2015 Annual Report - Management’s Discussion and Analysis
March 1, 2016
TABLE OF CONTENTS
2015 Overview ................................................................. 2
Capital Resources ......................................................... 22
Outlook ............................................................................ 4
Dividends ...................................................................... 23
Risks ................................................................................ 5
Off-Balance Sheet Arrangements ................................. 24
About Stuart Olson Inc. ................................................... 6
Related Party Transactions ........................................... 24
Acquisition of Studon ....................................................... 7
Quarterly Financial Information ..................................... 25
Results of Operations ...................................................... 8
Critical Accounting Estimates ....................................... 26
Consolidated Annual Results .......................................... 8
Changes in Accounting Policies .................................... 31
Consolidated Q4 Results ............................................... 10
Financial Instruments .................................................... 31
Results of Operations by Business Group .................... 12
Non-IFRS Measures ..................................................... 33
Liquidity .......................................................................... 19
Forward-Looking Information ........................................ 36
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, 2015, dated March 1, 2016, should be read in
conjunction with the December 31, 2015 Audited Consolidated Annual Financial Statements and related notes thereto. Additional information relating
to Stuart Olson 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 2014 and 2013, is presented in accordance with International Financial Reporting Standards (“IFRS”) unless otherwise noted.
Certain measures in this MD&A do not have any standardized meaning as prescribed by IFRS and, therefore, are considered non-IFRS measures.
These non-IFRS measures are commonly used in the construction industry, and by Stuart Olson management, as alternative methods for assessing
operating results and to provide a consistent basis of comparison between periods. These measures are not in accordance with IFRS, and do not
have any standardized meaning. Therefore, the non-IFRS measures in this MD&A are unlikely to be comparable to similar measures used by other
entities. Non-IFRS measures include: contract income margin; work-in-hand; backlog; active backlog; book-to-bill ratio; working capital; adjusted free
cash flow; adjusted free cash flow per share; earnings before interest, taxes, depreciation and amortization (EBITDA); EBITDA Margin; earnings before
tax (EBT); long-term indebtedness; indebtedness to capitalization; and net long term indebtedness to EBITDA. Further information regarding these
measures can be found in the Non-IFRS Measures section of this MD&A.
We encourage readers to read the section entitled “Forward-Looking Information” at the end of this document.
1 | 2015 ANNUAL REPORT MD&A
2015 OVERVIEW
Revenue ($ millions)
EBITDA ($ millions)
Diluted EPS ($ per share)
Continuing Operations
$1,306.3
$1,151.4
$1,051.8
$51.1
$43.4
$34.2
$0.39
$0.28
$0.19
2013
2014
2015
2013
2014
2015
2013
2014
2015
Diluted EPS ($ per share)
$0.39
$0.21
2013
2014
2015
$(0.53)
2015 Financial Highlights
• We generated higher contract income on lower consolidated revenue in 2015 as the Buildings Group sharpened its
focus on core markets and customers, and we tightened the management of all of our business groups in response
to challenging conditions in the Alberta market. For the year ended December 31, 2015:
o
revenue of $1,151.4 million declined 11.9% compared to 2014, primarily reflecting the strategic shift in
Buildings Group project mix and the weaker economic conditions in Alberta; and
o contract income increased 5.2% to $121.7 million and contract income margin increased to 10.6% from
8.9% year-over-year. These improvements reflect the successful execution of our business strategies, as
well as the favourable impact of project timing on intersegment eliminations.
• EBITDA climbed 17.7% to $51.1 million in 2015, from $43.4 million in 2014, primarily as a result of the higher contract
income. EBITDA margin improved to 4.4% from 3.3%.
• Net earnings from continuing operations increased to $11.2 million in 2015 (diluted earnings per share of $0.39),
from $7.1 million in 2014 (diluted earnings per share of $0.28).
• 2015 net earnings increased to $11.2 million (diluted earnings per share of $0.39), a $24.3 million improvement
compared to a loss of $13.1 million (diluted loss per share of $0.53) in 2014. The 2014 results included a $20.2
million net loss (diluted loss per share of $0.81) from discontinued operations related to our former Broda business.
• Adjusted free cash flow improved to $33.7 million in 2015 (adjusted free cash flow per share of $1.28) from $18.2
million in 2014 (adjusted free cash flow per share of $0.73), driven by our improved operating performance and
reductions in capital expenditures.
• We ended 2015 with a strong $2.0 billion backlog that includes a diverse mix of public, private and industrial projects
in British Columbia, Alberta, Manitoba, Saskatchewan, Ontario and the Northwest Territories. The backlog is
predominantly made up of low-risk contract arrangements.
• On July 16, 2015, we successfully amended our revolving credit facility (“Revolver”), extending the term by three
years and negotiating improved terms and conditions. The amendments included the elimination of the former
Working Capital ratio and Senior Debt to EBITDA ratio financial covenants, the amendment of the Debt to EBITDA
ratio covenant to not exceed 3:1, the expansion of maximum borrowing capacity to $175.0 million from $167.4 million,
and the additional flexibility to make investments up to $25.0 million without securing approval from the syndicate of
lenders.
• We paid annual dividends of $0.48 per common share in 2015. On March 1, 2016, our Board of Directors (“Board”)
declared a quarterly 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 14, 2016 to shareholders of record on March 31, 2016.
2 | 2015 ANNUAL REPORT MD&A
2015 Operational Highlights
• On January 6, 2015, we completed the purchase of Studon Electric & Controls Inc. (“Studon”), furthering the vertical
integration of our Industrial Group and strengthening our ability to provide a more complete range of industrial
services to our customers.
• During 2015 we added to backlog project awards and net scope increases amounting to $1.0 billion. These projects
included a $90.0 million project with Ontario’s largest post-secondary institution and a $90.0 million leisure centre
complex in Southern Alberta for our Buildings Group, as well as an $80.0 million contract for a power distribution
contract in Manitoba and two three-year extensions of master services agreements (MSA) worth $125.0 million with
oil sands customers in Alberta for our Industrial Group.
• Subsequent to year-end, we were awarded a five-year MSA valued at approximately $500.0 million to provide
maintenance, repair and operations (MRO) services to a longstanding oil sands customer in Alberta. Under the terms
of the multi-site, multi-use contract, we will deliver a bundled service offering, drawing on the expertise of a diverse
range of our Industrial Group service providers. Our backlog as at December 31, 2015 included $100.0 million of
this award as it relates to work for 2016 that was subject to a previously issued purchase order. The $400.0 million
balance has been added to backlog subsequent to the year-end.
In June 2015 we announced that Arthur Atkinson had been appointed as Chief Operating Officer of the Buildings
Group and that Joette Decore had been promoted to Executive Vice-President, Corporate Strategy and
Development. In early 2016 we also announced that Bob Myles had joined Stuart Olson as Group Chief Operating
Officer, Industrial.
•
3 | 2015 ANNUAL REPORT MD&A
OUTLOOK
We expect consolidated revenue for 2016 to be similar to the level achieved in 2015. Our revenue outlook is supported
by our stable $2.0 billion backlog, which provides line of sight to activity levels for 2016 and into 2017, and reflects our
access to many different segments and geographic markets within the Canadian construction market. Both the Buildings
Group and Commercial Systems Group are executing backlogs dominated by public projects across multiple provinces.
The Industrial Group, meanwhile, has been successful in winning significant new business within Alberta and beyond.
We balance this outlook with the potential for unknown impacts from the current “lower for longer” commodity pricing
environment.
EBITDA and EBITDA margin are expected to modestly decline in 2016, reflecting the continuation of challenging
economic conditions in the Alberta market and an increased proportion of lower-risk MRO projects for our Industrial
Group. Our EBITDA outlook also reflects the partial reversal of the intercompany eliminations that favourably impacted
2015 results.
Industrial Group Outlook
We expect 2016 revenue for the Industrial Group to be relatively consistent with 2015, supported by our large and
growing base of recurring oil sands MRO work. We significantly strengthened our MRO base in 2015 and early 2016
with the addition of new and extended MSA agreements with oil sands customers, including the $500.0 million multi-
year MSA announced with a key longstanding customer in February 2016. This latter agreement, which had added
$100.0 million to the December 31, 2015 backlog and $400.0 million subsequent to the year-end, includes a major
turnaround project that will be undertaken in 2016. Our outlook for the Industrial Group is further supported by our
execution of large industrial projects outside of Alberta, including a power distribution project in Manitoba and a mining
project in the Northwest Territories.
Industrial Group EBITDA and EBITDA margin as a percentage of revenue are expected to be weaker year-over-year as
a result of competitive market pressures in Alberta and an increased proportion of our revenue coming from lower-risk
cost-reimbursable MRO projects.
We expect to execute approximately $328.2 million of the Industrial Group’s backlog in 2016. New contract awards,
additional short-duration projects, scope changes and industrial maintenance work not yet included in backlog, are
expected to supplement the Industrial Group’s 2016 revenue from year-end backlog.
Buildings Group Outlook
The Buildings Group anticipates higher EBITDA and EBITDA margin in 2016 on slightly lower revenue compared to
2015. Our outlook reflects the strategic shift in our project mix as we completed the remaining industrial-site projects in
2015 and sharpened our focus on core strengths in the public and private construction markets. The Buildings Group’s
2016 revenue will be supported by predominantly public projects in multiple provinces, including the group’s growing
activity in the Ontario market. Our higher EBITDA expectations primarily reflect the favourable shift in project mix, and
to a lesser extent, a change in project stage of completion with several larger public projects scheduled to reach
completion in 2016.
We expect to execute approximately $502.2 million of the Buildings Group’s December 31, 2015 backlog during 2016.
Longer term, we see a continued strong pipeline of public projects arising from increased infrastructure spending at both
the provincial and federal levels across Canada.
4 | 2015 ANNUAL REPORT MD&A
Commercial Systems Group Outlook
Commercial Systems Group 2016 revenue is expected to be similar to 2015, reflecting consistent demand for the Group’s
highly specialized services across Western Canada. EBITDA and EBITDA margins for 2016 are expected to be slightly
lower than in 2015, reflecting the competitive market environment in Alberta.
During 2016, the Commercial Systems Group expects to execute approximately $121.0 million of its year-end backlog.
New awards, short-duration projects, building maintenance and tenant improvement work on existing projects are
expected to supplement the backlog revenue executed in the year.
RISKS
Various factors could cause our actual results to differ materially from the results anticipated by management. The factors
are described in more detail throughout 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”.
5 | 2015 ANNUAL REPORT MD&A
ABOUT STUART OLSON INC.
Stuart Olson provides private, public and industrial construction services to a diverse range of customers in Western
Canada, Ontario and the Northwest Territories.
The branding of our three business groups is organized as follows:
Industrial Group
The Industrial Group operates under the general contracting brand of Stuart Olson and under our endorsed brands of
Laird, Studon, Northern, Fuller Austin and Sigma Power. The Industrial Group serves clients in a wide range of industrial
sectors including oil and gas, petrochemical, refining, 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. The Industrial Group provides full service general contracting, including mechanical, process insulation, metal
siding and cladding, heating, ventilating and air conditioning (“HVAC”), asbestos abatement, electrical and
instrumentation, high voltage testing and commissioning, as well as power line construction and maintenance services.
Buildings Group
Our Buildings Group provides services to clients in the private, light industrial and public 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 and high technology facilities. 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 are
able to 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.
6 | 2015 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 and negotiate larger 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.
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’s strategy is to deliver 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.
ACQUISITION OF STUDON
On January 6, 2015, we acquired all of the issued and outstanding shares of Studon. Our reported results for the
Industrial Group and consolidated Stuart Olson include Studon’s results from the acquisition date. For further information
on the acquisition of Studon, please refer to Note 5 of our December 31, 2015 Audited Consolidated Annual Financial
Statements.
7 | 2015 ANNUAL REPORT MD&A
RESULTS OF OPERATIONS
Consolidated Annual Results
$millions, except percentages and per share amounts
2015
2014(3)
2013
Year ended December 31
Contract revenue
Contract income
Contract income margin(1)
Administrative costs
EBITDA(1)
EBITDA margin(1)
Net earnings from continuing operations
Net (loss) earnings from discontinued operations
Net earnings (loss)
Earnings (loss) per share
Basic from continuing operations
Basic earnings (loss) per share
Diluted from continuing operations
Diluted earnings (loss) per share
Dividends declared per share
$millions
Backlog(1)
Working capital(1) (2)
Long-term debt (excluding current portion)
Convertible debentures (excluding equity portion)(2)
Total assets
1,151.4
121.7
10.6%
94.4
51.1
4.4%
11.2
nil
11.2
0.42
0.42
0.39
0.39
0.48
1,306.3
115.7
8.9%
92.5
43.4
3.3%
7.1
(20.2)
(13.1)
0.29
(0.52)
0.28
(0.53)
0.48
1,051.8
108.8
10.3%
91.6
34.2
3.3%
4.6
0.5
5.1
0.19
0.21
0.19
0.21
0.48
Dec. 31, 2015
Dec. 31, 2014
Dec. 31, 2013
1,960.9
1,986.8
2,116.2
64.4
46.6
72.5
646.8
54.4
0.8
155.8
783.6
84.9
50.3
81.9
694.7
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 repaid June 30, 2015, were presented as a current liability of $84.8 million as at December
31, 2014.
(3) “EBITDA” for the year ended December 31, 2014 has been recalculated as a result of a change in definition in the year to exclude
costs/recoveries from investing activities. Please refer to the “Non-IFRS Measures” section for further information.
8 | 2015 ANNUAL REPORT MD&A
Consolidated Annual Results
For the year ended December 31, 2015, we recorded consolidated contract revenue of $1,151.4 million, a decline of
11.9% from $1,306.3 million in 2014. Revenue from the Buildings Group decreased by $145.2 million or 20.9%,
Commercial Systems Group revenue decreased by $8.8 million or 3.6%, and Industrial Group revenue decreased by
$1.1 million or 0.3% compared to 2014.
Full-year contract income improved by 5.2% to $121.7 million in 2015, from $115.7 million in 2014, while contract income
margin improved to 10.6% from 8.9%. The $6.0 million improvement in contract income reflects a $4.7 million or 14.0%
increase in contract income from the Buildings Group, partially offset by a $2.8 million or 5.5% decline in contract income
from the Industrial Group and a $0.6 million or 1.9% decrease from the Commercial Systems Group. The year-over-year
improvement in contract income also reflects a $4.7 million increase from intercompany eliminations (positive $3.6 million
impact in 2015 versus a negative impact of $1.1 million impact in 2014). Intersegment eliminations occur when two or
more of our business groups work together on a project. Over the life of the project, the impact of the eliminations to
contract income will net to nil; however, the impact of eliminations may be temporarily significant from period-to-period
depending on a number of factors. These factors include the number of intercompany projects under construction, the
scale of the projects, contract terms and project stage of completion.
Administrative costs were $94.4 million (8.2% of revenue) in 2015, an increase of 2.1% from $92.5 million (7.1% of
revenue) in 2014. The year-over-year change was driven by a $10.5 million or 58.3% increase in Industrial Group
administrative costs due to the January 2015 addition of Studon, including amortization related to the intangible assets
recorded at the time of acquisition. These costs were partially offset by a $2.6 million or 9.3% reduction in costs from the
Buildings Group, a $5.5 million or 17.2% reduction from the Corporate Group and a $0.3 million or 2.1% reduction from
the Commercial Systems Group.
EBITDA climbed 17.7% or $7.7 million to $51.1 million in 2015, from $43.4 million in 2014. Improvements in contract
income and reductions in core administrative costs (excluding increased amortization related to intangibles), were the
key factors in this improvement. EBITDA margin for the year improved to 4.4% from 3.3% in 2014.
Consolidated net earnings from continuing operations increased 57.7% to $11.2 million in 2015, from $7.1 million in
2014. The significant year-over-year improvement reflects the higher EBITDA, partially offset by increased depreciation
and amortization from intangible assets and equipment acquired as part of the Studon acquisition, together with higher
income tax expense primarily due to increased profitability in 2015.
Net earnings increased by $24.3 million to $11.2 million in 2015, up from a net loss of $13.1 million in 2014. The 2014
net loss included a $20.2 million net loss from discontinued operations related to our former Broda business.
9 | 2015 ANNUAL REPORT MD&A
Consolidated Q4 Results
$millions, except percentages and per share amounts
Contract revenue
Contract income
Contract income margin(1)
Administrative costs
EBITDA(1)
EBITDA margin(1)
Net earnings from continuing operations
Net earnings (loss) 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
2015
2014(2)
283.1
30.7
10.8%
25.5
11.5
4.1%
2.1
nil
2.1
0.08
0.08
0.08
0.08
0.12
364.5
32.3
8.9%
26.4
13.7
3.8%
1.2
(0.7)
0.5
0.05
0.02
0.05
0.02
0.12
Notes:
(1) “Contract income margin”, “EBITDA”, “EBITDA margin”, are non-IFRS measures. Refer to “Non-IFRS Measures” for definitions of these
terms.
(2) “EBITDA” for the three-months ended December 31, 2014 has been recalculated as a result of a change in definition in the year to exclude
costs/recoveries from investing activities. Please refer to the “Non-IFRS Measures” section for further information.
Consolidated Q4 Results
For the three months ended December 31, 2015, we generated consolidated contract revenue of $283.1 million, 22.3%
lower than the $364.5 million recorded in the same period in 2014. While revenue from the Industrial Group increased
by $10.6 million or 10.7% year-over-year, this was offset by a $94.9 million or 43.9% decrease in Buildings Group
revenue and a $1.1 million or 1.8% decrease in Commercial Systems Group revenue.
Fourth quarter contract income of $30.7 million decreased by $1.6 million or 5.0% from $32.3 million during the same
period in 2014. Contract income as a percentage of revenue improved to 10.8% from 8.9%. The year-over-year change
in contract income reflects a $0.8 million or 7.8% increase in contract income from the Buildings Group and a $0.3 million
or 3.5% increase from the Commercial Systems Group. These gains were partially offset by a $0.8 million or 6.1%
decrease in contract income from the Industrial Group and a $1.9 million year-over-year decrease in contract income
relating to the timing of intersegment eliminations. Please refer to the contract income paragraph of our consolidated
annual results on the previous page for a discussion of the factors impacting the amount and timing of intersegment
eliminations.
Fourth quarter 2015 administrative costs declined year-over-year to $25.5 million, from $26.4 million in the same period
last year. This improvement reflects administrative cost savings of $3.4 million or 31.8% in the Corporate Group and
$0.2 million or 5.3% in the Commercial Systems Group. These improvements were partially offset by increased costs of
$2.2 million or 47.8% in the Industrial Group related to the addition of Studon and $0.6 million or 8.2% increase in
Buildings Group costs.
10 | 2015 ANNUAL REPORT MD&A
EBITDA for the three months ended December 31, 2015 decreased by $2.2 million or 16.1% to $11.5 million, from $13.7
million in Q4 2014. EBITDA margin increased to 4.1% from 3.8% in the same period last year. The year-over-year
EBITDA change primarily reflects lower contract income and higher administrative costs, excluding administrative
depreciation and amortization.
Fourth quarter consolidated net earnings from continuing operations grew to $2.1 million in Q4 2015, from $1.2 million
in Q4 2014. The improvement of $0.9 million or 75.0% reflects lower administrative depreciation and amortization and
finance costs in 2015. Fourth quarter net earnings increased to $2.1 million, a $1.6 million improvement from net earnings
of $0.5 million during the same period in 2014. The year-over-year improvement reflects the absence of the 2014 $0.7
million net loss from discontinued operations relating to our former Broda business.
Consolidated Backlog
$millions, except percentages
Industrial Group
Buildings Group
Commercial Systems Group
Consolidated backlog
Construction management
Cost-plus
Design-build
Tendered (hard bid)
Dec. 31, 2015
Dec. 31, 2014
493.5
1,334.0
133.4
1,960.9
57.9%
28.2%
5.3%
8.6%
340.6
1,433.6
212.6
1,986.8
60.5%
23.7%
nil
15.8%
Consolidated backlog as at December 31, 2015 was $1,960.9 million, a decrease of $25.9 million or 1.3% from backlog
of $1,986.8 million as at December 31, 2014. The December 31, 2015 backlog includes the remaining balance of the
$157.0 million in backlog added at the time of the January 6, 2015 acquisition of Studon. The decline in overall backlog,
even after adding Studon’s backlog, reflects the reduction in Buildings Group industrial site projects and deferrals in the
timing of project awards in Alberta. As at December 31, 2015, backlog consisted of work-in-hand of $897.2 million
(December 31, 2014 - $1,080.3 million) and active backlog of $1,063.7 million (December 31, 2014 - $906.5 million).
Approximately 57.9% of the backlog consists of construction management (CM) contracts, 28.2% cost-plus
arrangements, 5.3% design-build contracts and 8.6% tendered (hard-bid) work. New contract awards and net increases
in contract value of $421.1 million and $1,009.2 million were added to work-in-hand in the fourth quarter and full-year
2015, respectively.
Our book-to-bill ratio for the fourth quarter of 2015 was 0.80 to 1.0, and for the year ended December 31, 2015, was
0.84 to 1.0, excluding the benefit of backlog provided by the Studon acquisition. Revenue exceeded backlog additions
during these periods primarily due to a reduction in the number of construction opportunities in the Alberta market.
11 | 2015 ANNUAL REPORT MD&A
RESULTS OF OPERATIONS BY BUSINESS GROUP
Industrial Group Results
$millions, except percentages
2015
2014
2015
2014
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)
110.0
12.3
11.2%
6.8
7.3
6.6%
5.6
99.4
13.1
13.2%
4.6
9.2
9.3%
8.5
406.7
48.5
11.9%
28.5
30.0
7.4%
20.0
493.5
407.8
51.3
12.6%
18.0
36.1
8.9%
33.4
340.6
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.
Three-Month Results
For the three months ended December 31, 2015, Industrial Group revenue increased by 10.7% to $110.0 million, from
$99.4 million during the same period in 2014. The $10.6 million increase reflects activity on the group’s Northwest
Territories mining project in 2015 and the addition of revenue from the Studon business acquired in the first quarter of
2015. These impacts were partially offset by the reduction in new oil sands construction activity and the wind-down of a
large one-time oil sands construction project that benefitted 2014 results.
The Industrial Group reported fourth quarter 2015 contract income of $12.3 million, a $0.8 million or 6.1% decline from
the $13.1 million achieved during the same period in 2014. As a percentage of revenue, fourth quarter contract income
margin decreased to 11.2% from 13.2% in Q4 2014. The lower margin reflects the impact of oil sands project owners
seeking supplier cost reductions, an increased proportion of lower-risk cost reimbursable MRO work in the current project
mix, and the absence of close-out margins earned on projects approaching completion in 2014.
For the three months ended December 31, 2015, Industrial Group administrative costs were $6.8 million, compared to
$4.6 million in the fourth quarter of 2014. The $2.2 million or 47.8% increase is related to the addition of Studon’s
administrative costs in 2015, as well as amortization related to the acquisition of Studon intangibles.
EBITDA from the Industrial Group was $7.3 million (6.6% EBITDA margin) in the fourth quarter of 2015, compared to
$9.2 million (9.3% EBITDA margin) during the same period in 2014. The $1.9 million or 20.7% decrease primarily reflects
the reduction in contract income margins and the increase in administrative costs, partially offset by the addition of
EBITDA provided by Studon.
The Industrial Group reported fourth quarter EBT of $5.6 million, a decrease of $2.9 million or 34.1% from $8.5 million
in 2014. The year-over-year change was due primarily to lower EBITDA and an increase in intangible amortization costs
associated with the Studon acquisition.
Twelve-Month Results
For the year ended December 31, 2015, the Industrial Group generated revenue of $406.7 million, a $1.1 million or 0.3%
decrease from $407.8 million in 2014. While 2015 revenues were negatively impacted by the industry-wide decline in
new oil sands construction activity, as well as by the wind-down of a large one-time oil sands construction project that
benefitted 2014 results, these impacts were largely offset by the addition of Studon’s revenue and by increasing activity
levels at the group’s Northwest Territories mining project.
12 | 2015 ANNUAL REPORT MD&A
The Industrial Group generated contract income of $48.5 million for the year ended December 31, 2015, a decrease of
$2.8 million or 5.5% from the $51.3 million achieved during 2014. Contract income margin was 11.9%, down from the
12.6% margin achieved in 2014. The 2015 results reflect the impact of oil sands project owners seeking supplier cost
reductions, an increased proportion of lower-risk cost reimbursable MRO work in the project mix and the absence of
2014 close-out margins related to projects that approached completion in the prior year.
For the year ended December 31, 2015, Industrial Group administrative expenses increased to $28.5 million from $18.0
million in 2014. The $10.5 million or 58.3% increase is primarily related to the addition of Studon’s administrative costs
in 2015 as well as amortization related to the acquired Studon intangibles. Based on weakness in the oil and gas sector,
a $4.0 million impairment related to acquired Studon intangibles (backlog and customer relationships) was identified and
recorded in the third quarter of 2015. This impairment was partially offset by a Q3 2015 recovery of $2.9 million related
to re-measuring the Studon earn-out contingent liability to fair value.
The Industrial Group earned EBITDA of $30.0 million (7.4% EBITDA margin) in 2015, a decrease of $6.1 million or
16.9% compared to EBITDA of $36.1 million (8.9% EBITDA margin) during 2014. The year-over-year change reflects
lower contract income and increased administrative costs, partially offset by the additional EBITDA contributed by
Studon.
Industrial Group EBT declined by $13.4 million or 40.1% to $20.0 million in 2015, from $33.4 million in 2014. The year-
over-year decrease reflects the lower 2015 EBITDA, increased intangible amortization costs associated with the Studon
acquisition and the intangible asset impairment recognized in 2015, partially offset by the recovery from re-measuring
the Studon contingent liability to fair value.
Backlog
As at December 31, 2015, Industrial Group backlog increased to $493.5 million, from a backlog of $340.6 million at
December 31, 2014. The $152.9 million or 44.9% increase reflects the addition of Studon’s backlog as well as increases
in project scope and new project awards. As at December 31, 2015, approximately 89.4% of the Industrial Group’s
backlog was composed of cost-plus projects and 10.6% was tendered (hard-bid) projects. The December 31, 2015
backlog consisted of $328.2 million of work-in-hand and $165.3 million of active backlog, compared to $325.1 million of
work-in-hand and $15.5 million of active backlog at December 31, 2014. With respect to work-in-hand, the Industrial
Group contracted $411.7 million of new awards during the year and executed $406.7 million of contract revenue.
13 | 2015 ANNUAL REPORT MD&A
Buildings Group Results
$millions, except percentages
2015
2014
2015
2014
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)
121.2
11.1
9.2%
7.9
5.6
4.6%
3.5
216.1
10.3
4.8%
7.3
6.0
2.8%
3.1
548.5
38.2
7.0%
25.3
17.1
3.1%
13.4
693.7
33.5
4.8%
27.9
12.0
1.7%
5.9
1,334.0
1,433.6
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.
Three-Month Results
For the three months ended December 31, 2015, the Buildings Group generated revenue of $121.2 million, a decline of
$94.9 million or 43.9% from $216.1 million in Q4 2014. The primary factors for this decrease were the planned wind-
down of the Buildings Group’s industrial site project activity, the completion of a number of projects in 2015 that provided
significant revenue in 2014, and the shift to pre-construction phases on a number of new projects in 2015.
Contract income increased to $11.1 million in the fourth quarter of 2015, from $10.3 million during the same period in
2014. The $0.8 million or 7.8% improvement reflects higher contract income margin, which increased to 9.2% from 4.8%
in Q4 2014. The improved margin reflects the group’s strategic move away from higher-risk industrial site projects, which
generated low margins, and in some cases negative margins, during the same period in 2014.
For the three months ended December 31, 2015, Buildings Group administrative costs increased to $7.9 million, from
$7.3 million in the fourth quarter of 2014. The $0.6 million or 8.2% increase is primarily related to bad debt recoveries
recognized in 2014 that did not repeat in 2015, partially offset by a Q4 2014 impairment associated with tenant
improvement write-downs as the Buildings Group reduced leased office space, lowering lease costs for the group long-
term.
The Buildings Group generated fourth quarter EBITDA of $5.6 million (4.6% EBITDA margin), compared to $6.0 million
(2.8% EBITDA margin) in the same period in 2014. The $0.4 million or 6.7% decrease primarily reflects the increased
administrative costs, partially offset by higher contract income.
EBT increased $0.4 million to $3.5 million in the fourth quarter of 2015, from $3.1 million in Q4 2014. The improved EBT
reflects the tenant improvement write-downs in 2014 recognized by the Buildings Group, partially offset by lower EBITDA
in Q4 2015.
Twelve-Month Results
For the year ended December 31, 2015, the Buildings Group generated revenue of $548.5 million, a decrease of $145.2
million or 20.9% from $693.7 million in 2014. The planned reduction in Buildings Group industrial site project activity
accounted for approximately 60.0% of this decline. The balance reflects the 2015 completion of a number of projects
that provided significant revenue in 2014 and the shift to pre-construction phases on a number of new projects in 2015.
14 | 2015 ANNUAL REPORT MD&A
Buildings Group contract income increased by 14.0% to $38.2 million in 2015, from $33.5 million in 2014. The $4.7
million improvement was principally driven by the significant increase in contract income margin to 7.0% in 2015, from
4.8% during the same period in 2014. The improved margin reflects our strategic shift away from higher-risk industrial
site projects and the recognition of close-out margins on a number of projects completed in the year.
For the year ended December 31, 2015, Buildings Group administrative costs decreased to $25.3 million, from $27.9
million in 2014. The $2.6 million or 9.3% decrease is related to administrative cost savings from targeted reductions in
the Buildings Group administrative spending, as well as tenant improvement write-downs that were incurred in 2014 but
not in 2015.
EBITDA increased 42.5% to $17.1 million (3.1% EBITDA margin) in 2015, from $12.0 million (1.7% EBITDA margin) in
2014. This $5.1 million improvement reflects the Buildings Group’s higher contract income and lower administrative
costs.
EBT increased by $7.5 million or 127.1% to $13.4 million in 2015, from $5.9 million in 2014. The year-over-year
improvement reflects the higher EBITDA and lower Buildings Group depreciation and impairment expense. The decrease
in depreciation and impairment in 2015 reflects our strategy of consolidating and reducing Buildings Group office space,
as well as the absence of tenant improvement write-downs incurred in 2014 that did not repeat in 2015.
Backlog
As at December 31, 2015, the Buildings Group’s backlog was $1,334.0 million, compared to $1,433.6 million at
December 31, 2014. The $99.6 million or 6.9% decline primarily reflects the Buildings Group having worked through the
final industrial site backlog in 2015, as well as reduced public and private backlog in Alberta and Manitoba, partially offset
by recent project wins by our Ontario branch. As at December 31, 2015, approximately 82.7% of the Buildings Group’s
backlog was composed of CM assignments, 8.4% was cost-plus projects, 7.7% was design-build contracts and 1.1%
was tendered (hard-bid) projects. The December 31, 2015 backlog consisted of $447.6 million of work-in-hand and
$886.3 million of active backlog, compared to $576.7 million of work-in-hand and $856.9 million of active backlog as at
December 31, 2014. With respect to work-in-hand, the segment secured $421.0 million of new awards and project scope
increases during the year, and executed $548.5 million of contract revenue.
15 | 2015 ANNUAL REPORT MD&A
Commercial Systems Group Results
$millions, except percentages
2015
2014
2015
2014
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)
59.4
8.8
14.8%
3.6
5.6
9.4%
5.2
60.5
8.5
14.0%
3.8
5.1
8.4%
4.7
233.5
31.4
13.4%
14.0
19.4
8.3%
17.7
133.4
242.3
32.0
13.2%
14.3
19.4
8.0%
17.8
212.6
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.
Three-Month Results
For the three months ended December 31, 2015, the Commercial Systems Group generated revenue of $59.4 million,
which is consistent with the $60.5 million delivered in Q4 2014.
Fourth quarter contract income from the Commercial Systems Group increased $0.3 million or 3.5% to $8.8 million from
$8.5 million in Q4 2014. As a percentage of revenue, contract income margin increased to 14.8% from 14.0% in Q4 2014
reflecting year-over-year changes in project stage of completion.
EBITDA from the Commercial Systems Group increased to $5.6 million (9.4% EBITDA margin) in the fourth quarter of
2015, from $5.1 million (8.4% EBITDA margin) last year. The improvement in EBITDA and EBITDA margin primarily
reflects the increase in contract income margin.
Fourth quarter EBT of $5.2 million was $0.5 million or 10.6% higher than the $4.7 million achieved during the same
period in 2014. The year-over-year improvement in EBT is attributable to the increase in EBITDA.
Twelve-Month Results
For the twelve months ended December 31, 2015, revenue from the Commercial Systems Group was $233.5 million,
compared to $242.3 million during the same period in 2014. The $8.8 million or 3.6% decrease reflects project timing.
The Commercial Systems Group generated contract income of $31.4 million in 2015, a $0.6 million or 1.9% decrease
from the $32.0 million achieved in 2014. Contract income margin increased to 13.4% from 13.2% year-over-year,
reflecting changes in project stage of completion.
EBITDA of $19.4 million (8.3% EBITDA margin) in 2015 was consistent with the $19.4 million (8.0% EBITDA margin)
realized in 2014. EBITDA margin improved as a result of the slightly higher contract income margin achieved in 2015.
Commercial Systems Group EBT of $17.7 million in 2015 was consistent with the $17.8 million achieved in 2014.
16 | 2015 ANNUAL REPORT MD&A
Backlog
Commercial Systems Group backlog was $133.4 million at December 31, 2015, compared to $212.6 million at December
31, 2014, a $79.2 million or 37.3% decrease. The decline in backlog is related to the timing of award approvals, which
have slowed in Alberta, rather than an absence of new projects. As at December 31, 2015, the group’s backlog was
composed of approximately 24.1% CM and cost-plus projects, 0.5% design-build projects, and 75.5% tendered projects.
The December 31, 2015 backlog consisted of $121.4 million of work-in-hand and $12.1 million of active backlog
compared to $178.4 million of work-in-hand and $34.2 million of active backlog at December 31, 2014. With respect to
work-in-hand, the group secured $176.5 million of new awards and increases in contract value during the year and
executed $233.5 million of construction activity.
Corporate Group Results
$millions
Administrative costs
Finance costs
EBITDA(1)
EBT(1)
Three months ended
December 31
Year ended
December 31
2015
2014(2)
2015
2014(2)
7.3
2.1
(5.7)
(9.4)
10.7
3.8
(7.0)
(14.3)
26.5
12.4
(19.1)
(38.6)
32.0
12.8
(23.0)
(44.6)
Note:
(1) “EBITDA” and “EBT” are non-IFRS measures. Refer to “Non-IFRS Measures” for the definition of the term.
(2) “EBITDA” for the three-months and year-ended December 31, 2014 has been recalculated as a result of a change in definition in the year
to exclude costs/recoveries from investing activities. Please refer to the “Non-IFRS Measures” section for further information.
Three-Month Results
For the three months ended December 31, 2015, Corporate Group administrative costs decreased to $7.3 million, from
$10.7 million in the fourth quarter of 2014. The $3.4 million or 31.8% improvement is primarily related to the timing of
incentive plan accruals in each year and Studon acquisition-related costs incurred in 2014 that did not repeat in 2015,
partially offset by the impact of changes in our share price on share-based compensation expense.
The Corporate Group’s finance costs decreased to $2.1 million in the fourth quarter of 2015, from $3.8 million during the
same period last year. The $1.7 million or 44.7% improvement reflects reduced interest costs related to having just one
set of convertible debentures outstanding in Q4 2015, as compared to having two sets of convertible debentures
outstanding in Q4 2014. This decrease was partially offset by higher interest costs related to the increased Revolver
balance in Q4 2015 associated with the settlement of the 2010 convertible debentures in late Q2 2015.
Corporate Group EBITDA improved to a loss of $5.7 million in Q4 2015, from a loss of $7.0 million in Q4 2014. The $1.3
million or 18.6% improvement reflects the decrease in administrative costs. This decrease in administrative costs does
not include the Studon acquisition costs incurred in Q4 2014, as they are excluded from our calculation of EBITDA. The
Corporate Group incurred a fourth quarter 2015 loss before tax of $9.4 million, compared to a loss before tax of $14.3
million in the comparable period in 2014. The year-over-year improvement was due principally to the reduction in
administrative and finance costs.
Twelve-Month Results
For the year ended December 31, 2015, Corporate Group administrative expenses decreased to $26.5 million, from
$32.0 million in 2014. The $5.5 million or 17.2% improvement is primarily related to the impact of changes in our share
price on share-based compensation expense, as well as claim settlements, rebranding costs and Studon acquisition-
related costs incurred in 2014 that did not repeat in 2015.
17 | 2015 ANNUAL REPORT MD&A
The Corporate Group’s finance costs decreased to $12.4 million in 2015, from $12.8 million in 2014. The $0.4 million or
3.1% decrease reflects lower interest costs related to our reduced Revolver balance in the first half of 2015, until the
2010 convertible debentures were partly repaid through a draw on the Revolver. This was partially offset by higher
interest expense related to having two sets of convertible debentures outstanding for six months in 2015, compared to
approximately three months in 2014.
EBITDA for the Corporate Group improved to a loss of $19.1 million in 2015, from an EBITDA loss of $23.0 million in
2014. The $3.9 million or 17.0% improvement is attributable to lower administrative costs, which as discussed under the
three-month results do not include the impact of Studon acquisition costs excluded from our calculation of EBITDA. The
Corporate Group incurred a 2015 loss before tax of $38.6 million, compared to a loss before tax of $44.6 million in 2014,
reflecting the reduction in administrative and finance costs.
Discontinued Operations
On September 1, 2014, we completed the sale of Broda. Results from our former Broda business, including those of all
prior periods, are presented as discontinued operations in this MD&A. For complete financial details of discontinued
operations, please refer to Note 14 of our December 31, 2015 Audited Consolidated Annual Financial Statements.
18 | 2015 ANNUAL REPORT MD&A
LIQUIDITY
Cash and Borrowing Capacity
We monitor our liquidity principally through cash and cash equivalents and available borrowing capacity under our
Revolver.
Current cash and cash equivalents at December 31, 2015 were $33.7 million, compared to $104.1 million at December
31, 2014. This $70.4 million decrease reflects the $62.3 million in cash paid on closing to acquire Studon and the $86.3
million in cash paid to settle our 2010 convertible debentures on June 30, 2015. These uses of cash were partially offset
by cash flow provided by operations, including the conversion of non-cash working capital to cash due to decreases in
activity levels in 2015 as compared to 2014, and cash borrowings of $47.5 million on our Revolver at year-end 2015.
As at December 31, 2015, we had additional borrowing capacity under our Revolver of $106.2 million, as compared to
$118.6 million at December 31, 2014. The decline in our borrowing capacity reflects the use of our Revolver as one of
the sources used to repay our $86.3 million 2010 convertible debentures in June 2015. This impact on our borrowing
capacity was partially offset by improved EBITDA performance in 2015 and the elimination of the Senior Debt to EBITDA
ratio financial covenant as part of the amendments made to the Revolver agreement during 2015.
Debt and Capital Structure
Long-term indebtedness, including the current portion of long-term debt and convertible debentures, declined to $131.7
million at December 31, 2015, from $169.8 million at December 31, 2014. The $38.1 million decrease mainly reflects the
repayment of the 2010 convertible debentures on June 30, 2015. Long-term indebtedness consists of $80.5 million
(December 31, 2014 - $166.8 million) principal value at maturity of outstanding convertible debentures and the principal
value of long-term debt of $51.2 million (December 31, 2014 - $3.1 million) before the deduction of deferred financing
fees.
The current portion of long-term debt was $2.4 million as at December 31, 2015 (December 31, 2014 - $0.4 million). The
current portion of convertible debentures was nil at December 31, 2015 (December 31, 2014 - $84.8 million). The 2010
convertible debentures that comprised the December 31, 2014 current portion of convertible debentures were settled on
June 30, 2015 through cash on hand, combined with a draw on our Revolver.
We monitor our capital structure through the use of indebtedness to capitalization and net long-term indebtedness to
EBITDA metrics. Indebtedness to capitalization at December 31, 2015 was 37%, which compares favourably to 44% at
December 31, 2014 and is in line with our long-term targeted range of 20% to 40%.
As at December 31, 2015, our net long-term indebtedness to EBITDA ratio was 1.8, representing a slight increase from
1.5 at December 31, 2014. The change was driven by an increase in net debt due to the acquisition of Studon in the first
quarter of 2015, partially offset by the conversion of non-cash working capital to cash resulting from decreases in activity
levels in 2015 as compared to 2014 and by the positive impact of improved 2015 EBITDA performance. Notwithstanding
the increase in net long-term indebtedness to EBITDA in 2015, we are below the targeted three-to-five year planning
range of 2.0 to 3.0.
19 | 2015 ANNUAL REPORT MD&A
As at December 31, 2015, we were in full compliance with our Revolver covenants.
Ratio
Interest coverage
Total debt to EBITDA(1)
Covenant
>3.00:1.00
<3.00:1.00
Actual as at
Dec. 31, 2015
4.06
0.93
Notes:
(1) On July 16, 2015, the terms of our Revolver were amended to eliminate the working capital ratio and senior debt to EBITDA ratio
covenants, and to revise the total debt to EBITDA ratio covenant to not more than 3.00:1.00.
The outstanding balance under the Revolver fluctuates from quarter-to-quarter as it is drawn to finance working capital
requirements, capital expenditures and acquisitions, and is repaid with funds from operations, dispositions or financing
activities.
Revolver Amendments
On July 16, 2015, we completed a three-year extension to our Revolver under improved terms and conditions. The
Revolver now consists of a $155.0 million credit facility and a $20.0 million operating facility. The combination of these
two facilities provides us with maximum available borrowing capacity of $175.0 million, as compared to $167.4 million
under the previous terms of the Revolver. The syndicated portion of the facility continues to include a $75.0 million
accordion feature. The maturity date of the Revolver was extended to July 16, 2020.
Material changes to the Revolver include the elimination of the former Working Capital ratio and the Senior Debt to
EBITDA ratio financial covenants. The Revolver continues to include existing financial covenants for Interest Coverage
and Total Debt to EBITDA. The Interest Coverage ratio covenant remains the same at not less than 3.00:1.00 and the
Total Debt to EBITDA ratio covenant has been reduced by 0.25 such that it shall not exceed 3.00:1.00, with a temporary
increase to 3.25:1.00 for a period of two quarters following the completion of a material acquisition. These amendments
are expected to expand our available borrowing capacity, if needed, to support operations, finance capital expenditures
and support growth strategies. The amendments also provide us with additional flexibility in terms of our ability to make
investments without securing approval from the syndicated lenders, by increasing the limit from $10.0 million to $25.0
million.
The amended and restated Revolver containing all of the foregoing changes and certain other non-material changes is
available under our SEDAR profile at www.sedar.com.
20 | 2015 ANNUAL REPORT MD&A
Summary of Cash Flows
$millions
Operating activities
Investing activities
Financing activities
(Decrease) increase in cash
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period(2)
Year ended
December 31
2015
2014(1)
62.2
(65.7)
(62.8)
(66.3)
104.1
37.8
23.2
30.0
14.7
67.9
36.2
104.1
Notes:
(1) This table includes both continuing and discontinued operations. Please refer to the accompanying notes of our December 31, 2015
Audited Consolidated Annual Financial Statements.
(2) Cash and cash equivalents includes restricted cash. Please refer to Note 17 of the December 31, 2015 Audited Consolidated Annual
Financial Statements.
For the year ended December 31, 2015, cash generated from operating activities was $62.2 million as compared to cash
generated of $23.2 million in 2014, a year-over-year improvement of $39.0 million. The increase was driven primarily by
a $28.9 million improvement in the change in non-cash working capital year-over-year from the conversion of non-cash
working capital to cash in 2015 for all of our groups, compared to a working capital investment last year. The remainder
of the improvement was driven by improved operating performance.
Cash used by investing activities increased to $65.7 million in 2015, from cash generated of $30.0 million in 2014, a net
additional cash outflow of $95.7 million. This reflects the $62.3 million of cash consideration to complete the Studon
acquisition in 2015 and a year-over-year decline in proceeds on the cash disposal of assets (including Broda) of $38.9
million in 2014, partially offset by a $5.4 million decline in property and equipment and intangible additions in 2015.
Decreased spending on property, equipment and intangibles in 2015 primarily reflects the 2014 divestiture of our former
Broda business, which was more capital intensive relative to our other businesses.
Cash used by financing activities totalled $62.8 million in 2015, as compared to $14.7 million of cash generated by
financing activities in 2014. The $77.5 million increase in cash used by financing activities primarily reflects the
repayment of our $86.3 million 2010 convertible debentures on June 30, 2015 by way of cash on hand and a draw on
our Revolver. This compares to the September 2014 issuance of convertible debentures that generated net proceeds of
$76.6 million, which in part were used to pay down the Revolver.
21 | 2015 ANNUAL REPORT MD&A
Adjusted Free Cash Flow
$millions, except per share data
Adjusted free cash flow(1)
Adjusted free cash flow per share(1)
Three months ended
December 31
Year ended
December 31
2015
2014
2015
2014
11.2
0.42
7.0
0.28
33.7
1.28
18.2
0.73
Notes:
(1) “Adjusted free cash flow” and “adjusted free cash flow per share” are non-IFRS measures. Refer to “Non-IFRS Measures” for their
definitions and calculations.
Adjusted free cash flow in the fourth quarter of 2015 improved to $11.2 million ($0.42 per share), an increase of $4.2
million from $7.0 million ($0.28 per share) in Q4 2014. This improvement primarily reflects improved net income in 2015.
Full year 2015 adjusted free cash flow was $33.7 million ($1.28 per share), an increase of $15.5 million from $18.2
million ($0.73 per share) in 2014. This improvement reflects improved operating performance and lower capital
expenditures.
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.
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 comprised 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.
Capital expenditures, including both property, equipment and intangible assets, are associated with our need to maintain
and support existing operations. For 2016, we are continuing to restrict capital spending to only those assets we are
contractually committed to acquire or that are needed in order to execute our backlog of work. We expect to keep capital
expenditures for 2016 within a range of $6.5 million to $8.0 million as we continue to monitor and assess the health of
the Western Canadian construction market in a low oil price environment. Cash capital expenditures, net of tenant
inducement cash receipts and leases capitalized for accounting purposes, are expected to be $4.0 million to $5.5 million
in 2016, as compared to $4.5 million in 2015.
Working Capital
As at December 31, 2015, we had working capital of $64.4 million, compared to $54.4 million at December 31, 2014.
The $10.0 million increase primarily reflects the settlement of our 2010 convertible debentures (which were classified as
a current liability at December 31, 2014) on June 30, 2015 for $86.3 million, partially offset by a reduction in cash to fund
the purchase of Studon on January 6, 2015 and the use of operating cash flow to pay down the Revolver.
On the basis of our current cash and cash equivalents, our ability to generate cash from operations and the undrawn
portion of our Revolver, 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 of the December 31, 2015
Audited Consolidated Annual Financial Statements.
22 | 2015 ANNUAL REPORT MD&A
Contractual Obligations
The following are our contractual financial obligations as at December 31, 2015. Interest payments on the Revolver have
not been included in the table below as they are subject to variability based upon outstanding balances at various points
throughout the year. Further information is included in Note 31(c)(iii) of the December 31, 2015 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
$ 178,373 $ 178,373 $ 178,373 $ - $ - $ nil
Provisions including current portion
Convertible debentures (debt portion)
Long-term debt including current portion
Operating lease commitments
13,375
72,529
48,934
nil
14,263
99,820
51,433
61,414
7,793
4,830
2,517
8,226
5,068
9,660
708
14,358
367
85,330
48,208
14,358
1,035
nil
nil
24,472
$ 313,211
$ 405,303
$ 201,739
$ 29,794
$ 148,263
$ 25,507
Scheduled long-term debt principal repayments due within one year of December 31, 2015 were $2.4 million (December
31, 2014 - $0.4 million), while scheduled convertible debenture principal repayments for this same period were nil
(December 31, 2014 - $86.3 million).
Share Data
As at December 31, 2015, we had 26,532,482 common shares issued and outstanding and 1,715,118 options convertible
into common shares (December 31, 2014 - 25,054,310 common shares and 1,682,042 options). Please refer to Note 28
and Note 29 of the Audited Consolidated Annual Financial Statements for further detail. On January 14, 2016, we issued
103,229 shares pursuant to our Dividend Reinvestment Plan (“DRIP”). The details pertaining to our DRIP are available
on our website. As at March 1, 2016, we had 26,635,711 common shares issued and outstanding and 1,682,042 options
convertible into common shares.
The $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, 2015, shareholders’ equity was $225.0 million, compared to $216.6 million at December 31, 2014. This
$8.4 million increase reflects $11.2 million of 2015 net earnings, the issuance of $6.6 million in common shares as part
of the consideration for the Studon acquisition, $2.1 million related to shares issued pursuant to the DRIP, $0.8 million
related to stock option expense, and a $0.3 million year-to-date defined benefit plan actuarial gain, net of tax, partially
offset by $12.7 million of dividends declared.
DIVIDENDS
Declaration of Common Share Dividend
On March 1, 2016, 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 14, 2016 to shareholders of
record on March 31, 2016. The declaration of this dividend reflects the Board’s confidence in our ability to 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.
23 | 2015 ANNUAL REPORT MD&A
OFF-BALANCE SHEET ARRANGEMENTS
We had no off-balance sheet arrangements in place at December 31, 2015.
RELATED PARTY TRANSACTIONS
For the year ended December 31, 2015, we incurred facility costs of $0.5 million (2014 - nil) for the rental of buildings
that are partially owned indirectly by Don Sutherland, the President of Studon. No amounts are included in trade payables
as at December 31, 2015 and 2014.
We incurred 2015 facility costs of $0.3 million (2014 – $0.3 million) for the rental of a building that is 50% owned by
Schneider Investments Inc., a company owned by George Schneider, a former Director of the Corporation. No amounts
are included in trade payables as at December 31, 2015 and 2014.
We incurred facility costs of nil in 2015 (2014 – $0.3 million) for the rental of a building owned by Broda Holdings (2009)
Inc., a company owned by Gord Broda, the President of a former subsidiary of the Corporation. No amounts are included
in trade payables as at December 31, 2015 and 2014. We reclassified these facility costs as discontinued operations in
the consolidated statements of earnings (loss).
On September 1, 2014, we 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 $38.8 million. Gord Broda had an indirect
interest in the entity that acquired Broda. Chad Danard, a Stuart Olson Director and a Managing Director of TriWest, did
not participate in any discussions related to the Broda disposition. TriWest recognized the potential conflict and took
steps to ensure that Mr. Danard was not involved at any time in discussions at TriWest pertaining to the Broda disposition.
24 | 2015 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:
2015 Quarter Ended:
2014 Quarter Ended(2):
$millions, except per share amounts
Dec. 31
Sep. 30
Jun. 30 Mar. 31 Dec. 31(3) Sep. 30
Jun. 30
Mar. 31
Contract revenue
EBITDA(1)
Net earnings (loss) from continuing operations
Net earnings (loss) from discontinued operations
Net earnings (loss)
Net earnings (loss) per common share
Basic from continuing operations
Basic earnings (loss) per share
Diluted from continuing operations
Diluted earnings (loss) per share
283.1
281.7
303.7
282.9
364.5
350.4
322.9
268.5
11.5
15.9
13.2
10.6
2.1
nil
2.1
0.08
0.08
0.08
0.08
6.4
nil
6.4
0.24
0.24
0.18
0.18
1.7
nil
1.7
0.06
0.06
0.06
0.06
1.0
nil
1.0
0.04
0.04
0.04
0.04
13.7
1.2
10.9
2.8
9.9
1.8
(0.7)
(15.7)
(1.9)
0.5
(12.9)
nil
8.9
1.3
(1.9)
(0.6)
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)
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 14 of our December 31, 2015 Audited Consolidated
Financial Statements.
(3) “EBITDA” for the quarter ended December 31, 2014 has been recalculated as a result of a change in definition in the year to exclude
costs/recoveries from investing activities. Please refer to the “Non-IFRS Measures” section for further information.
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.
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.
Financial results for the first quarter of 2015 declined relative to the fourth quarter of 2014, with our business groups
experiencing seasonal activity declines quarter-over-quarter. Notwithstanding the seasonal activity decline, net earnings
improved in the first quarter of 2015 as a result of a Q4 2014 loss from discontinued operations that did not repeat in the
first quarter of 2015.
Financial results for the second quarter of 2015 increased compared to the first quarter of 2015, principally due to
seasonal increases in revenue and margin for the Industrial Group, margin improvement for the Buildings Group and an
increase in profit associated with intersegment eliminations.
25 | 2015 ANNUAL REPORT MD&A
Third quarter 2015 revenue declined compared to the second quarter of 2015 due to lower activity levels for our
Commercial Systems Group and Buildings Group related to project timing and weaker market conditions in Alberta.
Notwithstanding the decline in revenue, EBITDA and earnings improved quarter-over-quarter as a result of improved
margin earned by each of our groups.
Modest revenue increases for our Industrial Group and Commercial Systems Group in the fourth quarter of 2015 as
compared to the third quarter were partially offset by a reduction in Buildings Group activity. Fourth quarter EBITDA and
contract income declined primarily as a result of a shift in intercompany eliminations. Profit recorded in Q3 2015 as a
result of intercompany projects reversed in the fourth quarter as these projects moved into later stages of completion.
For a more detailed discussion and analysis of quarterly results prior to December 31, 2015, please review our 2015
and 2014 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;
The key assumptions and basis for the estimates that management has made under IFRS and their impact on the
amounts reported in the Audited Consolidated Annual Financial Statements and notes thereto, are contained in the 2015
Annual Report, Management’s Discussion and Analysis.
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.
26 | 2015 ANNUAL REPORT MD&A
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.
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 us 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.
We recognize 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 consolidated
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
27 | 2015 ANNUAL REPORT MD&A
indicate that an asset may be impaired. Goodwill arose during multiple past acquisitions. The Industrial Group’s goodwill
stems from the Laird Electric Inc. acquisition of 2003 and the Studon acquisition on January 6, 2015. 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. Goodwill recognized on all of these acquisitions was attributable mainly to revenue growth, future
market development, the assembled workforce and the synergies achieved from the integration of the acquired company
into existing construction, commercial and industrial services. During the fourth quarter of 2015, we performed our 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. We
use our 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 the Corporation’s 2016 - 2018 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.
The terminal value was calculated using a discount rate of 11% (2014 – 12%) and a steady annual growth of 2% (2014
– 2%) 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 Impairment Assessment Assumptions
Management and the Board of Directors believe that any reasonable change to the key assumptions used to determine
each CGU’s recoverable amount would not cause its carrying value to exceed its recoverable amount.
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 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.
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.
28 | 2015 ANNUAL REPORT MD&A
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 consolidated 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 of each class of property and equipment are as follows:
Asset
Land improvements
Buildings and improvements
Leasehold improvements
Construction equipment
Automotive equipment
Basis
Straight-line
Straight-line
Straight-line
Straight-line
Straight-line
Office furniture and equipment
Straight-line
Computer Hardware
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
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.
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.
29 | 2015 ANNUAL REPORT MD&A
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.
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.
Bridging Restricted Share Units (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.
Restricted Share Units (RSUs) 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 (PSUs) 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 and the payout can be 0% to 200% of the
vested units, subject to the achievement of certain corporate objectives as approved by the Board of Directors. Each
grant of PSUs is individually evaluated regularly with regard to vesting and payout assumptions. The Corporation will
settle the PSUs in cash within 20 business days after vesting.
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.
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
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.
30 | 2015 ANNUAL REPORT MD&A
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 of the December 31, 2015 Audited Consolidated Annual Financial Statements 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 Audited
Consolidated Statements of Earnings (Loss) and Comprehensive Earnings (Loss), and is net of any recoveries that were
provided for in a prior period. Allowance for doubtful accounts as at December 31, 2015 was $2.6 million (December 31,
2014 - $2.1 million).
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, 2015, we had $27.4 million of trade
receivables (December 31, 2014 - $21.3 million) which were greater than 90 days past due, with $24.9 million not
provided for as at December 31, 2015 (December 31, 2014 - $19.2 million). Management has no concerns regarding
the credit quality and collectability of these accounts as the concentration of credit risk is limited due to its large and
unrelated customer base. The increase from 2014 is primarily the result of delays in resolving final contract issues with
owners. Two of the more significant balances greater than 90 days have been resolved with customers and we expect
collection in the first quarter of 2016. Trade receivables are included in trade and other receivables on the consolidated
statements of financial position.
31 | 2015 ANNUAL REPORT MD&A
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, 2015, the increase or
decrease in annual net earnings for each 100 basis point change in interest rates on floating rate debt would have been
approximately $0.3 million (December 31, 2014 - $0.8 million) related to financial assets and $0.4 million (December 31,
2014 - nil) 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, 2015 Audited Consolidated Annual Financial Statements for further detail.
Controls & Procedures
All of the controls and procedures set out below encompass all legacy Stuart Olson companies and scope out controls
for the legacy Studon business, as permitted by National Instrument 52-109 for 365 days following the acquisition.
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 Chief Executive Officer (CEO) and Chief Financial Officer
(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 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, 2015. 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, 2015.
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. Absolute
assurance cannot be provided that all misstatements have been detected because of inherent limitations in all control
systems. 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 by
management to be appropriate in the circumstances. As at December 31, 2015, 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.
32 | 2015 ANNUAL REPORT MD&A
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, 2015 and ending on December 31, 2015 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”, “adjusted free cash flow”, “adjusted
free cash flow per share”, “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.
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
Consolidated backlog
Dec. 31, 2015
Dec. 31, 2014
897.2
1,063.7
1,960.9
1,080.3
906.5
1,986.8
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 the impact of backlog additions from
acquisitions and 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.
33 | 2015 ANNUAL REPORT MD&A
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, 2015
Dec. 31, 2014
319.8
(255.4)
64.4
501.6
(447.2)
54.4
Notes: (1) The convertible debentures issued in 2010, and repaid June 30, 2015, were presented as a current liability of $84.8 million as at December
31, 2014.
EBITDA and EBT
We define EBT as earnings/loss from continuing operations before income taxes.
We define EBITDA as net earnings/loss from continuing operations before interest expense, income taxes, capital asset
depreciation and amortization, impairment charges, costs or recoveries relating to investing activities and gains/losses
on assets, liabilities and investment dispositions.
For 2015, we have revised our definition of EBITDA to exclude the impact of costs or recoveries relating to investing
activities. This change was undertaken to address a recovery that was recognized as part of our 2015 EBT relating to
marking-to-market a provisional liability initially recognized as part of the Studon purchase price. Further, we have
revised the calculation of EBITDA for the quarter and year-ended December 31, 2014 to exclude the impact of Studon
acquisition costs. As management uses EBITDA as one measure of our operating performance, we believe it is
appropriate to exclude from EBITDA recoveries and costs related to investment decisions.
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 EBT and EBITDA for each of the periods presented in this
MD&A.
$millions
Net earnings from continuing operations
Add: Income tax expense
EBT
Add: Depreciation and amortization
Impairment
Finance costs
Loss (recovery) relating to investing activities
Loss (gain) on disposal of assets
Three months ended
December 31
Year ended
December 31
2015
2014
2015
2014
2.1
1.4
3.5
4.7
1.2
2.1
nil
nil
1.2
1.2
2.4
5.8
nil
3.8
1.7
nil
11.2
4.8
16.0
20.3
5.2
12.6
(2.9)
nil)
51.2
7.1
4.1
11.2
14.9
2.6
12.9
1.7
0.1
43.4
EBITDA
11.5
13.7
EBITDA Margin
EBITDA margin is the percentage derived from dividing EBITDA by contract revenue.
34 | 2015 ANNUAL REPORT MD&A
Adjusted Free Cash Flow
We define adjusted free cash flow as cash generated/used in operating activities less cash expenditures of intangible,
property and equipment assets (excluding business acquisition, adjusted to exclude the impact of changes in non-cash
working capital balances. Per share amounts is calculated based on the basic weighted average number of shares
outstanding for each period.
Management uses adjusted free cash flow as a measure of our operating performance, reflecting the amount of cash
flow from operations that is available after capital expenditures (excluding business acquisitions) that is available to pay
dividends, repay debt, repurchase shares or reinvest in the business. Adjusted free cash flow is particularly useful to
management because it isolates both non-cash working capital invested during periods of growth and working capital
converted to cash during seasonal declines in activity.
The following is a reconciliation of adjusted free cash flow and per share amounts for each of the periods presented in
this MD&A.
Three months ended
December 31
Year ended
December 31
$millions, except per share data and number of shares
2015
2014
2015
2014
Net cash generated in operating activities
Less: Cash additions to intangible assets
Cash additions to property and equipment
Cash (used) generated by changes in non-cash
working capital balances
Adjusted free cash flow
Adjusted free cash flow per share
15.6
(0.3)
(1.8)
(2.3)
11.2
0.42
37.6
(0.7)
(1.0)
(28.9)
7.0
0.28
62.1
(0.9)
(3.6)
(23.9)
33.7
1.28
23.2
(1.6)
(8.3)
4.9
18.2
0.73
Basic shares outstanding
26,518,139
25,048,958
26,364,511
24,947,817
Long-term Indebtedness
Long-term indebtedness is the gross value of our indebtedness. It is calculated as the principal value of long-term debt
(current and non-current amounts before the deduction of deferred financing fees) and principal value at maturity 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 divided 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 is divided by last twelve month EBITDA.
35 | 2015 ANNUAL REPORT MD&A
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 the information will prove to be correct and such
information should not be unduly relied upon by investors as actual results may vary significantly. This information speaks
only as of the date of this MD&A and is expressly qualified, in its entirety, by this cautionary statement.
In particular, this MD&A contains forward-looking information, pertaining to the following:
• Our capital expenditure program for the remainder of 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;
• The expectation that we resolve remaining contract issues on certain projects in 2016;
• 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, new contract awards
and industrial maintenance work;
• The expectation that changes to our Revolver will expand borrowing capacity to support operations, finance
capital expenditures and support growth strategies;
• 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;
• Our estimate of the value of the five-year MSA to provide MRO services to a longstanding oil sands customer;
• 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 as to future general economic conditions and the impact those conditions may have on the
company and our businesses including, without limitation, the reaction of oil sands owners to the recent decrease
in oil prices;
• 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.
36 | 2015 ANNUAL REPORT MD&A
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;
• 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.
37 | 2015 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 1, 2016
38 | 2015 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, 2015 and December 31, 2014, the consolidated
statements of earnings (loss) and comprehensive earnings (loss), 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, 2015 and December 31, 2014, and its financial performance and its cash flows for the
years then ended in accordance with International Financial Reporting Standards.
Chartered Professional Accountants, Chartered Accountants
March 1, 2016
Edmonton, Canada
39 | 2015 ANNUAL REPORT
STUART OLSON INC.
Consolidated Statements of Earnings (Loss) and Comprehensive Earnings (Loss)
For the years ended December 31, 2015 and 2014
(in thousands of Canadian dollars, except share and per share amounts)
Contract revenue
Contract costs
Contract income
Other income
Finance income
Administrative costs
Finance costs
Earnings from continuing operations before tax
Income tax (expense) recovery
Current income tax
Deferred income tax
Net earnings from continuing operations
Net loss from discontinued operations
Net earnings (loss)
Other comprehensive earnings (loss)
Items that will not be reclassified to net earnings (loss)
Defined benefit plan actuarial gain (loss)
Deferred tax (expense) recovery on other comprehensive earnings (loss)
Total comprehensive earnings (loss)
Earnings (loss) per share:
Basic from continuing operations
Basic from discontinued operations
Basic earnings (loss) per share
Diluted from continuing operations
Diluted from discontinued operations
Diluted earnings (loss) per share
Weighted average common shares:
Basic
Diluted from continuing operations
Diluted from discontinued operations
See accompanying notes to the consolidated financial statements.
40 | 2015 ANNUAL REPORT
Note
8
December 31,
2015
December 31,
2014
$
1,151,416
1,029,679
121,737
$
1,306,259
1,190,600
115,659
9
10
10
13
14
15
13
16
16
16
16
16
863
514
(94,435)
(12,638)
16,041
(7,749)
2,903
(4,846)
11,195
-
11,195
558
394
(92,530)
(12,866)
11,215
(6,930)
2,860
(4,070)
7,145
(20,224)
(13,079)
363
(97)
266
11,461
$
(4,293)
1,095
(3,198)
(16,277)
$
$
$
$
$
$
$
0.42
-
0.42
0.39
-
0.39
$
$
0.29
(0.81)
(0.52)
0.28
(0.81)
(0.53)
26,364,511
41,261,341
-
24,947,817
25,088,783
24,947,817
STUART OLSON INC.
Consolidated Statements of Financial Position
As at December 31, 2015 and December 31, 2014
(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
Restricted cash
Service provider deposit
Long-term receivable and prepaid expenses
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
Other liabilities
EQUITY
Share capital
Convertible debentures
Share-based payment reserve
Contributed surplus
Retained earnings
See accompanying notes to the consolidated financial statements.
On behalf of the Board of Directors:
Albrecht W.A. Bellstedt
Chairperson
41 | 2015 ANNUAL REPORT
Note
December 31,
2015
December 31,
2014
17
18
19
17
20
13
21
22
23
24
19
25
26
27
15(b)
25
26
27
13
28(d)
29(a)
27
28(a)
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
11,689
9,341
5,128
58,739
216,621
783,611
$
$
$
$
33,667
215,937
1,638
3,263
58,988
6,264
30
319,787
4,172
6,799
1,944
24,085
22,281
214,024
53,708
646,800
$
$
178,373
59,698
7,705
7,278
2,369
-
255,423
4,680
5,670
46,565
72,529
30,782
4,652
1,517
421,818
140,457
4,589
10,176
12,228
57,532
224,982
646,800
$
$
Rod Graham
Director
STUART OLSON INC.
Consolidated Statements of Changes in Equity
For the years ended December 31, 2015 and 2014
(in thousands of Canadian dollars)
Balance at December 31, 2014
Net earnings
Other comprehensive earnings:
Defined benefit plan actuarial gain, net of tax
Total comprehensive earnings
Transactions recorded directly to equity
Common shares issued under stock option plan
Common shares issued related to acquisition
Matured and settled convertible debentures
Dividends
Balance at December 31, 2015
Balance at December 31, 2013
Net loss
Other comprehensive loss:
Defined benefit plan actuarial loss, net of tax
Total comprehensive loss
Note
Share
Capital
131,724
$
Convertible
Debentures
$
11,689
Share-Based
Payment
Reserve
9,341
$
Contributed
Surplus
5,128
$
Retained
Earnings
58,739
11,195
$
Total
Equity
216,621
11,195
$
266
11,461
266
11,461
28(a)
5, 29(a)
27
29(a,b)
6,631
2,102
140,457
$
835
(7,100)
7,100
$
4,589
$
10,176
$
12,228
(12,668)
57,532
$
835
6,631
-
(10,566)
224,982
$
$
129,134
$
7,100
$
8,594
$
5,128
$
87,002
(13,079)
$
236,958
(13,079)
(3,198)
(16,277)
(3,198)
(16,277)
4,589
1,981
(10,630)
216,621
$
(11,986)
58,739
$
Transactions recorded directly to equity
Issued during the year
Common shares issued under stock option plan
Dividends
Balance at December 31, 2014
See accompanying notes to the consolidated financial statements.
27
29(a), 28(a)
29(a,b)
1,234
1,356
131,724
$
4,589
747
$
11,689
$
9,341
$
5,128
42 | 2015 ANNUAL REPORT
STUART OLSON INC.
Consolidated Statements of Cash Flow
For the years ended December 31, 2015 and 2014
(in thousands of Canadian dollars)
OPERATING ACTIVITIES
Net earnings (loss)
Depreciation and amortization
Impairment loss on property and equipment
Impairment loss on intangible assets
Change in fair value of contingent consideration
(Gain) loss on disposal of assets
Loss on disposal of discontinued operation, net of tax
Share-based compensation expense
Income tax expense (recovery)
Income tax recovery recorded in indirect costs
Finance costs
Contributions to employee benefits
Payment of share-based payment liability
Change in long-term prepaid expenses
Change in provisions
Change in other long-term liabilities
Change in non-cash working capital balances
Cash generated in operating activities
Interest paid
Income taxes paid
Net cash generated in operating activities
INVESTING ACTIVITIES
Acquisition of Studon
Change in long-term receivable
Proceeds on disposal of assets
Additions to intangible assets
Additions to property and equipment
Net cash (used) generated in investing activities
FINANCING ACTIVITIES
Change in service provider deposit
Proceeds of long-term debt
Repayment of long-term debt
Issuance of 2014 convertible debentures
Repayment of 2010 convertible debentures
Issuance of common shares
Dividend paid
Net cash (used) generated in financing activities
(Decrease) increase in cash and cash equivalents during the year
Cash and cash equivalents, beginning of the year
Cash and cash equivalents(2), end of the year
See accompanying notes to the consolidated financial statements.
(1) Comparative 2014 figures include both continuing and discontinued operations.
(2) Cash and cash equivalents includes restricted cash (Note 17).
43 | 2015 ANNUAL REPORT
December 31,
Note
2015
December 31,
2014 (1)
11
21
5,23
5,25
14
28(e)
13
10
25
30
5
23
21
20
26
26
27
27
29(b)
$
11,195
20,304
1,170
4,000
(2,935)
(149)
-
2,066
4,846
(1,023)
12,638
(1,298)
(1,892)
(1,619)
5,846
1,517
23,995
78,661
(8,994)
(7,501)
62,166
$
(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
(62,335)
40
1,141
(920)
(3,600)
(65,674)
-
(145)
39,993
(1,558)
(8,312)
29,978
(1,250)
214,000
(178,876)
-
(86,250)
-
(10,390)
(62,766)
(66,274)
104,113
37,839
$
608
417,500
(470,289)
76,623
-
869
(10,599)
14,712
67,877
36,236
104,113
$
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(in thousands of Canadian dollars, except share and per share amounts)
1. REPORTING ENTITY
Stuart Olson Inc. was incorporated on August 31, 1981 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 general contracting and electrical building systems contracting in the
institutional and commercial construction markets, as well as electrical, mechanical and specialty trades, such as
insulation, cladding and asbestos abatement, in the industrial construction and services market. The Corporation
provides its services to a wide array of clients in the public, private and industrial sectors 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 1, 2016.
(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 consolidated 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.
44 | 2015 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(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 13); 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 8). 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); and
Assumptions and estimates surrounding the fair value of assets and liabilities recognized through business
combinations (Note 5).
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.
45 | 2015 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(in thousands of Canadian dollars, except share and per share amounts)
(i) Business combinations
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 the 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.
When the consideration transferred includes liabilities from a contingent consideration arrangement, the contingent
consideration is measured at its acquisition-date fair value and included as part of the consideration transferred. Changes
in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted
retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are those that arise
from additional information obtained during the ‘measurement period’ about facts and circumstances that existed at the
acquisition date.
Subsequent to the acquisition date, contingent consideration that is classified as a liability is remeasured at subsequent
reporting dates, with the corresponding gain or loss being recognized in earnings or loss.
(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.
46 | 2015 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(in thousands of Canadian dollars, except share and per share amounts)
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.
(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.
47 | 2015 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(in thousands of Canadian dollars, except share and per share amounts)
(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.
(d) Finance income and finance costs
Finance income is comprised of 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 are comprised of 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 earnings (loss).
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.
48 | 2015 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(in thousands of Canadian dollars, except share and per share amounts)
Deferred tax assets are recognized to the extent future recovery is probable. At each reporting period end, deferred tax
assets are reduced to the extent that it is no longer probable that sufficient taxable 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.
(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. 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.
49 | 2015 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(in thousands of Canadian dollars, except share and per share amounts)
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 earnings (loss)
in the period in which they occur.
When the benefits of a plan are improved, the portion of the increased benefit related to past service by employees is
recognized in profit or loss on a straight-line basis over the average service period until the benefits become vested. To
the extent that the benefits vest immediately, the expense is recognized immediately in profit or loss.
Unlike the defined benefit plan, there is no obligation recorded for the defined contribution plans. The contributions made
by the Corporation are measured on an undiscounted basis and are expensed as the related services are provided.
(iii) Share-based payments
The grant date fair value of share-based payment awards, or stock options, granted to employees is recognized as an
employee expense, with a corresponding increase in equity, over the period that the employees unconditionally become
entitled to the awards. The amount recognized as an expense is adjusted to reflect the number of awards for which the
related service and non-market vesting conditions are expected to be met, such that the amount ultimately recognized
as an expense is based on the number of awards that meet the related service and non-market performance conditions
at the vesting date.
The fair value of the amount payable to employees and directors in respect of 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 is
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.
50 | 2015 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(in thousands of Canadian dollars, except share and per share amounts)
(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.
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 earnings
(loss). As at December 31, 2015, 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.
51 | 2015 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(in thousands of Canadian dollars, except share and per share amounts)
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, cash, cash equivalents and restricted cash.
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 earnings (loss), 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, including restricted cash
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
Classification
Measurement
Loans and receivables
Loans and receivables
Available-for-sale
Loans and receivables
Amortized cost
Amortized cost
Fair value
Amortized cost
Other liabilities
Other liabilities
Other liabilities
Amortized cost
Amortized cost
Amortized cost
52 | 2015 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(in thousands of Canadian dollars, except share and per share amounts)
(iii) Compound financial instruments
Compound financial instruments issued by the Corporation are comprised of 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) Cash and cash equivalents
Cash and cash equivalents is comprised of cash on hand, bank balances and short-term liquid investments with original
maturities of three months or less.
(j) Restricted cash
Restricted cash is comprised of cash and cash equivalents for which the use is externally restricted for specific purposes.
(k) 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.
(l) 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.
53 | 2015 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(in thousands of Canadian dollars, except share and per share amounts)
(m) 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.
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 consolidated 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 the Corporation will obtain ownership by the end of the lease term. The method
of depreciation has been selected based on the expected pattern of consumption of the economic benefits of the asset.
The estimated useful lives of each class of property and equipment are as follows:
Asset
Land improvements
Buildings and improvements
Leasehold improvements
Construction equipment
Automotive equipment
Office furniture and equipment
Computer hardware
Basis
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
54 | 2015 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(in thousands of Canadian dollars, except share and per share amounts)
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.
(n) 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.
(o) Intangible assets
Intangible assets are comprised of Enterprise Resource Planning (ERP) and other computer software assets, and assets
related to the acquisition of a business, including backlog and agency contracts, customer relationships and trade names.
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.
The estimated useful lives of each class of intangible assets are as follows:
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
(p) Impairment
(i) Financial assets
A financial asset not classified at fair value through profit or loss is assessed at each reporting date to determine whether
there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss
event has occurred after the initial recognition of the asset, and that the loss event will have a negative effect on the
estimated future cash flows of that asset that can be estimated reliably.
Objective evidence that financial assets are impaired can include default or delinquency by a debtor, restructuring of an
amount due to the Corporation on terms that the Corporation would not otherwise consider, indications that a debtor or
issuer will enter bankruptcy or the disappearance of an active market for a security. In addition, for an investment in an
equity security classified as available-for-sale, a significant or prolonged decline in its fair value below its cost is
considered objective evidence of impairment.
55 | 2015 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(in thousands of Canadian dollars, except share and per share amounts)
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.
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.
56 | 2015 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(in thousands of Canadian dollars, except share and per share amounts)
(q) 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 costs to sell. Any impairment loss on a disposal group is first allocated to goodwill,
and then to remaining assets 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 earnings (loss),
comprehensive earnings (loss) and cash flows, and comparative figures are restated.
(r) 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.
57 | 2015 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(in thousands of Canadian dollars, except share and per share amounts)
The Corporation has several classes of provisions including:
(i) Warranties
Provisions for the expected cost of construction warranty obligations under construction contracts are recognized upon
completion or substantial performance under the construction contract and represent the best estimate of the expenditure
required to settle the Corporation’s obligation.
(ii) Restructuring
Restructuring provisions relate to both ongoing operations and acquisitions and are accrued when the Corporation
demonstrates its commitment to implement a detailed restructuring plan. The amounts provided represent
management’s best estimate of the costs for restructuring.
(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
Subcontractor default provision relates 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, some of which are enrolled in its subcontractor default insurance 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.
(s) Leases
Leases under 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.
58 | 2015 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(in thousands of Canadian dollars, except share and per share amounts)
(t) 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.
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.
(u) Other comprehensive earnings (loss) and retained earnings
The Corporation applies the standard for reporting and displaying other comprehensive earnings (loss), defined as
revenue, expenses and gains and losses which, in accordance with primary sources of IFRS, are recognized in
comprehensive earnings (loss) but excluded from net earnings (loss). Items that would be reclassified into profit or loss
in the future, if certain conditions are met, are presented separately.
(v) Other equity
Contributed surplus represents the equity components of compound financial instruments that were settled without being
converted into equity.
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, 2018. The Corporation
is currently evaluating the impact of this standard on its consolidated financial statements.
59 | 2015 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(in thousands of Canadian dollars, except share and per share amounts)
(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.
(c) IFRS 16 – Leases
On January 13, 2016, the IASB issued IFRS 16 to replace IAS 17 – Leases. IFRS 16 will bring most leases on-balance
sheet for lessees under a single model, eliminating the distinction between operating and financing leases. Lessor
accounting however remains largely unchanged and the distinction between operating and finance leases is retained.
The new standard is effective for annual periods beginning on or after January 1, 2019, with early adoption permitted if
IFRS 15 has also been applied. The Corporation is currently evaluating the impact of this standard on its consolidated
financial statements.
5. ACQUISITION
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 services 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 of $71,901 is composed of three components, being cash of $62,335, common shares of the
Corporation valued at $6,631 and a preliminary estimate of the contingent consideration through earn-out payments over
the next three years of $2,935.
The share consideration was based on a 20-day volume weighted average market price and is subject to a lock-up
period of 720 days, with one-third of the common shares issued as part of the acquisition to be released from lock-up
every 240 days following closing. The fair value of the 1,103,081 common shares issued is based on a share price of
$6.01. The accounting share price was calculated by taking the trading value at the time of the close of the transaction
of $6.99 and discounting it by 14% to reflect the impact of the lock-up period.
The preliminary estimate of the contingent consideration represents a maximum payment of $22,298 through earn-out
payments over fiscal 2015, 2016 and 2017. The earn-out payments are based on Studon’s annual EBITDA exceeding
a threshold of $16,779, with the threshold being increased by 50% for every dollar that Studon’s prior year EBITDA is
less than $16,779.
60 | 2015 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(in thousands of Canadian dollars, except share and per share amounts)
For the purposes of the earn-out payment calculation, EBITDA is defined as net earnings/loss before interest expense,
income taxes, capital asset depreciation and amortization, and gains/losses on assets, liabilities 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. EBITDA is calculated using the stand-alone financial statements of Studon, prepared in
accordance with Accounting Standards for Private Enterprises (ASPE), Studon’s former basis of accounting.
During the second quarter of 2015, adjustments were made to the purchase price allocation (PPA) to reflect new
information obtained by management with respect to facts and circumstances that existed as of January 6, 2015. As
management received and assessed the impact of this new information, which primarily reflected the expected capital
and maintenance spending plans of Studon’s customers and the impact of this information on Studon’s forecasted results
for the earn-out period, they identified a decrease in the provisional amounts recognized under contingent consideration
and intangible assets. Additionally, Studon tax returns for pre-acquisition taxation periods were completed during the
second quarter. The impact of these measurement period adjustments was a $4,628 decrease in contingent
consideration, $52 decrease in income tax receivable, $800 decrease in intangible assets, $4,022 decrease in goodwill
and $246 decrease in deferred income tax liabilities. Subsequent to these adjustments, the PPA was finalized at
December 31, 2015.
Cost of Acquisition
Cash
Shares issued
Contingent consideration
Identifiable Assets Acquired and Liabilities Assumed
Trade and other receivables
Income tax recoverable
Costs in excess of billings
Inventory
Prepaid expenses
Property and equipment
Intangible assets
Goodwill
Long-term debt, including finance lease obligations
Trade and other payables
Deferred income taxes
$
$
62,335
6,631
2,935
71,901
$
20,207
1,673
7,189
647
116
4,610
22,553
35,008
(10,641)
(3,177)
(6,284)
71,901
$
During the third quarter of 2015, management assessed and reduced its estimate of the contingent consideration payable
by $2,935 due to the impact of the continued weakness in commodity prices on the demand for services provided by
Studon. In addition, management recognized an impairment loss of $4,000 with respect to specific intangible assets
acquired that were impacted by current economic conditions. The net impact of the change in contingent consideration
payable and the impairment loss of $1,065 and the deferred income tax recovery of $1,080 was included in administrative
costs and deferred income tax recovery, respectively, in the consolidated statements of earnings (loss).
61 | 2015 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(in thousands of Canadian dollars, except share and per share amounts)
From the date of acquisition to December 31, 2015, Studon’s revenue totaled $80,827 and its net earnings totaled
$2,532. If the date of the acquisition had been January 1, 2015, pro forma consolidated revenues and net earnings of
the Corporation would remain the same as those reported in the consolidated statements of earnings (loss) for the year
ended December 31, 2015.
Goodwill and Intangible Assets
The $35,008 of goodwill recognized as part of the acquisition is mainly attributed to revenue growth, future market
development, the assembled workforce and the synergies achieved from the integration of Studon into existing
construction and industrial services. These benefits are not recognized separately from goodwill as the future economic
benefits arising from them cannot be reliably measured. The $22,553 of identifiable intangible assets acquired includes
tradename, backlog and customer relationships. During the year ended December 31, 2015, an impairment loss of
$4,000 was recorded in respect of the backlog and customer relationships intangible assets.
6. SEGMENTS
The Corporation operates as a construction and maintenance services provider, primarily in Western Canada. The
Corporation divides its operations into four reporting segments and reports its results under the categories of: Industrial
Group, Buildings Group, Commercial Systems Group and Corporate Group. On January 6, 2015, the Corporation
acquired Studon (Note 5) and its results are reported as part of the Industrial Group segment. 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.
Industrial Group – The Industrial Group consists of Stuart Olson Industrial Inc. It operates under the general contracting
brand of Stuart Olson and under the endorsed brands of Laird Electric Inc. (Laird), Studon Electric & Controls Inc.
(Studon), Northern Industrial Insulation Contractors Inc. (Northern), Fuller Austin Inc. (Fuller Austin) and Sigma Power
Services Inc. (Sigma Power). 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.
Buildings Group – The Buildings Group consists of Stuart Olson Buildings Ltd. 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.
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 10% or more of contract revenue earned during the year. For the year
ended December 31, 2015, the Corporation had no significant customers from the Industrial Group (2014 – $163,727 of
revenue from one significant customer) and one significant customer from the Buildings Group with revenue of $163,167
(2014 – $147,630 of revenue from one significant customer).
62 | 2015 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(in thousands of Canadian dollars, except share and per share amounts)
For the year ended
December 31, 2015
Contract revenue
EBITDA (1)
Depreciation and amortization (Note 11)
Impairment loss on property and equipment (Note 21)
Impairment loss on intangible assets (Note 5)
Recovery relating to investing activities (Note 5)
(Gain) loss on sale of assets
Finance costs (Note 10)
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
$
$
$
$
Industrial
Group
406,730
29,979
8,751
-
4,000
(2,935)
(144)
269
20,038
$
Buildings
Group
548,491
17,087
2,461
1,170
-
-
30
1
13,425
$
Commercial
Systems
Group
233,545
19,388
1,737
-
-
-
(35)
-
17,686
Corporate
Group
-
$
(19,125)
7,144
-
-
-
-
12,368
(38,637)
$
Intersegment
Eliminations
(37,350)
3,740
211
-
-
-
-
-
3,529
$
$
$
$
$
$
$
$
57,253
2,973
178,155
55,842
$
$
$
$
122,347
522
293,341
176,066
$
$
$
$
71,588
1,268
144,447
60,777
$
$
$
$
16,544
1,047
375,548
142,673
$
-
$
-
$
$
(344,691)
(13,540)
Total
1,151,416
51,069
20,304
1,170
4,000
(2,935)
(149)
12,638
16,041
(4,846)
11,195
267,732
5,810
646,800
421,818
$
$
$
$
$
Commercial
Systems
Group
242,275
19,367
1,620
-
-
(39)
-
17,786
$
$
$
$
Buildings
Group
693,653
12,040
3,491
2,596
-
Industrial
Group
407,781
36,088
2,552
-
-
76
55
33,405
For the year ended
Total
December 31, 2014
1,306,259
Contract revenue
EBITDA (1) (2)
43,352
14,883
Depreciation and amortization (Note 11)
2,596
Impairment loss on property and equipment (Note 21)
Cost relating to investing activities (2)
1,680
112
Loss (gain) on sale of assets
12,866
Finance costs (Note 10)
11,215
Earnings (loss) from continuing operations before tax
(4,070)
Income tax expense
7,145
Net earnings from continuing operations
224,711
Goodwill and intangible assets
7,065
Capital and intangible expenditures
783,611
Total assets
Total liabilities
566,990
(1) During the year, the definition of EBITDA was revised to exclude the impact of costs or recoveries relating to investing activities. The Corporation defines EBITDA as net earnings/loss from
continuing operations before interest expense, income taxes, capital asset depreciation and amortization, impairment charges, costs or recoveries relating to investing activities and
gains/losses on assets, liabilities and investment dispositions. Costs or recoveries relating to investing activities include marking-to-market provision liabilities and transaction costs recorded
as a result of a business acquisition. 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 EBITDA differently.
(2) Corporate Group's EBITDA for the year ended December 31, 2014 has been restated to exclude the impact of the transaction costs recorded as a result of the acquisition of Studon.
Corporate
Group
$
-
(23,042)
7,009
-
1,680
10
12,811
(44,552)
Intersegment
Eliminations
(37,450)
(1,101)
211
-
-
-
-
(1,312)
$
-
$
-
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
124,173
670
408,180
292,293
74,600
1,904
132,762
56,451
18,233
3,043
435,308
190,982
7,705
1,448
141,161
45,848
(333,800)
(18,584)
-
5,888
$
$
$
$
$
$
$
65
63 | 2015 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(in thousands of Canadian dollars, except share and per share amounts)
7. 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.
Stuart Olson/Nunavut Ltd.
Principal Activity
Building Construction
Building Construction
Building Construction
Building Construction
Industrial Construction
Place of
Incorporation or
Operation
British Columbia
Yukon
Yukon
Saskatchewan
Nunavut
Proportion of
Ownership Interest
50%
90%
51%
49%
40%
During the year ended December 31, 2015, the Corporation entered into a new joint operation, Stuart Olson/Nunavut
Ltd.
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,
2015
2,939
405
$
December 31,
2014
2,867
234
$
December 31,
2015
$
-
100
December 31,
2014
299
232
$
December 31,
2015
360
$
December 31,
2014
(250)
$
$
$
December 31,
2015
968,832
181,580
1,004
1,151,416
December 31,
2014
1,184,594
120,768
897
1,306,259
$
$
Current assets
Current liabilities
Contract revenue
Contract costs and expenses
Cash flow generated (used) in operating activities
8. REVENUE
Construction contract revenue
Service contract revenue
Sale of goods
Total revenue
64 | 2015 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(in thousands of Canadian dollars, except share and per share amounts)
9. OTHER INCOME
Gain (loss) on sale of assets
Discounts
Rebates, interest refunds and other
Other income
10. FINANCE INCOME AND COSTS
$
$
December 31,
2015
149
58
656
863
December 31,
2014
(112)
52
618
558
$
$
The finance income and costs recognized in respect of assets and liabilities not at fair value through profit or loss consists
of the following:
Finance income on cash and cash equivalents
Finance income on loans and receivables
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
11. DEPRECIATION AND AMORTIZATION
Depreciation of property and equipment
Amortization of intangible assets
Total depreciation and amortization expense
December 31,
2015
442
72
514
$
$
December 31,
2014
$
394
-
$
394
$
$
1,301
275
625
7,418
2,122
897
12,638
2,031
202
689
6,544
2,564
836
12,866
$
$
$
$
December 31,
2015
8,844
11,460
20,304
December 31,
2014
7,582
7,301
14,883
$
$
Of the depreciation of property and equipment during the year ended December 31, 2015, $5,132 (2014 - $3,435) has
been included in contract costs and the remainder in administrative costs in the consolidated statements of earnings
(loss). Amortization of intangible assets is included in administrative costs in the consolidated statements of earnings
(loss).
65 | 2015 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(in thousands of Canadian dollars, except share and per share amounts)
12. PERSONNEL EXPENSES AND EMPLOYEE BENEFITS
Short-term employee benefits
Employee share purchase plan expenses
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
$
$
December 31,
2015
421,479
3,088
3,248
2,168
835
1,173
431,991
December 31,
2014
465,922
3,167
3,433
1,345
1,112
2,262
477,241
$
$
For the year ended December 31, 2015, personnel expenses and employee benefits of $385,102 was included in
contract costs (2014 - $425,754) and $47,481 in administrative costs (2014 - $51,487). 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)
(1) Share-based payments include equity-settled and cash-settled share-based payments.
December 31,
2015
3,558
817
4,375
December 31,
2014
3,963
1,174
5,137
$
$
$
$
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).
13. INCOME TAXES
Income tax recognized in the consolidated statements of earnings (loss):
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
66 | 2015 ANNUAL REPORT
December 31,
2015
December 31,
2014
$
(8,065)
316
(7,749)
$
(6,826)
(104)
(6,930)
4,261
(1,004)
(354)
2,903
(4,846)
$
3,109
(103)
(146)
2,860
(4,070)
$
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(in thousands of Canadian dollars, except share and per share amounts)
Reconciliation of effective tax rate:
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 26.1% (2014 - 25.3%)
Statutory and other rate differences
Non-deductible expenses
Non-taxable accounting income
Other
Income tax expense
December 31, December 31,
2014
11,215
2015
16,041
$
$
(4,187)
(1,004)
(459)
859
(55)
(4,846)
$
(2,837)
(103)
(951)
59
(238)
(4,070)
$
The Corporation's statutory tax rate of 26.1% in 2015 (2014 – 25.3%) is the combined Canadian federal and provincial
tax rates in the jurisdictions in which the Corporation operates. The increase in the statutory tax rate and expense related
to statutory and other rate differences for the year ended December 31, 2015 reflects the increase in the general Alberta
corporate income tax rate in 2015.
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 differences
Unbilled work-in-progress and holdback receivables
Provisions
Other
December 31,
2015
December 31,
2014
$
19,234
1,017
27
395
(387)
3,189
610
24,085
$
18,202
1,060
23
769
5,441
1,493
175
27,163
589
(81)
(14,051)
2,831
(589)
(18,488)
401
(1,394)
(30,782)
1,757
(121)
(10,913)
2,672
(616)
(21,612)
428
(1,977)
(30,382)
Net deferred income tax liability
$
(6,697)
$
(3,219)
67 | 2015 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(in thousands of Canadian dollars, except share and per share amounts)
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 differences. The
Corporation has unrecognized non-capital loss carryforwards of $1,179 (2014 – $1,382) for which no deferred income
tax asset could be recognized, which remain available to reduce future taxable income.
A continuity of the net deferred tax asset (liability) is as follows:
2015
Tax loss carry forwards
Equipment and other assets
Intangible assets
Pension and other compensation
Unrecognized deductible temporary differences
Unbilled work-in-progress and holdback receivables
Provisions
Other
Less: recognized in discontinued operations
Recognized in continuing operations
2014
Tax loss carry forwards
Equipment and other assets
Intangible assets
Pension and other compensation
Unrecognized deductible temporary differences
Unbilled work-in-progress and holdback receivables
Provisions
Other
Less: recognized in discontinued operations
Recognized in continuing operations
$
$
Asset (liability)
January 1,
2015
19,959
939
(10,890)
3,441
(616)
(16,171)
1,921
(1,802)
(3,219)
Recovery
(expense)
recognized in
profit or loss
(136)
751
2,478
(118)
27
(1,966)
1,669
198
2,903
-
2,903
$
$
$
$
$
Asset (liability)
January 1,
2014
10,038
(7,914)
(12,554)
2,553
(616)
(9,106)
2,529
305
(14,765)
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 Asset (liability)
acquired in a
(expense)
business
recognized in
OCI
combination
$
-
-
-
(97)
-
-
-
-
$
(97)
$
-
(754)
(5,612)
-
-
(738)
-
820
(6,284)
$
$
Recovery
(expense) Asset (liability)
recognized in December 31,
2015
19,823
936
(14,024)
3,226
(589)
(18,875)
3,590
(784)
(6,697)
equity
$
-
-
-
-
-
-
-
-
$
-
$
Recovery
(expense)
recognized in
OCI
$
-
-
-
1,095
-
-
-
-
1,095
$
Liability
disposed of in
Broda sale
$
-
4,121
-
-
-
35
-
-
4,156
$
Recovery
(expense)
recognized in
equity
$
-
-
-
-
-
-
-
(1,530)
(1,530)
$
$
Asset (liability)
December 31,
2014
19,959
939
(10,890)
3,441
(616)
(16,171)
1,921
(1,802)
(3,219)
$
The Corporation has accumulated net capital losses for income tax purposes of $21,511 (2014 - $21,277) 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 $72,545 (2014 - $77,586), which expire
as follows:
Expiration of accumulated non-capital losses:
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
68 | 2015 ANNUAL REPORT
$
199
426
225
162
908
14,784
6,654
9,783
35,016
4,388
72,545
$
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(in thousands of Canadian dollars, except share and per share amounts)
14. 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 $38,829. 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
$
$
38,829
(58,086)
(922)
(20,179)
3,337
(16,842)
There were no transactions in discontinued operations during the year ended December 31, 2015. Net loss from
discontinued operations for the year ended December 31, 2014, reported in the consolidated statements of earnings
(loss), is as follows:
December 31,
Contract revenue
Contract costs
Contract income
Other expense
Finance income
Administrative costs
Finance costs
Loss from discontinued operations
Income tax recovery
Net loss on disposal of discontinued operations
Net loss from discontinued operations
$
$
2014
30,094
28,832
1,262
(1,883)
16
(3,466)
(185)
(4,256)
874
(16,842)
(20,224)
Cash flows from discontinued operations reported in the consolidated statements of cash flows are as follows:
December 31,
2014
(3,521)
(1,442)
4,811
$
$
$
Operating cash flows
Investing cash flows
Financing cash flows
69 | 2015 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(in thousands of Canadian dollars, except share and per share amounts)
15. EMPLOYEE BENEFITS
(a) Short-term employee benefits
Contributions made by the Corporation during the year ended December 31, 2015 to the company sponsored Employee
Share Purchase Plan (ESPP) were $3,088 (2014 - $3,167) (Note 12).
(b) Post-employment benefits
Registered Retirement Savings Plan (RRSP)
Contributions made by the Corporation during the year ended December 31, 2015 to the company sponsored RRSP
were $3,248 (2014 - $3,433) (Note 12).
Defined Contribution Pension Plans (DC)
The total expense recognized in the consolidated statements of earnings (loss) and comprehensive earnings (loss)
during the year ended December 31, 2015 of $484 (2014 – $447) 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 DB 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
Short-term
70 | 2015 ANNUAL REPORT
$
(1) Certain comparative amounts have been reclassified to conform with current year presentation.
$
December 31,
2015
35,885
31,205
4,680
$
$
December 31,
2014
35,417
29,076
6,341
$
$
$
December 31,
2015
23,564
7,498
143
31,205
December 31,
2014 (1)
22,805
6,271
-
29,076
$
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(in thousands of Canadian dollars, except share and per share amounts)
Reconciliation of amounts in the financial statements:
December 31,
2015
December 31,
2014
$
$
Accrued benefit obligation
Balance, beginning of year
Employer current service cost
Employee contributions
Interest cost on the defined benefit obligation
Benefit payments
Actuarial loss due to experience adjustments
Actuarial loss due to changes in demographic assumptions
Actuarial (gain) loss 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 (loss) gain on plan assets, excluding interest income
Benefit payments
Administration costs
Balance, end of year
Net pension liability
Funded status - deficit
35,417
784
98
1,390
(1,347)
5
-
(462)
35,885
29,076
2,743
98
1,161
(94)
(1,347)
(432)
31,205
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
$
$
December 31,
2015
December 31,
2014
$
$
$
$
December 31,
2015
4,680
4,680
$
$
December 31,
2014
6,341
6,341
$
$
For the year ended December 31, 2015, an amount of $1,445 (2014 - $1,019) was recorded in administrative costs in
net earnings (loss), and a gain of $363 (2014 – loss of $4,293), before tax, was recorded in other comprehensive earnings
(loss) in relation to the DB plans. This gain relates to an increase in the discount rates and a change in the market value
of the assets, which are both as at December 31, 2015.
Actuarial assumptions:
Discount rate on net benefit obligations
Rate of compensation increase
Inflation rate
December 31,
2015
4.0%
3.5%
2.3%
December 31,
2014
3.9%
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 $5,106 (2014 - $5,261).
71 | 2015 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(in thousands of Canadian dollars, except share and per share amounts)
16. EARNINGS PER SHARE
(a) Basic earnings (loss) per share
Net earnings from continuing operations
Net loss from discontinued operations
Net earnings (loss) - basic
$
$
December 31,
2015
11,195
-
11,195
December 31,
2014
7,145
(20,224)
(13,079)
$
$
Issued common shares, beginning of the year
Effect of shares issued related to DRIP
Effect of shares issued on exercise of stock options
Effect of shares issued related to acquisition
Weighted average number of common shares for the year - basic
25,054,310
222,231
-
1,087,970
26,364,511
24,797,163
92,425
58,229
-
24,947,817
Basic earnings per share, continuing operations
Basic loss per share, discontinued operations
Basic earnings (loss) per share
(b) Diluted earnings per share
Net earnings from continuing operations - basic
Interest, accretion and amortization of deferred financing fees, net of tax
Net earnings from continuing operations - diluted
$
$
0.42
-
0.42
0.29
(0.81)
(0.52)
$
$
$
$
December 31,
2015
11,195
4,755
15,950
December 31,
2014
7,145
-
7,145
$
$
Weighted average number of common shares - basic
Incremental shares - stock options
Incremental shares - convertible debentures
Weighted average number of common shares for the year - diluted, continuing operations
26,364,511
4,591
14,892,239
41,261,341
24,947,817
140,966
-
25,088,783
Diluted earnings per share, continuing operations
$
0.39
$
0.28
As there were no transactions in discontinued operations for the year ended December 31, 2015, and the Corporation
incurred a net loss from discontinued operations for the year ended December 31, 2014, the diluted weighted average
number of common shares and the resulting diluted loss per share from discontinued operations is the same as basic in
each respective year.
For the year ended December 31, 2015, the number of options excluded from the diluted weighted average number of
common shares calculation was 1,361,363 (2014 – 908,167), as their effect would have been anti-dilutive.
There were no incremental shares related to the convertible debentures included in the weighted average calculation for
the year ended December 31, 2014, as the impact of the normalization of earnings (interest, accretion and amortization
added back, net of tax expense) outweighed the effect of the related incremental shares and therefore the convertible
debentures were anti-dilutive.
72 | 2015 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(in thousands of Canadian dollars, except share and per share amounts)
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 $2,933 (2014 - $2,574) held in the bank accounts of joint operations.
Restricted cash of $4,172 at December 31, 2015 (2014 - $nil) relates to cash held in trust.
18. TRADE AND OTHER RECEIVABLES
Trade receivables
Construction holdbacks, due within one business cycle
Allowance for doubtful accounts (Note 31)
Other receivables
$
$
December 31,
2015
148,129
66,472
(2,558)
3,894
215,937
December 31,
2014
219,388
115,313
(2,140)
4,435
336,996
$
$
The average credit period is 39 days for maintenance contracts and 65 days for significant construction contracts.
At December 31, 2015, holdbacks of $66,472 (2014 - $115,313) 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,
2015
4,277,440
(4,285,360)
(7,920)
$
December 31,
2014
4,617,699
(4,658,402)
(40,703)
$
$
276,184
(268,974)
7,210
(710)
159,114
(153,098)
6,016
(34,687)
$
$
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
73 | 2015 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(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,
2015
December 31,
2014
$
51,049
7,939
58,988
$
48,667
6,152
54,819
$
$
(58,969)
(729)
(59,698)
(710)
(89,370)
(136)
(89,506)
(34,687)
$
$
At December 31, 2015, holdbacks for contract work amounted to $66,472 (2014 - $115,313).
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 consolidated statements of financial position is the current portion of the
service provider deposit of $nil (2014 - $1,206), to be received in the next 12 months. The remaining portion of $6,799
(2014 - $5,549) is classified as non-current in the consolidated statements of financial position at December 31, 2015.
The total funds held by Zurich as at December 31, 2015 amounted to $6,799 (2014 - $6,755).
21. PROPERTY AND EQUIPMENT
Included in construction and automotive equipment is $5,339 (2014 - $1,467) of assets relating to finance leases and
$1,498 (2014 - $404) of accumulated depreciation, for a net carrying value of $3,841 (2014 - $1,063).
Assets with a carrying value of $3,841 (2014 - $1,063) are pledged as security for the finance lease obligations disclosed
in Note 26 (b).
During the year ended December 31, 2015, the Corporation recorded an impairment loss of $1,170 (2014 - $2,596)
related to Leasehold Improvements due to branch office subleasing in Western Canada.
During the year ended December 31, 2014, 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, as part of the sale of Broda (Note 14).
74 | 2015 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(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
$
$
$
$
$
$
$
5,696
283
(726)
200
-
5,453
3,722
898
(714)
-
3,906
1,547
$
484
-
-
-
(484)
$
-
-
$
-
-
-
$
-
$
-
566
-
-
-
-
566
3,041
-
-
-
-
3,041
1,487
4
-
-
1,491
1,550
14,659
1,030
(505)
635
484
16,303
5,742
2,228
(504)
1,170
8,636
7,667
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Land and
Improvements
Buildings and
Improvements
Leasehold
Improvements
Construction
and Automotive
Equipment
Office
Computer Furniture and
Equipment
Hardware
Assets
Under
Construction
Total
$
$
$
$
$
$
$
$
301
-
(171)
436
566
$
$
$
3,238
-
(197)
-
3,041
$
$
18,629
977
(5,529)
582
14,659
1,550
15
(78)
-
1,487
1,554
6,025
2,801
(5,680)
2,596
5,742
8,917
$
$
$
$
$
$
5,454
157
(853)
938
5,696
3,195
812
(285)
-
3,722
1,974
552
1,464
-
(1,532)
484
-
-
-
-
-
484
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
31,398
3,230
(5,434)
3,657
-
32,851
21,342
5,198
(3,914)
-
22,626
10,225
98,776
5,819
(73,197)
-
31,398
40,768
8,007
(27,433)
-
21,342
10,056
5,949
347
(817)
118
-
5,597
5,270
418
(817)
-
4,871
726
6,112
310
(473)
-
5,949
5,183
558
(471)
-
5,270
679
61,793
4,890
(7,482)
4,610
-
63,811
37,563
8,746
(5,949)
1,170
41,530
22,281
133,062
8,727
(80,420)
424
61,793
56,721
12,193
(33,947)
2,596
37,563
24,230
Accumulated depreciation and impairment losses
Balance at December 31, 2014
Depreciation expense
Disposals
Impairment losses recognized in the year
Balance at December 31, 2015
Carrying amounts at December 31, 2015
-
$
-
-
-
$
-
$
566
2015
Cost
Balance at December 31, 2014
Additions, including finance leases
Disposals
Acquisitions (Note 5)
Reclassifications and transfers
Balance at December 31, 2015
2014
Cost
Balance at December 31, 2013
Additions, including finance leases
Disposals
Reclassifications and transfers
Balance at December 31, 2014
Accumulated depreciation and impairment losses
Balance at December 31, 2013
Depreciation expense
Disposals
Impairment losses recognized in the year
Balance at December 31, 2014
Carrying amounts at December 31, 2014
$
-
-
-
-
$
-
$
566
75 | 2015 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(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:
Industrial Group
Buildings Group
Commercial Systems Group
$
$
December 31,
2015
42,323
114,078
57,623
214,024
December 31,
2014
7,315
114,078
57,623
179,016
$
$
Goodwill arose as a result of multiple past acquisitions. The Industrial Group’s goodwill stems from the Laird Electric Inc.
acquisition of 2003 and the Studon acquisition on January 6, 2015 (Note 5). Goodwill associated with the Buildings
Group and the Commercial Systems Group arose from the Seacliff Construction Corp. acquisition in 2010. Additional
goodwill was attributed to the Commercial Systems Group through the McCaine Electric Ltd. acquisition in 2011.
Goodwill recognized on all of these acquisitions was attributable mainly to revenue growth, future market development,
the assembled workforce and the synergies achieved from the integration of acquired companies into existing
construction, commercial and industrial services.
During the fourth quarter of 2015, 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 2016 - 2018 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.
The terminal value was calculated using a discount rate of 11% (2014 – 12%) and a steady annual growth of 2% (2014
– 2%) 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.
76 | 2015 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(in thousands of Canadian dollars, except share and per share amounts)
Sensitivity of Assumptions
Management and the Board of Directors believe that any reasonable change to the key assumptions used to determine
each CGU’s recoverable amount would not cause its carrying value to exceed its recoverable amount.
Backlog and
Agency
Contracts
Customer
Relationships
and Tradename
ERP Assets
Computer
Software
Assets under
Construction
Total
$
$
$
$
$
25,242
818
-
80
17
-
26,157
7,222
2,467
-
9,689
16,468
20,600
-
-
5,800
-
(1,000)
25,400
20,600
2,320
-
22,920
2,480
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
5,098
102
(127)
3
-
-
5,076
4,133
317
(127)
4,323
753
$
17
-
-
-
(17)
-
$
-
-
$
-
-
$
-
$
-
4,485
921
(308)
-
-
5,098
3,977
368
(212)
4,133
965
$
-
17
-
12
(12)
17
$
-
$
-
-
$
-
$
17
105,380
920
(127)
22,553
-
(4,000)
124,726
59,685
11,460
(127)
71,018
53,708
104,416
1,558
(381)
12
(225)
105,380
52,606
7,305
(226)
59,685
45,695
Backlog and
Agency
Contracts
Customer
Relationships
and Tradename
ERP Assets
Computer
Software
Assets under
Construction
Total
$
$
$
$
$
24,908
620
(73)
-
(213)
25,242
20,600
-
-
-
-
20,600
5,080
2,156
(14)
7,222
18,020
$
20,600
-
-
$
20,600
$
-
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
54,423
-
-
16,670
-
(3,000)
68,093
27,730
6,356
-
34,086
34,007
54,423
-
-
-
-
54,423
22,949
4,781
-
27,730
26,693
23. INTANGIBLE ASSETS
2015
Cost
Balance at December 31, 2014
Additions - externally acquired
Disposals
Acquisitions (Note 5)
Reclassifications and transfers
Impairment loss (Note 5)
Balance at December 31, 2015
Accumulated amortization
Balance at December 31, 2014
Amortization expense
Disposals
Balance at December 31, 2015
Carrying amounts at December 31, 2015
2014
Cost
Balance at December 31, 2013
Additions - externally acquired
Disposals
Reclassifications and transfers
Derecognition of assets
Balance at December 31, 2014
Accumulated amortization
Balance at December 31, 2013
Amortization expense
Disposals
Balance at December 31, 2014
Carrying amounts at December 31, 2014
77 | 2015 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(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
Other
$
$
December 31,
2015
88,517
68,220
15,220
3,184
3,232
178,373
December 31,
2014
159,873
80,165
17,777
3,006
3,375
264,196
$
$
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
Deferred
Contingent
Consideration
(Note 5)
Total
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
Balance at December 31, 2014
Provisions made during the year
Provisions used during the year
Provisions reversed in the year
Unwinding of discount
Balance at December 31, 2015
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
371
-
(178)
-
-
193
193
-
(167)
-
-
26
1,901
714
(400)
(200)
-
2,015
2,015
621
(503)
(526)
-
1,607
3,540
3,043
(2,911)
-
-
3,672
3,672
1,710
(801)
-
-
4,581
-
739
-
-
(170)
569
569
506
(113)
-
52
1,014
-
-
-
-
-
-
-
2,935
-
(2,935)
-
-
8,879
5,256
(4,306)
(2,130)
(170)
7,529
7,529
11,820
(1,841)
(4,185)
52
13,375
3,067
760
(817)
(1,930)
-
1,080
1,080
6,048
(257)
(724)
-
6,147
$
$
$
$
$
$
$
The provisions are presented on the consolidated statements of financial position as follows:
Current portion of provisions
Long-term provisions
Total provisions
78 | 2015 ANNUAL REPORT
$
December 31,
2015
7,705
5,670
13,375
$
$
December 31,
2014
2,616
4,913
7,529
$
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(in thousands of Canadian dollars, except share and per share amounts)
The following table represents the expected outflow of resources by category:
2016
2017
2018
2019
2020
Thereafter
26. LONG-TERM DEBT
Current portion of long-term debt
Finance lease obligations
Non-current
Revolving credit facility
Finance lease obligations
$
$
$
$
$
Warranties
6,147
-
-
-
-
-
6,147
Restructuring
Costs
26
-
-
-
-
-
26
Claims and
Disputes
1,045
281
281
-
-
-
1,607
$
Subcontractor
Default
409
4,172
-
-
-
-
4,581
$
Onerous
Contract
166
152
182
205
162
1,035
1,902
$
$
$
$
$
Total
7,793
4,605
463
205
162
1,035
14,263
December 31,
2015
December 31,
2014
$
$
2,369
2,369
$
$
391
391
$
$
$
$
45,197
1,368
46,565
115
702
817
The increase in finance lease obligations and related interest rates (Note 26 (b)) was a result of the acquisition of Studon
on January 6, 2015 (Note 5). The increase in the revolving credit facility was a result of the Studon acquisition and the
settlement of the 2010 convertible debentures on June 30, 2015 (Note 27).
(a) Revolving credit facility
On July 16, 2015, the Corporation negotiated improved terms and conditions and a three year extension to its senior
secured revolving credit facility (Revolver). The Revolver now consists of a $155,000 credit facility syndicated by seven
lenders from the existing facility and a $20,000 operating facility provided by one of the co-lead lenders. The combined
Revolver provides the Corporation with a maximum available borrowing capacity of $175,000 (previously $167,375). The
maturity date of the Revolver has been extended to July 16, 2020 (previously July 12, 2017).
Material changes to the Revolver include the elimination of the former working capital ratio and the senior debt to EBITDA
ratio financial covenants. The Revolver continues to include existing financial covenants related to interest coverage and
total debt to EBITDA. The interest coverage ratio remains the same at not less than 3:1, and the total debt to EBITDA
ratio was reduced by 0.25 such that it shall not exceed 3:1, with a temporary increase to 3.25:1 for a period of two
quarters following the completion of a material acquisition.
The operating facility of $20,000 allows the Corporation to enter into an overdraft position. At December 31, 2015, there
was no drawdown on the operating facility.
79 | 2015 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(in thousands of Canadian dollars, except share and per share amounts)
During the 90 day period before each anniversary date, the Corporation may extend the credit facility for an additional
year. As such, there is no current portion of long-term debt related to the credit facility. The credit facility is supported by
a comprehensive security package that includes all 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 275 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, 2015 were $1,926 (2014 – $2,720). These finance costs represent the interest paid on the debt and
amortization of the deferred financing charges of $625 for the year ended December 31, 2015 (2014 – $689) (Note 10).
(b) Finance lease obligations
For the year ended December 31, 2015, the Corporation held finance leases relating to automotive equipment that
mature between January 2016 and July 2020, and bear interest at rates between 2.0% and 15.0%, with a weighted
average effective interest rate on the contracts of 6.2% per annum (2014 – 5.2%). Finance lease obligations are secured
by automotive equipment with a net book value of $3,841 (2014 - $1,063) and the lessors’ title to the lease assets (Note
21). The Corporation has the option to purchase the equipment under lease at the conclusion of the lease agreements.
Future Minimum Lease
Payments
Present Value of Minimum Lease
Payments
$
$
December 31,
2015
2,369
1,368
3,737
December 31,
2014
391
702
1,093
$
$
Interest
$
$
December 31,
2015
148
47
195
December 31,
2014
21
29
50
$
$
$
December 31,
2015
2,517
1,415
3,932
$
$
December 31,
2014
412
731
1,143
$
Not later than 1 year
More than 1 year but not later than 5 years
Not later than 1 year
More than 1 year but not later than 5 years
80 | 2015 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(in thousands of Canadian dollars, except share and per share amounts)
27. CONVERTIBLE DEBENTURES
Debt component, beginning of the year
Issuance
Repayment
Financing fees
Accretion on convertible debentures
Amortization of deferred financing fees
Debt component, end of the year
Equity component, beginning of the year
Issuance
Financing fees
Transferred to contributed surplus
Deferred income tax
Equity component, end of the year
$
$
2010 Convertible Debentures
December 31,
2015
84,828
-
(86,250)
-
1,096
326
-
December 31,
2014
81,855
-
-
-
2,289
684
84,828
$
$
$
$
2014 Convertible Debentures
December 31,
2015
70,932
-
-
-
1,026
571
72,529
December 31,
2014
-
74,076
-
(3,571)
275
152
70,932
$
$
$
$
$
$
7,100
-
-
(7,100)
-
-
7,100
-
-
-
-
7,100
4,589
-
-
-
-
4,589
-
6,424
(230)
-
(1,605)
4,589
$
$
$
$
At December 31, 2015, the principal amount of the debt component of all convertible debentures outstanding is $72,529
(2014 - $155,760), of which $nil (2014 - $84,828) 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. 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 convertible debentures
matured and were settled on June 30, 2015.
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. 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 convertible debentures is December 31, 2019.
The 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. The 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 the 2014 convertible debentures at a price of one thousand dollars per debenture, on or
after December 31, 2017, and at any time prior to December 31, 2018, provided that the current market price of the
common shares is not less than 125% of the conversion price of $14.15 per common share.
On and after December 31, 2018, and at any time prior to the final maturity date, the 2014 convertible debentures 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.
81 | 2015 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(in thousands of Canadian dollars, except share and per share amounts)
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 $10.46 per share or exceeds $50.00 per share.
28. SHARE-BASED PAYMENTS
(a) 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.
Movement during the years:
Outstanding, beginning of the year
Granted
Forfeited
Exercised
Expired
Outstanding, end of the year
Number of
Stock
December 31,
2015
Weighted
Average
Options Exercise Price
11.95
5.82
8.10
-
19.09
10.33
$
$
1,682,042
430,085
(244,401)
(152,608)
1,715,118
-
Number of
Stock
Options
1,838,117
203,557
(151,629)
(110,919)
(97,084)
1,682,042
December 31,
2014
Weighted
Average
Exercise Price
12.29
9.94
16.02
7.83
12.44
11.95
$
$
The options outstanding for the year ended December 31, 2015 have an exercise price in the range of $5.77 to $19.32
(2014 - $7.50 to $19.63) and lives of between 5 and 10 years (2014 – 5 and 10 years).
There were no options exercised during the year ended December 31, 2015. The options exercised during the year
ended December 31, 2014 were done so at a weighted average share price of $9.65.
82 | 2015 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(in thousands of Canadian dollars, except share and per share amounts)
The terms and conditions related to the grants of the stock option program are as follows:
Option Series
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 April 1, 2013
Issued on April 1, 2013
Issued on September 13, 2014
Issued on September 13, 2014
Issued on April 1, 2015
Issued on May 19, 2015
As at December 31, 2015
Options
Outstanding
192,423
9,000
30,000
311,294
115,740
33,524
117,108
382,350
119,924
50,000
282,326
71,429
1,715,118
Expiry Date
21-Mar-16
11-Sep-16
12-Dec-16
15-Mar-17
17-Aug-17
2-Jan-18
1-Apr-18
1-Apr-23
1-Apr-24
13-Sep-24
1-Apr-25
19-May-25
Exercise Fair Value At
Grant Date
7.59
5.47
3.63
5.03
2.16
2.30
2.52
2.52
3.08
3.08
1.41
1.40
Price
19.32
14.32
10.46
15.48
8.19
8.64
7.50
7.50
9.94
9.94
5.77
6.07
Options
Exercisable
192,423
9,000
30,000
311,294
115,740
22,349
78,072
254,900
39,975
16,667
-
-
1,070,420
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 2014
September 13, 2014
Issued in 2015
April 1, 2015
May 19, 2015
Weighted
Average
Share Price
Exercise
Price
Expected
Volatility
Option Life
Dividend
Yield
Risk-Free
Interest Rate
Forfeiture
Rate
9.94
5.77
6.07
9.94
5.77
6.07
49.74%
45.22%
47.19%
10
10
10
4.83%
1.81%
10.00%
5.57%
6.70%
0.97%
1.45%
10.00%
10.00%
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 | 2015 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(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 the year
(b) MTIPs
$
$
December 31,
2015
9,341
835
-
-
10,176
December 31,
2014
8,594
1,057
55
(365)
9,341
$
$
Bridging Restricted Share Units (BRSUs) 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.
Restricted Share Units (RSUs) 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 (PSUs) 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 and the payout can be 0% to 200% of the
vested units, subject to the achievement of certain corporate objectives as approved by the Board of Directors. Each
grant of PSUs is individually evaluated regularly with regard to vesting and payout assumptions. The Corporation will
settle the PSUs in cash within 20 business days after vesting.
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.
Movement of units during the years:
Units outstanding at December 31, 2013
Granted
Forfeited
Vested
Vested and paid
Units outstanding at December 31, 2014
Units outstanding at December 31, 2014
Granted
Forfeited
Vested
Vested and paid
Units outstanding at December 31, 2015
84 | 2015 ANNUAL REPORT
BRSUs
RSUs
PSUs
262,481
159,223
(39,046)
(190)
(58,175)
324,293
324,293
-
(20,217)
(2,158)
(103,008)
198,910
146,742
256,346
(18,146)
-
(24,576)
360,366
360,366
395,803
(19,149)
(20,334)
(44,467)
672,219
502,973
211,332
(9,152)
(1,072)
(122,618)
581,463
581,463
368,000
(5,335)
(20,268)
(203,038)
720,822
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(in thousands of Canadian dollars, except share and per share amounts)
The BRSUs issued on April 1, 2013 and 2014 at a fair value at grant date of $7.50 and $10.79 have a vesting date of
April 1, 2016 and 2017, respectively. The RSUs and PSUs issued on April 1, 2013, 2014 and 2015 at a fair value at
grant date of $7.50, $10.79 and $5.73, have a vesting date of April 1, 2016, 2017 and 2018, respectively.
In April 2015, 30% of the BRSUs issued on April 1, 2013 vested at a weighted average price of $6.01. The PSUs issued
in 2012 vested on March 15, 2015 at a payout ratio of 30%.
(c) DSUs
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 DRIP as they are paid.
Movement of units during the years:
Number of DSUs
Outstanding, beginning of the year
Granted
Settled
Outstanding, end of the year
(d) Share-based payment liability
Carrying amount of liabilities for cash-settled arrangements
Current portion
Long-term portion
Total carrying amount
December 31,
2015
433,248
163,251
(123,926)
472,573
December 31,
2014
363,550
107,919
(38,221)
433,248
December 31,
2015
December 31,
2014
$
$
2,070
4,652
6,722
889
6,382
7,271
$
$
Total intrinsic value of liability for vested benefits
$
2,812
$
3,315
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 $5,168 at December 31, 2015 (2014 – $6,382) 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, 2015.
85 | 2015 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(in thousands of Canadian dollars, except share and per share amounts)
(e) Share-based compensation expense
Share compensation expense on stock options
Effects of changes in fair value and accretion of MTIP grants
Effects of changes in fair value and grants for DSUs
29. SHARE CAPITAL
(a) Common shares and preferred shares
$
December 31,
2015
835
1,173
58
2,066
$
$
December 31,
2014
1,057
2,140
153
3,350
$
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.
Common Shares
Issued, beginning of the year
DRIP
Issued during the year
Issued, end of the year
Shares
25,054,310
375,091
1,103,081
26,532,482
December 31,
2015
Share Capital
$
$
131,724
2,102
6,631
140,457
Shares
24,797,163
146,228
110,919
25,054,310
December 31,
2014
Share Capital
$
$
129,134
1,356
1,234
131,724
On January 6, 2015, the Corporation issued 1,103,081 common shares at a share price of $6.01 as part of the Studon
acquisition (Note 5).
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.
(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 nineteenth quarterly dividend of $0.12 per share, which was paid on January 14, 2016 to
shareholders of record on December 31, 2015.
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.
86 | 2015 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(in thousands of Canadian dollars, except share and per share amounts)
As at December 31, 2015, trade and other payables included $3,184 (2014 - $3,007) related to the dividend payable on
January 14, 2016, of which $537 (2014 - $575) is to be reinvested in common shares under the DRIP and the remainder
paid in cash.
Dividend payable, beginning of the year
Total dividends declared during the year
Total dividends paid during the year (1)
$
Dividend payable, end of the year
(1) Includes DRIP non-cash payments totaling $2,102 (2014 - $1,356) which are recorded through share capital.
$
$
$
$
$
December 31,
2015
Total
3,007
12,668
(12,491)
3,184
Per Share
0.12
0.48
(0.48)
0.12
$
December 31,
2014
Total
2,976
11,986
(11,955)
3,007
$
Per Share
0.12
0.48
(0.48)
0.12
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.
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, including restricted cash
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
87 | 2015 ANNUAL REPORT
$
December 31,
2015
141,266
(2)
(235)
5,582
(90,246)
(32,370)
$
December 31,
2014
(84,648)
139
(714)
(7,747)
79,301
8,798
$
23,995
$
(4,871)
December 31,
2015
December 31,
2014
$
37,839
215,937
6,799
355
$
104,113
336,996
5,549
395
$
178,373
48,934
72,529
$
264,196
1,208
155,760
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(in thousands of Canadian dollars, except share and per share amounts)
(b) Fair values
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.
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 earnings
(loss) and is net of any recoveries that were provided for in a prior period.
88 | 2015 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(in thousands of Canadian dollars, except share and per share amounts)
The following table represents the movement in the allowance for doubtful accounts:
Balance at 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
$
$
December 31,
2015
2,140
1,005
(587)
-
-
2,558
December 31,
2014
3,224
1,895
(744)
(1,387)
(848)
2,140
$
$
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,
2015
67,647
48,810
4,224
27,448
148,129
December 31,
2014
116,326
75,911
5,845
21,306
219,388
$
$
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 $27,448
of trade receivables (2014 – $21,306) which were greater than 90 days past due with $24,890 not provided for as at
December 31, 2015 (2014 – $19,166). Management has no concerns regarding the credit quality and collectability of
these accounts, as the concentration of credit risk is limited due to its large and unrelated customer base. Trade
receivables are included in trade and other receivables on the consolidated statements of financial position.
(ii)
Interest rate risk
Interest rate 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
89 | 2015 ANNUAL REPORT
December 31,
2015
December 31,
2014
$
72,529
$
155,760
$
$
37,839
48,934
$
$
104,113
1,208
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(in thousands of Canadian dollars, except share and per share amounts)
Fixed rate sensitivity
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 $280 (2014 - $781) related to financial assets and by $362 (2014 - $9) related to financial liabilities.
(iii) Liquidity risk
Liquidity risk is the risk that the Corporation will encounter difficulties in meeting its financial liability obligations. The
Corporation manages this risk through cash and debt management. In managing liquidity risk, the Corporation has
access to committed short and long-term debt facilities as well as equity markets, the availability of which is dependent
on market conditions.
The Corporation believes it has sufficient funding through the use of these facilities to meet foreseeable financial liability
obligations.
The following are the contractual obligations, including interest payments as at December 31, 2015, 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.
Carrying
amount
178,373
13,375
72,529
48,934
-
313,211
$
Contractual
cash flows
178,373
14,263
99,820
51,433
61,414
405,303
$
$
Not later
than 1 year
178,373
7,793
4,830
2,517
8,226
201,739
$
$
Later than 1 year
and less than 3
years
-
5,068
9,660
708
14,358
29,794
$
Later than 3
years and less
than 5 years
-
367
85,330
48,208
14,358
148,263
$
$
Later than 5
years
-
1,035
-
-
24,472
25,507
$
$
$
$
Trade and other payables
Provisions, including current portion
Convertible debentures (debt portion)
Long-term debt, including current portion
Operating lease commitments
32. CAPITAL MANAGEMENT
The Corporation’s objectives in managing capital are to ensure sufficient liquidity to pursue growth objectives and fund
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 to 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.
90 | 2015 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(in thousands of Canadian dollars, except share and per share amounts)
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. During the year, the definition of EBITDA was
revised to exclude the impact of costs or recoveries relating to investing activities. The changes to EBITDA are described
in further detail in Note 6.
Over the long-term, the Corporation strives to maintain a target long-term indebtedness to capitalization percentage in
the range of 20% to 40%, calculated as follows:
Long-term indebtedness:
Long-term debt, principal amount (1)
Convertible debentures, principal amount (2)
Total long-term indebtedness
Total equity
Total capitalization
Indebtedness to capitalization percentage
(1) Principal amount of current and non-current long-term debt before the deduction of deferred financing fees (Note 26).
(2) Includes the maturity value of the convertible debentures issued in 2014 of $80,500. The convertible debentures issued in 2010 with a maturity
value of $86,250 matured on June 30, 2015 (Note 27).
$
$
80,500
131,737
224,982
356,719
37%
166,750
169,843
216,621
386,464
44%
December 31,
2015
December 31,
2014
$
51,237
$
3,093
The Corporation targets a net long-term indebtedness to EBITDA ratio of 2.0 to 3.0 over a three to five-year planning
horizon. At December 31, 2015, the net long-term indebtedness to EBITDA was 1.8 (2014 – 1.5), calculated on a last
12-month basis as follows:
December 31,
2015
December 31,
2014
Total long-term indebtedness (1)
Less: Cash on hand (2)
Net long-term indebtedness
Net earnings from continuing operations
Add:
Finance costs
Income tax expense
Depreciation and amortization
Impairment loss on property and equipment
Impairment loss on intangible assets
(Recovery) cost relating to investing activities
(Gain) loss on sale of assets
EBITDA
Net long-term indebtedness to EBITDA ratio
(1) As per the calculation in the indebtedness to capitalization percentage.
(2) Cash on hand includes restricted cash (Note 17).
91 | 2015 ANNUAL REPORT
$
$
131,737
(37,839)
93,898
11,195
169,843
(104,113)
65,730
7,145
$
$
$
$
12,638
4,846
20,304
1,170
4,000
(2,935)
(149)
51,069
1.8
$
12,866
4,070
14,883
2,596
-
1,680
112
43,352
1.5
$
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(in thousands of Canadian dollars, except share and per share amounts)
The Corporation monitors 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 Revolver (Note 26) 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 covenants at December 31, 2015 and December 31,
2014.
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 Revolver, 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 3:1.
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 3:1.
33. PRINCIPAL SUBSIDIARIES
Details of the Corporation’s principal operating subsidiaries at December 31, 2015 are as follows:
Name of Subsidiary
Stuart Olson Buildings Ltd.
Stuart Olson Industrial Inc.
411007 Alberta Ltd.
TCC Holdings Inc.
The Churchill Corporation
Principal Activity
Building Construction
Industrial Construction
Corporate
Corporate
Electrical Contracting
34. RELATED PARTY TRANSACTIONS
Place of
Incorporation and
Operation
Alberta
Alberta
Alberta
Alberta
Alberta
Proportion of Ownership
Interest and Voting
Power Held
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, 2015 of $459 (2014 - $nil) for the rental of
buildings that are partially owned indirectly by Don Sutherland, the president of Studon. No amounts are included in
trade payables as at December 31, 2015 and 2014.
The Corporation incurred facility costs during the year ended December 31, 2015 of $324 (2014 – $309) for the rental
of a building that is 50% owned by Schneider Investments Inc., a company owned by George Schneider, a former
Director of the Corporation. No amounts are included in trade payables as at December 31, 2015 and 2014.
92 | 2015 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(in thousands of Canadian dollars, except share and per share amounts)
The Corporation incurred facility costs during the year ended December 31, 2015 of $nil (2014 – $269) for the rental of
a building owned by Broda Holdings (2009) Inc., a company owned by Gord Broda, the president of a former subsidiary
of the Corporation. No amounts are included in trade payables as at December 31, 2015 and 2014. The Corporation
reclassified these facility costs as discontinued operations in the consolidated statements of earnings (loss).
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 $38,829 (Note 14). Gord
Broda 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. TriWest recognized
the potential conflict and took steps to ensure that Mr. Danard was not involved at any time in discussions at TriWest
pertaining to the Broda disposition.
35. OPERATING LEASE AGREEMENTS
The Corporation leases certain construction equipment, vehicles, office premises and equipment under operating leases.
Future minimum lease payments on non-cancellable operating lease commitments over the next five years and
thereafter are as follows:
Not later than 1 year
Later than 1 year and not later than 5 years
Later than 5 years
Payments recognized as expense:
Minimum lease payments
Sub-lease payments received
$
$
December 31,
2015
8,226
28,716
24,472
61,414
December 31,
2014
7,241
28,179
33,362
68,782
$
$
$
$
December 31,
2015
10,707
(1,239)
9,468
December 31,
2014
9,336
(1,208)
8,128
$
$
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.
93 | 2015 ANNUAL REPORT
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
(in thousands of Canadian dollars, except share and per share amounts)
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 impact on the financial position or results of operations of the Corporation. Litigation is, however,
inherently uncertain. Accordingly, adverse outcomes to current litigation or pending litigation are possible. These
potentially adverse outcomes could include financial loss, damage to the Corporation’s reputation or reduction of
prospects for future contract awards.
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.
(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 $168 (2014 - $1,389), of which $56 (2014 - $834) 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 $3,690 in connection with various projects and
joint arrangements (2014 - $4,357), of which $nil are financial letters of credit (2014 - $nil).
37. EVENTS AFTER THE REPORTING PERIOD
On March 1, 2016, 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 April 14, 2016 to
shareholders of record on March 31, 2016.
94 | 2015 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
Bob Myles, P.Eng.
Chief Operating Officer
Industrial Group
Arthur Atkinson, PQS
Chief Operating Officer
Buildings Group
Al Miller
President
Canem Systems Ltd.
Joette Decore, BSc., MBA
Executive Vice President, Strategy and
Corporate Development
Bill Pohl, B Mgmt., 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)
Carmen R. Loberg (1) (3)
Ian M. Reid, B.Comm. (2) (3) (4)
Chad Danard (1) (2)
David LeMay, MBA
(1) Member of the Audit Committee
(2) Member of the Human Resources &
Compensation Committee
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
Auditors
Deloitte LLP
Edmonton, Alberta
Principal Bank
The Toronto-Dominion Bank
(3) Member of the Corporate Governance &
Bonding and Insurance
Nominating Committee
(4) Member of the Health, Safety &
Environment Committee
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
_________________________________
600, 4820 Richard Road SW
Calgary, AB T3E 6L1
Phone: (403) 685-7777
Fax: (403) 685-7770
www.stuartolson.com
_________________________________