Horizon North Logistics Inc. Announces Results For The Quarter Ended September 30, 2011

TSX Symbol: HNL

CALGARY, Nov. 2, 2011 /CNW/ - Horizon North Logistics Inc. ("Horizon" or the "Corporation") reported its financial and operating results for the three and nine months ended September 30, 2011 and 2010.

Third Quarter Highlights

  • Consolidated revenues and EBITDAS increased significantly as compared to the same period of 2010 as a result of strong performance in the following segments;
  • The Camps & Catering segment revenue increased by 64% as compared to the same period of 2010, led by rental and catering activity closely followed by camp and space sales and the associated service revenue. These higher levels of activity drove EBITDAS to increase by 84% as compared to the same period of 2010; and
  • The Matting segment revenue increased by 111% as compared to the same period of 2010. The increase was primarily in mat sales from continued strong customer demand. As a result of the strong sales, EBITDAS increased by 69% as compared to the same period of 2010.

Financial Summary

                                         
    Three months ended September 30   Nine months ended September 30
(000's except per share amounts)                 2011                 2010(4)       % Change                 2011                 2010(4)       % Change
Revenue   $       102,298   $       64,892             58%   $       292,064   $       154,238             89%
EBITDAS(1)                 28,443                 17,361             64%                 73,267                 33,602             118%
EBITDAS as a % of revenue           28%           27%                         25%     22%        
Operating earnings(1)                 20,665                 10,613             95%                 50,858                 13,732             270%
Total profit                 15,068                 7,297             106%                 36,213                 8,279             337%
Total comprehensive income                 15,298                 7,297             110%                 36,443                 8,279             340%
Earnings per share - basic & diluted   $       0.14   $       0.07       100%   $       0.34   $       0.08       326%
Total assets                 328,928                 270,179             22%                 328,928                 270,179             22%
Long-term loans and borrowings                 43,356                 45,243             (4%)                 43,356                 45,243             (4%)
Funds from operations(2)                 22,452                 13,607             65%                 56,851                 26,516             114%
Capital spending                 22,861                 13,491                               79,108                 40,300              
Debt to total capitalization ratio(3)                 0.17                 0.22                         0.17                 0.22        
(1)     EBITDAS (Earnings before interest, taxes, depreciation, amortization, gain/loss on disposal of property, plant and equipment, and share based compensation) and operating earnings (earnings before interest, taxes, and earnings on equity investments) are not recognized measures under IFRS.  Management believes that in addition to total profit and total comprehensive income, EBITDAS is a useful supplemental measure as it provides an indication of the Corporation's ability to generate cash flow in order to fund working capital, service debt, pay current income taxes and fund capital programs, and it is regularly provided to and reviewed by the Chief Operating Decision Maker and operating earnings provides an indication of the results generated by the Corporation's principal business activities prior to consideration of how those activities are financed or taxed.  Horizon's method of calculating EBITDAS and operating earnings may differ from other entities and accordingly, may not be comparable to measures used by other entities. EBITDAS and operating earnings should not be construed as alternatives to total profit and comprehensive income determined in accordance with IFRS as an indicator of the Corporation's performance. For a reconciliation of EBITDAS and operating earnings to total profit and comprehensive income.
(2)     Funds from operations is not a recognized measure under IFRS.  Management believes that in addition to cash flow from operations, funds from operations is a useful supplemental measure as it provides an indication of the cash flow generated by the Corporation's principal business activities prior to consideration of changes in working capital. Investors should be cautioned, however, that funds from operations should not be construed as an alternative to cash flow from operations determined in accordance with IFRS as an indicator of the Corporation's performance.  Horizon's method of calculating funds from operations may differ from other entities and accordingly, funds from operations may not be comparable to measures used by other entities.  Funds from operations is equal to cash flow from operations before changes in non-cash working capital items related to operations, interest and income taxes paid, financing costs, and income tax expense.
(3)     Debt to total capitalization is calculated as the ratio of debt to total capitalization. Debt is defined as the sum of operating lines of credit and current and long-term portions of loans and borrowings. Total capitalization is calculated as the sum of debt and shareholders' equity
(4)      All 2010 figures have been restated in accordance with International Financial Reporting Standards.

Overview and Outlook

Horizon continued to gain momentum in the third quarter of 2011, building on strong performance in the first half of the year with third quarter results setting new quarterly records for revenue, EBITDAS and earnings per share.

Continued strong performance was driven by a number of factors, including Horizon's exposure to oil sands projects, with 61% of Horizon's consolidated third quarter revenues generated from oil sands related customers.  Continued strong commodity pricing resulted in improved drilling activity in western Canada while mining and infrastructure projects continue to move forward.

Capital Program

Horizon is on track to execute its 2011 capital program of $100 million.  The program is focused mainly on investment in camp rental fleet assets with the rentable bed count expected to exit 2011 at 6,000 beds.  Increasing activity levels through the last half of 2010 and through 2011 have allowed Horizon to fund the capital program primarily through operating cash flows while maintaining a strong and conservative balance sheet with similar levels of overall debt as compared to the same period of 2010.

Dividend Payment

October 14, 2011 marked Horizon's second dividend payment of $0.04 per share, or $4.3 million, paid to shareholders of record as of September 30, 2011.  The Board of Directors of Horizon have declared a dividend for the fourth quarter of 2011 at $0.04 per share, payable to shareholders of record at close of business on December 31, 2011.  The dividend will be paid on January 16, 2012.

Financial Results

                                             
    Three months ended September 30, 2011  
(000's)     Camps &
Catering
      Matting       Marine
Services
      Corporate     Inter-segment
Eliminations
      Total
Revenue $   85,273   $   17,492   $   1,554   $   -   $ (2,021)   $   102,298
Expenses                                            
  Direct costs     58,257       11,853       1,036       (3)     (1,983)       69,160
  Selling & administrative     2,390       125       -       2,180     -       4,695
EBITDAS     24,626       5,514       518       (2,177)     (38)       28,443
Share based payments     71       14       2       56     -       143
Depreciation & amortization     5,652       1,828       113       88     (22)       7,659
Gain on disposal of property, plant
and equipment
    (21)       (3)       -       -     -       (24)
Operating earnings (loss) $   18,924   $   3,675   $   403   $   (2,321)   $ (16)   $   20,665
Finance costs                                           641
Gain on equity investments                                           (2)
Income tax expense                                           4,958
Other comprehensive income                                           (230)
Total comprehensive income                                       $   15,298
Earnings per share - basic & diluted                                       $   0.14

                                             
  Three months ended September 30, 2010(1)  
(000's)     Camps &
Catering
      Matting       Marine
Services
      Corporate     Inter-segment
Eliminations
      Total
Revenue $   51,864   $   8,298   $   4,954   $   -   $ (224)   $   64,892
Expenses                                            
  Direct costs     38,021       4,938       2,244       3     (225)       44,981
  Selling & administrative     389       101       -       2,060     -       2,550
EBITDAS     13,454       3,259       2,710       (2,063)     1       17,361
Share based payments     145       24       1       112     -       282
Depreciation & amortization     4,758       1,399       298       97     (21)       6,531
Gain on disposal of property, plant
and equipment
    (65)       -       -       -     -       (65)
Operating earnings (loss) $   8,616   $   1,836   $   2,411   $   (2,272)   $ 22   $   10,613
Finance costs                                           602
Loss on equity investments                                           7
Income tax expense                                           2,707
Other comprehensive income                                           -
Total comprehensive income                                       $   7,297
Earnings per share - basic & diluted                                       $   0.07

(1) All 2010 figures have been restated in accordance with International Financial Reporting Standards.

                                             
    Nine months ended September 30, 2011  
(000's)     Camps &
Catering
      Matting       Marine
Services
      Corporate     Inter-segment
Eliminations
      Total
Revenue $   246,091   $   47,588   $   3,361   $   -   $ (4,976)   $   292,064
Expenses                                            
  Direct costs     176,288       34,032       2,241       (1)     (4,847)       207,713
  Selling & administrative     4,117       319       7       6,641     -       11,084
EBITDAS     65,686       13,237       1,113       (6,640)     (129)       73,267
Share based payments     245       33       4       170     -       452
Depreciation & amortization     16,620       4,645       335       260     (60)       21,800
Loss on disposal of property, plant
and equipment
    62       95       -       -     -       157
Operating earnings (loss) $   48,759   $   8,464   $   774   $   (7,070)   $ (69)   $   50,858
Finance costs                                           1,830
Loss on equity investments                                           39
Income tax expense                                           12,776
Other comprehensive income                                           (230)
Total comprehensive income                                       $   36,443
Earnings per share - basic & diluted                                       $   0.34

                                             
  Nine months ended September 30, 2010(1)  
(000's)     Camps &
Catering
      Matting       Marine
Services
      Corporate     Inter-segment
Eliminations
      Total
Revenue $   127,261   $   23,474   $   5,583   $   -   $ (2,080)   $   154,238
Expenses                                            
  Direct costs     94,558       16,133       3,587       7     (1,985)       112,300
  Selling & administrative     2,274       330       7       5,725     -       8,336
EBITDAS     30,429       7,011       1,989       (5,732)     (95)       33,602
Share based payments     440       75       6       325     -       846
Depreciation & amortization     13,516       4,078       889       290     (56)       18,717
Loss on disposal of property, plant
and equipment
    219       76       -       12     -       307
Operating earnings (loss) $   16,254   $   2,782   $   1,094   $   (6,359)   $ (39)   $   13,732
Finance costs                                           1,293
Loss on equity investments                                           204
Income tax expense                                           3,956
Other comprehensive income                                           -
Total comprehensive income                                       $   8,279
Earnings per share - basic & diluted                                       $   0.08

(1)     All 2010 figures have been restated in accordance with International Financial Reporting Standards.

Camps & Catering

Camps & Catering revenue is comprised of camp rental and catering revenue, camp and space unit sales, space rental revenue and service revenue from transportation and installation.

                                       
        Three months ended September 30     Nine months ended September 30
(000's except bed rental days and catering only days)           2011       2010(3)         2011       2010(3)
Camp rental and catering revenue       $   41,381   $   28,459     $   123,462   $   73,001
Camp and space unit sales revenue           25,979       15,785         66,357       35,199
Space rental revenues           1,271       1,108         3,925       2,927
Service revenue           16,642       6,512         52,347       16,134
Total revenue       $   85,273   $   51,864     $   246,091   $   127,261
                                       
EBITDAS       $   24,626   $   13,454     $   65,686   $   30,429
Operating earnings       $   18,924   $   8,616     $   48,759   $   16,254
                                       
Bed rental days(1)           206,626       131,989         622,672       354,643
Catering only days(2)           65,772       52,801         170,335       109,655
(1)   One bed rental day equals the rental of one bed and the provision of related catering and housekeeping services for one day.
(2)    One catering only day equals the provision of catering and housekeeping services with no related bed rental for one day.
(3)    2010 revenue, EBITDAS and operating earnings have been restated in accordance with International Financial Reporting Standards.

Revenues from the Camps & Catering segment were $85.3 million for the three months ended September 30, 2011 compared to $51.9 million for the three months ended September 30, 2010, an increase of $33.4 million or 64%. EBITDAS from operations for the three months ended September 30, 2011 was $24.6 million or 29% of revenue compared to $13.5 million or 26% of revenue for the three months ended September 30, 2010, an increase of $11.2 million or 83%.

The strong performance of Horizon's Camps & Catering segment in the third quarter of 2011, as compared to the same period of 2010, was a result of continuing high levels of investment by oil and gas producers in Western Canada. This investment is being driven by the price of oil, which has remained at levels high enough to support strong project economics. The investment in oil and gas exploration, development and oil sand construction is requiring operators to increase manpower levels resulting in higher demand for turnkey camp rental and catering services and for camp sales to project owners. For the nine months ended September 30, 2011, 61% of this segment's revenue was derived from oil sands related activity as compared to 50% in the same period of 2010.

Camp rental and catering revenue

Revenues from camp rental and catering operations were $41.4 million for the three months ended September 30, 2011 compared to $28.5 million for the three months ended September 30, 2010, an increase of $12.9 million or 45%. Revenues are derived from the following main business areas: large camp operations, drill camp operations, catering only operations, and ancillary equipment rentals.

The table below outlines the key performance metrics used by management to measure performance in the large camp and drill camp operations.

                                                     
        Three months ended September 30
(000's for revenue only)       2011     2010(1)
            Large
camp
      Drill
camp
      Total       Large
camp
      Drill
camp
      Total
Revenue       $   31,586   $   2,598   $   34,184   $   19,743   $   1,077   $   20,820
Bed rental days           190,983       15,643       206,626       125,139       6,850       131,989
Revenue per bed rental day       $   165   $   166   $   165   $

  158   $   157   $   158
Available beds(2)           3,861       1,000       4,861       2,741       1,000       3,741
Utilization(3)           54%       17%       46%       50%       7%       38%
(1)    2010 revenue has been restated in accordance with International Financial Reporting Standards.
(2)   Available beds is equal to total average beds in the fleet over the period less beds required for staff.
(3)   Utilization equals the total number of bed rental days divided by total available beds times days in the quarter.

                                                     
          Nine months ended September 30
(000's for revenue only)       2011     2010(1)
            Large
camp
      Drill
camp
      Total       Large
camp
      Drill
camp
      Total
Revenue       $   97,420   $   6,657   $   104,077   $   54,016   $   3,631   $   57,647
Bed rental days           582,479       40,193       622,672       331,634       23,009       354,643
Revenue per bed rental day       $   167   $   166   $   167   $   163   $   158   $   163
                                                     
Available beds(2)           3,614       1,000       4,614       2,641       1,000       3,641
Utilization(3)           59%       15%       49%       46%       8%       36%
(1)   2010 revenue has been restated in accordance with International Financial Reporting Standards.
(2)    Available beds is equal to total average beds in the fleet over the period less beds required for staff.
(3)    Utilization equals the total number of bed rental days divided by total available beds times days in the quarter.

Revenues from large camp operations for the three months ended September 30, 2011 increased by $11.8 million or 60% as compared to the three same period in 2010. Increased revenues from large camps are reflective of the continued strong industry conditions in the oil sands sector. The increasing number of oil sands exploration and development projects is driving higher manpower requirements for oil sands operators and as such increased demand for Horizon's camp rental and catering services. The higher demand is reflected in 190,983 bed rental days for the quarter ended September 30, 2011 as compared to 125,139 in the same period in 2010, an increase of 65,844 or 53%.  Utilization increased to 54% as compared to 50% in the same period of 2010, while the number of available beds increased to 3,861 for the quarter as compared to 2,741 for the same period in 2010 reflecting ongoing investment in the rental fleet. Revenue per bed rental day increased by $7 reflecting competitive pricing related to increasing oil sands activity.

Revenues from drill camp operations for the three months ended September 30, 2011 increased by $1.5 million or 141% as compared to the same period of 2010. Revenues in the drill camp operations are highly dependent on the level of drilling activity in Western Canada. Drilling activity has increased significantly in the three months ended September 30, 2011 as compared to the same period of 2010. The Canadian Association of Oilwell Drilling Contractors (CAODC) reported average rig utilization in Western Canada for the three months ended September 30, 2011 at 57% as compared to 41% in the same period of 2010. The increase in drilling activity is reflected in higher volumes and stronger utilization for the three months ended September 30, 2011 as compared to the same period of 2010. In addition to the higher volumes, revenue per bed rental day increased by $9 per day. The increase in rate is due to additional equipment and services requested by the customer once the camp is operational.

The tables below outline the key performance metrics used by management to measure performance in the catering only and equipment rental operations.

                                           
        Three months ended September 30     Nine months ended September 30
(000's for revenue only)           2011         2010(2)         2011         2010(2)
Catering only revenue       $   5,975     $   5,996     $   15,770     $   12,780
Catering only days(1)           65,772         52,801         170,335         109,655
Revenue per catering only day       $   91     $   114     $   93     $   117
                                           
        Three months ended September 30     Nine months ended September 30
(000's)           2011         2010(2)         2011         2010(2)
Equipment rental       $   1,222     $   1,643     $   3,615     $   2,574
(1)   One catering only day equals the provision of catering and housekeeping services with no related bed rental for one day.
(2)    2010 revenue has been restated in accordance with International Financial Reporting Standards.

Revenues from the provision of catering and housekeeping only services, with no associated bed rentals, for the three months ended September 30, 2011 remained relatively unchanged as compared to same period of 2010. Volumes for the comparative period increased primarily as a result of higher activity levels at a significant mine expansion project in the Northwest Territories. The higher volumes were offset by a decrease in the revenue per catering only day, a result of a longer term agreement with higher volumes at a preferred daily rate.

Camp and space unit sales revenue

Camp and space unit sales revenues for the three months ended September 30, 2011 were $26.0 million as compared to $15.8 million for the same period in 2010, an increase of $10.2 million or 65%. The increase was mainly due to a large manufacturing project which was in full production for the three months ended September 30, 2011 as compared to the ramp-up phase in the same period of 2010. Production staff increased to an average of 360 people in the three months ended September 30, 2011 as compared to 330 people in the same period of 2010. Revenue from camp and space unit sales is highly dependent on the allocation of production capacity between external customer orders and internal fleet requirements; this allocation of production capacity is reviewed by management on a regular basis.

Space rental revenues

Space rental revenues for the three months ended September 30, 2011 were $1.3 million as compared to $1.1 million for the same period in 2010, an increase of $0.2 million or 18%. The increase came from slightly higher volumes with fleet utilization for the three months ended September 30, 2011 at 89% compared to 87% for the same period in 2010.

Service revenue

Revenues from camp mobilization, demobilization, transportation and installation for the three months ended September 30, 2011 were $16.6 million as compared to $6.5 million in the same period of 2010, an increase of $10.1 million or 155%. These revenues were driven by activity levels in both the camp rental and catering business and the camp and space sales business. For the three months ended September 30, 2011, service revenues were derived primarily from the transport and installation of a large manufacturing project in the Fort McMurray, Alberta area and a 250 person camp in the interior of British Columbia. The same period of 2010 had several smaller installation projects.

Direct costs

Direct costs for the three months ended September 30, 2011 were $58.3 million or 68% of revenue as compared to $38.0 million or 73% of revenue for the same period of 2010. Direct costs are closely related to revenues with the increase in overall costs a result of the higher activity levels seen in the three months ended September 30, 2011 as compared to the same period of 2010. As a percentage of revenue, direct costs declined by 5% compared to the same period of 2010. The decrease was attributable, in part, to efficiency gains in the manufacturing process, which come from long production runs of the same product. At the beginning of these production runs, the manufacturing process typically experiences lower efficiency as the project ramps up, as was the case in the third quarter of 2010. Direct cost in the Camps & Catering declined as a percentage of revenue as a result of higher activity levels. As utilization of the camps increases, the fixed costs are spread over a larger revenue base. The fixed costs are comprised of costs such as rent, taxes, utilities and minimum staff levels.

Matting

Matting revenue is comprised of mat rental revenue, mat sales revenue, installation, transportation, service, and other revenue as follows:

                                     
        Three months ended September 30   Nine months ended September 30
(000's except mat rental days and numbers of mats)           2011       2010(1)       2011       2010(1)
Mat rental revenue       $   $3,546   $   2,208   $   6,846   $   4,862
Mat sales revenue           7,128       2,059       22,709       6,635
Installation, transportation, service, and other revenue           6,818       4,031       18,033       11,977
Total revenue       $   17,492   $   8,298   $   47,588   $   23,474
                                     
EBITDAS       $   5,514   $   3,259   $   13,237   $   7,011
Operating earnings       $   3,675   $   1,836   $   8,464   $   2,782
                                     
Mat rental days           936,092       1,034,474       1,973,708       2,364,414
Average mats in rental fleet           10,380       13,400       8,900       12,673
                                     
Mat sold:                                    
  New mats           8,861       2,305       27,465       5,019
  Used Mats           660       951       3,153       6,312
Total mats sold           9,521       3,256       30,618       11,331
(1)    2010 revenue, EBITDAS and Operating earnings have been restated in accordance with International Financial Reporting Standards.

Revenues from the Matting segment for the three months ended September 30, 2011 were $17.5 million as compared to $8.3 million for the same period of 2010, an increase of $9.2 million or 111%. EBITDAS for the three months ended September 30, 2011 were $5.5 million or 32% of revenue as compared to $3.3 million or 39% of revenue for the same period of 2010, an increase of $2.2 million or 67%.

Mat rental revenue

Mat rental revenues for the three months ended September 30, 2011 were $3.5 million as compared to $2.2 million for the same period of 2010, an increase of $1.3 million or 61%. The increase in rental revenue was driven by the mix of mats on rent and higher revenues per mat rental day for the oak access mats. As compared to the same period of 2010, the number of rig mat rental days was significantly higher and rented at an average daily rate of $38. The oak access mats averaged $2.80 per day for the three months ended September 30, 2011 as compared to $2.13 for the same period of 2010. The rental mix and higher daily rate combined for revenue per rental day of $3.79 for the three months ended September 30, 2011 as compared to $2.13 for the same period of 2010. This higher pricing was offset by lower volumes, with mat rental days for the three months ended September 30, 2011 at 936,092, or 98% utilization compared to 1,034,474 mat rental days or 84% utilization for the same period of 2010. The higher utilization was a result of the decreased rental mat fleet size for the three months ended September 30, 2011 as compared to the same period of 2010. The smaller fleet size is a result of two large used mat sales which occurred at the end of 2010 and early in 2011, with the strong mat sales throughout 2011 the growth of the fleet size has been gradual.

Mat sales revenue

Revenues from mat sales for the three months ended September 30, 2011 were higher by $5.1 million or 246% as compared the same period of 2010. The majority of the increase came from new mat sales where customers purchased them for their steam assisted gravity drainage (SAGD) drilling projects. Revenue per mat sold during the third quarter of 2011 was $749, up from $632 in the same period of 2010. The higher revenue per mat is reflective of the mix of new and used mats sold, as new mats have a higher selling price than used mats.

Installation, transportation, service, and other revenue

Installation, transportation, service, and other revenues are driven primarily from the level of activity in the mat rental and mat sale businesses. Revenues for the three months ended September 30, 2011 were higher by $2.8 million as compared to the same period in 2010. The increase is reflective of the higher volume of mat sales.

Direct costs

Direct costs for the three months ended September 30, 2011 were $11.9 million or 68% of revenue as compared to $4.9 million or 60% of revenue for the same period of 2010. Direct costs are driven by the level of business activity and with the significant increase in revenue, as compared to the same period of 2010, direct costs have increased accordingly. Direct costs, as a percentage of revenue, increased by 8% for the three months ended September 30, 2011, as compared the same period of 2010. This increase of direct cost, as a percentage of revenue, is mainly driven from the mix of the revenue as compared to the same period of 2010. A significantly higher proportion of revenue was generated from mat sales which have higher costs than rentals.

Marine Services

Marine Services revenue is comprised of barge camp revenue and rental and other revenue as follows:

                                                     
                  Three months ended September 30     Nine months ended September 30
(000's)                     2011         2010(1)         2011         2010(1)
Barge camp revenue                 $   885     $   1,592     $   2,206     $   1,693
Rental and other revenue                     669         3,362         1,155         3,890
Total revenue                 $   1,554     $   4,954     $   3,361     $   5,583
                                                     
EBITDAS                 $   518     $   2,710     $   1,113     $   1,989
Operating earnings                 $   403     $   2,411     $   774     $   1,094
(1)    2010 revenue, EBITDAS and operating earnings have been restated in accordance with International Financial Reporting Standards.

Revenues from the Marine Services segment for the three months ended September 30, 2011 were $1.6 million as compared to $5.0 million in the same period of 2010, a decrease of $3.4 million or 68%. The decrease was primarily due to lower levels of activity in the three months ended September 30, 2011 as compared to the same period of 2010.  In 2010 there was significant activity related to the repositioning of the two barge camps to a mining project in Nunavut.

EBITDAS for the three months ended September 30, 2011 was $0.5 million or 33% of revenue as compared to $2.7 million or 55% of revenue for the same period of 2010. The decrease in EBITDAS was due to the overall lower activity.

Corporate

Corporate costs are the costs of the head office which include the President and Chief Executive Officer, Chief Financial Officer, Vice President of Health, Safety, and Environment, Vice President of Aboriginal Relations, Corporate Secretary, corporate accounting staff, and associated costs of supporting a public company. Costs for the three months ended September 30, 2011 were $2.2 million as compared to $2.1 million in the same period in 2010. This increase of $0.1 million reflects the increased cost to support the higher level of business activity. Corporate costs, as a percentage of revenue, decreased to 2% for the three months ended September 30, 2011, as compared to 3% in the same period of 2010.

Other Items

Depreciation and amortization

Depreciation and amortization costs for the three months ended September 30, 2011 were $7.7 million as compared to $6.5 million in the same period of 2010. The increase was mainly from net additions of $19.4 million in depreciable assets, primarily growth in the camp facilities. Amortization of intangibles remained relatively unchanged year over year.

Financing costs

Financing costs on loans and borrowings for the three months ended September 30, 2011 were $0.6 million as compared to $0.6 million in the same period of 2010. Although the interest expense remained consistent year over year, the weighted average debt held in the three months ended September 30, 2011 was higher but was offset by a lower interest rate under the new credit facility.

Income taxes

Income tax expense was $5.0 million, an effective tax rate of 25%, for the three months ended September 30, 2011 as compared to a tax expense of $2.7 million, an effective rate of 27% for the same period of 2010. The increase in tax expense is a result of the higher profit in the three months ended September 30, 2011 as compared to the same period of 2010. The effective tax rate decreased as a result of the 1.5% decrease in federal tax rates from 2010 to 2011.

Selling and administrative

Selling and administrative expense was $4.7 million or 4.6% of revenue for the three months ended September 30, 2011 as compared to $2.6 million or 3.9% of revenue in the same period of 2010. The current quarter includes a charge to bad debt expense for $1.8 million. The expense represents the resolution of an outstanding contractual dispute with a customer in the Camps & Catering segment. Normalizing for this expense, selling and administration was $2.9 million or 2.8% of revenue.

Share repurchase

The Corporation was granted approval from the Toronto Stock Exchange for a Normal Course Issuer Bid to repurchase up to a maximum of 6,985,634 common shares of the Corporation over the period from September 14, 2010 to September 13, 2011. No shares were repurchased during the time period provided under the renewed program.

Capital reduction

At the May 5, 2011 Annual and Special Meeting of Shareholders, a reduction of capital was approved by way of a special resolution, which eliminated the deficit of $78.0 million as at January 1, 2011 and reduced share capital.  Elimination of the deficit simplifies the Corporation's statement of financial position and provides a more representative view of the actual accumulated operating results, as the majority of the deficit had been attributable to the write-down of goodwill in the year ended December 31, 2008.

Condensed consolidated statement of financial position (Unaudited)

                                           
(000's)                                 September 30,
2011
      December 31,
2010
Assets                                          
Current assets:                                          
  Trade and other receivables                               $ 54,090     $ 52,003
  Inventories                                 14,472       13,726
  Prepayments                                 4,174       8,953
                                  72,736       74,682
Non-current assets:                                          
  Property, plant and equipment                                 221,577       162,484
  Intangible assets                                 20,670       26,892
  Goodwill                                 2,136       2,136
  Investments in equity accounted investees                                 2,212       2,251
  Deferred tax assets                                 6,754       6,458
  Other assets                                 2,843       2,934
                                  256,192       203,155
                                $ 328,928     $ 277,837
                                           
Liabilities and Shareholders' Equity                                          
Current liabilities:                                          
  Bank indebtedness                               $ -     $ 834
  Operating line of credits                                 -       10,200
  Trade and other payables                                 38,837       25,377
  Deferred revenue                                 1,888       7,206
  Income taxes payable                                 5,746       1,344
  Current portion of loans and borrowings                                 1,353       11,773
                                  47,824       46,534
Non-current liabilities:                                          
  Provisions                                 1,268       1,223
  Loans and borrowings                                 43,356       30,363
  Deferred tax liabilities                                 25,231       20,918
                                  117,679       99,038
Shareholders' equity:                                          
  Share capital                                 172,869       245,353
  Contributed surplus                                 10,422       11,446
  Accumulated other comprehensive income                                 230       -
  Retained earnings (Deficit)                                 27,728       (78,000)
                                  211,249       178,799
                                $ 328,928     $ 277,837
                                           

Condensed consolidated statement of comprehensive income (Unaudited)
Three and nine months ended September 30, 2011 and 2010

                                     
          Three months ended
September 30
    Nine months ended
September 30
(000's)           2011       2010       2011       2010
Revenue         $ 102,298     $ 64,892     $ 292,064     $ 154,238
                                     
Operating expenses:                                    
  Direct costs           69,160       44,981       207,713       112,300
  Depreciation           5,578       4,386       15,578       12,295
  Amortization of intangible assets           41       131       123       382
  Share based compensation           88       169       282       520
  (Gain) loss on disposal of property, plant and Equipment           (24)       (65)       157       307
Direct operating expenses           74,843       49,602       223,853       125,804
Gross profit           27,455       15,290       68,211       28,434
                                     
Selling & administrative expenses:                                    
  Selling & administrative expenses           4,695       2,550       11,084       8,336
  Amortization of intangible assets           2,040       2,014       6,099       6,040
  Share based compensation           55       113       170       326
Selling & administrative expenses           6,790       4,677       17,353       14,702
Operating earnings           20,665       10,613       50,858       13,732
                                     
Finance costs           641       602       1,830       1,293
Share of (gain) loss of equity accounted investees           (2)       7       39       204
Profit before tax           20,026       10,004       48,989       12,235
                                     
  Current tax expense           1,340       1,397       8,759       1,691
  Deferred tax expense           3,618       1,310       4,017       2,265
Income tax expense           4,958       2,707       12,776       3,956
Total profit           15,068       7,297       36,213       8,279
                                     
Other comprehensive income:                                    
  Translation of foreign operations           230       -       230       -
Other comprehensive income, net of income tax           230       -       230       -
Total comprehensive income         $ 15,298     $ 7,297     $ 36,443     $ 8,279
                                     
Earnings per share:                                    
  Basic         $ 0.14     $ 0.07     $ 0.34     $ 0.08
  Diluted         $ 0.14     $ 0.07     $ 0.34     $ 0.08
                                       

Condensed consolidated statement of changes in equity (Unaudited)

                                                 
(000's)           Share
Capital
        Contributed
Surplus
    Accumulated
Other
Comprehensive
Income
        Retained
Earnings
(Deficit)
        Total
Balance at January 1, 2010       $   245,353       $ 10,339   $ -     $   (94,430)     $   161,262
Total profit           -         -     -         8,279         8,279
Share based compensation           -         846     -         -         846
Balance at September 30, 2010           245,353         11,185     -         (86,151)         170,387
                                                 
Total profit           -         -     -         8,151         8,151
Share based compensation           -         261     -         -         261
Balance at December 31, 2010           245,353         11,446     -         (78,000)         178,799
                                                 
Reduction of capital           (78,000)         -     -         78,000         -
Total profit           -         -     -         36,213         36,213
Share based compensation           -         452     -         -         452
Fair value of stock options exercised           1,476         (1,476)     -         -         -
Cash from stock options exercised           4,040         -     -         -         4,040
Translation of foreign operations           -         -     230         -         230
Dividends paid                                     (4,236)         (4,236)
Dividends declared           -         -     -         (4,249)         (4,249)
Balance at September 30, 2011       $   172,869       $ 10,422   $ 230     $   27,728     $   211,249
                                                 

Condensed consolidated statement of cash flows (Unaudited)
Nine months ended September 30, 2011 and 2010

                                           
                                  September 30,       September 30,
(000's)                                 2011       2010
Cash provided by (used in):                                          
                                           
Operating activities:                                          
Profit for the period                               $ 36,213     $ 8,279
Adjustments for:                                          
  Depreciation                                 15,578       12,295
  Amortization of intangible assets                                 6,222       6,422
  Share based compensation                                 452       846
  Amortization of other assets                                 91       95
  Loss on equity investments                                 39       204
  Gain on sale of property, plant and equipment                                 (1,795)       (1,625)
  Unrealized foreign exchange                                 51       -
  Finance costs                                 1,830       1,293
  Income tax expense                                 12,776       3,956
                                  71,457       31,765
Income taxes paid                                 (4,356)       (10)
Interest paid                                 (1,252)       (1,122)
Changes in non-cash working capital items                                 5,795       (407)
                                  71,644       30,226
Investing activities:                                          
Purchase of property, plant and equipment                                 (79,108)       (40,300)
Purchase of intangibles                                 -       (89)
Proceeds on sale of property, plant and equipment                                 6,412       7,684
                                  (72,696)       (32,705)
Financing activities:                                          
Proceeds from bank indebtedness                                 2,696       -
Shares issued                                 4,040       -
(Repayment of) proceeds from loans and borrowings                                 (1,448)       3,251
Payment of dividends                                 (4,236)       -
                                  1,052       3,251
Increase in cash position                                 -       772
Cash, beginning of period                                 -       3,724
Cash, end of period                               $ -     $ 4,496

Caution Regarding Forward-Looking Information and Statements

There are no statements contained in this Management Discussion and Analysis ("MD&A") that constitute forward-looking statements or information.

Corporate Information

Additional information related to the Corporation, including the Corporation's annual information form, financial statements, and MD&A is available on SEDAR at www.sedar.com. Unless otherwise indicated, the consolidated financial statements have been prepared in accordance with IFRS and the reporting currency is in Canadian dollars. 

SOURCE Horizon North Logistics Inc.

For further information:

Bob German, President and Chief Executive Officer, or Scott Matson, Vice President Finance and Chief Financial Officer, 1600, 505 - 3rd Street S.W., Calgary, Alberta T2P 3E6, Telephone: (403) 517-4654,  Fax: (403) 517- 4678; website: www.horizonnorth.ca


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