Operating expenses were $15.4 million or 60% of revenue compared to $26.7 million or 78% of revenue in the third quarter last year. The Company has been successful at maintaining its operating margins thru safe, timely and efficient execution of work and will continue to tightly monitor all operating costs under its control in an effort to remain competitive during this period of challenging market conditions.
General and administrative expenses were up significantly or approximately $0.8 million to $2.7 million from $1.9 million being recorded last year. The majority of the increase was attributed to the successful closing of the new $115 million senior secured credit facility which included additional legal and professional fees, along with origination and agency fees and other success based fees paid upon closing. The Company's general and administrative expenditures also reflects cost incurred in connection with the bid processes, professional fees, corporate wages, burdens and various other overheads, including rents, insurance, travel and administrative supplies that are not charged directly to projects. Despite challenging market conditions, the Company will remain active bidding and pursuing large scale jobs, along with maintaining its master service agreements with existing clients, and as such will continue to invest in business development and strategic initiatives. General and administrative costs should return to what was averaged in the first six months of fiscal 2015.
Depreciation of property, plant and equipment was $1.9 million and comparable to prior year's third quarter. Depreciation is calculated at various declining balance methods across the Company's multiple categories of property, plant and equipment and is used in guiding the annual capital expenditure estimates. Residual values, methods of amortization and useful lives of the assets are reviewed annually and adjusted if appropriate.
During the third quarter the Company recognized a $1.9 million gain on the disposal of its property, plant and equipment. The majority of the gain related to the disposal of the Company's old office building. The Company received total proceeds, net of fees, of approximately $3.3 million on the disposal of the existing office building along with certain furniture and fixtures during the quarter.
During the third quarter the Company recognized an impairment charge on receivables of $3.3 million. The Company agreed to amicably resolve a contractual misunderstanding and accepted settlement terms for the remaining balances owing on a specific project.
During the third quarter the Company recognized non-cash stock-based compensation charges of $575,000. The Company anticipates recognizing an additional $0.8 million in stock-based compensation over the next 8 quarters. The non-cash stock-based compensation charge relate to options granted in fiscal 2014 and in August 2015.
Finance costs were down $144,000 from prior year's third quarter costs of $269,000 to $125,000. The substantial decrease in finance costs was a result of the Company's decision to prepay its term debt and its mortgages effectively reducing its overall financial leverage and therefore associated costs. On September 15, 2015 the Company successfully closed its $115 million senior secured credit facility which will ensure favourable borrowing rates going forward.
Income tax expense in the quarter of $0.9 million was in line with current enacted tax rates of approximately 27%.
Net income was $2.8 million ($0.09 per share) compared to $1.4 million ($0.04 per share) recognized during the three months ended September 30, 2014. The increase in net income was a result of favourable operating margins along with a $1.9 million gain realized on the disposal of property, plant and equipment during the quarter despite being offset by reduced revenues, increased administrative costs and the impairment charge.
Outlook
Activity levels in the oil and gas industry have been materially impacted across Western Canada as a result of the volatility in commodity prices, excess global supply and inventory levels. Although the pricing uncertainty is affecting activity and many projects have been delayed, large oil and gas companies are continuing to request bids on significant projects, both LNG-related and not. With a solid balance sheet, enhanced liquidity and its industry leading health, safety and environmental practices, the Company is in excellent financial shape to address these uncertain times.
Macro will remain geographically focused and financially disciplined. The Company will maintain its focus on working with blue chip pipeline owners and operators to carry out their construction and maintenance programs. With operating margins expected to be in line with historical averages, revenues in the fourth quarter are forecast to be less than those achieved in the 3rd quarter. Recurring revenues from its multiple existing master service agreements will represent the bulk of activity.
As part of its overall strategy to develop a significant backlog of work and revenue certainty, including seeking its new credit facilities, the Company is seeking out pipeline and facilities construction contracts in connection with the Liquefied Natural Gas (LNG) projects being planned on the west coast of British Columbia, an industry that is anticipated to bring substantial economic activity to British Columbia over the next 30 years. Macro has completed bid processes and has entered into active discussions with the LNG project owners regarding future pipeline and facilities construction.
The Company's new revolving operating facility will provide enhanced flexibility and essential funding support as the Company works to realize on those large-scale potential growth opportunities. The secured letter of credit facility is intended to facilitate the issuance of letters of credit to support qualifying projects.
Macro has also been approached by a number of its clients to assist with budget and constructability estimates, on fee based recovery arrangements, for major pipeline and facility projects including LNG related opportunities. These projects are scheduled for approvals by early 2016.
If final investment decisions for LNG projects continue to be deferred and as a result of unrelenting market conditions, the Company is anticipating a protracted slower period of business activity over the next 12 to 18 months.
New $115 Million Senior Secured Credit Facility
On September 15, 2015, the Company announced the successful closing of its new $115 million senior credit facilities. The new credit facilities comprise a $65 million committed three-year revolving operating credit facility pursuant to a Credit Agreement with The Toronto-Dominion Bank ("TD Bank"), National Bank of Canada and Export Development Canada ("EDC") and a separate agreement with TD Bank for the provision of a $50 million letter of credit facility supported by an EDC guarantee. Macro's obligations under the Credit Agreement are secured in first priority against all the assets of the Company and of its material subsidiaries.
The Company has the right, subject to customary conditions, to increase the amount of the operating facility by up to $20 million by securing increased commitments from one or more of the initial lenders or by securing one or more new lenders.
Macro's core business is providing pipeline and facilities construction and maintenance services to major companies in the oil and gas industry. The Company's corporate office is in Fort St. John, British Columbia. Its shares are listed on the TSX Venture Exchange under the symbol MCR. Information on the Company's principal operating unit, Macro Industries Inc., can be found at www.macroindustries.ca.
Conference Call
The Company will host a conference call at 8 am PDT on Friday, November 13, 2015 to discuss the 2015 third quarter results. The conference call can be accessed by dialing 1-888-390-0546 and referencing conference ID 92638172.
Forward Looking Statements
Certain statements in this news release may include forward-looking information that involves various risks and uncertainties. These may include, without limitation, statements regarding expected revenues, expenses and industry trends and the pursuit of strategic acquisitions. These risks and uncertainties include, but are not restricted to, global economic conditions, government regulation of energy and resource companies, seasonal weather patterns, maintaining and increasing market share, terrorist activity, the price and availability of alternative fuels, the availability of pipeline capacity, and potential instability or armed conflict in oil producing regions. These risks and uncertainties may cause actual results to differ from information contained herein. There can be no assurance that such forward-looking statements will prove to be accurate. Actual results and future events could differ materially from those anticipated in such statements. These statements are based on the estimates and opinions of management on the dates they are made and are expressly qualified in their entirety by this notice. Except as required by law, the Company assumes no obligation to update forward-looking statements should circumstances or management's estimates or opinions change.
Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
