ClearStream Energy Services Inc.
1
Annual Report 2016
Message to Shareholders
2016 was a year of change and challenges for ClearStream Energy Services. A significant portion of our
customers operate within the energy sector and low oil and gas prices throughout most of 2016 led to
difficult market conditions for ClearStream and its customer base. Our customers reduced spending in areas
that drive demand for our business, including deferring maintenance and turnaround initiatives and
cancelling facility and pipeline based projects. In addition, the Fort McMurray fires that severely impacted
the region in May and June of 2016 interrupted ClearStream’s operations for much of the second and third
quarters of 2016. ClearStream responded to these difficult conditions through the continuation of cost
cutting and efficiency initiatives that began in 2015. These initiatives included additional location closures
and staffing reductions that were achieved through organizational efficiency improvements throughout the
year.
Notwithstanding these challenges, 2016 was also a year of transformation for ClearStream with many
accomplishments and successes. We completed the sale of all discontinued operations in the first quarter of
2016, which allowed the Company to focus solely on the ClearStream business. With the asset sales
completed, the corporate head office was moved to Calgary from Toronto, which put us closer to our
customer base and allowed us to reduce corporate overhead costs. In addition, we successfully refinanced
all maturing debt during the first quarter of 2016 and obtained an asset based credit facility that will help
the Company fund working capital needs going forward.
Significant progress was also made on business development initiatives during 2016. We expanded into the
southern Saskatchewan market through a contract award with Yara Bell Plaine Inc., a Saskatchewan based
Nitrogen Fertilizer Company, that is expected to generate $105 million of revenue over three years. This
contract award was an important accomplishment for ClearStream as it expanded our geographical presence
with a customer in a new industry.
ClearStream renewed a maintenance contract with a major oilsands producer in late 2016 that is expected
to generate $390 million over the five-year term of the contract. Additionally, through a joint venture with
SNC-Lavalin, ClearStream was awarded a five-year contract with a large integrated oil company to provide
engineering and procurement services for maintenance and sustainment projects in the Fort McMurray
region. These contract wins provide ClearStream with the stability to grow and maintain our presence in the
Fort McMurray oilsands region for years to come.
Although 2016 was a challenging year for ClearStream financially, the significant strategic accomplishments
achieved in 2016 have put ClearStream in a position to grow and succeed in 2017. We believe that
ClearStream enters 2017 with an efficient cost structure, a strong contracted backlog of work with a stable
customer base, and an experienced management team. These factors, combined with an improving
economic environment, are expected to lead to improved financial results in 2017 compared to 2016. Given
the volatility of oil and gas prices, which continues to drive demand for a large portion of our services, we
must continue to focus on cost and efficiency improvements and manage the business cautiously in 2017.
The Canadian oil and gas industry experienced one of the worst downturns in history during 2016. Through
cost reductions, cash flow management, customer retention, and an aggressive sales approach, ClearStream
was able to survive very challenging market conditions in 2016. With the continued dedication and
commitment of our people and the support of our customer base, shareholders, and lenders, I have
confidence in ClearStream’s ability to emerge from the 2016 downturn as a stronger organization.
Thank you for your continued support.
John W. Cooper
Chief Executive Officer
ClearStream Energy Services Inc.
2
Annual Report 2016
Forward-looking information
This report contains certain forward-looking information. Certain information included in this report may constitute
forward-looking information within the meaning of securities laws. In some cases, forward-looking information can be
identified by terminology such as “may”, “will”, “should”, “expect”, “plan”, “anticipate”, “believe”, “estimate”, “predict”,
“potential”, “continue” or the negative of these terms or other similar expressions concerning matters that are not
historical facts. Forward-looking information may relate to management’s future outlook and anticipated events or results
and may include statements or information regarding the future plans or prospects of ClearStream and reflects
management’s expectations and assumptions regarding the growth, results of operations, performance and business
prospects and opportunities of ClearStream. Without limitation, information regarding the future operating results and
economic performance of ClearStream constitute forward-looking information. Such forward-looking information reflects
management’s current beliefs and is based on information currently available to management of the Company. Forward-
looking information involves significant risks and uncertainties. A number of factors could cause actual events or results to
differ materially from the events and results discussed in the forward-looking information including risks related to
investments, conditions of capital markets, economic conditions, commodity prices, dependence on key personnel, limited
customer bases, interest rates, regulatory change, ability to meet working capital requirements and capital expenditures
needs, factors relating to the weather and availability of labour. These factors should not be considered exhaustive. In
addition, in evaluating this information, investors should specifically consider various factors, including the risks outlined
under “Risk Factors,” which may cause actual events or results to differ materially from any forward-looking statement. In
formulating forward-looking information herein, management has assumed that business and economic conditions
affecting ClearStream will continue substantially in the ordinary course, including without limitation with respect to general
levels of economic activity, regulations, taxes and interest rates. Although the forward-looking information is based on
what management of ClearStream consider to be reasonable assumptions based on information currently available to it,
there can be no assurance that actual events or results will be consistent with this forward-looking information, and
management’s assumptions may prove to be incorrect. This forward-looking information is made as of the date of this
report, and ClearStream does not assume any obligation to update or revise it to reflect new events or circumstances
except as required by law. Undue reliance should not be placed on forward-looking information. ClearStream is providing
the forward-looking financial information set out in this report for the purpose of providing investors with some context for
the Outlook presented. Readers are cautioned that this information may not be appropriate for any other purpose.
Non-standard measures
The terms ‘‘EBITDA’’ and “Adjusted EBITDA” (collectively the ‘‘Non-IFRS measures’’) are financial measures used in this
report that are not standard measures under IFRS. ClearStream’s method of calculating Non-IFRS measures may differ
from the methods used by other issuers. Therefore, ClearStream’s Non-IFRS measures, as presented may not be
comparable to similar measures presented by other issuers.
EBITDA refers to net earnings determined in accordance with IFRS, before depreciation and amortization, interest
expense and income tax expense (recovery). EBITDA is used by management and the directors of ClearStream (the
“Directors”) as well as many investors to determine the ability of an issuer to generate cash from operations. Management
also uses EBITDA to monitor the performance of ClearStream’s reportable segments and believes that in addition to net
income or loss and cash provided by operating activities, EBITDA is a useful supplemental measure from which to
determine ClearStream’s ability to generate cash available for debt service, working capital, capital expenditures and
income taxes. ClearStream has provided a reconciliation of income (loss) from continuing operations to EBITDA in its
consolidated financial statements and MD&A.
Adjusted EBITDA refers to EBITDA excluding the loss of assets held for sale, impairment of goodwill and intangible
assets, transaction costs, impairment of property, plant and equipment, restructuring costs and operating income from
long-term investments in assets held for sale. ClearStream has used Adjusted EBITDA as the basis for the analysis of its
past operating financial performance. Adjusted EBITDA is used by ClearStream and management believes it is a useful
supplemental measure from which to determine ClearStream’s ability to generate cash available for debt service, working
capital, capital expenditures, and income taxes. Adjusted EBITDA is a measure that management believes facilitates the
comparability of the results of historical periods and the analysis of its operating financial performance which may be
useful to investors. ClearStream has provided a reconciliation of income (loss) from continuing operations to Adjusted
EBITDA in its MD&A.
Investors are cautioned that the Non-IFRS Measures are not alternatives to measures under IFRS and should not, on their
own, be construed as an indicator of performance or cash flows, a measure of liquidity or as a measure of actual return on
the shares. These Non-IFRS measures should only be used in conjunction with the financial statements included in the
MD&A and ClearStream’s annual audited consolidated financial statements available on SEDAR at www.sedar.com or
www.clearstreamenergy.ca.
ClearStream Energy Services Inc.
3
Annual Report 2016
Management’s Discussion and Analysis
March 6, 2017
On October 13, 2016, Tuckamore Capital Management Inc. announced that it had filed articles of
amendment changing its name to “ClearStream Energy Services Inc.” (“ClearStream” or the
“Company”). The shareholder approval required to authorize the change in the Company’s name was
obtained at the Company’s annual and special meeting held on June 17, 2016. The Company’s listed
securities, consisting of the Company’s common shares and its 10.0% second lien secured convertible
debentures due 2026, began trading under the new name on October 18, 2016 under the trading
symbols of “CSM” and “CSM.DB.A,” respectively.
The following is management’s discussion and analysis (“MD&A”) of the consolidated results of
operations, balance sheets and cash flows of ClearStream for the years ended December 31, 2016,
2015, and 2014. This MD&A should be read in conjunction with ClearStream’s audited consolidated
financial statements for the years ended December 31, 2016 and 2015.
All amounts in this MD&A are in Canadian dollars and expressed in thousands of dollars unless
otherwise noted. The accompanying audited annual consolidated financial statements of ClearStream
have been prepared by and are the responsibility of management. The contents of this MD&A have
been approved by the Board of Directors of ClearStream on the recommendation of its Audit
Committee. This MD&A is dated March 6, 2017 and is current to that date unless otherwise indicated.
The consolidated financial statements have been prepared in accordance with International Financial
Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
References to “we”, “us”, “our” or similar terms, refer to ClearStream, unless the context otherwise
requires.
ClearStream Energy Services Inc.
4
Annual Report 2016
REPORTABLE SEGMENTS
During the first quarter of 2016, ClearStream completed the sale of its interest in Gusgo, as well as
substantially all of the net assets of Quantum Murray and Titan. Subsequent to these transactions, the
Company’s primary business has been to provide industrial services, primarily to the oil and gas
industry.
Given the change in organizational structure, the Company considered and concluded that there was a
change in its reportable segments. The reportable segments discussed below, represent the reportable
segments that the chief operating decision maker considers when reviewing the performance of
ClearStream and deciding where to allocate resources.
ClearStream’s operations, assets and employees are located in Canada. ClearStream utilizes EBITDA
and Adjusted EBITDA as performance measures for its segmented results. These measures are
considered to be non-standard measures under IFRS. Please refer to “Non-Standard Measures” for
more information.
Segment
Maintenance and
Business Description
Construction Services
Operational, maintenance, turnaround and construction services to the
conventional oil and gas, oilsands, and other industries.
Wear, Fabrication and
Transportation Services
Custom fabrication services supporting pipeline and infrastructure projects,
patented wear overlay technology services specializing in overlay pipe spools, pipe
bends and plate, and transportation and pipe logistics services to the drilling sector.
Corporate
ClearStream head office management, administrative, legal and interest expense
costs.
ClearStream Energy Services Inc.
5
Annual Report 2016
2016 RESULTS – CONTINUING OPERATIONS
Revenue
C ost of revenue
direct
indirect
Gross profit
Selling, general and administrative expenses
Amortization of intangible assets
Depreciation
Income from equity investment
Interest expense
Gain (loss) on sale of assets held for sale
Restructuring costs
Impairment of property, plant and equipment
Impairment of goodwill and intangible assets
Other income
(Loss) gain on sale of property, plant and equipment
Income tax recovery (expense) - current
Income tax recovery - deferred
(Loss) income from continuing operations
Add back:
Interest expense
Amortization of intangible assets
Depreciation
Income tax (recovery) expense - current
Income tax recovery - deferred
EBITDA
Impairment of property, plant and equipment
Impairment of goodwill and intangible assets
Gain (loss) on sale of assets held for sale
Transaction costs
Restructuring costs
Operating income from long-term investments in
assets held for sale
Adjusted EBITDA
(Loss) income per share
Basic & Diluted:
C ontinuing operations
Net loss
As at December 31,
Total assets
Senior credit facility
8.00% secured debentures
Senior secured debentures
C onvertible secured debentures
Shareholders' (deficit) equity
2016
2015
Restated1
2014
Restated1
$
270,661
(245,750)
(222,043)
(23,707)
24,911
$
416,122
(362,429)
(332,868)
(29,562)
53,693
$
557,788
(480,913)
(443,523)
(37,390)
76,875
(17,382)
(3,376)
(6,625)
(169)
(21,259)
1,260
(1,471)
-
(8,700)
623
(728)
(21)
-
(32,937)
21,259
3,376
6,625
21
$
-
(1,656)
-
8,700
(1,260)
-
1,471
(22,362)
(5,651)
(8,681)
(508)
(24,948)
(6,379)
(7,454)
(5,574)
(41,727)
-
340
2,050
2,766
(64,436)
(24,368)
(5,715)
(9,828)
282
(27,498)
-
-
-
(308)
-
512
(2,050)
6,799
5,644
$
24,948
5,651
8,681
(2,050)
(2,766)
(29,971)
5,574
41,727
6,379
-
7,454
$
27,498
5,715
9,828
2,050
(6,799)
43,936
-
308
-
9,057
-
$
-
7,255
$
988
32,151
$
-
53,301
$
$
(0.30)
(0.42)
$
$
(0.59)
(1.14)
$
$
0.06
(0.19)
2016
134,842
-
-
171,642
24,397
(103,514)
2015
2014
253,538
58,482
174,311
-
-
(65,056)
391,732
67,253
166,845
-
-
59,831
1Adjusted for discontinued operations and/or reclassification of selling, general and administrative expenses (see
Note 27 of the Consolidated Financial Statements for December 31, 2016).
ClearStream Energy Services Inc.
6
Annual Report 2016
2016 RESULTS COMMENTARY
Revenues for the year ended December 31, 2016 were $270,661 compared to $416,122 in 2015 and
$557,788 in 2014, a decrease of 35.0% from 2015 and a decrease of 51.5% from 2014. Reduced
revenues in 2016, in comparison to both 2015 and 2014, are directly related to the impact of lower oil
and gas prices that negatively impacted market conditions in 2016 for the oil and gas industry.
Furthermore the Fort McMurray forest fires in May 2016 resulted in significantly reduced oil sands
activity during the second and third quarter of 2016 and negatively impacted revenue in 2016 on a
comparative basis.
Gross profit for the year ended December 31, 2016 was $24,911 compared to $53,693 in 2015 and
$76,875 in 2014 after restatement. Gross profit margins were 9.2% compared to 12.9% in 2015 and
13.8% in 2014. The decline in gross profit margin in 2016, in comparison to 2015 and 2014, was
largely due to reduced pricing which was necessary for customer retention in light of the decrease in
customer demand during 2016. Furthermore the temporary impact of the 2016 Fort McMurray forest
fires resulted in lower operating leverage on ClearStream’s fixed cost structure. Absent the temporary
impact of the Fort McMurray forest fires, management believes that fixed costs, which include indirect
and selling, general and administrative expenses, would have decreased at the same rate as revenue.
Selling, general and administrative expenses for the year ended December 31, 2016 were $17,381, in
comparison to $22,362 in 2015 and $24,368 in 2014. ClearStream continued to execute its cost
reduction strategy in 2016, with the closure of three additional operating locations and further right
sizing of staffing levels. In addition, the transition of the Company’s head office function from Toronto
to Calgary was completed by December 31, 2016 and, as such, the Company expects additional cost
savings going forward.
ClearStream’s continuing operations are now reported in its three segments: 1) Maintenance and
Construction Services; 2) Wear, Fabrication and Transportation; and 3) Corporate. The financial
results of these segments are discussed below in this MD&A.
Non-cash items that impacted the 2016 results were depreciation and amortization and write-down of
goodwill. Depreciation and amortization was $10,001 for the year ended December 31, 2016
compared to $14,332 for 2015 and $15,543 for 2014. The decrease in depreciation and amortization
expense is primarily related to the significant write-down of definite life intangibles and property, plant
and equipment was recorded at December 31, 2015, which resulted in a lower opening net book value
for these assets for 2016.
For the year ended December 31, 2016, interest costs, excluding accretion expense, were $18,733
compared with $17,483 in 2015 and with $18,620 in 2014. Non-cash accretion expense was $2,526
for 2016 compared to $7,465 for 2015 and $8,878 for 2014. Accretion expense relates to the
debentures, which were recorded at their fair value, less financing costs, and accrete up to their face
value using the effective interest method over their term. The change in interest expense relates to
the net impact of debt restructuring initiatives that were completed in the first quarter of 2016.
Restructuring costs of $1,471 were recorded during 2016, in comparison to $7,454 in 2015 and $nil in
2014. These non-recurring restructuring costs are comprised of severance and location closure costs
associated with right sizing and restructuring ClearStream’s business.
Other income of $623 was recorded during the three months ended September 30, 2016 and
represents an advance from our insurance company for lost operating profits due to the Fort McMurray
fires. Discussions with our insurance company continue to be on-going regarding the recovery of
additional lost profits. The extent of additional recoveries, if any, is not known at this time.
Financial results for 2016 include a net loss on the sale of property, plant and equipment for $728.
This loss is largely driven by the sale of certain non-essential properties that have been disposed of as
part of the Company’s cost cutting and right sizing initiatives.
ClearStream Energy Services Inc.
7
Annual Report 2016
The net loss from continuing operations was $32,937 for the year ended December 31, 2016,
compared to a restated net loss from continuing operations of $64,436 for 2015.
Adjusted EBITDA
$000s
ClearStream Industrial Services
Maintenance and C onstruction
Wear, Fabrication & Transportation
Adjusted EBITDA from operations
C orporate
Adjusted EBITDA
2016
2015
Restated1
2016 vs.
2015
16,442
6,725
23,167
(15,912)
7,255
26,700
22,814
49,514
(17,363)
32,151
(10,258)
(16,089)
(26,347)
1,450
(24,897)
1Adjusted for change in reportable operating segments (see Note 25 in the Consolidated
Financial Statements for the year ended December 31, 2016).
SEGMENT OPERATING RESULTS
M A I NT E N A N CE A N D CO N ST R U CT IO N SE R V I CE S
Revenue
C ost of revenue
direct
indirect
Gross profit
Selling, general and administrative expenses
Amortization of intangible assets
Depreciation
Interest expense
Impairment of property, plant and equipment
Impairment of goodwill and intangible assets
Gain on sale of property, plant and equipment
Income tax expense - current
Income from continuing operations
Add back:
Interest expense
Amortization of intangible assets
Depreciation
Income tax expense - current
EBITDA
Impairment of property, plant and equipment
Impairment of goodwill and intangible assets
Adjusted EBITDA
2016
2015
Restated1
$
224,875
(206,792)
(192,938)
(13,854)
18,083
$
320,202
(289,837)
(271,407)
(18,430)
30,365
(2,103)
(185)
(3,143)
(304)
-
-
462
(59)
12,751
(3,949)
(185)
(4,085)
(461)
(1,383)
(1,755)
284
(89)
18,742
304
185
3,143
59
16,442
-
-
16,442
$
$
$
$
461
185
4,085
89
23,562
1,383
1,755
26,700
1Adjusted for reclassification of selling, general and administrative expenses (see Note 27 of the
Consolidated Financial Statements for December 31, 2016).
R E V E N U E S
Revenues for the Maintenance and Construction Services segment were $224,875 for the year ended
December 31, 2016 compared with $320,202 in the prior year, which reflects a decrease of 29.8%.
During 2016, the reduced commodity price environment continued to have a negative impact on the
oil and gas sector. ClearStream continued to experience maintenance and turnaround deferrals, as
well as pressure to reduce pricing in response to the low demand. Furthermore, the Fort McMurray
fires in 2016 had a significant negative impact on the maintenance and construction division
throughout the second and third quarters of 2016.
ClearStream Energy Services Inc.
8
Annual Report 2016
G R O S S P R O F I T
Gross profit for the Maintenance and Construction Services segment was $18,083 for the year ended
December 31, 2016 compared with $30,365 in 2015. Gross profit margin was 8.0% compared to
9.5% in 2015.
Pricing declines and lower revenues have led to declines in the gross profit margin. Considerable focus
has been placed on cost controls and efforts to improve operational efficiencies. These initiatives have
partially offset the declines experienced as a result of reduced pricing and business volumes.
S E L L I N G , G E N E R A L A N D A D M I N I S T R A T I V E E X P E N S E S
Maintenance and Construction Services segment’s selling, general and administrative expenses were
$2,103 for the year ended December 31, 2016 compared to $3,949 in 2015. Selling, general and
administrative expenses as a percentage of revenues were 0.9% for the year ended December 31,
2016 compared to 1.2% in 2015. The decrease in SG&A and SG&A as a percentage of revenues reflect
the impact of cost rationalization process that management commenced in mid-2015 and continued to
pursue throughout 2016. During 2016 management proceeded with the closure of three additional
operating locations and continued to right size staff levels as a result of improved efficiencies and
reduced business volumes.
W E AR , F A BR I C AT I O N & T R A NSP O RT AT IO N
Revenue
C ost of revenue
direct
indirect
Gross profit
Selling, general and administrative expenses
Amortization of intangible assets
Depreciation
Interest expense
Impairment of property, plant and equipment
Impairment of goodwill and intangible assets
Gain on sale of property, plant and equipment
Income from continuing operations
Add back:
Interest expense
Amortization of intangible assets
Depreciation
EBITDA
Impairment of property, plant and equipment
Impairment of goodwill and intangible assets
Adjusted EBITDA
2016
2015
Restated1
$
49,349
(42,154)
(32,301)
(9,853)
7,195
$
101,691
(77,802)
(66,670)
(11,132)
23,889
(621)
(289)
(2,888)
(280)
-
-
151
3,268
(1,131)
(349)
(3,465)
(434)
(220)
(300)
56
18,045
280
289
2,888
6,725
-
-
6,725
$
$
$
$
434
349
3,465
22,293
220
300
22,814
1Adjusted for reclassification of selling, general and administrative expenses (see Note 27 of the
Consolidated Financial Statements for December 31, 2016).
R E V E N U E S
Revenues for Wear, Fabrication and Transportation segment were $49,349 for the year ended
December 31, 2016, compared to $101,691 for the prior year, representing a 51.5% reduction.
Revenues for Wear, Fabrication and Transportation segment are driven by project demand within the
oil and gas sector. Given the weak oil and gas prices throughout most of 2016, new project
development activity related to pipelines and infrastructure was minimal. As such, business volumes
and pricing pressure have had a more drastic impact on this segment, in comparison to ClearStream’s
Maintenance and Construction segment. In addition, the Fort McMurray fires had a negative impact on
this segment’s revenues during the second and third quarters of 2016.
ClearStream Energy Services Inc.
9
Annual Report 2016
G R O S S P R O F I T
Gross profit for Wear, Fabrication and Transportation segment was $7,195 for the year ended
December 31, 2016, compared to $23,889 for the prior year. Gross profit margin was 14.6%
compared to 23.5% in 2015. Gross profit margins for this segment declined primarily due to lower
pricing and revenue, which led to lower operating leverage on fixed costs. Fixed costs for the Wear,
Fabrication and Transportation segment are generally higher than ClearStream’s other segment due to
the facilities and equipment needed to provide the relevant services for this division. Management
reduced fixed costs for this segment significantly in 2016 and is continuing its effort to further
rationalize its fixed costs.
S E L L I N G , G E N E R A L A N D A D M I N I S T R A T I V E E X P E N S E S
Wear, Fabrication and Transportation segment’s selling, general and administrative expenses were
$621 for the year ended December 31, 2016 compared to $1,131 in 2015. Selling, general and
administrative expenses as a percentage of revenues were 1.3% for the year ended December 31,
2016 compared to 1.1% in 2015. The decrease in SG&A is directly related to impact of the cost cutting
measures that management implemented starting mid-2015 and continued to implement throughout
2016.
CO R PO R A T E
ClearStream’s head office functions were fully transitioned from its Toronto office to its Calgary office
as of December 31, 2016. The tables below reflect the combined cost of both of the Company’s
Toronto and Calgary offices, as well as other corporate overhead expenses.
S U M M A R Y F I N A N C I A L T A B L E ($ 0 00 S )
2016
2015
Restated1
Selling, general and administrative expenses
Amortization of intangible assets
Depreciation
Income from equity investment
Interest expense
Gain (loss) on sale of assets held for sale
Restructuring costs
Impairment of property, plant and equipment
Impairment of goodwill and intangible assets
Other income
Gain on sale of property, plant and equipment
Income tax recovery (expense) - current
Income tax recovery - deferred
Loss from continuing operations
Add back:
Interest expense
Amortization of intangible assets
Depreciation
Income tax (recovery) expense - current
Income tax recovery - deferred
EBITDA
Impairment of property, plant and equipment
Impairment of goodwill and intangible assets
(Gain) loss on sale of assets held for sale
Restructuring costs
Adjusted EBITDA
(15,025)
(2,902)
(595)
(169)
(20,676)
1,260
(1,471)
-
(8,700)
623
(1,341)
(21)
-
(49,017)
20,676
2,902
595
21
-
(24,823)
-
8,700
(1,260)
1,471
(15,912)
(17,363)
(5,117)
(1,105)
-
(24,054)
(6,379)
(7,454)
(3,971)
(39,672)
-
-
2,050
2,766
(100,298)
24,054
5,117
1,105
(2,050)
(2,766)
(74,838)
3,971
39,672
6,379
7,454
(17,363)
$
$
$
$
1Adjusted for reclassification of selling, general and administrative expenses (see Note 27 of the
Consolidated Financial Statements for December 31, 2016).
ClearStream Energy Services Inc.
10
Annual Report 2016
S E L L I N G , G E N E R A L A N D A D M I N I S T R A T I V E E X P E N S E S
Selling, general and administrative expenses were $15,025 for the year ended December 31, 2016,
compared to the restated amount of $17,363 for the prior year. The reduction in Corporate SG&A in
2016, compared to 2015, was achieved through negotiations with vendors to reduce their pricing, the
full year impact of the 2015 location closures, the closure of three additional locations throughout
2016, and the impact of right sizing staff levels as a result of improved efficiencies and reduced
business volumes.
W R I T E - D O W N O F G O O D W I L L
A decrease in projected EBITDA resulted in a goodwill impairment of $8,700 during the first quarter of
2016. After this impairment, there remains $22,286 in goodwill at ClearStream.
All impairment losses are non-cash in nature and do not affect the Company’s liquidity, cash flows
from operating activities, or debt covenants and do not have an impact on the future operations of the
Company.
FOURTH QUARTER 2016 RESULTS
Quarter ended December 31,
2016
Revenue
C ost of revenue
direct
indirect
Gross profit
Selling, general and administrative expenses
Amortization of intangible assets
Depreciation
Income from equity investment
Interest expense
Gain (loss) on sale of assets held for sale
Restructuring costs
Impairment of property, plant and equipment
Impairment of goodwill and intangible assets
Other income
Gain (loss) on sale of property, plant and equipment
Income tax expense - current
Income tax recovery - deferred
Loss from continuing operations
Add back:
Interest expense
Amortization of intangible assets
Depreciation
Income tax recovery - current
Income tax expense - deferred
EBITDA
Impairment of property, plant and equipment
Impairment of goodwill and intangible assets
Gain (loss) on sale of assets held for sale
Restructuring costs
Operating income from long-term investments in
assets held for sale
Adjusted EBITDA
$
72,913
(65,608)
(59,871)
(5,737)
7,306
(5,068)
(858)
(1,960)
(76)
(5,075)
(66)
(1,126)
-
-
-
94
-
-
(6,829)
2015
Restated1
$
88,956
(80,331)
(73,352)
(6,979)
8,625
(6,528)
(1,422)
(2,670)
213
(6,141)
(6,274)
(4,565)
(5,574)
(41,727)
-
(5)
2,234
(5,025)
(68,859)
5,075
858
1,960
-
-
1,064
-
-
$
66
1,126
$
6,141
1,422
2,670
(2,234)
5,025
(55,835)
5,574
41,727
6,274
4,565
$
-
2,256
$
83
2,388
1Adjusted for reclassification of selling, general and administrative expenses (see Note 27 of the
Consolidated Financial Statements for December 31, 2016).
ClearStream Energy Services Inc.
11
Annual Report 2016
FOURTH QUARTER RESULTS COMMENTARY
Revenues for the three months ended December 31, 2016 were $72,913 compared to $88,956 in
2015, a decrease of 18.0%. The decline in revenues over the same period in the prior year is market
driven as a result of the impact of reduced commodity pricing on ClearStream’s business. The Wear,
Fabrication and Transportation segments continued to suffer from project cancellations and deferrals.
Gross profit for the three months ended December 31, 2016 was $7,306 compared to the restated
amount of $8,625 in 2015, a decrease of 15.3%. Gross margins were 10.0% for the three months
ended December 31, 2016 compared to 9.7% in the fourth quarter of 2015. The improvement in the
gross profit margin is primarily related to the positive impact of the cost-cutting initiatives that
management had commenced in mid-2015 and continued to pursue throughout 2016.
For the three months ended December 31, 2016, the two operating segments produced $6,352 of
Adjusted EBITDA for ClearStream compared to $6,941 in 2015. Refer to the chart below for Adjusted
EBITDA by segment.
The significant improvement in the Adjusted EBITDA in the Maintenance and Construction segment
was partially caused by a fire at one of our major customers facilities that caused a disruption in
activity for most of the fourth quarter of 2015. In addition, cost reduction initiatives began to have a
positive year-over-year impact on gross profit margins during the fourth quarter of 2016.
The Wear, Fabrication and Transportation segment continued to be impacted by price reductions and
reduced business volumes as a result of the negative market conditions, in particular for projects
within the oil and gas sector. Negative market conditions were partially offset by cost cutting
initiatives that were realized in the fourth quarter of 2016.
Corporate costs decreased significantly as management had realized the benefits of some of the cost
cutting initiatives that commenced in mid-2015 and continued throughout 2016.
Depreciation and amortization was $2,818 for the three months ended December 31, 2016, compared
to $4,092 for 2015. The significant decrease is directly a result of lower amortization of definite life
intangibles and depreciation of property, plant and equipment as a result of the significant write-
downs that were taken for the year ended December 31, 2015.
The change in interest expense relates to the net impact of debt restructuring initiatives that were
completed in the first quarter of 2016. Restructuring costs decreased significantly on a quarter-over-
quarter basis as a majority of the ClearStream restructuring initiatives were implemented in the fourth
quarter of 2015.
2016 vs.
2015
Q4 2016
Q4 2015
Restated1
Adjusted EBITDA
$000s
ClearStream Industrial Services
3,887
Maintenance and C onstruction
(4,476)
Wear, Fabrication & Transportation
(589)
Adjusted EBITDA from operations
457
C orporate
(132)
Adjusted EBITDA
1Adjusted for change in reportable operating segments (refer to note 25 in the
consolidated financial statements for the year ended December 31, 2016).
4,496
1,856
6,352
(4,096)
2,256
609
6,332
6,941
(4,553)
2,388
$
$
$
$
$
$
ClearStream Energy Services Inc.
12
Annual Report 2016
LIQUIDITY AND CAPITAL RESOURCES
C ash provided by operating activities
C ash used in investing activities
C ash used in financing activities
C onsolidated cash as at December 31
$
2016
5,048
14,553
(32,507)
11,503
$
2015
15,566
2,701
(16,572)
24,409
For the year ended December 31, 2016, the Company incurred a net loss of approximately $45,730
and had a shareholders’ deficit of $103,514. The Company’s operations continue to feel the effects of
weak economic conditions in Alberta. During 2016, ClearStream successfully obtained amendments to
the terms of its ABL Facility, which allowed it to remain in compliance with its covenants throughout
the year. The Company’s expects to remain in compliance with all financial covenants over the next
twelve months; however, there is risk that the Company will not meet forecasted expectations and
therefore breach financial covenants during 2017.
ClearStream is carefully monitoring its results and continues to take actions to mitigate the risk of a
covenant breach, including reductions to operating and capital expenditures. The Company believes
that it has a good relationship with its lenders and that, in the event that it concludes that a financial
covenant would not be met, it could seek and receive future amendments to its covenants. It cannot
be guaranteed that such amendment will be required or requested and similarly there can be no
guarantee that such amendment would be received from the Company’s lenders or that the conditions
of such amendment could be fulfilled by the Company. In the event that an amendment was not
received, the cross-default provisions in the senior secured debenture and convertible secured
debenture would be triggered, requiring payment on demand. The possibility that a financial covenant
may not be met results in a material uncertainty that may cast significant doubt on the Company’s
ability to continue as a going concern.
O P ER A T IN G AC T IV IT IE S A ND C H AN G E IN WO R K IN G CA P ITA L
Total working capital has decreased significantly on a year-over-year basis, due to the fact that all of
ClearStream’s debt which was recorded as current at December 31, 2015, was subsequently
refinanced on March 23, 2016. As such, this debt is not classified as current for the year ended
December 31, 2016. In addition, working capital has decreased significantly due to a decline in activity
combined with improvements to cash flow management, collections, and billings timelines that have
led to lower accounts receivable.
INV E ST IN G AC T IV IT IE S
Due to weak market conditions, capital spending was kept to a minimum and non-essential operating
assets were sold during 2016. As a result, ClearStream used $247 of net cash proceeds after the
disposal and purchase of property, plant and equipment and intangible assets.
$14,800 of cash proceeds were received on the sale of Quantum Murray LP, Titan Supply LP and
Gusgo during the first half of 2016.
F IN AN C IN G AC T IV IT IE S
In March 23, 2016, ClearStream entered into an agreement for an Asset Based Lending (“ABL”) facility
with a banking syndicate led by the Bank of Montreal. ClearStream will utilize the ABL Facility to fund
working capital requirements. The services provided by ClearStream are labour intensive. Employees
are remunerated every two weeks and clients typically pay invoices in 60 to 90 days. During peak
business activity, such as the spring and fall shutdown/turnaround maintenance program of our
customers, a higher number of employees are at customer sites, and this increases the need for
working capital funding.
ClearStream Energy Services Inc.
13
Annual Report 2016
The amounts that can be drawn on the ABL facility, to a maximum of $60 million, are based primarily
on eligible accounts receivable balances. The Company is required to satisfy certain covenants,
including a fixed charge coverage ratio under the terms of the agreement. As at December 31, 2016,
approximately $3,500 million was drawn on the ABL facility.
On March 23, 2016, the Company issued an aggregate of $176,228 principal amount of senior secured
debentures to Canso Investment Counsel Ltd. (“Canso”), in its capacity as portfolio manager for and
on behalf of certain accounts that it manages, on a private placement basis. The net proceeds of this
issuance were used to completely repay the principal amount outstanding under the previous senior
secured debentures.
On March 23, 2016, the Company issued an aggregate of $25,000 principal amount of convertible
secured debentures to Canso on a private placement basis and an additional $10,000 principal amount
of convertible secured debentures pursuant to a rights offering. Pursuant to the rights offering, the
Company offered to its shareholders of record as of February 18, 2016 transferable rights to purchase
up to $10,000 aggregate principal amount of convertible secured debentures for the same amount in
gross proceeds. Each such shareholder was entitled to one right for each common share held. Every
1,099.41241 rights entitled an eligible rights holder to purchase $100 aggregate principal amount of
convertible secured debentures at a subscription price of $100. The rights expired on March 17, 2016
and the rights offering, which was over-subscribed, closed on March 23, 2016, resulting in the
issuance of:
• $1,969,000 aggregate principal amount of convertible secured debentures upon the exercise
of the basic subscription privilege; and
• $8,030,400 aggregate principal amount of convertible secured debentures issued to over-
subscribing purchasers on a pro-rata basis, pursuant to the additional subscription privilege.
The net proceeds of this issuance, together with the proceeds of asset sales, were used to completely
repay the Company’s indebtedness under the senior credit agreement.
In connection with the various refinancing initiatives, ClearStream incurred $10,256 of refinancing
fees during 2016.
As part of its normal operations, ClearStream enters into finances leases as a way to finance capital
initiatives, primary for vehicles and equipment. During 2016, ClearStream repaid $5,416 (2015 –
5,591) of finance lease obligations.
SUM MAR Y OF C O N TR AC TUA L OB L IGA T IO NS
ClearStream’s contractual obligations for the years 2017 to 2021 and thereafter are as follows:
2017
2018
2019
2020
2021
Thereafter
Total
Accounts payable and accrued liabilities
$
26,848
$
-
$
-
$
-
$
-
$
-
$
26,848
ABL facility
Senior secured debentures
C onvertible secured debentures
Finance lease obligations
Operating leases
3,500
-
-
4,165
11,409
-
-
-
-
-
-
-
-
-
-
-
-
-
3,500
176,228
176,228
35,000
35,000
1,866
9,534
853
8,323
212
4,391
131
-
7,227
3,735
22,385
59,776
Total C ontractual Obligations
$
45,922
$
11,400
$
9,176
$
4,603
$
3,866
$
233,613
$
308,579
ClearStream expects to meet its short-term contractual obligations through cash flow from operations,
which includes collection of accounts receivable.
ClearStream Energy Services Inc.
14
Annual Report 2016
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
ClearStream prepares its consolidated financial statements in accordance with IFRS. The preparation
of the consolidated financial statements in conformity with IFRS requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of
contingent assets and liabilities, and the reported amounts of revenues and expenses for the period of
the consolidated financial statements. Significant accounting policies and methods used in the
preparation of the consolidated financial statements are described in note 1 in the December 31, 2016
consolidated financial statements. ClearStream evaluates its estimates and assumptions on a regular
basis, based on historical experience and other relevant factors. Included in the consolidated financial
statements are estimates used in determining allowance for doubtful accounts, inventory valuation,
the useful lives of property, plant and equipment and intangible assets, revenue recognition, income
taxes, provisions, impairment, earn-outs, going concern assumptions and other matters. Actual
results could differ from those estimates and assumptions.
ADDITIONAL INFORMATION
N E W S T A N D A R D S A N D I N T E R P R E T A T I O N S N O T Y E T A D O P T E D
International Financial Reporting Standard 9, Financial Instruments
IFRS 9 Financial Instruments introduces new requirements for the classification and measurement of
financial instruments, a new expected-loss impairment model that will require more timely recognition
of expected credit losses and a substantially reformed model for hedge accounting, with enhanced
disclosures about risk management activity. IFRS 9 also removes the volatility in profit or loss that
was caused by changes in an entity’s own credit risk for liabilities elected to be measured at fair value.
IFRS 9 is effective for annual periods beginning on or after January 1, 2018.
Management will complete a formal assessment of the impact of adoption of IFRS 9 on the Company
commencing in Q2 2017.
International Financial Reporting Standard 15, Revenue from Contracts with Customers
IFRS 15 Revenue from Contracts with Customers provides a single, principles-based five-step model
that will apply to all contracts with customers with limited exceptions. In addition to the five-step
model, the standard specifies how to account for the incremental costs of obtaining a contract and the
costs directly related to fulfilling a contract. The incremental costs of obtaining a contract must be
recognized as an asset if the entity expects to recover these costs. The standard’s requirements will
also apply to the recognition and measurement of gains and losses on the sale of some non-financial
assets that are not an output of the entity’s ordinary activities. IFRS 15 is effective for annual periods
beginning on or after January 1, 2018. Management will complete a formal assessment of the impact
of adoption of IFRS 15 on the Company commencing in Q2 2017.
International Financial Reporting Standard 16, Leases
IFRS 16 Leases provides an updated definition of a lease contract, including guidance on the
combination and separation of contracts. The standard requires lessees to recognize a right-of-use
asset and a lease liability for substantially all lease contracts. The accounting for lessors is
substantially unchanged. IFRS 16 is effective for annual periods beginning on or after January 1,
2019. The Company will complete an assessment of the impact of adoption of IFRS 16 following the
completion of its assessments described above for IFRS 9 and IFRS 15.
ClearStream Energy Services Inc.
15
Annual Report 2016
S U M M A R Y O F Q U A R T E R L Y R E S U L T S – ( $0 0 0 S E X C E P T U N I T A M O U N T S )
Revenues
Gross Margin
Gross Margin %
Net (loss) income from continuing operations
Net loss
Income (loss) per unit from continuing
operations
2016
Q4
2016
Q3
2016
Q2
2016
Q1
2015
Q4
Restated1
2015
Q3
Restated1
2015
Q2
Restated1
2015
Q1
Restated1
$
72,913
$
67,773
$
61,335
$
68,640
$
88,956
$
116,662
$
118,536
$
91,968
7,306
6,824
5,465
5,316
8,626
18,407
14,884
11,776
10.0%
(6,829)
(12,858)
10.1%
(4,625)
(5,339)
8.9%
(5,391)
7.7%
(16,092)
9.7%
(68,041)
15.8%
3,675
12.6%
1,510
(6,716)
(20,817)
(107,848)
(6,350)
(6,274)
12.8%
(1,580)
(4,415)
(0.06)
(0.04)
(0.05)
(0.15)
(0.62)
0.03
0.01
(0.01)
Income (loss) per unit
1Please note that some of the figures above have been restated from those published in previous periods to categorize certain expenses previously
classified as selling, general and administrative to cost of revenues. This change enhances the comparability of the Company’s financial results with that
of its competitors and more accurately reflects the function of the relevant expenses. Please refer to the consolidated financial statements for the year
ended December 31, 2016 for more information.
(0.06)
(0.04)
(0.98)
(0.19)
(0.12)
(0.06)
(0.05)
(0.06)
Revenues at ClearStream are somewhat seasonal. Typically there are scheduled shutdown/turnaround
projects in the spring and fall which increases revenues over and above the standard maintenance and
operational support services.
Gross margin percentage fluctuations by quarter are usually a function of revenue mix.
Notwithstanding this, the first quarter of each year will usually show lower gross margin percentages
as the employer portion of payroll and benefit costs will not be maximized until later that year.
The gross margin percentage reductions from Q4 2015 to Q2 2016 are reflective of a decrease in
business volumes and price reductions granted to customers as a result of the impact of reduced
commodity prices on ClearStream’s business. In addition to this, ClearStream’s revenues were
negatively impacted in the second and third quarters of 2016 as a result of the impact of the Fort
McMurray wildfires on ClearStream’s business.
Although the gross margins percentages in Q3 and Q4 2016 are lower than those prior to Q3 2015,
they showed some improvement over those experienced from Q4 2015 to Q2 2016. The margin
improvement reflects the realization of the impact of management’s cost cutting initiatives and the
partial return of business volumes that were lost as a result of the Fort McMurray forest fires.
C O N T I N G E N C I E S
ClearStream is subject to claims and litigation proceedings arising in the normal course of operations.
These contingencies are provided for when they are likely to occur and can be reasonably estimated.
Management believes that these claims are without merit and as such they are being rigorously
defended.
In March 2015, the Company was advised by Brompton Corp. (“Brompton”) that Brompton has
received notices of reassessment from the Canada Revenue Agency (the “CRA”) in which the CRA has
denied the deduction to Brompton of certain non-capital losses and other tax attributes in computing
Brompton’s income for the 2010 to 2014 taxation years. Tuckamore Holdings LP, a wholly-owned
subsidiary of the Company, previously held approximately 40% of the outstanding equity of
Brompton. The Company sold its equity in Brompton in September 2011.
On June 12, 2015, Brompton served the Company and certain of its affiliates with a Statement of
Claim seeking, among other things, indemnification in the amount of 40% of the CRA’s notices of
reassessment for the 2010-2012 taxation years. On July 13, 2015, the Company served its Statement
of Defence denying Brompton’s allegations and relying on, among other things, a corresponding
warranty and indemnity provided by Brompton to ClearStream. Brompton brought a motion for
summary judgment, which was heard in August and September, 2016. In February 2017, the court
granted summary judgment in favour of Brompton, ruling that the Company is required to indemnify
Brompton. The Company has appealed the decision to the Court of Appeal. Pending the outcome of
the appeal, enforcement of any order and costs pursuant to the motion for summary judgment will be
stayed. The Company has accrued for the estimated potential liability with respect to this matter as at
ClearStream Energy Services Inc.
16
Annual Report 2016
December 31, 2016 with the corresponding loss recorded in discontinued operations. The estimated
liability at December 31, 2016 is $4,985, which includes taxes, interest, legal fees and costs for
appeal.
T R A NS A CT IO NS W IT H REL A T ED P AR T IE S
O W N E R S H I P
As of December 31, 2016, directors, officers and key employees beneficially hold an aggregate of
15,363,838 common shares or 14.0% on a fully diluted basis.
T R A N S A C T I O N S
Income from equity investments includes $191 of rent expense paid to a company owned by the
minority shareholder of Gusgo for the year ended December 31, 2016 (2015 - $836). Interest
charged to joint venture operating partners on advances was $59 (2015 - $229). Two operating leases
for property, with annual rents of $312 and $400 are with a landlord in which certain executives of
ClearStream hold an indirect minority interest (2015 - $312 and $400). These transactions occurred in
the normal course of business and are recorded at the exchange amount, which is the amount of
consideration established and agreed to between the parties.
S H A R E C A P I T A L
The authorized share capital of the Company consists of: (i) an unlimited number of common shares,
and (ii) preferred shares issuable in series to be limited in number to an amount equal to not more
than one half of the issued and outstanding common shares at the time of issuance of such preferred
shares. As of the date hereof, there were 109,941,241 common shares issued and outstanding and nil
preferred shares issued and outstanding. If all of the $35,000 Convertible Debentures were converted,
there would be 209,941,241 common shares outstanding. The number of common shares outstanding
would increase if ClearStream chose to settle interest payments on the Convertible Debentures
through the issue of Convertible Debentures.
OUTLOOK
Oil and gas prices increased during the fourth quarter of 2016 and have stabilized in early 2017. This
improved oil and gas price environment has led to increased demand from our customers for
maintenance related services in early 2017 and we expect this trend to hold throughout 2017. We also
expect to see a meaningful rise in facility turnaround demand during spring and fall turnaround
seasons in 2017. Our customers deferred maintenance and turnaround spending in 2016 due
challenging market conditions and with improved and stable market conditions in 2017, we expect to
see a significant portion of these deferred programs executed in 2017.
The commodity price recovery has also led to moderate growth in facility and pipeline based project
demand in early 2017. However, the bidding process for projects remains very competitive and we do
not expect prices to increase in the first half of 2017.
For the first quarter of 2017, we expect revenue and EBITDA to be higher on both a year-over-year
and sequential basis. We recently announced a major new contract win in Saskatchewan, the renewal
of a large maintenance contract in Fort McMurray, and a new five-year contract award through a joint
venture with SNC-Lavalin. These accomplishments, combined with an improving and stable market
environment, have set the stage for improved financial results in 2017 compared to 2016. However,
demand for our services continues to be driven by oil and gas prices that are volatile and
unpredictable. Given this uncertainty, ClearStream management will continue to focus on cost
management, customer retention, process and efficiency improvements, and diversification of our
revenue stream into new geographies and markets outside of oil and gas.
ClearStream Energy Services Inc.
17
Annual Report 2016
RISK FACTORS
An investment in shares of ClearStream involves a number of risks. In addition to the other
information contained in this MD&A and ClearStream’s other publicly filed disclosure documents,
investors should give careful consideration to the following factors, which are qualified in their entirety
by reference to, and must be read in conjunction with, the detailed information appearing elsewhere in
this MD&A. Any of the matters highlighted in these risk factors could have a material adverse effect on
ClearStream’s results of operations, business prospects or financial condition.
ClearStream’s financial results are impacted by the performance of each of its Operating Partnerships,
and, subsequent to March 23, 2016, ClearStream is the Company’s primary asset.
Please refer to the AIF dated March 6, 2017 for a discussion of Risk Factors particular to the Operating
Partnerships, and, subsequent to March 6, 2017, ClearStream as the Company’s primary asset, and its
direct and indirect subsidiaries, and ClearStream.
Risks Relating to the Company
R E F I N A N C I N G T R A N S A C T I O N S M A Y N O T I M P R O V E T H E C O M P A N Y ’ S F I N A N C I A L C O N D I T I O N
The Refinancing Transactions may not improve the Company’s liquidity and operating flexibility or
allow it to continue operating its business in the normal course. Deterioration in the Company’s
consolidated revenues and relationships with suppliers, or the inability of the Company to successfully
manage costs, liquidity and results of operations, or the impact of external factors beyond the control
of the Company such as further deterioration in general economic conditions (including commodity
prices such as oil and natural gas), may have a material adverse effect on the Company and may
result in the Company not being able to pay its debts as they become due. While the Company had
positive cash flows from operations for the financial year ended December 31, 2016, there can be no
assurance that the Company will be able to maintain positive cash flow from operations in subsequent
financial periods.
There are no assurances that the Company will be able to achieve or maintain compliance with the
terms, conditions and covenants contained in the Convertible Secured Indenture, Senior Secured
Indenture, and the new ABL Facility and any such non-compliance could lead to defaults thereunder
which could materially adversely affect the Company’s financial condition, liquidity and results of
operations. A failure to comply with the obligations in the Convertible Secured Indenture, Senior
Secured Indenture, and/or the New ABL Facility could result in an event of default that, if not cured or
waived, could permit acceleration of the Company’s obligations thereunder. If the indebtedness under
the Convertible Secured Indenture, Senior Secured Indenture, and/or the New ABL Facility were to be
accelerated, there can be no assurance that the assets would be sufficient to repay in full that
indebtedness.
The degree to which the Company is leveraged could have important consequences to shareholders,
including the following: (i) the ability to obtain additional financing for working capital, capital
expenditures or acquisitions; (ii) a material portion of cash flow from operations may need to be
dedicated to payment of the principal of and interest on indebtedness, thereby reducing funds
available for future operations; (iii) the Company may be more vulnerable to economic downturns and
be limited in its ability to withstand competitive pressures. The ability to make scheduled payments of
principal and interest on, or to refinance, its indebtedness will depend on its future operating
performance and cash flows, which are subject to prevailing economic conditions, prevailing interest
rate levels, and financial, competitive, business and other factors, many of which are beyond its
control.
ClearStream Energy Services Inc.
18
Annual Report 2016
T H E R E F I N A N C I N G T R A N S A C T I O N S C O U L D R E S U L T I N A C H A N G E O F C O N T R O L O F T H E
C O M P A N Y
In connection with the Refinancing Transactions, the Company issued a significant number of
Convertible Secured Debentures to Canso, in its capacity as portfolio manager for and on behalf of
certain accounts that it manages. In addition, the Company may be required to issue additional
Convertible Secured Debentures to Canso, in its capacity as portfolio manager for and on behalf of
certain accounts that it manages, as PIK Debentures. Assuming that: (a) all interest on the
Convertible Secured Debentures is paid as PIK Debentures over the term of the Convertible Secured
Debentures to maturity; (b) no Convertible Secured Debentures are redeemed; (c) all Convertible
Secured Debentures are converted immediately prior to maturity; and (d) there is no adjustment to
the conversion price of the Convertible Secured Debentures, a maximum of 260,273,493 common
shares of the Company may be issued to Canso, in its capacity as portfolio manager for and on behalf
of certain accounts that it manages (to the extent permitted under securities legislation), or any
transferee of Canso’s holdings, upon conversion of the Convertible Secured Debentures that were
issued pursuant to the Refinancing Transactions. Canso, to the extent permitted under securities
legislation, or any transferee of Canso’s holdings, will be in a position to unilaterally elect a majority of
the directors of the Company should it choose to do so.
V O L A T I L I T Y O F I N D U S T R Y C O N D I T I O N S R E L A T I N G T O C L E A R S T R E A M
The demand, pricing and terms for oilfield services largely depend upon the level of oil and gas
industry activity. Industry conditions are influenced by numerous factors over which ClearStream will
have no control, including: the level of oil and gas prices; expectations about future oil and gas prices;
the cost of exploring for, producing and delivering oil and gas; the expected rates of declining current
production; the discovery rates of new oil and gas reserves; available pipeline and other oil and gas
transportation capacity; worldwide weather conditions; global political, military, regulatory and
economic conditions; and the ability of oil and gas companies to raise equity capital or debt financing.
The level of activity in the oil and gas exploration and production industry is volatile. No assurance
can be given that expected trends in oil and gas production activities will continue or that demand for
oilfield services will reflect the level of activity in the industry. Crude oil and natural gas prices have
historically been volatile and are expected to remain volatile for the near future as a result of market
uncertainties over the supply and demand of these commodities due to concerns of oversupply, the
current state of the world economics, actions taken by the Organization of the Petroleum Exporting
Countries, and ongoing credit and liquidity concerns within the industry. Any prolonged substantial
reduction in oil and natural gas prices would likely adversely affect oil and gas production levels and
therefore adversely affect the demand for services to oil and gas customers. A material decline or
sustained depression in oil or gas prices or industry activity could have a material adverse effect on
ClearStream’s business, financial condition, results of operations and cash flows. The business and
activities of ClearStream are directly affected by fluctuations in levels of exploration, development and
production activity carried on by its customers.
In addition, demand for the services provided by ClearStream is directly impacted by the prices that
ClearStream’s customers receive for the crude oil and natural gas they produce and the prices
received have a direct correlation to the cash flow available to invest in transportation, equipment
rental and other oilfield services provided by ClearStream. The markets for oil and natural gas are
separate and distinct. Oil is a global commodity with a vast distribution network. As natural gas is
most economically transported in its gaseous state via pipeline, its market is dependent on pipeline
infrastructure and is subject to regional supply and demand factors. However, recent developments in
the transportation of liquefied natural gas (“LNG”) in ocean going tanker ships have introduced an
element of globalization to the natural gas market. Crude oil and natural gas prices are quite volatile,
which accounts for much of the cyclical nature of the oilfield services business. World crude oil prices
and North American natural gas prices, including LNG, are not subject to control by ClearStream.
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C O N D I T I O N O F C A P I T A L M A R K E T S
While the Company has successfully restructured its balance sheet, the majority of cash flow, and all
asset sale proceeds, if any, is anticipated to be used to pay down debt for the foreseeable future.
D E P E N D E N C E O N K E Y P E R S O N N E L
The success of the Company depends on its respective senior management team and other key
employees, including its ability to retain and attract skilled management and employees. The loss of
the services of key personnel could have a material adverse effect on the business, financial condition,
results of operations or future prospects of the Company. In addition, growth plans may require
additional employees, increase the demand on Management and produce risks in both productivity and
retention levels. The Company may not be able to attract and retain additional qualified management
and employees as needed in the future. There can be no assurance that the Company will be able to
effectively manage its future business plan, and any failure to do so could have a material adverse
effect on the Company’s business, financial condition, results of operations and future prospects.
G E N E R A L E C O N O M I C F A C T O R S
The Company’s business is subject to changes in general economic conditions including but not limited
to, recessionary or inflationary trends, equity market levels, consumer credit availability, interest
rates, consumers’ disposable income and spending levels, job security and unemployment, and overall
consumer confidence.
C U S T O M E R C O N T R A C T S
The business operations of ClearStream depend on its ability to perform under the agreements with its
customers and the ability to attract new business. The key factors, which determine whether a client
continues to use ClearStream, are service quality and availability, reliability and performance of
equipment used to perform its services, technical knowledge and experience, reputation for safety
performance and competitive pricing. Although Clearstream’s key customer relationships are
measured in decades, there can be no assurance that ClearStream’s relationship with its customers
will continue, and a significant reduction or total loss of the business from these customers, if not
offset by sales to new or existing customers, could have a material adverse effect on ClearStream’s
business, financial condition, results of operations and cash flows.
C U S T O M E R C O N C E N T R A T I O N
Large contracts often create a situation where a significant portion of ClearStream’s main revenue and
accounts receivables may be from a small number of customers increasing the risks of economic
dependence and concentration of credit. ClearStream is economically dependent upon its top three
clients who made up approximately 61% of ClearStream’s revenues for 2016.
L A B O U R
The success of the Company depends on its ability to maintain productivity and profitability. The
productivity and profitability of ClearStream may be limited by its ability to employ, train and retain
the skilled personnel necessary to meet its requirements. ClearStream cannot be certain that it will be
able to maintain the adequate skilled labour force necessary to operate efficiently and to support its
growth strategy. As well, ClearStream cannot be certain that its labour expenses will not increase as
a result of shortage in the supply of these skilled personnel. Labour shortages or increased labour
costs could impair the ability of ClearStream to maintain or grow its business.
Approximately 34% of ClearStream’s hourly employees, workers in both ClearWater Fabrication and
ClearWater Energy Services, are subject to collective agreements to which it is a party or is otherwise
subject. Any work stoppage resulting from a strike or lockout could have a material adverse effect on
the Company’s business, financial condition and results of operations, including increased labour costs
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and service disruptions. In addition, ClearStream’s clients employ workers under collective
agreements. Any work stoppage or labour disruption experienced by ClearStream’s key clients could
significantly reduce the demand for ClearStream’s services.
R E G U L A T I O N
The Company is subject to a variety of federal, provincial and local laws, regulations, and guidelines
and may become subject to additional laws, regulations and guidelines in the future, particularly as a
result of acquisitions. The financial and managerial resources necessary to ensure such compliance
could escalate significantly in the future which could have a material adverse effect on the business,
financial condition, results of operations and cash flows of the Company. Although such expenditures
historically have not been material, such laws and regulations are subject to change. Accordingly, it is
impossible for the Company to predict the cost or impact of such laws and regulations on its future
operations.
C O M P E T I T I O N
The businesses in which ClearStream operates are highly competitive. It often competes with
companies that are much larger and have greater resources than ClearStream. There can be no
assurance that the Company will be able to successfully compete against its competitors or that such
competition will not have a material adverse effect on its business, financial condition, results of
operations and cash flows.
S E A S O N A L I T Y
In Canada, the level of activity in the oilfield services industry is influenced by seasonal weather
patterns. Spring break-up during the second quarter leaves many secondary roads temporarily
incapable of supporting the weight of heavy equipment, which results in severe restrictions in the level
of oilfield services. The duration of this period will have a direct impact on some of the services that
ClearStream provides. Spring break-up occurs earlier in the year in south-eastern Alberta than it does
in northern Alberta. The timing and duration of spring break-up is dependent on weather patterns but
it generally occurs in April and May. Additionally, if an unseasonably warm winter prevents sufficient
freezing, ClearStream may not be able to access well sites and its operating results and financial
condition may therefore be adversely affected. The demand for oilfield services may also be affected
by the severity of the Canadian winters. In addition, during excessively rainy periods, equipment
moves may be delayed, thereby adversely affecting revenues. The volatility in the weather and
temperature can therefore create unpredictability in activity and utilization rates, which can have a
material adverse effect on ClearStream’s business, financial condition, results of operations and cash
flows.
S O U R C E S, P R I C I N G A N D A V A I L A B I L I T Y O F E Q U I P M E N T A N D E Q U I P M E N T P A R T S
ClearStream sources its equipment and equipment parts from a variety of suppliers. Should any
suppliers of ClearStream be unable to provide the necessary equipment or parts or otherwise fail to
deliver products in the quantities required, any resulting delays in the provision of services or in the
time required to find new suppliers could have a material adverse effect on ClearStream’s business,
financial condition, results of operations and cash flows.
P R O J E C T R I S K
A portion of ClearStream’s revenues is derived from stand-alone construction projects under a “lump
sum” contracting strategy. Although these projects provide opportunities for increased revenue and
profit contributions they can occasionally result in significant losses. Although “lump sum” projects do
not represent a high percentage of the work ClearStream performs, ClearStream may experience
periods of irregular or reduced revenues. The recording of the results of these project contracts can
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distort revenues and earnings on both a quarterly and an annual basis and can, in some cases, make
it difficult to compare the financial results between reporting periods.
E N V I R O N M E N T A L
The operations of ClearStream are, and will continue to be, affected in varying degrees by federal and
provincial statutes and regulations regarding the protection of the environment. Changes to existing
statutes or regulations could have a negative impact on development projects, includes those in the
regions where the Company operates. Furthermore, under existing legislation, all capital projects in
the Alberta oil sands are subject to regulatory approval. Planned capital projects that have not yet
obtained regulatory approval will require such approvals in order to proceed.
No assurance can be given that future environmental approvals, laws or regulations will not adversely
impact the ability of ClearStream’s customers to develop and operate in the regions where they
operate.
U N E X P E C T E D A D J U S T M E N T S A N D C A N C E L L A T I O N S I N B A C K L O G
ClearStream may not be able to convert its backlog into revenue and cannot guarantee that the
revenues projected in its backlog will be realized or, if realized, will result in profits. This is a
fundamental condition of the energy services industry. Projects may remain in its backlog for an
extended period of time. ClearStream includes in its backlog binding and non-binding letters of intent,
work orders and cost reimbursable contracts, which may be different than the items other issuers
include in backlog. In addition, as many of ClearStream’s clients have the right to terminate their
contracts on short notice, project cancellations or scope adjustments may occur, from time to time,
with respect to contracts reflected in its backlog and with respect to backlog evidenced by a non-
binding letter of intent, the formal contract respecting same may never be finalized, resulting in such
engagement being terminated. Backlog reductions can adversely affect the revenue and profit
ClearStream actually receives from projects reflected in its backlog. Future project cancellations and
scope adjustments could further reduce the dollar amount of the Company’s backlog and the revenues
and profits that ClearStream actually receives. Additionally, in the event of a project cancellation, the
Company may be reimbursed for certain costs, but typically has no contractual rights to the total
revenue that was expected to be derived from such project.
P R I C E A N D A V A I L A B I L I T Y O F A L T E R N A T I V E F U E L S
Fuel conservation measures, alternative fuel requirements, increasing consumer demand for
alternatives to oil and gas, and technological advances in fuel economy and energy generation devices
could reduce the demand for crude oil and other liquid hydrocarbons. ClearStream cannot predict the
impact of changing demand for oil and gas products, and any major changes may have a material
adverse effect on ClearStream’s business, financial condition, results of operations and cash flows.
A V A I L A B I L I T Y O F F U T U R E F I N A N C I N G
As of the date hereof, the Company’s principal source of funds is cash generated from operations. The
Company however, may require additional equity or debt financing to meet its financing requirements.
There can be no assurance that this financing will be available when required or available on
commercially favourable terms or on terms that are otherwise satisfactory to the Company, in which
event the financial condition of the Company may be materially adversely affected.
P O T E N T I A L F U T U R E D E V E L O P M E N T S
Management of the Company, in the ordinary course of business, regularly explores potential strategic
opportunities and transactions. The public announcement of any of these or similar strategic
opportunities or transactions might have a significant effect on the price of the Company’s securities.
The Company’s practice is not to publicly disclose the pursuit of a potential strategic opportunity or
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transaction unless and until a definitive binding agreement is reached unless otherwise required by
applicable law. There can be no assurance that investors who buy or sell securities of the Company
are doing so at a time when the Company is not pursuing a particular strategic opportunity or
transaction that when announced, would have a significant effect on the price of the Company’s
securities.
C Y B E R S E C U R I T Y R I S K
The Company utilizes a number of information technology systems for the management and operation
of its business and is subject to a variety of information technology and system risks as part of its
normal operations, including potential breakdown, invasion, virus, cyber-attack, cyber fraud, security
breach and destruction or interruption of the Company’s information technology systems by third
parties or insiders.
Although the Company has security measures and controls in place that are designed to mitigate
these risks, a breach of its security measures and/or loss of information could occur and could lead to
a number of adverse consequences, including but not limited to: the unavailability, disruption or loss
of key functionalities within the information technology systems, the unauthorized disclosure,
corruption or loss of material and confidential information, breach of privacy laws and a disruption to
the Company’s business activities.
The Company attempts to prevent such breaches through, among other things, the implementation of
various technology security measures, segregation of control systems from its general business
network, engaging skilled consultants and employees to manage the Company’s technology
applications, conducting periodic audits and adopting policies and procedures as appropriate. To date,
the Company has not been subject to a cyber security breach that has resulted in a material impact on
its business or operations; however, there is no guarantee that the measures the Company takes to
protect its information technology systems will be effective in protecting against a breach in the
future.
P O L I T I C A L R I S K
Recent political events in the United States have led to uncertainty regarding the position the U.S. will
take with respect to world affairs and events, especially current and future trade relationships with
Canada and other countries. In particular, the current U.S. administration has indicated its intention to
renegotiate or withdraw from the North American Free Trade Agreement. However, there have been
no formal steps taken in this regard to date. As such, at this time ClearStream is unable to predict
what impact any such renegotiation or withdrawal may have; however, in the event that any
renegotiation or withdrawal impacts the exports of energy resources to the U.S. or Mexico this could
have a material adverse effect on ClearStream’s business and financial condition by negatively
impacting ClearStream’s customers' cash flow and production levels.
Risks Relating to the Company’s Corporate Structure
P O T E N T I A L S A L E S O F A D D I T I O N A L S H A R E S
The Company may issue additional Shares or securities exchangeable for or convertible into shares in
the future. Such additional Shares may be issued without the approval of shareholders. The
shareholders will have no pre-emptive rights in connection with such additional issues. Additional
issuance of Shares will result in the dilution of the interests of shareholders.
I N C O M E T A X M A T T E R S
Although the Company and its subsidiaries are of the view that all expenses to be claimed by them in
the determination of their respective incomes under the Income Tax Act (Canada) (the “Tax Act”) are
reasonable and deductible in accordance with the applicable provisions of the Tax Act, and that the
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Annual Report 2016
allocation of partnership income for purposes of the Tax Act are reasonable, there can be no
assurance that the Tax Act or the interpretation of the Tax Act will not change, or that the Canada
Revenue Agency (the “CRA”) will agree with the expenses claimed or such allocation of partnership
income. If CRA successfully challenges the deductibility of such expenses or the allocation of such
income, the allocation of taxable income to the Company and its subsidiaries may change.
Elections have been made under the Tax Act such that the transactions under which the Company
acquired its interest in certain Operating Partnerships may be effected on a tax-deferred basis. The
adjusted cost base of any property transferred to an Operating Partnership pursuant to such
agreements may be less than its fair market value, such that a gain may be realized on the future sale
of the property.
The past acquisitions of the operating partnerships involved various structuring events to complete the
transactions in a tax effective manner. These transactions involved interpretations of the Tax Act
which could, if interpreted differently, result in additional tax liabilities.
Risks Relating to Common Shares of the Company
U N P R E D I C T A B I L I T Y A N D V O L A T I L I T Y O F C O M M O N S H A R E P R I C E
A publicly traded company will not necessarily trade at values determined by reference to the
underlying value of its business. The prices at which the common shares of the Company will trade
cannot be predicted. The market price of the common shares of the Company could be subject to
significant fluctuations in response to variations in quarterly operating results and other factors. In
addition, the securities markets have experienced significant price and volume fluctuations from time
to time in recent years that often have been unrelated or disproportionate to the operating
performance of particular issuers. These broad fluctuations may adversely affect the market price of
the common shares of the Company.
R E S T R I C T I O N S O N P O T E N T I A L G R O W T H
The use of operating cash flow to reduce debt will make additional capital and operating expenditures
somewhat dependent on increased cash flow. Lack of those funds could limit the future growth of
ClearStream and its cash flow.
Risks Relating to the Senior Secured Debentures and the Convertible Secured Debentures
P R I O R R A N K I N G I N D E B T E D N E S S A N D I N S O L V E N C Y L A W S
The first priority security interest on the assets of ClearStream held by the Senior Debenture Trustee
on behalf of holders of Senior Secured Debentures could mean that such assets will not be available to
satisfy any obligations owing on the Convertible Secured Debentures. In addition, the security
interest on the assets of ClearStream held by the Convertible Debenture Trustee on behalf of holders
of Convertible Secured Debentures does not extend to collateral securing the New ABL Facility. As a
result, in the event of a liquidation of the Company and/or certain subsidiaries of the Company, it is
possible that the holders of Convertible Secured Debentures would not recover the full or any amount
of their investment.
In the event of any insolvency or bankruptcy proceedings, or any receivership, liquidation,
reorganization or other similar proceedings relative to the Company and the other obligors, and their
respective property or assets, or in the event of any proceedings for voluntary liquidation, dissolution
or other winding-up of the Company or the other obligors, whether or not involving insolvency or
bankruptcy, or any marshalling of the assets and liabilities of the Company or the other obligors,
holders of Senior Secured Debentures will receive payment to the extent of their security interest in
the assets of the obligors granted to them, before the holders of Convertible Secured Debentures are
entitled to receive any payment or distribution of any kind or character.
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Annual Report 2016
Under various Canadian bankruptcy, insolvency and restructuring statutes or Canadian federal or
provincial receivership laws, including the Bankruptcy and Insolvency Act (Canada), the Companies’
Creditors Arrangement Act (Canada), the Canada Business Corporations Act, the Winding-up and
Restructuring Act, and various provincial corporate statutes (collectively, “Canadian Insolvency and
Restructuring Laws”), the Convertible Debenture Trustee’s rights and ability to repossess its security
from any obligor may be significantly impaired or delayed. Moreover, Canadian Insolvency and
Restructuring Laws may permit the obligors to continue to retain and to use their assets, and the
proceeds, products, rents, or profits of their assets, even though the obligors are in default under the
Indentures or the New Debentures. In view of the broad discretionary powers of courts under
Canadian Insolvency and Restructuring Laws, it is impossible to predict how long payments under the
New Debentures could be delayed following commencement of a proceeding under Canadian
Insolvency and Restructuring Laws or whether or when the Trustees would be able to repossess or
dispose of the assets over which it holds a security interest. The powers of the court under Canadian
Insolvency and Restructuring Laws are exercised broadly to protect a debtor and its estate from
actions taken by creditors and others.
Canadian Insolvency and Restructuring Laws also contain provisions enabling an obligor or obligors to
prepare and file a proposal or a plan of arrangement or reorganization for consideration by all or some
of its creditors, to be voted on by the various classes of creditors affected thereby. Such a
restructuring proposal or plan of arrangement or reorganization, if accepted by the requisite majority
of each class of affected creditors and if approved by the relevant Canadian court, would be binding on
all creditors of the applicable obligor within the affected classes, including potentially all holders of the
New Debentures. Such a proposal or plan of arrangement or reorganization may have the effect of
compromising certain rights available to holders of the New Debentures or the Trustees.
P A Y M E N T O F I N T E R E S T
The Company’s ability to pay principal and interest on the New Debentures when due will depend, in
part, on the ability of the Refinancing Transactions to improve the Company’s financial condition over
the long term. In the event that the financial condition of the Company does not improve, or
deteriorates following the closing of the Refinancing Transactions, the Company may not be able to
pay principal and interest on the New Debentures.
C O V E N A N T O B L I G A T I O N S
The Indentures and the New Debentures will impose negative and positive covenants on the Company
and specified events of default. A failure to comply with the Company’s obligations under the
Indentures, the New ABL Facility and any other credit arrangements, as applicable, could result in a
default or cross-default which would have a material adverse effect on the Company and its ability to
operate as a going concern.
R E D E M P T I O N P R I O R T O M A T U R I T Y
Except upon the occurrence of a Change of Control (as defined in the Convertible Secured Indenture),
the Convertible Secured Debentures will not be redeemable on or before the fifth anniversary of the
Effective Date and, thereafter, they become redeemable at the election of the Company, in whole or in
part, at any time on or before the business day before their maturity sate. Holders of Convertible
Secured Debentures should assume that the Company will exercise this redemption option if the
Company is able to refinance at a lower interest rate or it is otherwise in the interests of the Company
to redeem the Convertible Secured Debentures.
I N A B I L I T Y O F T H E C O M P A N Y T O P U R C H A S E D E B E N T U R E S
Upon the occurrence of a Change of Control (as defined in the Convertible Secured Indenture), the
Company will be required to make an offer to purchase all of the Convertible Secured Debentures then
outstanding at a price equal to 115% of the principal amount thereof, plus accrued and unpaid
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Annual Report 2016
interest. It is possible that following a Change of Control, the Company will not have sufficient funds
to make the required repurchase of Convertibles Secured Debentures or that restrictions contained in
other indebtedness will restrict those purchases.
D I L U T I O N
The Company will issue common shares of the Company in connection with any conversion of the
Convertible Secured Debentures resulting in the dilution of a shareholder’s current percentage
ownership in the Company.
I N V E S T M E N T E L I G I B I L I T Y
There can be no assurance that the Convertible Secured Debentures, the PIK Debentures and the
Common Shares will continue to be “qualified investments” under the Tax Act for trusts governed by
RRSPs, RRIFs, TFSAs, registered education savings plans, registered disability savings plans and
deferred profit sharing plans (collectively, “Registered Plans”). The Tax Act imposes penalties where
trusts governed by Registered Plans acquire or hold non-qualified investments.
M A R K E T V A L U E F L U C T U A T I O N
Prevailing interest rates will affect the market value of the New Debentures, as they carry a fixed
interest rate. Assuming all other factors remain unchanged, the market value of the New Debentures,
which carry a fixed interest rate, will decline as prevailing interest rates for comparable debt
instruments rise, and increase as prevailing interest rates for comparable debt instruments decline.
T R A D I N G M A R K E T F O R T H E C O N V E R T I B L E S E C U R E D D E B E N T U R E S
Although the Convertible Secured Debentures are listed on the TSX, the Company cannot be sure that
an active trading market will develop for the Convertible Secured Debentures. In such case, holders
of the Convertible Secured Debentures may not be able to resell their Convertible Secured Debentures
at their fair market value or at all. Future trading prices of the Convertible Secured Debentures will
depend on many factors, including, among other things, prevailing interest rates, the Company’s
operating results and the market for similar securities.
DISCLOSURE CONTROLS & PROCEDURES AND INTERNAL
CONTROL OVER FINANCIAL REPORTING
National Instrument 51-109, “Certification of Disclosure in Issuers’ Annual and Interim Filings” (“NI
51-109”), issued by the CSA requires CEOs and CFOs to certify that they are responsible for
establishing and maintaining the disclosure controls and procedures for the issuer, that disclosure
controls and procedures have been designed to provide reasonable assurance that material
information relating to the issuer is made known to them, that they have evaluated the effectiveness
of the issuer’s disclosure controls and procedures, and that their conclusions about effectiveness of
those disclosure controls and procedures at the end of the period covered by the relevant annual
filings have been disclosed by the issuer.
ClearStream’s management, including its CEO and CFO, have evaluated the effectiveness of
ClearStream’s disclosure controls and procedures as at December 31, 2016 and have concluded that
those disclosure controls and procedures were effective to ensure that information required to be
disclosed by ClearStream in its corporate filings is recorded, processed, summarized and reported
within the required time period for the year then ended. The CEO and CFO have certified the
appropriateness of the financial disclosures in ClearStream’s filings for the year ended December 31,
2016 with securities regulators, including this MD&A and the accompanying audited consolidated
financial statements and that they are responsible for the design of the disclosure controls and
procedures.
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Annual Report 2016
NI 52-109 also requires CEOs and CFOs to certify that they are responsible for establishing and
maintaining internal controls over financial reporting for the issuer, that those internal controls have
been designed and are effective in providing reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements in accordance with IFRS, and that the issuer has
disclosed any changes in its internal controls during its most recent year end that has materially
affected, or is reasonably likely to materially affect, its internal control over financial reporting.
There have been no changes in internal controls over financial reporting during the year ended
December 31, 2016 that have materially affected or are reasonably likely to materially affect internal
controls over financial reporting. Furthermore, ClearStream’s management, including its CEO and CFO,
have evaluated the effectiveness of ClearStream’s internal control over financial reporting as at
December 31, 2016 and have concluded that those controls were effective
Due to the inherent limitations common to all control systems, management acknowledges that
disclosure controls and procedures and internal control over financial reporting may not prevent or
detect all misstatements. Accordingly, management’s evaluation of our disclosure controls and
procedures and internal control over financial reporting provide reasonable, not absolute, assurance
that misstatements resulting from fraud or error will be detected.
ADD IT IO N A L IN F OR MA T IO N
Additional information relating to ClearStream including ClearStream’s AIF is on SEDAR at
www.sedar.com or on our website www.ClearStreamenergy.ca
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Annual Report 2016
MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The consolidated financial statements of ClearStream Energy Services Inc. (“ClearStream”) and all of the
information in the annual report are the responsibility of management, including responsibility for establishing and
maintaining disclosure controls and procedures and internal control over financial reporting to provide reasonable
assurance that the information used internally by management and disclosed externally is complete and reliable in
all material respects. Management has evaluated the effectiveness of the disclosure controls and procedures and
has concluded that they are effective.
The consolidated financial statements have been prepared by management in accordance with International
Financial Reporting Standards and include certain estimates that are based on management’s best judgments.
Actual results may differ from these estimates and judgments. Management has ensured that the consolidated
financial statements are presented fairly in all material respects.
Management has developed and maintains a system of internal control to provide reasonable assurance that
ClearStream’s assets are safeguarded, transactions are accurately recorded, and the consolidated financial
statements report ClearStream’s operating and financial results in a timely manner. Financial information presented
elsewhere in the annual report has been prepared on a consistent basis with that in the consolidated financial
statements.
The Board of Directors of ClearStream annually appoints an Audit Committee (the “Committee”) comprised of
Independent Directors. This Committee meets regularly with management and the auditors to review significant
accounting, reporting and internal control matters. The auditors have unrestricted access to the Committee. The
Committee reviews the consolidated financial statements, Management’s Discussion & Analysis, the external
auditors’ report and the annual report. The Committee reports its findings to the Board of Directors for their
consideration in approving the consolidated financial statements for issuance to the shareholders. The Committee
also considers, for review by the Board of Directors and approval by the shareholders, the engagement or re-
appointment of the external auditors.
Ernst & Young LLP, an independent firm of Chartered Professional Accountants, was appointed by the shareholders
to audit the consolidated financial statements in accordance with Canadian generally accepted auditing standards.
Ernst & Young LLP has provided an independent auditors’ report.
John W. Cooper
Chief Executive Officer
Calgary, Canada
March 6, 2017
Gary Summach
Chief Financial Officer
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Annual Report 2016
INDEPENDENT AUDITORS’ REPORT
To the Shareholders of ClearStream Energy Services Inc. (formerly “Tuckamore Capital Management Inc.”)
We have audited the accompanying consolidated financial statements of ClearStream Energy Services Inc., which
comprise the consolidated balance sheets as at December 31, 2016 and 2015 and the consolidated statements of
loss and comprehensive loss, shareholders’ deficit and cash flows for the years then ended, and a summary of
significant accounting policies and other explanatory information.
Management's responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in
accordance with International Financial Reporting Standards, and for such internal control as management
determines is necessary to enable the preparation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
Auditors’ responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We
conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require
that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on the auditors’ judgment including the
assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud
or error. In making those risk assessments, the auditors consider internal control relevant to the entity's
preparation and fair presentation of the consolidated financial statements in order to design audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of
the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis
for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position
of ClearStream Energy Services Inc. as at December 31, 2016 and 2015, and its financial performance and its
cash flows for the years then ended in accordance with International Financial Reporting Standards.
Emphasis of matter
Without qualifying our opinion, we draw attention to Note 1(b) to the consolidated financial statements, which
indicates that the Company incurred a net loss of $45,730 during the year ended December 31, 2016 and
continues to feel the effects of weak economic conditions. As stated in Note1 (b), these events or conditions,
along with other matters as set forth in Note 1(b), indicate that a material uncertainty exists that may cast
significant doubt on the Company’s ability to continue as a going concern.
Calgary, Canada
March 6, 2017
Chartered Professional Accountants
ClearStream Energy Services Inc.
29
Annual Report 2016
CLEARSTREAM ENERGY SERVICES INC.
(FORMERLY TUCKAMORE CAPITAL MANAGEMENT INC.)
Consolidated Balance Sheets
(In thousands of Canadian dollars)
As at December 31,
2016
2015
C ash
Restricted cash (note 2)
Accounts receivable (note 22)
Inventories (note 3)
Prepaid expenses and other
Earn-out assets (note 4)
Assets held for sale (note 12)
Total current assets
Property, plant and equipment, net (note 5)
Goodwill and intangible assets (note 6)
Earn-out assets (note 4)
Long-term investments (note 24)
Deferred financing costs (note 7)
$
11,503
980
46,928
3,000
2,060
1,608
-
66,079
$
24,409
4,380
76,089
3,114
2,471
-
54,310
164,773
24,745
38,088
4,056
579
1,295
30,873
49,892
-
8,000
-
Total assets
$
134,842
$
253,538
Accounts payable and accrued liabilities
Deferred revenue
C urrent portion of obligations under finance leases (note 11)
8.00% secured debentures (note 8)
Senior credit facility (note 10)
C urrent liabilities of assets held for sale (note 12)
Provision (note 13)
Total current liabilities
ABL facility (note 7)
Obligations under finance leases (note 11)
Senior secured debentures (note 8)
C onvertible secured debentures (note 9)
Total liabilities
$
26,848
167
3,902
-
-
-
4,985
35,902
3,500
2,915
171,642
24,397
238,356
$
32,132
-
4,685
174,311
58,482
42,637
-
312,247
-
6,347
-
-
318,594
Shareholders' deficit
(103,514)
(65,056)
Total liabilities and shareholders' deficit
The accompanying notes are an integral part of these consolidated financial statements.
$
134,842
$
253,538
Commitments (Note 13)
Signed on behalf of the Board of Directors,
Fraser Clarke, Director
Peggy Mulligan, Director
ClearStream Energy Services Inc.
30
Annual Report 2016
CLEARSTREAM ENERGY SERVICES INC.
(FORMERLY TUCKAMORE CAPITAL MANAGEMENT INC.)
Consolidated Statements of Loss and Comprehensive Loss
(In thousands of Canadian dollars, except per share amounts)
For year ended December 31,
Revenue (note 14)
C ost of revenue
Gross profit
Selling, general and administrative expenses (note 15)
Amortization of intangible assets (note 6)
Depreciation (note 5)
Income from equity investment (note 24)
Interest expense (note 16)
Gain (loss) on sale of assets held for sale (note 12)
Restructuring costs (note 19)
Impairment of property, plant and equipment (note 5)
Impairment of goodwill and intangible assets (note 6)
Other income
(Loss) gain on sale of property, plant and equipment (note 5)
2016
2015
Restated (Note 27)
$
270,661
(245,750)
24,911
$
416,122
(362,429)
53,693
(17,382)
(3,376)
(6,625)
(169)
(21,259)
1,260
(1,471)
-
(8,700)
623
(728)
(22,362)
(5,651)
(8,681)
(508)
(24,948)
(6,379)
(7,454)
(5,574)
(41,727)
-
340
Loss before taxes
(32,916)
(69,252)
Income tax recovery (expense) - current (note 17)
Income tax recovery - deferred (note 17)
(21)
-
2,050
2,766
Loss from continuing operations
(32,937)
(64,436)
Loss from discontinued operations (net of income taxes) (note 12)
(12,793)
(60,451)
Net loss and comprehensive loss
$
(45,730)
$
(124,887)
Loss per share (note 18)
Basic & Diluted:
C ontinuing operations
Discontinued operations
Net loss
$
$
$
(0.30)
(0.12)
(0.42)
$
$
$
(0.59)
(0.55)
(1.14)
The accompanying notes are an integral part of these consolidated financial statements.
ClearStream Energy Services Inc.
31
Annual Report 2016
CLEARSTREAM ENERGY SERVICES INC.
(FORMERLY TUCKAMORE CAPITAL MANAGEMENT INC.)
Consolidated Statements of Shareholders’ Deficit
(In thousands of Canadian dollars, except number of shares)
Number of
shares
Share
C apital
C ontributed
Surplus
Deficit
Total
Shareholders'
Deficit
Balance - January 1, 2016
109,941,241
$
461,758
$
(529,241)
$
2,427
$
(65,056)
Net loss and comprehensive loss
Equity component of the convertible
debentures (note 9)
-
-
-
(45,730)
7,272
-
-
-
(45,730)
7,272
Balance - December 31, 2016
109,941,241
$
469,030
$
(574,971)
$
2,427
$
(103,514)
Number of
shares
Share
C apital
C ontributed
Surplus
Deficit
Total
Shareholders'
Deficit
Balance - January 1, 2015
109,941,241
$
461,758
$
(404,354)
$
2,427
$
59,831
Net loss and comprehensive loss
-
-
(124,887)
-
(124,887)
Balance - December 31, 2015
The accompanying notes are an integral part of these consolidated financial statements.
109,941,241
461,758
$
$
(529,241)
$
2,427
$
(65,056)
ClearStream Energy Services Inc.
32
Annual Report 2016
CLEARSTREAM ENERGY SERVICES INC.
(FORMERLY TUCKAMORE CAPITAL MANAGEMENT INC.)
Consolidated Statements of Cash Flows
(In thousands of Canadian dollars)
For the year ended December 31,
Operating activities:
Net loss for the year
Loss from discontinued operations (net of income tax) (note 12)
Items not affecting cash:
Amortization of intangible assets (note 6)
Depreciation (note 5)
Deferred income tax recovery (note 17)
Income from equity investments (note 24)
Non-cash accretion expense (note 16)
Amortization of deferred financing costs (note 16)
(Gain) loss on sale of assets held for sale (note 12)
Loss (gain) on sale of property, plant and equipment (note 5)
Impairment of property, plant and equipment (note 5)
Impairment of goodwill and intangible assets (note 6)
C hanges in non-cash working capital (note 23)
Advances to discontinued operations
C ash (used in) provided by discontinued operations (note 12)
2016
2015
$
(45,730)
12,793
$
(124,887)
60,451
3,376
6,625
-
169
2,526
432
(1,260)
728
-
8,700
24,569
(3,931)
(4,432)
5,651
8,681
(2,766)
(3,434)
7,465
558
6,379
(340)
5,574
41,727
29,701
(20,677)
1,482
Total cash provided by operating activities
4,565
15,566
Investing activities:
Distributions from long-term investments
Purchase of property, plant and equipment (note 5)
Proceeds on disposition of property, plant and equipment, net (note 5)
Proceeds on disposition of businesses (note 12)
Purchase of intangibles (note 6)
C ash used in discontinued operations (note 12)
-
(1,417)
1,927
14,800
(274)
-
1,740
(3,260)
311
4,750
(108)
(732)
Total cash provided by investing activities
15,036
2,701
Financing activities:
Repayment of senior credit facility (note 10)
Repayment of 8.00% secured debentures (note 8)
Proceeds from the issuance of senior secured debentures (note 8)
Proceeds from the issuance of convertible secured debentures (note 9)
Refinancing fees (ABL facility, senior and convertible secured debentures)
Advance on ABL facility (note 7)
Decrease (increase) in restricted cash (note 2)
Repayment of obligations under finance leases (note 11)
C ash used in discontinued operations (note 12)
Total cash used in financing activities
(Decrease) increase in cash
C ash beginning of year
C ash end of year
Supplemental cash flow information:
Interest paid
(58,735)
(176,228)
176,228
35,000
(10,256)
3,500
3,400
(5,416)
-
(8,934)
-
-
-
-
-
(1,430)
(5,591)
(617)
(32,507)
(12,906)
24,409
11,503
$
(16,572)
1,695
22,714
24,409
$
$
9,404
$
16,925
Supplemental disclosure of non-cash financing and investing activities:
Acquisition of property, plant and equipment through finance leases
The accompanying notes are an integral part of these consolidated financial statements.
$
1,201
$
2,003
ClearStream Energy Services Inc.
33
Annual Report 2016
CLEARSTREAM ENERGY SERVICES INC.
(FORMERLY TUCKAMORE CAPITAL MANAGEMENT INC.)
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
Years ended December 31, 2016 and 2015
ClearStream Energy Services Inc. (“ClearStream” or the “Company”), formerly Tuckamore Capital Management
Inc., is a corporation formed pursuant to the Business Corporations Act (Ontario). The registered office is located
at Suite 2950, 130 King Street West, Toronto, Ontario. ClearStream is a fully-integrated provider of midstream
production services, which includes maintenance and turnarounds, facilities construction, welding and fabrication,
and transportation, with locations across Western Canada. Prior to the recent internal restructuring and dispositions
(Note 12), ClearStream’s primary function was to invest in securities of private businesses, either through limited
partnerships or corporations.
These annual consolidated financial statements were authorized for issuance in accordance with a resolution of the
Board of Directors of ClearStream on March 6, 2017.
1. Significant accounting policies
a) Basis of Presentation
These consolidated financial statements are prepared on a historical cost basis (except as described in Note
22) in accordance with International Financial Reporting Standards (“IFRS”). The accounting policies that
follow have been consistently applied to all years presented.
b) Going Concern Uncertainty
The consolidated financial statements are prepared on a going concern basis. The going concern basis
assumes that the Company will continue its operations for the foreseeable future, and will be able to realize
its assets and discharge its liabilities and commitments in the normal course of business. For the year
ended December 31, 2016, the Company incurred a net loss of approximately $45,730 and had a
shareholders’ deficit of $103,514. The Company’s operations continue to feel the effects of weak economic
conditions in Alberta. During 2016, ClearStream successfully obtained amendments to the terms of its ABL
Facility, which allowed it to remain in compliance with its covenants throughout the year. The Company’s
expects to remain in compliance with all financial covenants over the next twelve months; however, there
is risk that the Company will not meet forecasted expectations and therefore breach financial covenants
during 2017.
ClearStream is carefully monitoring its results and continues to take actions to mitigate the risk of a
covenant breach, including reductions to operating and capital expenditures. The Company believes that it
has a good relationship with its lenders and that, in the event that it concludes that a financial covenant
would not be met, it could seek and receive future amendments to its covenants. It cannot be guaranteed
that such amendment will be required or requested and similarly there can be no guarantee that such
amendment would be received from the Company’s lenders or that the conditions of such amendment
could be fulfilled by the Company. In the event that an amendment was not received, the cross-default
provisions in the senior secured debenture and convertible secured debenture would be triggered, requiring
payment on demand. The possibility that a financial covenant may not be met results in a material
uncertainty that may cast significant doubt on the Company’s ability to continue as a going concern.
ClearStream Energy Services Inc.
34
Annual Report 2016
CLEARSTREAM ENERGY SERVICES INC.
(FORMERLY TUCKAMORE CAPITAL MANAGEMENT INC.)
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
Years ended December 31, 2016 and 2015
c) Principles of Consolidation
These consolidated financial statements comprise the financial statements of the Company and its
subsidiaries as at December 31, 2016. The Company conducts business through numerous subsidiaries, all
of which are wholly-owned therefore controlled, by the Company. The financial results of subsidiaries are
included in the consolidated financial statements from the date that control commences until the date that
control ceases. All inter-company balances and transactions have been eliminated on consolidation.
d) Investment in associates and joint ventures
A joint venture is a type of joint arrangement whereby the parties that have joint control of the
arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed
sharing of control of an arrangement, which exists only when decisions about the relevant activities require
unanimous consent of the parties sharing control. The Company’s investments in its joint ventures are
accounted for using the equity method.
e) Financial instruments
(i) Financial assets
Financial assets are classified as financial assets at their fair value through profit or loss, loans and
receivables, held to maturity investments, or available for sale financial assets, as appropriate. When
financial assets are recognized initially, they are measured at fair value, plus, in the case of
investments not at fair value through profit or loss, directly attributable transaction costs. The
Company considers whether a contract contains an embedded derivative when the entity first
becomes a party to it. Embedded derivatives are separated from the host contract which is not
measured at fair value through profit or loss when the analysis shows that the economic
characteristics and risks of embedded derivatives are not closely related to those of the host contract.
The Company determines the classification of its financial assets at initial recognition and, where
allowed and appropriate, re-evaluates this designation at each financial year end. Financial assets and
financial liabilities are recognized on the Company’s consolidated balance sheet when the Company
becomes party to the contractual provisions of the instrument. Financial assets are derecognized
when the contractual rights to the cash flows from the financial asset expire or when the contractual
rights to those assets are transferred. Financial liabilities are derecognized when the obligation
specified in the contract is discharged, cancelled or expired.
Cash and restricted cash
Cash and restricted cash are comprised of cash on deposit with financial institutions. These are
measured at fair value with any gains and losses recorded through net income in the period in which
they arise.
ClearStream Energy Services Inc.
35
Annual Report 2016
CLEARSTREAM ENERGY SERVICES INC.
(FORMERLY TUCKAMORE CAPITAL MANAGEMENT INC.)
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
Years ended December 31, 2016 and 2015
Accounts receivable
Accounts receivable, which are non-derivative financial assets that have fixed or determinable
payments that are not quoted in an active market, are classified as loans and receivables. They are
included in current assets, except for maturities greater than twelve months after the reporting date,
which are classified as non-current assets. Loans and receivables are recognized initially at fair value
and subsequently measured at amortized cost using the effective interest rate method, net of any
impairment.
A provision for impairment of loans and receivables is established when there is objective evidence
that the Company will not be able to collect all amounts due according to the original terms of the
receivables. Significant financial difficulties of the debtor, probability that the debtor will enter
bankruptcy or financial reorganization and default or delinquency in payments are considered
indicators that the loans and receivables are impaired. The amount of the provision is the difference
between the asset’s carrying amount and the present value of estimated future cash flows, discounted
at the original effective interest rate. The carrying amount of the asset is reduced through the use of
an allowance account, and the amount of the loss is recognized in the consolidated statement of net
loss. When a loan and receivable is uncollectible, it is written off against the allowance account for
loans and receivables.
Earn-out financial assets
Earn-out financial assets represent contractual rights to receive cash whereby an agreement for the
sale of a business includes clauses that require the buyer to transfer cash to the seller contingent on
specified events in the future. When the underlying contingency is based on a financial variable
(including variables that expose the buyer to risks and rewards arising from the contract), the
contract meets the definition of a derivative and is recorded at fair value through profit and loss.
Financial liabilities
Financial liabilities include accounts payable, the ABL Facility, senior secured debentures and
convertible secured debentures. Accounts payable are obligations to pay for goods or services that
have been acquired in the ordinary course of business from suppliers. Other liabilities are classified as
current liabilities if payment is due within one year or less. If not, they are presented as non-current
liabilities. Other liabilities are recognized initially at fair value and subsequently measured at
amortized cost using the effective interest rate method.
Fair value hierarchy
The Company uses a three level hierarchy to categorize the significance of the inputs used in
measuring the fair value of financial instruments. The three levels of the fair value hierarchy are:
Level 1 – Where financial instruments are traded in active financial markets, fair value is determined
by reference to the appropriate quoted unadjusted market price at the reporting date. Active markets
ClearStream Energy Services Inc.
36
Annual Report 2016
CLEARSTREAM ENERGY SERVICES INC.
(FORMERLY TUCKAMORE CAPITAL MANAGEMENT INC.)
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
Years ended December 31, 2016 and 2015
are those in which transactions occur in significant frequency and volume to provide pricing
information on an ongoing basis.
Level 2 – If there is no active market, fair value is established using inputs other than quoted prices
that are observable for the asset or liability either directly or indirectly, including quoted forward
prices, time value, volatility factors and broker quotations.
Level 3 – Valuations in this level are those with inputs that are not based on observable market data
and which are less observable, unavailable or where the observable data does not support the
majority of the instrument’s fair value. Level 3 instruments may include items based on pricing
services or broker quotes where the Company is unable to verify the observability of inputs into their
prices. Level 3 instruments include longer-term transactions, transactions in less active markets or
transactions at locations for which pricing information is not available. In these instances, internally
developed methodologies are used to determine fair value which primarily includes extrapolation of
observable future prices to similar location, similar instruments or later time periods.
If different levels of inputs are used to measure a financial instrument’s fair value, the classification
within the hierarchy is based on the lowest level input that is significant to the fair value
measurement. The Company’s cash and restricted cash have been assessed using the fair value
hierarchy and have been classified as level 1; the Company’s earn-out financial assets have been
classified as level 3.
f)
Inventories
Inventories are measured at the lower of cost and net realizable value. The cost of inventories includes
the costs to purchase and other costs incurred in bringing the inventories to their present location. Costs
such as storage costs and administrative overheads that do not directly contribute to bringing the
inventories to their present location and condition are specifically excluded from the cost of inventories
and are expensed in the period incurred. The cost of inventories of items that are not ordinarily
interchangeable and goods or services produced and segregated for specific projects are assigned by using
specific identification of their individual costs. The weighted average cost formula is used for inventories
other than those dealt with by the specific identification of cost formula.
g) Property, plant and equipment
Property, plant and equipment are measured at cost less accumulated depreciation and accumulated
impairment losses. Equipment under finance lease is initially recorded at the present value of minimum
lease payments at the inception of the lease.
Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-
constructed assets includes the cost of materials and direct labour, costs directly attributable to bringing
the asset to a working condition for its intended use, and the costs of dismantling and removing the items
and restoring the site on which they are located. Purchased software that is integral to the functionality of
ClearStream Energy Services Inc.
37
Annual Report 2016
CLEARSTREAM ENERGY SERVICES INC.
(FORMERLY TUCKAMORE CAPITAL MANAGEMENT INC.)
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
Years ended December 31, 2016 and 2015
the related equipment is capitalized as part of that equipment. Borrowing costs related to the acquisition
or construction of qualifying assets are capitalized.
When parts of an item of property, plant and equipment have different useful lives, they are accounted for
as separate items (major components) of property, plant and equipment.
The assets’ residual values, useful lives and methods of depreciation are reviewed at each financial year
and adjusted prospectively, if appropriate.
Depreciation is calculated following the method that best reflects usage and annual rates based on the
estimated useful lives of the assets as follows:
Asset
Basis
Rate
Equipment under finance lease
Declining balance
15% - 30%
Furniture, tools and equipment
Declining balance
Computer hardware
Declining balance
Automotive & heavy equipment
Declining balance
Buildings
Declining balance
10% - 50%
20% - 30%
15% - 30%
5% - 10%
Leasehold improvements
Straight-line
Shorter of expected useful
life or term of the lease
h)
Intangible assets
Intangible assets acquired individually or as part of a group of other assets are recognized and measured
at cost. Intangible assets acquired in a transaction, including those acquired in business combinations,
are initially recorded at their fair value. Intangible assets with determinable useful lives, such as customer
relationships, management contracts, computer software and sales orders, are amortized over their useful
lives. Intangible assets having an indefinite life, such as brands, are not amortized but are subject to an
annual impairment test (refer to Note 1(i)). The Company expects to renew the registration of the brand
names indefinitely, and expects these assets to generate economic benefit in perpetuity. As such, the
Company assessed brand name intangible assets as having indefinite useful lives.
Some intangible assets are contained in a physical form, such as a compact disc in the case of computer
software. When the software is not an integral part of the related hardware, computer software is treated
as an intangible asset.
Intangible assets with determinable lives are amortized using the following methods and rates based on
the estimated useful life of the asset as follows:
ClearStream Energy Services Inc.
38
Annual Report 2016
CLEARSTREAM ENERGY SERVICES INC.
(FORMERLY TUCKAMORE CAPITAL MANAGEMENT INC.)
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
Years ended December 31, 2016 and 2015
Asset
Basis
Rate/Term
Customer relationships/management
contracts/sales orders
Straight-line
2 – 10 years
Computer software
Declining balance
30% - 100%
i)
Impairment of long-lived assets, indefinite life intangible assets and goodwill
Assets with definite useful lives, including property, plant and equipment and intangible assets, are
amortized over their estimated useful lives. Long-lived assets are assessed for impairment at each
balance sheet date, or whenever events or changes in circumstances occur, to assess whether there is an
indication that such assets may not be recoverable.
If indicators of impairment exist, an estimate of the recoverable amount is made. If the carrying amount
of an asset or cash generating unit (“CGU”) exceeds its recoverable amount, an impairment charge is
recognized for the amount by which the carrying amount exceeds the recoverable amount.
Goodwill and indefinite life intangible assets are not amortized and are tested for impairment annually, or
more frequently, if events or changes in circumstances indicate that the asset might be impaired. For the
purposes of impairment testing, goodwill is allocated to the CGU or group of CGUs whose acquisition gave
rise to the goodwill. Assessment of goodwill impairment is performed at the level at which goodwill is
monitored for internal management purposes, which is the operating segment level. Goodwill impairment
is determined by assessing whether the carrying amount of the CGU or relevant group of CGUs exceeds
the recoverable amount. Indefinite life intangible impairment is determined by assessing whether the
carrying amount of the CGU to which those indefinite life intangible assets relate exceeds the recoverable
amount.
The recoverable amount is the higher of an asset’s fair value less costs of disposal (“FVLCD”) and its value
in use (“VIU”). If it is not possible to estimate the recoverable amount of an individual asset, the CGU to
which the asset belongs is tested for impairment. The FVLCS excludes any costs with respect to
restructuring, employee severance and termination benefits. VIU is determined using the estimated
future cash flows generated from use and eventual disposition of an asset or CGU discounted to their
present value using a post-tax discount rate and excludes any costs with respect to restructuring,
employee severance and termination benefits.
Assets to be disposed of are presented separately in the consolidated balance sheet and reported at the
lower of the carrying amount or FVLCS.
An assessment is made at each reporting date as to whether there is any indication that previously
recognized impairment losses may no longer exist or may have decreased. If such indication exists,
ClearStream estimates the asset’s or CGU’s recoverable amount. A previously recognized impairment loss
is reversed only if there has been a change in the assumption used to determine the asset’s recoverable
ClearStream Energy Services Inc.
39
Annual Report 2016
CLEARSTREAM ENERGY SERVICES INC.
(FORMERLY TUCKAMORE CAPITAL MANAGEMENT INC.)
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
Years ended December 31, 2016 and 2015
amount since the last impairment loss was recognized. The reversal is limited such that the carrying
amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would
have been determined net of depreciation had the impairment loss not been recognized for the asset in
prior years. Such reversal is recognized in the consolidated statement of income.
j) Revenue recognition
(i) Maintenance and Construction Services
Maintenance and construction services revenue includes revenue from contracts entered into to
provide maintenance and construction services to various industries, including energy, mining,
agriculture, pulp and paper and petrochemical. Revenue from such contracts is recorded either
using (i) the percentage of completion method or (ii) as services are performed and related costs
and hours are incurred. The stage of completion is assessed by an analysis of costs incurred to
date compared to total costs. When the outcome of a construction contract cannot be estimated
reliably, contract revenue is recognized only to the extent of contract costs incurred that are
likely to be recoverable. Provisions for estimated losses on all uncompleted contracts are made
in the period in which such losses are determined.
(ii) Wear, Fabrication & Transportation Services
Wear, fabrication and transportation services revenue includes sale of goods with respect to
general and modular
fabrication; custom
fabrication services supporting pipeline and
infrastructure projects; patented wear overlay technology services that specialized in overlay pipe
spools, pipe bends and plate; and transportation and pipe logistics services to the drilling sector.
Revenue from sale of goods and services is recognized when significant risks and rewards of
ownership of the goods have passed to the buyer, usually on delivery of the goods, and is
measured at the fair value of the consideration received or receivable.
k)
Income taxes
Income tax expense or recovery comprises current and deferred taxes. Current tax is the expected tax
payable or recoverable on the taxable income for the year and is recognized in the period to which it
relates. Amounts included in current tax reflect the income tax expense or recovery relating to the
taxable income of ClearStream and its subsidiaries.
Deferred tax is recognized using the balance sheet method, providing for temporary differences
between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts
used for taxation purposes. Deferred tax is not recognized for the following temporary differences: the
initial recognition of assets or liabilities in a transaction that is not a business combination and that
affects neither accounting nor taxable profit, and differences relating to investments in subsidiaries and
jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable
future. In addition, deferred tax is not recognized for taxable temporary differences arising on the
initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be
ClearStream Energy Services Inc.
40
Annual Report 2016
CLEARSTREAM ENERGY SERVICES INC.
(FORMERLY TUCKAMORE CAPITAL MANAGEMENT INC.)
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
Years ended December 31, 2016 and 2015
applied to the temporary differences when they reverse based on the tax laws that have been enacted
or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if
ClearStream has a legally enforceable right to offset current tax assets/liabilities and if the
corresponding deferred tax assets and liabilities relate to the income taxes raised by the same taxation
authority on either the same taxable entity or different taxable entities that intend to settle their
current tax assets and liabilities either on a net basis or simultaneously.
A deferred tax asset is recognized to the extent it is probable that future taxable profits will be
available against which the temporary difference can be utilized. Deferred tax assets are reviewed at
each reporting date and are reduced to the extent it is no longer probable that the related tax benefit
will be realized.
l)
Leases
The classification of a lease arrangement is based on the substance of the arrangement at the
inception date. Leases entered into by ClearStream as the lessee, which transfer substantially all the
benefits and risks of ownership to the lessee, are recorded as finance lease obligations and included in
property, plant and equipment. All other leases are classified as operating leases under which leasing
costs are recorded as expenses in the period in which they are incurred. In instances where there are
periods of lease incentives, the benefit is allocated over the term of the lease.
m)
Stock-based compensation
Employees, directors and consultants of the Company may receive remuneration in the form of share-
based payment transactions for services rendered. Share-based payments are recorded in the
consolidated statement of net loss for options granted, with a corresponding amount reflected in
contributed surplus. The fair value of stock-based payments is estimated, at the date of grant, using
the Black-Scholes pricing model, and amortized over the options’ vesting period using the graded
vesting method.
n)
Income (loss) per share
The income (loss) per share of ClearStream is computed by dividing ClearStream’s income (loss) by
the weighted average number of common shares outstanding during the reporting period. Diluted
income (loss) per share is determined by adjusting the weighted average number of common shares
outstanding for the effects of all potentially dilutive common shares, using the treasury stock method.
o)
Provisions
A provision is recognized if, as a result of a past event, ClearStream has a present legal or constructive
obligation that can be estimated reliably and it is probable that an outflow of economic benefits will be
required to settle the obligation. Provisions are measured at the present value of the expenditures
expected to be required to settle the obligation using a discount rate that reflects current market
ClearStream Energy Services Inc.
41
Annual Report 2016
CLEARSTREAM ENERGY SERVICES INC.
(FORMERLY TUCKAMORE CAPITAL MANAGEMENT INC.)
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
Years ended December 31, 2016 and 2015
assessments of the time value of money and the risks specific to the obligation. The increase in the
provision due to passage of time is recognized as interest expense.
p)
Assets Held for Sale and Discontinued Operations
Assets or disposal groups are classified as held for sale if their carrying amount will be recovered
principally through a sale transaction rather than through continuing use. This condition is regarded as
met only when the sale is highly probable. Actions required to complete the sale should indicate that it
is unlikely that significant changes to the sale arrangement will be made or that it will be
withdrawn. Management must be committed to the sale, which should be expected to qualify for
recognition as a completed sale within one year from the date of classification. Assets or disposal
groups classified as held for sale are measured at the lower of their carrying amount and FVLCD. Costs
to sell are the incremental costs directly attributable to the sale, excluding the finance costs and
income tax expense. Assets or disposal groups meeting the definition of held for sale can be comprised
of a separate line of business (e.g. Operating Partnership) or investments accounted for under the
equity method. In the consolidated balance sheet for the current period, assets and liabilities meeting
the definition of held for sale are reported separately from the assets and liabilities of continuing
operations. Property, plant and equipment and intangible assets are not depreciated or amortized once
classified as held for sale.
Those disposal groups that meet the definition of a component (i.e. represent a separate major line of
business or geographical area of operations) are reclassified in the consolidated statement of loss for
the current and comparative periods as discontinued operations. Income and expenses from
discontinued operations are reported separately from income and expenses from continuing
operations, down to the level of profit after taxes. The resulting income or loss (after taxes) is
reported separately in the consolidated statements of loss. Investments accounted for under the equity
method typically do not meet the definition of a component and therefore are not reclassified as
discontinued operations.
q)
Business combinations
Business combinations are accounted for using the acquisition method. The cost of an acquisition is
measured as the aggregate fair values of the assets given, equity instruments issued and liabilities
incurred or assumed at the date of exchange for control of the acquiree. Transaction costs directly
attributable to the acquisition are expensed. Identifiable assets acquired, liabilities and contingent
liabilities assumed in a business combination are measured initially at fair values at the date of
acquisition, irrespective of the extent of any non-controlling interest.
Goodwill is initially measured as the excess of the fair value of consideration paid over the fair value of
the net identifiable tangible and intangible assets acquired. If the fair value of consideration paid is
less than the fair value of the net identifiable tangible and intangible assets acquired, the difference is
recognized directly in net income as a bargain purchase gain.
ClearStream Energy Services Inc.
42
Annual Report 2016
CLEARSTREAM ENERGY SERVICES INC.
(FORMERLY TUCKAMORE CAPITAL MANAGEMENT INC.)
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
Years ended December 31, 2016 and 2015
r)
Use of estimates and judgments
The preparation of the consolidated financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the dates of the consolidated financial statements and the reported amounts of
revenue and expenses during the reporting periods. However, uncertainty about these assumptions
and estimates could result in outcomes that require a material adjustment in future periods to the
carrying amount of the asset or liability affected.
Significant estimates and judgments made by management in the preparation of these consolidated
financial statements are outlined below.
(i) Depreciation and amortization
Measurement of the net book value of property, plant and equipment and intangible assets requires
the Company to make estimates of the expected useful lives of the assets, method of depreciation
and amortization and whether impairment in value has occurred. Residual values of the assets,
estimates useful lives and depreciation and amortization methodology are reviewed annually with
prospective application of any changes, if deemed appropriate. Changes to estimates and
specifically those related to automotive and heavy equipment, which could be significant, could be
caused by a variety of factors, including changes to the physical life of the assets or changes in the
nature of the utilization of the assets. A change in any of the estimates would result in a change in
the amount of depreciation or amortization and, as a result, a charge to net income recorded in the
period in which the change occurs.
(ii) Revenue recognition – percentage of completion
The nature of certain of the Company’s contracts with customers is such that revenue is earned
over time as the related good is produced. In these instances, revenue is recognized as work is
completed and this requires management to make a number of estimates and assumptions
surrounding the expected profitability of the contract, the estimated degree of completion based on
hours and costs incurred and other detailed factors. Although these factors are routinely reviewed
as part of the project management process, changes in these estimates or assumptions could lead
to changes in revenues recognized in a given period.
(iii) Determination of cash generating units (“CGUs”)
Assets are grouped into CGUs that have been identified as being the smallest identifiable group of
assets that generate cash inflows that are independent of cash flows of other assets or groups of
assets. The allocation of assets into CGUs requires significant judgment and interpretations.
Factors considered in the classification include the integration between assets, the ability of
management to allocate finite resources to complete future projects or contracts, and the way in
which management monitors the operations. The recoverability of the Company’s assets is assessed
at the CGU level and therefore the determination of a CGU could have a significant effect on
impairment losses or reversals.
ClearStream Energy Services Inc.
43
Annual Report 2016
CLEARSTREAM ENERGY SERVICES INC.
(FORMERLY TUCKAMORE CAPITAL MANAGEMENT INC.)
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
Years ended December 31, 2016 and 2015
(iv) Income taxes
Deferred tax assets are recognized to the extent that it is probable that taxable profit will be
available against which the deductible temporary differences and carried forward tax losses can be
utilized. Assessing the recoverability of deferred taxes requires management to make significant
estimates related to expectations of future taxable income. Estimates of future taxable income are
based on forecasted earnings before interest, depreciation and amortization (“EBITDA”) and the
application of existing tax laws.
The carrying amount of deferred tax assets is reviewed each reporting date and reduced to the
extent that it is no longer probable that sufficient taxable profit will be available to allow all or part
of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at each
reporting date and are recognized to the extent that it has become probable that future taxable
profits will allow the deferred tax asset to be recovered.
Deferred income taxes contain uncertainties because of the assumptions made about when
deferred tax assets are likely to reverse, and a judgment as to whether or not there will be
sufficient taxable profits available to offset the tax assets when they do reverse. This requires
assumptions regarding future profitability and is therefore inherently uncertain.
(v) Provisions and contingencies
By their nature, contingencies will only be resolved when one or more future events occur or fail to
occur. The assessment of contingencies inherently involves the exercise of significant judgment
and estimates of the outcome of future events. Judgment and estimates are necessary to
determine the likelihood that a pending litigation or other claim will succeed or a liability will arise
and to quantify the possible range of the final settlement.
(vi) Impairment of non-financial assets
With respect to property, plant and equipment and definite life intangible assets, judgment is
applied by management in assessing whether there are any indicators of impairment at each
reporting date that would require a full impairment test to be performed. Impairment indicators
include, but are not limited to, a significant decline in an asset’s market value, significant adverse
changes in the technological, market, economic or legal environment in which the assets are
operated, evidence of obsolescence or physical damage of an asset, significant changes in the
planned use of an asset, or ongoing under-performance of an asset. Application of these factors to
the facts and circumstances of a particular asset requires a significant amount of judgment.
Should an impairment test be required, the determination of the magnitude of impairment involves
the use of estimates, assumptions and judgments on highly uncertain matters particularly with
respect to estimating the recoverable amount of a CGU or a group of CGUs. Such estimates,
assumption and judgments include, but are not limited to: the choice of discount rates that reflect
appropriate asset-specific risks, timing of revenue and customer turnover, inflation factors for
ClearStream Energy Services Inc.
44
Annual Report 2016
CLEARSTREAM ENERGY SERVICES INC.
(FORMERLY TUCKAMORE CAPITAL MANAGEMENT INC.)
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
Years ended December 31, 2016 and 2015
projected costs and the level of capital expenditures required in future periods to maintain
operations.
(vii) Carrying amount of accounts receivable
Initially recorded at historical cost, the carrying amount of accounts receivable is affected by
management's best estimate of the provision for doubtful accounts, which is considered on a case-
by-case basis when accounts receivable are past due or when objective evidence is received that a
customer will default. Management makes these assessments after taking into consideration the
customer’s payment history and credit worthiness as well as the current economic environment in
which the customer operates.
(viii) Earn-out financial assets
At each reporting date, management assesses the likelihood that the conditions required for the
Company to obtain earn-out financial assets will be achieved. These assessments are based on
information made available to management by the acquirers of the disposed businesses as well as
any publicly-available information. Management also determines an appropriate asset-specific
discount rate to apply at each reporting date to reflect the risks inherent in the estimated cash
flows. As a result, determining an estimate of the fair value of the earn-out financial assets
requires a significant amount of judgment based on unobservable inputs and may result in
significant changes in future periods.
(ix) Going concern
These financial statements have been prepared on a going concern basis, which assumes the
realization of assets and discharge of liabilities and commitments in the normal course of business
within the foreseeable future. Management uses judgment to assess the Company’s ability to
continue as a going concern and the conditions that cast doubt upon the use of the going concern
assumption (Note 1(b)).
s)
New standards and interpretations not yet adopted
A number of new standards, amendments to standards and interpretations were not yet effective as at
January 1, 2016 and have not been applied in preparing these annual consolidated financial statements.
ClearStream’s intention is to adopt the standards when they become effective.
The following is a brief summary of the new standards:
a.
IFRS 9 Financial Instruments
IFRS 9 Financial Instruments introduces new requirements for the classification and measurement
of financial instruments, a new expected-loss impairment model that will require more timely
recognition of expected credit losses and a substantially reformed model for hedge accounting,
with enhanced disclosures about risk management activity. IFRS 9 also removes the volatility in
profit or loss that was caused by changes in an entity’s own credit risk for liabilities elected to be
ClearStream Energy Services Inc.
45
Annual Report 2016
CLEARSTREAM ENERGY SERVICES INC.
(FORMERLY TUCKAMORE CAPITAL MANAGEMENT INC.)
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
Years ended December 31, 2016 and 2015
measured at fair value. IFRS 9 is effective for annual periods beginning on or after January 1,
2018.
Management will complete a formal assessment of the impact of adoption of IFRS 9 on the
Company commencing in Q2 2017.
b.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 Revenue from Contracts with Customers provides a single, principles-based five-step
model that will apply to all contracts with customers with limited exceptions. In addition to the
five-step model, the standard specifies how to account for the incremental costs of obtaining a
contract and the costs directly related to fulfilling a contract. The incremental costs of obtaining a
contract must be recognized as an asset if the entity expects to recover these costs. The
standard’s requirements will also apply to the recognition and measurement of gains and losses on
the sale of some non-financial assets that are not an output of the entity’s ordinary activities. IFRS
15 is effective for annual periods beginning on or after January 1, 2018. Management will
complete a formal assessment of the impact of adoption of IFRS 15 on the Company commencing
in Q2 2017.
c.
IFRS 16 Leases
IFRS 16 Leases provides an updated definition of a lease contract, including guidance on the
combination and separation of contracts. The standard requires lessees to recognize a right-of-use
asset and a lease liability for substantially all lease contracts. The accounting for lessors is
substantially unchanged. IFRS 16 is effective for annual periods beginning on or after January 1,
2019. The Company will complete an assessment of the impact of adoption of IFRS 16 following
the completion of its assessments described above for IFRS 9 and IFRS 15.
2. Restricted cash
Restricted cash of $980 at December 31, 2016 (2015 - $4,380) is backing letters of credit and cash in trust
held on behalf of insurance providers. Letters of credit are predominately used to secure cash management
services.
3. Inventories
Inventories comprise the following:
Raw materials
Work-in-progress
Finished goods
Parts and supplies
Total inventories
December
31, 2016
December
31, 2015
1,583
175
831
411
3,000
$
1,731
169
366
848
3,114
$
Work in progress includes amounts for work performed in excess of amounts billed for contracts accounted for
using the percentage of completion method.
ClearStream Energy Services Inc.
46
Annual Report 2016
CLEARSTREAM ENERGY SERVICES INC.
(FORMERLY TUCKAMORE CAPITAL MANAGEMENT INC.)
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
Years ended December 31, 2016 and 2015
Included in cost of revenues is the cost of inventories of $15,348 (2015 - $21,162).
4. Earn-out assets
(a) Gusgo Transport LP (“Gusgo”) earn-out
As a result of the sale of its 80% interest in Gusgo in March 2016 (Note 12), ClearStream is entitled to
an earn-out of approximately $2,000 if a customer of Gusgo exercises its option to renew an existing
contract at December 31, 2017 and 2018. The fair value of this earn-out at December 31, 2016 was
calculated using a discounted cash flow model assuming that the contract will be renewed (based on
historical experience) with the amount to be paid to ClearStream discounted at a rate of 17.5%.
Initial fair value of Gusgo earn-out upon disposition
Accretion (recorded as gain on sale of assets held for sale)
Fair value of Gusgo earn-out at December 31, 2016
$ 1,340
172
$ 1,512
Of the fair value of $1,512 at December 31, 2016, approximately $426 is recorded as current earn-out
assets with the remaining $1,086 recorded as non-current. If the discount rate used to perform this
calculation was 5% higher, the fair value of the Gusgo earn-out at December 31, 2016 would have been
$105 lower.
(b) Quantum Murray LP and Titan Supply LP (collectively, “Quantum Murray”) earn-out
As a result of the sale of the majority of the net assets of Quantum Murray in March 2016 (Note 12),
ClearStream is entitled to an earn-out of approximately $6,200 if certain pre-determined free cash flow
targets are achieved for the years ended March 31, 2017, 2018, and 2019. The fair value of this earn-
out at December 31, 2016 was calculated using a discounted cash flow model assuming that the
required free cash flow targets will be achieved. The free-cash flow forecast used to calculate the 2017
portion of the Quantum Murray earn-out is discounted at a rate of 6%, whereas the free cash flow
forecasts used to calculate the 2018 and 2019 portion of the Quantum Murray earn-outs are discounted
at a rate of 30%. The difference in the discount rates reflect the risks associated with the free cash flow
forecast and the inherent uncertainty of forecasting future results for similar businesses.
Initial fair value of Quantum Murray earn-out upon disposition $ 4,240
Accretion
544
C hange in estimates
(628)
Fair value of Quantum Murray earn-out at December 31, 2016 $ 4,156
The change in estimates of $628 reflects the impact of changes in key observable inputs as a result of an
updated free cash flow forecast received for the fourth quarter of 2016.
Of the fair value of $4,156 at December 31, 2016, approximately $1,182 is recorded as current earn-out
assets with the remaining $2,970 recorded as non-current. If the discount rates used to perform this
ClearStream Energy Services Inc.
47
Annual Report 2016
CLEARSTREAM ENERGY SERVICES INC.
(FORMERLY TUCKAMORE CAPITAL MANAGEMENT INC.)
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
Years ended December 31, 2016 and 2015
calculation were 5% higher, the fair value of the Quantum Murray earn-out at December 31, 2016 would
be $224 lower.
5. Property, plant and equipment
Cost
Balance at January 1, 2015
Additions
Disposals
Reclassed as discontinued operations and held for sale
Balance as December 31, 2015
Additions
Disposals
Balance as December 31, 2016
Accumulated Depreciation
Balance at January 1, 2015
Depreciation for the year
Disposals
Reclassed as discontinued operations and held for sale
Impairment
Balance at December 31, 2015
Depreciation for the year
Disposals
Equipment
under finance
lease
Furniture,
tools and
equipment
Computer
hardware
Automotive
and heavy
equipment
Land and
buildings
Leasehold
improvements
Total
$
14,754
1,187
(174)
(969)
$
4,213
195
(54)
(2,924)
$
56,449
1,106
(3,017)
(25,930)
$
5,952
-
(1,476)
-
$
$
$
14,798
615
-
15,413
1,430
2
-
1,432
$
28,608
658
$
4,476
-
(2,602)
26,664
$
(1,854)
2,622
$
144
-
8,680
$
$
$
$
$
$
11,885
772
(168)
(3,953)
8,536
$
127,929
5,263
(6,704)
(41,749)
84,739
2,326
(5,147)
81,918
$
$
(7,306)
(1,027)
47
845
-
$
(7,441)
(1,063)
-
-
$
(3,316)
$
(38,816)
(109)
53
2,318
-
$
(1,054)
(65)
-
-
(1,119)
$
(2,917)
2,343
18,295
(982)
(22,077)
(2,184)
$
1,093
826
$
(1,816)
(87)
$
(6,355)
(767)
$
(71,775)
(8,681)
773
-
-
$
(1,130)
(85)
64
-
106
4,457
3,543
(4,576)
(8,049)
(232)
$
27,707
(5,574)
(53,866)
(6,625)
$
-
-
2,492
826
$
34,676
2,003
(1,815)
(7,973)
26,891
909
(691)
$
27,109
$
(14,166)
(3,774)
1,135
2,706
$
(16)
(14,115)
(2,997)
1,335
Reclassed as discontinued operations and held for sale
-
Balance at December 31, 2016
$
(15,777)
$
(8,504)
$
(22,342)
$
(1,151)
$
(8,281)
$
(57,173)
Net book value
At December 31, 2015
At December 31, 2016
a) Collateral:
$
12,776
$
7,357
$
376
$
6,531
$
3,346
$
487
$
30,873
$
11,332
$
6,909
$
313
$
4,322
$
1,471
$
399
$
24,745
As at December 31, 2016, property, plant and equipment included $13,202 subject to a general security
agreement under the Senior Secured Debentures and the Convertible Secured Debentures (December 31,
2015 - $19,985 under the senior credit facility).
b)
Impairment:
At December 31, 2016, management concluded there were no indicators of impairment or impairment reversal
with respect to its cash generating units containing property, plant and equipment.
At December 31, 2015, as a result of adverse economic effects arising from the lower commodity prices, the
Company was required to perform an impairment test under IAS 36 Impairment of Assets. ClearStream
recorded non-cash impairment of $3,220 and $2,354 related to the Transportation and Conventional CGUs,
respectively. The impairment was calculated on a fair value less costs of disposal basis. This was determined
using level 3 inputs under IFRS, including fixed asset appraisals and auction results for certain types of
equipment. The impairment charge recorded was most sensitive to the fixed asset appraisals and auction
results used to determine the recoverable amounts of the individual assets.
ClearStream Energy Services Inc.
48
Annual Report 2016
CLEARSTREAM ENERGY SERVICES INC.
(FORMERLY TUCKAMORE CAPITAL MANAGEMENT INC.)
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
Years ended December 31, 2016 and 2015
c) Disposals:
During the year ended December 31, 2016, the Company disposed of assets with a cost of $5,147 and
accumulated depreciation of $2,492, for proceeds of $1,927, and recognized a net loss on sale of $728.
6. Goodwill and intangible assets
Cost
Balance at January 1, 2015
Additions
Reclassed as discontinued operations and held for sale
Balance at December 31, 2015
Additions
Balance at December 31, 2016
Amortization and impairments
Balance at January 1, 2015
Amortization for the year
Impairment
Reclassed as discontinued operations and held for sale
Balance at December 31, 2015
Amortization for the year
Impairment
Balance at December 31, 2016
Net book value
At December 31, 2015
At December 31, 2016
Goodwill
Customer
relationships
Computer
software
Brands
Sales Orders
Management
Contracts
Intangible Total
3,092
131,740
$
$
-
108
(48,320) (685)
$
92,029
-
-
$ 92,029 $ 83,420 $ 2,515 $ 16,142 $ 1,105
-
142
$ 92,029 $ 83,552 $ 2,657 $ 16,142 $ 1,105
$
-
(332)
-
132
-
$
-
(1,339) (2,000)
$
-
$ -
-
$ -
16,474
2,000
2,444
$
155,750
108
(52,676)
$ 103,18
$ 103,456
274
(30,903)
$
-
(30,140)
-
$
-
(61,043)
(2,254)
(97,156)
$
$
(5,509) (142)
(11,587) -
46,731 134
$
(3,231) (145)
$
(67,521)
(2,262)
(2,444)
(13,390)
$
-
-
-
$
$
-
-
1,339
$
$
$ (117,244
(5,65
-
-
(11,58
2,000 50,20
$
(13,390)
(2,000)
(1,105)
-
(84,278)
$
(3,37
(8,700)
(69,743)
$
$
(70,752)
$
(2,407)
-
(13,390)
$
-
$
(1,105)
$
-
-
$
(87,654)
$
$
30,986
22,286
$
$
15,899
12,800
$
253
$
250
$
$
2,752
2,752
$
$
$
$
$
$
18,904
15,802
-
-
-
-
ClearStream has five CGUs, two of which have intangible assets with an indefinite life. Goodwill is monitored
by management at the operating segment level. The carrying amounts of goodwill and the indefinite life
intangible assets at December 31, 2016 are identified separately in the table below. As a result of the
change in ClearStream’s operating segments in March 2016 (refer to Note 25), ClearStream reallocated
goodwill using the relative fair value approach for the revised operating segments.
Operating Partner
C learStream
Wear
Transportation
Fabrication
Indefinite life
intangibles
Goodwill
1,574
-
-
-
-
-
Wear, Fabrication and Transportation
1,574
4,562
Oilsands
C onventional
1,178
-
-
-
Maintenance and C onstruction Services 1,178
17,724
$ 2,752 $ 22,286
Total
(a) Definite life intangible assets
At December 31, 2016, management concluded there were no indicators of impairment or impairment
reversal with respect to its cash generating units containing definite life intangible assets.
ClearStream Energy Services Inc.
49
Annual Report 2016
CLEARSTREAM ENERGY SERVICES INC.
(FORMERLY TUCKAMORE CAPITAL MANAGEMENT INC.)
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
Years ended December 31, 2016 and 2015
At December 31, 2015, as a result of adverse economic effects arising from the lower commodity prices, the
Company was required to perform an impairment test under IAS 36 Impairment of Assets. ClearStream
recorded non-cash impairment of $1,226 and $10,361 related to the Transportation and Conventional CGUs,
respectively. The impairment was calculated primarily on a value-in-use basis. The inputs used to perform
the value-in-use analysis are the same inputs that were used for ClearStream’s annual impairment test for
goodwill and intangibles with an indefinite life. Please refer to Note 6(b) for more details.
(b) Goodwill and indefinite life intangible assets
ClearStream performed impairment tests as at March 31, 2016 as a result of identifying indicators of
impairment across all operating segments and CGUs. This resulted in goodwill impairment of approximately
$8,700 within the Wear, Fabrication and Transportation segment. The recoverable value for the Wear,
Fabrication and Transportation group of CGUs is $34,131. ClearStream also performed its annual
impairment test over goodwill and indefinite life intangible assets as at December 31, 2016, which did not
result in any additional impairment. The valuation techniques, significant assumptions and sensitivities
applied in the goodwill and indefinite life intangible asset impairment tests are described below:
Valuation technique
The recoverable amounts of ClearStream’s operating segments and CGUs were calculated based on fair
value less costs of disposal. The fair value less costs of disposal for all CGUs was determined through a
discounted cash flow (“DCF”) approach other than for Transportation, where the fair value less costs of
disposal was determined based on fixed asset appraisals and auction results for certain types of equipment.
The DCF method involves projecting cash flows and converting them into a present value equivalent through
discounting. The discounting process uses a rate of return that is commensurate with the risk associated
with the business or asset and the time value of money. This approach requires assumptions about earnings
before taxes, interest, depreciation and amortization (“EBITDA”), capital expenditures, growth rates,
working capital and discount rates.
Projected EBITDA and Capital Expenditures
Projected EBITDA and capital expenditures are based on ClearStream’s internal budget for the following year
and take into consideration past experience, economic trends and market/industry trends at the time at
which the budget is developed. The annual budget is developed during the fourth quarter of the previous
year and is approved by the Board of Directors. The budget is also updated quarterly by senior management
and these updates are used to assess impairment during the year, if necessary. The anticipated future cash
flows are updated to reflect any subsequent changes in demand for products and services.
Growth rate and terminal value
As described above, ClearStream used projected EBITDA and capital expenditures for the following year and
applied a perpetual long-term growth rate of 2% thereafter. The perpetual growth rates are management’s
estimate of long-term inflation and productivity growth in the industry and geographic locations in which it
operates. In arriving at its forecasts, ClearStream considered past experience, inflation as well as industry
and market trends.
ClearStream Energy Services Inc.
50
Annual Report 2016
CLEARSTREAM ENERGY SERVICES INC.
(FORMERLY TUCKAMORE CAPITAL MANAGEMENT INC.)
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
Years ended December 31, 2016 and 2015
Discount rate
ClearStream assumed a post-tax discount rate of 11%-15% in order to calculate the present value of
projected future cash flows. The discount rate represented a weighted average cost of capital (“WACC”) for
comparable companies operating in similar industries based on publicly available information. The WACC is
an estimate of the overall required rate of return on an investment for both debt and equity owners and
serves as the basis for developing an appropriate discount rate.
Management has considered reasonably possible changes in assumptions for the recoverable amounts of its
operating segments and CGUs. In all of these scenarios, with the exception of those discussed above, the
recoverable amount was greater than the carrying amount, providing evidence that there is no further
impairment.
7. Asset-based lending facility (“ABL Facility”)
On March 23, 2016, ClearStream Energy Holdings LP, a subsidiary of ClearStream, entered into an ABL
Facility agreement. The ABL Facility is a revolving facility providing for maximum borrowings of up to $60,000
and carries a term of three years. The amount available to be drawn under the ABL Facility will vary from time
to time, based upon a borrowing base determined with reference to the accounts receivable of ClearStream.
At December 31, 2016, the available borrowing base was $10,396. The obligations under the ABL Facility are
secured by, among other things, a first ranking lien on all of the existing and after acquired accounts
receivable of the borrower and the other guarantors, being the Company and certain of its direct and indirect
subsidiaries. The ABL Facility contains and provides for certain covenants, such as the maintenance of fixed
charge coverage ratios, financial reporting and events of default as are customary in facilities of this nature.
The interest rate on the ABL Facility is prime plus 2.5%, increasing to prime plus 4% if the ABL Facility is
more than 50% drawn.
The Company incurred $1,727 in deferred financing fees associated with the ABL Facility. These costs are
being amortized over the term of the ABL Facility and as at December 31, 2016, the net unamortized amount
of deferred financing fees was $1,295.
As at December 31, 2016, ClearStream was in compliance with its financial covenants under the ABL Facility.
The financial covenants applicable under the ABL Facility are as follows:
•
•
•
•
ClearStream must meet minimum monthly EBITDA targets from November 2016 to April 2017,
inclusive, where EBITDA is defined as net earnings, before depreciation and amortization, interest
expense and income tax expense;
Beginning on May 1, 2017, ClearStream must maintain a Fixed Charge Coverage Ratio of not less
than 1.0:1.0 for each cumulative period ending on the last day of each month until March 31, 2018;
ClearStream must maintain a Fixed Charge Coverage Ratio of 1.1:1.0 for each twelve month period
ending on and after April 30, 2018;
ClearStream must not expend or become obligated for any capital expenditures in an aggregate
amount exceeding $6,500 during any fiscal year.
ClearStream Energy Services Inc.
51
Annual Report 2016
CLEARSTREAM ENERGY SERVICES INC.
(FORMERLY TUCKAMORE CAPITAL MANAGEMENT INC.)
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
Years ended December 31, 2016 and 2015
The Fixed Charge Coverage Ratio is defined as follows:
•
EBITDA less cash taxes paid, dividends paid and capital expenditures,
divided by:
• Debt servicing costs, which is the interest paid or payable on all debt balances for the relevant period
(not including the amortization of deferred financing costs and accretion)
8. Senior secured debentures
(a) Senior secured debentures due 2026
On March 23, 2016, the Company issued an aggregate of $176,228 principal amount of senior secured
debentures to Canso Investment Counsel Ltd. (“Canso”) on a private placement basis. The net proceeds of
this issuance were used to completely repay the principal amount outstanding under the previous senior
secured debentures (due 2016). Canso is also a shareholder of the Company at December 31, 2016.
The senior secured debentures bear interest at an annual rate of 8.00% payable semi-annually in arrears on
June 30 and December 31 in each year and have a maturity date of March 23, 2026. The senior secured
debentures are redeemable at the option of the Company and, in certain circumstances, are mandatorily
redeemable. They are secured by first-ranking liens over all of the property of the Company and its guarantor
subsidiaries, other than certain limited classes of collateral over which the Company has granted a prior-
ranking lien in favour of the ABL agent which secure the Company’s obligations under the ABL Facility (refer
to Note 7). The senior secured debentures provide for certain events of default and covenants of the
Company which are customary for debentures of this nature, including financial and reporting covenants and
restrictive covenants limiting the ability of the Company and its subsidiaries to make certain distributions and
dispositions, incur indebtedness, grant liens and limitations with respect to acquisitions, mergers,
investments, non-arm’s length transactions, reorganizations and hedging arrangements (subject to certain
exceptions).
The Company incurred $4,821 in deferred financing fees associated with the Senior Secured Debentures. The
principal balance is recorded net of these costs and will be accreted using the effective interest method over
the term of Senior Secured Debentures.
Principal balance of senior secured debentures
Deferred financing fees, net of accumulated amortization
Senior secured debentures, net
As at December 31, 2016
$ 176,288
$ (4,646)
$ 171,642
(b) 8.00% Senior Secured Debentures due 2016
The Company had previously issued senior secured debentures in an aggregate principal amount of $176,228
pursuant to a secured trust indenture dated as of March 23, 2011. The Company called for redemption of
these senior secured debentures on March 21, 2016 and they were repaid in full (outstanding principal and
ClearStream Energy Services Inc.
52
Annual Report 2016
CLEARSTREAM ENERGY SERVICES INC.
(FORMERLY TUCKAMORE CAPITAL MANAGEMENT INC.)
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
Years ended December 31, 2016 and 2015
accrued interest) on March 23, 2016. The balance at December 31, 2015 was the aggregate principal
amount, less $1,917 which was expensed in 2016.
9. Convertible secured debentures
On March 23, 2016, the Company issued an aggregate of $25,000 principal amount of convertible secured
debentures to Canso on a private placement basis and an additional $10,000 principal amount of convertible
secured debentures pursuant to a rights offering. Pursuant to the rights offering, the Company offered to its
shareholders of record as of February 18, 2016 transferable rights to purchase up to $10,000 aggregate
principal amount of convertible secured debentures for the same amount in gross proceeds. Each such
shareholder was entitled to one right for each common share held. Every 1,099.41241 rights entitled an
eligible rights holder to purchase $100 aggregate principal amount of convertible secured debentures at a
subscription price of $100. The rights expired on March 17, 2016 and the rights offering, which was over-
subscribed, closed on March 23, 2016, resulting in the issuance of:
• $1,969,000 aggregate principal amount of convertible secured debentures upon the exercise of the
basic subscription privilege; and
• $8,030,400 aggregate principal amount of convertible secured debentures issued to over-subscribing
purchasers on a pro-rata basis, pursuant to the additional subscription privilege.
The net proceeds of this issuance, together with the proceeds of asset sales (refer to Note 12), were used to
completely repay the Company’s indebtedness under the senior credit agreement.
The convertible secured debentures bear interest at an annual rate of 10.00% payable semi-annually in
arrears on June 30 and December 31 in each year and have a maturity date of March 23, 2026. The
Company may elect to satisfy any interest payment obligation by issuing additional convertible secured
debentures which will be subject to the same terms and conditions as previously issued convertible secured
debentures. The Company may redeem the convertible secured debentures, in whole or in part from time to
time, after March 23, 2021. The convertible secured debentures are also convertible into common shares of
the Company at an initial conversion price of $0.35 per common share (subject to adjustment in certain
circumstances). They are secured by liens over all of the property of the Company and its guarantor
subsidiaries, other than property over which security has been granted in favour of the ABL agent in respect
of the ABL Facility (refer to Note 7). The security granted in connection with the convertible secured
debentures is subordinate to the security granted in connection with the senior secured debentures. The
convertible secured debentures provide for events of default and covenants of the Company which are
customary for debentures of this nature and are substantially similar to the events of default and covenants
provided in respect of the senior secured debentures.
As a result of the conversion option described above, the Company was required to separate the liability and
equity components of these convertible secured debentures using the residual value method. Under this
method, the value of the equity component of $8,133 was determined by deducting the fair value of the
liability component from the principal amount of the convertible secured debentures. The fair value of the
ClearStream Energy Services Inc.
53
Annual Report 2016
CLEARSTREAM ENERGY SERVICES INC.
(FORMERLY TUCKAMORE CAPITAL MANAGEMENT INC.)
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
Years ended December 31, 2016 and 2015
liability component of $26,867 was computed as the present value of future principal and interest payments
discounted at a rate of 15% per annum.
The Company incurred $3,708 in deferred financing fees associated with the convertible secured debentures.
The principal balance is recorded net of these costs and will be accreted using the effective interest method
over the term of Convertible Secured Debentures. Debenture issue costs of $854 were allocated to the equity
component.
For the year ended December 31, 2016
Opening liability component of convertible secured debentures $ 24,024
Accretion
$ 373
C losing liability component of convertible secured debentures $ 24,397
10. Senior credit facility
Advances outstanding under the senior credit facility as at December 31, 2015 totaled $58,735. At that time,
the entire balance of the senior credit agreement was a revolving facility and was fully drawn. The balance of
deferred financing fees related to the senior credit facility was $253 at December 31, 2015.
During 2016, the Company completely and permanently repaid all indebtedness outstanding under the senior
credit agreement through a combination of proceeds from asset sales (refer to Note 12), proceeds from the
issuance of convertible debentures and cash on hand.
11. Obligations under finance leases
Finance lease obligations relate to vehicles and heavy equipment. ClearStream’s future minimum payments
are as follows:
2016
2017
2018
2019
2020
2021
Total minimum lease payments
December 31, 2016 December 31, 2015
5,247
3,751
2,062
713
270
-
12,043
-
4,165
1,866
853
212
131
7,227
Less amount representing interest (at rates ranging from 4% to 15%)
Present value of net minimum finance lease payments
Less current portion of obligations under finance leases
410
6,817
3,902
1,011
11,032
4,685
Long-term portion of obligation under finance leases
$
2,915
$
6,347
Interest of $567 for the year ended December 31, 2016 (2015 - $817) relating to finance lease obligations has
been included in interest expense.
ClearStream Energy Services Inc.
54
Annual Report 2016
CLEARSTREAM ENERGY SERVICES INC.
(FORMERLY TUCKAMORE CAPITAL MANAGEMENT INC.)
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
Years ended December 31, 2016 and 2015
12. Assets held for sale and discontinued operations
On April 23, 2015 RGC Canada LP (“RGC”), an 80% joint venture of the Company, entered into an agreement
to sell its 45% interest in RLogstics for $1,900. The proceeds were first used to settle $1,350 in advances
owing to RGC from RLogistics, with the balance being used to purchase RGC’s partnership interest in
RLogistics of approximately ($194).
On July 31, 2015 the Company sold its 80% interest in IC Group for proceeds of $2,500. The proceeds were
used to repay $2,450 of the senior credit facility, with the balance being retained for the payment of
transaction costs.
On September 30, 2015 the Company sold its 100% interest in Gemma Communications (“Gemma”) for
proceeds of up to $7,000. The transaction consideration consisted of an initial purchase price of $4,000, of
which $2,500 was paid at closing with the remainder payable in instalments, plus an earn out of up to $3,000
based on future revenues up to December 2016. To estimate the fair value of the contingent consideration,
management applied a deterministic approach. The fair value measurement was categorized as a level 3
measurement under IFRS 13 due to the fact that the inputs cannot be corroborated by market data. This
approach required management to estimate the payout associated with the probability-weighted average of
outcomes. Judgement was required in estimating the quarterly revenues of Gemma from October 1, 2015 to
December 31, 2016 and it was determined that the earn-out conditions would not be met. As such,
management determined the purchase price of this transaction to be approximately $2,500. Cash proceeds of
$2,500 were used to repay $2,300 of the senior credit facility, with the balance being retained for the
payment of transaction costs.
On March 23, 2016, ClearStream sold the majority of the assets of Quantum Murray LP (“Quantum Murray”)
and Titan Supply LP (“Titan”) for cash proceeds of $8,800 and assumption of debt of approximately $3,000,
(as well as the earn-out financial asset as described in Note 4). The sale of Titan’s assets resulted in an
accounting gain of approximately $327, recorded as a gain on sale of assets held for sale. The sale of
Quantum Murray’s assets resulted in an accounting loss of approximately $4,432, recorded as a loss from
discontinued operations.
On March 7, 2016, ClearStream sold its 80% interest in Gusgo as well as certain other related subsidiaries for
cash proceeds of $4,000, with an additional $2,000 which was received on May 31, 2016 (as well as the earn-
out financial asset as described in Note 4). The sale of Gusgo resulted in an accounting gain of approximately
$540, recorded as a gain on sale of assets held for sale.
The following table shows the revenue and loss from discontinued operations included in the Corporate
operating segment for the years ended December 31, 2016 and 2015:
ClearStream Energy Services Inc.
55
Annual Report 2016
CLEARSTREAM ENERGY SERVICES INC.
(FORMERLY TUCKAMORE CAPITAL MANAGEMENT INC.)
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
Years ended December 31, 2016 and 2015
For the year ended December 31,
Revenue
Expenses
Loss before taxes
Impairment loss recognized on the remeasurement of net
assets to FVLC S
Loss on sale of discontinued operations
Loss from equity investments
Provision for Brompton claim (note 13)
Income tax (expense) recovery - deferred
Net loss from discontinued operations
2016
2015
29,179
144,173
(30,700)
(181,913)
(1,521)
(37,740)
-
(15,842)
(6,287)
-
(4,985)
(3,350)
(221)
-
-
(3,298)
$
(12,793)
$
(60,451)
The major classes of assets and liabilities of Quantum Murray and Titan at December 31, 2015 that were
classified as discontinued operations and held for sale were as follows:
As at December 31,
Assets
Accounts receivable
Inventory
Prepaids & Other Assets
Long-term investments
Liabilities
Accounts payable & accrued liabilities
Deferred Revenue
C apital lease obligation
Other liabilities
Net assets directly associated with the disposal group
2015
34,448
13,777
2,302
3,783
54,310
32,119
4,645
2,872
3,001
42,637
11,673
The net cash flows incurred by Quantum Murray and Titan are, as follows:
For the year ended December 31,
2015
Operating
Investing
Financing
Net cash (outflow) / inflow
1,482
(732)
(617)
133
ClearStream Energy Services Inc.
56
Annual Report 2016
CLEARSTREAM ENERGY SERVICES INC.
(FORMERLY TUCKAMORE CAPITAL MANAGEMENT INC.)
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
Years ended December 31, 2016 and 2015
Upon reclassification of Quantum Murray and Titan as assets held for sale at December 31, 2015, the fair value
less costs of disposal of the net assets being disposed was lower than the carrying amount. The short-fall of
$22,221 was recorded as an impairment charge to the assets of Quantum Murray in the amount of $15,842 by
reducing non-current assets, with any remainder being used to reduce the value of current assets. The
carrying amount of the long-term investment in Titan was written-down by $6,379.
13. Commitments and contingencies
(a) Commitments
ClearStream is committed to payments under operating leases for equipment, office premises and land
through 2029 in total of approximately $59,776. Operating lease payments are based on contracts currently
in place. Changes to these contracts may result in changes to future commitments. The minimum annual
payments exclusive of operating costs under these lease arrangements are as follows:
2016
2017
2018
2019
2020
2021
Thereafter
December 31, 2016 December 31, 2015
12,454
10,921
8,531
5,773
4,351
3,786
21,908
-
11,409
9,534
8,323
4,391
3,735
22,385
Total commitments under operating leases
$
59,776
$
67,724
Last year of commitment
2029
2029
(b) Contingencies
In March 2015, the Company was advised by Brompton Corp. (“Brompton”) that Brompton had received
notices of reassessment from the Canada Revenue Agency (the “CRA”) in which the CRA denied the
deduction to Brompton of certain non-capital losses and other tax attributes in computing Brompton’s
income for the 2010 to 2014 taxation years. Tuckamore Holdings LP, a wholly-owned subsidiary of the
Company, previously held approximately 40% of the outstanding equity of Brompton. The Company sold
its investment in Brompton in September 2011, at which time the financial results of Brompton were
reclassified as discontinued operations.
On June 12, 2015, Brompton served the Company and certain of its affiliates with a Statement of Claim
seeking, among other things, indemnification in the amount of 40% of the CRA’s notices of reassessment
for the 2010-2012 taxation years. On July 13, 2015, the Company served its Statement of Defence
denying Brompton’s allegations and relying on, among other things, a corresponding warranty and
indemnity provided by Brompton to ClearStream. Brompton brought a motion for summary judgment,
which was heard in August and September 2016. In February 2017, the court granted judgment in
ClearStream Energy Services Inc.
57
Annual Report 2016
CLEARSTREAM ENERGY SERVICES INC.
(FORMERLY TUCKAMORE CAPITAL MANAGEMENT INC.)
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
Years ended December 31, 2016 and 2015
favour of Brompton, ruling that the Company is required to indemnify Brompton. The Company has
appealed the decision to the Court of Appeals. Pending the outcome of the appeal, enforcement of any
order and costs pursuant to the motion for judgment will be stayed. The Company has accrued for the
estimated potential liability with respect to this matter as at December 31, 2016 with the corresponding
loss recorded in discontinued operations. The estimated liability at December 31, 2016 is $4,985, which
includes taxes, interest, legal fees and costs for appeal.
14. Revenue
The following are amounts for each significant category of revenue recognized during the years ended
December 31, 2016 and December 31, 2015:
For the year ended December 31,
Rendering of services
Sales of goods
Total revenue
$
2016
222,107
48,554
$
2015
255,843
160,279
$
270,661
$
416,122
15. Selling, general & administrative expenses
For the year ended December 31,
Salaries & benefits
Occupancy costs
C onsulting
Travel
Repairs & maintenance
Office expenses
Audit & accounting
Other
16. Interest expense
2016
2015
Restated (Note 27)
$
7,620
$
8,260
1,326
1,264
1,401
662
1,035
677
3,397
1,691
1,283
1,920
1,080
1,444
1,195
5,488
$
17,382
$
22,362
ClearStream has recorded interest expense in relation to the following:
For the year ended December 31,
2016
2015
Interest expense on senior credit facility (note 10)
Interest expense on 8.00% secured debentures (note 8)
Interest expense on senior secured debentures (note 8)
Interest expense on convertible secured debentures (note 9)
Interest expense on ABL facility (note 7)
Interest expense on finance leases (note 11)
Interest expense - other
Deferred financing costs amortized (note 7)
Accretion expense related to debentures (notes 8 and 9)
Interest expense
$
$
436
3,167
10,931
2,699
304
567
197
432
2,526
21,259
1,983
14,098
-
-
-
817
27
558
7,465
24,948
$
$
ClearStream Energy Services Inc.
58
Annual Report 2016
CLEARSTREAM ENERGY SERVICES INC.
(FORMERLY TUCKAMORE CAPITAL MANAGEMENT INC.)
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
Years ended December 31, 2016 and 2015
17. Income taxes
The reconciliation of statutory income tax rates to ClearStream’s effective tax rate is as follows:
For the year ended December 31,
Loss from continuing operations before tax
Tax rate
Income tax recovery at statutory rates
Permanent differences
C hange in tax rates on temporary differences
Deferred tax asset not recognized
Other adjustments related to disposals
2016
(32,916)
26.95%
(8,871)
$
2015
(69,252)
26.10%
(18,075)
$
2,082
42
5,989
779
8,058
(653)
5,467
387
Income tax expense (recovery)
$
21
$
(4,816)
The benefit of the following temporary differences have not been recognized:
December 31
Fixed assets
Intangible assets
Debentures
Net operating losses
Other
Total temporary differences not recognized
2016
2015
$
(1,554)
12,003
(5,189)
104,672
$
(1,393)
14,000
(1,918)
54,174
4,620
114,553
$
1,080
65,943
$
Net operating losses of $104,672 will begin to expire in 2034.
ClearStream has approximately $140,909 of capital losses that have not been recognized in the consolidated
financial statements as at December 31, 2016 (2015 - $132,693). There is no expiry of capital losses.
18. Share capital and loss per share
The authorized share capital of the Company consists of: (i) an unlimited number of common shares with no
par value and (ii) preferred shares (with no par value) issuable in series to be limited in number of an amount
equal to not more than one half of the limited and outstanding shares at the time of issuance of such preferred
share. As at December 31, 2016 and 2015, there were 109,941,241 shares issued and outstanding and no
preferred shares issued and outstanding.
The only potentially dilutive securities as at December 31, 2016 were the convertible secured debentures
(2015 – shares issuable under stock options). As a result of the net losses incurred in all periods presented,
all potentially dilutive securities were anti-dilutive.
19. Restructuring costs
During the year ended December 31, 2016, the Company incurred restructuring costs of $1,471 (2015 -
$7,454). These are costs that were required in response to the potential impact of a prolonged period of
ClearStream Energy Services Inc.
59
Annual Report 2016
CLEARSTREAM ENERGY SERVICES INC.
(FORMERLY TUCKAMORE CAPITAL MANAGEMENT INC.)
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
Years ended December 31, 2016 and 2015
reduced oil prices on ClearStream’s business and costs associated with the wind-up of its Toronto head office.
A majority of these costs are related to severance as a result of headcount reductions and location closures.
20. Stock-based compensation
On November 30, 2009 the shareholders of ClearStream approved an Incentive Option Plan (“IOP”). Pursuant
to the IOP, 7,050,000 shares were listed and reserved for issuance upon the exercise of the stock options
granted. On March 25, 2011, the IOP was amended to permit the adoption of a new Management Incentive
Plan (“MIP”). Pursuant to the MIP, 7,150,000 shares were listed and reserved for issuance upon the exercise of
stock options. The term and conditions of the grants are as follows:
Grant date
Number of
options
Exercise
price
Vesting dates
C ontractual
life of options
Plan
IOP
January 13, 2010
March 25, 2011
7,000,000
50,000
$0.403
$0.358
MIP
March 25, 2011
7,150,000
$0.358
Total options granted
14,200,000
2010 to 2013
50% vest on March 25, 2012
50% vest on March 25, 2013
50% vest on March 25, 2012
50% vest on March 25, 2013
5 years
5 years
5 years
The changes in outstanding options under both the IOP and MIP plans are detailed below:
IOP
Weighted
average
exercise
price
Number of
options
MIP
Weighted
average
exercise
price
Number of
options
Total
Outstanding at December 31, 2014
Exercised during 2014
Outstanding at December 31, 2014
Exercised during 2015
Exercisable at December 31, 2015
Expired during 2016
Exercisable at December 31, 2016
$0.403
$0.358
6,200,000
(6,200,000)
-
-
-
-
$0.358
7,100,000
(6,950,000)
150,000
-
150,000
(150,000)
-
13,300,000
(13,150,000)
150,000
-
150,000
(150,000)
-
No new stock options were granted during the years ended December 31, 2016 or December 31, 2015 and
there were no options outstanding at December 31, 2016.
Subsequent to December 31, 2016, the Company issued 6,560 stock options under the IOP to senior
management at an exercise price of $0.28 per share. In addition, subsequent to December 31, 2016, the
Board of Directors approved a Performance Share Unit (“PSU”) and Restricted Share Unit (“RSU”) Plan. 4,070
PSUs and 5,510 RSUs were issued to senior management under the terms of the plan. The RSUs must be
settled in cash and the PSUs can be settled in cash or common shares at the discretion of the Board of
Directors.
ClearStream Energy Services Inc.
60
Annual Report 2016
CLEARSTREAM ENERGY SERVICES INC.
(FORMERLY TUCKAMORE CAPITAL MANAGEMENT INC.)
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
Years ended December 31, 2016 and 2015
21. Related party disclosures
a) Other related party transactions
Income from equity investments includes $191 of rent expense paid to a company owned by the minority
shareholder of Gusgo for the year ended December 31, 2016 (2015 - $836). Interest charged to joint
venture operating partners on advances was $59 (2015 - $229). Two operating leases for property, with
annual rents of $312 and $400 are with a landlord in which certain executives of ClearStream hold an
indirect minority interest (2015 - $312 and $400). These transactions occurred in the normal course of
business and are recorded at the exchange amount, which is the amount of consideration established and
agreed to between the parties.
b) Compensation for key management personnel
ClearStream’s key management personnel are comprised of officers and directors. Prior to the disposition
of previous Operating Partnerships that was completed in March 2016, key management personnel also
included officers and Vice Presidents at each Operating Partnership. The remuneration for these key
management personnel during the years ended December 31, 2016 and December 31, 2015 are as
follows:
For the year ended December 31,
Short-term employment benefits
Termination benefits
Total compensation
2016
2015
$
3,808
$
6,512
1,503
3,530
$
5,311
$
10,042
22. Financial instruments and risk management
Financial instruments consist of cash, restricted cash, accounts receivable, earn-out financial assets, accounts
payable, ABL Facility, Senior Secured Debentures and Convertible Secured Debentures.
a) Fair values of financial assets and liabilities
The fair value of the earn-out financial assets is determined using Level 3 inputs, including an estimate of
future financial performance of previously owned Operating Partnerships and an estimate of the likelihood
of achieving earn-out conditions.
The fair value of the ABL Facility approximates its carrying amount, excluding the effect of deferred
financing fees, due to its nature as a revolving facility subject to variable interest rates. The fair value of
the Convertible Secured Debentures at December 31, 2016 was $32,500 based on the closing price of the
Convertible Secured Debentures on the Toronto Stock Exchange (a Level 1 input).
b) Risk management
ClearStream has exposure to credit risk, customer concentration risk, liquidity risk and interest rate risk.
ClearStream’s Board of Directors has overall responsibility for the establishment and oversight of
ClearStream’s risk management framework.
ClearStream Energy Services Inc.
61
Annual Report 2016
CLEARSTREAM ENERGY SERVICES INC.
(FORMERLY TUCKAMORE CAPITAL MANAGEMENT INC.)
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
Years ended December 31, 2016 and 2015
(i) Credit risk
Credit risk is the risk of financial loss to ClearStream if a customer or counterparty to a financial
instrument fails to meet its contractual obligations and arises principally from ClearStream’s accounts
receivable. The following table outlines ClearStream’s maximum exposure to credit risk at December
31, 2016:
C ash
Restricted cash
Accounts receivable
Earn-out assets
Total
$ 11,503
980
46,928
5,664
$ 65,075
Cash and restricted cash are held at Canadian Schedule A Banks and therefore are considered low
credit risk.
ClearStream has a credit policy under which each new customer is analyzed individually for
creditworthiness before standard payment terms and conditions are offered. ClearStream’s exposure
to credit risk with its customers is influenced mainly by the individual characteristics of each
customer. When available, ClearStream reviews credit bureau ratings, bank accounts and financial
information for each new customer. ClearStream’s customers are primarily multinational oil and gas
and construction companies, all of which have strong creditworthiness.
Of the total balance of accounts receivable at December 31, 2016, approximately $31,072 related to
trade receivables and $15,856 related to accrued revenue (i.e. for work performed but not yet
invoiced).
Trade receivables are non-interest bearing and generally due on 30-90 day terms. As at December
31, 2016, approximately $5,620 of ClearStream’s trade receivables had been outstanding longer
than 90 days (2015 - $6,478). Management has fully evaluated the outstanding balance of trade
receivables and believes that it is collectable based on settlement agreements or ongoing discussions
with counterparties.
Earn-out financial assets will be payable to ClearStream by two counterparties if specified conditions
are met through 2017 to 2019. Although the two counterparties are private entities, ClearStream
continues to evaluate the potential for credit risk based on publicly available information and through
ongoing discussions with the management of those entities.
(ii) Customer concentration risk
Revenues of ClearStream are concentrated, with its top three customers representing 61.1% of
consolidated revenue (2015 – 54.7%) and 60.4% of the consolidated accounts receivable for
ClearStream (2015 – 32.1%). More specifically, ClearStream’s largest customer within the
Maintenance & Construction operating segment accounted for 43.5% or $118,548 of ClearStream’s
consolidated revenue for the year ended December 31, 2016 (2015 – 32.2% or $133,786).
ClearStream Energy Services Inc.
62
Annual Report 2016
CLEARSTREAM ENERGY SERVICES INC.
(FORMERLY TUCKAMORE CAPITAL MANAGEMENT INC.)
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
Years ended December 31, 2016 and 2015
(iii) Liquidity risk
Liquidity risk is the risk that ClearStream will not be able to meet its financial obligations as they
come due. ClearStream’s approach to managing liquidity is to ensure, as far as possible, that it will
always have sufficient liquidity to meet its liabilities when due, under both normal and stressed
conditions, without incurring unacceptable losses or risking damage to its reputation.
All of ClearStream’s financial liabilities are current with the exception of its ABL Facility which
matures in 2019 and its senior secured debentures and convertible secured debentures, which are
both due in March 2026.
ClearStream’s strategy is that long-term debt should always form part of its capital structure,
assuming an appropriate cost. As existing debt approaches maturity, ClearStream will replace it with
new debt, convert it into equity or refinance or restructure, depending on the state of the capital
markets at the time.
ClearStream manages its liquidity risk by continuously monitoring forecast and actual gross profit
and cash flows from operations.
23. Changes in non-cash working capital
Accounts receivable
Inventories
Prepaid expenses
Other current assets
Accounts payable and accrued liabilities
Deferred revenue
2016
2015
$
29,161
$
36,218
114
411
-
(5,284)
167
1,349
94
563
(8,013)
(510)
Total changes in non-cash balances
$
24,569
$
29,701
24. Long-term Investments
At December 31, 2016, ClearStream held a 50% interest in a joint venture. At December 31, 2015,
Tuckamore held an 80% interest in Gusgo, a 92% interest in Titan and a nominal interest in other joint
arrangements and associates, from continuing operations. The summarized financial information for
ClearStream’s joint arrangements and associates, from continuing operations, at 100% is as follows:
ClearStream Energy Services Inc.
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Annual Report 2016
CLEARSTREAM ENERGY SERVICES INC.
(FORMERLY TUCKAMORE CAPITAL MANAGEMENT INC.)
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
Years ended December 31, 2016 and 2015
As at December 31,
C urrent assets
2016
2015
$
1,201
$
4,030
Property, plant and equipment
$
4
$
968
Goodwill and intangibles
Other assets
Total Assets
C urrent liabilities
Total Liabilities
Total Equity
Attributable to:
C learStream
-
-
4,628
1,843
$
1,205
$
11,469
$
47
$
1,324
$
47
$
1,324
$
1,158
$
10,145
579
8,000
Joint arrangement / associate partners
$
579
$
2,145
For the year ended December 31,
2016
2015
Revenues
Expenses
Net income
Attributable to:
C learStream
$
11,882
$
46,871
11,882
46,707
$
(0)
$
164
$
(169)
$
(508)
Joint arrangement / associate partners
$
169
$
672
For the year ended December 31,
2016
2015
C ash flows provided by operating activities
$
93
$
3,551
C ash flows used in financing activities
C ash flows used in investing activities
Net increase in cash
-
-
(2,429)
(338)
$
93
$
784
25. Segmented Information
During 2016, as a result of the sale of ClearStream’s interest in Gusgo as well as substantially all of the net
assets of Quantum Murray and Titan, there was a change in the Company’s operating segments. The
operating segments discussed below represent the segments that ClearStream’s chief operating decision
maker considers when reviewing the performance of the Company and in determining where to allocate
resources. The comparative 2015 results were restated to conform to the current period presentation.
As at December 31, 2016, ClearStream has three operating segments, each of which has separate operational
management and management reporting information. All or substantially all of ClearStream’s operations,
assets and employees are located in Canada.
ClearStream Energy Services Inc.
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Annual Report 2016
CLEARSTREAM ENERGY SERVICES INC.
(FORMERLY TUCKAMORE CAPITAL MANAGEMENT INC.)
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
Years ended December 31, 2016 and 2015
The Maintenance and Construction segment is a fully integrated provider of maintenance and construction
services to the energy industry. This division provides maintenance services, welding, fabrication, machining,
construction, turnaround services and a resource/labour supply to companies in the conventional oil and gas
and oil sands markets.
The Wear, Fabrication and Transportation segment specializes in the supply, fabrication and transportation of
overlay pipe spools, pipe bends, wear plate, welding services, custom fabrication, pipe management and
storage services.
The Corporate division provides typical head office functions including strategic planning, corporate
communications, taxes, legal, marketing, finance, financing (including interest expense), human resources and
information technology for the entire organization. The eliminations column represents adjustments required
to reconcile ClearStream’s segmented reporting, to the loss from continuing operations. This column
represents interdivisional eliminations and adjustments required to account for joint ventures as equity
investments. Any assets held for sale in continuing operations for the first half of 2016 and for the comparative
period have been recorded in the Corporate segment.
ClearStream accounts for intersegment sales based on the transaction price. Eliminations in the table below
represent the elimination of these intersegment sales.
Year Ended
December 31, 2016
Revenue
Cost of revenue
Gross profit
Selling, general and administrative expenses
Amortization of intangible assets
Depreciation
Income from equity investment
Interest expense
Gain on sale from assets held for sale
Restructuring costs
Write-down of property, plant and equipment
Write-down of goodwill and intangible assets
Other income
Gain (loss) on sale of property, plant and equipment
Income (loss) before taxes
Income tax recovery (expense) - current
Income tax recovery (expense) - deferred
Income (loss) from continuing operations
Maintenance and
Construction
Services
$
224,875
(206,792)
18,083
Wear, Fabrication &
Transportation
$
49,349
(42,154)
7,195
Corporate
$
-
-
-
Eliminations
$
(3,563)
3,196
(367)
Total
$
270,661
(245,750)
24,911
(2,103)
(185)
(3,143)
-
(304)
-
-
-
-
-
462
12,810
(59)
-
12,751
$
(621)
(289)
(2,888)
-
(280)
-
-
-
-
-
151
3,268
-
-
3,268
$
(14,840)
(2,902)
(595)
(291)
(20,676)
1,260
(1,471)
$
-
(8,700)
623
(1,341)
(48,933)
(21)
-
(48,954)
182
-
1
122
1
-
-
-
-
-
-
(61)
59
(17,382)
(3,376)
(6,625)
(169)
(21,259)
1,260
(1,471)
-
(8,700)
623
(728)
(32,916)
(21)
$
$
-
(2)
-
(32,937)
ClearStream Energy Services Inc.
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Annual Report 2016
CLEARSTREAM ENERGY SERVICES INC.
(FORMERLY TUCKAMORE CAPITAL MANAGEMENT INC.)
Notes to Consolidated Financial Statements
(In thousands of Canadian dollars)
Years ended December 31, 2016 and 2015
Year Ended
December 31, 2015
Revenue
Cost of revenue (restated - note 27)
Gross profit
Selling, general and administrative expenses
(restated - note 27)
Amortization of intangible assets
Depreciation
Income from equity investment
Interest expense
Loss on sale from assets held for sale
Restructuring costs
Write-down of property, plant and equipment
Write-down of goodwill and intangible assets
Gain on sale of property, plant and equipment
Income (loss) before taxes
Income tax recovery (expense) - current
Income tax recovery (expense) - deferred
Income (loss) from continuing operations
26. Capital management
Maintenance and
Construction
Services
$
320,202
(289,837)
30,365
Wear, Fabrication &
Transportation
$
101,691
(77,802)
23,889
Corporate
$
-
-
-
Eliminations
$
(5,771)
5,210
(561)
Total
$
416,122
(362,429)
53,693
(3,949)
(185)
(4,085)
-
(461)
-
-
(1,383)
(1,755)
284
18,831
(89)
-
18,742
$
(1,131)
(349)
(3,465)
-
(434)
-
-
(220)
(300)
56
18,045
$
-
-
18,045
(17,363)
(5,117)
(1,105)
-
(24,054)
(6,379)
(7,454)
(3,971)
(39,672)
-
(105,114)
2,050
2,766
(100,298)
$
81
-
(27)
(508)
1
-
-
-
-
-
$
(1,014)
89
-
(925)
(22,362)
(5,651)
(8,681)
(508)
(24,948)
(6,379)
(7,454)
(5,574)
(41,727)
340
(69,252)
2,050
2,766
(64,436)
$
ClearStream’s capital structure is comprised of shareholders’ equity and short and long-term debt.
ClearStream’s objectives when managing capital are to support its ability to continue as a going concern in
order to provide optimal returns for shareholders. Maintaining liquidity, managing financial risks and
optimizing the cost of capital are key factors that set the framework for ClearStream capital management
strategy.
ClearStream is not subject to any externally imposed capital requirements other than standard and restrictive
financial covenants on its ABL facility, senior secured debentures, and convertible secured debentures.
27. Comparative figures
Certain expenses previously classified as selling, general and administrative have been reclassified to cost of
revenues. For the year ended December 31, 2015, $29,562 of costs previously in selling, general and
administrative expenses, were reclassified to cost of revenues. This change enhances the comparability of the
Company’s financial results with that of its competitors and more accurately reflects the function of the
relevant expenses.
ClearStream Energy Services Inc.
66
Annual Report 2016
ClearStream Energy Services Inc.
67
Annual Report 2016