2014 Annual Report - Management’s Discussion & Analysis
March 10, 2015
TABLE OF CONTENTS
2014 Overview ................................................................................................................................................................... 2
Economic Developments ................................................................................................................................................... 3
Outlook .............................................................................................................................................................................. 3
Risks .................................................................................................................................................................................. 5
About Stuart Olson Inc. ..................................................................................................................................................... 5
Business Strategy .............................................................................................................................................................. 6
Results of Operations ........................................................................................................................................................ 9
Consolidated Annual Results ............................................................................................................................................ 9
Consolidated Q4 Results ................................................................................................................................................. 11
Results of Operations by Business Group ...................................................................................................................... 13
Liquidity ............................................................................................................................................................................ 18
Capital Resources ........................................................................................................................................................... 21
Dividends ......................................................................................................................................................................... 22
Off-Balance Sheet Arrangements ................................................................................................................................... 23
Related Party Transactions ............................................................................................................................................. 23
Quarterly Financial Information ....................................................................................................................................... 24
Critical Accounting Estimates .......................................................................................................................................... 25
Changes in Accounting Policies ...................................................................................................................................... 30
Financial Instruments ...................................................................................................................................................... 30
Non-IFRS Measures ........................................................................................................................................................ 32
Forward-Looking Information ........................................................................................................................................... 34
1 | 2014 ANNUAL REPORT MD&A
The following Management’s Discussion and Analysis (“MD&A”) of the operating performance and financial condition of Stuart Olson Inc. (“Stuart
Olson”, the “Company”, “we”, “us”, or “our”) for the three and twelve months ended December 31, 2014, dated March 10, 2015, should be read in
conjunction with the December 31, 2014 Audited Consolidated Annual Financial Statements and related notes thereto. Additional information
relating to Stuart Olson, including our quarterly and annual reports and Annual Information Form (“AIF”), is available under the Company’s SEDAR
profile at www.sedar.com and on our website at www.stuartolson.com. Unless otherwise specified all amounts are expressed in Canadian dollars.
The information presented in this MD&A, including information relating to comparative periods in 2013 and 2012, is presented in accordance with
International Financial Reporting Standards (“IFRS”) unless otherwise noted.
Readers should also read the section entitled “Forward-Looking Information” at the end of this document.
2014 OVERVIEW
Revenue ($ millions)
EBITDA ($ millions)
$1,161.
5
$1,051.
8
$1,306.
3
$32.0
$34.2
$41.7
Diluted EPS ($ per share)
Continuing Operations
Diluted EPS ($ per share)
$0.19
$0.28
2012
2013
2014
$0.21
2012
2013
2014
$(0.53)
2012
2013
2014
2012
2013
2014
$(1.78)
$(2.55)
2014 Corporate Highlights
On May 22, 2014, we changed our name from “The Churchill Corporation” to “Stuart Olson Inc.”, and our trading
symbol from “CUQ” to “SOX”. The name change reflects our strategic shift from a holding company to an
integrated construction services company.
On September 1, 2014, we divested of Broda Construction Inc. (“Broda”) for estimated gross proceeds of $38.7
million, subject to finalization of purchase price adjustments. Broda was formerly included in our Industrial Group
results. Current and historical results have been restated to present Broda as a discontinued operation.
In September, 2014, we raised gross proceeds of $80.5 million ($76.6 million net of transaction costs) through the
issue of 6% convertible unsecured subordinated debentures due on December 31, 2019.
On November 26, 2014, we announced an agreement to acquire Studon Electric & Controls Inc. (“Studon”), a non-
union industrial electrical and instrumentation contractor headquartered in Red Deer, Alberta. The acquisition
closed on January 6, 2015, with an estimated preliminary purchase price on closing of $77.8 million, including
$59.9 million in cash, $7.8 million in common shares, the assumption of net debt and an estimated working capital
adjustment. The purchase price may be further increased by the fair value of earn-out payments by a maximum of
$24.2 million based on Studon’s performance over the next three years.
2014 Financial Highlights
Revenue increased 24.2% to $1,306.3 million, from $1,051.8 million in 2013. Contract income increased 6.3% to
$115.7 million, from $108.8 million in 2013.
2014 contract income margin declined to 8.9% from 10.3%, reflecting a higher contribution of lower margin
Buildings Group revenue in 2014, as well as project losses on certain Buildings Group industrial site projects.
EBITDA increased 21.9% to $41.7 million, from $34.2 million in 2013. EBITDA results reflect increased revenue
from all business groups and a consistent year-over-year consolidated EBITDA margin.
2014 net earnings from continuing operations increased to $7.1 million (diluted earnings per share of $0.28), from
$4.6 million in 2013 (diluted earnings per share of $0.19), driven by higher contract revenue.
2 | 2014 ANNUAL REPORT MD&A
We recorded a 2014 net loss of $13.1 million (diluted loss per share of $0.53), compared to net income of $5.1
million (diluted earnings per share of $0.21) in 2013, reflecting the non-cash loss of $16.8 million incurred on the
sale of Broda.
Backlog of $2.0 billion reflects $1.2 billion in new contract awards and net increases in project scope awarded
during the year (book-to-bill ratio of 0.94 to 1.0).
As at December 31, 2014, we were in full compliance with our long-term debt covenants, had available cash of
$104.1 million and additional borrowing capacity of approximately $118.6 million.
On March 10, 2015, our Board of Directors (“Board”) 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 15, 2015 to
shareholders of record on March 31, 2015.
ECONOMIC DEVELOPMENTS
The rate of economic growth improved in Western Canada through most of 2014. Rising energy output continued to
drive rapid growth in Alberta’s economy and provided support for construction activity in the province. British Columbia,
Saskatchewan and Manitoba enjoyed solid economic growth, with healthy levels of commercial, industrial and
infrastructure investment.
In the fourth quarter, oil prices for West Texas Intermediate (WTI), the U.S. benchmark crude, experienced an
unexpected and dramatic decline following OPEC’s decision to maintain existing levels of production despite excess
supply in the market. A number of major Alberta oil sands producers have since reduced capital spending and
announced slowdowns in the construction of new projects. While forecasters predict the Alberta economy will
experience significant negative impacts if oil prices remain low for a sustained period of time, none of the major oil
sands producers have reined in production from existing or soon-to-be completed projects1. The Canadian Association
of Petroleum Producers predicts oil sands producers will spend $25 billion of capital in 2015 despite lower oil prices. In
addition, oil sands production remains on track to grow by 0.2 to 0.3 million bpd to an average of 2.3 million bpd in
2015, providing a continuing strong base for maintenance, repair and operation (“MRO”) services2.
Outside of Alberta, the economic growth profile for provinces we operate in continues to improve. Ontario, BC and
Manitoba are forecasting continued economic growth in 2015, with a number of sectors expected to benefit from lower
energy costs and a weaker Canadian dollar.
OUTLOOK
We expect consolidated revenue for 2015 to be generally in line with overall revenue in 2014, while EBITDA margin as
a percentage of revenue is expected to increase. Our outlook reflects our $2.0 billion backlog, which provides line of
sight to revenues for 2015 and 2016. Both the Buildings Group and Commercial Systems Group will be executing large
backlogs dominated by public infrastructure projects distributed across multiple provinces. The majority of these
projects are underway and are expected to be completed.
The Industrial Group will benefit from the addition of Studon, which was acquired on January 6, 2015 and will add
approximately $157 million of backlog to the group’s existing December 31, 2014 backlog of $340.6 million. Current oil
prices are expected to have a negative impact on new industrial construction opportunities in 2015. However, we
anticipate continued strong demand for MRO services, and estimate that approximately 50% of the Industrial Group’s
backlog is comprised of these stable and recurring services.
1 Healing D. Oil prices expected to take $23B from oilsands cash flows. Calgary Herald. 2015. Available at:
http://calgaryherald.com/business/energy/oil-prices-expected-to-take-23b-from-oilsands-cash-flows. Accessed March 4, 2015.
2 CAPP.ca. Increased access to markets remains critical despite recent oil price decline - Canadian Association of Petroleum Producers. 2015.
Available at: http://www.capp.ca/aboutUs/mediaCentre/NewsReleases/Pages/access-to-markets-remains-critical.aspx. Accessed March 4, 2015.
3 | 2014 ANNUAL REPORT MD&A
Overall we expect market conditions will be challenging in 2015, particularly in terms of increased competition for fewer
industrial and commercial construction project opportunities in Alberta. We continue to see good opportunities for
infrastructure projects with Western Canadian provincial governments expected to maintain infrastructure spending at
stable levels. As noted above, economic conditions are also expected to remain healthy in British Columbia, Manitoba
and Ontario, providing opportunities for our operations in these provinces. Supported by our large backlog, we will
manage our business tightly, focusing on cost control and strong project execution to ensure we achieve our financial
objectives in 2015.
Buildings Group Outlook
We expect Buildings Group revenue to be lower in 2015 than in 2014 as we have significantly reduced our exposure to
higher-risk industrial site projects. In 2014, industrial site projects accounted for greater than $100 million of Buildings
Group revenue. In addition, we expect to achieve higher EBITDA margins in 2015, as we tighten our focus on areas of
core strength in the infrastructure and commercial markets.
We expect to execute approximately $511.2 million of the Buildings Group’s December 31, 2014 backlog during 2015.
Industrial Group Outlook
In 2014, the Industrial Group benefited significantly from a one-time large construction project that is now in its final
stages. This factor, combined with the expected decline in new industrial construction opportunities in Alberta, will
likely result in 2015 revenue from our legacy Industrial Group businesses being lower than the levels achieved in 2014.
The Studon business also anticipates a year-over-year reduction in revenue as a result of the decline in industrial
construction opportunities. We expect to offset some of this impact with our large base of continuing industrial MRO
work and the addition of a significant Northwest Territories mining project, which was added to backlog in late 2014.
The newly acquired Studon business is also providing opportunities to bundle and cross-sell construction and
maintenance services to our respective customer groups.
While total 2015 Industrial Group revenue is targeted to be higher as a result of the Studon acquisition, consolidated
Industrial Group EBITDA margins are expected to be weaker year-over-year as a result of increased competition, oil
sands operators seeking supplier cost reductions in response to lower oil prices, and an increased proportion of lower
risk cost reimbursable MRO work in the revenue mix. We expect the negative impact of low oil prices to be especially
prevalent in the first quarter of 2015, given owner delays in moving forward with committed projects as they assess
their own capital budgets.
We expect to execute approximately $330.6 million of Industrial Group backlog in 2015, including $257.6 million of the
December 31, 2014 backlog from our legacy Industrial Group businesses and approximately $73.0 million of backlog
from the Studon business. New contract awards, additional short-duration projects, scope changes and industrial
maintenance work are expected to supplement the Industrial Group’s combined annual revenue.
Commercial Systems Group Outlook
The Commercial Systems Group’s 2015 revenue is expected to be similar to 2014, reflecting strong demand and the
sizeable $212.6 million backlog at December 31, 2014. EBITDA margins for 2015 are forecast to be consistent with
2014 levels.
During 2015, the Commercial Systems Group expects to execute approximately $162.7 million of its backlog. New
awards, short-duration projects, building maintenance and tenant improvement work on existing projects are expected
to supplement the backlog revenue executed during the remainder of 2015.
4 | 2014 ANNUAL REPORT MD&A
RISKS
Various factors could cause our actual results to differ materially from the results anticipated by management. The
factors are described in more detail in this document and the section of Stuart Olson’s Annual Information Form
entitled “Risk Factors”. Readers are also encouraged to review the section of this MD&A entitled “Forward-Looking
Information”.
ABOUT STUART OLSON INC.
On May 22, 2014, we changed our name from “The Churchill Corporation” to “Stuart Olson Inc.” The name change
reflects our strategic shift from a holding company to an integrated construction services company.
The Stuart Olson name is a well-recognized and respected brand in the construction industry and helps to position us
more clearly as a construction services company. Importantly, the rebranding builds on our “One Team with One
Vision” business strategy to capitalize on and combine the strengths and synergies of our various business groups.
As part of the overall rebranding, we reorganized the branding of our three business groups as follows:
(1)
(1) Studon became part of the Industrial Group on January 6, 2015.
Buildings Group
Our Buildings Group provides services to private and public sector clients in the commercial, light industrial and
institutional sectors. It operates through branch offices in Richmond, British Columbia; Calgary and Edmonton, Alberta;
Winnipeg, Manitoba; and Mississauga, Ontario.
Projects undertaken by the Buildings Group include the construction, expansion and renovation of buildings ranging
from schools, hospitals and sports arenas, to high-rise office towers, retail, high technology facilities and commercial
buildings on industrial sites. The Buildings Group focuses on alternative methods of project delivery such as integrated
project delivery, construction management and design-build approaches. These methods provide cost reductions for
clients as a result of the project efficiencies we can generate. These approaches also support our ability to deliver on-
time and on-budget project completion, assist us in building long-term relationships with clients, reduce project
execution risk and improve our contract margins.
5 | 2014 ANNUAL REPORT MD&A
The majority of the revenue generated by the Buildings Group is from repeat clients or arises through pre-qualification
processes and select invitational tenders. Our business model is to pursue larger projects, and, preferably, negotiated
construction management-type contracts rather than hard-bid projects. The Buildings Group subcontracts
approximately 85% of its project work to subcontractors and suppliers and closely manages the construction process
to deliver on commitments.
Industrial Group
The Industrial Group operates under the general contracting brand of Stuart Olson and under our endorsed brands of
Laird, Northern, Fuller Austin, Sigma Power and, as of January 6, 2015, Studon. The Industrial Group serves clients in
a wide range of industrial sectors including oil and gas, petrochemical, refinery, mining, pulp and paper, and power
generation.
Originally organized as separate service companies, the Industrial Group increasingly operates as an integrated
industrial contractor, capable of taking on and self-performing larger projects in the industrial construction and MRO
space. Services provided by the Industrial Group include mechanical, insulation installation, metal siding and cladding,
heating, ventilating and air conditioning (HVAC), asbestos abatement, electrical instrumentation and power line
construction and maintenance services.
Commercial Systems Group
The Commercial Systems Group, operating under the Canem brand, is one of the largest electrical and data systems
contracting companies in Western Canada. Canem is an industry leader in the provision of complex systems used in
today’s high-tech, high performance buildings. It not only designs, builds and installs a building’s core electrical
infrastructure, it also provides the services and systems that support information management, building systems
integration, energy management, green data centres, security and risk management and lifecycle services.
Additionally, Canem provides ongoing maintenance and on-call service to customers, and manages regional and
national multi-site installations and roll outs.
Canem focuses primarily on large, highly complex projects that contain both data and electrical components, or that
require extensive logistical expertise. Canem delivers these services on a tendered (hard bid) basis and as part of an
integrated project delivery process that includes close involvement with customers from the earliest stages of design.
Canem is also an industry leader in the use of off-site assembly of modularized system components (pre-fabrication),
which significantly improves worksite productivity.
BUSINESS STRATEGY
Our Vision
Every day Stuart Olson positively impacts the businesses we serve, the communities in which we operate and the lives
we touch. Stuart Olson is the trusted partner to the public, private and industrial construction industries.
Our Strategy
The Canadian construction industry is changing. Projects are becoming larger and more complex. Additionally,
customers in the industrial sector are choosing contractors that can manage entire projects and self-perform much of
the work. A new breed of larger, more sophisticated construction contractors is emerging, and these contractors are
increasingly able to provide a one-stop service to their customers. During 2014, we introduced a new business
strategy that better aligns our company with the changes reshaping our market.
6 | 2014 ANNUAL REPORT MD&A
Our strategy recognizes that our strengths lie in the quality and dedication of our people, our values as an organization
and the diverse range of services we offer our customers. Our opportunities for change and growth lie in our operating
structure, specifically our ability to bring our industry-leading business groups – each with a rich heritage of innovation
and delivering value – together under one brand, one team and one vision, and to successfully communicate, market
and deliver this single brand promise to our customers and stakeholders. We made significant progress implementing
this strategy in 2014. Our strategic priorities, together with a selection of our key accomplishments, are as follows:
One Team with One Vision: During the first half of 2014, we simplified our operating structure and refocused our brand
under one identifiable name: Stuart Olson. The Stuart Olson name has a long history of success, innovation and
goodwill in the industry. Under its umbrella, we are now operating as One Team, One Vision and One Brand, not just
internally, but outwardly to the marketplace.
Attract and Retain the Best People: We know that organizations that value people excel. Accordingly, we are creating
a culture of authentic leadership where all of our people can realize their potential, both as employees and as people.
During 2014, we centralized our human resource functions, reinforced our leadership development program and
implemented a comprehensive succession plan in support of this priority. Our goal is to ensure we can attract, develop
and retain the best people in the industry, which in turn, provides a strong foundation for our ongoing business
success.
Achieve Exceptional Safety Performance: Safety is an ingrained value throughout Stuart Olson, fundamental to our
way of doing business. Our goal continues to be no less than zero harm, everyone home safe every day. To support
reaching our goal we have set a Recordable Injury Frequency target rate of zero for all of our business groups. We
continue to reinforce best practices that set the framework for the safety culture on all of our projects. We believe in the
leading indicator program that identifies trends on projects that can lead to higher risk of incidents and/or injuries,
enabling us to take positive action to mitigate or eliminate those factors.
Delivering Tailored Solutions Through a Uniquely Positive Process: As a service provider, our most important job is to
understand our clients and their vision of success. By doing this, we put ourselves in a position to do what we do best;
create tailored, results-based solutions within a collaborative and seamless process. Our model for success is simple,
yet powerful in its application. An approach to doing business grounded in respect, transparency and collaboration. A
commitment to all stakeholders – clients, consultants, trades and community – to engage in a team approach that
values people and thrives on fresh ideas and intelligent solutions. A dynamic process that allows for flexibility and
adaptability, with a focus on achieving results and nurturing lasting relationships.
Enhance Execution Excellence: Execution excellence and predictable and consistent project results build customer
trust and underpin strong and stable financial results. Across all of our operations, we remain focused on enhancing
the consistency and standardization of our project planning, project controls, productivity reporting and financial
forecasting to further enhance excellence in our project execution.
Optimize Asset Utilization: During 2014, we divested of Broda, a capital intensive and non-core earth moving business.
We subsequently acquired Studon, a leading Western Canadian provider of non-union electrical and instrumentation
services. The Studon acquisition aligns closely with our objective of transforming our Industrial Group into a fully self-
performing general contractor and immediately provides cross-selling opportunities within our Industrial Group. As
market timing and balance sheet permit, we will assess the potential for acquiring other industrial companies that
provide complementary services or alternative labour strategies. We believe these additions align with our customers’
strategies and values, while also supporting our overall growth strategy.
7 | 2014 ANNUAL REPORT MD&A
Achieve Growth: During 2014, we achieved consolidated organic revenue growth of 24.2%. Beginning in 2015, the
newly acquired Studon business will provide us with additional sources of revenue, while also enhancing our customer
diversification and enabling us to supply MRO services to in-situ oil sands operators in an impactful way. Our
geographic diversification is also set to expand in 2015 as we begin work on significant new projects in Ontario and the
Northwest Territories. Going forward, we will continue to identify other organic and acquisition-based growth
opportunities that support our strategic objectives.
Strengthen Balance Sheet and Capital Structure: We recognize that a strong, flexible financial foundation is essential
to realizing our goals. During 2014, we sold Broda for gross proceeds of $38.7 million, subject to the finalization of
purchase price adjustments. The sale strengthened our financial position by reducing indebtedness under our
revolving credit facility. We also completed an $80.5 million offering of convertible debentures, providing the balance of
capital needed to repay our $86.3 million convertible debentures when they become due in June 2015. In the interim, a
portion of the funds have been used to repay outstanding indebtedness under our revolving credit facility. In early 2015
we used a portion of our year-end 2014 liquidity to fund the acquisition of Studon. Notwithstanding this reduction in
liquidity and increased leverage, the Studon acquisition complements our longer term strategy to increase liquidity and
reduce leverage through improved financial performance and reduced capital spending.
8 | 2014 ANNUAL REPORT MD&A
RESULTS OF OPERATIONS
Consolidated Annual Results
$millions, except percentages and per share amounts
Contract revenue
Contract income
Contract income margin(1)
EBITDA(1)
EBITDA margin(1)
Net earnings (loss) from continuing operations
Net (loss) earnings from discontinued operations
Net (loss) earnings
Earnings (loss) per share
Basic from continuing operations
Basic (loss) earnings per share
Diluted from continuing operations
Diluted (loss) earnings per share
Dividends declared per share
$millions
Backlog(1)
Working capital(1)(3)
Long-term debt (excluding current portion)
Convertible debentures (excluding equity portion)(2)
Total assets
Year ended December 31
2013(4)
2012(4)
2014
1,306.3
1,051.8
1,161.5
115.7
8.9%
41.7
3.2%
7.1
(20.2)
(13.1)
0.29
(0.52)
0.28
(0.53)
0.48
108.8
10.3%
34.2
3.3%
4.6
0.5
5.1
0.19
0.21
0.19
0.21
0.48
110.8
9.5%
32.0
2.8%
(43.3)
(19.0)
(62.3)
(1.78)
(2.55)
(1.78)
(2.55)
0.48
Dec. 31, 2014
Dec. 31, 2013
Dec. 31, 2012
1,986.8
2,116.2
1,690.5
54.4
0.8
155.8
783.6
84.9
50.3
81.9
694.7
79.2
51.9
79.2
742.4
Notes:
(1) “Contract income margin”, “EBITDA”, “EBITDA margin”, “backlog” and “working capital” are non-IFRS measures. Refer to “Non-IFRS
Measures” for definitions of these terms.
(2) The convertible debentures issued in 2010, and due in 2015, are presented as a current liability of $84.8 million as at December 31,
2014; whereas, they were presented as a non-current liability of $81.9 million as at December 31, 2013.
(3) If the convertible debentures issued in 2010 were excluded from working capital, adjusted December 31, 2014 working capital would
have been $139.2 million (December 31, 2013 - $84.9 million).
(4) Amounts have been restated as a result of the reclassification of Broda to discontinued operations. See the “Discontinued Operations”
subsection of “Results of Operations by Business Group” of this MD&A and Note 13 of our December 31, 2014 Audited Consolidated
Annual Financial Statements.
9 | 2014 ANNUAL REPORT MD&A
For the year ended December 31, 2014, consolidated contract revenue increased by 24.2% to $1,306.3 million, from
$1,051.8 million in 2013. Revenue from the Buildings Group increased by $185.7 million or 36.6%, Industrial Group
revenue increased by $48.9 million or 13.6%, and Commercial Systems Group revenue increased by $28.6 million or
13.4%. Intersegment revenue for the period was $37.5 million, an increase of $8.7 million or 30.2% from 2013. This
increase reflects increased intercompany activity among our business groups.
Contract income increased 6.3% to $115.7 million (8.9% of revenue) in 2014, from $108.8 million (10.3% of revenue)
in 2013. This $6.9 million increase includes an $11.7 million or 29.5% increase in contract income from the Industrial
Group reflecting the one-time impact of revenue associated with a large oil sands related construction project that is
now in its final stages, partially offset by a $2.7 million or 7.5% decrease in contract income from the Buildings Group,
a $0.2 million or 0.6% decrease from the Commercial Systems Group, and a $1.9 million reduction from intersegment
eliminations. The contract income margin percentage declined from 10.3% in fiscal 2013 to 8.9% in 2014. This
decline reflects a higher contribution of lower margin Buildings Group revenue in 2014, as well as project losses on
certain Buildings Group industrial site projects.
2014 administrative costs amounted to $92.5 million (7.1% of revenue), compared to $91.6 million (8.7% of revenue) in
2013. Administrative costs increased by $5.9 million or 22.6% in the Corporate Group, $0.9 million or 5.3% in the
Industrial Group, and $0.1 or 50.0% for intersegment eliminations. These increases were partially offset by
administrative cost decreases of $5.5 million or 16.5% in the Buildings Group and $0.5 million or 3.4% in the
Commercial Systems Group. The year-over-year variance within the various groups is due, in part, to the centralization
of a number of support services to the Corporate Group in 2014. The balance of the variances relates primarily to
higher activity levels.
EBITDA for the year ended December 31, 2014 increased 21.9% to $41.7 million, from $34.2 million in 2013. This $7.5
million increase reflects higher revenue and contract income, combined with reduced administrative costs (excluding
administrative depreciation which is excluded from EBITDA).
Consolidated net earnings from continuing operations increased 54.3% to $7.1 million in 2014, from $4.6 million in
2013. This $2.5 million year-over-year improvement reflects the $7.5 million increase in EBITDA, partially offset by
higher interest costs associated with carrying two convertible debentures for a portion of 2014, increased depreciation
associated with the write-down of tenant improvements as part of a reduction in leased Buildings Group office space,
and a $2.1 million increase in income tax expense.
We reported a 2014 net loss from discontinued operations of $20.2 million, reflecting the $16.8 million loss on the sale
of Broda and $3.4 million loss from Broda’s operations. This compares to 2013 net earnings from discontinued
operations of $0.5 million. Net loss for 2014, which includes the results of discontinued operations, was $13.1 million,
compared to net earnings of $5.1 million in 2013. The year-over-year change reflects the one-time loss on
discontinued operations from the sale of Broda, partially offset by an increase in earnings from continuing operations.
10 | 2014 ANNUAL REPORT MD&A
Consolidated Q4 Results
$millions, except percentages and per share amounts
Contract revenue
Contract income
Contract income margin(1)
EBITDA(1)
EBITDA margin(1)
Net earnings from continuing operations
Net (loss) earnings from discontinued operations
Net earnings
Earnings (loss) per share
Basic from continuing operations
Basic earnings per share
Diluted from continuing operations
Diluted earnings per share
Dividends declared per share
Three months ended
December 31
2014
2013(2)
364.5
32.3
8.9%
12.0
3.3%
1.2
(0.7)
0.5
0.05
0.02
0.05
0.02
0.12
283.6
34.4
12.1%
11.2
3.9%
3.4
(0.1)
3.3
0.14
0.13
0.14
0.13
0.12
Notes:
(1) “Contract income margin”, “EBITDA” and “EBITDA margin” are non-IFRS measures. Refer to “Non-IFRS Measures” for definitions of
these terms.
(2) Amounts have been restated as a result of the reclassification of Broda to discontinued operations. See the “Discontinued Operations”
subsection of “Results of Operations by Business Group” of this MD&A and Note 13 of our December 31, 2014 Audited Consolidated
Annual Financial Statements.
For the three months ended December 31, 2014, consolidated contract revenue increased by 28.5% to $364.5 million,
from $283.6 million in Q4 2013. Fourth quarter revenue from the Buildings Group increased by $79.4 million or 58.1%,
Industrial Group revenue increased by $3.5 million or 3.6%, and Commercial Systems Group revenue increased by
$0.2 million or 0.3%. Intersegment revenue for the quarter increased to $11.5 million, from $9.3 million during the
same period last year, reflecting increased intercompany activity among our business groups.
Contract income decreased 6.1% to $32.3 million in Q4 2014, from $34.4 million in the fourth quarter of 2013. This
$2.1 million decrease reflects a $3.4 million or 24.8% decrease in contract income from the Buildings Group and a $1.4
million or 14.1% decrease from the Commercial Systems Group, partially offset by a $2.7 million or 26.0% increase
from the Industrial Group. Contract income as a percentage of revenue was 8.9% in Q4 2014, compared to 12.1%
during the same period last year. The year-over-year contract income decline reflects the higher proportion of lower
margin Buildings Group revenue, as well as breakeven margins on a number of industrial site projects currently being
completed by the Buildings Group (losses fully recognized in previous quarters) and the booking of additional
provisions on one of these projects in the quarter. The decline in the Commercial Systems Group contract income
reflects the Q4 2013 completion of a number of high margin projects which did not repeat in Q4 2014 due to project
timelines.
Fourth quarter 2014 administrative costs decreased to $26.4 million (7.2% of revenue) from $27.6 million (9.7% of
revenue) in the fourth quarter of 2013. In the Buildings Group, quarterly administrative costs decreased by $2.2 million
or 23.2% and in the Commercial Systems Group by $0.7 or 15.6%, while the Industrial Group was consistent year-
11 | 2014 ANNUAL REPORT MD&A
over-year. These reductions were partially offset by a $1.8 million or 20.2% increase in administrative costs in the
Corporate Group. Group administrative cost variances are, in part, the result of the centralization of a number of
support services to the Corporate Group in 2014.
Fourth quarter EBITDA increased 7.1% to $12.0 million, from $11.2 million in Q4 2013. This $0.8 million improvement
reflects higher revenue, partially offset by lower contract income margin.
Consolidated net earnings from continuing operations decreased to $1.2 million in the fourth quarter of 2014 from $3.4
million during the same period of 2013. This decline reflects a $1.7 million decrease in earnings before tax (“EBT”) due
to higher interest costs associated with carrying two convertible debentures in Q4 2014. It also reflects increased
expense associated with the write-down of tenant improvements as part of a reduction in leased Buildings Group office
space and a $0.5 million increase in income tax expense.
Backlog
$millions, except percentages
Buildings Group
Industrial Group
Commercial Systems Group
Backlog relating to continuing operations
Broda
Consolidated backlog
Construction management
Cost-plus
Tendered (hard bid)
Dec. 31,
2014
Dec. 31,
2013
1,433.6
1,615.1
340.6
212.6
1,986.8
nil
1,986.8
60.5%
23.7%
15.8%
280.7
164.7
2,060.5
55.7
2,116.2
58.6%
24.8%
16.6%
Consolidated backlog as at December 31, 2014 was $1,986.8 million, down $129.4 million or 6.1% from backlog of
$2,116.2 at December 31, 2013, but up $99.8 million or 5.3% from backlog of $1,887.0 million as at September 30,
2014. The year-over-year decline in backlog includes $55.7 million related to the disposal of Broda on September 1,
2014 and lower backlog in the Buildings Group due to our strategic decision to reduce exposure to higher-risk
industrial site projects. As at December 31, 2014, backlog consisted of work-in-hand of $1,080.3 million (December 31,
2013 - $1,159.8 million) and active backlog of $906.5 million (December 31, 2013 - $956.4 million). Approximately
60.5% of the backlog consists of construction management (CM) contracts, 23.7% cost-plus arrangements (combined
total of 84.2% CM and cost-plus) and 15.8% tendered (hard-bid) work. New contract awards and net increases in
contract value of $1,318.3 million were added to work-in-hand in 2014 (2013 - $1,330.5 million).
Our book-to-bill ratio for 2014 was 0.94 to 1.0, and 1.27 to 1.0 for the fourth quarter of 2014. Backlog additions
exceeded revenue during the fourth quarter primarily due to Industrial Group additions in the period, including a one-
year renewal of a key master services agreement, scope increases on existing projects and other major new project
awards in Alberta and the Northwest Territories.
12 | 2014 ANNUAL REPORT MD&A
RESULTS OF OPERATIONS BY BUSINESS GROUP
Buildings Group Results
$millions, except percentages
2014
2013
2014
2013
Three months ended
December 31
Year ended
December 31
Contract revenue
Contract income
Contract income margin(1)
Administrative costs
EBITDA(1)
EBITDA margin(1)
EBT(1)
Backlog(1)
216.1
10.3
4.8%
7.3
6.0
2.8%
3.1
136.7
13.7
10.0%
9.5
5.2
3.8%
4.3
693.7
33.5
4.8%
27.9
12.0
1.7%
5.9
508.0
36.2
7.1%
33.4
7.3
1.4%
3.2
1,433.6
1,615.1
Notes:
(1) “Contract income margin”, “EBITDA” and “EBITDA margin”, “EBT” and “backlog” are non-IFRS measures. Refer to “Non-IFRS
Measures” for definitions of these terms.
For the three months ended December 31, 2014, revenue from the Buildings Group increased 58.1% to $216.1 million,
from $136.7 million in Q4 2013. The $79.4 million increase was primarily attributable to increased commercial and
institutional activity in British Columbia, Alberta and Manitoba, and several large industrial site projects.
Contract income decreased to $10.3 million in the fourth quarter of 2014, from $13.7 million during the same period in
2013. The $3.4 million or 24.8% decrease reflects lower 2014 contract income margins, which declined to 4.8% from
10.0% in Q4 2013. The lower contract income margin reflects lower margins on certain industrial site projects.
Fourth quarter EBITDA from the Buildings Group increased to $6.0 million (2.8% EBITDA margin), compared to
EBITDA of $5.2 million (3.8% EBITDA margin) in the same period in 2013. The $0.8 million increase reflects
administrative cost savings from the centralization of certain administrative activities to the Corporate Group and other
targeted reductions in the Buildings Group’s administrative spending, partially offset by lower contract income.
EBT declined $1.2 million or 27.9% to $3.1 million in the fourth quarter of 2014, from $4.3 million in Q4 2013. The year-
over-year reduction reflects Q4 2014 impairment associated with tenant improvement write-downs as the Buildings
Group reduced leased office space.
For the year ended December 31, 2014, Buildings Group revenue increased 36.6% to $693.7 million, from $508.0
million in 2013. The $185.7 million increase was primarily attributable to a significant increase in commercial and
institutional activity in British Columbia, Alberta and Manitoba, and increased activity in the group’s industrial site
buildings branch.
Contract income for the 2014 year was $33.5 million, compared to $36.2 million in 2013. The $2.7 million or 7.5%
decrease reflects 2014 project losses on certain industrial site projects. Margin on the Building Group’s 2014 contract
income was 4.8%, compared to 7.1% last year.
Full year 2014 EBITDA from the Buildings Group increased 64.4% to $12.0 million (1.7% EBITDA margin), from $7.3
million (1.4% EBITDA margin) in 2013. This $4.7 million improvement reflects administrative cost savings from the
centralization of certain administrative activities to the Corporate Group and other targeted reductions in the Buildings
Group’s administrative spending, partially offset by lower contract income. Buildings Group EBT for 2014 improved to
$5.9 million, from $3.2 million in 2013. The $2.7 million or 84.4% EBT improvement reflects the higher EBITDA,
13 | 2014 ANNUAL REPORT MD&A
partially offset by 2014 impairment associated with the write-down of tenant improvements as part of a reduction in
leased Buildings Group office space.
As at December 31, 2014, the Buildings Group’s backlog was $1,433.6 million, compared to $1,615.1 million at
December 31, 2013. The year-over-year decrease of $181.5 million or 11.2% primarily reflects the decision to reduce
exposure to higher-risk industrial site projects going forward. As at December 31, 2014, approximately 79.5% of the
Buildings Group’s backlog was composed of CM assignments, 17.0% was cost-plus projects (combined total of 96.5%
CM and cost-plus) and 3.5% was tendered (hard-bid) projects. The tendered projects reflect the work left to be
completed on the remaining industrial site projects. The December 31, 2014 backlog consisted of $576.7 million of
work-in-hand and $856.9 million of active backlog, compared to $738.4 million of work-in hand and $876.7 million of
active backlog as at December 31, 2013. With respect to work-in-hand, the segment secured $531.9 million of new
awards and project scope increases during the year, and executed $693.7 million of contract revenue.
Industrial Group Results
$millions, except percentages
Contract revenue
Contract income
Contract income margin(1)
Administrative costs
EBITDA(1)
EBITDA margin(1)
EBT(1)
Backlog(1)
Three months ended
December 31
Year ended
December 31
2014
2013(2)
2014
2013(2)
99.4
13.1
95.9
10.4
13.2%
10.8%
4.6
9.2
9.3%
8.5
4.6
6.4
6.7%
5.7
407.8
51.3
12.6%
18.0
36.1
8.9%
33.4
340.6
358.9
39.6
11.0%
17.1
25.0
7.0%
22.6
280.7
Notes:
(1) “Contract income margin”, “EBITDA”, “EBITDA margin”, “EBT” and “backlog” are non-IFRS measures. Refer to “Non-IFRS Measures”
for definitions of these terms.
(2) Amounts have been restated as a result of the reclassification of Broda to discontinued operations. See the “Discontinued Operations”
subsection of “Results of Operations by Business Group” of this MD&A and Note 13 of our December 31, 2014 Audited Consolidated
Annual Financial Statements.
For the three months ended December 31, 2014, the Industrial Group increased revenue by 3.6% to $99.4 million,
from $95.9 million during the same period in 2013. The $3.5 million improvement reflects a higher volume of
construction work on oil sands projects compared to the fourth quarter of 2013.
The Industrial Group increased fourth quarter 2014 contract income to $13.1 million, an improvement of $2.7 million or
26.0% over the $10.4 million achieved during the same period in 2013. Fourth quarter contract income margins
increased to 13.2% from 10.8% in Q4 2013, reflecting a one-time large construction project in the oil sands, project
mix, stage of completion, and improved project execution.
EBITDA from the Industrial Group increased by 43.8% to $9.2 million (9.3% EBITDA margin) in the fourth quarter of
2014, from $6.4 million (6.7% EBITDA margin) in the fourth quarter of 2013. The $2.8 million year-over-year
improvement reflects increased contract income.
For the full year ended December 31, 2014, the Industrial Group revenue increased by 13.6% to $407.8 million, from
$358.9 million in 2013. The $48.9 million revenue growth reflects higher volumes of work in Alberta’s oil sands and
Northern Ontario’s mining industry.
14 | 2014 ANNUAL REPORT MD&A
Contract income increased 29.5% to $51.3 million in 2014, up $11.7 million from the $39.6 million generated by the
Industrial Group in 2013. Full year contract income margins increased to 12.6%, from 11.0% year over year, reflecting
the one-time large construction project, project mix, stage of completion, strong project execution and write-downs
taken on challenging projects in 2013 not repeating in 2014.
Full year EBITDA from the Industrial Group increased 44.4% to $36.1 million (8.9% EBITDA margin) in 2014, from
$25.0 million (7.0% EBITDA margin) in 2013. The $11.1 million improvement reflects increased contract income,
partially offset by higher administrative costs to support increased activity levels.
The Industrial Group’s backlog was $340.6 million as at December 31, 2014, compared to backlog of $280.7 million at
December 31, 2013. The $59.9 million or 21.3% increase is primarily due to new project awards and extensions of
existing large maintenance contracts during 2014. As at December 31, 2014, approximately 66.3% of the Industrial
Group’s backlog was composed of cost-plus projects and 33.7% was tendered (hard-bid) projects. The December 31,
2014 backlog consisted of $325.1 million of work-in-hand and $15.5 million of active backlog, compared to $225.9
million of work-in-hand and $54.8 million of active backlog at December 31, 2013. With respect to work-in-hand, the
Industrial Group contracted $505.9 million of new awards and scope increases during the year and executed $406.8
million of construction activity.
Commercial Systems Group Results
$millions, except percentages
2014
2013
2014
2013
Three months ended
December 31
Year ended
December 31
Contract revenue
Contract income
Contract income margin(1)
Administrative costs
EBITDA(1)
EBITDA margin(1)
EBT(1)
Backlog(1)
60.5
8.5
60.3
9.9
14.0%
16.4%
3.8
5.1
8.4%
4.7
4.5
5.8
9.6%
5.4
242.3
32.0
13.2%
14.3
19.4
8.0%
17.8
212.6
213.7
32.2
15.1%
14.8
19.3
9.0%
17.7
164.7
Notes:
(1) “Contract income margin”, “EBITDA”, “EBITDA margin”, “EBT” and “backlog” are non-IFRS measures. Refer to “Non-IFRS Measures”
for definitions of these terms.
For the three months ended December 31, 2014, the Commercial Systems Group generated revenue of $60.5 million,
in line with the $60.3 million generated in Q4 2013. The stable revenue result reflects similar activity levels in both
periods.
Fourth quarter 2014 contract income from the Commercial Systems Group was $8.5 million, a reduction of $1.4 million
or 14.1% from the $9.9 million achieved during the same period in 2013. Fourth quarter contract income margins
decreased to 14.0% from 16.4% in the prior year, reflecting project mix and project stage of completion.
EBITDA from the Commercial Systems Group was $5.1 million (8.4% EBITDA margin) in the fourth quarter of 2014,
compared to $5.8 million (9.6% EBITDA margin) in the fourth quarter of 2013. The reduction in EBITDA margin
primarily reflects lower contract income margin.
For the year ended December 31, 2014, revenue from the Commercial Systems Group increased 13.4% to $242.3
million, from $213.7 million in 2013. This $28.6 million improvement reflects the start-up of a number of significant
projects in Alberta during 2014.
15 | 2014 ANNUAL REPORT MD&A
Contract income for the 2014 year decreased by $0.2 million, or 0.6%, to $32.0 million, from $32.2 million in 2013.
Contract income margin was 13.2% in 2014, compared to 15.1% in 2013. The decrease in contract income margin
reflects changes in project mix and project stage of completion, as well as increased costs on certain projects as a
result of labour productivity issues.
Full year EBITDA from the Commercial Systems Group increased 0.5% to $19.4 million, from $19.3 million in 2013.
The $0.1 million increase reflects higher 2014 revenue partially offset by the lower contract income margin. The
group’s EBITDA margin was 8.0% in 2014, compared to 9.0% in 2013.
Commercial Systems Group backlog increased to $212.6 million as at December 31, 2014, from $164.7 million at
December 31, 2013, a $47.9 million or 29.1% increase. As at December 31, 2014, the group’s backlog was composed
of approximately 30.0% CM and cost-plus projects, and 70.0% tendered projects. The December 31, 2014 backlog
consisted of $178.4 million of work-in-hand and $34.2 million of active backlog compared to $139.7 million of work-in-
hand and $25.0 million of active backlog at December 31, 2013. With respect to work-in-hand, the group secured
$280.5 million of new awards and increases in contract value during the year and executed $242.3 million of
construction activity.
Corporate Group Results
$millions
Administrative costs
Finance costs
EBT(1)
Three months ended
December 31
Year ended
December 31
2014
2013
2014
2013
10.7
3.8
(14.3)
8.9
2.9
(11.8)
32.0
12.8
(44.6)
26.1
11.4
(37.5)
Note:
(1) EBT is a non-IFRS measure. Refer to “Non-IFRS Measures” for the definition of the term.
For the three months ended December 31, 2014, the Corporate Group’s administrative costs increased to $10.7
million, from $8.9 million in the fourth quarter of 2013. The $1.8 million or 20.2% increase is primarily related to the
inclusion of costs associated with the Studon acquisition and the centralization under the Corporate Group of human
resources, marketing, accounting and information technology activities previously managed and accounted for by the
individual business groups. The increase was partially offset by a decrease in stock-based compensation expense
related to the decrease in our share price in the fourth quarter of 2014, compared to share price appreciation in Q4
2013, and the corresponding impact of mark-to-market pricing.
The Corporate Group’s finance costs were $3.8 million in the fourth quarter of 2014, compared to $2.9 million during
the same period last year. The $0.9 million or 31.0% increase primarily reflects the carrying of interest costs on two
sets of convertible debentures in Q4 2014, partially offset by the interim use of proceeds from the issuance of the
September, 2014 $80.5 million convertible debentures to reduce the balance under our revolving credit facility.
The Corporate Group incurred a fourth quarter 2014 loss before tax of $14.3 million, compared to a loss before tax of
$11.8 million in the comparable period in 2013. This increase was due primarily to the higher administrative and
finance costs.
For the year ended December 31, 2014, Corporate Group administrative costs were $32.0 million, compared to $26.1
million in 2013. The administrative cost increase is primarily related to 2014 onerous lease costs associated with
moving to smaller facilities, rebranding costs and the centralization under the Corporate Group of human resources,
marketing, accounting and information technology activities previously managed and accounted for by the individual
business groups. The increase was partially offset by a decrease in stock-based compensation expense related to the
16 | 2014 ANNUAL REPORT MD&A
decrease in our share price in 2014, compared to share price appreciation in 2013, and the corresponding impact of
mark-to-market pricing.
The Corporate Group’s finance costs were $12.8 million in 2014, compared to $11.4 million in 2013, an increase of
$1.4 million or 12.3%. Finance costs were higher in 2014 primarily due to carrying interest costs on two sets of
convertible debentures in the last half of 2014, partially offset by the interim use of proceeds from the issuance of the
September 2014 $80.5 million convertible debentures to reduce the balance under our revolving credit facility.
For the year ended December 31, 2014, the Corporate Group incurred a loss before tax of $44.6 million, compared to
a loss before tax of $37.5 million in 2013. The year-over-year change primarily reflects increased administrative and
finance costs.
Discontinued Operations
On September 1, 2014, we completed the sale of Broda for estimated gross cash proceeds of $38.7 million ($38.3
million received to date, with the balance recorded as accounts receivable), subject to the finalization of purchase price
adjustments. The divestiture of Broda was the result of a strategic review undertaken to assess our assets and their
utilization in the context of our broader business strategy going forward. Net proceeds of the sale have been used to
repay outstanding indebtedness under our revolving credit facility.
In the December 31, 2014 Audited Consolidated Annual Financial Statements and this MD&A, Broda results for
current and historical periods have been presented as discontinued operations. Discontinued operations are shown,
net of tax, below the calculation of Stuart Olson’s net earnings from continuing operations.
17 | 2014 ANNUAL REPORT MD&A
Broda’s operating results for the previous eight quarters and three calendar years (including the calculation of EBT and
EBITDA as though Broda was continuing operations, but excluding the loss incurred on disposal) were as follows:
$millions
Contract revenue
Contract income
EBITDA(1)
EBT(1)
Net (loss) earnings
Backlog(1)
Capital and intangible expenditures
2014 Quarter Ended:
2013 Quarter Ended:
Dec. 31
Sep. 30(2)
Jun. 30
Mar. 31
Dec. 31
Sep. 30
Jun. 30
Mar. 31
nil
nil
nil
nil
(0.1)
n/a
nil
12.9
11.1
2.3
2.2
1.1
0.7
n/a
0.9
0.7
1.2
(2.5)
(1.9)
45.4
2.0
6.1
(1.7)
(0.9)
(2.8)
(1.9)
57.3
0.3
13.4
20.0
1.1
1.8
0.1
0.2
55.7
2.4
3.5
3.8
2.2
1.6
41.3
1.0
11.8
nil
0.4
(1.1)
(0.7)
55.4
2.9
9.4
0.6
1.1
(0.4)
(0.3)
43.8
0.5
$millions
Contract revenue
Contract income
EBITDA(1)
EBT(1)
Net (loss) earnings
Backlog(1)
Capital and intangible expenditures
2014 Year
Ended:
2013 Year
Ended:
2012 Year
Ended:
Dec. 31(2)
Dec. 31
Dec. 31
30.1
1.3
2.4
(4.3)
(3.4)
n/a
3.2
54.6
5.1
7.1
0.7
0.8
55.7
6.9
60.6
3.4
4.7
(22.0)
(19.0)
30.5
6.4
Notes:
(1) “EBITDA”, “EBT” and “backlog” are non-IFRS measures. Refer to “Non-IFRS Measures” for definitions of these terms.
(2) Results for the three months and year ended December 31, 2014 reflect Broda results up to the September 1, 2014 disposition date.
For complete financial details of discontinued operations, including the loss incurred on the disposal of Broda, please
refer to Note 13 of our December 31, 2014 Audited Consolidated Annual Financial Statements.
LIQUIDITY
Cash and Borrowing Capacity
We monitor our liquidity principally through cash and cash equivalents and available borrowing capacity under our
revolving credit facility.
Cash and cash equivalents at December 31, 2014 increased to $104.1 million from $36.2 million at December 31,
2013. This $67.9 million increase reflects net proceeds of $76.6 million received from the issuance of our 2014
convertible debentures and proceeds of $38.3 million received to date from the sale of Broda, reduced by the
repayment of the majority of indebtedness under our revolving credit facility.
As at December 31, 2014, we had additional borrowing capacity under our revolving credit facility of $118.6 million, as
compared to $75.0 million at December 31, 2013. The increase in available borrowing capacity relates to the use of
the previously mentioned proceeds received from both the issuance of our 2014 convertible debentures and the sale of
Broda to pay down the majority of the revolving credit facility during the year.
18 | 2014 ANNUAL REPORT MD&A
Debt and Capital Structure
During the year we revised our definition of long-term indebtedness for the purposes of capital management to include
principal amounts owing under long-term debt and convertible debentures. In prior periods, long-term indebtedness
was comprised of the carrying values of long-term debt and convertible debentures, both net of deferred financing
fees.
Long-term indebtedness, including the current portion of long-term debt and convertible debentures, increased to
$169.9 million at December 31, 2014, from $141.5 million at December 31, 2013. The $28.4 million increase in long-
term indebtedness mainly reflects the issuance of our 2014 convertible debentures, partially offset by the repayment of
outstanding amounts on our revolving credit facility. Long-term indebtedness consists of $166.8 million (December 31,
2013 - $86.3 million) of outstanding convertible debentures and $3.1 million of long-term debt (December 31, 2013 -
$55.2 million). The current portion of long-term debt was $0.4 million as at December 31, 2014 (December 31, 2013 -
$2.6 million). The current portion of convertible debentures was $86.3 million as at December 31, 2014 (December 31,
2013 - nil).
On September 19, 2014 and September 29, 2014 we issued 6% convertible unsecured subordinated debentures in the
principal amounts of $70.0 million and $10.5 million, respectively, for gross total proceeds of $80.5 million. We
received proceeds, net of transaction costs, of $76.6 million. The convertible debentures have a maturity date of
December 31, 2019, are convertible at the option of the holder into common shares of Stuart Olson at a conversion
price of $14.15 per share and are convertible at our option on or after December 31, 2017, and at any time prior to
December 31, 2018, provided our share price is not less than 125% of the conversion price ($17.79 per share). On or
after December 31, 2018, and at any time prior to the maturity date, the debentures may be redeemed at our option at
a price equal to 100% of their principal amounts plus accrued and unpaid interest.
The net proceeds will be used to repay at maturity a portion of the 6.0% convertible unsecured subordinated
debentures due June 30, 2015 and, in the interim, have been used to repay the balance of indebtedness under our
revolving credit facility in order to minimize interest costs. The balance of the $86.3 million due on June 30, 2015 to
settle our 2010 convertible debentures will be drawn from any excess cash on hand combined with a draw on our
revolving credit facility.
We monitor our capital structure through the use of long-term indebtedness to capitalization and net long-term
indebtedness to EBITDA metrics, both defined in the “Non-IFRS Measures” section of this MD&A. Indebtedness to
capitalization has increased to 44% at December 31, 2014 compared to 37% at year-end 2013, which is slightly higher
than our targeted range of 20 to 40% over the long-term. This increase is due to the increase in long-term
indebtedness explained above, combined with a year-over-year decrease in equity due principally to the loss from
discontinued operations incurred in 2014.
Net long-term indebtedness to EBITDA has declined at December 31, 2014 to 1.58 as compared to 3.07 at year-end
2013. The improvement was driven by the proceeds received on the sale of Broda that were used to pay down our
revolving credit facility, combined with year-over-year improved EBITDA performance for each of our operating groups.
In accordance with the terms of our revolving credit facility agreement, the sale of Broda on September 1, 2014
reduced the limit of our revolving credit facility from $200.0 million to $167.4 million.
19 | 2014 ANNUAL REPORT MD&A
As at December 31, 2014, we were in full compliance with the covenants in our credit facility.
Ratio
Working capital(1)
Interest coverage
Total debt to EBITDA
Senior debt to EBITDA
Covenant
>1.10:1.00
>3.00:1.00
<3.25:1.00
<2.75:1.00
Actual as at
Dec. 31, 2014
1.38
3.41
0.07
0.05
Notes:
(1) As part of the June 2014 amendments to our $167.4 million senior secured revolving credit facility, the definition of working capital ratio
for covenant calculation purposes was updated to specifically exclude the convertible debentures from current liabilities.
The outstanding balance under the revolving credit facility fluctuates from quarter to quarter as it is drawn to finance
working capital requirements, capital expenditures and acquisitions, and repaid with funds from operations,
dispositions or financing activities.
Summary of Cash Flows
$millions
Operating activities
Investing activities
Financing activities
Increase in cash
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Year ended December 31
2013(1)
2014(1)
23.2
30.0
14.7
67.9
36.2
104.1
28.7
(10.1)
(16.2)
2.4
33.8
36.2
Notes:
(1) This table includes both continuing and discontinued operations. See accompanying notes of our December 31, 2014 Audited
Consolidated Annual Financial Statements.
For the year ended December 31, 2014, cash generated from operating activities was $23.2 million as compared to
cash generated of $28.7 million in 2013, a year-over-year net change of $5.5 million. The additional outflow is largely
due to cash tax refunds received in 2013 that did not repeat in 2014.
Cash generated by investing activities was $30.0 million for the year ended December 31, 2014, as compared to an
outflow of $10.1 million in 2013, a $40.1 million increase. The primary factor for the increase was the sale of Broda in
Q3 2014 for gross proceeds of $38.7 million.
Cash generated by financing activities totalled $14.7 million for 2014, as compared to an outflow of $16.2 million during
2013, an increase of $30.9 million. This increase primarily reflects the issuance of our 2014 convertible debentures in
September, partially offset by the interim use of these proceeds combined with Broda sale proceeds to repay our
revolving credit facility.
External Factors Impacting Liquidity
Please refer to the section entitled “Risk Factors” of Stuart Olson’s Annual Information Form for a description of
circumstances that could affect our sources of funding.
20 | 2014 ANNUAL REPORT MD&A
CAPITAL RESOURCES
Our objectives in managing capital are to ensure that we have sufficient liquidity to pursue growth objectives while
maintaining a prudent amount of financial leverage.
Capital is composed of equity and long-term indebtedness, including convertible debentures. Our primary uses of
capital are to finance operations, execute our growth strategies and fund capital expenditure programs.
In 2014, our capital expenditures from continuing operations were $7.1 million, compared to $7.8 million in 2013.
Expenditures included $2.6 million for construction and automotive equipment, $2.4 million for tenant improvements,
$1.9 million for computer hardware and software and $0.2 million for office furniture and equipment. Capital and
intangible expenditures attributable to discontinued operations were $3.2 million in 2014, compared to $6.9 million in
2013.
Capital expenditures are associated with our need to maintain and support existing operations. For 2015, capital
spending has been restricted to only those assets we are contractually committed to acquire or that are needed in
order to execute our backlog of work. Capital expenditures will be scaled within a range of $4.5 million to $6.0 million
as we continue to monitor the movement of oil prices and the impact on Western Canadian construction activity. As of
March 10, 2015, we expect to spend $5.0 million on 2015 capital additions.
Working Capital
As at December 31, 2014, we had working capital of $54.4 million, compared to $84.9 million at December 31, 2013.
The $30.5 million decrease primarily reflects the 2010 convertible debentures becoming a current liability during 2014.
Excluding the 2010 convertible debentures, adjusted December 31, 2014 working capital was $139.2 million, a $54.3
million increase from December 31, 2013. This increase reflects cash proceeds from the sale of Broda in 2014 and the
balance of the 2014 convertible debenture proceeds after repayment of the balance under the revolving credit facility.
On the basis of our current cash and cash equivalents, the ability to generate cash from operations and the undrawn
portion of our revolving credit facility, we believe we have the capital resources and liquidity necessary to meet our
commitments, support operations, finance capital expenditures, support growth strategies and fund declared
dividends.
For additional information regarding our management of capital, please refer to Note 32 to the Audited Consolidated
Annual Financial Statements.
21 | 2014 ANNUAL REPORT MD&A
Contractual Obligations
The following are our contractual financial obligations as at December 31, 2014. Interest payments on the revolving
credit facility have not been included in the table below as they are subject to variability based upon outstanding
balances at various points throughout the period. Further information is included in Note 31(c)(iii) to the Audited
Consolidated Annual Financial Statements.
$thousands
Carrying
amount
Contractual
cash flows
Not later
than 1 year
Later than 1
year and
less than 3
years
Later than 3
years and
less than 5
years
Later than 5
years
Trade and other payables
$ 264,196
$ 264,196
$ 264,196
$ -
$ -
$ -
Provisions including current portion
7,529
7,529
Convertible debentures (debt portion)
155,760
193,488
Long-term debt including current portion
Lease commitments
1,208
66,782
3,144
68,782
2,616
93,668
412
7,241
869
9,660
366
14,090
124
90,160
2,366
14,089
3,920
-
-
33,362
$ 497,475
$ 537,139
$ 368,133
$ 24,985
$ 106,739
$ 37,282
Scheduled long-term debt principal repayments due within one year of December 31, 2014 were $0.4 million
(December 31, 2013 - $2.6 million), while scheduled convertible debenture principal repayments for this same period
were $86.3 million (December 31, 2013 - $nil).
Share Data
We encourage employees to invest in our shares through an Employee Share Purchase Plan (“ESPP”) which is
available to all full-time employees. At December 31, 2014, employees held 1,806,909 common shares (December 31,
2013 - 1,630,047 common shares) as a result of purchases made through the ESPP. Under the ESPP, common
shares are acquired in the open market at prevailing market prices.
As at December 31, 2014, we had 25,054,310 common shares issued and outstanding and 1,682,042 options
convertible into common shares (December 31, 2013 - 24,797,163 common shares and 1,838,117 options). Please
refer to Note 28 and Note 29 of the Audited Consolidated Annual Financial Statements for further detail. On January 6,
2015, we issued 1,103,081 common shares as partial consideration to Studon shareholders as part of our acquisition
of Studon. On January 15, 2015, we issued 88,515 shares pursuant to our Dividend Reinvestment Plan (“DRIP”). The
details pertaining to our DRIP are available on our website.
The $86.3 million of 6.0% convertible debentures issued in 2010 are convertible into 4,545,653 common shares, based
on a conversion price of $18.97 per share. Additionally, our $80.5 million of 6.0% convertible debentures issued in
2014 are convertible into 5,689,046 common shares, based on a conversion price of $14.15 per share.
At December 31, 2014, shareholders’ equity was $216.6 million, compared to $237.0 million at December 31, 2013.
This $20.4 million reduction resulted from the $13.1 million year-to-date net loss, a $3.2 million defined benefit plan
actuarial loss net of tax, and dividends declared of $12.0 million. These were partially offset by share capital increases
of $1.4 million and $2.0 million related to shares issued pursuant to the DRIP and the exercise of options, respectively,
and $4.6 million from the equity component of the 2014 convertible debentures.
DIVIDENDS
Declaration of Common Share Dividend
On March 10, 2015, our 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 15, 2015 to shareholders
of record on March 31, 2015. The declaration of this dividend reflects the Board of Directors’ confidence in our ability to
22 | 2014 ANNUAL REPORT MD&A
generate cash flows adequate to support our growth strategy, while providing a certain amount of income to our
shareholders.
We also maintain a DRIP, details of which are available on our website (www.stuartolson.com). Future dividend
payments may vary depending on a variety of factors and conditions, including overall profitability, debt service
requirements, operating costs and other factors affecting cash flow.
OFF-BALANCE SHEET ARRANGEMENTS
We had no off-balance sheet arrangements in place at December 31, 2014.
RELATED PARTY TRANSACTIONS
During the year ended December 31, 2014, we incurred facility costs of $0.3 million (2013 – $0.4 million) for the rental
of a building that is 50% owned by Schneider Investments Inc., a company owned by George Schneider, a Director of
Stuart Olson. No amounts are included in trade payables as at December 31, 2014 (2013 – $nil).
We incurred facility costs during the year ended December 31, 2014 of $0.3 million (2013 – $0.4 million) for the rental
of a building owned by Broda Holdings (2009) Inc. (Broda), a company owned by Gord Broda, the president of Broda,
a former subsidiary of the Company. No amounts are included in trade payables as at December 31, 2014 (2013 -
$nil). We reclassified these facility costs as discontinued operations in the consolidated statements of (loss) earnings.
On September 1, 2014, we completed the sale of Broda to TriWest Capital Partners and certain members of the senior
management team of Broda, for gross cash proceeds of $38.7 million. Gord Broda was the President of Broda at the
time of disposition and had an indirect interest in the entity that acquired Broda. Chad Danard, a Director of the
Company and a Managing Director of TriWest, did not participate in any discussions relating to the Broda disposition.
23 | 2014 ANNUAL REPORT MD&A
QUARTERLY FINANCIAL INFORMATION
The following table sets out our selected quarterly financial information for the eight most recent three-month quarters:
$millions, except per share amounts
Dec. 31
Sep. 30
Jun. 30 Mar. 31
Dec. 31
Sep. 30
Jun. 30 Mar. 31
2014 Quarter Ended:
2013 Quarter Ended(2):
364.5
350.4
322.9
268.5
283.6
274.8
266.0
227.5
Contract revenue
EBITDA(1)
Net earnings (loss) from continuing operations
12.0
1.2
10.9
2.8
9.9
1.8
Net (loss) earnings from discontinued operations
(0.7)
(15.7)
(1.9)
Net earnings (loss)
0.5
(12.9)
nil
8.9
1.3
(1.9)
(0.6)
Net earnings (loss) per common share
Basic from continuing operations
Basic earnings (loss) per share
Diluted from continuing operations
Diluted earnings (loss) per share
0.05
0.02
0.05
0.02
0.11
0.07
0.05
(0.52)
nil
(0.02)
0.11
0.07
0.05
(0.52)
nil
(0.02)
11.2
3.4
(0.1)
3.3
0.14
0.13
0.14
0.13
8.5
1.0
1.6
2.6
0.04
0.10
0.04
0.10
8.9
1.2
(0.7)
0.5
0.05
0.02
0.05
0.02
5.7
(0.9)
(0.3)
(1.2)
(0.04)
(0.05)
(0.04)
(0.05)
Notes:
(1) “EBITDA “is a non-IFRS measure, refer to “Non-IFRS Measures” for the definition.
(2) Amounts have been restated as a result of the reclassification of Broda to discontinued operations. See the “Discontinued Operations”
subsection of “Results of Operations by Business Group” of this MD&A and Note 13 of our December 31, 2014 Audited Consolidated
Annual Financial Statements.
Financial results improved in the second quarter of 2013 compared to the first quarter of 2013 as modestly better
Buildings Group results, consistent results from the Commercial Systems Group and strong operational results from
the Industrial Group lifted revenues and earnings.
A positive contribution from the Buildings Group, along with strong results from the Commercial Systems Group and
Industrial Group, increased revenue in the third quarter of 2013 relative to the second quarter of 2013; however,
increased administrative costs negatively impacted EBITDA and net earnings from continuing operations. Net earnings
improved in the quarter as a result of seasonal improvement in Broda’s operations, which are presented as
discontinued operations.
Financial results in the fourth quarter of 2013 improved compared to the third quarter of 2013 due to slightly increased
revenues in all segments and higher contract income margins in the Buildings Group and Commercial Systems Group.
First quarter 2014 financial results declined relative to the fourth quarter of 2013 as our business groups experienced
seasonal revenue declines quarter over quarter.
Financial results for the second quarter of 2014 increased compared to the first quarter of 2014, principally due to
strong revenue and margin in the Industrial Group and strong revenue growth in the Buildings Group, partially offset by
lower Buildings Group margins.
Financial results from continuing operations improved in the third quarter of 2014 compared to the second quarter of
2014 on increased revenue in all segments and higher margin in the Industrial Group and Commercial Systems Group.
Despite improved performance, we recognized a net loss for the quarter driven by an after-tax loss on disposal of
discontinued operations of $16.3 million.
24 | 2014 ANNUAL REPORT MD&A
Fourth quarter 2014 revenue and EBITDA modestly improved compared to the third quarter of 2014. Improved
Buildings Group performance more than offset the fourth quarter impact of seasonal declines in Industrial Group
revenue and higher costs associated with the Studon acquisition. Fourth quarter results from continuing operations
declined compared to the third quarter of 2014 due to a full quarter of interest on the 2014 convertible debentures and
write-downs on Buildings Group tenant improvements. Net earnings improved significantly quarter-over-quarter as the
third quarter loss on the disposal of Broda did not repeat in the fourth quarter.
For a more detailed discussion and analysis of quarterly results prior to December 31, 2014, please review our 2014
Interim and 2013 Annual and Interim Reports.
CRITICAL ACCOUNTING ESTIMATES
Our financial statements include estimates and assumptions made by management in respect to 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 our financial
condition and results of operations:
Convertible debentures;
Revenue recognition;
Estimates used to determine costs in excess of billings and contract advances;
Estimates in impairment of property and equipment, goodwill and intangible assets;
Estimates related to the useful lives and residual value of property and equipment;
Provisions for warranty work and legal contingencies;
Assumptions used in share-based payment arrangements;
Accounts receivable collectability; and
Measurement of defined benefit pension obligations.
Income taxes;
Convertible Debentures
Convertible debentures issued by Stuart Olson are a compound financial instrument 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.
Revenue Recognition
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.
25 | 2014 ANNUAL REPORT MD&A
The stage of completion is assessed by reference to the proportion that costs incurred to date bear to the estimated
total costs of completing the contract. 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 in contract costs.
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.
The Corporation recognizes revenue from the sale of materials that are fabricated to customer specifications under
specifically negotiated contracts.
Estimates Used to Determine Costs in Excess of Billings and Contract Advances
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 cost 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 12
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.
Estimates in Impairment of Property and Equipment, Goodwill and Intangible Assets
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 any 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
Buildings Group and Commercial Systems Group cash generating units (CGU) arose from the Seacliff acquisition in
2010. Additional goodwill was attributed to the Commercial Systems Group CGU through the McCaine acquisition in
2011. Industrial Group goodwill stems from the acquisition of Laird in 2003. Goodwill recognized on all of these
acquisitions was attributable mainly to the synergies achieved from the integration of the acquired company into
26 | 2014 ANNUAL REPORT MD&A
existing construction, commercial and industrial services. Any significant reduction in these estimates could result in an
impairment of goodwill. The calculated Business Enterprise Value for each of the CGUs incorporated the financial
projections set out in the respective CGU’s strategic plan reviewed by senior management and the Board of Directors
in December 2014. As of December 31, 2014, Stuart Olson’s goodwill was not impaired.
If an impairment loss results from the comparison of the recoverable amount of the CGU to carrying amount, then the
impairment loss is allocated first to goodwill and then to certain other assets of the CGU on a pro rata basis of the
carrying amount of each asset in the unit.
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.
Key Impairment Assessment Assumptions
The key assumptions in the value in use calculations to determine the recoverable amounts by CGU have been
prepared using a four-year discounted cash flow analysis with a terminal value. The financial projections used for the
discounted cash flow analysis were derived from our 2014 Strategic Plan, which was reviewed by senior management
and the Board of Directors in December 2014.
A four-year period for the discounted cash flow analysis was used as financial projections beyond a four-year time
period are generally best represented by a terminal value. This period is appropriate given the timing of 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% (2013 – 12%) and a steady annual growth of 2.0%
(2013 – 2.0%) in the terminal year. The same discount rate was used in each of the 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. That took into consideration market
rates of return, capital structure, company size, industry risk and after-tax cost of debt and equity.
Sensitivity of Impairment Assessment Assumptions
Buildings Group and Industrial Group: Management and the Board of Directors believe that any reasonable change to
the key assumptions used to determine this CGU’s recoverable amount would not cause its carrying value to exceed
its recoverable amount.
Commercial Systems Group: A 1.0% increase in the discount rate and no change in the annual growth would cause an
impairment charge of approximately $4.2 million. A decrease in growth rate of 1.0% and no change in the discount rate
would cause an impairment charge of approximately $1.6 million.
Estimates Related to the Useful Lives and Residual Value of Property and Equipment
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, any other costs directly attributable to bringing the assets to
working condition for their intended use, and the costs of dismantling and removing the items and restoring the site on
which they are located. 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.
27 | 2014 ANNUAL REPORT MD&A
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.
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.
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 us 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.
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 earnings (loss) 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 we 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
Land improvements
Buildings and improvements
Leasehold improvements
Construction equipment
Automotive equipment
Office furniture and equipment
Computer Hardware
Equipment components
Basis
Straight line
Straight line
Straight line
Straight line
Straight line
Straight line
Straight line
Straight line
Useful Life
30 years
10 to 25 years
Lesser of estimated useful life or lease term
5 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.
Income Taxes
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 our 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 position, may impact the income tax
expense category, as well as the income taxes recoverable, income taxes payable, deferred tax asset and deferred tax
liability categories.
Provisions for Warranty Work and Legal Contingencies
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 our obligation.
28 | 2014 ANNUAL REPORT MD&A
Provisions related to claims and disputes arising on our contracts are included in this category. The timing and
measurement of the related cash flows are, by their nature, uncertain and the amounts recorded reflect the best
estimate of the expenditure required to settle the obligations.
Assumptions Used in Share-Based Payment Arrangements
The grant date fair value of 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.
In April 2014, we issued three types of medium term share-based awards. These awards were issued substantially in
accordance with the Amended 2008 Executive Share Unit Plan and are classified as Bridging Restricted Share Units
(BRSU), Restricted Share Units (RSU) and Performance Share Units (PSU).
BRSUs are units that track the value of a common share and provide eligible participants with an equivalent cash
value of common shares. Each grant vests 20% in the first year, 30% in the second year, and the remaining 50% in
the third year.
RSUs are units that track the value of a common share and provide eligible participants with an equivalent cash value
of common shares. Each grant cliff vests at the end of three years.
PSUs are units that track the value of a common share and provide eligible participants with an equivalent cash value
of common shares. Each grant cliff vests at the end of three years, subject to certain performance criteria. We have set
the PSU performance criteria based on a Board approved corporate objective. When each grant vests at three years,
the payout can be 0% to 200% of the vested units, depending on our performance against the Board approved
corporate objective. Each grant of PSUs is individually evaluated regularly with regard to vesting and payout
assumptions.
We 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. 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.
We have a deferred share unit (“DSU”) plan which participants were previously entitled to a portion of their earnings.
As of January 1, 2013, employees were no longer able to contribute under the DSU plan. DSUs are units which
provide the holder 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 the
dividend reinvestment plan as they are paid.
Information about the vesting conditions for share-based payments is disclosed in Note 28 of the Consolidated Annual
Financial Statements.
Accounts Receivable Collectability
Accounts receivable collectability requires an assessment and estimation of the creditworthiness of the client, the
interpretation of specific contract terms, the strength of any security that we may have, and the timing of collection. An
29 | 2014 ANNUAL REPORT MD&A
allowance will be provided against any amount estimated to be uncollectible, and reflected as a bad debt expense.
Further information can be found in the Financial Instruments section of this report.
Measurement of Defined Benefit Pension Obligations
Fluctuations in the valuation of our defined benefit pension plans expose us 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.
CHANGES IN ACCOUNTING POLICIES
Future Changes in Accounting Standards
We have reviewed new and revised accounting pronouncements that have been issued, but are not yet effective. See
Note 4 to the Audited Consolidated Annual Financial Statements at December 31, 2014 for further information. We are
still evaluating the potential impact of future accounting standard changes on our financial reporting.
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, borrowings and any other amounts that will result in future cash outlays. The fair
value of our 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 our 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 financial instruments we use expose us to credit, interest rate and liquidity risks. Our Board of Directors has
overall responsibility for the establishment and oversight of our risk management framework and reviews corporate
policies on an ongoing basis. We do not actively use financial derivatives, nor do we hold or use any derivative
instruments for trading or speculative purposes.
We are exposed to credit risk through accounts receivable. This risk is minimized by the number of customers in
diverse industries and geographical centres. We further mitigate this risk by performing an assessment of our
customers as part of our work procurement process, including an evaluation of financial capacity.
Allowances are provided for potential 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. We take into consideration the customer’s payment history, credit worthiness and the
current economic environment in which the customer operates to assess impairment.
We establish a specific bad debt provision when we consider that the expected recovery will be less than the actual
account receivable. The provision for doubtful accounts has been included in administrative costs in the Consolidated
Statements of (Loss) Earnings and Comprehensive (Loss) Earnings, and is net of any recoveries that were provided
for in a prior period. Allowance for doubtful accounts as at December 31, 2014 was $2.1 million (December 31, 2013 -
$3.2 million).
30 | 2014 ANNUAL REPORT MD&A
In determining the quality of trade receivables, we consider any change in credit quality of customers from the date
credit was initially granted up to the end of the reporting period. As at December 31, 2014, we had $21.3 million of
trade receivables (December 31, 2013 - $20.6 million) which were greater than 90 days past due, with $19.2 million
not provided for as at December 31, 2014 (December 31, 2013 - $17.4 million). Of the total, $8.2 million (38.5%) was
concentrated in two customer accounts, and of this amount, $8.2 million remained outstanding as of March 10, 2015.
The two customers are considered to be credit-worthy and management is not concerned regarding collectability of
these accounts. Trade receivables are included in trade and other receivables on the Statement of Financial Position.
Financial risk is the risk to our earnings that arises from fluctuations in interest rates and the degree of volatility of
these rates. We do not use derivative instruments to reduce our exposure to this risk. At December 31, 2014, 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 $0.8 million (December 31, 2013 - $0.3 million) related to financial assets and by $nil
(December 31, 2013 - $0.4 million) related to financial liabilities.
Liquidity risk is the risk that we will encounter difficulties in meeting our financial obligations. We manage this risk
through cash and debt management. We invest our cash with the objective of maintaining safety of principal and
providing adequate liquidity to meet all current payment obligations. We invest cash and cash equivalents with
counterparties that are of high credit quality as assessed by reputable rating agencies. Given these high credit ratings,
we do not expect any counterparties to fail to meet their obligations. In managing liquidity risk, we have access to
committed short and long-term debt facilities as well as equity markets, the availability of which is dependent on
market conditions.
Under our risk management policy, derivative financial instruments are used only for risk management purposes and
not for generating trading profits.
Please refer to Note 31 of the December 31, 2014 Audited Consolidated Annual Financial Statements for further detail.
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 our 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 our disclosure controls and procedures. They are assisted in this responsibility by the Disclosure
Committee, which is composed of members of our senior management team.
An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures was carried
out under the supervision of our management, including our CEO and CFO, with oversight by the Board of Directors
and Audit Committee, as of December 31, 2014. Based on this evaluation, our CEO and CFO have concluded that the
design and operation of our 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, 2014.
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 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, and to provide reasonable assurance regarding the reliability of our financial reporting.
Under the oversight of the Board of Directors and our Audit Committee, our management, including our CEO and
CFO, evaluated the design and operation of our 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 (2013). The evaluation included documentation review, enquiries, testing and other procedures considered
31 | 2014 ANNUAL REPORT MD&A
by management to be appropriate in the circumstances. As at December 31, 2014, our CEO and CFO have concluded
that the design and operation of the internal controls over financial reporting as defined in NI 52-109, Certification of
Disclosure in Issuers’ Annual and Interim Filings was effective.
Material Changes to Internal Controls over Financial Reporting
There were no changes to our internal controls over financial reporting and the environment in which they operated
during the period beginning on January 1, 2014 and ending on December 31, 2014 that have materially affected or are
reasonably likely to materially affect our internal controls over financial reporting.
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”,
“active backlog”, “book-to-bill ratio”, “working capital”, “EBITDA”, “EBITDA margin”, “EBT”, “Long-term Indebtedness”,
“Indebtedness to Capitalization” and “Net Long-Term Indebtedness to EBITDA”. These measures are used by our
management to assist in making operating decisions and assessing performance. They are presented in this MD&A to
assist readers to assess the performance of Stuart Olson and our business groups. While we calculate 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 below.
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 to us for construction. 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.
32 | 2014 ANNUAL REPORT MD&A
Backlog and Active Backlog
Backlog means the total value of work, including work-in-hand, that has not yet been completed that (a) is assessed by
us as having high certainty of being performed by us or our subsidiaries by either the existence of a contract or work
order specifying job scope, value and timing, or (b) has been awarded to us or our 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 us as being
reasonably assured. Active backlog is the portion of backlog that is not work-in-hand (has not been contractually
awarded to us). We provide no assurance that clients will not choose to defer or cancel their projects in the future.
$millions
Work-in-hand
Active backlog
Backlog relating to continuing operations
Broda work-in-hand
Broda active backlog
Consolidated backlog
Dec. 31, 2014
Dec. 31, 2013
1,080.3
906.5
1,986.8
nil
nil
1,104.1
956.4
2,060.5
55.7
nil
1,986.8
2,116.2
Book-to-Bill Ratio
Book-to-bill ratio means the ratio of new projects added to backlog and increases in the scope of existing projects
(“book”) to revenue (“bill”), for continuing operations for a specified period of time (excluding backlog reductions for
divestitures). A book-to-bill ratio of above 1 implies that backlog additions were more than revenue for the specified
time period, while a ratio below 1 implies that revenue exceeded backlog additions for the period.
Working Capital
Working capital is current assets less current liabilities. The calculation of working capital is provided in the table
below:
$millions
Current assets
Current liabilities(1)
Working capital
Dec. 31, 2014
Dec. 31, 2013
501.6
(447.2)
54.4
367.3
(282.4)
84.9
Notes: (1) The 2010 convertible debentures are presented as a current liability of $84.8 million as at December 31, 2014, whereas, they were
presented as a non-current liability of $81.9 million as at December 31, 2013. If the 2010 convertible debentures were excluded from
working capital, adjusted December 31, 2014 working capital would have been $139.2 million (December 31, 2013 - $84.9 million).
EBITDA and EBT
During 2014, we revised our definition of EBITDA to exclude the impact of gains and losses on asset and investment
dispositions. The update has not had a material impact on the calculation of EBITDA in either the current year or 2013
comparatives.
We define EBITDA as net earnings/loss from continuing operations before interest expense, income taxes, capital
asset depreciation and amortization, impairment charges, and gains/losses on asset and investment dispositions. This
measure as reported by us may not be comparable to similar measures presented by other reporting issuers. We
define EBT as earnings/loss from continuing operations before income taxes.
33 | 2014 ANNUAL REPORT MD&A
While EBITDA is a common financial measure widely used by investors to facilitate an “enterprise level” valuation of an
entity, it does not have a standardized definition prescribed by IFRS, therefore other issuers may calculate EBITDA
differently. 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.
$millions
Net earnings from continuing operations
Add: Income tax expense
EBT
Add: Depreciation and amortization(2)
Finance costs
Loss (gain) on disposal of assets(2)
EBITDA
Three months ended
December 31
Year ended
December 31
2014
2013(1)
2014
2013(1)
1.2
1.2
2.4
5.8
3.8
nil
3.4
0.6
4.0
4.3
2.9
nil
12.0
11.2
7.1
4.1
11.2
17.5
12.9
0.1
41.7
4.6
2.0
6.6
16.1
11.6
(0.1)
34.2
Notes:
(1) Amounts have been restated as a result of the reclassification of Broda to discontinued operations. See the “Discontinued Operations”
subsection of “Results of Operations by Business Group” of this MD&A and Note 13 of our December 31, 2014 Audited Consolidated
Annual Financial Statements.
(2) Depreciation and amortization and loss on disposal of assets excludes amounts related to discontinued operations.
EBITDA Margin
EBITDA margin is the percentage derived from dividing EBITDA by contract revenue.
Long-term Indebtedness
Long-term indebtedness is the gross value of our indebtedness. It is calculated as the sum of the contractual cash flow
of long-term debt excluding interest (current and non-current portion of long-term debt, gross of deferred financing
fees) and principal value of convertible debentures.
Indebtedness to Capitalization
Indebtedness to capitalization is a percentage metric we use to measure our financial leverage. It is calculated as long-
term indebtedness by the sum of long-term indebtedness and total equity.
Net Long-Term Indebtedness to EBITDA
Net long-term indebtedness to EBITDA is a ratio used by us to measure our financial leverage. It is calculated as long-
term indebtedness less cash and cash equivalents, and the result divided by EBITDA for the trailing twelve months.
FORWARD-LOOKING INFORMATION
Certain information contained in this MD&A may constitute forward-looking information. This information relates to
future events or our 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. No assurance can be given that will prove to be correct and such information
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.
34 | 2014 ANNUAL REPORT MD&A
In particular, this MD&A contains forward-looking information, pertaining to the following:
Our capital expenditure program for 2015;
Our objective to manage our capital resources so as to ensure that we have sufficient liquidity to pursue
growth objectives, while maintaining a prudent amount of financial leverage;
Our belief that we have sufficient capital resources and liquidity, and ability to generate ongoing cash flows to
meet commitments, support operations, finance capital expenditures, support growth strategies and fund
declared dividends;
Those statements under the section entitled “Business Strategy”, including those relating to our focus on
growing revenue and earnings through organic growth, expanded geographical presence, acquisitions, and
our ability to achieve expectations pertaining to increasing our liquidity and reducing debt levels;
Our outlook on the business including, without limitation, those statements in the section entitled “Outlook”
relating to backlog execution, project mix and timing, earnings visibility, revenue, margin and the growth in oil
sands maintenance projects;
The Board’s confidence in our ability to generate sufficient operating cash flows to support management’s
business plans, including its growth strategy, while providing a certain amount of income to shareholders;
The Board’s intention to continue to pay a quarterly dividend;
The expectation that any of our business groups will improve or maintain their business prospects or continue
to grow their revenue, earnings, profitability and backlog in any manner whatsoever including, without
limitation, through margin expansion, organic growth, new project awards or productivity efficiencies;
Expectations regarding the ability of any of our business groups to add to or execute upon work-in-hand or
active backlog;
Expectations as to future general economic conditions and the impact those conditions may have on the
company and our businesses including, without limitation, the discussion under the heading entitled “Outlook”
pertaining to competition, government and institutional spending in Western Canada, the reaction of oil sands
owners to the recent decrease in oil prices, margin expansion in certain of our business groups, and our ability
to compete for projects;
Expectations regarding the ability of counterparties with whom we invest cash and equivalents to meet their
obligations; and
Our projected use of cash resources.
With respect to forward-looking information listed above and contained in this MD&A, we have made assumptions
regarding, among other things:
The expected performance of the global and Canadian economies and the effects thereof on our businesses;
The impact of competition on our businesses;
The global demand for oil and natural gas, its impact on commodity prices and its related effect on capital
investment projects in Western Canada; and
Government policies.
Our 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 slowdown in the United States;
Fluctuations in the price of oil, natural gas and other commodities;
Weak capital and/or credit markets;
Fluctuations in currency and interest rates;
Changes in laws and regulations;
35 | 2014 ANNUAL REPORT MD&A
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 our most recent Annual Information Form.
The forward-looking information contained in this MD&A is made as of the date hereof and we undertake 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.
Additional Information
Additional information regarding Stuart Olson, including our current Annual Information Form and other required
securities filings, is available on our website at www.stuartolson.com and under Stuart Olson’s SEDAR profile at
www.sedar.com.
36 | 2014 ANNUAL REPORT MD&A
MANAGEMENT’S REPORT
Management’s Responsibility for the Financial Statements
The management of Stuart Olson Inc. 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 LLP, whose report follows, were appointed as independent, external auditors by a vote of the Corporation’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.
David LeMay, MBA
President and Chief Executive Officer
Daryl E. Sands, CA
Executive Vice President Finance & Chief Financial Officer
March 10, 2015
37 | 2014 ANNUAL REPORT
INDEPENDENT AUDITOR’S REPORT
To the Shareholders of Stuart Olson Inc.:
We have audited the accompanying consolidated financial statements of Stuart Olson Inc., which comprise the
consolidated statements of financial position as at December 31, 2014 and December 31, 2013, the consolidated
statements of (loss) earnings and comprehensive (loss) earnings, consolidated statements of changes in equity and
consolidated statements of cash flow 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
Stuart Olson Inc. as at December 31, 2014 and December 31, 2013, and its financial performance and its cash flows
for the years then ended in accordance with International Financial Reporting Standards.
Chartered Accountants
March 10, 2015
Edmonton, Canada
38 | 2014 ANNUAL REPORT
STUART OLSON INC.
Consolidated Statements of (Loss) Earnings and Comprehensive (Loss) Earnings
For the years ended December 31, 2014 and 2013
(in thousands of Canadian dollars, except share and per share amounts)
Note
7
December 31,
2014
$
1,306,259
1,190,600
115,659
$
December 31,
2013 (1)
1,051,834
943,054
108,780
8
9
9
12
13
15
12
16
16
16
16
16
558
394
(92,530)
(12,866)
11,215
(6,930)
2,860
(4,070)
7,145
(20,224)
(13,079)
775
246
(91,624)
(11,576)
6,601
(1,153)
(833)
(1,986)
4,615
530
5,145
(4,293)
1,095
(3,198)
(16,277)
$
6,097
(1,549)
4,548
9,693
$
$
$
0.29
(0.81)
(0.52)
0.19
0.02
0.21
$
$
$
$
$
0.28
(0.81)
(0.53)
$
$
$
0.19
0.02
0.21
24,947,817
25,088,783
24,947,817
24,641,942
24,715,655
24,715,655
Contract revenue
Contract costs
Contract income
Other income
Finance income
Administrative costs
Finance costs
Earnings from continuing operations before tax
Income tax (expense) recovery
Current income tax
Deferred income tax
Net earnings from continuing operations
Net (loss) earnings from discontinued operations
Net (loss) earnings
Other comprehensive (loss) earnings
Items that will not be reclassified to net (loss) earnings
Defined benefit plan actuarial (loss) gain
Deferred tax recovery (expense) on other comprehensive (loss) earnings
Total comprehensive (loss) earnings
(Loss) earnings per share:
Basic from continuing operations
Basic from discontinued operations
Basic (loss) earnings per share
Diluted from continuing operations
Diluted from discontinued operations
Diluted (loss) earnings per share
Weighted average common shares:
Basic
Diluted from continuing operations
Diluted from discontinued operations
(1) Certain comparative amounts have been restated, refer to Note 13.
See accompanying notes to the consolidated financial statements.
39 | 2014 ANNUAL REPORT
STUART OLSON INC.
Consolidated Statements of Financial Position
As at December 31, 2014 and December 31, 2013
(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
Current portion of convertible debentures
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
See accompanying notes to the consolidated financial statements.
On behalf of the Board of Directors:
Albrecht W.A. Bellstedt
Chairperson
40 | 2014 ANNUAL REPORT
Note
December 31,
2014
December 31,
2013
$
36,236
262,836
11,362
2,426
48,455
5,470
75
436
367,296
6,157
175
13,881
76,341
179,016
51,810
694,676
190,363
80,708
3,987
4,823
2,559
-
282,440
3,639
4,892
50,335
81,855
28,646
5,911
457,718
129,134
5,128
7,100
8,594
87,002
236,958
694,676
$
$
$
17
18
19
14
20
12
21
22
23
24
19
25
26
27
15(b)
25
26
27
12
28(f)
29(a)
29(c)
27
28(c)
$
104,113
336,996
989
2,912
54,819
1,734
55
-
501,618
5,549
340
27,163
24,230
179,016
45,695
783,611
$
$
264,196
89,506
2,616
5,686
391
84,828
447,223
6,341
4,913
817
70,932
30,382
6,382
566,990
131,724
5,128
11,689
9,341
58,739
216,621
783,611
$
Rod Graham
Director
STUART OLSON INC.
Consolidated Statements of Changes in Equity
For the years ended December 31, 2014 and 2013
(in thousands of Canadian dollars)
Note
Share
Capital
129,134
$
Preferred
Share
Reserve
5,128
$
Convertible
Debentures
$
7,100
Share-Based
Payment
Reserve (1)
8,594
$
Balance at December 31, 2013
Net loss
Other comprehensive loss:
Defined benefit plan actuarial loss, net of tax
Total comprehensive loss
Transactions recorded directly to equity
Issued during the year
Common shares issued under stock option plan
Dividends
Balance at December 31, 2014
27
29(a), 28(c)
29(a, b)
1,234
1,356
131,724
$
4,589
747
$
5,128
$
11,689
$
9,341
Balance at December 31, 2012
Net earnings
Other comprehensive earnings:
Defined benefit plan actuarial gain, net of tax
Total comprehensive earnings
$
126,602
$
5,128
$
7,100
$
7,171
Transactions recorded directly to equity
Common shares issued under stock option plan
Dividends
Balance at December 31, 2013
(1) This table includes both continuing and discontinued operations.
See accompanying notes to the consolidated financial statements.
29(a), 28(c)
29(a, b)
894
1,638
129,134
$
$
5,128
$
7,100
$
8,594
1,423
Retained
Earnings (1)
87,002
$
(13,079)
Total
Equity
236,958
(13,079)
$
(3,198)
(16,277)
(3,198)
(16,277)
4,589
1,981
(10,630)
216,621
$
(11,986)
58,739
$
$
89,149
5,145
$
235,150
5,145
4,548
9,693
4,548
9,693
(11,840)
87,002
$
2,317
(10,202)
236,958
$
41 | 2014 ANNUAL REPORT
STUART OLSON INC.
Consolidated Statements of Cash Flow
For the years ended December 31, 2014 and 2013
(in thousands of Canadian dollars)
OPERATING ACTIVITIES
Net (loss) earnings
Depreciation and amortization
Impairment loss on property and equipment
Loss (gain) on disposal of assets
Loss on disposal of discontinued operation, net of tax
Share-based compensation expense
Income tax (recovery) expense
Finance costs
Contributions to employee benefits
Payment of share-based payment liability
Change in provisions
Change in non-cash working capital balances
Cash generated in operating activities
Interest paid
Income taxes (paid) received
Net cash generated in operating activities
INVESTING ACTIVITIES
Additions to long-term receivable
Proceeds on disposal of assets
Additions to intangible assets
Additions to property and equipment
Net cash generated (used) in investing activities
FINANCING ACTIVITIES
Change in service provider deposit
Proceeds of long-term debt
Repayment of long-term debt
Issuance of convertible debenture
Issuance of common shares
Dividend paid
Net cash generated (used) in financing activities
Increase in cash and cash equivalents during the year
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
(1) This table includes both continuing and discontinued operations.
See accompanying notes to the consolidated financial statements.
42 | 2014 ANNUAL REPORT
Note
10
21
13
28(g)
12,13
9, 13
25
30
23
20
26
26
27
29(b)
December 31,
2014 (1)
December 31,
2013 (1)
$
(13,079)
19,498
2,596
2,226
16,842
3,527
(141)
13,051
(1,591)
(1,611)
(1,350)
(4,871)
35,097
(8,962)
(2,948)
23,187
$
5,145
22,507
-
(56)
-
5,721
1,893
11,576
(1,083)
(1,340)
(2,020)
(7,011)
35,332
(8,239)
1,645
28,738
(145)
39,993
(1,558)
(8,312)
29,978
25
589
(1,096)
(9,597)
(10,079)
608
417,500
(470,289)
76,623
869
(10,599)
14,712
67,877
36,236
104,113
$
(2,149)
294,500
(298,998)
-
616
(10,166)
(16,197)
2,462
33,774
36,236
$
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(in thousands of Canadian dollars, except share and per share amounts)
1. REPORTING ENTITY
Stuart Olson Inc., formerly The Churchill Corporation, changed its name and was rebranded on May 22, 2014. The
entity 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 Stuart Olson Inc. and its
subsidiaries (collectively, the “Corporation”) are to provide building construction, commercial electrical and data
systems contracting, industrial insulation contracting, industrial electrical and instrumentation contracting, and related
services within Canada.
The Corporation’s head office and its principal address is #600, 4820 Richard Road S.W., Calgary, Alberta, Canada,
T3E 6L1. The registered and records office of the Corporation 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 10, 2015.
(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.
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.
43 | 2014 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(in thousands of Canadian dollars, except share and per share amounts)
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 are related to:
Convertible debentures – judgments applied to determine the classification of debt and equity components of
convertible debentures (Note 27); judgments applied in the selection of comparable marketable debentures used
in the calculation of the fair value of the liability component of convertible debentures (Note 31(b)); and
Income taxes – judgments applied to determine the likelihood of future taxable profits that will be sufficient to
permit the recovery of deferred income tax assets (Note 12); judgments exercised in the assessment of continually
changing tax interpretations, regulations, and legislations.
Information about assumptions and estimation uncertainties that have a significant risk of resulting in material
adjustments within the next financial year are 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 (Note 7). In
addition, estimates are used to determine variations, claims and incentives included in contract values.
Estimates used to determine costs in excess of billings and contract advances (Note 19)
Estimates used to determine allowance for doubtful accounts (Note 18 and 31(c)(i))
Measurement of defined benefit pension obligations (Note 15)
Property and equipment – estimates related to the useful lives and residual values of assets (Note 21)
Estimates in impairment of property and equipment, goodwill, and intangible assets (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). Control exists when the Corporation has the power, directly or indirectly, to govern
the financial and operating policies of an entity so as to obtain benefit from its activities. All subsidiary companies are
wholly owned and inter-company balances, transactions, revenues and expenses have been eliminated on
consolidation. The Corporation recognizes the assets, liabilities, revenues, and expenses relating to its interest in a
joint operation in accordance with the IFRSs applicable to the particular assets, liabilities, revenues and expenses.
Accounting policies have been applied consistently by the subsidiaries of the Corporation.
44 | 2014 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(in thousands of Canadian dollars, except share and per share amounts)
(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 paid by the Corporation in exchange for control of the acquiree. Acquisition-related
costs are 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,
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 arrangements
The classification of joint arrangements is determined based on the rights and obligations of parties involved by
considering the structure, the legal form of the arrangements, the contractual terms agreed by the parties to the
arrangement, and, when relevant, other facts and circumstances. A joint operation is a joint arrangement whereby the
parties that have joint control of the arrangement (i.e. joint operators) have rights to the assets, and obligations for the
liabilities, relating to the arrangement. A joint venture is a joint arrangement whereby the parties that have joint control
of the arrangement (i.e. joint venturers) have rights to the net assets of the arrangement.
The initial and subsequent accounting of joint ventures and joint operations is different. Investments in joint ventures
are accounted for using the equity method. Investments in joint operations are accounted for such that each joint
operator recognizes its assets (including its share of any assets jointly held), its liabilities (including its share of any
liabilities incurred jointly), its revenue (including its share of revenue from the sale of the output by the joint operation)
and its expenses (including its share of any expenses incurred jointly). Each joint operator accounts for the assets and
liabilities, as well as revenue and expenses, relating to its interest in the joint operation in accordance with the
applicable IFRSs.
The Corporation’s existing joint arrangements have been classified as joint operations.
45 | 2014 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(in thousands of Canadian dollars, except share and per share amounts)
(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 that internal reports about components of the
Corporation 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.
(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 completing the contract. 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 in contract costs.
(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.
(iii) Sale of goods
The Corporation recognizes revenue from the sale of materials that are fabricated to customer specifications under
specifically negotiated contracts.
46 | 2014 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(in thousands of Canadian dollars, except share and per share amounts)
(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) earnings.
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 earnings (loss) 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
arrangements, 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.
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 profits 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.
47 | 2014 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(in thousands of Canadian dollars, except share and per share amounts)
(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.
Pension costs are actuarially determined using the projected unit credit method and management’s best estimate of
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 AA-rated corporate bond yields at the measurement date. 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 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) earnings
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.
48 | 2014 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(in thousands of Canadian dollars, except share and per share amounts)
(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 Medium Term Incentive Plans (MTIPs)
and Deferred Share 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 provide the related service and directors 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. Information about vesting conditions for share-based payments is disclosed
in Note 28.
(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 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
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 financial
instruments were acquired and their characteristics. Except in very limited circumstances, the classification is not
changed subsequent to initial recognition.
(i) Financial assets
Based on their nature, the Corporation has the following classifications for its 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.
49 | 2014 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(in thousands of Canadian dollars, except share and per share amounts)
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. As at December 31, 2014, the Corporation did not have any outstanding financial derivatives.
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 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 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.
50 | 2014 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(in thousands of Canadian dollars, except share and per share amounts)
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) earnings, 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:
Financial assets:
Cash and cash equivalents
Trade and other receivables
Service provider deposit
Current and long-term receivable
Financial liabilities:
Classification
Measurement
Loans and receivables Amortized cost
Loans and receivables Amortized cost
Available-for-sale
Loans and receivables Amortized cost
Fair value
Other liabilities
Trade and other payables
Current and long-term debt
Other liabilities
Convertible debentures - debt component, including current portion Other liabilities
Amortized cost
Amortized cost
Amortized cost
(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.
51 | 2014 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(in thousands of Canadian dollars, except share and per share amounts)
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.
(i)
Inventory
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.
For the year ended December 31, 2013 and nine month period ended September 30, 2014, the Corporation produced
ballast through rock crushing services undertaken by Broda Construction Inc. (Broda), a former subsidiary of the
Corporation that was sold on September 1, 2014 (Note 13). 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
did not include profit margins or non-attributable overheads. During the year, the Corporation expensed $nil (2013 -
$7,311) of inventory through contract costs.
(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 cost 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 12
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.
52 | 2014 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(in thousands of Canadian dollars, except share and per share amounts)
(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 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.
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.
53 | 2014 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(in thousands of Canadian dollars, except share and per share amounts)
The estimated useful lives are as follows:
Asset
Land improvements
Buildings and improvements
Leasehold improvements
Construction equipment
Automotive equipment
Office furniture and equipment
Computer hardware
Equipment components
Basis
Straight line
Straight line
Straight line
Straight line
Straight line
Straight line
Straight line
Straight line
Useful Life
30 years
10 to 25 years
Lesser of estimated useful life or lease term
5 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 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, trade names 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.
Asset
ERP
Backlog and agency contracts
Customer relationships
Tradenames
Computer software
Basis
Straight line
As related revenue is earned
Straight line
Straight line
Straight line
Useful Life
12 years
1 to 3 years
5 to 15 years
5 to 15 years
1 to 3 years
(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.
54 | 2014 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(in thousands of Canadian dollars, except share and per share amounts)
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.
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.
55 | 2014 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(in thousands of Canadian dollars, except share and per share amounts)
An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognized in
prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists.
An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount.
An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying
amount that would have been determined, net of depreciation or amortization, if no impairment loss had been
recognized.
(o) Assets held-for-sale and discontinued operations
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.
Individual non-current assets or disposal groups are classified and presented as discontinued operations if the assets
or disposal groups are disposed of or classified as held-for-sale. The assets or disposal groups must meet the
following criteria: the assets or disposal groups represent a major line of business or geographical area of operations,
and the assets or disposal groups are part of a single coordinated plan to dispose of a separate major line of business
or geographical area of operations, or the assets or disposal groups are a subsidiary acquired solely for the purpose of
resale. The results of discontinued operations are shown separately in the consolidated statements of (loss) earnings,
comprehensive (loss) earnings and cash flows, and comparative figures are restated.
(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.
56 | 2014 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(in thousands of Canadian dollars, except share and per share amounts)
(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.
(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 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) Other comprehensive (loss) earnings and retained earnings
The Corporation applies the standard for reporting and displaying other comprehensive (loss) earnings, defined as
revenue, expenses and gains and losses which, in accordance with primary sources of IFRS, are recognized in
comprehensive (loss) earnings but excluded from net (loss) earnings. Items that would be reclassified into profit or loss
in the future, if certain conditions are met, are presented separately.
57 | 2014 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(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 15 – Revenue from Contracts with Customers
In May 2014, the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board
(FASB) jointly issued IFRS 15, which supersedes IAS 11 – Construction Contracts and IAS 18 – Revenue, and related
interpretations. The core principle of the new standard is for companies to recognize revenue to depict the transfer of
goods or services to customers in amounts that reflect the consideration to which the company expects to be entitled
in exchange for those goods or services. The new standard will also result in enhanced disclosures about revenue,
provide guidance for transactions that were not previously addressed comprehensively, and improve guidance for
multiple-element arrangements. IFRS 15 is effective for annual periods beginning on or after January 1, 2017. The
Corporation is currently evaluating the impact of this standard to its consolidated financial statements.
(b) IFRS 9 – Financial instruments
In July 2014, the IASB issued the final version of IFRS 9 to replace IAS 39 – Financial Instruments: Recognition and
Measurement. IFRS 9 introduces a logical approach for the classification of financial assets, which is driven by cash
flow characteristics and the business model in which an asset is held. This single principle-based approach replaces
existing rule-based requirements that are generally considered to be overly complex and difficult to apply. The new
model also results in a single impairment model being applied to all financial instruments, thereby removing a source
of complexity associated with previous accounting requirements. IFRS 9 introduces a new, expected-loss impairment
model that will require more timely recognition of expected credit losses. Specifically, the new standard requires
entities to account for expected credit losses from when financial instruments are first recognized and to recognize full
lifetime expected losses on a timelier basis. IFRS 9 is effective for annual periods beginning on or after January 1,
2018. The Corporation is currently evaluating the impact of this standard on its consolidated financial statements.
5. 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: Buildings
Group (formerly General Contracting), Industrial Group (formerly Industrial Services), Commercial Systems Group and
Corporate Group (formerly Corporate and Other). The accounting policies and practices for each of the segments are
the same as those described in Note 3. Segment capital expenditures are the total cost incurred during the year to
acquire property and equipment and intangible assets.
Buildings Group – The Buildings Group consists of Stuart Olson Buildings Ltd. (previously Stuart Olson Dominion
Construction Ltd.). It is headquartered in Calgary, Alberta and operates through branch offices in Western Canada and
Ontario. Projects undertaken by the Buildings Group include the construction, expansion or renovation of buildings for
private and public sector clients in the commercial, light industrial and institutional sectors.
Industrial Group – The Industrial Group consists of Stuart Olson Industrial Inc. (previously Churchill Services Group
Inc.). It operates under the endorsed brands of Laird Electric Inc. (Laird), Fuller Austin Inc. (Fuller Austin), Lakehead
Insulation Inc. (Lakehead Insulation), Sigma Power Services Inc. (Sigma Power), Northern Industrial Insulation
Contractors Inc. (Northern) and Stuart Olson Industrial Constructors Inc. It serves clients in a wide range of industrial
sectors including oil and gas, petrochemical, refinery, mining, pulp and paper and power generation industries.
Construction services provided by the Industrial Group include mechanical, insulation installation, industrial metal
siding and cladding, heating, ventilating and air conditioning (HVAC) manufacturing, asbestos, abatement, industrial
electrical instrumentation and power line construction and maintenance services.
58 | 2014 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(in thousands of Canadian dollars, except share and per share amounts)
Commercial Systems Group – The Commercial Systems Group operates under the Canem brand and provides its
services throughout Western Canada. It designs, builds and installs a building’s core electrical infrastructure. It also
provides the services and systems that support information management, building systems integration, energy
management, green data centres, security and risk management and lifecycle services.
Corporate Group – The Corporate Group includes corporate costs not allocated directly to another reporting segment
and any miscellaneous investments. It provides strategic direction, operating advice, financing, infrastructure services
and management of public company requirements to each of its reporting segments.
A significant customer is one that represents greater than 10% or more of contract revenue earned during the year.
For the year ended December 31, 2014, the Corporation had revenue of $147,630 from one significant customer of the
Buildings Group (2013 – $109,841 from one customer of the Buildings Group), and $163,727 from one significant
customer of the Industrial Group (2013 – no significant customer from the Industrial Group).
For the year ended
December 31, 2014
Contract revenue
EBITDA (1)
Depreciation and amortization
Impairment loss on property and equipment
Loss (gain) on sale of assets
Finance costs
Earnings (loss) from continuing operations before tax
Income tax expense
Net earnings from continuing operations
Goodwill and intangible assets
Capital and intangible expenditures
Total assets
Total liabilities
$
Buildings
Group
693,653
12,040
3,491
2,596
65
-
5,888
$
Industrial
Group
407,781
36,088
2,552
-
76
55
33,405
$
$
$
Commercial
Systems
Group
242,275
19,367
1,620
-
(39)
-
17,786
$
$
Group
-
$
(24,722)
7,009
-
Corporate Intersegment
Eliminations
(37,450)
(1,101)
211
-
-
-
(1,312)
10
12,811
(44,552)
$
$
$
$
$
$
124,173
670
408,180
292,293
$
$
$
$
7,705
1,448
141,161
45,848
$
$
$
$
74,600
1,904
132,762
56,451
$
$
$
$
18,233
3,043
435,308
190,982
-
$
$
-
$
$
(333,800)
(18,584)
$
Total
1,306,259
41,672
14,883
2,596
112
12,866
11,215
(4,070)
7,145
224,711
7,065
783,611
566,990
$
$
$
$
$
$
Commercial
Systems
Group
213,740
19,282
1,618
(11)
-
17,675
$
$
$
Industrial
Group
358,887
26,017
2,463
(42)
53
23,543
Buildings
Group
507,967
7,255
3,855
21
134
3,245
For the year ended
December 31, 2013 (2)
Contract revenue
EBITDA (1)
Depreciation and amortization
Loss (gain) on sale of assets
Finance costs
Earnings (loss) from continuing operations before tax
Income tax expense
Net earnings from continuing operations
Goodwill and intangible assets
Capital and intangible expenditures
Total assets
Total liabilities
(1) The Corporation defines EBITDA as net earnings/loss from continuing operations before interest expense, income taxes, capital asset depreciation and amortization,
impairment charges, and gains/losses on asset and investment dispositions. While EBITDA is a common financial measure widely used by investors to facilitate an “enterprise
level” valuation of an entity, it does not have a standardized definition prescribed by IFRS, and therefore other issuers may calculate it differently.
(2) Certain comparative amounts have been restated, refer to Note 13. Broda Construction Inc. previously operated under the Industrial Group.
Corporate Intersegment
Eliminations
(28,760)
813
211
-
-
602
Total
1,051,834
34,229
16,084
(32)
11,576
6,601
(1,986)
4,615
230,826
14,715
694,676
457,718
Group
-
$
(19,138)
7,937
-
11,389
(38,464)
$
-
$
-
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
77,404
1,097
126,957
55,025
126,165
1,556
323,834
199,864
7,822
10,922
172,246
61,027
19,435
1,140
404,853
160,724
(333,214)
(18,922)
$
$
$
$
$
$
$
$
59 | 2014 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(in thousands of Canadian dollars, except share and per share amounts)
6. JOINT ARRANGEMENTS
The Corporation and its subsidiaries have the following significant interests in joint operations:
Name of Joint Operation
Acciona Stuart Olson Joint Venture
Kwanlin Dun First Nation - Yukon Corrections Institution JV
Kwanlin Dun First Nation - Whitehorse Cultural Centre JV
KDM-SOD Joint Venture Inc.
Principal Activity
Building Construction
Building Construction
Building Construction
Building Construction
Place of
Incorporation or
Operation
British Columbia
Yukon
Yukon
Saskatchewan
Proportion of
Ownership Interest
50%
90%
51%
49%
During the year ended December 31, 2014, the Stuart Olson/Con-Forte JV Ltd. joint operation was dissolved.
These consolidated financial statements include the Corporation’s share of assets, liabilities, revenue, expenses, net
income and cash flow of the joint operations as follows:
December 31,
2014
2,867
234
$
December 31,
2013
3,177
563
$
December 31,
2014
299
232
$
December 31,
2013
2,447
620
$
December 31,
2014
(250)
$
December 31,
2013
(168)
$
$
$
December 31,
2014
1,184,594
120,768
897
1,306,259
December 31,
2013 (1)
844,949
205,447
1,438
1,051,834
$
$
Current assets
Current liabilities
Contract income
Contract costs and expenses
Cash flow used in operating activities
7. REVENUE
Construction contract revenue
Service contract revenue
Sale of goods
Total revenue
(1) Certain comparative amounts have been restated, refer to Note 13.
60 | 2014 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(in thousands of Canadian dollars, except share and per share amounts)
8. OTHER INCOME
(Loss) gain on sale of assets
Discounts
Rebates, interest refunds and other
Other income
(1) Certain comparative amounts have been restated, refer to Note 13.
9. FINANCE INCOME AND COSTS
The finance income and costs recognized in profit or loss consists of the following:
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
(1) Certain comparative amounts have been restated, refer to Note 13.
$
$
December 31,
2014
(112)
52
618
558
December 31,
2013 (1)
32
53
690
775
$
$
December 31,
2014
394
-
394
$
December 31,
2013 (1)
243
3
246
$
$
$
2,031
202
689
6,544
2,564
836
12,866
2,607
457
633
5,175
2,082
622
11,576
$
$
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
$
$
394
8,777
$
$
246
8,239
61 | 2014 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(in thousands of Canadian dollars, except share and per share amounts)
10. DEPRECIATION AND AMORTIZATION
Depreciation of property and equipment
Amortization of intangible assets
Total depreciation and amortization expense
$
(1) Certain comparative amounts have been restated, refer to Note 13. Included in discontinued operations is $4,615 (2013 -
$6,423) of depreciation and amortization.
$
$
$
December 31,
2014 (1)
7,582
7,301
14,883
December 31,
2013 (1)
7,953
8,131
16,084
Of the depreciation of property and equipment during the year ended December 31, 2014, $3,435 (2013 - $3,886) has
been included in contract costs and the remainder in administrative costs in the consolidated statements of (loss)
earnings. Amortization of intangible assets is included in administrative costs in the consolidated statements of (loss)
earnings.
11. PERSONNEL EXPENSES AND EMPLOYEE BENEFITS
Short-term employee benefits
Employee share purchase plan expenses
Employee retirement matching contributions
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
(1) Certain comparative amounts have been restated, refer to Note 13.
$
$
December 31,
2014
465,922
3,167
3,433
1,345
1,112
2,262
477,241
December 31,
2013 (1)
391,988
3,143
2,724
2,083
1,701
2,432
404,071
$
$
Of the personnel expenses and employee benefits in the table above, $425,754 was included in contract costs (2013 -
$355,299) and $51,487 in administrative costs (2013 - $48,772) for the year ended December 31, 2014. Short-term
employee benefits consist primarily of salaries and bonuses.
Key management personnel consists of the Corporation’s named executive officers. Their remuneration during the
year was as follows:
Short-term benefits
Share-based payments (1)
December 31,
2014
3,963
1,174
5,137
$
$
December 31,
2013
3,578
2,258
5,836
$
$
(1) Share-based payments include equity-settled and cash-settled share-based payments.
The remuneration of key management is recommended to the Board for approval by the Human Resources and
Compensation Committee of the Board of Directors (HRCC).
62 | 2014 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(in thousands of Canadian dollars, except share and per share amounts)
12. INCOME TAXES
Income tax recognized in the consolidated statements of (loss) earnings:
Current income tax expense
Current year
Adjustment relating to prior years
Deferred income tax recovery (expense)
Origination and reversal of temporary differences
Impact of changes in tax rates
Adjustment relating to prior years
Income tax expense
(1) Certain comparative amounts have been restated, refer to Note 13.
Reconciliation of effective tax rate:
December 31,
2014
December 31,
2013 (1)
$
(6,826)
(104)
(6,930)
$
(625)
(528)
(1,153)
3,109
(103)
(146)
2,860
(4,070)
$
(2,068)
551
684
(833)
(1,986)
$
The Corporation’s consolidated income tax expense differs from the provision computed at the statutory rates as
follows:
Net earnings from continuing operations before tax
Income tax at statutory rate of 25.3% (2013 - 25.5%)
Statutory and other rate differences
Non-deductible expenses
Non-taxable accounting income
Other
Income tax expense
(1) Certain comparative amounts have been restated, refer to Note 13.
December 31,
2014
11,215
$
December 31,
2013 (1)
6,601
$
(2,837)
(103)
(951)
59
(238)
(4,070)
$
(1,683)
506
(802)
7
(14)
(1,986)
$
The Corporation's statutory tax rate of 25.3% in 2014 (2013 – 25.5%) is the combined Canadian federal and provincial
tax rates in the jurisdictions in which the Corporation operates. The rate decrease for 2014 is due to an increased
proportion of the year’s (loss) earnings in provinces with lower corporate tax rates.
63 | 2014 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(in thousands of Canadian dollars, except share and per share amounts)
The deferred tax assets and liabilities are comprised of the following:
Deferred tax assets
Tax loss carry forwards
Equipment and other assets
Intangible assets
Pension and other compensation
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,
2014
December 31,
2013
$
18,202
1,060
23
769
5,441
1,493
175
27,163
$
6,362
(3,371)
10
(47)
8,340
1,888
699
13,881
1,757
(121)
(10,913)
2,672
(616)
(21,612)
428
(1,977)
(30,382)
3,676
(4,543)
(12,564)
2,600
(616)
(17,446)
641
(394)
(28,646)
Net deferred income tax liability
$
(3,219)
$
(14,765)
All deferred tax asset positions recognized by the Corporation are supported by either the reversal of existing taxable
temporary differences or forecasted future taxable profits in excess of the deductible temporary difference. The
Corporation has unrecognized non-capital loss carryforwards of $1,382 (2013 – $1,394) for which no deferred income
tax asset could be recognized, which remain available to reduce future taxable income.
64 | 2014 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(in thousands of Canadian dollars, except share and per share amounts)
A continuity of the net deferred tax asset (liability) is as follows:
2014
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
Less: recognized in discontinued operations
Recognized in continuing operations
2013
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
Less: recognized in discontinued operations
Recognized in continuing operations
$
Asset (liability)
January 1,
2014
10,038
(7,914)
(12,554)
2,553
(616)
(9,106)
2,529
305
(14,765)
$
Asset (liability)
January 1,
2013
8,830
(7,148)
(14,011)
3,647
(620)
(6,928)
2,877
(191)
(13,544)
$
Recovery
(expense)
recognized in
profit or loss
9,921
4,732
1,664
(207)
-
(7,100)
(608)
(577)
7,825
(4,965)
2,860
$
Recovery
(expense)
recognized in
profit or loss
1,208
(766)
1,457
455
4
(2,178)
(348)
496
328
(1,161)
(833)
$
Recovery
(expense)
$
Liability
recognized in disposed of in
Broda sale
-
4,121
-
-
-
$
OCI
-
-
-
1,095
-
-
-
-
1,095
35
-
-
4,156
$
$
$
Recovery
(expense) Asset (liability)
recognized in December 31,
2014
19,959
939
(10,890)
3,441
(616)
(16,171)
1,921
(1,802)
(3,219)
equity
-
-
-
-
-
-
-
(1,530)
(1,530)
$
$
$
$
$
$
$
$
$
$
Recovery
(expense)
recognized in
OCI
-
-
-
(1,549)
-
-
-
-
(1,549)
Liability
disposed of in
Broda sale
-
-
-
-
-
-
-
-
-
Recovery
(expense)
recognized in
equity
-
-
-
-
-
-
-
-
-
Asset (liability)
December 31,
2013
10,038
(7,914)
(12,554)
2,553
(616)
(9,106)
2,529
305
(14,765)
$
$
$
$
$
$
The Corporation has accumulated net capital losses for income tax purposes of $21,277 (2013 - $nil) which may be
carried forward indefinitely to reduce future capital gains. The value of these losses has not been recognized in these
consolidated financial statements.
The Corporation has accumulated non-capital losses for income tax purposes of $77,586 (2013 - $37,554), which
expire as follows:
Expiration of accumulated non-capital losses:
2015
2026
2027
2028
2029
2031
2032
2033
2034
65 | 2014 ANNUAL REPORT
$
202
200
425
227
160
6,972
20,938
8,213
40,249
77,586
$
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(in thousands of Canadian dollars, except share and per share amounts)
13. DISCONTINUED OPERATIONS
On September 1, 2014, the Corporation completed the sale of Broda Construction Inc. (Broda) to TriWest Capital
Partners and certain members of the senior management team of Broda for gross cash proceeds of $38,693. Broda
operated under the Industrial Group segment. Details of the sale are as follows:
Gross proceeds on disposal
Carrying value of Broda
Transaction costs
Loss on disposal before tax
Income tax recovery
Net loss on disposal of discontinued operations
$
$
38,693
(57,950)
(922)
(20,179)
3,337
(16,842)
Net loss from discontinued operations reported in the consolidated statements of net (loss) earnings is as follows:
Contract revenue
Contract costs
Contract income
Other (expense) income
Finance income
Administrative costs
Finance costs
(Loss) earnings from discontinued operations
Income tax recovery
Net loss on disposal of discontinued operations
Net (loss) earnings from discontinued operations
$
$
December 31,
2014
30,094
28,832
1,262
(1,883)
16
(3,466)
(185)
(4,256)
874
(16,842)
(20,224)
December 31,
2013
54,635
49,516
5,119
43
13
(4,466)
-
709
93
(272)
530
$
$
Cash flows from discontinued operations reported in the consolidated statements of cash flows are as follows:
Operating cash flows
Investing cash flows
Financing cash flows
December 31,
2014
(3,521)
(1,442)
4,811
$
$
$
December 31,
2013
15,160
(6,758)
(8,286)
$
$
$
As part of the purchase and sale agreement the financial records of Broda have been audited. Adjustments resulting
from the audit have been made to the purchase price which affects the net loss on disposal of discontinued operations
and the closing statement of financial position.
66 | 2014 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(in thousands of Canadian dollars, except share and per share amounts)
14. ASSETS HELD-FOR-SALE
During the year ended December 31, 2013, the Corporation had an asset held-for-sale of $436 that consisted of
agricultural land. The asset no longer meets the criteria for an asset held-for-sale as at December 31, 2014 and has
been reclassified as property and equipment (Note 21).
15. EMPLOYEE BENEFITS
(a) Short-term employee benefits
Contributions made by the Corporation during the year ended December 31, 2014 to the ESPP were $3,167 (2013 -
$3,143) (Note 11).
(b) Post-employment benefits
Registered Retirement Savings Plan (RRSP)
Contributions made by the Corporation during the year ended December 31, 2014 to the RRSP were $3,433 (2013 -
$2,724) (Note 11).
Defined Contribution Pension Plans (DC)
The total expense recognized in the consolidated statements of (loss) earnings and comprehensive (loss) earnings of
$447 (2013 – $429) represents contributions paid to these plans by the Corporation at rates specified in the rules of
the plans.
Defined Benefit Pension Plans (DB)
The Corporation maintains two non-contributory DBs that cover salaried employees for two of its operating entities.
Annual employer contributions to the DB, determined by an independent actuary, meet 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
Fair market value of plan assets:
Equity securities
Debt securities
67 | 2014 ANNUAL REPORT
$
December 31,
2014
35,417
29,076
6,341
$
December 31,
2014
11,412
17,664
29,076
$
$
$
December 31,
2013
29,618
25,979
3,639
$
December 31,
2013
10,667
15,312
25,979
$
$
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(in thousands of Canadian dollars, except share and per share amounts)
Reconciliation of amounts in the financial statements:
December 31,
2014
December 31,
2013
$
$
Accrued benefit obligation
Balance, beginning of year
Employer current service cost
Employee contributions
Interest cost on the defined benefit obligation
Benefit payments
Actuarial loss (gain) due to experience adjustments
Actuarial loss due to changes in demographic assumptions
Actuarial loss (gain) due to changes in financial assumptions
Balance, end of year
Fair value of plan assets
Balance, beginning of year
Employer contributions
Employee contributions
Interest income on plan assets
Actuarial gain on plan assets, excluding interest income
Benefit payments
Administration costs
Balance, end of year
Net pension liability
Funded status - deficit
29,618
595
107
1,388
(1,815)
657
1,135
3,732
35,417
25,979
2,609
107
1,242
1,231
(1,815)
(277)
29,076
32,746
980
158
1,269
(1,281)
(58)
-
(4,196)
29,618
21,926
2,756
159
864
1,843
(1,281)
(288)
25,979
$
$
December 31,
2014
December 31,
2013
$
$
$
$
December 31,
2014
6,341
6,341
$
$
December 31,
2013
3,639
3,639
$
$
For the year ended December 31, 2014, an amount of $1,019 (2013 - $1,673) was recorded in administrative costs in
net (loss) earnings, and a loss of $4,293 (2013 – gain of $6,097), before tax, was recorded in other comprehensive
(loss) earnings in relation to the DB plans. This loss relates to a decrease in the discount rates and a change in the
market value of the assets, which are both as at December 31, 2014.
Actuarial assumptions:
Discount rate on net benefit obligations
Rate of compensation increase
Inflation rate
December 31,
2014
3.9%
3.5%
2.3%
December 31,
2013
4.7%
3.5%
2.3%
The discount rate used to establish the pension obligation is based on AA-rated Canadian corporate bond yields at the
measurement date. A change of 100 basis points in the discount rate at the reporting date would have increased or
decreased the accrued benefit obligation by $5,261 (2013 - $4,416).
68 | 2014 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(in thousands of Canadian dollars, except share and per share amounts)
16. EARNINGS PER SHARE
(a) Basic (loss) earnings per share
Net earnings from continuing operations
Net (loss) earnings from discontinued operations
Net (loss) earnings (basic)
December 31,
2014
7,145
(20,224)
(13,079)
December 31,
2013
4,615
530
5,145
$
$
$
$
Issued common shares at beginning of year
Effect of shares issued related to a dividend reinvestment plan (DRIP)
Effect of shares issued on exercise of stock options
Weighted average number of common shares for the year (basic)
24,797,163
92,425
58,229
24,947,817
24,493,462
125,009
23,471
24,641,942
Basic earnings per share, continuing operations
Basic earnings per share, discontinued operations
Basic (loss) earnings per share
(b) Diluted (loss) earnings per share
Diluted earnings per share from continuing operations:
Net earnings from continuing operations (diluted)
$
$
0.29
(0.81)
(0.52)
0.19
0.02
0.21
$
$
December 31,
2014
7,145
$
December 31,
2013
4,615
$
Weighted average number of common shares (basic)
Incremental shares - stock options
Weighted average number of common shares for the year (diluted), continuing operations
24,947,817
140,966
25,088,783
24,641,942
73,713
24,715,655
Diluted earnings per share, continuing operations
$
0.28
$
0.19
Diluted (loss) earnings per share from discontinued operations:
Net (loss) earnings from discontinued operations (diluted)
December 31,
2014
(20,224)
$
December 31,
2013
530
$
Weighted average number of common shares (basic)
Incremental shares - stock options
Weighted average number of common shares for the year (diluted), discontinued operations
24,947,817
-
24,947,817
24,641,942
73,713
24,715,655
Diluted (loss) earnings per share, discontinued operations
$
(0.81)
$
0.02
For the year ended December 31, 2014, the number of options excluded from the diluted weighted average number of
common shares calculation was $908,167 (2013 – $1,042,679), as their effect would have been anti-dilutive.
As the Corporation incurred a net loss from discontinued operations for the year ended December 31, 2014, the basic
and diluted weighted average number of common shares and the resulting basic and diluted loss per share from
discontinued operations are the same amount.
69 | 2014 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(in thousands of Canadian dollars, except share and per share amounts)
There were no incremental shares related to the convertible debentures included in the weighted average calculation
for the year ended December 31, 2014 and 2013, 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.
17. CASH AND CASH EQUIVALENTS
The cash and cash equivalents balance is comprised entirely of cash. Included in the cash and cash equivalents
balance is $2,574 (2013 - $2,979) held in joint operations bank accounts.
18. TRADE AND OTHER RECEIVABLES
Trade receivables
Construction holdbacks, due within one business cycle
Allowance for doubtful accounts (Note 31)
Other receivables
$
$
December 31,
2014
219,388
115,313
(2,140)
4,435
336,996
December 31,
2013
201,742
62,123
(3,224)
2,195
262,836
$
$
The average credit period is 35 days for maintenance contracts and 43 days for significant construction contracts.
Included in other receivables is the current portion of the service provider deposit (Note 20).
At December 31, 2014, holdbacks of $115,313 (2013 - $62,123) are recoverable within the normal operating cycle of
the Corporation ranging from 30 days to three years, depending on the nature of services being provided. The range is
dependent on the type and size of the project and duration of the work.
19. CONSTRUCTION AND NON-CONSTRUCTION CONTRACTS
Contracts in progress:
$
December 31,
2014
4,617,699
(4,658,402)
(40,703)
$
December 31,
2013
4,514,572
(4,557,358)
(42,786)
$
$
159,114
(153,098)
6,016
(34,687)
307,355
(296,822)
10,533
(32,253)
$
$
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
70 | 2014 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(in thousands of Canadian dollars, except share and per share amounts)
Recognized and included in the consolidated statements of financial position:
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,
2014
December 31,
2013
$
48,667
6,152
54,819
$
37,918
10,537
48,455
$
$
(89,370)
(136)
(89,506)
(34,687)
(80,691)
(17)
(80,708)
(32,253)
$
$
At December 31, 2014, retentions held by customers for contract work amounted to $115,313 (2013 - $62,123).
Advances received from customers for contract work amounted to $89,506 (2013 - $80,708).
20. SERVICE PROVIDER DEPOSIT
Service provider deposit relates to the Buildings Group’s Subguard program representing an agreement with Zurich
Insurance Corporation (Zurich) that establishes a pre-funded deductible/co-pay insurance program.
Included in trade and other receivables in the statements of financial position is the current portion of the service
provider deposit of $1,206 (2013 - $nil), to be received in the next 12 months. The remaining portion of $5,549 (2013 -
$6,157) is classified as non-current in the consolidated statements of financial position at December 31, 2014. The
total funds held by Zurich as at December 31, 2014 amounted to $6,755 (2013 - $6,157).
21. PROPERTY AND EQUIPMENT
During the year ended December 31, 2014, the Corporation reclassified $436 of agricultural land from assets held-for-
sale to property and equipment as the asset no longer met the criteria to be classified as held-for-sale (Note 14).
Included in construction and automotive equipment is $1,467 (2013 - $4,742) of assets relating to finance leases and
$404 (2013 - $582) of accumulated depreciation, for a net carrying value of $1,063 (2013 - $4,160).
Included in office furniture and equipment is $nil (2013 - $61) of assets relating to finance leases and $nil (2013 - $55)
of accumulated depreciation, for a net carrying value of $nil (2013 - $6).
Assets with a carrying value of $1,063 (2013 - $4,166) are pledged as security for the finance lease obligations
disclosed in Note 26(c).
As part of the sale of Broda (Note 13) the Corporation disposed of assets related to Buildings and Improvements,
Construction and Automotive Equipment, Computer Hardware and Office Furniture and Equipment with carrying
values of $290, $41,292, $470, $2 and $278, respectively.
During the year ended December 31, 2014, the Buildings Group recorded an impairment loss of $2,596 related to
Leasehold Improvements due to a branch office closure in Western Canada.
71 | 2014 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(in thousands of Canadian dollars, except share and per share amounts)
Land and
Improvements
Buildings and
Improvements
Leasehold
Improvements
Construction
and Automotive
Equipment
Office
Computer Furniture and
Equipment
Hardware
Assets
Under
Construction
Total
$
$
$
$
$
3,238
-
(197)
-
3,041
$
$
18,629
977
(5,529)
582
14,659
$
$
$
$
$
$
$
$
5,454
157
(853)
938
5,696
$
$
$
$
$
552
1,464
-
(1,532)
484
$
$
133,062
8,727
(80,420)
424
61,793
56,721
12,193
(33,947)
2,596
37,563
24,230
3,195
812
(285)
-
3,722
1,974
$
-
-
-
-
$
-
$
484
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
1,550
15
(78)
-
1,487
1,554
6,025
2,801
(5,680)
2,596
5,742
8,917
98,776
5,819
(73,197)
-
31,398
40,768
8,007
(27,433)
-
21,342
10,056
Land and
Improvements
Buildings and
Improvements
Leasehold
Improvements
Construction
and Automotive
Equipment
Office
Computer Furniture and
Equipment
Hardware
Assets
Under
Construction
$
$
301
-
-
-
301
$
$
$
$
$
3,216
127
(105)
-
3,238
$
$
13,847
2,358
(124)
2,548
18,629
1,533
19
(2)
-
1,550
1,688
3,543
2,528
(46)
-
6,025
12,604
$
$
$
91,724
9,617
(2,565)
-
98,776
32,782
10,239
(2,253)
-
40,768
58,008
$
$
$
4,492
1,004
(153)
111
5,454
$
$
$
Total
123,091
13,619
(3,480)
(168)
133,062
$
$
3,318
67
-
(2,833)
552
$
$
2,463
848
(116)
-
3,195
2,259
$
-
-
-
-
$
-
$
552
$
$
$
45,310
14,370
(2,950)
(9)
56,721
76,341
$
$
$
$
$
$
$
$
$
$
$
$
6,112
310
(473)
-
5,949
5,183
558
(471)
-
5,270
679
6,193
446
(533)
6
6,112
4,989
736
(533)
(9)
5,183
929
301
-
(171)
436
566
-
-
-
-
-
566
-
-
-
-
-
301
2014
Cost
Balance as at December 31, 2013
Additions, including finance leases
Disposal
Reclassifications and transfers
Balance at December 31, 2014
Accumulated Depreciation and impairment losses
Balance as at December 31, 2013
Depreciation expense
Disposal of assets
Impairment losses recognized in the year
Balance at December 31, 2014
Carrying amounts at December 31, 2014
2013
Cost
Balance as at December 31, 2012
Additions, including finance leases
Disposal
Reclassifications and transfers
Balance at December 31, 2013
Accumulated Depreciation and impairment losses
Balance as at December 31, 2012
Depreciation expense
Disposal of assets
Acquisition
Balance at December 31, 2013
Carrying amounts at December 31, 2013
72 | 2014 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(in thousands of Canadian dollars, except share and per share amounts)
22. GOODWILL
The Corporation has allocated its goodwill to its cash-generating units (CGUs) as follows:
Buildings Group
Industrial Group
Commercial Systems Group
$
$
December 31,
2014
114,078
7,315
57,623
179,016
December 31,
2013
114,078
7,315
57,623
179,016
$
$
Goodwill arose as a result of multiple past acquisitions. Goodwill associated with the Buildings Group and Commercial
Systems Group CGUs arose from the Seacliff Construction Corp. (Seacliff) acquisition in 2010. Additional goodwill was
attributed to the Commercial Systems Group CGU through the McCaine Electric Ltd. (McCaine) acquisition in 2011.
Industrial Group’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.
During the fourth quarter of 2014, 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 plans. The annual impairment review resulted in no impairment charge in the current year.
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 four 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 2014 Strategic Plan.
A four year period for the discounted cash flow analysis was used since financial projections beyond a four year time
period are generally best represented by a terminal value. This period is appropriate given the timing of the project
backlog 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.
73 | 2014 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(in thousands of Canadian dollars, except share and per share amounts)
The terminal value was calculated using a discount rate of 12% (2013 – 12%) and a steady annual growth of 2.0%
(2013 – 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
Buildings Group and Industrial Group: Management and the Board of Directors believe that any reasonable change to
the key assumptions used to determine the CGU’s recoverable amount would not cause its carrying value to exceed
its recoverable amount.
Commercial Systems Group: A 1.0% increase in the discount rate and no change in the annual growth would cause an
impairment charge of approximately $4,200. A decrease in growth rate of 1.0% and no change in the discount rate
would cause an impairment charge of approximately $1,600.
74 | 2014 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(in thousands of Canadian dollars, except share and per share amounts)
23. INTANGIBLE ASSETS
Included in computer software is $84 (2013 - $75) of assets relating to finance leases and $84 (2013 - $25) of
accumulated depreciation, for a net carrying value of $nil (2013 - $50).
Intangible assets with a carrying value of $nil (2013 - $50) are pledged as security for the finance lease obligations
disclosed in Note 26(c).
The Corporation did not record any impairment losses during the years ended December 31, 2014 and 2013.
2014
ERP Assets
Backlog and
Agency
Contracts
Customer
Relationships
and
Tradename
Computer
Software
Assets under
Construction
Total
Cost
Balance, December 31, 2013
Additions - externally acquired
Disposals
Reclassifications and transfers
Derecognition of assets
Balance, December 31, 2014
Accumulated amortization
Balance, December 31, 2013
Amortization expense
Disposals
Balance, December 31, 2014
Carrying amounts, December 31, 2014
$
$
$
$
$
24,908
620
(73)
-
(213)
25,242
20,600
-
-
-
-
20,600
$
$
$
$
$
4,485
921
(308)
-
-
5,098
3,977
368
(212)
4,133
965
$
-
17
-
12
(12)
17
$
$
-
-
-
$
-
$
17
104,416
1,558
(381)
12
(225)
105,380
$
$
$
52,606
7,305
(226)
59,685
45,695
$
$
$
5,080
2,156
(14)
7,222
18,020
$
20,600
-
-
$
20,600
$
-
$
$
$
$
$
$
2013
ERP Assets
Backlog and
Agency
Contracts
Customer
Relationships
and
Tradename
Computer
Software
Assets under
Construction
Total
$
$
$
$
$
24,186
722
-
-
24,908
20,600
-
-
-
20,600
$
$
$
$
$
3,946
374
(3)
168
4,485
3,739
229
9
3,977
508
-
$
-
-
-
$
-
-
$
-
-
$
-
$
-
103,155
1,096
(3)
168
104,416
$
$
$
44,460
8,137
9
52,606
51,810
$
$
$
2,990
2,090
-
5,080
19,828
$
20,020
580
-
$
20,600
$
-
$
$
$
$
$
$
54,423
-
-
-
-
54,423
22,949
4,781
-
27,730
26,693
54,423
-
-
-
54,423
17,711
5,238
-
22,949
31,474
Cost
Balance, December 31, 2012
Additions - externally acquired
Disposals
Reclassifications and transfers
Balance, December 31, 2013
Accumulated amortization
Balance, December 31, 2012
Amortization expense
Reclassifications and transfers
Balance, December 31, 2013
Carrying amounts, December 31, 2013
75 | 2014 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(in thousands of Canadian dollars, except share and per share amounts)
24. TRADE AND OTHER PAYABLES
Trade payables
Holdbacks and accrued liabilities
Short-term employee benefits
Dividend payable
Due to related parties
Other
$
$
December 31,
2014
159,873
80,165
17,777
3,006
-
3,375
264,196
December 31,
2013
115,730
51,739
15,724
2,976
29
4,165
190,363
$
$
The Corporation’s exposure to currency and liquidity risk related to trade and other payables is disclosed in Note 31 -
Financial Instruments.
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 period which leads management to conclude that
the provisions are not necessary.
Warranties
Restructuring
Costs
Claims and
Disputes
Subcontractor
Default
Onerous
Contract
Total
Balance as December 31, 2012
Provisions made during the year
Provisions used during the year
Provisions reversed in the year
Balance at December 31, 2013
Balance at December 31, 2013
Provisions made during the year
Provisions used during the year
Provisions reversed in the year
Unwinding of discount
Balance at December 31, 2014
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
636
-
(115)
(150)
371
371
-
(178)
-
-
193
3,588
4,802
(5,780)
(709)
1,901
1,901
714
(400)
(200)
-
2,015
2,472
2,791
(1,723)
-
3,540
3,540
3,043
(2,911)
-
-
3,672
-
-
-
-
-
-
739
-
-
(170)
569
10,899
10,651
(8,198)
(4,473)
8,879
8,879
5,256
(4,306)
(2,130)
(170)
7,529
4,203
3,058
(580)
(3,614)
3,067
3,067
760
(817)
(1,930)
-
1,080
$
$
$
$
$
$
The provisions are presented on the consolidated statements of financial position as follows:
Current portion of provisions
Long-term provisions
Total provisions
76 | 2014 ANNUAL REPORT
$
December 31,
2014
2,616
4,913
7,529
$
$
December 31,
2013
3,987
4,892
8,879
$
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(in thousands of Canadian dollars, except share and per share amounts)
The following table represents the expected outflow of resources by category:
Expected Outflow of Resources
2015
2016
2017
2018
2019
Thereafter
Warranties
1,080
-
-
-
-
-
1,080
$
Restructuring
Costs
166
27
-
-
-
-
193
$
Claims and
Disputes
1,313
351
351
-
-
-
2,015
$
Subcontractor
Default
-
-
-
-
-
3,672
3,672
$
$
$
$
$
$
$
$
$
The following table represents the outflow of resources on a discounted basis using a rate between 0.46% to 0.98%:
$
$
$
$
Warranties
1,075
-
-
-
-
-
1,075
Restructuring
Costs
165
27
$
-
-
-
-
192
$
Claims and
Disputes
1,307
348
346
-
-
-
2,001
$
Subcontractor
Default
-
-
-
-
-
3,331
3,331
$
$
$
$
$
Onerous
Contract
57
74
66
59
65
248
569
Onerous
Contract
57
73
65
58
63
225
541
Total
2,616
452
417
59
65
3,920
7,529
Total
2,604
448
411
58
63
3,556
7,140
December 31,
2014
December 31,
2013
-
$
391
391
$
$
$
$
$
97
2,462
2,559
49,320
291
724
50,335
$
$
115
-
702
817
Expected Outflow of Resources
(DISCOUNTED)
2015
2016
2017
2018
2019
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
The proceeds from the sale of Broda (Note 13) and the issuance of convertible debentures (Note 27) were used to
repay the amount owing under the revolving credit facility.
77 | 2014 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(in thousands of Canadian dollars, except share and per share amounts)
(a) Revolving credit facility
On July 12, 2010, the Corporation obtained a $200,000, senior secured revolving credit facility with a syndicate of
chartered banks. The maturity date of the revolving credit facility is July 12, 2017.
In June 2014, the Corporation amended its revolving credit facility. The syndicate of lenders remains the same and the
facility continues to include a $75,000 accordion feature. Amendments included increased flexibility in the borrowing
covenants (Note 32) such that the Senior Debt to EBITDA and Debt to EBITDA ratios are both permanently increased
by 0.25 times to 2.75 times and 3.25 times, respectively.
Included as part of the credit facility is a swingline loan of $20,000 (increased from $15,000 as part of the June 2014
amendments) that allows 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, 2014, there was no
drawdown on the swingline.
The limit of the facility was reduced from $200,000 to $167,375 as a result of the sale of Broda (Note 13).
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 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. Total finance costs on the credit facility for the
year ended December 31, 2014 were $2,720 (2013 – $3,240). These finance costs represent the interest paid on the
debt and amortization of the deferred financing charges of $689 for the year ended December 31, 2014 (2013 – $633)
(Note 9).
(b) Finance contracts
The Corporation no longer held finance contracts following the sale of Broda in September 2014 (Note 13). The
finance contracts in 2013 related to construction equipment that matured in January 2018, bore an interest rate of
0.0%, with a weighted average effective interest rate on the contract of 0.0% per annum, and were secured by various
construction and automotive equipment with a carrying value of $441.
(c) Finance lease obligations
For the year ended December 31, 2014, the Corporation held finance leases relating to automotive equipment that
mature between January 2015 and October 2017, and bear interest at rates between 0.0% and 7.4%, with a weighted
average effective interest rate on the contracts of 5.2% per annum. Finance lease obligations are secured by
automotive equipment with a net book value of $1,063 (Note 21 and 23) and the lessors’ title to the lease assets. The
Corporation has the option to purchase the equipment under lease at the conclusion of the lease agreements.
78 | 2014 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(in thousands of Canadian dollars, except share and per share amounts)
The finance lease obligations for the year ended December 31, 2013 were related to construction, automotive and
office equipment that matured between January 2014 and December 2016, bore interest rates between 0.0% and
7.4%, with a weighted average effective interest rate on the contracts of 2.0% per annum, and were secured by
construction and automotive equipment with a net book value of $4,216 (Note 21 and 23).
Future Minimum Lease
Payments
Present Value of Minimum Lease
Payments
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
Principal amount - debt component, beginning of the period
Issuance of convertible debentures
Financing fees
Accretion on convertible debentures
Amortization of deferred financing fees
Principal amount - debt component, end of the period
Principal amount - equity component, beginning of the period
Issuance of convertible debentures
Financing fees (1)
Deferred income tax
Principal amount - equity component, end of the period
(1) Financing fees are net of deferred income tax of $76.
$
December 31,
2014
412
731
-
1,143
$
$
December 31,
2013
2,688
1,019
-
3,707
$
$
December 31,
2014
391
702
-
1,093
$
$
December 31,
2013
2,636
978
-
3,614
$
Interest
December 31,
2014
21
29
$
December 31,
2013
52
41
$
-
$
50
-
$
93
Series I
Series II
$
$
$
$
December 31,
2014
81,855
-
-
2,289
684
84,828
December 31,
2013
79,151
-
-
2,082
622
81,855
December 31,
2014
-
74,076
(3,571)
275
152
70,932
December 31,
2013
-
-
-
-
-
-
$
$
$
$
$
$
7,100
-
-
-
7,100
$
$
7,100
-
-
-
7,100
$
-
6,424
(230)
(1,605)
4,589
$
$
-
-
-
-
-
$
At December 31, 2014, the principal amount of the debt component of all convertible debentures outstanding is
$155,760 (2013 - $81,855), of which $84,828 (2013 - $nil) is classified as a current liability.
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 (“Series I”).
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 $82,849. The
maturity date of the Series I debentures is June 30, 2015.
79 | 2014 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(in thousands of Canadian dollars, except share and per share amounts)
On September 19, 2014, the Corporation issued an aggregate of $70,000 principal amount of 6% convertible
extendible unsecured subordinated debentures of the Corporation at a price of one thousand dollars per debenture
(“Series II”). On September 29, 2014, an additional $10,500 principal amount of the convertible debentures was issued
pursuant to the exercise of the underwriters’ over-allotment option. Total gross proceeds from the offering amounted to
$80,500. Net proceeds of the offering, after payment of the underwriters’ fee and other expenses of the offering of
$3,877, were $76,623. The maturity date of the Series II debentures is December 31, 2019.
Both series of convertible 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. Either set of convertible debentures may be converted into
common shares at the option of the holder at any time prior to the earlier of redemption by the Corporation or maturity.
The Corporation can redeem Series I convertible debentures and Series II convertible debentures at a price of one
thousand dollars per debenture:
on or after June 30, 2013, and at any time prior to June 15, 2015, for Series I convertible debentures; and
on or after December 31, 2017, and at any time prior to December 31, 2018, for Series II convertible
debentures
provided that the current market price of the common shares is not less than 125% of the conversion price.
On and after June 15, 2015 and December 31, 2018, and at any time prior to the final maturity date, the Series I and
Series II convertible debentures, respectively, may be redeemed at the option of the Corporation, in whole or in part
from time to time, at a redemption price equal to 100% of their principal amount plus accrued and unpaid interest
thereon up to the date set for redemption.
The Corporation may, at its discretion, elect to satisfy its obligation to pay the principal of the debentures along with
any accrued and unpaid interest amount by issuing and delivering common shares. The number of shares issued will
be determined based on market prices at the time of issuance.
In the event of a change of control of the Corporation (as defined in the applicable trust indenture), 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. Under certain circumstances where the convertible debentures are
to be repurchased by the Corporation or converted into common shares upon a change of control, a make whole
premium will apply. The amount of the make whole premium, if any, will be based on the price of the common shares
on the effective date of the change of control. No make whole premium will be paid if the price of the common shares
at such time is:
less than $16.75 per share or exceeds $65.00 per share for Series I convertible debentures; and
less than $10.46 per share or exceeds $50.00 per share for Series II convertible debentures.
The table below summarizes the key terms of each convertible debenture series outstanding:
Issue date
Maturity date
Distribution rate
Conversion price
80 | 2014 ANNUAL REPORT
Series I
Series II
June 15, 2010 September 19, 2014
June 30, 2015 December 31, 2019
6.00%
14.15
$
6.00%
22.75
$
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(in thousands of Canadian dollars, except share and per share amounts)
28. SHARE-BASED PAYMENTS
(a) Description of share-based payment arrangements
As at December 31, 2014, the Corporation has the following share-based payment arrangements:
(i) Stock options
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 10
years from the date granted.
(ii) Medium Term Incentive Plan (MTIP)
Bridging Restricted Share Units (BRSU) track the value of a common share and provide eligible participants with an
equivalent cash value of common shares. Each grant vests 20% in the first, 30% in the second, and the remaining
50% in the third year.
Restricted Share Units (RSU) track the value of a common share and provide eligible participants with an equivalent
cash value of common shares. Each grant cliff vests at the end of three years.
Performance Share Units (PSU) track the value of a common share and provide eligible participants with an equivalent
cash value of common shares. Each grant cliff vests at the end 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 group. When each grant vests at three years, the payout can be 0% to 200% 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 BRSUs, RSUs and PSUs (collectively, the “MTIPs”) is equal to the fair market value at the date of
grant. 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 (DSU)
The Corporation has a DSU plan under which participants were previously entitled to contribute a portion of their
earnings. As of January 1, 2013, employees were no longer able to contribute under the DSU plan. DSUs are units
which provide the holder 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 the
Dividend Reinvestment Plan (DRIP) as they are paid.
81 | 2014 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(in thousands of Canadian dollars, except share and per share amounts)
(b) Terms and conditions for share-based payment arrangements
The terms and conditions related to the grants of the stock option program are as follows:
Option series
Issued on March 22, 2010
Issued on July 20, 2010
Issued on December 10, 2010
Issued on March 22, 2011
Issued on September 12, 2011
Issued on December 13, 2011
Issued on March 15, 2012
Issued on August 17, 2012
Issued on January 2, 2013
Issued on February 8, 2013
Issued on April 1, 2013
Issued on September 13, 2014
Issued on September 13, 2014
As at December 31, 2014
Options
Outstanding
97,608
40,000
15,000
196,221
9,000
30,000
316,781
115,740
33,524
85,470
539,141
153,557
50,000
1,682,042
Expiry Date
21-Mar-15
19-Jul-15
09-Dec-15
21-Mar-16
11-Sep-16
12-Dec-16
15-Mar-17
17-Aug-17
02-Jan-18
08-Feb-18
01-Apr-23
01-Apr-24
13-Sep-24
Exercise Fair Value At
Grant Date
7.62
8.96
8.12
7.59
5.47
3.63
5.03
2.16
2.30
2.34
2.52
3.08
3.08
Price
19.63
18.34
17.60
19.32
14.32
10.46
15.48
8.19
8.64
8.75
7.50
9.94
9.94
Options
Exercisable
97,608
40,000
15,000
196,221
9,000
30,000
211,187
77,160
11,175
28,490
179,714
-
-
895,555
The terms and conditions related to the grants of the MTIPs are as follows:
Outstanding
Units
Vesting
Date
Fair Value At
Grant Date
125,353
19-Mar-15
15.48
67,559
112,597
122,229
261,782
28,827
43,241
72,069
238,137
194,328
01-Apr-15
01-Apr-16
01-Apr-16
01-Apr-16
01-Apr-15
01-Apr-16
01-Apr-17
01-Apr-17
01-Apr-17
7.50
7.50
7.50
7.50
10.79
10.79
10.79
10.79
10.79
Issued on March 19, 2012
PSU
Issued on April 1, 2013
BRSU, Tranche 2
BRSU, Tranche 3
RSU
PSU
Issued on April 1, 2014
BRSU, Tranche 1
BRSU, Tranche 2
BRSU, Tranche 3
RSU
PSU
82 | 2014 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(in thousands of Canadian dollars, except share and per share amounts)
(c) Stock options
Movement during the years:
Outstanding, beginning of the year
Granted
Forfeited
Exercised
Expired
Outstanding, end of year
Number of
Stock
December 31,
2014
Weighted
Average
Options Exercise Price
12.29
9.94
16.02
7.83
12.44
11.95
1,838,117
203,557
(151,629)
(110,919)
(97,084)
1,682,042
$
$
Number of
Stock
Options
1,379,981
756,719
(65,629)
(94,481)
(138,473)
1,838,117
December 31,
2013
Weighted
Average
Exercise Price
14.76
7.69
11.30
6.52
16.22
12.29
$
$
The options outstanding for the years ended December 31, 2014 and 2013 have an exercise price in the range of
$7.50 to $19.63 and lives of between 5 and 10 years.
The options exercised during the year ended December 31, 2014 were done so at a weighted average share price of
$9.65 (2013 - $9.64).
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 in 2013
January 2, 2013
February 8, 2013
April 1, 2013
Issued in 2014
September 13, 2014
Weighted
Average
Share Price
Exercise
Price
Expected
Volatility Option Life
Dividend
Yield
Risk-Free
Interest Rate
Forfeiture
Rate
8.64
8.75
7.50
9.94
8.64
8.75
7.50
9.94
45.68%
46.21%
53.55%
49.74%
5
5
10
10
4.2%
4.3%
4.7%
4.8%
1.34%
1.31%
1.51%
7%
7%
6%
1.81%
10%
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.
83 | 2014 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(in thousands of Canadian dollars, except share and per share amounts)
The following table illustrates the movement in the share-based payment reserve:
Balance, beginning of the year
Stock compensation expense from continuing operations
Stock compensation expense from discontinued operations
Stock options exercised
Balance, end of year
(d) MTIPs
Movement of units during the years:
Units outstanding at December 31, 2012
Granted
Forfeited
Vested
Vested and paid
Units outstanding at December 31, 2013
Units outstanding at December 31, 2013
Granted
Forfeited
Vested
Vested and paid
Units outstanding at December 31, 2014
$
$
December 31,
2014
8,594
1,057
55
(365)
9,341
December 31,
2013
7,171
1,535
166
(278)
8,594
$
$
Bridging
Restricted
Share Units
(BRSU)
Restricted
Share Units
(RSU)
Performance
Share Units
(PSU)
-
295,109
(17,764)
(5,130)
(9,734)
262,481
262,481
159,223
(39,046)
(190)
(58,175)
324,293
-
164,792
(10,388)
-
(7,662)
146,742
146,742
256,346
(18,146)
-
(24,576)
360,366
279,447
318,002
(19,512)
(10,285)
(64,679)
502,973
502,973
211,332
(9,152)
(1,072)
(122,618)
581,463
In April 2014, 20% of the BRSUs issued on April 1, 2013 vested at a weighted average price of $10.18. The PSUs
issued in 2011 vested on March 22, 2014 at a payout ratio of 30%.
(e) DSUs
Movement of units during the years:
Number of DSUs
Outstanding, beginning of the year
Granted
Cancelled
Settled
Outstanding, end of year
84 | 2014 ANNUAL REPORT
December 31,
2014
363,550
107,919
-
(38,221)
433,248
December 31,
2013
407,575
121,990
(14,407)
(151,608)
363,550
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(in thousands of Canadian dollars, except share and per share amounts)
(f) Share-based payment liability
Carrying amount of liabilities for cash-settled arrangements
Current portion
Long-term portion
Total carrying amount
December 31,
2014
December 31,
2013
$
$
$
$
889
6,382
7,271
556
5,911
6,467
Total intrinsic value of liability for vested benefits
$
3,315
$
3,480
Included in trade and other payables is the current portion of the MTIPs to be paid out within the next 12 months. The
long-term portion of MTIPs and DSUs of $6,382 at December 31, 2014 (2013 – $5,911) is classified as share-based
payments in the consolidated statements of financial position. The total intrinsic value reflects all of the outstanding
DSUs and vested MTIPs as at December 31, 2014.
(g) Share-based compensation expense
$
December 31, December 31,
2013
1,535
2,243
1,588
5,366
2014
1,057
2,140
153
3,350
$
Share compensation expense on stock options (1)
Effects of changes in fair value and accretion of MTIP grants (1)
Effects of changes in fair value and grants for DSUs
$
(1) Certain comparative amounts have been restated, refer to Note 13. The share compensation expense for both
continuing and discontinued operations is $3,527 (2013 - $5,721).
$
29. SHARE CAPITAL
(a) Common shares and preferred shares
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,
2014
Share Capital
Shares
December 31,
2013
Share Capital
Shares
24,797,163
146,228
110,919
25,054,310
$
$
129,134
1,356
1,234
131,724
24,493,462
209,220
94,481
24,797,163
$
$
126,602
1,638
894
129,134
Common Shares
Issued, beginning of year
Dividend reinvestment plan
Issued in the year
Issued, end of year
85 | 2014 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(in thousands of Canadian dollars, except share and per share amounts)
(b) 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.
The Corporation declared its fifteenth quarterly dividend of $0.12 per share, which was paid on January 15, 2015 to
shareholders of record on December 31, 2014.
The Corporation has a DRIP that 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 10 trading days preceding the dividend payment date. DSU holders’ accounts are adjusted for the Corporation’s
declared dividends.
As at December 31, 2014, trade and other payables included $3,007 (2013 - $2,976) related to the dividend payable
on January 15, 2015, of which $575 (2013 - $425) is to be reinvested in common shares under the DRIP and the
remainder paid in cash.
Per Share
Dividend payable, beginning of year
0.12
Total dividends declared during the year
0.48
Total dividends paid during the year (1)
(0.48)
0.12
Dividend payable, end of year
(1) Includes DRIP non-cash payments totaling $1,356 (2013 - $1,638) which are recorded through share capital.
Per Share
0.12
0.48
(0.48)
0.12
$
$
$
$
$
$
December 31,
2014
Total
2,976
11,986
(11,955)
3,007
$
December 31,
2013
Total
2,940
11,840
(11,804)
2,976
$
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.
(c) Preferred share reserve
No preferred shares are currently issued. Subject to the provisions of the Articles of the Corporation and 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.
86 | 2014 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(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 receivable, including current portion
Financial liabilities:
Trade and other payables
Long-term debt, including current portion
Convertible debentures - debt component, including current portion
(b) Fair values
$
December 31,
2014
(84,648)
139
(714)
(7,747)
79,301
8,798
(4,871)
$
$
December 31,
2013
46,261
159
1,424
(9,355)
(43,618)
(1,882)
$
(7,011)
December 31, December 31,
2013
2014
$
104,113
336,996
5,549
395
$
36,236
262,836
6,157
250
$
264,196
1,208
155,760
$
190,363
52,894
81,855
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. Further, the fair value of the Corporation’s convertible
debentures approximates their carrying value.
87 | 2014 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(in thousands of Canadian dollars, except share and per share amounts)
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 derivative instruments and the liability portion of its
convertible debentures. The Corporation did not measure any financial instruments using Level 3 inputs.
(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 it
believes 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 period.
The following table represents the movement in the allowance for doubtful accounts:
$
December 31,
2014
3,224
1,895
(744)
(1,387)
(848)
2,140
$
Balance at the beginning of the year
Impairment losses recognized on receivables
Amounts written off during the period as uncollectible
Amounts recovered during the year
Impairment losses reversed
Balance at the end of the year
88 | 2014 ANNUAL REPORT
$
December 31,
2013
1,589
2,869
(190)
(993)
(51)
3,224
$
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(in thousands of Canadian dollars, except share and per share amounts)
Trade receivables shown on the consolidated statements 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. The terms and conditions established with individual customers determine 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,
2014
116,326
75,911
5,845
21,306
219,388
December 31,
2013
101,045
73,744
6,359
20,594
201,742
$
$
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 $21,306
of trade receivables (2013 – $20,594) which were greater than 90 days past due with $19,166 not provided for as at
December 31, 2014 (2013 – $17,370). Of the total, $8,193 (38%) was concentrated in two customer accounts and of
this amount $8,193 remained outstanding as March 10, 2015. The two customers are considered to be credit-worthy
and management is not concerned regarding collectability of these accounts. Trade receivables are included in trade
and other receivables on the consolidated 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.
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
Carrying Amount
December 31,
2014
December 31,
2013
$
155,760
$
81,855
$
104,113
1,208
$
36,236
52,894
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 $781 (2013 - $272) related to financial assets and by $9 (2013 - $397) related to financial liabilities.
89 | 2014 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(in thousands of Canadian dollars, except share and per share amounts)
(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, 2014, in respect of the
financial obligations 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.
Trade and other payables
Provisions including current portion
Convertible debentures (debt portion)
Long-term debt including current portion
Lease commitments
32. CAPITAL MANAGEMENT
$
$
Carrying
amount
264,196
7,529
155,760
1,208
68,782
497,475
Contractual
cash flows
264,196
7,529
193,488
3,144
68,782
537,139
$
Not later than
1 year
264,196
2,616
93,668
412
7,241
368,133
$
$
Later than 1
year and less
than 3 years
-
869
9,660
366
14,090
24,985
$
$
Later than 3
years and less
than 5 years
-
124
90,160
2,366
14,089
106,739
$
$
Later than 5
years
-
3,920
-
-
33,362
37,282
$
$
$
The Corporation’s objectives in managing capital are to ensure sufficient liquidity to pursue growth objectives, and
maintain the payment of dividends, while maintaining a prudent amount of financial leverage.
The Corporation’s capital is comprised of equity and long-term indebtedness. The Corporation’s primary uses of capital
are to finance operations, execute upon its growth strategies and fund 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 net long-term indebtedness to EBITDA. The net long-term indebtedness to EBITDA
measure was adopted during the year and replaces the previous measure of long-term indebtedness to EBITDA. The
new metric nets cash on hand against long-term indebtedness, which more closely reflects how management
measures the strength of the statement of financial position.
During the year ended December 31, 2014, management revised its definition of long-term indebtedness for the
purposes of capital management to include gross principal amounts owing under long-term debt and convertible
debentures. In prior periods, long-term indebtedness was comprised of the carrying values of long-term debt and
convertible debentures, both net of deferred financing fees.
90 | 2014 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(in thousands of Canadian dollars, except share and per share amounts)
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:
December 31,
2014
December 31,
2013
Long-term indebtedness:
Long-term debt, contractual cash flow
Convertible debentures, principal amount
Total long-term indebtedness
Total equity
Total capitalization
Indebtedness to capitalization percentage
$
$
3,144
166,750
169,894
216,621
386,515
44%
55,207
86,250
141,457
236,958
378,415
37%
$
$
The Corporation targets a net long-term indebtedness to EBITDA ratio of 2.0x to 3.0x over a three to five-year planning
horizon. At December 31, 2014, the net long-term indebtedness to EBITDA was 1.58x (2013 – 3.07x) calculated on a
last 12-month basis as follows:
Total long-term indebtedness
Less: Cash on hand
Net long-term indebtedness
Net earnings from continuing operations
Add:
Finance costs
Income tax expense
Depreciation and amortization
Impairment loss on property and equipment
Loss (gain) on sale of assets
EBITDA
Net long-term indebtedness to EBITDA ratio
(1) Certain comparative amounts have been restated, refer to Note 13.
$
December 31,
2014
169,894
(104,113)
65,781
7,145
$
$
$
December 31,
2013 (1)
141,457
(36,236)
105,221
4,615
$
$
12,866
4,070
14,883
2,596
112
41,672
1.58x
$
11,576
1,986
16,084
-
(32)
34,229
3.07x
$
The Corporation 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
amended covenants described below. The covenants 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, 2014
and December 31, 2013.
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. As
part of the June 2014 amendment to the revolving credit facility (Note 26), the definition of working capital for
covenant calculation purposes was updated to specifically exclude the current portion of convertible debentures.
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, share-based compensation and any other non-cash items deducted in the calculation of net earnings.
The Corporation’s interest coverage ratio must exceed 3.0:1.
91 | 2014 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(in thousands of Canadian dollars, except share and per share amounts)
Debt to EBITDA – Debt represents total indebtedness and total obligations of the Corporation and its subsidiaries,
excluding convertible debentures. The Corporation’s debt to EBITDA ratio cannot exceed 3.25:1.
Senior Debt to EBITDA – Senior Debt represents all debt other than subordinated or unsecured debt. The
Corporation’s senior debt to EBITDA cannot exceed 2.75:1.
33. PRINCIPLE SUBSIDIARIES
Details of the Corporation’s principal operating subsidiaries at December 31, 2014 are as follows:
Name of Subsidiary
Stuart Olson Buildings Ltd.
Stuart Olson Industrial Inc.
411007 Alberta Ltd.
TCC Holdings Inc.
North American Rock & Dirt Inc.
The Churchill Corporation
Principal Activity
Building Construction
Industrial Construction
Corporate
Corporate
Civil Construction
Electrical Contracting
34. RELATED PARTY TRANSACTIONS
Place of
Incorporation and
Operation
Alberta
Alberta
Alberta
Alberta
Federal
Alberta
Proportion of Ownership
Interest and Voting
Power Held
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.
The Corporation incurred facility costs during the year ended December 31, 2014 of $309 (2013 – $351) 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. No amounts are included in trade payables as at December 31, 2014 (2013 – $nil).
The Corporation incurred facility costs during the year ended December 31, 2014 of $269 (2013 – $398) for the rental
of a building owned by Broda Holdings (2009) Inc. (Broda), a company owned by Gord Broda, the president of Broda,
a former subsidiary of the Corporation. No amounts are included in trade payables as at December 31, 2014 (2013 -
$29). The Corporation reclassified these facility costs as discontinued operations in the consolidated statements of
(loss) earnings.
On September 1, 2014, the Corporation completed the sale of Broda to TriWest Capital Partners and certain members
of the senior management team of Broda, including the president, for gross cash proceeds of $38,693 (Note 13). Gord
Broda was the president of Broda at the time of disposition and had an indirect interest in the entity that acquired
Broda. Chad Danard, a Director of the Corporation and a Managing Director of TriWest, did not participate in any
discussions related to the Broda disposition.
92 | 2014 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(in thousands of Canadian dollars, except share and per share amounts)
35. OPERATING LEASE AGREEMENTS
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
(1) Certain comparative amounts have been restated, refer to Note 13.
Payments recognized as expense:
Minimum lease payments
Sub-lease payments received
(1) Certain comparative amounts have been restated, refer to Note 13.
$
December 31,
2014
7,241
28,179
33,362
68,782
$
$
December 31,
2014
9,336
(1,208)
8,128
$
$
December 31,
2013 (1)
7,584
24,854
30,433
62,871
$
$
December 31,
2013 (1)
8,901
(944)
7,957
$
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 available, human resources matters, personal injuries, property damage and
general 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 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
the
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.
financial position or results of operations of
impact on
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 arrangements.
93 | 2014 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013
(in thousands of Canadian dollars, except share and per share amounts)
(b) Commitments and guarantees
The Corporation has made various donations in support of local communities. Over the next three years the
Corporation has committed to pay $1,389 (2013 - $1,855), of which $834 (2013 - $1,710) is to be paid in the upcoming
12 month period.
The Corporation is a participant in joint operations 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 Buildings Group and Industrial
Group 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 $4,357 in connection with various projects and
joint arrangements (2013 - $5,059), of which $nil are financial letters of credit (2013 - $nil).
37. EVENTS AFTER THE REPORTING PERIOD
On November 5, 2014, the Corporation’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 January 15,
2015 to shareholders of record on December 31, 2014.
On January 6, 2015, the Corporation acquired 100% of the issued and outstanding shares of Studon Electric &
Controls Inc. (Studon), a leading electrical and instrumentation services provider offering non-union construction,
maintenance and turnaround service to the oil and gas, pipeline and petrochemical industries in Western Canada. This
acquisition was a critical step in the Corporation’s strategy to become an integrated, full-service industrial construction
company. It strengthens the vertical integration of the Industrial Group and greatly enhances the Corporation’s ability
to service the maintenance, repair and operations sector of the industry.
The total purchase price is composed of four components, being cash of $59,900, common shares of the Corporation
valued at $7,711, deferred consideration through earn-out payments over the next three years to a maximum value of
$24,200, and lastly the assumption of net debt and a working capital adjustment. The fair value of the 1,103,081
common shares issued is based on the share price of $6.99, which is the trading value at the time of the close of the
transaction on January 6, 2015, the date of the change of control. The fair value of earn-out payments, working capital
adjustments, and value of the assets and liabilities have not been finalized by March 10, 2015, all of which will affect
the final purchase price of the acquisition.
Goodwill that will be recognized on this acquisition is mainly attributed to the synergies achieved from the integration of
Studon into existing construction and industrial services. The identifiable intangible assets acquired will include
tradename, backlog and customer relationships. The values associated with goodwill and intangible assets will be
established once the full purchase price allocation has been finalized.
The assets and liabilities acquired from Studon cannot be disclosed at this time as the Corporation is still in the
process of completing an audit of Studon’s closing balance sheet.
94 | 2014 ANNUAL REPORT
Corporate & Shareholder Information
Officers
David LeMay, MBA
President and Chief Executive Officer
Daryl Sands, B.Comm., CA
Executive Vice President, Finance and
Chief Financial Officer
Allan Tarasuk, P.Eng., STS
President and Chief Operating Officer
Stuart Olson Industrial Inc.
Al Miller
President
Canem Systems Ltd.
Joette Decore, BSc., MBA
Vice President, Strategy and Corporate
Development
Amy Gaucher, B.Comm., CA
Vice President, Finance
Evan Johnston, L.L.B., CFA
Vice President, General Counsel and
Corporate Secretary
Directors
Executive Offices
Albrecht W.A. Bellstedt, B.A., J.D., Q.C.
Chair
Richard T. Ballantyne, P. Eng. (1) (4)
Rod Graham, CFA, MBA (1) (4)
Wendy L. Hanrahan, CA (2) (3)
600, 4820 Richard Road SW
Calgary, AB T3E 6L1
Phone: (403) 685-7777
Fax: (403) 685-7770
Email: info@stuartolson.com
Website: www.stuartolson.com
Carmen R. Loberg (1) (3)
Ian M. Reid, B.Comm. (2) (3)
George M. Schneider (2) (4)
Chad Danard (1) (2)
David LeMay, MBA
(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
Auditors
Deloitte LLP
Edmonton, Alberta
Principal Bank
HSBC Bank Canada
Bonding and Insurance
Aon Reed Stenhouse Inc.
Federal Insurance Company
Liberty Mutual Insurance 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:
CST Trust Company
600 The Dome Tower
333 – 7th Avenue SW
Calgary, Alberta T2P 2Z1
Phone: 403 776-3900
Fax:
403 776-3916
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
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600, 4820 Richard Road SW
Calgary, AB T3E 6L1
Phone: (403) 685-7777
Fax: (403) 685-7770
www.stuartolson.com
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