2012
ANNUAL REPORT
For the twelve months ended December 31, 2012
MANAGEMENT’S DISCUSSION AND ANALYSIS
The following Management’s Discussion and Analysis (“MD&A”) of the operating performance
and financial condition of The Churchill Corporation (“Churchill” or the “Corporation”), for the
year ended December 31, 2012, contains information current to March 17, 2013 and should be
read in conjunction with the December 31, 2012 Audited Consolidated Annual Financial
Statements and related notes thereto. Unless otherwise specified all amounts are expressed in
Canadian dollars.
On January 1, 2011, International Financial Reporting Standards (“IFRS”), as issued by the
International Accounting Standards Board, became
the Canadian generally accepted
accounting principles (“GAAP”) for the basis of preparation of financial statements for publicly
accountable enterprises. The information presented in this MD&A, including information relating
to comparative periods in 2011, is presented in accordance with IFRS unless otherwise noted
as being presented under previous Canadian GAAP and not IFRS.
Forward-Looking Information
Certain information contained in this MD&A may constitute forward-looking information. This
information relates to future events or the Corporation’s future performance. All statements,
other than statements of historical fact, may be forward-looking information. Forward-looking
information is often, but not always, identified by the use of words such as “seek”, “anticipate”,
“plan”, “continue”, “estimate”, “expect”, “may", "will”, “project”, “predict”, “propose”, “potential”,
“targeting”, “intend”, “could”, “might”, “should”, “believe” and similar expressions. This
information involves known and unknown risks, uncertainties and other factors that may cause
actual results or events to differ materially from those anticipated in such forward-looking
information. The Corporation believes that the expectations reflected in this forward-looking
information are reasonable but no assurance can be given that these expectations will prove to
be correct and such forward-looking information included in this MD&A should not be unduly
relied upon by investors as actual results may vary. This information speaks only as of the date
of this MD&A and is expressly qualified, in its entirety, by this cautionary statement.
In particular, this MD&A contains forward-looking information, pertaining to the following:
The Board’s confidence in the Corporation’s ability to generate sufficient operating cash
flows to support management’s business plans and its intention to continue to pay a
quarterly dividend;
Management’s 2013 EBITDA projections and capital expenditure plans;
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The expectation that any of the Corporation’s operating companies will improve or
maintain their business prospects or continue to grow their revenue, earnings and
backlog in any manner whatsoever including, without limitation, through margin
expansion, organic growth or productivity efficiencies;
Backlog additions reflecting resiliency of growth in resource extraction industries and the
possible implications of such growth;
Expectations regarding the ability of any of the Corporation’s operating companies to
add to or execute upon work-in-hand or active backlog;
Management’s belief that the Corporation either has or has access to sufficient capital
resources and liquidity to meet its commitments, support its operations, finance capital
expenditures, support growth strategies and fund dividends;
Expectations as to future general economic conditions and the impact those conditions
may have on the Corporation and its businesses including, without limitation, the
discussion under the heading entitled “Outlook” pertaining to the strength of commodity
prices, competition, government and institutional spending in Western Canada, margin
expansion in certain of the Corporation’s operating companies, and the ability of the
Corporation to compete for projects;
The Corporation’s projected use of cash resources; and
The ability of the Corporation’s operating companies to execute upon their strategic and
annual operating plans to expand geographically, capture or maintain market share and
increase operational scope and customer bases.
With respect to forward-looking information listed above and contained in this MD&A, the
Corporation has made assumptions regarding, among other things:
The expected performance of the global and Canadian economies and the effects
thereof on the Corporation’s businesses;
The ability of the Corporation to attract future debt and/or equity investors;
The impact on the Corporation of increasing competition;
The global demand for oil and natural gas and the effect of that demand on projects in
Western Canada; and
Government policies.
The Corporation’s actual results could differ materially from those anticipated in this forward-
looking information as a result of the risk factors set forth below:
General global economic and business conditions including the effect, if any, of a
slowdown in western Canada and/or a further slowdown in the U.S.;
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Weak capital and/or credit markets;
Fluctuations in currency and interest rates;
Changes in laws and regulations;
Limited geographical scope of operations;
Timing of client’s capital or maintenance projects;
Dependence on the public sector;
Competition and pricing pressures;
Unexpected adjustments and cancellations of projects;
Action or non-action of customers, suppliers and/or partners;
Inadequate project execution;
Unpredictable weather conditions;
Erroneous or incorrect cost estimates;
Adverse outcomes from current or pending litigation;
Interruption of information technology systems; and
Those other risk factors described in the Corporation’s most recent Annual Information
Form filed under the Corporation’s SEDAR profile at www.sedar.com.
The forward-looking statements contained in this MD&A are made as of the date hereof and the
Corporation undertakes no obligation to update or revise any forward-looking information,
whether as a result of new information, future events or otherwise, unless required by applicable
securities laws.
Non-IFRS Measures
Throughout this MD&A certain measures are used that, while common in the construction
industry, are not recognized measures under IFRS. The measures used are “contract income
margin percentage”, “work-in-hand”, “backlog”, “working capital”, “EBITDA”, “EBT”, “funds from
operations”, “funds from operations per share” and “book value per share”. These measures are
used by management of the Corporation to assist in making operating decisions and assessing
performance. They are presented in this MD&A to assist readers to assess the performance of
the Corporation and its operating companies. While Churchill calculates these measures
consistently from period to period, they likely will not be directly comparable to similar measures
used by other companies because they do not have standardized meanings prescribed by
IFRS. Please review the discussion of these measures in “Terminology” below.
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Additional Information
information regarding Churchill,
Additional
the Corporation’s current Annual
Information Form and other required securities filings, is available on Churchill’s website at
www.churchillcorporation.com and under Churchill’s SEDAR profile at www.sedar.com.
including
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Executive Summary
Core Business and Strategy
The Corporation provides general contracting and electrical contracting and data systems in the
institutional and commercial markets, and general contracting, industrial electrical, mechanical
contracting, industrial insulation and earthmoving services in the industrial construction market.
Our goal is to be the most admired construction and industrial services company in Canada.
Key Performance Drivers and Capabilities
Our performance depends upon, among other things, our ability to maintain a strong safety
program; attract and retain qualified people; strong project and financial reporting systems to
manage projects and costs efficiently; increasing backlog by exceeding customer expectations
and earning repeat business; and adequate liquidity to fund working capital and a balance sheet
which allows us to pursue growth initiatives, such as geographic and service expansion.
Results
In 2012, our EBITDA decreased by 45% to $39.6 million, compared to $72.0 million in
2011. Net earnings fell from $24.9 million in 2011 to a net loss of $61.9 million in 2012
primarily due to operational challenges within the general contracting segment and
Broda business unit, lower margins within the commercial systems segment and a $64.6
million impairment of goodwill, equipment and intangible assets. Diluted loss per share
for 2012 was $2.54 compared to diluted earnings per share of $0.94 in 2011.
Our balance sheet remains solid. In December 2012, the Corporation renegotiated the
terms and conditions of its Revolving Credit Facility (the “Revolver”) to amend the
financial covenants. As at December 31, 2012, the Corporation was in full compliance
with its covenants and had additional borrowing capacity of $72.4 million.
Declaration of Common Share Dividend
On March 17, 2013 Churchill’s Board of Directors declared a common share dividend of $0.12
per share. The dividend is designated as an eligible dividend under the Income Tax Act
(Canada) and is payable April 16, 2013 to shareholders of record on March 28, 2013. The
declaration of this dividend reflects the confidence of Churchill’s Board of Directors in the ability
of the Corporation to generate ongoing cash flows adequate to support management’s plans to
grow Churchill’s operations while providing a certain amount of income to its shareholders. The
Board’s intention is to continue to pay a quarterly dividend that rewards existing shareholders
and allows new investors with an income mandate to invest in the Corporation’s common
shares.
The Corporation has in place a dividend reinvestment plan (“DRIP”), for which details are
available on Churchill’s website (www.churchillcorporation.com).
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Future dividend payments may vary depending on a variety of factors and conditions existing
from time-to-time, including overall profitability, debt service requirements, operating costs and
other factors affecting cash sources and uses.
Outlook
Our guidance for 2013 is an EBITDA range of $45 to $55 million. The outlook for each segment
ranges from stable in our Commercial Systems and Industrial Services segments to improving
in the General Contracting segment.
Management is also reiterating its first quarter 2013 net earnings expectation of breakeven to a
modest loss driven by normal seasonal factors in Churchill’s earthmoving business, as well as a
ramp-up of new building construction projects during the quarter. However, operational and
financial results are expected to improve substantially beginning with Q2/13 results.
Risks
Various factors could cause our actual results to differ materially from those anticipated in our
forward-looking statements and are described in this document and the “Risk Factors” section of
Churchill’s Annual Information Form.
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Core Business and Strategy
Churchill provides institutional, commercial and industrial construction and maintenance
services. As of December 31, 2012, Churchill had 3,239 employees (674 salaried employees
and 2,565 hourly employees). Churchill is focused on growing revenue and earnings through
organic growth and an expanded geographical presence, accelerating the growth of its higher
margin Industrial Services segment, and leveraging client relationships through integrating the
services of its industrial operating companies.
Strategy
Emphasize value added construction and other partnering methods of project delivery;
Target contracts for larger, more complex projects;
Improve diversity of product and service lines;
Expand geographically to create value;
Hire the best people and ensure that they have the best tools; and
Maintain a strong balance sheet to support growth objectives.
Business Segments
The Corporation reports its results under four business segments: General Contracting,
Commercial Systems, Industrial Services, and Corporate and Other. The Corporation regularly
analyzes the results of these categories independently as they serve different end-markets,
generate different gross margin yields and have different risk profiles. The evaluation of results
by segment and by individual operating entity is consistent with the way in which management
performance is assessed. In order to understand more clearly the operating results for the
Corporation, the discussion of business results within this MD&A will be focused mainly at the
business segment level.
Stuart Olson Dominion Construction Ltd. (“Stuart Olson Dominion”), Churchill’s largest operating
company, forms the General Contracting segment. Canem Holdings Ltd. (“Canem”) forms the
Commercial Systems segment. Both of these companies have revenue and earnings in excess
of 10% of the consolidated revenue and earnings of the Corporation, thus justifying separate
disclosure under IFRS 8, Operating Segments. Although both of these companies serve the
institutional/commercial construction market, they operate independently and provide different
products and services to different classes of customers, in that Stuart Olson Dominion’s
customers are primarily project owners and Canem typically subcontracts to general
contractors.
On December 5, 2011, Churchill announced a realignment of its Industrial Services segment in
order to better meet the needs of industrial customers. Effective as of January 1, 2012,
Insulation Holdings and Churchill Industrial Services Group were amalgamated to form Churchill
Services Group Inc. (“CSG”). CSG began providing fully integrated industrial services, allowing
the pursuit of larger projects and contracts. CSG has three divisions: Laird Electric Inc. (“Laird
Electric”), Laird Constructors Inc. (“Laird Constructors”) and Specialty Services (Fuller Austin
Inc. (“Fuller Austin”) and Northern Industrial Insulation Contractors Inc. (“Northern”). CSG and
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Broda Construction Inc. (“Broda”) now collectively form the Industrial Services segment on the
basis that they have similar economic characteristics and are similar in terms of services
provided, production processes, customers, methods of service delivery and the regulatory
environment in which they operate.
General Contracting
General Contracting consists of Stuart Olson Dominion. Following the acquisition of The
Dominion Company Inc. (“Dominion”) in July 2010, Stuart Olson Constructors Inc. (“Stuart
Olson”) and Dominion were operationally combined
form Stuart Olson Dominion.
Headquartered in Calgary, Alberta, Stuart Olson Dominion constructs commercial, institutional
and industrial buildings. Stuart Olson and Dominion have been general contractors since 1939
and 1911, respectively. Stuart Olson Dominion has branch offices in Richmond, British
Columbia; Calgary and Edmonton, Alberta; Saskatoon and Regina, Saskatchewan; and
Winnipeg, Manitoba.
to
Stuart Olson Dominion’s preferred operating methodology is Integrated Project Delivery, which
includes, at a minimum, tight collaboration between the owner, architect/engineers and the
builder ultimately responsible for construction of the project from early design to project
handover. As construction manager and a member of the project team, Stuart Olson Dominion
has the opportunity to provide significant cost, schedule, and constructability input into the
design. Integrated projects may take the form of Construction Management at Risk (“CM”);
meaning Stuart Olson Dominion works in a consultative way on a cost-plus fee basis for the
design phase of the project and converts the arrangement to a fixed price contract for the
construction phase. This is a value-added form of project delivery which differentiates Stuart
Olson Dominion from other general contractors who prefer to perform tendered (hard-bid)
projects. The construction manager generally mitigates price and schedule risk by entering into
fixed price contracts, with defined scope and timeline, with the subcontractors that it selects to
build the project. Most of Stuart Olson Dominion’s clients prefer this form of project delivery.
For 2012, Stuart Olson Dominion comprised 55% of Churchill’s consolidated revenue (excluding
intersegment eliminations), 13% of earnings before
taxes, depreciation and
amortization (“EBITDA”) (excluding the Corporate and Other segment and intersegment
eliminations) and 66% of total backlog. In 2011, Stuart Olson Dominion comprised 64% of
consolidated revenue, 36% of EBITDA and 78% of total backlog.
interest,
Commercial Systems
Commercial Systems is comprised of Canem, which designs, builds, maintains and services
electrical and data communication systems for commercial, institutional, light industrial and
multi-family residential customers. With its head office in Richmond, B.C., its services include:
(a) design of electrical distribution systems within a building or complex; (b) procurement and
installation of electrical equipment and materials; (c) on-call service for electrical maintenance
and troubleshooting; (d) preventative and scheduled maintenance for critical component
installations; (e) budgeting and pre-construction services; and (f) management of regional and
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national contracts for multi-site installations. Canem’s acquisition of McCaine Electric Ltd.
(“McCaine”), which closed on April 29, 2011, expanded Canem’s footprint into Manitoba.
For 2012, Canem comprised 15% of Churchill’s consolidated revenue (excluding intersegment
eliminations), 26% of EBITDA (excluding the Corporate and Other segment and intersegment
eliminations) and 11% of total backlog. In 2011, Canem comprised 14% of consolidated
revenue, 33% of EBITDA and 7% of total backlog.
Industrial Services
The Industrial Services segment consists of CSG and Broda. CSG has three divisions, being
Laird Electric, Laird Constructors and Specialty Services.
Laird Electric
is headquartered
in Edmonton, Alberta and provides electrical,
instrumentation and power-line construction and maintenance services to resource and
industrial clients, primarily in the oil and gas industry within the Fort McMurray and
greater Edmonton regions.
Laird Constructors is headquartered in Sudbury, Ontario and is a multi-trade contractor
providing electrical, instrumentation, power-line, mechanical and structural construction
and maintenance services to resource and industrial clients, primarily in the mining and
power generation industries in Ontario, Manitoba and Saskatchewan.
Specialty Services is headquartered in Edmonton, Alberta and consists of Fuller Austin
and Northern. It serves industrial clients with insulation, asbestos abatement, siding
application, heating, ventilation and air conditioning (“HVAC”) and plant maintenance
services. Its clients are in the oil sands, oil and natural gas, petrochemical, forest
products, power utilities and mining industries.
Broda is headquartered in Prince Albert, Saskatchewan, providing aggregate processing,
earthwork, civil construction, concrete production and related services to mining and
infrastructure organizations, as well as providing ballast to Canada’s two major railway
corporations.
CSG and Broda have many similarities, including common customers such as Saskatchewan’s
major potash and uranium mining organizations. Management believes that offering fully
integrated industrial services through CSG has allowed, and will continue to allow Churchill to
pursue larger projects and contracts within the industrial environment.
In 2012, Industrial Services comprised 30% of Churchill’s consolidated revenue (excluding
intersegment eliminations), 61% of EBITDA (excluding the Corporate and Other segment and
intersegment eliminations) and 23% of total backlog. In 2011, Industrial Services comprised
26% of consolidated revenue, 46% of EBITDA and 15% of total backlog.
Corporate and Other
The Corporate and Other business segment includes Churchill’s corporate and staff functions of
accounting,
technology services, corporate
development, investor relations, legal services and internal audit. The costs of some functions,
treasury, human
information
resources,
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such as information services, are allocated proportionately to the other business segments, and
other costs remain in Corporate and Other. The corporate centre provides strategic direction,
operating oversight, legal services, financing, infrastructure services and management of public
company requirements to each of Churchill’s business segments.
Additionally, the Corporation reports certain assets held-for-sale, which at December 31,
2012consisted of agricultural land located near Lamont, Alberta.
Key Performance Drivers and Capabilities
Our performance depends upon, among other things, our ability to maintain a strong safety
program; attract and retain qualified people; strong project and financial reporting systems to
manage projects and costs efficiently; increasing backlog by exceeding customer expectations
and earning repeat business; and adequate liquidity to fund working capital and pursue growth
initiatives, such as geographic and service expansion.
Safety
Safety in our operating companies is very important. It receives the attention of the leadership
team at Churchill via the Health, Safety and Environment (“HS&E”) Council and the HS&E
Committee of Churchill’s Board of Directors. An excellent safety record and culture is a critical
element in pre-qualifying for industrial work and in recruiting employees across the entire
organization.
People
To attract and retain qualified staff we offer market-competitive compensation and benefits,
including referral bonuses, year-end bonuses and a share purchase plan available to all
employees; matching contributions into a Registered Retirement Savings Plan (“RRSP”) or
defined-contribution pension plan.
We engage in company-wide conference calls and town hall meetings to promote engagement
and a link to the other organizations under the Churchill Group of Companies. We offer
leadership and career development opportunities. To measure our success in attracting and
retaining staff, we use tools such as onboarding and exit interviews. We also track turnover
rates for our staff through our human resources department.
Systems
We have invested heavily in technology to put the best tools in the hands of our employees so
they can be successful in delivering projects.
Operational Excellence
Successful project delivery is at the core of operational excellence. It’s required for Churchill to
retain its client’s and secure new ones. Successful project delivery includes meeting targets for
health and safety performance, budget, schedule, quality of work and client satisfaction.
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Backlog
Procuring quality new work is a function of the economy and markets we operate within. While
we are always seeking ways to identify and procure new clients, a significant proportion of our
projects are awarded to us from repeat clients. Competition from Canadian and foreign entities,
along with consultant and client procurement strategies can sometimes impede our ability to
replace backlog.
Liquidity
Maintaining a strong financial position is important to demonstrate to shareholders, creditors
and clients that the company is sufficiently capitalized to deliver on its commitments. It also
allows the company to support existing operations and plan for its future growth.
Geographic and Service Expansion
Expansion of geographic coverage, product and service will be important to our success.
Accessing new markets and offering new product and services provides opportunities for
organic growth. In recent years Churchill has expanded into Saskatchewan, Manitoba and
Northern Ontario markets through acquisition and organic means.
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Selected Annual Financial Information
Set out below is selected annual financial information, which has been prepared in accordance
with IFRS.
On July 13, 2010, the Corporation acquired, by way of a plan of arrangement, all of the issued
and outstanding shares of Seacliff Construction Corp. (“Seacliff”) for total consideration of
$381.8 million, including the assumption of liabilities. This acquisition was financed by drawing
down $80 million of the Corporation’s $200 million Revolver, applying net proceeds from the
issuance of 6,324,500 common shares for proceeds of $105.9 million and from a convertible
debenture financing of $86.3 million, and utilizing $109.6 million of Churchill and Seacliff’s
combined cash.
The Corporation’s consolidated net earnings from continuing operations for 2010 were $34.2
million. Corporate profitability was immediately impacted by the inclusion of Dominion’s lower
margin operations in the last 5½ months of 2010 and a gradual softening of Stuart Olson’s
margins from projects secured in the more competitive markets of 2008 and 2009, lower
amounts of self-performed work, and being in the early phases of construction on several new
projects.
Churchill’s financial results in 2011 were hindered by Stuart Olson Dominion’s performance and
to a lesser extent weather related issues which impacted Broda’s returns on the Calgary Airport
project. Stuart Olson Dominion’s performance was hurt by the inclusion of low and loss margin
projects from Dominion, project execution issues, lower amounts of self-performed work and
being in the early phases of construction on new projects.
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($millions, except per share amounts)201220112010Contract revenue $ 1,222.1 $ 1,409.2 $ 1,183.9 Contract income121.8 157.9 144.4 EBITDA from continuing operations39.6 72.0 71.8 Net earnings (loss) (1) from continuing operations(61.9)24.1 33.1 Net earnings (loss) from discontinued operations - 0.8 1.1 Net earnings (loss)(61.9)24.9 34.2 Earnings (loss) per common share from continuing operations - Basic(2.54)0.991.60 - Diluted(2.54)0.911.50Net earnings (loss) per common share - Basic (1)(2.54)1.021.66 - Diluted (1)(2.54)0.941.55Funds from operations41.8 74.076.4Funds from operations per common share - Basic1.71 3.063.71Backlog $ 1,690.5 $ 1,842.6 $ 1,555.0 Long-term debt (excluding current portion)51.9 60.4 74.1 Convertible debentures79.2 76.7 74.5 Total assets742.4 888.5 871.8 12 Months Ended Dec. 31Notes: (1) Net earnings, basic earnings per share and diluted earnings per share would have been $0.4 million, $0.02 and $0.02, respectively without the $64.6 million goodwill, equipment and intangible asset impairment charge recorded in 2012. EBITDA is earnings from continuing operations before interest, taxes, depreciation and amortization and impairment charges. Churchill’s financial returns in 2012 were again hindered by operational challenges within its
general contracting, commercial systems and to a lesser extent industrial services segments.
General contracting revenues decreased year-over-year due to Stuart Olson Dominion
executing a lower volume of Dominion projects. Stuart Olson Dominion also struggled to
perform due to low margins associated with Dominion projects, project challenges on the
Investor’s Group Field project, lower amounts of self-performed work and being in the early
phases of construction on new projects. Canem experienced competitive pressures on bid
margins and project delays which resulted in an erosion of margins. Churchill’s industrial
segment generally performed strongly, however weather related issues in its Broda business
and difficult conditions on its Calgary Airport project resulted in lower margins and profitability.
Notwithstanding the competitive market conditions, project execution issues and weaker
financial results of the past two years, Churchill has still made progress on reducing the long-
term debt associated with its Revolver.
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Annual Performance Overview
The Corporation generates the majority of its revenues from the four Western Canadian
provinces of Manitoba, Saskatchewan, Alberta and British Columbia. In 2011, with the
establishment of Laird Constructors headquartered in Sudbury, Ontario, the Corporation took
steps to grow its business east of Manitoba.
For the 12 months ended December 31, 2012, consolidated contract revenue was $1,222.1
million, compared to $1,409.2 million in 2011, a 13% decrease. The General Contracting
segment’s revenue decreased by $215.0 million or 24%, the Commercial Systems segment’s
revenue decreased by $4.5 million or 2%, and the Industrial Services segment revenue
increased by $16.6 million or 5%. Intersegment revenue during 2012 was $41.8 million, a
decrease of $15.8 million or 27% compared to 2011, primarily resulting from less intercompany
activity between the commercial systems and general contracting segments.
Contract income decreased from $157.9 million (11.2% of revenue) in 2011 to $121.8 million
(10.0% of revenue) in 2012. The $36.2 million year-over-year decrease in contract income is
made up of decreases in the General Contracting, Commercial Systems and Industrial Services
segments of $22.9 million (37%), $11.9 million (26%) and $6.4 million (13%), respectively,
which is modestly offset by an increase in the intersegment elimination of $4.9 million.
Administrative expenses for 2012 amounted to $95.4 million (7.8% of revenue) compared to
$95.2 million (6.8% of revenue) in 2011. Administrative expenses decreased by $1.7 million
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($millions, except per share amounts)2012201120122011Contract revenue289.9$ 384.3$ 1,222.1$ 1,409.2$ Contract income32.6 45.1 121.8 157.9 EBITDA from continuing operations(1)9.0 19.6 39.6 72.0 Net earnings (loss) from continuing operations(62.6) 7.3 (61.9) 24.1 Net earnings (loss) from discontinued operations- - - 0.8 Net earnings (loss)(62.6) 7.3 (61.9) 24.9 Net earnings (loss) per common share from continuing operations- Basic(2.56)$ 0.30$ (2.54)$ 0.99$ - Diluted(2.56) 0.27 (2.54) 0.91 Net earnings (loss) per common share- Basic(2.56) 0.31 (2.54) 1.02 - Diluted(2.56) 0.27 (2.54) 0.94 Funds from operations(1)9.7$ 19.6$ 41.8$ 74.0$ Funds from operations per common shares - Basic(1)0.40$ 0.81$ 1.71$ 3.06$ December 31, 2012December 31, 2011Backlog(1)1,690.5$ 1,842.6$ Working capital(1)79.2 86.0 Long-term debt (excluding current portion)51.9 60.4 Convertible debentures (excluding equity portion)79.2 76.7 Total assets742.4 888.5 Note: (1)Three months ended December 31Year ended December 31"EBITDA" is earnings from continuing operations before interest, taxes, depreciation and amortization and impairment charges; "Funds from Operations" is net cash generated by (used in) operating activities before interest, taxes and changes in employee benefits, provisions and non-cash working capital. Working capital is current assets less current liabilities (all non-IFRS measures). Backlog is also a non-IFRS measure. Refer to "Terminology" for definitions of non-IFRS measures. (4%) in the General Contracting segment, $0.3 million (1%) in the Commercial Systems
segment, and $0.1 million (1%) in the Industrial Services segment. Administrative expenses
increased by $1.7 million (14%) in the Corporate and Other segment accompanied by a $0.5
million increase in the intersegment elimination year-over-year.
The net impact of the aforementioned decrease in revenue and contract income in conjunction
with an increase in administrative expenses was a $32.4 million decrease in 2012 EBITDA to
$39.6 million as compared to $72.0 million in 2011.
For explanations of these changes, please refer to the discussion of segmented results which
follows.
Intangible assets relate to the design and implementation of the Corporation’s enterprise
resource planning (“ERP”) system, and assets acquired in conjunction with the purchase of
other businesses, for which Churchill used the fair value method. The assets acquired relate to
the acquisition of Dominion, Canem and Broda in 2010 and McCaine in 2011. These assets
resulted in an amortization charge of $13.5 million in 2012. The comparable charge in 2011 was
$15.9 million. The backlog and agency intangibles are amortized based on management’s
expectation of when the related revenues will be earned. Refer to Note 11 to the Audited
Consolidated Annual Financial Statements.
As a result of the Corporation’s annual goodwill impairment test, the Corporation recorded a
$55.2 million non-cash goodwill impairment charge to the Statement of Comprehensive Loss
against the goodwill allocated to Broda and Canem. Additionally, a $9.4 million non-cash
impairment charge to the Statement of Comprehensive Loss was recognized against the
intangible assets of Broda and other construction equipment. The net book value of intangible
assets as at December 31, 2012 was $58.7 million (December 31, 2011 - $72.1 million). Refer
to Note 21, 22 and 23 to the Audited Consolidated Annual Financial Statements for additional
detail.
EBT for 2012 was ($63.8) million compared to $32.6 million in 2011 (decrease of $96.4 million),
as a result of the $32.4 million decrease in 2012 EBITDA and the $64.6 million goodwill,
equipment and intangible asset impairment described above.
The Corporation’s consolidated net loss from continuing operations for 2012 was $61.9 million
compared to net earnings from continuing operations of $24.1 million in 2011, an $86.0 million
decrease, reflecting the $96.4 million decrease in EBT partly offset by an increase in income tax
recovery of $10.4 million.
Churchill’s net loss for 2012 was $61.9 million compared to net earnings of $24.9 million,
including net earnings from discontinued operations of $0.8 million in 2011.
In 2012, funds from operations of $41.8 million decreased from $74.0 million in 2011. Funds
from operations are discussed in the Capital Resources and Liquidity - Summary of Cash Flows
section that follows.
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Churchill’s backlog, including work-in-hand, at December 31, 2012 was $1,690.5 million,
compared to $1,842.6 million at December 31, 2011, a $152.1 million or 8% decrease. The
Corporation’s backlog consists of work-in-hand of $964.5 million (2011 – $901.1 million) and
active backlog of $726.0 million (2011 – $941.5 million). The backlog consists of approximately
46% CM, 39% cost-plus arrangements (combined total of 85% CM and cost-plus) and 15%
tendered (hard-bid) work. Tendered projects tend to carry the largest amount of price and
schedule risk because the competitive tender process forces contractors to be the lowest
bidder. CM projects tend to carry less schedule and price risk than tendered projects because
the price and schedule setting process is collaborative, rather than competitive. Only under
cost-plus contracts does the contractor not carry price and schedule risk. On a segmented
basis, backlog at year-end 2012 was $1,115.8 million in General Contracting (2011 – $1,445.3
million), $194.3 million in Commercial Systems (2011 – $133.3 million) and $380.4 million in the
Industrial Services segment (2011 – $264.0 million). New contract awards and net increases in
contract value of $334.8 million were added to work-in-hand in the fourth quarter of 2012 (2011
– $305.1 million).
Assets held-for-sale
The net assets held for sale and related details are included in Note 14 to the Audited
Consolidated Annual Financial Statements. The asset held-for-sale consists of agricultural land
no longer required by the Corporation.
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16
Results of Operations
General Contracting
For the 12 months ended December 31, 2012, Stuart Olson Dominion’s revenue was $692.0
million, compared to $907.0 million in 2011. This $215.0 million or 24% decrease is primarily
attributable to executing a lower volume of Dominion work in 2012, being in the pre-construction
phase and early construction stage on several new projects and delays in executing backlog,
delaying revenue into 2013 on a number of projects.
Stuart Olson Dominion’s contract income in 2012 decreased by $22.9 million, or 37%, to $39.3
million, from $62.2 million for 2011. The 2012 contract income margin was 5.7% compared to
6.9% in 2011. The decline in contract income generally resulted from the recognition of $14.2
million of project losses associated with the execution of Dominion backlog and lower volume of
project work executed.
Stuart Olson Dominion’s administrative expense was $38.3 million (5.5% of revenue) in 2012
compared to $40.1 million (4.4% of revenue) in 2011. The $1.7 million (4%) decrease is
primarily related to lower staffing levels and related compensation expense.
EBITDA for Stuart Olson Dominion in 2012 was $6.5 million compared to $26.2 million in 2011.
This $19.7 million, or 75% decrease was mainly due to the aforementioned decrease in
revenues and contract income, partly offset by the $1.7 million decrease in administrative
expense and a $1.3 million increase in other income, from divestitures of assets held-for-sale.
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Total General Contracting Commercial Systems Industrial Services Corporate and Other IntersegmentEliminations Contract revenue1,222.1$ 692.0$ 188.2$ 383.7$ -$ (41.8)$ Contract income121.8 39.3 34.3 43.1 - 5.0 Contract income margin10.0%5.7%18.3%11.2%- - Administrative expenses95.4 38.3 22.8 20.5 13.8 (0.1) EBITDA(1)39.6 6.5 12.5 29.4 (13.8) 5.1 EBITDA margin3.2%0.9%6.7%7.7%- - EBT(1)(63.7) 2.4 10.0 18.5 (97.1) 2.4 Backlog(1)1,690.5$ 1,115.8$ 194.3$ 380.4$ -$ -$ Total General Contracting Commercial Systems Industrial Services Corporate and Other IntersegmentEliminations Contract revenue1,409.2$ 907.0$ 192.7$ 367.0$ -$ (57.5)$ Contract income157.9 62.2 46.2 49.5 - 0.1 Contract income margin11.2%6.9%24.0%13.5%- - Administrative expenses95.2 40.1 23.2 20.4 12.1 (0.6) EBITDA(1)72.0 26.2 24.0 33.4 (12.1) 0.5 EBITDA margin5.1%2.9%12.4%9.1%- - EBT(1)32.6 22.5 21.8 27.8 (39.5) 0.1 Backlog(1)1,842.6$ 1,445.3$ 133.3$ 264.0$ -$ -$ Notes:($millions, except margin percent)Year ended December 31, 2012(1) "EBT" is earnings (loss) from continuing operations before income tax. EBT, EBITDA and backlog are non-IFRS measures. Refer to "Terminology" for definitions of non-IFRS measures.Year ended December 31, 2011
Stuart Olson Dominion had backlog of $1,115.8 million as at December 31, 2012, compared to
backlog of $1,445.3 million at December 31, 2011, a $329.5 million or 23% decrease. As at
December 31, 2012 approximately 63% of Stuart Olson Dominion’s backlog was composed of
CM assignments, 33% was cost-plus projects (combined total of 96% CM and cost-plus) and
4% were tendered projects. The December 31, 2012 backlog consisted of $575.6 million of
work-in-hand and $540.2 million of active backlog, whereas the December 31, 2011 backlog
was made up of $586.2 million of work-in hand, with the remaining $859.1 million being active
backlog. The segment began the fourth quarter of 2012 with $527.0 million of work-in-hand,
contracted $198.9 million of additional work-in-hand during the quarter and executed $150.3
million of construction activity.
Commercial Systems
The Commercial Systems segment’s 2012 revenue was $188.2 million, compared to $192.7
million in 2011. This $4.5 million or 2% decrease is primarily attributable to the impact of project
delays which pushed revenue into 2013.
Canem’s contract income decreased during 2012 by $11.9 million (26%) to $34.3 million, from
$46.2 million in 2011. This resulted in a contract income margin of 18.3% for calendar 2012
compared to 24.0% in 2011. The reduced margin is attributable to the execution of lower margin
projects in 2012, field installation delays resulting in margin reforecast and competitive market
conditions.
Canem’s administrative expense was $22.8 million (12.1% of revenue) in 2012 compared to
$23.2 million (12.0% of revenue) in 2011.
EBITDA for Canem in 2012 was $12.5 million (a 6.7% EBITDA margin) compared to $24.0
million (a 12.4% EBITDA margin) for 2011. This $11.5 million (48%) decrease was due to the
aforementioned decrease in contract income, partly offset by the reduction in administrative
expenses.
Canem had total backlog of $194.3 million as at December 31, 2012, compared to total backlog
of $133.3 million at December 31, 2011 (a $61.0 million or 46% increase). Canem’s $194.3
million backlog consisted of work-in-hand of $127.1 million and active backlog of $67.2 million.
The backlog consists of 37% CM projects and 63% tendered projects. Canem as a
subcontractor, has project scopes that are more defined and specific and is not subject to the
total project risk of a general contractor, and therefore is able to bear a larger proportion of
tendered projects. The segment began the fourth quarter of 2012 with $134.8 million of work-in-
hand, contracted $44.5 million of new awards and increases in contract value during the quarter
and executed $52.2 million of construction activity (including intersegment revenue).
Industrial Services
For the Industrial Services segment, 2012 revenue increased by $16.7 million (5%) to $383.7
million from $367.0 million for 2011. The revenue increase was due to greater activity levels
associated with maintenance and turnaround projects in the oil sands and at petrochemical
refineries in Alberta and Saskatchewan.
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Industrial Services’ contract income decreased by $6.4 million, or 13%, to $43.1 million from
$49.5 million for 2011. Contract income margins were lower at 11.2% in 2012 as compared to
13.5% in 2011, primarily as a result of the lower contract income generated at Broda compared
to results in 2011. Less impactful were the influence of the competition on margins and the
proportion of maintenance and turnaround projects executed during 2012.
The Industrial Services segment’s administrative expenses were $20.5 million (5.3% of
revenue) in 2012 compared to $20.4 million (5.6% of revenue) in 2011. The percentage
decrease is largely related to increased business activity within CSG.
EBITDA for the Industrial Services segment decreased by $4.0 million, or 12%, to $29.4 million
(a 7.7% EBITDA margin) for 2012 from $33.4 million (a 9.1% EBITDA margin) in 2011. The
decrease in EBITDA resulted primarily from lower contract income margins.
Industrial Services had backlog of $380.4 million as at December 31, 2012, compared to
backlog of $264.0 million at December 31, 2011. The December 31, 2012 backlog consisted of
$261.8 million of work-in-hand and $118.6 million of active backlog. The backlog consists of
78% cost plus projects, and 22% tendered projects. The Industrial Services segment started the
fourth quarter with $270.1 million of work-in-hand, contracted $91.4 million of new awards and
scope increases during the quarter and executed $99.6 million of construction activity.
Corporate and Other
The Corporate and Other segment’s administrative expenses, excluding depreciation and
amortization, were $13.8 million in 2012 compared to $12.1 million in 2011, a $1.7 million (14%)
increase. The increase is primarily related to a greater amount accrued for incentive
compensation and a lower recovery related to stock-based compensation expense during 2012.
Corporate and Other’s finance costs were $11.4 million in 2012 compared to $12.2 million in
2011, a $0.8 million (7%) decrease. The decrease in finance costs related to lower interest rate
pricing on the outstanding long-term debt during the period. Finance costs are expected to
increase in 2013 in conjunction with expected higher debt to EBITDA metrics.
The Corporate and Other segment’s depreciation and amortization expense was $12.5 million in
2012 compared to $15.2 million in 2011, a $2.7 million (18%) decrease. The current and
comparative period amounts include amortization of intangible assets acquired with the
acquisition of Dominion, Canem, Broda and McCaine, and amortization of the Corporation’s
SAP-based ERP system. Amortization of backlog and agency intangible assets is dependent on
management’s expectations of when the related revenue will be earned. This can result in
variable amortization charges depending on the period.
In 2012, the Corporate and Other segment incurred a net loss before tax of $97.1 million
compared to a net loss before tax of $39.5 million in 2011 primarily as a result of recording
$61.6 million of the aforementioned $64.6 million asset impairment charge in the corporate and
other segment, a decrease in finance, depreciation and amortization expenses partially offset by
the increase in administrative expenses. The remaining $3.0 million asset impairment charge
was recorded in the Industrial Services segment.
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2012 ANNUAL REPORT
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Capital Resources and Liquidity
Cash and Debt Balances
Cash and cash equivalents at December 31, 2012 were $33.8 million, compared to $59.4 million
at December 31, 2011, a $25.6 million decrease resulting from the Corporation’s commitment to
reducing its long-term debt and investments in non-cash working capital to support operations.
Long-term indebtedness at December 31, 2012, excluding the $0.8 million current portion of
long-term debt, amounted to $131.1 million compared to $137.1 million at December 31, 2011,
a net decrease of $6.0 million. This amount consisted of $79.2 million (December 31, 2011 -
$76.7 million) of the debt portion of convertible debentures and $51.9 million (December 31,
2011 - $60.4 million) drawn on Churchill’s $200 million, four year senior revolving credit facility.
The Revolver was originally secured on July 12, 2010, with a syndicate of chartered banks (the
“Syndicate”), and terms and conditions have subsequently been renegotiated effective the
annual anniversary dates in 2011, 2012 and December 21, 2012. The July 2012 amendment to
the agreement included a reduction in pricing, an extension of the facility (new maturity date of
July 12, 2016), an increase in the swingline loan from $10.0 million to $15.0 million and
additional flexibility on consents regarding dividends and acquisitions. The December 2012
amending agreement to the Revolver modifies the financial covenants, including maintaining
each of: (a) a working capital ratio of not less than 1.1:1; (b) an interest coverage ratio of at least
3:1 by Oct 31, 2013; (c) a total debt to EBITDA ratio of not more than 3:1; and (d) a senior debt
to EBITDA ratio of not more than 2.5:1 by January 1, 2014. For the purposes of the Revolver,
EBITDA is defined as earnings or loss before interest, income taxes, depreciation and
amortization, non-cash gains and losses from financial instruments, stock based compensation,
non-recurring gains and losses and any other non-cash items deducted in the calculation of net
earnings. The Syndicate remains the same and the Revolver continues to include a $75 million
accordion feature. As at December 31, 2012, the Corporation was in full compliance with its
covenants and had additional borrowing capacity of $72.4 million available to it under the
Revolver. For additional information refer to Note 26 of the Audited Consolidated Annual
Financial Statements.
The amount of the Revolver will fluctuate from quarter to quarter as it is drawn to finance
working capital requirements, capital expenditures and acquisitions, and as it is paid with funds
from operations. For instance, in October 2012, the Corporation provided three separate letters
of credit totalling $6.5 million and undertook to provide an additional letter of credit of $1 million
in as late as January 2013 as partial security for a lien bond of approximately $15.5 million
issued by the Corporation’s surety providers. The lien bond relates to the removal of a lien that
was filed by the structural steel subcontractor on Stuart Olson Dominion’s Investors Group Field
stadium project in Winnipeg, Manitoba. The face value of these letters of credit reduces the
Corporation’s borrowing capacity under the Revolver by an equal amount. For additional
information refer to Note 36 to the Audited Consolidated Annual Financial Statements.
On June 15, 2010, the Corporation closed a convertible debentures financing in the principal
amount of $86.3 million, including the exercise by the underwriters of the over-allotment option.
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2012 ANNUAL REPORT
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Upon closing, the debentures became an obligation of the Corporation. For accounting
purposes, the equity conversion rights of the convertible debentures were assigned a value of
$9.5 million (net of $0.5 million of transaction costs) which was included in shareholders’ equity,
and $73.3 million was assigned to the long-term debt component (net of $2.9 million of
transaction costs). For additional information refer to Note 27 to the Audited Consolidated
Annual Financial Statements.
Summary of Cash Flows
The net cash generated by operating activities during the fourth quarter of 2012 was $26.5
million (fourth quarter 2011 - $51.2 million). Interest payments of $3.5 million (fourth quarter
2011 – $4.1 million) and taxes received of $1.2 million (fourth quarter 2011 – $0.9 million)
resulted in cash generated from operations in the fourth quarter of 2012 of $28.9 million (fourth
quarter 2011 - $54.4 million). After accounting for the cash surrender of stock options of $1.2
million (fourth quarter 2011 - $nil), pension related benefits of $2.3 million (fourth quarter 2011 -
$nil), a change in provisions of $(0.5) million (fourth quarter 2011 - $0.1 million), and a change
in non-cash operating working capital of $(22.2) million (fourth quarter 2011 - $(34.8) million),
funds from operations for the fourth quarter of 2012 were $9.7 million (fourth quarter 2011 -
$19.6 million). Working capital is being utilized within the business, primarily in the Industrial
Services segment as expanding operations have caused receivables to grow faster than
payables.
The net cash generated by operating activities in 2012 was $6.5 million (2011 - $57.5 million).
Interest payments of $8.4 million (2011 – $9.1 million) and taxes paid (received) of $(11.9)
million (2011 – $4.3 million), resulted in cash generated from operations for the year ended
December 31, 2012 of $3.0 million compared to cash generated in 2011 of $70.9 million. After
accounting for payments associated with share-based payment liabilities of $3.0 million (2011 -
$0.8 million), the cash surrender of stock options of $1.2 million (fourth quarter 2011 - $nil),
pension related benefits of $2.3 million (fourth quarter 2011 - $nil), a change in provisions of
$2.3 million (2011 - $3.1 million), and a change in non-cash operating working capital of $30.0
million (2011 - $(0.8) million), funds from operations for 2012 were $41.8 million (2011 - $74.0
million). Efforts to manage working capital more effectively proved to be impactful on a full year
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2012 ANNUAL REPORT
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($millions, except shares and per share amounts)2012201120122011Net cash generated by operating activities26.5$ 51.2$ 6.5$ 57.5$ Add:Income taxes paid (received)(1.2) (0.9) (11.9) 4.3 Interest paid3.5 4.1 8.4 9.1 Cash generated from operations28.9$ 54.4$ 3.0$ 70.9$ Payment of share-based payment liability0.0 - 3.0 0.8 Cash settlement of stock options1.2 - 1.2 - Employee benefits2.3 - 2.3 - Change in provisions(0.5) 0.1 2.3 3.1 Change in non-cash working capital balances relating to operations(22.2) (34.8) 30.0 (0.8) Funds from operations9.7$ 19.6$ 41.8$ 74.0$ Weighted average common shares - basic (millions)24.4 24.2 24.4 24.2 Funds from operations per common share - basic0.40$ 0.81$ 1.71$ 3.06$ Three months ended December 31Year ended December 31
basis. The tax recovery for the full year 2012 was due to refunds received related to 2011 tax
filings.
Investing activities resulted in a net use of cash of $14.1 million during 2012, which compares
with net cash used of $46.7 million in 2011. The $32.6 million difference in expenditures is
primarily attributable to $17.5 million less invested in property and equipment purchases in
2012, $9.7 million invested to acquire McCaine Electric in 2011 and $4.7 million lower
investment associated with additions to the Corporation’s ERP system.
During 2012, net cash used in financing activities totalled $18.1 million. The major financing
activities during 2012 were the $10.6 million net repayment of long term debt and the payment
of $9.2 million in cash dividends compared to $4.5 million in cash dividend payments during
2011. Less significant financing activities in 2012 related to the receipt of a service provider
deposit, costs related to issuing long-term debt, share repurchases under the Corporation’s
normal course issuer bid and the surrender of stock options. The net cash used by financing
activities totalled $22.1 million in 2011, related to a net repayment of long-term debt, share
repurchases under the Corporation’s normal course issuer bid, and the payment of dividends.
Working Capital
As at December 31, 2012, Churchill had working capital of $79.2 million, compared to $86.0
million at December 31, 2011. Working capital declined from the prior year as cash was used for
financing capital expenditures and debt repayment.
Capital Management
The Corporation’s objectives in managing its capital is to ensure that there is sufficient liquidity
to pursue its growth, maintain the payment of its dividend while maintaining a prudent amount of
financial leverage.
The Corporation’s capital is composed of equity and long-term indebtedness. The Corporation’s
primary uses of capital are to finance its growth strategies and capital expenditure programs.
In 2012, the Corporation’s capital expenditures totalled $20.4 million including $9.1 million for
construction and automotive equipment, $7.6 million for computer hardware and software, $3.0
million for tenant improvements and $0.7 million for furniture and equipment. Capital
expenditures are associated with the Corporation’s need to maintain and support its existing
operations. Management’s budget for 2013 anticipates capital expenditures of $19.5 million.
Management believes that the Corporation has the capital resources and liquidity necessary to
meet its commitments, support its operations, finance capital expenditures, support growth
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2012 ANNUAL REPORT
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407.5$ 481.5$ 328.3 395.5 79.2$ 86.0$ Working capitalAs at:December 31, 2012December 31, 2011($millions)Current assetsCurrent liabilities
strategies and fund declared dividends, because the Corporation has adequate cash and cash
equivalents, ability to generate cash from operations, and an undrawn portion of its Revolver.
Shareholders’ equity was $235.1 million at December 31, 2012 compared to $309.1 million at
December 31, 2011. This resulted from a net loss of $61.9 million during 2012, a $3.6 million
defined benefit plan actuarial loss, cash dividend payments of $9.2 million, normal course issuer
bid share purchases of $0.4 million and share based payment transactions of $(1.1) million.
Refer to Note 32 to the Audited Consolidated Annual Financial Statements for additional
information regarding the Corporation’s management of its capital.
Contractual Obligations
Scheduled debt principal repayments within one year at December 31, 2012 were $0.8 million,
compared to $1.4 million at December 31, 2011. Finance contracts and finance lease
obligations are secured by construction and automotive equipment and are more fully described
in Note 26 to the Audited Consolidated Annual Financial Statements.
The following are the contractual obligations, including interest payments as at December 31,
2012, in respect of the financial obligations of the Corporation. Interest payments on the
Revolver have not been included in the table below since they are subject to variability based
upon outstanding balances at various points throughout the year. Further information is included
in Note 31(c)(iii) to the Audited Consolidated Annual Financial Statements.
The Corporation maintains operating leases with regard to certain construction equipment,
vehicles, office premises and equipment. They are described in the tables which follow and in
Note 35 to the Audited Consolidated Annual Financial Statements.
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December 31,December 31,20122011Current portion of long-term debtFinance contracts-$ 598$ Finance lease obligations828 805 828$ 1,403$ Non-currentRevolving credit facility51,596$ 59,628$ Finance contracts- 10 Finance lease obligations313 795 51,909$ 60,433$ Trade and other payables233,442$ 233,442$ 233,442$ - $ - $ - $ Provisions including current portion10,899 10,899 3,246 3,246 961 3,446 Convertible debentures79,151 99,188 2,588 2,588 5,175 88,838 Long-term debt including current portion52,737 52,773 427 427 81 51,839 Lease commitments68,515 68,515 2,992 2,992 7,543 54,987 444,744$ 464,816$ 242,696$ 9,253$ 13,760$ 199,109$ Carrying amountContractual cash flows0 - 6 months6 - 12 months12 - 24 monthsAfter 24 months
The Corporation remains a partner in five joint ventures, one of which is a public-private
partnership (“P3”) project being constructed by Stuart Olson Dominion with its partner Acciona,
a large international energy, water services and infrastructure company headquartered in Spain.
For this project, the Fort St. John Hospital in Fort St. John, British Columbia, the Corporation
provided a joint and several guarantee, increasing the maximum potential exposure to the full
value of the work remaining under the contract. On July 12, 2012, the hospital was officially
opened to the public, so the Corporation’s exposure to financial penalties and/or liquidated
damages was eliminated. P3 projects also require security in the form of letters of credit to
support the Corporation’s obligations. Refer to Note 7 to the Audited Consolidated Annual
Financial Statements for additional details.
Financial Instruments
On August 8, 2011, the Corporation entered into derivative financial instruments with a financial
institution designed to lock in the fuel price economics of a multi-year construction project for
Broda. The financial instruments are not accounted for as designated accounting hedges
because their effectiveness is hindered by inherent risk related to location, basis, foreign
exchange and quantity. Therefore, the statement of earnings will reflect the fair market
adjustments from period to period. In 2012, this resulted in neither a gain nor a loss (2011 - $21
thousand) included in Other Income (Cost). During the period the hedge was in force, the hedge
limited exposure to fuel price volatility given the underlying commodity closely correlated with
experienced fuel price fluctuations. For additional information refer to Note 31(c)(iv) to the
Audited Consolidated Annual Financial Statements.
Share Data
The Corporation encourages its employees to invest in its shares by offering an Employee
Share Purchase Plan (“ESPP”) available to all full-time employees. At December 31, 2012, the
ESPP held 1,314,029 common shares for employees (December 31, 2011 – 951,925 common
shares). Under the ESPP, common shares are acquired in the open market.
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Non-cancellable operating lease commitments:December 31,December 31,20122011Not later than 1 year8,044$ 5,438$ Later than 1 year and not later than 5 years26,496 22,829 Later than 5 years36,034 21,238 70,574$ 49,505$ Payments recognized as expense:December 31,December 31,20122011Minimum lease payments6,950$ 4,350$ Sub-lease payments received(448) (228) 6,502$ 4,122$
On January 17, April 17, July 17 and October 16, 2012, the Corporation issued 67,807, 46,098,
64,313 and 52,664 common shares, respectively, pursuant to its DRIP. On January 15, 2013,
the Corporation issued 54,073 common shares, pursuant to its DRIP.
As at March 15, 2013, the Corporation had 24,547,535 common shares issued and outstanding
and 1,498,975 options convertible into common shares upon exercise (December 31, 2012 –
24,493,462 common shares and 1,379,981 options). Refer to Notes 28(b)(c) and 29 to the
Audited Consolidated Annual Financial Statements for further detail.
As well, the Corporation has 6% convertible debentures outstanding in the principal amount of
$86.3 million, convertible into 3,791,205 common shares. Refer to Note 27 to the Audited
Consolidated Annual Financial Statements for further detail.
Diluted earnings per share is calculated on the basis of the weighted average number of
common shares outstanding, plus the number of additional common shares that would have
been outstanding if the dilutive potential common shares associated with the outstanding stock
options and the convertible debentures had been issued. The calculation of the diluted weighted
average number of shares outstanding for the year ending December 31, 2012 of 24,402,974
(December 31, 2011 – 32,445,550) is set out in Note 16 to the Audited Consolidated Annual
Financial Statements.
At December 31, 2012, 1,379,981 options (December 31, 2011 – 809,587 options) were
excluded from the diluted weighted average number of common share calculations as
their effect would have been anti-dilutive. The average market value of the Corporation’s
shares for purposes of calculating the dilutive effect of share options was based on
quoted market prices for the period during which the options were outstanding.
At December 31, 2012, no incremental shares related to the convertible debentures are
included in the diluted share calculation (December 31, 2011 – 7,943,086). In
determining the diluted earnings per share, the Corporation determined the impact of
normalizing earnings by adding back related interest, accretion and amortization costs of
the convertible debentures to net earnings from continuing operations. This outweighed
the effect of the related incremental shares, making the calculation anti-dilutive. The
incremental shares included in the dilutive weighted average number of shares was
determined using the Corporation’s share price at December 31, 2012 of $8.70
(December 31, 2011 - $11.43).
Share-based Payments
Stock-based compensation is an expense driven in part by the number, fair value and vesting
rights of options, deferred share units (“DSUs”) and performance share units (“PSUs”) granted.
The stock-based compensation expense was $4.7 million for 2012 compared to $3.2 million for
2011.
During the 12 months ended December 31, 2012, the Corporation granted 219,966 DSUs,
(December 31, 2011 - 52,351 DSUs) to directors and employees as part of their remuneration.
In addition, during the year ended December 31, 2012, directors and employees voluntarily
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2012 ANNUAL REPORT
25
elected to purchase or accept in lieu of cash 22,955 DSUs (December 31, 2011 - 15,800 DSUs)
by deferring compensation related to retainers, meeting fees, base salary and/or cash bonus, as
applicable. These DSU grants and elections totalling 242,921 DSUs (December 31, 2011 –
68,151 DSUs) resulted in $0.9 million of stock-based compensation expense for 2012,
respectively (2011 - $0.1 million). The amounts recorded are based on the sum of the changes
in fair value and grants of DSUs. The Corporation carries the obligation as a payable on its
statement of financial position as the DSUs are structured under the current plan to be paid in
cash, upon the employee or director ceasing service with the Corporation.
During the 12 months ended December 31, 2012, the Corporation recorded compensation
expenses for PSUs granted to employees of $1.6 million compared to $0.3 million in 12 months
ended December 31, 2011. The amounts recorded are based on the sum of changes in fair
value and grants of PSUs. During the 12 months ended December 31, 2012, the Corporation
cancelled 82,267 PSUs, due to forfeiture (December 31, 2011 – 1,805). As at December 31,
2012, the Corporation had outstanding 279,447 PSUs compared to 340,055 PSUs at December
31, 2011. The PSUs are structured under the current plan to be settled in cash at the time of
vesting, if certain performance objectives for shareholder value creation relative to a comparator
group of companies are met. The first vesting was in February 2011 for 43,608 PSUs granted in
2008 and the payout in April 2011 amounted to $0.8 million. The vesting of 175,126 PSUs
granted in 2009 was in February 2012 and the payout in April 2012 amounted to $3.0 million.
Refer to Note 28 to the Audited Consolidated Annual Financial Statements for further detail.
Supplemental Disclosures
Off-Balance Sheet Arrangements
The Corporation had no off-balance sheet arrangements in place at December 31, 2012.
Related Party Transactions
During 2012, the Corporation incurred facility costs of $136 thousand (12 months ended
December 31, 2011 – $155 thousand) for the rental of a building that is 50% owned by
Schneider Investments Inc., a company owned by George Schneider, a director of the
Corporation. The rented building is the operations base for Churchill Services Group in Fort
McMurray. The rental charge is comparable to the market rate of similar properties. At
December 31, 2012, there was $nil of this amount included in accounts payable (December 31,
2011 – $nil).
During 2012, the Corporation incurred facility costs of $432 thousand (12 months ended
December 31, 2011 – $424 thousand) relating to the rental of a building owned by Broda
Holdings (2009) Inc., a company owned by the president of Broda. The rented building is the
head office, maintenance facility and operations base for Broda in Prince Albert, Saskatchewan.
The rental charge is comparable to the market rate of similar properties. At December 31, 2012,
there was $29 thousand included in accounts payable (December 31, 2011 – $7 thousand).
Refer to Note 34 to the Audited Consolidated Annual Financial Statements.
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Outlook
The outlook for Churchill’s three operating business segments is described below:
Margins for Stuart Olson Dominion are expected to gradually improve in 2013 as
recently awarded projects transition from design, to the tendering and construction
phase. Additional detail is included in the General Contracting section below.
During 2013, Canem expects modest revenue growth but EBITDA margins to be flat
year-over-year; as a result of more competitive go-in fees and the timing of project
phases in 2013. Additional detail is included in the Commercial Systems section below.
Within the Industrial Services segment, CSG & Broda expect to continue delivering
strong revenues at comparable EBITDA margins to consolidated 2012 results. Additional
detail is included in the Industrial Services section below.
General Contracting
The institutional spending outlook in Western Canada, while reasonably healthy is undergoing a
period of retrenchment as governments in Alberta and British Columbia have recently
announced project delays, cancellations or capital expenditure reductions moving forward. The
non-residential private sector spending outlook is reasonably strong as new commercial projects
continue to be advanced in Alberta and industrial projects continue front-end engineering.
Stuart Olson Dominion’s $1.1 billion backlog remains institutionally levered, and the market
continues to present business development opportunities. Construction margins are expected to
marginally improve in 2013 in conjunction with resolution of the project challenges experienced
in 2011 and 2012 and as new higher-margin projects recently added to backlog begin
construction.
Stuart Olson Dominion expects to execute approximately $523.0 million of its December 31,
2012 backlog during 2013. New awards are expected to supplement the amount of work
executed by Stuart Olson Dominion during 2013.
Commercial Systems
The outlook for Canem has become more challenging in recent quarters as project delays at the
owner and general contractor levels, and competitive pressures are expected to continue
affecting margins in the near-to-medium term. Canem expects modest revenue growth in 2013;
however EBITDA margins will likely be flat year-over-year as a result of more competitive go-in
fees and and the timing of project phases. Canem is working to offset this margin pressure by
improving operational efficiencies and by differentiating itself from the competition with building
systems integration solutions to support its core operations.
Canem expects to execute $144.6 million of its backlog during 2013. New awards, short-
duration projects, building maintenance and tenant improvement work are expected to make up
the balance of Canem’s 2013 revenue.
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Industrial Services
Going forward, CSG and Broda are expecting to maintain strong revenues and earnings in 2013
as industrial construction and maintenance projects continue, particularly in Alberta’s oil sands
and Saskatchewan’s mining district. Competitive pressures and a higher proportion of low-risk,
cost-plus maintenance work in 2013 are expected to modestly decrease CSG margins; however
by Broda’s renewed focus on Saskatchewan mining related projects in 2013, where weather
related project challenges occur less frequently, should result in stronger operational results.
CSG and Broda expect to execute $246.2 million of their contracted backlog during 2013. New
contract awards, additional short-duration projects, scope changes and industrial maintenance
work are expected to supplement the segment’s 2013 revenue.
Fourth Quarter Overview
The following table sets out selected fourth quarter results by operating segment:
For the three months ended December 31, 2012, consolidated contract revenue was $289.9
million, compared to $384.3 million in the fourth quarter of 2011, a 25% decrease. The General
Contracting segment’s revenue decreased by $84.1 million or 36%, the Commercial Systems
segment revenue declined by $6.4 million or 12% and the Industrial Services segment revenue
contracted by $13.4 million or 12%. The intersegment elimination decreased by $9.6 million
year-over-year.
Contract income declined from $45.2 million, (11.7% of revenue) in the fourth quarter of 2011 to
$32.5 million, (11.2% of revenue) in the three months ended December 31, 2012. The $12.7
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Total General Contracting Commercial Systems Industrial Services Corporate and Other IntersegmentEliminations Contract revenue289.9$ 152.4$ 49.4$ 96.3$ -$ (8.2)$ Contract income32.6 11.0 7.8 13.0 - 0.8 Contract income margin11.3%7.2%15.7%13.5%- - Administrative expenses26.1 9.9 6.3 5.5 4.5 - EBITDA(1)9.0 2.0 1.7 9.1 (4.5) 0.7 EBITDA margin3.1%1.3%3.4%9.5%- - EBT(1)(65.1) 0.9 1.0 4.1 (69.5) (1.5) Backlog(1)1,690.5$ 1,115.8$ 194.3$ 380.4$ -$ -$ Total General Contracting Commercial Systems Industrial Services Corporate and Other IntersegmentEliminations Contract revenue384.3$ 236.5$ 55.8$ 109.7$ -$ (17.8)$ Contract income45.2 16.4 13.6 15.5 - (0.3) Contract income margin11.7%6.9%24.3%14.1%- - Administrative expenses28.3 13.6 6.3 5.6 3.0 (0.2) EBITDA(1)19.6 3.9 7.5 11.5 (3.1) (0.1) EBITDA margin5.1%1.6%13.4%10.5%- - EBT(1)9.3 2.9 6.8 9.7 (9.8) (0.3) Backlog(1)1,842.6$ 1,445.3$ 133.3$ 264.0$ -$ -$ Notes:($millions, except margin percent)Three months ended December 31, 2012Three months ended December 31, 2011(1) "EBT" is earnings (loss) from continuing operations before income tax. EBT, EBITDA and backlog are non-IFRS measures. Refer to "Terminology" for definitions of non-IFRS measures.
million, or 28% decrease in contract income consists of decreases in the General Contracting,
Commercial Systems and Industrial Services operating segments of $5.4 million (33%), $5.8
million (43%) and $2.5 million (16%) respectively, partly offset by an increase in the
intersegment elimination of $1.1 million.
Administrative expenses for the fourth quarter of 2012 amounted to $26.1 million, (9.0% of
revenue), compared to $28.3 million (7.4% of revenue) in the three months ended December
31, 2011, an 8% decrease. Administrative expenses decreased by $3.7 million (27%), $0.0
million (0%) and $0.1 million (2%) in the General Contracting, Commercial Systems and
Industrial Services segments respectively. These savings were partly offset by an increase in
administrative expenses within the Corporate and Other segment of $1.5 million (50%) and an
increase in the intersegment elimination of $0.2 million.
The net impact of the aforementioned decrease in contract income and administrative expenses
was a $10.6 million or 54% decrease in fourth quarter EBITDA to $9.0 million compared to
$19.6 million in the three months ended December 31, 2011.
For explanations of these changes, please refer to the discussion of segmented results which
follows.
Intangible assets resulted in an amortization charge of $3.1 million in the fourth quarter of 2012.
The comparable charge in the fourth quarter of 2011 was $4.2 million. The net book value of
these assets as at December 31, 2012 was $58.7 million, of which $1.7 million is expected to be
amortized in each quarter of 2013.
EBT for the fourth quarter of 2012 was a loss of $65.1 million compared to earnings before tax
of $9.3 million in the fourth quarter of 2011 (decrease of $74.4 million). This decline reflects the
$10.6 million decrease in EBITDA described above, the previously discussed $64.6 million
asset impairment partly offset by a decrease in interest expense of $0.9 million.
The Corporation’s consolidated net loss from continuing operations for the fourth quarter of
2012 was $62.6 million compared to net earnings from continuing operations of $7.3 million in
the fourth quarter of 2011.
In the three months ended December 31, 2012, funds from operations were $9.7 million
compared to $19.6 million in the fourth quarter of 2011.
Fourth Quarter Results of Operations
General Contracting
For the three months ended December 31, 2012, Stuart Olson Dominion’s revenue was $152.4
million, compared to $236.5 million in the fourth quarter of 2011. This $84.1 million or 36%
decrease is primarily attributable to being in the pre-construction phase and early construction
stage on several new projects and delays in executing backlog, delaying revenue into 2013 on a
number of projects.
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Stuart Olson Dominion’s contract income in the fourth quarter of 2012 decreased by $5.4
million, or 33% to $11.0 million, from $16.4 million for the three months ended December 31,
2011. The decline in contract income resulted from the lower level of construction activity. The
fourth quarter 2012 contract income margin was 7.2% compared to 6.9% in the fourth quarter of
2011.
Stuart Olson Dominion’s administrative expense was $9.9 million (6.5% of revenue) in the three
months ended December 31, 2012 compared to $13.6 million (5.7% of revenue) in the fourth
quarter of 2011. The $3.7 million (27%) decrease is primarily related to lower staffing levels and
related compensation expense.
EBITDA for Stuart Olson Dominion in the fourth quarter of 2012 was $2.0 million compared to
$3.9 million in the fourth quarter of 2011. This $1.9 million (49%) decrease was mainly due to
the aforementioned decrease in revenue and contract income, partly offset by the $3.7 million
decrease in administrative expense.
Commercial Systems
The Commercial Systems segment’s fourth quarter 2012 revenue was $49.4 million, compared
to $55.8 million in the three months ended December 31, 2011. This $6.4 million or 11%
revenue decrease resulted from project delays pushing revenue into 2013, which was partially
offset by short-duration projects secured during the fourth quarter.
Canem’s contract income decreased to $7.8 million in the fourth quarter of 2012, from $13.6
million, in the fourth quarter of 2011, a $5.8 million, or 43% decline. As a result, Canem’s fourth
quarter 2012 contract income margin was 15.7% compared to 24.3% in the third quarter of
2011. The reduced margin is attributable to the execution of lower margin projects in the fourth
quarter of 2012 and project execution delays resulting in margin reforecast.
Canem’s administrative expense was $6.3 million (12.7% of revenue) in the fourth quarter of
2012 compared to $6.3 million (11.3% of revenue) in the three months ended December 31,
2011. The increase as a percentage of revenue is a function of the lower revenue base.
EBITDA for Canem in the fourth quarter of 2012 was $1.7 million (a 3.4% EBITDA margin)
compared to $7.5 million (a 13.4% EBITDA margin) in the fourth quarter of 2011. This $5.8
million, or 77% decrease was due to the aforementioned decrease in contract income.
Industrial Services
For the Industrial Services segment, fourth quarter revenue decreased by $13.4 million, or 12%
to $96.3 million from $109.7 million for the three months ended December 31, 2011. The
revenue decrease was primarily due to lower activity levels associated with new construction
projects in the oil sands and mining projects in Alberta and Ontario.
Industrial Services’ contract income for the three months ended December 31, 2012 decreased
by $2.5 million, or 16% to $13.0 million from $15.5 million for the fourth quarter of 2011.
Contract income margins were lower at 13.5% in the fourth quarter of, 2012 versus 14.1% in the
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three months ended December 31, 2011, as a result of an increased proportion of lower margin
maintenance and turnaround in the projects mix.
The Industrial Services segment’s administrative expense were $5.5 million (5.7% of revenue)
in the fourth quarter of 2012 compared to $5.6 million (5.1% of revenue) in the three months
ended December 31, 2011. The increase as a percentage of revenue resulted from the lower
activity levels.
EBITDA for the Industrial Services segment decreased by $2.4 million, or 21% to $9.1 million (a
9.5% EBITDA margin) for the fourth quarter of 2012 from $11.5 million (a 10.5% EBITDA
margin) in the three months ended December 31, 2011. The decrease in EBITDA resulted from
the reduction in contract income during the fourth quarter partially offset by the improvement in
administrative cost control.
Corporate and Other
The Corporate and Other segment’s administrative expenses, excluding depreciation and
amortization, were $4.5 million in the fourth quarter of 2012 compared to $3.0 million in the
three months ended December 31, 2011, an increase of $1.5 million, or 50%. The increase is
primarily related to amounts accrued for both short and long-term compensation expense.
The Corporate and Other segment’s finance costs were $2.8 million in the fourth quarter of 2012
compared to $2.9 million in the three months ended December 31, 2011.
The Corporate and Other segment’s depreciation and amortization expense was $2.9 million in
the fourth quarter of 2012 compared to $3.8 million in the three months ended December 31,
2011, a $0.9 million, or 24% decrease. The current and comparative period amounts include
amortization of intangible assets acquired with the acquisition of Dominion, Canem, Broda and
McCaine, and amortization of the implemented portion of the Corporation’s SAP-based ERP
system. Amortization of backlog and agency intangible assets is dependent on management’s
expectations of when the related revenue will be earned. This can result in variable amortization
charges depending on the period.
In the fourth quarter of 2012, the Corporate and Other segment incurred a net loss before tax of
$69.5 million compared to a net loss before tax of $9.8 million. The increase in net loss before
tax was driven primarily by the $61.6 million asset impairment recorded in the Corporate and
Other segment during the fourth quarter of 2012. Additionally, higher administrative expenses
were partly offset by the reduction in finance costs and depreciation and amortization expense.
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Quarterly Financial Information
The following table sets out selected quarterly financial information of the Corporation for the
most recent eight quarters:
Revenue and net earnings declined in the first quarter of 2011, compared to the fourth quarter
of 2010, due to the impact of a particularly severe winter on construction operations and profit
margin pressure due to the impact of the inclusion of Dominion’s lower margin projects, a
decline in Stuart Olson’s margins on projects secured in the more competitive markets of late
2008, 2009 and early 2010, lower amounts of self-performed work in the winter, and being in the
early phases of construction on several new projects.
Revenue improved in the second quarter of 2011, compared to the first quarter of 2011, largely
due to the seasonal nature of the Industrial Services segment, but margin pressure across all
segments continued, particularly in Stuart Olson Dominion, largely driven by underperforming
fixed price projects. As well, an unusually wet spring season, administrative project delays and
fires in Northern Alberta negatively impacted second quarter revenue.
Revenue improved in the third quarter and fourth quarter of 2011, compared to the second
quarter of 2011, partly due to improved weather conditions and increased activity in the
Commercial Systems and Industrial Services segment. In both quarters, the negative impact on
EBITDA of underperforming fixed price projects at Stuart Olson Dominion was partly offset by
growth delivered by the Commercial Systems and Industrial Services segments.
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Dec. 31Sep. 30Jun. 30Mar. 31Dec. 31Sep. 30Jun. 30Mar. 31Contract revenue289.9$ 303.2$ 295.8$ 333.2$ 384.3$ 379.3$ 340.9$ 304.7$ Contract income32.6 27.7 25.9 35.6 45.1 40.5 35.7 36.6 Contract income margin(1)11.3%9.1%8.7%10.7%11.7%10.7%10.5%12.0%Continuing operations:EBITDA(1)9.0$ 12.1$ 4.6$ 13.9$ 19.6$ 18.3$ 17.0$ 17.1$ EBT(1)(65.1) 2.5 (5.4) 4.3 9.3 8.2 7.0 8.2 Net earnings (loss)(62.6) 1.8 (4.2) 3.1 7.3 6.2 4.8 5.8 EPS - basic(2.56) 0.07 (0.17) 0.13 0.30 0.26 0.20 0.24 EPS - diluted(2.56) 0.07 (0.17) 0.13 0.27 0.24 0.19 0.24 Net earnings (loss)(62.6)$ 1.8$ (4.2)$ 3.2$ 7.3$ 6.1$ 5.8$ 5.8$ EPS - basic(2.56) 0.07 (0.17) 0.13 0.30 0.26 0.24 0.24 EPS - diluted(2.56) 0.07 (0.17) 0.13 0.27 0.24 0.22 0.24 Funds from operations(1)9.7$ 12.1$ 4.6$ 15.6$ 19.6$ 18.8$ 17.3$ 18.9$ 0.40 0.50 0.19 0.64 0.81 0.77 0.71 0.78 Backlog(1)1,690.5$ 1,731.0$ 1,570.4$ 1,751.5$ 1,842.6$ 1,840.1$ 1,705.6$ 1,577.4$ Working capital(1)79.2 99.9 95.7 102.6 86.0 99.6 115.5 99.7 Shareholders' equity235.1 299.5 301.4 308.5 309.1 302.5 301.3 295.9 9.60 12.25 12.36 12.68 12.72 12.45 12.45 12.28 Notes:2011 Quarter ended:Funds from operations per share(1) - basicBook value ($ per basic share)(1)($millions, except per share data and percentages)2012 Quarter ended:(1) Contract income margin, EBITDA, EBT, funds from operations, working capital, book value and backlog are non-IFRS measures. Refer to "Terminology" for definitions of non-IFRS measures.
Revenue and net earnings declined in the first quarter of 2012, compared to the fourth quarter
of 2011, due partly to the seasonal nature of construction operations in Western Canada.
Consolidated revenue declined primarily due to reduced activity levels within the General
Contracting segment. Lower EBITDA from the Industrial Services segment due to the seasonal
nature of their operations was a drag on earnings.
Revenue and net earnings in the second quarter of 2012 decreased compared to the first
quarter of 2012 as wet weather impacted Broda’s productivity on its Calgary Airport project and
Stuart Olson Dominion recorded a significant margin reversal on a large Manitoba-based
project.
Revenue in the third quarter of 2012 decreased compared to the third quarter of 2011 as the
General Contracting segment was in the early stages of new construction on several new
projects, experienced construction delays and had backlog pushed into 2013 on a number of
projects. Additionally, lower contract income margins in the General Contracting and
Commercial Systems segments contributed to lower EBITDA and net earnings.
Revenue in the fourth quarter of 2012 decreased compared to the fourth quarter of 2011 as the
General Contracting segment was in the early stages of new construction on several new
projects, experienced construction delays and had backlog pushed into 2013 on a number of
projects. The lower contract revenue in the General Contracting segment in combination with
lower contract income margins from the Commercial Systems segment were the material
contributors to lower EBITDA and net earnings.
A comprehensive analysis of the operating results for each of the first three quarters of 2012
was included in the MD&A for each quarter. The reader is referred to the Corporation’s 2011
Annual Report for a more detailed discussion and analysis of the results of the quarters
preceding January 1, 2012.
Critical Accounting Estimates
The key assumptions and basis for the estimates that management has made under IFRS and
their impact on the amounts reported in the Audited Consolidated Annual Financial Statements
and notes thereto, are contained in Note 3 to the Audited Consolidated Annual Financial
Statements.
Churchill’s financial statements include estimates and assumptions made by management in
respect of operating results, financial condition, contingencies, commitments, and related
disclosures. Actual results may vary from these estimates. The following are, in the opinion of
management, the more significant estimates that have an impact on Churchill’s financial
condition and results of operations:
Revenue recognition and contract cost estimates;
Goodwill, property and equipment and intangibles impairment assessment;
Estimates related to the useful lives and residual value of property and equipment;
Income tax provisions;
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Provisions for warranty work and legal contingencies;
Assumptions used in share-based payment arrangements;
Accounts receivable collectability; and
Valuation of defined benefit pension plans.
Revenue Recognition and Contract Cost Estimates
Contract revenue includes the initial amount agreed 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 at the end of the reporting period. Contract expenses
are recognized as incurred unless they create an asset related to future contract activity.
The stage of completion is assessed by reference to the proportion that costs incurred to date
bear to the estimated total costs of the transaction. The stage of completion may also be
assessed by reference to survey of work performed. Where there is uncertainty that the
economic benefits associated with the contract will flow to the entity or where the contract costs
cannot be identified and measured, revenue is recognized only to the extent of contract costs
incurred where it is probable those costs will be recoverable.
During the very early stages of significant multi-year contracts, the outcome of the contract
cannot be estimated reliably. In those circumstances contract revenue is recognized only to the
extent contract costs are incurred and expected to be recoverable until such time that the
outcome of the contract can be reliably estimated.
Contract costs include costs that relate directly to a specific contract, costs that are attributable
to contract activity in general and can be allocated to individual contracts, and such other costs
as are specifically chargeable to the customer under the terms of the contract. Contract costs
exclude general administration costs (unless reimbursement is specified in the construction
contract), selling costs, research and development costs (unless reimbursement is specified in
the construction contract), and depreciation of idle equipment and equipment not used on a
project. Contract costs are recognized as expenses in the period in which they are incurred.
Where current estimates indicate that total contract costs will exceed total contract revenue, the
full amount of the expected loss is recognized immediately.
Revenue from services rendered where the final outcome of the contract can be estimated
reliably is recognized in profit or loss in proportion to the stage of completion of the contract at
the reporting date. The stage of completion is assessed by reference to the proportion that costs
incurred to date bear to the estimated total costs of the contract. Revenue from time and
material contracts where the work scope is not definitive is recognized at the contractual rates
as labour hours and direct expenses are incurred.
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Goodwill Impairment Assessment
Goodwill is the residual amount that results when the purchase price of an acquired business
exceeds the sum of the amounts allocated to the identifiable assets acquired, less liabilities
assumed, based on their fair values. Goodwill is not amortized and is tested annually in the
fourth quarter or more frequently if events or changes in circumstances indicate that an asset
may be impaired. Goodwill arose during multiple past acquisitions. Goodwill associated with the
Stuart Olson Dominion, Broda and Canem CGUs arose from the Seacliff acquisition in 2010.
Additional goodwill was attributed to the Canem CGU through the McCaine acquisition in 2011
(Note 5). CSG’s goodwill stems from the Laird acquisition of 2003. Goodwill recognized on all of
these acquisitions was attributable mainly to the synergies achieved from the integration of
acquired company into existing construction, commercial and industrial services. Any significant
reduction in these estimates could result in an impairment of goodwill. As of December 31,
2012, Churchill’s goodwill was assessed to be impaired by $55.2 million and a non-cash charge
was recorded to the statement of comprehensive loss.
During the fourth quarter, the Corporation performed its annual goodwill impairment test. The
calculated Business Enterprise Value for each of the CGUs incorporated the financial
projections set out in the respective CGU’s strategic plan approved by the Board of Directors in
December 2012. The financial projections of the Broda CGU and Canem CGU reflected lower
future EBITDA than previous projections as a result of current economic conditions impacting
revenues and margins. The impairment testing indicated that the recoverable amount of these
CGUs was less than their carrying amount. As a result, the Corporation recorded an impairment
loss of $64.6 million on the statement of comprehensive loss comprised of a $55.2 million non-
cash goodwill impairment, a $5.2 million property and equipment impairment (Note 22) and a
$4.1 million intangible asset impairment (Note 23). Goodwill impairment charges are non-cash
charges that do not have any adverse effect on respective cash flows from operating activities
and will not have an impact on the CGUs’ future operations.
If the impairment loss resulting from the comparison of the recoverable amount of the CGU to
carrying amount exceeds the goodwill allocated to the CGU, then the impairment loss is
allocated to certain other assets of the CGU on a pro rata basis of the carrying amount of each
asset in the unit. In the Broda CGU, the impairment loss exceeded the carrying amount of
goodwill, resulting in impairment losses allocated to property and equipment (Note 22) and
intangible assets (Note 23). The entire amount of impairment in the Canem CGU was fully
applied to goodwill and did not extend to other assets of that entity.
The recoverable amount of the CGUs’ assets was determined based on a value in use
calculation. There is a significant amount of uncertainty with respect to the estimates of the
recoverable amounts of the CGUs’ assets given the necessity of making key economic
assumptions about the future. The value in use calculation uses discounted cash flow
projections which employ the following key assumptions: future cash flows, present and future
discount rates, growth assumptions, including economic risk assumptions and estimates of
achieving key operating metrics and drivers. Management uses its best estimate to determine
which key assumptions to use in the analysis.
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Key Assumptions
The key assumptions in the value in use calculations to determine the recoverable amounts by
CGU have been prepared using a five year discounted cash flow analysis with a terminal value.
The financial projections used for the discounted cash flow analysis were derived from the
Corporation’s 2012 Strategic Plan which was approved by management and the Board of
Directors in December 2012.
A five year period for the discounted cash flow analysis was used since financial projections
beyond a five year time period are generally best represented by a terminal value. This period is
appropriate given the timing of the backlog projects and the predictability of CGU cash flows.
Cash flows from growth opportunities are probability-weighted and relate to initiatives
management expects to progress on in the medium to long term. These cash flows require
assumptions to be made regarding the likelihood of projects progressing and the future
economics of those projects.
The terminal value was calculated using a discount rate of 12% (2011 – 10%) and a steady
annual growth of 1.5% (2011 – 2.0%) in the terminal year. The same discount rate was used in
each of the Corporation’s CGUs given that each entity has access to the same source of debt
and each CGU is ultimately governed by management at the parent Company. In addition,
entity specific risks were separately factored into each CGU forecast. They take into
consideration market rates of return, capital structure, company size, industry risk and after-tax
cost of debt and equity.
Sensitivity of assumptions
Stuart Olson Dominion and CSG: Management and the Board of Directors believe that any
reasonable change to the key assumptions on which the recoverable amounts are based would
not cause the Stuart Olson Dominion or CSG recoverable amounts to exceed their respective
carrying amounts.
Canem: A 2.0% increase in the discount rate would increase the impairment charge
approximately $16.0 million. A decrease in growth rate of 0.5% would increase the impairment
charge by approximately $3.0 million.
Broda: A 2.0% increase in the discount rate would increase the impairment charge
approximately $6.9 million. A decrease in growth rate of 0.5% would increase the impairment
charge by approximately $1.3 million.
Income Tax Provisions
Income tax provisions, including deferred income tax assets and liabilities, may require
estimates and interpretations of federal and provincial tax rules and regulations, and judgments
as to their interpretation and application to Churchill’s specific situation. Income tax provisions
are estimated each quarter, updated each year-end to reflect actual differences and the impact
of revenue recognition estimates, and then finalized during the preparation of the tax returns.
Any changes between the quarterly estimates, the year-end provision, and the final filing
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position, may impact the income tax expense category, as well as the deferred income tax asset
and liability categories.
Accounts Receivable Collectability
Accounts receivable collectability may require an assessment and estimation of
the
creditworthiness of the client, the interpretation of specific contract terms, the strength of any
security that Churchill may have, and the timing of collection. An allowance would be provided
against any amount estimated to be uncollectible, and reflected as a bad debt expense.
Valuation of Defined Benefit Pension Plans
Fluctuations in the valuation of the Corporation’s defined benefit pension plans expose the
Corporation to additional risk. Economic factors such as expected long-term rate-of-return on
plan assets, discount rates and future salary and bonus increases will cause volatility in the
accrued benefit obligation. Refer to Note 3(f) and 15 to the Audited Consolidated Annual
Financial Statements for further information.
All estimates are updated each reporting period to reflect actual activity as well as incorporate
all relevant information that has come to the attention of management. Given the nature of
construction, with numerous contracts in progress at any given time, the impact of these critical
accounting estimates on the results of operations is significant. Activities or information received
subsequent to the date of this MD&A may cause actual results to vary, which will be reflected in
the results of subsequent reporting periods.
Financial Instruments
Financial instruments consist of recorded amounts of receivables and other like amounts that
will result in future cash receipts, as well as accounts payable, short-term borrowings and any
other amounts that will result in future cash outlays. The fair value of Churchill’s short-term
financial assets and liabilities approximates their respective carrying amounts on the statement
of financial position because of the short-term maturity of those instruments. The fair value of
the Corporation’s interest-bearing financial liabilities, including capital leases, financed contracts
and the revolving credit facility, also approximates their respective carrying amounts due to the
floating-rate nature of the debt. The fair value of the liability component of the convertible
debentures was $79.7 million at December 31, 2012 ($81.5 million at December 31, 2011) is
based on an average market yield rate of 9.7% determined from marketable debentures traded
with similar terms. The fair value of the fuel derivative instrument asset was $nil at December
31, 2012 (December 31, 2011 – $21 thousand), because the derivative instrument contracts
expired in October 2012. The fuel derivative instruments were recorded within prepaid expenses
on the statements of financial position and in other income in the statements of (loss) earnings
and comprehensive (loss) income.
The financial instruments used by the Corporation expose Churchill to credit, interest rate and
liquidity risks. The Corporation’s Board of Directors has overall responsibility for the
establishment and oversight of the Corporation’s risk management framework and reviews
corporate policies on an ongoing basis.
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2012 ANNUAL REPORT
37
The Corporation is exposed to credit risk through accounts receivable. This risk is minimized by
the number of customers in diverse industries and geographical centres. The Corporation
further mitigates this risk by performing an assessment of its customers as part of its work
procurement process, including an evaluation of financial capacity.
Allowances are provided for potential project losses as at the statement of financial position
date. Accounts receivable are considered for impairment on a case-by-case basis when they
are past due or when objective evidence is received that a customer will default. The
Corporation takes into consideration the customer’s payment history, creditworthiness and the
current economic environment in which the customer operates to assess impairment.
The Corporation accounts for a specific bad debt provision when management considers that
the expected recovery is less than the actual account receivable. The provision for doubtful
accounts has been included in general and administration expenses in the Consolidated
Statements of Earnings, Comprehensive Earnings and Retained Earnings, and is net of any
recoveries that were provided for in a prior period. Allowance for doubtful accounts as at
December 31, 2012 was $1.6 million (December 31, 2011 – $2.0 million).
In determining the quality of trade receivables, the Corporation considers any change in credit
quality of the trade receivables from the date credit was initially granted up to the end of the
reporting period. The Corporation had $29.8 million of trade receivables which were greater
than 90 days past due with $28.2 million not provided for as at December 31, 2012 (December
31, 2011 – $9.7 million). Of the total, $20.7 million (69%) was concentrated in six customer
accounts, and of this amount, $18.7 million remained outstanding as of March 17, 2013. The
related customers are considered to be credit-worthy, and there are presently no concerns
regarding collectability of these accounts.
Financial risk is the risk to the Corporation’s earnings that arises from fluctuations in interest
rates and the degree of volatility of these rates. The Corporation does not use derivative
instruments to reduce its exposure to this risk. At December 31, 2012, the increase or decrease
in annual net earnings for each 100 basis point change in interest rates on floating rate debt
would have been approximately $0.3 million (December 31, 2011 - $0.4 million) related to
financial assets and by $0.4 million (December 31, 2011 - $0.4 million) related to financial
liabilities.
The Corporation invests its cash with the objective of maintaining safety of principal and
providing adequate liquidity to meet all current payment obligations. The Corporation invests its
cash and cash equivalents with counterparties that are of high credit quality as assessed by
reputable rating agencies. Given these high credit ratings, the Corporation does not expect any
counterparties to fail to meet their obligations.
Under the Corporation’s risk management policy, derivative financial instruments are used only
for risk management purposes and not for generating trading profits. The financial instruments
are considered unlikely to be effective because they contain risk related to location, basis,
foreign exchange and quantity. Therefore, the instruments are not accounted for as designated
hedges and volatility in the value of the instruments will impact earnings.
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2012 ANNUAL REPORT
38
Refer to Note 31 to the Audited Consolidated Annual Financial Statements for further detail.
Changes in Accounting Policies
The Corporation’s Audited Consolidated Annual Financial Statements for the year ended
December 31, 2012 have been prepared in accordance with IFRS as issued by the International
Accounting Standards Board. See Notes 2 and 3 to the Audited Consolidated Annual Financial
Statements for the year ended December 31, 2012 for more information regarding the basis of
presentation and significant accounting policies used to prepare the financial statements.
Future Changes in Accounting Standards
The Corporation has reviewed new and revised accounting pronouncements that have been
issued but are not yet effective. See Notes 4 to the Audited Consolidated Annual Financial
Statements for the year ended December 31, 2012 for more information.
Risks and Uncertainties
Risks and uncertainties affecting the Corporation are described in the Corporation’s most recent
Annual Information Form under the heading “Risk Factors”, which is incorporated by reference
herein.
Controls and Procedures
All of the controls and procedures set out below encompass all Churchill companies.
Disclosure Controls & Procedures
Disclosure controls and procedures are designed to provide reasonable assurance that all
relevant information is gathered and reported to senior management, including the CEO and
CFO, on a timely basis, so that appropriate decisions can be made regarding public disclosure.
The CEO and CFO together are responsible for establishing and maintaining the Corporation’s
disclosure controls and procedures. They are assisted in this responsibility by the Disclosure
Committee which is composed of members of senior management of the Corporation.
An evaluation of the effectiveness of the design and operation of the Corporation’s disclosure
controls and procedures was carried out under the supervision of Churchill’s management,
including the CEO and CFO, with oversight by the Board of Directors and its Audit Committee
as of December 31, 2012. Based on this evaluation, the CEO and CFO have concluded that the
design and operation of the Corporation’s disclosure controls and procedures as defined in NI
52-109, Certification of Disclosure in Issuers’ Annual and Interim Filings was effective as at
December 31, 2012.
Internal Controls over Financial Reporting
Internal controls over financial reporting are designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with IFRS. Because of inherent limitations in all control
T:CUQ, CUQ.DB
2012 ANNUAL REPORT
39
systems, absolute assurance cannot be provided that all misstatements have been detected.
Management is responsible for establishing and maintaining adequate internal controls
appropriate to the nature and size of the business, to provide reasonable assurance regarding
the reliability of financial reporting for the Corporation.
Under the oversight of the Board of Directors and its Audit Committee, management, including
the Corporation’s CEO and CFO, evaluated the design and operation of the Corporation’s
internal controls over financial reporting using the control framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission on Internal Control – Integrated
Framework. The evaluation included documentation review, enquiries, testing and other
procedures considered by management to be appropriate in the circumstances. As at
December 31, 2012, the CEO and CFO have concluded that the design and operation of the
internal controls over financial reporting were effective.
Material Changes to Internal Controls over Financial Reporting
There were no changes to the Corporation’s internal controls over financial reporting during the
period beginning on January 1, 2012 and ending on December 31, 2012 that have materially
affected or are reasonably likely to materially affect the Corporation’s internal controls over
financial reporting.
T:CUQ, CUQ.DB
2012 ANNUAL REPORT
40
Terminology
Throughout this MD&A, management refers to certain terms when explaining its financial results
that do not have any standardized meaning under IFRS as set out in the CICA Handbook.
Specifically, the terms “Contract Income Margin”, “Work-In-Hand”, “Backlog”, “Working Capital”,
“EBITDA”, “EBT”, “Funds from Operations”, “Funds from Operations per Share” and “Book
Value per Share” have been defined as:
Contract Income Margin
Contract income margin is the percentage derived by dividing contract income by contract
revenue. Contract income is calculated by deducting all associated direct and indirect costs
from contract revenue in the period.
Work-In-Hand
Work-in-hand is the unexecuted portion of work that has been contractually awarded for
construction to the Corporation. It includes an estimate of the revenue to be generated from
maintenance contracts during the shorter of (a) 12 months, or (b) the remaining life of the
contract.
Backlog
Backlog means the total value of work, including work-in-hand, that has not yet been completed
that (a) is assessed by the Corporation as having high certainty of being performed by the
Corporation or its subsidiaries by either the existence of a contract or work order specifying job
scope, value and timing, or (b) has been awarded to the Corporation or its subsidiaries, as
evidenced by an executed binding or non-binding letter of intent or agreement, describing the
general job scope, value and timing of such work, and with the finalization of a formal contract
respecting such work currently assessed by the Corporation as being reasonably assured.
Active backlog is the portion of backlog that is not work-in-hand (has not been contractually
awarded to the Corporation). The Corporation provides no assurance that clients will not choose
to defer or cancel their projects in the future.
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2012 ANNUAL REPORT
41
As at:($millions) Work-in-hand Active backlog Total backlog Work-in-hand Active backlog Total backlog 963.5$ 727.0$ 1,690.5$ 901.1$ 941.5$ 1,842.6$ December 31, 2011December 31, 2012
Working Capital
Working capital is current assets less current liabilities. The calculation of working capital is
provided in the table below:
EBITDA and EBT
EBITDA (earnings before interest, taxes, depreciation and amortization) is a common financial
measure widely used by investors to facilitate an “enterprise level” valuation of an entity. The
Corporation follows the standardized definition of EBITDA, as per the CICA. Standardized
EBITDA represents an indication of the Corporation’s capacity to generate income from
operations before taking into account management’s financing decisions and costs of
consuming tangible and intangible capital assets, which vary according to their vintage,
technological currency, and management’s estimate of
life. Accordingly,
standardized EBITDA comprises revenues less operating cost before interest expense, capital
asset amortization and impairment charges, and income taxes. This measure as reported by the
Corporation may not be comparable to similar measures presented by other reporting issuers.
EBT is earnings before taxes. The following is a reconciliation of net earnings to EBITDA and
EBT for each of the periods presented in this MD&A in accordance with IFRS.
their useful
Funds from Operations and Funds from Operations per Share (basic)
Funds from Operations are net cash generated by (used in) operating activities before interest,
taxes, and changes in share-based payment liabilities, provisions and non-cash working capital.
Funds from Operations per Share are Funds from Operations divided by weighted average
T:CUQ, CUQ.DB
2012 ANNUAL REPORT
42
407.5$ 481.5$ 328.3 395.5 79.2$ 86.0$ Working capitalAs at:December 31, 2012December 31, 2011($millions)Current assetsCurrent liabilities($millions)2012201120122011(62.6)$ 7.3$ (61.9)$ 24.1$ Add:Income tax expense(2.5) 2.0 (1.9) 8.5 EBT from continuing operations(65.1)$ 9.3$ (63.8)$ 32.6$ Add:2.5 2.2 9.7 7.3 4.2 5.1 17.5 19.7 64.6 - 64.6 - Interest expense2.8 3.0 11.6 12.4 9.0$ 19.6$ 39.6$ 72.0$ Year ended December 31Depreciation and amortization(indirect cost)Depreciation and amortization(general and administrative)Net earnings (loss) from continuing operationsEBITDA from continuing operationsThree months ended December 31Impairment loss
basic shares outstanding in the period. Refer to the Summary of Cash Flows section of this
MD&A for a detailed reconciliation.
Book Value per Share
Book value per share is the value of shareholders’ equity less the value of preferred shares
divided by basic shares outstanding at the end of the period.
T:CUQ, CUQ.DB
2012 ANNUAL REPORT
43
MANAGEMENT’S REPORT
Management’s Responsibility for the Financial Statements
The management of The Churchill Corporation is responsible for the preparation of the
consolidated financial statements. The financial statements have been prepared in accordance
with International Financial Reporting Standards as issued by the International Accounting
Standards Board and include certain estimates that reflect management’s best judgment.
Management maintains appropriate systems of internal control. Policies and procedures are
designed to give reasonable assurance that transactions are properly authorized, assets are
safeguarded and financial records are properly maintained to provide reliable information for the
preparation of consolidated financial statements.
The Board of Directors is responsible for ensuring that Management fulfills its responsibilities for
financial reporting and is ultimately responsible for reviewing and approving the consolidated
financial statements. The Board fulfills its responsibility in this regard principally through its Audit
Committee. The Audit Committee is comprised entirely of independent and financially literate
directors. The Audit Committee meets periodically with Management, the internal auditors and
the external auditors to review the consolidated financial statements, the management’s
discussion and analysis, auditing matters, financial reporting issues, the appropriateness of the
accounting policies, significant estimates and judgments, to discuss the internal controls over
financial reporting process and to oversee the discharge of responsibilities of the respective
parties. The Audit Committee reports its findings to the Board of Directors for consideration
when it approves the consolidated financial statements.
Deloitte & Touche LLP, whose report follows, were appointed as independent, external auditors
by a vote of the Company’s shareholders to audit the consolidated financial statements.
The Audit Committee has recommended, and the Board of Directors has approved the
information contained in the consolidated financial statements.
Douglas Haughey, MBA
Chief Executive Officer
Daryl E. Sands, CA
Executive Vice President Finance
& Chief Financial Officer
March 17, 2013
T: CUQ, CUQ.DB
2012 ANNUAL REPORT
44
INDEPENDENT AUDITOR’S REPORT
To the Shareholders of The Churchill Corporation
We have audited the accompanying consolidated financial statements of The Churchill Corporation,
which comprise the consolidated statements of financial position as at December 31, 2012 and December
31, 2011, and the consolidated statements of (loss) earnings and comprehensive (loss) earnings,
consolidated statements of changes in equity and consolidated statements of cash flows for the years
then ended, and 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.
Auditor’s 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 the auditor's 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, the auditor considers 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 financial
position of The Churchill Corporation as at December 31, 2012 and December 31, 2011, and its financial
performance and its cash flows for the years then ended in accordance with International Financial
Reporting Standards.
Chartered Accountants
Edmonton, Canada
March 17, 2013
T: CUQ, CUQ.DB
2012 ANNUAL REPORT
45
THE CHURCHILL CORPORATION
Consolidated Statements of (Loss) Earnings and Comprehensive (Loss) Earnings
For the years ended December 31, 2012 and 2011
(in thousands of Canadian dollars, except share and per share amounts)
Contract revenue
Contract costs
Contract income
Other income
Finance income
Administrative costs
Finance costs
Impairment losses
(Loss) earnings from continuing operations before tax
Income tax (expense) recovery
Current income tax
Deferred income tax
Net (loss) earnings from continuing operations
Net earnings from discontinued operations
Net (loss) earnings
Other comprehensive (loss) recovery
Defined benefit plan actuarial losses
Deferred tax recovery on other comprehensive income
Total comprehensive (loss) earnings
(Loss) earnings per share:
Basic from continuing operations
Basic from discontinued operations
Basic (loss) earnings per share
Diluted (loss) earnings per share from continuing operations
Diluted (loss) earnings per share from discontinued operations
Diluted (loss) earnings per share
Weighted average common shares:
Basic
Diluted
See accompanying notes to the consolidated financial statements.
Note
8
9
10
10
21, 22, 23
13
14
15
15
16
16
16
16
December 31,
2012
December 31,
2011
$
1,222,056
1,100,299
121,757
$
1,409,159
1,251,219
157,940
3,099
417
(112,845)
(11,578)
(64,600)
(63,750)
(1,956)
3,844
1,888
(61,862)
-
(61,862)
1,352
727
(114,899)
(12,493)
-
32,627
(4,680)
(3,838)
(8,518)
24,109
833
24,942
(4,778)
1,207
(3,571)
(65,433)
$
(3,232)
835
(2,397)
22,545
$
$
$
$
(2.54)
-
(2.54)
$
$
$
0.99
0.03
1.02
$
$
$
(2.54)
-
(2.54)
$
$
$
0.91
0.03
0.94
24,402,974
24,402,974
24,245,025
32,445,550
T: CUQ, CUQ.DB
2012 ANNUAL REPORT
46
THE CHURCHILL CORPORATION
Consolidated Statements of Financial Position
As at December 31, 2012 and December 31, 2011
(in thousands of Canadian dollars)
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Inventory
Prepaid expenses
Costs in excess of billings
Income taxes recoverable
Current portion of long-term receivable
Assets held-for-sale
Service provider deposit
Long-term receivable
Deferred tax asset
Property and equipment
Goodwill
Intangible assets
LIABILITIES
Current liabilities
Trade and other payables
Contract advances and unearned income
Current portion of provisions
Income taxes payable
Current portion of long-term debt
Employee benefits
Provisions
Long-term debt
Convertible debentures
Deferred tax liability
Share-based payments
EQUITY
Share capital
Preferred share reserve
Convertible debentures
Share-based payment reserve
Retained earnings
Note
December 31,
2012
December 31,
2011
17
18
19
14
20
13
22
21
23
24
19
25
26
15
25
26
27
13
28(f)
29
29(b)
27
28(c)
$
33,774
309,097
11,521
3,850
39,100
9,505
225
436
407,508
$
59,445
345,772
12,762
4,377
33,738
23,377
534
1,488
481,493
4,008
50
15,383
77,781
179,016
58,695
742,441
$
6,066
300
11,745
82,526
234,256
72,096
888,482
$
$
233,442
82,590
6,492
4,991
828
328,343
$
283,857
97,657
7,294
5,262
1,403
395,473
10,820
4,407
51,909
79,151
28,927
3,734
507,291
8,315
5,875
60,433
76,691
30,493
2,061
579,341
126,602
5,128
7,100
7,171
89,149
235,150
742,441
$
124,290
5,128
7,100
7,636
164,987
309,141
888,482
$
See accompanying notes to the consolidated financial statements.
On behalf of the Board of Directors:
Albrecht W.A. Bellstedt, QC
Chairperson
Allister J. McPherson
Director
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2012 ANNUAL REPORT
47
THE CHURCHILL CORPORATION
Consolidated Statements of Changes in Equity
For the years ended December 31, 2012 and 2011
(in thousands of Canadian dollars)
Balance at December 31, 2010
$
120,757
$
5,128
$
7,100
$
4,860
$
151,503
$
289,348
Note
Share
capital
Preferred
share
reserve
Convertible
debentures
Share-based
payment
reserve
Retained
earnings
Total
equity
Net earnings
Other comprehensive loss:
Defined benefit plan actuarial loss, net of tax
Total comprehensive income
Transactions recorded directly to equity
Issued in the period
Share-based payment transactions
Dividends
Normal course issuer bid
Balance at December 31, 2011
Net loss
Other comprehensive loss:
Defined benefit plan actuarial loss, net of tax
Total comprehensive loss
Transactions recorded directly to equity
Share-based payment transactions
Dividends
Normal course issuer bid
Balance at December 31, 2012
29
28
29
29
28
29
29
2,514
1,292
(273)
124,290
$
2,776
$
5,128
$
7,100
$
7,636
2,504
(192)
126,602
$
$
5,128
$
7,100
$
7,171
(465)
24,942
24,942
(2,397)
22,545
(2,397)
22,545
(8,749)
(312)
164,987
$
2,514
2,776
(7,457)
(585)
309,141
$
(61,862)
(61,862)
(3,571)
(65,433)
(3,571)
(65,433)
1,521
(11,718)
(208)
89,149
$
1,056
(9,214)
(400)
235,150
$
See accompanying notes to the consolidated financial statements.
T: CUQ, CUQ.DB
2012 ANNUAL REPORT
48
THE CHURCHILL CORPORATION
Consolidated Statements of Cash Flow
For the years ended December 31, 2012 and 2011
(in thousands of Canadian dollars)
OPERATING ACTIVITIES
Net (loss) earnings from continuing operations
Net earnings from discontinued operations
Depreciation and amortization
Loss on disposal of assets
Gain on disposal of assets held-for-sale
Recovery on other long-term receivables
Impairment losses
Share-based compensation expense
Gain on derivative instrument
Income tax (recovery) expense
Income tax expense on discontinued operations
Income tax recovery recorded in indirect costs
Finance costs
Payment of share-based payment liability
Employee benefits
Cash settlement of stock options
Change in provisions
Change in non-cash working capital balances relating to operations
Cash generated from operations
Interest paid
Income taxes received (paid)
Net cash generated by general operating activities
INVESTING ACTIVITIES
Acquisition, net of cash and cash equivalents acquired
Proceeds from long-term receivable
Proceeds on disposal of assets
Proceeds on disposal of assets held-for-sale
Additions to intangible assets
Additions to property and equipment
Net cash used in investing activities
FINANCING ACTIVITIES
Decrease (increase) in service provider deposit
Proceeds of long-term debt
Repayment of long-term debt
Share purchase under normal course issuer bid
Dividend paid
Net cash financing activities
Decrease in cash and cash equivalents during the year
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
See accompanying notes to the consolidated financial statements.
Note
December 31,
2012
December 31,
2011
11
14
14
21, 22, 23
28(g)
13
13
13
10
28(f)
15
25
30
10
13
14
23
22
20
26
26
29(c)
29(a)
$
(61,862)
-
27,170
181
(2,485)
(147)
64,600
4,678
-
(1,888)
-
-
11,578
41,825
(2,963)
(2,273)
(1,230)
(2,270)
(29,991)
3,098
(8,411)
11,859
6,546
$
24,109
833
26,924
270
(1,215)
-
-
3,176
(21)
8,518
67
(1,106)
12,493
74,048
(825)
-
-
(3,105)
826
70,944
(9,188)
(4,288)
57,468
-
406
982
4,150
(4,198)
(15,458)
(14,118)
(9,743)
966
770
3,059
(8,893)
(32,908)
(46,749)
2,058
516,000
(526,562)
(398)
(9,197)
(18,099)
(25,671)
59,445
33,774
$
(1,287)
473,407
(489,124)
(585)
(4,533)
(22,122)
(11,403)
70,848
59,445
$
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2012 ANNUAL REPORT
49
THE CHURCHILL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2012 and 2011
(in thousands of Canadian dollars, except share and per share amounts)
1. REPORTING ENTITY
The Churchill Corporation was incorporated on August 31, 1981 in Canada under the
Companies Act of Alberta and was continued under the Business Corporations Act (Alberta) on
July 30, 1985. The principal activities of The Churchill Corporation and its subsidiaries
(collectively, the “Corporation”) are to provide building construction, commercial electrical and
data systems contracting,
industrial electrical and
instrumentation contracting, civil construction and related services within Canada.
insulation contracting,
industrial
The address of the Corporation’s head office and its principal address is #400, 4954 Richard
Road S.W., Calgary, Alberta, Canada, T3E 6L1. The registered and records office is located at
#3700, 400 – 3rd Avenue, S.W., Calgary, Alberta, Canada, T2P 4H2.
2. BASIS OF PRESENTATION
(a) Statement of Compliance
The consolidated financial statements of the Corporation have been prepared in accordance
with International Financial Reporting Standards (“IFRS”).
These consolidated financial statements were approved by the Corporation’s Board of Directors
on March 17, 2013.
(b) Functional and presentation currency
These consolidated financial statements are presented in Canadian dollars, which is the
Corporation’s functional currency. Unless otherwise indicated all financial information presented
has been rounded to the nearest thousand.
(c) Basis of measurement
The consolidated financial statements have been prepared on the historical cost basis except
for the following material items in the statements of financial position:
•••• Financial instruments at fair value through profit or loss measured at fair value;
•••• Available-for-sale financial assets are measured at fair value; and
•••• Liabilities for cash-settled share-based payment arrangements are measured at fair value.
These consolidated financial statements were prepared on a going concern basis.
(d) Use of estimates and judgments
The preparation of the consolidated 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. Actual
results may differ from these estimates.
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2012 ANNUAL REPORT
50
THE CHURCHILL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2012 and 2011
(in thousands of Canadian dollars, except share and per share amounts)
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to
accounting estimates are recognized in the period in which the estimates are revised and in any
future periods affected.
Uncertainty is inherent in estimating the cost of completing construction projects, percentage of
revenue earned, the estimated useful life and residual value of property and equipment and
corresponding depreciation rates, the useful life of intangible assets and corresponding
amortization rates, allowances for doubtful accounts receivable, deferred income taxes,
employee benefits, provision for warranty work and legal contingencies, valuation of share-
based payments and the recoverable amount of intangible assets including goodwill, and other
financial instruments. The impact on the consolidated financial statements of future changes in
such estimates could be material within the next financial year.
Information about critical judgments in applying accounting policies that have the most
significant effect on the amounts recognized in the consolidated financial statements is included
in note 27 – classification of debt and equity components of convertible debentures.
Information about assumptions and estimation uncertainties that have a significant risk of
resulting in material adjustments within the next financial year is related to:
•••• Revenue recognition – estimates used to determine percentage of completion for
construction contracts, specifically related to estimated costs to complete included in the
various construction projects
•••• Measurement of defined benefit pension obligations (Note 15)
•••• Property and equipment – estimates related to the useful lives and residual values of assets
(Note 22)
•••• Estimates in impairment of goodwill, property and equipment, and intangibles (Note 21, 22,
and 23)
•••• Provisions – estimates associated with amounts and timing (Note 25)
•••• Assumptions used in share-based payment arrangements (Note 28)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of consolidation
The consolidated financial statements incorporate the financial statements of the Corporation
and entities controlled by the Corporation (its subsidiaries). All subsidiary companies are wholly
owned and inter-company balances, transactions, revenues and expenses have been
eliminated on consolidation. The Corporation proportionately consolidates its interests in joint
ventures. Accounting policies have been applied consistently by the subsidiaries of the
Corporation.
(i) Business combination
Acquisitions of businesses are accounted for using the acquisition method. The consideration
transferred in a business combination is measured at fair value, which is calculated as the sum
of the acquisition-date fair values of the assets transferred to the Corporation, liabilities incurred
by the Corporation to the former owners of the acquiree and the equity interests issued or cash
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2012 ANNUAL REPORT
51
THE CHURCHILL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2012 and 2011
(in thousands of Canadian dollars, except share and per share amounts)
paid by the Corporation in exchange for control of the acquiree. Acquisition-related costs are
generally recognized in profit or loss as incurred, unless related to issuance of debt or equity.
At the acquisition date, the identifiable assets acquired and the liabilities assumed are
recognized at their fair value at the acquisition date, except that:
• Deferred tax assets or liabilities and liabilities or assets related to employee benefit
arrangements are recognized and measured in accordance with IAS 12, Income Taxes, and
IAS 19, Employee Benefits, respectively;
• Liabilities or equity instruments related to share-based payment arrangements of the
acquiree or share-based payment arrangements of the Corporation entered into to replace
share-based payment arrangements of the acquiree are measured in accordance with IFRS
2, Share-based Payment, at the acquisition date; and
• Assets that are classified as held-for-sale in accordance with IFRS 5, Non-current Assets
Held for Sale and Discontinued Operations, are measured in accordance with that standard.
The Corporation measures goodwill as the excess of the sum of the fair value of the
consideration transferred, the amount of any non-controlling interests, and the fair value of the
acquirer’s previously held interest in the acquiree, if any, over the net recognized amount
(generally fair value) of the identifiable assets acquired and liabilities assumed, all measured as
of the acquisition date.
(ii) Joint ventures
Joint ventures are those entities over whose activities the Corporation has joint control,
established by contractual agreements. Joint ventures are accounted for using the proportionate
consolidation method as follows:
• The statements of financial position include the Corporation’s share of the assets that it
controls jointly and the liabilities for which it is jointly responsible;
• The consolidated statements of (loss) earnings and comprehensive (loss) income include
the Corporation’s share of the income and expenses of the jointly controlled entity; and
• Gains and losses on the transactions between the Corporation and its joint ventures are
eliminated to the extent of the Corporation’s interest in the joint ventures. Losses are
recognized in full where the transactions provide evidence of impairment of the asset
transferred.
(b) Segment reporting
An operating segment is a component of the Corporation that engages in business activities
from which it may earn revenues or incur expenses, including revenues and expenses that
relate to transactions with any of the Corporation’s other components. Operating segments are
identified on the basis of internal reports about components of the Corporation that are regularly
reviewed by the Executive Management Team acting as the key decision maker in order to
allocate resources to the segments and to assess their performance, and for which discrete
financial information is available.
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52
THE CHURCHILL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2012 and 2011
(in thousands of Canadian dollars, except share and per share amounts)
(c) Revenue recognition
(i) Construction contracts
Contract revenue includes the initial amount agreed 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 at the end of the reporting period. Contract expenses
are recognized as incurred unless they create an asset related to future contract activity.
The stage of completion is assessed by reference to the proportion that costs incurred to date
bear to the estimated total costs of the transaction. The stage of completion may also be
assessed by reference to survey of work performed. Where there is uncertainty that the
economic benefits associated with the contract will flow to the Corporation or where the total
contract costs cannot be identified and measured, revenue is recognized only to the extent of
contract costs incurred where it is probable those costs will be recoverable.
During the very early stages of significant multi-year contracts, the outcome of the contract
cannot always be estimated reliably. In those circumstances where the outcome cannot be
reliably estimated, contract revenue is recognized only to the extent contract costs are incurred
and expected to be recoverable until such time that the outcome of the contract can be reliably
estimated.
Contract costs include costs that relate directly to a specific contract, costs that are attributable
to contract activity in general and can be allocated to individual contracts, and such other costs
as are specifically chargeable to the customer under the terms of the contract. Contract costs
exclude general administration costs (unless reimbursement is specified in the construction
contract), selling costs, and research and development costs (unless reimbursement is specified
in the construction contract). Contract costs are recognized as expenses in the period in which
they are incurred.
Where current estimates indicate that total contract costs will exceed total contract revenue, the
full amount of the expected loss is recognized immediately.
(ii) Service contracts
Revenue from services rendered where the final outcome of the contract can be estimated
reliably is recognized in profit or loss in proportion to the stage of completion of the contract at
the reporting date. The stage of completion is assessed by reference to the proportion that costs
incurred to date bear to the estimated total costs of the contract. Revenue from time and
material contracts where the work scope is not definitive is recognized at the contractual rates
as labour hours and direct expenses are incurred.
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2012 ANNUAL REPORT
53
THE CHURCHILL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2012 and 2011
(in thousands of Canadian dollars, except share and per share amounts)
(iii) Sale of goods
The Corporation recognizes revenue on the supply of ballast inventory when the material is
taken by the customer and invoiced. Undelivered ballast is accounted for as inventory on the
consolidated statements of financial position. Sale of goods revenue also includes materials that
are fabricated to customer specifications under specifically negotiated contracts.
(d) Finance income and finance costs
Finance income comprises interest income on funds invested, dividend income, gains on the
disposal of available-for-sale financial assets and changes in the fair value of assets, classified
by their nature as financial assets, at fair value through profit or loss. Interest income is
recognized using the effective interest method as it accrues.
Finance costs comprise interest expense on borrowings, the unwinding of the discount on any
provisions, changes in the fair value of financial assets classified as fair value through profit or
loss and impairment losses recognized on financial assets.
(e) Income taxes
Income tax expense is comprised of current and deferred tax. Current and deferred tax are
recognized in profit or loss except to the extent that it relates to assets acquired and liabilities
assumed in a business combination or items recognized directly in equity or other
comprehensive (loss) income.
Current tax is recognized and measured at the amount expected to be recovered from or
payable to the taxation authorities based on the income tax rates enacted or substantively
enacted at the end of the reporting period and includes any adjustment to tax payable in respect
of previous years.
The Corporation follows the liability method of accounting for income taxes. Under this method,
deferred tax is recognized on any temporary difference between the carrying amounts of assets
and liabilities in the consolidated financial statements and the corresponding tax bases used in
the computation of taxable earnings.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the
period when the asset is realized and the liability is settled based on tax rates and tax laws that
have been enacted or substantively enacted by the end of the reporting period. The
measurement of deferred tax liabilities and assets reflects the tax consequences that would
follow from the manner in which the Corporation expects, at the end of the reporting period, to
recover or settle the carrying amounts of its assets and liabilities. The effect of a change in the
enacted or substantively enacted tax rates is recognized in net earnings and comprehensive
(loss) income or in equity depending on the item to which the adjustment relates.
Deferred tax is recognized on temporary differences arising from investments in subsidiaries,
and interests in joint ventures, except in the case where the Corporation is able to control the
reversal of the temporary difference and it is probable that the temporary difference will not
reverse in the foreseeable future.
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2012 ANNUAL REPORT
54
THE CHURCHILL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2012 and 2011
(in thousands of Canadian dollars, except share and per share amounts)
Deferred tax assets are recognized to the extent future recovery is probable. At each reporting
period end, deferred tax assets are reduced to the extent that it is no longer probable that
sufficient taxable earnings will be available to allow all or part of the asset to be recovered.
Deferred tax assets and liabilities are not recognized if the temporary difference arises from the
initial recognition of goodwill or the initial recognition of other assets and liabilities in a
transaction which is not a business combination and, at the time of the transaction, affects
neither accounting net earnings nor taxable earnings.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset
current tax assets against current tax liabilities and when they relate to income taxes levied by
the same taxation authority and the Corporation intends to settle its current tax assets and
liabilities on a net basis or the tax assets and liabilities will be realized simultaneously.
The Corporation recognizes income tax benefits or liabilities related to uncertain tax positions to
the extent they are more likely than not to be realized or settled.
(f) Employee benefits
(i) Short-term employee benefits
The Corporation has an Employee Share Purchase Plan (“ESPP”). The Corporation contributes
to the plan based on the amount of employee contributions. Short-term employee benefit
obligations are measured on an undiscounted basis and are expensed as the related services
are provided.
Short-term compensation includes an annual employee cash bonus. A liability is recognized for
the amount expected to be paid under short-term cash bonuses or profit-sharing plans if the
Corporation believes it may have 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.
(ii) Post-employment benefits
The Corporation has a Registered Retirement Savings Plan (“RRSP”). The Corporation
contributes to the plan based on the amount of employee contributions. Similar to the ESPP, the
related obligation of RRSPs are measured on an undiscounted basis and are expensed as the
related services are provided.
The Corporation maintains two non-contributory defined benefit pension plans (“DB”) that cover
salaried employees for two of the operating entities. Annual employer contributions to the DB,
which are actuarially determined by an independent actuary, are made on the basis of being not
less than the minimum amounts required by provincial pension supervisory authorities.
A defined benefit plan is a post-employment benefit plan other than a defined contribution plan.
Pension costs are based on management’s best estimate of expected plan performance, salary
escalation and retirement age of employees. The Corporation’s net obligation in respect of
defined benefit pension plans is calculated separately for each plan by estimating the amount of
future benefit that employees have earned in return for their service in the current and prior
periods; that benefit is discounted to determine its present value. Any recognized past service
costs and the fair value of any plan assets are deducted. The discount rate used to establish the
pension obligation is based on a yield curve using AA-rated Canadian corporate bonds for
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2012 ANNUAL REPORT
55
THE CHURCHILL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2012 and 2011
(in thousands of Canadian dollars, except share and per share amounts)
maturities up to 10 years. This discount rate is then extrapolated with a spread adjustment to
reflect the additional credit risk of AA-rated corporate bonds. The calculation is performed
annually at December 31st by a qualified actuary using the projected unit credit method. When
the calculation results in a benefit to the Corporation, the recognized asset is limited to the total
of any unrecognized past service costs and the present value of economic benefits available in
the form of any future refunds from the plan or reductions in future contributions to the plan. In
order to calculate the present value of economic benefits, consideration is given to any
minimum funding requirements that apply to any plan within the Corporation. An economic
benefit is available to the Corporation if it is realizable during the life of the plan, or on
settlement of the plan liabilities.
The pension deficit or surplus is adjusted on a quarterly basis for any material changes in
underlying assumptions. The Corporation recognizes all actuarial gains and losses arising from
the defined benefit plans in other comprehensive (loss) income in the period in which they
occur.
When the benefits of a plan are improved, the portion of the increased benefit related to past
service by employees is recognized in profit or loss on a straight-line basis over the average
service period until the benefits become vested. To the extent that the benefits vest
immediately, the expense is recognized immediately in profit or loss.
Unlike the defined benefit plan, there is no obligation recorded for the defined contribution plans.
The contributions made by the Corporation are measured on an undiscounted basis and are
expensed as the related services are provided.
(iii) Share-based payments
The grant date fair value of share-based payment awards, or stock options, granted to
employees is recognized as an employee expense, with a corresponding increase in equity,
over the period that the employees unconditionally become entitled to the awards. 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 meet the related
service and non-market performance conditions at the vesting date.
The fair value of the amount payable to employees and directors in respect of performance
share units (“PSUs”) and deferred shared units (“DSUs”), for which the participants are eligible
to receive an equivalent cash value of the common shares at a future date, is recognized as an
expense with a corresponding increase in liabilities, over the period that the employees and
directors unconditionally become entitled to payment. The liability is remeasured at each
reporting date and at settlement date. Any changes in the fair value of the liability are
recognized as compensation expense in profit or loss. The PSUs are subject to achieving
certain performance vesting conditions. DSUs vest immediately upon grant.
(g) Earnings per share
The Corporation presents basic and diluted earnings per share (“EPS”) for its common shares.
Basic EPS is calculated by dividing the profit or loss attributable to the common shareholders of
the Corporation by the weighted average number of ordinary shares outstanding during the
period, adjusted for the Corporation’s own shares held. Diluted EPS is determined by adjusting
the profit or loss attributable to the common shareholders and the weighted average number of
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2012 ANNUAL REPORT
56
THE CHURCHILL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2012 and 2011
(in thousands of Canadian dollars, except share and per share amounts)
ordinary shares outstanding for the effects of all dilutive potential common shares, including
share options granted to employees and directors and shares related to convertible debentures,
assuming that all of the debenture holders converted as allowed.
The average market value of the Corporation’s shares for purposes of calculating the dilutive
effect of share options was based on quoted market prices for the period during which the
options were outstanding.
(h) Financial instruments
Under the Corporation’s risk management policy, fuel derivative financial instruments are used
only for risk management purposes and not for generating trading profits. The financial
instruments that the Corporation uses are unlikely to meet hedge effectiveness criteria because
they contain risk related to location, basis, foreign exchange and quantity. Therefore, the
instruments are not accounted for as designated hedges and volatility in the value of the
instruments are recorded through the consolidated statements of (loss) earnings.
Financial assets and liabilities, including derivatives, are recognized on the consolidated
statements of financial position when the Corporation becomes a party to the contractual
provisions of the financial instrument or derivative contract. Financial instruments are required to
be initially measured at fair value and are subsequently accounted for based on their
classification as described below. The classification depends on the purpose for which the
limited
financial
circumstances, the classification is not changed subsequent to initial recognition.
instruments were acquired and
their characteristics. Except
in very
(i) Financial assets
The Corporation has the following classifications by nature of the non-derivative financial
assets: financial assets at fair value through profit or loss, held-to-maturity financial assets,
loans and receivables, and available-for-sale financial assets. Loans and receivables are initially
recognized on the date they originated. All other classifications of financial assets are
recognized on the trade date at which the Corporation becomes party to the contractual
provisions of the instrument.
From time to time, the Corporation will use financial derivatives, which are comprised of
contracts where the Corporation pays a fixed price to mitigate floating price risks on notional
quantities of refined products.
Derivative instruments are recorded on the consolidated statements of financial position at fair
value with both realized and unrealized changes in fair value recognized immediately in other
income in the consolidated statements of (loss) earnings. These fuel derivative contracts are
included in prepaid expenses and trade and other payables based on the terms of the
contractual agreements. As at December 31, 2012, the Corporation did not have any financial
derivatives outstanding (Note 31).
All cash flows associated with purchasing derivatives are classified as operating cash flows in
the consolidated statements of cash flow.
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2012 ANNUAL REPORT
57
THE CHURCHILL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2012 and 2011
(in thousands of Canadian dollars, except share and per share amounts)
Financial assets are derecognized when the contractual cash flows from the asset expire or
when the Corporation transfers the right to receive the contractual cash flows of the asset in a
transaction whereby all risks and rewards of the financial asset are transferred. Any retained
interest in the financial asset transferred is recognized as a separate financial asset or liability.
Financial assets and liabilities are offset and presented net in the statements of financial
position only when a legal right of offset in the amounts exists and the Corporation intends to
settle the transaction on a net basis or realize the asset and the liability simultaneously.
Financial assets at fair value through profit or loss
A financial asset is classified at fair value through profit or loss if it is classified as held-for-
trading or is designated as such upon initial recognition. Financial assets are classified as held
for trading if the Corporation manages such investments and makes purchase and sale
decisions based on their fair value in accordance with the Corporation’s documented risk
management or investment strategy and have been acquired principally for the purpose of
selling in the near term. A financial asset is classified at fair value through profit or loss if it is a
derivative that is not designated and effective as a hedging instrument. Financial assets
classified as held for trading or designated at fair value through profit or loss are measured at
fair value with changes recognized in profit or loss.
Transaction costs associated with assets classified as fair value through profit or loss are
recognized as incurred through profit or loss.
Held-to-maturity financial assets
Financial assets are classified as held-to-maturity if the Corporation has the positive intent and
the ability to hold the asset to maturity. Held-to-maturity financial assets are initially recognized
at fair value plus any transaction costs directly attributable to the asset. Held-to-maturity
financial assets are subsequently measured at amortized cost using the effective interest
method less any impairment losses. Effective interest method is defined as the rate that exactly
discounts estimated future cash payments or receipts through the expected life of the financial
instrument or, when appropriate, a shorter period, to the net carrying amount of the financial
asset or financial liability. The sale or reclassification of more than an insignificant amount of
held-to-maturity investments prior to maturity will result in the held-to-maturity portfolio being
considered tainted and result in the reclassification of all held-to-maturity investments as
available-for-sale. Furthermore, the Corporation will be prevented from classifying financial
assets as held-to-maturity for the current and following two financial years.
Cash and cash equivalents
Cash and cash equivalents comprise of cash on hand, bank balances and short-term liquid
investments with original maturities of three months or less.
Loans and receivables
Financial assets with fixed or determinable payments that are not derivatives and are not quoted
in an active market are classified as loans and receivables. Loans and receivables are initially
recognized at fair value plus any transaction costs directly attributable to the asset. Loans and
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2012 ANNUAL REPORT
58
THE CHURCHILL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2012 and 2011
(in thousands of Canadian dollars, except share and per share amounts)
receivables are subsequently measured at amortized costs using the effective interest method,
less any impairment losses. Loans and receivables are generally comprised of trade and other
receivables and cash and cash equivalents.
Available-for-sale financial assets
Available-for-sale financial assets represent those non-derivative financial assets that are
designated as available-for-sale, or are not classified as loans and receivables or held-to-
maturity investment, are not held-for-trading, and are not designated as fair value through profit
or loss on initial recognition. Available-for-sale financial assets are initially measured at fair
value plus any transaction costs directly attributable to the asset. Subsequent fair value gains or
losses are recognized in other comprehensive (loss) income, except for impairment. For interest
bearing available-for-sale financial assets, interest calculated using the effective interest method
and any foreign exchange gains and losses on monetary available-for-sale financial assets are
recognized in profit or loss. Available-for-sale financial assets include service provider deposits.
(ii) Financial liabilities
The Corporation has the following non-derivative financial liabilities: trade and other payables,
current and long-term debt and convertible debentures. The Corporation initially recognizes debt
securities issued at the date they originate. All other financial liabilities are recognized initially on
the trade date at which the Corporation becomes a party to the contractual provisions of the
instrument.
Financial liabilities are initially recognized at fair value plus any transaction costs directly
attributable to the liability except for financial liabilities classified as fair value through profit or
loss. Financial liabilities classified as other liabilities are subsequently measured at amortized
cost using the effective interest method. Financial liabilities are derecognized when their
contractual obligations are discharged, cancelled or have expired.
The Corporation has the following financial assets and liabilities:
Classification
Measurement
Financial asset
Cash and cash equivalents
Trade and other receivables
Service provider deposit
Current and long-term receivable
Derivative instruments
Loans and receivables
Loans and receivables
Available-for-sale
Loans and receivables
Fair value through profit or loss
Financial liabilities
Trade and other payables
Current and long-term debt
Convertible debentures - liability component
Other liabilities
Other liabilities
Other liabilities
Amortized cost
Amortized cost
Fair value
Amortized cost
Fair value
Amortized cost
Amortized cost
Amortized cost
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2012 ANNUAL REPORT
59
THE CHURCHILL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2012 and 2011
(in thousands of Canadian dollars, except share and per share amounts)
(iii) Share capital
Common shares
Common shares are classified as equity. Transaction costs that are incremental and directly
attributable to the issue of common shares are recognized as a deduction from equity net of any
tax effects.
Repurchase of share capital (treasury shares) under normal course issuer bid (“NCIB”)
When share capital recognized as equity is repurchased, the amount of the consideration paid,
which includes directly attributable costs, net of any tax effects, is recognized as a deduction
from equity. Cancelled shares are classified as treasury shares and are presented as a
component within total equity. When treasury shares are issued, the amount received is
recognized as an increase in equity, and any resulting surplus (deficit) on the transaction is
transferred to (from) retained earnings.
Dividend reinvestment plan (“DRIP”)
When dividends are declared during a period, the DRIP allows eligible shareholders to direct
cash dividends payable on common shares into additional common shares. The portion of
shares related to the DRIP plan, as determined by the share transfer agent, is calculated using
the dividend per share for all DRIP shares divided by 95% of the weighted average closing
share price for the 10 days preceding the dividend payment date. This value is recorded as a
payable in that period with the offset recorded to retained earnings. Once the dividend is paid,
the amount of DRIP shares issued is recorded as an increase to share capital with a decrease
to the dividend payable.
(iv) Compound financial instruments
Compound financial instruments issued by the Corporation comprise convertible debentures
that can be converted to share capital at the option of the holder, and the number of shares to
be issued does not vary with changes in their value.
The liability component of a compound financial instrument is recognized initially at the fair
value of a similar liability that does not have an equity conversion option. The equity component
is recognized initially at the difference between the fair value of the compound financial
instrument as a whole and the fair value of the liability component. Any directly attributable
transaction costs are allocated to the liability and equity components in proportion to their
carrying amounts. Subsequent to initial recognition, the liability component of a compound
financial instrument is measured at amortized cost using the effective interest method. The
equity component of a compound financial instrument is not remeasured subsequent to initial
recognition.
Interest, losses and gains relating to the financial liability component are recognized in profit or
loss. Distributions to the equity holders are recognized in equity, net of any tax benefit.
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2012 ANNUAL REPORT
60
THE CHURCHILL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2012 and 2011
(in thousands of Canadian dollars, except share and per share amounts)
(i) Inventory
The Corporation produces ballast through rock crushing services undertaken by Broda
Construction Inc. (“Broda”), a wholly owned subsidiary. Ballast inventory is measured using the
lower of cost of production, consisting primarily of equipment costs and labour, and net
realizable value. The cost of ballast inventory does not include profit margins or non-attributable
overheads. During the year, the Corporation expensed $7,090 (2011 - $7,284) of inventory
through contract costs.
Inventory is measured at the lower of cost and net realizable value. The cost of inventory is
determined on a first in, first out basis. Net realizable value is the estimated selling price in the
ordinary course of business less the estimated selling expenses.
(j) Costs in excess of billings, contract advances and unearned income
Costs in excess of billings represent unbilled amounts expected to be collected from customers
for contract work performed to date. The amount is measured at costs plus profit recognized to
date less progress billings and recognized losses. Costs include all expenditures directly related
to specific projects. Costs in excess of billings are presented as a current asset in the
consolidated statements of financial position for all contracts in which costs incurred plus
recognized profits exceeds the progress billings and the amounts are expected to be billed and
recovered within twelve months. If progress billings exceed costs incurred plus recognized
profits, the difference represents amounts collected in advance for contract work yet to be
performed and is presented as contract advances and unearned income in the statements of
financial position.
(k) Property and equipment
(i) Recognition and measurement
Items of property and equipment are measured at cost less accumulated depreciation and
accumulated impairment losses.
Costs include 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 and any other costs
directly attributable to bringing the assets to 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 for which the commencement date for capitalization is on
or after January 1, 2010 are also capitalized as part of property and equipment.
The Corporation recognizes major long-term component spare parts as property and equipment
when the parts and equipment are significant and are expected to be used over a period of time
greater than a year, or when the part can only be used in connection with an item of property
and equipment.
Borrowing costs that are directly attributable to the acquisition and construction or production of
a qualifying asset form part of the costs of the asset. Borrowing costs that are not directly
attributable to the acquisition, construction or production of a qualifying asset are recognized in
profit or loss.
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2012 ANNUAL REPORT
61
THE CHURCHILL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2012 and 2011
(in thousands of Canadian dollars, except share and per share amounts)
Gains and losses on disposal of an item of property and equipment are determined by
comparing the proceeds from disposal with the carrying amount of property and equipment and
are recognized within other income in profit or loss.
(ii) Subsequent costs
The cost of replacing a part of an item of property and equipment is recognized in the carrying
amount of the item if it is probable that the future economic benefits embodied within that part
will flow to the Corporation and its cost can be reliably measured. The carrying amount of the
part replaced is derecognized. The costs of the day-to-day servicing of property and equipment
are recognized in profit or loss when incurred.
(iii) Depreciation
Depreciation is calculated based on the cost of an asset (or deemed cost) less its residual
value. Depreciation is recognized for each significant component of an item of property and
equipment.
Depreciation is recognized in the statements of (loss) earnings on a straight-line basis over the
estimated useful life of each asset. Leased assets are depreciated over the shorter of the lease
term and their estimated useful lives, unless it is reasonably certain that the Corporation will
obtain ownership by the end of the lease term. The method of depreciation has been selected
based on the expected pattern of consumption of the economic benefits of the asset.
The estimated useful lives are as follows:
Asset
Basis
Useful life
Land improvements
Buildings and improvements
Leasehold improvements
Construction equipment
Automotive equipment
Office furniture and equipment
Computer hardware
Equipment components
Straight-line
Straight-line
Straight-line
Straight-line
Straight-line
Straight-line
Straight-line
Straight-line
30 years
10 to 25 years
Lesser of estimated useful life or lease term
10 to 20 years
5 years
3 to 5 years
1 to 3 years
1.5 to 3 years
Depreciation commences when the asset is available for use and ceases on the earliest of
when the asset is derecognized or classified as held for sale. Depreciation methods, useful lives
and residual values are reviewed at each financial year-end and adjusted where appropriate.
(l) Goodwill
Goodwill is the residual amount that results when the purchase price of an acquired business
exceeds the sum of the amounts allocated to the identifiable assets acquired, less liabilities
assumed, based on their fair values. Goodwill is allocated as of the date of the business
combination. Goodwill is not amortized and is tested for impairment annually in the fourth
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2012 ANNUAL REPORT
62
THE CHURCHILL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2012 and 2011
(in thousands of Canadian dollars, except share and per share amounts)
quarter, or more frequently if events or changes in circumstances indicate that the asset may be
impaired.
(m) Intangible assets
Intangible assets include Enterprise Resource Planning (“ERP”) assets, backlog and agency
contracts, customer relationships, tradenames and computer software. These intangible assets
are measured at cost less accumulated amortization and accumulated impairment losses, if
any. Amortization is calculated using the cost of the asset. Amortization commences once the
asset is available for use and is recognized in profit or loss on a straight-line basis over the
estimated useful life. The method of amortization has been selected based on the expected
pattern of consumption of the economic benefits of the asset. Amortization methods, useful lives
and residual values are reviewed at each financial year-end and adjusted where appropriate.
Intangible Asset
Basis
Enterprise Resource Planning assets
Backlog and agency contracts
Customer relationships
Tradenames
Computer software
Straight-line
As related revenue is earned
Straight-line
Straight-line
Straight-line
Useful life
12 years
2 to 3 years
5 to 15 years
5 to 15 years
1 year
(n) Impairment
(i) Financial assets
A financial asset not classified 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 will have a negative effect on the estimated
future cash flows of that asset that can be estimated reliably.
Objective evidence that financial assets 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 otherwise consider, 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 classified as available-for-sale, a significant or prolonged decline in its fair value below
its cost is considered objective evidence of impairment.
The Corporation considers evidence of impairment for receivables and held-to-maturity
investment securities at both a specific asset and collective level. All individually significant
receivables are assessed for specific impairment. All individually significant receivables found
not to be specifically impaired are then collectively assessed for any impairment that has been
incurred but not yet identified. Receivables that are not individually significant are collectively
assessed for impairment by grouping together receivables with similar risk characteristics.
T: CUQ, CUQ.DB
2012 ANNUAL REPORT
63
THE CHURCHILL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2012 and 2011
(in thousands of Canadian dollars, except share and per share amounts)
In assessing collective impairment the Corporation uses historical trends of probability of
default, timing of recoveries and the amount of loss incurred, adjusted for management’s
judgment as to whether current economic and credit conditions are such that the actual losses
are likely to be greater or less than suggested by historical trends.
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.
(ii) Non-financial assets
The carrying amounts of the Corporation’s non-financial assets, other than inventories and
deferred tax assets for which separate processes apply, 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 intangible assets that have an indefinite useful life
or intangible assets that are not yet available for use, the recoverable amount is estimated each
year in the fourth quarter.
The recoverable amount of an asset or cash-generating unit (“CGU”) 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 pre-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 (CGU). For the
purpose of goodwill impairment testing, goodwill acquired in a business combination is allocated
to the CGU, or the group of CGUs, that is expected to benefit from the synergies of the
combination. This allocation is subject to an operating segment ceiling 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 CGU 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 CGUs, and then to reduce the carrying amounts of the other assets in
the CGUs 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
T: CUQ, CUQ.DB
2012 ANNUAL REPORT
64
THE CHURCHILL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2012 and 2011
(in thousands of Canadian dollars, except share and per share amounts)
amount that would have been determined, net of depreciation or amortization, if no impairment
loss had been recognized.
(o) Assets held-for-sale
Assets, or disposal groups comprising assets and liabilities, that are expected to be recovered
primarily through sale rather than through continuing use are classified as held-for-sale. This
criterion is considered to be met when the assets are available for immediate sale in their
present condition and the sale is highly probable. Immediately before classification as held-for-
sale, the assets, or components of a disposal group, are remeasured in accordance with the
Corporation’s accounting policies. Thereafter generally the assets, or disposal groups, are
measured at the lower of their carrying amount and fair value less cost to sell. Any impairment
loss on a disposal group is first allocated to goodwill, and then to remaining assets and liabilities
on a pro rata basis. Impairment losses on initial classification as held for sale and subsequent
gains or losses on remeasurement are recognized in profit or loss. Gains are not recognized in
excess of any cumulative impairment loss, unless sold for more than carrying value.
(p) Provisions
Provisions are recognized when the Corporation has a present obligation as a result of a past
event, it is probable that the Corporation will be required to settle the obligation and a reliable
estimate of the obligation can be made.
The amount recognized as a provision is the best estimate of the consideration required to
settle the present obligation at the end of the reporting period, taking into account the risks and
uncertainties that surround the obligation. Where a provision is measured using the cash flow
estimated to settle the present obligation, the carrying amount reflects the present value of that
cash flow.
A provision for onerous contracts is recognized when the expected benefit from a contract is
lower than the unavoidable cost of meeting the obligations under the contract. The provision is
measured at the present value of the lower of the expected cost of terminating the contract and
the expected net cost of continuing with the contract. Impairment losses on assets associated
with the onerous contract are recognized prior to the provision being established.
The Corporation has several classes of provisions including:
(i) Warranties
Provisions for the expected cost of construction warranty obligations under construction
contracts are recognized upon completion or substantial performance under the construction
contract and represent the best estimate of the expenditure required to settle the Corporation’s
obligation.
(ii) Restructuring
Restructuring provisions relate to both ongoing operations and acquisitions and are accrued
when the Corporation demonstrates its commitment to implement a detailed restructuring plan.
The amounts provided represent management’s best estimate of the costs for restructuring.
T: CUQ, CUQ.DB
2012 ANNUAL REPORT
65
THE CHURCHILL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2012 and 2011
(in thousands of Canadian dollars, except share and per share amounts)
(iii) Claims and disputes
Provisions related to claims and disputes arising on contracts of the Corporation are included in
this category. The timing and measurement of the related cash flows are by nature uncertain
and the amounts recorded reflect the best estimate of the expenditure required to settle the
obligations.
(iv) Subcontractor default
The Corporation maintains subcontractor default insurance, which provides general contractors
with more comprehensive coverage in respect of subcontractor default on projects. The
liabilities on the consolidated statements of financial position relate to management’s best
estimate of exposures and costs associated with prior or existing subcontractor performance
and the risk of potential default. Management conducts a thorough review of the liability every
reporting period and takes into consideration the Corporation’s experience to date with those
subcontractors that are enrolled in the program and the changes to factors that tend to affect the
construction sector. The current portion of the subcontractor default liability represents the risk
related to payments not covered by the insurance deductible.
(q) Leases
Leases in terms of which the Corporation assumes substantially all the risks and rewards of
ownership are classified as finance leases. Upon initial recognition, the leased asset is
measured at an amount equal to the lower of its fair value at the inception of the lease and the
present value of the minimum lease payments. Subsequent to initial recognition, the asset is
accounted for in accordance with the accounting policy applicable to that asset. The
corresponding liability to the lessor is included in the consolidated statements of financial
position as long term debt.
Lease payments are apportioned between finance expenses and reduction of the lease
obligation so as to achieve a constant rate of interest on the remaining balance of the liability.
Finance expenses are recognized immediately in profit or loss.
All other leases are operating leases, whereby the leased assets are not recognized in the
Corporation’s statements of financial position. Operating lease payments are recognized as an
expense on a straight-line basis over the lease term, except where another systematic basis is
more representative of the time pattern in which economic benefits from the leased asset are
consumed.
(r) Accumulated other comprehensive (loss) income and retained earnings
The Corporation applies the standard for reporting and displaying other comprehensive (loss)
income, defined as revenue, expenses, and gains and losses which, in accordance with primary
sources of IFRS, are recognized in comprehensive (loss) income but excluded from net
earnings. Items that would be reclassified into profit or loss in the future, if certain conditions are
met, are presented separately.
T: CUQ, CUQ.DB
2012 ANNUAL REPORT
66
THE CHURCHILL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2012 and 2011
(in thousands of Canadian dollars, except share and per share amounts)
4. STANDARDS AND INTERPRETATIONS IN ISSUE NOT YET ADOPTED
The Corporation has reviewed new and revised accounting pronouncements that have been
issued but are not yet effective and determined that the following may have an impact on the
Corporation:
(a) IFRS 7 – Financial Instruments: Disclosures
IFRS 7, “Financial instruments: disclosure” was amended by the International Accounting
Standards Board (“IASB”) in December 2011. The amendment contains new disclosure
requirements for financial assets and financial liabilities that are offset in the statements of
financial position or subject to master netting arrangements or similar agreements. These new
disclosure requirements will enable users of the financial statements to better compare financial
statements prepared in accordance with IFRS and US Generally Accepted Accounting
Principles (“GAAP”). IFRS 7 is effective for annual periods beginning on or after January 1,
2013. The Corporation does not expect the impact of this standard to be material to its
consolidated financial statements.
(b) IFRS 10 – Consolidated Financial Statements
IFRS 10 establishes the principles for the presentation and preparation of consolidated financial
statements when an entity controls one or more other entities. IFRS 10 supersedes
International Accounting Standard (“IAS”) 27, Consolidated and Separate Financial Statements
and Standing Interpretations Committee (“SIC”) 12 Consolidation – Special Purpose Entities
and is effective for annual periods beginning on or after January 1, 2013. The Corporation does
not expect the impact of this standard to be material to its consolidated financial statements.
(c) IFRS 11 – Joint Arrangements
IFRS 11, “Joint arrangements” was issued by the IASB in May 2011 and supersedes IAS 31,
“Interest in joint ventures” and SIC 13, “Jointly controlled entities – non-monetary contributions
by venturers”. The impact of IFRS 11 is to remove the option to account for joint ventures using
proportionate consolidation and require equity accounting in most circumstances. Venturers will
transition the accounting for joint ventures from the proportionate consolidation method to the
equity method by aggregating the carrying values of the proportionately consolidated assets and
liabilities into a single line item on their financial statements. In addition, IFRS 11 will require
joint arrangements to be classified as either joint operations or joint ventures. The structure of
the joint arrangement will no longer be the most significant factor when classifying the joint
arrangement as either a joint operation or a joint venture. IFRS 11 is effective for annual periods
beginning on or after January 1, 2013. The Corporation does not expect the impact of this
standard to be material to its consolidated financial statements.
(d) IFRS 12 – Disclosure of Interests in Other Entities
in other entities,
IFRS 12 is a new and comprehensive standard on disclosure requirements for all forms of
interests
joint arrangements, associated and
unconsolidated structured entities. It is effective for annual periods beginning on or after
January 1, 2013. The Corporation does not expect the impact of this standard to be material to
its consolidated financial statements.
including subsidiaries,
T: CUQ, CUQ.DB
2012 ANNUAL REPORT
67
THE CHURCHILL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2012 and 2011
(in thousands of Canadian dollars, except share and per share amounts)
(e) IFRS 13 – Fair Value Measurements
IFRS 13 defines fair value, sets out a single IFRS framework for measuring fair value, and
requires disclosures about fair value measurements. IFRS 13 applies to different IFRSs that
require or permit fair value measurements or disclosures about fair value measurements (and
measurements, such as fair value costs to sell, based on fair value or disclosures about those
measurements), except in specified circumstances. IFRS 13 is to be applied for annual periods
beginning on or after January 1, 2013. The Corporation does not expect the impact of this
standard to be material to its consolidated financial statements.
(f) IAS 19 (amendments) – Post-employment Benefits
An amendment to IAS 19, “Employee benefits” (IAS 19) was issued by the IASB in June 2011.
The amendment requires all actuarial gains and losses to be immediately recognized in other
comprehensive (loss) income rather than profit and loss and requires expected returns on plan
assets recognized in profit or loss to be calculated based on the rate used to discount the
defined benefit obligation. The amended standard is effective for annual periods beginning on or
after January 1, 2013. The Corporation does not expect the impact of this standard to be
material to its consolidated financial statements.
(g) IAS 28 (2011) – Investments in Associates and Joint Ventures
IAS 28 was amended in 2011 which prescribes the accounting for investments in associates
and sets out the application of the equity method when accounting for investments in associates
and joint ventures. IAS 28 is effective for annual periods beginning on or after January 1, 2013.
The Corporation does not expect the impact of this standard to be material on its consolidated
financial statements.
(h) IAS 32 - Financial Instruments: Presentation
IAS 32, “Financial instruments: presentation” was amended by the IASB in December 2011.
The amendment clarifies that an entity has a legally enforceable right to offset financial assets
and financial liabilities if that right is not contingent on a future event and it is enforceable both in
the normal course of business and in the event of default, insolvency or bankruptcy of the entity
and all counterparties. The amendments to IAS 32 are effective for annual periods beginning on
or after January 1, 2014. The Corporation is currently evaluating the impact of this standard and
amendments on its consolidated financial statements.
T: CUQ, CUQ.DB
2012 ANNUAL REPORT
68
THE CHURCHILL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2012 and 2011
(in thousands of Canadian dollars, except share and per share amounts)
(i)
IFRS 9 – Financial Instruments
IFRS 9, “Financial instruments” was issued by the IASB in November 2009 and will replace IAS
39, “Financial Instruments: Recognition and Measurement”. IFRS 9 replaces the multiple rules
in IAS 39 with a single approach to determine whether a financial asset is measured at
amortized cost or fair value and a new mixed measurement model for debt instruments having
only two categories: amortized cost and fair value. The approach in IFRS 9 is based on how an
entity manages its financial instruments in the context of its business model and the contractual
cash flow characteristics of the financial assets. This standard also requires a single impairment
method to be used, replacing the multiple impairment methods in IAS 39.
In December 2011, the IASB issued amendments to IFRS 9 that defer the mandatory effective
date to annual periods beginning on or after January 1, 2015. Earlier adoption is permitted. The
amendments also provide relief from the requirement to restate comparative financial
statements for the effect of applying IFRS 9 which was originally limited to companies that
chose to apply IFRS 9 prior to 2012. Alternatively, additional transition disclosures will be
required to help investors understand the effect that the initial application of IFRS 9 has on the
classification and measurement of financial instruments. The Corporation is currently evaluating
the impact of this standard and amendments on its consolidated financial statements.
5. ACQUISITIONS
The Corporation did not acquire any businesses in 2012.
On April 29, 2011, one of the Corporation’s subsidiaries, Canem Holdings Ltd. (“Canem”),
acquired 100% of the outstanding share capital of McCaine Electric Ltd. (“McCaine”). Founded
in 1918, McCaine was a privately held electrical contractor headquartered in Winnipeg,
Manitoba. The primary purpose of the acquisition was to support Canem’s business plan, which
calls for geographic expansion into the Manitoba market.
The total consideration transferred was $12,507 including the assumption of McCaine’s
indebtedness as follows:
Cash consideration
Cash in escrow
Share consideration
Fair value of earn-out payment (Note 25)
Working capital adjustment
Total consideration transferred
$
7,000
2,000
2,500
322
685
12,507
$
The acquisition was accounted for using the purchase method and the results from operations
are included from the date of the acquisition and the purchase price allocation was finalized as
at December 31, 2011.
The holdback payments in escrow are being released to the vendors in four equal tranches: 6,
12, 18 and 24 months after the closing date, provided there has not been a breach of the
representation and warranties provided by McCaine. As at December 31, 2012, the remaining
holdback is $500 (2011 - $1,500).
T: CUQ, CUQ.DB
2012 ANNUAL REPORT
69
THE CHURCHILL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2012 and 2011
(in thousands of Canadian dollars, except share and per share amounts)
A maximum of $1,000 in cash is subject to earn-out conditions based on targets on earnings
before interest expense, capital asset amortization and impairment charges, and income taxes
(“EBITDA”) in fiscal 2012 and 2013. If this EBITDA target is not met in either year, then no earn-
out is paid. The measurement of EBITDA is not a measure that has any standardized meaning
prescribed by IFRS and is considered to be a non-IFRS measure. Therefore, this measure may
not be comparable to similar measures presented by other companies. As at December 31,
2012, this EBITDA target was not achieved and earn-out was not paid.
Identifiable assets acquired and liabilities assumed:
Trade and other receivables
Inventory
Prepaid expenses
Costs in excess of billings
Property and equipment
Goodwill
Intangible assets
Total assets
Less:
Bank indebtedness
Trade and other payables
Contract advances and unearned revenue
Income taxes payable
Deferred income taxes
Total liabilities
Net assets acquired
$
8,089
258
112
1,202
781
5,633
5,300
21,375
743
3,668
2,319
106
2,032
8,868
12,507
$
From the date of the acquisition to December 31, 2011, McCaine’s revenues and earnings
totaled $22,107 and $664, respectively. If the date of the acquisition had been January 1, 2011,
pro forma consolidated revenues and earnings of the Corporation would have been $1,418,145
and $25,667, respectively. These pro forma amounts are estimates derived from the financial
information of McCaine and do not necessarily reflect what results would have actually been
had the acquisition occurred on January 1, 2011.
Transaction costs
The Corporation incurred acquisition costs of $80 relating to external legal fees which are
included in administrative expenses in the consolidated statements of (loss) earnings.
Goodwill
The $5,633 of goodwill arising from the McCaine acquisition consists largely of the assembled
workforce and anticipated synergies from project management processes. None of the goodwill
from the acquisition is expected to be deductible for income tax purposes. As McCaine forms
part of the Canem CGU, the goodwill that arose from the McCaine acquisition is evaluated
annually for impairment in combination with goodwill attributed to Canem.
T: CUQ, CUQ.DB
2012 ANNUAL REPORT
70
THE CHURCHILL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2012 and 2011
(in thousands of Canadian dollars, except share and per share amounts)
6. SEGMENTS
The Corporation operates as a construction and maintenance services provider, primarily in
Western Canada. The Corporation divides its operations into four reporting segments and
reports its results under the categories of: General Contracting, Industrial Services, Commercial
Systems, and Corporate and Other. The accounting policies and practices for each of the
segments listed below are the same as those described in Note 3. Segment capital
expenditures are the total cost incurred during the period to acquire property and equipment and
intangible assets.
For the year ended December 31, 2012, there were no customers that represented 10% or
more of contract revenue earned (2011 - $112,743).
General Contracting - General Contracting consists of Stuart Olson Dominion Construction
Ltd. (“SODCL”). SODCL is headquartered in Calgary, Alberta, and constructs commercial,
institutional light-industrial and multi-unit residential buildings and is a general contractor in
Western Canada’s building markets.
Industrial Services - Industrial Services consists of Churchill Services Group (“CSG”) and
Broda. CSG has three divisions: Laird Electric Inc., Laird Constructors Inc. (collectively, “Laird”)
and Specialty Services. Laird Electric is headquartered in Edmonton, Alberta and provides
electrical, instrumentation and power-line construction and maintenance services to resource
and industrial clients, primarily in the oil and gas industry in the Fort McMurray and greater
Edmonton regions. Laird Constructors is headquartered in Sudbury, Ontario and is a multi-trade
contractor providing electrical,
instrumentation, power-line, mechanical and structural
construction and maintenance services to resource and industrial clients, primarily in the mining
and power generation industries in Ontario, Manitoba and Saskatchewan. Specialty Services is
headquartered in Edmonton, Alberta. It has two operating companies, Fuller Austin Inc. and
Northern Industrial Insulation Contractors Inc., serving industrial clients with insulation, asbestos
abatement, siding application, heating, ventilation and air conditioning (“HVAC”), and plant
maintenance services. Its clients are in the oil sands, oil and natural gas, petrochemical, forest
products, power utilities and mining industries. Broda is headquartered in Prince Albert,
Saskatchewan, providing aggregate processing, earthwork, civil construction, concrete
production and related services to mining and infrastructure organizations, and Canada’s two
major railway corporations. The civil construction industry in Canada is seasonal in nature for
companies like Broda, which does a significant portion of its work outdoors, particularly road
construction. As a result, less work is performed in the winter and early spring months than in
the summer and fall months. Accordingly, Broda has historically experienced a seasonal pattern
in its operating results with the first half of the year and particularly the first quarter generating
lower revenues and profits than the second half of the year. Therefore results in any one quarter
are not necessarily indicative of results in any other quarter, or for the year as a whole.
Commercial Systems - Commercial Systems consists of Canem and McCaine (Note 5).
Canem, with its head office located in Richmond, B.C., designs, builds, maintains and services
electrical and data communication systems for institutional, commercial, light industrial and
multi-family residential customers. Its services include the design of electrical distribution
systems within a building or complex; procurement and installation of electrical equipment and
materials; on-call service for electrical maintenance and troubleshooting; preventative and
T: CUQ, CUQ.DB
2012 ANNUAL REPORT
71
THE CHURCHILL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2012 and 2011
(in thousands of Canadian dollars, except share and per share amounts)
scheduled maintenance for critical component installations; budgeting and pre-construction
services; and management of regional and national contracts for multi-site installations.
Corporate and Other – Corporate and Other include corporate costs not allocated directly to
another reporting segment as well as any miscellaneous investments. This segment provides
strategic direction, operating advice, financing, infrastructure services and management of
public company requirements to each of its business segments.
T: CUQ, CUQ.DB
2012 ANNUAL REPORT
72
THE CHURCHILL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2012 and 2011
(in thousands of Canadian dollars, except share and per share amounts)
2012
Contract revenue
EBITDA (1)
Depreciation and amortization
Finance costs
Impairment losses
Loss before tax
Income tax expense
Net loss
Goodwill and intangible assets
Impairment losses related to each segment
Capital and intangible expenditures
Total assets
Total liabilities
2011
Contract revenue
EBITDA (1), (2)
Depreciation and amortization
Finance costs
Earnings (loss) from continuing operations before tax
Income tax expense from continuing operations
Net earnings from continuing operations
Goodwill and intangible assets
Capital and intangible expenditures
Total assets
Total liabilities
General
Contracting
Industrial
Services
Commercial
Systems
Intersegment
Eliminations
$
$
$
$
Corporate
and Other
$
-
(13,816)
12,485
11,415
59,412
(97,128)
$
188,152
12,539
2,503
-
-
10,036
(41,752)
5,057
500
-
2,178
2,379
$
691,987
6,456
3,994
44
$
-
2,418
383,669
29,362
7,688
119
3,010
18,545
$
$
$
$
128,309
$
$
-
$
6,841
$
396,356
$
268,179
$
$
$
$
$
7,766
21,200
8,157
159,529
58,341
$
$
$
$
$
81,051
43,400
974
106,836
45,077
$
20,585
$
-
$
4,451
$
405,759
$
158,183
$
-
$
-
$
-
$
$
(326,039)
(22,489)
General
Contracting
Industrial
Services
Commercial
Systems
$
$
$
$
$
Corporate
and Other
$
-
(12,092)
15,204
12,219
(39,515)
$
192,688
23,984
2,187
4
21,793
Intersegment
Eliminations
(57,518)
508
419
(1)
90
906,959
26,215
3,747
17
22,451
367,030
33,429
5,367
254
27,807
$
$
$
$
$
$
$
$
$
131,476
7,706
441,255
321,637
$
$
$
$
21,782
22,988
196,628
58,759
$
$
$
$
134,186
1,359
198,424
39,930
$
$
$
$
18,908
8,754
68,680
165,563
$
-
$
994
$
(16,505)
$
(6,548)
Total
1,222,056
39,598
27,170
11,578
64,600
(63,750)
1,888
(61,862)
237,711
64,600
20,423
742,441
507,291
$
$
$
$
$
$
Total
1,409,159
72,044
26,924
12,493
32,627
(8,518)
24,109
306,352
41,801
888,482
579,341
$
$
$
$
$
(1) EBITDA represents earnings before interest expense, capital asset amortization and impairment charges, and income taxes.
(2) EBITDA for the year ended December 31, 2011 excludes earnings from discontinued operations of $833.
T: CUQ, CUQ.DB
2012 ANNUAL REPORT
73
THE CHURCHILL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2012 and 2011
(in thousands of Canadian dollars, except share and per share amounts)
7.
JOINT VENTURES
The Corporation and its subsidiaries have the following significant interests in joint ventures:
Acciona Joint Venture - 50%
Stuart Olson/Conforte JV - 50%
Ninety North Partnership JV - 50%
Kwanlin Dun First Nation - Yukon Corrections Institution JV - 90%
Kwanlin Dun First Nation - Whitehorse Cultural Centre JV - 51%
There have been no changes in the Corporation’s ownership or voting interests in these joint
ventures during the year ended December 31, 2012.
These consolidated financial statements include the proportionate share of assets, liabilities,
revenue, expenses, net income and cash flow of these joint ventures as follows:
Current assets
Current liabilities
Contract income
Expenses
Cash flow provided (used) by operating activities
December 31, December 31,
2011
33,757
22,382
2012
5,190
3,240
$
$
Year ended
December 31, December 31,
2011
66,020
60,653
2012
22,787
16,240
$
$
Year ended
December 31, December 31,
2011
(7,031)
2012
5,329
$
$
T: CUQ, CUQ.DB
2012 ANNUAL REPORT
74
THE CHURCHILL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2012 and 2011
(in thousands of Canadian dollars, except share and per share amounts)
8. REVENUE
Construction contract revenue
Service contract revenue
Sales of goods
Total revenue
$
December 31, December 31,
2011
1,224,343
168,368
16,448
1,409,159
2012
1,064,904
141,187
15,965
1,222,056
$
$
$
Construction contract revenue is the amount of revenue recognized from the construction of
assets and the provision of construction management services. Service contract revenue
includes maintenance and other services recognized based on the percentage of completion
method, and time and material contracts recognized at contractual rates as labour hours and
direct expenses are incurred. Revenue recognized from the sale of goods includes materials
that are fabricated to customer specifications under specifically negotiated contracts.
9. OTHER INCOME
Gain (loss) on sale of assets
Discounts
Claims and settlements
Other income
$
December 31, December 31,
2011
(129)
45
1,436
2012
2,304
54
741
$
$
3,099
$
1,352
T: CUQ, CUQ.DB
2012 ANNUAL REPORT
75
THE CHURCHILL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2012 and 2011
(in thousands of Canadian dollars, except share and per share amounts)
10. FINANCE INCOME AND COSTS
The finance income and costs recognized in profit or loss consists of the following:
Finance income on loans and receivables
Finance income on cash and cash equivalents
Other
Finance income
Finance costs on revolving credit facility
Other finance costs
Amortization of deferred financing fees on revolving credit facility
Finance costs on convertible debentures
Accretion on convertible debentures
Amortization of deferred financing fees on convertible debentures
Finance costs
December 31, December 31,
2011
25
629
73
727
2012
9
$
407
1
417
$
$
$
$
$
3,013
223
707
5,175
1,894
566
11,578
3,695
318
1,068
5,175
1,724
512
12,493
$
$
The above finance income and finance costs include the following interest income and expenses in respect of assets
and liabilities not at fair value through profit or loss:
Total finance income on financial assets
Total finance costs on financial liabilities
$
$
417
8,411
$
$
727
9,188
11. DEPRECIATION AND AMORTIZATION
Depreciation of property and equipment
Amortization of intangible assets
Total depreciation and amortization expense
$
December 31, December 31,
2011
11,023
15,901
26,924
2012
13,712
13,458
27,170
$
$
$
Of the depreciation of property and equipment during the year ended December 31, 2012,
$9,670 (2011 - $7,334) has been included in contract costs and the remainder in administrative
costs in the consolidated statements of (loss). Amortization of intangible assets is included in
administrative expense in the consolidated statements of (loss) earnings.
T: CUQ, CUQ.DB
2012 ANNUAL REPORT
76
THE CHURCHILL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2012 and 2011
(in thousands of Canadian dollars, except share and per share amounts)
12. PERSONNEL EXPENSES AND EMPLOYEE BENEFITS
Short-term employee benefits
Employee share purchase plan expenses (Note 15)
Employee retirement matching contributions (Note 15)
Defined benefit and defined contribution pension plan expense
Equity-settled share-based payment transactions
Cash-settled share-based payment transactions
Total personnel expenses and employee benefits
$
$
December 31,
2012
377,822
4,604
3,105
1,590
2,192
1,589
390,902
December 31,
2011
363,913
2,808
3,046
2,021
2,795
276
374,859
$
$
Of the personnel expenses and employee benefits in the table above, $338,170 was included in
contract costs (2011 - $319,792) and $52,732 in administrative costs (2011 - $55,067) for the
year ended December 31, 2012.
Key management personnel consists of Churchill’s named executive officers. Their
remuneration during the year was as follows:
Short-term benefits
Share-based payments (1)
December 31,
2012
2,847
2,167
5,014
December 31,
2011
3,257
2,451
5,708
$
$
$
$
(1) Share-based payments include equity-settled and cash-settled share-based payments.
The remuneration of key management is determined by the Human Resources and
Compensation Committee of the Board of Directors (“HRCC”) and recommended to the full
Board for approval, considering the performance of individuals, their business units and the
Corporation. Utilizing an outside independent consultant, the HRCC also considers prevailing
market and competitive conditions along with retention and strategic objectives.
T: CUQ, CUQ.DB
2012 ANNUAL REPORT
77
THE CHURCHILL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2012 and 2011
(in thousands of Canadian dollars, except share and per share amounts)
13. INCOME TAXES
Income tax recognized per consolidated statements of (loss) earnings:
Current income tax expense
Current period
Adjustment relating to prior periods
Deferred income tax recovery (expense)
Origination and reversal of temporary differences
Impact of changes in tax rates
Adjustment relating to prior periods
Change in unrecognized deductible temporary differences
Income tax recovery (expense) from continuing operations
Reconciliation of effective tax rate:
December 31,
2012
December 31,
2011
$
(1,773)
(183)
(1,956)
$
(7,709)
3,029
(4,680)
3,868
98
(36)
(86)
3,844
1,888
$
(2,492)
1,227
(2,652)
79
(3,838)
(8,518)
$
The Corporation’s consolidated income tax expense differs from the provision computed at the
statutory rates as below:
(Loss) earnings from continuing operations before tax
Income tax at statutory rate of 25.4% (2011 - 27.5%)
Statutory and other rate differences
Non-taxable accounting income
Non-deductible expenses
Goodwill impairment
Change in unrecognized deductible temporary differences
Other
Income tax recovery (expense) from continuing operations
December 31
2012
(63,750)
$
December 31
2011
32,627
$
$
$
16,193
98
614
(898)
(13,810)
(86)
(223)
1,888
(8,972)
1,227
-
(1,033)
-
79
181
(8,518)
$
$
The Corporation's statutory tax rate of 25.4% in 2012 (2011 - 27.5%) is the combined Canadian
federal and provincial tax rates in the jurisdictions in which the Corporation operates. The rate
decline for 2012 is due to a reduction in the Federal income tax rate from 16.5% to 15.0% for
2012, combined with an increased proportion of the year's (loss) earnings in provinces with
lower corporate tax rates.
T: CUQ, CUQ.DB
2012 ANNUAL REPORT
78
THE CHURCHILL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2012 and 2011
(in thousands of Canadian dollars, except share and per share amounts)
The deferred tax asset and liability are comprised of the following:
Deferred tax assets
Tax loss carry forwards
Equipment and other assets
Intangible assets
Pension and other compensation
Unrecognized deductible temporary difference
Unbilled work-in-progress and holdback receivables
Provisions
Other
Deferred tax liabilities
Tax loss carry forwards
Equipment and other assets
Intangible assets
Pension and other compensation
Unrecognized deductible temporary difference
Unbilled work-in-progress and holdback receivables
Provisions
Other
December 31,
2012
December 31,
2011
$
1,386
(53)
11
1,582
(348)
10,782
1,867
156
15,383
$
786
(187)
6
1,899
(66)
7,936
1,222
149
11,745
7,444
(7,095)
(14,022)
2,065
(272)
(17,710)
1,010
(347)
(28,927)
2,204
(8,424)
(16,719)
1,863
(73)
(11,001)
1,689
(32)
(30,493)
Net deferred income tax liability
$
(13,544)
$
(18,748)
All deferred tax asset positions recognized by the Corporation are supported by either the
reversal of existing taxable temporary differences or forecasted future taxable earnings in
excess of the deductible temporary difference. The Corporation has unrecognized non-capital
loss carryforwards of $1,394 (December 31, 2011 - $nil) for which no deferred income tax asset
could be recognized, but remain available to reduce future taxable income.
T: CUQ, CUQ.DB
2012 ANNUAL REPORT
79
THE CHURCHILL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2012 and 2011
(in thousands of Canadian dollars, except share and per share amounts)
A continuity of the net deferred tax asset (liability) is as follows:
2012
Tax loss carry forwards
Equipment and other assets
Intangible assets
Pension and other compensation
Unrecognized deductible temporary difference
Unbilled work-in-progress and holdback receivables
Provisions
Other
2011
Tax loss carry forwards
Equipment and other assets
Intangible assets
Pension and other compensation
Unrecognized deductible temporary difference
Unbilled work-in-progress and holdback receivables
Provisions
Other
Asset
January 1,
2012
$
2,990
(8,611)
(16,713)
3,762
(139)
(3,065)
2,911
117
(18,748)
$
Recovery
(expense)
Recovery
(expense)
Recovery
(expense)
OCI
$
-
equity
$
-
Asset (liability)
recognized in recognized in recognized in recognized from
profit or loss
$
5,687
1,463
2,702
(1,322)
(481)
(3,863)
(34)
(308)
3,844
held for sale
153
-
-
-
-
-
-
-
153
-
-
1,207
-
-
-
-
1,207
$
$
$
$
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
-
Asset (liability)
acquired in a Asset (liability)
December 31,
2012
$
business
combination
$
-
Asset (liability)
January 1,
2011
$
Recovery
(expense)
recognized in
profit or loss
$
Recovery
(expense)
recognized in
equity
$
-
Recovery
(expense)
recognized in
OCI
$
-
Liability (asset)
recognized as
held for sale
$
-
Asset (liability)
acquired in a
business
combination
$
-
-
-
-
-
-
-
(238)
(238)
$
-
-
835
-
-
-
-
835
$
34
-
-
-
-
-
-
34
$
(7)
(1,439)
-
-
(586)
-
-
(2,032)
$
(1,890)
(784)
252
59
150
839
(2,324)
(140)
(3,838)
4,880
(7,854)
(15,526)
2,868
(289)
(3,318)
5,235
495
(13,509)
$
$
$
$
Asset (liability)
December 31,
2011
$
8,830
(7,148)
(14,011)
3,647
(620)
(6,928)
2,877
(191)
(13,544)
2,990
(8,611)
(16,713)
3,762
(139)
(3,065)
2,911
117
(18,748)
T: CUQ, CUQ.DB
2012 ANNUAL REPORT
80
THE CHURCHILL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2012 and 2011
(in thousands of Canadian dollars, except share and per share amounts)
The Corporation has accumulated non-capital losses for income tax purposes of $33,154
(December 31, 2011 - $11,246) related to continuing operations, which expire as follows:
Accumulated non-capital losses:
2014
2025
2026
2027
2028
2030
2031
2032
$
203
199
422
417
159
174
8,107
23,473
33,154
$
14. ASSETS HELD-FOR-SALE
During the year, the Corporation sold two properties previously occupied by SODCL located in
Edmonton, Alberta for combined proceeds of $4,150 and a net book value of $1,665, resulting
in a gain on sale of $2,485. This gain on sale is recorded in other income (Note 9).
As at December 31, 2012, the asset held-for-sale of $436 (2011 - $1,488) consists of
agricultural land. This land is available for immediate sale in its present condition and the sale is
highly probable.
15. EMPLOYEE BENEFITS
(a) Short-term employee benefits
The Corporation has an Employee Share Purchase Plan (“ESPP”) which permits certain
employees to voluntarily contribute up to 10% of their gross base salary. The Corporation
matches all contributions by the employees up to a maximum of 5% of the gross base salary.
The combined contributions are invested by the plan in common shares of the Corporation
purchased on the retail market. Contributions made by the Corporation during the year ended
December 31, 2012 to the ESPP were $4,604 (2011 - $2,808) (Note 12).
(b) Post-employment benefits
Registered Retirement Savings Plan
The Corporation has a Registered Retirement Savings Plan (“RRSP”) which permits certain
employees to voluntarily contribute up to 5% of their gross base salary. The Corporation
matches all contributions made by the employees. The combined contributions are invested by
the individual employees, at their discretion, in any of several mutual funds offered by the plan.
Contributions made by
the Corporation during
to the RRSP were $3,105 (2011 - $3,046) (Note 12).
the year ended December 31, 2012
T: CUQ, CUQ.DB
2012 ANNUAL REPORT
81
THE CHURCHILL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2012 and 2011
(in thousands of Canadian dollars, except share and per share amounts)
Defined Contribution Pension Plans
The Corporation also maintains three non-contributory defined contribution pension plans (“DC”)
that cover salaried employees for two operating entities. Two of the DC plans provide
participants with an annual contribution of 3% to 7% of annual base salary and bonuses based
on a participant’s age and length of service. As of July 13, 2010, the Corporation halted new
membership to the DC plan in SODCL; however, the DC plan in Canem continues to accept the
entrance of new employees. The Corporation also acquired a third DC plan with the McCaine
acquisition (Note 5). It differs from the other two plans in that employer contributions ranging
between 3% to 5% are based on the employee’s position in the company. In addition, the
earnings base excludes bonuses. As of June 7, 2012, the DC plan with McCaine was
terminated and contributions have been transferred to the Canem plan.
The total expense recognized in the consolidated statements of (loss) earnings and
comprehensive (loss) income of $512 (2011 - $485) represents contributions payable to these
plans by the Corporation at rates specified in the rules of the plans. As at December 31, 2012,
contributions of $30 (2011 – $nil) were due in respect of the current reporting year and were
paid after year end.
Defined Benefit Pension Plans
The Corporation maintains two non-contributory defined benefit pension plans (“DB”) that cover
salaried employees for two of the operating entities. Annual employer contributions to the DB,
which are actuarially determined by an independent actuary, are made on the basis of being not
less than the minimum amounts required by provincial pension supervisory authorities. The
benefits provided by the defined benefit provision of the pension plans are based on years of
service and final average earnings of the employees who are members of the plans.
Future benefits
Wholly or partially funded defined benefit obligation
Fair value of plan assets
Recognized liability for defined benefit obligations
Plan assets comprise:
Equity securities
Debt securities
Short-term
$
December 31,
2012
32,746
21,926
10,820
$
December 31,
2011
27,037
18,722
8,315
$
$
December 31,
2012
31%
54%
15%
100%
December 31,
2011
74%
23%
3%
100%
T: CUQ, CUQ.DB
2012 ANNUAL REPORT
82
THE CHURCHILL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2012 and 2011
(in thousands of Canadian dollars, except share and per share amounts)
Fair market value of plan assets:
December 31,
2012
December 31,
2011
Equity securities
Debt securities
Short-term
$
$
6,841
11,802
3,283
21,926
13,786
4,359
577
18,722
$
$
The overall expected rate of return is a weighted average of the expected returns of the various
categories of plan assets held. An internal committee comprised of senior management
(“Pension Committee”) assessed the expected return based on historical return trends and
analysts’ predictions of the market for the asset over the life of the related obligations.
December 31,
2012
December 31,
2011
Accrued benefit obligation
Balance, beginning of year
Benefit payments
Current service cost
Interest cost
Employee contributions
Actuarial loss in other comprehensive income
Balance, end of year
Fair value of plan assets
Balance, beginning of year
Employer contributions
Employee contributions
Benefit payments
Expected return on plan assets
Actuarial gain (loss) in other comprehensive income
Balance, end of year
$
$
$
$
December 31,
2012
December 31,
2011
$
$
27,727
(3,592)
1,080
1,536
35
251
27,037
20,855
2,856
88
(3,592)
1,496
(2,981)
18,722
27,037
(1,973)
1,040
1,356
139
5,147
32,746
18,722
3,405
83
(1,973)
1,320
369
21,926
$
$
Net pension liabilty
Funded status - deficit
December 31,
2012
10,820
10,820
$
$
December 31,
2011
8,315
8,315
$
$
T: CUQ, CUQ.DB
2012 ANNUAL REPORT
83
THE CHURCHILL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2012 and 2011
(in thousands of Canadian dollars, except share and per share amounts)
Historical information on accrued benefit obligation, fair value of plan assets, and plan deficit:
Accrued benefit obligation
Fair value of plan assets
Plan deficit
Expense recognized:
Current service cost
Interest cost
Expected return on plan assets
$
December 31,
2012
32,746
21,926
10,820
$
December 31, December 31,
2010
27,727
20,855
6,872
2011
27,037
18,722
8,315
$
$
$
$
$
December 31,
2012
1,040
1,356
(1,320)
1,076
$
$
December 31,
2011
1,080
1,536
(1,496)
1,120
$
Actuarial gains and losses recognized in other comprehensive loss:
Cumulative amount, beginning of year
Recognized during the year (1)
Cumulative amount, end of year
(1) Actuarial loss gives rise to a deferred income tax recovery in 2012 of $1,207 (2011 - $835).
$
December 31,
2012
(1,026)
(4,778)
(5,804)
$
$
December 31,
2011
2,206
(3,232)
(1,026)
$
For the year ended December 31, 2012, an amount of $4,778 (2011 – $3,232), before tax, was
recorded in other comprehensive loss in relation to defined benefit plans. This loss relates to a
change in the discount rates and a change in the market value of the assets, which are both as
at December 31, 2012.
The expense is recognized in the following line items in the consolidated statements of (loss)
earnings and comprehensive (loss) income:
Administrative expenses
Actual return (loss) on plan assets
Actuarial assumptions:
Discount rate on benefit obligations
Expected long-term rate of return on plan assets
Rate of compensation increase for 15 years
Inflation rate
December 31, December 31,
2011
474
(1,485)
$
$
$
$
2012
355
1,689
December 31, December 31,
2011
5.0%
6.8%
3.5%
2.3%
2012
3.8%
6.3%
3.5%
2.3%
T: CUQ, CUQ.DB
2012 ANNUAL REPORT
84
THE CHURCHILL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2012 and 2011
(in thousands of Canadian dollars, except share and per share amounts)
The discount rate used to establish the pension obligation is based on a yield curve using AA-
rated Canadian corporate bonds for maturities up to 10 years. This discount rate is then
extrapolated with a spread adjustment to reflect the additional credit risk of AA-rated corporate
bonds.
The Corporation uses actuarial valuation reports prepared by independent actuaries for both
SODCL and Canem. As at December 31, 2012, the actuaries prepared a valuation for financial
reporting which will be filed with the regulators in 2013. Actuarial valuations for funding
purposes are prepared annually for Canem with the next one due as at December 31, 2013.
SODCL’s next actuarial valuation for funding purposes will also be prepared as at December 31,
2013; however, the report for SODCL is prepared only once every three years.
16. (LOSS) EARNINGS PER SHARE
(a) Basic (loss) earnings per share
Net (loss) earnings from continuing operations attributable to
common shareholders (basic)
Net earnings from discontinued operations attributable to
common shareholders (basic)
Issued common shares at beginning of year
Effect of shares issued related to a business combination
Effect of shares repurchased under NCIB
Effect of shares issued related to DRIP
Weighted average number of common shares for the year
December 31, December 31,
2011
2012
$
(61,862)
$
24,109
-
(61,862)
$
833
24,942
$
24,300,019
-
(35,110)
138,065
24,402,974
24,133,727
85,229
(2,583)
28,652
24,245,025
Basic earnings per share
$
(2.54)
$
1.02
(b) Diluted (loss) earnings per share
Net (loss) earnings from continuing operations attributable to
common shareholders (basic)
Interest, accretion and amortization of deferred financing fees, net of tax
Net earnings from discontinued operations attributable to
common shareholders (basic)
Net (loss) earnings attributable to common shareholders (diluted)
Weighted average number of common shares (basic)
Incremental shares - stock options
Incremental shares - convertible debentures
Weighted average number of common shares for the period (diluted)
December 31, December 31,
2011
2012
$
(61,862)
-
$
24,109
5,477
-
(61,862)
$
833
30,419
$
24,402,974
-
-
24,402,974
24,245,025
257,439
7,943,086
32,445,550
Diluted earnings per share
$
(2.54)
$
0.94
T: CUQ, CUQ.DB
2012 ANNUAL REPORT
85
THE CHURCHILL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2012 and 2011
(in thousands of Canadian dollars, except share and per share amounts)
At December 31, 2012, 1,379,981 options (2011 – 809,587) were excluded from the diluted
weighted average number of common share calculations as their effect would have been anti-
dilutive. There were no incremental shares related to the convertible debentures included in the
weighted average calculation at December 31, 2012 as the impact of the normalization of
earnings (interest, accretion and amortization add-back) outweighed the effect of the related
incremental shares and therefore the convertible debentures were anti-dilutive.
The incremental shares included in the dilutive weighted average number of shares has been
determined using the Corporation’s share price at December 31, 2012 of $8.70 (2011 - $11.43).
As the Corporation incurred a net loss during the year ended December 31, 2012, the basic and
diluted loss per common share is the same amount.
17. CASH AND CASH EQUIVALENTS
Cash
Short-term investments
$
December 31, December 31,
2011
58,613
832
59,445
2012
33,774
-
33,774
$
$
$
Included in the cash and cash equivalents balance is $4,205 (2011 - $14,847) held in joint
venture bank accounts. The short term investments in 2011 include cash that was deposited as
collateral for letters of credit issued by the Corporation.
18. TRADE AND OTHER RECEIVABLES
Trade receivables
Construction holdbacks, due within one business cycle
Other receivables
$
December 31, December 31,
2011
234,272
105,318
6,182
345,772
2012
215,746
92,308
1,043
309,097
$
$
$
The average credit period is 45 days for maintenance contracts and 50 days for significant
construction contracts. Other receivables include the Corporation’s allowance for doubtful
accounts.
At December 31, 2012, holdbacks of $92,308 (2011 - $105,318) are recoverable within the
normal operating cycle of the Corporation ranging from 30 days to 3 years, depending on the
nature of services being provided. The range is dependent on the type of project and duration of
the work.
T: CUQ, CUQ.DB
2012 ANNUAL REPORT
86
THE CHURCHILL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2012 and 2011
(in thousands of Canadian dollars, except share and per share amounts)
19. CONSTRUCTION AND NON-CONSTRUCTION CONTRACTS
Contracts in progress:
Construction costs incurred plus recognized profits less
recognized losses to date
Less: progress billings
Net over billings on construction contracts
Non-construction costs incurred plus recognized profits less
recognized losses to date
Less: progress billings
Net under billings on non-construction contracts
Total net contract position
December 31, December 31,
2011
3,802,663
2012
4,698,839
$
$
(4,752,342)
(53,503)
(3,871,178)
(68,515)
$
254,061
$
201,415
(244,048)
10,013
(196,819)
4,596
$
(43,490)
$
(63,919)
Recognized and included in the consolidated statements of financial position as amounts due:
Costs in excess of billings - Construction contracts
Costs in excess of billings - Non-construction contracts
Total costs in excess of billings
Contract advances and unearned income - Construction contracts
Contract advances and unearned income - Non-construction contracts
Total contract advances and unearned income
Total net contract position
December 31, December 31,
2011
2012
$
28,978
10,122
39,100
$
(82,483)
(107)
(82,590)
$
28,038
5,700
33,738
$
(96,561)
(1,096)
(97,657)
$
(43,490)
$
(63,919)
At December 31, 2012, retentions held by customers for contract work amounted to $98,439
(2011 - $111,187). Advances received from customers for contract work amounted to $71,536
(2011 – $96,930).
20. SERVICE PROVIDER DEPOSIT
Service provider deposit relates to the General Contracting segment’s Subguard program
representing an agreement with Zurich Insurance Corporation (“Zurich”) that establishes a pre-
funded deductible/co-pay insurance program. The funds held by Zurich as at December 31,
2012, amounted to $4,008 (2011 - $6,066) and are presented as service provider deposit on the
consolidated statements of financial position.
This deposit is classified as non-current as management does not anticipate any claim
payments exceeding the deductible amounts within the next twelve months.
T: CUQ, CUQ.DB
2012 ANNUAL REPORT
87
THE CHURCHILL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2012 and 2011
(in thousands of Canadian dollars, except share and per share amounts)
21. GOODWILL
Goodwill, beginning of the year
Current year acquisitions
Impairment losses recognized in the year
$
2012
234,256
December 31, December 31,
2011
228,623
5,633
-
$
$
$
234,256
-
(55,240)
179,016
Goodwill arose during multiple past acquisitions. Goodwill associated with the SODCL, Broda
and Canem CGUs arose from the Seacliff acquisition in 2010. Additional goodwill was
attributed to the Canem CGU through the McCaine acquisition in 2011 (Note 5). CSG’s goodwill
stems from the Laird acquisition of 2003. Goodwill recognized on all of these acquisitions was
attributable mainly to the synergies achieved from the integration of acquired companies into
existing construction, commercial and industrial services.
The Corporation has allocated its goodwill to its CGUs as follows:
SODCL
CSG
Broda
Canem
$
December 31,
2012
114,078
7,315
-
57,623
179,016
$
$
December 31,
2011
114,078
7,315
11,840
101,023
234,256
$
During the fourth quarter, the Corporation performed its annual goodwill impairment test. The
calculated Business Enterprise Value for each of the CGUs incorporated the financial
projections set out in the respective CGU’s strategic plan approved by the Board of Directors in
December 2012. The financial projections of the Broda CGU and Canem CGU reflected lower
future EBITDA than previous projections as a result of current economic conditions impacting
revenues and margins. The impairment testing indicated that the recoverable amount of these
CGUs was less than their carrying amount. As a result, the Corporation recorded an impairment
loss of $64,600 on the statement of comprehensive loss comprised of $55,240 of non-cash
goodwill impairment, $5,219 of property and equipment impairment (Note 22), and $4,141 of
intangible asset impairment (Note 23). Goodwill impairment charges are non-cash charges that
do not have any adverse effect on respective cash flows from operating activities and will not
have an impact on the CGUs’ future operations.
If the impairment loss resulting from the comparison of the recoverable amount of the CGU to
carrying amount exceeds the goodwill allocated to the CGU then the impairment loss is
allocated to certain other assets of the CGU. In the Broda CGU, the impairment loss exceeded
the carrying amount of goodwill of $11,840, resulting in impairment losses allocated to property
and equipment of $5,219 (Note 22) and intangible assets of $4,141 (Note 23). The entire
amount of $43,400 of impairment in the Canem CGU was fully applied to goodwill and did not
extend to other assets of that entity.
T: CUQ, CUQ.DB
2012 ANNUAL REPORT
88
THE CHURCHILL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2012 and 2011
(in thousands of Canadian dollars, except share and per share amounts)
The recoverable amounts of the CGUs’ assets were determined based on a value in use
calculation. There is a significant amount of uncertainty with respect to the estimates of the
recoverable amounts of the CGUs’ assets given the necessity of making key economic
assumptions about the future. The value in use calculation uses discounted cash flow
projections which employ the following key assumptions: future cash flows, present and future
discount rates, growth assumptions, including economic risk assumptions and estimates of
achieving key operating metrics and drivers. Management uses its best estimate to determine
which key assumptions to use in the analysis.
Key Assumptions
The key assumptions in the value in use calculations to determine the recoverable amounts by
CGU have been prepared using a five year discounted cash flow analysis with a terminal value.
The financial projections used for the discounted cash flow analysis were derived from the
Corporation’s 2012 Strategic Plan which was approved by management and the Board of
Directors in December 2012.
A five year period for the discounted cash flow analysis was used since financial projections
beyond a five year time period are generally best represented by a terminal value. This period
is appropriate given the timing of the backlog projects and the predictability of CGU cash flows.
Cash flows from growth opportunities are probability-weighted and relate to initiatives
management expects to progress on in the medium to long term. These cash flows require
assumptions to be made regarding the likelihood of projects progressing and the future
economics of those projects.
The terminal value was calculated using a discount rate of 12% (2011 – 10%) and a steady
annual growth of 1.5% (2011 – 2.0%) in the terminal year. The same discount rate was used in
each of the Corporation’s CGUs given that each entity has access to the same source of debt
and each CGU is ultimately governed by management at the parent Company. In addition,
entity specific risks were separately factored into each CGU forecast. They take into
consideration market rates of return, capital structure, company size, industry risk and after-tax
cost of debt and equity.
Sensitivity of assumptions
SODCL and CSG: Management and the Board of Directors believe that any reasonable change
to the key assumptions on which the recoverable amounts are based would not cause the
SODCL or CSG carrying amounts to exceed their respective recoverable amounts.
Canem: A 2.0% increase in the discount rate would increase the impairment charge
approximately $16,000. A decrease in growth rate of 0.5% would increase the impairment
charge by approximately $3,000.
Broda: A 2.0% increase in the discount rate would increase the impairment charge
approximately $6,900. A decrease in growth rate of 0.5% would increase the impairment
charge by approximately $1,300.
T: CUQ, CUQ.DB
2012 ANNUAL REPORT
89
THE CHURCHILL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2012 and 2011
(in thousands of Canadian dollars, except share and per share amounts)
22. PROPERTY AND EQUIPMENT
Included in construction and automotive equipment is $988 (2011 - $7,241) of assets relating to
finance leases and $160 (2011 - $1,046) of accumulated depreciation, for a net carrying value
of $828 (2011 - $6,195).
Included in office furniture and equipment is $61 (2011 - $61) of assets relating to finance
leases and $43 (2011 - $31) of accumulated depreciation, for a net carrying value of $18 (2011 -
$30).
In the year ended December 31, 2012, there were nil assets related to finance leases recorded
in leasehold improvements as these were fully depreciated (2011 - $285 of assets, with $73 of
accumulated depreciation, for a net carrying value of $212).
Assets with a carrying value of $846 (2011 - $6,437) are pledged as security for the finance
lease obligations disclosed in Note 26(c).
As discussed in Note 21, during the fourth quarter, the Corporation recorded an impairment loss
of $5,219 related to construction and automotive equipment.
T: CUQ, CUQ.DB
2012 ANNUAL REPORT
90
THE CHURCHILL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2012 and 2011
(in thousands of Canadian dollars, except share and per share amounts)
2012
Cost
Balance as at December 31, 2011
Additions, including finance leases
Disposal
Reclassifications and transfers
Balance at December 31, 2012
Accumulated Depreciation
and Impairment Losses
Balance as at December 31, 2011
Depreciation expense
Disposal of assets
Impairment losses recognized in the year
Balance at December 31, 2012
Carrying amounts at December 31, 2012
2011
Cost
Balance as at December 31, 2010
Additions, including finance leases
Disposal
Acquisition (Note 4)
Assets held-for-sale
Balance at December 31, 2011
Land and
Improvements
Buildings and
Improvements
Leasehold
Improvements
Construction
and Automotive
Equipment
Computer
Hardware
Office
Furniture and
Equipment
Assets
Under
Construction
Total
$
1,165
$
4,835
$
8,301
$
84,581
$
6,478
$
4,174
$
4,231
$
113,765
-
(864)
-
-
(1,619)
-
3,005
(1,166)
3,707
9,083
(1,940)
654
(939)
689
(371)
-
2,794
-
(3,707)
16,225
(6,899)
-
$
301
$
3,216
$
13,847
$
91,724
$
6,193
$
4,492
$
3,318
$
123,091
-
$
-
-
-
$
3,130
22
(1,619)
-
$
2,429
2,025
(911)
-
$
18,943
9,846
(1,226)
5,219
$
4,618
1,139
(768)
-
$
2,120
680
(337)
-
-
$
-
-
-
$
31,240
13,712
(4,861)
5,219
$
-
$
301
$
$
1,533
1,683
$
$
3,543
10,304
$
$
32,782
58,942
$
$
4,989
1,204
$
$
2,463
2,029
$
-
$
3,318
$
$
45,310
77,781
Land and
Improvements
Buildings and
Improvements
Leasehold
Improvements
Construction
and Automotive
Equipment
Computer
Hardware
Office
Furniture and
Equipment
Assets
under
Construction
Total
$
$
$
$
$
$
$
1,372
-
-
-
(207)
1,165
5,056
-
(123)
-
(98)
4,835
2,955
174
-
3,130
1,706
6,407
2,823
(674)
234
(489)
8,301
1,762
1,334
(667)
2,429
5,872
63,415
23,282
(2,510)
394
-
84,581
12,935
7,710
(1,702)
18,943
65,638
6,090
979
(591)
-
-
6,478
3,957
1,252
(591)
4,618
1,860
3,439
812
(222)
153
(8)
4,174
1,687
553
(120)
2,120
2,054
-
$
4,231
-
-
-
4,231
$
-
$
-
-
$
-
$
4,231
85,779
32,127
(4,120)
781
(802)
113,765
$
$
$
23,296
11,023
(3,080)
31,240
82,526
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Accumulated Depreciation
and Impairment Losses
Balance as at December 31, 2010
Depreciation expense
Disposal of assets
Balance at December 31, 2011
Carrying amounts at December 31, 2011
-
$
-
-
$
-
$
1,165
T: CUQ, CUQ.DB
2012 ANNUAL REPORT
91
THE CHURCHILL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2012 and 2011
(in thousands of Canadian dollars, except share and per share amounts)
23. INTANGIBLE ASSETS
As discussed in Note 21, during the fourth quarter, the Corporation recorded an impairment loss
of $4,141 related to customer relationships and tradename.
2012
Cost
Balance, December 31, 2011
Additions - externally acquired
Balance, December 31, 2012
Accumulated amortization
Balance, December 31, 2011
Amortization expense
Impairment losses recognized in the year
Balance, December 31, 2012
Carrying amounts, December 31, 2012
2011
Cost
Balance, December 31, 2010
Additions - externally acquired
Acquisition (Note 5)
Balance, December 31, 2011
Accumulated amortization
Balance, December 31, 2010
Amortization expense
Balance, December 31, 2011
Carrying amounts, December 31, 2011
24. TRADE AND OTHER PAYABLES
Trade payables
Holdbacks and accrued liabilities
Short-term employee benefits
Dividend payable
Due to related parties
Other
Backlog and
Agency
Contracts
Customer
Relationships
and Tradename
ERP assets
Computer
Software
Total
$
20,342
3,844
24,186
$
20,600
-
20,600
$
54,410
13
54,423
$
3,605
341
3,946
$
98,957
4,198
103,155
1,249
1,741
-
2,990
21,196
$
14,252
5,768
-
20,020
580
$
8,074
5,496
4,141
17,711
36,712
$
3,286
453
-
3,739
207
$
26,861
13,458
4,141
44,460
58,695
$
Backlog and
Agency
Contracts
Customer
Relationships
and Tradename
ERP assets
Computer
Software
Total
$
11,914
8,428
-
20,342
$
19,200
-
1,400
20,600
$
50,510
-
3,900
54,410
$
3,139
466
-
3,605
$
84,763
8,894
5,300
98,957
$
$
$
$
$
36
1,213
1,249
19,093
5,908
8,344
14,252
6,348
2,731
5,343
8,074
46,336
2,285
1,001
3,286
319
10,960
15,901
26,861
72,096
$
$
$
$
$
$
$
December 31, December 31,
2011
158,230
107,484
12,397
2,923
7
2,816
283,857
2012
133,210
81,914
12,125
2,940
29
3,224
233,442
$
$
The Corporation’s exposure to currency and liquidity risk related to trade and other payables is
disclosed in Note 31 - Financial Instruments.
T: CUQ, CUQ.DB
2012 ANNUAL REPORT
92
THE CHURCHILL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2012 and 2011
(in thousands of Canadian dollars, except share and per share amounts)
25. PROVISIONS
Provisions are recognized when the Corporation has a settlement amount as a result of a past
event, it is probable that the Corporation will be required to settle the obligation, and a reliable
estimate of the obligation can be made. Reversals of provisions are made when new
information arises in the year.
Warranties
Restructuring
costs
Claims and
disputes
Subcontractor
default
Acquisition
purchase price
provision
Total
Balance as December 31, 2010
Provisions made during the year
Provisions used during the year
Provisions reversed in the year
Other
Balance at December 31, 2011
Balance at December 31, 2011
Provisions made during the year
Provisions used during the year
Provisions reversed in the year
Balance at December 31, 2012
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
5,485
5,206
(420)
(4,448)
-
5,823
5,823
3,006
(524)
(4,102)
4,203
4,386
906
(1,903)
(1,787)
-
1,602
1,602
150
(1,116)
-
636
3,005
549
(14)
(580)
1
2,961
2,961
2,212
(729)
(856)
3,588
3,600
2,077
(1,216)
(2,000)
-
2,461
2,461
3,309
(798)
(2,500)
2,472
-
1,209
(685)
(202)
-
322
322
-
-
(322)
-
16,476
9,947
(4,238)
(9,017)
1
13,169
13,169
8,677
(3,167)
(7,780)
10,899
$
$
$
$
$
$
The provisions are presented on the statements of financial position as follows:
Current portion of provisions
Long-term provisions
Total provisions
$
December 31,
2012
6,492
4,407
10,899
$
The following table represents the expected outflow of resources by category:
$
December 31,
2011
7,294
5,875
13,169
$
Expected outflow of resources
2013
2014
2015
2016
2017
Thereafter
Warranties
Restructuring
costs
Claims and
disputes
$
$
$
Subcontractor
default
$
Total
$
4,203
-
-
-
-
-
4,203
266
177
166
27
-
-
636
2,023
783
782
-
-
-
3,588
-
-
-
-
-
2,472
2,472
6,492
960
948
27
-
2,472
10,899
$
$
$
$
$
T: CUQ, CUQ.DB
2012 ANNUAL REPORT
93
THE CHURCHILL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2012 and 2011
(in thousands of Canadian dollars, except share and per share amounts)
The following table represents the outflow of resources on a discounted basis using a rate
between 1.17% to 1.77%:
Expected outflow of resources
(DISCOUNTED)
2013
2014
2015
2016
2017
Thereafter
26. LONG-TERM DEBT
Current portion of long-term debt
Finance contracts
Finance lease obligations
Non-current
Revolving credit facility
Finance contracts
Finance lease obligations
(a) Revolving credit facility
Warranties
Restructuring
costs
Claims and
disputes
$
$
$
Subcontractor
default
$
Total
$
4,155
-
-
-
-
-
4,155
263
173
161
25
-
-
622
2,000
765
756
-
-
-
3,521
-
-
-
-
-
2,074
2,074
6,418
938
917
25
-
2,074
10,372
$
$
$
$
$
December 31, December 31,
2011
2012
-
$
828
828
$
$
$
$
$
51,596
-
313
51,909
$
$
598
805
1,403
59,628
10
795
60,433
On July 12, 2010, the Corporation obtained a $200,000, senior secured revolving credit facility
with a syndicate of chartered banks. On July 12, 2012, the Corporation entered into an
agreement amending the terms and conditions for its credit facility. Changes to the credit facility,
which became effective on July 12, 2012, include a 25 basis point reduction in the applicable
interest rate, a one-year extension of the facility with a new maturity date of July 12, 2016, an
increase in the swingline loan from $10,000 to $15,000 and additional flexibility on consents
regarding dividends and acquisitions.
In December 2012, the Corporation entered into an amending agreement for the credit facility.
Changes to the credit facility, which became effective on December 21, 2012, modified the
financial covenant levels with respect to the Corporation’s secured leverage, total leverage and
interest coverage as follows:
•
•
Increase in Debt to EBITDA covenant ratio to 3:1;
Increase in Senior Debt to EBITDA covenant ratio to 3:1 for each quarter ending December
31, 2012, March 31, 2013, June 30, 2013 and September 30, 2013; 2.75:1 for the quarter
ending December 31, 2013 and 2.5:1 on each quarter thereafter; and
• A decrease in the Interest Coverage ratio to 2.5:1 for each quarter ending December 31,
2012, March 31, 2013 and June 30, 2013; 2.75:1 for the quarter ending September 30, 2013
and 3:1 for each quarter thereafter.
T: CUQ, CUQ.DB
2012 ANNUAL REPORT
94
THE CHURCHILL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2012 and 2011
(in thousands of Canadian dollars, except share and per share amounts)
During the 90 day period before each anniversary date, the Corporation may extend the credit
facility for an additional year. As such, there is no current portion of long-term debt related to the
credit facility. The credit facility is supported by a comprehensive security package that includes
all the present and after acquired assets of the Corporation. Interest is charged at a rate per
annum equal to the Canadian prime rate, LIBOR rate or Bankers’ Acceptance rate as applicable
and in effect during the interest period, plus additional interest based on a pricing rate schedule.
The additional interest per the pricing rate schedule depends upon the Debt to EBITDA ratio
and ranges from a low of 75 basis points for Canadian prime rate loans to a high of 300 basis
points for LIBOR and Bankers’ Acceptances. The credit facility contains provisions for stamping
fees on Bankers’ Acceptances and LIBOR loans and standby fees on unutilized credit lines that
vary depending on certain consolidated financial ratios.
Included as part of the credit facility is a swingline loan of $15,000 that entitles the Corporation
to enter into an overdraft position. This drawdown must be repaid within seven days of the
drawdown date and is therefore classified as current. At December 31, 2012, there was no
drawdown on the swingline.
Total finance costs on the credit facility for the year ended December 31, 2012 were $3,720
(2011 – $4,763). These finance costs represent the interest paid on the debt and amortization of
the deferred financing charges of $707 for the year ended December 31, 2012 (2011 – $1,068)
(Note 10).
(b) Finance contracts
The Corporation did not hold any finance contracts as at December 31, 2012. The previously
held finance contracts related to construction and automotive equipment matured within 2012
and bore interest rates between 0.0% and 8.3%, with a weighted average effective interest rate
on the contracts of 5.83% per annum. The previously held finance contracts were secured by
various construction and automotive equipment with a carrying value of $5,528 at December 31,
2011.
(c) Finance lease obligations
Finance leases relate to construction, automotive, and office equipment, and mature between
September 2013 and December 2015 and bear interest at rates between 0.0% and 8.0%, with a
weighted average effective interest rate on the contracts of 3.52% per annum (2011 – 5.66%).
The Corporation has the option to purchase the equipment under lease at the conclusion of the
lease agreements. Finance lease obligations are secured by construction and automotive
equipment with a net book value of $846 (2011 - $6,437) and the lessors’ title to the leased
asset (Note 22).
T: CUQ, CUQ.DB
2012 ANNUAL REPORT
95
THE CHURCHILL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2012 and 2011
(in thousands of Canadian dollars, except share and per share amounts)
Future Minimum Lease
Payments
December 31, December 31,
Present Value of Minimum
Lease Payments
December 31, December 31,
Not later than one year
More than 1 year but not later than 5 years
Later than five years
Not later than one year
More than 1 year but not later than 5 years
Later than five years
27. CONVERTIBLE DEBENTURES
2012
$
2011
$
2012
$
2011
$
853
323
-
1,177
779
718
-
1,497
$
$
$
$
828
313
-
1,141
25
10
-
35
Interest
December 31, December 31,
2012
$
2011
$
$
$
739
656
-
1,395
40
62
-
102
On June 15, 2010, the Corporation issued an aggregate of $75,000 principal amount of 6%
convertible extendible unsecured subordinated debentures of the Corporation at a price of one
thousand dollars per debenture. On June 15, 2010, an additional $11,250 of the convertible
debentures was issued pursuant to the exercise of the underwriters’ over-allotment option. Total
gross proceeds from the offering amounted to $86,250. Net proceeds of the offering, after
payment of the underwriters’ fee and other expenses of the offering of $3,401, were
approximately $82,849.
The maturity date of the debentures is June 30, 2015. The debentures bear interest at an
annual rate of 6% payable in equal installments semi-annually in arrears on December 31 and
June 30 in each year, commencing December 31, 2010. Each debenture is convertible into
common shares of the Corporation at the option of the holder at any time after July 13, 2010
and prior to the earlier of the maturity date and the date of redemption of the debenture, at an
initial conversion price of $22.75 per common share, or a conversion rate of approximately
43.956 common shares per one thousand dollar principal amount of debentures. The
Corporation has reserved 3,791,205 common shares for issuance upon conversion of the
debentures.
From June 30, 2013 and at any time prior to the final maturity date, the Corporation may, at its
discretion, redeem the debentures, in whole or in part from time to time, provided that the
current market price is at least 125% of the conversion price or $28.44 per common share, at a
redemption price equal to the principal amount thereof plus accrued and unpaid interest. The
Corporation may, at its discretion, elect to satisfy its obligation to pay the principal amount of the
debentures by issuing and delivering common shares. The Corporation may also elect to satisfy
its obligation to pay interest on the debentures by delivering common shares. The number of
any shares issued will be determined based on market prices at the time of issuance. In the
event of a change of control, the Corporation shall be required to offer to purchase all of the
outstanding debentures on the date that is 30 business days after the date that such offer is
delivered, at a purchase price equal to 100% of the principal amount of the debentures plus
accrued and unpaid interest to the purchase date.
T: CUQ, CUQ.DB
2012 ANNUAL REPORT
96
THE CHURCHILL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2012 and 2011
(in thousands of Canadian dollars, except share and per share amounts)
The Corporation presents and discloses its financial instruments in accordance with the
substance of its contractual arrangement. Accordingly, upon issuance of the debentures, the
Corporation recorded a liability of $76,250, less related offering costs of $2,945. Total finance
costs for the year ended December 31, 2012, on $86,250 of debentures were $7,635 (2011 -
$7,412). These finance costs represent the 6% coupon on the debentures, accretion related to
the portion of the debentures recorded in equity and amortization of deferred financing charges
calculated using the effective interest method (Note 10). The residual amount of the equity
component at the time of issuance was $10,000 and is included in equity, net of its pro rata
share of financing charges and deferred income tax amounts due to the difference between the
accounting and tax basis of the liability portion.
Principal amount - debt component
Accretion on convertible debentures
Amortization of deferred financing fees
Balance at the end of the period
$
December 31,
2012
76,691
1,894
566
79,151
$
$
December 31,
2011
74,454
1,724
512
76,691
$
Principal amount - equity component, end of the period
$
7,100
$
7,100
28. SHARE-BASED PAYMENTS
(a) Description of share-based payment arrangements
As at December 31, 2012, the Corporation has the following share-based payment
arrangements:
(i) Stock options
The Corporation’s stock option plan permits unexercised vested options to be surrendered in
exchange for the fair market value of common shares less the option exercise price, or the net
settlement. The net settlement value, reduced by estimated income taxes required to be
withheld, can be paid out in either common shares or cash and is at the sole discretion of the
Board of Directors. Options issued under the plan for employees vest one-third each on the
anniversary of the award date in each of the subsequent three years. All stock options awarded
to date must be exercised over specified periods not to exceed five years from the date granted.
(ii) Performance share units (“PSUs”)
PSUs are phantom shares that provide eligible participants with an equivalent cash value of
common shares. Each grant has a cliff vesting of three years, subject to certain performance
criteria. The Corporation has set the PSU performance criteria as comparative Total
Shareholder Return (“TSR”) relative to a competitive peer group. When each grant vests at
three years, payout can be between 0% and 150% of the vested units, depending on the
Corporation’s relative positioning of TSR at December 31st, just prior to the end of the three year
period. Each grant of PSUs is individually evaluated regularly with regard to vesting and payout
assumptions.
The Corporation will settle the PSUs in cash within 90 days after actual results are determined
and reported. The original cost of the PSU is equal to the fair market value at the date of grant.
T: CUQ, CUQ.DB
2012 ANNUAL REPORT
97
THE CHURCHILL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2012 and 2011
(in thousands of Canadian dollars, except share and per share amounts)
Changes in the amount of the liability due to fair value changes after the initial grant date at
each reporting period are recognized as a compensation expense of the period in which the
changes occur.
(iii) Deferred share units (“DSUs”)
The Corporation has a DSU plan under which plan participants may invest up to 100% of their
annual remuneration (employees and non-employee Directors), retainer and meeting fees (non-
employee Directors), or the Corporation’s cash bonus plan (employees). As of January 1, 2013,
employees are no longer able to contribute under the DSU plan. DSUs are phantom shares
which provide the holder with the right to receive a cash payment equal to the five-day weighted
average of the value of the common shares at the payout date. DSUs are cash settled only
when an employee or Director ceases to be an employee or Director. The terms of the plan
allow for discretionary grants by the Board of Directors. Discretionary grants vest immediately.
As DSUs are awarded, a liability is established and compensation expense is recognized in
earnings upon grant. Changes in the amount of the liability due to fair value changes after the
initial grant date are recognized as a compensation expense in the period in which the changes
occur. DSUs are also adjusted for corporate dividends as they are paid.
(b) Terms and conditions for stock-based payment arrangements
The terms and conditions related to the grants of the stock option program are as follows:
Option series
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
As at December 31, 2012
Issued on March 17, 2008
Issued on August 14, 2008
Issued on November 19, 2008
Issued on March 24, 2009
Issued on July 9, 2009
Issued on August 21, 2009
Issued on March 22, 2010
Issued on July 20, 2010
Issued on December 10, 2010
Issued on January 10, 2011
Issued on March 22, 2011
Issued on August 29, 2011
Issued on September 12, 2011
Issued on December 13, 2011
Issued on March 19, 2012
Issued on August 17, 2012
Options
Outstanding
85,828
52,645
89,496
80,167
1,978
86,858
107,427
65,000
15,000
2,353
226,286
10,000
9,000
30,000
402,203
115,740
1,379,981
Expiry Date
17-Mar-13
14-Aug-13
19-Nov-13
24-Mar-14
09-Jul-14
24-Mar-14
22-Mar-15
20-Jul-15
10-Dec-15
10-Jan-16
22-Mar-16
29-Aug-16
12-Sep-16
13-Dec-16
19-Mar-17
17-Aug-17
$
Price
Exercise Fair Value At
Grant Date
$
6.26
6.53
2.89
3.89
5.21
6.50
7.62
8.96
8.12
8.50
7.59
5.37
5.47
3.63
5.03
2.16
16.05
16.50
6.43
8.08
10.68
13.15
19.63
18.34
17.60
17.78
19.32
13.98
14.32
10.46
15.48
8.19
Options
Exercisable
85,828
52,645
89,496
80,167
1,978
86,858
71,255
43,333
10,000
784
75,429
3,333
3,000
10,000
-
-
614,106
T: CUQ, CUQ.DB
2012 ANNUAL REPORT
98
THE CHURCHILL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2012 and 2011
(in thousands of Canadian dollars, except share and per share amounts)
The terms and conditions related to the grants of the PSUs are as follows:
PSUs
(1)
(2)
(3)
(4)
As at December 31, 2012 (1)
Issued March 22, 2010
Issued July 20, 2010
Issued March 22, 2011
Issued March 19, 2012
Outstanding
Units
42,896
10,800
67,729
158,022
279,447
Vesting Date
22-Mar-13
20-Jul-13
22-Mar-14
19-Mar-15
Fair Value At
Grant Date
$
19.63
18.34
19.32
15.50
(1) Of the PSUs outstanding, none of them were vested as of December 31, 2012.
(c) Stock options
Movement during the years
Outstanding, beginning of the year
Granted
Forfeited
Surrendered
Expired
Outstanding, end of year
December 31, 2012
December 31, 2011
Number of
Stock
Options
1,542,783
630,161
(513,187)
(242,776)
(37,000)
1,379,981
Weighted
Average
Exercise Price
$
14.34
14.14
16.00
7.32
18.26
14.76
$
Number of
Stock
Options
1,131,172
424,011
(8,657)
(3,743)
-
1,542,783
Weighted
Average
Exercise Price
$
12.81
18.45
18.41
8.50
-
14.34
$
The options outstanding at December 31, 2012 have an exercise price in the range of $6.43 to
$19.63 (2011 - $6.43 to $19.63) and a contractual life of 5 years (2011 - 5 years).
Inputs for measurement of grant date fair value
The grant date fair value of stock option plans was measured based on the Black-Scholes
model. Expected volatility is estimated by considering historic average share price volatility. The
amounts computed, using the Black-Scholes model, may not be indicative of the actual values
realized upon the exercise of these options by the holders. The inputs used in the measurement
of the fair values at grant date of the stock option payment plans are the following:
Option Series
Issued on January 10, 2011
Issued on March 22, 2011
Issued on August 29, 2011
Issued on September 12, 2011
Issued on December 13, 2011
Issued on March 19, 2012
Issued on August 17, 2012
Weighted
average share
price
Exercise
price
Expected
volatility
Option
life
Dividend
yield
Risk-free
interest rate
Forfeiture
rate
$
17.78
19.32
13.98
14.32
10.46
15.48
8.19
$
17.78
19.32
13.98
14.32
10.46
15.48
8.19
60.91%
47.58%
57.84%
57.95%
52.20%
50.32%
50.85%
5
5
5
5
5
5
5
0.0%
0.0%
2.4%
2.4%
2.4%
3.0%
5.9%
2.22%
2.29%
1.45%
1.20%
1.10%
1.50%
1.40%
6%
6%
6%
6%
6%
5%
5%
T: CUQ, CUQ.DB
2012 ANNUAL REPORT
99
THE CHURCHILL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2012 and 2011
(in thousands of Canadian dollars, except share and per share amounts)
Compensation costs are recognized over the vesting period as share-based compensation
expense and an increase to the share-based payment reserve. When options are exercised, the
fair value amount in the share-based payment reserve is credited to share capital. The following
table illustrates the movement in the share-based payment reserve:
Balance, beginning of the period
Stock compensation expense
Stock options forfeited
Stock options surrendered
Balance, end of period
(d) PSU
Movement during the years
Outstanding, beginning of the year
Granted
Forfeited
Vested and paid
Outstanding, end of year
(e) DSU
Movement during the years
Outstanding, beginning of the year
Granted
Vested and paid
Outstanding, end of year
$
$
December 31, December 31,
2011
4,860
2,818
-
(42)
7,636
2012
7,636
2,192
(1,795)
(862)
7,171
$
$
December 31, December 31,
2011
2012
Number of
Performance
Share Units
340,055
196,785
(82,267)
(175,126)
279,447
Number of
Performance
Share Units
291,291
94,177
(1,805)
(43,608)
340,055
December 31, December 31,
2011
2012
Number of
Deferred
Share Units
165,434
242,921
(780)
407,575
Number of
Deferred
Share Units
97,283
68,151
-
165,434
T: CUQ, CUQ.DB
2012 ANNUAL REPORT
100
THE CHURCHILL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2012 and 2011
(in thousands of Canadian dollars, except share and per share amounts)
(f) Stock-based payment liability
December 31, December 31,
2011
2012
Carrying amount of liabilities for cash-settled arrangements
- current portion
- long-term portion
Total carrying amount
$
$
53
3,734
3,787
1,881
2,061
3,942
$
$
Total intrinsic value of liability for vested benefits
$
2,274
$
1,753
The PSUs issued in 2009 vested on March 15, 2012 and were paid to unit holders in the first
quarter of 2012 at a payout ratio of 109%, totalling $2,963. Included in trade and other payables
in the consolidated statements of financial position is the current portion of the PSUs to be paid
out within the next twelve months. The long-term portion of PSUs and DSUs of $3,734 at
December 31, 2012 (2011 - $2,061) is classified as share-based payments. The total intrinsic
value reflects all of the DSUs outstanding, as none of the PSUs have vested.
(g) Stock compensation expense
Stock compensation expense on stock options
Effects of changes in fair value and grants for PSUs
Effects of changes in fair value and grants for DSUs
29. SHARE CAPITAL
Common shares and preferred shares
$
December 31, December 31,
2011
2,818
276
82
3,176
2012
2,192
1,589
897
4,678
$
$
$
The Corporation’s common shares have no par value and the authorized share capital is
comprised of an unlimited number of common shares and an unlimited number of preferred
shares issuable in series with rights set by the directors.
December 31, 2012
Shares Share Capital
December 31, 2011
Shares Share Capital
Common Shares
Issued, beginning of year
Dividend reinvestment plan
Repurchased in the year
Issued in the year
Issued, end of year
24,300,019
230,882
(37,439)
-
24,493,462
$
$
124,290
2,503
(191)
-
126,602
24,133,727
92,718
(53,400)
126,974
24,300,019
$
$
120,757
1,293
(274)
2,514
124,290
T: CUQ, CUQ.DB
2012 ANNUAL REPORT
101
THE CHURCHILL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2012 and 2011
(in thousands of Canadian dollars, except share and per share amounts)
(a) Common shares and dividends
The holders of common shares are entitled to receive dividends if, as and when declared by the
Directors of the Corporation, to receive notice of, to attend and to one vote per share at all
meetings of the shareholders of the Corporation, and to share equally in the remaining property
of the Corporation upon liquidation, dissolution or wind-up of the Corporation.
On May 25, 2011, Churchill announced that it was implementing a dividend policy. The
Corporation declared its seventh quarterly dividend of $0.12 per share, which was paid on
January 15, 2013 to shareholders of record on December 31, 2012.
In conjunction with the dividend policy, the Corporation implemented a Dividend Reinvestment
Plan (“DRIP”). The DRIP allows eligible shareholders to direct cash dividends payable on their
common shares of the Corporation to be reinvested in additional common shares which, when
issued from treasury, will be issued at 95% of the weighted average market price of all common
shares traded on the Toronto Stock Exchange on the ten trading days preceding the dividend
payment date. DSU holders’ accounts are adjusted for the Corporation’s declared dividends.
As at December 31, 2012, trade and other payables includes $2,940 (2011 - $2,923) related to
the dividend payable on January 15, 2013, of which $437 (2011 - $717) is to be reinvested in
common shares under the DRIP and the remainder paid in cash.
Dividend payable, beginning of year
Total dividends declared during the year
Total dividends paid during the year (1)
Dividend payable, end of year
Per Share
December 31, 2012
Total
$
$
Per Share
December 31, 2011
Total
$
0.12
0.48
(0.48)
0.12
2,923
11,718
(11,701)
2,940
$
-
0.36
(0.24)
0.12
$
$
$
$
-
8,749
(5,826)
2,923
(1) Includes DRIP non-cash payments totaling $2,504 (2011 - $1,293) which are recorded through share capital.
The Corporation’s shareholder rights plan grants shareholders, other than the acquiring person,
the right to purchase from the Corporation the number of common shares having an aggregate
market price equal to twice the exercise price. Such rights can only be exercised on the
occurrence of a triggering event, which is defined as a person acquiring, or publicly announcing
their intention to acquire 20% or more of the common shares, other than by an acquisition
pursuant to a takeover bid permitted by the plan.
(b) Preferred share reserve
No preferred shares are currently issued. Subject to the provisions of the Business Corporations
Act (Alberta), the Directors are authorized to fix the designation rights, privileges, restrictions
and conditions attached to each series of preferred shares.
T: CUQ, CUQ.DB
2012 ANNUAL REPORT
102
THE CHURCHILL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2012 and 2011
(in thousands of Canadian dollars, except share and per share amounts)
The preferred shares of each series are entitled to the payment of dividends and the distribution
of assets or return of capital in the event of liquidation, dissolution or winding-up of the
Corporation, whether voluntary or involuntary, rank on parity with the preferred shares of every
other series and are entitled to preference over the common shares and over other shares of
the Corporation ranking junior to the preferred shares.
If any cumulative dividends or amounts payable on the return of capital in respect of a series of
preferred shares are not paid in full, all series of preferred shares shall participate ratably in
respect of accumulated dividends and return of capital.
Unless otherwise determined by the Directors in the articles of amendment designating a series
of preferred shares, the holder of each share of a series of preferred shares shall not be entitled
to receive notice of or vote at any meeting of shareholders.
The preferred share reserve included in the statements of changes in equity arose in 1997 when
the Corporation acquired and cancelled all of its issued Series A first and second preferred
shares. Accumulated dividend entitlements were eliminated by the cancellation of the shares.
(c) Normal course issuer bid (“NCIB”)
On November 25, 2011, the Corporation received regulatory approval under Canadian
securities laws to purchase common shares under a NCIB. The Corporation was entitled to
purchase, for cancellation, up to 1,217,671 common shares under the NCIB which commenced
on November 30, 2011 and continued until November 29, 2012. The Corporation did not renew
the NCIB in November 2012.
During the year ended December 31, 2012, 37,439 (2011 – 53,400) common shares were
purchased under the Corporation’s NCIB for a total of $400 (2011 – $585) or $10.67 per share
(2011 - $10.96 per share).
Of the common shares repurchased during the year, 37,439 were cancelled, resulting in the
average carrying value of $192 (2011 - $273) being allocated as a reduction in equity and $208
(2011 - $312) representing the consideration in excess of the assigned value being charged to
retained earnings during the year. These shares have been excluded from the calculation of the
weighted average common shares outstanding for the year ended December 31, 2012. In
addition, the Corporation also cancelled 48,900 shares that were repurchased in 2011.
T: CUQ, CUQ.DB
2012 ANNUAL REPORT
103
THE CHURCHILL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2012 and 2011
(in thousands of Canadian dollars, except share and per share amounts)
30. CHANGE
IN NON-CASH WORKING CAPITAL BALANCES RELATING TO
OPERATIONS
Trade and other receivables
Inventory
Prepaid expenses
Costs in excess of billings
Trade and other payables
Contract advances and unearned income
31. FINANCIAL INSTRUMENTS
(a) Carrying values
Financial assets:
Cash and cash equivalents
Trade and other receivables
Service provider deposit - long-term portion
Long-term receivable, including current portion
Financial liabilities:
Trade and other payables
Long-term debt, including current portion
Convertible debentures - debt component
(b) Fair values
$
$
December 31, December 31,
2011
10,886
401
528
(10,452)
16,806
(17,343)
826
2012
36,675
1,241
527
(5,362)
(48,005)
(15,067)
(29,991)
$
$
December 31,
2012
December 31,
2011
$
33,774
309,097
4,008
275
$
59,445
345,772
6,066
834
$
233,442
52,737
79,151
$
283,857
61,836
76,691
Financial instruments consist of recorded amounts of receivables and other like amounts that
will result in future cash receipts, as well as trade and other payables, short-term borrowings
and any other amounts that will result in future cash outlays.
The Corporation has determined that the fair value of its financial assets, including cash and
cash equivalents, trade and other receivables, service provider deposit and long-term receivable
and financial liabilities, including the trade and other payables, approximates their respective
carrying amounts as at the statement of financial position dates, because of the short-term
maturity of those instruments. The fair values of the Corporation’s interest-bearing financial
liabilities, including the revolving credit facility, finance leases and finance contracts, also
approximates their respective carrying amounts due to the floating rate nature of the debt.
The fair value of the liability component of the convertible debentures is $79,735 at December
31, 2012, which is based on an average market yield rate of 9.7% determined from marketable
debentures traded with similar terms.
T: CUQ, CUQ.DB
2012 ANNUAL REPORT
104
THE CHURCHILL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2012 and 2011
(in thousands of Canadian dollars, except share and per share amounts)
The Corporation completed its fuel derivative contracts in 2012 (fair value of fuel derivative
instrument assets at December 31, 2011 – $21). Changes in the value of the fuel derivative
instruments were recorded within prepaid expenses in the statements of financial position, and
other income in the statements of (loss) earnings.
Fair value hierarchy
The Corporation values instruments carried at fair value using quoted market prices, where
available. Quoted market prices represent a Level 1 valuation. When quoted market prices are
not available, the Corporation maximizes the use of observable inputs within valuation models.
When all significant inputs are observable, the valuation is classified as Level 2. Valuations that
require the significant use of unobservable inputs are considered Level 3. The Corporation
exercises Level 2 valuations for its fair value determination of the derivative instruments and the
liability portion of its convertible debentures.
(c) Financial risk management
(i) Credit risk
The Corporation invests its cash with the objective of maintaining safety of principal and
providing adequate liquidity to meet all current payment obligations. The Corporation invests its
cash and cash equivalents with counterparties that are of high credit quality as assessed by
reputable rating agencies. Given these high credit ratings, the Corporation does not expect any
counterparties holding these cash equivalents to fail to meet their obligations.
The Corporation assesses trade and other receivables for impairment on a case-by-case basis
when they are past due or when objective evidence is received that a customer will default. The
Corporation takes into consideration the customer’s payment history, credit worthiness and the
current economic environment in which the customer operates to assess impairment.
Prior to accepting new customers, the Corporation assesses the customer’s credit quality and
establishes the customer’s credit limit. The Corporation accounts for specific bad debt
provisions when management considers that the expected recovery is less than the actual
amount of the accounts receivable.
The provision for doubtful accounts has been included in administrative costs in the
consolidated statements of (loss) earnings and is net of any recoveries that were provided for in
a prior year.
T: CUQ, CUQ.DB
2012 ANNUAL REPORT
105
THE CHURCHILL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2012 and 2011
(in thousands of Canadian dollars, except share and per share amounts)
The following table represents the movement in the allowance for doubtful accounts:
Balance at beginning of the year
Impairment losses recognized on receivables
Amounts written off during the period as uncollectible
Amounts received during the year
Impairment losses reversed
Balance at the end of the year
$
$
December 31,
2012
1,993
877
(898)
51
(434)
1,589
December 31,
2011
3,685
295
(793)
(1,017)
(176)
1,993
$
$
Trade receivables shown on the statement of financial position include the following amounts
that are current and past due at the end of the reporting period. The Corporation does not hold
any collateral over these balances and does not have a legal right of offset against any amounts
owed by the Corporation to the counterparty. The terms and conditions established with
individual customers establish whether or not the receivable is past due.
Current
1-60 days past due
61-90 days past due
More than 90 days past due
$
$
December 31,
2012
91,727
77,119
17,078
29,822
215,746
December 31,
2011
173,958
43,962
6,665
9,687
234,272
$
$
In determining the quality of trade receivables, the Corporation considers any change in the
credit quality of the trade receivable from the date credit was initially granted up to the end of
the reporting period. The Corporation had $29,822 of trade receivables which were greater than
90 days past due with $28,233 not provided for as at December 31, 2012 (2011 - $9,687). Of
the total, $20,700 (69%) was concentrated in six customer accounts and of this amount $18,676
remained outstanding as of March 17, 2013. The six customers are considered to be credit-
worthy and there are presently no concerns regarding collectability of these accounts. Trade
receivables are included in trade and other receivables on the statements of financial position.
(ii) Interest rate risk
Financial risk is the risk to the Corporation’s earnings that arises from fluctuations in the interest
rates and the degree of volatility of these rates. The Corporation is exposed to variable interest
rate risk on its revolving credit facility. The Corporation does not use derivative instruments to
reduce its exposure to this risk.
T: CUQ, CUQ.DB
2012 ANNUAL REPORT
106
THE CHURCHILL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2012 and 2011
(in thousands of Canadian dollars, except share and per share amounts)
At the reporting date, the interest rate profile of the Corporation’s interest-bearing financial
instruments was:
Fixed rate instruments
Financial liabilities
Variable rate instruments
Financial assets
Financial liabilities
Fixed rate sensitivity
December 31,
2012
December 31,
2011
$
79,151
$
76,691
$
33,774
52,737
$
59,445
61,836
The Corporation does not account for any fixed rate financial assets and liabilities at fair value
through profit or loss.
Variable rate sensitivity
A change of 100 basis points in interest rates at the reporting date would have increased or
decreased equity and profit or loss by $252 (2011 - $422) related to financial assets and by
$393 (2011 - $439) related to financial liabilities.
(iii) Liquidity risk
Liquidity risk is the risk that the Corporation will encounter difficulties in meeting its financial
liability obligations. The Corporation manages this risk through cash and debt management. In
managing liquidity risk, the Corporation has access to committed short and long-term debt
facilities as well as equity markets, the availability of which is dependent on market conditions.
The Corporation believes it has sufficient funding through the use of these facilities to meet
foreseeable financial liability obligations.
The following are the contractual obligations, including interest payments as at December 31,
2012, in respect of the financial obligation of the Corporation. Interest payments on the revolving
credit facility have not been included in the table below since they are subject to variability
based upon outstanding balances at various points throughout the year.
Carrying
amount
Contractual
cash flows
0 - 6 months
6 - 12 months
12 - 24
months
After 24
months
Trade and other payables
Provisions including current portion
Convertible debentures
Long-term debt including current portion
Lease commitments
$
$
$
$
$
$
233,442
10,899
79,151
52,737
68,515
444,744
233,442
10,899
99,188
52,773
68,515
464,816
233,442
3,246
2,588
427
2,992
242,696
-
3,246
2,588
427
2,992
9,253
-
961
5,175
81
7,543
13,760
-
3,446
88,838
51,839
54,987
199,109
$
$
$
$
$
$
T: CUQ, CUQ.DB
2012 ANNUAL REPORT
107
THE CHURCHILL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2012 and 2011
(in thousands of Canadian dollars, except share and per share amounts)
(iv) Fuel price risk management
The Corporation is exposed to the risk of volatile diesel fuel prices on large projects. To mitigate
the risk of sudden and substantial movements in fuel prices causing volatility in project margins
and profitability, the Corporation may enter into derivative instrument contracts.
On August 8, 2011, the Corporation entered into heating oil financial derivative contracts to help
manage the volatility of diesel fuel costs for a multi-year project where significant consumption
of diesel fuel was required. The contract required the Corporation to pay a fixed price of $0.7563
per litre to $0.7727 per litre and receive the floating market price at each settlement date from
the counterparty on 6,100,000 litres of heating oil. The contracts expired between May and
October 2012.
32. CAPITAL MANAGEMENT
The Corporation’s objective in managing capital is to ensure sufficient liquidity to pursue its
growth strategy, and the payment of dividends, while taking a prudent approach towards
financial leverage and management of financial risk.
The Corporation’s capital is composed of equity and long-term indebtedness. The Corporation’s
primary uses of capital are to finance its growth strategies and capital expenditure programs.
The Corporation intends to maintain a flexible capital structure consistent with the objectives
stated above and to respond to changes in economic conditions and the risk characteristics of
underlying assets. In order to maintain or adjust its capital structure, the Corporation may issue
new shares, raise debt or refinance existing debt with different characteristics.
The primary non-IFRS measures used by the Corporation to monitor its financial leverage are
its ratios of long-term indebtedness to capitalization and long-term indebtedness to EBITDA. For
the purposes of capital management, long-term indebtedness includes long-term debt and the
debt component of convertible debentures, both net of deferred financing charges.
Over the long-term, the Corporation strives to maintain a target long-term indebtedness to
capitalization percentage in the range of 20 to 40 percent, calculated as follows:
Long-term indebtedness:
Long-term debt, excluding current portion
net of deferred financing fees
Convertible debentures - debt component
net of deferred financing fees
Total long-term indebtedness
Total equity
Total capitalization
Indebtedness to capitalization percentage
December 31, December 31,
2011
2012
$
51,909
$
60,433
79,151
131,060
235,150
366,210
36%
$
76,691
137,124
309,141
446,265
31%
$
T: CUQ, CUQ.DB
2012 ANNUAL REPORT
108
THE CHURCHILL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2012 and 2011
(in thousands of Canadian dollars, except share and per share amounts)
The Corporation targets a long-term indebtedness to EBITDA ratio of 1.5x to 3.0x over a three
to five-year planning horizon. At December 31, 2012, the long-term indebtedness to EBITDA
was 3.31x (2011 – 1.88x) calculated on a trailing twelve-month basis as follows:
Total long-term indebtedness
Net earnings and comprehensive income
Add:
Finance costs
Income tax expense
Depreciation and amortization
Impairment loss
EBITDA
Long-term indebtedness to EBITDA ratio
December 31, December 31,
2011
137,124
24,942
2012
131,060
(61,862)
$
$
$
$
11,578
(1,888)
27,170
64,600
39,598
3.31x
$
12,493
8,518
26,924
-
72,877
1.88x
$
Notwithstanding the Corporation’s current long-term indebtedness to EBITDA ratio exceeding
the target range, management has reviewed the target range and considers it appropriate over
the three to five-year horizon.
The Corporation also manages its capital through a rolling forecast of financial position and
expected operating results. In addition, the Corporation establishes and reviews operating and
capital budgets and cash flow forecasts in order to manage overall capital with respect to
financial covenants. The Corporation’s revolving credit facility is subject to the covenants
described below. The covenants listed below are measured each quarter on March 31, June 30,
September 30 and December 31. The Corporation was in full compliance with its credit facility
covenants at December 31, 2012 and December 31, 2011. For the years ending 2012 and
2013, the Corporation’s financial covenants are as follows:
•
• Working capital – Working capital represents total current assets less total current liabilities
as classified on the consolidated statements of financial position. The Corporation’s working
capital ratio cannot be less than 1.1:1.
Interest coverage – Interest coverage represents the ratio of EBITDA to interest expense
for the 12 months ending as at the end of the fiscal quarter. For the purposes of the
revolving credit facility, EBITDA is defined as earnings or loss before interest, income taxes,
depreciation and amortization, non-cash gains and losses from financial instruments, stock
based compensation and any other non-cash items deducted in the calculation of net
earnings. The Corporation’s interest coverage ratio must exceed 2.5:1 for each quarter on
December 31, 2012, March 31, 2013 and June 30, 2013; 2.75:1 for the quarter ending
September 30, 2013 and 3:1 for each quarter thereafter.
• Debt to EBITDA – Debt represents total indebtedness and total obligations of the
Corporation and its subsidiaries, excluding convertible debentures. The Corporation’s total
debt to EBITDA ratio cannot exceed 3:1.
• Senior Debt to EBITDA – Senior Debt represents all debt other than subordinated or
unsecured debt. The Corporation’s senior debt to EBITDA cannot exceed 3:1 for each
quarter on December 31, 2012, March 31, 2013, June 30, 2013 and September 30, 2013;
2.75:1 for the quarter ending December 31, 2013 and 2.5:1 on each quarter thereafter.
T: CUQ, CUQ.DB
2012 ANNUAL REPORT
109
THE CHURCHILL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2012 and 2011
(in thousands of Canadian dollars, except share and per share amounts)
33. PRINCIPAL SUBSIDIARIES
Details of the Corporation’s principal operating subsidiaries at December 31, 2012 are as
follows:
Name of subsidiary
Stuart Olson Construction Ltd.
Churchill Services Group Inc.
411007 Alberta Ltd.
TCC Holdings Inc.
Broda Construction Inc.
Canem Holdings Ltd.
Principal activity
Building construction
Corporate
Corporate
Corporate
Civil construction
Electrical contracting
34. RELATED PARTY TRANSACTIONS
Proportion of ownership
power held
Place of
incorporation and interest and voting
operation
Alberta
Alberta
Alberta
Alberta
Saskatchewan
British Columbia
100%
100%
100%
100%
100%
100%
Balances and transactions between the Corporation and its subsidiaries, which are related
parties, have been eliminated on consolidation and are not disclosed in this note. Details of
transactions between the Corporation and other related parties are disclosed below.
In the year ended December 31, 2011, the Corporation incurred legal fees with a law firm of
which Brian W.L. Tod, a Director of the Corporation, is counsel and a former partner. The
amount incurred in 2011 was $175, and $1 of this amount was included in accounts payable at
December 31, 2011. Effective June 30, 2011, Mr. Tod retired as a partner from the law firm. As
such, the law firm is no longer a related party for the year ended December 31, 2012.
The Corporation incurred facility costs during the year ended December 31, 2012 of $136 (2011
– $155) for the rental of a building that is 50% owned by Schneider Investments Inc., a company
owned by George Schneider, a Director of the Corporation.
The Corporation incurred facility costs during the year ended December 31, 2012 of $432 (2011
- $424) related to the rental of a building owned by Broda Holdings (2009) Inc., a company
owned by the president of Broda. At December 31, 2012, $29 is included in trade payables
(2011 - $7).
T: CUQ, CUQ.DB
2012 ANNUAL REPORT
110
THE CHURCHILL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2012 and 2011
(in thousands of Canadian dollars, except share and per share amounts)
35. OPERATING LEASE ARRANGEMENTS
The Corporation leases certain construction equipment, vehicles, office premises and
equipment under operating leases. Future minimum lease payments over the next five years
and thereafter are as follows:
Non-cancellable operating lease commitments:
Not later than 1 year
Later than 1 year and not later than 5 years
Later than 5 years
Payments recognized as expense:
Minimum lease payments
Sub-lease payments received
$
December 31, December 31,
2011
5,438
22,829
21,238
49,505
2012
8,044
26,496
36,034
70,574
$
$
$
December 31, December 31,
2011
4,350
(228)
4,122
2012
6,950
(448)
6,502
$
$
$
$
Management has applied judgment in determining the classification of these leases as
operating leases. Certain construction equipment, vehicles and equipment leases and office
premise leases have been classified as operating leases since title does not pass, the monthly
amounts paid do not represent substantially all of the fair value of the leased assets, the lease
term is not for the major part of the economic life and the Corporation does not participate in the
residual value of these assets.
36. CONTINGENCIES, COMMITMENTS AND GUARANTEES
(a) Contingencies
In the normal course of the Corporation’s operations, whether directly or indirectly, it may
become involved in, named as a party to or the subject of, various legal proceedings and legal
actions relating to, among other things, construction disputes for which insurance is not
injuries, property damage and general
available, human resources matters, personal
commercial and contractual matters arising from its business activities. In view of the quantum
of the amounts claimed, the insurance coverage maintained by the Corporation and, in some
cases, the provisions included in the Corporation’s financial statements for any potential
settlements in respect of these matters, management of the Corporation does not believe that
any existing litigation or pending litigation will ultimately result in a final judgment against the
Corporation that would have a material adverse impact on the financial position or results of
operations of the Corporation. Litigation is, however, inherently uncertain. Accordingly, adverse
outcomes to current litigation or pending litigation are possible. These potentially adverse
outcomes could include financial loss, damage to the Corporation’s reputation or reduction of
prospects for future contract awards.
T: CUQ, CUQ.DB
2012 ANNUAL REPORT
111
THE CHURCHILL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2012 and 2011
(in thousands of Canadian dollars, except share and per share amounts)
Subsidiaries of the Corporation are contingently liable for normal contractor obligations relating
to performance and completion of construction contracts as well as obligations of associates in
certain joint ventures.
(b) Commitments and guarantees
The Corporation completed its non-discretionary five year commitment of $1,000 to Southern
Alberta Institute of Technology (“SAIT”) Polytechnic in 2012 and had no related accrued liability
as at December 31, 2012 (2011 - $300).
The Corporation is a participant in joint ventures for which it has provided joint and several
guarantees, increasing the maximum potential payment to the full value of the work remaining
under the contract. The Corporation has issued several parental guarantees in support of
significant projects being undertaken by the general contracting and industrial services
segments.
Furthermore, there are various outstanding parental guarantees provided by the Corporation in
respect of the obligations and performance of the Corporation’s operating segments.
(c) Letters of credit
The Corporation has provided several letters of credit in the amount of $15,646 in connection
with various projects and joint ventures (2011 - $23,926), of which $6,500 are financial letters of
credit (2011 - $nil). These letters of credit are issued utilizing the credit facilities of the
Corporation; however, only the financial letters of credit reduce the maximum availability under
the revolving credit facility.
37. EVENTS AFTER THE REPORTING PERIOD
On March 17, 2013, Churchill’s Board of Directors declared a common share dividend of $0.12
per share. The dividend is designated as an eligible dividend under the Income Tax Act
(Canada) and is payable April 16, 2013 to shareholders of record on March 29, 2013.
T: CUQ, CUQ.DB
2012 ANNUAL REPORT
112
Corporate & Shareholder Information
Officers
Directors
Executive Offices
Doug Haughey, B.Admin., MBA
Chief Executive Officer
David LeMay, MBA
President and Chief
Operating
Officer
Daryl Sands, B.Comm., CA
Executive Vice President, Finance and
Chief Financial Officer
Don Pearson, B.Sc., P.Eng.
President and Chief Operating Officer
Stuart Olson Dominion Construction Ltd.
Gord Broda
President and Chief Operating Officer
Broda Construction Inc.
Allan Tarasuk, P.Eng., STS
President
Churchill Services Group
Al Miller
President
Canem Systems Ltd.
Andrew Apedoe, B.Comm.
Vice President, Investor Relations
Joette Decore, BSc., MBA
Vice President, Strategy and
Corporate Development
Amy Gaucher, B.Comm., CA
Vice President, Finance and
Administration
Evan Johnston, L.L.B., CFA
General Counsel
Vice President
,
Corporate Secretary
and
Barrie Stanton, B.A.
Vice President, Business Applications and
Information Technology
Albrecht W.A. Bellstedt, B.A., J.D., Q.C.
Chair
Wendy L. Hanrahan, CA (1) (2)
Harry A. King, B.A., CA (1)
Carmen R. Loberg (2) (4)
400, 4954 Richard Road SW
Calgary, AB T3E 6L1
Phone: (403) 685-7777
Fax: (403) 685-7770
Email: inquiries@churchill-cuq.com
Website: www.churchillcorporation.com
Allister J. McPherson, B.Sc., M.Sc. (1) (3)
Auditors
Henry R. Reid, B.ASc., MBA, P.Eng. (4)
Ian M. Reid, B.Comm. (1) (3)
George M. Schneider (2) (4)
Brian W. L. Tod, B.A., LL.B., Q.C. (2) (3)
(1) Member of the Audit Committee
(2) Member of the Human Resources &
Compensation Committee
(3) Member of the Corporate Governance &
Nominating Committee
(4) Member of the Health, Safety and
Environment Committee
Deloitte & Touche LLP
Edmonton, Alberta
Principal Bank
HSBC Bank Canada
Bonding and Insurance
Aon Reed Stenhouse Inc.
CNA Financial Corporation
Travelers Guarantee Company
Registrars and Transfer Agents
Inquiries regarding change of address, registered holdings, transfers, duplicate
mailings and lost certificates should be directed to:
Common Shares:
Convertible Debentures:
(1)
CIBC Mellon Trust Company
600 The Dome Tower
333 – 7th Avenue SW
Calgary, Alberta T2P 2Z1
Phone: 403 776-3900
403 776-3916
Fax:
Email: inquiries@canstockta.com
Website: www.canstockta.com
Answerline: 1-800-387-0825
Valiant Trust Company
Suite 310, 606 – 4th Street SW
Calgary, Alberta T2P 1T1
Phone: 403 233-2801
Fax:
403 233-2857
Email: inquiries@valianttrust.com
Website: www.valianttrust.com
Toll-free: 1-866-313-1872
(1) Canadian Stock Transfer Company Inc. acts as the Administrative Agent for
CIBC Mellon Trust Company
Notice of Annnual Meeting
The Annual General Meeting will be held on May 23, at 2:00 pm MDT
at the Metropolitan Centre, 333-4 Avenue SW, Calgary, Alberta.