cveo20180405_8ka.htm

 



 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

_______________

 

FORM 8-K/A

(Amendment No. 1)

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934

 

Date of report (Date of earliest event reported): March 28, 2018

    

 

Civeo Corporation

(Exact name of registrant as specified in its charter)

 

 

British Columbia, Canada

1-36246

98-1253716

(State or Other Jurisdiction of

(Commission File Number)

(I.R.S. Employer

Incorporation)

 

Identification No.)

 

Three Allen Center,

333 Clay Street, Suite 4980, Houston, Texas 77002

(Address of Principal Executive Offices) (Zip Code)

 

Registrant’s Telephone Number, Including Area Code: (713) 510-2400

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

     ☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

     ☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

     ☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

     ☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging Growth Company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 



 

 

 

 

EXPLANATORY NOTE

 

On April 2, 2018, Civeo Corporation (“Civeo”) filed with the Securities and Exchange Commission a Current Report on Form 8-K (the “Initial 8-K”) to disclose that it had completed its previously announced acquisition (the “Acquisition”) of Noralta Lodge Ltd. (“Noralta”).

 

This Form 8-K/A amends the Initial 8-K to provide financial statements and pro forma financial information for the Acquisition that are described in parts (a) and (b) of Item 9.01 below. Except as otherwise provided in this Form 8-K/A, the Initial 8-K remains unchanged.

 

Item 9.01          Financial Statements and Exhibits.

 

a) Financial Statements of Businesses Acquired.

 

The audited consolidated financial statements of Noralta as of May 31, 2017 and 2016 and for each of the three years ended May 31, 2017 are incorporated herein by reference as Exhibit 99.1 to this Form 8-K/A.

 

The unaudited consolidated financial statements of Noralta as of November 30, 2017 and for the six months ended November 30, 2017 and 2016 are attached as Exhibit 99.2 to this Form 8-K/A and incorporated herein by reference.

 

b) Pro Forma Financial Information.

 

The unaudited pro forma financial information required by Item 9.01(b) of Form 8-K relating to the completion of the Acquisition is attached as Exhibit 99.3 to this Form 8-K/A and incorporated herein by reference.

 

d) Exhibits.

 

Civeo is filing the following exhibits as a part of this Form 8-K/A:

 

23.1

 

Consent of PricewaterhouseCoopers LLP.

     

99.1

 

Audited Consolidated Financial Statements of Noralta as of May 31, 2017 and 2016 and for each of the three years ended May 31, 2017 (incorporated by reference from Annex F of the Proxy Statement on Schedule 14A of Civeo (File No. 001-36246), filed on February 2, 2018).

     

99.2

 

Unaudited Consolidated Financial Statements of Noralta as of November 30, 2017 and for the Six Months Ended November 30, 2017 and 2016.

     

99.3

 

Unaudited Pro Forma Financial Information.

 

1

 

 

SIGNATURE

 

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 hereunto duly authorized.

 

 

  CIVEO CORPORATION
     
     
  By:

/s/ Frank C. Steininger

  Name:

Frank C. Steininger

  Title:

Executive Vice President, Chief Financial Officer and Treasurer

 

 

DATED: April 11, 2018

ex_109916.htm

Exhibit 23.1

 

 

CONSENT OF INDEPENDENT ACCOUNTANTS

 

 

We hereby consent to the incorporation by reference in the following Registration Statements of Civeo Corporation:

 

 

i.

the Registration Statement (Form S-8 No. 333-196292, as amended) pertaining to the 2014 Equity Participation Plan of Civeo Corporation,

 

 

ii.

the Registration Statement (Form S-8 No. 333-211393) pertaining to the Amended and Restated 2014 Equity Participation Plan of Civeo Corporation and

 

 

iii.

the Registration Statement (Form S-3 No. 333-212754, as amended) pertaining to the registration of common shares, preferred shares, debt securities and warrants

 

of our report dated December 11, 2017 relating to the consolidated financial statements of Noralta Lodge Ltd., which is included in this Current Report on Form 8-K/A of Civeo Corporation.

 

 

/s/ PricewaterhouseCoopers LLP

Edmonton, Alberta, Canada
April 11, 2018

ex_109917.htm

Exhibit 99.2

 

 

 

 

 

 

Noralta Lodge Ltd.

 

Interim Consolidated Financial Statements

 

Consolidated balance sheets as at November 30, 2017 and May 31, 2017 and consolidated statements of retained earnings, operations and cash flows for the six-month periods ended November 30, 2017 and 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noralta Lodge Ltd.

 

Interim Consolidated Balance Sheets

             

Canadian $ as at

 

 

November 30, 2017

   

May 31, 2017

 
   

Unaudited

         

Assets

               
                 

Current assets

               

Cash

  $ -     $ 16,940,767  

Trade and other receivables (Note 11)

    31,541,108       26,880,351  

Inventory (Note 3)

    2,309,506       2,054,040  

Prepaid expenses and deposits

    1,018,453       1,230,185  

Advances to shareholder (Note 11)

    6,017,319       5,765,605  

Assets held for sale (Note 6)

    247,454       1,726,985  

Total current assets

    41,133,840       54,597,933  
                 

Property and equipment (Note 4)

    158,491,176       159,279,490  

Intangible assets (Note 5)

    160,850       170,351  

Total assets

  $ 199,785,866     $ 214,047,774  
                 

Liabilities and shareholders' equity

               
                 

Liabilities

               

Current liabilities

               

Bank indebtedness (Note 8)

  $ 9,912,842     $ -  

Accounts payable and accrued liabilities (Note 7)

    17,090,848       14,774,745  

Income taxes payable

    1,822,439       7,440,837  

Obligations under capital lease (Note 9)

    34,106       189,847  

Long-term debt (Note 8)

    6,000,000       4,686,698  

Asset retirement obligations (Note 13)

    1,254,000       1,254,000  

Total current liabilities

    36,114,235       28,346,127  
                 

Unearned revenue

    4,840,614       -  

Obligations under capital lease (Note 9)

    1,055       7,311  

Long-term debt (Note 8)

    56,000,000       94,754,822  

Promissory note payable (Note 10)

    1,346,414       1,346,414  

Asset retirement obligations (Note 13)

    7,812,329       7,739,960  

Future income taxes (Note 15)

    23,946,700       24,310,700  

Total liabilities

    130,061,347       156,505,334  
                 

Commitments and guarantees (Note 12)

               
                 

Shareholders' equity

               

Share capital (Note 14)

               

Common shares

    100       100  

Preferred shares, redeemable at $478,526,771 (May 31, 2017 - $479,246,126)

    9,591,653       9,606,899  

Contributed surplus (Note 14)

    7,924,214       -  

Retained earnings

    52,208,552       47,935,441  

Total shareholders' equity

    69,724,519       57,542,440  
                 

Total liabilities and shareholders' equity

  $ 199,785,866     $ 214,047,774  
                 

 

The accompanying notes are an integral part of these interim consolidated financial statements.

 

 

 

 

Noralta Lodge Ltd.

 

Interim Consolidated Statements of Retained Earnings (Unaudited)

         

 

Canadian $ as at

       
         

Balance - May 31, 2016

  $ 11,332,156  
         

Net earnings for the six-month period ended

    23,669,863  

Premium on redemption of shares (Note 14)

    (617,224 )

Balance - November 30, 2016

  $ 34,384,795  
         

Balance - May 31, 2017

  $ 47,935,441  
         

Net earnings for the six-month period ended

    4,977,153  

Premium on redemption of shares (Note 14)

    (704,042 )

Balance - November 30, 2017

  $ 52,208,552  
         

 

The accompanying notes are an integral part of these interim consolidated financial statements.

 

 

 

 

Noralta Lodge Ltd.

 

Interim Consolidated Statements of Operations (Unaudited)

             

Canadian $ for the six-month period ended

 

 

November 30, 2017

   

November 30, 2016

 
                 

Revenue (Note 19)

  $ 90,348,396     $ 89,633,958  
                 

Operating expenses

               

Wages and benefits

    17,940,304       16,481,818  

Groceries

    15,363,272       9,918,640  

Telephone and utilities

    6,758,822       4,238,098  

Rent (Note 19)

    3,736,420       2,058,826  

Contracted services

    2,714,800       1,295,955  

Property taxes

    1,408,530       598,617  

Repairs and maintenance

    1,024,806       862,320  

Aircraft and travel

    886,171       1,026,091  

Insurance

    651,759       423,702  

Lodge supplies

    581,046       879,309  

Professional fees

    108,938       163,323  
      51,174,868       37,946,699  
                 

Gross profit

    39,173,528       51,687,259  
                 

General and administrative expenses (Note 16)

    12,565,527       5,138,977  
                 

Expenses

               

Amortization

    8,804,265       10,251,924  

Reorganization cost

    2,180,592       758,333  

Interest

    6,741,300       7,236,895  

Mobilization costs

    -       1,070,214  
      17,726,157       19,317,366  
                 

Earnings from operations

    8,881,844       27,230,916  
                 

Other income (expense)

               

Wildfire costs (Note 17)

    -       (169,068 )

Insurance proceeds (Note 18)

    388,371       -  

Accretion

    (72,369 )     (71,040 )

(Loss) gain on repayment of long-term debt

    (93,075 )     5,429,602  

Gain on disposal of property and equipment

    672,123       26,895  

Loss on foreign exchange

    (626 )     (1,409 )
      894,424       5,214,980  
                 

Earnings before income taxes

    9,776,268       32,445,896  
                 

Income taxes (Note 15)

               

Current

    5,163,115       4,174,832  

Future

    (364,000 )     4,601,201  
      4,799,115       8,776,033  
                 

Net earnings for the period

  $ 4,977,153     $ 23,669,863  
                 

 

The accompanying notes are an integral part of these interim consolidated financial statements.

 

 

 

 

Noralta Lodge Ltd.

 

Interim Consolidated Statements of Cash Flows (Unaudited)

             

Canadian $ for the six-month period ended

 

 

November 30, 2017

   

November 30, 2016

 
                 

Cash provided by (used in)

               
                 

Operating activities

               

Net earnings for the period

  $ 4,977,153     $ 23,669,863  

Items not affecting cash

               

Share-based compensation

    7,924,214       -  

Amortization

    8,804,265       10,251,924  

Accretion

    72,369       71,040  

Gain on disposal of property and equipment

    (672,123 )     (26,895 )

Amortization of finance fees

    3,063,792       656,650  

Loss (gain) on repayment of long-term debt

    93,075       (5,429,602 )

Future income tax (recovery) expense

    (364,000 )     4,601,201  
      23,898,745       33,794,181  
                 

Net change in non-cash working capital items

               

Trade and other receivables

    (4,660,757 )     (6,289,554 )

Inventory

    (255,466 )     43,828  

Prepaid expenses and deposits

    211,732       330,705  

Accounts payable and accrued liabilities

    2,316,103       (2,093,444 )

Income taxes recoverable/payable

    (5,618,398 )     4,183,460  

Unearned revenue

    (236,939 )     -  

Cash provided by operating activities

    15,655,020       29,969,176  
                 

Investing activities

               

Purchase of property and equipment and intangible assets

    (3,042,070 )     (496,415 )

Proceeds from sale of property and equipment

    2,264,827       38,568  

Advances to shareholder

    (251,714 )     (37,317 )

Cash used in investing activities

    (1,028,957 )     (495,164 )
                 

Financing activities

               

Proceeds on long-term debt

    54,563,613       40,000,000  

Repayment of long-term debt

    (95,162,000 )     (58,200,000 )

Finance fees paid

    -       (1,070,398 )

Repayment of obligations under capital lease

    (161,997 )     (180,769 )

Repurchase and redemption of shares

    (719,288 )     (617,720 )

Cash used in financing activities

    (41,479,672 )     (20,068,887 )
                 

(Decrease) increase in cash

    (26,853,609 )     9,405,125  
                 

Cash - beginning of period

    16,940,767       783,316  
                 

(Bank indebtedness) cash - end of period

  $ (9,912,842 )   $ 10,188,441  
                 

 

The accompanying notes are an integral part of these interim consolidated financial statements.

 

 

 

 

Noralta Lodge Ltd.

 

Notes to the Interim Consolidated Financial Statements (Unaudited)

 

1

Nature of operations

 

Noralta Lodge Ltd. and its wholly owned subsidiaries (together the “Company” or “Noralta”) supply and operate industrial lodging in Northern Alberta. The majority of the Company’s customers operate in the oil and gas industry.

 

2

Basis of presentation

 

These interim consolidated financial statements have been prepared in accordance with Canadian Accounting Standards for Private Enterprises (“ASPE”) except that they do not include all disclosures required for annual financial statements and should be read in conjunction with the audited annual consolidated financial statements as at May 31, 2017 and May 31, 2016 and the consolidated statements of retained earnings, operations and cash flows for each of the years ended May 31, 2017, May 31, 2016 and May 31, 2015. The accounting policies used in the preparation of these interim consolidated financial statements are consistent with those followed in the preparation of the Noralta Lodge Ltd. annual financial statements for May 31, 2017 and May 31, 2016 and the consolidated statements of retained earnings, operations and cash flows for each of the years ended May 31, 2017, May 31, 2016 and May 31, 2015.

 

All figures in these interim consolidated financial statements are in Canadian dollars unless otherwise noted.

 

3

Inventory

             

Canadian $ as at

 

 

November 30, 2017

   

May 31, 2017

 
                 

Groceries

  $ 387,628     $ 291,578  

Camp supplies

    1,921,878       1,762,462  
    $ 2,309,506     $ 2,054,040  
                 

 

4

Property and equipment

           
   

 

November 30, 2017

 

May 31, 2017

 

Canadian $ as at

 

Cost

   

Accumulated amortization

   

Net

   

Cost

   

Accumulated amortization

   

Net

 
                                                 

Land

  $ 2,927,920     $ -     $ 2,927,920     $ 2,927,920     $ -     $ 2,927,920  

Buildings and bunkhouses

    249,044,877       116,990,339       132,054,538       244,423,339       110,165,263       134,258,076  

Leasehold improvements

    6,703,798       5,463,010       1,240,788       6,413,975       5,309,349       1,104,626  

Road, paving and fences

    7,631,804       2,404,863       5,226,941       7,631,804       2,058,937       5,572,867  

Furniture and equipment

    21,156,436       13,410,742       7,745,694       20,092,440       12,658,260       7,434,180  

Automotive

    3,954,703       3,102,087       852,616       3,837,296       3,070,223       767,073  

Assets under construction

    1,946,491       -       1,946,491       376,656       -       376,656  

Asset retirement obligations

    8,851,880       2,355,692       6,496,188       8,851,880       2,013,788       6,838,092  
    $ 302,217,909     $ 143,726,733     $ 158,491,176     $ 294,555,310     $ 135,275,820     $ 159,279,490  
                                                 

Amortization relating to property and equipment charged to current operations during the six-month period ended November 30, 2017 was $8,733,752 (November 30, 2016 - $10,127,496). During the period, management entered into an arrangement for the transfer of certain assets in exchange for accommodation services. Management estimated the value of these assets to be $4,400,000 which is recorded in buildings and bunkhouses.

 

 

 

 

Noralta Lodge Ltd.

 

Notes to the Interim Consolidated Financial Statements (Unaudited)

 

5

Intangible assets

             
   

 

November 30, 2017

   

May 31, 2017

 

Canadian $ as at

 

Cost

   

Accumulated amortization

   

Net

   

Cost

   

Accumulated amortization

   

Net

 
                                                 

Software

  $ 2,564,711     $ 2,403,861     $ 160,850     $ 2,510,261     $ 2,339,910     $ 170,351  
                                                 

Amortization relating to intangible assets charged to current operations during the six-month period ended November 30, 2017 was $70,513 (November 30, 2016 - $124,428).

 

6

Assets held for sale

             
   

 

November 30, 2017

   

May 31, 2017

 

Canadian $ as at

 

Cost

   

Accumulated amortization

   

Net

   

Cost

   

Accumulated amortization

   

Net

 
                                                 

Assets held for sale

  $ 247,454     $ -     $ 247,454     $ 1,726,985     $ -     $ 1,726,985  
                                                 

Assets held for sale relates to an aircraft and related engine owned by the Company. The aircraft’s engine was sold subsequent to November 30, 2017. No depreciation was recorded as the asset was held for sale. Refer to note 22.

 

7

Government remittances

 

Government remittances consist of amounts such as sales taxes and payroll withholding taxes required to be paid to the government and are recognized when they become due. At November 30, 2017 $1,152,212 (May 31, 2017 - $985,245) was included in accounts payable and accrued liabilities related to such government remittances.

 

8

Long-term debt and bank indebtedness

             

Canadian $ as at

 

 

November 30, 2017

   

May 31, 2017

 
                 

Senior secured notes due September 24, 2019, bearing interest at 7.50% payable semi-annually

  $ -     $ 82,162,000  

Term loan facility, maturing July 13, 2020

    62,000,000       20,343,312  

Less: unamortized finance fees

    -       (3,063,792 )

Less: current portion

    (6,000,000 )     (4,686,698 )
    $ 56,000,000     $ 94,754,822  
                 

Senior Secured Notes

 

On September 24, 2014, the Company issued $150,000,000 of 7.50% senior secured notes due September 24, 2019. These notes were secured equally and rateably by second priority liens, subject to certain permitted liens, in substantially all of the present and future undertakings, property and assets of the Company and guarantors, subject to certain limited exceptions set out in the applicable security documents contained in the debenture. These notes pay interest semi-annually and were redeemable at the Company’s option in whole or in part, commencing on September 24, 2016 at the following redemption prices (expressed as a percentage of the principal amount of the notes): 2016 at 105.625%, 2017 at 103.750%, 2018 and thereafter at 100.000%. The outstanding notes were redeemable in accordance with the redemption provisions contained in the indenture governing such notes and were redeemable if the Company was not in compliance with the indenture.

 

 

 

 

Noralta Lodge Ltd.

 

Notes to the Interim Consolidated Financial Statements (Unaudited)

 

On November 1, 2016 the Company negotiated a repayment of $56,500,000 of its senior secured notes for $50,000,000 resulting in a $5,429,602 gain. The repayment was funded with $10,000,000 in cash on hand and a $40,000,000 bank term loan issued under the amended and restated Credit Agreement dated October 31, 2016. The gain, net of fees, was recorded in the interim consolidated statements of operations.

 

On August 2, 2017 the Company negotiated a repayment of $79,680,000 of its senior secured notes plus $2,161,184 in accrued interest. No gain or loss was recorded because the bonds were repaid at par. The repayment was funded with $27,246,804 in cash on hand, a $30,000,000 draw on the bank term loan, and a $25,000,000 draw on the revolving credit facility portion of the July 13, 2017 Amended Credit Agreement.

 

On September 29, 2017 the Company repaid all of its remaining senior notes. The notes were redeemed for cash at a redemption price of 103.75% of the outstanding principal amount of the redeemed notes plus accrued interest. Following completion of the redemption, the indenture was terminated effective September 29, 2017.

 

Credit Facility

 

On September 24, 2014, the Company entered into a credit agreement (the “Credit Agreement”) which was subsequently amended on July 28, 2015, April 1, 2016, January 9, 2017 and July 13, 2017 (the “Amended Credit Agreement”). The following has been pledged as security for The Amended Credit Agreement:

 

 

a debenture or general security agreement containing a first priority security interest in all present and after-acquired personal property and a first priority floating charge on present and after-acquired real property;

 

 

a mortgage or debenture containing a first priority mortgage and charge over the specified lands;

 

 

a general assignment of rents and leases over the specified lands;

 

 

a securities pledge agreement or charge over shares (or other equivalent security applicable in the relevant jurisdiction);

 

 

supplemental security agreements if requested by the majority lenders;

 

 

any other guarantees and all such other mortgages, debentures, assignments and other security agreements as are provided to the second lien secured parties from time to time; and

 

 

thereafter all such other guarantees and all such other mortgages, debentures, assignments and other security agreements as may be required by the majority lenders, acting reasonably (each in form and substance satisfactory to the majority lenders, acting reasonably) in order to, or to more effectively, charge in favour of the collateral agent on behalf of itself, the administrative agent, lenders, the cash manager and swap lenders on and against all of the undertaking assets and property (real or personal, tangible or intangible, present or future and of whatsoever nature and kind).

 

The Amended Credit Agreement matures July 13, 2020. It provides a borrowing base determined by the value of receivables and equipment with Senior Adjusted Leverage Ratio and Fixed Charge Cover Ratio financial covenants. Under the terms of the Amended Credit Agreement the Senior Adjusted Leverage Ratio must not be more than 3.00:1.00 and the Fixed Charge Coverage Ratio must not be less than 1.50:1.00. The Amended Credit Agreement allows for borrowing up to $150,000,000 contingent on the value of the borrowing base defined above which includes letters of credit up to $30,000,000. The revolving facility can be drawn in both Canadian and US funds. It also contains a $50,000,000 non-revolving term loan facility. Proceeds from the term loan facility were only to be used to repurchase the senior secured notes. Reporting under the terms of the Amended Credit Agreement the Company is fully compliant with its financial covenants.

 

 

 

 

Noralta Lodge Ltd.

 

Notes to the Interim Consolidated Financial Statements (Unaudited)

 

As at November 30, 2017, $15,000,000 (May 31, 2017 – $nil) was drawn against the revolving credit facility and there were $279,330 (May 31, 2017 – $279,330) of issued and undrawn letters of credit. As at November 30, 2017, $47,000,000 (May 31, 2017 - $20,343,312) was drawn against the term loan facility. As at November 30, 2017, the Company’s unused borrowing availability under the credit facility was $87,720,670 (May 31, 2017 – $79,377,358).

 

Interest on the revolving facility is paid at variable rates based on the prime rate plus the applicable pricing margin (as defined in the July 13, 2017 Amended Credit Agreement). Stamping fees and interest related to the issuance of bankers’ acceptances are paid in advance on the issuance of such bankers’ acceptances. As at November 30, 2017, the prime rate was 3.20% (May 31, 2017 – 2.70%) and the stamping fee rate was 1.75% (May 31, 2017 – 1.75%).

 

Expected long-term debt repayments for each of the 12 months ended November 30 over the next five years are as follows:

         

Canadian $ for the periods ended

       
         

2018

  $ 6,000,000  

2019

    6,000,000  

2020

    50,000,000  

2021

    -  

2022

    -  
    $ 62,000,000  
         

Bank indebtedness

 

Bank indebtedness relates to amounts drawn against the swingline portion of the July 13, 2017 Amended Credit Agreement which provides for borrowing up to $15,000,000. Interest on the swingline is paid at variable rates based on the prime rate plus the applicable pricing margin (as defined in the July 13, 2017 Amended Credit Agreement). Collateral for bank indebtedness is as described above under Credit Facility.

 

9

Obligations under capital lease

 

Obligations under capital lease for equipment bear annual interest from 3% to 12% payable in monthly payments of principal and interest. Future minimum lease payments for the obligations under capital lease are as follows:

             

Canadian $ as at

 

 

November 30, 2017

   

May 31, 2017

 
                 

Remainder of fiscal 2018

  $ 28,122       193,040  

2019

    7,402       7,402  
      35,524       200,442  
                 

Less: amount representing interest

    (363 )     (3,284 )
      35,161       197,158  
                 

Less: current portion

    (34,106 )     (189,847 )
    $ 1,055     $ 7,311  
                 

Obligations under capital lease are collateralized by equipment with a net book value of $38,266 as at November 30, 2017 (May 31, 2017 – $565,859). Assets under capital lease are recorded at a cost of $195,581 as at November 30, 2017 (May 31, 2017 – $1,974,051) and accumulated amortization of $157,315 (May 31, 2017 – $1,408,192). Amortization expense recorded on assets under capital lease was $6,753 for the six-months ended November 30, 2017 (2016 – $209,784).

 

 

 

 

Noralta Lodge Ltd.

 

Notes to the Interim Consolidated Financial Statements (Unaudited)

 

10

Promissory note payable

             

Canadian $ as at

 

 

November 30, 2017

   

May 31, 2017

 
                 

Promissory note payable to Balle Air Ltd., no interest, no terms for repayment

  $ 1,346,414     $ 1,346,414  
                 

The promissory note payable is subordinated to the long-term debt described in Note 8 and therefore is presented as long-term.

 

11

Related party transactions

 

Related parties include the Company’s parent, Torgerson Family Trust, and companies controlled by a trustee of the parent, including Svenco Investments Ltd., 989677 Alberta Ltd., Balle Air Ltd. and Industrial Life Support Inc. Related parties also include a company controlled by an immediate family member of a trustee of the Company’s parent, Balle Capital Inc., as well as partnerships over which the Company has joint control, Dene Koe Workforce Lodging and Services Limited Partnership and Willow Lake Facilities Management Limited Partnership. 989677 Alberta Ltd. is also a preferred shareholder of the Company.

 

Transactions with related parties in the normal course of operations have been recorded in these consolidated financial statements at the exchange amount, which is the amount of consideration established and agreed to by the related parties. Transactions with related parties not in the normal course of operations have been recorded in these consolidated financial statements at the carrying amount.

 

Transactions

             

Canadian $ for the six-month period ended

 

 

November 30, 2017

   

November 30, 2016

 
                 

Revenue

               

Willow Lake Facilities Management Limited Partnership

               

Property Management Services

  $ -     $ 9,194  

Dene Koe Workforce Lodging and Services Limited Partnership

               

Lodging Services

    68,940,849       27,608,329  
      68,940,849       27,617,523  
                 

Expenses

               

Balle Air Ltd.

               

Travel

    48,195       48,195  

Key management personnel

               

Share-based compensation

    7,924,214       -  
      7,972,409       48,195  
                 

Proceeds on sale of property and equipment to 989677 Alberta Ltd.

    21,779       -  

Purchases of property and equipment from 989677 Alberta Ltd.

  $ 20,826     $ -  
                 

There was no gain or loss on the sale or purchase of equipment with 989677 Alberta Ltd. Share-based compensation expense for key management personnel relates to executives who were awarded Class H shares in an equity participation plan of the Company.

 

 

 

 

Noralta Lodge Ltd.

 

Notes to the Interim Consolidated Financial Statements (Unaudited)

 

Balances

             

Canadian $ as at

 

 

November 30, 2017

   

May 31, 2017

 
                 

Trade and other receivables

               

Balle Air Ltd.

  $ 2,029,690     $ 1,822,669  

Dene Koe Workforce Lodging and Services Limited Partnership

    17,989,903       10,704,702  
      19,828,742       12,527,371  
                 

Advances to shareholder

               

989677 Alberta Ltd.

    6,017,319       5,765,605  
                 

Promissory note payable (Note 10)

               

Balle Air Ltd.

    1,346,414       1,346,414  
                 

Senior secured notes (Note 8)

               

Svenco Investments Ltd.

    -       18,500,000  
                 

Trade and other receivables from related parties are non-interest bearing and have no specified repayment terms. Advances to 989677 Alberta Ltd. are non-interest bearing without specified repayment terms. Refer to Note 8 for terms of repayment and interest rate associated with the senior secured notes.

 

12

Commitments and guarantees

 

The Company has various land, premises, equipment leases and contracts for telephone, cable and internet services expiring from April 2018 to December 2022. Future minimum contractual obligations in the next five years and thereafter are as follows:

                               

Canadian $ for the years ended

 

 

Land leasing

   

 

Equipment

leasing

   

Utilities

   

Premises leasing

   

Total

 
                                         

Remainder of fiscal 2018

  $ 818,700     $ 44,355     $ 1,431,061     $ 18,420     $ 2,312,536  

2019

    1,637,400       53,895       2,005,243       18,420       3,714,958  

2020

    1,637,400       53,895       1,377,035       -       3,068,330  

2021

    1,637,400       53,895       1,643,068       -       3,334,363  

2022

    1,831,100       -       1,541,271       -       3,372,371  

Thereafter

    -       -       -       -       -  
    $ 7,562,000     $ 206,040     $ 7,997,678     $ 36,840     $ 15,802,558  
                                         

The Company is liable under two letters of guarantee for $279,330 issued by the lenders to both vendors and customers as per contractual arrangements.

 

13

Asset retirement obligations

 

Asset retirement obligations include constructive site restoration obligations to restore lands to their previous condition when lodges are dismantled and removed. The estimated present value of rehabilitating these lands at the end of their useful lives has been estimated using existing technology at inflated prices and discounted using a risk free rate. The future value amount at November 30, 2017 was $12,043,149 and was determined using a risk-free interest rate of 1.87% and an inflation rate of 2.00%. The timing of these payments is dependent on various factors, such as the estimated lives of the equipment and industry activity in the region but is anticipated to occur between 2018 and 2038.

             

Canadian $ as at

 

 

November 30, 2017

   

May 31, 2017

 
                 

Balance, beginning of period

  $ 8,993,960     $ -  

Additions

    -       8,851,880  

Accretion

    72,369       142,080  

Balance, end of period

    9,066,329       8,993,960  

Less: current portion

    (1,254,000 )     (1,254,000 )
    $ 7,812,329     $ 7,739,960  
                 

 

 

 

 

Noralta Lodge Ltd.

 

Notes to the Interim Consolidated Financial Statements (Unaudited)

 

14

Share capital

 

Authorized

 

Unlimited Class A, B and C common shares, voting

Unlimited Class D common shares, non-voting

Unlimited Class E preferred shares, voting

Unlimited Class F preferred shares, non-voting, non-cumulative

Unlimited Class G and H preferred shares, non-voting, non-cumulative, retractable at $1 per share

 

Issued

                             

Canadian $ as at

         

 

November 30, 2017

           

May 31, 2017

 
                                 
   

Number of shares

   

Amount

   

Number of shares

   

Amount

 
                                 

Class A shares issued and outstanding

    291     $ 97       97     $ 97  

Class B shares issued and outstanding

    9       3       3       3  
      300     $ 100       100     $ 100  
                                 

Class H shares issued and outstanding

                               

Balance - beginning of period

    55,246,126     $ 1,126,800       56,068,244     $ 1,144,239  

Redeemed in period

    (719,355 )     (15,266 )     (822,118 )     (17,439 )

Balance - end of period

    54,526,771       1,111,534       55,246,126       1,126,800  
                                 

Class G shares issued and outstanding

                               

Balance - beginning of period

    424,000,000       8,480,099       424,000,000       8,480,099  

Issued in period

    -       -       -       -  

Balance - end of period

    424,000,000       8,480,099       424,000,000       8,480,099  
                                 

Total preferred shares

    478,526,771     $ 9,591,633       479,246,126     $ 9,606,899  
                                 

For the six-month period ending November 30, 2017 the Company redeemed 719,355 (twelve-month period ended May 31, 2017 – 822,118) Class H shares for $719,355 (May 31, 2017 – 822,118). The discount on redemption of $704,042 (November 30, 2016 - $617,224) was charged to retained earnings. The total redemption amount for the preferred shares is $478,526,771 (May 31, 2017 - $ 479,246,126).

 

During the period the Company introduced long-term incentive plans to allow for equity participation of certain key executives. As part of the plans, the Company undertook a 3 for 1 share split of its common shares. Compensation expense for the period ended November 30, 2017 was $7,924,214 with a corresponding increase to contributed surplus.

 

 

 

 

Noralta Lodge Ltd.

 

Notes to the Interim Consolidated Financial Statements (Unaudited)

 

15

Income taxes

 

The provision for income taxes differs from what would be expected by applying statutory rates. A reconciliation of the difference is as follows:

             

Canadian $ for the six-month period ended

 

 

November 30, 2017

   

November 30, 2016

 
                 

Earnings before income taxes

  $ 9,776,268     $ 32,445,896  

Combined federal and provincial income tax rate

    27.00 %     27.00 %

Expected income tax provision

    2,639,592       8,760,392  
                 

Non-temporary differences

    20,445       13,640  

Non-deductible share-based compensation

    2,139,538       -  

Other

    (460 )     2,001  

Income tax expense

    4,799,115       8,776,033  
                 

Represented by:

               

Current income tax expense

    5,163,115       4,174,832  

Future income tax (recovery) expense

    (364,000 )     4,601,201  

Income tax expense

  $ 4,799,115     $ 8,776,033  
                 

Effective tax rate

    49.09 %     27.05 %
                 

The components of net future tax asset (liability) recognized are as follows:

                   
   

 

Assets

   

Liabilities

   

Net

 

Canadian $ as at

 

November 30, 2017

   

May 31, 2017

   

November 30, 2017

   

May 31, 2017

   

November 30, 2017

   

May 31, 2017

 
                                                 

Property and equipment

    -       -     $ (26,820,229 )   $ (27,111,898 )   $ (26,820,229 )   $ (27,111,898 )

Deferred financing fees

    -       -       -       (96,468 )     -       (96,468 )

Asset retirement obligations

    2,447,909       2,428,369       -       -       2,447,909       2,428,369  

Capital losses

    38,488       38,488       -       -       38,488       38,488  

Impairment

    375,052       375,052       -       -       375,052       375,052  

Capital lease obligations

    9,493       53,232       -       -       9,493       53,232  

Other

    2,587       2,525       -       -       2,587       2,525  
                                                 

Future income tax liability

                                  $ (23,946,700 )   $ (24,310,700 )
                                                 

Movements in temporary differences were all recognized within earnings during the six-month period ended November 30, 2017 and November 30, 2016.

 

An analysis of the future income tax liability between current and non-current is as follows:

             

Canadian $ as at

 

 

November 30, 2017

   

May 31, 2017

 
                 

Future income tax assets:

               

Future income tax asset to be recovered after more than 12 months

  $ 2,870,942     $ 2,895,141  

Future income tax asset to be recovered within 12 months

    2,587       2,525  
      2,873,529       2,897,666  
                 

Future income tax liabilities:

               

Future income tax liability to be recovered after more than 12 months

    (26,820,229 )     (27,208,366 )

Future income tax liability to be recovered within 12 months

    -       -  
      (26,820,229 )     (27,208,366 )
                 

Future income tax liability

  $ (23,946,700 )   $ (24,310,700 )
                 

 

 

 

 

Noralta Lodge Ltd.

 

Notes to the Interim Consolidated Financial Statements (Unaudited)

 

16

General and administrative expenses

             

Canadian $ for the six-month period ending

 

 

November 30, 2017

   

November 30, 2016

 
                 

Wages and benefits

  $ 3,190,407     $ 3,356,608  

Share-based compensation

    7,924,214       -  

Professional fees

    505,603       354,493  

Advertising and promotion

    206,935       90,793  

Office and miscellaneous

    202,825       161,837  

Repairs and maintenance

    178,316       48,974  

Travel and automotive

    174,363       81,405  

Telephone and utilities

    143,485       106,761  

Insurance

    51,923       93,591  

Property taxes

    23,218       11,495  

Rent

    14,148       10,764  

Bad debt (recovery) expense

    (49,910 )     822,256  
    $ 12,565,527     $ 5,138,977  
                 

17

Wildfire costs

 

In May 2016 there were major wildfires in the Fort McMurray region of Alberta and the Company incurred costs related to the protection of its assets and in restarting operations after the fires were extinguished.

 

18

Insurance proceeds

 

Insurance proceeds are payments received relating to extra expense incurred and business interruption insurance for the May 2016 wildfire.

 

19

Rent Expense

 

During the period the Company entered into an arrangement for use of certain assets in exchange for the provision of accommodation services. The impact on revenue and rent expense for the six-months ended November 30, 2017 was $2,886,318 (November 30, 2016 – nil).

 

20

Financial instruments

 

Credit risk

 

The Company is exposed to credit risk through its trade and other receivables. The Company performs ongoing credit evaluations of its customers’ financial condition and limits the amount of credit extended when deemed necessary. The Company maintains provisions for potential credit losses and any such losses to date have been within management’s expectations.

 

 

 

 

Noralta Lodge Ltd.

 

Notes to the Interim Consolidated Financial Statements (Unaudited)

 

Liquidity risk

 

Liquidity risk relates to the risk the Company will encounter difficulty in meeting obligations associated with its financial liabilities. The Company’s policy in managing liquidity is to ensure it has sufficient resources to meet its liabilities without incurring undue losses or risking damages to the Company’s reputation. In the current environment of low commodity prices, specifically oil and natural gas, management does this by monitoring its cash flows and adjusting the Company’s scale of operations as needed.

 

The aggregate amount of principal repayments of financial liabilities estimated to be required in each of the next five years is:

         

 

Canadian $ for the years ended

       
         

Remainder of fiscal 2018

  $ 30,003,690  

2019

    6,000,000  

2020

    6,000,000  

2021

    48,346,414  

2022

    -  
    $ 90,350,104  
         

Interest risk

 

The Company is exposed to interest rate risk due to floating rates on its term loan. The Company manages its exposure to this risk by minimizing its borrowings. Based on period-end balances, a plus or minus 1% change in interest rates would change interest expense by $620,000 (May 31, 2017 – $203,433) on debt subject to floating rates

 

21

Economic dependence

 

For the six-month period ended November 30, 2017, 92% of revenues were from 2 customers (November 30, 2016 – 82% from two customers). There are currently two contracts in place with these customers which come due on May 1, 2022 and June 21, 2027.

 

22

Subsequent events

 

Sale of aircraft

 

On February 7, 2018 the Company entered into a sale agreement with a third party for disposal of its aircraft engine for cash consideration.

 

Civeo Corporation acquisition

 

On November 27, 2017 Civeo Corporation (“Civeo”) and the Company announced they had entered into a definitive agreement for Civeo to acquire Noralta for a total consideration of approximately $367.0 million CAD on a cash-free, debt-free basis, subject to adjustments. Under the terms of the agreement, Civeo acquired 100% of Noralta’s equity comprising approximately $210.0 million CAD in cash, 32.8 million Civeo common shares issued to Noralta’s equity holders, and non-revolving convertible preferred equity issued to Noralta’s equity holders with a 2.0% divided rate initially convertible into 29.3 million Civeo common shares.

 

On March 15, 2018 Noralta entered into an amendment (“the Amending Agreement”) with Civeo to the share purchase agreement. The Amending Agreement amends the Share Purchase Agreement to, among other things, place an additional $30.0 million of the total consideration into an escrow account comprised of $15.0 million cash, 2,340,824 Civeo common shares and 692 Civeo convertible preferred shares (collectively, the “Contingent Consideration”) to be released to Civeo and/or the current shareholders of Noralta based on the actual increased employee compensation costs that may be incurred by Noralta as a result of the recent union certification of certain classes of Noralta employees by UNITE HERE Local 47 (“Local 47”) as described below.

 

 

 

 

Noralta Lodge Ltd.

 

Notes to the Interim Consolidated Financial Statements (Unaudited)

 

On March 14, 2018, the Alberta Labour Relations Board approved an application for certification as bargaining agent brought by Local 47 affecting certain classes of employees of the Company. As a result of this approval, Local 47 has been certified as bargaining agent for such Noralta employees and it is expected that a collective bargaining agreement will be entered into between Noralta and Local 47 for the referenced employees of Noralta. When a collective bargaining agreement is reached, it is anticipated that the Company will be subject to increased employee compensation costs and would experience a decrease in earnings from what was previously expected. The actual expected increased employee compensation costs will not be known until a collective bargaining agreement has been reached between Noralta and Local 47. Accordingly, the parties have agreed that the Contingent Consideration will be deposited into escrow upon the closing of the transaction contemplated by the Share Purchase Agreement to potentially adjust the purchase price to compensate Civeo for the expected increase in employee compensation costs resulting from collective bargaining agreement with Local 47.

 

On April 2, 2018, the Civeo transaction closed. At close, the Company was committed to paying compensation of approximately $8.0 million. In addition, all of the Company’s long-term debt was repaid immediately prior to close.

 

23

ASPE to US GAAP Reconciliation

 

The reconciliations below illustrate the impact of applying United States Generally Accepted Accounting Principles (“US GAAP”) to the Company’s interim financial information as at November 30, 2017 and May 31, 2017 and for the six-month periods ended November 30, 2017 and November 30, 2016. The Company prepares its financial information in accordance with Canadian Accounting Standards for Private Enterprises (“ASPE”). An explanation of the adjustments that were made are as follows:

 

 

i)

U.S. GAAP requires the use of a credit-adjusted risk-free rate for discounting when an expected present-value technique is used for estimating the fair value of asset retirement obligations. Under ASPE, a pre-tax discount is used to reflect current market assessments of the time value of money and the risks specific to the liability.

 

 

ii)

U.S. GAAP requires consolidation decisions first be made under the Variable Interest Entity (“VIE”) model. ASPE focuses on the concept of control in determining whether a parent-subsidiary relationship exists. It was determined that certain limited partnership arrangements required consolidation under the VIE model because Noralta was the primary beneficiary and had the obligation to absorb losses and the right to receive benefits.

 

 

iii)

U.S. GAAP requires that advances from a shareholder be classified as a reduction in a Company’s equity to properly reflect the nature of the advances and attendant circumstances giving rise to the transactions. ASPE does not require such presentation.

 

 

iv)

The Company’s Class G and H preferred shares are redeemable at the option of the holder and have no mandatory redemption feature.  Because they were issued as part of a tax planning arrangement they were presented as equity under ASPE.  Under US GAAP, the preferred shares are presented as mezzanine equity at redemption values to reflect their debt and equity characteristics.  This required a balance sheet reclassification of preferred shares within shareholders’ equity of $9,591,653 (May 31, 2017 - $9,606,899) to mezzanine equity at redemption value of $478,526,771 (May 31, 2017 - $479,246,126) with the difference charged to retained earnings.

 

 

 

 

Noralta Lodge Ltd.

 

Notes to the Interim Consolidated Financial Statements (Unaudited)

 

Interim Consolidated Balance Sheet as at November 30, 2017 (Unaudited)

                     

Canadian $

Note

 

 

 

Previous Canadian ASPE

   

ASPE to US GAAP adjustments

   

US GAAP

 
                           

Assets

                         
                           

Current assets

                         

Cash

ii)

  $ -     $ 613,254     $ 613,254  

Accounts receivable

ii)

    31,541,108       1,852,597       33,393,705  

Inventory

    2,309,506       -       2,309,506  

Prepaid expenses and deposits

    1,018,453       -       1,018,453  

Advances to shareholder

iii)

    6,017,319       (6,017,319 )     -  

Assets held for sale

    247,454       -       247,454  

Total current assets

    41,133,840       (3,551,468 )     37,582,372  
                           

Property and equipment

i)

    158,491,176       (4,900,588 )     153,590,588  

Intangible assets

    160,850       -       160,850  

Total assets

  $ 199,785,866     $ (8,452,056 )   $ 191,333,810  
                           

Liabilities and shareholders' equity

                         
                           

Liabilities

                         

Current liabilities

                         

Bank indebtedness

    $ 9,912,842       -     $ 9,912,842  

Accounts payable and accrued liabilities

ii)

    17,090,848       2,465,851       19,556,699  

Income taxes payable

    1,822,439       -       1,822,439  

Obligations under capital lease

    34,106       -       34,106  

Long-term debt

    6,000,000       -       6,000,000  

Asset retirement obligations

    1,254,000       -       1,254,000  

Total current liabilities

    36,114,235       2,465,851       38,580,086  
                           

Unearned revenue

    4,840,614       -       4,840,614  

Obligations under capital lease

    1,055       -       1,055  

Long-term debt

    56,000,000       -       56,000,000  

Promissory note payable

    1,346,414       -       1,346,414  

Asset retirement obligations

i)

    7,812,329       (5,491,308 )     2,321,021  

Deferred tax

i)

    23,946,700       159,494       24,106,194  

Total liabilities

    130,061,347       (2,865,963 )     127,195,384  
                           

Preferred shares

iv)

    -       478,526,771       478,526,771  
                           

Shareholders' equity

                         

Share capital

                         

Common shares

    100       -       100  

Preferred shares

iv)

    9,591,653       (9,591,653 )     -  

Contributed surplus

    7,924,214       -       7,924,214  

Retained earnings (accumulated deficit)

i) ii) iii) iv)

    52,208,552       (474,521,211 )     (422,312,659 )

Total shareholders' equity

    69,724,519       (484,112,864 )     (414,388,345 )
                           

Total liabilities and shareholders' equity

  $ 199,785,866     $ (8,452,056 )   $ 191,333,810  
                         

 

 

 

 

Noralta Lodge Ltd.

 

Notes to the Interim Consolidated Financial Statements (Unaudited)

 

Interim Consolidated Balance Sheet as at May 31, 2017

                     

Canadian $

Note

 

 

 

Previous Canadian ASPE

   

ASPE to US GAAP adjustments

   

US GAAP

 
                           

Assets

                         
                           

Current assets

                         

Cash

ii)

  $ 16,940,767     $ 362,213     $ 17,302,980  

Accounts receivable

ii)

    26,880,351       382,667       27,263,018  

Inventory

    2,054,040       -       2,054,040  

Prepaid expenses and deposits

    1,230,185       -       1,230,185  

Advances to shareholder

iii)

    5,765,605       (5,765,605 )     -  

Assets held for sale

    1,726,985       -       1,726,985  

Total current assets

    54,597,933       (5,020,725 )     49,577,208  
                           

Property and equipment

i)

    159,279,490       (4,999,820 )     154,279,670  

Intangible assets

    170,351       -       170,351  

Total assets

  $ 214,047,774     $ (10,020,545 )   $ 204,027,229  
                           

Liabilities and shareholders' equity

                         
                           

Liabilities

                         

Current liabilities

                         

Accounts payable and accrued liabilities

ii)

  $ 14,774,745     $ 744,880     $ 15,519,625  

Income taxes payable

    7,440,837       -       7,440,837  

Obligations under capital lease

    189,847       -       189,847  

Long-term debt

    4,686,698       -       4,686,698  

Asset retirement obligations

    1,254,000       -       1,254,000  

Total current liabilities

    28,346,127       744,880       29,091,007  
                           

Obligations under capital lease

    7,311       -       7,311  

Long-term debt

    94,754,822       -       94,754,822  

Promissory note payable

    1,346,414       -       1,346,414  

Asset retirement obligations

i)

    7,739,960       (5,517,080 )     2,222,880  

Deferred tax

i)

    24,310,700       139,660       24,450,360  

Total liabilities

    156,505,334       (4,632,540 )     151,872,794  
                           

Preferred shares

iv)

    -       479,246,126       479,246,126  
                           

Shareholders' equity

                         

Share capital

                         

Common shares

    100       -       100  

Preferred shares

iv)

    9,606,899       (9,606,899 )     -  

Retained earnings (accumulated deficit)

i) ii) iii) iv)

    47,935,441       (475,027,232 )     (427,091,791 )

Total shareholders' equity

    57,542,440       (484,634,131 )     (427,091,691 )
                           

Total liabilities and shareholders' equity

  $ 214,047,774     $ (10,020,545 )   $ 204,027,229  
                         

 

 

 

 

Noralta Lodge Ltd.

 

Notes to the Interim Consolidated Financial Statements (Unaudited) 

 

Interim Consolidated Statement of Operations for the six-month period ended November 30, 2017 (Unaudited)

                     

Canadian $

Note

 

 

 

Previous Canadian ASPE

   

ASPE to US GAAP adjustments

   

US GAAP

 
                           

Revenue

ii)

  $ 90,348,396     $ 2,342,269     $ 92,690,665  
                           

Operating expenses

                         

Wages and benefits

    17,940,304       -       17,940,304  

Groceries

    15,363,272       -       15,363,272  

Telephone and utilities

    6,758,822       -       6,758,822  

Rent

    3,736,420       -       3,736,420  

Contracted Services

ii)

    2,714,800       2,342,269       5,057,069  

Aircraft and travel

    886,171       -       886,171  

Repairs and maintenance

    1,024,806       -       1,024,806  

Property taxes

    1,408,530       -       1,408,530  

Lodge supplies

    581,046       -       581,046  

Insurance

    651,759       -       651,759  

Professional fees

    108,938       -       108,938  
        51,174,868       2,342,269       53,517,137  
                           

Gross profit

    39,173,528       -       39,173,528  
                           

General and administrative expenses

    12,565,527       -       12,565,527