/Pacific.
Operating earnings declined by $20.4 million in the third quarter of 2002
compared to the same period of 2001. Declines in Canadian and US revenue and
operating earnings are consistent with the slowdown in North American oilfield
activity whilst increased international revenue resulted from continued efforts
to globalize this group's operations. Compared to the second quarter of 2002
revenue increased $14.6 million and operating earnings improved by $8.1 million.
These improvements demonstrate the operating leverage associated with this
group's multiple product lines. Research and engineering expenditures increased
by $1.8 million in the third quarter, year over year, as work to develop and
roll out new suites of wireline and drilling tools is being accelerated. Growth
of our international infrastructures has also resulted in increased costs year
over year.
4 PRECISION DRILLING 2002 INTERIM REPORT
INTERIM REPORT TO SHAREHOLDERS 2002 [GRAPHIC OMITTED - COMPANY LOGO]
RENTAL AND PRODUCTION GROUP
(Stated in thousands of dollars)
-------------------------------------------------------------------------------------
% OF % OF
THREE MONTHS ENDED SEPTEMBER 30 2002 REVENUE 2001 REVENUE
-------------------------------------------------------------------------------------
Revenue $ 64,633 $ 61,003
Expenses:
Operating 47,654 73.7 45,727 75.0
General and administrative 3,113 4.8 3,212 5.3
Depreciation and amortization 3,744 5.8 3,799 6.2
Foreign exchange (200) (0.3) (345) (0.6)
-------------------------------------------------------------------------------------
Operating earnings $ 10,322 16.0 $ 8,610 14.1
=====================================================================================
% CHANGE
-------------------------------------------------------------------------------------
Equipment rental days (000's) 151 195 (22.6)
Number of compressor packages sold 14 15 (6.7)
Plant maintenance man-days (000's) 64 56 14.3
=====================================================================================
-------------------------------------------------------------------------------------
% OF % OF
NINE MONTHS ENDED SEPTEMBER 30 2002 REVENUE 2001 REVENUE
-------------------------------------------------------------------------------------
Revenue $ 214,928 $ 207,804
Expenses:
Operating 156,972 73.0 145,600 70.1
General and administrative 9,530 4.4 9,006 4.3
Depreciation and amortization 11,336 5.3 11,052 5.3
Foreign exchange (59) -- (258) (0.1)
-------------------------------------------------------------------------------------
Operating earnings $ 37,149 17.3 $ 42,404 20.4
=====================================================================================
% CHANGE
-------------------------------------------------------------------------------------
Equipment rental days (000's) 450 683 (34.1)
Number of compressor packages sold 53 43 23.3
Plant maintenance man-days (000's) 195 169 15.4
=====================================================================================
The Rental and Production Group saw revenue remain relatively consistent with
the prior year at $64.6 million in the third quarter of 2002 compared to $61.0
million in 2001, however, the business mix within the segment has changed
significantly. The industrial plant maintenance operation accounted for 63% of
segment revenue in the three months ended September 30, 2002 compared to 54% in
the same period of 2001. This increase is primarily the result of commissioning
work performed at a new heavy oil upgrading plant and continued high levels of
maintenance work at oilsands projects in Northern Alberta.
The gas compression packaging business has maintained revenue and margins in the
face of stiff competition. The decline in the oilfield rental business was
consistent with the overall slow down of oilfield activity in Canada.
During the quarter, the industrial plant maintenance business acquired a vacuum
truck operation in Northern Alberta. The utilization of these assets will be
enhanced by using them for plant maintenance work in addition to their continued
operation in the oil and gas drilling and well servicing market.
CORPORATE AND OTHER EXPENSES
Corporate and other expenses of $5.7 million for the third quarter was down $0.9
million from the same period last year. For the nine month period ended
September 30, 2002 corporate and other expenses have dropped from $21.5 million
in 2001 to $20.9 million for 2002. General and administrative costs included in
corporate and other expenses are comprised primarily of head office functions.
OTHER ITEMS
Interest expense for the three months ended September 30, 2002 was $8.7 million,
a drop of $1.6 million or 15% from the same period last year. The decline was a
result of the drop in the average net debt outstanding from $621.7 million for
the third quarter in 2001 to $530.6 million in 2002. Interest rates were largely
unchanged at 6.6%. Net debt is defined as long-term debt, including current
portion, plus bank indebtedness less cash.
PRECISION DRILLING 2002 INTERIM REPORT 5
INTERIM REPORT TO SHAREHOLDERS 2002 [GRAPHIC OMITTED - COMPANY LOGO]
The effective tax rate on earnings before income taxes, non-controlling interest
and goodwill amortization for the third quarter was 21% down from 38% for the
same quarter last year. The effective tax rate was impacted by losses taxed at
higher rates in North America than earnings generated in lower tax
jurisdictions.
Effective January 1, 2002 the Corporation adopted the new standard for
accounting for goodwill and other intangible assets. Under the standard,
goodwill is no longer amortized but tested for impairment at least annually.
Accordingly, no goodwill amortization has been recorded in 2002. The Corporation
has completed its initial assessment of the potential impairment of goodwill
effective January 1, 2002 and has concluded that there is no indication of
impairment. The annual test will be completed in the fourth quarter.
During the month of October, the Corporation issued 26,675 shares on exercise of
stock options.
LIQUIDITY AND CAPITAL RESOURCES
The Corporation's balance sheet has continued to strengthen during 2002. The
ratio of long-term debt to long-term debt plus equity declined from 0.26 at
December 31, 2001 to 0.22 at September 30, 2002 and working capital has
decreased from $215.9 million to $194.1 million over the same period. In
addition, pretax income interest coverage amounted to 5.6 times and annualized
funds from operations as a percentage of total debt was 36%. Total debt is
defined as long-term debt including current portion plus bank indebtedness.
These statistics are in line with the Corporation's objective of maintaining a
BBB+ credit rating.
The Corporation had unused lines of credit of $225.7 million at the end of the
third quarter and has made net repayments of long-term debt of $57.8 million
during the first nine months of 2002. Cash flow from operations year to date in
2002 has exceeded investment activities by $10.6 million while proceeds from the
exercise of share purchase options and increases in short-term bank indebtedness
added $41.3 million to cash resources.
The Corporation's total debt at September 30, 2002 amounted to $574.6 million of
which 62% was at fixed interest rates and 38% was at floating rates. Precision
remains well within the financial covenants associated with its credit
facilities.
OUTLOOK
All indications point to traditionally strong first quarter 2003 activity levels
in Canada, however fourth quarter 2002 activity levels remain stagnant due to
uncooperative weather and uncertainty with respect to near term commodity
pricing. Precision continues to believe that the fundamentals of natural gas
supply and demand in North America should generate a solid long-term business
environment for our operations. We continue to maintain a positive outlook for
international markets and our expansion efforts therein.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
CERTAIN STATEMENTS CONTAINED IN THIS INTERIM REPORT, INCLUDING STATEMENTS WHICH
MAY CONTAIN WORDS SUCH AS "COULD", "PLAN", "SHOULD", "ANTICIPATE",
"EXPECT","BELIEVE","WILL" AND SIMILAR EXPRESSIONS AND STATEMENTS RELATING TO
MATTERS THAT ARE NOT HISTORICAL FACTS ARE FORWARD-LOOKING STATEMENTS INCLUDING,
BUT NOT LIMITED TO, STATEMENTS AS TO: FUTURE CAPITAL EXPENDITURES, INCLUDING THE
AMOUNT AND NATURE THEREOF; OIL AND GAS PRICES AND SUPPLY AND DEMAND; EXPANSION
AND OTHER DEVELOPMENT TRENDS OF THE OIL AND GAS INDUSTRY; BUSINESS STRATEGY;
EXPANSION AND GROWTH OF THE CORPORATION'S BUSINESS AND OPERATIONS, INCLUDING THE
CORPORATION'S MARKET SHARE AND POSITION IN THE DOMESTIC AND INTERNATIONAL
OILFIELD SERVICES MARKETS; AND OTHER SUCH MATTERS.
THESE STATEMENTS ARE BASED ON CERTAIN ASSUMPTIONS AND ANALYSES MADE BY THE
CORPORATION IN LIGHT OF ITS EXPERIENCE AND ITS PERCEPTION OF HISTORICAL TRENDS,
CURRENT CONDITIONS AND EXPECTED FUTURE DEVELOPMENTS AS WELL AS OTHER FACTORS IT
BELIEVES ARE APPROPRIATE IN THE CIRCUMSTANCES. HOWEVER, WHETHER ACTUAL RESULTS,
PERFORMANCE OR ACHIEVEMENTS WILL CONFORM WITH THE CORPORATION'S EXPECTATIONS AND
PREDICTIONS IS SUBJECT TO A NUMBER OF KNOWN AND UNKNOWN RISKS AND UNCERTAINTIES
WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE CORPORATION'S
EXPECTATIONS, INCLUDING: FLUCTUATIONS IN THE PRICE AND DEMAND OF OIL AND GAS;
FLUCTUATIONS IN THE LEVEL OF OIL AND GAS EXPLORATION AND DEVELOPMENT ACTIVITIES;
FLUCTUATIONS IN THE DEMAND FOR WELL SERVICING, CONTRACT DRILLING AND ANCILLARY
OILFIELD SERVICES; THE EXISTENCE OF COMPETITORS, TECHNOLOGICAL CHANGES AND
DEVELOPMENTS IN THE OIL AND GAS INDUSTRY; THE ABILITY OF OIL AND GAS COMPANIES
TO RAISE CAPITAL; THE EFFECTS OF SEVERE WEATHER CONDITIONS ON OPERATIONS AND
FACILITIES; THE EXISTENCE OF OPERATING RISKS INHERENT IN THE WELL SERVICING,
CONTRACT DRILLING AND ANCILLARY OILFIELD SERVICES; POLITICAL CIRCUMSTANCES
IMPEDING THE PROGRESS OF WORK IN ANY OF THE COUNTRIES IN WHICH THE CORPORATION
DOES BUSINESS; IDENTIFYING AND ACQUIRING SUITABLE ACQUISITION TARGETS ON
REASONABLE TERMS; GENERAL ECONOMIC, MARKET OR BUSINESS CONDITIONS, INCLUDING
STOCK MARKET VOLATILITY; CHANGES IN LAWS OR REGULATIONS, INCLUDING TAXATION,
ENVIRONMENTAL AND CURRENCY REGULATIONS; THE LACK OF AVAILABILITY OF QUALIFIED
PERSONNEL OR MANAGEMENT; AND OTHER UNFORESEEN CONDITIONS WHICH COULD IMPACT THE
DEMAND FOR, OR ABILITY TO PROVIDE, SERVICES OFFERED 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.
6 PRECISION DRILLING 2002 INTERIM REPORT
INTERIM REPORT TO SHAREHOLDERS 2002 [GRAPHIC OMITTED - COMPANY LOGO]
CONSOLIDATED BALANCE SHEETS
(Stated in thousands of dollars)
-----------------------------------------------------------------------------------------
September 30, December 31,
2002 2001
-----------------------------------------------------------------------------------------
(unaudited) (restated -
Note 4)
ASSETS
Current assets:
Cash $ 24,116 $ 13,231
Accounts receivable 422,242 474,528
Inventory 135,092 111,393
-----------------------------------------------------------------------------------------
581,450 599,152
Property, plant and equipment, net of accumulated depreciation 1,462,636 1,418,609
Intangibles, net of accumulated amortization 71,799 74,004
Goodwill 545,377 545,377
Other assets 12,340 14,216
-----------------------------------------------------------------------------------------
$2,673,602 $2,651,358
=========================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank indebtedness $ 104,875 $ 85,384
Accounts payable and accrued liabilities 243,513 253,342
Income taxes payable 9,780 12,764
Current portion of long-term debt 29,228 31,743
-----------------------------------------------------------------------------------------
387,396 383,233
Long-term debt 440,466 496,200
Future income taxes 323,582 355,078
Non-controlling interest 1,926 868
Shareholders' equity:
Share capital 909,011 887,160
Retained earnings 611,221 528,819
-----------------------------------------------------------------------------------------
1,520,232 1,415,979
-----------------------------------------------------------------------------------------
$2,673,602 $2,651,358
=========================================================================================
Common shares outstanding (000's) 53,944 53,176
Common share purchase options outstanding (000's) 4,171 4,406
=========================================================================================
See accompanying notes to consolidated financial statements
PRECISION DRILLING 2002 INTERIM REPORT 7
INTERIM REPORT TO SHAREHOLDERS 2002 [GRAPHIC OMITTED - COMPANY LOGO]
CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS (unaudited) (Stated in
thousands of dollars, except per share amounts)
------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
--------------------------- ----------------------------
2002 2001 2002 2001
------------------------------------------------------------------------------ ----------------------------
(restated - restated -
Note 4) Note 4)
Revenue $ 382,830 $ 474,016 $ 1,294,898 $ 1,497,588
Expenses:
Operating 278,265 304,216 897,910 942,833
General and administrative 39,161 38,857 118,894 115,279
Depreciation and amortization 32,428 33,483 104,099 108,936
Research and engineering 8,990 7,187 25,278 22,434
Foreign exchange 360 (14) 4,413 257
------------------------------------------------------------------------------------------------------------
359,204 383,729 1,150,594 1,189,739
------------------------------------------------------------------------------------------------------------
Operating earnings 23,626 90,287 144,304 307,849
Interest 8,722 10,297 26,176 34,736
Dividend income -- -- (39) (1,106)
Gain on disposal of investments (1,000) -- (1,000) (1,356)
------------------------------------------------------------------------------------------------------------
Earnings before income taxes, non-controlling
interest and goodwill amortization 15,904 79,990 119,167 275,575
Income taxes:
Current 24,964 7,460 68,081 16,821
Future (21,625) 22,942 (32,374) 82,104
------------------------------------------------------------------------------------------------------------
3,339 30,402 35,707 98,925
Earnings before non-controlling interest
and goodwill amortization 12,565 49,588 83,460 176,650
Non-controlling interest 319 -- 1,058 --
------------------------------------------------------------------------------------------------------------
Earnings before goodwill amortization 12,246 49,588 82,402 176,650
Goodwill amortization, net of tax (Note 3) -- 7,940 -- 23,820
------------------------------------------------------------------------------------------------------------
Net earnings 12,246 41,648 82,402 152,830
Retained earnings, beginning of period (Note 4) 598,975 453,467 528,819 342,285
------------------------------------------------------------------------------------------------------------
Retained earnings, end of period $ 611,221 $ 495,115 $ 611,221 $ 495,115
============================================================================================================
Earnings per share before goodwill amortization:
Basic $ 0.23 $ 0.93 $ 1.54 $ 3.34
Diluted $ 0.22 $ 0.92 $ 1.51 $ 3.25
------------------------------------------------------------------------------------------------------------
Earnings per share:
Basic $ 0.23 $ 0.78 $ 1.54 $ 2.89
Diluted $ 0.22 $ 0.77 $ 1.51 $ 2.81
------------------------------------------------------------------------------------------------------------
Common shares outstanding (000's) 53,944 53,107 53,944 53,107
Weighted average shares outstanding (000's) 53,923 53,091 53,599 52,884
Diluted shares outstanding (000's) 54,871 53,772 54,717 54,419
============================================================================================================
See accompanying notes to consolidated financial statements
8 PRECISION DRILLING 2002 INTERIM REPORT
INTERIM REPORT TO SHAREHOLDERS 2002 [GRAPHIC OMITTED - COMPANY LOGO]
CONSOLIDATED STATEMENTS OF CASH FLOW (unaudited) (Stated in thousands of
dollars, except per share amounts)
----------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
---------------------------- -------------------------
2002 2001 2002 2001
------------------------------------------------------------------------------- -------------------------
(restated - restated -
Note 4) Note 4)
Cash provided by (used in):
Operations:
Net earnings $ 12,246 $ 41,648 $ 82,402 $ 152,830
Items not affecting cash:
Depreciation and amortization 32,428 33,483 104,099 108,936
Goodwill amortization -- 7,940 -- 23,820
Gain on disposal of investments (1,000) -- (1,000) (1,356)
Future income taxes (21,625) 22,942 (32,374) 82,104
Non-controlling interest 319 -- 1,058 --
Amortization of deferred financing costs 323 326 971 978
Unrealized foreign exchange loss (gain)
on long-term debt 2,799 3,639 (436) 5,077
----------------------------------------------------------------------------------------------------
Funds provided by operations 25,490 109,978 154,720 372,389
Changes in non-cash working capital balances (11,465) (40,015) 16,785 (79,669)
--------------------------------------------------------------------------------------------------------
14,025 69,963 171,505 292,720
Investments:
Business acquisitions, net of cash acquired (Note 3) (3,050) (2,883) (3,050) (32,255)
Purchase of property, plant and equipment (59,971) (74,072) (166,363) (241,765)
Purchase of intangibles (63) (5,762) (2,149) (5,762)
Proceeds on sale of property, plant and equipment 8,386 6,068 25,688 19,323
Proceeds on disposal of investments 1,872 -- 1,872 1,712
Investments -- (745) (147) (745)
--------------------------------------------------------------------------------------------------------
(52,826) (77,394) (144,149) (259,492)
Financing:
Increase in long-term debt 24,507 16,967 34,626 16,967
Repayment of long-term debt (5,994) (5,243) (92,439) (63,520)
Deferred financing costs on long-term debt -- -- -- (38)
Issuance of common shares on exercise of options 1,826 1,102 21,851 18,235
Issuance of common shares on exercise of warrants -- -- -- 2,370
Change in bank indebtedness 15,360 (5,395) 19,491 (27,944)
----------------------------------------------------------------------------------------------------------
35,699 7,431 (16,471) (53,930)
----------------------------------------------------------------------------------------------------------
Increase (decrease) in cash (3,102) -- 10,885 (20,702)
Cash, beginning of period 27,218 -- 13,231 20,702
----------------------------------------------------------------------------------------------------------
Cash, end of period $ 24,116 $ -- $ 24,116 $ --
==========================================================================================================
Funds provided by operations per share:
Basic $ 0.47 $ 2.07 $ 2.89 $ 7.04
Diluted $ 0.46 $ 2.05 $ 2.83 $ 6.84
==========================================================================================================
See accompanying notes to consolidated financial statements
PRECISION DRILLING 2002 INTERIM REPORT 9
INTERIM REPORT TO SHAREHOLDERS 2002 [GRAPHIC OMITTED - COMPANY LOGO]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Tabular amounts stated in thousands of dollars, except per share amounts)
NOTE 1. BASIS OF PRESENTATION
These interim financial statements were prepared using accounting policies and
methods of their application consistent with those used in the preparation of
the Corporation's audited financial statements for the year ended December 31,
2001, except for accounting policy changes outlined in Notes 3, 4 and 5. These
interim financial statements conform in all respects to the requirements of
generally accepted accounting principles in Canada for annual financial
statements with the exception of certain note disclosures regarding balance
sheet items and transactions occurring prior to the current reporting period. As
a result, these interim financial statements should be read in conjunction with
the Corporation's audited financial statements for the year ended December 31,
2001 contained in the Corporation's 2001 annual report.
NOTE 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.
NOTE 3. ACCOUNTING FOR BUSINESS COMBINATIONS, GOODWILL AND OTHER INTANGIBLE
ASSETS
Effective January 1, 2002, the Corporation adopted the new Canadian accounting
standards relating to business combinations and goodwill and other intangible
assets.
Under the new business combination standard, the Corporation is required to use
the purchase method to account for all business combinations and identify,
separate from goodwill, other intangible assets that arise from contractual or
legal rights or that can be separately sold.
In September, the Corporation acquired the business assets of Night Hawk Vacuum
Services Ltd. for $3.1 million. The net assets acquired were substantially
property, plant and equipment. No value was assigned to intangibles or goodwill.
Under the new standard for accounting for goodwill, goodwill is no longer
amortized, but is tested for impairment at least annually. As required, the
Corporation has completed its initial assessment of the potential impairment of
goodwill, effective January 1, 2002, and concluded that there is no indication
of impairment. An assessment of potential goodwill impairment will be completed
annually in the fourth quarter.
NOTE 4. FOREIGN CURRENCY TRANSLATION
Effective January 1, 2002, the Corporation adopted, on a retroactive basis, a
new Canadian accounting standard whereby unrealized gains or losses are no
longer deferred and amortized but rather expensed as incurred.
As a result of this change, unrealized gains and losses related to translation
of foreign currency denominated long-term debt are no longer deferred and
amortized over the term of the debt but are expensed as incurred. Prior period
results have been restated to reflect this change. The retroactive application
of this standard has reduced the opening balance of retained earnings by $1.6
million at January 1, 2002 ($115,000 at January 1, 2001).
NOTE 5. STOCK-BASED COMPENSATION PLANS
Effective January 1, 2002, the Corporation has prospectively adopted the new
accounting policies with respect to accounting for stock options. The
Corporation's stock-based compensation plans for employees do not involve the
direct award of stock, or call for the settlement in cash or other assets. As a
result the Corporation has the option to apply either the intrinsic value based
or the fair value based method of accounting for stock-based compensation awards
granted to employees.
The Corporation has elected to apply the intrinsic value based method and
accordingly, no compensation costs have been recognized in the financial
statements. In accordance with the Corporation's stock option plans, these
options have an exercise price equal to the market price at date of grant. The
per share weighted average fair value of stock options granted during the nine
month period ended
10 PRECISION DRILLING 2002 INTERIM REPORT
INTERIM REPORT TO SHAREHOLDERS 2002 [GRAPHIC OMITTED - COMPANY LOGO]
September 30, 2002 was $21.20 based on the date of grant using the Black-Scholes
option pricing model with the following assumptions: average risk-free interest
rate of 4.7%, average expected life of 3.9 years and expected volatility of 49%.
Had the Corporation determined compensation costs based on the fair value at the
date of grant for stock options granted since January 1, 2002; net earnings and
earnings per share (EPS) would have decreased to the pro forma amounts indicated
below. These pro forma amounts reflect compensation cost amortized over the
option's vesting period.
Three Months Ended Nine Months Ended
September 30, 2002 September 30, 2002
--------------------------------------------------------------------------------
Net earnings - As reported $ 12,246 $ 82,402
- Pro forma 10,195 78,408
Diluted EPS - As reported $ 0.22 $ 1.51
- Pro forma 0.19 1.43
================================================================================
NOTE 6. SEGMENT INFORMATION
CONTRACT TECHNOLOGY RENTAL AND
DRILLING SERVICES PRODUCTION CORPORATE
THREE MONTHS ENDED SEPTEMBER 30, 2002 GROUP GROUP GROUP AND OTHER TOTAL
------------------------------------------------------------------------------------------------------------------
Revenue $ 155,369 $ 161,569 $ 64,633 $ 1,259 $ 382,830
Operating earnings 26,842 (7,840) 10,322 (5,698) 23,626
Research and engineering -- 8,990 -- -- 8,990
Depreciation and amortization 14,552 13,028 3,744 1,104 32,428
Assets 1,279,871 1,084,803 236,983 71,945 2,673,602
Capital expenditures* 10,530 44,307 3,237 1,960 60,034
==================================================================================================================
THREE MONTHS ENDED SEPTEMBER 30, 2001 (1)
------------------------------------------------------------------------------------------------------------------
Revenue $ 242,385 $ 170,307 $ 61,003 $ 321 $ 474,016
Operating earnings 75,657 12,597 8,610 (6,577) 90,287
Research and engineering -- 7,187 -- -- 7,187
Depreciation and amortization 16,402 12,295 3,799 987 33,483
Assets 1,400,739 932,620 237,100 54,442 2,624,901
Capital expenditures* 27,170 45,963 5,959 742 79,834
==================================================================================================================
NINE MONTHS ENDED SEPTEMBER 30, 2002 (1)
------------------------------------------------------------------------------------------------------------------
Revenue $ 583,955 $ 494,756 $ 214,928 $ 1,259 $ 1,294,898
Operating earnings 143,851 (15,782) 37,149 (20,914) 144,304
Research and engineering -- 25,278 -- -- 25,278
Depreciation and amortization 46,829 42,704 11,336 3,230 104,099
Assets 1,279,871 1,084,803 236,983 71,945 2,673,602
Capital expenditures* 29,534 121,329 14,947 2,702 168,512
==================================================================================================================
NINE MONTHS ENDED SEPTEMBER 30, 2001 (1)
------------------------------------------------------------------------------------------------------------------
Revenue $ 783,277 $ 504,719 $ 207,804 $ 1,788 $ 1,497,588
Operating earnings 227,457 59,501 42,404 (21,513) 307,849
Research and engineering -- 22,434 -- -- 22,434
Depreciation and amortization 59,305 36,548 11,052 2,031 108,936
Assets 1,400,739 932,620 237,100 54,442 2,624,901
Capital expenditures* 84,762 123,962 20,784 18,019 247,527
==================================================================================================================
* excludes business acquisitions
(1) Certain expenses have been reclassified between segments to more
appropriately reflect operating earnings.
PRECISION DRILLING 2002 INTERIM REPORT 11
INTERIM REPORT TO SHAREHOLDERS 2002 [GRAPHIC OMITTED - COMPANY LOGO]
HEAD OFFICE
PRECISION DRILLING CORPORATION
4200, 150-6th Avenue SW
Calgary, Alberta T2P 3Y7
Telephone: (403) 716-4500
Facsimile: (403) 264-0251
Website: www.precisiondrilling.com
DIRECTORS
W.C. (MICKEY) DUNN (3)
Edmonton, Alberta
ROBERT J. S. GIBSON (1) (3)
Calgary, Alberta
STEVEN C. GRANT (1) (2)
Houston, Texas
MURRAY K. MULLEN (2)
Calgary, Alberta
PATRICK M. MURRAY (1)
Dallas, Texas
FREDERICK W. PHEASEY (3)
Edmonton, Alberta
HANK B. SWARTOUT
Calgary, Alberta
H. GARTH WIGGINS (1)
Calgary, Alberta
(1) Audit Committee Member
(2) Compensation Committee Member
(3) Corporate Governance Committee Member
OFFICERS
Hank B. Swartout
Chairman of the Board,
President and Chief Executive Officer
DALE E. TREMBLAY
Senior Vice President Finance
and Chief Financial Officer
LARRY J. COMEAU
Senior Vice President
Technology Services Group
M.J. (MICK) MCNULTY
Vice President Business Development
and Treasurer
R.T. (BOB) GERMAN
Vice President Finance
JAN M. CAMPBELL
Corporate Secretary
BANKER
ROYAL BANK OF CANADA
Calgary, Alberta
LEGAL COUNSEL
BORDEN LADNER GERVAIS LLP
Calgary, Alberta
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 on the New York Stock Exchange
under the trading symbol PDS.
TRADING PROFILE
TORONTO
January 1, 2002 to September 30, 2002
High: $61.30
Low: $36.74
Volume traded - 53.5 million
NEW YORK
January 1, 2002 to September 30, 2002
High: US$39.24
Low: US$23.10
Volume traded - 51.1 million
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:
o Change of address
o Lost share certificates
o Transfer of stock to another person
o Estate settlement
You can call our Transfer Agent toll free at:
1-800-558-0046
You can write them at:
COMPUTERSHARE TRUST COMPANY OF CANADA
600, 530-8th Avenue SW
Calgary, Alberta T2P 3S8
Or you can email them at:
CAREGISTRYINFO@COMPUTERSHARE.COM
Shareholders of record who receive more than one copy of this interim 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
Anyone with access to the Internet can view this interim report electronically
at www.precisiondrilling.com
12 PRECISION DRILLING 2002 INTERIM REPORT