Annual Report 2013
Table of Contents
Information on Annual Meeting
President’s Letter to Shareholders
Management’s Discussion and Analysis
Management’s Report to Shareholders
Independent Auditors’ Report to Shareholders
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
Corporate Information
Page
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32
33
34
38
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Information on Annual General Meeting
The Annual General Meeting of the Shareholders of Horizon North Logistics Inc. will be held on April 30,
2014 at 3:00 p.m. (local time) in the Strand/Tivoli Room, Metropolitan Conference Centre, 333-4th
Avenue SW., Calgary, Alberta.
Shareholders are encouraged to attend and those unable to do so are requested to complete and
submit the Instrument of Proxy at their earliest convenience.
President’s Letter to Shareholders
At its onset, Horizon’s 2013 fiscal year was not expected to continue the trend of rapid expansion set in the previous three
years. However, results were more muted than originally anticipated and the year ended with a particularly weak fourth
quarter. Revenue for the year increased by 5% over the prior year while EBITDAS and Earnings per Share decreased by 13% and
42%, respectively, from the record results achieved in 2012. As a result, bottom line performance as measured by return on
invested capital declined to 15.8% in 2013 from 20.4% in 2012.
Commensurate with the reduced operating results, net capital spending was held to $63 million, a substantial reduction from
the $130 million spent in 2012. Initial capital spending plans were lower than the program undertaken in 2012 in recognition of
the fact that as a service provider, the organization’s service delivery capabilities imbedded in our workforce and related
support systems must match, or ideally be slightly ahead of, the growth of our asset base. The planned reduction in the capital
program after the rapid expansion in 2012 was meant to provide time to further solidify our service delivery capabilities.
Further capital spending restraint was implemented as the year progressed.
With that said, the macro environment for Horizon’s businesses continues to be robust. Operator capital spending in the oil
sands is forecast by many analysts to be $25 to $30 billion per year for the foreseeable future. LNG development prospects,
both in Canada and the United States, hold promise for a significant enhancement of the economics of natural gas production
in North America. The majority of this development activity in Western Canada takes place in remote locations which bodes
well for Horizon’s work force accommodation and matting businesses. This was evidenced most recently by our announcement
in February 2014 of additional multi-year, full service workforce accommodation contracts, both of which were with new
customers to the organization.
Maintaining a conservative balance sheet continues to be an important objective for Horizon, as is the continuation of the
upward trend in our dividend distributions. The company’s debt level declined substantially during the course of 2013, ending
the year at $80 million compared to $118 million at December 31, 2012. The combination of a positive business outlook and a
strong balance sheet lead to the Board of Directors increasing the company’s dividend payment by 28% in early 2014. The
quarterly dividend now sits at $0.08 per share or $0.32 per share on an annual basis.
As a service company, the foundation of Horizon’s success has been, and will continue to be our employees. Our average
employee count in 2013 was 1,749. A key element of our workforce management program is ensuring the safety of our
employees at all of our work sites. I am very happy to report stellar results achieved by our safety programs in 2013. The
Company’s safety record, as measured by Total Recordable Incident Rate, continued its downward trend moving to 1.13 in 2013
compared to 2.77 in 2012 and 2.94 in 2011. Creating a safe work environment is an ongoing objective that we will diligently
continue to pursue.
The capabilities embodied in Horizon’s people, assets and financial strength place the Company among the leaders in our
industry. We look forward to continuing to provide top tier service to our customers and building upon past successes for the
benefit of all stakeholders.
Bob German
President and Chief Executive Officer
March 19, 2014
Page | 3
Management’s Discussion and Analysis
Years ended December 31, 2013 and 2012
This Management’s Discussion and Analysis (“MD&A”), prepared as at February 19, 2014, focuses on key statistics from the
Consolidated Financial Statements and pertains to known risks and uncertainties relating to the business carried on by Horizon
North Logistics Inc. (“Horizon” or the “Corporation”). This discussion should not be considered all-inclusive, as it does not
attempt to include changes that may occur in general economic, political and environmental conditions.
Annual Financial Summary
(000’s except per share amounts)
2013
% change
2012
% change
Years ended December 31
Revenue
EBITDAS(1)
EBITDAS as a % of revenue
Operating earnings (1)
Operating earnings as a % of revenue
Total profit
Total comprehensive income
Earnings per share – basic
– diluted
Total assets
Long-term loans and borrowings
Cash from operations
Capital spending
Purchase of capital
Proceeds from capital disposals
Net capital spending
Debt to total capitalization ratio(2)
Dividends declared
Dividends declared per share
$
$
$
$
$
554,387
126,334
23%
63,291
11%
42,451
42,637
0.39
0.38
471,115
78,256
125,369
90,146
(26,925)
63,221
0.21
27,378
0.25
5%
(13%)
(38%)
(42%)
(42%)
(42%)
(42%)
(5%)
(33%)
47%
(35%)
205%
(52%)
(30%)
$
$
$
$
$
526,616
145,027
28%
102,758
20%
72,883
72,933
0.67
0.66
495,993
116,872
85,036
139,346
(8,831)
130,515
0.30
21,662
0.20
31%
41%
45%
63%
62%
60%
61%
39%
112%
3%
38%
2%
41%
43%
$
$
$
$
$
2011
402,993
102,636
25%
62,723
16%
44,822
44,980
0.42
0.41
357,137
55,234
87,711
101,034
(8,683)
92,351
0.21
12,770
0.12
(1)
EBITDAS (Earnings before finance costs, taxes, depreciation, amortization, gain/loss on disposal of property, plant and equipment, impairment loss and share based compensation) and
operating earnings (earnings before finance costs, taxes, impairment loss, and earnings on equity investments) are not recognized measures under IFRS. Management believes that in
addition to total profit and total comprehensive income, EBITDAS is a useful supplemental measure as it provides an indication of the Corporation’s ability to generate cash flow in order
to fund working capital, service debt, pay current income taxes and fund capital programs, and it is regularly provided to and reviewed by the Chief Operating Decision Maker. Operating
earnings is a useful supplemental measure as it provides an indication of the results generated by the Corporation’s principal business activities prior to consideration of how those
activities are financed or taxed. Horizon’s method of calculating EBITDAS and operating earnings may differ from other entities and accordingly, may not be comparable to measures
used by other entities. EBITDAS and operating earnings should not be construed as alternatives to total profit and total comprehensive income determined in accordance with IFRS as an
indicator of the Corporation’s performance. For a reconciliation of EBITDAS and operating earnings to total profit and total comprehensive income, please refer to page 3 of the
Management’s Discussion and Analysis.
(2)
Debt to total capitalization is calculated as the ratio of debt to total capitalization. Debt is defined as the sum of curren t and long-term portions of loans and borrowings. Total
capitalization is calculated as the sum of debt and shareholders’ equity.
Page | 4
Management’s Discussion and Analysis
Years ended December 31, 2013 and 2012
Overview
Horizon’s 2013 results were mixed compared to 2012, while revenue increased year over year EBITDAS, operating earnings and
earnings per share declined. The increase in revenue came from strong performance in the manufacturing sales operations, a
result of a large camp sale project in the Alberta oil sands being manufactured and installed throughout 2013. This revenue
strength was partially offset by weaker performance in the camp rental and catering operation primarily as a result of lower
utilization in the open style camps, particularly in the second half of 2013. In addition, 2013 matting revenues were down
compared to 2012 with weather being a significant factor contributing to reduced sales and rental volumes. The summer saw
extremely wet ground conditions in a very short period of time which limited the ability to work and the fourth quarter was
cold with a quick freeze up. These factors resulted in a significantly different revenue mix in 2013 compared to 2012 which had
an impact on earnings.
EBITDAS decreased in 2013 compared to 2012 primarily as a result of the shift in revenue mix. The manufacturing sales
operation typically contributes lower margins in comparison to camp rental and catering operations and matting operations. In
2013 manufacturing sales increased to 41% of total revenue compared to 30% in 2012, as a result of this shift in revenues
EBITDAS decreased.
Operating earnings and earnings per share decreased in 2013 compared to the same period of 2012, driven by lower EBITDAS,
higher depreciation costs and losses on disposal of plant, property and equipment. Increased depreciation was a result of the
addition of camp assets and camp setup costs related to new camps added late in 2012 and throughout 2013. Camp setup costs
are typically depreciated over the contract term which is a much shorter time frame than camp equipment. The loss on disposal
of assets came mainly from the disposal of set-up costs related to the decommissioning of a large camp in the second quarter
of 2013, disposal of the Corporation’s blast resistant structures business and the sale of ancillary land in the fourth quarter of
2014. All of these factors contributed to decreased operational earnings for the year ended December 31, 2013 compared to
the same period of 2012.
Outlook
After a very soft quarter to end 2013, activity levels have improved to start 2014. In the camp rental and catering business,
activity levels are slightly ahead of where they were last year at this time. The matting business is also seeing rental and sales
levels similar to last year at this time with increases expected as spring break-up approaches.
First quarter and early second quarter plant activity will be focused on manufacturing the capital equipment required to meet
the needs of our recently announced, multi-year oil sands contract. Third party revenues during this period will be mainly
generated by the continued on-site installation work being performed at a large camp sale project in the Fort McMurray,
Alberta oil sands region. The manufacturing sales revenue stream is the most variable component of Horizon’s operation.
Manufacturing capacity is currently 45% booked for 2014. By comparison, at this point in 2013, 75% of Horizon’s manufacturing
capacity was booked for either third party sales or construction of contracted camps. Horizon anticipates visibility regarding
the utilization of its manufacturing capacity for the second half of 2014 to continue to improve and is encouraged by a
continued strong bidding pipeline that relates to oil sands projects and LNG development in British Columbia.
The macro fundamentals of the workforce accommodation and matting businesses continue to be sound. Oil sands investment
is forecasted to be near $30 billion per year for the foreseeable future and Canada’s LNG projects are progressing with reserve
delineation drilling occurring in the north eastern British Columbia gas fields. Anticipated announcements pertaining to
provincial LNG/natural gas tax structures should facilitate project proponents making final investment decisions on gas
liquefaction plant construction.
Dividend payment
Horizon North Logistics Inc. announced today that its Board of Directors has declared a dividend for the first quarter of 2014 at
$0.08 per share. The dividend is payable to shareholders of record at the close of business on March 31, 2014 to be paid on
April 15, 2014. The dividends are eligible dividends for Canadian tax purposes.
Page | 5
Management’s Discussion and Analysis
Years ended December 31, 2013 and 2012
Annual Financial Results
(000’s)
Revenue
Expenses
Direct costs
Selling & administrative
EBITDAS
EBITDAS as a % of revenue
Share based compensation
Depreciation & amortization
Loss (gain) on disposal of property, plant and equipment
Year ended December 31, 2013
Camps &
Catering
Matting
Corporate
Inter-segment
Eliminations
Total
$ 496,594
$
62,419
$
-
$
(4,626)
$ 554,387
369,940
5,677
120,977
24%
1,143
46,197
6,173
43,657
1,002
17,760
28%
168
8,112
(21)
-
12,372
(12,372)
897
583
-
(4,595)
-
(31)
1%
-
(209)
-
409,002
19,051
126,334
23%
2,208
54,683
6,152
Operating earnings
$
67,464
$
9,501
$
(13,852)
$
178
$
63,291
Finance costs
Share of equity accounted investees
Income tax expense
Other comprehensive income
Total comprehensive income
Earnings per share – basic
– diluted
(000’s)
Revenue
Expenses
Direct costs
Selling & administrative
EBITDAS
EBITDAS as a % of revenue
Share based compensation
Depreciation & amortization
Loss (gain) on disposal of property, plant and equipment
3,822
-
17,018
(186)
42,637
0.39
0.38
$
$
$
Year ended December 31, 2012
Camps &
Catering
Matting
Corporate
Inter-segment
Eliminations
Total
$ 447,190
$
91,466
$
-
$
(12,040)
$ 526,616
307,443
5,518
134,229
30%
1,096
31,713
28
68,252
588
22,626
25%
172
8,179
(108)
-
11,157
(11,157)
883
482
(13)
(11,369)
-
(671)
6%
-
(163)
-
364,326
17,263
145,027
28%
2,151
40,211
(93)
Operating earnings
$ 101,392
$
14,383
$
(12,509)
$
(508)
$ 102,758
Finance costs
Share of equity accounted investees
Income tax expense
Other comprehensive income
Total comprehensive income
Earnings per share – basic
– diluted
3,557
529
25,789
(50)
72,933
0.67
0.66
$
$
$
Page | 6
Management’s Discussion and Analysis
Years ended December 31, 2013 and 2012
Camps & Catering
Camps & Catering revenue is comprised of camp rental and catering operations revenue, manufacturing sales revenue, space
rental revenue and the associated service revenue within each operation.
(000’s except bed rental days and catering only days)
Camp rental and catering operations revenue
Manufacturing sales
Space rental
Total revenue
EBITDAS
EBITDAS as % of revenue
Operating earnings
Bed rental days(1)
Catering only days(2)
Years ended December 31
2012
2013
% change
$
$
257,820
227,650
11,124
280,348
156,514
10,328
$
496,594
$
447,190
$
$
120,977
24%
67,464
$
$
134,229
30%
101,392
1,690,199
165,006
1,441,297
246,194
(8%)
45%
8%
11%
(10%)
(32%)
17%
(33%)
(1)
(2)
One bed rental day represents the provision of one bed for one day under a combined rental and catering manday rate, or the provision of one bed for one day under an
equipment rental rate for dedicated camp equipment.
One catering only day equals the provision of catering and housekeeping services with no related bed rental for one day.
Revenues from the Camps & Catering segment for the year ended December 31, 2013 were $496.6 million, an increase of $49.4
million or 11% from the comparative year. EBITDAS for the year ended December 31, 2013 were $121.0 million, a decrease of
$13.3 million or 10% compared to the same period of 2012.
Horizon’s revenues in the Camps & Catering segment continue to be driven by Alberta oil sands activity with 61% of revenues
generated from oil sands compared to 63% in the same period of 2012. Additionally, natural gas exploration and development
activities started to grow with Horizon increasing exposure through the last half of 2013. Of note in 2013 was the shift of
revenue mix in the comparative periods with 2013 having a higher proportion of revenue generated from manufacturing sales
compared to the same period of 2012, a result of Horizon executing a sale of a large camp manufacturing and installation
project for a major oil sands operator throughout 2013. The impact of this shift is reflected in EBITDAS as a result of the
different cost structures in the manufacturing sales operations compared to the camp rental and catering operations.
Manufacturing sales operations typically contributes lower margins compared to the camp rental and catering business.
Camp rental and catering operations revenue
Revenues are derived from the following main business areas: large camp operations, drill camp operations, catering only
operations, and the associated service work within each operation. Service work includes the transportation, set-up and de-
mobilization of camp and catering projects.
Page | 7
Management’s Discussion and Analysis
Years ended December 31, 2013 and 2012
The table below outlines the key performance metrics used by management to measure performance in the large camp and
drill camp operations:
(000’s for revenue only)
Revenue
Bed rental days(1)
Revenue per bed rental day
Number of rentable beds at period end
Average rentable beds available(2)
Utilization(3)
Years ended December 31
Large
camp
$ 197,079
1,574,231
$125
7,059
7,078
61%
2013
Drill
camp
$ 20,105
115,968
$173
882
873
36%
Total
$ 217,184
1,690,199
$128
7,941
7,951
58%
Large
camp
2012
Drill
camp
Total
$ 211,853
1,358,043
$156
$ 14,968
83,254
$180
$ 226,821
1,441,297
$157
6,905
6,141
60%
871
794
29%
7,776
6,935
57%
(1)
(2)
(3)
One bed rental day represents the provision of one bed for one day under a combined rental and catering manday rate, or the provision of one bed for one day under an equipment
rental rate for dedicated camp equipment.
Average rentable beds available is equal to total average beds in the fleet over the period less beds required for staff.
Utilization equals the total number of bed rental days divided by average rentable beds available in the period.
Revenues from large camp operations for the year ended December 31, 2013 decreased by $14.8 million or 7% compared to
the same period in 2012. The decreased revenues were driven mainly by lower volumes at several of the open style camps.
Bed rental days increased by 216,188 days or 16% as bed utilization was up slightly to 61% on a larger fleet compared to the
same period of 2012. Horizon added 682 rentable beds to the fleet in 2013 and disposed of 528 to close the year with growth of
154 rentable beds. The average rentable beds increased in 2013 by 937 compared to 2012, this increase is reflective of the
timing of when beds were added or removed from the fleet during the year.
Revenue per bed rental day declined in the comparative periods by $31 or 20%. The majority of the rate decrease was related
to the mix of contracts with a higher number of split rate contracts in 2013. Under the split rate contract beds are considered
100% utilized as the customer has contracted the beds and pays a separate rate for the catering and camp management
services. The remainder of the decrease was due to slightly lower rates at the open style of camps.
Revenues from drill camp operations for the year ended December 31, 2013 increased by $5.1 million or 34% compared to the
same period of 2012. In the comparative years, the increase was a result of higher utilization of Horizon’s drill camps.
Page | 8
Management’s Discussion and Analysis
Years ended December 31, 2013 and 2012
The table below outlines the key performance metrics used by management to measure performance in the catering only
operations:
(000’s for revenue only)
Catering only revenue
Catering only days(1)
Revenue per catering only day
Years ended December 31
$
2013
17,692
165,006
$107
$
2012
25,853
246,194
$105
(1)
One catering only day equals the provision of catering and housekeeping services with no related bed rental for one day.
Revenues from the provision of catering and housekeeping only services, with no associated bed rentals, for the year ended
December 31, 2013 decreased $8.2 million or 32% as compared to same period of 2012. The majority of the decrease in
revenue was related to a catering only contract for a mine development project in Nunavut which ended in September of 2012.
The remainder of the decrease was a result of lower volumes primarily in the catering only for customer owned drill camps. The
revenue per catering only day increased due to the mix of contracts in the comparative years.
The table below outlines the service revenue generated from the camp and catering operations:
(000’s)
Camp and catering operations service related revenue
Years ended December 31
2013
2012
$
22,944
$
27,674
Service revenues are related to the transportation, set-up and de-mobilization of relatively short term camps for customers.
Revenues for the year ended December 31, 2013 decreased $4.8 million or 17% compared to the same periods in 2012. The
decrease was mainly due to the timing of the specific service projects undertaken in the comparative periods.
Manufacturing sales
Manufacturing sales revenues include in-plant construction, transportation and installation of camps sold to third parties.
Revenues for the year ended December 31, 2013 were $227.7 million, an increase of $71.2 million or 45% as compared to the
same period of 2012. The increase in revenue for 2013 was a result of larger manufacturing projects, the timing of those
projects and the project phase compared to the same period of 2012. Direct manufacturing hours for the year ended December
31, 2013 were 810,694 compared to 643,148 in the same period of 2012, an increase of 167,546 hours or 26%. This increase in
direct hours was achieved by ramping up staffing levels at the existing production facilities later in 2012 and the first half of
2013. Of the total direct manufacturing hours, 58% were allocated to external sales projects as compared to 55% in the same
period of 2012.
Space rental revenues
Space rental revenues increased $0.8 million for the year ended December 31, 2013 compared to 2012. The space rental fleet
size and utilization was relatively consistent at 830 units and 81% for the comparative periods with the increased revenue a
result of the mix of contracts in the comparative years.
Direct costs
Direct costs for the year ended December 31, 2013 were $369.9 million or 74% of revenue compared to $307.4 million or 69%
of revenue for the same period of 2012. Direct costs are closely related to business volumes and the mix of operations within
the business volumes. As a percentage of revenue, direct costs increased mainly due to the shift in revenue mix between camp
rental and catering operations and manufacturing sales compared to same periods of 2012. In 2013, a larger proportion of
revenue was derived from manufacturing sales operations which by its nature has higher direct costs than the camp rental and
catering operations.
Page | 9
Management’s Discussion and Analysis
Years ended December 31, 2013 and 2012
Matting
Matting revenue is comprised of access mat rental revenue, other mat and rental equipment revenue, mat sales revenue,
installation, transportation, service, and other revenue as follows:
(000’s except mat rental days and numbers of mats)
Access mat rental revenue(1)
Other mat and rental equipment revenue(2)
Total mat and rental equipment revenue
Mat sales revenue
Installation, transportation, service, and other revenue
Total revenue
EBITDAS
EBITDAS as a % of revenue
Operating earnings
Access mat rental days – owned mats(3)
Access mat rental days – third party mats(4)
Total access mat rental days
Average owned access mats in rental fleet(5)
Average sub rental access mats in rental fleet(6)
Owned access mats in rental fleet at year end(7)
Mats sold:
New mats
Used Mats
Total mats sold
Years ended December 31,
2013
2012
$ 13,828
2,969
$ 16,797
13,081
32,541
$ 17,556
3,707
$ 21,263
31,506
38,697
$ 62,419
$ 91,466
$ 17,760
28%
9,501
$
$ 22,626
25%
$ 14,383
4,157,699
1,653,828
3,677,410
2,537,743
5,811,527
6,215,153
17,057
4,521
16,392
12,849
6,818
19,667
13,812
9,216
13,714
37,652
6,189
43,841
%
change
(21%)
(20%)
(21%)
(58%)
(16%)
(32%)
(22%)
(34%)
13%
(35%)
(6%)
23%
(51%)
20%
(66%)
10%
(55%)
(1)
(2)
(3)
(4)
(5)
(6)
(7)
Access mat rental revenue includes revenues generated from the rental of traditional oak and oak edged mats.
Other mat and rental equipment revenue includes the rental of rig mats, quad mats and other ancillary equipment such as well site accommodation units and light towers.
One mat rental day equals the rental of one owned access mat for one day.
One mat rental day equals the rental of one third party sub rented access mat for one day.
Average access mat rental fleet numbers reflect only owned access mats.
Average sub rental access mats is the average number of non-owned access mats in the rental fleet. These mats are rented from third parties on a short term basis.
Access mats in rental fleet at period end represents the number of owned access mats in the Matting fleet.
Revenues from the Matting segment for the year ended December 31, 2013 were $62.4 million, a decrease of $29.1 million or
32% compared to the same period of 2012. EBITDAS for the year ended December 31, 2013 were $17.8 million or 28% of
revenue, a decrease of $4.8 million or 21% compared the same period of 2012.
The decrease in revenues year over year was a result of both moderate customer demand for mat sales throughout 2013 and
lower mat rentals primarily a result of the extremely wet conditions in the second and third quarters of 2013.
Mat and rental equipment revenue
Access mat rental revenues for the year ended December 31, 2013 were $16.8 million, down $4.5 million or 21% compared to
the same periods of 2012. Rental revenues decreased year over year as a result of decreased activity levels and lower revenue
per mat rental day. Total mat rental days in the year ended December 31, 2013 decreased 403,626 or 6% compared to the
same period of 2012 with extremely wet and flooded ground conditions in the second and third quarter and a quick freeze up in
the fourth quarter being significant factors. Revenue per mat rental day was $2.38 in 2013 compared to $2.82 in 2012 due to
the mix of contracts and competitive factors.
Utilization of the owned mat fleet for the year ended December 31, 2013 was 67% compared to 73% in the same periods of
2012. Compared to 2012, the 2013 decreased utilization was driven from both a larger owned mat rental fleet and lower
activity levels.
Page | 10
Management’s Discussion and Analysis
Years ended December 31, 2013 and 2012
Mat sales revenue
Revenues from mat sales for the year ended December 31, 2013 were $13.1 million, down $18.4 million or 58% compared to
the same period of 2012. The decrease in revenue is reflective of moderating customer requirements and timing of projects. In
comparison to 2012, the mix of mat sales shifted to a higher proportion of used mats in 2013 and as a result revenue per mat
sale decreased due to the lower price point of used mats compared to new mats.
Installation, transportation, service, and other revenue
Installation, transportation, service, and other revenues are driven primarily from the level of activity in the mat rental and mat
sale businesses and are charged for separately from rentals and sales. Revenues for the year ended December 31, 2013 were
$32.5 million, a decrease of $6.2 million or 16% compared to the same periods in 2012. The decrease in revenue was not as
significant as the decrease in sales and rentals due to the offsetting effect of the customer owned mat management work.
Currently, matting is managing 120,000 customer owned mats compared to 100,000 for the same period of 2012.
Direct costs
Direct costs for the year ended December 31, 2013 were $43.7 million or 70% of revenue compared to $68.3 million or 75% of
revenue for the same period of 2012. Direct costs are driven by the level of business activity and with the decrease in mat sales
and rental revenue compared to the same periods of 2012, direct costs have decreased accordingly. In addition, lower costs in
the rental operation due to decreased usage of sub rented mats in comparison to the same periods of 2012.
Corporate
Corporate costs are the costs of the head office which include the President and Chief Executive Officer, Chief Financial Officer,
Vice President of Health, Safety, and Environment, Vice President of Aboriginal Relations, Corporate Secretary, corporate
accounting staff, information technology, and associated costs of supporting a public company. Corporate costs for the year
ended December 31, 2013 were $12.4 million, an increase of $1.2 million or 11% compared to the same period in 2012.
Corporate costs, as a percentage of total revenue, were relatively consistent at approximately 2.1% for the comparative years.
Page | 11
Management’s Discussion and Analysis
Years ended December 31, 2013 and 2012
Other Items
Selling and administrative
Selling and administrative expenses for the year ended December 31, 2013 were $19.0 million, an increase of $1.8 million or
10% compared to the same period for 2012. As a percentage of revenue, selling and administrative expenses were 3.4%
compared to 3.3% in 2012.
Depreciation and amortization
(000’s)
Depreciation of property, plant and equipment
Amortization of intangibles
Total depreciation and amortization
Years ended December 31,
2013
2012 % change
$
$
47,623
7,060
$
54,683
$
32,007
8,204
40,211
49%
(14%)
36%
Depreciation and amortization costs for the year ended December 31, 2013 were $54.7 million, an increase of $14.5 million or
36% compared to the same period of 2012. The increased depreciation was mainly a result of camp asset additions in 2012 and
during the year including camp set-up and installation costs which are depreciated over the term of the contract, generally a
shorter time frame than the camp assets. Depreciation related to camp set-up and installation was $7.0 million higher in the
year ended December 31, 2013 as compared to the same period of 2012 primarily as a result of camps added in last quarter of
2012 and throughout 2013.
Amortization costs related to customer relationships decreased $1.1 million or 50% as compared to the same period of 2012 as
a portion of these assets have now been fully amortized.
Financing costs
Financing costs include interest on loans and borrowings and accretion of notes payable. For the year ended December 31,
2013 financing costs were $3.8 million, an increase of $0.2 million compared to 2012. The increase in financing costs was mainly
a result of higher average debt levels in 2013, $93.2 million compared to $83.8 million in 2012. The effective interest rate on
loans and borrowings for the year ended December 31, 2013 was 3.6%, consistent with the comparative year.
Income taxes
For the year ended December 31, 2013 income tax expense was $17.0 million, an effective tax rate of 28.6%, compared to
$25.8 million, an effective tax rate of 26% in 2012. The decrease in income taxes expense was mainly a result of lower profit
before taxes compared to 2012 while the full year effective rate increased slightly as a result of revisions to prior year tax
estimates which flowed through the current period.
Gain/Loss on disposal
For the year ended December 31, 2013 Horizon recognized a loss on disposal of $6.2 million compared to a small gain in the
comparative period of 2012. The loss on disposal of assets came mainly from the disposal of set-up costs related to the
decommissioning of a large camp in the second quarter of 2013, disposal of the Corporation’s blast resistant structures
business and the sale of ancillary land in the fourth quarter of 2014.
Page | 12
Management’s Discussion and Analysis
Three months ended December 31, 2013 and 2012
Fourth Quarter Financial Summary
Three months ended December 31
2012 % Change
(000’s except per share amounts)
Revenue
EBITDAS(1)
EBITDAS as a % of revenue
Operating earnings (1)
Operating earnings as a % of revenue
Total profit
Total comprehensive income
Earnings per share – basic
– diluted
Total assets
Long-term loans and borrowings
Cash from operations
Capital spending
Purchase of capital
Proceeds from capital disposals
Net capital spending
Debt to total capitalization ratio(2)
Dividends declared
Dividends declared per share
$
2013
108,641
15,687
14%
(1,607)
(1%)
(2,520)
(2,376)
(0.02)
(0.02)
$
138,558
36,039
26%
23,390
17%
15,991
15,959
0.15
0.15
$
471,115
$
495,993
78,256
28,726
34,883
(3,493)
31,390
0.21
6,880
0.0625
$
$
116,872
26,334
23,378
(3,428)
19,950
0.30
5,439
0.05
$
$
(22%)
(56%)
(107%)
(111%)
(110%)
(111%)
(111%)
(5%)
(33%)
9%
57%
2%
57%
(30%)
(1)
EBITDAS (Earnings before finance costs, taxes, depreciation, amortization, gain/loss on disposal of property, plant and equipment, impairment loss and share based compensation) and
operating earnings (earnings before finance costs, taxes, impairment loss, and earnings on equity investments) are not recognized measures under IFRS. Management believes that in
addition to total profit and total comprehensive income, EBITDAS is a useful supplemental measure as it provides an indication of the Corporation’s ability to generate cash flow in order
to fund working capital, service debt, pay current income taxes and fund capital programs, and it is regularly provided to and reviewed by the Chief Operating Decision Maker. Operating
earnings is a useful supplemental measure as it provides an indication of the results generated by the Corporation’s principal business activities prior to consideration of how those
activities are financed or taxed. Horizon’s method of calculating EBITDAS and operating earnings may differ from other entities and accordingly, may not be comparable to measures
used by other entities. EBITDAS and operating earnings should not be construed as alternatives to total profit and total comprehensive income determined in accordance with IFRS as an
indicator of the Corporation’s performance. For a reconciliation of EBITDAS and operating earnings to total profit and total comprehensive income, please refer to page 11 of the
Management’s Discussion and Analysis.
(2)
Debt to total capitalization is calculated as the ratio of debt to total capitalization. Debt is defined as the sum of current and long-term portions of loans and borrowings. Total
capitalization is calculated as the sum of debt and shareholders’ equity.
Overview
Horizon’s results for the fourth quarter of 2013 were below the comparable quarter of 2012 in all major categories, with
revenues, EBITDAS, operating earnings and earnings per share lower. These reductions were driven by lower camp utilization
mainly in the open style camps. In addition, matting operations experienced lower activity levels as customer demand for
rentals, sales and the associated services decreased in conjunction with colder weather in the quarter.
EBITDAS in the fourth quarter of 2013 decreased compared to the same quarter of 2012 as a result of lower activity levels in
the quarter and from maintaining core operating capabilities in the camp rental and catering operations in strategic areas which
experienced lower utilization.
Operating earnings and earnings per share decreased in the three months ended December 31, 2013 compared to the same
period of 2012 driven by lower EBITDAS, increased depreciation and a loss on disposal of assets. Depreciation increased
primarily from the addition of camp set-up and installation costs related to camps added at the end of 2012 and during the
year. The loss on disposal was related to the disposal of the Corporation’s blast resistant structures business and the disposal of
ancillary land in the quarter. All of these factors contributed to an operational loss of $1.6 million and a loss per share of $0.02.
Page | 13
Management’s Discussion and Analysis
Three months ended December 31, 2013 and 2012
Fourth Quarter Financial Results
(000’s)
Revenue
Expenses
Direct costs
Selling & administrative
EBITDAS
EBITDAS as a % of revenue
Share based compensation
Depreciation & amortization
Loss on disposal of property, plant and equipment
Three months ended December 31, 2013
Camps &
Catering
Matting
Corporate
Inter-segment
Eliminations
Total
$
97,827
$
11,431
$
-
$
(617)
$
108,641
80,496
1,426
15,905
16%
310
11,841
3,127
8,213
182
3,036
27%
40
1,644
-
-
3,254
(3,254)
222
163
-
(617)
-
-
-
(53)
-
88,092
4,862
15,687
14%
572
13,595
3,127
Operating earnings (loss)
$
627
$
1,352
$
(3,639)
$
53
$
(1,607)
Finance costs
Share of equity accounted investees
Income tax expense
Other comprehensive income
Total comprehensive loss
Earnings per share – basic
– diluted
(000’s)
Revenue
Expenses
Direct costs
Selling & administrative
EBITDAS
EBITDAS as a % of revenue
Share based compensation
Depreciation & amortization
Gain on disposal of property, plant and equipment
Operating earnings (loss)
Finance costs
Share of equity accounted investees
Income tax expense
Other comprehensive loss
Total comprehensive income
Earnings per share – basic
– diluted
786
-
127
(144)
(2,376)
(0.02)
(0.02)
$
$
$
Three months ended December 31, 2012
Camps &
Catering
Matting
Corporate
Inter-segment
Eliminations
Total
$ 117,214
$
24,151
$
-
$
(2,807)
$
138,558
81,691
1,728
33,795
29%
379
9,867
(38)
18,752
196
5,203
22%
55
2,122
(80)
-
2,840
(2,840)
291
122
(13)
(2,688)
-
(119)
4%
-
(56)
-
97,755
4,764
36,039
26%
725
12,055
(131)
$
23,587
$
3,106
$
(3,240)
$
(63)
$
23,390
971
504
5,924
32
15,959
0.15
0.15
$
$
$
Page | 14
Management’s Discussion and Analysis
Three months ended December 31, 2013 and 2012
Camps & Catering
Camps & Catering revenue is comprised of camp rental and catering operations revenue, manufacturing sales revenue, space
rental revenue and the associated service revenue within each operation.
Three months ended December 31
(000’s except bed rental days and catering only days)
Camp rental and catering operations revenue
Manufacturing sales
Space rental
$
2013
55,138
39,942
2,747
$
76,668
38,019
2,527
2012
% change
Total revenue
EBITDAS
EBITDAS as % of revenue
Operating earnings
Bed rental days(1)
Catering only days(2)
$
97,827
$
117,214
$
$
15,905
16%
627
$
$
384,496
27,128
33,795
29%
23,587
433,832
58,794
(28%)
5%
9%
(17%)
(53%)
(97%)
(11%)
(54%)
(1)
(2)
One bed rental day represents the provision of one bed for one day under a combined rental and catering manday rate, or the provision of one bed for one day under an equipment
rental rate for dedicated camp equipment.
One catering only day equals the provision of catering and housekeeping services with no related bed rental for one day.
Revenues from the Camps & Catering segment were $97.8 million for the three months ended December 31, 2013, a decrease
of $19.4 million or 17% compared to the same period of 2012. EBITDAS for the three months ended December 31, 2013 were
$15.9 million, a decrease of $17.9 million or 53% compared to the same period of 2012.
The decrease in revenue for the three months ended December 31, 2013 was attributable to lower levels of activity compared
to the same period of 2012. The majority of the decline in activity was related to low utilization at several large open style
camps as demand for beds in the area did not materialize as expected. Lower camp rental and catering operations revenue
overshadowed the increased revenues in both manufacturing sales and space rentals.
Horizon’s revenues in the Camps & Catering segment continue to be driven by Alberta oil sands activity with 61% of revenues
generated from oil sands compared to 63% in the same period of 2012. Additionally, natural gas exploration and development
activities started to grow with Horizon increasing its exposure through the last half of 2013.
Camp rental and catering operations revenue
Revenues are derived from the following main business areas: large camp operations, drill camp operations, catering only
operations, and the associated service work within each operation. Service work includes the transportation, set-up and de-
mobilization of camp and catering projects. Revenues from camp and catering operations were $55.1 million for the three
months ended December 31, 2013 compared to $76.7 million for the three months ended December 31, 2012, a decrease of
$21.6 million or 28%.
Page | 15
Management’s Discussion and Analysis
Three months ended December 31, 2013 and 2012
The table below outlines the key performance metrics used by management to measure performance in the large camp and
drill camp operations:
(000’s for revenue only)
Revenue
Bed rental days(1)
Revenue per bed rental day
Rentable beds at period end
Average rentable beds available(2)
Utilization(3)
Three months ended December 31
Large
camp
$ 40,396
362,986
$111
2013
Drill
camp
$ 3,570
21,510
$166
Total
$ 43,966
384,496
$114
7,059
6,977
57%
882
871
27%
7,941
7,848
53%
Large
camp
$ 59,718
410,456
$145
6,905
6,897
65%
2012
Drill
camp
$ 3,925
23,376
$168
871
836
30%
Total
$ 63,643
433,832
$147
7,776
7,733
61%
(1)
(2)
(3)
One bed rental day represents the provision of one bed for one day under a combined rental and catering manday rate, or the provision of one bed for one day under an equipment
rental rate for dedicated camp equipment.
Average rentable beds available is equal to total average beds in the fleet over the period less beds required for staff.
Utilization equals the total number of bed rental days divided by average rentable beds available in the quarter.
Revenues from large camp operations for the three months ended December 31, 2013 decreased $19.3 million or 32%
compared to the same period in 2012. The decrease was primarily driven by lower volumes at several of the large open style
camps.
Bed rental days in the fourth quarter of 2013 were 362,986, a decrease of 47,470 days or 12% compared to the same period of
2012. Bed utilization for the three months ended December 31, 2013 was 57%, down from 65% in the same period of 2012.
This decrease was due to lower than anticipated volumes throughout the fourth quarter of 2013 at several larger open style
camps and a larger fleet.
Revenue per bed rental day was $111, a decrease of $34 or 23% per bed day. This decrease is driven by the mix of contracts
and a higher number of split rate contracts in place in the fourth quarter of 2013 as compared to the same period of 2012.
Under the split rate contract beds are considered 100% utilized as the customer has contracted the beds and pays a separate
rate for the catering and camp management services. The remainder of the decrease was due to slightly lower rates at the open
style of camps.
Revenues from drill camp operations for the three months ended December 31, 2013 decreased by $0.3 million or 8%
compared to the same period of 2012. Revenue decreased primarily as a result of lower volumes as there were fewer drill
camps operating in the fourth quarter of 2013 compared to the same period of 2012.
The tables below outline the key performance metrics used by management to measure performance in the catering only
operations:
(000’s for revenue only)
Catering only revenue
Catering only days(1)
Revenue per catering only day
Three months ended December 31
2012
2013
$
$
3,364
27,128
$124
6,119
58,794
$104
(1)
One catering only day equals the provision of catering and housekeeping services with no related bed rental for one day.
Revenues from the provision of catering and housekeeping only services, with no associated bed rentals, decreased $2.7 million
or 44% for the three months ended December 31, 2013 as compared to same period of 2012. The decreased revenues were
mainly a result of lower volumes in the catering only for customer owned drill camps. The increase in revenue per catering day
was additional services requested by the customer and the mix of contracts compared to the same period of 2012.
Page | 16
Management’s Discussion and Analysis
Three months ended December 31, 2013 and 2012
The table below outlines the service revenue generated from the camp and catering operations:
(000’s)
Camp and catering operations service related revenue
Three months ended December 31
2012
2013
$
7,808
$
6,906
Service revenues are related to the transportation, set-up and de-mobilization of relatively short term camps for customers.
Revenue increased by $0.9 million or 13% primarily as a result of the timing of projects in the comparative quarter.
Manufacturing sales
Manufacturing sales revenues include the in-plant construction, transportation and installation of camps sold to third parties.
Revenues for the three months ended December 31, 2013 were $39.9 million as compared to $38.0 million for the same period
in 2012, an increase of $1.9 million or 5%.
Actual direct manufacturing hours were 192,300 hours for the three months ended December 31, 2013 as compared to
188,123 in the comparative period, an increase of 4,177 hours or 3%. Of total direct hours in the fourth quarter of 2013, 22%
were allocated to external sales compared to 43% in the fourth quarter of 2012. While the majority of in-plant manufacturing
capacity was focused on internal rental fleet build, which does not generate external revenue, installation activities in the
quarter were focused on a large project for a major oil sands operator which more than offset this difference to result in similar
revenue levels in the comparative quarters.
Manufacturing production capacity is regularly reviewed by management to determine the allocation of production required to
meet external third party sales contracts and internal fleet requirements.
Space rental revenues
Space rental revenues for the three months ended December 31, 2013 were $2.7 million as compared to $2.5 million for the
same period in 2012, an increase of $0.2 million or 8%. The increase in revenue was primarily generated by the mix of contracts
in the comparative quarter with utilization relatively consistent quarter over quarter at 81%.
Direct costs
Direct costs for the three months ended December 31, 2013 were $80.5 million or 82% of revenue as compared to $81.7 million
or 70% of revenue for the same period of 2012. Direct costs are closely related to business activities as well as the mix of those
activities. The decrease in direct costs reflects the lower activity levels in the camp rental and catering operations. As a
percentage of revenue, direct costs were 82% as compared to 70% in the same period of 2012 which reflects the difference in
the mix of volumes with manufacturing making up 41% of revenue in the fourth quarter of 2013 compared to 32% in the same
period of 2012.
Page | 17
Management’s Discussion and Analysis
Three months ended December 31, 2013 and 2012
Matting
Matting revenue is comprised of mat rental revenue, mat sales revenue, installation, transportation, service, and other revenue
as follows:
Three months ended December 31
2012 % change
(000’s except mat rental days and numbers of mats)
Access mat rental revenue(1)
Other mat and rental equipment revenue(2)
Total mat and rental equipment revenue
Mat sales revenue
Installation, transportation, service, and other revenue
Total revenue
EBITDAS
EBITDAS as a % of revenue
Operating earnings
Access mat rental days – owned mats(3)
Access mat rental days – third party mats(4)
Total access mat rental days
Average owned access mats in rental fleet(5)
Average sub rental access mats in rental fleet(6)
Access mats in rental fleet at quarter end(7)
Mats sold:
New mats
Used Mats
Total mats sold
$
$
$
2013
3,027
868
3,895
2,124
5,412
$
$
$
2,919
888
3,807
10,893
9,451
$ 11,431
$ 24,151
$
$
3,036
27%
1,352
$
$
5,203
22%
3,106
877,053
361,377
777,350
263,808
1,238,430
1,041,158
16,845
3,930
16,392
494
3,464
3,958
14,190
2,866
13,714
13,910
992
14,902
4%
(2%)
2%
(81%)
(43%)
(53%)
(42%)
(56%)
13%
37%
19%
19%
37%
20%
(96%)
249%
(73%)
(1)
(2)
(3)
(4)
(5)
(6)
(7)
Access mat rental revenue includes revenues generated from the rental of traditional oak and oak edged mats.
Other mat rental equipment revenue includes the rental of rig mats, quad mats and other ancillary equipment such as well site accommodation units and light towers.
One mat rental day equals the rental of one owned access mat for one day.
One mat rental day equals the rental of one third party sub rented access mat for one day.
Average access mat rental fleet numbers reflect only owned access mats.
Average sub rental access mats is the average number of non-owned access mats in the rental fleet. These mats are rented from third parties on a short term basis.
Access mats in rental fleet at quarter end represents the number of owned access mats in the Matting fleet on December 31, 2013.
Revenues from the Matting segment for the three months ended December 31, 2013 were $11.4 million as compared to $24.2
million for the same period of 2012, a decrease of $12.7 million or 53%. EBITDAS for the three months ended December 31,
2013 were $3.0 million or 27% of revenue as compared to $5.2 million or 22% of revenue for the same period of 2012, a
decrease of $2.2 million or 42%.
Mat and equipment rental revenue
Mat rental revenues remained consistent in the comparative quarters as increased activity levels were offset by lower revenues
per mat rental day. Mat rental days in the three months ended December 31, 2013 increased by 197,272 or 19% compared to
the same period of 2012. Utilization of the owned mat rental fleet was slightly lower at 57% in the fourth quarter of 2013
compared to 60% for the same period of 2012 due to the mix of third party mats deployed and the larger owned fleet size.
Revenue per mat rental day was $2.44 for the three months ended December 31, 2013 compared to $2.80 for the same period
of 2012 as a result of the mix of contracts in place and competitive factors.
Page | 18
Management’s Discussion and Analysis
Three months ended December 31, 2013 and 2012
Mat sales revenue
Revenues from mat sales for the three months ended December 31, 2013 were $2.1 million, down $8.8 million or 81%
compared the same period of 2012. The decrease is reflective of moderating customer requirements driven by colder than
expected weather which affected the timing of projects. The mix of new and used mats shifted with a higher proportion of used
mats sales in the fourth quarter of 2013 compared to the same period of 2012. The change in sales mix decreased revenue per
mat in the comparative quarters as used mats typically sell for less than new mats.
Installation, transportation, service, and other revenue
Installation, transportation, service, and other revenues are driven primarily from the level of activity in the mat rental and mat
sale businesses and are charged for separately from rentals and sales. Revenues for the three months ended December 31,
2013 were $5.4 million, a decrease of $4.0 million or 43%. The decrease is mainly reflective of the lower activity levels in the
fourth quarter of 2013 compared to the same period of 2012.
Direct costs
Direct costs for the three months ended December 31, 2013 were $8.2 million or 72% of revenue as compared to $18.8 million
or 78% of revenue for the same period of 2012. Direct costs are driven by the level and mix of business activity and the large
decrease in new mat sales drove direct costs significantly lower in the comparative quarters. Direct costs as a percentage of
revenue decreased from 78% to 72% for the three months ended December 31, 2013 as compared the same period of 2012.
The decrease is primarily a result of the mix of business activity in the comparative quarters, the fourth quarter of 2013 had
significantly lower mat sales compared to 2012 and mat sales generally have higher material directs costs than rentals.
Corporate
Corporate costs are the costs of the head office which include the President and Chief Executive Officer, Chief Financial Officer,
Vice President of Health, Safety, and Environment, Vice President of Aboriginal Relations, Corporate Secretary, corporate
accounting staff, and associated costs of supporting a public company. Corporate costs for the three months ended December
31, 2013 were $3.3 million compared to $2.8 million in the same period in 2012. Corporate costs, as a percentage of total
revenue, were 3.0% compared to 2.0% for the same period of 2012. The increased percentage is reflective of the lower revenue
in the fourth quarter of 2013 compared to the same period of 2012.
Page | 19
Management’s Discussion and Analysis
Three months ended December 31, 2013 and 2012
Other Items
Selling and administrative
Selling and administrative expenses were $4.9 million for the three months ended December 31, 2013, relatively unchanged
compared to the same quarter of 2012. As a percentage of revenue, selling and administrative expenses were 4.5% in 2013
compared to 3.4% in 2012 as a result of the lower revenue in the fourth quarter of 2013 compared to the same period of 2012.
Depreciation and amortization
(000’s)
Depreciation of property, plant and equipment
Amortization of intangibles
Total depreciation and amortization
Three months ended December 31,
2013
2012
% change
$ 12,688
907
$ 13,595
$ 10,004
2,051
$ 12,055
27%
(56%)
13%
Depreciation and amortization costs for the three months ended December 31, 2013 were $13.6 million as compared to $12.1
million in the same period of 2012. Depreciation increased by $2.7 million or 27% in the comparative quarters primarily as a
result of camp asset additions which include camp set-up and installation costs. Camp set-up and installation costs are
depreciated over the term of the contract, generally a shorter time frame than the camp assets. Depreciation related to the
camp set-up and installation was $2.0 million higher in the fourth quarter of 2013 as compared to the same period of 2012 due
to a large camp set-up in the fourth quarter of 2013.
Amortization costs related to customer relationships decreased $1.1 million or 56% as compared to the same period of 2012 as
a portion of these assets have now been fully amortized.
Financing costs
Financing costs include interest on loans and borrowings and accretion of notes payable. For the three months ended
December 31, 2013 financing costs were $0.8 million as compared to $1.0 million in the same period of 2012, a decrease of
$0.2 million as a result of lower average debt of $59.2 million for the three months ended December 31, 2013 compared to
$105.1 million in the same period of 2012. The effective interest rate in the fourth quarter of 2013 was 3.6%, essentially
unchanged from the comparative period of 2012.
Income taxes
Income tax expense was $0.1 million, an effective tax rate of 5%, for the three months ended December 31, 2013 as compared
to a tax expense of $5.9 million, an effective rate of 27% for the same period of 2012. The tax expense and effective tax rate in
the fourth quarter of 2013 was a result of the operating loss before tax.
Gain/Loss on disposal
For the three months ended December 31, 2013, Horizon incurred a loss on disposal of $3.2 million compared to a slight gain in
the comparative period of 2012. The loss on disposal was related to the disposal of the Corporation’s blast resistant structures
business and the disposal of ancillary land in the quarter.
Page | 20
Management’s Discussion and Analysis
Years ended December 31, 2013 and 2012
Liquidity and Capital Resources
The Corporation’s working capital position and borrowing capacity are set out below:
(000’s)
Current assets
Current liabilities excluding loans and borrowings(1)
Current portion of loans and borrowings
Current liabilities
Working capital(2)
Bank borrowing:
Available bank lines
Drawings on credit facility
Borrowing capacity(3)
December 31,
2013
December 31,
2012
$
113,608
$
149,166
60,408
1,496
61,904
51,704
150,000
70,756
79,244
$
$
$
72,760
1,416
74,176
74,990
150,000
108,247
41,753
$
$
$
(1)
(2)
(3)
Calculated as the sum of trade and other payables, deferred revenue and income taxes payable.
Calculated as current assets less current liabilities.
Calculated as available bank lines less drawings on credit facility.
Working capital at December 31, 2013 was $51.7 million as compared to $75.0 million at December 31, 2012, a decrease of
$23.3 million. The change in working capital was primarily due to a significant improvement in accounts receivable balances in
combination with softer revenue in the three months ended December 31, 2013 as compared to the same period of 2012.
On November 6, 2013, the Corporation’s current credit facility of $150,000,000 was renewed for a term of 3 years. The credit
facility is extendable annually at the Corporation’s request subject to lender approval. The committed credit facility is secured
by a $300,000,000 first fixed and floating charge debenture over all assets of the Corporation and its wholly owned subsidiaries.
Interest is payable at the bank prime rate plus 0.625%. Amounts borrowed under the facility become due on October 26, 2016,
the maturity date of the facility.
At December 31, 2013 the Corporation was in compliance with its debt covenants as shown below:
Debt Covenants
Debt (1) to EBITDAS (2)(3) – must be less than 2.0:1
Interest coverage(4) – must be greater than 3.0:1
December 31, 2013
0.6:1
37.3:1
(1)
(2)
(3)
(4)
Debt is calculated as the sum of current and long-term portions of loans and borrowings.
EBITDAS (Earnings before interest, taxes, depreciation, amortization, gain/loss on disposal of property, plant and equipment, and share based compensation) is not a recognized
measure under IFRS. Management believes that in addition to net earnings, EBITDAS is a useful supplemental measure as it provides an indication of the Corporation’s ability to
generate cash flow in order to fund working capital, service debt, pay current income taxes and fund capital programs, and it is regularly provided to and reviewed by the Chief
Operating Decision Maker. Horizon’s method of calculating EBITDAS may differ from other entities and accordingly, EBITDAS may not be comparable to measures used by other entities.
For a reconciliation of EBITDAS to net earnings, please refer to page 3 of the Management’s Discussion and Analysis.
Debt to EBITDAS is calculated as the ratio of Debt to trailing 12 months EBITDAS.
Interest coverage is calculated as the ratio of trailing 12 months EBITDAS to 12 months trailing interest expense on loans and borrowings.
Page | 21
Management’s Discussion and Analysis
Years ended December 31, 2013 and 2012
Capital Spending
During the year ended December 31, 2013, the Corporation spent $90.1 million on capital asset additions as compared to
$139.3 million in the same period of 2012. Capital spending was concentrated on rental fleet expansion and replacement to
meet demand in the Camps & Catering segment in addition to moderate maintenance capital. Management evaluates and
manages its capital spending plans taking into account proceeds from disposals for year of $26.9 million, resulting in net capital
spending for the year ended December 31, 2013 of $63.2 million.
Quarterly Summary of Results
(000’s except per share amounts)
Revenue
EBITDAS
Operating earnings (loss)
Total profit (loss)
Total comprehensive income
Earnings (loss) per share – basic
Earnings (loss) per share – diluted
(000’s except per share amounts)
Revenue
EBITDAS
Operating earnings
Total profit
Total comprehensive income
Earnings per share – basic
Earnings per share – diluted
March
2013
139,959
36,633
23,209
16,509
16,384
0.15
0.15
March
2012
128,597
34,445
26,080
18,861
18,792
0.18
0.17
$
$
$
$
$
$
$
$
$
$
$
$
Three months ended
June
2013
September
2013
December
2013
Year ended
December
2013
148,426
32,708
14,257
10,123
9,986
0.09
0.09
$
$
$
157,361
41,306
27,432
18,339
18,643
0.17
0.17
$
$
$
108,641 $
15,687
(1,607)
(2,520)
(2,376)
(0.02)
(0.02)
$
$
554,387
126,334
63,291
42,451
42,637
0.39
0.38
Three months ended
June
2012
September
2012
December
2012
Year ended
December
2012
139,551
40,463
30,056
21,769
21,854
0.20
0.20
$
$
$
119,910
34,080
23,232
16,262
16,328
0.15
0.15
$
$
$
138,558
36,039
23,390
15,102
15,969
0.15
0.15
$
$
$
526,616
145,027
102,758
72,883
72,933
0.67
0.66
As a company providing services to the resource sector, Horizon’s performance is highly correlated to activity levels in that
sector which are sensitive to the price of oil and minerals. Over the previous eight quarters the price of oil and minerals has had
some variability and these fluctuations have flowed into Horizon’s results for 2012 and 2013. Throughout the last eight quarters
Horizon continued to expand its manufacturing capacity and invest in fleet capital to take advantage of the activity levels
particularly in the Alberta oil sands area.
Page | 22
Management’s Discussion and Analysis
Years ended December 31, 2013 and 2012
Risks and Uncertainties
Volatility of Oil, Natural Gas and Mining Industry Conditions
The demand, pricing and terms for Horizon’s Camps & Catering and Matting segments depend upon the level of industry
activity for oil, natural gas and mineral exploration and development in the western Canadian provinces and northern
territories. Industry conditions are influenced by numerous factors over which Horizon has no control, including: the level of oil
and natural gas and mineral prices; expectations about future oil and natural gas and mineral prices; the cost of exploring for,
producing and delivering oil and natural gas and minerals; the expected rates of declining current production; the discovery
rates of new oil and natural gas and mineral reserves; available pipeline and other oil and natural gas transportation capacity;
demand for oil, natural gas and minerals; worldwide weather conditions; global political, military, regulatory and economic
conditions; and the ability of oil and natural gas and mining companies to raise equity capital or debt financing for exploration
and development work.
Current global economic events and uncertainty have the potential to significantly impact commodity pricing and, as such,
change the economic feasibility of industry development projects. No assurance can be given that expected trends in oil and
natural gas and mineral production activities will continue or that demand for services provided by Horizon will reflect the level
of activity in the industry. Any prolonged substantial reduction in oil and natural gas and mineral prices would likely affect
activity levels in these industries and therefore affect the demand for the services provided by Horizon.
Competition
Horizon provides Camps & Catering and Matting Services primarily to oil and natural gas and mineral exploration and
production companies in the western Canadian provinces and northern territories. The service businesses in which Horizon
operates are highly competitive. To be successful, Horizon has to provide services that meet the specific needs of its clients at
competitive prices. The principal competitive factors in the markets in which Horizon operates are service, quality, availability,
reliability and performance of equipment used to perform its services, technical knowledge and experience, safety records and
ongoing safety programs and price. Horizon competes with several competitors that are both smaller and larger than it is.
These competitors offer similar services in all geographic areas in which Horizon operates. As a result of competition, Horizon’s
business, financial condition and results of operations could be adversely affected.
Reduced levels of activity in the oil and natural gas and mining industries can intensify competition and result in lower revenue
to Horizon. Variations in the exploration and development budgets of oil and natural gas and mining companies, which are
directly affected by fluctuations in energy prices and mineral prices, the cyclical nature and competitiveness of the oil and
natural gas and mining industries and governmental regulation, will have an effect upon Horizon’s ability to generate revenue
and earnings.
Credit Risk
A substantial portion of Horizon’s trade and other accounts receivable are with customers involved in the oil and natural gas
and mining industries, whose revenues may be impacted by fluctuations in commodity prices. Collection of these receivables
could be influenced by economic factors affecting the oil and natural gas and mining industries.
Additional Funding Requirements
Horizon’s cash flow may not be sufficient to fund its ongoing activities at all times. From time to time, Horizon may require
additional financing. Failure to obtain such financing on a timely basis could cause Horizon to miss certain acquisition
opportunities or prevent further growth of its operations. If Horizon’s revenues decrease, it will affect Horizon’s ability to
expend the necessary capital to maintain its operations. If Horizon’s cash flow from operations is not sufficient to satisfy its
capital expenditure requirements, there can be no assurance that additional debt or equity financing will be available to meet
these requirements or available on terms acceptable to Horizon.
Page | 23
Management’s Discussion and Analysis
Years ended December 31, 2013 and 2012
Labour Relations
The largest component of Horizon’s overall expenses is salaries, wages, benefits and payments to employees, agents and
contractors. Any significant increase in these expenses could impact the financial results of Horizon. In addition, Horizon will be
at risk if there are any labour disruptions. Horizon believes that it has and will continue to foster a positive relationship with
employees, agents and contractors.
Agreements and Contracts
The business operations of Horizon depend on successful execution of performance-based contracts. The key factors which will
determine whether a client will continue to use Horizon will be service quality and availability, reliability and performance of
equipment used to perform its services, technical knowledge and experience, safety record and ongoing safety programs and
competitive price. There can be no assurance that Horizon’s relationship with its customers will continue, and a significant
reduction or total loss of the business from these customers, if not offset by sales to new or existing customers, could have a
material adverse effect on Horizon’s business, financial condition and results of operations.
Significant Customers
The Corporation had one major customer in 2013 which was in the Camps & Catering segment and generated 24% of total
revenues. This compares to two different major customers in 2012 who generated 37% of total revenue. There can be no
assurance that Horizon’s relationship with its customers will continue, and a significant reduction or total loss of the business
from these customers, if not offset by sales to new or existing customers, could have a material adverse effect on Horizon’s
business, financial condition and results of operations.
Reliance on Key Personnel
Horizon’s success depends in large measure on certain key personnel. The loss of services of such key personnel could have a
material adverse effect on Horizon. Horizon does not have key person insurance in effect for management. The contributions of
these individuals to the immediate operations of Horizon are likely to be of central importance. Investors must rely upon the
ability, expertise, judgment, discretion, integrity and good faith of the management of Horizon.
Camp Permits
In most cases, permits issued by government agencies are required to set up and operate remote work camp facilities. The
issuance of permits is dependent upon water and waste treatment alternatives available, road traffic volumes and fire
conditions in forested areas. Failure to receive or renew permits could have a negative impact on the business of the Camps &
Catering segment.
Government Regulation
The operations of Horizon are subject to a variety of federal, provincial and local laws of Canada, including laws and regulations
relating to health and safety, the conduct of operations, the protection of the environment, the operation of equipment used in
its operations and the transportation of materials and equipment it provides for its customers. Horizon invests financial and
managerial resources to ensure such compliance. Although such expenditures are generally not material to service providers,
such laws or regulations are subject to change. Accordingly, it is impossible for Horizon to predict the cost or impact of such
laws and regulations on its future operations.
Page | 24
Management’s Discussion and Analysis
Years ended December 31, 2013 and 2012
Environmental Regulation
The Government of Canada and provincial governments in areas where Horizon does business have been working through
various forms of regulation and legislation focused on climate change and greenhouse gas emissions. Future federal legislation,
together with provincial emission reduction requirements may require the reduction of emissions or emissions intensity from
Horizon’s operations and facilities and those of its customers. A number of Horizon’s customers are involved in the oil and gas
exploration and development industry, with specific focus on oil sands related projects. Focus and scrutiny has recently
intensified on oil sands development, which could lead to incremental environmental regulation or legislation.
Potential changes in requirements may result in increased operating costs and capital expenditures for oil and gas and mining
industry participants, thereby delaying or decreasing the demand for Horizon’s services.
Management is unable to predict the impact of potential emissions targets and it is possible that changes could adversely affect
Horizon’s business, financial condition and results of operations. These regulations would likely result in higher operating costs
for our customers in the region, putting further pressure on project economics, and may also impair Horizon’s ability to provide
its services economically.
Aboriginal Relationships
A component of Horizon’s business strategy is based on developing and maintaining positive relationships with the aboriginal
people and communities in the areas where Horizon operates. These relationships are important to Horizon’s operations and
customers who desire to work on traditional aboriginal lands. The inability to develop and maintain relationships and to be in
compliance with local requirements could adversely affect Horizon’s business strategy, growth and profitability.
Seasonal Operations
Each of Horizon’s businesses has slightly different seasonal aspects. Certain segments of the Camps & Catering division are
exposed to the seasonality of the western Canadian oil and natural gas drilling industry where the busiest months are January
through March and the slowest months are April through September. However, seasonality has been significantly reduced due
to increased exposure in the oil sands and mining sectors, which operate year round. The Matting segment is typically busiest in
the spring and summer months of April through September when soft ground conditions hinder the movement of heavy
equipment.
Other Risks
Due to the nature of Horizon’s business, it is subject to a number of regulations, environmental laws and risks associated with
lawsuits arising from accidents and claims. Horizon manages these risks through a combination of quality management, training
and by securing insurance coverage to protect the assets of Horizon in the event of litigation.
Page | 25
Management’s Discussion and Analysis
Years ended December 31, 2013 and 2012
Changes in Accounting Policies
As at January 1, 2013, the Company changed certain accounting policies as a result of IFRS 10 Consolidated Financial
Statements, IFRS 11 Joint Arrangements, IFRS 12 Disclosure of Interest in Other Entities, as well as the consequential
amendment to IAS 28 Investments in Associates and Joint Ventures (2011), IFRS 13 Fair Value Measurement and IFRS 7
Amendments to Financial Instrument Disclosures. The adoption of these standards had no impact on the amounts recorded in
the financial statements as at January 1, 2013.
A number of new standards, amendments to standards and interpretations are not yet effective for the year ended December
31, 2013, and have not been applied in preparing these consolidated financial statements. The Corporation intends to adopt
the amendments to IAS 32 in its financial statements for the annual period beginning January 1, 2014. The Corporation does
not expect the amendments to have a material impact on the financial statements.
Critical Accounting Estimates
This Management’s Discussion and Analysis of the Corporation’s financial condition and results of operations is based on its
consolidated financial statements which are prepared in accordance with International Financial Reporting Standards (IFRS).
The presentation of these financial statements in conformity with IFRS requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the disclosure of provisions at the date of the
financial statements and the reported amounts of revenue and expenses during the reporting period. These estimates and
judgments are based on historical experience and on various assumptions that are believed to be reasonable under the
circumstances. Anticipating future events cannot be done with certainty, therefore these estimates may change as new events
occur, more experience is acquired and as the Corporation’s operating environment changes.
The accounting estimates believed to be the most difficult, subjective or complex judgments and which are the most critical to
the reporting of results of operations and financial positions are as follows:
Revenue recognition
The Corporation uses the percentage-of-completion method in accounting for its construction contract revenue. Use of the
percentage-of-completion method requires estimates of the stage of completion of the contract to date as a proportion of the
total contract work to be performed in accordance with the accounting policy set out in the notes to the consolidated financial
statements.
Asset Retirement Obligations
Asset Retirement Obligation (“ARO”) – The Corporation recognizes an asset retirement obligation to account for future
demobilisation and reclamation of specific camps. Use of an ARO requires estimates of the asset retirement costs, timing of
payments, present value discount rate and inflation rate to determine the amount recognized, in accordance with the
accounting policy set out in the notes to the consolidated financial statements.
Page | 26
Management’s Discussion and Analysis
Years ended December 31, 2013 and 2012
Financial Instruments and Risk Management
(a) Overview
The Corporation is exposed to a number of different financial risks arising from normal course business operations as well
as through the Corporation’s financial instruments comprised of: cash and cash equivalents, trade and other receivables,
trade and other payables, and long-term loans and borrowings. These risk factors include credit risk, liquidity risk, and
market risk including currency exchange risk and interest rate risk.
The Corporation’s risk management practices include identifying, analyzing and monitoring the risks faced by the
Corporation. The following presents information about the Corporation’s exposure to each of the risks and the
Corporation’s objectives, policies and processes for measuring and managing risk.
(b) Credit risk
Credit risk is the risk that a customer will be unable to pay amounts due causing a financial loss. The Corporation’s practice
is to manage credit risk by examining each new customer individually for credit worthiness before the Corporation’s
standard payment terms are offered. The Corporation’s review may include financial statement review, credit references,
or bank references. Customers that lack credit worthiness transact with the Corporation on a prepayment only basis.
The Corporation constantly monitors individual customer trade receivables, taking into consideration industry, aging
profile, maturity, payment history and existence of previous financial difficulties in assessing credit risk. A formal review is
performed each month for each subsidiary, focusing on amounts which have been outstanding for periods which are
considered abnormal for each customer. The Corporation establishes an allowance for doubtful accounts for specifically
identifiable customer balances which are assessed to have credit risk exposure.
The following shows the aged balances of trade and other receivables:
(000’s)
Neither impaired nor past due
Impaired
Outstanding 31-60 days
Outstanding 61-90 days
Outstanding more than 90 days
Total
Allowance for doubtful accounts
Accrued revenue
Other receivables
Total trade and other receivables
December 31,
2013
$
$
29,370
65
15,826
4,001
2,073
51,335
(65)
38,659
927
90,856
$
December 31,
2012
44,337
495
38,313
16,800
13,126
113,071
(495)
19,439
1,180
$
133,195
In the twelve months ended December 31, 2013, the Corporation provided an allowance for $368,000 of receivables aged
greater than 90 days and collected $218,000 that had previously been allowed for. The Corporation also applied $580,000
of allowance for doubtful accounts against the associated receivable balance. As at February 19, 2014, the Corporation
has collected $1,216,000 on amounts outstanding more than 90 days.
(c) Liquidity risk
Liquidity risk is the risk that the Corporation will encounter difficulty in meeting obligations associated with financial
liabilities. The Corporation believes that it has access to sufficient capital through internally generated cash flows and
committed credit facilities to meet current spending forecasts.
To manage liquidity risk, the Corporation forecasts operational results and capital spending on a regular basis. Actual
results are compared to these forecasts to monitor the Corporation’s ability to continue to meet spending forecasts.
Page | 27
Management’s Discussion and Analysis
Years ended December 31, 2013 and 2012
The following shows the timing of cash outflows relating to trade and other payables and loans and borrowings:
Year 1
Year 2
Year 3
Year 4
Year 5 and beyond
December 31, 2013
Trade and
other payables(1)
56,961
$
-
-
-
5,656
$
Loans and
borrowings(2)
1,496
7,500
70,756
-
-
Trade and
other payables(1)
72,172
$
-
-
-
1,364
$
December 31, 2012
Loans and
borrowings(2)
1,416
1,543
115,329
-
-
(1) Trade and other payables include trade and other payables, income taxes payable, and provisions.
(2)
Loans and borrowings include non-interest bearing notes payable and Horizon’s senior secured revolving term facility. Cash flows of Horizon’s note payable have been recorded
according to estimated utilization of specific equipment.
$
62,617
$
79,752
$
73,536
$
118,288
(d) Market risk
Market risk is the risk or uncertainty arising from possible market price movements and their impact on future
performance of the Corporation. The market price movements that could adversely affect the value of the Corporation’s
financial assets, liabilities and expected future cash flows include foreign currency exchange risk and interest rate risk. As
the Corporation’s exposure to foreign currency exchange risk and interest rate risk is limited, the Corporation does not
currently hedge its financial instruments.
(i) Foreign currency exchange risk
The Corporation has limited exposure to foreign currency exchange risk as sales and purchases are typically
denominated in CAD. The Corporation’s exposure to foreign currency exchange risk arises from the purchase of some
raw materials in the matting segment which are denominated in USD.
As the foreign currency exchange risks are primarily based on realized foreign exchange differences, the following
sensitivity analysis is to determine the impact on cash generated in operating activities. The effect of a $0.01 increase
in the USD/CAD exchange rate would decrease cash generated in operating activities for the year ended December
31, 2013 by approximately $182,500 (December 31, 2012 - $261,000). This assumes that the quantity of USD
purchases and the foreign operations in the year remain unchanged and that the change in the USD/CAD exchange
rate is effective from the beginning of the year.
(ii)
Interest rate risk
The Corporation is exposed to interest rate risk as changes in interest rates may affect interest expense and future
cash flows. The primary exposure is related to the Corporation’s revolving credit facility which bears interest at a rate
of prime plus 1.00%. If prime were to have increased by 1.00%, it is estimated that the Corporation’s net earnings
would have decreased by approximately $933,500 for the year ended December 31, 2013 (December 31, 2012 –
$841,000). This assumes that the amount and mix of fixed and floating rate debt in the year ended December 31,
2013 remains unchanged and that the change in interest rates is effective from the beginning of the year.
Page | 28
Management’s Discussion and Analysis
Years ended December 31, 2013 and 2012
Outstanding Shares
Horizon had 110,084,884 voting common shares issued and outstanding with a book value of $183,851,000 or $1.67 per share
as at December 31, 2013.
Off Balance Sheet Financing
Horizon has no off balance sheet financing.
Management’s Report on Disclosure Controls and Procedures and Internal Control over
Financial Reporting
Disclosure Controls & Procedures
Disclosure controls and procedures (DC&P) are designed to provide reasonable assurance that all relevant information is
gathered and reported to management, including the Chief Executive Officer (CEO) and the Chief Financial Officer (CFO), on a
timely basis so that appropriate decisions can be made regarding public disclosure.
As at December 31, 2013, an evaluation was carried out, under the supervision of the CEO and the CFO, of the effectiveness of
the design and operation of Horizon’s DC&P as defined by National Instrument 52-109, Certification of Disclosure in Issuers’
Annual and Interim Filings. Based on this evaluation, the CEO and CFO have concluded that, as at December 31, 2013 Horizon’s
DC&P, as defined by National Instrument 52-109, Certification of Disclosure in Issuers’ Annual and Interim Filings, were
effective.
Throughout 2013, Horizon focused on continuous improvement and improved execution of its DC&P. Horizon will continue to
evaluate its DC&P making modifications from time-to-time as deemed necessary. There were no changes in Horizon’s DC&P
that occurred during the period ended December 31, 2013 that have materially affected, or are reasonably likely to materially
affect, Horizon’s DC&P.
Internal Controls over Financial Reporting
Internal controls over financial reporting (ICFR) are designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external reporting purposes in accordance with IFRS.
Management is responsible for establishing and maintaining adequate ICFR.
Horizon’s ICFR include, but are not limited to, policies and procedures addressing:
(cid:120)
the maintenance of records that provide reasonable assurance that transactions are recorded as necessary to permit
preparation of the financial statements in accordance with IFRS;
(cid:120)
receipts and expenditures are being made only in accordance with authorizations of management and directors;
(cid:120) maintenance of records in reasonable detail to accurately and fairly reflect transactions and disposition of assets; and
(cid:120)
the reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets
that could have a material effect on annual and interim consolidated financial statements.
Because of inherent limitations, ICFR can only provide reasonable assurance and may not prevent or detect all misstatements.
Additionally, projections of an 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 and procedures may
deteriorate.
As at December 31, 2013, an evaluation was carried out, under the supervision of the CEO and the CFO, of the effectiveness of
Horizon’s ICFR based on the framework and criteria established in Internal Control – Integrated Framework, issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Based on this evaluation, management concluded that the design and operating effectiveness of Horizon’s ICFR was effective as
of December 31, 2013.
Throughout 2013 Horizon focused on continuous improvement and improved execution of its ICFR. Horizon will continue to
evaluate its ICFR making modifications from time-to-time as deemed necessary. There were no changes in Horizon’s ICFR that
occurred during the period ended December 31, 2013 that have materially affected, or are reasonably likely to materially affect,
Horizon’s ICFR.
Page | 29
Management’s Discussion and Analysis
Years ended December 31, 2013 and 2012
Limitations on the Effectiveness of Disclosure Controls and Procedures and Internal Control over Financial
Reporting
Because of their inherent limitations, DC&P and ICFR may not prevent or detect misstatements, errors or fraud. Control
systems, no matter how well conceived or implemented, can provide only reasonable, not absolute, assurance that the
objectives of the control systems are met.
Related parties
All related party transactions in the normal course of operations have been measured at the agreed to exchange amounts,
which is the amount of consideration established and agreed to by the related parties and which is similar to those negotiated
with third parties. All outstanding balances are to be settled with cash, and none of the balances are secured.
(000’s)
Equity accounted investees
Purchases
Sales
Recovery of administrative overhead
Included in accounts receivable
Joint venture
Purchases
Sales
Recovery of administrative overhead
Included in accounts receivable
Key management personnel interests
Purchases
Sales
Included in accounts receivable
Included in accounts payable
December 31,
2013
December 31,
2012
$
$
$
$
$
$
-
164
-
505
-
-
30
-
-
947
395
-
2
1,211
-
164
-
8
30
-
(17)
1,261
271
-
Key management personnel include the directors and officers of Horizon that are also directors or officers of other companies.
All related party transactions are in the normal course of operations and have been measured at the agreed to exchange
amounts, which is the amount of consideration established and agreed to by the related parties and which is similar to those
negotiated with third parties. All outstanding balances are to be settled with cash, and none of the balances are secured.
Advisories
This Management’s Discussion and Analysis, prepared as at February 19, 2014 focuses on key statistics from the Condensed
Consolidated Interim Financial Statements and pertains to known risks and uncertainties relating to the business carried on by
Horizon North Logistics Inc. (the “Corporation” or “Horizon”). This discussion should not be considered all-inclusive, as it does
not attempt to include changes that may occur in general economic, political and environmental conditions. Additional
information related to the Corporation, including the Corporation’s annual information form, is available on SEDAR at
www.sedar.com. Unless otherwise indicated, the consolidated financial statements have been prepared in accordance with
International Financial Reporting Standards and the reporting currency is in Canadian dollars.
Page | 30
Management’s Discussion and Analysis
Years ended December 31, 2013 and 2012
Caution Regarding Forward-Looking Information and Statements
Certain statements contained in this Management Discussion and Analysis (“MD&A”) constitute forward-looking statements or
information. These statements relate to future events or future performance of Horizon. All statements other than statements
of historical fact are forward-looking statements. The use of any of the words “anticipate”, “plan” “continue”, “estimate”,
“expect”, “may”, “will”, “project”, “predict”, “potential”, “should”, “believe” and similar expressions are intended to identify
forward-looking statements.
In particular, such forward looking statements include: under the heading “Outlook” the statements that “After a very soft
quarter to end 2013, activity levels have improved to start 2014. In the camp rental and catering business, activity levels are
slightly ahead of where they were last year at this time. The matting business is also seeing rental and sales levels similar to last
year at this time with increases expected as spring break up approaches”, “The manufacturing sales revenue stream is typically
the most variable component of Horizon’s operation, with manufacturing capacity currently 45% booked for 2014. By
comparison, at this point in 2013 75% of Horizon’s manufacturing capacity was under contract. Horizon expects visibility
regarding its manufacturing capacity for the second half of 2014 to continue to improve and is encouraged by a continued
strong bidding pipeline that relates to oil sands projects, infrastructure projects and LNG development in British Columbia” and
“The macro fundamentals of the workforce accommodation and matting businesses continue to be sound. Oil sands investment
is forecasted to be near $30 billion per year for the foreseeable future and Canada’s LNG projects are progressing with reserve
delineation drilling occurring in the north eastern British Columbia gas fields. Anticipated announcements pertaining to
provincial LNG/natural gas tax structures should facilitate project proponents making final investment decisions on gas
liquefaction plant construction.”
The foregoing statements are based on the assumption that oil sands development in Alberta and other resource development
in western Canada will strengthen. Many factors could cause the performance or achievements of Horizon to be materially
different from any future results, performance or achievements that may be expressed or implied by such forward-looking
statements.
These include, but are not limited to, general economic, market and business conditions. Readers are cautioned that the
foregoing list of risks and uncertainties is not exhaustive. Additional information on these and other risk factors that could
affect Horizon’s operations and financial results are included in Horizon’s annual information form which may be accessed
through the SEDAR website at www.sedar.com. The forward-looking statements and information contained in this MD&A are
made as of the date hereof and Horizon does not undertake any obligation to update publicly or revise and forward-looking
statements and information, whether as a result of new information, future events or otherwise, unless so required by
applicable securities laws.
Page | 31
Management’s Report to Shareholders
The accompanying consolidated financial statements of Horizon North Logistics Inc. (“Horizon” or the “Corporation”) have been
approved by the Board of Directors (the “Board”) of Horizon and have been prepared by management in accordance with
International Financial Reporting Standards. Financial statements will, by necessity, include certain amounts based on
estimates and judgments. The financial information contained throughout this report has been reviewed to ensure consistency
with these consolidated financial statements.
Management has overall responsibility for internal controls and maintains accounting systems designed to provide reasonable
assurance that transactions are properly authorized, assets safeguarded and that the financial records form a reliable base for
the preparation of accurate and timely financial information. The Chief Executive Officer and Chief Financial Officer have
evaluated the effectiveness of disclosure controls and procedures and internal controls over financial reporting and have
concluded that they are effective.
The Board oversees the management of the business and affairs of Horizon; including ensuring management fulfills its
responsibilities for financial reporting and is ultimately responsible for reviewing and approving the financial statements. The
Board carries out this responsibility principally through its Audit Committee, which consists of three independent directors. The
Audit Committee has reviewed the consolidated financial statements with management and the external auditor.
An independent firm of chartered accountants, appointed as external auditor by the shareholders, has audited the consolidated
financial statements and its report is included herein.
Bob German
President and
Chief Executive Officer
March 19, 2014
Scott Matson
Vice President Finance and
Chief Financial Officer
Page | 32
ABCD
INDEPENDENT AUDITORS’ REPORT
To the Shareholders of Horizon North Logistics Inc.
We have audited the accompanying consolidated financial statements of Horizon North Logistics Inc.,
which comprise the consolidated statements of financial position as at December 31, 2013 and December
31, 2012, the consolidated statements of comprehensive income, changes in equity and cash flows for
the years then ended, and notes, comprising a summary of significant accounting policies and other
explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with International Financial Reporting Standards, and for such internal control
as management determines is necessary to enable the preparation of consolidated financial statements
that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our
audits. We conducted our audits in accordance with Canadian generally accepted auditing standards.
Those standards require that we comply with ethical requirements and plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the consolidated financial statements. The procedures selected depend on our judgment, including the
assessment of the risks of material misstatement of the consolidated financial statements, whether due to
fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s
preparation and fair presentation of the consolidated financial statements in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on
the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of accounting estimates made by management, as well
as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide
a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the
consolidated financial position of Horizon North Logistics Inc. as at December 31, 2013 and December31,
2012, and its consolidated financial performance and its consolidated cash flows for the years then ended
in accordance with International Financial Reporting Standards.
Chartered Accountants
Calgary, Canada
February 19, 2014
Page | 33
Consolidated statement of financial position
(000’s)
Assets
Current assets:
Trade and other receivables (Note 11)
Inventories (Note 12)
Prepayments
Income taxes receivable
Non-current assets:
Property, plant and equipment (Note 13)
Intangible assets (Note 14)
Goodwill (Note 14)
Deferred tax assets (Note 18)
Other assets (Note 15)
Liabilities and Shareholders’ Equity
Current liabilities:
Trade and other payables
Deferred revenue
Income taxes payable
Current portion of loans and borrowings (Note 16)
Non-current liabilities:
Asset retirement obligations (Note 17)
Loans and borrowings (Note 16)
Deferred tax liabilities (Note 18)
Shareholders’ equity:
Share capital (Note 19)
Contributed surplus
Accumulated other comprehensive income
Retained earnings
December 31,
2013
December 31,
2012
90,856
15,638
3,000
4,114
113,608
349,252
2,968
1,664
1,067
2,556
357,507
133,195
13,321
2,506
146
149,168
330,205
10,028
2,136
1,772
2,684
346,825
$
471,115
$
495,993
56,677
3,447
284
1,496
61,904
5,656
78,256
30,872
176,688
183,851
11,836
394
98,346
294,427
59,511
588
12,661
1,416
74,176
1,364
116,872
29,318
221,730
179,999
10,783
208
83,273
274,263
The accompanying notes are an integral part of the consolidated financial statements.
$
471,115
$
495,993
Ann Rooney
Director
Bob German
Director
Page | 34
Consolidated statement of comprehensive income
Twelve months ended December 31, 2013 and 2012
(000’s except per share amounts)
Revenue (Note 5)
Operating expenses:
Direct costs (Note 6)
Depreciation (Note 13)
Share based compensation
Loss (gain) on disposal of property, plant and equipment
Direct operating expenses (Note 6)
Gross profit
Selling & administrative expenses:
Selling & administrative expenses (Note 7)
Amortization of intangible assets (Note 14)
Share based compensation (Note 19)
Selling & administrative expenses (Note 7)
Operating earnings
Finance costs (Note 9)
Share of equity accounted investees
Profit before tax
Current tax expense
Deferred tax expense (Note 18)
Income tax expense (Note 10)
Total profit
Other comprehensive income:
Translation of foreign operations
Other comprehensive income, net of income tax
December 31,
2013
December 31,
2012
$
554,387
$
526,616
409,007
47,623
1,311
6,152
464,093
364,361
32,007
1,268
(93)
397,543
90,294
129,073
19,046
7,060
897
27,003
63,291
3,822
-
59,469
14,759
2,259
17,018
42,451
186
186
17,228
8,204
883
26,315
102,758
3,557
529
98,672
19,862
5,927
25,789
72,883
50
50
Total comprehensive income
$
42,637
$
72,933
Earnings per share:
Basic (Note 20)
Diluted (Note 20)
$
$
0.39
0.38
$
$
0.67
0.66
The accompanying notes are an integral part of the consolidated financial statements.
Page | 35
Consolidated statement of changes in equity
(000’s)
Share
Capital
Contributed
Surplus
Accumulated
Other
Comprehensive
Income
Retained
Earnings
Total
Balance at December 31, 2011
$ 173,438
$
10,421
$
158
$
32,052
$ 216,069
Total profit
Share based compensation (Note 19)
Share options exercised (Note 19)
Translation of foreign operations
Dividends declared and paid ($0.15
per share)
Dividends declared ($0.05 per share)
Balance at December 31, 2012
Total profit
Share based compensation (Note 19)
Share options exercised (Note 19)
Translation of foreign operations
Dividends declared and paid ($0.1875
per share)
Dividends declared ($0.0625 per
share)
-
-
6,561
-
-
-
2,151
(1,789)
-
-
-
$ 179,999
$
-
10,783
$
-
-
3,852
-
-
-
-
2,208
(1,155)
-
-
-
-
-
-
50
-
-
208
-
-
-
186
-
-
72,883
-
-
-
(16,223)
72,883
2,151
4,772
50
(16,223)
(5,439)
83,273
(5,439)
$ 274,263
$
42,451
-
-
-
(20,498)
42,451
2,208
2,697
186
(20,498)
(6,880)
(6,880)
Balance at December 31, 2013
$ 183,851
$
11,836
$
394
$
98,346
$ 294,427
The accompanying notes are an integral part of the consolidated financial statements.
Page | 36
Consolidated statement of cash flows
Twelve months ended December 31, 2013 and 2012
(000’s)
Cash provided by (used in):
Operating activities:
Profit for the period
Adjustments for:
Depreciation (Note 13)
Amortization of intangible assets (Note 14)
Share based compensation (Note 19)
Amortization of other assets
Share of equity accounted investees
Loss (gain) on sale of property, plant and equipment
Unrealized foreign exchange
Finance costs (Note 9)
Income tax expense (Note 10)
Income taxes paid
Interest paid
Changes in non-cash working capital items (Note 25)
Investing activities:
Purchase of property, plant and equipment (Note 13)
Proceeds on sale of property, plant and equipment
Financing activities:
Proceeds from shares issued on exercise of options
Net proceeds from loans and borrowings
Payment of dividends
Change in cash position
Cash, beginning of period
Cash, end of period
The accompanying notes are an integral part of the consolidated financial statements.
December 31,
2013
December 31,
2012
$
42,451
$
72,883
47,623
7,060
2,208
128
-
1,384
55
3,822
17,018
121,749
(31,104)
(3,412)
38,136
125,369
(90,146)
26,925
(63,221)
2,697
(38,907)
(25,938)
(62,148)
32,007
8,204
2,151
127
529
(2,924)
85
3,557
25,789
142,408
(11,727)
(2,904)
(42,741)
85,036
(139,346)
8,831
(130,515)
4,772
61,200
(20,493)
45,479
-
-
-
$
-
-
-
$
Page | 37
Notes to the consolidated financial statements
Years ended December 31, 2013 and 2012
1. Reporting Entity
Horizon North Logistics Inc. (“Horizon” or the “Corporation”) is a company registered and domiciled in Canada and is a
publicly-traded company, listed on the Toronto Stock Exchange under the symbol HNL. The Corporation’s registered
offices are at 1600, 505 – 3rd Street SW, Calgary, AB T2P 3E6. The consolidated financial statements of the Corporation as
at and for the year ended December 31, 2013 comprise the Corporation and its subsidiaries and the Corporation’s interest
in associates and jointly controlled entities. Horizon provides camp & catering services and ground matting services to oil
and gas exploration and production companies, oilfield service companies and mining companies working on oil sands,
mineral exploration and development, and conventional oil and gas projects primarily in western Canada.
2. Basis of Presentation
(a) Statement of compliance
The consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards (“IFRS”).
The consolidated financial statements were authorized for issue by the Board of Directors on February 19th, 2014.
(b) Basis of measurement
The consolidated financial statements have been prepared using the historical cost basis. Certain prior period
amounts have been amended to conform to current period presentation.
(c) Functional and presentation currency
These consolidated financial statements are presented in Canadian dollars, which is the Corporation’s and
subsidiaries functional currency with the exception of United States (“US”) operations which have a US dollar
functional currency.
(d) Use of estimates and judgments
The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates
and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities,
income and expenses. The judgements, estimates and associated assumptions are based on historical experience and
other factors that are considered to be relevant. Actual outcomes may differ from these estimates.
The judgements, estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the
period of the revision and future periods if the revision affects both current and future periods.
The judgements, estimates and assumptions that have the most significant risk of causing a material adjustment to
the carrying amounts of assets and liabilities recognized in the consolidated financial statements are as follows:
Estimates
(cid:120)
(cid:120)
Revenue Recognition Estimate – The Corporation uses the percentage-of-completion method in accounting for
its construction contract revenue. Use of the percentage-of-completion method requires estimates of the stage
of completion of the contract to date as a proportion of the total contract work to be performed in accordance
with the accounting policy set out in Note 3(j)(iv).
Asset Retirement Obligation (“ARO”) – The Corporation recognizes an asset retirement obligation to account for
future demobilisation and reclamation of specific camps. Use of an ARO requires estimates of the asset
retirement costs, timing of payments, present value discount rate and inflation rate to determine the amount
recognized, in accordance with the accounting policy set out in Note 3(i).
Judgements
(cid:120)
Impairment - The Corporation is required to make a judgement for the need for impairment at each reporting
date by evaluating conditions specific to the organization that may lead to impairment of assets.
Page | 38
Notes to the consolidated financial statements
Years ended December 31, 2013 and 2012
3. Significant Accounting Policies
The accounting policies set out below have been applied consistently to all periods presented in these consolidated
financial statements.
(a) Basis of consolidation
(i) Subsidiaries
Subsidiaries are entities controlled by the Corporation. The financial statements of subsidiaries are included in
the consolidated financial statements from the date that control commences until the date that control ceases.
The accounting policies of subsidiaries are aligned then with the policies adopted by the Corporation.
Acquisitions of non-controlling interests are accounted for as transactions with equity holders in their capacity as
equity holders; therefore no goodwill is recognized as a result of such transactions.
(ii) Special purpose entities
The Corporation has established a number of special purpose entities (“SPE”) for operating purposes. An SPE is
consolidated when, based on an evaluation of the substance of its relationship with the Corporation and the
SPE’s risks and rewards, the Corporation concludes that it controls the SPE. SPE’s controlled by the Corporation
were established under terms that impose strict limitations on the decision-making powers of the SPE’s
management and that result in the Corporation receiving the majority of the benefits related to the SPE’s
operations and net assets, being exposed to the majority of risks incident to the SPE’s activities, and retaining
the majority of the residual or ownership risks related to the SPEs or their assets.
(iii) Investments in associates (equity accounted investees)
Associates are those entities in which the Corporation has significant influence, but not control, over the
financial and operating policies. Significant influence is presumed to exist when the Corporation holds between
20 and 50 percent of the voting power of another entity.
Investments in associates are accounted for using the equity method (equity accounted investees) and are
recognized initially at cost. The Corporation’s investment includes goodwill identified on acquisition, net of any
accumulated impairment losses. The consolidated financial statements include the Corporation’s share of the
income and expenses and equity movements of equity accounted investees, after adjustments to align the
accounting policies with those of the Corporation, from the date that significant influence or joint control
commences until the date that significant influence or joint control ceases. When the Corporation’s share of
losses exceeds its interest in an equity accounted investee, the carrying amount of that interest, including any
long-term investments, is reduced to nil, and the recognition of further losses is discontinued except to the
extent that the Corporation has an obligation or has made payments on behalf of the investee.
(iv) Joint ventures
Joint ventures are those entities over whose activities the Corporation has joint control, established by
contractual agreement. Joint ventures are accounted for using the equity method (equity accounted investees)
and are initially recognized at cost.
(v) Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group
transactions, are eliminated in preparing the consolidated financial statements. Unrealized gains arising from
transactions with equity accounted investees are eliminated against the investment to the extent of the
Corporation’s interest in the investee. Unrealized losses are eliminated in the same way as unrealized gains, but
only to the extent that there is no evidence of impairment.
Page | 39
Notes to the consolidated financial statements
Years ended December 31, 2013 and 2012
3. Significant Accounting Policies (continued)
(b) Changes in accounting policy and disclosure
Standards, amendments and interpretations to existing standards that are in effective and have been adopted by the
Corporation include:
IFRS 10 – Consolidated Financial Statements. The new standard establishes a clear set of principles for the
presentation and preparation of consolidated financial statements when an entity controls one or more other
entities. The standard was effective and adopted by the Corporation as of January 1, 2013. The adoption of the
standard did not have a material effect on the Corporation.
IFRS 11 – Joint Arrangements. The new standard establishes principles for financial reporting by entities that have an
interest in arrangements that are controlled jointly and clearly defines the difference between joint operations and
joint ventures and the accounting requirements for each. The standard was effective and adopted by the Corporation
as of January 1, 2013. The adoption of the standard did not have a material effect on the Corporation.
IFRS 12 – Disclosure of interests in other entities. The new standard requires an entity to disclose information that
enables users of the financial statements to evaluate the nature, and risks associated with, its interest in other
entities and the effects of those interests on its financial position, performance and cash flows. The standard was
effective and adopted by the Corporation as of January 1, 2013. The adoption of the standard did not have a material
effect on the Corporation.
IFRS 13 – Fair Value Measurement. The new standard defines fair value, establishes a framework for measuring fair
value and sets out disclosure requirements for fair value measurements. This standard defines fair value as the price
that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. The standard was effective and adopted by the Corporation as of January 1,
2013. The adoption of the standard did not have a material effect on the Corporation.
(c) Financial instruments
Financial Instrument
Trade and other receivables
Trade and other payables
Loans and other borrowings
(i) Non-derivative financial assets
Category
Measurement Method
Loans and receivables
Other financial liabilities
Other financial liabilities
Amortized cost
Amortized cost
Amortized cost
The Corporation initially recognizes trade and other receivables and deposits on the date that they originate. All
other financial assets (including assets designated at fair value through profit or loss) are recognized initially on
the trade date at which the Corporation becomes a party to the contractual provisions of the instrument.
The Corporation derecognizes a financial asset when the contractual rights to the cash flows from the asset
expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in
which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in
transferred financial assets that is created or retained is recognized as a separate asset or liability.
Financial assets and liabilities are offset and the net amount presented in the statement of financial position
when, and only when, there is a legal right to offset the amounts and intends either to settle on a net basis or to
realize the asset and settle the liability simultaneously.
The Corporation uses the following non-derivative financial asset classifications: financial assets at fair value
through profit or loss, held-to-maturity financial assets, loans and receivables and available-for-sale financial
assets.
Page | 40
Notes to the consolidated financial statements
Years ended December 31, 2013 and 2012
3. Significant Accounting Policies (continued)
(c) Financial instruments (continued)
(i) Non-derivative financial assets (continued)
Financial assets at fair value through profit or loss are classified as held for trading or are designated as such
upon initial recognition. Held-for-trading instruments are financial assets and liabilities typically acquired with
the intention of generating revenues in the short-term. However, an entity is allowed to designate certain
financial instruments as held-for-trading on initial recognition even if it would otherwise not satisfy the
definition. As at December 31, 2013 and 2012 the Corporation does not hold any held-for-trading financial
instruments. Financial assets required to be classified or designated as held-for-trading are measured at fair
value, with gains and losses recorded in net earnings for the period in which the change occurs. Attributable
transaction costs are recognized in profit or loss as incurred. The Corporation uses trade-date accounting for its
held-for-trading financial assets.
Held-to-maturity investments are non-derivative financial assets, with fixed or determinable payments and fixed
maturity, which an entity has the positive intention and ability to hold to maturity. These financial assets are
initially recognized at fair value plus any directly attributable transaction costs. These financial assets are
measured at amortized cost using the effective interest method. As at December 31, 2013 and 2012, the
Corporation does not have any financial assets classified as held-to-maturity.
Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active
market. These financial assets are initially recognized at fair value plus any directly attributable transaction costs.
Financial assets classified as loans and receivables are measured at amortized cost using the effective interest
method, less any impairment losses.
Available-for-sale financial assets are non-derivative assets that are designated as available-for-sale or that are
not classified as loans and receivables, held-to-maturity investments or held-for-trading. Available-for-sale
financial assets are carried at fair value with unrealized gains and losses included in other comprehensive income
until such gains or losses are realized or an other than temporary impairment is determined to have occurred.
Available-for-sale assets are measured at fair value, except for assets that do not have a readily determinable fair
value which are recorded at cost. Attributable transaction costs are recognized in profit or loss as incurred. As at
December 31, 2013 and 2012, the Corporation does not have any financial assets classified as available-for-sale.
(ii) Non-derivative financial liabilities
The Corporation initially recognizes debt securities issued and subordinated liabilities on the date that they are
originated. All other financial liabilities (including liabilities designated at fair value through profit or loss) are
recognized initially on the trade date at which it becomes a party to the contractual provisions of the instrument.
The Corporation derecognizes a financial liability when its contractual obligations are discharged or cancelled or
expire.
Financial assets and liabilities are offset and the net amount presented in the statement of financial position
when, and only when, there is a legal right to offset the amounts and the entity intends either to settle on a net
basis or to realize the asset and settle the liability simultaneously. Included in loans and borrowing are cash and
cash equivalents comprising of cash balances and call deposits with original maturities of less than three months.
Bank overdrafts that are repayable on demand and form an integral part of the Corporation’s cash management
are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.
The Corporation has the following non-derivative financial liabilities: loans and borrowings, and trade and other
payables.
Such financial liabilities are recognized initially at fair value plus any directly attributable transaction costs.
Subsequent to initial recognition these financial liabilities are measured at amortized cost using the effective
interest method.
(iii) Share capital
Common shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares
and share options are recognized as a deduction from equity, net of any tax effects.
Page | 41
Notes to the consolidated financial statements
Years ended December 31, 2013 and 2012
3. Significant Accounting Policies (continued)
(d) Property, plant and equipment
(i) Recognition and measurement
Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated
impairment losses.
Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-
constructed assets includes the cost of materials and direct labour, any other costs directly attributable to
bringing the assets to a working condition for their intended use, the costs of dismantling and removing the
items and restoring the site on which they are located, and borrowing costs on qualifying assets.
When parts of an item of property, plant and equipment have different useful lives, they are accounted for as
separate items (major components) of property, plant and equipment.
Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the
proceeds from disposal with the carrying amount of property, plant and equipment, and are recognized net
within operating expenses in profit or loss.
(ii) Subsequent costs
The cost of replacing a major component of an item of property, plant and equipment is recognized in the
carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow
to the Corporation, and its cost can be measured reliably. The carrying amount of the replaced major component
is derecognized. The costs of the day-to-day servicing of property, plant and equipment are recognized in profit
or loss as incurred.
(iii) Depreciation
Depreciation is calculated using the depreciable amount, which is the cost of an asset, less its residual value.
Depreciation is recognized in profit or loss on a straight-line basis over the estimated useful lives of each part of
an item of property, plant and equipment, since this most closely reflects the expected pattern of consumption
of the future economic benefits embodied in the asset. Leased assets are depreciated over the shorter of the
lease term and their useful lives unless it is reasonably certain that the Corporation will obtain ownership by the
end of the lease term.
The estimated useful lives for the current and comparative periods are as follows:
Assets
Method
Residual Value
Useful Life
Camp facilities
Camp setup & installation
Marine equipment
Buildings
Automotive & trucking equipment
Mats
Furniture, fixtures & other equipment
Straight-line
Straight-line
Straight-line
Straight-line
Straight-line
Straight-line
Straight-line
20%
-
-
-
-
-
-
15 years
2 to 5 years
20 years
20 years
4 to 8 years
6 years
2 to 10 years
Depreciation methods, useful lives, and residual values are reviewed at each financial year end and adjusted if
appropriate. Land and assets under construction are not depreciated.
(e)
Intangible assets
(i) Goodwill
Goodwill arises on the acquisition of subsidiaries, associates and joint ventures. Goodwill is measured at cost less
accumulated impairment losses. In respect of equity accounted investees, the carrying amount of goodwill is
included in the carrying amount of the investment. Goodwill is not amortized but is tested at least annually for
impairment.
Page | 42
Notes to the consolidated financial statements
Years ended December 31, 2013 and 2012
3. Significant Accounting Policies (continued)
(e)
Intangible assets (continued)
(ii) Assets acquired on business combinations
Non-operating intangible assets are intangible assets that are acquired as a result of a business combination,
which arise from contractual or other legal rights and are not transferable or separable. On initial recognition
they are measured at fair value. Amortization is charged on a straight line basis to the statement of
comprehensive income over their expected useful lives which are:
Customer relationships
Other intangible assets
Estimated useful lives
7 years
5 years
Amortization methods, useful lives, and residual values are reviewed at each financial year-end and adjusted if
appropriate. Other intangible assets that are acquired by the Corporation, which have finite useful lives, are
measured at cost less accumulated amortization and accumulated impairment losses.
(f)
Inventories
Inventories are measured at the lower of cost and net realizable value. The cost of inventories is based on a weighted
average or standard cost principle and includes expenditures incurred in acquiring the inventories, production or
conversion costs, and other costs in bringing them to their existing location and condition. In the case of
manufactured inventories and work-in-progress, cost includes an appropriate share of production overheads based
on normal operating capacity.
Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of
completion and selling expenses.
(g)
Impairment
(i) Financial assets
A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine
whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence
indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a
negative effect on the estimated future cash flows of that asset that can be estimated reliably.
Objective evidence that financial assets (including equity securities) are impaired can include default or
delinquency by a debtor, restructuring of an amount due to the Corporation on terms that the Corporation
would not consider otherwise, indications that a debtor or issuer will enter bankruptcy, or the disappearance of
an active market for a security. In addition, for an investment in an equity security, a significant or prolonged
decline in its fair value below its cost is objective evidence of impairment.
The Corporation considers evidence of impairment for loans and receivables and held-to-maturity investment
securities at both a specific asset and collective level. All individually significant loans and receivables and held-
to-maturity investment securities are assessed for specific impairment. All individually significant loans and
receivables and held-to-maturity investment securities found not to be specifically impaired are then collectively
assessed for any impairment that has been incurred but not yet identified. Loans and Receivables and held-to-
maturity investment securities that are not individually significant are collectively assessed for impairment by
grouping together receivables and held-to-maturity investment securities with similar risk characteristics.
In assessing collective impairment, the Corporation uses historical trends of the probability of default, timing of
recoveries, and the amount of loss incurred, adjusted for management’s judgment as to whether current
economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by
historical trends.
Page | 43
Notes to the consolidated financial statements
Years ended December 31, 2013 and 2012
3. Significant Accounting Policies (continued)
(g)
Impairment (continued)
(i) Financial assets (continued)
An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference
between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s
original effective interest rate. Losses are recognized in profit or loss and reflected in an allowance account
against receivables. Interest on the impaired asset continues to be recognized through the unwinding of the
discount. When a subsequent event causes the amount of impairment loss to decrease, the decrease in
impairment loss is reversed through profit or loss.
Impairment losses on available-for-sale investment securities are recognized by transferring the cumulative loss
that has been recognized in other comprehensive income, and presented in the fair value reserve in equity, to
profit or loss. The cumulative loss that is removed from other comprehensive income and recognized in profit or
loss is the difference between the acquisition cost, net of any principal repayment and amortization, and the
current fair value, less any impairment loss previously recognized in profit or loss. Changes in impairment
provisions attributable to time value are reflected as a component of interest income.
If, in a subsequent period, the fair value of an impaired available-for-sale debt security increases and the
increase can be related objectively to an event occurring after the impairment loss was recognized in profit or
loss, then the impairment loss is reversed, with the amount of the reversal recognized in profit or loss. However,
any subsequent recovery in the fair value of an impaired available-for-sale equity security is recognized in other
comprehensive income.
(ii) Non-financial assets
The carrying amounts of the Corporation’s non-financial assets, other than inventories and deferred tax assets
are reviewed at each reporting date to determine whether there is any indication of impairment. If any such
indication exists, then the asset’s recoverable amount is estimated. For goodwill and intangible assets that have
indefinite useful lives or assets that are not yet available for use, the recoverable amount is estimated each year
at the same time.
The recoverable amount of an asset is the greater of its value in use and its fair value less costs to sell. In
assessing value in use, the estimated future cash flows are discounted to their present value using a post-tax
discount rate that reflects current market assessments of the time value of money and the risks specific to the
asset. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into
the smallest group of assets that generates cash inflows from continuing use that are largely independent of the
cash inflows of other assets or groups of assets (the “cash-generating unit” or “CGU”). For the purposes of
goodwill impairment testing, goodwill acquired in a business combination is allocated to the group of CGUs that
are expected to benefit from the synergies of the combination. This allocation is subject to an operating segment
ceiling test and reflects the lowest level at which that goodwill is monitored for internal reporting purposes.
The Corporation’s corporate assets do not generate separate cash inflows. If there is an indication that a
corporate asset may be impaired, then the recoverable amount is determined for the group of CGUs to which
the corporate asset belongs.
An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its estimated recoverable
amount. Impairment losses are recognized in profit or loss. Impairment losses recognized in respect of CGUs are
allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the
carrying amounts of the other assets in the unit (group of units), on a pro rata basis.
An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses
recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or
no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine
the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does
not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no
impairment loss had been recognized.
Page | 44
Notes to the consolidated financial statements
Years ended December 31, 2013 and 2012
3. Significant Accounting Policies (continued)
(g)
Impairment (continued)
(iii) Non-financial assets (continued)
Goodwill that forms part of the carrying amount of an investment in an associate is not recognized separately,
and therefore is not tested for impairment separately. Instead, the entire amount of the investment in an
associate is tested for impairment as a single asset when there is objective evidence that the investment in an
associate may be impaired.
(h) Employee benefits
(i) Non-financial assets
The Corporation’s defined contribution plan which is a post-employment benefit plan under which the
Corporation pays fixed contributions into a separate entity and will have no legal or constructive obligation to
pay further amounts. Obligations for contributions to defined contribution plans are recognized as an employee
benefit expense in profit or loss when they are due.
(ii) Short-term benefits
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the
related service is provided.
A liability is recognized for the amount expected to be paid under the short-term cash bonus plans if the
Corporation has a present legal or constructive obligation to pay this amount as a result of past service provided
by the employee and the obligation can be estimated reliably.
(iii) Share based compensation transactions
The grant date fair value of share based compensation awards granted to employees is recognized as an
expense, with a corresponding increase in equity, over the period that the employees unconditionally become
entitled to the awards (vesting period). The amount recognized as an expense is adjusted to reflect the number
of awards for which the related service and non-market vesting conditions are expected to be met, such that the
amount ultimately recognized as an expense is based on the number of awards that do meet the related service
and non-market performance conditions at the vesting date.
(i) Provisions
A provision is recognized if, as a result of a past event, the Corporation has a present legal or constructive obligation
that can be estimated reliably and it is probable that an outflow of economic benefits will be required to settle the
obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects
current market assessments of the time value of money and the risks specific to the liability. The unwinding of the
discount is recognized as finance cost. As at December 31, 2013 and 2012 the Corporation has recognized a provision
for Asset Retirement Obligation.
(j) Revenue
(i) Goods sold
Revenue from the sale of goods is measured at the fair value of the consideration received or receivable.
Revenue is recognized when the significant risks and rewards have transferred to the customer, collectability is
reasonably assured, the associated costs can be estimated reliably, there is no continuing management
involvement with the goods, and the amount of revenue can be measured reliably.
Transfers of risks and rewards vary depending on the individual terms of the contract of sale. For the sale of
camps and mats, transfer usually occurs when the product is delivered to the customer’s site; however, in
instances where the customer has provided a certificate of insurance for undelivered assets, the Corporation will
recognize revenue prior to delivery.
Page | 45
Notes to the consolidated financial statements
Years ended December 31, 2013 and 2012
3. Significant Accounting Policies (continued)
(j) Revenue (continued)
(ii) Services
The Corporation’s services are generally provided based upon purchase orders or contracts with its customers
that include fixed or determinable prices based upon monthly, daily, or hourly rates. Revenue is recognized
when services are rendered and only when collectability is reasonably assured.
(iii) Rental income
Rental income is recognized in profit or loss on a straight line basis over the term of the arrangement, or on a
daily or monthly rate.
(iv) Construction contracts
Contract revenue includes the initial amount agreed to in the contract plus any variations in contract work,
claims, and incentive payments, to the extent that it is probable that they will result in revenue and can be
measured reliably. As soon as the outcome of a construction contract can be estimated reliably, contract
revenue is recognized in profit or loss in proportion to the stage of completion of the contract. Contract
expenses are recognized as incurred unless they create an asset related to future contract activity.
The stage of completion is assessed by the proportion that contract costs incurred for work performed to date
bear to the estimated total contract costs. When the outcome of a construction contract cannot be estimated
reliably, contract revenue is recognized only to the extent of contract costs incurred that are likely to be
recoverable. An expected loss on a contract is recognized immediately in profit or loss.
(k) Lease payments
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as
operating leases. Leases in terms of which substantially all the risks and rewards of ownership are transferred to the
Corporation are classified as finance leases. Payments made under operating leases (net of any incentives received
from the lessor) are charged to the consolidated statement of comprehensive income on a straight-line basis over the
period of the lease.
Minimum lease payments made under finance leases are apportioned between the finance expense and the
reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to
produce a constant periodic rate of interest on the remaining balance of the liability.
Determining whether an arrangement contains a lease:
At inception of an arrangement, the Corporation determines whether such an arrangement is, or contains, a
lease. A specific asset is the subject of a lease if fulfillment of the arrangement is dependent on the use of that
specified asset. An arrangement conveys the right to use the asset if the arrangement conveys to the
Corporation the right to control the use of the underlying asset.
At inception or upon reassessment of the arrangement, the Corporation separates payments and other
consideration required by such an arrangement into those for the lease and those for other elements on the
basis of their relative fair values. If the Corporation concludes for a finance lease that it is impracticable to
separate the payments reliably, an asset and a liability are recognized at an amount equal to the fair value of the
underlying asset. Subsequently, the liability is reduced as payments are made and an imputed finance charge on
the liability is recognized using the Corporation’s incremental borrowing rate.
(l) Finance income and costs
Finance income comprises interest income on funds invested. Interest income is recognized as it accrues in profit or
loss, using the effective interest method.
Finance costs comprise interest expense on borrowings, unwinding of the discount on provisions, changes in the fair
value of financial assets at fair value through profit or loss, and impairment losses recognized on financial assets.
Borrowing costs that are not directly attributable to the acquisition, construction, or production of a qualifying asset
are recognized in profit or loss using the effective interest method.
Foreign currency gains and losses are reported on a net basis.
Page | 46
Notes to the consolidated financial statements
Years ended December 31, 2013 and 2012
3. Significant Accounting Policies (continued)
(m) Income tax
Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in profit or loss
except to the extent that it relates to a business combination, or items recognized directly in equity or other
comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates
enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous
years.
Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for the
following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business
combination and that affects neither accounting nor taxable profit or loss, and differences relating to investments in
subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable
future. In addition, deferred tax is not recognized for taxable temporary differences arising on the initial recognition
of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when
they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax
assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they
relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but
they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized
simultaneously.
A deferred tax asset is recognized for unused tax losses, tax credits, and deductible temporary differences to the
extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred tax
assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related
tax benefit will be realized.
(n) Earnings per share
The Corporation presents basic and diluted earnings per share (“EPS”) data for its common shares. Basic EPS is
calculated by dividing the profit or loss attributable to common shareholders of the Corporation by the weighted
average number of common shares outstanding during the period. Diluted EPS is calculated by adjusting the profit or
loss attributable to common shareholders and the weighted average number of common shares outstanding for the
effects of all dilutive potential common shares, which is comprised of share options granted to employees.
(o) Segment reporting
A segment is a distinguishable component of the Corporation that is engaged either in providing related products or
services (business segment) which is subject to risks and returns that are different from those of other segments. The
business segments are determined based on the Corporation’s management and internal reporting structure.
Segment results, assets, and liabilities include items directly attributable to a segment, as well as those that can be
allocated on a reasonable basis. Unallocated items comprise mainly investments and related revenue, loans and
borrowings and related expenses, corporate assets (primarily the Corporation’s headquarters) and head office
expenses, and income tax assets and liabilities.
Segment capital expenditure is the total cost incurred during the period to acquire property, plant and equipment
and intangible assets other than goodwill.
Page | 47
Notes to the consolidated financial statements
Years ended December 31, 2013 and 2012
3. Significant Accounting Policies (continued)
(p) Foreign currency translation
The consolidated financial statements are presented in Canadian Dollars (“CAD”).
Foreign currency transactions entered into are translated into the functional currency of the operations at the
exchange rate on the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are
re-translated into the functional currency using the exchange rate on the period end date. Foreign currency
translation gains and losses resulting from the settlement of transactions and the re-translation at period end are
recognized in the statement of comprehensive income within total profit. Non-monetary items that originated in a
foreign currency are translated at the exchange rate from the original transaction date.
US operations have a US Dollar (“USD”) functional currency and therefore are translated to be included in the
consolidated financial statements in CAD as follows: income and expenses are translated into CAD using the exchange
rates on the dates of the transactions and the assets and liabilities on the statement of financial position is translated
into CAD at the period end exchange rate. The effect of translation is recognized in other comprehensive income and
included as translation of foreign operations in accumulated other comprehensive income within equity.
Foreign currency gains and losses arising from monetary items receivable from or payable to a foreign operation, for
which settlement is neither planned nor likely to occur, form a part of the exchange differences in the net investment
in the foreign operations and are recognized initially in other comprehensive income. Upon disposal or partial
disposal of an entity with a functional currency other than CAD, any accumulated exchange differences will be
reclassified to the statement of comprehensive income within total profit.
(q) New standards and interpretations not yet adopted
A number of new standards, amendments to standards and interpretations are not yet effective for the year ended
December 31, 2013, and have not been applied in preparing these consolidated financial statements. The Corporation
intends to adopt the amendments to IAS 32 in its financial statements for the annual period beginning January 1,
2014. The Corporation does not expect the amendments to have a material impact on the financial statements.
4. Determination of fair values
A number of the Corporation’s accounting policies and disclosures require the determination of fair value, for both
financial and non-financial assets and liabilities. Fair values have been determined for measurement and/or disclosure
purposes based on the following methods. When applicable, further information about the assumptions made in
determining fair values is disclosed in the notes specific to that asset or liability.
(a) Property, plant and equipment
The fair value of property, plant and equipment recognized as a result of a business combination is based on market
values. The market value of property is the estimated amount for which a property could be exchanged on the date of
valuation between a willing buyer and a willing seller, in an arm’s length transaction after proper marketing wherein
the parties had each acted knowledgeably and willingly. The fair value of items of plant, equipment, fixtures and
fittings is based on the market and cost approaches using quoted market prices for similar items when available and
replacement cost when appropriate.
(b)
Intangible assets
The fair value of customer relationships acquired in a business combination is determined using the multi-period
excess earnings method, whereby the subject asset is valued after deducting a fair return on all other assets that are
part of creating the related cash flows.
The fair value of other intangible assets is based on the discounted cash flows expected to be derived from the use or
eventual sale of the assets.
Page | 48
Notes to the consolidated financial statements
Years ended December 31, 2013 and 2012
4. Determination of fair values (continued)
(c) Other financial assets and liabilities
The fair value of other financial assets and liabilities is estimated as the present value of future cash flows, discounted
at the market rate of interest at the reporting date. This fair value is determined for disclosure purposes.
(d) Share-based compensation transactions
The fair value of the employee share options is measured using the Black-Scholes option pricing model. Measurement
inputs include the share price on measurement date, the exercise price of the instrument, the expected volatility
(based on weighted average historic volatility adjusted for changes expected due to publicly available information),
the weighted average expected life of the instruments (based on historical experience and general option holder
behavior), the expected dividends, and the risk-free interest rate (based on government bonds). Service and non-
market performance conditions are not taken into account in determining fair value.
5. Revenue
(000’s)
Rental and Catering revenue
Construction contract revenue
Rendering of services
Sales of goods
Twelve months ended December 31,
2012
2013
$
285,741
227,650
27,916
13,080
$
311,939
156,513
26,658
31,506
$
554,387
$
526,616
Construction contract revenue has been determined based on the percentage of completion method. The amount of
construction contract revenue results from the manufacture of camps and other modular facilities in the Camp & Catering
segment. These units are based on specifically negotiated contracts with customers.
At December 31, 2013, advances received from customers under open construction contracts amounted to $2,702,000
(2012 - $337,000). Advances for which the related work has not been completed are presented as deferred revenue.
6. Direct Operating Expenses
(000’s)
Labour
Job supplies
Rental equipment
Repairs & maintenance
Trucking costs
Other operating expenses
Direct costs
Depreciation
Share based compensation
Loss (gain) on disposal of property, plant and equipment
Twelve months ended December 31,
$
2013
211,204
112,297
13,175
16,735
16,919
38,677
$
2012
181,891
113,720
14,299
14,843
13,099
26,509
$
409,007
$
364,361
47,623
1,311
6,152
32,007
1,268
(93)
$
464,093
$
397,543
The amount of inventories recognized as an expense during the twelve months ended December 31, 2013 is $84,341,000
(2012 - $78,463,000).
Page | 49
Notes to the consolidated financial statements
Years ended December 31, 2013 and 2012
7. Selling & Administrative Expenses
(000’s)
Salaries
Other selling & administrative expenses
Selling & administrative expenses
Amortization of intangible assets
Share based compensation
8. Personnel expenses
(000’s)
Wages, salaries & benefits
Contributions to defined contribution plans
Share based compensation
Twelve months ended December 31,
2012
2013
$
11,619
7,427
19,046
7,060
897
$
10,278
6,950
17,228
8,204
883
$
27,003
$
26,315
Twelve months ended December 31,
2012
2013
$
218,244
4,579
2,208
$
187,941
4,228
2,151
$
225,031
$
194,320
The Corporation has two types of defined contribution plans: a registered defined contribution plan covering a number of
its employees and a collectively bargained plan covering union employees. Under the registered defined contribution
plan, the Corporation matches individual contributions up to a maximum of 5% of the employee’s annual salary. Under
the collectively bargained plan, the Corporation contributes a set amount per hour worked. The total amount expensed
under both defined contribution plans for the year ended December 31, 2013 was $4,579,000 (2012 - $4,228,000).
9. Finance Costs
(000’s)
Interest expense
Accretion of discount on notes payable
Accretion of provisions
Twelve months ended December 31,
2012
2013
$
$
3,388
371
63
3,822
$
$
2,918
573
66
3,557
Page | 50
Notes to the consolidated financial statements
Years ended December 31, 2013 and 2012
10. Income Taxes
The provision for income taxes differs from that which would be expected by applying statutory rates. A reconciliation of
the difference is as follows:
(000’s)
Profit before tax
Combined federal and provincial income tax rate
Expected income tax provision
Non-deductible share based compensation
Share of equity accounted investees
Revisions to prior year tax pool estimates
Change in estimated timing of realization of
temporary differences
Differences in jurisdictional tax rates
Non-taxable portion of capital loss (gain)
Other
Twelve months ended December 31,
2012
2013
$
59,469
25%
14,867
$
98,672
25%
24,668
552
-
655
(397)
104
995
242
538
132
(45)
-
270
(187)
413
$
17,018
$
25,789
For the year ended December 31, 2013 income tax expense was $17,018,000, an effective tax rate of 28.6%, for the year
ended December 31, 2012 income tax expense was $25,789,000, an effective tax rate of 26.1%. The increase in the
effective tax rate was primarily due to the revision of the prior year tax estimates and permanent differences.
11. Trade and other receivables
(000’s)
Trade receivables
Accrued receivables
Loans and other receivables
Receivables due from related parties
Allowance for doubtful
Trade and other receivables
December 31,
2013
December 31,
2012
$
50,435
38,659
927
900
90,921
$
112,636
19,439
1,180
435
133,690
(65)
(495)
$
90,856
$
133,195
At December 31, 2013, progress billings to customers under open construction contracts included in trade receivables
amounted to $11,855,000 (2012 - $7,683,000). The Corporation estimates that the carrying value of financial assets within
trade and other receivables approximate their fair value.
12. Inventories
(000’s)
Raw materials
Finished goods
December 31,
2013
December 31,
2012
$
9,547
6,091
$
$
15,638
$
10,919
2,402
13,321
Page | 51
Notes to the consolidated financial statements
Years ended December 31, 2013 and 2012
13. Property, Plant and Equipment
Cost
(000’s)
Balance
December 31,
2012
Additions
Disposals
Impact of
Foreign
Translation
Balance
December 31,
2013
$
Camp facilities, setup & installation
Marine equipment
Land & Buildings
Automotive & trucking equipment
Mats
Furniture, fixtures & other equipment
Asset retirement obligation
Assets under construction
$
$
343,032
18,830
31,638
32,162
8,703
5,722
1,087
3,208
64,032
-
2,677
6,830
5,561
1,410
4,229
9,636
$
(26,493)
(6,019)
(3,249)
(1,159)
(4,139)
(283)
-
(154)
$
444,382
$
94,375
$
(41,496)
$
147
-
-
-
-
-
-
-
147
$
380,718
12,811
31,066
37,833
10,125
6,849
5,316
12,690
$
497,408
Accumulated Depreciation
(000’s)
Camp facilities, setup & installation
Marine equipment
Land & Buildings
Automotive & trucking equipment
Mats
Furniture, fixtures & other equipment
Asset retirement obligation
Assets under construction
Balance
December 31,
2012
Depreciation
Disposals
Impact of
Foreign
Translation
Balance
December 31,
2013
$
$
$
65,929
15,682
7,287
17,137
4,962
2,863
317
-
36,904
192
1,541
4,044
3,936
956
50
-
$
(6,176)
(3,804)
(290)
(822)
(2,305)
(262)
-
-
$
114,177
$
47,623
$
(13,659)
$
15
-
-
-
-
-
-
-
15
Carrying Amounts
(000’s)
Balance
December 31,
2012
$
Camp facilities, setup & installation
Marine equipment
Land & Buildings
Automotive & trucking equipment
Mats
Furniture, fixtures & other equipment
Asset retirement obligation
Assets under construction
277,103
3,148
24,351
15,025
3,741
2,859
770
3,208
$
96,672
12,070
8,538
20,359
6,593
3,557
367
-
$
148,156
Balance
December 31,
2013
$
284,046
741
22,528
17,474
3,532
3,292
4,949
12,690
$
330,205
$
349,252
Page | 52
Notes to the consolidated financial statements
Years ended December 31, 2013 and 2012
13. Property, Plant and Equipment (continued)
Cost
(000’s)
Balance
December 31,
2011
Additions
Disposals
Impact of
Foreign
Translation
Balance
December 31,
2012
$
Camp facilities, setup & installation
Marine equipment
Land & Buildings
Automotive & trucking equipment
Mats
Furniture, fixtures & other equipment
Asset retirement obligation
Assets under construction
$
223,391
18,830
28,456
25,346
6,294
4,433
1,071
6,850
$
125,565
-
3,171
7,107
5,745
1,384
16
(3,642)
$
(5,904)
-
11
(291)
(3,336)
(95)
-
-
$
(20)
-
-
-
-
-
-
-
343,032
18,830
31,638
32,162
8,703
5,722
1,087
3,208
$
314,671
$
139,346
$
(9,615)
$
(20)
$
444,382
Balance
December 31,
2011
Depreciation
Disposals
Impairment
loss
Balance
December 31,
2012
Accumulated Depreciation
(000’s)
Camp facilities, setup & installation
Marine equipment
Land & Buildings
Automotive & trucking equipment
Mats
Furniture, fixtures & other equipment
Asset retirement obligation
Assets under construction
$
$
$
45,718
15,410
5,932
13,072
3,393
2,177
176
-
22,013
272
1,344
4,313
3,143
781
141
-
$
(1,802)
-
11
(248)
(1,574)
(95)
-
-
$
85,878
$
32,007
$
(3,708)
$
Carrying Amounts
(000’s)
Balance
December 31,
2011
$
Camp facilities, setup & installation
Marine equipment
Land & Buildings
Automotive & trucking equipment
Mats
Furniture, fixtures & other equipment
Asset retirement obligation
Assets under construction
177,673
3,420
22,524
12,274
2,901
2,256
895
6,850
-
-
-
-
-
-
-
-
-
$
65,929
15,682
7,287
17,137
4,962
2,863
317
-
$
114,177
Balance
December 31,
2012
$
277,103
3,148
24,351
15,025
3,741
2,859
770
3,208
$
228,793
$
330,205
Page | 53
Notes to the consolidated financial statements
Years ended December 31, 2013 and 2012
13. Property, Plant and Equipment (continued)
(a) Assets under construction
At December 31, 2013 and 2012, the Corporation had several camp facility fleet structures under construction for
both maintenance and expansion purposes. The Corporation has not capitalized any borrowing costs for the twelve
months ended December 31, 2013 (December 31, 2012 - $nil), due to the short term nature of construction.
(b) Capital commitments
At December 31, 2013 the Corporation had no outstanding commitments to purchase property, plant and equipment
(2012 - $227,000).
14. Intangible Assets and Goodwill
Intangible assets, other than goodwill, have finite useful lives. The amortization charges for intangible assets are included
on the consolidated statement of comprehensive income. Goodwill has an infinite life and is not amortized.
Cost
(000’s)
Customer relationships
Other intangible assets
Amortization
(000’s)
Customer relationships
Other intangible assets
Carrying Amount
(000’s)
Customer relationships
Other intangible assets
Balance
December 31,
2012
$
$
56,194
1,741
$
57,935
$
Removal
of fully
amortized
Balance
December 31,
2013
Additions
-
-
-
$
(33,515)
(1,741)
$
$
(35,256)
$
22,679
-
22,679
Balance
December 31,
2012
Amortization
Removal
of fully
amortized
Balance
December 31,
2013
$
$
46,797
1,110
$
6,429
631
(33,515)
(1,741)
$
$
47,907
$
7,060
$
(35,256)
$
19,711
-
19,711
Balance
December 31,
2012
$
9,397
631
$
10,028
Balance
December 31,
2013
$
$
2,968
-
2,968
Page | 54
Notes to the consolidated financial statements
Years ended December 31, 2013 and 2012
14. Intangible Assets and Goodwill (continued)
Cost
(000’s)
Customer relationships
Other intangible assets
Amortization
(000’s)
Customer relationships
Other intangible assets
Carrying Amount
(000’s)
Customer relationships
Other intangible assets
(a)
Impairment loss
Balance
December 31,
2011
Removal
of fully
amortized
Balance
December 31,
2012
Additions
$
$
56,194
1,741
$
57,935
$
-
-
-
$
$
-
-
-
$
$
56,194
1,741
57,935
Balance
December 31,
2011
Amortization
Removal
of fully
amortized
Balance
December 31,
2012
$
$
38,533
1,170
$
8,264
(60)
$
39,703
$
8,204
$
-
-
-
$
$
46,797
1,110
47,907
Balance
December 31,
2011
$
$
17,661
571
18,232
Balance
December 31,
2012
$
9,397
631
$
10,028
Intangible assets with an indefinite useful life are required to be tested annually for impairment. All of the
Corporation’s intangible assets have a definite useful life and are currently being used.
During the year ended December 31, 2013 and 2012, there were no indicators of impairment; therefore no
impairment test was performed.
(b)
Impairment testing for cash-generating units containing goodwill
For the purpose of impairment testing, goodwill is allocated to the Corporation’s CGU which represent the lowest
level at which goodwill is monitored for internal management purposes and which are not higher than the
Corporation’s operating segments.
As at December 31, 2013 the aggregate carrying amount of goodwill is $1,664,000 (2012 - $2,136,000), allocated
entirely to the Camp and Catering CGU. The reduction is related to the disposal of the Corporation’s blast resistant
structures business.
The recoverable amount determined using the value in use calculation which exceeded the carrying amount, and
therefore no impairment was recorded.
Value in use was determined by discounting the future cash flows generated from the continuing use of the unit.
Unless indicated otherwise, value in use in 2013 was determined similarly as in 2012. The calculation of the value in
use was based on the following key assumptions:
(cid:120)
(cid:120)
Forecasts use current contracts and market conditions to project revenue. Costs are calculated using historical
gross margins and additional known or pending factors.
The projections were extrapolated over the remaining useful life of the primary assets of 15 years and
discounted at a rate of 11.80% (2012 – 11.80%). The discount rate was estimated based on past experience, and
industry average unlevered beta, which was based on a possible range of debt leveraging of 9% at a market
interest rate of 4%.
(cid:120) No growth rate was applied, as the amount from the value-in-use exceeded carrying value.
It is unlikely that a change in a key assumption in the value-in-use calculation would cause the unit’s carrying amount to
exceed its recoverable amount.
Page | 55
Notes to the consolidated financial statements
Years ended December 31, 2013 and 2012
15. Other Assets
The Corporation’s other assets consists of a 25 year prepaid lease for a building and land to accommodate a portion of the
Corporation’s manufacturing operations in Kamloops, British Columbia. The amount expensed during the year ended
December 31, 2013 related to the prepaid lease was $128,000 (2012 - $127,000) with 21 years remaining.
16. Loans and Borrowings
(000’s)
Committed credit facility
Notes payable
Vehicle and equipment financing
Less current portion
December 31,
2013
December 31,
2012
$
$
$
70,756
5,655
3,341
79,752
$
$
$
108,247
6,304
3,737
118,288
(1,496)
(1,416)
$
78,256
$
116,872
The carrying value of Horizon’s debt approximates its fair value, as the majority of the debt bears interest at variable rates.
On November 6, 2013, the Corporation’s current credit facility of $150,000,000 was renewed for a term of 3 years. The
credit facility is extendable annually at the Corporation’s request and subject to lender approval. The committed credit
facility is secured by a $300,000,000 first fixed and floating charge debenture over all assets of the Corporation and its
wholly owned subsidiaries. Interest is payable at the bank prime rate plus 0.625%. Amounts borrowed under the facility
become due on October 26, 2016, the maturity date of the facility. As at December 31, 2013, the Corporation was in
compliance with all financial and non-financial covenants. The calculations of the Corporation’s financial covenants for its
committed credit facility are shown below:
Debt Covenants
Debt (1) to EBITDAS (2)(3) – must be less than 2.0:1
Interest coverage(4) – must be greater than 3.0:1
December 31,
2013
0.6:1
37.3:1
(1)
(2)
(3)
(4)
Debt is calculated as the sum of current and long-term portions of loans and borrowings, excluding vehicle and equipment financing.
EBITDAS (Earnings before finance costs, taxes, depreciation, amortization, gain/loss on disposal of property, plant and equipment, and share based compensation) is not a
recognized measure under IFRS. Horizon’s method of calculating EBITDAS may differ from other entities and accordingly, EBITDAS may not be comparable to measures used by
other entities.
Debt to EBITDAS is calculated as the ratio of Debt to trailing 12 months EBITDAS.
Interest coverage is calculated as the ratio of trailing 12 months EBITDAS to 12 months trailing interest expense on loans and borrowings.
Notes Payable
Horizon incurred $10,850,000 of notes payable during 2009 as part of the purchase price for drill camp equipment and
generators. The notes payable are non-interest bearing and are repayable over a term of up to 6 years. Actual payments
on the note are dependent on utilization levels of specific equipment with minimum repayments of at least $1,000,000 per
year. The fair value of these notes was initially measured at $8,771,000 using a discount rate of 9% which was consistent
with market rates for debt with similar characteristics at the time. At December 31, 2013 these notes were recorded at an
amortized cost amount of $5,655,000.
Principal Repayments for Loans and Borrowings
(000’s)
2014
2015
2016
2017
2018 and beyond
Amount
1,496
7,500
70,756
-
-
79,752
$
$
Page | 56
Notes to the consolidated financial statements
Years ended December 31, 2013 and 2012
17. Asset retirement obligations and commitments
(a) Provisions include constructive site restoration obligations for camp projects to restore lands to previous condition
when camp facilities are dismantled and removed at the end of their useful lives.
(000’s)
Balance, beginning of period
Additions
Revisions
Accretion of provisions
Balance, end of period
December 31,
2013
December 31,
2012
$
$
1,364
4,229
-
63
5,656
$
$
1,283
-
15
66
1,364
The estimated present value of rehabilitating the sites at the end of their useful lives has been estimated using
existing technology, at current prices, and discounted using a risk free rate. The future value amount at December 31,
2013 was $7,561,000 (2012 - $2,734,000) and determined using a present value discount rate of 4% and an inflation
rate of 1%. The timing of these payments is dependent on various factors, such as the estimated lives of the
equipment and industry activity in the region, but is anticipated to occur between 2016 and 2032.
(b) The Corporation has outstanding bank letters of credit as follows:
Maturity date
January 16, 2014
February 1, 2014
June 1, 2014
March 31, 2015
Amount (000’s)
$
25
50
150
72
(c) The Corporation rents premises and equipment under multiple operating lease contracts with varying expiration
dates. The minimum lease payments under these leases over the next five years are as follows:
(000’s)
2014
2015
2016
2017
2018 and beyond
$
Amount
4,421
5,031
2,353
1,644
3,709
$
17,158
Page | 57
Notes to the consolidated financial statements
Years ended December 31, 2013 and 2012
18. Deferred tax assets and liabilities
(a) Unrecognized deferred tax assets and liabilities have not been recognized in respect of the following items:
(000’s)
Deductible temporary differences
Tax losses
Balance, end of period
December 31,
2013
December 31,
2012
$
$
52
373
425
$
$
52
345
397
Tax losses not recognized expire in 2028 and beyond. The deductible temporary differences do not expire under
current tax legislation. Deferred tax assets have not been recognized in respect of these items because it is not
probable that future taxable profit will be available against which the subsidiary of the Corporation can utilize the
benefits.
(b) The Corporation has net operating losses for Canadian tax purposes of $3,086,000 available to reduce future taxable
income in Canada, which will expire as follows:
(000’s)
2013
2014
2015
2016
2017 and beyond
Amount
-
-
-
-
3,086
3,086
$
$
The components of net deferred tax asset (liability) recognized are as follows:
(000’s)
Property, plant and equipment
Intangibles
Goodwill
Deferred partnership income
Non-capital loss carry forwards
Net capital loss carry forwards
Restructuring costs
Asset retirement obligation
Reserves
Deferred tax asset
Deferred tax liability
Assets
$
2013
249
1,997
2,523
-
818
710
122
1,378
386
$
2012
938
1,873
2,614
-
1,465
-
-
-
873
Liabilities
2013
2012
Net
2013
2012
$ (32,807)
-
(151)
(5,030)
-
-
-
-
-
$ (26,910)
(946)
(124)
(7,329)
-
-
-
-
-
$ (32,558)
1,997
2,372
(5,030)
818
710
122
1,378
386
$ (25,972)
927
2,490
(7,329)
1,465
-
-
-
873
1,067
(30,872)
1,772
(29,318)
$ (29,805)
$ (27,546)
Page | 58
Notes to the consolidated financial statements
Years ended December 31, 2013 and 2012
18. Deferred tax assets and liabilities (continued)
Movements in temporary differences during the year are as follows:
(000’s)
Property, plant and equipment
Intangibles
Goodwill
Deferred partnership income
Non-capital loss carry forwards
Net capital loss carry forwards
Restructuring costs
Asset retirement obligation
Reserves
19. Share Capital
(a) Authorized
December 31, 2012
and loss December 31, 2013
Recognized in profit
$
$
(25,972)
927
2,490
(7,329)
1,465
-
-
-
873
(27,546)
$
$
(6,586)
1,070
(118)
2,299
(647)
710
122
1,378
(487)
(2,259)
$
$
(32,558)
1,997
2,372
(5,030)
818
710
122
1,378
386
(29,805)
Unlimited number of voting common shares without nominal or par value.
Unlimited number of preferred shares issuable in series.
(b)
Issued
Balance at December 31, 2011
Share options exercised
Balance at December 31, 2012
Share options exercised
Balance at December 31, 2013
(c) Share option plan
Number
Amount (000’s)
106,751,651
$
173,438
1,957,624
6,561
108,709,275
$
179,999
1,375,609
3,852
110,084,884
$
183,851
The Corporation has a share option plan for its directors, officers, and key employees whereby options may be
granted, to a maximum of 10% of the issued and outstanding common shares, subject to terms and conditions. Share
option vesting privileges are at the discretion of the Board of Directors and were set at three years. The Corporation
uses graded vesting for share options over the period in which the option vests. All share options are equity settled
with a weighted average remaining contractual life of 3.1 years and all options granted have a maximum term of 5
years with the exception of options granted on July 25, 2006 which have a maximum term of 10 years.
Balance, beginning of year
Granted
Forfeited
Exercised
Balance, end of year
Year ended
December 31, 2013
Weighted
average
exercise price
Outstanding
options
$
4,914,831
321,400
(148,667)
(1,375,609)
3,711,955
$
4.40
6.77
5.59
1.96
5.46
Year ended
December 31, 2012
Weighted
average
exercise price
Outstanding
options
$
4,216,007
2,750,700
(94,252)
(1,957,624)
4,914,831
$
2.27
6.25
3.73
2.44
4.40
Page | 59
Notes to the consolidated financial statements
Years ended December 31, 2013 and 2012
19. Share Capital (continued)
(c) Share option plan (continued)
Balance, beginning of year
Vested
Expired
Exercised
Balance, end of year
Year ended
December 31, 2013
Weighted
average
exercise price
Exercisable
options
Year ended
December 31, 2012
Weighted
average
exercise price
Exercisable
options
$
2,096,712
681,773
(7,000)
(1,375,609)
1,395,876
$
2.10
5.87
6.25
1.96
4.06
$
3,208,815
858,187
(12,666)
(1,957,624)
2,096,712
$
2.47
1.49
2.27
2.44
2.10
The exercise prices for options outstanding at December 31, 2013 are as follows:
Exercise price per share
$1.36 to $3.93
$3.94 to $6.20
$6.21 to $6.27
$6.28 to $6.77
$6.78 to $9.01
Number
864,835
304,167
2,194,553
167,500
180,900
$
Total options outstanding
Weighted
average
remaining
contractual
life in years
Weighted
average
exercise price
per share
2.77
5.42
6.25
6.71
7.70
5.46
2.1
3.4
3.2
4.4
4.1
3.1
Exercisable options
Weighted
average
exercise price
per share
$
2.77
5.04
6.25
-
7.80
4.06
Number
864,835
75,832
425,210
-
29,999
3,711,955
$
1,395,876
$
The weighted average share price at the date of exercise for share options exercised during the year ended December
31, 2013 was $7.20/share (2012 - $6.08/share).
The Corporation calculated the fair value of the share options granted using the Black-Scholes pricing model to
estimate the fair value of the share options issued at the date of grant. The weighted average fair market value of all
options granted during the year and the assumptions used in their determination are as follows:
(000’s)
Weighted average fair value per option
Weighted average forfeiture rate
Weighted average grant price
Weighted average expected life
Weighted average risk free interest rate
Weighted average dividend yield rate
Weighted average volatility
December 31, 2013
December 31, 2012
$ 1.47
6.61%
$ 6.77
3.02 years
1.20%
3.74%
39.9%
$ 2.15
6.98%
$ 6.25
3.20 years
1.33%
3.21%
58.9%
Expected volatility is estimated by considering historic average share price volatility. For the twelve months ended
December 31, 2013, share based compensation for share options included in net earnings amounted to $2,208,000
(2012 - $2,151,000).
Page | 60
Notes to the consolidated financial statements
Years ended December 31, 2013 and 2012
20. Earnings Per Share
The calculation of basic earnings per share for the twelve months ended December 31, 2013 was based on the total profit
attributable to common shareholders of $42,451,000 (2012 - $72,883,000).
A summary of the common shares used in calculating earnings per share for the twelve months ended December 31, 2013
and 2012 is as follows:
Number of common shares, beginning of period
Weighted average effect of share options exercised
Weighted average common shares outstanding – basic
Effect of share purchase options(1)
Weighted average common shares outstanding – diluted
2013
108,709,275
631,198
109,340,473
2012
106,751,651
1,326,037
108,077,688
1,101,356
1,872,884
110,441,829
109,950,572
(1)
The Corporation utilizes the treasury stock method for calculating the dilutive effect of share purchase options when the average market price of the Corporation’s common stock
during the period exceeds the exercise price of the option
For the twelve months ended December 31, 2013, 2,206,700 share options (2012 - 2,597,450) were excluded from the
calculation of weighted average common shares outstanding - diluted as the result would be anti-dilutive.
21. Financial Risk Management
(d) Overview
The Corporation is exposed to a number of different financial risks arising from normal course business operations as
well as through the Corporation’s financial instruments comprised of cash and cash equivalents, trade and other
receivables, trade and other payables, and loans and borrowings. These risk factors include credit risk, liquidity risk,
and market risk, including currency exchange risk and interest rate risk.
The Corporation’s risk management practices include identifying, analyzing, and monitoring the risks faced by the
Corporation. The following presents information about the Corporation’s exposure to each of the risks and the
Corporation’s objectives, policies, and processes for measuring and managing risk.
(b) Credit risk
Credit risk is the risk that a customer will be unable to pay amounts due, causing a financial loss; as a result, the
Corporation’s maximum exposure to credit risk is the amount of trade and other receivables and cash and cash
equivalents. The Corporation’s practice is to manage credit risk by examining each new customer individually for
credit worthiness before the Corporation’s standard payment terms are offered. The Corporation’s review may
include financial statement review, credit references, or bank references. Customers that lack credit worthiness
transact with the Corporation on a prepayment only basis.
The Corporation constantly monitors individual customer trade receivables, taking into consideration industry, aging
profile, maturity, payment history, and existence of previous financial difficulties in assessing credit risk. A formal
review is performed each month for each subsidiary, focusing on amounts which have been outstanding for periods
which are considered abnormal for each customer. The Corporation establishes an allowance for doubtful accounts
for specifically identifiable customer balances which are assessed to have credit risk exposure.
Page | 61
Notes to the consolidated financial statements
Years ended December 31, 2013 and 2012
21. Financial Risk Management (continued)
The following shows the aged balances of trade and other receivables:
(000’s)
Neither impaired nor past due
Impaired
Outstanding 31-60 days
Outstanding 61-90 days
Outstanding more than 90 days
Total
Allowance for doubtful accounts
Accrued revenue
Other receivables
Total trade and other receivables
December 31,
2013
December 31,
2012
$
$
29,370
65
15,826
4,001
2,073
51,335
(65)
38,659
927
90,856
$
44,337
495
38,313
16,800
13,126
113,071
(495)
19,439
1,180
$
133,195
In the twelve months ended December 31, 2013, the Corporation provided an allowance for $368,000 of receivables
aged greater than 90 days and collected $218,000 that had previously been allowed for. The Corporation also applied
$580,000 of allowance for doubtful accounts against the associated receivable balance. As at February 19, 2014, the
Corporation has collected $1,216,000 on amounts outstanding more than 90 days.
(c) Liquidity risk
Liquidity risk is the risk that the Corporation will encounter difficulty in meeting obligations associated with financial
liabilities. The Corporation believes that it has access to sufficient capital through internally generated cash flows and
committed credit facilities to meet current spending forecasts.
To manage liquidity risk, the Corporation forecasts operational results and capital spending on a regular basis. Actual
results are compared to these forecasts to monitor the Corporation’s ability to continue to meet spending forecasts.
On November 6, 2013, the Corporation’s current credit facility of $150,000,000 was renewed for a term of 3 years.
The credit facility is extendable annually at the Corporation’s request and subject to lender approval. The committed
credit facility is secured by a $300,000,000 first fixed and floating charge debenture over all assets of the Corporation
and its wholly owned subsidiaries. Interest is payable at the bank prime rate plus 0.625%. Amounts borrowed under
the facility become due on October 26, 2016, the maturity date of the facility.
The following shows the timing of cash outflows relating to trade and other payables and loans and borrowings:
December 31, 2013
December 31, 2012
$
Trade and
other
payables(1)
56,961
-
-
-
5,656
$
Loans and
borrowings(2)
1,496
7,500
70,756
-
-
$
$
Trade and
other
payables(1)
72,172
-
-
-
1,364
Total
58,457
7,500
70,756
-
5,656
Loans and
borrowings(2)
$
1,416
1,543
115,329
-
-
$
Total
73,588
1,543
115,329
-
1,364
$
62,617
$
79,752
$
142,369
$
73,536
$ 118,288
$
191,824
Year 1
Year 2
Year 3
Year 4
Year 5 and beyond
(1)
(2)
Trade and other payables include trade and other payables, income taxes payable, and asset retirement provisions.
Loans and borrowings include non-interest bearing notes payable, vehicle and equipment financing and committed credit facility. Cash flows of Horizon’s note payable
have been recorded according to estimated utilization of specific equipment.
Page | 62
Notes to the consolidated financial statements
Years ended December 31, 2013 and 2012
21. Financial Risk Management (continued)
(d) Market risk
Market risk is the risk or uncertainty arising from possible market price movements and their impact on future
performance of the Corporation. The market price movements that could adversely affect the value of the
Corporation’s financial assets, liabilities, and expected future cash flows include foreign currency exchange risk and
interest rate risk. As the Corporation’s exposure to foreign currency exchange risk and interest rate risk is limited, the
Corporation does not currently hedge its financial instruments.
(iii) Foreign currency exchange risk
The Corporation has limited exposure to foreign currency exchange risk as sales and purchases are typically
denominated in CAD. The Corporation’s exposure to foreign currency exchange risk arises from the purchase of
some raw materials, which are denominated in USD, and foreign operations with USD functional currency.
As the foreign currency exchange risks are primarily based on the realized foreign exchange, the following
sensitivity analysis is to determine the impact on cash used in operating activities. The effect of a $0.01 increase
in the USD/CAD exchange rate would decrease cash used in operating activities for the twelve months ended
December 31, 2013 by approximately $182,500 (December 31, 2012 - $261,000). This assumes that the quantity
of USD raw material purchases and the foreign operations in the year remain unchanged and that the change in
the USD/CAD exchange rate is effective from the beginning of the year.
(iv) Interest rate risk
The Corporation is exposed to interest rate risk as changes in interest rates may affect interest expense and
future cash flows. The primary exposure is related to the Corporation’s revolving credit facility which bears
interest at a rate of prime plus 0.625%. If prime were to have increased by 1.00%, it is estimated that the
Corporation’s net earnings would have decreased by approximately $933,500 for the twelve months ended
December 31, 2013 (December 31, 2012 - $841,000). This assumes that the amount and mix of fixed and
floating rate debt in the year remains unchanged and that the change in interest rates is effective from the
beginning of the year.
22. Capital Management
The Corporation’s main objective is to build a profitable, growth-oriented company. Therefore, the Corporation’s primary
capital management objective is to maintain a conservative balance sheet to maintain investor, creditor, and market
confidence and to sustain future development of the business.
The Corporation monitors capital through two key ratios: total loans and borrowings to EBITDAS(1) and total loans and
borrowings to total loans and borrowings plus shareholders’ equity.
Total loans and borrowings to EBITDAS(1) is calculated as current loans and borrowings plus long-term loans and
borrowings divided by trailing 12 months EBITDAS(1). Total loans and borrowings to EBITDAS(1) is monitored from both a
historical and anticipated EBITDAS(1) perspective.
Total loans and borrowings to total loans and borrowings plus shareholders equity is calculated as current loans and
borrowings plus long-term loans and borrowings divided by current loans and borrowings plus long-term loans and
borrowings plus shareholders’ equity.
The Corporation’s strategy during the twelve months ended December 31, 2013, which was unchanged from 2012, which
was to maintain an appropriate level of loans and borrowings in comparison to EBITDAS(1) and total loans and borrowings
plus shareholders’ equity.
Page | 63
Notes to the consolidated financial statements
Years ended December 31, 2013 and 2012
22. Capital Management (continued)
The Corporation’s strategy during the twelve months ended December 31, 2013, which was unchanged from 2012, which
was to maintain an appropriate level of loans and borrowings in comparison to EBITDAS(1) and total loans and borrowings
plus shareholders’ equity.
(000’s)
Statement of financial position components of ratios
Current loans and borrowings(2)
Loans and borrowings(2)
Total loans and borrowings
Shareholders’ equity
Total loans and borrowings plus shareholders’ equity
Statement of comprehensive income components of ratios (trailing 12 months)
Operating earnings
Depreciation
Amortization
Loss (gain) on disposal of property, plant and equipment
Share based compensation
EBITDAS(1)
December 31,
2013
December 31,
2012
$
$
$
$
$
$
1,496
78,256
79,752
294,427
374,179
63,291
47,623
7,060
6,152
2,208
$
126,334
$
1,416
116,872
118,288
274,263
392,551
102,758
32,007
8,204
(93)
2,151
145,027
0.82
0.30
Total loans and borrowings to EBITDAS(1)
Total loans and borrowings to total loans and borrowings plus shareholders’ equity
0.63
0.21
(1)
(2)
EBITDAS (Earnings before finance costs, taxes, depreciation, amortization, gain/loss on disposal of property, plant and equipment, and share based compensation) is not a
recognized measure under IFRS. Management believes that in addition to net earnings, EBITDAS is a useful supplemental measure as it provides an indication of the
Corporation’s ability to generate cash flow in order to fund working capital, service debt, pay current income taxes and fund capital programs, and it is regularly provided to and
reviewed by the Chief Operating Decision Maker. Horizon’s method of calculating EBITDAS and operating earnings (loss) may differ from other entities and accordingly, EBITDAS
may not be comparable to measures used by other entities.
The Corporation’s loans and borrowings include the committed credit facility, vehicle and equipment financing and notes payable. The Corporation’s variable-rate committed
credit facility approximates its carrying value, as it is at a floating market rate of interest. The Corporation’s notes payables and vehicle and equipment financing are non-interest
bearing without a fixed term of repayment and have been initially measured at fair value.
Page | 64
Notes to the consolidated financial statements
Years ended December 31, 2013 and 2012
23. Operating segments
The Corporation operates in Canada and the US through two business segments: Camps & Catering and Matting. The
Camps & Catering segment includes camp rental and catering services, marine operations as well as the manufacture, sale,
and repair of camps. Matting includes mat rental, installation, and fleet management services, as well as the manufacture
and sale of mats.
Information regarding the results of all segments is included below. Inter-segment pricing is determined on an arm’s
length basis.
Twelve months ended
December 31, 2013 (000’s)
Revenue
EBITDAS(1)
Depreciation and amortization
Loss (gain) on disposal of assets
Share based compensation
Operating earnings (loss)
Total assets
Capital expenditures
Twelve months ended
December 31, 2012 (000’s)
Revenue
EBITDAS(1)
Depreciation and amortization
Loss (gain) on disposal of assets
Share based compensation
Operating earnings (loss)
Total assets
Capital expenditures
Camps &
Catering
$ 496,594
120,977
46,197
6,173
1,143
67,464
433,908
78,519
Camps &
Catering
$ 447,190
134,229
31,713
28
1,096
101,392
449,676
124,674
Matting
Corporate
Inter-segment
Eliminations
$ 62,419
17,760
8,112
(21)
168
9,501
33,606
10,382
$
-
(12,372)
583
-
897
(13,852)
3,601
1,292
Matting
Corporate
$ 91,466
22,626
8,179
(108)
172
14,383
43,352
14,383
$
-
(11,157)
482
(13)
883
(12,509)
2,965
1,060
$
(4,626)
(31)
(209)
-
-
178
-
(47)
Inter-segment
Eliminations
$ (12,040)
(671)
(163)
-
-
(508)
-
(771)
Total
$ 554,387
126,334
54,683
6,152
2,208
63,291
471,115
90,146
Total
$ 526,616
145,027
40,211
(93)
2,151
102,758
495,993
139,346
The Corporation has one major customer in the Camps & Catering segment which generated a combined 24% of total revenues for the
year ended December 31, 2013 (December 31, 2012 – 37%).
(1)
EBITDAS (Earnings before interest, taxes, depreciation, amortization, gain/loss on disposal of property, plant and equipment, and share based compensation) is not a recognized
measure under IFRS. Management believes that in addition to net earnings, EBITDAS is a useful supplemental measure as it provides an indication of the Corporation’s ability to
generate cash flow in order to fund working capital, service debt, pay current income taxes and fund capital programs, and it is regularly provided to and reviewed by the Chief
Operating Decision Maker. Horizon’s method of calculating EBITDAS may differ from other entities and accordingly, EBITDAS may not be comparable to measures used by other
entities.
Page | 65
Notes to the consolidated financial statements
Years ended December 31, 2013 and 2012
24. Related Parties
(000’s)
Joint venture
Purchases
Sales
Recovery of administrative overhead
Included in accounts receivable
Key management personnel interests
Purchases
Sales
Included in accounts receivable
Included in accounts payable
December 31,
2013
December 31,
2012
$
$
$
$
-
-
30
-
-
947
395
-
-
8
30
-
(17)
1,261
271
-
Key management personnel include the directors and officers of Horizon that are also directors or officers of other
companies. All related party transactions are in the normal course of operations and have been measured at the agreed to
exchange amounts, which is the amount of consideration established and agreed to by the related parties and which is
similar to those negotiated with third parties. All outstanding balances are to be settled with cash, and none of the
balances are secured.
Key management personnel compensation for the year ended December 31, 2013 and 2012 is comprised as follows:
(000’s)
Short-term employee benefits
Post-employment benefits
Termination benefits
Other long-term benefits
Share based compensation
25. Supplemental Information
December 31,
2013
December 31,
2012
$
$
2,850
55
-
-
450
3,050
32
-
-
981
Components of change in non-cash working capital balances related to operating activities:
(000’s)
Accounts receivable
Inventory
Prepaid expenses
Accounts payable and accrued liabilities
Deferred revenue
Finance cost payable
December 31,
2013
December 31,
2012
$
$
42,339
(2,317)
(494)
(4,275)
2,859
24
$
38,136
$
(49,711)
2,013
1,475
16,509
(13,013)
(14)
(42,741)
26. Significant Subsidiaries
The Corporation operates through two significant subsidiaries based on business line:
Subsidiary Name
Horizon North Camp & Catering Partnership
Swamp Mats Inc.
Country of
Incorporation
Canada
Canada
Ownership Interest (%)
December 31,
2013
December 31,
2012
100
100
100
100
Page | 66
Corporate Information
Directors
Bob German
Calgary, Alberta
Kevin D. Nabholz(1)(2)(3)
Calgary, Alberta
Russell Newmark(1)(2)
Calgary, Alberta
Ric Peterson(3)
Calgary, Alberta
Ann Rooney(1)(2)
Calgary, Alberta
Dean Swanberg(3)
Grande Prairie, Alberta
Dale E. Tremblay(1)(2)(3)
Calgary, Alberta
(1) Audit Committee Member
(2) Corporate Governance and Compensation Committee Member
(3) Health, Safety and Environment Committee Member
Corporate Office
1600, 505-3rd Street S.W.
Calgary, Alberta
T2P 3E6
P 403 517-4654
F 403 517-4678
Website
www.horizonnorth.ca
Officers
Bob German
President and Chief Executive Officer
Scott Matson
Vice President Finance and Chief Financial Officer
Roderick Graham
Senior Vice President, Corporate Development and
Planning
Bill Anderson
Vice President Health, Safety and Environment
Jan Campbell
Corporate Secretary
Legal Counsel
Borden Ladner Gervais LLP
Calgary, Alberta
Auditor
KPMG LLP
Calgary, Alberta
Stock Exchange Listing
Toronto Stock Exchange
Symbol: HNL
Transfer Agent
CIBC Mellon Trust Company
Calgary, Alberta