UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
under the Securities Exchange Act of 1934
For the month of June 2010
Commission File Number 001-33161
NORTH
AMERICAN ENERGY PARTNERS INC.
Suite 2400, 500
4
th
Avenue SW
Calgary, Alberta T2P 2V6
(Address of principal executive offices)
Indicate by
check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form
20-F
¨
Form 40-F
x
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):
Documents Included as Part of this Report
1.
|
Interim consolidated financial statements of North American Energy Partners Inc. for the three and nine months ended December 31, 2009 (restated to reflect
conversion to U.S. generally accepted accounting principles).
|
2.
|
Restated Interim Managements Discussion and Analysis for the three and nine months ended December 31, 2009.
|
2.
|
Canadian Supplement to Restated Interim Managements Discussion and Analysis for the three and nine months ended December 31, 2009.
|
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
|
|
|
NORTH AMERICAN ENERGY PARTNERS INC.
|
|
|
By:
|
|
/s/ David Blackley
|
Name:
Title:
|
|
David Blackley
Chief
Financial Officer
|
Date: June 10, 2010
NORTH AMERICAN ENERGY PARTNERS INC.
Interim Consolidated Financial Statements
For the three and nine months ended December 31, 2009
(Expressed in thousands of Canadian Dollars)
(Unaudited)
Interim Consolidated Balance Sheets
(Expressed in thousands of Canadian Dollars)
|
|
|
|
|
|
|
|
|
December 31,
2009
|
|
|
March 31,
2009
|
|
|
|
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$94,877
|
|
|
$98,880
|
|
Accounts receivable, net
(note
16(d))
|
|
89,864
|
|
|
78,323
|
|
Unbilled revenue
|
|
81,397
|
|
|
55,907
|
|
Inventories
(note 8)
|
|
8,088
|
|
|
11,814
|
|
Prepaid expenses and deposits
|
|
7,968
|
|
|
4,781
|
|
Deferred tax assets
|
|
12,954
|
|
|
7,033
|
|
|
|
|
|
|
|
|
|
|
295,148
|
|
|
256,738
|
|
Prepaid expenses and deposits
|
|
4,438
|
|
|
3,504
|
|
Assets held for sale
|
|
1,038
|
|
|
2,760
|
|
Property, plant and equipment
(note
9)
|
|
333,582
|
|
|
316,115
|
|
Intangible assets, net (accumulated amortization of $4,977 March 2009 $2,972)
|
|
7,120
|
|
|
5,944
|
|
Deferred financing costs
(note
10)
|
|
6,544
|
|
|
7,910
|
|
Investment in and advances to unconsolidated joint venture
(note
11)
|
|
2,939
|
|
|
|
|
Goodwill
(note 6)
|
|
25,111
|
|
|
23,872
|
|
Deferred tax assets
|
|
9,305
|
|
|
12,432
|
|
|
|
|
|
|
|
|
|
|
$685,225
|
|
|
$629,275
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
Accounts payable
|
|
$76,769
|
|
|
$56,204
|
|
Accrued liabilities
|
|
15,907
|
|
|
45,001
|
|
Billings in excess of costs incurred and estimated earnings on uncompleted contracts
|
|
1,901
|
|
|
2,155
|
|
Current portion of capital lease obligations
|
|
5,287
|
|
|
5,409
|
|
Current portion of derivative financial instruments
(note
16(a))
|
|
17,756
|
|
|
11,439
|
|
Current portion of long term debt
(note
12(a))
|
|
6,072
|
|
|
|
|
Deferred tax liabilities
|
|
13,211
|
|
|
7,749
|
|
|
|
|
|
|
|
|
|
|
136,903
|
|
|
127,957
|
|
Deferred lease inducements
(note
13)
|
|
788
|
|
|
836
|
|
Long term accrued liabilities
|
|
10,864
|
|
|
7,134
|
|
Capital lease obligations
|
|
9,083
|
|
|
12,075
|
|
Long term debt
(note 12(a))
|
|
23,892
|
|
|
|
|
Senior notes
(note 12(b))
|
|
209,436
|
|
|
255,756
|
|
Director deferred stock unit liability
(note
19(d))
|
|
1,834
|
|
|
546
|
|
Restricted share unit liability
(note
19(c))
|
|
639
|
|
|
|
|
Derivative financial instruments
(note
16(a))
|
|
72,123
|
|
|
43,048
|
|
Asset retirement obligation
|
|
351
|
|
|
386
|
|
Deferred tax liabilities
|
|
37,463
|
|
|
30,745
|
|
|
|
|
|
|
|
|
|
|
503,376
|
|
|
478,483
|
|
Shareholders equity:
|
|
|
|
|
|
|
Common shares (authorized unlimited number of voting and non-voting common shares; issued and outstanding December 31,
2009 36,038,476 voting common shares (March 31, 2009 36,038,476 voting common shares)
(note 14(a))
|
|
303,431
|
|
|
303,431
|
|
Additional paid-in capital
(note 14(b))
|
|
7,361
|
|
|
5,466
|
|
Deficit
|
|
(128,943
|
)
|
|
(158,105
|
)
|
|
|
|
|
|
|
|
|
|
181,849
|
|
|
150,792
|
|
|
|
|
|
|
|
|
|
|
$685,225
|
|
|
$629,275
|
|
|
|
|
|
|
|
|
Contingencies
(note
20)
Subsequent events
(note 24)
United States
and Canadian accounting policy differences
(note 25)
See accompanying notes to unaudited interim consolidated financial statements.
Interim Consolidated Statements of Operations and
Comprehensive Income (Loss)
(Expressed in thousands of Canadian Dollars, except per share amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
December 31,
|
|
|
Nine Months Ended
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Revenue
|
|
$221,175
|
|
|
$258,565
|
|
|
$538,396
|
|
|
$797,836
|
|
Project costs
|
|
89,207
|
|
|
129,912
|
|
|
208,906
|
|
|
433,504
|
|
Equipment costs
|
|
57,512
|
|
|
55,549
|
|
|
147,915
|
|
|
168,746
|
|
Equipment operating lease expense
|
|
16,287
|
|
|
11,934
|
|
|
44,320
|
|
|
30,317
|
|
Depreciation
|
|
10,543
|
|
|
9,727
|
|
|
30,693
|
|
|
27,793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
47,626
|
|
|
51,443
|
|
|
106,562
|
|
|
137,476
|
|
General and administrative costs
|
|
14,532
|
|
|
19,170
|
|
|
43,426
|
|
|
57,760
|
|
Loss on disposal of property, plant and equipment
|
|
743
|
|
|
1,022
|
|
|
1,044
|
|
|
3,778
|
|
Loss on disposal of assets held for sale
|
|
649
|
|
|
|
|
|
373
|
|
|
24
|
|
Amortization of intangible assets
|
|
528
|
|
|
391
|
|
|
1,438
|
|
|
1,049
|
|
Equity in earnings of unconsolidated joint venture
(note
11)
|
|
(98
|
)
|
|
|
|
|
(66
|
)
|
|
|
|
Impairment of goodwill
|
|
|
|
|
32,753
|
|
|
|
|
|
32,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) before the undernoted
|
|
31,272
|
|
|
(1,893
|
)
|
|
60,347
|
|
|
42,112
|
|
Interest expense, net
(note
15)
|
|
6,764
|
|
|
7,319
|
|
|
19,725
|
|
|
21,276
|
|
Foreign exchange (gain) loss
|
|
(5,449
|
)
|
|
32,935
|
|
|
(42,930
|
)
|
|
39,621
|
|
Realized and unrealized loss (gain) on derivative financial instruments
(note
16(a))
|
|
8,010
|
|
|
(26,770
|
)
|
|
43,185
|
|
|
(25,826
|
)
|
Other expenses (income)
|
|
471
|
|
|
(5,343
|
)
|
|
804
|
|
|
(5,364
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
21,476
|
|
|
(10,034
|
)
|
|
39,563
|
|
|
12,405
|
|
Income taxes
(note 17(c))
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current income taxes
|
|
591
|
|
|
1,779
|
|
|
1,855
|
|
|
1,842
|
|
Deferred income taxes
|
|
5,949
|
|
|
3,151
|
|
|
8,546
|
|
|
8,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) and comprehensive income (loss) for the period
|
|
14,936
|
|
|
(14,964
|
)
|
|
29,162
|
|
|
1,708
|
|
Net income (loss) per share basic
(note
14(c))
|
|
$0.41
|
|
|
$(0.42
|
)
|
|
$0.81
|
|
|
$0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share diluted
(note
14(c))
|
|
$0.41
|
|
|
$(0.42
|
)
|
|
$0.79
|
|
|
$0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited interim consolidated financial statements.
Interim Consolidated Statements of Changes in
Shareholders Equity
(Expressed in thousands of Canadian Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
shares
|
|
Common
non-voting
shares
|
|
|
Additional
paid-in
capital
|
|
|
Deficit
|
|
|
Total
|
|
Balance at March 31, 2007
|
|
$297,594
|
|
$2,062
|
|
|
$3,606
|
|
|
$(64,235
|
)
|
|
$239,027
|
|
Net income
|
|
|
|
|
|
|
|
|
|
41,534
|
|
|
41,534
|
|
Conversion of common shares
|
|
2,062
|
|
(2,062
|
)
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
1,937
|
|
|
|
|
|
1,937
|
|
Reclassification on exercise of stock options
|
|
611
|
|
|
|
|
(611
|
)
|
|
|
|
|
|
|
Cash settlement of stock options
|
|
|
|
|
|
|
(581
|
)
|
|
|
|
|
(581
|
)
|
Issued upon the exercise of stock options
|
|
1,627
|
|
|
|
|
|
|
|
|
|
|
1,627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2008
|
|
$301,894
|
|
$
|
|
|
$4,351
|
|
|
$(22,701
|
)
|
|
$283,544
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
(135,404
|
)
|
|
(135,404
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
1,888
|
|
|
|
|
|
1,888
|
|
Performance share unit plan
|
|
|
|
|
|
|
61
|
|
|
|
|
|
61
|
|
Reclassification on exercise of stock options
|
|
834
|
|
|
|
|
(834
|
)
|
|
|
|
|
|
|
Issued upon the exercise of stock options
|
|
703
|
|
|
|
|
|
|
|
|
|
|
703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2009
|
|
$303,431
|
|
$
|
|
|
$5,466
|
|
|
$(158,105
|
)
|
|
$150,792
|
|
Net income
|
|
|
|
|
|
|
|
|
|
29,162
|
|
|
29,162
|
|
Stock-based compensation
|
|
|
|
|
|
|
1,768
|
|
|
|
|
|
1,768
|
|
Performance share unit plan
|
|
|
|
|
|
|
213
|
|
|
|
|
|
213
|
|
Reclassified to restricted share unit liability
|
|
|
|
|
|
|
(20
|
)
|
|
|
|
|
(20
|
)
|
Cash settlement of stock options
|
|
|
|
|
|
|
(66
|
)
|
|
|
|
|
(66
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009 (Unaudited)
|
|
$303,431
|
|
$
|
|
|
$7,361
|
|
|
$(128,943
|
)
|
|
$181,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited interim consolidated financial statements.
Interim Consolidated Statements of Cash Flows
(Expressed in thousands of Canadian Dollars)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
December 31,
|
|
|
Nine Months Ended
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) for the period
|
|
$14,936
|
|
|
$(14,964)
|
|
|
$29,162
|
|
|
$1,708
|
|
Items not affecting cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
10,543
|
|
|
9,727
|
|
|
30,693
|
|
|
27,793
|
|
Equity in earnings of unconsolidated joint venture
|
|
(98
|
)
|
|
|
|
|
(66
|
)
|
|
|
|
Amortization of intangible assets
|
|
528
|
|
|
391
|
|
|
1,438
|
|
|
1,049
|
|
Amortization of deferred lease inducements
|
|
(19
|
)
|
|
(26
|
)
|
|
(80
|
)
|
|
(79
|
)
|
Amortization of deferred financing costs
|
|
847
|
|
|
764
|
|
|
2,489
|
|
|
2,190
|
|
Loss on disposal of property, plant and equipment
|
|
743
|
|
|
1,022
|
|
|
1,044
|
|
|
3,778
|
|
Loss on disposal of assets held for sale
|
|
649
|
|
|
|
|
|
373
|
|
|
24
|
|
Impairment of goodwill
|
|
|
|
|
32,753
|
|
|
|
|
|
32,753
|
|
Unrealized foreign exchange (gain) loss on senior notes
|
|
(5,120
|
)
|
|
32,940
|
|
|
(42,720
|
)
|
|
39,347
|
|
Unrealized loss (gain) on derivative financial instruments measured at fair value
|
|
3,818
|
|
|
(27,437
|
)
|
|
31,793
|
|
|
(27,827
|
)
|
Stock-based compensation expense
(note 19)
|
|
1,439
|
|
|
511
|
|
|
3,888
|
|
|
1,846
|
|
Accretion expense asset retirement obligation
|
|
8
|
|
|
53
|
|
|
(4
|
)
|
|
159
|
|
Deferred income taxes
|
|
5,949
|
|
|
3,151
|
|
|
8,546
|
|
|
8,855
|
|
Net changes in non-cash working capital
(note
17(b))
|
|
(23,839
|
)
|
|
22,026
|
|
|
(40,164
|
)
|
|
(12,400
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,384
|
|
|
60,911
|
|
|
26,392
|
|
|
79,196
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition
(note 7)
|
|
(530
|
)
|
|
|
|
|
(5,410
|
)
|
|
|
|
Purchase of property, plant and equipment
|
|
(3,542
|
)
|
|
(8,960
|
)
|
|
(46,002
|
)
|
|
(76,354
|
)
|
Addition to intangible assets
|
|
(1,232
|
)
|
|
(409
|
)
|
|
(2,037
|
)
|
|
(1,941
|
)
|
Additions to assets held for sale
|
|
(125
|
)
|
|
(350
|
)
|
|
(1,058
|
)
|
|
(350
|
)
|
Investment in and advances to unconsolidated joint venture
|
|
(1,887
|
)
|
|
|
|
|
(2,873
|
)
|
|
|
|
Proceeds on disposal of property, plant and equipment
|
|
454
|
|
|
3,173
|
|
|
1,150
|
|
|
7,821
|
|
Proceeds on disposal of assets held for sale
|
|
1,170
|
|
|
|
|
|
2,282
|
|
|
194
|
|
Net changes in non-cash working capital
(note
17(b))
|
|
(2,998
|
)
|
|
(2,068
|
)
|
|
(351
|
)
|
|
3,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,690
|
)
|
|
(8,614
|
)
|
|
(54,299
|
)
|
|
(67,439
|
)
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cheques issued in excess of cash deposits
|
|
|
|
|
(665
|
)
|
|
|
|
|
|
|
Repayment of long term debt
|
|
(3,037
|
)
|
|
(10,000
|
)
|
|
(3,688
|
)
|
|
|
|
Increase in long term debt
(note 12(a))
|
|
|
|
|
|
|
|
33,000
|
|
|
|
|
Repayment of capital lease obligations
|
|
(1,271
|
)
|
|
(2,029
|
)
|
|
(4,219
|
)
|
|
(4,719
|
)
|
Cash settlement of stock options
(note
14(b))
|
|
|
|
|
|
|
|
(66
|
)
|
|
|
|
Stock options exercised
|
|
|
|
|
|
|
|
|
|
|
702
|
|
Financing costs
(note
12(a))
|
|
|
|
|
|
|
|
(1,123
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,308
|
)
|
|
(12,694
|
)
|
|
23,904
|
|
|
(4,017
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in cash and cash equivalents
|
|
(2,614
|
)
|
|
39,603
|
|
|
(4,003
|
)
|
|
7,740
|
|
Cash and cash equivalents, beginning of period
|
|
97,491
|
|
|
|
|
|
98,880
|
|
|
31,863
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$94,877
|
|
|
$39,603
|
|
|
$94,877
|
|
|
$39,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information
(note
17(a))
See accompanying notes to unaudited interim consolidated financial statements.
Notes to Interim Consolidated Financial Statements
For the three and nine months ended December 31, 2009
(Expressed in thousands of Canadian Dollars, except per share amounts or unless otherwise specified)
(Unaudited)
1. Nature of operations
North American Energy Partners Inc. (the Company), formerly NACG Holdings Inc. (NACG), was incorporated under the Canada
Business Corporations Act on October 17, 2003. On November 26, 2003, the Company purchased all the issued and outstanding shares of North American Construction Group Inc. (NACGI), including subsidiaries of NACGI, from Norama
Ltd. which had been operating continuously in Western Canada since 1953. The Company had no operations prior to November 26, 2003. The Company undertakes several types of projects including heavy construction, industrial and commercial site
development and pipeline and piling installations in Canada.
2. Change in generally accepted accounting principles
As a Canadian-based company, the Company historically prepared its consolidated financial statements in conformity with accounting principles
generally accepted in Canada (Canadian GAAP) and also provided a reconciliation on an annual basis to United States generally accepted accounting principles (U.S. GAAP).
The Accounting Standards Board of the Canadian Institute of Chartered Accountants previously announced its decision to require all publicly accountable enterprises
to report under International Financial Reporting Standards (IFRS) for years beginning on or after January 1, 2011. However, National Instrument 52-107 allows Securities and Exchange Commission (SEC) registrants, such as the
Company, to file financial statements with Canadian securities regulators that are prepared in accordance with U.S. GAAP. It is proposed that SEC registrants would be permitted to continue to report under U.S. GAAP beyond 2011. As such, the Company
has decided to adopt U.S. GAAP instead of IFRS as its primary basis of financial reporting commencing in fiscal 2010.
The decision to adopt U.S. GAAP
was also made to enhance communication with shareholders and improve the comparability of financial information reported with competitors and peer group. All comparative financial information contained herein has been revised to reflect the
Companys results as if they had been historically reported in accordance with U.S. GAAP.
3. Significant accounting
policies
a) Basis of presentation
These
unaudited interim consolidated financial statements (the financial statements) are prepared in accordance with U.S. GAAP for interim financial statements and do not include all of the disclosures normally contained in the Companys
annual consolidated financial statements. Material items that give rise to measurement differences to the consolidated financial statements under Canadian GAAP are outlined in note 25.
These consolidated financial statements include the accounts of the Company, its wholly-owned subsidiary, NACGI, and the following 100% owned subsidiaries of NACGI:
|
|
|
North American Caisson Ltd.
|
|
North American Road Inc.
|
North American Construction Ltd.
|
|
North American Services Inc.
|
North American Engineering Inc.
|
|
North American Site Development Ltd.
|
North American Enterprises Ltd.
|
|
North American Site Services Inc.
|
North American Industries Inc.
|
|
North American Pile Driving Inc.
|
North American Mining Inc.
|
|
DF Investments Limited
|
North American Maintenance Ltd.
|
|
Drillco Foundation Co. Ltd.
|
North American Pipeline Inc.
|
|
|
b) Use of estimates
The
preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and disclosures reported in these consolidated
financial statements and accompanying notes.
Significant estimates made by management include the assessment of the percentage of completion on
time-and-materials, unit-price or lump-sum contracts (including estimated total costs and provisions for estimated losses) and the recognition of claims and change orders on revenue contracts, assumptions used to value free standing derivatives and
other financial instruments, assumptions used in periodic impairment testing, and estimates and assumptions used in the determination of the allowance for doubtful accounts, the recoverability of deferred tax assets and the useful lives of property,
plant and equipment. Actual results could differ materially from those estimates.
The accuracy of the Companys revenue and profit recognition in a
given period is dependent, in part, on the accuracy of its estimates of the cost to complete each time-and-materials, unit-price, or lump-sum project. The Companys cost
Notes to Interim Consolidated Financial Statements
For the three and nine months ended December 31, 2009
(Expressed
in thousands of Canadian Dollars, except per share amounts or unless otherwise specified)
(Unaudited)
estimates use a detailed bottom up approach, using inputs such as labour and equipment hours, detailed drawings and material lists. These estimates are reviewed and updated monthly.
The Company believes its experience allows it to produce materially reliable estimates. However, the Companys projects can be highly complex. Profit margin estimates for a project may either increase or decrease from the amount that was
originally estimated at the time of the related bid. With many projects of varying levels of complexity and size in process at any given time, changes in estimates can offset each other without materially impacting the Companys profitability.
Major changes in cost estimates, particularly in larger, more complex projects, can have a significant effect on profitability.
c) Revenue
recognition
The Company performs its projects under the following types of contracts: time-and-materials; cost-plus; unit-price; and lump sum.
Revenue is recognized as costs are incurred for time-and-materials and cost-plus service contracts with no clearly defined scope. Revenue on cost-plus, unit-price, lump-sum and time-and-materials contracts with defined scope are recognized using the
percentage-of-completion method, measured by the ratio of costs incurred to date to estimated total costs. The estimated total cost of the contract and percent complete is determined based upon estimates made by management. The costs of items that
do not relate to performance of contracted work, particularly in the early stages of the contract, are excluded from costs incurred to date. The resulting percentage of completion methodology is applied to the approved contract value to determine
the revenue recognized. Customer payment milestones typically occur on a periodic basis over the period of contract completion.
The length of the
Companys contracts varies from less than one year for typical contracts to several years for certain larger contracts. Contract project costs include all direct labour, material, subcontract and equipment costs and those indirect costs related
to contract performance such as indirect labour, supplies and tools. General and administrative costs are charged to expense as incurred. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are
determined. Changes in project performance, project conditions, and estimated profitability, including those arising from contract penalty provisions and final contract settlements, may result in revisions to costs and revenue that are recognized in
the period in which such adjustments are determined. Profit incentives are included in revenue when their realization is reasonably assured.
Once a
project is underway, the Company will often experience changes in conditions, client requirements, specifications, designs, materials and work schedule. Generally, a change order will be negotiated with the customer to modify the
original contract to approve both the scope and price of the change. Occasionally, however, disagreements arise regarding changes, their nature, measurement, timing and other characteristics that impact costs and revenue under the contract. When a
change becomes a point of dispute between the Company and a customer, the Company will then consider it as a claim.
Costs related to unapproved change
orders and claims are recognized when they are incurred. Revenues related to unapproved change orders and claims are included in total estimated contract revenue when they are approved.
Revenues related to unapproved change orders and claims are included in total estimated contract revenue only to the extent that contract costs related to the claim
have been incurred and when it is probable that the unapproved change order or claim will result in:
|
|
a bona fide addition to contract value; and
|
|
|
revenues can be reliably estimated.
|
These two
conditions are satisfied when:
|
|
the contract or other evidence provides a legal basis for the unapproved change order or claim or a legal opinion is obtained providing a reasonable basis to
support the unapproved change order or claim;
|
|
|
additional costs incurred were caused by unforeseen circumstances and are not the result of deficiencies in the Companys performance;
|
|
|
costs associated with the unapproved change order or claim are identifiable and reasonable in view of work performed; and
|
|
|
evidence supporting the unapproved change order or claim is objective and verifiable.
|
This can lead to a situation where costs are recognized in one period and revenue is recognized when customer agreement is obtained or claim resolution occurs,
which can be in subsequent periods. Historical claim recoveries should not be considered indicative of future claim recoveries.
Notes to Interim Consolidated Financial Statements
For the three and nine months ended December 31, 2009
(Expressed
in thousands of Canadian Dollars, except per share amounts or unless otherwise specified)
(Unaudited)
The Companys long-term contracts typically allow its customers to unilaterally reduce or eliminate the scope
of the work as contracted without cause. These long-term contracts represent higher risk due to uncertainty of total contract value and estimated costs to complete; therefore, potentially impacting revenue recognition in future periods.
A contract is regarded as substantially completed when remaining costs and potential risks are insignificant in amount.
Revenue recognition from equipment rentals occurs when there is a written arrangement in the form of a contract or purchase order with the customer, a fixed or
determinable sales price is established with the customer, performance requirements are achieved, and ultimate collection of the revenue is reasonably assured. Equipment rental revenue is recognized as performance requirements are achieved in
accordance with the terms of the relevant agreement with the customer, either at a monthly fixed rate or on a usage basis dependent on the number of hours that the equipment is used.
d) Balance sheet classifications
Included in current assets
and liabilities are amounts receivable and payable under construction contracts (principally retentions) that may extend beyond one year. A one year time period is used as the basis for classifying all other current assets and liabilities.
e) Cash and cash equivalents
Cash and cash
equivalents include cash on hand, bank balances net of outstanding cheques and short-term investments with maturities of three months or less when purchased.
f) Accounts receivable and unbilled revenue
Accounts
receivable in the accompanying Consolidated Balance Sheets are primarily comprised of amounts billed to clients for services already provided, but which have not yet been collected. Unbilled revenue represents revenue recognized in advance of
amounts invoiced.
g) Billings in excess of costs incurred and estimated earnings on uncompleted contracts
Billings in excess of costs incurred and estimated earnings on uncompleted contracts represent amounts invoiced in excess of revenue recognized.
h) Allowance for doubtful accounts
The Company evaluates the
probability of collection of accounts receivable and records an allowance for doubtful accounts, which reduces accounts receivable to the amount management reasonably believes will be collected. In determining the amount of the allowance, the
following factors are considered; the length of time the receivable has been outstanding, specific knowledge of each customers financial condition and historical experience.
i) Inventories
Inventories are carried at the lower of
weighted average cost and market and consist primarily of tires.
j) Property, plant and equipment
Property, plant and equipment are recorded at cost. Major components of heavy construction equipment in use such as engines and transmissions are recorded
separately. Equipment under capital lease is recorded at the present value of minimum lease payments at the inception of the lease. Depreciation is not recorded until an asset is available for use. Depreciation for each category is calculated based
on the cost, net of the estimated residual value, over the estimated useful life of the assets on the following basis and annual rates:
|
|
|
|
|
Assets
|
|
Basis
|
|
Rate
|
Heavy equipment
|
|
Straight-line
|
|
Operating hours
|
Major component parts in use
|
|
Straight-line
|
|
Operating hours
|
Other equipment
|
|
Straight-line
|
|
5 10 years
|
Licensed motor vehicles
|
|
Declining balance
|
|
30%
|
Office and computer equipment
|
|
Straight-line
|
|
4 years
|
Buildings
|
|
Straight-line
|
|
10 years
|
Leasehold improvements
|
|
Straight-line
|
|
Over shorter of estimated useful life and lease term
|
Assets under capital lease
|
|
Declining balance
|
|
Over life of lease
|
Notes to Interim Consolidated Financial Statements
For the three and nine months ended December 31, 2009
(Expressed
in thousands of Canadian Dollars, except per share amounts or unless otherwise specified)
(Unaudited)
The costs for periodic repairs and maintenance are expensed to the extent the expenditures serve only to restore
the assets to their normal operating condition without enhancing their service potential or extending their useful lives.
k) Capitalized interest
The Company capitalizes interest incurred on debt during the construction of assets for the Companys own use. The capitalization period covers
the duration of the activities required to get the asset ready for its intended use, provided that expenditures for the asset have been made and interest cost incurred. Interest capitalization continues as long as those activities and the incurrence
of interest cost continue. The capitalized interest is amortized at the same rate as the respective asset.
l) Goodwill
Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and
separately recognized. Goodwill is not amortized but instead is tested for impairment annually or more frequently if events or changes in circumstances indicate that it may be impaired. Goodwill is assigned, as of the date of the business
combination, to reporting units that are expected to benefit from the business combination. The impairment test is carried out in two steps. In the first step, the carrying amount of the reporting unit, including goodwill, is compared to its fair
value. When the fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered to be impaired and the second step of the impairment test is unnecessary. The second step is carried out when the carrying
amount of a reporting unit exceeds its fair value, in which case, the implied fair value of the reporting units goodwill, determined in the same manner as the value of goodwill is determined in a business combination, is compared with its
carrying amount to measure the amount of the impairment loss, if any.
The Company performs its annual goodwill assessment on October 1 of each year
and when a triggering event occurs between annual impairment tests.
m) Intangible assets
Intangible assets include:
|
|
customer contracts in process and related relationships, which are being amortized over the remaining lives of the related contracts and relationships;
|
|
|
trade names, which are being amortized on a straight-line basis over their estimated useful lives of five and ten years;
|
|
|
non-competition agreements, which are being amortized on a straight-line basis between the three and five year terms of the respective agreements; and
|
|
|
capitalized computer software and development costs.
|
The Company expenses or capitalizes costs associated with the development of internal use software as follows:
Preliminary project stage
: Both internal and external costs incurred during this stage are expensed as incurred.
Application development stage
: Both internal and external costs incurred to purchase and develop computer software are capitalized after the preliminary
project stage is completed and management authorizes the computer software project. However, training costs and the process of data conversion from the old system to the new system, which includes purging or cleansing of existing data,
reconciliation or balancing of old data to the converted data in the new system, are expensed as incurred.
Post-implementation/operation stage
:
All training costs and maintenance costs incurred during this stage are expensed as incurred.
Costs of upgrades and enhancements are capitalized if the
expenditures will result in adding functionality to the software. Capitalized software costs are depreciated using the straight-line method over the estimated useful life of the related software, which may be up to four years.
n) Impairment of long-lived assets
Long-lived assets or
asset groups held and used including plant, equipment and identifiable intangible assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be
recoverable. If the sum of the undiscounted future cash flows expected to result from the use and eventual disposition of an asset or group of assets is less than its carrying amount, it is considered to be impaired. The Company measures the
impairment loss as the amount by which the carrying amount of the asset or
Notes to Interim Consolidated Financial Statements
For the three and nine months ended December 31, 2009
(Expressed
in thousands of Canadian Dollars, except per share amounts or unless otherwise specified)
(Unaudited)
group of assets exceeds its fair value, which is charged to depreciation expense. In determining whether an impairment exists, the Company makes assumptions about the future cash flows expected
from the use of its long-lived assets, such as: applicable industry performance and prospects; general business and economic conditions that prevail and are expected to prevail; expected growth; maintaining its customer base; and achieving cost
reductions. There can be no assurance that expected future cash flows will be realized, or will be sufficient to recover the carrying amount of long-lived assets. Furthermore, the process of determining fair values is subjective and requires
management to exercise judgment in making assumptions about future results, including revenue and cash flow projections and discount rates.
o) Assets
held for sale
Long-lived assets are classified as held for sale when certain criteria are met, which include:
|
|
management, having the authority to approve the action, commits to a plan to sell the assets;
|
|
|
the assets are available for immediate sale in their present condition;
|
|
|
an active program to locate buyers and other actions to sell the assets have been initiated;
|
|
|
the sale of the assets is probable and their transfer is expected to qualify for recognition as a completed sale within one year;
|
|
|
the assets are being actively marketed at reasonable prices in relation to their fair value; and
|
|
|
it is unlikely that significant changes will be made to the plan to sell the assets or that the plan will be withdrawn.
|
Assets to be disposed of by sale are reported at the lower of their carrying amount or fair value less costs to sell and are disclosed separately on the Interim
Consolidated Balance Sheets. These assets are not depreciated.
p) Asset retirement obligations
Asset retirement obligations are legal obligations associated with the retirement of property, plant and equipment that result from their acquisition, lease,
construction, development or normal operations. The Company recognizes its contractual obligations for the retirement of certain tangible long-lived assets. The fair value of a liability for an asset retirement obligation is recognized in the period
in which it is incurred if a reasonable estimate of fair value can be made. The fair value of a liability for an asset retirement obligation is the amount at which that liability could be settled in a current transaction between willing parties,
that is, other than in a forced or liquidation transaction and, in the absence of observable market transactions, is determined as the present value of expected cash flows. The associated asset retirement costs are capitalized as part of the
carrying amount of the long-lived asset and then amortized using a systematic and rational method over its estimated useful life. In subsequent reporting periods, the liability is adjusted for the passage of time through an accretion charge and any
changes in the amount or timing of the underlying future cash flows are recognized as an additional asset retirement cost.
q) Foreign currency
translation
The functional currency of the Company is Canadian Dollars. Transactions denominated in foreign currencies are recorded at the rate of
exchange on the transaction date. Monetary assets and liabilities, denominated in foreign currencies, are translated into Canadian Dollars at the rate of exchange prevailing at the balance sheet date. Foreign exchange gains and losses are included
in the determination of earnings.
r) Fair value measurement
Financial instruments are categorized using a valuation hierarchy for disclosure of the inputs used to measure fair value, which prioritizes the inputs into three
broad levels. Fair value of financial assets and financial liabilities included in Level 1 are determined by reference to quoted prices in active markets for identical assets and liabilities. Financial assets and financial liabilities in Level 2
include valuations using inputs based on observable market data, either directly or indirectly other than the quoted prices. Level 3 valuations are based on inputs that are not based on observable market data. The classification of a financial asset
or liability within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
s) Derivative
financial instruments
The Company uses derivative financial instruments to manage financial risks from fluctuations in exchange rates and interest
rates. These instruments include cross-currency and interest rate swap agreements as well as embedded price escalation features in revenue and supplier contracts. All such instruments are only used for risk management purposes. The Company does not
hold or issue derivative financial instruments for trading or speculative purposes. Derivative financial instruments are subject to standard credit terms and conditions, financial controls, management and
Notes to Interim Consolidated Financial Statements
For the three and nine months ended December 31, 2009
(Expressed
in thousands of Canadian Dollars, except per share amounts or unless otherwise specified)
(Unaudited)
risk monitoring procedures. These derivative financial instruments are not designated as hedges for accounting purposes and are recorded at fair value with realized and unrealized gains and
losses recognized in the Interim Consolidated Statements of Operations and Comprehensive Income (Loss).
t) Income taxes
The Company uses the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred tax assets and liabilities are
recognized for the deferred tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities from a change in tax rates is recognized in income in
the period of enactment. The Company recognizes the effect of income tax positions only if those positions are more likely than not (greater than 50%) of being sustained. Changes in recognition or measurement are reflected in the period in which the
change in judgement occurs. The Company accrues interest and penalties for uncertain tax positions in the period in which these uncertainties are identified. Interest and penalties are included in Other income in the Consolidated
Statements of Operations and Comprehensive Income (Loss). A valuation allowance is recorded against any deferred tax asset if it is more likely than not that the asset will not be realized.
u) Stock-based compensation
The Company accounts for all
stock-based compensation payments that are settled by the issuance of equity instruments at fair value. Compensation cost is measured using the Black-Scholes model at the grant date and is expensed on a straight-line basis over the awards
vesting period, with a corresponding increase to additional paid-in capital. Upon exercise of a stock option, share capital is recorded at the sum of proceeds received and the related amount of additional paid-in capital.
The Company has a Deferred Performance Share Unit (DPSU) plan, which is described in note 19(b). This compensation plan is settled, at the
Companys option, either by the issuance of equity instruments or by cash payment. Compensation cost is measured using the Black-Scholes model at the grant date and is expensed on a straight-line basis over the awards vesting period, with
a corresponding increase to additional paid-in capital. The vesting of awards under the DPSU is contingent upon certain performance criteria being achieved. The fair value of each share option grant under the DPSU plan assumes that the relevant
performance criteria will be achieved and compensation cost is recorded to the extent that vesting of the award is considered probable. When it is determined that such criteria are not probable of being achieved, no compensation cost is recognized
and any previously recognized compensation cost is reversed.
The Company has a Restricted Share Unit (RSU) plan which is described in note
19(c). RSUs will be granted effective April 1 of each fiscal year with respect to services to be provided in that fiscal year and the following two fiscal years. The RSUs vest at the end of a three year term. The Company classifies RSUs as a
liability as the Company has the ability and intent to settle the awards in cash. The compensation expense is calculated based on the fair value of each RSU as determined by the number of RSUs vested and the closing value of the Companys
common shares on each period end date.
The Company has a Directors Deferred Stock Unit (DDSU) plan, which is described in note 19(d).
The DDSU plan enables directors to receive all or a portion of their fee for that fiscal year in the form of deferred stock units. The deferred stock units are settled in cash and are classified as a liability on the Consolidated Balance Sheets. The
measurement of the liability and compensation costs for these awards is based on the fair value of the award and is recorded as a charge to operating income over the vesting period of the award. Subsequent changes in the Companys payment
obligation after vesting of the award and prior to the settlement date are recorded as a charge to operating income in the period such changes occur.
v) Net income (loss) per share
Basic net income (loss) per
share is computed by dividing net income available to common shareholders by the weighted average number of shares outstanding during the year (see note 14(c)). Diluted per share amounts are calculated using the treasury stock method. The treasury
stock method increases the diluted weighted average shares outstanding to include additional shares from the assumed exercise of stock options, if dilutive. The number of additional shares is calculated by assuming outstanding in-the-money stock
options were exercised and the proceeds from such exercises, including any unamortized stock-based compensation cost, were used to acquire shares of common stock at the average market price during the year.
Notes to Interim Consolidated Financial Statements
For the three and nine months ended December 31, 2009
(Expressed
in thousands of Canadian Dollars, except per share amounts or unless otherwise specified)
(Unaudited)
w) Leases
Leases entered into by the Company in which substantially all the benefits and risks of ownership transferred to the Company are recorded as obligations under
capital leases, and under the corresponding category of property, plant and equipment. Obligations under capital leases reflect the present value of future lease payments, discounted at an appropriate interest rate, and are reduced by rental
payments net of imputed interest. All other leases are classified as operating leases and leasing costs, including any rent holidays, leasehold incentives, and rent concessions, are amortized on a straight-line basis over the lease term.
x) Deferred financing costs
Underwriting, legal and other
direct costs incurred in connection with the issuance of debt not measured under the fair value option is presented as deferred financing costs. The deferred financing costs related to the senior notes and the revolving and term loan facilities are
amortized over the term of the related debt using the effective interest method.
y) Investments in unconsolidated joint ventures or affiliates
Investments in unconsolidated joint ventures or affiliates over which the Company has significant influence, including the Companys investment in
Noramac Ventures Inc., are accounted for under the equity method of accounting, whereby the investment is carried at the cost of acquisition, including subsequent capital contributions and loans from the Company, plus the Companys equity in
undistributed earnings or losses since acquisition. Investments in unconsolidated joint ventures are included as investment in and advances to unconsolidated joint venture in the Companys Consolidated Balance Sheets.
z) Business combinations
The Company accounts for all
business combinations using the acquisition method. Acquisition related costs which include finders fees, advisory, legal, accounting, valuation, other professional or consulting fees, and administrative costs are expensed as incurred.
aa) Adjustments related to prior year financial statements
The financial statements for fiscal 2009 and fiscal 2008 as initially reconciled to U.S. GAAP have been amended to correct the following errors identified during
preparation of the Companys 2010 financial statements under U.S. GAAP.
(i)
|
Adoption of CICA Handbook Section 3031, Inventories. The Company identified an error related to the adoption of Canadian Handbook Section 3031,
Inventories in fiscal 2009. The change in accounting policy was accounted for on a retrospective basis, without restatement of prior periods under Canadian GAAP resulting in a decrease to deficit of $991, net of taxes of $392, to reverse
a tire impairment recorded in fiscal 2008. This decrease in deficit should have been adjusted for in the reconciliation to U.S. GAAP as the tire impairment should not have been recorded in fiscal 2008 under U.S. GAAP. As a result of this error, net
income under U.S. GAAP for fiscal 2008 increased by $991 and deficit under U.S. GAAP as at March 31, 2008 decreased by $991.
|
(ii)
|
Reclassification of accrued liabilities. The financial statements for fiscal 2009 have been amended to correct a classification error with respect to accrued liabilities
identified during the preparation of the Companys fiscal 2010 consolidated financial statements. Certain operating lease agreements provide a maximum hourly usage limit, above which the Company will be required to pay for the over hour
usage. These contingent rentals are recognized when payment is considered probable and are due at the end of the lease term. The Company has historically classified the contingent rentals as a current liability; however, certain of the amounts
are due beyond one year from the balance sheet date. In the current year, the Company has reclassified amounts due beyond one year, from the balance sheet date, as a long term liability and has reclassified comparative figures
accordingly. The amount reclassified on the Consolidated Balance Sheet was $10,864 and $7,134 as at December 31, 2009 and March 31, 2009 respectively.
|
(iii)
|
Buy-out of leased assets. The financial statements for fiscal 2008 and fiscal 2009 have been amended under U.S. GAAP to correct an error related to the method of
accounting for an incentive at the time of buying previously leased assets, which was identified during the preparation of the Companys fiscal 2010 consolidated financial statements. When an asset is leased under an operating lease agreement,
as stated in the paragraph above, contingent rentals are recognized when payment is considered probable and are due at the end of the lease term. The Company can buy the asset at the end of the lease term at a pre-determined market price at which
point the liability is extinguished since the lease agreement is cancelled. The Company has been traditionally extinguishing the liability for such lease buyouts by reducing equipment costs related to leased equipment, instead of considering the
extinguishment of the liability as an incentive to purchase the asset and therefore reducing the cost of the asset. The impact of the error on previously reported amounts under Canadian GAAP for the quarter ended
|
Notes to Interim Consolidated Financial Statements
For the three and nine months ended December 31, 2009
(Expressed
in thousands of Canadian Dollars, except per share amounts or unless otherwise specified)
(Unaudited)
|
December 31, 2009 is described in note 25(i) as U.S. GAAP amounts were previously only reported on an annual basis. The correction of this error reduced Property, plant and
equipment by $8,580, reduced long term Deferred tax liabilities by $2,574 and increased Deficit by $5,838 in the Consolidated Balance Sheet as at Mach 31, 2009.
|
(iv)
|
Valuation of derivative financial instruments. The financial statements for fiscal 2009 have also been amended under U.S. GAAP to correct an error related to the determination of
the fair value of the cross-currency and interest rate swap liabilities (collectively, the swap liability) which was identified on settlement of the swap liability on April 8, 2010. The Company recorded the fair value of the swap
liability and in addition recorded accrued interest on the swap liability. This resulted in the swap liability being misstated and the changes in the fair value of the swap liability being misstated by the change in the amount of the accrued
interest at each reporting period from March 31, 2009. The periods before March 31, 2009 were not materially impacted because prior to February 2, 2009, the U.S. Dollar interest rate swap was still in place (note 16(c)(ii)), and
therefore the net accrued interest payable under the swap liability was not material. The impact of the error on previously reported amounts under Canadian GAAP for the quarter ended December 31, 2009 is described in note 25(i) as U.S. GAAP
amounts were only reported on an annual basis. It also reduced Derivative financial instruments by $7,514, increased long term Deferred tax liabilities by $1,676 and reduced Deficit by $5,838 in the Consolidated
Balance Sheet as at March 31, 2009.
|
The impact of the above corrections on the previously reported Consolidated Balance Sheet under
U.S. GAAP as at March 31, 2009 is as follows:
|
|
|
|
|
|
|
|
|
|
March 31, 2009
|
|
As previously
reported
|
|
|
Adjustments
|
|
|
As
amended
|
|
Property, plant and equipment
|
|
$324,695
|
|
|
$(8,580
|
)
|
|
$316,115
|
|
Accrued liabilities
|
|
52,135
|
|
|
(7,134
|
)
|
|
45,001
|
|
Long term accrued liabilities
|
|
|
|
|
7,134
|
|
|
7,134
|
|
Derivative financial instruments
|
|
50,562
|
|
|
(7,514
|
)
|
|
43,048
|
|
Deferred tax liabilities
|
|
31,643
|
|
|
(898
|
)
|
|
30,745
|
|
Deficit, end of period
|
|
(157,937
|
)
|
|
(168
|
)
|
|
(158,105
|
)
|
The impact of the above corrections on previously
reported amounts under U.S. GAAP for the years ended March 31, 2009 and March 31, 2008 are described in our annual consolidated financial statements for the year ended March 31, 2010.
4. United States accounting pronouncements recently adopted
i) The FASB accounting standards codification and the hierarchy of generally accepted accounting principles
In June 2009, the Financial Accounting Standards Board (FASB) issued the FASB Accounting Standards Codification (ASC) 105. The ASC amended the hierarchy of
generally accepted accounting principles (GAAP) such that the ASC became the single source of authoritative non-governmental U.S. GAAP, except for SEC rules and interpretative releases which, for the Company, are also authoritative U.S. GAAP. The
ASC did not change current U.S. GAAP, but was intended to simplify user access to all authoritative U.S. GAAP by providing all the authoritative literature related to a particular topic in one place. All previously existing accounting standard
documents were superseded and all other accounting literature not included in the ASC is considered non-authoritative. The ASC identifies the sources of accounting principles and the framework for selecting the principles to be used in the
preparation of financial statements in accordance with U.S. GAAP. The Company adopted this standard during the quarter ended September 30, 2009. The adoption of this standard did not have a material impact on the Companys interim
consolidated financial statements.
ii) Fair value measurements
In September 2006, the FASB issued an accounting standard codified in ASC 820, Fair Value Measurements and Disclosures. This standard established a
single definition of fair value and a framework for measuring fair value, set out a fair value hierarchy to be used to classify the source of information used in fair value measurements, and required disclosures of assets and liabilities measured at
fair value based on their level in the hierarchy. This standard applies under other accounting standards that require or permit fair value measurements. One of the amendments deferred the effective date for one year relative to non-financial assets
and liabilities that are measured at fair value, but are recognized or disclosed at fair value on a non-recurring basis. This deferral applied to such items as non-financial assets and liabilities initially measured at fair value in a business
combination (but not measured at fair value in subsequent periods) or non-financial long-lived asset groups measured at fair value for an impairment assessment. These remaining
Notes to Interim Consolidated Financial Statements
For the three and nine months ended December 31, 2009
(Expressed
in thousands of Canadian Dollars, except per share amounts or unless otherwise specified)
(Unaudited)
aspects of the fair value measurement standard were adopted by the Company prospectively beginning April 1, 2009. The adoption of this standard did not have a material impact on the
Companys interim consolidated financial statements.
iii) Business combinations
In December 2007, the FASB issued SFAS No. 141R, Business Combinations (SFAS 141R), and, in April 2009, issued FAS 141 (R)-1,
Accounting for Assets Acquired and Liabilities Assumed in a Business Combination that Arise from Contingencies, to amend and clarify SFAS No. 141(R), Business Combinations, now part of ASC 805, Business
Combinations. Effective for the Company beginning on April 1, 2009, the standard establishes principles and requirements for how an acquirer recognizes and measures, in its financial statements, the identifiable assets acquired, the
liabilities assumed, any non-controlling interest in the acquiree, and any goodwill and establishes disclosure requirements that enable users of the Companys financial statements to evaluate the nature and financial effects of the business
combination. This new standard was applied to the acquisition of DF Investments Limited and its subsidiary Drillco Foundation Co. Ltd. (see note 7).
iv) Non-controlling interests in consolidated financial statements
In December 2007, the FASB issued SFAS No. 160, Non-controlling Interests in Consolidated Financial Statements An Amendment of ARB No. 51
(SFAS 160), which is now part of ASC 810. The amendments to ASC 810 are effective for the fiscal year beginning April 1, 2009 and change the accounting and reporting for ownership interests in subsidiaries held by parties other than
the parent. These non-controlling interests are to be presented in the consolidated balance sheet within equity but separate from the parents equity. The amount of consolidated net income attributable to the parent and to the non-controlling
interest is to be clearly identified and presented on the face of the consolidated statement of operations. In addition, this ASC establishes standards for a change in a parents ownership interest in a subsidiary and the valuation of retained
non-controlling equity investments when a subsidiary is deconsolidated. The ASC also establishes reporting requirements for providing sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests
of the non-controlling owners. The Company prospectively adopted this ASC effective April 1, 2009. The adoption of this standard did not have a material impact on the Companys consolidated financial statements.
v) Determination of the useful life of intangible assets
In
April 2008, the FASB issued FSP No. FAS 142-3, Determination of the Useful Life of Intangible Assets, which amends the list of factors an entity should consider in developing renewal or extension assumptions used in determining
the useful life of recognized intangible assets under SFAS No. 142, Goodwill and Other Intangible Assets. The guidance, now part of ASC 350, Intangibles Goodwill and Others, and ASC 275, Risks and
Uncertainties, applies to (i) intangible assets that are acquired individually or with a group of other assets and (ii) intangible assets acquired in both business combinations and asset acquisitions. Entities estimating the useful
life of a recognized intangible asset must now consider their historical experience in renewing or extending similar arrangements or, in the absence of historical experience, must consider assumptions that market participants would use about renewal
or extension. The Company adopted this standard effective April 1, 2009. The adoption of this standard did not have a material impact on the Companys interim consolidated financial statements.
vi) Equity method investment accounting considerations
In
November 2008, the FASB issued EITF 08-06, Equity Method Investment Accounting Considerations, now part of ASC 323, Investments Equity Method and Joint Ventures, which clarifies the accounting for certain transactions
and impairment considerations involving equity method investments. The intent is to provide guidance on: (i) determining the initial measurement of an equity method investment, (ii) recognizing other-than-temporary impairments of an equity
method investment and (iii) accounting for an equity method investees issuance of shares. The Company adopted this standard effective April 1, 2009. The adoption of this standard did not have a material impact on the Companys
interim consolidated financial statements.
vii) Interim disclosures about fair value of financial instruments
In April 2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments, which amends FASB
Statement No. 107, Disclosures about Fair Value of Financial Statements. This new guidance, which is now a part of ASC 825, Financial Instruments, expands the disclosures about the fair value of financial instruments
that were previously required only annually to be required for interim reporting periods. In addition, the ASC requires certain additional disclosures regarding the methods and significant assumptions used to estimate the fair value of financial
instruments. The Company adopted the amendments to ASC 825 effective April 1, 2009. The adoption of this standard did not have a material impact on the Companys interim consolidated financial statements.
Notes to Interim Consolidated Financial Statements
For the three and nine months ended December 31, 2009
(Expressed
in thousands of Canadian Dollars, except per share amounts or unless otherwise specified)
(Unaudited)
viii) Equity method investment accounting considerations
In November 2008, the FASB issued EITF 08-06, Equity Method Investment Accounting Considerations, now part of ASC 323, Investments Equity
Method and Joint Ventures, which clarifies the accounting for certain transactions and impairment considerations involving equity method investments. The intent is to provide guidance on: (i) determining the initial measurement of an
equity method investment, (ii) recognizing other-than-temporary impairments of an equity method investment and (iii) accounting for an equity method investees issuance of shares. The Company adopted this standard effective
April 1, 2009. The adoption of this standard did not have a material impact on the Companys interim consolidated financial statements.
ix)
Determining fair value when the volume and level of activity for the asset or liability have significantly decreased and identifying transactions that are not orderly
In April 2009, the FASB issued FSP No. FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly. The guidance, now part of ASC 820, Fair Value Measurements and Disclosures, provides additional guidance for estimating fair value when the volume and level of activity
for the asset or liability have significantly decreased. It also includes guidance on identifying circumstances that indicate a transaction is not orderly. The Company adopted this standard effective April 1, 2009. The adoption of this standard
did not have a material impact on the Companys interim consolidated financial statements.
x) Subsequent events
In May 2009, the FASB issued ASC 855, Subsequent Events (formerly SFAS No. 165, Subsequent Events). ASC 855 is effective for interim or
annual financial periods ending after June 15, 2009 and should be applied prospectively. This statement addresses accounting and disclosure requirements related to subsequent events. This statement also requires the Company to evaluate
subsequent events through the date the financial statements are either issued or available to be issued, depending on the Companys expectation of whether it will widely distribute its financial statements to its shareholders and other
financial statement users. The Company adopted this ASC effective April 1, 2009. The adoption of this standard did not have a material impact on the Companys interim consolidated financial statements.
xi) Measuring liabilities at fair value
In August 2009,
the FASB issued ASU No. 2009-05, Measuring Liabilities at Fair Value, which provides additional guidance on how companies should measure liabilities at fair value under ASC 820, Fair Value Measurements and Disclosures.
The ASU clarifies that the quoted price for an identical liability should be used; however, if such information is not available, an entity may use, the quoted price of an identical liability when traded as an asset, quoted prices for similar
liabilities or similar liabilities traded as assets, or another valuation technique (such as the market or income approach). The ASU also indicates that the fair value of a liability is not adjusted to reflect the impact of contractual restrictions
that prevent its transfer and indicates circumstances in which quoted prices for an identical liability or quoted price for an identical liability traded as an asset may be considered Level 1 fair value measurements. The Company adopted this ASU
effective October 1, 2009. The adoption of this standard did not have a material impact on the Companys interim consolidated financial statements.
xii) Accounting and reporting for decreases in ownership of a subsidiary
In January 2010, the FASB issued ASU 2010-02, Consolidation (Topic 810) Accounting and Reporting for Decreases in Ownership of a Subsidiary A
Scope Clarification. The ASU clarifies that the scope of the decrease in ownership provisions included in ASC 810, Consolidations and related guidance applies to: (i) a subsidiary or a group of assets that is a business or a
non-profit activity; (ii) a subsidiary that is a business or a non-profit activity that is transferred to an equity method investee or a joint venture; and (iii) an exchange of a group of assets that constitutes a business or non-profit
activity for a non-controlling interest in an entity. The standard also clarifies that the decrease in ownership guidance does not apply to certain transactions, such as sales of in substance real estate or conveyance of oil and gas properties. The
Company adopted this standard effective April 1, 2009 in conjunction with adoption of the non-controlling interest standard. The adoption of this standard did not have a material impact on the Companys interim consolidated financial
statements.
xiii) Equity
In January 2010, the
FASB issued ASU No. 2010-01, Equity, which clarifies that the stock portion of a distribution to shareholders that allows them to elect to receive cash or shares with a potential limitation on the total amount of cash that all
shareholders can elect to receive in the aggregate is considered a share issuance that is reflected in EPS
Notes to Interim Consolidated Financial Statements
For the three and nine months ended December 31, 2009
(Expressed
in thousands of Canadian Dollars, except per share amounts or unless otherwise specified)
(Unaudited)
prospectively and is not a stock dividend for purposes of earnings per share calculations. This Company adopted this ASU effective December 31, 2009. The adoption of this standard did not
have a material impact on the Companys interim consolidated financial statements.
5. Recent United States accounting
pronouncements not yet adopted
i) Revenue recognition
In October 2009, the FASB issued ASU No. 2009-13, Revenue Recognition: Multiple-Deliverable Revenue Arrangements, which addresses the accounting
for multiple-deliverable arrangements to enable vendors to account for products or services separately rather than as a combined unit. The amendments establish a selling price hierarchy for determining the selling price of a deliverable. The
amendments also eliminate the residual method of allocation and require that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method. For the Company, this ASU is
effective prospectively for revenue arrangements entered into or materially modified on or after April 1, 2011. The Company is currently evaluating the impact of this ASU on its consolidated financial statements.
ii) Improvements to financial reporting by enterprises involved with variable interest entities
In December 2009, the FASB issued ASU No. 2009-17, Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities,
which amends ASC 810, Consolidation. The amendments give guidance and clarification of how to determine when a reporting entity should include the assets, liabilities, non-controlling interests and results of activities of a variable
interest entity in its consolidated financial statements. The amendments in this ASU are effective for the Company beginning on April 1, 2010. The Company is currently evaluating the impact of this ASU on its consolidated financial statements.
iii) Improving disclosures about fair value measurements
In January 2010, the FASB issued ASU No. 2010-06, Improving Disclosures About Fair Value Measurements, that amends existing disclosure
requirements under ASC 820 by adding required disclosures about items transferring into and out of Levels 1 and Level 2 in the fair value hierarchy; adding separate disclosures about purchase, sales, issuances, and settlements relative to Level 3
measurements; and clarifying, among other things, the existing fair value disclosures about the level of disaggregation. The ASU is effective for the Company beginning on January 1, 2010, except for disclosures about purchases, sales,
issuances, and settlements in the roll forward of activity in Level 3 fair value measurements, which is effective for the Company beginning on April 1, 2011. The Company is currently evaluating the impact of this ASU on its consolidated
financial statements.
6. Goodwill
The change in goodwill during the nine months ended December 31, 2009 is as follows:
|
|
|
Balance, March 31, 2009
|
|
$ 23,872
|
Additions (note 7)
|
|
1,239
|
|
|
|
Balance, December 31, 2009
|
|
$25,111
|
|
|
|
The Company conducted its annual goodwill impairment test on October 1, 2009
and concluded there was no impairment as the fair value of the Piling reporting unit exceeded its carrying value.
Notes to Interim Consolidated Financial Statements
For the three and nine months ended December 31, 2009
(Expressed
in thousands of Canadian Dollars, except per share amounts or unless otherwise specified)
(Unaudited)
7. Acquisition
On August 1, 2009, the Company acquired all of the issued and outstanding shares of DF Investments Limited (the holding company) and its subsidiary Drillco
Foundation Co. Ltd., a piling company based in Milton, Ontario, for a consideration of $5,410. This acquisition gives the Company access to piling markets and customers in the Toronto area. The transaction has been accounted for using the
acquisition method with the results of operations included in the financial statements from the date of acquisition. The goodwill acquired is not deductible for tax purposes. The preliminary purchase price allocation is as follows:
|
|
|
|
Net assets acquired at assigned values:
|
|
|
|
Accounts receivable
|
|
$4,101
|
|
Inventories
|
|
59
|
|
Prepaid expenses and deposits
|
|
11
|
|
Property, plant and equipment
|
|
2,873
|
|
Land
|
|
281
|
|
Intangible assets
|
|
547
|
|
Goodwill (assigned to the Piling segment)
|
|
1,239
|
|
Accounts payable and accrued liabilities
|
|
(2,211
|
)
|
Deferred income tax liability
|
|
(838
|
)
|
Long term debt
|
|
(652
|
)
|
|
|
|
|
|
|
$5,410
|
|
|
|
|
|
The allocation of the purchase price to the fair value of the assets acquired and liabilities assumed is preliminary and may be subject
to adjustments.
8. Inventories
|
|
|
|
|
|
|
December 31,
2009
|
|
March 31,
2009
|
Spare tires
|
|
$4,795
|
|
$10,533
|
Job materials and other
|
|
3,293
|
|
1,281
|
|
|
|
|
|
|
|
$8,088
|
|
$11,814
|
|
|
|
|
|
9. Property, plant and equipment
|
|
|
|
|
|
|
December 31, 2009
|
|
Cost
|
|
Accumulated
Depreciation
|
|
Net Book
Value
|
Heavy equipment
|
|
$339,943
|
|
$90,268
|
|
$249,675
|
Major component parts in use
|
|
30,058
|
|
6,631
|
|
23,427
|
Other equipment
|
|
24,558
|
|
10,266
|
|
14,292
|
Licensed motor vehicles
|
|
14,872
|
|
9,169
|
|
5,703
|
Office and computer equipment
|
|
8,862
|
|
3,412
|
|
5,450
|
Buildings
|
|
21,710
|
|
6,471
|
|
15,239
|
Land
|
|
281
|
|
|
|
281
|
Leasehold improvements
|
|
9,312
|
|
2,671
|
|
6,641
|
Assets under capital lease
|
|
25,586
|
|
12,712
|
|
12,874
|
|
|
|
|
|
|
|
|
|
$475,182
|
|
$141,600
|
|
$333,582
|
|
|
|
|
|
|
|
Notes to Interim Consolidated Financial Statements
For the three and nine months ended December 31, 2009
(Expressed
in thousands of Canadian Dollars, except per share amounts or unless otherwise specified)
(Unaudited)
|
|
|
|
|
|
|
March 31, 2009
|
|
Cost
|
|
Accumulated
Depreciation
|
|
Net Book
Value
|
Heavy equipment
|
|
$310,406
|
|
$75,410
|
|
$234,996
|
Major component parts in use
|
|
25,187
|
|
2,535
|
|
22,652
|
Other equipment
|
|
22,056
|
|
8,268
|
|
13,788
|
Licensed motor vehicles
|
|
12,760
|
|
7,445
|
|
5,315
|
Office and computer equipment
|
|
6,759
|
|
3,459
|
|
3,300
|
Buildings
|
|
20,823
|
|
5,308
|
|
15,515
|
Leasehold improvements
|
|
6,589
|
|
1,929
|
|
4,660
|
Assets under capital lease
|
|
27,953
|
|
12,064
|
|
15,889
|
|
|
|
|
|
|
|
|
|
$432,533
|
|
$116,418
|
|
$316,115
|
|
|
|
|
|
|
|
During the three and nine months ended December 31, 2009, additions to
property, plant and equipment included $449 and $1,105 respectively, of assets that were acquired by means of capital leases (three and nine months ended December 31, 2008 $7,991 and $13,107 respectively). Depreciation of equipment
under capital lease of $1,019 and $3,156 for the three and nine months ended December 31, 2009, respectively, was included in depreciation expense (three and nine months ended December 31, 2008 $1,337 and $3,570 respectively).
10. Deferred financing costs
|
|
|
|
|
|
|
December 31, 2009
|
|
Cost
|
|
Accumulated
Amortization
|
|
Net Book
Value
|
Senior notes
|
|
$16,521
|
|
$11,393
|
|
$5,128
|
Term facility and revolving facility
|
|
4,328
|
|
2,912
|
|
1,416
|
|
|
|
|
|
|
|
|
|
$20,849
|
|
$14,305
|
|
$6,544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2009
|
|
Cost
|
|
Accumulated
Amortization
|
|
Net Book
Value
|
Senior notes
|
|
$16,521
|
|
$9,613
|
|
$6,908
|
Term facility and revolving facility
|
|
3,205
|
|
2,203
|
|
1,002
|
|
|
|
|
|
|
|
|
|
$19,726
|
|
$11,816
|
|
$7,910
|
|
|
|
|
|
|
|
Amortization of deferred financing costs included in interest expense for the
three and nine months ended December 31, 2009 was of $847 and $2,489 respectively (three and nine months ended December 31, 2008 $764 and $2,190 respectively).
11. Investment in and advances to unconsolidated joint venture
The Company is engaged in one joint venture, Noramac Ventures Inc.. The joint venture is with Fort McKay Construction Ltd. and was formed for the
purpose of expanding the Companys market opportunities and establishing strategic alliances in Northern Alberta. The Company has a 50% proportionate interest in Noramac Joint Venture.
As of December 31, 2009, the Companys investment in and advances to unconsolidated joint venture totaled $2,939 (March 31, 2009 $nil). Condensed
financial data as at and for the three and nine months ended December 31, 2009 is as follows:
|
|
|
|
|
|
|
December 31,
2009
|
|
March 31,
2009
|
Current assets
|
|
$8,527
|
|
$
|
Long term assets
|
|
8
|
|
|
Current liabilities
|
|
2,656
|
|
|
Long term liabilities
|
|
5,940
|
|
|
|
|
|
|
|
Notes to Interim Consolidated Financial Statements
For the three and nine months ended December 31, 2009
(Expressed
in thousands of Canadian Dollars, except per share amounts or unless otherwise specified)
(Unaudited)
|
|
|
|
|
|
|
Three Months Ended
December 31, 2009
|
|
Nine Months Ended
December 31, 2009
|
Gross revenues
|
|
$3,077
|
|
$5,163
|
Gross profit
|
|
847
|
|
1,226
|
Net income
|
|
195
|
|
132
|
|
|
|
|
|
Equity in earnings of unconsolidated joint venture
|
|
$98
|
|
$66
|
|
|
|
|
|
12. Debt
a) Long term debt
On June 24, 2009, the Company entered
into an amended and restated credit agreement which matures on June 8, 2011 to provide for borrowings of up to $125.0 million under which revolving loans, term loans and letters of credit may be issued. This facility includes a $75.0 million
Revolving Facility and a $50.0 million Term Facility. The Term Facility commitments were available until August 31, 2009 and aggregate borrowings under this facility had to exceed $25.0 million. Any undrawn amount under the Term Facility, up to
a maximum of $15.0 million, could be reallocated to the Revolving facility. On August 31, 2009, the maximum undrawn portion of the Term Facility totaling $15.0 million was reallocated to the Revolving Facility resulting in Revolving Facility
commitments of $90.0 million.
As of December 31, 2009, the Company had issued $20.4 million (March 31, 2009 $20.8 million) in letters
of credit under the Revolving Facility to support performance guarantees associated with customer contracts. The total credit facility commitments are $120.0 million at December 31, 2009 and include the $90.0 million Revolving Facility and the
outstanding borrowings of $30.0 million (March 31, 2009 $nil) under the Term Facility after mandatory principal repayments of $3.0 million in the quarter. The funds available under the Revolving Facility are reduced by any outstanding letters
of credit. The Companys unused borrowing availability under the Revolving Facility was $69.6 million at December 31, 2009.
Borrowings under
the Revolving Facility may be repaid and borrowed from time to time at the option of the Company. The Term facility is fully utilized and requires quarterly principal repayments. At December 31, 2009, there were no borrowings under the
Revolving Facility.
Beginning December 31, 2009, and at the end of each fiscal quarter thereafter, the Company must make quarterly repayments on
the Term Facility of $1,518 through June 2011, with the balance due at that time. The credit facility bears interest at Canadian prime rate, U.S. Dollar Base Rate, Canadian bankers acceptance rate or London interbank offered rate (LIBOR)
(all such terms as used or defined in the credit facility), plus applicable margins. In each case, the applicable pricing margin depends on the Companys credit rating.
The credit facility is secured by a first priority lien on substantially all of the Companys existing and after-acquired property and contains certain
restrictive covenants including, but not limited to, incurring additional debt, transferring or selling assets, making investments including acquisitions or to pay dividends or redeem shares of capital stock. The Company is also required to meet
certain financial covenants under the credit agreement and was in compliance with these covenants at December 31, 2009.
During the three and nine
months ended December 31, 2009, financing fees of $nil and $1,123 respectively were incurred in connection with the modifications made to the amended and restated credit agreement. These fees have been recorded as deferred financing costs and
are being amortized using the effective interest method over the term of the credit facility (note 9).
During the three and nine months ended
December 31, 2009, the Company extinguished $nil and $652 respectively, of long term debt acquired through its August 1, 2009 acquisition of DF Investments Limited and its subsidiary Drillco Foundations Co. Ltd. (note 7).
b) Senior notes
|
|
|
|
|
|
|
December 31,
2009
|
|
March 31,
2009
|
8
3
/
4
% senior unsecured notes due 2011 ($U.S.)
|
|
$200,000
|
|
$200,000
|
Unrealized foreign exchange
|
|
9,320
|
|
52,040
|
Fair value of embedded early redemption option (note 16 (a))
|
|
116
|
|
3,716
|
|
|
|
|
|
|
|
$209,436
|
|
$255,756
|
|
|
|
|
|
Notes to Interim Consolidated Financial Statements
For the three and nine months ended December 31, 2009
(Expressed
in thousands of Canadian Dollars, except per share amounts or unless otherwise specified)
(Unaudited)
The
8
3
/
4
% senior notes were issued on November 26, 2003 in
the amount of U.S. $200.0 million (Canadian $263.0 million). These notes mature on December 1, 2011 with interest payable semi-annually on June 1 and December 1 of each year. The
8
3
/
4
% senior notes are unsecured senior obligations and rank
equally with all other existing and future unsecured senior debt and senior to any subordinated debt that may be issued by the Company or any of its subsidiaries. The notes are effectively subordinated to all secured debt to the extent of the
outstanding amount of such debt.
The
8
3
/
4
% senior notes are redeemable at the option of the
Company, in whole or in part, at any time on or after: December 1, 2008 at 102.2% of the principal amount; December 1, 2009 at 100.0% of the principal amount; plus, in each case, interest accrued to the redemption date.
If a change of control occurs, the Company will be required to offer to purchase all or a portion of each holders
8
3
/
4
% senior notes, at a purchase price in cash equal to
101.0% of the principal amount of the notes offered for repurchase plus accrued interest to the date of purchase.
13. Deferred lease inducements
Lease
inducements applicable to lease contracts are deferred and amortized as a reduction of general and administrative costs on a straight-line basis over the lease term, which includes the initial lease term and renewal periods only where renewal is
determined to be reasonably assured. During the three and nine months ended December 31, 2009, the Company recorded inducements from a lessor in the form of leasehold improvements to a new office facility of $32.
|
|
|
|
|
|
|
|
|
December 31,
2009
|
|
|
March 31,
2009
|
|
Balance, beginning of period
|
|
$836
|
|
|
$941
|
|
Additions
|
|
32
|
|
|
|
|
Amortization
|
|
(80
|
)
|
|
(105
|
)
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$788
|
|
|
$836
|
|
|
|
|
|
|
|
|
14. Shares
a) Common shares
Authorized:
Unlimited number of common voting shares
Unlimited number of common non-voting shares issued and outstanding:
|
|
|
|
|
|
|
Number of
Shares
|
|
Amount
|
Common voting shares
|
|
|
|
|
Issued and outstanding at December 31, 2009 and March 31, 2009
|
|
36,038,476
|
|
$303,431
|
b) Additional paid-in capital
|
|
|
|
Balance, March 31, 2009
|
|
$ 5,466
|
|
Stock-based compensation (note 19(a))
|
|
1,768
|
|
Deferred performance share unit plan (note 19(b))
|
|
213
|
|
Reclassified to restricted share unit liability (note 19(c))
|
|
(20
|
)
|
Cash settlement of stock options
|
|
(66
|
)
|
|
|
|
|
Balance, December 31, 2009
|
|
$7,361
|
|
|
|
|
|
Notes to Interim Consolidated Financial Statements
For the three and nine months ended December 31, 2009
(Expressed
in thousands of Canadian Dollars, except per share amounts or unless otherwise specified)
(Unaudited)
c) Net income (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
December 31,
|
|
|
|
|
Nine Months Ended
December 31,
|
|
|
2009
|
|
2008
|
|
|
|
|
2009
|
|
2008
|
Net income (loss) available to common shareholders
|
|
$14,936
|
|
$(14,964
|
)
|
|
|
|
$29,162
|
|
$1,708
|
Weighted average number of common shares
|
|
36,038,476
|
|
36,038,476
|
|
|
|
|
36,038,476
|
|
36,015,172
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share
|
|
$0.41
|
|
$(0.42
|
)
|
|
|
|
$0.81
|
|
$0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common shareholders
|
|
$14,936
|
|
$(14,964
|
)
|
|
|
|
$29,162
|
|
$1,708
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares
|
|
36,038,476
|
|
36,038,476
|
|
|
|
|
36,038,476
|
|
36,015,172
|
Dilutive effect of stock options and performance units
|
|
651,550
|
|
|
|
|
|
|
672,960
|
|
668,687
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of diluted common shares
|
|
36,690,026
|
|
36,038,476
|
|
|
|
|
36,711,436
|
|
36,683,859
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share
|
|
$0.41
|
|
$(0.42
|
)
|
|
|
|
$0.79
|
|
$0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three and nine months ended December 31, 2009, there were 155,576
and 159,244 options and performance units respectively, which were anti-dilutive and therefore were not considered in computing diluted earnings per share (three and nine months ended December 31, 2008 2,223,736 and 126,302 options
and performance units respectively).
15. Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
December 31,
|
|
|
|
Nine Months Ended
December 31,
|
|
|
2009
|
|
2008
|
|
|
|
2009
|
|
2008
|
Interest on
8
3
/
4
% senior notes
|
|
$4,517
|
|
$5,834
|
|
|
|
$14,468
|
|
$17,503
|
Interest on capital lease obligations
|
|
244
|
|
341
|
|
|
|
805
|
|
887
|
Amortization of deferred financing costs
|
|
847
|
|
764
|
|
|
|
2,489
|
|
2,190
|
Interest on credit facilities
|
|
893
|
|
116
|
|
|
|
1,385
|
|
206
|
|
|
|
|
|
|
|
|
|
|
|
Interest on long-term debt
|
|
6,501
|
|
7,055
|
|
|
|
19,147
|
|
20,786
|
|
|
|
|
|
|
|
|
|
|
|
Other interest
|
|
263
|
|
264
|
|
|
|
578
|
|
490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$6,764
|
|
$7,319
|
|
|
|
$19,725
|
|
$21,276
|
|
|
|
|
|
|
|
|
|
|
|
16. Financial instruments and risk management
a) Fair value of financial instruments
In
determining the fair value of financial instruments, the Company uses a variety of methods and assumptions that are based on market conditions and risks existing on each reporting date. Counterparty confirmations and standard market conventions and
techniques, such as discounted cash flow analysis and option pricing models, are used to determine the fair value of the Companys financial instruments, including derivatives. All methods of fair value measurement result in a general
approximation of value and such value may never actually be realized.
The fair values of the Companys cash and cash equivalents, accounts
receivable, unbilled revenue, accounts payable and accrued liabilities approximate their carrying amounts due to the relatively short periods to maturity for the instruments.
The fair values of amounts due under the Revolving facility and the Term facility are based on management estimates which are determined by discounting cash flows
required under the instruments at the interest rate currently estimated to be available for instruments with similar terms. Based on these estimates and by using the outstanding balance of $30.0 million at December 31, 2009 and $nil at
March 31, 2009, the fair value of amounts due under the Revolving facility and the Term facility as at December 31, 2009 and March 31, 2009 are not significantly different than their carrying value.
The fair values of the Companys cross-currency and interest rate swap agreements and the Companys embedded derivatives are based on appropriate price
modeling commonly used by market participants to estimate fair value. Such modeling includes option pricing models and discounted cash flow analysis, using observable market based inputs to
Notes to Interim Consolidated Financial Statements
For the three and nine months ended December 31, 2009
(Expressed
in thousands of Canadian Dollars, except per share amounts or unless otherwise specified)
(Unaudited)
estimate fair value. Fair value determined using valuation models requires the use of assumptions concerning the amount and timing of future cash flows. Fair value amounts reflect
managements best estimates using external readily observable market data such as future prices, interest rate yield curves, foreign exchange rates and discount rates for time value. It is possible that the assumptions used in establishing fair
value amounts will differ from future outcomes and the impact of such variations could be material.
Financial instruments with carrying amounts that
differ from their fair values are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
March 31, 2009
|
|
|
Carrying
Amount
|
|
Fair Value
|
|
|
|
Carrying
Amount
|
|
Fair Value
|
Senior notes
(i)
|
|
$209,436
|
|
$208,273
|
|
|
|
$255,756
|
|
$181,469
|
Capital lease obligations
(ii)
|
|
14,370
|
|
14,275
|
|
|
|
17,484
|
|
17,345
|
(i)
|
The fair value of the U.S. Dollar denominated
8
3
/
4
% senior notes is based upon their period end closing
market price translated into Canadian Dollars at period end exchange rates as at December 31, 2009 and March 31, 2009.
|
(ii)
|
The fair values of amounts due under capital leases are based on management estimates which are determined by discounting cash flows required under the instruments at the
interest rates currently estimated to be available for instruments with similar terms.
|
Derivative financial instruments that are used for
risk management purposes, as described in note 16(b) under Risk Management consist of the following:
|
|
|
|
|
December 31, 2009
|
|
Derivative
Financial
Instruments
|
|
Senior Notes
|
Cross-currency and interest rate swaps
|
|
$74,768
|
|
$
|
Embedded price escalation features in a long-term revenue construction contract
|
|
6,291
|
|
|
Embedded price escalation features in certain long-term supplier contracts
|
|
8,820
|
|
|
Embedded early redemption option on senior notes
|
|
|
|
116
|
|
|
|
|
|
Total fair value of derivative financial instruments
|
|
89,879
|
|
116
|
Less: current portion
|
|
17,756
|
|
|
|
|
|
|
|
|
|
$72,123
|
|
$116
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2009
|
|
Derivative
Financial
Instruments
|
|
|
Senior Notes
|
Cross-currency and interest rate swaps
|
|
$32,033
|
|
|
$
|
Embedded price escalation features in a long-term revenue construction contract
|
|
(324
|
)
|
|
|
Embedded price escalation features in certain long-term supplier contracts
|
|
22,778
|
|
|
|
Embedded early redemption option on senior notes
|
|
|
|
|
3,716
|
|
|
|
|
|
|
Total fair value of derivative financial instruments
|
|
54,487
|
|
|
3,716
|
Less: current portion
|
|
11,439
|
|
|
|
|
|
|
|
|
|
|
|
$43,048
|
|
|
$3,716
|
|
|
|
|
|
|
i) Fair value hierarchy of financial instruments
The Company has segregated all financial assets and financial liabilities that are measured at fair value on a recurring basis into the most appropriate level
within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date.
Notes to Interim Consolidated Financial Statements
For the three and nine months ended December 31, 2009
(Expressed
in thousands of Canadian Dollars, except per share amounts or unless otherwise specified)
(Unaudited)
Financial assets and financial liabilities measured at fair value, net of accrued interest in the financial
statements on a recurring basis are summarized below:
|
|
|
|
|
|
|
December 31, 2009
|
|
Location on Balance Sheet
|
|
Carrying
Value
|
|
Level 2
|
Cross-currency swaps for U.S. dollar 8
3
/
4
% senior notes
|
|
Derivative financial instruments
|
|
$57,711
|
|
$57,711
|
Interest rate swaps for U.S. dollar
8
3
/
4
% senior notes
|
|
Derivative financial instruments
|
|
17,057
|
|
17,057
|
|
|
|
|
|
|
|
Cross-currency and interest rate swaps for U.S. dollar
8
3
/
4
% senior notes (note 16(a))
|
|
Derivative financial instruments
|
|
74,768
|
|
74,768
|
Embedded price escalation features in a long-term revenue construction contract (note 16(a))
|
|
Derivative financial instruments
|
|
6,291
|
|
6,291
|
Embedded price escalation features in certain long-term supplier contracts (note 16(a))
|
|
Derivative financial instruments
|
|
8,820
|
|
8,820
|
Embedded early redemption option on
8
3
/
4
% senior notes (note 16(a))
|
|
Senior notes
|
|
116
|
|
116
|
|
|
|
|
|
|
|
|
|
|
|
$89,995
|
|
$89,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2009
|
|
Location on Balance Sheet
|
|
Carrying
Value
|
|
|
Level 2
|
|
Cross-currency swaps for U.S. dollar 8
3
/
4
% senior notes
|
|
Derivative financial instruments
|
|
$11,573
|
|
|
$11,573
|
|
Interest rate swaps for U.S. dollar
8
3
/
4
% senior notes
|
|
Derivative financial instruments
|
|
20,460
|
|
|
20,460
|
|
|
|
|
|
|
|
|
|
|
Cross-currency and interest rate swaps for U.S. dollar
8
3
/
4
% senior notes (note 16(a))
|
|
Derivative financial instruments
|
|
32,033
|
|
|
32,033
|
|
Embedded price escalation features in a long-term revenue construction contract (note 16(a))
|
|
Derivative financial instruments
|
|
(324
|
)
|
|
(324
|
)
|
Embedded price escalation features in certain long-term supplier contracts (note 16(a))
|
|
Derivative financial instruments
|
|
22,778
|
|
|
22,778
|
|
Embedded early redemption option on
8
3
/
4
% senior notes (note 16(a))
|
|
Senior notes
|
|
3,716
|
|
|
3,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$58,203
|
|
|
$58,203
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009, the Company had no financial assets or financial liabilities classified as Level 1 or Level 3 under the fair
value hierarchy. Since the Company primarily uses observable inputs in its valuation of its derivative financial instruments, these fair value measurements are classified with Level 2 of the fair value hierarchy. The fair values of the
Companys cross-currency and interest rate swap agreements and the Companys embedded derivatives are based on appropriate price modeling commonly used by market participants to estimate fair value. Such modeling includes option pricing
models and discounted cash flow analysis, using observable market based inputs to estimate fair value. The Company considers its own credit risk or the credit risk of the counterparty in determining fair value, depending on whether the fair values
are in an asset or liability position. Fair value determined using valuation models requires the use of assumptions concerning the amount and timing of future cash flows. Fair value amounts reflect managements best estimates using external,
readily, observable market data such as future prices, interest rate yield curves, foreign exchange rates and discount rates for time value. It is possible that the assumptions used in establishing fair value amounts will differ from future outcomes
and the impact of such variations could be material.
The Company used the following methodologies and inputs to estimate the fair value of each class of
Level 2 financial instruments:
|
|
To determine fair value of the Companys cross-currency and interest rate swap agreements, discounted cash flow analysis with inputs of observable market
data including foreign currency exchange rates, implied volatilities, interest rates and the credit risk of the Company or the counterparties were used as appropriate, with resulting valuations periodically validated through third-party or
counterparty quotes;
|
|
|
To determine fair value of the Companys optional redemption rights included in the senior notes, discounted cash flow analysis with inputs of observable
market data including foreign currency exchange rates, implied volatilities and interest rates were used as appropriate; and
|
Notes to Interim Consolidated Financial Statements
For the three and nine months ended December 31, 2009
(Expressed
in thousands of Canadian Dollars, except per share amounts or unless otherwise specified)
(Unaudited)
|
|
To determine the fair value of the price escalation features in revenue and maintenance service contracts containing embedded derivatives, generally accepted
valuation models based on discounted cash flows with inputs of observable market data, including foreign currency rates and discount factors were used.
|
Non-financial assets that were re-measured at fair value on a nonrecurring basis as at December 31, 2009 in the financial statements are summarized below:
|
|
|
|
|
|
|
|
December 31, 2009
|
|
Carrying
Value
|
|
Level 3
|
|
Change in
Fair Value
|
|
Assets held for sale
|
|
$1,038
|
|
$1,038
|
|
$(250
|
)
|
|
|
|
|
|
|
|
|
Long-lived assets held for sale with a carrying amount of $1,288 were written down to their fair value of $1,038, resulting in a loss
of $(250), which was included in depreciation expense in the Consolidated Statements of Operations and Comprehensive Income (Loss) for the nine months ended December 31, 2009. The fair value of the assets held for sale is determined internally
by analyzing recent auction prices for equipment with similar specifications and hours used, the net book value, the residual value of the asset and the useful life of the asset. The inputs to estimate the fair value of the assets held for sale are
classified under level 3 of the fair value hierarchy.
The Company did not re-measure non-financial liabilities to fair value as at December 31,
2009.
The realized and unrealized (gain) loss on derivative financial instruments is comprised as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
December 31,
|
|
|
|
|
Nine Months Ended
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
2009
|
|
|
2008
|
|
Realized and unrealized (gain) loss on cross-currency and interest rate swaps
|
|
$8,108
|
|
|
$(28,087
|
)
|
|
|
|
$54,126
|
|
|
$(34,309
|
)
|
Unrealized loss (gain) on embedded price escalation features in a long-term revenue construction contract
|
|
342
|
|
|
(8,424
|
)
|
|
|
|
6,615
|
|
|
(12,927
|
)
|
Unrealized (gain) loss on embedded price escalation features in certain long-term supplier contracts
|
|
(254
|
)
|
|
10,346
|
|
|
|
|
(13,958
|
)
|
|
19,499
|
|
Unrealized (gain) loss on embedded early redemption option on
8
3
/
4
% senior notes
|
|
(186
|
)
|
|
(605
|
)
|
|
|
|
(3,598
|
)
|
|
1,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$8,010
|
|
|
$(26,770
|
)
|
|
|
|
$43,185
|
|
|
$(25,826
|
)
|
b) Risk Management
The Company is exposed to market and credit associated with its financial instruments. The Company will from time to time use various financial instruments to
reduce market risk exposures from changes in foreign currency exchange rates and interest rates. The Company does not hold or use any derivative instruments for trading or speculative purposes.
Overall, the Companys Board of Directors has responsibility for the establishment and approval of the Companys risk management policies. Management
performs a risk assessment on a continual basis to help ensure that all significant risks related to the Company and its operations have been reviewed and assessed to reflect changes in market conditions and the Companys operating activities.
c) Market Risk
Market risk is the risk that the
fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices such as foreign currency exchange rates and interest rates. The level of market risk to which the Company is exposed at any point in time
varies depending on market conditions, expectations of future price or market rate movements and composition of the Companys financial assets and liabilities held, non-trading physical assets and contract portfolios.
To manage the exposure related to changes in market risk, the Company uses various risk management techniques including the use of derivative instruments. Such
instruments may be used to establish a fixed price for a commodity, an interest-bearing obligation or a cash flow denominated in a foreign currency.
The
sensitivities provided below are hypothetical and should not be considered to be predictive of future performance or indicative of earnings on these contracts.
Notes to Interim Consolidated Financial Statements
For the three and nine months ended December 31, 2009
(Expressed
in thousands of Canadian Dollars, except per share amounts or unless otherwise specified)
(Unaudited)
i) Foreign exchange risk
Foreign exchange risk refers to the risk that the value of a financial instrument or cash flows associated with the instrument will fluctuate
due to changes in foreign exchange rates. The Company has
8
3
/
4
% senior notes denominated in U.S. Dollars in the amount
of U.S. $200.0 million. In order to reduce its exposure to changes in the U.S. to Canadian Dollar exchange rate, the Company entered into a cross-currency swap agreement to manage this foreign currency exposure for both the principal balance due on
December 1, 2011 as well as the semi-annual interest payments from the issue date to the maturity date. In conjunction with the cross-currency swap agreement, the Company also entered into a U.S. Dollar interest rate swap and a Canadian
Dollar interest rate swap as discussed in note 16(c)(ii) below. These derivative financial instruments were not designated as hedges for accounting purposes. At December 31, 2009 and March 31, 2009, the notional principal amount of the
cross-currency swap was U.S. $200.0 million and Canadian $263.0 million.
On December 17, 2008, the Company received notice that all three
swap counterparties had exercised the cancellation option on the U.S. Dollar interest rate swap and, effective February 2, 2009, the U.S. Dollar interest rate swap was terminated. In addition to net accrued interest to the termination
date of U.S. $0.7 million, the counterparties paid a cancellation premium of 2.2% on the notional amount of U.S. $200.0 million or U.S. $4.4 million (equivalent to Canadian $5.3 million), which is included in the caption Other income in
the Interim Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended December 31, 2009 and December 31, 2008.
The Companys Canadian Dollar interest rate swap and cross-currency swap agreements are not cancellable at the option of the counterparties and remain in
effect. The Company will continue to pay the counterparties an average fixed rate of 9.889% on the notional amount of Canadian $263.0 million or Canadian $13.0 million semi-annually until December 1, 2011. Beginning March 1, 2009, the
Company received quarterly floating rate payments in U.S. Dollars on the cross-currency swap agreement at the prevailing three month LIBOR rate plus a spread of 4.2% on the notional amount of U.S. $200.0 million.
As a result of the cancellation of the U.S. Dollar interest rate swap, the Company is exposed to changes in the value of the Canadian
Dollar versus the U.S. Dollar. To the extent that three month LIBOR rate is less than 4.6% (the difference between the
8
3
/
4
% senior notes coupon and the 4.2% spread over three
month LIBOR on the cross-currency swap agreement), the Company will have to acquire U.S. Dollars to fund a portion of its semi-annual coupon payment on its senior notes. At the three month U.S. Dollar LIBOR rate of 0.25% at December 31,
2009, a $0.01 increase (decrease) in exchange rates in the Canadian Dollar would result in an insignificant decrease (increase) in the amount of Canadian Dollars required to fund each semi-annual coupon payment.
The Company also regularly transacts in foreign currencies when purchasing equipment, spare parts as well as certain general and administrative goods and services.
These exposures are generally of a short-term nature and the impact of changes in exchange rates has not been significant in the past. The Company may fix its exposure in either the Canadian Dollar or the U.S. Dollar for these short-term
transactions, if material.
At December 31, 2009, with other variables unchanged, a $0.01 increase (decrease) in exchange rates of the Canadian
Dollar to the U.S. Dollar related to the U.S. Dollar denominated senior notes would decrease (increase) net income and decrease (increase) equity by approximately $1.7 million. With other variables unchanged, a $0.01 increase (decrease) in
exchange rates in the Canadian to the U.S. Dollar related to the cross-currency swap would increase (decrease) net income and increase (decrease) equity by approximately $1.8 million. The impact of similar exchange rate changes on short-term
exposures would be insignificant and there would be no impact to other comprehensive income.
ii) Interest rate risk
The Company is exposed to interest rate risk from the possibility that changes in interest rates will affect future cash flows or the fair values of its financial
instruments. Amounts outstanding under the Companys revolving credit facility are subject to a floating rate. The Companys senior notes are subject to a fixed rate. The Companys interest risk arises from long-term borrowings issued
at fixed rates that create fair value interest rate risk and variable borrowings that create cash flow interest rate risk. Changes in market interest rates cause the fair value of long-term debt with fixed interest rates to fluctuate but do not
affect earnings, as the Companys debt is carried at amortized cost and the carrying value does not change as interest rates change.
In some
circumstances, floating rate funding may be used for short-term borrowings and other liquidity requirements. The Company may use derivative instruments to manage interest rate risk. The Company manages its interest rate risk exposure by using a mix
of fixed and variable rate debt and may use derivative instruments to achieve the desired proportion of variable to fixed-rate debt.
Notes to Interim Consolidated Financial Statements
For the three and nine months ended December 31, 2009
(Expressed
in thousands of Canadian Dollars, except per share amounts or unless otherwise specified)
(Unaudited)
In conjunction with the cross-currency swap agreement discussed in note 16(c)(i) above, the
Company also entered into a U.S. Dollar interest rate swap and a Canadian Dollar interest rate swap with the net effect of economically converting the
8
3
/
4
% rate payable on the
8
3
/
4
% senior notes into a fixed rate of 9.889% for the
duration that the 8
3
/
4
% senior notes are outstanding. These
derivative financial instruments were not designated as hedges for accounting purposes.
As a result of the
U.S. Dollar interest swap cancellation described in note 16(c)(i), the Company is exposed to changes in interest rates. The Company has a fixed semi-annual coupon payment of
8
3
/
4
% on its U.S. $200.0 million senior notes. With the
termination of the U.S. Dollar interest rate swap, the Company will no longer receive fixed U.S. Dollar payments from the counterparties to offset the coupon payment on its senior notes. As a result of this termination, the Companys
effective annual interest costs at the current LIBOR rate will increase by U.S. $8.6 million. In addition, the Company is now exposed to interest rate risk where a 100 basis point increase (decrease) in the three month U.S. Dollar LIBOR rate
will result in a U.S. $2.0 million decrease (increase) in effective annual interest costs.
At December 31, 2009 and March 31, 2009, the
notional principal amounts of the interest rate swaps were U.S. $200.0 million and Canadian $263.0 million.
As at December 31, 2009, holding all
other variables constant, a 100 basis point increase (decrease) to Canadian interest rates would impact the fair value of the interest rate swaps by $3.3 million with this change in fair value being recorded in net income. As at December 31,
2009, holding all other variables constant, a 100 basis point increase (decrease) to U.S. interest rates would impact the fair value of the interest rate swaps by $0.1 million with this change in fair value being recorded in net income. As at
December 31, 2009, holding all other variables constant, a 100 basis point increase (decrease) of Canadian to U.S. interest rate volatility would impact the fair value of the interest rate swaps by $nil million with this change in fair value
being recorded in net income.
At December 31, 2009, the Company held $30.0 million of floating rate debt pertaining to its Term facility (March 31,
2009 $nil). As at December 31, 2009, holding all other variables constant, a 100 basis point increase (decrease) to interest rates on floating rate debt will result in a $0.3 million increase (decrease) in annual interest expense. This
assumes that the amount of floating rate debt remains unchanged from that which was held at December 31, 2009.
d) Credit risk
Credit risk is the risk that financial loss to the Company may be incurred if a customer or counterparty to a financial instrument fails to meet its contractual
obligations. The Company manages the credit risk associated with its cash by holding its funds with what it believes to be reputable financial institutions. The Company is also exposed to credit risk through its accounts receivable and unbilled
revenue. Credit risk for trade and other accounts receivables, and unbilled revenue are managed through established credit monitoring activities.
The
Company has a concentration of customers in the oil and gas sector. The concentration risk is mitigated primarily by the customers being large investment grade organizations. The credit worthiness of new customers is subject to review by management
through consideration of the type of customer and the size of the contract.
At December 31, 2009 and March 31, 2009, the following customers
represented 10% or more of accounts receivable and unbilled revenue:
|
|
|
|
|
|
|
December 31,
2009
|
|
March 31,
2009
|
Customer A
|
|
30%
|
|
17%
|
Customer B
|
|
29%
|
|
29%
|
Customer C
|
|
5%
|
|
13%
|
Customer D
|
|
3%
|
|
11%
|
The Company reviews its accounts receivable amounts
regularly and amounts are written down to their expected realizable value when outstanding amounts are determined not to be fully collectible. This generally occurs when the customer has indicated an inability to pay, the Company is unable to
communicate with the customer over an extended period of time, and other methods to obtain payment have been considered and have not been successful. Bad debt expense is charged to net income in the period that the account is determined to be
doubtful. Estimates of the allowance for doubtful accounts are determined on a customer-by-customer evaluation of collectability at each reporting date taking into consideration the following factors: the length of time the receivable has been
outstanding, specific knowledge of each customers financial condition and historical experience.
Notes to Interim Consolidated Financial Statements
For the three and nine months ended December 31, 2009
(Expressed
in thousands of Canadian Dollars, except per share amounts or unless otherwise specified)
(Unaudited)
The Companys maximum exposure to credit risk for accounts receivable and unbilled revenue is as follows:
|
|
|
|
|
|
|
December 31,
2009
|
|
March 31,
2009
|
Trade accounts receivables
|
|
$85,330
|
|
$76,499
|
Other receivables
|
|
4,534
|
|
1,824
|
|
|
|
|
|
Total accounts receivable
|
|
$89,864
|
|
$78,323
|
|
|
|
|
|
Unbilled revenue
|
|
$81,397
|
|
$55,907
|
|
|
|
|
|
On a geographic basis as at December 31, 2009, approximately 97% (March 31,
2009 99%) of the balance of trade accounts receivables (before considering the allowance for doubtful accounts) was due from customers based in Western Canada.
Payment terms are generally net 30 days. As at December 31, 2009 and March 31, 2009 trade receivables are aged as follows:
|
|
|
|
|
|
|
December 31,
2009
|
|
March 31,
2009
|
Not past due
|
|
$55,034
|
|
$47,197
|
Past due 1-30 days
|
|
19,961
|
|
13,282
|
Past due 31-60 days
|
|
3,549
|
|
2,085
|
More than 61 days
|
|
6,786
|
|
13,935
|
|
|
|
|
|
Total
|
|
$85,330
|
|
$76,499
|
|
|
|
|
|
As at December 31, 2009, the Company has recorded an allowance for doubtful
accounts of $2,262 (March 31, 2009 $2,597) of which 100% relates to amounts that are more than 61 days past due.
The allowance is an estimate of
the December 31, 2009 trade receivable balances that are considered uncollectible. Changes to the allowance are as follows:
|
|
|
|
|
|
|
|
|
December 31,
2009
|
|
|
March 31,
2009
|
|
Opening balance
|
|
$2,597
|
|
|
$742
|
|
Payments received on provided balances
|
|
(275
|
)
|
|
(100
|
)
|
Current year allowance
|
|
334
|
|
|
4,324
|
|
Write-offs
|
|
(394
|
)
|
|
(2,369
|
)
|
|
|
|
|
|
|
|
Ending balance
|
|
$2,262
|
|
|
$2,597
|
|
|
|
|
|
|
|
|
Credit risk on derivative financial instruments arises from the possibility that the counterparties to the agreements may default on
their respective obligations under the agreements. This credit risk only arises in instances where these agreements have positive fair value for the Company.
17. Other information
a)
Supplemental cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
December 31,
|
|
|
|
Nine Months Ended
December 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
2009
|
|
2008
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$23,895
|
|
$13,736
|
|
|
|
$49,068
|
|
$27,558
|
|
Income taxes
|
|
1,562
|
|
|
|
|
|
9,113
|
|
|
|
Cash received during the period for:
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
2,424
|
|
8
|
|
|
|
8,495
|
|
(2
|
)
|
Income taxes
|
|
453
|
|
4
|
|
|
|
453
|
|
67
|
|
Non-cash transactions:
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of property, plant and equipment by means of capital leases
|
|
449
|
|
7,991
|
|
|
|
1,105
|
|
13,107
|
|
Notes to Interim Consolidated Financial Statements
For the three and nine months ended December 31, 2009
(Expressed
in thousands of Canadian Dollars, except per share amounts or unless otherwise specified)
(Unaudited)
b) Net change in non-cash working capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
December 31,
|
|
|
|
|
Nine Months Ended
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
2009
|
|
|
2008
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$(3,096
|
)
|
|
$(8,173
|
)
|
|
|
|
$(7,073
|
)
|
|
$18,539
|
|
Allowance for doubtful accounts
|
|
158
|
|
|
1,217
|
|
|
|
|
(335
|
)
|
|
2,517
|
|
Unbilled revenue
|
|
(13,943
|
)
|
|
49,503
|
|
|
|
|
(25,490
|
)
|
|
10,226
|
|
Inventory
|
|
1,991
|
|
|
(5,808
|
)
|
|
|
|
3,785
|
|
|
(10,016
|
)
|
Prepaid expenses and deposits
|
|
(2,858
|
)
|
|
1,570
|
|
|
|
|
(4,140
|
)
|
|
2,483
|
|
Accounts payable
|
|
9,364
|
|
|
(422
|
)
|
|
|
|
18,706
|
|
|
(23,013
|
)
|
Accrued liabilities
|
|
(14,053
|
)
|
|
(9,191
|
)
|
|
|
|
(29,093
|
)
|
|
(15,532
|
)
|
Long term accrued liabilities
|
|
894
|
|
|
81
|
|
|
|
|
3,730
|
|
|
326
|
|
Billings in excess of costs incurred and estimated earnings on uncompleted contracts
|
|
(2,296
|
)
|
|
(6,751
|
)
|
|
|
|
(254
|
)
|
|
2,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$(23,839
|
)
|
|
$22,026
|
|
|
|
|
$(40,164
|
)
|
|
$(12,400
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$(2,998
|
)
|
|
$(2,068
|
)
|
|
|
|
$(351
|
)
|
|
$3,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
c) Income taxes
Income tax
expense as a percentage of income before income taxes for the three and nine months ended December 31, 2009 differs from the statutory rate of 28.91% primarily due to the impact of changes in enacted tax rates and the benefit from changes in
the timing of the reversal of temporary differences. Income tax expense as a percentage of income before income taxes for the three and nine months ended December 31, 2008 differs from the statutory rate of 29.38% primarily due to the impact of
changes in enacted tax rates, the benefit from changes in the timing of the reversal of temporary differences and a permanent difference related to the $32.8 million non-deductible goodwill impairment.
18. Segmented information
a) General
overview
The Company operates in the following reportable operating segments, which follow the organization, management and reporting structure
within the Company:
|
|
Heavy Construction and Mining:
|
The
Heavy Construction and Mining segment provides mining and site preparation services, including overburden removal and reclamation services, project management, underground utility construction and equipment rental, to a variety of customers
throughout Canada.
The Piling segment provides
deep foundation construction and design build services to a variety of industrial and commercial customers throughout Western Canada and Ontario.
The Pipeline segment provides
both small and large diameter pipeline construction and installation services as well as equipment rental to energy and industrial clients throughout Western Canada.
The accounting policies of the reportable operating segments are the same as those described in the significant accounting policies in note 3. Certain business
units of the Company have been aggregated into the Heavy Construction and Mining segment as they have similar economic characteristics. These business units are considered to have similar economic characteristics based on similarities in the nature
of the services provided, the customer base and the resources used to provide these services.
Notes to Interim Consolidated Financial Statements
For the three and nine months ended December 31, 2009
(Expressed
in thousands of Canadian Dollars, except per share amounts or unless otherwise specified)
(Unaudited)
b) Results by business segment
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, 2009
|
|
Heavy
Construction
and Mining
|
|
Piling
|
|
Pipeline
|
|
|
Total
|
|
Revenues from external customers
|
|
$183,631
|
|
$20,592
|
|
$16,952
|
|
|
$221,175
|
|
Depreciation of property, plant and equipment
|
|
8,191
|
|
701
|
|
51
|
|
|
8,943
|
|
Segment profits
|
|
36,237
|
|
4,505
|
|
1,072
|
|
|
41,814
|
|
Segment assets
|
|
403,204
|
|
93,036
|
|
21,210
|
|
|
517,450
|
|
Capital expenditures
|
|
1,573
|
|
305
|
|
53
|
|
|
1,931
|
|
|
|
|
|
|
Three Months Ended December 31, 2008
|
|
Heavy
Construction
and Mining
|
|
Piling
|
|
Pipeline
|
|
|
Total
|
|
Revenues from external customers
|
|
$198,620
|
|
$41,565
|
|
$18,380
|
|
|
$258,565
|
|
Depreciation of property, plant and equipment
|
|
5,578
|
|
1,117
|
|
2
|
|
|
6,697
|
|
Segment profits
|
|
38,639
|
|
12,740
|
|
5,589
|
|
|
56,968
|
|
Impairment of goodwill
|
|
|
|
|
|
(32,753
|
)
|
|
(32,753
|
)
|
Segment assets
|
|
545,187
|
|
121,692
|
|
7,785
|
|
|
674,664
|
|
Capital expenditures
|
|
6,636
|
|
479
|
|
87
|
|
|
7,202
|
|
|
|
|
|
|
Nine Months Ended December 31, 2009
|
|
Heavy
Construction
and Mining
|
|
Piling
|
|
Pipeline
|
|
|
Total
|
|
Revenues from external customers
|
|
$469,512
|
|
$50,268
|
|
$18,616
|
|
|
$538,396
|
|
Depreciation of property, plant and equipment
|
|
24,113
|
|
2,108
|
|
298
|
|
|
26,519
|
|
Segment profits
|
|
81,730
|
|
9,139
|
|
1,301
|
|
|
92,170
|
|
Segment assets
|
|
403,204
|
|
93,036
|
|
21,210
|
|
|
517,450
|
|
Capital expenditures
|
|
37,627
|
|
307
|
|
53
|
|
|
37,987
|
|
|
|
|
|
|
Nine Months Ended December 31, 2008
|
|
Heavy
Construction
and Mining
|
|
Piling
|
|
Pipeline
|
|
|
Total
|
|
Revenues from external customers
|
|
$564,101
|
|
$132,709
|
|
$101,026
|
|
|
$797,836
|
|
Depreciation of property, plant and equipment
|
|
18,071
|
|
2,811
|
|
567
|
|
|
21,449
|
|
Segment profits
|
|
80,266
|
|
32,445
|
|
22,464
|
|
|
135,175
|
|
Impairment of goodwill
|
|
|
|
|
|
(32,753
|
)
|
|
(32,753
|
)
|
Segment assets
|
|
545,187
|
|
121,692
|
|
7,785
|
|
|
674,664
|
|
Capital expenditures
|
|
61,491
|
|
7,634
|
|
5,157
|
|
|
74,282
|
|
c) Reconciliations
i) Income (loss) before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
December 31,
|
|
|
|
|
Nine Months Ended
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
2009
|
|
|
2008
|
|
Total profit for reportable segments
|
|
$41,814
|
|
|
$56,968
|
|
|
|
|
$92,170
|
|
|
$135,175
|
|
Less: unallocated corporate expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative costs
|
|
14,532
|
|
|
19,170
|
|
|
|
|
43,426
|
|
|
57,760
|
|
Loss on disposal of property, plant and equipment
|
|
743
|
|
|
1,022
|
|
|
|
|
1,044
|
|
|
3,778
|
|
Loss on disposal of assets held for sale
|
|
649
|
|
|
|
|
|
|
|
373
|
|
|
24
|
|
Amortization of intangible assets
|
|
528
|
|
|
391
|
|
|
|
|
1,438
|
|
|
1,049
|
|
Equity in earnings of unconsolidated joint venture
|
|
(98
|
)
|
|
|
|
|
|
|
(66
|
)
|
|
|
|
Impairment of goodwill
|
|
|
|
|
32,753
|
|
|
|
|
|
|
|
32,753
|
|
Interest expense, net
|
|
6,764
|
|
|
7,319
|
|
|
|
|
19,725
|
|
|
21,276
|
|
Foreign exchange (gain) loss
|
|
(5,449
|
)
|
|
32,935
|
|
|
|
|
(42,930
|
)
|
|
39,621
|
|
Realized and unrealized loss (gain) on derivative financial instruments
|
|
8,010
|
|
|
(26,770
|
)
|
|
|
|
43,185
|
|
|
(25,826
|
)
|
Other expenses (income)
|
|
471
|
|
|
(5,343
|
)
|
|
|
|
804
|
|
|
(5,364
|
)
|
Unallocated equipment (recoveries) and costs
(i)
|
|
(5,812
|
)
|
|
5,525
|
|
|
|
|
(14,392
|
)
|
|
(2,301
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
$21,476
|
|
|
$(10,034
|
)
|
|
|
|
$39,563
|
|
|
$12,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i)
|
Unallocated equipment costs represent actual equipment costs, including non-cash items such as depreciation, which have not been allocated to reportable segments. Unallocated
equipment recoveries arise when actual equipment costs charged to the reportable segment exceed actual equipment costs incurred.
|
Notes to Interim Consolidated Financial Statements
For the three and nine months ended December 31, 2009
(Expressed
in thousands of Canadian Dollars, except per share amounts or unless otherwise specified)
(Unaudited)
ii) Total assets
|
|
|
|
|
|
|
December 31,
2009
|
|
March 31,
2009
|
Total assets for reportable segments
|
|
$517,450
|
|
$470,667
|
Corporate assets:
|
|
|
|
|
Cash and cash equivalents
|
|
94,877
|
|
98,880
|
Property, plant and equipment
|
|
25,718
|
|
19,890
|
Deferred income taxes
|
|
22,259
|
|
19,465
|
Other
|
|
24,921
|
|
20,373
|
|
|
|
|
|
Total corporate assets
|
|
167,775
|
|
158,608
|
|
|
|
|
|
Total assets
|
|
$685,225
|
|
$629,275
|
|
|
|
|
|
The Companys goodwill of $25,111 is assigned to the Piling segment. All of
the Companys assets are located in Canada.
iii) Depreciation of property, plant and equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
December 31,
|
|
|
|
Nine Months Ended
December 31,
|
|
|
2009
|
|
2008
|
|
|
|
2009
|
|
2008
|
Total depreciation for reportable segments
|
|
$8,943
|
|
$6,697
|
|
|
|
$26,519
|
|
$21,449
|
Depreciation for corporate assets
|
|
1,600
|
|
3,030
|
|
|
|
4,174
|
|
6,344
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation
|
|
$10,543
|
|
$9,727
|
|
|
|
$30,693
|
|
$27,793
|
|
|
|
|
|
|
|
|
|
|
|
iv) Capital expenditures for property, plant and equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
December 31,
|
|
|
|
Nine Months Ended
December 31,
|
|
|
2009
|
|
2008
|
|
|
|
2009
|
|
2008
|
Total capital expenditures for reportable segments
|
|
$1,931
|
|
$7,202
|
|
|
|
$37,987
|
|
$74,282
|
Capital expenditures for corporate assets
|
|
2,843
|
|
2,167
|
|
|
|
10,052
|
|
4,013
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures
|
|
$4,774
|
|
$9,369
|
|
|
|
$48,039
|
|
$78,295
|
|
|
|
|
|
|
|
|
|
|
|
d) Customers
The following customers accounted for 10% or more of total revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
December 31,
|
|
|
|
Nine Months Ended
December 31,
|
|
|
2009
|
|
2008
|
|
|
|
2009
|
|
2008
|
Customer A
|
|
45%
|
|
34%
|
|
|
|
51%
|
|
28%
|
Customer B
|
|
20%
|
|
7%
|
|
|
|
17%
|
|
10%
|
Customer C
|
|
10%
|
|
15%
|
|
|
|
11%
|
|
15%
|
Customer D
|
|
5%
|
|
22%
|
|
|
|
5%
|
|
19%
|
Customer E
|
|
Nil%
|
|
7%
|
|
|
|
Nil%
|
|
12%
|
The revenue by major customer was earned in Heavy
Construction and Mining, Piling and Pipeline segments.
19. Stock-based compensation plan
a) Share option plan
Under the 2004 Amended and Restated
Share Option Plan, directors, officers, employees and certain service providers to the Company are eligible to receive stock options to acquire voting common shares in the Company. Each stock option provides the right to acquire one common share in
the Company and expires ten years from the grant date or on
Notes to Interim Consolidated Financial Statements
For the three and nine months ended December 31, 2009
(Expressed
in thousands of Canadian Dollars, except per share amounts or unless otherwise specified)
(Unaudited)
termination of employment. Options may be exercised at a price determined at the time the option is awarded, and vest as follows: no options vest on the award date and twenty percent vest on each
subsequent anniversary date.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
|
|
2009
|
|
|
|
|
2008
|
|
|
|
Number of
options
|
|
|
Weighted average
exercise price
($ per share)
|
|
|
|
|
Number of
options
|
|
|
Weighted average
exercise price
($ per share)
|
|
Outstanding, beginning of period
|
|
2,154,624
|
|
|
7.62
|
|
|
|
|
1,934,164
|
|
|
7.93
|
|
Granted
|
|
|
|
|
|
|
|
|
|
219,800
|
|
|
3.69
|
|
Exercised
|
|
(560
|
)
|
|
(3.69
|
)
|
|
|
|
|
|
|
|
|
Forfeited
|
|
(25,400
|
)
|
|
(9.60
|
)
|
|
|
|
(29,400
|
)
|
|
6.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, end of period
|
|
2,128,664
|
|
|
7.60
|
|
|
|
|
2,124,564
|
|
|
7.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended December 31,
|
|
|
|
2009
|
|
|
|
|
2008
|
|
|
|
Number of
options
|
|
|
Weighted average
exercise price
($ per share)
|
|
|
|
|
Number of
options
|
|
|
Weighted average
exercise price
($ per share)
|
|
Outstanding, beginning of period
|
|
2,071,884
|
|
|
7.53
|
|
|
|
|
2,036,364
|
|
|
7.54
|
|
Granted
|
|
160,000
|
|
|
8.28
|
|
|
|
|
344,800
|
|
|
8.22
|
|
Exercised
|
|
(40,560
|
)
|
|
4.98
|
|
|
|
|
(109,000
|
)
|
|
(6.45
|
)
|
Forfeited
|
|
(62,660
|
)
|
|
(8.87
|
)
|
|
|
|
(147,600
|
)
|
|
(10.20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, end of period
|
|
2,128,664
|
|
|
7.60
|
|
|
|
|
2,124,564
|
|
|
7.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009, the weighted average remaining contractual life of outstanding options is 6.45 years (March 31,
2009 7.0 years). At December 31, 2009, the Company had 1,278,176 exercisable options (March 31, 2009 1,055,924) with a weighted average exercise price of $5.43 (March 31, 2009 $5.85).
For the nine months ended December 31, 2009, the 40,560 options exercised were settled in cash.
The Company recorded $414 and $1,768 of compensation expense related to the stock options for the three and nine months ended December 31, 2009, respectively
(three and nine months ended December 31, 2008 $472 and $1,434 respectively), with such amount being credited to additional paid-in capital. As at December 31, 2009, the total compensation costs related to non-vested awards not
yet recognized was $2,890 and these costs are expected to be recognized over a weighted average period of 3.03 years.
The fair value of each option
granted by the Company was estimated on the grant date using the Black-Scholes option-pricing model with the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
December 31,
|
|
|
|
Nine Months Ended
December 31,
|
|
|
2009
|
|
2008
|
|
|
|
2009
|
|
2008
|
Number of options granted
|
|
|
|
219,800
|
|
|
|
160,000
|
|
344,800
|
Weighted average fair value per option granted ($)
|
|
|
|
2.35
|
|
|
|
5.89
|
|
4.53
|
Weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
Dividend yield
|
|
|
|
Nil%
|
|
|
|
Nil%
|
|
Nil%
|
Expected volatility
|
|
|
|
65.70%
|
|
|
|
77.47%
|
|
59.01%
|
Risk-free interest rate
|
|
|
|
3.05%
|
|
|
|
3.44%
|
|
3.24%
|
Expected life (years)
|
|
|
|
6.5
|
|
|
|
6.5
|
|
6.5
|
The Company uses company specific historical data to
estimate the expected life of the option, such as employee option exercise and employee post-vesting departure behavior. Since the Companys shares have been publicly traded for a period that is shorter than the expected life of the share
option, expected volatility is estimated based on the historical volatility of a peer group of similar entities in addition to its own historical volatility.
Notes to Interim Consolidated Financial Statements
For the three and nine months ended December 31, 2009
(Expressed
in thousands of Canadian Dollars, except per share amounts or unless otherwise specified)
(Unaudited)
b) Deferred performance share unit plan
On March 19, 2008, the Company approved a Deferred Performance Share Unit (DPSU) Plan which became effective April 1, 2008.
DPSUs will be granted effective April 1 of each fiscal year in respect of services to be provided in that fiscal year and the following two fiscal years. The
DPSUs vest at the end of a three year term and are subject to the performance criteria approved by the Compensation Committee of the Board of Directors at the date of grant. Such performance criterion includes the passage of time and is based upon
return on invested capital calculated as operating income divided by average operating assets. The date of the third fiscal year-end following the date of the grant of DPSUs is the maturity date for such DPSUs. At the maturity date, the Compensation
Committee assesses the participant against the performance criteria and determines the number of DPSUs that have been earned (earned DPSUs).
The
settlement of the participants entitlement is made either in cash in an amount equivalent to the number of earned DPSUs multiplied by the value of the Companys common shares at the date of maturity or in a number of common shares equal
to the number of earned DPSUs. If settled in common shares, the common shares are purchased on the open market or through the issuance of shares from treasury.
The fair value of each unit under the DPSU Plan was estimated on the date of the grant using Black-Scholes option pricing model. The weighted average assumptions
used in estimating the fair value of the units issued under the DPSU Plan at April 1, 2009 and April 1, 2008 are as follows:
|
|
|
|
|
|
|
|
|
Three and Nine Months Ended
December 31,
2009
|
|
|
|
Three and Nine Months Ended
December
31,
2008
|
Number of units granted
|
|
748,791
|
|
|
|
111,020
|
Weighted average fair value per unit granted ($)
|
|
3.65
|
|
|
|
12.34
|
Weighted average assumptions:
|
|
|
|
|
|
|
Dividend yield
|
|
Nil%
|
|
|
|
Nil%
|
Expected volatility
|
|
95.49%
|
|
|
|
56.25%
|
Risk-free interest rate
|
|
1.35%
|
|
|
|
2.83%
|
Expected life (years)
|
|
3.0
|
|
|
|
3.0
|
Since the Companys shares have been publicly traded
for a period that is shorter than the expected life of the DPSU, expected volatility is estimated based on the average historical volatility of a peer group of similar entities in addition to its own historical volatility.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
December 31,
|
|
|
|
|
Nine Months Ended
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Number of Units
|
|
|
|
|
Number of Units
|
|
Outstanding, beginning of period
|
|
807,901
|
|
|
101,636
|
|
|
|
|
91,005
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
748,791
|
|
|
111,020
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
(42,194
|
)
|
|
(2,464
|
)
|
|
|
|
(74,089
|
)
|
|
(11,848
|
)
|
Converted to RSUs (note 19(c))
|
|
(389,204
|
)
|
|
|
|
|
|
|
(389,204
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, end of period
|
|
376,503
|
|
|
99,172
|
|
|
|
|
376,503
|
|
|
99,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average exercise price per unit is $nil.
At December 31, 2009, the weighted average remaining contractual life of outstanding DPSU Plan units is 2.14 years (March 31, 2009 2.0 years).
For the three and nine months ended December 31, 2009, respectively, the Company granted nil and 748,791 units under the Plan and recorded compensation (recovery) expense of $(65) and $213 respectively after adjusting for the conversion to RSUs
(three and nine months ended December 31, 2008 $80 and $222 respectively) which is included in general and administrative costs. Compensation expense was adjusted based upon managements assessment of performance against
return on invested capital targets and the ultimate number of units expected to be issued. As at December 31, 2009, there was approximately $831 of total unrecognized compensation cost related to non-vested share-based payment arrangements
under the DPSU Plan, which is expected to be recognized over a weighted average period of 1.88 years and is subject to performance adjustments. On December 18, 2009, the Company converted 389,204 DPSUs into RSUs (note 19(c)).
Notes to Interim Consolidated Financial Statements
For the three and nine months ended December 31, 2009
(Expressed
in thousands of Canadian Dollars, except per share amounts or unless otherwise specified)
(Unaudited)
c) Restricted Share Units
On December 3, 2009, the Company approved a Restricted Share Unit (RSU) Plan which became effective December 18, 2009.
RSUs will be granted effective April 1 of each fiscal year with respect to services to be provided in that fiscal year and the following two fiscal years. The
RSUs vest at the end of a three year term. The Company classifies RSUs as a liability as the Company has the ability and intent to settle the awards in cash.
Compensation expense is calculated based on the fair value of each RSU as determined by the closing value of the Companys common shares on each period end
date. The Company recognizes compensation expense over the vesting period of the RSU term.
On December 18, 2009, the Company converted certain
middle managers DPSUs (note 19(b)) into RSUs at a conversion factor of 80%. The following table summarizes this conversion.
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
December 31,
|
|
|
|
Nine Months Ended
December 31,
|
|
|
2009
|
|
2008
|
|
|
|
2009
|
|
2008
|
|
|
Number of Units
|
|
|
|
Number of Units
|
Outstanding, beginning of period
|
|
|
|
|
|
|
|
|
|
|
Converted from DPSUs at a conversion factor of 80%
|
|
311,358
|
|
|
|
|
|
311,358
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, end of period
|
|
311,358
|
|
|
|
|
|
311,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company recorded compensation expense with respect to RSUs of $619 for the
three and nine months ended December 31, 2009 (three and nine months ended December 31, 2008 $nil). Compensation expense related to RSUs is included in general and administration costs. At December 31, 2009, the redemption
value of these units was $7.60/unit (March 31, 2009 $nil). Using the redemption value of $7.60/unit, at December 31, 2009 there was approximately $1,727 of total unrecognized compensation cost related to non-vested share-based payment
arrangements under the RSU Plan. On approval of the RSU plan, the Company reclassified $20 from additional paid-in capital to restricted share unit liability related to the conversion of those employees converted from the DPSU plan to the RSU plan.
d) Directors deferred stock unit plan
On
November 27, 2007, the Company approved a Directors Deferred Stock Unit (DDSU) Plan, which became effective January 1, 2008. Under the DDSU Plan, non-officer directors of the Company receive 50% of their annual fixed
remuneration (which is included in general and administrative costs in the Consolidated Statements of Operations and Comprehensive Income (Loss)) in the form of DDSUs and may elect to receive all or a part of their annual fixed remuneration in
excess of 50% in the form of DDSUs. The number of DDSUs to be credited to the participants deferred unit account shall be determined by dividing the amount of the participants deferred remuneration by the fair market value per common share on
the date the DDSUs are credited to the Participant (the date the services are rendered by the participant). The DDSUs vest immediately upon grant and are only redeemable upon death or retirement of the participant for cash determined by the market
price of the Companys common shares for the five trading days immediately preceding death or retirement. Directors, who are not U.S. taxpayers, may elect to defer the maturity date until a date no later than December 1st of the calendar
year following the year in which the actual maturity date occurred.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
December 31,
|
|
Nine Months Ended
December 31,
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
Number of Units
|
|
Number of Units
|
Outstanding, beginning of period
|
|
209,714
|
|
38,261
|
|
139,691
|
|
11,822
|
Granted
|
|
31,570
|
|
54,444
|
|
101,593
|
|
80,883
|
|
|
|
|
|
|
|
|
|
Outstanding, end of period
|
|
241,284
|
|
92,705
|
|
241,284
|
|
92,705
|
|
|
|
|
|
|
|
|
|
Notes to Interim Consolidated Financial Statements
For the three and nine months ended December 31, 2009
(Expressed
in thousands of Canadian Dollars, except per share amounts or unless otherwise specified)
(Unaudited)
For the three and nine months ended December 31, 2009, the Company recorded an expense of $471 and $1,288
respectively, which is included in general and administrative costs (three and nine months ended December 31, 2008 $(41) recovery and $190 respectively) related to the grants of DDSUs.
At December 31, 2009, the redemption value of these units was $7.60/unit (March 31, 2009 $3.91/unit). There is no unrecognized compensation expense
related to deferred share units, since these awards vest immediately when granted.
20. Contingencies
During the normal course of the Companys operations, various legal and tax matters are pending. In the opinion of management, these matters will not have a
material effect on the Companys consolidated financial position or results of operations.
21. Seasonality
The Company generally experiences a decline in revenues during the first quarter of each fiscal year due to seasonality, as weather conditions make operations in
the Companys operating regions difficult during this period. The level of activity in the Heavy Construction and Mining and Pipeline segments declines when frost leaves the ground and many secondary roads are temporarily rendered incapable of
supporting the weight of heavy equipment. The duration of this period is referred to as spring breakup and has a direct impact on the Companys activity levels. Revenues during the fourth quarter of each fiscal year are typically
highest as ground conditions are most favorable in the Companys operating regions. As a result, full-year results are not likely to be a direct multiple of any particular quarter or combination of quarters. In addition to revenue variability,
gross margins can be negatively impacted in less active periods because the Company is likely to incur higher maintenance and repair costs due to its equipment being available for service.
22. Claims revenue
For the three and
nine months ended December 31, 2009, due to the timing of receipt of signed change orders, the Heavy Construction and Mining segment had approximately $0.2 million and $1.1 million respectively in claims revenue recognized to the
extent of costs incurred, the Piling segment had $0.8 million and $1.0 million respectively in claims revenue recognized to the extent of costs incurred, and the Pipeline segment had $0.2 million and $1.7 million
respectively in claims revenue recognized to the extent of costs incurred.
23. Comparative figures
Certain comparative figures have been reclassified from statements previously presented to conform to the presentation of the current period consolidated financial
statements.
24. Subsequent events
On December 1, 2009, the Company was notified by a major customer that they had reduced the letter of credit required to support performance guarantees from
$20.0 million to $10.0 million. As a result of this notification, the borrowing capacity under the Companys Revolving facility increased $10.0 million. Effective January 6, 2010, the Companys borrowing availability was $79.6
million.
On April 7, 2010, the Company issued, through private placement in Canada and the U.S., $225.0 million of 9.125% Series 1 Senior Unsecured
Debentures (the Debentures). The Debentures mature on April 7, 2017. The Debentures will bear interest from the date of issue at 9.125% per annum and such interest is payable in equal installments semi-annually in arrears on
April 7 and October 7 in each year, commencing on October 7, 2010.
The Debentures are unsecured senior obligations and rank equally with
all other existing and future unsecured senior debt and senior to any subordinated debt that may be issued by the Company or any of its subsidiaries. The Debentures are effectively subordinated to all secured debt to the extent of collateral on such
debt.
At any time prior to April 7, 2013, the Company may redeem up to 35% of the aggregate principal amount of the Debentures, with the net cash
proceeds of one or more of the Companys Public Equity Offerings at a redemption price equal to 109.125% of the principal amount; plus accrued and unpaid interest to the date of redemption, so long as:
i)
|
at least 65% of the original aggregate amount of the Debentures remains outstanding after each redemption; and
|
ii)
|
any redemption by the Company is made within 90 days of the equity offering.
|
Notes to Interim Consolidated Financial Statements
For the three and nine months ended December 31, 2009
(Expressed
in thousands of Canadian Dollars, except per share amounts or unless otherwise specified)
(Unaudited)
At any time prior to April 7, 2013, the Company may on one or more occasions redeem the Debentures, in whole
or in part, at a redemption price which is equal to the greater of (a) the Canada Yield Price and (b) 100% of the aggregate principal amount of Debentures redeemed, plus, in each case, accrued and unpaid interest to the redemption date
(subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date).
The Debentures
are redeemable at the option of the Company, in whole or in part, at any time on or after: April 7, 2013 at 104.563% of the principal amount; April 7, 2014 at 103.042% of the principal amount; April 7, 2015 at 101.520% of the
principal amount; April 7, 2016 and thereafter at 100% of the principal amount; plus, in each case, interest accrued to the redemption date.
If a
change of control occurs, the Company will be required to offer to purchase all or a portion of each Debenture holders Debentures, at a purchase price in cash equal to 101% of the principal amount of the Debentures offered for repurchase plus
accrued interest to the date of purchase.
On April 8, 2010, the Company settled the cross-currency and interest rate swaps for
a total of $92.5 million. On April 28, 2010, the Company redeemed the
8
3
/
4
% senior notes for a total of $207.6 million and wrote
off deferred financing costs of $4.5 million. These payments were funded by the net proceeds received from the issuance of the Debentures and available cash on hand.
On April 30, 2010, the Company entered into an amended and restated credit agreement to extend the term of the credit facilities and increase the amount of the
term loans. The new credit facilities provide for total borrowings of up to $163.4 million (previously $125.0 million) under which revolving loans, term loans and letters of credit may be issued. The Revolving Facility of $85.0 million (previously
$90.0 million) was undrawn at closing. The new agreement includes two term facilities providing for borrowings of up to $78.4 million. At April 30, 2010, the Term A Facility and Term B Facility were both fully drawn at $28.4 million and $50.0
million, respectively. The new facilities mature on April 30, 2013.
Advances under the Revolving Facility may be repaid from time to time at the
Companys option. The term facilities include mandatory repayments totaling $10.0 million per year with $2.5 million paid on the last day of each quarter commencing June 30, 2010. In addition, the Company must make annual payments within
120 days of the end of its fiscal year in the amount of 50% of Consolidated Excess Cash Flow (as defined in the credit agreement) to a maximum of $4.0 million.
Interest on Canadian base rate loans is paid at variable rates based on the Canadian prime rate plus the applicable pricing margin (as defined within the credit
agreement). Interest on US base rate loans is paid at a rate per annum equal to the US base rate plus the applicable pricing margin. Interest on prime and US base rate loans is payable monthly in arrears and computed on the basis of a 365 day or 366
day year, as the case may be. Interest on LIBOR loans is paid during each interest period at a rate per annum, calculated on a 360 day year, equal to the LIBOR rate with respect to such interest period plus the applicable pricing margin.
Subsequent to March 31, 2010, the Company recorded additional financing costs on the Debentures and the amended credit agreement of $6.9 million and $1.0
million respectively. These additional costs will be recorded as deferred financing costs in the Interim Consolidated Balance Sheets.
Notes to Interim Consolidated Financial Statements
For the three and nine months ended December 31, 2009
(Expressed
in thousands of Canadian Dollars, except per share amounts or unless otherwise specified)
(Unaudited)
25. United States and Canadian accounting policy differences
These consolidated financial statements have been prepared in accordance with U.S. GAAP, which differs in certain respects from Canadian GAAP. If Canadian GAAP were
employed, the Companys net income (loss) would be adjusted as follows:
|
|
|
|
|
|
|
|
|
|
Consolidated Statements of Operations, Comprehensive Income and
Deficit Three months ended December 31, 2009
|
|
U.S. GAAP
|
|
|
Adjustments
|
|
|
Canadian
GAAP
(restated
see note 25(i))
|
|
Revenue (g)
|
|
$221,175
|
|
|
$1,539
|
|
|
$222,714
|
|
Project costs (g)
|
|
89,207
|
|
|
1,115
|
|
|
90,322
|
|
Equipment costs
|
|
57,512
|
|
|
|
|
|
57,512
|
|
Equipment operating lease expense
|
|
16,287
|
|
|
|
|
|
16,287
|
|
Depreciation (a)
|
|
10,543
|
|
|
(31
|
)
|
|
10,512
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
47,626
|
|
|
455
|
|
|
48,081
|
|
General and administrative costs (c) and (g)
|
|
14,532
|
|
|
315
|
|
|
14,847
|
|
Loss on disposal of property, plant and equipment
|
|
743
|
|
|
|
|
|
743
|
|
Loss on disposal of assets held for sale
|
|
649
|
|
|
|
|
|
649
|
|
Amortization of intangible assets
|
|
528
|
|
|
210
|
|
|
738
|
|
Equity in earnings of unconsolidated joint venture
|
|
(98
|
)
|
|
98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income before the undernoted
|
|
31,272
|
|
|
(168
|
)
|
|
31,104
|
|
Interest expense, net (b)
|
|
6,764
|
|
|
(637
|
)
|
|
6,127
|
|
Foreign exchange gain (b)
|
|
(5,449
|
)
|
|
46
|
|
|
(5,403
|
)
|
Realized and unrealized loss on derivative financial instruments (d)
|
|
8,010
|
|
|
(392
|
)
|
|
7,618
|
|
Other expenses
|
|
471
|
|
|
|
|
|
471
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
21,476
|
|
|
815
|
|
|
22,291
|
|
Income taxes:
|
|
|
|
|
|
|
|
|
|
Current income taxes
|
|
591
|
|
|
|
|
|
591
|
|
Deferred income taxes (h)
|
|
5,949
|
|
|
174
|
|
|
6,123
|
|
|
|
|
|
|
|
|
|
|
|
Net income and comprehensive income for the period
|
|
14,936
|
|
|
641
|
|
|
15,577
|
|
Deficit, beginning of period
|
|
(143,879
|
)
|
|
2,461
|
|
|
(141,418
|
)
|
|
|
|
|
|
|
|
|
|
|
Deficit, end of period
|
|
$(128,943
|
)
|
|
$3,102
|
|
|
$(125,841
|
)
|
|
|
|
|
|
|
|
|
|
|
Net income per share basic
|
|
$0.41
|
|
|
$0.02
|
|
|
$0.43
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share diluted
|
|
$0.41
|
|
|
$0.02
|
|
|
$0.43
|
|
|
|
|
|
|
|
|
|
|
|
Notes to Interim Consolidated Financial Statements
For the three and nine months ended December 31, 2009
(Expressed
in thousands of Canadian Dollars, except per share amounts or unless otherwise specified)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Consolidated Statements of Operations, Comprehensive Income and
Deficit Nine months ended December 31, 2009
|
|
U.S. GAAP
|
|
|
Adjustments
|
|
|
Canadian
GAAP
(restated
see note
25(i))
|
|
Revenue (g)
|
|
$538,396
|
|
|
$2,531
|
|
|
$540,927
|
|
Project costs (g)
|
|
208,906
|
|
|
1,928
|
|
|
210,834
|
|
Equipment costs
|
|
147,915
|
|
|
|
|
|
147,915
|
|
Equipment operating lease expense
|
|
44,320
|
|
|
|
|
|
44,320
|
|
Depreciation (a)
|
|
30,693
|
|
|
(93
|
)
|
|
30,600
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
106,562
|
|
|
696
|
|
|
107,258
|
|
General and administrative costs (c) and (g)
|
|
43,426
|
|
|
502
|
|
|
43,928
|
|
Loss on disposal of property, plant and equipment
|
|
1,044
|
|
|
|
|
|
1,044
|
|
Loss on disposal of assets held for sale
|
|
373
|
|
|
|
|
|
373
|
|
Amortization of intangible assets
|
|
1,438
|
|
|
623
|
|
|
2,061
|
|
Equity in earnings of unconsolidated joint venture
|
|
(66
|
)
|
|
66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income before the undernoted
|
|
60,347
|
|
|
(495
|
)
|
|
59,852
|
|
Interest expense, net (b)
|
|
19,725
|
|
|
(1,840
|
)
|
|
17,885
|
|
Foreign exchange gain (b)
|
|
(42,930
|
)
|
|
450
|
|
|
(42,480
|
)
|
Realized and unrealized loss on derivative financial instruments (d)
|
|
43,185
|
|
|
(2,720
|
)
|
|
40,465
|
|
Other expenses
|
|
804
|
|
|
|
|
|
804
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
39,563
|
|
|
3,615
|
|
|
43,178
|
|
Income taxes:
|
|
|
|
|
|
|
|
|
|
Current income taxes
|
|
1,855
|
|
|
|
|
|
1,855
|
|
Deferred income taxes (h)
|
|
8,546
|
|
|
639
|
|
|
9,185
|
|
|
|
|
|
|
|
|
|
|
|
Net income and comprehensive income for the period
|
|
29,162
|
|
|
2,976
|
|
|
32,138
|
|
Deficit, beginning of period
|
|
(158,105
|
)
|
|
126
|
|
|
(157,979
|
)
|
|
|
|
|
|
|
|
|
|
|
Deficit, end of period
|
|
$(128,943
|
)
|
|
$3,102
|
|
|
$(125,841
|
)
|
|
|
|
|
|
|
|
|
|
|
Net income per share basic
|
|
$0.81
|
|
|
$0.08
|
|
|
$0.89
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share diluted
|
|
$0.79
|
|
|
$0.08
|
|
|
$0.87
|
|
|
|
|
|
|
|
|
|
|
|
Notes to Interim Consolidated Financial Statements
For the three and nine months ended December 31, 2009
(Expressed
in thousands of Canadian Dollars, except per share amounts or unless otherwise specified)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Consolidated Statements of Operations, Comprehensive Loss and
Deficit Three months ended December 31, 2008
|
|
U.S. GAAP
|
|
|
Adjustments
|
|
|
Canadian
GAAP
(restated
see note 25(i))
|
|
Revenue
|
|
$258,565
|
|
|
$
|
|
|
$258,565
|
|
Project costs
|
|
129,912
|
|
|
|
|
|
129,912
|
|
Equipment costs
|
|
55,549
|
|
|
|
|
|
55,549
|
|
Equipment operating lease expense
|
|
11,934
|
|
|
|
|
|
11,934
|
|
Depreciation (a)
|
|
9,727
|
|
|
(31
|
)
|
|
9,696
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
51,443
|
|
|
31
|
|
|
51,474
|
|
General and administrative costs (c)
|
|
19,170
|
|
|
(14
|
)
|
|
19,156
|
|
Loss on disposal of property, plant and equipment
|
|
1,022
|
|
|
|
|
|
1,022
|
|
Amortization of intangible assets
|
|
391
|
|
|
209
|
|
|
600
|
|
Impairment of goodwill
|
|
32,753
|
|
|
|
|
|
32,753
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss before the undernoted
|
|
(1,893
|
)
|
|
(164
|
)
|
|
(2,057
|
)
|
Interest expense, net (b)
|
|
7,319
|
|
|
(545
|
)
|
|
6,774
|
|
Foreign exchange loss (b)
|
|
32,935
|
|
|
(431
|
)
|
|
32,504
|
|
Realized and unrealized gain on derivative financial instruments (d)
|
|
(26,770
|
)
|
|
247
|
|
|
(26,523
|
)
|
Other income
|
|
(5,343
|
)
|
|
|
|
|
(5,343
|
)
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
(10,034
|
)
|
|
565
|
|
|
(9,469
|
)
|
Income taxes:
|
|
|
|
|
|
|
|
|
|
Current income taxes
|
|
1,779
|
|
|
|
|
|
1,779
|
|
Deferred income taxes (h)
|
|
3,151
|
|
|
195
|
|
|
3,346
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and comprehensive loss for the period
|
|
(14,964
|
)
|
|
370
|
|
|
(14,594
|
)
|
Retained earnings (deficit), beginning of period
|
|
(6,029
|
)
|
|
(609
|
)
|
|
(6,638
|
)
|
|
|
|
|
|
|
|
|
|
|
Deficit, end of period
|
|
$(20,993
|
)
|
|
$(239
|
)
|
|
$(21,232
|
)
|
|
|
|
|
|
|
|
|
|
|
Net loss per share basic
|
|
$(0.42
|
)
|
|
$0.01
|
|
|
$(0.41
|
)
|
|
|
|
|
|
|
|
|
|
|
Net loss per share diluted
|
|
$(0.42
|
)
|
|
$0.01
|
|
|
$(0.41
|
)
|
|
|
|
|
|
|
|
|
|
|
Notes to Interim Consolidated Financial Statements
For the three and nine months ended December 31, 2009
(Expressed
in thousands of Canadian Dollars, except per share amounts or unless otherwise specified)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Consolidated Statements of Operations, Comprehensive Income (Loss) and Deficit Nine
months ended December 31, 2008
|
|
U.S. GAAP
|
|
|
Adjustments
|
|
|
Canadian
GAAP
(restated
see note 25(i))
|
|
Revenue
|
|
$797,836
|
|
|
$
|
|
|
$797,836
|
|
Project costs
|
|
433,504
|
|
|
|
|
|
433,504
|
|
Equipment costs
|
|
168,746
|
|
|
|
|
|
168,746
|
|
Equipment operating lease expense
|
|
30,317
|
|
|
|
|
|
30,317
|
|
Depreciation (a)
|
|
27,793
|
|
|
(93
|
)
|
|
27,700
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
137,476
|
|
|
93
|
|
|
137,569
|
|
General and administrative costs (c)
|
|
57,760
|
|
|
(43
|
)
|
|
57,717
|
|
Loss on disposal of property, plant and equipment
|
|
3,778
|
|
|
|
|
|
3,778
|
|
Loss on disposal of assets held for sale
|
|
24
|
|
|
|
|
|
24
|
|
Amortization of intangible assets
|
|
1,049
|
|
|
627
|
|
|
1,676
|
|
Impairment of goodwill
|
|
32,753
|
|
|
|
|
|
32,753
|
|
|
|
|
|
|
|
|
|
|
|
Operating income before the undernoted
|
|
42,112
|
|
|
(491
|
)
|
|
41,621
|
|
Interest expense, net (b)
|
|
21,276
|
|
|
(1,613
|
)
|
|
19,663
|
|
Foreign exchange loss (b)
|
|
39,621
|
|
|
(522
|
)
|
|
39,099
|
|
Realized and unrealized gain on derivative financial instruments (d)
|
|
(25,826
|
)
|
|
4,655
|
|
|
(21,171
|
)
|
Other income
|
|
(5,364
|
)
|
|
|
|
|
(5,364
|
)
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
12,405
|
|
|
(3,011
|
)
|
|
9,394
|
|
Income taxes:
|
|
|
|
|
|
|
|
|
|
Current income taxes
|
|
1,842
|
|
|
|
|
|
1,842
|
|
Deferred income taxes (h)
|
|
8,855
|
|
|
(173
|
)
|
|
8,682
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) and comprehensive income (loss) for the period
|
|
1,708
|
|
|
(2,838
|
)
|
|
(1,130
|
)
|
Deficit, beginning of period as previously reported
|
|
(22,701
|
)
|
|
1,608
|
|
|
(21,093
|
)
|
Change in accounting policy related to inventories (f)
|
|
|
|
|
991
|
|
|
991
|
|
|
|
|
|
|
|
|
|
|
|
Deficit, end of period
|
|
$(20,993
|
)
|
|
$(239
|
)
|
|
$(21,232
|
)
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share basic
|
|
$0.05
|
|
|
$(0.08
|
)
|
|
$(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share diluted
|
|
$0.05
|
|
|
$(0.07
|
)
|
|
$(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
Notes to Interim Consolidated Financial Statements
For the three and nine months ended December 31, 2009
(Expressed
in thousands of Canadian Dollars, except per share amounts or unless otherwise specified)
(Unaudited)
The cumulative effect of material differences between U.S. and Canadian GAAP on the Consolidated Balance Sheets of
the Company is as follows:
|
|
|
|
|
|
|
|
|
|
|
Consolidated Balance Sheets December 31, 2009
|
|
U.S. GAAP
|
|
|
Adjustments
|
|
|
Canadian
GAAP
(restated
see note
25(i))
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents (g)
|
|
$94,877
|
|
|
|
$1,566
|
|
|
$96,443
|
|
Accounts receivable, net (g)
|
|
89,864
|
|
|
|
1,852
|
|
|
91,716
|
|
Unbilled revenue (g)
|
|
81,397
|
|
|
|
835
|
|
|
82,232
|
|
Inventories
|
|
8,088
|
|
|
|
|
|
|
8,088
|
|
Prepaid expenses and deposits (g)
|
|
7,968
|
|
|
|
14
|
|
|
7,982
|
|
Deferred tax assets
|
|
12,954
|
|
|
|
|
|
|
12,954
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
295,148
|
|
|
|
4,267
|
|
|
299,415
|
|
Prepaid expenses and deposits
|
|
4,438
|
|
|
|
|
|
|
4,438
|
|
Assets held for sale
|
|
1,038
|
|
|
|
|
|
|
1,038
|
|
Property, plant and equipment (a)
|
|
333,582
|
|
|
|
(566
|
)
|
|
333,016
|
|
Intangible assets (b)
|
|
7,120
|
|
|
|
1,260
|
|
|
8,380
|
|
Deferred financing costs (b)
|
|
6,544
|
|
|
|
(6,544
|
)
|
|
|
|
Investment in and advances to unconsolidated joint venture (g)
|
|
2,939
|
|
|
|
(2,939
|
)
|
|
|
|
Goodwill
|
|
25,111
|
|
|
|
|
|
|
25,111
|
|
Deferred tax assets
|
|
9,305
|
|
|
|
|
|
|
9,305
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$685,225
|
|
|
$
|
(4,522
|
)
|
|
$680,703
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts payable (g)
|
|
$76,769
|
|
|
|
$1,328
|
|
|
$78,097
|
|
Accrued liabilities
|
|
15,907
|
|
|
|
|
|
|
15,907
|
|
Billings in excess of costs incurred and estimated earnings on uncompleted contracts
|
|
1,901
|
|
|
|
|
|
|
1,901
|
|
Current portion of capital lease obligations
|
|
5,287
|
|
|
|
|
|
|
5,287
|
|
Current portion of derivative financial instruments
|
|
17,756
|
|
|
|
|
|
|
17,756
|
|
Current portion of long term debt
|
|
6,072
|
|
|
|
|
|
|
6,072
|
|
Deferred tax liabilities
|
|
13,211
|
|
|
|
|
|
|
13,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
136,903
|
|
|
|
1,328
|
|
|
138,231
|
|
Deferred lease inducements
|
|
788
|
|
|
|
|
|
|
788
|
|
Long term accrued liabilities
|
|
10,864
|
|
|
|
|
|
|
10,864
|
|
Capital lease obligations
|
|
9,083
|
|
|
|
|
|
|
9,083
|
|
Long term debt
|
|
23,892
|
|
|
|
|
|
|
23,892
|
|
Senior notes (b) and (d)
|
|
209,436
|
|
|
|
(4,483
|
)
|
|
204,953
|
|
Director deferred stock unit liability
|
|
1,834
|
|
|
|
|
|
|
1,834
|
|
Restricted share unit liability
|
|
639
|
|
|
|
|
|
|
639
|
|
Derivative financial instruments
|
|
72,123
|
|
|
|
|
|
|
72,123
|
|
Asset retirement obligation
|
|
351
|
|
|
|
|
|
|
351
|
|
Deferred tax liabilities (h)
|
|
37,463
|
|
|
|
(785
|
)
|
|
36,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
503,376
|
|
|
|
(3,940
|
)
|
|
499,436
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
|
|
Common shares (authorized unlimited number of voting and non-voting common shares; issued and outstanding December 31,
2009 36,038,476 voting common shares (March 31, 2009 36,038,476 voting common shares) (e)
|
|
303,431
|
|
|
|
(3,458
|
)
|
|
299,973
|
|
Additional paid-in capital (c) and (h)
|
|
7,361
|
|
|
|
(226
|
)
|
|
7,135
|
|
Deficit (a) to (d) and (f) (h)
|
|
(128,943
|
)
|
|
|
3,102
|
|
|
(125,841
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
181,849
|
|
|
|
(582
|
)
|
|
181,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$685,225
|
|
|
$
|
(4,522
|
)
|
|
$680,703
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes to Interim Consolidated Financial Statements
For the three and nine months ended December 31, 2009
(Expressed
in thousands of Canadian Dollars, except per share amounts or unless otherwise specified)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Consolidated Balance Sheets March 31, 2009
|
|
U.S. GAAP
|
|
|
Adjustments
|
|
|
Canadian
GAAP
(restated
see note 25(i))
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$98,880
|
|
|
|
$
|
|
|
$98,880
|
|
Accounts receivable, net
|
|
78,323
|
|
|
|
|
|
|
78,323
|
|
Unbilled revenue
|
|
55,907
|
|
|
|
|
|
|
55,907
|
|
Inventories
|
|
11,814
|
|
|
|
|
|
|
11,814
|
|
Prepaid expenses and deposits
|
|
4,781
|
|
|
|
|
|
|
4,781
|
|
Deferred tax assets
|
|
7,033
|
|
|
|
|
|
|
7,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
256,738
|
|
|
|
|
|
|
256,738
|
|
Prepaid expenses and deposits
|
|
3,504
|
|
|
|
|
|
|
3,504
|
|
Assets held for sale
|
|
2,760
|
|
|
|
|
|
|
2,760
|
|
Property, plant and equipment (a)
|
|
316,115
|
|
|
|
(660
|
)
|
|
315,455
|
|
Intangible assets (b)
|
|
5,944
|
|
|
|
767
|
|
|
6,711
|
|
Deferred financing costs (b)
|
|
7,910
|
|
|
|
(7,910
|
)
|
|
|
|
Goodwill
|
|
23,872
|
|
|
|
|
|
|
23,872
|
|
Deferred tax assets
|
|
12,432
|
|
|
|
|
|
|
12,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$629,275
|
|
|
$
|
(7,803
|
)
|
|
$621,472
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$56,204
|
|
|
|
$
|
|
|
$56,204
|
|
Accrued liabilities
|
|
45,001
|
|
|
|
|
|
|
45,001
|
|
Billings in excess of costs incurred and estimated earnings on uncompleted contracts
|
|
2,155
|
|
|
|
|
|
|
2,155
|
|
Current portion of capital lease obligations
|
|
5,409
|
|
|
|
|
|
|
5,409
|
|
Current portion of derivative financial instruments
|
|
11,439
|
|
|
|
|
|
|
11,439
|
|
Deferred tax liabilities
|
|
7,749
|
|
|
|
|
|
|
7,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
127,957
|
|
|
|
|
|
|
127,957
|
|
Deferred lease inducements
|
|
836
|
|
|
|
|
|
|
836
|
|
Long term accrued liabilities
|
|
7,134
|
|
|
|
|
|
|
7,134
|
|
Capital lease obligations
|
|
12,075
|
|
|
|
|
|
|
12,075
|
|
Senior notes (b) and (d)
|
|
255,756
|
|
|
|
(2,857
|
)
|
|
252,899
|
|
Director deferred stock unit liability
|
|
546
|
|
|
|
|
|
|
546
|
|
Derivative financial instruments
|
|
43,048
|
|
|
|
|
|
|
43,048
|
|
Asset retirement obligation
|
|
386
|
|
|
|
|
|
|
386
|
|
Deferred tax liabilities (h)
|
|
30,745
|
|
|
|
(1,423
|
)
|
|
29,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
478,483
|
|
|
|
(4,280
|
)
|
|
474,203
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
|
|
Common shares (authorized unlimited number of voting and non-voting common shares; issued and outstanding March 31, 2009
36,038,476 voting common shares (March 31, 2008 35,929,476 voting common shares) (e)
|
|
303,431
|
|
|
|
(3,458
|
)
|
|
299,973
|
|
Additional paid-in capital (c) and (h)
|
|
5,466
|
|
|
|
(191
|
)
|
|
5,275
|
|
Deficit (a) to (d) and (f) (h)
|
|
(158,105
|
)
|
|
|
126
|
|
|
(157,979
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150,792
|
|
|
|
(3,523
|
)
|
|
147,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$629,275
|
|
|
$
|
(7,803
|
)
|
|
$621,472
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes to Interim Consolidated Financial Statements
For the three and nine months ended December 31, 2009
(Expressed
in thousands of Canadian Dollars, except per share amounts or unless otherwise specified)
(Unaudited)
The cumulative effect of material differences between U.S. and Canadian GAAP on the consolidated statement of cash
flows of the Company is as follows:
|
|
|
|
|
|
|
|
|
|
Consolidated Statement of Cash Flows Three months ended
December 31, 2009
|
|
U.S. GAAP
|
|
|
Adjustments
|
|
|
Canadian
GAAP
(restated
see note
25(i))
|
|
Cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
Net income for the period
|
|
$14,936
|
|
|
$641
|
|
|
$15,577
|
|
Items not affecting cash:
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
10,543
|
|
|
(31
|
)
|
|
10,512
|
|
Equity in earnings of unconsolidated joint venture
|
|
(98
|
)
|
|
98
|
|
|
|
|
Amortization of intangible assets
|
|
528
|
|
|
210
|
|
|
738
|
|
Amortization of deferred lease inducements
|
|
(19
|
)
|
|
|
|
|
(19
|
)
|
Amortization of deferred financing costs
|
|
847
|
|
|
(637
|
)
|
|
210
|
|
Loss on disposal of property, plant and equipment
|
|
743
|
|
|
|
|
|
743
|
|
Loss on disposal of assets held for sale
|
|
649
|
|
|
|
|
|
649
|
|
Unrealized foreign exchange gain on senior notes
|
|
(5,120
|
)
|
|
46
|
|
|
(5,074
|
)
|
Unrealized loss on derivative financial instruments measured at fair value
|
|
3,818
|
|
|
(392
|
)
|
|
3,426
|
|
Stock-based compensation expense
|
|
1,439
|
|
|
(11
|
)
|
|
1,428
|
|
Accretion of asset retirement obligation
|
|
8
|
|
|
|
|
|
8
|
|
Deferred income taxes
|
|
5,949
|
|
|
174
|
|
|
6,123
|
|
Net changes in non-cash working capital
|
|
(23,839
|
)
|
|
(644
|
)
|
|
(24,483
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
10,384
|
|
|
(546
|
)
|
|
9,838
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
Acquisition
|
|
(530
|
)
|
|
|
|
|
(530
|
)
|
Purchase of property, plant and equipment
|
|
(3,542
|
)
|
|
|
|
|
(3,542
|
)
|
Addition to intangible assets
|
|
(1,232
|
)
|
|
|
|
|
(1,232
|
)
|
Additions to assets held for sale
|
|
(125
|
)
|
|
|
|
|
(125
|
)
|
Investment in and advances to unconsolidated joint venture
|
|
(1,887
|
)
|
|
1,887
|
|
|
|
|
Proceeds on disposal of property, plant and equipment
|
|
454
|
|
|
|
|
|
454
|
|
Proceeds on disposal of assets held for sale
|
|
1,170
|
|
|
|
|
|
1,170
|
|
Net changes in non-cash working capital
|
|
(2,998
|
)
|
|
|
|
|
(2,998
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,690
|
)
|
|
1,887
|
|
|
(6,803
|
)
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
Repayment of long term debt
|
|
(3,037
|
)
|
|
|
|
|
(3,037
|
)
|
Repayment of capital lease obligations
|
|
(1,271
|
)
|
|
|
|
|
(1,271
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,308
|
)
|
|
|
|
|
(4,308
|
)
|
|
|
|
|
|
|
|
|
|
|
Decrease in cash and cash equivalents
|
|
(2,614
|
)
|
|
1,341
|
|
|
(1,273
|
)
|
Cash and cash equivalents, beginning of period
|
|
97,491
|
|
|
225
|
|
|
97,716
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$94,877
|
|
|
$1,566
|
|
|
$96,443
|
|
|
|
|
|
|
|
|
|
|
|
Notes to Interim Consolidated Financial Statements
For the three and nine months ended December 31, 2009
(Expressed
in thousands of Canadian Dollars, except per share amounts or unless otherwise specified)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Consolidated Statement of Cash Flows Nine months ended
December 31, 2009
|
|
U.S. GAAP
|
|
|
Adjustments
|
|
|
Canadian
GAAP
(restated
see note
25(i))
|
|
Cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
Net income for the period
|
|
$29,162
|
|
|
$2,976
|
|
|
$32,138
|
|
Items not affecting cash:
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
30,693
|
|
|
(93
|
)
|
|
30,600
|
|
Equity in earnings of unconsolidated joint venture
|
|
(66
|
)
|
|
66
|
|
|
|
|
Amortization of intangible assets
|
|
1,438
|
|
|
623
|
|
|
2,061
|
|
Amortization of deferred lease inducements
|
|
(80
|
)
|
|
|
|
|
(80
|
)
|
Amortization of deferred financing costs
|
|
2,489
|
|
|
(1,840
|
)
|
|
649
|
|
Loss on disposal of property, plant and equipment
|
|
1,044
|
|
|
|
|
|
1,044
|
|
Loss on disposal of assets held for sale
|
|
373
|
|
|
|
|
|
373
|
|
Unrealized foreign exchange gain on senior notes
|
|
(42,720
|
)
|
|
450
|
|
|
(42,270
|
)
|
Unrealized loss on derivative financial instruments measured at fair value
|
|
31,793
|
|
|
(2,720
|
)
|
|
29,073
|
|
Stock-based compensation expense
|
|
3,888
|
|
|
(35
|
)
|
|
3,853
|
|
Accretion of asset retirement obligation
|
|
(4
|
)
|
|
|
|
|
(4
|
)
|
Deferred income taxes
|
|
8,546
|
|
|
639
|
|
|
9,185
|
|
Net changes in non-cash working capital
|
|
(40,164
|
)
|
|
(1,373
|
)
|
|
(41,537
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
26,392
|
|
|
(1,307
|
)
|
|
25,085
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
Acquisition
|
|
(5,410
|
)
|
|
|
|
|
(5,410
|
)
|
Purchase of property, plant and equipment
|
|
(46,002
|
)
|
|
|
|
|
(46,002
|
)
|
Addition to intangible assets
|
|
(2,037
|
)
|
|
|
|
|
(2,037
|
)
|
Additions to assets held for sale
|
|
(1,058
|
)
|
|
|
|
|
(1,058
|
)
|
Investment in and advances to unconsolidated joint venture
|
|
(2,873
|
)
|
|
2,873
|
|
|
|
|
Proceeds on disposal of property, plant and equipment
|
|
1,150
|
|
|
|
|
|
1,150
|
|
Proceeds on disposal of assets held for sale
|
|
2,282
|
|
|
|
|
|
2,282
|
|
Net changes in non-cash working capital
|
|
(351
|
)
|
|
|
|
|
(351
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(54,299
|
)
|
|
2,873
|
|
|
(51,426
|
)
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
Repayment of long term debt
|
|
(3,688
|
)
|
|
|
|
|
(3,688
|
)
|
Increase in long term debt
|
|
33,000
|
|
|
|
|
|
33,000
|
|
Repayment of capital lease obligations
|
|
(4,219
|
)
|
|
|
|
|
(4,219
|
)
|
Cash settlement of stock options
|
|
(66
|
)
|
|
|
|
|
(66
|
)
|
Financing costs
|
|
(1,123
|
)
|
|
|
|
|
(1,123
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
23,904
|
|
|
|
|
|
23,904
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in cash and cash equivalents
|
|
(4,003
|
)
|
|
1,566
|
|
|
(2,437
|
)
|
Cash and cash equivalents, beginning of period
|
|
98,880
|
|
|
|
|
|
98,880
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$94,877
|
|
|
$1,566
|
|
|
$96,443
|
|
|
|
|
|
|
|
|
|
|
|
Notes to Interim Consolidated Financial Statements
For the three and nine months ended December 31, 2009
(Expressed
in thousands of Canadian Dollars, except per share amounts or unless otherwise specified)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Consolidated Statement of Cash Flows Three months ended
December 31, 2008
|
|
U.S. GAAP
|
|
|
Adjustments
|
|
|
Canadian
GAAP
(restated
see note 25(i))
|
|
Cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
Net loss for the period
|
|
$(14,964
|
)
|
|
$370
|
|
|
$(14,594
|
)
|
Items not affecting cash:
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
9,727
|
|
|
(31
|
)
|
|
9,696
|
|
Amortization of intangible assets
|
|
391
|
|
|
209
|
|
|
600
|
|
Amortization of deferred lease inducements
|
|
(26
|
)
|
|
|
|
|
(26
|
)
|
Amortization of deferred financing costs
|
|
764
|
|
|
(545
|
)
|
|
219
|
|
Loss on disposal of property, plant and equipment
|
|
1,022
|
|
|
|
|
|
1,022
|
|
Impairment of goodwill
|
|
32,753
|
|
|
|
|
|
32,753
|
|
Unrealized foreign exchange loss on senior notes
|
|
32,940
|
|
|
(431
|
)
|
|
32,509
|
|
Unrealized gain on derivative financial instruments measured at fair value
|
|
(27,437
|
)
|
|
247
|
|
|
(27,190
|
)
|
Stock-based compensation expense
|
|
511
|
|
|
(14
|
)
|
|
497
|
|
Accretion of asset retirement obligation
|
|
53
|
|
|
|
|
|
53
|
|
Deferred income taxes
|
|
3,151
|
|
|
195
|
|
|
3,346
|
|
Net changes in non-cash working capital
|
|
22,026
|
|
|
|
|
|
22,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60,911
|
|
|
|
|
|
60,911
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment
|
|
(8,960
|
)
|
|
|
|
|
(8,960
|
)
|
Addition to intangible assets
|
|
(409
|
)
|
|
|
|
|
(409
|
)
|
Additions to assets held for sale
|
|
(350
|
)
|
|
|
|
|
(350
|
)
|
Proceeds on disposal of property, plant and equipment
|
|
3,173
|
|
|
|
|
|
3,173
|
|
Net changes in non-cash working capital
|
|
(2,068
|
)
|
|
|
|
|
(2,068
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,614
|
)
|
|
|
|
|
(8,614
|
)
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
Cheques issued in excess of cash deposits
|
|
(665
|
)
|
|
|
|
|
(665
|
)
|
Repayment of long term debt
|
|
(10,000
|
)
|
|
|
|
|
(10,000
|
)
|
Repayment of capital lease obligations
|
|
(2,029
|
)
|
|
|
|
|
(2,029
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,694
|
)
|
|
|
|
|
(12,694
|
)
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents
|
|
39,603
|
|
|
|
|
|
39,603
|
|
Cash and cash equivalents, beginning of period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$39,603
|
|
|
$
|
|
|
$39,603
|
|
|
|
|
|
|
|
|
|
|
|
Notes to Interim Consolidated Financial Statements
For the three and nine months ended December 31, 2009
(Expressed
in thousands of Canadian Dollars, except per share amounts or unless otherwise specified)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Consolidated Statement of Cash Flows Nine months ended
December 31, 2008
|
|
U.S. GAAP
|
|
|
Adjustments
|
|
|
Canadian
GAAP
(restated
see note 25(i))
|
|
Cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
Net income for the period
|
|
$1,708
|
|
|
$(2,838)
|
|
|
$(1,130
|
)
|
Items not affecting cash:
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
27,793
|
|
|
(93
|
)
|
|
27,700
|
|
Amortization of intangible assets
|
|
1,049
|
|
|
627
|
|
|
1,676
|
|
Amortization of deferred lease inducements
|
|
(79
|
)
|
|
|
|
|
(79
|
)
|
Amortization of deferred financing costs
|
|
2,190
|
|
|
(1,613
|
)
|
|
577
|
|
Loss on disposal of property, plant and equipment
|
|
3,778
|
|
|
|
|
|
3,778
|
|
Loss on disposal of assets held for sale
|
|
24
|
|
|
|
|
|
24
|
|
Impairment of goodwill
|
|
32,753
|
|
|
|
|
|
32,753
|
|
Unrealized foreign exchange loss on senior notes
|
|
39,347
|
|
|
(522
|
)
|
|
38,825
|
|
Unrealized gain on derivative financial instruments measured at fair value
|
|
(27,827
|
)
|
|
4,655
|
|
|
(23,172
|
)
|
Stock-based compensation expense
|
|
1,846
|
|
|
(43
|
)
|
|
1,803
|
|
Accretion of asset retirement obligation
|
|
159
|
|
|
|
|
|
159
|
|
Deferred income taxes
|
|
8,855
|
|
|
(173
|
)
|
|
8,682
|
|
Net changes in non-cash working capital
|
|
(12,400
|
)
|
|
|
|
|
(12,400
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
79,196
|
|
|
|
|
|
79,196
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment
|
|
(76,354
|
)
|
|
|
|
|
(76,354
|
)
|
Addition to intangible assets
|
|
(1,941
|
)
|
|
|
|
|
(1,941
|
)
|
Additions to assets held for sale
|
|
(350
|
)
|
|
|
|
|
(350
|
)
|
Proceeds on disposal of property, plant and equipment
|
|
7,821
|
|
|
|
|
|
7,821
|
|
Proceeds on disposal of assets held for sale
|
|
194
|
|
|
|
|
|
194
|
|
Net changes in non-cash working capital
|
|
3,191
|
|
|
|
|
|
3,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(67,439
|
)
|
|
|
|
|
(67,439
|
)
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
Repayment of capital lease obligations
|
|
(4,719
|
)
|
|
|
|
|
(4,719
|
)
|
Stock options exercised
|
|
702
|
|
|
|
|
|
702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,017
|
)
|
|
|
|
|
(4,017
|
)
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents
|
|
7,740
|
|
|
|
|
|
7,740
|
|
Cash and cash equivalents, beginning of period
|
|
31,863
|
|
|
|
|
|
31,863
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$39,603
|
|
|
$
|
|
|
$39,603
|
|
|
|
|
|
|
|
|
|
|
|
The areas of material difference between Canadian and U.S. GAAP and their impact on the Companys consolidated financial
statements are described below:
a) Capitalization of interest
U.S. GAAP requires capitalization of interest costs as part of the historical cost of acquiring certain qualifying assets that require a period of time to prepare
for their intended use. This is not required under Canadian GAAP. The capitalized amount is subject to depreciation in accordance with the Companys policies when the asset is placed into service.
b) Financing costs, discounts and premiums
Under U.S. GAAP,
deferred financing costs incurred in connection with the Companys senior notes are being amortized over the term of the related debt using the effective interest method. Prior to April 1, 2007, for Canadian GAAP purposes, these
transaction costs were recorded as a deferred asset under Canadian GAAP and these deferred financing costs were being amortized on a straight-line basis over the term of the debt.
Effective April 1, 2007, the Company adopted CICA Handbook Section 3855, Financial Instruments Recognition and Measurement, on a
retrospective basis without restatement as described below. Although Section 3855 also requires the use of the effective interest method to account for the amortization of finance costs, the requirement to bifurcate the issuers early
prepayment option on issuance of the debt (which is not required under U.S. GAAP) resulted in an additional premium that is being amortized over the term of the debt under Canadian GAAP. In addition, foreign denominated transaction costs, discounts
and premiums are considered as part of the carrying value of the related financial liability under Canadian GAAP and are subject to foreign currency gains or losses resulting from periodic
Notes to Interim Consolidated Financial Statements
For the three and nine months ended December 31, 2009
(Expressed
in thousands of Canadian Dollars, except per share amounts or unless otherwise specified)
(Unaudited)
translation procedures as they are treated as a monetary item under Canadian GAAP. Under U.S. GAAP, foreign denominated transaction costs are considered non-monetary and are not subject to
foreign currency gains and losses resulting from periodic translation procedures.
In connection with the adoption of Section 3855, transaction
costs incurred in connection with the Companys Revolving facility of $1,622 were reclassified from deferred financing costs to intangible assets on April 1, 2007 under Canadian GAAP and these costs continue to be amortized on a
straight-line basis over the term of the facility. Under U.S. GAAP, the Company continues to amortize these transaction costs over the stated term of the related debt using the effective interest method. The Company discloses the financing costs for
both the senior notes and the Revolving facility as deferred financing costs on the Consolidated Balance Sheets with the amortization charge classified as interest on the Consolidated Statements of Operations and Comprehensive Income (Loss). Under
Canadian GAAP, the financing costs related to the senior notes are included in the Senior notes balance on the Consolidated Balance Sheets.
c) Stock-based compensation
Up until April 1, 2006, the
Company followed the provisions of ASC 718, Share-Based Payment (formerly Statement of Financial Accounting Standards No. 123, Stock-Based Compensation), for U.S. GAAP purposes. As the Company uses the fair value method
of accounting for all stock-based compensation payments under Canadian GAAP, there were no differences between Canadian and U.S. GAAP prior to April 1, 2006. On April 1, 2006, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 123(R), Share-Based Payment (SFAS 123R), which is now a part of ASC 718. As the Company used the minimum value method for purposes of complying with Statement of Financial Accounting Standards
No. 123, it was required to adopt the provisions under the revised guidance prospectively. Under Canadian GAAP, the Company was permitted to exclude volatility from the determination of the fair value of stock options granted until the filing
of its initial registration statement relating to the initial public offering of voting shares on July 21, 2006. As a result, for options issued between April 1, 2006 and July 21, 2006, there is a difference between Canadian and U.S.
GAAP relating to the determination of the fair value of options granted.
d) Derivative financial instruments
Under Canadian GAAP, the Company determined that the issuers early prepayment option included in the senior notes should be bifurcated from the host contract,
along with a contingent embedded derivative in the senior notes that provides for accelerated redemption by the holders in certain instances. These embedded derivatives were measured at fair value at the inception of the senior notes and the
residual amount of the proceeds was allocated to the debt. Changes in fair value of the embedded derivatives are recognized in net income and the carrying amount of the senior notes is accreted to par value over the term of the notes using the
effective interest method and is recognized as interest expense as discussed in b) above. Prior to April 1, 2007 under Canadian GAAP, separate accounting of embedded derivatives from the host contract was not permitted by EIC-117.
Under U.S. GAAP, ASC 815 (formerly Statement of Financial Accounting Standard No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS
133)) establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts and debt instruments) be recorded in the balance sheet as either an asset or
liability measured at its fair value. The contingent embedded derivative in the senior notes that provide for accelerated redemption by the holders in certain instances met the criteria for bifurcation from the debt contract and separate measurement
at fair value. The embedded derivative has been measured at fair value and changes in fair value recorded in net income for all periods presented. The issuers early prepayment option included in the senior notes does not meet the criteria as
an embedded derivative under ASC 815 (formerly SFAS 133) and was not bifurcated from the host contract and measured at fair value resulting in a U.S. GAAP and Canadian GAAP difference.
On adoption of CICA Handbook Section 3855, Financial Instruments Recognition and Measurement, the Company reviewed the accounting treatment
of a number of outstanding contracts and determined that a price escalation feature in a revenue construction contract and supplier contracts entered into prior to April 1, 2007 contained embedded derivatives that are not closely related to the
host contract under Canadian GAAP. The Company recorded the fair value of these embedded derivatives on April 1, 2007 of $9,720, with a corresponding increase in opening deficit of $6,950, net of future income taxes of $2,770 for Canadian GAAP
purposes. Under U.S. GAAP, the Company had recognized and measured these embedded derivatives since inception of the related contracts.
e) NAEPI
Series B Preferred Shares
Prior to the modification of the terms of the North American Energy Partners Inc. (NAEPI) Series B preferred
shares on March 30, 2006, there were no differences between Canadian GAAP and U.S. GAAP related to the NAEPI Series B preferred shares. As a result of the modification of terms of NAEPIs Series B preferred shares, under Canadian GAAP,
Notes to Interim Consolidated Financial Statements
For the three and nine months ended December 31, 2009
(Expressed
in thousands of Canadian Dollars, except per share amounts or unless otherwise specified)
(Unaudited)
NACG continued to classify the NAEPI Series B preferred shares as a liability and was accreting the carrying amount of $42.2 million on the amendment date (March 30, 2006) to their
December 31, 2011 redemption value of $69.6 million using the effective interest method. Under U.S. GAAP, NACG recognized the fair value of the amended NAEPI Series B preferred shares as minority interest as such amount was recognized as
temporary equity in the accounts of NAEPI in accordance with EITF Topic D-98 and recognized a charge of $3.7 million to retained earnings for the difference between the fair value and the carrying amount of the Series B preferred shares on the
amendment date. Under U.S. GAAP, NACG was accreting the initial fair value of the amended NAEPI Series B preferred shares of $45.9 million recorded on their amendment date (March 30, 2006) to the December 31, 2011 redemption value of $69.6
million using the effective interest method, which was consistent with the treatment of the NAEPI Series B preferred shares as temporary equity in the financial statements of NAEPI. The accretion charge was recognized by NACG as a charge to minority
interest (as opposed to retained earnings in the accounts of NAEPI) under U.S. GAAP and interest expense in NACGs financial statements under Canadian GAAP.
On November 28, 2006, NACG exercised a call option to acquire all of the issued and outstanding NAEPI Series B preferred shares in exchange for 7,524,400
common shares of NACG. For Canadian GAAP purposes, NACG recorded the exchange by transferring the carrying value of the NAEPI Series B preferred shares on the exercise date of $44,682 to common shares. For U.S. GAAP purposes, the conversion has been
accounted for as a combination of entities under common control as all of the shareholders of the NAEPI Series B preferred shares are also common shareholders of NACG resulting in the reclassification of the carrying value of the minority interest
on the exercise date of $48,140 to common shares. NACG and NAEPI were amalgamated later in 2006 and the amalgamated entity continued as NAEPI.
f)
Inventories
Effective April 1, 2008, the Company retrospectively adopted CICA Handbook Section 3031, Inventories, without
restatement of prior periods. This standard requires inventories to be measured at the lower of cost and net realizable value and provides guidance on the determination of cost, including the allocation of overheads and other costs to inventories,
the requirement for an entity to use a consistent cost formula for inventory of a similar nature and use, and the reversal of previous write-downs to net realizable value when there are subsequent increases in the value of inventories. This new
standard also clarifies that spare component parts that do not qualify for recognition as property, plant and equipment should be classified as inventory. In adopting this new standard, the Company reversed a tire impairment that was previously
recorded at March 31, 2008 in other assets of $1,383 with a corresponding decrease to opening deficit of $991 net of future taxes of $392.
During the year ended March 31, 2008, the replacement cost (i.e. market) of spare tire inventory was lower than the original carrying amount of inventory. As a
result, the Company recorded an inventory write-down of $1.4 million under Canadian GAAP. Under U.S. GAAP, market means current replacement cost. However, market under U.S. GAAP should not exceed the net realizable value nor should it be less than
net realizable value reduced by an allowance for a normal profit margin. The Company established that the net realizable value and net realizable value less an allowance for a normal profit margin was greater than or equal to cost and as such a
write-down of spare tires was not appropriate under U.S. GAAP for the year ended March 31, 2008. Please refer to note 3 aa).
g) Joint venture
The company owns a 49% interest in Noramac Ventures Inc., a nominee company for the companys Noramac Joint Venture (JV) and the Company has
joint control of this entity. Under US GAAP, the Company records its share of earnings (loss) of the JV using the equity method of accounting. Under Canadian GAAP, the Company uses the proportionate consolidation method of accounting for the
JV. Under the proportionate consolidation method, the Company recognizes its share of the results of operations, cash flows, and financial position of the JV on a line-by-line basis in its consolidated financial statements and eliminates its share
of all material intercompany transactions with the JV. While there is no impact on net income or earnings per share as a result of the US GAAP treatment of the joint venture, as compared to Canadian GAAP, there are presentation differences
affecting the disclosures in the consolidated financial statements and supporting notes. Under Canadian GAAP, the following assets, liabilities, revenues and expenses and cash flows would be recorded using the proportionate consolidation method:
|
|
|
|
|
|
December 31,
2009
|
|
Current assets
|
|
$4,263
|
|
Long term assets
|
|
4
|
|
Current liabilities
|
|
1,328
|
|
Long term liabilities
|
|
2,970
|
|
|
|
|
|
Net equity
|
|
(31
|
)
|
|
|
|
|
Notes to Interim Consolidated Financial Statements
For the three and nine months ended December 31, 2009
(Expressed
in thousands of Canadian Dollars, except per share amounts or unless otherwise specified)
(Unaudited)
|
|
|
|
|
|
|
|
|
Three Months Ended
December 31, 2009
|
|
|
Nine Months Ended
December 31, 2009
|
|
Gross revenues
|
|
$1,539
|
|
|
$2,582
|
|
|
|
|
|
|
|
|
Gross profit
|
|
424
|
|
|
613
|
|
Expense
|
|
(326
|
)
|
|
(547
|
)
|
|
|
|
|
|
|
|
Net income
|
|
$98
|
|
|
$66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
December 31, 2009
|
|
|
Nine Months Ended
December 31, 2009
|
|
Cash flow resulting from operating activities
|
|
$(538
|
)
|
|
$(1,299
|
)
|
|
|
|
|
|
|
|
Decrease in cash and cash equivalents
|
|
(538
|
)
|
|
(1,299
|
)
|
|
|
|
|
|
|
|
h) Other matters
Other
adjustments relate to the tax effect of items (a) through (f) above. The tax effects of temporary differences are described as future income taxes under Canadian GAAP whereas in these financial statements such amounts are described as
deferred income taxes under U.S. GAAP. In addition, Canadian GAAP generally refers to additional paid-in capital as contributed surplus for financial statement presentation purposes.
i) Restatement
The financial statements for the three and
nine months ended December 30, 2009 and 2008 under Canadian GAAP have been restated to correct the following errors identified during the preparation of the Companys fiscal 2010 financial statements:
i)
|
Reclassification of accrued liabilities. The financial statements for fiscal 2009 have been amended to correct a classification error with respect to accrued liabilities
identified during the preparation of the Companys fiscal 2010 consolidated financial statements. Certain operating lease agreements provide a maximum hourly usage limit, above which the Company will be required to pay for the over hour
usage. These contingent rentals are recognized when payment is considered probable and are due at the end of the lease term. The Company has historically classified the contingent rentals as a current liability; however, certain of the amounts
are due beyond one year from the balance sheet date. In the current year, the Company has reclassified amounts due beyond one year, from the balance sheet date, as a long term liability and has reclassified comparative figures
accordingly. The amount reclassified on the Consolidated Balance Sheet was $10,864 and $7,134 as at December 31, 2009 and March 31, 2009 respectively.
|
ii)
|
Buy-out of leased assets. The financial statements for fiscal 2008 have been amended under Canadian GAAP to correct an error related to the method of accounting for an incentive
at the time of buying previously leased assets, which was identified during the preparation of the Companys fiscal 2010 consolidated financial statements. When an asset is leased under an operating lease agreement, as stated in the paragraph
above, contingent rentals are recognized when payment is considered probable and are due at the end of the lease term. The Company can buy the asset at the end of the lease term at a pre-determined market price at which point the liability is
extinguished since the lease agreement is cancelled. The Company has been traditionally extinguishing the liability for such lease buyouts by reducing equipment costs related to leased equipment, instead of considering the extinguishment of the
liability as an incentive to purchase the asset and therefore reducing the cost of the asset. The correction of this error increased Equipment costs by $nil and $6,600, reduced Depreciation by $150 and $450, increased
(reduced) Future income taxes by $45 and $(1,845), and increased (reduced) Net income loss and comprehensive income (loss) by $105 and $(4,305) from the amounts originally reported in the Consolidated Statements of Operations
and Comprehensive Income (loss) for the three and nine months ended December 31, 2008, respectively. The financial statements for fiscal 2009 have also been amended under Canadian GAAP to correct an error related to the method of accounting for
an incentive at time of buying previously leased assets, which was identified during the preparation of the Companys fiscal 2010 consolidated financial statements as stated above. The correction of this error reduced Depreciation
by $200 and $600, increased Future income taxes by $60 and $180, and increased Net income and comprehensive income by $140 and $420 from the amounts originally reported in the Consolidated Statements of Operations and
Comprehensive Income (loss) for the three and nine months ended December 31, 2009, respectively. It also reduced Property, plant and equipment by $7,980 and $8,580, reduced long term Future income taxes liabilities by
$2,394 and $2,574, and increased Deficit by $5,586 and $6,006 from the amounts originally reported in the Consolidated Balance Sheet as at December 31, 2009 and March 31, 2009, respectively.
|
Notes to Interim Consolidated Financial Statements
For the three and nine months ended December 31, 2009
(Expressed
in thousands of Canadian Dollars, except per share amounts or unless otherwise specified)
(Unaudited)
iii)
|
Valuation of derivative financial instruments. The financial statements for fiscal 2009 have also been amended under Canadian GAAP to correct an error related to the
determination of the fair value of the cross-currency and interest rate swap liabilities (collectively, the swap liability) which was identified on settlement of the swap liability on April 8, 2010. The Company recorded the fair
value of the swap liability and in addition recorded accrued interest on the swap liability. This resulted in the swap liability being misstated and the changes in the fair value of the swap liability being misstated by the change in the amount of
the accrued interest at each reporting period from March 31, 2009. The periods before March 31, 2009 were not materially impacted because prior to February 2, 2009, the Canadian Dollar interest rate swap was still in place (note
16(c)(ii)), and therefore the net accrued interest payable under the swap liability was not material. The error increased Realized and unrealized loss (gain) on derivative financial instruments by $6,456 and $6,120, reduced income tax
expense by $1,096 and $1,458, and reduced net income by $5,360 and $4,662 from amounts originally reported in the Interim Consolidated Statements of Operations and Comprehensive Income for the three and nine months ended December 31, 2009,
respectively. It also reduced Derivative financial instruments by $1,394 and $7,514 increased long term Future income taxes by $217 and $1,676, and reduced Deficit by $1,177 and $5,838 in the Consolidated Balance
Sheet as at December 31, 2009 and March 31, 2009, respectively.
|
The impact of the above corrections under Canadian GAAP on the
Consolidated Statements of Operations and Comprehensive Income for three and nine months ended December 31, 2009 and December 31, 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
For the three months ended December 31, 2009
|
|
As previously
reported
|
|
|
Adjustments
|
|
|
As
restated
|
|
Depreciation
|
|
$10,712
|
|
|
$(200
|
)
|
|
$10,512
|
|
Realized and unrealized loss on derivative financial instruments
|
|
1,162
|
|
|
6,456
|
|
|
7,618
|
|
Future income taxes
|
|
7,159
|
|
|
(1,036
|
)
|
|
6,123
|
|
Net income and comprehensive income for the period
|
|
20,797
|
|
|
(5,220
|
)
|
|
15,577
|
|
Deficit, end of period
|
|
(121,431
|
)
|
|
(4,410
|
)
|
|
(125,841
|
)
|
Net income per share basic
|
|
$0.58
|
|
|
$(0.15
|
)
|
|
$0.43
|
|
Net income per share diluted
|
|
$0.57
|
|
|
$(0.14
|
)
|
|
$0.43
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended December 31, 2009
|
|
As previously
reported
|
|
|
Adjustments
|
|
|
As
restated
|
|
Depreciation
|
|
$31,200
|
|
|
$(600
|
)
|
|
$30,600
|
|
Realized and unrealized loss on derivative financial instruments
|
|
34,345
|
|
|
6,120
|
|
|
40,465
|
|
Future income taxes
|
|
10,463
|
|
|
(1,278
|
)
|
|
9,185
|
|
Net income and comprehensive income for the period
|
|
36,380
|
|
|
(4,242
|
)
|
|
32,138
|
|
Deficit, end of period
|
|
(121,431
|
)
|
|
(4,410
|
)
|
|
(125,841
|
)
|
Net income per share basic
|
|
$1.01
|
|
|
$(0.12
|
)
|
|
$0.89
|
|
Net income per share diluted
|
|
$0.99
|
|
|
$(0.12
|
)
|
|
$0.87
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended December 31, 2008
|
|
As previously
reported
|
|
|
Adjustments
|
|
|
As
restated
|
|
Depreciation
|
|
$9,846
|
|
|
$(150
|
)
|
|
$9,696
|
|
Future income taxes
|
|
3,301
|
|
|
45
|
|
|
3,346
|
|
Net loss and comprehensive loss for the period
|
|
(14,699
|
)
|
|
105
|
|
|
(14,594
|
)
|
Deficit, end of period
|
|
(15,121
|
)
|
|
(6,111
|
)
|
|
(21,232
|
)
|
Net loss per share basic
|
|
$(0.41
|
)
|
|
$
|
|
|
$(0.41
|
)
|
Net loss per share diluted
|
|
$(0.41
|
)
|
|
$
|
|
|
$(0.41
|
)
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended December 31, 2008
|
|
As previously
reported
|
|
|
Adjustments
|
|
|
As
restated
|
|
Equipment costs
|
|
$162,146
|
|
|
$6,600
|
|
|
$168,746
|
|
Depreciation
|
|
28,150
|
|
|
(450
|
)
|
|
27,700
|
|
Future income taxes
|
|
10,527
|
|
|
(1,845
|
)
|
|
8,682
|
|
Net income (loss) and comprehensive income (loss) for the period
|
|
3,175
|
|
|
(4,305
|
)
|
|
(1,130
|
)
|
Deficit, end of period
|
|
(15,121
|
)
|
|
(6,111
|
)
|
|
(21,232
|
)
|
Net income (loss) per share basic
|
|
$0.09
|
|
|
$(0.12
|
)
|
|
$(0.03
|
)
|
Net income (loss) per share diluted
|
|
$0.09
|
|
|
$(0.12
|
)
|
|
$(0.03
|
)
|
Notes to Interim Consolidated Financial Statements
For the three and nine months ended December 31, 2009
(Expressed
in thousands of Canadian Dollars, except per share amounts or unless otherwise specified)
(Unaudited)
The impact of the above corrections under Canadian GAAP on the Consolidated Balance Sheets as at December 31,
2009 and March 31, 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
As previously
reported
|
|
|
Adjustments
|
|
|
As
restated
|
|
Property, plant and equipment
|
|
$340,996
|
|
|
$(7,980
|
)
|
|
$333,016
|
|
Accrued liabilities
|
|
26,771
|
|
|
(10,864
|
)
|
|
15,907
|
|
Current portion of derivative financial instruments
|
|
5,084
|
|
|
12,672
|
|
|
17,756
|
|
Long term accrued liabilities
|
|
|
|
|
10,864
|
|
|
10,864
|
|
Derivative financial instruments
|
|
86,189
|
|
|
(14,066
|
)
|
|
72,123
|
|
Future income taxes
|
|
38,855
|
|
|
(2,177
|
)
|
|
36,678
|
|
Deficit, end of period
|
|
(121,431
|
)
|
|
(4,410
|
)
|
|
(125,841
|
)
|
|
|
|
|
|
|
|
|
|
|
March 31, 2009
|
|
As previously
reported
|
|
|
Adjustments
|
|
|
As
restated
|
|
Property, plant and equipment
|
|
$324,035
|
|
|
$(8,580
|
)
|
|
$315,455
|
|
Accrued liabilities
|
|
52,135
|
|
|
(7,134
|
)
|
|
45,001
|
|
Long term accrued liabilities
|
|
|
|
|
7,134
|
|
|
7,134
|
|
Derivative financial instruments
|
|
50,562
|
|
|
(7,514
|
)
|
|
43,048
|
|
Future income taxes
|
|
30,220
|
|
|
(898
|
)
|
|
29,322
|
|
Deficit, end of period
|
|
(157,811
|
)
|
|
(168
|
)
|
|
(157,979
|
)
|
The impact of the above corrections under Canadian
GAAP on the Consolidated Statements of Cash Flows for three and nine months ended December 31, 2009 and December 31, 2008 are as follows:
|
|
|
|
|
|
|
|
|
For the three months ended December 31, 2009
|
|
As previously
reported
|
|
|
Adjustments
|
|
|
As
restated
|
Net income
|
|
$20,797
|
|
|
$(5,220
|
)
|
|
$15,577
|
Depreciation
|
|
10,712
|
|
|
(200
|
)
|
|
10,512
|
Unrealized (gain) loss on derivative financial instruments measured at fair value
|
|
(3,030
|
)
|
|
6,456
|
|
|
3,426
|
Future income taxes
|
|
7,159
|
|
|
(1,036
|
)
|
|
6,123
|
|
|
|
|
|
|
|
|
For the nine months ended December 31, 2009
|
|
As previously
reported
|
|
Adjustments
|
|
|
As
restated
|
Net income
|
|
$36,380
|
|
$(4,242
|
)
|
|
$32,138
|
Depreciation
|
|
31,200
|
|
(600
|
)
|
|
30,600
|
Unrealized loss on derivative financial instruments measured at fair value
|
|
22,953
|
|
6,120
|
|
|
29,073
|
Future income taxes
|
|
10,463
|
|
(1,278
|
)
|
|
9,185
|
|
|
|
|
|
|
|
|
|
|
For the three months ended December 31, 2008
|
|
As previously
reported
|
|
|
Adjustments
|
|
|
As
restated
|
|
Net loss
|
|
$(14,699
|
)
|
|
$105
|
|
|
$(14,594
|
)
|
Depreciation
|
|
9,846
|
|
|
(150
|
)
|
|
9,696
|
|
Future income taxes
|
|
3,301
|
|
|
45
|
|
|
3,346
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended December 30, 2008
|
|
As previously
reported
|
|
|
Adjustments
|
|
|
As
restated
|
|
Net income
|
|
$3,175
|
|
|
$(4,305
|
)
|
|
$(1,130
|
)
|
Depreciation
|
|
28,150
|
|
|
(450
|
)
|
|
27,700
|
|
Future income taxes
|
|
10,527
|
|
|
(1,845
|
)
|
|
8,682
|
|
Cash flow from operating activities
|
|
85,796
|
|
|
(6,600
|
)
|
|
79,196
|
|
Purchase of property, plant and equipment
|
|
(82,954
|
)
|
|
6,600
|
|
|
(76,354
|
)
|
Cash flow from investing activities
|
|
(74,039
|
)
|
|
6,600
|
|
|
(67,439
|
)
|
Notes to Interim Consolidated Financial Statements
For the three and nine months ended December 31, 2009
(Expressed
in thousands of Canadian Dollars, except per share amounts or unless otherwise specified)
(Unaudited)
j) Recently adopted Canadian accounting pronouncements
i) Goodwill and intangible assets
Effective April 1,
2009, the Company adopted, on a retrospective basis, CICA Handbook Section 3064, Goodwill and Intangible Assets, which replaces Section 3062, Goodwill and Other Intangible Assets, and Section 3450,
Research and Development Costs and establishes standards for the recognition, measurement and disclosure of goodwill and intangible assets. The provisions relating to the definition and initial recognition of intangible assets, including
internally generated intangible assets, are equivalent to the corresponding provisions of International Accounting Standard IAS 38, Intangible Assets. The adoption of this standard resulted in the reclassification for certain
qualifying assets related to software from property, plant and equipment to intangible assets for all periods presented.
ii) Business combinations
On July 1, 2009, the Company early adopted CICA Handbook Section 1582, Business Combinations, effective April 1, 2009.
This section establishes standards for the accounting of business combinations, and states that all assets and liabilities of an acquired business will be recorded at fair value. Obligations for contingent consideration and contingencies will also
be recorded at fair value at the acquisition date. The standard also states that acquisition related costs will be expensed as incurred, that restructuring charges will be expensed in periods after the acquisition date and that non-controlling
interests should be measured at fair value at the date of acquisition. This standard is to be applied prospectively to business combinations with acquisition dates on or after April 1, 2009. This new standard was applied to the acquisition of
DF Investments Limited and its subsidiary Drillco Foundation Co. Ltd. (note 7).
iii) Consolidated financial statements
On July 1, 2009, the Company early adopted CICA Handbook Section 1601, Consolidated Financial Statements, effective April 1, 2009. The
new standard replaces Section 1600 Consolidated Financial Statements. This Section carries forward existing Canadian guidance for preparing consolidated financial statements other than guidance for non-controlling interests. The
adoption of this standard did not have a material impact on the Companys interim consolidated financial statements.
iv) Non-controlling
interests
Effective July 1, 2009, the Company early adopted CICA Handbook Section 1602, Non-Controlling Interests, which
establishes standards for the accounting of non-controlling interests of a subsidiary in the preparation of consolidated financial statements subsequent to a business combination. The adoption of this standard did not have a material impact on the
Companys interim consolidated financial statements.
v) Equity
In August 2009, the CICA amended presentation requirements of Handbook Section 3251, Equity, as a result of issuing Section 1602,
Non-Controlling Interests. The amendments apply only to entities that have adopted Section 1602. The Company early adopted this standard effective April 1, 2009. The adoption of this standard did not have a material impact on
the Companys interim consolidated financial statements.
vi) Financial instruments recognition and measurement
Effective July 1, 2009, the Company adopted CICA amendments to Handbook Section 3855, Financial Instruments Recognition and
Measurement which add guidance concerning the assessment of embedded derivatives upon reclassification of a financial asset out of the held-for-trading category. These amendments apply to reclassifications made on or after July 1, 2009.
The adoption of these amendments did not have a material impact on the Companys interim consolidated financial statements.
k) Recent Canadian
accounting pronouncements not yet adopted
i) Accounting changes
In June 2009, the CICA amended Handbook Section 1506, Accounting Changes, to exclude from its scope changes in accounting policies upon the
complete replacement of an entitys primary basis of accounting. The amendment applies to interim and annual financial statements relating to fiscal years beginning on or after July 1, 2009. The Company is currently evaluating the impact
of the amendments to the standard.
ii) Financial instruments recognition and measurement
In June 2009, the CICA amended Handbook Section 3855, Financial Instruments Recognition and Measurement, to clarify the application of
the effective interest method after a debt instrument has been impaired. The Section has also been amended to clarify when an embedded prepayment option is separated from its host instrument for accounting
Notes to Interim Consolidated Financial Statements
For the three and nine months ended December 31, 2009
(Expressed
in thousands of Canadian Dollars, except per share amounts or unless otherwise specified)
(Unaudited)
purposes. The amendments apply to interim and annual financial statements relating to fiscal years beginning on or after May 1, 2009 for the amendments relating to the effective interest
method and on or after January 1, 2011 for the amendments relating to embedded prepayment options. The Company is currently evaluating the impact of the amendments to the standard.
iii) Financial instruments disclosure
In June 2009,
the CICA amended Handbook Section 3862, Financial Instruments Disclosures, to include additional disclosure requirements about fair value measurements of financial instruments and to enhance liquidity risk disclosure
requirements. The amendments apply to annual financial statements relating to fiscal years ending after September 30, 2009. The Company is currently evaluating the impact of the amendments to the standard.
iv) Comprehensive revaluation of assets and liabilities
In
August 2009, the CICA amended Handbook Section 1625, Comprehensive Revaluation of Assets and Liabilities, as a result of issuing Section 1582, Business Combinations, Section 1601, Consolidated Financial
Statements, and Section 1602, Non-Controlling Interests, in January 2009. The amendments apply prospectively to comprehensive revaluations of assets and liabilities occurring in fiscal years beginning on or after
January 1, 2011. Earlier adoption is permitted as of the beginning of a fiscal year, provided that Section 1582 is also adopted. The Company is currently evaluating the impact of the amendments to the standard.
l) Reclassification of previously reported amounts
Certain
of the previously reported amounts under Canadian GAAP have been reclassified to conform to the method of presentation adopted under U.S. GAAP.
NORTH AMERICAN ENERGY PARTNERS INC.
Restated Interim Managements Discussion and Analysis
For the three and nine months ended December 31, 2009
Restated Interim Managements Discussion and
Analysis
For the three and nine months ended December 31, 2009
T
ABLE
OF
C
ONTENTS
Restated Interim Managements Discussion and Analysis
A. Explanatory Notes
June 10, 2010
The following discussion and analysis for the
three months and nine months ended December 31, 2009 has been restated. This restated interim Managements Discussion and Analysis (MD&A) should be read in conjunction with the attached restated unaudited consolidated financial
statements for the three and nine months ended December 31, 2009 and the audited consolidated financial statements for the year ended March 31, 2009, together with our annual MD&A for the year ended March 31, 2009.
Adoption of US Generally Accepted Accounting Principles (GAAP)
As a Canadian based company, we have historically prepared our consolidated financial statements in accordance with Canadian GAAP and provided reconciliations to US
GAAP. In 2006, the Canadian Accounting Standards Board (AcSB) published a new strategic plan that significantly affected financial reporting requirements for Canadian public companies. The AcSB strategic plan outlined the convergence of
Canadian GAAP with International Financial Reporting Standards (IFRS) over an expected five-year transitional period. In February 2008, the AcSB confirmed that IFRS would be mandatory in Canada for profit-oriented publicly accountable entities for
fiscal periods beginning on or after January 1, 2011, unless we, as a Securities and Exchange Commission (SEC) registrant and as permitted by AcSB National Instrument 52-107, were to adopt US GAAP on or before this date.
After significant analysis and consideration regarding the merits of reporting under IFRS or US GAAP, we have decided not to adopt IFRS and instead to adopt
US GAAP, commencing for the year ended March 31, 2010, as our primary reporting standard for our consolidated financial statements. Our audited consolidated financial statements, for the year ended March 31, 2010, including related
notes and our annual Managements Discussion and Analysis (MD&A) for the year ended March 31, 2010, together with this restated interim MD&A have therefore been prepared in accordance with US GAAP. All comparative figures contained
in these documents have been restated to reflect our results as if they had been historically reported in accordance with US GAAP as our reporting standard. All consolidated financial statements and MD&As previously filed were
prepared in accordance with Canadian GAAP.
The information contained in this restated interim MD&A is as at February 1, 2010 (as revised)
unless otherwise indicated. Accordingly, this restated interim MD&A has not been updated to reflect new facts, events or circumstances since February 1, 2010. Except where otherwise specifically indicated, all dollar amounts are expressed
in Canadian dollars. These consolidated financial statements, our most recent annual Managements Discussion and Analysis and additional information relating to our business, including our most recent Annual Information Form (AIF), are
available on the Canadian Securities Administrators SEDAR System at
www.sedar.com
and the Securities and Exchange Commissions website at
www.sec.gov.
As required by the National Instrument 52-107, for the fiscal year of adoption of US GAAP and one subsequent fiscal year, we will provide a Canadian Supplement
to our MD&A that restates, based on financial information reconciled to Canadian GAAP, those parts of our MD&A that would contain material differences if they were based on financial statements prepared in accordance with Canadian GAAP. In
support of the adoption of US GAAP commencing in the year ended March 31, 2010, we will restate and refile our unaudited consolidated financial statements, accompanying notes and MD&As for the interim periods ending
June 30, September 30 and December 31, 2009. We will also provide Canadian Supplement MD&As for each of these restated interim periods. The impact to our financial statements of the adoption of US GAAP as our
reporting standard is discussed under Differences between US and Canadian GAAP in the Financial Results section of this MD&A.
B.
Financial Results
Restatements Related to Previously Reported Canadian GAAP Results
The financial statements for the three and nine months ended December 30, 2009 and 2008 under Canadian GAAP have been restated to correct the following errors
identified during the preparation of the our fiscal 2010 financial statements:
i)
|
Reclassification of accrued liabilities
: The financial statements for fiscal 2009 have been amended to correct a classification error with respect to
accrued liabilities identified during the preparation of our fiscal 2010 consolidated financial statements. Certain operating lease agreements provide a maximum hourly usage limit, above which we will be required to pay for the over hour usage.
These contingent rentals are recognized when payment is considered probable and are due at the end of the lease term. We have historically classified the contingent rentals as a current liability; however, certain of the amounts are due beyond
one year from the balance
|
Restated Interim Managements Discussion and Analysis
|
sheet date. In the current year, we reclassified amounts due beyond one year, from the balance sheet date, as a long term liability and reclassified comparative figures accordingly. The
amount reclassified on the Consolidated Balance Sheet was $10.9 million and $7.1 million as at December 31, 2009 and March 31, 2009 respectively.
|
ii)
|
Buyout of leased assets
: The financial statements for fiscal 2008 have been amended under Canadian GAAP to correct an error related to the method of accounting for an
incentive at the time of buying previously leased assets, which was identified during the preparation of our fiscal 2010 consolidated financial statements. When an asset is leased under an operating lease agreement, as stated in the paragraph above,
contingent rentals are recognized when payment is considered probable and are due at the end of the lease term. We can buy the asset at the end of the lease term at a pre-determined market price at which point the liability is extinguished since the
lease agreement is cancelled. We have been traditionally extinguishing the liability for such lease buyouts by reducing equipment costs related to leased equipment, instead of considering the extinguishment of the liability as an incentive to
purchase the asset and therefore reducing the cost of the asset. The correction of this error increased Equipment costs by $nil and $6.6 million, reduced Depreciation by $0.2 million and $0.5 million, increased (reduced)
Deferred income taxes by $nil and $(1.8) million, and increased (reduced) Net Income (Loss) and Comprehensive Income (Loss) by $0.1 million and $(4.3) million from the amounts originally reported in the Consolidated
Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended December 31, 2008, respectively. The financial statements for fiscal 2009 have also been amended under Canadian GAAP to correct an error related to the
method of accounting for an incentive at time of buying previously leased assets, which was identified during the preparation of our fiscal 2010 consolidated financial statements as stated above. The correction of this error reduced
Depreciation by $0.2 million and $0.6 million, increased Deferred income taxes by $0.1 million and $0.2 million, and increased Net Income (Loss) and Comprehensive Income (Loss) by $0.1 million and $0.4 million
from the amounts originally reported in the Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended December 31, 2009, respectively. It also reduced Property, plant and equipment by
$8.0 million and $8.6 million, reduced long term Deferred income tax liabilities by $2.4 million and $2.6 million, and increased Deficit by $5.6 million and $6.0 million from the amounts originally reported in the
Consolidated Balance Sheet as at December 31, 2009 and March 31, 2009, respectively.
|
iii)
|
Valuation of derivative financial instruments
: The financial statements for fiscal 2009 have also been amended under Canadian GAAP to correct an error related to the
determination of the fair value of the cross-currency and interest rate swap liabilities (collectively, the swap liability) which was identified on settlement of the swap liability on April 8, 2010. We recorded the fair value of the
swap liability and in addition recorded accrued interest on the swap liability. This resulted in the swap liability being misstated and the changes in the fair value of the swap liability being misstated by the change in the amount of the accrued
interest at each reporting period from March 31, 2009. The periods before March 31, 2009 were not materially impacted because prior to February 2, 2009, the Canadian Dollar interest rate swap was still in place (see Interest
rate risk in Quantitative and Qualitative Disclosures about Market Risk section), and therefore the net accrued interest payable under the swap liability was not material. The error increased Realized and unrealized loss (gain) on
derivative financial instruments by $6.5 million and $6.1 million, reduced income tax expense by $1.1 million and $1.5 million, and reduced net income by $5.4 million and $4.7 from amounts originally reported in the Interim Consolidated
Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended December 31, 2009, respectively. It also reduced Derivative financial instruments by $1.4 million and $7.5 million increased long term
Deferred income tax liabilities by $0.2 million and $1.7 million, and reduced Deficit by $1.2 million and $5.8 million in the Consolidated Balance Sheet as at December 31, 2009 and March 31, 2009, respectively.
|
The above error also impacted previously reported US GAAP amounts for the years ended March 31, 2009 and 2008 respectively,
which were previously only reported on an annual basis. Please refer to note 3 aa) and 25(i) of our interim consolidated financial statements for the three and nine months ended December 31, 2009 for further information on these items.
United States and Canadian accounting policy differences
The adoption of US GAAP as our reporting standard has the following impacts on our financial statements:
Capitalization of interest
US GAAP requires capitalization
of interest costs as part of the historical cost of acquiring certain qualifying assets that require a period of time to prepare for their intended use. This is not required under Canadian GAAP. The capitalized amount is subject to depreciation in
accordance with our policies when the asset is placed into service.
Financing costs, discounts and premiums
Under US GAAP, deferred financing costs incurred in connection with our senior notes are being amortized over the term of the related debt using the effective
interest method. Prior to April 1, 2007, for Canadian GAAP purposes, these transaction costs were recorded as a deferred asset under Canadian GAAP and these deferred financing costs were being amortized on a straight-line basis over the term of
the debt.
Restated Interim Managements Discussion and Analysis
Effective April 1, 2007, we adopted CICA Handbook Section 3855,
Financial Instruments Recognition and Measurement, on a retrospective basis without restatement as described below. Although Section 3855 also requires the use of the effective interest method to account for the amortization
of finance costs, the requirement to bifurcate the issuers early prepayment option on issuance of the debt (which is not required under US GAAP) resulted in an additional premium that is being amortized over the term of the debt under Canadian
GAAP. In addition, foreign denominated transaction costs, discounts and premiums are considered as part of the carrying value of the related financial liability under Canadian GAAP and are subject to foreign currency gains or losses resulting from
periodic translation procedures as they are treated as a monetary item under Canadian GAAP. Under US GAAP, foreign denominated transaction costs are considered non-monetary and are not subject to foreign currency gains and losses resulting from
periodic translation procedures.
In connection with the adoption of Section 3855, transaction costs incurred in connection with our revolving
credit facility of $1.6 million were reclassified from deferred financing costs to intangible assets on April 1, 2007 under Canadian GAAP and these costs continue to be amortized on a straight-line basis over the term of the facility. Under
US GAAP, we continue to amortize these transaction costs over the stated term of the related debt using the effective interest method. We disclose the financing costs for both the senior notes and the revolving credit facility as deferred
financing costs on the Consolidated Balance Sheets with the amortization charge classified as interest on the Consolidated Statements of Operations and Comprehensive Income. Under Canadian GAAP, the financing costs related to the senior notes are
included in the Senior notes balance on the Consolidated Balance Sheets.
Stock-based compensation
Up until April 1, 2006, we followed the provisions of ASC 718, Share-Based Payment (formerly Statement of Financial Accounting Standards
No. 123, Stock-Based Compensation), for US GAAP purposes. As we use the fair value method of accounting for all stock-based compensation payments under Canadian GAAP, there were no differences between Canadian and US GAAP
prior to April 1, 2006. On April 1, 2006, we adopted the provisions of Statement of Financial Accounting Standards No. 123(R), Share-Based Payment (SFAS 123R), which is now a part of ASC 718. As we used the
minimum value method for purposes of complying with Statement of Financial Accounting Standards No. 123, we were required to adopt the provisions under the revised guidance prospectively. Under Canadian GAAP, we were permitted to exclude
volatility from the determination of the fair value of stock options granted until the filing of our initial registration statement relating to the initial public offering of voting shares on July 21, 2006. As a result, for options issued
between April 1, 2006 and July 21, 2006, there is a difference between Canadian and US GAAP relating to the determination of the fair value of options granted reflected in General and Administrative expense.
Derivative financial instruments
Under Canadian GAAP, we
determined that the issuers early prepayment option included in the senior notes should be bifurcated from the host contract, along with a contingent embedded derivative in the senior notes that provide for accelerated redemption by the
holders in certain instances. These embedded derivatives were measured at fair value at the inception of the senior notes and the residual amount of the proceeds was allocated to the debt. Changes in fair value of the embedded derivatives are
recognized in net income and the carrying amount of the senior notes is accreted to par value over the term of the notes using the effective interest method and is recognized as interest expense. Prior to April 1, 2007 under Canadian GAAP,
separate accounting of embedded derivatives from the host contract was not permitted by EIC-117.
Under US GAAP, ASC 815 (formerly Statement of
Financial Accounting Standard No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133)) establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative
instruments embedded in other contracts and debt instruments) be recorded in the balance sheet as either an asset or liability measured at its fair value. The contingent embedded derivative in the senior notes that provide for accelerated redemption
by the holders in certain instances met the criteria for bifurcation from the debt contract and separate measurement at fair value. The embedded derivative has been measured at fair value and changes in fair value recorded in net income for all
periods presented. The issuers early prepayment option included in the senior notes does not meet the criteria as an embedded derivative under ASC 815 (formerly SFAS 133) and was not bifurcated from the host contract and measured at fair value
resulting in a US GAAP and Canadian GAAP difference for all periods presented.
On adoption of CICA Handbook Section 3855, Financial
Instruments Recognition and Measurement, we reviewed the accounting treatment of a number of outstanding contracts and determined that a price escalation feature in a revenue construction contract and supplier contracts entered into
prior to April 1, 2007 contained embedded derivatives that are not closely related to the host contract under Canadian GAAP. We recorded the fair value of these embedded derivatives on April 1, 2007 of $9,720, with a corresponding increase
in opening deficit of $6,950, net of Deferred income taxes of $2,770 for Canadian GAAP purposes. Under US GAAP, we had recognized and measured these embedded derivatives since inception of the related contracts.
Restated Interim Managements Discussion and Analysis
NAEPI Series B Preferred Shares
Prior to the modification of the terms of the North American Energy Partners Inc. (NAEPI) Series B preferred shares on March 30, 2006, there were
no differences between Canadian GAAP and US GAAP related to the NAEPI Series B preferred shares. As a result of the modification of terms of NAEPIs Series B preferred shares, under Canadian GAAP, we continued to classify the NAEPI Series
B preferred shares as a liability and was accreting the carrying amount of $42.2 million on the amendment date (March 30, 2006) to their December 31, 2011 redemption value of $69.6 million using the effective interest method. Under
US GAAP, we recognized the fair value of the amended NAEPI Series B preferred shares as minority interest as such amount was recognized as temporary equity in the accounts of NAEPI in accordance with EITF Topic D-98 and recognized a charge of
$3.7 million to retained earnings for the difference between the fair value and the carrying amount of the Series B preferred shares on the amendment date. Under US GAAP, we were accreting the initial fair value of the amended NAEPI Series B
preferred shares of $45.9 million recorded on their amendment date (March 30, 2006) to the December 31, 2011 redemption value of $69.6 million using the effective interest method, which was consistent with the treatment of the NAEPI Series B
preferred shares as temporary equity in the financial statements of NAEPI. The accretion charge was recognized by us as a charge to minority interest (as opposed to retained earnings in the accounts of NAEPI) under US GAAP and interest expense
in our financial statements under Canadian GAAP.
On November 28, 2006, we exercised a call option to acquire all of the issued and outstanding
NAEPI Series B preferred shares in exchange for 7,524,400 common shares of NAEPI. For Canadian GAAP purposes, we recorded the exchange by transferring the carrying value of the NAEPI Series B preferred shares on the exercise date of $44.7 million to
common shares. For US GAAP purposes, the conversion has been accounted for as a combination of entities under common control as all of the shareholders of the NAEPI Series B preferred shares are also common shareholders of NAEPI, resulting in
the reclassification of the carrying value of the minority interest on the exercise date of $48.1 million to common shares. NACG and NAEPI were amalgamated later in 2006 and the amalgamated entity continued as NAEPI.
Inventories
Effective April 1, 2008, we retrospectively
adopted CICA Handbook Section 3031, Inventories, without restatement of prior periods. This standard requires inventories to be measured at the lower of cost and net realizable value and provides guidance on the determination of
cost, including the allocation of overheads and other costs to inventories, the requirement for an entity to use a consistent cost formula for inventory of a similar nature and use and the reversal of previous write-downs to net realizable value
when there are subsequent increases in the value of inventories. This new standard also clarifies that spare component parts that do not qualify for recognition as property, plant and equipment should be classified as inventory. In adopting this new
standard, we reversed a tire impairment that was previously recorded at March 31, 2008 in other assets of $1.4 million with a corresponding decrease to opening deficit of $1.0 million net of deferred income taxes of $0.4 million.
During the year ended March 31, 2008, the replacement cost (i.e. market) of spare tire inventory was lower than the original carrying amount of
inventory. As a result, we recorded an inventory write-down of $1.4 million under Canadian GAAP. Under US GAAP, market means current replacement cost. However, market under US GAAP should not exceed the net realizable value nor should it
be less than net realizable value reduced by an allowance for a normal profit margin. We established that the net realizable value and net realizable value less an allowance for a normal profit margin was greater than or equal to cost and as such a
write-down of spare tires was not appropriate under US GAAP for the year ended March 31, 2008.
Joint venture
We own a 49% interest in Noramac Ventures Inc., a nominee company for our Noramac Joint Venture (JV) and we have joint 50/50 control of this entity. Under
US GAAP, we record our share of earnings (loss) of the JV using the equity method of accounting. Under Canadian GAAP, we use the proportionate consolidation method of accounting for the JV. Under the proportionate consolidation method, we
recognize our share of the results of operations, cash flows and financial position of the JV on a line-by-line basis in our consolidated financial statements and eliminate our share of all material intercompany transactions with the JV. While there
is no impact on net income or earnings per share as a result of the US GAAP treatment of the joint venture, as compared to Canadian GAAP, there are presentation differences affecting the disclosures in the consolidated financial statements and
supporting notes.
Other matters
Other
adjustments relate to the tax effect of items
Capitalization of interest
through
Inventories
above. The tax effects of temporary differences are described as future income taxes under Canadian GAAP whereas in
these financial statements such amounts are described as deferred income taxes under US GAAP. In addition, Canadian GAAP generally refers to additional paid-in capital as contributed surplus for financial statement presentation purposes.
Restated Interim Managements Discussion and Analysis
Summary of differences between US and Canadian GAAP
The impacts of the differences between US and Canadian GAAP are described in detail in a reconciliation to Canadian GAAP provided in note 25
United
States and Canadian accounting policy differences
in our interim consolidated financial statements for the three and nine months ended December 31, 2009. A summary of these impacts appears below:
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|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
December 31,
|
|
|
Nine months ended
December 31,
|
|
(dollars in thousands)
|
|
2009
|
|
2008
|
|
|
2009
|
|
2008
|
|
Revenue US GAAP
|
|
$221,175
|
|
$258,565
|
|
|
$538,396
|
|
$797,836
|
|
Revenue Canadian GAAP
|
|
222,714
|
|
258,565
|
|
|
540,927
|
|
797,836
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) US GAAP
|
|
31,272
|
|
(1,893
|
)
|
|
60,347
|
|
42,112
|
|
Operating income (loss) Canadian GAAP
|
|
31,104
|
|
(2,057
|
)
|
|
59,852
|
|
41,621
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) US GAAP
|
|
14,936
|
|
(14,964
|
)
|
|
29,162
|
|
1,708
|
|
Net income (loss) Canadian GAAP
|
|
15,577
|
|
(14,594
|
)
|
|
32,138
|
|
(1,130
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS US GAAP
|
|
$0.41
|
|
$(0.42
|
)
|
|
$0.81
|
|
$0.05
|
|
Basic EPS Canadian GAAP
|
|
$0.43
|
|
$(0.41
|
)
|
|
$0.89
|
|
$(0.03
|
)
|
Consolidated Three and Nine Month Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended December 31,
|
|
(dollars in thousands)
|
|
2009
|
|
% of
Revenue
|
|
2008
|
|
|
% of
Revenue
|
|
Change
|
|
Revenue
|
|
$221,175
|
|
100.0%
|
|
$258,565
|
|
|
100.0%
|
|
$(37,390
|
)
|
Project costs
|
|
89,207
|
|
40.3%
|
|
129,912
|
|
|
50.2%
|
|
(40,705
|
)
|
Equipment costs
|
|
57,512
|
|
26.0%
|
|
55,549
|
|
|
21.5%
|
|
1,963
|
|
Equipment operating lease expense
|
|
16,287
|
|
7.4%
|
|
11,934
|
|
|
4.6%
|
|
4,353
|
|
Depreciation
|
|
10,543
|
|
4.8%
|
|
9,727
|
|
|
3.8%
|
|
816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
47,626
|
|
21.5%
|
|
51,443
|
|
|
19.9%
|
|
(3,817
|
)
|
General and administrative costs
|
|
14,532
|
|
6.6%
|
|
19,170
|
|
|
7.4%
|
|
(4,638
|
)
|
Operating income (loss)
|
|
31,272
|
|
14.1%
|
|
(1,893
|
)
|
|
(0.7)%
|
|
33,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
(loss)
|
|
14,936
|
|
6.8%
|
|
(14,964
|
)
|
|
(5.8)%
|
|
29,900
|
|
Per share information
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) basic
|
|
$0.41
|
|
|
|
$(0.42
|
)
|
|
|
|
$0.83
|
|
Net income (loss) diluted
|
|
$0.41
|
|
|
|
$(0.42
|
)
|
|
|
|
$0.83
|
|
EBITDA
(1)
|
|
39,311
|
|
17.8%
|
|
7,403
|
|
|
2.9%
|
|
31,908
|
|
Consolidated
EBITDA
(1)
(as defined within our credit agreement)
|
|
$43,844
|
|
19.9%
|
|
$47,900
|
|
|
18.5%
|
|
$(4,056
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended December 31,
|
|
(dollars in thousands)
|
|
2009
|
|
% of
Revenue
|
|
2008
|
|
% of
Revenue
|
|
Change
|
|
Revenue
|
|
$538,396
|
|
100.0%
|
|
$797,836
|
|
100.0%
|
|
$(259,440
|
)
|
Project costs
|
|
208,906
|
|
38.8%
|
|
433,504
|
|
54.3%
|
|
(224,598
|
)
|
Equipment costs
|
|
147,915
|
|
27.5%
|
|
168,746
|
|
21.2%
|
|
(20,831
|
)
|
Equipment operating lease expense
|
|
44,320
|
|
8.2%
|
|
30,317
|
|
3.8%
|
|
14,003
|
|
Depreciation
|
|
30,693
|
|
5.7%
|
|
27,793
|
|
3.5%
|
|
2,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
106,562
|
|
19.8%
|
|
137,476
|
|
17.2%
|
|
(30,914
|
)
|
General and administrative costs
|
|
43,426
|
|
8.1%
|
|
57,760
|
|
7.2%
|
|
(14,334
|
)
|
Operating income
|
|
60,347
|
|
11.2%
|
|
42,112
|
|
5.3%
|
|
18,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
29,162
|
|
5.4%
|
|
1,708
|
|
0.2%
|
|
27,454
|
|
Per Share information
|
|
|
|
|
|
|
|
|
|
|
|
Net income basic
|
|
$0.81
|
|
|
|
$0.05
|
|
|
|
$0.76
|
|
Net income diluted
|
|
$0.79
|
|
|
|
$0.05
|
|
|
|
$0.74
|
|
EBITDA
(1)
|
|
91,419
|
|
17.0%
|
|
62,523
|
|
7.8%
|
|
28,896
|
|
Consolidated
EBITDA
(1)
(as defined within our credit agreement)
|
|
$95,216
|
|
17.7%
|
|
$114,255
|
|
14.3%
|
|
(19,039
|
)
|
(1)
|
Non-GAAP Financial measures The body of generally accepted accounting principles applicable to us is commonly referred to as GAAP. A non-GAAP
financial measure is generally defined by the Securities and Exchange Commission (SEC) and by the Canadian securities regulatory authorities as one that purports to measure historical or future financial performance, financial position or cash
flows, but excludes or includes amounts that would not be so adjusted in the most comparable GAAP measures. EBITDA is calculated as net income before interest expense, income taxes, depreciation and amortization. Consolidated EBITDA is a
measure defined by our credit agreement. This measure is defined as EBITDA, excluding the effects of unrealized foreign exchange gain or loss, realized and unrealized gain or loss on derivative financial instruments, non-cash stock-based
compensation expense, gain or loss on disposal of plant and equipment and certain other non-cash items included in the calculation of net income. We believe that EBITDA is a meaningful measure of the performance of our business because it excludes
items, such as depreciation and amortization, interest and taxes that are not directly related to the operating performance of our business.
|
Restated Interim Managements Discussion and Analysis
|
Management reviews EBITDA to determine whether plant and equipment are being allocated efficiently. In addition, our credit facility requires us to maintain a minimum interest coverage ratio and
a maximum senior leverage ratio, which are calculated using Consolidated EBITDA. Non-compliance with these financial covenants could result in our being required to immediately repay all amounts outstanding under our credit facility. EBITDA and
Consolidated EBITDA are non-GAAP financial measures and our computations of EBITDA and Consolidated EBITDA may vary from others in our industry. EBITDA and Consolidated EBITDA should not be considered as alternatives to operating income or net
income as measures of operating performance or cash flows as measures of liquidity. EBITDA and Consolidated EBITDA have important limitations as analytical tools and should not be considered in isolation or as substitutes for analysis of our results
as reported under Canadian GAAP or US GAAP. For example, EBITDA and Consolidated EBITDA do not:
|
|
|
|
reflect our cash expenditures or requirements for capital expenditures or capital commitments;
|
|
|
|
reflect changes in our cash requirements for our working capital needs;
|
|
|
|
reflect the interest expense or the cash requirements necessary to service interest or principal payments on our debt;
|
|
|
|
include tax payments that represent a reduction in cash available to us; and
|
|
|
|
reflect any cash requirements for assets being depreciated and amortized that may have to be replaced in the future.
|
Consolidated EBITDA excludes unrealized foreign exchange gains and losses and realized and unrealized gains and losses on derivative financial instruments, which,
in the case of unrealized losses, may ultimately result in a liability that will need to be paid and in the case of realized losses, represents an actual use of cash during the period.
A reconciliation of net income (loss) to EBITDA and Consolidated EBITDA is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended December 31,
|
|
|
|
|
|
|
Nine months ended December 31,
|
|
(dollars in thousands)
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
Net income (loss)
|
|
$14,936
|
|
|
$(14,964
|
)
|
|
$29,900
|
|
|
|
|
|
|
$29,162
|
|
|
$1,708
|
|
|
$27,454
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
6,764
|
|
|
7,319
|
|
|
(555
|
)
|
|
|
|
|
|
19,725
|
|
|
21,276
|
|
|
(1,551
|
)
|
Income taxes
|
|
6,540
|
|
|
4,930
|
|
|
1,610
|
|
|
|
|
|
|
10,401
|
|
|
10,697
|
|
|
(296
|
)
|
Depreciation
|
|
10,543
|
|
|
9,727
|
|
|
816
|
|
|
|
|
|
|
30,693
|
|
|
27,793
|
|
|
2,900
|
|
Amortization of intangible assets
|
|
528
|
|
|
391
|
|
|
137
|
|
|
|
|
|
|
1,438
|
|
|
1,049
|
|
|
389
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$39,311
|
|
|
$7,403
|
|
|
$31,908
|
|
|
|
|
|
|
$91,419
|
|
|
$62,523
|
|
|
$28,896
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized foreign exchange (gain) loss on senior notes
|
|
(5,120
|
)
|
|
32,940
|
|
|
(38,060
|
)
|
|
|
|
|
|
(42,720
|
)
|
|
39,347
|
|
|
(82,067
|
)
|
Realized and unrealized loss (gain) on derivative financial instruments
|
|
8,010
|
|
|
(26,770
|
)
|
|
34,780
|
|
|
|
|
|
|
43,185
|
|
|
(25,826
|
)
|
|
69,011
|
|
Loss on disposal of property, plant and equipment and assets held for sale
|
|
1,392
|
|
|
1,022
|
|
|
370
|
|
|
|
|
|
|
1,417
|
|
|
3,802
|
|
|
(2,385
|
)
|
Stock-based compensation expense
|
|
349
|
|
|
552
|
|
|
(203
|
)
|
|
|
|
|
|
1,981
|
|
|
1,656
|
|
|
325
|
|
Equity in earnings of unconsolidated joint venture
|
|
(98
|
)
|
|
|
|
|
(98
|
)
|
|
|
|
|
|
(66
|
)
|
|
|
|
|
(66
|
)
|
Impairment of goodwill
|
|
|
|
|
32,753
|
|
|
(32,753
|
)
|
|
|
|
|
|
|
|
|
32,753
|
|
|
(32,753
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated EBITDA (as defined within our credit agreement)
|
|
$43,844
|
|
|
$47,900
|
|
|
$(4,056
|
)
|
|
|
|
|
|
$95,216
|
|
|
$114,255
|
|
|
$(19,039
|
)
|
Analysis of
Consolidated Results
Revenue
For the three months ended December 31, 2009, consolidated revenues of $221.2 million were $37.4 million lower than in the same period last
year. As anticipated, recurring services grew during the quarter, reflecting higher activity on our long-term contract with Canadian
Natural
1
as overburden removal returned to planned operational levels. The
increase in recurring services revenue also reflects continued growth in mine support services to Shell
Albian
2
under our three-year earthmoving master services agreement and
increased mining services to Suncor
3
under our 12-month agreement. This
agreement was due to expire on December 31, 2009 but was extended by Suncor for an additional 12 months with an increase in scope. These gains were offset by ongoing weakness in commercial and industrial construction markets and by reduced
project development activity in the oil sands. Pipeline revenue was stable year-over-year as revenues from new projects replaced revenues from the completed Kinder Morgans
TMX
4
project.
1
|
Canadian Natural Resources Limited (Canadian Natural) Horizon project
|
2
|
Shell Canada Energy, a division of Shell Canada Limited, the operator of the Shell Albian Sands (Shell Albian) oils sands mining and extraction operations on behalf of
Athabasca Oil Sands Project (AOSP), a joint venture amongst Shell Canada Limited (60%), Chevron Canada Limited (20%) and Marathon Oil Canada Corporation (20%). Prior to January 1, 2009, these operations were run by Albian Sands Energy Inc.
|
3
|
Suncor Energy Inc. (Suncor)
|
4
|
Kinder Morgans Trans Mountain Expansion (TMX) Anchor Loop pipeline
|
Restated Interim Managements Discussion and Analysis
For the nine months ended December 31, 2009, revenues of
$538.4 million were $259.4 million lower than the same period last year. The year-over-year change in revenues reflects reduced development activity in the oil sands, a sharp decline in Pipeline segment revenues and continued weakness in commercial
and industrial construction markets. Recurring services remained stable year-over-year with increased services to Shell Albian, Suncor and Canadian Natural, partially offset by lower mining services volumes at
Syncrude
5
while that customer undertook a major maintenance program.
Gross Profit
Gross profit for the three months
ended December 31, 2009 was $47.6 million, a decrease of $3.8 million from the same period last year. The decline in gross profit was primarily related to lower revenue notwithstanding an improvement in gross profit margin to 21.5%, from 19.9%
in the prior year period. This improvement reflects reduced equipment costs resulting from the timing of planned repairs and maintenance, as well as the benefits of our company-wide efforts to improve efficiency and reduce expenses.
Project costs, as a percentage of revenue, decreased to 40.3% during the three months ended December 31, 2009, from 50.2% in the same period last year. This
change reflects the reduction in project development activity, which is traditionally more labour, material and subcontractor intensive, partially offset by growth in our recurring services business, which is traditionally more equipment intensive.
For the three months ended December 31, 2009, equipment costs increased to 26.0% of revenue, from 21.5% last year, while equipment operating lease expense increased $4.4 million to $16.3 million or 7.4% of revenue, compared to 4.6% of
revenue in the same period last year. The increase in equipment operating lease expense reflects our commissioning of a second electric cable shovel at the Canadian Natural site in December 2008, as well as planned growth in the size of our leased
equipment fleet to support our long-term overburden removal contract. Depreciation increased to 4.8% of revenue in the three months ended December 31, 2009, from 3.8% of revenue in the same period last year. The higher depreciation reflects
increased contribution from the Heavy Construction and Mining segment and a reduction in the use of rental equipment. Tire expenses for the three months ended December 31, 2009 were down $1.3 million from the same period last year as a result
of lower operating hours.
Gross profit for the nine months ended December 31, 2009 was $106.6 million, a decrease of $30.9 million compared to the
same period last year. The change in gross profit was primarily related to lower revenues. As a percentage of revenue, gross profit margin increased to 19.8%, reflecting a reduction in equipment costs related to the timing of planned repairs and
maintenance, as well as company-wide efforts to improve efficiency and reduce expenses. Prior year gross profit margins of 17.2% were bolstered by the $5.3 million settlement of claims revenue on a pipeline project. Excluding this settlement, gross
profit margins would have been 16.6% for the nine month period last year.
Project costs, as a percentage of revenue, decreased to 38.8% during the nine
months ended December 31, 2009, from 54.3% in the same period last year. The reduction in project development activity was a key factor in this decrease, partially offset by an increase in the more equipment-intensive recurring services
business. Equipment costs increased to 27.5% of revenue during the nine months ended December 31, 2009, from 21.2% of revenue in the same period last year. Equipment operating lease expense increased $14.0 million year-over-year to $44.3
million, reflecting the planned increase to the fleet to support our long-term overburden removal contract. Depreciation also increased to 5.7% of revenue in the nine month period ended December 31, 2009, compared to 3.5% in the same period
last year, reflecting the increased contribution from the Heavy Construction and Mining segment, a reduction in the use of rental equipment and an accelerated depreciation charge of $3.4 million, compared to $0.8 million in the same period last
year, as certain aging equipment was prepared for resale. Tire expenses for the nine months ended December 31, 2009 were down $5.4 million from the same period last year as a result of lower operating hours and a supply/demand-related reduction
in tire prices.
Operating income (loss)
For the
three months ended December 31, 2009, we recorded operating income of $31.3 million or 14.1% of revenue, up from an operating loss of $1.9 million during the same period last year. The operating loss from last year included a charge of $32.8
million for goodwill impairment. Excluding this impairment, operating income would have been $30.9 million or 11.9% of revenue. General and administrative (G&A) costs decreased by $4.6 million compared to the same three month period
last year. This improvement reflects the benefits of reorganization and cost-reduction initiatives implemented in the prior fiscal year.
For the nine
months ended December 31, 2009, we recorded operating income of $60.3 million or 11.2% of revenue, compared to operating income of $42.1 million or 5.3% of revenue during the same period last year. Included in the prior year period operating
income was a charge of $32.8 million for goodwill impairment. Excluding this impairment, operating income would have been $74.9 million or 9.4% of revenue. G&A costs decreased by $14.3 million compared
5
|
Syncrude Canada Limited (Syncrude), a joint venture between Canadian Oil Sands Limited (36.74%), Imperial Oil Limited (25.0%), Suncor Energy Inc.
(12.0%) (Previously Petro-Canada Ltd.), ConocoPhillips Oil Sand Partnership II (9.03%), Nexen Oil Sands Partnership (7.23%), Mocal Energy Limited (5.0%) and Murphy Oil Company Ltd. (5.0%). Syncrude is the project operator.
|
Restated Interim Managements Discussion and Analysis
to the same nine month period last year. This improvement is in part due to the benefits of our reorganization and cost- reduction initiatives, partially offset by a $2.0 million year-over-year
increase to stock-based compensation, impacted by fluctuations of our share price on the valuation of our deferred director share units and restricted share units.
Net income (loss)
We recorded net income
of $14.9 million (basic income per share of $0.41 and diluted income per share of $0.41) for the three months ended December 31, 2009, compared to a net loss of $15.0 million (basic loss per share of $0.42) during the same period last
year. The non-cash items affecting these results included the positive foreign exchange impact of the strengthening Canadian dollar on our
8
3
/
4
%
senior notes, a gain on our cross-currency and interest rate swaps, gains relating to embedded derivatives in long-term supplier contracts and redemption options in our
8
3
/
4
%
senior notes. These items were partially offset by a loss relating to embedded derivatives in a long-term customer contract. Net loss for the same period last year was negatively affected by the non-cash impact of a goodwill impairment
charge. Excluding the above items, net income for the three months ended December 31, 2009 would have been $13.9 million (basic income per share of $0.39 and diluted income per share of $0.38), compared to net income of $21.2 million
(basic and diluted income per share of $0.59) during the same period last year.
For the nine months ended
December 31, 2009, we recorded net income of $29.2 million (basic income per share of $0.81 and diluted income per share of $0.79), compared to net income of $1.7 million (basic and diluted income per share of $0.05) during the same period last
year. The non-cash items affecting these results included the positive foreign exchange impact of the strengthening Canadian dollar on our
8
3
/
4
%
senior notes, gains relating to embedded derivatives in long-term supplier contracts, cross-currency and interest rate swaps and redemption options in our
8
3
/
4
%
senior notes. These items were partially offset by a loss relating to embedded derivatives in a long-term customer contract. Net income for the same period last year was also negatively affected by the non-cash impact of the goodwill
impairment charge as described above. Excluding the above items net income for the nine months ended December 31, 2009 would have been $21.0 million (basic income per share of $0.58 and diluted income per share of $0.57), compared to net
income of $42.2 million during the same period last year (basic income per share of $1.17 and diluted income per share of $1.15).
Segment Results
Heavy Construction and Mining
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended December 31,
|
|
|
Nine months ended December 31,
|
|
(dollars in thousands)
|
|
2009
|
|
2008
|
|
Change
|
|
|
2009
|
|
2008
|
|
Change
|
|
Segment revenue
|
|
$183,631
|
|
$198,620
|
|
$(14,989
|
)
|
|
$469,512
|
|
$564,101
|
|
$(94,589
|
)
|
Segment profit
|
|
36,237
|
|
38,639
|
|
(2,402
|
)
|
|
81,730
|
|
80,266
|
|
1,464
|
|
Profit margin
|
|
19.7%
|
|
19.5%
|
|
|
|
|
17.4%
|
|
14.2%
|
|
|
|
For the three months ended December 31, 2009, Heavy Construction and Mining segment revenues
declined $15.0 million, as compared to the same period last year to $183.6 million, reflecting reduced project development revenue, partially offset by increased recurring services revenue. Growth in our recurring services revenue was driven by
increased services to Shell Albian under our three-year earthmoving and mine services contract, a return to planned operational levels on our long-term overburden removal contract at Canadian Natural and increased mining services provided to Suncor
under a 12-month agreement, which was recently extended for an additional 12 months and expanded to include additional scope. Project development revenues in the prior year period included activity at Suncors Fort
Hills
6
project, which has since been deferred, as well as site development
activity at other Suncor sites, which was completed by December 2009. Revenues in the prior year period were further bolstered by a tire premium surcharge as well as a higher volume of third-party materials supply on certain contracts.
For the nine months ended December 31, 2009, the Heavy Construction and Mining segment reported revenues of $469.5 million, a $94.6 million
decrease compared to the same period last year. Recurring services revenue was stable year-over-year with increased services to Shell Albian, Suncor and Canadian Natural helping to offset reduced activity at the Syncrude site during that
customers major upgrader maintenance program. Project development revenues were down year-over-year reflecting the deferral of activity at Suncors Fort Hills project and the completion of site development activity at other Suncor sites.
Revenues in the prior year period were further bolstered by a tire premium surcharge as well as a higher volume of third-party materials supply on certain contracts. Third-party materials supply involves the supply of fuel and/or construction
materials such as gravel to a project. In some cases, the supply of materials can be a significant component of the contract and result in higher revenue; however, the cost of the materials is typically passed through to the customer with a minimal
mark-up.
For the three months ended December 31, 2009, Heavy Construction and Mining profit margin was 19.7% of revenue, compared to 19.5% of
revenue during the same period last year. The change in Heavy Construction and Mining profit
6
|
Fort Hills LP (Suncor Fort Hills) a limited partnership between Suncor Energy Inc. (60%), UTS Energy Corporation (20%) and Teck Resources Limited
(20%). Suncor Energy Inc., the new project operator, acquired Petro-Canada Limited, the previous majority partner and project operator in 2009.
|
Restated Interim Managements Discussion and Analysis
margin primarily reflects higher-margin on recurring services revenue due to improvements in contract execution, reduced volumes of low margin third-party materials supply, lower equipment rental
costs and the successful completion of a construction project for a major oil sands customer.
For the nine months ended December 31, 2009, Heavy
Construction and Mining profit margin increased to 17.4% of revenue from 14.2% of revenue during the same period last year. This improvement reflects the positive impact of higher margin on recurring services revenue due to improvements in
contract execution and reduced volumes of low margin third-party materials supply and lower rental equipment costs, partially offset by the margin reduction on a long-term contract. The prior year profit margin was negatively affected by production
challenges on a single project.
Piling
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended December 31,
|
|
|
Nine months ended December 31,
|
|
(dollars in thousands)
|
|
2009
|
|
2008
|
|
Change
|
|
|
2009
|
|
2008
|
|
Change
|
|
Segment revenue
|
|
$20,592
|
|
$41,565
|
|
$(20,973
|
)
|
|
$50,268
|
|
$132,709
|
|
$(82,441
|
)
|
Segment profit
|
|
4,505
|
|
12,740
|
|
(8,235
|
)
|
|
9,139
|
|
32,445
|
|
(23,306
|
)
|
Profit margin
|
|
21.9%
|
|
30.7%
|
|
|
|
|
18.2%
|
|
24.4%
|
|
|
|
For the three months ended December 31, 2009, the Piling segment recorded revenues of $20.6 million, a decrease of $21.0
million as compared to the same period last year. For the nine months ended December 31, 2009, Piling segment revenue of $50.3 million was down $82.4 million compared to the same period last year. The change in Piling segment revenue for both
the three month and nine month periods reflect the significant decline in activity levels in the commercial and industrial construction markets due to the current economic slowdown, as well as a reduction in high-volume oil sands projects.
For the three months ended December 31, 2009, Piling profit margin decreased to 21.9% of revenue, from 30.7% of revenue a year ago. For the nine
months ended December 31, 2009, Piling profit margin decreased to 18.2% from 24.4% a year ago. The year-over-year declines in profit margin reflect reduced commercial and industrial construction market activity and increased competition for
available work. Prior year profit margins also benefitted from project close out activities and processing of change orders for the three months ended December 31, 2008.
Pipeline
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended December 31,
|
|
|
Nine months ended December 31,
|
|
(dollars in thousands)
|
|
2009
|
|
2008
|
|
Change
|
|
|
2009
|
|
2008
|
|
Change
|
|
Segment revenue
|
|
$16,952
|
|
$18,380
|
|
$(1,428
|
)
|
|
$18,616
|
|
$101,026
|
|
$(82,410
|
)
|
Segment profit
|
|
1,072
|
|
5,589
|
|
(4,517
|
)
|
|
1,301
|
|
22,464
|
|
(21,163
|
)
|
Profit margin
|
|
6.3%
|
|
30.4%
|
|
|
|
|
7.0%
|
|
22.2%
|
|
|
|
For the three months ended December 31, 2009, the Pipeline segment reported revenues of $17.0 million, compared to $18.4
million a year ago. During the current period, the segment benefited from work on two contracts in British Columbia, while a year ago, it benefited from revenues related to completion of the TMX Anchor Loop project. For the nine months ended
December 31, 2009, the Pipeline segment reported revenues of $18.6 million, compared to $101.0 million during the same period a year ago. The significant change in Pipeline revenue reflects completion of the TMX project in October 2008.
For the three months ended December 31, 2009, Pipeline profit margins decreased to 6.3%, from 30.4% a year ago. Segment profit in the prior year
period increased sharply from earlier periods as closeout activities and final change orders related to the TMX project were processed. For the nine months ended December 31, 2009, segment margin was 7.0%, compared to 22.2% during the same
period last year. Current three and nine month period profit margin reflects the negative effect of lower productivity due to unfavourable weather conditions in northern British Columbia. Pipeline profit margin in the prior nine month period
included the benefit of a $5.3 million settlement of claims revenue. Excluding this settlement, Pipeline profit margins for the prior year nine month period would have been 16.0% of revenue.
Restated Interim Managements Discussion and Analysis
Non-Operating Income and Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended December 31,
|
|
|
|
|
Nine months ended December 31,
|
|
(dollars in thousands)
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on 8
3
/
4
% senior
notes
|
|
$4,517
|
|
|
$5,834
|
|
|
$(1,317
|
)
|
|
|
|
$14,468
|
|
|
$17,503
|
|
|
$(3,035
|
)
|
Interest on capital lease obligations
|
|
244
|
|
|
341
|
|
|
(97
|
)
|
|
|
|
805
|
|
|
887
|
|
|
(82
|
)
|
Amortization of deferred financing costs
|
|
847
|
|
|
764
|
|
|
83
|
|
|
|
|
2,489
|
|
|
2,190
|
|
|
299
|
|
Interest on credit facilities
|
|
893
|
|
|
116
|
|
|
777
|
|
|
|
|
1,385
|
|
|
206
|
|
|
1,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on long-term debt
|
|
6,501
|
|
|
7,055
|
|
|
(554
|
)
|
|
|
|
19,147
|
|
|
20,786
|
|
|
(1,639
|
)
|
Other interest
|
|
263
|
|
|
264
|
|
|
(1
|
)
|
|
|
|
578
|
|
|
490
|
|
|
88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
$6,764
|
|
|
$7,319
|
|
|
$(555
|
)
|
|
|
|
$19,725
|
|
|
$21,276
|
|
|
$(1,551
|
)
|
Foreign exchange (gain) loss
|
|
(5,449
|
)
|
|
32,935
|
|
|
(38,384
|
)
|
|
|
|
(42,930
|
)
|
|
39,621
|
|
|
(82,551
|
)
|
Realized and unrealized (gain) loss on derivative financial instruments
|
|
8,010
|
|
|
(26,770
|
)
|
|
34,780
|
|
|
|
|
43,185
|
|
|
(25,826
|
)
|
|
69,011
|
|
Other expense (income)
|
|
471
|
|
|
(5,343
|
)
|
|
5,814
|
|
|
|
|
804
|
|
|
(5,364
|
)
|
|
6,168
|
|
Income tax expense
|
|
6,540
|
|
|
4,930
|
|
|
1,610
|
|
|
|
|
10,401
|
|
|
10,697
|
|
|
(296
|
)
|
Interest expense
The cancellation of one leg of the swap agreement on February 2, 2009, one of three swap agreements hedging the interest and currency risk
associated with our US dollar denominated 8
3
/
4
% senior notes,
led to an increase in the interest rate swap payment as shown in the Realized and unrealized loss (gain) on derivative financial instruments section below. The combination of our interest expense on
8
3
/
4
% senior notes and the swap interest payment loss
reflects the higher cost to us as a result of the counterparties cancellation of this US dollar interest rate swap. With the cancellation of this US dollar interest rate swap, by the counterparties, we also became exposed to currency risk and
interest rate risk on the coupon payment. A more detailed discussion about our currency and interest rate risk can be found under Quantitative and Qualitative Disclosures about Market Risk.
Compared to the corresponding periods in the prior years, interest on our
8
3
/
4
% senior notes decreased $1.3 million and
$3.0 million for the three months and nine months ended December 31, 2009, respectively. The cancellation of the interest rate swap along with the strengthening of the Canadian dollar in the current year resulted in this decrease. The
corresponding increases in swap interest payment loss of $3.5 million and $9.4 million for the three months and nine months ended December 31, 2009, respectively, reflects the combined impact of the counterparties cancellation
of this US dollar interest rate swap.
Foreign exchange (gain) loss
The foreign exchange gains recognized in the current and prior year three month periods relate primarily to changes in the strength of the
Canadian dollar against the US dollar on conversion of the US$200 million
8
3
/
4
%
senior notes. A significant increase in the value of the Canadian dollar, from 0.7935 CAN/US at March 31, 2009 to 0.9555 CAN/US at December 31, 2009, resulted in a significant unrealized foreign exchange gain. A more detailed discussion
about our foreign currency risk can be found under Qualitative and Quantitative Disclosures about Market Risk Foreign exchange risk.
Realized and unrealized (gain) loss on derivative financial instruments
The realized and unrealized (gain) loss on derivative financial instruments reflect changes in the fair value of derivatives embedded in our US
dollar denominated
8
3
/
4
%
senior notes, as well as changes in the fair value of the cross-currency and interest rate swaps that we employ to provide an economic hedge for our US dollar denominated
8
3
/
4
%
senior notes. Realized and unrealized gains and losses also include changes to embedded derivatives in a long-term construction contract and in supplier maintenance agreements. The realized and unrealized (gains) and losses on these derivative
financial instruments, for the three and nine months ended December 31, 2009, are detailed in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended December 31,
|
|
|
Nine months ended December 31,
|
|
(dollars in thousands)
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
Swap liability loss (gain)
|
|
$3,916
|
|
|
$(28,754
|
)
|
|
$32,670
|
|
|
$42,733
|
|
|
$(36,311
|
)
|
|
$79,044
|
|
Redemption option embedded derivative (gain) loss
|
|
(186
|
)
|
|
(605
|
)
|
|
419
|
|
|
(3,598
|
)
|
|
1,911
|
|
|
(5,509
|
)
|
Supplier contracts embedded derivatives (gain) loss
|
|
(254
|
)
|
|
10,346
|
|
|
(10,600
|
)
|
|
(13,958
|
)
|
|
19,499
|
|
|
(33,457
|
)
|
Customer contract embedded derivative loss (gain)
|
|
342
|
|
|
(8,424
|
)
|
|
8,766
|
|
|
6,615
|
|
|
(12,927
|
)
|
|
19,542
|
|
Swap interest payment loss
|
|
4,192
|
|
|
667
|
|
|
3,525
|
|
|
11,393
|
|
|
2,002
|
|
|
9,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$8,010
|
|
|
$(26,770
|
)
|
|
$34,780
|
|
|
$43,185
|
|
|
$(25,826
|
)
|
|
$69,011
|
|
Restated Interim Managements Discussion and Analysis
The Swap liability (gain) loss reflects changes in the fair value
of the cross-currency and interest rate swaps that we employ to provide an economic hedge for our US dollar denominated
8
3
/
4
%
senior notes. Changes in the fair value of these swaps generally have an offsetting effect to changes in the value of our
8
3
/
4
%
senior notes (and resulting foreign exchange gains and losses), with both being triggered by variations in the Canadian or US exchange rate. However, the valuations of the derivative financial instruments are also impacted by changes in interest
rates and the remaining present value of scheduled interest payments on the swaps, which occur in June and December of each year until maturity.
The redemption option embedded derivative (gain) loss reflects changes in the fair value of the derivative embedded in our US dollar denominated
8
3
/
4
%
senior notes. Changes in fair value result from changes in long-term bond interest rates during a reporting period.
With respect to the supplier
contracts, the embedded derivative related to a long-term maintenance contract was increased as a result of the addition of certain pieces of heavy equipment to the repair and maintenance program with the supplier contract in the three months ended
December 31, 2009. For the nine months ended December 31, 2009, the embedded derivative related to our equipment purchase agreement was reduced with the commissioning of certain pieces of heavy equipment. Included in the embedded
derivative valuation was the impact of fluctuations in provisions that require a price adjustment to reflect changes in the Canadian/US dollar exchange rate and the United States government published Producers Price Index (US-PPI) for Mining
Machinery and Equipment from the original contract amount.
With respect to the long-term construction contract, there is a provision that requires an
adjustment to customer billings to reflect actual exchange rates and price indices. The embedded derivative instrument takes into account the impact on revenues, but does not consider the impact on costs as a result of fluctuations in these
measures.
The measurement of embedded derivatives, as required by GAAP, causes our reported net income to fluctuate as Canadian/US dollar exchange
rates, interest rates and the US-PPI for Mining Machinery and Equipment change. The accounting for these derivatives has no impact on operations, Consolidated EBITDA (as defined within our credit agreement) or how we evaluate performance.
The measurement of swap interest payment loss reflects the realized loss on our swap interest payments. As of February 2, 2009,
one of three swap agreements hedging the interest and currency risk associated with our US dollar denominated
8
3
/
4
% senior notes was cancelled by the counterparties. The
counterparties cancellation of this US dollar interest rate swap increased swap interest payments and we are now exposed to interest rate and foreign currency risk. For the current year, we paid higher swap interest payments net of swap
counterparty receipts.
As discussed in the interest expense discussion of this MD&A, the financial impact of the counterparties
cancellation of this US dollar interest rate swap is reported in swap interest payment loss. The year-over-year increases in swap interest payment loss of $3.5 million and $9.4 million for the three and nine months ended December 31,
2009, respectively, reflect the effect of the counterparties cancellation of this US dollar interest rate swap as the semi-annual fixed payments exceed the floating quarterly interest received from our swap counterparties.
Income tax expense
For the three months ended
December 31, 2009, we recorded current income taxes of $0.6 million and deferred income tax of $5.9 million for a total income tax expense of $6.5 million. This compares to combined income tax expense of $4.9 million for the same period last
year. For the three months ended December 31, 2009, income tax expense as a percentage of income before income taxes differs from the statutory rate of 28.91% primarily due to the impact of changes in enacted tax rates and the benefit from
changes in the timing of the reversal of temporary differences. For the three months ended December 31, 2008, income tax expense as a percentage of income before income taxes differed from the statutory rate of 29.38% primarily due to the same
reasons, as well as a permanent difference relating to the $32.8 million non-deductible goodwill impairment.
For the nine months ended December 31,
2009, we recorded current income taxes of $1.9 million and deferred income tax expense of $8.5 million for a total income tax expense of $10.4 million. This compares to combined income tax expense of $10.7 million for the same period last year. For
the nine months ended December 31, 2009, income tax expense as a percentage of income before income taxes differs from the statutory rate of 28.91% primarily due to the impact of changes in enacted tax rates and the benefit from changes in the
timing of the reversal of temporary differences. For the nine month period ended December 31, 2008, income tax expense as a percentage of income before income taxes differed from the statutory rate of 29.38% primarily due to the same reasons as
well as a permanent difference relating to the $32.8 million non-deductible goodwill impairment.
Backlog
Backlog is a measure of the amount of secured work we have outstanding and, as such, is an indicator of a base level of future revenue potential. Backlog is not a
GAAP measure. As a result, the definition and determination of a backlog will vary among different organizations ascribing a value to backlog. Although backlog reflects business that we consider to be firm, cancellations or reductions may occur and
may reduce backlog and future income.
We define backlog as work that has a high certainty of being performed as evidenced by the existence of a signed
contract or work order specifying job scope, value and timing. We have also set a policy that our definition of backlog will
Restated Interim Managements Discussion and Analysis
be limited to contracts or work orders with values exceeding $500,000 and work that will be performed in the next five years, even if the related contracts extend beyond five years.
Our measure of backlog does not define what we expect our future workload to be. We work with our customers using cost-plus, time-and-materials, unit-price and
lump-sum contracts. This mix of contract types varies year-by-year. Our definition of backlog results in the exclusion of a range of services to be provided under cost-plus and time-and-material contracts performed under master service agreements
where scope is not clearly defined. For the three and nine months ended December 31, 2009, the total amount of revenue earned from time-and-material contracts performed under our master services agreements was approximately $117.0 million and
$306.0 million respectively.
Our estimated backlog by segment and contract type as at December 31, 2009 and 2008 as well as September 30, 2009
and March 31, 2009 was:
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
December 31,
2009
|
|
September 30,
2009
|
|
March 31,
2009
|
|
December 31,
2008
|
By Segment
|
|
|
|
|
|
|
|
|
Heavy Construction and Mining
|
|
$718,418
|
|
$740,665
|
|
$667,674
|
|
$651,086
|
Piling
|
|
9,091
|
|
3,630
|
|
8,538
|
|
14,071
|
Pipeline
|
|
14,763
|
|
8,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$742,272
|
|
$752,502
|
|
$676,212
|
|
$665,157
|
|
|
|
|
|
By Contract Type
|
|
|
|
|
|
|
|
|
Unit-Price
|
|
$722,663
|
|
$742,555
|
|
$672,725
|
|
$658,752
|
Lump-Sum
|
|
9,102
|
|
9,947
|
|
3,487
|
|
6,405
|
Time-and-Materials and Cost-Plus
|
|
10,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$742,272
|
|
$752,502
|
|
$676,212
|
|
$665,157
|
A contract with a single customer represented
approximately $681.4 million of our December 31, 2009 backlog compared to $687.8 million reported as backlog in our interim Managements Discussion and Analysis for the six months ended September 30, 2009 and $664.1 million in
our annual Managements Discussion and Analysis for the year ended March 31, 2009. The increase in the five-year backlog for this customer relates to the timing of scheduled volumes through the life of the contract.
We expect that approximately $183.6 million of total backlog will be performed and realized in the twelve months ending December 31,
2010.
*
Claims and Change Orders
Due to
the complexity of the projects we undertake, changes often occur after work has commenced. These changes include but are not limited to:
|
|
changes in client requirements, specifications and design;
|
|
|
changes in materials and work schedules; and
|
|
|
changes in ground and weather conditions.
|
Contract change management processes require that we prepare and submit change orders to the client requesting approval of scope and/or price adjustments to the
contract. Accounting guidelines require that we consider changes in cost estimates that have occurred up to the release of the financial statements and reflect the impact of these changes in the financial statements. Conversely, potential revenue
associated with increases in cost estimates is not included in financial statements until an agreement is reached with a client or specific criteria for the recognition of revenue from unapproved change orders and claims are met. This can, and often
does, lead to costs being recognized in one period and revenue being recognized in subsequent periods.
Occasionally, disagreements arise regarding
changes, their nature, measurement, timing and other characteristics that impact costs and revenue under the contract. If a change becomes a point of dispute between our customer and us, we then consider it to be a claim. Historical claim recoveries
should not be considered indicative of future claim recoveries.
For the three and nine months ended December 31, 2009, due to the timing of receipt
of signed change orders, the Heavy Construction and Mining segment had approximately $0.2 million and $1.1 million respectively in claims revenue recognized to the extent of costs incurred, the Piling segment had $0.8 million and
$1.0 million respectively in claims revenue recognized to the extent of costs incurred, and the Pipeline segment had $0.2 million and $1.7 million respectively in claims revenue recognized to the extent of costs incurred. We are
working with our customers to come to resolution on additional amounts, if any, to be paid to us in respect to these additional costs.
*
|
This paragraph contains forward-looking information. Please refer to Forward-Looking Information and Risk Factors for a discussion on the risks and uncertainties
related to such information.
|
Restated Interim Managements Discussion and Analysis
Summary of Consolidated Quarterly Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dec 31,
2009
|
|
Sept 30,
2009
|
|
Jun 30,
2009
|
|
|
|
Mar 31,
2009
|
|
|
Dec 31,
2008
|
|
|
Sept 30,
2008
|
|
Jun 30,
2008
|
|
|
|
Mar 31,
2008
|
|
|
Fiscal 2010
|
|
|
|
Fiscal 2009
|
|
|
|
Fiscal 2008
|
Revenue
|
|
$221.2
|
|
$170.7
|
|
$146.5
|
|
|
|
$174.7
|
|
|
$258.6
|
|
|
$280.3
|
|
$259.0
|
|
|
|
$323.6
|
Gross profit
|
|
47.6
|
|
33.8
|
|
25.1
|
|
|
|
32.9
|
|
|
51.4
|
|
|
44.7
|
|
41.3
|
|
|
|
60.0
|
Operating income (loss)
|
|
31.3
|
|
18.9
|
|
10.1
|
|
|
|
(129.2
|
)
|
|
(1.9
|
)
|
|
23.4
|
|
20.6
|
|
|
|
40.1
|
Net income (loss)
|
|
14.9
|
|
4.3
|
|
9.9
|
|
|
|
(137.1
|
)
|
|
(15.0
|
)
|
|
2.9
|
|
13.8
|
|
|
|
17.9
|
Net income (loss) per share
Basic
(1)
|
|
$0.41
|
|
$0.12
|
|
$0.28
|
|
|
|
$(3.80
|
)
|
|
$(0.42
|
)
|
|
$0.08
|
|
$0.38
|
|
|
|
$0.50
|
Net income (loss) per share Diluted
(1)
|
|
$0.41
|
|
$0.12
|
|
$0.27
|
|
|
|
$(3.80
|
)
|
|
$(0.42
|
)
|
|
$0.08
|
|
$0.37
|
|
|
|
$0.49
|
(1)
|
Net income (loss) per share for each quarter has been computed based on the weighted average number of shares issued and outstanding during the respective
quarter; therefore, quarterly amounts may not add to the annual total. Per-share calculations are based on full dollar and share amounts.
|
A number of factors have the potential to contribute to variations in our quarterly financial results between periods, including the capital project-based nature of
our project development revenue, seasonal weather and ground conditions, capital spending decisions by our customers on large oil sands projects, the timing of equipment maintenance and repairs, claims and change orders and the accounting for
unrealized non-cash gains and losses related to foreign exchange and derivative financial instruments.
We generally experience a decline in revenues
during the first three months of each fiscal year due to seasonality, as weather conditions make performance in our operating regions difficult during this period. The level of activity in the Heavy Construction and Mining and Pipeline segments
declines when frost leaves the ground and many secondary roads are temporarily rendered incapable of supporting the weight of heavy equipment. The duration of this period is referred to as spring breakup and has a direct impact on our
activity levels. Revenues during the three months ended March 31 of each fiscal year are typically highest as ground conditions are most favourable in our operating regions. As a result, full-year results are not likely to be a direct multiple
of any particular three month period or combination of three month periods. In addition to revenue variability, gross margins can be negatively impacted in less active periods because we are likely to incur higher maintenance and repair costs due to
our equipment being available for servicing.
The timing of large projects can influence quarterly revenues. For example, Pipeline segment revenues were
as high as $87.5 million in the three months ended March 31, 2008, as low as $0.1 million in the three months ended June 30, 2009 and are currently at $17.0 million for the three months ended December 31, 2009. The Heavy Construction
and Mining segment experienced reduced volumes in the three months ended December 31, 2008 and March 31, 2009 as a result of the temporary shut-down of overburden removal at the Horizon project while Canadian Natural prepared for
operations start-up. Subsequent three month periods reflected the ramp up of overburden removal activities at the Horizon project through to the current three month period where activity has returned to planned activity levels. Changes in demand
under our master service agreements with Shell Albian and Syncrude had a positive effect on our revenues for the three months ended June 30, 2008, September 30, 2008 and December 31, 2008 respectively. Changes in demand with
Syncrude had a negative effect on our revenues for the three months subsequent to December 31, 2008, while master service agreement demand from Shell Albian continues to positively affect period-over-period comparatives.
Variations in quarterly results can also be caused by changes in our operating leverage. During periods of higher activity, we have experienced improvements in
operating margin. This reflects the impact of relatively fixed costs, such as G&A costs, being spread over higher revenue levels. If activity decreases, these same fixed costs are spread over lower revenue levels. Net income and income per share
are also subject to operating leverage as provided by fixed interest expense.
Profitability also varies from quarter-to-quarter as a result of claims
and change orders. Claims and change orders are a normal aspect of the contracting business but can cause variability in profit margin due to the unmatched recognition of costs and revenues. For further explanation, see Claims and Change
Orders. As an example, during the three months ended June 30, 2008, a $5.3 million claim was recognized causing gross margins for the Pipeline segment to be higher than normal. The additional costs relating to this claim were incurred and
recognized in the year ended March 31, 2007 and in the three months ended June 30, 2007.
We have also experienced net
income variability in all periods due to the recognition of unrealized non-cash gains and losses on both derivative financial instruments and our
8
3
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% senior notes, primarily driven by changes in the Canadian/US dollar exchange rates.
Restated Interim Managements Discussion and Analysis
Summary of Consolidated Financial Position
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
As at
December
31,
2009
|
|
|
As at
March 31,
2009
|
|
|
Change
|
|
Cash
|
|
$94,877
|
|
|
$98,880
|
|
|
$(4,003
|
)
|
Current assets (excluding cash)
|
|
200,271
|
|
|
157,858
|
|
|
42,413
|
|
Current liabilities
|
|
(136,903
|
)
|
|
(127,957
|
)
|
|
(8,946
|
)
|
|
|
|
|
|
|
|
|
|
|
Net working capital
|
|
158,245
|
|
|
128,781
|
|
|
29,464
|
|
Property, plant and equipment
|
|
333,582
|
|
|
316,115
|
|
|
17,467
|
|
Total assets
|
|
685,225
|
|
|
629,275
|
|
|
55,950
|
|
Capital lease obligations
(including current portion)
|
|
(14,370
|
)
|
|
(17,484
|
)
|
|
3,114
|
|
Total long-term financial liabilities
(1)
|
|
(327,871
|
)
|
|
(318,559
|
)
|
|
(9,312
|
)
|
(1)
|
Total long-term financial liabilities exclude the current portions of capital lease obligations, current portions of derivative financial instruments, long-term
lease inducements, asset retirement obligation and both current and non-current deferred income tax balances.
|
At December 31,
2009, net working capital (cash and current assets less current liabilities) was $158.3 million compared to $128.8 million at March 31, 2009, an increase of $29.5 million.
Current assets excluding cash increased $42.4 million between March 31, 2009 and December 31, 2009. A $11.5 million increase to
trade receivables and holdbacks along with a $25.5 million increase in unbilled revenue during the nine month period ended December 31, 2009 was partially offset by a $3.7 million reduction of inventory from consumption of tires, previously
stockpiled for new leased haul trucks (haul trucks do not arrive with tires included) and a $4.0 million decrease in cash, reflective of the timing of semi-annual coupon payments on our
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% senior notes. The prior year trade receivables,
holdbacks and unbilled revenue balances benefitted from the completion and settlement of projects at Suncors Fort Hills and Kinder Morgans TMX.
Current liabilities increased $8.9 million between December 31, 2009 and March 31, 2009, a $20.6 million increase in accounts payable
offset by a $29.1 million reduction in accrued liabilities primarily as a result of our December 1st interest payment for our
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% senior notes and interest rate swap. Equipment purchases of $4.1 million, which are scheduled to be paid after December 31, 2009, are included
in accounts payable as of December 31, 2009.
Property, plant and equipment increased by $17.5 million between March 31, 2009 and
December 31, 2009. This reflects the capital investment of $51.2 million of equipment purchases and new capital leases during the current nine month period ended December 31, 2009, offset by equipment disposals of $2.2 million (net book
value) and depreciation of $31.3 million.
Total long-term financial liabilities increased by $9.3 million between March 31,
2009 and December 31, 2009, due to a $30.1 million increase related to the cross-currency and interest rate swap agreements, an increase of $23.9 million in the long-term portion of our term loan resulting from new term loans under our amended
and restated credit agreement, an increase of $3.7 million to contingent rental liability and an increase of $5.2 million in the value of the long-term portion of the embedded derivatives in a long-term revenue construction contract. This was
partially offset by a $46.3 million decrease in the carrying amount of our
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% senior notes, a $6.2 million decrease related to the long-term portion of the embedded derivatives in long-term supplier contracts and a $3.0
million decrease in the non-current portion of our capital lease obligations.
Summary of Consolidated Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended December 31,
|
|
|
Nine months ended December 31,
|
|
(dollars in thousands)
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
Cash provided by operating activities
|
|
$10,384
|
|
|
$60,911
|
|
|
$(50,527
|
)
|
|
$26,392
|
|
|
$79,196
|
|
|
$(52,804
|
)
|
Cash used in investing activities
|
|
(8,690
|
)
|
|
(8,614
|
)
|
|
(76
|
)
|
|
(54,299
|
)
|
|
(67,439
|
)
|
|
13,140
|
|
Cash (used in) provided by financing activities
|
|
(4,308
|
)
|
|
(12,694
|
)
|
|
8,386
|
|
|
23,904
|
|
|
(4,017
|
)
|
|
27,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in cash and cash equivalents
|
|
$(2,614
|
)
|
|
$39,603
|
|
|
$(42,217
|
)
|
|
$(4,003
|
)
|
|
$7,740
|
|
|
$(11,743
|
)
|
Operating activities
Cash provided by operating activities for the three months ended December 31, 2009 was an inflow of $10.4 million, compared to a cash inflow of $60.9 million
for the three months ended December 31, 2008. The lower cash provided by operating activities in the current period is primarily a result of lower gross profit, higher interest expense and increased non-cash net working capital.
Cash provided by operating activities for the nine months ended December 31, 2009 was an inflow of $26.4 million, compared to a cash inflow of $79.2 million
for the nine months ended December 31, 2008. The lower cash provided by
Restated Interim Managements Discussion and Analysis
operating activities in the current period is primarily a result of lower gross profit, higher interest expense and increased non-cash net working capital.
Investing activities
Cash used in net investing activities
for the three months ended December 31, 2009 was an outflow of $8.7 million compared with an outflow of $8.6 million for the same period a year ago. Investing activities this year included capital expenditures of $4.8 million along with a $0.5
million final payment for the acquisition of DF Investments Limited, the parent company of Drillco Foundation Co. Ltd. Proceeds from asset dispositions of $1.6 million and a net outflow from non-cash working capital of $3.0 million lessened the
effect of capital purchases and the acquisition. Cash used in investing activities last year included a net outflow from non-cash working capital of $2.1 million and capital expenditures of $9.4 million, offset by an inflow of proceeds from asset
dispositions of $3.2 million.
Cash used in net investing activities for the nine months ended December 31, 2009 was an outflow of $54.3 million
compared with an outflow of $67.4 million for the same period a year ago. Current period investing activities included capital expenditures of $48.0 million along with $5.4 million for the acquisition of DF Investments Limited. A cash inflow of
proceeds from asset dispositions of $3.4 million and a net outflow from non-cash working capital of $0.4 million lessened the effect of cash outflows for capital purchases and the acquisition. Cash used in investing activities last year included
capital expenditures of $78.3 million, partially offset by proceeds from asset dispositions of $8.0 million and a net inflow from non-cash working capital of $3.2 million.
Financing activities
Cash used in financing activities
during the three months ended December 31, 2009 resulted in a cash outflow of $4.3 million as a result of scheduled repayments on our term credit facility of $3.0 million and the $1.3 million repayment of capital lease obligations. Cash
used in financing activities for the three months ended December 31, 2008 of $12.7 million was a result of the repayment of $10.0 million previously drawn on our revolving credit facility, the reduction of cheques issued in excess of cash and
the $2.0 million repayment of capital lease obligations.
Cash provided by financing activities during the nine month period ended December 31, 2009
resulted in a cash inflow of $23.9 million. Capital expenditure financing of $33.0 million, through our new term credit facility (net of term credit facility repayments), was partially offset by the $3.7 million scheduled repayment of the new term
facility, $4.2 million repayment of capital lease obligations, $1.1 million in financing costs for our amended and restated credit agreement and the repayment of debt assumed with the acquisition of DF Investments Ltd. Cash used in financing
activities for the nine month period ended December 31, 2008 of $4.0 million was primarily the result of the $4.7 million repayment of capital lease obligations.
C. Outlook
Our
expectation for the three months ending March 31, 2010 is for continued strong operating performance despite weak economic conditions. In particular, recurring services volumes are expected to continue gradually strengthening as a result of the
return to normal overburden removal activity levels at Canadian Naturals Horizon project and steady demand from Shell Albians oil sands sites. We are also continuing to pursue opportunities with other oil sands
customers.
*
Opportunities on the project development side of the oil sands are expected to expand as Imperial Oils
Kearl
7
, ConocoPhillipss
Surmont
8
, Husky Energys
Sunrise
9
and Suncors Firebag projects increase demand on service
providers. Overall, however, we expect that project development activity will move forward at a more moderate and sustainable pace than what was experienced in the
past.
*
The Pipeline segment is expected to continue increasing its revenue
contribution through the balance of the fiscal year as existing projects ramp up to peak operations during the colder months. Tendering and bidding for new pipeline contracts continue at a strong pace, however competition in this market remains
intense.
*
Activity in our Piling segment remains well below fiscal 2008 and 2009
levels, reflecting continued weakness in the commercial and industrial construction markets. Nonetheless, our recent acquisition of Drillco Foundation Co. Ltd., a piling company in the Ontario market, has been successfully integrated and the new
business is expected to provide increasing segment contributions going
forward.
*
*
|
This paragraph contains forward-looking information. Please refer to Forward-Looking Information and Risk Factors for a discussion on the risks and uncertainties
related to such information.
|
7
|
Imperial Oil Limited Kearl (Kearl) oil sands mining and extraction project. Imperial Oil Limited holds a 70.96% participating interest in the Kearl oils sands
project, a joint venture with ExxonMobil Canada Properties, a subsidiary of Exxon Mobil Corporation. Imperial Oil Limited is the project operator
|
8
|
ConocoPhillips Canada Resources Corporations (ConocoPhillips) Surmont Oil Sand project is a 50/50 joint venture between ConocoPhillips Canada, a wholly
owned subsidiary of ConocoPhillips Company and Total E&P Canada Ltd. (Total), a wholly owned subsidiary of Total SA. ConocoPhillips Canada is the project operator.
|
9
|
Husky Energy Inc.s (Husky Energy) Sunrise Oil Sand project is a 50/50 joint venture with BP Canada Energy Company (BP), a wholly owned subsidiary of BP
PLC. The Sunrise project is operated by Husky Energy.
|
Restated Interim Managements Discussion and Analysis
Overall, expectations for the three months ending March 31,
2010 are fairly optimistic given the recent project announcements from ConocoPhillips and Husky Energy as well as our industry knowledge as a result of our significant presence in the Canadian mining and construction industry. Opportunities continue
to exist in all areas of the business and we are focused on pursuing those contracts that leverage our strengths and enable us to maintain reasonable margins as we work to position ourselves for long-term business success. We are currently
developing plans, with the assistance of our financial advisors, to take advantage of the favourable credit markets to refinance some or all of our existing
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% senior notes, which are due in December 2011.
D. Legal and Labour Matters
Laws and Regulations and Environmental Matters
Many aspects of our operations are subject to various federal, provincial and local laws and regulations, including:
|
|
permit and licensing requirements applicable to contractors in their respective trades;
|
|
|
building and similar codes and zoning ordinances;
|
|
|
laws and regulations relating to consumer protection; and
|
|
|
laws and regulations relating to worker safety and protection of human health.
|
For a more detailed discussion of laws and regulations and environmental matters applicable to us, see our most recent annual Managements Discussion and
Analysis.
Employees and Labour Relations
As of December 31, 2009, we had 375 salaried employees and over 1,350 hourly employees. Our hourly workforce fluctuates according to the seasonality of our
business and the staging and timing of projects by our customers. The hourly workforce typically ranges in size from 1,000 employees to approximately 2,100 employees depending on the time of year and duration of awarded projects. We also utilize the
services of subcontractors in our construction business. An estimated 8% to 10% of the construction work we do is performed by subcontractors. Approximately 1,300 employees are members of various unions and work under collective bargaining
agreements. The majority of our work is done through employees governed by our mining overburden collective bargaining agreement with the International Union of Operating Engineers Local 955, the primary term of which expired on October 31,
2009. Negotiations remain underway for the renewal of this union agreement and we are confident that a renewal agreement will be reached without dispute. Other collective agreements in operation include the provincial Industrial, Commercial and
Institutional (ICI) agreements in Alberta and Ontario with both the Operating Engineers and Labourers Unions, Piling sector collective agreements in Saskatchewan with the Operating Engineers and Labourers, Pipeline sector agreements in both British
Columbia and Alberta with the Christian Labour Association of Canada (CLAC) as well as an all-sector agreement with CLAC in Ontario. We are subject to other industry and specialty collective agreements under which we complete work and the primary
terms of all of these agreements are currently in effect. We believe that our relationships with all our employees, both union and non-union, are strong. We have not experienced a strike or
lockout.
*
E. Resources and Systems
Outstanding Share Data
We are
authorized to issue an unlimited number of voting Common Shares and an unlimited number of Non-Voting Common Shares. As at February 1, 2010, there were 36,049,276 voting Common Shares outstanding (36,038,476 as at March 31, 2009). We had
no Non-Voting Common Shares outstanding on any of the foregoing dates.
Liquidity and Capital Resources
Liquidity requirements
Our primary uses of cash are for
plant and equipment purchases, to fulfill debt repayment and interest payment obligations, to fund operating lease obligations and to finance working capital requirements.
We maintain a significant equipment and vehicle fleet comprised of units with remaining useful lives covering a variety of time spans. It is important to adequately
maintain our large revenue-producing fleet in order to avoid equipment downtime, which can impact our revenue stream and inhibit our ability to satisfactorily perform on our projects. Once units reach the end of their useful lives, they are replaced
as it becomes cost prohibitive to continue to maintain them. As a result, we are continually acquiring new equipment both to replace retired units and to support our growth as we take on new projects. In order to maintain a balance of owned and
leased equipment, we have financed a portion of our heavy construction fleet through operating leases. In addition, we continue to lease our motor vehicle fleet through our capital lease facilities.
*
|
This paragraph contains forward-looking information. Please refer to Forward-Looking Information and Risk Factors for a discussion on the risks and
uncertainties related to such information.
|
Restated Interim Managements Discussion and Analysis
We require between $30 million and $40 million annually for
sustaining capital expenditures and our total capital requirements typically range from $125 million to $200 million depending on our growth capital requirements. With the potential future customer demand for larger-sized heavy equipment in the oil
sands, we expect our capital needs in the current fiscal year to be approximately $100 to $150 million, including a possible additional $30 million to $50 million of growth
capital.
*
We typically finance approximately 30% to 50% of our total capital requirements through our
operating lease facilities and the remainder from cash flow from operations. We believe our operating and capital lease facilities and cash flow from operations will be sufficient to meet these requirements. Our equipment fleet value is currently
split among owned (45%), leased (47%) and rented equipment (8%). Approximately 40% of our leased fleet is specific to one long-term overburden removal project. This equipment mix is a change from the mix reported in previous periods as a result
of our declining need for the same levels of rental equipment along with the conversion of some rental equipment to operating leases to meet specific volume demands. Our equipment ownership strategy allows us to meet our customers variable
service requirements while balancing the need to maximize equipment utilization with the need to achieve the lowest ownership costs. We are continually evaluating our capital needs and continue to monitor equipment lead times with suppliers to
ensure that we control our capital spending while still being in a position to respond to opportunities when they
materialize.
*
We continue to receive interest from finance companies to support our current lease requirements and we have availability under one of our suppliers leasing
program to meet our current equipment needs from this supplier. We are currently negotiating with these finance companies to secure financing for our other equipment needs over the balance of the fiscal year.
Our long-term debt includes US$200 million of
8
3
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4
% senior notes due in December 2011. Prior to February 2, 2009, the foreign currency risk relating to both the principal and interest portions
of these
8
3
/
4
% senior notes was managed with a cross-currency swap and interest rate swaps, which went into effect concurrent with the issuance of the notes on
November 26, 2003. The swap agreements were an economic hedge but had not been designated as hedges for accounting purposes. Prior to the cancellation of the US dollar interest rate swap, interest totaling $13.0 million on the
8
3
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4
% senior notes and the swap was payable semi-annually in June and December of each year until the notes would mature on December 1, 2011. The
US$200 million principal amount was fixed at C$1.315=US$1.000, resulting in a principal repayment of $263.0 million due on December 1, 2011. There are no principal repayments required on the
8
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4
% senior notes until maturity. Effective February 2, 2009, the US dollar interest rate swap was terminated by the counterparties and our
interest expense increased by approximately US$6.8 million per annum (based on the then current US Dollar LIBOR rates) for the remaining life of the
8
3
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4
% senior notes. This increase is net of US dollar floating interest payments on the cross-currency swap agreement we now receive every
March 1, June 1, September 1 and December 1, effective March 1, 2009 until the notes mature on December 1, 2011. The value of the quarterly floating rate US dollar payments we receive is the prevailing three
month US Dollar LIBOR rate plus a spread of 4.2% on the notional amount of US$200 million. Our Canadian dollar interest rate swap and cross-currency swap agreements are not cancellable at the option of the counterparties and remain in effect.
A more detailed discussion of this cancellation can be found below in the Foreign exchange risk and
Interest rate risk sections of Quantitative and Qualitative Disclosures about Market Risk.
One of our major contracts allows the customer to
require that we provide up to $50.0 million in letters of credit. As at December 31, 2009, we had $20.0 million in letters of credit outstanding in connection with this contract (we have $20.4 million in letters of credit outstanding in total
for all customers as of December 31, 2009). Any change in the amount of the letters of credit required by this customer must be requested by November 1st in each year for an issue date of January 1st following the date of such
request, for the remaining life of the contract. We have received notice from this customer that the letter of credit requirement has decreased to $10.0 million effective January 6, 2010. In the event that we require additional letters of
credit for either this major contract or other contracts, we have included an option in our June 24, 2009 amended and restated credit agreement to request an increase to the revolving portion of the credit facility, on a one-time basis, by an
amount up to the lesser of $25.0 million or the requested increase to the letters of credit for this customer.
Sources of liquidity
Our principal sources of cash are funds from operations and borrowings under our credit facility. As at December 31, 2009, we had approximately $69.6 million
of available borrowings under our Revolving Facility provided for in our amended and restated credit agreement, after taking into account $20.4 million of outstanding and undrawn letters of credit to support performance guarantees associated with
customer contracts. On December 1, 2009, we were notified by a major customer that they had reduced their letters of credit requirements from $20.0 million to $10.0 million which became effective on January 6, 2010.
*
|
This paragraph contains forward-looking information. Please refer to Forward-Looking Information and Risk Factors for a discussion on the risks and uncertainties
related to such information.
|
Restated Interim Managements Discussion and Analysis
As at December 31, 2009, we had $10.3 million in trade receivables that were more
than 30 days past due compared to $16.0 million as at March 31, 2009. We have currently provided an allowance for doubtful accounts related to our trade receivables of $2.3 million ($2.6 million at March 31, 2009). We continue to monitor
the credit worthiness of our customers. To date our exposure to potential write-downs in trade receivables has been limited to the financial condition of developers of condominiums and high-rise developments in our Piling segment.
Working capital fluctuations effect on cash
The seasonality of our business results in higher accounts receivable balance between December and early February during peak activity levels,
which may result in an increase in our working capital requirements. Our working capital is also significantly affected by the timing of the completion of projects. In some cases, our customers are permitted to withhold payment of a percentage of
the amount owing to us for a stipulated period of time (such percentage and time period is usually defined by the contract and in some cases provincial legislation). This amount acts as a form of security for our customers and is referred to as a
holdback. Typically, we are only entitled to collect payment on holdbacks once substantial completion of the contract is performed, there are no outstanding claims by subcontractors or others related to work performed by us and we have
met the time period specified by the contract (usually 45 days after completion of the work). However, in some cases, we are able to negotiate the progressive release of holdbacks as the job reaches various stages of completion. As at
December 31, 2009, holdbacks totaled $4.5 million, down from $9.4 million as at March 31, 2009. Holdbacks represent 5.0% of our total accounts receivable as at December 31, 2009 (12.0% as at March 31, 2009). This decrease is
attributable to the reduction of revenue in our Piling segment for the three months ended December 31, 2009 and March 31, 2009 compared to the same periods in the prior year. As at December 31, 2009, we carried $2.8 million in
holdbacks for three large customers.
*
Cash requirements
As at
December 31, 2009, our cash balance of $94.9 million was $4.0 million lower than our cash balance at March 31, 2009. The change in cash balance reflects the timing of capital expenditures and the timing of processing change orders and
payment certificates. Offsetting these outflows of cash was the cash inflow of $33.0 million secured through our amended and restated credit facility. We anticipate that we will generate a net cash surplus from operations at least through
March 31, 2010. In the event that we require additional funding, we believe that any such funding requirements would be satisfied by the funds available from our credit facility described immediately
below.
*
Credit facility
We entered into an amended and restated credit agreement on June 24, 2009 with a syndicate of lenders that provided us with a credit facility, under which
revolving loans, term loans and letters of credit may be issued. The facility will mature on June 8, 2011. The total credit facility remained unchanged at $125.0 million and included a $75.0 million Revolving Facility and a $50.0 million Term
Facility. The Term Facility commitments were available until August 31, 2009 and aggregate borrowings under this facility had to exceed $25.0 million. Any undrawn amount under the Term Facility, up to a maximum of $15.0 million, could be
reallocated to the Revolving Facility. On August 31, 2009, the maximum undrawn portion of the Term Facility totaling $15.0 million was reallocated to the Revolving Facility resulting in Revolving Facility commitments of $90.0 million. The Term
Facility includes scheduled mandatory principal payments while the funds available under the Revolving Facility are reduced by any outstanding letters of credit.
As of December 31, 2009, the total credit facility includes the $90.0 million Revolving Facility and the outstanding borrowings of $30.0 million (March 31,
2009 $nil) under the non-revolving Term Facility, after the mandatory principal payments of $3.0 million in the quarter. As of December 31, 2009, we had issued $20.4 million (March 31, 2009 $20.8 million) in letters of credit
under the Revolving Facility to support performance guarantees associated with customer contracts. Our unused borrowing availability under the credit facility was $69.6 million at December 31, 2009. December 1, 2009, we were notified by a
major customer that they had reduced their letters of credit requirements from $20.0 million to $10.0 million which became effective January 6, 2010.
Advances under the Revolving Facility may be repaid from time to time at our option. Beginning September 30, 2009, and at the end of each fiscal quarter
thereafter, we must make quarterly repayments on the Term Facility of $1.5 million through June 2011, with the balance due at that time. The credit facility bears interest at the Canadian prime rate, the US dollar base rate, the Canadian
bankers acceptance rate or the London interbank offered rate (LIBOR) (all such terms as used or defined in the credit facility) plus applicable margins. In each case, the applicable pricing margin depends on our current debt rating. For a
discussion on our current debt rating refer to the Debt Ratings section of this Managements Discussion and Analysis.
During the nine months ended
December 31, 2009, financing fees of $1.1 million were incurred in connection with the modifications to the amended and restated credit agreement. These fees were recorded as deferred financing costs and are amortized over the remaining term of
the agreement using the effective interest method.
*
|
This paragraph contains forward-looking information. Please refer to Forward-Looking Information and Risk Factors for a discussion on the risks and uncertainties
related to such information.
|
Restated Interim Managements Discussion and Analysis
Included in the amended and restated credit agreement is an option to request an
increase to the total revolving credit facility commitments if our requirements for providing letters of credit to our customers exceed $21.0 million. In that event we are permitted to request, on a one-time basis, an increase to the overall
revolving credit facility by an amount up to the lesser of $25.0 million or the requested increase to the letters of credit by our customers.
Under the
credit agreement, we are required to satisfy certain financial covenants, including an amended minimum interest coverage ratio. The interest coverage covenant is determined based on a ratio of Consolidated EBITDA (as defined within the credit
agreement) to consolidated cash interest expense. Measured as of the last day of each fiscal quarter, on a trailing four-quarter basis, the interest coverage ratio shall not be less than 2.0 times at any time up to June 29, 2010 and shall not
be less than 2.5 times any time thereafter.
Covenants remaining unchanged in the credit agreement include:
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|
The senior leverage covenant, which is determined based on a ratio of senior debt to Consolidated EBITDA (as defined within the credit agreement). Measured as of
the last day of each fiscal quarter on a trailing four-quarter basis, the senior leverage ratio shall not exceed 2.0 times.
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|
The current ratio covenant is determined based on the ratio of current assets to current liabilities (as defined within the credit agreement). Measured as of the
last day of each fiscal quarter, the current ratio shall not be less than 1.25 times.
|
Consolidated EBITDA is defined within the
credit agreement. The amended and restated credit agreement clarifies the definition of Consolidated EBITDA to be the sum, without duplication, of (a) consolidated net income, (b) consolidated interest expense, (c) provision for taxes
based on income, (d) total depreciation expense, (e) total amortization expense, (f) costs and expenses incurred by us in entering into the credit facility, (g) accrual of stock-based compensation expense to the extent not paid
in cash or if satisfied by the issuance of new equity, (h) the non-cash currency translation losses or mark-to-market losses on any hedge agreement (defined in the credit agreement) or any embedded derivative, and (i) other non-cash items
including goodwill impairment (other than any such non-cash item to the extent it represents an accrual of or reserve for cash expenditures in any future period) but only, in the case of clauses (b)-(i), to the extent deducted in the calculation of
consolidated net income, less (i) the non-cash currency translation gains or mark-to-market gains on any hedge agreement or any embedded derivative to the extent added in the calculation of consolidated net income, and (ii) other non-cash
items added in the calculation of consolidated net income (other than any such non-cash item to the extent it will result in the receipt of cash payments in any future period), all of the foregoing as determined on a consolidated basis in conformity
with Canadian GAAP. The clarification of the definition of Consolidated EBITDA (as defined within the credit agreement) did not change our measurement of Consolidated EBITDA.
The credit facility may be prepaid in whole or in part without penalty, except for bankers acceptances, which are not pre-payable prior to their maturity.
However, the credit facility requires prepayments under various circumstances, such as: (i) 100% of the net cash proceeds of certain asset dispositions, (ii) 100% of the net cash proceeds from our issuance of equity (unless the use of such
securities proceeds is otherwise designated by the applicable offering document) and (iii) 100% of all casualty insurance and condemnation proceeds, subject to exceptions.
For a complete discussion of our credit facility, see our most recent annual Managements Discussion and Analysis.
Capital resources
We acquire our equipment requirements in
three ways: capital expenditures, capital leases, and operating leases. Capital expenditures require the outflow of cash for the full value of the equipment at the time of purchase. Capital leases, while not considered capital expenditures, are
restricted under the terms of our credit agreement to a maximum of $30.0 million. Operating leases are not considered capital expenditures and are not restricted under the terms of our credit agreement.
We define our equipment requirements as either sustaining capital additions, those that are needed to keep our existing fleet of equipment at its optimal useful
life through capital maintenance or replacement, or growth capital additions, those that are needed to perform larger or a greater number of projects.
Restated Interim Managements Discussion and Analysis
A summary of equipment additions by nature and by period is shown on the table below:
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|
|
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Three months ended December 31,
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Nine months ended December 31,
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(dollars in thousands)
|
|
2009
|
|
2008
|
|
Change
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Change
|
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Capital Expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sustaining
|
|
$2,626
|
|
$4,129
|
|
$(1,503
|
)
|
|
|
|
|
|
$8,821
|
|
$17,264
|
|
$(8,443
|
)
|
Growth
|
|
2,148
|
|
5,240
|
|
(3,092
|
)
|
|
|
|
|
|
42,372
|
|
61,031
|
|
(18,659
|
)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Total
|
|
$4,774
|
|
$9,369
|
|
$(4,595
|
)
|
|
|
|
|
|
$51,193
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|
$78,295
|
|
$(27,102
|
)
|
Capital Leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Sustaining
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|
$449
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|
$152
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|
$297
|
|
|
|
|
|
|
$449
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|
$3,040
|
|
$(2,591
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)
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Growth
|
|
|
|
7,839
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|
(7,839
|
)
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|
|
|
|
|
656
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|
10,067
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|
(9,411
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)
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|
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|
|
|
|
|
|
|
|
|
|
|
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Total
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$449
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$7,991
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$(7,542
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)
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$1,105
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$13,107
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$(12,002
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)
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Total Sustaining Capital Additions
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$3,075
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$4,281
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$(1,206
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)
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|
|
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$9,270
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|
$20,304
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|
$(11,034
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)
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Total Growth Capital Additions
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$2,148
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$13,079
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$(10,931
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)
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$43,028
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$71,098
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$(28,070
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)
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Operating Leases
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$28,669
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|
$52,192
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$(23,523
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)
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|
|
|
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|
$59,341
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|
$85,207
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|
$(25,866
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)
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The reduction in sustaining capital additions, for
the three and nine months ended December 31, 2009, compared to the same periods in the prior year, is reflective of fewer equipment purchases due to lower volumes.
The reduction in growth capital additions, for both the three and nine months ended December 31, 2009, compared to the same periods in the prior year, reflects
the impact of fewer development projects as a result of the current economic slowdown.
The decrease in operating leases, for the three and nine months
ended December 31, 2009, compared to the same periods in the previous year, reflects the timing of scheduled equipment additions related to the Canadian Natural overburden project along with the impact of fewer development projects as a result
of the current economic slowdown.
Capital Commitments
Contractual obligations and other commitments
Our principal
contractual obligations relate to our long-term debt, capital and operating leases and supplier contracts. The following table summarizes our future contractual obligations, excluding interest payments, unless otherwise noted, as of
December 31, 2009.
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Payments due by fiscal year
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(dollars in thousands)
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Total
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2010
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2011
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2012
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2013
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2014 and
after
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Senior notes
(1)
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$263,000
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$
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|
$
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$263,000
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$
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$
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Term Facility
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29,964
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1,518
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|
6,072
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|
22,374
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Capital leases (including interest)
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15,727
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1,541
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5,696
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|
5,103
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2,862
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525
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Operating leases
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178,591
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15,313
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55,759
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45,906
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30,995
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30,618
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Supplier contracts
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55,754
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2,736
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|
11,672
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13,853
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13,853
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13,640
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|
|
|
|
|
|
|
|
|
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Total contractual obligations
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$543,036
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$21,108
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|
$79,199
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|
$350,236
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|
$47,710
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$44,783
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(1)
|
We have entered into cross-currency and interest rate swaps, which represent an economic hedge of the
8
3
/
4
% senior notes. At maturity, we will be required to pay $263.0 million in order to retire these senior notes and the swaps. This amount reflects the
fixed exchange rate of C$1.315=US$1.00 established as of November 26, 2003, the inception date of the swap contracts (see Interest rate risk in Quantitative and Qualitative Disclosures about Market Risk regarding the cancellation of
the US dollar interest rate swap effective February 2, 2009). At December 31, 2009, the carrying value of the derivative financial instruments was $76.2 million, inclusive of the interest components.
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Off-balance sheet arrangements
We have no off-balance sheet
arrangements in place at this time.
Debt Ratings
Our debt ratings were last assessed in December 2009 and both Standard & Poors and Moodys affirmed our current ratings.
Our corporate credit ratings from these two agencies are as follows:
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Standard & Poors
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B+ (negative outlook)
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Moodys
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B2 (stable outlook)
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Restated Interim Managements Discussion and Analysis
Our
8
3
/
4
% senior notes are rated as follows:
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Standard & Poors
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B+ (recovery rating of 4)
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Moodys
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B3 (loss given default rating of 5)
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A credit rating is a current
opinion of the credit worthiness of an obligor with respect to a specific financial obligation, a specific class of financial obligations, or a specific financial program (including ratings on medium-term note programs and commercial paper
programs). It takes into consideration the creditworthiness of guarantors, insurers, or other forms of credit enhancement on the obligation and takes into account the currency in which the obligation is denominated. The opinion evaluates the
obligors capacity and willingness to meet its financial commitments as they come due, and may assess terms, such as collateral security and subordination, which could affect ultimate payment in the event of default. A credit rating is not a
statement of fact or recommendation to purchase, sell, or hold a financial obligation or make any investment decisions nor is it a comment regarding an issuers market price or suitability for a particular investor. A credit rating speaks only
as of the date it is issued and can be revised upward or downward or withdrawn at any time by the issuing rating agency if it decides circumstances warrant a revision. We undertake no obligation to maintain our credit ratings or to advise investors
of a change in ratings.
A definition of the categories of each rating has been obtained from each respective rating organizations website as
outlined below:
Standard & Poors
An obligation rated B is regarded as having speculative characteristics, but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligors capacity or willingness to meet its financial commitment on the obligation. The ratings from AA to CCC may be modified
by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories.
A recovery rating of 4 for the
8
3
/
4
% senior notes indicates an expectation for an average of 30% to 50% recovery in the event of a payment default.
A Standard & Poors rating outlook assesses the potential direction of a long-term credit rating over the intermediate
term (typically nine months to two years). In determining a rating outlook, consideration is given to any changes in the economic and/or fundamental business conditions. An outlook is not necessarily a precursor of a rating change or future
CreditWatch action. A Stable outlook means that a rating is not likely to change.
Moodys
Obligations rated B are considered speculative and are subject to high credit risk. Moodys appends numerical
modifiers to each generic rating classification from Aa through Caa. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates a ranking in the lower end of that generic rating category.
Loss Given Default (LGD)
assessments are opinions about expected loss given default on fixed income obligations expressed as a percent of principal and accrued interest at the resolution of the default. An LGD assessment (or rate) is the expected LGD divided by the expected
amount of principal and interest due at resolution. A LGD rating of 5 indicates a loss range of greater than or equal to 70% and less than 90%.
A Moodys rating outlook is an opinion regarding the likely direction of an issuers rating over the medium term. Where
assigned, rating outlooks fall into the following four categories: Positive (POS), Negative (NEG), Stable (STA), and Developing (DEV contingent upon an event). In the few instances where an
issuer has multiple ratings with outlooks of differing directions, an (m) modifier (indicating multiple, differing outlooks) will be displayed, and Moodys written research will describe any differences and provide the rationale for
these differences. A RUR (Rating(s) Under Review) designation indicates that the issuer has one or more ratings under review for possible change, and thus overrides the outlook designation. When an outlook has not been assigned to an
eligible entity, NOO (No Outlook) may be displayed. A Stable outlook means that a rating is not likely to change.
Related Parties
We may receive
consulting and advisory services provided by the principals or employees of companies owned or operated by certain of our directors (the Sponsors) with respect to the organization of our employee benefit and compensation arrangements, and other
matters, and no fee is charged for these consulting and advisory services.
In order for the Sponsors to provide such advice and consulting, we provide
the Sponsors with reports, financial data and other information. This permits them to consult with and advise our management on matters relating to our operations, company affairs and finances. In addition, this permits them to visit and inspect any
of our properties and facilities. These services are provided in the normal course of operations and are measured at the value of consideration established and agreed to by the related parties.
Additionally, we entered into a shared service agreement with our joint venture, Noramac Ventures Inc. There have been no transactions under this agreement during
the three and nine months ended December 31, 2009.
Restated Interim Managements Discussion and Analysis
Internal Systems and Processes
Overview of information systems
We currently use JDE
(Enterprise One) as our Enterprise Resource Planning (ERP) tool and deploy the financial system, payroll, procurement, job-costing and equipment maintenance modules from this tool. We supplement this functionality with either third-party software
(for our estimating system) or in-house developed tools (for project management).
The proper identification of costs is a critical part of our ability
to recognize revenues and provide accurate management information for decision-making. We continue to focus resources to address this in our ERP system through the automation of transactional activities. We continue to work on improving the process
for tracking and reporting equipment and maintenance costs. We have seen some improvements in the identification and tracking of our procurement costs.
During the year ended March 31, 2009, we completed a user-needs analysis and compared this to the functionality of our ERP system. As part of this analysis, we
determined if we could implement additional modules in JDE or whether we needed to commence a review of industry-specific software to supplement our existing ERP functionality. We have started plans for the implementation of specific JDE modules
based on this analysis.
Evaluation of disclosure controls and procedures
Our disclosure controls and procedures are designed to provide reasonable assurance that information we are required to disclose is recorded, processed, summarized
and reported with the time periods specified under Canadian and US securities laws and include controls and procedures designed to ensure that information is accumulated and communicated to management, including the President and Chief Executive
Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosures.
As of December 31, 2009, an evaluation was
carried out under the supervision of and with the participation of management, including the President and Chief Executive Officer and the Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as defined in Rule
13a-15(e) under the US Securities Exchange Act of 1934, as amended, and in National Instrument 52-109 under the Canadian Securities Administrators Rules and Policies. Based on that evaluation, the President and Chief Executive Officer and the Chief
Financial Officer concluded that as a result of the material weaknesses in our internal control over financial reporting (ICFR) discussed below the disclosure controls and procedures were not effective as of June 30, 2009.
Material changes to internal controls over financial reporting
As of March 31, 2009, we assessed the effectiveness of our ICFR. During this process we identified a material weakness in internal controls over financial
reporting described below and as a result we concluded that our ICFR was ineffective as of March 31, 2009.
We did not maintain effective processes
and controls specific to revenue recognition. We did not effectively develop, communicate and implement an appropriate revenue recognition policy, a formal process to track claims and unapproved change orders and sufficient monitoring controls over
the completeness and accuracy of forecasts, including the consideration of project changes subsequent to the end of each reporting period. The accounts that could be affected by these deficiencies are revenue, project costs, unbilled revenue and
billings in excess of costs incurred and estimated earnings on uncompleted contracts. This material weakness in ICFR, which is pervasive in nature, resulted in material errors in the financial statements that were corrected prior to release of the
financial statements. Further, there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis.
In response to the material weakness specific to revenue recognition identified above, during the three months ended and subsequent to March 31, 2009, we
formalized our revenue recognition policy to assist in the understanding and consistent application of GAAP, initiated the development of a procedural manual to assist with applying the revenue recognition policy, designed new process-level controls
and conducted staff training. These changes had a material effect on the Companys ICFR during the three and six months ended September 30, 2009.
As of December 31, 2009, progress has been made on our remediation plans but this material weakness has not been fully remediated, as we plan to also establish
a dedicated project team led by a senior member of our Finance team. This dedicated project team will develop and implement standard business practices and controls specific to ensuring the accuracy of forecast, including the consideration of
project changes subsequent to the end of each reporting period. We will evaluate the effectiveness of these controls during the balance of the fiscal year to determine if they adequately address our ability to recognize revenue in accordance with
GAAP. For a discussion of the risks associated with such weakness, please see our most recent annual Managements Discussion and Analysis.
During
the nine months ended December 31, 2009, we identified an additional material weakness in ICFR, which is described below.
We did not maintain
effective processes and controls specific to our reliance on the accuracy of data provided from third-party valuations specialists that is used to prepare our consolidated financial statements. Specifically, we did not
Restated Interim Managements Discussion and Analysis
maintain effective controls to validate the accuracy of a third-party valuation of our cross-currency and interest rate swaps related to our
8
3
/
4
% senior notes. The accounts that could be affected by
this deficiency are current portion of derivative financial instruments liabilities on the balance sheet and realized and unrealized loss (gain) on derivative financial instruments on the consolidated statements of operations and comprehensive
income (loss). This material weakness in ICFR, which is isolated in nature, resulted in material errors in the financial statements prepared under Canadian GAAP that were not corrected prior to the original release of the financial statements
prepared under Canadian GAAP on August 4, 2009. The material errors have been corrected in the United States and Canadian accounting policies differences note in the restated financial statements prepared under US GAAP released on
June 10, 2010. The errors arising from this material weakness in internal controls were detected and corrected as at March 31, 2010 through detective controls applied to the settlement of the cross-currency and interest rate swaps related
to our 8
3
/
4
% senior notes in April 2010. The Company has no
further material reliance on data provided by third-party valuations specialists.
As discussed in the section Restatements Related
to Previously Reported Canadian GAAP Results, the financial statements for fiscal 2008 and fiscal 2009 have been amended under Canadian GAAP to correct an error related to the method of accounting for an incentive at the time of buying a
previously leased asset, which was identified during the preparation of our fiscal 2010 consolidated financial statements. This error arose as a result of the previously disclosed material weakness in ICFR related to the lack of sufficient
accounting and finance personnel with an appropriate level of technical accounting knowledge and training commensurate with the complexity of our financial accounting and reporting requirements. We rectified this material weakness in fiscal 2009 by
reorganizing the corporate accounting group and recruiting new staff with the appropriate experience and technical skills to prevent a reoccurrence of these issues.
Significant Accounting Policies
Critical Accounting Estimates
Certain accounting policies
require management to make significant estimates and assumptions about future events that affect the amounts reported in our financial statements and the accompanying notes. Therefore, the determination of estimates requires the exercise of
managements judgment. Actual results could differ from those estimates and any differences may be material to our financial statements.
Revenue
recognition
We perform our projects under the following types of contracts: time-and-materials; cost-plus; unit-price; and lump-sum. Revenue is
recognized as costs are incurred for time-and-materials and cost-plus service contracts with no clearly defined scope. Revenue on cost-plus, unit-price, lump-sum and time-and-materials contracts with defined scope are recognized using the
percentage-of-completion method, measured by the ratio of costs incurred to date to estimated total costs. The estimated total cost of the contract and percent complete is determined based upon estimates made by management. The costs of items that
do not relate to performance of contracted work, particularly in the early stages of the contract, are excluded from costs incurred to date. The resulting percentage-of-completion methodology is applied to the approved contract value to determine
the revenue recognized. Customer payment milestones typically occur on a periodic basis over the period of contract completion.
The length of our
contracts varies from less than one year for typical contracts to several years for certain larger contracts. Contract project costs include all direct labour, material, subcontract and equipment costs and those indirect costs related to contract
performance such as indirect labour, supplies, and tools. General and administrative costs are charged to expense as incurred. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined.
Changes in project performance, project conditions, and estimated profitability, including those arising from contract penalty provisions and final contract settlements, may result in revisions to costs and revenue that are recognized in the period
in which such adjustments are determined. Profit incentives are included in revenue when their realization is reasonably assured.
Once a project is
underway, we will often experience changes in conditions, client requirements, specifications, designs, materials and work schedule. Generally, a change order will be negotiated with the customer to modify the original contract to
approve both the scope and price of the change. Occasionally, however, disagreements arise regarding changes, their nature, measurement, timing and other characteristics that impact costs and revenue under the contract. When a change becomes a point
of dispute between us and a customer, we will then consider it as a claim.
Costs related to unapproved change orders and claims are recognized when they
are incurred. Revenues related to unapproved change orders and claims are included in total estimated contract revenue when they are approved.
Restated Interim Managements Discussion and Analysis
Revenues related to unapproved change orders and claims are included in total estimated
contract revenue only to the extent that contract costs related to the claim have been incurred and when it is probable that the unapproved change order or claim will result in:
|
|
a bona fide addition to contract value; and
|
|
|
revenues can be reliably estimated.
|
These two
conditions are satisfied when:
|
|
the contract or other evidence provides a legal basis for the unapproved change order or claim or a legal opinion is obtained providing a reasonable basis to
support the unapproved change order or claim;
|
|
|
additional costs incurred were caused by unforeseen circumstances and are not the result of deficiencies in our performance;
|
|
|
costs associated with the unapproved change order or claim are identifiable and reasonable in view of work performed; and
|
|
|
evidence supporting the unapproved change order or claim is objective and verifiable.
|
This can lead to a situation where costs are recognized in one period and revenue is recognized when customer agreement is obtained or claim resolution occurs,
which can be in subsequent periods. Historical claim recoveries should not be considered indicative of future claim recoveries.
Our long-term contracts
typically allow our customers to unilaterally reduce or eliminate the scope of the work as contracted without cause. These long-term contracts represent higher risk due to uncertainty of total contract value and estimated costs to complete;
therefore, potentially impacting revenue recognition in future periods.
A contract is regarded as substantially completed when remaining costs and
potential risks are insignificant in amount.
Revenue recognition from equipment rentals occurs when there is a written arrangement in the form of a
contract or purchase order with the customer, a fixed or determinable sales price is established with the customer, performance requirements are achieved, and ultimate collection of the revenue is reasonably assured. Equipment rental revenue is
recognized as performance requirements are achieved in accordance with the terms of the relevant agreement with the customer, either at a monthly fixed rate or on a usage basis dependent on the number of hours that the equipment is used.
Property, plant and equipment
The most significant estimates
in accounting for property, plant and equipment are the expected useful life of the asset and the expected residual value. Most of our property, plant and equipment have long lives that can exceed 20 years with proper repair work and preventative
maintenance. Useful life is measured in operating hours, excluding idle hours, and a depreciation rate is calculated for each type of unit. Depreciation expense is determined monthly based on daily actual operating hours. In determining the
estimates of these useful lives, we take into account industry trends and company specific factors, including changing technologies and expectations for the in-service period of certain assets. On an annual basis, we re-assess our existing estimates
of useful lives to ensure they match the anticipated life of the equipment from a revenue producing perspective. If technological change happens more quickly or in a different way than anticipated, we might have to reduce the estimated life of
property, plant and equipment, which could result in a higher depreciation expense in future periods or we may record an impairment charge to write down the value of property, plant and equipment.
Another key estimate is the expected cash flows from the use of an asset and the expected disposal proceeds in applying the ASC 360, Property, Plant and
Equipment, on the impairment and disposal of long-lived assets. This standard requires the recognition of an impairment loss for a long-lived asset when changes in circumstances cause its carrying value to exceed the total undiscounted cash
flows expected from its use and disposition. An impairment loss, if any, is determined as the excess of the carrying value of the asset over its fair value. The valuation of long-lived assets requires us to exercise judgment in the determination of
an asset group and in making assumptions about future results, including revenue and cash flow projections for an asset group.
Allowance for doubtful
accounts receivable
We regularly review our accounts receivable balances for each of our customers and we write down these balances to their
expected realizable value when outstanding amounts are determined not to be fully collectible. This generally occurs when our customer has indicated an inability to pay, we were unable to communicate with our customer over an extended period of time
and we have considered other methods to obtain payment without success. We determine estimates of the allowance for doubtful accounts on a customer-by-customer evaluation of collectability at each reporting date, taking into consideration the
following factors: the length of time the receivable has been outstanding, specific knowledge of each customers financial condition and historical experience.
Restated Interim Managements Discussion and Analysis
Goodwill impairment
Impairment is tested at the reporting unit level by comparing the reporting units carrying amount to its fair value. The process of determining fair value is
subjective and requires us to exercise judgment in making assumptions about future results, including revenue and cash flow projections at the reporting unit level and discount rates. We test goodwill annually on October 1. It is our intention
to continue to complete goodwill impairment testing on October 1 going forward or whenever events or changes in circumstances indicate that impairment may exist. We completed our most recent annual goodwill impairment testing on October 1,
2009. We concluded that neither the fair value of our Heavy Construction and Mining reporting unit nor our Piling reporting unit had fallen below their carrying values as a result of the interim testing.
Financial instruments
In determining the fair value of
financial instruments, we use a variety of methods and assumptions that are based on market conditions and risks existing on each reporting date. Counterparty confirmations and standard market conventions and techniques, such as discounted cash flow
analysis and option pricing models, are used to determine the fair value of our financial instruments, including derivatives. All methods of fair value measurement result in a general approximation of value and such value may never actually be
realized.
Change in General Accepted Accounting Principles
As a Canadian-based company, we historically prepared our consolidated financial statements in conformity with accounting principles generally accepted in Canada
(Canadian GAAP) and also provided reconciliation to United States generally accepted accounting principles (US GAAP).
The Accounting Standards Board of
the Canadian Institute of Chartered Accountants previously announced its decision to require all publicly accountable enterprises to report under International Financing Reporting Standards (IFRS) for years beginning on or after January 1,
2011. However, National Instrument 52-107 allows Securities and Exchange Commission (SEC) registrants, such as North American Energy Partners Inc., to file with Canadian securities regulators financial statements that are prepared in accordance with
US GAAP and it is proposed that SEC registrants would be permitted to continue to report under US GAAP beyond 2011. As such, we have decided to adopt US GAAP instead of IFRS as our primary basis of financial reporting commencing in
fiscal 2010.
The decision to adopt US GAAP was also made to enhance communication with shareholders and improve the comparability of financial
information reported with our peer group. All comparative financial information contained herein has been revised to reflect our results as if they had been historically reported in accordance with US GAAP.
Recently Adopted Accounting Policies
The FASB accounting standards codification and the hierarchy of generally accepted accounting principles
In June 2009, the Financial Accounting Standards Board (FASB) issued the FASB Accounting Standards Codification (ASC)105. The ASC amended the hierarchy of generally
accepted accounting principles (GAAP) such that the ASC became the single source of authoritative nongovernmental US GAAP, except for SEC rules and interpretative releases which, for our company, are also authoritative US GAAP. The ASC did not
change current US GAAP, but was intended to simplify user access to all authoritative US GAAP by providing all the authoritative literature related to a particular topic in one place. All previously existing accounting standard documents
were superseded and all other accounting literature not included in the ASC is considered non-authoritative. The ASC identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of
financial statements in accordance with US GAAP. We adopted this standard during the quarter ended September 30, 2009. The adoption of this standard did not have a material impact on our interim consolidated financial statements.
Fair value measurements
In September 2006, the FASB
issued an accounting standard codified in ASC 820, Fair Value Measurements and Disclosures. This standard established a single definition of fair value and a framework for measuring fair value, set out a fair value hierarchy to be used
to classify the source of information used in fair value measurements, and required disclosures of assets and liabilities measured at fair value based on their level in the hierarchy. This standard applies under other accounting standards that
require or permit fair value measurements. One of the amendments deferred the effective date for one year relative to nonfinancial assets and liabilities that are measured at fair value, but are recognized or disclosed at fair value on a
nonrecurring basis. This deferral applied to such items as nonfinancial assets and liabilities initially measured at fair value in a business combination (but not measured at fair value in subsequent periods) or nonfinancial long-lived asset groups
measured at fair value for an impairment assessment. These remaining aspects of the fair value measurement standard were adopted by us prospectively beginning April 1, 2009. The adoption of this standard did not have a material impact on our
interim consolidated financial statements.
Business combinations
In December 2007, the FASB issued SFAS No. 141(R), Business Combinations (SFAS 141(R)), and, in April 2009, issued FAS 141 (R)-1,
Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise
Restated Interim Managements Discussion and Analysis
from Contingencies, to amend and clarify SFAS No. 141(R), Business Combinations, now part of ASC 805, Business Combinations. Effective beginning on
April 1, 2009, the standard established principles and requirements for how an acquirer recognizes and measures, in its financial statements, the identifiable assets acquired, the liabilities assumed, any non-controlling interest in the
acquiree, and any goodwill and established disclosure requirements that enable users of our financial statements to evaluate the nature and financial effects of the business combination. The adoption of this standard did not have a material impact
on our interim consolidated financial statements.
Non-controlling interests in consolidated financial statements
In December 2007, the FASB issued SFAS No. 160, Non-controlling Interests in Consolidated Financial Statements An Amendment of ARB No. 51
(SFAS 160), which is now part of ASC 810. The amendments to ASC 810 are effective for the fiscal year beginning April 1, 2009 and change the accounting and reporting for ownership interests in subsidiaries held by parties
other than the parent. These non-controlling interests are to be presented in the consolidated balance sheet within equity but separate from the parents equity. The amount of consolidated net income attributable to the parent and to the
non-controlling interest is to be clearly identified and presented on the face of the consolidated statement of operations. In addition, this ASC establishes standards for a change in a parents ownership interest in a subsidiary and the
valuation of retained non-controlling equity investments when a subsidiary is deconsolidated. The ASC also establishes reporting requirements for providing sufficient disclosures that clearly identify and distinguish between the interests of the
parent and the interests of the non-controlling owners. We prospectively adopted this ASC effective April 1, 2009. The adoption of this standard did not have a material impact on our consolidated financial statements.
Determination of the useful life of intangible assets
In
April 2008, the FASB issued FSP No. FAS 142-3, Determination of the Useful Life of Intangible Assets, which amends the list of factors an entity should consider in developing renewal or extension assumptions used in determining
the useful life of recognized intangible assets under SFAS No. 142, Goodwill and Other Intangible Assets. The guidance, now part of ASC 350, Intangibles Goodwill and Others, and ASC 275, Risks and
Uncertainties, applies to (i) intangible assets that are acquired individually or with a group of other assets and (ii) intangible assets acquired in both business combinations and asset acquisitions. Entities estimating the useful
life of a recognized intangible asset must now consider their historical experience in renewing or extending similar arrangements or, in the absence of historical experience, must consider assumptions that market participants would use about renewal
or extension. We adopted this standard effective April 1, 2009. The adoption of this standard did not have a material impact on our interim consolidated financial statements.
Equity method investment accounting considerations
In
November 2008, the FASB issued EITF 08-06, Equity Method Investment Accounting Considerations, now part of ASC 323, Investments Equity Method and Joint Ventures, which clarifies the accounting for certain transactions
and impairment considerations involving equity method investments. The intent is to provide guidance on: (i) determining the initial measurement of an equity method investment, (ii) recognizing other-than-temporary impairments of an equity
method investment and (iii) accounting for an equity method investees issuance of shares. We adopted this standard effective April 1, 2009. The adoption of this standard did not have a material impact on our consolidated financial
statements.
Interim disclosures about fair value of financial instruments
In April 2009, the FASB issued FSP No. FAS 107-1 and APB 28-1 Interim Disclosures about Fair Value of Financial Instruments, which amends FASB Statement
No. 107 Disclosures about Fair Value of Financial Statements. This new guidance, which is now a part of ASC 825, Financial Instruments, expands the disclosures about the fair value of financial instruments that were
previously required annually to be currently required for interim reporting periods. In addition, the ASC requires certain additional disclosures regarding the methods and significant assumptions used to estimate the fair value of financial
instruments. We adopted the amendments to ASC 825 effective April 1, 2009. The adoption of this standard did not have a material impact on our interim consolidated financial statements.
Determining fair value when the volume and level of activity for the asset or liability have significantly decreased and identifying transactions that are not
orderly
In April 2009, the FASB issued FSP No. FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or
Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly. The guidance, now part of ASC 820, Fair Value Measurements and Disclosures, provides additional guidance for estimating fair value when the
volume and level of activity for the asset or liability have significantly decreased. It also includes guidance on identifying circumstances that indicate a transaction is not orderly. We adopted this standard effective April 1, 2009. The
adoption of this standard did not have a material impact on our interim consolidated financial statements.
Subsequent events
In May 2009, the FASB issued ASC 855, Subsequent Events (formerly SFAS No. 165 Subsequent Events). ASC 855 is effective for interim or
annual financial periods ending after June 15, 2009 and should be applied prospectively. This
Restated Interim Managements Discussion and Analysis
statement addresses accounting and disclosure requirements related to subsequent events. This statement also requires us to evaluate subsequent events through the date the financial statements
are either issued or available to be issued, depending on our expectation of whether it will widely distribute its financial statements to its shareholders and other financial statement users. We adopted this ASC effective April 1, 2009. The
adoption of this standard did not have a material impact on our interim consolidated financial statements.
Measuring liabilities at fair value
In August 2009, the FASB issued ASU No. 2009-05, Measuring Liabilities at Fair Value, which provides additional guidance on how
companies should measure liabilities at fair value under ASC 820, Fair Value Measurements and Disclosures. The ASU clarifies that the quoted price for an identical liability should be used; however, if such information is not available,
an entity may use, the quoted price of an identical liability when traded as an asset, quoted prices for similar liabilities or similar liabilities traded as assets, or another valuation technique (such as the market or income approach). The ASU
also indicates that the fair value of a liability is not adjusted to reflect the impact of contractual restrictions that prevent its transfer and indicates circumstances in which quoted prices for an identical liability or quoted price for an
identical liability traded as an asset may be considered Level 1 fair value measurements. We adopted this ASU effective October 1, 2009. The adoption of this standard did not have a material impact on our interim consolidated financial
statements.
Accounting and reporting for decreases in ownership of a subsidiary
In January 2010, the FASB issued ASU 2010-02, Consolidation (Topic 810) Accounting and Reporting for Decreases in Ownership of a Subsidiary A
Scope Clarification. The ASU clarifies that the scope of the decrease in ownership provisions included in ASC 810, Consolidations and related guidance applies to: (i) a subsidiary or a group of assets that is a business or a
non-profit activity; (ii) a subsidiary that is a business or a non-profit activity that is transferred to an equity method investee or a joint venture; and (iii) an exchange of a group of assets that constitutes a business or non-profit
activity for a non-controlling interest in an entity. The standard also clarifies that the decrease in ownership guidance does not apply to certain transactions, such as sales of in substance real estate or conveyance of oil and gas properties. We
adopted this standard effective April 1, 2009 in conjunction with adoption of the non-controlling interest standard. The adoption of this standard did not have a material impact on our interim consolidated financial statements.
Equity
In January 2010, the FASB issued ASU
No. 2010-01, Equity, which clarifies that the stock portion of a distribution to shareholders that allows them to elect to receive cash or shares with a potential limitation on the total amount of cash that all shareholders can
elect to receive in the aggregate is considered a share issuance that is reflected in EPS prospectively and is not a stock dividend for purposes of earnings per share calculations. We adopted this ASU effective December 31, 2009. The adoption
of this standard did not have a material impact on our interim consolidated financial statements.
Recent Accounting
Pronouncements Not Yet Adopted
Consolidation of variable-interest entities
In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R). The new guidance now part of ASC 810,
Consolidation, revised the consolidation guidance for variable-interest entities. The modifications include the elimination of the exemption for qualifying special purpose entities and a new approach for determining who should
consolidate a variable-interest entity. This standard is effective on April 1, 2010. We are currently evaluating the impact of this standard.
Revenue recognition
In October 2009, the FASB issued ASU
No. 2009-13, Revenue Recognition: Multiple-Deliverable Revenue Arrangements, which addresses the accounting for multiple-deliverable arrangements to enable vendors to account for products or services separately rather than as a
combined unit. The amendments establish a selling price hierarchy for determining the selling price of a deliverable. The amendments also eliminate the residual method of allocation and require that arrangement consideration be allocated at the
inception of the arrangement to all deliverables using the relative selling price method. This ASU is effective prospectively for revenue arrangements entered into or materially modified on or after April 1, 2011. We are currently evaluating
the impact of this ASU on our consolidated financial statements.
Improvements to financial reporting by enterprises involved with variable interest
entities
In December 2009, the FASB issued ASU No. 2009-17, Improvements to Financial Reporting by Enterprises Involved with Variable
Interest Entities, which amends ASC 810, Consolidation. The amendments give guidance and clarification of how to determine when a reporting entity should include the assets, liabilities, non controlling interests and results of
activities of a variable interest entity in its consolidated financial statements. The amendments in this ASU are effective beginning on January 1, 2010. We are currently evaluating the impact of this ASU on our consolidated financial
statements.
Restated Interim Managements Discussion and Analysis
Improving disclosures about fair value measurements
In January 2010, the FASB issued ASU No. 2010-06, Improving Disclosures About Fair Value Measurements, that amends existing disclosure
requirements under ASC 820 by adding required disclosures about items transferring into and out of Levels 1 and Level 2 in the fair value hierarchy; adding separate disclosures about purchase, sales, issuances, and settlements relative to Level 3
measurements; and clarifying, among other things, the existing fair value disclosures about the level of disaggregation. The ASU is effective beginning on April 1, 2010, except for disclosures about purchases, sales, issuances, and settlements
in the roll forward of activity in Level 3 fair value measurements, which is effective beginning on April 1, 2011. We are currently evaluating the impact of this ASU on our consolidated financial statements.
Recently Adopted Accounting Policies (Canadian GAAP)
Goodwill and intangible assets
Effective April 1, 2009,
we adopted, on a retrospective basis, CICA Handbook Section 3064, Goodwill and Intangible Assets, which replaces Section 3062, Goodwill and Other Intangible Assets, and Section 3450, Research and
Development Costs and establishes standards for the recognition, measurement and disclosure of goodwill and intangible assets. The provisions relating to the definition and initial recognition of intangible assets, including internally
generated intangible assets, are equivalent to the corresponding provisions of International Accounting Standard IAS 38, Intangible Assets. The adoption of this standard resulted in the reclassification for certain qualifying assets
related to software from property, plant and equipment to intangible assets for all periods presented.
Business combinations
On July 1, 2009, we early adopted CICA Handbook Section 1582, Business Combinations, effective April 1, 2009. This section establishes
standards for the accounting of business combinations, and states that all assets and liabilities of an acquired business will be recorded at fair value. Obligations for contingent consideration and contingencies will also be recorded at fair value
at the acquisition date. The standard also states that acquisition related costs will be expensed as incurred, that restructuring charges will be expensed in periods after the acquisition date and that non-controlling interests should be measured at
fair value at the date of acquisition. This standard is to be applied prospectively to business combinations with acquisition dates on or after April 1, 2009.
Consolidated financial statements
On July 1, 2009, we
early adopted CICA Handbook Section 1601, Consolidated Financial Statements, effective April 1, 2009. The new standard replaces Section 1600 Consolidated Financial Statements. This Section carries forward
existing Canadian guidance for preparing consolidated financial statements other than guidance for non-controlling interests. The adoption of this standard did not have a material impact on our interim consolidated financial statements.
Non-controlling interests
On July 1, 2009, we early
adopted CICA Handbook Section 1602, Non-Controlling Interests, effective April 1, 2009. The new standard establishes standards for the accounting of non-controlling interests of a subsidiary in the preparation of consolidated
financial statements subsequent to a business combination. The adoption of this standard did not have a material impact on our interim consolidated financial statements.
Equity
In August 2009, the CICA amended presentation
requirements of Handbook Section 3251, Equity, as a result of issuing Section 1602, Non-Controlling Interests. The amendments apply only to entities that have adopted Section 1602. We early adopted this
standard effective April 1, 2009. The adoption of this standard did not have a material impact on our interim consolidated financial statements.
Financial instruments recognition and measurement
Effective July 1, 2009, we adopted CICA amendments to Handbook Section 3855, Financial Instruments Recognition and Measurement
which add guidance concerning the assessment of embedded derivatives upon reclassification of a financial asset out of the held-for-trading category. These amendments apply to reclassifications made on or after July 1, 2009. The adoption of
these amendments did not have a material impact on our interim consolidated financial statements.
Recent Accounting
Pronouncements Not Yet Adopted (Canadian GAAP)
Accounting changes
In June 2009, the CICA amended Handbook Section 1506, Accounting Changes, to exclude from its scope changes in accounting policies upon the
complete replacement of an entitys primary basis of accounting. The amendment applies to interim and annual financial statements relating to fiscal years beginning on or after July 1, 2009. We are currently evaluating the impact of the
amendments to the standard.
Financial instruments recognition and measurement
In June 2009, the CICA amended Handbook Section 3855, Financial Instruments Recognition and Measurement, to clarify the application of
the effective interest method after a debt instrument has been impaired. The Section has also
Restated Interim Managements Discussion and Analysis
been amended to clarify when an embedded prepayment option is separated from its host instrument for accounting purposes. The amendments apply to interim and annual financial statements relating
to fiscal years beginning on or after May 1, 2009 for the amendments relating to the effective interest method and on or after January 1, 2011 for the amendments relating to embedded prepayment options. We are currently evaluating the
impact of the amendments to the standard.
Financial instruments disclosure
In June 2009, the CICA amended Handbook Section 3862, Financial Instruments Disclosures, to include additional disclosure requirements
about fair value measurements of financial instruments and to enhance liquidity risk disclosure requirements. The amendments apply to annual financial statements relating to fiscal years ending after September 30, 2009. We are currently
evaluating the impact of the amendments to the standard.
Comprehensive revaluation of assets and liabilities
In August 2009, the CICA amended Handbook Section 1625, Comprehensive Revaluation of Assets and Liabilities, as a result of issuing
Section 1582, Business Combinations, Section 1601, Consolidated Financial Statements, and Section 1602, Non-Controlling Interests, in January 2009. The amendments apply prospectively to
comprehensive revaluations of assets and liabilities occurring in fiscal years beginning on or after January 1, 2011. Earlier adoption is permitted as of the beginning of a fiscal year, provided that Section 1582 is also adopted. We are
currently evaluating the impact of the amendments to the standard.
F. Forward-Looking Information and Risk
Factors
Forward-Looking Information
This document contains forward-looking information that is based on expectations and estimates as of the date of this document. Our forward-looking information is
information that is subject to known and unknown risks and other factors that may cause future actions, conditions or events to differ materially from the anticipated actions, conditions or events expressed or implied by such forward-looking
information. Forward-looking information is information that does not relate strictly to historical or current facts, and can be identified by the use of the future tense or other forward-looking words such as believe,
expect, anticipate, intend, plan, estimate, should, may, could, would, target, objective, projection,
forecast, continue, strategy, intend, position or the negative of those terms or other variations of them or comparable terminology.
Examples of such forward-looking information in this document include, but are not limited to, statements with respect to the following, each of which is subject to
significant risks and uncertainties and is based on a number of assumptions which may prove to be incorrect:
(a)
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the amount of our backlog expected to be performed and realized in the twelve months ending December 31, 2010 and such estimate assists us in planning our activity levels
and may not be suitable for other purposes;
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(b)
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that our expectations for the fourth quarter of fiscal 2010 are for continued strong operating performance despite weak economic conditions;
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(c)
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our expectation of recurring services volumes to continue to gradually strengthen as a result of the return to normal overburden removal activity levels at Canadian
Naturals Horizon project and steady demand from Shell Albians oil sands sites;
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(d)
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our expectation that opportunities on the project development side of the oil sands will expand as Imperial Oils Kearl, ConocoPhillipss Surmont, Husky Energys
Sunrise and Suncors Firebag projects increase demand on service providers in our markets;
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(e)
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our expectation that project development activity will move forward at a more moderate and sustainable pace than what was experienced in the past;
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(f)
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our expectation that the Pipeline segment will continue increasing its revenue contribution through the balance of the fiscal year as existing projects ramp up to peak operations
during the colder months;
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(g)
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our expectation that tendering and bidding for new pipeline contracts will continue at a strong pace, while competition in the pipeline market remains intense;
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(h)
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our expectation that the integration of Drillco Foundation Co. Ltd. will provide increasing segment contributions going forward;
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(i)
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the expected renewal agreement between our employees party to the collective bargaining agreement which expired October 31, 2009 and us;
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(j)
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our estimated capital needs in fiscal 2010 and further potential growth capital required for fiscal 2010 is accurate;
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(k)
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our operating and lease facilities and cash flow from operations will be sufficient to meet our capital requirements;
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Restated Interim Managements Discussion and Analysis
(l)
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we will generate a net cash surplus through March 31, 2010;
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(m)
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the seasonality of our business results may result in an increase in working capital requirements; and
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(n)
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any additional funding required by us will be satisfied by the credit facility.
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The forward-looking information in paragraphs (a), (b), (c), (d), (e), (f), (g), (h), (j), (k), (m) and (n) rely on certain market conditions and demand
for our services and are based on the assumptions that: despite the slowdown in the global economy and tightening of credit conditions, we still expect to see strong demand for our recurring services as the oil sands continue to be an economically
viable source of energy, our customers and potential customers continue to invest in the oil sands and other natural resource developments; our customers and potential customers will continue to outsource the type of activities for which we are
capable of providing service; and the Western Canadian economy continues to develop with additional investment in public construction; and are subject to the following risks and uncertainties, which could cause results to differ materially from
those expressed in the forward-looking information contained in this MD&A, but are not limited to:
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anticipated new major capital projects in the oil sands may not materialize;
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demand for our services may be adversely impacted by regulations affecting the energy industry;
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failure by our customers to obtain required permits and licenses may affect the demand for our services;
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changes in our customers perception of oil prices over the long-term could cause our customers to defer, reduce or stop their capital investment in oil
sands projects, which would, in turn, reduce our revenue from those customers;
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reduced financing as a result of the tightening credit markets may affect our customers decisions to invest in infrastructure projects;
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insufficient pipeline, upgrading and refining capacity or lack of sufficient governmental infrastructure to support growth in the oil sands region could cause
our customers to delay, reduce or cancel plans to construct new oil sands projects or expand existing projects, which would, in turn, reduce our revenue from those customers;
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a change in strategy by our customers to reduce outsourcing could adversely affect our results;
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cost overruns by our customers on their projects may cause our customers to terminate future projects or expansions which could adversely affect the amount of
work we receive from those customers;
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because most of our customers are Canadian energy companies, a further downturn in the Canadian energy industry could result in a decrease in the demand for our
services;
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shortages of qualified personnel or significant labour disputes could adversely affect our business; and
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unanticipated short term shutdowns of our customers operating facilities may result in temporary cessation or cancellation of projects in which we are
participating.
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The forward-looking information in paragraphs (a), (b), (c), (d), (e), (f), (g), (h), (i), (j), (k), (l), (m) and
(n) rely on our ability to execute our growth strategy and are based on the assumptions that the management team can successfully manage the business; we can maintain and develop our relationships with our current customers; we will be
successful in developing relationships with new customers; we will be successful in the competitive bidding process to secure new projects; we will identify and implement improvements in our maintenance and fleet management practices; we will be
able to benefit from increased recurring revenue base tied to the operational activities of the oil sands; we will be able to access sufficient funds to finance our capital growth; and are subject to the risks and uncertainties that:
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continued reduced demand for oil and other commodities as a result of slowing market conditions in the global economy may result in reduced oil production and a
decline in oil prices;
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if we are unable to obtain surety bonds or letters of credit required by some of our customers, our business could be impaired;
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we are dependent on our ability to lease equipment, and a tightening of this form of credit could adversely affect our ability to bid for new work and/or supply
some of our existing contracts;
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our business is highly competitive and competitors may outbid us on major projects that are awarded based on bid proposals;
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our customer base is concentrated, and the loss of or a significant reduction in business from a major customer could adversely impact our financial condition;
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lump-sum and unit-price contracts expose us to losses when our estimates of project costs are lower than actual costs;
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our operations are subject to weather-related factors that may cause delays in our project work; and
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environmental laws and regulations may expose us to liability arising out of our operations or the operations of our customers.
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Restated Interim Managements Discussion and Analysis
While we anticipate that subsequent events and developments may cause our views to
change, we do not have an intention to update this forward-looking information, except as required by applicable securities laws. This forward-looking information represents our views as of the date of this document and such information should not
be relied upon as representing our views as of any date subsequent to the date of this document. We have attempted to identify important factors that could cause actual results, performance or achievements to vary from those current expectations or
estimates expressed or implied by the forward-looking information. However, there may be other factors that cause results, performance or achievements not to be as expected or estimated and that could cause actual results, performance or
achievements to differ materially from current expectations.
There can be no assurance that forward-looking information will prove to be accurate, as actual results and future events could differ materially from those expected or estimated in
such statements. Accordingly, readers should not place undue reliance on forward-looking information.
These factors are not intended to represent a complete list of the factors that could affect us. See Risk Factors below and risk
factors highlighted in materials filed with the securities regulatory authorities filed in the United States and Canada from time to time, including, but not limited to, our most recent Annual Information Form.
Risk Factors
For the three and
nine months ended December 31, 2009, other than noted below, there has been no significant change in our risk factors discussed in our most recent annual Managements Discussion and Analysis, which was current as of June 9, 2009. The
risk factors discussed in our most recent annual Managements Discussion and Analysis should be reviewed in conjunction with this interim Managements Discussion and Analysis. Significant developments since June 9, 2009 are as
follows:
Reduced availability or increased cost of leasing our equipment fleet could adversely affect our results
A portion of our equipment fleet is currently leased from third parties. Further, we anticipate leasing substantial amounts of equipment to meet equipment
acquisition commitments related to our long-term overburden removal contract in the upcoming fiscal year. Other future projects may require us to lease additional equipment. If equipment lessors are unable or unwilling to provide us with reasonable
lease terms within our expectations, it will significantly increase the cost of leasing equipment or may result in more restrictive lease terms that require recognition of the lease as a capital lease. We are actively pursuing new lessor
relationships to dilute our exposure to the loss of one or more of our lessors.
A change in strategy by our customers to reduce outsourcing could
adversely affect our results.
Outsourced Heavy Construction and Mining segment services constitute a large portion of the work we perform for our
customers. For example, our mining and site preparation project revenues constituted approximately 74%, 63% and 75% of our revenues in each of fiscal years 2009, 2008 and 2007, respectively. The election by one or more of our customers to perform
some or all of these services themselves, rather than outsourcing the work to us, could have a material adverse impact on our business and results of operations. Certain customers perform some of this work internally and may choose to expand on the
use of internal resources to complete this work. Additionally, the recent tightening of the credit market and worldwide economic downturn may result in our customers reducing their spending on outsourced mining and site preparation services if they
believe they can perform this work in a more cost effective and efficient manner using their internal resources.
We may not be able to achieve the
expected benefits from any future acquisitions, which would adversely affect our financial condition and results of operations.
We intend to pursue
selective acquisitions as a method of expanding our business. However, we may not be able to identify or successfully bid on businesses that we might find attractive. If we do find attractive acquisition opportunities, we might not be able to
acquire these businesses at a reasonable price. If we do acquire other businesses, we might not be able to successfully integrate these businesses into our then-existing business. We might not be able to maintain the levels of operating efficiency
that acquired companies will have achieved or might achieve separately. Successful integration of acquired operations will depend upon our ability to manage those operations and to eliminate redundant and excess costs. Because of difficulties in
combining operations, we may not be able to achieve the cost savings and other size-related efficiencies that we hoped to achieve through these acquisitions. Any of these factors could harm our financial condition and results of operations.
Quantitative and Qualitative Disclosures about Market Risk
Foreign exchange risk
Foreign exchange
risk refers to the risk that the value of a financial instrument or cash flows associated with the instrument will fluctuate due to changes in foreign exchange rates. We have
8
3
/
4
% senior notes denominated in US dollars in the amount of US $200.0 million. In order to reduce our exposure to changes in the United States to
Canadian dollar exchange rate, we entered into a cross-currency swap agreement to manage this foreign currency exposure for both the principal balance due on December 1, 2011 as well as the semi-annual interest payments from the issue date to
the maturity date. In conjunction with the cross-currency swap agreement, we also entered into a US dollar interest rate swap and a Canadian dollar interest rate swap. These derivative financial instruments were not designated as hedges for
accounting purposes. At December 31, 2009 and March 31, 2009, the notional principal amount of the cross-currency swap was US $200.0 million and Canadian $263.0 million.
Restated Interim Managements Discussion and Analysis
On December 17, 2008, we received notice that all three swap counterparties had
exercised the cancellation option on the US dollar interest rate swap and, effective February 2, 2009, the US dollar interest rate swap was terminated.
Our Canadian dollar interest rate swap and cross-currency swap agreements are not cancellable at the option of the counterparties and remain in effect. We will
continue to pay the counterparties an average fixed rate of 9.889% on the notional amount of Canadian $263.0 million or Canadian $13.0 million semi-annually until December 1, 2011. Beginning March 1, 2009, we received quarterly floating
rate payments in US dollars on the cross-currency swap agreement at the prevailing three month US Dollar LIBOR rate plus a spread of 4.2% on the notional amount of US $200.0 million.
As a result of the cancellation of the US dollar interest rate swap, we are exposed to changes in the value of the Canadian dollar versus the US
dollar. To the extent that the three month US Dollar LIBOR rate is less than 4.6% (the difference between the
8
3
/
4
% senior notes coupon and the 4.2% spread over three month US Dollar LIBOR on the cross-currency swap agreement), we will have to acquire US dollars
to fund a portion of our semi-annual coupon payment on our
8
3
/
4
% senior notes. At the three month US Dollar LIBOR rate of 0.253% at December 31, 2009, a $0.01 increase (decrease) in exchange rates in the
Canadian dollar would result in an insignificant decrease (increase) in the amount of Canadian dollars required to fund each semi-annual coupon payment.
We also regularly transact in foreign currencies when purchasing equipment, spare parts as well as certain general and administrative goods and services. These
exposures are generally of a short-term nature and the impact of changes in exchange rates has not been significant in the past. We may fix our exposure in either the Canadian dollar or the US dollar for these short-term transactions, if material.
At December 31, 2009, with other variables unchanged, a $0.01 increase (decrease) in exchange rates of the Canadian dollar to
the US dollar related to the US dollar denominated
8
3
/
4
% senior notes would decrease (increase) net income and decrease (increase) equity by approximately $1.7 million, net of tax. With other variables
unchanged, a $0.01 increase (decrease) in exchange rates in the Canadian to the US dollar related to the cross-currency swap would increase (decrease) net income and increase (decrease) equity by approximately $1.8 million, net of tax. The impact of
similar exchange rate changes on short-term exposures would be insignificant and there would be no impact to other comprehensive income.
Interest rate risk
We are exposed to
interest rate risk from the possibility that changes in interest rates will affect future cash flows or the fair values of our financial instruments. Amounts outstanding under our amended credit facilities are subject to a floating rate. Our
8
3
/
4
% senior notes are subject to a fixed rate. Our interest risk arises from long-term borrowings issued at fixed rates that create fair value interest
rate risk and variable rate borrowings that create cash flow interest rate risk. Changes in market interest rates cause the fair value of long-term debt with fixed interest rates to fluctuate but do not affect earnings, as our debt is carried at
amortized cost and the carrying value does not change as interest rates change.
In some circumstances, floating rate funding may be used for
short-term borrowings and other liquidity requirements. We may use derivative instruments to manage interest rate risk. We manage our interest rate risk exposure by using a mix of fixed and variable rate debt and may use derivative instruments to
achieve the desired proportion of variable to fixed-rate debt.
We also entered into a US dollar interest rate swap and a Canadian
dollar interest rate swap with the net effect of economically converting the 8.75% rate payable on the
8
3
/
4
% senior notes into a fixed rate of 9.889% for the duration that the
8
3
/
4
% senior notes are outstanding. These derivative financial instruments were not designated as hedges for accounting purposes. As a result of the US
dollar interest rate swap cancellation, we are exposed to changes in interest rates. We have a fixed semi-annual coupon payment of
8
3
/
4
% on our US $200.0 million senior notes. With the termination of the US dollar interest rate swap, we will no longer receive fixed US dollar payments
from the counterparties to offset the coupon payment on our
8
3
/
4
% senior notes. As a result of this termination, our effective annual interest costs at the current US Dollar LIBOR rate will increase US $8.6
million. In addition, we are now exposed to interest rate risk where a 100 basis point increase (decrease) in the three month US Dollar LIBOR rate will result in a US $2.0 million decrease (increase) in effective annual interest costs. As at
December 31, 2009, holding all other variables constant, a 100 basis point increase (decrease) to Canadian interest rates would impact the fair value of the interest rate swaps by $3.3 million, net of tax, with this change in fair value being
recorded in net income. As at December 31, 2009, holding all other variables constant, a 100 basis point increase (decrease) to US interest rates would impact the fair value of the interest rate swaps by $0.1 million, net of tax, with this
change in fair value being recorded in net income. As at December 31, 2009, holding all other variables constant, a 100 basis point increase (decrease) of Canadian to US interest rate volatility would impact the fair value of the interest rate
swaps by $nil, net of tax, with this change in fair value being recorded in net income.
At December 31, 2009, we held
$30.0 million of floating rate debt pertaining to our term facility within our amended and restated credit facility (March 31, 2009 $nil). As at December 31, 2009, holding all other variables constant, a
Restated Interim Managements Discussion and Analysis
100 basis point increase (decrease) to interest rates on floating rate debt would result in a $0.3 million increase (decrease) in effective annual interest costs. This assumes that the
amount of floating rate debt remains unchanged from that which was held at December 31, 2009.
G.
General Matters
Our executive head office is located at Suite 2400, 500 4th Avenue SW, Calgary, Alberta, T2P 2V6. Our executive head office
telephone and facsimile numbers are 403-767-4825 and 403-767-4849, respectively.
Our corporate office is located at Zone 3, Acheson Industrial Area, #2,
53016 Hwy 60, Acheson, Alberta, T7X
5A7. Our telephone and facsimile numbers are 780-960-7171 and 780-960-7103, respectively.
Additional Information
Additional information relating to us, including our Annual Information Form dated June 10, 2010, can be found on the Canadian Securities
Administrators System for Electronic Document Analysis and Retrieval (SEDAR) database at
www.sedar.com
, the Securities and Exchange Commissions website at
www.sec.gov
and our companys web site at
www.nacg.ca
.
NORTH AMERICAN ENERGY PARTNERS INC.
CANADIAN SUPPLEMENT TO:
Restated Interim Managements Discussion and Analysis
For the three and nine months ended December 31, 2009
This
document supplements the Restated Interim Managements Discussion and Analysis for the three and nine months ended December 31, 2009 and has been prepared pursuant to Section 5.2 of National Instrument 51-102-
Continuous Disclosure Obligations
Canadian Supplement to Restated Interim Managements Discussion and Analysis
For the three and nine months ended December 31, 2009
Summary of differences between US GAAP and Canadian GAAP
June 10, 2010
The interim unaudited consolidated financial
statements for the three and nine months ended December 31, 2009 and the accompanying interim Managements Discussion and Analysis (MD&A) have been restated in accordance with US generally accepted accounting principles (GAAP). As
required by the National Instrument 52-107, for the fiscal year of adoption of US GAAP and one subsequent fiscal year, we are required to provide a Canadian Supplement to our MD&A (Canadian Supplement) that restates, based on financial
information reconciled to Canadian GAAP, those parts of our MD&A that would contain material differences if they were based on financial statements prepared in accordance with Canadian GAAP. The Canadian Supplement should be read in conjunction
with our restated unaudited financial statements and restated interim MD&A included in our interim report for the three and nine months ended December 31, 2009 prepared in accordance with US GAAP (Restated Interim Report) and our
annual financial statements for the year ended March 31, 2010 and related MD&A included in our annual report for the fiscal year ended March 31, 2010 (Annual Report). Note 25 of our interim restated financial statements explains and
quantifies the material differences between US GAAP and Canadian GAAP on our financial position and results of operations.
This supplement has been
prepared as of February 1, 2010 and has not been updated to reflect new facts, events or circumstances since that date, except where denoted herein.
The tables in this supplement highlight the differences between Canadian and US GAAP. We have shown the Interim Consolidated Statements of Operations, Comprehensive
Income (Loss) and Deficit for the three and nine months ended December 31, 2009 and an extract of the Interim Consolidated Balance Sheets as at December 31, 2009, so that the areas impacted by the GAAP differences can be clearly
identified. Figures included in this supplement are in thousands of Canadian dollars, except per share information.
Canadian Supplement to Restated Interim Managements Discussion and Analysis
Interim Consolidated Statements of Operations, Comprehensive Income (Loss) and Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended December 31,
|
|
(dollars in thousands, except per
share information)
|
|
2009 (restated (j)
Canadian GAAP)
|
|
|
Adjustments
|
|
|
2009
(US GAAP)
|
|
|
2008 (restated (j)
Canadian GAAP)
|
|
|
Adjustments
|
|
|
2008
(US GAAP)
|
|
Revenue (g)
|
|
$222,714
|
|
|
$(1,539
|
)
|
|
$221,175
|
|
|
$258,565
|
|
|
$
|
|
|
$258,565
|
|
Project costs (g)
|
|
90,322
|
|
|
(1,115
|
)
|
|
89,207
|
|
|
129,912
|
|
|
|
|
|
129,912
|
|
Equipment costs
|
|
57,512
|
|
|
|
|
|
57,512
|
|
|
55,549
|
|
|
|
|
|
55,549
|
|
Equipment operating lease expense
|
|
16,287
|
|
|
|
|
|
16,287
|
|
|
11,934
|
|
|
|
|
|
11,934
|
|
Depreciation (a)
|
|
10,512
|
|
|
31
|
|
|
10,543
|
|
|
9,696
|
|
|
31
|
|
|
9,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
48,081
|
|
|
(455
|
)
|
|
47,626
|
|
|
51,474
|
|
|
(31
|
)
|
|
51,443
|
|
General and administrative costs (c) and (g)
|
|
14,847
|
|
|
(315
|
)
|
|
14,532
|
|
|
19,156
|
|
|
14
|
|
|
19,170
|
|
Loss on disposal of property, plant and equipment
|
|
743
|
|
|
|
|
|
743
|
|
|
1,022
|
|
|
|
|
|
1,022
|
|
Loss on disposal of assets held for sale
|
|
649
|
|
|
|
|
|
649
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangible assets (b)
|
|
738
|
|
|
(210
|
)
|
|
528
|
|
|
600
|
|
|
(209
|
)
|
|
391
|
|
Equity in earnings of unconsolidated joint
venture (g)
|
|
|
|
|
(98
|
)
|
|
(98
|
)
|
|
|
|
|
|
|
|
|
|
Impairment of goodwill
|
|
|
|
|
|
|
|
|
|
|
32,753
|
|
|
|
|
|
32,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) before the undernoted
|
|
31,104
|
|
|
168
|
|
|
31,272
|
|
|
(2,057
|
)
|
|
164
|
|
|
(1,893
|
)
|
Interest expense, net (b)
|
|
6,127
|
|
|
637
|
|
|
6,764
|
|
|
6,774
|
|
|
545
|
|
|
7,319
|
|
Foreign exchange (gain) loss (b)
|
|
(5,403
|
)
|
|
(46
|
)
|
|
(5,449
|
)
|
|
32,504
|
|
|
431
|
|
|
32,935
|
|
Realized and unrealized loss (gain) on derivative financial instruments (d)
|
|
7,618
|
|
|
392
|
|
|
8,010
|
|
|
(26,523
|
)
|
|
(247
|
)
|
|
(26,770
|
)
|
Other expense (income)
|
|
471
|
|
|
|
|
|
471
|
|
|
(5,343
|
)
|
|
|
|
|
(5,343
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
22,291
|
|
|
(815
|
)
|
|
21,476
|
|
|
(9,469
|
)
|
|
(565
|
)
|
|
(10,034
|
)
|
Current income taxes
|
|
591
|
|
|
|
|
|
591
|
|
|
1,779
|
|
|
|
|
|
1,779
|
|
Deferred income taxes (h)
|
|
6,123
|
|
|
(174
|
)
|
|
5,949
|
|
|
3,346
|
|
|
(195
|
)
|
|
3,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) and comprehensive income (loss) for the period
|
|
15,577
|
|
|
(641
|
)
|
|
14,936
|
|
|
(14,594
|
)
|
|
(370
|
)
|
|
(14,964
|
)
|
Deficit, beginning of the period
|
|
(141,418
|
)
|
|
(2,461
|
)
|
|
(143,879
|
)
|
|
(6,638
|
)
|
|
609
|
|
|
(6,029
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit, end of the period
|
|
$(125,841
|
)
|
|
$(3,102
|
)
|
|
$(128,943
|
)
|
|
$(21,232
|
)
|
|
$239
|
|
|
$(20,993
|
)
|
Per share information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) basic
|
|
$0.43
|
|
|
$(0.02
|
)
|
|
$0.41
|
|
|
$(0.41
|
)
|
|
$(0.01
|
)
|
|
$(0.42
|
)
|
Net income (loss) diluted
|
|
$0.43
|
|
|
$(0.02
|
)
|
|
$0.41
|
|
|
$(0.41
|
)
|
|
$(0.01
|
)
|
|
$(0.42
|
)
|
EBITDA
|
|
$39,668
|
|
|
$(357
|
)
|
|
$39,311
|
|
|
$7,601
|
|
|
$(198
|
)
|
|
$7,403
|
|
Consolidated EBITDA (as defined within our credit agreement) (i)
|
|
$43,844
|
|
|
$
|
|
|
$43,844
|
|
|
$47,900
|
|
|
$
|
|
|
$47,900
|
|
Canadian Supplement to Restated Interim Managements Discussion and Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended December 31,
|
|
(dollars in thousands, except per share
information)
|
|
2009 (restated (j)
Canadian GAAP)
|
|
|
Adjustments
|
|
|
2009 (US
GAAP)
|
|
|
2008 (restated (j)
Canadian GAAP)
|
|
|
Adjustments
|
|
|
2008
(US GAAP)
|
|
Revenue (g)
|
|
$540,927
|
|
|
$(2,531
|
)
|
|
$538,396
|
|
|
$797,836
|
|
|
$
|
|
|
$797,836
|
|
Project costs (g)
|
|
210,834
|
|
|
(1,928
|
)
|
|
208,906
|
|
|
433,504
|
|
|
|
|
|
433,504
|
|
Equipment costs
|
|
147,915
|
|
|
|
|
|
147,915
|
|
|
168,746
|
|
|
|
|
|
168,746
|
|
Equipment operating lease expense
|
|
44,320
|
|
|
|
|
|
44,320
|
|
|
30,317
|
|
|
|
|
|
30,317
|
|
Depreciation (a)
|
|
30,600
|
|
|
93
|
|
|
30,693
|
|
|
27,700
|
|
|
93
|
|
|
27,793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
107,258
|
|
|
(696
|
)
|
|
106,562
|
|
|
137,569
|
|
|
(93
|
)
|
|
137,476
|
|
General and administrative costs (c) and (g)
|
|
43,928
|
|
|
(502
|
)
|
|
43,426
|
|
|
57,717
|
|
|
43
|
|
|
57,760
|
|
Loss on disposal of property, plant and equipment
|
|
1,044
|
|
|
|
|
|
1,044
|
|
|
3,778
|
|
|
|
|
|
3,778
|
|
Loss on disposal of assets held for sale
|
|
373
|
|
|
|
|
|
373
|
|
|
24
|
|
|
|
|
|
24
|
|
Amortization of intangible
assets (b)
|
|
2,061
|
|
|
(623
|
)
|
|
1,438
|
|
|
1,676
|
|
|
(627
|
)
|
|
1,049
|
|
Equity in earnings of unconsolidated joint venture (g)
|
|
|
|
|
(66
|
)
|
|
(66
|
)
|
|
|
|
|
|
|
|
|
|
Impairment of goodwill
|
|
|
|
|
|
|
|
|
|
|
32,753
|
|
|
|
|
|
32,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income before the undernoted
|
|
59,852
|
|
|
495
|
|
|
60,347
|
|
|
41,621
|
|
|
491
|
|
|
42,112
|
|
Interest expense, net (b)
|
|
17,885
|
|
|
1840
|
|
|
19,725
|
|
|
19,663
|
|
|
1,613
|
|
|
21,276
|
|
Foreign exchange (gain) loss (b)
|
|
(42,480
|
)
|
|
(450
|
)
|
|
(42,930
|
)
|
|
39,099
|
|
|
522
|
|
|
39,621
|
|
Realized and unrealized loss (gain) on derivative financial instruments (d)
|
|
40,465
|
|
|
2,720
|
|
|
43,185
|
|
|
(21,171
|
)
|
|
(4,655
|
)
|
|
(25,826
|
)
|
Other expense (income)
|
|
804
|
|
|
|
|
|
804
|
|
|
(5,364
|
)
|
|
|
|
|
(5,364
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
43,178
|
|
|
(3,615
|
)
|
|
39,563
|
|
|
9,394
|
|
|
3,011
|
|
|
12,405
|
|
Current income taxes
|
|
1,855
|
|
|
|
|
|
1,855
|
|
|
1,842
|
|
|
|
|
|
1,842
|
|
Deferred income taxes (h)
|
|
9,185
|
|
|
(639
|
)
|
|
8,546
|
|
|
8,682
|
|
|
173
|
|
|
8,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) and comprehensive income (loss) for the period
|
|
32,138
|
|
|
(2,976
|
)
|
|
29,162
|
|
|
(1,130
|
)
|
|
2,838
|
|
|
1,708
|
|
Deficit, beginning of the period
|
|
(157,979
|
)
|
|
(126
|
)
|
|
(158,105
|
)
|
|
(21,093
|
)
|
|
(1,608
|
)
|
|
(22,701
|
)
|
Change in accounting policies related to inventories (f)
|
|
|
|
|
|
|
|
|
|
|
991
|
|
|
(991
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit, end of the period
|
|
$(125,841
|
)
|
|
(3,102
|
)
|
|
$(128,943
|
)
|
|
$(21,232
|
)
|
|
239
|
|
|
$(20,993
|
)
|
Per share information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) basic
|
|
$0.89
|
|
|
$(0.08
|
)
|
|
$0.81
|
|
|
$(0.03
|
)
|
|
$0.08
|
|
|
$0.05
|
|
Net income (loss) diluted
|
|
$0.87
|
|
|
$(0.08
|
)
|
|
$0.79
|
|
|
$(0.03
|
)
|
|
$0.07
|
|
|
$0.05
|
|
EBITDA
|
|
$93,724
|
|
|
$(2,305
|
)
|
|
$91,419
|
|
|
$58,433
|
|
|
$4,090
|
|
|
$62,523
|
|
Consolidated EBITDA (as defined within our credit agreement) (i)
|
|
$95,216
|
|
|
$
|
|
|
$95,216
|
|
|
$114,255
|
|
|
$
|
|
|
$114,255
|
|
Canadian Supplement to Restated Interim Managements Discussion and Analysis
Extract of the Interim Consolidated Balance Sheets
The following table highlights the differences between Canadian and US GAAP on the Interim Consolidated Balance Sheets. We have focused on the line items that
have been impacted by the GAAP differences.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands, except per share
information)
|
|
December 31,
2009 (restated (j)
Canadian GAAP)
|
|
|
Adjustments
|
|
|
December 31,
2009
(US GAAP)
|
|
|
March 31,
2009 (restated (j)
Canadian GAAP)
|
|
|
Adjustments
|
|
|
March 31,
2009
(US GAAP)
|
|
Cash and cash equivalents (g)
|
|
$96,443
|
|
|
$(1,566
|
)
|
|
$94,877
|
|
|
$98,880
|
|
|
$
|
|
|
$98,880
|
|
Accounts receivable, net (g)
|
|
91,716
|
|
|
(1,852
|
)
|
|
89,864
|
|
|
78,323
|
|
|
|
|
|
78,323
|
|
Unbilled revenue (g)
|
|
82,232
|
|
|
(835
|
)
|
|
81,397
|
|
|
55,907
|
|
|
|
|
|
55,907
|
|
Prepaid expenses and deposits (g)
|
|
7,982
|
|
|
(14
|
)
|
|
7,968
|
|
|
4,781
|
|
|
|
|
|
4,781
|
|
Property, plant and equipment (a)
|
|
333,016
|
|
|
566
|
|
|
333,582
|
|
|
315,455
|
|
|
660
|
|
|
316,115
|
|
Intangible assets (b)
|
|
8,380
|
|
|
(1,260
|
)
|
|
7,120
|
|
|
6,711
|
|
|
(767
|
)
|
|
5,944
|
|
Deferred financing costs (b)
|
|
|
|
|
6,544
|
|
|
6,544
|
|
|
|
|
|
7,910
|
|
|
7,910
|
|
Investment in and advances to unconsolidated joint venture (g)
|
|
|
|
|
2,939
|
|
|
2,939
|
|
|
|
|
|
|
|
|
|
|
Accounts payable (g)
|
|
(78,097
|
)
|
|
1,328
|
|
|
(76,769
|
)
|
|
(56,204
|
)
|
|
|
|
|
(56,204
|
)
|
Senior notes (b) and (d)
|
|
(204,953
|
)
|
|
(4,483
|
)
|
|
(209,436
|
)
|
|
(252,899
|
)
|
|
(2,857
|
)
|
|
(255,756
|
)
|
Deferred tax liabilities (h)
|
|
(36,678
|
)
|
|
(785
|
)
|
|
(37,463
|
)
|
|
(29,322
|
)
|
|
(1,423
|
)
|
|
(30,745
|
)
|
Common shares (e)
|
|
(299,973
|
)
|
|
(3,458
|
)
|
|
(303,431
|
)
|
|
(299,973
|
)
|
|
(3,458
|
)
|
|
(303,431
|
)
|
Additional paid-in capital (c)
and (h)
|
|
(7,135
|
)
|
|
(226
|
)
|
|
(7,361
|
)
|
|
(5,275
|
)
|
|
(191
|
)
|
|
(5,466
|
)
|
Deficit (a) (d) and (f) (h)
|
|
125,841
|
|
|
3,102
|
|
|
128,943
|
|
|
157,979
|
|
|
126
|
|
|
158,105
|
|
Canadian and United States accounting
policies differences
A detailed reconciliation of our results for the third quarter 2010 is included in note 25 of our interim consolidated
financial statements for the three and nine months ended December 31, 2009.
The differences between US GAAP and Canadian GAAP that have the
most significant impact on our financial position and results of operations for the three and nine months ended December 31, 2009, include accounting for: capitalization of interest, financing costs, discounts and premiums, derivative financial
instruments, stock-based compensation and modification of Series B Preferred Shares.
a) Capitalization of interest
US GAAP requires capitalization of interest costs as part of the historical cost of acquiring certain qualifying assets that require a period of time to
prepare for their intended use. This is not required under Canadian GAAP. The capitalized amount is subject to depreciation in accordance with our policies when the asset is placed into service.
b) Financing costs, discounts and premiums
Under
US GAAP, deferred financing costs incurred in connection with our senior notes are being amortized over the term of the related debt using the effective interest method. Prior to April 1, 2007, for Canadian GAAP purposes, these transaction
costs were recorded as a deferred asset under Canadian GAAP and these deferred financing costs were being amortized on a straight-line basis over the term of the debt.
Effective April 1, 2007, we adopted CICA Handbook Section 3855, Financial Instruments Recognition and Measurement, on a retrospective
basis without restatement as described below. Although Section 3855 also requires the use of the effective interest method to account for the amortization of finance costs, the requirement to bifurcate the issuers early prepayment option
on issuance of the debt (which is not required under US GAAP) resulted in an additional premium that is being amortized over the term of the debt under Canadian GAAP. In addition, foreign denominated transaction costs, discounts and premiums are
considered as part of the carrying value of the related financial liability under Canadian GAAP and are subject to foreign currency gains or losses resulting from periodic translation procedures as they are treated as a monetary item under Canadian
GAAP. Under US GAAP, foreign denominated transaction costs are considered non-monetary and are not subject to foreign currency gains and losses resulting from periodic translation procedures.
In connection with the adoption of Section 3855, transaction costs incurred in connection with our revolving credit facility of $1.6 million were reclassified
from deferred financing costs to intangible assets on April 1, 2007 under Canadian GAAP and these costs continue to be amortized on a straight-line basis over the term of the facility. Under US GAAP, we continue to amortize these
transaction costs over the stated term of the related debt using the effective interest method. We disclose the financing costs for both the senior notes and the Revolving Facility as deferred financing costs on the Consolidated Balance Sheets with
the amortization charge classified as interest on the Consolidated Statement of Operations and Comprehensive Income (Loss). Under Canadian GAAP, the financing costs related to the senior notes are included in the Senior notes balance on
the Consolidated Balance Sheets.
Canadian Supplement to Restated Interim Managements Discussion and Analysis
c) Stock-based compensation
Up until April 1, 2006, we followed the provisions of ASC 718, Share-Based Payment (formerly Statement of Financial Accounting Standards
No. 123, Stock-Based Compensation), for US GAAP purposes. As we use the fair value method of accounting for all stock-based compensation payments under Canadian GAAP, there were no differences between Canadian and US GAAP
prior to April 1, 2006. On April 1, 2006, we adopted the provisions of Statement of Financial Accounting Standards No. 123(R), Share-Based Payment (SFAS 123R), which is now a part of ASC 718. As we used the
minimum value method for purposes of complying with Statement of Financial Accounting Standards No. 123, we were required to adopt the provisions under the revised guidance prospectively. Under Canadian GAAP, we were permitted to exclude
volatility from the determination of the fair value of stock options granted until the filing of our initial registration statement relating to our initial public offering of voting shares on July 21, 2006. As a result, for options issued
between April 1, 2006 and July 21, 2006, there is a difference between Canadian and US GAAP relating to the determination of the fair value of options granted.
d) Derivative financial instruments
Under Canadian GAAP, we
determined that the issuers early prepayment option included in the senior notes should be bifurcated from the host contract, along with a contingent embedded derivative in the senior notes that provide for accelerated redemption by the
holders in certain instances. These embedded derivatives were measured at fair value at the inception of the senior notes and the residual amount of the proceeds was allocated to the debt. Changes in fair value of the embedded derivatives are
recognized in net income and the carrying amount of the senior notes is accreted to par value over the term of the notes using the effective interest method and is recognized as interest expense as discussed in b) above. Prior to April 1, 2007
under Canadian GAAP, separate accounting of embedded derivatives from the host contract was not permitted by EIC-117.
Under US GAAP, ASC 815
(formerly Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133)) establishes accounting and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts and debt instruments) be recorded in the balance sheet as either an asset or liability measured at its fair value. The contingent embedded derivative in the senior notes that
provide for accelerated redemption by the holders in certain instances met the criteria for bifurcation from the debt contract and separate measurement at fair value. The embedded derivative has been measured at fair value and changes in fair value
recorded in net income for all periods presented. The issuers early prepayment option included in the senior notes does not meet the criteria as an embedded derivative under ASC 815 (formerly SFAS 133) and was not bifurcated from the host
contract and measured at fair value resulting in a US GAAP and Canadian GAAP difference.
On adoption of CICA Handbook Section 3855,
Financial Instruments Recognition and Measurement, we reviewed the accounting treatment of a number of outstanding contracts and determined that a price escalation feature in a revenue construction contract and supplier contracts
entered into prior to April 1, 2007 contained embedded derivatives that are not closely related to the host contract under Canadian GAAP. We recorded the fair value of these embedded derivatives on April 1, 2007 of $9.7 million, with a
corresponding increase in opening deficit of $7.0 million, net of future income taxes of $2.8 million for Canadian GAAP purposes. Under US GAAP, we had recognized and measured these embedded derivatives since inception of the related contracts.
e) NAEPI Series B Preferred Shares
Prior to the
modification of the terms of the North American Energy Partners Inc. (NAEPI) Series B preferred shares on March 30, 2006, there were no differences between Canadian GAAP and US GAAP related to the NAEPI Series B preferred
shares. As a result of the modification of terms of NAEPIs Series B preferred shares, under Canadian GAAP, NACG continued to classify the NAEPI Series B preferred shares as a liability and was accreting the carrying amount of $42.2 million on
the amendment date (March 30, 2006) to their December 31, 2011 redemption value of $69.6 million using the effective interest method. Under US GAAP, NACG recognized the fair value of the amended NAEPI Series B preferred shares as minority
interest as such amount was recognized as temporary equity in the accounts of NAEPI in accordance with EITF Topic D-98 and recognized a charge of $3.7 million to retained earnings for the difference between the fair value and the carrying amount of
the Series B preferred shares on the amendment date. Under US GAAP, NAEPI was accreting the initial fair value of the amended NAEPI Series B preferred shares of $45.9 million recorded on their amendment date (March 30, 2006) to the
December 31, 2011 redemption value of $69.6 million using the effective interest method, which was consistent with the treatment of the NAEPI Series B preferred shares as temporary equity in the financial statements of NAEPI. The accretion
charge was recognized by NAEPI as a charge to minority interest (as opposed to retained earnings in the accounts of NAEPI) under US GAAP and interest expense in NAEPIs financial statements under Canadian GAAP.
On November 28, 2006, NAEPI exercised a call option to acquire all of the issued and outstanding NAEPI Series B preferred shares in exchange for 7,524,400
common shares of NAEPI. For Canadian GAAP purposes, NAEPI recorded the exchange by transferring the carrying value of the NAEPI Series B preferred shares on the exercise date of $44.7 million to common shares. For US GAAP purposes, the
conversion has been accounted for as a combination of entities under common control as all of the shareholders of the NAEPI Series B preferred shares are also common
Canadian Supplement to Restated Interim Managements Discussion and Analysis
shareholders of NAEPI resulting in the reclassification of the carrying value of the minority interest on the exercise date of $48.1 million to common shares. NACG and NAEPI were amalgamated
later in 2006 and the amalgamated entity continued as NAEPI.
f) Inventories
Effective April 1, 2008, we retrospectively adopted CICA Handbook Section 3031, Inventories, without restatement of prior periods. This
standard requires inventories to be measured at the lower of cost and net realizable value and provides guidance on the determination of cost, including the allocation of overheads and other costs to inventories, the requirement for an entity to use
a consistent cost formula for inventory of a similar nature and use, and the reversal of previous write-downs to net realizable value when there are subsequent increases in the value of inventories. This new standard also clarifies that spare
component parts that do not qualify for recognition as property, plant and equipment should be classified as inventory. In adopting this new standard, we reversed a tire impairment that was previously recorded at March 31, 2008 in other assets
of $1.4 million with a corresponding decrease to opening deficit of $0.1 million net of future taxes of $0.4 million.
During the year ended
March 31, 2008, the replacement cost (i.e. market) of spare tire inventory was lower than the original carrying amount of inventory. As a result, we recorded an inventory write-down of $1.4 million under Canadian GAAP. Under US GAAP,
market means current replacement cost. However, market under US GAAP should not exceed the net realizable value nor should it be less than net realizable value reduced by an allowance for a normal profit margin. We established that the net
realizable value and net realizable value less an allowance for a normal profit margin was greater than or equal to cost and as such a write-down of spare tires was not appropriate under US GAAP for the year ended March 31, 2008. Please
refer to note 3 aa) of our restated interim consolidated financial statements for the three and nine months ended December 31, 2009.
g) Joint
venture
We own a 49% interest in Noramac Ventures Inc., a nominee company for our Noramac Joint Venture (JV) and we have joint control of this
entity. Under US GAAP, we record our share of earnings of the JV using the equity method of accounting. Under Canadian GAAP, we use the proportionate consolidation method of accounting for the JV. Under the proportionate consolidation method,
we recognize our share of the results of operations, cash flows, and financial position of the JV on a line-by-line basis in our consolidated financial statements and eliminate our share of all material intercompany transactions with the JV. While
there is no impact on net income or earnings per share as a result of the US GAAP treatment of the joint venture, as compared to Canadian GAAP, there are presentation differences affecting the disclosures in the consolidated financial
statements and supporting notes.
h) Other matters
Other adjustments relate to the tax effect of items (a) through (f) above. The tax effects of temporary differences are described as future income taxes
under Canadian GAAP whereas in these financial statements such amounts are described as deferred income taxes under US GAAP. In addition, Canadian GAAP generally refers to additional paid-in capital as contributed surplus for financial statement
presentation purposes.
i) Consolidated EBITDA
A
difference arises in computing EBITDA for the three and nine months ended December 31, 2009 and December 31, 2008 respectively as result of US GAAP and Canadian GAAP differences stated above (a) to (d) and (f). Under
US GAAP, equity in earnings of unconsolidated joint venture is added back in computing consolidated EBITDA for the three and nine months ended December 31, 2009 and December 31, 2008 respectively.
j) Restatement
The financial statements for the three and
nine months ended December 30, 2009 and 2008 under Canadian GAAP have been restated to correct the following errors identified during the preparation of our fiscal 2010 financial statements:
i)
|
Reclassification of accrued liabilities
: The financial statements for fiscal 2009 have been amended to correct a classification error with respect to accrued liabilities
identified during the preparation of our fiscal 2010 consolidated financial statements. Certain operating lease agreements provide a maximum hourly usage limit, above which we will be required to pay for the over hour usage. These contingent
rentals are recognized when payment is considered probable and are due at the end of the lease term. We have historically classified the contingent rentals as a current liability; however, certain of the amounts are due beyond one year from the
balance sheet date. In the current year, we reclassified amounts due beyond one year, from the balance sheet date, as a long term liability and reclassified comparative figures accordingly. The amount reclassified on the Consolidated
Balance Sheet was $10.9 million and $7.1 million as at December 31, 2009 and March 31, 2009 respectively.
|
ii)
|
Buy-out of leased assets
: The financial statements for fiscal 2008 have been amended under Canadian GAAP to correct an error related to the method of
accounting for an incentive at the time of buying previously leased assets, which was identified during the preparation of our fiscal 2010 consolidated financial statements. When an asset is leased under an operating lease agreement, as stated in
the paragraph above, contingent rentals are recognized when payment is considered probable and are due at the end of the lease term. We can buy the asset at the end of the lease term at a pre-determined market price at which point the liability is
extinguished since the lease
|
Canadian Supplement to Restated Interim Managements Discussion and Analysis
|
agreement is cancelled. We have been traditionally extinguishing the liability for such lease buyouts by reducing equipment costs related to leased equipment, instead of considering the
extinguishment of the liability as an incentive to purchase the asset and therefore reducing the cost of the asset. The correction of this error increased Equipment costs by $nil and $6.6 million, reduced Depreciation by $0.2
million and $0.5 million, increased (reduced) Future income taxes by $nil and $(1.8) million, and increased (reduced) Net Income (Loss) and comprehensive Income (Loss) by $0.1 million and $4.3 million from the amounts
originally reported in the Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended December 31, 2008, respectively. The financial statements for fiscal 2009 have also been amended under Canadian
GAAP to correct an error related to the method of accounting for an incentive at time of buying previously leased assets, which was identified during the preparation of our fiscal 2010 consolidated financial statements as stated above. The
correction of this error reduced Depreciation by $0.2 million and $0.6 million, increased Future income taxes by $0.1 million and $0.2 million, and increased Net Income and comprehensive Income (Loss) by $0.1
million and $0.4 million from the amounts originally reported in the Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended December 31, 2009, respectively. It also reduced Property,
plant and equipment by $8.0 million and $8.6 million, reduced long term Future income taxes liabilities by $2.4 million and $2.6 million, and increased Deficit by $5.6 million and $6.0 million from the amounts
originally reported in the Consolidated Balance Sheet as at December 31, 2009 and March 31, 2009, respectively.
|
iii)
|
Valuation of derivative financial instruments
: The financial statements for fiscal 2009 have also been amended under Canadian GAAP to correct an error related to the
determination of the fair value of the cross-currency and interest rate swap liabilities (collectively, the swap liability) which was identified on settlement of the swap liability on April 8, 2010. We recorded the fair value of the swap
liability and in addition recorded accrued interest on the swap liability. This resulted in the swap liability being misstated and the changes in the fair value of the swap liability being misstated by the change in the amount of the accrued
interest at each reporting period from March 31, 2009. The periods before March 31, 2009 were not materially impacted because prior to February 2, 2009, the Canadian Dollar interest rate swap was still in place (see Interest rate risk in
Quantitative and Qualitative Disclosures about Market Risk section), and therefore the net accrued interest payable under the swap liability was not material. The error increased Realized and unrealized loss (gain) on derivative financial
instruments by $6.5 million and $6.1 million, reduced income tax expense by $1.1 million and $1.5 million, and reduced net income by $5.4 million and $4.7 million from amounts originally reported in the Interim Consolidated Statements of
Operations and Comprehensive Income for the three and nine months ended December 31, 2009, respectively. It also reduced Derivative financial instruments by $1.4 million and $7.5 million increased long term Future income
taxes by $0.2 million and $1.7 million, and reduced Deficit by $1.2 million and $5.8 million in the Consolidated Balance Sheet as at December 31, 2009 and March 31, 2009, respectively.
|
Managements discussion and analysis under US GAAP
Please refer to our restated interim consolidated financial statements for the three and nine months ended December 31, 2009 and our accompanying
Managements Discussion and Analysis (MD&A) under US GAAP. The differences between US GAAP and Canadian GAAP, described above, impact the discussion and analysis in several sections of our restated MD&A.
Additional information
The consolidated financial statements
and additional information relating to us, including our Annual Information Form dated June 10, 2010, are available on the Canadian Securities Administrators SEDAR System at
www.sedar.com
, the Securities and Exchange Commissions
website at
www.sec.gov
and our company web site at
www.nacg.ca
.
FORM 52-109F2R
CERTIFICATION OF REFILED INTERIM FILINGS
This
certificate is being filed on the same date that North American Energy Partners Inc. (the issuer) has refiled the interim unaudited consolidated financial statements, accompanying notes and interim MD&A for the interim period ended
December 31, 2009 in conformity with US GAAP, as required by applicable securities law in connection with the preparation of its financial statements for the year ended March 31, 2010 in conformity with US GAAP.
I, Rodney J. Ruston, the Chief Executive Officer of North American Energy Partners Inc., certify the following:
1.
|
Review:
I have reviewed the interim financial statements and interim MD&A (together, the interim filings) of the issuer for the interim period ended
December 31, 2009.
|
2.
|
No misrepresentations:
Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or
omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.
|
3.
|
Fair presentation:
Based on my knowledge, having exercised reasonable diligence, the interim financial statements together with the other financial information
included in the interim filings fairly present in all material respects the financial condition, results of operations and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.
|
4.
|
Responsibility:
The issuers other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P)
and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers Annual and Interim Filings, for the issuer.
|
5.
|
Design:
Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuers other certifying officer(s) and I have, as at the end of the
period covered by the interim filings
|
|
(a)
|
designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that
|
|
(i)
|
material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and
|
|
(ii)
|
information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded,
processed, summarized and reported within the time periods specified in securities legislation; and
|
|
(b)
|
designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with the issuers GAAP.
|
5.1
|
Control framework:
The control framework the issuers other certifying officer(s) and I used to design the issuers ICFR is COSO and COBIT.
|
5.2
|
ICFR material weakness relating to design:
The issuer has disclosed in its interim MD&A for each material weakness relating to design existing at the end
of the interim period
|
|
(a)
|
a description of the material weakness;
|
|
(b)
|
the impact of the material weakness on the issuers financial reporting and its ICFR; and
|
|
(c)
|
the issuers current plans, if any, or any actions already undertaken, for remediating the material weakness.
|
5.3
|
Limitation on scope of design:
N/A
|
6.
|
Reporting changes in ICFR:
The issuer has disclosed in its interim MD&A any change in the issuers ICFR that occurred during the period beginning on
October 1, 2009 and ended on December 31, 2009 that has materially affected, or is reasonably likely to materially affect, the issuers ICFR.
|
|
Date: June 10, 2010
|
|
/s/ Rodney J. Ruston
|
Chief Executive Officer
|
FORM 52-109F2R
CERTIFICATION OF REFILED INTERIM FILINGS
This
certificate is being filed on the same date that North American Energy Partners Inc. (the issuer) has refiled the interim unaudited consolidated financial statements, accompanying notes and interim MD&A for the interim period ended
December 31, 2009 in conformity with US GAAP, as required by applicable securities law in connection with the preparation of its financial statements for the year ended March 31, 2010 in conformity with US GAAP.
I, David Blackley, the Chief Financial Officer of North American Energy Partners Inc., certify the following:
1.
|
Review:
I have reviewed the interim financial statements and interim MD&A (together, the interim filings) of the issuer for the interim period ended
December 31, 2009.
|
2.
|
No misrepresentations:
Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or
omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.
|
3.
|
Fair presentation:
Based on my knowledge, having exercised reasonable diligence, the interim financial statements together with the other financial information
included in the interim filings fairly present in all material respects the financial condition, results of operations and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.
|
4.
|
Responsibility:
The issuers other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P)
and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers Annual and Interim Filings, for the issuer.
|
5.
|
Design:
Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuers other certifying officer(s) and I have, as at the end of the
period covered by the interim filings
|
|
(a)
|
designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that
|
|
(i)
|
material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and
|
|
(ii)
|
information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded,
processed, summarized and reported within the time periods specified in securities legislation; and
|
|
(b)
|
designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with the issuers GAAP.
|
5.1
|
Control framework:
The control framework the issuers other certifying officer(s) and I used to design the issuers ICFR is COSO and COBIT.
|
5.2
|
ICFR material weakness relating to design:
The issuer has disclosed in its interim MD&A for each material weakness relating to design existing at the end
of the interim period
|
|
(a)
|
a description of the material weakness;
|
|
(b)
|
the impact of the material weakness on the issuers financial reporting and its ICFR; and
|
|
(c)
|
the issuers current plans, if any, or any actions already undertaken, for remediating the material weakness.
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5.3
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Limitation on scope of design:
N/A
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6.
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Reporting changes in ICFR:
The issuer has disclosed in its interim MD&A any change in the issuers ICFR that occurred during the period beginning on
October 1, 2009 and ended on December 31, 2009 that has materially affected, or is reasonably likely to materially affect, the issuers ICFR.
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Date: June 10, 2010
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/s/ David Blackley
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Chief Financial Officer
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