2016–2017 second quarter financial report · 2020-02-03 · q1 q2 q3 q4 q1 q2 q3 q4 q1 q2...

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Management’s Discussion and Analysis, and Unaudited Interim Condensed Financial Statements

DEFENCE CONSTRUCTION CANADA

2016–2017SECOND QUARTERFINANCIAL REPORTPERIOD ENDED SEPTEMBER 30, 2016

TABLE OF CONTENTS

Management’s Discussion and Analysis 1

1.0 Materiality 1

2.0 Corporate Profile 1

3.0 Operational Performance Indicators 2

4.0 Risk Management 2

5.0 Financial Performance 3

Unaudited Interim Condensed Financial Statements 12

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DEFENCE CONSTRUCTION CANADA2016–2017 SECOND QUARTER FINANCIAL REPORT

> MANAGEMENT’S DISCUSSION AND ANALYSIS

This management’s discussion and analysis (MD&A) outlines the financial results and operational changes for the second quarter ended September 30, 2016, for Defence Construction (1951) Limited (the “Corporation” or “DCC”). This discussion should be read with the unaudited interim condensed financial statements for the period ended September 30, 2016. These statements were prepared in accordance with International Accounting Standard 34, Interim Financial Reporting, and the Treasury Board of Canada Standard on Quarterly Financial Reports for Crown Corporations, and are reported in Canadian dollars. We also recommend that this information be read in conjunction with the Corporation’s MD&A and annual financial statements for the year ended March 31, 2016 (the “Annual Report 2015–2016”). Financial results reported in the MD&A are rounded to the nearest thousand. Related percentages are based on numbers rounded to the nearest thousand. DCC management is responsible for the information presented in the MD&A and unaudited interim condensed financial statements.

1.0 MATERIALITY

In assessing what information is to be provided in the MD&A, management applies the materiality principle. Management considers information to be “material” when it is probable that its omission or misstatement would influence decisions that users make on the basis of the financial information.

2.0 CORPORATE PROFILE

Created in 1951, Defence Construction Canada (DCC) is a Crown corporation that provides a wide variety of property-related services to support the defence and security of Canada. The prime focus and beneficiaries of DCC’s services are the domestic and overseas operations of the Department of National Defence (DND) and Canadian Armed Forces (CAF). DCC is accountable to Parliament through the Minister of Public Services and Procurement.

Over the years, DCC’s extensive construction expertise has been instrumental to construction projects that have shaped the Canadian economic and military landscape, and fulfilled Canada’s international obligations. These projects include the Distant Early Warning (DEW) Line across the Arctic, the Northern Ontario section of the Trans-Canada Pipeline and the Canadian Embassy in Kabul, Afghanistan.

DCC provides innovative and cost-effective contracting, construction contract management, infrastructure and environmental services, and life-cycle support for Canada’s defence and security requirements. The Corporation has two primary Client-Partners: the Infrastructure and Environment community at DND and the Communications Security Establishment. From project needs planning to facility decommissioning, DCC’s work covers a broad spectrum of activities. DCC’s resources are divided among five service lines: Contract Services, Contract Management Services, Environmental Services, Project and Program Management Services, and Real Property Management Services.

MANAGEMENT’S DISCUSSION AND ANALYSIS

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3.0 OPERATIONAL PERFORMANCE INDICATORS

3.1 UTILIZATION RATE

The utilization rate indicates the hours spent directly on service delivery functions that are billable to the Client-Partners, as opposed to administrative functions that are considered overhead support. This rate is an important indicator of efficiency and effectiveness, and a key financial management tool. A higher utilization rate is a positive indicator that DCC is using its resources more for revenue-generating activities and less for overhead administrative functions. DCC’s target utilization rate is 70%.

In the second quarter of 2016–17, the Corporation achieved a utilization rate of 72.5%, an increase over the rate of 72.2% for the same period in 2015–16. This increase was due to higher activity levels associated with the Federal Infrastructure Investments Program (FIIP) and Infrastructure 2016.

For the year-to-date period of 2016–17, the Corporation achieved a utilization rate of 74.5%, compared to 74.2% in the same period of the last fiscal year. The year-over-year improvement was due to the ongoing delivery of projects and higher activity levels related to FIIP and Infrastructure 2016.

3.2 PROFESSIONAL DEVELOPMENT TO SALARY COST RATIO

DCC’s ability to serve its Client-Partners depends heavily on the skills of its employees. Maintaining a skilled and professional workforce is a key corporate objective. For 2016–17, DCC has established an annual overall corporate target for spending on training and development of 4.0% of base salary costs. This target encompasses all costs associated with training and development activities, including internal employee time and third-party costs.

During the second quarter of 2016–17, the professional development to salary cost ratio was 3.3%, an increase from 2.7% in the comparable period last year. The increase was due to growth in the number of employees required to deliver FIIP and Infrastructure 2016 projects, and to the timing of training activities.

For the year-to-date period of 2016–17, the professional development to salary cost ratio was 4.0%, an increase from 2.8% in the comparable period last year. The increase was due to growth in the number of employees required to deliver FIIP and Infrastructure 2016 projects, and to the timing of training activities.

4.0 RISK MANAGEMENT

There have been no material changes to the corporate risks identified by management and discussed in Section 5.0, Risk Management, of the MD&A in DCC’s Annual Report 2015–2016.

Utilization Rate(Percentage of employee hours spent onbillable contract work — year to date)

Target

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

Actual

Professional Development to Salary Cost Ratio(Year to date %)

2014–2015 2015–2016 2016–2017

Target Actual

66

68

70

72

74

76

78

80

2.0

2.5

3.0

3.5

4.0

4.5

5.0

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

2014–2015 2015–2016 2016–2017

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5.0 FINANCIAL PERFORMANCE

5.1 BASIS OF PRESENTATION

The Corporation prepared this quarterly report as per the requirements of the Financial Administration Act. This statute requires all federal Crown corporations to prepare and make public a report within 60 days of the end of each fiscal quarter.

This quarterly financial report was prepared in accordance with International Accounting Standard 34, Interim Financial Reporting, and the Treasury Board of Canada Standard on Quarterly Financial Reports for Crown Corporations.

In the following analysis, all references to the second quarter relate to the three months ended September 30, 2016; all references to the year-to-date period refer to the six months ended September 30, 2016. All references to the previous year’s second quarter relate to the three months ended September 30, 2015; all references to the previous year end relate to March 31, 2016.

5.2 REVENUE

SERVICES REVENUE

Services revenue for all activities combined was $23.1 million in the second quarter, an increase of $2.6 million or approximately 13% from the previous year. For the year-to-date period, services revenue was $46.2 million, an increase of $4.8 million. The increases in the second quarter and the year-to-date period were the result of higher demand from DND for services, mainly related to FIIP and Infrastructure 2016. Since billing rates in 2015–16 and 2016–17 remained the same, they were not a factor in the revenue increase.

CONTRACT MANAGEMENT

Revenue from contract management increased by 24% in the second quarter and 21% in the year-to-date period, compared to the same periods in the previous year. These increases reflected increased demand related to FIIP and Infrastructure 2016.

PROJECT PLANNING

Project planning revenue increased by 2% in the second quarter over the second quarter of 2015–16. In the year-to-date period, revenue increased by 4% over the same period in the prior year. The increases were due to higher demand from DND for this service, due to ongoing FIIP and Infrastructure 2016 activities.

REAL PROPERTY TECHNICAL SUPPORT

Real property technical support revenue increased by 13% in the second quarter over the same period last year. In the year-to-date period, revenue increased by 1% year over year. The increases were due to changing demand from DND for this activity.

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PROCUREMENT

Procurement revenue in the second quarter increased by 3% compared to the same period in the previous year. The increase in the year-to-date period was 11%. These increases were due to higher demand from DND for this service, related to FIIP and Infrastructure 2016 activities.

CONSTRUCTION TECHNICAL SUPPORT

Revenue from construction technical support was consistent in the second quarter with the comparable period in 2015–16. For the year-to-date period, revenue increased by 8% compared to the same period in the previous year. The increase in the year-to-date period was the result of higher demand from DND for this activity, mainly related to FIIP and Infrastructure 2016 projects.

ENVIRONMENTAL TECHNICAL SUPPORT

Environmental technical support revenue increased by 9% in the second quarter compared to the same period in the prior year. For the year-to-date period, revenue increased by 3%. These increases were due to higher demand from DND for these services. Fluctuations in the DND program have a direct impact on the revenue this activity generates.

REVENUE, BY ACTIVITY

Change Change

(in thousands of dollars)

Three months ended

September 30, 2016

Three months ended

September 30, 2015 $ %

Six months ended

September 30, 2016

Six months ended


Contract management $ 10,794 $ 8,696 2,098 24% $ 20,915 $ 17,220 3,695 21%

Project planning 5,596 5,461 135 2% 11,787 11,368 419 4%

Real property technical support 2,018 1,788 230 13% 3,882 3,853 29 1%

Procurement 1,748 1,692 56 3% 3,518 3,178 340 11%

Construction technical support 1,628 1,622 6 0% 3,520 3,272 248 8%

Environmental technical support 1,353 1,238 115 9% 2,622 2,558 64 3%

$ 23,137 $ 20,497 2,640 13% $ 46,244 $ 41,449 4,795 12%

INVESTMENT REVENUE

Investment revenue, which is generated from the Corporation’s average cash balance in its bank account and from investments, decreased in the second quarter by $19,000 or 12% from the same period in the previous year. The decrease in the second quarter was primarily due to a decrease in the amount of interest earned on the cash held in the bank account, as a result of a lower average cash balance. The average monthly bank balance decreased by $3.8 million from the comparable period in the prior year.

For the year-to-date period, investment revenue decreased by $23,000 or 7% from the same period in the previous year. The decrease in the year-to-date period was primarily due to a decrease

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in the amount of interest earned on the cash held in the bank account, as a result of a lower average cash balance. The average monthly bank balance decreased by $3.1 million from the comparable period in the prior year.

INVESTMENT REVENUE

Change Change


Three months ended

September 30, 2016

Three months ended


Six months ended

September 30, 2016

Six months ended


Investment revenue $ 145 $ 164 (19) -12% $ 321 $ 344 (23) -7%

5.3 EXPENSES

SALARIES AND EMPLOYEE BENEFITS

Salaries totalled $18.2 million in the second quarter, an increase of $2.6 million, or approximately 17%, over the same period in the previous year. Three percentage points of this increase were the result of a combination of salary increases and employee salary mix. The remaining 14 percentage points were accounted for by an increase in the workforce, due to higher demand for services related to FIIP and Infrastructure 2016 projects. The increase for the year-to-date period was $4.5 million or 14%, due to higher salaries and an increase in the workforce to meet demand for services.

Employee benefits were $4.4 million in the second quarter, an increase of $13,000 from the same period in the previous year. For the year-to-date period, employee benefits were $9.1 million or 5% higher than in the previous year. The increases in both periods were due to a rise in the number of employees required for FIIP and Infrastructure 2016 delivery. Employee benefits as a percentage of salaries decreased to 24% for the second quarter and to 25% for the year-to-date period from 28% in both periods in the prior year. The decreases were due to two factors: lower health care benefits due to a change in provider; and a change in eligibility for new hires under the Public Service Pension Plan.

SALARIES AND EMPLOYEE BENEFITS

Change Change


Three months ended

September 30, 2016

Three months ended


Six months ended

September 30, 2016

Six months ended


Salaries $ 18,186 $ 15,598 2,588 17% $ 36,055 $ 31,554 4,501 14%

Employee benefits 4,364 4,351 13 0% 9,147 8,687 460 5%

$ 22,550 $ 19,949 2,601 13% $ 45,202 $ 40,241 4,961 12%

Employee benefits as a percentage of salaries 24% 28% 25% 28%

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OPERATING AND ADMINISTRATIVE EXPENSES

Operating and administrative expenses were $1.9 million in the second quarter of 2016–17, an increase of $386,000 or 26% over the second quarter of 2015–16. For the year-to-date period, operating and administrative expenses were $3.6 million, an increase of $616,000 or 21% over the same period last year. Material variances are shown in the following table.

OPERATING AND ADMINISTRATIVE EXPENSES

Change Change


Three months ended

September 30, 2016

Three months ended


Six months ended

September 30, 2016

Six months ended

September 30, 2015 $ % Variance analysis

Rent $ 433 $ 358 75 21% $ 874 $ 790 84 11% The increases in both periods were due to increased costs for space in the National Capital Region.

Software maintenance

269 220 49 22% 507 434 73 17% The increases in both periods were due to higher utilization of tools to increase employee productivity.

Employee training and development

240 187 53 28% 518 380 138 36% The increases in both periods were due to the timing of training activities and the increase in staff due to FIIP.

Professional services

227 126 101 80% 372 300 72 24% The increases in both periods were mainly attributable to the increase in spending for IT professional services.

Telephone and data communications

206 206 – 0% 357 380 (23) -6% The variance in the second quarter was not material. The decrease for the year-to-date period was due to lower costs related to cellular use and land lines in the first quarter.

Office services, supplies and equipment

166 71 95 134% 246 143 103 72% The increases in both periods were due to the increase in staff related to FIIP and to the purchase of ergonomic office equipment.

Travel 105 66 39 59% 246 177 69 39% The increases in both periods were due to the timing of travel requirements.

Computer equipment 51 13 38 292% 86 19 67 353% The increases in both periods were due to purchases below the $1,000 capitalization threshold.

Staff relocation 45 106 (61) -58% 143 124 19 15% The decrease in the second quarter and the increase in the year-to-date period were both due to the timing of events in this category.

Printing and stationery

32 21 11 52% 48 40 8 20% The increases in both periods were due to higher staffing levels related to FIIP.

Client services and communications

28 25 3 12% 47 43 4 9% The increases in both periods were not material.

(continued next page)

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OPERATING AND ADMINISTRATIVE EXPENSES (continued)

Change Change


Three months ended

September 30, 2016

Three months ended


Six months ended

September 30, 2016

Six months ended

September 30, 2015 $ % Variance analysis

Furniture and fixtures

16 8 8 100% 20 11 9 82% The increases in both periods were related to two factors: increases in staff due to FIIP and purchases below the capitalization threshold. Furniture and fixtures was included in the “other” category in the second quarter of 2015–16.

Postage and freight 11 11 – 0% 17 16 1 6% The increases in both periods were not material.

Recruiting 10 13 (3) -23% 41 19 22 116% The decrease in the second quarter was due to the timing of demand, as most new hires to meet FIIP demand had already been hired. The increase in the year-to-date period was related to an executive recruitment.

Memberships and subscriptions

9 9 – 0% 21 19 2 11% The variances in the second quarter and yeart to date period were not material. The increase in the year-to-date period was not material.

Computer software 4 1 3 300% 23 1 22 2200% The increases in both periods were due to purchases of software below the $1,000 capitalization threshold.

Disposal of assets – 29 (29) -100% – 61 (61) -100% The decreases in both periods occurred because no assets were disposed of before being fully depreciated.

Other 11 7 4 57% 16 9 7 78% In the second quarter of 2015–16, this category included furniture and fixtures, which is now a separate category. The increases in both periods were not material.

$ 1,863 $ 1,477 386 26% $ 3,582 $ 2,966 616 21%

DEPRECIATION AND AMORTIZATION

Depreciation and amortization increased by 8% or $26,000 in the second quarter over the second quarter of 2015–16. For the year-to-date period, the increase was 8% or $51,000. The increases in both periods were due to higher capital expenditures in the previous year, mainly for property, plant and equipment related to the new staff being hired for FIIP projects, and for new servers for DCC sites across Canada.

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DEPRECIATION AND AMORTIZATION

Change Change


Three months ended

September 30, 2016

Three months ended


Six months ended

September 30, 2016

Six months ended


Depreciation of property, plant and equipment $ 244 $ 223 21 9% $ 493 $ 444 49 11%

Depreciation of assets under finance lease 27 28 (1) -4% 53 57 (4) -7%

Amortization of intangible assets 63 57 6 11% 127 121 6 5%

$ 334 $ 308 26 8% $ 673 $ 622 51 8%

5.4 LOSS AND TOTAL COMPREHENSIVE LOSS

The Corporation realized a loss and total comprehensive loss of $1.5 million for the second quarter, compared with a loss and total comprehensive loss of $1.1 million for the second quarter in the previous year. For the year-to-date period, the loss was $2.9 million, compared to $2.0 million for the same period in the prior year, a change of 42%. The second quarter and year-to-date losses in the current year were due mainly to lower gross margins related to the billing rate freeze DCC planned for in its financial management plan.

LOSS AND TOTAL COMPREHENSIVE LOSS

Change Change


Three months ended

September 30, 2016

Three months ended


Six months ended

September 30, 2016

Six months ended


Loss and total comprehensive loss $ (1,467) $ (1,078) (389) 36% $ (2,896) $ (2,042) (854) 42%

5.5 LIQUIDITY AND CAPITAL RESOURCES

FINANCIAL AND CASH MANAGEMENT

DCC’s financial and cash management policy is discussed in the Annual Report 2015–2016.

CASH AND INVESTMENTS

Cash and investments totalled $35.9 million at September 30, 2016, a decrease of $2.3 million from March 31, 2016.

The cash balance at September 30, 2016, was $15.9 million, a decrease of $2.5 million or 14% from the 2015–16 year end. In the period since March 31, 2016, the Corporation has used $2.0 million in cash for operating activities, spent $183,000 on capital expenditures, invested $302,000 and spent $46,000 to meet finance lease obligations.

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Investments (both current and long term) at September 30, 2016, totalled $20.0 million, an increase of $230,000 or 1% from the 2015–16 year end. The increase was due mainly to investment revenue. Investments consist of non-derivative financial assets with fixed or determinable payments and fixed maturity. The Corporation currently invests in listed bonds, guaranteed investment certificates and mutual funds that are recorded at cost and amortized using the effective interest method. The investments held meet the requirements of the policy approved by the Board of Directors. It is the Corporation’s intention to hold the investments to maturity.

TRADE RECEIVABLES

Trade receivables are due mainly from one of the Corporation’s Client-Partners, DND. At September 30, 2016, the amount of trade receivables was $19.9 million, an increase of $4.0 million or 25% from March 31, 2016. The increase was due to the timing of the collection of receivables from DND and an increase in demand for services provided to DND.

CURRENT LIABILITIES

Current liabilities were $14.3 million at September 30, 2016, an increase of $2.9 million or 25% from March 31, 2016. The increase in current liabilities was primarily due to an increase in accounts payable related to the timing of payments.

LIQUIDITY AND CAPITAL RESOURCES

Change


As at September 30,

2016

As at March 31,

2016 $ %

Cash $ 15,863 $ 18,378 (2,515) -14%

Investments 20,020 19,790 230 1%

Cash and investments $ 35,883 $ 38,168 (2,285) -6%

Trade receivables $ 19,936 $ 15,966 3,970 25%

Current liabilities $ 14,314 $ 11,443 2,871 25%

5.6 EMPLOYEE BENEFITS

The Corporation records a liability for the estimated cost of sick leave for employees, and health, dental and life insurance benefits for retirees. An actuary determines this estimate every three years. The accrued sick leave and other benefits balance as at September 30, 2016, was $20.9 million, an increase of $1.0 million from the 2015–16 year end. The increase reflects the actuary’s estimates of accrued benefits for the current fiscal year, less payments of benefits for retirees.

EMPLOYEE BENEFITS

Change


As at September 30,

2016

As at March 31,

2016 $ %

Current portion $ 946 $ 946 – 0%

Long-term portion 19,978 18,933 1,045 6%

Total employee benefits $ 20,924 $ 19,879 1,045 5%

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5.7 ASSETS UNDER FINANCE LEASE AND FINANCE LEASE OBLIGATION

The Corporation leases multifunctional devices for copying, scanning and faxing. At the end of the second quarter, the value of assets under finance lease had increased by $42,000 or 15% since the 2015–16 year end. The increase was the result of additional copiers.

ASSETS UNDER FINANCE LEASE

Change


As at September 30,

2016

As at March 31,

2016 $ %

Assets under finance lease $ 321 $ 279 42 15%

The finance lease obligation at the end of the second quarter increased by $48,000, or 17%, from the 2015–16 year end, due to additions of $94,000 and payments of $46,000.

FINANCE LEASE OBLIGATION

Change


As at September 30,

2016

As at March 31,

2016 $ %

Current portion $ 99 $ 93 6 6%

Long-term portion 238 196 42 21%

Finance lease obligation $ $337 $ 289 48 17%

5.8 CAPITAL EXPENDITURES

The Corporation’s capital expenditures for the second quarter totalled $72,000, a decrease of $166,000 or 70% from the same period in the previous year. For the year-to-date period, capital expenditures totalled $183,000, a decrease of $196,000 or 52% from the previous year. The decrease in both periods was due to the timing of computer equipment replacement cycles.

CAPITAL EXPENDITURES

Change Change


Three months ended

September 30, 2016

Three months ended


Six months ended

September 30, 2016

Six months ended


Intangible assets $ 3 $ – 3 100% $ 15 $ 34 (19) -56%

Computer equipment 67 232 (165) -71% 166 315 (149) -47%

Furniture and equipment 2 5 (3) -60% 2 5 (3) -60%

Leasehold improvements – 1 (1) -100% – 25 (25) -100%

$ 72 $ 238 (166) -70% $ 183 $ 379 (196) -52%

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5.9 ACTUAL PERFORMANCE VERSUS PLAN

The Corporation’s actual performance for the six months ended September 30, 2016, was largely consistent with projections in the Corporate Plan. Revenue variance was not material. Gross margin was 1% higher than projected, due to higher-than-expected recovered travel and disbursement revenue. Salaries and benefits were 1% higher than projected, due to increases in the workforce to meet demand for FIIP projects. Operating and administrative costs were 4% lower than projected, due to continuing cost management efforts, improved operating efficiencies and the timing of certain expenditures. Depreciation was 31% higher than planned, due to higher levels of investment in property, plant and equipment; that investment was needed to meet operational demands related to the increased number of employees required to deliver FIIP and Infrastructure 2016 projects. Capital expenditures were 62% lower than projected, due to the timing of planned acquisitions.

ACTUAL PERFORMANCE VERSUS PLAN

Change

(in thousands of dollars) Actual Plan $ %

Revenue

Services $ 46,244 $ 46,286 $ (42) 0%

Recovered travel and disbursement 1,233 847 386 46%

Investment 321 350 (29) -8%

47,798 47,483 315 1%

Expenses

Salaries and employee benefits 45,202 44,842 360 1%

Operating and administrative costs 3,586 3,750 (164) -4%

Recoverable travel and disbursement 1,233 847 386 46%

Depreciation and amortization 673 513 160 31%

50,694 49,952 742 1%

Loss and total comprehensive loss $ (2,896) $ (2,469) (427) 17%

Capital expenditures $ 183 $ 483 (300) -62%

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UNAUDITEDINTERIMCONDENSEDFINANCIAL STATEMENTS

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> UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS

MANAGEMENT RESPONSIBILITY STATEMENT

Management is responsible for the preparation and fair presentation of these unaudited interim condensed financial statements in accordance with International Accounting Standard 34, Interim Financial Reporting, and the Treasury Board of Canada Standard on Quarterly Financial Reports for Crown Corporations. Management is also responsible for such internal controls as it determines are necessary to enable the preparation of unaudited interim condensed financial statements that are free from material misstatement. In addition, management is responsible for ensuring that all other information in this quarterly financial report is consistent, as appropriate, with the unaudited interim condensed financial statements.

Based on our knowledge, these unaudited interim condensed financial statements present fairly, in all material respects, the financial position, results of operations and cash flows of the Corporation, as at the date of and for the periods presented in the interim condensed financial statements.

James S. PaulPresident and Chief Executive Officer

Juliet S. Woodfield, CPA, CAVice-President, Finance & Human Resources and Chief Financial Officer

Ottawa, Canada November 29, 2016

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DEFENCE CONSTRUCTION (1951) LIMITED

INTERIM CONDENSED STATEMENT OF FINANCIAL POSITIONUnaudited

(in thousands of dollars) NotesAs at

September 30, 2016As at

March 31, 2016

Assets

Cash $ 15,863 $ 18,378

Investments 5 1,342 560

Trade receivables 10 19,936 15,966

Other receivables 2,206 2,263

Prepaid and other current assets 1,296 1,467

Current assets 40,643 38,634

Investments 5 18,678 19,230

Property, plant and equipment 7 2,058 2,383

Intangible assets 489 601

Assets under finance lease 321 279

Non-current assets 21,546 22,493

Total assets $ 62,189 $ 61,127

Liabilities

Trade and other payables $ 11,647 $ 10,404

Deferred revenue 6 1,622 –

Current portion: Finance lease obligation 99 93

Current portion: Employee benefits 8 946 946

Current liabilities 14,314 11,443

Finance lease obligation 238 196

Employee benefits 8 19,978 18,933

Non-current liabilities 20,216 19,129

Total liabilities 34,530 30,572

Equity

Share capital, authorized: 1,000 common shares of no par value

Issued: 32 common shares – –

Retained earnings 27,659 30,555

Total equity 27,659 30,555

Total liabilities and equity $ 62,189 $ 61,127

Contingent liabilities (Note 11)

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

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INTERIM CONDENSED STATEMENT OF PROFIT AND LOSS AND OTHER COMPREHENSIVE INCOMEUnaudited


INTERIM CONDENSED STATEMENT OF CHANGES IN EQUITYUnaudited

(in thousands of dollars) NotesThree months ended September 30, 2016

Three months ended September 30, 2015

Six months ended September 30, 2016


Services revenue $ 23,137 $ 20,497 $ 46,244 $ 41,449

Travel and disbursement revenue 795 504 1,233 966

Investment revenue 145 164 321 344

Total revenue 24,077 21,165 47,798 42,759

Salaries and employee benefits 22,550 19,949 45,202 40,241

Operating and administrative expenses 9 1,863 1,477 3,582 2,966

Travel and disbursement expenses 795 506 1,233 966

Depreciation of property, plant and equipment 7 244 223 493 444

Depreciation of assets under finance lease 27 28 53 57

Amortization of intangible assets 63 57 127 121

Finance costs 2 3 4 6

Total expenses 25,544 22,243 50,694 44,801

Loss for the period and total comprehensive loss $ (1,467) $ (1,078) $ (2,896) $ (2,042)


(in thousands of dollars) Share capital Retained earnings Total equity

Balance at June 30, 2016 $ – $ 29,126 $ 29,126

Loss for the period (1,467) (1,467)

Balance at September 30, 2016 $ – $ 27,659 $ 27,659

Share capital Retained earnings Total equity

Balance at June 30, 2015 $ – $ 30,042 $ 30,042




Balance at March 31, 2016 $ – $ 30,555 $ 30,555




Balance at March 31, 2015 $ – $ 31,006 $ 31,006




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INTERIM CONDENSED STATEMENT OF CASH FLOWSUnaudited

(in thousands of dollars) NotesThree months ended September 30, 2016




Cash flow from (used in) operating activities

Loss for the period $ (1,467) $ (1,078) $ (2,896) $ (2,042)

Adjustments to reconcile loss for the period to cash provided by (used in) operating activities

Depreciation of property, plant and equipment 244 223 493 444

Depreciation of assets under finance lease 27 28 53 57

Amortization of intangible assets 63 57 127 121

Amortization of investment premiums 42 30 71 62

Change in non-cash operating working capital

Trade receivables (1,169) 2,078 (3,970) (1,738)

Prepaids and other current assets and other receivables 1,286 (2,430) 228 (2,963)

Trade and other payables 2,061 2,359 1,243 4,099

Employee benefits expense 522 574 1,045 1,155

Deferred revenue (358) 883 1,622 2,342

Net cash flows provided by (used in) operating activities 1,251 2,724 (1,984) 1,537

Cash flows from investing activities

Acquisition of investments* (134) (102) (1,027) (777)

Disposition of investments* – – 725 500

Acquisition of property, plant and equipment (69) (238) (168) (345)

Acquisition of intangible assets (3) – (15) (34)

Loss on disposal of property, plant and equipment – 7 – 39

Loss on disposal of assets under finance lease – 22 – 22

Net cash flows used in investing activities (206) (311) (485) (595)

Cash flows from financing activities

Repayment of finance lease obligations (23) (25) (46) (50)

Net cash flows used in financial activities (23) (25) (46) (50)

Increase (decrease) in cash during the period 1,022 2,388 (2,515) 892

Cash at the beginning of the period 14,841 18,134 18,378 19,630

Cash at the end of the period $ 15,863 $ 20,522 $ 15,863 $ 20,522

* Presented in previous quarterly financial statements as net ($277).


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NOTE 1: SUMMARY OF BUSINESS AUTHORITY AND OBJECTIVES

Defence Construction (1951) Limited (the “Corporation” or “DCC”) was incorporated under the Companies Act in 1951 pursuant to the authority of the Defence Production Act and continued under the Canada Business Corporations Act. The Corporation’s Head Office is located at 350 Albert Street, Ottawa, Ontario, Canada. DCC is an agent Crown corporation named in Part I of Schedule III to the Financial Administration Act. Responsibility for the Corporation rests with the Minister of Public Services and Procurement. The Corporation is not subject to income taxes.

The mandate of the Corporation is to provide procurement, construction contract management, professional, operations and full life-cycle infrastructure support for the defence and security of Canada. The prime, but not exclusive, beneficiary of the Corporation’s services has always been the Department of National Defence (DND). Other government departments and agencies that play a role in Canada’s defence and security may also avail themselves of DCC’s services. Revenue is generated from fees charged for specific services provided.

NOTE 2: BASIS OF PREPARATION AND PRESENTATION

These interim condensed financial statements are prepared by the Corporation in accordance with International Accounting Standard 34 (IAS 34), Interim Financial Reporting, as issued by the Accounting Standards Board, and the Standard on Quarterly Financial Reports for Crown Corporations issued by the Treasury Board of Canada. As permitted under IAS 34, these interim condensed financial statements do not include all of the disclosures required for annual financial statements and should be read in conjunction with the Corporation’s audited financial statements for its fiscal year ended March 31, 2016.

The interim condensed financial statements have been prepared according to the International Financial Reporting Standards (IFRS) effective when these statements were prepared.

The statements have been prepared on a historical cost basis, except as permitted by the IFRS and as otherwise indicated in these notes.

NOTICE TO READERS


NOTES TO THE UNAUDITED FINANCIAL STATEMENTSUnless otherwise stated, all amounts are in thousands of Canadian dollars.

These interim condensed financial statements have not been audited or reviewed by an external auditor and must be read in conjunction with the most recent financial statements for the year ended March 31, 2016, and with the MD&A included in this quarterly financial report.

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NOTE 3: SUMMARY OF ACCOUNTING POLICIES

These interim condensed financial statements follow the same accounting policies and methods of computation described in Note 3 to the Corporation’s audited financial statements for the year ended March 31, 2016. The accounting policies and methods of computation have been applied consistently to all the periods presented.

NOTE 4: CRITICAL ACCOUNTING ESTIMATES

Under the Corporation’s accounting policies, management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors considered relevant. Actual results may differ from the judgments, estimates and assumptions.

The estimates and underlying assumptions are reviewed regularly. Revisions to accounting estimates are recognized in the period in which the estimates are revised, when the revision affects only that period, or in the period of the revision and future periods, when the revision affects both current and future periods. Critical judgments and key sources of estimation uncertainty are disclosed in Note 4 to the Corporation’s annual financial statements for the year ended March 31, 2016.

NOTE 5: INVESTMENTS

Investments consist of Canadian, provincial and corporate bonds with fixed interest rates ranging from 2.85% to 7.2%, guaranteed investment certificates (GICs) with fixed interest rates ranging from 1.7% to 2.1%, and mutual funds with variable interest rates. The maturity dates of the bonds vary from 2017 to 2031 and those of the GICs vary from 2017 to 2021; DCC intends to hold them all until maturity. The mutual funds can be liquidated on demand. The carrying amounts, measured at the amortized cost and fair value of these investments, are shown in the following table.

The fair values of the investments can be determined by (a) quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1); (b) inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., prices) or indirectly (i.e., derived from prices) (Level 2); or (c) inputs for the asset or liability that are not based on observable market data (unobservable inputs) (Level 3). The fair values of DCC’s investments are not quoted in an active market but, rather, are determined from quoted prices from a decentralized, over-the-counter market, which is considered Level 2 in the fair value hierarchy.

The “current portion” of the Corporation’s investments consists of instruments maturing in the next 12 months.

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As at September 30, 2016

As at March 31, 2016

Current portion $ 1,342 $ 560

Non-current portion 18,678 19,230

$ 20,020 $ 19,790



Carrying amount at amortized cost

Bonds

Federal $ 507 $ 508

Provincial 8,985 9,657

Corporate 4,468 4,366

Total bonds 13,960 14,531

Guaranteed investment certificates 5,925 5,200

Mutual funds 135 59

$ 20,020 $ 19,790



Fair value

Bonds

Federal $ 550 $ 554

Provincial 9,906 10,290

Corporate 4,636 4,486

Total bonds 15,092 15,330

Guaranteed investment certificates 5,987 5,212

Mutual funds 135 58

$ 21,214 $ 20,600

NOTE 6: DEFERRED REVENUE

Deferred revenue arises when, at a reporting date, the amount invoiced exceeds the services delivered through fixed-fee service-level arrangements. For the period ended September 30, 2016, deferred revenue was $1,622. The figure as at March 31, 2016, was $0. Timing differences on fixed-fee service-level arrangements can occur during the reporting periods of the fiscal year but are reconciled and reduced to $0 by the year-end reporting date.

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NOTE 7: PROPERTY, PLANT AND EQUIPMENT



Cost $ 7,271 $ 7,268

Less: Accumulated depreciation 5,213 4,885

Net book value $ 2,058 $ 2,383

Net book value, by asset class

Computer equipment $ 1,928 $ 2,218

Furniture and fixtures 61 77

Leasehold improvements 69 88

Net book value $ 2,058 $ 2,383

The changes in property, plant and equipment are shown in the following table.

Computer equipment


Leasehold improvements Total

Cost

Balance as at March 31, 2016 $ 4,572 $ 672 $ 2,024 $ 7,268

Plus: Additions 166 2 – 168

Less: Disposals 165 – – 165

Balance as at September 30, 2016 $ 4,573 $ 674 $ $2,024 $ 7,271

The changes in accumulated depreciation are shown in the following table.

Computer equipment


Leasehold improvements Total

Accumulated depreciation

Balance as at March 31, 2016 2,354 $ 595 $ 1,936 4,885

Plus: Depreciation 456 18 19 493

Less: Disposals 165 – – 165

Balance as at September 30, 2016 $ 2,645 $ 613 $ 1,955 $ 5,213

There was no impairment of property, plant and equipment.

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NOTE 8: EMPLOYEE BENEFITS

POST-EMPLOYMENT AND OTHER LONG-TERM EMPLOYEE BENEFITS

Post-employment and other long-term employee benefits represent the Corporation’s estimated costs of sick leave for employees, and health, dental and life insurance benefits for retirees. The benefit plan is not funded and thus has no assets, resulting in a plan deficit equal to the accrued benefit obligation.



Current portion of employee benefits $ 946 $ 946

Long-term portion of employee benefits 19,978 18,933

Total employee benefits $ 20,924 $ 19,879

The significant actuarial assumptions are disclosed in the Annual Report 2015–2016. The measurement date for the last actuarial valuation of the provision for employee benefits was April 1, 2014. The next actuarial valuation is planned for April 2017.

NOTE 9: OPERATING AND ADMINISTRATIVE EXPENSES





Rent $ 433 $ 358 $ 874 $ 790

Software maintenance 269 220 507 434

Employee training and development 240 187 518 380

Professional services 227 126 372 300

Telephone and data communications 206 206 357 380

Office services, supplies and equipment 166 71 246 143

Travel 105 66 246 177

Computer equipment 51 13 86 19

Staff relocation 45 106 143 124

Printing and stationery 32 21 48 40

Client services and communications 28 25 47 43

Furniture and fixtures 16 8 20 11

Postage and freight 11 11 17 16

Recruiting 10 13 41 19

Memberships and subscriptions 9 9 21 19

Computer software 4 1 23 1

Disposal of assets – 29 – 61

Other* 11 7 16 9

$ 1,863 $ 1,477 $ 3,582 $ 2,966

* In previous financial statements, furniture and fixtures were included in the “other” category.

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NOTE 10: RELATED-PARTY TRANSACTIONS AND BALANCES

The Corporation is related in terms of common ownership to all Government of Canada departments, agencies and Crown corporations. The Corporation enters into transactions with these entities in the normal course of business under its stated mandate. These transactions are measured at fair value, which is the actual amount of the consideration given or received for the services provided. The Corporation’s services revenue, and travel and disbursement revenue, in the year-to-date period of 2016–17 was $47,477, compared to $42,415 in the comparable period of 2015–16. These revenues were generated from services provided to DND (including the Canadian Forces Housing Agency), the Communications Security Establishment and Shared Services Canada.

The Corporation incurred expenses with other departments of the Government of Canada. These transactions totalled $39 in the year-to-date period of 2016–17, compared with $43 in the same period of 2015–16.

In accordance with a memorandum of understanding between DND and the Corporation, DND is to provide office accommodations free of charge to the Corporation’s service delivery personnel at DND-owned bases and wings, and at other locations. Where office space is not provided, and for the Corporation’s service delivery personnel who cannot be accommodated at a DND-owned facility, DCC recovers accommodation costs either as an out-of-pocket reimbursable disbursement or through the hourly billing rates established for the services provided.


As atMarch 31, 2016

Due from:

Department of National Defence $ 17,887 $ 14,595

Canadian Forces Housing Agency 1,623 1,202

Shared Services Canada 307 109

Communications Security Establishment 116 58

Public Services and Procurement Canada 3 2

$ 19,936 $ 15,966

Due to:

Shared Services Canada – 14

Department of National Defence – 1

Canada School of Public Service – 1

$ – $ 16

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10.1 COMPENSATION OF KEY MANAGEMENT PERSONNEL

Key management personnel are those persons (including members of the Board of Directors) having authority and responsibility for planning, directing and controlling the activities of the Corporation, directly or indirectly. The remuneration of DCC’s key management personnel is shown in the following table.





Short-term benefits $ 936 $ 1,007 $ 1,543 $ 1,626

Post-employment benefits 20 26 40 51

$ 956 $ 1,033 $ 1,583 $ 1,677

NOTE 11: CONTINGENT LIABILITIES

11.1 LEGAL CLAIMS

The Corporation’s efforts to resolve contract disputes are reflected in the number and value of contract claims before the courts. As at September 30, 2016, there were 10 ongoing claims totalling $2,090. One matter was settled during this quarter. As at March 31, 2016, there were 11 ongoing claims totalling $2,126, including 10 claims relating to DND totalling $2,079 and one claim relating to the Corporation totalling $47 for which no provision has been provided.

In accordance with the memorandum of understanding between the Corporation and DND, DND accepts the legal and financial risks associated with claims resulting from third-party contracts put in place by the Corporation. Thus, the financial risk associated with settling these contractual claims does not have any financial impact on the Corporation. As a result, the Corporation does not consider it necessary to record any provision in its financial statements relating to legal claims from third-party contracts.

2016–2017 second quarter financial report · 2020-02-03 · q1 q2 q3 q4 q1 q2 q3 q4 q1 q2...

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