Ratio Analysis for ZCL

Calculate the current ratio, quick ratio, net working capital, debt-to equity ratio, times-interest earned, financial leverage, asset turnover, Receivables Turnover, Average collection period, Inventory Turnover, Average days in Inventory, profit margin, return on assets (ROA) and return on equity (ROE) for 2014. Discuss and interpret the ratios that you calculated and compare the liquidity, efficiency and productivity of PPE and Total assets, receivables and inventory management and solvency of the company. Discuss any potential issues based on your calculations of the ratios for the company. Use the Dupont framework to analyze any difference in the ROE . Are there any factors that could be erroneously influencing the results of the ratios?

Recommendation

Based on your analysis, would you recommend ZCL as an investment to a prospective investor? What strengths do you see? What risks do you see? You must provide justification for your recommendation.

Attached are both financial statements of ZCL also ZCL ratio calculations. so you don't have to calculate anything. I just need this part:

Discuss and interpret the ratios that you calculated and compare the liquidity, efficiency and productivity of PPE and Total assets, receivables and inventory management and solvency of the company. Discuss any potential issues based on your calculations of the ratios for the company. Use the Dupont framework to analyze any difference in the ROE . Are there any factors that could be erroneously influencing the results of the ratios?

Recommendation

Based on your analysis, would you recommend ZCL as an investment to a prospective investor? What strengths do you see? What risks do you see? You must provide justification for your recommendation.

Annual Report 14 CONTENTS ______________________________________________ Message to Shareholders 2 Management's Discussion and Analysis 4 Consolidated Financial Statements and Notes 27 Corporate Information 58 1 Message to Shareholders I view 2014 as a year of achievement for ZCL. We set annual records with: Revenue of $170.8 million (a 6% increase over 2013) Net income of $16.3 million (a 13% increase over 2013) Earnings per share of $0.54 (a 10% increase over 2013) EBITDA of $27.1 million (a 6% increase over 2013) Our balance sheet continues to be strong with a net cash position of $25.8 million and working capital of $62.6 million. We also delivered a return on capital employed of 29%. Even with these achievements, we remain focused on continuous improvement in our operations group to lower our costs. Looking ahead, certain of our customers have expressed some uncertainty given the recent dramatic decline in crude oil prices, and in the short term this might lead to indecision and inactivity. This is already reflected in our current backlog and may lead to a weaker first quarter of 2015 compared with a year earlier. However, we have both a diverse range of product offerings limiting our upstream energy markets exposure to 10 to 15% of our overall revenue, and a strong financial position. The combination of these factors should allow us to weather any near-term uncertainties and also capitalize on opportunities arising from the current environment. Moreover, while exchange rates are hard to predict, if the current rate of approximately $1.25 Canadian for a U.S. dollar were to prevail for the year, our 2015 results would benefit compared with 2014, when our average Canadian-to-U.S. exchange rate was approximately $1.10. I would like to review each of our product groups with the backdrop of the lower energy price environment expected throughout 2015. The Petroleum Products group of our Underground operating segment, which has three sub-markets, should deliver continued moderate growth. Downstream Petroleum (retail), which is both the largest sub-market of this segment and ZCL's largest overall revenue source, benefits from declining oil and hence gasoline prices, as retail margins expand and cash flows increase to support new construction and tank upgrades and replacements. Upstream Petroleum (exploration and production), will likely experience a negative impact as cuts in capital spending programs by our customers in this area have already been announced and will most likely continue until energy prices recover. However, any negative impact on ZCL overall should be reduced as the Upstream Petroleum sub-market represents only 2% of our annual revenues. Midstream Petroleum (underground tanks for pipeline systems), which also represents approximately 2% of our revenue base, will likely have no negative impact in 2015. Takeaway and delivery system expansions for this year are already well underway and capital is committed to these projects. For our Water Products group, also in the Underground operating segment, we expect to benefit from the increased economic growth that many are forecasting will result from lower energy prices, particularly in the US. As economic activity increases, moderate growth in construction activity should continue to create increased demand for our Water Products group offerings. For our Aboveground segment, lower energy prices will likely have a negative impact on the Oil Sands markets and a positive impact on the Industrial Corrosion sub-markets. To minimize the impact of 2 potential lower revenues from the Oil Sands, we are redirecting our sales and marketing efforts into other markets in Western Canada, including industrial chemicals, pulp and paper, mining, and agriculture. Oil Sands sales will be negatively impacted as planned capacity expansion projects are delayed or deferred. While this may materially impact 2015 Oil Sands customer revenue, the overall impact on ZCL should be diminished, as the Oil Sands historically accounts for less than 10% of our total annual revenues. Industrial Corrosion, which makes up the majority of our Aboveground segment revenues, should benefit as both the industrial chemical markets and the power generation markets will see lower operating costs and lower raw material costs, providing increased profits and cash flow for our customers to fund expansion projects. Industrial chemicals and power generation are two of our major areas of emphasis within Industrial Corrosion. ZCL has successfully navigated challenging periods in the past, and we are well positioned to face current uncertainties. We are fortunate to have a great group of dedicated employees who will work hard to ensure that ZCL prospers, and on behalf of the executive team and our Board, I want to thank our employees for their contributions in 2014. I would also like to express my appreciation to our shareholders, customers, and other ZCL stakeholders for their support. We look forward to our next communication in early May when we report our first quarter 2015 results, as well as seeing many of you at our upcoming Annual General and Special Meeting of Shareholders on May 8, 2015 in Edmonton. Sincerely, Ronald M. Bachmeier President & CEO 3 Management's Discussion and Analysis Management's Discussion and Analysis INTRODUCTION uncertainties, many of which are beyond the Company's control. Users of this information are cautioned that actual results may differ materially. For additional information refer to the \"Advisory Regarding ForwardLooking Statements\" section later in this MD&A. ZCL Composites Inc.'s (\"ZCL\" or the "Company") Management's Discussion and Analysis ("MD&A") of the results of operations, cash flows and financial position as at December 31, 2014, should be read in conjunction with the Company's audited consolidated financial statements and related notes for the year ended December 31, 2014. The statements are available on SEDAR at www.sedar.com or the Company's website at www.zcl.com. Non-IFRS Measures The Company uses both IFRS and non-IFRS measures to make strategic decisions and to set targets. Gross profit, gross margin, adjusted EBITDA, adjusted EBITDA per diluted share, funds from operations, working capital, return on capital employed, net cash and backlog are nonIFRS measures that are used by the Company. They do not have a standardized meaning prescribed by IFRS and may not be comparable to similar measures used by other companies. For additional information refer to the "NonIFRS Measures" section later in this MD&A. The Company's audited consolidated financial statements are prepared in accordance with International Financial Reporting Standards (\"IFRS\") as issued by the International Accounting Standards Board. All figures presented in this MD&A are in Canadian dollars unless otherwise specified. Forward-Looking Statements This MD&A contains forward-looking information based on certain expectations, projections and assumptions. This information is subject to a number of risks and This MD&A is dated as of March 5, 2015. CORPORATE PROFILE Underground Fluid Containment ZCL is North America's largest manufacturer and supplier of environmentally friendly fibreglass reinforced plastic (\"FRP\") underground storage tanks. We also provide custom engineered aboveground FRP and dual-laminate composite storage tanks, piping and lining systems, and related products and accessories where corrosion resistance is a high priority. ZCL has six plants in Canada, six in the US and one in The Netherlands. Petroleum Products The Company has three product groups, Petroleum Products, Water Products and Corrosion Products, and continues to leverage off the strong brand identities of ZCL, Xerxes, Parabeam, ZCL Dualam and ZCL Troy. ZCL is the leading provider of underground fuel storage tanks for the downstream retail and commercial markets in both Canada and the US. The Company is also a provider of midstream petroleum tanks for pipelines as well as upstream petroleum tanks for the oil and gas exploration and production markets. The vast majority of tanks supplied to these markets are double-wall tanks, with single-wall and triple-wall models also available. In addition, ZCL operates internationally through technology licensing agreements. The Petroleum and Water Products groups are components of the Underground Fluid Containment (\"Underground\") operating segment, use a similar production process, and use the brand identities of ZCL, Xerxes, and Parabeam. Corrosion Products are included in the Aboveground Fluid Containment (\"Aboveground\") operating segment and use the brand identities of ZCL Corrosion, ZCL Dualam and ZCL Troy. As an alternative to the replacement of underground storage tanks, ZCL also provides the Phoenix System. This unique Underwriters Laboratories (\"UL\") and Underwriters Laboratories of Canada (\"ULC\") listed tank system allows in-situ upgrades of steel or fibreglass tanks to either a secondary containment system or a fully selfsupporting double wall tank. It is an effective alternative to tank replacement. A key component of both ZCL's double wall tank and the Phoenix System is Parabeam, a three-dimensional glass fabric that is manufactured and distributed from the Company's facility in The Netherlands. 4 Management's Discussion and Analysis Water Products Aboveground Fluid Containment ZCL's lightweight, watertight and easily installed fibreglass tanks are an ideal alternative to the concrete products that have traditionally dominated this market. Corrosion Products ZCL manufactures custom designed and engineered aboveground FRP tanks, piping and related products and accessories for industrial projects where corrosion and abrasion resistance is high priority. ZCL's capabilities include the manufacture and installation of custom engineered FRP and dual-laminate composite products for use in the power generation, chemical, chloralkali, pulp and paper, agriculture, mining and Oil Sands industries. Applications for ZCL's underground FRP storage tanks in the Water Products market include onsite wastewater treatment systems, fire protection systems, potable water storage, rainwater collection, large diameter wet wells and lift stations, grease interceptors and storm water detention systems. OVERALL PERFORMANCE & OUTLOOK Overall, 2014 was a year of achievement for ZCL. We posted records for revenue of $170.8 million (a 6% increase over 2013), net income of $16.3 million (a 13% increase over 2013), adjusted EBITDA of $27.1 million (a 6% increase over 2013), and fully diluted earnings per share of $0.54 (a 10% increase over 2013). In addition, our balance sheet continues to be strong with working capital of $62.6 million and a net cash balance position of 25.8 million. Return on capital employed remained strong at 29%. Net Income Financial Results As at December 31, 2014, ZCL had a net cash and cash equivalents (\"net cash\") balance of $25.8 million compared to $12.5 million as at September 30, 2014 and $15.1 million as at December 31, 2013. Net income for the year ended December 31, 2014 was $16.3 million, up $1.9 million or 13% from $14.4 million a year earlier. Net income per diluted share for 2014 was $0.54, up $0.05 or 10% from $0.49 per diluted share a year earlier. Net income included a foreign exchange gain of $1.0 million that arose on the translation of US dollar assets and liabilities held in the Canadian legal entities. Net Cash Revenue Revenue for the year ended December 31, 2014 was a record $170.8 million, up $9.1 million or 6% from $161.7 million for the year ended December 31, 2013. The Underground operating segment grew 14% and both Petroleum Products and Water Products achieved record annual revenues. The Aboveground operating segment revenue was down 21% from 2013. Dividends Given our financial strength and ability to generate cash from operations, the Board declared a 13% increase in our quarterly dividend to $0.045 per share for the fourth quarter of 2014, up from $0.04 per share previously. The dividend will be paid on April 15, 2015, to the shareholders of record as of March 31, 2015. Gross Profit Gross profit for the year ended December 31, 2014 was $34.5 million, up $1.0 million or 3% from $33.5 million a year earlier. Gross margin was 20% of revenue for 2014, down slightly from 21% a year earlier, with the decrease attributable to the Aboveground operating segment. 5 Management's Discussion and Analysis Backlog ($millions) 2014 2013 % change Underground 21.4 29.4 (27%) Aboveground 9.6 9.5 1% Total backlog of $31.0 million decreased by $14.8 million or 32%, over the $45.8 million backlog as at September 30, 2014. The decrease was attributable to both the Underground and Aboveground operating segments. In Underground, Water Products backlog decreased by 21% from September 2014. The Petroleum Products group backlog decreased by 35% over September 2014, due to in part to the traditional seasonality of the Underground business, but also due to the very strong revenue achieved in the fourth quarter of 2014. Dec 31 31.0 38.9 (20%) As of December 31, 2014, backlog was $31.0 million, down $7.9 million or 20% from $38.9 million a year earlier. The overall decrease primarily resulted from a reduction in the Underground backlog of $8.0 million, which was partially offset by a small increase in Aboveground backlog. Conversion of backlog to revenue for the Underground segment is generally realized in the following quarter. For Aboveground, the conversion of backlog to revenue is less predictable because of variable timelines for design, engineering and production. In the Aboveground operating segment, backlog from our Oil Sands customers was down $2.3 million, compared to December 31, 2013. This reduction was more than offset by an increase in backlog from our Industrial Corrosion customers of $2.5 million. Backlog is a non-IFRS measure and does not have a standardized meaning prescribed by IFRS and may not be comparable to similar measures used by other companies. For additional information refer to the \"Non-IFRS measures\" section later in this MD&A. In the Underground operating segment, the Canadian operations backlog was the primary reason for the year over year reduction. Canadian backlog was down $7.6 million as compared to December 31, 2013. In the fourth quarter of 2013, the Canadian sales group had a larger number of orders through our pre-order program than what was in place in the fourth quarter of 2014. We believe the lower backlog reflects a combination of temporary customer indecision due to the oil price drop and an acceleration of product sales to certain customers in the fourth quarter of 2014 that otherwise would have been recorded as backlog at year end. Our Canadian sales team is currently focused on obtaining pre-orders for the first quarter of 2015. After achieving record 2014 revenues, the US Underground backlog was down 2% year over year, including a $1.5 million positive impact due to foreign exchange conversion of US dollar backlog to Canadian dollars for reporting purposes. Overall, Petroleum Products backlog was down $7.1 million or 29% from the same period a year earlier. Water Products backlog was down $1.0 million or 21%, compared to a year earlier. 6 Management's Discussion and Analysis 2015 Outlook Water Products As we enter 2015, we expect that we may initially see lower levels of activity at ZCL due to the uncertainty in the energy markets as a result of the recent dramatic declines in energy prices. Certain of our customers have expressed some uncertainty and in the short term this might lead to indecision and inactivity. This is already reflected in our current backlog and may lead to a weaker first quarter of 2015 compared with a year ago. In our Water Products group, we expect to benefit from the increased economic growth that many are forecasting will result from lower energy prices, particularly in the US. As economic activity increases, moderate growth in construction activity should continue to create increased demand for our Water Products group offerings. Corrosion Products In our Corrosion Products group, lower energy prices will likely have a negative impact on the Oil Sands sub-market and a positive impact on the Industrial Corrosion submarkets. However, we remain encouraged about our prospects. While we may initially see lower levels of activity, the diverse range of our product offerings and our strong financial position should allow us not only to weather any near-term uncertainties, but also capitalize on the opportunities arising from the current environment. Moreover, while exchange rates are hard to predict, if the current rate of approximately $1.25 Canadian for a US dollar were to prevail for the year, our 2015 results would benefit compared with 2014, when our average Canadianto-US exchange rate was $1.10. Sales to our customers in the Oil Sands will be negatively impacted by lower energy prices as planned capacity expansion projects are delayed or deferred. While this may materially impact 2015 Oil Sands customer revenue, the overall impact on ZCL should be diminished as the Oil Sands historically accounts for less than 10% of our total annual revenues. Also, to minimize the impact of potential lower revenues from the Oil Sands customers, we are redirecting our sales and marketing efforts into other markets in Western Canada, including industrial chemicals, pulp and paper, mining, and agriculture. Given the backdrop of the lower energy price environment in which we expect to operate throughout 2015, our outlook by product group is as follows: Petroleum Products Industrial Corrosion markets, which make up the majority of our Aboveground segment revenues, should benefit from lower energy prices as both the industrial chemical markets and the power generation markets should see both lower operating costs and lower raw material costs, providing increased profits and cash flow to fund expansion projects. Industrial chemicals and power generation are two of our major areas of emphasis within Industrial Corrosion. Petroleum Products is our largest revenue group and the most mature market. It has three sub-markets: Downstream Petroleum (retail), which is both the largest sub-market of this segment and ZCL's largest overall revenue source, benefits from declining oil and hence gasoline prices, as retail margins expand and cash flows increase to support new construction and tank upgrades and replacements. Upstream Petroleum (exploration and production), will likely experience a negative impact as cuts in capital spending programs by our customers in this area have already been announced and will most likely continue until energy prices recover. However, any negative impact on ZCL should be reduced as the Upstream Petroleum sub-market represents only 2% of our annual revenues. Midstream Petroleum (underground tanks for pipeline systems), which also represents approximately 2% of our revenue base, will likely experience no negative impact in 2015. Takeaway and delivery system expansions for 2015 are already well underway and capital is committed to these projects. 2015 Capital Investment Plan In 2015, our operations group plans to incur capital investment at a level similar to 2014, in order to further progress lean initiatives within our facilities. ZCL's maintenance capital requirements are historically between $3 million to $5 million annually. For 2015, similar to 2014, ZCL's capital budget is planned to be at the upper end of that range in order to continue to upgrade certain of our existing facilities and equipment with the intent to further improve lead times and process flow. Petroleum Products should deliver continued moderate growth and should generally benefit from the decline in oil and gas prices. 7 Management's Discussion and Analysis SELECTED FINANCIAL INFORMATION 2014 $ (in thousands of dollars, except per share amounts) Underground Fluid Containment Revenue Aboveground Fluid Containment Revenue Total revenue Gross profit (note 1) Gross margin (note 1) General and administration Foreign exchange (gain) loss Depreciation and amortization Finance expense Loss (gain) on disposal of assets Gain on redemption of preferred shares Impairment of assets Other items Income tax expense Net income Earnings per share Basic Diluted Cash dividends declared per common share Adjusted EBITDA (note 1) Adjusted EBITDA as a % of revenue Adjusted EBITDA per diluted share Cash Flows Funds from operations (note 1 & 2) Changes in non-cash working capital Net repayment of long term debt Redemption of preferred shares Issuance of common shares on exercise of stock options Dividends paid Purchase of capital and intangible assets, net of disposals (in thousands of dollars) Financial Position Working capital (note 1) Total assets Return on capital employed (note 1) Net cash (note 1) Total non-current liabilities Year Ended December 31 2013 $ 2012 $ 139,087 31,748 170,835 34,460 20% 9,076 (1,008) 3,748 383 50 5,895 16,316 121,692 40,012 161,704 33,482 21% 8,552 (46) 3,991) 446 106 6,048 14,385 114,442 55,917 170,359 29,919 18% 8,571 43 3,673 770 (246) (670) 182 (638) 4,744 13,490 0.54 0.54 0.15 27,077 16% 0.89 0.49 0.49 0.11 25,600 16% 0.86 0.47 0.46 0.055 22,518 13% 0.76 20,771 (3,458) (1,415) 1,328 (4,193) (3,775) 15,152 (5,355) (1,376) (2,075) 847 (1,010) (2,810) 2014 $ 18,413 (521) (1,350) 2,934 (2,923) (2,965) As at December 31 2013 $ 62,577 156,654 29% 25,788 6,576 47,844 134,315 29% 15,146 7,397 31,655 120,526 27% 84 8,618 2012 $ Note 1: Gross profit, gross margin, adjusted EBITDA, adjusted EBITDA per diluted share, funds from operations, working capital, return on capital employed, and net cash are non-IFRS measures and are defined later in the MD&A under "Non-IFRS Measures.\" Note 2: Funds from operations excludes changes in non-cash working capital. 8 Management's Discussion and Analysis RESULTS OF OPERATIONS Revenue The $1.8 million, or 11% increase in Water Products revenue in 2014 compared with 2013 was attributable to US sales, which rose by $1.9 million or 16% compared to 2013. The US sales include a positive exchange impact of $1.0 million on the conversion of US to Canadian dollar sales for reporting purposes. Canadian Water Products sales were comparable with 2013. Twelve Months ($000s) Underground Fluid Containment: Petroleum Products Water Products Aboveground Fluid Containment: Corrosion Products 2014 2013 % change 120,437 18,650 139,087 104,878 16,814 121,692 15% 11% 14% 31,748 170,835 40,012 161,704 Aboveground Fluid Containment Aboveground revenue of $31.7 million for 2014 was $8.3 million or 21% lower than $40.0 million a year earlier. Oil Sands revenue increased by $2.0 million as compared to 2013. In the Industrial Corrosion market, revenue was down $11.1 million prior to a $0.8 million positive foreign exchange conversion impact for reporting purposes. A $10.7 million decrease in field service revenue was the primary contributor to the reduction in revenue compared to what was earned in 2013. (21%) 6% Record revenue of $170.8 million for the year ended December 31, 2014, was up $9.1 million or 6% from $161.7 million in the prior year. Record revenue was generated by both the Petroleum and Water Product groups, however this growth was partially offset by a decrease in the Corrosion Products group. The change in revenue reflects the factors noted below: The Aboveground operating segment is more dependent on larger orders that have a longer order cycle from planning to order fulfilment than the Underground operating segment, and the timing of revenue is impacted accordingly. Underground Fluid Containment Underground revenue of $139.1 million, was $17.4 million or 14% higher for the year ended December 31, 2014, compared with the year ended December 31, 2013. Gross Profit Twelve Months The $15.6 million or 15% increase in Petroleum Products revenue was attributable to the US market with an increase of $10.7 million or 15%, prior to a positive foreign exchange conversion impact for reporting purposes of $6.2 million. ($000s) Underground Fluid Containment Aboveground Fluid Containment In the US, sales to retail petroleum marketers were up 19% compared to 2013, while sales to distributors and contractors were flat. 2014 2013 % change % of rev 2014 30,228 25,451 19% 22% 4,232 8,031 (47%) 13% 34,460 33,482 3% 20% In 2014, gross profit of $34.5 million increased by $1.0 million or 3% compared to 2013. Gross margin decreased to 20% from 21% in 2013, primarily due to results in the Aboveground operating segment. The changes reflect the factors discussed below: Canadian Petroleum Products revenue in 2014 was down $1.9 million or 7% from 2013, attributable to a decrease in sales to distributors, contractors and retail petroleum marketers, and partially offset by an increase in sales to major oil customers. The available capacity in the Canadian production facilities was utilized to support the substantial increase in sales to US customers noted above. Underground Fluid Containment Underground gross profit of $30.2 million was up $4.8 million or 19% from $25.5 million in 2013. The increase in gross profit was derived from the increase in sales to the US Petroleum Products and Water Products markets. Gross margin of 22%, a one percentage point increase from 21% in 2013, was derived from the Canadian operations. The US operations gross margin was comparable to 2013. Petroleum Products revenue also includes international operations which were up $0.5 million, primarily due to higher Parabeam sales, as compared to 2013. 9 Management's Discussion and Analysis euro Conversion Rates Aboveground Fluid Containment Year Ended Aboveground gross profit was $4.2 million, down $3.8 million or 47% from $8.0 million in 2013. Gross margin of 13% decreased seven percentage points from 20% in 2013. The deterioration in gross margin was derived from the Industrial Corrosion markets which were impacted by lower margin orders in the current year, along with a reduction in field service work in 2014, compared to 2013. The gross profit reduction was partially offset by a $0.5 million improvement of gross profit in the Oil Sands market in 2014. Q1 Q2 Q3 Q4 Annual Twelve Months 9,076 8,552 6% 2014 2013 % change Close Avg. Close 1.51 1.50 1.44 1.42 1.47 1.52 1.46 1.42 1.41 1.41 1.33 1.34 1.38 1.43 1.37 1.31 1.37 1.39 1.47 1.47 ($000s) 2014 2013 % change Avg. Change Close Change 14% 12% 4% (1%) 16% 7% 2% (4%) 7% (4%) Twelve Months 3,748 3,991 (6%) The 6% year over year decrease in depreciation and amortization expense primarily resulted from certain intangible assets on the Xerxes acquisition which became fully amortized during the first quarter of 2014. Overall, annual capital expenditures were up $1.4 million in 2014, to $4.4 million, compared to $3.0 million in the prior year. Foreign Exchange Gain Twelve Months (1,008) (46) 2014 2013 Avg. Depreciation and Amortization General and administration (\"G&A\") expense for the year ended December 31, 2014 was up 6% compared to 2013. The year over year increase was the result of inflationary cost increases and the conversion of US dollar denominated G&A to Canadian dollars for reporting purposes. ($000s) 2013 For additional information on the Company's exposure to fluctuations in foreign exchange rates see the \"Financial Instruments\" section included later in this MD&A. General and Administration ($000s) 2014 Finance Expense ($000s) The foreign exchange gain for each year primarily related to the combination of fluctuations in the US dollar conversion rate and the US denominated monetary assets and liabilities held by the Company's Canadian operations. 2014 2013 % change Twelve Months 383 446 (14%) The following tables detail the US dollar and euro conversion rates. The 14% reduction in finance expense in 2014 compared to 2013 resulted from the year over year reduction in long term debt and the slight reduction of the lending rate that occurred in the second quarter of 2013. US Dollar Conversion Rates Income Taxes Year Ended Q1 Q2 Q3 Q4 Annual 2014 Income tax expense for the year ended December 31, 2014, represented 26.5% of pre-tax income, compared to 29.6% of pre-tax income in 2013. Although there is a higher percentage of earnings in the US versus Canada which contribute to a higher effective tax rate, the reduction in rate is primarily due to the foreign exchange gain of $1.0 million incurred in 2014. This gain is not taxed at the same rate as operating income, therefore reducing the effective tax rate in 2014 compared to 2013. 2013 Avg. Close Avg. Close 1.10 1.09 1.09 1.14 1.10 1.11 1.07 1.12 1.16 1.16 1.01 1.02 1.04 1.05 1.03 1.02 1.05 1.03 1.07 1.07 Avg. Change Close Change 9% 7% 5% 9% 9% 2% 9% 8% 7% 8% 10 Management's Discussion and Analysis Comprehensive Income ($000s) Comprehensive income for each period is comprised of net income and the effects of translation of foreign operations with functional currencies denominated in US dollars and euros. For accounting purposes, assets and liabilities of these foreign operations are translated at the exchange rate in effect on the balance sheet date. 2014 2013 Twelve Months 4,814 4,219 The foreign translation gain in the year ended December 31, 2014 was due to the strengthening of the US dollar relative to the Canadian dollar throughout the year from 1.07 to 1.16. In 2013, the US dollar also strengthened from 1.01 to 1.07 generating a gain on the translation of foreign operations. The table below details the impact of the translation of foreign operations on comprehensive income before the impact of net income. LIQUIDITY AND CAPITAL RESOURCES Working Capital Credit Arrangements As at December 31, 2014, the Company increased working capital (current assets less current liabilities) by $14.8 million to $62.6 million compared to $47.8 million as at December 31, 2013. The majority of the increase was attributed to positive funds from operations of $20.8 million combined with increased inventory. Increases in accounts receivable also contributed to the improvement in working capital. These increases were partially offset by increases in accounts payable and dividends payable when compared to 2013. The Company's operating credit facility is provided by a Canadian chartered bank. The maximum available funds under this facility is $20.0 million, subject to prescribed margin requirements related to a percentage of accounts receivable and inventory balances at a point in time, reduced by priority claims. The operating facility is due on demand and matures on May 31, 2016. The Company's term loan is provided by a Canadian chartered bank and requires monthly interest payments and quarterly principal repayments of $0.3 million US dollars, with the balance due on maturity on May 31, 2016. The interest charged on the loan is the US dollar based 30-day LIBOR plus 225 basis points. The Company is also subject to mandatory repayments of outstanding principal equal to 100% of any net proceeds on asset disposals and insurance proceeds received by the Company. As at December 31, 2014, the Company had cash and cash equivalents of $28.4 million (December 31, 2013 - $18.9 million) and net cash of $25.8 million (December 31, 2013 - net cash of $15.1 million). Net cash is defined later in this MD&A under \"Non-IFRS Measures.\" Management believes that internally generated cash flows, along with the available revolving operating credit facility, will be sufficient to cover the Company's normal operating and capital expenditures for the foreseeable future. Share Capital During the year ended December 31, 2014, the company issued 365,543 shares on the exercise of stock options. 11 Management's Discussion and Analysis Cash Flows Investing Activities The cash flows used in investing activities were $3.8 million for the year ended December 31, 2014 compared to $3.0 million for 2013. Purchases of property, plant and equipment and intangible assets were $1.3 million higher in 2014 than 2013, however these purchases were partially offset by higher proceeds on disposal of property, plant and equipment in 2014 relative to 2013. Twelve Months 2014 ($000's) 2013 Operating activities 17,313 17,892 Financing activities (4,280) (1,339) Investing activities (3,775) (2,965) 249 448 9,507 14,036 (1) Foreign exchange Contractual Obligations (1) Foreign exchange gain on cash held in foreign currency. The Company's captive insurance company, Radigan Insurance Inc. (\"Radigan\") provides insurance protection for product warranties and general liability coverage for the US operations. Radigan holds restricted cash equivalents of $0.25 million US as collateral on a contract performance guarantee. Operating Activities The cash flows from operating activities reflect the net impact of i) funds from operations (for additional information see the \"Non-IFRS Measures\" section later in this MD&A) and ii) changes in non-cash working capital. The Company has provided a letter of credit in the amount of $0.3 million US to secure a line of credit for the same amount for our US operations. The Company has also provided two letters of credit for a total of $1.0 million to secure claims for the Company's US workers' compensation program. In the normal course of business, the Company provides letters of credit as collateral for contract performance guarantees. As at December 31, 2014, the performance letters of credit issued totalled $0.5 million. Funds from operations totalled $20.8 million for the year ended December 31, 2014, up $2.4 million from $18.4 million for the year ended December 31, 2013. The increase relative to 2013 is due primarily to the improvement in net income. Changes in non-cash working capital totalled negative $3.5 million for the year ended December 31, 2014 compared to negative $0.5 million for the year ended December 31, 2013. The increase in inventory was the major contributing factor for the growth in non-cash working capital requirements relative to 2013 along with an increase in accounts receivable. These inventory and accounts receivable increases were partially offset by an increase in accounts payable and accrued liabilities as at December 31, 2014 compared to December 31, 2013. As at December 31, 2014, ZCL's minimum annual lease commitments under all non-cancellable operating leases for production facilities, office space and automotive and equipment totalled $11.2 million. The following table details the Company's contractual obligations due over the next five years and thereafter: Financing Activities Cash flows used in financing activities were $4.3 million for the year ended December 31, 2014 compared to $1.3 million for the year ended December 31, 2013. Dividends paid in 2014 were $4.2 million, a $1.3 million increase over 2013. The exercise of stock options in 2014 generated $1.3 million in cash inflows compared to the $2.9 million generated in 2013. ($000s) 2015 2016 2017 2018 2019 Thereafter Total 12 Long Term Debt 1,498 1,103 2,601 Operating Leases 2,517 1,962 1,553 1,126 776 3,292 11,226 Total 4,015 3,065 1,553 1,126 776 3,292 13,827 Management's Discussion and Analysis SUMMARY OF QUARTERLY RESULTS The table below presents selected financial information for the eight most recent quarters, which should be read in conjunction with the applicable interim unaudited and annual audited consolidated financial statements and accompanying notes. fluctuations in the US to Canadian dollar exchange rate since a significant portion of its revenue is denominated in US dollars. Over the past eight quarters, the Canadian to US dollar conversion rate has ranged from a low of 1.01 in the first quarter of 2013 to a high of 1.16 in the fourth quarter of 2014. The Company's financial results have historically been affected by seasonality with the lowest levels of activity occurring in the first half of the year, particularly in the first quarter. In addition, the Company is subject to For the three months ended Revenue Dec 31 $ 48,195 2014 Sep 30 Jun 30 $ $ 49,361 41,687 Mar 31 $ 31,592 Dec 31 $ 37,715 2013 Sep 30 Jun 30 $ $ 43,931 47,250 Net income 4,895 5,557 4,492 1,372 1,769 4,993 5,087 2,536 Adjusted EBITDA (note 1) 7,702 8,834 7,382 3,159 3,975 8,512 8,316 4,797 Basic earnings per share Diluted earnings per share 0.16 0.19 0.15 0.05 0.06 0.17 0.17 0.09 0.16 0.18 0.15 0.05 0.06 0.17 0.17 0.09 Adjusted EBITDA per diluted share (note 1) 0.25 0.29 0.24 0.10 0.13 0.28 0.28 0.16 Dividends declared per share 0.04 0.04 0.035 0.035 0.03 0.03 0.025 0.025 (in thousands of dollars, except per share amounts) Mar 31 $ 32,809 Note 1: Adjusted EBITDA and adjusted EBITDA per diluted share are non-IFRS measures and are defined later in this MD&A under "Non-IFRS Measures." 13 Management's Discussion and Analysis FOURTH QUARTER RESULTS Selected Financial Information Fourth Quarter Ended December 31 (in thousands of dollars, except per share amounts) Operating Results Revenue Underground Fluid Containment Aboveground Fluid Containment Total revenue Gross profit (note 1) Gross margin (note 1) General and administration Foreign exchange gain Depreciation and amortization Finance expense Loss on disposal of assets Income tax expense Net income Earnings per share Basic Diluted Cash dividends declared per common share Adjusted EBITDA (note 1) Adjusted EBITDA as a % of revenue Adjusted EBITDA per diluted share Cash Flows Funds from operations (note 1 & 2) Changes in non-cash working capital Net repayment of long term debt Issuance of common shares on exercise of stock options Dividends paid Purchase of capital and intangible assets Disposal of assets 2014 $ 2013 $ 37,616 10,579 48,195 9,138 19% 2,156 (568) 1,000 97 104 1,454 4,895 32,074 5,640 37,714 5,755 15% 1,989 (52) 1,077 97 106 769 1,769 0.16 0.16 0.04 7,702 16% 0.25 0.06 0.06 0.03 3,975 11% 0.13 6,582 8,705 (375) 827 (1,200) (1,794) 33 2,667 9,174 (338) 1,302 (885) (1,026) 125 Note 1: Gross profit, gross margin, adjusted EBITDA, adjusted EBITDA per diluted share and funds from operations are non-IFRS measures and are defined later in the MD&A under \"Non-IFRS Measures.\" Note 2: Funds from operations excludes changes in non-cash working capital. 14 Management's Discussion and Analysis Overall Fourth Quarter Performance Water Products revenue for the fourth quarter of 2014 of $5.9 million was up $1.5 million or 34% from $4.4 million in the fourth quarter of 2013. The increase was attributable to the US market which was up $1.4 million over the fourth quarter of 2013 prior to a positive foreign exchange translation adjustment for reporting purposes. The Canadian market was down $0.3 million, compared to the fourth quarter of 2013. Net income in the fourth quarter of 2014 was $4.9 million, up 177% or $3.1 million from $1.8 million a year earlier. Earnings per diluted share in the fourth quarter of 2014 were $0.16, up $0.10 or 167% from $0.06 per diluted share a year earlier. The increase in net income was primarily a result of higher revenues from the both the Underground and Aboveground operating segments along with a foreign exchange gain of $0.6 million. Aboveground Fluid Containment Revenue Aboveground revenue of $10.6 million in the fourth quarter of 2014 was $4.9 million or 88% higher than $5.6 million in the same quarter a year earlier, with the increase attributable to both US and Canadian markets. Revenue from our Western Canadian Corrosion customers was up $1.8 million as compared to the same quarter in 2013. In Industrial Corrosion, revenue from our field service operations was up 32% and product revenue was up $3.2 million compared to the fourth quarter of 2013. Fourth Quarter ($000s) Underground Fluid Containment: Petroleum Products Water Products Aboveground Fluid Containment: Corrosion Products % change 2014 2013 31,669 5,947 37,616 27,634 4,440 32,074 15% 34% 17% 10,579 48,195 5,640 37,714 88% 28% The Aboveground operating segment is more dependent on larger orders that have a longer order cycle from planning to order fulfilment than the Underground operating segment, and the timing of revenue is impacted accordingly. Revenue for the fourth quarter ended December 31, 2014, was $48.2 million, up $10.5 million or 28% from $37.7 million in the fourth quarter of 2013. Increased revenue was derived from both the Underground and Aboveground operating segments. The change in revenue reflects the factors noted below: Gross Profit Fourth Quarter ($000s) Underground Fluid Containment Aboveground Fluid Containment Underground Fluid Containment Underground revenue of $37.6 million was $5.5 million or 17% higher in the fourth quarter of 2014, compared with $32.1 million in the fourth quarter of 2013. In the fourth quarter of 2014, Petroleum Products revenue was $31.7 million, up $4.0 million or 15% from $27.6 million in the same period last year. The increase was attributable to the US market, which was up $2.9 million prior to a positive impact on the US to Canadian dollar translation for reporting purposes. In the US, sales to retail petroleum marketers were up 25%, while sales to distributors and contractors were comparable to the fourth quarter a year earlier. 2014 2013 % change % of rev 2014 7,587 5,673 34% 20% 1,551 82 1,789% 15% 9,138 5,755 59% 19% In the fourth quarter of 2014, gross profit of $9.1 million increased by $3.4 million or 59% compared to $5.8 million for the same quarter in 2013. Gross margin increased four percentage points to 19% from 15% in the same quarter of 2013. These changes reflect the factors discussed below: Underground Fluid Containment Underground gross profit of $7.6 million was up $1.9 million or 34% from $5.7 million in the same quarter of 2013. Gross margin for the fourth quarter increased two percentage points year over year to 20%, up from 18%. Gross margin increased in both the US and Canadian Underground operations compared to the same quarter in 2014. In the Canadian Petroleum Products market, revenue was down $0.9 million for the fourth quarter of 2014, due to a decrease in sales to distributors and retail stations, partially offset by increased sales to major oil customers. Petroleum Products also includes revenue from international operations, which was comparable to the fourth quarter of 2014. 15 Management's Discussion and Analysis Aboveground Fluid Containment Depreciation and Amortization Aboveground gross profit was $1.6 million, up $1.5 million from $0.1 million for the quarter ended December 31, 2013. Gross margin of 15% was up 13 percentage points from 2% in the fourth quarter of 2013. The year over year increases in both gross margin and gross profit were due to an increase in sales volume. The prior year did not have enough revenue to adequately support the fixed manufacturing cost base in the Aboveground operating segment. The increase in the gross profit and gross margin in the fourth quarter of 2014 was derived from both US and Canadian Aboveground markets. ($000s) 2014 2013 % change The 7% decrease in depreciation and amortization expense for the quarter ended December 31, 2014 compared to the quarter ended December 31, 2013, primarily resulted from certain intangible assets on the Xerxes acquisition which became fully amortized during the first quarter of 2014. General and Administration Finance Expense Fourth Quarter 2,156 1,989 8% ($000s) 2014 2013 % change ($000s) 2014 2013 % change General and administration (\"G&A\") expense of $2.2 million for the fourth quarter ended December 31, 2014 was up $0.2 million or 8% over the fourth quarter of 2013. The increase was primarily a result of inflationary cost pressures, when compared to the same quarter of 2013. Income Taxes Income tax expense for the three months ended December 31, 2014, represented 23% of pre-tax income, compared to 30% of pre-tax income in the same quarter of 2013. The decrease in the 2014 annual effective tax rate to 26.5% is a result of the foreign exchange gain of $0.6 million incurred in 2014. This gain is not taxed at the same rate as operating income, therefore reducing the effective tax rate in 2014 compared to 2013. Fourth Quarter (568) (52) ($000s) 2014 2013 The foreign exchange gain for each quarter was primarily related to the combination of fluctuations in the US dollar conversion rate and the US denominated monetary assets and liabilities held by the Company's Canadian operations. Comprehensive Income Comprehensive income for each period is comprised of net income and the effects of translation of foreign operations with functional currencies denominated in US dollars and euros. For accounting purposes, assets and liabilities of these foreign operations are translated at the exchange rate in effect on the balance sheet date. The following table details the US dollar and euro conversion rates relative to the Canadian dollar. US Dollar and euro Conversion Rates 2014 Avg. USD euro 1.14 1.42 The table below details the impact of the translation of foreign operations on comprehensive income before the impact of net income. 2013 Close 1.16 1.41 Avg. 1.05 1.43 Close 1.07 1.47 Fourth Quarter 97 97 nil Finance expense was comparable, quarter over quarter. Foreign Exchange Gain Fourth Quarter Fourth Quarter 1,000 1,077 (7%) Avg. Change Close Change 9% (1%) 8% (4%) ($000s) 2014 2013 Fourth Quarter 2,637 2,319 The foreign translation gain in the fourth quarter of 2014 was due to strengthening of the US dollar relative to the Canadian dollar throughout the three months from 1.12 to 1.16. In the fourth quarter of 2013, the US dollar also strengthened from 1.03 to 1.07. For additional information on the Company's exposure to fluctuations in foreign exchange rates see the \"Financial Instruments\" section included later in this MD&A. 16 Management's Discussion and Analysis Financial Position/Cash Flows The Company's working capital (current assets less current liabilities) of $62.6 million as at December 31, 2014 was an improvement over the $57.2 million at September 30, 2014. Positive cash flows from operations of $6.6 million, were the primary driver in the improvement in working capital as compared to the prior quarter. FINANCIAL INSTRUMENTS Foreign Exchange Risk The Company's activities expose it to a variety of financial risks including market risk (foreign exchange risk and interest rate risk), credit risk and liquidity risk. Management reviews these risks on an ongoing basis to ensure they are appropriately managed. The Company may use foreign exchange forward contracts to manage exposure to fluctuations in foreign exchange from time to time. The Company does not currently have a practice of trading derivatives and had no derivative instruments outstanding at December 31, 2014. The Company operates on an international basis and is exposed to foreign exchange risk arising from transactions denominated in foreign currencies. The Company's objective with respect to foreign exchange risk is to minimize the impact of the volatility related to financial assets and liabilities denominated in a foreign currency where possible through effective cash flow management. Foreign currency exchange risk is limited to the portion of the Company's business transactions denominated in currencies other than Canadian dollars. The Company's most significant foreign exchange risk arises primarily with respect to the US dollar. The revenues and expenses of the Company's US operations are denominated in US dollars. Certain of the revenue and expenses of the Canadian operations are also denominated in US dollars. The Company is also exposed to foreign exchange risk associated with the euro due to its operations in The Netherlands, however, these amounts are not significant to the Company's consolidated financial results. On an ongoing basis, management monitors changes in foreign currency exchange rates and considers long term forecasts to assess the potential cash flow impact on the Company. Interest Rate Risk The Company's objective in managing interest rate risk is to monitor expected volatility in interest rates while also minimizing the Company's financing expense levels. Interest rate risk mainly arises from fluctuations of interest rates and the related impact on the return earned on cash and cash equivalents, restricted cash and the expense on floating rate debt. On an ongoing basis, management monitors changes in short term interest rates and considers long term forecasts to assess the potential cash flow impact on the Company. The Company does not currently hold any financial instruments to mitigate its interest rate risk. Cash and cash equivalents and restricted cash earn interest based on market interest rates. Bank indebtedness balances and long term debt have floating interest rates which are subject to market fluctuations. The tables that follow provide an indication of the Company's exposure to changes in the value of the US dollar relative to the Canadian dollar, as at and for the year ended December 31, 2014. The analysis is based on financial assets and liabilities denominated in US dollars at the end of the period (\"balance sheet exposure\"), which are separated by domestic and foreign operations, and US dollar denominated revenue and operating expenses during the period (\"operating exposure\"). The effective interest rate on the bank indebtedness balance as at December 31, 2014, was prime plus 75 basis points, 3.75% (December 31, 2013 - prime plus 75 basis points, 3.75%) adjusted quarterly based on certain financial indicators of the Company. The effective interest rate on the term loan balance as at December 31, 2014, was the 30 day US LIBOR rate plus 225 basis points, 2.42% (December 31, 2013 - US LIBOR rate plus 225 basis points, 2.41%), adjusted quarterly based on certain financial indicators of the Company. With other variables unchanged, an increase or decrease of 100 basis points in the US LIBOR and Canadian prime interest rate as at December 31, 2014 would have a minimal impact on net income for the year ended December 31, 2014. Balance sheet exposure related to financial assets, net of financial liabilities, at December 31, 2014, was as follows: (in thousands of US dollars) Foreign operations Domestic operations Net balance sheet exposure 17 $ 11,936 7,091 19,027 Management's Discussion and Analysis consolidated trade accounts receivable balance. The creditworthiness of new and existing customers is subject to review by management by considering such items as the type of customer, prior order history and the size of the order. Decisions to extend credit to new customers are approved by management and the creditworthiness of existing customers is monitored. Operating exposure for the twelve months ended December 31, 2014, was as follows: (in thousands of US dollars) Sales Operating expenses Net operating exposure $ 109,246 93,243 16,003 The Company reviews its trade accounts receivable regularly and amounts are written down to their expected realizable value when the account is determined not to be fully collectable. This generally occurs when the customer has indicated an inability to pay, the Company is unable to communicate with the customer over an extended period of time, and other methods to obtain payment have been considered and have not been successful. The bad debt expense is charged to net income in the period that the account is determined to be doubtful. Estimates for the allowance for doubtful accounts are determined on a customer-by-customer evaluation of collectability at each reporting date, taking into account the amounts which are past due and any available relevant information on the customers' liquidity and going concern status. After all efforts of collection have failed, the accounts receivable balance not collected is written off with an offset to the allowance for doubtful accounts, with no impact on net income. The weighted average US to Canadian dollar translation rate was 1.10 for the year ended December 31, 2014. The translation rate as at December 31, 2014, was 1.16. Based on the foreign currency exposures noted above, with other variables unchanged, a 20% decrease in the Canadian dollar would have impacted net income for the twelve months ended December 31, 2014, as follows: (in thousands of US dollars) $ Net balance sheet exposure of domestic operations 1,057 Net operating exposure of foreign operations 1,926 Change in net income 2,983 Other comprehensive income would have changed $1.5 million due to the net balance sheet exposure of financial assets and liabilities of foreign operations. The timing and volume of the above transactions, as well as the timing of their settlement, could impact the sensitivity of the analysis. The Company's maximum exposure to credit risk for trade accounts receivable is the carrying value of $27.1 million as at December 31, 2014 (December 31, 2013 - $24.7 million). On a geographic basis as at December 31, 2014, approximately 48% (December 31, 2013 - 22%) of the balance of trade accounts receivable was due from Canadian and non-US customers and 52% (December 31, 2013 - 78%) was due from US customers. The change in geographic accounts receivable is mainly due to a disputed significant receivable existing on December 31, 2013 of $3.9 million US that was settled at the beginning of 2014. Credit Risk Credit risk is the risk of a financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Company is exposed to credit risk through its cash and cash equivalents, restricted cash and accounts receivable. The Company manages the credit risk associated with its cash and cash equivalents and restricted cash by holding its funds with reputable financial institutions and investing only in highly rated securities that are traded on active markets and are capable of prompt liquidation. Credit risk for trade and other accounts receivable are managed through established credit monitoring activities. The Company also mitigates its credit risk on trade accounts receivable by obtaining a cash deposit from certain customers with no prior order history with the Company, or where the Company perceives the customer has a higher level of risk. Payment terms are generally net 30 days. As at December 31, 2014, the percentages of trade accounts receivable were as follows: Current Past due 1 to 30 days Past due 31 to 60 days Past due 61 to 90 days Past due greater than 90 days Total The Company has a concentration of customers in the upstream and downstream oil and gas and industrial corrosion sectors. The concentration risk is mitigated by the number of customers, growth and diversification of the customer base and by a significant portion of the customers being large international organizations. As at December 31, 2014, no customer exceeded 10% of the 18 December 31, 2014 58% 23% 13% 3% December 31, 2013 45% 24% 19% 3% 3% 9% 100% 100% Management's Discussion and Analysis Liquidity Risk The Company has pledged as general collateral for advances under the operating credit facility and the bank term loan a general security agreement on present and future assets, guarantees from each present and future direct and indirect subsidiary of the Company supported by a first registered security over all present and future assets, and pledge of shares. The Company is not permitted to sell or re-pledge significant assets held under collateral without consent from the lenders. The Company's objective related to liquidity risk is to effectively manage cash flows to minimize the exposure that the Company will not be able to meet its obligations associated with financial liabilities. On an ongoing basis, liquidity risk is managed by maintaining adequate cash and cash equivalent balances and appropriately utilizing available lines of credit. Management believes that forecasted cash flows from operating activities, along with the available lines of credit, will provide sufficient cash requirements to cover the Company's forecasted normal operating activities, commitments and budgeted capital expenditures. For information on contractual maturities on long term obligations, please refer to the \"Liquidity and Capital Resources\" section of this MD&A. RISKS AND UNCERTAINTIES Environmental Risks The Company is subject to a number of known and unknown risks, uncertainties and other factors that could cause the Company's actual future results to differ materially from those historically achieved and those reflected in forward-looking statements made by the Company. These factors include, but are not limited to, fluctuations in the level of capital expenditures in the Petroleum Products, Water Products and Corrosion Products markets; drilling activity and oil and natural gas prices and other factors that affect demand for the Company's products and services; industry competition; the need to effectively integrate acquired businesses; the ability of management to implement the Company's business strategy effectively; political and general economic conditions; the ability to attract and retain key personnel; raw material and labour costs; fluctuations in the US and Canadian dollar exchange rates; accounts receivable risk; the ability to generate capital or maintain liquidity and credit agreements necessary to fund future operations; and other risks and uncertainties described under the heading \"Risk Factors\" in the Company's most recent Annual Information Form and elsewhere in other documents filed with Canadian provincial securities authorities which are available to the public at www.sedar.com. To conduct business operations, the Company owns or leases properties and is subject to environmental risks due to the use of chemicals in the manufacturing process. ZCL manages its environmental risks by appropriately dealing with chemicals and waste material in an environmentally safe and responsible manner, and in accordance with applicable regulatory requirements. In addition, the Company has a Health, Safety and Environment Committee that meets regularly to review and monitor environmental issues, compliance, risks and mitigation strategies. However, it is unknown whether specific environmental conditions and incidents will impact ZCL operations in the future. The Company elects to partially self-insure against risk of environmental contamination at its production facilities as it has determined the risk to be low. The Company is not aware of any unrecorded material environmental liabilities. TRANSACTIONS WITH RELATED PARTIES Certain manufacturing components purchased for $90,000 (2013 - $27,000) for the year ended December 31, 2014, included in manufacturing and selling costs in the consolidated statements of income or inventories were provided by a corporation whose Executive Chairman is a director of the Company. The transactions were incurred in the normal course of operations and recorded at the exchange amount being normal commercial rates for the products. Accounts payable and accrued liabilities at December 31, 2014, included $11,000 (December 31, 2013 - $1,000) owing to the corporation. There are no ongoing contractual or other commitments resulting from these transactions. 19 Management's Discussion and Analysis CRITICAL ACCOUNTING ESTIMATES & JUDGEMENTS Depreciation and amortization of property, plant and equipment and intangible assets with finite lives is based on estimates of the useful lives of the assets. The useful lives are estimated, and a method of depreciation and amortization is selected at the time the assets are initially acquired and then re-evaluated each reporting period. The Company's financial statements have been prepared following IFRS. The measurement of certain assets and liabilities is dependent upon future events and the outcome will not be fully known until future periods. Therefore, the preparation of the financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Such estimates and assumptions have been made using careful judgments, which in management's opinion, are reasonable and conform to the significant accounting policies summarized in the December 31, 2014 annual consolidated financial statements. Actual results may vary from those estimated. Judgment is required to determine whether events or circumstances warrant a revision to the remaining periods of depreciation and amortization. The estimates of cash flows used to assess the potential impairment of these assets are subject to measurement uncertainty. A significant change in these estimates and judgments could result in a material change to depreciation and amortization expense or impairment charges. Impairment Allowance for Doubtful Accounts The Company assesses impairment at each reporting period by evaluating the circumstances specific to the organization that may lead to an impairment of assets. In addition to the quarterly assessment, the Company also performs an annual impairment test on goodwill and certain intangible assets in accordance with IAS 36: \"Impairment of Assets.\" The Company's accounts receivable balance is a significant portion of overall assets. Credit is spread among many customers and the Company has not experienced significant accounts receivable collection problems in the past. The Company performs ongoing credit evaluations and maintains allowances for doubtful accounts based on the assessment of individual customer receivable balances, credit information, past collection history and the overall financial strength of customers. A change in these factors could impact the estimated allowance and the provision for bad debts recorded in the accounts. The actual collection of accounts receivable and the resulting bad debts may differ from the estimated allowance for doubtful accounts and the difference may be material. Where indicators of impairment exist, and at least annually for goodwill and certain intangible assets, the recoverable amount of the asset or group of assets (cash generating units) is compared against the carrying amount. Any excess of the carrying amount over the recoverable amount will be recognized as an impairment loss in the income statement. The recoverable amount is calculated as the higher of the assets' (or group of assets) value in use or fair value less cost to sell. The actual growth rates and other estimates used in the determination of fair values at the time of impairment tests may vary materially from those realized in future periods. Self-insured Liabilities The Company self-insures certain risks related to pollution protection provided on certain product sales, general liability claims and US workers compensation through Radigan Insurance Inc., its captive insurance company. The provision for self-insured liabilities includes estimates of the costs of reported and expected claims based on estimates of loss using assumptions determined by a certified loss reserve analyst. The actual costs of claims may vary from those estimates, and the difference may be material. Property, Plant and Equipment, Intangible Assets and Goodwill Property, plant and equipment and intangible assets with finite lives are recorded at cost less accumulated depreciation and amortization. Go