Under the Roof
2015 ANNUAL REPOR T
Civeo // 2015 Annual Report
Inside Civeo –
an “under the roof”
look at our business,
competitive advantages,
locations and operations.
Civeo is one of the largest integrated providers of permanent
and temporary workforce accommodations, catering, facilities
management and logistics services. Our primary customers
are in the natural resources industries in some of the world’s
most active oil, coal, natural gas and iron ore producing
regions, typically in remote locations. As a leader in the industry
with customized facilities, services and amenities, we have
a unique approach focused on our guests’ wellbeing, safety
and productivity, with a sense of community.
IFC
Our 2015
Strategy
• Generate free cash flow
• Complete the corporate
migration to Canada
and reduce leverage
• Capture organic
growth opportunities
• Position Civeo for
the future
To Our
Shareholders
Civeo’s 2015 performance in a very difficult
market demonstrated the success of our
operational execution in a downturn, the
strength of our “Develop.Own.Operate.”
business strategy, and our focus on positioning
for a recovery with uncertain timing.
Global economic headwinds began gathering in mid-2014 and continue today.
These, coupled with a global oversupply of oil, natural gas and metallurgical
coal, caused crude prices in our Canadian oil sands markets to drop by 52%
in just one year and metallurgical coal prices in Australia to drop by 25%.
In response, we quickly right-sized our operations, adjusted our cost structure
to match the current markets, concentrated on free cash flow generation to
improve our balance sheet and liquidity position, and continued to pursue
new business.
Slower global economic growth, coupled with a growing global commodity
supply glut, have negatively impacted our outlook for 2016. Based on the
actions taken in 2015, we believe we have positioned Civeo to handle this
market, with an improved financial footing, a leaner cost structure and
competitive advantages that we believe will continue to allow us to win new
and renewed contracts in both existing and emerging markets in our core
geographic areas.
None of these accomplishments would have been possible without the
ongoing dedication, focus, creativity and hard work of our employees to
whom I am deeply grateful. The collective efforts of employees who are being
tasked with more significant roles during this period of belt-tightening –
from our chefs and housing staff to our finance team and our regional and
corporate management – drove our 2015 achievements.
2015 Achievements
Our 2015 strategy included generating positive cash flow from operations
after capital expenditures, completing our corporate migration to Canada and
reducing leverage, capturing organic growth opportunities and positioning
Civeo for the future.
Last year, Civeo generated meaningful operating cash flow after capital
expenditures by maximizing revenue from new and existing projects,
managing our costs and remaining disciplined in our deployment of capital.
1
Civeo // 2015 Annual Report
Capital Expenditures
U.S. Dollars in Millions
$251
$62
2014
2015
(cid:132) Expansion
(cid:132) Maintenance
75%
Reduction in
Total Capex
Debt
U.S. Dollars in Millions
$775
$402
2014
2015
48%
Debt Reduction
Adjusted EBITDA(1)
U.S. Dollars in Millions
$340
$141
2014
2015
2
Despite a year that was economically more difficult than initially forecasted and
the impact of weakening Canadian and Australian dollars, we substantially
met our initial annual financial expectations. Our existing contracts were
honored by the customers who remained active in the Canadian oil sands
and Australian metallurgical coal regions. In addition, during the year we
won renewals of contracts in Australia and Canada and captured new contracts
to support pipeline construction activity in the Canadian oil sands region.
Our operations team did an excellent job of managing both operating costs
and maintenance capital spending. Over the course of the year we reduced
operating expenses and overhead costs by a total of 36% versus 2014. We
also cut capital spending by 75% versus 2014 while developing two new
Canadian lodges supported by initial customer contracts.
Civeo generated $124 million of cash flow from operations after capital
expenditures in 2015. This cash flow, coupled with existing cash balances,
were utilized to significantly reduce leverage – slashing outstanding debt
year over year by 48% – and we are continuing to pay down debt in 2016.
Remaining cash flow positive, coupled with the benefits from our migration
to Canada and amendments to our credit facility completed in early 2016,
provide us with the flexibility to manage through the ongoing industry
challenges and grow our market share.
The Company continued to demonstrate market leadership by capturing
organic growth opportunities both in our traditional markets and in high-
potential new ones. In October 2015, for example, we opened the new
436-room Sitka Lodge – the first new accommodations facility to serve the
emerging liquefied natural gas (LNG) industry in British Columbia. Civeo
also redeveloped the Mariana Lake Lodge into a 526-room lodge to serve
a pipeline customer in the southern region of the Alberta oil sands.
As is typical for cyclical downturns, our focus in 2015 shifted from earnings
generation to cash flow generation. Our earnings were negatively impacted
by the combination of declining occupancy plus the weaker Canadian and
Australian currencies against the U.S. dollar. Revenues dropped by 45%, to
$518 million in 2015. Foreign currency changes alone cost Civeo approximately
$78 million in lost revenue last year. We realized an adjusted net loss of
$28 million, or $0.27 per share, excluding the after-tax impact of $99 million
of asset impairments and $5 million of migration costs.
Greater Financial Flexibility for the Future
Our migration to Canada enabled us to tangibly improve our balance sheet
and create long-term benefits for the Company, including:
• Easier movement of cash flow and capital from one operating
country to another;
• Lower foreign exchange risk; and
• A more favorable global tax position.
This new legal structure, coupled with our two bank amendments, positioned
us to reduce our debt from $775 million at the end of 2014 to $402 million
at year-end 2015 using current year cash flow and existing cash balances.
(1) We define the term Adjusted EBITDA as net income (loss) plus interest, taxes, depreciation and amortization, and
excluding impairment charges and certain other costs such as those incurred associated with the spin-off and the
migration. Adjusted EBITDA may not be comparable to other similarly titled measures of other companies.
Bradley J. Dodson
President and CEO (left)
Frank C. Steininger
Senior Vice President and CFO (right)
We believe our strong reputation
for quality and value, our turnkey
accommodations solutions that
customers have come to rely on,
our strong customer relationships
and our aggressive business
development efforts make Civeo
the provider of choice in the
markets where we compete.
The amendments also provided us with financial covenant relief to allow us
to manage through this market and respond to growth opportunities. Civeo
ended fiscal 2015 with total liquidity of $204 million and total debt to trailing
12 months Adjusted EBITDA(1) of 2.7 times.
The Market Outlook for 2016
The decline in oil prices has continued in the first quarter of 2016, and their
trajectory for the remainder of the year is uncertain. The current and fore-
casted oil prices reflect the continuing effects of high U.S. shale production,
OPEC’s decision to defend market share, concerns about the reintroduction
of Iranian supplies to the global market after years of embargo, and new
production from other non-OPEC producers on the supply side, along with
lower demand growth expected globally, particularly from China.
This oil supply/demand imbalance will continue to put pressure on our
Canadian oil sands business. Our existing contracted occupancy provides
some revenue visibility, but incremental activity remains uncertain, and the
timing of the new LNG industry in British Columbia, which could help offset
this, is uncertain. Similarly, depressed West Texas Intermediate prices will limit
opportunities for our small Lower 48 operations tied to oil and natural gas,
although we are pursuing alternatives to redeploy mobile accommodations
assets in other industries in the U.S.
Metallurgical coal prices also continue to be impacted by higher global supply
in 2016 as well as lower demand from Chinese steelmaking firms. However, we
expect that the closing of high-cost, uncompetitive mines could ease the supply
surplus over the next several years. The Bowen Basin, where the majority of
our villages are located, is among the lowest-cost metallurgical coal sources
in the world and should benefit from any gradual improvement in the global
supply/demand equation for metallurgical coal.
The Year Ahead for Civeo
As we move into 2016, we remain focused on the long-term success of Civeo.
Operationally, we continue to focus on the daily guest experience, our
commitment to serving our clients’ needs, driving cost efficiencies through
both our own operations and our customers’, and engagement with commu-
nities in which we operate. Financially, our efforts in 2016 are consistent with
those in 2015 – generating positive free cash flow, reducing our debt and
strengthening our financial position. Strategically, we are pursuing organic
investments, capturing nascent British Columbia LNG opportunities and
returning to growing the Company.
Bradley J. Dodson
President and CEO
3
Civeo // 2015 Annual Report
Civeo // 2015 Annual Report
Inside Our Locations
Locations at a Glance
Imagine building a large hotel, miles away from the
nearest town, where temperatures may plunge 30°F
below zero or top 120°F in the shade. It’s challenging
locations like these where Civeo designs, engineers,
builds, owns and operates remote workforce
accommodations for natural resource developers.
Civeo develops standalone power, water, sewer and
communications systems, roads, logistics facilities
and housing for hundreds of workers, complete with
laundry, catering, recreation and entertainment
opportunities. A warm – or cool – inviting and friendly
place for tired, hungry workers to come home to.
Canada
In Canada, we are the largest integrated accom-
modations provider serving operators of oil sands
projects in Alberta. We opened the first lodge
serving the emerging LNG industry in British
Columbia in late 2015.
9 lodges
14,156 rooms
Other Operations
• Open camp and mobile assets
• Manufacturing and ancillary services
• Catering only
67% revenue
In Canada’s McClelland Lake Lodge area,
the Aurora Borealis shines brightly across
the night sky.
Canada Occupancy vs. Crude Oil Prices
90%
90%
88%
$77
80%
63%
Q2
2013
Q4
Q2
2014
Q4
Q2
2015
Civeo Canada Occupancy %
Western Canada Select Crude/Bbl $
52%
$28
Q4
4
4
Australia
United States
In Australia, we are the largest third-party accommo-
dations provider primarily serving operators of
low-cost, long-lived metallurgical coal mines that
serve the Asian-Pacific steelmaking industry.
10 villages
9,296 rooms
26% revenue
In the United States we operate semi-permanent
open camps and mobile wellsite assets in the
Bakken, Niobrara, Permian and Eagle Ford plays
and industrial projects. We also serve the U.S.
Gulf of Mexico through our offshore division,
offering both fabrication and accommodations
asset rental services.
Operations
• Wellsites
• Open camps
• Offshore
7% revenue
Australia Occupancy vs. Met Coal Prices
81%
84%
$172
65%
67%
61%
Q2
2013
Q4
Q2
2014
Q4
Q2
2015
Civeo Australia Occupancy %
Australia Met Coal/Ton $
49%
$89
Q4
5
5
Civeo // 2015 Annual Report
Inside Western Canada
Our Sitka Lodge is named
after a unique type of
spruce tree native to
British Columbia and North
America’s Northwest Coast.
Kitimat is known to have
a very large Sitka spruce
tree rumored to be over
500 years old.
LNG – Diversifying our Business
Experts believe Western Canada holds hundreds of trillions of cubic feet
of gas reserves. International energy developers are planning massive
infrastructure projects to transport, cool and compress that natural gas
into a liquid and export this clean energy source by specially designed
tankers to energy-hungry economies in the growing Asia-Pacific region.
Civeo is well positioned to be a leading accommodations provider for these
multi-billion-dollar LNG projects, which would greatly diversify Civeo’s current
portfolio of oil sands projects in Western Canada.
The first of these projects at Kitimat and Port Edward, British Columbia, could
generate significant demand to house workers during the construction phase
of both downstream facilities and pipelines.
While lower world energy prices have slowed the pace of LNG development
in recent years, Canadian LNG export projects have the potential to be a
major source of new energy activity in North America. Exploration and
production activity in Lower 48 shale plays can expand and contract rapidly
in response to commodity price changes, but the long-term nature of the
LNG export business could provide important diversification for Civeo’s
future growth opportunities.
Proposed LNG Pipelines & Infrastructure
BRITISH COLUMBIA, CANADA
Fort St. John
Dawson’s
Creek
Port
Edward
Terrace
Kitimat
Fort St. James
Prince George
Proposed Coastal GasLink Route
Proposed Prince Rupert Gas Transmission Route
Terminal Liquefaction Projects
Potential Logistics Hub
6
The Civeo Advantage
Integrated Services
Our “Develop.Own.Operate.” integrated business model lets our customers
focus on what they do best – natural resource development and production.
They rely on Civeo for efficient, turnkey operations and consistently high-
quality service delivery, and our facilities and services can be tailor-made
for our customers’ needs. For customers who want “a la carte” services,
for example, we can offer catering, laundry or logistics services separately,
allowing them to optimize their employee accommodations spend.
Or we can develop and build a new custom-designed, customer-owned
lodge or village.
Safety
Working safely is at the foundation of everything we do at Civeo. Despite
the current challenging market conditions, we have continued to invest
in industry-leading safety training and audit programs. This investment,
alongside the commitment of every Civeo employee, generated improve-
ments in our year-over-year total recordable incident rates of 38% in
Canada, 59% in the U.S. and 18% in Australia. Our food safety programs
continue to be recognized as industry leading by both clients and
government agencies we work closely with on facility design and service
delivery models. We remain committed to continued investment in
technology-based food safety systems and broadening training and
certification for our food service management staff and others supporting
our catering operations.
Land Banking
The Civeo advantage begins before the first RFP is issued: We use strong
market intelligence to identify likely future projects, acquire land in the
area through purchase or lease and begin acquiring necessary permits
early in the process. This early-mover strategy – combined with the benefit
of our in-house design and manufacturing capabilities – is an important
competitive advantage that helps us deliver a high-quality remote accom-
modations solution at a good value. This allows Civeo to offer rooms
and full catering services that meet our customers’ development timeline.
Civeo’s early-mover advantage was a big factor in winning the contract
for our 436-room Sitka Lodge that opened in October 2015 in British
Columbia – the first-ever accommodations contract awarded for a
Western Canada LNG development.
Andy Redcrow of Saddle Lake
Building Community
with our Neighbors
Engaging with Aboriginal people is
the foundation for strong community
partnerships that foster understand-
ing, respect and mutual benefit.
Civeo’s goal is to ensure that every
one of our projects creates a positive
legacy through employment and
training opportunities, community
investment, procurement through
local suppliers and partnerships
to help local businesses succeed.
At the same time, we recognize that
our developments and operations
must respect and protect the social,
cultural and spiritual identities and
jurisdiction that Aboriginal peoples
have over their traditional lands.
Last year, Civeo achieved a number
of important milestones: We entered
into new strategic partnerships in
Western Canada, and we began
working with the Canadian Council for
Aboriginal Business, which will audit
our Aboriginal relations programs and
policies to measure their outcomes.
Civeo’s first-of-a-kind collaborative
culinary partnership with the Govern-
ment of Alberta and area colleges
provides hands-on culinary training
for Aboriginal young people. Civeo
also provides college scholarships to
help students prepare for and pursue
career goals, and help talented employ-
ees pursue career tracks to corporate
and salaried positions with Civeo.
We are proud of our long history of
working with Aboriginal communities
and remain committed to growing,
adapting, learning and creating
more meaningful opportunities for
their people.
7
7
Civeo // 2015 Annual Report
Under the Roof
A look inside one
of Civeo’s lodges
EDI Food Delivery
EDI, Latin for “to eat,” is Civeo’s industry-
leading a la carte food ordering system.
With EDI, Civeo was the first in the industry
to offer a non-buffet option for guest meals,
while dramatically increasing efficiency
and reducing food waste.
Logistics Services
Getting employees safely and efficiently to remote project sites
involves complex logistics: flights from multiple destinations,
ground travel and room reservations for hundreds of people
on multiple shifts. Civeo offers customers the unique ability
to coordinate all guests’ travel both safely and comfortably.
8
A conversation with
Philipp Gruner,
Vice President Operations –
North America
Why do companies choose
Civeo to house their employees?
Our clients like that we can design
facilities and services to meet their
specific needs. If they have strict
security protocols, or they want the
same services across various locations,
we can accommodate them and
provide a superior seamless operation.
In this challenging economic environ-
ment, we are also working closely with
clients to realize mutually beneficial
cost savings.
How are you able to consistently
deliver high-quality service in
remote locations?
We are constantly working to develop
and apply innovative technologies
and processes to manage our costs
and enhance our guests’ experience.
We have developed an interactive
electronic dining menu to improve
food options and implemented a
convenient and efficient automated
check-in and check-out system. We
have also installed state-of-the-art
laundry facilities that are both efficient
and do a terrific job, particularly on
linens, which our guests appreciate
after a long day working outside.
Everyone appreciates the high
standards and advanced technology
we apply to ensure food safety.
What services do you think
guests enjoy most when staying
at a Civeo facility?
They really like the interactive
electronic dining menu, which allows
each guest to order off an extensive
menu and get fresh, made-to-order
meals every time, instead of eating
from buffets. We also offer transpor-
tation that comfortably gets them
to and from the job site and airport,
and when they are staying at the
lodge or village, they can enjoy the
fitness and recreational facilities.
9
9
Private Room or Guest Quarters
Civeo lodge rooms come in multiple room type
configurations to meet guest needs and client
budgets. Offering a range of room configurations
from suites for visiting executives, to small semi-
private rooms to accommodate clients with smaller
budgets, Civeo lodges are designed for all types
of customer requirements.
Mobile Check-in
Once guests of our lodges have
signed up for the mobile check-in
program, they will receive an
automated email confirmation to
verify their reservation the night
before check-in. Upon arrival,
guests simply swipe their key fob
at a kiosk in the lodge lobby and
head up to their rooms. Likewise,
express check-out with a simple
swipe of a guest key makes
departure effortless.
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Civeo // 2015 Annual Report
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Stay Well.
Work Well.
10
101001100011001010100101111100000000111100010101111111001000101111110000001111110100000000011111001000011011100001000101011101001011100111111111111010101110101011010011101111
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 2015
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
OR
For the transition period from _________________________ to
Commission file number: 001-36246
Civeo Corporation
_______________
(Exact name of registrant as specified in its charter)
British Columbia, Canada
(State or other jurisdiction of
incorporation or organization)
98-1253716
(I.R.S. Employer
Identification No.)
Three Allen Center, 333 Clay Street, Suite 4980,
Houston, Texas
(Address of principal executive offices)
77002
(Zip Code)
(713) 510-2400
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Shares, no par value
Name of Exchange on Which Registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
YES [ ]
NO [X ]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
YES [ ]
NO [X ]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
YES [X]
NO [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or
for such shorter period that the registrant was required to submit and post such files).
YES [X]
NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting
company. See the definitions of "accelerated filer," "large accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer [ ]
Accelerated Filer [X ]
(Check one):
Non-Accelerated Filer [ ] (Do not check if a smaller reporting company)
Smaller Reporting Company [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES [ ]
NO [X ]
The aggregate market value of common shares held by non-affiliates computed by reference to the price at which the common equity was last
sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second
fiscal quarter, June 30, 2015, was $326,471,266.
The Registrant had 107,899,238 common shares outstanding as of February 22, 2016.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Definitive Proxy Statement for the 2016 Annual General and Special Meeting of Shareholders, which the registrant
intends to file with the Securities and Exchange Commission not later than 120 days after the end of the fiscal year covered by this Annual Report
on Form 10-K, are incorporated by reference into Part III of this Annual Report on Form 10-K.
CIVEO CORPORATION
INDEX
PART I
Cautionary Statement Regarding Forward-Looking Statements ....................................................................................
Item 1.
Business ........................................................................................................................................................
Item 1A. Risk Factors ..................................................................................................................................................
Item 1B. Unresolved Staff Comments .........................................................................................................................
Item 2. Properties ......................................................................................................................................................
Item 3.
Legal Proceedings .........................................................................................................................................
Item 4. Mine Safety Disclosures ...............................................................................................................................
PART II
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity
Securities .......................................................................................................................................................
Item 6.
Selected Financial Data ................................................................................................................................
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations .......................
Item 7A. Quantitative and Qualitative Disclosures About Market Risk .....................................................................
Financial Statements and Supplementary Data ............................................................................................
Item 8.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ......................
Item 9A. Controls and Procedures ...............................................................................................................................
Item 9B. Other Information .........................................................................................................................................
PART III
Item 10. Directors, Executive Officers and Corporate Governance ............................................................................
Item 11. Executive Compensation ...............................................................................................................................
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters .....
Item 13. Certain Relationships and Related Transactions, and Director Independence ..............................................
Item 14. Principal Accounting Fees and Services .......................................................................................................
PART IV
Item 15. Exhibits, Financial Statement Schedules .......................................................................................................
SIGNATURES ....................................................................................................................................................................
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS .........................................................................................
Page No.
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i
PART I
This annual report on Form 10-K contains certain “forward-looking statements" within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the Exchange Act). Actual
results could differ materially from those projected in the forward-looking statements as a result of a number of
important factors. For a discussion of known material factors that could affect our results, please refer to “Part I,
Item 1. Business,” “Part I, Item 1A. Risk Factors,” “Part II, Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations” and “Part II, Item 7A. Quantitative and Qualitative Disclosures
about Market Risk” below.
In addition, in certain places in this annual report, we refer to reports published by third parties that purport to
describe trends or developments in the energy industry. We do so for the convenience of our shareholders and in an
effort to provide information available in the market that will assist our investors in a better understanding of the
market environment in which we operate. However, we specifically disclaim any responsibility for the accuracy and
completeness of such information and undertake no obligation to update such information.
Cautionary Statement Regarding Forward-Looking Statements
We include the following cautionary statement to take advantage of the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995 for any "forward-looking statement" made by us, or on our behalf. All
statements other than statements of historical facts included in this Annual Report on Form 10-K are forward-
looking statements. The forward-looking statements can be identified by the use of forward-looking terminology
including “may,” “expect,” “anticipate,” “estimate,” “continue,” “believe” or other similar words. Such statements
may include statements regarding our future financial position, budgets, capital expenditures, projected costs, plans
and objectives of management for future operations and possible future strategic transactions. Where any such
forward-looking statement includes a statement of the assumptions or bases underlying such forward-looking
statement, we caution that, while we believe such assumptions or bases to be reasonable and make them in good
faith, assumed facts or bases almost always vary from actual results. The differences between assumed facts or bases
and actual results can be material, depending upon the circumstances. The factors identified in this cautionary
statement are important factors (but not necessarily all of the important factors) that could cause actual results to
differ materially from those expressed in any forward-looking statement made by us, or on our behalf.
In any forward-looking statement where we, or our management, express an expectation or belief as to future
results, such expectation or belief is expressed in good faith and believed to have a reasonable basis. However, there
can be no assurance that the statement of expectation or belief will result or be achieved or accomplished. Taking
this into account, the following are identified as important factors that could cause actual results to differ materially
from those expressed in any forward-looking statement made by, or on behalf of, the Company:
•
•
•
•
•
•
•
•
the level of supply and demand for oil, coal, natural gas, iron ore and other minerals;
the level of activity, spending and developments in the Canadian oil sands;
the level of demand for coal and other natural resources from Australia;
the availability of attractive oil and natural gas field assets, which may be affected by governmental actions
or environmental activists which may restrict drilling;
fluctuations in the current and future prices of oil, coal and natural gas;
fluctuations in foreign currency exchange rates;
general global economic conditions and the pace of global economic growth;
changes in tax laws, tax treaties or tax regulations or the interpretation or enforcement thereof, including
taxing authorities not agreeing with our assessment of the effects of such laws, treaties and regulations;
1
•
•
•
•
•
global weather conditions and natural disasters;
our ability to find and retain skilled personnel;
the availability and cost of capital;
the inability to realize expected benefits from our recent redomicile to Canada; and
other factors identified in Item 1A, "Risk Factors."
Such risks and uncertainties are beyond our ability to control, and in many cases, we cannot predict the risks
and uncertainties that could cause our actual results to differ materially from those indicated by the forward-looking
statements.
All subsequent written and oral forward-looking statements attributable to us or to persons acting on our behalf
are expressly qualified in their entirety by reference to these risks and uncertainties. You should not place undue
reliance on forward-looking statements. Each forward-looking statement speaks only as of the date of the particular
statement, and we do not undertake any obligation to publicly update or revise any forward-looking statements
except as required by law.
ITEM 1. Business
Available Information
We maintain a website with the address of www.civeo.com. We are not including the information contained on
our website as a part of, or incorporating it by reference into, this Annual Report on Form 10-K. We make available
free of charge through our website our Annual Report on Form 10-K, quarterly reports on Form 10-Q and current
reports on Form 8-K, and amendments to these reports, as soon as reasonably practicable after we electronically file
such material with, or furnish such material to, the Securities and Exchange Commission (the Commission). The
filings are also available through the Commission at the Commission's Public Reference Room at 100 F Street, N.E.,
Washington, D.C. 20549 or by calling 1-800-SEC-0330. Also, these filings are available on the internet at
www.sec.gov and free of charge upon written request to the corporate secretary at the address shown on the cover
page of this Annual Report on Form 10-K.
Spin-off
On May 5, 2014, the board of directors of Oil States International, Inc. (Oil States) approved the separation of
its Accommodations Segment (Accommodations) into a standalone, publicly traded Delaware corporation, which
we refer to herein as Civeo US. In accordance with the Separation and Distribution Agreement, the two companies
were separated by Oil States distributing to its stockholders all 106,538,044 shares of common stock of Civeo US it
held after the market closed on May 30, 2014 (the Spin-Off). Each Oil States stockholder received two shares of
Civeo US common stock for every one share of Oil States stock held at the close of business on the record date of
May 21, 2014. In conjunction with the Spin-Off, Oil States received a private letter ruling from the Internal
Revenue Service (IRS) to the effect that, based on certain facts, assumptions, representations and undertakings set
forth in the ruling, for U.S. federal income tax purposes, Oil States’ distribution of Civeo US common stock was not
taxable to Oil States or U.S. holders of Oil States common stock. Following the Spin-Off, Oil States retained no
ownership interest in Civeo US, and each company now has separate public ownership, boards of directors and
management. On June 2, 2014, Civeo US stock began trading the “regular-way” on the New York Stock Exchange
(NYSE) under the “CVEO” stock symbol. Pursuant to the Separation and Distribution Agreement with Oil States,
on May 28, 2014, we made a special cash distribution to Oil States of $750 million.
Redomiciling to Canada
On July 17, 2015, we completed our change in place of incorporation from Delaware to British Columbia,
Canada (the Redomicile Transaction). In the Redomicile Transaction, Civeo Corporation, a British Columbia,
Canada limited company formerly named Civeo Canadian Holdings ULC (Civeo Canada), became the publicly
2
traded parent company of the Civeo group of companies, and Civeo US, our former publicly traded Delaware
parent, became a wholly owned subsidiary of Civeo Canada. Each issued share of Civeo US common stock, other
than those shares of Civeo US common stock held by Civeo US in treasury, was effectively transferred to Civeo
Canada and converted into one common share, no par value, of Civeo Canada. An aggregate of approximately 107.5
million Civeo Canada common shares were issued in the Redomicile Transaction. The Civeo Canada common
shares are listed on the NYSE under the symbol “CVEO”, the same symbol under which the Civeo US common
stock traded prior to the effective time.
The Redomicile Transaction qualified as a “self-directed redomiciling” of the Company as permitted under the
U.S. Internal Revenue Code. U.S. federal income tax laws permit a company to change its domicile to a foreign
jurisdiction without corporate-level U.S. federal income taxes provided that such company has “substantial business
activity” in the relevant jurisdiction. “Substantial business activity” is defined as foreign operations consisting of
over 25% of the company’s total (i) revenues, (ii) assets, (iii) employees and (iv) employee compensation. With
approximately 50% or more of our operations in Canada based on these metrics, we qualified for a self-directed
redomiciling.
Our Company
We are one of the largest integrated providers of longer-term and temporary remote site accommodations,
logistics and facility management services to the natural resource industry. We operate in some of the world’s most
active oil, coal, natural gas and iron ore producing regions, including Canada, Australia and the U.S. We have
established a leadership position in providing a fully integrated service offering to our customers, which include
major and independent oil and natural gas companies, mining companies and oilfield and mining service companies.
Our Develop, Own and Operate model allows our customers to focus their efforts and resources on their core
development and production operations.
Using our Develop, Own, Operate business model, we provide accommodations solutions which span the
lifecycle of customer projects from the initial exploration and resource delineation to long-term production. Initially,
as customers assess the resource potential and determine how they will develop it, they typically need
accommodations for a limited number of employees for an uncertain duration of time. Our fleet of temporary
accommodation assets is well-suited to support this initial exploratory stage as customers evaluate their development
and construction plans. As development of the resource begins, we are able to serve their needs through either our
open camp model or through our scalable lodge or village model. As projects grow and headcount needs increase,
we are able to scale our facility size to meet our customers’ growing needs. By providing infrastructure early in the
3
project lifecycle, we are well positioned to continue to service our customers throughout the production phase,
which typically lasts decades.
The initial component of our Develop, Own, Operate business model is site selection and permitting. We
believe that there are benefits created by investing early in land in order to gain the strategic, early mover advantage
in an emerging region or resource play. Our business development team actively assesses regions of potential future
customer demand and pursues land acquisition and permitting, a process we describe as “land banking.” We believe
that having the first available accommodations solution in a new market allows us to win contracts from customers
and gives us an early mover advantage as competitors may be less willing to invest in undeveloped land in the
expectation of future demand without firm customer commitments. The strength of our land banked locations
allowed us to secure contract growth in our most recent Canadian lodge location, McClelland Lake in the Canadian
oil sands region and our Sitka Lodge in the British Columbia liquefied natural gas (LNG) market.
Our scalable modular facilities provide workforce accommodations where, in many cases, traditional
accommodations and related infrastructure is not accessible, sufficient or cost effective. Our services allow for
efficient development and production of natural resources found in areas without sufficient housing, infrastructure or
local labor. We believe that many of the more recently discovered mineral deposits and hydrocarbon reservoirs are
in remote locations. We support the development of these natural resources by providing lodging, catering and food
services, housekeeping, recreation facilities, laundry and facilities management, as well as water and wastewater
treatment, power generation, communications and personnel logistics where required. Our accommodations services
allow our customers to outsource their accommodations needs to a single supplier, maintaining employee welfare
and satisfaction while focusing their investment on their core resource production efforts. Our primary focus is on
providing accommodations to leading natural resource companies at our major properties, which we refer to as
lodges in Canada and villages in Australia. We have nineteen lodges and villages in operation, with an aggregate of
more than 23,000 rooms. Additionally, in the U.S. and Canada we have nine smaller open camp properties as well as
a fleet of mobile accommodation assets. We have long-standing relationships with many of our customers, many of
whom are, or are affiliates of, large, investment grade energy and mining companies.
Demand for our accommodations and related services is influenced by three primary factors: commodity prices,
workforce requirements and competition. Our customers’ expectations for future commodity prices influence their
spending on current productive assets, maintenance on current assets, expansion of existing assets and development
of greenfield or new assets. In addition to commodity prices, different types of customer activity require varying
workforce sizes, influencing the demand for accommodations. Lastly, competing locations and services will
influence demand for our assets and services.
In the Canadian oil sands region, demand for our accommodations is influenced by oil prices. Spending on
construction and the development of new projects has historically decreased as the outlook for oil prices decreases.
However, spending on current operations and maintenance has historically reacted less quickly to changes in oil
prices as customers consider their cash operating costs, rather than overall full cycle returns. Likewise, construction
and expansion projects underway have also been less sensitive to commodity price decreases as customers focus on
completion and incremental costs. Natural gas prices influence oil sands activity as an input cost; so as natural gas
prices fall, our customers’ operating costs fall as well.
Another factor that influences demand for our rooms and services is the type of customer project we are
supporting. Generally speaking, Canadian customers require larger workforces during construction and
expansionary periods, and therefore have higher demand for accommodations. Operational and maintenance
headcounts are typically a fraction, 20-25%, of the headcounts experienced during construction.
Lastly, proximity to customer activity and availability of customer-owned rooms influences occupancy.
Typically, customers prefer to first utilize their own rooms on location, and if such customer-owned rooms are
insufficient, customers prefer to avoid busing their workforces to housing more than 45 kilometers away.
A number of multinational energy companies believe there is a potential to export LNG from Canada to meet
the increasing global demand, particularly in Asia, for LNG. Currently, Canada does not have any operational LNG
export facilities. However, as of December 2015, seventeen proposed LNG export facilities in Canada have entered
the regulatory review process – sixteen in British Columbia and one in Nova Scotia. We expect LNG customer
spending habits to largely follow those seen in the Canadian oil sands region. LNG activity in Western Canada will
be influenced by the global prices for LNG, which are largely tied to global oil prices, as well as wellhead prices for
natural gas. Should our customers decide to invest in these LNG projects, demand for accommodations over the
next three years will be driven by (i) the construction of the LNG facilities on the coast of British Columbia and (ii)
4
the construction of the related pipeline infrastructure across British Columbia. Facility construction will create
demand for permanent lodge accommodations, while pipeline construction activity will drive demand for mobile
fleet accommodations.
Our Australian villages support similar activities for the natural resources industry. Our customers are typically
developing and producing metallurgical (met) coal and other mines which have resource lives that are measured in
decades. As such, their spending levels tend to react similarly to commodity prices as those of our Canadian
customers. Spending on producing assets is less sensitive to commodity price decreases in the short and medium
term, assuming the projects remain cash flow positive. However, new construction projects and expansionary
projects are typically cancelled or deferred during periods of lower prices. During 2011 through 2013, roughly half
of our occupancy was driven by construction or expansion activity, while the other half supported operation
activities of resource production. Currently, our occupancy is primarily driven by production and operating
activities. With the reduction in met coal prices over the past three years, much of the demand for rooms from
construction activity has ceased, and our current and expected occupancy is primarily driven by production and
operational activity. Workforce requirements and competition in the Australian market are comparable to those in
the Canadian market. New project construction activity typically requires larger workforces than day-to-day
operations, where proximity and availability of customer–owned rooms influences the demand for workforce
accommodations.
Our U.S. operations are primarily tied to activity in the U.S. shale formations in the Bakken, the Rockies and
West Texas. Given the shorter investment horizon and decision cycle of our U.S. customers, on a well-by-well
basis, U.S. customers’ spending habits react more quickly to changes in oil and natural gas prices. These spending
dynamics were clearly demonstrated over the past three years. With oil prices near $100 per barrel from 2012 to late
2014, drilling and completion activity levels grew; however, as oil prices fell beginning in August 2014 and
throughout 2015 and 2016, activity in the U.S. reacted swiftly, with the U.S. rig count falling over 50% in six
months from its peak in the third quarter of 2014. Unlike the Canadian and Australian markets, headcount
requirements for drilling and completion activity are fairly uniform in the U.S. market. Given the U.S. market for
accommodations is primarily supported by mobile assets, competition is primarily driven by the availability of
assets and price.
5
For the years ended December 31, 2015, 2014 and 2013, we generated $518.0 million, $942.9 million and $1.0
billion in revenues and $(145.0) million, $(142.9) million and $259.5 million in operating income (loss),
respectively. The majority of our operations, assets and income are derived from lodge and village facilities which
have historically been contracted by our customers on a take-or-pay basis for periods ranging from several months to
several years. These facilities generate more than 75% of our revenue. Important performance metrics include
average available rooms, average rentable rooms, revenue related to our major properties, occupancy and average
daily rate (in local currency). “Other Revenue,” shown below, consists of our revenue related to our open camp
facilities and mobile fleet as well as third party sales related to our manufacturing division. The chart below
summarizes these key statistics for the periods presented in this Annual Report on Form 10-K.
2015
Year Ended December 31,
2014
(In millions, except for room counts and average
daily rate)
2013
Lodge/Village Revenue (1)
Canada
Australia
Total Lodge/Village Revenue
Mobile and Open Camp Revenue
Canada
Australia
United States
Total Mobile and Open Camp Revenue
Total Revenue
Average Available Lodge/Village Rooms (2)
Canada
Australia
Total Lodge/Village Rooms
Rentable Rooms for Lodges and Villages (3)
Canada
Australia
Total Rentable Rooms for Lodges and Villages
Average Daily Rates for Lodges and Villages (4)
Canada
Australia
$
$
$
$
$
$
Total Average Daily Rates for Lodges and Villages $
Occupancy in Lodges and Villages (5)
Canada
Australia
Total Occupancy in Lodges and Villages
Average Exchange Rate
Canadian dollar to U.S. dollar
Australian dollar to U.S. dollar
267.5
136.0
403.5
76.8
—
37.7
114.5
518.0
13,435
9,180
22,615
10,054
8,862
18,916
121
74
100
60%
56%
58%
$
$
$
$
$
497.2
213.3
710.5
164.2
—
68.2
232.4
942.9
12,557
9,271
21,828
11,007
9,079
20,086
$
$
$
$
$
548.7
255.5
804.2
161.8
—
75.1
236.9
1,041.1
11,541
8,925
20,466
10,152
8,843
18,995
$
$
146
94
125
$
$
156
95
130
85%
68%
78%
92%
83%
87%
$
0.7832
0.7523
$
0.9056
0.9025
$
0.9711
0.9650
__________
(1)
Includes revenue related to rooms as well as the fees associated with catering, laundry and other services
including facilities management.
(2) Average available rooms includes rooms that are utilized for our personnel.
(3) Rentable rooms excludes rooms that are utilized for our personnel and out of service rooms.
(4) Average daily rate is based on rentable rooms and lodge/village revenue.
(5) Occupancy represents total billed days divided by rentable days. Rentable days excludes staff rooms and out
of service rooms.
We have grown our average available room count by 19% since 2012 through a disciplined capital expenditure
program.
6
Our History
Our Canadian operations, founded in 1977, began by providing modular rental housing to energy customers,
primarily supporting drilling rig crews. Over the next decade, the business acquired a catering operation and a
manufacturing facility, enabling it to provide a more integrated service offering. Through our experience with
Syncrude’s Mildred Lake Village, a 2,100 bed facility that we built and sold to Syncrude in 1990 and operated and
managed for them for nearly twenty years, we recognized a need for a premium, and more permanent, solution for
workforce accommodations in the Canadian oil sands region. Pursuing this strategy, we opened PTI Lodge in 1998,
one of the first independent lodging facilities in the region.
With an integrated business model, we are able to identify, solve and implement solutions and services that
enhance the guests’ accommodations experience and reduce the customer’s total cost of housing a workforce in a
remote operating location. Through our experiences and integrated model, our accommodation services have
evolved to include fitness centers, water and wastewater treatment, laundry service and many other advancements.
As our experience in the region grew, we were the first to introduce to the Canadian oil sands market suite-style
accommodations for middle and upper level management working in the oil sands region with our Beaver River
Executive Lodge in 2005. Since then, we have continued to innovate our service offering to meet our customers’
growing and evolving needs. From that entrepreneurial beginning, we have developed into Canada’s largest third-
party provider of accommodations in the oil sands region.
Today, in addition to providing accommodations services, we endeavor to support customers’ logistical efforts
in managing the movement of large numbers of personnel efficiently. At our Wapasu Creek location, we have
introduced services that improve the customer’s efficiency in transporting personnel to the mine site on a daily basis
as well as efficiency in rotating personnel when crews change. These logistical services have generated cost
efficiencies for our customer.
During 2015, we entered the Canadian LNG market with our latest lodge location, Sitka Lodge. Most of the
Sitka Lodge’s 436 rooms are under contract to LNG Canada, a large LNG export project proposed by a joint venture
between Shell Canada Energy, an affiliate of Royal Dutch Shell plc – (50 percent), and affiliates of PetroChina (20
percent), Korea Gas Corporation (15 percent) and Mitsubishi Corporation (15 percent).
With the acquisition of our Australian business in December 2010, we began to support the Australian natural
resources industry through ten villages located in Queensland, New South Wales and Western Australia. Like
Canada, our Australian business has a long-history of accommodating customers in remote regions beginning with
its initial Moranbah Village in 1996, and has grown to become Australia’s largest integrated provider of
accommodations services for people working in remote locations. Our Australian business was the first to introduce
resort style accommodations to the mining sector, adding landscaping, outdoor kitchens, pools, fitness centers and,
in some cases, taverns. In all our operating regions, our business is built on a culture of continual service
improvement to enhance the guest experience and reduce customer remote housing costs.
We take an active role in minimizing our environmental impact of our operations through a number of
sustainable initiatives. Our off-site building manufacturing process in Canada allows us to minimize waste that
arises from the construction process. We also have a focus on water conservation and utilize alternative water supply
options such as recycling and rainwater collection and use. By building infrastructure such as waste-water treatment
and water treatment facilities to recycle grey and black water on some of our sites, we are able to gain cost
efficiencies as well as reduce the use of trucks related to water and wastewater hauling, which in turn, reduces our
carbon footprint. In our Australian villages, we utilize passive solar design principles and smart switching systems to
reduce the need for electricity related to heating and cooling.
Our Industry
We provide services for the oil and gas and mining industries. Our scalable modular facilities provide long-term
and temporary work force accommodations where traditional accommodations and related infrastructure is often not
accessible, sufficient or cost effective. Once facilities are deployed in the field, we also provide catering and food
services, housekeeping, laundry, facility management, water and wastewater treatment, power generation,
7
communications and personnel logistics. Demand for our services is cyclical and substantially dependent upon
activity levels, particularly our customers’ willingness to spend capital on the exploration for, development and
production of oil, coal, natural gas and other resource reserves. Our customers’ spending plans are generally based
on their view of commodity supply and demand dynamics as well as the outlook for near-term and long-term
commodity prices. As a result, the demand for our services is highly sensitive to current and expected commodity
prices.
We serve multiple projects and multiple customers at most of our sites, which allows those customers to share
the costs associated with their peak construction accommodations needs. Our facilities provide customers with cost
efficiencies as they are able to share the costs of accommodations related infrastructure (power, water, sewer and IT)
and central dining and recreation facilities with other customers operating projects in the same vicinity.
Our business is significantly influenced by the level of production of oil sands deposits in Alberta, Canada,
activity levels in support of natural resources production in Australia and oil and gas production in Canada and the
U.S. Our two primary activity drivers are development and production activity in the Canadian oil sands region in
Western Canada and the met coal region of Australia’s Bowen Basin. During 2015, we entered into a new market
with our Sitka Lodge, which currently serves LNG Canada’s potential project on the west coast of British Columbia.
Should our customer’s project ultimately move forward, British Columbia LNG activity could become a material
driver of future activity for our Sitka Lodge, as well as for our mobile fleet assets which are well suited for the
related pipeline construction activity. However, should the project, and other potential projects in the area, not move
forward, the resulting impact may negatively affect our future results of operations, value of long-lived assets and
cash flows.
Historically, oil sands developers and Australian mining companies built, owned and in some cases operated the
accommodations necessary to house their personnel in these remote regions because local labor and third-party
owned rooms were not available. Over the past 20 years and increasingly over the past 10 years, some customers
have moved away from the insourcing business model for some of their accommodations as they recognize that
accommodations are non-core investments for their business.
Civeo is one of the few accommodations providers that service the entire value chain from site identification to
long-term facility management. We believe that our existing industry divides accommodations into three primary
types: lodges and villages, open camps and mobile assets. Civeo is principally focused on lodges and villages.
Lodges and villages typically contain a larger number of rooms and require more time and capital to develop. These
facilities typically have dining areas, meeting rooms, recreational facilities, pubs and landscaped grounds where
weather permits. Lodges and villages are generally built supported by multi-year, take-or-pay contracts. These
facilities are designed to serve the long-term needs of customers in constructing and operating their resource
developments. Open camps are usually smaller in number of rooms and typically serve customers on a spot or short-
term basis. They are “open” for any customer who needs lodging services. Finally, mobile camps are designed to
follow customers and can be deployed rapidly to scale. They are often used to support conventional and in-situ
drilling crews as well as pipeline and seismic crews and are contracted on a project-by-project, well-by-well or short
term basis. Oftentimes, customers will initially require mobile accommodations as they evaluate or initially develop
a field or mine. Open camps may best serve smaller operations or the needs of customers as they expand in a region.
These open camps can also serve as an initial, small foothold in a region until the demand for a full-scale lodge or
village is required.
The accommodations market is segmented into competitors that serve components of the overall value chain,
but has very few integrated providers. We estimate that customer-owned rooms represent over 50% of the market.
Engineering firms such as Bechtel, Fluor and ColtAmec often design accommodations facilities. Many public and
private firms, such as ATCO Structures & Logistics Ltd. (ATCO), WesternOne Inc.’s modular building division
(Britco), Horizon North Logistics Inc. (Horizon North), Alta-Fab Structures Ltd. (Alta-Fab) and Northgate
Industries Ltd. (Northgate) will build the modular accommodations for sale. Horizon North, Black Diamond Group
Limited (Black Diamond), ATCO, Royal Camp Services Ltd. and Algeco Scotsman will primarily own and lease the
units to customers and in some cases provide facility management services, usually on a shorter-term basis with a
more limited number of rooms, similar to our open camp and mobile fleet business. Facility service companies, such
as Aramark Corporation (Aramark), Sodexo Inc. (Sodexo) or Compass Group PLC (Compass Group), typically do
not invest in and own the accommodations assets, but will manage third-party or customer-owned facilities. We
8
believe the integrated model provides value to our customers by reducing project timing and counterparty risks. In
addition, with our holistic approach to accommodations, we are able to identify efficiency opportunities for the
customers and execute them. With our focus on large-scale lodges and villages, our business model is most similar
to a developer of multi-family properties, such as Camden or Post, or a developer of lodging properties who is also
an owner operator, such as Hyatt Hotels Corporation or Starwood Hotels and Resorts Worldwide, Inc.
Canada
Overview
During the year ended December 31, 2015, we generated approximately 66% of our revenue from our Canadian
operations. We are Canada’s largest integrated provider of accommodations services for people working in remote
locations. We provide our accommodation services through lodges, open camps and mobile assets. Our
accommodations support workforces in the Canadian oil sands and in a variety of oil and natural gas drilling, mining
and related natural resource applications as well as disaster relief efforts.
Canadian Market
Demand for our oil sands accommodations is primarily influenced by the longer-term outlook for crude oil
prices rather than current energy prices, given the multi-year production phase of oil sands projects and the costs
associated with development of such large scale projects. Utilization of our existing Canadian capacity and our
future expansions will largely depend on continued oil sands spending related to existing production efforts,
maintenance thereon and potential future expansion of existing projects.
The Athabasca oil sands are located in northern Alberta, an area that is very remote with a limited local labor
supply. Of Canada’s 33.5 million residents, nearly half of the population lives in ten cities, only 10% of the
population lives in Alberta and less than 1% live within 100 kilometers of the oil sands. The local municipalities, of
which Fort McMurray is the largest, have grown rapidly over the last decade stressing their infrastructure and are
challenged to respond to large-scale changes in demand. As such, the workforce accommodations market provides a
cost effective solution to the problem of staffing large oil sands projects by sourcing labor throughout Canada to
work on a rotational basis.
A number of multinational energy companies believe there is the potential to export LNG from Canada to meet
the increasing global demand, particularly in Asia, for LNG. Currently, Canada does not have any operational LNG
export facilities. However, as of December 2015, seventeen proposed LNG export facilities in Canada have entered
the regulatory review process – sixteen in British Columbia and one in Nova Scotia. We expect customer spending
habits to largely follow those seen in the oil sands region. LNG activity in Western Canada will be influenced by
the global prices for LNG, which are largely tied to global oil prices, as well as wellhead prices for natural gas.
Should our customers decide to invest in these LNG projects, demand for accommodations over the next three years
will be driven by (i) the construction of the LNG facilities on the coast of British Columbia and (ii) the construction
of the related pipeline infrastructure across British Columbia. Facility construction will create demand for
permanent lodge accommodations while pipeline construction activity will drive demand for temporary mobile
workforce accommodations. However, should the project, and other potential projects in the area, not move
forward, the resulting impact may negatively affect our future results of operations, value of long-lived assets and
cash flows.
Canadian Oil Sands Lodges
During the year ended December 31, 2015, activity in the Athabasca oil sands region generated over three-
fourths of our Canadian revenue. The oil sands region of northern Alberta, Canada continues to represent one of the
world’s largest reserves for heavy oil. Our McClelland Lake, Wapasu, Athabasca, Henday and Beaver River Lodges
are focused on the northern region of the Athabasca oil sands, where customers primarily utilize surface mining to
extract the bitumen, or oil sands. Oil sands mining operations are characterized by large capital requirements, large
reserves, large personnel requirements, very low exploration or reserve risk and relatively lower cash operating costs
per barrel of bitumen produced. Our Conklin and Anzac lodges as well as a portion of our mobile fleet of assets are
focused in the southern portion of the region where we primarily serve in situ operations and pipeline expansion
9
activity. In situ methods are used on reserves that are too deep for traditional mining methods. In situ technology
typically injects steam to the deep oil sands in place to separate the bitumen from the sand and pumps it to the
surface where it undergoes the same upgrading treatment as the mined bitumen. Reserves requiring in situ
techniques of extraction represent 80% of the established recoverable reserves in Alberta. In situ operations
generally require less capital and personnel and produce lower volumes of bitumen per development, with higher
ongoing operating expense per barrel of bitumen produced.
Most recently, we opened our McClelland Lake Lodge in the summer of 2014 at an initial capacity of 1,561
rooms and reached our full initial capacity of 1,997 rooms in the first quarter of 2015. McClelland Lake Lodge
currently supports a new oil sands mining project in the region under a three-year contract for the majority of the
rentable rooms. During the third quarter of 2015, we also redeveloped our Mariana Lake location and reclassified
the location as an oil sands lodge. The Mariana Lake Lodge has 526 rooms and is focused on the southern portion of
the region.
Our oil sands lodges support construction and operating personnel for maintenance and expansionary projects as
well as ongoing operations associated with surface mining and in situ oil sands projects generally under short and
medium-term contracts. All of our oil sands lodge properties are located on land with leases obtained from the
province of Alberta with initial terms of ten years. Our leases have expiration dates that range from 2016 to 2026.
Currently, only 9% of our Canadian lodge rooms are on land with leases expiring prior to December 31, 2017. Thus
far, we have successfully renewed or extended all expiring land leases, with the exception of the Lakeside lease, and
expect we will be able to in the future. We provide a full service hospitality function at our lodges including
reservation management, check in and check out, catering, housekeeping and facilities management. Our lodge
guests receive the amenity level of a full-service hotel plus three meals a day. Since mid-year 2006, we have
installed over 13,700 rooms in our oil sands lodge properties supporting oil sands activities in northern Alberta. Our
growth plan for this part of our business includes the expansion of these properties where we believe there is durable
long-term demand. During 2015, we added 635 rooms (net of retirements) to our major oil sands lodges. Our
Wapasu Creek Lodge is equivalent in size to the largest hotels in North America.
During the year ended December 31, 2015, over 75% of our Canadian revenue was generated by our eight
major lodges. We provide our lodge services on a day rate or monthly rental basis and our customers typically
commit for short to medium term contracts (from several months up to 10 years). Customers make a minimum
nightly or monthly room commitment for the term of the contract, and the multi-year contracts typically provide for
inflationary escalations in rates for increased food, labor and utilities costs.
Canadian LNG Lodge
During the fourth quarter of 2015, in Kitimat, British Columbia, we built 436 rooms during the initial
development of our Sitka Lodge. Most of these rooms are under contract to LNG Canada, a large LNG export
project proposed by a joint venture between Shell Canada Energy, an affiliate of Royal Dutch Shell plc (50 percent),
and affiliates of PetroChina (20 percent), Korea Gas Corporation (15 percent) and Mitsubishi Corporation (15
percent). The initial phase of this location features catering services and recreational facilities and the ability to
expand should demand for rooms in the region warrant.
10
Canadian Lodge Locations
Rooms in our Canadian Lodges
Lodges
Region
Wapasu ..............................
Athabasca (1) ......................
McClelland Lake ...............
Henday (1) ...........................
Beaver River .....................
Conklin ..............................
Anzac ................................
Mariana Lake (2) .................
Lakeside (3) .........................
Subtotal – Oil Sands ..........
Sitka Lodge ........................
Total Rooms .....................
N. Athabasca
N. Athabasca
N. Athabasca
N. Athabasca
N. Athabasca
S. Athabasca
S. Athabasca
S. Athabasca
N. Athabasca
Extraction
Technique
mining
mining
mining
mining/in situ
mining
mining/in situ
in situ
mining
mining
As of December 31,
2014
5,174
2,005
1,888
1,698
1,094
700
526
---
---
13,085
---
13,085
2013
5,174
1,557
---
1,698
1,094
1,036
526
---
510
11,595
---
11,595
2015
5,174
2,005
1,997
1,698
1,094
700
526
526
---
13,720
436
14,156
Kitimat, BC
LNG
________________
(1) Currently closed due to low activity level in the region.
(2) During the third quarter of 2015, we redeveloped our Mariana Lake location and reclassified the location as an
oil sands lodge.
(3) In late 2014, we received notice from our landlord to move off the site. The lodge was permanently closed
during the fourth quarter of 2014.
Open Camps
In addition to our lodges, we have five open camps in Alberta, British Columbia, Saskatchewan and Manitoba.
The major differentiator between lodges and open camps is the size of the facility. Open camps are generally smaller
facilities that provide a level of amenity similar to that of one of our larger lodges including quality accommodation
and food services, satellite television, fitness facilities and on-site laundry. We own the land where all of our open
11
camp assets are located except for Geetla Lodge, which is on leased land. In early 2015, we renewed our Mariana
Lake Lodge lease for a term through 2025, and this location was reclassified as an oil sands lodge in the third
quarter of 2015. In March 2015, we vacated the Redvers Lodge lease due to the negative outlook for future
occupancy. Open camps are typically utilized for exploratory, seasonal or short-term projects. Therefore, customer
commitments for open camps tend to be shorter in initial duration (six to eighteen months). Open camps may be
operational for twelve months or several years or transition into lodges depending on customer demand. Over time,
room counts may fluctuate up or down depending on demand in the region. If the demand in a region decreases,
open camps can be relocated to areas of greater activity. We provide accommodation services at our open camps on
a day rate basis. Open camp revenue comprises a portion of “Other Revenue” in our Canadian segment.
Our Alberta open camps service the Athabasca and Peace River oil sands as well as conventional and shale play
oil and gas developments and infrastructure expansions. Geetla Lodge services the Horn River Basin in British
Columbia.
Rooms in our Canadian Open Camps
As of December 31,
Open Camps
Province
2015
2014
2013
Mariana Lake (1) ...............
Boundary (2) .......................
Waskada ............................
Antler River (2) ...................
Red Earth ...........................
Redvers ..............................
Geetla (2) ............................
Christina Lake ...................
Total Rooms .....................
Alberta
Saskatchewan
Manitoba
Manitoba
Alberta
Saskatchewan
British Columbia
Alberta
---
346
---
254
114
---
81
35
830
435
346
---
212
114
102
81
35
1,325
486
346
196
---
114
102
81
65
1,390
________________
(1) During the third quarter of 2015, we redeveloped our Mariana Lake location and reclassified the location as an
oil sands lodge.
(2) Currently closed due to low activity level in the region.
Mobile Fleet
Our mobile fleet consists of modular, skid-mounted accommodations and central facilities that can be
configured to quickly serve a multitude of short to medium term accommodation needs. The dormitory, kitchen and
ancillary assets can be rapidly mobilized and demobilized and are scalable to support 200 to 800 people in a single
location. In addition to asset rental, we provide catering, cleaning and housekeeping as well as camp management
services, including fresh water and sewage hauling services. Our mobile fleet services the traditional oil and gas
sector in Alberta and British Columbia and in situ oil sands drilling and development operations in Alberta as well
as pipeline construction crews throughout Western Canada. The assets have also been used in the past in disaster
relief efforts, the 2010 Vancouver Winter Olympic Games and a variety of other non-energy related projects.
Our mobile fleet assets are rented on a per unit basis based on the number of days that a customer utilizes the
asset. In cases where we provide catering or ancillary services, the contract can provide for per unit pricing or cost-
plus pricing. Customers are also typically responsible for mobilization and demobilization costs. Our focus on
ancillary service contracts has allowed us to successfully pursue catering only opportunities. Due to the business
nature of servicing client-owned facilities, this business easily fits into our overall business. Aside from the
traditional workforce accommodations, we are expanding our target markets to areas such as institutional,
educational and entertainment facilities. Mobile fleet revenue comprises a portion of “Other Revenue” in our
Canadian segment.
Australia
Overview
During the year ended December 31, 2015, we generated 26% of our revenue from our Australian
operations. As of December 31, 2015, we had 9,296 rooms across ten villages, of which 7,392 rooms service the
12
Bowen Basin region of Queensland, one of the premier metallurgical (met) coal basins in the world. We provide
accommodation services on a day rate basis to mining and related service companies (including construction
contractors) typically under medium-term contracts (three to five years) with minimum nightly room commitments.
During 2015, no further rooms were added (net of retirements) to our Australian villages.
Australian Market
As the largest contributor to exports and a major contributor to the country’s gross domestic product,
employment and government revenue, the Australian natural resources sector plays a vital role in the Australian
economy. Australia has broad natural resources, including met and thermal coal, conventional and coal seam gas,
base metals, iron ore and precious metals such as gold. The growth of Australian natural resource commodity
exports over the last decade has been largely driven by strong Asian demand for coal, iron ore and LNG.
Australia’s resources are primarily located in remote regions of the country that lack infrastructure and resident
labor forces to develop these resources. Approximately 60% of the Australian population is located in five cities,
which are all located on the coast of Australia, and over 90% of the population lives in the southern half of the
country. Sufficient local labor is lacking near the major natural resources developments, which are primarily inland
and in the central and northern parts of the country. As a result, much of the natural resources labor force works on a
rotational basis, which often requires a commute from a major city or the coast and a living arrangement near the
resource projects. Consequently, there is substantial need for workforce accommodations to support resource
production in the country. Workforce accommodations have historically been built by the resource developer/owner,
typical of an insourcing business model.
Since 1996, our Australian business has sought to change the insourcing business model through its integrated
service offering, allowing customers to outsource their accommodations needs and focus their investment on
resource production operations. Our Australian accommodations villages are strategically located in proximity to
long-lived, low-cost mines operated by large mining companies. The current activities of our Australian segment
are primarily related to supplying accommodations in support of met coal mining in the Bowen Basin region of
Queensland.
During the year ended December 31, 2015, our five villages in the Bowen Basin of central Queensland
generated 81% of our Australian revenue. The Bowen Basin contains one of the largest coal deposits in Australia
and is renowned for its premium met coal. Met coal is used in the steel making process and demand has largely been
driven by global demand for steel finished goods and steel construction materials. More recently, growth in
construction demand for steel products in emerging economies, particularly China, has slowed significantly,
negatively impacting demand for the commodity. Australia is the largest exporter of met coal in the world, in
addition to being in close proximity to the largest steel producing country in the world. Our villages are focused on
the mines in the central portion of the basin and are well positioned for the active mines in the region.
Beyond the Bowen Basin, we serve several emerging markets with our four additional villages. At the end of
2015, we had two villages with over 1,000 combined rooms in the Gunnedah Basin, an emerging thermal and met
coal as well as coal seam gas region of New South Wales. In Western Australia, we serve workforces related to iron
ore port expansions and LNG facilities operations on the Northwest Shelf through our Karratha villages.
13
Australian Village Locations
Rooms in our Australian Villages
Villages
Coppabella .....................
Dysart .............................
Moranbah .......................
Middlemount ..................
Boggabri .........................
Narrabri ...........................
Nebo ...............................
Calliope (1) .......................
Kambalda (2) ....................
Karratha ..........................
Total Rooms ..................
Resource
Basin
Bowen
Bowen
Bowen
Bowen
Gunnedah
Gunnedah
Bowen
---
---
Pilbara
Commodity
2015
2014
2013
As of December 31,
met coal
met coal
met coal
met coal
met/thermal coal
met/thermal coal
met coal
LNG
Gold
LNG, iron ore
3,048
1,798
1,240
816
662
502
490
300
232
208
9,296
3,048
1,798
1,240
816
662
502
490
300
232
208
9,296
3,048
1,912
1,240
816
508
502
490
300
238
208
9,262
________________
(1) Currently closed due to low activity level in the region.
(2) Closed in June 2015 due to lack of contract renewals.
Our Australian segment operated ten villages with 9,296 rooms as of December 31, 2015 and has a significant
development portfolio in Australia. Our Australian business provides accommodation services to mining and related
service companies under short- and medium-term contracts. Our Australian accommodations villages are
strategically located near long-lived, low-cost mines operated by large mining companies. Our growth plan for this
part of our business continues to include the expansion of these properties where we believe there is durable long-
term demand.
Our Coppabella, Dysart, Moranbah, Middlemount and Nebo villages are located in the Bowen Basin.
Coppabella, at over 3,000 rooms, is our largest village and provides accommodation to a variety of customers. The
village supports both operational workforce needs and contractor needs with resort style amenities, including
14
swimming pools, gyms, a walking track and a tavern. Our Nebo, Dysart, Moranbah and Middlemount Villages have
a long history of providing service in the region.
In 2011, we opened Narrabri Village, the first village of its kind in New South Wales, to service met and
thermal coal mines and coal seam gas in the Gunnedah Basin. Our newest village, Boggabri, opened in the third
quarter of 2013. Boggabri Village, whose first stage, consisting of 508 rooms, opened in 2013, services the
operating workforce of two customers with approved mines in the Gunnedah Basin. Karratha, in Western Australia,
services workforces related to iron ore port expansions and LNG facilities operations on the Northwest Shelf.
U.S.
Overview
During the year ended December 31, 2015, our U.S. business generated 7% of our revenue. Our U.S. business
has operational exposure to the Rocky Mountain corridor, the Bakken Shale region, the Permian Basin region of
Texas and offshore locations in the Gulf of Mexico. The business provides open camp facilities and highly mobile
smaller camps that follow drilling rigs and completion crews as well as accommodations, office and storage modules
that are placed on offshore drilling rigs and production platforms.
U.S. Market
Onshore oil and natural gas development has historically been supported by local workforces traveling short to
moderate distances to the worksites. With the development of substantial resources in regions such as the Bakken,
Rockies and Permian Basin, labor demand has exceeded the local labor supply and accommodations infrastructure
to support the demand. Consequently, demand for remote, scalable accommodations has developed in the U.S. over
the past five years. Demand for accommodations in the U.S. has historically been tied to the level of oil and natural
gas exploration and production activity, which is primary driven by oil and natural gas prices. Activity levels have
been, and we expect will continue to be, highly correlated with hydrocarbon commodity prices.
U.S. Locations
15
Mobile Fleet
Our business in the U.S. consists primarily of mobile fleet assets, both in the lower 48 states, including the
Rocky Mountain corridor, the Bakken Shale region, the Permian Basin region of Texas and in the Gulf of Mexico.
We provide a variety of sizes and configurations to meet the needs of drilling contractors, completion companies,
infrastructure construction projects and offshore drilling and completion activity. We provide quality catering and
housekeeping services as well.
Our mobile fleet is rented on a per unit basis based on the number of days that a customer utilizes the asset. In
cases where we provide catering or ancillary services, the contract can provide for per unit pricing or cost-plus
pricing. Customers are also typically responsible for mobilization and demobilization costs.
Open Camps
State
As of December 31,
2014
2013
2015
West Permian ..................
Three Rivers (1) ................
Killdeer ...........................
Stanley House .................
Total Rooms ...................
TX
TX
ND
ND
310
274
235
157
976
310
274
235
157
976
166
274
126
199
765
________________
(1) Sold in January 2016.
We had four open camps in the U.S. comprised of 976 rooms as of December 31, 2015. We sold one of our
camps in January 2016. Our Stanley House and Killdeer Lodge, which we opened in October 2013, provide
accommodations support to the Bakken Shale region in North Dakota. Our West Permian Lodge supports the
Permian Basin in West Texas.
Modular Construction and Manufacturing
As part of our integrated business model in North America, we utilize a flexible modular construction and
manufacturing strategy that combines internal manufacturing capabilities and outsourced manufacturing partners to
allow us to respond quickly to changing customer needs and timing. As of December 31, 2015, we own one
modular construction and manufacturing plant near Edmonton, Alberta, Canada. Our U.S. modular construction
facility in Johnstown, Colorado was closed during the first quarter of 2015 and sold in the fourth quarter of 2015. In
Australia, accommodation rooms are sourced from third-party manufacturers. Our Canadian facility specializes in
the design, engineering, production, transportation and installation of a variety of modular buildings, predominately
for our own use. In Canada, we have a staff of engineers and architects who have designed and delivered large and
small projects. We are capable of taking highly replicable and well-designed manufactured buildings and our
expertise in site layout combined with site-built components including landscaping, recreational facilities and certain
common facilities to create a comfortable community within a community. We design accommodations facilities to
suit the climate, terrain and population of a specific project site.
While we have traditionally focused our manufacturing efforts on our internal needs, from time to time we sell
units to third parties. Revenues from the sale of accommodation units to third parties has been a small portion of our
revenue and is included in “Other Revenue” in our Canadian and U.S. segments. We have not historically sold units
to third parties in Australia.
Community Relations
Partnering with local and aboriginal communities is part of our long term strategy. In our Canadian operations,
we have worked proactively with local aboriginal communities to develop mutually beneficial and long-term
partnerships focused on employment, training, business development and community investments. For over a
decade, our Canadian operations have supported two joint ventures, Buffalo Metis Catering and Metis Catering JV,
with five Metis communities in the Regional Municipality of Wood Buffalo, to provide catering and housekeeping
services at our lodges. Our efforts in this area were recognized in 2011 and 2012 through Alberta Chamber of
Commerce industry awards of recognition for excellence in aboriginal relations business practices. During 2015,
16
Civeo entered into partnerships with two First Nations in the northern Athabasca oil sands region and one in the
southern Athabasca oil sands region.
In Australia, our community relations program also aims to build and maintain a social license to operate in
regional communities by delivering consultation and engagement from project inception, through development,
construction and operations. This is a major advantage for our business model as it ensures consistent
communication, engenders trust and builds relationships to last throughout the resource lifecycle. There is an
emphasis on developing partnerships that create a long-term sustainable outcome to address specific community
needs. To that end, we partner with local municipalities to improve and expand municipal infrastructure. These
improvements provide necessary infrastructure, allowing the local communities an opportunity to expand and
improve.
Customers and Competitors
Our customers primarily operate in oil sands mining and development, drilling, exploration and extraction of oil
and natural gas and coal and other extractive industries. To a lesser extent, we also support other activities,
including pipeline construction, forestry, humanitarian aid and disaster relief, and support for military
operations. Our largest customers in 2015 were Imperial Oil Limited (a company controlled by ExxonMobil
Corporation), Fort Hills Energy LP (a partnership between Suncor Energy Inc., Total E&P Canada Ltd and Teck
Resources Limited) and BM Alliance Coal Operations Pty Ltd (an alliance between BHP Billiton and Mitsubishi),
who each accounted for more than 10% of our 2015 revenues.
Our primary competitors in Canada in the open and mobile camp accommodations include ATCO, Black
Diamond, Horizon North, Noralta Lodge and Clean Harbors, Inc. Some of these competitors have one or two
locations similar to our oil sands lodges; however, based on our estimates, these competitors do not have the breadth
or scale of our lodge operations. In Canada, we also compete against Aramark and Compass Group for facility
management services.
Our primary competitors in Australia to our village accommodations are Ausco Modular (a subsidiary of
Algeco Scotsman) and Fleetwood Corporation. We also compete against Aramark, Sodexo and Compass Group for
facility management services.
In the U.S., we primarily offer our open camp and mobile camps accommodations and compete against Stallion
Oilfield Holdings, Inc., Target Logistics Management LLC (a subsidiary of Algeco Scotsman Global S.a.r.l.), HB
Rentals (a subsidiary of Superior Energy Services) and Black Diamond.
Historically, many customers have invested in their own accommodations. Management estimates that our
existing and potential customers own approximately 50% of the rooms available in the Canadian oil sands and 60%
of the rooms in the Australian coal mining regions.
Our Lodge and Village Contracts
During the year ended December 31, 2015, revenues from our lodges and villages represented over 75% of our
consolidated revenues. Our customers typically contract for accommodations services under take-or-pay contracts
with terms that most often range from several months to five years. Our contract terms generally provide for a rental
rate for a reserved room and an occupied room rate that compensates us for services, including meals, utilities and
maintenance for workers staying in the lodges and villages. In multi-year contracts, our rates typically have annual
contractual escalation provisions to cover expected increases in labor and consumables costs over the contract term.
Over the term of the contract, the customer commits to a minimum number of rooms over a determined period. In
some contracts, customers have a contractual right to terminate rooms, for reasons other than a breach, in exchange
for a termination fee. As of December 31, 2015, we had 36% of our rentable rooms committed for 2016 and 19% of
our rentable rooms committed for 2017, respectively.
17
As of December 31, 2015, we had 7,019 rooms under contract, or 38% of our rentable rooms, respectively. The
table below details the expiration of those contracts:
2016
2017
2018
2019
2020
Thereafter
Total
Contracted
Room Expiration
1,749
2,665
600
—
—
2,005
7,019
The contracts expire throughout the year, and for many of the near term expirations, we are in the process of
negotiating extensions or new commitments. We cannot assure that we can renew existing contracts or obtain new
business on the same or better terms, if at all.
Seasonality of Operations
Our operations are directly affected by seasonal weather. A portion of our Canadian operations is conducted
during the winter months when the winter freeze in remote regions is required for customers’ activity to occur. The
spring thaw in these frontier regions restricts operations in the second quarter and adversely affects our operations
and our ability to provide services. Our Canadian operations have also been impacted by forest fires and flooding in
the past five years. During the Australian rainy season between November and April, our operations in Queensland
and the northern parts of Western Australia can be affected by cyclones, monsoons and resultant flooding. In the
U.S., winter weather in the first quarter and the resulting spring break up in the second quarter have historically
negatively impacted our Bakken and Rocky Mountain operations. Our U.S. offshore operations have historically
been impacted by the Gulf of Mexico hurricane season from July through November.
Employees
As of December 31, 2015, we had approximately 1,900 full-time employees on a consolidated basis, 72% of
whom are in Canada, 21% of whom are in Australia and 7% of whom are in the U.S. We were party to collective
bargaining agreements covering approximately 900 employees located in Canada and 140 employees located in
Australia as of December 31, 2015.
Government Regulation
Our business is significantly affected by foreign and U.S. laws and regulations at the federal, provincial, state
and local levels relating to the oil, natural gas and mining industries, worker safety and environmental protection.
Changes in these laws, including more stringent regulations and increased levels of enforcement of these laws and
regulations, and the development of new laws and regulations could significantly affect our business and result in:
•
•
•
•
increased compliance costs or additional operating restrictions associated with our operations or our
customers’ operations;
other increased costs to our business or our customers’ business;
reduced demand for oil, natural gas, and other natural resources that our customers produce; and
reduced demand for our services.
To the extent that these laws and regulations impose more stringent requirements or increased costs or delays
upon our customers in the performance of their operations, the resulting demand for our services by those customers
may be adversely affected, which impact could be significant and long-lasting. Moreover, climate change laws or
regulations could increase the cost of consuming, and thereby reduce demand for, oil and natural gas, which could
18
reduce our customers’ demand for our services. We cannot predict changes in the level of enforcement of existing
laws and regulations, how these laws and regulations may be interpreted or the effect changes in these laws and
regulations may have on us or our customers or on our future operations or earnings. We also are not able to predict
the extent to which new laws and regulations will be adopted or whether such new laws and regulations may impose
more stringent or costly restrictions on our customers or our operations.
Our operations and the operations of our customers are subject to numerous stringent and comprehensive
foreign, federal, provincial, state and local environmental laws and regulations governing the release or discharge of
materials into the environment or otherwise relating to environmental protection. Numerous governmental agencies
issue regulations to implement and enforce these laws, for which compliance is often costly yet critical. The
violation of these laws and regulations may result in the denial or revocation of permits, issuance of corrective
action orders, modification or cessation of operations, assessment of administrative and civil penalties, and even
criminal prosecution. We believe that we are in substantial compliance with existing environmental laws and
regulations and we do not anticipate that future compliance with existing environmental laws and regulations will
have a material effect on our financial condition, results of operations or cash flows. However, there can be no
assurance that substantial costs for compliance or penalties for non-compliance with these existing requirements will
not be incurred in the future by us or our customers. Moreover, it is possible that other developments, such as the
adoption of stricter environmental laws, regulations and enforcement policies or more stringent enforcement of
existing environmental laws and regulations, could result in additional costs or liabilities upon us or our customers
that we cannot currently quantify.
Canadian Environmental Regulations
In Canada, the Federal Government in September 2010 appointed an Oil Sands Advisory Panel to review and
comment upon existing scientific studies and literature regarding water monitoring in the Lower Athabasca region
and provide recommendations for improving such monitoring. The Oil Sands Advisory Panel presented its final
report to the Minister of the Environment in December 2010. In response to this report, Environment Canada, with
input from the government of Alberta through Alberta Environment and Sustainable Resource Development,
developed an environmental monitoring plan specific to the oil sands with respect to water, air quality and
biodiversity. Further, in January 2011, the Province of Alberta established a Provincial Environmental Monitoring
Panel with a mandate to recommend a world class environmental evaluation, monitoring and reporting system,
generally for the Province and specifically for the lower Athabasca Region where oil sands are produced. This panel
issued its recommendations to the Alberta Minister of the Environment in July 2011. In February 2012, the
governments of Canada and Alberta released the Joint Canada-Alberta Implementation Plan for Oil Sands
Monitoring. Implementation of the plan commenced in 2012 and will be completed in 2015. The costs of
implementing this plan are funded by industry members to a maximum of $50 million annually, some of whom are
our customers. The Oil Sands Environmental Monitoring Program Regulation came into force in 2013, enabling the
collection of monitoring fees from certain of our customers for the plan. In 2013-2014, enhancements to the
environmental monitoring system were made and processes and governance structures and funding mechanisms to
support oil sands monitoring were successfully established. As this monitoring regime continues to be implemented,
the increased levels of monitoring and enforcement may increase costs for us and our customers and could reduce
activity and demand for our services.
Further, the Province of Alberta released its new Renewed Clean Air Strategy in October 2012, which it is in
the process of implementing for, at minimum, a 10-year period, beginning in 2013. The implementation of this
strategy along with Alberta’s continued implementation of its regulatory changes to oil and oil sands regulation may
result in additional costs or liabilities for our customers’ operations.
In June 2014, the Canadian government announced proposed new regulations to impose mandatory emissions
standards for industry. The proposed standards will impact nitrous oxide (NOx) and Sulphur dioxide (SO2)
emissions from regulated boilers and stationary engines. These regulations have not yet been passed but if passed,
could affect the oil and gas sector as they will impact emission performance standards for compressors and boilers
used in conventional and steam assisted gravity operations in the oil sands.
Scientific studies have suggested that emissions of greenhouse gases (GHG), including carbon dioxide and
methane, may be contributing to warming of the Earth’s atmosphere and other climatic changes. On January 29,
19
2010, Canada affirmed its desire to be associated with the Copenhagen Accord that was negotiated in
December 2009 as part of the international meetings on climate change regulation in Copenhagen. The Copenhagen
Accord, which is not legally binding, allows countries to commit to specific efforts to reduce GHG emissions,
although how and when the commitments may be converted into binding emission reduction obligations, if ever, is
currently uncertain. Pursuant to the Copenhagen Accord process, Canada has indicated an economy-wide GHG
emissions target that equates to a 17 per cent reduction from 2005 levels by 2020, and the former Canadian
Conservative federal government indicated an objective of reducing overall Canadian GHG emissions by 60% to
70% from 2006 levels by 2050. However, with current climate change measures in place, Canada’s GHG emissions
are forecast to be almost exactly at 2005 levels by 2020 and federal regulations for the oil and gas sector have yet to
be introduced.
In December 2015, 195 nations, including Canada, Australia, and the U.S., adopted the Paris Agreement at the
21st “Conference of the Parties” (COP 21). The Paris Agreement does not set legally binding emission reduction
targets but does set a goal of limiting global temperature increases to less than 2° Celsius. Canada announced that it
is in favor of the decision of the COP 21 to endeavor to take action to further limit global temperature increases to
less than 1.5° Celsius. The Paris Agreement also requires parties to submit Intended Nationally Determined
Contributions (INDCs) which set out their emission reduction targets and to renew these INDCs, with the goal of
increasing the reductions, every five years. The Paris Agreement does not legally bind the parties to reach their
INDCs, nor does it prescribe the measures it must take to achieve them. These measures are left to each participating
nation. However, participating nations must submit their INDCs every five years. Canada has not implemented any
new regulations to achieve its INDC and is scheduled to meet with representatives of the provincial governments by
mid-March 2016 to determine an agreed upon approach for Canada to obtain its INDC. It is expected that the new
liberal federal government may commit to a more ambitious INDC than the preceding conservative federal
government. Without new regulation from the federal government yet in place, it is not possible to determine the
impact that implementation of new federal or provincial regulatory changes could have, but they may result in
additional costs or liabilities for our customers’ operations.
Additionally, GHG regulation can take place at the provincial and municipal level. For example, Alberta’s
Climate Change and Emissions Management Act provides a framework for managing GHG emissions by reducing
specified gas emissions, relative to total production from facilities that emit over 100,000 tons of carbon dioxide
equivalent per year. The accompanying regulation, the Specified Gas Emitters Regulation, requires mandatory
emissions reductions through the use of emissions intensity targets, and a company can meet the applicable
emissions limits by making emissions intensity improvements at regulated facilities, offsetting GHG emissions by
purchasing offset credits or emission performance credits in the open market or acquiring “fund credits” (akin to
allowances) by making payments for each ton of GHG emissions over the required reduction target to the Alberta
Climate Change and Emissions Management Fund. In June, 2015, the government of Alberta amended the
Specified Gas Emitters Regulation to increase the price per fund credit from $15 to $20 per credit in 2016 and to $30
per credit in 2017. In addition, the amended Specified Gas Emitter Regulation also increased the required emission
reductions for regulated facilities from 12% below an established baseline in 2015 to 15% in 2016 and 20% in 2017.
These amendments are likely to significantly increase the cost of compliance for our customers. There are financial
penalties for non-compliance for every ton of carbon dioxide equivalent over a facility’s net emission intensity limit
as well as for contraventions of other provisions contained in the Specified Gas Emitters Regulation. Further, the
Specified Gas Reporting Regulation imposes GHG emissions reporting requirements on a company that has GHG
emissions of 50,000 tons or more of carbon dioxide equivalent from a facility in a calendar year. In addition,
Alberta facilities must currently report emissions of industrial air pollutants and comply with obligations in
approvals and under other environmental regulations.
In addition to the amendments to the Specified Gas Emitters Regulation discussed above, the government of
Alberta announced a new Climate Leadership Plan (the CLP) in November 2015 that is intended to replace the
current Specified Gas Emitter Regulation in 2018. It has broader application than the Specified Gas Emitters
Regulation and is intended to cover 78-90% of emissions, largely by putting a levy on emissions from the
combustion of all fossil fuels, with limited exceptions. This is expected to be implemented at the fuel distributor
level, so that it will add to the cost of most fossil based fuels. The CLP also targets the phasing out of coal generated
electricity (or the emissions therefrom) by 2030. It also targets a 45% reduction in methane emissions from oil and
gas operations by 2025. It is not certain how this will be achieved, but it is contemplated that new performance
standards emissions from equipment will be incentivized and potentially mandated. Lastly, the CLP contemplates a
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cap on oil sands emissions at 100 million tonnes a year. The regulations to implement the CLP are anticipated in late
2016 and expected to be effective in 2017. The combination of the announced carbon levy and coal phase out is
expected to increase fuel and electricity prices, which could have an impact on our operating costs. The direct and
indirect costs of these regulatory changes may adversely affect our operations and financial results as well as those
of our customers with whom we conduct business.
In July 2008, the province of British Columbia implemented a revenue neutral carbon tax of $10 per tonne,
which graduated to the final scheduled increase to $30 per tonne in July 2012. The carbon tax is imposed at the fuel
distributor level to encourage fuel consumers to use less fossil fuel and reduce their greenhouse gas emissions. The
government of British Columbia has not announced any intentions to increase the carbon tax, but could do so in the
future.
To ensure that it meets its INDC commitments under the Paris Agreement, the Canadian federal government
may elect to impose further regulation on GHG emissions and may wish to enter into equivalency agreements with
provinces to establish a consistent regulatory regime for GHGs. However, the federal government’s determination is
currently uncertain and could possibly result in overlapping levels of regulation. The direct and indirect costs of
these regulations may adversely affect our operations and financial results as well as those of our customers.
Finally, it should be noted that some scientists have concluded that increasing concentrations of GHGs in the
Earth’s atmosphere may produce climate changes that have significant physical effects, such as higher sea levels,
increased frequency and severity of storms, droughts, floods and other climatic events. If any such effects were to
occur, they could have an adverse effect on our financial condition and results of operations.
The Canadian Species at Risk Act is intended to prevent wildlife species in Canada from disappearing and to
provide for the recovery of wildlife species that no longer exist in the wild in Canada, or that are endangered or
threatened as a result of human activity, and to manage species of special concern to prevent them from becoming
endangered or threatened. The designation of previously unprotected species as threatened or endangered in areas of
Canada where our customers’ oil and natural gas exploration and production operations are conducted could cause
them to incur increased costs arising from species protection measures or could result in limitations on their
exploration and production activities, which could have an adverse impact on demand for our services.
Other Canadian Regulations
In June 2015, the government of Alberta announced that it would strike a panel to review and recommend
changes to Alberta’s oil and gas royalty framework. The government released the panel’s report on January 29,
2016. The four overarching recommendations made by the panel were to (1) establish guiding principles and design
criteria for Alberta’s royalty framework; (2) modernize the royalty framework for crude oil, liquids and natural gas;
(3) enhance the royalty process for oil sands; and (4) seize opportunities for value-added processing. It is expected
that the government will implement legislation and regulatory changes in the coming months to give effect to the
panel’s recommendations. Until these legislative and regulatory changes are implemented, the panel’s
recommendations will not have the effect of law. Until the legislative and regulatory changes are announced, it is
difficult to say what the impact on our customers will be and how it will affect our business.
On July 1, 2015, the government of Alberta increased Alberta’s corporate tax rate from 10% to 12%. This
increase is expected to have a commensurate impact on our financial results and that of our customers in relation to
previous years.
Australian Environmental Regulations
Our Australian segment is regulated by general statutory environmental controls at both the state and federal
level which may result in land use approval and compliance risk. These controls include: land use and urban design
controls; the regulation of hard and liquid waste, including the requirement for tradewaste and/or wastewater permits
or licenses; the regulation of water, noise, heat, and atmospheric gases emissions; the regulation of the production,
transport and storage of dangerous and hazardous materials (including asbestos); and the regulation of pollution and
site contamination. Some specified activities, for example, sewage treatment works, may require regulation at a state
level by way of environmental protection licenses which also impose monitoring and reporting obligations on the
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holder. There is an increasing emphasis from state and federal regulators on sustainability and energy efficiency in
business operations. Federal requirements are now in place for the mandatory disclosure of energy performance
under building rating schemes. These schemes require the tracking of specific environmental performance factors.
Carbon reporting requirements currently exist for corporations which meet a reporting threshold for greenhouse
gases or energy use or production for a reporting (financial) year under national legislation.
U.S. Environmental Regulations
The Clean Water Act, as amended, and analogous state laws impose restrictions and strict controls regarding the
discharge of pollutants into state waters or waters of the U.S. The discharge of pollutants into jurisdictional waters is
prohibited unless the discharge is permitted by the U.S. Environmental Protection Agency (EPA) or authorized state
agencies. Many of our U.S. properties and operations require permits for discharges of wastewater and/or storm
water, and we have developed a system for securing and maintaining these permits. In addition, the Oil Pollution
Act of 1990, as amended (OPA), imposes a variety of requirements on responsible parties related to the prevention
of oil spills and liability for damages, including natural resource damages, resulting from such spills in waters of the
U.S. A responsible party under OPA includes the owner or operator of an onshore facility or vessel, or the lessee or
permittee of the area in which an offshore facility is located. The Clean Water Act and analogous state laws provide
for administrative, civil and criminal penalties for unauthorized discharges and, together with the OPA, require the
development and implementation of spill prevention and response plans and impose liability for the remedial costs
and associated damages arising out of any unauthorized discharges.
The EPA has adopted rules requiring the monitoring and reporting of GHG emissions from specified large GHG
emission sources in the U.S., including, offshore and onshore oil and natural gas production facilities, on an annual
basis. In addition, the EPA has proposed new regulations that would further restrict GHG emissions, such as new
standards for methane and volatile organic compound (VOC) emissions from oil and gas sources, which the EPA
proposed in September 2015. In February 2016, the Bureau of Land Management (BLM) proposed new regulations
to reduce “waste” of natural gas—of which methane is a primary constituent—from venting, flaring and leaks
during oil and natural gas production activities on onshore federal and Indian lands. In October 2015, the EPA
finalized the Clean Power Plan, which imposes additional obligations on the power generation sector to reduce GHG
emissions. However, on February 9, 2016, the U.S. Supreme Court stayed implementation of the Clean Power Plan
pending resolution of legal challenges to the rule. While our operations are not directly affected by these actions,
their impact on our oil and natural gas exploration and production customers could result in a decreased demand for
the services that we provide.
While the U.S. Congress has from time to time considered legislation to reduce emissions of GHGs, there has
not been significant activity in the form of adopted legislation to reduce GHG emissions at the federal level in recent
years. In the absence of federal climate legislation in the U.S., a number of state and regional efforts have emerged
that are aimed at tracking and/or reducing GHG emissions by means of cap and trade programs that typically require
major sources of GHG emissions, such as electric power plants, to acquire and surrender emission allowances in
return for emitting those GHGs. Although it is not possible at this time to predict how legislation or new regulations
that may be adopted to address GHG emissions would impact our business, any such future laws and regulations
could require us or our customers to incur increased operating costs, such as costs to purchase and operate emissions
control systems, to acquire emission allowances or comply with new regulatory or reporting requirements. Any
such legislation or regulatory programs could also increase the cost of consuming, and thereby reduce demand for
oil and natural gas, which could reduce our customers’ demand for our services. Consequently, legislation and
regulatory programs to reduce GHG emissions could have an adverse effect on our business, financial condition and
results of operations.
Our operations, as well as the operations of our customers, are also subject to various laws and regulations
addressing the management, disposal and releases of regulated substances. For example, in the U.S., the federal
Resource Conservation and Recovery Act, as amended (RCRA) and comparable state statutes regulate the
generation, storage, treatment, transportation, disposal and cleanup of hazardous and non-hazardous solid wastes.
Under the auspices of the EPA, most states administer some or all of the provisions of RCRA, sometimes in
conjunction with their own, more stringent requirements. Federal and state regulatory agencies can seek to impose
administrative, civil and criminal penalties for alleged non-compliance with RCRA and analogous state
requirements. In the course of our operations, we generate some amounts of ordinary industrial wastes, such as paint
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wastes, waste solvents and waste oils that may be regulated as hazardous wastes. Moreover, the federal
Comprehensive Environmental Response, Compensation and Liability Act, as amended (CERCLA), also known as
the Superfund law, and comparable state laws impose liability, without regard to fault or legality of conduct, on
classes of persons considered to be responsible for the release of a “hazardous substance” into the environment.
These persons include the current and past owner or operator of the site where the release occurred and anyone who
disposed or arranged for the disposal of a hazardous substance released at the site. Under CERCLA, such persons
may be subject to joint and several strict liability for the costs of cleaning up the hazardous substances that have
been released into the environment, for damages to natural resources and for the costs of certain health studies.
CERCLA also authorizes the EPA and, in some instances, third parties to act in response to threats to the public
health or the environment and to seek to recover from the responsible classes of persons the costs they incur. In
addition, neighboring landowners and other third parties may file claims for personal injury and property damage
allegedly caused by the hazardous substances released into the environment. We generate materials in the course of
our operations that may be regulated as hazardous substances. In the event of mismanagement or release of
regulated substances upon properties where we conduct operations, we could become subject to liability and/or
obligations under CERCLA, RCRA and/or analogous state laws. Under such laws, we could be required to
undertake response or corrective measures, which could include removal of previously disposed substances and
wastes, cleanup of contaminated property or performance of remedial operations to prevent future contamination.
The federal Endangered Species Act, as amended (ESA), restricts activities in the U.S. that may affect
endangered or threatened species or their habitats. If endangered species are located in areas of the U.S. where our
oil and natural gas exploration and production customers operate, such operations could be prohibited or delayed or
expensive mitigation may be required. Moreover, as a result of a settlement approved by the U.S. District Court for
the District of Columbia in 2011, the U.S. Fish and Wildlife Service is required to make a determination on listings
of more than 250 species as endangered or threatened under the ESA before the end of the agency’s 2017 fiscal
year.
The designation of previously unprotected species as threatened or endangered in areas of the U.S. where our
customers’ oil and natural gas exploration and production operations are conducted could cause them to incur
increased costs arising from species protection measures or could result in limitations on their exploration and
production activities, which could have an adverse impact on demand for our services.
Hydraulic fracturing is a process sometimes used to stimulate production of hydrocarbons from tight
formations. The process involves the injection of water, sand and chemicals under pressure into formations to
fracture the surrounding rock and stimulate production. Hydraulic fracturing is typically regulated by state oil and
natural gas regulators, but EPA has asserted federal regulatory authority pursuant to the Safe Drinking Water Act
(SDWA) over, and issued permitting guidance in February 2014 for, certain hydraulic fracturing activities involving
the use of diesel fuels. In May 2014, EPA issued an advance notice of proposed rulemaking seeking comment on
the development of regulations under the Toxic Substances Control Act (TSCA) to require companies to disclose
information regarding the chemicals used in hydraulic fracturing. In March 2015, BLM issued a final rule that
imposes requirements on hydraulic fracturing activities on federal and Indian lands, including new requirements
relating to public disclosure, wellbore integrity and handling of flowback water; similar rules have been proposed
for hydraulic fracturing activities on National Park and National Wildlife Refuge System lands. However, in
September 2015, the U.S. District Court for the District of Wyoming issued a preliminary injunction staying
effectiveness of the BLM rule pending resolution of legal challenges to the rule. In addition, Congress has from
time to time considered legislation to provide for federal regulation of hydraulic fracturing under the SDWA and to
require disclosure of chemicals used in the hydraulic fracturing process. Some states and local governments also
have adopted or are considering adopting regulations to restrict or ban hydraulic fracturing in certain circumstances.
Moreover, ongoing governmental reviews of the environmental impacts of hydraulic fracturing by EPA and other
agencies could lead to further regulation of hydraulic fracturing. While our operations are not directly affected by
these actions, their impact on our oil and natural gas exploration and production customers could result in a
decreased demand for the services that we provide.
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ITEM 1A. Risk Factors
We are subject to certain risks and hazards due to the nature of the business activities we conduct. The risks
discussed below, any of which could materially and adversely affect our business, financial condition, cash flows
and results of operations and the price of our shares, are not the only risks we face. We may experience additional
risks and uncertainties not currently known to us or, as a result of developments occurring in the future, conditions
that we currently deem to be immaterial may also materially and adversely affect our business, financial condition,
cash flows and results of operations.
Risks Related to Our Business
Decreased customer expenditure levels have adversely affected and may continue to adversely affect our
results of operations.
Demand for our services is sensitive to the level of exploration, development and production activity of, and the
corresponding capital spending by, oil and gas and mining companies. Throughout 2015 and continuing into 2016,
our customers’ expenditures have declined significantly due to the long-term decline in commodity prices. If our
customers’ expenditures continue to decline in regions where our facilities are located, our business will be further
adversely impacted. The oil and gas and mining industries’ willingness to explore, develop and produce depends
largely upon the availability of attractive resource prospects and the prevailing view of future commodity prices,
which over the past year, has not been positive. Prices for oil, coal, natural gas, and other minerals are subject to
large fluctuations in response to changes in the supply of and demand for these commodities, market uncertainty,
and a variety of other factors that are beyond our control. Accordingly, a sudden or long-term decline in commodity
pricing, or a continuation of the current depressed commodity price environment, would have material adverse
effects on our results of operations.
In the fourth quarter 2015 and continuing into 2016, global oil prices have dropped to their lowest levels in over
10 years due to concerns over global oil demand, the economic growth rate in China, the overall economic health of
Europe and price cutting by major oil producing countries, such as Saudi Arabia. Increasing global supply and
higher than normal inventory levels have also negatively impacted pricing. With falling Brent Crude and West
Texas Intermediate (WTI) oil prices, Western Canadian Select (WCS) has also fallen. WCS prices in the fourth
quarter of 2015 averaged $27.82 per barrel compared to $57.75 per barrel in the fourth quarter of 2014 and $73.48
per barrel in 2013. As of February 19, 2016, the WTI price was $29.64, and the WCS price was $19.20. In
addition, met coal prices have decreased materially from approximately $119/metric ton as of December 31, 2014 to
approximately $89/metric ton as of December 31, 2015 due to a declining demand for steel and the impact of a
stronger U.S. dollar. As of February 19, 2016, met coal prices were $81/metric ton. Commodity prices, particularly
with respect to the oil sands and Australian met coal production, could continue to deteriorate. The existing
commodity price environment has significantly depressed exploration, development, and production activity. A
sustained continuation of these prices or further deterioration is likely to continue to depress activity levels, often
reflected as reductions in employees or resource production, and have a material adverse effect on our financial
position, results of operations or cash flows.
Additionally, significant new regulatory requirements, including climate change legislation, could have an
impact on the demand for and the cost of producing oil, coal and natural gas in the regions where we operate. Many
factors affect the supply of and demand for oil, coal, natural gas and other minerals and, therefore, influence product
prices, including:
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the level of activity and developments in the Canadian oil sands;
the global level of demand, particularly from China, for coal and other natural resources produced in
Australia;
the availability of economically attractive oil and natural gas field prospects, which may be affected by
governmental actions or environmental activists which may restrict development;
the availability of transportation infrastructure for oil, natural gas, LNG and coal, refining capacity and
shifts in end-customer preferences toward fuel efficiency and the use of natural gas;
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global weather conditions and natural disasters;
• worldwide economic activity including growth in developing countries, such as China and India;
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national government political requirements, including the ability of the Organization of Petroleum
Exporting Companies (OPEC) to set and maintain production levels and prices for oil and government
policies which could nationalize or expropriate oil and natural gas exploration, production, refining or
transportation assets;
the level of oil and gas production by non-OPEC countries;
rapid technological change and the timing and extent of energy resource development, including LNG or
other alternative fuels;
environmental regulation; and
• U.S. and foreign tax policies.
Our failure to retain our current customers, renew our existing customer contracts and obtain new customer
contracts, or the termination of existing contracts, could adversely affect our business.
Our success depends on our ability to retain our current customers, renew or replace our existing customer
contracts and obtain new business. Our ability to do so generally depends on a variety of factors, including overall
customer expenditure levels and the quality, price and responsiveness of our services, as well as our ability to
market these services effectively and differentiate ourselves from our competitors. We cannot assure you that we
will be able to obtain new business, renew existing customer contracts at the same or higher levels of pricing, or at
all, or that our current customers will not turn to competitors, cease operations, elect to self-operate or terminate
contracts with us. Because global oil prices dropped to their lowest level in over 10 years in the first quarter of 2016
and met coal prices have continued to decline, our customers may not renew contracts on terms favorable to us or, in
some cases, at all, and we may have difficulty obtaining new business. Additionally, several contracts have clauses
that allow termination upon the payment of a termination fee. As a result, our customers may choose to terminate
their contracts. The likelihood that a customer may seek to terminate a contract is increased during periods of market
weakness like those we are currently experiencing. Further, certain of our customers may not reach positive final
investment decisions on projects with respect to which we have been awarded contracts to provide related
accommodation, which may cause those customers to terminate the contracts. Customer contract cancellations, the
failure to renew a significant number of our existing contracts or the failure to obtain new business would have a
material adverse effect on our business and results of operations.
Due to the cyclical nature of the natural resources industry, our business may be adversely affected by
extended periods of low oil, coal or natural gas prices or unsuccessful exploration results may decrease our
customers’ spending and therefore our results.
Commodity prices have been and are expected to remain volatile. This volatility causes oil and gas and mining
companies to change their strategies and expenditure levels. Prices of oil, coal and natural gas can be influenced by
many factors, including reduced demand due to lower global economic growth, surplus inventory, improved
technology such as the hydraulic fracturing of horizontally drilled wells in shale discoveries, access to potential
productive regions and availability of required infrastructure to deliver production to the marketplace. In particular,
global demand for both oil and metallurgical coal is, at least partially, dependent on the growth of the Chinese
economy. Should gross domestic product growth in China slow further or contract, demand for oil and metallurgical
coal and, correspondingly, our accommodations would fall, which would negatively impact our financial results.
Our business typically supports projects that are capital intensive and require several years to generate first
production. The economic analyses conducted by our customers in oil sands, Australian mining and LNG
investment areas have historically assumed a relatively conservative longer-term price outlook for production from
such projects to determine economic viability. Because global oil prices dropped to their lowest level in over 10
years in the first quarter of 2016 and met coal prices have continued to decline, our customers have reduced or
deferred, and may continue to reduce or defer, major expenditures, particularly in Canada and Australia, given the
long-term nature of many large scale development projects, adversely affecting our revenues and profitability. In
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Canada, WCS crude is the benchmark price for our oil sands accommodations’ customers. Historically, WCS has
traded at a discount to WTI. Should the price of WTI decline or the WCS discount to WTI widen further, our oil
sands customers may delay or eliminate additional investments, further reduce their spending in the oil sands region
or curtail or shut-down additional existing operations. Similarly, the volumes and prices of the mineral products of
our customers, including coal and gold, have historically varied significantly and are difficult to predict. The
demand for, and price of, these minerals and commodities is highly dependent on a variety of factors, including
international supply and demand, the price and availability of alternative fuels, actions taken by governments and
global economic and political developments. Mineral and commodity prices have fluctuated in recent years and
may continue to fluctuate significantly in the future. No assurance can be given regarding future volumes or prices
relating to the activities of our customers. We have experienced in the past, and expect to experience in the future,
significant fluctuations in operating results based on these changes.
In addition, the carrying value of our lodges or villages could be reduced by extended periods of limited or no
activity by our customers, which has required us to record impairment charges equal to the excess of the carrying
value of the lodges or villages over fair value. We recorded impairments of our long-lived assets, including
intangibles, of $79.7 million and $87.8 million in 2015 and 2014, respectively. We also recorded goodwill
impairments of $43.2 million and $202.7 million in 2015 and 2014, respectively. We may incur additional asset
impairment charges in the future, which charges will affect negatively our results of operations and financial
condition.
Exchange rate fluctuations could adversely affect our U.S. dollar reported results of operations and financial
position.
Currency exchange rate fluctuations can create volatility in our consolidated financial position, results of
operations and/or cash flows. Because our consolidated financial results are reported in U.S. dollars, if we generate
net revenues or earnings in countries whose currency is not the U.S. dollar, the translation of such amounts into U.S.
dollars can result in an increase or decrease in our reported revenues, net income and cash flows depending upon
exchange rate movements. For the year ended December 31, 2015, 93% of our revenues originated from
subsidiaries outside of the U.S. and were denominated in either the Canadian dollar or the Australian dollar. As a
result, a material decrease in the value of these currencies relative to the U.S. dollar has had, and may have in the
future, a negative impact on our reported revenues, net income and cash flows. Any currency controls implemented
by local monetary authorities in countries where we currently operate could also adversely affect our business,
financial condition and results of operations.
Our functional currency is the U.S. dollar, and we are exposed to currency exchange risk primarily between the
U.S. dollar and the Canadian and Australian dollars. We may attempt to limit the risks of currency fluctuation
where possible by entering into financial instruments to protect against foreign currency exposure. Our efforts to
limit exchange risks may be unsuccessful, thereby exposing us to foreign currency fluctuations that could cause our
results of operations, financial condition and cash flows to deteriorate.
We do business in Canada and Australia, whose political and regulatory environments and compliance
regimes differ from those in the United States.
A significant portion of our revenue is attributable to operations in Canada and Australia. These activities
accounted for 93% of our consolidated revenue in the year ended December 31, 2015. Risks associated with our
operations in Canada and Australia include, but are not limited to:
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international currency fluctuations;
different taxing regimes;
changing political conditions;
changing international and U.S. monetary policies;
regional economic downturns;
expropriation, confiscation or nationalization of assets; and
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foreign exchange limitations.
The regulatory regimes in these countries are substantially different than those in the United States, and are
unfamiliar to U.S. investors. Violations of non-U.S. laws could result in monetary and criminal penalties against us
or our subsidiaries and could damage our reputation and, therefore, our ability to do business.
All but one of our major Canadian lodges are located on land subject to leases. If we are unable to renew a
lease, we could be materially and adversely affected.
All but one of our major Canadian lodges are located on land subject to leases. Accordingly, while we own the
accommodations assets, we only own a leasehold in those properties. If we are found to be in breach of a lease, we
could lose the right to use the property. In addition, unless we can extend the terms of these leases before their
expiration, as to which no assurance can be given, we will lose our right to operate our facilities located on these
properties upon expiration of the leases. In that event, we would be required to remove our accommodations assets
and remediate the site. Generally, our leases have an initial term of ten years and will expire between 2016 and 2026
unless extended. We can provide no assurances that we will be able to renew our leases upon expiration on similar
terms, or at all. If we are unable to renew leases on similar terms, it may have an adverse effect on our business.
Due to the significant concentration of our business in the oil sands region of Alberta, Canada and in the
Bowen Basin coal region of Queensland, Australia, adverse events in these areas could negatively impact our
business, and our geographic concentration could limit the number of customers seeking our services.
Because of the concentration of our business in the oil sands region of Alberta, Canada and in the coal
producing region of Queensland, Australia, two relatively small geographic areas, we have increased exposure to
political, regulatory, environmental, labor, climate or natural disaster events or developments that could
disproportionately impact our operations and financial results. For example, in 2011, major flooding caused by
seasonal rain and a cyclone impacted areas near our villages in Australia. Also in 2011, forest fires in northern
Alberta impacted areas near our Canadian oil sands lodges. Due to our geographic concentration, any adverse events
or developments in our operating areas may disproportionately affect our financial results.
In addition, a limited number of companies operate in the areas in which our business is concentrated, and
occupancy at each of our lodges may be constrained by the radius which potential customers are willing to transport
their workers. Our geographic concentration could limit the number of customers seeking our services, and as to
any single lodge or village, we may have few potential customers. Therefore, we are subject to volatility in
occupancy in any location based on the capital spending plans of a limited number of customers, based on their
changing decisions as to whether to outsource or use their own company-owned accommodations and whether other
potential customers move into that lodge’s radius.
Development of permanent infrastructure in the Canadian oil sands region, the west coast of British
Columbia, regions of Australia or various U.S. locations where we locate our assets could negatively impact our
business.
We specialize in providing housing and personnel logistics for work forces in remote areas which often lack the
infrastructure typically available in nearby towns and cities. If permanent towns, cities and municipal infrastructure
develop, grow or otherwise become available in the oil sands region of northern Alberta, Canada, the west coast of
British Columbia or regions of Australia where we locate villages, then demand for our accommodations could
decrease as customer employees move to the region and choose to utilize permanent housing and food services.
We depend on several significant customers. The loss of one or more such customers or the inability of one
or more such customers to meet their obligations to us could adversely affect our results of operations.
We depend on several significant customers. The majority of our customers operate in the energy or mining
industry. For a more detailed explanation of our customers, see “Business” in Item 1. The loss of any one of our
largest customers in any of our business segments or a sustained decrease in demand by any of such customers could
result in a substantial loss of revenues and could have a material adverse effect on our results of operations. In
addition, the concentration of customers in two industries may impact our overall exposure to credit risk, either
positively or negatively, in that customers may be similarly affected by changes in economic and industry
conditions. While we perform ongoing credit evaluations of our customers, we do not require collateral in support of
our trade receivables.
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As a result of our customer concentration, risks of nonpayment and nonperformance by our counterparties are a
concern in our business. We are subject to risks of loss resulting from nonpayment or nonperformance by our
customers. Many of our customers finance their activities through cash flow from operations, the incurrence of debt
or the issuance of equity. Throughout 2015 and continuing into 2016, commodity prices have declined significantly,
and the capital markets and availability of credit have been constrained. Additionally, many of our customers’
equity values have declined and could decline further. The combination of lower cash flow due to commodity
prices, a reduction in borrowing bases under reserve-based credit facilities and the lack of available debt or equity
financing may continue to result in a significant reduction in our customers’ liquidity and could impair their ability
to pay or otherwise perform on their obligations to us. Furthermore, some of our customers may be highly leveraged
and subject to their own operating and regulatory risks, which increases the risk that they may default on their
obligations to us. The inability or failure of our significant customers to meet their obligations to us or their
insolvency or liquidation may adversely affect our financial results.
We are susceptible to seasonal earnings volatility due to adverse weather conditions in our regions of
operations.
Our operations are directly affected by seasonal differences in weather in the areas in which we operate, most
notably in Canada and Australia, and, to a lesser extent, the Rocky Mountain region and the Gulf of Mexico. A
portion of our Canadian operations is conducted during the winter months when the winter freeze in remote regions
is required for exploration and production activity to occur. The spring thaw in these frontier regions restricts
operations in the spring months and, as a result, adversely affects our operations and our ability to provide services
in the second and, to a lesser extent, third quarters. During the Australian rainy season, generally between the
months of November and April, our operations in Queensland and the northern parts of Western Australia can be
affected by cyclones, monsoons and resultant flooding. Severe winter weather conditions in the Rocky Mountain
region of the United States can restrict access to work areas for our customers. Our operations in the Gulf of
Mexico are also affected by weather patterns. Furthermore, the areas in which we operate are susceptible to forest
fires, which could interrupt our operations and adversely impact our earnings.
Our customers are exposed to a number of unique operating risks and challenges which could also adversely
affect us.
We could be materially adversely affected by disruptions to our clients’ operations caused by any one of or all
of the following singularly or in combination:
• U.S. and international pricing and demand for the natural resource being produced at a given project (or
proposed project);
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•
unexpected problems, higher costs and delays during the development, construction and project start-up
which may delay the commencement of production;
unforeseen and adverse geological, geotechnical, seismic and mining conditions;
lack of availability of sufficient water or power to maintain their operations;
lack of availability or failure of the required infrastructure necessary to maintain or to expand their
operations;
the breakdown or shortage of equipment and labor necessary to maintain their operations;
risks associated with the natural resources industry being subject to various regulatory approvals. Such
risks may include a government agency failing to grant an approval or failing to renew an existing
approval, or the approval or renewal not being provided by the government agency in a timely manner or
the government agency granting or renewing an approval subject to materially onerous conditions;
risks to land titles, mining titles and use thereof as a result of native title claims;
claims by persons living in close proximity to mining projects, which may have an impact on the consents
granted;
28
•
•
interruptions to the operations of our customers caused by industrial accidents or disputes; and
delays in or failure to commission new infrastructure in timeframes so as not to disrupt customer
operations.
We may be adversely affected if customers reduce their accommodations outsourcing.
Our business and growth strategies depend in large part on customers outsourcing some or all of the services
that we provide. Many oil and gas and mining companies in our core markets own their own accommodations
facilities, while others outsource all or part of their accommodations requirements. Customers have largely built
their accommodations in the past but will outsource if they perceive that outsourcing may provide quality services at
a lower overall cost or allow them to accelerate the timing of their projects. We cannot be certain that these customer
preferences will continue or that customers that have outsourced accommodations will not decide to perform these
functions themselves or only outsource accommodations during the development or construction phases of their
projects. In addition, labor unions representing customer employees and contractors have, in the past, opposed
outsourcing accommodations to the extent that the unions believe that third-party accommodations negatively
impact union membership and recruiting. The reversal or reduction in customer outsourcing of accommodations
could negatively impact our financial results and growth prospects.
Increased operating costs and obstacles to cost recovery due to the pricing and cancellation terms of our
accommodation services contracts may constrain our ability to make a profit.
Our profitability can be adversely affected to the extent we are faced with cost increases for food, wages and
other labor related expenses, insurance, fuel and utilities, especially to the extent we are unable to recover such
increased costs through increases in the prices for our services, due to one or more of general economic conditions,
competitive conditions or contractual provisions in our customer contracts. Substantial increases in the cost of fuel
and utilities have historically resulted in cost increases in our lodges and villages. From time to time we have
experienced increases in our food costs. While we believe a portion of these increases were attributable to fuel
prices, we believe the increases also resulted from rising global food demand. In addition, food prices can fluctuate
as a result of foreign exchange rates and temporary changes in supply, including as a result of incidences of severe
weather such as droughts, heavy rains and late freezes. While our long term contracts often provide for annual
escalation in our room rates for food, labor and utility inflation, we may be unable to fully recover costs and such
increases would negatively impact our profitability on contracts that do not contain such inflation protections.
A failure to maintain food safety or comply with government regulations related to food and beverages or
serving alcoholic beverages may subject us to liability.
Claims of illness or injury relating to food quality or food handling are common in the food service industry,
and a number of these claims may exist at any given time. Because food safety issues could be experienced at the
source or by food suppliers or distributors, food safety could, in part, be out of our control. Regardless of the source
or cause, any report of food-borne illness or other food safety issues such as food tampering or contamination at one
of our locations could adversely impact our reputation, hindering our ability to renew contracts on favorable terms
or to obtain new business, and have a negative impact on our sales. Future food product recalls and health concerns
associated with food contamination may also increase our raw materials costs and, from time to time, disrupt our
business.
A variety of regulations at various governmental levels relating to the handling, preparation and serving of food
(including, in some cases, requirements relating to the temperature of food), and the cleanliness of food production
facilities and the hygiene of food-handling personnel are enforced primarily at the local public health department
level. We cannot assure you that we are in full compliance with all applicable laws and regulations at all times or
that we will be able to comply with any future laws and regulations. Furthermore, legislation and regulatory
attention to food safety is very high. Additional or amended regulations in this area may significantly increase the
cost of compliance or expose us to liabilities.
We serve alcoholic beverages at some of our facilities, and must comply with applicable licensing laws, as well
as local service laws. These laws generally prohibit serving alcoholic beverages to certain persons such as an
individual who is intoxicated or a minor. If we violate these laws, we may be liable to the patron and/or third parties
for the acts of the patron. We cannot guarantee that intoxicated or minor patrons will not be served or that liability
for their acts will not be imposed on us. There can be no assurance that additional regulation in this area would not
limit our activities in the future or significantly increase the cost of regulatory compliance. We must also obtain and
29
comply with the terms of licenses in order to sell alcoholic beverages in the jurisdictions in which we serve alcoholic
beverages. If we are unable to maintain food safety or comply with government regulations related to food,
beverages or alcoholic beverages, the effect could be materially adverse to our business or results of operations.
Our land banking strategy may not be successful.
Our land banking strategy is focused on investing early in land in order to gain a strategic, early mover
advantage in an emerging region or resource play. However, we cannot assure you that all land that we purchase or
lease will be in a region in which our customers require our services in the future. We also cannot assure you that the
property acquired by us will be profitably developed. Our land banking strategy involves significant risks that could
adversely affect our financial condition, results of operations, cash flow and the market price of our securities, which
include the following risks:
•
the regions in which we invest may not develop or sustain adequate customer demand;
• we may incur costs to acquire land and/or construct assets without securing a customer contract or prior to
finalization of an accommodations contract with a customer and, if the contract is not obtained or delayed,
the resulting impact could result in an impairment of the related investment;
•
during the time between acquisition and use, and depending on adjacent uses of the land, the property may
become unusable or require costly remediation efforts due to environmental damage;
• we may not be able to obtain financing for development projects on favorable terms or at all;
• we may not be able to obtain, or may experience delays in obtaining, all necessary zoning, land-use,
building, occupancy and other governmental permits and authorizations, and the issuance of permits is
dependent upon a number of factors, including water and waste treatment alternatives available, road traffic
volumes and fire conditions in forested areas;
•
•
•
development opportunities that we explore may be abandoned and the related investment impaired;
the properties may perform below anticipated levels, producing cash flow below budgeted amounts;
construction costs, total investment amounts and our share of remaining funding may exceed our estimates
and projects may not be completed, delivered or stabilized as planned;
• we may experience delays (temporary or permanent) if there is public, government or aboriginal opposition
to our activities; and
•
substantial renovation, new development and redevelopment activities, regardless of their ultimate success,
typically require a significant amount of management’s time and attention, diverting their attention from
our day-to-day operations.
Our business is contract intensive and may lead to customer disputes or delays in receipt of payments.
Our business is contract intensive and we are party to many contracts with customers. We periodically review
our compliance with contract terms and provisions. If customers were to dispute our contract determinations, the
resolution of such disputes in a manner adverse to our interests could negatively affect sales and operating results. In
the past, our customers have withheld payment due to contract or other disputes, which has delayed our receipt of
payments. While we do not believe any reviews, audits, delayed payments or other such matters should result in
material adjustments, if a large number of our customer arrangements were modified or payments withheld in
response to any such matter, the effect could be materially adverse to our business or results of operations.
We are subject to extensive and costly environmental laws and regulations that may require us to take
actions that will adversely affect our results of operations.
All of our operations are significantly affected by stringent and complex foreign, federal, provincial, state and
local laws and regulations governing the discharge of substances into the environment or otherwise relating to
30
environmental protection. We could be exposed to liabilities for cleanup costs, natural resource damages and other
damages as a result of our conduct that was lawful at the time it occurred or the conduct of, or conditions caused by,
prior operators or other third-parties. Environmental laws and regulations are subject to change in the future,
possibly resulting in more stringent requirements. If existing regulatory requirements or enforcement policies
change, we may be required to make significant unanticipated capital and operating expenditures.
Any failure by us to comply with applicable environmental laws and regulations may result in governmental
authorities taking actions against our business that could adversely impact our operations and financial condition,
including the:
•
•
•
•
issuance of administrative, civil and criminal penalties;
denial or revocation of permits or other authorizations;
reduction or cessation of operations; and
performance of site investigatory, remedial or other corrective actions.
Construction risks exist which may adversely affect our results of operations.
There are a number of general risks that might impinge on companies involved in the development,
construction, manufacture and installation of facilities as a prerequisite to the management of those assets in an
operational sense. We might be exposed to these risks from time to time by relying on these corporations and/or
other third parties which could include any and/or all of the following:
•
•
•
•
the construction activities of our accommodations are partially dependent on the supply of appropriate
construction and development opportunities;
development approvals, slow decision making by counterparties, complex construction specifications,
changes to design briefs, legal issues and other documentation changes may give rise to delays in
completion, loss of revenue and cost over-runs which may, in turn, result in termination of accommodation
supply contracts;
other time delays that may arise in relation to construction and development include supply of labor,
scarcity of construction materials, lower than expected productivity levels, inclement weather conditions,
land contamination, cultural heritage claims, difficult site access or industrial relations issues;
objections to our activities or those of our customers aired by aboriginal or community interests,
environment and/or neighborhood groups which may cause delays in the granting or approvals and/or the
overall progress of a project;
• where we assume design responsibility, there is a risk that design problems or defects may result in
rectification and/or costs or liabilities which we cannot readily recover; and
•
there is a risk that we may fail to fulfill our statutory and contractual obligations in relation to the quality of
our materials and workmanship, including warranties and defect liability obligations.
The cyclical nature of our business and a severe prolonged downturn has and could in the future negatively
affect the value of our long-lived assets.
We recorded impairments of our long-lived assets, including intangibles, of $79.7 million and $87.8 million in
2015 and 2014, respectively. We also recorded goodwill impairments of $43.2 million and $202.7 million in 2015
and 2014, respectively.
Extended periods of limited or no activity by our customers at our lodges or villages could require us to record
further impairment charges equal to the excess of the carrying value of the lodges or villages over fair value.
Although our goodwill balance at December 31, 2015 was fully impaired, we may recognize additional impairment
losses on our long-lived assets in the future if, among other factors:
31
•
•
•
•
global economic conditions remain depressed or further deteriorate, including a further decrease in the
price of or demand for oil and natural gas;
the outlook for future profits and cash flow for our Canadian reporting unit deteriorates as the result of
many possible factors, including, but not limited to, increased or unanticipated competition, technology
becoming obsolete, need to satisfy changes in customers’ accommodations requirements, further reductions
in customer capital spending plans, loss of key personnel, adverse legal or regulatory judgment(s), future
operating losses at a reporting unit, downward forecast revisions or restructuring plans or if certain of our
customers do not reach positive final investment decisions on projects with respect to which we have been
awarded contracts to provide related accommodation, which may cause those customers to terminate the
contracts;
costs of equity or debt capital increase; or
valuations for comparable public companies or comparable acquisition valuations deteriorate.
An accidental release of pollutants into the environment may cause us to incur significant costs and
liabilities.
There is inherent risk of environmental costs and liabilities in our business as a result of our handling of
petroleum hydrocarbons, because of air emissions and waste water discharges related to our operations, and due to
historical industry operations and waste disposal practices. Certain environmental statutes impose joint and several
strict liability for these costs. For example, an accidental release by us in the performance of services at one of our
or our customers’ sites could subject us to substantial liabilities arising from environmental cleanup, restoration
costs and natural resource damages, claims made by neighboring landowners and other third parties for personal
injury and property damage and fines or penalties for related violations of environmental laws or regulations. We
may not be able to recover some or any of these costs from insurance.
We may be exposed to certain regulatory and financial risks related to climate change.
Climate change is receiving increasing attention from scientists and legislators alike. The debate is ongoing as
to the extent to which our climate is changing, the potential causes of any change and its potential impacts. Some
attribute global warming to increased levels of greenhouse gases, including carbon dioxide, which has led to
significant legislative and regulatory efforts to limit greenhouse gas emissions. Significant focus is being made on
companies that are active producers of depleting natural resources.
There are a number of legislative and regulatory proposals to address greenhouse gas emissions, which are in
various phases of discussion or implementation. The outcome of Canadian, Australian, U.S. federal, regional,
provincial and state actions to address global climate change could result in a variety of regulatory programs
including potential new regulations, additional charges to fund energy efficiency activities, or other regulatory
actions. These actions could:
•
•
•
•
result in increased costs associated with our operations and our customers’ operations;
increase other costs to our business;
reduce the demand for carbon-based fuels; and
reduce the demand for our services.
Any adoption of these or similar proposals by Canadian, Australian, U.S. federal, regional, provincial or state
governments mandating a substantial reduction in greenhouse gas emissions could have far-reaching and significant
impacts on the energy industry. Although it is not possible at this time to predict how legislation or new regulations
that may be adopted to address greenhouse gas emissions would impact our business, any such future laws and
regulations could result in increased compliance costs or additional operating restrictions, and could have a material
adverse effect on our business or demand for our services. See “Business—Government Regulation” in Item 1 for a
more detailed description of our climate-change related risks.
32
Our inability to control the inherent risks of identifying, acquiring and integrating businesses that we may
acquire, including any related increases in debt or issuances of equity securities, could adversely affect our
operations.
Acquisitions have been, and our management believes acquisitions will continue to be, a key element of our
growth strategy. We may not be able to identify and acquire acceptable acquisition candidates on favorable terms in
the future. We may be required to incur substantial indebtedness to finance future acquisitions and also may issue
equity securities in connection with such acquisitions. Such additional debt service requirements could impose a
significant burden on our results of operations and financial condition. The issuance of additional equity securities
could result in significant dilution to shareholders.
We expect to gain certain business, financial and strategic advantages as a result of business combinations we
undertake, including synergies and operating efficiencies. Our forward-looking statements assume that we will
successfully integrate our business acquisitions and realize these intended benefits. An inability to realize expected
strategic advantages as a result of the acquisition would negatively affect the anticipated benefits of the acquisition.
Additional risks we could face in connection with acquisitions include:
•
•
•
•
•
retaining key employees of acquired businesses;
retaining and attracting new customers of acquired businesses;
retaining supply and distribution relationships key to the supply chain;
increased administrative burden;
developing our sales and marketing capabilities;
• managing our growth effectively;
•
•
potential impairment resulting from the overpayment for an acquisition;
integrating operations;
• managing tax and foreign exchange exposure;
•
•
•
potentially operating a new line of business;
increased logistical problems common to large, expansive operations; and
inability to pursue and protect patents covering acquired technology.
Additionally, an acquisition may bring us into businesses we have not previously conducted and expose us to
additional business risks that are different from those we have previously experienced. If we fail to manage any of
these risks successfully, our business could be harmed. Our capitalization and results of operations may change
significantly following an acquisition, and our shareholders may not have the opportunity to evaluate the economic,
financial and other relevant information that we will consider in evaluating future acquisitions.
We may not have adequate insurance for potential liabilities and insurance may not cover certain liabilities,
including litigation.
Our operations are subject to many hazards. In the ordinary course of business, we become the subject of
various claims, lawsuits and administrative proceedings seeking damages or other remedies concerning our
commercial operations, products, employees and other matters, including occasional claims by individuals alleging
exposure to hazardous materials as a result of our products or operations. Some of these claims relate to the
activities of businesses that we have acquired, even though these activities may have occurred prior to our
acquisition of such businesses. We maintain insurance to cover many of our potential losses, and we are subject to
various self-retentions and deductibles under our insurance policies. It is possible, however, that a judgment could
be rendered against us in cases in which we could be uninsured and beyond the amounts that we currently have
33
reserved or anticipate incurring for such matters. Even a partially uninsured or underinsured claim, if successful and
of significant size, could have a material adverse effect on our results of operations or consolidated financial
position. In addition, we are insured under Oil States’ insurance policies for occurrences prior to the completion of
the Spin-off. The specifications and insured limits under those policies, however, may be insufficient for such
claims. We also face the following other risks related to our insurance coverage:
• we may not be able to continue to obtain insurance on commercially reasonable terms;
•
the counterparties to our insurance contracts may pose credit risks; and
• we may incur losses from interruption of our business that exceed our insurance coverage.
Our operations may suffer due to increased industry-wide capacity of certain types of assets.
The demand for and/or pricing of rooms and accommodation service is subject to the overall availability of
rooms in the marketplace. If demand for our assets were to decrease, or to the extent that we and our competitors
increase our capacity in excess of current demand, we may encounter decreased pricing for or utilization of our
assets and services, which could adversely impact our operations and profits.
In addition, we significantly increased our capacity in the Canadian oil sands region over the past eight years
and in Australia over the past five years based on our previous expectations for customer demand for
accommodations in these areas. However, due to the sustained decline in commodity prices throughout 2015 and
continuing into 2016, customer demand for accommodations in those areas has decreased significantly, and we have
experienced a corresponding significant decrease in our occupancy and profitability. Should our customers build
their own facilities to meet their accommodations needs or our competitors likewise increase their available
accommodations, or activity in the oil sands or natural resources regions declines further, demand and/or pricing for
our accommodations could further decrease, negatively impacting our profitability.
Loss of key members of our management could adversely affect our business.
We depend on the continued employment and performance of key members of our management. If any of our
key managers resign or become unable to continue in their present roles and are not adequately replaced, our
business operations could be materially adversely affected. We do not maintain “key man” life insurance for any of
our officers.
Employee and customer labor problems could adversely affect us.
As of December 31, 2015, we were party to collective bargaining agreements covering approximately 900
employees in Canada and 140 employees in Australia. In addition, our facilities serving oil sands development work
in Northern Alberta, Canada and mining operations in Australia house both union and non-union customer
employees. We have not experienced strikes, work stoppages or other slowdowns in the past, but we cannot
guarantee that we will not experience such events in the future. A prolonged strike, work stoppage or other
slowdown by our employees or by the employees of our customers could cause us to experience a disruption of our
operations, which could adversely affect our business, financial condition and results of operations. Our current
collective bargaining agreements in Canada expire between 2016 and 2019 and in Australia in 2015 and 2016.
The enforcement of civil liabilities against Civeo may be more difficult.
Civeo is a Canadian company and a substantial portion of its assets are located outside the U.S. As a result,
investors could experience more difficulty enforcing judgments obtained against us in U.S. courts than would be the
case for U.S. judgments obtained against a U.S. company. In addition, some claims may be more difficult to bring
against Civeo in Canadian courts than it would be to bring similar claims against a U.S. company in a U.S. court.
Our historical combined financial information may not be representative of the results we would have
achieved as a stand-alone public company and may not be a reliable indicator of our future results.
The historical combined financial information for periods prior to the Spin-off that we have included in this
annual report has been derived from Oil States’ accounting records and may not necessarily reflect what our
financial position, results of operations or cash flows would have been had we been an independent, stand-alone
entity during the periods presented or those that we will achieve in the future. Oil States did not account for us, and
we were not operated, as a separate, stand-alone company for the historical periods prior to the Spin-off. The costs
34
and expenses reflected in such financial information include an allocation for certain corporate functions historically
provided by Oil States, including expense allocations for: (1) certain corporate functions historically provided by Oil
States, including, but not limited to finance, legal, risk management, tax, treasury, information technology, human
resources, and certain other shared services; (2) certain employee benefits and incentives; and (3) equity-based
compensation, that may be different from the comparable expenses that we would have incurred had we operated as
a stand-alone company. These expenses were allocated to us on the basis of direct usage when identifiable, with the
remainder allocated based on estimated time spent by Oil States personnel, a pro-rata basis of headcount or other
relevant measures of our business and Oil States and its subsidiaries. We have not adjusted our historical combined
financial information for periods prior to the Spin-off to reflect changes that occurred in our cost structure and
operations as a result of our transition to becoming a stand-alone public company, including increased costs
associated with an independent board of directors, SEC reporting and the NYSE requirements. Therefore, our
historical financial information for periods prior to the Spin-off may not necessarily be indicative of what our
financial position, results of operations or cash flows will be in the future. For additional information, see “Selected
Historical Financial Data” in Item 6 and “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” in Item 7 and our consolidated financial statements and related notes in Item 8 of this annual
report.
We may increase our debt or raise additional capital in the future, which could affect our financial
condition, may decrease our profitability or could dilute our shareholders.
We may increase our debt or raise additional capital in the future, subject to restrictions in our debt agreements.
If our cash flow from operations is less than we anticipate, or if our cash requirements are more than we expect, we
may require more financing. However, debt or equity financing may not be available to us on terms acceptable to us,
if at all. If we incur additional debt or raise equity through the issuance of our preferred shares, the terms of the debt
or our preferred shares issued may give the holders rights, preferences and privileges senior to those of holders of
our common shares, particularly in the event of liquidation. The terms of the debt may also impose additional and
more stringent restrictions on our operations than we currently have. If we raise funds through the issuance of
additional equity, your ownership in us would be diluted. If we are unable to raise additional capital when needed, it
could affect our financial health, which could negatively affect your investment in us.
Our Amended Credit Facility contains operating and financial restrictions that may restrict our business and
financing activities.
Our Amended Credit Facility contains, and any future indebtedness we incur may contain, a number of
restrictive covenants that will impose significant operating and financial restrictions on us. The Amended Credit
Facility contains customary affirmative and negative covenants that, among other things, limit or restrict (i)
subsidiary indebtedness, liens and fundamental changes, (ii) asset sales, (iii) margin stock, (iv) specified
acquisitions, (v) restrictive agreements, (vi) transactions with affiliates and (vii) investments and other restricted
payments, including dividends and other distributions. Specifically, we must maintain an interest coverage ratio,
defined as the ratio of consolidated EBITDA (as defined in the Amended Credit Facility) to consolidated interest
expense, of at least 3.0 to 1.0 and our maximum leverage ratio, defined as the ratio of total debt to consolidated
EBITDA, of no greater than 4.0 to 1.0 (as of December 31, 2015).
The permitted level of the maximum leverage ratio changes over time, as illustrated in the table below.
Period Ended
Maximum Leverage
Ratio
December 31, 2015 ........................
March 31, 2016 ..............................
June 30, 2016 .................................
September 30, 2016 .......................
December 31, 2016 ........................
March 31, 2017 ..............................
June 30, 2017 .................................
September 30, 2017 .......................
December 31, 2017 ........................
March 31, 2018 ..............................
June 30, 2018 .................................
September 30, 2018 & thereafter ..
35
4.00 : 1.00
4.25 : 1.00
5.25 : 1.00
5.50 : 1.00
5.50 : 1.00
5.25 : 1.00
5.25 : 1.00
5.00 : 1.00
5.00 : 1.00
4.75 : 1.00
3.75 : 1.00
3.50 : 1.00
Each of the factors considered in the calculations of these ratios are defined in the Amended Credit Facility.
EBITDA and consolidated interest, as defined, exclude goodwill and asset impairments, debt discount amortization
and other non-cash charges.
As a result of these covenants, we will be limited in the manner in which we conduct our business, and we may
be unable to engage in favorable business activities or finance future operations or capital needs. Our ability to
comply with some of the covenants, ratios or tests contained in the Amended Credit Facility may be affected by
events beyond our control. If market or other economic conditions remain depressed or further deteriorate, our
ability to comply with these covenants, ratios or tests likely will be impaired. We may not be able to reduce our
indebtedness to comply with these covenants. A failure to comply with these covenants, ratios or tests could result
in an event of default, which, if not cured or waived, could have a material adverse effect on our business, financial
condition, results of operations and cash flows.
Our indebtedness could restrict our operations and make us more vulnerable to adverse economic conditions.
We currently have a substantial amount of indebtedness. As of December 31, 2015, we had approximately
$349.5 million outstanding under the term loan portion of the Amended Credit Facility, $52.0 million outstanding
under the revolving portion of the Amended Credit Facility, $5.1 million of outstanding letters of credit and capacity
to borrow an additional $196.3 million under the revolving portion of the Amended Credit Facility. As of December
31, 2015, our borrowing capacity under the revolving portion of the Credit Facility was reduced by approximately
$121.7 million due to the negative covenants. If market or other economic conditions remain depressed or further
deteriorate, our borrowing capacity may be further reduced.
Our level of indebtedness may adversely affect our operations and limit our growth, and we may have difficulty
making debt service payments on our indebtedness as such payments become due. Our level of indebtedness may
affect our operations in several ways, including the following:
•
•
•
•
our indebtedness may increase our vulnerability to general adverse economic and industry conditions;
the covenants contained in the Amended Credit Facility limit our ability to borrow funds, dispose of
assets, pay dividends and make certain investments;
our debt covenants also affect our flexibility in planning for, and reacting to, changes in the economy
and in its industry; and
our indebtedness could impair our ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions or other general corporate purposes.
Our ability to service our debt will depend upon, among other things, our future financial and operating
performance, which will be affected by prevailing economic conditions and financial, business, regulatory and other
factors, some of which are beyond our control. If our business does not generate sufficient cash flows from
operations to enable us to meet our obligations under our indebtedness, we will be forced to take actions such as
reducing or delaying business activities, acquisitions, investments and/or capital expenditures, selling assets,
restructuring or refinancing our indebtedness or seeking additional equity capital. We may not be able to effect any
of these remedies on satisfactory terms or at all, which could have a material adverse effect on our business,
financial condition, results of operations and cash flows.
We previously identified a material weakness in our disclosure controls and procedures and our internal
controls, which we believe has been fully remediated. If we have inadequately remediated this material weakness
or if we otherwise fail to develop, implement and maintain appropriate internal controls in future periods, our
ability to report our financial condition and results of operations accurately and on a timely basis could be
adversely affected.
We previously identified a material weakness in our internal controls over the assignment of depreciable lives to
asset amounts recorded for asset retirement obligations. Accordingly, based on our management’s assessment, we
believe that, as of September 30, 2015, our disclosure controls and procedures were not effective at the reasonable
assurance level. The specific material weakness and our remediation efforts are described in Item 9A, “Controls and
Procedures” of this Annual Report on Form 10-K in “Evaluation of Disclosure Controls and Procedures.” A
“material weakness” is a deficiency, or a combination of deficiencies, in internal controls, such that there is a
reasonable possibility that a material misstatement of our annual or interim consolidated financial statements would
36
not be prevented or detected. We cannot assure you that additional material weaknesses in our internal controls will
not be identified in the future. Any failure to maintain or implement required new or improved controls, or any
difficulties we encounter in their implementation, could result in additional material weaknesses, or could result in
material misstatements in our financial statements. These misstatements could result in restatements of our financial
statements, cause us to fail to meet our reporting obligations or cause investors to lose confidence in our reported
financial information.
We have developed certain remediation steps to address the material weakness discussed above and to improve
our internal controls. We believe the material weakness discussed above has been fully remediated. If we have
inadequately remediated this material weakness, there will continue to be an increased risk that our future financial
statements could contain errors that will be undetected. Further and continued determinations that there are material
weaknesses in the effectiveness of our internal controls could reduce our ability to obtain financing or could increase
the cost of any financing we obtain and require additional expenditures of resources to comply with applicable
requirements. For more information relating to our internal controls and disclosure controls and procedures, and the
remediation plan undertaken by us, see Item 9A, “Controls and Procedures” of this Annual Report on Form 10-K.
Our business could be negatively impacted by security threats, including cybersecurity threats and other
disruptions.
We face various security threats, including cybersecurity threats to gain unauthorized access to sensitive
information or to render data or systems unusable; threats to the safety of our employees; threats to the security of
our facilities and infrastructure or third-party facilities and infrastructure; and threats from terrorist acts. Although
we utilize various procedures and controls to monitor these threats and mitigate our exposure to such threats, there
can be no assurance that these procedures and controls will be sufficient in preventing security threats from
materializing. If any of these events were to materialize, they could lead to losses of sensitive information, critical
infrastructure, personnel or capabilities essential to our operations and could have a material adverse effect on our
reputation, financial position, results of operations or cash flows. Cybersecurity attacks in particular are evolving
and include, but are not limited to, malicious software, attempts to gain unauthorized access to data and other
electronic security breaches that could lead to disruptions in critical systems, unauthorized release of confidential or
otherwise protected information and corruption of data.
Risks Related to the Redomicile Transaction
The anticipated benefits of the Redomicile Transaction may not be realized.
We may not realize the benefits we anticipate from the Redomicile Transaction, particularly as the realization
of those benefits are in many important respects subject to factors that we do not control. These factors would
include such things as the reactions of third parties with whom we enter into contracts and do business and the
reactions of investors, analysts and Canadian and U.S. taxing authorities, and other factors discussed in these risk
factors. Our failure to realize those benefits could have an adverse effect on our business, results of operations or
financial condition.
We are subject to various Canadian and other taxes as a result of the Redomicile Transaction.
While we expect the Redomicile Transaction will enable us to take advantage of lower Canadian tax rates in
the years after the year of implementation to a greater extent than would likely have been available if the Redomicile
Transaction was not completed, these benefits may not be achieved. In particular, tax authorities may challenge our
application and/or interpretation of relevant tax laws, regulations or treaties, valuations and methodologies or other
supporting documentation, and, if they are successful in doing so, we may not experience the level of benefits we
anticipate or we may be subject to adverse tax consequences. Even if we are successful in maintaining our tax
positions, we may incur significant expense in contesting these positions or other claims made by tax authorities. In
addition, changes in tax laws or increased rates of tax could have the effect of negatively impacting our anticipated
effective tax rates. Our effective tax rates and the benefits described herein are also subject to a variety of other
factors, many of which are beyond our ability to control, such as changes in the rate of economic growth in Canada,
the financial performance of our business in various jurisdictions, currency exchange rate fluctuations (especially as
between Canadian and U.S. dollars), and significant changes in trade, monetary or fiscal policies of Canada,
including changes in interest rates, withholding taxes and tax rates generally. The impact of these factors,
individually and in the aggregate, is difficult to predict, in part because the occurrence of the events or
37
circumstances described in such factors may be (and, in fact, often seem to be) interrelated, and the impact to us of
the occurrence of any one of these events or circumstances could be compounded or, alternatively, reduced, offset,
or more than offset, by the occurrence of one or more of the other events or circumstances described in such factors.
More specifically, Canada’s tax rules under the Canadian Tax Act allow for favorable tax treatment insofar as
the repatriation of certain dividends from foreign affiliates. These tax rules are complicated and could change over
time. Any such changes could have a material impact on our overall tax rate.
Canada has also introduced tax rules governing “foreign affiliate dumping” in the Canadian Tax Act that can
have adverse tax consequences for Canadian corporations that are controlled by non-Canadian corporations in
respect of non-Canadian business activities and investments. These rules would have a negative impact on us to the
extent that we became controlled by a non-Canadian resident corporation.
The CRA may disagree with our conclusions on tax treatment and the CRA has not provided (and we have
not requested) a ruling on the Canadian tax aspects of the Redomicile Transaction.
Based on the current provisions of the Canadian Tax Act, we expect that the Redomicile Transaction will not
result in any material Canadian federal income tax liability to us. However, if the CRA disagrees with this view, it
may take the position that material Canadian federal income tax liabilities or amounts on account thereof are payable
by us as a result of the Redomicile Transaction, in which case, we expect that we would contest such assessment. To
contest such assessment, we would be required to remit cash or provide security of the amount in dispute, or such
lesser amount as permitted under the Canadian Tax Act and acceptable to the CRA, to prevent the CRA from
seeking enforcement actions pending the dispute of such assessment. If we were unsuccessful in disputing the
assessment, the implications could be materially adverse to us. The CRA has not provided (and we have not
requested) a ruling on the Canadian tax aspects of the Redomicile Transaction. There can be no assurance that the
CRA will agree with our interpretation of the tax aspects of the Redomicile Transaction or any related matters
associated therewith.
The Internal Revenue Service (IRS) may not agree with the conclusion that we should be treated as a foreign
corporation for U.S. federal tax purposes, and no ruling has been sought from the IRS.
For U.S. federal income tax purposes, a corporation generally is considered a tax resident in the jurisdiction of
its organization or incorporation. Because we are a British Columbia incorporated entity, we generally will be
classified as a foreign corporation (and, therefore, a non-U.S. tax resident) under U.S. federal income tax law. Even
so, the IRS may assert that we should be treated as a U.S. corporation (and, therefore, a U.S. tax resident) for U.S.
federal income tax purposes pursuant to Section 7874 of the Internal Revenue Code.
Under Section 7874 of the Internal Revenue Code, if the former stockholders of Civeo US hold 80% or more of
the vote or value of our common shares by reason of holding stock in Civeo US (the “ownership test”), and our
expanded affiliated group after the Redomicile Transaction does not have substantial business activities in Canada
relative to its worldwide activities (the “substantial business activities test”), we would be treated as a U.S.
corporation. For this purpose, “substantial business activities” generally requires at least 25% of the employees (by
number and compensation), assets and gross income of our expanded affiliated group to be based, located and
derived, respectively, in Canada (“25% test”).
We believe that we have satisfied this 25% test because Civeo US had significant operations in Canada prior to
the Redomicile Transaction (with its remaining operations occurring in Australia and the United States), and we
have continued these operations following the Redomicile Transaction. Therefore, under current U.S. federal income
tax law, we believe that we will not be treated as a U.S. corporation for U.S. federal income tax purposes. If it were
determined, however, that we should be taxed as a U.S. corporation for U.S. federal income tax purposes, we could
be liable for substantial additional U.S. federal income taxes.
Future potential changes to U.S. tax laws could result in Civeo being treated as a U.S. corporation for U.S.
federal income tax purposes.
Under current U.S. federal income tax law, Civeo is generally treated as a foreign corporation for U.S. federal
income tax purposes. Changes to Section 7874 of the Internal Revenue Code or the U.S. Treasury regulations
promulgated thereunder or official interpretations thereof, could adversely affect Civeo’s status as a foreign
corporation for U.S. federal income tax purposes. For example, members of Congress have from time to time
proposed changes to the Internal Revenue Code, and the U.S. Treasury has indicated (most recently in Notice 2015-
79) that it is considering possible regulatory action, in connection with so-called inversion transactions. The timing
38
and substance of any such change in law or regulatory action is presently uncertain. Any such change of law or
regulatory action could adversely impact the treatment of Civeo as a foreign corporation for U.S. federal income tax
purposes and could adversely impact its tax position and financial position and results in a material manner. The
precise scope and application of any legislative or regulatory proposals will not be clear until they are actually
issued, and, accordingly, until such legislation or regulations are issued and fully understood, we cannot be certain
as to their potential impact. Any such changes could apply retroactively to a date prior to the date of the Redomicile
Transaction. If Civeo were to be treated as a U.S. corporation for U.S. federal income tax purposes, it could be
subject to substantially greater U.S. federal income tax liability.
We remain subject to changes in tax law and other factors that may not allow us to achieve a lower effective
corporate tax rate.
While we believe that the Redomicile Transaction should allow for a lower effective corporate tax rate, we
cannot give any assurance as to what our effective tax rate will be after the Redomicile Transaction because of,
among other things, the tax policies of the jurisdictions where we operate, primarily Canada and Australia. Also, the
tax laws of Canada, Australia and other jurisdictions could change in the future, and such changes could cause a
material change in our effective corporate tax rate. As a result, our actual effective tax rate may be materially
different from our expectation. Our provision for income taxes will be based on certain estimates and assumptions
made by management in consultation with our tax and other advisors. Our consolidated income tax rate will be
affected by the amount of net income earned in Canada and our other operating jurisdictions, the availability of
benefits under tax treaties, and the rates of taxes payable in respect of that income. We will enter into many
transactions and arrangements in the ordinary course of business in respect of which the tax treatment is not entirely
certain. We will therefore make estimates and judgments based on our knowledge and understanding of applicable
tax laws and tax treaties, and the application of those tax laws and tax treaties to our business, in determining our
consolidated tax provision. The final outcome of any audits by taxation authorities may differ from the estimates and
assumptions we may use in determining our consolidated tax provisions and accruals. This could result in a material
adverse effect on our consolidated income tax provision, financial condition and the net income for the period in
which such determinations are made.
Our tax position may be adversely affected by changes in tax law relating to multinational corporations, or
increased scrutiny by tax authorities.
Recent legislative proposals have aimed to expand the scope of U.S. corporate tax residence, to limit the ability
of foreign-owned corporations to deduct interest expense, and to make other changes in the taxation of multinational
corporations.
Additionally, the U.S. Congress, government agencies in non-U.S. jurisdictions where we and our affiliates do
business, and the Organization for Economic Co-operation and Development have recently focused on issues related
to the taxation of multinational corporations. One example is found in the area of “base erosion and profit shifting”,
where profits are claimed to be earned for tax purposes in low-tax jurisdictions, or payments are made between
affiliates from a jurisdiction with high tax rates to a jurisdiction with lower tax rates. As a result, the tax laws in the
U.S. and other countries in which we and our affiliates do business could change on a prospective or retroactive
basis, and any such changes could materially adversely affect us.
Moreover, U.S. and international tax authorities may carefully scrutinize companies that have redomiciled, such
as our company, which may lead such authorities to assert that we owe additional taxes.
We may be subject to Australian stamp duty as a result of the Redomicile Transaction.
Some states of the Commonwealth of Australia impose stamp duty, which is a tax payable on documents that
affect interests in property and on transfers of marketable securities. If it were determined that Australian stamp duty
applied to the Redomicile Transaction, Civeo Canada could be liable for substantial Australian stamp duty taxes.
Risks Related to the Spin-Off from Oil States
We potentially could have received better terms from unaffiliated third parties than the terms we receive in
our agreements with Oil States.
The agreements we entered into with Oil States in connection with the Spin-off, including the separation and
distribution agreement, tax sharing agreement, employee matters agreement, indemnification and release agreement
39
and transition services agreement, were negotiated in the context of the separation while we were still a wholly
owned subsidiary of Oil States. Accordingly, during the period in which the terms of those agreements were
negotiated, we did not have an independent board of directors or a management team independent of Oil States. As a
result, the terms of those agreements may not reflect terms that would have resulted from arm’s-length negotiations
between unaffiliated third parties. The terms of the agreements negotiated in the context of the Spin-off relate to,
among other things, the allocation of assets, liabilities, rights and other obligations between Oil States and us.
Arm’s-length negotiations between Oil States and an unaffiliated third party in another form of transaction, such as a
buyer in a sale of a business transaction, may have resulted in more favorable terms to the unaffiliated third party.
See Note 13 – Commitments and Contingencies and Note 17 – Related Party Transactions to the notes to
consolidated financial statements in Item 8 of this annual report.
Our tax sharing agreement with Oil States may limit our ability to take certain actions, including strategic
transactions, and may require us to indemnify Oil States for significant tax liabilities.
Under the tax sharing agreement, we agreed to take certain actions or refrain from taking certain actions to
ensure that the Spin-Off qualifies for tax-free status under section 355 and section 368(a)(1)(D) of the Code. We
also made various other covenants in the tax sharing agreement intended to ensure the tax-free status of the Spin-off.
These covenants restrict our ability to sell assets outside the ordinary course of business, to issue or sell additional
common shares or other securities (including securities convertible into our common shares), or to enter into certain
other corporate transactions for a period of two years after the Spin-off. For example, we may not enter into any
transaction that would cause us to undergo either a 50% or greater change in the ownership of our voting shares or a
50% or greater change in the ownership (measured by value) of all classes of our shares in transactions considered
related to the Spin-off. See Note 13 – Commitments and Contingencies and Note 17 – Related Party Transactions to
the notes to consolidated financial statements in Item 8 of this annual report.
Further, under the tax sharing agreement, we are required to indemnify Oil States against certain tax-related
liabilities incurred by Oil States (including any of its subsidiaries) relating to the Spin-off, to the extent caused by
our breach of any representations or covenants made in the tax sharing agreement or the separation and distribution
agreement, or made in connection with the private letter ruling or the tax opinion obtained with respect to the Spin-
off. These liabilities include the substantial tax-related liability (calculated without regard to any net operating loss
or other tax attribute of Oil States) that would result if the Spin-off of our stock to Oil States stockholders failed to
qualify as a tax-free transaction. In addition, we have agreed to pay 50% of any taxes arising from the Spin-off to the
extent that the tax is not attributable to the fault of either party.
We could have significant tax liabilities for periods during which our subsidiaries and operations were those
of Oil States.
For any tax periods (or portion thereof) in which Oil States owned at least 80% of the total voting power and
value of Civeo US’s common stock, our U.S. subsidiaries will be included in Oil States’ consolidated group for U.S.
federal income tax purposes. In addition, one or more of our U.S. subsidiaries may be included in the combined,
consolidated or unitary tax returns of Oil States or one or more of its subsidiaries for U.S. state or local income tax
purposes. Under the tax sharing agreement, for each period in which we or any of our subsidiaries are consolidated
or combined with Oil States for purposes of any tax return, and with respect to which such tax return has not yet
been filed, Oil States will prepare a pro forma tax return for us as if we filed our own consolidated, combined or
unitary return, except that such pro forma tax return will generally include current income, deductions, credits and
losses from us (with certain exceptions), will not include any carryovers or carrybacks of losses or credits and will
be calculated without regard to the federal Alternative Minimum Tax. We will reimburse Oil States for any taxes
shown on the pro forma tax returns, and Oil States will reimburse us for any current losses or credits we recognize
based on the pro forma tax returns. In addition, by virtue of Oil States’ controlling ownership and the tax sharing
agreement, Oil States will effectively control all of our U.S. tax decisions in connection with any consolidated,
combined or unitary income tax returns in which any of our subsidiaries are included. The tax sharing agreement
provides that Oil States will have sole authority to respond to and conduct all tax proceedings (including tax audits)
relating to us, to prepare and file all consolidated, combined or unitary income tax returns in which we are included
on our behalf (including the making of any tax elections), and to determine the reimbursement amounts in
connection with any pro forma tax returns. This arrangement may result in conflicts of interest between Oil States
and us. For example, under the tax sharing agreement, Oil States will be able to choose to contest, compromise or
settle any adjustment or deficiency proposed by the relevant taxing authority in a manner that may be beneficial to
Oil States and detrimental to us; provided, however, that Oil States may not make any settlement that would
40
materially increase our tax liability without our consent. See Note 13 – Commitments and Contingencies and Note
17 – Related Party Transactions to the notes to consolidated financial statements in Item 8 of this annual report.
Moreover, notwithstanding the tax sharing agreement, U.S. federal law provides that each member of a
consolidated group is liable for the group’s entire tax obligation. Thus, to the extent Oil States or other members of
Oil States’ consolidated group fail to make any U.S. federal income tax payments required by law, one or more of
our U.S. subsidiaries could be liable for the shortfall with respect to periods in which such subsidiary was a member
of Oil States’ consolidated group. Similar principles may apply for foreign, state or local income tax purposes where
we file combined, consolidated or unitary returns with Oil States or its subsidiaries for federal, foreign, state or local
income tax purposes.
If there is a determination that the Spin-off is taxable for U.S. federal income tax purposes because the facts,
assumptions, representations, or undertakings underlying the tax opinion are incorrect or for any other reason, then
Oil States and its stockholders could incur significant income tax liabilities, and we could incur significant
liabilities.
Oil States received a private letter ruling from the IRS and an opinion of its outside counsel regarding certain
aspects of the Spin-off transaction. The private letter ruling and the opinion rely on certain facts, assumptions,
representations and undertakings from Oil States and us regarding the past and future conduct of the companies’
respective businesses and other matters. If any of these facts, assumptions, representations, or undertakings are, or
become, incorrect or not otherwise satisfied, Oil States and its stockholders may not be able to rely on the private
letter ruling or the opinion of its tax advisor and could be subject to significant tax liabilities. In addition, an opinion
of counsel is not binding upon the IRS, so, notwithstanding the opinion of Oil States’ tax advisor, the IRS could
conclude upon audit that the Spin-off is taxable in full or in part if it disagrees with the conclusions in the opinion, or
for other reasons, including as a result of certain significant changes in the stock ownership of Oil States or us. If the
Spin-off is determined to be taxable for U.S. federal income tax purposes for any reason, Oil States and/or its
stockholders could incur significant income tax liabilities, and we could incur significant liabilities. For a description
of the sharing of such liabilities between Oil States and us, see Note 13 – Commitments and Contingencies and Note
17 – Related Party Transactions to the notes to consolidated financial statements in Item 8 of this annual report.
Third parties may seek to hold us responsible for liabilities of Oil States that we did not assume in our
agreements.
Third parties may seek to hold us responsible for retained liabilities of Oil States. Under our agreements with
Oil States, Oil States agreed to indemnify us for claims and losses relating to these retained liabilities. However, if
those liabilities are significant and we are ultimately held liable for them, we cannot assure you that we will be able
to recover the full amount of our losses from Oil States.
Our prior and continuing relationship with Oil States exposes us to risks attributable to businesses of Oil
States.
Oil States is obligated to indemnify us for losses that a party may seek to impose upon us or our affiliates for
liabilities relating to the business of Oil States that are incurred through a breach of the separation and distribution
agreement or any ancillary agreement by Oil States or its affiliates other than us, or losses that are attributable to Oil
States in connection with the Spin-off or are not expressly assumed by us under our agreements with Oil States. Any
claims made against us that are properly attributable to Oil States in accordance with these arrangements would
require us to exercise our rights under our agreements with Oil States to obtain payment from Oil States. We are
exposed to the risk that, in these circumstances, Oil States cannot, or will not, make the required payment.
The Spin-Off may have exposed us to potential liabilities arising out of state and federal fraudulent
conveyance laws and legal dividend requirements.
The Spin-off is subject to review under various state and federal fraudulent conveyance laws. Under these laws,
if a court in a lawsuit by an unpaid creditor or an entity vested with the power of such creditor (including without
limitation a trustee or debtor-in-possession in a bankruptcy by us or Oil States or any of our respective subsidiaries)
were to determine that Oil States or any of its subsidiaries did not receive fair consideration or reasonably equivalent
value for distributing shares of our common stock or taking other action as part of the Spin-Off, or that we or any of
our subsidiaries did not receive fair consideration or reasonably equivalent value for incurring indebtedness,
including the debt incurred by us in connection with the Spin-off, transferring assets or taking other action as part of
the Spin-off and, at the time of such action, we, Oil States or any of our respective subsidiaries (i) was insolvent or
would be rendered insolvent, (ii) had reasonably small capital with which to carry on its business and all business in
41
which it intended to engage or (iii) intended to incur, or believed it would incur, debts beyond its ability to repay
such debts as they would mature, then such court could void the Spin-off as a constructive fraudulent transfer. If
such court made this determination, the court could impose a number of different remedies, including without
limitation, voiding our liens and claims against Oil States, or providing Oil States with a claim for money damages
against us in an amount equal to the difference between the consideration received by Oil States and the fair market
value of our company at the time of the Spin-Off.
The measure of insolvency for purposes of the fraudulent conveyance laws will vary depending on which
jurisdiction’s law is applied. Generally, however, an entity would be considered insolvent if the present fair saleable
value of its assets is less than (i) the amount of its liabilities (including contingent liabilities) or (ii) the amount that
will be required to pay its probable liabilities on its existing debts as they become absolute and mature. No assurance
can be given as to what standard a court would apply to determine insolvency or that a court would determine that
we, Oil States or any of our respective subsidiaries were solvent at the time of or after giving effect to the Spin-Off,
including the distribution of shares of our common stock.
Under the separation and distribution agreement, Oil States is and we are responsible for the debts, liabilities
and other obligations related to the business or businesses which Oil States and we, respectively, own and operate
following the Spin-Off. Although we do not expect to be liable for any such obligations not expressly assumed by us
pursuant to the separation and distribution agreement, it is possible that a court would disregard the allocation
agreed to between the parties, and require that we assume responsibility for obligations allocated to Oil States,
particularly if Oil States were to refuse or were unable to pay or perform the subject allocated obligations. See Note
13 – “Commitments and Contingencies” and Note 17 – “Related Party Transactions” to the notes to consolidated
financial statements in Item 8 of this annual report.
Risks Related to Our Common Shares
If we cannot meet the NYSE continued listing requirements, the NYSE may delist our common shares.
Our common shares are currently listed on the NYSE, and the continued listing of our common shares is subject
to our compliance with a number of listing standards. To maintain compliance with these continued listing
standards, we are required to maintain an average closing price of $1.00 or more over a consecutive 30 trading-day
period. On February 24, 2016, we received a notice from the NYSE that the average closing price of our common
shares over a 30 consecutive trading day period was below $1.00 per share, and, as a result, the price per share of the
common shares was below the minimum average closing price required to maintain listing on the NYSE.
We generally have six months from the receipt of the notice to regain compliance with the NYSE continued
listing standards. Otherwise, the NYSE will initiate procedures to suspend and delist the common shares. During the
cure period, our common shares would continue to be listed and traded on the NYSE, subject to compliance with the
other listing standards. The delisting notice does not result in a default under out debt agreements.
A delisting of our common shares could negatively impact us by, among other things:
•
•
•
•
•
reducing the liquidity and market price of our common shares;
reducing the number of investors, including institutional investors, willing to hold or acquire our
common shares, which could negatively impact our ability to raise equity;
decreasing the amount of news and analyst coverage of us;
limiting our ability to issue additional securities, obtain additional financing or pursue strategic
restructuring, refinancing or other transactions; and
impacting our reputation and, as a consequence, our ability to attract new business.
The market price and trading volume of our common shares may be volatile.
The market price of our common shares may be influenced by many factors, some of which are beyond our
control, including those described above and the following:
•
•
changes in financial estimates by analysts and our inability to meet those financial estimates;
strategic actions by us or our competitors;
42
•
•
•
•
•
•
•
•
announcements by us or our competitors of significant contracts, acquisitions, joint marketing relationships,
joint ventures or capital commitments;
variations in our quarterly operating results and those of our competitors;
general economic and stock market conditions;
risks related to our business and our industry, including those discussed above;
changes in conditions or trends in our industry, markets or customers;
terrorist acts;
future sales of our common shares or other securities by us, members of our management team or our
existing shareholders; and
investor perceptions of the investment opportunity associated with our common shares relative to other
investment alternatives.
These broad market and industry factors may materially reduce the market price of our common shares,
regardless of our operating performance. In addition, price volatility may be greater if the public float and trading
volume of our common shares is low.
If securities or industry analysts do not publish research or reports about our business, if they adversely
change their recommendations regarding our common shares or if our operating results do not meet their
expectations, our share price could decline.
The trading market for our common shares is influenced by the research and reports that industry or securities
analysts publish about us or our business. If one or more of these analysts cease coverage of our company or fail to
publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our share
price or trading volume to decline.
We cannot assure you that we will pay dividends in the future, and our indebtedness could limit our ability to
pay dividends on our common shares.
We paid quarterly dividends in the amount of $0.13 per share during the third and fourth quarters of 2014. In
late December 2014, we suspended our quarterly dividend in order to maintain our financial flexibility and best
position our company for long-term success. The declaration and amount of all dividends will be at the discretion of
our board of directors and will depend upon many factors, including our financial condition, results of operations,
cash flows, prospects, industry conditions, capital requirements of our business, covenants associated with certain
debt obligations, legal requirements, regulatory constraints, industry practice and other factors the board of directors
deems relevant. In addition, our ability to pay dividends on our common shares is limited by covenants in our credit
facility. Future agreements may also limit our ability to pay dividends. If we elect to pay dividends in the future, the
amount per share of our dividend payments may be changed, or dividends may again be suspended, without advance
notice. The likelihood that dividends will be reduced or suspended is increased during periods of market weakness.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7. There
can be no assurance that we will pay a dividend in the future.
Provisions contained in our articles and applicable Canadian law could discourage a takeover attempt,
which may reduce or eliminate the likelihood of a change of control transaction and, therefore, the ability of our
shareholders to sell their shares for a premium.
Provisions contained in our articles provide for a classified board of directors, limitations on the removal of
directors, limitations on shareholder proposals at meetings of shareholders and limitations on shareholder action by
written consent, which could make it more difficult for a third party to acquire control of us. Our articles also
authorize our board of directors to issue series of preferred shares without shareholder approval. If our board of
directors elects to issue preferred shares, it could increase the difficulty for a third party to acquire us, which may
reduce or eliminate our shareholders’ ability to sell their common shares at a premium. In addition, in Canada, we
may become subject to Multilateral Instrument 62-104 Take-Over Bids and Issuer Bids of the Canadian Securities
43
Administrators or Part XX of the Securities Act (Ontario) and Ontario Securities Commission Rule 62-504 Take-
Over Bids and Issuer Bids (collectively, the Take-Over Bid Rules), which provide a heightened threshold for
shareholder acceptance of third-party acquisition offers and could discourage takeover attempts that could result in a
premium over the market price for our common shares. Further, there are proposed changes pending to the Take-
Over Bid Rules which could provide further discouragement to takeover attempts.
Our business could be negatively affected as a result of the actions of activist shareholders.
Publicly traded companies have increasingly become subject to campaigns by investors seeking to increase
shareholder value by advocating corporate actions such as financial restructuring, increased borrowing, special
dividends, share repurchases or even sales of assets or the entire company. It is possible activist shareholders may
attempt to effect such changes or acquire control over us. Responding to proxy contests and other actions by such
activist shareholders or others in the future would be costly and time-consuming, disrupt our operations and divert
the attention of our board of directors and senior management from the pursuit of business strategies, which could
adversely affect our results of operations and financial condition. Additionally, perceived uncertainties as to our
future direction as a result of shareholder activism or changes to the composition of the board of directors may lead
to the perception of a change in the direction of the business, instability or lack of continuity which may be exploited
by our competitors, cause concern to our current or potential customers, and make it more difficult to attract and
retain qualified personnel. If customers choose to delay, defer or reduce transactions with us or transact with our
competitors instead of us because of any such issues, then our revenue, earnings and operating cash flows could be
adversely affected.
ITEM 1B. Unresolved Staff Comments
None.
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ITEM 2. Properties
The following table presents information about our principal properties and facilities. Except as indicated below,
we own all of the properties or facilities listed below. Each of the properties is encumbered by our secured credit
facilities. See in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
and Note 10 – Debt to the notes to consolidated financial statements included in Item 8 for additional information
concerning our credit facilities. For a discussion about how each of our business segments utilizes its respective
properties, please see Item 1, “Business”.
Location
Canada:
Fort McMurray, Alberta (leased land)
Fort McMurray, Alberta (leased land)
Fort McMurray, Alberta (leased land)
Fort McMurray, Alberta (leased land)
Fort McMurray, Alberta (leased land)
Fort McMurray, Alberta (leased land)
Fort McMurray, Alberta
Kitimat, British Columbia
Acheson, Alberta
Edmonton, Alberta
Grimshaw, Alberta (lease)
Fort McMurray, Alberta (leased land)
Edmonton, Alberta (lease)
Edmonton, Alberta (lease)
Australia:
Coppabella, Queensland, Australia
Calliope, Queensland, Australia
Narrabri, New South Wales, Australia
Boggabri, New South Wales, Australia
Dysart, Queensland, Australia
Middlemount, Queensland, Australia
Karratha, Western Australia, Australia
(own and lease)
Kambalda, Western Australia,
Australia
Nebo, Queensland, Australia
Moranbah, Queensland, Australia
Sydney, New South Wales, Australia
(lease)
Brisbane, Queensland, Australia
(lease)
United States:
Houston, Texas (lease)
Killdeer, North Dakota
Pecos, Texas
Dickinson, North Dakota (lease)
Vernal, Utah (lease)
Casper, Wyoming (lease)
Belle Chasse, Louisiana
Three Rivers, Texas (lease)
Big Piney, Wyoming (lease)
Stanley, North Dakota (lease)
Approximate
Square
Footage/Acreage
Description
Wapasu Creek and Henday Lodges
Pebble Beach open camp
Conklin Lodge
Beaver River and Athabasca Lodges
McClelland Lake Lodge
Mariana Lake Lodge
Christina Lake Lodge
Sitka Lodge
Office and warehouse
Manufacturing facility
Equipment yard
Anzac Lodge
Office and warehouse
Office
Coppabella Village
Calliope Village
Narrabri Village
Boggabri Village
Dysart Village
Middlemount Village
Karratha Village
Kambalda Village
Nebo Village
Moranbah Village
Office
Office
Principal executive offices
Open camp
Open camp
Mobile asset facility and yard
Mobile asset facility and yard
Accommodations facility and yard
Manufacturing facility and yard
Open camp (sold in January 2016)
Mobile asset facility and yard
Open camp
240 acres
140 acres
135 acres
128 acres
80 acres
43 acres
45 acres
60 acres
40 acres
33 acres
20 acres
18 acres
86,376
28,253
198 acres
124 acres
82 acres
52 acres
50 acres
37 acres
34 acres
27 acres
26 acres
17 acres
17,276
7,115
8,900
42 acres
35 acres
26 acres
21 acres
14 acres
10 acres
9 acres
7 acres
7 acres
45
Englewood, Colorado (lease)
10,816
Office
We own various undeveloped properties in British Columbia. We also have various offices supporting our
business segments which are both owned and leased. We believe that our leases are at competitive or market rates
and do not anticipate any difficulty in leasing additional suitable space upon expiration of our current lease terms.
Leased land for our lodge properties in Canada refers to land leased from the Alberta government. We also
lease land for our Karratha Village from the provincial government in Australia. Generally, our leases have an initial
term of ten years and will expire between 2016 and 2026.
ITEM 3. Legal Proceedings
We are a party to various pending or threatened claims, lawsuits and administrative proceedings seeking damages
or other remedies concerning our commercial operations, products, employees and other matters, including
occasional claims by individuals alleging exposure to hazardous materials as a result of our products or operations.
Some of these claims relate to matters occurring prior to our acquisition of businesses, and some relate to businesses
we have sold. In certain cases, we are entitled to indemnification from the sellers of businesses, and in other cases,
we have indemnified the buyers of businesses from us. Although we can give no assurance about the outcome of
pending legal and administrative proceedings and the effect such outcomes may have on us, we believe that any
ultimate liability resulting from the outcome of such proceedings, to the extent not otherwise provided for or
covered by indemnity or insurance, will not have a material adverse effect on our consolidated financial position,
results of operations or liquidity.
ITEM 4. Mine Safety Disclosures
Not applicable.
46
ITEM 5. Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity
PART II
Securities
Market for Our Common Shares
Our common shares trade on the NYSE under the trading symbol “CVEO.” A “when-issued” trading market for
our common shares on the NYSE began on May 19, 2014, and “regular-way” trading of our common shares began
on June 2, 2014. Prior to May 19, 2014, there was no public market for our common shares. Set forth in the table
below for the periods presented are the high and low sale prices for our common shares.
First Quarter .........................................................
Second Quarter (1) ...............................................
Third Quarter .......................................................
Fourth Quarter .....................................................
2015
Low
$2.25
$2.55
$1.17
$1.29
Dividend
Declared
per Share
—
—
—
—
2014
Low
—
$22.46
$11.60
$3.88
Dividend
Declared
per Share
—
—
$0.13
$0.13
High
—
$28.40
$28.19
$13.33
High
$4.20
$4.96
$3.12
$2.39
(1) The high and low sale price for the second quarter of 2014 begins on June 2, 2014.
Holders of Record
As of February 22, 2016, there were 17 holders of record of Civeo common shares.
Dividend Information
We paid quarterly dividends in the amount of $0.13 per share during the third and fourth quarters of 2014. In
late December 2014, we suspended our quarterly dividend in order to maintain our financial flexibility and best
position our company for long-term success. Our management team and board of directors regularly evaluate our
business, operations, cost structure, capital structure, capital return and capital allocation policies. The declaration
and amount of all dividends will be at the discretion of our board of directors and will depend upon many factors,
including our financial condition, results of operations, cash flows, prospects, industry conditions, capital
requirements of our business, covenants associated with certain debt obligations, legal requirements, regulatory
constraints, industry practice and other factors the board of directors deems relevant. We can give no assurances
that we will pay a dividend in the future.
Unregistered Sales of Equity Securities and Use of Proceeds
None.
Repurchases of Equity Securities by Registrant or its Affiliates in the Fourth Quarter
None.
ITEM 6. Selected Financial Data
The following tables present the selected historical consolidated financial information of Civeo and combined
financial information of the accommodations business. The term “accommodations business” refers to Oil States’
historical accommodations segment reflected in its historical combined financial statements discussed herein and
included in Item 8 of this annual report. The balance sheet data as of December 31, 2015 and 2014 and the statement
of operations data for each of the years ended December 31, 2015, 2014 and 2013 are derived from our audited
financial statements included in Item 8 of this annual report. The balance sheet data as of December 31, 2013, 2012
and 2011 and statement of operations data for the year ended December 31, 2012 and 2011 are derived from our
audited combined financial statements not included in this annual report.
47
All financial information presented after our Spin-off from Oil States represents the consolidated results of
operation and financial position of Civeo. Accordingly,
• Our consolidated statement of income data for the year ended December 31, 2015 consists entirely of
the consolidated results of Civeo. Our consolidated statement of income data for the year ended
December 31, 2014 consists of (i) the combined results of the Oil States accommodations business for
the five months ended May 30, 2014 and (ii) the consolidated results of Civeo for the seven months
ended December 31, 2014. Our consolidated statements of operations data for the years ended
December 31, 2013, 2012 and 2011 consist entirely of the combined results of the Oil States
accommodations business.
• Our consolidated balance sheet data at December 31, 2015 and 2014 consists entirely of the
consolidated balances of Civeo, while at December 31, 2013, 2012 and 2011, it consists entirely of the
combined balances of the Oil States accommodations business.
The historical financial information presented below should be read in conjunction with our consolidated
financial statements and accompanying notes in Item 8 and “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” in Item 7 of this annual report. The financial information may not be
indicative of our future performance and does not necessarily reflect what the financial position and results of
operations would have been had we operated as a separate, stand-alone entity during the periods presented,
including changes that have occurred in our operations as a result of our Spin-off from Oil States.
Statement of Operations Data:
Revenues
Operating income (loss)
Net income (loss) attributable to Civeo or the
Accommodations Business of Oil States
International, Inc., as applicable
Diluted net income (loss) per share
attributable to Civeo or the
Accommodations Business of Oil States
International, Inc., as applicable (1)
2015
For the year ended December 31,
2012
2013
2014
(In thousands, except per share data)
2011
$
517,963
(145,003)
$
942,891 $ 1,041,104
259,456
(142,891)
$ 1,108,875
352,929
$ 864,701
242,159
(131,759)
(189,043)
181,876
244,721
168,505
(1.24)
(1.77)
1.70
2.29
1.58
2015
As of December 31,
2013
(In thousands, except per share data)
2014
2012
2011
Balance Sheet Data:
Total assets
Long-term debt to affiliates
Long-term debt to third-parties
Total Civeo shareholders’ equity or Oil States
net investment, as applicable
Cash dividends per share
$ 1,071,212
—
383,862
$ 1,829,161
—
755,625
$2,123,237
335,171
—
$2,132,925
358,316
123,497
$1,799,894
350,530
126,972
563,245
—
858,001
0.26
1,591,034
—
1,410,397
—
1,122,189
—
(1) On May 30, 2014, 106,538,044 shares of our common stock were distributed to Oil States stockholders in
connection with the Spin-Off. For comparative purposes, and to provide a more meaningful calculation of
weighted-average shares outstanding in our diluted net income (loss) per share calculation, we have assumed
these shares were outstanding as of the beginning of each period prior to the separation presented in the
calculation of weighted-average shares. In addition, we have assumed the dilutive securities outstanding at May
30, 2014 were also outstanding for each of the periods presented prior to the Spin-Off.
48
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” contains “forward-
looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act
that are based on management’s current expectations, estimates and projections about our business operations.
Please read “Cautionary Statement Regarding Forward Looking Statements.” Our actual results may differ
materially from those currently anticipated and expressed in such forward-looking statements as a result of
numerous factors, including the known material factors set forth in Item 1A, “Risk Factors.” You should read the
following discussion and analysis together with our consolidated financial statements and the notes to those
statements in Item 8 of this annual report.
Spin-Off
On May 5, 2014, the board of directors of Oil States International, Inc. (Oil States) approved the separation of
its Accommodations Segment (Accommodations) into a standalone, publicly traded Delaware corporation, which
we refer to herein as Civeo US. In accordance with the Separation and Distribution Agreement, the two companies
were separated by Oil States distributing to its stockholders all 106,538,044 shares of common stock of Civeo US it
held after the market closed on May 30, 2014 (the Spin-Off). Each Oil States stockholder received two shares of
Civeo US common stock for every one share of Oil States stock held at the close of business on the record date of
May 21, 2014. In conjunction with the Spin-Off, Oil States received a private letter ruling from the Internal
Revenue Service to the effect that, based on certain facts, assumptions, representations and undertakings set forth in
the ruling, for U.S. federal income tax purposes, Oil States’ distribution of Civeo US common stock was not taxable
to Oil States or U.S. holders of Oil States common stock. Following the Spin-Off, Oil States retained no ownership
interest in Civeo US, and each company now has separate public ownership, boards of directors and management.
On June 2, 2014, Civeo US stock began trading the “regular-way” on the New York Stock Exchange (NYSE) under
the “CVEO” stock symbol. Pursuant to the Separation and Distribution Agreement with Oil States, on May 28,
2014, we made a special cash distribution to Oil States of $750 million.
Redomiciling to Canada
On July 17, 2015, we completed our change in place of incorporation from Delaware to British Columbia,
Canada (the Redomicile Transaction). In the Redomicile Transaction, Civeo Corporation, a British Columbia,
Canada limited company formerly named Civeo Canadian Holdings ULC (Civeo Canada), became the publicly
traded parent company of the Civeo group of companies, and Civeo US, our former publicly traded Delaware parent
became a wholly owned subsidiary of Civeo Canada. Each issued share of Civeo US common stock, other than
those shares of Civeo US common stock held by Civeo US in treasury, was effectively transferred to Civeo Canada
and converted into one common share, no par value, of Civeo Canada. An aggregate of approximately 107.5 million
Civeo Canada common shares were issued in the Redomicile Transaction. The Civeo Canada common shares are
listed on the NYSE under the symbol “CVEO”, the same symbol under which the Civeo US common stock traded
prior to the effective time.
The Redomicile Transaction qualified as a “self-directed redomiciling” of the Company as permitted under the
U.S. Internal Revenue Code. U.S. federal income tax laws permit a company to change its domicile to a foreign
jurisdiction without corporate-level U.S. federal income taxes provided that such company has “substantial business
activity” in the relevant jurisdiction. “Substantial business activity” is defined as foreign operations consisting of
over 25% of the company’s total (i) revenues, (ii) assets, (iii) employees and (iv) employee compensation. With
approximately 50% or more of our operations in Canada based on these metrics, we qualified for a self-directed
redomiciling.
We incurred costs related to the Redomicile Transaction totaling $7.0 million and $2.6 million for the years
ended December 31, 2015 and 2014, respectively. In addition, we incurred costs related to the Amended Credit
Facility totaling $5.5 million for the year ended December 31, 2015, of which $4.8 million has been capitalized as
debt issuance costs and the remaining $0.7 million is included in interest expense.
49
Description of the Business
We are one of the largest integrated providers of longer-term and temporary remote site accommodations,
logistics and facility management services to the natural resource industry. Our scalable modular facilities provide
long-term and temporary workforce accommodations where traditional accommodations and related infrastructure is
insufficient, inaccessible or not cost effective. Once facilities are deployed in the field, we also provide catering and
food services, housekeeping, laundry, facility management, water and wastewater treatment, power generation,
communications and redeployment logistics. Our accommodations support workforces in the Canadian oil sands and
in a variety of oil and natural gas drilling, mining and related natural resource applications as well as disaster relief
efforts, primarily in Canada, Australia and the United States. We operate in three principal reportable business
segments – Canadian, Australian and U.S.
Basis of Presentation
Unless otherwise stated or the context otherwise indicates, all references in these consolidated financial
statements to “Civeo,” “the Company,” “us,” “our” or “we” for the time period prior to the Spin-Off mean the
Accommodations business of Oil States. For time periods after the Spin-Off, but prior to July 17, 2015, these terms
refer to Civeo US and its consolidated subsidiaries. For time periods after July 17, 2015, these terms refer to Civeo
Canada and its consolidated subsidiaries.
Prior to the Spin-Off, our financial position, results of operations and cash flows consisted of the Oil States’
Accommodations business and an allocable portion of its corporate costs, which represented a combined reporting
entity. The combined financial statements for periods prior to the Spin-Off have been prepared on a stand-alone
basis and are derived from the consolidated financial statements and accounting records of Oil States. The combined
financial statements reflect our historical financial position, results of operations and cash flows as we were
historically managed, in conformity with accounting principles generally accepted in the U.S. (U.S. GAAP). The
combined financial statements include certain assets and liabilities that have historically been held at the Oil States
corporate level, but are specifically identifiable or otherwise attributable to us.
All financial information presented after the Spin-Off represents the consolidated results of operations, financial
position and cash flows of Civeo. Accordingly:
• Our consolidated statements of operations, comprehensive income (loss), cash flows and changes in
shareholders’ equity / net investment for the year ended December 31, 2015 consist entirely of the
consolidated results of Civeo.
• Our consolidated statements of operations, comprehensive income (loss), cash flows and changes in
shareholders’ equity / net investment for the year ended December 31, 2014 consist of (i) the combined
results of the Oil States’ Accommodations business for the five months ended May 30, 2014 and (ii)
the consolidated results of Civeo for the seven months ended December 31, 2014.
• Our consolidated statements of operations, comprehensive income (loss), cash flows and changes in
shareholders’ equity / net investment for the year ended December 31, 2013 consist entirely of the
combined results of the Oil States’ Accommodations business.
• Our consolidated balance sheets at December 31, 2015 and December 31, 2014 consist entirely of the
consolidated balances of Civeo.
The assets and liabilities in our consolidated financial statements have been reflected on a historical basis, as
immediately prior to the Spin-Off all of the assets and liabilities presented were wholly owned by Oil States and
were transferred within the Oil States consolidated group. All intercompany transactions and accounts have been
eliminated. All affiliate transactions between Civeo and Oil States have been included in these consolidated
financial statements.
The consolidated financial statements for periods prior to the Spin-Off included expense allocations for: (1)
certain corporate functions historically provided by Oil States, including, but not limited to finance, legal, risk
management, tax, treasury, information technology, human resources, and certain other shared services, (2) certain
employee benefits and incentives and (3) equity-based compensation. These expenses were allocated to us on the
basis of direct usage when identifiable, with the remainder allocated based on estimated time spent by Oil States
50
personnel, a pro-rata basis of headcount or other relevant measures of Oil States and its subsidiaries. We consider
the basis on which the expenses were allocated to be a reasonable reflection of the utilization of services provided to
or the benefit received by us during the periods presented. The allocations may not, however, reflect the expense we
would have incurred as an independent, publicly traded company for the periods presented. Actual costs that may
have been incurred if we had been a stand-alone company would depend on a number of factors, including the
chosen organizational structure, which functions were outsourced or performed by employees and strategic
decisions made in areas such as information technology and infrastructure. Following the Spin-Off, we perform
these functions using our own resources or purchase services. Until February 28, 2015, however, some of these
functions were provided by Oil States under a transition services agreement. Please see Note 17 – Related Party
Transactions to the notes to consolidated financial statements in Item 8 of this annual report.
Macroeconomic Environment
We provide workforce accommodations to the natural resource industry in Canada, Australia and the United
States. Demand for our services can be attributed to two phases of our customers’ projects: (1) the development or
construction phase and (2) the operations or production phase. Initial demand for our services is driven by our
customers’ capital spending programs related to the construction and development of oil sands and coal mines and
associated infrastructure as well as the exploration for oil and natural gas. Long-term demand for our services is
driven by continued development and expansion of natural resource production and operation of oil sands and
mining facilities. Industry capital spending programs are generally based on the outlook for commodity prices,
economic growth and estimates of resource production. As a result, demand for our products and services is largely
sensitive to expected commodity prices, principally related to crude oil, metallurgical (met) coal and natural gas.
In Canada, Western Canadian Select (WCS) crude is the benchmark price for our oil sands accommodations
customers. Pricing for WCS is driven by several factors, including the underlying price for West Texas Intermediate
(WTI) crude and the availability of transportation infrastructure. Historically, WCS has traded at a discount to WTI,
creating a “WCS Differential,” due to transportation costs and limited capacity to move Canadian heavy oil
production to refineries, primarily in the U.S. Gulf Coast. Depending on the extent of pipeline capacity availability,
the WCS Differential has varied.
In the fourth quarter of 2015 and continuing into 2016, global oil prices dropped to their lowest level in over ten
years due to concerns over global oil demand, the economic growth rate in China, the overall economic health of
Europe and price cutting by major oil producing countries, such as Saudi Arabia. Increasing global supply, including
increased U.S. shale oil production, has also negatively impacted pricing. With falling Brent Crude and WTI oil
prices, WCS has also fallen. WCS prices in the fourth quarter of 2015 averaged $27.82 per barrel compared to
$57.75 in the fourth quarter of 2014. The WCS Differential narrowed from $16.00 per barrel at the end of the fourth
quarter of 2014 to $13.25 per barrel by the end of the fourth quarter of 2015. As of February 19, 2016, the WTI
price was $29.64 and the WCS price was $19.20 resulting in a WCS Differential of $10.44.
There remains a significant risk that prices in the oil sands could continue to deteriorate or remain at current
depressed levels for an extended period of time, and the discount between WCS crude prices and WTI crude prices
could widen. The continuation of these depressed price levels has negatively impacted exploration, development and
production activity by Canadian operators and, therefore, demand for our services in 2016. Our Canadian oil sands
customers could continue to delay additional investments in their oil sands assets as well.
In Australia, we have 9,296 total rooms in our ten villages, of which 7,392 rooms in five villages serve the
Bowen Basin. Our Australian villages in the Bowen Basin primarily serve met coal mines in that region. Met coal
pricing and growth in production in the Bowen Basin region is influenced by levels of global steel production.
Global steel production has decreased 2.8% during 2015 compared to the same period in 2014. Furthermore,
Chinese steel production decreased 2.3% during 2015, and accordingly, Chinese demand for imported steel inputs,
such as met coal and iron ore, has continued to decrease during 2015 compared to prior periods. Because of this,
coupled with the fact that Australian met coal output has decreased 1% during 2015 compared to 2014, met coal
prices have decreased materially from over $160 per metric tonne at the beginning of 2013 to approximately $89.00
per metric ton for the fourth quarter of 2015. As of February 19, 2016, contract met coal prices were approximately
$81.00 per metric ton. We expect the lower first quarter 2016 contract price to continue to negatively impact
occupancy at our Bowen Basin villages into 2016. Depressed met coal prices have led to the implementation of cost
51
control measures by our customers, some coal mine closures and delays in the start-up of new coal mining projects
in Australia. A continued depressed met coal price will impact our customers’ future capital spending programs.
Long-term demand for steel will be driven by increased steel consumption per capita in developing economies, such
as China and India, whose current consumption per capita is a fraction of developed countries.
Natural gas and WTI crude oil prices, discussed above, have an impact on the demand for our U.S.
accommodations. Prices for natural gas in the U.S. averaged $2.63 per mcf in 2015, a 38% decrease over the
average price in 2014. U.S. natural gas production has continued to outpace demand recently, which has caused
prices to continue to be weak relative to historical prices. These weaker prices are expected to continue. At these
levels, it is uneconomic to increase development in several domestic, gas-focused basins. If natural gas production
growth continues to surpass demand in the U.S. and/or the supply of natural gas were to increase, whether the
supply comes from conventional or unconventional production or associated natural gas production from oil wells,
prices for natural gas could be constrained for an extended period and result in fewer rigs drilling for natural gas in
the near-term.
Recent WTI crude, WCS crude, met coal and natural gas pricing trends are as follows:
Average Price (1)
WTI
WCS
Crude
(per bbl)
Crude
(per bbl)
Hard
Coking Coal
(Met Coal)
(per tonne)
Henry
Hub
Natural
Gas
(per mcf)
$ 30.81
42.02
46.48
57.64
48.49
73.21
97.60
103.06
98.68
97.50
105.83
94.05
94.33
88.01
$ 17.14
27.82
31.54
48.09
35.03
57.75
78.69
83.78
77.76
66.34
83.10
77.48
66.86
61.34
$
81.00
89.00
93.00
109.50
117.00
119.00
120.00
120.00
143.00
152.00
145.00
172.00
165.00
170.00
$
2.13
2.23
2.73
2.73
2.81
3.83
3.95
4.58
5.18
3.85
3.55
4.02
3.49
3.40
Quarter
ended
First Quarter
through 2/19/16
12/31/2015
9/30/2015
6/30/2015
3/31/2015
12/31/2014
9/30/2014
6/30/2014
3/31/2014
12/31/2013
9/30/2013
6/30/2013
3/31/2013
12/31/2012
__________
(1) Source: WTI crude and natural gas prices from U.S. Energy Information Administration (EIA) and WCS
crude prices and Seaborne hard coking coal contract price from Bloomberg.
Overview
As noted above, demand for our services is primarily tied to the outlook for crude oil and met coal prices. Other
factors that can affect our business and financial results include the general global economic environment and
regulatory changes in the U.S., Canada, Australia and other markets.
Our business is predominantly located in northern Alberta, Canada and Queensland, Australia, and we derive
most of our business from resource companies who are developing and producing oil sands and met coal resources
and, to a lesser extent, other hydrocarbon and mineral resources. More than three-fourths of our revenue is generated
by our large-scale lodge and village facilities. Where traditional accommodations and infrastructure are insufficient,
inaccessible or not cost effective, our lodge and village facilities provide comprehensive accommodations services
similar to those found in an urban hotel. We typically contract our facilities to our customers on a fee per day basis
covering lodging and meals that is based on the duration of their needs which can range from several weeks to
several years.
Generally, our customers are making multi-billion dollar investments to develop their prospects, which have
estimated reserve lives of ten years to in excess of thirty years. Consequently, these investments are dependent on
those customers’ longer-term view of commodity demand and prices. Announcements of certain new and expanded
52
oil sands projects can create the opportunity to extend existing accommodations contracts and incremental contracts
for us in Canada. There have been few new or expanded projects announced in recent months.
With the current commodity price environment and expected demand, concerns about take-away capacity out of
the oil sands region and continued high costs including labor costs, the current outlook for oil sands activity has
continued to deteriorate throughout 2015. Further, project delays and cancellations have continued throughout 2015.
Although we are currently the primary third-party accommodations provider for the two major construction projects
in the oil sands region, the Fort Hills project and the Kearl Project, outlook for additional major oil sands
construction projects is limited. Oil sands operators are looking to reduce their costs and capital spending, limiting
the demand for accommodations like we provide. As a result, we experienced materially lower revenues and
earnings from our Canadian operations for the year ended December 31, 2015 and expect this trend to continue into
2016.
We began expansion of our room count in Kitimat, British Columbia during the second half of 2015 to support
potential LNG projects on the west coast of British Columbia. We were recently awarded a contract with LNG
Canada for the provision of open lodge rooms and associated services. To support this new contract, we have
developed a new accommodations facility, named Sitka Lodge, which includes private washrooms, recreational
facilities and other amenities. This new lodge initially has 436 rooms with the potential to expand to serve future
accommodations demand in the region.
We expanded our Australian room capacity in 2012 and 2013 to meet increasing demand, notably in the Bowen
Basin in Queensland and in the Gunnedah Basin in New South Wales to support coal production, and in Western
Australia to support LNG and other energy-related projects. In early 2013, a confluence of low met coal pricing,
additional carbon and mining taxes on our Australian accommodations customers and several years of cost inflation
caused several of our customers to curtail or cease production from higher cost mines and delay or materially reduce
their growth plans. This has negatively affected our ability to expand our room count and has led to a decrease in
occupancy levels. Despite the repeal of carbon and mining taxes, continued concerns about China’s economy,
which significantly influences the global demand for steel, and therefore, met coal, the outlook for met coal demand
continues to be negative. As a result, our Australian business has continued to experience lower occupancy levels
throughout 2015, and this trend should continue into 2016.
If oil and coal prices remain at current levels, or continue to decline, the resulting impact has and may continue
to negatively affect the value of our long-lived assets. Impairment expense of $122.9 million was recorded in 2015,
of which $79.7 million was associated with long-lived assets and the remaining $43.2 million was associated with
goodwill. Impairment expense of $290.5 million was recorded in 2014, of which $87.8 million was associated with
long-lived assets and the remaining $202.7 million was associated with goodwill.
Exchange rates between the U.S. dollar and the Canadian dollar and between the U.S. dollar and the Australian
dollar influence our U.S. dollar reported financial results. Our business has historically derived the vast majority of
its revenues and operating income in Canada and Australia. These revenues and profits are translated into U.S.
dollars for U.S. GAAP financial reporting purposes. The Canadian dollar was valued at an average exchange rate of
U.S. $0.78 for 2015 compared to U.S. $0.91 for 2014, a decrease of approximately 14%. The Canadian dollar was
valued at an exchange rate of $0.72 on December 31, 2015 and $0.86 on December 31, 2014. The Australian dollar
was valued at an average exchange rate of U.S. $0.75 for 2015 compared to U.S. $0.90 for 2014, a decrease of
approximately 17%. The Australian dollar was valued at an exchange rate of $0.73 on December 31, 2015 and
$0.82 on December 31, 2014. This weakening of the Canadian and Australian dollars has and may continue to have
a proportionately negative impact on the translation of earnings generated from our Canadian and Australian
subsidiaries and, therefore, our financial results.
We continue to monitor the global economy, the demand for crude oil, met coal and natural gas and the
resultant impact on the capital spending plans of our customers in order to plan our business. We currently expect
that our 2016 capital expenditures will total approximately $30 million, compared to 2015 capital expenditures of
$62 million. Please see Liquidity and Capital Resources below for further discussion of 2016 and 2015 capital
expenditures.
53
Results of Operations
Unless otherwise indicated, discussion of results for the years ended December 31, 2015 and 2014 is based on a
comparison with the corresponding period of 2014 and 2013, respectively.
Results of Operations – Year Ended December 31, 2015 Compared to Year Ended December 31, 2014
2015
YEAR ENDED
DECEMBER 31,
2014
($ in thousands)
Change
Revenues
Canada ...........................................................................................
Australia ........................................................................................
United States and other ..................................................................
Total revenues .........................................................................
$ 344,249
135,964
37,750
517,963
$ 661,416
213,279
68,196
942,891
$ (317,167)
(77,315)
(30,446)
(424,928)
Costs and expenses
Cost of sales and services
Canada ....................................................................................
Australia ..................................................................................
United States and other ..........................................................
Total cost of sales and services .......................................
Selling, general and administrative expenses ................................
Spin-off and formation costs .........................................................
Depreciation and amortization expense .........................................
Impairment expense .......................................................................
Other operating expense (income) ................................................
Total costs and expenses .........................................................
Operating loss ....................................................................................
230,713
60,585
36,315
327,613
68,441
--
152,990
122,926
(9,004)
662,966
(145,003)
Interest expense and income, net .......................................................
Other income ......................................................................................
Loss before income taxes ...................................................................
Income tax benefit (provision) ...........................................................
Net loss ...............................................................................................
Less: Net income (loss) attributable to noncontrolling interest ...........
Net loss attributable to Civeo .............................................................
(22,026)
3,276
(163,753)
33,089
(130,664)
1,095
$ (131,759)
402,182
89,507
53,232
544,921
70,345
4,350
174,970
290,508
688
1,085,782
(142,891)
(20,916)
7,524
(156,283)
(31,379)
(187,662)
1,381
$ (189,043)
(171,469)
(28,922)
(16,917)
(217,308)
(1,904)
(4,350)
(21,980)
(167,582)
(9,692)
(422,816)
(2,112)
(1,110)
(4,248)
(7,470)
64,468
56,998
(286)
57,284
$
We reported net loss attributable to Civeo for the year ended December 31, 2015 of $131.8 million, or $1.24 per
diluted share. As further discussed below, net loss included the following items:
•
•
•
•
an $80.7 million pre-tax loss ($56.0 million after-tax, or $0.52 per diluted share) resulting from the
impairment of fixed assets and intangible assets, included in Impairment expense below;
a $43.2 million pre-tax loss ($43.2 million after-tax, or $0.40 per diluted share) resulting from the
impairment of goodwill in our Canadian reporting unit, included in Impairment expense below;
a $7.0 million pre-tax loss ($4.6 million after-tax, or $0.05 per diluted share) from costs incurred in
connection with the Redomicile Transaction, included in Selling, general and administrative (SG&A)
expense below; and
a $1.5 million pre-tax loss ($1.5 million after-tax, or $0.01 per diluted share) from the write off of debt
issuance costs, included in Interest expense and income, net below.
We reported net loss attributable to Civeo for the year ended December 31, 2014 of $189.0 million, or $1.77 per
diluted share. As further discussed below, net loss included the following items:
•
•
•
a $202.7 million pre-tax loss ($201.2 million after-tax, or $1.89 per diluted share) from goodwill
impairments, included in Impairment expense below;
a $75.6 million pre-tax loss ($50.9 million after-tax, or $0.48 per diluted share) from fixed asset
impairments, included in Impairment expense below;
a $34.9 million tax expense ($0.33 per diluted share) from the establishment of a deferred tax liability
related to a portion of our undistributed foreign earnings which we no longer intend to indefinitely
reinvest and a valuation allowance related to deferred tax assets related to capital losses that are not
expected to be realized, included in Income tax provision below;
54
•
•
•
•
a $12.2 million pre-tax loss ($8.4 million after-tax, or $0.08 per diluted share) from intangible asset
impairments, included in Impairment expense below,
a $7.8 million pre-tax loss ($5.1 million after-tax, or $0.05 per diluted share) from transition costs and
debt extinguishment costs incurred in connection with the Spin-Off from Oil States, included Spin-Off
and formation costs and Interest expense below;
a $4.1 million pre-tax loss ($3.1 million after-tax, or $0.03 per diluted share) from severance costs
associated with the termination of an executive, included in SG&A expenses below; and
a $2.6 million pre-tax loss ($1.7 million after-tax, or $0.02 per diluted share) from costs associated
with the proposed migration to Canada, included in SG&A expenses below.
Revenues. Consolidated revenues decreased $424.9 million, or 45%, in 2015 compared to 2014. This decline
was largely driven by decreases in Canada and Australia, due to lower occupancy, as well as weakening Canadian
and Australian dollars. Please see further description in the segment discussion below.
Cost of Sales and Services. Our consolidated cost of sales decreased $217.3 million, or 40%, in 2015
compared to 2014 primarily due to decreases in occupancy in both Canada and Australia, as well as the weakening
Canadian and Australian dollars. Please see further description in the segment discussion below.
Selling, General and Administrative Expenses. SG&A expense decreased $1.9 million, or 3%, in 2015
compared to 2014. Increased costs associated with being a publicly traded company for a full year and costs
associated with the Redomicile Transaction of $7.0 million were more than offset by lower employee costs as well
as the impact of the weakening Canadian and Australian dollars.
Spin-Off and Formation Costs. Spin-off and formation costs of $4.3 million relate to transition costs incurred
during 2014 associated with becoming a stand-alone company.
Depreciation and Amortization Expense. Depreciation and amortization expense decreased $22.0 million, or
13%, in 2015 compared to 2014 primarily due to reduced depreciation expense resulting from impairments recorded
in 2014 and 2015, as well as the impact of the weakening Canadian and Australian dollars. These items were
partially offset by capital expenditures made during the last twelve months largely related to investments in our
Canadian segment.
Impairment Expense. Impairment expense of $122.9 million in 2015 included the following items:
• Goodwill impairment losses of $43.2 million in our Canadian reporting unit;
• Pre-tax impairment losses of $33.5 million related to long-lived assets in our Australian segment;
• Pre-tax impairment losses of $23.0 million associated with long-lived assets in our Canadian segment
including $11.9 million related to assets that should have been impaired in the fourth quarter of 2014.
We determined that the error was not material to our financial statements for the year ended December
31, 2014 and therefore corrected the error in the third quarter of 2015;
• Pre-tax impairment losses of $20.5 million associated with long-lived assets in our U.S. segment; and
• Pre-tax impairment loss of $2.7 million in 2015 related to a decision to sell our U.S. manufacturing
facility.
Impairment expense of $290.5 million in 2014 included the following items:
• Goodwill impairment losses of $202.7 million, of which $16.6 million related to our U.S. segment and
$186.1 million related to our Australian segment;
• Pre-tax impairment losses associated with long-lived assets of $76.2 million, of which $59.0 million
related to our U.S. segment and $17.2 million related to our Canadian segment. Of the $59.0 million
impairment related to our U.S. segment, $55.8 million reduced the value of our fixed assets and $3.2
million reduced the value of our amortizable intangible assets;
• A $9.0 million impairment of an intangible asset in Australia; and
• An impairment totaling $2.6 million on assets that are in the custody of non-paying customers in
Mexico, and for which the return or reimbursement is unlikely.
55
Please see Note 3 – Impairment Charges to the notes to consolidated financial statements in Item 8 of this
annual report for further discussion.
Other Operating Expense (Income). Other operating expense (income) changed from an expense of $0.7
million in 2014 to income of $9.0 million in 2015. The 2015 income is primarily due to foreign currency gains on
the remeasurement of U.S. dollar denominated cash in Canadian bank accounts, as a result of the strengthening of
the U.S. dollar.
Operating Loss. Consolidated operating loss increased $2.1 million, or 2%, in 2015 compared to 2014
primarily due to lower occupancy levels in Canada and Australia, as well as the weakening Canadian and Australian
dollars, partially offset by lower impairments of goodwill and long-lived assets in 2015 compared to 2014.
Interest Expense and Interest Income, net. Net interest expense, including interest expense and income
to/from affiliates, increased by $1.1 million, or 5%, in 2015 compared to 2014 primarily due to increased interest
expense associated with the new credit facility in 2015 and the 2015 write-off of $1.5 million of debt issuance costs
associated with the Amended Credit Facility, partially offset by reduced interest expense in 2015 associated with the
affiliate debt, which was eliminated as of the Spin-Off as well as the 2014 write-off of $3.5 million of debt issuance
costs associated with the credit agreement that was terminated in conjunction with the Spin-Off. In addition, interest
income decreased due to lower average cash balances in 2015 as compared to 2014.
Income Tax Benefit (Provision). Our income tax benefit for the year ended December 31, 2015 totaled $33.1
million, or 20.2% of pre-tax loss, compared to income tax expense of $31.4 million, or 20.1% of pre-tax loss, for the
year ended December 31, 2014. In 2015, our income tax provision and effective tax rate was impacted by the effect
of non-deductible goodwill charges, dividend income generated as part of a global restructuring, foreign tax credits,
the reversal of deferred tax liabilities recorded on a portion of our unremitted earnings of approximately $25.3
million and a valuation allowance of $11.2 million established against net deferred tax assets in the U.S. and
Australia, .
Previously, our effective tax rates were lower than U.S. statutory rates because of lower foreign income tax
rates. However, in 2014, our income tax provision and effective tax rate was impacted by the effect of non-
deductible goodwill impairment charges, a valuation allowance of approximately $51.4 million established against
deferred tax assets in Australia that are related to capital losses and not expected to be realized and a deferred tax
liability of $25.3 million related to a portion of our undistributed foreign earnings which we no longer intend to
continue to indefinitely reinvest.
Other Comprehensive Loss. Other comprehensive loss increased $29.7 million in 2015 compared to 2014
primarily as a result of foreign currency translation adjustments due to changes in the Canadian and Australian
dollar exchange rates compared to the U.S. dollar. The Canadian dollar exchange rate compared to the U.S. dollar
decreased 16% in 2015 compared to an 8% decrease in 2014. The Australian dollar exchange rate compared to the
U.S. dollar decreased 11% in 2015 compared to an 8% decrease in 2014.
56
Segment Results of Operations – Canadian Segment
YEAR ENDED
DECEMBER 31,
2015
2014
Change
Revenues ($ in thousands)
Lodge revenue (1) ................................................ $267,486
Mobile, open camp and product revenue ............
76,763
Total revenues .................................................. $ 344,249
$ 497,216
164,200
$ 661,416
$(229,730)
(87,437)
$(317,167)
Cost of sales and services ($ in thousands) ............ $ 230,713
$ 402,182
$(171,469)
Gross margin as a % of revenues ............................
33.0%
39.2%
(6.2)%
Average available lodge rooms (2) ...........................
13,435
12,557
Rentable rooms for lodges (3) ...................................
10,054
11,007
878
(953)
Average daily rate for lodges (4) ............................ $
121
$
146
$
(25)
Occupancy in lodges (5) .........................................
60%
85%
(25%)
Canadian dollar to U.S. dollar ................................ $
0.783
$
0.906
$
(0.123)
______________
(1) Includes revenue related to rooms as well as the fees associated with catering, laundry and other services including
facilities management.
(2) Average available rooms includes rooms that are utilized for our personnel.
(3) Rentable rooms excludes rooms that are utilized for our personnel and out of service rooms.
(4) Average daily rate is based on rentable rooms and lodge/village revenue.
(5) Occupancy represents total billed days divided by rentable days. Rentable days excludes staff rooms and out of
service rooms.
Our Canadian segment reported revenues in 2015 that were $317.2 million, or 48%, lower than 2014. The
weakening of the average exchange rates for the Canadian dollar relative to the U.S. dollar by 14% in 2015
compared to 2014 resulted in a $51.9 million year over year reduction in revenues. In addition, excluding the
impact of the weaker Canadian exchange rates, the segment experienced a 38% decline in lodge revenues primarily
due to reduced occupancy and lower room rates, partially offset by the opening of the McClelland Lake Lodge,
which commenced operations in the summer of 2014. Mobile, open camp and product revenue decreased due to a
reduced number of large projects during 2015, as compared to 2014. Excluding the impact of weaker Canadian
exchange rates, product sales were essentially flat year over year.
Our Canadian segment cost of sales and services decreased $171.5 million, or 43%, in 2015 compared to 2014
due to lower occupancy, as well as the weakening of the average exchange rates.
Our Canadian segment gross margin as a percentage of revenues decreased from 39% in 2014 to 33% in 2015
primarily due to lower contracted room rates and occupancy in Canada.
57
Segment Results of Operations – Australian Segment
YEAR ENDED
DECEMBER 31,
2015
2014
Change
Revenues ($ in thousands)
Village revenue (1) ............................................... $ 135,964
$ 213,279
$ (77,315)
Cost of sales ($ in thousands) ................................. $ 60,585
$ 89,507
$ (28,922)
Gross margin as a % of revenues ............................
55.4%
58.0%
(2.6)%
Average available village rooms (2) .........................
9,180
Rentable rooms for villages (3) .................................
8,862
9,271
9,079
(91)
(217)
Average daily rate for villages (4) .......................... $
74
$
94
$
(20)
Occupancy in villages (5) .......................................
56%
68%
(12)%
Australian dollar to U.S. dollar ............................... $
0.752
$
0.902
$
(0.150)
______________
(1) Includes revenue related to rooms as well as the fees associated with catering, laundry and other services including
facilities management.
(2) Average available rooms includes rooms that are utilized for our personnel.
(3) Rentable rooms excludes rooms that are utilized for our personnel and out of service rooms.
(4) Average daily rate is based on rentable rooms and lodge/village revenue.
(5) Occupancy represents total billed days divided by rentable days. Rentable days excludes staff rooms and out of
service rooms.
Our Australian segment reported revenues in 2015 that were $77.3 million, or 36%, lower than 2014. The
weakening of the average exchange rates for Australian dollars relative to the U.S. dollar by 17% in 2015 compared
to 2014 resulted in a $26.5 million year-over-year reduction in revenues. Excluding the impact of the weaker
Australian exchange rates, the segment experienced a 19% decline in revenues due to lower occupancy levels in
2015 compared to 2014, primarily as a result of the continued slowdown in mining activity.
Our Australian segment cost of sales decreased $28.9 million, or 32%, in 2015 compared to 2014. The decrease
was driven by the weakening of the Australian dollar as well as lower occupancy levels.
Our Australian segment gross margin as a percentage of revenues decreased to 55% in 2015 from 58% in 2014.
This was primarily driven by reduced take or pay revenues on expired contracts compared to 2014.
Segment Results of Operations – U.S. Segment
YEAR ENDED
DECEMBER 31,
2015
2014
Change
Revenues ($ in thousands) ...................................... $ 37,750
$ 68,196
$ (30,446)
Cost of sales ($ in thousands) ................................. $ 36,315
$ 53,232
$ (16,917)
Gross margin as a % of revenues ............................
3.8%
21.9%
(18.1)%
Our U.S. segment reported revenues in 2015 that were $30.4 million, or 45%, lower than 2014. The reduction
was primarily due to lower U.S. drilling activity in the Bakken, Rockies and Texas markets and decreased sales in
our offshore business.
58
Our U.S. cost of sales decreased $16.9 million, or 32%, in 2015 compared to 2014. The decrease was driven by
overall lower activity levels, partially offset by a $1.1 million write-down of inventory at our U.S. manufacturing
facility.
Our U.S. segment gross margin as a percentage of revenues decreased from 22% in 2014 to 4% in 2015
primarily due to the $1.1 million inventory write-down, as well as overall lower activity levels.
Results of Operations – Year Ended December 31, 2014 Compared to Year Ended December 31, 2013
2014
YEAR ENDED
DECEMBER 31,
2013
($ in thousands)
Change
Revenues
Canada ...........................................................................................
Australia ........................................................................................
United States and other ..................................................................
Total revenues .........................................................................
$ 661,416
213,279
68,196
942,891
$ 710,538
255,457
75,109
1,041,104
$
(49,122)
(42,178)
(6,913)
(98,213)
Costs and expenses
Cost of sales and services
Canada ....................................................................................
Australia ..................................................................................
United States and other ..........................................................
Total cost of sales and services .......................................
Selling, general and administrative expenses ................................
Spin-off and formation costs .........................................................
Depreciation and amortization expense .........................................
Impairment expense .......................................................................
Other operating expense (income) ................................................
Total costs and expenses .........................................................
Operating income (loss) .....................................................................
Interest expense and income, net .......................................................
Other income ......................................................................................
Income (loss) before income taxes ....................................................
Income tax benefit (provision) ...........................................................
Net income (loss) ...............................................................................
Less: Net income (loss) attributable to noncontrolling interest ...........
Net income (loss) attributable to Civeo .............................................
402,182
89,507
53,232
544,921
70,345
4,350
174,970
290,508
688
1,085,782
(142,891)
(20,916)
7,524
(156,283)
(31,379)
(187,662)
1,381
$ (189,043)
398,998
96,121
54,496
549,615
69,590
--
167,213
--
(4,770)
781,648
259,456
3,184
(6,614)
(1,264)
(4,694)
755
4,350
7,757
290,508
5,458
304,134
(402,347)
(23,837)
3,749
239,368
(56,056)
183,312
1,436
$ 181,876
2,921
3,775
(395,651)
24,677
(370,974)
(55)
$ (370,919)
We reported net loss attributable to Civeo for the year ended December 31, 2014 of $189.0 million, or $1.77 per
diluted share. As further discussed below, net loss included the following items:
•
•
•
•
•
•
•
a $202.7 million pre-tax loss ($201.2 million after-tax, or $1.89 per diluted share) from goodwill
impairments, included in Impairment expense below;
a $75.6 million pre-tax loss ($50.9 million after-tax, or $0.48 per diluted share) from fixed asset
impairments, included in Impairment expense below;
a $34.9 million tax expense ($0.33 per diluted share) from the establishment of a deferred tax liability
related to a portion of our undistributed foreign earnings which we no longer intend to indefinitely
reinvest and a valuation allowance related to deferred tax assets related to capital losses that are not
expected to be realized, included in Income tax provision below;
a $12.2 million pre-tax loss ($8.4 million after-tax, or $0.08 per diluted share) from intangible asset
impairments, included in Impairment expense below,
a $7.8 million pre-tax loss ($5.1 million after-tax, or $0.05 per diluted share) from transition costs and
debt extinguishment costs incurred in connection with the Spin-Off from Oil States, included Spin-Off
and formation costs and Interest expense below;
a $4.1 million pre-tax loss ($3.1 million after-tax, or $0.03 per diluted share) from severance costs
associated with the termination of an executive, included in SG&A expenses below; and
a $2.6 million pre-tax loss ($1.7 million after-tax, or $0.02 per diluted share) from costs associated
with the proposed migration to Canada, included in SG&A expenses below.
These results compare to net income attributable to Civeo for the year ended December 31, 2013 of $181.9
59
million, or $1.70 per diluted share, including a pre-tax gain of $4.0 million ($2.6 million after-tax), or $0.02 per
diluted share after-tax from a decrease to a liability associated with contingent acquisition consideration. 2013 net
income also included $1.2 million, or $0.01 per diluted share after-tax, of losses incurred on extinguishment of debt.
Revenues. Consolidated revenues decreased $98.2 million, or 9%, in 2014 compared to 2013. This decline
was largely driven by the weakening of the Canadian and Australian dollars and decreased occupancy and room
rates in both our Canada and Australia segments, as further described in the segment discussions below.
Cost of Sales and Services. Our consolidated cost of sales decreased $4.7 million, or 1%, in 2014 compared to
2013 primarily due to increases in average available rooms and product costs in Canada, offset by decreased
occupancy in Australia, as further described in the segment discussions below.
Selling, General and Administrative Expenses. SG&A expense increased $0.8 million, or 1%, in 2014
compared to 2013 primarily due to increases to SG&A due to an increase of approximately $8.1 million related to
costs associated with being a publicly traded company, $4.1 million in severance costs and $2.6 million in
redomiciling costs. These items were offset favorably due to foreign exchange rates of approximately $3.5 million,
a $2.0 million refund of surplus medical premiums from our Canadian medical benefits provider based on lower
experience ratings, a recovery of previously reserved receivables of approximately $1.4 million, reduced bonus
accruals for 2014 compared to 2013 and lower compensation expense associated with phantom share awards.
Because of the decline in our stock price during the last three months of 2014, and because we remeasure these
awards at each reporting date, we recognized $1.9 million of expense on the phantom shares in 2014 compared to
$3.9 million in 2013.
Spin-Off and Formation Costs. Spin-off and formation costs of $4.3 million relate to transition costs incurred
during 2014 associated with becoming a stand-alone company.
Depreciation and Amortization Expense. Depreciation and amortization expense increased $7.8 million, or
5%, in 2014 compared to 2013 primarily due to capital expenditures made during the last twelve months largely
related to investments in our Canadian segment.
Impairment Expense. Pre-tax impairment expense of $290.5 million in 2014 included the following items:
• Goodwill impairment losses of $202.7 million, of which $16.6 million related to our U.S. segment and
$186.1 million related to our Australian segment.
• Pre-tax impairment losses associated with long-lived assets of $76.2 million, of which $59.0 million
related to our U.S. segment and $17.2 million related to our Canadian segment. Of the $59.0 million
impairment related to our U.S. segment, $55.8 million reduced the value of our fixed assets and $3.2
million reduced the value of our amortizable intangible assets.
• A $9.0 million impairment of an intangible asset in Australia. Due to the Spin-Off, and the resulting
rebranding of our Australian operations from The MAC to Civeo, it was determined that the fair value
of an intangible asset associated with The MAC brand was nil.
• An impairment totaling $2.6 million on assets that are in the custody of non-paying customers in
Mexico, and for which the return or reimbursement is unlikely.
Please see Note 3 – Impairment Charges to the notes to consolidated financial statements in Item 8 of this
annual report for further discussion.
Operating Income. Consolidated operating income decreased $402.3 million, or 155.1%, in 2014 compared to
2013 primarily due to the impairments noted above, as well as lower contracted rates in Canada, lower occupancy
levels in Australia and lower utilization in the U.S., partially offset by the increase in average available rooms in
Canada.
Interest Expense and Interest Income, net. Net interest expense, including interest expense and income
to/from affiliates, decreased by $2.9 million, or 12%, in 2014 compared to 2013 primarily due to seven months of
interest associated with the new credit facility in 2014, compared to interest expense associated with the affiliate
debt for all of 2013. This decrease is partially offset due to the write-off of $3.5 million debt issuance costs
60
associated with the credit agreement that was terminated in conjunction with the Spin-Off. Additionally, interest
income was higher in 2014 as a result of higher cash balances during 2014 compared to 2013.
Income Tax Provision. Our income tax expense for the year ended December 31, 2014 totaled $31.4 million,
or 20.1% of pre-tax loss, compared to income tax expense of $56.1 million, or 23.4% of pre-tax income, for the year
ended December 31, 2013. Generally, our effective tax rates are lower than U.S. statutory rates because of lower
foreign income tax rates. However, in 2014, our income tax provision and effective tax rate was impacted by the
effect of non-deductible goodwill impairment charges, a valuation allowance of approximately $51.4 million
established against deferred tax assets in Australia that are related to capital losses and not expected to be realized
and a deferred tax liability of $25.3 million related to a portion of our undistributed foreign earnings which we no
longer intend to continue to indefinitely reinvest.
Other Comprehensive Income (Loss). Other comprehensive loss decreased $29.0 million in 2014 compared
to 2013 primarily as a result of foreign currency translation adjustments due to changes in the Canadian and
Australian dollar exchange rates compared to the U.S. dollar. The Canadian dollar exchange rate compared to the
U.S. dollar decreased 8% in 2014 compared to a 6% decrease in 2013. The Australian dollar exchange rate
compared to the U.S. dollar decreased 8% in 2014 compared to a 14% decrease in 2013.
Segment Results of Operations – Canadian Segment
YEAR ENDED
DECEMBER 31,
2014
2013
Change
Revenues ($ in thousands)
Lodge revenue (1) ................................................ $ 497,216
Mobile, open camp and product revenue ............ 164,200
Total revenues .................................................. $ 661,416
$ 548,743
161,795
$ 710,538
$ (51,527)
2,405
$ (49,122)
Cost of sales and services ($ in thousands) ............ $ 402,182
$ 398,998
$
3,184
Gross margin as a % of revenues ............................
39.2%
43.8%
(4.6)%
Average available lodge rooms (2) ...........................
12,557
11,541
1,016
Rentable rooms for lodges (3) ...................................
11,007
10,152
855
Average daily rate for lodges (4) ............................ $
146
$
156
$
(10)
Occupancy in lodges (5) .........................................
85%
92%
(7%)
Canadian dollar to U.S. dollar ................................ $
0.906
$
0.971
$
(0.065)
______________
(1) Includes revenue related to rooms as well as the fees associated with catering, laundry and other services including
facilities management.
(2) Average available rooms includes rooms that are utilized for our personnel.
(3) Rentable rooms excludes rooms that are utilized for our personnel and out of service rooms.
(4) Average daily rate is based on rentable rooms and lodge/village revenue.
(5) Occupancy represents total billed days divided by rentable days. Rentable days excludes staff rooms and out of
service rooms.
Our Canadian segment reported revenues in 2014 that were $49.1 million, or 7%, lower than 2013. The
weakening of the Canadian dollar relative to the U.S. dollar by 6.7% in 2014 compared to 2013 resulted in a $48.0
million year-over-year reduction in revenues. In addition, excluding the impact of the weaker Canadian exchange
rates, the segment experienced a 3% decline in lodge revenues primarily due to a 8% reduction in occupancy
partially offset by relatively flat room rates. Revenues were also reduced by approximately $4.9 million due to a
contract amendment. Lodge revenues in 2014 were positively affected by a 9% increase year-over-year in average
available rooms, due largely to the opening of the McClelland Lake Lodge in June 2014. Excluding the impact of
weaker Canadian exchange rates, mobile, open camp and contract camp revenue was essentially flat year over year.
Finally, product sales in 2014 were significantly higher than in 2013 due to several significant sales. Overall,
Canadian product sales were $23.0 million for 2014 compared to $10.3 million for 2013.
61
Our Canadian segment cost of sales and services increased $3.2 million, or 1% in 2014 compared to 2013. The
increase was driven by the increase in available rooms discussed above, as well as an increase in costs associated
with product sales. This was slightly offset by a decrease in cost of sales and services related to lower occupancy.
Although revenue decreased due to lower room rates, a corresponding decrease did not occur in costs of sales and
services, as occupancy levels decreased to a lesser extent. However, the weakening of the average exchange rates
resulted in a $29.1 million reduction in cost of sales.
Our Canadian segment gross margin as a percentage of revenues decreased from 43.8% in 2013 to 39.2% in
2014 primarily due to lower contracted room rates and occupancy in Canada. In addition, Canadian product sales
generated gross margin of $0.8 million and $3.0 million for 2014 and 2013, respectively.
Segment Results of Operations – Australian Segment
YEAR ENDED
DECEMBER 31,
2014
2013
Change
Revenues ($ in thousands)
Village revenue (1) ............................................... $ 213,279
$ 255,457
$ (42,178)
Cost of sales ($ in thousands) ................................. $ 89,507
$ 96,121
$
(6,614)
Gross margin as a % of revenues ............................
58.0%
62.4%
(4.4)%
Average available village rooms (2) .........................
9,271
Rentable rooms for villages (3) .................................
9,079
8,925
8,843
346
236
Average daily rate for villages (4) .......................... $
94
$
95
$
(1)
Occupancy in villages (5) .......................................
68%
83%
(15)%
Australian dollar to U.S. dollar ............................... $
0.902
$
0.965
$
(0.063)
______________
(1) Includes revenue related to rooms as well as the fees associated with catering, laundry and other services including
facilities management.
(2) Average available rooms includes rooms that are utilized for our personnel.
(3) Rentable rooms excludes rooms that are utilized for our personnel and out of service rooms.
(4) Average daily rate is based on rentable rooms and lodge/village revenue.
(5) Occupancy represents total billed days divided by rentable days. Rentable days excludes staff rooms and out of
service rooms.
Our Australian segment reported revenues in 2014 that were $42.2 million, or 16.5%, lower than 2013. The
weakening of the average exchange rates for Australian dollars relative to the U.S. dollar by 6.5% in 2014 compared
to 2013 resulted in a $15.8 million year-over-year reduction in revenues. Village revenues in 2014 were also
negatively impacted by lower occupancy levels compared to 2013, primarily as a result of lower met coal prices and
the resultant slowdown in mining activity partially offset by the contributions of the Boggabri Village, which
commenced operations late in the third quarter of 2013.
Our Australian segment cost of sales decreased $6.6 million, or 6.9%, in 2014 compared to 2013. The decrease
was driven almost entirely by the weakening of the Australian dollar. Although lower occupancy levels were
experienced in many of our villages, this was offset by full year costs of the Boggabri Village, which commenced
operations late in the third quarter 2013. Additionally, cost of sales was negatively impacted by increased repair and
maintenance costs associated with a water treatment facility as well as higher development expenses.
Our Australian segment gross margin as a percentage of revenues declined from 62.4% in 2013 to 58% in 2014.
This decrease was due to the continued slowdown in mining activity, driving lower occupancy levels.
62
Segment Results of Operations – U.S. Segment
YEAR ENDED
DECEMBER 31,
2014
2013
Change
Revenues ($ in thousands) ...................................... $ 68,196
$ 75,109
$
(6,913)
Cost of sales ($ in thousands) ................................. $ 53,232
$ 54,496
$
(1,264)
Gross margin as a % of revenues ............................
21.9%
27.4%
(5.5)%
Our U.S. segment reported revenues in 2014 of $68.2 million, which were $6.9 million, or 9.2%, lower than
2013. Our offshore fabrication sales were down approximately $5.8 million, due to a significant project recognized
in 2013 that was not repeated in 2014. Wellsite services and offshore rentals revenues were also down
approximately $0.7 million and $1.1 million, respectively, due to reduced activity. These items were partially offset
by an increase to mobile camp revenues of approximately $1.1 million resulting from the addition of two new
lodges, which began operating in July and December 2013, respectively.
Our U.S. cost of sales decreased $1.3 million, or 2.3%, in 2014 compared to 2013. The decrease was driven by
the reduced activity levels noted above.
Our U.S. segment gross margin as a percentage of revenues decreased from 27.4% in 2013 to 21.9% in 2014
primarily due to margin decreases in wellsite services and offshore.
Liquidity and Capital Resources
Our primary liquidity needs are to fund capital expenditures, which in the past have included expanding and
improving our accommodations, developing new lodges and villages and purchasing or leasing land under our land
banking strategy, and for general working capital needs. In addition, capital has been used to repay debt, fund
strategic business acquisitions and pay dividends. Historically, our primary sources of funds have been available
cash, cash flow from operations and borrowings under our credit facility. The following table summarizes our
consolidated liquidity position as of December 31, 2015 and 2014:
Lender commitments (1) .....................................
Reductions in availability (2) ..........................
Borrowings against revolver capacity ...........
Outstanding letters of credit ..........................
Unused availability ............................................
Cash and cash equivalents .................................
Total available liquidity ....................................
December 31,
2015
$ 375,000
(121,690)
(52,020)
(5,070)
196,220
7,837
$ 204,057
$
December 31,
2014
650,000
(222,191)
--
(5,851)
421,958
263,314
685,272
$
______________
(1) We also have an A$5 million bank guarantee facility. We had bank guarantees of A$1.3 million and A$1.7 million
under this facility outstanding as of December 31, 2015 and 2014, respectively. In connection with the February 2016
amendment to the Amended Credit Facility, lender commitments were reduced to $350 million.
(2) As of December 31, 2015 and 2014, $121.7 million and $222.2 million, respectively, of our borrowing capacity under
our Amended Credit Facility could not be utilized in order to maintain compliance with the financial covenants in our
Amended Credit Facility.
Cash totaling $186.1 million was provided by operations during 2015 compared to $291.1 million provided by
operations during 2014 and $337.4 million during 2013. The decrease in operating cash flow in 2015 compared to
2014 was primarily due to lower revenue resulting from occupancy levels in lodges and villages. The decrease in
operating cash flow in 2014 compared to 2013 was primarily due to weaker Canadian and Australian dollars relative
to the U.S. dollar and lower occupancy levels in lodges and villages, partially offset by lower cash used by working
capital. During 2015 and 2014, $67.1 million and $5.2 million, respectively, was provided by working capital. The
increase in 2015 compared to 2014 was primarily the result of decreased accounts receivable balances. During the
year ended December 31, 2013, changes in working capital used $27.6 million of cash flow.
63
Cash was used in investing activities during 2015, 2014 and 2013 in the amounts of $49.8 million, $239.1
million and $284.2 million respectively. Capital expenditures totaled $62.5 million, $251.2 million and $291.7
million respectively. Capital expenditures in each year consisted principally of construction and installation of assets
for our lodges and villages primarily in support of Canadian oil sands projects, including the McClelland Lake
Lodge in the Athabasca oil sands region in 2014, and Australian mining production and development projects. The
significant decrease in capital expenditures in 2015 compared to 2014 is primarily a result of the construction of the
McClelland Lake Lodge, which was largely completed in 2014. No comparable project was under construction in
2015.
We expect our capital expenditures for 2016 to be approximately $30 million, which excludes any expenditures
for unannounced and uncommitted projects, the spending for which is contingent on obtaining customer contracts.
Whether planned expenditures will actually be spent in 2016 depends on industry conditions, project approvals and
schedules, customer room commitments and project and construction timing. We expect to fund these capital
expenditures with available cash, internally generated funds and borrowings under our Amended Credit Facility.
The foregoing capital expenditure forecast does not include any funds for strategic acquisitions, which we could
pursue depending on the economic environment in our industry and the availability of transactions at prices deemed
to be attractive to us.
The table below delineates historical capital expenditures split between development spending on our lodges
and villages, land banking spending, mobile and open camp spending and other capital expenditures. We classify
capital expenditures for rooms and central facilities at our lodges and villages as development capital expenditures.
Land banking spending consists of land acquisition and initial permitting or zoning costs. Other capital expenditures
in the table below relate to routine capital spending for support equipment, upgrades to infrastructure at our lodge
and village properties and spending related to our manufacturing facilities, among other items. We have also
classified the expenditures between expansionary and maintenance spending.
Based on management’s judgment of capital spending classifications, we believe the following table represents
the components of capital expenditures for the years ended December 31, 2015, 2014 and 2013 (in millions):
Development ...............
Lodge/village ..............
Land banking ..............
Mobile/open camp ......
Other... ........................
Total ........................
Expansion
28.7
$
3.5
1.0
1.1
13.3
47.6
$
2015
Maint
$ 3.9
4.7
--
3.6
2.7
$ 14.9
Year Ended December 31,
2014
Total
$ 32.6
8.2
1.0
4.7
16.0
$ 62.5
Expansion
$ 164.0
14.3
7.2
14.5
4.4
$ 204.4
$
Maint
4.3
15.9
--
22.5
4.1
$ 46.8
Total
$ 168.3
30.2
7.2
37.0
8.5
$ 251.2
2013
Expansion
$ 100.9
16.2
15.4
46.0
4.1
$ 182.6
Maint
0.1
48.8
--
56.4
3.8
109.1
$
$
Total
$ 101.0
65.0
15.4
102.4
7.9
$ 291.7
Development spending in 2015 was primarily related to the construction of our Sitka lodge in British Columbia
and our Mariana Lake lodge in Alberta. Development spending in 2014 was primarily related to the construction of
our McClelland Lake lodge in the northern Athabasca oil sands region of Canada. Development spending in 2013
was primarily related to the expansion of the Beaver River and Conklin lodges, and completion of the initial rooms
at our Anzac lodge in Canada. In 2013, we also completed the initial phase of construction at Boggabri village in
Australia. In addition, we commenced construction of our McClelland Lake lodge in the northern Athabasca oil
sands region of Canada.
Open and mobile camp spending in 2014 was primarily related to additions to our Canadian mobile camp assets
as well as spending on our Antler River open camp in Melita, Manitoba. Open and mobile camp spending in 2013
was primarily related to additions to our Canadian mobile camp assets as well as spending on our Boundary open
camp in Estevan, Saskatchewan and open camp locations in Killdeer, North Dakota and Pecos, Texas.
Net cash of $349.6 million was used in financing activities during 2015, primarily due to repayments of term
loan borrowings of $729.4 million offset by borrowings of term loans of $325 million and net revolver borrowings
of $59.1 million. Net cash of $16.2 million was provided by financing activities during 2014, in part due to
contributions from Oil States of $28.3 million. Borrowings of $775.0 million under our new term loan facility
64
funded the cash distribution of $750.0 million to Oil States on May 28, 2014. Net cash of $30.3 million was
provided by financing activities during 2013, primarily due to contributions from Oil States and partially offset by
the repayment of all amounts outstanding under our previous Canadian term loan and repayments under our
previous Australian credit facility.
We believe that cash on hand and cash flow from operations will be sufficient to meet our liquidity needs in the
coming twelve months. If our plans or assumptions change, or are inaccurate, or if we make acquisitions, we may
need to raise additional capital. Acquisitions have been, and our management believes acquisitions will continue to
be, an element of our business strategy. The timing, size or success of any acquisition effort and the associated
potential capital commitments are unpredictable and uncertain. We may seek to fund all or part of any such efforts
with proceeds from debt and/or equity issuances. Our ability to obtain capital for additional projects to implement
our growth strategy over the longer term will depend upon our future operating performance, financial condition
and, more broadly, on the availability of equity and debt financing. Capital availability will be affected by prevailing
conditions in our industry, the global economy, the global financial markets and other factors, many of which are
beyond our control. In addition, such additional debt service requirements could be based on higher interest rates
and shorter maturities and could impose a significant burden on our results of operations and financial condition,
and the issuance of additional equity securities could result in significant dilution to shareholders. In addition, in
some cases, we may incur costs to acquire land and/or construct assets without securing a customer contract or prior
to finalization of an accommodations contract with a customer. If the contract is not obtained or delayed, the
resulting impact could result in an impairment of the related investment.
Credit Facility and Long Term Debt. We historically relied on Oil States for financial support and cash
management. Following the Spin-Off, our capital structure and sources of liquidity changed. In connection with the
Spin-Off, on May 28, 2014, we entered into a $650.0 million, 5-year revolving credit facility and a 5-year U.S. term
loan facility totaling $775.0 million (collectively, the Credit Facility) for an aggregate borrowing capacity of $1.4
billion. On July 17, 2015, we amended the Credit Facility (First Amendment) to, among other things:
• Permit us to redomicile to Canada, make associated corporate restructurings and make certain changes to
the collateral and guarantees, covenants, events of default and related definitions to reflect the Redomicile
Transaction and the new credit facilities referred to below;
• Allow for the incurrence of new credit facilities under the Credit Facility, including (i) a new revolving
credit facility in a maximum principal amount of US$125 million available to be borrowed by Civeo
Canada after the effectiveness of the First Amendment (July 17, 2015) and (ii) a new term loan facility in
the amount of US$325 million to be borrowed by Civeo Canada on the date of the effectiveness of the First
Amendment;
• Provide for the partial prepayment of the existing U.S. term loan under the Credit Facility in the aggregate
principal amount of US$725 million and the reduction of the aggregate U.S. revolving credit facility to a
maximum principal amount of US$50 million;
•
Increase the interest rate margin by 0.25% within existing levels of total leverage and add two additional
levels to the total leverage-based grid such that the interest rates for the loans range from LIBOR +2.0% to
LIBOR +4.0% and increase the undrawn commitment fee to range from 0.45% to 0.90% based on total
leverage;
• Make certain changes to the maximum leverage ratio financial covenant;
• Make certain changes to the application of prepayments and amortization schedules to reflect the new term
loan facility and the prepayment of the U.S. term loans; and
• Make other technical changes and amendments to the Credit Facility.
On February 18, 2016, the Second Amendment (Second Amendment) to the Credit Facility (together with all
amendments, the Amended Credit Facility) became effective, which allowed us the following:
65
•
Join Civeo Management LLC, an indirect wholly owned subsidiary of the Company, as a co-borrower
under the US$50 million U.S. revolving credit facility under the Amended Credit Facility;
• Provide for the partial prepayment of the U.S. term loan under the Amended Credit Facility in the
aggregate principal amount of US$25 million and the reduction by US$25 million of the aggregate
revolving loan commitments under the Canadian revolving credit facility under the Amended Credit
Facility, which was incurred in connection with the First Amendment to the Credit Facility, to a maximum
principal amount of US$100 million;
•
Increase the interest rate margin by 0.25% when the leverage ratio is less than 1.50x (by deleting the lowest
level in the leverage-based grid) and adding two additional levels to the total leverage-based grid such that
the interest rates for the loans range from LIBOR +2.25% to LIBOR +5.00%, and increase the undrawn
commitment fee from a range of 0.45% to 0.90% to a range of 0.51% to 1.13% based on total leverage;
• Make certain changes to the maximum leverage ratio financial covenant, as follows:
Maximum Leverage Ratio
Period Ended
December 31, 2015 ......................................
March 31, 2016 ............................................
June 30, 2016 ...............................................
September 30, 2016 .....................................
December 31, 2016 ......................................
March 31, 2017 ............................................
June 30, 2017 ...............................................
September 30, 2017 .....................................
December 31, 2017 ......................................
March 31, 2018 ............................................
June 30, 2018 ...............................................
September 30, 2018 & thereafter .................
4.00 : 1.00
4.25 : 1.00
5.25 : 1.00
5.50 : 1.00
5.50 : 1.00
5.25 : 1.00
5.25 : 1.00
5.00 : 1.00
5.00 : 1.00
4.75 : 1.00
3.75 : 1.00
3.50 : 1.00
• Add a provision for a mandatory prepayment of the revolving credit facilities under the Amended Credit
Facility in the event the Company and its subsidiaries hold an aggregate amount of cash exceeding US$40
million for a period of more than three consecutive business days, such mandatory prepayment to be made
within two business days in an amount equal to the lesser of (a) an amount sufficient to reduce the
aggregate amount of cash and permitted investments on hand at the Company and its subsidiaries to less
than US$40 million or (b) an amount sufficient to repay all of the outstanding commitments under the
revolving credit facilities under the Amended Credit Facility; and
• Make other technical changes and amendments to the Credit Facility.
The following table summarizes the capacity available under the Amended Credit Facility compared to the
Credit Facility (in thousands):
Term loans:
U.S. term loan .........................................................
Canadian term loan .................................................
Total term loans outstanding ..........................................
Total capacity under revolving credit facilities:
U.S. revolving credit facility ...................................
Canadian revolving credit facility ...........................
New Canadian revolving credit facility ..................
Australian revolving credit facility .........................
Total capacity under revolving credit facilities ..............
First
Amendment to
the Credit
Facility
$
$
$
$
50,000
325,000
375,000
50,000
100,000
125,000
100,000
375,000
Amended
Credit Facility
$
$
$
$
24,375
325,000
349,375
50,000
100,000
100,000
100,000
350,000
Credit Facility
775,000
--
775,000
450,000
100,000
--
100,000
650,000
$
$
$
$
66
U.S. dollar amounts outstanding under the Amended Credit Facility bear interest at a variable rate equal to
LIBOR plus a margin of 2.25% to 5.00%, or a base rate plus 1.25% to 4.00%, in each case based on a ratio of our
total leverage to EBITDA (as defined in the Amended Credit Facility). Canadian dollar amounts outstanding under
the Amended Credit Facility bear interest at a variable rate equal to CDOR plus a margin of 2.25% to 5.00%, or a
base rate plus a margin of 1.25% to 4.00%, in each case based on a ratio of our consolidated total leverage to
EBITDA (as defined in the Amended Credit Facility). Australian dollar amounts outstanding under the Amended
Credit Facility bear interest at a variable rate equal to BBSY plus a margin of 2.25% to 5.00%, based on a ratio of
our consolidated total leverage to EBITDA (as defined in the Amended Credit Facility).
The Amended Credit Facility contains customary affirmative and negative covenants that, among other things,
limit or restrict (i) subsidiary indebtedness, liens and fundamental changes, (ii) asset sales, (iii) margin stock, (iv)
specified acquisitions, (v) restrictive agreements, (vi) transactions with affiliates and (vii) investments and other
restricted payments, including dividends and other distributions. Specifically, we must maintain an interest coverage
ratio, defined as the ratio of consolidated EBITDA (as defined in the Amended Credit Facility) to consolidated
interest expense, of at least 3.0 to 1.0 and a maximum leverage ratio, defined as the ratio of total debt to consolidated
EBITDA, of no greater than 4.0 to 1.0 (as of December 31, 2015). As noted above, the permitted level of the
maximum leverage ratio changes over time. Each of the factors considered in the calculations of these ratios are
defined in the Amended Credit Facility. EBITDA and consolidated interest, as defined, exclude goodwill and asset
impairments, debt discount amortization and other non-cash charges. We were in compliance with these covenants
as of December 31, 2015.
Borrowings under the Amended Credit Facility are secured by a pledge of substantially all of our assets and the
assets of our subsidiaries. Obligations under the Amended Credit Facility are guaranteed by our significant
subsidiaries.
Dividends. We paid quarterly dividends in the amount of $0.13 per share during the third and fourth quarters of
2014. In late December 2014, we suspended our quarterly dividend in order to maintain our financial flexibility and
best position our company for long-term success. The declaration and amount of all dividends will be at the
discretion of our board of directors and will depend upon many factors, including our financial condition, results of
operations, cash flows, prospects, industry conditions, capital requirements of our business, covenants associated
with certain debt obligations, legal requirements, regulatory constraints, industry practice and other factors the board
of directors deems relevant. In addition, our ability to pay dividends is limited by covenants in our Amended Credit
Facility. Future agreements may also limit our ability to pay dividends, and we may incur incremental taxes in the
United States if we are required to repatriate foreign earnings to pay such dividends. If we elect to pay dividends in
the future, the amount per share of our dividend payments may be changed, or dividends may again be suspended,
without advance notice. The likelihood that dividends will be reduced or suspended is increased during periods of
market weakness. There can be no assurance that we will pay a dividend in the future.
Effects of Inflation
Our revenues and results of operations have not been materially impacted by inflation in the past three fiscal
years.
Off-Balance Sheet Arrangements
As of December 31, 2015, we had no off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of
Regulation S-K.
Contractual Obligations
The following summarizes our contractual obligations at December 31, 2015, and the effect such obligations are
expected to have on our liquidity and cash flow over the next five years (in thousands):
67
Total debt, including capital leases ........
Interest payments(1) .................................
Purchase obligations ...............................
Non-cancelable operating lease
obligations ........................................
Asset retirement obligations –
$
Total
401,560
44,248
9,094
27,462
Less Than 1
Year
$
17,698
13,725
9,094
4,581
expected cash payments ...................
Total contractual cash obligations ..........
47,663
530,027
$
3,178
48,276
$
$
$
35,396
25,628
--
7,636
7,273
75,933
More
Than 5
Years
$
--
--
--
$
348,466
4,895
--
5,664
9,581
3,717
362,742
$
33,495
$ 43,076
1 – 3 Years
3 – 5 Years
(1) Interest payments due under the Amended Credit Facility, which matures on May 28, 2019; based on a weighted
average interest rate of 2.7% to 3.7% for the twelve month period ended December 31, 2015.
Our debt obligations at December 31, 2015 are included in our consolidated balance sheet, which is a part of
our consolidated financial statements in Item 8 of this annual report. We have not entered into any material leases
subsequent to December 31, 2015.
Due to the uncertainty with respect to the timing of future cash flows associated with our uncertain tax positions
at December 31, 2015, we are unable to make reasonably reliable estimates of the period of cash settlement with the
respective taxing authorities.
Critical Accounting Policies
Our consolidated financial statements in Item 8 of this annual report have been prepared in accordance with
U.S. GAAP, which require that management make numerous estimates and assumptions. Actual results could differ
from those estimates and assumptions, thus impacting our reported results of operations and financial position. The
critical accounting policies and estimates described in this section are those that are most important to the depiction
of our financial condition and results of operations and the application of which requires management’s most
subjective judgments in making estimates about the effect of matters that are inherently uncertain. We describe our
significant accounting policies more fully in Note 2 - Summary of Significant Accounting Policies to the notes to
consolidated financial statements in Item 8 of this annual report.
Accounting for Contingencies
We have contingent liabilities and future claims for which we have made estimates of the amount of the
eventual cost to liquidate these liabilities or claims. These liabilities and claims sometimes involve threatened or
actual litigation where damages have been quantified and we have made an assessment of our exposure and recorded
a provision in our accounts to cover an expected loss. Other claims or liabilities have been estimated based on their
fair value or our experience in these matters and, when appropriate, the advice of outside counsel or other outside
experts. Upon the ultimate resolution of these uncertainties, our future reported financial results will be impacted by
the difference between our estimates and the actual amounts paid to settle a liability. Examples of areas where we
have made important estimates of future liabilities include litigation, taxes, interest, insurance claims, contract
claims and obligations and asset retirement obligations.
Impairment of Tangible and Intangible Assets, including Goodwill
Goodwill. Goodwill represents the excess of the purchase price paid for acquired businesses over the allocated
fair value of the related net assets after impairments, if applicable. In connection with the preparation of our
financial statements for the three months ended September 30, 2015, we performed a goodwill impairment test as of
September 30, 2015, and we reduced the value of our goodwill to zero. Please see Note 3 – Impairment Charges to
the notes to consolidated financial statements in Item 8 of this annual report for further discussion of goodwill
impairments recorded in the years ended December 31, 2015 and 2014.
We do not amortize goodwill. We evaluate goodwill for impairment, at the reporting unit level, annually and
when an event occurs or circumstances change to suggest that the carrying amount may not be recoverable. A
68
reporting unit is the operating segment, or a business one level below that operating segment (the “component”
level) if discrete financial information is prepared and regularly reviewed by management at the component level.
Each segment of our business represents a separate reporting unit, and all three of our reporting units previously had
goodwill. We recognize an impairment loss for any amount by which the carrying amount of a reporting unit’s
goodwill exceeds the reporting unit’s implied fair value (IFV) of goodwill. We conduct our annual impairment test
as of November 30 of each year.
Our assessment consisted of a two-step impairment test. In the first step, we compared each reporting unit’s
carrying amount, including goodwill, to the IFV of the reporting unit. If the carrying amount of the reporting unit
exceeded its fair value, goodwill was considered impaired, and a second step was performed to determine the
amount of impairment, if any.
We are given the option to test for impairment of our goodwill by first performing a qualitative assessment to
determine whether it is more likely than not (that is, likelihood of more than 50 percent) that the fair value of a
reporting unit is less than its carrying amount, including goodwill. If it is determined that it is more likely than not
that the fair value of a reporting unit is greater than its carrying amount, then performing the currently prescribed
two-step impairment test is unnecessary. In developing a qualitative assessment to meet the “more-likely-than-not”
threshold, each reporting unit with goodwill is assessed separately and different relevant events and circumstances
are evaluated for each unit. We have the option to bypass the qualitative assessment for any reporting unit in any
period and proceed directly to performing the first step of the two-step goodwill impairment test.
In 2014, we chose to bypass the qualitative assessment and proceed directly to the first step of the impairment
test. In performing the two-step impairment test, we compare each reporting unit’s carrying amount, including
goodwill, to the IFV of the reporting unit. Because none of our reporting units has a publically quoted market price,
we must determine the value that willing buyers and sellers would place on the reporting unit through a routine sale
process (a Level 3 fair value measurement). In our analysis, we target an IFV that represents the value that would be
placed on the reporting unit by market participants, and value the reporting unit based on historical and projected
results throughout a cycle, not the value of the reporting unit based on trough or peak earnings. The IFV of the
reporting unit is estimated using a combination of (i) an analysis of trading multiples of comparable companies
(Market Approach) and (ii) discounted projected cash flows (Income Approach). We also use acquisition multiples
analyses in certain circumstances. The relative weighting of each approach varies by reporting unit, based on
management’s judgment.
Market Approach - This valuation approach utilizes publicly traded comparable companies’ enterprise values,
as compared to their recent and forecasted earnings before interest, taxes and depreciation (EBITDA) information.
We have historically used an average EBITDA multiple ranging from approximately 6.5x to approximately 9.5x
depending on the reporting unit. We use EBITDA because it is a widely used key indicator of the cash generating
capacity of companies in our industry.
Income Approach - This valuation approach derives a present value of the reporting unit’s projected future
annual cash flows over the next five years. We use a variety of underlying assumptions to estimate these future cash
flows, including assumptions relating to future economic market conditions, rates, occupancy levels, costs and
expenses and capital expenditures. These assumptions vary by each reporting unit depending on market conditions.
In addition, a terminal value is estimated, using a Gordon Growth methodology with a long-term growth rate of 3%.
We discount our projected cash flows using a long-term weighted average cost of capital based on our estimate of
investment returns that would be required by a market participant.
The IFV of our reporting units is affected by future oil, coal and natural gas prices, anticipated spending by our
customers and the cost of capital. Our estimate of IFV requires us to use significant unobservable inputs,
representative of Level 3 fair value measurements, including numerous assumptions with respect to future
circumstances, such as industry and/or local market conditions that might directly impact each reporting unit’s
operations in the future, and are therefore uncertain. We selected these valuation approaches because we believe the
combination of these approaches and our best judgment regarding underlying assumptions and estimates provides us
with the best estimate of fair value for each of our reporting units. We believe these valuation approaches are proven
valuation techniques and methodologies for our industry and widely accepted by investors. The IFV of each
69
reporting unit would change if our assumptions under these valuation approaches, or relative weighting of the
valuation approaches, were materially modified.
Definite-Lived Tangible and Intangible Assets. The recoverability of the carrying values of tangible and
intangible assets is assessed at an asset group level which represents the lowest level for which identifiable cash
flows are largely independent of the cash flows of other assets and liabilities. Whenever, in management’s judgment,
events or changes in circumstances indicate that the carrying value of such asset groups may not be recoverable
based on estimated future cash flows, an asset impairment evaluation is performed. Indicators of impairment might
include persistent negative economic trends affecting the markets we serve, recurring losses or lowered expectations
of future cash flows expected to be generated by our assets.
In performing this analysis, the first step is to compare each asset group’s carrying value to estimates of
undiscounted future cash flows. We use a variety of underlying assumptions to estimate these future cash flows,
including assumptions relating to future economic market conditions, rates, occupancy levels, costs and expenses
and capital expenditures. The estimates are consistent with those used for purposes of our goodwill impairment test,
as further discussed in Goodwill, above.
If, based on the assessment, the carrying values of any of our asset groups are determined to not be recoverable,
we proceed to the second step. In this step, we compare the fair value of the respective asset group to its carrying
value. Our estimate of the fair value requires us to use significant unobservable inputs, representative of Level 3 fair
value measurements, including numerous assumptions with respect to future circumstances, such as industry and/or
local market conditions that might directly impact each of the asset groups’ operations in the future, and are
therefore uncertain.
Our industry is cyclical and our estimates of the period over which future cash flows will be generated, as well
as the predictability of these cash flows and our determination of whether a decline in value of our investment has
occurred, can have a significant impact on the carrying value of these assets and, in periods of prolonged down
cycles, may result in impairment losses. If this assessment indicates that the carrying values will not be recoverable,
an impairment loss is recognized equal to the excess of the carrying value over the fair value of the asset group. The
fair value of the asset group is based on prices of similar assets, if available, or discounted cash flows.
Please see Note 3 – Impairment Charges to the notes to consolidated financial statements in Item 8 of this
annual report for further discussion of impairments of definite-lived tangible and intangible assets recorded in the
years ended December 31, 2015 and 2014.
Indefinite-Lived Intangible Assets. We are required to evaluate our indefinite-lived intangible assets for
impairment annually and when an event occurs or circumstances change to suggest the carrying amount may not be
recoverable. In performing the impairment test, we compare the fair value of the indefinite-lived intangible asset
with its carrying amount. The measurement of the impairment is calculated based on the excess of the carrying
value over its fair value.
Please see Note 3 – Impairment Charges to the notes to consolidated financial statements in Item 8 of this
annual report for further discussion of impairments of indefinite-lived intangible assets recorded in the years ended
December 31, 2015 and 2014.
Revenue and Cost Recognition
Revenues are recognized based on a periodic (usually daily) room rate or when the services are rendered.
Revenues are recognized in the period in which services are provided pursuant to the terms of our contractual
relationships with our customers. In some contracts, the rate or committed room numbers may vary over the contract
term. In these cases, revenue may be deferred and recognized on a straight-line basis over the contract term.
Revenue from the sale of products, not accounted for utilizing the percentage-of-completion method, is recognized
when delivery to and acceptance by the customer has occurred, when title and all significant risks of ownership have
passed to the customer, collectability is probable and pricing is fixed and determinable. Our product sales terms do
not include significant post-delivery obligations.
70
For significant projects, revenues are recognized under the percentage-of-completion method, measured by the
percentage of costs incurred to date compared to estimated total costs for each contract (cost-to-cost method).
Billings on such contracts in excess of costs incurred and estimated profits are classified as deferred revenue. Costs
incurred and estimated profits in excess of billings on percentage-of-completion contracts are recognized as unbilled
receivables. Management believes this method is the most appropriate measure of progress on large contracts.
Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are
determined. Changes in job performance, job conditions, estimated profitability, and final contract settlements may
result in revisions to projected costs and revenue and are recognized in the period in which the revisions are
determined. Factors that may affect future project costs and margins include weather, production efficiencies,
availability and costs of labor, materials and subcomponents. These factors can significantly impact the accuracy of
our estimates and materially impact our future reported earnings.
Revenues exclude taxes assessed based on revenues such as sales or value added taxes.
Cost of services includes labor, food, utilities, cleaning supplies and other costs associated with operating the
accommodations facilities. Cost of goods sold includes all direct material and labor costs and those costs related to
contract performance, such as indirect labor, supplies, tools and repairs. Selling, general and administrative costs are
charged to expense as incurred.
Allowance for Doubtful Accounts
The determination of the collectability of amounts due from customer accounts requires us to make judgments
regarding future events and trends. Allowances for doubtful accounts are determined based on a continuous process
of assessing our accounts receivable on an individual customer basis, taking into account current market conditions
and trends. This process consists of a thorough review of historical collection experience, current aging status of the
customer accounts, and financial condition of our customers. Based on a review of these factors, we will establish or
adjust allowances for specific customers. A substantial portion of our revenues come from oil companies in the
Canadian oil sands and Australian mining companies. If worldwide commodity prices continue to deteriorate, the
creditworthiness of our customers could also deteriorate, they may be unable to pay these receivables, and additional
allowances could be required. At December 31, 2015 and 2014, our allowance for bad debts totaled $1.1 million and
$4.0 million, or 1.8% and 2.4% of gross accounts receivable, respectively.
Estimation of Useful Lives
The selection of the useful lives of many of our assets requires the judgments of our operating personnel as to
the length of these useful lives. Our judgment in this area is influenced by our historical experience in operating our
assets, technological developments and expectations of future demand for the assets. Should our estimates be too
long or short, we might eventually report a disproportionate number of losses or gains upon disposition or retirement
of our long-lived assets. We reevaluate the remaining useful lives and salvage values of our assets when certain
events occur that directly impact the useful lives and salvage values, including changes in operating condition,
functional capability and market and economic factors. We believe our estimates of useful lives are appropriate.
Share-Based Compensation
Our historic share-based compensation is based on participating in Civeo’s 2014 Equity Participation Plan and,
prior to the Spin-Off, the Oil States 2001 Equity Participation Plan (collectively, the Plans). Our disclosures reflect
only our employees’ participation in the Plans. We are required to estimate the fair value of share compensation
made pursuant to awards under the Plans. An initial estimate of the fair value of each option award or restricted
share award determines the amount of share compensation expense we will recognize in the future. For stock option
awards prior to the Spin-Off, to estimate the value of the awards under the Plan, Oil States selected a fair value
calculation model. Oil States chose the Black Scholes Merton “closed form” model to value stock options awarded
under the Plan. Oil States chose this model because option awards were made under straightforward vesting terms,
option prices and option lives. Utilizing the Black Scholes Merton model required Oil States to estimate the length
of time options will remain outstanding, a risk free interest rate for the estimated period options are assumed to be
outstanding, forfeiture rates, future dividends and the volatility of our common stock. All of these assumptions affect
the amount and timing of future share-based compensation expense recognition. We have not made any option
71
awards subsequent to the Spin-Off, but, in the event that we make future awards, we expect to utilize a similar
valuation methodology. We will continually monitor our actual experience and change assumptions for future
awards as we consider appropriate.
Income Taxes
We follow the liability method of accounting for income taxes in accordance with current accounting standards
regarding the accounting for income taxes. Under this method, deferred income taxes are recorded based upon the
differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted
tax rates and laws in effect at the time the underlying assets or liabilities are recovered or settled.
When our earnings from foreign subsidiaries are considered to be indefinitely reinvested, no provision for
Canadian income taxes is made for these earnings. If any of the subsidiaries have a distribution of earnings in the
form of dividends or otherwise, we would be subject to both Canadian income taxes (subject to an adjustment for
foreign tax credits) and withholding taxes payable to the various foreign countries. During the fourth quarter of
2014, we reevaluated our intent to indefinitely reinvest earnings of our U.S. foreign subsidiary companies, and
recognized a deferred tax liability of $25.3 million as of December 31, 2014 related to a portion of our undistributed
foreign earnings. During the third quarter of 2015, following our redomiciliation to Canada, it was determined that
the existing deferred tax liability recorded was no longer required. We reversed the taxes and recorded a tax benefit
of approximately $25.3 million during the year ended December 31, 2015. We do not expect to provide Canadian
income taxes on future foreign earnings.
We record a valuation allowance in each reporting period when management believes that it is more likely than
not that any deferred tax asset created will not be realized. Management will continue to evaluate the
appropriateness of the valuation allowance in the future based upon our operating results. Please see Note 12 –
Income Taxes to the notes to consolidated financial statements in Item 8 of this annual report for further discussion.
In accounting for income taxes, we are required to estimate a liability for future income taxes for any
uncertainty for potential income tax exposures. The calculation of our tax liabilities involves dealing with
uncertainties in the application of complex tax regulations. We recognize liabilities for anticipated tax audit issues in
the U.S. and other tax jurisdictions based on our estimate of whether, and the extent to which, additional taxes will
be due. If we ultimately determine that payment of these amounts is unnecessary, we reverse the liability and
recognize a tax benefit during the period in which we determine that the liability is no longer necessary. We record
an additional charge in our provision for taxes in the period in which we determine that the recorded tax liability is
less than we expect the ultimate assessment to be.
For periods prior to the Spin-Off, our results were included in the consolidated tax return of Oil States. We have
determined our U.S. income taxes in the combined financial statements by assuming our results are excluded from
the consolidated return and then comparing consolidated taxable income and taxes due with and then without our
results. Canadian and Australian taxes are based on actual tax returns filed by our foreign subsidiaries.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board
(the FASB), which are adopted by us as of the specified effective date. Unless otherwise discussed, management
believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on
our consolidated financial statements upon adoption. Please see Note 2 – Summary of Significant Accounting
Policies – Recent Accounting Pronouncements to the notes to consolidated financial statements in Item 8 of this
annual report for further discussion.
72
ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk
Our principal market risks are our exposure to changes in interest rates and foreign currency exchange rates.
Interest Rate Risk
We have credit facilities that are subject to the risk of higher interest charges associated with increases in
interest rates. As of December 31, 2015, we had floating-rate obligations totaling $401.6 million outstanding under
our credit facilities. These floating-rate obligations expose us to the risk of increased interest expense in the event of
increases in short-term interest rates. If floating interest rates increase by 1%, our consolidated interest expense
would increase by a total of approximately $4.0 million annually based on our floating-rate debt obligations as of
December 31, 2015.
Foreign Currency Exchange Rate Risk
Our operations are conducted in various countries around the world and we receive revenue and pay expenses
from these operations in a number of different currencies. As such, our earnings are subject to movements in foreign
currency exchange rates when transactions are denominated in (i) currencies other than the U.S. dollar, which is our
functional currency, or (ii) the functional currency of our subsidiaries, which is not necessarily the U.S. dollar.
Excluding intercompany balances, our Canadian dollar and Australian dollar functional currency net assets total
approximately C$0.2 billion and A$0.5 billion, respectively, at December 31, 2015. We use a sensitivity analysis
model to measure the impact of a 10% adverse movement of foreign currency exchange rates against the U.S. dollar.
A hypothetical 10% adverse change in the value of the Canadian dollar and Australian dollar relative to the U.S.
dollar as of December 31, 2015 would result in translation adjustments of approximately $24 million and $55
million, respectively, recorded in other comprehensive loss. Although we do not currently have any foreign
exchange agreements outstanding, in order to reduce our exposure to fluctuations in currency exchange rates, we
may enter into foreign exchange agreements with financial institutions in the future.
ITEM 8. Financial Statements and Supplementary Data
Our Consolidated Financial Statements and supplementary data appear on pages 81 through 120 of this Annual
Report on Form 10-K and are incorporated by reference into this Item 8. Selected quarterly financial data is set
forth in Note 19 – Quarterly Financial Information (Unaudited) to our Consolidated Financial Statements, which is
incorporated herein by reference.
ITEM 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
There were no changes in or disagreements on any matters of accounting principles or financial statement
disclosure between us and our independent auditors during our two most recent fiscal years or any subsequent
interim period.
ITEM 9A. Controls and Procedures
(i) Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this annual report, we carried out an evaluation, under the supervision
and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of
the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-
15(e) and 15d-15(e) under the Exchange Act). Our disclosure controls and procedures are designed to provide
reasonable assurance that the information required to be disclosed by us in reports that we file under the Exchange
Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed,
summarized and reported within the time periods specified in the rules and forms of the Commission. Based upon
that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and
procedures were effective as of December 31, 2015 at the reasonable assurance level.
73
(ii) Internal Control Over Financial Reporting
(a) Management's annual report on internal control over financial reporting.
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial
reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of consolidated financial statements for external purposes in accordance with GAAP. Our internal
control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with GAAP, and that our receipts and expenditures are being made only in accordance with
authorizations of management and our directors, and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the
consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate. Accordingly, even effective internal control over financial reporting can
only provide reasonable assurance of achieving their control objectives.
Under the supervision and with the participation of our management, including our Chief Executive Officer and
Chief Financial Officer, an assessment of the effectiveness of our internal control over financial reporting as of
December 31, 2015 was conducted. In making this assessment, management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control–Integrated
Framework (2013 Framework). Based on our assessment we believe that, as of December 31, 2015, the Company's
internal control over financial reporting is effective based on those criteria.
(b) Attestation report of the registered public accounting firm.
The attestation report of Ernst & Young LLP, the Company's independent registered public accounting firm, on
the Company's internal control over financial reporting is set forth in this annual report on page 83 and is
incorporated herein by reference.
(c) Changes in internal control over financial reporting.
Except as noted below, during the three months ended December 31, 2015, there were no changes in our
internal controls (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) which have materially
affected, or are reasonably likely to materially affect, our internal controls.
During the third quarter of 2015, we identified a material weakness in our internal controls over the assignment
of depreciable lives to asset amounts recorded for asset retirement obligations. Our processes, procedures and
controls related to the assignment of depreciable lives for asset retirement obligations were not effective to ensure
that the asset amounts were accurately reflected in the financial statements. This control deficiency resulted in a
correction of an immaterial error in the third quarter 2015 financial statements.
To remediate this material weakness, during the fourth quarter of 2015, we implemented the following controls:
(i) further formalizing and documenting the procedures surrounding the assignment of depreciable lives to assets
recorded for asset retirement obligations; (ii) expanding management’s review of the related process; and (iii)
formalizing and documenting additional analysis to be performed on our asset retirement amounts. The
implementation of these controls remediated the material weakness as of December 31, 2015.
ITEM 9B. Other Information
Not applicable.
74
ITEM 10. Directors, Executive Officers and Corporate Governance
PART III
The information required by Item 10 hereby is incorporated by reference to such information as set forth in the
Company's Definitive Proxy Statement for the 2016 Annual General and Special Meeting of Shareholders.
The Board of Directors of the Company (the Board) has documented its governance practices by adopting
several corporate governance policies. These governance policies, including the Company's Corporate Governance
Guidelines, Corporate Code of Business Conduct and Ethics and Financial Code of Ethics for Senior Officers, as
well as the charters for the committees of the Board (Audit Committee, Compensation Committee, Finance and
Investment Committee and Nominating and Corporate Governance Committee) may also be viewed at the
Company's website. The Financial Code of Ethics for Senior Officers applies to our principal executive officer,
principal financial officer, principal accounting officer and certain other senior officers. We intend to disclose any
amendments to or waivers from our Financial Code of Ethics for Senior Officers by posting such information on our
website at www.civeo.com. Copies of such documents will be sent to shareholders free of charge upon written
request to the corporate secretary at the address shown on the cover page of this annual report.
ITEM 11. Executive Compensation
The information required by Item 11 hereby is incorporated by reference to such information as set forth in the
Company's Definitive Proxy Statement for the 2016 Annual General and Special Meeting of Shareholders.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
The information required by Item 12 hereby is incorporated by reference to such information as set forth in the
Company's Definitive Proxy Statement for the 2016 Annual General and Special Meeting of Shareholders.
ITEM 13. Certain Relationships and Related Transactions, and Director Independence
The information required by Item 13 hereby is incorporated by reference to such information as set forth in the
Company's Definitive Proxy Statement for the 2016 Annual General and Special Meeting of Shareholders.
ITEM 14. Principal Accounting Fees and Services
The information required by Item 14 hereby is incorporated by reference to such information as set forth in the
Company's Definitive Proxy Statement for the 2016 Annual General and Special Meeting of Shareholders.
75
ITEM 15. Exhibits, Financial Statement Schedules
(a) Index to Financial Statements, Financial Statement Schedules and Exhibits
PART IV
(1) Financial Statements: Reference is made to the index set forth on page 81 of this Annual Report on Form
10-K.
(2) Financial Statement Schedules: No schedules have been included herein because the information required to
be submitted has been included in the Consolidated Financial Statements or the Notes thereto, or the required
information is inapplicable.
(3) Index of Exhibits: See Index of Exhibits, below, for a list of those exhibits filed herewith, which index also
includes and identifies management contracts or compensatory plans or arrangements required to be filed as
exhibits to this Annual Report on Form 10-K by Item 601 of Regulation S-K.
(b)
Index of Exhibits
Exhibit No.
Description
2.1
2.2
3.1
3.2
4.1
10.1
10.2
10.3
10.4
10.5
Agreement and Plan of Merger, dated as of April 6, 2015, among Civeo Corporation, Civeo
Canadian Holdings ULC and Civeo US Merger Co (incorporated by reference to Annex A of
Civeo Corporation’s definitive proxy statement/prospectus on Schedule 14A filed with the SEC on
April 8, 2015).
Separation and Distribution Agreement by and between Oil States International, Inc. and Civeo
Corporation, dated May 27, 2014 (incorporated herein by reference to Exhibit 2.1 to the Current
Report on Form 8-K (File No. 001-36246) filed on June 2, 2014).
Notice of Articles of Civeo Corporation (incorporated herein by reference to Exhibit 3.1 to the
Current Report on Form 8-K12B (File No. 001-36246) filed on July 17, 2015).
Articles of Civeo Corporation (incorporated herein by reference to Exhibit 3.2 to the Current
Report on Form 8-K12B (File No. 001-36246) filed on July 17, 2015).
Form of Common Share Certificate (incorporated herein by reference to Exhibit 4.1 to the Current
Report on Form 8-K12B (File No. 001-36246) filed on July 17, 2015).
Indemnification and Release Agreement by and between Oil States International, Inc. and Civeo
Corporation, dated May 27, 2014 (incorporated herein by reference to Exhibit 10.1 to the Current
Report on Form 8-K (File No. 001-36246) filed on June 2, 2014).
Tax Sharing Agreement by and between Oil States International, Inc. and Civeo Corporation,
dated May 27, 2014 (incorporated herein by reference to Exhibit 10.2 to the Current Report on
Form 8-K (File No. 001-36246) filed on June 2, 2014).
Employee Matters Agreement by and between Oil States International, Inc. and Civeo
Corporation, dated May 27, 2014 (incorporated herein by reference to Exhibit 10.3 to the Current
Report on Form 8-K (File No. 001-36246) filed on June 2, 2014).
Transition Services Agreement by and between Oil States International, Inc. and Civeo
Corporation, dated May 27, 2014 (incorporated herein by reference to Exhibit 10.4 to the Current
Report on Form 8-K (File No. 001-36246) filed on June 2, 2014).
Syndicated Facility Agreement, dated as of May 28, 2014, among Civeo Corporation, Civeo
Canada Inc., Civeo Premium Camp Services Ltd. And Civeo Australia Pty Limited, as Borrowers,
the Lenders named therein, Royal Bank of Canada, as Administrative Agent, U.S. Collateral
Agent, Canadian Administrative Agent, Canadian Collateral Agent and an Issuing Bank, and RBC
76
10.6†
10.7†
10.8†
10.9†
10.10†
10.11†
10.12†
10.13†
10.14†
10.15†
10.16†
10.17†
10.18†
10.19†
10.20†
10.21†
Europe Limited, as Australian Administrative Agent, Australian Collateral Agent and an Issuing
Bank (incorporated herein by reference to Exhibit 10.5 to the Current Report on Form 8-K (File
No. 001-36246) filed on June 2, 2014).
Form of Indemnification Agreement (incorporated herein by reference to Exhibit 10.1 to the
Current Report on Form 8-K12B (File No. 001-36246) filed on July 17, 2015).
Settlement Agreement and Release, dated as of June 26, 2014, by and between Civeo Corporation
and Ronald Green (incorporated herein by reference to Exhibit 10.7 to the Quarterly Report on
Form 10-Q (File No. 001-36246) filed on August 13, 2014).
2014 Equity Participation Plan of Civeo Corporation (incorporated herein by reference to Exhibit
10.2 to the Current Report on Form 8-K12B (File No. 001-36246) filed on July 17, 2015).
Form of Civeo Corporation Annual Incentive Compensation Plan (incorporated herein by
reference to Exhibit 10.7 to the Registration Statement on Form 10 (File No. 001-36246) filed on
April 22, 2014).
Form of Canadian Long-Term Incentive Plan (incorporated herein by reference to Exhibit 10.8 to
the Registration Statement on Form 10 (File No. 001-36246) filed on April 22, 2014).
Form of Employee Non-Qualified Stock Option Agreement under the 2014 Equity Participation
Plan of Civeo Corporation (incorporated herein by reference to Exhibit 10.9 to the Registration
Statement on Form 10 (File No. 001-36246) filed on April 22, 2014).
Form of Restricted Stock Agreement under the 2014 Equity Participation Plan of Civeo
Corporation (incorporated herein by reference to Exhibit 10.10 to the Registration Statement on
Form 10 (File No. 001-36246) filed on April 22, 2014).
Form of Non-Employee Director Restricted Stock Agreement (incorporated herein by reference to
Exhibit 10.11 to the Registration Statement on Form 10 (File No. 001-36246) filed on April 22,
2014).
Form of Deferred Stock Agreement (Australia) (incorporated herein by reference to Exhibit 10.12
to the Registration Statement on Form 10 (File No. 001-36246) filed on April 22, 2014).
Form of Deferred Stock Agreement (Canada) (incorporated herein by reference to Exhibit 10.13 to
the Registration Statement on Form 10 (File No. 001-36246) filed on April 22, 2014).
Form of Executive Agreement of Bradley J. Dodson (incorporated herein by reference to Exhibit
10.14 to the Registration Statement on Form 10 (File No. 001-36246) filed on April 22, 2014).
Form of Phantom Unit Agreement under the 2014 Equity Participation Plan of Civeo Corporation
(incorporated herein by reference to Exhibit 10.17 to the Annual Report on Form 10-K (File No.
001-36246) filed on March 13, 2015).
Executive Agreement between Civeo Corporation and Frank C. Steininger, dated May 4, 2015
(incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No.
001-36246) filed on May 7, 2015).
Executive Services Agreement, dated May 30, 2012, between Peter McCann and The Mac
Services Group Pty Ltd. (incorporated herein by reference to Exhibit 10.3 to the Current Report on
Form 8-K12B (File No. 001-36246) filed on July 17, 2015).
Dual Employment Agreement of Bradley J. Dodson (incorporated herein by reference to Exhibit
10.4 to the Current Report on Form 8-K12B (File No. 001-36246) filed on July 17, 2015).
Dual Employment Agreement of Frank C. Steininger (incorporated herein by reference to Exhibit
10.5 to the Current Report on Form 8-K12B (File No. 001-36246) filed on July 17, 2015).
77
10.22†
10.23†
10.24†
10.25†
10.26†
10.27†
10.28†
10.29
21.1*
23.1*
31.1*
Executive Agreement between Civeo Corporation and Peter McCann, dated August 17, 2015
(incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No.
001-36246) filed on August 27, 2015).
Variation to Executive Services Agreement between Civeo Pty Ltd and Peter McCann, dated
August 17, 2015 (incorporated herein by reference to Exhibit 10.2 to the Current Report on Form
8-K (File No. 001-36246) filed on August 27, 2015).
Dual Employment Agreement (Canada) of Allan Schoening, dated July 16, 2015 (incorporated
herein by reference to Exhibit 10.8 to the Quarterly Report on Form 10-Q (File No. 001-36246)
filed on November 3, 2015).
Dual Employment Agreement (United States) of Allan Schoening, dated July 16, 2015
(incorporated herein by reference to Exhibit 10.9 to the Quarterly Report on Form 10-Q (File No.
001-36246) filed on November 3, 2015).
Executive Agreement between Civeo Corporation and Mike Ridley, effective May 4, 2015
(incorporated herein by reference to Exhibit 10.10 to the Quarterly Report on Form 10-Q (File No.
001-36246) filed on November 3, 2015).
Executive Change of Control Severance Agreement between Civeo Corporation and Allan
Schoening, dated July 13, 2015 (incorporated herein by reference to Exhibit 10.11 to the Quarterly
Report on Form 10-Q (File No. 001-36246) filed on November 3, 2015).
Executive Agreement between Civeo Corporation and Allan Schoening, dated December 15, 2014
(incorporated herein by reference to Exhibit 10.12 to the Quarterly Report on Form 10-Q (File No.
001-36246) filed on November 3, 2015).
First Amendment to Syndicated Facility Agreement, dated as of May 13, 2015, by and among
Civeo Corporation, Civeo Canadian Holdings ULC, Civeo Canada Inc., Civeo Premium Camp
Services Ltd., and Civeo PTY Limited as Borrowers, the Lenders named therein, Royal Bank of
Canada, as Administrative Agent, U.S. Collateral Agent, Canadian Administrative Agent,
Canadian Collateral Agent and an Issuing Bank and RBC Europe Limited, as Australian
Administrative Agent, Australian Collateral Agent and an Issuing Bank (incorporated herein by
reference to Exhibit 10.1 to the Current Report on Form 8-K (File No. 001-36246) filed on May
19, 2015).
List of Significant Subsidiaries of Civeo Corporation.
Consent of Ernst & Young LLP.
— Certification of Chief Executive Officer of Civeo Corporation. pursuant to Rules 13a-14(a) or
15d-14(a) under the Securities Exchange Act of 1934.
31.2*
— Certification of Chief Financial Officer of Civeo Corporation. pursuant to Rules 13a-14(a) or 15d-
14(a) under the Securities Exchange Act of 1934.
32.1**
— Certification of Chief Executive Officer of Civeo Corporation. pursuant to Rules 13a-14(b) or
15d-14(b) under the Securities Exchange Act of 1934.
32.2**
— Certification of Chief Financial Officer of Civeo Corporation. pursuant to Rules 13a-14(b) or 15d-
14(b) under the Securities Exchange Act of 1934.
101.INS*
— XBRL Instance Document
101.SCH*
— XBRL Taxonomy Extension Schema Document
101.CAL*
— XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*
— XBRL Taxonomy Extension Definition Linkbase Document
78
101.LAB*
— XBRL Taxonomy Extension Label Linkbase Document
101.PRE*
— XBRL Taxonomy Extension Presentation Linkbase Document
*
†
Filed herewith.
Management contracts and compensatory plans and arrangements.
**
Furnished herewith.
PLEASE NOTE: Pursuant to the rules and regulations of the Securities and Exchange Commission, we have filed or
incorporated by reference the agreements referenced above as exhibits to this Annual Report on Form 10-K. The
agreements have been filed to provide investors with information regarding their respective terms. The agreements
are not intended to provide any other factual information about Civeo or its business or operations. In particular, the
assertions embodied in any representations, warranties and covenants contained in the agreements may be subject to
qualifications with respect to knowledge and materiality different from those applicable to investors and may be
qualified by information in confidential disclosure schedules not included with the exhibits. These disclosure
schedules may contain information that modifies, qualifies and creates exceptions to the representations, warranties
and covenants set forth in the agreements. Moreover, certain representations, warranties and covenants in the
agreements may have been used for the purpose of allocating risk between the parties, rather than establishing
matters as facts. In addition, information concerning the subject matter of the representations, warranties and
covenants may have changed after the date of the respective agreement, which subsequent information may or may
not be fully reflected in our public disclosures. Accordingly, investors should not rely on the representations,
warranties and covenants in the agreements as characterizations of the actual state of facts about Civeo or its
business or operations on the date hereof.
79
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on February 26,
2016.
CIVEO CORPORATION
By /s/ FRANK C. STEININGER
Frank C. Steininger
Senior Vice President, Chief Financial
Officer and Treasurer
Signature
Title
/s/ DOUGLAS E. SWANSON
Douglas E. Swanson
Chairman of the Board
/s/ BRADLEY J. DODSON
Bradley J. Dodson
Director, President & Chief Executive Officer
(Principal Executive Officer)
/s/ FRANK C. STEININGER
Frank C. Steininger
Senior Vice President, Chief Financial Officer
and Treasurer
(Principal Financial Officer and Accounting Officer)
/s/ C. RONALD BLANKENSHIP
Director
C. Ronald Blankenship
/s/ MARTIN A. LAMBERT
Director
Martin A. Lambert
/s/ CONSTANCE B. MOORE
Director
Constance B. Moore
/s/ RICHARD A. NAVARRE
Richard A. Navarre
Director
/s/ CHARLES SZALKOWSKI
Director
Charles Szalkowski
80
CIVEO CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements .......................
Report of Independent Registered Public Accounting Firm on the Company's Internal Control Over Financial
Reporting ..............................................................................................................................................................
Consolidated Statements of Operations for the Years Ended December 31, 2015, 2014 and 2013 ........................
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2015, 2014 and
2013 ......................................................................................................................................................................
Consolidated Balance Sheets at December 31, 2015 and 2014 ................................................................................
Consolidated Statements of Changes in Shareholders’ Equity / Net Investment for the Years Ended December
Page
No.
82
83
84
85
86
87
31, 2015, 2014 and 2013 .......................................................................................................................................
Consolidated Statements of Cash Flows for the Years Ended December 31, 2015, 2014 and 2013 .......................
88
Notes to Consolidated Financial Statements ............................................................................................................ 89 -120
81
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
CIVEO CORPORATION
To the Board of Directors and Shareholders of Civeo Corporation:
We have audited the accompanying consolidated balance sheets of Civeo Corporation and subsidiaries’ (the
“Company”) as of December 31, 2015 and 2014, and the related consolidated statements of operations,
comprehensive income (loss), changes in shareholders’ equity/net investment and cash flows for each of the three
years in the period ended December 31, 2015. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
consolidated financial position of Civeo Corporation and subsidiaries’ at December 31, 2015 and 2014, and the
consolidated results of its operations and its cash flows for each of the three years in the period ended December 31,
2015, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), Civeo Corporation and subsidiaries’ internal control over financial reporting as of December 31, 2015,
based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 framework) and our report dated February 26, 2016 expressed an
unqualified opinion thereon.
Houston, Texas
February 26, 2016
/s/ Ernst & Young LLP
82
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
CIVEO CORPORATION
To the Board of Directors and Shareholders of Civeo Corporation:
We have audited Civeo Corporation and subsidiaries’ (the “Company”) internal control over financial reporting as
of December 31, 2015, based on criteria established in Internal Control – Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria).
Civeo Corporation and subsidiaries’ management is responsible for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in
the accompanying Management’s annual report on internal control over financial reporting. Our responsibility is to
express an opinion on the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
In our opinion, Civeo Corporation and subsidiaries maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2015, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated balance sheets of Civeo Corporation and subsidiaries as of December 31, 2015 and 2014,
and the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity/net
investment and cash flows for each of the three years in the period ended December 31, 2015 and our report dated
February 26, 2016 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Houston, Texas
February 26, 2016
83
CIVEO CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
530,575
19,040
69,590
--
167,213
--
(4,770)
781,648
259,456
(18,933)
(6,029)
(1,207)
2,332
3,749
239,368
(56,056)
183,312
1,436
181,876
1.70
1.70
$
$
$
YEAR ENDED DECEMBER 31,
2014
2013
2015
$ 489,788
28,175
517,963
$ 908,061
34,830
942,891
$ 1,016,769
24,335
1,041,104
Revenues:
Service and other ........................................................................
Product .......................................................................................
Costs and expenses:
Service and other costs ...............................................................
Product costs ...............................................................................
Selling, general and administrative expenses .............................
Spin-off and formation costs ......................................................
Depreciation and amortization expense ......................................
Impairment expense ....................................................................
Other operating expense (income) .............................................
Operating income (loss) ....................................................................
Interest expense to affiliates .............................................................
Interest expense to third-parties, net of capitalized interest .............
Loss on extinguishment of debt ........................................................
Interest income ..................................................................................
Other income ....................................................................................
Income (loss) before income taxes .............................................
Income tax benefit (provision) ..........................................................
Net income (loss) ..............................................................................
Less: Net income attributable to noncontrolling interest ...........
Net income (loss) attributable to Civeo Corporation. .......................
300,888
26,725
68,441
--
152,990
122,926
(9,004)
662,966
(145,003)
--
(22,585)
(1,474)
2,033
3,276
513,087
31,834
70,345
4,350
174,970
290,508
688
1,085,782
(142,891)
(6,980)
(14,396)
(3,455)
3,915
7,524
(163,753)
(156,283)
33,089
(130,664)
1,095
$ (131,759)
(31,379)
(187,662)
1,381
$ (189,043)
Per Share Data (see Note 6)
Basic net income (loss) per share attributable to Civeo
Corporation common shareholders ..................................................
$
(1.24)
$
(1.77)
Diluted net income (loss) per share attributable to Civeo
Corporation common shareholders. ..................................................
$
(1.24)
$
(1.77)
Weighted average number of common shares outstanding:
Basic ...........................................................................................
Diluted. .......................................................................................
106,604
106,604
106,306
106,306
106,293
106,460
Dividends per common share ...........................................................
$
--
$
0.26
$
--
The accompanying notes are an integral part of these financial statements.
84
CIVEO CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In Thousands)
YEAR ENDED DECEMBER 31,
2014
2013
2015
Net income (loss) ............................................................................................
$ (130,664)
$ (187,662)
$
183,312
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment, net of tax of $1.9 million,
$771 and zero, respectively ......................................................................
Total other comprehensive income (loss), net of tax .....................................
(168,363)
(138,692)
(168,363)
(138,692)
(167,712)
(167,712)
Comprehensive income (loss) ........................................................................
Comprehensive (income) loss attributable to noncontrolling interest ......
Comprehensive income (loss) attributable to Civeo Corporation. .................
(299,027)
(550)
$ (299,577)
(326,354)
(1,201)
$ (327,555)
15,600
(1,345)
14,255
$
The accompanying notes are an integral part of these financial statements.
85
CIVEO CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands)
ASSETS
2015
2014
DECEMBER 31,
Current assets:
Cash and cash equivalents ......................................................................................
Accounts receivable, net .........................................................................................
Inventories ...............................................................................................................
Prepaid expenses ......................................................................................................
Other current assets ................................................................................................
Total current assets .............................................................................................
$
7,837
61,467
5,631
11,712
4,589
91,236
Property, plant and equipment, net ..............................................................................
Goodwill, net ...............................................................................................................
Other intangible assets, net ..........................................................................................
Other noncurrent assets ...............................................................................................
Total assets .............................................................................................................
931,914
--
35,309
12,753
$ 1,071,212
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable ....................................................................................................
Accrued liabilities ...................................................................................................
Income taxes ...........................................................................................................
Current portion of long-term debt ..........................................................................
Deferred revenue ....................................................................................................
Other current liabilities ...........................................................................................
Total current liabilities ........................................................................................
Long-term debt, less current maturities ........................................................................
Deferred income taxes .................................................................................................
Other noncurrent liabilities ..........................................................................................
Total liabilities ........................................................................................................
$
24,609
14,834
1,104
17,698
7,747
493
66,485
383,862
25,391
31,704
507,442
$
263,314
160,253
13,228
20,670
6,491
463,956
1,248,430
45,260
50,882
20,633
$ 1,829,161
$
36,277
22,512
61
19,375
18,539
21,677
118,441
755,625
55,500
39,486
969,052
Commitments and contingencies (Note 13)
Shareholders’ Equity:
Common shares (no par value; 550,000,000 shares authorized, 107,470,861
shares issued and outstanding at December 31, 2015) ............................................
Common stock ($0.01 par value, 550,000,000 shares authorized, 106,721,483
shares issued and outstanding at December 31, 2014) ............................................
Additional paid-in capital ........................................................................................
Accumulated deficit .................................................................................................
Accumulated other comprehensive loss .................................................................
Total Civeo Corporation shareholders’ equity ...................................................
Noncontrolling interest ................................................................................................
Total shareholders’ equity ......................................................................................
Total liabilities and shareholders’ equity ............................................................
--
--
--
1,305,930
(376,376)
(366,309)
563,245
525
563,770
$ 1,071,212
1,067
1,300,042
(244,617)
(198,491)
858,001
2,108
860,109
$ 1,829,161
The accompanying notes are an integral part of these financial statements.
86
CIVEO CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS’ EQUITY / NET INVESTMENT
(In Thousands)
Common Shares
Par Value
Additional
Paid-in
Capital
Accumulated
Deficit
Treasury
Stock
Oil States Net
Investment
Accumulated
Other
Comprehensive
Income (Loss)
Noncontrolling
Interest
Attributable to Civeo
--
$
--
$
--
$
--
$ 1,302,664
181,876
$ 107,733
$
--
$
--
$
--
(230,724)
$
--
(13,897)
(13,893)
(167,712)
$
(59,979)
$
(138,512)
166,473
$ 1,651,013
41,681
369,219
(750,000)
(1,311,913)
1,311,913
(1,066)
3,220
(128)
$ 1,300,042
1,066
1
1,067
(1,075)
8
--
929
5,102
(143)
$ 1,305,930
$
(244,617)
(131,759)
$
--
$
--
$ (198,491)
$
(167,818)
146
(146)
$
(376,376)
$
--
$
--
$ (366,309)
$
525
$
1,248
1,436
(91)
(882)
1,711
1,381
(180)
(804)
2,108
1,095
(545)
(2,133)
Total
Shareholders’
Equity / Net
Investment
$
1,411,645
183,312
$
$
(167,803)
(882)
166,473
1,592,745
(187,662)
(138,692)
(28,594)
369,219
(750,000)
--
--
3,221
(128)
860,109
(130,664)
(168,363)
(2,133)
--
4,964
(143)
563,770
Balance, December 31, 2012 ...... $
Net income ...................................
Currency translation
adjustment. ...............................
Dividends paid ..............................
Net transfers from Oil States
International, Inc. .....................
Balance, December 31, 2013 ...... $
Net income (loss) ..........................
Currency translation
adjustment. ...............................
Dividends paid ..............................
Net transfers from Oil States
International, Inc ......................
Distribution to Oil States
International, Inc. .....................
Reclassification of Oil States
International, Inc. Net
Investment to Additional
Paid-in Capital .........................
Issuance of common stock at
the Spin-Off ...........................
Stock-based compensation ...........
Other. ............................................
Balance, December 31, 2014 ...... $
Net income (loss) ..........................
Currency translation
adjustment. ...................................
Dividends paid ..............................
Redomicile Transaction ................
Share-based compensation. ..........
Other. ............................................
Balance, December 31, 2015 ...... $
Balance, December 31, 2012
and 2013 .......................................
Issuance of common stock at
the Spin-Off .............................
Stock-based compensation. ..........
Balance, December 31, 2014 ......
Stock-based compensation. ..........
Balance, December 31, 2015 ......
Common
Stock (in
thousands)
--
106,538
183
106,721
750
107,471
The accompanying notes are an integral part of these financial statements.
87
CIVEO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Cash flows from operating activities:
Net income (loss) ...............................................................................................................
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization ......................................................................................
Impairment charges .......................................................................................................
Inventory write-down ....................................................................................................
Loss on extinguishment of debt ....................................................................................
Deferred income tax provision (benefit) .......................................................................
Non-cash compensation charge ....................................................................................
Gains on disposals of assets ..........................................................................................
Provision (benefit) for loss on receivables, net of recoveries .......................................
Fair value adjustment of contingent consideration .......................................................
Other, net .......................................................................................................................
Changes in operating assets and liabilities:
Accounts receivable ...................................................................................................
Inventories .................................................................................................................
Accounts payable and accrued liabilities ...................................................................
Taxes payable ............................................................................................................
Other current assets and liabilities, net ......................................................................
Net cash flows provided by operating activities ................................................................
Cash flows from investing activities:
Capital expenditures, including capitalized interest .....................................................
Proceeds from disposition of property, plant and equipment .......................................
Net cash flows used in investing activities ................................................................
Cash flows from financing activities:
Proceeds from issuance of common shares ...................................................................
Revolving credit borrowings .........................................................................................
Revolving credit repayments ........................................................................................
Term loan borrowings ...................................................................................................
Term loan repayments ...................................................................................................
Debt issuance costs ........................................................................................................
Dividends paid ...............................................................................................................
Distributions to Oil States .............................................................................................
Contributions from Oil States .......................................................................................
Net cash flows provided by (used in) financing activities .........................................
Effect of exchange rate changes on cash ...........................................................................
Net change in cash and cash equivalents ...........................................................................
Cash and cash equivalents, beginning of period ................................................................
Cash and cash equivalents, end of period ..........................................................................
$
YEAR ENDED DECEMBER 31,
2014
2015
2013
$
(130,664)
$
(187,662)
$
183,312
152,990
122,926
1,015
1,474
(34,175)
4,614
(1,826)
1,205
--
1,424
80,347
5,406
(12,885)
6,204
(11,924)
186,131
(62,451)
12,683
(49,768)
500
299,427
(240,284)
325,000
(729,425)
(4,833)
--
--
--
(349,615)
(42,225)
(255,477)
263,314
7,837
174,970
290,508
--
3,455
4,333
6,283
(5,877)
(1,276)
--
1,096
4,840
15,174
(167)
(16,738)
2,114
291,053
(251,158)
12,086
(239,072)
--
--
--
775,000
--
(9,235)
(27,790)
(750,000)
28,257
16,232
(29,027)
39,186
224,128
167,213
--
--
1,207
11,607
4,894
(2,395)
2,099
(3,448)
506
12,554
(11,885)
(28,257)
(24,921)
24,892
337,378
(291,694)
7,488
(284,206)
--
3,093
(50,994)
--
(82,762)
--
--
--
160,998
30,335
(20,775)
62,732
161,396
$
263,314
$
224,128
The accompanying notes are an integral part of these financial statements.
88
CIVEO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of the Business
We are one of the largest integrated providers of longer-term and temporary remote site accommodations,
logistics and facility management services to the natural resource industry. Our scalable modular facilities provide
long-term and temporary workforce accommodations where traditional accommodations and related infrastructure is
insufficient, inaccessible or not cost effective. Once facilities are deployed in the field, we also provide catering and
food services, housekeeping, laundry, facility management, water and wastewater treatment, power generation,
communications and redeployment logistics. Our accommodations support workforces in the Canadian oil sands and
in a variety of oil and natural gas drilling, mining and related natural resource applications as well as disaster relief
efforts, primarily in Canada, Australia and the United States. We operate in three principal reportable business
segments – Canadian, Australian and U.S.
On May 5, 2014, the board of directors of the Oil States International, Inc. (Oil States) approved the separation
of its Accommodations Segment (Accommodations) into a standalone, publicly traded Delaware corporation (Civeo
US). In accordance with the Separation and Distribution Agreement, the two companies were separated by Oil
States distributing to its stockholders all 106,538,044 shares of common stock of Civeo US it held after the market
closed on May 30, 2014 (the Spin-Off). Each Oil States stockholder received two shares of Civeo US common stock
for every one share of Oil States stock held at the close of business on the record date of May 21, 2014. In
conjunction with the Spin-Off, Oil States received a private letter ruling from the Internal Revenue Service to the
effect that, based on certain facts, assumptions, representations and undertakings set forth in the ruling, for U.S.
federal income tax purposes, Oil States’ distribution of Civeo US common stock was not taxable to Oil States or
U.S. holders of Oil States common stock. Following the Spin-Off, Oil States retained no ownership interest in
Civeo US, and each company now has separate public ownership, boards of directors and management. On June 2,
2014, Civeo US stock began trading the “regular-way” on the New York Stock Exchange (NYSE) under the
“CVEO” stock symbol. Pursuant to the Separation and Distribution Agreement with Oil States, on May 28, 2014,
we made a special cash distribution to Oil States of $750 million.
On July 17, 2015, we changed our place of incorporation, pursuant to which Civeo Corporation, a British
Columbia, Canada limited company formerly named Civeo Canadian Holdings ULC (Civeo Canada), became the
publicly traded parent company of the Civeo group of companies (the Redomicile Transaction). The Redomicile
Transaction was effected pursuant to a previously announced Agreement and Plan of Merger, dated as of April 6,
2015, between Civeo US, Civeo US Merger Co, a Delaware corporation and wholly owned subsidiary of Civeo
Canada (US Merger Co), and Civeo Canada. At the effective time of the merger, (i) US Merger Co was merged with
Civeo US, with Civeo US surviving the merger as a wholly owned subsidiary of Civeo Canada, and (ii) each issued
share of Civeo US common stock, other than those shares of Civeo US common stock held by Civeo US in treasury,
was effectively transferred to Civeo Canada and converted into one common share, no par value, of Civeo Canada.
An aggregate of approximately 107.5 million Civeo Canada common shares were issued at the effective time as
merger consideration. The Civeo Canada common shares are listed on the NYSE under the symbol “CVEO”, the
same symbol under which the Civeo US common stock traded prior to the effective time.
The Redomicile Transaction qualified as a “self-directed redomiciling” of the Company as permitted under the
U.S. Internal Revenue Code. U.S. federal income tax laws permit a company to change its domicile to a foreign
jurisdiction without corporate-level U.S. federal income taxes provided that such company has “substantial business
activity” in the relevant jurisdiction. “Substantial business activity” is defined as foreign operations consisting of
over 25% of the company’s total (i) revenues, (ii) assets, (iii) employees and (iv) employee compensation. With
approximately 50% or more of our operations in Canada based on these metrics, we qualified for a self-directed
redomiciling.
In connection with the Spin-Off, on May 28, 2014, we entered into a $650.0 million, 5-year revolving credit
facility and a 5-year U.S. term loan facility totaling $775.0 million (collectively, the Credit Facility) for an aggregate
borrowing capacity of $1.4 billion. On July 17, 2015, the First Amendment to the Credit Facility became effective.
On February 18, 2016, the Second Amendment to the Credit Facility (together with all amendments, the Amended
Credit Facility) became effective. The Amended Credit Facility, among other things, (i) allows us to borrow under
89
CIVEO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
new Canadian tranches of the Credit Facility, (ii) substantially reduced both the existing U.S. term loan and the U.S.
revolver and (iii) increased the maximum leverage ratio allowed under the Credit Facility. For further information,
please see Note 9 – Debt for further discussion.
We incurred costs related to the Redomicile Transaction totaling $7.0 million and $2.6 million for the years
ended December 31, 2015 and 2014, respectively. In addition, we incurred costs related to the Amended Credit
Facility totaling $5.5 million. $4.8 million has been capitalized as debt issuance costs and the remaining $0.7 million
is included in interest expense. As a result of the amendment, we also recognized a loss during the third quarter 2015
of approximately $1.5 million related to unamortized debt issuance costs, which is included in Loss on
extinguishment of debt on the accompanying consolidated statements of operations.
As a result of the Spin-Off, we incurred certain costs during the year ended December 31, 2014. We recognized
a loss on the termination of debt of approximately $3.5 million in the second quarter 2014, related to unamortized
debt issuance costs, which is included in Loss on extinguishment of debt on the accompanying consolidated
statements of operations. We recorded transition and formation costs associated with the Spin-Off of approximately
$4.3 million for the year ended December 31, 2014, which are included in Spin-off and formation costs on the
accompanying consolidated statements of operations. In the second quarter 2014, we recognized a $9.0 million
impairment of an intangible asset in Australia, which is included in Impairment expense on the accompanying
consolidated statements of operations. Due to the Spin-Off, and the resulting rebranding of our Australian
operations from The MAC to Civeo, it was determined that the fair value of an intangible asset associated with The
MAC brand had been reduced to nil.
Basis of Presentation
Unless otherwise stated or the context otherwise indicates, all references in these consolidated financial
statements to “Civeo,” “the Company,” “us,” “our” or “we” for the time period prior to the Spin-Off mean the
Accommodations business of Oil States. For time periods after the Spin-Off, but prior to July 17, 2015, these terms
refer to Civeo US and its consolidated subsidiaries. For time periods after July 17, 2015, these terms refer to Civeo
Canada and its consolidated subsidiaries.
Prior to the Spin-Off, our financial position, results of operations and cash flows consisted of the Oil States’
Accommodations business and an allocable portion of its corporate costs, which represented a combined reporting
entity. The combined financial statements for periods prior to the Spin-Off have been prepared on a stand-alone
basis and are derived from the consolidated financial statements and accounting records of Oil States. The combined
financial statements reflect our historical financial position, results of operations and cash flows as we were
historically managed, in conformity with accounting principles generally accepted in the United States of America
(U.S. GAAP). The combined financial statements include certain assets and liabilities that have historically been
held at the Oil States corporate level, but are specifically identifiable or otherwise attributable to us.
All financial information presented after the Spin-Off represents the consolidated results of operations, financial
position and cash flows of Civeo. Accordingly:
• Our consolidated statements of operations, comprehensive income (loss), cash flows and changes in
shareholders’ equity / net investment for the year ended December 31, 2015 consist entirely of the
consolidated results of Civeo.
• Our consolidated statements of operations, comprehensive income (loss), cash flows and changes in
shareholders’ equity / net investment for the year ended December 31, 2014 consist of (i) the combined
results of the Oil States’ Accommodations business for the five months ended May 30, 2014 and (ii)
the consolidated results of Civeo for the seven months ended December 31, 2014.
• Our consolidated statements of operations, comprehensive income (loss), cash flows and changes in
shareholders’ equity / net investment for the year ended December 31, 2013 consist entirely of the
combined results of the Oil States’ Accommodations business.
• Our consolidated balance sheets at December 31, 2015 and December 31, 2014 consist entirely of the
consolidated balances of Civeo.
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(Continued)
The assets and liabilities in our consolidated financial statements have been reflected on a historical basis, as
immediately prior to the Spin-Off all of the assets and liabilities presented were wholly owned by Oil States and
were transferred within the Oil States consolidated group. All intercompany transactions and accounts have been
eliminated. All affiliate transactions between Civeo and Oil States have been included in these consolidated
financial statements.
The consolidated financial statements for periods prior to the Spin-Off included expense allocations for: (1)
certain corporate functions historically provided by Oil States, including, but not limited to finance, legal, risk
management, tax, treasury, information technology, human resources, and certain other shared services; (2) certain
employee benefits and incentives; and (3) equity-based compensation. These expenses were allocated to us on the
basis of direct usage when identifiable, with the remainder allocated based on estimated time spent by Oil States
personnel, a pro-rata basis of headcount or other relevant measures of Oil States and its subsidiaries. We consider
the basis on which the expenses were allocated to be a reasonable reflection of the utilization of services provided to
or the benefit received by us during the periods presented. The allocations may not, however, reflect the expense we
would have incurred as an independent, publicly traded company for the periods presented. Actual costs that may
have been incurred if we had been a stand-alone company would depend on a number of factors, including the
chosen organizational structure, which functions were outsourced or performed by employees and strategic
decisions made in areas such as information technology and infrastructure. Following the Spin-Off, we perform
these functions using our own resources or purchase services. Until February 28, 2015, however, some of these
functions were provided by Oil States under a transition services agreement. See Note 17 – Related Party
Transactions.
Oil States used a centralized approach to the cash management and financing of its U.S. operations. Prior to
February 2014, cash from our U.S. operations was transferred to Oil States daily and Oil States funded our U.S.
operating and investing activities as needed. Accordingly, the cash and cash equivalents held by Oil States at the
corporate level were not allocated to us for any of the periods presented prior to February 2014. We reflected the
transfer of cash to and from Oil States as a component of “Net Investment of Oil States International, Inc.” on our
consolidated balance sheet. We have not included interest expense for intercompany cash advances from Oil States,
since historically Oil States has not allocated interest expense related to intercompany advances to any of its
businesses. Beginning in February 2014, we established Civeo cash accounts and funded a portion of our U.S.
operating and investing activities.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash
We consider all highly liquid investments purchased with an original maturity of three months or less to be cash
equivalents.
Allowances for Doubtful Accounts
We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers
to make required payments. If a trade receivable is deemed to be uncollectible, such receivable is charged-off
against the allowance for doubtful accounts. We consider the following factors when determining if collection of
revenue is reasonably assured: customer credit-worthiness, past transaction history with the customer, current
economic industry trends, customer solvency and changes in customer payment terms. If we have no previous
experience with the customer, we typically obtain reports from various credit organizations to ensure that the
customer has a history of paying its creditors. We may also request financial information, including combined
financial statements or other documents, to ensure that the customer has the means of making payment. If these
factors do not indicate collection is reasonably assured, we would require a prepayment or other arrangement to
support revenue recognition and recording of a trade receivable. If the financial condition of our customers were to
deteriorate, adversely affecting their ability to make payments, additional allowances would be required.
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(Continued)
Inventories
Inventories consist of work in process, raw materials and supplies and materials for the construction and
operation of remote accommodation facilities. Inventories also include food, raw materials, labor, subcontractor
charges, manufacturing overhead and catering and other supplies needed for operation of our facilities. Inventories
are carried at the lower of cost or market. The cost of inventories is determined on an average cost or specific-
identification method.
Property, Plant, and Equipment
Property, plant, and equipment are stated at cost or at estimated fair market value at acquisition date if acquired
in a business combination, and depreciation is computed, for assets owned or recorded under capital lease, using the
straight-line method, after allowing for salvage value where applicable, over the estimated useful lives of the assets.
Leasehold improvements are capitalized and amortized over the lesser of the life of the lease or the estimated useful
life of the asset.
We record the fair value of a liability, which reflects the estimated present value of the amount of asset removal
and site reclamation costs related to the retirement of our assets, for an asset retirement obligation (ARO) when it is
incurred (typically when the asset is installed). When the liability is initially recorded, we capitalize the associated
asset retirement cost by increasing the carrying amount of the related property, plant and equipment. Please see
Asset Retirement Obligations, below, for further discussion.
Expenditures for repairs and maintenance are charged to expense when incurred. Expenditures for major
renewals and betterments, which extend the useful lives of existing equipment, are capitalized and depreciated.
Upon retirement or disposition of property and equipment, the cost and related accumulated depreciation are
removed from the accounts and any resulting gain or loss is recognized in the consolidated statements of operations.
Interest Capitalization
Interest costs for the construction of certain long-term assets are capitalized and amortized over the related
assets’ estimated useful lives. For the years ended December 31, 2015, 2014, and 2013, $1.6 million, $2.3 million
and $0.8 million were capitalized, respectively.
Impairment of Long-Lived Assets
The recoverability of the carrying values of long-lived assets, including amortizable intangible assets, is
assessed whenever, in management’s judgment, events or changes in circumstances indicate that the carrying value
of such asset groups may not be recoverable based on estimated future cash flows. If this assessment indicates that
the carrying values will not be recoverable, as determined based on undiscounted cash flows over the remaining
useful lives, an impairment loss is recognized. The impairment loss equals the excess of the carrying value over the
fair value of the asset group. The fair value of the asset group is based on prices of similar assets, if available, or
discounted cash flows.
In performing this analysis, the first step is to review asset groups at the lowest level for which identifiable cash
flows are largely independent of the cash flows of other assets and liabilities. For each asset group, we compare its
carrying value to estimates of undiscounted future cash flows. We use a variety of underlying assumptions to
estimate these future cash flows, including assumptions relating to future economic market conditions, rates,
occupancy levels, costs and expenses and capital expenditures. The estimates are consistent with those used for
purposes of our goodwill impairment test, as further discussed in Goodwill and Other Intangible Assets, below.
Based on the assessment, if the carrying values of certain of our asset groups are determined to not be recoverable,
we proceed to the second step. In this step, we compare the fair value of the respective asset group to its carrying
value. The fair value of the asset groups are based on prices of similar assets, as applicable, or discounted cash
flows. Our estimate of the fair value requires us to use significant unobservable inputs, representative of Level 3 fair
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(Continued)
value measurements, including numerous assumptions with respect to future circumstances, such as industry and/or
local market conditions that might directly impact each of the asset groups’ operations in the future, and are
therefore uncertain.
Please see Note 3 – Impairment Charges for a discussion of impairment charges we recognized in 2015 and
2014 related to our long-lived assets.
Goodwill and Other Intangible Assets
Goodwill. Goodwill represents the excess of the purchase price paid for acquired businesses over the allocated
fair value of the related net assets after impairments, if applicable.
We do not amortize goodwill. We evaluate goodwill for impairment, at the reporting unit level, annually and
when an event occurs or circumstances change to suggest that the carrying amount may not be recoverable. We
conduct our annual impairment test as of November 30 of each year. Our goodwill balance was fully impaired at
September 30, 2015.
A reporting unit is the operating segment, or a business one level below that operating segment (the
“component” level) if discrete financial information is prepared and regularly reviewed by management at the
component level. Each segment of our business represents a separate reporting unit, and all three of our reporting
units previously had goodwill. We recognize an impairment loss for any amount by which the carrying amount of a
reporting unit’s goodwill exceeds the reporting unit’s implied fair value (IFV) of goodwill.
Our assessment consists of a two-step impairment test. In the first step, we compare each reporting unit’s
carrying amount, including goodwill, to the IFV of the reporting unit. If the carrying amount of the reporting unit
exceeds its fair value, goodwill is potentially impaired, and a second step is performed to determine the amount of
impairment, if any.
We are given the option to test for impairment of our goodwill by first performing a qualitative assessment to
determine whether it is more likely than not (that is, likelihood of more than 50 percent) that the fair value of a
reporting unit is less than its carrying amount, including goodwill. If it is determined that it is more likely than not
that the fair value of a reporting unit is greater than its carrying amount, then performing the currently prescribed
two-step impairment test is unnecessary. In developing a qualitative assessment to meet the “more-likely-than-not”
threshold, each reporting unit with goodwill is assessed separately and different relevant events and circumstances
are evaluated for each unit. We have the option to bypass the qualitative assessment for any reporting unit in any
period and proceed directly to performing the first step of the two-step goodwill impairment test.
In performing the two-step impairment test, we compare each reporting unit’s carrying amount, including
goodwill, to the IFV of the reporting unit. Because none of our reporting units has a publically quoted market price,
we must determine the value that willing buyers and sellers would place on the reporting unit through a routine sale
process (a Level 3 fair value measurement). In our analysis, we target an IFV that represents the value that would be
placed on the reporting unit by market participants, and value the reporting unit based on historical and projected
results throughout a cycle, not the value of the reporting unit based on trough or peak earnings. The IFV of the
reporting unit is estimated using a combination of (i) an analysis of trading multiples of comparable companies
(Market Approach) and (ii) discounted projected cash flows (Income Approach). We also use acquisition multiples
analyses in certain circumstances. The relative weighting of each approach varies by reporting unit, based on
management’s judgment.
Market Approach - This valuation approach utilizes publicly traded comparable companies’ enterprise values,
as compared to their recent and forecasted earnings before interest, taxes and depreciation (EBITDA) information.
We have historically used an average EBITDA multiple ranging from approximately 6.5x to approximately 9.5x
depending on the reporting unit. We use EBITDA because it is a widely used key indicator of the cash generating
capacity of companies in our industry.
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(Continued)
Income Approach - This valuation approach derives a present value of the reporting unit’s projected future
annual cash flows over the next five years. We use a variety of underlying assumptions to estimate these future cash
flows, including assumptions relating to future economic market conditions, rates, occupancy levels, costs and
expenses and capital expenditures. These assumptions vary by each reporting unit depending on market conditions.
In addition, a terminal value is estimated, using a Gordon Growth methodology with a long-term growth rate of 3%.
We discount our projected cash flows using a long-term weighted average cost of capital based on our estimate of
investment returns that would be required by a market participant.
The IFV of our reporting units is affected by future oil, coal and natural gas prices, anticipated spending by our
customers, and the cost of capital. Our estimate of IFV requires us to use significant unobservable inputs,
representative of Level 3 fair value measurements, including numerous assumptions with respect to future
circumstances, such as industry and/or local market conditions that might directly impact each of the reporting units’
operations in the future, and are therefore uncertain. We selected these valuation approaches because we believe the
combination of these approaches and our best judgment regarding underlying assumptions and estimates provides us
with the best estimate of fair value for each of our reporting units. We believe these valuation approaches are proven
valuation techniques and methodologies for our industry and widely accepted by investors. The IFV of each
reporting unit would change if our assumptions under these valuation approaches, or relative weighting of the
valuation approaches, were materially modified.
Please see Note 3 – Impairment Charges for a discussion of impairment charges we recognized in 2015 and
2014 related to our goodwill. Our goodwill balance was fully impaired at September 30, 2015.
Other Intangible Assets. We amortize the cost of other intangible assets over their estimated useful lives unless
such lives are deemed indefinite. For intangible assets that we amortize, we review the useful life of the intangible
asset and evaluate each reporting period whether events and circumstances warrant a revision to the remaining
useful life. We evaluate the remaining useful life of an intangible asset that is not being amortized each reporting
period to determine whether events and circumstances continue to support an indefinite useful life.
We are required to evaluate our indefinite-lived intangible assets for impairment annually and when an event
occurs or circumstances change to suggest the carrying amount may not be recoverable. In performing the
impairment test, we compare the fair value of the indefinite-lived intangible asset with its carrying amount. The
measurement of the impairment is calculated based on the excess of the carrying value over its fair value.
Please see Note 3 – Impairment Charges for a discussion of impairment charges we recognized in 2015 and
2014 related to our intangible assets.
Foreign Currency and Other Comprehensive Income
Gains and losses resulting from consolidated balance sheet translation of foreign operations where a foreign
currency is the functional currency are included as a separate component of accumulated other comprehensive
income within shareholders’ equity representing substantially all of the balances within accumulated other
comprehensive income. Remeasurements of intercompany loans denominated in a different currency than the
functional currency of the entity that are of a long-term investment nature are recognized as other comprehensive
income within shareholders’ equity. Gains and losses resulting from consolidated balance sheet remeasurements of
assets and liabilities denominated in a different currency than the functional currency, other than intercompany loans
that are of a long-term investment nature, are included in the consolidated statements of operations as incurred. For
the years ended December 31, 2015, 2014, and 2013, we recognized approximately $9.0 million, $0.2 million and
$(1.3) million in foreign currency gains (losses), respectively.
Foreign Exchange Risk
A significant portion of revenues, earnings and net investments in foreign affiliates are exposed to changes in
foreign currency exchange rates. We seek to manage our foreign exchange risk in part through operational means,
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
including managing expected local currency revenues in relation to local currency costs and local currency assets in
relation to local currency liabilities. We have not entered into any foreign currency forward contracts.
Revenue and Cost Recognition
We derive the majority of our revenue from lodging and related ancillary services. In each of our operating
segments, revenue is recognized in the period in which services are provided pursuant to the terms of contractual
relationships with our customers. In some contracts, rates may vary over the contract term. In these cases, revenue
may be deferred and recognized on a straight-line basis over the contract term. Revenue from the sale of products,
not accounted for utilizing the percentage-of-completion method, is recognized when delivery to and acceptance by
the customer has occurred, when title and all significant risks of ownership have passed to the customer,
collectability is reasonably assured and pricing is fixed and determinable. Our product sales terms do not include
significant post-delivery obligations.
For significant projects, revenues are recognized under the percentage-of-completion method, measured by the
percentage of costs incurred to date compared to estimated total costs for each contract (cost-to-cost method).
Billings on such contracts in excess of costs incurred and estimated profits are classified as deferred revenue. Costs
incurred and estimated profits in excess of billings on percentage-of-completion contracts are recognized as unbilled
receivables. Management believes this method is the most appropriate measure of progress on large contracts.
Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are
determined. Changes in job performance, job conditions, estimated profitability, and final contract
settlements may result in revisions to projected costs and revenue and are recognized in the period in which the
revisions are determined. Factors that may affect future project costs and margins include weather, production
efficiencies, availability and costs of labor, materials and subcomponents. These factors can significantly impact the
accuracy of our estimates and materially impact our future reported earnings.
Revenues exclude taxes assessed based on revenues such as sales or value added taxes.
Cost of services includes labor, food, utility costs, cleaning supplies, and other costs of operating our
accommodations facilities. Cost of goods sold includes all direct material and labor costs and those costs related to
contract performance, such as indirect labor, supplies, tools and repairs. Selling, general, and administrative costs
are charged to expense as incurred.
Income Taxes
Our operations are subject to Canadian federal and provincial income taxes, as well as foreign income taxes.
We determine the provision for income taxes using the asset and liability approach. Under this approach, deferred
income taxes represent the expected future tax consequences of temporary differences between the carrying amounts
and tax bases of assets and liabilities.
Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to
be realized. In assessing the need for a valuation allowance, we look to the future reversal of existing taxable
temporary differences, taxable income in carryback years, the feasibility of tax planning strategies and estimated
future taxable income. The valuation allowance can be affected by changes to tax laws, changes to statutory tax rates
and changes to future taxable income estimates.
We recognize tax benefits from uncertain tax positions only if it is more likely than not that the tax position will
be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits
recognized in the consolidated financial statements from such positions are measured based on the largest benefit
that has a greater than 50% likelihood of being realized upon ultimate settlement.
In the U.S., prior to the Spin-Off, our operations were included in Oil States’ income tax returns. In preparing
our consolidated financial statements, we determined our tax provision on a separate return, stand-alone basis.
Pursuant to the Tax Sharing Agreement with Oil States, with respect to any periods (or portions thereof) ending
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
prior to the Spin-Off, we are obligated to reimburse Oil States an amount equal to the amount of U.S. federal, state
or local income tax we would have paid had we had filed a separate consolidated U.S. federal, state or local income
tax return, subject to certain adjustments. We do not consider these amounts to be material.
Prior to the Spin-Off, because portions of our operations were included in Oil States’ tax returns, payments to
certain tax authorities were historically made by Oil States, and not by us. With the exception of certain dedicated
foreign entities, we did not maintain taxes payable to/from Oil States and we were deemed to settle the annual
current tax balances immediately with the legal tax-paying entities in the respective jurisdictions. These settlements
are reflected as changes in the Oil States International, Inc. net investment account.
Receivables and Concentration of Credit Risk
Based on the nature of our customer base, we do not believe that we have any significant concentrations of
credit risk other than our concentration in the Canadian oil sands and Australian mining industries. We evaluate the
credit-worthiness of our significant, new and existing customers’ financial condition and, generally, we do not
require collateral from our customers. For the year ended December 31, 2015, each of Imperial Oil, Fort Hills
Energy LP and BM Alliance Coal Operations Pty Ltd accounted for more than 10% of our revenues. For the year
ended December 31, 2014, Imperial Oil accounted for more than 10% of our revenues. For the year ended December
31, 2013, each of Imperial Oil and BHP Billiton Mitsubishi Alliance accounted for more than 10% of our revenues.
Asset Retirement Obligations
We record the fair value of a liability, which reflects the estimated present value of the amount of asset removal
and site reclamation costs related to the retirement of our assets, for an ARO when it is incurred (typically when the
asset is installed). When the liability is initially recorded, we capitalize the associated asset retirement cost by
increasing the carrying amount of the related property, plant and equipment. Over time, the liability increases for
the change in its present value, while the capitalized cost depreciates over the useful life of the related asset.
Accretion expense is recognized over the estimated productive life of the related assets. If the fair value of the
estimated ARO changes, an adjustment is recorded to both the ARO and the capitalized asset retirement cost.
Revisions in estimated liabilities can result from changes in estimated inflation rates, changes in service and
equipment costs and changes in the estimated timing of settling the ARO. We utilize current retirement costs to
estimate the expected cash outflows for retirement obligations. We estimate the ultimate productive life of the
properties and a risk-adjusted discount rate in order to determine the current present value of the obligation.
We relieve ARO liabilities when the related obligations are settled. We have AROs that we are required to
perform under law or contract once an asset is permanently taken out of service. Most of these obligations are not
expected to be paid until several years in the future and will be funded from general company resources at the time
of removal. Please see Note 11 – Asset Retirement Obligations for further discussion.
Share-Based Compensation
We, and, prior to the Spin-Off, Oil States, sponsor an equity participation plan in which certain of our
employees participate. We measure the cost of employee services received in exchange for an award of equity
instruments (typically option awards) based on the grant-date fair value of the award. The fair value is estimated
using option-pricing models. The resulting cost is recognized over the period during which an employee is required
to provide service in exchange for the awards, usually the vesting period.
We, and, prior to the Spin-Off, Oil States, also grant phantom shares under the Canadian Long-Term Incentive
Plan, which provides for the granting of units of phantom shares to key Canadian employees. We also grant
phantom shares under the 2014 Equity Participation Plan, which provides for the granting of units of phantom shares
to key U.S. employees. All of the awards vest in equal annual installments and are accounted for as a liability based
on the fair value of our share price. Participants granted units of phantom shares are entitled to a lump sum cash
payment equal to the fair market value of a common share on the vesting date.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Guarantees
Substantially all of our Canadian and U.S. subsidiaries are guarantors under our Credit Facility. See Note 9 -
Debt.
Some of our products are sold with a warranty, generally 12 months. Parts and labor are covered under the
terms of the warranty agreement. Warranty provisions are estimated based upon historical experience by product,
configuration and geographic region. Our total liability related to warranties was $0.1 million and $0.1 million at
December 31, 2015 and 2014, respectively.
During the ordinary course of business, we also provide standby letters of credit or other guarantee instruments
to certain parties as required for certain transactions initiated by us or our subsidiaries. As of December 31, 2015,
the maximum potential amount of future payments that we could be required to make under these guarantee
agreements (letters of credit) was approximately $6.0 million. We have not recorded any liability in connection with
these guarantee arrangements. We do not believe, based on historical experience and information currently
available, that it is likely that any amounts will be required to be paid under these guarantee arrangements.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires the use of
estimates and assumptions by management in determining the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported
amounts of revenues and expenses during the reporting period. Examples of a few such estimates include potential
future adjustments as a result of contingent consideration arrangements pursuant to business combinations and other
contractual agreements, revenue and income recognized on the percentage-of-completion method, estimates of the
amount and timing of costs to be incurred for asset retirement obligations, any valuation allowance recorded on net
deferred tax assets, warranty and allowance for doubtful accounts. Actual results could materially differ from those
estimates.
Accounting for Contingencies
We have contingent liabilities and future claims for which we have made estimates of the amount of the
eventual cost to liquidate these liabilities or claims. These liabilities and claims sometimes involve threatened or
actual litigation where damages have been quantified and we have made an assessment of our exposure and recorded
a provision in our accounts to cover an expected loss. Other claims or liabilities have been estimated based on their
fair value or our experience in these matters and, when appropriate, the advice of outside counsel or other outside
experts. Upon the ultimate resolution of these uncertainties, our future reported financial results will be impacted by
the difference between our estimates and the actual amounts paid to settle a liability. Examples of areas where we
have made important estimates of future liabilities include future consideration due sellers as a result of the terms of
a business combination, litigation, taxes, interest, insurance claims, warranty claims and contract claims and
obligations.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board
(the FASB), which are adopted by us as of the specified effective date. Unless otherwise discussed, management
believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on
our consolidated financial statements upon adoption.
In November 2015, the FASB issued Accounting Standards Update (ASU) 2015-17, Income Taxes (Topic 740):
Balance Sheet Classification of Deferred Taxes (ASU 2015-17). This new standard requires companies to classify
all deferred tax assets and liabilities as noncurrent on the balance sheet instead of separating deferred taxes into
current and noncurrent amounts. The current requirement that deferred tax liabilities and assets of a tax-paying
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
component of an entity be offset and presented as a single amount is not affected by this guidance. Effective with
our annual report for the period ending December 31, 2015, we have adopted the provisions of ASU 2015-17
prospectively to classify all deferred tax assets and liabilities as noncurrent. For further discussion, please see Note
12 – Income Taxes.
In April 2015, the FASB issued ASU 2015-03 "Interest - Imputation of Interest: Simplifying the Presentation of
Debt Issuance Costs" (ASU 2015-03). ASU 2015-03 simplifies the presentation of debt issuance costs by requiring
that such costs be presented as a deduction from the corresponding debt liability. The guidance is effective for
financial statements issued for reporting periods beginning after December 15, 2015 and interim periods within the
reporting periods and requires retrospective presentation. Early adoption is permitted. We plan to adopt the
standard in the first quarter of 2016. As of December 31, 2015, we had debt issuance costs totaling $9.4 million,
which are included in Prepaid expenses and other current assets ($2.6 million) and Other non-current assets ($6.8
million) on the accompanying consolidated balance sheets. A portion of these costs relate to revolving lines of
credit, and will accordingly continue to be included in Prepaid expenses and other current assets or Other non-
current assets.
In May 2014, the FASB issued ASU 2014-09 establishing Accounting Standards Codification (ASC) Topic
606, "Revenue from Contracts with Customers" (ASC 606). ASC 606 establishes a comprehensive new revenue
recognition model designed to depict the transfer of goods or services to a customer in an amount that reflects the
consideration the entity expects to be entitled to receive in exchange for those goods or services and requires
significantly enhanced revenue disclosures. The standard is effective for annual reporting periods beginning after
December 15, 2017. Accordingly, we plan to adopt this standard in the first quarter of 2018. ASC 606 allows either
full retrospective or modified retrospective transition, and early adoption is not permitted. We continue to evaluate
both the impact of this new standard on our financial statements and the transition method we will utilize for
adoption.
3.
IMPAIRMENT CHARGES
2015 Impairment Charges
The following summarizes pre-tax impairment charges recorded during 2015 which are included in Impairment
expense in our consolidated statements of operations (in thousands):
Canada
Australia
U.S. and
Other
Total
Quarter ended March 31, 2015
Long-lived assets .........................................
$
Quarter ended June 30, 2015
Long-lived assets .........................................
Quarter ended September 30, 2015
Goodwill ......................................................
Long-lived assets .........................................
Intangible assets ..........................................
Total ...................................................................
$
--
--
43,194
23,041
--
66,235
$
--
$
2,738
$
2,738
9,473
--
23,980
--
33,453
$
--
--
18,040
2,460
23,238
$
9,473
43,194
65,061
2,460
122,926
$
Quarter ended March 31, 2015. During the first quarter of 2015, we made the decision to dispose of our
manufacturing facility in Johnstown, Colorado. Accordingly, the facility met the criteria of held for sale, and its
carrying value was adjusted downward to $8.7 million, which represents its estimated fair value less the cost to sell.
We recorded a pre-tax impairment expense of $2.7 million and an additional $1.1 million to write-down our
inventory as a result. During the fourth quarter of 2015, we completed the sale of the facility, and received proceeds
of $8.9 million.
Quarter ended June 30, 2015. During the second quarter of 2015, we recorded an impairment expense of $9.5
million, resulting from the impairment of fixed assets in a village located in Western Australia, due to the continued
downturn in gold mining activity and lack of contract renewals. We assessed the carrying value of the asset group to
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
determine if it continued to be recoverable based on estimated future cash flows. Based on the assessment, the
carrying value was determined to not be recoverable.
Quarter ended September 30, 2015. During the third quarter of 2015, we recorded impairment expense related
to goodwill, long-lived assets and intangible assets.
Due to the sustained reduction of our share price throughout 2015, our market capitalization implied an
enterprise value which is significantly less than the sum of the estimated fair values of our reporting units. As a
result of our market capitalization at September 30, 2015, coupled with (1) the continued depression of worldwide
oil prices, including the substantial declines experienced in the third quarter of 2015, and (2) continued weakness in
the Canadian dollar in the third quarter 2015, we determined that an indicator of a goodwill impairment was present
as of September 30, 2015. Accordingly, as a result of current macroeconomic conditions, we performed an interim
goodwill impairment test as of September 30, 2015, and we reduced the value of our goodwill in our Canadian
reporting unit to zero. This resulted in an impairment charge in the third quarter 2015 which totaled $43.2 million.
Furthermore, as a result of the goodwill impairment in our Canadian segment, we determined all asset groups
within this segment had experienced a trigger that indicated that the carrying values might not be recoverable.
Accordingly, we compared the carrying value of each asset group to estimates of undiscounted cash flows. Based
on the assessment, carrying values of certain assets groups were determined to be unrecoverable, and we proceeded
to compare the fair value of those assets groups to their respective carrying values. As a result, we recorded an
impairment loss of $11.1 million related to long-lived assets in our Canadian segment.
Additionally, also as a result of the sustained reduction of our share price throughout 2015, we reviewed the
long-lived assets in our U.S. and Australia reportable segments to determine if an indicator of impairment had
occurred that would indicate that the carrying values of the asset groups in these segments might not be recoverable.
We determined that certain asset groups within the segments had experienced an indicator of impairment, and thus
compared the carrying value of the respective asset group to estimates of undiscounted future cash flows. Based on
the assessment, the carrying values of three of our assets groups were determined to not be recoverable, and we
proceeded to compare the fair value of the asset groups to their carrying value. As a result, we recorded an
impairment loss of $20.5 million related to our U.S. segment. Of the $20.5 million impairment, $18.0 million
reduced the value of our fixed assets and $2.5 million reduced the value of our amortizable intangible assets. In
addition, we recorded an impairment loss of $24.0 million related to our Australian segment that reduced the value
of our fixed assets.
Finally, during the third quarter of 2015, we identified assets in our Canadian segment that should have been
impaired in the fourth quarter of 2014. We determined that the error was not material to our financial statements for
the year ended December 31, 2014 and therefore corrected the error in the third quarter of 2015. This resulted in an
additional impairment expense of $11.9 million.
2014 Impairment Charges
The following summarizes pre-tax impairment charges recorded during 2014 which are included in Impairment
expense in our consolidated statements of operations (in thousands):
Canada
Australia
Quarter ended June 30, 2014
Long-lived assets .........................................
Intangible assets ..........................................
$
--
--
$
--
8,989
Quarter ended December 31, 2014
Goodwill ......................................................
Long-lived assets .........................................
Intangible assets ..........................................
Total ...................................................................
--
17,197
--
17,197
$
186,097
--
--
$ 195,086
U.S. and
Other
$
$
2,621
--
16,632
55,776
3,196
78,225
Total
$
$
2,621
8,989
202,729
72,973
3,196
290,508
99
CIVEO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Quarter ended June 30, 2014. We recognized a $9.0 million impairment of an indefinite-lived intangible asset
in Australia. Due to the Spin-Off, and the resulting rebranding of our Australian operations from The MAC to
Civeo, it was determined that the fair value of an intangible asset associated with The MAC brand had been reduced
to zero.
Additionally, in the second quarter 2014, we recognized an impairment totaling $2.6 million on assets in the
custody of a non-paying client in Mexico and for which the return or reimbursement is uncertain.
Quarter ended December 31, 2014. During the fourth quarter of 2014, we recorded impairment expense
related to goodwill, long-lived assets and intangible assets.
In performing step one of our annual goodwill impairment test as of November 30, 2014, the carrying amounts
of our U.S. and Australia reporting units exceeded the respective reporting unit’s IFV. Accordingly, we proceeded
to the second step for those reporting units. This second step compared the IFV of each reporting unit’s goodwill
with the carrying amount of such goodwill. We performed a hypothetical allocation of the fair value of the reporting
units determined in step one to all of the assets and liabilities of the unit, including any unrecognized intangible
assets. After making these hypothetical allocations, we determined zero residual value remained that could be
allocated to goodwill within our U.S. and Australian reporting units, respectively. As a result, we recorded
impairment charges totaling $16.6 million and $186.1 million to goodwill for our U.S. and Australian reporting
units, respectively.
Also during the fourth quarter 2014, as a result of the decline in global crude oil prices and forecasts for a
potentially protracted period of lower prices, management assessed the carrying value of all of our long-lived asset
groups to determine if they continued to be recoverable based on estimated future cash flows. Based on the
assessment, the carrying values of certain of our asset groups were determined to not be recoverable. We recorded
impairment losses of $76.2 million during 2014 as a result, of which $59.0 million related to our U.S. segment and
$17.2 million related to our Canadian segment. Of the $59.0 million impairment related to our U.S. segment, $55.8
million reduced the value of our fixed assets and $3.2 million was recorded on our amortizable intangible assets.
4. FAIR VALUE MEASUREMENTS
Our financial instruments consist of cash and cash equivalents, receivables, payables and debt instruments. We
believe that the carrying values of these instruments on the accompanying consolidated balance sheets approximate
their fair values.
As of December 31, 2015 and 2014, we believe the carrying value of our floating-rate debt outstanding under
our term loans approximates its fair value because the term includes short-term interest rates and excludes penalties
for prepayment. We estimated the fair value of our floating-rate term loan using significant other observable inputs,
representative of a Level 2 fair value measurement, including terms and credit spreads for this loan.
During 2015 and 2014, we wrote down our goodwill to its IFV. We also wrote down certain long-lived assets
and indefinite lived intangible assets to their fair value. Our estimate of IFV required us to use significant
unobservable inputs, representative of Level 3 fair value measurements, including numerous assumptions with
respect to future circumstances, such as industry and/or local market conditions that might directly impact each of
the reporting units’ operations in the future, and are therefore uncertain. Our estimate of fair value required us to
use significant unobservable inputs, representative of Level 3 fair value measurements, including numerous
assumptions with respect to future circumstances, such as future oil, coal and natural gas prices, anticipated
spending by our customers, the cost of capital, and industry and/or local market conditions that might directly
impact each of the asset groups’ operations in the future, and are therefore uncertain. Please see Note 2 – Summary
of Significant Accounting Policies – Impairment of Long-Lived Assets and Note 2 – Summary of Significant
Accounting Policies – Goodwill and Other Intangible Assets for further discussion of the significant judgments and
assumptions used in calculating their fair value.
100
CIVEO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
5. DETAILS OF SELECTED BALANCE SHEET ACCOUNTS
Additional information regarding selected balance sheet accounts at December 31, 2015 and 2014 is presented
below (in thousands):
Accounts receivable, net:
Trade ................................................................................................
Unbilled revenue ..............................................................................
Other ................................................................................................
Total accounts receivable ............................................................
Allowance for doubtful accounts .....................................................
Total accounts receivable, net ..........................................................
$
$
44,650
16,649
1,289
62,588
(1,121)
61,467
$
$
124,198
38,487
1,611
164,296
(4,043)
160,253
2015
2014
Inventories:
Finished goods and purchased products ..........................................
Work in process ...............................................................................
Raw materials ..................................................................................
Total inventories ...............................................................................
$
$
2015
2014
1,854
1,260
2,517
5,631
$
$
2,814
4,790
5,624
13,228
2015
2014
Estimated
Useful Life
(in years)
3-15
3-20
4-15
3-7
3-5
Property, plant and equipment, net:
Land ...........................................................
Accommodations assets ............................
Buildings and leasehold improvements .....
Machinery and equipment .........................
Office furniture and equipment .................
Vehicles .....................................................
Construction in progress ............................
Total property, plant and equipment .....
Accumulated depreciation .........................
Total property, plant and equipment, net
$
$
47,825
1,482,842
29,099
9,183
29,172
15,412
52,558
1,666,091
(734,177)
931,914
Accrued liabilities:
Accrued compensation ....................................................................... $
Accrued taxes, other than income taxes .............................................
Accrued interest .................................................................................
Other ..................................................................................................
Total accrued liabilities .......................................................................
$
2015
11,726
963
12
2,133
14,834
$
$
$
$
55,365
1,687,033
40,256
12,117
32,181
19,128
70,603
1,916,683
(668,253)
1,248,430
2014
15,273
1,567
60
5,612
22,512
6. EARNINGS PER SHARE
On May 30, 2014, 106,538,044 of our common shares were distributed to Oil States stockholders in connection
with the Spin-Off. For comparative purposes, and to provide a more meaningful calculation of weighted-average
shares outstanding, we have assumed these shares to be outstanding as of the beginning of each period prior to the
separation presented in the calculation of weighted-average shares. In addition, we have assumed the dilutive
securities outstanding at May 30, 2014 were also outstanding for each of the periods prior to the Spin-Off presented.
101
CIVEO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The calculation of earnings per share attributable to the Company is presented below for the periods indicated
(in thousands, except per share amounts):
2015
2014
2013
Basic Earnings per Share
Net income (loss) attributable to Civeo ..........................................................
Less: undistributed net income (loss) to participating securities ....................
Net income (loss) attributable to Civeo’s common shareholders - basic ........
$ (131,759)
--
$ (131,759)
$ (189,043)
921
$ (188,122)
Weighted average common shares outstanding - basic ..................................
106,604
106,306
Basic earnings (loss) per share ........................................................................ $
(1.24)
$
(1.77)
Diluted Earnings per Share
Net income (loss) attributable to Civeo’s common shareholders – basic .......
Less: undistributed net income (loss) to participating securities ....................
Net income (loss) attributable to Civeo’s common shareholders - diluted .....
$ (131,759)
--
$ (131,759)
$ (188,122)
--
$ (188,122)
Weighted average common shares outstanding - basic ..................................
Effect of dilutive securities (1) .........................................................................
Weighted average common shares outstanding - diluted ................................
106,604
--
106,604
106,306
--
106,306
$
$
$
$
$
181,876
(743)
181,133
106,293
1.70
181,133
1
181,134
106,293
167
106,460
Diluted earnings (loss) per share ..................................................................... $
(1.24)
$
(1.77)
$
1.70
(1) When an entity has a net loss from continuing operations, it is prohibited from including potential common
shares in the computation of diluted per share amounts. Accordingly, we have utilized the basic shares
outstanding amount to calculate both basic and diluted loss per share for the years ended December 31, 2015
and 2014.
7. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the years ended December 31, 2015, 2014 and 2013 for interest and income taxes was as
follows (in thousands):
Interest (net of amounts capitalized) ..................................................
Income taxes paid, net of refunds .......................................................
$
21,385
(5,169)
$
14,444
43,237
$
43,610
65,875
2015
2014
2013
In accordance with the Separation and Distribution Agreement, our affiliate debt with Oil States, which totaled
approximately $336.8 million as of May 30, 2014, including accrued interest, was settled through a non-cash capital
contribution. For further discussion, please see Note 17 – Related Party Transactions.
8. GOODWILL AND OTHER INTANGIBLE ASSETS
Changes in the carrying amount of goodwill for the years ended December 31, 2015 and 2014 are as follows (in
thousands):
Balance as of December 31, 2013 ............................
Foreign currency translation ..................................
Goodwill impairment .............................................
Balance as of December 31, 2014 .............................
Foreign currency translation ..................................
Goodwill impairment .............................................
Balance as of December 31, 2015 .............................
Canadian
49,485
$
(4,225)
--
45,260
(2,066)
(43,194)
--
$
$
Australian
$ 194,939
(8,842)
(186,097)
--
--
--
--
$
$
102
U.S.
$ 16,632
--
(16,632)
--
--
--
--
$
$
Total
$ 261,056
(13,067)
(202,729)
45,260
(2,066)
(43,194)
--
$
$
CIVEO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Please see Note 3 – Impairment Charges for a discussion of impairment charges we recognized in 2015 and
2014 related to our goodwill.
The following table presents the total amount of other intangible assets and the related accumulated
amortization for major intangible asset classes as of December 31, 2015 and 2014 (in thousands):
AS OF DECEMBER 31,
2015
2014
Gross
Carrying
Amount
Accumulated
Amortization
Gross
Carrying
Amount
Amortizable Intangible Assets
Customer relationships ..............................................................
Contracts / agreements ...............................................................
Noncompete agreements ............................................................
Total amortizable intangible assets ..................................
Indefinite-Lived Intangible Assets Not Subject to Amortization
Water rights ...............................................................................
Licenses .....................................................................................
Total indefinite-lived intangible assets .............................
Total intangible assets ..............................................
$
$
$
$
43,668
35,769
795
80,232
--
30
30
80,262
$
$
$
$
(26,278)
(17,885)
(790)
(44,953)
--
--
--
(44,953)
$
$
$
$
47,611
40,120
809
88,540
777
33
810
89,350
Accumulated
Amortization
$
$
$
$
(21,740)
(16,048)
(680)
(38,468)
--
--
--
(38,468)
Please see Note 3 – Impairment Charges for a discussion of impairment charges we recognized in 2015 and
2014 related to our intangible assets.
The weighted average remaining amortization period for all intangible assets, other than indefinite-lived
intangibles, was 5.1 years as of December 31, 2015 and 6.1 years as of December 31, 2014. Total amortization
expense is expected to be $7.1 million in 2016, $7.0 million in each of 2017, 2018, 2019 and 2020. Amortization
expense was $7.6 million, $9.6 million and $10.2 million in the years ended December 31, 2015, 2014 and 2013,
respectively.
103
CIVEO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
9. DEBT
As of December 31, 2015 and 2014, long-term debt consisted of the following (in thousands):
U.S. term loan, which matures on May 28, 2019; 1.25% of aggregate principal
repayable per quarter beginning December 31, 2015; weighted average interest rate of
2.7% for the twelve month period ended December 31, 2015 ...............................................
Canadian term loan, which matures on May 28, 2019; 1.25% of aggregate principal
repayable per quarter beginning December 31, 2015; weighted average interest rate of
3.5% for the twelve month period ended December 31, 2015 ...............................................
U.S. revolving credit facility, which matures on May 28, 2019, with available
commitments up to $50.0 million; no borrowings outstanding as of December 31, 2015 ....
Canadian revolving credit facility, which matures on May 28, 2019, with available
commitments up to $125.0 million; weighted average interest rate of 3.7% for the
twelve month period ended December 31, 2015 ....................................................................
Canadian revolving credit facility, which matures on May 28, 2019, with available
commitments up to $100.0 million; no borrowings outstanding as of December 31,
2015 ........................................................................................................................................
Australian revolving credit facility, which matures on May 28, 2019, with available
commitments up to $100.0 million; no borrowings outstanding as of December 31,
2015 ........................................................................................................................................
2015
2014
$
49,375
$
775,000
300,165
--
52,020
--
--
--
--
--
--
--
Total debt ..........................................................................................................................
Less: Current portion of long-term debt ................................................................................
Long-term debt, less current maturities ............................................................................
$
401,560
17,698
383,862
775,000
19,375
755,625
$
Scheduled maturities of long-term debt as of December 31, 2015 are as follows (in thousands):
2016 ...............................................................................
2017 ...............................................................................
2018 ...............................................................................
2019 ...............................................................................
$
$
17,698
17,698
17,698
348,466
401,560
Credit Facility
Civeo was a party to an Oil States credit facility agreement together with Oil States that had separate Canadian
borrowing limits that served as debt financing for the Canadian operations of Civeo (Oil States Credit Facility).
Additionally, Civeo had a separate Australian credit facility (The MAC Group Credit Facility) that was used
exclusively to support our Australian operations. On May 28, 2014, the Oil States Credit Facility and The MAC
Group Credit Facility were terminated. We recognized a loss on the termination during the second quarter 2014 of
approximately $3.5 million related to unamortized debt issuance costs, which is included in Loss on extinguishment
of debt on the accompanying consolidated statements of operations.
On May 28, 2014, we entered into (i) a $650.0 million, 5-year revolving credit facility which is allocated as
follows: (A) a $450.0 million senior secured revolving credit facility in favor of Civeo, as borrower (the U.S.
facility), (B) a $100.0 million senior secured revolving credit facility in favor of certain of our Canadian
subsidiaries, as borrowers (the Canadian facility), and (C) a $100.0 million senior secured revolving credit facility in
favor of one of our Australian subsidiaries, as borrower (the Australian facility), and (ii) a $775.0 million, 5-year
term loan facility in favor of Civeo (collectively, the Credit Facility), which was subsequently amended in
connection with the Redomicile Transaction.
On July 17, 2015, our Credit Facility was amended (First Amendment) to, among other things:
104
CIVEO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
• Permit us to redomicile to Canada, make associated corporate restructurings and make certain changes to
the collateral and guarantees, covenants, events of default and related definitions to reflect the Redomicile
Transaction and the new credit facilities referred to below;
• Allow for the incurrence of new credit facilities under the Credit Facility, including (i) a new revolving
credit facility in a maximum principal amount of US$125 million available to be borrowed by Civeo
Canada after the effectiveness of the First Amendment (July 17, 2015) and (ii) a new term loan facility in
the amount of US$325 million to be borrowed by Civeo Canada on the date of the effectiveness of the First
Amendment;
• Provide for the partial prepayment of the existing U.S. term loan under the Credit Facility in the aggregate
principal amount of US$725 million and the reduction of the aggregate U.S. revolving credit facility to a
maximum principal amount of US$50 million;
•
Increase the interest rate margin by 0.25% within existing levels of total leverage and add two additional
levels to the total leverage-based grid such that the interest rates for the loans range from LIBOR +2.0% to
LIBOR +4.0% and increase the undrawn commitment fee to range from 0.45% to 0.90% based on total
leverage;
• Make certain changes to the maximum leverage ratio financial covenant;
• Make certain changes to the application of prepayments and amortization schedules to reflect the new term
loan facility and the prepayment of the U.S. term loans; and
• Make other technical changes and amendments to the Credit Facility.
As a result of the amendment, we recognized a loss during the third quarter 2015 of approximately $1.5 million
related to unamortized debt issuance costs, which is included in Loss on extinguishment of debt on the
accompanying consolidated statements of operations.
On February 18, 2016, the Second Amendment to the Credit Facility became effective, which allowed us the
following:
•
Join Civeo Management LLC, an indirect wholly owned subsidiary of the Company, as a co-borrower
under the US$50 million U.S. revolving credit facility under the Amended Credit Facility;
• Provide for the partial prepayment of the U.S. term loan under the Amended Credit Facility in the
aggregate principal amount of US$25 million and the reduction by US$25 million of the aggregate
revolving loan commitments under the Canadian revolving credit facility under the Amended Credit
Facility, which was incurred in connection with the First Amendment to the Credit Facility, to a maximum
principal amount of US$100 million;
•
Increase the interest rate margin by 0.25% when the leverage ratio is less than 1.50x (by deleting the lowest
level in the leverage-based grid) and adding two additional levels to the total leverage-based grid such that
the interest rates for the loans range from LIBOR +2.25% to LIBOR +5.00%, and increase the undrawn
commitment fee from a range of 0.45% to 0.90% to a range of 0.51% to 1.13% based on total leverage;
• Make certain changes to the maximum leverage ratio financial covenant, as follows:
105
CIVEO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Maximum Leverage Ratio
Period Ended
December 31, 2015 ......................................
March 31, 2016 ............................................
June 30, 2016 ...............................................
September 30, 2016 .....................................
December 31, 2016 ......................................
March 31, 2017 ............................................
June 30, 2017 ...............................................
September 30, 2017 .....................................
December 31, 2017 ......................................
March 31, 2018 ............................................
June 30, 2018 ...............................................
September 30, 2018 & thereafter .................
4.00 : 1.00
4.25 : 1.00
5.25 : 1.00
5.50 : 1.00
5.50 : 1.00
5.25 : 1.00
5.25 : 1.00
5.00 : 1.00
5.00 : 1.00
4.75 : 1.00
3.75 : 1.00
3.50 : 1.00
• Add a provision for a mandatory prepayment of the revolving credit facilities under the Amended Credit
Facility in the event the Company and its subsidiaries hold an aggregate amount of cash exceeding US$40
million for a period of more than three consecutive business days, such mandatory prepayment to be made
within two business days in an amount equal to the lesser of (a) an amount sufficient to reduce the
aggregate amount of cash and permitted investments on hand at the Company and its subsidiaries to less
than US$40 million or (b) an amount sufficient to repay all of the outstanding commitments under the
revolving credit facilities under the Amended Credit Facility; and
• Make other technical changes and amendments to the Credit Facility.
U.S. dollar amounts outstanding under the Amended Credit Facility bear interest at a variable rate equal to
LIBOR plus a margin of 2.25% to 5.00%, or a base rate plus 1.25% to 4.00%, in each case based on a ratio of our
total leverage to EBITDA (as defined in the Amended Credit Facility). Canadian dollar amounts outstanding under
the Amended Credit Facility bear interest at a variable rate equal to CDOR plus a margin of 2.25% to 5.00%, or a
base rate plus a margin of 1.25% to 4.00%, in each case based on a ratio of our consolidated total leverage to
EBITDA (as defined in the Amended Credit Facility). Australian dollar amounts outstanding under the Amended
Credit Facility bear interest at a variable rate equal to BBSY plus a margin of 2.25% to 5.00%, based on a ratio of
our consolidated total leverage to EBITDA (as defined in the Amended Credit Facility).
The Amended Credit Facility contains customary affirmative and negative covenants that, among other things,
limit or restrict (i) subsidiary indebtedness, liens and fundamental changes, (ii) asset sales, (iii) margin stock, (iv)
specified acquisitions, (v) restrictive agreements, (vi) transactions with affiliates and (vii) investments and other
restricted payments, including dividends and other distributions. Specifically, we must maintain an interest coverage
ratio, defined as the ratio of consolidated EBITDA (as defined in the Amended Credit Facility) to consolidated
interest expense, of at least 3.0 to 1.0 and our maximum leverage ratio, defined as the ratio of total debt to
consolidated EBITDA, of no greater than 4.0 to 1.0 (as of December 31, 2015). As noted above, the permitted level
of the maximum leverage ratio changes over time. Each of the factors considered in the calculations of these ratios
are defined in the Amended Credit Facility. EBITDA and consolidated interest, as defined, exclude goodwill and
asset impairments, debt discount amortization and other non-cash charges. We were in compliance with these
covenants as of December 31, 2015.
As of December 31, 2015, we have 15 lenders in our Amended Credit Facility with commitments ranging from
$1.6 million to $143.2 million. As of December 31, 2015, we had outstanding letters of credit of $0.7 million under
the U.S facility and $4.4 million under the Canadian facility.
Borrowings under the Amended Credit Facility are secured by a pledge of substantially all of our assets and the
assets of our subsidiaries. Obligations under the Amended Credit Facility are guaranteed by our significant
subsidiaries.
106
CIVEO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
In addition to the Amended Credit Facility, we have an A$5 million bank guarantee facility, which matures
March 31, 2016. There were no borrowings or letters of credit outstanding, but we had bank guarantees of A$1.3
million under this facility outstanding as of December 31, 2015.
10. RETIREMENT PLANS
We sponsor defined contribution plans. Participation in these plans is available to substantially all employees.
We recognized expense of $9.6 million, $16.3 million and $18.6 million, respectively, related to matching
contributions under our various defined contribution plans during the years ended December 31, 2015, 2014 and
2013, respectively.
Canadian Retirement Savings Plan
We offer a defined contribution retirement plan to our Canadian employees. In Canada, we contribute, on a
matched basis, an amount up to 5% of each Canadian based, salaried employee’s earnings (base salary plus annual
incentive compensation) to the legislated maximum for a Deferred Profit Sharing Plan (DPSP – Maximum for 2015
- $12,685). DPSP is a form of defined contribution retirement savings plan governed by Canadian Federal Tax
legislation which provides for deferral of tax on deposit and investment return until removed from the plan to
support retirement income. Employer contributions vest upon the completion of two years of service. Employee
contributions are required in order to be eligible for the DPSP employer matching. Maximum employer matching
(5% noted above) is attained with (6%) employee contribution which would go into a Group Registered Retirement
Savings Plan (GRRSP). The two plans work in tandem. Contributions to the “Retirement Savings Plan” for
Canadian employees are subject to the annual maximum total registered savings limit of $24,930 in 2015 as set out
in the Canadian Tax Act.
Australian Retirement Savings Plan
Our Australian affiliate contributes to various defined contribution plans for its employees in accordance with
legislation governing the calculation of the Superannuation Guarantee Surcharge (SGC). SGC is contributed by the
employer at a rate of 9.5% of the base salary of an employee, capped at the legislated maximum contribution base
which is indexed annually.
A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions
into a separate entity and will have no legal or constructive obligation to pay further amounts. Our Australian
affiliate makes no investment decisions on behalf of the employee and has no obligations other than to remit the
defined contributions to the plan selected by each individual employee.
Obligations for contributions to defined contribution plans are recognized as an employee benefit expense in
profit or loss in the periods during which services are rendered by employees.
U.S. Retirement Savings Plan
We offer a defined contribution 401(k) retirement plan to substantially all of our U.S. employees. Participants
may contribute from 1% to 75% of their base and cash incentive compensation (subject to Internal Revenue Service
limitations), and we make matching contributions under this plan on the first 6% of the participant’s compensation
(100% match of the first 4% employee contribution and 50% match on the next 2% contribution). Our matching
contributions vest at a rate of 20% per year for each of the employee’s first five years of service and then are
immediately vested thereafter.
107
CIVEO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
11. ASSET RETIREMENT OBLIGATIONS
AROs at December 31, 2015 and 2014 were (in thousands):
Asset retirement obligations ............................................................
Less: Asset retirement obligations due within one year* ................
Long-term asset retirement obligations ...........................................
$
$
17,299
--
17,299
$
$
21,610
--
21,610
* Classified as a current liability on the consolidated balance sheets, under the caption “Other accruals.”
2015
2014
Total expense related to the ARO was $1.3 million, $0.3 million and $0.3 million in 2015, 2014 and 2013,
respectively.
During the years ended December 31, 2015, 2014 and 2013, our ARO changed as follows (in thousands):
Balance as of January 1 ........................................
Accretion of discount ............................................
New obligations ....................................................
Change in estimates of existing obligations ........
Settlement of obligations ......................................
Foreign currency translation ................................
Balance as of December 31 ..................................
$
$
2015
21,610
1,292
81
(2,366)
(132)
(3,186)
17,299
2014
6,095
336
797
14,838
--
(456)
21,610
$
$
2013
5,518
350
566
34
--
(373)
6,095
$
$
During 2014, our estimates of existing obligations increased by $14.8 million. The change in estimate was the
result of acceleration of the timing of estimated expenditures, due to new information received during 2014 and
higher expected expenditures for remediation, as a result of current estimates of costs expected to be incurred.
12. INCOME TAXES
The Company’s operations are conducted through its various subsidiaries in a number of countries throughout
the world. The Company has provided for income taxes based upon the tax laws and rates in the countries in which
operations are conducted and income is earned. For the year ended December 31, 2015, Civeo Canada is the public
parent registered under the laws of British Columbia, Canada. For the years ended December 31, 2014, and
December 31, 2013, Civeo US, a Delaware corporation, was the public parent registered in the United States.
Income tax provision (benefit). Pre-tax income (loss) for the years ended December 31, 2015, 2014 and 2013
consisted of the following (in thousands):
Canada operations ....
Foreign operations ....
Total .....................
2015
$ (73,691)
(90,062)
$ (163,753)
2014
$ 119,509
(275,792)
$ (156,283)
2013
$ 205,408
33,960
$ 239,368
The components of the income tax provision (benefit) for the years ended December 31, 2015, 2014 and 2013
consisted of the following (in thousands):
108
CIVEO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2015
2014
2013
Current:
Canada ......................................... $
Foreign .........................................
Total ..........................................
$
(820)
1,906
1,086
Deferred:
Canada ......................................... $
Foreign .........................................
Total ..........................................
$
(2,707)
(31,468)
(34,175)
Total Provision (Benefit) ................
$
(33,089)
$
$
$
$
$
27,046
--
27,046
$ 44,611
(163)
$ 44,448
23
4,310
4,333
$
1,117
10,490
$ 11,607
31,379
$ 56,055
The income tax provision (benefit) differs from an amount computed at Canadian statutory rates for the year
ended December 31, 2015 and at U.S. statutory rates for the years ended December 31, 2014 and 2013 (in
thousands) was as follows:
Federal tax provision (benefit) at statutory rates ..... $
Effect of foreign income tax, net .............................
Goodwill impairment ...............................................
Valuation allowance ................................................
Tax on future unremitted earnings ..........................
Tax effects of restructuring .....................................
Deemed income from foreign subsidiaries ..............
Enacted tax rate change ...........................................
Other, net .................................................................
Net income tax provision (benefit) ..................... $
2015
(44,213) 27.0%
9.2%
(7.0%)
(6.8%)
15.4%
(10.8%)
(2.6%)
(2.0%)
(2.2%)
(33,089) 20.2%
(15,088)
11,533
11,189
(25,306)
17,600
4,190
3,332
3,674
2014
$ (54,699)
(10,599)
19,798
51,369
26,077
--
--
--
(567)
$ 31,379
35.0%
6.8%
(12.7%)
(32.9%)
(16.7%)
--
--
--
0.4%
(20.1%)
2013
$ 83,778
35.0%
(27,051)
--
--
--
--
--
--
(671)
(11.3%)
--
--
--
--
--
--
(0.3%)
$ 56,056
23.4%
Deferred Tax Liabilities and Assets. The significant items giving rise to the deferred tax assets and liabilities
as of December 31, 2015 and 2014 are as follows (in thousands):
2015
2014
Deferred tax assets:
Net operating loss ..............................................
Foreign tax credits .............................................
Allowance for doubtful accounts ......................
Employee benefits .............................................
Deductible goodwill and other intangibles ........
Other reserves ....................................................
Unearned revenue ..............................................
Other ..................................................................
Deferred tax assets .............................................
Valuation allowance .........................................
Deferred tax assets, net ......................................
Deferred tax liabilities:
Depreciation .....................................................
Investment ........................................................
Deferred tax liabilities ......................................
$
$
$
Net deferred tax liability ................................
$
12,528
58,906
--
5,326
43,857
6,342
2,894
1,893
131,746
(115,087)
16,659
(41,312)
(738)
(42,050)
(25,391)
$
$
$
5,540
--
1,347
2,074
45,858
4,329
4,491
2,478
66,117
(49,523)
16,594
(60,558)
(26,044)
(86,602)
$
(70,008)
We have adopted the provisions of ASU 2015-17 prospectively to classify all deferred tax assets and liabilities
as noncurrent. Our deferred tax balance based on net non-current items as of December 31, 2015 and net current
items and net non-current items as of December 31, 2014, as well as our deferred tax balance had we adopted ASU
2015-17 retroactively as of December 31, 2014, are as follows (in thousands):
109
CIVEO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Current deferred tax asset .................................
Current deferred tax liability ............................
Long-term deferred tax asset ............................
Long-term deferred tax liability ........................
Net deferred tax liability ...................................
2015
--
--
--
(25,391)
(25,391)
(cid:2)
$
$
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
2014 (as
reported)
2014 (under
ASU 2015-17)
$
$
4,620
(21,452)
2,324
(55,500)
(70,008)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
$
$
--
--
--
(70,008)
(70,008)
NOL and Tax Credit Carryforwards. The following table summarizes net operating loss (NOL) and tax credit
carryforwards at December 31, 2015 (in thousands):
Net operating loss carryforwards:
Canada ........................................................
Australia ......................................................
U.S. – Federal ............................................
U.S. – State .................................................
Foreign tax credit carryforwards:
U.S. ............................................................
Amount
$ 18,853
20,275
--
37,530
Expiration Period
Begins to expire in 2035
Does not expire
Begins to expire in 2022
58,906
Begins to expire in 2025
Change in Valuation Allowance. Realization of our deferred tax assets is dependent upon, among other things,
our ability to generate taxable income of the appropriate character in the future.
Changes in our valuation allowance for the years ended December 31, 2015 and 2014 are as follows (in
thousands):
Foreign Tax
Credits
Balance as of December 31, 2014 ......
Change in income tax provision .......
Tax effects of restructuring ..............
Other change ....................................
Foreign currency translation ............
Balance as of December 31, 2015 .......
$
$
--
--
(58,906)
--
--
(58,906)
Deferred
Tax Assets
$
(49,523)
(9,834)
--
(309)
5,367
(54,299)
$
Other
$
$
---
(1,355)
--
(545)
18
(1,882)
$
Total
(49,523)
(11,189)
(58,906)
(854)
5,385
$ (115,087)
As a result of the internal restructuring, a full valuation allowance was placed against excess foreign tax credits
totaling $58.9 million.
Indefinite Reinvestment of Earnings. During the fourth quarter of 2014, we reevaluated our intent to
indefinitely reinvest earnings of subsidiary companies foreign to the US. Due to our expectations of utilizing our
existing and future cash balances to reduce our aggregate debt balances during 2015, we recognized a deferred tax
liability of $25.3 million related to a portion of our undistributed foreign earnings. During 2015, due to a change in
expectations and legal entity structure, we reversed the deferred tax liability.
At December 31, 2015, due to the internal restructuring in connection with the Redomicile Transaction, we
have no undistributed earnings of foreign subsidiaries subject to income tax in Canada.
Unrecognized Tax Benefits. We file tax returns in the jurisdictions in which they are required. All of these
returns are subject to examination or audit and possible adjustment as a result of assessments by taxing authorities.
We believe that we have recorded sufficient tax liabilities and do not expect the resolution of any examination or
audit of our tax returns to have a material adverse effect on our operating results, financial condition or liquidity.
Our Canadian federal tax returns subsequent to 2008 are subject to audit by the Canada Revenue Agency. Our
Australian subsidiary’s federal tax returns subsequent to 2010 are subject to audit by the Australian Taxation Office.
Our US subsidiary’s federal tax returns from 2014 are subject to audit by the US Internal Revenue Service.
110
CIVEO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The total amount of unrecognized tax benefits as of December 31, 2015 and 2014 was $0.7 million and $0.7
million, respectively. The unrecognized tax benefits, if recognized, would affect the effective tax rate. We accrue
interest and penalties related to unrecognized tax benefits as a component of our provision for income taxes. As of
December 31, 2015 and 2014, we had accrued $0.3 million and $0.3 million, respectively, of interest expense and
penalties.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
2015
2014
2013
Balance as of January 1 ........................................
Additions for tax positions of prior years .............
Reductions for tax positions of prior years ...........
Reductions for settlements ....................................
Lapse of the applicable statute of limitations ......
Balance as of December 31 ..................................
$
$
679
--
--
--
--
679
$
$
679
--
--
--
--
679
$
$
679
--
--
--
--
679
During the third quarter of 2015, management determined that, based upon ongoing communications with the
Australian taxing authority and status of the current examination, an uncertain tax liability of approximately $8.1
million related to tax positions taken on previously filed Australian returns should be recorded. In the fourth quarter
of 2015, the examination was concluded in our favor. As a result, in the fourth quarter, we have reversed the
uncertain tax liability.
It is reasonably possible that the amount of unrecognized tax benefits will change during the next twelve
months due to the closing of the statute of limitations and that change, if it were to occur, could have a favorable or
unfavorable impact on our results of operation.
13. COMMITMENTS AND CONTINGENCIES
We lease a portion of our equipment, office space, computer equipment, automobiles and trucks under leases
which expire at various dates.
Minimum future operating lease obligations in effect at December 31, 2015, were as follows (in thousands):
2016 ...............................................................................
2017 ...............................................................................
2018 ...............................................................................
2019 ...............................................................................
2020 ...............................................................................
Thereafter .......................................................................
$
$
4,581
4,227
3,409
2,947
2,717
9,581
27,462
Rental expense under operating leases was $7.6 million, $8.4 million and $7.1 million for the years ended
December 31, 2015, 2014 and 2013, respectively.
We are a party to various pending or threatened claims, lawsuits and administrative proceedings seeking
damages or other remedies concerning our commercial operations, products, employees and other matters, including
warranty and product liability claims as a result of our products or operations. Although we can give no assurance
about the outcome of pending legal and administrative proceedings and the effect such outcomes may have on us,
management believes that any ultimate liability resulting from the outcome of such proceedings, to the extent not
otherwise provided for or covered by insurance, will not have a material adverse effect on our consolidated financial
position, results of operations or liquidity.
In conjunction with, and effective as of, the Spin-Off, we entered into an Indemnification and Release
Agreement with Oil States. This agreement governs the treatment between Oil States and us of all aspects relating
to indemnification, insurance, litigation responsibility and management, and litigation document sharing and
cooperation arising in connection with the Spin-Off. Generally, the agreement provides for cross-indemnities
111
CIVEO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
principally designed to place financial responsibility for the obligations and liabilities of our business with us and
financial responsibility for the obligations and liabilities of Oil States’ business with Oil States. The agreement also
establishes procedures for handling claims subject to indemnification and related matters. Pursuant to the
Indemnification and Release Agreement, we and Oil States will generally release the other party from all claims
arising prior to the Spin-Off other than claims arising under the transaction agreements, including the
indemnification provisions described above. We evaluated the impact of the indemnifications given and the Civeo
indemnifications received as of the Spin-Off date and concluded those fair values were immaterial.
14. ACCUMULATED OTHER COMPREHENSIVE LOSS
Our accumulated other comprehensive loss increased $167.8 million from $198.5 million at December 31, 2014
to $366.3 million at December 31, 2015, as a result of foreign currency exchange rate changes. Changes in the other
comprehensive loss during 2015 were primarily driven by the Australian dollar and Canadian dollar decreasing in
value compared to the U.S. dollar. Excluding intercompany balances, our Canadian dollar and Australian dollar
functional currency net assets totaled approximately C$0.2 billion and A$0.5 billion, respectively, at December 31,
2015.
15. SHARE BASED COMPENSATION
Prior to the Spin-Off, certain employees of Civeo participated in Oil States’ Equity Participation Plan (the Oil
States Plan). The expense associated with these employees is reflected in the accompanying consolidated statements
of operations. Effective May 30, 2014, our employees and non-employee directors began participating in the 2014
Equity Participation Plan of Civeo Corporation (the Civeo Plan). The Civeo Plan authorizes the Board of Directors
to grant options, awards of restricted shares, performance awards, dividend equivalents, awards of deferred shares,
and share payments to our employees and non-employee directors. No more than 4.0 million Civeo common shares
may be awarded under the Civeo Plan.
In connection with the Spin-Off, stock based compensation awards granted under the Oil States Plan and held
by Civeo grantees as of May 30, 2014 were replaced with substitute Civeo awards. Stock options were replaced with
options to purchase Civeo common shares. Unvested restricted stock awards were replaced with substitute Civeo
restricted share awards. Unvested deferred stock awards were replaced with substitute Civeo deferred share awards.
Additionally, phantom shares granted under the Canadian Long-Term Incentive Plan were converted to units that
entitle the recipient to a lump sum cash payment equal to the fair market value of a Civeo common share on the
respective vesting date. These replacements were intended to preserve the intrinsic value of the awards as of May
30, 2014. The substitution of these awards did not cause us to recognize incremental compensation expense as an
equitable adjustment was required to be made as a result of the Spin-Off.
Upon effectiveness of the Redomicile Transaction, Civeo Canada assumed the Civeo US employee equity plans
and related award agreements, including all options and awards issued or granted under such plans, as well as
certain Civeo US benefit plans and agreements.
In connection with the assumption of these plans, each plan was amended or deemed amended to provide that,
as of the effectiveness of the Redomicile Transaction, the plans would include provisions, as applicable, reflecting
the Redomicile Transaction and its effects, including changes made to reflect the fact that Civeo Canada common
shares will be issued to satisfy awards issued or granted under such plan. Additionally, the 2014 Equity Participation
Plan of Civeo Corporation was further amended to comply with applicable Canadian law, including with respect to
grants to Canadian employees.
Share-based compensation expense recognized in the years ended December 31, 2015, 2014 and 2013 totaled $5.6
million, $8.9 million and $6.4 million, respectively. Share-based compensation expense is reflected in Selling,
general and administrative (SG&A) expense in our consolidated statements of operations.
Options to Purchase Common Shares
112
CIVEO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The fair value of each option grant is estimated on the date of grant using a Black-Scholes option pricing model
that uses the assumptions noted in the following table. The risk-free interest rate is based on the U.S. Treasury yield
curve in effect for the expected term of the option at the time of grant. The dividend yield on Oil States’ common
stock was assumed to be zero since they did not pay dividends and had no plans to do so prior to the Spin-Off. The
expected market price volatility of Oil States’ common stock was based on an estimate made by them that considers
the historical and implied volatility of its common stock as well as a peer group of companies over a time period
equal to the expected term of the option. The expected life of the options awarded in 2014 and 2013 was based on a
formula considering the vesting period, term of the options awarded and past experience. No options were awarded
in 2015. Information for periods prior to the Spin-Off is based on stock option awards for Oil States’ common
stock.
Risk-free weighted interest rate ............................
Expected life (in years) .........................................
Expected volatility ...............................................
2014 (prior
to Spin-Off)
1.27%
4.1
38%
2013
0.6%
4.1
44%
A total of 120,799 Oil States stock options were converted to 554,738 Civeo stock options at May 30, 2014, in
connection with the Spin-Off. As such, no grant, exercise or cancellation activity occurred on Civeo stock option
awards prior to May 30, 2014. The following table presents the changes in stock options outstanding and related
information for our employees during the year ended December 31, 2015 and 2014:
Outstanding Options at May 30, 2014 ...........................
Granted ...................................................................
Exercised ................................................................
Forfeited / Expired .................................................
Outstanding Options at December 31, 2014 ..................
Granted ...................................................................
Exercised ................................................................
Forfeited / Expired .................................................
Outstanding Options at December 31, 2015 ..................
Options
554,738
--
(12,628)
(9,184)
532,926
--
(137,771)
(4,821)
390,334
Exercisable Options at December 31, 2015 ..................
327,201
Weighted
Average
Exercise
Price Per
Share
$
$
$
$
11.14
--
11.95
16.43
11.03
--
3.63
16.43
13.58
12.43
Weighted
Average
Contractual
Life (Years)
Intrinsic
Value
(Thousands)
3.4
$
66,130
3.5
2.8
$
$
--
--
The total intrinsic value of options exercised by our employees during 2015 and 2014 for periods subsequent to
the Spin-Off was less than $100,000 and was $0.2 million, respectively. The total intrinsic value of options
exercised by our employees during 2014 for periods prior to the Spin-Off and 2013 was $5.0 million and $8.2
million, respectively. Oil States received all cash from option exercises during 2014 for periods prior to the Spin-
Off and 2013. The tax benefits realized for the tax deduction from options exercised during 2015 and 2014 for
periods subsequent to the Spin-Off totaled less than $100,000 and zero, respectively. The tax benefits realized by Oil
States for the tax deduction from stock options exercised during 2014 for periods prior to the Spin-Off and 2013
totaled $0.2 million and $0.6 million, respectively.
At December 31, 2015, unrecognized compensation cost related to options was $0.2 million, which is expected
to be recognized over a weighted average period of 1.7 years.
113
CIVEO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The following table summarizes information for outstanding options of our employees at December 31, 2015:
Options Outstanding
Options Exercisable
Number
Outstanding as
of December 31,
2015
Weighted
Average
Remaining
Contractual
Life
174,508
93,561
51,087
34,441
36,737
390,334
0.13
5.13
7.14
6.13
8.13
3.53
Weighted
Average
Exercise
Price
$
$
$
$
$
$
8.21
16.43
17.48
18.43
21.87
13.58
Number
Exercisable
as of
December 31,
2015
174,508
93,561
24,682
25,257
9,193
327,201
Weighted
Average
Exercise
Price
$
$
$
$
$
$
8.21
16.43
17.48
18.43
21.87
12.43
Range of Exercise
Prices
$8.21 .................................
$16.43 ................................
$17.48 ................................
$18.43 ................................
$21.87 ................................
$8.21 - $21.87 ....................
Restricted Share Awards / Deferred Share Awards
A total of 94,936 unvested Oil States restricted stock and deferred stock awards were converted to 435,999
unvested Civeo restricted stock awards at May 30, 2014, in connection with the Spin-Off. As such, no grant,
exercise or cancellation activity occurred on Civeo restricted stock awards prior to May 30, 2014. Included in this
total were 20,000 Oil States performance based restricted stock awards, which vested in an amount that depended on
Oil States’ achievement of specified performance objectives. In conjunction with the Spin-Off transaction, the
awards were cancelled and the holder was granted 91,848 unvested Civeo restricted share awards, of which half
vested in February 2015 and the other half vested in February 2016.
The following table presents the changes in restricted share and deferred share awards outstanding and related
information for our employees during the year ended December 31, 2015 and 2014:
Nonvested shares at May 30, 2014 ...........................................
Granted ............................................................................
Vested ..............................................................................
Forfeited ...........................................................................
Nonvested shares at December 31, 2014 .................................
Granted ............................................................................
Vested ..............................................................................
Forfeited ...........................................................................
Nonvested shares at December 31, 2015 .................................
Number of
Awards
435,999
188,005
(19,358)
(27,764)
576,882
1,208,642
(248,215)
(223,745)
1,313,564
$
$
Weighted
Average Grant
Date Fair Value
Per Share
18.87
21.14
13.87
18.75
19.78
3.61
18.17
7.54
7.29
$
The weighted average grant date fair value per share for restricted share and deferred share awards granted
during 2015 and during 2014 subsequent to the Spin-Off was $3.61 and $21.14, respectively. The weighted average
grant date fair value per share for restricted stock and deferred stock awards granted in 2014 for periods prior to the
Spin-Off and 2013 was $100.43 and $80.25, respectively. The total fair value of restricted share and deferred share
awards vested during 2015 and 2014 for periods subsequent to the Spin-Off was $0.9 million and $0.4 million,
respectively. The total fair value of restricted stock and deferred stock awards vested during 2014 for periods prior
to the Spin-Off and 2013 was $2.7 million and $1.0 million, respectively. At December 31, 2015, unrecognized
compensation cost related to restricted share and deferred share awards was $7.1 million, which is expected to be
recognized over a weighted average period of 2.4 years.
Phantom Share Awards
114
CIVEO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Each phantom share award is equal in value to one common share. Upon vesting, each recipient will receive a
lump sum cash payment equal to the fair market value of a common share on the respective vesting date. These
awards are accounted for as a liability that is remeasured at each reporting date until paid.
On February 11, 2015, we granted 517,145 awards under the Civeo Plan, which vest in four equal annual
installments beginning on February 11, 2016. We also granted 1,169,193 awards under the Canadian Long-Term
Incentive Plan, which vest in three equal annual installments beginning on February 11, 2016. During the second
quarter 2015, we granted an additional 192,876 awards under the Canadian Long-Term Incentive Plan.
At May 30, 2014, in connection with the Spin-Off, a total of 123,183 awards outstanding under the Canadian
Long-Term Incentive Plan were converted to 565,706 units. On May 30, 2014, we granted 4,337 phantom stock
awards, all of which vest in three equal annual installments beginning on May 30, 2015.
At December 31, 2015, the balance of the liability for the phantom share awards was $0.7 million. For the
years ended December 31, 2015, 2014 and 2013, we made phantom share cash payments of $0.8 million, $3.9
million and $1.4 million, respectively. At December 31, 2015, unrecognized compensation cost related to phantom
shares was $1.8 million, as remeasured at December 31, 2015, which is expected to be recognized over a weighted
average period of 2.5 years.
16. SEGMENT AND RELATED INFORMATION
In accordance with current accounting standards regarding disclosures about segments of an enterprise and
related information, we have identified the following reportable segments: Canadian, Australian and U.S., which
represent our strategic focus on work force accommodations.
Financial information by business segment for each of the three years ended December 31, 2015, 2014 and
2013 is summarized in the following table (in thousands):
Total
Revenues
Less:
Intersegment
Revenues
Revenues
from
unaffiliated
customers
$ 344,249
135,964
37,750
Depreciation
and
amortization
89,269
51,392
11,833
Operating
income
(loss)
$
(73,215)
(24,817)
(40,083)
--
--
(2,396)
2015
Canada ................................. $ 344,249
135,964
Australia ..............................
40,146
United States .......................
Corporate, stand-alone
adjustments and
eliminations ..................
(2,396)
Total .............................. $ 517,963
2014
Canada ................................. $ 661,721
213,279
Australia ..............................
United States .......................
123,328
Corporate, stand-alone
adjustments and
eliminations ..................
(55,437)
Total .............................. $ 942,891
2013
Canada ................................. $ 714,136
255,457
Australia ..............................
United States .......................
91,311
Corporate, stand-alone
adjustments and
eliminations ..................
(19,800)
Total .............................. $ 1,041,104
$
$
$
$
$
$
2,396
--
--
$ 517,963
(305)
--
(55,132)
$ 661,416
213,279
68,196
55,437
--
--
$ 942,891
(3,598)
--
(16,202)
$ 710,538
255,457
75,109
19,800
--
--
$ 1,041,104
115
Capital
expenditures
Total
assets
$
$
$
$
$
41,446
12,160
2,170
$ 579,816
424,731
71,710
6,675
62,451
(5,045)
$ 1,071,212
218,620
24,907
10,901
$ 1,024,990
669,789
135,681
(3,270)
251,158
(1,299)
$ 1,829,161
155,556
75,935
61,989
$ 993,729
894,227
234,049
$
$
$
$
$
$
496
152,990
(6,888)
$ (145,003)
91,893
62,924
20,281
$ 106,580
(155,851)
(86,959)
(128)
174,970
(6,661)
$ (142,891)
85,180
64,691
17,488
$ 190,470
75,197
(3,320)
(146)
167,213
(2,891)
$ 259,456
(1,786)
291,694
$
1,232
$ 2,123,237
CIVEO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Financial information by geographic segment for each of the three years ended December 31, 2015, 2014 and
2013, is summarized below (in thousands). Revenues in the U.S. include export sales. Revenues are attributable to
countries based on the location of the entity selling the products or performing the services. Long-lived assets are
attributable to countries based on the physical location of the entity and its operating assets and do not include
intercompany balances.
2015
Revenues from unaffiliated customers ..............
Long-lived assets ...............................................
2014
Revenues from unaffiliated customers ..............
Long-lived assets ...............................................
2013
Revenues from unaffiliated customers ..............
Long-lived assets ...............................................
$
$
$
Canada
Australia
344,249
532,419
$ 135,964
390,623
661,416
746,983
$ 213,279
519,777
U.S. and
Other
Total
$
$
37,750
56,935
$
517,963
979,977
68,196
96,120
$
942,891
1,362,880
710,538
664,466
$ 255,457
810,645
$
75,109
198,594
$ 1,041,104
1,673,705
17. RELATED PARTY TRANSACTIONS
Our related parties included Oil States until May 30, 2014, the effective date of the Spin-Off.
On May 27, 2014, in connection with the Spin-off, we entered into several agreements with Oil States that
govern the Spin-Off and the relationship of the parties following the Spin-Off. Because the terms of these
agreements were entered into in the context of a related party transaction, the terms may not be comparable to terms
that would be obtained in a transaction between unaffiliated parties.
The Separation and Distribution Agreement between us and Oil States contains the key provisions relating to
the separation of our business from Oil States and the distribution of our common stock to Oil States stockholders.
The Separation and Distribution Agreement identifies the assets that were transferred or sold, liabilities that were
assumed or sold and contracts that were assigned to us by Oil States or by us to Oil States in the Spin-Off and
describes how these transfers, sales, assumptions and assignments occurred. Pursuant to the Separation and
Distribution Agreement, on May 28, 2014, we made a cash distribution to Oil States of $750 million.
The Indemnification and Release Agreement governs the treatment of all aspects relating to indemnification,
insurance, litigation responsibility and management, and litigation document sharing and cooperation. Generally, the
Indemnification and Release Agreement provides for cross-indemnities principally designed to place financial
responsibility for the obligations and liabilities of our business with us and financial responsibility for the
obligations and liabilities of Oil States’ business with Oil States. The Indemnification and Release Agreement also
establishes procedures for handling claims subject to indemnification and related matters. Pursuant to the
Indemnification and Release Agreement, we and Oil States will generally release the other party from all claims
arising prior to the Spin-Off other than claims arising under the transaction agreements, including the
indemnification provisions described above. See Note 13 – Commitments and Contingencies.
The Tax Sharing Agreement governs the respective rights, responsibilities and obligations of Oil States and us
with respect to taxes and tax benefits, the filing of tax returns, the control of audits, restrictions on us to preserve the
tax-free status of the Spin-Off and other tax matters.
The Employee Matters Agreement provides that each company has responsibility for its own employees and
compensation plans. The agreement also contains provisions regarding share-based compensation. See Note 15 –
Share Based Compensation.
116
CIVEO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The Transition Services Agreement sets forth the terms on which Oil States provided to us, and we provided to
Oil States, on a temporary basis, certain services or functions that the companies historically have shared. Transition
services provided to us by Oil States included administrative, payroll, legal, human resources, data
processing, financial audit support, financial transaction support, and other support services, information technology
systems and various other corporate services. Transition services provided to Oil States by us included information
technology systems, financial audit support, tax support and other corporate services. The agreement provided for
the provision of specified transition services, generally for a period of up to nine months from the date of the Spin-
Off, with a possible extension of 1 month (an aggregate of 10 months) at a predetermined fee based on estimated
cost to Oil States. The Transition Services Agreement expired under the terms of the agreement on February 28,
2015. We incurred costs under the Transition Services Agreement totaling $0.3 million and $1.3 million during the
years ended December 31, 2015 and 2014, respectively.
Parent Company Services Provided and Corporate Allocations
Prior to the Spin-Off, Oil States provided services to and funded certain expenditures of Civeo. The most
significant of these services and expenditures were: (1) funding expenditures to settle domestic accounts payable; (2)
funding and processing of domestic payroll; (3) share-based compensation; and (4) certain transaction-related
expenditures. The consolidated financial statements of Civeo reflect these expenditures. During the years ended
December 31, 2014 and 2013, $41.7 million and $130.2 million, respectively, of expenditures for services received
from Oil States or funding for expenditures provided by Oil States were included in the consolidated financial
statements.
Prior to the Spin-Off, the consolidated statements of operations also include general corporate expense
allocations, which include costs incurred by Oil States for certain corporate functions such as executive
management, finance, information technology, tax, internal audit, risk management, legal, human resources and
treasury. During the years ended December 31, 2014 and 2013, we were allocated $2.8 million and $6.1 million,
respectively, in respect of these corporate expenses which are included within selling, general and administrative
expenses in the accompanying consolidated statements of operations.
Oil States Net Investment
Net transfers to Oil States are included within Oil States net investment on the consolidated balance sheets. The
components of the change in Oil States net investment for the years ended December 31, 2014 and 2013 are as
follows (in thousands):
Cash transfers and general financing activities .......................
Services received or funding for expenditures ........................
Corporate allocations, including income tax provision (1) .....
Net increase in Oil States net investment .................................
$
$
2014
(13,255)
41,725
3,950
32,420
2013
29,098
130,159
7,216
166,473
$
$
(1) Corporate allocations includes the general corporate expense allocations of $2.8 million and $6.1 million for the
years ended December 31, 2014 and 2013, respectively, the impact of the income tax provision, the allocation
of corporate insurance premiums, and the attribution of certain assets and liabilities that have historically been
held at the Oil States corporate level, but which are specifically identifiable or otherwise allocable to us. The
attributed assets and liabilities are included in Civeo’s consolidated balance sheets.
Supplemental Cash Flow Information
In accordance with the Separation and Distribution Agreement, our affiliate debt with Oil States, which totaled
approximately $336.8 million as of May 30, 2014, including accrued interest, was settled through a non-cash capital
contribution.
117
CIVEO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
18. VALUATION ACCOUNTS
Activity in the valuation accounts was as follows (in thousands):
Balance at
Beginning
of Period
Charged to
Costs and
Expenses
Deductions
(Net of
Recoveries)
Translation
and Other,
Net
Balance
at End of
Period
Year Ended December 31, 2015:
Allowance for doubtful accounts
receivable ......................................
$
4,043
$
1,004
$
(3,844)
$
(82)
$
1,121
Valuation allowance for deferred
tax assets .......................................
Year Ended December 31, 2014:
Allowance for doubtful accounts
49,523
70,095
--
(4,531)
115,087
receivable ......................................
$
3,656
$
503
$
(51)
$
(65)
$
4,043
Valuation allowance for deferred
tax assets .......................................
Year Ended December 31, 2013:
Allowance for doubtful accounts
--
49,523
--
--
49,523
receivable ......................................
$
1,118
$
2,628
$
(7)
$
(83)
$
3,656
19. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table summarizes quarterly financial information for 2015 and 2014 (in thousands, except per
share amounts):
First
Quarter( 2 )
Second
Quarter( 3 )
Third
Quarter( 4 )
Fourth
Quarter( 5 )
2015
Revenues ............................................................. $ 170,987
Gross profit(1) .....................................................
68,076
Net income (loss) attributable to Civeo ..............
(16)
0.00
Basic earnings (loss) per share ...........................
Diluted earnings (loss) per share ........................
0.00
2014
Revenues ..............................
Gross profit(1) ......................
Net income attributable to Civeo ........................
Basic earnings per share ......
Diluted earnings per share ...
$ 252,799
109,289
36,239
0.34
0.34
$ 143,147
53,723
(13,461)
(0.13)
(0.13)
$ 227,133
93,828
13,949
0.13
0.13
$ 106,544
36,793
(107,685)
(1.01)
(1.01)
$ 243,265
106,164
32,403
0.30
0.30
$ 97,285
31,758
(10,597)
(0.10)
(0.10)
$ 219,694
88,689
(271,634)
(2.54)
(2.54)
(1) Represents "revenues" less "product costs" and "service and other costs" included in our consolidated
statements of operations.
(2)
In the first quarter of 2015, we recognized the following items:
• Costs associated with our planned migration to Canada of $1.1 million ($0.8 million after-tax, or
$0.01 per diluted share), included in Selling, general and administrative expenses on the
consolidated statements of operations.
• A loss of $3.8 million ($2.4 million after-tax, or $0.02 per diluted share) of which $1.1 million is
included in cost of sales and services and $2.7 million is included in impairment expense. This
charge relates to the decision to close a manufacturing facility in the United States. As a result, the
related assets were written down to their estimated sales proceeds, less costs to sell.
(3)
In the second quarter of 2015, we recognized the following items:
• A charge of $9.5 million ($6.6 million after-tax, or $0.06 per diluted share), related to the
impairment of certain fixed assets which carrying value we determined not to be recoverable. The
118
CIVEO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
charge, which is related to our Australia segment, is included in Impairment expense on the
accompanying consolidated statements of operations.
• Costs associated with our migration to Canada of $2.4 million ($1.6 million after-tax, or $0.02 per
diluted share), included in Selling, general and administrative expenses on the consolidated
statements of operations.
In the second quarter of 2014, we recognized the following items:
• A charge of $9.0 million ($6.3 million after-tax, or $0.06 per diluted share), related to the
impairment of an intangible asset in Australia. Due to the Spin-Off, and the resulting rebranding
of the Company’s Australian operations from The Mac to Civeo Australia, it was determined that
the fair value of an intangible asset associated with The Mac brand was zero. The charge, which is
related to our Australia segment, is included in Impairment expense on the accompanying
consolidated statements of operations.
• An impairment of certain fixed assets which were not in our custody, and for which return was
determined to be uncertain. The $2.6 million impairment ($1.7 million after-tax, or $0.02 per
diluted share), which is related to our U.S. segment, is included in Impairment expense on the
consolidated statements of operations.
• Severance costs associated with the termination of an executive. The $4.1 million expense ($3.1
million after-tax, or $0.03 per diluted share), which is related to our Canadian segment, is included
in Selling, general and administrative expenses on the consolidated statements of operations.
•
$3.5 million, or $0.02 per diluted share after-tax, of losses incurred on the extinguishment of debt.
• Transition costs associated with becoming a stand-alone company. The $1.9 million in costs ($1.2
million after-tax, or $0.01 per diluted share), which are primarily corporate in nature, are included
in Spin-Off and formation costs on the consolidated statements of operations.
(4)
In the third quarter of 2015, we recognized the following items:
• Goodwill impairment losses of $43.2 million ($43.2 million after-tax, or $0.40 per diluted share),
which are related to our Canadian segment, and are included in Impairment expense on the
consolidated statements of operations.
• Fixed asset and intangible asset impairment losses of $67.5 million ($46.9 million after-tax, or
$0.44 per diluted share), of which $20.5 million related to our U.S. segment, $24.0 million related
to our Australian segment and $23.0 million related to our Canadian segment, and is included in
Impairment expense on the consolidated statements of operations. The Canadian segment included
$11.9 million related to assets that should have been impaired in the fourth quarter of 2014. We
determined that the error was not material to our financial statements for the year ended December
31, 2014 and therefore corrected the error in the third quarter of 2015.
• Costs associated with our migration to Canada of $1.5 million ($1.0 million after-tax, or $0.01 per
diluted share), included in Selling, general and administrative expenses on the consolidated
statements of operations.
$1.5 million, or $0.01 per diluted share, of losses incurred on extinguishment of debt.
•
In the third quarter of 2014, we recognized $1.0 million in transition costs associated with becoming a
stand-alone company ($0.7 million after-tax, or $0.01 per diluted share). The costs, which are primarily
corporate in nature, are included in Spin-Off and formation costs on the consolidated statements of
operations.
(5)
In the fourth quarter of 2015, we recognized the following items:
• Costs associated with our migration to Canada of $1.9 million ($1.2 million after-tax, or $0.01 per
diluted share), included in Selling, general and administrative expenses on the consolidated
statements of operations.
• A foreign currency gain of $3.6 million that should have been recorded in the third quarter of
2015. We determined that the error was not material to our financial statements for the period
ended September 30, 2015 and therefore corrected the error in the fourth quarter of 2015.
119
CIVEO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
In the fourth quarter of 2014, we recognized the following items:
• Goodwill impairment losses of $202.7 million ($201.2 million after-tax, or $1.89 per diluted
share), of which $16.6 million related to our U.S. segment and $186.1 million related to our
Australian segment.
• Fixed asset and intangible asset impairment losses of $76.2 million ($51.2 million after-tax, or
$0.48 per diluted share), of which $59.0 million related to our U.S. segment and $17.2 million
related to our Canadian segment.
• A $34.9 million tax expense ($0.33 per diluted share) from the establishment of a deferred tax
liability related to a portion of our undistributed foreign earnings which we no longer intend to
indefinitely reinvest and a valuation allowance related to deferred tax assets related to capital
losses not expected to be realized.
• Costs associated with our migration to Canada of $2.6 million ($1.7 million after-tax, or $0.02 per
diluted share), included in Selling, general and administrative expenses on the consolidated
statements of operations.
• Transition costs incurred associated with becoming a stand-alone company. The $0.9 million in
costs ($0.6 million after-tax, or $0.01 per diluted share), which are primarily corporate in nature,
are included in Spin-off and formation costs on the consolidated statements of operations.
Amounts are calculated independently for each of the quarters presented. Therefore, the sum of the quarterly
amounts may not equal the total calculated for the year.
20. SUBSEQUENT EVENTS
On February 18, 2016, we amended our Amended Credit Facility. Please see Note 9 – Debt for further
information.
120
Exhibit No.
Description
Exhibit Index
2.1
2.2
3.1
3.2
4.1
10.1
10.2
10.3
10.4
10.5
10.6†
10.7†
10.8†
10.9†
Agreement and Plan of Merger, dated as of April 6, 2015, among Civeo Corporation, Civeo
Canadian Holdings ULC and Civeo US Merger Co (incorporated by reference to Annex A of
Civeo Corporation’s definitive proxy statement/prospectus on Schedule 14A filed with the SEC on
April 8, 2015).
Separation and Distribution Agreement by and between Oil States International, Inc. and Civeo
Corporation, dated May 27, 2014 (incorporated herein by reference to Exhibit 2.1 to the Current
Report on Form 8-K (File No. 001-36246) filed on June 2, 2014).
Notice of Articles of Civeo Corporation (incorporated herein by reference to Exhibit 3.1 to the
Current Report on Form 8-K12B (File No. 001-36246) filed on July 17, 2015).
Articles of Civeo Corporation (incorporated herein by reference to Exhibit 3.2 to the Current
Report on Form 8-K12B (File No. 001-36246) filed on July 17, 2015).
Form of Common Share Certificate (incorporated herein by reference to Exhibit 4.1 to the Current
Report on Form 8-K12B (File No. 001-36246) filed on July 17, 2015).
Indemnification and Release Agreement by and between Oil States International, Inc. and Civeo
Corporation, dated May 27, 2014 (incorporated herein by reference to Exhibit 10.1 to the Current
Report on Form 8-K (File No. 001-36246) filed on June 2, 2014).
Tax Sharing Agreement by and between Oil States International, Inc. and Civeo Corporation,
dated May 27, 2014 (incorporated herein by reference to Exhibit 10.2 to the Current Report on
Form 8-K (File No. 001-36246) filed on June 2, 2014).
Employee Matters Agreement by and between Oil States International, Inc. and Civeo
Corporation, dated May 27, 2014 (incorporated herein by reference to Exhibit 10.3 to the Current
Report on Form 8-K (File No. 001-36246) filed on June 2, 2014).
Transition Services Agreement by and between Oil States International, Inc. and Civeo
Corporation, dated May 27, 2014 (incorporated herein by reference to Exhibit 10.4 to the Current
Report on Form 8-K (File No. 001-36246) filed on June 2, 2014).
Syndicated Facility Agreement, dated as of May 28, 2014, among Civeo Corporation, Civeo
Canada Inc., Civeo Premium Camp Services Ltd. And Civeo Australia Pty Limited, as Borrowers,
the Lenders named therein, Royal Bank of Canada, as Administrative Agent, U.S. Collateral
Agent, Canadian Administrative Agent, Canadian Collateral Agent and an Issuing Bank, and RBC
Europe Limited, as Australian Administrative Agent, Australian Collateral Agent and an Issuing
Bank (incorporated herein by reference to Exhibit 10.5 to the Current Report on Form 8-K (File
No. 001-36246) filed on June 2, 2014).
Form of Indemnification Agreement (incorporated herein by reference to Exhibit 10.1 to the
Current Report on Form 8-K12B (File No. 001-36246) filed on July 17, 2015).
Settlement Agreement and Release, dated as of June 26, 2014, by and between Civeo Corporation
and Ronald Green (incorporated herein by reference to Exhibit 10.7 to the Quarterly Report on
Form 10-Q (File No. 001-36246) filed on August 13, 2014).
2014 Equity Participation Plan of Civeo Corporation (incorporated herein by reference to Exhibit
10.2 to the Current Report on Form 8-K12B (File No. 001-36246) filed on July 17, 2015).
Form of Civeo Corporation Annual Incentive Compensation Plan (incorporated herein by
reference to Exhibit 10.7 to the Registration Statement on Form 10 (File No. 001-36246) filed on
April 22, 2014).
121
10.10†
10.11†
10.12†
10.13†
10.14†
10.15†
10.16†
10.17†
10.18†
10.19†
10.20†
10.21†
10.22†
10.23†
10.24†
10.25†
10.26†
Form of Canadian Long-Term Incentive Plan (incorporated herein by reference to Exhibit 10.8 to
the Registration Statement on Form 10 (File No. 001-36246) filed on April 22, 2014).
Form of Employee Non-Qualified Stock Option Agreement under the 2014 Equity Participation
Plan of Civeo Corporation (incorporated herein by reference to Exhibit 10.9 to the Registration
Statement on Form 10 (File No. 001-36246) filed on April 22, 2014).
Form of Restricted Stock Agreement under the 2014 Equity Participation Plan of Civeo
Corporation (incorporated herein by reference to Exhibit 10.10 to the Registration Statement on
Form 10 (File No. 001-36246) filed on April 22, 2014).
Form of Non-Employee Director Restricted Stock Agreement (incorporated herein by reference to
Exhibit 10.11 to the Registration Statement on Form 10 (File No. 001-36246) filed on April 22,
2014).
Form of Deferred Stock Agreement (Australia) (incorporated herein by reference to Exhibit 10.12
to the Registration Statement on Form 10 (File No. 001-36246) filed on April 22, 2014).
Form of Deferred Stock Agreement (Canada) (incorporated herein by reference to Exhibit 10.13 to
the Registration Statement on Form 10 (File No. 001-36246) filed on April 22, 2014).
Form of Executive Agreement of Bradley J. Dodson (incorporated herein by reference to Exhibit
10.14 to the Registration Statement on Form 10 (File No. 001-36246) filed on April 22, 2014).
Form of Phantom Unit Agreement under the 2014 Equity Participation Plan of Civeo Corporation
(incorporated herein by reference to Exhibit 10.17 to the Annual Report on Form 10-K (File No.
001-36246) filed on March 13, 2015).
Executive Agreement between Civeo Corporation and Frank C. Steininger, dated May 4, 2015
(incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No.
001-36246) filed on May 7, 2015).
Executive Services Agreement, dated May 30, 2012, between Peter McCann and The Mac
Services Group Pty Ltd. (incorporated herein by reference to Exhibit 10.3 to the Current Report on
Form 8-K12B (File No. 001-36246) filed on July 17, 2015).
Dual Employment Agreement of Bradley J. Dodson (incorporated herein by reference to Exhibit
10.4 to the Current Report on Form 8-K12B (File No. 001-36246) filed on July 17, 2015).
Dual Employment Agreement of Frank C. Steininger (incorporated herein by reference to Exhibit
10.5 to the Current Report on Form 8-K12B (File No. 001-36246) filed on July 17, 2015).
Executive Agreement between Civeo Corporation and Peter McCann, dated August 17, 2015
(incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No.
001-36246) filed on August 27, 2015).
Variation to Executive Services Agreement between Civeo Pty Ltd and Peter McCann, dated
August 17, 2015 (incorporated herein by reference to Exhibit 10.2 to the Current Report on Form
8-K (File No. 001-36246) filed on August 27, 2015).
Dual Employment Agreement (Canada) of Allan Schoening, dated July 16, 2015 (incorporated
herein by reference to Exhibit 10.8 to the Quarterly Report on Form 10-Q (File No. 001-36246)
filed on November 3, 2015).
Dual Employment Agreement (United States) of Allan Schoening, dated July 16, 2015
(incorporated herein by reference to Exhibit 10.9 to the Quarterly Report on Form 10-Q (File No.
001-36246) filed on November 3, 2015).
Executive Agreement between Civeo Corporation and Mike Ridley, effective May 4, 2015
(incorporated herein by reference to Exhibit 10.10 to the Quarterly Report on Form 10-Q (File No.
122
10.27†
10.28†
10.29
21.1*
23.1*
31.1*
001-36246) filed on November 3, 2015).
Executive Change of Control Severance Agreement between Civeo Corporation and Allan
Schoening, dated July 13, 2015 (incorporated herein by reference to Exhibit 10.11 to the Quarterly
Report on Form 10-Q (File No. 001-36246) filed on November 3, 2015).
Executive Agreement between Civeo Corporation and Allan Schoening, dated December 15, 2014
(incorporated herein by reference to Exhibit 10.12 to the Quarterly Report on Form 10-Q (File No.
001-36246) filed on November 3, 2015).
First Amendment to Syndicated Facility Agreement, dated as of May 13, 2015, by and among
Civeo Corporation, Civeo Canadian Holdings ULC, Civeo Canada Inc., Civeo Premium Camp
Services Ltd., and Civeo PTY Limited as Borrowers, the Lenders named therein, Royal Bank of
Canada, as Administrative Agent, U.S. Collateral Agent, Canadian Administrative Agent,
Canadian Collateral Agent and an Issuing Bank and RBC Europe Limited, as Australian
Administrative Agent, Australian Collateral Agent and an Issuing Bank (incorporated herein by
reference to Exhibit 10.1 to the Current Report on Form 8-K (File No. 001-36246) filed on May
19, 2015).
List of Significant Subsidiaries of Civeo Corporation.
Consent of Ernst & Young LLP.
— Certification of Chief Executive Officer of Civeo Corporation. pursuant to Rules 13a-14(a) or
15d-14(a) under the Securities Exchange Act of 1934.
31.2*
— Certification of Chief Financial Officer of Civeo Corporation. pursuant to Rules 13a-14(a) or 15d-
14(a) under the Securities Exchange Act of 1934.
32.1**
— Certification of Chief Executive Officer of Civeo Corporation. pursuant to Rules 13a-14(b) or
15d-14(b) under the Securities Exchange Act of 1934.
32.2**
— Certification of Chief Financial Officer of Civeo Corporation. pursuant to Rules 13a-14(b) or 15d-
14(b) under the Securities Exchange Act of 1934.
101.INS*
— XBRL Instance Document
101.SCH*
— XBRL Taxonomy Extension Schema Document
101.CAL*
— XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*
— XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*
— XBRL Taxonomy Extension Label Linkbase Document
101.PRE*
— XBRL Taxonomy Extension Presentation Linkbase Document
*
†
Filed herewith.
Management contracts and compensatory plans and arrangements.
**
Furnished herewith.
PLEASE NOTE: Pursuant to the rules and regulations of the Securities and Exchange Commission, we have filed or
incorporated by reference the agreements referenced above as exhibits to this Annual Report on Form 10-K. The
agreements have been filed to provide investors with information regarding their respective terms. The agreements
are not intended to provide any other factual information about Civeo or its business or operations. In particular, the
assertions embodied in any representations, warranties and covenants contained in the agreements may be subject to
qualifications with respect to knowledge and materiality different from those applicable to investors and may be
123
qualified by information in confidential disclosure schedules not included with the exhibits. These disclosure
schedules may contain information that modifies, qualifies and creates exceptions to the representations, warranties
and covenants set forth in the agreements. Moreover, certain representations, warranties and covenants in the
agreements may have been used for the purpose of allocating risk between the parties, rather than establishing
matters as facts. In addition, information concerning the subject matter of the representations, warranties and
covenants may have changed after the date of the respective agreement, which subsequent information may or may
not be fully reflected in our public disclosures. Accordingly, investors should not rely on the representations,
warranties and covenants in the agreements as characterizations of the actual state of facts about Civeo or its
business or operations on the date hereof.
124
EXHIBIT 31.1
CERTIFICATION OF
CHIEF EXECUTIVE OFFICER
OF CIVEO CORPORATION
PURSUANT TO RULE 13a–14(a) UNDER THE
SECURITIES EXCHANGE ACT OF 1934
I, Bradley J. Dodson, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Civeo Corporation (“Registrant");
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash
flows of the Registrant as of, and for, the periods presented in this report;
4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
and have:
a. designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to the
Registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b. designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c. evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such evaluation; and
d. disclosed in this report any change in the Registrant’s internal control over financial reporting that
occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in
the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the Registrant’s internal control over financial reporting; and
125
5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the Registrant’s auditors and the audit committee of the
Registrant’s Board of Directors (or persons performing the equivalent functions):
a. all significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to
record, process, summarize and report financial information; and
b. any fraud, whether or not material, that involves management or other employees who have a
significant role in the Registrant’s internal control over financial reporting.
Date: February 26, 2016
/s/ Bradley J. Dodson
Bradley J. Dodson
President and Chief Executive Officer
126
EXHIBIT 31.2
CERTIFICATION OF
CHIEF FINANCIAL OFFICER
OF CIVEO CORPORATION
PURSUANT TO RULE 13a–14(a) UNDER THE
SECURITIES EXCHANGE ACT OF 1934
I, Frank C. Steininger, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Civeo Corporation (“Registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash
flows of the Registrant as of, and for, the periods presented in this report;
4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
and have:
a. designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to the
Registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b. designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c. evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such evaluation; and
d. disclosed in this report any change in the Registrant’s internal control over financial reporting that
occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in
the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the Registrant’s internal control over financial reporting; and
127
5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the Registrant’s auditors and the audit committee of the
Registrant’s Board of Directors (or persons performing the equivalent functions):
a. all significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to
record, process, summarize and report financial information; and
b. any fraud, whether or not material, that involves management or other employees who have a
significant role in the Registrant’s internal control over financial reporting.
Date: February 26, 2016
/s/ Frank C. Steininger
Frank C. Steininger
Senior Vice President, Chief Financial Officer
and Treasurer
128
CERTIFICATION OF
CHIEF EXECUTIVE OFFICER
OF CIVEO CORPORATION
PURSUANT TO 18 U.S.C. § 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.1
In connection with the Annual Report on Form 10-K for the twelve month period ended December 31,
2015 filed with the Securities and Exchange Commission (the “Report”), I, Bradley J. Dodson, President and Chief
Executive Officer of Civeo Corporation (the “Company”), hereby certify, to the best of my knowledge, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition
and results of operations of the Company.
/s/ Bradley J. Dodson
Name: Bradley J. Dodson
Date: February 26, 2016
129
CERTIFICATION OF
CHIEF FINANCIAL OFFICER
OF CIVEO CORPORATION
PURSUANT TO 18 U.S.C. § 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.2
In connection with the Annual Report on Form 10-K for the twelve month period ended December 31,
2015 filed with the Securities and Exchange Commission (the “Report”), I, Frank C. Steininger, Senior Vice
President, Chief Financial Officer and Treasurer of Civeo Corporation (the “Company”), hereby certify, to the best
of my knowledge, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition
and results of operations of the Company.
/s/ Frank C. Steininger
Name: Frank C. Steininger
Date: February 26, 2016
130
PERFORMANCE GRAPH
The share price performance shown on the graph is not necessarily indicative of future price performance.
Information used in the graph was obtained from Research Data Group, Inc., a source believed to be reliable, but we
are not responsible for any errors or omissions in such information.
The performance graph above is furnished and not filed for purposes of the Securities Act of 1933 and the
Securities Exchange Act of 1934. The performance graph is not soliciting material subject to Regulation 14A.
131
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Directors and Officers
Board of Directors
Executive Officers
Douglas E. Swanson
Chairman of the Board
C. Ronald Blankenship
Director
Bradley J. Dodson
President and Chief Executive Officer
Martin A. Lambert
Director
Constance B. Moore
Director
Richard A. Navarre
Director
Charles Szalkowski
Director
Bradley J. Dodson
President and Chief Executive Officer
Frank C. Steininger
Senior Vice President,
Chief Financial Officer and Treasurer
Mike Ridley
President, North America
Peter McCann
Senior Vice President, Australia
Allan D. Schoening
Senior Vice President, Human Resources
and Health, Safety and Environment
General Information
Forward-looking Statements
The foregoing contains forward-looking statements within the meaning of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
Forward-looking statements are those that do not state historical facts and are,
therefore, inherently subject to risks and uncertainties. The forward-looking state-
ments included herein are based on then current expectations and entail various
risks and uncertainties that could cause actual results to differ materially from those
expressed or implied by these forward-looking statements. Such risks and uncer-
tainties include, among other things, risks associated with the general nature of the
accommodations industry, risks associated with the level of supply and demand for
oil, coal, natural gas, iron ore and other minerals, including the level of activity and
developments in the Canadian oil sands, the level of demand for coal and other
natural resources from Australia, and fluctuations in the current and future prices
of oil, coal, natural gas, iron ore and other minerals, risks associated with the
Company’s migration to Canada, including, among other things, risks associated
with changes in tax laws or their interpretations, the ability to realize the anticipated
benefits thereof, the impact thereof on the Company’s relationships, including with
employees, customers, competitors and investors, risks related to our ability to
meet the continued listing standards of the New York Stock Exchange and other
factors discussed in the “Business” and “Risk Factors” sections of the Company’s
annual report on Form 10-K for the year ended December 31, 2015 and other
reports the Company may file from time to time with the Securities and Exchange
Commission. Each forward-looking statement contained herein speaks only as
of the date of this release. Except as required by law, the Company expressly
disclaims any intention or obligation to revise or update any forward-looking
statements whether as a result of new information, future events or otherwise.
Auditors
Ernst & Young LLP
Houston, Texas
Transfer Agent
Computershare Investor Services Inc.
3rd Floor, 510 Burrard Street
Vancouver, BC V6C 3B9
800.564.6253 (North America)
514.982.7555 (International)
service@computershare.com
Legal Counsel
Baker Botts L.L.P.
Houston, Texas
Trading Information
New York Stock Exchange
Ticker Symbol: CVEO
Headquarters
333 Clay Street
Suite 4980
Houston, TX 77002
Tel: 713.510.2400
Fax: 713.510.2499
www.civeo.com
DESIGN: SAVAGE BRANDS, HOUSTON, TX
IBC
3 33 CLAY STR EET
SUI TE 4980
H OUST ON, TX 77002
W WW.CIVEO.COM
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