Major Drilling Reports First Quarter Results and Declares Dividend



    MONCTON, NB, Sept. 8 /CNW/ - Major Drilling Group International Inc.
(TSX: MDI) today reported results for its first quarter of fiscal year 2010
ended July 31, 2009.

    
    Highlights

    -------------------------------------------------------------------------
    In millions of Canadian dollars                     Q1-10         Q1-09
     (except earnings per share)                        -----         -----
    -------------------------------------------------------------------------
    Revenue                                       $      62.5   $     178.2
    -------------------------------------------------------------------------
    Gross profit                                         17.2          63.3
      As percentage of sales                             27.6%         35.5%
    -------------------------------------------------------------------------
    Net (loss) earnings                                  (3.3)         26.3
    -------------------------------------------------------------------------
    (Loss) earnings per share                           (0.14)         1.11
    -------------------------------------------------------------------------
    Cash flow from operations ((*))                       7.6          36.5
    -------------------------------------------------------------------------
    ((*)) before changes in working capital


    - Cash flow generated from operations during the quarter was $7.6
      million.
    - Cash on hand at quarter-end was $52.2 million while total debt was
      $33.0 million, for a net cash position of $19.2 million.
    - Major Drilling posted quarterly revenue of $62.5 million, down 64.9
      percent from the $178.2 million recorded for the same quarter last
      year.
    - Gross margin percentage for the quarter was 27.6 percent, compared to
      35.5 percent for the corresponding period last year.
    - Excluding restructuring charges and impairment charges, earnings before
      taxes for the quarter were $0.2 million.
    - The Company posted a restructuring charge of $1.2 million related to
      further retrenchment and closedown costs and also posted a goodwill
      impairment charge of $2.0 million during the quarter.
    - Net loss (including restructuring and impairment charge) was $3.3
      million or $0.14 per share for the quarter, compared to net earnings of
      $26.3 million or $1.11 per share for the prior year quarter.
    - The Company has declared a semi-annual dividend of $0.20 per share to
      be paid on November 2, 2009.
    

    The Company cautions that broad volatility in all aspects of its business
continues and, accordingly, actual results may vary substantially from all
forward-looking information in this press release.
    "During the quarter, activity levels were flat relative to the fourth
quarter but due to the weakening U.S. dollar, the Company posted lower revenue
in Canadian dollars. Market conditions during the quarter continued to be
difficult and operations were still affected by ongoing delays and program
cancellations. With the liquidity crisis, a large number of specialized
projects, which tend to be more costly for customers than conventional
projects, and where the Company has historically placed its main focus, have
either been cancelled or very heavily cut back," said Francis McGuire,
President and CEO of Major Drilling.
    "In terms of regional performance, Latin America and Canada are holding
up relatively well. The Company continues to explore new opportunities to
expand its geographic footprint. For instance, during the quarter, the Company
started operations in Colombia. On the other hand, market conditions are much
more difficult in Australia, the U.S. and Africa. During the quarter, we took
further actions in Australia to restructure the operations by closing down two
offices and reducing personnel. As such, the Company recorded a further
restructuring charge of $1.2 million during the quarter. Australia was also
affected by adverse weather conditions. Queensland, where the Company
concentrates its operations, suffered its worst floods since 1974. The
restructuring combined with better weather conditions should improve
performance in that region going forward."
    "While we expect continued improvements as the year goes on, calendar
2009 will remain difficult. If customers move forward with their stated plans,
we should see gradual gains as each month goes by. Despite the upward movement
in commodity prices and the fund raising activity that occurred in the last
few months, customers, especially the large mining companies, remain very
hesitant to invest in exploration. Most of these companies are not expected to
reset their budgets until next calendar year and will remain focused on cash
management. Although improved, the capital markets remain challenging for
junior mining companies," said Mr. McGuire.
    "Subsequent to the quarter, general activity levels have begun to
increase. However, we expect pricing to remain competitive until utilization
rates pick up significantly, especially in conventional drilling. Over time,
we expect many of the supply issues that face most commodities to come back
into focus and that even with moderate growth in the world economy, the need
to explore and develop mines will increase. We believe that at that point, the
need to develop resources in areas that are increasingly difficult to access
will return, which should increase demand for specialized drilling."
    "The Company continues to be in an excellent financial position remaining
debt-free, net of cash. Total cash level, net of long-term debt, stood at
$19.2 million at quarter-end. Despite the difficult environment, the Company
generated $7.6 million from operations, reduced general and administrative
costs by almost 35 percent and kept net capital expenditures at only $2.4
million during the quarter," stated Mr. McGuire.
    "Given the Company's ability to generate cash even in these most
difficult times, the Company is pleased to announce that today its Board of
Directors declared its third semi-annual cash dividend of $0.20 per common
share payable on November 2, 2009 to shareholders of record as of October 9,
2009. This dividend is designated as an "eligible dividend" for Canadian tax
purposes," said Mr. McGuire.

    First quarter ended July 31, 2009

    Total revenue for the quarter was $62.5 million down 64.9 percent from
the $178.2 million recorded in the same quarter last year. Cancellations or
delays of drilling programs, combined with price reductions, significantly
affected revenue in all three regions.
    Revenue for the quarter from Canada-U.S. drilling operations decreased by
63.7 percent to $20.2 million compared to $55.6 million for the same period
last year. Cancellations and decreased pricing impacted both countries.
    South and Central American revenue was at $18.2 million for the quarter,
down 67.1 percent from the $55.3 million posted for the prior year quarter.
During the quarter, the Company started operations in Colombia. In Ecuador
operations are still on hold due to delays related to mining law
implementation.
    Australian, Asian and African operations reported revenue of $24.1
million, down some 64.2 percent from the $67.4 million reported in the same
period last year. Cancellation of drilling programs and severe weather issues
impacted revenue in Australia. Indonesia was affected by a reduction in
drilling programs and pricing while Mongolian revenue continued to be down
compared to last year as the mining industry awaited the final passage of that
country's mining laws.
    The overall gross margin percentage for the quarter was 27.6 percent,
down from 35.5 percent for the same period last year. Reduced pricing due to
increased competitive pressures and delays significantly impacted margins.
Pricing dropped by more than 20 percent overall since October 2008 but the
Company has been able to recapture some of this loss through productivity
gains and cost cutting. Finally, weather issues in Australia impacted margins,
especially in the energy sector.
    General and administrative costs were $8.9 million for the quarter, down
33.6 percent compared to $13.4 million in the same period last year. The
decrease was due to cost cutting initiatives implemented in November and
February.
    Other expenses for the quarter were $0.9 million, down from $3.8 million
in the prior year quarter, due primarily to lower incentive compensation
expenses given the Company's decreased profitability in the current year.
    Foreign exchange gain in the quarter was $0.7 million compared to a loss
of $0.2 million in the prior year quarter.
    Short-term interest revenue was flat at $0.1 million compared to the same
quarter last year, while interest expense on long-term debt was down to $0.3
million compared to $0.6 million for the same quarter last year due to lower
levels of debt and reduced interest rates.
    Amortization expense was $7.7 million for the quarter compared to $7.6
million for the same quarter last year, as a result of the increased direct
investment in equipment.
    During the quarter, the Company recorded a restructuring charge of $1.2
million to account for retrenchment and closedown costs primarily in
Australia. Also, the Company recorded a net non-cash goodwill impairment
charge of $2.0 million. This eliminated goodwill of $3.7 million recorded on
the Paragon del Ecuador S.A. acquisition, offset by a reduction of a holdback
of $1.7 million, which was a contingent consideration to the purchase price
and dependant on the political situation in Ecuador. The goodwill impairment
charge resulted from political issues and uncertainty still affecting the
mining industry in Ecuador.
    Income tax expense was $0.2 million in the quarter compared to $11.5
million for the prior year quarter. Tax expense for the quarter was impacted
by the non-recognition or reversal of tax losses in Ecuador and losses in
Tanzania.
    Net loss for the quarter was $3.3 million or $0.14 per share ($0.14 per
share diluted) compared to net earnings of $26.3 million or $1.11 per share
($1.10 per share diluted) in the prior year period.

    The Annual General Meeting of the shareholders of Major Drilling Group
International Inc. will be held at The TSX Broadcast Centre, TSX Gallery, The
Exchange Tower, 130 King St. W., Toronto, Ontario, tomorrow, September 9, 2009
at 10:00 am EDT.

    Some of the statements contained in this press release may be
forward-looking statements, such as, but not limited to, those relating to
worldwide demand for gold and base metals and overall commodity prices, the
level of activity in the minerals and metals industry and the demand for the
Company's services, the Canadian and international economic environments, the
Company's ability to attract and retain customers and to manage its assets and
operating costs, sources of funding for its clients, particularly for junior
mining companies, competitive pressures, currency movements, which can affect
the Company's revenue in Canadian dollars, the geographic distribution of the
Company's operations, the impact of operational changes, changes in
jurisdictions in which the Company operates (including changes in regulation),
failure by counterparties to fulfill contractual obligations, and other
factors as may be set forth, as well as objectives or goals, and including
words to the effect that the Company or management expects a stated condition
to exist or occur. Since forward-looking statements address future events and
conditions, by their very nature, they involve inherent risks and
uncertainties. Actual results in each case could differ materially from those
currently anticipated in such statements by reason of factors such as, but not
limited to, the factors set out in the discussion starting on pages 19 to 22
of the 2009 Annual Report entitled "General Risks and Uncertainties", as
available on SEDAR at www.sedar.com. All such factors should be considered
carefully when making decisions with respect to the Company. The Company does
not undertake to update any forward-looking statements, including those
statements that are incorporated by reference herein, whether written or oral,
that may be made from time to time by or on its behalf, except in accordance
with applicable securities laws.

    Based in Moncton, New Brunswick, Major Drilling Group International Inc.
is one of the world's largest metals and minerals contract drilling service
companies. To support its customers' mining operations and mineral exploration
activities, Major Drilling maintains operations in Canada, the United States,
South and Central America, Australia, Indonesia, Mongolia, and Africa.

    Financial statements are attached.

    Major Drilling will provide a simultaneous webcast of its quarterly
conference call on Wednesday, September 9, 2009 at 8:30 AM (EDT). To access
the webcast please go to the webcast section of Major Drilling's website at
www.majordrilling.com and click the attached link, or go directly to the CNW
Group website at www.newswire.ca for directions. Participants will require
Windows MediaPlayer, which can be downloaded prior to accessing the call.
Please note that this is listen only mode.

    
                   Major Drilling Group International Inc.
                    Consolidated Statements of Operations
       (in thousands of Canadian dollars, except per share information)
                                 (unaudited)

                                                         Three months ended
                                                                    July 31

                                                         2009          2008
                                                 ------------- -------------

    TOTAL REVENUE                                 $    62,489   $   178,215

    DIRECT COSTS                                       45,259       114,911

                                                 ------------- -------------
    GROSS PROFIT                                       17,230        63,304
                                                 ------------- -------------

    OPERATING EXPENSES
      General and administrative                        8,872        13,378
      Other expenses                                      885         3,825
      Foreign exchange (gain) loss                       (680)          167
      Interest revenue                                    (69)          (75)
      Interest expense on long-term debt                  303           601
      Amortization                                      7,727         7,596
      Restructuring charge (note 5)                     1,220             -
      Goodwill impairment (note 6)                      2,032             -
                                                 ------------- -------------
                                                       20,290        25,492
                                                 ------------- -------------

    (LOSS) EARNINGS BEFORE INCOME TAX                  (3,060)       37,812
                                                 ------------- -------------

    INCOME TAX - (RECOVERY) PROVISION
      Current                                            (285)       10,108
      Future                                              521         1,374
                                                 ------------- -------------
                                                          236        11,482
                                                 ------------- -------------

    NET (LOSS) EARNINGS                           $    (3,296)  $    26,330
                                                 ------------- -------------
                                                 ------------- -------------

    (LOSS) EARNINGS PER SHARE
    -------------------------
    Basic (*)                                     $     (0.14)  $      1.11
                                                 ------------- -------------
                                                 ------------- -------------
    Diluted (xx)                                  $     (0.14)  $      1.10
                                                 ------------- -------------
                                                 ------------- -------------

    (*) Based on 23,716,073 and 23,707,043 daily weighted average shares
        outstanding for the fiscal year to date 2010 and 2009, respectively.
        The total number of shares outstanding on July 31, 2009 was
        23,716,073.
    (xx) Based on 23,861,826 and 24,026,276 daily weighted average shares
         outstanding for the fiscal year to date 2010 and 2009, respectively.


                   Major Drilling Group International Inc.
           Consolidated Statements of Comprehensive (Loss) Earnings
                     (in thousands of Canadian dollars)
                                 (unaudited)

                                                         Three months ended
                                                                    July 31

                                                         2009          2008
                                                 ------------- -------------

    NET (LOSS) EARNINGS                           $    (3,296)  $    26,330

    OTHER COMPREHENSIVE (LOSS) EARNINGS
      Unrealized (losses) gains on translating
       financial statements of self-sustaining
       foreign operations                             (24,428)        2,900
                                                 ------------- -------------

    COMPREHENSIVE (LOSS) EARNINGS                 $   (27,724)  $    29,230
                                                 ------------- -------------
                                                 ------------- -------------


                 Consolidated Statements of Retained Earnings
                     (in thousands of Canadian dollars)
                                 (unaudited)

                                                         Three months ended
                                                                    July 31

                                                         2009          2008
                                                 ------------- -------------

    RETAINED EARNINGS, BEGINNING OF THE PERIOD    $   218,983   $   182,533

    Net (loss) earnings                                (3,296)       26,330
                                                 ------------- -------------

    RETAINED EARNINGS, END OF THE PERIOD          $   215,687   $   208,863
                                                 ------------- -------------
                                                 ------------- -------------


                 Consolidated Statements of Accumulated Other
                             Comprehensive Loss
                     (in thousands of Canadian dollars)
                                 (unaudited)

                                                         Three months ended
                                                                    July 31

                                                         2009          2008
                                                 ------------- -------------

    ACCUMULATED OTHER COMPREHENSIVE LOSS,
     BEGINNING OF THE PERIOD                      $    (5,079)  $   (44,552)

    Unrealized (losses) gains on translating
     financial statements of self-sustaining
     foreign operations                               (24,428)        2,900
                                                 ------------- -------------

    ACCUMULATED OTHER COMPREHENSIVE LOSS,
     END OF THE PERIOD                            $   (29,507)  $   (41,652)
                                                 ------------- -------------
                                                 ------------- -------------


                   Major Drilling Group International Inc.
                    Consolidated Statements of Cash Flows
                     (in thousands of Canadian dollars)
                                 (unaudited)

                                                         Three Months Ended
                                                                    July 31

                                                         2009          2008
                                                 ------------- -------------

    OPERATING ACTIVITIES
    Net (loss) earnings                           $    (3,296)  $    26,330
    Operating items not involving cash
      Amortization                                      7,727         7,596
      Loss on disposal of property, plant and
       equipment                                           67           812
      Future income tax                                   521         1,374
      Stock-based compensation                            505           398
      Goodwill impairment (note 6)                      2,032             -
                                                 ------------- -------------
                                                        7,556        36,510
    Changes in non-cash operating working
     capital items                                       (538)      (18,401)
                                                 ------------- -------------
    Cash flow from operating activities                 7,018        18,109
                                                 ------------- -------------

    FINANCING ACTIVITIES
    Repayment of long-term debt                        (3,076)       (3,042)
    Repayment of demand credit facilities                   -          (583)
    Issuance of common shares                               -             7
    Dividend paid                                      (4,743)            -
                                                 ------------- -------------
    Cash flow used in financing activities             (7,819)       (3,618)
                                                 ------------- -------------

    INVESTING ACTIVITIES
    Acquisition of property, plant and
     equipment, net of direct financing                (3,304)      (18,891)
    Proceeds from disposal of property, plant
     and equipment                                        895           472
                                                 ------------- -------------
    Cash flow used in investing activities             (2,409)      (18,419)
                                                 ------------- -------------

    OTHER ACTIVITIES
    Foreign exchange translation adjustment            (2,673)            4
                                                 ------------- -------------

    DECREASE IN CASH                                   (5,883)       (3,924)

    CASH POSITION, BEGINNING OF THE PERIOD             58,035        20,695
                                                 ------------- -------------

    CASH POSITION, END OF THE PERIOD              $    52,152   $    16,771
                                                 ------------- -------------
                                                 ------------- -------------


                   Major Drilling Group International Inc.
                         Consolidated Balance Sheets
                   As at July 31, 2009 and April 30, 2009
                     (in thousands of Canadian dollars)
                                 (unaudited)

    ASSETS                                               July         April
                                                         2009          2009
                                                 ------------- -------------

    CURRENT ASSETS
      Cash                                        $    52,152   $    58,035
      Accounts receivable                              44,902        52,538
      Income tax receivable                             8,166         6,014
      Inventories                                      65,311        72,764
      Prepaid expenses                                  5,666         3,478
      Future income tax assets                            912         2,644
                                                 ------------- -------------
                                                      177,109       195,473

    PROPERTY, PLANT AND EQUIPMENT                     220,689       240,224

    FUTURE INCOME TAX ASSETS                            3,359         1,403

    GOODWILL AND INTANGIBLE ASSETS (note 9)            26,692        32,072
                                                 ------------- -------------

                                                  $   427,849   $   469,172
                                                 ------------- -------------
                                                 ------------- -------------

    LIABILITIES

    CURRENT LIABILITIES
      Accounts payable and accrued charges        $    39,437   $    47,691
      Income tax payable                                1,371         1,719
      Current portion of long-term debt                11,938        15,049
      Future income tax liabilities                     1,092         1,071
                                                 ------------- -------------
                                                       53,838        65,530

    LONG-TERM DEBT                                     21,098        23,507

    FUTURE INCOME TAX LIABILITIES                      14,786        14,789
                                                 ------------- -------------
                                                       89,722       103,826
                                                 ------------- -------------

    SHAREHOLDERS' EQUITY
      Share capital                                   142,233       142,233
      Contributed surplus                               9,714         9,209
      Retained earnings                               215,687       218,983
      Accumulated other comprehensive loss            (29,507)       (5,079)
                                                 ------------- -------------
                                                      338,127       365,346
                                                 ------------- -------------

                                                  $   427,849   $   469,172
                                                 ------------- -------------
                                                 ------------- -------------


    MAJOR DRILLING GROUP INTERNATIONAL INC.
    NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
    FOR THE PERIODS ENDED JULY 31, 2009 AND 2008
    (in thousands of Canadian dollars)

    1. BASIS OF PRESENTATION
    ------------------------
    

    These interim consolidated financial statements were prepared using
accounting policies and methods consistent with those used in the preparation
of the Company's audited consolidated financial statements for the year ended
April 30, 2009, except for the adoption of new accounting policies as
disclosed in Note 2 below. These interim consolidated financial statements
conform in all respects to the requirements of Canadian generally accepted
accounting principles for annual financial statements, with the exception of
certain note disclosures. As a result, these interim consolidated financial
statements should be read in conjunction with the Company's audited
consolidated financial statements and notes for the year ended April 30, 2009
contained in the Company's 2009 annual report.

    
    2. CHANGES IN ACCOUNTING POLICIES
    ---------------------------------
    

    Goodwill and Intangible Assets

    Effective May 1, 2009 the Company adopted the new CICA Handbook Section
3064, Goodwill and Intangible Assets, which establishes standards for
recognition, measurement, presentation and disclosure of goodwill subsequent
to its initial recognition and of intangible assets. Standards concerning
goodwill are unchanged from the standards included in the previous CICA
Handbook Section 3062. The adoption of this new standard did not have a
material impact on the Company's consolidated financial statements.

    
    3. FUTURE ACCOUNTING CHANGES
    ----------------------------
    

    Business combinations

    In January 2009, the CICA issued Section 1582, Business Combinations,
which replaces Section 1581 of the same title. This Section applies
prospectively to business combinations for which the date of acquisition is in
fiscal years beginning on or after January 1, 2011. The Section establishes
standards for accounting for a business combination. The Company is currently
evaluating the impact of the adoption of this new Section on its consolidated
financial statements.

    Consolidated financial statements and non-controlling interests

    In January 2009, the CICA issued Section 1601, Consolidated Financial
Statements, and Section 1602, Non-Controlling Interests, which together
replace Section 1600, Consolidated Financial Statements. These sections apply
to interim and annual consolidated financial statements for fiscal years
beginning on or after January 1, 2011. They establish standards for the
preparation of consolidated financial statements and accounting for a
non-controlling interest in a subsidiary in the consolidated financial
statements subsequent to a business combination. The Company is currently
evaluating the impact of the adoption of these new Sections on its
consolidated financial statements.

    International Financial Reporting Standards ("IFRS")

    In February 2008, the Accounting Standards Board ("AcSB") confirmed that
the use of IFRS will be required in 2011 for publicly accountable enterprises
in Canada. In April 2008, the AcSB issued an IFRS Omnibus Exposure draft
proposing that publicly accountable enterprises be required to apply IFRS, in
full and without modification, on January 1, 2011 for companies with a
calendar year end, therefore the transition date for the Company is May 1,
2011. This will require the restatement, for comparative purposes, of amounts
reported by the Company for its year ended April 30, 2011, and of the opening
balance sheet as at May 1, 2010. The Company is currently in the process of
developing a conversion implementation plan and assessing the impacts of the
conversion on the consolidated financial statements and disclosures of the
Company.

    
    4. SEASONALITY OF OPERATIONS
    ----------------------------
    

    The Company's operations tended to exhibit a seasonal pattern whereby its
fourth quarter (February to April) was its strongest. With the exception of
the third quarter, the Company has, over the past several years, exhibited
comparatively less seasonality in quarterly revenue. The third quarter
(November to January) is normally the Company's weakest quarter due to the
shutdown of mining and exploration activities, often for extended periods,
over the holiday season, particularly in South and Central America. With the
current economic and industry downturn ongoing, it is not yet clear whether or
not the Company's revenue will return to more historical seasonal patterns, or
whether a recent lack of seasonality will continue.

    
    5. RESTRUCTURING CHARGE
    -----------------------
    

    The Company initiated a restructuring plan in fiscal year 2009 to
standardize the drilling equipment fleet and reduce operating costs by
rationalizing the workforce and business locations. These initiatives have
generated a total restructuring charge of $10,263, of which $1,220 was
expensed in the first quarter ending July 31, 2009, the balance having been
previously expensed.
    The current quarter charges include $594 for severance, $204 for lease
terminations and $422 for other relocation expenses mainly relating to the
closure of two regional offices in Australia.
    On July 31, 2009, accounts payable included $1,110 of restructuring
charges not paid.

    
    6. GOODWILL IMPAIRMENT
    ----------------------
    

    During the quarter, the Company recorded a net non-cash goodwill
impairment charge of $2,032. This eliminated goodwill of $3,722 recorded on
the Paragon del Ecuador S.A. acquisition offset by a reduction of a holdback
of $1,690, which was a contingent consideration to the purchase price and
dependant on the political situation in Ecuador. The goodwill impairment
charge resulted from political issues and uncertainty still affecting the
mining industry in Ecuador and therefore the inability of this region to
generate the expected revenue.

    
    7. BUSINESS ACQUISITION
    -----------------------
    

    Effective August 1, 2008 the Company acquired the assets of the
exploration drilling company Forage à Diamant Benoît Ltée ("Benoît") based in
Val-d'Or, Québec. Through this purchase, Major Drilling acquired 19 drill
rigs, support equipment and inventory, existing contracts and personnel. The
purchase price for the transaction was $23,117, including customary working
capital adjustments, financed by cash and debt.
    The net assets acquired at fair market value at acquisition are as
follows:

    
    Assets acquired and liabilities assumed

    Accounts receivable                                         $     5,055
    Prepaid expenses                                                    241
    Inventories                                                         533
    Property, plant and equipment                                     7,489
    Intangible assets                                                 2,350
    Goodwill (not tax deductible)                                    13,223
    Accounts payable                                                   (884)
    Income tax payable                                               (2,842)
    Future income tax liability                                      (2,048)
                                                               --------------
    Net assets                                                  $    23,117
                                                               --------------
                                                               --------------
    Consideration
    Cash                                                        $    21,867
    Accounts payable                                                    500
    Long-term debt                                                      750
                                                               --------------
                                                                $    23,117
                                                               --------------
                                                               --------------

    8. INVENTORY
    ------------
    

    The cost of inventory recognized as an expense and included in direct
cost for the three months ended July 31, 2009 was $9,493. During the period,
there were no significant write downs of inventory as a result of net
realizable value being lower than cost and no inventory write downs recognized
in previous periods were reversed.
    The Company's credit facility related to operations is in part secured by
a general assignment of the Company's inventory.

    
    9. GOODWILL AND INTANGIBLE ASSETS
    ---------------------------------

                                                    July 2009    April 2009
                                                 ------------- --------------

    Goodwill                                      $    25,222   $    30,470
    Intangible assets                                   1,470         1,602
                                                 ------------- --------------
                                                  $    26,692   $    32,072
                                                 ------------- --------------
    

    Intangible assets include the carrying value of customer relationships
and a non-compete agreement, which are amortized on a straight-line basis over
four and three years respectively.
    Changes in the goodwill and intangible assets balance were as follows for
the three months ending July 31, 2009:

    
                                                     2010 YTD      2009 YTD
                                                 ------------- --------------

    Balance at beginning of the period            $    32,072   $    14,837
    Amortization of intangible assets                    (132)            -
    Goodwill adjustment (note 6)                       (1,690)            -
    Goodwill impairment (note 6)                       (2,032)            -
    Goodwill acquired                                       -           321
    Effect of foreign currency exchange rate
     changes                                           (1,526)          158
                                                 ------------- --------------
                                                  $    26,692   $    15,316
                                                 ------------- --------------

    10. CAPITAL MANAGEMENT
    ----------------------
    

    The Company includes shareholders' equity (excluding accumulated other
comprehensive loss), long-term borrowings and demand credit facility net of
cash in the definition of capital.
    Total managed capital was as follows:

    
                                                    July 2009    April 2009
                                                 ------------- --------------

    Long-term debt                                $    33,036   $    38,556
    Share capital                                     142,233       142,233
    Contributed surplus                                 9,714         9,209
    Retained earnings                                 215,687       218,983
    Cash                                              (52,152)      (58,035)
                                                 ------------- --------------
                                                  $   348,518   $   350,946
                                                 ------------- --------------
    

    The Company's objective when managing its capital structure is to
maintain financial flexibility in order to: i) preserve access to capital
markets; ii) meet financial obligations; and iii) finance internally generated
growth and potential new acquisitions. To manage its capital structure, the
Company may adjust spending, issue new shares, issue new debt or repay
existing debt.
    Under the terms of certain of the Company's debt agreements, the Company
must satisfy certain financial covenants. Such agreements also limit, among
other things, the Company's ability to incur additional indebtedness, create
liens, engage in mergers or acquisitions and make dividend and other payments.
During the period, the Company was, and continues to be, in compliance with
all covenants and other conditions imposed by its debt agreements.
    In order to facilitate the management of its capital requirements, the
Company prepares annual budgets that are updated as necessary, dependent on
various factors.
    The Company's objectives with regards to capital management remain
unchanged from 2009.

    
    11. FINANCIAL INSTRUMENTS
    -------------------------
    

    Fair value

    The carrying values of cash, accounts receivable and accounts payable and
accrued charges approximate their fair value due to the relatively short
period to maturity of the instruments. Long-term debt has a carrying value of
$33,036 as at July 31, 2009 (April 30, 2009 - $38,556) and also approximates
its fair market value.

    Risk management

    The Company is exposed to various risks related to its financial assets
and liabilities. There have been no substantive changes in the Company's
exposure to financial instrument risks, its objectives, policies and processes
for managing those risks, or the methods used to measure them, from previous
periods, unless otherwise stated in this note.

    Credit risk

    The Company is exposed to credit risk from its accounts receivable. The
Company has adopted a policy of dealing only with creditworthy counterparties
and obtaining sufficient collateral where appropriate, as a means of
mitigating the risk of financial loss from defaults. It carries out, on a
continuing basis, credit checks on its customers and maintains provisions for
contingent credit losses. The Company also diversifies its credit risk by
dealing with a large number of customers in various countries. Demand for the
Company's drilling services depends upon the level of mineral exploration and
development activities conducted by mining companies, particularly with
respect to gold, nickel and copper. The Company's five largest customers
account for 34% (22% in 2009) of total quarterly revenue, with no one customer
representing more than 10% of its revenue for 2010 or 2009.
    The carrying amounts for accounts receivable are net of allowances for
doubtful accounts, which are estimated based on aging analysis of receivables,
past experience, specific risks associated with the customer and other
relevant information. The maximum exposure to credit risk is the carrying
value of the financial assets.
    As at July 31, 2009, 68.1% of the Company's trade receivables are aged as
current (under 30 days) and 4.2% of the trade receivables are impaired.
    Credit risk also arises from cash and cash equivalents and deposits with
banks and financial institutions. This risk is limited because the
counterparties are banks with high credit ratings assigned by international
credit-rating agencies.
    The Company does not enter into derivatives to manage credit risk.

    Interest rate risk

    The demand loan and long-term debt of the Company bear a floating rate of
interest, which exposes the Company to interest rate fluctuations.
    As at July 31, 2009 the Company has estimated that a one percentage point
increase in interest rates would have caused a quarterly decrease in net
income of approximately $66 and a one percentage decrease in interest rates
would have caused a quarterly increase in net income of $66.

    Foreign currency risk

    Foreign currency risk arises as the Company has operations located
internationally where local operational currency is not the same as the
functional currency of the Company.
    A significant portion of the Company's operations are located outside of
Canada. The accounting impact of foreign currency exposure is minimized since
the operations are classified as self-sustaining operations. In certain
developing countries, the Company mitigates its risk of large exchange rate
fluctuations by conducting business primarily in U.S. dollars. U.S. dollar
revenue exposure is partially mitigated by offsetting U.S. dollar labour and
material expenses. Monetary assets denominated in foreign currencies are
exposed to foreign currency fluctuations.
    Based on the Company's foreign currency net monetary exposures as at July
31, 2009, and assuming that all other variables remain constant, a 10% rise or
fall in the Canadian dollar against the other foreign currencies would have
resulted in increases (decreases) in the net earnings and comprehensive
earnings as follows:

    
                                                       Increase (decrease)
                                                         in net earnings
                                                 ----------------------------
                                                     Canadian      Canadian
                                                       dollar        dollar
                                                  appreciates   depreciates
                                                          10%           10%
                                                 ------------- --------------

    Indonesian Rupiah                             $      (199)  $       199
    US Dollar                                             141          (141)


                                                       Increase (decrease)
                                                   in comprehensive earnings
                                                 ----------------------------
                                                     Canadian      Canadian
                                                       dollar        dollar
                                                  appreciates   depreciates
                                                          10%            10%
                                                 ------------- --------------

    Australian Dollar                             $   (3,533)   $     3,533
    US Dollar                                        (21,791)        21,791
    

    Liquidity risk

    Liquidity risk arises from the Company's management of working capital,
the finance charges and principal repayments on its debt instruments. The risk
is that the Company would not be able to meet its financial obligations as
they become due.
    The Company manages liquidity risk by maintaining adequate reserves,
banking facilities and reserve borrowing facilities, by continuously
monitoring forecast and actual cash flows and matching the maturity profiles
of financial assets and liabilities.
    Total financial liabilities, by due date, as at July 31, 2009 are as
follows:

    
                          Total     1 year  2-3 years  4-5 years   5+ years
                          ------    ------- ---------  ---------   ----------
    Accounts payable &
     accrued charges   $ 39,437   $ 39,437   $      -   $      -   $      -
    Long-term debt       33,036     11,938     14,635      6,463          -
                      ---------- ---------- ---------- ---------- -----------
                       $ 72,473   $ 51,375   $ 14,635   $  6,463   $      -
                      ---------- ---------- ---------- ---------- -----------
                      ---------- ---------- ---------- ---------- -----------

    12. SEGMENTED INFORMATION
    -------------------------

                                                     2010 YTD      2009 YTD
                                                 ------------- --------------

    Revenue
      Canada - U.S.                               $    20,188   $    55,568
      South and Central America                        18,243        55,288
      Australia, Asia and Africa                       24,058        67,359
                                                 ------------- --------------
                                                  $    62,489   $   178,215
                                                 ------------- --------------
                                                 ------------- --------------

    Earnings (loss) from operations
      Canada - U.S.                               $     1,613   $    14,998
      South and Central America                         1,906        15,845
      Australia, Asia and Africa                         (704)       12,266
                                                 ------------- --------------
                                                        2,815        43,109
    Eliminations                                         (324)         (302)
                                                 ------------- --------------
                                                        2,491        42,807
    Interest expense, net                                 234           526
    General corporate expenses                          2,065         4,469
    Restructuring charge                                1,220             -
    Goodwill impairment                                 2,032             -
    Income tax                                            236        11,482
                                                 ------------- --------------
    Net (loss) earnings                           $    (3,296)  $    26,330
                                                 ------------- --------------
                                                 ------------- --------------

    Goodwill impairment relates to the South and Central America segment
    (see Note 6 - Goodwill Impairment).
    




For further information:

For further information: Denis Larocque, Chief Financial Officer, (506)
857-8636, Fax: (506) 857-9211, ir@majordrilling.com

Organization Profile

Major Drilling Group International Inc.

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