McCoy Global 2019 Second Quarter Financial Statements
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McCoy Global 2019 Second Quarter Financial Statements
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
June 30, 2019
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the three and six months ended June 30, 2019
(in thousands of Canadian dollars, except share data or unless otherwise specified)
1. NATURE OF OPERATIONS
McCoy Global Inc. (“McCoy”, “McCoy Global” or the “Corporation”) is incorporated and domiciled in Canada and is a leading provider of equipment and technologies designed to support wellbore integrity and assist with collecting critical data for the global energy industry. McCoy Global’s core products are used predominantly during the well construction phase for both land and offshore wells during both oil and gas exploration and development.
The Corporation is engaged in the following:
i. design, production and distribution of capital equipment to support wellbore integrity and to support capital equipment sales through aftermarket products and services such as technical support, consumables and replacement parts;
ii. design, production and distribution of data collection technologies used in rugged applications for the global energy industry as well as in construction, marine and aerospace;
iii. repair, maintenance and calibration of the Corporation’s capital equipment and similar competitor products; and iv. rental of the Corporation’s capital equipment.
Set out below are McCoy’s principal operations:
Operating Name Country of Incorporation Operating Region Ownership Interest
McCoy Global Canada Corp. Canada Canada 100%
McCoy Global FZE United Arab Emirates Eastern Hemisphere 100%
McCoy Global USA, Inc. United States United States, Central America & Latin America 100%
McCoy and its subsidiary companies are collectively referred to herein as the “Corporation.”
The address of the registered office of the Corporation is DLA Piper (Canada) LLP, Livingston Place, 1000 - 250 2nd Street SW, Calgary, Alberta. The Corporation is listed on the Toronto Stock Exchange (“TSX”) under the symbol “MCB.”
2. STATEMENT OF COMPLIANCE
These condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting, as issued by the International Accounting Standards Board and should be read in conjunction with the Corporation’s annual financial statements for the year ended December 31, 2018, which have been prepared in accordance with International Financial Reporting Standards (“IFRS”). The accounting policies followed in these condensed consolidated interim financial statements are consistent with those of the previous financial year, other than those described below.
New accounting pronouncements adopted in 2019
IFRS 16, Leases
The Corporation adopted IFRS 16 retrospectively from January 1, 2019 but has not restated comparatives for 2018 as permitted by the transitional provisions of the standard. The reclassifications and adjustments arising from adoption are recognized in the opening statement of financial position on January 1, 2019. The Corporation reviewed all the current and new leases and recognized them on the statement of financial position, as the distinction between operating and finance leases under the principles of IAS 17 is removed.
Under the new standard, an asset (the right to use the leased item) and a financial liability to pay contractual amounts are recognized.
The adoption of IFRS 16 will impact the Condensed Consolidated Interim Statements of Loss and Comprehensive Loss by replacing operating expenses with finance cost and depreciation. Key metrics like EBITDA will also be impacted from the change in accounts.
Operating cash flows will be higher as cash payments for the principal portion of the lease liability are classified within financing activities. The impact of adoption is further disclosed in note 5.
The Corporation leases several properties with a range of terms and conditions. Leases are recognized as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the Corporation. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to earnings or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-use asset is depreciated over the shorter
of the asset’s useful life and the lease term on a straight-line basis.
3. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES
The fair value of cash and cash equivalents, trade and other receivables, trade and other payables and current provisions approximates their carrying value due to their short-term nature. The fair value of non-current other receivables approximates the carrying amount as the receivables have been recorded using the effective interest rate method using a market rate of interest. The fair value of borrowings approximates the carrying amount as the instrument carries interest rates that reflect the current market rates available to the
The net realizable value of capital equipment and related accessories included in inventories was assessed on an individual product basis. Judgment was used in assessing the net realizable value of each item of capital equipment, including accessories. All other items in inventory were assessed for obsolescence at a distinct part level. A writedown is taken if management determines that the carrying value of the inventory items exceeds the net recoverable value. When the circumstances that previously caused inventories to be written down below cost no longer exist or when there is clear evidence of an increase in net realizable value because of changed economic circumstances, the amount of the writedown is reversed. The maximum amount of any reversal is the original writedown, such that the new carrying amount is the lower of the cost and the revised net realizable value. During the six months ended June 30, 2019, a recovery of $639 was recognized relating to inventory writedown reversals (three months ended June 30, 2019 – expense of $167).
During the six months ended June 30, 2018, a recovery of $592 was recognized relating to inventory writedown reversals (three months ended June 30, 2018 – recovery of $450).
On adoption of IFRS 16, the Corporation recognized lease liabilities in relation to contractual lease payments. These liabilities were measured at present value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate as at January
1, 2019. The weighted average lessee’s incremental borrowing rate applied to the lease liabilities on January 1, 2019 was 7.00% and 7.82% for the Canadian and U.S. leases, respectively