Divestco Inc. ("Divestco" or the "Company")(TSX VENTURE:DVT) announces its
operating results for the three and nine months ended September 30, 2011.
Accounting Policy Changes
On January 1, 2011, Divestco adopted International Financial Reporting Standards
("IFRS") for purposes of financial reporting, using a transition date of January
1, 2010. Accordingly, the Company's condensed consolidated interim financial
statements for the three and nine months ended September 30, 2011 and the
comparative information for the three months and nine months ended September 30,
2010, have been prepared in accordance with International Accounting Standard
34, "Interim Financial Reporting", as issued by the International Accounting
Standards Board ("IASB"). Previously, the Company prepared its interim and
annual consolidated financial statements in accordance with Canadian generally
accepted accounting principles ("previous GAAP"). The adoption of IFRS has not
had an impact on the Company's operations and strategic decisions.
Results for the Three Months Ended September 30, 2011
Divestco realized net income for the third quarter of 2011 of $255,000 ($nil per
share - basic and diluted) compared to a net loss of $49.7 million ($1.18 per
share - basic and diluted) for the same period in 2010. Excluding an accounting
loss of $40.9 million related to the sale of the Company's seismic data assets
in Q3 2010, the increase was mainly due to a reduction in operating expenses of
$9.5 million (55%).
During Q3 2011, Divestco generated revenue of $9.6 million compared to $8.5
million in Q3 2010, an increase of $1.1 million (12%). EBITDA was $1.7 million
in Q3 2011, a $10.5 million increase from a loss of $8.8 million for the same
period in 2010. The Company generated funds from operations of $1.6 million
($0.03 per share - basic and diluted) for the third quarter of 2011, compared to
negative funds from operations of $6.3 million ($0.15 per share - basic and
diluted) for the same period in 2010, an increase of 7.9 million.
Results for the Nine Months Ended September 30, 2011
Divestco realized a net loss for the first nine months of 2011 of $3.8 million
($0.06 per share - basic and diluted) compared to a net loss of $58.5 million
($1.39 per share - basic and diluted) for the same period in 2010. Excluding an
accounting loss of $40.9 million related to the sale of the Company's seismic
data assets in Q3 2010, the improvement from 2010 was primarily due to the
following:
- Decrease in general and administrative expenses of $3.5 million (23%) mainly
due to a large bad debt expense incurred in 2010 and not repeated in 2011
- Sublease loss provision of $2.1 million incurred in 2010
- Reduction in salaries by $1.7 million (11%)
- Reduction in finance costs of $1.8 million (78%), primarily resulting from
lower interest on long-term debt
- Decrease in depreciation and amortization by $18.8 million (76%)
During the first nine months of 2011, Divestco generated revenue of $29 million,
a decrease of $2.2 million (7%) from $31.2 million for the same period in 2010.
EBITDA was $2.8 million, a $5.6 million increase from a loss of $2.8 million for
the same period in 2010. The Company generated funds from operations of $2.8
million ($0.05 per share - basic and diluted) for the nine months ended
September 30, 2011, compared a negative $1.9 million ($0.05 per share - basic
and diluted) for the same period in 2010, an increase of 4.7 million.
Late in 2010, Divestco commenced rebuilding its seismic data library by
initiating a 71 square kilometer 3D seismic survey which was completed in early
2011. The Company also obtained the trading rights to an existing 3D survey
covering an adjacent area of 66 square kilometers in Q1 2011 through a data
exchange. In Q2 2011, the Company commenced a 3D survey in central Alberta which
was completed in October 2011 and covers an area of approximately 200 square
kilometers. In Q3 2011, Divestco commenced a small 3D survey and completed it in
October 2011.
Mr. Stephen Popadynetz, CEO, President and CFO: "We are continuing to positively
restructure our Company and as a result, we have incurred several one time
expenses which will not impact the Company going forward. Despite these charges,
Divestco had a profitable quarter and continues to improve on its cash flow. Our
results will continue to reflect the changes we have made and we are
anticipating improved results going forward. We are well on track to sustained
profitability and positive earnings and we look forward to delivering better
results as the year progresses for our shareholders."
Non-GAAP Measures
The Company's interim condensed consolidated financial statements have been
prepared in accordance with IFRS. Certain measures in this document do not have
any standardized meaning as prescribed by IFRS and are considered non-GAAP
measures.
Divestco uses EBITDA and operating income as key measures to evaluate the
performance of segments, divisions and the Company, with the closest GAAP
measure being net income. EBITDA and operating income are measures commonly
reported and widely used by investors as indicators of the Company's operating
performance and ability to incur and service debt, and as a valuation metric.
The Company believes EBITDA and operating income assist investors in comparing
the Company's performance on a consistent basis without regard to financing
decisions, and depreciation and amortization, which are non-cash in nature and
can vary significantly depending upon accounting methods or non-operating
factors such as historical cost.
EBITDA and operating income are not calculations based on IFRS and should not be
considered alternatives to net income in measuring the Company's performance;
nor should they be used as exclusive measures of cash flow, because they do not
consider the impact of working capital growth, capital expenditures, debt
principal reductions and other sources and uses of cash, which are disclosed in
the consolidated statement of cash flows. Investors should carefully consider
the specific items included in Divestco's computation of EBITDA and operating
income. While EBITDA and operating income have been disclosed herein to permit a
more complete comparative analysis of the Company's operating performance and
debt servicing ability relative to other companies, investors should be
cautioned that EBITDA and operating income as reported by Divestco may not be
comparable in all instances to EBITDA and operating income as reported by other
companies.
EBITDA is calculated as follows:
Three Months Ended Nine Months Ended
September 30 September 30
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(Thousands) 2011 2010 2011 2010
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Net Income (Loss) $ 255 $(49,685) $ (3,842) $(58,457)
Income Tax Expense (Benefit) (4) (9,611) 61 (12,920)
Other Loss (Income) (29) 41,500 (27) 41,406
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Operating Income (Loss) $ 222 $(17,796) $ (3,808) $(29,971)
Finance costs 303 1,233 507 2,325
Depreciation and Amortization 1,167 7,753 6,081 24,847
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EBITDA 1,692 (8,810) 2,780 (2,799)
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Divestco reports funds from operations because it is a key measure used by
management to evaluate its performance and to assess the ability of the Company
to finance operating activities and capital expenditures. Funds from operations
excludes certain working capital changes and other sources and uses of cash,
which are disclosed in the consolidated statement of cash flows.
Funds from operations is not a calculation based on IFRS and should not be
considered an alternative to the consolidated statement of cash flows. Funds
from operations is a measure that can be used to gauge Divestco's capacity to
generate discretionary cash flow. Investors should be cautioned that funds from
operations as reported by Divestco may not be comparable in all instances to
funds from operations as reported by other companies. While the closest GAAP
measure is cash flows from operating activities, funds from operations is
considered relevant because it provides an indication of how much cash generated
by operations is available before proceeds from divested assets and changes in
certain working capital items.
Funds from operations is calculated as follows:
Nine Months Ended
September 30
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(Thousands) 2011 2010
----------------------------------------------------------------------------
Cash Flows from Operating Activities $ 5,090 $ 11,625
Changes in Non-Cash Working Capital Balances Related
to Operating Activities (2,292) (14,759)
Changes in Long-term Prepaid Expense - (238)
Interest Paid 391 1,698
Income Taxes Refunded (352) (260)
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Funds from (used in) Operations $ 2,837 $ (1,934)
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Financial Highlights
(Thousands, except per share
amounts) Three Months Ended September 30
----------------------------------------------------------------------------
2011 2010 $ Change % Change
----------------------------------------------------------------------------
Revenue $ 9,565 $ 8,516 $ 1,049 12%
Operating Expenses 7,873 17,326 (9,453) -55%
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EBITDA 1,692 (8,810) 10,502 -119%
Finance Costs 303 1,233 (930) -75%
Depreciation and Amortization 1,167 7,753 (6,586) -85%
----------------------------------------------------------------------------
Operating Income (Loss) 222 (17,796) 18,018 -101%
Other Loss (Income) (29) 41,500 (41,529) -100%
Income Tax Expense (Benefit) (4) (9,611) 9,607 -100%
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Net Income (Loss) $ 255 $(49,685) $ 49,940 -101%
Per Share - Basic and Diluted - (1.18) 1.18 -100%
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Funds from (used in) Operations $ 1,639 $ (6,294) $ 7,933 -126%
Per Share - Basic and Diluted 0.03 (0.15) 0.18 -120%
----------------------------------------------------------------------------
Shares Outstanding 59,903 41,958 17,945 43%
Weighted Average Shares
Outstanding
Basic 59,785 41,971 17,814 42%
Diluted 59,785 41,971 17,814 42%
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(Thousands, except per share
amounts) Nine Months Ended September 30
----------------------------------------------------------------------------
2011 2010 $ Change % Change
----------------------------------------------------------------------------
Revenue $29,017 $ 31,241 $ (2,224) -7%
Operating Expenses 26,237 34,040 (7,803) -23%
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EBITDA 2,780 (2,799) 5,579 -199%
Finance Costs 507 2,325 (1,818) -78%
Depreciation and Amortization 6,081 24,847 (18,766) -76%
----------------------------------------------------------------------------
Operating Income (Loss) (3,808) (29,971) 26,163 -87%
Other Loss (Income) (27) 41,406 (41,433) -100%
Income Tax Expense (Benefit) 61 (12,920) 12,981 -100%
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Net Income (Loss) $(3,842) $(58,457) $ 54,615 -93%
Per Share - Basic and Diluted (0.06) (1.39) 1.33 -96%
----------------------------------------------------------------------------
Funds from (used in) Operations $ 2,837 $ (1,934) $ 4,771 -247%
Per Share - Basic and Diluted 0.05 (0.05) 0.10 -200%
----------------------------------------------------------------------------
Shares Outstanding 59,903 41,958 17,945 43%
Weighted Average Shares
Outstanding
Basic 59,535 41,962 17,573 42%
Diluted 59,535 41,962 17,573 42%
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Segment Review Summary
For the three months ended September 30, 2011 Thousands)
----------------------------------------------------------------------------
Software Seismic Corporate
and Data Services Data & Other Total
----------------------------------------------------------------------------
Revenue $ 2,309 $ 3,464 $ 3,792 $ - $ 9,565
EBITDA 966 122 2,942 (2,338) 1,692
Finance costs - (1) (1) 305 303
Depreciation and
Amortization 710 241 29 187 1,167
Operating Income (Loss) 256 (118) 2,914 (2,830) 222
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For the three months ended September 30, 2010 (Thousands)
----------------------------------------------------------------------------
Corporate
Software Services Data & Other Total
----------------------------------------------------------------------------
Revenue $ 2,359 $ 4,319 $ 1,838 $ - $ 8,516
EBITDA 599 290 (2,416) (7,283) (8,810)
Finance costs - (1) - 1,234 1,233
Depreciation and
Amortization 648 341 6,604 160 7,753
Impairment of goodwill
and intangibles - - - - -
Operating Income (Loss) (49) (50) (9,020) (8,677) (17,796)
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For the nine months ended September 30, 2011 (Thousands)
----------------------------------------------------------------------------
Corporate
Software Services Data & Other Total
----------------------------------------------------------------------------
Revenue $ 6,848 $13,070 $ 9,099 $ - $ 29,017
EBITDA 2,398 2,435 6,685 (8,738) 2,780
Finance costs - (2) (5) 514 507
Depreciation and
Amortization 2,747 805 1,001 1,528 6,081
Operating Income (Loss) (349) 1,632 5,689 (10,780) (3,808)
----------------------------------------------------------------------------
For the nine months ended September 30, 2010 (Thousands)
----------------------------------------------------------------------------
Corporate
Software Services Data & Other Total
----------------------------------------------------------------------------
Revenue $ 7,083 $14,148 $ 10,010 $ - $ 31,241
EBITDA 2,428 2,154 3,897 (11,278) (2,799)
Finance costs - - - 2,325 2,325
Depreciation and
Amortization 2,076 1,244 20,894 633 24,847
Operating Income (Loss) 352 910 (16,997) (14,236) (29,971)
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Divestco Inc.
Condensed Consolidated Interim Statement of Financial Position
As at September 30, 2011 December 31, 2010
----------------------------------------------------------------------------
(Thousands - Unaudited)
----------------------------------------------------------------------------
Assets
Current Assets
Cash $ 1,089 $ 3,696
Funds held in trust 16 15
Accounts receivable 10,744 11,759
Prepaid expenses, supplies and
deposits 149 237
Income taxes receivable 50 287
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12,048 15,994
Investment in affiliated company 150 100
Participation surveys in progress 5,863 1,253
Property and equipment 5,619 3,026
Intangible assets 14,589 14,611
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$ 38,269 $ 34,984
----------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current Liabilities
Bank indebtedness $ 3,100 $ 2,050
Accounts payable and accrued
liabilities 7,193 8,248
Deferred revenue 2,628 2,710
Current loss on sublease loss
provision 972 1,729
Current portion of long-term debt
obligations 1,446 368
Current portion of tenant inducement 149 -
----------------------------------------------------------------------------
15,488 15,105
Deferred rent obligations 1,205 -
Long-term debt obligations 3,835 188
Sublease loss provision 1,334 1,621
Tenant Inducements 1,845 -
Other long-term liabilities 100 -
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23,807 16,914
----------------------------------------------------------------------------
Shareholders' Equity
Equity instruments 75,433 75,253
Contributed surplus 5,644 5,590
Deficit (66,615) (62,773)
----------------------------------------------------------------------------
14,462 18,070
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$ 38,269 $ 34,984
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Divestco Inc.
Condensed Consolidated Interim Statement of Income (Loss) and Comprehensive
Income (Loss)
For the three months For the nine months
ended September 30 ended September 30
----------------------------------------------------------------------------
(Thousands, Except Per Share
Amounts - Unaudited) 2011 2010 2011 2010
----------------------------------------------------------------------------
Revenue $ 9,565 $ 8,516 $ 29,017 $ 31,241
----------------------------------------------------------------------------
Operating expenses
Salaries and benefits 4,231 6,276 14,497 16,224
General and administrative 3,588 8,513 11,686 15,159
Sublease loss - 2,107 - 2,107
Stock compensation expense 54 430 54 550
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7,873 17,326 26,237 34,040
----------------------------------------------------------------------------
Finance costs 303 1,233 507 2,325
Depreciation and amortization 1,167 7,753 6,081 24,847
Other loss (income) (29) 41,500 (27) 41,406
----------------------------------------------------------------------------
Loss before income taxes 251 (59,296) (3,781) (71,377)
----------------------------------------------------------------------------
Income taxes
Current (recovery) (4) (33) 61 (112)
Deferred (reduction) - (9,578) - (12,808)
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(4) (9,611) 61 (12,920)
----------------------------------------------------------------------------
Net income (loss) and
comprehensive income (loss) for
the period 255 (49,685) $ (3,842) $(58,457)
----------------------------------------------------------------------------
Net income (loss) per share
Basic and Diluted $ - $ (1.18) $ (0.06) $ (1.39)
Weighted average number of
shares
Basic and Diluted 59,785 41,971 59,535 41,962
Divestco Inc.
Condensed Consolidated Interim Statement of Changes in Equity
Number of Number of
Shares Share Warrants Equity
(Thousands - Unaudited) Issued Capital Issued Warrants Instruments
----------------------------------------------------------------------------
Balance at January 1,
2010 41,958 $70,518 - $ - $ 70,518
Net loss and
comprehensive loss for
the period
Distribution of Pulse
shares to Divestco
shareholders
Transactions with
owners, recorded in
equity contributions
by and distributions
to owners:
Issue of Class A
common shares 1,155 728 728
Reclassification on
exercise of stock
options 555 555
Reclassification on
repayment of
convertible
dedentures
Share-based payment
transactions
----------------------------------------------------------------------------
Balance at September
30, 2010 43,113 $71,801 - $ - $ 71,801
----------------------------------------------------------------------------
Balance at January 1,
2011 58,938 $73,445 15,825 $ 1,808 $ 75,253
Net loss and
comprehensive loss for
the period
Transactions with
owners, recorded in
equity contributions
by and distributions
to owners:
Issue of Class A
common shares 965 129 455 52 181
Share-based payment
transactions
Share issue costs (1) (1)
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Balance at September
30, 2011 59,903 $73,573 16,280 $ 1,860 $ 75,433
----------------------------------------------------------------------------
Equity
portion of Retained
Contributed convertible Earnings
(Thousands - Unaudited) Surplus debentures (Deficit) Total Equity
----------------------------------------------------------------------------
Balance at January 1,
2010 $ 5,562 $ 56 $ 31,411 $ 107,547
Net loss and
comprehensive loss for
the period (58,457) (58,457)
Distribution of Pulse
shares to Divestco
shareholders (19,999) (19,999)
Transactions with
owners, recorded in
equity contributions
by and distributions
to owners:
Issue of Class A
common shares 728
Reclassification on
exercise of stock
options (555) -
Reclassification on
repayment of
convertible
dedentures 56 (56) -
Share-based payment
transactions 550 550
----------------------------------------------------------------------------
Balance at September
30, 2010 $ 5,613 $ - $ (47,045) $ 30,369
----------------------------------------------------------------------------
Balance at January 1,
2011 $ 5,590 $ - $ (62,773) $ 18,070
Net loss and
comprehensive loss for
the period (3,842) (3,842)
Transactions with
owners, recorded in
equity contributions
by and distributions
to owners:
Issue of Class A
common shares 181
Share-based payment
transactions 54 54
Share issue costs (1)
----------------------------------------------------------------------------
Balance at September
30, 2011 $ 5,644 $ - $ (66,615) $ 14,462
----------------------------------------------------------------------------
Divestco Inc.
Condensed Consolidated Statement of Cash Flows
For the nine months ended September 30 2011 2010
----------------------------------------------------------------------------
(Thousands - Unaudited)
----------------------------------------------------------------------------
Cash flows from operating activities
Net loss for the period $ (3,842) $(58,457)
Items not affecting cash:
Equity investment gain (21) (15)
Depreciation and amortization 6,081 24,847
Sublease loss (607) 2,107
Amortization of tenant inducements (113) -
Deferred rent obligations 638 -
Income taxes 61 (12,920)
Data exchanges - (1,775)
Loss on sale of data libraries - 41,496
Gain on sale of property and equipment - (90)
Unrealized foreign exchange loss (2) (3)
Non-cash employment benefits 81 -
Share based payments 54 551
Finance costs 507 2,325
----------------------------------------------------------------------------
2,837 (1,934)
Changes in non-cash working capital balances 2,292 14,759
Changes in long-term prepaid expense - 238
Interest paid (391) (1,698)
Income taxes refunded 352 260
----------------------------------------------------------------------------
5,090 11,625
----------------------------------------------------------------------------
Cash flows from (used in) financing activities
Bank indebtedness 1,050 -
Issue of common shares, net of related expenses 99 728
Repayment of long-term debt obligations (321) (28,691)
Repayment of debentures - (3,750)
Deferred financing costs (153) (50)
Proceeds received from long-term debt obligations
(net of committed revolver repayments) 5,000 1,735
----------------------------------------------------------------------------
5,675 (30,028)
----------------------------------------------------------------------------
Cash flows from (used in) investing activities
Additions to intangible assets (2,465) (2,196)
Decrease (increase) in participation surveys in
progress (4,610) 2,134
Purchase of property and equipment (5,562) (699)
Additions to tenant inducements 3,424 -
Payment made on sublease loss provision (488) -
Investments in affiliates (29) -
Proceeds on sale of data libraries - 54,436
Proceeds on sale of property and equipment - 93
Deferred development costs (1,883) (2,040)
Changes in non-cash working capital balances (1,759) (11,608)
----------------------------------------------------------------------------
(13,372) 40,120
----------------------------------------------------------------------------
Increase (decrease) in cash (2,607) 21,717
Cash, beginning of period 3,696 768
----------------------------------------------------------------------------
Cash, end of period $ 1,089 $ 22,485
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Divestco is an exploration services company that provides a comprehensive and
integrated portfolio of data, software, and services to the oil and gas
industry. Through continued commitment to align and bundle products and services
to generate value for customers, Divestco is creating an unparalleled set of
integrated solutions and unique benefits for the marketplace. Divestco's breadth
of data, software and services offers customers the ability to access and
analyze the information required to make business decisions and to optimize
their success in the upstream oil and gas industry. Divestco is headquartered in
Calgary, Alberta, Canada and trades on the TSX Venture Exchange under the symbol
"DVT".
This press release contains forward-looking information related to the Company's
capital expenditures, projected growth, view and outlook towards future oil and
gas prices and market conditions, and demand for its products and services.
Statements that contain words such as "could', "should", "can", "anticipate",
"expect", "believe", "will", "may" and similar expressions and statements
relating to matters that are not historical facts constitute "forward-looking
information" within the meaning applicable by Canadian securities legislation.
Although management of the Company believes that the expectations reflected in
such forward-looking information are reasonable, there can be no assurance that
such expectations will prove to have been correct because, should one or more of
the risks materialize, or should the assumptions underlying forward-looking
statements or forward-looking information prove incorrect, actual results may
vary materially from those described in this press release as intended, planned,
anticipated, believed, estimated or expected. Except where required by law, the
Company does not assume any obligation to update these forward-looking
statements or forward-looking information if conditions or opinions should
change. Readers should not place undue reliance on forward-looking statements or
forward- looking information. All of the forward-looking statements and
forward-looking information of the Company contained in this press release are
expressly qualified, in their entirety, by this cautionary statement.
In particular, this press release contains forward-looking statements pertaining
to the following: the Company's ability to reduce debt, improve liquidity,
correct its working capital deficiency and maintain profitability in the current
economy; availability of external and internal funding for future operations;
relative future competitive position of the Company; nature and timing of
growth; future sales of the Company's seismic data library; oil and natural gas
production levels; planned capital expenditure programs; supply and demand for
oil and natural gas; future demand for products/services; commodity prices;
fluctuations in interest rates; impact of Canadian federal and provincial
governmental regulation on the Company; expected levels of operating costs,
general administrative costs, costs of services and other costs and expenses;
future ability to execute dispositions of assets or businesses; expectations
regarding the Company's ability to raise capital and to add to seismic data
through new seismic shoots and acquisition of existing seismic data; treatment
under tax laws.
These forward-looking statements are based upon assumptions including: that
future prices for crude oil and natural gas, future interest rates and future
availability of debt and equity financing will be at levels and costs that allow
the Company to manage, operate and finance its business and develop its software
products and various oil and gas datasets including its seismic data library,
and meet its future obligations; that the regulatory framework in respect of
royalties, taxes and environmental matters applicable to the Company and its
customers will not become so onerous on both the Company and its customers as to
preclude the Company and its customers from viably managing, operating and
financing its business and the development of its software and data; and that
the Company will continue to be able to identify, attract and employ qualified
staff and obtain the outside expertise as well as specialized and other
equipment it requires to manage, operate and finance its business and develop
its properties.
These forward-looking statements are subject to numerous risks and
uncertainties, certain of which are beyond the Company's control, including:
general economic, market and business condition; volatility in market prices for
crude oil and natural gas; ability of Divestco's clients to explore for, develop
and produce oil and gas; availability of financing and capital; fluctuations in
interest rates; demand for the Company's product and services; weather and
climate conditions; competitive actions by other companies; availability of
skilled labour; failure to obtain regulatory approvals in a timely manner;
adverse conditions in the debt and equity markets; and government actions
including changes in environment and other regulations.
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