North American Construction Group Ltd 40-F for FY2021
North American Construction Group Ltd. (NOA)
40-F
2022-02-16
For: 2021-12-31
View Original
Added on
April 07, 2026
About this 40-F
North American Construction Group Ltd filed this 40-F on February 16, 2022, covering the fiscal year ended December 31, 2021 (FY2021).
Headline figures
Fiscal year ended December 31, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- 654.14M CAD
- up 31.2% from 498.47M CAD a year earlier
- Net income
- 51.41M CAD
- up 4.5% from net income of 49.21M CAD a year earlier
- Diluted EPS
- 1.64 CAD
- up 2.5% from 1.60 CAD a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 40-F
| REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
OR
| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the fiscal year ended | Commission File Number | ||||||||||
NORTH AMERICAN CONSTRUCTION GROUP LTD.
(Exact name of Registrant as specified in its charter)
(Province or other jurisdiction of incorporation or organization)
(Primary Standard Industrial Classification Code Number (if applicable))
N/A
(I.R.S. Employer Identification Number (if applicable))
(Address and telephone number of Registrant’s principal executive offices)
(212 ) 894-8940
(Name, address (including zip code) and telephone number (including area code)
of agent for service in the United States)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||||||
| Common Shares | NOA | Toronto Stock Exchange | ||||||
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
For annual reports, indicate by check mark the information filed with this Form:
| Annual information form | Audited annual financial statements | |||||||||||||
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 12b-2 of the Exchange Act
Emerging growth company ☐
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, 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. £
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Auditor Name: KPMG LLP Auditor Location: Edmonton, AB, Canada Auditor Firm ID: 85
ANNUAL INFORMATION FORM, AUDITED ANNUAL CONSOLIDATED
FINANCIAL STATEMENTS AND MANAGEMENT’S DISCUSSION AND ANALYSIS
Annual Information Form
The Registrant’s Annual Information Form for the fiscal year ended December 31, 2021 is attached as Exhibit 99.2 to this Annual Report on Form 40-F and is incorporated herein by reference.
Audited Annual Consolidated Financial Statements
The Registrant’s audited annual consolidated financial statements for the fiscal year ended December 31, 2021, including the report of the independent registered public accounting firm with respect thereto, are attached as Exhibit 99.3 to this Annual Report on Form 40-F and are incorporated herein by reference.
Management’s Discussion and Analysis
The Registrant’s Management’s Discussion and Analysis for the fiscal year ended December 31, 2021 is attached as Exhibit 99.4 to this Annual Report on Form 40-F and is incorporated herein by reference.
1
DISCLOSURES REGARDING CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Please see “Internal Systems and Processes—Evaluation of Disclosure Controls and Procedures” included in the Registrant’s Management’s Discussion and Analysis for the fiscal year ended December 31, 2021, which is attached as Exhibit 99.4 to this Annual Report on Form 40-F and is incorporated herein by reference.
Management’s Annual Report on Internal Control Over Financial Reporting
Please see “Internal Systems and Processes—Management’s Report on Internal Controls Over Financial Reporting (ICFR)” included in the Registrant’s Management’s Discussion and Analysis for the fiscal year ended December 31, 2021, which is attached as Exhibit 99.4 to this Annual Report on Form 40-F and is incorporated herein by reference.
Attestation Report of the Registered Public Accounting Firm
The attestation report of the independent registered public accounting firm on the effectiveness of the Registrant's internal control over financial reporting is included under the heading “Report of Independent Registered Public Accounting Firm” on pages 1 and 2 of Exhibit 99.3 to this Annual Report on Form 40-F, which attestation report is incorporated herein by reference.
Changes in Internal Control over Financing Reporting
Please see “Internal Systems and Processes—Material Changes to the Internal Controls over Financial Reporting” included in the Registrant’s Management’s Discussion and Analysis for the fiscal year ended December 31, 2021, which is attached as Exhibit 99.4 to this Annual Report on Form 40-F and is incorporated herein by reference.
NOTICES PURSUANT TO REGULATION BTR
None.
AUDIT COMMITTEE FINANCIAL EXPERT
The Registrant’s board of directors has determined that Mr. Bryan Pinney, a member and the chairman of the Registrant’s audit committee, and Mr. John Pollesel, a member of the Registrant’s audit committee, are each an “audit committee financial expert” (as such term is defined by the rules and regulations of the Securities and Exchange Commission) and is each “independent” (as such term is defined by the New York Stock Exchange’s listing standards applicable to the Registrant).
CODE OF ETHICS
The Registrant has adopted a “code of ethics” (as such term is defined by the rules and regulations of the Securities and Exchange Commission), entitled the “Code of Conduct and Ethics Policy”, that applies to all employees of the Registrant, including its Chief Executive Officer and Chief Financial Officer. The Code of Conduct and Ethics Policy is available for viewing on the Registrant’s website at www.nacg.ca under "Social Responsibility-Code of Conduct & Ethics”. There were not any amendments to any provision of the Code of Conduct and Ethics Policy during the fiscal year ended December 31, 2021 that applied to the Registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. Further, there were not any waivers, including implicit waivers, granted from any provision of the Code of Conduct and Ethics Policy during the fiscal year ended December 31, 2021 that applied to the Registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
AND PRE-APPROVAL POLICIES AND PROCEDURES
Please see “The Board and Board Committees” included in the Registrant’s Annual Information Form for the fiscal year ended December 31, 2021, which is attached as Exhibit 99.2 to this Annual Report on Form 40-F and is incorporated herein by reference.
2
OFF-BALANCE SHEET ARRANGEMENTS
We currently do not have any off-balance sheet arrangements.
TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
Please see “Contractual Obligations and Other Commitments” included in the Registrant’s Management’s Discussion and Analysis for the fiscal year ended December 31, 2021, which is attached as Exhibit 99.4 to this Annual Report on Form 40-F and is incorporated herein by reference.
IDENTIFICATION OF THE AUDIT COMMITTEE
Please see “The Board and Board Committees—Audit Committee” included in the Registrant’s Annual Information Form for the fiscal year ended December 31, 2021, which is attached as Exhibit 99.2 to this Annual Report on Form 40-F and is incorporated herein by reference.
NYSE CORPORATE GOVERNANCE RULES
The Registrant has reviewed the New York Stock Exchange’s corporate governance rules and confirms that the Registrant’s corporate governance practices are not significantly different from those required of domestic companies under the New York Stock Exchange’s listing standards.
MINE SAFETY DISCLOSURE
Information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act is set out under the heading “U.S. Mine Safety Disclosure” in the Registrant’s Annual Information Form for the fiscal year ended December 31, 2021, which is attached as Exhibit 99.2 to this Annual Report on Form 40-F and is incorporated herein by reference.
UNDERTAKING
The Registrant undertakes to make available, in person or by telephone, representatives to respond to inquiries made by the Commission staff, and to furnish promptly, when requested to do so by the Commission staff, information relating to: the securities registered pursuant to Form 40-F; the securities in relation to which the obligation to file an annual report on Form 40-F arises; or transactions in said securities.
3
SIGNATURES
Pursuant to the requirements of the Exchange Act, the Registrant certifies that it meets all of the requirements for filing on Form 40-F and has duly caused this annual report to be signed on its behalf by the undersigned, thereto duly authorized.
| NORTH AMERICAN CONSTRUCTION GROUP LTD. | ||||||||
| By: | /S/ Joseph Lambert | |||||||
| Joseph Lambert | ||||||||
| Chief Executive Officer | ||||||||
Date: February 16, 2022
4
DOCUMENTS AND EXHIBIT INDEX
| 99.1 | ||||||||
| 99.2 | ||||||||
| 99.3 | ||||||||
| 99.4 | ||||||||
| 99.5 | ||||||||
| 99.6 | ||||||||
| 99.7 | ||||||||
| 99.8 | ||||||||
| 99.9 | ||||||||
| 101 | The following financial information from North American Construction Group Ltd.’s audited Consolidated Financial Statements, formatted in iXBRL (Inline eXtensible Business Reporting Language) and furnished electronically herewith: (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Operations and Comprehensive (Loss) Income; (iii) the Consolidated Statements of Changes in Shareholders’ Equity; (iv) the Consolidated Statements of Cash Flows; and (v) Notes to the Consolidated Financial Statements. | |||||||
5
6
Exhibit 99.3
NORTH AMERICAN CONSTRUCTION GROUP LTD.
Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
KPMG LLP
2200, 10175 - 101 Street
Edmonton AB T5J 0H3
Telephone (780) 429-7300
Fax (780) 429-7379
www.kpmg.ca
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of North American Construction Group Ltd.:
Opinion on Internal Control Over Financial Reporting
We have audited North American Construction Group Ltd. and subsidiaries’ (the “Company”) internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated statements of operations and comprehensive income, changes in shareholders’ equity, and cash flows for the years then ended, and the related notes (collectively, the “consolidated financial statements”), and our report dated February 16, 2022 expressed an unqualified opinion on those consolidated financial statements.
The Company acquired DGI (Aust) Trading Pty Ltd. (“DGI”) during 2021, and management excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021, DGI’s internal control over financial reporting representing approximately 2% of total assets, 2% of revenues and 1% net income, respectively, for the year ended December 31, 2021. Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of DGI.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting in the accompanying Management’s Discussion and Analysis. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. KPMG Canada provides services to KPMG LLP
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate
Chartered Professional Accountants
Edmonton, Canada
February 16, 2022
KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. KPMG Canada provides services to KPMG LLP
KPMG LLP
2200, 10175 - 101 Street
Edmonton AB T5J 0H3
Telephone (780) 429-7300
Fax (780) 429-7379
www.kpmg.ca
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of North American Construction Group Ltd.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of North American Construction Group Ltd. and subsidiaries (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations and comprehensive income, changes in shareholders’ equity, and cash flows for the years then ended, and the related notes (collectively, the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 16, 2022 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. KPMG Canada provides services to KPMG LLP
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Estimation of total costs to be incurred for unit-price long-term contract revenue
As discussed in note 2(c) to the consolidated financial statements, the Company recognizes revenues under four principal types of contracts: lump-sum, unit-price, time-and-materials, and cost-plus. For the year ended December 31, 2021, total contract revenues recognized by the Company were $654.1 million, including $82.4 million recognized under unit-price contracts with defined scope that were in-progress at year-end. Under its unit-price contracts with defined scope, the Company recognizes revenue over time based on the ratio of actual costs incurred to date divided by the Company’s estimated total costs (ETC).
We identified the evaluation of ETC for in-progress unit-price contracts with defined scope as a critical audit matter. The evaluation of the ETC for in-progress unit-price contracts with defined scope involved complex auditor judgement, given these estimates are dependent upon a number of factors, including the accuracy of the estimates made at the period-end date, primarily consisting of labor hours, equipment usage, and material costs and quantities to be incurred over the remaining contract periods.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls within the Company’s revenue recognition process. This included controls related to the review of the ETC for unit-price contracts with defined scope that were in-progress at year-end. For a selection of these contracts, we evaluated the reasonableness of the Company’s determination of ETC for the contract, including tracing a selection of costs in the ETC (material costs and quantities, labor hours, and equipment usage) to recent forecasts developed by project managers and comparing actual costs incurred subsequent to year-end for consistency with corresponding amounts included in the ETC at year-end. We inspected the executed contract with the customer to evaluate the Company’s identification of the performance obligation and the determined method for measuring contract progress. We conducted interviews with relevant project personnel to gain an understanding of the status of project activities and factors impacting the ETC of the selected contract, such as costs associated with scope changes; changes in productivity expectations; extended overhead due to owner, weather, and other delays; differences in site conditions from the original bid; the availability and skill level of workers in the geographic location of the project; and changes in the availability and proximity of equipment and materials. We evaluated the Company’s ability to estimate these amounts by comparing actual project margins to previous estimates.
We have served as the Company’s auditor since 1998.
Chartered Professional Accountants
Edmonton, Canada
February 16, 2022
KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. KPMG Canada provides services to KPMG LLP
Consolidated Balance Sheets
As at December 31
(Expressed in thousands of Canadian Dollars)
| Note | 2021 | 2020 | |||||||||||||||
Note 22 | |||||||||||||||||
| Assets | |||||||||||||||||
| Current assets | |||||||||||||||||
| Cash | $ | $ | |||||||||||||||
| Accounts receivable | 5,11 | ||||||||||||||||
| Contract assets | 6(b) | ||||||||||||||||
| Inventories | 7 | ||||||||||||||||
| Prepaid expenses and deposits | |||||||||||||||||
| Assets held for sale | |||||||||||||||||
| Derivative financial instruments | 8(b) | ||||||||||||||||
Property, plant and equipment, net of accumulated depreciation $ | 9 | ||||||||||||||||
| Operating lease right-of-use assets | 10 | ||||||||||||||||
| Investments in affiliates and joint ventures | 11 | ||||||||||||||||
| Other assets | |||||||||||||||||
| Goodwill and intangible assets | 12 | ||||||||||||||||
| Deferred tax assets | 13 | ||||||||||||||||
| Total assets | $ | $ | |||||||||||||||
| Liabilities and shareholders' equity | |||||||||||||||||
| Current liabilities | |||||||||||||||||
| Accounts payable | $ | $ | |||||||||||||||
| Accrued liabilities | 14 | ||||||||||||||||
| Contract liabilities | 6(b) | ||||||||||||||||
| Current portion of long-term debt | 8 | ||||||||||||||||
| Current portion of finance lease obligations | 10 | ||||||||||||||||
| Current portion of operating lease liabilities | 10 | ||||||||||||||||
| Long-term debt | 8 | ||||||||||||||||
| Finance lease obligations | 10 | ||||||||||||||||
| Operating lease liabilities | 10 | ||||||||||||||||
| Other long-term obligations | 15 | ||||||||||||||||
| Deferred tax liabilities | 13 | ||||||||||||||||
| Shareholders' equity | |||||||||||||||||
Common shares (authorized – unlimited number of voting common shares; issued and outstanding – December 31, 2021 - | 17(a) | ||||||||||||||||
Treasury shares (December 31, 2021 - | 17(a) | ( | ( | ||||||||||||||
| Additional paid-in capital | |||||||||||||||||
| Retained earnings (deficit) | ( | ||||||||||||||||
| Accumulated other comprehensive income | |||||||||||||||||
| Shareholders' equity | |||||||||||||||||
| Total liabilities and shareholders' equity | $ | $ | |||||||||||||||
| Contingencies | 21 | ||||||||||||||||
Approved on behalf of the Board
| /s/ Joseph Lambert | /s/ Bryan D. Pinney | |||||||||||||
| Joseph Lambert, President and Chief Executive Officer | Bryan D. Pinney, Lead Director | |||||||||||||
See accompanying notes to consolidated financial statements.
Consolidated Financial Statements December 31, 2021 | F - 1 | North American Construction Group Ltd. | ||||||
Consolidated Statements of Operations and
Comprehensive Income
For the years ended December 31
(Expressed in thousands of Canadian Dollars, except per share amounts)
| Note | 2021 | 2020 | |||||||||||||||
Note 22 | |||||||||||||||||
| Revenue | 6 | $ | $ | ||||||||||||||
| Project costs | 2(b) | ||||||||||||||||
| Equipment costs | 2(b) | ||||||||||||||||
| Depreciation | |||||||||||||||||
| Gross profit | |||||||||||||||||
| General and administrative expenses | 2(b),6(d),12,19 | ||||||||||||||||
| (Gain) loss on disposal of property, plant and equipment | ( | ||||||||||||||||
| Operating income | |||||||||||||||||
| Interest expense, net | 18 | ||||||||||||||||
| Equity earnings in affiliates and joint ventures | 11 | ( | ( | ||||||||||||||
| Net realized and unrealized gain on derivative financial instruments | 8(b) | ( | ( | ||||||||||||||
| Income before income taxes | |||||||||||||||||
| Current income tax expense | 13 | ||||||||||||||||
| Deferred income tax expense | 13 | ||||||||||||||||
| Net income | |||||||||||||||||
| Other comprehensive income | |||||||||||||||||
| Unrealized foreign currency translation gain | ( | ||||||||||||||||
| Comprehensive income | $ | $ | |||||||||||||||
| Per share information | |||||||||||||||||
| Basic net income per share | 17(b) | $ | $ | ||||||||||||||
| Diluted net income per share | 17(b) | $ | $ | ||||||||||||||
See accompanying notes to consolidated financial statements.
Consolidated Financial Statements December 31, 2021 | F - 2 | North American Construction Group Ltd. | ||||||
Consolidated Statements of Changes in Shareholders’
Equity
(Expressed in thousands of Canadian Dollars)
| Common shares | Treasury shares | Additional paid-in capital | Retained earnings (deficit) | Accumulated other comprehensive income | Total | ||||||||||||||||||||||||||||||
| Balance at December 31, 2019 | $ | $ | ( | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
Dividends ($ | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Exercise of stock options | — | ( | — | — | |||||||||||||||||||||||||||||||
| Conversion of convertible debentures | — | — | — | — | |||||||||||||||||||||||||||||||
| Share purchase program | ( | — | — | — | ( | ||||||||||||||||||||||||||||||
| Purchase of treasury shares | — | ( | — | — | — | ( | |||||||||||||||||||||||||||||
| Stock-based compensation | — | ( | — | — | |||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | $ | $ | ( | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Unrealized foreign currency translation gain | — | — | — | — | |||||||||||||||||||||||||||||||
Dividends ($ | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Exercise of stock options | — | ( | — | — | |||||||||||||||||||||||||||||||
| Share purchase programs | ( | — | ( | — | — | ( | |||||||||||||||||||||||||||||
| Purchase of treasury shares | — | ( | — | — | — | ( | |||||||||||||||||||||||||||||
| Stock-based compensation | — | ( | — | — | |||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | ( | $ | $ | $ | $ | ||||||||||||||||||||||||||||
See accompanying notes to consolidated financial statements.
Consolidated Financial Statements December 31, 2021 | F - 3 | North American Construction Group Ltd. | ||||||
Consolidated Statements of Cash Flows
For the years ended December 31
(Expressed in thousands of Canadian Dollars)
| Note | 2021 | 2020 | |||||||||||||||
Note 22 | |||||||||||||||||
| Cash provided by | |||||||||||||||||
| Operating activities: | |||||||||||||||||
| Net income | $ | $ | |||||||||||||||
| Adjustments to reconcile net income to cash from operating activities: | |||||||||||||||||
| Depreciation | |||||||||||||||||
| Amortization of deferred financing costs | 18 | ||||||||||||||||
| (Gain) loss on disposal of property, plant and equipment | ( | ||||||||||||||||
| Net realized and unrealized gain on derivative financial instruments | ( | ( | |||||||||||||||
| Stock-based compensation expense | 19 | ||||||||||||||||
| Cash settlement of directors' deferred share unit plan | 19(c) | ( | ( | ||||||||||||||
| Equity earnings in affiliates and joint ventures | 11 | ( | ( | ||||||||||||||
Dividends and advances received from affiliates and joint ventures | 11 | ||||||||||||||||
| Other adjustments to cash from operating activities | ( | ||||||||||||||||
| Deferred income tax expense | 13 | ||||||||||||||||
| Net changes in non-cash working capital | 20(b) | ( | |||||||||||||||
| Investing activities: | |||||||||||||||||
| Acquisition of DGI (Aust) Trading Pty Limited, net of cash acquired | 12 | ( | |||||||||||||||
| Purchase of property, plant and equipment | ( | ( | |||||||||||||||
| Additions to intangible assets | ( | ( | |||||||||||||||
| Proceeds on disposal of property, plant and equipment | |||||||||||||||||
| Investment in affiliates and joint ventures | 11 | ( | ( | ||||||||||||||
| Net repayments of loans to affiliates and joint ventures | |||||||||||||||||
| Settlement of derivative financial instruments | |||||||||||||||||
| ( | ( | ||||||||||||||||
| Financing activities: | |||||||||||||||||
| Proceeds from long-term debt | 8 | ||||||||||||||||
| Repayment of long-term debt | 8 | ( | ( | ||||||||||||||
| Financing costs | ( | ( | |||||||||||||||
| Repayment of finance lease obligations | ( | ( | |||||||||||||||
| Dividend payments | 17(c) | ( | ( | ||||||||||||||
| Proceeds from exercise of stock options | |||||||||||||||||
| Share purchase program | ( | ( | |||||||||||||||
| Purchase of treasury shares | 17(a) | ( | ( | ||||||||||||||
| ( | |||||||||||||||||
| (Decrease) increase in cash | ( | ||||||||||||||||
| Effect of exchange rate on changes in cash and cash equivalents | |||||||||||||||||
| Cash, beginning of year | |||||||||||||||||
| Cash, end of year | $ | $ | |||||||||||||||
Supplemental cash flow information (note 20(a))
See accompanying notes to consolidated financial statements.
Consolidated Financial Statements December 31, 2021 | F - 4 | North American Construction Group Ltd. | ||||||
Notes to Consolidated Financial Statements
For the years ended December 31, 2021 and 2020
(Expressed in thousands of Canadian Dollars, except per share amounts or unless otherwise specified)
1. Nature of operations
2. Significant accounting policies
a) Basis of presentation
These consolidated financial statements are prepared in accordance with United States generally accepted accounting principles ("US GAAP"). These consolidated financial statements include the accounts of the Company and its wholly-owned incorporated subsidiaries in Canada, the United States and Australia. All significant intercompany transactions and balances are eliminated upon consolidation. The Company also holds ownership interests in other corporations, partnerships and joint ventures.
The Company consolidates variable interest entities (“VIE”) for which it is considered to be the primary beneficiary as well as voting interest entities in which it has a controlling financial interest as defined by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810, Consolidation, and related standards. Investees and joint ventures over which the Company exercises significant influence are accounted for using the equity method and are included in “investments in affiliates and joint ventures” within the accompanying Consolidated balance sheets.
i) Change in significant accounting policy - Basis of presentation
Prior to July 1, 2021, the Company elected to apply the provision available to entities operating within the construction industry to apply proportionate consolidation to unincorporated entities that would otherwise be accounted for using the equity method. The Company elected to change this policy to account for these unincorporated entities using the equity method, resulting in a change to the consolidation method for Dene North Site Services ("DNSS") and Mikisew North American Limited Partnership ("MNALP"). This change allows for consistency in the presentation of the Company's investments in affiliates and joint ventures (note 11).
b) Use of estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures reported in these consolidated financial statements and accompanying notes and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates. Significant estimates and judgments made by management include:
•the assessment of the percentage of completion on time-and-materials, unit-price, lump-sum and cost-plus contracts with defined scope (including estimated total costs and provisions for estimated losses) and the recognition of claims and change orders on revenue contracts;
•the determination of whether an acquisition meets the definition of a business combination;
•the fair value of the assets acquired and liabilities assumed as part of an acquisition;
•the evaluation of whether the Company is a primary beneficiary of an entity or has a controlling interest in an investee and is required to consolidate it;
•assumptions used in impairment testing; and
Consolidated Financial Statements December 31, 2021 | F - 5 | North American Construction Group Ltd. | ||||||
•estimates and assumptions used in the determination of the allowance for credit losses, the recoverability of deferred tax assets and the useful lives of property, plant and equipment and intangible assets.
The accuracy of the Company’s revenue and profit recognition in a given period is dependent on the accuracy of the estimates of the cost to complete each project. Cost estimates for all significant projects use a detailed “bottom up” approach and the Company believes its experience allows it to provide reasonably dependable estimates. There are a number of factors that can contribute to changes in estimates of contract costs and profitability that are recognized in the period in which such adjustments are determined. The most significant of these include:
•the completeness and accuracy of the original bid;
•costs associated with added scope changes;
•extended overhead due to owner, weather and other delays;
•subcontractor performance issues;
•changes in economic indices used for the determination of escalation or de-escalation for contractual rates on long-term contracts;
•changes in productivity expectations;
•site conditions that differ from those assumed in the original bid;
•contract incentive and penalty provisions;
•the availability and skill level of workers in the geographic location of the project; and
•a change in the availability and proximity of equipment and materials.
The foregoing factors as well as the mix of contracts at different margins may cause fluctuations in gross profit between periods. 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 Company’s profitability. Major changes in cost estimates, particularly in larger, more complex projects, can have a significant effect on profitability.
In March 2020, the COVID-19 outbreak was declared a pandemic by the World Health Organization. Governments worldwide, including Canada, enacted emergency measures to combat the spread of the virus, including the implementation of travel bans, quarantine periods and social distancing. These factors created material disruptions to businesses globally, resulting in an economic slowdown.
The situation continues to evolve while markets and economies have somewhat stabilized, with governments and industry implementing measures to mitigate the impacts of the pandemic. As populations in Canada and many other countries are being vaccinated, governments have loosened emergency measures. Should the pandemic worsen, the Company could be subject to additional or continued adverse impacts including, but not limited to, restrictions or limitations on the ability of employees, contractors, suppliers and customers to conduct business due to quarantines, closures or travel restrictions, including the potential for deferral or cessation of ongoing or planned projects.
The ultimate duration and magnitude of these impacts on the economy and the financial effect on the Company is not known. Estimates and judgments made by management in the preparation of these financial statements are difficult and subject to a higher degree of measurement uncertainty during this period. Management continues to monitor the situation and has taken steps to mitigate the likelihood of occurrence of the events described above.
c) Revenue recognition
Consolidated Financial Statements December 31, 2021 | F - 6 | North American Construction Group Ltd. | ||||||
Construction services are related to mine development or expansion projects and are generally funded from customers' capital budgets. The Company provides construction services under lump-sum, unit-price, time-and materials and cost-plus contracts. When the commercial terms are lump-sum and unit-price, the contract scope and value is typically defined. Time-and-materials and cost-plus contracts are generally undefined in scope and total price. Operations support services revenue is mainly generated under long-term site-services agreements with the customers (master service agreement and multiple use contracts). These agreements clearly define whether commitment to volume or scope of services over the life of the contract is included or excluded. When excluded, work under the agreement is awarded through shorter-term work authorizations under the general terms of the agreement. The Company generally provides operations support services under either time-and-materials or unit-price contracts depending on factors such as the degree of complexity, the completeness of engineering and the required schedule. Equipment and component sales revenue is generated from our equipment maintenance and rebuild activities, along with our mining component supplier business. The commercial terms for equipment and component sales are generally lump-sum, unit-price, or time-and-materials.
Significant estimates are required in the revenue recognition process including assessment of the percentage of completion, identification of performance obligations, and estimation of variable consideration, including the extent of any constraints.
The Company’s invoicing frequency and payment terms are in accordance with negotiated customer contracts. Customer invoicing can range between daily and monthly and payment terms generally range between net 15 and net 60 days. The Company does not typically include extended payment terms in its contracts with customers. Under these payment terms, the customer pays progress payments based on actual work or milestones completed. When payment terms do not align with revenue recognition, the variance is recorded to either contract liabilities or contract assets, as appropriate. Customer contracts do not generally include a significant financing component because the Company does not expect the period between customer payment and transfer of control to exceed one year. The Company does not adjust consideration for the effects of a significant financing component if the period of time between the transfer of control and the customer payment is less than one year.
The Company accounts for a contract when it has approval and commitments from both parties, the rights of the parties are identified, the payment terms are identified, the contract has commercial substance and the collectability of consideration is probable. Each contract is evaluated to determine if it includes more than one performance obligation. This evaluation requires significant judgement and the determination that the contract contains more than one performance obligation could change the amount of revenue and profit recorded in a given period. The majority of the Company's contracts with defined scope include one significant integrated service, where the Company is responsible for ensuring the individual goods and services are incorporated into one combined output. Such contracts are accounted for as one performance obligation. When more than one distinct good or service is contracted, the contract is separated into more than one performance obligation and the total transaction price is allocated to each performance obligation based upon stand-alone selling prices. When a stand-alone selling price is not observable, it is estimated using a suitable method.
The total transaction price can be comprised of fixed consideration and variable consideration, such as profit incentives, discounts and performance bonuses or penalties. When a contract includes variable consideration, the amount included in the total transaction price is based on the expected value or the mostly likely amount, constrained to an amount that it is probable a significant reversal will not occur. Significant judgement is involved in determining if a variable consideration amount should be constrained. In applying this constraint, the Company considers both the likelihood of a revenue reversal arising from an uncertain future event and the magnitude of the revenue reversal if the uncertain event were to occur or fail to occur. The following circumstances are considered to be possible indicators of significant revenue reversals:
•The amount of consideration is highly susceptible to factors outside the Company’s influence, such as judgement of actions of third parties and weather conditions;
•The length of time between the recognition of revenue and the expected resolution;
•The Company’s experience with similar circumstances and similar customers, specifically when such items have predictive value;
•The Company’s history of resolution and whether that resolution includes price concessions or changing payment terms; and
Consolidated Financial Statements December 31, 2021 | F - 7 | North American Construction Group Ltd. | ||||||
•The range of possible consideration amounts.
The Company's performance obligations for construction services and operations support are typically satisfied by transferring control over time, for which revenue is recognized using the percentage of completion method, measured by the ratio of costs incurred to date to estimated total costs. For defined scope contracts, the cost-to-cost method faithfully depicts the Company’s performance because the transfer of the asset to the customer occurs as costs are incurred. The costs of items that do not relate to the performance obligation, particularly in the early stages of the contract, are excluded from costs incurred to date. Pre-construction activities, such as mobilization and site setup, are recognized as contract costs on the Consolidated Balance Sheets and amortized over the life of the project. These costs are excluded from the cost-to- cost calculation. Equipment and component sales are typically satisfied at a point in time, and revenue is recognized when control of the completed asset has been transferred to the customer, along with the cost of goods sold (project costs).
The Company has elected to apply the ‘as-invoiced’ practical expedient to recognize revenue in the amount to which the Company has a right to invoice for all contracts in which the value of the performance completed to date directly corresponds with the right to consideration. This will be applied to all contracts, where applicable, and the majority of undefined scope work is expected to use this practical expedient.
The length of the Company’s contracts varies from less than one year for typical contracts to several years for certain larger contracts. Project costs include all direct labour, material, subcontract and equipment costs and those indirect costs related to contract performance such as indirect labour and supplies. General and administrative expenses are charged to expenses as incurred. If a loss is estimated on an uncompleted contract, a provision is made in the period in which such losses are determined.
Changes in project performance, project conditions, and estimated profitability, including those arising from profit incentives, 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. Once a project is underway, the Company will often experience changes in conditions, client requirements, specifications, designs, materials and work schedules. 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, 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 assess the legal enforceability of the change to determine if a contract modification exists. The Company considers a contract modification to exist when the modification either creates new or changes the existing enforceable rights and obligations.
Most contract modifications are for goods and services that are not distinct from the existing contract due to the integrated services provided in the context of the contract and are accounted for as part of the existing contract. Therefore, the effect of a contract modification on the transaction price and the Company's measure of progress for the performance obligation to which it relates is recognized as an adjustment to revenue on a cumulative catch-up basis. If a contract modification is approved in scope and not price, the associated revenue is treated as variable consideration, subject to constraint. 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.
In certain instances, the Company’s long-term contracts allow its customers to unilaterally reduce or eliminate scope of work without cause. These instances represent higher risk due to uncertainty of total contract value and estimated costs to complete; therefore, potentially impacting revenue recognition in future periods.
Revenue is measured based on consideration specified in the customer contract, and excludes any amounts collected on behalf of third parties. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specified revenue producing transaction, that are collected by the Company for a customer, are excluded from revenue.
d) Balance sheet classifications
Consolidated Financial Statements December 31, 2021 | F - 8 | North American Construction Group Ltd. | ||||||
e) Cash
f) Accounts receivable and contract assets
Accounts receivable are recorded when the Company has an unconditional right to consideration arising from performance of contracts with customers. Accounts receivable may be comprised of amounts billed to customers and amounts that have been earned but have not yet been billed. Such unbilled but earned amounts generally arise when a billing period ends subsequent to the end of the reporting period. When this occurs, revenue equal to the earned and unbilled amount is accrued. Such accruals are classified as accounts receivable on the balance sheet, even though they are not yet billed, as they represent consideration for work that has been completed prior to the period end where the Company has an unconditional right to consideration.
Contract assets include unbilled amounts representing revenue recognized from work performed where the Company does not yet have an unconditional right to compensation. These balances generally relate to (i) revenue accruals on contracts where the percentage of completion method of revenue recognition requires an accrual over what has been billed and (ii) revenue recognized from variable consideration related to unpriced contract modifications.
The Company records allowance for credit losses using the expected credit loss model upon the initial recognition of financial assets. The estimate of expected credit loss considers historical credit loss information that is adjusted for current economic and credit conditions. Bad debt expense is charged to project costs in the Consolidated Statements of Operations and Comprehensive Income in the period the allowance is recognized. The counterparties to the majority of the Company's financial assets are major oil producers with a long history of no credit losses.
g) Contract costs
The Company occasionally incurs costs to obtain contracts (reimbursable bid costs) and to fulfill contracts (fulfillment costs). If these costs meet certain criteria, they are capitalized as contract costs, included within other assets on the Consolidated Balance Sheets. Capitalized costs are amortized based on the transfer of goods or services to which the assets relate and are included in project costs. Reimbursable bid costs meet the criteria for capitalization when these costs will be reimbursed by the owner regardless of the outcome of the bid. Generally, this occurs when the Company has been selected as the preferred bidder for a project. The Company recognizes reimbursable bid costs an expense when incurred if the amortization period of the asset that the entity would have otherwise recognized is one year or less. Costs to fulfill a contract meet the criteria for capitalization if they relate directly to a specifically identifiable contract, they generate or enhance resources that will be used to satisfy future performance obligations and if the costs are expected to be recovered. The costs that meet this criterion are often mobilization and site set-up costs. Contract costs are recorded within other assets on the Consolidated Balance Sheets.
h) Remaining performance obligations
Remaining performance obligation represents the transaction price allocated to performance obligations that are unsatisfied (or partially unsatisfied) as of the end of the reporting period. Certain of the Company's long-term contracts can allow customers to unilaterally reduce or eliminate the scope of the contracted work 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. Excluded from this disclosure are amounts where the Company recognizes revenue as-invoiced (note 6(c)). Remaining performance obligations are recorded within contract assets and contract liabilities on the Consolidated Balance Sheets.
i) Contract liabilities
Contract liabilities consist of advance payments and billings in excess of costs incurred and estimated earnings on uncompleted contracts.
j) Inventories
Consolidated Financial Statements December 31, 2021 | F - 9 | North American Construction Group Ltd. | ||||||
k) Property, plant and equipment
Property, plant and equipment are recorded at cost. Equipment under finance lease is recorded at the present value of minimum lease payments at the inception of the lease.
Major components of heavy construction equipment in use such as engines and drive trains are recorded separately. The capitalized interest is amortized at the same rate as the respective asset. Depreciation is not recorded until an asset is available for use. Depreciation is calculated based on the cost, net of the estimated residual value, over the estimated useful life of the assets on the following bases and rates:
| Assets | Basis | Rate | ||||||||||||
| Heavy equipment | Units of production | 3,000 - 120,000 hours | ||||||||||||
| Major component parts in use | Units of production | 2,500 - 70,000 hours | ||||||||||||
| Other equipment | Straight-line | |||||||||||||
| Licensed motor vehicles | Straight-line | |||||||||||||
| Office and computer equipment | Straight-line | |||||||||||||
| Furnishings, fixtures and facilities | Straight-line | |||||||||||||
| Buildings | Straight-line | |||||||||||||
| Leasehold improvements | Straight-line | Over shorter of estimated useful life and lease term | ||||||||||||
| Land | No depreciation | No depreciation | ||||||||||||
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.
l) Goodwill
m) Intangible assets
Acquired intangible assets with finite lives are recorded at historical cost net of accumulated amortization and accumulated impairment losses, if any. The cost of intangible assets acquired in an asset acquisition are recorded at cost based upon relative fair value as at the acquisition date. Costs incurred to increase the future benefit of intangible assets are capitalized. Intangible assets are recorded with goodwill on the Consolidated Balance Sheets.
Intangible assets with definite lives are amortized over their estimated useful lives and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and method for an intangible asset with a finite useful life are reviewed at the end of each reporting period.
Estimated useful lives of definite lived intangible assets and corresponding amortization method are:
| Assets | Basis | Rate | ||||||||||||
| Internal-use software | Straight-line | |||||||||||||
| Customer relationship | Straight-line | |||||||||||||
n) Impairment of long-lived assets
Consolidated Financial Statements December 31, 2021 | F - 10 | North American Construction Group Ltd. | ||||||
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 estimated fair value less costs to sell and are disclosed separately on the Consolidated Balance Sheets. These assets are not depreciated.
p) Foreign currency translation
The functional currency of the Company and the majority of its subsidiaries is Canadian Dollars. Transactions recorded within these subsidiaries that are denominated in foreign currencies are recorded at the rate of exchange on the transaction date. Monetary assets and liabilities within these subsidiaries denominated in foreign currencies are translated into Canadian Dollars at the rate of exchange prevailing at the balance sheet date. The resulting foreign exchange gains and losses are included in the determination of earnings and included within general and administrative expenses in the Consolidated Statements of Operations and Comprehensive Income.
Accounts of the Company's Australia-based subsidiary, which has an Australian Dollar functional currency and US- based subsidiaries, which have US Dollar functional currency are translated into Canadian Dollars using the current rate method. Assets and liabilities are translated at the rate of exchange in effect at the balance sheet date, and revenue and expense items are translated at the average rate of exchange for the period. The resulting unrealized exchange gains and losses from these translation adjustments are included as a separate component of shareholders’ equity in Accumulated Other Comprehensive Income. The effect of exchange rate changes on cash
Consolidated Financial Statements December 31, 2021 | F - 11 | North American Construction Group Ltd. | ||||||
q) Fair value measurement
r) Income taxes
s) Stock-based compensation
The Company has a Restricted Share Unit (“RSU”) Plan which is described in note 19(a). RSUs are generally granted effective July 1 of each fiscal year with respect to services to be provided in that fiscal year and the following fiscal years. The RSUs generally vest at the end of the three-year term. The Company settles RSUs with common shares purchased on the open market through a trust arrangement. Compensation expense is calculated based on the number of vested RSUs multiplied by the fair value of each RSU as determined by the volume weighted-average trading price of the Company’s common shares for the five trading days immediately preceding the day on which the fair market value was to be determined. The Company recognizes compensation cost over the three-year term in the Consolidated Statements of Operations and Comprehensive Income, with a corresponding increase to additional paid-in capital. When dividends are paid on common shares, additional dividend equivalent RSUs are granted to all RSU holders as of the dividend payment date. The number of additional RSUs to be granted is determined by multiplying the dividend payment per common share by the number of outstanding RSUs, divided by the fair market value of the Company's common shares on the dividend payment date. Such additional RSUs are granted subject to the same service criteria as the underlying RSUs.
The Company has a Performance Restricted Share Unit ("PSU") plan which is described in note 19(b). The PSUs vest at the end of a three-year term and are subject to the performance criteria approved by the Human Resources and Compensation Committee at the date of the grant. Such performance criterion includes the passage of time and is based upon the improvement of total shareholder return ("TSR") as compared to a defined company Canadian peer group. TSR is calculated using the fair market values of voting common shares at the grant date, the fair market value of voting common shares at the vesting date and the total dividends declared and paid throughout the vesting period. The grants are measured at fair value on the grant date using a Monte Carlo model. At the maturity date, the Human Resources and Compensation Committee will assess actual performance against the performance criteria and determine the number of PSUs that have been earned. The Company intends to settle all PSUs with common shares purchased on the open market through a trust arrangement. The Company recognizes compensation cost over the three-year term of the PSU in the Consolidated Statements of Operations and Comprehensive Income, with a corresponding increase to additional paid-in capital.
The Company has a Deferred Stock Unit (“DSU”) Plan which is described in note 19(c). The DSU plan enables directors and executives to receive all or a portion of their annual fee or annual executive bonus compensation in
Consolidated Financial Statements December 31, 2021 | F - 12 | North American Construction Group Ltd. | ||||||
the form of DSUs and are settled in cash. Compensation expense is calculated based on the number of DSUs multiplied by the fair market value of each DSU as determined by the volume weighted-average trading price of the Company’s common shares for the 5 trading days immediately preceding the day on which the fair market value is to be determined, with any changes in fair value recognized in general and administrative expenses in the Consolidated Statements of Operations and Comprehensive Income. Compensation costs related to DSUs are recognized in full upon the grant date as the units vest immediately. When dividends are paid on common shares, additional dividend equivalent DSUs are granted to all DSU holders as of the dividend payment date. The number of additional DSUs to be granted is determined by multiplying the dividend payment per common share by the number of outstanding DSUs, divided by the fair market value of the Company's common shares on the dividend payment date. Such additional DSUs are granted subject to the same service criteria as the underlying DSUs.
The Company had a Share Option Plan which is described in note 19(d). Effective November 17, 2021, this plan was terminated. 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 award’s 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.
As stock-based compensation expense recognized in the Consolidated Statements of Operations and Comprehensive Income is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised in subsequent periods if actual forfeitures differ from those estimated.
t) Net income per share
u) Leases
For lessee accounting, the Company determines whether a contract is or contains a lease at inception of the contract. At the lease commencement date, the Company recognizes a right-of-use ("ROU") asset and a lease liability. The ROU asset for operating and finance leases are included in operating lease right-of-use assets and property, plant and equipment, respectively, on the Consolidated Balance Sheets. The lease liability for operating and finance leases are included in operating lease liabilities and finance lease obligations, respectively.
Operating and finance lease assets and liabilities are initially measured at the present value of lease payments at the commencement date. Subsequently, finance lease liabilities are measured at amortized cost using the effective interest rate method and operating lease liabilities are measured at the present value of unpaid lease payments.
As most of the Company’s operating lease contracts do not provide the implicit interest rate, nor can the implicit interest rate be readily determined, the Company uses its incremental borrowing rate as the discount rate for determining the present value of lease payments. The Company's incremental borrowing rate for a lease is the rate that the Company would pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term. The Company uses the lease implicit interest rate when it is determinable.
The lease term for all of the Company's leases includes the non-cancellable period of the lease plus any period covered by options to extend (or not to terminate) the lease term when it is reasonably certain that the Company will exercise that option.
Lease payments are comprised of fixed payments owed over the lease term and the exercise price of a purchase option if the Company is reasonably certain to exercise the option. The ROU assets for both operating and finance leases are initially measured at cost, which consists of the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date, plus any initial direct costs incurred, less any lease incentives received. Subsequently, the ROU assets for finance leases are amortized on a straight-line basis from the lease commencement date to the earlier of the end of its useful life or the end of the lease term. For finance leases, ROU asset depreciation expense is recognized and presented separately from interest expense on the
Consolidated Financial Statements December 31, 2021 | F - 13 | North American Construction Group Ltd. | ||||||
lease liability through depreciation and interest expense, net, respectively. The ROU asset for operating leases is measured at the amortized value of the ROU asset. For operating leases, amortization of the ROU asset is calculated as the current-period lease cost adjusted by the lease liability accretion to the then outstanding lease balance. Lease expense of the operating lease ROU asset is recognized on a straight-line basis over the remaining lease term through general and administrative expenses.
ROU assets for operating and finance leases are reduced by any accumulated impairment losses. The Company's existing accounting policy for impairment of long-lived assets is applied to determine whether an ROU asset is impaired, and if so, the amount of the impairment loss to be recognized.
The Company monitors for events or changes in circumstances that require a reassessment of one or more of its leases. When a reassessment results in the remeasurement of a lease liability, a corresponding adjustment is made to the carrying amount of the corresponding ROU asset.
The Company generally accounts for contracts with lease and non-lease components separately. This involves allocating the consideration in the contract to the lease and non-lease components based on each component’s relative standalone price. For certain leases, the Company has elected to apply the practical expedient to account for the lease and non-lease components together as a single lease component. Non-lease components include common area maintenance and machine maintenance. For those leases, the lease payments used to measure the lease liability include all of the fixed consideration in the contract.
ROU assets and lease liabilities for all leases that have a lease term of 12 months or less ("short-term leases") are not recognized. The Company recognizes its short-term lease payments as an expense on a straight-line basis over the lease term. Short-term lease variable payments are recognized in the period in which the payment is assessed.
For lessor accounting, the Company entered into contracts to sublease certain operating property leases to third parties and generally accounts for lease and non-lease components of subleases separately. The Company also entered into agreements as a lessor for equipment leases.
If any of the following criteria are met, the Company classifies the lease as a sales-type lease:
•The lease transfers ownership of the underlying asset to the lessee by the end of the lease term;
•The lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise;
•The lease term is for the major part of the remaining economic life of the underlying asset. However, if the commencement date falls at or near the end of the economic life of the underlying asset, this criterion shall not be used for purposes of classifying the lease;
•The present value of the sum of the lease payments and any residual value guaranteed by the lessee that is not already reflected in the lease payments equals or exceeds substantially all of the fair value of the underlying asset.
•The underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term.
When none of these criteria are met, the Company classifies the lease as an operating lease unless both of the following criteria are met, in which case the Company records the lease as a direct financing lease:
•The present value of the sum of the lease payments and any residual value guaranteed by the lessee that is not already reflected in the lease payments and/or any other third party unrelated to the lessor equals or exceeds substantially all of the fair value of the underlying asset.
•It is probable that the lessor will collect the lease payments plus any amount necessary to satisfy a residual value guarantee.
For sales-type leases, the Company recognizes the net investment in the lease, and derecognizes the underlying asset on the Consolidated Balance Sheets. The interest income over the lease term is recognized in the Consolidated Statements of Operations and Comprehensive Income, with cash received from leases classified as operating cash flows in the Consolidated Statements of Cash Flows. The difference between the cash received from leases and the interest income is the reduction of the initial net investment. The net investment at the end of the lease term will equate to the estimated residual value at lease inception. For operating leases, the Company
Consolidated Financial Statements December 31, 2021 | F - 14 | North American Construction Group Ltd. | ||||||
v) Deferred financing costs
w) Investments in affiliates and joint ventures
Upon inception or acquisition of a contractual agreement, the Company performs an assessment to determine whether the arrangement contains a variable interest in a legal entity and whether that legal entity is a variable interest entity ("VIE"). Where it is concluded that the Company is the primary beneficiary of a VIE, the Company will consolidate the accounts of that VIE. Other qualitative factors that are considered include decision-making responsibilities, the VIE capital structure, risk and rewards sharing, contractual agreements with the VIE, voting rights and level of involvement of other parties. The Company assesses the primary beneficiary determination for a VIE on an ongoing basis as changes occur in the facts and circumstances related to a VIE. If an entity is determined not to be a VIE, the voting interest entity model will be applied. The maximum exposure to loss as a result of involvement with the VIE is the Company’s share of the investee’s net assets.
The Company utilizes the equity method to account for its interests in affiliates and joint ventures that the Company does not control but over which it exerts significant influence. The equity method is typically used when it has an ownership interest of between 15 % and 50 % in an entity, provided the Company is able to exercise significant influence over the investee’s operations. Significant influence is the power to participate in the financial and operating policy decisions of the investee.
Under the equity method, the investment in an affiliate or a joint venture is initially recognized at cost. Transaction costs that are incremental and directly attributable to the investment in the affiliate or joint venture are included in the cost. The total initial cost of the investment is attributable to the net assets in the equity investee at fair value and additional assets acquired including intangible assets.
The carrying amount of investment is adjusted to recognize changes in the Company’s share of net assets of the affiliate or joint venture since the acquisition date.
The aggregate of the Company’s share of profit or loss of affiliates and joint ventures is shown on the face of the Consolidated Statements of Operations and Comprehensive Income, representing profit or loss after in the subsidiaries of the affiliate or joint venture. Transactions between the Company and the affiliate or joint venture are eliminated to the extent of the interest in the affiliate or joint venture. When the Company earns revenue on downstream sales to affiliate or joint ventures, it eliminates its proportionate share of profit through revenue and project or equipment costs.
After application of the equity method, the Company determines whether it is necessary to recognize an impairment loss on its investment in its affiliate or joint venture. At each reporting date, the Company determines whether there is objective evidence that the investment in the affiliate or joint venture is impaired. If there is such evidence, the Company calculates the amount of impairment as the difference between the recoverable amount of the associate or joint venture and its carrying value, and then recognizes the loss within "equity earnings in affiliates and joint ventures" in the Consolidated Statements of Operations and Comprehensive Income. Upon loss of significant influence over the associate or joint control over the joint venture, the Company measures and recognizes any retained investment at its fair value. Any difference between the carrying amount of the associate or joint venture upon loss of significant influence or joint control and the fair value of the retained investment and proceeds from disposal is recognized in the Consolidated Statements of Operations and Comprehensive Income.
Consolidated Financial Statements December 31, 2021 | F - 15 | North American Construction Group Ltd. | ||||||
x) Government assistance
y) Derivative instruments
z) Business combinations
3. Accounting pronouncements recently adopted
a) Business Combinations
In October 2021, the FASB issued ASU 2021-08, Business Combinations. The accounting standard update was issued to improve the accounting for acquired revenue contracts with customers in a business combination. This update requires that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606 - Revenue from Contract with Customers. The adoption of this new standard did not have an impact to the consolidated financial statements.
b) Government Assistance
In November 2021, the FASB issued ASU 2021-10, Government Assistance. The accounting standard update was issued to increase the transparency of government assistance including the disclosure of 1) the type of assistance, 2) an entity's accounting for the assistance, and 3) the effect of the assistance on an entity's financial statements. The adoption of this new standard did not have a material impact to the consolidated financial statements.
4. Recent accounting pronouncements not yet adopted
Consolidated Financial Statements December 31, 2021 | F - 16 | North American Construction Group Ltd. | ||||||
5. Accounts receivable
| Note | December 31, 2021 | December 31, 2020 | |||||||||||||||
Note 22 | |||||||||||||||||
| Trade | 11 | $ | $ | ||||||||||||||
| Holdbacks | |||||||||||||||||
| Accrued trade receivables | |||||||||||||||||
| Contract receivables | $ | $ | |||||||||||||||
| Other | |||||||||||||||||
| $ | $ | ||||||||||||||||
Holdbacks represent amounts up to 10 % of the contract value under certain contracts that the customer is contractually entitled to withhold until completion of the project or until certain project milestones are achieved. Information about the Company’s exposure to credit risks and impairment losses for trade and other receivables is included in note 16(d).
6. Revenue
a) Disaggregation of revenue
| Year ended December 31, | 2021 | 2020 | ||||||||||||
Note 22 | ||||||||||||||
| Revenue by source | ||||||||||||||
| Operations support services | $ | $ | ||||||||||||
| Equipment and component sales | ||||||||||||||
| Construction services | ||||||||||||||
| $ | $ | |||||||||||||
| By commercial terms | ||||||||||||||
| Time-and-materials | $ | $ | ||||||||||||
| Unit-price | ||||||||||||||
| Lump-sum | ||||||||||||||
| $ | $ | |||||||||||||
| Revenue recognition method | ||||||||||||||
| As-invoiced | $ | $ | ||||||||||||
| Cost-to-cost percent complete | ||||||||||||||
| Point-in-time | ||||||||||||||
| $ | $ | |||||||||||||
b) Contract balances
Contract assets:
| Year ended December 31, | 2021 | 2020 | ||||||||||||
Note 22 | ||||||||||||||
| Balance, beginning of year | $ | $ | ||||||||||||
| Transferred to receivables from contract assets recognized at the beginning of the period | ( | ( | ||||||||||||
| Increases as a result of changes to the estimate of the stage of completion, excluding amounts transferred in the period | ||||||||||||||
| Increases as a result of work completed, but not yet an unconditional right to consideration | ||||||||||||||
| Balance, end of year | $ | $ | ||||||||||||
Contract liabilities:
| Year ended December 31, | 2021 | 2020 | ||||||||||||
Note 22 | ||||||||||||||
| Balance, beginning of year | $ | $ | ||||||||||||
| Revenue recognized that was included in the contract liability balance at the beginning of the period | ( | ( | ||||||||||||
| Increases due to cash received, excluding amounts recognized as revenue during the period | ||||||||||||||
| Balance, end of year | $ | $ | ||||||||||||
Consolidated Financial Statements December 31, 2021 | F - 17 | North American Construction Group Ltd. | ||||||
The following table provides information about revenue recognized from performance obligations that were satisfied (or partially satisfied) in previous periods:
| Year ended December 31, | 2021 | 2020 | ||||||||||||
| Revenue recognized | $ | $ | ||||||||||||
These amounts relate to cumulative catch-up adjustments arising from changes in estimated project costs on cost-to-cost percent complete jobs and final settlement of constrained variable consideration.
c) Transaction price allocated to the remaining performance obligations
The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period. Included is all consideration from contracts with customers, excluding amounts that are recognized using the as-invoiced method and any constrained amounts of revenue.
For the year ended December 31, | |||||
| 2022 | $ | ||||
| 2023 | |||||
| 2024 | |||||
| 2025 | |||||
| $ | |||||
d) Contract costs
The following table summarizes contract costs included within other assets on the Consolidated Balance Sheets.
| December 31, 2021 | December 31, 2020 | |||||||||||||
| Fulfillment costs | $ | $ | ||||||||||||
| Reimbursable bid costs | ||||||||||||||
| $ | $ | |||||||||||||
7. Inventory
The following table summarizes the Company's major classes of inventory:
| December 31, 2021 | December 31, 2020 | |||||||||||||
Note 22 | ||||||||||||||
| Repair parts | $ | $ | ||||||||||||
| Parts, equipment and components held for resale | ||||||||||||||
| Tires and track frames | ||||||||||||||
| Fuel and lubricants | ||||||||||||||
| Customer rebuild work in process | ||||||||||||||
| $ | $ | |||||||||||||
Consolidated Financial Statements December 31, 2021 | F - 18 | North American Construction Group Ltd. | ||||||
8. Long-term debt
| Note | December 31, 2021 | December 31, 2020 | |||||||||||||||
Note 22 | |||||||||||||||||
| Credit Facility | 8(a) | $ | $ | ||||||||||||||
| Convertible debentures | 8(b) | ||||||||||||||||
| Mortgages | 8(e) | ||||||||||||||||
| Financing obligations | 8(c) | ||||||||||||||||
| Promissory notes | 8(d) | ||||||||||||||||
| Unamortized deferred financing costs | 8(f) | ( | ( | ||||||||||||||
| $ | $ | ||||||||||||||||
| Less: current portion of long-term debt | ( | ( | |||||||||||||||
| $ | $ | ||||||||||||||||
The aggregate maturities of long-term debt for each of the five years subsequent to December 31, 2021 are: $19.7 million in 2022, $20.3 million in 2023, $128.4 million in 2024, $5.9 million in 2025 and $156.6 million in 2026 and thereafter.
a) Credit Facility
On September 29, 2021, the Company entered into an Amended and Restated Credit Agreement (the "Credit Facility") with a banking syndicate that allows borrowing under the revolving loan to $325.0 million with the ability to increase the maximum borrowings by $50.0 million, subject to certain conditions. The amended agreement extended the facility maturity from October 8, 2023 to October 8, 2024, with an option to extend on an annual basis, subject to certain conditions. The Credit Facility permits finance lease obligations to a limit of $150.0 million and certain other borrowings outstanding to a limit of $20.0 million. In the amended agreement, the permitted amount of $150.0 million was expanded to include guarantees provided by the Company to a permitted joint venture, provided that value of such obligations shall not exceed the permitted amount.
As at December 31, 2021, there was $33.9 million (December 31, 2020 - $0.9 million) in issued letters of credit under the Credit Facility and the unused borrowing availability was $181.1 million (December 31, 2020 - $104.1 million). As at December 31, 2021, there was an additional $28.6 million in borrowing availability under finance lease obligations (December 31, 2020 - $29.6 million). Borrowing availability under finance lease obligations considers the current and long-term portion of finance lease obligations and financing obligations, including the finance lease obligations for the joint venture that the Company guarantees.
The Credit Facility has two financial covenants that must be tested quarterly on a trailing four-quarter basis. As at December 31, 2021, the Company was in compliance with its financial covenants.
•The first covenant is the Senior Leverage Ratio which is Bank Senior Debt plus outstanding letters of credit compared to Bank EBITDA less NACG Acheson Ltd. rental revenue.
◦"Bank Senior Debt" is defined as the Company's long-term debt, finance leases and outstanding letters of credit, excluding Convertible Debentures, deferred financing costs, mortgages related to NACG Acheson Ltd. and debt related to investment in affiliates and joint ventures.
◦"Bank EBITDA" is defined as earnings before interest, taxes, depreciation and amortization, excluding the effects of unrealized foreign exchange gain or loss, realized and unrealized gain or loss on derivative financial instruments, cash and non-cash stock-based compensation expense, gain or loss on disposal of property, plant and equipment, and certain other non-cash items included in the calculation of net income.
◦The Senior Leverage Ratio must be less than or equal to 3.0 :1. In the event the Company enters into a material acquisition, the maximum allowable Senior Leverage Ratio would include a step up of 0.50 x for four quarters following the acquisition.
•The second covenant is the Fixed Charge Coverage Ratio which is defined as Bank EBITDA less cash taxes compared to Fixed Charges.
◦"Fixed Charges" is defined as cash interest, scheduled payments on debt, unfunded cash distributions by the Company and unfunded capital expenditures.
Consolidated Financial Statements December 31, 2021 | F - 19 | North American Construction Group Ltd. | ||||||
◦The Fixed Charge Coverage Ratio is to be maintained at a ratio greater than 1.15 :1.
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. Effective December 31, 2021, LIBOR will be discontinued for future contracts; however, it will be available and published until June 2023 for contracts entered before 2022. During the transition, the Company will either have the option to use LIBOR until June 2023 or to choose an alternative rate like Secured Overnight Financing Rate ("SOFR"). The Company is also subject to non-refundable standby fees, 0.40 % to 0.75 % depending on the Company's Total Debt to Bank EBITDA Ratio. Total debt ("Total Debt") is defined in the Credit Facility as long-term debt including finance leases and letters of credit, excluding convertible debentures, deferred financing costs, the mortgage related to NACG Acheson Ltd., and other non-recourse debt. The Credit Facility is secured by a first priority lien on all of the Company's existing and after-acquired property excluding the Company's first securities interests on the Business Development Bank of Canada ("BDC") mortgage.
On December 3, 2021, the Company entered into an agreement with a financial institution to provide guarantee on a revolving equipment lease credit facility of $45.0 million for Mikisew North American Limited Partnership, an affiliate of the Company. This equipment lease credit facility will allow MNALP to avail the credit through a lease agreement and/or equipment finance contract with appropriate supporting documents. As at December 31, 2021, the available balance on this facility was $28.1 million. At this time, there have been no instances or indication that payments will not be made by MNALP. Therefore, no liability has been recorded.
b) Convertible debentures
| December 31, 2021 | December 31, 2020 | ||||||||||
| $ | $ | ||||||||||
| $ | $ | ||||||||||
On June 1, 2021, the Company issued $65,000 aggregate principal amount of 5.50 % convertible unsecured subordinated debentures. On June 4, 2021, the underwriters exercised the over-allotment option, in full, purchasing an additional $9,750 aggregate principal amount of 5.50 % convertible unsecured subordinated debentures.
The terms of the convertible debentures are summarized as follows:
| Date of issuance | Maturity | Conversion price | Share equivalence per $1000 debenture | Debt issuance costs | |||||||||||||||||||||||||
| June 1, 2021 | June 30, 2028 | $ | $ | $ | |||||||||||||||||||||||||
| March 20, 2019 | March 31, 2026 | $ | $ | $ | |||||||||||||||||||||||||
Interest on the 5.50 % convertible debentures is payable semi-annually in arrears on June 30 and December 31 of each year, commencing on December 31, 2021. Interest on the 5.00 % convertible debentures is payable semi-annually on March 31 and September 30 of each year.
The 5.50 % convertible debentures are not redeemable prior to June 30, 2024, except under certain exceptional circumstances. The 5.50 % convertible debentures may be redeemed at the option of the Company, in whole or in part, at any time on or after June 30, 2024 at a redemption price equal to the principal amount provided that the market price of the common shares is at least 125 % of the conversion price; and on or after June 30, 2026 at a redemption price equal to the principal amount. In each case, the Company will pay accrued and unpaid interest on the debentures redeemed to the redemption date.
The 5.00 % convertible debentures are redeemable under certain conditions after a change in control has occurred. If a change in control occurs, the Company is required to offer to purchase all of the 5.00 % convertible debentures at a price equal to 101 % of the principal amount plus accrued and unpaid interest to the date of purchase.
During the year ended December 31, 2021, the Company realized a gain of $7,071 (unrealized gain for the year ended December 31, 2020 of $4,334 ) on the swap agreement related to the 5.50 % convertible debentures that were issued in 2017 and redeemed through issuance of 4,583,655 common shares in April 2020. This swap agreement was completed on September 30, 2021 and the derivative financial instrument recorded on the Consolidated Balance Sheet was extinguished at that time.
Consolidated Financial Statements December 31, 2021 | F - 20 | North American Construction Group Ltd. | ||||||
c) Financing obligations
During the year ended December 31, 2021, the Company recorded new financing obligations of $11,700 . The financing contract expires on February 9, 2026. The Company is required to make monthly payments over the life of the contract with an annual interest rate of 2.23 %. The financing obligations are secured by the corresponding property, plant and equipment.
d) Promissory note
During the year ended December 31, 2021, the Company recorded a new equipment promissory note of $4,300 . The contract expires on August 5, 2025. The Company is required to make monthly payments over the life of the contract with an annual interest rate of 4.20 %. The promissory note is secured by the corresponding property, plant and equipment. The Company also acquired a new promissory note of $370 upon acquisition of DGI (note 12).The contract expires in November 2023 and bears interest at 2.90 %. During the year ended December 31, 2021, the Company made payments of $4,185 towards promissory notes.
e) Mortgage
On October 28, 2021, the Company entered into an updated mortgage agreement with BDC which increased the mortgage amount from $21.1 million to $30.0 million. The updated mortgage includes additional loan of $7.0 million for a building expansion and a $1.9 million cash advance. The mortgage has a maturity date of November 1, 2046 and bears variable interest at BDC's floating base rate of 5.60 % minus a variance of 2.20 %, equal to 3.40 %.
f) Deferred financing costs
| December 31, 2021 | December 31, 2020 | |||||||||||||
| Cost | $ | $ | ||||||||||||
| Accumulated amortization | ||||||||||||||
| $ | $ | |||||||||||||
During the year ended December 31, 2021, the Company recognized accelerated amortization of $1,064 due to the early conversion of convertible debentures.
9. Property, plant and equipment
| December 31, 2021 | Cost | Accumulated Depreciation | Net Book Value | |||||||||||||||||
| Owned assets | ||||||||||||||||||||
| Heavy equipment | $ | $ | $ | |||||||||||||||||
| Major component parts in use | ||||||||||||||||||||
| Other equipment | ||||||||||||||||||||
| Licensed motor vehicles | ||||||||||||||||||||
| Office and computer equipment | ||||||||||||||||||||
| Buildings | ||||||||||||||||||||
| Capital inventory | ||||||||||||||||||||
| Land | ||||||||||||||||||||
| Assets under finance lease | ||||||||||||||||||||
| Heavy equipment | ||||||||||||||||||||
| Major component parts in use | ||||||||||||||||||||
| Other equipment | ||||||||||||||||||||
| Licensed motor vehicles | ||||||||||||||||||||
| Total property, plant and equipment | $ | $ | $ | |||||||||||||||||
Consolidated Financial Statements December 31, 2021 | F - 21 | North American Construction Group Ltd. | ||||||
| December 31, 2020 | Cost | Accumulated Depreciation | Net Book Value | |||||||||||||||||
Note 22 | ||||||||||||||||||||
| Owned assets | ||||||||||||||||||||
| Heavy equipment | $ | $ | $ | |||||||||||||||||
| Major component parts in use | ||||||||||||||||||||
| Other equipment | ||||||||||||||||||||
| Licensed motor vehicles | ||||||||||||||||||||
| Office and computer equipment | ||||||||||||||||||||
| Buildings | ||||||||||||||||||||
| Capital inventory | ||||||||||||||||||||
| Land | ||||||||||||||||||||
| Assets under finance lease | ||||||||||||||||||||
| Heavy equipment | ||||||||||||||||||||
| Major component parts in use | ||||||||||||||||||||
| Other equipment | ||||||||||||||||||||
| Licensed motor vehicles | ||||||||||||||||||||
| Total property, plant and equipment | $ | $ | $ | |||||||||||||||||
10. Finance and operating leases
As a lessee, the Company has finance and operating leases for heavy equipment, shop facilities, vehicles and office facilities. These leases have terms of 1 to 15 years, with options to extend on certain leases for up to five years . The Company generates operating lease income from the sublease of certain office facilities and heavy equipment rentals.
a) Minimum lease payments and receipts
The future minimum lease payments and receipts from non-cancellable operating leases as at December 31, 2021 for the periods shown are as follows:
| Payments | Receipts | ||||||||||||||||
| For the year ending December 31, | Finance Leases | Operating Leases | Operating leases | ||||||||||||||
| 2022 | $ | $ | $ | ||||||||||||||
| 2023 | |||||||||||||||||
| 2024 | |||||||||||||||||
| 2025 | |||||||||||||||||
| 2026 and thereafter | |||||||||||||||||
| Total minimum lease payments | $ | $ | $ | ||||||||||||||
| Less: amount representing interest | ( | ( | |||||||||||||||
| Carrying amount of minimum lease payments | $ | $ | |||||||||||||||
| Less: current portion of leases | ( | ( | |||||||||||||||
| $ | $ | ||||||||||||||||
b) Lease expenses and (income)
| Year ended December 31, | 2021 | 2020 | |||||||||
| Short-term lease expense | $ | $ | |||||||||
| Operating lease expense | |||||||||||
| Operating lease income | ( | ( | |||||||||
During the year ended December 31, 2021, depreciation of equipment under finance leases was $21,343 (December 31, 2020 - $17,147 ).
Consolidated Financial Statements December 31, 2021 | F - 22 | North American Construction Group Ltd. | ||||||
c) Supplemental balance sheet information
| December 31, 2021 | December 31, 2020 | ||||||||||
| Net book value of property, plant and equipment under finance leases | $ | $ | |||||||||
| Weighted-average remaining lease term (in years): | |||||||||||
| Finance leases | |||||||||||
| Operating leases | |||||||||||
| Weighted-average discount rate: | |||||||||||
| Finance leases | % | % | |||||||||
| Operating leases | % | % | |||||||||
11. Investments in affiliates and joint ventures
On October 13, 2021, the Company entered into the Limited Liability Company Agreement with Concessions Fargo Holdings, LLC, S&B USA Concessions – Fargo LP to form Red River Valley Alliance, LLC (“RRVA”). On August 19, 2021, RRVA entered into an agreement with the Metro Flood Diversion Authority to design, construct, finance, operate and maintain a diversion channel and associated infrastructure that will form part of the Fargo-Moorhead Metropolitan Area Flood Risk Management Project. The Company holds 15 % interest in the investment and can exercise significant influence over the financial and operational policies of the joint venture through its voting rights, therefore the equity method of accounting is used to account for this investment.
On July 20, 2021, the Company entered into a Joint Venture Agreement with Acciona Construction USA Corp. (“Acciona”), and Shikun and Binui – America Inc. (“SBA”), to form ASN Constructors. The joint venture formalizes the relationship in terms of the participation in the Fargo Moorhead Area Diversion Project for which the ASN Constructors entered into a design and build contract with RRVA for the Fargo project agreement. The agreement was effective August 19, 2021. The Company holds 30 % proportional share of interest and cost sharing through the joint venture agreement. The Company can exercise influence over the financial and operational policies of the joint venture through its voting rights, therefore the equity method of accounting is used to account for this investment.
The following is a summary of the Company's interests in its various affiliates and joint ventures, which it accounts for using the equity method:
| Affiliate or joint venture name: | Interest | |||||||
| Nuna Group of Companies | ||||||||
| 1229181 B.C Ltd. | % | |||||||
| North American Nuna Joint Venture | % | |||||||
| Nuna East Ltd. | % | |||||||
| Nuna Pang Contracting Ltd. | % | |||||||
| Nuna West Mining Ltd. | % | |||||||
| NAYL Realty Inc. | % | |||||||
| BNA Remanufacturing Limited Partnership | % | |||||||
| Dene North Site Services Partnership | % | |||||||
| Mikisew North American Limited Partnership | % | |||||||
| ASN Constructors | % | |||||||
| Red River Valley Alliance LLC | % | |||||||
The following table summarizes the movement in the investments in affiliates and joint ventures balance during the year:
| December 31, 2021 | December 31, 2020 | |||||||||||||
Note 22 | ||||||||||||||
| Balance, beginning of the year | $ | $ | ||||||||||||
| Investments in affiliates and joint ventures | ||||||||||||||
| Share of net income | ||||||||||||||
| Dividends and advances received from affiliates and joint ventures | ( | ( | ||||||||||||
| Other adjustments | ( | ( | ||||||||||||
| Balance, end of the year | $ | $ | ||||||||||||
Consolidated Financial Statements December 31, 2021 | F - 23 | North American Construction Group Ltd. | ||||||
During the year ended December 31, 2021, the Company invested $1,959 in cash and $362 in property, plant and equipment for the investments in Mikisew North American Limited Partnership and BNA Remanufacturing Limited Partnership, respectively.
The financial information for the Company's share of the investments in affiliates and joint ventures accounted for using the equity method is summarized as follows:
Balance Sheets
| December 31, 2021 | December 31, 2020 | |||||||||||||
Note 22 | ||||||||||||||
| Assets | ||||||||||||||
| Current assets | $ | $ | ||||||||||||
| Non-current assets | ||||||||||||||
| Total assets | $ | $ | ||||||||||||
| Liabilities | ||||||||||||||
| Current liabilities | $ | $ | ||||||||||||
| Non-current liabilities | ||||||||||||||
| Total liabilities | $ | $ | ||||||||||||
| Net investments in affiliates and joint ventures | $ | $ | ||||||||||||
Statements of Operations
| Year ended December 31, | 2021 | 2020 | ||||||||||||
| Revenue | $ | $ | ||||||||||||
| Gross profit | ||||||||||||||
| Income before taxes | ||||||||||||||
| Net income | ||||||||||||||
Related parties
The following table provides the material aggregate outstanding balances with affiliates and joint ventures. Accounts payable and accrued liabilities due to joint ventures and affiliates do not bear interest, are unsecured and without fixed terms of repayment. Accounts receivable from certain joint ventures and affiliates bear interest at various rates, and all other accounts receivable amounts are non-interest bearing.
| December 31, 2021 | December 31, 2020 | |||||||||||||
Note 22 | ||||||||||||||
| Accounts receivable | $ | $ | ||||||||||||
| Other assets | ||||||||||||||
| Accounts payable and accrued liabilities | ||||||||||||||
Consolidated Financial Statements December 31, 2021 | F - 24 | North American Construction Group Ltd. | ||||||
12. Business acquisition
On July 1, 2021, the Company acquired all the shares and business of DGI (Aust) Trading Pty Ltd., a supplier of production-critical mining equipment and components based in Kempsey, New South Wales, Australia for total consideration of $18,441 , comprised of a cash payment and contingent consideration in the form of an earn-out to be paid based on the earnings of DGI over the next four annual periods.
The following table summarizes the total consideration paid for DGI shareholders and the fair value of the assets acquired and liabilities assumed at the acquisition date:
| July 1, 2021 | ||||||||
| Cash consideration | $ | |||||||
| Earn-out at estimated fair value | ||||||||
| Total consideration | $ | |||||||
| Purchase price allocation to assets acquired and liabilities assumed: | ||||||||
| Cash | $ | |||||||
| Accounts receivable | ||||||||
| Inventory | ||||||||
| Prepaid expenses and deposits | ||||||||
| Property, plant and equipment | ||||||||
| Operating lease right-of-use asset | ||||||||
| Intangible assets | ||||||||
| Accounts payable | ( | |||||||
| Accrued liabilities | ( | |||||||
| Long-term debt | ( | |||||||
| Operating lease liability | ( | |||||||
| Deferred tax liability | ( | |||||||
| Total identifiable net assets at fair value | $ | |||||||
| Goodwill arising on acquisition | $ | |||||||
The fair value of acquired identified intangible assets, consists of $595 in brand with an indefinite useful life and $1,980 in customer relationships with a useful life of four years .
The fair value of acquired inventory consists of used mining equipment and related components for resale.
During the year ended December 31, 2021, the Company recognized $209 of acquisition related costs associated with professional and legal advisory fees in general and administrative expenses in the Consolidated Statements of Operations and Comprehensive Income.
During the year ended December 31, 2021, the Company recognized $12,687 or 2 % of revenue and $605 or 1 % of net income from DGI recorded in the Consolidated Statement of Operations and Comprehensive Income.
The pro forma disclosures related to the effect of the acquisition have been excluded on the basis of immateriality.
Consolidated Financial Statements December 31, 2021 | F - 25 | North American Construction Group Ltd. | ||||||
13. Income taxes
Income tax expense differs from the amount that would be computed by applying the federal and provincial statutory income tax rates to income before income taxes. The reasons for the differences are as follows:
| Year ended December 31, | 2021 | 2020 | ||||||||||||
| Income before income taxes | $ | $ | ||||||||||||
| Equity earnings in affiliates and joint ventures | ( | ( | ||||||||||||
| $ | $ | |||||||||||||
| Tax rate | % | % | ||||||||||||
| Expected expense | $ | $ | ||||||||||||
| Adjustments related to: | ||||||||||||||
| Stock-based compensation | ( | |||||||||||||
| Foreign tax rate differential | ||||||||||||||
| Other | ( | ( | ||||||||||||
| Total income tax expense | $ | $ | ||||||||||||
| Current income tax expense | $ | $ | ||||||||||||
| Deferred income tax expense | ||||||||||||||
| Total income tax expense | $ | $ | ||||||||||||
The deferred tax assets and liabilities are summarized below:
| December 31, 2021 | December 31, 2020 | |||||||||||||
| Deferred tax assets: | ||||||||||||||
| Non-capital and net capital loss carryforwards | $ | $ | ||||||||||||
| Finance lease obligations | ||||||||||||||
| Stock-based compensation | ||||||||||||||
| Other | ||||||||||||||
| Subtotal | $ | $ | ||||||||||||
| Less: valuation allowance | ( | |||||||||||||
| $ | $ | |||||||||||||
| Deferred tax liabilities: | ||||||||||||||
| Contract assets | $ | $ | ||||||||||||
| Property, plant and equipment | ||||||||||||||
| Other | ||||||||||||||
| $ | $ | |||||||||||||
| Net deferred income tax liability | $ | $ | ||||||||||||
Classified as:
| December 31, 2021 | December 31, 2020 | |||||||||||||
| Deferred tax asset | $ | $ | ||||||||||||
| Deferred tax liability | ( | ( | ||||||||||||
| $ | ( | $ | ( | |||||||||||
The Company and its subsidiaries file income tax returns in the Canadian federal jurisdiction, multiple provincial jurisdictions, the U.S. federal jurisdiction, three U.S state jurisdictions and the Australia federal jurisdiction.
Consolidated Financial Statements December 31, 2021 | F - 26 | North American Construction Group Ltd. | ||||||
At December 31, 2021, the Company has a deferred tax asset of $40,367 resulting from non-capital loss carryforwards of $175,509 , which expire as follows:
| December 31, 2021 | ||||||||
| 2026 | ||||||||
| 2027 | ||||||||
| 2032 | ||||||||
| 2033 | ||||||||
| 2036 | ||||||||
| 2037 | ||||||||
| 2038 | ||||||||
| 2039 | ||||||||
| 2040 | ||||||||
| 2041 | ||||||||
| $ | ||||||||
14. Accrued liabilities
| Note | December 31, 2021 | December 31, 2020 | |||||||||||||||
Note 22 | |||||||||||||||||
| Payroll liabilities | $ | $ | |||||||||||||||
| Income and other taxes payable | |||||||||||||||||
| Dividends payable | 17(c) | ||||||||||||||||
| Accrued interest payable | |||||||||||||||||
| Liabilities related to short-term rentals | |||||||||||||||||
| Funding obligations | |||||||||||||||||
| Obligation related to acquisition earn-out liability | |||||||||||||||||
| Other | |||||||||||||||||
| $ | $ | ||||||||||||||||
15. Other long-term obligations
| Note | December 31, 2021 | December 31, 2020 | |||||||||||||||
Note 22 | |||||||||||||||||
| Directors' deferred stock unit plan | 19(c) | $ | $ | ||||||||||||||
| Deferred gain on sale-leaseback | 15(a) | ||||||||||||||||
| Obligation related to acquisition earn-out liability | 12 | ||||||||||||||||
| Other | |||||||||||||||||
| $ | $ | ||||||||||||||||
a) Deferred gain on sale-leaseback
Changes in deferred gains on sale-leaseback transactions of heavy equipment are summarized below.
| December 31, 2021 | December 31, 2020 | |||||||||||||
Note 22 | ||||||||||||||
| Balance, beginning of year | $ | $ | ||||||||||||
| Amortization of deferred gain on sale-leaseback | ( | ( | ||||||||||||
| Balance, end of year | $ | $ | ||||||||||||
The gain on sale was deferred and is being amortized under depreciation in the Consolidated Statements of Operations and Comprehensive Income over the expected useful life of the equipment.
16. Financial instruments and risk management
a) Fair value measurements
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. Standard market conventions and
Consolidated Financial Statements December 31, 2021 | F - 27 | North American Construction Group Ltd. | ||||||
techniques, such as discounted cash flow analysis are used to determine the fair value of the Company’s financial instruments. All methods of fair value measurement result in a general approximation of fair value and such value may never actually be realized.
The fair values of the Company’s cash, accounts receivable, contract assets, loans to affiliates and joint ventures (included in other assets), acquisition earn-out liability, accounts payable, accrued liabilities and contract liabilities approximate their carrying amounts due to the nature of the instrument or the relatively short periods to maturity for the instruments. The Credit Facility has a carrying value that approximates the fair value due to the floating rate nature of the debt. The promissory notes and mortgages have carrying values that are not materially different than their fair values due to similar instruments bearing similar interest rates.
Financial instruments with carrying amounts that differ from their fair values are as follows:
| December 31, 2021 | December 31, 2020 | |||||||||||||||||||||||||||||||
| Fair Value Hierarchy Level | Carrying Amount | Fair Value | Carrying Amount | Fair Value | ||||||||||||||||||||||||||||
Note 22 | ||||||||||||||||||||||||||||||||
| Convertible debentures | Level 1 | |||||||||||||||||||||||||||||||
| Financing obligations | Level 2 | |||||||||||||||||||||||||||||||
b) Risk management
The Company is exposed to liquidity, market and credit risks 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. 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 Company’s operating activities.
The Company is also exposed to concentration risk through its revenues which is mitigated 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. The Company has further mitigated this risk through diversification of its operations. This diversification has primarily come through investments in joint ventures which are accounted for using the equity method. Revenues from these investments are not included in consolidated revenue.
c) Market risk
Market risk is the risk that the future revenue or operating expense related cash flows, 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 Company’s financial assets and liabilities held, non-trading physical assets and contract portfolios.
To manage the exposure related to changes in market risk, the Company has used various risk management techniques. 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.
i) Foreign exchange risk
The Company regularly transacts in foreign currencies when purchasing equipment and 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 US Dollar for these short term transactions, if material.
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. Interest expense on borrowings with floating interest rates, including the Company’s Credit Facility, varies as market interest rates change. At December 31, 2021, the Company held $110.0 million of floating rate debt pertaining to its Credit Facility (December 31, 2020 – $220.0
Consolidated Financial Statements December 31, 2021 | F - 28 | North American Construction Group Ltd. | ||||||
million). As at December 31, 2021, holding all other variables constant, a 100 basis point change to interest rates on the outstanding floating rate debt will result in $1.1 million corresponding change in annual interest expense.
The fair value of financial instruments with fixed interest rates fluctuate with changes in market interest rates. However, these fluctuations do not affect earnings, as the Company’s debt is carried at amortized cost and the carrying value does not change as interest rates change.
The Company manages its interest rate risk exposure by using a mix of fixed and variable rate debt.
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 contract assets. Credit risk for trade and other accounts receivables and contract assets are managed through established credit monitoring activities.
The following customers accounted for 10% or more of total revenues:
| Year ended December 31, | 2021 | 2020 | ||||||||||||
Note 22 | ||||||||||||||
| Customer A | % | % | ||||||||||||
| Customer B | % | % | ||||||||||||
| Customer C | % | % | ||||||||||||
| Customer D | % | % | ||||||||||||
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. Where the Company generates revenue under its subcontracting arrangement with MNALP, the final end customer is represented in the table above and in the table below.
The following customers represented 10% or more of accounts receivable and contract assets:
| December 31, 2021 | December 31, 2020 | |||||||||||||
Note 22 | ||||||||||||||
| Customer 1 | % | % | ||||||||||||
| Customer 2 | % | % | ||||||||||||
| Customer 3 | % | % | ||||||||||||
The Company’s exposure to credit risk for accounts receivable and contract assets is as follows:
| December 31, 2021 | December 31, 2020 | |||||||||||||
Note 22 | ||||||||||||||
| Trade accounts receivable | $ | $ | ||||||||||||
| Holdbacks | ||||||||||||||
| Accrued trade receivables | ||||||||||||||
| Contract receivables, included in accounts receivable | $ | $ | ||||||||||||
| Other receivables | ||||||||||||||
| Total accounts receivable | $ | $ | ||||||||||||
| Contract assets | ||||||||||||||
| Total | $ | $ | ||||||||||||
Consolidated Financial Statements December 31, 2021 | F - 29 | North American Construction Group Ltd. | ||||||
Payment terms are per the negotiated customer contracts and generally range between net 15 days and net 60 days. As at December 31, 2021 and December 31, 2020, trade receivables and holdbacks are aged as follows:
| December 31, 2021 | December 31, 2020 | |||||||||||||
Note 22 | ||||||||||||||
| Not past due | $ | $ | ||||||||||||
| Past due 1-30 days | ||||||||||||||
| Past due 31-60 days | ||||||||||||||
| More than 61 days | ||||||||||||||
| Total | $ | $ | ||||||||||||
17. Shares
a) Common shares
| Common shares | Treasury shares | Common shares, net of treasury shares | ||||||||||||||||||
| Issued and outstanding at December 31, 2019 | ( | |||||||||||||||||||
| Issued upon exercise of stock options | ||||||||||||||||||||
| Issued upon conversion of convertible debentures | ||||||||||||||||||||
| Retired through share purchase program | ( | ( | ||||||||||||||||||
| Purchase of treasury shares | ( | ( | ||||||||||||||||||
| Settlement of certain equity classified stock-based compensation | ||||||||||||||||||||
| Issued and outstanding at December 31, 2020 | ( | |||||||||||||||||||
| Issued upon exercise of stock options | ||||||||||||||||||||
| Retired through share purchase program | ( | ( | ||||||||||||||||||
| Purchase of treasury shares | ( | ( | ||||||||||||||||||
| Settlement of certain equity classified stock-based compensation | ||||||||||||||||||||
| Issued and outstanding at December 31, 2021 | ( | |||||||||||||||||||
Upon settlement of certain equity classified stock-based compensation during the year ended December 31, 2021, the Company withheld 274,359 shares for $5,134 to satisfy the recipient tax withholding requirements (year ended December 31, 2020 - 372,628 shares for $3,576 ).
b) Net income per share
| Year ended December 31, | 2021 | 2020 | |||||||||
| Net income | $ | $ | |||||||||
| Interest from convertible debentures (after tax) | |||||||||||
| Diluted net income available to common shareholders | $ | $ | |||||||||
| Weighted-average number of common shares | |||||||||||
| Weighted-average effect of dilutive securities | |||||||||||
| Dilutive effect of treasury shares | |||||||||||
| Dilutive effect of stock options | |||||||||||
Dilutive effect of | |||||||||||
Dilutive effect of | |||||||||||
| Weighted-average number of diluted common shares | |||||||||||
| Basic net income per share | $ | $ | |||||||||
| Diluted net income per share | $ | $ | |||||||||
For the year ended December 31, 2021, all securities were dilutive (year ended December 31, 2020, all securities were dilutive).
Consolidated Financial Statements December 31, 2021 | F - 30 | North American Construction Group Ltd. | ||||||
On April 9, 2021, the Company commenced a normal course issuer bid ("NCIB") under which a maximum number of 2,000,000 common shares were authorized to be purchased. During the year ended December 31, 2021, the Company purchased and subsequently cancelled 37,000 shares under this NCIB, which resulted in a decrease of common shares of $300 and an increase to additional paid-in capital of $213 . This NCIB will be terminated no later than April 8, 2022.
During the year ended December 31, 2021, the Company completed the NCIB commenced on March 12, 2020 upon the purchases and cancellation of 1,076,903 common shares. The purchases resulted in a decrease to common shares of $8,679 and a decrease to additional paid-in capital of $7,327 . This completed the NCIB with the maximum number of authorized common shares purchased.
c) Dividends
| Date declared | Per share | Shareholders on record as of | Paid or payable to shareholders | Total paid or payable | ||||||||||||||||||||||||||||
| Q1 2020 | February 18, 2020 | $ | March 5, 2020 | April 3, 2020 | $ | |||||||||||||||||||||||||||
| Q2 2020 | May 5, 2020 | $ | May 29, 2020 | July 3, 2020 | $ | |||||||||||||||||||||||||||
| Q3 2020 | July 28, 2020 | $ | August 31, 2020 | October 2, 2020 | $ | |||||||||||||||||||||||||||
| Q4 2020 | October 27, 2020 | $ | November 30, 2020 | January 8, 2021 | $ | |||||||||||||||||||||||||||
| Q1 2021 | February 16, 2021 | $ | March 4, 2021 | April 9, 2021 | $ | |||||||||||||||||||||||||||
| Q2 2021 | April 27, 2021 | $ | May 28, 2021 | July 9, 2021 | $ | |||||||||||||||||||||||||||
| Q3 2021 | July 27, 2021 | $ | August 31, 2021 | October 8, 2021 | $ | |||||||||||||||||||||||||||
| Q4 2021 | October 26, 2021 | $ | November 30, 2021 | January 7, 2022 | $ | |||||||||||||||||||||||||||
18. Interest expense, net
| Year ended December 31, | 2021 | 2020 | |||||||||
Note 22 | |||||||||||
| Credit Facility | $ | $ | |||||||||
| Convertible debentures | |||||||||||
| Finance lease obligations | |||||||||||
| Mortgage | |||||||||||
| Promissory notes | |||||||||||
| Financing obligations | |||||||||||
| Amortization of deferred financing costs | |||||||||||
| Other interest expense | |||||||||||
| Interest expense | $ | $ | |||||||||
| Other interest income | ( | ( | |||||||||
| $ | $ | ||||||||||
Consolidated Financial Statements December 31, 2021 | F - 31 | North American Construction Group Ltd. | ||||||
19. Stock-based compensation
Stock-based compensation expenses included in general and administrative expenses are as follows:
| Year ended December 31, | Note | 2021 | 2020 | ||||||||||||||
| Restricted share unit plan | 19(a) | $ | $ | ||||||||||||||
| Performance restricted share unit plan | 19(b) | ||||||||||||||||
| Deferred stock unit plan | 19(c) | ( | |||||||||||||||
| $ | $ | ||||||||||||||||
a) Restricted share unit plan
Restricted Share Units (“RSU”) are granted each year to executives and other key employees with respect to services to be provided in that year and the following two years . The majority of RSUs vest at the end of a three-year term. The Company settles RSUs with common shares purchased on the open market through a trust arrangement.
| Number of units | Weighted-average exercise price $ per share | |||||||||||||
| Outstanding at December 31, 2019 | ||||||||||||||
| Granted | ||||||||||||||
| Vested | ( | |||||||||||||
| Forfeited | ( | |||||||||||||
| Outstanding at December 31, 2020 | ||||||||||||||
| Granted | ||||||||||||||
| Vested | ( | |||||||||||||
| Forfeited | ( | |||||||||||||
| Outstanding at December 31, 2021 | ||||||||||||||
At December 31, 2021, there were approximately $4,339 of unrecognized compensation costs related to non-vested share-based payment arrangements under the RSU plan (December 31, 2020 – $3,290 ) and these costs are expected to be recognized over the weighted-average remaining contractual life of the RSUs of 1.4 years (December 31, 2020 – 1.6 years). During the year ended December 31, 2021, 220,116 units vested, which were settled with common shares purchased through a trust arrangement (December 31, 2020 - 269,484 units vested and settled).
b) Performance restricted share unit plan
Performance Restricted Share Units ("PSU") are granted each year to senior management employees with respect to services to be provided in that year and the following two years . The PSUs vest at the end of a three-year term and are subject to performance criteria approved by the Human Resources and Compensation Committee at the grant date. The Company settles PSUs with common shares purchased through a trust arrangement.
| Number of units | Weighted-average exercise price $ per share | |||||||||||||
| Outstanding at December 31, 2019 | ||||||||||||||
| Granted | ||||||||||||||
| Vested | ( | |||||||||||||
| Forfeited | ||||||||||||||
| Outstanding at December 31, 2020 | ||||||||||||||
| Granted | ||||||||||||||
| Vested | ( | |||||||||||||
| Outstanding at December 31, 2021 | ||||||||||||||
Consolidated Financial Statements December 31, 2021 | F - 32 | North American Construction Group Ltd. | ||||||
At December 31, 2021, there were approximately $3,702 of total unrecognized compensation costs related to non–vested share–based payment arrangements under the PSU plan (December 31, 2020 - $3,405 ) and these costs are expected to be recognized over the weighted-average remaining contractual life of the PSUs of 1.5 years (December 31, 2020 - 1.6 years). During the year ended December 31, 2021, 178,067 units vested, which were settled with common shares purchased through a trust arrangement at a factor of 2.0 common shares per PSU based on performance against grant date criteria (December 31, 2020 - 201,104 units at a factor of 2.0 vested and settled).
The Company estimated the fair value of the PSUs granted during the years ended December 31, 2021 and 2020 using a Monte Carlo simulation with the following assumptions:
| 2021 | 2020 | |||||||||||||
| Risk-free interest rate | % | % | ||||||||||||
| Expected volatility | % | % | ||||||||||||
c) Director's deferred stock unit plan
Prior to January 1, 2021, under the Company’s shareholding guidelines non-officer directors of the Company were required to receive at least 50% and up to 100% of their annual fixed remuneration in the form of DSUs, at their election. The shareholding guidelines were amended effective January 1, 2021 to require directors to take at least 60% of their annual fixed remuneration in the form of DSUs if they do not meet shareholding guidelines, and to take between 0% and 100% of their annual fixed remuneration in the form of DSUs if they do meet shareholding guidelines. In addition to directors, eligible executives can elect to receive up to 50 % of their annual short term incentive plan compensation in the form of DSUs.
The DSUs vest immediately upon issuance and are only redeemable upon departure, retirement or death of the participant. DSU holders that are not US taxpayers may elect to defer the redemption date until a date no later than December 1 of the calendar year following the year in which the departure, retirement or death occurred.
| Number of units | ||||||||
| Outstanding at December 31, 2019 | ||||||||
| Granted | ||||||||
| Redeemed | ( | |||||||
| Outstanding at December 31, 2020 | ||||||||
| Granted | ||||||||
| Redeemed | ( | |||||||
| Outstanding at December 31, 2021 | ||||||||
At December 31, 2021, the fair market value of these units was $18.78 per unit (December 31, 2020 – $12.42 per unit). At December 31, 2021, the current portion of DSU liabilities of $nil was included in accrued liabilities (December 31, 2020 - $1,728 ) and the long-term portion of DSU liabilities of $17,515 was included in other long-term obligations (December 31, 2020 - $10,761 ) in the Consolidated Balance Sheets. During the year ended December 31, 2021, there were 139,124 units redeemed and settled in cash for $2,300 (December 31, 2020 - 9,562 units were redeemed and settled in cash for $103 ). There is no unrecognized compensation expense related to the DSUs since these awards vest immediately upon issuance.
Consolidated Financial Statements December 31, 2021 | F - 33 | North American Construction Group Ltd. | ||||||
d) Share option plan
Effective November 17, 2021, the Company terminated 2004 Amended and Restated Share Option Plan, which became effective in 2006. Under this plan, directors, officers, employees and certain service providers to the Company were eligible to receive stock options to acquire voting common shares in the Company. Each stock option provided the right to acquire one common share in the Company and expired ten years from the grant date or on termination of employment. There were no issued or outstanding options as at the date of termination.
| Number of options | Weighted-average exercise price $ per share | |||||||||||||
| Outstanding at December 31, 2019 | ||||||||||||||
Exercised(i) | ( | |||||||||||||
| Forfeited or expired | ( | |||||||||||||
| Outstanding at December 31, 2020 | ||||||||||||||
Exercised(i) | ( | |||||||||||||
| Outstanding at December 31, 2021 | ||||||||||||||
(i) All stock options exercised resulted in new common shares being issued (note 17(a)).
Cash received from options exercised for the year ended December 31, 2021 was $519 (2020 - $537 ). For the year ended December 31, 2021, the total intrinsic value of options exercised, calculated as the market value at the exercise date less exercise price, multiplied by the number of units exercised, was $1,909 (December 31, 2020 - $535 ).
20. Other information
a) Supplemental cash flow information
| Year ended December 31, | 2021 | 2020 | ||||||||||||
Note 22 | ||||||||||||||
| Cash paid during the year for: | ||||||||||||||
| Interest | $ | $ | ||||||||||||
| Cash received during the year for: | ||||||||||||||
| Interest | ||||||||||||||
| Non-cash transactions: | ||||||||||||||
| Addition of property, plant and equipment by means of finance leases | ||||||||||||||
| Decrease to property, plant and equipment upon investment contribution to affiliates and joint ventures | ( | ( | ||||||||||||
| Increase in assets held for sale, offset by property, plant and equipment | ||||||||||||||
| Non-cash working capital exclusions: | ||||||||||||||
| Net decrease in accounts receivable relating to other adjustments to investments in affiliates and joint ventures | ( | |||||||||||||
| Net increase in inventory due to transfer from property, plant and equipment | ||||||||||||||
| Net decrease in accrued liabilities related to conversion of bonus compensation to deferred stock units | ||||||||||||||
| Net decrease (increase) in accrued liabilities related to the current portion of deferred stock unit liability | ( | |||||||||||||
| Net decrease (increase) in accrued liabilities related to dividend payable | ( | |||||||||||||
| Non-cash working capital transactions related to acquisition of DGI: (note 12) | ||||||||||||||
| Increase in accounts receivable | ||||||||||||||
| Increase in inventory | ||||||||||||||
| Increase in prepaid expenses | ||||||||||||||
| Increase in accounts payable | ( | |||||||||||||
| Increase in accrued liabilities | ( | |||||||||||||
Consolidated Financial Statements December 31, 2021 | F - 34 | North American Construction Group Ltd. | ||||||
b) Net change in non-cash working capital
The table below represents the cash (used in) provided by non-cash working capital:
| Year ended December 31, | 2021 | 2020 | ||||||||||||
Note 22 | ||||||||||||||
| Operating activities: | ||||||||||||||
| Accounts receivable | $ | ( | $ | |||||||||||
| Contract assets | ( | |||||||||||||
| Inventories | ( | |||||||||||||
| Contract costs | ( | ( | ||||||||||||
| Prepaid expenses and deposits | ( | ( | ||||||||||||
| Accounts payable | ( | |||||||||||||
| Accrued liabilities | ||||||||||||||
| Contract liabilities | ||||||||||||||
| $ | $ | ( | ||||||||||||
21. Contingencies
Consolidated Financial Statements December 31, 2021 | F - 35 | North American Construction Group Ltd. | ||||||
22. Change in significant accounting policy - Basis of presentation
The following tables summarize the effect of the change in accounting policy which updated the consolidation method of DNSS and MNALP from proportionate to equity method (note 2 (a)(i)).
Consolidated Balance Sheets at December 31, 2021 and 2020:
| December 31, 2021 | December 31, 2020 | ||||||||||||||||||||||||||||||||||
| (in thousands) | Without change | Adjustments | As reported | As originally reported | Adjustments | As reported | |||||||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||||||||||
| Current assets | ( | ( | |||||||||||||||||||||||||||||||||
| Non-current assets | ( | ||||||||||||||||||||||||||||||||||
| Total assets | $ | $ | ( | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Liabilities and shareholders' equity | |||||||||||||||||||||||||||||||||||
| Current liabilities | ( | ||||||||||||||||||||||||||||||||||
| Non-current liabilities | ( | ( | |||||||||||||||||||||||||||||||||
| ( | |||||||||||||||||||||||||||||||||||
| Shareholders' equity | |||||||||||||||||||||||||||||||||||
| Total liabilities and shareholders' equity | $ | $ | ( | $ | $ | $ | $ | ||||||||||||||||||||||||||||
Consolidated Statements of Operations and Comprehensive Income for December 31, 2021 and 2020:
| December 31, 2021 | December 31, 2020 | ||||||||||||||||||||||||||||||||||
| (in thousands) | Without change | Adjustments | As reported | As originally reported | Adjustments | As reported | |||||||||||||||||||||||||||||
| Revenue | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
| Gross profit | ( | ( | |||||||||||||||||||||||||||||||||
| Operating income | ( | ( | |||||||||||||||||||||||||||||||||
| Equity earnings in affiliates and joint ventures | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||
| Income before income taxes | |||||||||||||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||||||||||||
| Comprehensive income | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
Consolidated Statements of Cash Flows for December 31, 2021 and 2020:
| December 31, 2021 | December 30, 2020 | ||||||||||||||||||||||||||||||||||
| (in thousands) | Without change | Adjustments | As reported | As originally reported | Adjustments | As reported | |||||||||||||||||||||||||||||
| Operating activities | ( | ( | |||||||||||||||||||||||||||||||||
| Investing activities | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
| Financing activities | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
| Decrease in cash | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
| Effect of exchange rate on changes in cash and cash equivalents | |||||||||||||||||||||||||||||||||||
| Cash, beginning of period | ( | ( | |||||||||||||||||||||||||||||||||
| Cash, end of period | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
Consolidated Financial Statements December 31, 2021 | F - 36 | North American Construction Group Ltd. | ||||||