10-Q 1 oisasc20140930_10q.htm FORM 10-Q oisasc20140930_10q.htm

 

UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

[X]

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

    For the quarterly period ended September 30, 2014

 

OR

 

[  ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

     
   

For the transition period from _________________________ to                                                          

 

Commission file number: 001-36246

 

Civeo Corporation

_______________

(Exact name of registrant as specified in its charter)

 

Delaware

46-3831207

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

   

Three Allen Center, 333 Clay Street, Suite 4980,

77002

Houston, Texas

(Zip Code)

(Address of principal executive offices)

 

 

(713) 510-2400


(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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.

                  YES [X]

NO [  ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).

                  YES [X]

NO [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "accelerated filer," "large accelerated filer" and "smaller reporting company in Rule 12b-2 of the Exchange Act.

(Check one):

 

Large Accelerated Filer [  ]

Accelerated Filer [  ]

   

Non-Accelerated Filer [X] (Do not check if a smaller reporting company)

Smaller Reporting Company [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

                  YES [  ]

NO [X]

 

The Registrant had 106,733,659 shares of common stock outstanding as of November 4, 2014.

 

 

 

 

CIVEO CORPORATION

 

INDEX

 

 

Page No.

Part I -- FINANCIAL INFORMATION

 
   

Item 1. Financial Statements:

 
   

Consolidated Financial Statements

 

Unaudited Consolidated Statements of Income for the Three and Nine Month Periods

 

Ended September 30, 2014 and 2013 

3

Unaudited Consolidated Statements of Comprehensive Income for the Three and Nine Month

 

Periods Ended September 30, 2014 and 2013

4

 Consolidated Balance Sheets – September 30, 2014 (unaudited) and December 31, 2013

5

 Unaudited Consolidated Statements of Changes in Stockholders’ Equity / Net Investment for the Nine

 

Months Ended September 30, 2014 and 2013

6

Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended

 

September 30, 2014 and 2013 

7

Notes to Unaudited Consolidated Financial Statements

8 – 19

   

Cautionary Statement Regarding Forward-Looking Statements

20

   

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

20–36

   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

37

   

Item 4. Controls and Procedures

37

   

Part II -- OTHER INFORMATION

 
   

Item 1. Legal Proceedings

38

   

Item 1A. Risk Factors

38

   

Item 6. Exhibits

39

   

(a) Index of Exhibits

39

   

Signature Page

40

 

 
2

 

 

PART I – FINANCIAL INFORMATION

 

ITEM 1. Financial Statements

 

CIVEO CORPORATION

 

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

(In Thousands, Except Per Share Amounts)

 

   

THREE MONTHS ENDED

   

NINE MONTHS ENDED

 
   

SEPTEMBER 30,

   

SEPTEMBER 30,

 
   

2014

   

2013

   

2014

   

2013

 

Revenues:

                               

Service and other

  $ 233,314     $ 239,322     $ 696,154     $ 765,602  

Product

    9,951       5,777       27,043       17,025  
      243,265       245,099       723,197       782,627  

Costs and expenses:

                               

Service and other costs

    126,998       126,972       389,486       401,668  

Product costs

    10,103       5,154       24,430       13,500  

Selling, general and administrative expenses

    13,216       17,212       51,069       50,377  

Spin-off and formation costs

    1,028       --       3,497       --  

Depreciation and amortization expense

    45,758       42,011       127,770       124,510  

Impairment expense

    --       --       11,610       --  

Other operating expense (income)

    165       366       252       (3,205 )
      197,268       191,715       608,114       586,850  

Operating income

    45,997       53,384       115,083       195,777  
                                 

Interest expense to affiliates

    --       (4,563 )     (6,980 )     (13,857 )

Interest expense to third-parties, net of capitalized interest

    (5,335 )     (992 )     (8,445 )     (4,962 )

Loss on extinguishment of debt

    --       --       (3,455 )     (1,207 )

Interest income

    1,048       347       2,841       1,248  

Other income

    64       3,236       1,011       3,838  

Income before income taxes

    41,774       51,412       100,055       180,837  

Income tax provision

    (9,011 )     (11,418 )     (16,411 )     (43,350 )

Net income

    32,763       39,994       83,644       137,487  

Less: Net income attributable to noncontrolling interest

    360       353       1,053       1,064  

Net income attributable to Civeo Corporation.

  $ 32,403     $ 39,641     $ 82,591     $ 136,423  
                                 
                                 

Per Share Data (see Note 5)

                               

Basic net income per share attributable to Civeo Corporation common stockholders

  $ 0.30     $ 0.37     $ 0.77     $ 1.28  
                                 

Diluted net income per share attributable to Civeo Corporation common stockholders

  $ 0.30     $ 0.37     $ 0.77     $ 1.28  
                                 

Weighted average number of common shares outstanding:

                               

Basic

    106,311       106,293       106,300       106,293  

Diluted.

    106,495       106,460       106,474       106,460  
                                 

Dividends per common share

  $ 0.13       --     $ 0.13       --  

 

 

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

 

 
3

 

 

CIVEO CORPORATION

 

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In Thousands)

  

   

THREE MONTHS ENDED

   

NINE MONTHS ENDED

 
   

SEPTEMBER 30,

   

SEPTEMBER 30,

 
   

2014

   

2013

   

2014

   

2013

 
                                 

Net income

  $ 32,763     $ 39,994     $ 83,644     $ 137,487  
                                 

Other comprehensive income (loss):

                               

Foreign currency translation adjustment

    (112,956 )     27,125       (58,816 )     (110,894 )

Total other comprehensive income (loss)

    (112,956 )     27,125       (58,816 )     (110,894 )
                                 

Comprehensive income (loss)

    (80,193 )     67,119       24,828       26,593  

Comprehensive (income) loss attributable to noncontrolling interest

    (259 )     (391 )     (950 )     (1,023 )

Comprehensive income (loss) attributable to Civeo Corporation

  $ (80,452 )   $ 66,728     $ 23,878     $ 25,570  

 

 

 

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

 

 
4

 

 

CIVEO CORPORATION

 

CONSOLIDATED BALANCE SHEETS

(In Thousands)

 

   

SEPTEMBER 30,

     

DECEMBER 31,

 
   

2014

     

2013

 
   

(UNAUDITED)

           
ASSETS                  
                   

Current assets:

                 

Cash and cash equivalents

  $ 241,814       $ 224,128  

Accounts receivable, net

    203,331         177,845  

Inventories

    14,896         29,815  

Prepaid expenses and other current assets

    29,313         7,956  

Total current assets

    489,354         439,744  
                   

Property, plant and equipment, net

    1,364,918         1,325,867  

Goodwill, net

    255,283         261,056  

Other intangible assets, net

    59,589         75,675  

Other noncurrent assets

    18,975         20,895  

Total assets

  $ 2,188,119       $ 2,123,237  
                   

LIABILITIES AND STOCKHOLDERS’ EQUITY / NET INVESTMENT

                 
                   

Current liabilities:

                 

Accounts payable

  $ 50,272       $ 45,376  

Accrued liabilities

    22,884         26,874  

Income taxes

    24         2,761  

Current portion of long-term debt

    9,687         --  

Deferred revenue

    24,150         19,571  

Other current liabilities

    2,389         2,470  

Total current liabilities

    109,406         97,052  
                   

Long-term debt to affiliates

    --         335,171  

Long-term debt, less current maturities

    765,313         --  

Deferred income taxes

    63,753         79,739  

Other noncurrent liabilities

    25,248         18,530  

Total liabilities

    963,720         530,492  
                   

Stockholders’ Equity / Net investment:

                 

Common stock ($0.01 par value, 550,000,000 shares authorized, 106,709,689 shares and zero shares both issued and outstanding, respectively)

    1,067         --  

Additional paid-in capital

    1,312,823  

 

    --  

Retained earnings

    27,017         --  

Oil States International, Inc. net investment

    --         1,651,013  

Accumulated other comprehensive loss

    (118,692 )       (59,979 )

Total Civeo Corporation stockholders’ equity / Oil States International, Inc. net investment

    1,222,215         1,591,034  

Noncontrolling interest

    2,184         1,711  

Total stockholders’ equity / net investment

    1,224,399         1,592,745  

Total liabilities and stockholders’ equity / net investment

  $ 2,188,119       $ 2,123,237  

 

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

 

 
5

 

 

CIVEO CORPORATION

 

UNAUDITED CONSOLIDATED STATEMENTS OF

CHANGES IN STOCKHOLDERS’ EQUITY / NET INVESTMENT

(In Thousands)

 

   

Attributable to Civeo

                 
   

Common Stock

                                         
   

Par Value

   

Additional Paid-in Capital

   

Retained Earnings

   

Oil States Net Investment

   

Accumulated Other Comprehensive Income (Loss)

   

Noncontrolling Interest

   

Total Stockholders’ Equity / Net Investment

 
                                                         

Balance, December 31, 2012

  $ --     $ --     $ --     $ 1,302,664     $ 107,733     $ 1,248     $ 1,411,645  

Net income

                            136,423               1,064       137,487  

Currency translation adjustment.

                                    (110,853 )     (41 )     (110,894 )

Dividends paid

                                            (881 )     (881 )

Net transfers from Oil States International, Inc.

                            105,971                       105,971  

Balance, September 30, 2013

  $ --     $ --       --     $ 1,545,058     $ (3,120 )   $ 1,390     $ 1,543,328  
                                                         
                                                         

Balance, December 31, 2013

  $ --     $ --     $ --     $ 1,651,013     $ (59,979 )   $ 1,711     $ 1,592,745  

Net income

                    40,910       41,681               1,053       83,644  

Currency translation adjustment.

                                    (58,713 )     (103 )     (58,816 )

Dividends paid

                    (13,893 )                     (477 )     (14,370 )

Net transfers from Oil States International, Inc

                            369,219                       369,219  

Distribution to Oil States International, Inc.

                            (750,000 )                     (750,000 )

Reclassification of Oil States International, Inc. Net Investment to Additional Paid-in Capital

            1,311,913               (1,311,913 )                     --  

Issuance of common stock at the Spin-Off

    1,066       (1,066 )                                     --  

Stock-based compensation.

    1       1,976                                       1,977  

Balance, September 30, 2014

  $ 1,067     $ 1,312,823     $ 27,017     $ --     $ (118,692 )   $ 2,184     $ 1,224,399  

 

           
   

Shares in Thousands

   
   

Common Stock

   

Balance, December 31, 2013

    --    

Issuance of common stock at the Spin-Off

    106,538    

Stock-based compensation.

    172    

Balance, September 30, 2014

    106,710    

 

 

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

 

 
6

 

  

CIVEO CORPORATION

 

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

 

   

NINE MONTHS ENDED

 
   

SEPTEMBER 30,

 
   

2014

   

2013

 
                 

Cash flows from operating activities:

               

Net income

  $ 83,644     $ 137,487  

Adjustments to reconcile net income to net cash provided by operating activities:

               

Depreciation and amortization

    127,770       124,510  

Impairment charges

    11,610       --  

Loss on extinguishment of debt

    3,455       1,207  

Deferred income tax provision (benefit)

    (1,989 )     11,388  

Non-cash compensation charge

    5,892       4,857  

Gains on disposals of assets

    (776 )     (2,574 )

Provision for loss on receivables, net of recoveries

    (1,196 )     1,081  

Fair value adjustment of contingent consideration

    --       (4,014 )

Other, net

    2,687       112  

Changes in operating assets and liabilities:

               

Accounts receivable

    (32,119 )     17,459  

Inventories

    13,897       (5,036 )

Accounts payable and accrued liabilities

    10,957       (14,609 )

Taxes payable

    (17,340 )     (20,583 )

Other current assets and liabilities, net

    1,773       12,560  

Net cash flows provided by operating activities

    208,265       263,845  
                 

Cash flows from investing activities:

               

Capital expenditures, including capitalized interest

    (208,297 )     (234,794 )

Proceeds from disposition of property, plant and equipment

    1,607       6,413  

Net cash flows used in investing activities

    (206,690 )     (228,381 )
                 

Cash flows from financing activities:

               

Revolving credit borrowings and (repayments), net

    --       (47,901 )

Term loan borrowings

    775,000       --  

Debt issuance costs

    (9,460 )     --  

Term loan repayments

    --       (82,762 )

Dividends paid

    (13,893 )     --  

Distributions to Oil States

    (750,000 )     --  

Contributions from Oil States

    28,257       103,628  

Net cash flows provided by (used in) financing activities

    29,904       (27,035 )
                 

Effect of exchange rate changes on cash

    (13,793 )     (12,664 )

Net change in cash and cash equivalents

    17,686       (4,235 )

Cash and cash equivalents, beginning of period

    224,128       161,396  
                 

Cash and cash equivalents, end of period

  $ 241,814     $ 157,161  

 

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

 

 
7

 

 

CIVEO CORPORATION

 

NOTES TO UNAUDITED CONSOLIDATED

FINANCIAL STATEMENTS

 

1.

SPIN-OFF, DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

 

Spin-off

 

On May 5, 2014, the Oil States International, Inc. (Oil States) board of directors approved the separation of its Accommodations Segment (Accommodations) into a standalone, publicly traded company, Civeo Corporation (Civeo). In accordance with the Separation and Distribution Agreement, the two companies were separated by Oil States distributing to its stockholders all 106,538,044 shares of common stock of Civeo it held after the market closed on May 30, 2014 (the Spin-Off). Each Oil States stockholder received two shares of Civeo common stock for every one share of Oil States stock held at the close of business on the record date of May 21, 2014. In conjunction with the separation, Oil States received a private letter ruling from the Internal Revenue Service to the effect that, based on certain facts, assumptions, representations and undertakings set forth in the ruling, for U.S. federal income tax purposes, the distribution of Civeo common stock was not taxable to Oil States or U.S. holders of Oil States common stock. Following the separation, Oil States retained no ownership interest in Civeo, and each company now has separate public ownership, boards of directors and management. A registration statement on Form 10, as amended through the time of its effectiveness, describing the separation was filed by Civeo with the U.S. Securities and Exchange Commission (SEC) and was declared effective on May 8, 2014 (the Form 10). On June 2, 2014, Civeo stock began trading the “regular-way” on the New York Stock Exchange under the “CVEO” stock symbol. Pursuant to the Separation and Distribution Agreement with Oil States, on May 28, 2014, we made a special cash distribution to Oil States of $750 million.

 

In connection with the Spin-Off, on May 28, 2014, we entered into a $650.0 million, 5-year revolving credit facility and a 5-year U.S. term loan facility totaling $775.0 million. For further discussion, see Note 7 – Debt.

 

As a result of the Spin-Off, we incurred certain costs in the three month and nine month periods ended September 30, 2014. We recognized a loss on the termination of debt of approximately $3.5 million, in the nine month period ended September 30, 2014, related to unamortized debt issuance costs, which is included in Loss on extinguishment of debt on the accompanying unaudited consolidated statements of income. We recorded transition and formation costs associated with the Spin-Off of approximately $1.0 million and $3.5 million for the three month and nine month periods ended September 30, 2014, respectively, which are included in Spin-off and formation costs on the accompanying unaudited consolidated statements of income. In the second quarter 2014, we recognized a $9.0 million impairment of an intangible asset in Australia, which is included in Impairment expense on the accompanying unaudited consolidated statements of income. Due to the Spin-Off, and the resulting rebranding of our Australian operations from The MAC to Civeo, it was determined that the fair value of an intangible asset associated with The MAC brand had been reduced to nil. Additionally, in the second quarter 2014, we recognized an impairment totaling $2.6 million on assets that are in the custody of a non-paying client in Mexico and for which the return or reimbursement is uncertain.

 

Redomiciling to Canada

 

On September 29, 2014, we announced our plan to redomicile the Company to Canada. We expect to execute a “self-directed redomiciling” of the Company as permitted under the U.S. Internal Revenue Code. U.S. federal income tax laws permit a company to change its domicile to a foreign jurisdiction without corporate-level U.S. federal income taxes provided that such company has “substantial business activity” in the relevant jurisdiction. “Substantial business activity” is defined as foreign operations consisting of over 25% of the company’s total (i) revenues, (ii) assets, (iii) employees and (iv) employee compensation. With approximately 50% or more of our operations in Canada based on these metrics, we believe we will qualify for a self-directed redomiciling. We expect to complete the migration in the second or third quarter of 2015. There is no assurance that we will be able to complete the migration in a timely manner or at all, and if completed, we may not achieve the expected benefits. 

 

Description of the Business

 

We are one of North America’s and Australia’s largest integrated providers of accommodations services for people working in remote locations. Our scalable modular facilities provide long-term and temporary work force accommodations where traditional infrastructure is insufficient, inaccessible or not cost effective. Once facilities are deployed in the field, we also provide catering and food services, housekeeping, laundry, facility management, water and wastewater treatment, power generation, communications and redeployment logistics. Our accommodations support workforces in the Canadian oil sands and in a variety of oil and natural gas drilling, mining and related natural resource applications as well as disaster relief efforts, primarily in Canada, Australia and the United States. We operate in three principal reportable business segments – Canadian, Australian and U.S.

 

 
8

 

 

CIVEO CORPORATION

 

NOTES TO UNAUDITED CONSOLIDATED

FINANCIAL STATEMENTS

(continued)

 

Basis of Presentation

 

Prior to the Spin-Off, our financial position, results of operations and cash flows consisted of the Oil States’ Accommodations business and an allocable portion of its corporate costs, which represented a combined reporting entity. The combined financial statements for periods prior to the Spin-Off have been prepared on a stand-alone basis and are derived from the consolidated financial statements and accounting records of Oil States. The combined financial statements reflect our historical financial position, results of operations and cash flows as we were historically managed, in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP). The combined financial statements include certain assets and liabilities that have historically been held at the Oil States corporate level, but are specifically identifiable or otherwise attributable to us.

 

All financial information presented after the Spin-Off represents the consolidated results of operations, financial position and cash flows of Civeo. Accordingly:

 

 

Our consolidated statements of income and comprehensive income for the three months ended September 30, 2014 consist entirely of the consolidated results of Civeo. Our consolidated statements of income and comprehensive income for the nine months ended September 30, 2014 consist of (i) the combined results of the Oil States’ Accommodations business for the five months ended May 30, 2014 and (ii) the consolidated results of Civeo for the four months ended September 30, 2014. Our consolidated statements of income and comprehensive income for the three and nine months ended September 30, 2013 consist entirely of the combined results of the Oil States’ Accommodations business.

 

 

Our consolidated balance sheet at September 30, 2014 consists of the consolidated balances of Civeo, while at December 31, 2013, it consists entirely of the combined balances of the Oil States’ Accommodations business.

 

 

Our consolidated statements of cash flows and changes in stockholders’ equity / net investment for the nine months ended September 30, 2014 consist of (i) the combined results of the Oil States’ Accommodations business for the five months ended May 30, 2014 and (ii) the consolidated results of Civeo for the four months ended September 30, 2014. Our consolidated statements of cash flows and changes in stockholders’ equity / net investment for the nine months ended September 30, 2013 consist entirely of the combined results of the Oil States’ Accommodations business.

 

The assets and liabilities in our consolidated financial statements have been reflected on a historical basis, as immediately prior to the Spin-Off all of the assets and liabilities presented were wholly owned by Oil States and were transferred within the Oil States consolidated group. All intercompany transactions and accounts have been eliminated. All affiliate transactions between Civeo and Oil States have been included in these consolidated financial statements.

 

Unless otherwise stated or the context otherwise indicates, all references in these consolidated financial statements to “Civeo,” “the Company,” “us,” “our” or “we” for the time period prior to the separation mean the Accommodations business of Oil States. For time periods after the separation, these terms refer to the legal entity Civeo Corporation and its consolidated subsidiaries.

 

 
9

 

 

CIVEO CORPORATION

 

NOTES TO UNAUDITED CONSOLIDATED

FINANCIAL STATEMENTS

(continued)

 

The consolidated financial statements for periods prior to the Spin-Off included expense allocations for: (1) certain corporate functions historically provided by Oil States, including, but not limited to finance, legal, risk management, tax, treasury, information technology, human resources, and certain other shared services; (2) certain employee benefits and incentives; and (3) equity-based compensation. These expenses were allocated to us on the basis of direct usage when identifiable, with the remainder allocated based on estimated time spent by Oil States personnel, a pro-rata basis of headcount or other relevant measures of Oil States and its subsidiaries. We consider the basis on which the expenses were allocated to be a reasonable reflection of the utilization of services provided to or the benefit received by us during the periods presented. The allocations may not, however, reflect the expense we would have incurred as an independent, publicly traded company for the periods presented. Actual costs that may have been incurred if we had been a stand-alone company would depend on a number of factors, including the chosen organizational structure, which functions were outsourced or performed by employees and strategic decisions made in areas such as information technology and infrastructure. Following the Spin-Off, Civeo is performing these functions using its own resources or purchased services. For an interim period, however, some of these functions will continue to be provided by Oil States under a Transition Services Agreement, which extends for a period of up to nine months from the date of the Spin-Off, depending on the service being provided. See Note 13 – Related Party Transactions.

 

Oil States uses a centralized approach to the cash management and financing of its U.S. operations. Prior to February 2014, cash from our U.S. operations was transferred to Oil States daily and Oil States funded our U.S. operating and investing activities as needed. Accordingly, the cash and cash equivalents held by Oil States at the corporate level were not allocated to us for any of the periods presented prior to February 2014. We reflected the transfer of cash to and from Oil States as a component of “Net Investment of Oil States International, Inc.” on our consolidated balance sheet. We have not included interest expense for intercompany cash advances from Oil States, since historically Oil States has not allocated interest expense related to intercompany advances to any of its businesses. Beginning in February 2014, we established Civeo cash accounts and funded a portion of our U.S. operating and investing activities.

 

The accompanying unaudited consolidated financial statements of Civeo have been prepared pursuant to the rules and regulations of the SEC pertaining to interim financial information. Certain information in footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP has been condensed or omitted pursuant to these rules and regulations. The unaudited financial statements included in this report reflect all the adjustments, consisting of normal recurring adjustments, which we consider necessary for a fair presentation of the results of operations for the interim periods covered and for our financial condition at the date of the interim balance sheet. Results for the interim periods are not necessarily indicative of results for the full year. Certain reclassifications have been made to the December 31, 2013 consolidated balance sheet to conform to current year presentation.

 

The preparation of consolidated financial statements in conformity with U.S. GAAP requires the use of estimates and assumptions by management in determining the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. If the underlying estimates and assumptions, upon which the financial statements are based, change in future periods, actual amounts may differ from those included in the accompanying consolidated financial statements.

 

The financial statements included in this report should be read in conjunction with the audited financial statements and accompanying notes for the year ended December 31, 2013 included in our Form 10.

 

2.

RECENT ACCOUNTING PRONOUNCEMENTS

 

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (the FASB), which are adopted by us as of the specified effective date. Unless otherwise discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on our consolidated financial statements upon adoption.

 

 
10

 

 

CIVEO CORPORATION

 

NOTES TO UNAUDITED CONSOLIDATED

FINANCIAL STATEMENTS

(continued)

 

In May 2014, the FASB issued guidance on revenue from contracts with customers that will supersede most current revenue recognition guidance, including industry-specific guidance. The underlying principle is that an entity will recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services. The guidance provides a five-step analysis of transactions to determine when and how revenue is recognized. Other major provisions include capitalization of certain contract costs, consideration of time value of money in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. The guidance also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. The guidance is effective for the interim and annual periods beginning on or after December 15, 2016 (early adoption is not permitted). The guidance permits the use of either a retrospective or cumulative effect transition method. We have not yet selected a transition method and are currently evaluating the impact of the amended guidance on our consolidated financial position, results of operations and related disclosures.

 

3.

FAIR VALUE MEASUREMENTS

 

Our financial instruments consist of cash and cash equivalents, receivables, payables and debt instruments. We believe that the carrying values of these instruments, other than our long-term debt to affiliates, on the accompanying consolidated balance sheets approximate their fair values.

 

The fair value of our long-term debt to affiliates is estimated based on analysis of similar instruments (Level 2 fair value measurements). The carrying value and fair value of this debt are as follows for the period indicated (in thousands):

 

   

December 31, 2013

 
   

Carrying

   

Fair

 
   

Value

   

Value

 

Long-term debt to affiliates

  $ 335,171     $ 361,264  

 

As of September 30, 2014, we believe the carrying value of our floating-rate debt outstanding under our $775 million term loan approximates its fair value because the term includes short-term interest rates and excludes penalties for prepayment. We estimated the fair value of our floating-rate term loan using significant other observable inputs, representative of a Level 2 fair value measurement, including terms and credit spreads for this loan.

 

4.

DETAILS OF SELECTED BALANCE SHEET ACCOUNTS

 

Additional information regarding selected balance sheet accounts at September 30, 2014 and December 31, 2013 is presented below (in thousands):

 

   

September 30,

2014

   

December 31,

2013

 

Accounts receivable, net:

               

Trade

  $ 153,559     $ 128,781  

Unbilled revenue

    51,951       47,004  

Other

    1,734       5,716  

Total accounts receivable

    207,244       181,501  

Allowance for doubtful accounts

    (3,913 )     (3,656 )

Total accounts receivable, net

  $ 203,331     $ 177,845  

 

   

September 30,

2014

   

December 31,

2013

 

Inventories:

               

Finished goods and purchased products

  $ 3,358     $ 3,574  

Work in process

    4,838       14,328  

Raw materials

    6,700       11,913  

Total inventories

  $ 14,896     $ 29,815  

 

 
11

 

 

CIVEO CORPORATION

 

NOTES TO UNAUDITED CONSOLIDATED

FINANCIAL STATEMENTS

(continued)

 

   

Estimated

Useful Life

(in years)

   

September 30,

2014

   

December 31,

2013

 

Property, plant and equipment, net:

                       

Land

          $ 56,239     $ 49,384  

Accommodations assets

    3-15       1,693,951       1,535,407  

Buildings and leasehold improvements

    3-20       41,517       45,538  

Machinery and equipment

    4-15       12,791       12,259  

Office furniture and equipment

    3-7       32,745       28,755  

Vehicles

    3-5       20,364       20,197  

Construction in progress

            89,773       129,587  

Total property, plant and equipment

            1,947,380       1,821,127  

Accumulated depreciation

            (582,462 )     (495,260 )

Total property, plant and equipment, net

          $ 1,364,918     $ 1,325,867  

 

   

September 30,

2014

   

December 31, 2013

 

Accrued liabilities:

               

Accrued compensation

  $ 19,184     $ 21,988  

Accrued taxes, other than income taxes

    1,608       1,940  

Accrued interest

    60       1,560  

Other

    2,032       1,386  

Total accrued liabilities

  $ 22,884     $ 26,874  

 

5.

EARNINGS PER SHARE

 

On May 30, 2014, 106,538,044 shares of our common stock were distributed to Oil States stockholders in connection with the Spin-Off. For comparative purposes, and to provide a more meaningful calculation of weighted-average shares outstanding, we have assumed these shares to be outstanding as of the beginning of each period prior to the separation presented in the calculation of weighted-average shares. In addition, we have assumed the dilutive securities outstanding at May 30, 2014 were also outstanding for each of the periods prior to the Spin-Off presented. Our calculation of diluted earnings per share excludes 36,737 and 43,434 shares issuable pursuant to outstanding stock options, for the three and nine months ended September 30, 2014, respectively, due to their antidilutive effect.

 

The calculation of earnings per share attributable to the Company is presented below for the periods indicated (in thousands, except per share amounts):

 

 
12

 

 

CIVEO CORPORATION

 

NOTES TO UNAUDITED CONSOLIDATED

FINANCIAL STATEMENTS

(continued)

 

   

THREE MONTHS ENDED

   

NINE MONTHS ENDED

 
   

SEPTEMBER 30,

   

SEPTEMBER 30,

 
   

2014

   

2013

   

2014

   

2013

 

Basic Earnings per Share

                               

Net income attributable to Civeo

  $ 32,403     $ 39,641     $ 82,591     $ 136,423  

Less: undistributed net income to participating securities

    (173 )     (162 )     (385 )     (557 )

Net income attributable to Civeo’s common stockholders - basic

  $ 32,230     $ 39,479     $ 82,206     $ 135,866  
                                 

Weighted average common shares outstanding - basic

    106,311       106,293       106,300       106,293  
                                 

Basic earnings per share

  $ 0.30     $ 0.37     $ 0.77     $ 1.28  
                                 

Diluted Earnings per Share

                               

Net income attributable to Civeo’s common stockholders - basic

  $ 32,230     $ 39,479     $ 82,206     $ 135,866  

Less: undistributed net income to participating securities

    --       --       --       1  

Net income attributable to Civeo’s common stockholders - diluted

  $ 32,230     $ 39,479     $ 82,206     $ 135,867  
                                 
                                 

Weighted average common shares outstanding - basic

    106,311       106,293       106,300       106,293  

Effect of dilutive securities

    184       167       174       167  

Weighted average common shares outstanding - diluted

    106,495       106,460       106,474       106,460  
                                 

Diluted earnings per share

  $ 0.30     $ 0.37     $ 0.77     $ 1.28  

 

6.

GOODWILL

 

Changes in the carrying amount of goodwill for the nine month period ended September 30, 2014 are as follows (in thousands):

 

   

Canadian

   

Australian

   

U.S.

   

Total

 

Balance as of December 31, 2013

  $ 49,485     $ 194,939     $ 16,632     $ 261,056  

Foreign currency translation

    (1,560 )     (4,213 )     --       (5,773 )

Balance as of September 30, 2014

  $ 47,925     $ 190,726     $ 16,632     $ 255,283  

  

7.

DEBT

 

As of September 30, 2014 and December 31, 2013, long-term debt consisted of the following (in thousands):

 

   

September 30,

2014

   

December 31,

2013

 

U.S. term loan, which matures on May 28, 2019, of $775.0 million; 1.25% of aggregate principal repayable per quarter beginning September 30, 2015; weighted average interest rate of 2.4% for the nine month period ended September 30, 2014

  $ 775,000     $ --  

U.S. revolving credit facility, which matures on May 28, 2019, with available commitments up to $450.0 million; no borrowings outstanding during the nine month period ended September 30, 2014

    --       --  

Canadian revolving credit facility, which matures on May 28, 2019, with available commitments up to $100.0 million; no borrowings outstanding during the nine month period ended September 30, 2014

    --       --  

Australian revolving credit facility, which matures May 28, 2019, with available commitments up to $100.0 million; no borrowings outstanding during the nine month period ended September 30, 2014

    --       --  

Affiliate debt with Oil States

    --       335,171  

Total debt

    775,000       335,171  

Less: Current portion of long-term debt

    9,687       --  

Long-term debt, less current maturities

  $ 765,313     $ 335,171  

 

 
13

 

 

CIVEO CORPORATION

 

NOTES TO UNAUDITED CONSOLIDATED

FINANCIAL STATEMENTS

(continued)

 

Interest expense on the consolidated statements of income is net of capitalized interest of $0.8 million and $0.2 million for the three months ended September 30, 2014 and 2013, respectively. Interest expense on the consolidated statements of income is net of capitalized interest of $2.1 million and $0.8 million for the nine months ended September 30, 2014 and 2013, respectively.

 

Affiliate debt

 

On May 27, 2014, in conjunction with the Spin-Off, our affiliate debt with Oil States was settled through a non-cash capital contribution. See Note 13 for further information.

 

Credit Facility

 

Civeo was a party to an Oil States credit facility agreement together with Oil States that had separate Canadian borrowing limits that served as debt financing for the Canadian operations of Civeo (Oil States Credit Facility). As of December 31, 2013, we had no outstanding balance under the Canadian portion of the credit facility and $0.9 million of outstanding letters of credit. Additionally, Civeo had a separate Australian credit facility (The MAC Group Credit Facility) that was used exclusively to support our Australian operations. As of December 31, 2013, we had no outstanding balance under the Australian credit facility. On May 28, 2014, the Oil States Credit Facility and The MAC Group Credit Facility were terminated. We recognized a loss on the termination during the second quarter 2014 of approximately $3.5 million related to unamortized debt issuance costs, which is included in Loss on extinguishment of debt on the accompanying unaudited consolidated statements of income.

 

On May 28, 2014, we entered into (i) a $650.0 million, 5-year revolving credit facility which is allocated as follows: (A) a $450.0 million senior secured revolving credit facility in favor of Civeo, as borrower (the U.S. facility), (B) a $100.0 million senior secured revolving credit facility in favor of certain of our Canadian subsidiaries, as borrowers (the Canadian facility), and (C) a $100.0 million senior secured revolving credit facility in favor of one of our Australian subsidiaries, as borrower (the Australian facility), and (ii) a $775.0 million, 5-year term loan facility in favor of Civeo (collectively, the Credit Agreement). U.S. Dollar amounts outstanding under the Credit Agreement bear interest at a variable rate equal to LIBOR plus a margin of 1.75% to 2.75%, or a base rate plus 0.75% to 1.75%, in each case based on a ratio of our total leverage to EBITDA (as defined in the Credit Agreement). Canadian Dollar amounts outstanding under the Credit Agreement bear interest at a variable rate equal to CDOR (as defined in the Credit Agreement) plus a margin of 1.75% to 2.75%, or a base rate plus a margin of 0.75% to 1.75%, in each case based on a ratio of our total leverage to EBITDA (as defined in the Credit Agreement). Australian Dollar amounts outstanding under the Credit Agreement bear interest at a variable rate equal to BBSY (as defined in the Credit Agreement) plus a margin of 1.75% to 2.75%, based on a ratio of our total leverage to EBITDA (as defined in the Credit Agreement). We paid certain customary fees with respect to the Credit Agreement. We have 15 lenders in our Credit Agreement with commitments ranging from $20 million to $195 million. As of September 30, 2014, we had outstanding letters of credit of $0.7 million under the U.S facility and $5.9 million under the Canadian facility.

 

The Credit Agreement contains customary affirmative and negative covenants that, among other things, limit or restrict (i) subsidiary indebtedness, liens and fundamental changes, (ii) asset sales, (iii) margin stock, (iv) specified acquisitions, (v) restrictive agreements, (vi) transactions with affiliates and (vii) investments and other restricted payments, including dividends and other distributions. Specifically, we must maintain an interest coverage ratio, defined as the ratio of consolidated EBITDA to consolidated interest expense, of at least 3.0 to 1.0 and our maximum leverage ratio, defined as the ratio of total debt to consolidated EBITDA, of no greater than 3.5 to 1.0.  Each of the factors considered in the calculations of these ratios are defined in the Credit Agreement.  EBITDA and consolidated interest, as defined, exclude goodwill impairments, debt discount amortization and other non-cash charges.   Borrowings under the Credit Agreement are secured by a pledge of substantially all of our assets and the assets of our subsidiaries. Obligations under the Credit Agreement are guaranteed by our significant subsidiaries.

 

In addition to the Credit Agreement, we have an A$30 million line of credit facility, which matures December 10, 2015. There were no borrowings or letters of credit outstanding under this facility during the nine month period ended September 30, 2014.

 

 
14

 

 

CIVEO CORPORATION

 

NOTES TO UNAUDITED CONSOLIDATED

FINANCIAL STATEMENTS

(continued)

 

8.

INCOME TAXES

 

We compute our quarterly taxes under the effective tax rate method based on applying an anticipated annual effective rate to our year-to-date income, except for significant unusual or extraordinary transactions. Income taxes for significant unusual or extraordinary transactions are computed and recorded in the period that the specific transaction occurs.  

 

Our income tax expense for the nine months ended September 30, 2014 totaled $16.4 million, or 16.4% of pretax income, compared to income tax expense of $43.3 million, or 24.0% of pretax income, for the nine months ended September 30, 2013. Our income tax expense for the three months ended September 30, 2014 totaled $9.0 million, or 21.6% of pretax income, compared to income tax expense of $11.4 million, or 22.2% of pretax income, for the three months ended September 30, 2013. Generally, our effective tax rates are lower than U.S. statutory rates because of lower foreign income tax rates. The decrease in the effective tax rate from the prior year was largely the result of a change in the earnings mix between different tax jurisdictions. In addition, the effective tax rate was reduced due to changes in our corporate structure, including the contribution by Oil States of our affiliate debt (as further described in Note 13 – Related Party Transactions).

 

9.

COMMITMENTS AND CONTINGENCIES

 

We are a party to various pending or threatened claims, lawsuits and administrative proceedings seeking damages or other remedies concerning our commercial operations, products, employees and other matters, including warranty and product liability claims as a result of our products or operations. Although we can give no assurance about the outcome of pending legal and administrative proceedings and the effect such outcomes may have on us, management believes that any ultimate liability resulting from the outcome of such proceedings, to the extent not otherwise provided for or covered by insurance, will not have a material adverse effect on our consolidated financial position, results of operations or liquidity.

 

In conjunction with, and effective as of, the Spin-Off, we entered into an Indemnification and Release Agreement with Oil States. This agreement governs the treatment between Oil States and us of all aspects relating to indemnification, insurance, litigation responsibility and management, and litigation document sharing and cooperation arising in connection with the Spin-Off. Generally, the agreement provides for cross-indemnities principally designed to place financial responsibility for the obligations and liabilities of our business with us and financial responsibility for the obligations and liabilities of Oil States’ business with Oil States. The agreement also establishes procedures for handling claims subject to indemnification and related matters. Pursuant to the Indemnification and Release Agreement, we and Oil States will generally release the other party from all claims arising prior to the Spin-Off other than claims arising under the transaction agreements, including the indemnification provisions described above. We evaluated the impact of the indemnifications given and the Civeo indemnifications received as of the Spin-Off date and concluded those fair values were immaterial.

 

10.

ACCUMULATED OTHER COMPREHENSIVE LOSS

 

Our accumulated other comprehensive loss increased $58.7 million from a $60.0 million accumulated loss at December 31, 2013 to a $118.7 million accumulated loss at September 30, 2014, as a result of foreign currency exchange rate differences. Changes in the other comprehensive loss during the first nine months of 2014 were primarily driven by the Australian dollar and Canadian dollar decreasing in value compared to the U.S. dollar. Excluding intercompany balances, our Canadian dollar and Australian dollar functional currency net assets totaled approximately C$1.0 billion and A$983 million, respectively, at September 30, 2014.

 

11.

STOCK BASED COMPENSATION

 

Prior to the Spin-Off, certain employees of Civeo participated in Oil States’ Equity Participation Plan (the Oil States Plan). The expense associated with these employees is reflected in the accompanying consolidated income statements. Effective May 30, 2014, our employees and non-employee directors began participating in the 2014 Equity Participation Plan of Civeo Corporation (the Civeo Plan). The Civeo Plan authorizes the Board of Directors to grant options, awards of restricted stock, performance awards, dividend equivalents, awards of deferred stock, and stock payments to our employees and non-employee directors. No more than 4.0 million shares of Civeo common stock may be awarded under the Civeo Plan.

 

 
15

 

 

CIVEO CORPORATION

 

NOTES TO UNAUDITED CONSOLIDATED

FINANCIAL STATEMENTS

(continued)

 

In connection with the Spin-Off, stock based compensation awards granted under the Oil States Plan and held by Civeo grantees as of May 30, 2014 were replaced with substitute Civeo awards. Stock options were replaced with options to purchase Civeo common stock. Unvested restricted stock awards were replaced with substitute Civeo restricted stock awards. Additionally, phantom shares granted under the Canadian Long-Term Incentive Plan were converted to units that entitle the recipient to a lump sum cash payment equal to the fair market value of a share of Civeo’s common stock on the respective vesting date. These replacements were intended to preserve the intrinsic value of the awards as of May 30, 2014. The substitution of these awards did not cause us to recognize incremental compensation expense as an equitable adjustment was required to be made as a result of the Spin-Off.

 

Outstanding Awards

 

Stock Options. A total of 120,799 Oil States stock options were converted to 554,738 Civeo stock options at May 30, 2014. Compensation expense associated with stock options recognized in the three month periods ended September 30, 2014 and 2013 totaled $0.2 million and $0.2 million, respectively. Compensation expense associated with stock options recognized in the nine month periods ended September 30, 2014 and 2013 totaled $0.5 million and $1.0 million, respectively.

 

At September 30, 2014, unrecognized compensation cost related to stock options was $0.7 million, which is expected to be recognized over a weighted average period of 2.1 years.

 

Restricted Stock Awards. A total of 94,936 unvested Oil States restricted stock awards were converted to 435,999 unvested Civeo restricted stock awards at May 30, 2014. Included in this total were 20,000 Oil States performance based restricted stock awards, which vested in an amount that depended on Oil States’ achievement of specified performance objectives. In conjunction with the Spin-Off transaction, the awards were cancelled and the holders were granted 91,848 unvested Civeo restricted stock awards, of which half vest in February 2015 and the other half vest in February 2016.

 

On May 30, 2014, we granted 149,256 restricted stock awards. 37,947 of the awards vest on the earlier of the Company’s 2015 shareholder meeting or May 30, 2015 and the remaining 111,309 vest in four equal annual installments beginning on May 30, 2015. On July 25, 2014, we granted 4,926 restricted stock awards, which vest on the earlier of the Company’s 2015 shareholder meeting or July 25, 2015.

 

Compensation expense associated with restricted stock awards recognized in the three month periods ended September 30, 2014 and 2013 totaled $1.1 million and $0.3 million, respectively. Compensation expense associated with restricted stock awards recognized in the nine month periods ended September 30, 2014 and 2013 totaled $2.9 million and $1.0 million, respectively. The total fair value of restricted stock awards that vested during the three months ended September 30, 2014 and 2013 was de minimis. The total fair value of restricted stock awards that vested during the nine months ended September 30, 2014 and 2013 was $2.5 million and $0.9 million, respectively.

 

At September 30, 2014, unrecognized compensation cost related to restricted stock awards was $8.5 million, which is expected to be recognized over a weighted average period of 3.0 years. 

 

Phantom Share Awards. A total of 123,183 awards granted under the Canadian Long-Term Incentive Plan were converted to 565,706 units that entitle the recipient to a lump sum cash payment equal to the fair market value of a share of Civeo’s common stock on the respective vesting date. These awards are accounted for as a liability that is remeasured at each reporting date until paid.

 

On May 30, 2014, we granted 4,337 phantom stock awards, all of which vest in three equal annual installments beginning on May 30, 2015. Because of the decline in our stock price from June 30, 2014 to September 30, 2014, and because we remeasure these awards at each reporting date, we recognized income of $0.3 million on the phantom shares for the three month period ended September 30, 2014 compared with compensation expense associated with phantom shares recognized in the three month periods ended September 30, 2013 totaling $1.1 million. Compensation expense associated with phantom shares recognized in the nine month periods ended September 30, 2014 and 2013 totaled $5.1 million and $2.9 million, respectively.

 

 
16

 

 

CIVEO CORPORATION

 

NOTES TO UNAUDITED CONSOLIDATED

FINANCIAL STATEMENTS

(continued)

 

At September 30, 2014, unrecognized compensation cost related to phantom shares was $3.7 million, as remeasured at September 30, 2014, which is expected to be recognized over a weighted average period of 1.9 years.

 

12.

SEGMENT AND RELATED INFORMATION

 

In accordance with current accounting standards regarding disclosures about segments of an enterprise and related information, we have identified the following reportable segments: Canadian, Australian and U.S., which represent our strategic focus on work force accommodations.

 

Financial information by business segment for each of the three and nine months ended September 30, 2014 and 2013 is summarized in the following table (in thousands):

 

   

Total

Revenues

   

Less: Intersegment Revenues

   

Revenues from unaffiliated customers

   

Depreciation and amortization

   

Operating income (loss)

   

Capital expenditures

   

Total assets

 

Three months ended

September 30, 2014

                                                       

Canada

  $ 174,111     $ --     $ 174,111     $ 24,210     $ 43,277     $ 55,563     $ 1,056,435  

Australia

    54,000               54,000       16,451       10,520       7,052       900,423  

United States

    24,896       (9,742 )     15,154       5,107       (1,236 )     3,979       195,725  

Corporate, stand-alone adjustments and eliminations

    (9,742 )     9,742       --       (10 )     (6,564 )     36       35,536  

Total

  $ 243,265     $ --     $ 243,265     $ 45,758     $ 45,997     $ 66,630     $ 2,188,119  
                                                         

Three months ended

September 30, 2013

                                                       

Canada

  $ 168,017     $ (810 )   $ 167,207     $ 21,939     $ 39,553     $ 35,689     $ 963,496  

Australia

    59,738               59,738       15,730       17,591       22,919       919,315  

United States

    22,833       (4,679 )     18,154       4,380       (1,596 )     15,982       212,961  

Corporate, stand-alone adjustments and eliminations

    (5,489 )     5,489       --       (38 )     (2,164 )     (401 )     1,508  

Total

  $ 245,099     $ --     $ 245,099     $ 42,011     $ 53,384     $ 74,189     $ 2,097,280  
                                                         

Nine months ended

September 30, 2014

                                                       

Canada

  $ 511,219     $ (305 )   $ 510,914     $ 65,551     $ 110,743     $ 187,397     $ 1,056,435  

Australia

    163,847               163,847       47,537       26,158       14,632       900,423  

United States

    97,581       (49,145 )     48,436       14,756       (6,664 )     9,661       195,725  

Corporate, stand-alone adjustments and eliminations

    (49,450 )     49,450       --       (74 )     (15,154 )     (3,393 )     35,536  

Total

  $ 723,197     $ --     $ 723,197     $ 127,770     $ 115,083     $ 208,297     $ 2,188,119  
                                                         

Nine months ended

September 30, 2013

                                                       

Canada

  $ 539,401     $ (3,591 )   $ 535,810     $ 62,775     $ 145,827     $ 126,473     $ 963,496  

Australia

    191,510               191,510       49,435       54,684       62,508       919,315  

United States

    70,487       (15,180 )     55,307       12,408       1,407       47,501       212,961  

Corporate, stand-alone adjustments and eliminations

    (18,771 )     18,771       --       (108 )     (6,141 )     (1,688 )     1,508  

Total

  $ 782,627     $ --     $ 782,627     $ 124,510     $ 195,777     $ 234,794     $ 2,097,280  

 

 
17

 

 

CIVEO CORPORATION

 

NOTES TO UNAUDITED CONSOLIDATED

FINANCIAL STATEMENTS

(continued)

 

13.

RELATED PARTY TRANSACTIONS

 

Our related parties included Oil States until May 30, 2014, the effective date of the Spin-Off.

 

On May 27, 2014, in connection with the Spin-off, we entered into several agreements with Oil States that govern the Spin-Off and the relationship of the parties following the Spin-Off. Because the terms of these agreements were entered into in the context of a related party transaction, the terms may not be comparable to terms that would be obtained in a transaction between unaffiliated parties.

 

The Separation and Distribution Agreement between us and Oil States contains the key provisions relating to the separation of our business from Oil States and the distribution of our common stock to Oil States stockholders. The Separation and Distribution Agreement identifies the assets that were transferred or sold, liabilities that were assumed or sold and contracts that were assigned to us by Oil States or by us to Oil States in the Spin-Off and describes how these transfers, sales, assumptions and assignments occurred. Pursuant to the Separation and Distribution Agreement, on May 28, 2014, we made a cash distribution to Oil States of $750 million.

 

The Indemnification and Release Agreement governs the treatment of all aspects relating to indemnification, insurance, litigation responsibility and management, and litigation document sharing and cooperation. Generally, the Indemnification and Release Agreement provides for cross-indemnities principally designed to place financial responsibility for the obligations and liabilities of our business with us and financial responsibility for the obligations and liabilities of Oil States’ business with Oil States. The Indemnification and Release Agreement also establishes procedures for handling claims subject to indemnification and related matters. Pursuant to the Indemnification and Release Agreement, we and Oil States will generally release the other party from all claims arising prior to the Spin-Off other than claims arising under the transaction agreements, including the indemnification provisions described above.  See Note 9.

 

The Tax Sharing Agreement governs the respective rights, responsibilities and obligations of Oil States and us with respect to taxes and tax benefits, the filing of tax returns, the control of audits, restrictions on us to preserve the tax-free status of the Spin-Off and other tax matters.

 

The Employee Matters Agreement provides that each company has responsibility for its own employees and compensation plans. The agreement also contains provisions regarding stock-based compensation. See Note 11.

 

The Transition Services Agreement sets forth the terms on which Oil States will provide to us, and we will provide to Oil States, on a temporary basis, certain services or functions that the companies historically have shared. Transition services provided to us by Oil States may include administrative, payroll, legal, human resources, data processing, financial audit support, financial transaction support, and other support services, information technology systems and various other corporate services. Transition services provided to Oil States by us may include information technology systems, financial audit support, tax support and other corporate services. The agreement provides for the provision of specified transition services, generally for a period of up to nine months from the date of the Spin-Off, with a possible extension of 1 month (an aggregate of 10 months) at a predetermined fee based on estimated cost to Oil States.  We incurred costs under the Transition Services Agreement totaling $0.6 million and $0.8 million during the three and nine months ended September 30, 2014.

 

Parent Company Services Provided and Corporate Allocations

 

Prior to the Spin-Off, Oil States provided services to and funded certain expenditures of Civeo. The most significant of these services and expenditures were: (1) funding expenditures to settle domestic accounts payable; (2) funding and processing of domestic payroll; (3) share-based compensation; and (4) certain transaction-related expenditures. The consolidated financial statements of Civeo reflect these expenditures. During the three months ended September 30, 2014 and 2013, zero and $34.4 million, respectively, of expenditures for services received from Oil States or funding for expenditures provided by Oil States were included in the consolidated financial statements. During the nine months ended September 30, 2014 and 2013, $41.7 million and $98.1 million, respectively, of expenditures for services received from Oil States or funding for expenditures provided by Oil States were included in the consolidated financial statements.

 

 
18

 

 

CIVEO CORPORATION

 

NOTES TO UNAUDITED CONSOLIDATED

FINANCIAL STATEMENTS

(continued)

 

Prior to the Spin-Off, the consolidated statements of income also include general corporate expense allocations, which include costs incurred by Oil States for certain corporate functions such as executive management, finance, information technology, tax, internal audit, risk management, legal, human resources and treasury. During the three months ended September 30, 2014 and 2013, we were allocated zero and $1.6 million, respectively, in respect of these corporate expenses which are included within selling, general and administrative expenses in the consolidated statements of income. During the nine months ended September 30, 2014 and 2013, we were allocated $2.8 million and $4.3 million, respectively, in respect of these corporate expenses which are included within selling, general and administrative expenses in the consolidated statements of income.

 

Oil States Net Investment

 

Net transfers to Oil States are included within Oil States net investment on the consolidated balance sheets. The components of the change in Oil States net investment for the nine months ended September 30, 2014 and 2013 are as follows (in thousands):

 

   

2014

   

2013

 

Cash transfers and general financing activities

  $ (13,255 )   $ 4,568  

Services received or funding for expenditures

    41,725       98,078  

Corporate allocations, including income tax provision (1)

    3,950       3,325  

Net increase in Oil States net investment

  $ 32,420     $ 105,971  

________________

(1)

Corporate allocations includes the general corporate expense allocations of $2.8 million and $4.3 million for the nine months ended September 30, 2014 and 2013, respectively, the impact of the income tax provision, the allocation of corporate insurance premiums, and the attribution of certain assets and liabilities that have historically been held at the Oil States corporate level, but which are specifically identifiable or otherwise allocable to us. The attributed assets and liabilities are included in Civeo’s consolidated balance sheets.

 

Supplemental Cash Flow Information

 

In accordance with the Separation and Distribution Agreement, our affiliate debt with Oil States, which totaled approximately $336.8 million as of May 30, 2014, including accrued interest, was settled through a non-cash capital contribution.

 

14.

DIVIDENDS

 

On August 29, 2014, we paid a quarterly cash dividend of $0.13 per share of common stock. The total cash payment was $13.9 million.

 

 
19

 

  

Cautionary Statement Regarding Forward-Looking Statements

 

This quarterly report on Form 10-Q contains certain forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the Exchange Act). The Private Securities Litigation Reform Act of 1995 provides safe harbor provisions for forward-looking information. The forward-looking statements can be identified by the use of forward-looking terminology including "may," "expect," "anticipate," "estimate," "continue," "believe," or other similar words. Actual results could differ materially from those projected in the forward-looking statements as a result of a number of important factors. For a discussion of known material factors that could affect our results, please refer to “Risk Factors, “Forward-Looking Statements,” and "Management’s Discussion and Analysis of Financial Condition and Results of Operations" included in Amendment No. 5 to our registration statement on Form 10 filed with the Securities and Exchange Commission on May 8, 2014. Should one or more of these risks or uncertainties materialize, or should the assumptions prove incorrect, actual results may differ materially from those expected, estimated or projected. Our management believes these forward-looking statements are reasonable. However, you should not place undue reliance on these forward-looking statements, which are based only on our current expectations and are not guarantees of future performance. All subsequent written and oral forward-looking statements attributable to us or to persons acting on our behalf are expressly qualified in their entirety by the foregoing. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to publicly update or revise any of them in light of new information, future events or otherwise.

 

In addition, in certain places in this quarterly report, we refer to reports published by third parties that purport to describe trends or developments in the energy industry. We do so for the convenience of our stockholders and in an effort to provide information available in the market that will assist our investors in a better understanding of the market environment in which we operate. However, we specifically disclaim any responsibility for the accuracy and completeness of such information and undertake no obligation to update such information.

 

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

You should read the following discussion and analysis together with our consolidated financial statements and the notes to those statements included elsewhere in this quarterly report on Form 10-Q.

 

Unless otherwise stated or the context otherwise indicates, all references to “Civeo”, “the Company,” “us,” “our” or “we” for the time period prior to the separation mean the Accommodations business of Oil States. For time periods after the separation, these terms refer to the legal entity Civeo Corporation and its consolidated subsidiaries.

 

Spin-off

 

On May 5, 2014, the Oil States International, Inc. (Oil States) board of directors approved the separation of its Accommodations segment (Accommodations) into a standalone, publicly traded company, Civeo Corporation. In accordance with the Separation and Distribution Agreement, the two companies were separated by Oil States distributing to its stockholders all 106,538,044 shares of common stock of Civeo it held after the market closed on May 30, 2014 (the Spin-Off). Each Oil States stockholder received two shares of Civeo common stock for every one share of Oil States stock held at the close of business on the record date of May 21, 2014. In conjunction with the separation, Oil States received a private letter ruling from the Internal Revenue Service to the effect that, based on certain facts, assumptions, representations and undertakings set forth in the ruling, for U.S. federal income tax purposes, the distribution of Civeo common stock was not taxable to Oil States or U.S. holders of Oil States common stock. Following the separation, Oil States retained no ownership interest in Civeo, and each company now has separate public ownership, boards of directors and management. A registration statement on Form 10, as amended through the time of its effectiveness, describing the separation was filed by Civeo with the U.S. Securities and Exchange Commission (SEC) and was declared effective on May 8, 2014 (the Form 10). On June 2, 2014, Civeo stock began trading the “regular-way” on the New York Stock Exchange under the “CVEO” stock symbol. Pursuant to the Separation and Distribution Agreement with Oil States, on May 28, 2014, we made a special cash distribution to Oil States of $750 million.

 

 
20

 

 

In connection with the Spin-Off, on May 28, 2014, we entered into a $650.0 million, 5-year revolving credit facility and a 5-year U.S. term loan facility totaling $775.0 million. For further discussion, please see “Liquidity and Capital Resources” below and Note 7 – Debt to the accompanying consolidated financial statements.

 

Redomiciling to Canada

 

On September 29, 2014, we announced our plan to redomicile the Company to Canada. We expect to execute a “self-directed redomiciling” of the Company as permitted under the U.S. Internal Revenue Code. U.S. federal income tax laws permit a company to change its domicile to a foreign jurisdiction without corporate-level U.S. federal income taxes provided that such company has “substantial business activity” in the relevant jurisdiction. “Substantial business activity” is defined as foreign operations consisting of over 25% of a company’s total (i) revenues, (ii) assets, (iii) employees and (iv) employee compensation. With approximately 50% or more of our operations in Canada based on these metrics, we believe we will qualify for a self-directed redomiciling. We expect to complete the migration in the second or third quarter of 2015. There is no assurance that we will be able to complete the migration in a timely manner or at all, and if completed, we may not achieve the expected benefits. 

 

Description of the Business

 

We are one of North America’s and Australia’s largest integrated providers of accommodations services for people working in remote locations. Our scalable modular facilities provide long-term and temporary work force accommodations where traditional infrastructure is insufficient, inaccessible or not cost effective. Once facilities are deployed in the field, we also provide catering and food services, housekeeping, laundry, facility management, water and wastewater treatment, power generation, communications and redeployment logistics. Our accommodations support workforces in the Canadian oil sands and in a variety of oil and natural gas drilling, mining and related natural resource applications as well as disaster relief efforts, primarily in Canada, Australia and the United States. We operate in three principal reportable business segments – Canadian, Australian and U.S.

 

Basis of Presentation

 

Prior to the Spin-Off, our financial position, results of operations and cash flows consisted of the Oil States’ Accommodations business, which represented a combined reporting entity. The combined financial statements included in this quarterly report on Form 10-Q have been prepared on a stand-alone basis and are derived from the consolidated financial statements and accounting records of Oil States. The combined financial statements reflect our historical financial position, results of operations and cash flows as we were historically managed, in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP). The combined financial statements include certain assets and liabilities that have historically been held at the Oil States corporate level, but are specifically identifiable or otherwise attributable to us.

 

 
21

 

 

All financial information presented after the Spin-Off represents the consolidated results of operation, financial position and cash flows of Civeo. Accordingly:

 

 

Our consolidated statements of income and comprehensive income for the three months ended September 30, 2014 consist entirely of the consolidated results of Civeo. Our consolidated statements of income and comprehensive income for the nine months ended September 30, 2014 consist of (i) the combined results of the Oil States’ Accommodations business for the five months ended May 30, 2014 and (ii) the consolidated results of Civeo for the four months ended September 30, 2014. Our consolidated statements of income and comprehensive income for the three and nine months ended September 30, 2013 consist entirely of the combined results of the Oil States’ Accommodations business.

 

 

Our consolidated balance sheet at September 30, 2014 consists of the consolidated balances of Civeo, while at December 31, 2013, it consists entirely of the combined balances of the Oil States’ Accommodations business.

 

 

Our consolidated statements of cash flows and changes in stockholders’ equity / net investment for the nine months ended September 30, 2014 consist of (i) the combined results of the Oil States’ Accommodations business for the five months ended May 30, 2014 and (ii) the consolidated results of Civeo for the four months ended September 30, 2014. Our consolidated statements of cash flows and changes in stockholders’ equity / net investment for the nine months ended September 30, 2013 consist entirely of the combined results of the Oil States’ Accommodations business.

 

The assets and liabilities in our consolidated financial statements have been reflected on a historical basis, as immediately prior to the Spin-Off all of the assets and liabilities presented where wholly owned by Oil States and were transferred within the Oil States consolidated group. All significant intercompany transactions and accounts have been eliminated. All affiliate transactions between Civeo and Oil States have been included in the consolidated financial statements included in this quarterly report on Form 10-Q.

 

The consolidated financial statements for periods prior to the Spin-Off included expense allocations for: (1) certain corporate functions historically provided by Oil States, including, but not limited to finance, legal, risk management, tax, treasury, information technology, human resources, and certain other shared services; (2) certain employee benefits and incentives; and (3) equity-based compensation. These expenses were allocated to us on the basis of direct usage when identifiable, with the remainder allocated based on estimated time spent by Oil States personnel, a pro-rata basis of headcount or other relevant measures of Oil States and its subsidiaries. We consider the basis on which the expenses were allocated to be a reasonable reflection of the utilization of services provided to or the benefit received by us during the periods presented. The allocations may not, however, reflect the expense we would have incurred as an independent, publicly traded company for the periods presented. Actual costs that may have been incurred if we had been a stand-alone company would depend on a number of factors, including the chosen organizational structure, which functions were outsourced or performed by employees and strategic decisions made in areas such as information technology and infrastructure. Following the Spin-Off, Civeo is performing these functions using its own resources or purchased services. For an interim period, however, some of these functions will continue to be provided by Oil States under a Transition Services Agreement, which extends for a period of up to nine months, depending on the service being provided. See Note 13 – Related Party Transactions to the accompanying consolidated financial statements.

 

Macroeconomic Environment

 

We provide workforce accommodations to the natural resource industry in Canada, Australia and the United States. Demand for our services can be attributed to two phases of our customers’ projects: (1) the development or construction phase and (2) the operations or production phase. Initial demand for our services is driven by our customers’ capital spending programs related to the construction and development of oil sands and coal mines and associated infrastructure as well as the exploration for oil and natural gas. Long-term demand for our services is driven by continued development and expansion of natural resource production and operation of oil sands refining facilities. Industry capital spending programs are generally based on the long-term outlook for commodity prices, economic growth and estimates of resource production. As a result, demand for our products and services is largely sensitive to expected commodity prices, principally related to crude oil, metallurgical (met) coal and, to a lesser extent, natural gas.

 

In Canada, Western Canadian Select (WCS) crude is the benchmark price for our oil sands accommodations’ customers.   Pricing for WCS is driven by several factors.  A significant factor affecting WCS pricing is the underlying price for West Texas Intermediate (WTI).  As WTI prices recovered from the global financial crisis from 2009 through 2013, WCS prices also increased.  Another significant factor affecting WCS pricing has been the availability of transportation infrastructure.  Historically, WCS has traded at a discount to WTI, creating a “WCS Basis Differential,” due to transportation costs and limited capacity to move growing Canadian heavy oil production to refineries, primarily in the U.S. Gulf Coast.  Depending on the extent of pipeline capacity availability, the WCS Basis Differential has varied.  With the increase in global oil prices and increased transportation capacity from the oil sands region due to rail and barge alternatives, the absolute price of WCS increased and the WCS Basis Differential has slightly decreased. 

 

 
22 

 

 

Recently, particularly in September 2014 and continuing into the fourth quarter 2014, global oil prices have significantly declined, primarily due to concerns over the economic growth rate in China, the overall economic health of Europe and price cutting by major oil producing countries, such as Saudi Arabia. Increasing global supply has also negatively impacted pricing, including increased U.S. shale oil. With falling Brent Crude and WTI oil prices, WCS has also fallen. WCS prices in the third quarter of 2014 averaged $78.69 per barrel compared to $83.78 per barrel in the second quarter of 2014.  However, the WCS Basis Differential narrowed from $21.00 per barrel at the end of the second quarter of 2014 to $14.25 per barrel by the end of the third quarter of 2014, due to increased demand from U.S. refineries, a continued increase in crude by rail volumes and a number of pipeline capacity improvements and expansion projects.  As of November 4, 2014, the WCS price was $61.13 and the WCS Basis Differential was $16.06. 

 

Given the historical volatility of WTI crude prices and the WCS Basis Differential, there remains a risk that prices in the oil sands could continue to deteriorate going forward. Additionally, if the discount between WCS crude prices and WTI crude prices widens, our oil sands customers may have an incentive to delay additional investments in their oil sands assets. Alternatively, if the global supply of oil and global inventory levels were to decrease due to government instability in a major oil-producing nation and energy demand continues to increase in countries such as China, India and the U.S., we could see increases in WTI crude prices which, coupled with an improvement in takeaway capacity from the oil sands, could improve WCS pricing. This, in turn, could lead to our oil sands customers increasing their investments in oil sands production.

 

Our Australian villages in the Bowen Basin primarily serve coal mines in that region.  Met coal pricing and growth in production in the Bowen Basin region is influenced by levels of global steel production.  Growth in worldwide steel demand has decreased from 3.8% in 2013 to 2.0% in 2014. Furthermore, because Chinese steel production has been growing at a slower pace than that experienced in 2011 and early 2012, Chinese demand for imported steel inputs such as met coal and iron ore continued to decrease during the third quarter of 2014 compared to the third quarter of 2013. Because of this, coupled with the fact that Australian met coal output has increased 12% during 2014 compared to 2013, met coal prices have decreased materially from over $160/metric ton at the beginning of 2013 to approximately $120/metric ton at the end of the third quarter of 2014.  Depressed met coal prices have led to the implementation of cost control measures by our customers, some coal mine closures and delays in the start-up of new coal mining projects in Australia.  A continued depressed met coal price will impact our customers’ future capital spending programs.  However, steel consumption per capita in China is less than one-third of the amount installed in the U.S. economy, suggesting a favorable outlook for Chinese steel production and met coal demand over a longer time horizon. 

 

 
23 

 

 

Natural gas and WTI crude oil prices, discussed above, have an impact on the demand for our U.S. accommodations. Prices for natural gas in the U.S. averaged $3.95 per mcf in the third quarter of 2014, an 11% increase over the third quarter 2013 average price.  U.S. natural gas production has outpaced demand recently, which has caused prices to continue to be weak relative to prices experienced in 2006 through 2008 and weaker prices are expected to continue. At these levels, it is uneconomic to increase development in several domestic, gas-focused basins. If natural gas production growth continues to surpass demand in the U.S. and/or the supply of natural gas were to increase, whether the supply comes from conventional or unconventional production or associated natural gas production from oil wells, prices for natural gas could be constrained for an extended period and result in fewer rigs drilling for natural gas in the near-term.

 

Recent WTI crude, WCS crude, met coal and natural gas pricing trends are as follows:

 

   

Average Price (1)

 
   

 

   

 

   

Hard

   

 

 
    WTI     WCS     Coking Coal     Henry Hub  

Quarter

 

Crude

   

Crude

   

 (Met Coal)

   

Natural Gas

 

ended

 

(per bbl)

   

(per bbl)

   

(per ton)

   

(per mcf)

 

9/30/2014

  $ 97.60     $ 78.69     $ 120.00     $ 3.95  

6/30/2014

    103.06       83.78       120.00       4.58  

3/31/2014

    98.68       77.76       143.00       5.18  

12/31/2013

    97.50       66.34       152.00       3.85  

9/30/2013

    105.83       83.10       145.00       3.55  

6/30/2013

    94.05       77.48       172.00       4.02  

3/31/2013

    94.33       66.86       165.00       3.49  

12/31/2012

    88.01       61.34       170.00       3.40  

9/30/2012

    92.17       76.75       225.00       2.88  

6/30/2012

    93.38       73.53       210.00       2.29  

3/31/2012

    102.85       75.82       235.00       2.44  

12/31/2011

    94.03       81.56       285.00       3.32  

__________

(1)     Source: WTI crude and natural gas prices from U.S. Energy Information Administration (EIA) and WCS crude prices and Seaborne hard coking coal contract price from Bloomberg.

 

Overview

 

As noted above, demand for our services is primarily tied to the long-term outlook for crude oil and met coal prices. Other factors that can affect our business and financial results include the general global economic environment and regulatory changes in the U.S., Canada and Australia and in other markets.

 

Our business is predominantly located in northern Alberta, Canada and Queensland, Australia, and we derive most of our business from resource companies who are developing and producing oil sands and met coal resources and, to a lesser extent, other hydrocarbon and mineral resources. More than three-fourths of our revenue is generated by our large-scale lodge and village facilities. Where traditional accommodations and infrastructure are insufficient, inaccessible or not cost effective, our lodge and village facilities provide comprehensive accommodations services similar to those found in an urban hotel. We typically contract our facilities to our customers on a fee per day basis covering lodging and meals that is based on the duration of their needs which can range from several months to several years.

 

 
24

 

 

Generally, our customers are making multi-billion dollar investments to develop their prospects, which have estimated reserve lives of ten years to in excess of thirty years. Consequently, these investments are dependent on those customers’ longer-term view of commodity demand and prices. Oil sands development and production activity has increased over the past several years and has had a positive impact on our Canadian business.

 

Announcements of certain new and expanded oil sands projects can create the opportunity to extend existing accommodations contracts and incremental contracts for us in Canada. For example, we were awarded a three-year contract in January 2014 to provide accommodations in support of a new oil sand mining project. We will serve this client at our new McClelland Lake Lodge, which began operations in the second quarter of 2014 and will have 1,997 rooms by year end.

 

 With lingering concerns about take-away capacity out of the oil sands region, lower oil prices and continued high costs including labor costs, the current outlook for oil sands activity has deteriorated for the fourth quarter of 2014 and the full year 2015. Project delays and cancellations continued with recent cancellations by Total, StatOil, Husky and the Korean National Oil Company. Although we are currently the primary third-party accommodations provider for the two major construction projects in the oil sands region, Suncor’s Fort Hills project and Imperial Oil’s Kearl Project, outlook for additional major oil sands construction projects is limited. Oil sands operators are looking to reduce their costs and focus their spending on sustaining capital projects, limiting the demand for accommodations like we provide. As a result, we are expecting materially lower revenues and earnings from our Canadian operations in the fourth quarter of 2014 and the full year 2015. Additionally, if oil prices remain at current levels, or continue to decline, throughout the fourth quarter 2014, the resulting impact could negatively affect the value of our long-lived assets, including goodwill. 

 

We expanded our Australian room capacity in 2012 and 2013 to meet increasing demand, notably in the Bowen Basin in Queensland and in the Gunnedah Basin in New South Wales to support coal production, and in Western Australia to support LNG and other energy-related projects. In early 2013, a confluence of low met coal pricing, additional carbon and mining taxes on our Australian accommodations customers and several years of cost inflation caused several of our customers to curtail production from higher cost mines and delay or materially reduce their growth plans. This has negatively affected our ability to expand our room count and has led to a decrease in occupancy levels. It has also caused one of our customers to reduce their forward room commitments in return for contract amendment payments beginning in March 2014, which is being recognized as additional revenue on a straight-line basis over the remaining life of the customer contracts. Despite the recent repeal of carbon and mining taxes, continued concerns about China’s economy, which significantly influences the global demand for steel, and therefore, met coal, the outlook for met coal demand continues to be negative. As a result, we expect our Australian business to experience low occupancy levels for the fourth quarter of 2014 continuing into 2015.

 

Exchange rates between the U.S. dollar and the Canadian dollar and between the U.S. dollar and the Australian dollar influence our U.S. reported financial results. Our business has historically derived the vast majority of its revenues and operating income in Canada and Australia. These revenues and profits are translated into U.S. dollars for U.S. GAAP financial reporting purposes. The Canadian dollar was valued at an average exchange rate of U.S. $0.91 for the first nine months of 2014 compared to U.S. $0.98 for the first nine months of 2013, a decrease of approximately 7%. The Australian dollar was valued at an average exchange rate of U.S. $0.92 for the first nine months of 2014 compared to U.S. $0.98 for the first nine months of 2013, a decrease of approximately 6%. This weakening of the Canadian and Australian dollars has and may continue to have a proportionately negative impact on the translation of earnings generated from our Canadian and Australian subsidiaries and, therefore, our financial results.

 

We continue to monitor the global economy, the demand for crude oil, met coal and natural gas and the resultant impact on the capital spending plans of our customers in order to plan our business. We currently expect that our 2014 capital expenditures will total approximately $280 million to $300 million, compared to 2013 capital expenditures of $292 million. Please see “Liquidity and Capital Resources” below for further discussion of 2014 capital expenditures.

 

 
25

 

 

Results of Operations

 

Unless otherwise indicated, discussion of results for the three- and nine-month period ended September 30, 2014, is based on a comparison with the corresponding period of 2013.

 

Results of Operations – Three Months Ended September 30, 2014 Compared to Three Months Ended September 30, 2013

 

   

THREE MONTHS ENDED

SEPTEMBER 30,

 
   

2014

   

2013

   

Change

 
   

($ in thousands)

 

Revenues

                       

Canada

  $ 174,111     $ 167,207     $ 6,904  

Australia

    54,000       59,738       (5,738 )

United States and other

    15,154       18,154       (3,000 )

Total revenues

    243,265       245,099       (1,834 )

Costs and expenses

                       

Cost of sales and services

                       

Canada

    102,720       96,410       6,310  

Australia

    22,704       22,039