Calfrac Announces First Quarter Results

CALGARY, April 28, 2016 /CNW/ - Calfrac Well Services Ltd. ("Calfrac" or "the Company") (TSX-CFW) announces its financial and operating results for the three months ended March 31, 2016.

HIGHLIGHTS










Three Months Ended March 31,


2016

2015

Change

(C$000s, except per share and unit data)


($)

($)

(%)

(unaudited)





Financial





Revenue


216,138

600,383

(64)

Operating (loss) income(1)


(11,623)

27,844

NM


Per share – basic


(0.10)

0.29

NM


Per share – diluted


(0.10)

0.29

NM

Adjusted EBITDA(1)


(5,883)

25,609

NM


Per share – basic


(0.05)

0.27

NM


Per share – diluted


(0.05)

0.27

NM

Net loss attributable to the shareholders of Calfrac





before foreign exchange gains or losses(2)


(40,592)

(13,448)

NM


Per share – basic


(0.35)

(0.14)

NM


Per share – diluted


(0.35)

(0.14)

NM

Net loss attributable to the shareholders of Calfrac


(54,071)

(12,628)

NM


Per share – basic


(0.47)

(0.13)

NM


Per share – diluted


(0.47)

(0.13)

NM

Working capital (end of period)


261,072

413,950

(37)

Total equity (end of period)


576,465

818,825

(30)

Weighted average common shares outstanding (000s)






Basic


115,410

95,230

21


Diluted


115,580

95,400

21






Operating (end of period)





Active pumping horsepower (000s)


640

1,259

(49)

Idle pumping horsepower (000s)


586

Total pumping horsepower (000s)


1,226

1,259

(3)

Active coiled tubing units (#)


18

37

(51)

Idle coiled tubing units (#)


14

Total coiled tubing units (#)


32

37

(14)

Active cementing units (#)


14

31

(55)

Idle cementing units (#)


11

Total cementing units (#)


25

31

(19)

(1) Refer to "Non-GAAP Measures" on page 15 for further information.

(2) Net loss attributable to the shareholders of Calfrac before foreign exchange (FX) gains or losses is defined as net loss attributable to the shareholders of Calfrac before FX gains or losses on an after-tax basis. Management believes that this is a useful supplemental measure as it provides an indication of the financial results generated by Calfrac without the impact of FX fluctuations, which are not fully controllable by the Company. This measure does not have any standardized meaning prescribed under IFRS and, accordingly, may not be comparable to similar measures used by other companies.

 

FIRST QUARTER 2016 OVERVIEW






CONSOLIDATED HIGHLIGHTS












Three Months Ended March 31,



2016

2015

Change

(C$000s, except operational information)



($)

($)

(%)

(unaudited)






Revenue



216,138

600,383

(64)

Expenses







Operating                                                              



211,096

549,931

(62)


Selling, general and administrative (SG&A)



16,665

22,608

(26)




227,761

572,539

(60)

Operating (loss) income(1)



(11,623)

27,844

NM

Operating (loss) income (%)



(5.4)

4.6

NM

Adjusted EBITDA(1)



(5,883)

25,609

NM

Adjusted EBITDA (%)



(2.7)

4.3

NM

Fracturing revenue per job ($)



32,876

52,085

(37)

Number of fracturing jobs



5,536

10,688

(48)

Active pumping horsepower, end of period (000s)



640

1,259

(49)

Idle pumping horsepower, end of period (000s)(2)



586

Total pumping horsepower, end of period (000s)(2)



1,226

1,259

(3)

Coiled tubing revenue per job ($)



37,365

31,843

17

Number of coiled tubing jobs



505

707

(29)

Active coiled tubing units, end of period (#)



18

37

(51)

Idle coiled tubing units, end of period (#)



14

Total coiled tubing units, end of period (#)



32

37

(14)

Cementing revenue per job ($)



48,641

40,712

19

Number of cementing jobs



207

424

(51)

Active cementing units, end of period (#)



14

31

(55)

Idle cementing units, end of period (#)



11

Total cementing units, end of period (#)



25

31

(19)

(1) Refer to "Non-GAAP Measures" on page 15 for further information.

(2) Excludes 60,000 pumping horsepower that has not been commissioned at March 31, 2016 (March 31, 2015 - nil).

 

Revenue in the first quarter of 2016 was $216.1 million, a decrease of 64 percent from the same period in 2015. The Company's fracturing job count decreased by 48 percent due to lower activity in Canada and the United States. Consolidated revenue per fracturing job decreased by 37 percent primarily due to significantly lower pricing in Canada and the United States, partially offset by the appreciation of the U.S. dollar. Cementing revenue per job increased by 19 percent primarily due to the completion of larger, although significantly fewer, jobs in the Marcellus shale play in the United States.

Pricing in Canada and the United States declined on average by 30 percent in the first quarter of 2016 from the first quarter of 2015. In Argentina and Russia, pricing was consistent with the first quarter of 2015 while pricing in Mexico was modestly lower than the comparable period in 2015.

Adjusted EBITDA for the first quarter of 2016 was negative $5.9 million compared to positive $25.6 million in the comparable period in 2015 due to significantly lower utilization and pricing in the United States and Canada, offset by cost reduction initiatives carried out during 2015 and the first quarter of 2016.

Net loss attributable to shareholders of Calfrac was $54.1 million or $0.47 per share diluted, compared to a net loss of $12.6 million or $0.13 per share diluted in the same period last year, primarily due to significantly lower activity and pricing in North America combined with $18.2 million of foreign exchange losses and $3.7 million of pre-tax restructuring charges.

Three Months Ended


March 31,

December 31,


Change



2016

2015



(C$000s, except operational information)


($)

($)


(%)

(unaudited)






Revenue


216,138

286,194


(24)

Expenses







Operating                                           


211,096

259,633


(19)


SG&A


16,665

20,774


(20)



227,761

280,407


(19)

Operating (loss) income(1)


(11,623)

5,787


NM

Operating (loss) income (%)


(5.4)

2.0


NM

Adjusted EBITDA(1)


(5,883)

22,933


NM

Adjusted EBITDA (%)


(2.7)

8.0


NM

Fracturing revenue per job ($)


32,876

34,199


(4)

Number of fracturing jobs


5,536

7,008


(21)

Active pumping horsepower, end of period (000s)


640

776


(18)

Idle pumping horsepower, end of period (000s)(2)


586

524


12

Total pumping horsepower, end of period (000s)(2)


1,226

1,300


(6)

Coiled tubing revenue per job ($)


37,365

40,264


(7)

Number of coiled tubing jobs


505

620


(19)

Active coiled tubing units, end of period (#)


18

20


(10)

Idle coiled tubing units, end of period (#)


14

17


(18)

Total coiled tubing units, end of period (#)


32

37


(14)

Cementing revenue per job ($)


48,641

55,430


(12)

Number of cementing jobs


207

336


(38)

Active cementing units, end of period (#)


14

23


(39)

Idle cementing units, end of period (#)


11

8


38

Total cementing units, end of period (#)


25

31


(19)

(1) Refer to "Non-GAAP Measures" on page 15 for further information.

(2) Excludes 60,000 pumping horsepower that has not been commissioned at March 31, 2016 (December 31, 2015 - 60,000)

 

Revenue in the first quarter of 2016 was $216.1 million, a decrease of 24 percent from the fourth quarter of 2015. Revenue per fracturing job decreased by 4 percent due to a change in the mix of completion treatments as well as lower pricing in Canada offset partially by larger job sizes in the United States and the appreciation of the U.S. dollar. Adjusted EBITDA as a percentage of revenue decreased by 1,070 basis points primarily due to lower activity and pricing in Canada combined with lower activity in the United States.

Pricing in Canada was 10 percent lower compared to the fourth quarter of 2015. In the United States, Argentina and Russia, pricing was consistent with the previous quarter.

In Canada, revenue decreased by 41 percent to $72.7 million in the first quarter of 2016 due to lower fracturing and coiled tubing activity, as well as lower pricing, offset partially by the completion of larger jobs. Operating income as a percentage of revenue was near breakeven, which was down from 8 percent in the fourth quarter due to lower activity and pricing.

In the United States, revenue in the first quarter of 2016 declined by 6 percent from the fourth quarter of 2015 to $76.0 million, mainly as a result of lower cementing activity. The decline in reported revenue was partially offset by the strengthening of the U.S. dollar. The operating loss as a percentage of revenue increased from 5 percent in the fourth quarter of 2015 to 16 percent in the first quarter and included $5.1 million and $3.1 million of restructuring costs, respectively. The decrease in sequential results was driven by lower equipment utilization across all operating districts, combined with operating at unprofitable levels in south Texas.

In Russia, revenue decreased to $22.7 million in the first quarter of 2016 from $32.6 million in the fourth quarter of 2015. Fracturing and coiled tubing activity were each 16 percent lower primarily due to operational delays caused by one of its customer's drilling contractors. In addition, the 9 percent depreciation of the rouble contributed to the decline in reported revenue. Operating income as a percentage of revenue was down 900 basis points to 4 percent primarily due to lower than expected utilization.

In Latin America, revenue declined 9 percent to $44.7 million. The decrease was primarily due to lower cementing activity in Argentina combined with lower coiled tubing activity in Mexico. Operating income as a percentage of revenue increased from 8 percent in the fourth quarter to 15 percent in the first quarter of 2016 due to a 39 percent reduction in SG&A expenses. The significant devaluation of the Argentinean peso towards the end of 2015 has served to reduce reported personnel costs in that country.

OUTLOOK
Given that the North American oilfield services industry continues to deteriorate, cost management remains Calfrac's primary focus. In early March 2016, Calfrac restructured its Canadian, United States and Corporate segments further to align with current and expected activity levels. In total, approximately 500 employees were affected by this initiative which decreased the Company's global headcount to approximately 2,600. The Company's Canadian, United States, and Corporate headcount have declined by approximately 60 percent, 70 percent and 35 percent, respectively, since the beginning of 2015. Calfrac will continue to make the necessary changes to its operating scale across all divisions in response to the evolving industry outlook.

CANADA
Completions activity is expected to be down meaningfully year-over-year throughout spring break-up, with the rig count across the Western Canadian Sedimentary Basin down over 50 percent so far in the second quarter. In mid-April, Calfrac  transitioned the majority of its fracturing and coiled tubing field employees to a variable compensation model and temporarily altered work schedules which is expected to help mitigate losses in the second quarter.

While visibility remains limited past the end of the second quarter, the Company does not expect activity to increase as sharply as in prior years given the current commodity price environment and anticipated capital spending plans. Approximately 50 percent of Calfrac's Canadian fracturing equipment fleet is idle and the Company will continue to manage its operating scale to match expected activity levels. Pricing continues to be challenging although Calfrac does not expect it to decline much further from current levels.

UNITED STATES
The United States land-based drilling rig count continues to decrease and currently stands at approximately 400 rigs. The Company has idled approximately 60 percent of its fracturing equipment and temporarily suspended its cementing and coiled tubing operations. In connection with such operating scale changes, the Company has exited Arkansas and temporarily suspended operations in Texas. The Company will continue to restructure the division and adjust its cost structure in order to match anticipated activity.

Broadly speaking, pricing appears to have stabilized however the Company continues to see predatory pricing from some of its larger competitors. Overall, while the United States oilfield services industry remains the most challenging market for Calfrac as it navigates through one of the worst downturns in decades, the Company believes it will be amongst the first markets to recover. As such, Calfrac will continue to focus its efforts on generating break-even operating margins as the United States, the largest pressure pumping market in the world, is an integral part of the Company's long-term growth strategy.

RUSSIA
Activity for the remainder of the year in Western Siberia is expected to be relatively consistent with 2015. However, revenue is expected to decrease year-over-year primarily as a result of the depreciation in the Russian rouble as well as a change in customer mix with Calfrac no longer providing proppant in any of its contracted work commitments. Given that proppant is priced at lower margins than completion services work, Calfrac's operating income on a percentage basis is anticipated to improve slightly as compared to 2015.

LATIN AMERICA
Despite the Argentinean government supporting crude oil prices and providing subsidies for crude exporters, exploration and development companies have been slow to resume drilling and completions activity in 2016 since suspending capital programs in December of last year as a result of uncertainty surrounding the country's general election. Throughout 2016, Calfrac expects natural gas completions activity to increase as producers reallocate their capital spending. As a result, the Company anticipates that higher activity with new customers in southern Argentina during the remainder of 2016 will offset any decline in oil-focused activity in the Neuquén area.

Despite the near-term challenges, Calfrac expects overall activity in Argentina to remain consistent with 2015 with year-over-year margins on a percentage basis increasing slightly due to the impact of job mix and cost control measures. Overall, Calfrac continues to believe that foreign investment will increase over the medium-to-long term and contribute to the development of Argentina's conventional and unconventional oil and gas resources.

In Mexico, Pemex has significantly reduced its operating budget and, as a result, drilling and completions activity is currently at historic lows. While the Company believes activity could increase slightly in the second half of the year, it remains focused on proactively managing its cost structure to match anticipated revenue.

SUMMARY
Throughout the current downturn, Calfrac has had to reshape its short-to-medium term strategy focused around managing its cost structure, employing further process efficiencies, retaining as many of its best people as possible given expected activity levels, maintaining strong relationships with its existing customers as well as expanding its customer base, all while ensuring the Company has sufficient liquidity to navigate the cyclical downturn. Those initiatives will continue through what is expected to be a challenging year ahead. Calfrac is determined to navigate through this cycle and will continue to evaluate all alternatives available to the Company that are in the best interests of its key stakeholders.

FINANCIAL OVERVIEW – THREE MONTHS ENDED MARCH 31, 2016 VERSUS 2015

CANADA












Three Months Ended March 31,



2016

2015

Change

(C$000s, except operational information)



($)

($)

(%)

(unaudited)






Revenue



72,721

221,397

(67)

Expenses







Operating                                                             



70,300

198,896

(65)


SG&A



2,168

2,045

6




72,468

200,941

(64)

Operating income(1)



253

20,456

(99)

Operating income (%)



0.3

9.2

(97)

Fracturing revenue per job ($)



22,057

41,063

(46)

Number of fracturing jobs(2)



3,022

5,132

(41)

Active pumping horsepower, end of period (000s)



194

394

(51)

Idle pumping horsepower, end of period (000s)



216

Total pumping horsepower, end of period (000s)



410

394

4

Coiled tubing revenue per job ($)



22,718

24,123

(6)

Number of coiled tubing jobs



267

442

(40)

Active coiled tubing units, end of period (#)



4

18

(78)

Idle coiled tubing units, end of period (#)



9

Total coiled tubing units, end of period (#)



13

18

(28)

(1) Refer to "Non-GAAP Measures" on page 15 for further information.

 

REVENUE
Revenue from Calfrac's Canadian operations during the first quarter of 2016 was $72.7 million versus $221.4 million in the same period of 2015. The 67 percent decrease was primarily due to significantly lower activity and lower pricing for the Company's fracturing services. The number of fracturing jobs decreased by 41 percent while revenue per fracturing job decreased by 46 percent from the same period in the prior year as a result of a change in the mix of completion treatments  as well as lower pricing, offset partially by greater service intensity. Total proppant per reported fracturing job increased by 18 percent over the prior year. Coiled tubing jobs decreased by 40 percent from the first quarter in 2015 due to lower activity in the shallow oil plays of Saskatchewan and the shallow gas areas of southern Alberta.

OPERATING INCOME
Operating income in Canada during the first quarter of 2016 was $0.3 million compared to $20.5 million in the same period of 2015 primarily due to lower equipment utilization and pricing. The Company mitigated the impact of lower activity and pricing through the implementation of several cost reduction initiatives designed to maintain the Company's competitiveness in a lower-price environment. Operating costs were 65 percent lower than in the comparable quarter of 2015, which is attributable to the decline in activity combined with the impact of cost savings realized during the quarter. SG&A expenses during the first quarter of 2015 included a recovery of $1.1 million related to 2014 annual bonus expenses. Excluding this recovery, SG&A expenses decreased 31 percent year-over-year, primarily due to workforce reductions, which have totaled 21 percent since the end of the first quarter of 2015 combined with a lower compensation structure. The Company closed its Medicine Hat operating district at the beginning of March 2016, which resulted in approximately $0.3 million of savings during the first quarter.

UNITED STATES










Three Months Ended March 31,


2016

2015

Change

(C$000s, except operational and exchange rate information)


($)

($)

(%)

(unaudited)





Revenue


75,985

305,080

(75)

Expenses






Operating                                                                     


82,955

286,996

(71)


SG&A


5,268

6,733

(22)



88,223

293,729

(70)

Operating income (loss)(1)


(12,238)

11,351

NM

Operating income (loss) (%)


(16.1)

3.7

NM

Fracturing revenue per job ($)


36,118

59,136

(39)

Number of fracturing jobs


2,058

5,007

(59)

Active pumping horsepower, end of period (000s)


245

704

(65)

Idle pumping horsepower, end of period (000s)


370

Total pumping horsepower, end of period (000s)


615

704

(13)

Coiled tubing revenue per job ($)


42,827

(100)

Number of coiled tubing jobs


34

(100)

Active coiled tubing units, end of period (#)


5

(100)

Idle coiled tubing units, end of period (#)


5

Total coiled tubing units, end of period (#)


5

5

Cementing revenue per job ($)


150,293

44,024

NM

Number of cementing jobs


11

171

(94)

Active cementing units, end of period (#)


18

(100)

Idle cementing units, end of period (#)


11

Total cementing units, end of period (#)


11

18

(39)

US$/C$ average exchange rate(2)


1.3732

1.2412

11

(1) Refer to "Non-GAAP Measures" on page 15 for further information.

(2) Source: Bank of Canada.

 

REVENUE
Revenue from Calfrac's United States operations decreased to $76.0 million during the first quarter of 2016 from $305.1 million in the comparable quarter of 2015 due to significantly lower fracturing activity across all of the Company's operating regions as 59 percent fewer fracturing jobs were completed period-over-period. Revenue per job was 39 percent lower year-over-year due to significantly weaker pricing. Fracturing job sizes were consistent with the same period in the prior year. The Company closed its cementing operations in the Fayetteville shale gas play during the second quarter of 2015, temporarily closed its south Texas operations and suspended all remaining cementing operations during the first quarter of 2016, which contributed to the year-over-year decline in revenue.

OPERATING (LOSS) INCOME
The Company's United States operations had an operating loss of $12.2 million during the first quarter of 2016, which included restructuring costs totaling $3.1 million (2015 - Nil), compared to operating income of $11.4 million in the same period in 2015. The restructuring costs relate to organizational changes that are planned across the U.S. division during the remainder of 2016. Excluding these one-time costs, the operating loss would have been $9.1 million, primarily due to significantly lower equipment utilization and pricing in all of the Company's operating regions. Although the Company has undertaken numerous cost reduction initiatives, its south Texas district operated at levels that were uneconomic for the Company during the quarter. In response to these difficult market conditions, Calfrac made the decision to temporarily close its south Texas operations during the first quarter. Utilization levels in Pennsylvania were down compared to the first quarter of 2015, which combined with significantly lower pricing, resulted in the Company not generating positive operating income in this region during the first quarter of 2016. SG&A expenses decreased by 22 percent in the first quarter of 2016 from the prior year due to cost reductions that were initiated towards the end of the first quarter of 2015 and continued through the first quarter of 2016.

RUSSIA










Three Months Ended March 31,


2016

2015

Change

(C$000s, except operational and exchange rate information)


($)

($)

(%)

(unaudited)





Revenue


22,723

30,497

(25)

Expenses






Operating                                                                     


21,351

27,707

(23)


SG&A


563

1,328

(58)



21,914

29,035

(25)

Operating income(1)


809

1,462

(45)

Operating income (%)


3.6

4.8

(25)

Fracturing revenue per job ($)


70,930

78,757

(10)

Number of fracturing jobs


253

329

(23)

Pumping horsepower, end of period (000s)


70

70

Coiled tubing revenue per job ($)


40,491

35,829

13

Number of coiled tubing jobs


118

128

(8)

Coiled tubing units, end of period (#)


7

7

Rouble/C$ average exchange rate(2)


0.0184

0.0198

(7)

(1) Refer to "Non-GAAP Measures" on page 15 for further information.

(2) Source: Bank of Canada.

 

REVENUE
Revenue from Calfrac's Russian operations decreased by 25 percent during the first quarter of 2016 to $22.7 million from $30.5 million in the corresponding three-month period of 2015. The decline in revenue was largely attributable to the loss of a fracturing contract with a significant customer to which the Company also supplied proppant. The 7 percent devaluation of the Russian rouble in the first quarter of 2016 as compared to the same quarter of 2015 also contributed to the decrease in reported revenue. The decline in revenue was partially offset by activity with new customers, however, the majority of the activity is expected to commence in the second quarter of 2016. Revenue per fracturing job declined by 10 percent primarily due to the currency devaluation combined with the impact of no longer providing proppant to one of its customers. The reduction in reported revenue per job was partially offset by higher fracturing activity in Usinsk, which is only accessible by ice roads in the winter, where colder weather in the first quarter of 2016 permitted more activity than the previous year.

OPERATING INCOME
Operating income in Russia was $0.8 million during the first quarter of 2016 compared to $1.5 million in the corresponding period of 2015 primarily due to lower fracturing and coiled tubing crew utilization combined with the 7 percent devaluation of the rouble. Operating income as a percentage of revenue was 4 percent compared to 5 percent in 2015 due to lower equipment utilization. SG&A expenses declined by 58 percent in the first quarter of 2016 from the prior year's quarter due to the depreciation of the Russian rouble combined with the impact of cost reduction initiatives.

LATIN AMERICA










Three Months Ended March 31,


2016

2015

Change

(C$000s, except operational and exchange rate information)


($)

($)

(%)

(unaudited)





Revenue


44,709

43,409

3

Expenses






Operating                                                                       


34,995

35,027


SG&A


2,846

3,988

(29)



37,841

39,015

(3)

Operating income(1)


6,868

4,394

56

Operating income (%)


15.4

10.1

52

Pumping horsepower, end of period (000s)


131

91

44

Cementing units, end of period (#)


14

13

8

Coiled tubing units, end of period (#)


7

7

Mexican peso/C$ average exchange rate(2)


0.0762

0.0830

(8)

Argentinean peso/C$ average exchange rate(2)


0.0953

0.1428

(33)

(1) Refer to "Non-GAAP Measures" on page 15 for further information.

(2) Source: Bank of Canada.

 

REVENUE
Calfrac's Latin American operations generated total revenue of $44.7 million during the first quarter of 2016 versus $43.4 million in the comparable three-month period in 2015. Revenue in Argentina was consistent with the comparable quarter as higher coiled tubing activity in unconventional plays offset a decrease in fracturing and cementing activity. In Mexico, revenue increased by $2.4 million primarily due to higher fracturing activity offset partially by lower pricing.

OPERATING INCOME
Operating income in Latin America for the three months ended March 31, 2016 was $6.9 million, which included $0.4 million of restructuring costs, compared to $4.4 million in the comparative quarter in 2015. The improvement in operating income during the first quarter of 2016 was primarily due to lower SG&A expenses in Argentina arising from the significant devaluation of the Argentinean peso.

CORPORATE


















Three Months Ended March 31,






2016

2015

Change

(C$000s)






($)

($)

(%)

(unaudited)









Expenses










Operating                 






1,495

1,305

15


SG&A






5,820

8,514

(32)







7,315

9,819

(26)

Operating loss(1)






(7,315)

(9,819)

(26)

% of Revenue






3.4

1.6

NM

(1) Refer to "Non-GAAP Measures" on page 15 for further information.

 

OPERATING LOSS
Corporate expenses for the first quarter of 2016 includes $0.2 million in restructuring costs related to planned organizational changes. Despite these additional restructuring costs, corporate expenses decreased by 26 percent compared to the first quarter of 2015, which resulted from the Company significantly reducing its costs throughout 2015 and the first quarter of 2016 to better align its cost structure with current and anticipated activity levels. These initiatives contributed approximately $1.9 million to the quarterly decrease in corporate expenses primarily by reducing corporate personnel costs and discretionary spending. The Company has reduced its corporate headcount by 38 percent since March 31, 2015. Stock-based compensation costs were $0.6 million lower during the first quarter of 2016 compared to the same period of 2015 primarily due to a lower share price at the end of the quarter.

DEPRECIATION
For the three months ended March 31, 2016, depreciation expense decreased by 5 percent to $35.6 million from $37.4 million in the corresponding quarter of 2015. The decrease was mainly a result of a $114.5 million impairment of property, plant and equipment in the United States that was recorded in the fourth quarter of 2015, offset partially by a weaker Canadian dollar relative to the U.S. dollar on a year-over-year basis.

FOREIGN EXCHANGE LOSSES
The Company recorded a foreign exchange loss of $18.2 million during the first quarter of 2016 versus a loss of $0.8 million in the comparative three-month period of 2015. Foreign exchange gains and losses arise primarily from the translation of net monetary assets or liabilities that were held in U.S. dollars in Canada, Russia and Latin America. The Company's first-quarter 2016 foreign exchange loss was largely attributable to the translation of U.S. dollar-denominated liabilities held in Argentina as the value of the Argentinean peso depreciated 13 percent against the U.S. dollar during the first quarter. The foreign exchange loss was also the result of U.S. dollar-denominated assets held in Canada as the U.S. dollar depreciated against the Canadian dollar during the first quarter of 2016.

INTEREST
The Company's net interest expense of $19.1 million for the first quarter of 2016 was $2.6 million higher than in the comparable period of 2015. Interest expense on the Company's U.S. dollar-denominated senior unsecured notes was higher due to the weaker Canadian dollar compared to the first quarter of 2015. In addition, interest expense related to the Company's revolving credit facility was higher due to an increase in the outstanding amount and, to a lesser extent, higher interest rates than 2015.

INCOME TAXES
The Company recorded an income tax recovery of $28.9 million during the first quarter of 2016 compared to a recovery of $13.1 million in the comparable period of 2015. The recovery position was the result of pre-tax losses incurred during the quarter in Canada, the United States and Argentina. The effective tax recovery rate was 34 percent during the first quarter of 2016 compared to 50 percent in the comparable quarter in 2015. This decrease was primarily due to a higher percentage of taxable losses in Canada, which has a lower average statutory tax rate than the United States, which constituted the majority of the losses in the comparable quarter in 2015.

SUMMARY OF QUARTERLY RESULTS










Three Months Ended

Jun. 30,

Sep. 30,

Dec. 31,

Mar. 31,

Jun. 30,

Sep. 30,

Dec. 31,

Mar. 31,


2014

2014

2014

2015

2015

2015

2015

2016

(C$000s, except per share and









operating data)

($)

($)

($)

($)

($)

($)

($)

($)

(unaudited)









Financial









Revenue

502,957

697,440

748,896

600,383

319,553

289,075

286,194

216,138

Operating income (loss)(1)

44,833

126,058

122,202

27,844

(7,022)

2,775

5,787

(11,623)


Per share – basic(2)

0.48

1.33

1.29

0.29

(0.07)

0.03

0.06

(0.10)


Per share – diluted(2)

0.47

1.32

1.28

0.29

(0.07)

0.03

0.06

(0.10)

Adjusted EBITDA(1)

44,008

123,624

121,731

25,609

(3,696)

7,211

22,933

(5,883)


Per share – basic(2)

0.47

1.31

1.28

0.27

(0.04)

0.08

0.24

(0.05)


Per share – diluted(2)

0.46

1.29

1.28

0.27

(0.04)

0.08

0.24

(0.05)

Net income (loss) attributable to the









shareholders of Calfrac

(12,905)

44,465

26,470

(12,628)

(43,277)

(24,191)

(141,498)

(54,071)


Per share – basic(2)

(0.14)

0.47

0.28

(0.13)

(0.45)

(0.25)

(1.45)

(0.47)


Per share – diluted(2)

(0.14)

0.46

0.28

(0.13)

(0.45)

(0.25)

(1.45)

(0.47)

Capital expenditures

35,312

62,909

52,033

52,669

50,356

24,945

29,964

7,723

Working capital (end of period)

334,320

393,653

441,234

413,950

340,639

296,816

305,952

261,072

Total equity (end of period)

794,615

828,537

832,403

818,825

775,646

742,972

623,719

576,465










Operating (end of period)









Active pumping horsepower (000s)

1,217

1,235

1,254

1,259

804

754

776

640

Idle pumping horsepower (000s)(3)

455

533

524

586

Total pumping horsepower (000s)(3)

1,217

1,235

1,254

1,259

1,259

1,287

1,300

1,226

Active coiled tubing units (#)

36

36

36

37

20

20

20

18

Idle coiled tubing units (#)

17

17

17

14

Total coiled tubing units (#)

36

36

36

37

37

37

37

32

Active cementing units (#)

31

31

31

31

26

28

23

14

Idle cementing units (#)

5

3

8

11

Total cementing units (#)

31

31

31

31

31

31

31

25

(1) Refer to "Non-GAAP Measures" on page 15 for further information.

(2) Comparative amounts were adjusted to reflect the Company's two-for-one common share split that occurred on June 2, 2014.

(3) Excludes 60,000 pumping horsepower that had not been commissioned at March 31, 2016.

 

SEASONALITY OF OPERATIONS
The Company's North American business is seasonal. The lowest activity is typically experienced during the second quarter of the year when road weight restrictions are in place due to spring break-up weather conditions and access to well sites in Canada and North Dakota is reduced (refer to "Business Risks – Seasonality" in the 2015 Annual Report).

FOREIGN EXCHANGE FLUCTUATIONS
The Company's consolidated financial statements are reported in Canadian dollars. Accordingly, the quarterly results are directly affected by fluctuations in the exchange rates for United States, Russian, Mexican and Argentinean currency (refer to "Business Risks – Fluctuations in Foreign Exchange Rates" in the 2015 Annual Report).

LIQUIDITY AND CAPITAL RESOURCES














Three Months Ended March 31,




2016


2015

(C$000s)




($)


($)

(unaudited)







Cash provided by (used in):








Operating activities




2,568


(9,766)


Financing activities




(87)


(6,985)


Investing activities




(17,406)


(54,143)


Effect of exchange rate changes on cash and cash equivalents




(12,159)


22,864

Decrease in cash and cash equivalents




(27,084)


(48,030)

 

OPERATING ACTIVITIES
The Company's cash provided by operating activities for the three months ended March 31, 2016 was $2.6 million versus cash used of $9.8 million in the comparable period in 2015. The increase was primarily due to the reduction of working capital during the period, offset by lower operating margins in Canada and the United States. At March 31, 2016, Calfrac's working capital was approximately $261.1 million, a 15 percent decrease from December 31, 2015.

FINANCING ACTIVITIES
Net cash used for financing activities for the three months ended March 31, 2016 was $0.1 million compared to $7.0 million in the comparable period in 2015. During the three months ended March 31, 2016, the Company increased its bank loan in Argentina by $2.0 million and paid cash dividends of $1.8 million related to dividends declared in the fourth quarter of 2015.

On October 1, 2014, the Company extended the term of its credit facilities by one year to September 27, 2018. The maturity may be extended by one or more years at the Company's request and lenders' acceptance. The Company also may prepay principal without penalty.

On December 11, 2015, Calfrac amended its credit facilities to provide increased financial flexibility. The amendment included a voluntary reduction in the total facility from $400.0 million to $300.0 million. The facilities consist of an operating facility of $30.0 million and a syndicated facility of $270.0 million. The interest rates are based on the parameters of certain bank covenants. For prime-based loans and U.S. base-rate loans, the rate ranges from prime or U.S. base rate plus 0.50 percent to prime plus 3.50 percent. For LIBOR-based loans and bankers' acceptance-based loans, the margin thereon ranges from 1.50 percent to 4.50 percent above the respective base rates. The facility was amended to increase the $100.0 million accordion feature to $200.0 million. The accordion feature is not available to the Company during the covenant relief period described below and ending on December 31, 2017 and during this period the Company will incur interest at the high end of the ranges outlined above. Additionally, for the quarters ended March 31, 2016 through December 31, 2017, advances under the credit facilities will be limited by a borrowing base. The borrowing base is calculated based on the following:

i.     

Eligible North American accounts receivable, which is based on 75 percent of accounts receivable owing by companies rated BB+ or lower by Standard & Poor's (or a similar rating agency) and 85 percent of accounts receivable from companies rated BBB- or higher;

ii.     

100 percent of unencumbered cash of the parent company and its U.S. operating subsidiary, excluding any cash held in a segregated account for the purposes of a potential equity cure; and

iii.    

25 percent of the net book value of property, plant and equipment (PP&E) of the parent company and its U.S. operating subsidiary. The value of PP&E excludes assets under construction and is limited to a maximum of $90.0 million until June 30, 2016 and $150.0 million thereafter.

 

As at March 31, 2016, the Company had used $36.4 million of its credit facilities for letters of credit and had $110.0 million outstanding under its credit facility.

The Company's credit facilities contain certain financial covenants. Weakened market conditions attributable to the significant reduction in the price of oil and natural gas have required some oil and gas service companies to seek covenant relief from their lenders. Calfrac negotiated amendments including waivers and increases to certain of its financial covenant thresholds prior to the end of the fourth quarter in 2015, as shown below.

Years ended December 31, except as indicated in notes below






2016


2017

Working capital ratio not to fall below






1.15x


1.15x

Funded Debt to Adjusted EBITDA not to exceed(1)(2)(3)






5.00x


  4.50x/4.00x

Funded Debt to Capitalization not to exceed(2)(4)






0.30x


0.30x

(1) Funded Debt to Adjusted EBITDA covenant has been waived for the quarters ended March 31, 2016 and June 30, 2016 and increases to 5.00x for September 30, 2016 and December 31, 2016. The covenant declines to 4.50x for the quarters ended March 31, 2017 and June 30, 2017 and declines to 4.00x from the quarters ended September 30, 2017 and December 31, 2017 and is set at 3.00x for each quarter after December 31, 2017.

(2) Funded Debt is defined as Total Debt excluding all outstanding senior unsecured notes. Total Debt includes bank loans and long-term debt (before unamortized debt issuance costs and debt discount) plus outstanding letters of credit (excluding a US$25.0 million letter of credit supporting an Argentinean bank loan) less cash on hand with lenders (excluding any cash held in a segregated account for the purposes of a potential equity cure).

(3) Adjusted EBITDA is defined as net income or loss for the period less interest, taxes, depreciation and amortization, non-cash stock-based compensation, non-controlling interest relating to Colombia, and gains and losses that are extraordinary or non-recurring.

(4) Capitalization is Total Debt plus Equity attributable to the shareholders of Calfrac.

 

Proceeds from equity offerings may be applied, as an equity cure, in the calculation of Adjusted EBITDA towards the Funded Debt to Adjusted EBITDA covenant for any of the quarters ending prior to and including December 31, 2017 subject to certain conditions including:

i.     

the Company is only permitted to use the proceeds of a common share issuance to increase Adjusted EBITDA a maximum of two times;

ii.     

the Company cannot use the proceeds of a common share issuance to increase Adjusted EBITDA in consecutive quarter ends;

iii.     

the maximum proceeds of a common share issuance permitted to be attributed to Adjusted EBITDA cannot exceed the greater of 50 percent of Adjusted EBITDA on a trailing four-quarter basis and $25.0 million; and

iv.     

if proceeds are not used immediately as an equity cure they must be held in a segregated trust account pending an election to use them for such purpose, and if they are removed from such account but not used as an equity cure they will no longer be eligible for such use.

 

On December 22, 2015, Calfrac closed a bought deal private placement of 20,370,370 common shares for net proceeds of approximately $25.2 million. The net proceeds of this offering are being held in a segregated account in accordance with the amended credit facilities pending an election to use them as an equity cure. Such an election may be made by Calfrac at any time prior to the completion of quarterly financial statements and the delivery of the covenant calculations for the relevant quarter to the lending syndicate. Throughout the period ending on December 31, 2017, amounts used as an equity cure will increase Adjusted EBITDA over the relevant twelve month rolling period and, will also serve to reduce Funded Debt. When the funds are removed from the segregated account, as an equity cure or otherwise, they are expected to be used to fund capital expenditures, to reduce outstanding indebtedness, and/or to be used for general working capital and corporate purposes.

As shown in the table below, at March 31, 2016, the Company was in compliance with the financial covenants associated with its credit facilities.







Covenant


Actual

As at March 31,






2016


2016

Working capital ratio not to fall below






1.15x


2.75x

Funded Debt to Adjusted EBITDA not to exceed






Waived


2.96x

Funded Debt to Capitalization not to exceed






0.30x


0.04x

 

The indenture governing the senior unsecured notes contains restrictions on the Company's ability to pay dividends, purchase and redeem shares of the Company and make certain restricted investments in circumstances where:

i.     

the Company is in default under the indenture or the making of such payment would result in a default;

ii.     

the Company is not meeting the Fixed Charge Coverage Ratio(1) under the indenture of at least 2.0:1 for the most recent four fiscal quarters; or

iii.    

there is insufficient room for such payment within a builder basket included in the indenture.

 

(1) The Fixed Charge Coverage Ratio is defined as cash flow to interest expense. Cash flow is a non-GAAP measure and does not have a standardized meaning under IFRS and is defined under the indenture agreement as net income (loss) attributable to the shareholders of Calfrac before depreciation, extraordinary gains or losses, unrealized foreign exchange gains or losses, gains or losses on disposal of property, plant and equipment, impairment of assets, restructuring charges, provision for settlement of litigation, stock-based compensation, interest, and income taxes.

 

These limitations on restricted payments are tempered by the existence of a number of exceptions to the general prohibition, including a basket allowing for restricted payments in an aggregate amount of up to US$20.0 million. The indenture also restricts the ability to incur additional indebtedness if the Fixed Charge Coverage Ratio determined on a pro forma basis for the most recently ended four fiscal quarter period for which internal financial statements are available is not at least 2.0:1. As is the case with restricted payments, there are a number of exceptions to this prohibition on the incurrence of additional indebtedness, including the incurrence of additional debt under credit facilities up to the greater of $175.0 million or 30 percent of the Company's consolidated tangible assets.

As at March 31, 2016, the Company's Fixed Charge Coverage Ratio was less than the required 2.0:1 ratio. Failing to meet the Fixed Charge Coverage Ratio is not an event of default under the indenture, and the baskets highlighted in the preceding paragraph provide sufficient flexibility for the Company to incur additional indebtedness and make anticipated restricted payments, which may be required to conduct its operations during this period of weakened market conditions.

On June 2, 2014, the Company's common shares were split on a two-for-one basis to shareholders of record as of May 23, 2014. On June 17, 2015, the Company reduced its quarterly dividend from $0.125 to $0.0625 per share, beginning with the dividend paid on July 15, 2015. On September 24, 2015, the Company further reduced its quarterly dividend from $0.0625 to $0.015625 per share, beginning with the dividend paid on October 15, 2015. On February 24, 2016, the Board of Directors suspended Calfrac's dividend effective immediately. For Canadian income tax purposes, all dividends paid by Calfrac on its common shares are designated as "eligible dividends" unless otherwise indicated.

INVESTING ACTIVITIES
Calfrac's net cash used for investing activities was $17.4 million for the quarter ended March 31, 2016 versus $54.1 million in 2015. Cash outflows relating to capital expenditures were $17.8 million during 2016 compared to $61.7 million in 2015. Capital expenditures were primarily to support the Company's United States fracturing operations.

In light of the current environment, the Company further reduced its 2016 capital budget by approximately $5.0 million to $10.0 million. In addition, carryover capital expenditures are expected to decrease from $35.0 million to $30.0 million, mainly due to the impact of the weakening U.S. dollar. In total, Calfrac now expects to spend $40.0 million throughout 2016.

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
The effect of changes in foreign exchange rates on the Company's cash and cash equivalents during the quarter ended March 31, 2016 was a loss of $12.2 million versus a gain of $22.9 million during 2015. These gains relate to cash and cash equivalents held by the Company in a foreign currency.

With its working capital position, available credit facilities and anticipated funds provided by operations, the Company expects to have adequate resources to fund its financial obligations and planned capital expenditures for 2016 and beyond.

At March 31, 2016, the Company had cash and cash equivalents of $96.9 million of which $25.0 million is held in a segregated account at the Company's discretion, so that it may be utilized if required in the calculation of Adjusted EBITDA for purposes of the Company's bank covenants.

OUTSTANDING SHARE DATA
The Company is authorized to issue an unlimited number of common shares. Employees have been granted options to purchase common shares under the Company's shareholder-approved stock option plan. The number of shares reserved for issuance under the stock option plan is equal to 10 percent of the Company's issued and outstanding common shares. As at April 22, 2016, there were 115,579,598 common shares issued and outstanding, and 7,919,587 options to purchase common shares.

On September 24, 2015 the Company announced that the Dividend Reinvestment Plan (DRIP) would be suspended and all shareholders of record would receive a cash payment in respect of the dividend declared on October 15, 2015, and thereafter until such time as the DRIP may be reinstated. The DRIP allowed shareholders to direct cash dividends paid on all or a portion of their common shares to be reinvested in additional common shares that would be issued at 95 percent of the volume-weighted average price of the common shares traded on the Toronto Stock Exchange (TSX) during the last five trading days preceding the relevant dividend payment date.

ADVISORIES

FORWARD-LOOKING STATEMENTS
In order to provide Calfrac shareholders and potential investors with information regarding the Company and its subsidiaries, including management's assessment of Calfrac's plans and future operations, certain statements contained in this press release, including statements that contain words such as "seek", "anticipate", "plan", "continue", "estimate", "expect", "may", "will", "project", "predict", "potential", "targeting", "intend", "could", "might", "should", "believe", "forecast" or similar words suggesting future outcomes, are forward-looking statements.

In particular, forward-looking statements in this press release include, but are not limited to, statements with respect to expected operating strategies and targets, capital expenditure programs, future financial resources, use of funds held in the Company's segregated bank account (as an equity cure or otherwise), anticipated equipment utilization levels, future oil and natural gas well activity in each of the Company's operating jurisdictions, results of acquisitions, the impact of environmental regulations and economic reforms and sanctions on the Company's business, future costs or potential liabilities, projections of market prices and costs, supply and demand for oilfield services, expectations regarding the Company's ability to maintain its competitive position, anticipated benefits of the Company's competitive position, expectations regarding the Company's ability to raise capital, treatment under government regulatory regimes, commodity prices, anticipated outcomes of specific events (including the Greek and U.S. litigation), trends in, and the growth prospects of, the global oil and natural gas industry, the Company's growth prospects including, without limitation, its international growth strategy and prospects, and the impact of changes in accounting policies and standards on the Company and its financial statements. These statements are derived from certain assumptions and analyses made by the Company based on its experience and perception of historical trends, current conditions, expected future developments and other factors that it believes are appropriate in the circumstances, including, but not limited to, the economic and political environment in which the Company operates, the Company's expectations for its current and prospective customers' capital budgets and geographical areas of focus, the Company's existing contracts and the status of current negotiations with key customers and suppliers, the focus of the Company's customers on increasing the use of 24-hour operations in North America, the effectiveness of cost reduction measures instituted by the Company, the effect unconventional gas projects have had on supply and demand fundamentals for natural gas and the likelihood that the current tax and regulatory regime will remain substantially unchanged.

Forward-looking statements are subject to a number of known and unknown risks and uncertainties that could cause actual results to differ materially from the Company's expectations. Such risk factors include: general economic conditions in Canada, the United States, Russia, Mexico and Argentina; the demand for fracturing and other stimulation services during drilling and completion of oil and natural gas wells; volatility in market prices for oil and natural gas and the effect of this volatility on the demand for oilfield services generally; regional competition; liabilities and risks, including environmental liabilities and risks, inherent in oil and natural gas operations; changes in legislation and the regulatory environment; sourcing, pricing and availability of raw materials, components, parts, equipment, suppliers, facilities and skilled personnel; the ability to integrate technological advances and match advances by competitors; the availability of capital on satisfactory terms; intellectual property risks; uncertainties in weather and temperature affecting the duration of the service periods and the activities that can be completed; dependence on, and concentration of, major customers; the creditworthiness and performance by the Company's counterparties and customers; liabilities and risks associated with prior operations; the effect of accounting pronouncements issued periodically; failure to realize anticipated benefits of acquisitions and dispositions; and currency exchange rate risk. Further information about these and other risks and uncertainties may be found under "Business Risks" above.

Consequently, all of the forward-looking statements made in this press release are qualified by these cautionary statements and there can be no assurance that actual results or developments anticipated by the Company will be realized, or that they will have the expected consequences or effects on the Company or its business or operations. These statements speak only as of the respective date of this press release or the document incorporated by reference herein. The Company assumes no obligation to update publicly any such forward-looking statements, whether as a result of new information, future events or otherwise, except as required pursuant to applicable securities laws.

BUSINESS RISKS
The business of Calfrac is subject to certain risks and uncertainties. Prior to making any investment decision regarding Calfrac, investors should carefully consider, among other things, the risk factors set forth in the Company's most recently filed Annual Information Form, which are specifically incorporated by reference herein. The Annual Information Form is available through the Internet on the Canadian System for Electronic Document Analysis and Retrieval (SEDAR), which can be accessed at www.sedar.com. Copies of the Annual Information Form may also be obtained on request without charge from Calfrac at 411 - 8th Avenue S.W., Calgary, Alberta, Canada, T2P 1E3, or at www.calfrac.com, or by facsimile at 403-266-7381.

NON-GAAP MEASURES
Certain supplementary measures presented in this press release do not have any standardized meaning under IFRS and, because IFRS have been incorporated as Canadian generally accepted accounting principles (GAAP), these supplementary measures are also non-GAAP measures. These measures have been described and presented in order to provide shareholders and potential investors with additional information regarding the Company's financial results, liquidity and ability to generate funds to finance its operations. These measures may not be comparable to similar measures presented by other entities, and are explained below.

Operating income (loss) is defined as net income (loss) before depreciation, foreign exchange gains or losses, gains or losses on disposal of property, plant and equipment, expenses and gains related to business combinations, impairment of property, plant and equipment, impairment of inventory, impairment of goodwill, provision for settlement of litigation, interest, and income taxes. Management believes that operating income is a useful supplemental measure as it provides an indication of the financial results generated by Calfrac's business segments prior to consideration of how these segments are financed or taxed. Operating income (loss) for the period was calculated as follows:

Three Months Ended March 31,




2016


2015

(C$000s)




($)


($)

(unaudited)







Net loss




(55,396)


(12,940)

Add back (deduct):








Depreciation




35,594


37,414


Foreign exchange losses




18,182


755


Gain on disposal of property, plant and equipment




(227)


(731)


Interest




19,115


16,483


Income taxes




(28,891)


(13,137)

Operating (loss) income




(11,623)


27,844

 

Adjusted EBITDA is defined in the Company's credit facilities for covenant purposes as net income or loss for the period less interest, taxes, depreciation and amortization, non-cash stock-based compensation, non-controlling interest relating to Colombia, and gains and losses that are extraordinary or non-recurring. Adjusted EBITDA is presented because it is used in the calculation of the Company's bank covenants. Adjusted EBITDA for the period was calculated as follows:

Three Months Ended March 31,




2016


2015

(C$000s)







(unaudited)







Net loss




(55,396)


(12,940)

Add back (deduct):








Depreciation




35,594


37,414


Unrealized foreign exchange losses (gains)




19,783


(2,575)


Gain on disposal of property, plant and equipment




(227)


(731)


Restructuring charges




3,733



Stock-based compensation




383


784


Losses attributable to non-controlling interest(1)




23


312


Interest




19,115


16,483


Income taxes




(28,891)


(13,137)

Adjusted EBITDA




(5,883)


25,609

(1) The definition of Adjusted EBITDA was amended in June 2015 to include non-controlling interest related to Argentina and has been applied prospectively.

 

ADDITIONAL INFORMATION
Further information regarding Calfrac Well Services Ltd., including the most recently filed Annual Information Form, can be accessed on the Company's website at www.calfrac.com or under the Company's public filings found at www.sedar.com.

FIRST QUARTER CONFERENCE CALL
Calfrac will be conducting a conference call for interested analysts, brokers, investors and news media representatives to review its 2016 first quarter results at 10:00 a.m. (Mountain Time) on Thursday, April 28, 2016. The conference call dial-in number is 1-888-231-8191 or 647-427-7450. The seven-day replay numbers are 1-855-859-2056 or 416-849-0833 (once connected, enter 78070638). A webcast of the conference call may be accessed via the Company's website at www.calfrac.com.

 

CONSOLIDATED BALANCE SHEETS





March 31,

December 31,

As at




2016

2015

(C$000s) (unaudited)




($)

($)

ASSETS






Current assets







Cash and cash equivalents




96,921

124,005


Accounts receivable




180,370

221,995


Income taxes recoverable




3,768

3,540


Inventories




115,489

127,622


Prepaid expenses and deposits




14,985

18,017





411,533

495,179

Non-current assets







Property, plant and equipment




1,218,618

1,301,272


Deferred income tax assets




28,182

19,372

Total assets




1,658,333

1,815,823

LIABILITIES AND EQUITY






Current liabilities







Accounts payable and accrued liabilities




135,034

172,633


Bank loans (note 1)




14,549

15,633


Current portion of long-term debt (note 2)




494

523


Current portion of finance lease obligations




384

438





150,461

189,227

Non-current liabilities







Long-term debt (note 2)




877,799

927,270


Finance lease obligations




214

382


Deferred income tax liabilities




53,394

75,225

Total liabilities




1,081,868

1,192,104

Equity attributable to the shareholders of Calfrac






Capital stock (note 3)




409,809

409,809

Contributed surplus




28,232

27,849

Loan receivable for purchase of common shares




(2,500)

(2,500)

Retained earnings




159,355

213,426

Accumulated other comprehensive loss




(13,501)

(21,054)





581,395

627,530

Non-controlling interest




(4,930)

(3,811)

Total equity




576,465

623,719

Total liabilities and equity




1,658,333

1,815,823

See accompanying notes to the consolidated financial statements.

 

CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended March 31,




2016


2015

(C$000s, except per share data) (unaudited)




($)


($)

Revenue




216,138


600,383

Cost of sales




246,690


587,345

Gross (loss) profit




(30,552)


13,038

Expenses








Selling, general and administrative




16,665


22,608


Foreign exchange losses




18,182


755


Gain on disposal of property, plant and equipment




(227)


(731)


Interest




19,115


16,483





53,735


39,115

Loss before income tax




(84,287)


(26,077)

Income tax expense (recovery)








Current




809


1,372


Deferred




(29,700)


(14,509)





(28,891)


(13,137)

Net loss




(55,396)


(12,940)








Net loss attributable to:








Shareholders of Calfrac




(54,071)


(12,628)


Non-controlling interest




(1,325)


(312)





(55,396)


(12,940)








Loss per share (note 3)








Basic




(0.47)


(0.13)


Diluted




(0.47)


(0.13)

See accompanying notes to the consolidated financial statements.

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

Three Months Ended March 31,


2016


2015

(C$000s) (unaudited)


($)


($)

Net loss


(55,396)


(12,940)

Other comprehensive income





Items that may be subsequently reclassified to profit or loss:






Change in foreign currency translation adjustment


7,759


10,700

Comprehensive loss


(47,637)


(2,240)

Comprehensive loss attributable to:






Shareholders of Calfrac


(46,518)


(1,911)


Non-controlling interest


(1,119)


(329)



(47,637)


(2,240)

See accompanying notes to the consolidated financial statements.

 

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY


Equity Attributable to the Shareholders of Calfrac




Share
Capital

Contributed
Surplus

Loan
Receivable
for Purchase
of Common
Shares

Accumulated
Other
Comprehensive
Income (Loss)

Retained
Earnings

Total

Non-
Controlling
Interest

Total
Equity

(C$000s) (unaudited)

($)

($)

($)

($)

($)

($)

($)

($)

Balance – Jan. 1, 2016

409,809

27,849

(2,500)

(21,054)

213,426

627,530

(3,811)

623,719

Net loss

(54,071)

(54,071)

(1,325)

(55,396)

Other comprehensive income:










Cumulative translation adjustment

7,553

7,553

206

7,759

Comprehensive income (loss)

7,553

(54,071)

(46,518)

(1,119)

(47,637)

Stock options:










Stock-based compensation










recognized

383

383

383

Balance – Mar. 31, 2016

409,809

28,232

(2,500)

(13,501)

159,355

581,395

(4,930)

576,465

Balance – Jan. 1, 2015

377,975

24,767

(2,500)

(26,757)

459,891

833,376

(973)

832,403

Net loss

(12,628)

(12,628)

(312)

(12,940)

Other comprehensive income (loss):










Cumulative translation adjustment

10,717

10,717

(17)

10,700

Comprehensive income (loss)

10,717

(12,628)

(1,911)

(329)

(2,240)

Stock options:










Stock-based compensation










recognized

784

784

784

Dividend Reinvestment Plan shares









issued

5,588

5,588

5,588

Dividends

(12,190)

(12,190)

(12,190)

Shares purchased under NCIB

(2,546)

(2,974)

(5,520)

(5,520)

Balance – Mar. 31, 2015

381,017

25,551

(2,500)

(16,040)

432,099

820,127

(1,302)

818,825

See accompanying notes to the consolidated financial statements.

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended March 31,



2016


2015

(C$000s) (unaudited)



($)


($)

CASH FLOWS PROVIDED BY (USED IN)






OPERATING ACTIVITIES







Net loss



(55,396)


(12,940)


Adjusted for the following:








Depreciation



35,594


37,414



Stock-based compensation



383


784



Unrealized foreign exchange losses (gains)



19,783


(2,575)



Gain on disposal of property, plant and equipment



(227)


(731)



Interest



19,115


16,483



Deferred income taxes



(29,700)


(14,509)



Interest paid



(2,913)


(1,473)



Changes in items of working capital



15,929


(32,219)

Cash flows provided by (used in) operating activities



2,568


(9,766)

FINANCING ACTIVITIES







Bank loan proceeds



4,977


8,298


Issuance of long-term debt, net of debt issuance costs




21


Bank loan repayments



(2,994)


(3,202)


Long-term debt repayments



(173)


(152)


Finance lease obligation repayments



(91)


(111)


Shares purchased under NCIB




(5,520)


Dividends paid, net of DRIP



(1,806)


(6,319)

Cash flows used in financing activities



(87)


(6,985)

INVESTING ACTIVITIES







Purchase of property, plant and equipment



(17,770)


(61,658)


Proceeds on disposal of property, plant and equipment



364


7,515

Cash flows used in investing activities



(17,406)


(54,143)

Effect of exchange rate changes on cash and cash equivalents



(12,159)


22,864

Decrease in cash and cash equivalents



(27,084)


(48,030)

Cash and cash equivalents, beginning of period



124,005


99,129

Cash and cash equivalents, end of period



96,921


51,099

See accompanying notes to the consolidated financial statements.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

As at and for the three months ended March 31, 2016 and 2015
(Amounts in text and tables are in thousands of Canadian dollars, except share data and certain other exceptions as indicated) (unaudited)

1.  BANK LOANS
The Company's Argentinean subsidiary has an operating line of credit, of which ARS164,675 ($14,549) was drawn at March 31, 2016 (December 31, 2015 - ARS147,290 ($15,633)). The average interest rate is 39.04 percent per annum and the line of credit is secured by a letter of credit issued by the Company.

2.  LONG-TERM DEBT




March 31,

December 31,

As at



2016

2015

(C$000s)



($)

($)

US$600,000 senior unsecured notes due December 1, 2020, bearing






interest at 7.50% payable semi-annually



779,220

830,400

Less: unamortized debt issuance costs and debt discount



(9,183)

(10,306)




770,037

820,094

$270,000 extendible revolving term loan facility, secured by Canadian






and U.S. assets of the Company



110,000

110,000

Less: unamortized debt issuance costs



(2,789)

(3,588)




107,211

106,412

US$805 mortgage maturing May 2018 bearing interest at U.S. prime






less 1%, repayable at US$33 per month principal and interest,






secured by certain real property



1,045

1,287




878,293

927,793

Less: current portion of long-term debt



(494)

(523)




877,799

927,270

 

The fair value of the senior unsecured notes, as measured based on the closing quoted market price at March 31, 2016, was $350,922 (December 31, 2015 - $336,312). The carrying values of the mortgage obligation, bank loans and revolving term loan facilities approximate their fair values as the interest rates are not significantly different from current interest rates for similar loans.

The interest rate on the $270,000 revolving term loan facility is based on the parameters of certain bank covenants. For prime-based loans, the rate ranges from prime plus 0.50 percent to prime plus 3.50 percent. For LIBOR-based loans and bankers' acceptance-based loans the margin thereon ranges from 1.50 percent to 4.50 percent above the respective base rates for such loans. The facility is repayable on or before its maturity of September 27, 2018, assuming it is not extended. The maturity may be extended by one or more years at the Company's request and lenders' acceptance. The Company may also prepay principal without penalty. Debt issuance costs related to this facility are amortized over its term.

Interest on long-term debt (including the amortization of debt issuance costs and debt discount) for the three months ended March 31, 2016 was $17,971 (three months ended March 31, 2015 - $15,495).

The Company also has an extendible operating loan facility, which includes overdraft protection in the amount of $30,000. The interest rate is based on the parameters of certain bank covenants in the same fashion as the revolving term facility. Drawdowns under this facility are repayable on September 27, 2018, assuming the facility is not extended. The term and commencement of principal repayments may be extended by one year on each anniversary at the Company's request and lenders' acceptance. The revolving term loan and operating facilities are secured by the Company's Canadian and U.S. assets.

At March 31, 2016, the Company had utilized $36,396 of its loan facility for letters of credit and had $110,000 outstanding under its revolving term loan facility, leaving $153,604 in available credit.

See note 5 for further details on the covenants in respect of the Company's long-term debt.

3.  CAPITAL STOCK
Authorized capital stock consists of an unlimited number of common shares.



Three Months Ended

Year Ended



March 31, 2016

December 31, 2015

Continuity of Common Shares


Shares

Amount

Shares

Amount



(#)

(C$000s)

(#)

(C$000s)

Balance, beginning of period


115,579,598

409,809

95,252,559

377,975

Dividend Reinvestment Plan shares issued


1,474,379

12,733

Shares purchased under NCIB


(1,517,700)

(6,093)

Shares from private placement


20,370,370

25,194

Shares cancelled


(10)

Balance, end of period


115,579,598

409,809

115,579,598

409,809

The weighted average number of common shares outstanding for the three months ended March 31, 2016 was 115,410,398 basic and 115,579,598 diluted (three months ended March 31, 2015 - 95,230,498 basic and 95,399,698 diluted). The difference between basic and diluted shares is attributable to the dilutive effect of stock options issued by the Company as disclosed in note 4.

On December 22, 2015, the Company closed a bought deal private placement of 20,370,370 common shares for total gross proceeds of $27,500. Share issuance costs for the transaction were $2,306, resulting in net proceeds of $25,194.

During 2015, ten common shares were returned to the Company for cancellation. For accounting purposes, the cancellation of these shares was recorded as a reduction of capital stock in the amount of forty dollars, along with a corresponding increase to contributed surplus.

4.  STOCK-BASED COMPENSATION
(a) Stock Options

Three Months Ended March 31,


2016


2015

Continuity of Stock Options


Options

Average
Exercise Price


Options

Average
Exercise Price



(#)

(C$)


(#)

(C$)

Balance, January 1


8,229,947

7.81


4,269,050

14.76


Granted during the period


260,500

1.39


1,533,150

9.84


Forfeited


(563,860)

11.65


(109,284)

12.58


Expired


(7,000)

16.59


(5,000)

10.84

Balance, March 31


7,919,587

7.31


5,687,916

13.48

 

Stock options vest equally over four years and expire five years from the date of grant. The exercise price of outstanding options range from $1.34 to $20.81 with a weighted average remaining life of 3.65 years. When stock options are exercised, the proceeds together with the compensation expense previously recorded in contributed surplus, are added to capital stock.

(b) Share Units

Three Months Ended March 31,

2016

2015

Continuity of Stock Units

Deferred Share
Units

Performance
Share Units

Restricted
Share Units

Deferred Share
Units

Performance
Share Units

Restricted
Share Units


(#)

(#)

(#)

(#)

(#)

(#)

Balance, January 1

72,500

238,995

812,828

70,000

120,000

1,346,642


Granted during the period

145,000

500,000

2,309,550

72,500

178,995

900,500


Exercised

(72,500)

(70,000)

(60,000)

(614,464)


Forfeited

(99,665)

(152,360)

(62,382)

Balance, March 31

145,000

639,330

2,970,018

72,500

238,995

1,570,296

 

Three Months Ended March 31,






2016


2015







($)


($)

Expense (recovery) from:










Stock options






383


784


Deferred share units






49


120


Performance share units






(197)


165


Restricted share units






65


(205)

Total stock-based compensation expense






300


864

 

Stock-based compensation expense is included in selling, general and administrative expenses.

The Company grants deferred share units to its outside directors. These units vest in November of the year of grant and are settled either in cash (equal to the market value of the underlying shares at the time of exercise) or in Company shares purchased on the open market. The fair value of the deferred share units is recognized equally over the vesting period, based on the current market price of the Company's shares. At March 31, 2016, the liability pertaining to deferred share units was $49 (December 31, 2015 - $143).

The Company grants performance share units to a senior officer. The amount of the grants earned is linked to corporate performance and the grants vest on the approval of the Board of Directors at the meeting held to approve the consolidated financial statements for the year in respect of which performance is being evaluated. As with the deferred share units, performance share units are settled either in cash or Company shares purchased on the open market. At March 31, 2016, the liability pertaining to performance share units was $176 (December 31, 2015 - $373).

The Company grants restricted share units to its employees. These units vest over three years and are settled either in cash (equal to the market value of the underlying shares at the time of exercise) or in Company shares purchased on the open market. The fair value of the restricted share units is recognized over the vesting period, based on the current market price of the Company's shares. At March 31, 2016, the liability pertaining to restricted share units was $1,004 (December 31, 2015 - $939).

Changes in the Company's obligations under the deferred, performance and restricted share unit plans, which arise from fluctuations in the market value of the Company's shares underlying these compensation programs, are recorded as the share value changes.

5.  CAPITAL STRUCTURE
The Company's capital structure is comprised of shareholders' equity and debt. The Company's objectives in managing capital are (i) to maintain flexibility so as to preserve its access to capital markets and its ability to meet its financial obligations, and (ii) to finance growth, including potential acquisitions.

The Company manages its capital structure and makes adjustments in light of changing market conditions and new opportunities, while remaining cognizant of the cyclical nature of the oilfield services sector. To maintain or adjust its capital structure, the Company may revise its capital spending, adjust dividends paid to shareholders, issue new shares or new debt or repay existing debt.

The Company monitors its capital structure and financing requirements using, amongst other parameters, the ratio of net debt to operating income. Operating income for this purpose is calculated on a 12-month trailing basis and is defined as follows:







March 31,

December 31,

For the Twelve Months Ended






2016

2015

(C$000s)






($)

($)

Net loss






(269,882)

(227,426)

Adjusted for the following:









Depreciation






154,818

156,638


Foreign exchange losses






54,452

37,025


Gain on disposal of property, plant and equipment






(1,753)

(2,257)


Business combination






(30,987)

(30,987)


Impairment of property, plant and equipment






114,479

114,479


Impairment of inventory






14,333

14,333


Impairment of goodwill






9,544

9,544


Provision for settlement of litigation






3,165

3,165


Interest






71,599

68,967


Income taxes






(129,851)

(114,097)

Operating (loss) income






(10,083)

29,384

 

Net debt for this purpose is calculated as follows:



March 31,

December 31,



2016

2015

(C$000s)


($)

($)

Long-term debt, net of debt issuance costs and debt discount (note 2)


878,293

927,793

Bank loans (note 1)


14,549

15,633

Finance lease obligation


598

820

Less: cash and cash equivalents


(96,921)

(124,005)

Net debt


796,519

820,241

The ratio of net debt to operating income does not have a standardized meaning under IFRS and may not be comparable to similar measures used by other companies.

At March 31, 2016, the net debt to operating income ratio was (79.00):1 (December 31, 2015 - 27.91:1) calculated on a 12-month trailing basis as follows:












March 31,

December 31,












2016

2015

(C$000s, except ratio)











($)

($)

Net debt











796,519

820,241

Operating (loss) income











(10,083)

29,384

Net debt to operating income ratio











(79.00):1

27.91:1

 

The Company's net debt to operating income ratio of (79.00):1 is distorted by the fact that the Company incurred an operating loss for the twelve months ended March 31, 2016.

The Company is subject to certain financial covenants relating to working capital, leverage and the generation of cash flow in respect of its operating and revolving credit facilities. These covenants are monitored on a monthly basis. Prior to the end of the fourth quarter of 2015, the Company negotiated amendments including waivers and increases to certain of its financial covenant thresholds pertaining to its credit facilities, as shown below. At March 31, 2016 and December 31, 2015, the Company was in compliance with its covenants with respect to its credit facilities.

Quarters Ended



2015



2016


2017

Working capital ratio not to fall below



1.15x



1.15x


1.15x

Funded Debt to Adjusted EBITDA not to exceed(1)(2)(3)



4.50x



5.00x


   4.50x/4.00x

Funded Debt to Capitalization not to exceed(2)(4)



0.30x



0.30x


0.30x

(1) Funded Debt to Adjusted EBITDA covenant has been waived for the quarters ended March 31, 2016 and June 30, 2016  and increases to 5.00x for September 30, 2016 and December 31, 2016. The covenant declines to 4.50x for the quarters ended March 31, 2017 and June 30, 2017 and declines to 4.00x from the quarters ended September 30, 2017 and December 31, 2017 and is set at 3.00x for each quarter after December 31, 2017.

(2) Funded Debt is defined as Total Debt excluding all outstanding senior unsecured notes. Total Debt includes bank loans and long-term debt (before unamortized debt issuance costs and debt discount) plus outstanding letters of credit (excluding a US$25,000 letter of credit supporting an Argentinean bank loan) less cash on hand with lenders (excluding any cash held in a segregated account for the purposes of a potential equity cure).

(3) Adjusted EBITDA is defined as net income or loss for the period less interest, taxes, depreciation and amortization, non-cash items including stock-based compensation, non-controlling interest relating to Colombia, and gains and losses that are extraordinary or non-recurring.

(4) Capitalization is Total Debt plus Equity attributable to the shareholders of Calfrac.

 

For the quarter ended December 31, 2015 through the quarter ended December 31, 2017, advances under the credit facilities will be limited by a borrowing base. The borrowing base is calculated based on the following:

i.     

Eligible North American accounts receivable, which is based on 75 percent of accounts receivable owing by companies rated BB+ or lower by Standard & Poor's (or a similar rating agency) and 85 percent of accounts receivable from companies rated BBB- or higher;

ii.     

100 percent of unencumbered cash of the parent company and its U.S. operating subsidiary, excluding any cash held in a segregated account for the purposes of a potential equity cure; and

iii.     

25 percent of the net book value of property, plant and equipment (PP&E) of the parent company and its U.S. operating subsidiary. The value of PP&E excludes assets under construction and is limited to a maximum of $90,000 until June 30, 2016 and $150,000 thereafter.

 

For the quarter ended December 31, 2015 through the quarter ended December 31, 2017, distributions are restricted other than those relating to the Company's share unit plans and dividend distributions, provided that the rate of dividends must not exceed $0.015625 per share quarterly.

The indenture governing the senior unsecured notes contains restrictions on the Company's ability to pay dividends, purchase and redeem shares of the Company, and make certain restricted investments in circumstances where

i.     

the Company is in default under the indenture or the making of such payment would result in a default;

ii.    

the Company is not meeting the Fixed Charge Coverage Ratio(1) under the indenture of at least 2:1 for the most recent four fiscal quarters; or

iii.    

there is insufficient room for such payment within a builder basket included in the indenture. 

 

(1)  The Fixed Charge Coverage Ratio is defined as cash flow to interest expense. Cash flow is a non-GAAP measure and does not have a standardized meaning under IFRS and is defined under the indenture agreement as net income (loss) attributable to the shareholders of Calfrac before depreciation, extraordinary gains or losses, unrealized foreign exchange gains or losses, gains or losses on disposal of property, plant and equipment, impairment of assets, restructuring charges, provision for settlement of litigation, stock-based compensation, interest, and income taxes.

 

These limitations on restricted payments are tempered by the existence of a number of exceptions to the general prohibition, including a basket allowing for restricted payments in an aggregate amount of up to US$20,000.

The indenture also restricts the incurrence of additional indebtedness if the Fixed Charge Coverage Ratio determined on a pro forma basis for the most recently ended four fiscal quarter period for which internal financial statements are available is not at least 2:1.  As is the case with restricted payments, there are a number of exceptions to this prohibition on the incurrence of additional indebtedness, including the incurrence of additional debt under credit facilities up to the greater of $175,000 or 30% of the Company's consolidated tangible assets.

As at March 31, 2016, the Company's Fixed Charge Coverage Ratio was less than the required 2:1 ratio. Failing to meet the Fixed Charge Coverage Ratio is not an event of default under the indenture, and the baskets highlighted in the preceding paragraphs provide sufficient flexibility for the Company to make anticipated restricted payments, such as dividends, and incur additional indebtedness as required to conduct its operations and satisfy its obligations during this period of weakened market conditions.

The Company has measures in place to ensure that it has sufficient liquidity to navigate the cyclical nature of the oilfield services sector and safeguard the Company's ability to continue as a going concern. As discussed above, the Company negotiated amendments to its credit facilities to provide increased financial flexibility. These amendments include an "Equity Cure" feature pursuant to which proceeds from equity offerings may be applied as both an adjustment in the calculation of Adjusted EBITDA and as a reduction of Funded Debt towards the Funded Debt to Adjusted EBITDA ratio covenant for any of the quarters ending prior to and including December 31, 2017, subject to certain conditions including:

i.     

the Company is only permitted to use the proceeds of a common share issuance to increase Adjusted EBITDA a maximum of two times;

ii.    

the Company cannot use the proceeds of a common share issuance to increase Adjusted EBITDA in consecutive quarter ends;

iii.    

the maximum proceeds of a common share issuance permitted to be attributed to Adjusted EBITDA cannot exceed the greater of 50 percent of Adjusted EBITDA on a rolling four-quarter basis and $25,000; and

iv.     

if proceeds are not used immediately as an equity cure they must be held in a segregated bank account pending an election to use them for such purpose, and if they are removed from such account but not used as an equity cure they will no longer be eligible for such use.

 

In addition, to the extent that proceeds from an equity offering are used as part of the Equity Cure, such proceeds are included in the calculation of the Company's borrowing base.

6.  CONTINGENCIES

GREEK LITIGATION
As a result of the acquisition and amalgamation with Denison in 2004, the Company assumed certain legal obligations relating to Denison's Greek operations.

In 1998, North Aegean Petroleum Company E.P.E. ("NAPC"), a Greek subsidiary of a consortium in which Denison participated (and which is now a majority-owned subsidiary of the Company), terminated employees in Greece as a result of the cessation of its oil and natural gas operations in that country. Several groups of former employees filed claims against NAPC and the consortium alleging that their termination was invalid and that their severance pay was improperly determined.

In 1999, the largest group of plaintiffs received a ruling from the Athens Court of First Instance that their termination was invalid and that salaries in arrears amounting to approximately $10,116 (6,846 euros) plus interest were due to the former employees. This decision was appealed to the Athens Court of Appeal, which allowed the appeal in 2001 and annulled the above-mentioned decision of the Athens Court of First Instance. The said group of former employees filed an appeal with the Supreme Court of Greece, which was heard on May 29, 2007. The Supreme Court of Greece allowed the appeal and sent the matter back to the Athens Court of Appeal for the consideration of the quantum of awardable salaries in arrears. On June 3, 2008, the Athens Court of Appeal rejected NAPC's appeal and reinstated the award of the Athens Court of First Instance, which decision was further appealed to the Supreme Court of Greece. The matter was heard on April 20, 2010 and a decision rejecting such appeal was rendered in June 2010. As a result of Denison's participation in the consortium that was named in the lawsuit, the Company has been served with three separate payment orders, one on March 24, 2015 and two others on December 29, 2015.  The Company was also served with an enforcement order on November 23, 2015.  Oppositions have been filed on behalf of the Company in respect of each of these orders which oppose the orders on the basis that they were improperly issued and are barred from a statute of limitations perspective. The salaries in arrears sought to be recovered through these orders are part of the $10,116 (6,846 euros) cited above and the interest being sought in respect of these orders is part of the $24,658 (16,687 euros) cited below. Provisional orders granting a temporary suspension of any enforcement proceedings have been granted in respect of all of the orders that have been served. A hearing in respect of the order served on March 24, 2015 has been heard and a decision is pending. A hearing in respect of the orders served in December of 2015 is scheduled for September 20, 2016, and a hearing in respect of the order served on November 23, 2015 is scheduled for January 10, 2017.

NAPC is also the subject of a claim for approximately $4,229 (2,862 euros) plus associated penalties and interest from the Greek social security agency for social security obligations associated with the salaries in arrears that are the subject of the above-mentioned decision.

The maximum aggregate interest and penalties payable under the claims noted above, as well as three other immaterial claims against NAPC, amounted to $24,658 (16,687 euros) as at March 31, 2016.

Management is of the view that it is improbable there will be a material financial impact to the Company as a result of these claims. Consequently, no provision has been recorded in these consolidated financial statements.

U.S. LITIGATION
A collective and class action complaint was filed against the Company in September 2012 in the U.S. District Court for the Western District of Pennsylvania, alleging failure to pay U.S. employees the amount of overtime pay required by the Fair Labor Standards Act (FLSA) and the Pennsylvania Minimum Wage Act. In May 2013, the plaintiffs amended their complaint to add a Colorado wage-hour claim. In June 2013, the parties stipulated to conditional certification of a putative class in the FLSA collective action. After notice of the right to opt-in was mailed to approximately 1,200 current and former employees, 359 individuals opted in. Pursuant to a court-approved discovery plan, discovery occurred as to a mutually agreed-upon sample of the conditionally-certified opt-in class.

The Company and the plaintiffs reached a tentative settlement of all claims, including certain potential, related claims. The court granted final approval of the settlement on December 17, 2015. As part of the settlement, plaintiffs filed a second amended complaint to add Arkansas and North Dakota wage-hour claims. For settlement purposes only, the court conditionally certified classes for the FLSA claim and each of the four state law claims. The settlement used a claims procedure, pursuant to which each plaintiff and potential plaintiff is required to file a claim to be entitled to receive money pursuant to the settlement. The claims procedure closed on April 18, 2016. The US$5,500 provision recorded by the Company in prior years represents its current best estimate of the projected net cost of the settlement. US$3,000 was paid during the three months ended March 31, 2016 (three months ended March 31, 2015 - US$500). The Company does not have insurance coverage for these claims.

7.  SEGMENTED INFORMATION

The Company's activities are conducted in four geographical segments: Canada, the United States, Russia and Latin America (comprised of Argentina and Mexico). All activities are related to hydraulic fracturing, coiled tubing, cementing and other well completion services for the oil and natural gas industry.

The business segments presented reflect the Company's management structure and the way its management reviews business performance. The Company evaluates the performance of its operating segments primarily based on operating income, as defined below.


Canada

United States

Russia

Latin America

Corporate

Consolidated

(C$000s)

($)

($)

($)

($)

($)

($)

Three Months Ended March 31, 2016







Revenue

72,721

75,985

22,723

44,709

216,138

Operating income (loss)(1)

253

(12,238)

809

6,868

(7,315)

(11,623)

Segmented assets

641,957

755,420

90,494

170,462

1,658,333

Capital expenditures

(5,752)

10,846

637

1,992

7,723

Goodwill















Three Months Ended March 31, 2015







Revenue

221,397

305,080

30,497

43,409

600,383

Operating income (loss)(1)

20,456

11,351

1,462

4,394

(9,819)

27,844

Segmented assets

737,119

1,052,116

113,176

221,342

2,123,753

Capital expenditures

10,575

30,294

507

11,293

52,669

Goodwill

7,236

2,308

9,544

(1) Operating income (loss) is defined as net income (loss) before depreciation, foreign exchange gains or losses, gains or losses on disposal of property, plant and equipment, expenses and gains related to business combinations, impairment of property, plant and equipment, impairment of inventory, impairment of goodwill, provision for settlement of litigation, interest, and income taxes.

 

Three Months Ended March 31,




2016


2015

(C$000s)




($)


($)

Net loss




(55,396)


(12,940)

Add back (deduct):








Depreciation




35,594


37,414


Foreign exchange losses




18,182


755


Gain on disposal of property, plant and equipment




(227)


(731)


Interest




19,115


16,483


Income taxes




(28,891)


(13,137)

Operating (loss) income




(11,623)


27,844

 

Operating income (loss) does not have a standardized meaning under IFRS and may not be comparable to similar measures used by other companies.

The following table sets forth consolidated revenue by service line:


Three Months Ended March 31,









2016


2015

(C$000s)









($)


($)

Fracturing









182,004


556,686

Coiled tubing









18,869


22,514

Cementing









10,069


17,262

Other









5,196


3,921










216,138


600,383

 

SOURCE Calfrac Well Services Ltd.

For further information: Fernando Aguilar, President & Chief Executive Officer; Mike Olinek, VP Finance and Interim Chief Financial Officer; Ashley Connolly, Manager, Capital Markets, Telephone: 403-266-6000, Fax: 403-266-7381, www.calfrac.com


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