The Churchill Corporation Reports 2009 Financial Results
(TSX: CUQ)
Highlights
Fourth Quarter
--------------
- During the fourth quarter of 2009, Churchill secured $188.1 million of
new contract awards and performed $173.9 million of contract revenue
for a book-to-bill ratio of 1.1x
- Work-in-hand increased 39% year-over-year to $784.2 million and
backlog remained steady at $1.4 billion
- Q4 2009 contract income margin percentage was 14.2%
- Net earnings from continuing operations of $8.1 million ($0.46 per
share)
- Excellent financial position with cash and cash equivalents of
$184.4 million ($10.48 per share)
Year-Ended December 31, 2009
----------------------------
- Average contract income margin percentage was 15.3% during 2009,
compared to 12.3% in 2008
- EBITDA from continuing operations was $51.3 million in 2009 compared
to $56.2 million in 2008
- Net earnings of $34.8 million in 2009, compared to $36.4 million
in 2008
- Earnings per common share of $1.98 in 2009 ($1.94 on a diluted basis)
- Backlog remained at $1.4 billion year-over-year
- Working capital increased 37% to $107.3 million
- Return on average shareholders' equity was 28% for the 12 month
period ended December 31, 2009
- 168% total shareholder return during 2009, making Churchill one of
the best performing stocks on the TSX
- Book-to-bill ratio of 1.4x during 2009
CONSOLIDATED FINANCIAL HIGHLIGHTS
-------------------------------------------------------------------------
Three months ended
December 31, 2009
------------------------------------------------
($ millions, except $ %
per share amounts) 2009 2008 Change Change
-------------------------------------------------------------------------
Contract revenue $173.9 $185.0 (11.1) -6%
Contract income 24.7 27.7 (3.0) -11%
EBITDA(1) from continuing
operations 12.5 17.7 (5.2) -30%
Earnings from continuing
operations before tax 11.3 16.4 (5.1) -31%
Net earnings from
continuing operations 8.1 11.2 (3.1) -28%
EPS from continuing
operations - basic $0.46 $0.63 (0.17) -27%
Net earnings and
comprehensive income 7.7 11.2 (3.5) -31%
EPS - basic $0.44 $0.63 (0.19) -30%
Work-in-hand(2) 784.2 565.3 218.9 39%
Backlog(3) $1,388.6 $1,390.3 (1.7) 0%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Twelve months ended
December 31, 2009
------------------------------------------------
($ millions, except $ %
per share amounts) 2009 2008 Change Change
-------------------------------------------------------------------------
Contract revenue $601.2 $761.0 (159.8) -21%
Contract income 92.0 93.9 (1.9) -2%
EBITDA(1) from continuing
operations 51.3 56.2 (4.9) -9%
Earnings from continuing
operations before tax 46.6 51.6 (5.0) -10%
Net earnings from
continuing operations 33.5 35.6 (2.1) -6%
EPS from continuing
operations - basic $1.90 $1.98 (0.08) -4%
Net earnings and
comprehensive income 34.8 36.4 (1.6) -4%
EPS - basic $1.98 $2.03 (0.05) -2%
Work-in-hand(2) 784.2 565.3 218.9 39%
Backlog(3) $1,388.6 $1,390.3 (1.7) 0%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1)(2)(3) Refer to the "Terminology" section for further details.
CALGARY, March 12 /CNW/ - The Churchill Corporation announced today its results for the fourth quarter and the year-ended December 31, 2009.
For the year ended 2009, Churchill's contract revenue was $601.2 million, EBITDA from continuing operations was $51.3 million, and net earnings were $34.8 million ($1.98 per share). This compares to the prior year's contract revenue of $761.0 million, EBITDA from continuing operations of $56.2 million and net earnings of $36.4 million ($2.03 per share).
For the fourth quarter of 2009, contract revenue was $173.9 million compared to $185.0 million for the comparable quarter of 2008. This decrease reflects the reduced activity level within our electrical contracting segment on a year-over-year basis. Q4 2009 EBITDA from continuing operations was $12.5 million as compared to $17.7 million in Q4 2008. A $1.8 million increase in consolidated indirect and administrative expenses year-over-year, a $3.6 million reduction in contract income from our electrical segment as a result of the aforementioned lower activity levels and a lower contribution from other income resulted in the lower consolidated EBITDA. For the fourth quarter net earnings from continuing operations were $8.1 million ($0.46 per share) compared to $11.2 million ($0.63 per share).
"I am pleased with our results for 2009; particularly the strength of our balance sheet and delivering a total shareholder return of 168% in 2009," said Jim Houck, President and Chief Executive Officer, The Churchill Corporation. "In a year which started with considerable economic and market uncertainty, the business environment was more competitive on all fronts. The Corporation excelled on many levels, evidenced by securing $820.1 million of new awards and increasing our work-in-hand by 39% thus maintaining a strong backlog. Additionally, we relocated our corporate headquarters and two operating company head offices, strengthened our corporate governance and increased our strategic planning and corporate development capabilities. These results and actions were taken because the board and management team are committed to being aligned with our shareholders and increasing shareholder value."
FOURTH QUARTER OVERVIEW
In the fourth quarter of 2009, consolidated contract revenue was $173.9 million, slightly lower than the $185.0 million generated in the same period in 2008. This year-over-year decline was due to lower levels of industrial contracting activity in our industrial electrical operations.
Contract income decreased from $27.7 million in the fourth quarter of 2008 to $24.7 million in Q4 2009, as greater contract income margin derived from our building construction segment was offset by lower contract income in the industrial electrical segment.
Indirect and administrative expenses amounted to $12.4 million in the quarter, compared to $10.6 million in the comparable period of 2008. In early November, the board of directors approved the implementation of a deferred share unit ("DSU") plan for all employees and directors. Indirect and administrative costs increased as a result of DSU grants, additional stock option grants during the fourth quarter and increased compensation expenses as a result of the significant appreciation in the Corporation's stock price during 2009. These new incentive programs are more closely aligned with shareholder interests. Additionally costs increased due to personnel and professional fees associated with the Corporation's conversion to International Financial Reporting Standards ("IFRS") and the implementation of a new enterprise resource planning system ("SAP").
Earnings from continuing operations before interest, taxes, depreciation and amortization in the quarter were $12.5 million, compared to $17.7 million in Q4 2008.
Earnings from continuing operations before income taxes in Q4 2009 decreased to $11.3 million as compared to $16.4 million reported in Q4 2008. The decrease in earnings from continuing operations before tax was primarily due to the lower profitability derived from our industrial electrical segment ($2.3 million), increased expenses within the corporate and other segment ($1.6 million) and reduced earnings from our buildings segment ($0.9 million). Net earnings from continuing operations were $8.1 million in Q4 2009 compared to $11.2 million in Q4 2008.
New contract awards of $188.1 million were added to work-in-hand in the fourth quarter compared to $194.7 million in Q4 2008. Work-in-hand at December 31, 2009, was $784.2 million, compared to $565.3 million at December 31, 2008. The Corporation's backlog totalled $1.4 billion, in line with the fourth quarter of 2008.
At the end of December 2009, the Corporation's cash and cash equivalents increased to $184.4 million from $100.8 million at December 31, 2008; primarily reflecting the after-tax cash flows generated from operating activities, cash received from the divestiture of Triton and related assets, partially offset by cash used to repay long-term debt and finance the purchase of project equipment. After conducting a full review of the Corporation's bonding, credit facilities and working capital needs, management is of the view that approximately $100.0 to $120.0 million of its cash balance is surplus to its operational needs, and thus available to create incremental shareholder value.
RESULTS OF OPERATIONS
Buildings
For the three month period ended December 31, 2009, Stuart Olson's revenue was $137.5 million, compared to $134.2 million in the prior year. Increased activity from projects in construction, such as the Ft. St. John Hospital, Wal-Mart distribution centre and the new Edmonton Remand Centre contributed to this revenue increase.
Contract income in the fourth quarter of 2009 increased 3% to $19.5 million, from $19.0 million for the same period in 2008. The Q4 2009 contract income margin percentage remained constant at 14.2% compared to 14.1% in Q4 2008.
Earnings before tax from the buildings segment were $12.9 million in Q4 2009, compared to $13.9 million in Q4 2008. This decrease in pre-tax earnings was a result of increased indirect and administrative expense of $1.0 million year-over-year.
Stuart Olson had work-in-hand of $653.6 million and a backlog of $1.4 billion as at September 30, 2009. In the three months ended December 31, 2009, Stuart Olson secured $172.0 million of new contracts and executed $137.5 million of work. As at December 31, 2009, Stuart Olson's work-in-hand was $688.0 million, of which $204.0 million is expected to carry over into 2011. As a result of Stuart Olson's commitment to deliver value to its clients through regular review of project cost plans and changes associated with reduced labour and material costs resulting from the economic contraction; Stuart Olson's clients will benefit from savings amounting to $133.2 million in the future. This resulted in Stuart Olson reducing its active backlog by an equivalent amount during Q4 2009. As at December 31, 2009, Stuart Olson's backlog was $1.3 billion, comparable to its backlog at the conclusion of 2008.
Industrial Insulation Contracting
Revenue for the three months ended December 31, 2009, was $20.6 million, compared to $20.7 million generated in the same period of 2008.
Contract income in the fourth quarter of 2009 was $3.5 million compared to $3.6 million in the comparable period of 2008. The contract income margin percentage in Q4 2009 was 17.0%, in line with the 17.4% achieved in Q4 2008, demonstrating the consistency of IHI's project execution.
Earnings before tax were $1.8 million during the period ending December 31, 2009, compared to $2.1 million in the fourth quarter of 2008. Earnings before tax were reduced slightly by the lower contract income margin and a $0.1 million increase in indirect and administrative expenses year-over-year.
Industrial Insulation Contracting had work-in-hand of $71.5 million and a backlog of $75.8 million as at September 30, 2009. During Q4 2009, IHI secured new awards totalling $14.4 million and executed $20.6 million of contractual work. The insulation segment concluded the quarter with $65.3 million of work-in-hand, of which $5.8 million is expected to carry over into 2011. At December 31, 2009, IHI's backlog amounted to $69.0 million compared to $78.3 million at the end of the prior year.
Industrial Electrical Contracting
For the three months ended December 31, 2009, Laird's contract revenue was $15.9 million compared to $30.5 million reported in Q4 2008. This decrease in revenue was primarily due to a reduction in activity levels associated with several oil sands projects in the Fort McMurray area.
Contract income was $1.8 million in Q4 2009 compared to $5.4 million during the prior year. This decrease was due to lower activity levels. The contract income margin percentage was lower at 11.3% during the fourth quarter of 2009 compared to 17.6% in Q4 2008 mainly due to a more competitive bidding environment and the mix between maintenance and construction contracts under execution.
Laird reported earnings before tax of $0.6 million for the quarter, compared to earnings before tax of $2.9 million in Q4 2008. The impact of lower revenues in the period, was partially mitigated through close monitoring and control over Laird's indirect and administrative expenses, which decreased to $1.0 million compared to $2.2 million in Q4 2008.
Laird's reported Q3 2009 work-in-hand and backlog was $45.1 million. New contract awards of $1.8 million were secured in the fourth quarter of 2009 and $15.9 million of contract work was executed. Laird concluded the fourth quarter with $31.0 million of work-in-hand and $46.8 million of backlog. This compares to a backlog of $30.7 million at the end of 2008.
ANNUAL OVERVIEW
The effects of the economic downturn which began in 2008 continued throughout 2009 resulting in significant pressures in all areas of the economy.
For the year ended December 31, 2009, consolidated contract revenue was $601.2 million, compared to $761.0 million in 2008. Revenue decreased due to the cumulative effect of delays in project starts and tendering in our buildings segment in combination with lower levels of industrial contracting activity on a year-over-year basis in our industrial electrical operations.
Contract income was $92.0 million in 2009 compared to $93.9 million in 2008. Increases in contract income from our building construction segment and industrial insulation segments driven by higher operating margins, were offset by lower contract income in the industrial electrical segment resulting from lower volumes and operating margin. The consolidated contract income margin percentage during 2009 was 15.3% compared to 12.3% realized in 2008.
Indirect and administrative expenses amounted to $41.7 million in 2009, compared to $40.6 million in 2008. Managing our indirect and administrative costs was a key objective during 2009, and costs at every operating company were lower in 2009 than in 2008. Total indirect and administrative expenses rose due to increased costs within the Corporate and Other segment associated with compensation programs for executives and directors, increased administrative expenses and professional fees related to IFRS conversion and SAP implementation, one-time relocation costs and other expenses.
Earnings from continuing operations before interest, taxes, depreciation and amortization in 2009 were $51.3 million, compared to $56.2 million in 2008.
Earnings from continuing operations before tax in 2009 decreased to $46.6 million as compared to $51.6 million reported in 2008. Net earnings from continuing operations were $33.5 million in 2009 compared to $35.6 million in 2008. Net earnings during 2009, inclusive of gains from discontinued operations, were $34.8 million as compared to $36.4 million in 2008. The 2009 results are largely in line with the prior year, despite lower revenue, due to the greater profitability derived from our buildings and industrial insulation segments. The increase in earnings from Stuart Olson and Insulation Holdings were offset by a reduction in earnings from Laird and increased indirect and administrative expenses within the Corporate and Other segment.
New contract awards of $820.1 million were secured during 2009 compared to $657.4 million in 2008. Work-in-hand at December 31, 2009, was $784.2 million, compared to $565.3 million at December 31, 2008, setting the foundation for an increase in revenues in 2010. On a segmented basis, year-over-year work-in-hand increased $215.2 million in the buildings segment, $2.2 million in the insulation contracting segment and $1.7 million in the electrical contracting segment.
Churchill's total backlog as at December 31, 2009, including work-in-hand, was consistent at $1.4 billion comparable to the value at the end of 2008. Year-over-year backlog in our buildings segment remained level at $1.3 billion, the insulation contracting segment backlog decreased by $9.3 million and the industrial electrical contracting backlog increased by $16.1 million. The Corporation's backlog consists of work-in-hand of $784.2 million, active backlog of $504.4 million and delayed backlog of $100.0 million. Delayed backlog decreased as a result of the Shaw Building beginning construction and is now composed exclusively of the Lethbridge Hospital project. The Lethbridge hospital project was re-evaluated during the fourth quarter and the expected construction cost has escalated by $8.0 million. The project has been delayed as a result of funding and approval process challenges on a related parking structure being constructed by another general contractor. The City of Lethbridge and the Province of Alberta must resolve the parkade funding issue before construction of the hospital can proceed.
Discontinued Operations
In August 2009, the Corporation completed the sale of Triton and certain assets and liabilities of the Corporate and Other segment to an arm's length third party. Triton had performed poorly over a period of time and as a result management felt that there may be a more advantaged owner of the assets held-for-sale and that Churchill could more profitably deploy its resources and the proceeds from disposition into its other operating segments. Accordingly, the results of operations and cashflows for the assets held-for-sale have been accounted for on a discontinued basis for the current and prior periods.
Proceeds from the sale recognized in the financial statements were $19.0 million for Triton and certain assets and liabilities of the Corporate and Other segment sold to the purchaser. Of this amount, $3.0 million is in escrow as security for the indemnification provided to the purchaser as part of the sale. A gain on sale of $5.0 million was realized. The Corporation anticipates generating additional cash proceeds of $5.0 to $6.0 million (an estimated gain of $0.15 to $0.20 per share) from the sale of the remaining latent assets of Triton, which could be completed during 2010.
The following tables reflect our net earnings (loss) from discontinued operations relating to Triton and the assets held-for-sale for the periods ended December 31, 2009 and 2008. The 2009 figures reflect operations from January 1 to August 12, 2009, the completion date of the transaction.
Statements of Earnings
-------------------------------------------------------------------------
December 31, December 31,
($ thousands) 2009 2008
-------------------------------------------------------------------------
Revenue $ 27,954 $ 85,864
Contract income 1,308 6,273
-------------------------------------------------------------------------
Gain on sale of discontinued operations 4,965 -
Net earnings (loss) from discontinued
operations(1) (3,627) 852
-------------------------------------------------------------------------
Total net earnings $ 1,338 $ 852
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Net loss from continuing operations for the year ended December 31,
2009 includes income tax expense of $1,517 (2008 - $187 recovery)
RESULTS OF OPERATIONS IN THE YEAR
Buildings
For the year ended December 31, 2009, Stuart Olson's revenue was $483.8 million, compared to $569.0 million in the prior year. This decrease in revenue was a result of the cumulative impact of delayed project starts and tendering referred to in the Corporation's first quarter MD&A.
Contract income in 2009 increased 16% to $70.3 million, from $60.7 million for the same period in 2008. The 2009 contract income margin percentage was 14.5% compared to 10.7% in 2008. This margin increase was driven by the strength of the margins in Stuart Olson's backlog, strong project execution, own forces work and the ability to effectively manage construction costs.
Earnings before tax from the buildings segment were $49.0 million in 2009, compared to $40.8 million in 2008. This 20% improvement in pre-tax earnings was a result of increased profit margins across all branches, particularly in Northern Alberta.
Stuart Olson began the year with work-in-hand of $472.8 million and a backlog of $1.3 billion. During 2009, Stuart Olson secured $699.0 million of new contracts and executed $483.8 million of work. The company concluded the year with $688.0 million of work-in-hand and backlog amounted to $1.3 billion.
Stuart Olson continues to pursue project opportunities which fit its strategy, expertise and price for value proposition. Government spending intentions are high, but possibly at risk due to growing deficit projections. We anticipate that in this environment, governments may resort to alternative financing strategies such as Public-Private Partnerships ("P3") projects to finance their infrastructure spending until economic growth and budget surpluses resume. During 2009, Stuart Olson was selected as the preferred proponent and closed its first P3, the Fort St. John Hospital and Residential Care Facility. Stuart Olson has intentions to pursue additional P3 projects in the future. Additionally, during Q4 2009 Stuart Olson opened a new branch office in Saskatoon, Saskatchewan to take advantage of construction market opportunities in that region.
Industrial Insulation Contracting
Revenue for the year ended December 31, 2009 was $73.1 million and was in line with revenue of $73.7 million for the same period of 2008.
Contract income in 2009 was $14.6 million compared to $14.1 million for the comparable period in 2008. The contract income margin percentage increased in 2009 to 20.0% versus 19.1% in 2008 due to strong project execution.
Earnings before tax were a record $8.7 million for the year ended December 31, 2009, compared to $8.5 million in 2008. Strong project execution by the insulation companies on a variety of maintenance and shutdown contracts allowed Insulation Holdings to deliver record earnings during a period of reduced industrial activity.
Industrial Insulation Contracting began 2009 with work-in-hand of $63.1 million and a backlog of $78.3 million. During 2009, Insulation Holdings secured new awards totalling $75.3 million and executed $73.1 million of contractual work. The insulation segment ended the year with $65.3 million of work-in-hand, and backlog of $69.0 million.
With a strong backlog of projects, Insulation Holdings is positioned to perform favourably during 2010. However, owner requests for rate resets and increased competition for new work continue to apply downward pressure on contract income margins.
Industrial Electrical Contracting
For the year ended December 31, 2009, Laird's contract revenue was $44.3 million compared to $118.2 million reported in 2008. This decrease in revenue was due to a reduction in activity levels associated with several oil sands projects in the Fort McMurray area in 2009 and a reduction in plant turnaround activity in the year. Management believes that future activity levels should exceed the low revenues delivered in 2009. The increase in the year-end backlog from $30.7 million in 2008 to $46.8 million in 2009, reflects an improvement in commodity prices and the economic environment associated with Laird's oil and gas clients.
Contract income was $7.1 million in 2009 compared to $19.0 million during the prior year. This decrease was due to lower activity levels. The contract income margin percentage was 16.0% during 2009 compared to 16.1% in 2008 mainly due to consistent project execution, operational improvements and favourable resolution of project contingencies.
Laird reported earnings before tax of $1.7 million for the period, compared to earnings before tax of $10.5 million in 2008. Laird's initiatives to "right size" the organization for the anticipated reduced activity levels enabled the company to withstand a significant decrease in revenue. Laird was able to offset partially the impact of lower revenues during the year with strong project execution and control of its indirect and administrative expenses.
Laird began 2009 with work-in-hand and backlog of $29.3 and $30.7 million, respectively. New contract awards of $46.0 million were secured during 2009 and $44.3 million of contracts were executed. Laird concluded the year with $31.0 million of work-in-hand and $46.8 million of backlog.
Laird increased its focus on business development activities during 2009 which has resulted in the company securing new major turnaround and maintenance projects on its own, successfully partnering with Fuller Austin on projects and further establishing its presence in the Edmonton market place by securing maintenance and project work. Laird continues to target its strategic goal of geographic diversification by pursuing industrial opportunities in Saskatchewan and other areas.
Corporate and Other
During the third quarter of 2009, management received board approval to implement a new enterprise resource planning system. The SAP implementation has been budgeted at $9.5 million. The capital cost and the expenses associated with this implementation will be depreciated over subsequent reporting periods once the system is ready for use, expected to be late 2010.
In 2009, the Corporate and Other segment incurred a loss before tax of $12.8 million compared to a loss before tax of $8.1 million in 2008. The increase in 2009 Corporate and Other expenditures is attributable to indirect and administrative expenses associated primarily with implementation of a new incentive based compensation program more closely aligned with shareholder interests, stock based compensation expenses, increased professional fees, increased travel expenses and one-time office relocation costs. In addition, the increase in the year-over-year loss is partially attributable to significantly lower other income from a decline in interest income corresponding with the decline in prime rates.
CAPITAL RESOURCES AND LIQUIDITY
Cash and cash equivalents at December 31, 2009 totalled $184.4 million, which compares to $100.8 million at the end of 2008. Included in the cash and cash equivalents balance is $17.0 million which is held as security for the payment of direct costs related to specific construction projects in British Columbia, compared to $17.5 million at December 31, 2008.
Typically, maintenance activities on industrial projects ramp up during the spring and summer seasons, and the number of hourly workers utilized by the Corporation for construction and maintenance projects increases, and as a result, the Corporation's liquidity typically decreases. This usually occurs in the second and third quarters of a fiscal year. During the fourth quarter of a fiscal year, liquidity usually increases as a result of lower industrial activity levels and fewer working days during this time frame.
Cash flow provided from operating activities was $76.4 million, compared to $7.1 million of cash generated from operations during 2008. The change in cash provided from operations was primarily due to the changes in the working capital accounts year-over-year. The Corporation expects that its cash and cash equivalents balance will continue to grow during 2010 from the proceeds associated with the sale of its discontinued operations and earnings from its operations.
Investing activities resulted in a use of cash of $8.3 million during 2009, which compares with $7.1 million in 2008. The cash was invested in the acquisition of construction equipment for long term projects under contract ($5.1 million) and the design and implementation work associated with the SAP implementation ($3.4 million) which is anticipated to be ready for use in late 2010.
During 2009, cash used in financing activities amounted to $7.9 million compared to cash used in financing of $3.4 million in 2008. Financing activities in 2009 included $7.1 million in net repayments of long term debt, $1.0 million used to support acquisitions under the share repurchase program, offset by $0.2 million in proceeds from stock option exercises.
As at December 31, 2009, Churchill had working capital of $107.3 million, compared to working capital of $78.3 million at December 31, 2008.
Contractual Obligations(1)
($ millions)
-------------------------------------------------------------------------
Current 2-3 4-5 After
Total Year years years 5 years
Finance contracts and
capital lease obligations $0.8 $0.6 $0.2 $0.0 $0.0
-------------------------------------------------------------------------
Total contractual obligations $0.8 $0.6 $0.2 $0.0 $0.0
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) The above table represents scheduled debt repayments.
Scheduled debt repayments for 2010 are $0.6 million. The finance contracts and capital lease obligations are secured by construction and automotive equipment and are more fully described in Note 11 of the Notes to the Consolidated Financial Statements.
During 2010, the Corporation anticipates that it will require approximately $14.1 million to fund its capital expenditure plans. The capital budget consists of $9.0 million of replacement expenditures and $5.1 million of expansion related costs. These expenditures will largely be made in the areas of IT infrastructure ($6.9 million), construction equipment ($3.0 million), tenant improvements ($1.9 million) and vehicles ($1.8 million). This significant increase in capital expenditures year-over-year is associated with the Corporation's need to support the growth in size and scope of its operations and with the implementation of SAP as an enterprise resource planning system. All capital spending is being closely monitored by management.
Management believes that the Corporation has the capital resources and liquidity necessary to meet its commitments, support its operations, finance its capital expenditures and growth strategies. In addition to the Corporation's cash and cash equivalents, ability to generate cash from operations, and its $60.0 million credit facility, the Corporation believes that it has access to further debt and/or equity capital.
The Corporation is a partner in three joint ventures. In each instance the Corporation has provided a joint and several guarantee, increasing the maximum potential exposure to the full value of the work remaining under the contract. Public-Private Partnerships infrastructure projects may expose the Corporation to financial penalties and/or liquidated damages under the contract for project delays. P3 projects require security in the form of letters of credit to support the obligations that the Corporation undertakes on these projects.
Shareholders' equity was $141.5 million at December 31, 2009, as compared to $105.6 million at December 31, 2008. Retained earnings increased from $83.1 million at December 31, 2008 to $116.3 million at the conclusion of 2009, reflecting the addition of $34.8 million in net earnings from operations less $1.7 million for shares repurchased under the Normal Course Issuer Bid ("NCIB"). Contributed surplus increased by $1.8 million year-over-year, due to the exercise of stock options and share capital increased by $0.1 million during 2010.
Share Data
On October 15, 2008, the Corporation commenced a Normal Course Issuer Bid, under which it was entitled to purchase up to 1,391,090 common shares in a 12 month period. During 2009, the Corporation repurchased and cancelled 127,600 common shares at an average cost of $7.59 per share, and additionally cancelled 145,000 common shares repurchased in December 2008. The NCIB expired on October 14, 2009.
The Corporation has an Employee Share Purchase Plan (the "ESPP") available to all full-time employees. At December 31, 2009, 80% of eligible employees were participants in the ESPP. At December 31, 2009, the ESPP held 692,910 common shares for employees. Under the ESPP, common shares are acquired in the open market.
To further encourage director and employee share ownership, on November 3, 2009, the Corporation implemented a Deferred Share Unit plan available to directors and employees. The plan was implemented to move away from compensating directors in the form of options, however employees are also able to voluntarily participate in the DSU plan by allocating a percentage of their compensation to the purchase of DSU's.
As at March 11, 2010, the Corporation had 17,619,259 common shares issued and outstanding and 1,213,243 options convertible into common shares upon exercise (December 31, 2008 - 17,822,091 common shares and 519,660 options).
Stock-based Compensation
Stock-based compensation is a non-cash expense driven in part by the number, fair value and vesting rights of options granted. The stock-based compensation expense totalled $1.9 million and $1.1 million for the twelve months ended December 31, 2009 and 2008, respectively.
Other Compensation Expenses
The Corporation granted 32,934 DSU's to directors resulting in $0.7 million of stock-based compensation expenses recorded in the fourth quarter of 2009 (2008 - nil). The DSU's are structured under the current plan to be settled in cash, upon ceasing service with the Corporation.
During the year, the Corporation booked a compensation expense of $1.0 million compared to $0.1 million in 2008, for performance share units ("PSU's") granted to employees. The PSU's are structured under the current plan to be settled in cash, upon vesting.
OUTLOOK
In the industrial market, with a resurgence in commodity prices, and numerous project restarts and sanctioning announcements (e.g. Kearl, Firebag, Sunrise, Surmont, Jackfish 2, Christina Lake Phase 2), the outlook has brightened considerably for our industrial operations. However, we expect operators to take a balanced and measured approach to their development activities, to avoid acceleration in inflation and costs as experienced in prior years. In addition, 2010 is expected to have several major planned turnarounds which should provide opportunities for additional revenue. The expected increase in industrial activity in Alberta from oil sands projects and in Saskatchewan from mining, agriculture/fertilizer, chemical and refinery projects should bode well for strong results from Laird Electric and Insulation Holdings in 2010 and beyond.
In the non-residential building sector, macro-economic conditions are improving private sector opportunities and at the same time government infrastructure commitments continue unabated. While 2010-2011 will represent the peak spending period for federal stimulus funds, we believe that governments remain keenly aware of the need to remain focused on addressing infrastructure needs. We believe this will result in continued funding for healthcare, educational and municipal facilities over the longer-term. These are areas of strength for our Stuart Olson business and we believe that we can grow this business in a meaningful way over the next several years.
Overall, Churchill's backlog remains at near-record levels, client access to capital is improving, spending by the private sector is increasing and our substantial cash position provides us with significant flexibility to examine value creation opportunities. As a result, we are more encouraged by the possibilities than at anytime in the past year.
In 2010, the Corporation expects revenues to increase within all operating segments, while its contract margins are expected to decrease from the record levels achieved in 2008 and 2009. Nonetheless, profitability is expected to remain robust and close to recently attained levels.
CONSOLIDATED STATEMENTS OF EARNINGS, COMPREHENSIVE INCOME
AND RETAINED EARNINGS
($ thousands, except share and per share Year ended
amounts) December 31
------------------------------------------------------------ ------------
2009 2008
------------------------------------------------------------ ------------
Contract revenue $ 601,241 $ 760,953
Contract costs 509,290 667,074
------------------------------------------------------------ ------------
Contract income 91,951 93,879
Interest income 643 2,602
Sundry income 464 297
Indirect and administrative expenses (41,736) (40,592)
Depreciation and amortization (4,435) (4,089)
Interest expense (240) (491)
------------------------------------------------------------ ------------
Earnings from continuing operations before
income taxes 46,647 51,606
------------------------------------------------------------ ------------
Income tax (expense) recovery
Current income tax (22,758) (14,095)
Future income tax 9,590 (1,920)
------------------------------------------------------------ ------------
(13,168) (16,015)
------------------------------------------------------------ ------------
Net earnings from continuing operations and
comprehensive income 33,479 35,591
Net earnings from discontinued operations 1,338 852
------------------------------------------------------------ ------------
Net earnings and comprehensive income 34,817 36,443
Retained earnings, beginning of period 83,132 47,528
Adjustment arising from shares purchased
under a normal course issuer bid (1,670) (839)
------------------------------------------------------------ ------------
Retained earnings, end of period $ 116,279 $ 83,132
------------------------------------------------------------ ------------
------------------------------------------------------------ ------------
Net earnings per common share:
Basic from continuing operations $ 1.90 $ 1.98
Basic from discontinued operations $ 0.08 $ 0.05
------------------------------------------------------------ ------------
Basic net earnings per share $ 1.98 $ 2.03
------------------------------------------------------------ ------------
------------------------------------------------------------ ------------
Diluted from continuing operations $ 1.87 $ 1.96
Diluted from discontinued operations $ 0.07 $ 0.05
------------------------------------------------------------ ------------
Diluted net earnings per share $ 1.94 $ 2.01
------------------------------------------------------------ ------------
------------------------------------------------------------ ------------
Weighted average common shares:
Basic 17,620,454 17,928,037
------------------------------------------------------------ ------------
Diluted 17,935,551 18,109,979
------------------------------------------------------------ ------------
------------------------------------------------------------ ------------
CONSOLIDATED BALANCE SHEETS
($ thousands)
------------------------------------------------------------ ------------
December 31, December 31,
2009 2008
------------------------------------------------------------ ------------
ASSETS
Current Assets
Cash and cash equivalents $ 184,402 $ 100,768
Accounts receivable 116,592 119,248
Inventories and prepaid expenses 949 1,285
Costs in excess of billings 19,013 17,692
Income taxes recoverable 56 3,615
Future income tax assets 7,813 1,390
Current portion of long-term receivable 1,500 -
Assets held-for-sale - 24,528
------------------------------------------------------------ ------------
330,325 268,526
Restricted cash 2,642 -
Long-term receivable 1,500 -
Future income tax assets 2,486 568
Property and equipment 17,063 16,547
Assets held-for-sale 2,691 9,844
Goodwill and intangible assets 10,710 7,336
------------------------------------------------------------ ------------
$ 367,417 $ 302,821
------------------------------------------------------------ ------------
------------------------------------------------------------ ------------
LIABILITIES
Current Liabilities
Accounts payable and accrued liabilities $ 138,976 $ 134,194
Contract advances and unearned income 71,897 41,088
Income taxes payable 11,528 2,462
Future income tax liabilities - 3,177
Current portion of long-term debt 559 1,082
Liabilities related to assets held-for-sale - 8,220
------------------------------------------------------------ ------------
222,960 190,223
Long-term deferred warranty claims 2,642 -
Long-term debt 229 6,787
Liabilities related to assets held for sale - 34
Future income tax liabilities 79 204
------------------------------------------------------------ ------------
225,910 197,248
SHAREHOLDERS' EQUITY
Share capital 16,732 16,663
Shares repurchased under a normal course
issuer bid, not cancelled - (956)
Contributed surplus 8,496 6,734
Retained earnings 116,279 83,132
------------------------------------------------------------ ------------
141,507 105,573
------------------------------------------------------------ ------------
$ 367,417 $ 302,821
------------------------------------------------------------ ------------
------------------------------------------------------------ ------------
CONSOLIDATED STATEMENTS OF CASH FLOW
Year ended
($ thousands) December 31
------------------------------------------------------------ ------------
2009 2008
------------------------------------------------------------ ------------
OPERATING ACTIVITIES
Net earnings from continuing operations and
comprehensive income $ 33,479 $ 35,591
Depreciation and amortization 4,435 4,089
Gain on disposal of equipment (11) (34)
Stock-based compensation 1,929 1,109
Future income taxes (11,677) 1,920
------------------------------------------------------------ ------------
28,155 42,675
Change in non-cash balances relating to
operations 48,222 (35,546)
------------------------------------------------------------ ------------
76,377 7,129
------------------------------------------------------------ ------------
INVESTING ACTIVITIES
Proceeds on disposal of equipment 259 117
Additions to intangible assets (3,395) -
Additions to property and equipment (5,131) (7,246)
------------------------------------------------------------ ------------
(8,267) (7,129)
------------------------------------------------------------ ------------
FINANCING ACTIVITIES
Proceeds under operating line of credit - 9,000
Repayments under operating line of credit - (9,000)
Repayment of long-term debt (7,129) (1,722)
Share purchase under a normal course issuer bid (970) (1,944)
Issuance of common shares 158 287
------------------------------------------------------------ ------------
(7,941) (3,379)
------------------------------------------------------------ ------------
Cash provided by (used in) continuing operations 60,169 (3,379)
Cash provided by (used in) discontinued
operations 23,465 (3,958)
------------------------------------------------------------ ------------
Increase (decrease) in cash and cash
equivalents during the year $ 83,634 $ (7,337)
Cash and cash equivalents, beginning of year 100,768 108,105
------------------------------------------------------------ ------------
Cash and cash equivalents, end of year $ 184,402 $ 100,768
------------------------------------------------------------ ------------
------------------------------------------------------------ ------------
SUPPLEMENTAL CASH FLOW INFORMATION
------------------------------------------------------------ ------------
Cash received (paid) during the year for:
Interest $ 384 $ 1,773
Income taxes $ (10,023) $ (25,432)
------------------------------------------------------------ ------------
SELECTED FINANCIAL STATEMENT DISCLOSURE
Industrial Industrial Corporate
December 31, 2009 Buildings Insulation Electric and Other Total
-------------------------------------------------------------------------
Revenues $ 483,837 $ 73,100 $ 44,304 $ - $ 601,241
-------------------------------------------------------------------------
-------------------------------------------------------------------------
EBITDA(1) 51,289 9,082 2,777 (11,826) 51,322
Depreciation and
amortization 2,229 352 1,076 778 4,435
Interest expense 38 - 33 169 240
-------------------------------------------------------------------------
Earnings (loss)
before tax $ 49,022 $ 8,730 $ 1,668 $ (12,773) $ 46,647
Income taxes (13,168)
----------
Net earnings from
continuing
operations $ 33,479
----------
----------
Goodwill and
intangible assets $ - $ - $ 7,315 $ 3,395 $ 10,710
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Total Assets $ 268,778 $ 26,876 $ 23,578 $ 48,185 $ 367,417
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Capital
Expenditures $ 3,120 $ 927 $ 619 $ 3,860 $ 8,526
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Industrial Industrial Corporate
December 31, 2008 Buildings Insulation Electric and Other Total
-------------------------------------------------------------------------
Revenues $ 568,958 $ 73,748 $ 118,247 $ - $ 760,953
-------------------------------------------------------------------------
-------------------------------------------------------------------------
EBITDA(1) 42,827 8,711 11,595 (6,947) 56,186
Depreciation and
amortization 1,998 231 1,044 816 4,089
Interest expense 65 3 64 359 491
-------------------------------------------------------------------------
Earnings (loss)
before tax $ 40,764 $ 8,478 $ 10,487 $ (8,123) $ 51,606
Income taxes (16,015)
----------
Net earnings $ 35,591
----------
----------
Goodwill and
intangible assets $ - $ - $ 7,315 $ 21 $ 7,336
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Total Assets $ 183,539 $ 26,707 $ 36,348 $ 56,227 $ 302,821
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Capital
Expenditures $ 3,301 $ 376 $ 2,535 $ 1,034 $ 7,246
-------------------------------------------------------------------------
-------------------------------------------------------------------------
About The Churchill Corporation:
The Churchill Corporation provides building construction, industrial insulation and electrical contracting services throughout Western Canada. Churchill common shares are listed on the Toronto Stock Exchange under the symbol "CUQ".
TERMINOLOGY
Throughout this fourth quarter press release, management refers to certain terms when explaining its financial results that do not have any standardized meaning under Canadian GAAP as set out in the CICA Handbook. Specifically, the terms "contract income margin percentage", "work-in-hand", "backlog", "delayed backlog", "working capital", "EBITDA" and "book value per share" have been defined as: Contract income margin percentage is the percentage derived by dividing contract income by contract revenue. Contract income is calculated by deducting all associated direct and indirect costs from contract revenue in the period. Work-in-hand is the unexecuted portion of work that has been contractually awarded for construction to the Corporation. It includes an estimate of the revenue to be generated from maintenance contracts during the shorter of (a) twelve months, or (b) the remaining life of the contract.
Backlog means the total value of work including work-in-hand that has not yet been completed that: (a) is assessed by the Corporation as having high certainty of being performed by the Corporation or its subsidiaries by either the existence of a contract or work order specifying job scope, value and timing; or (b) has been awarded to the Corporation or its subsidiaries, as evidenced by an executed binding or non-binding letter of intent or agreement, describing the general job scope, value and timing of such work, and with the finalization of a formal contract respecting such work currently assessed by the Corporation as being reasonably assured. All projects within backlog are classified as active unless the Company has received written or verbal notification from the client that a job/project/contract has been delayed, at which point the backlog is classified as Delayed Backlog. The Corporation provides no assurance that additional clients will not choose to defer or cancel their projects in the future. There can be no assurance that the client will resume the project or that the delayed backlog will not be retendered. Jobs or projects subsequently retendered and not awarded to the Corporation or its subsidiaries would at that time be removed from the Corporation's backlog.
As at December 31, 2009
($ millions)
Work-in-hand Active Backlog Delayed Backlog Total Backlog
-------------------------------------------------------------------------
$784.2 $504.4 $100.0 $1,388.6
-------------------------------------------------------------------------
-------------------------------------------------------------------------
As at December 31, 2008
($ millions)
Work-in-hand Active Backlog Delayed Backlog Total Backlog
-------------------------------------------------------------------------
$565.3 $794.7 $30.3 $1,390.3
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Working capital is current assets less current liabilities. Our calculation of working capital is provided in the table below:
-------------------------------------------------------------------------
As at December 31, December 31,
($ millions) 2009 2008
-------------------------------------------------------------------------
Current assets $330.3 $268.5
Less:
Current liabilities 223.0 190.2
-------------------------------------------------------------------------
Working Capital $107.3 $78.3
-------------------------------------------------------------------------
-------------------------------------------------------------------------
EBITDA is a common financial measure widely used by investors to facilitate an "enterprise level" valuation of an entity. The Corporation follows the standardized definition of EBITDA. Standardized EBITDA represents an indication of the Corporation's capacity to generate income from operations before taking into account management's financing decisions and costs of consuming tangible and intangible capital assets, which vary according to their vintage, technological currency, and management's estimate of their useful life. Accordingly, standardized EBITDA comprises revenues less operating cost before interest expense, capital asset amortization and impairment charges, and income taxes. This measure as reported by the Corporation may not be comparable to similar measures presented by other reporting issuers. The following is a reconciliation of net earnings to EBITDA from continuing operations for each of the periods presented in this MD&A in accordance with GAAP.
-------------------------------------------------------------------------
Three months ended Twelve months ended
($ millions) Dec 31 Dec 31
---------------------- -----------------------
2009 2008 2009 2008
-------------------------------------------------------------------------
Net Earnings from
continuing operations $8.1 $11.2 $33.5 $35.6
Add:
Income Taxes 3.2 5.2 13.2 16.0
Depreciation &
Amortization 1.1 1.1 4.4 4.1
Interest expense 0.1 0.2 0.2 0.5
-------------------------------------------------------------------------
EBITDA from continuing
operations $12.5 $17.7 $51.3 $56.2
-------------------------------------------------------------------------
-------------------------------------------------------------------------
FORWARD LOOKING STATEMENTS
Certain statements in this Fourth Quarter and Year End Press Release may constitute "forward-looking statements". Forward-looking statements include, without limitation, statements regarding the future financial position, business strategy, budgets, litigation, projected costs, capital expenditures, financial results, taxes, plans and objectives of the Corporation. Many of these statements can be identified by looking for words such as: "believes," "expects," "may," "will," "intends," "anticipates," "estimates," "continues," or the negative thereof, or other variations thereon. Although management of Churchill believes its expectations regarding future performance of the Corporation are based on reasonable assumptions and currently available competitive, financial and economic data, market conditions and operating plans, it can give no assurance its expectations will be achieved. The Corporation cautions that, by their nature, forward-looking statements, involve risks, and uncertainties and that its actual actions, and/or results could differ materially from those expressed or implied in such forward-looking statements, and that the aforementioned risks, uncertainties and actions could affect the extent to which a particular projection materializes. The Corporation assumes no obligation to update the forward-looking statements should circumstances or the Corporation's management's estimates or opinions change.
%SEDAR: 00003704E
For further information: James C. Houck, B.Sc., MBA, President & Chief Executive Officer, The Churchill Corporation, (403) 685-7777, www.churchillcorporation.com; or Andrew Apedoe, Vice President Investor Relations & Secretary, The Churchill Corporation, (403) 685-7775, Email: [email protected], www.churchillcorporation.com
Share this article