Bird Construction
Annual Report 2019

Plain-text annual report

EIGHTY-NINTH ANNUAL REPORT for the year ended December 31, 2019 CORPORATE OFFICE 5700 Explorer Drive, Suite 400 Mississauga, ON L4W 0C6 Canada DIRECTORS OFFICERS J. Richard Bird, Ph.D., MBA (1)(2) ................................................................................Calgary Karyn A. Brooks, FCPA, FCA (1)(2) ...............................................................................Calgary Paul A. Charette, (Chair) (1)(2) .................................................................................Oakville D. Greg Doyle, FCPA, FCA (1)(2) ................................................................................. Victoria Bonnie D. DuPont, BSW, MEd (1)(2) ...........................................................................Calgary Teri L. McKibbon .............................................................................................. Canmore Luc J. Messier, P.Eng. (1)(2) ................................................................................. Texas, USA Ron D. Munkley, BSc, Hon (Eng) (1)(2) ................................................................. Mississauga Paul R. Raboud, P.Eng., MSc, MBA.......................................................................... Toronto Arni C. Thorsteinson, CFA (1)(2) ........................................................................... Winnipeg (1) (2) Audit Committee Member Human Resources, Safety and Governance Committee Member Teri L. McKibbon .................................................... President & Chief Executive Officer Wayne R. Gingrich, CPA, CMA ........................................................ Chief Financial Officer Brian C. Henry ................................................................................ Chief People Officer Charles J. Caza, BA, Sc.Eng., LL.B ........................................... General Counsel & Secretary Ian J. Boyd, P.Eng. .......................................... Executive Vice President – Major Projects Gilles G. Royer, P.Eng. ............................................ Executive Vice President – Industrial Paul Bergman, CET ............................................ Executive Vice President – Commercial Paul Pastirik, CPA, MBA, B.Comm.............. Senior Vice President – Strategic Development AUDITORS KPMG LLP BANK SURETY Bank of Montreal Travelers Guarantee Company of Canada STOCK EXCHANGE LISTING Toronto Stock Exchange (Symbol “BDT”) TRANSFER AGENT AND REGISTRAR Computershare Investor Services WEBSITE www.bird.ca Management’s Discussion and Analysis BUILD THE BUSINESS Diversification and Growth The diversification of the Company’s work program and earnings base is intended to strengthen the Company by making it healthier and more resilient during economic downturns. Diversification and Growth can be realized through geographic expansion of existing services, introduction of new services and the development of new clients. The Company sees opportunities in areas that were selected by the federal government to invest in such as indigenous communities, environmental initiatives and transportation projects. The Company’s goal is to leverage its areas of expertise to participate more fully in these markets on selective projects where it can develop a compelling win strategy. The Company intends to be very selective in its execution of the strategy to ensure it grows and diversifies profitably. Through its geographic expansion efforts, the Company continues to express its preference for design-build construction contracts where its proven experience provides Bird with a source of competitive advantage. In doing so, the Company also looks to ensure there is a balanced risk profile in its work program so that there is a mix of lower risk delivery methods such as construction management, cost-plus and integrated project delivery (“IPD”) with higher risk methods such as stipulated sum, unit price, design-build, alternative finance projects and PPP. The Company is also looking for opportunities to expand commercial and institutional expertise into additional markets in Canada. The Edmonton Commercial office was established in 2017 and despite continued expectations for challenging market conditions in Alberta, the business is positioning itself to develop the team and its capabilities to service the region on a long-term basis. The Company has been successful already in expanding its presence in northern Canada. The Company participates in the light rail transit (“LRT”) segment of the transportation market by utilizing project teams from across the country in pursuit of the ‘vertical’ elements of these projects (i.e. maintenance facilities, stations, platforms) generally as a preferred subcontractor to ‘horizontal’ contractors where risk can be appropriately managed. New service offerings also contribute to Bird’s Diversification and Growth strategy. The Company intends to pursue more opportunities in the nuclear market in Ontario building on successes achieved in 2018 and 2019. The Company continues to leverage the mechanical and electrical experience it gained in its 2013 acquisition of Nason Contracting Group Ltd. to pursue process related contracts in the industrial market sector. The Company intends to build on its successful growth into the environmental market with projects active in four provinces. By continuing to build our expertise, the Company hopes to further establish its position as a top tier environmental firm in the construction of bio-solid treatment facilities, composting facilities and in water and wastewater treatment facilities across the country. We also selectively identify and pursue Maintenance, Repair and Operations (“MRO”) opportunities with our energy clients in northern Alberta to further build a recurring revenue stream. The overall goal is to increase the contribution from projects in the nuclear sector, turnkey process mechanical, environmental and MRO markets to be balanced with our traditional full service civil, concrete formwork, earthmoving and building services. Any of these services can be combined to meet a client’s needs. As part of the Company’s growth strategy, the Company uses its existing relationships in established markets to expand its work program. As one of only a few general contractors in Canada with a national footprint, Bird looks to deepen its relationship with existing private clients that have a portfolio of properties and development opportunities both regionally and across Canada while also seeking to foster new client relationships. Historically, in western Canada the Company’s industrial work program has been focused on the oil sands where it has secured a reputation as a safe, reliable and cost- effective general contractor. In the coming years, the Company intends to leverage these proven capabilities to develop clients and work programs more broadly. As of 2018, the Company now has industrial related projects, including heavy civil, in regions across the country. Bird Heavy Civil should widen its established activities in the Labrador Trough region to secure similar opportunities in eastern Canada. This expanded geographical scope should also support the need to develop additional clients, primarily in Ontario, Quebec and northern Canada to diversify from Bird Heavy Civil’s historical focus on the iron ore market. These efforts to develop new clients requires a commitment to business development and a recognition that program accomplishments take time to mature, particularly given the market conditions seen in the resource sector in recent years. The focus on diversification has brought to light new market opportunities for the Company, some of which the Company has been able to service through organic growth and others where the Company has identified the need for an acquisition to spur the Company’s entry into a new sector. Mass timber projects is an example where the Company has built an Page 23 Management’s Discussion and Analysis impressive resume. The Company is also working to leverage its investment in Stack, a modular construction company with production operations in China, as an alternative manner of delivering projects such as hotels, senior housing, residential apartments and select condominiums and commercial office buildings for key clients. The Company and Stack have complementary knowledge, resources and expertise that positions them well to serve the permanent modular construction market in Canada and the United States. The Company remains active in researching potential acquisition targets and is generally looking to add self-perform capabilities with niche service offerings that should enhance overall profit margins and that should provide the Company with a platform for future growth. Build Efficiencies As a primary initiative of the Build the Business pillar, Bird’s strategy for Build Efficiencies is to drive business process improvements to gain efficiencies and generate savings from overheads. These savings are intended to be reinvested into the Company’s strategic initiatives. Through 2019, the Company successfully introduced new software platforms to aid operations in safety management, human resource management, project delivery and business intelligence. Increasing process efficiency, particularly for the operations team, should also lead to greater engagement amongst the employee group and is anticipated to positively impact production as project teams should be able to dedicate more energy to project execution and less to administrative tasks. Safe Production At Bird, the single most important value is Safety and the goal is zero harm. Building on a highly reputable and proven safety program, this ongoing initiative should further the Company’s commitment to embedding a Safe Production mindset throughout the project lifecycle, from estimating through to post-job assessment. It requires driving greater involvement and commitment from subcontractors and suppliers and should further extend to fostering the safe planning and execution of Bird employee activities off the job. This holistic approach reflects the Company’s fundamental belief that thinking and acting safely is not a switch that can, or should be, activated when arriving at or leaving the job site or workplace. Rather, it is a mindset that must be encouraged, nurtured and supported so that safe behaviours become a habit; repeatable, sustainable, and embedded in everything Bird staff do. BUILD THE TEAM Drive Positive Engagement, Become the Employer of Choice and Grow Our Talent The Build the Team pillar includes a wide range of human resource program initiatives intended to enhance the employee experience, Drive Positive Engagement, and create a stronger and more productive workforce. Bird’s success is highly dependent on the Company’s ability to Grow Our Talent and Become the Employer of Choice. This involves attracting, developing and retaining a highly skilled workforce at all levels within the organization. The Company is committed to providing employees and potential employees with interesting and challenging work and opportunities to build a successful career in every aspect of the business. Through the strategic planning process, several key priorities and challenges pertaining to the recruitment, onboarding, development, performance management and retention of employees were identified. A key element of the Company’s plan is the enhancement of a meaningful employee recognition program to go along with annual service awards and the Company’s 25-year and 50-year clubs. New investment and the implementation of a software platform in 2019 helps the Company employ more streamlined and proactive solutions for these priorities in 2020 and beyond. It should also help elevate the employee experience and Drive Positive Engagement at Bird by facilitating effective talent management and mobility across the organization. An updated employee handbook, onboarding resources and the delivery of in-house leadership training programs that focus on people and management skills rather than technical skills, should help facilitate the Company’s success. The training programs include the Bird Leadership Academy (senior leaders), Bird Site Management Program (site supervisors and project site-based staff) and Taking Flight (new managers and supervisors). By continuously developing and refining policies and programs to engage employees at work and in their communities, offering new and innovative training programs, driving ongoing leadership development, and making a career at Bird more than just a job, the Company can recruit, develop and retain top talent while ensuring compensation programs remain market competitive. Page 24 Management’s Discussion and Analysis offset total CO2 emissions. Bird has built one of the strongest resumes in the country in mass timber projects, and the company aims to continue being a leader in this sector. Social Responsibility As befitting of a Company that started out as a family business, critical to Bird’s successful growth is our continued commitment to the health and safety of the employees and other stakeholders who work on our sites and in our offices every day. This is a critical component of our operational strategy, a core company value, and a key corporate social responsibility. At Bird, we understand that a corporate commitment to health and safety yields tremendous dividends in both business and human capital. In addition to reducing related health and safety costs and reducing the frequency and severity of work- related personal injuries and property damage, a robust health and safety program leads to greater engagement of our employees and other stakeholders. This, in turn, produces a stronger commitment to product and service quality, improved productivity and client satisfaction. From project planning to execution, through ongoing communication, documentation, orientation, training, and review and analysis, we seek to ensure continuous improvement in all facets of our operations. This approach better prepares and supports all our workers and managers to act as safety leaders in the construction industry. In a highly competitive business environment, resourcing remains one of the greatest challenges facing the construction industry. Bird’s commitment to the health and safety of our employees and partners enhances both employee recruitment and retention and serves to provide a strategic competitive advantage, allowing us to continue to successfully pursue and execute challenging work. Community engagement and social responsibility is also a key focus area for Bird and our employees. We direct our efforts towards youth and education initiatives, community sponsorship, health and wellness in the community, and Indigenous engagement. The Company’s approach to Indigenous relations is closely aligned with the core values of the company to operate with integrity, provide stewardship, and invest in people. Bird is committed to building capacity within Indigenous business communities and investing in community programs that support Indigenous skills development, including offering a variety of post-secondary scholarships and bursaries. The Company adopted a National Indigenous Engagement Policy to ensure a consistent and culturally appropriate approach across all operations and has instituted a mandatory Indigenous Cultural Awareness Training Program for all employees, which is also available to subtrades. Bird is proud to be part of the Canadian Council for Aboriginal Business’ Progressive Aboriginal Relations (PAR) certification process, which confirms corporate performance in Indigenous relations and indicates to communities that participating companies are good business partners, a great place to work, and committed to prosperity in Indigenous communities. Bird’s membership in the Aboriginal Procurement Champions Group provides assurance that procurement opportunities are made available to businesses that are independently pre-certified as at least 51 per cent Indigenous owned and controlled. Governance The Board of Directors and the Management of the Company are committed to a strong corporate governance framework. As a public company whose securities are traded on the Toronto Stock Exchange, the company’s Board of Directors has adopted, as its approach to corporate governance, the guidelines set out in National Instrument 58-101 - Disclosure of Corporate Governance Practices, National Instrument 52-110 – Audit Committees, and National Policy 58-201 - Corporate Governance Guidelines. A strong culture of ethical conduct is central to good governance at Bird. The Company and its Board are committed to conducting their activities in accordance with the highest standards of business ethics. These standards are intended to provide guidance regarding ethical issues, to assist in recognizing and dealing with ethical issues, to provide mechanisms to report unethical conduct, and to help foster a culture of honesty and accountability. Page 26 Management’s Discussion and Analysis The Director Code of Ethics requires that the company’s Directors disclose any potential or actual conflict of interest to ensure independent judgment regarding Board discussions and decision making. In the event of any potential or actual conflict of interest by a Director in relation to a Board matter, the Director will withdraw from the deliberations and not vote upon such matter. The Board has also approved the following written codes and policies applicable to all employees: Employee Code of Ethics, Anti-Bribery and Corruption Policy, Insider Trading and Blackout Policy and Whistleblower Policy. The Board and its committees have adopted governance best practices including: (cid:120) (cid:120) (cid:120) (cid:120) Recognition of the benefits of promoting Board diversity. Diverse perspectives contribute to innovation and growth opportunities, and the Board believes that diversity may be achieved through a range of factors including gender diversity, diverse skills and experiences, regional diversity and industry diversity. The Whistleblower Policy gives employees and others the opportunity to report any potential violations of regulatory matters including accounting, financial reporting, securities laws, and financial audit matters, as well as matters relating to business practices including conflicts, business, professional and personal ethics and other matters set out in the company’s Ethics Policies. The Board has discretion to hire independent advisors (including outside legal counsel, independent auditors and others) to help investigate any matter. Regular in-camera meetings, without officers and management present. These sessions enable the Board and committees to discuss issues in a candid and independent manner without the influence of senior management. To make sure the Board functions independently of management, the Board has the flexibility to retain and to meet with external consultants without the presence of management whenever the Board sees fit. Conducting performance evaluations of the Board, the Audit Committee, the Human Resource, Safety and Governance Committee (“HRS&G”), each of their chairs and individual Directors on a regular basis. In 2019, each of the Directors completed confidential questionnaires to evaluate the effectiveness of the Board, its committees and the Directors, and made recommendations for improving performance. The chair of the Board and the chair of the HRS&G Committee also conducted informal discussions with each individual Director. Now more than ever, companies are being called upon to be leaders in environmental, social, and governance initiatives. Bird endeavors to be at the forefront of industry efforts to be responsible, responsive, and innovative corporate citizens. More information can be found in our Management Information Circular. Page 27 Management’s Discussion and Analysis Gross Profit Percentage Once the Company has secured a contract, the profitability of that contract, measured by the Gross Profit Percentage, is primarily a function of management’s ability to control costs, achieve productivity objectives associated with the contract and resolve outstanding commercial issues as they arise. The following table shows the Gross Profit Percentage realized by the Company in the comparative periods: Gross Profit Percentage December 31, 2019 December 31, 2018 5.2% 4.2% During 2019 the Company realized a Gross Profit Percentage of 5.2% compared with 4.2% in 2018. The year-over-year improvement is driven by the revenue mix, with a larger portion of revenue recognized from the Company’s higher margin industrial operations. Financial Condition The Company must have adequate working capital and equity retained in the business to support its ongoing operations, including surety and contract security requirements. The Company continually monitors the adequacy of its working capital and equity to satisfy contract security needs. The following table shows the working capital and shareholders’ equity of the Company in the comparative reporting periods: (in thousands of Canadian dollars) Working capital Shareholders' equity December 31, 2019 December 31, 2018 $ $ 80,503 127,720 $ $ 70,215 136,229 At December 31, 2019, the Company had working capital of $80.5 million compared with $70.2 million at December 31, 2018, an increase of $10.3 million. In 2019, the majority of the increase in working capital was driven by the Company’s net income of $9.5 million, a $15.7 million net increase in non-current loans and borrowings and classifying $3.8 million of investments in equity accounted equities as held for sale. Partially offsetting these increases to working capital were the $16.6 million in dividends paid and the net additions of equipment and intangible assets of $2.9 million. The $8.5 million decrease in the amount of the Company’s shareholders’ equity since December 31, 2018 was primarily the result of the $16.6 million dividends declared in 2019 offset by the net income of $9.5 million generated in 2019. In addition, opening retained earnings decreased $1.4 million on the adoption of IFRS 16 on January 1, 2019. Safety At Bird, ensuring that all work on our sites is executed to exacting quality standards begins with our commitment to creating and sustaining a culture in which the identification, assessment, and elimination or control of hazards and risks is incorporated into every aspect of our operations. We call this Safe Production, and it is a cornerstone of our operational philosophy and approach. Ensuring that all workers leave our jobsites everyday just as healthy and safe as when they arrived is a shared commitment and by working collaboratively with our employees and subcontractors to achieve this, we minimize risk and create the appropriate conditions for the safe execution of construction activity - on time, on budget, and to our client’s satisfaction. We believe this shared commitment is critical to our overall success. It is how we work. Through our robust orientation and training programs and our ongoing communication and engagement activities, we encourage all workers to actively contribute to our ongoing efforts to continuously improve not only our safety program, but overall collaboration and effectiveness. In this way, we not only ensure they leave work healthy and safe every day, but in doing so, help contribute to our overall operational excellence. Page 29 Management’s Discussion and Analysis THREE MONTHS ENDED DECEMBER 31, 2019 COMPARED WITH THREE MONTHS ENDED DECEMBER 31, 2018 Selected Fourth Quarter Financial Information Consolidated Statement of Income (in thousands of Canadian dollars) Construction revenue Costs of Construction Gross Profit Income from equity accounted investments General and administrative expenses Income from operations Finance income Finance and other costs Income before income taxes Income tax expense Net income for the period For the three months ended December 2018 (unaudited) 2019 (unaudited) $ $ 420,612 394,228 26,384 739 (16,302) 10,821 769 (1,553) 10,037 1,870 $ 8,167 $ 385,854 363,147 22,707 1,522 (15,180) 9,049 498 (1,978) 7,569 1,190 6,379 During the fourth quarter of 2019, the Company recorded net income of $8.2 million on construction revenue of $420.6 million compared with net income of $6.4 million on $385.9 million of construction revenue respectively in 2018. The year- over-year increase of revenue in the fourth quarter of 9.0% was driven by growth in the industrial work program more than offsetting a decline in the institutional work programs. The year-over-year increase in fourth quarter net income is reflective of the improvement in earnings attributable to the mix of higher margin industrial work program in the fourth quarter of 2019. The Company’s fourth quarter gross profit of $26.4 million was $3.8 million or 16.2% higher than the $22.7 million recorded a year ago. The increase in the amount of fourth quarter 2019 gross profit is driven by the higher quarterly construction revenues year-over-year. In addition, the increase in gross profit is due to a higher-margin work program as revenue contribution shifted from predominantly institutional and commercial projects to a more balanced work program in 2019. Gross Profit Percentage in the fourth quarter of 2019 was 6.3% and 0.4% higher than the Gross Profit Percentage of 5.9% recorded a year ago. Gross Profit Percentage in 2019 improved due to a larger volume mix of revenue recognized from the Company’s higher margin self-perform operations in its industrial work programs. Income from equity accounted investments in the fourth quarter of 2019 was $0.7 million, compared with $1.5 million in same period of 2018. The income in fourth quarter of 2019 and 2018 was primarily driven by the margin earned from a project in eastern Canada. The income in fourth quarter of 2019 was lower year-over-year due to losses from some PPP equity accounted entities which were anticipated at their stage of the project lifecycle. In the fourth quarter of 2019, general and administrative expenses of $16.3 million (3.9% of revenue) were $1.1 million higher than $15.2 million (3.9% of revenue) in the comparable period a year ago. The Company had additional third-party pursuit costs which were $1.2 million higher than the amount recorded in 2018. In the fourth quarter of 2019 the Company also had a lower foreign exchange gain compared to a foreign exchange gain of $0.9 million recorded in 2018. Offsetting these negative variances, compensation expense was $1.3 million lower than the amount recorded a year ago primarily due to the gain recorded on the total return swap program in 2019. Finance income of $0.8 million in the fourth quarter of 2019 is comparable to the $0.5 million recorded in the same period of 2018 due to higher cash balances. Page 31 Management’s Discussion and Analysis Credit Facilities The Company has several credit facilities available to access in order to support the issuance of letters of credit, finance future capital expenditures and finance the day-to-day operations of the business. Operating Credit Facilities (cid:120) Committed revolving operating credit facilities The Company has a committed revolving credit facility of up to $85.0 million, with a Canadian chartered bank. The facility matures December 31, 2022. This facility may be used in the normal course of business for general working capital purposes, to issue non-collateralized letters of credit, and to fund future capital expenditures and qualifying permitted acquisitions. At December 31, 2019, the Company has $28.5 million in letters of credit outstanding (December 31, 2018 - $24.3 million) and has drawn $15.0 million on this facility (December 31, 2018 - $15.0 million). The $15.0 million draw is presented as long-term loans and borrowings on the Company’s statement of financial position. At December 31, 2019, the Company was in compliance with the working capital, minimum equity and debt- to-equity covenants of this facility. (cid:120) Committed revolving term loan facility The Company has a committed revolving term loan facility totalling $35.0 million for the purpose of financing acquisitions and for working capital advances in support of major projects. The facility matures on December 31, 2021. As of December 31, 2019, the Company has drawn $10.0 million (December 31, 2018 - $nil) on the facility. Borrowings under the facility bear interest at a rate per annum equal to the Canadian prime rate plus a spread. A commitment fee that varies depending on certain consolidated financial ratios is due on the unutilized portion of the facility. At December 31, 2019, the Company was in compliance with the working capital, minimum equity and debt-to-equity covenants of this facility. Letters of Credit Facilities The Company has available $80.0 million of demand facilities used primarily to support the issuance of letters of credit. All letters of credit issued under these facilities are supported by the pledge of Company-owned financial instruments, including cash. At December 31, 2019, the Company has $6.6 million in letters of credit outstanding on this facility (December 31, 2018 - $8.5 million). The Company has available a facility with Export Development Canada (EDC) to support the issuance of contract performance security letters of credit issued by financial institutions on behalf of the Company. The Company can use this facility only when letters of credit have been issued as contract security for projects that meet the EDC mandate to provide financial support for Canadian exports abroad. Letters of credit are typically issued to support the Company’s performance obligations relating to PPP and other major construction projects. The following table outlines the amount of the credit facilities, the amount of issued letters of credit and the amount of collateral pledged in support of the outstanding letters of credit: Page 35 Management’s Discussion and Analysis (in thousands of Canadian dollars) Committed revolving operating credit facility Letters of credit issued from committed revolving operating credit facility Drawn from committed revolving operating credit facility Available committed revolving operating credit facility Committed revolving term loan facility Drawn from committed revolving term loan facility Available committed revolving term loan facility Letters of credit facilities Letters of credit issued from letters of credit facilities Available letters of credit facilities Collateral pledged to support letters of credit Guarantees provided by EDC Equipment Financing December 31, 2019 December 31, 2018 $ $ $ $ $ 85,000 28,504 15,000 41,496 35,000 10,000 25,000 80,000 6,559 73,441 139 6,421 $ $ $ $ $ 85,000 24,291 15,000 45,709 35,000 - 35,000 80,000 8,468 71,532 2,645 5,948 The Company and its subsidiaries have term credit facilities of up to $35.0 million to be used to finance equipment purchases. Borrowings under the facilities are secured with a first charge on the equipment being financed. As of December 31, 2019, there is $12.4 million outstanding on the facilities (December 31, 2018 - $6.7 million). Interest on the facilities can be charged at a fixed rate based on the Bank of Canada bond rate plus a spread. Interest is paid monthly in arrears. In addition, subsidiaries of the Company have equipment acquisition operating lease lines of credit for $31.8 million (December 31, 2018 - $32.5 million) with the financing arms of several major heavy equipment suppliers to finance the purchase of equipment. At December 31, 2019, the Company has used $11.7 million under these facilities (December 31, 2018 - $6.6 million). The Company’s total lease commitments are outlined under Contractual Obligations. At December 31, 2019, the Company was in compliance with all debt covenants relating to its operating and equipment operating lease lines of credit. Loans and Borrowings and ROU Liabilities In 2019, the Company entered new fixed-rate term loans for $24.5 million and added $10.8 million of ROU liabilities relating to equipment and property leases. The Company made $5.1 million in principal repayments for loans and borrowings and $7.6 million for principal repayments to ROU liabilities. The following table provides details of outstanding loans and borrowings and ROU liabilities as at December 31, 2019, and principal repayments due over the next five years and beyond, excluding the amortization of debt financing costs and non- recourse project financing: (in thousands of Canadian dollars) Amount Year 1 Year 2 Year 3 Year 4 Year 5 and beyond Loans and borrowings ROU Liabilities $ $ 40,621 31,100 $ $ 5,881 8,024 $ $ 15,223 6,723 $ $ 18,491 4,318 $ $ 850 3,156 $ $ 176 8,879 Page 36 Management’s Discussion and Analysis Cash Flow Data The following table provides an overview of cash flows during the periods indicated: (in thousands of Canadian dollars) Cash flows from operations before changes in non-cash working capital Changes in contract assets - alternative finance projects Changes in non-cash working capital and other Cash flows from (used in) operating activities Investments in equity accounted entities Capital distributions from equity accounted entities Additions to property, equipment and intangible assets Proceeds on sale of property and equipment Purchase of short-term investments Proceeds on maturity of short-term investments Other long-term assets Cash flows used in investing activities Dividends paid on shares Proceeds from non-recourse project financing Repayment of non-recourse project financing Proceeds from loans and borrowings Repayment of loans and borrowings Repayment of right-of-use liabilities Cash flows from (used in) financing activities (unaudited) Quarter ended December 31, 2018 2019 Year ended December 31, 2018 2019 $ $ 15,525 (28,367) 67,546 54,704 $ 11,045 (2,384) 77,321 85,982 112 353 (2,807) 733 - 39 (283) (1,853) (4,145) 29,039 - 10,000 (1,507) (2,406) 30,981 (2,270) 280 (2,065) 314 - - (652) (4,393) (4,145) 3,260 - 571 (674) (740) (1,728) $ 30,201 (68,054) (223) (38,076) - 1,846 (14,431) 2,661 - 1,705 - (8,219) (16,582) 72,832 - 24,536 (5,113) (7,615) 68,058 12,320 66,825 22,296 101,441 (4,020) 1,873 (14,613) 3,235 (4,742) 3,107 (861) (16,021) (16,582) 24,734 (76,474) 14,242 (3,221) (3,513) (60,814) Increase in cash and cash equivalents $ 83,832 $ 79,861 $ 21,763 $ 24,606 Operating Activities During of fiscal 2019, cash flows from operating activities used cash of $38.1 million compared with cash generated of $101.4 million in 2018. Cash flows from operations before changes in non-cash working capital increased $17.9 million year-over-year from the $12.3 million cash generated in 2018 primarily due to the $10.5 million improvement in net income, a higher non-cash addback for amortization and depreciation of $4.5 million compared to 2018 and a higher non-cash addback for income tax expense year-over-year of $4.1 million from 2018. These increases were offset by other non-cash changes of $1.3 million. Changes in contract assets – alternative finance projects in 2019 used $68.0 million of cash. This use of cash was more than offset by the $72.8 million on proceeds from non-recourse project financing. The activity in 2019 relates to the OPP Modernization Phase 2 alternative finance project. The OPP Modernization project was ramping up construction throughout 2019 and therefore builds up contract assets. In 2018 the $66.8 million of cash generated by changes in contract assets – alternative finance projects related to the completion (in the second quarter of 2018) and billing of the Avenir Centre alternative finance project. During 2019, the $0.2 million decrease in cash from changes in non-cash working capital and other was driven by a $26.4 million increase in accounts payable, a $54.5 million increase in contract liabilities and partially offset by a $94.8 million decrease in accounts receivable. During 2018, the primary drivers of the $22.3 million increase in cash from the changes in non-cash working capital and other was the $18.9 million decrease in accounts receivable, a $6.6 million decrease in contract assets partially offset by a $2.4 million decrease in contract liabilities. The increase in accounts receivable primarily relates to an alternative finance project that achieved substantial completion and was billed in the third quarter of 2018. Proceeds and repayments of the non-recourse debt relating to alternative finance projects are included in financing activities. Page 37 Management’s Discussion and Analysis The PPP procurement model also typically results in the transfer of certain risks to the contractor beyond what would be the case for a similar facility under a conventionally non-PPP procurement model. These include responsibility and potential liability for matters such as changes in law and certain force majeure and delay events. In addition, if Bird’s contract was terminated for cause, the Company would be exposed to substantial liability for breakage costs to the concession and its lenders. The security required to support the obligations that the Company undertakes on these projects typically includes substantial letters of credit which may be drawn upon in the event the Company fails to meet its obligations. Design Risks While many contracts entered into by Bird are for construction or construction services only, certain contracts are undertaken on a design-build basis, under which Bird is responsible for both design and construction of the project, which adds design risk assumed by Bird. While Bird subcontracts all of the design scope in such design-build contracts to reputable designers, there is generally not a full transfer of design-related risks. These risks include design development and potential resulting scope creep, delays in the design process that may adversely affect the overall project schedule, and design errors and omissions. To manage these risks, Bird manages and oversees the design process, coordinates the design deliverables with the construction process and, for significant design-build projects, purchases errors and omissions insurance. Ability to Secure Work Bird generally secures new contracts either through a competitive bid process or through negotiation. Awards in both the public and private sectors are generally based upon price, but are also influenced and sometimes formally based on other factors, such as the level of services offered, safety record, construction schedule, design (if applicable), project personnel, the consortium, joint venture and subcontractor team, prior experience with the prospective client and/or the type of project, and financial strength including the ability to provide bonds and other contract security. In order to be afforded an opportunity to bid for large projects and in the PPP market, a strong balance sheet measured in terms of an adequate level of working capital and equity is typically required. Bird operates in markets that are highly competitive and there is constant pressure to find and maintain a competitive advantage. In the current economic climate, competition is intense. This presents significant challenges for the Company. If those competitive challenges are not met, Bird’s client base could be eroded or it could experience an overall reduction in profits. A decline in demand for Bird’s services from the private sector could have an adverse impact on the Company if that business could not be replaced within the public sector. A portion of Bird’s construction activity relates to government- funded institutional projects. Any reduction in demand for Bird’s services by the public sector, whether as a result of funding constraints, changing political priorities or delays in projects caused by elections or other factors, could have an adverse impact on the Company if that business could not be replaced within the private sector. Government-funded projects also typically have long and sometimes unpredictable lead times associated with government review and approval. The time delays associated with this process can constitute a risk to general contractors pursuing these projects. Certain government-funded projects, particularly PPP and alternative finance projects, may also require significant bid costs which can only be recovered if Bird is the successful bidder. A number of governments in Canada have procured a significant value of projects under a PPP and/or alternative finance contract format, which is an attractive market for the Company. A reduction in the popularity of this procurement method or difficulties in obtaining financing for these projects would have negative consequences for Bird. Performance of Subcontractors Successful completion of a contract by Bird depends, in large part, on the satisfactory performance of its subcontractors who are engaged to complete the various components of the work. Subcontractor defaults tend to increase during depressed market conditions. If subcontractors fail to satisfactorily perform their portion of the work, Bird may be required to engage alternate subcontractors to complete the work and may incur additional costs. This can result in reduced profits or, in some cases, significant losses on the contract and possible damage to Bird’s reputation. Page 43 Management’s Discussion and Analysis In addition, the ability of Bird to bid for and successfully complete projects is, in part, dependent on the availability of qualified subcontractors and trades people. Depending on the value of a subcontractor’s work, Bird may require some form of performance security and achieves this through the use of surety bonds, subcontractor default insurance or other forms of security from the subcontractor to mitigate Bird’s exposure to the risks associated with the subcontractor’s performance and completion. A significant shortage of qualified subcontractors and trades people or the bankruptcy of a subcontractor could have a material impact on Bird’s financial condition and results of operations. Competitive Factors Bird competes with many international, national, regional and local construction firms. Competitors often enjoy advantages in a particular market that Bird does not have, or they may have more experience or a better relationship with a particular client. On any given contract bid or negotiation, Bird will attempt to assess the level of competitive pressure it may face and it will attempt to neutralize or overcome any perceived advantage that its competitors have. Depending on this assessment, Bird will decide whether or not to pursue a contract. In addition, this assessment bears directly on decisions that Bird will make, including what level of profit can be incorporated into its contract price and what personnel should be assigned to the contract. The accuracy of this assessment and the ability of Bird to respond to competitive factors affect Bird’s success in securing new contracts and its profitability on contracts that it does secure. Estimating Costs and Schedules/Assessing Contract Risks The price for most contracts performed by Bird is based, in part, on cost and schedule estimates that are subject to a number of assumptions. Erroneous assumptions can result in an incorrect assessment of risks associated with a contract or estimates of project costs and schedules that are in error, potentially resulting in lower than anticipated profit or significant loss. All significant cost and schedule estimates are reviewed by senior management prior to tender submission in an attempt to mitigate these risks. Maintaining Safe Work Sites Despite the Company’s efforts to minimize the risk of safety incidents, they can occur from time to time and, if and when they do, the impact on Bird can be significant. Bird’s success as a general contractor is highly dependent on its ability to keep its construction work sites and offices safe and any failure to do so can have serious impact on the personal safety of its employees and others. In addition, it can expose Bird to contract termination, fines, regulatory sanctions or even criminal prosecution. Bird’s safety record and worksite safety practices also have a direct bearing on its ability to secure work, particularly in the industrial sector. Certain clients will not engage particular contractors to perform work if their safety practices do not conform to predetermined standards or if the general contractor has an unacceptably high incidence of safety infractions or incidents. Bird adheres to very rigorous safety policies and procedures which are continually reinforced on its work sites and offices. Management is not aware of any pending health and safety legislation or prior incidents which would be likely to have a material impact on any of Bird’s operations, capital expenditure requirements, or competitive position. Nevertheless, there can be no guarantee with respect to the impact of future legislation or incidents. Accuracy of Cost to Complete Estimates As Bird performs each construction contract, costs are continuously monitored against the original cost estimates. On at least a quarterly basis, a detailed estimate of the costs to complete a contract is compiled by Bird. These estimates are an integral part of Bird’s process for determining construction revenues and profits and depend on cost data collected over the duration of the project as well as the judgments of Bird’s field and office personnel. To the extent that the costs to complete estimates are based on inaccurate or incomplete information, or on faulty judgments, the accuracy of reported construction revenues and profits can be compromised. Bird has adopted many internal control policies and procedures aimed at mitigating exposure to this risk. Page 44 Management’s Discussion and Analysis Work Stoppages, Strikes and Lockouts Bird is signatory to a number of collective bargaining agreements. Future negotiation of these collective bargaining agreements could increase Bird’s operating expenses and reduce profits as a result of increased wages and benefits. Failure to come to an agreement in these collective bargaining negotiations or those of its subcontractors and suppliers or government agencies could result in strikes, work stoppages, lockouts or other work action, and increased costs resulting from delays on construction projects. A strike or other work stoppage is disruptive to Bird’s operations and could adversely affect portions of its business, financial position, results of operations and cash flows. Adjustments and Cancellations of Backlog The performance of the Company in a period depends significantly on the contribution from projects in its backlog. There can be no assurance that the revenues or profits included in backlog at any point in time will be realized. Contract suspensions, reductions and cancellations, which are beyond the control of Bird, do occur from time-to-time in the construction industry. Customers may have the right to suspend, cancel or reduce the scope of their contracts with Bird and, though Bird generally has a contractual right to be reimbursed for certain costs, it typically has no contractual rights to the total revenue or profit that was expected to be derived from such projects. These reductions could have a material adverse impact on future revenues and profitability. Information Systems and Cyber-security Risk The Company relies on information technology to manage, process, store and transmit electronic information. Complete, accurate, available and secure information is vital to the Company’s operations and any compromise in such information could result in improper decision making, inaccurate or delayed operational and/or financial reporting, delayed resolution to problems, breach of privacy and/or unintended disclosure of confidential information. Failure in the completeness, accuracy, availability or security of the Company’s information systems, the risk of system interruption or failure during system upgrades or implementation, or a breach of data security could adversely affect the Company’s operations and financial results. In addition, cyber-security incidents relating to the Company’s information technology systems may disrupt operations and impact operating results. Cyber-security incidents may occur from a range of techniques, from phishing or hacking attacks to sophisticated malware, hardware or network attacks. While the Company has implemented systems, policies, procedures, practices, hardware and backups designed to prevent and limit the effect of cyber-security attacks, there can be no assurance that these measures will be sufficient to prevent, detect or address the attacks in a timely matter or at all. A successful cyber-attack may allow unauthorized interception, destruction, use or dissemination of the Company’s confidential information, which could have a material adverse effect on the business. In the fall of 2019, Bird Construction responded to a cyber incident that resulted in the encryption of Company files. Bird continued to function with no business impact, as management worked with leading cyber security experts to restore access to the affected files. At the time, the Company disclosed the incident on our website and notified appropriate authorities. Page 45 Report to Shareholders Management’s Responsibility for Financial Reporting The management of Bird Construction Inc. (“Company”) is responsible for the preparation and integrity of the consolidated financial statements contained in the Annual Report. These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) and necessarily include some amounts that are based on management’s best estimates and judgment. Financial information contained throughout this Annual Report is consistent with the financial statements. Management maintains appropriate systems of internal control. Policies and procedures are designed to provide reasonable assurance that transactions are properly authorized, assets are safeguarded and financial records are properly maintained to provide reliable information for the preparation of financial statements. The Board of Directors has reviewed and approved the consolidated financial statements. The Board fulfills its responsibility in this regard through its Audit Committee which meets regularly with management and the Company’s external auditors. Paul A. Charette Wayne R. Gingrich Chairman of the Board of Directors Chief Financial Officer Page 47 KPMG LLP One Lombard Place Suite 2000 Winnipeg MB R3B 0X3 Telephone (204) 957-1770 Fax (204) 957-0808 www.kpmg.ca INDEPENDENT AUDITORS’ REPORT To the Shareholders of Bird Construction Inc. Opinion We have audited the consolidated financial statements of Bird Construction Inc. (the Entity), which comprise the consolidated statements of financial position as at December 31, 2019 and December 31, 2018, the consolidated statements of income (loss), comprehensive income (loss), changes in equity and cash flows for the years then ended, and notes to the financial statements, including a summary of significant accounting policies (hereinafter referred to as the “financial statements”). In our opinion, the accompanying financial statements present fairly, in all material respects, the consolidated financial position of the Entity as at December 31, 2019 and December 31, 2018, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards (IFRS). Basis for Opinion We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the “Auditors’ Responsibilities for the Audit of the Financial Statements” section of our auditors’ report. We are independent of the Entity in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Other Information Management is responsible for the other information. Other information comprises: (cid:120) Management’s Discussion and Analysis filed with the relevant Canadian Securities Commissions. (cid:120) Information, other than the financial statements and the auditors’ report thereon, included in a document likely to be entitled “2019 Annual Report”. Our opinion on the financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit and remain alert for indications that the other information appears to be materially misstated. KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. KPMG Canada provides services to KPMG LLP. Page 48 We obtained the Management’s Discussion and Analysis filed with the relevant Canadian Securities Commissions as at the date of this auditors’ report. If, based on the work we have performed on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact in the auditors’ report. We have nothing to report in this regard. The information, other than the financial statements and the auditors’ report thereon, included in a document likely to be entitled “2019 Annual Report” is expected to be made available to us after the date of this auditors’ report. If, based on the work we will perform on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact to those charged with governance. Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with IFRS, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Entity’s ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Entity or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Entity‘s financial reporting process. Auditors’ Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: (cid:120) Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. (cid:120) Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Entity's internal control. (cid:120) Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. Page 49 (cid:120) Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Entity's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Entity to cease to continue as a going concern. (cid:120) Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. (cid:120) Communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. (cid:120) Provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. (cid:120) Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group Entity to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. Chartered Professional Accountants The engagement partner on the audit resulting in this auditors’ report is Austin Abas. Winnipeg, Canada March 10, 2020 Page 50 Consolidated Statement of Financial Position As at December 31, (in thousands of Canadian dollars, except per share amounts) ASSETS Current assets Cash Bankers’ acceptances and short-term deposits Short-term investments Accounts receivable Contract assets Contract assets – alternative finance projects Inventory Prepaid expenses Income taxes recoverable Investments held for sale Other assets Total current assets Non-current assets Other assets Property and equipment Right-of-use assets Investments in equity accounted entities Deferred income tax asset Intangible assets Goodwill Total non-current assets TOTAL ASSETS LIABILITIES Current liabilities Accounts payable Contract liabilities Dividends payable to shareholders Income taxes payable Non-recourse project financing Current portion of loans and borrowings Current portion of right-of-use liabilities Provisions Other liabilities Total current liabilities Non-current liabilities Loans and borrowings Right-of-use liabilities Deferred income tax liability Other liabilities Total non-current liabilities TOTAL LIABILITITES SHAREHOLDERS’ EQUITY Shareholders’ capital Contributed surplus Retained earnings Accumulated other comprehensive income Total shareholders’ equity TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY Note 2019 2018 25 25 8 6 7 10 9 9 11 11 10 14 12 12 6 7 13 13 19 15 13 13 14 15 17 $ $ $ $ 180,244 $ 90 – 413,649 31,018 75,180 549 2,595 13,083 6,978 5,972 729,358 6,608 46,016 34,460 10,185 11,287 2,484 16,389 127,429 856,787 $ 157,151 1,769 1,705 337,663 28,412 7,126 840 2,566 5,559 3,762 – 546,553 6,852 43,153 13,073 12,517 10,909 2,575 16,389 105,468 652,021 419,923 $ 112,126 1,382 6,174 85,374 5,883 8,025 7,763 2,205 648,855 383,608 60,003 1,382 3,444 11,824 2,151 3,053 8,593 2,280 476,338 34,738 23,075 13,868 8,531 80,212 729,067 42,527 1,956 83,197 40 127,720 856,787 $ 19,047 5,706 7,355 7,346 39,454 515,792 42,527 1,956 91,743 3 136,229 652,021 The accompanying notes are an integral part of these consolidated financial statements. Page 51 Consolidated Statement of Income (Loss) For the years ended December 31, (in thousands of Canadian dollars, except per share amounts) Construction revenue Costs of construction Gross profit Income from equity accounted investments General and administrative expenses Income from operations Finance income Finance and other costs Income (loss) before income taxes Income tax expense (recovery) Net income (loss) for the period Basic and diluted earnings (loss) per share Note 2019 2018 6 $ 1,376,408 $ 1,305,458 70,950 1,381,784 1,324,194 57,590 10 20 21 14 18 2,693 (58,722) 14,921 2,596 (5,558) 11,959 2,475 1,894 (58,933) 551 1,386 (4,611) (2,674) (1,661) $ $ 9,484 $ (1,013) 0.22 $ (0.02) The accompanying notes are an integral part of these consolidated financial statements. Page 52 Consolidated Statement of Comprehensive Income (Loss) For the years ended December 31, (in thousands of Canadian dollars) Note 2019 2018 Net income (loss) for the period $ 9,484 $ (1,013) Other comprehensive income for the period: Exchange differences on translating equity accounted investments Items that may be reclassified to net income in subsequent periods 10 Total other comprehensive income for the period 37 37 37 1 1 1 Total comprehensive income (loss) for the period $ 9,521 $ (1,012) The accompanying notes are an integral part of these consolidated financial statements. Page 53 Consolidated Statement of Changes in Equity For the years ended December 31, 2019 and 2018 (in thousands of Canadian dollars, except per share amounts) Note Shareholders’ capital Contributed surplus Retained earnings Accumulated other comprehensive income (loss) Total equity Balance, December 31, 2017 $ 42,527 $ 1,949 $ 109,338 $ 2 $ 153,816 Net income (loss) for the period Other comprehensive income Total comprehensive income for the period Contributions by and dividends to owners Stock-based compensation expense Dividends declared to shareholders – – – – – – – – – 7 – 7 (1,013) – (1,013) – (16,582) (16,582) – 1 1 – – – (1,013) 1 (1,012) 7 (16,582) (16,575) Balance, December 31, 2018 $ 42,527 $ 1,956 Dividends declared per share Balance, December 31, 2018 Impact on adoption of IFRS 16 Balance, January 1, 2019 $ 4 $ 42,527 – 42,527 1,956 – 1,956 Net income for the period Other comprehensive income (loss) Total comprehensive income for the period Contributions by and dividends to owners Dividends declared to shareholders – – – – – – – – – – Balance, December 31, 2019 $ 42,527 $ 1,956 Dividends declared per share $ $ $ $ $ 91,743 $ 3 $ 136,229 0.39 $ 91,743 (1,448) 90,295 9,484 – 9,484 (16,582) (16,582) 3 – 3 – 37 37 – – $ 136,229 (1,448) 134,781 9,484 37 9,521 (16,582) (16,582) 83,197 $ 40 $ 127,720 0.39 The accompanying notes are an integral part of these consolidated financial statements. Page 54 Consolidated Statement of Cash Flows For the years ended December 31, (in thousands of Canadian dollars) Cash flows from (used in) operating activities Net income (loss) for the period Items not involving cash: Amortization Depreciation Gain on sale of property and equipment Income from equity accounted investments Finance income Finance and other costs Deferred compensation plan expense and other Unrealized (gain) loss on investments and other Income tax expense (recovery) Stock-based compensation expense Cash flows from operations before changes in non-cash working capital Changes in non-cash working capital related to operating activities Interest received Interest paid Income taxes paid Net cash from (used in) operating activities Cash flows used in investing activities Investments in equity accounted entities Capital distributions from equity accounted entities Additions to property and equipment Proceeds on sale of property and equipment Additions to intangible assets Purchase of short-term investments Proceeds from maturity of short-term investments Other long-term assets Net cash used in investing activities Cash flows from (used in) in financing activities Dividends paid on shares Proceeds from non-recourse project financing Repayment of non-recourse project financing Proceeds from loans and borrowings Repayment of loans and borrowings Repayment of right-of-use liabilities Net cash from (used in) financing activities Net increase in cash and cash equivalents Effects of foreign exchange on cash balances Cash and cash equivalents, beginning of period Note 2019 2018 $ 9,484 $ (1,013) 12 11 10 20 21 14 16 25 10 10 11 11 12 7 7 13 13 13 873 14,941 (1,346) (2,693) (2,596) 5,558 3,156 349 2,475 – 30,201 (66,269) 2,521 (3,930) (599) (38,076) – 1,846 (13,649) 2,661 (782) – 1,705 – (8,219) (16,582) 72,832 – 24,536 (5,113) (7,615) 68,058 21,763 (349) 158,920 473 10,763 (873) (1,894) (1,386) 4,611 4,622 (1,329) (1,661) 7 12,320 95,397 1,349 (4,360) (3,265) 101,441 (4,020) 1,873 (13,103) 3,235 (1,510) (4,742) 3,107 (861) (16,021) (16,582) 24,734 (76,474) 14,242 (6,734) – (60,814) 24,606 1,259 133,055 Cash and cash equivalents, end of period 25 $ 180,334 $ 158,920 The accompanying notes are an integral part of these consolidated financial statements. Page 55 Notes to the Consolidated Financial Statements For the year ended December 31, 2019 (in thousands of Canadian dollars, except per share amounts) 1. Structure of the Company Bird Construction Inc. (the “Company”) is a corporation incorporated in the province of Ontario, Canada. The address of the Company’s registered office is 5700 Explorer Drive, Suite 400, Mississauga, Ontario, Canada. The Company, through its subsidiaries and interests in joint arrangements, carries on business as a general contractor with offices across Canada. The Company serves customers in the industrial, mining, institutional, retail, commercial, multi-tenant residential, light industrial, and renovation and restoration sectors using fixed priced, design-build, unit price, cost reimbursable, guaranteed upset price, construction management and integrated project delivery contract delivery methods. Segment results are reviewed by the Company’s Chief Executive Officer to assess performance and allocate resources within the Company. Management applies judgement in the aggregation of the Company’s operating segments and has determined that the Company operates in one reportable segment being the general contracting sector of the construction industry. The Company’s operating segments have similar economic characteristics in that each of the Company’s operating districts provides comparable construction services, use similar contracting methods, have similar long term economic prospects, share similar cost structures and operate in similar regulatory environments. 2. Basis of preparation Authorization of financial statements These consolidated financial statements were authorized for issue on March 10, 2020 by the Company’s Board of Directors. Statement of compliance These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”). Basis of measurement These consolidated financial statements have been prepared using the historical cost convention, except for certain financial assets, derivative financial instruments and liabilities for cash settled share-based payment arrangements which are measured at fair value. Use of estimates and judgements The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of revenues, expenses, assets, liabilities and the disclosure of contingent assets and liabilities at the reporting date. Uncertainty about these assumptions and estimates could result in a material adjustment to the carrying amount of an asset or liability and/or the reported amount of revenue and expense in future periods. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. Revenue and gross profit recognition Construction revenue, construction costs, contract liabilities, and contract assets are based on estimates and judgements used in determining contract revenue and contract costs to calculate the stage of completion for a particular construction project, depending upon the nature of the construction contract, as more fully described in the revenue recognition policy. To determine the estimated costs to complete construction contracts, assumptions and estimates are required to evaluate matters related to schedule, material and labour costs, labour productivity, changes in contract scope and subcontractor costs. Due to the nature of construction activities, estimates can change significantly from one accounting period to the next. The value of many construction contracts increases over the duration of the construction period. Change orders may be issued by customers to modify the original contract scope of work or conditions. In addition, there may be disputes or claims regarding additional amounts owing as a result of changes in contract scope, delays, additional work or changed Page 56 Notes to the Consolidated Financial Statements For the year ended December 31, 2019 (in thousands of Canadian dollars, except per share amounts) conditions. Construction work related to a change order or claim may proceed, and costs may be incurred, in advance of final determination of the value of the change order. Many change orders and claims may not be settled until the construction project is complete or subsequent to completion and the nature of the relationship with the other party to the claim and the history of success of these claims may impact the associated revenue or cost recovery. Claims against customers for variable consideration due to delays, changes, etc. are assessed under the Company’s revenue policy, which requires significant judgement. The amount of variable consideration that is constrained is the difference between the total claim value and the best estimate of recovery. This constrained value is reviewed each reporting period. Provisions Legal and warranty and other provisions involve the use of estimates. Estimates and assumptions are required to determine when to record and how to measure a provision in the financial statements. The outcomes may differ significantly from the estimates used in preparing the financial statements resulting in adjustments to previously reported financial results. Asset impairments Impairment testing is performed annually or earlier, if a triggering event occurs, for indefinite-lived intangible assets and goodwill resulting from business combinations, by comparing the recoverable amount of the cash generating unit ("CGU"), or groups of CGUs to its carrying amount. The recoverable amounts of the CGU are determined based on a value in use calculation. There is a significant amount of uncertainty with respect to the estimates of recoverable amounts of the CGUs' assets given the necessity of making economic projections which employ the following key assumptions: future cash flows, growth opportunities, including economic risk assumptions, and estimates of achieving key operating metrics and drivers; and the discount rate. 3. Summary of significant accounting policies The significant accounting principles used in these consolidated financial statements are as follows: Consolidation The consolidated financial statements include the accounts of the Company, its subsidiaries and partnerships, as well as its pro-rata share of assets, liabilities, revenues, expenses and cash flows from joint operations. Subsidiaries are entities controlled by the Company. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. All inter-company balances, transactions, revenues and expenses have been eliminated on consolidation. The consolidated financial statements include the accounts of the following significant subsidiaries: Page 57 Notes to the Consolidated Financial Statements For the year ended December 31, 2019 (in thousands of Canadian dollars, except per share amounts) Company Fully consolidated subsidiaries Ownership / Voting Interest 2018 2019 Bird Construction Inc. Bird Construction Company Limited Bird Construction Company (Limited Partnership) Bird Management Ltd. Bird Design-Build Limited Bird Capital Limited Bird Capital Limited Partnership Bird Industrial Group Limited Bird Design-Build Construction Inc. Westrac Resources Ltd. Westrac Resources Limited Partnership Bird Construction Group (Limited Partnership) Bird Construction Group Limited Bird General Contractors Ltd. (Formerly H.J. O’Connell, Limited) Bird Civil et mines Ltee (Formerly Les Enterprises de Construction de Québec Ltee)) Bird Heavy Civil Ltd. (Formerly H.J. O’Connell Construction Ltd.) Nason Contracting Group Ltd. Bird Casey House Limited Partnership Bird Capital MDC Project Co. Inc. Bird Construction Industrial Services Ltd. Bird Construction Group Ltd. NCGL Industrial Ltd. NCGL Construction Ltd. BFL Fabricators Ltd. Canadian Consulting Group Limited Innovative Trenching Solutions Ltd. Innovative Trenching Solutions Field Services Ltd. Bird Capital OMP Project Co. Inc. Proportionately consolidated joint arrangements Restigouche Hospital Centre Joint Venture HJOC-VPDL Placentia Bridge Joint Venture Arctic-Bird Construction Joint Venture Maple Reinders-Nason Joint Venture Bird Kiewit Joint Venture Bird/Wright Schools Joint Venture Bird/Wright Schools 2 Joint Venture Bird – Clark Stanton JV Bird – Civeo Joint Venture* Pomerleau/O’Connell JV Bird – Maple Reinders JV Maple Reinders – Bird JV Bird – ATCO Joint Venture CBS Joint Venture Chandos Bird Joint Venture * Joint Venture was dissolved on November 16, 2018 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 30% 50% 50% 50% 60% 70% 70% 50% N/A 50% 50% 50% 60% 42.5% 50% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 30% 50% 50% 50% 60% 70% 70% 50% 60% 50% 50% 50% 60% 42.5% N/A The Company has invested in a number of Public Private Partnerships (“PPP”) concession ventures usually holding a minority interest position in the venture. The Company has also invested in Stack Modular group of companies. In these instances, the Company can either exercise significant influence or joint control over the financial and operational policies of the venture (or investee). The Company uses the equity method of accounting to account for these investments. The Page 58 Notes to the Consolidated Financial Statements For the year ended December 31, 2019 (in thousands of Canadian dollars, except per share amounts) investment is recorded as the amount of the initial investment adjusted for the pro-rata share of the investee’s earnings less any distributions received from the investment. Company Equity accounted investment in associates/joint ventures Boreal Health Partnership* Chinook Resources Management General Partnership Harbour City Solutions General Partnership Hartland Resource Management General Partnership Joint Use Mutual Partnership #1* Joint Use Mutual Partnership #2* Plenary Infrastructure ERMF GP Stack Modular Structures Ltd. Stack Modular Structures Hong Kong Limited Niagara Falls Entertainment Partners Timmiak Construction Limited Partnership (Formerly Nillik Construction Limited Partnership) * Classified as investments held for sale Ownership / Voting Interest 2019 2018 25% 50% 20% 20% 20% 20% 10% 50% 50% 20% / 16.2% 69.99% / 33.33% 25% 50% 20% 20% 20% 20% 10% 50% 50% 20% / 16.2% 69.99% / 33.33% All of the above subsidiaries, joint arrangements, joint ventures and associates are incorporated or registered in Canada except Stack Modular Structure Hong Kong Limited which is incorporated and registered in Hong Kong. Revenue recognition Contract revenue is recognized in profit or loss in accordance with the pattern of satisfying the Company’s performance obligations under a contract. This satisfaction occurs when control of a good or service transfers to the customer. In the majority of the Company’s contracts, the customer controls the work in process as evidenced by the right to payment for work performed to date plus a reasonable profit to deliver products or services that do not have an alternative use to the Company, and the work is performed on the customer’s property. Based on the nature of these contractual arrangements, control is transferred over time and revenue is recognized over time. For each performance obligation satisfied over time, the Company recognizes revenue by measuring progress toward complete satisfaction of that performance obligation. Using output or input methods based on the type of contract, the Company recognizes revenue in a pattern that reflects the transfer of control of the promised goods or services to the customer. Revenue from fixed price (includes: PPP, alternative finance, design-build, and stipulated sum) and cost reimbursable (includes: cost plus and integrated project delivery “IPD”) contracts is recognized using the input method with reference to costs incurred. Revenue from unit price contracts in the heavy construction, civil construction and contract surface mining construction sectors is recognized based on the amount of billable work completed, established by surveys of work performed, an output method. For agency relationships, such as construction management contracts, where the Company acts as an agent for its customers, fee revenue only is recognized, generally in accordance with the contract terms. If the outcome of a construction contract cannot be estimated reliably for management to estimate the ultimate profitability of the contract with a reasonable degree of certainty, no profit is recognized. As the contract progresses further, the constrained margin and associated revenue are reassessed. Revenue from contract modifications, commonly referred to as change orders and claims, is recognized to the extent that the contract modifications have been approved by the customer and the amount can be measured reliably. In cases where the contract modification is approved, but the price has not been finalized, the Company accounts for the contract modification using variable consideration guidance described below. A claim against or dispute with a customer is considered variable consideration as it is in addition to the agreed upon performance obligations outlined in the original contract because of additional costs incurred due to delays and/or scope changes. The subsequent settlement of a claim or dispute through negotiation results in uncertainty as to the likelihood and amount that will be ultimately collected. The amount of variable consideration included in the transaction price may be constrained due to the uncertain nature of the recovery of the associated revenue. The Company will make an estimate of the amount to be constrained by using Page 59 Notes to the Consolidated Financial Statements For the year ended December 31, 2019 (in thousands of Canadian dollars, except per share amounts) either the most likely amount or the expected value method, by contract, depending which method is considered to best predict the amount of consideration to which the Company will be entitled. The amount of variable consideration to be included in the transaction price is only that to which it is highly probable that a significant reversal of cumulative revenue recognized to date will not occur. Management considers the following factors in their assessment of the probability of reversal: i. ii. iii. Susceptibility of consideration to factors outside the Company’s influence. Length of time before resolution of the uncertainty associated with the amount of consideration is expected. The Company’s experience with similar types of contracts is limited or the experience is not relevant or has limited predictive value. If, historically the Company has a practice of offering a broad range of pricing concessions or changing the payment terms and conditions of similar contracts in similar situations. The contract has a larger number and broad range of possible consideration amounts. v. Where the above factors indicate uncertainty associated with the outcome of the transaction price, the Company reviews the historical performance under similar contracts in order to determine the appropriate proportion of the variable consideration to be included in the transaction price. iv. For most arrangements, the customer contracts with the Company to provide a significant service of integrating a complex set of tasks and components into a single project or capability (even if that single project results in the delivery of multiple units). The Company therefore considers that the entire contract results in the delivery of a single performance obligation. Less commonly, the Company may promise to provide distinct goods or services within a contract, in which case the contract is separated into the associated performance obligations as assessed from the customer’s perspective. If a contract contains multiple performance obligations, the Company allocates the total transaction price to each performance obligation in an amount based on the estimated relative standalone selling prices of the promised goods or services underlying each performance obligation. When the Company is contracted to construct projects, the budgets and overall transaction prices are built up using the Company’s best estimate of costs associated to complete the project using the appropriate overhead and subcontractor rates for a given project and location. This approach to estimate the overall costs and associated revenues is considered the most appropriate assessment of the standalone selling price for the associated performance obligations. Where costs are determined to be greater than total revenues, losses from any construction contracts are recognized in full in the period the loss becomes known. Losses are recorded within provisions on the statement of financial position. Construction costs Construction costs are expensed as incurred unless they result in an asset related to future contract activity and meet the criteria to be capitalized as contract assets. Construction costs include all expenses that relate directly to execution of the specific contract, including site labour and site supervision, direct materials, subcontractor costs, equipment rentals and depreciation, design and technical assistance, and warranty claims. Construction costs also include overheads that can be attributed to the project in a systematic and consistent manner and include general insurance and bonding costs, and staff costs relating to project management. Contract assets and liabilities Any excess of costs and estimated earnings over progress billings on construction contracts is carried as a contract asset in the financial statements. Contract assets also arise when the Company capitalizes incremental costs of obtaining contracts with customers and the costs incurred in fulfilling those contracts, such as mobilization costs. Costs to fulfill a contract are required to be capitalized where they are determined to relate directly to a contract or an anticipated contract that the entity can specifically identify, they generate or enhance resources of the Company that will be used in satisfying performance obligations in the future, and they are expected to be recovered under that specific contract. In all cases, the specific contract asset is amortized with reference to the same pattern of recognition as the revenue recognized on the associated project. Any excess of progress billings over earned revenue on construction contracts is carried as a contract liability in the financial statements. Page 60 Notes to the Consolidated Financial Statements For the year ended December 31, 2019 (in thousands of Canadian dollars, except per share amounts) Contract assets and liabilities are reported in a net position on a contract-by-contract basis at the end of each reporting period. All contract assets and liabilities are classified as current in the financial statements as they are expected to be settled within the Company’s normal operating cycle. Inventory Inventory, which consists of certain equipment parts and aggregate materials, is carried at the lower of cost and net realizable value. The cost of inventories of equipment parts and aggregate materials is determined at the weighted average cost to acquire the inventory. Net realizable value is the estimated selling price in the ordinary course of business less applicable disposal costs. Property and equipment Property and equipment is measured at cost less accumulated depreciation and accumulated impairment losses, if any. The cost of property and equipment includes the purchase price and the directly attributable costs required to bring the asset to the condition necessary for the asset to be capable of operating in the manner intended by management. The cost of replacing or repairing a component of an item of property and equipment is recognized in the carrying amount of the item if it is probable that future economic benefits will occur and the cost can be measured reliably. The costs of routine maintenance of property and equipment are recognized in the statement of income as incurred. Depreciation of property and equipment over the estimated useful lives of the assets is as follows: Diminishing balance method Buildings Equipment, trucks and automotive Heavy equipment Furniture, fixtures and office equipment Straight line method Building lease improvements 5% and 10% 20% - 40% Hours of use 20% - 55% Over the lease term When parts of an item of property and equipment have different useful lives, they are accounted for as separate components of property and equipment and depreciated accordingly. The carrying amount of a replaced component is derecognized. The Company reviews the residual value, useful lives and depreciation methods used on an annual basis and, where revisions are required, the Company applies such changes in estimates on a prospective basis. Gains and losses on disposals of property and equipment are determined by comparing the proceeds with the carrying amount of the asset and are included as part of general and administrative expenses in the statement of income. Foreign currency translation Foreign currency transactions Foreign currency transactions and balances are recorded in the accounts as follows: i. Monetary assets and liabilities at the exchange rate in effect at the financial statement date; ii. iii. iv. Non-monetary assets and liabilities at exchange rates prevailing at the time of the transaction; Depreciation expense at the exchange rate in effect at the time the related assets are acquired; and Expenses at the average exchange rate prevailing on the date of the transaction. Translation of equity accounted foreign entities Assets and liabilities of equity accounted foreign entities are translated from the functional currency to the Company’s presentation currency at the closing rate at the end of the reporting period. The consolidated statements of income are translated at exchange rates at the dates of the transactions or at the average rate if it approximates the actual rates. All resulting exchange differences are recognized in other comprehensive income. Page 61 Notes to the Consolidated Financial Statements For the year ended December 31, 2019 (in thousands of Canadian dollars, except per share amounts) Income taxes Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in profit and loss except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income. Current income taxes are recognized for the estimated income taxes payable based on applying enacted income tax rates to the taxable income realized in the current year. Current tax includes adjustments to taxes payable or recoverable in respect of previous years. Deferred income tax assets and liabilities are recognized for temporary differences between the tax basis of assets and liabilities and their carrying amounts for financial reporting purposes, as well as for the benefit of tax losses available to be carried forward to future years provided they are likely to be realized. Deferred taxes are recognized using enacted or substantively enacted rates expected to apply in the periods in which the asset is realized or the liability is settled. Deferred taxes are measured on an undiscounted basis. Deferred taxes are presented as non-current. Current and deferred tax assets and liabilities are offset only when a legally enforceable right exists to offset current tax assets against current tax liabilities relating to the same taxable entity and the same tax authority. Basic and diluted earnings per share The Company’s basic earnings per share calculation is based on the net income available to common shareholders for the period divided by the weighted average number of common shares outstanding for the period. Diluted earnings per share is calculated by dividing the net income available to common shareholders for the period by the weighted average number of common shares outstanding for the period, adjusted for the effects of all dilutive potential common shares, which comprise stock options granted to employees. Medium term incentive plan The Company’s Medium Term Incentive Plan (“MTIP”) is a cash-settled share-based payment plan which provides for the granting of phantom shares. The phantom shares provide the holder with the opportunity to earn a cash benefit in relation to the value of a specified number of underlying notional shares. MTIP awards vest on November 30 of the third year following the year to which the award relates, if the employee has maintained continuous employment with the Company, except upon retirement or death. Annually, the Board of Directors determines the amount of the initial award, which is then used to determine the number of shares allocated to the employee. The total liabilities for this plan are computed based on the estimated number of phantom shares expected to vest at the end of the vesting period. The liability is measured at each reporting date at fair value with changes in fair value recognized in income. The fair value of the phantom shares outstanding at the end of a reporting period is measured based on the quoted market price of the Company’s shares. The phantom shares earn notional dividends, equivalent to actual dividends declared on the Company’s shares. Compensation expense relating to the initial award, notional dividends and changes in the market price of the phantom shares is recognized on a straight-line basis over the vesting period. Equity incentive plan The Company has an Equity Incentive Plan (“EIP”) as part of the Company’s executive compensation plan. The purpose of the EIP is to provide certain officers and employees of the Company with the opportunity to be granted performance share units (“PSU”) or time-based restricted share units (“RSU”), and together with PSUs, the (“Units”). The EIP is a full- value share unit plan using the value of the Company’s shares as the basis for the Units. In the case of the PSUs, the amount of award payable at the end of the vesting period will be determined by a performance multiplier. Under the EIP, the Company is entitled, in its sole discretion, to settle the Units in either cash or the Company’s Shares purchased on the TSX or issued from treasury, or a combination thereof. The Company intends to settle the EIP in cash. As a cash-settled compensation arrangement, the fair value of the amount payable is recognized as an expense with a corresponding increase in liabilities over the vesting period. The Units will vest and be settled on their issue date, which will be no later than December 31 in the third year following the date of grant, or in accordance with the EIP, participant’s award agreement, or the Company’s discretion. The liabilities for this plan are calculated based on the estimated number of Units expected to vest at the end of the vesting period. The Units earn notional dividends, equivalent to actual dividends declared on the Company’s shares. The liability is remeasured at each reporting date at fair value with changes in fair Page 62 Notes to the Consolidated Financial Statements For the year ended December 31, 2019 (in thousands of Canadian dollars, except per share amounts) value recognized in income. The fair value of the Units outstanding at the end of a reporting period is measured based on the quoted market price of the Company’s shares, with PSUs also adjusted by a performance multiplier. Compensation expense relating to the initial award, notional dividends and changes in the market price of the Units is recognized on a straight-line basis over the vesting period. Stock option plan The Company's Stock Option Plan, as described in note 16, is a share-based payment plan which provides for the granting of stock options. The fair value of share-based payment awards is recognized as an employee expense, with a corresponding increase in contributed surplus, on a straight-line basis over the vesting period. The amount recognized as an expense is adjusted to reflect the number of awards for which the related service conditions are expected to be met, such that the amount ultimately recognized as an expense is based on the number of awards that do meet the related service conditions at the vesting date. Deferred share unit plan The Company has a Deferred Share Unit Plan ("DSU Plan"), which is a cash-settled share-based payment plan. The fair value of the amount payable to eligible Directors in respect of Deferred Share Units ("DSU") is equivalent to the cash value of the common shares at the reporting date. The DSUs earn notional dividends, equivalent to actual dividends declared on the Company's shares. DSUs are cash-settled when the eligible Director ceases to hold any position within the Company. The liability associated with the DSU Plan is recalculated at each reporting date and at settlement. Any change in the fair value of the liability is recognized as an expense in general and administrative expenses. Financial instruments Financial assets and liabilities are recognized on the consolidated statement of financial position when the Company becomes a party to the contractual provisions of the financial instrument or derivative contract. Financial instruments are initially measured at fair value and are subsequently accounted for based on their classification as described below. The Company derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Company is recognized as a separate asset or liability. Financial liabilities are derecognized when their contractual obligations are discharged, cancelled or have expired. Financial assets at fair value through profit or loss Financial assets are classified as financial assets at fair value through profit or loss if they are classified as held-for- trading or are designated as such upon initial recognition. Financial assets are designated at fair value through profit or loss if the Company manages such investments and makes purchase and sale decisions based on their fair value in accordance with the Company’s documented investment policy. Financial assets classified as fair value through profit or loss instruments are measured at fair value at each reporting period with any changes in fair value during the reporting period being included in income. Transaction costs are expensed as incurred. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted on an active market. Financial assets classified as loans and receivables are initially measured at fair value adjusted for directly attributable transaction costs, and subsequently, are measured at amortized cost, using the effective interest rate method, which approximates fair value. The Company will recognize changes in the fair value of loans and receivables only if realized, or when an impairment in the value of the asset occurs. Loans and receivables are generally comprised of accounts receivable and other non-current assets. Cash and cash equivalents The Company considers cash, bank indebtedness, if any, bankers’ acceptances and short-term deposits with original maturities of three months or less, as cash and cash equivalents. Page 63 Notes to the Consolidated Financial Statements For the year ended December 31, 2019 (in thousands of Canadian dollars, except per share amounts) Financial liabilities Financial liabilities are initially recognized at fair value adjusted for transaction costs directly attributable to the liability, except for financial liabilities classified as fair value through profit or loss. Financial liabilities classified as other liabilities are subsequently measured at amortized cost using the effective interest method. The Company's other financial liabilities include accounts payable, dividends payable, non-recourse project financing, deferred payment, right-of-use lease liabilities and loans and borrowings. The Company has not classified any financial assets or liabilities as held-to-maturity or available-for-sale (see note 26). Financial assets and liabilities are offset and the net amount presented on the consolidated statement of financial position when, and only when, the Company has a legal right to offset the amounts and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously. Derivative financial instruments The Company uses interest rate swaps to manage its interest rate risk on the non-recourse project financing and the Total Return Swap (“TRS”). Such derivative financial instruments are initially recognized at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative. The Company uses TRS derivative contracts for the purpose of managing its exposure to changes in the fair value of its MTIP, EIP and DSU share-based compensation plans due to changes in the fair value of the Company’s common shares. Derivatives are initially recognized at fair value when a derivative contract is entered into and are subsequently remeasured at their fair value. The TRS derivative contracts are not designated as a hedge, and changes in the fair market value are recorded as compensation expense in the statements of income. Goodwill Goodwill that arises on the acquisition of subsidiaries is presented separately on the statement of financial position. Subsequently, goodwill is measured at cost less any accumulated impairment losses. Intangible assets Intangible assets with finite lives, which consists of software, are measured at cost less accumulated amortization and accumulated impairment losses. Software is amortized over its estimated useful life of 2 to 5 years using the straight-line method. The Company reviews the residual value, useful lives and amortization methods on an annual basis. Amortization of intangible assets is included in general and administrative expenses in the statements of income (loss). Page 64 Notes to the Consolidated Financial Statements For the year ended December 31, 2019 (in thousands of Canadian dollars, except per share amounts) Provisions and contingent assets Provisions Provisions are recognized when, at the financial statement date, the Company has a present obligation as a result of a past event, it is more likely than not that the Company will be required to settle that obligation, and the cash outflow can be estimated reliably. The amount recognized for provisions is the best estimate of the expenditure to be incurred. Where the Company expects some or all of the provision to be reimbursed, for example through insurance, the reimbursement is recognized as an asset only when it is virtually certain of realization. The recoverable amount will not exceed the amount of the provision. Provisions include: i. Provisions for potential legal claims relating to the Company’s performance and completion of construction contracts. The Company attempts to settle claims within the construction period of the contracts, but a legal claim may take years to settle. ii. Provisions for potential warranty claims relating to construction projects. These claims are usually settled during the project’s warranty period. iii. Provisions for loss contracts are recorded when costs are estimated to be greater than total revenues for the contract. Losses from construction contracts are recognized in full in the period the loss becomes known. The loss provision will be net of management’s estimate of probable expected recoveries, which differs from the criterion used for revenue recognition. Contingent assets A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity. Cost recovery claims associated with claims against subcontractors and parties other than customers are considered contingent assets until it is virtually certain that the claims will be settled. Contingent assets are not recorded or disclosed in the financial statements. Impairment Property and equipment At the end of each reporting period, the Company determines whether there are indicators of impairment. If there is an indicator of impairment and the carrying amount of the asset exceeds its recoverable amount, an impairment loss is recorded in profit and loss to reflect the asset at the lower amount. For property and equipment, the recoverable amount is usually determined by the selling price of the asset less the costs of disposal. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets. Page 65 Notes to the Consolidated Financial Statements For the year ended December 31, 2019 (in thousands of Canadian dollars, except per share amounts) Intangible assets and goodwill Intangible assets and goodwill resulting from business combinations are reviewed at each reporting date to determine whether there is an indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. Goodwill and indefinite lived intangible assets are tested at least annually for impairment. The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs of disposal. The value in use is determined by the cash flows expected to arise from the CGU discounted using a pre-tax discount rate, which reflects the current market assessments of the time value of money and asset-specific risk. Intangible assets and goodwill are assigned to the CGU associated with the related acquisition. An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognized in profit and loss. Impairment losses recognized in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGUs, and then to reduce the carrying amount of the other assets in the CGUs. Joint arrangements A joint arrangement is an arrangement in which the Company has joint control, established by contractual agreements requiring unanimous consent for decisions about activities that significantly affect the arrangement's returns. Joint arrangements are classified as either a joint operation or a joint venture. A joint operation is an arrangement where the joint controlling parties have direct rights to the assets and direct obligations for the liabilities of the arrangement in the normal course of business. Interests in a joint operation are accounted for by recognizing the Company's share of assets, liabilities, revenues and expenses. A joint venture is an arrangement where the joint controlling parties have rights to the net assets of the arrangement. Interests in a joint venture are recognized as an investment and accounted for using the equity method. The determination as to whether a joint arrangement is a joint venture or a joint operation requires significant judgment based on the structure of the arrangement, the legal form of any separate vehicle, the contractual terms of the arrangement and other facts and circumstances. The joint arrangements in which Bird participates are typically formed to undertake a specific construction project, are jointly controlled by the parties, and are dissolved upon completion of the project. Finance income and finance costs Finance income is comprised of interest earned on cash and cash equivalents, gains/losses on disposal of investments and changes in the fair value of financial assets classified as fair value through profit and loss. Interest income is recognized as it accrues in the income statement. Finance costs are comprised of interest on loans and borrowings including non-recourse project financing using the effective interest rate method, interest expense related to ROU liabilities, interest expense related to the net gain or loss on interest rate swaps, interest associated with total return swaps, fees associated with credit facilities, bank charges and other interest expenses. Business combinations The Company uses the acquisition method of accounting for business combinations. The consideration transferred includes the fair value of the assets transferred to acquire a subsidiary, the liabilities assumed and the fair value of any equity interest issued by the Company. Acquisition related costs are expensed as incurred. Any excess of the fair value of the consideration transferred over the Company’s share of the fair value of net identifiable assets acquired, all measured as of the acquisition date, is recorded as goodwill. If the fair value of the consideration transferred is less than the fair value of the net identifiable assets acquired, such as in the case of a bargain purchase, the difference is recognized directly in profit or loss. Page 66 Notes to the Consolidated Financial Statements For the year ended December 31, 2019 (in thousands of Canadian dollars, except per share amounts) Leases The Company recognizes a right-of-use (“ROU”) asset and a ROU liability at the lease commencement date. The ROU asset is initially measured at cost which is comprised of the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred, and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received. The ROU asset is depreciated from the commencement date to the earlier of the end of the useful life of the ROU asset or to the end of the lease term. The estimated useful lives of ROU assets are determined on the same basis as those of property and equipment. In addition, the ROU asset is reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability. The ROU liability, or lease liability, is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be determined, the Company’s incremental borrowing rate. The ROU liability is remeasured when there is a change in future lease payments such as a change in the Company’s estimate of the amount expected to be payable under a residual value guarantee or if the Company changes its assessment of whether it will exercise a purchase, extension or termination option. The Company has elected not to recognize ROU assets for short-term leases that have a lease term of 12 months or less and leases of low-value assets. The Company recognizes the lease payments associated with these leases as an expense on a straight-line basis over the lease term. Subcontractor/Supplier Performance Default Insurance The Company maintains an insurance policy which provides the Company with comprehensive coverage in respect of subcontractor or supplier default on certain projects where the subcontractor or supplier is enrolled in the program. The total insurance premium paid by the Company to the insurer is comprised of a non-refundable premium and a deposit premium. The deposit premium paid by the Company is included in other non-current assets on the consolidated statements of financial position. The liabilities included in provisions on the consolidated statements of financial position relate to management’s best estimate of exposures and costs associated with prior or existing subcontractor or supplier performance defaults. Management conducts a thorough review of the liability every reporting period and takes into consideration the Company’s experience to date with those subcontractors or suppliers that are enrolled in the program. Page 67 Notes to the Consolidated Financial Statements For the year ended December 31, 2019 (in thousands of Canadian dollars, except per share amounts) 4. New Accounting Standards, Amendments and Interpretations Adopted IFRS 16, Leases The Company has adopted IFRS 16 in its financial statements effective January 1, 2019 using a modified retrospective approach which does not require restatement of prior period financial information. IFRS 16 introduced a single lessee accounting model and requires a lessee to recognize assets and liabilities for all leases with a term of more than twelve months unless the underlying assets are of low value. A lessee is required to recognize a ROU asset and a lease liability representing its obligation to make lease payments. On adoption of the new lease standard, the Company elected to use the following practical expedients permitted under the standard: i. ii. iii. iv. Apply a single discount rate to a portfolio of leases with similar characteristics; Account for leases with a remaining term of less than 12 months as at January 1, 2019 as short-term leases; Use hindsight in determining the lease term where the contract contains terms to extend or terminate the lease; and Use the Company’s previous assessment of impairment under IAS 37 for onerous contracts instead of re-assessing the ROU asset for impairment on January 1, 2019. The adoption of the standard resulted in an increase in ROU assets of $16,074, an increase in ROU liabilities of $18,270, a reduction in prepaids of $36, a decrease in other liabilities of $250, an increase in net deferred taxes asset of $534, and a corresponding reduction to opening retained earnings for the net difference of approximately $1,448 as at January 1, 2019. The borrowing rate applied to discount lease liabilities at January 1, 2019 was approximately 4.0%. The following table provides a reconciliation of the operating lease commitments previously disclosed at December 31, 2018 and the ROU liabilities recognized on adoption of IFRS 16 at January 1, 2019: Operating lease commitments at December 31, 2018 Common area maintenance (CAM) costs previously included in operating lease commitments Recognition exemption for short-term leases Extension and termination options reasonably certain to be exercised Discounting of lease obligations at January 1, 2019 Additional ROU liabilities on adoption of IFRS 16 at January 1, 2019 January 1, 2019 31,635 (10,880) (70) 943 (3,358) 18,270 $ $ CAM costs that were previously included in operating lease commitments are not included in the calculation of ROU liabilities. IFRIC 23, Uncertainty over Income Tax Treatments The Company has adopted IFRIC Interpretation 23 Uncertainty over Income Tax Treatments effective January 1, 2019. The Interpretation provides guidance on the accounting for current and deferred tax liabilities and assets in circumstances in which there is uncertainty over income tax treatments. The Interpretation did not have a material impact on the financial statements. Page 68 Notes to the Consolidated Financial Statements For the year ended December 31, 2019 (in thousands of Canadian dollars, except per share amounts) 5. Future accounting changes The following future change to accounting standards is not effective for the year ended December 31, 2019, and has not been applied in preparing these consolidated financial statements. Amendments to IFRS 3 – Definition of a Business On October 22, 2018, the IASB issued amendments to IFRS 3 Business Combinations, that seek to clarify whether a transaction results in an asset or a business acquisition. The amendments apply to businesses acquired in annual reporting periods beginning on or after January 1, 2020. Earlier application is permitted. The definition of a business is narrower which could result in fewer business combinations being recognized. The Company will adopt the amendments to IFRS 3 on a prospective basis on January 1, 2020. 6. Revenue Disaggregation of revenue The Company disaggregates revenue from contracts with customers by contract type, as this best depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. The following tables provide details of total construction revenue by contract type for the year ended December 31, 2019: PPP Alternative finance projects and complex design-build Stipulated sum, unit price and standard specification design-build Construction management, cost plus and IPD 2019 102,105 $ 176,887 792,492 304,924 1,376,408 $ 2018 134,633 179,496 806,362 261,293 1,381,784 $ $ Remaining performance obligations The total value of all contracts awarded to the Company, less the total value of work completed on these contracts as of the reporting date is referred to as remaining performance obligations. This includes all contracts that have been awarded to the Company whether the work has commenced or will commence in the normal course. As at December 31, 2019 the aggregate amount of the transaction price allocated to total remaining performance obligations from construction contracts was $1,547,427. The value of remaining performance obligations does not include amounts for variable consideration that are constrained, agency relationship construction management projects, and estimated future work orders to be performed as part of master services agreements. The Company expects to recognize approximately 66% of the remaining performance obligations over the next 12 months with the remaining balance being recognized beyond 12 months. This expectation is based on management’s best estimate but contains uncertainty as it is subject to factors outside of management’s control. Summary of contract balances The following table provides information about receivables, contract assets and contract liabilities from contracts with customers: Progress billings and holdbacks receivable (note 8) Contract assets Contract assets – alternative finance projects (note 7) Contract liabilities 2019 406,682 31,018 75,180 (112,126) 400,754 $ $ 2018 329,891 28,412 7,126 (60,003) 305,426 $ $ Page 69 Notes to the Consolidated Financial Statements For the year ended December 31, 2019 (in thousands of Canadian dollars, except per share amounts) Progress billings and holdbacks receivable The Company issues invoices in accordance with the billing schedule or contract terms. These invoices trigger recognition of accounts receivable. Contract assets including alternative finance projects The Company receives payments from customers based on a billing schedule, as established in the contracts. A contract asset relates to the conditional right to consideration for completed performance under the contract. Accounts receivable are recognized when the right to consideration becomes unconditional. Contract assets related to construction contracts are typically invoiced within a year, while alternative finance projects follow a contractually agreed billing schedule and contract assets are recognized in accounts receivable upon substantial performance. Balance, January 1, 2018 Reduction of contract assets due to progress billings in year Additions to contract assets Balance, December 31, 2018 Reduction of contract assets due to progress billings in year Additions to contract assets Balance, December 31, 2019 Construction contracts 34,962 (24,831) 18,281 28,412 (23,807) 26,413 31,018 $ $ $ $ Contract assets Alternative finance projects 73,951 (73,951) 7,126 7,126 – 68,054 75,180 $ $ Total 108,913 (98,782) 25,407 35,538 (23,807) 94,467 106,198 Contract liabilities Contract liabilities relate to payments received in advance of performance under the contract. Contract liabilities are recognized as revenue as (or when) the Company performs under the contract. Typically, contract liabilities are recognized within a year as performance is achieved per contractual terms. During the year, $60,003 of revenue (2018 – $62,376) was recognized that was included in the contract liability balance at the beginning of the year. For the year ended December 31, 2019, $1,203 (December 31, 2018 – $11,450) of revenue was recognized from the satisfaction of performance obligations related to previous periods. This amount represents changes in the transaction price due to contract modifications and various other cumulative catch up adjustments. 7. Alternative finance projects The following table provides details of contract assets – alternative finance projects as at December 31, 2019: Balance, December 31, 2018 Changes in contract assets relating to alternative finance projects Balance, December 31, 2019 OPP Modernization Phase 2 7,126 68,054 75,180 $ $ Page 70 Notes to the Consolidated Financial Statements For the year ended December 31, 2019 (in thousands of Canadian dollars, except per share amounts) The following table provides details of the changes in the Company’s non-recourse project financing during the year: Non-Recourse Project Financing Loan facility 63,975 24,734 (76,474) – – 12,235 72,832 – – – 85,067 $ $ Transaction costs – – – (1,024) – (1,024) $ – – 655 – (369) $ Interest rate swap (290) – – – 903 613 – – – 63 676 $ $ Total 63,685 24,734 (76,474) (1,024) 903 11,824 72,832 – 655 63 85,374 Balance, December 31, 2017 Proceeds Repayment of debt Transaction costs net of amortization Change in fair value of interest rate swap Balance, December 31, 2018 Proceeds Repayment of debt Transaction costs net of amortization Change in fair value of interest rate swap Balance, December 31, 2019 $ $ OPP Modernization Phase 2 i. Background information During 2018, the Company was awarded a fixed-price design-build-finance contract to construct the Ontario Provincial Police (“OPP”) Modernization Phase 2 project. ii. Restricted cash The terms of the debt financing agreement require that scheduled loan advances be deposited into a bank account, that cannot be accessed directly by the Company. Upon recommendation by the lender’s technical advisor, cash is released monthly based on the progress of the work (note 25). iii. Contract assets Contract assets will increase throughout the project until payment is made to the Company following substantial completion. iv. Loan payable The Company has arranged a $138,475 loan facility related to the project. The loan is repayable in full, upon substantial completion of the project, from the proceeds of the contract payment. The scheduled substantial completion date is in 2020. In the event of a default in payment for the construction work upon substantial completion, including interim interest costs, the lender has recourse only against assets related to this project, which have been segregated in a wholly-owned subsidiary of the Company. Interest is paid monthly in arrears. Borrowings under the facility bear interest at a rate per annum equal to the bankers’ acceptance rate plus a spread. As part of the loan facility, the Company entered into an interest rate swap agreement that effectively fixes the interest rate at 3.29%. The interest rate swap was executed on August 17, 2018 and expires on January 4, 2021. The notional amounts of the interest rate swap agreement match the estimated draws under the loan facility. The interest rate swap agreement is not designated as a hedge, and changes in the fair market value are recorded in the statement of income. Interest expense on the loan during the year ended December 31, 2019 of $1,995 (December 31, 2018 – $249) is included in finance costs. Page 71 Notes to the Consolidated Financial Statements For the year ended December 31, 2019 (in thousands of Canadian dollars, except per share amounts) Avenir Centre The Company’s contract to build the Avenir Centre obtained substantial completion during the second quarter of 2018. The Company had a $77,478 loan facility related to the project and the $76,474 loan drawn was repaid in-full upon substantial completion in the second quarter of 2018. Interest expense on the loan in the year ended December 31, 2019 is $nil (December 31, 2018 - $731) is included in finance costs. 8. Accounts receivable Progress billings on construction contracts Holdbacks receivable (due within one operating cycle) Other 2019 271,931 134,751 6,967 413,649 $ $ 2018 221,259 108,632 7,772 337,663 $ $ Accounts receivable are reported net of an allowance for doubtful accounts of $1,538 as at December 31, 2019 (December 31, 2018 - $1,271). Holdbacks receivable represent amounts billed on construction contracts which are not due until the contract work is substantially complete and the applicable lien period has expired. 9. Other assets Subcontractor / Supplier insurance deposits Notes receivable Other assets Less: Current portion – other assets Non-current portion $ $ 2019 4,511 $ 8,069 12,580 2018 5,727 1,125 6,852 5,972 6,608 $ – 6,852 Subcontractor / Supplier insurance deposits relate to the Company's insurance policies which provide Bird with comprehensive coverage, subject to a deductible, in respect of subcontractor or supplier default on certain projects where the subcontractor or supplier is enrolled in the program. The Company has promissory notes outstanding from an equity accounted joint arrangement. One promissory note is available to the borrower for working capital purposes and is due on September 8, 2022. The second promissory note is available to the borrower for a specific project and is due upon completion of the project. Page 72 Notes to the Consolidated Financial Statements For the year ended December 31, 2019 (in thousands of Canadian dollars, except per share amounts) 10. Projects and entities accounted for using the equity method The Company performs some construction and concession related projects through joint ventures and associates which are accounted for using the equity method. The Company’s joint ventures and associates are private entities and there is no quoted market value available for their shares. Total current assets Total non-current assets Total assets Total current liabilities Total non-current liabilities Total liabilities Net assets – 100% Attributable to the Company Revenue – 100% Total comprehensive income – 100% Attributable to the Company Total current assets Total non-current assets Total assets Total current liabilities Total non-current liabilities Total liabilities Net assets – 100% Attributable to the Company Revenue – 100% Total comprehensive income – 100% Attributable to the Company Joint Ventures 124,396 615,582 739,978 88,152 614,137 702,289 37,689 10,938 155,380 6,784 $ $ $ $ $ 2019 Associates 31,607 171,015 202,622 $ 14,634 171,544 186,178 16,444 1,644 9,160 2,395 $ $ $ $ Total 156,003 786,597 942,600 102,786 785,681 888,467 54,133 12,582 164,540 9,179 2,459 $ 234 $ 2,693 Joint Ventures 100,695 538,118 638,813 56,071 545,431 601,502 37,311 14,018 142,203 3,263 $ $ $ $ $ 2018 Associates 47,410 174,038 221,448 20,766 175,211 195,977 25,471 2,547 33,283 5,812 $ $ $ $ $ Total 148,105 712,156 860,261 76,837 720,642 797,479 62,782 16,565 175,486 9,075 1,313 $ 581 $ 1,894 $ $ $ $ $ $ $ $ $ $ $ $ Page 73 Notes to the Consolidated Financial Statements For the year ended December 31, 2019 (in thousands of Canadian dollars, except per share amounts) The movement in the investment in projects and entities accounted for using the equity method is as follows: Projects and entities accounted for using the equity method – beginning of year $ Share of net income for the year Share of other comprehensive income for the year Investments in equity accounted entities Distributions from projects and entities accounted for using the equity method Investments in equity accounted entities reclassified as held for sale Projects and entities accounted for using the equity method – end of year $ 2019 12,517 2,693 37 - 15,247 (1,223) (3,839) 10,185 $ $ 2018 12,237 1,894 1 4,020 18,152 (1,873) (3,762) 12,517 The Company recognizes the income and losses related to its investments in associates and joint ventures, as the Company has an obligation to fund its proportionate share of the net liabilities of these entities. The carrying amount of investments in equity accounted entities may not always equal the Company’s share of the net assets or net liabilities of these joint ventures and associates, due to fair value adjustments including goodwill, and the timing of capital contributions or distributions in accordance with contract terms. Transactions with these related parties are described in note 24 in the financial statements. Amounts committed for future capital injections to concession entities are described in note 23 in the financial statements. Investments in equity accounted entities classified as held for sale The Company has initiated plans to sell its investments in three entities accounted for using the equity method. These investments have been classified as investments held for sale on the Consolidated Statement of Financial Position. For the period ended December 31, 2019, distributions of $623 were received from investments in equity accounted entities classified as held for sale in 2018. Page 74 Notes to the Consolidated Financial Statements For the year ended December 31, 2019 (in thousands of Canadian dollars, except per share amounts) 11. Property and equipment Land Buildings Building improvements Equipment, trucks and automotive Furniture and office equipment Total 2019 Cost Balance, December 31, 2018 Reclass to ROU Assets (note 4) Balance, January 1, 2019 Additions Disposals Balance, December 31, 2019 $ $ 1,769 (53) 1,716 414 – 2,130 $ 12,432 – 12,432 65 (368) 12,129 $ 8,041 – 8,041 891 – 8,932 $ 105,178 (17,030) 88,148 12,003 (8,037) 92,114 2,608 (16) 2,592 276 (116) $ 130,028 (17,099) 112,929 13,649 (8,521) 2,752 118,057 Accumulated depreciation Balance, December 31, 2018 Reclass to ROU Assets (note 4) – – Balance, January 1, 2019 Disposals Depreciation expense Balance, December 31, 2019 – – – – 5,583 – 5,583 (19) 628 6,192 3,844 – 3,844 – 634 4,478 62,490 (4,017) 58,473 (7,111) 8,053 59,415 1,885 (9) 1,876 (99) 179 1,956 73,802 (4,026) 69,776 (7,229) 9,494 72,041 Net book value $ 2,130 $ 5,937 $ 4,454 $ 32,699 $ 796 $ 46,016 Land Buildings Building improvements 2018 Equipment, trucks and automotive Furniture and office equipment $ 1,774 $ – – (5) 1,769 13,446 $ 443 – (1,457) 12,432 7,355 $ 686 – – 8,041 95,651 $ 11,660 3,851 (5,984) 105,178 2,294 $ 314 – – 2,608 – – – – 5,165 (279) 697 5,583 3,325 – 519 3,844 57,905 (4,805) 9,390 62,490 1,728 – 157 1,885 Total 120,520 13,103 3,851 (7,446) 130,028 68,123 (5,084) 10,763 73,802 Cost Balance, January 1, 2018 Additions Additions under finance leases Disposals Balance, December 31, 2018 Accumulated depreciation Balance, January 1, 2018 Disposals Depreciation expense Balance, December 31, 2018 Net book value $ 1,769 $ 6,849 $ 4,197 $ 42,688 $ 723 $ 56,226 Page 75 Notes to the Consolidated Financial Statements For the year ended December 31, 2019 (in thousands of Canadian dollars, except per share amounts) Right-of-use assets The Company leases several assets including land and buildings, vehicles and furniture and equipment presented below: Cost Balance reclass, December 31, 2018 January 1, 2019 ROU assets (note 4) Balance, January 1, 2019 Additions Disposals Balance, December 31, 2019 Accumulated depreciation Balance reclass, December 31, 2018 January 1, 2019 ROU assets (note 4) Balance, January 1, 2019 Disposals Depreciation expense Balance, December 31, 2019 Land Buildings $ 53 $ – 53 – – 53 – – – – – – – $ 15,569 15,569 1,942 – 17,511 – – – – 2,572 2,572 2019 Equipment, trucks and automotive Furniture and office equipment 17,030 $ 16 $ 381 17,411 8,829 (115) 26,125 4,017 – 4,017 (99) 2,841 6,759 124 140 12 (16) 136 9 – 9 (9) 34 34 Total 17,099 16,074 33,173 10,783 (131) 43,825 4,026 – 4,026 (108) 5,447 9,365 Net book value $ 53 $ 14,939 $ 19,366 $ 102 $ 34,460 The statement of cash flows for the period ended December 31, 2019 excludes additions of ROU assets totalling $10,783 (December 31, 2018 - $3,851) acquired through finance leases. Page 76 Notes to the Consolidated Financial Statements For the year ended December 31, 2019 (in thousands of Canadian dollars, except per share amounts) 12. Intangible assets and goodwill Cost Balance, January 1, 2019 Additions Balance, December 31, 2019 Accumulated amortization Balance, January 1, 2019 Amortization expense Balance, December 31, 2019 Net book value Cost Balance, January 1, 2018 Additions Balance, December 31, 2018 Accumulated amortization Balance, January 1, 2018 Amortization expense Balance, December 31, 2018 Net book value Goodwill Rideau cash generating unit Nason cash generating unit 2019 Computer Software Goodwill $ $ 7,760 782 8,542 30,540 – 30,540 5,185 873 6,058 14,151 – 14,151 $ 2,484 $ 16,389 2018 Computer Software Goodwill $ $ 6,250 1,510 7,760 30,540 – 30,540 4,712 473 5,185 14,151 – 14,151 $ 2,575 $ 16,389 2019 9,294 7,095 16,389 $ $ 2018 9,294 7,095 16,389 $ $ The recoverable amounts for the Rideau and Nason cash generating units (“CGU”) were determined based on a value in use calculation using cash flow projections from financial forecasts approved by senior management covering a three- year period. Significant assumptions used in the calculation of value in use were the level of new awards, the construction gross margin percentage, the level of operating and capital costs, the discount rate and the terminal value growth rate. Budgeted net income was based on expectation of future outcomes taking into account past experience, the Company’s annual business plan and the Company’s strategic plan adjusted for a number of weighted probabilities based on current economic conditions. Cash flows for the remaining periods were extrapolated using nominal growth rates. An after-tax discount rate of 13.0%, which is based on a market-based cost of capital, was applied in determining the recoverable amounts. Page 77 Notes to the Consolidated Financial Statements For the year ended December 31, 2019 (in thousands of Canadian dollars, except per share amounts) 13. Loans and borrowings, credit facilities and right-of-use liabilities Loans and Borrowings and Credit facilities Revolving credit facility Committed revolving term loan facility Equipment financing Interest rate Maturity Variable $ Dec 31, 2022 Dec 31, 2021 Variable 2020 – 2024 Fixed 2.40% - 3.73% Current portion of loans and borrowings $ $ 2019 15,000 $ 10,000 15,621 40,621 $ 2018 15,000 - 6,198 21,198 5,883 $ 2,151 Non-current portion of loans and borrowings $ 34,738 $ 19,047 Committed revolving operating credit facility The Company has a committed revolving credit facility of up to $85,000, maturing December 31, 2022. As part of the agreement, the Company provides a general secured interest in the assets of the Company. At December 31, 2019, the Company has $28,504 letters of credit outstanding on the facility (December 31, 2018 – $24,291) and has drawn $15,000 on the facility (December 31, 2018 - $15,000). The full amount is recorded as non-current, as the facility is due and payable December 31, 2022. Borrowings under the facility bear interest at a rate per annum equal to the Canadian prime rate plus a spread. A commitment fee that varies depending on certain consolidated financial ratios is due on the unutilized portion of the facility. The Company is in compliance with the working capital, minimum equity and debt- to-equity covenants of this facility. Committed revolving term loan facility The Company has a committed revolving term loan facility totalling $35,000 for the purpose of financing acquisitions and for working capital advances in support of major projects. The facility matures on December 31, 2021. As of December 31, 2019, the Company has drawn $10,000 (December 31, 2018 - $nil) on the facility. The full amount is recorded as non-current, as the facility is due and payable December 31, 2021. Borrowings under the facility bear interest at a rate per annum equal to the Canadian prime rate plus a spread. A commitment fee that varies depending on certain consolidated financial ratios is due on the unutilized portion of the facility. The Company is in compliance with the working capital, minimum equity and debt-to-equity covenants of this facility. Equipment financing The Company and its subsidiaries have committed term credit facilities of up to $35,000 to be used to finance equipment purchases. Borrowings under the facilities are secured by a first charge against the equipment financed using the facilities. Interest on the facilities is charged at a fixed rate based on the Bank of Canada bond rate plus a spread. Interest is paid monthly in arrears. The Company and its subsidiaries obtained multiple, fixed interest rate, term loans which were used to finance equipment purchases. Principal and interest are payable monthly, and these term loans are secured by specific equipment of the Company and its subsidiaries. Letters of credit facilities The Company has authorized operating letters of credit facilities totalling $80,000. At December 31, 2019 the facilities were drawn for outstanding letters of credit of $6,559 (December 31, 2018 - $8,468). The Company also has an agreement with Export Development Canada (“EDC”) to provide performance security guarantees for letters of credit issued by financial institutions on behalf of the Company. The Company can only use this facility when letters of credit have been issued as contract security for projects that meet the EDC criteria. EDC has issued performance security guarantees totalling $6,421 (December 31, 2018 - $5,948). Page 78 Notes to the Consolidated Financial Statements For the year ended December 31, 2019 (in thousands of Canadian dollars, except per share amounts) The letters of credit represent performance guarantees primarily issued in connection with design-build construction contracts related to PPP and other major construction projects. These letters of credit are supported through the hypothecation of certain financial instruments having a market value at December 31, 2019 of $139 (December 31, 2018 - $2,645). ROU liabilities ROU liabilities Maturity 2020 – 2034 $ 2019 31,100 $ 2018 8,759 Current portion of ROU liabilities 8,025 3,053 Non-current portion of ROU liabilities $ 23,075 $ 5,706 Subsidiaries of the Company have established operating lease lines of credit of $31,800 with the financing arms of major heavy equipment suppliers to finance equipment leases. Draws under these facilities are generally recognized as right of use liabilities, with the lease obligations being secured by the specific leased equipment (see note 11). At December 31, 2019, the subsidiaries had used $11,653 under these facilities. The following table provides details of the changes in the Company’s Loans and Borrowings and ROU liabilities during the period ended December 31, 2019. Revolving Credit Facility Committed Revolving Term Loan Facility Equipment financing ROU Liabilities Balance, December 31, 2017 Proceeds Repayment Balance, December 31, 2018 ROU liabilities, January 1, 2019 (note 4) Balance, January 1, 2019 Proceeds Additions to ROU liabilities Interest on ROU liabilities Repayment Balance, December 31, 2019 $ $ 5,000 $ 10,000 – 15,000 – 15,000 – – – – 15,000 $ – $ – – – – – 10,000 – – – 10,000 $ 5,177 $ 4,242 (3,221) 6,198 – 6,198 14,536 – – (5,113) 15,621 $ 8,421 $ 3,851 (3,513) 8,759 18,270 27,029 – 10,783 903 (7,615) 31,100 $ Total 18,598 18,093 (6,734) 29,957 18,270 48,227 24,536 10,783 903 (12,728) 71,721 Page 79 Notes to the Consolidated Financial Statements For the year ended December 31, 2019 (in thousands of Canadian dollars, except per share amounts) The aggregate amount of principal repayments and future minimum lease payments for all loans and borrowings and ROU liabilities is as follows: Within 1 year Year 2 Year 3 Year 4 Year 5 More than 5 years Balance, December 31, 2019 Less: interest $ Revolving Credit Facility – – 15,000 – – – 15,000 – 15,000 $ $ $ Committed Revolving Term Loan Facility – $ 10,000 – – – – 10,000 – 10,000 $ Equipment financing 5,883 5,223 3,491 850 174 – 15,621 – 15,621 $ $ ROU Liabilities 8,864 7,383 4,909 3,549 1,910 8,225 34,840 (3,740) 31,100 $ $ Total 14,747 22,606 23,400 4,399 2,084 8,225 75,461 (3,740) 71,721 Page 80 Notes to the Consolidated Financial Statements For the year ended December 31, 2019 (in thousands of Canadian dollars, except per share amounts) 14. Income taxes Provision for income taxes Income tax expense (recovery) comprised of: Current income taxes Deferred income taxes Income tax rate reconciliation Combined federal and provincial income tax rate Increase (reductions) applicable to: Effect of different tax rate on equity investments Non-taxable items Other Effective rate 2019 2018 $ $ (4,194) $ 6,669 2,475 $ 1,652 (3,313) (1,661) 2019 27.5% (10.4%) 1.0% 2.6% 20.7% 2018 27.3% 36.8% (10.5%) 8.5% 62.1% The Company's statutory tax rate is the combined federal and provincial tax rates in the jurisdictions in which the Company operates. Composition of deferred income tax assets and liabilities Provisions and accruals Timing of recognition of construction profits Property and equipment Right of use assets and liabilities Intangible assets Investment in equity accounted entities Other Tax loss carry forward Balance sheet presentation Deferred income tax asset Deferred income tax liability $ $ $ 2019 5,071 $ (35,745) (3,854) 620 (203) (2,715) (72) 34,317 (2,581) $ 2018 4,254 (9,028) (1,083) (736) (321) (3,293) (72) 13,833 3,554 11,287 (13,868) (2,581) $ 10,909 (7,355) 3,554 The Company has deferred tax assets in the amount of $945 that have not been recognized in these consolidated financial statements in respect of capital losses realized on the disposal of bonds and preferred share investments in 2011, 2013 and 2015. A deferred tax asset has not been recognized because it is not probable the Company will generate future taxable capital gains. Included in the tax loss carry forward balance is $21,768 related to an alternative finance project, which is off-set by a deferred tax liability of $21,793 included in timing of recognition of construction profits, and a deferred tax asset of $179 included in provisions and accruals, resulting in a net deferred tax asset of $154. Page 81 Notes to the Consolidated Financial Statements For the year ended December 31, 2019 (in thousands of Canadian dollars, except per share amounts) Movement in temporary differences for the year ended December 31, 2019: Provisions and accruals Timing of recognition of construction profits Property and equipment Right of use assets and liabilities Intangible assets Investments in equity accounted entities Other Tax loss carry forward Balance December 31, 2018 4,254 (9,028) (1,083) (736) (321) (3,293) (72) 13,833 3,554 $ $ $ $ $ Recognized in profit or loss 817 (26,717) (2,771) 822 118 578 – 20,484 (6,669) $ Adoption of IFRS 16 (note 4) – – – 534 – – – – 534 Movement in temporary differences for the year ended December 31, 2018: Provisions and accruals Timing of recognition of construction profits Property and equipment Right of use assets and liabilities Intangible assets Investments in equity accounted entities Other Tax loss carry forward Balance December 31, 2017 3,173 (12,066) (1,132) (385) (498) (3,309) (50) 14,508 241 $ $ $ $ Recognized in profit or loss 1,081 3,038 49 (351) 177 16 (22) (675) 3,313 Balance December 31, 2019 5,071 (35,745) (3,854) 620 (203) (2,715) (72) 34,317 (2,581) Balance December 31, 2018 4,254 (9,028) (1,083) (736) (321) (3,293) (72) 13,833 3,554 $ $ $ $ Page 82 Notes to the Consolidated Financial Statements For the year ended December 31, 2019 (in thousands of Canadian dollars, except per share amounts) 15. Other liabilities Liabilities for cash-settled share-based compensation plans (note 16) Leasehold inducement Deferred payment Total return swap derivatives Interest rate swaps Less: current portion Cash-settled share-based compensation plans (note 16) Leasehold inducement Deferred payment Total return swap derivatives Interest rate swaps Non-current portion $ $ $ $ 2019 8,443 1,964 – 271 58 10,736 1,762 261 – 175 7 2,205 8,531 $ $ $ $ 2018 4,374 2,224 756 2,218 54 9,626 917 218 756 389 – 2,280 7,346 The Company entered into Total Return Swap (“TRS”) derivative contracts for the purpose of managing its exposure to changes in the fair value of its MTIP, EIP and DSU share-based compensation plans, due to changes in the fair value of the Company’s common shares. The TRS derivative contracts are not designated as a hedge, and changes in the fair market value are recorded as compensation expense in the statement of income. 16. Share-based compensation plans Stock option plan The Company has a Stock Option Plan that provides all option holders the right to receive common shares in exchange for the options exercised. The Board of Directors selects eligible employees to be granted options, the number of options granted, the exercise price, the term of the option and the vesting periods. The number of common shares issuable under the Stock Option Plan shall not exceed 10% of the number of common shares outstanding. With the approval of the Equity Incentive Plan in May 2017, the Board of Directors has resolved to suspend the stock option plan. All outstanding options will continue to vest in accordance with the term of the option and the vesting periods. Details of changes in the balance of stock options outstanding are as follows: Outstanding at December 31, 2017 Forfeited during the year Outstanding at December 31, 2018 Expired during the year Outstanding at December 31, 2019 Number of stock options outstanding 535,000 (45,000) 490,000 (390,000) 100,000 $ $ Weighted average exercise price 13.59 13.98 13.55 13.98 11.87 Page 83 Notes to the Consolidated Financial Statements For the year ended December 31, 2019 (in thousands of Canadian dollars, except per share amounts) The following table summarizes information about stock options outstanding and exercisable as at December 31, 2019: Number of stock options issued and outstanding Number of stock options exercisable Exercise price Weighted average fair value of the option Expiry date Remaining contractual life (years) January 1, 2015 Grant 100,000 100,000 $ 11.87 $ 1.16 January 1, 2022 2.0 All outstanding options have fully vested. There was no stock-based compensation expense recognized during the year ended December 31, 2019 ( December 31, 2018 - $7). Medium term incentive plan (“MTIP”), Equity incentive plan (“EIP”) and Deferred share unit (“DSU”) plan MTIP liability EIP liability DSU liability Liabilities for cash-settled share-based compensation plans Less: current portion MTIP liability EIP liability Non-current portion $ $ $ $ 2019 1,069 3,925 3,449 8,443 257 1,505 1,762 6,681 $ $ $ $ 2018 1,226 1,336 1,812 4,374 917 – 917 3,457 The Company has recognized a gain of $1,947 on its TRS derivatives for the year ended December 31, 2019 (December 31, 2018 - $4,213 loss). Balance January 1, Annual award of phantom shares Cash payments for vested shares Shares awarded – notional dividends Change in fair value and forfeitures of phantom shares Balance December 31, Less: current portion Non-current portion MTIP & EIP 2019 2,562 2,011 (1,295) 116 1,600 4,994 1,762 $ $ 3,232 $ 2018 3,836 2,207 (1,854) 162 (1,789) 2,562 917 1,645 $ $ $ As at December 31, 2019, a total of 1,482,683 unvested phantom units of the MTIP and EIP (December 31, 2018 – 920,489) are outstanding and valued at $11,057 of which $4,994 has been recognized to date in the accounts of the Company. As at December 31, 2019, a total of 482,404 DSU phantom units (December 31, 2018 – 296,536) were issued and valued at $3,449. Page 84 Notes to the Consolidated Financial Statements For the year ended December 31, 2019 (in thousands of Canadian dollars, except per share amounts) 17. Shareholders’ capital The Company is authorized to issue an unlimited number of common shares and has 42,516,853 issued and outstanding common shares as at December 31, 2019. The Company is authorized to issue preference shares in series with rights set by the Board of Directors, up to a balance not to exceed 35% of the outstanding common shares. Balance, December 31, 2019 and December 31, 2018 42,516,853 $ 42,527 Number of shares Amount 18. Earnings per share Details of the calculation of earnings per share are as follows: Profit (loss) attributable to shareholders (basic and diluted) Average number of common shares outstanding Effect of stock options on issue Weighted average number of common shares (diluted) Basic and diluted earnings (loss) per share 2019 9,484 $ 2018 (1,013) 42,516,853 – 42,516,853 42,516,853 – 42,516,853 0.22 $ (0.02) $ $ At December 31, 2019, 100,000 options (December 31, 2018 - 490,000 options) were excluded from the diluted weighted average number of common shares calculation as their effect would have been anti-dilutive. 19. Provisions Balance, December 31, 2018 Provisions made during the year Provisions used during the year Provisions reversed during the year Balance, December 31, 2019 Balance, December 31, 2017 Provisions made during the year Provisions used during the year Provisions reversed during the year Balance, December 31, 2018 Warranty claims and other 6,666 20,588 (20,416) (1,620) 5,218 8,777 25,142 (23,732) (3,521) 6,666 $ $ $ $ $ $ $ $ Legal 1,927 1,365 (549) (198) 2,545 1,926 1,634 (1,362) (271) 1,927 $ $ $ $ Total 8,593 21,953 (20,965) (1,818) 7,763 10,703 26,776 (25,094) (3,792) 8,593 Various claims and litigation arise in the normal course of the construction business. It is management’s opinion that adequate provision has been made for any potential settlements relating to such matters and that they will not materially affect the financial position or future operations of the Company. Page 85 Notes to the Consolidated Financial Statements For the year ended December 31, 2019 (in thousands of Canadian dollars, except per share amounts) 20. Finance income Interest income 21. Finance and other costs Interest on loans and borrowings Interest on ROU liabilities Loss on interest rate swaps (note 7 and note 15) Interest on non-recourse project financing (note 7) Other $ $ $ 2019 2,596 $ 2018 1,386 2019 2,331 903 67 1,995 262 5,558 $ $ 2018 1,796 – 957 980 878 4,611 22. Personnel costs Salary and benefits expense of the Company included in costs of construction and general and administrative expense is: Wages, salaries and profit sharing Benefits Deferred compensation Stock-based compensation 23. Commitments and contingencies Commitments 2019 199,420 $ $ 34,214 5,354 – $ 238,988 $ 2018 174,818 28,807 670 7 204,302 Outstanding surety lien bonds issued on behalf of the Company in connection with liens by subcontractors and suppliers at December 31, 2019 totalled $56,606 (December 31, 2018 - $43,301). The Company has acquired minority equity interests in a number of PPP concession entities (note 10), which requires the Company to make $5,859 in future capital injections. These commitments have been secured by letters of credit totalling $5,859 (December 31, 2018 - $5,859). Contingencies The Company is contingently liable for the usual contractor’s obligations relating to performance and completion of construction contracts. These include the Company’s contingent liability for the performance obligations of its subcontractors. Where possible and appropriate, the Company obtains performance bonds, subcontract/supplier insurance or alternative security from subcontractors. However, where this is not possible, the Company is exposed to the risk that subcontractors will fail to meet their performance obligations. In that eventuality, the Company would be obliged to complete the subcontractor’s contract, generally by engaging another subcontractor, and the cost of completing the work could exceed the original subcontract price. The Company makes appropriate provision in the financial statements for all known liabilities relating to subcontractor defaults. Page 86 Notes to the Consolidated Financial Statements For the year ended December 31, 2019 (in thousands of Canadian dollars, except per share amounts) 24. Related party transactions Compensation of key management personnel represents the aggregate amounts paid and accrued to members of the Company’s Executive and the Company’s Board of Directors. Executive & Directors Base salary PSU/RSU/MTIP/DSU Stock-based compensation Short term incentive plan Other taxable benefits $ $ 2019 3,571 $ 4,126 – 520 284 8,501 $ 2018 3,857 479 7 717 311 5,371 President & Chief Executive Officer Chief Financial Officer The Executive comprises the following positions: i. ii. iii. Executive Vice President Major Projects iv. Executive Vice President Buildings v. Executive Vice President Industrial vi. Senior Vice President Risk Management, General Counsel & Secretary vii. Senior Vice President Buildings viii. Vice President Financial Planning & Analysis ix. Vice President Strategic Development At December 31, 2019, Directors and Executive of the Company controlled 5.2% (December 31, 2018 – 4.2%) of the voting shares of the Company. In 2014, the Company issued a non-interest bearing five-year loan of $550 (due December 12, 2019) to one of its executives to assist with expenses relating to the relocation of the employee. The loan was fully repaid in December 2019 (December 31, 2018 - $550 remained outstanding). In 2016, the Company issued a non-interest bearing five-year loan of $500 (due August 14, 2021) to one of its executives to assist with expenses relating to the relocation of the employee. As at December 31, 2019, $500 remained outstanding on the loan (December 31, 2018 - $500). A Director or related parties hold positions in other entities that result in them having control over the financial reporting or operating policies of these entities. All transactions with the Director and entities over which they have control are provided for in the normal course of business based on terms similar to those that prevail in arm's length transactions. The aggregate value of transactions during the year with entities over which directors have control was $1,935 (December 31, 2018 - $7,386) and the outstanding balance receivable at December 31, 2019 was $891 (December 31, 2018 - $4,442). Transactions with proportionally consolidated joint arrangements The Company provides services of its employees, management services, cost reimbursements, parental guarantees and letters of credit to the joint arrangements. These services were transferred at the exchange amount, agreed to between the parties. The amounts recognized for services provided by the Company for the year ended December 31, 2019 totalled $35,565 (December 31, 2018 - $11,831). The Company has accounts receivable from the joint arrangements at December 31, 2019 totaling $4,154 (December 31, 2018 - $857). Page 87 Notes to the Consolidated Financial Statements For the year ended December 31, 2019 (in thousands of Canadian dollars, except per share amounts) Transactions with equity accounted joint arrangements The Company and its proportionately consolidated joint arrangements (note 3), provides development and construction services to its concession investments in associates and joint ventures which are in the normal course of business and on commercial terms. The Company’s proportionate share of the amounts billed for construction services provided by these joint arrangements for the year ended December 31, 2019 totaled $98,889 (December 31, 2018 – $147,008), of which $109,574 has been recognized in revenue in 2019 (December 31, 2018 - $136,620). These amounts are not eliminated as they are deemed to be realized by the Company. The Company and its proportionately consolidated joint arrangements, have accounts receivable from these concession investment entities. The Company’s proportionate share of accounts receivable at December 31, 2019 totaled $39,867 (December 31, 2018 - $35,509). The Company also has notes receivable from an equity accounted joint arrangement at December 31, 2019 totalling $8,069 (December 31, 2018 - $1,125). 25. Other cash flow information Changes in non-cash working capital relating to operating activities Accounts receivable Contract assets Contract assets – alternative finance projects* Prepaid expenses Inventory and other assets Accounts payable Contract liabilities Provisions Medium term incentive plan and other $ $ 2019 (75,911) $ (2,606) (68,054) (65) 291 36,563 52,123 (830) (7,780) (66,269) $ 2018 18,902 6,550 66,825 (47) (326) 10,211 (2,373) (2,110) (2,235) 95,397 * Contract assets – alternative finance project changes are driven by design-build-finance projects. Refer to note 7 for loan proceeds to fund contract assets – alternative finance projects. Cash and cash equivalents Cash Restricted cash and blocked accounts* Cash held for joint operations Restricted bankers’ acceptances and short-term deposits* $ $ 2019 36,127 $ 10,102 134,015 90 180,334 $ 2018 111,247 2,746 43,158 1,769 158,920 * Cash, bankers’ acceptances and short-term deposits include restricted cash and cash equivalents. These amounts are not available for general operating purposes. Restricted cash and cash equivalents Cash and cash equivalents held to support letters of credit (note 13) Cash deposited in blocked accounts for special projects (note 7) Restricted cash $ $ 2019 139 $ 212 9,841 10,192 $ 2018 2,645 1,870 – 4,515 Page 88 Notes to the Consolidated Financial Statements For the year ended December 31, 2019 (in thousands of Canadian dollars, except per share amounts) Support for Letters of Credit In the normal course of business, the Company issues letters of credit on certain projects to guarantee its performance. These projects are typically design-build contracts relating to PPP arrangements and other major construction projects. In certain instances, the letters of credit are supported by the hypothecation of cash and cash equivalents that are not available for general corporate purposes (note 13). Blocked Accounts The terms of non-recourse project financing require scheduled loan advances to be deposited in a blocked bank account which cannot be accessed directly by the Company for general corporate purposes. Upon recommendation by the lender’s technical advisor, cash is released monthly from the blocked account and paid to the Company based on the progress made on the related construction project. Once PPP projects that only involve short term financing reach final completion and the debt is repaid, any remaining amounts in the project accounts become unrestricted and available for general corporate purposes. Restricted Cash Under the Construction Act in Ontario, a bank account has been established for the benefit of persons who have supplied services or materials to the improvement for specific projects subject to the legislation. The funds remain in the account until all subcontractors, suppliers and direct labour are paid, as appropriate. Page 89 Notes to the Consolidated Financial Statements For the year ended December 31, 2019 (in thousands of Canadian dollars, except per share amounts) 26. Financial instruments The Company's investments and derivative financial instruments, including interest rate swaps and TRS derivatives have been classified as fair value through profit and loss. The Company’s cash, bankers’ acceptances, short-term deposits, short-term investments, accounts receivable and other long-term assets are classified as financial assets. The Company’s bank overdraft, if any, accounts payable, dividends payable to shareholders, non-recourse project financing, deferred payment, ROU liabilities and loans and borrowings have been classified as financial liabilities. The basis of the determination of the fair value of the Company’s financial instruments is more fully described in note 3. Classification and fair value of financial instruments Financial instruments at fair value through profit or loss Non-recourse project financing – interest rate swaps Interest rate swaps Total return swap derivatives Financial assets and financial liabilities Financial assets Cash and cash equivalents (note 25) Accounts receivable Other non-current assets Short-term investments Financial liabilities Accounts payable Dividends payable to shareholders Non-recourse project financing – loan facilities (note 7) Loans and borrowings Right-of-use liabilities Deferred payment Total financial instruments 2019 (676) (58) (271) (1,005) 180,334 413,649 6,608 – 600,591 (419,923) (1,382) (84,698) (40,621) (31,100) – (577,724) 21,862 $ $ $ $ $ $ $ 2018 (613) (54) (2,218) (2,885) 158,920 337,663 6,852 1,705 505,140 (383,608) (1,382) (11,211) (21,198) (8,759) (756) (426,914) 75,341 $ $ $ $ $ $ $ The following table presents information about the Company’s financial instruments measured at fair value as at December 31, 2019 and December 31, 2018, and indicates the fair value hierarchy of inputs utilized by the Company to determine such fair value. The hierarchy of inputs is summarized below: Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities; i. ii. Level 2 - inputs other than quoted prices included in level 1 that are observable for the asset or liability, either directly or indirectly; and iii. Level 3 - inputs used in a valuation technique are not based on observable market data in determining fair values of the instruments. Determination of fair value and the resulting hierarchy requires the use of observable market data whenever available. The classification of a financial instrument in the hierarchy is based upon the lowest level of input that is significant to the measurement of fair value. Page 90 Notes to the Consolidated Financial Statements For the year ended December 31, 2019 (in thousands of Canadian dollars, except per share amounts) Level 1 Quoted prices in active markets Level 2 Significant other observable inputs 2019 Level 3 Total Significant unobservable inputs Non-recourse project financing – interest rate swaps Interest rate swaps Total return swap derivatives Financial instruments at fair value through profit or loss $ – $ – – (676) $ (58) (271) – $ – – (676) (58) (271) $ – $ (1,005) $ – $ (1,005) Non-recourse project financing – interest rate swaps Interest rate swaps Total return swap derivatives Financial instruments at fair value through profit or loss $ – $ – – 2018 (613) $ (54) (2,218) $ – $ – – (613) (54) (2,218) $ – $ (2,885) $ – $ (2,885) There were no transfers between levels during both years. The fair value of the loans and borrowings and ROU liabilities approximate their carrying values on a discounted cash flow basis as the majority of these obligations bear interest at market rates. The fair values of the remaining financial instruments approximate their carrying value due to their relatively short periods to maturity. Risk Management In the normal course of business, the Company is exposed to several risks related to financial instruments that can affect its operating performance. These risks and the actions taken to manage them are as follows: i. Credit Risk Credit risk relates to the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet their contractual obligation. With respect to accounts receivable, concentration of credit risk is limited due to the geographic dispersion of revenues and a diversified customer base. Before entering into any construction contract and during the course of the construction project, the Company goes to considerable lengths to satisfy itself that the customer has adequate resources to fulfil its contractual payment obligations as construction work is completed. If a customer was unable or unwilling to pay the amount owing, the Company will generally have a right to register a lien against the project that will normally provide some security that the amount owed would be realized. Bankers’ acceptances, short-term deposits and short-term investments are subject to minimal credit risk as they are placed with only major Canadian financial institutions. As is reasonably practical, these investments are placed with several different Canadian financial institutions, thereby reducing the Company’s exposure to a default by any one financial institution. Page 91 Notes to the Consolidated Financial Statements For the year ended December 31, 2019 (in thousands of Canadian dollars, except per share amounts) Accounts receivable outstanding for greater than 90 days and considered past due by the Company’s management represent 17.1% (December 31, 2018 – 13.0%) of the balance of progress billings on construction contracts receivable at December 31, 2019. Management has recorded an allowance of $1,538 (December 31, 2018 - $1,271) against these past due receivables, net of amounts recoverable from others. Trade receivables Impairment Total Trade receivables $ $ Amounts past due Up to 12 months 31,556 $ – 31,556 $ Over 12 months 15,618 $ (1,538) 14,080 $ 2019 47,174 $ (1,538) 45,636 $ 2018 28,847 (1,271) 27,576 The movement in the allowance for impairment in respect of loans and receivables during the period was as follows: Balance, beginning of year Impairment loss recognized Amounts written off Impairment loss reversed Balance, end of year ii. Liquidity risk $ $ 2019 1,271 313 – (46) 1,538 $ $ 2018 1,672 140 (396) (145) 1,271 Liquidity risk relates to the risk that the Company will not be able to meet its financial obligations as they fall due. The Company has working capital of $80,503 which is available to support surety requirements related to construction projects. As a component of working capital, the Company maintains significant balances of cash and cash equivalents and investments in liquid securities. These investments, less $139 hypothecated to support outstanding letters of credit and $10,053 held in restricted accounts, are available to meet the financial obligations of the Company as they come due (note 25). The Company has a committed line of credit of $85,000 available to finance operations and issue letters of credit. As at December 31, 2019, the Company has drawn $15,000 on the facility and has $28,504 letters of credit outstanding on the facility. The committed line of credit is available until December 31, 2021. The Company has a committed revolving term loan facility totalling $35,000 for the purpose of financing acquisitions and for working capital advances in support of major projects. As of December 31, 2019, the Company has drawn $10,000 on the facility. Also, the Company and its subsidiaries have $35,000 in equipment facilities, of which $15,621 is outstanding at December 31, 2019. Subsidiaries of the Company have established operating lease lines of credit for $31,800 with the financing arms of major heavy equipment suppliers to finance operating equipment leases. At December 31, 2019, the subsidiaries have used $11,653 under these facilities. In addition, the Company has letters of credit facilities totalling $80,000 available for issuing letters of credit for which $6,559 was drawn at December 31, 2019. Additional draws on this line require hypothecation of additional securities or cash deposits. Cash collateralization may not be required for certain letters of credit with an export component as the Company has entered into an agreement with EDC to provide performance security guarantees for letters of credit issued that meet their criteria. The Company believes it has access to sufficient funding through the use of these facilities to meet foreseeable operating requirements. Page 92 Notes to the Consolidated Financial Statements For the year ended December 31, 2019 (in thousands of Canadian dollars, except per share amounts) Principal repayments due on the loans and borrowings and non-recourse project financing are disclosed in notes 13 and 7, respectively. As disclosed in notes 15 and 16, payments required pursuant to the Company’s MTIP granted in 2017, 2018 and 2019 are due on the vesting dates of November 2020, November 2021 and November 2022, respectively, or upon retirement, if earlier. Payments pursuant to the Company's EIP granted in 2017, 2018 and 2019 are due by December 2020, December 2021 and December 2022 respectively. Payments pursuant to the Company's DSU Plan are cash settled when the eligible Director ceases to hold any position within the Company. The following are the contractual maturities of financial liabilities, including estimated interest payments as at December 31, 2019: Trade payables Dividends payable ROU liabilities Non-recourse project financing Loans and borrowings Carrying amount 419,923 $ 1,382 31,100 85,374 40,621 578,400 $ $ $ Contractual cash flows 419,923 $ 1,382 34,840 87,480 41,422 585,047 $ Up to 12 months 397,042 $ 1,382 8,864 87,480 6,325 501,093 $ 2 – 3 years 22,881 $ – 12,293 – 34,055 69,229 $ 4 – 5 years – – 13,683 – 1,042 14,725 iii. Market risk Market risk is the risk that changes in market prices, such as interest rates and equity prices, will affect the Company’s income or the value of its holdings in liquid securities. At December 31, 2019, the interest rate profile of the Company's loans and borrowings and non-recourse project financing was as follows: Fixed-rate facilities Variable-rate facilities Non-recourse project financing facilities Total loans and borrowings and non-recourse project financing $ $ 2019 15,621 25,000 85,067 125,688 Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is exposed to interest rate risk to the extent that its credit facilities and TRS derivatives are based on variable rates of interest. The Company has the option to convert all variable-rate term facilities to fixed-rate term facilities. Interest rate risk on the non-recourse project financing is managed with the objective of reducing the cash flow interest rate risk through the use of interest rate swaps. As at December 31, 2019, a one percent change in the interest rate applied to the Company's variable rate long- term debt will change annual income before income taxes by approximately $250. The Company has certain share-based compensation plans, whereby the values are based on the common share price of the Company. The Company has fixed a portion of the settlement costs of these plans by entering into various TRS derivatives maturing between 2020 and 2022. The TRS derivatives are not designated as a hedge. The change in the value of the TRS derivatives is recorded each quarter based on the difference between the fixed price and the market price of the Company’s common shares at the end of each quarter. The TRS derivatives are classified as derivative financial instruments. As at December 31, 2019, a 10 percent change in the share price applied to the Company's TRS derivatives will change income before income taxes by approximately $987. Page 93 Notes to the Consolidated Financial Statements For the year ended December 31, 2019 (in thousands of Canadian dollars, except per share amounts) iv. Currency risk Currency risk is the risk that fluctuations in currency exchange rates will affect the Company’s net income. The Company uses foreign currency to settle payments to vendors and subcontractors in the foreign currency. A 10% movement in the Canadian and U.S. dollar exchange rate would have changed income by approximately $141. 27. Capital disclosures The Company’s capital management objectives are to: i. ii. Ensure that the Company has the financial capacity to support its current and anticipated volume and mix of business and to manage unforeseen operational and industry developments. Ensure that the Company has sufficient financial capacity to support the execution of its longer-term growth strategies. iii. Provide its investors with the maximum long-term returns on equity and to generate sufficient cash flow to sustain shareholder dividends and payments on long-term debt. In the management of capital, the Company defines capital as shareholders’ equity and loans and borrowings. Loans and borrowings include the current and non-current portions of long-term debt and finance leases. The Company manages its capital within the investment policy approved by the Board of Directors. The Company makes changes to capital based on changes in business conditions and the mix of construction contracts. In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to Company shareholders, issue new debt or repay existing debt, issue new Company shares, and to a lesser degree, may adjust capital expenditures. As a component of working capital, the Company maintains significant balances of cash and cash equivalents. These cash and cash equivalents are intended to cover net current liabilities, fund current dividends payable to shareholders and provide capital to support surety and contract security requirements, including issuing letters of credit relating to the current and near-term backlog of construction projects. Backlog is not a term found in the CPA Canada Handbook. Backlog (also referred to in the construction industry as “work on hand”) is the total value of all contracts awarded to the Company, less the total value of work completed on these contracts as of the date of the most recently completed quarter. This includes all contracts that have been awarded to the Company whether the work has commenced or will commence in the normal course. The amounts of shareholders’ equity, working capital and loans and borrowings at December 31, 2019 and December 31, 2018 are as follows: Shareholders’ equity Working capital Loans and borrowings $ 2019 127,720 80,503 40,621 $ 2018 136,229 70,215 29,957 Page 94 Notes to the Consolidated Financial Statements For the year ended December 31, 2019 (in thousands of Canadian dollars, except per share amounts) 28. Eligible dividends declared with a record date subsequent to the financial statement date As of the date of the approval of these financial statements, the Board of Directors has declared eligible dividends for the following months: i. ii. iii. iv. The January dividend of $0.0325 per share will be paid on February 20, 2020 to the Shareholders of record as of the close of business on January 31, 2020. The February dividend of $0.0325 per share will be paid on March 20, 2020 to the Shareholders of record as of the close of business on February 28, 2020. The March dividend of $0.0325 per share will be paid on April 20, 2020 to the Shareholders of record as of the close of business on March 31, 2020. The April dividend of $0.0325 per share will be paid on May 20, 2020 to the Shareholders of record as of the close of business on April 30, 2020. 29. Comparative figures Certain comparative figures for the prior period have been reclassified to conform to the presentation adopted in the current period. Page 95 Five Year Summary December 31, 2019 (in thousands of Canadian dollars, except Other Information) OPERATING RESULTS Revenue Income before income taxes Income taxes Net income Dividends Cash flows from operations before changes in non-cash working capital Notes: $ $ $ $ $ 2019 2018 2017 (1) 2016 2015 1,376,408 1,381,784 1,418,557 1,589,868 1,444,806 11,959 2,475 9,484 16,582 (2,674) (1,661) (1,013) 16,582 13,078 4,242 8,836 16,582 34,327 9,325 25,002(2) 32,297 35,347 13,865 21,482(3) 32,297 30,201 12,320 26,938 48,449 75,291 (1) 2017 reported figures have been restated applying IFRS 15. (2) Adjusting 2016 net income for the non-cash impairment charge, the Company's adjusted net income was $27,741 (a non-GAAP measure). (3) Adjusting 2015 net income for the non-cash impairment charge, the Company's adjusted net income was $41,802 (a non-GAAP measure). FINANCIAL POSITION Current assets Current liabilities Working capital Property and equipment Right-of-use assets Shareholders’ equity Notes: 2019 2018(3) 2017(1) 2016(2) $ $ $ $ $ 729,358 648,855 80,503 46,016 34,460 127,720 546,553 476,338 70,215 43,153 13,073 136,229 607,979 523,901 84,078 52,397 N/A 153,816 729,799 614,527 115,272 45,517 N/A 161,543 2015 652,864 525,506 127,358 54,281 N/A 170,891 (1) 2017 reported figures have been restated applying IFRS 15. (2) 2016 reported figures have been restated on January 1, 2017 after the adoption of IFRS 15. (3) 2018 Property and equipment figures have been reclassified following the adoption of IFRS 16 on January 1, 2019. BACKLOG Firm price Construction management OTHER INFORMATION $ $ 1,547,427 300,938 1,295,940 82,155 1,186,000 128,509 1,137,000 1,662,800 35,351 17,108 Number of shares outstanding 42,516,853 42,516,853 42,516,853 42,516,853 42,516,853 Return on revenue % 0.69 (0.07) 0.62 1.57 1.49 Return on prior year shareholders’ equity % 6.96 (0.66) 5.47 14.63 11.83 Net income per share Book value per share $ 0.22 (0.02) 0.21 0.59 0.51 $ 3.00 3.20 3.62 3.80 4.02 Eligible Dividends Bird Construction Inc. designates any and all dividends paid or deemed for Canadian federal, provincial or territorial income tax purposes to be paid on or after January 1, 2007 to be “eligible dividends”, unless indicated otherwise in respect of dividends paid subsequent to this notification, and thereby notifies all recipients of such dividends of this designation. Page 96 

Continue reading text version or see original annual report in PDF format above