Steeplejack Industrial Group Inc.
TSX : SID

Steeplejack Industrial Group Inc.

September 16, 2005 09:00 ET

Steeplejack Industrial Group Inc. Announces Fiscal 2005 Year End Results

EDMONTON, ALBERTA--(CCNMatthews - Sept. 16, 2005) - Steeplejack Industrial Group Inc. (TSX:SID):



Summary of financial results
(thousands of dollars except EPS and share amounts)

------------------------------------------------------------------------
Three months ended Year ended
June 30 June 30
------------------------------------------------------------------------
2005 2004 2005 2004
------------------------------------------------------------------------

Revenues $ 13,925 $ 20,039 $ 42,148 $ 74,686

Net Earnings (Loss) $ 121 $ 1,767 $ (646) $ 5,145

Basic Earnings (Loss)
Per Share $ 0.01 $ 0.22 $ (0.08) $ 0.65

Diluted Earnings (Loss)
Per Share $ 0.01 $ 0.21 $ (0.08) $ 0.64
--------------------------------------------------

Common Shares Outstanding 8,192,400 8,192,400
------------------------------------------------------------------------
------------------------------------------------------------------------


Highlights

Revenue and earnings from long-term maintenance customers were similar to the prior year. Revenues and earnings in new construction activity are down substantially from prior year due to a temporary industry wide slowdown.

The Company has entered into several agreements with the primary contractors for the Long Lake Oil Sands Project. Work under this project will commence throughout the year. In addition, the Company has been selected as the sole recommended supplier of scaffold equipment to the Horizon Oil Sands Project. Due to the unique nature of this contract, the value of work the Company will obtain from the project is indeterminable.

The Company estimates it will need to invest approximately $60.0 to $70.0 million in scaffold equipment in order to service these contracts.

The Company has commenced work at a major power generating plant within Alberta which the Company expects will lead to a significant new long-term maintenance contract increasing the Company's base of solid repeat business.

In July 2005, the Company renewed its lending agreement with the Canadian Western Bank and obtained an additional $20 million in term financing that will be used for the acquisition of scaffold equipment and capital assets. This renewal increased the total lending agreement to $24.3 million in term financing and $10 million in operating debt financing.

In August 2005, the Company closed a private placement raising $11.7 million in gross proceeds through the issue of 2,000,000 common shares at $5.85 per share. Proceeds of this offering will be used to acquire scaffold equipment and capital assets.

Fourth quarter results

Revenues in the fourth quarter of fiscal 2005 were $13.9 million compared to $20.0 million last year. This decrease in revenue is due to reduced levels of new construction activity.

The Company incurred one-time mobilization and set up costs plus normal direct expenses of $1.5 million against which it received $1.3 million in revenues related to the new work recently awarded.

Net earnings for the quarter were $0.1 million ($0.01 per share) compared to net earnings of $1.8 million ($0.22 per share) in the fourth quarter last year.

Borrowings under the Company's operating facilities were $1.0 million at June 30, 2005, compared to $2.7 million at June 30, 2004. Working capital was $4.8 million at June 30, 2005 compared to $8.4 million one year ago. The Company has a $10.0 million operating line, of which only $0.2 million was utilized at June 30, 2005. Long-term debt was $4.8 million at June 30, 2005 compared to $6.7 million at June 30, 2004.

Outlook

The Company is currently executing on existing maintenance contracts and mobilizing to new sites. Financing arrangements have been put in place to meet expected scaffold and capital asset purchase requirements. New equipment has been ordered and is being received. We anticipate a continued ramp up during the first three quarters of fiscal 2006.

Steeplejack is a multi-service company providing comprehensive project management, manpower and equipment supply for industrial scaffolding and insulation. The Company's 9 branches serve a diverse group of large industrial and commercial organizations in Western Canada.

MANAGEMENT DISCUSSION AND ANALYSIS:

Please read the following management discussion and analysis (MD&A) in conjunction with the Steeplejack Industrial Group Inc.'s (the "Company" or "Steeplejack") audited consolidated financial statements for the year ended June 30, 2005. This MD&A is based on information available to September 15, 2005. Additional information, including Steeplejack's Annual Information Form, is available on SEDAR at www.sedar.com.

OVERVIEW

Steeplejack is a multi-service company providing comprehensive project management, manpower and equipment supply for industrial scaffolding and insulation. The Company's 9 branches serve a diverse group of large industrial and commercial organizations in Western Canada.

RESULTS OF OPERATIONS

Consolidated results - three months ended June 30, 2005

Consolidated revenues for the fourth quarter of fiscal 2005 (the three-month period ended June 30, 2005) were $13.9 million, compared to $20.0 million for the fourth quarter of fiscal 2004 (the three-month period ended June 30, 2004).

Revenue for the quarter was generated primarily from our long term repeat customer base. In the fourth quarter of the prior year, revenue was supplemented by a large, labour-only construction project. The new construction activity for the current year continues to be slow. Our gross profit percentage of 15.6 per cent for the quarter is somewhat lower than the gross profit of 20.5 per cent for the same period last year, mainly due to one-time mobilization and set up costs plus normal direct expenses of $1.5 million against which the Company received $1.3 million in revenues related to new work recently awarded.

The Company's general and administrative expenses for the fourth quarter of fiscal 2005 were $1.7 million, up from the $1.5 million incurred for the same period last year. The increase was primarily for salaries to support new contract awards and estimating future potential work. As well, the Company incurred additional costs in hiring an insurance consultant to establish an insurance program based on current risks and exposures and look towards reducing future annual insurance costs within acceptable risk tolerances.

Interest expense for the quarter was $57,000 compared to $102,000 for the fourth quarter of fiscal 2004, due mainly to lower levels of debt.

Depreciation and amortization expense for the quarter was $0.3 million compared to $0.2 million for the fourth quarter of fiscal 2004, due mainly to the purchase of new scaffold equipment. Prior to the current year, scaffold asset write-offs and asset count losses were charged to direct expenses. In the current year, scaffold equipment write-offs and asset count losses have been reclassified to depreciation expense.

Earnings before income tax for the just-ended fourth quarter was $0.1 million, compared with earnings before income taxes of $2.3 million for the fourth quarter of fiscal 2004. This decrease is due to the lower levels of activity in the current year.

Net earnings for the quarter was $0.1 million ($0.01 per share), compared with net earnings of $1.8 million ($0.22 per share) for the fourth quarter of fiscal 2004.

Consolidated results - year ended June 30, 2005

Consolidated revenues for the year ended June 30, 2005, were $42.1 million, compared to $74.7 million for the year ended June 30, 2004. This decrease is due to reduced levels of new construction activity.

Steeplejack's gross profit percentage of 18.2 per cent declined compared to the 21.9 per cent for the prior year. This decrease in gross profit percentage is due to a reduction in scaffold asset utilization in the current year, price competition taking place in the industry and mobilization and set up costs incurred on new job sites.

General and administrative expenses for fiscal 2005 were $7.3 million, similar to the prior year, though the Company incurred one-time retirement and severance costs of $0.3 million for senior executives of the Company in the current year.

Interest expense for the year was $0.3 million compared to $0.5 million for fiscal 2004, due to lower levels of debt.

Depreciation and amortization expense for fiscal 2005 was $1.2 million, compared to $1.1 million for fiscal 2004. This increase is due to a net increase in equipment held for rent and capital assets.

Loss before income tax for the year ended June 30, 2005 was $1.0 million, compared with earnings before income tax of $7.7 million for the year ended June 30, 2004. The lower levels of profit directly relate to the lower levels of revenue. Our base of long term customers who provide annual business continue to grow and perform, however the new construction activity has suffered due to a lull in the market place.

Net loss for fiscal 2005 was $0.6 million ($0.08 per share) compared with net earnings of $5.1 million ($0.65 per share) for fiscal 2004.

Selected annual information

The following table sets forth certain financial information for the Company for 2003 to 2005:



------------------------------------------------------------------------
($millions, except Year Ended Year Ended Year Ended
per share figures) June 30, 2005 June 30, 2004 June 30, 2003
------------------------------------------------------------------------
REVENUE 42.1 74.7 70.2
NET (LOSS) EARNINGS (0.6) 5.1 4.3
TOTAL ASSETS 36.6 43.6 39.4
TOTAL LONG-TERM FINANCIAL
LIABILITIES 4.8 6.7 8.9
DIVIDENDS DECLARED - - -
BASIC (LOSS) EPS (0.08) 0.65 0.56
DILUTED (LOSS) EPS (0.08) 0.64 0.56
------------------------------------------------------------------------
------------------------------------------------------------------------


Quarterly financial information

Steeplejack generates revenue from long-term maintenance contracts and from new construction activity. Long-term maintenance revenue is affected by weather conditions and the scheduling of plant shutdowns and is therefore subject to quarterly fluctuations. New construction revenue is more dependent upon economic conditions and larger construction projects may last longer than one year. Therefore, the revenue streams are more volatile.



------------------------------------------------------------------------
FISCAL 2005 1st QTR 2nd QTR 3rd QTR 4th QTR June 30
($millions, (year-end)
except per share
figures)
------------------------------------------------------------------------
REVENUE 11.5 9.0 7.7 13.9 42.1
GROSS PROFIT 2.0 2.4 1.1 2.2 7.7
OVERHEADS 2.4 2.1 2.2 2.0 8.7
NET (LOSS) EARNINGS
BEFORE TAX (0.3) 0.3 (1.1) 0.1 (1.0)
NET (LOSS) EARNINGS (0.2) 0.2 (0.7) 0.1 (0.6)
BASIC (LOSS) EPS (0.02) 0.02 (0.09) 0.01 (0.08)
DILUTED (LOSS) EPS (0.02) 0.02 (0.09) 0.01 (0.08)
------------------------------------------------------------------------
------------------------------------------------------------------------

------------------------------------------------------------------------
FISCAL 2004 1st QTR 2nd QTR 3rd QTR 4th QTR June 30
($millions, (year-end)
except per share
figures)
------------------------------------------------------------------------
REVENUE 15.2 18.6 20.9 20.0 74.7
GROSS PROFIT 4.3 4.2 3.8 4.1 16.4
OVERHEADS 2.3 2.4 2.2 1.8 8.7
NET EARNINGS BEFORE
TAX 2.0 1.8 1.6 2.3 7.7
NET EARNINGS 1.2 1.2 1.0 1.7 5.1
BASIC EPS 0.16 0.15 0.12 0.22 0.65
DILUTED EPS 0.16 0.15 0.12 0.21 0.64
------------------------------------------------------------------------
------------------------------------------------------------------------


LIQUIDITY AND CAPITAL RESOURCES

For fiscal 2005, Steeplejack generated $0.3 million in cash flow from operations, compared to generating cash of $6.3 million for fiscal 2004. The primary difference between the two periods stems from a decrease in net earnings.

The Company generated $6.3 million in cash from changes in non-cash operating accounts in fiscal 2005 compared to fiscal 2004 when the Company used $3.1 million in cash. The cash inflow created in the current fiscal year was primarily due to the collection of accounts receivables.

In fiscal 2005, the Company purchased $2.9 million in net new scaffold equipment and capital assets and repaid $1.9 million in net long-term debt.

The Company has a $10.0 million operating line, of which $9.8 million was unutilized at June 30, 2005.

At June 30, 2005, Steeplejack had working capital of $4.8 million, compared to the prior year's $8.4 million. The Company has adequate working capital to support current levels of activity. Subsequent to the year end, the Company obtained an additional $20 million in term equipment financing. In addition, in August 2005, the Company closed a private placement raising $11.7 million in gross proceeds through the issue of 2,000,000 common shares at $5.85 per share. These funds will be used to acquire scaffold equipment and capital assets to meet the expected needs of currently awarded new contracts.

The Company does not have any off-balance sheet financing arrangements.

There are no material changes in contractual obligations, other than the reduction in the amount outstanding and the future capability to draw upon a further $20 million in term equipment financing.

The following table summarizes the Company's outstanding commitments, as of June 30, 2005:



------------------------------------------------------------------------
Contractual Payments due by period
Obligations ------------------------------------------------------
Less than 1 to 3 to More than
Total 1 Year 3 Years 5 Years 5 Years
------------------------------------------------------------------------
Long-term
Debt $4,791,267 $2,276,864 $2,514,403 $ - $ -
Operating
Leases 1,273,623 579,716 611,492 82,415 -
------------------------------------------------------------------------
Total
Outstanding
Commitments $6,064,890 $2,856,580 $3,125,895 $ 82,415 $ -
------------------------------------------------------------------------
------------------------------------------------------------------------


CAPITAL ASSETS AND EXPENDITURES

Based on contracts in hand and contracts currently being negotiated, the Company estimates it will need to acquire approximately $60.0 to $70.0 million in revenue producing and capital assets over the next three years.

SHARE CAPITAL

During fiscal 2005, the Company issued 69,600 options to purchase common shares of the Company at an average exercise price of $3.81 per share (2004 - nil).

Subsequent to the year end, the Company issued 162,500 options to purchase shares of the Company at an exercise price of $6.17 per share. As well, the Company closed a private placement in August 2005, raising $11.7 million in gross proceeds through the issue of 2,000,000 common shares at $5.85 per share.

At September 15, 2005, the Company had 10,192,400 common shares outstanding and 232,100 stock options outstanding.

TRANSACTIONS WITH RELATED PARTIES

Certain directors of the Company are also partners or counsel in legal firms that provided legal services to the Company in the amount of $45,975 during the year (2004 - $77,555). These transactions took place at normal commercial rates and terms.

CRITICAL ACCOUNTING ESTIMATES

Revenue is generated through three basic types of contracts - "cost plus", "unit rate" and "fixed fee". Revenue from cost plus and unit rate contracts are recorded as the service is performed and the related expenses are incurred. Revenue from fixed fee contracts is recognized on a percentage completion basis. Percentage completion is determined by relating the actual cost of work performed to the current estimated total cost for each contract. Any projected loss from fixed fee contracts is identified and recognized immediately.

The Company has recorded an $8,500 allowance for doubtful accounts based on a review of the accounts receivable aged trial balance at year end. The Company has a long history of minimal bad debt expense.

Depreciation expense has been calculated in accordance with the Company's views of estimated useful life and salvage values of the assets as more fully explained in Note 2 of the consolidated financial statements.

There are no other critical accounting estimates.

CHANGES IN ACCOUNTING POLICIES

Stock-based compensation

Effective July 1, 2004 the Company adopted revisions to Section 3870 of the Canadian Institute of Chartered Accountants ("CICA") Handbook with respect to the accounting and disclosure of stock-based compensation. The revised Section 3870 requires that the fair value of stock options be recorded in the financial statements. These new rules apply to options issued on or after January 1, 2002. The Company has elected to apply the provisions retroactively with restatement of prior years. As a result, as at July 1, 2003 the cumulative compensation cost of options issued after January 1, 2002 of $30,313 has been charged to retained earnings with a corresponding increase to contributed surplus (see Note 8 to the consolidated financial statements).

Asset retirement obligations

Effective July 1, 2004, the Company adopted CICA Handbook Section 3110 "Asset Retirement Obligations" which addresses the financial accounting and reporting obligations associated with the retirement of tangible, long-lived assets and their associated net retirement costs. Under the new Section, an asset retirement obligation is recognized at its fair value in the period in which it is incurred. Asset retirement costs are capitalized as part of the carrying amount of the long-lived asset and a related amortization expense is recognized in future periods. Implementation of CICA 3110 did not have an impact on the Company's results from operations or its financial position.

MARKET AND GROWTH OUTLOOK

Steeplejack is focused on the industrial market sector, with an emphasis on expanding long-term maintenance accounts that provide a solid base of repeat business. The Company continues to build this base of standing accounts. The maintenance business is seasonal in nature due primarily to weather factors in our market territory. As well, due to increases in the levels of heavy construction, principally related to oil and gas activity in Alberta, the demand for Steeplejack's core services is increasing.

The Company also pursues work on selective construction projects on industrial plant sites. This type of activity will provide better returns on revenue producing assets and also generate greater revenues during traditionally slower quarters. The Company has awards on two major new construction job sites. Both projects are located in the oil sands area of Fort McMurray, Alberta.

FINANCIAL INSTRUMENTS

Fair value

The carrying value of the Company's bank indebtedness, accounts receivable, accounts payable and accrued liabilities approximates fair value due to the short maturity dates on these instruments.

The fair value of the Company's long-term debt is estimated to be market price for similar instruments and approximates carrying value.

Credit risk

The Company is exposed to credit risk from its customers. Credit risks arise from the potential that customers will fail to perform their obligations. However, the Company has a large number of diverse customers, which minimizes concentration of credit risk.

BUSINESS RISKS

Our revenue levels are dependent upon construction activity in the Province of Alberta.

In the last half of fiscal 2005 we were successful in obtaining awards at two major new construction sites in the oil sands area of Fort McMurray, Alberta. In the last quarter of fiscal 2005 we started to mobilize to one of the sites and we anticipate mobilizing to the other major site in our third quarter of fiscal 2006. The need for our scaffold equipment and labour services will be dependent on our customer's requirements and their progression at the new sites. We do not anticipate significant increases in scaffold labour nor equipment requirements at the first site until our third quarter of fiscal 2006.

As well, the Company is encouraged by high oil and natural gas prices, low interest rates and a low provincial tax rate, which are all conducive to increased levels of business.

Our competition may gain advantage over us that inhibit our ability to compete effectively, or that reduce market share or limit the prices we can charge for our product and services.

Some of our competitors have significantly greater financial, technical, marketing and other resources: greater name recognition; and a larger customer base than we do. At times in the market place we see a competitor wanting to grow quickly or establish control of a market segment, primarily through aggressive pricing. Our decisions on how to compete effectively based on any of the above factors could impact our business.

If we cannot attract and retain quality personnel, we may have difficulties providing the quality services and value we are known for.

We depend on quality senior managers, other managers and supervisory staff to embrace the Company's key performance drivers. Our future success and growth depends on our continuing ability to identify, hire, train, motivate and retain highly qualified personnel. Failure to do this could seriously impact our operating results.

DISCLOSURE CONTROLS AND PROCEDURES

The Company maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed in filings made pursuant to Multilateral Instrument 52-109 is recorded, processed, summarized and reported within the time periods specified in the Canadian Securities Administrators rules and forms. The Chief Executive Officer and Chief Financial Officer have evaluated the Company's disclosure controls and procedures as of June 30, 2005, and concluded that such disclosure controls and procedures are effective.

FORWARD LOOKING STATEMENTS

This MD&A includes management's assessment of Steeplejack's future plans and operations, and therefore contains forward-looking statements.

By their nature, forward-looking statements are subject to numerous risks and uncertainties, some of which are beyond Steeplejack's control, including general economic conditions, industry conditions, volatility of commodity prices, competition from other industry participants, and the lack of qualified personnel and or management. The Company disclaims any intention or obligations to revise forward-looking statements whether as a result of new information, future developments or otherwise. All forward-looking statements are expressly qualified in their entirety by this Cautionary Statement.



CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three month period ended June 30

------------------------------
2005 2004
------------------------------

Revenue
Industrial Contract Revenue $ 13,757,217 $ 19,906,931
Commercial Rentals 167,804 132,343
------------------------------
13,925,021 20,039,274

Direct Expenses 11,745,510 15,929,334
------------------------------
Gross Profit 2,179,511 4,109,940
------------------------------

General and Administrative Expenses 1,704,447 1,524,585
Interest Expense 56,748 101,553
Depreciation and Amortization 294,678 208,794
Gain on Disposal of Capital
Assets and Equipment Held for Rental (13,725) (60,671)
------------------------------
2,042,148 1,774,261
------------------------------
Earnings Before Income Taxes 137,363 2,335,679
------------------------------
------------------------------

Income Tax (Recovery) Expense
Current (124,048) 1,355,377
Future 140,883 (786,301)
------------------------------
16,835 569,076
------------------------------
Net Earnings $ 120,528 $ 1,766,603
------------------------------

Basic Earnings Per Share (Note 4) $ 0.01 $ 0.22
------------------------------
------------------------------

Diluted Earnings Per Share (Note 4) $ 0.01 $ 0.21
------------------------------
------------------------------



CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (Unaudited)
Three month period ended June 30

------------------------------
2005 2004
(Restated Note 5)
------------------------------
Retained Earnings, Beginning of Period
As Previously Reported $ 18,296,501 $ 17,327,042


Implementation of Accounting
Standard (Note 5) - (30,313)
------------------------------
Retained Earnings, Beginning of Period
As Restated 18,296,501 17,296,729

Net Income for the Period 120,528 1,766,603

Retained Earnings, End of Period $ 18,417,029 $ 19,063,332
------------------------------
------------------------------


CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Year ended June 30

------------------------------
2005 2004
------------------------------
Revenue
Industrial Contract Revenue $41,427,227 $74,097,056
Commercial Rentals 720,331 588,844
------------------------------
42,147,558 74,685,900

Direct Expenses 34,477,490 58,309,145
------------------------------
Gross Profit 7,670,068 16,376,755
------------------------------

General and Administrative Expenses 7,268,871 7,160,685
Interest Expense 255,277 484,635
Depreciation and Amortization 1,231,100 1,147,362
Gain on Disposal of Capital
Assets and Equipment Held for Rental (87,614) (137,916)
------------------------------
8,667,634 8,654,766
------------------------------
(Loss) Earnings Before Income Taxes (997,566) 7,721,989
------------------------------

Income Tax (Recovery) Expense
Current (59,535) 2,613,051
Future (291,728) (36,301)
------------------------------
(351,263) 2,576,750
------------------------------
Net (Loss) Earnings $ (646,303) $ 5,145,239
------------------------------

Basic (Loss) Earnings Per Share (Note 4) $ (0.08) $ 0.65
------------------------------
------------------------------

Diluted (Loss) Earnings Per Share (Note 4) $ (0.08) $ 0.64
------------------------------
------------------------------



CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (Unaudited)
Year ended June 30

------------------------------
2005 2004
(Restated Note 5)
------------------------------
Retained Earnings, Beginning of Year
As Previously Reported $19,063,332 $13,948,406

Implementation of Accounting Standard
(Note 5) - (30,313)
------------------------------
Retained Earnings, Beginning of Year
As Restated 19,063,332 13,918,093

Net (Loss) Income for the Year (646,303) 5,145,239

Retained Earnings, End of Year $18,417,029 $19,063,332
------------------------------
------------------------------



CONSOLIDATED STATEMENTS OF CASH FLOW (Unaudited)
Three month period ended June 30

------------------------------
2005 2004
------------------------------

NET INFLOW (OUTFLOW) OF CASH RELATED TO THE FOLLOWING ACTIVITIES:

Operating
Net earnings $ 120,528 $ 1,766,603
Add (deduct) items not affecting cash
Depreciation and amortization 294,678 208,794
Gain on disposal of capital assets and
equipment held for rental (13,725) (60,671)
Loss on disposal of equipment held
for sale - 134,821
Future income tax expense (recovery) 140,883 (786,301)
------------------------------
542,364 1,263,246


Changes in non-cash operating accounts (3,543,763) (2,681,333)
------------------------------
(3,001,399) (1,418,087)
------------------------------
------------------------------


Investing
Proceeds on disposal of equipment held
for sale - 33,583
Purchase of equipment held for rental (1,060,858) (579,103)
Proceeds on disposal of equipment held
for rental 81,120 79,784
Purchase of capital assets (755,877) (202,188)
Proceeds on disposal of capital assets 5,767 10,771
------------------------------
(1,729,848) (657,153)
------------------------------
------------------------------


Financing
Proceeds from long-term debt 438,456 -
Repayment of long-term debt (595,497) (577,790)
------------------------------
(157,041) (577,790)
------------------------------
------------------------------


Decrease in Cash (4,888,288) (2,653,030)

Cash (Bank Indebtedness), Beginning
of Period 3,912,762 (79,835)
------------------------------
------------------------------

(Bank Indebtedness), End of Period $ (975,526) $(2,732,865)
------------------------------
------------------------------


SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Amount of interest paid in the period $ 60,829 $ 106,566
Amount of income taxes paid in
the period $ 136,170 $ 264,592


CONSOLIDATED STATEMENTS OF CASH FLOW (Unaudited)
Year ended June 30

------------------------------
2005 2004
------------------------------
NET INFLOW (OUTFLOW) OF CASH RELATED
TO THE FOLLOWING ACTIVITIES:

Operating

Net (loss) earnings $ (646,303) $ 5,145,239
Add (deduct) items not affecting cash
Depreciation and amortization 1,231,100 1,147,362
Gain on disposal of capital assets
and equipment held for rental (87,614) (137,916)
Loss on disposal of equipment held
for sale - 134,821
Stock-based compensation 53,478 -
Future income tax recovery (291,728) (36,301)
------------------------------
258,933 6,253,205


Changes in non-cash operating accounts 6,272,496 (3,063,075)
------------------------------
6,531,429 3,190,130
------------------------------
------------------------------


Investing

Proceeds on disposal of equipment
held for sale - 65,179
Purchase of equipment held for rental (2,220,165) (1,902,056)
Proceeds on disposal of equipment
held for rental 328,773 629,690
Purchase of capital assets (1,021,757) (584,337)
Proceeds on disposal of capital
assets 46,942 55,073
------------------------------
(2,866,207) (1,736,451)
------------------------------
------------------------------


Financing

Common shares issued - 550,000
Proceeds from long-term debt 438,456 84,305
Repayment of long-term debt (2,346,339) (2,283,239)
------------------------------
(1,907,883) (1,648,934)
------------------------------
------------------------------


Increase (Decrease) in Cash 1,757,339 (195,255)


Bank Indebtedness, Beginning of Period (2,732,865) (2,537,610)
------------------------------
------------------------------


Bank Indebtedness, End of Period $ (975,526) $(2,732,865)
------------------------------
------------------------------


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Amount of interest paid in the year $ 264,612 $ 497,058
Amount of income taxes paid in the year $ 2,346,410 $ 1,581,467



CONSOLIDATED BALANCE SHEET (Unaudited)
As at June 30

------------------------------
2005 2004
(Restated Note 5)
------------------------------

Assets
Current Assets
Accounts receivable $ 10,473,457 $ 20,015,316
Income taxes receivable 843,142 -
Prepaid expenses 124,787 92,029
------------------------------
11,441,386 20,107,345

Equipment Held For Rental 22,609,570 21,435,735
Capital Assets 2,571,116 2,022,230
------------------------------
$ 36,622,072 $ 43,565,310
------------------------------
------------------------------

Liabilities
Current Liabilities
Bank indebtedness $ 975,526 $ 2,732,865
Accounts payable and accrued
liabilities 3,311,409 4,169,532
Income taxes payable - 1,535,340
Current portion of long-term debt 2,276,864 2,340,826
Future income taxes 86,051 897,149
------------------------------
6,649,850 11,675,712

Long-Term Debt 2,514,403 4,358,324
Future Income Taxes 5,381,920 4,862,550
------------------------------
14,546,173 20,896,586
------------------------------
------------------------------

Shareholders' Equity
Share capital 3,605,392 3,605,392
Contributed surplus (Note 6) 53,478 -
Retained earnings 18,417,029 19,063,332
------------------------------
22,075,899 22,668,724
------------------------------
$ 36,622,072 $ 43,565,310
------------------------------
------------------------------


ABBREVIATED NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited)
Years ended June 30, 2005 and 2004


1. BASIS OF PRESENTATION

The Consolidated Financial Statements of Steeplejack have been prepared by management in accordance with Canadian generally accepted accounting principles. Certain information and disclosures normally required to be included in notes to annual consolidated financial statements have been condensed or omitted.

2. CHANGE IN ACCOUNTING POLICIES

Asset retirement obligations

Effective July 1, 2004, the Company adopted CICA Handbook Section 3110 "Asset Retirement Obligations" which addresses the financial accounting and reporting obligations associated with the retirement of tangible, long-lived assets and their associated net retirement costs. Under the new Section, an asset retirement obligation is recognized at its fair value in the period in which it is incurred. Asset retirement costs are capitalized as part of the carrying amount of the long-lived asset and a related amortization expense is recognized in future periods. Implementation of CICA 3110 did not have an impact on the Company's results from operations or its financial position.



3. SHARE CAPITAL

Common shares at June 30, 2005
Authorized Unlimited
Outstanding 8,192,400
Weighted average for three months ending June 30, 2005 8,192,400
Weighted average for year ending June 30, 2005 8,192,400


4. (LOSS) EARNINGS PER SHARE

The calculation of basic and diluted earnings per share is based on the weighted average number of common shares outstanding during the year, net of shares repurchased.

In calculating diluted earnings per share under the treasury stock method, the numerator remains unchanged from the basic earnings per share calculation, as the assumed exercise of the Company's stock options does not result in an adjustment to income. The reconciliation of the denominator in calculating diluted earnings per share is as follows:



Three month period ended June 30 2005 2004
------------------------

Weighted average number of common shares
outstanding
Used to calculate basic earnings per share 8,192,400 8,192,400
Effect of dilutive securities 10,150 -
------------------------

Weighted average number of common shares
outstanding
Used to calculate diluted earnings per share 8,202,550 8,192,400
------------------------
------------------------


Year ended June 30 2005 2004
------------------------

Weighted average number of common shares
outstanding
Used to calculate basic earnings per share 8,192,400 7,883,110
Effect of dilutive securities 4,599 142,963
------------------------

Weighted average number of common shares
outstanding
Used to calculate diluted earnings per share 8,196,999 8,026,073
------------------------
------------------------


5. STOCK-BASED COMPENSATION

Effective July 1, 2004 the Company adopted revisions to Section 3870 of the Canadian Institute of Chartered Accountants ("CICA") Handbook with respect to the accounting and disclosure of stock-based compensation. The revised Section 3870 requires that the fair value of stock options be recorded in the financial statements. These new rules apply to options issued on or after January 1, 2002. The Company has elected to apply the provisions retroactively with restatement of prior years. As a result, as at July 1, 2003 the cumulative compensation cost of options issued after January 1, 2002 of $30,313 has been charged to retained earnings with a corresponding increase to contributed surplus.

6. CONTRIBUTED SURPLUS

For the year ended June 30, 2005, the Company recorded compensation expense relating to stock options totaling $53,478 with an offsetting increase to contributed surplus.

The fair value of each option granted by the Company was estimated using the Black-Scholes option pricing model assuming no dividends are paid on common shares, a risk-free interest rate of 3.08%, an average life of five years and a volatility of 40.32% using weighted average assumptions. The amounts computed, according to the Black-Scholes pricing model, may not be indicative of the actual values realized upon the exercise of these options by the holders.

The following table summarizes the changes in contributed surplus in 2004 and 2005:



2005 2004
------------------------------

Opening Balance $ - $ 30,313
Stock based compensation 53,478 -
Stock options exercised - (30,313)
------------------------------------------------------------------------
$ 53,478 $ -
------------------------------------------------------------------------
------------------------------------------------------------------------


7. SUBSEQUENT EVENTS

Stock options

In July 2005, the Company granted 162,500 stock options exercisable at $6.17 per share to certain senior employees of the Company. These options were granted for a 5 year term on July 18, 2005 and have a vesting period of 25% immediately, 25% in 1 year, 25% in 2 years and 25% in three years.

Placement of shares

In August 2005, the Company closed a private placement raising $11.7 million in gross proceeds through the issue of 2,000,000 common shares at $5.85 per share.

Proceeds of this offering will be used to fund an expanded capital budget.

Credit facility

In July 2005 the Company renewed its lending agreement with its bank and obtained an additional $20 million in term financing that will be used for the acquisition of equipment held for rental. The additional $20 million will be repayable over five years at an interest rate of prime plus 1%.

8. COMPARATIVE FIGURES

Certain comparative figures have been reclassified to conform to the current year's presentation.

Contact Information

  • Steeplejack Industrial Group Inc.
    Pat Ross
    President and CEO
    (780) 465-9016
    or
    Steeplejack Industrial Group Inc.
    David Dawyd, CA
    VP Finance and CFO
    (780) 465-9016
    Email: request@steeplejack.ca
    Website: www.steeplejack.ca