Annual Report 2014
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
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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,
2015 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
My name is Rod Graham--President and CEO of Horizon North Logistics Inc. (“Horizon North” or “Company”). I have had the
pleasure of being involved with Horizon North since 2007, when I became a member of the Board of Directors. Over the past
seven years, I have taken on increasing responsibilities serving in the capacities of Audit Chair, Lead Director and finally Chairman
of the Board. As part of our CEO succession planning in early 2014, I resigned from the Board and joined the executive team as
a Senior Vice President. In November 2014, upon the retirement of Bob German, I accepted the role of President, CEO and
Director of Horizon North.
I would like to thank Bob German, the former CEO and President of Horizon North, for his hard work and dedication since Horizon
North’s inception in 2006. Bob took over the CEO’s chair during a very challenging environment in 2010 and did an admirable
job of stewarding Horizon North to its current size and product offering. On behalf of the Board, Horizon North employees and
myself, I wish Bob well in his future endeavors.
A confluence of events occurred to make the year 2014 less than optimal for all of Horizon North’s stakeholders. Customer
project delays, internal integration disappointments and a precipitous drop in crude oil pricing over the second half of the year
all impacted Horizon North’s financial metrics, resulting in a 14% drop in revenue, a 26% contraction in EBITDAS and net earnings
down 44% in 2014 as compared to the prior year 2013.
Historically, we have maintained a very conservative debt load. Lower revenue and reduced cash flow, and an aggressive 2014
capex program, that was partially directed towards support of long-term land banking/infrastructure strategies in Kitimat and
Kamloops British Columbia and Grande Prairie, Alberta, resulted in long term loans and borrowings increasing to $146.4 million
at year end 2014. As a result, at year’s end, our Balance Sheet was far more levered than in past periods.
Horizon North is presently at an inflection point. Commodity prices in early 2015 are under considerable pressure with oil pricing
currently in the $40-$55 per barrel range, a six year low. A number of our larger customers have delayed or deferred their capital
spending and a tone of extreme caution has pervaded our sector which has significant implications for our business. While we
have all seen these swings in the past, there is no clear consensus on how long this trough will last. With this challenging macro
environment, we are undertaking structural changes in our business that will realign the development and direction of our
Company, stabilize our base, and prepare us for the next up-cycle. These structural changes include:
Cost Controls
We have already taken steps in January 2015 to reduce our manufacturing headcount to reflect our current order book. We are
accelerating our progress to improve efficiencies in our manufacturing plants and are focusing on reducing costs across our
organization. Part of this will be integrating our processes and systems across Horizon North.
Reduce Capital Spending
To reflect the contraction expected in the 2015 market, we will be reducing our capital spending to maintenance levels of
approximately $25 million. For historical reference Horizon North’s net capital spending was $100 million in 2014 and $63 million
in 2013.
One Company, One Brand, One Vision
We are moving towards an integrated business model which will provide us with a strategic focus on customers, markets,
integrated processes and systems which will reduce costs and improve efficiencies. This will allow Horizon North to respond
quickly to opportunities in our new and existing markets.
Developing New Business Opportunities
We are changing our Business Development Strategy to drive towards full cross selling capabilities for all of our products and
services.
Our new mission statement at Horizon North is “To provide superior, safe, fully integrated turn-key accommodations and
related ancillary infrastructure in Canada and Alaska”. This will be our focus in 2015.
Page | 3
We want to expand our product and service offerings to balance our exposure between the OPEX and CAPEX budgets of our
major customers. CAPEX is typically cyclical as compared to OPEX spending which tends to be smoother and more consistent
over time.
We will broaden our product/service offerings to a variety of end-markets to lessen our exposure to energy market fluctuations.
We are continuing to develop new end markets for our manufacturing platform, for example moving into the construction of
permanent modular buildings in commercial and institutional markets.
Finally we are preparing our land infrastructure for significant potential mega projects in electricity and LNG.
Dividend Policy
While subject to review and approval by our Board of Directors each quarter, at this time, we are committed to our policy of
paying dividends to our shareholders through the current downturn. By taking the steps listed above, we believe we will have
the requisite cash flow to continue to meet this commitment to our shareholders.
Our People, Our Strategy and Our Business
We have a strong senior management team, excellent people, and a sound strategic plan to manage our business through this
downturn and we believe, come out with a strong platform, ready for the next energy up-cycle.
On behalf of Horizon North, I thank you for your continued support and confidence as we work through a challenging business
environment in 2015.
Rod Graham,
President, CEO and Director
Page | 4
Management’s Discussion and Analysis
Three months and years ended December 31, 2014 and 2013
This Management’s Discussion and Analysis (“MD&A”), prepared as at February 18, 2015 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 North” 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 Highlights
Camp rental and catering revenues, relocatable structures revenues and matting revenues all experienced year over year
growth. The growth was driven by higher activity levels and stronger utilization in the camp rental and catering and
relocatable structures operations along with higher access mat sales;
Despite the revenue growth mentioned above, consolidated revenues for the year ended December 31, 2014 were 14%
below the same period in 2013 as a result of lower manufacturing activity due to customer driven project delays and internal
fleet requirements;
Consolidated EBITDAS for the year ended December 31, 2014 were 26% below the same period in 2013 as a result of
decreased manufacturing activity, higher project close out costs and increased costs in mat manufacturing related to lumber
costs as a result of the weaker Canadian dollar.
Annual Financial Summary
(000’s except per share amounts)
2014
% change
2013
% change
Years ended December 31
Revenue
EBITDAS(1)
EBITDAS as a % of revenue
Operating earnings
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 property, plant & equipment
Proceeds from disposals of property, plant &
equipment
Net Capital spending
$
$
$
476,060
92,866
20%
37,502
8%
23,646
24,026
0.21
0.21
539,978
146,370
57,571
$
$
$
(14%)
(26%)
(41%)
(44%)
(44%)
(46%)
(45%)
15%
87%
(54%)
554,387
126,334
23%
63,291
11%
42,451
42,637
0.39
0.38
471,115
78,256
125,369
$
$
$
5%
(13%)
(38%)
(42%)
(42%)
(42%)
(42%)
(5%)
(33%)
47%
114,581
27%
90,146
(35%)
139,346
(14,946)
99,635
(44%)
58%
(26,925)
63,221
205%
(52%)
Debt to EBITDAS(2)
Debt to total capitalization ratio
Dividends declared
Dividends declared per share
1.63:1.00
0.35:1.00
35,307
0.32
$
$
0.60:1.00
0.21:1.00
27,378
0.25
29%
28%
$
$
26%
25%
$
$
(1)
(2)
Please refer to page 25 of the Management’s Discussion and Analysis for the definitions of Non-GAAP and additional GAAP measures and reconciliation of Net Earnings to EBITDAS.
Please refer to page 17 of the Management’s Discussion and Analysis for the definitions of Debt to EBITDAS.
Page | 5
2012
526,616
145,027
28%
102,758
20%
72,883
72,933
0.67
0.66
495,993
116,872
85,036
(8,831)
130,515
0.79:1.00
0.30:1.00
21,662
0.20
Management’s Discussion and Analysis
Three months and years ended December 31, 2014 and 2013
Annual Overview
Horizon North’s results for the year ended December 31, 2014 (“2014”) reflect the challenges faced by the Corporation
throughout the year; customer driven project delays, escalation of project costs and downward pressure on pricing which all led
to the year over year decreases in revenues, EBITDAS, operating earnings and earnings per share compared to the year ended
December 31, 2013 (“2013”).
Consolidated revenues for the year ended December 31, 2014 decreased by $78.3 million or 14% compared to 2013 with the
decrease attributable to the manufacturing sales operations. The significant decrease in manufacturing sales revenues was a
result of the timing between external sales projects and the internal fleet requirements for camp rentals and relocatable
structures. As a result of customer delays there was a gap between external sales projects with a project completed in Q1 2014
and the next project delayed until late Q3 2014. The total direct hours decreased year over year with fewer hours dedicated to
external revenue generating projects compared to 2013. The total direct hours in 2014 were 1,101,526, a decrease of 162,900
hours or 13% compared to 2013 with 57% of total direct hours allocated to external sales compared to 68% in 2013. In contrast
to manufacturing, all other operations experienced year over year revenue growth which partially offset the manufacturing
decrease. The revenue growth in camps and catering came from additional camp projects related to previous contract
announcements and a stronger seasonal lift compared 2013. Higher activity at several open camps in Q1 2014 and Q4 2014 was
a result of increased number of seasonal projects compared to 2013. Large camp fleet utilization was 63% with an average of
7,613 rentable beds in 2014 compared to 61% utilization and an average of 7,078 rentable beds in 2013. The higher utilization
and revenue led to RevPAAB (revenue per average available bed) of $78 in 2014 compared to $76 in 2013. The revenue strength
in the matting operations was mainly from mat sales with a year over year increase in sales of 57%.
2014 EBITDAS were $92.9 million, a decrease of $33.5 million or 26% compared to 2013. The decreased EBITDAS were mainly a
result of the lower activity levels in manufacturing as described above. As a percentage of revenues, EBITDAS were 20%, a
decrease from 23% in 2013. The decreased EBITDAS as a percentage of revenues were mainly due to higher costs experienced in
the manufacturing operations as a result of the mix and the execution phase of projects between the comparative years. In
addition, matting experienced decreased margins in 2014 compared to 2013 as a result of a more competitive environment and
higher costs in manufacturing and mat rentals. Revenue per mat rental day decreased by $0.20 or 8% to $2.18 per day compared
to $2.38 per day in 2013 while costs in the rental operation increased as a result of higher usage of third party access mats
compared to 2013. Costs also increased year over year for new mat manufacturing as a result of increased lumber costs due to a
weaker Canadian dollar.
Net income and earnings per share decreased in 2014 compared to 2013. The decrease was primarily due to the lower revenues
and EBITDAS as discussed above and higher depreciation year over year. The majority of the increased depreciation was related
to expansion of the camp rental fleet as discussed above. The remainder of the depreciation increase was related to growth of
the relocatable structures fleet in the first half of 2014 and growth of the access mat fleet mainly in the second half of 2014.
Outlook
Horizon North is presently at an inflection point. Commodity prices in early 2015 are under considerable pressure with oil pricing
currently in the $40-$55 per barrel range, a six year low. A number of our larger customers have delayed or deferred their capital
spending and a tone of extreme caution has pervaded our sector which has significant implications for our business. While we
have seen these swings in the past, there is no clear consensus on how long this trough will last.
With this challenging macro environment, Horizon North is undertaking structural changes in its business that will realign the
development and direction of the Company, stabilize our base, and prepare us for the next up-cycle. These changes, included
taking steps in January 2015 to reduce our manufacturing headcount to match our current order book, outlining a reduced
maintenance capital spending program of $25 million, moving towards a more integrated business model which will reduce costs
and improve efficiencies and changing our business development strategy to facilitate additional cross selling capabilities for all
of our products and services.
We will be expanding our product and service offerings to balance our exposure between the OPEX and CAPEX budgets of our
major customers. CAPEX is typically cyclical as compared to OPEX spending which tends to be smoother and more consistent
over time. We will broaden our products/service offerings to a variety of end-markets to lessen our exposure to energy market
fluctuations. We are continuing to develop new end-markets for our manufacturing platform, for example moving into the
construction of permanent modular buildings in commercial and institutional markets. Finally we are preparing our land
infrastructure for significant potential mega projects in electricity and LNG.
Page | 6
Management’s Discussion and Analysis
Three months and years ended December 31, 2014 and 2013
Our new mission statement at Horizon North is “To provide superior, safe, fully integrated turn-key accommodations and related
ancillary infrastructure in Canada and Alaska”. This will be our focus in 2015.
Dividend payment
Horizon North announced today that its Board of Directors has declared a dividend for the first quarter of 2015 at $0.08 per
share. The dividend is payable to shareholders of record at the close of business on March 31, 2015 to be paid on April 15, 2015.
The dividends are eligible dividends for Canadian tax purposes.
Page | 7
Management’s Discussion and Analysis
Three months and years ended December 31, 2014 and 2013
Annual Financial Results
(000’s)
Revenue
Expenses
Direct costs
Selling & administrative
EBITDAS
EBITDAS as a % of revenue
Share based compensation
Depreciation & amortization
(Gain) loss on disposal of property, plant and equipment
Year ended December 31, 2014
Camps &
Catering
Matting
Corporate
Inter-segment
Eliminations
Total
$ 410,499
$
67,172
$
-
$
(1,611)
$ 476,060
311,316
8,002
91,181
22%
1,014
48,102
(3,682)
50,596
1,071
15,505
23%
208
7,972
25
3
13,817
(13,820)
-
913
1,015
(9)
(1,611)
-
360,304
22,890
-
-
-
(194)
-
92,866
20%
2,135
56,895
(3,666)
Operating earnings (loss)
$
45,747
$
7,300
$
(15,739)
$
194
$
37,502
Finance costs
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 payments
Depreciation & amortization
Loss (gain) on disposal of property, plant and equipment
4,551
9,305
(380)
24,026
0.21
0.21
$
$
$
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
Income tax expense
Other comprehensive income
Total comprehensive income
Earnings per share – basic
– diluted
3,822
17,018
(186)
42,637
0.39
0.38
$
$
$
Page | 8
Management’s Discussion and Analysis
Three months and years ended December 31, 2014 and 2013
Fourth Quarter Highlights
Camp rental and catering operations revenue grew by 41% in Q4 2014 compared to the same period of 2013 driven primarily
by higher activity levels and stronger utilization of a larger fleet;
Relocatable structures revenue grew by 45% in Q4 2014 compared to the same period of 2013 as a result of the fleet
expansion undertaken in the first half of 2014; and
Matting revenues in Q4 2014 grew by 27% compared to the same period of 2013 as a result of stronger service activity.
Fourth Quarter Financial Summary
Three months ended December 31
2013 % Change
(000’s except per share amounts)
Revenue
EBITDAS(1)
EBITDAS as a % of revenue
Operating earnings (loss)
Operating earnings (loss) as a % of revenue
Total profit (loss)
Total comprehensive income (loss)
Earnings per share – basic
– diluted
Total assets
Long-term loans and borrowings
Cash from operations
Capital spending
Purchase of property, plant & equipment
Proceeds from disposals of property, plant & equipment
Net Capital spending
Debt to EBITDAS(2)
Debt to total capitalization ratio
Dividends declared
Dividends declared per share
$
$
$
$
2014
135,860
27,774
20%
11,510
8%
7,183
7,329
0.06
0.06
539,978
146,370
18,056
17,540
(1,967)
15,573
108,641
15,687
14%
(1,607)
(1%)
(2,520)
(2,376)
(0.02)
(0.02)
471,115
78,256
28,726
34,883
(3,493)
31,390
1.63:1.00
0.35:1.00
8,840
0.08
$
$
0.46:1.00
0.21:1.00
6,880
0.06
$
$
25%
77%
816%
385%
408%
400%
400%
15%
87%
(37%)
(50%)
(44%)
(50%)
28%
33%
(1)
(2)
Please refer to page 25 of the Management’s Discussion and Analysis for the definitions of Non-GAAP and additional GAAP measures and reconciliation of Net Earnings to EBITDAS.
Please refer to page 17 of the Management’s Discussion and Analysis for the definitions of Debt to EBITDAS.
Page | 9
Management’s Discussion and Analysis
Three months and years ended December 31, 2014 and 2013
Fourth Quarter Overview
Horizon North’s results for the three months ended December 31, 2014 (“Q4 2014”) were significantly stronger than the same
period of 2013 (“Q4 2013”) with revenue, EBITDAS, net operating earnings and earnings per share all above Q4 2013. Q4 2014
experienced higher activity levels in the camp rental and catering operations, relocatable structures and matting operations with
manufacturing sales essentially unchanged in the comparative quarters.
Consolidated revenues for Q4 2014 were $135.9 million, an increase of $27.2 million or 25% compared to Q4 2013. The majority
of the increase was a result of higher camp and catering activity levels which were driven by a larger fleet size in combination
with higher utilization and stronger seasonal activity compared to Q4 2013. The fourth quarter of 2014 had several additional
large camp projects, announced in late 2013 and early 2014, which were in full operation in Q4 2014. Utilization of the large camp
fleet was 69% with an average of 8,285 rentable beds compared to Q4 2013 with utilization of 57% with an average of 7,613
rentable beds. Bed rental days were 524,565, an increase of 197,579 bed days or 60% resulting in RevPAAB of $79 compared to
$63 in Q4 of 2013.
In addition to the strong camp and catering activity, the matting operations had higher revenues in Q4 2014 compared to Q4
2013. The increase in revenue is primarily a result of higher mat management services in Q4 2014 compared to the same period
of 2013. The fourth quarter of 2014 saw several customers with large mat fleets gather up and consolidate their fleets to their
inventory locations in preparation for deployment in 2015.
Manufacturing sales revenues were consistent quarter over quarter however total direct hours were 274,694, a decrease of
40,417 hours or 13% compared to Q4 2013 with 76% of total direct hours allocated to external sales projects in Q4 compared to
44% in Q4 2013. The consistent revenue but higher external hours quarter over quarter reflects the difference between execution
phases of projects with the project in Q4 2014 focused on manufacturing, which is labour intensive, compared to the project in
Q4 2013 which was primarily focused on site installation which typically consumes less direct labour but has a higher component
of subcontractors.
Q4 2014 EBITDAS were $27.8 million, an increase of $12.1 or 77% compared to Q4 2013 as a result of the higher activity levels
discussed above. As a percentage of revenues, EBITDAS were 20%, an increase from 14% in Q4 2013 compared to Q4 2013
primarily due to the strong utilization in the camp and catering operations with matting relatively consistent in the comparative
quarters.
Net income and earnings per share increased in Q4 2014 compared to Q4 2013 as a result of the stronger revenue and EBITDAS
in Q4 2014 and due to the disposal in Q4 2013 of property plant and equipment related to the Corporation’s blast resistant
structures business.
Page | 10
Management’s Discussion and Analysis
Three months and years ended December 31, 2014 and 2013
Fourth Quarter 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
Three months ended December 31, 2014
Camps &
Catering
Matting
Corporate
Inter-segment
Eliminations
Total
$ 121,778
$
14,518
$
-
$
(436)
$ 135,860
90,989
2,851
27,938
23%
223
12,460
190
10,241
215
4,062
28%
62
2,872
-
3
4,223
(4,226)
-
200
315
(9)
(436)
-
-
-
-
(49)
-
100,797
7,289
27,774
20%
485
15,598
181
Operating earnings (loss)
$
15,065
$
1,128
$
(4,732)
$
49
$
11,510
Finance costs
Income tax expense
Other comprehensive income (loss)
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 on disposal of property, plant and equipment
1,383
2,944
(146)
7,329
0.06
0.06
$
$
$
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
Income tax expense
Other comprehensive income (loss)
Total comprehensive income (loss)
Loss per share – basic
– diluted
786
127
(144)
$
$
$
(2,376)
(0.02)
(0.02)
Page | 11
Management’s Discussion and Analysis
Three months and years ended December 31, 2014 and 2013
Camps & Catering
Camps & Catering revenues are comprised of camp rental and catering operations revenue, manufacturing sales revenue,
relocatable structures rental revenue and the associated service revenue within each operation.
Three months ended December 31
Years ended December 31
Revenues (000’s)
Large Camp revenue
Drill Camp revenue
Catering only revenue
Camp and catering service revenue
Total camp rental and catering revenues
Manufacturing sales revenue
Relocatable structures revenue
Total revenue
EBITDAS
EBITDAS as a % of revenue
Operating earnings
$
$
$
$
2014
60,425
4,308
4,473
8,513
77,719
40,085
3,974
$
121,778
$
$
$
27,938
23%
15,065
$
$
2013
40,396
3,570
3,364
7,808
55,138
39,942
2,747
97,827
15,905
16%
627
%
change
50%
21%
33%
9%
41%
-
45%
$
$
2014
215,727
15,322
15,271
32,580
278,900
118,667
12,932
$
$
2013
197,079
20,105
17,692
22,944
257,820
227,650
11,124
%
change
9%
(24%)
(14%)
42%
8%
(48%)
16%
24%
$
410,499
$
496,594
(17%)
76%
$
2,303%
$
91,181
22%
45,747
$
$
120,977
24%
67,464
(25%)
(32%)
Revenues from the Camps & Catering segment for the three months ended December 31, 2014 were $121.8 million, an increase
of $24.0 million or 24% compared to the three months ended December 31, 2013. EBITDAS for the three months ended December
31, 2014 were $27.9 million, an increase of $12.0 million or 76% compared to the same period of 2013. The increased revenues
were a result of higher activity levels across all operations in the segment with large camps being the greatest contributor. In Q4
2014, large camps experienced stronger utilization as a result of more seasonal projects compared to Q4 2013, as well, several
camp projects announced in late 2013 and early 2014 became fully operational in the third quarter of 2014 increasing activity
levels and the comparative quarters.
Revenues from the Camps & Catering segment for the year ended December 31, 2014 were $410.5 million, a decrease of $86.1
million or 17% compared to 2013. EBITDAS for the year ended December 31, 2014 were $91.2 million, a decrease of $29.8 million
or 25% compared to 2013. The year over year decrease in revenues was primarily a result of lower activity levels in manufacturing
sales mainly due to the timing of projects with a large project completing in Q1 2014 and the next project not online until late Q3
2014 as a result of customer delays. In addition, more of the direct manufacturing hours were allocated to internal fleet
requirements in 2014 compared to 2013. The decrease in manufacturing sales was partially offset by strong revenue growth in
the large camp operations, service related operations and in relocatable structures compared to 2013. Large camp operations
and the camp related service operations had strong revenue growth year over year as a result of the additional camp projects
becoming fully operational in Q3 of 2014, as well, stronger utilization in Q1 and Q4 of 2014 from increased number of seasonal
projects boosted activity levels. Relocatable structures had considerable revenue growth in 2014 as a result of its expanded fleet
in the first half of 2014 which experienced strong utilization in the second half of 2014. The softer EBITDAS and EBITDAS as a
percentage of revenue in 2014, compared to 2013, was mainly related to the lower manufacturing sales volumes and the higher
costs related to a project close out and lower manufacturing efficiencies experienced during the initiation phase of a major
project.
Horizon North’s revenues in the Camps & Catering segment continue to be driven by Alberta oil sands activity with 48% of
revenues for the year ended December 31, 2014 generated from oil sands related projects compared to 61% in the same period
of 2013. The change was driven primarily by the timing of manufacturing sales projects and the opportunities undertaken through
the last quarter of 2013 and the year ended 2014.
Page | 12
Management’s Discussion and Analysis
Three months and years ended December 31, 2014 and 2013
Large Camps
The table below outlines the key performance metrics used by management to measure performance in the large camp
operations:
Revenues (000’s)
Large Camp revenue
Bed rental days (1)
Revenue per bed rental day
RevPAAB (2)
Rentable beds
Average rentable beds (3)
Utilization (4)
Three months ended December 31
Years ended December 31
$
$
$
$
$
$
2014
60,425
524,565
115
79
8,673
8,285
69%
2013
40,396
326,986
111
63
7,059
6,977
57%
%
change
50%
60%
4%
25%
23%
19%
$
$
$
2014
215,727
1,755,383
123
78
8,673
7,613
63%
$
$
$
2013
197,079
1,574,231
125
76
7,059
7,078
61%
%
change
9%
12%
(2%)
3%
23%
8%
1)
2)
3)
4)
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.
RevPAAB equals revenue per average available rentable bed calculated as Large Camp revenue divided by average rentable beds available in the period.
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 three months ended December 31, 2014 increased by $20.0 million, or 50%
compared to the same period of 2013. The increase was a result of the addition of several large camps which were fully
operational in the fourth quarter of 2014 along with higher activity levels and utilization primarily a result of pipeline construction
activity which boosted occupancy at certain open camps.
Revenue per bed rental day for the three months ended December 31, 2014 increased by $4 or 4% as a result of the different mix
of contracts between the comparative periods. RevPAAB (revenue per average available bed) increased by $16 compared to Q4
2013, consistent with the higher revenue and 21% increase in utilization between the comparative quarters.
Revenues from the large camp operations, for the year ended December 31, 2014 increased by $18.6 million, or 9% compared to
2013. The increased revenues were primarily a result of additional large camps added throughout 2014 as a result of contract
commitments announced in the fourth quarter of 2013 and the first quarter of 2014. In addition to the growth in large camps,
Q1 and Q4 of 2014 experienced stronger seasonal uplift compared to the same periods of 2013. Bed rental days increased by
12% and fleet utilization improved by 3% year over year, a result of the additional large camps and seasonal projects which
employed a combination of existing and new equipment.
Revenue per bed rental day decreased by $2 or 2%, reflective of the nature and mix of contracts in place in the comparative
years. RevPAAB (revenue per average available bed) increased $2 or 3% year over year, consistent with higher revenues and
stronger utilization.
Page | 13
Management’s Discussion and Analysis
Three months and years ended December 31, 2014 and 2013
Drill Camps
The table below outlines the key performance metrics used by management to measure performance in the drill camp
operations:
Revenues (000’s)
Drill Camp revenue
Bed rental days (1)
Revenue per bed rental day
RevPAAB (2)
Number of rentable beds at period end
Average rentable beds available (3)
Utilization (4)
$
$
$
Three months ended December 31
Years ended December 31
$
$
$
2014
4,308
26,421
163
55
855
855
34%
2013
3,570
21,510
166
45
882
871
27%
%
change
21%
23%
(2%)
22%
(3%)
(2%)
26%
$
$
$
$
$
$
2014
15,322
90,834
169
49
855
855
29%
2013
20,105
115,968
173
63
882
873
36%
%
change
(24%)
(22%)
(2%)
(22%)
(3%)
(2%)
(19%)
1)
2)
3)
4)
One bed rental day represents the provision of one bed for one day under a combined rental and catering manday rate.
RevPAAB equals revenue per average available rentable bed calculated as Drill Camp revenue divided by average rentable beds available in the period.
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 drill camp operations for the three months ended December 31, 2014 increased by $0.7 million or 21% compared
to the same period of 2013. The increase was due to a higher volume of bed rental days which was partially offset by softer
pricing resulting in revenue per bed rental day of $163 for Q4 2014, a decrease of 2% compared to the same period of 2013.
RevPAAB (revenue per average available bed) was $55, $10 or 22% higher than the same period of 2013, a result of the stronger
revenues and utilization.
Revenues from drill camp operations for the year ended December 31, 2014 decreased by $4.8 million or 24% compared to 2013.
The decrease was primarily related to the first half of 2014 where Horizon North experienced lower activity levels compared to
the same period of 2013. Revenue per bed rental day decreased by $4 or 2% mainly due to the competitive environment,
particularly in the second half of 2014. RevPAAB (revenue per available bed) was significantly lower reflecting both lower
revenues and lower utilization.
Catering Only
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
Three months ended December 31
Years ended December 31
2014
4,473
36,658
122
$
$
2013
3,364
27,128
124
$
$
%
change
33%
35%
(2%)
$
$
2014
15,271
120,606
127
$
$
2013
17,692
165,006
107
%
change
(14%)
(27%)
19%
(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 services, with no associated bed rentals, for the three months ended
December 31, 2014 increased $1.1 million or 33% compared to same period of 2013. This increase was mainly a result of a 100
bed catering only camp which began operation in the third quarter of 2014 along with higher activity levels for customer own
drill camps in the fourth quarter of 2014 compared to the same period of 2013.
Revenues from the provision of catering and housekeeping services, with no associated bed rentals, for the year ended December
31, 2014 decreased $2.4 million or 14% compared to 2013. The lower revenues were primarily a result of softer activity levels in
the first quarter of 2014 related to customer owned drill camps.
Page | 14
Management’s Discussion and Analysis
Three months and years ended December 31, 2014 and 2013
Service
The table below outlines the service revenue generated from the camp and catering operations:
(000’s)
2014
Camp and catering service revenue
$
8,513
$
2013
7,808
%
change
2014
2013
%
change
9%
$
32,580
$
22,944
42%
Three months ended December 31
Years ended December 31
Service revenues are related to the transportation, set-up and de-mobilization of camps for customers. Revenues for the three
months ended December 31, 2014 increased $0.7 million or 9% compared to the same period in 2013. The increase was mainly
due to the timing of specific projects undertaken in the comparative periods, with several larger camp mobilizations occurring in
the fourth quarter of 2014 compared to smaller scale projects in the same period of 2013.
Revenues for the year ended December 31, 2014 increased $9.6 million or 42% compared to the same period in 2013. The
increase was mainly due to the timing of specific projects undertaken in the comparative year, with several large camp
mobilizations occurring throughout 2014 related to large camps additions and the stronger uplift in seasonal activity in Q1 and
Q4 2014 compared to 2013.
Manufacturing Sales
Manufacturing sales revenues include the in-plant construction, transportation and installation of camps sold to third parties.
The table below outlines the key performance metrics used by management to measure performance in the manufacturing sales
operations:
(000’s)
Three months ended December 31
Years ended December 31
2014
2013
%
change
2014
2013
%
change
Manufacturing sales revenue
$
40,085
$
39,942
-
$
118,667
$
227,650
(48%)
Three months ended December 31
Years ended December 31
2014
Direct
Hours
209,285
65,409
274,694
% of total
hours
76%
24%
100%
2013
Direct
Hours
140,023
175,088
315,111
% of total
hours
44%
56%
2014
Direct
Hours
633,374
468,152
100%
1,101,526
% of total
hours
57%
43%
100%
2013
Direct
Hours
% of total
hours
858,333
406,093
68%
32%
1,264,426
100%
External hours
Internal hours
Total direct hours (1)
(1)
Total direct hours incudes; direct hours worked in the manufacturing plants and on-site installation hours.
Revenues for the three months ended December 31, 2014 remained relatively unchanged compared to the same period in 2013.
Although revenue was consistent, the direct external hours increased by 69,262 hours or 49% compared to Q4 2013. The increase
is reflective of the difference mix of projects and the different phases of project execution in the comparative quarters.
Total direct hours, which include direct hours worked in the manufacturing plants and installation hours undertaken on project
sites, for the three months ended December 31, 2014 were 274,694 hours, a decrease of 40,417 hours or 13% compared to the
same period of 2013. The decrease in direct hours was a result of Horizon North managing production capacity through reduced
overtime and headcount to align with manufacturing visibility. 76% of total direct hours were directed to external sales projects
in Q4 2014 compared to 44% in the same period of 2013, a reflection of the timing of external sales projects in the comparative
quarters.
Page | 15
Management’s Discussion and Analysis
Three months and years ended December 31, 2014 and 2013
Revenues for the year ended December 31, 2014 were $118.7 million, a decrease of $109.0 million or 48% compared to 2013.
The decreased revenues were a result of several factors but primarily related to the timing between external sales projects. 2013
had a large project run continuously through the year and complete in Q1 2014, however, the next large project did not go online
until late Q3 2014 due to customer delays. 2014 had reduced total direct hours compared to 2013 and fewer direct hours
allocated to external revenue generating projects. In addition, 2014 allocated more direct manufacturing hours to internal fleet
requirements compared to 2013 with the focus on expanding the relocatable structures fleet in the first half of 2014 and
additional camp rental fleet to meet contract commitments announced late 2013 and early 2014. As well, 2013 revenue included
a $13.5 million used equipment sale with no associated direct hours, there was no similar sale in 2014.
Total direct hours, which include direct hours worked in the manufacturing plants and installation hours undertaken on project
sites, for the year ended December 31, 2014 were 1,101,526 hours, a decrease of 162,900 hours or 13% compared to the same
period of 2013. The decrease in direct hours was a result of Horizon North managing production capacity through reduced
overtime and headcount to align with manufacturing visibility. 57% of total direct hours were directed to external sales projects
for the year ended December 31, 2014 compared to 68% in 2013. The decrease is reflective of the project delay and the focus
on internal fleet requirements to expand relocatable structures in the first half of 2014 and the camp rentals fleet to meet
contract commitments.
Relocatable Structures
Relocatable structures (formerly Space Rentals) revenues include the rental of relocatable structures and the associated
transportation and service. Relocatable Structures include office units, lavatory units, mine dry units and associated equipment.
Revenues for the three months ended December 31, 2014 were $4.0 million, an increase of $1.2 million or 45% compared to the
same period of 2013. The increase in revenue is primarily a result of continued robust utilization on a larger fleet with 367 more
units in Q4 2014 compared to the same period of 2013. Utilization in the fourth quarter of 2014 was 77% of 1,203 units compared
to 80% of 836 units in the comparative quarter of 2013.
Revenues for the year ended December 31, 2014 were $12.9 million, an increase of $1.8 million or 16% compared to 2013. The
increase is primarily a result of the additions to the fleet in the first half of 2014. Utilization for the year ended 2014 was 69% of
1,203 units compared to 81% of 836 units in 2013. The decreased utilization is a result of the fleet growth in the first half of 2014.
The second half of 2014 saw most of the new units working and utilization increase to be relatively comparable to the second
half of 2013.
Direct costs
Direct costs for the three months ended December 31, 2014 were $91.0 million or 75% of revenues compared to $80.5 million or
82% of revenue for the same period of 2013. Direct costs are closely related to business volumes and revenue mix. The decrease
was primarily as a result of lower volumes in the manufacturing sales operations. As a percentage of revenue, direct costs
decreased primarily a result of the nature and timing of projects flowing through the manufacturing sales operations.
Direct costs for the year ended December 31, 2014 were $311.3 million or 76% of revenue compared to $369.9 million or 74% of
revenue for 2013. Direct costs decreased primarily due to lower volumes in the manufacturing sales operations. As a percentage
of revenue, direct costs increased as a result of the nature and timing of projects described above. In addition, manufacturing
sales operations experienced higher costs to close out several large projects, similar costs were not incurred in the same period
of 2013.
Page | 16
Management’s Discussion and Analysis
Three months and years ended December 31, 2014 and 2013
Matting
Matting revenues are comprised of access mat rental revenue, other mat and rental equipment revenue, mat sales revenue,
installation, transportation, service, and other revenue as follows:
Three months ended December 31
Years ended December 31
(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
$
$
$
2014
3,093
831
3,924
2,495
8,099
$
$
$
2013
3,027
868
3,895
2,124
5,412
$ 14,518
$ 11,431
$
$
4,062
28%
1,128
$
$
3,036
27%
1,352
%
change
2%
(4%)
1%
17%
50%
27%
34%
(17%)
2014
2013
$ 13,611
2,924
$
$ 16,535
20,601
30,036
$ 13,828
2,969
$
$ 16,797
13,081
32,541
$ 67,172
$ 62,419
$ 15,505
23%
7,300
$
$ 17,760
28%
9,501
$
Access mat rental days – owned mats(3)
Access mat rental days – third party mats(4)
1,273,117
197,959
877,053
361,377
45%
(45%)
4,413,357
1,837,077
4,157,699
1,653,828
Total access mat rental days
1,471,076
1,238,430
19%
6,250,434
5,811,527
Average owned access mats in rental fleet(5)
Average sub rental access mats in rental fleet(6)
Owned access mats in rental fleet at period end(7)
Mats sold:
New mats
Used Mats
Total mats sold
23,411
2,151
23,325
1,755
1,516
3,271
16,845
3,930
16,392
494
3,464
3,958
39%
(45%)
42%
255%
(56%)
(17%)
19,438
5,000
23,325
24,215
6,498
30,713
17,057
4,521
16,392
12,849
6,818
19,667
%
change
(2%)
(2%)
(2%)
57%
(8%)
8%
(13%)
(23%)
6%
11%
8%
14%
11%
42%
88%
(5%)
56%
(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 three months ended December 31, 2014 were $14.5 million, an increase of $3.1
million or 27% compared to the same period of 2013. EBITDAS for the three months ended December 31, 2014 were $4.1 million,
an increase of $1.0 million or 34% compared to the same period of 2013. The increased revenues came primarily from the
management of customer owned access mats as several customers gathered up and consolidated their mat fleets to their
inventory locations.
Revenues from the Matting segment for the year ended December 31, 2014 were $67.2 million, an increase of $4.8 million or 8%
compared to 2013. The increased revenues were driven primarily by higher new mat sales year over year. EBITDAS for the year
ended December 31, 2014 was $15.5 million, a decrease of $2.3 million or 13% compared to 2013. The year over year decrease
in EBITDAS was a result of the effects of downward pressure on access mat rental rates and increased cost for mat manufacturing
due to higher lumber costs as a result of the weaker Canadian dollar compared to 2013.
Page | 17
Management’s Discussion and Analysis
Three months and years ended December 31, 2014 and 2013
Mat and rental equipment revenue
Mat and equipment rental revenues for the three months ended December 31, 2014 remained consistent compared to the same
period of 2013 as a result of offsetting movements in activity levels and pricing. Activity increased in Q4 2014 compared to Q4
2013 with a higher number of access mat rental days and stronger utilization on a larger fleet size. Compared to Q4 2013, access
mat rental days increased by 232,646 days or 19% with utilization of the owned access mat fleet at 59%, up from 57% in Q4 2013.
The access mat fleet grew by 6,566 mats to an average of 23,411 mats in the comparative quarters. The higher activity levels
were offset by the lower revenue per mat rental day which was $2.10, a decrease of $0.34 or 14% compared to the same period
of 2013 as a result of a more competitive environment.
For the year ended December 31, 2014, mat and equipment rental revenues were consistent year over year as a result of higher
rental activity being offset by softer pricing. 2014 access mat rental days were 6,250,434, an increase of 438,907 or 8% compared
to 2013. Utilization in 2014 decreased to 62% from 67% in 2013 mainly as a result of the larger fleet which grew by an average
of 2,381 mats compared to 2013. A competitive pricing environment throughout 2014 put downward pressure on access mat
rental rates resulting in revenue per access mat rental day of $2.18, a decrease of $0.20 or 8% compared to the same period of
2013. This softer pricing offset the higher rental activity in 2014.
Mat sales revenue
Revenues from mat sales for the three months ended December 31, 2014 were $2.5 million, an increase of $0.4 million or 17%
compared to the same period of 2013. The volume of mats sold is highly dependent on the timing of customer’s projects and on
project economics with 3,271 mats sold in the three months ended December 31, 2014, a decrease of 687 mats or 17% compared
to the same period of 2013. Revenues per mat sold were $763 for the fourth quarter of 2014, an increase of $226 or 42%
compared to the same period of 2013. This increase is reflective of the mix of new and used mats sold, as new mats typically
have higher selling price than used mats.
Revenues from mat sales for the year ended December 31, 2014 were $20.6 million, an increase of $7.5 million or 57% compared
to 2013. The increase was due mainly to several significant new and used mat sales in 2014 resulting in mat sales for the year
ended December 31, 2014 of 30,713 mats, an increase of 11,046 mats or 56% compared to 2013. Revenues per mat sold were
$671 for the year ended December 31, 2014, an increase of $6 or 1% compared to 2013 mainly due to the higher number of new
mats sold in 2014, as new mats typically have a higher selling price than used mats.
Installation, transportation, service, and other revenue
Installation, transportation, service, and other revenues are driven mainly from the level of activity in the mat rental, mat sale
and mat management businesses and are charged for separately from rentals and sales.
Revenues for the three months ended December 31, 2014 were $8.1 million, an increase of $2.7 million or 50% compared to the
same period in 2013. The increase in revenue was primarily a result of increased demand for mat management services in Q4
2014 compared to the same period of 2013. The fourth quarter of 2014 saw several customers with large mat fleets gather up
and consolidate their fleets to their inventory locations in preparation for 2015. The majority of this work is transportation
services.
Revenues for the year ended December 31, 2014 were $30.0 million, a decrease of $2.5 million or 8% compared to 2013. The
decrease in revenues was primarily a result of the revenue mix, as mat sales typically do not generate significant installation and
service revenues.
Direct costs
Direct costs for the three months ended December 31, 2014 were $10.2 million or 71% of revenue compared to $8.2 million or
72% of revenue for the same period of 2013. Direct costs are driven by both the level and mix of business activity with the increase
in overall direct costs in Q4 2014 compared to Q4 2013 a result of the higher activity levels mainly in transportation. As a
percentage of revenue, direct costs decreased slightly in the three months ended December 31, 2014 compared to the same
period of 2013 mainly due to the lower use of third party mats and the associated rental costs.
Page | 18
Management’s Discussion and Analysis
Three months and years ended December 31, 2014 and 2013
Direct costs for the year ended December 31, 2014 were $50.6 million or 75% of revenue compared to $43.7 million or 70% of
revenue for 2013. Direct costs are driven by both the level and mix of business activity. The increase in direct costs year over year
was mainly due to costs associated with higher volume of new mat sales in 2014. As a percentage of revenue, direct costs
increased in the year ended December 31, 2014 compared to the same period of 2013. This increase is primarily due to the higher
costs of lumber used in mat manufacturing due to the weaker Canadian dollar.
Corporate
Corporate costs are the costs of the head office which include the President and Chief Executive Officer, Chief Financial Officer,
Senior Vice President of Business Development, Vice President of Quality, Health, Safety, and Environment, Vice President of
Aboriginal Relations, Vice President of Legal, Corporate Secretary, corporate accounting staff, information technology, and
associated costs of supporting a public company.
Corporate costs for the three months ended December 31, 2014 were $4.2 million, an increase of $1.0 million or 30% compared
to the same period in 2013. The increased costs primarily relate to the retirement allowance of the previous chief executive
officer in November 2014. Corporate costs, as a percentage of total revenue were 3.1% compared to 3.0% for the three months
and year ended December 31, 2013.
Corporate costs for the year ended December 31, 2014 were $13.8 million, an increase of $1.4 million or 12% compared to 2013.
The increased costs primarily relate to the retirement allowance of the previous chief executive officer in November 2014 with
the balance related to higher IT costs and HSE education programs. Corporate costs, as a percentage of total revenue were 2.9%
compared to 2.2% for the year ended December 31, 2013 as a result of the increased cost described above and lower 2014
revenues.
Other Items
Selling and administrative
Selling and administrative expenses for the three months and year ended December 31, 2014 were $3.1 million, an increase of
$1.5 million or 91% compared to the same period in 2013. As a percentage of revenue, selling and administrative expenses for
the three months and year ended December 31, 2014 were 2% compared to 1.5% the comparative period of 2013.
Selling and administrative expenses for the year ended December 31, 2014 were $9.1 million, an increase of $2.4 million or 36%
compared to the same period in 2013. As a percentage of revenue, selling and administrative expenses for the year ended
December 31, 2014 were 2% compared to 1% for 2013.
Depreciation and amortization
(000’s)
Three months ended December 31
2014
2013 % change
Years ended December 31
2014
2013
% change
Depreciation of property, plant and equipment
Amortization of intangibles
$ 15,067
$ 12,688
19%
$ 53,927
$ 47,623
531
907
(41%)
2,968
7,060
Total depreciation and amortization
$ 15,598
$ 13,595
15%
$ 56,895
$ 54,683
13%
(58%)
4%
Depreciation of property, plant and equipment increased $2.4 million or 19% in the three months ended December 31, 2014
compared to the same period of 2013. The increase was mainly related to camp fleet additions and camp setup costs added
between the comparative quarters.
Depreciation of property, plant and equipment increased by $6.3 million or 13% in 2014 compared to 2013. The majority of the
increase was expansion of the camp rental fleet and camp setup costs associated with contract commitments late in 2013 and
throughout 2014. The remainder of the increase was related to growth of the relocatable structures fleet in the first half of 2014
and growth of the access mat fleet mainly in the second half of 2014.
Amortization costs related to customer relationships decreased $0.4 million or 41% for the three months ended December 31,
2014 compared to the same period of 2013 as they were fully amortized in Q4 2014.
Amortization costs related to customer relationships decreased $4.1 million or 58% in 2014 compared to 2013. The decrease is a
result of these costs being fully amortized in 2014.
Page | 19
Management’s Discussion and Analysis
Three months and years ended December 31, 2014 and 2013
Financing costs
Financing costs include interest on loans and borrowings and accretion of notes payable. For the three months ended December
31, 2014 financing costs were $1.4 million, an increase of $0.6 million or 76% compared to 2013. The increase in financing costs
was mainly a result of higher average debt levels in the fourth quarter of 2014 which averaged $150.0 million compared to $59.2
million in the same period of 2013.
For the year ended December 31, 2014 financing costs were $4.6 million, an increase of $0.7 million or 19% compared to 2013.
The increase in financing costs was mainly a result of higher average debt levels throughout the year which averaged $126.6
million compared to $93.2 million in 2013. The effective interest rate on loans and borrowings for 2014 was 3.3% compared to
3.6% in 2013. The lower effective interest rate was a result of carrying a higher proportion of the 2014 debt balance in bankers
acceptances, compared to 2013 which generally have a lower interest rate than prime rate debt.
Income taxes
For the year ended December 31, 2014, income tax expense was $9.3 million and effective tax rate of 28.2% compared to $17.0
million and an effective tax rate of 28.6% in 2013. The decrease in the expense was related to the lower profit before tax
compared to 2013. The higher tax rate in prior year was a result of the effect of prior period adjustments made in the respective
periods.
Gain/Loss on disposal
For the three months ended December 31, 2014, Horizon North recognized losses on disposal of $0.2 million compared to losses
of $3.1 million in the Q4 of 2013. The majority of these losses in 2013 came from disposal of the remaining camp assets and
property related to the Northern based ancillary assets.
For the year ended December 31, 2014 Horizon North recognized gains on disposal of $3.7 million which were primarily related
to the disposal of camp assets and property related to the Northern based ancillary assets in Q3 of 2014. This compares to a loss
on disposal of $6.2 million in 2013, composed of undepreciated setup costs related to a large camp which was dismantled and
sold in Q2 2013 and the disposal of the Corporation’s blast resistant structures business in Q4 2013.
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 credit facility
Drawings on credit facility
Borrowing capacity(3)
December 31,
2014
December 31,
2013
$
134,342
$
113,608
60,337
7,668
68,005
66,337
175,000
146,370
28,630
$
$
$
60,408
1,496
61,904
51,704
150,000
70,756
79,244
$
$
$
(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, 2014 was $66.3 million compared to $51.7 million at December 31, 2013, an increase of $14.6
million. The increase in working capital was mainly due to higher accounts receivable at December 31, 2014, primarily a result of
activity levels in the comparative periods.
Page | 20
Management’s Discussion and Analysis
Three months and years ended December 31, 2014 and 2013
On August 13, 2014, the Corporation’s committed credit facility (“credit facility”) was increased to $175,000,000 from
$150,000,000. The credit facility is extendable annually at the Corporation’s request and subject to lender approval. The 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. The interest rate is calculated on a grid pricing structure based on the Corporation’s debt to EBITDAS ratio.
Amounts drawn on the credit facility incur interest at bank prime rate plus 0.50% to 1.00% or the Bankers’ Acceptance rate plus
1.50% to 2.00%. The credit facility has a standby fee ranging from 0.34% to 0.45%. Debt to EBITDAS is calculated as at the quarter
end for the most recently completed calendar quarter and for the 12 months ended on such date. Amounts borrowed under the
facility become due on October 26, 2016, the maturity date of the facility.
As at December 31, 2014, the Corporation was in compliance with all financial and non-financial covenants as shown below:
Debt Covenants
Debt (1) to EBITDAS (2)(3) – must be less than 2.0:100
Interest coverage(4) – must be greater than 3.0:100
December 31, 2014
1.6:1.00
22.4:1.00
(1)
(2)
(3)
(4)
Debt is calculated as the sum of current and long-term portions of loans and borrowings less vehicle and equipment financing.
Please refer to page 25 of the Management Discussion and Analysis for the definitions of Non-GAAP and additional GAAP measures and reconciliation of Net Earnings to EBITDAS.
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.
Capital Spending
For the year ended December 31, 2014, capital spending was $114.6 million, an increase of $24.4 million or 27% compared to the
same period of 2013. The 2014 capital was focused on additional camp rental fleet to fulfill contract commitments, expansion of
the relocatable structures fleet in the first half of the year and expansion of the access mat fleet in the second half of 2014. Also,
included in the 2014 capital was the acquisition of key real estate positions near proposed LNG projects in British Columbia.
Management evaluates and manages its capital spending plans taking into account proceeds from the sale of property, plant and
equipment resulting in net capital spending for the year ended December 31, 2014 of $99.6 million compared to $63.2 million
for the same period of 2013.
Quarterly Summary of Results
(000’s except per share amounts)
Revenue
EBITDAS
Operating earnings
Total profit
Total comprehensive income
Earnings per share – basic
Earnings per share – diluted
(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
Three months ended
March
2014
June
2014
September
2014
December
2014
Year ended
December
2014
$
122,211
$
96,094
$
121,895
135,860
$
476,060
23,550
11,430
7,718
7,917
0.07
0.07
$
$
15,496
1,871
680
602
0.01
0.01
$
$
26,046
12,691
8,065
8,178
0.07
0.07
$
$
27,774
11,510
7,183
7,329
0.06
0.06
$
$
92,866
37,502
23,646
24,026
0.21
0.21
Three months ended
March
2013
June
2013
September
2013
December
2013
Year ended
December
2013
$ 139,959
$
148,426
$
157,361
$ 108,641
$
554,387
36,633
23,209
16,509
16,384
32,708
14,257
10,123
9,986
41,306
27,432
18,339
18,643
$
$
0.15
0.15
$
$
0.09
0.09
$
$
0.17
0.17
$
$
15,687
(1,607)
(2,520)
(2,376)
(0.02)
(0.02)
126,334
63,291
42,451
42,637
0.39
0.38
$
$
Page | 21
Management’s Discussion and Analysis
Three months and years ended December 31, 2014 and 2013
Horizon North is a service provider to the resource sector and its performance typically follows fluctuations in commodity pricing
and activity levels in the sector. As well, Horizon North’s decisions on the allocation of manufacturing resources and decisions on
the relocation of the camp and catering fleet can have an impact on performance. The allocation of manufacturing resources
between external projects and internal fleet requirements can significantly affect the timing of revenues between the quarters;
this was evident in the first half of 2014 with a significant portion of manufacturing resources allocated to internal fleet in order
to execute announced projects. The movement and redeployment of camps impacts performance as well. When camps are
relocated to new areas or new contracts there are typically several months of down time to complete the relocations. In addition,
there has been downward pressure on pricing as a result of an increasingly competitive environment. Throughout 2014, Horizon
North continued to invest in fleet capital to remain competitive in the Alberta oil sands area and to expand in northeastern British
Columbia to serve natural gas exploration and development activities.
Risks and Uncertainties
Volatility of Oil, Natural Gas and Mining Industry Conditions
The demand, pricing and terms for Horizon North’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 North 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 North 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 North.
Competition
Horizon North 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 North 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 North 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 North operates. As a result of competition,
Horizon North’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 North. 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 North’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.
Page | 22
Management’s Discussion and Analysis
Three months and years ended December 31, 2014 and 2013
Additional Funding Requirements
Horizon North’s cash flow may not be sufficient to fund its ongoing activities at all times. From time to time, Horizon North may
require additional financing. Failure to obtain such financing on a timely basis could cause Horizon North to miss certain
acquisition opportunities or prevent further growth of its operations. If Horizon North’s revenues decrease, it will affect Horizon
North’s ability to expend the necessary capital to maintain its operations. If Horizon North’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.
Labour Relations
The largest component of Horizon North’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 North. In addition, Horizon
North 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 North 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 North’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 during 2014 who generated 11.2% of total revenues compared to a single customer
who generated 24.0% of total revenue in 2013. There can be no assurance that Horizon North’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 North’s business, financial condition and results of operations.
Reliance on Key Personnel
Horizon North’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 North. Horizon North does not have key person insurance in effect for management. The
contributions of these individuals to the immediate operations of Horizon North 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 North.
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 North 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 North
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 | 23
Management’s Discussion and Analysis
Three months and years ended December 31, 2014 and 2013
Environmental Regulation
The Government of Canada and provincial governments in areas where Horizon North 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 North’s operations and facilities and those of its customers. A number of Horizon North’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 North’s services.
Management is unable to predict the impact of potential emissions targets and it is possible that changes could adversely affect
Horizon North’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 North’s ability
to provide its services economically.
Aboriginal Relationships
A component of Horizon North’s business strategy is based on developing and maintaining positive relationships with the
aboriginal people and communities in the areas where Horizon North operates. These relationships are important to Horizon
North’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 North’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 North’s business, it is subject to a number of regulations, environmental laws and risks associated
with lawsuits arising from accidents and claims. Horizon North manages these risks through a combination of quality
management, training and by securing insurance coverage to protect the assets of Horizon North in the event of litigation.
Changes in Accounting Policies
Standards, amendments and interpretations to existing standards that are effective and have been adopted by the Corporation
included:
Amendments to IAS 32 – Financial Instruments – Presentation. The amendment to the standard provides clarification on the
application of the offsetting rules. The standard was effective and adopted by the Corporation as of January 1, 2014. The
adoption of the standard did not have a material effect on the Corporation.
Amendment to IAS 36 - Impairment of Assets – The amendment require entities to disclose the recoverable amount of an
impaired CGU. The amendments was effective and adopted by the Corporation as of January 1, 2014 and requires retrospective
application. The adoption of the standard did not have a material effect on the Corporation.
IFRIC 21 – Levies is an interpretation of IAS 37 - Provisions, Contingent Liabilities and Contingent Assets which sets out criteria for
the recognition of a liability, one of which is the requirement for the entity to have a present obligation as a result of a past event
(known as an obligating event). The interpretation clarifies that the obligating event that gives rise to a liability to pay a levy is
the activity described in the relevant legislation that triggers payment of the levy. The interpretation did not have a material
effect on the Corporation.
Page | 24
Management’s Discussion and Analysis
Three months and years ended December 31, 2014 and 2013
Critical Accounting Estimates and Judgments
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.
Construction Receivable Estimate
The Corporation recognizes that the value of many construction contracts increase over the duration of the construction period.
Change orders may be issued by customers to modify the original contract scope of work or certain conditions may result in
possible disputes or claims regarding additional amounts owing may arise. Construction work related to a change order or claim
may proceed, and costs may be incurred, in advance of final determination of the value of the change order. As many change
orders and claims may not be settled until the end of the construction project, significant increases or decreases in revenue and
income may arise during any particular accounting period.
Collectability of receivables
The Corporation estimates the collectability of accounts receivable, including unbilled accounts receivable related to current
period service revenue. An analysis of historical bad debts, client credit-worthiness, the age of accounts receivable and current
economic trends and conditions are used to evaluate the adequacy of the allowance for doubtful accounts and the collectability
of amounts receivable. Significant estimates must be made and used in connection with establishing the allowance for doubtful
accounts in any accounting period. Material differences may result if management made different judgments or utilized different
estimates.
Asset Retirement Obligations (“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.
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. The accounting policies set out below have been applied
consistently to all periods presented in these consolidated financial statements.
Page | 25
Management’s Discussion and Analysis
Three months and years ended December 31, 2014 and 2013
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 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 and accrued revenue, 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 in trade receivable and accrued revenue
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
Construction receivables
Other receivables
Total trade and other receivables
December 31,
2014
December 31,
2013
$
$
36,511
733
14,994
4,761
1,128
58,127
(733)
20,634
36,863
1,183
$
116,074
$
20,409
65
13,963
4,001
2,073
40,511
(65)
19,413
30,070
927
90,856
In the twelve months ended December 31, 2014, the Corporation provided an allowance for $758,000 of receivables aged
greater than 90 days and collected $12,000 that had previously been allowed for. The Corporation also applied $79,000 of
allowance for doubtful accounts against the associated receivable balance. As at February 18, 2015, the Corporation has
collected $746,500 on amounts outstanding more than 90 days.
Construction receivables represent progress billings to customers under open construction contracts, holdback amounts
billed on construction contracts which are not due until the contract work is substantially completed, amounts recognized
as revenue under open construction contracts not billed to customers and highly probable claims. At December 31, 2014,
included in construction receivables were holdbacks of $6,800,000 (2013 - $8,400,000). The total of construction receivables
aged less than 90 days was 68% at December 31, 2014 (2013 – 88%).
Page | 26
Management’s Discussion and Analysis
Three months and years ended December 31, 2014 and 2013
(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 August 13, 2014, the Corporation’s committed credit facility (“credit facility”) was increased to $175,000,000 from
$150,000,000. The credit facility is extendable annually at the Corporation’s request and subject to lender approval. The
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. The interest rate is calculated on a grid pricing structure based on the Corporation’s debt to
EBITDAS ratio. Amounts drawn on the credit facility incur interest at bank prime rate plus 0.50% to 1.00% or the Bankers’
Acceptance rate plus 1.50% to 2.00%. The credit facility has a standby fee ranging from 0.34% to 0.45%. Debt to EBITDAS is
calculated as at the quarter end for the most recently completed calendar quarter and for the 12 months ended on such
date. 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:
Year 1
Year 2
Year 3
Year 4
Year 5 and beyond
December 31, 2014
Loans and
borrowings(2)
Trade and
other
payables(1)
December 31, 2013
Loans and
borrowings(2)
Trade and
other
payables(1)
$
$
$
58,069
-
-
-
5,890
7,668
146,370
-
-
-
$
56,961
-
-
-
5,656
$
63,959
$
154,038
$
62,617
$
1,496
7,500
70,756
-
-
79,752
(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 North’s senior secured revolving term facility. Cash flows of Horizon’s note payable have been recorded
according to estimated utilization of specific equipment.
(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, 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, 2014 by
approximately $136,000 (December 31, 2013 - $182,500). 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.
Page | 27
Management’s Discussion and Analysis
Three months and years ended December 31, 2014 and 2013
(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 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 $1,254,000 for the twelve months ended December 31, 2014 (December 31, 2013 -
$933,500). 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.
Outstanding Shares
Horizon North had 110,505,651 voting common shares issued and outstanding options of 5,319,987 for a total maximum number
of 115,821,638 shares, on a diluted basis, as at February 18, 2015.
Off Balance Sheet Financing
Horizon North 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, 2014, an evaluation was carried out, under the supervision of the CEO and the CFO, of the effectiveness of
the design and operation of Horizon North’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, 2014, Horizon
North’s DC&P, as defined by National Instrument 52-109, Certification of Disclosure in Issuers’ Annual and Interim Filings, were
effective.
Throughout 2015, Horizon North will continue to evaluate its DC&P making modifications from time-to-time as deemed
necessary. There were no changes in Horizon North’s DC&P that occurred during the period ended December 31, 2014 that have
materially affected, or are reasonably likely to materially affect, Horizon North’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 North’s ICFR include, but are not limited to, policies and procedures addressing:
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;
receipts and expenditures are being made only in accordance with authorizations of management and directors;
maintenance of records in reasonable detail to accurately and fairly reflect transactions and disposition of assets; and
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.
Page | 28
Management’s Discussion and Analysis
Three months and years ended December 31, 2014 and 2013
As at December 31, 2014, an evaluation was carried out, under the supervision of the CEO and the CFO, of the effectiveness of
Horizon North’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) in 2013.
Based on this evaluation, management concluded that the design and operating effectiveness of Horizon North’s ICFR was
effective as of December 31, 2014.
Throughout 2015, Horizon North will continue to evaluate its ICFR making modifications from time-to-time as deemed necessary.
There were no changes in Horizon North’s ICFR that occurred during the period ended December 31, 2014 that have materially
affected, or are reasonably likely to materially affect, Horizon North’s ICFR.
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.
Non-GAAP and additional GAAP measures
Certain measures in this MD&A do not have any standardized meaning as prescribed by generally accepted accounting principles
(“GAAP”) and, therefore, are considered non-GAAP measures. These measures are regularly reviewed by the Chief Operating
Decision Maker and provide investors with an alternative method for assessing the Corporation’s operating results in a manner
that is focused on the performance of the Corporation’s ongoing operations and to provide a more consistent basis for
comparison between periods. These measures should not be construed as alternatives to total profit and total comprehensive
income determined in accordance with GAAP as an indicator of the Corporation’s performance. The method of calculating these
measures may differ from other entities and accordingly, may not be comparable to measures used by other entities. The
following non-GAAP and additional GAAP measures are used to monitor the Corporation’s performance:
EBITDAS: Earnings before finance costs, taxes, depreciation, amortization, gain/loss on disposal of property, plant and
equipment and share based compensation (“EBITDAS”). 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.
Debt to total capitalization: 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.
Reconciliation of non-GAAP and additional GAAP measures
The following provides a reconciliation of non-GAAP and additional GAAP measures to the nearest measure under GAAP for items
presented throughout the MD&A.
EBITDAS
(000’s)
Total profit
Add:
Finance costs
Income tax expense
Depreciation
Amortization of intangible assets
(Gain) loss on disposal of property, plant and equipment
Share based compensation
Three months ended December 31
2013
2014
Years ended December 31
2013
2014
$
7,183
$
(2,520)
$
23,646
$
42,451
1,383
2,944
15,067
531
181
485
786
127
12,688
907
3,127
572
4,551
9,305
53,927
2,968
(3,666)
2,135
3,822
17,018
47,623
7,060
6,152
2,208
EBITDAS
$
27,774
$
15,687
$
92,866
$ 126,334
Page | 29
Management’s Discussion and Analysis
Three months and years ended December 31, 2014 and 2013
Related Parties
(000’s)
Joint venture
Recovery of administrative overhead
Key management personnel interests
Sales
Included in accounts receivable
December 31,
2014
December 31,
2013
30
-
475
30
947
395
Key management personnel include the directors and officers of Horizon North 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 18, 2015 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. 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.
Caution Regarding Forward-Looking Information and Statements
Certain statements contained in the Management Discussion and Analysis constitute forward-looking statements or information.
These statements relate to future events or future performance of Horizon North. 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:
“Horizon North is presently at an inflection point. Commodity prices in early 2015 are under considerable pressure with oil pricing
currently in the $40-$55 per barrel range, a six year low. A number of our larger customers have delayed or deferred their capital
spending and a tone of extreme caution has pervaded our sector which has significant implications for our business. While we
have seen these swings in the past, there is no clear consensus on how long this trough will last.
With this challenging macro environment, Horizon North is undertaking structural changes in its business that will realign the
development and direction of the Company, stabilize our base, and prepare us for the next up-cycle. These changes, included
taking steps in January 2015 to reduce our manufacturing headcount to match our current order book, outlining a reduced
maintenance capital spending program of $25 million, moving towards a more integrated business model which will reduce costs
and improve efficiencies and changing our business development strategy to facilitate additional cross selling capabilities for all
of our products and services.
We will be expanding our product and service offerings to balance our exposure between the OPEX and CAPEX budgets of our
major customers. CAPEX is typically cyclical as compared to OPEX spending which tends to be smoother and more consistent
over time. We will broaden our products/service offerings to a variety of end-markets to lessen our exposure to energy market
fluctuations. We are continuing to develop new end-markets for our manufacturing platform, for example moving into the
construction of permanent modular buildings in commercial and institutional markets. Finally we are preparing our land
infrastructure for significant potential mega projects in electricity and LNG.
Our new mission statement at Horizon North is “To provide superior, safe, fully integrated turn-key accommodations and related
ancillary infrastructure in Canada and Alaska”. This will be our focus in 2015.”
Page | 30
Management’s Discussion and Analysis
Three months and years ended December 31, 2014 and 2013
Many factors could cause the performance or achievements of Horizon North 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 North’s operations and financial results are included in Horizon North’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 North does not undertake any obligation to
update publicly or revise any 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 North” or the “Corporation”) have
been approved by the Board of Directors (the “Board”) of Horizon North 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 North; 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. 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. The Audit Committee has reviewed the consolidated financial statements
with management and the external auditor.
Rod Graham
President and
Chief Executive Officer
February 18, 2015
Scott Matson
Vice President Finance and
Chief Financial Officer
Page | 32
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, 2014 and December 31,
2013, 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, 2014 and December 31, 2013, and its
consolidated financial performance and its consolidated cash flows for the years then ended in accordance
with International Financial Reporting Standards.
Chartered Accountants
February 18, 2015
Calgary, Canada
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,
2014
December 31,
2013
$
$
116,074
14,656
3,612
-
134,342
401,130
-
1,664
414
2,428
405,636
90,856
15,638
3,000
4,114
113,608
349,252
2,968
1,664
1,067
2,556
357,507
$
539,978
$
471,115
$
$
55,577
2,268
2,492
7,668
68,005
5,890
146,370
33,139
253,404
185,592
13,523
774
86,685
286,574
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
$
539,978
$
471,115
The accompanying notes are an integral part of the consolidated financial statements.
Ann Rooney
Director
Rod Graham
Director
Page | 34
Consolidated statement of comprehensive income
Twelve months ended December 31, 2014 and 2013
(000’s except per share amounts)
Revenue (Note 5)
Operating expenses:
Direct costs (Note 6)
Depreciation (Note 13)
Share based compensation (Note 19)
(Gain) loss 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)
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,
2014
December 31,
2013
$
476,060
$
554,387
360,304
53,927
1,222
(3,666)
411,787
64,273
22,890
2,968
913
26,771
37,502
4,551
32,951
6,385
2,920
9,305
23,646
380
380
409,007
47,623
1,311
6,152
464,093
90,294
19,046
7,060
897
27,003
63,291
3,822
59,469
14,759
2,259
17,018
42,451
186
186
Total comprehensive income
$
24,026
$
42,637
Earnings per share:
Basic (Note 20)
Diluted (Note 20)
$
$
0.21
0.21
$
$
0.39
0.38
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, 2012
$ 179,999
$
10,783
$
208
$
83,273
$ 274,263
Total profit
Share based compensation (Note 19)
Share options exercised (Note 19)
Translation of foreign operations
Dividends declared (Note 21)
Balance at December 31, 2013
-
-
3,852
-
-
$ 183,851
$
Total profit
Share based compensation (Note 19)
Share options exercised (Note 19)
Translation of foreign operations
Dividends declared (Note 21)
-
-
1,741
-
-
-
2,208
(1,155)
-
-
11,836
-
2,135
(448)
-
-
$
Balance at December 31, 2014
$ 185,592
$
13,523
$
-
-
-
186
-
394
-
-
-
380
-
774
$
42,451
-
-
-
(27,378)
98,346
23,646
-
-
-
(35,307)
42,451
2,208
2,697
186
(27,378)
$ 294,427
23,646
2,135
1,293
380
(35,307)
$
86,685
$ 286,574
The accompanying notes are an integral part of the consolidated financial statements.
Page | 36
Consolidated statement of cash flows
Twelve months ended December 31, 2014 and 2013
(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 (Note 15)
(Gain) loss 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 26)
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 (repayment of) loans and borrowings
Payment of dividends
Change in cash position
Cash, beginning of year
Cash, end of year
The accompanying notes are an integral part of the consolidated financial statements.
December 31,
2014
December 31,
2013
$
23,646
$
42,451
53,927
2,968
2,135
128
(6,101)
311
4,551
9,305
90,870
(63)
(4,232)
(29,004)
57,571
(114,581)
14,946
(99,635)
1,293
74,118
(33,347)
42,064
-
-
-
$
$
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)
-
-
-
Page | 37
Notes to the consolidated financial statements
Years ended December 31, 2014 and 2013
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, 2014 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 18th, 2015.
(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 judgments, 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 judgments, 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 judgments, 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
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).
Construction Receivable Estimate – The Corporation recognizes that the value of many construction contracts
increase over the duration of the construction period. Change orders may be issued by customers to modify the
original contract scope of work or conditions resulting in possible disputes or claims regarding additional amounts
owing may arise. Construction work related to a change order or claim may proceed, and costs may be incurred,
in advance of final determination of the value of the change order. As many change orders and claims may not be
settled until the end of the construction project, significant increases or decreases in revenue and income may
arise during any particular accounting period.
Page | 38
Notes to the consolidated financial statements
Years ended December 31, 2014 and 2013
2. Basis of Presentation (continued)
(d) Use of estimates and judgments (continued)
Estimates (continued)
Collectability of receivables – The Corporation estimates the collectability of accounts receivable, including
unbilled accounts receivable related to current period service revenue. An analysis of historical bad debts, client
credit-worthiness, the age of accounts receivable and current economic trends and conditions are used to
evaluate the adequacy of the allowance for doubtful accounts and the collectability of receivable. Significant
estimates must be made and used in connection with establishing the allowance for doubtful accounts in any
accounting period. Material differences may result if management made different judgments or utilized different
estimates.
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).
Judgments
Impairment - The Corporation is required to make a judgment for the need for impairment at each reporting date
by evaluating conditions specific to the organization that may lead to impairment of assets. The accounting
policies set out below have been applied consistently to all periods presented in these consolidated financial
statements.
3. Significant Accounting Policies
(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) 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.
(iv) 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, 2014 and 2013
3. Significant Accounting Policies (continued)
(b) Changes in accounting policy and disclosure
Standards, amendments and interpretations to existing standards that are effective and have been adopted by the
Corporation included:
Amendments to IAS 32 – Financial Instruments – Presentation. The amendment to the standard provides clarification
on the application of the offsetting rules. The standard was effective and adopted by the Corporation as of January 1,
2014. The adoption of the standard did not have a material effect on the Corporation.
Amendment to IAS 36 - Impairment of Assets – The amendment require entities to disclose the recoverable amount of
an impaired CGU. The amendments was effective and adopted by the Corporation as of January 1, 2014 and requires
retrospective application. The adoption of the standard did not have a material effect on the Corporation.
IFRIC 21 – Levies is an interpretation of IAS 37 - Provisions, Contingent Liabilities and Contingent Assets which sets out
criteria for the recognition of a liability, one of which is the requirement for the entity to have a present obligation as a
result of a past event (known as an obligating event). The interpretation clarifies that the obligating event that gives
rise to a liability to pay a levy is the activity described in the relevant legislation that triggers payment of the levy. The
interpretation did not have a material effect on the Corporation.
(c) Financial instruments
Financial Instrument
Trade and other receivables
Trade and other payables
Loans and 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 and loans and receivables.
Page | 40
Notes to the consolidated financial statements
Years ended December 31, 2014 and 2013
3. Significant Accounting Policies (continued)
(c) Financial instruments (continued)
(c) Non-derivative financial assets (continued)
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.
(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. 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.
(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.
Page | 41
Notes to the consolidated financial statements
Years ended December 31, 2014 and 2013
3. Significant Accounting Policies (continued)
(d) Property, plant and equipment (continued)
(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
Asset retirement obligation
Straight-line
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
2 to 18 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.
(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.
Page | 42
Notes to the consolidated financial statements
Years ended December 31, 2014 and 2013
3. Significant Accounting Policies (continued)
(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.
(f)
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 at both a specific asset and collective
level. All individually significant loans and receivables are assessed for specific impairment. All individually
significant loans and receivables found not to be specifically impaired are then collectively assessed for any
impairment that has been incurred but not yet identified. Loans and receivables that are not individually significant
are collectively assessed for impairment by grouping together receivables with similar risk characteristics.
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.
Page | 43
Notes to the consolidated financial statements
Years ended December 31, 2014 and 2013
3. Significant Accounting Policies (continued)
(g)
Impairment (continued)
(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.
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.
Page | 44
Notes to the consolidated financial statements
Years ended December 31, 2014 and 2013
3. Significant Accounting Policies (continued)
(h) Employee benefits
(i) Defined contribution plan
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 risk-free 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, 2014 and 2013 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.
(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.
Page | 45
Notes to the consolidated financial statements
Years ended December 31, 2014 and 2013
3. Significant Accounting Policies (continued)
(j) Revenue (continued)
(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, 2014 and 2013
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, 2014 and 2013
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, 2014, and have not been applied in preparing these consolidated financial statements. The Corporation
intends to adopt IFRS 15 Revenue from Contracts with Customers which is effective for annual period beginning on or
after January 1, 2017 and IFRS 9 Financial Instruments effective for annual periods beginning on or after January 1, 2018
into its financial statements. The extent of the impact of adoption of these standards has not yet been determined.
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, 2014 and 2013
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,
$
2014
308,368
118,666
28,420
20,606
$
2013
285,741
227,650
27,916
13,080
$
476,060
$
554,387
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, 2014, advances received from customers under open construction contracts amounted to $1,509,000
(2013 - $2,702,000). 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
(Gain) loss on disposal of property, plant and equipment
Twelve months ended December 31,
$
2014
181,765
92,553
17,365
12,465
11,344
44,812
$
2013
211,204
112,297
13,175
16,735
16,919
38,677
$
360,304
$
409,007
53,927
1,222
(3,666)
47,623
1,311
6,152
$
411,787
$
464,093
The amount of inventories recognized as an expense during the twelve months ended December 31, 2014 is $62,148,000
(2013 - $84,341,000).
Page | 49
Notes to the consolidated financial statements
Years ended December 31, 2014 and 2013
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,
$
2014
13,546
9,344
22,890
2,968
913
$
2013
11,619
7,427
19,046
7,060
897
$
26,771
$
27,003
Twelve months ended December 31,
2013
2014
$
191,413
3,898
2,135
$
218,244
4,579
2,208
$
197,446
$
225,031
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, 2014 was $3,898,000 (2013 - $4,579,000).
9. Finance Costs
(000’s)
Interest expense
Accretion of discount on notes payable
Accretion of provisions
Twelve months ended December 31,
2013
2014
$
$
4,149
168
234
4,551
$
$
3,388
371
63
3,822
Page | 50
Notes to the consolidated financial statements
Years ended December 31, 2014 and 2013
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
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 (gain) loss
Other
Twelve months ended December 31,
2013
2014
$
32,951
25%
8,238
$
59,469
25%
14,867
534
702
-
5
(296)
122
552
655
(397)
104
995
242
$
9,305
$
17,018
For the year ended December 31, 2014 income tax expense was $9,305,000, an effective tax rate of 28.2%, for the year
ended December 31, 2013 income tax expense was $17,018,000, an effective tax rate of 28.6%. The current year effective
tax rate is greater than the statutory rate primarily due to the revision of the prior year tax pool estimates and permanent
differences.
11. Trade and other receivables
(000’s)
Trade receivables
Accrued receivables
Construction receivables
Loans and other receivables
Receivables due from related parties
Allowance for doubtful
Trade and other receivables
December 31,
2014
December 31,
2013
$
57,652
20,634
36,863
1,183
475
116,807
$
36,611
19,413
30,070
927
900
90,921
(733)
(65)
$
116,074
$
90,856
Construction receivables represent progress billings to customers under open construction contracts, holdback amounts
billed on construction contracts which are not due until the contract work is substantially completed, amounts recognized
as revenue under open construction contracts not billed to customers and highly probable claims. 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,
2014
December 31,
2013
$
9,990
4,666
$
9,547
6,091
$
14,656
$
15,638
Page | 51
Notes to the consolidated financial statements
Years ended December 31, 2014 and 2013
13. Property, Plant and Equipment
Cost
(000’s)
Balance
December 31,
2013
Additions
Disposals
Impact of
Foreign
Translation
Balance
December 31,
2014
$
Camp facilities, setup & installation
Marine equipment
Land & Buildings
Automotive & trucking equipment
Mats
Furniture, fixtures & other equipment
Asset retirement obligation
Assets under construction
$
$
$
380,718
12,811
31,066
37,833
10,125
6,849
5,316
12,690
82,628
-
19,028
11,734
8,401
1,003
-
(8,213)
(9,334)
(12,811)
(3,542)
(3,545)
(4,388)
(1,286)
-
-
$
497,408
$
114,581
$
(34,906)
$
82
-
-
-
-
-
-
-
82
$
454,094
-
46,552
46,022
14,138
6,566
5,316
4,477
$
577,165
Balance
December 31,
2013
Depreciation
Disposals
Impact of
Foreign
Translation
Balance
December 31,
2014
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
$
$
96,672
12,070
8,538
20,359
6,593
3,557
367
-
$
39,067
60
1,616
5,371
5,056
1,365
1,392
-
$
(4,883)
(12,130)
(2,017)
(3,280)
(2,475)
(1,275)
-
-
$
148,156
$
53,927
$
(26,060)
$
Carrying Amounts
(000’s)
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
284,046
741
22,528
17,474
3,532
3,292
4,949
12,690
$
349,252
$
401,130
During the year ended December 31, 2014, the Corporation disposed of its remaining marine equipment for a net gain on
disposal of $2,569,000.
Page | 52
12
-
-
-
-
-
-
-
12
$
130,868
-
8,137
22,450
9,174
3,647
1,759
-
$
176,035
Balance
December 31,
2014
$
323,226
-
38,415
23,572
4,964
2,919
3,557
4,477
Notes to the consolidated financial statements
Years ended December 31, 2014 and 2013
13. Property, Plant and Equipment (continued)
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
Impairment
loss
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 | 53
Notes to the consolidated financial statements
Years ended December 31, 2014 and 2013
13. Property, Plant and Equipment (continued)
(a) Assets under construction
At December 31, 2014, included in capital assets under construction is an office facility and fleet equipment under
construction for both maintenance and expansion purposes. At December 31, 2013, the Corporation had 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, 2014 (2013 - $nil), due to the short term nature of
construction.
(b) Capital commitments
At December 31, 2014 the Corporation had no outstanding commitments to purchase property, plant and equipment
(2013 - $nil).
(c)
Impairment loss
Property, Plant and Equipment assets are required to be tested for impairment when indicators are identified. The
Corporation considers both qualitative and quantitative factors when determining whether an asset or CGU may be
impaired. The Corporation noted the following indications of impairment for both Camp and Catering and Matting
CGU’s.
During the year ended December 31, 2014 the market environment in which both CGU’s operate has seen
significant changes which are forecasted to have an adverse effect on the CGU’s operation. As a result,
management expects a moderate decline in earnings in the subsequent year.
There were no indicators of impairment identified for the year ended December 31, 2013.
(d)
Impairment testing for cash-generating units
For the purpose of impairment testing, the Corporation’s assets are grouped and reviewed at the CGU level which
represent the lowest level at which cash flows are generated.
The recoverable amount determined using the value in use calculation 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. The
calculation of the value in use was based on the following key assumptions:
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 based on a five year forecasted cash flow and extrapolated over the remaining useful life of
the primary assets of 15 years and discounted at a rate of 12.1% (2013 – 11.8%). 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 12.5% at a market interest rate of 4%.
The growth rate reflects the long-term average growth rates for the Camp and Catering CGU. The long-term
average growth rate exceeds the selected growth rate of 6% given the current market conditions and the
expectation of modest growth in subsequent periods.
The expectation is the market environment will return to a normalized state, reflecting the financial performance
as at December 31, 2014, during fiscal year 2016.
It is unlikely that a change in an individual key assumption in the value-in-use calculation would cause the unit’s carrying
amount to exceed its recoverable amount.
Page | 54
Notes to the consolidated financial statements
Years ended December 31, 2014 and 2013
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
Goodwill
Amortization
(000’s)
Customer relationships
Other intangible assets
Goodwill
Carrying Amount
(000’s)
Customer relationships
Other intangible assets
Goodwill
Cost
(000’s)
Customer relationships
Other intangible assets
Goodwill
Amortization
(000’s)
Customer relationships
Other intangible assets
Goodwill
Carrying Amount
(000’s)
Customer relationships
Other intangible assets
Goodwill
Balance
December 31,
2013
$
$
22,679
-
1,664
$
24,343
$
Removal
of fully
amortized
Balance
December 31,
2014
Additions
-
-
-
-
$
$
(22,679)
-
-
$
(22,679)
$
-
-
1,664
1,664
Balance
December 31,
2013
Amortization
Removal
of fully
amortized
Balance
December 31,
2014
$
$
19,711
-
-
$
2,968
-
-
(22,679)
-
-
$
$
19,711
$
2,968
$
(22,679)
$
-
-
-
-
Balance
December 31,
2013
$
$
2,968
-
1,664
4,632
Balance
December 31,
2014
$
$
-
-
1,664
1,664
Balance
December 31,
2012
$
$
56,194
1,741
1,664
$
59,599
$
Removal
of fully
amortized
Balance
December 31,
2013
Additions
-
-
-
-
$
$
(33,515)
(1,741)
-
$
(35,256)
$
22,679
-
1,664
24,343
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
1,664
$
11,692
Balance
December 31,
2013
$
$
2,968
-
1,664
4,632
Page | 55
Notes to the consolidated financial statements
Years ended December 31, 2014 and 2013
14. Intangible Assets and Goodwill (continued)
(a)
Impairment loss
Intangible assets with an indefinite useful life are required to be tested annually for impairment. The Corporation’s
intangible assets have a definite useful life and have been fully amortized in the current year.
There were no indicators of impairment identified for the year ended December 31, 2013.
(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, 2014 the aggregate carrying amount of goodwill is $1,664,000 (2013 - $1,664,000), allocated
entirely to the Camp and Catering CGU.
The recoverable amount determined using the value in use calculation 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 2014 was determined similarly as in 2013. The calculation of the value in use was
based on the same key assumptions disclosed in Note 13 (d).
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.
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, 2014 related to the prepaid lease was $128,000 (2013 - $128,000) with 20 years remaining. Also included in
other assets as at December 31, 2014 is a $nil (2013 – $nil) equity accounted investment in a joint venture as a result of a
retained deficit.
Page | 56
Notes to the consolidated financial statements
Years ended December 31, 2014 and 2013
16. Loans and Borrowings
(000’s)
Committed credit facility
Notes payable
Vehicle and equipment financing
Less current portion
December 31,
2014
December 31,
2013
$
$
$
$
$
$
146,370
4,824
2,844
154,038
(7,668)
$
146,370
$
70,756
5,655
3,341
79,752
(1,496)
78,256
The carrying value of Horizon’s debt approximates its fair value, as the majority of the debt bears interest at variable rates.
On August 13, 2014, the Corporation’s committed credit facility (“credit facility”) was increased to $175,000,000 from
$150,000,000. The credit facility is extendable annually at the Corporation’s request and subject to lender approval. The
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. The interest rate is calculated on a grid pricing structure based on the Corporation’s debt to
EBITDAS ratio. Amounts drawn on the credit facility incur interest at bank prime rate plus 0.50% to 1.00% or the Bankers’
Acceptance rate plus 1.50% to 2.00%. The credit facility has a standby fee ranging from 0.34% to 0.45%. Debt to EBITDAS is
calculated as at the quarter end for the most recently completed calendar quarter and for the 12 months ended on such
date. Amounts borrowed under the facility become due on October 26, 2016, the maturity date of the facility. As at
December 31, 2014, 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,
2014
1.6:1
22.4:1
(5)
(6)
(7)
(8)
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, 2014 these notes were recorded at an
amortized cost amount of $4,824,000.
Principal Repayments for Loans and Borrowings
(000’s)
2015
2016
2017
2018
2019 and beyond
Amount
7,668
146,370
-
-
-
154,038
$
$
Page | 57
Notes to the consolidated financial statements
Years ended December 31, 2014 and 2013
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 year
Additions
Accretion of provisions
Balance, end of year
December 31,
2014
December 31,
2013
$
$
5,656
-
234
5,890
$
$
1,364
4,229
63
5,656
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, 2014 was
$7,561,000 (2013 - $7,561,000) 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 2030.
(b) The Corporation has outstanding bank letters of credit as follows:
Maturity date
January 16, 2015
February 1, 2015
June 9, 2015
September 22, 2015
Amount (000’s)
$
25
50
74
84
(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)
2015
2016
2017
2018
2019 and beyond
$
Amount
5,985
3,012
2,233
1,073
1,766
$
14,069
Page | 58
Notes to the consolidated financial statements
Years ended December 31, 2014 and 2013
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 year
December 31,
2014
December 31,
2013
$
$
36
392
428
$
$
52
373
425
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 $1,566,000 available to reduce future taxable
income in Canada, which will expire as follows:
(000’s)
2015
2016
2017
2018
2019 and beyond
The components of net deferred tax asset (liability) recognized are as follows:
Assets
Liabilities
$
2014
-
2,563
2,346
-
414
558
50
1,435
1,073
$
2013
249
1,997
2,523
-
818
710
122
1,378
386
2014
$ (37,221)
-
(151)
(3,501)
-
-
-
-
(291)
2013
$ (32,807)
-
(151)
(5,030)
-
-
-
-
-
(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
Amount
-
-
-
-
1,566
1,566
$
$
Net
2014
2013
$ (37,221)
2,563
2,195
(3,501)
414
558
50
1,435
782
$ (32,558)
1,997
2,372
(5,030)
818
710
122
1,378
386
414
(33,139)
1,067
(30,872)
$ (32,725)
$ (29,805)
Page | 59
Notes to the consolidated financial statements
Years ended December 31, 2014 and 2013
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, 2013
and loss December 31, 2014
Recognized in profit
$
$
(32,558)
1,997
2,372
(5,030)
818
710
122
1,378
386
(29,805)
$
$
(4,663)
567
(177)
1,529
(404)
(152)
(72)
57
396
(2,920)
$
$
(37,221)
2,564
2,195
(3,501)
414
558
50
1,435
782
(32,725)
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, 2012
Share options exercised
Balance at December 31, 2013
Share options exercised
Balance at December 31, 2014
(c) Share option plan
Number
Amount (000’s)
108,709,275
$
179,999
1,375,609
3,852
110,084,884
$
183,851
416,767
1,741
110,501,651
$
185,592
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, 2014
Weighted
average
exercise price
Outstanding
options
$
3,711,955
2,383,518
(358,719)
(416,767)
5,319,987
$
5.46
7.54
7.14
3.10
6.47
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
Page | 60
Notes to the consolidated financial statements
Years ended December 31, 2014 and 2013
19. Share Capital (continued)
(c) Share option plan (continued)
Balance, beginning of year
Vested
Expired
Exercised
Balance, end of year
Year ended
December 31, 2014
Weighted
average
exercise price
Exercisable
options
Year ended
December 31, 2013
Weighted
average
exercise price
Exercisable
options
$
1,395,876
1,087,929
(23,332)
(416,767)
2,043,706
$
4.06
6.27
6.25
3.10
5.41
$
2,096,712
681,773
(7,000)
(1,375,609)
1,395,876
$
2.10
5.87
6.25
1.96
4.06
The exercise prices for options outstanding at December 31, 2014 are as follows:
Exercise price per share
$3.31 to $6.20
$6.21 to $6.27
$6.28 to $7.29
$7.30 to $7.80
$7.81 to $9.01
Number
903,667
1,992,186
245,000
2,051,068
128,066
$
Total options outstanding
Weighted
average
remaining
contractual
life in years
Weighted
average
exercise price
per share
3.98
6.25
6.76
7.62
8.27
6.47
2.0
2.3
3.3
4.4
3.6
3.1
Exercisable options
Weighted
average
exercise price
per share
$
3.70
6.25
6.79
-
8.23
5.41
Number
737,998
1,156,545
94,998
-
54,165
5,319,987
$
2,043,706
$
The weighted average share price at the date of exercise for share options exercised during the year ended December
31, 2014 was $5.40/share (2013 - $7.20/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, 2014
December 31, 2013
$ 1.30
6.75%
$ 7.54
3.0 years
1.18%
4.0%
33.94%
$ 1.47
6.61%
$ 6.77
3.02 years
1.20%
3.74%
39.9%
Expected volatility is estimated by considering historic average share price volatility. For the twelve months ended
December 31, 2014, share based compensation for share options included in net earnings amounted to $2,135,000
(2013 - $2,208,000).
Page | 61
Notes to the consolidated financial statements
Years ended December 31, 2014 and 2013
20. Earnings Per Share
The calculation of basic earnings per share for the twelve months ended December 31, 2014 was based on the total profit
attributable to common shareholders of $23,646,000 (2013 - $42,451,000).
A summary of the common shares used in calculating earnings per share for the twelve months ended December 31, 2014
and 2013 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
2014
110,084,884
204,412
110,289,296
2013
108,709,275
631,198
109,340,473
387,988
1,101,356
110,677,284
110,441,829
(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, 2014, 4,587,987 share options (2013 - 2,206,700) were excluded from the
calculation of weighted average common shares outstanding - diluted as the result would be anti-dilutive.
21. Dividends
On October 28, 2014, the Corporation’s Board of Directors declared the 2014 fourth quarter dividend of $0.08 per common
voting share. For the twelve months ended December 31, 2014, the Corporation paid dividends totaling $33,347,000
respectively (December 31, 2013 - $25,938,000).
(000’s except per share amounts)
2014
2013
Record Date
March 31
June 30
September 30
December 31
Amount per share
Total dividend
amount
Amount per share
Total dividend
amount
$
$
0.08
0.08
0.08
0.08
0.32
$
$
8,817
8,825
8,825
8,840
$
35,307
$
0.0625
0.0625
0.0625
0.0625
0.25
$
6,808
6,838
6,852
6,880
$
27,378
On February 18, 2015, the Corporation’s Board of Directors declared a dividend for the first quarter of 2015 at $0.08 per
share. The dividend is payable to shareholders of record at the close of business on March 31, 2015 to be paid on April 15,
2015.
22. 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.
Page | 62
Notes to the consolidated financial statements
Years ended December 31, 2014 and 2013
22. Financial Risk Management (continued)
(e) 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.
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
Construction receivables
Other receivables
Total trade and other receivables
December 31,
2014
December 31,
2013
$
$
36,511
733
14,994
4,761
1,128
58,127
(733)
20,634
36,863
1,183
$
116,074
$
20,409
65
13,963
4,001
2,073
40,511
(65)
19,413
30,070
927
90,856
In the twelve months ended December 31, 2014, the Corporation provided an allowance for $758,000 of receivables
aged greater than 90 days and collected $12,000 that had previously been allowed for. The Corporation also applied
$79,000 of allowance for doubtful accounts against the associated receivable balance. As at February 18, 2015, the
Corporation has collected $746,500 on amounts outstanding more than 90 days.
Construction receivables represent progress billings to customers under open construction contracts, holdback
amounts billed on construction contracts which are not due until the contract work is substantially completed, amounts
recognized as revenue under open construction contracts not billed to customers and highly probable claims. At
December 31, 2014, included in construction receivables were holdbacks of $6,800,000 (2013 - $8,400,000). The total
of construction receivables aged less than 90 days was 68% at December 31, 2014 (2013 – 88%).
(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 | 63
Notes to the consolidated financial statements
Years ended December 31, 2014 and 2013
22. Financial Risk Management (continued)
(f) Liquidity risk (continued)
On August 13, 2014, the Corporation’s committed credit facility (“credit facility”) was increased to $175,000,000 from
$150,000,000. The credit facility is extendable annually at the Corporation’s request and subject to lender approval.
The 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. The interest rate is calculated on a grid pricing structure based on the
Corporation’s debt to EBITDAS ratio. Amounts drawn on the credit facility incur interest at bank prime rate plus 0.50%
to 1.00% or the Bankers’ Acceptance rate plus 1.50% to 2.00%. The credit facility has a standby fee ranging from 0.34%
to 0.45%. Debt to EBITDAS is calculated as at the quarter end for the most recently completed calendar quarter and for
the 12 months ended on such date. 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, 2014
Trade and
other
payables(1)
Loans and
borrowings(2)
Year 1
Year 2
Year 3
Year 4
Year 5 and beyond
$
$
58,069
-
-
-
5,890
$
7,668
146,370
-
-
-
December 31, 2013
Trade and
other
payables(1)
Loans and
borrowings(2)
$
$
56,961
-
-
-
5,656
$
1,496
7,500
70,756
-
-
Total
65,737
146,370
-
-
5,890
Total
58,457
7,500
70,756
-
5,656
$
63,959
$ 154,038
$ 217,997
$
62,617
$
79,752
$ 142,369
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.
(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, 2014 by approximately $136,000 (December 31, 2013 - $182,500). 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 $1,254,000 for the twelve months ended December 31, 2014
(December 31, 2013 - $933,500). 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.
Page | 64
Notes to the consolidated financial statements
Years ended December 31, 2014 and 2013
23. 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, 2014, which was unchanged from 2013, is 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)
Total loans and borrowings to EBITDAS(1)
Total loans and borrowings to total loans and borrowings plus shareholders’ equity
December 31,
2014
December 31,
2013
$
$
$
$
7,668
146,370
154,038
286,574
440,612
37,502
53,927
2,968
(3,666)
2,135
92,866
1.66
0.35
$
$
$
1,496
78,256
79,752
294,427
374,179
63,291
47,623
7,060
6,152
2,208
$
126,334
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 | 65
Notes to the consolidated financial statements
Years ended December 31, 2014 and 2013
24. 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, 2014 (000’s)
Revenue
EBITDAS(1)
Depreciation and amortization
(Gain) loss on disposal of assets
Share based compensation
Operating earnings (loss)
Total assets
Capital expenditures
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
Camps &
Catering
$ 410,499
91,181
48,102
(3,682)
1,014
45,747
492,461
98,158
Camps &
Catering
$ 496,594
120,977
46,197
6,173
1,143
67,464
433,908
78,519
Matting
Corporate
Inter-segment
Eliminations
$ 67,172
15,505
7,972
25
208
7,300
44,377
15,412
$
-
(13,820)
1,015
(9)
913
(15,739)
3,140
1,011
$
(1,611)
-)
(194)
-
-
194
-
-
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
$
(4,626)
(31)
(209)
-
-
178
-
(47)
Total
$ 476,060
92,866
56,895
(3,666)
2,135
37,502
539,978
114,581
Total
$ 554,387
126,334
54,683
6,152
2,208
63,291
471,115
90,146
The Corporation has one major customer in the Camps & Catering segment which generated a combined 11% of total revenues for the year
ended December 31, 2014 (December 31, 2013 – 24%).
(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 | 66
Notes to the consolidated financial statements
Years ended December 31, 2014 and 2013
25. Related Parties
(000’s)
Joint venture
Recovery of administrative overhead
Key management personnel interests
Sales
Included in accounts receivable
December 31,
2014
December 31,
2013
30
-
475
30
947
395
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, 2014 and 2013 is comprised as follows:
(000’s)
Short-term employee benefits
Post-employment benefits
Termination benefits
Other long-term benefits
Share based compensation
26. Supplemental Information
December 31,
2014
December 31,
2013
$
$
3,600
102
925
-
754
3,732
77
-
-
772
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,
2014
December 31,
2013
$
$
(25,218)
982
(611)
(3,060)
(1,179)
83
$
(29,003)
$
42,339
(2,317)
(494)
(4,275)
2,859
24
38,136
Page | 67
Notes to the consolidated financial statements
Years ended December 31, 2014 and 2013
27. Significant Subsidiaries
The consolidated financial statements of Horizon North Logistics Inc., the parent company, include the accounts of the
Corporation and its following one indirectly wholly-owned partnership, as well as three special purpose entities:
Subsidiary Name
Country of
Incorporation
Ownership Interest (%)
December 31,
2014
December 31,
2013
Horizon North Camp & Catering Partnership (“Partnership”)
Swamp Mats Inc. (“SMI”)
Kitikmeot Caterers Ltd (“Kitikmeot”)
Acho Horizon North Camp Services Limited Partnership (“Acho”)
Secwepemc Camps & Catering Limited Partnership (“Secwepemc”)
Canada
Canada
Canada
Canada
Canada
100
-
49
49
49
100
100
49
49
49
During the year ended December 31, 2014 the assets of SMI were transferred into the Partnership and the entity was
dissolved. The Partnership is the primary operating entity of the Corporation.
(a) Special purpose entities
The Corporation has a 49% interest in the ownership and voting rights of Kitikmeot, Acho, and Secwepemc and
maintains two out of four board of director seats in these special purpose entities (“SPE”). These SPE’s are 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. The SPE’s do not generate profit but rather have limited assets and
the only non-flow through expenses are management fees paid to the partners. An aboriginal billing vehicle or
partnership is required to achieve aboriginal participation and secure projects in specific regions of Canada. The
Corporations control is established under terms that impose strict limitations on the decision-making powers of the
SPE’s management. The control results 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.
The summarized aggregate financial information of the special purpose entities is provided below.
(000’s)
Kitikmeot Caterers Ltd
Acho Horizon North Camp Services Limited Partnership
Secwepemc Camps & Catering Limited Partnership
December 31, 2014
(000’s)
Kitikmeot Caterers Ltd
Acho Horizon North Camp Services Limited Partnership
Secwepemc Camps & Catering Limited Partnership
December 31, 2013
$
Total
Assets
1,590
2,594
2,481
$
6,665
$
Total
Assets
573
8,626
3,294
$ 12,493
Total
Liabilities
1,590
2,594
2,481
6,665
Total
Liabilities
573
8,626
3,294
12,493
Revenue
2,178
17,890
12,529
32,597
Revenue
1,744
12,118
12,593
26,455
Profit or
(Loss)
$
$
-
-
-
-
Profit or
(Loss)
$
$
-
-
-
-
Page | 68
Corporate Information
Directors
Rod Graham
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
Rod Graham
President and Chief Executive Officer
Scott Matson
Vice President Finance and Chief Financial Officer
Craig Shenher
Senior Vice President Business Development
Bill Anderson
Vice President HSE and Quality
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